CORPORATION LAW

NATIONALITY OF CORPORATIONS

GRANDFATHER RULE

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 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. “Doubt” refers to various indicia that the “beneficial ownership” and
“control” of the corporation do not in fact reside in Filipino shareholders but in foreign stakeholders.
Even if at first glance the petitioners comply with the 60-40 Filipino to foreign equity ratio, doubt
exists in the present case that gives rise to a reasonable suspicion that the Filipino shareholders do
not actually have the requisite number of control and beneficial ownership in petitioners Narra,
Tesoro, and McArthur. Hence, the Court is correct in using the Grandfather Rule in determining the
nationality of the petitioners. NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO
MINING AND DEVELOPMENT, INC., and McARTHUR MINING, INC., vs. REDMONT
CONCOLIDATED MINES CORP., G.R. No. 195580, January 28, 2015, J. Velasco, Jr.

The Grandfather Rule is a method to determine the nationality of the corporation by making
reference to the nationality of the stockholders of the investor corporation. Based on a SEC Rule and
DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule applies only when the 60-40
Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture corporation with
Filipino and foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other
joint venture corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated
differently, where the 60-40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule
will not apply. NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND
DEVELOPMENT, INC., and MCARTHUR MINING, INC. vs. REDMONT CONSOLIDATED MINES
CORP., G.R. No. 195580, April 21, 2014, J. Velasco Jr.

CORPORATE JURIDICAL PERSONALITY

DOCTRINE OF CORPORATE JURIDICAL PERSONALITY

Stockholders cannot claim ownership over corporate properties by virtue of the Minutes of a
Stockholder’s meeting which merely evidence a loan agreement between the stockholders and the
corporation. As such, there interest over the properties are merely inchoate. PHILIPPINE NATIONAL
BANK vs. MERELO B. AZNAR et al., G.R. No. 171805, May 30, 2011, J. Leonardo-De Castro

URC and Oilink had the same Board of Directors and Oilink was 100% owned by URC. The Court held
that the doctrine of piercing the corporate veil has no application here because the Commissioner of
Customs did not establish that Oilink had been set up to avoid the payment of taxes or duties, or for
purposes that would defeat public convenience, justify wrong, protect fraud, defend crime, confuse
legitimate legal or judicial issues, perpetrate deception or otherwise circumvent the law.
COMMISSIONER OF CUSTOMS vs. OILINK INTERNATIONAL CORPORATION, G.R. No. 161759,
July 2, 2014, J. Bersamin
A corporation, as a juridical entity, may act only through its directors, officers and employees.
Obligations incurred as a result of the directors’ and officers’ acts as corporate agents, are not their
personal liability but the direct responsibility of the corporation they represent. As a rule, they are
only solidarily liable with the corporation for the illegal termination of services of employees if they
acted with malice or bad faith.

To hold a director or officer personally liable for corporate obligations, two requisites must concur:
(1) it must be alleged in the complaint that the director or officer assented to patently unlawful acts
of the corporation or that the officer was guilty of gross negligence or bad faith; and (2) there must
be proof that the officer acted in bad faith. GIRLY G. ICO vs. SYSTEMS TECHNOLOGY INSTITUTE,
INC., MONICO V. JACOB and PETER K. FERNANDEZ, G.R. No. 185100, July 9, 2014, J. Del Castillo

The writ of sequestration issued against the assets of the corporation is not valid because the suit in
the civil case was against the shareholder in the corporation and is not a suit against the latter. Thus,
the failure to implead these corporations as defendants and merely annexing a list of such
corporations to the complaints is a violation of their right to due process for it would be, in effect,
disregarding their distinct and separate personality without a hearing.

Furthermore, the sequestration order issued against the corporation is deemed automatically lifted
due to the failure of the Republic to commence the proper judicial action or to implead them therein
within the period under the Constitution. PALM AVENUE HOLDING CO.,INC., and PALM AVENUE
REALTY AND DEVELOPMENT CORPORATION vs. SANDIGANBAYAN 5TH Division, REPUBLIC OF
THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT
(PCGG), G.R. No. 173082, August 6, 2014, J. Peralta

OCWD and Subic Water are two separate and different entities. Subic Water clearly demonstrated
that it was a separate corporate entity from OCWD. OCWD is just a ten percent (10%) shareholder of
Subic Water. As a mere shareholder, OCWD’s juridical personality cannot be equated nor confused
with that of Subic Water. It is basic incorporation law that a corporation is a juridical entity vested
with a legal personality separate and distinct from those acting for and in its behalf and, in general,
from the people comprising it. Under this corporate reality, Subic Water cannot be held liable for
OCWD’s corporate obligations in the same manner that OCWD cannot be held liable for the
obligations incurred by Subic Water as a separate entity. The corporate veil should not and cannot
be pierced unless it is clearly established that the separate and distinct personality of the corporation
was used to justify a wrong, protect fraud, or perpetrate a deception. OLONGAPO CITY vs. SUBIC
WATER AND SEWERAGE CO., INC., G.R. No. 171626, August 6, 2014, J. Brion

BF Corporation filed a collection complaint with the Regional Trial Court against Shangri-La and the
members of its board of directors. A corporation’s representatives are generally not bound by the
terms of the contract executed by the corporation. They are not personally liable for obligations and
liabilities incurred on or in behalf of the corporation. GERARDO LANUZA, JR. AND
ANTONIO 0. OLBES vs. BF CORPORATION, SHANGRI- LA PROPERTIES, INC., ALFREDO C. RAMOS,
RUFO B. COLAYCO, MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS, G.R. No. 174938, October
01, 2014, J. Leonen

A corporation is a juridical entity with legal personality separate and distinct from those acting for
and in its behalf and, in general, from the people comprising it. The general rule is that, obligations
incurred by the corporation, acting through its directors, officers and employees, are its sole
liabilities.
A director or officer shall only be personally liable for the obligations of the corporation, if the
following conditions concur: (1) the complainant alleged in the complaint that the director or officer
assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence
or bad faith; and (2) the complainant clearly and convincingly proved such unlawful acts, negligence
or bad faith.

In the present case, the respondents failed to show the existence of the first requisite. They did not
specifically allege in their complaint that Rana and Burgos willfully and knowingly assented to the
petitioner's patently unlawful act of forcing the respondents to sign the dubious employment
contracts in exchange for their salaries. The respondents also failed to prove that Rana and Burgos
had been guilty of gross negligence or bad faith in directing the affairs of the corporation. FVR SKILLS
AND SERVICES EXPONENTS, INC. (SKILLEX), FULGENCIO V. RANA and MONINA R. BURGOS vs.
JOVERT SEV A, JOSUEL V. V ALENCERINA, JANET ALCAZAR, ANGELITO AMPARO, BENJAMIN
ANAEN, JR., JOHN HILBERT BARBA, BONIFACIO BATANG, JR., VALERIANO BINGCO,JR., RONALD
CASTRO, MARLON CONSORTE, ROLANDO CORNELIO, EDITO CULDORA, RUEL DUNCIL, MERVIN
FLORES, LORD GALISIM, SOTERO GARCIA, JR., REY GONZALES, DANTE ISIP, RYAN ISMEN, JOEL
JUNIO, CARLITO LATOJA, ZALDY MARRA, MICHAEL PANTANO, GLENN PILOTON, NORELDO
QUIRANTE, ROEL RANCE, RENANTE ROSARIO and LEONARDA TANAEL, G.R. No. 200857,
October 22, 2014, J. Arturo D. Brion

DOCTRINE OF PIERCING THE CORPORATE VEIL

The corporate existence may be disregarded where the entity is formed or used for non-legitimate
purposes, such as to evade a just and due obligation, or to justify a wrong, to shield or perpetrate
fraud or to carry out similar or inequitable considerations, other unjustifiable aims or intentions, in
which case, the fiction will be disregarded and the individuals composing it and the two corporations
will be treated as identical. In the case at bar, when petitioner Arco Pulp and Paper’s obligation to
Lim became due and demandable, she not only issued an unfunded check but also contracted with a
third party in an effort to shift petitioner Arco Pulp and Paper’s liability. She unjustifiably refused to
honor petitioner corporation’s obligations to respondent. These acts clearly amount to bad faith. In
this instance, the corporate veil may be pierced, and petitioner Santos may be held solidarily liable
with petitioner Arco Pulp and Paper. ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS
vs. DAN T. LIM, doing business under the name and style of QUALITY PAPERS & PLASTIC
PRODUCTS ENTERPRISES, G.R. No. 206806, June 25, 2014, J. Leonen

When an officer owns almost all of the stocks of a corporation, it does not ipso facto warrant the
application of the principle of piercing the corporate veil unless it is proven that the officer has
complete dominion over the corporation. WPM INTERNATIONAL TRADING, INC. and WARLITO P.
MANLAPAZ vs. FE CORAZON LABAYEN, G.R. No. 182770, September 17, 2014, J. Brion

The Court agrees with the petitioners that there is no need to pierce the corporate veil. Respondent
failed to substantiate her claim that Mancy and Sons Enterprises, Inc. and Manuel and Jose Marie
Villanueva are one and the same. She based her claim on the SSS form wherein Manuel Villanueva
appeared as employer. However, this does not prove, in any way, that the corporation is used to
defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield
to confuse the legitimate issues, warranting that its separate and distinct personality be set aside.
HACIENDA CATAYWA/MANUEL VILLANUEVA, et al. vs. ROSARIO LOREZO, G.R. No. 179640,
March 18, 2015, J. Peralta
 INCORPORATION AND ORGANZATION

BY-LAWS

The relevant provisions of the articles of incorporation and the by-laws of Forest Hills governed the
relations of the parties as far as the issues between them were concerned. Indeed, the articles of
incorporation of Forest Hills defined its charter as a corporation and the contractual relationships
between Forest Hills and the State, between its stockholders and the State, and between Forest Hills
and its stockholder; hence, there could be no gainsaying that the contents of the articles of
incorporation were binding not only on Forest Hills but also on its shareholders. On the other hand,
the by-laws were the self-imposed rules resulting from the agreement between Forest Hills and its
members to conduct the corporate business in a particular way. In that sense, the by-laws were the
private “statutes” by which Forest Hills was regulated, and would function. The charter and the by-
laws were thus the fundamental documents governing the conduct of Forest Hills’ corporate affairs;
they established norms of procedure for exercising rights, and reflected the purposes and intentions
of the incorporators. Until repealed, the by-laws were a continuing rule for the government of Forest
Hills and its officers, the proper function being to regulate the transaction of the incidental business
of Forest Hills. The by-laws constituted a binding contract as between Forest Hills and its members,
and as between the members themselves. Every stockholder governed by the by-laws was entitled
to access them. The by-laws were self-imposed private laws binding on all members, directors and
officers of Forest Hills. The prevailing rule is that the provisions of the articles of incorporation and
the by-laws must be strictly complied with and applied to the letter. FOREST HILLS GOLF AND
COUNTRY CLUB, INC. vs. GARDPRO, INC., G.R. No. 164686, October 22, 2014, J. Bersamin

BOARD OF DIRECTORS AND TRUSTEES

MEETINGS

The petitioner assails the validity of sale of shares of stocks to the respondents claiming that there
was no compliance with the requirement of prior notice to the Board of Directors when the Board
Resolution authorizing the sale to the respondent spouses were promulgated. The Supreme Court
ruled that the general rule is that a corporation, through its board of directors, should act in the
manner and within the formalities, if any, prescribed by its charter or by the general law. However,
the actions taken in such a meeting by the directors or trustees may be ratified expressly or impliedly.
LOPEZ REALTY, INC. AND ASUNCION LOPEZ-GONZALES vs. SPOUSES REYNALDO TANJANGCO
AND MARIA LUISA ARGUELLES-TANJANGCO, G.R. No. 154291, November 12, 2014, J. Reyes
 STOCKHOLDERS AND MEMBERS

RIGHT TO INSPECT

A criminal action based on the violation of a stockholder's right to examine or inspect the corporate
records and the stock and transfer hook of a corporation under the second and fourth paragraphs of
Section 74 of the Corporation Code can only he maintained against corporate officers or any other
persons acting on behalf of such corporation. The complaint and the evidence Quiambao and
Sumbilla submitted during preliminary investigation do not establish that Quiambao and Pilapil were
acting on behalf of STRADEC. Violations of Section 74 contemplates a situation wherein a
corporation, acting thru one of its officers or agents, denies the right of any of its stockholders to
inspect the records, minutes and the stock and transfer book of such corporation. Thus, the dismissal
is valid. ADERITO Z. YUJUICO AND BONIFACIO C. SUMBILLA vs. CEZAR T. QUIAMBAO AND ERIC
C. PILAPIL, G.R. No. 180416, June 02, 2014, J. Perez

DERIVATIVE SUIT

A derivative suit cannot prosper without first complying with the legal requisites for its institution.
Thus, a complaint which contained no allegation whatsoever of any effort to avail of intra-corporate
remedies allows the court to dismiss it, even motu proprio. Indeed, even if petitioners thought it was
futile to exhaust intra-corporate remedies, they should have stated the same in the Complaint and
specified the reasons for such opinion. The requirement of this allegation in the Complaint is not a
useless formality which may be disregarded at will. NESTOR CHING and ANDREW WELLINGTON
vs. SUBIC BAY GOLF AND COUNTRY CLUB, INC., HU HO HSIU LIEN alias SUSAN HU, HU TSUNG
CHIEH alias JACK HU, HU TSUNG HUI, HU TSUNG TZU and REYNALD R. SUAREZ, G.R. No. 174353,
September 10, 2014, J. Leonardo-De Castro

Derivative Suit: The Court has recognized that a stockholder's right to institute a derivative suit is
not based on any express provision of the Corporation Code, or even the Securities Regulation Code,
but is impliedly recognized when the said laws make corporate directors or officers liable for
damages suffered by the corporation and its stockholders for violation of their fiduciary duties. In
effect, the suit is an action for specific performance of an obligation, owed by the corporation to the
stockholders, to assist its rights of action when the corporation has been put in default by the
wrongful refusal of the directors or management to adopt suitable measures for its protection.

Management committees: Management committees and receivers are appointed when the
corporation is in imminent danger of (1) dissipation, loss, wastage or destruction of assets or other
properties; and (2) paralysation of its business operations that may be prejudicial to' the interest of
the minority stockholders, parties-litigants, or the general public." Applicants for the appointment of
a receiver or management committee need to establish the confluence of these two requisites. This
is because appointed receivers and management committees will immediately take over the
management of the corporation and will have the management powers specified in law.

Jurisdiction to appoint receiver: The Court of Appeals has no power to appoint a receiver or
management committee. The Regional Trial Court has original and exclusive jurisdiction to hear and
decide intra-corporate controversies, including incidents of such controversies. These incidents
include applications for the appointment of receivers or management committees. ALFREDO L.
VILLAMOR, JR. vs. JOHN S. UMALE, IN SUBSTITUTION OF HERNANDO F. BALMORES, G.R. No.
172843, September 24, 2014, J. Leonen

INTRA-CORPORATE DISPUTE

Upon the enactment of Republic Act No. 8799, the jurisdiction of the SEC over intra-corporate
controversies and the other cases enumerated in Section 5 of P.D. No. 902-A was transferred to the
Regional Trial Court. The jurisdiction of the Sandiganbayan has been held not to extend even to a case
involving a sequestered company notwithstanding that the majority of the members of the board of
directors were PCGG nominees. ROBERTO L. ABAD, MANUEL D. ANDAL, BENITO V. ARANETA,
PHILIP G. BRODETT, ENRIQUE L. LOCSIN and ROBERTO V. SAN JOSE vs. PHILIPPINE
COMMUNICATIONS SATELLITE CORPORATION, G.R. No. 200620, March 18, 2015, J. Villarama,
Jr.

DISSOLUTION AND LIQUIDATION

ADC filed its complaint not only after its corporate existence was terminated but also beyond the
three-year period allowed by Section 122 of the Corporation Code. To allow ADC to initiate the
subject complaint and pursue it until final judgment, on the ground that such complaint was filed for
the sole purpose of liquidating its assets, would be to circumvent the provisions of Section 122 of the
Corporation Code. Thus, it is clear that at the time of the filing of the subject complaint petitioner
lacks the capacity to sue as a corporation. ALABANG DEVELOPMENT CORPORATION vs. ALABANG
HILLS VILLAGE ASSOCIATION AND RAFAEL TINIO, G.R. No. 187456, June 02, 2014, J. Peralta

CORPORATE REHABILITATION

PALI filed petition for rehabilitation due to impossibility of meeting its debts and obligations. The
issue is whether or not such dismissal of petition by the CA is valid. The court ruled that The validity
of PALI’s rehabilitation was already raised as an issue by PWRDC and resolved with finality by the
Court in its November 25, 2009 Decision in G.R. No. 180893 (consolidated with G.R. No. 178768). The
Court sustained therein the CA’s affirmation of PALI’s Revised Rehabilitation Plan, including those
terms which its creditors had found objectionable, namely, the 50% "haircut" reduction of the
principal obligations and the condonation of accrued interests and penalty charges. PUERTO AZUL
LAND, INC. vs. PACIFIC WIDE REALTY DEVELOPMENT CORPORATION, G.R. No. 184000,
September 17, 2014, J. Perlas- Bernabe

Under Rule 3, Section 5 of the Rules of Procedure on Corporate Rehabilitation, the review of any order
or decision of the rehabilitation court or on appeal therefrom shall be in accordance with the Rules
of Court, unless otherwise provided. In the case at bar, TIDCORP’s Petition for Review sought to
nullify the pari passu sharing scheme directed by the trial court and to grant preferential and special
treatment to TIDCORP over other WGC creditors, such as RBC. This being the case, there is no visible
objection to RBC’s participation in said case, as it stands to be injured or benefited by the outcome of
TIDCORP’s Petition for Review – being both a secured and unsecured creditor of WGC. ROBINSON'S
BANK CORPORATION vs. HON. SAMUEL H. GAERLAN, et al., G.R. No. 195289, September 24,
2014, J. Del Castillo

A material financial commitment becomes significant in gauging the resolve, determination,

earnestness and good faith of the distressed corporation in financing the proposed rehabilitation
plan. This commitment may include the voluntary undertakings of the stockholders or the would-be
investors of the debtor-corporation indicating their readiness, willingness and ability to contribute
funds or property to guarantee the continued successful operation of the debtor corporation during
the period of rehabilitation. In this case, the financial commitments presented by Basic Polyprinters
were insufficient for the purpose of rehabilitation. Thus, its petition for corporate rehabilitation must
necessarily fail. PHILIPPINE BANK OF COMMUNICATIONS vs. BASIC POLYPRINTERS AND
PACKAGING CORPORATION, G.R. No. 187581, October 20, 2014, J. Bersamin

While the voice and participation of the creditors is crucial in the determination of the viability of the
rehabilitation plan, as they stand to benefit or suffer in the implementation thereof, the interests of
all stakeholders is the ultimate and prime consideration. MARILYN VICTORIO-AQUINO vs. PACIFIC
PLANS INC. and MAMARETO A. MARCELO, JR., G.R. No. 193108, December 10, 2014, J. Peralta

It is well to emphasize that the remedy of rehabilitation should be denied to corporations that do not
qualify under the Rules. Neither should it be allowed to corporations whose sole purpose is to delay
the enforcement of any of the rights of the creditors, which is rendered obvious by: (a) the absence
of a sound and workable business plan; (b) baseless and unexplained assumptions, targets, and goals;
and (c) speculative capital infusion or complete lack thereof for the execution of the business plan.
In this case, not only has the petitioning debtor failed to show that it has formally began its operations
which would warrant restoration, but also it has failed to show compliance with the key
requirements under the Rules, the purpose of which are vital in determining the propriety of
rehabilitation. Thus, for all the reasons hereinabove explained, the Court is constrained to rule in
favor of BPI Family and hereby dismiss SMMCI’s Rehabilitation Petition. BPI FAMILY SAVINGS
BANKC, INC. vs. ST. MICHAEL MEDICAL CENTER, INC., G.R. No. 205469, March 25, 2015, J.
Perlas-Bernabe

MERGER AND CONSOLIDATION

Indubitably, it is clear that no merger took place between Bancommerce and TRB as the requirements
and procedures for a merger were absent. A merger does not become effective upon the mere
agreement of the constituent corporations. All the requirements specified in the law must be
complied with in order for merger to take effect. Here, Bancommerce and TRB remained separate
corporations with distinct corporate personalities. What happened is that TRB sold and
Bancommerce purchased identified recorded assets of TRB in consideration of Bancommerce’s
assumption of identified recorded liabilities of TRB including booked contingent accounts. There is
no law that prohibits this kind of transaction especially when it is done openly and with appropriate
government approval. BANK OF COMMERCE vs. RADIO PHILIPPINES NETWORK, INC., ET. AL.,
G.R. No. 195615, April 21, 2014, J. Abad

SECURITIES REGULATION CODE

PROXY SOLICITATION

The power of the SEC to investigate violations of its rules on proxy solicitation is unquestioned when
proxies are obtained to vote on matters unrelated to the cases enumerated under Section 5 of
Presidential Decree No. 902-A. However, when proxies are solicited in relation to the election of
corporate directors, the resulting controversy, even if it ostensibly raised the violation of the SEC
rules on proxy solicitation, should be properly seen as an election controversy within the original
and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in relation to Section
5 (c) of Presidential Decree No. 902-A

Indeed, the validation of proxies in this case relates to the determination of the existence of a quorum.
Nonetheless, it is a quorum for the election of the directors, and, as such, which requires the presence
– in person or by proxy – of the owners of the majority of the outstanding capital stock of Omico. Also,
the fact that there was no actual voting did not make the election any less so, especially since Astra
had never denied that an election of directors took place. SECURITIES AND EXCHANGE
COMMISSION vs. THE HONORABLE COURT OF APPEALS, OMICO CORPORATION, EMILIO S.
TENG AND TOMMY KIN HING TIA / ASTRA SECURITIES CORPORATION, vs.
OMICO CORPORATION, EMILIO S. TENG AND TOMMY KIN HING TIA, G.R. No. 187702, October
22, 2014, CJ. Sereno

SECURITIES AND EXCHANGE COMMISSION

The authority of the SEC and the manner by which it can issue cease and desist orders are provided
in Section 64 of the SRC. The law is clear on the point that a cease and desist order may be issued by
the SEC motu proprio, it being unnecessary that it results from a verified complaint from an aggrieved
party. A prior hearing is also not required whenever the Commission finds it appropriate to issue a
cease and desist order that aims to curtail fraud or grave or irreparable injury to investors. It is
beyond dispute that Primasa plans were not registered with the SEC. Primanila was then barred from
selling and offering for sale the said plan product. A continued sale by the company would operate as
fraud to its investors, and would cause grave or irreparable injury or prejudice to the investing public,
grounds which could justify the issuance of a cease and desist order under Section 64 of the SRC.
PRIMANILA PLANS, INC., HEREIN REPRESENTED BY EDUARDO S. MADRID vs. SECURITIES AND
EXCHANGE COMMISSION, G.R. No. 193791, August 6, 2014, J. Reyes

As an administrative agency with both regulatory and adjudicatory functions, the SEC was given the
authority to delegate some of its functions to, inter alia, its various operating departments, such as
the SECCFD, the Enforcement and Investor Protection Department, and the Company Registration
and Monitoring Department. In this case, the Court disagrees with the findings of both the SEC En
Banc and the CA that the Revocation Order emanated from the SEC En Banc. Rather, such Order was
merely issued by the SEC-CFD as one of the SEC’s operating departments. In other words, the
Revocation Order is properly deemed as a decision issued by the SEC-CFD as one of the Operating
Departments of the SEC, and accordingly, may be appealed to the SEC En Banc, as what Cosmos
properly did in this case. Perforce, the SEC En Banc and the CA erred in deeming Cosmos’s appeal as
a motion for reconsideration and ordering its dismissal on such ground. COSMOS BOTTLING
CORPORATION vs. COMMISSION EN BANC of the SECURITIES AND EXCHANGE COMMISSION
(SEC) and JUSTINA F. CALLANGAN, in her capacity as Director of the Corporation Finance
Department of the SEC, G.R. No. 199028, November 12, 2014, J. Perlas- Bernabe
CORPORATION LAW

Doctrine of separate legal entity

In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable,
such corporate officer cannot be made personally liable for corporate liabilities. Furthermore, Article
212(e) of the Labor Code, by itself, does not make a corporate officer personally liable for the debts
of the corporation. The governing law on personal liability of directors for debts of the corporation
is still Section 31 of the Corporation Code. - Alert Security and Investigation Agency, Inc. vs.
Balmaceda , G .R. No. 182397 September 14, 2011

Solidary liability will attach to the directors, officers or employees of the corporation in certain
circumstances, such as:

1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote
for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross
negligence in directing the corporate affairs; and (c) are guilty of conflict of interest to the
prejudice of the corporation, its stockholders or members, and other persons;
2. When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection
3. When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation; or
4. When a director, trustee or officer is made, by specific provision of law, personally liable for
his corporate action.

Before a director or officer of a corporation can be held personally liable for corporate obligations,
however, the following requisites must concur:

(1) the complainant must allege in the complaint that the director or officer assented to patently
unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith;
and
(2) (2) the complainant must clearly and convincingly prove such unlawful acts, negligence or bad
faith.

Thus, the President of the corporation can not be held personally liable if the complaint merely
averred that he signed as a surety to secure the obligation of the corporation but which surety turned
out to be spurious. Heirs of Fe Tan Uy vs. International Exchange Bank, Feb 13, 2013

The personality of a corporation is distinct and separate from the personalities of its stockholders.
Hence, its stockholders are not themselves the real parties in interest to claim and recover
compensation for the damages arising from the wrongful attachment of corporate assets. Only the
corporation is the real party in interest for that purpose. Stronghold Insurance Company, Inc. v.
Cuenca,G.R. No. 173297, March 6, 2013
In order for the Court to hold the officer of the corporation personally liable alone for the debts of
the corporation and thus pierce the veil of corporate fiction, the Court has required that the bad faith
of the officer must first be established clearly and convincingly. Petitioner, however, has failed to
include any submission pertaining to any wrongdoing of the general manager. Necessarily, it would
be unjust to hold the latter personally liable. Moreso, if the general manager was never impleaded as
a party to the case. Mercy Vda. de Roxas, represented by Arlene C. Roxas-Cruz, in her capacity as
substitute appellant-petitioner v. Our Lady's Foundation, Inc. G.R. No. 182378, March 6, 2013.

Where two banks foreclosed mortgages on certain properties of a mining company and resumed
business operations thereof by organizing a different company to which the banks transferred the
foreclosed assets, the banks are not liable to a contractor which was engaged by the re-organized
mining company even though the latter is wholly-owned by the two banks and they have interlocking
directors, officers and stockholders. While ownership by one corporation of all or a great majority of
stocks of another corporation and their interlocking directorates may serve as indicia of control, by
themselves and without more, however, these circumstances are insufficient to establish an alter ego
relationship or connection between the two banks and the new mining company on the other hand,
that will justify the puncturing of the latter’s corporate cover. Mere ownership by a single stockholder
or by another corporation of all or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personality. Likewise, the existence of
interlocking directors, corporate officers and shareholders is not enough justification to pierce the
veil of corporate fiction in the absence of fraud or other public policy considerations. Development
Bank of the Philippines vs. Hydro Resources Contractors Corporation, GR. No. 167603, March 13,
2013

The fact that an employee of the corporation was made to resign and not allowed to enter the
workplace does not necessarily indicate bad faith on the part of the employer corporation if a
sufficient ground existed for the latter to actually proceed with the termination. ABBOT
LABORATORIES VS. ALCARAZ, G.R. No. 192571, July 23, 2013

Other than mere ownership of capital stock, circumstances showing that the corporation is being
used to commit fraud or proof of existence of absolute control over the corporation has to be proven.
In short, before the corporate fiction can be disregarded, alter-ego elements must first be sufficiently
established. The mere fact that the same controlling stockholder/officer signed the loan document
on behalf of the corporation does not prove that he exercised control over the finances of the
corporation. Neither is the absence of a board resolution authorizing him to contract the loan nor the
Corporation’s failure to object thereto support this conclusion. While he is the signatory of the loan
and the money was delivered to him, the proceeds of the loan were intended for the business plan of
the corporation. That the business plan did not materialize is also not a sufficient proof to justify a
piercing, in the absence of proof that the business plan was a fraudulent scheme geared to secure
funds from the lender. NUCCIO SAVERIOS VS. PUYAT, G.R. No. 186433, November 27, 2013

Doctrine of Piercing the veil of corporate fiction

When the corporation ( BB Sportswear, Inc. ) which the plaintiff erroneously impleaded in a
collection case was not the party to the actionable agreement and turned out to be not registered
with the Securities and Exchange Commission, the judgment may still be enforced against the
corporation ( BB Footwear, Inc. ) which filed the answer and participated in the proceedings, as well
as its controlling shareholder who signed the actionable agreement in his personal capacity and as a
single proprietorship doing business under the trade name and style of BB Sportswear Enterprises.
Benny Hung vs BPI Finance Corporation . G.R. No. 182398, 20 July 2010

The court must first acquire jurisdiction over the corporation or corporations involved before its or
their separate personalities are disregarded; and the doctrine of piercing the veil of corporate entity
can only be raised during a full-blown trial over a cause of action duly commenced involving parties
duly brought under the authority of the court by way of service of summons or what passes as such
service. Kukan International Corporation vs. Hon. Judge Amor Reyes, G.R. No. 182729, 29 September
2010

However, in another case involving an action for breach of contract of carriage resulting to the death
of one of the passengers , Supreme Court ruled that if the RTC had sufficient factual basis to conclude
that the two corporations are one and the same entity as when they have the same President and
controlling shareholder and it is generally known in the place where they do business that both
transportation companies are one, the third party claim filed by the other corporation was set aside
and the levy on its property held valid even though the latter was not made a party to the case . The
judgment may be enforced against the other corporation to prevent multiplicity of suits and save
the parties unnecessary expenses and delay. Gold Line Tours vs. Heirs of Maria Concepcion Lacsa, GR
No. 159108, 18 June 2012

The doctrine of piercing the veil of corporate fiction is applicable not only to corporations but also to
a single proprietorship as when the corporation transferred its employees to the company owned by
the controlling stockholder of the corporation and yet despite the transfer, the employees’ daily time
records, reports, daily income remittances and schedule of work were all made, performed, filed and
kept in the corporation. The corporation is clearly hiding behind the supposed separate and distinct
personality of the company. As such, the corporation and the company should be solidarily liable for
the claims of the illegally dismissed employees. Prince Transport, Inc. vs. Garcia, GR No. 167291,
January 12, 2011

Although the corporate veil between two corporations can not be pierced for lack of legal basis, it
does not necessarily mean that the corporate officers of such corporations are exempt from liability.
Section 31 of the Corporation Code makes a director or officer personally liable if he is guilty of bad
faith or gross negligence in directing the affairs of the corporation. In this case, the officers of the
corporation who maliciously terminated the employment of certain employees without any valid
ground and in order to suppress their right to self-organization, having acted in bad faith in directing
the affairs of the corporation, are solidarily liable with the corporation for the unlawful dismissal.
Park Hotel vs. Soriano, GR No. 171118, September 10, 2012

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.

In this connection, case law lays down a three-pronged test to determine the application of the alter
ego theory, which is also known as the instrumentality theory, namely:

1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of
its own
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiff’s legal right; and
3. The aforesaid control and breach of duty must have proximately caused the injury or unjust
loss complained of.

The first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be
completely under the control and domination of the parent. It inquires whether a subsidiary
corporation is so organized and controlled and its affairs are so conducted as to make it a mere
instrumentality or agent of the parent corporation such that its separate existence as a distinct
corporate entity will be ignored. In addition, the control must be shown to have been exercised at the
time the acts complained of took place.

The second prong is the "fraud" test. This test requires that the parent corporation’s conduct in using
the subsidiary corporation be unjust, fraudulent or wrongful. It examines the relationship of the
plaintiff to the corporation. It recognizes that piercing is appropriate only if the parent corporation
uses the subsidiary in a way that harms the plaintiff creditor. As such, it requires a showing of "an
element of injustice or fundamental unfairness."

The third prong is the "harm" test. This test requires the plaintiff to show that the defendant’s control,
exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered. A
causal connection between the fraudulent conduct committed through the instrumentality of the
subsidiary and the injury suffered or the damage incurred by the plaintiff should be established. The
plaintiff must prove that, unless the corporate veil is pierced, it will have been treated unjustly by the
defendant’s exercise of control and improper use of the corporate form and, thereby, suffer damages.
Development Bank of the Philippines vs. Hydro Resources Contractors Corporation, GR. No. 167603,
March 13, 2013

Piercing the veil of corporate fiction is warranted when a corporation ceased to exist only in name as
it re-emerged in the person of another corporation, for the purpose of evading its unfulfilled financial
obligation under a compromise agreement. Thus, if the judgment for money claim could not be
enforced against the employer corporation, an alias writ may be obtained against the other
corporation considering the indubitable link between the closure of the first corporation and
incorporation of the other. Livesey vs. Binswanger Philippines, GR No. 177493, March 19, 2014

Where the court rendered judgment against a stock brokerage firm directing the latter to return
shares of stock which it sold without authority, but the writ of execution was returned unsatisfied,
an alias writ of execution could not be enforced against its parent company because the court has
not acquired jurisdiction over the latter and while the parent company owns and controls the
brokerage firm, there is no showing that the control was used to violate the rights of the plaintiff.
Pacific Rehouse Corporation vs. Court of Appeals, GR. No. 199687, March 24, 2014

NB. There appears to be a lack of conclusive yardstick as to when the court may pierce the veil of
corporate fiction of a corporation which has not been brought to its jurisdiction by summons,
voluntary appearance or other recognized modes of acquiring jurisdiction. To be safe, any bar
question should be answered based on similarity with the facts of each case.

Government Corporation

Although the Philippine National Red Cross was created by a special charter, it can not be considered
a government-owned and controlled corporation in the absence of the essential elements of
ownership and control by the government. It does not have government assets and does not receive
any appropriation from the Philippine Congress. It is a non-profit, donor-funded, voluntary
organization, whose mission is to bring timely, effective and compassionate humanitarian assistance
for the most vulnerable without consideration of nationality, race, religion, gender, social status or
political affiliation. This does not mean however that the charter of PNRC is unconstitutional. PNRC
has a sui generis status. Although it is neither a subdivision, agency, or instrumentality of the
government, nor a government-owned or -controlled corporation or a subsidiary thereof, so much
so that Gordon was correctly allowed to hold his position as Chairman thereof concurrently while he
served as a Senator, such a conclusion does not ipso facto imply that the PNRC is a “private
corporation” within the contemplation of the provision of the Constitution, that must be organized
under the Corporation Code. The PNRC enjoys a special status as an important ally and auxiliary of
the government in the humanitarian field in accordance with its commitments under international
law. This Court cannot all of a sudden refuse to recognize its existence, especially since the issue of
the constitutionality of the PNRC Charter was never raised by the parties. Liban vs. Gordon, GR No.
175352, January 10, 2011

A government–owned or controlled corporation refers to any agency organized as a stock or

nonstock corporation vested with functions relating to public needs whether governmental or
proprietary in nature and owned by the government through its instrumentalities either wholly or
where applicable as in the case of stock corporation to the extent of at least 51% of its capital stock.
When a stockholder ceded to the government shares representing 72.4 % of the voting stock of the
corporation but subsequently clarified that it should be reduced to 32.4%, the corporation shall not
be considered government-owned and controlled until the quantification of shares is resolved with
finality. Carandang vs. Desierto, GR No. 148076, January 12, 2011
GOCCs are “ stock or non-stock corporations “ vested with functions relating to public needs that are
owned by the government directly or through its instrumentalities. By definition, three attributes
thus make an entity a GOCC: first, its organization as stock or non-stock corporation; second, the
public character of its function; and third, government ownership over the same. Possession of all
three attributes is necessary to deem an entity a GOCC. The Manila Economic Council and Cultural
Office ( MECO ) is not a GOCC because it is not owned by the government. It was organized as a
nonstock non profit corporation. However, despite its non-governmental character, it handles
government funds in the form of verification fees it collects on behalf of DOLE and the consular fees
it collects. Hence, these accounts of MECO should be audited by COA. Dennis A.B vs Manila Economic
and Cultural Office, GR. No. 193462, February 4, 2014

Capital

Considering that common shares have voting rights which translate to control, as opposed to
preferred shares which usually have no voting rights, the term "capital" in Section 11, Article XII of
the Constitution refers only to common shares. However, if the preferred shares also have the right
to vote in the election of directors, then the term "capital" shall include such preferred shares because
the right to participate in the control or management of the corporation is exercised through the right
to vote in the election of directors. In short, the term "capital" in Section 11, Article XII of the
Constitution refers only to shares of stock that can vote in the election of directors. To construe
broadly the term “capital” as the total outstanding capital stock, including both common and
nonvoting preferred shares, grossly contravenes the intent and letter of the Constitution that the
“State shall develop a self-reliant and independent national economy effectively controlled by
Filipinos.” A broad definition unjustifiably disregards who owns the all-important voting stock, which
necessarily equates to control of the public utility. Gamboa v. Teves, et al.,G.R. No. 176579, June 28,
2011.

If a corporation is engaged in a partially nationalized industry, issues a mixture of common and

preferred non-voting shares, at least 60 percent of the common shares and at least 60 percent of the
preferred non-voting shares must be owned by Filipinos. Of course, if a corporation issues only a
single class of shares, at least 60 percent of such shares must necessarily be owned by Filipinos. In
short, the 60-40 ownership requirement in favor of Filipino citizens must apply separately to each
class of shares, whether common, preferred non-voting, preferred voting or any other class of shares.
Heirs of Wilson P. Gamboa vs. Teves, 682 SCRA 397(2012)

Corporation by estoppel

Corporation by estoppel results when a corporation represented itself to the public as such despite
its not being incorporated. A corporation by estoppel may be impleaded as a party defendant
considering that it possesses attributes of a juridical person, otherwise, it can not be held liable for
damages and injuries it may inflict to other persons. Macasaet vs. Francisco, GR No. 156759, June 5,
2013 NB This case involves the legality of a court order denying a motion to dismiss to drop as a party
defendant Abantetonight for not being a corporation registered with the SEC. There is no ruling yet
on the liability of such corporation. It will be interesting to see how the SC will eventually rule on how
to enforce a judgment against a corporation by estoppel ( independently of those who represented
themselves as a corporation who, under the law, are liable as general partners ).
Corporate name

The mere change in the corporate name is not considered under the law as the creation of a new
corporation; hence, the renamed corporation remains liable for the illegal dismissal of its employee
separated under that guise. Verily, the amendments of the articles of incorporation for change of
corporate name did not produce the dissolution of the corporation. For sure, the Corporation Code
defined and delineated the different modes of dissolving a corporation and amendment of the articles
of incorporation was not one of such modes. Zuellig Freight and Cargo Systems vs. NLRC, GR No.
157900, July 22, 2013

Board of Directors/Corporate Officers

The lawyer who signed the pleading, verification and certification against non-forum shopping must
be specifically authorized by the Board of Directors of the Corporation to make his actions binding
on his principal. Maranaw Hotels and Resort Corporation v. Court of Appeals, 576 SCRA 463 (2009)

If the real party in interest is a corporate body, an officer of the corporation can sign the certification
against forum shopping so long as he has been duly authorized by a resolution of its board of
directors. The court did not commit grave abuse of discretion in dismissing the petition for lack of
authority of authority of the officer who signed the certification of non-forum shopping in
representation of petitioner corporation. San Miguel Bukid Homeowners Association, Inc. vs City of
Mandaluyong, et al, GR no.153653, October 2, 2009; Republic of the Philippines vs. Coalbrine
International Philippines, et al GR No. 161838, April 7, 2010

The following officers may sign the verification and certification against non-forum shopping on
behalf of the corporation even in the absence of board resolution,

a)Chairperson of the Board of Directors;

b)President,

c)General Manager,

d) Personnel Officer,
e) Employment Specialist in labor case.

These officers are in the position to verify the truthfulness and correctness of the allegations in the
petition. Mid Pasig Land and Development Corporation v. Tablante, G.R. No. 162924, February 4,
2010; PNCC Skyway Traffic Management and Security Division Workers Organization vs PNCC
Skyway Corporation, GR No. 171231, February 17, 2010

The Board of Directors of a corporation can not validly delegate the power to create a corporate office
to the President, in the light of Section 25 of the Corporation Code requiring the Board of Directors
itself to elect the corporate officers. Verily, the power to elect the corporate officers is a discretionary
power that the law exclusively vested in the Board of Directors, and can not be delegated to
subordinate officers or agents. The office of Vice President for Finance and Administration created
by the President of the Corporation pursuant to the pertinent provision in the by-laws of the
corporation was an ordinary, not a corporate, office. In case of dismissal or removal from office, the
labor arbiter, not the RTC special commercial court, that has jurisdiction. Matling Industrial and
Commercial Corporation vs. Coros , G.R. No. 157802, 13 October 2010

The conditions for the application of Section 31 of the Corporation Code ( that a director or trustee
willfully and knowingly voted or assented to a patently unlawful acts of the corporation, among
others ) require factual foundations to be laid out in appropriate judicial proceedings. Concluding
that an officer and a member of the Board of Directors breached fiduciary duties without competent
evidence thereon would be unwarranted and unreasonable. Republic vs Sandiganbayan, GR No.
166859, April 12, 2011

The execution of a document by a bank manager called “ pagares “ which guaranteed purchases on
credit by a client is contrary to the General Banking law which prohibits bank officers from
guaranteeing loans of bank clients. United Coconut Planters Bank vs. Planters Products Inc. GR No.
179015, 13 June 2012.

Absent any evidence that they have exceeded their authority, corporate officers are not personally
liable for their official acts. The lack of valid cause of the dismissal of an employee does not ipso facto
mean that the corporate officers acted with malice or bad faith. Torres vs. Rural Bank of San Juan G.R.
No. 184520, March 13, 2013

The general rule is that a corporation can only exercise its powers and transact its business through
its board of directors and through its officers and agents when authorized by a board resolution or
its bylaws. The power of a corporation to sue and be sued is exercised by the board of directors. The
physical acts of the corporation, like the signing of documents, can be performed only by natural
persons duly authorized for the purpose by corporate bylaws or by a specific act of the board. Absent
the said board resolution, a petition may not be given due course. Esguerra vs. Holcim Philippines
G.R. No. 182571, September 2, 2013

In a complaint for nullification of mortgage and foreclosure with damages against the
mortgageebank, the plaintiff can not compel the officers of the bank to appear and testify as plaintiff’s
initial witnesses unless written interrogatories are first served upon the bank officers. This is in line
with the Rules of Court provision that calling the adverse party to the witness stand is not allowed
unless written interrogatories are first served upon the latter. This is because the officers of a
corporation are considered adverse parties as well in a case against the corporation itself based on
the principle that corporations act only through their officers and duly authorized agents. Spouses
Afulugencia vs. Metropolitan Bank and Trust Co. G.R. No. 185145, February 05, 2014

Obligations incurred as a result of the directors’ and officers’ acts as corporate agents, are not their
personal liability but the direct responsibility of the corporation they represent. As a rule, they are
only solidarily liable with the corporation for the illegal termination of services of employees if they
acted with malice or bad faith.

To hold a director or officer personally liable for corporate obligations, two requisites must concur:
(1) it must be alleged in the complaint that the director or officer assented to patently unlawful acts
of the corporation or that the officer was guilty of gross negligence or bad faith; and (2) there must
be proof that the officer acted in bad faith. The fact that the corporation ceased its operations the day
after the promulgation of the SC resolution finding the corporation liable does not prove bad faith on
the part of the incorporator of the corporation. Polymer Rubber Corporation vs. Ang, G.R. No. 185160.
July 24, 2013

Doctrine of Apparent Authority

Although a branch manager, within his field and as to third persons, is the general agent and is in
general charge of the corporation, with apparent authority commensurate with the ordinary business
entrusted him and the usual course and conduct thereof, yet the power to modify or nullify corporate
contracts remains generally in the board of directors. Being a mere branch manager alone is
insufficient to support the conclusion that he has been clothed with “apparent authority” to verbally
alter terms of written contracts, especially when viewed against the telling circumstances of this case:
the unequivocal provision in the mortgage contract; the corporation’s vigorous denial that any
agreement to release the mortgage was ever entered into by it; and, the fact that the purported
agreement was not even reduced into writing considering its legal effects on the parties’ interests.
Banate vs. Philippine Countryside Rural Bank (Liloan, Cebu), Inc., G.R. No. 163825, July 13, 2010

A corporation can not deny the authority of lawyer when they clothed him with apparent authority
to act in their behalf such as when he entered his appearance accompanied by the corporation’s
general manager and the corporation never questioned his acts and even took time and effort to
forward all the court documents to him. The lawyer may not have been armed with a board resolution
but the doctrine of apparent authority imposes liability not as a result of contractual relationship but
rather because of the actions of the principal or an employer in somehow misleading the public that
the relationship or the authority exists. Megan Sugar Corporation vs. RTC of Ilo-ilo Br. 68, GR no.
170352, June 1, 2011

The doctrine of apparent authority provides that a corporation will be estopped from denying the
agent’s authority if it knowingly permits one of its officers or any other agent to act within the scope
of an apparent authority, and it holds him out to the public as possessing the power to do those acts.

Apparent authority is derived not merely from practice. Its existence may be ascertained through (1)
the general manner in which the corporation holds out an officer or agent as having the power to act
or, in other words the apparent authority to act in general, with which it clothes him; or (2) the
acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within
or beyond the scope of his ordinary powers. It is not the quantity of similar acts which establishes
apparent authority, but the vesting of a corporate officer with the power to bind the corporation.
When the sole management of the corporation was entrusted to two of its officers/incorporators
with the other officers never had dealings with the corporation for 14 years and that the board and
the stockholders never had its meeting, the corporation is now estopped from denying the officers’
authority to obtain loan from the lender on behalf of the corporation under the doctrine of apparent
authority. Advance Paper Corporation vs Arma Traders Corporation , G.R. No 176897, December 11,
2013.

Vacancy in the Board of Directors

The stockholders, and not the directors, shall elect those who will fill in the vacancy created by the
resignation of the hold-over board members. This is because in this case the ground for the vacancy
is expiration of term of the hold-over directors and not resignation. Valle Verde Country Club v.
Africa, September 4, 2009

Derivative suit

The stockholder filing a derivative suit should have exerted all reasonable efforts to exhaust all
remedies available under the articles of incorporation, by-laws, laws or rules governing the
corporation to obtain the relief he desires and to allege such fact with particularity in the complaint.
The allegation that the suing stockholder talked to the other stockholder regarding the dispute hardly
constitutes “ all reasonable efforts to exhaust all remedies available “. The complaint should also
allege the fact that there was no appraisal right available under for the acts complained of and that
the suit was not a nuisance or harassment suit. The fact that the corporation involved is a family
corporation should not in any way exempt the suing stockholder from the requirements and
formalities for filing a derivative suit. Yu vs. Yukayguan, 588 SCRA 589 ( 2009 )

Petitioners seek the nullification of the election of the Board of Directors composed of herein
respondents, who pushed through with the election even if petitioners had adjourned the meeting
allegedly due to lack of quorum. Petitioners are the injured party, whose rights to vote and to be
voted upon were directly affected by the election of the new set of board of directors. The party-
ininterest are the petitioners as stockholders, who wield such right to vote. The cause of action
devolves on petitioners, not the condominium corporation, which did not have the right to vote.
Hence, the complaint for nullification of the election is a direct action by petitioners, who were the
members of the Board of Directors of the corporation before the election, against respondents, who
are the newly-elected Board of Directors. Under the circumstances, the derivative suit filed by
petitioners in behalf of the condominium corporation is improper. Legaspi Towers 300, Inc., vs. Muer
G.R. No. 170783, June 18, 2012.

A derivative suit is an action brought by a stockholder on behalf of the corporation to enforce

corporate rights against the corporation’s directors, officers or other insiders. Under Sections 23 and
36 of the Corporation Code, the directors or officers, as provided under the by-laws, have the right to
decide whether or not a corporation should sue. Since these directors or officers will never be willing
to sue themselves or impugn their wrongful and fraudulent decisions, stockholders are permitted by
law to bring an action in the name of the corporation to hold these directors and officers accountable.
In derivative suits, the real party in interest is the corporation while the stockholder is only a nominal
party.
Section 1, Rule 8 of the Interim Rules imposes the following requirements for derivative suits:

(1) The person filing the suit must be a stockholder or member at the time the acts or
transactions subject of the action occurred and the time the action was filed;
(2) He must have exerted all reasonable efforts, and alleges the same with particularity
in the complaint, to exhaust all remedies available under the articles of incorporation, by-
laws, laws or rules governing the corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.

The complaint filed by a stockholder to compel another stockholder to settle his share of the loan
because this will affect the financial viability of the corporation can not be considered as a derivative
suit because the loan was not a corporate obligation but a personal debt of the stockholders. The fact
that the stockholders attempted to constitute a mortgage over “ their “ share in a corporate asset can
not affect the corporation where the wordings of the mortgage agreement reveal that it was signed
by the stockholders in their personal capacity as the owners of the pro-indiviso share in the corporate
property and not on behalf of the corporation. ANG, FOR AND IN BEHALF OF SUNRISE MARKETING
(BACOLOD), INC. V. SPS. ANG.G.R. No. 201675, June 19, 2013

Trust fund doctrine

The creditor is allowed to maintain an action upon any unpaid subscriptions ( in the same collection
suit against the corporation ) and thereby steps into the shoes of the corporation for the satisfaction
of the debt. To make out a prima facie case in a suit against stockholders of an insolvent corporation
to compel them to contribute to the payment of its debts by making good the balances upon their
subscriptions, it is only necessary to establish that the stockholders have not in good faith paid the
par value of the stocks of the corporation. Subscriptions to the capital stock of a corporation
constitute a fund to which creditors have the right to look for satisfaction of their claims. The scope
of the doctrine when the corporation is insolvent encompasses not only the capital stock, but also
other property and assets generally regarded in equity as a trust fund for the payment of corporate
debts. Halley vs. Printwell, Inc., GR No. 157549, May 30, 2011

Shares

Upon the death of the stockholder, his heirs do not automatically become the stockholders of the
corporation. The heirs acquire standing in the corporation only upon registration of the transfer of
the ownership of the shares in the books of the corporation. Puno v. Puno Enterprises, September
11, 2009

The arrangement provided for in the by-laws of the Corporation whereby a lien is constituted on the
membership share to answer for dues, assessments and subsequent obligations to the corporation
cannot be upheld unless coupled by a corresponding pledge or chattel mortgage agreement . Valley
Golf and Country Club, Inc. v. Vda. De Caram, 585 SCRA 218 (2009)

A stock corporation is expressly granted the power to issue or sell stocks. The power to issue stocks
is lodged with the Board of Directors and no stockholders meeting is required to consider it because
additional issuances of stock ( unlike increase in capital stock ) does not need approval of the
stockholders. What is only required is the board resolution approving the additional issuance of
shares. The corporation shall also file the necessary application with the SEC to exempt these from
the registration requirements under the SRC. Majority of Stockholders of Ruby Industrial
Corporation vs Lim, GR No. 165887, June 6, 2011

Section 63 of the Corporation Code provides that shares of stock so issued are personal property and
may be transferred by delivery of the certificate or certificates indorsed by the owner or his
attorneyin-fact or other person legally authorized to make the transfer. The failure of the stockholder
to deliver the stock certificate to the buyer within a reasonable time the shares covered by the stock
certificate should have been delivered is a substantial breach that entitles the buyer to rescind the
sale under Article 1191 of the Corporation Code . It is not entirely correct to say the sale had already
been consummated as the buyer already enjoyed the rights a shareholder can exercise. The
enjoyment of these rights will not suffice where the law, by its express terms, requires a specific form
to transfer ownership. Fil-Estate Golf and Development vs. Vertex Sales and Trading Inc., G.R. No.
202079, June 10, 2013

The Corporation whose shares of stock are the subject of a transfer transaction (through sale,
assignment, donation, or any other mode of conveyance) need not be a party to the transaction, as
may be inferred from the terms of Section 63 of the Corporation Code. However, to bind the
corporation as well as third parties, it is necessary that the transfer is recorded in the books of the
corporation. In a share purchase transaction, the parties are the seller and buyer of the shares. Not
being a party to the sale, the Corporation is in no position to appeal the ruling rescinding the sale of
the shares. If the Seller of the shares filed no appeal against the court decision declaring the
rescission of the sale, then the rescission is deemed final despite any appeal by the corporation
whose shares of stock are the subject of the transfer transaction. Forest Hills Golf & Country Club
vs. Vertex Sales and Trading Inc.G.R. No. 202205, March 6, 2013.

Under the two-tiered test, the government, thru PCGG, may vote sequestered shares if there is a prima
facie evidence that the shares are ill-gotten and there is imminent danger of dissipation of assets
while the case is pending. However, the two- tiered test contemplates a situation where the
registered stockholders were in control and had been dissipating company assets and the PCGG
wanted to vote the sequestered shares to save the company. It does not apply when the PCGG had
voted the shares and is in control of the sequestered corporation . Africa vs. Hon. Sandiganbayan ,
G.R. Nos. 172222/G.R. No. 174493/ G.R. No. 184636, November 11, 2013

Since the law does not prescribe a period for registration of shares in the books of the corporation,
the action to enforce the right to have it done does not begin until a demand for it had been made and
was refused. Africa vs. Hon. Sandiganbayan, ibid.
Pre-emptive right

Even if pre-emptive right does not exist either because the issue comes within the exceptions in
Section 39 of the Corporation Code or because it is denied in the articles of incorporation, an issue of
shares may still be objectionable if the directors acted in breach of trust and their primary purpose
is to perpetuate or shift control of the corporation or to “ freeze out” the minority interest. The
issuance of unissued shares out of the original authorized capital stock pursuant to a rehabilitation
plan the propriety and validity of which was on question by the minority stockholders and
subsequently disapproved by the court amounts to unlawful dilution of the minority shareholdings.
Majority of Stockholders of Ruby Industrial Corporation vs Lim, GR No. 165887, June 6, 2011

Merger

Even if it is true that the Monetary Board of the Central Bank of the Philippines recognized the merger
of two banks, the merger is still incomplete without the certificate of merger duly issued 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. Mindanao Savings and Loan Association vs. Willkom, G.R. No. 178618, 11 October 2010

It is contrary to public policy to declare the former employees of the absorbed corporation as forming
part of its assets or liabilities that were transferred to and absorbed by the surviving corporation in
the Articles of Merger. Assets and liabilities, in this instance, should be deemed to refer only to
property rights and obligations and do not include the employment contracts of its personnel. A
corporation cannot unilaterally transfer its employees to another employer like chattel. Certainly, if
the surviving corporation as an employer had the right to choose who to retain among the employees
of the absorbed corporation, the latter employees had the concomitant right to choose not to be
absorbed by the corporation. Even though the employees of the absorbed corporation had no choice
or control over the merger of their employer, they had a choice whether or not they would allow
themselves to be absorbed by the surviving corporation. Certainly nothing prevented the employees
of the absorbed corporation from resigning or retiring and seeking employment elsewhere instead
of going along with the proposed absorption. Bank of the Philippine Islands v. BPI Employees Union
– Davao Chapter 627 SCRA 590

On motion for reconsideration, however, the Supreme Court ruled that it is more in keeping with
social justice that the employees of the absorbed corporation be considered employees of the
surviving corporation without break in the continuity of their employment even without express
stipulation in the Articles of Merger. Bank of the Philippine Islands v. BPI Employees Union – Davao
Chapter, G.R. No. 164301, October 19, 2011
Through the service of the writ of garnishment, the garnishee becomes a "virtual party" to, or a
"forced intervenor" in, the case and the trial court thereby acquires jurisdiction to bind him to
compliance with all orders and processes of the trial court with a view to the complete satisfaction
of the judgment of the court.

Citytrust, therefore, upon service of the notice of garnishment and its acknowledgment that it was in
possession of defendants' deposit accounts became a "virtual party" to or a "forced intervenor" in the
civil case. As such, it became bound by the orders and processes issued by the trial court despite not
having been properly impleaded therein. Consequently, by virtue of its merger with BPI , the latter,
as the surviving corporation, effectively became the garnishee, thus the "virtual party" to the civil
case. Bank of Philippine Islands v. Lee, G.R. No. 190144, August 1, 2012

There are two types of corporate acquisitions: asset sales and stock sales. In asset sales, the corporate
entity sells all or substantially all of its assets to another entity. In stock sales, the individual or
corporate shareholders sell a controlling block of stock to new or existing shareholders.

In asset sales, the rule is that the seller in good faith is authorized to dismiss the affected employees,
but is liable for the payment of separation pay under the law. The buyer in good faith, on the other
hand, is not obliged to absorb the employees affected by the sale, nor is it liable for the payment of
their claims. The most that it may do, for reasons of public policy and social justice, is to give
preference to the qualified separated personnel of the selling firm.

In contrast with asset sales, in which the assets of the selling corporation are transferred to another
entity, the transaction in stock sales takes place at the shareholder level. Because the corporation
possesses a personality separate and distinct from that of its shareholders, a shift in the composition
of its shareholders will not affect its existence and continuity.

Thus, notwithstanding the stock sale, the corporation continues to be the employer of its people and
continues to be liable for the payment of their just claims. Furthermore, the corporation or its new
majority shareholders are not entitled to lawfully dismiss corporate employees absent a just or
authorized cause.

The fact that there was a change in the composition of its shareholders did not affect the
employeremployee relationship between the employees and the corporation, because an equity
transfer affects neither the existence nor the liabilities of a corporation. Thus, the corporation
continued to be the employer of the corporation’s employees notwithstanding the equity change in
the corporation. This outcome is in line with the rule that a corporation has a personality separate
and distinct from that of its individual shareholders or members, such that a change in the
composition of its shareholders or members would not affect its corporate liabilities.

In this case, the corporate officers and directors who induced the employees to resign with the
assurance that they would be rehired by the new management are personally liable to the employees
who were not actually rehired. However, the officer who did not participate in the termination of
employment and persons who participated in the unlawful termination of employment but are not
directors and officers of the corporation are not personally liable. SME BANK INC, vs. GASPAR, G.R.
No. 186641, October 8, 2013

Where the purchase and sale of identified assets between two companies under a Purchase and Sale
Agreement does not constitute a merger, the seller and the purchaser are considered entities
different from one another. Thus, the purchaser company can not be held liable for the payment of
deficiency documentary stamp tax against the seller company. Commission of Internal Revenue vs,
Bank of Commerce, GR No. 180529, November 25, 2013

Appraisal Right

In order to give rise to any obligation to pay on the part of the corporation, the dissenting stockholder
should first make a valid demand that the corporation refused to pay despite having unrestricted
retained earnings. Otherwise, the corporation could not be said to be guilty of any actionable
omission that could sustain the action to collect. The collection suit filed by the dissenting stockholder
to enforce payment of the fair value of his shares is premature if at the time of demand for payment,
the corporation had no surplus profit. The fact that the Corporation subsequent to the demand for
payment and during the pendency of the collection case posted surplus profit did not cure the
prematurity of the cause of action. Turner vs. Lorenzo Shipping Corporation, G.R. No. 157479,
November 24, 2010

Dissolution

An action to correct entries in the General Information Sheet of the Corporation; to be recognized as
a stockholder and to inspect corporate documents is an intra-corporate dispute which does not
constitute a continuation of corporate business. As such, pursuant to Section 145 of the Corporation
Code, this action is not affected by the subsequent dissolution of the corporation. 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.“ Aguirre vs. FQB
+7, Inc, GR No. 170770, January 9 2013.

The executed releases, waivers and quitclaims are valid and binding upon the parties
notwithstanding the fact that these documents were signed six years after the Corporation’s
revocation of the Certificate of Incorporation. These documents are thus proof that the employees
had received their claims from their employer-corporation in whose favor the release and quitclaim
were issued. The revocation of the corporation does not mean the termination of its liabilities to these
employees. Section 122 of the Corporation Code provides for a three-year winding up period for a
corporation whose charter is annulled by forfeiture or otherwise to continue as a body corporate for
the purpose, among others, of settling and closing its affairs As such, these liabilities are obligations
of the dissolved corporation and not of the corporation who contracted the services of the dissolved
corporation. Vigilla vs. Philippine College of Criminology, GR No. 200094, June 10, 2013

Liquidation

To allow a creditor’s case to proceed independently of the liquidation case, a possibility of favorable
judgment and execution thereof against the assets of the distressed corporation would not only
prejudice the other creditors and depositors but would defeat the very purpose for which a
liquidation court was constituted as well. Barrameda v. Rural Bank of Canaman , Inc., G.R. No. 176260,
24 November 2010

Corporate Rehabilitation

The prevailing rule now categorically provides that awards for moral damages, exemplary damages,
and attorney’s fees in intra-corporate controversies are not immediately executory. Heirs of Santiago
Divinagracia vs. Ruiz, G.R. No. 172023, 7 July 2010

The suspension of claims in corporate rehabilitation does not extend to criminal actions against the
distressed corporations or its directors and officers. It would be absurd for one who has engaged in
criminal conduct to escape punishment simply because the corporation of which he is director or
officer filed a petition for rehabilitation. The prosecution of the officers of the corporation has no
bearing on the pending rehabilitation of the corporation. Panlilio vs. Regional Trial Court , Branch
51, City of Manila, GR No. 173846, February 2, 2011

The return of the car subject of the writ of replevin is correct notwithstanding the pendency of the
rehabilitation proceedings. This is the necessary consequence of the dismissal of the replevin case
for failure to prosecute without prejudice. Upon the dismissal of the replevin case, the writ of seizure,
which is merely ancillary in nature, became functus officio and should have been lifted. There was no
adjudication on the merits, which means that there was no determination of the issue who has the
better right to possess the subject car. Returning the seized vehicle is not an enforcement of a claim
against the distressed corporation which must be suspended by virtue of the stay order issued by the
rehabilitation court. The issue in a replevin case is who has a better right of possession. So long as
the respondent is not interposing a MONETARY CLAIM, respondent’s prayer for the return of the car
subject of the replevin suit is not in anyway violative of the Rules on Corporate Rehabilitation. Advent
Capital and Medical Corporation v. Young, G.R. No. 183018, August 3, 2011

The suspension of all actions and/or claims against a corporation under rehabilitation does not only
cover cases which are pending in court. The AUTOMATIC SUSPENSION of an action for claims
embraces ALL PHASES of the suit, that is, the ENTIRE PROCEEDINGS of an action or suit and not just
the payment of the claims.
The actions that were suspended cover all claims against a distressed corporation whether for
damages founded on a breach of contract of carriage, labor cases, collection suits or any other claims
of a pecuniary nature. A claim arising from illegal dismissal is a claim covered by the suspension
order issued by the SEC, as it is one for pecuniary consideration.

Furthermore, jurisprudence is settled that the suspension of proceedings referred to in the law
uniformly applies to “all actions for claims” filed against a corporation xxx under management or
receivership, without distinction, except only those expenses incurred in the ordinary course of
business. Molina v. Pacific Plans, Inc.,G.R. No. 165476, August 15, 2011

Since the foreclosure of the mortgage and the issuance of the certificate of sale in favor of the
mortgagee were done prior to the appointment of a Rehabilitation Receiver and the issuance of the
Stay Order, all the actions taken with respect to the foreclosed mortgage property which were
subsequent to the issuance of the Stay Order were not affected by the Stay Order. Thus, after the
redemption period expired without the mortgagor redeeming the foreclosed property, the
mortgagee becomes the absolute owner of the property and it was within its right to ask for the
consolidation of title and the issuance of new title in its favor. The writ of possession procured by
the mortgagee despite the subsequent issuance of a stay order in the rehabilitation proceedings
instituted is also valid. Equitable PCI Bank, Inc. vs. DNG Realty and Development Corporation, 627
SCRA 125(2010)] reiterated in Town and Country Enterprises Inc v. Honorable Quisumbing, G.R. No.
173610, 01 October 2012

The creditor-mortgagee has the right to foreclose the mortgage over a specific real property whether
or not the debtor-mortgagor is under insolvency or liquidation proceedings. The right to foreclose
such mortgage is merely suspended upon the appointment of a management committee or
rehabilitation receiver or upon the issuance of a stay order by the trial court. However, the
creditormortgagee may exercise his right to foreclose the mortgage upon the termination of the
rehabilitation proceedings or upon the lifting of the stay order. Yngson, Jr. (in his capacity as
Liquidator of Arcam & Company, Inc.) v. Philippine National Bank, G.R. No. 171132, August 15, 2012.

The actions to be suspended cover all claims against a distressed corporation whether for damages
founded on a breach of contract of carriage, labor cases, collection suits or any other claims of
pecuniary nature. Jurisprudence is settled that the suspension of proceedings referred to in the law
uniformly applies to "all actions for claims" filed against the corporation, partnership or association
under management or receivership, without distinction, except only those expenses incurred in the
ordinary course of business. The stay order is effective on all creditors of the corporation without
distinction, whether secured or unsecured. Veterans Philippine Scout Security Agency, Inc. v. First
Dominion Prime Holdings, Inc., G.R. No. 190907, August 23, 2012.

The Stay Order cannot suspend foreclosure proceedings already commenced over properties
belonging to third party mortgagors. The Stay Order can only cover those claims directed against
petitioner corporations or their properties, against petitioners’ guarantors, or against petitioners’
sureties who are not solidarily liable with them.
Likewise, the enforcement of the mortgage lien cannot be considered as a claim against a guarantor
or a surety not solidarily liable with the debtor corporations. While the third party mortgagors also
executed Continuing Guaranty and Comprehensive Surety undertakings in favor of the bank, the
latter did not proceed against them as individual guarantors or sureties. Rather, by initiating
extrajudicial foreclosure proceedings, the bank was directly proceeding against the property
mortgaged to them by the spouses as security. Situs Development Corporation et al v. Asia Trust Bank
et al., G.R. No. 180036, July 25, 2012.

The court has already settled and upheld the right of the secured creditor to foreclose the mortgages
in its favor during the liquidation of a debtor corporation.

The creditor-mortgagee has the right to foreclose the mortgage over a specific real property whether
or not the debtor-mortgagor is under insolvency or liquidation proceedings. The right to foreclose
such mortgage is merely suspended upon the appointment of a management committee or
rehabilitation receiver or upon the issuance of a stay order by the trial court. However, the
creditormortgagee may exercise his right to foreclose the mortgage upon the termination of the
rehabilitation proceedings or upon the lifting of the stay order. Yngson, Jr. (in his capacity as
Liquidator of Arcam & Company, Inc.) v. Philippine National Bank, G.R. No. 171132, August 15, 2012.

Considering that Metrobank acquired ownership over the mortgaged properties upon the expiration
of the redemption period on 6 February 2002, TCEI is also out on a limb in invoking the Stay Order
issued by the Rehabilitation Court on 8 October 2002 and the approval of its rehabilitation plan. An
essential function of corporate rehabilitation is, admittedly, the Stay Order which is a mechanism of
suspension of all actions and claims against the distressed corporation upon the due appointment of
a management committee or rehabilitation receiver. The Stay Order issued by the Rehabilitation
Court cannot, however, apply to the mortgage obligations owing to Metrobank which had already
been enforced even before TCEI’s filing of its petition for corporate rehabilitation on 1 October 2002.
In Equitable PCI Bank, Inc v. DNG Realty and Development Corporation, the Court upheld the validity
of the writ of possession procured by the creditor despite the subsequent issuance of a stay order in
the rehabilitation proceedings instituted by the debtor. Town and Country Enterprises Inc v.
Honorable Quisumbing, G.R. No. 173610, 01 October 2012.

Sec. 146 of the FRIA, which makes it applicable to “all further proceedings in insolvency, suspension
of payments and rehabilitation cases x x x except to the extent that in the opinion of the court their
application would not be feasible or would work injustice,” still presupposes a prospective
application. The wording of the law clearly shows that it is applicable to all further proceedings. In
no way could it be made retrospectively applicable to the Stay Order issued by the rehabilitation
court in 2002. At the time of the issuance of the Stay Order, the rules in force were the 2000 Interim
Rules of Procedure on Corporate Rehabilitation. Under those rules, one of the effects of a Stay Order
is the stay of the "enforcement of all claims, whether for money or otherwise and whether such
enforcement is by court action or otherwise, against the debtor, its guarantors and sureties not
solidarily liable with the debtor. Nowhere in the Interim Rules is the rehabilitation court authorized
to suspend foreclosure proceedings against properties of third-party mortgagors. Situs Development
vs. Asia Trust Bank January 16, 2013
Under the rules on corporate rehabilitation, a rehabilitation plan may be approved even over the
opposition of the majority creditors if there is a showing that the rehabilitation is feasible and the
opposition of the creditors is manifestly unreasonable. Also known as the “ cram- down clause, this
provision which is currently incorporated in the FRIA is necessary to curb the majority creditors’
tendency to dictate their own terms and conditions to the rehabilitation absent due regard to the
greater long term benefit of all stakeholders. Bank of the Philippine Islands vs. SarabiaManor Hotel
Corporation, GR. No. 175844, July 29, 2013

Rehabilitation proceedings are summary and non-adversarial in nature, and do not contemplate
adjudication of claims that must be threshed out in ordinary court proceedings.

The jurisdiction of the rehabilitation court is over claims against the debtor that is under
rehabilitation, not over claims by the debtor against its own debtors or against third parties.

The corporation under rehabilitation must file a separate action against its debtors/insurers to
recover whatever claim it may have against them. Steel Corporation vs. Mapfre Insular Insurance
Corporation, G.R. No. 201199, October 16, 2013

Under Section 6 (c) of PD 902-A, receivers may be appointed whenever: (1) necessary in order to
preserve the rights of the parties-litigants; and/or (2) protect the interest of the investing public and
creditors.

The stay order and appointment of a rehabilitation receiver is an "extraordinary, preliminary, ex

parte remed[y]." The effectivity period of a stay order is only "from the date of its issuance until
dismissal of the petition or termination of the rehabilitation proceedings." It is not a final disposition
of the case. It is an interlocutory order defined as one that "does not finally dispose of the case, and
does not end the Court’s task of adjudicating the parties’ contentions and determining their rights
and liabilities as regards each other, but obviously indicates that other things remain to be done by
the Court."

The Interim Rules does not require a hearing before the issuance of a stay order. What it requires is
an initial hearing before it can give due course to or dismiss a petition. Nevertheless, while the
Interim Rules does not require the holding of a hearing before the issuance of a stay order, neither
does it prohibit the holding of one. Thus, the trial court has ample discretion to call a hearing when it
is not confident that the allegations in the petition are sufficient in form and substance, for so long as
this hearing is held within the five (5)-day period from the filing of the petition — the period within
which a stay order may issue as provided in the Interim Rules. PRYCE CORPORATION V. CHINA
BANKING CORPORATION. G.R. No. 172302, February 18, 2014.

NB. The foregoing jurisprudence should now be read in conjunction with the FRIA law. The FRIA law
is not covered in the 2014 Bar Examinations
Corporation Sole

Any corporation sole may purchase and hold real estate and personal property for its church,
charitable, benevolent or educational purposes, and may receive bequests or gifts for such purposes.
Such corporation may mortgage or sell real property held by it upon obtaining an order for that
purpose from the Court of First Instance of the province where the property is situated; x x x
Provided, That in cases where the rules, regulations and discipline of the religious denomination, sect
or church, religious society or order concerned represented by such corporation sole regulate the
method of acquiring, holding, selling and mortgaging real estate and personal property, such rules,
regulations and discipline shall control, and the intervention of the courts shall not be necessary.
Iglesia Filipina Independiente vs. Heirs of Bernardino Taeza G.R. No. 179597, February 3, 2014

Foreign Corporation

A foreign company that merely imports goods from a Philippine exporter, without opening an office
or appointing an agent in the Philippines, is not doing business in the Philippines. Cargill, Inc. vs. Intra
Strata Assurance Corporation, G.R. No. 168266, March 15, 2010

A foreign corporation doing business in the Philippines without license may sue in Philippine courts
a Filipino citizen or a Philippine entity that had contracted with and benefited from it. A party is
estopped from challenging the personality of a corporation after having acknowledged the same by
entering into a contract with it. The principle is applied to prevent a person contracting with a foreign
corporation from later taking advantage of its noncompliance with the statutes, chiefly in cases
where such person has received the benefits of the contract. Global Business Holdings, Inc. Vs.
Surecomp Software B.V., G.R. No. 173463, October 13, 2010

The appointment of a distributor in the Philippine is not sufficient to constitute doing business unless
it is under the full control of the foreign corporation. If the distributor is an independent entity which
buys and distributes products, other than those of the foreign corporation, for its own name and its
own account, the latter can not be considered doing business. SteelCase vs. Design International
Selections, GR no. 171995, April 18, 2012

Non-stock Corporation

Although Sec. 108 of the Corporation Code sets the term of the members of the Board of Trustees at
five years, it likewise contains a proviso expressly subjecting the duration to what is otherwise
provided in the articles of incorporation or by-laws of the educational corporation. That contrary
provision controls on the term of office. Thus, at the time of petitioner’s removal, he was already
occupying the office in a hold-over capacity, and could be removed at any time, without cause, upon
the election or appointment of his successor. Barayuga v. Adventist University of the Philippines,G.R.
No. 168008, August 17, 2011
SECURITIES AND REGULATION CODE

When it is mentioned in paragraph 4 (c) of A.M. No. 04-9-07-SC (RE: Mode of Appeal in Cases
Formerly Cognizable by the SEC) that in case a petition appealing or assailing the decision and/or
final order is filed directly with the Court of Appeals within the reglementary period, such petition
shall be considered a petition for review under Rule 43, it is presumed that the mode of appeal
resorted to was an ordinary appeal and not a special civil action. Otherwise, the Resolution should
have categorically included certiorari under Rule 65 as among those that should be considered as a
petition for review under Rule 43 of the Rules of Court. China Banking Corporation vs. Cebu Printing
and Packaging Corporation, G.R. No. 172880, 11 August 2010

A “public company,” as contemplated by the SRC is not limited to a company whose shares of stock
are publicly listed; even companies whose shares are offered only to a specific group of people, are
considered a public company, provided they meet the requirements provided for under Subsec. 17.2
of the SRC, that is: “any corporation with a class of equity securities listed on an Exchange or with
assets in excess of Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more
holders, at least two hundred (200) of which are holding at least one hundred (100) shares of a class
of its equity securities.”Philippine Veterans Bank v. Callangan, in her capacity Director of the
Corporation Finance Department of the Securities and Exchange Commission and/or the Securities
and Exchange Commission, G.R. No. 191995, August 3, 2011

NB. Under Subsection 17.2 of the SRC, it is not in excess of P 50m but at least P 50m asset value which
characterizes a public company

Under Section 62 of the SRC, no action shall be maintained to enforce any liability created under
Section 56 of the SRC ( False registration statement ) and Section 57 ( sale of unregistered security
and liabilities arising in connection with prospectus, communication and other reports ) unless
brought within two ( 2 ) years after discovery of the untrue statement or omission or after the
violation upon which it is based but not more than five ( 5 ) years after the security was bona fide
offered to the public or more than 5 years after the sale, respectively. However, it should be noted
that the civil liabilities provided in the SRC are not limited to Sections 56 and 57. Clearly, the intent
is to encompass in Section 62 the prescriptive periods only of the civil liability in cases of violations
of the SRC. Given the absence of prescriptive period for the enforcement of criminal liability in
violations of SRC, ACT No. 3326, the law applicable to offenses under special laws, applies. Under
Section 73 of the SRC, violation of its provisions is punishable by imprisonment of not less than seven
years nor more than 21 years. Applying ACT no. 3326, criminal prosecution for violations of SRC
prescribes in 12 years. Citibank N.A. vs. TANCO-GABALDON, et al. G.R. No. 198444, September 4,
2013
Civil suits falling under the SRC ( like liability for selling unregistered securities ) are under the
exclusive original jurisdiction of the RTC and hence, need not be first filed before the SEC, unlike
criminal cases wherein the latter body exercises primary jurisdiction. Pua vs. Citibank, N. A. G.R. No.
180064, September 16, 2013

The violation of Section 28 of the SRC has the following elements : a ) engaging in the business of
buying or selling securities as a broker or dealer; or b ) acting as salesman; or c) acting as associated
person of any broker or dealer unless registered as such with the SEC. Thus, a person is liable for
violating Section 28 of the SRC where acting as a broker, dealer or salesman, is in the employ of a
corporation which sold or offered for sale unregistered securities in the Philippines. Securities and
Exchange Commission vs Santos, GR. No. 195542, March 19, 2014

Intra-corporate controversy

Respondent was not a corporate officer of the corporation because his position as General Manager
was not specifically mentioned in the roster of corporate officers in its corporate by-laws. The
enabling clause in the corporation’s by-laws empowering its Board of Directors to create additional
officers, i.e., General Manager and the subsequent passage of a board resolution to that effect can not
make such position a corporate office. The Board of Directors has no power to create other corporate
offices without first amending the corporate by-laws so as to include therein the newly created
corporate office. Though the Board may create appointive positions other than the positions of
corporate officers, the persons occupying such positions can not be viewed as corporate officers
under Section 25 of the Corporation Code. Therefore, the termination of the respondent was not an
intracorporate controversy but a labor dispute falling within the jurisdiction of the labor arbiter.
March II Marketing vs Joson, GR No. 171993, December 12, 2011

Although the extrajudicial sale of the condominium unit ( for non-payment of condominium dues and
assessment ) has been fully effected and that the petition of the owner questioning the sale has been
dismissed with finality, the completion of the sale does not bar the condominium unit owner from
questioning the amount of the unpaid dues that gave rise to the foreclosure and to the subsequent
sale of the property. The propriety and legality of the sale of the condominium unit is different from
the propriety and legality of the unpaid assessment dues. The latter partakes of the nature of an intra-
corporate dispute. Chateau De Baie Condominium Corporation vs. Spouses Moreno, GR No. 186271,
February 23, 2011

SEC’s jurisdiction does not extend to the liquidation of a corporation. While the SEC has jurisdiction
to order the dissolution of a corporation, jurisdiction over the liquidation of the corporation now
pertains to the appropriate regional trial courts. This is the correct procedure because the liquidation
of a corporation requires the settlement of claims for and against the corporation, which clearly falls
under the jurisdiction of the regular courts. The trial court is in the best position to convene all the
creditors of the corporation, ascertain their claims, and determine their preferences. BANK OF THE
PHILIPPINE ISLANDS, as successor-in-interest of Far East Bank and Trust Company, v. EDUARDO
HONG, doing business under the name and style "SUPER LINE PRINTING PRESS," G.R. No. 161771,
February 15, 2012
A controversy between the condominium corporation and its members-unit owners for alleged
unsound business practices and violation of the master deed of restriction does not fall within the
jurisdiction of the HLRUB despite its expansive jurisdiction. It is considered an intra-corporate
controversy falling within the jurisdiction of the Regional Trial Court designated as special
commercial court. Lim vs. Distinction Properties Development and Construction, GR no. 194024,
April 25, 2012

In order to limit the broad definition of intra corporate dispute, the Supreme Court applied the
relationship and nature of the controversy test. Under the Relationship Test, no doubt exists that the
parties were members of the same association, but this conclusion must still be supplemented by the
controversy test before it may be considered as an intra-corporate dispute. Relationship alone does
not ipso facto make the dispute intra-corporate; the mere existence of an intra-corporate relationship
does not always give rise to an intra-corporate controversy. The incidents of that relationship must
be considered to ascertain whether the controversy itself is intra-corporate. This is where the
Controversy Test becomes material.
Under the controversy test, the dispute must be rooted in the existence of an intra-corporate
relationship, and must refer to the enforcement of the parties' correlative rights and obligations
under the Corporation Code, as well as the internal and intra-corporate regulatory rules of the
corporation, in order to be an intra-corporate dispute. These are essentially determined through the
allegations in the complaint which determine the nature of the action. A complaint for damages filed
by a member of the subdivision homeowners association for the harm he suffered when another
member maliciously closed a portion of the plaintiff’s drainage pipe which led to the overflowing of
his septic tank is not an intra corporate controversy following nature of the controversy test. Gulfo v.
Ancheta, G.R. No. 175301, August 15, 2012

In Reyes, the Court pronounced that “in cases governed by the Interim Rules of Procedure on
IntraCorporate Controversies a bill of particulars is a prohibited pleading. It is essential, therefore,
for the complaint to show on its face what are claimed to be the fraudulent corporate acts if the
complainant wishes to invoke the court’s special commercial jurisdiction.” This is because fraud in
intracorporate controversies must be based on “devises and schemes employed by, or any act of, the
board of directors, business associates, officers or partners, amounting to fraud or misrepresentation
which may be detrimental to the interest of the public and/or of the stockholders, partners, or
members of any corporation, partnership, or association,” as stated under Rule 1, Section 1 (a)(1) of
the Interim Rules. The act of fraud or misrepresentation complained of becomes a criterion in
determining whether the complaint on its face has merits, or within the jurisdiction of special
commercial court, or merely a nuisance suit. GUY vs. GUY, G.R. No. 189486.September 5, 2012

A college dean is not a corporate officer if his position is not provided for in the by-laws. Barba vs.
Liceo de Cagayan University, GR. No. 193857, November 28, 2012

An intra-corporate dispute involving a corporation under sequestration of the Presidential

Commission on Good Government (PCGG) falls under the jurisdiction of the Regional Trial Court
(RTC), not the Sandiganbayan. Philippine Overseas Telecommunications Corporation vs. Africa, et al.
G.R. No. 184622, July 3, 2013
Where a member of the condominium corporation was denied the right to vote for alleged
nonpayment of condominium dues and assessment, the action although denominated as one for
damages is an intra-corporate controversy and therefore, falling within the jurisdiction of the
regional trial court designated as a special commercial court. In determining whether a dispute
constitutes an intra-corporate controversy, the Court uses two tests, namely, the relationship test
and the nature of the controversy test. Applying these two tests, the present case is indeed an intra-
corporate controversy.

Anent the first test, it is admitted that petitioner is a condominium corporation. On the other hand,
respondent is a member of the condominium corporation.

As regards the second test, the case principally dwells on the propriety of the assessment made by
petitioner against respondent as well as the validity of petitioner’s act in preventing respondent from
participating in the election of the corporation’s Board of Directors. To be sure, this action partakes
of the nature of an intra-corporate controversy. While the CA may be correct that the RTC has
jurisdiction, the case should have been filed not with the regular court but with the branch of the RTC
designated as a special commercial court. The CA, therefore, gravely erred in remanding the case to
the RTC for further proceedings. Also, while Republic Act (RA) No. 9904, or the Magna Carta for
Homeowners and Homeowners’ Associations empowers the HLURB to hear and decide
interassociation and/or intra-association controversies or conflicts concerning homeowners’
associations, the same can not be applied in the present case as it involves a controversy between a
condominium unit owner and a condominium corporation. While the term association as defined in
the law covers homeowners’ associations of other residential real property which is broad enough to
cover a condominium corporation, it does not seem to be the legislative intent. MEDICAL PLAZA
MAKATI CONDOMINIUM CORPORATION V. ROBERT H. CULLEN G.R. No. 181416, November 11, 2013

When the officer claiming to have been illegally dismissed is an ordinary employee of the corporation,
jurisdiction over the same lies with the labor arbiter. It is only when the officer claiming to have been
illegally dismissed is classified as a corporate officer that the issue is deemed intra-corporate dispute
which falls within the jurisdiction of the trial court designated as special commercial court. Cosare
vs. Bradcom Asia, GR. No. 201298, February 5, 2014
Corporation Law

Benny Hung vs BPI Finance Corporation . G.R. No. 182398, 20 July 2010
When the corporation (BB Sportswear, Inc.) which the plaintiff erroneously impleaded in a
collection case was not the party to the actionable agreement and turned out to be not registered
with the Securities and Exchange Commission, the judgment may still be enforced against the
corporation (BB Footwear, Inc.) which filed the answer and participated in the proceedings, as well
as its controlling shareholder who signed the actionable agreement in his personal capacity and as
a single proprietorship doing business under the trade name and style of BB Sportswear
Enterprises.

Sappari K. Sawadjaanvs. the Honorable Court of Appeals, the Civil Service Commission and
Al-amanah Investment Bank of the Philippines, G.R. No. 141735, June 8, 2005
By its failure to submit its by-laws on time, the AIIBP may be considered a de facto corporation
whose right to exercise corporate powers may not be inquired into collaterally in any private suit
to which such corporation may be a party. A corporation which has failed to file its by-laws within
the prescribed period does not ipso facto lose its powers as such. The SEC Rules on
Suspension/Revocation of the Certificate of Registration of Corporations, details the procedures and
remedies that may be availed of before an order of revocation can be issued. There is no showing
that such a procedure has been initiated in this case.

Reynaldo M. Lozano vs. Hon. Eliezer R. De los Santos, Presiding Judge, RTC, Br. 58, Angeles
City; and Antonio Anda, G.R. No. 125221, June 19, 1997
The plan of the parties to consolidate their respective jeepney drivers’ and operators’ associations
into a single common association, if not yet approved by the SEC, neither had its officers and
members submitted their articles of consolidation in accordance with Sections 78 and 79 of the
Corporation Code, is a mere proposal to form a unified association. Any dispute arising out of the
election of officers of said unified association is therefore not an intra-corporate dispute.

Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc., G.R. No. 136448, 3 November 1999
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. Technically, it is true that
petitioner did not directly acton behalf of the corporation. However, having reaped the benefits of
the contract entered into by persons with whom he previously had an existing relationship, he is
deemed to be part of said association and is covered by the scope of the doctrine of corporation by
estoppel.
International Express Travel & Tour Services, Inc. vs. Hon. Court of Appeals, Henri Kahn,
Philippine Football Federation, G.R. No. 119002, October 19, 2000
When the petitioner is not trying to escape liability from the contract but rather the one claiming
from the contract, the doctrine of corporation by estoppel is not applicable. This doctrine applies to
a third party only when he tries to escape liability on a contract from which he has benefited on the
irrelevant ground of defective incorporation.

Macasaet vs. Francisco, GR No. 156759, June 5, 2013

Corporation by estoppel results when a corporation represented itself to the public as such despite
its not being incorporated. A corporation by estoppel may be impleaded as a party defendant
considering that it possesses attributes of a juridical person, otherwise, it cannot be held liable for
damages and injuries it may inflict to other persons.

Engr. Ranulfo C. Feliciano, in his capacity as General Manager of the Leyte Metropolitan
Water District (LMWD), Tacloban City vs. Commission on Audit, Chairman CELSO D. GANGAN,
Commissioners Raul C. Flores and Emmanuel M. Dalman, and Regional Director of COA
Region VIII, G.R. No. 147402, 14 January 2004
Congress can not enact a law creating a private corporation with a special charter. Such legislation
would be unconstitutional. Private corporations may exist only under a general law. If the
corporation is private, it must necessarily exist under a general law.

Dante V. Liban, Reynaldo M. Bernardo and Salvador M. Viari vs. Richard J. Gordon, G. R. No.
175352, January 18, 2011
Although the Philippine National Red Cross was created by a special charter, it can not be considered
a government-owned and controlled corporation in the absence of the essential elements of
ownership and control by the government. It does not have government assets and does not receive
any appropriation from the Philippine Congress. It is a non-profit, donor-funded, voluntary
organization, whose mission is to bring timely, effective and compassionate humanitarian
assistance for the most vulnerable without consideration of nationality, race, religion, gender, social
status or political affiliation. This does not mean however that the charter of PNRC is
unconstitutional. PNRC has a sui generis status. Although it is neither a subdivision, agency, or
instrumentality of the government, nor a government-owned or -controlled corporation or a
subsidiary thereof, so much so that Gordon was correctly allowed to hold his position as Chairman
thereof concurrently while he served as a Senator, such a conclusion does not ipso facto imply that
the PNRC is a “private corporation” within the contemplation of the provision of the Constitution,
that must be organized under the Corporation Code. The PNRC enjoys a special status as an
important ally and auxiliary of the government in the humanitarian field in accordance with its
commitments under international law. This Court cannot all of a sudden refuse to recognize its
existence, especially since the issue of the constitutionality of the PNRC Charter was never raised by
the parties.

Antonio M. Carandang vs. Honorable Aniano A. Desierto, Office of the Ombudsman, G.R. No.
153161, January 12, 2011
A government–owned or controlled corporation refers to any agency organized as a stock or non-
stock corporation vested with functions relating to public needs whether governmental or
proprietary in nature and owned by the government through its instrumentalities either wholly or
where applicable as in the case of stock corporation to the extent of at least 51% of its capital stock.
When a stockholder ceded to the government shares representing 72.4 % of the voting stock of the
corporation but subsequently clarified that it should be reduced to 32.4%, the corporation shall not
be considered government-owned and controlled until the quantification of shares is resolved with
finality.

Marissa R. Unchuan vs. Antonio J.P. Lozada, Anita Lozada and the Register of Deeds of Cebu
City, G.R. No. 172671, April 16, 2009
A corporation organized under the laws of the Philippines of which at least 60% of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines, is considered a
Philippine National. As such, the corporation may acquire disposable lands in the Philippines.

Narra Nickel Mining & Development Corp. v. Redmont Consolidated Mines Inc., G.R. No.
195580, 28 January 2015
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 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. “Doubt” refers to various indicia that the “beneficial ownership”
and “control” of the corporation do not in fact reside in Filipino shareholders but in foreign
stakeholders. Even if at first glance the petitioners comply with the 60-40 Filipino to foreign equity
ratio, doubt exists in the present case that gives rise to a reasonable suspicion that the Filipino
shareholders do not actually have the requisite number of control and beneficial ownership in
petitioners Narra, Tesoro, and McArthur. Hence, the Court is correct in using the Grandfather Rule
in determining the nationality of the petitioners.

Rolando DS. Torres v. Rural Bank of San Juan, Inc. et al., G.R. No. 184520, March 13, 2013
A corporation has its own legal personality separate and distinct from those of its stockholders,
directors or officers. Hence, absent any evidence that they have exceeded their authority, corporate
officers are not personally liable for their official acts. Corporate directors and officers may be held
solidarily liable with the corporation for the termination of employment only if done with malice or
in bad faith.

Mercy Vda. de Roxas, represented by Arlene C. Roxas-Cruz, in her capacity as substitute

appellant- petitioner vs. Our Lady’s Foundation, Inc. G.R. No. 182378, March 6, 2013
In order for the Court to hold the officer of the corporation personally liable alone for the debts of
the corporation and thus pierce the veil of corporate fiction, the Court has required that the bad
faith of the officer must first be established clearly and convincingly. Petitioner, however, has failed
to include any submission pertaining to any wrongdoing of the general manager. Necessarily, it
would be unjust to hold the latter personally liable. Moreso, if the general manager was never
impleaded as a party to the case.

Development Bank of the Philippines vs. Hydro Resources Contractors Corporation, GR. No.
167603, March 13, 2013
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.

In this connection, case law lays down a three-pronged test to determine the application of the alter
ego theory, which is also known as the instrumentality theory, namely:

Control, not mere majority or complete stock control, but complete domination, not only of finances
but of policy and business practice in respect to the transaction attacked so that the corporate entity
as to this transaction had at the time no separate mind, will or existence of its own;
Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of
plaintiff’s legal right; and;

The aforesaid control and breach of duty must have proximately caused the injury or unjust loss
complained of.
The first prong is the “instrumentality” or “control” test. This test requires that the subsidiary be
completely under the control and domination of the parent. It inquires whether a subsidiary
corporation is so organized and controlled and its affairs are so conducted as to make it a mere
instrumentality or agent of the parent corporation such that its separate existence as a distinct
corporate entity will be ignored. In addition, the control must be shown to have been exercised at
the time the acts complained of took place.

The second prong is the “fraud” test. This test requires that the parent corporation’s conduct in using
the subsidiary corporation be unjust, fraudulent or wrongful. It examines the relationship of the
plaintiff to the corporation. It recognizes that piercing is appropriate only if the parent corporation
uses the subsidiary in a way that harms the plaintiff creditor. As such, it requires a showing of “an
element of injustice or fundamental unfairness.”

The third prong is the “harm” test. This test requires the plaintiff to show that the defendant’s
control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm
suffered. A causal connection between the fraudulent conduct committed through the
instrumentality of the subsidiary and the injury suffered or the damage incurred by the plaintiff
should be established. The plaintiff must prove that, unless the corporate veil is pierced, it will have
been treated unjustly by the defendant’s exercise of control and improper use of the corporate form
and, thereby, suffer damages.

Gregorio Singian, Jr. vs. the Honorable Sandiganbayan and the Presidential Commission on
Good Government, G.R. Nos. 160577-94, December 16, 2005
The powers to increase capitalization and to offer or give collateral to secure indebtedness are
lodged with the corporation’s board of directors. However, this does not mean that the officers of
the corporation other than the board of directors cannot be made criminally liable for their criminal
acts if it can be proven that they participated therein.

Filipinas Broadcasting Network, Inc. vs. AGO Medical And Educational Center-Bicol Christian
College of Medicine, (AMEC-BCCM) and Angelita F. Ago, G.R. No. 141994, January 17, 2005
A juridical person is generally not entitled to moral damages because, unlike a natural person, it
cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety,
mental anguish or moral shock. Nevertheless, AMEC’s claim for moral damages falls under item 7 of
Article 2219 of the Civil Code which expressly authorizes the recovery of moral damages in cases of
libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff
is a natural or juridical person. Therefore, a juridical person such as a corporation can validly
complain for libel or any other form of defamation and claim for moral damages.

Manila Electric Company vs. T.E.A.M. Electronics Corporation, Technology Electronics

Assembly and Management Pacific Corporation; and Ultra Electronics Instruments, Inc., G.R.
No. 131723, December 13, 2007

As a rule, a corporation is not entitled to moral damages because, not being a natural person, it
cannot experience physical suffering or sentiments like wounded feelings, serious anxiety, mental
anguish and moral shock. The only exception to this rule is when the corporation has a reputation
that is debased, resulting in its humiliation in the business realm. But in such a case, it is essential
to prove the existence of the factual basis of the damage and its causal relation to petitioner’s acts.
Thus, where the records are bereft of evidence that the name or reputation of the corporation has
been debased as a result of Meralco’s act (which in this case is the disconnection without written
notice of the disconnection of the electricity supply to the building of the corporation due to alleged
meter tampering), the corporation is not entitled to moral damages.

Kukan International Corporation vs. Hon. Judge Amor Reyes, G.R. No. 182729, 29 September
2010
The court must first acquire jurisdiction over the corporation or corporations involved before its or
their separate personalities are disregarded; and the doctrine of piercing the veil of corporate entity
can only be raised during a full-blown trial over a cause of action duly commenced involving parties
duly brought under the authority of the court by way of service of summons or what passes as such
service.

Gold Line Tours vs. Heirs of Maria Concepcion Lacsa, GR No. 159108, 18 June 2012

However, in another case involving an action for breach of contract of carriage resulting to the death
of one of the passengers , Supreme Court ruled that if the RTC had sufficient factual basis to conclude
that the two corporations are one and the same entity as when they have the same President and
controlling shareholder and it is generally known in the place where they do business that both
transportation companies are one, the third party claim filed by the other corporation was set aside
and the levy on its property held valid even though the latter was not made a party to the case . The
judgment may be enforced against the other corporation to prevent multiplicity of suits and save
the parties unnecessary expenses and delay.
Prince Transport, Inc. vs. Garcia, GR No. 167291, January 12, 2011
The doctrine of piercing the veil of corporate fiction is applicable not only to corporations but also
to a single proprietorship as when the corporation transferred its employees to the company owned
by the controlling stockholder of the corporation and yet despite the transfer, the employees’ daily
time records, reports, daily income remittances and schedule of work were all made, performed,
filed and kept in the corporation. The corporation is clearly hiding behind the supposed separate
and distinct personality of the company. As such, the corporation and the company should be
solidarily liable for the claims of the illegally dismissed employees.

Pacific Rehouse Corporation vs. Court of Appeals, GR. No. 199687, March 24, 2014
Where the court rendered judgment against a stock brokerage firm directing the latter to return
shares of stock which it sold without authority, but the writ of execution was returned unsatisfied,
an alias writ of execution could not be enforced against its parent company because the court has
not acquired jurisdiction over the latter and while the parent company owns and controls the
brokerage firm, there is no showing that the control was used to violate the rights of the plaintiff.

Arco Pulp & Paper Co. Inc. v. Lim, G.R. No. 206806, 25 June 2014
The corporate existence may be disregarded where the entity is formed or used for non-legitimate
purposes, such as to evade a just and due obligation, or to justify a wrong, to shield or perpetrate
fraud or to carry out similar or inequitable considerations, other unjustifiable aims or intentions, in
which case, the fiction will be disregarded and the individuals composing it and the two
corporations will be treated as identical. In the case at bar, when petitioner Arco Pulp and Paper’s
obligation to Lim became due and demandable, she not only issued an unfunded check but also
contracted with a third party in an effort to shift petitioner Arco Pulp and Paper’s liability. She
unjustifiably refused to honor petitioner corporation’s obligations to respondent. These acts clearly
amount to bad faith. In this instance, the corporate veil may be pierced, and petitioner Santos may
be held solidarily liable with petitioner Arco Pulp and Paper.

Livesey vs. Binswanger Philippines, GR No. 177493, March 19, 2014

Piercing the veil of corporate fiction is warranted when a corporation ceased to exist only in name
as it re-emerged in the person of another corporation, for the purpose of evading its unfulfilled
financial obligation under a compromise agreement. Thus, if the judgment for money claim could
not be enforced against the employer corporation, an alias writ may be obtained against the other
corporation considering the indubitable link between the closure of the first corporation and
incorporation of the other.
WPM International Trading Inc. v. Labayen, G.R. No. 182770, 17 September 2014
When an officer owns almost all of the stocks of a corporation, it does not ipso facto warrant the
application of the principle of piercing the corporate veil unless it is proven that the officer has
complete dominion over the corporation.

Heirs of Fe Tan Uy, represented by her heir, Mauling Uy Lim vs. International Exchange Bank,
G.R. No. 166282 & 83, February 13, 2013
Under a variation of the doctrine of piercing the veil of corporate fiction, when two business
enterprises are owned, conducted and controlled by the same parties, both law and equity will,
when necessary to protect the rights of third parties, disregard the legal fiction that two
corporations are distinct entities and treat them as identical or one and the same. While the
conditions for the disregard of the juridical entity may vary, the following are some probative factors
of identity that will justify the application of the doctrine of piercing the corporate veil, as laid down
in Concept Builders, Inc.,v NLRC: (1) Stock ownership by one or common ownership of both
corporations; (2) Identity of directors and officers; (3) The manner of keeping corporate books and
records, and (4) Methods of conducting the business.

Mariano A. Albert vs. University Publishing Co., Inc., G.R. No. L-19118, January 30, 1965
When the President of a non-existent principal entered into a contract and failed to pay its
obligation, he shall be the one liable to the aggrieved party. A person acting as a representative of a
non-existent principal is the real party to the contract sued upon, being the one who reaped the
benefits resulting from it.

Samahang Optometrists saPilipinas, Ilocos Sur- Abra Chapter, et al. vs. Acebedo International
Corporation and the Hon. Court of Appeals, G.R. No. 117097, 21 March 1997
A corporation created and organized for the purpose of conducting the business of selling optical
lenses or eyeglasses is not engaged in the practice of optometry because the determination of the
proper lenses to sell to private respondent’s clients entails the employment of optometrists who
have been precisely trained for that purpose. Private respondent’s business, rather, is the buying
and importing of eyeglasses and lenses and other similar or allied instruments from suppliers
thereof and selling the same to consumers.

P.C. Javier & Sons, Inc., et al. vs.Paic Savings & Mortgage Bank, Inc., et al., G.R. No. 129552, June
29, 2005
A change in the corporate name does not make a new corporation, whether effected by a special act
or under a general law. It has no effect on the identity of the corporation, or on its property, rights,
or liabilities because the corporation upon such change in its name, is in no sense a new corporation,
nor the successor of the original corporation.

Zuellig Freight and Cargo Systemsvs. National Labor Relations Commission, et al., G.R. No.
157900, July 22, 2013
The mere change in the corporate name is not considered under the law as the creation of a new
corporation; hence, the renamed corporation remains liable for the illegal dismissal of its employee
separated under that guise. Verily, the amendments of the articles of incorporation of Zeta to change
the corporate name to Zuellig Freight and Cargo Systems, Inc., did not produce the dissolution of the
former as a corporation.

Heirs of Wilson P. Gamboa vs. Finance Secretary Margarito B. Teves, et al., G.R. No. 176579,
October 9, 2012
Since the constitutional requirement of at least 60 percent Filipino ownership applies not only to
voting control of the corporation but also to the beneficial ownership of the corporation, it is
therefore imperative that such requirement applies uniformly and across the board to all classes of
shares, regardless of nomenclature and category, comprising the capital of a corporation. Since a
specific class of shares may have rights and privileges or restrictions different from the rest of the
shares in a corporation, the 60-40 ownership requirement in favor of Filipino citizens in Section 11,
Article XII of the Constitution must apply not only to shares with voting rights but also to shares
without voting rights.

Alicia E. Gala, et al.vs. Ellice Agro-Industrial Corporation, et al., G.R. No. 156819, December
11, 2003
The best proof of the purpose of a corporation is its articles of incorporation and by-laws, and in the
case at bar, a perusal of the Articles of Incorporation of Ellice and Margo shows no sign of the
allegedly illegal purposes that petitioners are complaining of. It is well to note that, if a corporation’s
purpose, as stated in the Articles of Incorporation, is lawful, then the SEC has no authority to inquire
whether the corporation has purposes other than those stated, and mandamus will lie to compel it
to issue the certificate of incorporation.

Hyatt Elevators and Escalators Corporation vs. Goldstar Elevators Phils., Inc., G.R. No.
161026, October 24, 2005
The venue in this case was improperly laid because the principal office of Hyatt as stated in the
Articles of Incorporation is in Makati but the case was filed in Mandaluyong where Hyatt transferred
its operations. Since the principal place of business of a corporation determines its residence or
domicile, then the place indicated in petitioner’s articles of incorporation becomes controlling in
determining the venue for the filing of a case.

John Gokongwei, Jr. vs. Securities and Exchange Commission, et al., G.R. No. L-45911, April 11,
1979
Every corporation has the inherent power to adopt by-laws ‘for its internal government, and to
regulate the conduct and prescribe the rights and duties of its members towards itself and among
themselves in reference to the management of its affairs. Under Section 21 of the Corporation Law,
a corporation may prescribe in its by-laws the qualifications, duties and compensation of directors,
officers and employees.

Loyola Grand Villas Homeowners (South) Association, Inc. vs. Hon. Court of Appeals, Home
Insurance And Guaranty Corporation, Emden Encarnacion and Horatio Aycardo, G.R. No.
117188, August 7, 1997
Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under Section
6(I) of PD 902-A, the SEC is empowered to ‘suspend or revoke, after proper notice and hearing, the
franchise or certificate of registration of a corporation’ on the ground inter alia of ‘failure to file by-
laws within the required period.

Matling Industrial and Commercial Corporation, et al. vs. Ricardo R. Coros, G.R. No. 157802,
October 13, 2010
Conformably with Section 25 of the Corporation Code, a position must be expressly mentioned in
the By-Laws in order to be considered as a corporate office. Thus, the creation of an office pursuant
to or under a By-Law enabling provision is not enough to make a position a corporate office.

Grace Christian High Schoolvs.the Court Of Appeals, Grace Village Association, Inc., Alejandro
G. Beltran, and Ernesto L. Go, G.R. No. 108905, 23 October 1997
A provision in the by-laws of the corporation stating that of the 15 members of its Board of Directors,
only 14 members would be elected while the remaining member would be the representative of an
educational institution located in the village of the homeowners, is invalid for being contrary to law.
The fact that for fifteen years it has not been questioned or challenged but, on the contrary, appears
to have been implemented by the members of the association cannot forestall a later challenge to
its validity because, if it is contrary to law, it is beyond the power of the members of the association
to waive its invalidity.
Cebu Country Club, Inc., et al. vs. Ricardo F. Elizagaque, G.R. No. 160273, January 18, 2008
When an amendment to a provision in the Amended By-Laws requiring the unanimous vote of the
directors present at a special or regular meeting was not printed on the application form for
proprietory membership, and what was printed thereon was the original provision which was silent
on the required number of votes needed for admission of an applicant as a proprietary member, the
Board of Directors committed fraud and evident bad faith in disapproving respondent’s application
under Article 31 of the Corporation Code. The explanation given by the petitioner that the
amendment was not printed on the application form due to economic reasons is flimsy and
unconvincing because such amendment, aside from being extremely significant, was introduced
way back in 1978 or almost twenty (20) years before respondent filed his application.

Mid Pasig Land and Development Corporation v. Tablante, G.R. No. 162924, February 4, 2010
These officers are in the position to verify the truthfulness and correctness of the allegations in the
petition.

Esguerra vs. Holcim Philippines G.R. No. 182571, September 2, 2013

The general rule is that a corporation can only exercise its powers and transact its business through
its board of directors and through its officers and agents when authorized by a board resolution or
its bylaws. The power of a corporation to sue and be sued is exercised by the board of directors. The
physical acts of the corporation, like the signing of documents, can be performed only by natural
persons duly authorized for the purpose by corporate bylaws or by a specific act of the board. Absent
the said board resolution, a petition may not be given due course.

Spouses Afulugencia vs. Metropolitan Bank and Trust Co. G.R. No. 185145, February 05, 2014
In a complaint for nullification of mortgage and foreclosure with damages against the mortgagee-
bank, the plaintiff can not compel the officers of the bank to appear and testify as plaintiff’s initial
witnesses unless written interrogatories are first served upon the bank officers. This is in line with
the Rules of Court provision that calling the adverse party to the witness stand is not allowed unless
written interrogatories are first served upon the latter. This is because the officers of a corporation
are considered adverse parties as well in a case against the corporation itself based on the principle
that corporations act only through their officers and duly authorized agents.

Islamic Directorate of the Philippines, Manuel F. Perea and Securities & Exchange
Commission,vs. Court of Appeals And Iglesia Ni Cristo, G.R. No. 117897, May 14, 1997
Where an asset constitutes the only property of the corporation, its sale to a third-party is a sale or
disposition of all the corporate property and assets of said corporation falling squarely within the
contemplation of Section 40 of the Corporation Code. Hence, for the sale to be valid, the majority
vote of the legitimate Board of Trustees, concurred in by the vote of at least 2/3 of the bona
fide members of the corporation should have been obtained.

Republic Planters Bank vs. Hon. Enrique A. Agana, Sr., as Presiding Judge, Court of First
Instance of Rizal, Branch XXVIII, Pasay City, Robes-Francisco Realty & Development
Corporation and Adalia F. Robes, G.R. No. 51765, March 3, 1997
Dividends cannot be declared for preferred shares which were guaranteed a quarterly dividend if
there are no unrestricted retained earnings. “Interest bearing stocks,” on which the corporation
agrees absolutely to pay interest before dividends are paid to common stockholders, is legal only
when construed as requiring payment of interest as dividends from net earnings or surplus only.

Lopez Realty Inc. v. Spouses Tanjangco, G.R. No. 154291, November 12, 2014
The general rule is that a corporation, through its board of directors, should act in the manner and
within the formalities, if any, prescribed by its charter or by the general law. Directors must act as a
body in a meeting called pursuant to the law or the corporation’s by-laws, otherwise, any action
taken therein may be questioned by any objecting director or shareholder; but an action of the board
of directors during a meeting, which was illegal for lack of notice, may be ratified either expressly,
by the action of the directors in subsequent legal meeting, or impliedly, by the corporation’s
subsequent course of conduct.

Atrium Management Corporation vs. Court of Appeals, et al., G.R. No. 109491, February 28,
2001
The act of issuing the checks was well within the ambit of a valid corporate act, for it was for securing
a loan to finance the activities of the corporation, hence, not an ultra vires act.

Megan Sugar Corporation vs. RTC of Ilo-ilo Br. 68, GR no. 170352, June 1, 2011
A corporation cannot deny the authority of lawyer when they clothed him with apparent authority
to act in their behalf such as when he entered his appearance accompanied by the corporation’s
general manager and the corporation never questioned his acts and even took time and effort to
forward all the court documents to him. The lawyer may not have been armed with a board
resolution but the doctrine of apparent authority imposes liability not as a result of contractual
relationship but rather because of the actions of the principal or an employer in somehow
misleading the public that the relationship or the authority exists.
Advance Paper Corporation vs Arma Traders Corporation , G.R. No 176897, December 11,
2013.
The doctrine of apparent authority provides that a corporation will be estopped from denying the
agent’s authority if it knowingly permits one of its officers or any other agent to act within the scope
of an apparent authority, and it holds him out to the public as possessing the power to do those acts.

Apparent authority is derived not merely from practice. Its existence may be ascertained through
(1) the general manner in which the corporation holds out an officer or agent as having the power
to act or, in other words the apparent authority to act in general, with which it clothes him; or (2)
the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof,
within or beyond the scope of his ordinary powers. It is not the quantity of similar acts which
establishes apparent authority, but the vesting of a corporate officer with the power to bind the
corporation. When the sole management of the corporation was entrusted to two of its
officers/incorporators with the other officers never had dealings with the corporation for 14 years
and that the board and the stockholders never had its meeting, the corporation is now estopped
from denying the officers’ authority to obtain loan from the lender on behalf of the corporation
under the doctrine of apparent authority.

Ong Yong, et al. vs. David S. Tiu, et al., G.R. No. 144476 & G.R. No. 144629, 8 April 2003
In the instant case, the rescission of the Pre-Subscription Agreement will effectively result in the
unauthorized distribution of the capital assets and property of the corporation, thereby violating
the Trust Fund Doctrine and the Corporation Code, since rescission of a subscription agreement is
not one of the instances when distribution of capital assets and property of the corporation is
allowed. The Trust Fund Doctrine provides that subscriptions to the capital stock of a corporation
constitute a fund to which the creditors have a right to look for the satisfaction of their claims.

Filipinas Port Services, Inc., represented by stockholders, Eliodoro C. Cruz and Mindanao
Terminal and Brokerage Services, Inc. vs. Victoriano S. Go, et al., G.R. No. 161886, March 16,
2007
The determination of the necessity for additional offices and/or positions in a corporation is a
management prerogative which courts are not wont to review in the absence of any proof that such
prerogative was exercised in bad faith or with malice.Indeed, it would be an improper judicial
intrusion into the internal affairs of Filport for the Court to determine the propriety or impropriety
of the creation of offices therein and the grant of salary increases to officers thereof.
United Coconut Planters Bank vs. Planters Products, Inc., Janet Layson and Gregory Grey, G.R.
No. 179015, June 13, 2012
The execution of a document by a bank manager called “pagares” which guaranteed purchases on
credit by a client is contrary to the General Banking Law which prohibits bank officers from
guaranteeing loans of bank clients. In this case, it is plain from the guarantee Grey executed that he
was acting for himself, not in representation of UCPB; hence, UCPB cannot be bound by Grey’s above
undertaking since he appears to have made it in his personal capacity.

Mercy Vda. de Roxas vs. Our Lady’s Foundation, Inc., G.R. No. 182378, March 6, 2013
To hold the general manager personally liable alone for the debts of the corporation and thus pierce
the veil of corporate fiction, it is required that the bad faith of the officer be established clearly and
convincingly. Petitioner, however, has failed to include any submission pertaining to any
wrongdoing of the general manager. Necessarily, it would be unjust to hold the latter personally
liable.

Polymer Rubber Corporation vs. Ang, G.R. No. 185160. July 24, 2013
Obligations incurred as a result of the directors’ and officers’ acts as corporate agents, are not their
personal liability but the direct responsibility of the corporation they represent. As a rule, they are
only solidarily liable with the corporation for the illegal termination of services of employees if they
acted with malice or bad faith.

To hold a director or officer personally liable for corporate obligations, two requisites must concur:
(1) it must be alleged in the complaint that the director or officer assented to patently unlawful acts
of the corporation or that the officer was guilty of gross negligence or bad faith; and (2) there must
be proof that the officer acted in bad faith. The fact that the corporation ceased its operations the
day after the promulgation of the SC resolution finding the corporation liable does not prove bad
faith on the part of the incorporator of the corporation.

Elizabeth M. Gagui vs. Simeon Dejero and Teodoro Permejo, G.R. No. 196036, October 23,
2013
Although joint and solidary liability for money claims and damages against a corporation attaches
to its corporate directors and officers under R.A. 8042, it is not automatic. To make them jointly and
solidarily liable, there must be a finding that they were remiss in directing the affairs of the
corporation, resulting in the conduct of illegal activities. Absent any findings regarding the same,
the corporate directors and officers cannot be held liable for the obligation of the corporation
against the judgment debtor.
Rosita Peña vs. the Court of Appeals, Spouses Rising T. Yap and Catalina Yap, Pampanga Bus
Co., Inc., Jesus Domingo, Joaquin Briones, Salvador Bernardez, Marcelino Enriquez and
Edgardo A. Zabat, G.R. No. 91478, February 7, 1991
Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation or by-laws
of the corporation may fix a greater number than the majority of the number of board members to
constitute the quorum necessary for the valid transaction of business. When only three (3) out of
five (5) members of the board of directors of PAMBUSCO convened on November 19, 1974 by virtue
of a prior notice of a special meeting,there was no quorum to validly transact business since, under
Section 4 of the amended by-laws hereinabove reproduced, at least four (4) members must be
present to constitute a quorum in a special meeting of the board of directors of PAMBUSCO.

SEC vs. CA, G.R. No. 187702, October 22, 2014

The power of the SEC to investigate violations of its rules on proxy solicitation is unquestioned when
proxies are obtained to vote on matters unrelated to the cases enumerated under Section 5 of
Presidential Decree No. 902-A. However, when proxies are solicited in relation to the election of
corporate directors, the resulting controversy, even if it ostensibly raised the violation of the SEC
rules on proxy solicitation, should be properly seen as an election controversy within the original
and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in relation to Section
5 (c) of Presidential Decree No. 902-A

Indeed, the validation of proxies in this case relates to the determination of the existence of a
quorum. Nonetheless, it is a quorum for the election of the directors, and, as such, which requires
the presence – in person or by proxy – of the owners of the majority of the outstanding capital stock
of Omico. Also, the fact that there was no actual voting did not make the election any less so,
especially since Astra had never denied that an election of directors took place.

Tam Wing Tak vs. Hon. Ramon P. Makasiar, G.R. No. 122452, January 29, 2001
Under Section 36 of the Corporation Code, read in relation to Section 23, it is clear that where a
corporation is an injured party, its power to sue is lodged with its board of directors or trustees. In
this case, the petitioner failed to show any proof that he was authorized or deputized or granted
specific powers by the corporation’s board of director to sue Victor AngSiong for and on behalf of
the firm, and therefore he had no such power or authority to sue on Concord’s behalf.

Villamor v Umale, G.R. Nos. 172843 & 172881, 24 September 2014

The Court has recognized that a stockholder’s right to institute a derivative suit is not based on any
express provision of the Corporation Code, or even the Securities Regulation Code, but is impliedly
recognized when the said laws make corporate directors or officers liable for damages suffered by
the corporation and its stockholders for violation of their fiduciary duties. In effect, the suit is an
action for specific performance of an obligation, owed by the corporation to the stockholders, to
assist its rights of action when the corporation has been put in default by the wrongful refusal of the
directors or management to adopt suitable measures for its protection.

Legaspi Towers 300, Inc., vs. Muer G.R. No. 170783, June 18, 2012
Petitioners seek the nullification of the election of the Board of Directors composed of herein
respondents, who pushed through with the election even if petitioners had adjourned the meeting
allegedly due to lack of quorum. Petitioners are the injured party, whose rights to vote and to be
voted upon were directly affected by the election of the new set of board of directors. The party-in-
interest are the petitioners as stockholders, who wield such right to vote. The cause of action
devolves on petitioners, not the condominium corporation, which did not have the right to
vote. Hence, the complaint for nullification of the election is a direct action by petitioners, who were
the members of the Board of Directors of the corporation before the election, against respondents,
who are the newly-elected Board of Directors. Under the circumstances, the derivative suit filed by
petitioners in behalf of the condominium corporation is improper.

Majority of Stockholders of Ruby Industrial Corporation vs Lim, GR No. 165887, June 6, 2011
A stock corporation is expressly granted the power to issue or sell stocks. The power to issue stocks
is lodged with the Board of Directors and no stockholders meeting is required to consider it because
additional issuances of stock (unlike increase in capital stock) does not need approval of the
stockholders. What is only required is the board resolution approving the additional issuance of
shares. The corporation shall also file the necessary application with the SEC to exempt these from
the registration requirements under the SRC.

Africa vs. Hon. Sandiganbayan , G.R. Nos. 172222/G.R. No. 174493/ G.R. No. 184636,
November 11, 2013
Under the two-tiered test, the government, thru PCGG, may vote sequestered shares if there is
a prima facieevidence that the shares are ill-gotten and there is imminent danger of dissipation of
assets while the case is pending. However, the two- tiered test contemplates a situation where the
registered stockholders were in control and had been dissipating company assets and the PCGG
wanted to vote the sequestered shares to save the company. It does not apply when the PCGG had
voted the shares and is in control of the sequestered corporation
Marsh Thomson vs. Court of Appeals and the American Champer of Commerce of the
Philippines, Inc,, G.R. No. 116631, October 28, 1998
The authority granted to a corporation to regulate the transfer of its stock does not empower it to
restrict the right of a stockholder to transfer his shares, but merely authorizes the adoption of
regulations as to the formalities and procedure to be followed in effecting transfer.

Valley Golf and Country Club, Inc. v. Vda. De Caram, 585 SCRA 218 (2009)
The arrangement provided for in the by-laws of the Corporation whereby a lien is constituted on
the membership share to answer for subsequent obligations to the corporation finds applicable
parallels under the Civil Code. Membership shares are considered as movable or personal property,
and they can be constituted as security to secure a principal obligation, such as the dues and fees.
There are at least two contractual modes under the Civil Code by which personal property can be
used to secure a principal obligation. The first is through a contract of pledge, while the second is
through a chattel mortgage. If the stockholder had not signed any document that manifests his
agreement to constitute his Golf Share as security in favor of the Corporation to answer for his
obligations to the club and there is no document that it is substantially compliant with the form of
chattel mortgages, the by-laws could not suffice for that purpose since it is not designed as a bilateral
contract between the stockholder and the Corporation or a vehicle by which the stockholder
expressed his consent to constitute his Share as security for his account with the Corporation.

The Rural Bank of Lipa City, Inc., et al.vs. Honorable Court of Appeals, G.R. No. 124535,
September 28, 2001
For a valid transfer of stocks, there must be strict compliance with the mode of transfer prescribed
by law. The requirements are: (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. A deed of assignment of shares without endorsement and delivery is binding only
on the parties and does not necessarily make the transfer effective as against the corporation.

Vicente C. Ponce vs. Alsons Cement Corporation, and Francisco M. Giron, Jr., G.R. No. 139802,
December 10, 2002
Without such recording, the transferee may not be regarded by the corporation as one among its
stockholders and the corporation may legally refuse the issuance of stock certificates in the name of
the transferee even when there has been compliance with the requirements of Section 64 of the
Corporation Code. The situation would be different if the petitioner was himself the registered
owner of the stock which he sought to transfer to a third party, for then he would be entitled to the
remedy of mandamus.
Fil-Estate Golf and Development vs. Vertex Sales and Trading Inc., G.R. No. 202079, June 10,
2013
Section 63 of the Corporation Code provides that shares of stock so issued are personal property
and may be transferred by delivery of the certificate or certificates indorsed by the owner or his
attorney-in-fact or other person legally authorized to make the transfer. The failure of the
stockholder to deliver the stock certificate to the buyer within a reasonable time the shares covered
by the stock certificate should have been delivered is a substantial breach that entitles the buyer to
rescind the sale under Article 1191 of the Corporation Code. It is not entirely correct to say the sale
had already been consummated as the buyer already enjoyed the rights a shareholder can exercise.
The enjoyment of these rights will not suffice where the law, by its express terms, requires a specific
form to transfer ownership.

Yujuico v. Quaiambao, G.R. No. 180416, 02 June 2014

A criminal action based on the violation of a stockholder’s right to examine or inspect the corporate
records and the stock and transfer book of a corporation under the second and fourth paragraphs
of Section 74 of the Corporation Code can only he maintained against corporate officers or any other
persons acting on behalf of such corporation. The complaint and the evidence Quiambao and
Sumbilla submitted during preliminary investigation do not establish that Quiambao and Pilapil
were acting on behalf of STRADEC. Violations of Section 74 contemplates a situation wherein a
corporation, acting thru one of its officers or agents, denies the right of any of its stockholders to
inspect the records, minutes and the stock and transfer book of such corporation. Thus, the
dismissal is valid.

SME BANK INC, vs. GASPAR, G.R. No. 186641, October 8, 2013
In this case, the corporate officers and directors who induced the employees to resign with the
assurance that they would be rehired by the new management are personally liable to the
employees who were not actually rehired. However, the officer who did not participate in the
termination of employment and persons who participated in the unlawful termination of
employment but are not directors and officers of the corporation are not personally liable.

Bank of Commerce v Radio Philippines Network, G.R. No. 195615, 21 April 2014
Indubitably, it is clear that no merger took place between Bancommerce and TRB as the
requirements and procedures for a merger were absent. A merger does not become effective upon
the mere agreement of the constituent corporations. All the requirements specified in the law must
be complied with in order for merger to take effect. Here, Bancommerce and TRB remained separate
corporations with distinct corporate personalities. What happened is that TRB sold and
Bancommerce purchased identified recorded assets of TRB in consideration of Bancommerce’s
assumption of identified recorded liabilities of TRB including booked contingent accounts. There is
no law that prohibits this kind of transaction especially when it is done openly and with appropriate
government approval.

Mindanao Savings and Loan Association, Inc., represented by its Liquidator, the Philippine
Deposit Insurance Corporation vs. Edward Willkom; Gilda Go; RemediosUy; MalayoBantuas,
in his capacity as the Deputy Sheriff of Regional Trial Court, Branch 3, Iligan City; and the
Register of Deeds of Cagayan de Oro City, G.R. No. 178618, October 11, 2010
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.

Bank of the Philippine Islands vs. BPI Employees Union- Davao Chapter-Federation Of Unions
In Bpi Unibank, G.R. No. 164301, October 19, 2011
It is more in keeping with the dictates of social justice and the State policy of according full
protection to labor to deem employment contracts as automatically assumed by the surviving
corporation in a merger, even in the absence of an express stipulation in the articles of merger or
the merger plan. By upholding the automatic assumption of the non-surviving corporation’s existing
employment contracts by the surviving corporation in a merger, the Court strengthens judicial
protection of the right to security of tenure of employees affected by a merger and avoids confusion
regarding the status of their various benefits which were among the chief objections of our
dissenting colleagues.

Bank of Philippine Islands v. Lee, G.R. No. 190144, August 1, 2012

Citytrust, therefore, upon service of the notice of garnishment and its acknowledgment that it was
in possession of defendants’ deposit accounts became a “virtual party” to or a “forced intervenor” in
the civil case. As such, it became bound by the orders and processes issued by the trial court despite
not having been properly impleaded therein. Consequently, by virtue of its merger with BPI, the
latter, as the surviving corporation, effectively became the garnishee, thus the “virtual party” to the
civil case.

Aguirre vs. FQB +7, Inc, GR No. 170770, January 9 2013

An action to correct entries in the General Information Sheet of the Corporation; to be recognized
as a stockholder and to inspect corporate documents is an intra-corporate dispute which does not
constitute a continuation of corporate business. As such, pursuant to Section 145 of the Corporation
Code, this action is not affected by the subsequent dissolution of the corporation. 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.

Rene Knecht and Knecht, Inc. vs. United Cigarette Corp., represented by Encarnacion
Gonzales Wong, and Eduardo Bolima, Sheriff, Regional Trial Court, Branch 151, Pasig City,
G.R. No. 139370, July 4, 2002
The trustee (of a dissolved corporation) may commence a suit which can proceed to final judgment
even beyond the three-year period of liquidation. No reason can be conceived why a suit already
commenced by the corporation itself during its existence, not by a mere trustee who, by fiction,
merely continues the legal personality of the dissolved corporation, should not be accorded similar
treatment – to proceed to final judgment and execution thereof. Indeed, the rights of a corporation
that has been dissolved pending litigation are accorded protection by Section 145 of the Corporation
Code which provides “no right or remedy in favor of or against any corporation, its stockholders,
members, directors, trustees, or officers, nor any liability incurred by any such corporation,
stockholders, members, directors, trustees, or officers, shall be removed or impaired either by the
subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code
or of any part thereof.”

Lucia Barramedavda. de Ballesteros vs. Rural Bank of Canaman, Inc., represented by its
liquidator, the Philippine Deposit Insurance Corporation, G.R. No. 176260, November 24,
2010
To allow a creditor’s case to proceed independently of the liquidation case, a possibility of favorable
judgment and execution thereof against the assets of the distressed corporation would not only
prejudice the other creditors and depositors but would defeat the very purpose for which a
liquidation court was constituted as well. The requirement that all claims against the bank be
pursued in the liquidation proceedings filed by the Central Bank is intended to prevent multiplicity
of actions against the insolvent bank and designed to establish due process and orderliness in the
liquidation of the bank, to obviate the proliferation of litigations and to avoid injustice and
arbitrariness.
Alabang Corporation Development vs. Alabang Hills Village Association, G.R. No. 187456, 02
June 2014
ADC filed its complaint not only after its corporate existence was terminated but also beyond the
three-year period allowed by Section 122 of the Corporation Code. To allow ADC to initiate the
subject complaint and pursue it until final judgment, on the ground that such complaint was filed
for the sole purpose of liquidating its assets, would be to circumvent the provisions of Section 122
of the Corporation Code. Thus, it is clear that at the time of the filing of the subject complaint
petitioner lacks the capacity to sue as a corporation.

Vigilla vs. Philippine College of Criminology, GR No. 200094, June 10, 2013
The executed releases, waivers and quitclaims are valid and binding upon the parties
notwithstanding the fact that these documents were signed six years after the Corporation’s
revocation of the Certificate of Incorporation. These documents are thus proof that the employees
had received their claims from their employer-corporation in whose favor the release and quitclaim
were issued. The revocation of the corporation does not mean the termination of its liabilities to
these employees. Section 122 of the Corporation Code provides for a three-year winding up period
for a corporation whose charter is annulled by forfeiture or otherwise to continue as a body
corporate for the purpose, among others, of settling and closing its affairs. As such, these liabilities
are obligations of the dissolved corporation and not of the corporation who contracted the services
of the dissolved corporation.

Sergio F. Naguiat, doing business under the name and style Sergio F. NaguiatEnt., Inc., & Clark
Field Taxi, Inc. vs. National Labor Relations Commission (Third Division), National
Organization Of Workingmen and its members, Leonardo T. Galang, et al., G.R. No. 116123,
13 March 1997
To the extent that the stockholders are actively engaged in the management or operation of the
business and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties
to each other and among themselves. Said stockholders shall be personally liable for corporate torts
unless the corporation has obtained reasonably adequate liability insurance.
PetroniloJ. Barayuga vs. Adventist University of the Philippines, through its Board of
Trustees, represented by its Chairman, Nestor D. Dayson, G.R. No. 168008, August 17, 2011
The second paragraph of Section 108 of the Corporation Code, although setting the term of the
members of the Board of Trustees at five years, contains a proviso expressly subjecting the duration
to what is otherwise providedin the articles of incorporation or by-laws of the educational
corporation. In AUP’s case, its amended By-Laws provided that members of the Board of Trustees
were to serve a term of office of only two years; and the officers, who included the President, were
to be elected from among the members of the Board of Trustees during their organizational meeting,
which was held during the election of the Board of Trustees every two years. Naturally, the officers,
including the President, were to exercise the powers vested by Section 2 of the amended By-Laws
for a term of only two years, not five years.

Rev. Luis Ao-as, et al. vs. Hon. Court of Appeals, G.R. No. 128464, June 20, 2006
Section 89 of the Corporation Code pertaining to non-stock corporations which provides that “the
right of the members of any class or classes (of a non-stock corporation) to vote may be limited,
broadened or denied to the extent specified in the articles of incorporation or the by-laws,” is an
exception to Section 6 of the same code where it is provided that “no share may be deprived of voting
rights except those classified and issued as ‘preferred’ or ‘redeemable’ shares, unless otherwise
provided in this Code.” The stipulation in the By-Laws providing for the election of the Board of
Directors by districts is a form of limitation on the voting rights of the members of a non-stock
corporation as recognized under the aforesaid Section 89.

Cargill, Inc. vs. Intra Strata Assurance Corporation, G.R. No. 168266, March 15, 2010
A foreign company that merely imports goods from a Philippine exporter, without opening an office
or appointing an agent in the Philippines, is not doing business in the Philippines. Since the contract
between petitioner and NMC involved the purchase of molasses by petitioner from NMC, it was NMC,
the domestic corporation, which derived income from the transaction and not petitioner. To
constitute “doing business,” the activity undertaken in the Philippines should involve profit-making.

Hutchison Ports Philippines Limitedvs.Subic Bay Metropolitan Authority, International

Container Terminal Services Inc., Royal Port Services, Inc. and the Executive Secretary, G.R.
No. 131367, August 31, 2000
There is no general rule or governing principle laid down as to what constitutes “doing” or “engaging
in” or “transacting” business in the Philippines. Each case must be judged in the light its peculiar
circumstances. Thus, it has often been held that a single act or transaction may be considered as
“doing business” when a corporation performs acts for which it was created or exercises some of
the functions for which it was organized. The amount or volume of the business is of no moment,
for even a singular act cannot be merely incidental or casual if it indicates the foreign corporation’s
intention to do business. Participating in the bidding process constitutes “doing business” because it
shows the foreign corporation’s intention to engage in business here.

Steelcase, Inc. vs. Design International Selections, Inc., G.R. No. 171995, April 18, 2012
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. If the distributor is an independent
entity which buys and distributes products, other than those of the foreign corporation, for its own
name and its own account, the latter cannot be considered to be doing business in the Philippines.

MR Holdings, Ltd.vs. Sheriff Carlos P. Bajar, Sheriff Ferdinand M. Jandusay, Solidbank

Corporation, and Marcopper Mining Corporation, G.R. No. 138104, April 11, 2002
Global Business Holdings, Inc. vs. Surecomp Software, B.V., G.R. No. 173463, October 13, 2010
A party is estopped from challenging the personality of a corporation after having acknowledged
the same by entering into a contract with it. The principle is applied to prevent a person contracting
with a foreign corporation from later taking advantage of its noncompliance with the statutes,
chiefly in cases where such person has received the benefits of the contract.
Securities Regulation Code

Betty Gabionza and Isabelita Tan vs. Court of Appeals, G.R. No. 161057, September 12, 2008
The issuance of checks for the purpose of securing a loan to finance the activities of the corporation
is well within the ambit of a valid corporate act. It is one thing for a corporation to issue checks to
satisfy isolated individual obligations, and another for a corporation to execute an elaborate scheme
where it would comport itself to the public as a pseudo-investment house and issue postdated
checks instead of stocks or traditional securities to evidence the investments of its patrons.

Securities and Exchange Commission vs. Prosperity.Com, Inc., G.R. No. 164197, January 25,
2012
For an investment contract to exist, the following elements, referred to as the Howey test must
concur: (1)a contract, transaction, or scheme; (2)an investment of money; (3)investment is made in
a common enterprise; (4) expectation of profits; and (5)profits arising primarily from the efforts of
others. Network marketing, a scheme adopted by companies for getting people to buy their products
where the buyer can become a down-line seller, who earns commissions from purchases made by
new buyers whom he refers to the person who sold the product to him, is not an investment
contract.

Securities and Exchange Commission vs. Oudine Santos, G.R. No. 195542, March 19, 2014
A person is liable for violation of Section 28 of the SRC where, acting as a broker, dealer or salesman
is in the employ of a corporation which sold or offered for sale unregistered securities in the
Philippines. The transaction initiated by the investment consultant of a corporation is an investment
contract or participation in a profit sharing agreement that falls within the definition of law—an
investment in a common venture premised on a reasonable expectation of profits to be derived from
the entrepreneurial or managerial efforts of others.
Securities and Exchange Commission vs. Interport Resources Corporation, et. al., G.R. No.
135808, October 6, 2008
The term “insiders” now includes persons whose relationship or former relationship to the issuer
gives or gave them access to a fact of special significance about the issuer or the security that is not
generally available, and one who learns such a fact from an insider knowing that the person from
whom he learns the fact is such an insider. Insiders have the duty to disclose material facts which
are known to them by virtue of their position but which are not known to persons with whom they
deal and which, if known, would affect their investment judgment.

Philippine Veterans Bank v. Callangan, in her capacity Director of the Corporation Finance
Department of the Securities and Exchange Commission and/or the Securities and Ex-change
Commission, G.R. No. 191995, August 3, 2011

A “public company,” as contemplated by the SRC is not limited to a company whose shares of stock
are publicly listed; even companies whose shares are offered only to a specific group of people, are
considered a public company, provided they fall under Subsec. 17.2 of the SRC, which provides: “any
corporation with a class of equity securities listed on an Exchange or with assets of at least Fifty
Million Pesos (P50,000,000.00) and having two hundred (200) or more holders, at least two
hundred (200) of which are holding at least one hundred (100) shares of a class of its equity
securities.” Philippine Veterans Bank meets the requirements and as such, is subject to the
reportorial requirements for the benefit of its shareholders.

Cemco Holdings, Inc. vs. National Life Insurance Company of the Philippines, G.R. No. 171815,
August 7, 2007
A tender offer is an offer by the acquiring person to stockholders of a public company for them to
tender their shares; it gives the minority shareholders the chance to exit the company under
reasonable terms, giving them the opportunity to sell their shares at the same price as those of the
majority shareholders. The mandatory tender offer is still applicable even if the acquisition, direct
or indirect, is less than 35% when the purchase would result in ownership of over 51% of the total
outstanding equity securities of the public company.

Securities and Exchange Commission vs. Interport Resources Corporation, et. al., G.R. No.
135808, October 6, 2008
Section 27 (SRC) penalizes an insider’s misuse of material and non-public information about the
issuer, for the purpose of protecting public investors; Section 26 widens the coverage of punishable
acts, which intend to defraud public investors through various devices, misinformation and
omissions. Section 23 imposes upon (1) a beneficial owner of more than ten percent of any class of
any equity security or (2) a director or any officer of the issuer of such security, the obligation to
submit a statement indicating his or her ownership of the issuer’s securities and such changes in his
or her ownership thereof.

Jose U. Pua vs. Citibank, N. A. G.R. No. 180064, September 16, 2013
Civil suits falling under the SRC (like liability for selling unregistered securities) are under the
exclusive original jurisdiction of the RTC and hence, need not be first filed before the SEC, unlike
criminal cases wherein the latter body exercises primary jurisdiction.