Bataan Shipyard Engineering Co., Inc. vs. PCGG (G.R. No.

75885
May 27, 1987)
Facts: Challenged in this special civil action of certiorari and prohibition
by a private corporation known as the Bataan Shipyard and Engineering
Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by
President Corazon C. Aquino on February 28, 1986 and March 12, 1986,
respectively, and (2) the sequestration, takeover, and other orders
issued, and acts done, in accordance with said executive orders by the
Presidential Commission on Good Government and/or its Commissioners
and agents, affecting said corporation. The sequestration order issued on
April 14, 1986 was addressed to three of the agents of the Commission,
ordering them to sequester several companies among which is Bataan
Shipyard and Engineering Co., Inc. On the strength of the above
sequestration order, several letters were sent to BASECO among which is
that from Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated
April 18, 1986 to the President and other officers of petitioner firm,
reiterating an earlier request for the production of certain documents.
The letter closed with the warning that if the documents were not
submitted within five days, the officers would be cited for "contempt in
pursuance with Presidential Executive Order Nos. 1 and 2." BASECO
contends that its right against self incrimination and unreasonable
searches and seizures had been transgressed by the Order of April 18,
1986 which required it "to produce corporate records from 1973 to 1986
under pain of contempt of the Commission if it fails to do so." BASECO
prays that the Court 1) declare unconstitutional and void Executive
Orders Numbered 1 and 2; 2) annul the sequestration order dated April14, 1986, and all other orders subsequently issued and acts done on the
basis thereof, inclusive of the takeover order of July 14, 1986 and the
termination of the services of the BASECO executives.
Issue: Whether or not BASECOs right against self-incrimination and
unreasonable searches and seizures was violated.
Ruling: No. The order to produce documents was issued upon the
authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's
power to "issue subpoenas requiring * * the production of such books,
papers, contracts, records, statements of accounts and other documents
as may be material to the investigation conducted by the Commission. It
is elementary that the right against self-incrimination has no application
to juridical persons. While an individual may lawfully refuse to answer
incriminating questions unless protected by an immunity statute, it does
not follow that a corporation, vested with special privileges and
franchises, may refuse to show its hand when charged with an abuse of

such privileges. Corporations are not entitled to all of the constitutional

protections, which private individuals have. They are not at all within the
privilege against self-incrimination; although this court more than once
has said that the privilege runs very closely with the 4th Amendment's
Search and Seizure provisions. It is also settled that an officer of the
company cannot refuse to produce its records in its possession upon the
plea that they will either incriminate him or may incriminate it." The
corporation is a creature of the state. It is presumed to be incorporated
for the benefit of the public. It received certain special privileges and
franchises, and holds them subject to the laws of the state and the
limitations of its charter. Its powers are limited by law. It can make no
contract not authorized by its charter. Its rights to act as a corporation
are only preserved to it so long as it obeys the laws of its creation. There
is a reserve right in the legislature to investigate its contracts and find
out whether it has exceeded its powers. It would be a strange anomaly to
hold that a state, having chartered a corporation to make use of certain
franchises, could not, in the exercise of sovereignty, inquire how these
franchises had been employed, and whether they had been abused, and
demand the production of the corporate books and papers for that
purpose. The defense amounts to this, that an officer of the corporation
which is charged with a criminal violation of the statute may plead the
criminality of such corporation as a refusal to produce its books. To state
this proposition is to answer it. While an individual may lawfully refuse to
answer incriminating questions unless protected by an immunity statute,
it does not follow that a corporation, vested with special privileges and
franchises may refuse to show its hand when charged with an abuse of
such privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis,
the Solicitor General's]) The constitutional safeguard against
unreasonable searches and seizures finds no application to the case at
bar either. There has been no search undertaken by any agent or
representative of the PCGG, and of course no seizure on the occasion
thereof.
Firme vs Bukal Enterprises and Dev. Corp
414 SCRA 190 (2003)

This is a petition for review on certiorari of the Decision dated 3 January

2001 of the Court of Appeals in CA-G.R. CV No. 60747. The Court of
Appeals reversed the Decision of the Regional Trial Court, Branch 223,
Quezon City

Property. Upon visit in their property, the spouses saw that there are
already improvements made and the squatters vacated the premises.
Facts : Petitioner Spouses Constante and Azucena Firme ("Spouses
Firme") are the registered owners of a parcel of land ("Property") located
on Dahlia Avenue, Fairview Park, Quezon City. Renato de Castro ("De
Castro"), the vice president of Bukal Enterprises and Development
Corporation ("Bukal Enterprises") authorized his friend, Teodoro Aviles
("Aviles"), a broker, to negotiate with the Spouses Firme for the purchase
of the Property.
Bukal Enterprises filed a complaint for specific performance and damages
with the trial court and asked the trial court to order the Spouses Firme to
execute the deed of sale and to deliver the title to the Property to Bukal
Enterprises upon payment of the agreed purchase price.
Aviles , one of the witnesses, testified that he was authorized to
represent Bukal Enterprises and he presented a draft of the Deed of Sale
to the petitioners but such draft is rejected due to several objectionable
conditions, including the payment of capital gains and other government
taxes by the seller and the relocation of the squatters at the sellers
expense. Allegedly the petitioners accepted the second draft upon the
deletion of the objectionable conditions and agreed that payment would
be made at the Far East Bank and Trust Company ("FEBTC"), Padre Faura
Branch, Manila. However, the scheduled payment had to be postponed
due to problems in the transfer of funds and after that the spouses
informed Aviles that they were no longer interested in selling the
[Link] Enterprises then filed a complaint for specific performance
and damages.
On the other hand, Dr. Constante Firme ("Dr. Firme") was the sole witness
for the defendant, testified that on 30 January 1995, he and his wife met
with Aviles at the Aristocrat Restaurant in Quezon City. Aviles arranged
the meeting with the Spouses Firme involving their Property in Fairview.
Aviles offered to buy the Property at P2,500 per square meter. The
Spouses Firme did not accept the offer because they were reserving the
Property for their children. On 6 February 1995, the Spouses Firme met
again with Aviles upon the latters insistence. Aviles showed the Spouses
Firme a copy of a draft deed of sale ("Third Draft") which Aviles prepared.
Spouses Firme did not accept the Third Draft because they found its
provisions one-sided. The Spouses Firme particularly opposed the
provision on the delivery of the Propertys title to Bukal Enterprises for
the latter to obtain a loan from the bank and use the proceeds to pay for
the Property. The Spouses Firme repeatedly told Aviles that the Property
was not for sale when Aviles called on 2 and 4 March 1995 regarding the

On 22 March 1995, the Spouses Firme received a letter dated 7 March

1995 from Bukal Enterprises demanding that they sell the Property and
on 7 August 1998, the trial court rendered judgment against Bukal
Enterprises dissmissing the complaint.
Bukal Enterprises appealed to the Court of Appeals, which reversed and
set aside the decision of the trial court.

Issue: Whether there is a perfected sale?if so is it valid despite there is a

lack of authorization from the Board of Directors?

Ruling: The Supreme Court ruled that there is no perfected contract of

sale. Records indubitably show that there was no consent on the part of
the Spouses Firme. Spouses Firme found the terms and conditions
unacceptable and told Aviles that they would not sell the property. De
Castro also admitted that he was aware of the Spouses Firmes refusal to
sell the Property. The confusing testimony of Aviles taken together with
De Castros admission that he was aware of the Spouses Firmes refusal
to sell the Property reinforces Dr. Firmes testimony that he and his wife
never consented to sell the Property. The essence of consent is the
conformity of the parties on the terms of the contract, the
acceptance by one of the offer made by the other. The contract to
sell is a bilateral contract. Where there is merely an offer by one party,
without the acceptance of the other, there is no consent. Assuming there
is a valid sale, there was no approval from the Board of Directors of Bukal
Enterprises as would finalize any transaction with the Spouses Firme.
Aviles did not have the proper authority to negotiate for Bukal
Enterprises. Aviles testified that his friend, De Castro, had asked him to
negotiate with the Spouses Firme to buy the Property. However, there is
no Board Resolution authorizing Aviles to negotiate and purchase the
Property on behalf of Bukal Enterprises. It is the board of directors or
trustees which exercises almost all the corporate powers in a corporation.
The Corporation Code provides :

SEC. 23. The board of directors or trustees. Unless otherwise

provided in this Code, the corporate powers of all corporations formed

under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of
directors or trustees to be elected from among the holders of stock, or
where there is no stock, from among the members of the corporation,
who shall hold office for one (1) year and until their successors are
elected and qualified.

SEC. 36. Corporate powers and capacity. Every corporation

incorporated under this Code has the power and capacity:
xxx
To purchase, receive, take or grant, hold, convey, sell, lease, pledge,
mortgage and otherwise deal with such real and personal property,
including securities and bonds of other corporations, as the transaction of
a lawful business of the corporation may reasonably and necessarily
require, subject to the limitations prescribed by the law and the
Constitution.
Under these provisions, the power to purchase real property is vested in
the board of directors or trustees. While a corporation may appoint
agents to negotiate for the purchase of real property needed by the
corporation, the final say will have to be with the board, whose approval
will finalize the transaction. 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 by-laws.

R.F. Sugay vs Reyes 12 SCRA 700 (1964)

An appeal from a decision of the Workmen's Compensation Commission
Facts : Respondents Pablo Reyes and Cesar Curata suffered burns of
various degrees, while painting the building of the Pacific Products, Inc.,
caused by a fire of accidental origin, resulting in their temporary
disability from work. For said injuries they filed claims for disability and
medical expenses against the R. F. Sugay & Co., Inc., Romulo F. Sugay
and the Pacific Products, Inc. The R. F. Sugay & Co., Inc., answered the
claim, alleging that the corporation was not the employer of the
claimants but it was the Pacific Products, Inc., which had an
administration and supervision job contract with Romulo F. Sugay, who,
aside from being the President of the corporation, bearing his name, had

also a business of his own, distinct and separate from said corporation;
and that the Regional Office of the Department of Labor had no
jurisdiction over the subject matter. Romulo Sugay voluntary appeared
during the scheduled hearings and denied the liabilities. Pacific Products,
Inc. on the other hand averred that its business was mainly in the
manufacture and sale of lacquer and other painting materials. As
defenses, it stated that the claimants were the employees of respondents
R. F. Sugay Construction Co., Inc., and/or Romulo F. Sugay. The Hearing
Officer dismissed the case and exempted R. F. Sugay Construction Co.,
Inc., and Romulo F. Sugay from any liability for lack of employeremployee relationship with the claimants. . The officer ordered Pacific
Products to pay the injured workers. Pacific Products, Inc., appealed the
above decision to the Commission and Commissioner Jose Sanchez
rendered judgment affirming the compensability of the injuries and the
amounts due them, but modified the decision of the Hearing Officer, by
finding that R. F. Sugay & Co., Inc., was the statutory employer of the
claimants and should be liable to them. Pacific Products, Inc., was
absolved from all responsibility. R. F. Sugay Construction Co., Inc. filed a
motion of reconsideration but the Commission en banc denied the
motion.

Issue : Is R.F. Sugay construction Co., Inc. the employer of the injured
workers? Is it liable?

Ruling: The Supreme Court ruled that R.F. Sugay construction Co., Inc. is
the employer of the workers. The Court find that the findings of facts
made by the Commissioner and concurred in by the Commission en banc
are fully supported by the evidence on record which clearly points out
that R. F. Sugay & Co., is the statutory employer of the claimants. The
decisive elements showing that it is the employer, are present, such as
selection and engagement; payment of wages; power of dismissal, and
control.
There was a faint attempt by the petitioning corporation, to evade
liability, by advancing the theory that Romulo P. Sugay, its President, was
the one who entered into a contract of administration and supervision for
the painting of the factory of the Pacific Products, Inc., and making it
appear that said Romulo F. Sugay acted as an agent of the Pacific
Products, Inc., and as such, the latter should be made answerable to the
compensation due to the claimants. We, however, agree with the
Commission that "the dual roles of Romulo F. Sugay should not be

allowed to confuse the facts relating to employer-employee relationship."

It is a legal truism that when the veil of corporate fiction is made as a
shield to perpetrate a fraud and/or confuse legitimate issues (here, the
relation of employer-employee), the same should be pierced. Verily the R.
F. Sugay & Co., Inc. is a business conduit of R. F. Sugay.

RICARDO TANTONGCO, petitioner, v. KAISAHAN NG MGA

MANGGAGAWA SA LA CAMPANA (KKM) and THE HONORABLE
COURT OF INDUSTRIAL RELATIONS, respondents
GR No. L-13119 || September 22, 1959

The present case is a petition for Certiorari and prohibition with prayer
for the issuance of a writ of preliminary injunction to prohibit the
respondent Court of Industrial Relations from proceeding with the hearing
of the contempt proceedings.

FACTS La Campana Starch Factory and La Campana Coffee Factory (La

Campana for Brevity) are two separate entities run by a single
management under the leadership of Ramon Tantongco. Kaisahan ng
mga Manggagawa sa La Campana (Kaisahan for brevity), on the other
hand, is a labor union with members from the two companies. Sometime
in June, 1951, representatives of Kaisahan approached the management1.
of La Campana to demand higher wages and more benefits. A deadlock
ensued since none of the parties is willing to give concessions. The2.
dispute was certified to the Court of Industrial Relations (CIR). La
Campana filed a motion to dismiss before the CIR claiming that the CIR
has no jurisdiction because only those from the coffee factory were3.
presenting the demands there were only 14 employees in said factory.
This was done in light of the requirement that at least 31 employees
should present the demands. The motion was denied by the CIR.

According to the CIR, the Kaisahan was the one that presented the
demands and not just the workers in the coffee factory. The Supreme
Court affirmed the order of the CIR citing that although the two entities
are separate, there is only one management. The entire membership of
the Kaisahan is therefore to be counted and not simply those employed
in the coffee factory. Additional incidental cases were filed by Kaisahan
before the CIR including a petition for the reinstatement of some
employees. Ramon Tantongco died some time in 1956. The administrator
of the estate of Ramon Tantongco, herein petitioner Ricardo Tantongco,
was ordered included as respondent in the cases pending before the CIR.
The CIR rendered a decision on the incidental cases and ordered the
reinstatement of the dismissed employees. When the employees
reported to work, the management refused them admittance. Kaisahan
then filed a petition to cite the management in contempt before the CIR.
Hence this petition.

CONTENTIONS Petitioner: The two companies ceased to exist upon the

death of Ramon Tantongco. The Supreme Court held in GR No. L-5677
that La Campana and Ramon Tantongco are one based on the doctrine of
piercing the veil of corporate existence. Therefore, the death of Ramon
Tantongco meant the death of La Campana. Since La Campana already
ceased to exist, the CIR no longer has jurisdiction over it. The claims
should have been filed with the probate court.
Defendant: La Campana continues to exist despite the death of Ramon
Tantongco. The CIR therefore has jurisdiction when it rendered its
decision on the incidental cases. The non-compliance by La Campana
therefore amounted to contempt of court.

ISSUE
WON La Campana ceased to exist upon the death of Ramon Tantongco;
WON the Doctrine of Piercing the Veil of Corporate Existence applies to
the present case; and
WON the contempt of court proceedings in the CIR should proceed.

RULING The Supreme Court DENIED the Petition for Certiorari and
Prohibition. It ruled that La Camapana continued to exist despite the
death of Ramon Tantongco. It further ruled that the Doctrine of Piercing
the Veil of Corporate Existence is not applicable in the present case.
Finally, it allowed the CIR to proceed with the contempt hearing.

1 and 2
The death of Ramon Tantongco did not end the existence of La
Campana. The Supreme Court applied the Doctrine of Piercing the Veil of
Corporate Existence in GR no. L-5677 to avoid the use of technicality to
defeat the jurisdiction of the CIR. In the said case, the Court determined
that although La Campana are two separate companies, they are being
managed by only one management. Furthermore, the workers of both
factories were interchangeably assigned. In the present case, however,
the Court ruled that despite the obvious fact that La Campana was run by
the same people, they still are two different companies with separate
personalities from Ramon Tantongco. La Campana was owned not only by
Ramon but others as well including Ricardo Tantongco. Lastly, the Court
ruled that petitioner is under estoppel and cannot claim that La Campana
and Ramon are one and the same since he has represented La Campana
as separate entities in numerous dealings.

3. Ricardo Tantongco should still face the contempt proceedings because

under Section 6 of Commonwealth Act No. 143, In case the employer (or
landlord) committing any such violation or contempt is an association or
corporation, the manager or the person who has the charge of the
management of the business of the association or corporation and the
officers of directors thereof who have ordered or authorized the violation
of contempt shall be liable. . . . Since Tantongco is the General Manager
of La Campana, he is still obliged to appear at the contempt proceedings.

G.R. No. L-67626 April 18, 1989

JOSE REMO, JR., petitioner, vs. THE HON. INTERMEDIATE
APPELLATE COURT and E.B. MARCHA TRANSPORT COMPANY, INC.,
represented by APIFANIO B. MARCHA, respondents.

Nature: Petition for review, seeking the reversal of the decision of the
Intermediate Appellate Court

Facts:On December, 1977, the board of directors of Akron Customs

Brokerage Corporation, of which petitioner Jose Remo, Jr. was a member,
adopted a resolution authorizing the purchase of thirteen (13) trucks for
use in its business to be paid out of a loan the corporation may secure
from any lending institution.

Feliciano Coprada, as President and Chairman of Akron, purchased the 13

trucks from private respondent for P525,000.00 as evidenced by a deed
of absolute sale. In a side agreement of the same date, the parties
agreed on a downpayment of P50,000.00 and that the balance of
P475,000.00 to be paid within sixty (60) days from the date of the
execution of the agreement. The parties also agreed that until said
balance is fully paid, the down payment of P50,000.00 shall accrue as
rentals of the 13 trucks; and failure of Akron to pay the balance within
the period of 60 days shall create a chattel mortgage lien covering said
cargo trucks and the parties may allow an extension of 30 days and
thereafter private respondent may ask for a revocation of the contract
and the reconveyance of all said trucks. The obligation is secured by a
promissory note executed by Coprada in favor of Akron. It is stated in the
promissory note that the balance shall be paid from the proceeds of a
loan obtained from the Development Bank of the Philippines (DBP) within
sixty (60) days.
After the lapse of 90 days, private respondent tried to collect from
Coprada but the latter promised to pay only upon the release of the DBP
loan. Private respondent sent Coprada a letter of demand dated May 10,
1978. In his reply to the said letter, Coprada reiterated that he was
applying for a loan from the DBP from the proceeds of which payment of
the obligation shall be made.
Upon inquiry, private respondent found that no loan application was ever
filed by Akron with DBP. Coprada wrote private respondent begging for a
grace period of until the end of the month to pay the balance of the
purchase price, promising that he will update the rentals within the week;
and in case he fails, then he will return the 13 units should private
respondent elect to get back the same. Private respondent, through
counsel, wrote Akron on August 1, 1978 demanding the return of the 13
trucks and the payment of P25,000.00 back rentals covering the period

from June 1 to August 1, 1978. Coprada again asked for another grace
period stating as well that he is expecting the approval of his loan
application from a certain financing company, and that ten (10) trucks
have been returned to Bagbag, Novaliches.
In due time, private respondent filed a compliant for the recovery of
P525,000.00 or the return of the 13 trucks with damages against Akron
and its officers and directors with the then Court of First Instance of Rizal.
Only petitioner answered the complaint denying any participation in the
transaction and alleging that Akron has a distinct corporate personality.
He was, however, declared in default for his failure to attend the pre-trial.
Petitioner on the other hand, sold all his shares in Akron to Copranda.
Akron thenafter changed its name to Akron Transport International, Inc.
The trial court ruled in favor of private respondents, ordering petitioner to
pay the purchase price for the 13 trucks, rentals, attorney's fees and the
cost of suit. On appeal, the IAC reversed the decision of the trial court.
However, on motion for reconsideration, the IAC affirmed the appealed
decision of the CFI.

purchase price out of the proceeds of a loan he supposedly sought from

the DBP. The word "WE' in the said promissory note must refer to the
corporation which Coprada represented in the execution of the note and
not its stockholders or directors. Petitioner did not sign the said
promissory note so he cannot be personally bound thereby. It is Coprada
who should account for the same and not petitioner.
As to the amendment of the articles of incorporation of Akron thereby
changing its name to Akron Transport International, Inc., petitioner
alleges that the change of corporate name was in order to include
trucking and container yard operations in its customs brokerage of which
private respondent was duly informed in a letter. 19 Indeed, the new
corporation confirmed and assumed the obligation of the old corporation.
There is no indication of an attempt on the part of Akron to evade
payment of its obligation to private respondent.
There is the fact that petitioner sold his shares in Akron to Coprada
during the pendency of the case. Since petitioner has no personal
obligation to private respondent, it is his inherent right as a stockholder
to dispose of his shares of stock anytime he so desires.

Issue: Was the IAC correct in disregarding corporate fiction and holding
petitioner personally liable for the obligation of the Corporation?
Was the IAC correct in sanctioning the merger of the personality of the
corporation with that of the petitioner when the latter was held liable for
the corporate debts?
Petitioner's contention: Akron has a distinct corporate personality. As
such, he cannot be held personally liable for the liabilities of the
corporation.

Ruling: WHEREFORE, the petition is GRANTED. The questioned resolution

of the Intermediate Appellate Court dated February 8,1984 is hereby set
aside and its decision dated June 30,1983 setting aside the decision of
the trial court dated October 28, 1980 insofar as petitioner is concemed
is hereby reinstated and affirmed, without costs.

Private respondent's contention: It is a victim of fraud, which merits

the piercing of corporate fiction
Held: Petitioner cannot be held personally liable. There is no basis to
pierce the corporate veil of Akron and hold petitioner personally liable for
its obligation to private respondent. While it is true that petitioner was
still a member of the board of directors of Akron when a resolution was
adopted authorizing the purchase of 13 trucks, it does not appear that
said resolution was intended to defraud anyone and more particularly
private respondent.
It was Coprada, President and Chairman of Akron, who negotiated with
said respondent for the purchase of 13 cargo trucks, who signed a
promissory note to guarantee the payment of the unpaid balance of the

G.R. No. 124293

January 31, 2005

J.G. SUMMIT HOLDINGS, INC., petitioner,

vs.
COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its
Chairman and Members; ASSET PRIVATIZATION TRUST; and
PHILYARDS HOLDINGS, INC., respondents.

RESOLUTION

18, 1993. The highest bid, as well as the buyer, will be subject to final
approval of both APT and COP, and APT reserves the right in its sole
discretion to reject any or all bids.

PUNO, J.:

xxx xxx xxx

I. Facts

The APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee,
[PHILYARDS] Holdings, Inc., that the highest bid is acceptable to the
National Government. Kawasaki Heavy Industries, Inc. and/or
[PHILYARDS] Holdings, Inc. shall then have a period of thirty (30) calendar
days from the date of receipt of such advice from APT within which to
exercise their "Option to Top the Highest Bid" by offering a bid equivalent
to the highest bid plus five (5%) percent thereof.

January 27, 1997: National Investment and Development Corporation

(NIDC), a government corporation, entered into a Joint Venture
Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan
(KAWASAKI) for the construction, operation and management of the Subic
National Shipyard, Inc. (SNS) which subsequently became the Philippine
Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the
NIDC and KAWASAKI will contribute P330 million for the capitalization of
PHILSECO in the proportion of 60%-40% respectively. One of its salient
features is the grant to the parties of the right of first refusal should
either of them decide to sell, assign or transfer its interest in the joint
venture.
November 25, 1986: NIDC transferred all its rights, title and interest in
PHILSECO to the PNB, interests transferred to the National Government
pursuant to Admin Order No. 14. On December 8, 1986, Pres. Corazon C.
Aquino issued Proclamation No. 50 establishing the Committee on
Privatization (COP) and the Asset Privatization Trust (APT) to take title to,
and possession of, conserve, manage and dispose of non-performing
assets of the National Government. Thereafter, on February 27, 1987, a
trust agreement was entered into between the National Government and
the APT wherein the latter was named the trustee of the National
Government's share in PHILSECO. In 1989, as a result of a quasireorganization of PHILSECO to settle its huge obligations to PNB, the
National Government's shareholdings in PHILSECO increased to 97.41%
thereby reducing KAWASAKI's shareholdings to 2.59%.
In the interest of the national economy and the government, the COP and
the APT deemed it best to sell the National Government's 87.6% share in
PHILSECO (896,869,942 outstanding capital stock) to private entities in
the Indicative Price Bidding Basis of P1,300,000,000.00. After a series of
negotiations between the APT and KAWASAKI, they agreed that the
latter's right of first refusal under the JVA be "exchanged" for the right to
top by 5% the highest bid for the said shares. They further agreed that
KAWASAKI would be entitled to name a company in which it was a
stockholder, which could exercise the right to top. On September 7, 1990,
KAWASAKI informed APT that PHILYARDS Holdings, Inc. (PHI) would
exercise its right to top. A pre-bidding conference was held on September

6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings,

Inc. exercise their "Option to Top the Highest Bid," they shall so notify the
APT about such exercise of their option and deposit with APT the amount
equivalent to ten percent (10%) of the highest bid plus five percent (5%)
thereof within the thirty (30)-day period mentioned in paragraph 6.0
above. APT will then serve notice upon Kawasaki Heavy Industries, Inc.
and/or [PHILYARDS] Holdings, Inc. declaring them as the preferred bidder
and they shall have a period of ninety (90) days from the receipt of the
APT's notice within which to pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings,
Inc. fail to exercise their "Option to Top the Highest Bid" within the thirty
(30)-day period, APT will declare the highest bidder as the winning
bidder.
xxx xxx xxx
At the public bidding on the said date, petitioner J.G. Summit Holdings,
Inc. submitted P2,030,000,000.00 bid with an acknowledgment of
KAWASAKI/[PHILYARDS'] right to top. xxx
As petitioner was declared the highest bidder, the COP approved the sale
on December 3, 1993 "subject to the right of Kawasaki Heavy Industries,
Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5% as specified in
the bidding rules."
December 29, 1993: Petitioner informed APT that it was protesting the
offer of PHI to top its bid on the grounds that: (a) the KAWASAKI/PHI
consortium composed of KAWASAKI, [PHILYARDS], xx violated the ASBR
because the last four (4) companies were the losing bidders thereby
circumventing the law and prejudicing the weak winning bidder;

(b) only KAWASAKI could exercise the right to top; (c) giving the same
option to top to PHI constituted unwarranted benefit to a third party; (d)
no right of first refusal can be exercised in a public bidding or auction
sale;
February 2, 1994: Petitioner was notified that PHI had fully paid the
balance of the purchase price of the subject bidding. On February 7,
1994, the APT notified petitioner that PHI had exercised its option to top
the highest bid and that the COP had approved the same on January 6,
1994. On February 24, 1994, the APT and PHI executed a Stock Purchase
Agreement.
November 20, 2000: this Court reversed CA ruling that shipyard
(PHILSECO) is a public utility whose capitalization must be 60% Filipinoowned. Consequently, the right to top granted to KAWASAKI drafted for
the sale of 87.67% equity of the National Government in PHILSECO is
illegal- because it allows foreign corporations to own more than 40%
equity in the shipyard. This Court voided the transfer of the national
government's 87.67% share in PHILSECO to Philyard[s] Holdings, Inc.,
and upheld the right of JG Summit, as the highest bidder, to take title to
the said shares, viz:
(a) accept the said amount of P2,030,000,000.00 less bid deposit and
interests from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;

(2) Whether under the 1977 JVA, KAWASAKI can exercise its right of first
refusal only up to 40% of the total capitalization of PHILSECO; and
(3) Whether the right to top granted to KAWASAKI violates the principles
of competitive bidding.
(4) that the maintenance of the 60%-40% relationship between the
National Investment and Development Corporation (NIDC) and KAWASAKI
arises from contract and from the Constitution because PHILSECO is a
landholding corporation and need not be a public utility to be bound by
the 60%-40% constitutional limitation. Whether the exercise of its right of
first refusal by KAWASAKI of the 40% PHILSECO shares, a landholding
corporation, violates Constitutional provisions on foreign equity ratio of
60%-40% and yet owns long-term leasehold rights which are real rights
and also continues to own real property.

III. Held
In a Resolution dated September 24, 2003, this Court ruled in favor of the
respondents.
(1) We held that Philippine Shipyard and Engineering Corporation
(PHILSECO) is not a public utility, as by nature, a shipyard is not a public
utility and that no law declares a shipyard to be a public utility.

(c) cause the issuance in favor of petitioner of the certificates of stocks

representing 87.6% of PHILSECO's total capitalization;

(2) We found nothing in the 1977 Joint Venture Agreement (JVA) which
prevents Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) from
acquiring more than 40% of PHILSECOs total capitalization.

(d) return to private respondent PHGI the amount of Two Billion One
Hundred
Thirty-One
Million
Five
Hundred
Thousand
Pesos
(P2,131,500,000.00); and

(3) We held that the right to top granted to KAWASAKI in exchange for its
right of first refusal did not violate the principles of competitive bidding.

(e) cause the cancellation of the stock certificates issued to PHI.

SO ORDERED.

II. Issues
Respondents submitted four basic issues for Resolution:
(1) Whether PHILSECO is a public utility;

(4) No law disqualifies a person from purchasing shares in a landholding

corporation even if the latter will exceed the allowed foreign equity, what
the law disqualifies is the corporation from owning land.
Even if PHILYARDS owned land at the time of bidding, KAWASAKI had a
valid right of first refusal over PHILSECO shares under the JVA considering
that PHILSECO owned land until the time of the bidding and KAWASAKI
can exceed 40% of PHILSECOs equity, even it may have previously held
land but divested such landholdings, or retained, the right of first refusal,
being a property right, could be assigned to a qualified party. The mutual
right of first refusal in favor of NIDC and KAWASAKI does not amount to a

virtual transfer of land to a non-Filipino. In fact, the case at bar involves a

right of first refusal over shares of stock, not an option to buy the
land itself. The transfer could be made either to a nominee or such
other party which the holder of the right of first refusal feels it can
comfortably do business with. As discussed earlier, there is a distinction
between the shareholders ownership of shares and the corporations
ownership of land arising from the separate juridical personalities of the
corporation and its shareholders.
We uphold the validity of the mutual rights of first refusal under the JVA
between KAWASAKI and NIDC. First of all, the right of first refusal is a
property right of PHILSECO shareholders, KAWASAKI and NIDC, under the
terms of their JVA. This right allows them to purchase the shares of their
co-shareholder before they are offered to a third party. The agreement
of co-shareholders to mutually grant this right to each other, by
itself, does not constitute a violation of the provisions of the
Constitution limiting land ownership to Filipinos and Filipino
corporations.
32. To review the constitutional provisions involved, Section 14, Article
XIV of the 1973 Constitution (the JVA was signed in 1977), provided:
"Save in cases of hereditary succession, no private lands shall be
transferred or conveyed except to individuals, corporations, or
associations qualified to acquire or hold lands of the public domain."
32.1 This provision is the same as Section 7, Article XII of the 1987
Constitution.
32.2 Under the Public Land Act, corporations qualified to acquire or hold
lands of the public domain are corporations at least 60% of which is
owned by Filipino citizens (Sec. 22, Commonwealth Act 141, as amended)
The prohibition in the Constitution applies only to ownership of land. It
does not extend to immovable or real property as defined under
Article 415 of the Civil Code. Otherwise, we would have a strange
situation where the ownership of immovable property such as trees,
plants and growing fruit attached to the land would be limited to Filipinos
and Filipino corporations only.
PHILSECO still owns land, the right of first refusal can be validly assigned
to a qualified Filipino entity in order to maintain the 60%-40% ratio. This
transfer, by itself, does not amount to a violation of the Anti-Dummy
Laws, absent proof of any fraudulent intent. Alternatively, In fact, it can
even be said that if the foreign shareholdings of a landholding

corporation exceeds 40%, it is not the foreign stockholders

ownership of the shares which is adversely affected but the
capacity of the corporation to own land that is, the corporation
becomes disqualified to own land. This finds support under the basic
corporate law principle that the corporation and its stockholders are
separate juridical entities. In this vein, the right of first refusal over
shares pertains to the shareholders whereas the capacity to own land
pertains to the corporation. Hence, the fact that PHILSECO owns land
cannot deprive stockholders of their right of first refusal. This is the clear
import of the following provisions in the Constitution:
Section 2. xxx The State may directly undertake such activities, or it may
enter into co-production, joint venture, or production-sharing agreements
with Filipino citizens, or corporations or associations at least
sixty per centum of whose capital is owned by such citizens. xxx
xxx xxx xxx
The petitioner further argues that "an option to buy land is void in itself.
The right of first refusal granted to KAWASAKI, a Japanese corporation, is
similarly void. Hence, the right to top, sourced from the right of first
refusal, is also void." The case of Lui She did not that say "an option to
buy land is void in itself," for it is held that Lease to an alien for a
reasonable period is valid, and an option giving an alien the right to buy
real property is not completely excluded by Constitution from the use of
lands for residential purpose, and its temporary residence may be given
temporary rights such as lease contract which is not forbidden by the
same.
LIDDELL & CO., INC., petitioner-appellant, vs. THE COLLECTOR OF
INTERNAL REVENUE, respondent-appellee.
(G.R. No. L-9687, 30 June 1961)

This is an appeal from the decision of the Court of Tax Appeals imposing
a tax deficiency liability on Liddell & Co., Inc.

FACTS: The petitioner, Liddell & Co. Inc., (Liddell & Co. for short) is a
domestic corporation establish in the Philippines on February 1, 1946,
with an authorized capital of P100,000 divided into 1000 share at P100
each. Of this authorized capital, 196 shares valued at P19,600 were

subscribed and paid by Frank Liddell while the other four shares were in
the name of Charles Kurz, E.J. Darras, Angel Manzano and Julian Serrano
at one shares each. Its purpose was to engage in the business of
importing and retailing Oldsmobile and Chevrolet passenger cars and
GMC and Chevrolet trucks. After its incorporation, Lidell & Co. was able to
declare stock dividends, thereby increasing the issued capital stock of
the said corporation, which were duly approved by the Securities and
Exchange Commission. There has also been an agreement executed by
Frank Lidell on one hand, and Messrs. Kurz, Darras, Manzano and Serrano
on the other, which was further supplemented by two other
agreements wherein Frank Liddell transferred to various employees of
Liddell & Co. shares of stock. On the basis of the agreement, "40%" of the
earnings available for dividends accrued to Frank Liddell although at the
time of the execution of said instrument, Frank Liddell owned all of the
shares in said corporation. From 1946 until November 22, 1948, when the
purpose clause of the Articles of Incorporation of Liddell & Co. Inc., was
amended so as to limit its business activities to importations of
automobiles and trucks, Liddell & Co. was engaged in business as an
importer and at the same time retailer of Oldsmobile and Chevrolet
passenger cars and GMC and Chevrolet trucks. On December 20, 1948,
the Liddell Motors, Inc. was organized and registered with the Securities
and Exchange Commission with an authorized capital stock of P100,000
of which P20,000 was subscribed and paid for as follows: Irene Liddell
wife of Frank Liddell 19,996 shares and Messrs. Marcial P. Lichauco, E. K.
Bromwell, V. E. del Rosario and Esmenia Silva, 1 share each. At about the
end of the year 1948, Messrs. Manzano, Kurz and Kernot resigned from
their respective positions in the Retail Dept. of Liddell & Co. and they
were taken in and employed by Liddell Motors, Inc. Beginning January,
1949, Liddell & Co. stopped retailing cars and trucks; it conveyed them
instead to Liddell Motors, Inc. which in turn sold the vehicles to the public
with a steep mark-up. Since then, Liddell & Co. paid sales taxes on the
basis of its sales to Liddell Motors Inc. considering said sales as its
original sales.

PETITIONER-APPELLANT: Petitioner filed an appeal on the decision of the

Court of Tax Appeals affirming the position taken by the Collector of
Internal Revenue.

RESPONDENT-APPELLEE: Upon review of the transactions between Liddell

& Co. and Liddell Motors, Inc. the Collector of Internal Revenue
determined that the latter was but an alter ego of Liddell & Co.

Wherefore, he concluded, that for sales tax purposes, those sales made
by Liddell Motors, Inc. to the public were considered as the original sales
of Liddell & Co. Accordingly, the Collector of Internal Revenue assessed
against Liddell & Co. a sales tax deficiency, including surcharges. In the
computation, the gross selling price of Liddell Motors, Inc. to the general
public from January 1, 1949 to September 15, 1950, was made the basis
without deducting from the selling price, the taxes already paid by Liddell
& Co. in its sales to the Liddell Motors Inc.

ISSUE: Whether or not Liddell Motors, Inc. is the alter ego of Liddell & Co.
Inc.?

RULING: There are quite a series of conspicuous circumstances that

militate against the separate and distinct personality of Liddell Motors,
Inc. from Liddell & Co. We notice that the bulk of the business of Liddell &
Co. was channeled through Liddell Motors, Inc. On the other hand, Liddell
Motors, Inc. pursued no activities except to secure cars, trucks, and spare
parts from Liddell & Co. Inc. and then sell them to the general public.
These sales of vehicles by Liddell & Co. to Liddell Motors, Inc. for the
most part were shown to have taken place on the same day that Liddell
Motors, Inc. sold such vehicles to the public. We may even say that the
cars and trucks merely touched the hands of Liddell Motors, Inc. as a
matter of formality.
It is of course accepted that the mere fact that one or more corporations
are owned and controlled by a single stockholder is not of itself sufficient
ground for disregarding separate corporate entities. Authorities support
the rule that it is lawful to obtain a corporation charter, even with a
single substantial stockholder, to engage in a specific activity, and such
activity may co-exist with other private activities of the stockholder. If the
corporation is a substantial one, conducted lawfully and without fraud on
another, its separate identity is to be respected. Accordingly, the mere
fact that Liddell & Co. and Liddell Motors, Inc. are corporations owned
and controlled by Frank Liddell directly or indirectly is not by itself
sufficient to justify the disregard of the separate corporate identity of one
from the other. There is, however, in this instant case, a peculiar
consequence of the organization and activities of Liddell Motors, Inc.
Under the law in force at the time of its incorporation the sales tax on
original sales of cars (sections 184, 185 and 186 of the National Internal
Revenue Code), was progressive, i.e. 10% of the selling price of the car if

it did not exceed P5000, and 15% of the price if more than P5000 but not
more than P7000, etc. This progressive rate of the sales tax naturally
would tempt the taxpayer to employ a way of reducing the price of the
first sale. And Liddell Motors, Inc. was the medium created by Liddell &
Co. to reduce the price and the tax liability.
As opined in the case of Gregory v. Helvering, "the legal right of a
taxpayer to decrease the amount of what otherwise would be his taxes,
or altogether avoid them by means which the law permits, cannot be
doubted." But, as held in another case, "where a corporation is a dummy,
is unreal or a sham and serves no business purpose and is intended only
as a blind, the corporate form may be ignored for the law cannot
countenance a form that is bald and a mischievous fiction." Consistently
with this view, the United States Supreme Court held that "a taxpayer
may gain advantage of doing business thru a corporation if he pleases,
but the revenue officers in proper cases, may disregard the separate
corporate entity where it serves but as a shield for tax evasion and treat
the person who actually may take the benefits of the transactions as the
person accordingly taxable."
Thus, we repeat: to allow a taxpayer to deny tax liability on the ground
that the sales were made through another and distinct corporation when
it is proved that the latter is virtually owned by the former or that they
are practically one and the same is to sanction a circumvention of our tax
laws.
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC. vs. COURT OF
APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION.
[G.R. No. 119002. October 19, 2000]
KAPUNAN, J.:

Facts: On June 30 1989, International Express Travel and Tour Services,

Inc., wrote a letter to the Philippine Football Federations (Federation)
president Henri Kahn, offering its services as a travel agency to the
latter. The Federation secured the airline tickets for the trips to the South
East Asian Games in Kuala Lumpur as well as trips to the People's
Republic of China and Brisbane. The total cost of the tickets amounted to
P449,654.83. For the tickets received, the Federation made two partial
payments, both in September of 1989, in the total amount of
P176,467.50.

On 4 October 1989, petitioner wrote the Federation, through the

private respondent a demand letter requesting for the amount of
P265,894.33. On 30 October 1989, the Federation, through the Project
Gintong Alay, paid the amount of P31,603.00. On 27 December 1989,
Henri Kahn issued a personal check in the amount of P50,000 as partial
payment for the outstanding balance. No further payments were made
despite repeated demands prompting the Travel Agency to file a civil
case before the Regional Trial Court of Manila. The Travel Agency sued
Henri Kahn in his personal capacity and as President of the Federation
and impleaded the Federation as an alternative defendant. The Travel
Agency sought to hold Henri Kahn liable on the ground that he allegedly
guaranteed the said obligation.

While not denying the allegation that the Federation owed the unpaid
balance in the amount of P207,524.20, Kahn averred that there was no
cause of action against him either in his personal capacity or in his
official capacity as president of the Federation. He maintained that he did
not guarantee payment but merely acted as an agent of the Federation
which has a separate and distinct juridical personality. The Federation
was declared in default for failing to file an answer.
The trial court ruled in favor of the travel agency and held Kahn
personally liable for the Federations obligation. It reasoned that Kahn
failed to adduce proof of the corporate existence of the Federation, which
was a mere sports association. Thus, a voluntary unincorporated
association, like the Federation has no power to enter into, or to ratify, a
contract. The contract entered into by its officers or agents on behalf of
such association is not binding on, or enforceable against it. The officers
or agents are themselves personally liable.
Only Henri Kahn elevated the above decision to the Court of Appeals. On
21 December 1994, the respondent court rendered a decision reversing
the trial court. The Court of Appeals recognized the juridical existence of
the Federation and absolved Kahn from personal liability. It rationalized
that since petitioner failed to prove that Henri Kahn guaranteed the
obligation of the Federation, he should not be held liable for the same as
said entity has a separate and distinct personality from its officers.

Petitioner filed a motion for reconsideration and as an alternative prayer

pleaded that the Federation be held liable for the unpaid obligation. The
same was denied by the appellate court on the grounds that the trial
court dismissed the complaint against the federation, which was not
appealed. Thus, the federation was not a party to this appeal.
Issue: Whether the Court of Appeal erred in finding that the Federation
was a juridical entity?
Held:
Yes. The Court of Appeals cited Republic Act 3135, Revised
Charter of the Philippine Amateur Athletic Federation, and Presidential
Decree No. 604 as the laws from which said Federation derives its
existence. Above stated laws indicate that sports associations, such as
the Federation, may acquire a juridical personality. However, national
sports associations may be accorded corporate status, such does not
automatically take place by the mere passage of these laws.

Before a corporation may acquire juridical personality, the

State must give its consent either in the form of a special law or
a general enabling act. We do not agree with the appellate court that
the Philippine Football Federation came into existence upon the passage
of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any
provision creating the Philippine Football Federation.

becomes personally liable for contract entered into or for other

acts performed as such agent. As president, Henri Kahn is presumed
to have known about the corporate existence or non-existence of the
Federation. We cannot subscribe to the position taken by the appellate
court that even assuming that the Federation was defectively
incorporated, the petitioner cannot deny the corporate existence of the
Federation because it had contracted and dealt with the Federation in
such a manner as to recognize and in effect admit its existence. The
doctrine of corporation by estoppel is mistakenly applied by the
respondent court to the petitioner. The application of the doctrine
applies to a third party only when he tries to escape liability on a
contract from which he has benefited on the irrelevant ground of
defective incorporation. In the case at bar, the petitioner is not trying
to escape liability from the contract but rather is the one claiming from
the contract.

WHEREFORE, the decision appealed from is REVERSED and SET ASIDE.

The decision of the Regional Trial Court of Manila, Branch 35, in Civil Case
No. 90-53595 is hereby REINSTATED.

Above stated laws require that before an entity may be considered as a

national sports association, such entity must be recognized by the
accrediting organization, the Philippine Amateur Athletic Federation
under R.A. 3135, and the Department of Youth and Sports Development
under P.D. 604. This fact of recognition, however, Henri Kahn failed to
substantiate. He attempted to by attaching with motion for
reconsideration before the trial court a copy of the constitution and bylaws of the Federation. Unfortunately, that does not prove that the
Federation has been recognized and accredited. Accordingly, we rule that
the Philippine Football Federation is not a national sports association
within the purview of the aforementioned laws and does not have
corporate existence of its own.

Thus, Henry Kahn should be held liable for the unpaid obligations of the
Federation. It is a settled principal in corporation law that any
person acting or purporting to act on behalf of a corporation
which has no valid existence assumes such privileges and

G.R. No. 116123 March 13, 1997

SERGIO F. NAGUIAT, doing business under the name and style

SERGIO F. NAGUIAT ENT., INC., & CLARK FIELD TAXI, INC.,
petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (THIRD
DIVISION), NATIONAL ORGANIZATION OF WORKINGMEN and its
members, LEONARDO T. GALANG, et al., respondents.

Private respondents' contention: They are regular employees of Naguiat

Enterprises, despite their individual applications of employment were
approved by CFTI, for the former exercised control, management and
supervision over their employment. Further, Naguiat Enterprises, as
indirect employer, is solidarily liable to pay them separation pay.

Nature: Special Civil Action for Certiorari under Rule 65 of the Rules of
Court

Petitioners' contention: Sergio F. Naguiat Enterprises is a separate

juridical entity that cannot be held solidarily liable. Further, Sergio and
Antolin Naguiat, as President and Vice-President of the Corporation, are
merely officers of the same and cannot be held personally liable.

Facts: Petitioner Clark Field Taxi, Inc. (CFTI), the president of whom was
Sergio Naguiat, held a concessionaire's contract to operate a taxi service
within Clark Air Base with Army Air Force Exchange Services (AAFES).
CFTI, like Sergio F. Naguiat Enterprises, was a family corporation. For this
purpose, petitioners hired private respondents as taxi drivers, working for
at least 3 or 4 times in a week.
Due to the phase-out of US military bases in the Philippines, AAFES was
dissolved. As a result, private respondents' services were terminated.
Private respondents' drivers' union and CFTI agreed to award separation
benefits to their drivers in the amount of 500 pesos for every year of
service. Although majority of the members accepted their severance pay,
private respondents refused, subsequently disaffiliating from the drivers'
union, joining the National Organization of Workingmen (NOWM) and
filing a complaint against petitioners for payment of separation pay due
to termination/phase out.
Petitioner, by way of position paper, averred that the cessation of their
business was due to great financial loss and lost business opportunities
resulting from the phase-out. They further reiterated that CFTI had
agreed with the drivers' union to award 500 pesos for every year of
service as severance pay.
The Labor Arbiter ruled in favor of private respondents, ordering
petitioners to pay 1,200 pesos solidarily, to private respondents in lieu of
separation pay for humanitarian conditions. On appeal, the NLRC
modified the decision of the Labor Arbiter and ordered petitioners to pay
separation pay in the amount agreed upon.
Issue: Whether or not the resolution of the NLRC was contrary to law
Wheter or not officers of corporations are ipso facto liable jointly and
severally with the companies they represent for the payment of
separation pay.

Held: Naguiat Enterprises is not liable. Based on the factual findings of

the parties, private respondents were regular employees of CFTI who
received wages on a boundary or commission basis. There is, therefore,
no substantial basis to hold Naguiat Enterprises as an indirect employer.
Sufficient evidence was shown that none of the private respondents were
empolyees of Naguiat Enterprises. By virtue of the concessionaire's
contract, CFTI purchased the fleet of vehicles from AAFES and became
the owner thereof.
Private respondents failed to substantiate their claim that Naguiat
Enterprises managed, supervised and controlled their employment.
Further, in reading through the case, it seems as if private respondents
were merely confused as to the personalities of Sergio F. Naguiat as an
individual and as a separate corporate juridical entity. Closer scrutiny and
analysis of the records evince the truth that Sergio F. Naguiat, in
supervising the taxi drivers and determining their employment terms,
was carrying out his responsibilities as president of CFTI. From the
foregoing, the ineludible conclusion is that CFTI was the actual and direct
employer of individual respondents, and that Naguiat Enterprises was
neither their indirect employer nor labor-only contractor. It was not
involved at all in the taxi business.
As to the liability of their officers, the Court ruled that in the the broader
interest of justice, CFTI President Sergio Naguiat should be held liable.
Following the ruling in A.C. Ransom Labor Union v. NLRC, the rule is that
in the absence of definite proof as to which officer/s should be held
directly responsible for the payment of backwages, it should be
presumed that the responsible officer is the President of the corporation
who can be deemed the chief operation officer thereof.
Further, following the ruling in MAM Realty v. NLRC, a director or officer of
a corporation maybe held liable solidarily if it is made by a specific
provision of law. Section 100 of the Corporation Code specifically imposes

personal liability upon the stockholder actively managing or operating

the business and affairs of the close corporation.

defendant-appellee be compelled to execute a deed of cancellation of the

mortgaged property.

As to Antolin
for it had not
manager, as
management

FACTS

Naguiat, the Court ruled that he was not personally liable,

been shown that he had acted in the capacity of a general
well as lack of evidence that his participation in the
and operation of the businesss was preferred.

Ruling: (1) Petitioner Clark Field Taxi, Incorporated, and Sergio F. Naguiat,
president and co-owner thereof, are ORDERED to pay, jointly and
severally, the individual respondents their separation pay computed at
US$120.00 for every year of service, or its peso equivalent at the time of
payment or satisfaction of the judgment;

(2) Petitioner Sergio F. Naguiat Enterprises, Incorporated, and Antolin

T. Naguiat are ABSOLVED from liability in the payment of
separation pay to individual respondents.

(3)

HAW PIA, plaintiff-appellant, v. THE CHINA BANKING CORPORATION,

defendant-appellee

Plaintiff-appellant Haw Pia incurred debts amounting to P5,103.35 from

defendant-appellee China Banking Corporation due to an overdraft in his
current account during or before World War II when the Philippines was
under occupation by the Japanese Imperial Army. During the occupation,
the Japanese military authorities ordered the liquidation of China Banking
Corporation as part of its efforts to stem Filipino resistance to the
occupation. They appointed and authorized the Bank of Taiwan, Ltd. as
liquidator of the defendant-appellee. Since the defendant-appellee was in
the process of liquidation, plaintiff-appellant paid his debt to the Bank of
Taiwan. After the war, the defendant-appellee instituted a court action
seeking payment from the plaintiff-appellant of the P5,103.35 debt. The
defendant-appellee took the position that the payment to the Bank of
Taiwan did not extinguish the obligation of the plaintiff-appellant to it.
The trial court rendered the assailed decision finding that the payment to
the Bank of Taiwan did not constitute payment to the defendant-appellee.
According to the court, there was no evidence presented to show that the
defendant-appellee authorized the Bank of Taiwan to receive payment on
its behalf. Furthermore, the Bank of Taiwan was an agent of the Japanese
Imperial Army and was not allowed to liquidate the business of the
defendant-appellee. Plaintiff-appellant was ordered to pay P5,103.35 to
defendant-appellee within 90 days or the mortgaged property will be sold
in a public auction.

CONTENTIONS

GR No. L-554 || April 9, 1948

This is an appeal of the decision of the trial court holding plaintiffappellant Haw Pia liable to pay the amount P5,103.35 to herein
respondent China Banking Corporation. Plaintiff-appellant prays that the

Petitioner-appellant: The appointment of the Bank of Taiwan as liquidator

of the defendant-appellee is valid under international laws. Since the
Bank of Taiwan was the duly appointed liquidator of the defendantappellee, tendering payment to it is equivalent to tendering payment to
the defendant-appellee itself.

Defendant-appellee: The liquidation of the China Banking Corporation

and the subsequent appointment of the Bank of Taiwan as its liquidator
are incorrect as the occupying Japanese forces had no authority to do so.
Since there was no valid liquidation, any payment made to the Bank of
Taiwan cannot be deemed as payment made to the defendant-appellee.

4.

WON the liquidation of the China Banking Corporation and the

subsequent appointment of the Bank of Taiwan as liquidator are valid;

contemplates a scenario where the occupying forces take possession of

the properties of the citizens of the occupied territories with the intention
of conserving such properties. The sequestered properties may be
subject to further disposition by treaty between the belligerents at the
end of war. Liquidation serves a basic purpose during an occupation to
reduce the ability of the enemy to fight back. It is a part of economic
warfare and has been practiced by major powers. In fact, the United
States has the Trading with the Enemy Act. Under the said Act, the United
States may order the liquidation, reorganization, and reopening of enemy
banks within occupied territories whenever appropriate. Since the United
States has the Trading with the Enemy Act, it is presumed that Japan has
an equivalent law under the principle that what is permitted to one
belligerent is allowed to the other. The liquidation of the China Banking
System and the appointment of a liquidator are therefore valid.

5.

WON the payment made to the Bank of Taiwan as the liquidator of the
China Banking Corporation constitutes payment to China Banking
Corporation itself; and

2.

ISSUES

6.

How is this related to Nationality and Citizenship of Corporations

(syllabus)?

RULING

The Supreme Court REVERSED the decision of the trial court. It ordered
the defendant-appellee to execute the deed of cancellation of mortgage
of the mortgaged property and to deliver to the plaintiff-appellant TCT
No. 47634 with the annotation of mortgage therein already cancelled.

1.

The Supreme Court held that the Japanese military authorities had the
power to order the liquidation of the China Banking Corporation. The
Hague Convention II which entered into force on September 4, 1900
prohibits the confiscation of private properties of the residents of the
occupied territories by the occupying forces. Liquidation, however,
cannot be considered the same as confiscation. Sequestration

The Supreme Court held that payment made to the Bank of Taiwan is
equivalent to paying directly to the China Banking Corporation. Under
Article 1162 (now 1240) of the then Civil Code, payment shall be made to
the person in whose favor the obligation was constituted, or his
successors in interest, or any person authorized to receive it. The Bank of
Taiwan, as the liquidator of the defendant-appellee, is a person
authorized to receive the payment.

3.

The Supreme Court determined that China Banking Corporation qualified

as an ENEMY CORPORATION in the eyes of the Japanese military
authorities. Under the Trading with the Enemy Act, an enemy corporation
is a corporation incorporated within such territory of any nation with
which the United States is at war. Applying the principle that what is
permitted to one belligerent is allowed to the other, the defendantappellee was an enemy to the Japanese. Not only was it controlled by
Japans enemies, it was also incorporated under the laws of a country
with which Japan was at war.

Professional Services Inc v Agana

These are three consolidated petitions for review on certiorari from the
decision of the Court of Appeals.

On November 12, 1984, Natividad and her husband filed with the RTC,
Branch 96, Quezon City a complaint for damages against the Professional
Services, Inc. (PSI), owner of the Medical City Hospital, Dr. Ampil, and Dr.
Fuentes. They alleged that the latter are liable for negligence for leaving
two pieces of gauze inside Natividads body and malpractice for
concealing their acts of negligence.

Facts:

On February 16, 1986, pending the outcome of the above cases,

Natividad died and was duly substituted by her above-named children
(the Aganas).

On April 4, 1984, Natividad Agana was rushed to the Medical City

Hospital because of difficulty of bowel movement and bloody anal
discharge. After a series of medical examinations, Dr. Miguel Ampil,
diagnosed her to be suffering from "cancer of the sigmoid."
On April 11, 1984, Dr. Ampil, assisted by the medical staff4 of the Medical
City Hospital, performed an anterior resection surgery on Natividad. He
found that the malignancy in her sigmoid area had spread on her left
ovary, necessitating the removal of certain portions of it. Thus, Dr. Ampil
obtained the consent of Natividads husband, Enrique Agana, to permit
Dr. Juan Fuentes, to perform hysterectomy on her. After Dr. Fuentes had
completed the hysterectomy, Dr. Ampil took over, completed the
operation and closed the incision. However, the operation appeared to be
flawed. The records show that the nurse informed Dr. Ampil of 2 missing
sponge but the doctor continued in closing the operation.
After a couple of days, Natividad complained of excruciating pain in her
anal region. She consulted both Dr. Ampil and Dr. Fuentes about it. They
told her that the pain was the natural consequence of the surgery.
Natividadthen went to the United States to seek further treatment.
Natividad flew back to the Philippines, still suffering from pains. Two
weeks thereafter, her daughter found a piece of gauze protruding from
her vagina. Upon being informed about it, Dr. Ampil proceeded to her
house where he managed to extract by hand a piece of gauze measuring
1.5 inches in width. He then assured her that the pains would soon
vanish.
The pains intensified, prompting Natividad to seek treatment at the
Polymedic General Hospital. While confined there, Dr. Ramon Gutierrez
detected the presence of another foreign object in her vagina -- a foulsmelling gauze measuring 1.5 inches in width which badly infected her
vaginal vault. A recto-vaginal fistula had formed in her reproductive
organs which forced stool to excrete through the vagina. Thus, Natividad
underwent another surgery.

On March 17, 1993, the RTC rendered its Decision in favor of the Aganas,
finding PSI, Dr. Ampil and Dr. Fuentes liable for negligence and
malpractice.
Aggrieved, PSI, Dr. Fuentes and Dr. Ampil interposed an appeal to the
Court of Appeals.
The Court of Appeals rendered its decision stating that the case against
Dr. Juan Fuentes is dismissed and that PSI is solidarily liable with Dr.
Ampil.

Issues:
WON the Court of Appeals erred in holding Dr. Ampil liable for negligence
and malpractice
WON the Court of Appeals erred in absolving Dr. Fuentes of any liability
(this is not related anymore to the topic so I did not include it in the
ruling. But if you want to know how the SC ruled in this regard, they said
that Dr. Fuentes is not liable because the operating doctor was Dr Ampil
who checked his (Dr Fuentes) work after he was done and continued the
operation himselfa(Dr Ampil).
WON PSI may be held solidarily liable for the negligence of Dr. Ampil.

Claims of the parties:

PSI alleged in its petition that the Court of Appeals erred in holding that:
(1) it is estopped from raising the defense that Dr. Ampil is not its
employee; (2) it is solidarily liable with Dr. Ampil; and (3) it is not entitled

to its counterclaim against the Aganas. PSI contends that Dr. Ampil is not
its employee, but a mere consultant or independent contractor. As such,
he alone should answer for his negligence.
The Aganas maintain that the Court of Appeals erred in finding that Dr.
Fuentes is not guilty of negligence or medical malpractice, invoking the
doctrine of res ipsa loquitur. They contend that the pieces of gauze are
prima facie proofs that the operating surgeons have been negligent.

negligence. Apparent authority, or what is sometimes referred to as the

"holding out" theory, or doctrine of ostensible agency or agency by
estoppel, has its origin from the law of agency. It imposes liability, not as
the result of the reality of a contractual relationship, but rather because
of the actions of a principal or an employer in somehow misleading the
public into believing that the relationship or the authority exists. The
concept is essentially one of estoppel and has been explained in this
manner:

Dr. Ampil asserts that the Court of Appeals erred in finding him liable for
negligence and malpractice sans evidence that he left the two pieces of
gauze in Natividads vagina. He pointed to other probable causes, such
as: (1) it was Dr. Fuentes who used gauzes in performing the
hysterectomy; (2) the attending nurses failure to properly count the
gauzes used during surgery; and (3) the medical intervention of the
American doctors who examined Natividad in the United States of
America.

"The principal is bound by the acts of his agent with the apparent
authority which he knowingly permits the agent to assume, or which he
holds the agent out to the public as possessing. The question in every
case is whether the principal has by his voluntary act placed the agent in
such a situation that a person of ordinary prudence, conversant with
business usages and the nature of the particular business, is justified in
presuming that such agent has authority to perform the particular act in
question.

Ruling:
As to Dr. Ampil
Records show that he did not present any evidence to prove that the
American doctors were the ones who put or left the gauzes in Natividads
body. Neither did he submit evidence to rebut the correctness of the
record of operation, particularly the number of gauzes used. As to the
alleged negligence of Dr. Fuentes, we are mindful that Dr. Ampil
examined Dr. Fuentes work and found it in order.
Dr. Ampil did not inform Natividad about the missing two pieces of gauze.
Worse, he even misled her that the pain she was experiencing was the
ordinary consequence of her operation. To our mind, what was initially an
act of negligence by Dr. Ampil has ripened into a deliberate wrongful act
of deceiving his patient.
As to PSI
There is employer-employee relationship between PSI and Dr. Ampil.
Private hospitals, hire, fire and exercise real control over their attending
and visiting consultant staff.
PSIs liability may also be gleaned upon the agency principle of apparent
authority or agency by estoppel and the doctrine of corporate

In this case, PSI publicly displays in the lobby of the Medical City Hospital
the names and specializations of the physicians associated or accredited
by it, including those of Dr. Ampil and Dr. Fuentes. We concur with the
Court of Appeals conclusion that it "is now estopped from passing all the
blame to the physicians whose names it proudly paraded in the public
directory leading the public to believe that it vouched for their skill and
competence." Indeed, PSIs act is tantamount to holding out to the public
that Medical City Hospital, through its accredited physicians, offers
quality health care services. By accrediting Dr. Ampil and Dr. Fuentes and
publicly advertising their qualifications, the hospital created the
impression that they were its agents, authorized to perform medical or
surgical services for its patients. As expected, these patients, Natividad
being one of them, accepted the services on the reasonable belief that
such were being rendered by the hospital or its employees, agents, or
servants.
Corporate entities, like PSI, are capable of acting only through other
individuals, such as physicians. If these accredited physicians do their job
well, the hospital succeeds in its mission of offering quality medical
services and thus profits financially. Logically, where negligence mars the
quality of its services, the hospital should not be allowed to escape
liability for the acts of its ostensible agents.
We now proceed to the doctrine of corporate negligence or corporate
responsibility.

One allegation in the complaint is that PSI as owner, operator and

manager of Medical City Hospital, "did not perform the necessary
supervision nor exercise diligent efforts in the supervision of Drs. Ampil
and Fuentes and its nursing staff, resident doctors, and medical interns
who assisted Drs. Ampil and Fuentes in the performance of their duties as
surgeons." Premised on the doctrine of corporate negligence, the trial
court held that PSI is directly liable for such breach of duty.
We agree with the trial court.
In the present case, it was duly established that PSI operates the Medical
City Hospital for the purpose and under the concept of providing
comprehensive medical services to the public. Accordingly, it has the
duty to exercise reasonable care to protect from harm all patients
admitted into its facility for medical treatment. Unfortunately, PSI failed
to perform such duty.
It is worthy to note that Dr. Ampil and Dr. Fuentes operated on Natividad
with the assistance of the Medical City Hospitals staff, composed of
resident doctors, nurses, and interns. As such, it is reasonable to
conclude that PSI, as the operator of the hospital, has actual or
constructive knowledge of the procedures carried out, particularly the
report of the attending nurses that the two pieces of gauze were missing.
The failure of PSI, despite the attending nurses report, to investigate and
inform Natividad regarding the missing gauzes amounts to callous
negligence. Not only did PSI breach its duties to oversee or supervise all
persons who practice medicine within its walls, it also failed to take an
active step in fixing the negligence committed. This renders PSI, not only
vicariously liable for the negligence of Dr. Ampil under Article 2180 of the
Civil Code, but also directly liable for its own negligence under Article
2176.
Anent the corollary issue of whether PSI is solidarily liable with Dr. Ampil
for damages, let it be emphasized that PSI, apart from a general denial of
its responsibility, failed to adduce evidence showing that it exercised the
diligence of a good father of a family in the accreditation and supervision
of the latter. In neglecting to offer such proof, PSI failed to discharge its
burden under the last paragraph of Article 2180 cited earlier, and,
therefore, must be adjudged solidarily liable with Dr. Ampil. Moreover, as
we have discussed, PSI is also directly liable to the Aganas.
WHEREFORE, we DENY all the petitions and AFFIRM the challenged
Decision of the Court of Appeals.

BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN,

petitioners, vs. HON. JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA,
in his capacity as Commissioner of Internal Revenue, ARTURO
LOGRONIO, RODOLFO DE LEON, GAVINO VELASQUEZ, MIMIR
DELLOSA, NICANOR ALCORDO, JO
(G.R. No. L-32409, 27 February 1971)

This is an original action of certiorari, prohibition and mandamus, with

prayer for a writ of preliminary mandatory and prohibitory injunction.

FACTS: On 24 February 1970, Misael P. Vera, Commissioner of Internal

Revenue, wrote a letter addressed to Judge Vivencio M. Ruiz requesting
the issuance of a search warrant against Bache & Co. (Phil.), Inc. and
Frederick E. Seggerman for violation of Section 46(a) of the National
Internal Revenue Code (NIRC), in relation to all other pertinent provisions
thereof, particularly Sections 53, 72, 73, 208 and 209, and authorizing
Revenue Examiner Rodolfo de Leon to make and file the application for
search warrant which was attached to the letter. In the afternoon of the
following day, De Leon and his witness, Arturo Logronio, went to the
Court of First Instance (CFI) of Rizal. They brought with them the
following papers: Veras letter-request; an application for search warrant
already filled up but still unsigned by De Leon; an affidavit of Logronio
subscribed before De Leon; a deposition in printed form of Logronio
already accomplished and signed by him but not yet subscribed; and a
search warrant already accomplished but still unsigned by Judge. At that
time the Judge was hearing a certain case; so, by means of a note, he
instructed his Deputy Clerk of Court to take the depositions of De Leon
and Logronio. After the session had adjourned, the Judge was informed
that the depositions had already been taken. The stenographer, upon
request of the Judge, read to him her stenographic notes; and thereafter,
the Judge asked Logronio to take the oath and warned him that if his
deposition was found to be false and without legal basis, he could be
charged for perjury. The Judge signed de Leons application for search

warrant and Logronios deposition. Search Warrant 2-M-70 was then

signed by Judge and accordingly issued. Three days later (a Saturday),
the BIR agents served the search warrant to the corporation and
Seggerman at the offices of the corporation on Ayala Avenue, Makati,
Rizal.

PETITIONER: On March 3, 1970, petitioners, Bache & Co. (Phil.), Inc., a

corporation duly organized and existing under the laws of the Philippines,
and its President, Frederick E. Seggerman, filed a petition with the Court
of First Instance of Rizal praying that the search warrant be quashed,
dissolved or recalled, that preliminary prohibitory and mandatory writs of
injunction be issued, that the search warrant be declared null and void,
and that the respondents be ordered to pay petitioners, jointly and
severally, damages and attorneys fees. Petitioners provided for the
following reasons: first, Respondent Judge failed to personally examine
the complainant and his witness; second, the search warrant was issued
for more than one specific offense; and third, the search warrant does not
particularly describe the things to be seized.

impliedly recognized the right of a corporation to object against

unreasonable searches and seizures; holding that the corporations have
their respective personalities, separate and distinct from the personality
of the corporate officers, regardless of the amount of shares of stock or
the interest of each of them in said corporations, whatever, the offices
they hold therein may be; and that the corporate officers therefore may
not validly object to the use in evidence against them of the documents,
papers and things seized from the offices and premises of the
corporations, since the right to object to the admission of said papers in
evidence belongs exclusively to the corporations, to whom the seized
effects belong, and may not be invoked by the corporate officers in
proceedings against them in their individual capacity. The distinction
between the Stonehill case and the present case is that: in the former
case, only the officers of the various corporations in whose offices
documents, papers and effects were searched and seized were the
petitioners; while in the latter, the corporation to whom the seized
documents belong, and whose rights have thereby been impaired, is
itself a petitioner. On that score, petitioner corporation here stands on a
different footing from the corporations in Stonehill.
Hence, the petition is granted and the search warrant is
declared null and void.

RESPONDENT: Respondents, thru the Solicitor General, filed an answer to

the petition. They contended that a corporation is not entitled to
protection against unreasonable search and seizures

ISSUE: Whether or not the corporation has the right to object against
unreasonable searches and seizures?

RULING: It is well settled that the legality of a seizure can be contested

only by the party whose rights have been impaired thereby, and that the
objection to an unlawful search and seizure is purely personal and cannot
be availed of by third parties. Consequently, petitioners herein may not
validly object to the use in evidence against them of the documents,
papers and things seized from the offices and premises of the
corporations adverted to above, since the right to object to the admission
of said papers in evidence belongs exclusively to the corporations, to
whom the seized effects belong, and may not be invoked by the
corporate officers in proceedings against them in their individual
capacity. In Stonehill, et al. vs. Diokno, et al., the Supreme Court

[G.R. No. 103576. August 22, 1996]

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC,

petitioners,

sustained "as a result of the unlawful action taken by respondent bank

against it. This prayer is not reflected in its complaint which has merely
asked for the amount of P3,000,000.00 by way of moral damages.

vs.
HON. COURT OF
PHILIPPINES and

APPEALS,

PRODUCERS

BANK

OF

THE

REGIONAL SHERIFF OF CALOOCAN CITY, respondents.

PRIVATE RESPONDENT
Private Respondent filed a motion to dismiss the petition.

ISSUE: 1) Whether or not extra-judicial foreclosure of the chattel

mortgage is proper?
This is a petition for certiorari to set aside the decision of the appellate
court affirming the lower courts decision which dismissed the complaint
for damages filed by the petitioner corporation and ordered the extrajudicial foreclosure of the chattel mortgage.

FACTS: Chua Pac, president and general manager of Acme Shoe, Rubber
and Plastic Corporation, executed a chattel mortgage in favor of
Producers Bank of the Philippines, as a security for a corporate loan in
the amount of P3M. The chattel mortgage contained a clause that
provided for the mortgage to stand as security for all other obligations
contracted before, during and after the constitution of the mortgage. The
P3M was paid. Subsequently, the corporation obtained additional
financial accommodations totaling P2.7M. This was also paid on the due
date. Again, the bank extended another loan to the corporation in the
amount of P1M, covered by four promissory notes. However, the
corporation was unable to pay this at maturity. Thereupon, the bank
applied for an extra-judicial foreclosure of mortgage. For its part, the
corporation filed an action for injunction with prayer for damages. The
lower court ultimately dismissed the case and ordered the extra-judicial
foreclosure of mortgage. Hence, this appeal.

2) If not proper, whether or not the corporation is entitled to damages as

a result of the extra-judicial foreclosure?

RULING: 1) No. A chattel mortgage can only cover obligations existing at

the time the mortgage is constituted. Although a promise expressed in a
chattel mortgage to include debts that are yet to be contracted can be a
binding commitment that can be compelled upon, the security itself,
however, does not come into existence or arise until after a chattel
mortgage agreement covering the newly contracted debt is executed
either by concluding a fresh chattel mortgage or by amending the old
contract conformably with the form prescribed by the Chattel Mortgage
Law. Refusal on the part of the borrower to execute the agreement so as
to cover the after-incurred obligation can constitute an act of default on
the part of the borrower of the financing agreement whereon the promise
is written but, of course, the remedy of foreclosure can only cover the
debts extant at the time of constitution and during the life of the chattel
mortgage sought to be foreclosed.

In Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al., the
Court said -

PETITIONER
Petitioner corporation's contends that the case should be remanded to
the trial court for a specific finding on the amount of damages it has

"x x x A mortgage that contains a stipulation in regard to future advances

in the credit will take effect only from the date the same are made and
not from the date of the mortgage.

The significance of the ruling to the instant problem would be that since
the 1978 chattel mortgage had ceased to exist coincidentally with the full
payment of the P3,000,000.00 loan, there no longer was any chattel
mortgage that could cover the new loans that were concluded
thereafter.

Therefore, the extra-judicial foreclosure of the chattel mortgage was not

proper.

2) No. Even though the Court rendered that such extra-judicial

foreclosure of chattel mortgage was not proper, the petitioner
corporation is not entitled to damages.

In LBC Express, Inc. vs. Court of Appeals, we have said:

"Moral damages are granted in recompense for physical suffering, mental

anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar injury. A
corporation, being an artificial person and having existence only in legal
contemplation, has no feelings, no emotions, no senses; therefore, it
cannot experience physical suffering and mental anguish. Mental
suffering can be experienced only by one having a nervous system and it
flows from real ills, sorrows, and griefs of life - all of which cannot be
suffered by respondent bank as an artificial person."

WHEREFORE, the questioned decisions of the appellate court and the

lower court are set aside without prejudice to the appropriate legal
recourse by private respondent as may still be warranted as an
unsecured creditor. No costs.

FACTS: Petitioner Filipinas Broadcasting Network, Inc (FBNI) assails the

Resolution of the CA which modified the December 14, 1992 decision of
the RTC of Legazpi City (as to the amount of moral damages), and found
petitioner and its broadcasters Hermogenes Alegre and Carmelo Rima
liable for libel. The lower court ordered FBNI, Alegre and Rima to
solidarily pay moral damages, attorneys fees and the costs of the suit to
Ago Medical and Educational Center- Bicol Christian College of Medicine
(AMEC).

The complaint alleged that Alegre and Rima had made malicious
imputations and as such destroyed plaintiffs (AMEC and Angelita Ago,
Dean of the College of Medicine) reputation by citing the alleged
complaints of students, parents and teachers. The complaint cited that
defendants had made the ff libellous imputations with no factual basis:
(1) That AMEC-BCCM requires its students to repeat subjects which they
have passed already the moment they fail one subject, despite the
absence of any such regulation by the DECS; (2) That students were
required to take and pay for the subject even if there is no instructor,
which demonstrates the greed of AMECs administration and; (3) That
AMEC is a dumping ground of moral and physical misfits because it
continued to accept rejects in order to minimize salary expenses. FBNI
was impleaded as a defendant for failing to exercise due diligence in the
selection and supervision of its employees (Alegre and Rima). A Motion to
Dismiss was filed in behalf of FBNI which the RTC denied. The lower court
held that the broadcasts were liable per se and were not the result of
straight reporting because it had no factual basis because the
broadcasters failed to verify their reports. FBNI failed to exercise the due
diligence as required by law. Hence, the judgment requiring FBNI, Alegre
and Rima to pay moral damages (Php 300,000), plus reimbursement of
attorneys fees (Php 30,000) and the costs of the suit. CA lowered the
amount of moral damages to Php 150,000.

ISSUE: Whether or not AMEC-BCCM, a corporation, is entitled to the

award of moral damages.

RULING: AMEC-BCCM is entitled to the award of moral damages.

Generally, a juridical person is 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. In Mambulao Lumber Co. v. PNB, et al, the award of moral
damages may be justified. However, the Courts statement in the said
case, that a corporation may have a good reputation which, if
besmirched, may also be a ground for the award of moral damages, is
an obiter dictum.

AMECs claim for moral damages was grounded under item 7 of Article
2219 of the Civil Code which authorizes the same in cases of libel,
slander, or any other form of defamation. The provision does not qualify
whether the plaintiff seeking such award is a natural or juridical person.
Therefore, a juridical person such as a corporation can validly complain of
libel or any other form of defamation and claim for moral damages as a
result thereof. Moreover, evidence of an honest mistake or the want of
character or reputation of the party libelled serves only to mitigate the
amount of damages. Since the broadcasts are libellous per se, AMEC is
entitled to moral damages. The amount is reduced to Php 150,000
because AMEC has not suffered any substantial or material damage to its
reputation.
G.R. No. 114222 April 6, 1995

Facts:

Petitioners Francisco Tatad, John Osmena and Rodolfo Biazon are

members of the Philippine Senate and are suing in their capacities as
Senators and as taxpayers. Respondent Jesus Garcia was then Secretary
of the DOTC, while private respondent EDSA LRT CORPORATION, Ltd. is a
private corporation organized under the laws of Hongkong.

In 1989, DOTC planned to construct a light railway transit line along

EDSA, which shall traverse the cities of Pasay, Quezon, Mandaluyong and
Makati. The objective is to provide a mass transit system along EDSA and
to alleviate the congestion in the metropolis.

On March 15, 1990, then DOTC Secretary Oscar Orbos, acting upon a
proposal to construct the EDSA LRT III on a Build-Operate-Transfer (BOT)
basis, had invited Elijahu Levin from the Eli Levin Enterprises, Inc to send
a technical team to discuss the project with the DOTC.

FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON,

petitioners,
vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the
Department of Transportation and Communications, and EDSA
LRT CORPORATION, LTD., respondents.

On July 9, 1990, RA No. 6957 referred to as the Build-Operate-Transfer

(BOT) was signed by then President Corazon Aquino. The said Act
provides for two schemes for the financing, construction and operation of
government projects through private initiative and investment: BOT or
Build-Transfer (BT).

QUIASON, J.:

DOCTRINE:
This is a petition under Rule 65 of the Revised Rules of Court to prohibit
respondents from further implementing the Revised and Restated
Agreement to Build, Lease and Transfer a Light Rail Transit System for
EDSA and the Supplemental Agreement to the same project.

In accordance with the provisions of RA 6957 and to set the EDSA LRT III
project underway, the Prequalification Bids and Awards Committee and
the Technical Committee were formed.

The prequalification criteria totalling 100% are as follows: a.) Legal

aspects 10%; b.) Management/Organizational capability 30%; c.)
Financial capability- 30%; and d.) Technical capability 30%.

Of the 5 applicants, only the EDSA LRT Consortium, composed of CKD

Tatra of the Czech and Slovak Federal Republics, TCGI Engineering All
Asia Capital and Leasing Corporation, The Salim Group of Jakarta, E. L.
Enterprises, Inc., A.M. Oreta & Co. Capitol Industrial Construction Group,
Inc, and F. F. Cruz & co., Inc, met the requirements of garnering at least
21 points per criteria, except for Legal aspects, and obtaining an over-all
passing mark of at least 82 points. The Legal aspects referred to
provided that the BOT/BT contractor-applicant meet the requirements
specified in the Constitution and other pertinent laws.

Subsequently, Sec. Orbos was appointed Executive Secretary to the

President of the Philippines and was replaced by Nicomedes Prado. The
latter recommended the award of the EDSA LRT III project to the sole
complying bidder, the EDSA LRT Consortium, and requested for authority
to negotiate with the said firm for the contract pursuant to the BOT Law.
Authority was granted to proceed with the negotiations. The EDSA LRT
Consortium submitted its proposal to DOTC.

Finding the proposal to be in compliance with the bid requirements, DOTC

and EDSA LRT Corporation, Ltd., in substitution of the EDSA LRT
Consortium, entered into an An Agreement to Build, Lease and Transfer
a Light Rail Transit System for EDSA under the terms of the BOT Law.

Secretary Prado, thereafter, requested presidential approval of the

contract.

Rail Transit System for EDSA. On May 6, 1992, DOTC, represented by Sec.
Jesus Garcia, Sec. Prado and private respondent entered into a
Supplemental Agreement to the April Revised Agreement so as to clarify
their respective rights and responsibilities.

The two agreements were approved by President Fidel Ramos.

According to the agreements, the EDSA LRT III will use light rail vehicles
from the Czech and Slovak Federal Republics and will have a maximum
carrying capacity of 450,000 passengers a day. The system will have its
own power facility. It will also have 13 passenger stations and one depot
in 16-hectare government property at North Avenue.

Private respondents shall undertake and finance the entire project

required for a complete operational light rail transit system. Target
completion date is approximately 3 years from the implementation date
of the contract. Upon full and partial completion and viability thereof,
private respondent shall deliver the use and possession of the completed
portion to DOTC which shall operate the same. DOTC shall pay private
respondent rentals on aj monthly basis through an Irrevocable Letter of
Credit. The rentals shall be determined by an independent and
internationally accredited inspection firm to be appointed by the parties.

As agreed upon, private respondents capital shall be recovered from the

rentals to be paid by the DOTC which, in turn, shall come from the
earnings of the EDSA LRT III. After 25 years and DOTC shall have
completed payment of the rentals, ownership of the project shall be
transferred to the latter for a consideration of only US $1.00.

Exec. Sec. Franklin Drilon, who replaced Sec. Orbos, informed Sec. Prado
that the President could not grant the requested approval for failure to
comply with the requirements of the BOT Law.

In view whereof, Sec. Drilon, the DOTC and private respondent renegotiated the agreement. On April 22, 1992, the parties entered into a
Revised and Restated Agreement to Build, Lease and Transfer and Light

In their petition, petitioners argued that the agreement of April 22, 1992,
as amended by the Supplemental Agreement of May 6, 1993, in so far as
it grants EDSA LRT COPORTATION, LTD., a foreign corporation, the
ownership of EDSA LRT III, a public utility, violates the constitution, and
hence, is unconstitutional. They contend that the EDSA LRT III is a public
utility, and the ownership and operation thereof is limited by the

Constitution to Filipino citizens and domestic corporations, not foreign

corporations like private respondent.

the owner or by the person in control thereof who may not necessarily be
the owner thereof.

Issue:

While private respondent is the owner of the facilities necessary to

operate the EDSA LRT III, it admits that it is not enfranchised to operate a
public utility. In view of this incapacity, private respondent and DOTC
agreed that on completion date, private respondent will immediately
deliver possession of the LRT system by of lease for 25 years, during
which period DOTC shall operate the same as a common carrier and
private respondent shall provide technical maintenance and repair
services to DOTC.

Whether or not the EDSA LRT III (foreign corporations) is a common

carrier and owns the public utility violating Sec 11, Art XII 1987 Philippine
constitution?

Held:
No.
What private respondent owns are the rail tracks, rolling stocks like the
coaches, rail stations, terminals and the power plant, not a public utility.
While a franchise is needed to operate these facilities to serve the public,
they do not by themselves constitute a public utility. What constitutes a
public utility is not their ownership but their use to serve the public.

In sum, private respondent will not run the light rail vehicles and collect
fees from the riding public. It will have no dealings with the public and
the public will have no right to demand any services from it.
Since DOTC shall operate the EDSA LRT III, it shall assume all the
obligations and liabilities of a common carrier. For this purpose, DOTC
shall indemnify and hold harmless private respondent from any losses,
damages, injuries or death which may be claimed in the operation or
implementation of the system, except losses, damages, injury or death
due to defects in the EDSA LRT III on account of the defective condition of
equipment or facilities or the defective maintenance of such equipment
facilities.

Section 11 of Article XII of the Constitution provides:

Wherefore, the petition is DISMISSED.
No franchise, certificate or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws of
the Philippines at least sixty per centum of whose capital is owned by
such citizens, nor shall such franchise, certificate or authorization be
exclusive character or for a longer period than 50 years.

The right to operate a public utility may exist independently and

separately from the ownership of the facilities thereof. One can own said
facilities without operating them as a public utility, or conversely, one
may operate a public utility without owning the facilities used to serve
the public. The devotion of property to serve the public may be done by

Haussermann, Cohn & Fisher and A. D. Gibbs for plaintiff.

James J. Peterson and O'Brien & DeWitt for defendant McCullough.

TRENT, J.:

DOCTRINE: A majority of the stockholders or directors have the power to

sell or transfer to one of its members the corporate property, where the
stockholders or directors have general ordinary powers, and where there
is nothing in the articles of incorporation which prohibit such a sale.

FACTS: This action is an appeal to the Supreme Court from the judgment
of the Court of Appeals rendering by default joint and several liability
against all of the defendants for the sum of $3, 450.61 gold.
Mead v. McCullough & Magsaysay v. CA
By Cher Alcantara in CORPO (VDean) 3S AY11-12

Edit Doc
1. G.R. No. 6217 December 26, 1911

CHARLES W. MEAD, plaintiff-appellant,

vs.
E. C. McCULLOUGH, ET AL., and THE PHILIPPINE ENGINEERING
AND CONSTRUCTION COMPANY, defendant-appellants.

Plaintiff and defendant organized the "Philippine Engineering and

Construction Company," the incorporators being the only stockholders
and also the directors of said company, with general ordinary powers.
Each of the stockholders paid into the company $2,000 mexican currency
in cash, with the exception of Mead, who turned over to the company
personal property in lieu of cash. Shortly after the organization, the
directors held a meeting and elected the plaintiff as general manager.
The plaintiff held this position with the company for nine months, when
he resigned to accept the position of engineer of the Canton and
Shanghai Railway Company. Under him, the company failed in their
undertaking to raise a sunken Spanish fleet. It became a losing concern
and a financial failure. Shortly after the plaintiff left the Philippine Islands
for China, the other directors, the defendants in this case, held a meeting
for the purpose of discussing the condition of the company at that time
and determining what course to pursue. Thereafter, realizing that
continuing the operations of the company would mean more losses, the
remaining directors unanimously assigned all the rights and interests of

the company to McCullough for value, who later also assigned the same
for value to other people who with McCullough subsequently formed the
Manila Salvage Association.
The plaintiff insists that he was received as general manager of the first
company a salary, profits made before the assignment and the value of
the personal property which he have left and sold to the defendants;
while McCullough contends that the plaintiff was to receive only his
necessary expenses.

ISSUE: Whether or not the remaining directors have the power to sell or
transfer to one of its members the assets of the corporation.

RULING: YES.
There were only five stockholders in this corporation at any time, four of
whom were the directors who made the sale, and the other the plaintiff,
who was absent in China when the said sale took place. The sale was,
therefore, made by the unanimous consent of four-fifths of all the
stockholders. Under the articles of incorporation, the stockholders and
directors had general ordinary powers. There is nothing in said articles
which expressly prohibits the sale or transfer of the corporate property to
one of the stockholders of said corporation.
There is nothing in these articles which expressly or impliedly prohibits
the sale of corporate property to one of its members, nor a dissolution of
a corporation in this manner. Neither is there anything in articles 151 to
174 of the Code of Commerce which prohibits the dissolution of a
corporation by such sale or transfer.
The articles of incorporation must include:
The submission to the vote of the majority of the meeting of members,
duly called and held, of such matters as may properly be brought before
the same. (No. 10, art. 151, Code of Commerce.)
Article XIII of the corporation's statutes expressly provides that "in all the
meetings of the stockholders, a majority vote of the stockholders present
shall be necessary to determine any question discussed."

The sale or transfer to one of its members was a matter which a majority
of the stockholders could very properly consider. But it is said that if the
acts and resolutions of a majority of the stockholders in a corporation are
binding in every case upon the minority, the minority would be
completely wiped out and their rights would be wholly at the mercy of
the abuses of the majority.
Generally speaking, the voice of a majority of the stockholders is the law
of the corporation, but there are exceptions to this rule. There must
necessarily be a limit upon the power of the majority. Without such a limit
the will of the majority would be absolute and irresistible and might
easily degenerate into an arbitrary tyranny. The reason for these
limitations is that in every contract of partnership (and a corporation can
be something fundamental and unalterable which is beyond the power of
the majority of the stockholders, and which constitutes the rule
controlling their actions. this rule which must be observed is to be found
in the essential compacts of such partnership, which gave served as a
basis upon which the members have united, and without which it is not
probable that they would have entered not the corporation.
Notwithstanding these limitations upon the power of the majority of the
stockholders, their (the majority's) resolutions, when passed in good faith
and for a just cause, deserve careful consideration and are generally
binding upon the minority.

While a corporation remains solvent, we can see no reason why a director

or officer, by the authority of a majority of the stockholders or board of
managers, may not deal with the corporation, loan it money or buy
property from it, in like manner as a stranger. So long as a purely private
corporation remains solvent, its directors are agents or trustees for the
stockholders. They owe no duties or obligations to others. But the
moment such a corporation becomes insolvent, its directors are trustees
of all the creditors, whether they are members of the corporation or not,
and must manage its property and assets with strict regard to their
interest; and if they are themselves creditors while the insolvent
corporation is under their management, they will not be permitted to
secure to themselves by purchasing the corporate property or otherwise
any personal advantage over the other creditors. Nevertheless, a director
or officer may in good faith and for an adequate consideration purchase
from a majority of the directors or stockholders the property even of an
insolvent corporation, and a sale thus made to him is valid and binding
upon the minority. The sale or transfer of the corporate property in the
case at bar was made by three directors who were at the same time a

majority of stockholders. If a majority of the stockholders have a clear

and a better right to sell the corporate property than a majority of the
directors, then it can be said that a majority of the stockholders made
this sale or transfer to the defendant McCullough.

The corporation had been going from bad to worse. The work of trying to
raise the sunken Spanish fleet had been for several months abandoned.
The corporation under the management of the plaintiff had entirely failed
in this undertaking. It had broken its contract with the naval authorities
and the $10,000 Mexican currency deposited had been confiscated. It
had no money. It was considerably in debt. It was a losing concern and a
financial failure. To continue its operation meant more losses. Success
was impossible. The corporation was civilly dead and had passed into the
limbo of utter insolvency. The majority of the stockholders or directors
sold the assets of this corporation, thereby relieving themselves and the
plaintiff of all responsibility. This was only the wise and sensible thing for
them to do. They acted in perfectly good faith and for the best interests
of all the stockholders. "It would be a harsh rule that would permit one
stockholder, or any minority of stockholders to hold a majority to their
investment where a continuation of the business would be at a loss and
where there was no prospect or hope that the enterprise would be
profitable."

G.R. No. 58168 December 19, 1989

CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAYCABRERA, LUISA MAGSAYSAY-CORPUZ, assisted be her husband,
Dr. Jose Corpuz, FELICIDAD P. MAGSAYSAY, and MERCEDES
MAGSAYSAY-DIAZ, petitioners, [Link] COURT OF APPEALS and
ADELAIDA RODRIGUEZ-MAGSAYSAY, Special Administratrix of the
Estate of the late Genaro F. Magsaysay respondents.
FERNAN, C.J.:

DOCTRINE: Section 63 of the Corporation Code provides, thus: "No

transfer, however, shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation showing the names of
the parties to the transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares transferred."

FACTS: In this petition for review on certiorari, petitioners seek to

reverse and set aside CA decision affirming that of the CFI of Zambales
and Olongapo City denying petitioners' motion to intervene in an
annulment suit filed by herein private respondent, and [2] its resolution
denying their motion for reconsideration.

Adelaida Rodriguez-Magsaysay, widow and special administratix of the

estate of the late Senator Genaro Magsaysay, brought before the then
CFI of Olongapo an action against Artemio Panganiban, Subic Land
Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the
Register of Deeds of Zambales. In her complaint, she alleged that in
1958, she and her husband acquired, thru conjugal funds, a parcel of
land with improvements, known as "Pequena Island", covered by TCT No.
3258; that after the death of her husband, she discovered [a] an
annotation at the back of TCT No. 3258 that "the land was acquired by
her husband from his separate capital;" [b] the registration of a Deed of
Assignment dated June 25, 1976 purportedly executed by the late
Senator in favor of SUBIC, as a result of which TCT No. 3258 was
cancelled and TCT No. 22431 issued in the name of SUBIC; and [c] the
registration of Deed of Mortgage dated April 28, 1977 in the amount of P

2,700,000.00 executed by SUBIC in favor of FILMANBANK; that the

foregoing acts were void and done in an attempt to defraud the conjugal
partnership considering that the land is conjugal, her marital consent to
the annotation on TCT No. 3258 was not obtained, the change made by
the Register of Deeds of the titleholders was effected without the
approval of the Commissioner of Land Registration and that the late
Senator did not execute the purported Deed of Assignment or his consent
thereto, if obtained, was secured by mistake, violence and intimidation.
She further alleged that the assignment in favor of SUBIC was without
consideration and consequently null and void. She prayed that the Deed
of Assignment and the Deed of Mortgage be annulled and that the
Register of Deeds be ordered to cancel TCT No. 22431 and to issue a new
title in her favor.
On March 7, 1979, herein petitioners, sisters of the late senator, filed a
motion for intervention on the ground that on June 20, 1978, their brother
conveyed to them one-half (1/2) of his shareholdings in SUBIC or a total
of 416,566.6 shares and as assignees of around 41 % of the total
outstanding shares of such stocks of SUBIC, they have a substantial and
legal interest in the subject matter of litigation and that they have a legal
interest in the success of the suit with respect to SUBIC but which the
court denied the motion for intervention ruling lack of legal interest for
being alleged assignees of certain shares in SUBIC cannot legally entitle
them to intervene because SUBIC has a personality separate and distinct
from its stockholders.
The Court of Appeals found no legal justification to disturb the findings of
the lower court and stated that petitioners claims can be ventilated in a
separate proceeding. Petitioners motion for reconsideration was denied.
Hence this instant recourse. Petitioners argue that 41.66% of the entire
outstanding capital stock of SUBIC entitles them to a significant vote on
corporate affairs that they are affected by the action of the widow of their
late brother for it concerns the only tangible asset of the corporation and
that it appears that they are more vitally interested in the outcome of the
case than SUBIC.

ISSUE: Whether or not petitioners have a legal interest in the

subject matter in litigation to entitle them to intervene in the
proceedings.

HELD: No.

1. . In the case of Batama Farmers' Cooperative Marketing Association,

Inc. v. Rosal, we held: "As clearly stated in Section 2 of Rule 12 of the
Rules of Court, to be permitted to intervene in a pending action, the party
must have a legal interest in the matter in litigation, or in the success of
either of the parties or an interest against both, or he must be so situated
as to be adversely affected by a distribution or other disposition of the
property in the custody of the court or an officer thereof ."
To allow intervention, [a] it must be shown that the movant has legal
interest in the matter in litigation, or otherwise qualified; and [b]
consideration must be given as to whether the adjudication of the rights
of the original parties may be delayed or prejudiced, or whether the
intervenor's rights may be protected in a separate proceeding or not.
Both requirements must concur as the first is not more important than
the second.
The interest which entitles a person to intervene in a suit between other
parties must be in the matter in litigation and of such direct and
immediate character that the intervenor will either gain or lose by the
direct legal operation and effect of the judgment. Otherwise, if persons
not parties of the action could be allowed to intervene, proceedings will
become unnecessarily complicated, expensive and interminable. And this
is not the policy of the law.
The words "an interest in the subject" mean a direct interest in the cause
of action as pleaded, and which would put the intervenor in a legal
position to litigate a fact alleged in the complaint, without the
establishment of which plaintiff could not recover.
Here, the interest, if it exists at all, of petitioners-movants is indirect,
contingent, remote, conjectural, consequential and collateral. At the very
least, their interest is purely inchoate, or in sheer expectancy of a right in
the management of the corporation and to share in the profits thereof
and in the properties and assets thereof on dissolution, after payment of
the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in
the property of the corporation, it does not vest the owner thereof with
any legal right or title to any of the property, his interest in the corporate
property being equitable or beneficial in nature. Shareholders are in no
legal sense the owners of corporate property, which is owned by the
corporation as a distinct legal person.

2. The petitioners cannot claim the right to intervene on the strength of

the transfer of shares allegedly executed by the late Senator. The
corporation did not keep books and records. 11 Perforce, no transfer was
ever recorded, much less effected as to prejudice third parties. The
transfer must be registered in the books of the corporation to affect third
persons. The law on corporations is explicit. Section 63 of the Corporation
Code provides, thus: "No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the
corporation showing the names of the parties to the transaction, the date
of the transfer, the number of the certificate or certificates and the
number of shares transferred."
And even assuming arguendo that there was a valid transfer, petitioners
are nonetheless barred from intervening inasmuch as their rights can be
ventilated and amply protected in another proceeding.
On the topic of corporate criminal liability

SIA v. PEOPLE OF THE PHILIPPINES

GR No. L-30896
April 28, 1983
De Castro, J.:

Facts:
This case involves a petition for review of the decision of the Court of
Appeals affirming the CFI of Manila convicting the appellant of estafa.
The facts reveal that in 1963, the accused Jose Sia was the
general manager of Metal Manufacturing Company of the
Philippines engaged in the manufacturing of steel office
equipment. When the company was in need of raw materials to be
imported from abroad, Sia applied for a letter of credit to import
steel sheets from Tokyo, Japan, the application being directed to
Continental Bank and was opened in the amount of $18,300.
According to the Continental Bank, the delivery of the steel sheets was
only permitted upon the execution of the trust receipt. While according
to Sia, the steel sheets were already delivered and were even
converted to equipment before the trust receipt was signed by

him. However, there is no question that when the bill of exchange

became due, neither the accused nor his company made payments,
despite demands of the bank. On appeal, Sia contends that he should
not be held liable.

Issue: WON petitioner Sia may be liable for the crime charged, having
acted only for and in behalf of his company.

Held:

NO. The Court disputed the reliance of the lower court and the CA on the
general principle that for a crime committed by a corporation, the
responsible officers thereof would personally bear the criminal liability, as
enunciated in Tan Boon Kong. The latter provides that: [t]he corporation
was directly required by law to do an act in a given manner and the same
law makes the person who fails to perform the act in the prescribed
manner expressly liable criminally. The performance of an act is an
obligation directly imposed by the law on the corporation. Since it is a
responsible officer or officers of the corporations who actually perform
the act for the corporation, they must of necessity be the ones to assume
the criminal liability; otherwise this liability as created by the law would
be illusory, and the deterrent effect of the law, negated.

The Court concluded that the cited case does not fall squarely
with the circumstances surrounding Sia since the act alleged to be a
crime is not in the performance of an act directly ordained by law to be
performed by the corporation. The act is imposed by the agreement of
the parties in pursuit of the business. The intention of the parties is
therefore a factor determinant of whether a crime or a civil obligation
alone is committed. The absence of a provision of the law even in the
RPC making Sia criminally liable as the president of his company created
a doubt that must be ruled in his favor according to the maxim, that all
doubts must be resolved in favor of the accused.

Filipinas Broadcasting v. Ago Medical and Educational CenterBicol Christian College of Medicine G.R. No. 141994.
January 17, 2005
FACTS: Petitioner Filipinas Broadcasting Network, Inc (FBNI) assails the
Resolution of the CA which modified the December 14, 1992 decision of
the RTC of Legazpi City (as to the amount of moral damages), and found
petitioner and its broadcasters Hermogenes Alegre and Carmelo Rima
liable for libel. The lower court ordered FBNI, Alegre and Rima to
solidarily pay moral damages, attorneys fees and the costs of the suit to
Ago Medical and Educational Center- Bicol Christian College of Medicine
(AMEC).

The complaint alleged that Alegre and Rima had made malicious
imputations and as such destroyed plaintiffs (AMEC and Angelita Ago,
Dean of the College of Medicine) reputation by citing the alleged
complaints of students, parents and teachers. The complaint cited that
defendants had made the ff libellous imputations with no factual basis:
(1) That AMEC-BCCM requires its students to repeat subjects which they
have passed already the moment they fail one subject, despite the
absence of any such regulation by the DECS; (2) That students were
required to take and pay for the subject even if there is no instructor,
which demonstrates the greed of AMECs administration and; (3) That
AMEC is a dumping ground of moral and physical misfits because it
continued to accept rejects in order to minimize salary expenses. FBNI
was impleaded as a defendant for failing to exercise due diligence in the
selection and supervision of its employees (Alegre and Rima). A Motion to
Dismiss was filed in behalf of FBNI which the RTC denied. The lower court
held that the broadcasts were liable per se and were not the result of
straight reporting because it had no factual basis because the
broadcasters failed to verify their reports. FBNI failed to exercise the due
diligence as required by law. Hence, the judgment requiring FBNI, Alegre
and Rima to pay moral damages (Php 300,000), plus reimbursement of
attorneys fees (Php 30,000) and the costs of the suit. CA lowered the
amount of moral damages to Php 150,000.

ISSUE: Whether or not AMEC-BCCM, a corporation, is entitled to the

award of moral damages.

RULING: AMEC-BCCM is entitled to the award of moral damages.

Generally, a juridical person is 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. In Mambulao Lumber Co. v. PNB, et al, the award of moral
damages may be justified. However, the Courts statement in the said
case, that a corporation may have a good reputation which, if
besmirched, may also be a ground for the award of moral damages, is
an obiter dictum.

AMECs claim for moral damages was grounded under item 7 of Article
2219 of the Civil Code which authorizes the same in cases of libel,
slander, or any other form of defamation. The provision does not qualify
whether the plaintiff seeking such award is a natural or juridical person.
Therefore, a juridical person such as a corporation can validly complain of
libel or any other form of defamation and claim for moral damages as a
result thereof. Moreover, evidence of an honest mistake or the want of
character or reputation of the party libelled serves only to mitigate the
amount of damages. Since the broadcasts are libellous per se, AMEC is
entitled to moral damages. The amount is reduced to Php 150,000
because AMEC has not suffered any substantial or material damage to its
reputation.
ATTY. MAURICIO ULEP vs THE LEGAL CLINIC, INC
Bar Matter 553 / 223 SCRA 378 / June 17, 1993
Justice Regalado

DOCTRINE:
Practice of law means any activity, in or out of court, which requires the
application of law, legal procedures, knowledge, training and experience.
To engage in the practice of law is to perform those acts which are
characteristic of the profession. Generally, to practice law is to give
advice or render any kind of service that involves legal knowledge or
skill.

That fact that the corporation employs paralegals to carry out its services
is not controlling. What is important is that it is engaged in the practice of
law by virtue of the nature of the services it renders which thereby brings

it within the ambit of the statutory prohibitions against the

advertisements which it has caused to be published and are now assailed
in this proceeding.

[PETITION TO THE SC TO ISSUE CEASE & DESIST ORDER OF

RESPONDENTS ADVERTISEMENTS]

FACTS:
1. Petitioner Mauricio Ulep prays for the SC to issue a cease & desist
order to the respondent, The Legal Clinic, Inc., to perpetually refrain them
from advertising their services, tagged as Annex A & B, to wit:

and that, to which as a member of the legal profession, he is ashamed

and offended.

3. Respondent claims it is not engaged in the practice of law, but in

rendering legal support services through paralegals with the use of
modern computers and electronic machines. Further, they aver that
assuming the services advertised are legal services, the act of
advertising them should be allowed by decided jurisprudence (John Bates
& Van OSteen vs State Bar of Arizona.

ISSUE: Whether respondent corporation - The Legal Clinic - is engaged in

the unauthorized practice of law to merit the issuance of the cease &
desist order.

Annex A
SECRET MARRIAGE? P560.00 for a valid marriage.

RULING:

Info on DIVORCE. ABSENCE. ANNULMENT. VISA.

YES. Practice of law means any activity, in or out of court, which

requires the application of law, legal procedures, knowledge, training and
experience. To engage in the practice of law is to perform those acts
which are characteristic of the profession. Generally, to practice law is to
give advice or render any kind of service that involves legal knowledge or
skill.

THE Please call: 521-0767 LEGAL 5217232, 5222041 CLINIC, INC.

8:30 am 6:00 pm 7-Flr. Victoria Bldg., UN Ave., Mla.

Annex B
GUAM DIVORCE. DON PARKINSON
an Attorney in Guam, is giving FREE BOOKS on Guam Divorce through
The Legal Clinic beginning Monday to Friday during office hours.
Guam divorce. Annulment of Marriage. Immigration Problems, Visa Ext.
Quota/Non-quota Res. & Special Retiree's Visa. Declaration of Absence.
Remarriage to Filipina Fiancees. Adoption. Investment in the Phil.
US/Foreign Visa for Filipina Spouse/Children. Call Marivic. THE 7F Victoria
Bldg. 429 UN Ave., LEGAL Ermita, Manila nr. US Embassy CLINIC, INC. 1
Tel. 521-7232; 521-7251; 522-2041; 521-0767

2. Petitioner contends that the advertisements are champertous,

unethical, demeaning of the law profession, and destructive of the
confidence of the community in the integrity of the members of the bar

The practice of law is not limited to the conduct of cases in court. It

includes legal advice and counsel, and the preparation of legal
instruments and contract by which legal rights are secured, although
such matter may or may not be pending in a court..Giving advice for
compensation regarding the legal status and rights of another and the
conduct with respect thereto constitutes a practice of law.

That fact that the corporation employs paralegals to carry out its services
is not controlling. What is important is that it is engaged in the practice of
law by virtue of the nature of the services it renders which thereby brings
it within the ambit of the statutory prohibitions against the
advertisements which it has caused to be published and are now assailed
in this proceeding.

Public policy requires that the practice of law be limited to those

individuals found duly qualified in education and character. The purpose
is to protect the public, the court, the client and the bar from the
incompetence or dishonesty of those unlicensed to practice law and not
subject to the disciplinary control of the court.

It is apt to recall that only natural persons can engage in the practice of
law, and such limitation cannot be evaded by a corporation employing
competent lawyers to practice for it. Obviously, this is the scheme or
device by which respondent "The Legal Clinic, Inc." holds out itself to the
public and solicits employment of its legal services. It is an odious
vehicle for deception, especially so when the public cannot ventilate any
grievance for malpractice against the business conduit. Precisely, the
limitation of practice of law to persons who have been duly admitted as
members of the Bar (Sec. 1, Rule 138, Revised Rules of Court) is to
subject the members to the discipline of the Supreme Court. Although
respondent uses its business name, the persons and the lawyers who act
for it are subject to court discipline. The practice of law is not a
profession open to all who wish to engage in it nor can it be assigned to
another (See 5 Am. Jur. 270). It is a personal right limited to persons who
have qualified themselves under the law. It follows that not only
respondent but also all the persons who are acting for respondent are the
persons engaged in unethical law practice.

vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port of
Cebu, respondent.

A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against
Joaquin Natividad, Collector of Customs of the port of Cebu, Philippine
Islands, to compel him to issue a certificate of Philippine registry to the
petitioner for its motor vessel Bato. The Attorney-General, acting as
counsel for respondent, demurs to the petition on the general ground
that it does not state facts sufficient to constitute a cause of action.

Facts:
Smith, Bell & Co. is a corporation organized and existing under the laws
of the Philippine Islands; majority of the stockholders are British; owner of
a motor vessel known as the Batobrought to Cebu for the purpose of
transporting Smith, Bell & Co.s merchandise between ports in the
islands. Application for registration was made at Cebu at the Collector of
Customs---denied. Because they were not citizens of the US/Phils. Act
2671, Sec. 1172. Certificate ofPhilippine Register. upon registration of a
vessel of domestic ownership, and of more than 15 tons gross, a
certificate of Philippine register shall be issued for it. If the vessel is of
domestic ownership and of 15 tons gross or less, the taking of the
certificate of Philippine register shall be optional with the owner.
domestic ownership, as used in this section, means ownership vested in
the (a) citizens or native inhabitants of the Phil Islands; (b) citizens of the
US residing in the Phil. Islands; (c) any corporation or company composed
wholly of citizen of Phils./US or both
plaintiffs contention: Act No. 2671 deprives the corp. of its property
without due process of law
because by the passage of the law, the company was automatically
deprived of every beneficial
attribute of ownership of the Bato and that they are left with a naked title
they could not use.

G.R. No. 15574

September 17, 1919

SMITH, BELL & COMPANY (LTD.), petitioner,

Issue: WON Smith, Bell & Co. were denied of the due process of law by
the Phil. Legislature in its enactment of Act 2761.

Held:
No. (judgment affirmedplaintiff cant be granted registry.) While Smith,
Bell & Co. Ltd., a corporation having alien stockholders, is entitled to the
protection afforded by the due-process of law and equal protection of the
laws clause of the Philippine Bill of Rights, nevertheless, Act No. 2761 of
the Philippine Legislature, in denying to corporations such as Smith, Bell
&. Co. Ltd., the right to register vessels in the Philippines coastwise trade,
does not belong to that vicious species of class legislation which must
always be condemned, but does fall within authorized exceptions,
notably, within the purview of the police power, and so does not offend
against the constitutional provision. Literally and absolutely, steamship
lines are the arteries of the commerce in the Phils. If one be severed, the
lifeblood of the nation is lost. If these are protected, security of the
country and general welfare is sustained.
NATIONAL MARKETING CORPORATION V. ASSOCIATED FINANCE
COMPANY, INC. and FRANCISCO SYCIP
No. L-20886
April 27, 1967

DIZON, J.:
Appeal taken by the National Marketing Corporation from the decision of
the Court of First Instance of Manila in Civil Case No. 45770 ordering the
Associated Finance Company, Inc. to pay the NAMARCO the sum of
P403,514.28, with legal interest thereon from the date of filing of the
action until fully paid, P80,702.26 as liquidated damages, P5,000.00 as
attorneys fee, plus costs, but dismissing the complaint insofar as
defendant Francisco Sycip was concerned, as well as the latters
counterclaim. The appeal is only from that portion of the decision
dismissing the case as against Francisco Sycip.

whereby the former would deliver to the latter 22,516 bags (each
weighing 100 pounds) of "Victorias" and/or "National" refined sugar in
exchange for 7,732.71 bags of "Busilak" and 17,285.08 piculs of
"Pasumil" raw sugar belonging to NAMARCO, both agreeing to pay
liquidated damages equivalent to 20% of the contractual value of the
sugar should either party fail to comply with the terms and conditions
stipulated (Exhibit A). Pursuant thereto, on May 19,1958, NAMARCO
delivered to ASSOCIATED 7,732.71 bars of "Busilak" and 17,285.08 piculs
of "Pasumil" domestic raw sugar. As ASSOCIATED failed to deliver to
NAMARCO the 22,516 bags of "Victoria" and/or "National" refined sugar
agreed upon, the latter, on January 12, 1959, demanded in writing from
the ASSOCIATED either (a) immediate delivery thereof before January 20,
or (b) payment of its equivalent cash value amounting to P372,639.80.

As ASSOCIATED refused to deliver the raw sugar or pay for the refund
sugar delivered to it, inspite of repeated demands therefore, NAMARCO
instituted the present action in the lower court to recover the sum of
P403,514.28 in payment of the raw sugar received by defendants from it;
P80,702.86 as liquidated damages; P10,000.00 as attorneys fees,
expenses of litigation and exemplary damages, with legal interest
thereon from the filing of the complaint until fully paid.

In their amended answer defendants, by way of affirmative defenses,

alleged that the correct value of the sugar delivered by NAMARCO to
them was P259,451.09 or P13.30 per bag of 100 lbs. weight (quedan
basis) and not P403,514.28 as claimed by NAMARCO. As counterclaim
they prayed for the award of P500,000.00 as moral damages,
P100,000.00 as exemplary damages and P10,000.00 as attorneys fee.

ISSUE:The only issue to be resolved is whether, upon the facts found by

the trial court, Francisco Sycip may be held liable, jointly and severally
with his co-defendant, for the sums of money adjudged in favor of
NAMARCO.

FACTS:

ASSOCIATED, a domestic corporation, through its President, appellee

Francisco Sycip, entered into an agreement to exchange sugar with
NAMARCO, represented by its then General Manager, Benjamin Estrella,

RULING:The foregoing facts, fully established by the evidence, can lead

to no other conclusion than that Sycip was guilty of fraud because
through false representations he succeeded in including NAMARCO to
enter into the aforesaid exchange agreement, with full knowledge, on his

part, of the fact that ASSOCIATED whom he represented and over whose
business and affairs he had absolute control, was in no position to comply
with the obligation it had assumed. Consequently, he cannot now seek
refuge behind the general principle that a corporation has a personality
distinct and separate from that of its stockholders and that the latter are
not personally liable for the corporate obligations. To the contrary, upon
the proven facts, we feel perfectly justified in piercing the veil of
corporate fiction and in holding Sycip personally liable, jointly and
severally with his co-defendant, for the sums of money adjudged in favor
of appellant. It is settled law in this and other jurisdictions that when the
corporation is the mere alter ego of a person, the corporate fiction may
be disregarded; the same being true when the corporation is controlled,
and its affairs are so conducted as to make it merely an instrumentality,
agency or conduit of another.
VILLA REY TRANSIT, INC., plaintiff-appellant, vs. EUSEBIO E. FERRER,
PANGASINAN TRANSPORTATION CO., INC. and PUBLIC SERVICE
COMMISSION, defendants. EUSEBIO E. FERRER and PANGASINAN
TRANSPORTATION CO., INC., defendants-appellants.

PANGASINAN TRANSPORTATION CO., INC., third-party plaintiff-appellant,

vs. JOSE M. VILLARAMA, third-party defendant-appellee.

G.R. No. L-23893

October 29, 1968

ANGELES, J.:
Facts: Jose M. Villarama was an operator of a bus transportation, Villa
Rey Transit, with certificates of public convenience granted by the Public
Service Commission (PSC) in Cases Nos. 44213 and 104651, authorizing
him to operate 32 units on various routes or lines from Pangasinan to
Manila, and vice-versa. On January 8, 1959, he sold the aforementioned
two certificates of public convenience to the Pangasinan Transportation
Company, Inc. (Pantranco), for P350,000.00 with the condition that
Villarama "shall not for a period of 10 years from the date of this sale,
apply for any TPU service identical or competing with the buyer."
Barely three months thereafter, on March 6, 1959: a corporation,
Villa Rey Transit, Inc. (Corporation) was organized; Natividad R. Villarama
(wife of Jose M. Villarama) was one of the incorporators, and the brother
and sister-in-law of Jose M. Villarama subscribed to the stock. Natividad
also became the treasurer of the corporation. On March 10, 1959 the

corporation was registered with the SEC. On April 7, 1959, the

Corporation bought five certificates of public convenience, forty-nine
buses, tools and equipment from one Valentin Fernando. They
immediately applied with the PSC for its approval, praying for provisional
authority to operate the service. On May 19, 1959, the PSC granted the
provisional permit prayed for. Before the PSC could take final action on
said application for approval of sale, however, the Sheriff of Manila, on
July 7, 1959, levied on two of the five certificates of public convenience
involved therein, pursuant to a writ of execution issued by the Court of
First Instance of Pangasinan, in favor of Eusebio Ferrer, judgment
creditor, against Valentin Fernando. On July 16, 1959, a public sale was
conducted, with Ferrer as the highest bidder.

Ferrer sold the two certificates of public convenience to Pantranco, which

submitted the sale for approval to the PSC and prayed for provisional
authority to operate on the basis of the said certificates. Both the
applications of the Corporation and Pantranco were set for joint hearing.
The PSC issued an order disposing that during the pendency of
the cases Pantranco shall be the one to operate provisionally the service
The Corporation elevated the matter to the Supreme Court. On
November 4, 1959, the Corporation filed in the Court of First Instance of
Manila, a complaint for the annulment of the sheriff's sale to Ferrer, the
latters sale to Pantranco and PSC decision regarding the issue.
Ferrer and Pantranco averred that the Corporation had no valid title to
the certificates in question because the contract pursuant to which it
acquired them from Fernando was subject to a suspensive condition, the
approval of the PSC, has not yet been fulfilled. Thus they believed that
their purchase through the sheriff afforded them a better right.
Pantranco, filed a third-party complaint against Jose M. Villarama,
alleging that Villarama and the Corporation, are one and the same; that
Villarama and/or the Corporation was disqualified from operating the two
certificates in question by virtue of the agreement between Villarama
and Pantranco, stipulating that Villarama "shall not for a period of 10
years from the date of this sale, apply for any TPU service identical or
competing with the buyer."
The CFI ruled in favor of the Corporation and Villarama. It held
that the sheriffs sale was void, that the Corporation was the lawful owner
of the certificates and ordering Ferrer and Pantranco to pay attorneys

fees. It also held that Villarama and the corporation were separate and
distinct entities.
Issues: (1) Whether the agreement that Villarama "SHALL NOT FOR A
PERIOD OF 10 YEARS FROM THE DATE OF THIS SALE, APPLY FOR ANY TPU
SERVICE IDENTICAL OR COMPETING WITH THE BUYER," apply to new lines
only or does it include existing lines?;
(2) Assuming that said stipulation covers all kinds of lines, is such
stipulation valid and enforceable?;
(3) In the affirmative, that said stipulation is valid, did it bind the
Corporation?

Held: Although Villarama was not a stockholder or an incorporator, his

wife was an incorporator and also the treasurer of the Corporation. The
evidence proved that Villarama had actual control of the funds of the
Corporation and appeared as the actual owner and treasurer. In fact the
funds of the Corporation were deposited in his personal account. The
initial cash capitalization of P105,000 was mostly financed by Villaram
through an P85,000 personal check he issued himself. The trucks of the
Corporation were also purchased with his personal checks. Gasoline
purchases were made in his name. His personal accounts were also paid
by the Corporation. Villarama himself admitted that he mingled the
corporate funds with his own money.

The foregoing circumstances are strong persuasive evidence

showing that Villarama has been too much involved in the affairs of the
Corporation to altogether negative the claim that he was only a part-time
general manager. The interference of Villarama in the complex affairs of
the corporation, and particularly its finances, are much too inconsistent
with the ends and purposes of the Corporation law, which, precisely,
seeks to separate personal responsibilities from corporate undertakings.
It is the very essence of incorporation that the acts and conduct of the
corporation be carried out in its own corporate name because it has its
own personality.
When the fiction is urged as a means of perpetrating a fraud or
an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, the achievement or
perfection of a monopoly or generally the perpetration of
knavery or crime, the veil with which the law covers and isolates

the corporation from the members or stockholders who compose

it will be lifted to allow for its consideration merely as an
aggregation of individuals.
We hold that the preponderance of evidence have shown that the Villa
Rey Transit, Inc. is an alter ego of Jose M. Villarama. The rule is that a
seller or promisor may not make use of a corporate entity as a
means of evading the obligation of his covenant. Where the
Corporation is substantially the alter ego of the covenantor to the
restrictive agreement, it can be enjoined from competing with the
covenantee.
We hold the restrictive clause in the contract entered into by the latter
and Pantranco is also enforceable and binding against the said
Corporation. As We read the disputed clause, it is evident from the
context thereof that the intention of the parties was to eliminate the
seller as a competitor of the buyer for ten years along the lines of
operation covered by the certificates of public convenience subject of
their transaction.
The rule became well established that if the restraint was limited to "a
certain time" and within "a certain place," such contracts were valid and
not "against the benefit of the state." We find that although it is in the
nature of an agreement suppressing competition, it is, however, merely
ancillary or incidental to the main agreement which is that of sale. The
suppression or restraint is only partial or limited: first, in scope, it refers
only to application for TPU by the seller in competition with the lines sold
to the buyer; second, in duration, it is only for ten (10) years; and third,
with respect to situs or territory, the restraint is only along the lines
covered by the certificates sold. In view of these limitations, coupled with
the consideration of P350,000.00 for just two certificates of public
convenience, and considering, furthermore, that the disputed stipulation
is only incidental to a main agreement, the same is reasonable and it is
not harmful nor obnoxious to public service. The evils of monopoly are
farfetched here. There can be no danger of price controls or deterioration
of the service because of the close supervision of the Public Service
Commission.

However, the sale between Fernando and the Corporation is valid, such
that the rightful ownership of the disputed certificates still belongs to the
plaintiff being the prior purchaser in good faith and for value thereof. In
view of the ancient rule of caveat emptor prevailing in this jurisdiction,
what was acquired by Ferrer in the sheriff's sale was only the right which

Fernando, judgment debtor, had in the certificates of public convenience

on the day of the sale.
ISSUE:
ADELIO C. CRUZ, complainant vs QUITERIO L. DALISAY, Deputy
Sheriff, RTC, Manila, respondents

whether or not the sheriff committed an act that pierced the veil of
corporate entity of Qualitrans?
HELD: YES.

Adm. Matter No. R-181-P July 31, 1987

Fernan, J;
DOCTRINE:
Commercial Law; Corporation. Piercing the veil of corporate entity;A
corporation ha a personality distinct and separate from its individual
stockholders or members; Sheriff usurped a power that belonged to the
court when he chose to pierce the veil of corporate entity.
FACTS:
In a sworn complaint, Adelio Cruz charged Quiterio Dalisay, Senior
Deputy Sheriff of Manila, with malfeasance in office, corrupt practices
and serious irregularities allegedly committed as follows:

1. Respondent sheriff attached and/or levied the money belonging

to complainant Cuz when he was not himself the judgment
debtor in the final judgment of NLRC NCR Case sought to be
enforced but rather the company known as Qualitrans
Limousine Service, Inc. a duly registered corporation, and

2. Respondent likewise caused the service of the alias writ of

execution UPON COMPLAINANT who is a resident of Pasay
despite knowledge that his territorial jurisdiction covers Manila
only and does not extend to Pasay City.
In his comments, respondent Dalisay explained that when he garnished
complainants cash deposit at the Philtrust bank, he was merely
performing a ministerial duty. While it is true that said writ was addressed
to Qualitrans Limousine Service Inc, yet it is also a fact that complainant
had executed an affidavit before the Pasay City assistant fiscal stating
that he is the owner/ president of said corporation and because of that
declaration, the counsel for the plaintiff in the labor case advised him to
serve notice of garnishment on the Philtrust bank.

We hold that respondents actuation in enforcing a judgment against

complainant who is not the judgment in the case calls for disciplinary
action. Considering the ministerial nature of his duty in enforcing writs of
execution, what is incumbent upon him is to ensure that only that portion
of a decision ordained or decreed in the dispositive part should be the
subject of execution. No more, no less.
The tenor of the NLRC judgment and the implementing writ is
clear enough. It directed Qualitrans Limousine Service Inc to
reinstate the discharged employees and pay them full
backwages. Respondent however, chose to pierce the veil of
corporate entity usurping a power belonging to the court and
assumed improvidently that since the complainant is the
owner/president of Qualitrans Limousine Service, Inc. they are
one and the same.
It is a well-settled doctrine both in law and in equity that as a
legal entity, a corporation has a personality distinct and
separate from its individual stockholders or members. The mere
fact that one is president of a corporation does not render the
property he owns or possesses the property of the corporation,
since the president, as individual, and the corporation are
separate entities.
ACCORDINGLY, we find Respondent Deputy Sheriff Dalisay NEGLIGENT in
the enforcement of the writ of execution in NLRC Case no. 8-12389-91;
and a fine equivalent to 3 months salary is hereby imposed with a stern
warning that the commission of the same or similar offense in the future
will merit a heavier penalty.

RTC-Laguna decided in favor of HEIRS. On appeal, the decision

of the RTC was affirmed. Hence, the petition.
ISSUE:Did the CA err when it refused to pierce the veil of corporate
fiction over HEIRS and maintain the petitioners in their possession and/or
occupancy of the subject premises considering that petitioners are
owners of aliquot part of the properties of HEIRS?
HELD:NO. The petitioners maintain that their possession of the
questioned properties must be respected in view of their ownership of an
aliquot portion of all the properties of the respondent corporation being
stockholders thereof. They propose that the veil of corporate fiction be
pierced, considering the circumstances under which the respondent
corporation was formed.
G.R. No. 100866 July 14, 1992
REBECCA BOYER-ROXAS and GUILLERMO ROXAS, petitioners,
vs.
HON. COURT OF APPEALS and HEIRS OF EUGENIA V. ROXAS,
INC., respondents.
Petition to review the decision and resolution of the Court of Appeals
affirming the earlier decision of the RTC-Laguna in the consolidated civil
cases involving petitioners and private respondent Heirs of Eugenia V.
Roxas, Inc. (HEIRS), a corporation.

FACTS: HEIRS filed two separate complaints for recovery of possession

with the RTC-Laguna against herein petitioners, praying for the ejectment
of petitioners from buildings inside the Hidden Valley Springs Resort,
allegedly owned by respondent corporation. HEIRS alleged that (1)
Rebecca Roxas is in possession of two houses built at the expense of
HEIRS, and that her occupancy on the said houses was only upon the
tolerance of the corporation; and (2) Guillermo Roxas occupies a house
which was built at the expense of the corporation during the time when
Guillermos father was still living and was the general manager of the
corporation, and that Guillermos possession over the house and lot was
only upon the tolerance of the corporation. In their separate answers,
petitioners traversed the allegations stating that they are heirs of
Eugenia V. Roxas, and therefore, co-owners of the Hidden Valley Springs
Resort; and as co-owners of the property, they have the right to stay
within its premises.

Originally, the questioned properties belonged to Eugenia V. Roxas. After

her death, the heirs of Eugenia V. Roxas, among them the petitioners
herein, decided to form a corporation Heirs of Eugenia V. Roxas,
Incorporated (private respondent herein) with the inherited properties as
capital of the corporation. The corporation was incorporated on
December 4, 1962 with the primary purpose of engaging in agriculture to
develop the inherited properties. The Articles of Incorporation of the
respondent corporation were amended in 1971 to allow it to engage in
the resort business. Accordingly, the corporation put up a resort known
as Hidden Valley Springs Resort where the questioned properties are
located. These facts, however, do not justify the position taken by the
petitioners.
The respondent is a bona fide corporation. As such, it has a juridical
personality of its own separate from the members composing it. There is
no dispute that title over the questioned land where the Hidden Valley
Springs Resort is located is registered in the name of the corporation. The
records also show that the staff house being occupied by petitioner
Rebecca Boyer-Roxas and the recreation hall which was later on
converted into a residential house occupied by petitioner Guillermo Roxas
are owned by the respondent corporation. Regarding properties owned
by a corporation, we stated in the case ofStockholders of F. Guanzon and
Sons, Inc. v. Register of Deeds of Manila, (6 SCRA 373 [1962]):
xxx xxx xxx
. . . Properties registered in the name of the corporation are owned by it
as an entity separate and distinct from its members. While shares of
stock constitute personal property, they do not represent property of the
corporation. The corporation has property of its own which consists

chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v.
Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies an
aliquot part of the corporation's property, or the right to share in its
proceeds to that extent when distributed according to law and equity
(Hall & Faley v. Alabama Terminal, 173 Ala., 398, 56 So. 235), but its
holder is not the owner of any part of the capital of the corporation
(Bradley v. Bauder, 36 Ohio St., 28). Nor is he entitled to the possession
of any definite portion of its property or assets (Gottfried V. Miller, 104
U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a coowner or tenant in common of the corporate property (Harton v.
Johnston, 166 Ala., 317, 51 So. 992). (at pp. 375-376)
The petitioners point out that their occupancy of the staff house which
was later used as the residence of Eriberto Roxas, husband of petitioner
Rebecca Boyer-Roxas and the recreation hall which was converted into a
residential house were with the blessings of Eufrocino Roxas, the
deceased husband of Eugenia V. Roxas, who was the majority and
controlling stockholder of the corporation. In his lifetime, Eufrocino Roxas
together with Eriberto Roxas, the husband of petitioner Rebecca BoyerRoxas, and the father of petitioner Guillermo Roxas managed the
corporation. The Board of Directors did not object to such an
arrangement. The petitioners argue that . . . the authority thus given by
Eufrocino Roxas for the conversion of the recreation hall into a residential
house can no longer be questioned by the stockholders of the private
respondent and/or its board of directors for they impliedly but no leas
explicitly delegated such authority to said Eufrocino Roxas. (Rollo, p. 12)

Again, we must emphasize that the respondent corporation has a distinct

personality separate from its members. The corporation transacts its
business only through its officers or agents. (Western Agro Industrial
Corporation v. Court of Appeals, supra). Whatever authority these officers
or agents may have is derived from the board of directors or other
governing body unless conferred by the charter of the corporation. An
officer's power as an agent of the corporation must be sought from the
statute, charter, the by-laws or in a delegation of authority to such
officer, from the acts of the board of directors, formally expressed or
implied from a habit or custom of doing business. (Vicente v. Geraldez,
52 SCRA 210 [1973])

In the present case, the record shows that Eufrocino V. Roxas who then
controlled the management of the corporation, being the majority

stockholder, consented to the petitioners' stay within the questioned

properties. Specifically, Eufrocino Roxas gave his consent to the
conversion of the recreation hall to a residential house, now occupied by
petitioner Guillermo Roxas. The Board of Directors did not object to the
actions of Eufrocino Roxas. The petitioners were allowed to stay within
the questioned properties until August 27, 1983, when the Board of
Directors approved a Resolution ejecting the petitioners.

We find nothing irregular in the adoption of the Resolution by the Board

of Directors. The petitioners' stay within the questioned properties was
merely by tolerance of the respondent corporation in deference to the
wishes of Eufrocino Roxas, who during his lifetime, controlled and
managed the corporation. Eufrocino Roxas' actions could not have bound
the corporation forever. The petitioners have not cited any provision of
the corporation by-laws or any resolution or act of the Board of Directors
which authorized Eufrocino Roxas to allow them to stay within the
company premises forever. We rule that in the absence of any existing
contract between the petitioners and the respondent corporation, the
corporation may elect to eject the petitioners at any time it wishes for
the benefit and interest of the respondent corporation.

The petitioners' suggestion that the veil of the corporate fiction

should be pierced is untenable. The separate personality of the
corporation may be disregarded only when the corporation is
used "as a cloak or cover for fraud or illegality, or to work
injustice, or where necessary to achieve equity or when
necessary for the protection of the creditors." (Sulong Bayan,
Inc. v. Araneta, Inc., 72 SCRA 347 [1976] cited in Tan Boon Bee &
Co., Inc., v. Jarencio, supraand Western Agro Industrial
Corporation v. Court of Appeals, supra) The circumstances in the
present cases do not fall under any of the enumerated
categories.
CHING vs. THE SECRETARY OF JUSTICE, et al
G. R. No. 164317

February 6, 2006

NATURE of the Case:

A petition for review on certiorari
of the decision of the Court of Appeals which dismissed petitioner Alfredo
Chings petition for certiorari, prohibition and mandamus, essentially

allowing an information for violation of the Trust Receipts Law and estafa
to be filed against the petitioner
FACTS:
Alfredo Ching was was the Senior Vice-President of Philippine Blooming
Mills, Inc. (PBMI). In this capacity he applied for the issuance of
commercial letters of credit with RCBC. When granted, petitioner signed
13 trust receipts as surety.
When the trust receipts matured, petitioner failed to return the goods to
respondent bank, or to return their value amounting to P6.9M despite
demands.
The bank filed a criminal complaint for estafa against petitioner, which
was initially by the Prosecutor but was reversed on appeal to the
Secretary of Justice.
The Justice Secretary further stated that the respondent bound himself
under the terms of the trust receipts not only as a corporate official of
PBMI but also as its surety; hence, he could be proceeded against in two
(2) ways: first, as surety as determined by the Supreme Court in its
decision in Rizal Commercial Banking Corporation v. Court of
Appeals; and second, as the corporate official responsible for the offense
under P.D. No. 115, via criminal prosecution. Moreover, P.D. No. 115
explicitly allows the prosecution of corporate officers "without prejudice
to the civil liabilities arising from the criminal offense." Thus, according to
the Justice Secretary, following Rizal Commercial Banking Corporation,
the civil liability imposed is clearly separate and distinct from the criminal
liability of the accused under P.D. No. 115.
Petitioner then filed a petition for certiorari, prohibition and mandamus
with the CA, assailing the resolutions of the Secretary of Justice, but the
CA dismissed the petition.
The CAruled that petitioner as Senio VP and signatory to the trust receips
was criminally liable
ISSUES:

1. Whether the certification for non-forum shopping was defective

2. Whether petitioner, as Senior VP, could be made liable for
violation of the trust receipts law
RULING:

1. On the procedural ground the SC ruled that petitioners

certification for non-forum shopping was defective because as
worded, it cannot even be regarded as substantial compliance
with the procedural requirement

1. On the issue regarding Chings liability:

In the case at bar, the transaction between petitioner and respondent
bank falls under the trust receipt transactions envisaged in P.D. No. 115.
Respondent bank imported the goods and entrusted the same to PBMI
under the trust receipts signed by petitioner, as entrustee, with the bank
as entruster. The agreement was as follows:
P.D. No. 115 applies to goods used by the entrustee in the operation of its
machineries and equipment. The non-payment of the amount covered by
the trust receipts or the non-return of the goods covered by the receipts,
if not sold or otherwise not disposed of, violate the entrustees obligation
to pay the amount or to return the goods to the entruster.
There are two possible situations in a trust receipt transaction. The first is
covered by the provision which refers to money received under the
obligation involving the duty to deliver it (entregarla) to the owner of the
merchandise sold. The second is covered by the provision which refers to
merchandise received under the obligation to return it (devolvera) to the
owner.
Thus, failure of the entrustee to turn over the proceeds of the sale of the
goods covered by the trust receipts to the entruster or to return said
goods if they were not disposed of in accordance with the terms of the
trust receipt is a crime under P.D. No. 115, without need of proving intent
to defraud.
The Court rules that although petitioner signed the trust receipts merely
as Senior Vice-President of PBMI and had no physical possession of the
goods, he cannot avoid prosecution for violation of P.D. No. 115.
The crime defined in P.D. No. 115 is malum prohibitum but is classified as
estafa under paragraph 1(b), Article 315 of the Revised Penal Code, or
estafa with abuse of confidence.
Estafa may be committed by a corporation or other juridical entity or by
natural persons. However, the penalty for the crime is imprisonment.
Though the entrustee is a corporation, nevertheless, the law
specifically makes the officers, employees or other officers or
persons responsible for the offense, without prejudice to the civil

liabilities of such corporation and/or board of directors, officers,

or other officials or employees responsible for the offense. The
rationale is that such officers or employees are vested with the
authority and responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are held
criminally accountable; thus, they have a responsible share in
the violations of the law
If the crime is committed by a corporation or other juridical entity, the
directors, officers, employees or other officers thereof responsible for the
offense shall be charged and penalized for the crime, precisely because
of the nature of the crime and the penalty therefor. A corporation cannot
be arrested and imprisoned; hence, cannot be penalized for a crime
punishable by imprisonment. However, a corporation may be charged
and prosecuted for a crime if the imposable penalty is fine. Even if the
statute prescribes both fine and imprisonment as penalty, a corporation
may be prosecuted and, if found guilty, may be fined.
In this case, petitioner signed the trust receipts in question. He
cannot, thus, hide behind the cloak of the separate corporate
personality of PBMI. In the words of Chief Justice Earl Warren, a
corporate officer cannot protect himself behind a corporation
where he is the actual, present and efficient actor
Palting v. San Jose Petroleum, Inc.
18 SCRA 924 (1966)

Petition for review of the order of the Securities and Exchange

Commission denying the opposition to, and instead, granting the
registration, and licensing the sale in the Philippines, of shares of the
capital stock of the respondent-appellee San Jose Petroleum, Inc., a
corporation organized and existing in the Republic of Panama.

FACTS:
SAN JOSE PETROLEUM is a corporation organized and existing in the
Republic of Panama. It filed with the SEC a sworn registration statement
for the registration and licensing for sale in the Philippines Voting Trust
Certificates representing 2 million shares of its capital stock of a par
value of $0.35 a share, at P1 per share. It was alleged that the entire
proceeds of the sale of said securities will be devoted or used exclusively

to finance the operations of SAN JOSE OIL COMPANY, a domestic mining

corporation, which has 14 petroleum exploration concessions.

Palting, among others, allegedly prospective investors in the shares of

SAN JOSE PETROLEUM, filed with the SEC an opposition to registration
and licensing on the ground that the tie-up between the issuer, SAN JOSE
PETROLEUM, and SAN JOSE OIL, is violative of the Constitution, the
Corporation Law, and the Petroleum Act of 1949. SAN JOSE PETROLEUM
claimed that it was a business enterprise enjoying parity rights under
the Ordinance appended to the Constitution, which parity right, with
respect to mineral resources in the Philippines, may be exercised,
pursuant to the Laurel-Langley Agreement, only though the medium of a
corporation organized under the laws of the Philippines (SAN JOSE OIL).

ISSUE:
Is San Jose Petroleum an American business enterprise entitled to parity
rights in the Philippines?
HELD:NO.
Firstly It is not owned or controlled directly by citizens of the United
States, because it is owned and controlled by a corporation, the OIL
INVESTMENTS, another foreign (Panamanian) corporation.
Secondly Neither can it be said that it is indirectly owned and
controlled by American citizens through the OIL INVESTMENTS, for this
latter corporation is in turn owned and controlled, not by citizens of the
United States, but still by two foreign (Venezuelan) corporations, the
PANTEPEC OIL COMPANY and PANCOASTAL PETROLEUM.
hirdly Although it is claimed that these two last corporations are
owned and controlled respectively by 12,373 and 9,979 stockholders
residing in the different American states, there is no showing in the
certification furnished by respondent that the stockholders of
PANCOASTAL or those of them holding the controlling stock, are citizens
of the United States.
Fourthly Granting that these individual stockholders are American
citizens, it is yet necessary to establish that the different states of which
they are citizens, allow Filipino citizens or corporations or associations
owned or controlled by Filipino citizens, to engage in the exploitation, etc.
of the natural resources of these states (see paragraph 3, Article VI of the

Laurel-Langley Agreement, supra). Respondent has presented no proof to

this effect.
Fifthly But even if the requirements mentioned in the two immediately
preceding paragraphs are satisfied, nevertheless to hold that the set-up
disclosed in this case, with a long chain of intervening foreign
corporations, comes within the purview of the Parity Amendment
regarding business enterprises indirectly owned or controlled by citizens
of the United States, is to unduly stretch and strain the language and
intent of the law. For, to what extent must the word "indirectly" be
carried? Must we trace the ownership or control of these various
corporations ad infinitum for the purpose of determining whether the
American ownership-control-requirement is satisfied? Add to this the
admitted fact that the shares of stock of the PANTEPEC and PANCOASTAL
which are allegedly owned or controlled directly by citizens of the United
States, are traded in the stock exchange in New York, and you have a
situation where it becomes a practical impossibility to determine at any
given time, the citizenship of the controlling stock required by the law. In
the circumstances, we have to hold that the respondent SAN JOSE
PETROLEUM, as presently constituted, is not a business enterprise that is
authorized to exercise the parity privileges under the Parity Ordinance,
the Laurel-Langley Agreement and the Petroleum Law. Its tie-up with SAN
JOSE OIL is, consequently, illegal.
N.B.
Article XIII, Section 1 of the Philippine Constitution provides:
SEC. 1. All agricultural, timber, and mineral lands of the public domain,
waters, minerals, coal, petroleum, and other mineral oils, all forces of
potential energy, and other natural resources of the Philippines belong to
the State, and their disposition, exploitation, development, or utilization
shall be limited to citizens of the Philippines, or to corporations or
associations at least sixty per centum of the capital of which is owned by
such citizens, subject to any existing right, grant, lease or concession at
the time of the inauguration of this Government established under this
Constitution. . . . (Emphasis supplied)

the Philippines with the President of the United States on the fourth of
July, nineteen hundred and forty-six, pursuant to the provisions of
Commonwealth Act Numbered Seven hundred and thirty-three, but in no
case to extend beyond the third of July, nineteen hundred and seventyfour, the disposition, exploitation, development, and utilization of all
agricultural, timber, and mineral lands of the public domain, waters,
minerals, coal, petroleum, and other mineral oils, all forces of potential
energy, and other natural resources of the Philippines, and the operation
of public utilities shall, if open to any person, be open to citizens of the
United States, and to all forms of business enterprises owned or
controlled, directly or indirectly, by citizens of the United States in the
same manner as to, and under the same conditions imposed upon,
citizens of the Philippines or corporations or associations owned or
controlled by citizens of the Philippines (Emphasis supplied.)
In the 1954 Revised Trade Agreement concluded between the
United States and the Philippines, also known as the LaurelLangley Agreement, embodied in Republic Act 1355, the
following provisions appear:
ARTICLE VI
1. The disposition, exploitation, development and utilization of all
agricultural, timber, and mineral lands of the public domain, waters,
minerals, coal, petroleum and other mineral oils, all forces and sources of
potential energy, and other natural resources of either Party, and the
operation of public utilities, shall, if open to any person, be open to
citizens of the other Party and to all forms of business enterprise owned
or controlled, directly or indirectly, by citizens of such other Party in the
same manner as to and under the same conditions imposed upon
citizens or corporations or associations owned or controlled by citizens of
the Party granting the right.

In the 1946 Ordinance Appended to the Constitution, this right

(to utilize and exploit our natural resources) was extended to
citizens of the United States, thus:

2. The rights provided for in Paragraph 1 may be exercised, . . . in the

case of citizens of the United States, with respect to natural resources in
the public domain in the Philippines, only through the medium of a
corporation organized under the laws of the Philippines and at least 60%
of the capital stock of which is owned or controlled by citizens of the
United States. . . .

Notwithstanding the provisions of section one, Article Thirteen, and

section eight, Article Fourteen, of the foregoing Constitution, during the
effectivity of the Executive Agreement entered into by the President of

3. The United States of America reserves the rights of the several States
of the United States to limit the extent to which citizens or corporations
or associations owned or controlled by citizens of the Philippines may

engage in the activities specified in this Article. The Republic of the

Philippines reserves the power to deny any of the rights specified in this
Article to citizens of the United States who are citizens of States, or to
corporations or associations at least 60% of whose capital stock or
capital is owned or controlled by citizens of States, which deny like rights
to citizens of the Philippines, or to corporations or associations which are
owned or controlled by citizens of the Philippines. . . . (Emphasis
supplied.)
Tayag vs. Benguet
An appeal from an order of the Court of First Instance of Manila.
Facts: Idonah Slade Perkins died in New York City in 1960, her estate in
the United States which is administered by County Trust Co. adamantly
refuses to surrender to her ancillary administrator in the Philippines,
wherein she also left properties specifically two stock certificates from
Benguet Consolidated Inc. On motion of Tayag, the ancillary
administrator, the lower court declared that it considered as lost for all
purposes in connection with the administration and liqiudation of the
Philippine estate of Perkins' said two stock certificates standing in the
books of Benguet Consolidated, orderd said certificates cancelled; and
directed the said corporation to issue new certificates in lieu thereof, the
same to be delivered by Benguet to the ancillary administrator or
probate court. Benguet appeals that the said order holding that the same
are in existence and in the possession of County Trust Co., in New York,
therefore not lost. It also invokes a provision of its by laws alleging that
"an action regarding ownership of such certificates or certificates of stock
allgedly lost, stolen or destroyed, the issuance of certificates would await
the final decisionby a court regarding the ownership."
Issue: Is Benguet Consolidated's claim correct?
Held: Benguet does not dispute the authority of authority of the ancillary
administrator. It is the duty of the latter to settle the the deceased's
estate and satisfy the claims of the creditors. From such premise it would
follow that Probate Court could require that the ancillary's right to the
two certificates of stocks be respected by Benguet, for the latter is a
Philippine corporation owing full allegiance and subject to unrestricted
jurisdiction pf local courts. Its share of stock could not be considered in
any wise as immune from lawful court orders. A corporation is an artificial
being created by la, it owes its life to the state, its birth being purely
dependent on its will. It is inconceivable that it could have more rights
and priveleges of a higher priority than that of its creator. It cannot

legitimately refuse to yield obedience to act of its state organs, certainly

not excluding the judiciary whenever called upon to do so.
CONCEPT BUILDERS, INC. vs. THE NATIONAL LABOR RELATIONS
COMMISSION, (First Division); and Norberto Marabe; Rodolfo
Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos,
Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio
Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera, Paquito
Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe
Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres,
Felipe Basilan, and Ruben Robalos
G.R. No. 108734
May 29, 1996
HERMOSISIMA, JR., J.
NATURE Special Civil Action
FACTSConcept Builders, Inc., a domestic corporation, with principal office
at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the
construction business. Private respondents were employed by said
company as laborers, carpenters and [Link] November, 1981, private
respondents were served individual written notices of termination of
employment by petitioner, effective on November 30, 1981, stating that
their contracts of employment had expired and the project in which they
were hired had been [Link] they found that at the time of
the termination of their employment, the project in which they were hired
had not yet been finished and completed. Concept Builders had to
engage the services of sub-contractors whose workers performed the
functions of private [Link] respondents filed a complaint for
illegal dismissal, unfair labor practice and non-payment of their legal
holiday pay, overtime pay and thirteenth-month pay against petitioner.
The Labor Arbiter rendered judgment ordering reinstatement and
payment of back wages. The NLRC dismissed the motion for
reconsideration filed by Concept Builders, on the ground that it had
become final and executory. A writ of execution was issued. It was
partially satisfied through garnishment of sums from petitioner's debtor,
the Metropolitan Waterworks and Sewerage Authority. An alias writ was
issued to satisfy the balance and the reinstatement of private
respondents. It could not be served, because the petitioner no longer
occupied the premises. Another alias writ was issued, which again could
not be served because the employees claimed they were employees of
Hydro Pipes Philippines, Inc. and that the properties to be levied upon

were owned by the said corporation. Private respondents filed a "Motion

for Issuance of a Break-Open Order," alleging that HPPI and Concept
Builders were owned by the same incorporator/stockholders. They also
alleged that petitioner temporarily suspended its business operations in
order to evade its legal obligations to them and that private respondents
were willing to post an indemnity bond to answer for any damages which
petitioner and HPPI may suffer because of the issuance of the break-open
order. The Labor Arbiter issued an Order which denied private
respondents' motion for break-open order. On appeal, the NLRC issued
the break-open order. Concept Builders motion for reconsideration was
denied.
ISSUE
Did the NLRC commit grave abuse of discretion when it
issued a "break-open order" to the sheriff to be enforced against personal
property found in the premises of petitioner's sister company?
HELD

No

It is a fundamental principle of corporation law that a corporation is an

entity separate and distinct from its stockholders and from other
corporations to which it may be connected. But, this separate and
distinct personality of a corporation is merely a fiction created by law for
convenience and to promote justice. So, when the notion of separate
juridical personality is used to defeat public convenience, justify
wrong, protect fraud or defend crime, or is used as a device to
defeat the labor laws, this separate personality of the corporation
may be disregarded or the veil of corporate fiction pierced. This is true
likewise when the corporation is merely an adjunct, a business conduit or
an alter ego of another corporation.
The test in determining the applicability of the doctrine of piercing the
veil of corporate fiction is as follows:

1. Control, not mere majority or complete stock control, but

complete domination, not only of finances but of policy
and business practice in respect to the transaction attacked so
that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;

2. Such control must have been used by the defendant to

commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty or dishonest and
unjust act in contravention of plaintiff's legal rights; and

3.

The aforesaid control and breach of duty must proximately

cause the injury or unjust loss complained of.

The absence of any one of these elements prevents "piercing the

corporate veil." In applying the "instrumentality" or "alter ego" doctrine,
the courts are concerned with reality and not form, with how the
corporation operated and the individual defendant's relationship to that
operation.

In this case, the NLRC noted that, while petitioner claimed that it ceased
its business operations on April 29, 1986, it filed an Information Sheet
with the SEC on May 15, 1987, stating that its office address is at 355
Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the
third-party claimant, submitted on the same day, a similar information
sheet stating that its office address is at 355 Maysan Road, Valenzuela,
Metro Manila.
Both information sheets were filed by the same Virgilio O. Casio as the
corporate secretary of both corporations. It would also not be amiss to
note that both corporations had the same president, the same board of
directors, the same corporate officers, and substantially the same
subscribers.
Clearly, petitioner ceased its business operations in order to evade the
payment to private respondents of back wages and to bar their
reinstatement to their former positions. HPPI is obviously a business
conduit of petitioner corporation and its emergence was skillfully
orchestrated to avoid the financial liability that already attached
to petitioner corporation.
In view of the failure of the sheriff, in the case at bar, to effect a levy
upon the property subject of the execution, private respondents had no
other recourse but to apply for a break-open order after the third-party
claim of HPPI was dismissed for lack of merit by the NLRC. This is in
consonance with Section 3, Rule VII of the NLRC Manual of Execution of
Judgment.
Hence, the NLRC did not commit any grave abuse of discretion
when it affirmed the break-open order issued by the Labor
Arbiter.
PHILIPPINE STOCK EXCHANGE, INC. vs. THE HONORABLE COURT
OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
PUERTO AZUL LAND, INC.
G.R. No. 125469

October 27, 1997

TORRES, JR., J.:
NATURE Petition for Review on Certiorari of the resolution of the CA
affirming the decision of the Securities and Exchange Commission
ordering the PSE to allow Puerto Azul Land, Inc. to be listed in its stock
market, thus paving the way for the public offering of PALI's shares
FACTS The Puerto Azul Land, Inc. (PALI) sought to offer its shares to the
public in order to raise funds allegedly to develop its properties and pay
its loans with several banking institutions. PALI was issued a Permit to
Sell its shares to the public by the SEC. PALI filed with the PSE an
application to list its shares, with supporting documents attached. The
Listing Committee of the PSE, upon a perusal of PALI's application,
recommended to the PSE's Board of Governors the approval of PALI's
listing application.
Before it could act upon PALI's application, the Board of Governors of the
PSE received a letter from the heirs of Ferdinand E. Marcos, claiming that
the late President Marcos was the legal and beneficial owner of certain
properties which PALI claims to be among its assets and that the Ternate
Development Corporation, which is among the stockholders of PALI,
likewise appears to have been held and continue to be held in trust by
one Rebecco Panlilio for then President Marcos and now, effectively for
his estate, and requested PALI's application to be deferred. The Board of
Governors of the PSE reached its decision to reject PALI's application,
citing the existence of serious claims, issues and circumstances
surrounding PALI's ownership over its assets that adversely affect the
suitability of listing PALI's shares in the stock [Link] wrote a letter
to the SEC addressed to the then Acting Chairman, requesting that the
SEC, in the exercise of its supervisory and regulatory powers over stock
exchanges under Section 6(j) of P.D. No. 902-A, review the PSE's action
on PALI's listing application and institute such measures as are just and
proper under the circumstances. The SEC reversed the PSEs decision.
PSE filed with the Court of Appeals a Petition for Review (with Application
for Writ of Preliminary Injunction and Temporary Restraining Order),
assailing the orders of the SEC. The CA dismissed the Petition for Review.
ISSUE
Did the SEC have authority to order the PSE to list the shares of PALI in
the stock exchange?
HELD Section 3 of Presidential Decree 902-A, standing alone, is
enough authority to uphold the SEC's challenged control

authority over the petitioner PSE. The SEC's power to look into the
subject ruling of the PSE, therefore, may be implied from or be
considered as necessary or incidental to the carrying out of the SEC's
express power to insure fair dealing in securities traded upon a stock
exchange or to ensure the fair administration of such exchange. It is,
likewise, observed that the principal function of the SEC is the
supervision and control over corporations, partnerships and associations
with the end in view that investment in these entities may be
encouraged and protected, and their activities for the promotion of
economic [Link], it was in the alleged exercise of this
authority that the SEC reversed the decision of the PSE to deny the
application for listing in the stock exchange of the private respondent
PALI. The SEC's action was affirmed by the Court of Appeals. The SEC is
the entity with the primary say as to whether or not securities, including
shares of stock of a corporation, may be traded or not in the stock
exchange. This is in line with the SEC's mission to ensure proper
compliance with the laws, such as the Revised Securities Act and to
regulate the sale and disposition of securities in the country. This is not
to say, however, that the PSE's management prerogatives are
under the absolute control of the SEC. The PSE is, after all, a
corporation authorized by its corporate franchise to engage in its
proposed and duly approved business.
A corporation is but an association of individuals, allowed to transact
under an assumed corporate name, and with a distinct legal personality.
In organizing itself as a collective body, it waives no
constitutional immunities and perquisites appropriate to such a
body. As to its corporate and management decisions, therefore, the
state will generally not interfere with the same. Questions of policy and
of management are left to the honest decision of the officers and
directors of a corporation, and the courts are without authority to
substitute their judgment for the judgment of the board of directors. The
board is the business manager of the corporation, and so long as it acts
in good faith, its orders are not reviewable by the courts.
Thus, notwithstanding the regulatory power of the SEC over the
PSE, and the resultant authority to reverse the PSE's decision in
matters of application for listing in the market, the SEC may
exercise such power only if the PSE's judgment is attended by
bad faith. In Board of Liquidators vs. Kalaw, it was held that bad faith
does not simply connote bad judgment or negligence. It imports a
dishonest purpose or some moral obliquity and conscious doing of wrong.

It means a breach of a known duty through some motive or interest of ill

will, partaking of the nature of fraud.
It was reasonable for the PSE to exercise its judgment in the manner it
deems appropriate for its business identity, as long as no rights are
trampled upon, and public welfare is safeguarded.
What is material is that the uncertainty of the properties' ownership and
alienability exists, and this puts to question the qualification of PALI's
public offering.

In sum, the Court finds that the SEC had acted arbitrarily in
arrogating unto itself the discretion of approving the application
for listing in the PSE of the private respondent PALI, since this is
a matter addressed to the sound discretion of the PSE, a
corporation entity, whose business judgments are respected in
the absence of bad faith.