CORPORATION LAW

TITLE: KAIMO CONDOMINIUM BUILDING CORPORATION, petitioner,

vs.
LEVERNE REALTY & DEVELOPMENT CORPORATION, respondent.
CITATION: G.R. NO. 259422
DATE: JANUARY 23, 2023
PONENTE: SINGH, J.:
TOPIC: THE DOCTRINE OF PIERCING THE VEIL AND THE DOCTRINE OF
CORPORATE ENTITY
FACTS: On December 15, 2006, the Quezon City Government auctioned properties
for unpaid real property taxes. One of these properties was the Kaimo
Condominium Building, owned by Edmundo F. Kaimo, located on Quezon Avenue.
Laverne Realty & Development Corporation, represented by Alexander Catolos,
emerged as the highest bidder and was issued a Certificate of Sale. After the one-
year redemption period expired without anyone exercising redemption rights, the
City Treasurer issued a Final Bill of Sale to Laverne.

Laverne then petitioned the court to confirm the Final Bill of Sale and
requested a new title for the property in its name. The Regional Trial Court granted
the petition, and Laverne was issued a Transfer Certificate of Title. Laverne also
filed for a Writ of Possession, which was granted. However, on February 6, 2013,
Philtrust Bank and Kaimo Condominium Building Corporation (KCBC) separately
filed motions to quash the Writ of Possession. The court, in its February 25, 2013
order, granted these motions and quashed the writ. Laverne’s request for
reconsideration was later denied.

On October 22, 2015, Laverne Realty & Development Corporation,

represented by Alexander and Elizabeth Catolos, entered the Kaimo Building with
a lawyer and armed security guards. They demanded that tenants either vacate the
premises or sign new lease agreements with Laverne. Laverne also installed iron
grills on the building’s gates and back entrances, preventing tenants and staff from
leaving. Although tenants were eventually allowed to leave the same day, the staff
were held for 24 hours without food. Laverne's mencontrolled access to the building,
even prohibiting tenants from retrieving their belongings.

In response, on November 4, 2015, Kaimo Condominium Building

Corporation (KCBC) filed a Petition for Contempt with the Regional Trial Court
(Branch 226), arguing that Laverne’s actions were in defiance of the quashed writ
of possession. Around the same time, on October 31, 2015, the Kaimo family filed
a separate Forcible Entry with Damages case against Laverne in another court.
Laverne responded by filing a motion to dismiss, accusing KCBC of forum shopping,
claiming both cases involved the same parties and allegations, and that any ruling
in one case would apply to the other (res judicata). Additionally, Laverne argued
that KCBC had failed to disclose the existence of similar ongoing cases in other
courts.

Branch 226 dismissed with prejudice KCBC's Contempt Case on the ground
of forum shopping. Accordingly, Branch 226 held that the separate personality of
KCBC can be disregarded to determine whether there was a clear violation of law,
rules, or regulation.23 Aggrieved by Branch 226's ruling, KCBC moved for
reconsideration, but the same was denied.
 the CA ruled that KCBC committed deliberate forum shopping as there was identity
in the causes of action, parties, and reliefs sought in both the Contempt Case before
Branch 226 and the Forcible Entry Case before the MeTC.

ISSUE: Whether the petitioner will be held liable of forum shopping due to disregard of
its separate personality.
RULING: No, petitioner KCBC will not be held liable of forum shopping.

It is a well settled rule that a corporation has a separate and distinct personality
from that of its stockholders, officers, or any other legal entity to which it is related.
It is presumed to be a bona fide legal entity with its own powers and attributes and
is liable for its own acts and obligations. However, this legal fiction is not absolutely
an impenetrable shield, especially when circumstances warrant a denial of
protection under a corporate personality under the doctrine of piercing the veil of
corporate fiction. Hence, any application of the doctrine of piercing the corporate
veil should be done with caution. A court should be mindful of the obtaining facts
where it is to be applied. It must be certain that the corporate fiction was misused
to such an extent that injustice, fraud, or crime was committed against another, in
disregard of its rights. The wrongdoing must be clearly and convincingly
established; it cannot be presumed. Otherwise, it would result in injustice by reason
of an erroneous application.

Case law teaches that the doctrine of piercing the corporate veil applies only
in three basic instances, namely: (a) when the separate distinct corporate
personality defeats public convenience, as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; (b) in fraud cases, or when the
corporate entity is used to justify a wrong, protect a fraud, or defend a crime; or (c)
is used in alter ego cases, i.e., where a corporation is essentially a farce, since it is
a mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs conducted as to make it merely an
instrumentality, agency, conduit, or adjunct of another corporation.
 CORPORATION LAW
TITLE: DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
MONSANTO COMPANY, respondent.
CITATION: G.R. NO. 207153
DATE: JANUARY 25, 2023
PONENTE: ZALAMEDA, J.:
TOPIC: POWER TO SUE AND BE SUED; DOCTRINE OF ESTOPPEL
FACTS: Monsanto International Sales Company (MISCO), a foreign corporation
organized and existing under the laws of Delaware, sold acrylic fibers to Continental
Manufacturing Corporation (CMC) from 1978 to 1983. The sale was made through
a local indentor, Robert Lipton and Co., Inc.

CMC failed to settle its obligations with MISCO prompting the latter to file a
complaint for sum of money on 31 July 1986. MISCO sought payment for the unpaid
outstanding balance amounting to US$938,267.58 covered by the drafts but no
payments were made.

CMC admitted the obligation but argued that MISCO, being a foreign
corporation "doing business" without the necessary license, had no capacity to sue
in the Philippines. It alleged that MISCO appointed Lipton as its representative in
the Philippines, which appointment was considered as "doing business" under
Republic Act No. (RA) 5455.

The RTC granted the amendment of the complaint whereby MISCO was
substituted with respondent Monsanto Company (Monsanto) as party plaintiff.
Monsanto was the mother company of MISCO and the assignee of the rights of the
latter to all receivables, including the subject drafts.

The CA ruled that Monsanto is not deemed "doing business" in the Philippines
as defined under Sec. 3(d) of RA 7042 or the Foreign Investments Act of 1991. It
stated that if the distributor is an independent entity which buys and distributes
products, other than those of the foreign corporation, for its own name and for its
own account, the foreign corporation cannot be considered to be doing business in
the Philippines.

ISSUE: Whether the CA erred in finding that MISCO, or its assign Monsanto, a foreign
corporation without license to transact business in the Philippines, has the capacity
to sue.
RULING: No. The rule that an unlicensed foreign corporation doing business in the
Philippine does not have the capacity to sue before the local courts is well-
established. Foreign corporations are required to obtain a license to do business in
the Philippines to be clothed with the capacity to sue as provided under Sec. 13327
of Batasang Pambansa Blg. 6828 or the Corporation Code of the Philippines.

The Corporation Code, however, is silent as to the definition of the phrase

"doing business." It has been held that there is no general rule or governing principle
as to what constitutes "doing" or "engaging in" or "transacting" business in the
Philippines. As such, each case must be judged in the light of its peculiar
circumstances.
 From the language of Section 1(g) of the IRR of PD 1789 and the nature of
the business of an indentor as described in Schmid, it can be concluded that when
an indentor brings about a purchase and sale of goods between a foreign supplier
and a local purchaser, as an agent of both parties, it is in contemplation of law
transacting for its own account. Precisely because such is the business of an
indentor as a middleman. The records of this case likewise show that Lipton is a
registered domestic corporation whose purpose is, among others, "[t]o engage and
carry on a general brokerage business; to act as agents or brokers in effecting sales
of merchandise and other commodities." In the pursuit of its business, Lipton
represents a number of manufacturers.
Notwithstanding the license requirement for foreign corporations under Section 133
of the Corporation Code, the doctrine of estoppel allows a foreign corporation doing
business in the Philippines without license to sue in Philippine courts, when such
suit is against a Philippine citizen or entity who had contracted with and benefited
by said corporation.

WHEREFORE, premises considered, the instant Petition is hereby DENIED.

The Decision dated 26 September 2012 and the Resolution dated 30 April 2013 by
the Court of Appeals in CA-G.R. CV No. 88100 are AFFIRMED.
 CORPORATION LAW
TITLE: MANUEL BERIÑA, JR., JAIME R. MILLAN, BERNARDO T. VIRAY, AND
RAPHAEL POCHOLO A. ZORILLA, petitioners,
vs.
PEOPLE OF THE PHILIPPINES, respondent.
CITATION: G.R. NO. 220532
DATE: FEBRUARY 08, 2023
PONENTE: LOPEZ, J.:
TOPIC: CLASSES OF CORPORATIONS
FACTS: On September 24, 1998, the Public Estates Authority (PEA) initiated the
Central Boulevard Road Project, a 5.1234-kilometer highway designed to connect
various locations in Asiaworld City, following directives from Presidents Fidel
Ramos and Joseph Estrada. The project was estimated to cost PHP
731,443,700.00.

By September 28, 1998, the PEA Board approved a plan to finance the
project through a PHP 1 billion loan. An Ad Hoc Committee was formed to expedite
its implementation. After conducting a bidding process, JD Legaspi Construction
was selected as the lowest compliant bidder, with a bid of PHP 584,365,885.05.

The PEA Board approved the contract with JD Legaspi on November 3, 1999,
and the construction agreement was finalized in December 1999. Conditions for the
agreement included the requirement for PEA's accountant to witness the contract
and provisions for extra works and advance payments. A memorandum from
Executive Secretary Ronaldo Zamora in January 2000 outlined additional
compliance requirements before the project could commence.

Following a memorandum from the Executive Secretary, a revised

Construction Agreement for the Central Boulevard Road Project was signed on
April 10, 2000, for PHP 584,365,885.05. Key provisions included price escalation
adjustments, change orders for additional work, and a 15% advance payment. The
contractor was to start within 10 days of receiving the Notice to Proceed, which was
issued on the same day.

As the project progressed, several Variation Orders were approved. Variation

Order No. 2, for PHP 117,454,756.71, involved constructing a bridge and road
extensions to improve traffic flow, while Variation Order No. 1 adjusted certain work
items without additional costs. The total cost for Variation Order No. 2 was later
revised to PHP 126,440,810.20.

JD Legaspi requested a price adjustment in July 2001 due to rising costs,

initially set at PHP 45,811,510.32, but later approved at PHP 42,418,493.64. This
adjustment was confirmed by the Commission on Audit (COA) and charged against
the loan proceeds from the Government Service Insurance System (GSIS).

Near the project's completion, additional Variation Orders for landscaping

and other works were submitted. Beriña, Jr., Millan, Viray, and Zori1la averred that
the list of contractors submitted by the DPWH are contractors with Inter-Agency
classification of large "B" and license classification of triple "AAA." As such, they
are necessarily accredited by the PCAB because it is the body that accredits and
classifies the licenses of contractors. By securing the list of contractors from the
DPWH for purposes of simplified public bidding, PEA was assured that the
 contractors participating in the simplified public bidding would be qualified and
competent to undertake the PDMB Project. Moreover, the splitting of the ten
contractors for Package 1 and Package 2 of the PDMB Project is no proof that they
were ill-motivated as they did so precisely to avoid a single contractor winning both
packages.

Further, they explained that all the requirements for the detailed engineering
were done first hand, except for soils and foundation investigation which were
based on existing data from comparative areas, particularly the SM segment, R1
Consortium segment, and actual test conducted along Uniwide Coastal Mall. They
also claimed that the bid document furnished to all prospective bidders contained
preliminary designs and studies based on comparative data available for bidding
purposes, hence, the need for the winning bidder to validate said data.

They add that PEA is a government-owned and controlled corporation that

generates its own funds from its operations, and is not dependent upon Congress
for funds. In the case of the PDMB Project, its funding was made available through
loans obtained by PEA for that purpose, which incidentally have already been fully
paid years ago. Thus, there was no risk that PDMB Project would not be completed
as a consequence of the phasing of the project because PEA had its own assets,
revenues, and other sources of funding to pay, as it did, for the construction of the
project.
ISSUE: Whether or not Public Estates Authority is a GOCC.
RULING: In Republic v. City of Parañaque, the nature of PEA, later renamed as PRA,
was described as follows:
In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-
stock corporation. It cannot be considered as a stock corporation because although
it has a capital stock divided into no par value shares as provided in Section 7 of
P.D. No. 1084, it is not authorized to distribute dividends, surplus allotments or
profits to stockholders. There is no provision whatsoever in P.D. No. 1084 or in any
of the subsequent executive issuances pertaining to PRA, particularly, E.O. No.
525, E.O. No. 654 and EO No. 798 that authorizes PRA to distribute dividends,
surplus allotments or profits to its stockholders.
PRA cannot be considered a non-stock corporation either because it does not have
members. A non-stock corporation must have members. Moreover, it was not
organized for any of the purposes mentioned in Section 88 of the Corporation Code.
Specifically, it was created to manage all government reclamation projects.

Furthermore, there is another reason why the PRA cannot be classified as a

GOCC. Section 16, Article XII of the 1987 Constitution provides as follows:

Section 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations. Government-owned
or controlled corporations may be created or established by special charters in the
interest of the common good and subject to the test of economic viability.

The fundamental provision above authorizes Congress to create GOCCs

through special charters on two conditions: 1) the GOCC must be established for
the common good; and 2) the GOCC must meet the test of economic viability. In
this case, PRA may have passed the first condition of common good but failed the
second one — economic viability. Undoubtedly, the purpose behind the creation of
PRA was not for economic or commercial activities. Neither was it created to
compete in the market place considering that there were no other competing
reclamation companies being operated by the private sector. As mentioned earlier,
PRA was created essentially to perform a public service considering that it was
Primarily responsible for a coordinated, economical and efficient reclamation,
administration and operation of lands belonging to the government with the object
of maximizing their utilization and hastening their development consistent with the
public interest.
 CORPORATION LAW
TITLE: QUEZON CITY EYE CENTER, petitioner,
vs.
PHILIPPINE HEALTH INSURANCE CORPORATION, ARBITRATION
OFFICE, PROSECUTION DEPARTMENT AND FACT FINDING
INVESTIGATION AND ENFORCEMENT DEPARTMENT OF THE
PHILIPPINE HEALTH INSURANCE CORPORATION, respondents.
CITATION: G.R. NOS. 246710-15
DATE: FEBRUARY 06, 2023
PONENTE: LAZARO-JAVIER, J.:
TOPIC: DOCTRINE OF APPARENT AUTHORITY
FACTS: The Philippine Health Insurance Corporation (PhilHealth) issued Circular No.
17 in 2007 to address alleged irregularities in patient recruitment for cataract
surgeries. This circular suspended claims for surgeries conducted during medical
missions and other recruitment schemes. Circular No. 19, released in 2007,
outlined specific conditions under which claims would not be compensated,
including unethical patient solicitation and missions that serve primarily PhilHealth
members for profit.

In September 2009, a complaint surfaced regarding "cataract sweeping"

practices among certain doctors, leading PhilHealth to investigate the top
ophthalmologists utilizing cataract services. The investigation, completed in July
2010 by Atty. Alex B. Canaveral, identified Dr. Allan M. Valdez and Dr. Rhoumel A.
Yadao as involved in these unethical practices, resulting in six administrative cases
against the Quezon City Eye Center where they performed surgeries.

In various cases involving the Quezon City Eye Center and its affiliated
ophthalmologists, the Philippine Health Insurance Corporation (PhilHealth)
investigated allegations of unethical practices, particularly around cataract
surgeries.

1. PHIC Case No. HCP-NCR-12-356 to 392: Atty. Richie Y. Parenas filed a

complaint against Dr. Allan M. Valdez for performing 1,179 cataract
operations without proper patient recruitment procedures from July 2009 to
June 2010. PhilHealth found evidence of wrongdoing, resulting in 37 counts
of Breach of Accreditation against the Eye Center, leading to a fine of PHP
370,000 and a nine-month suspension of its accreditation.
2. PHIC Case No. HCP-NCR-12-453 to 458: A similar investigation into Dr.
Rhoumel A. Yadao revealed improper recruitment practices, resulting in a
penalty of six counts of Breach of Accreditation, leading to a fine and a six-
month suspension.
3. PHIC Case No. HCP-NCR-15-036 to 044: Dr. Yadao faced accusations of
illegal recruitment leading to nine invalid claims, resulting in further fines and
a 15-month accreditation suspension for the Eye Center.
4. PHIC Case No. HCP-NCR-16-216 to 245: Allegations surfaced again
regarding Dr. Yadao conducting surgeries on patients recruited through
improper means, leading to charges of 30 counts of violations. The Eye
Center denied involvement but was still charged.
5. PHIC Case No. HCP-NCR-16-580 to 767: A complaint filed against the Eye
Center included 188 counts of similar violations, with accusations of
fraudulent claims related to Dr. Yadao's surgeries.
 6. PHIC Case No. HCP-NCR-16-291 to 381: The Eye Center faced charges
related to 90 cataract claims, again denying wrongdoing.

The Court of Appeals ultimately dismissed the Eye Center's consolidated

appeals, affirming that due process was upheld during investigations and
confirming the validity of the evidence against the center. The court found the Eye
Center complicit in unethical patient recruitment and emphasized its responsibility
to ensure compliance with PhilHealth regulations. The petitions were deemed
prematurely filed when the administrative processes were still ongoing.

The petitioner seeks to reverse the Court of Appeals' decisions, arguing that:

1. Insufficient Evidence: PhilHealth failed to provide substantial evidence for

violations of the 2013 IRR and related circulars.
2. Limited Role: Its involvement in the disputed cataract surgeries was merely
to provide facilities and process claims, not to conduct the surgeries.
3. Due Process Violation: It was deprived of the chance to confront witnesses
who made accusations against it.

Additionally, the petitioner contends that the complaints filed in various cases
were done with grave abuse of discretion, lacking the required prima facie findings.

In response, PhilHealth argues that the petitioner had ample opportunity to

address the allegations and that the claims were based on substantial evidence.
They assert that the validation showed fraudulent claims, with patients denying
undergoing surgeries at the facility. Furthermore, they invoke the doctrine of
apparent authority, holding the petitioner liable for the actions of physicians working
in its facilities. PhilHealth highlights that the contract with HVC imposed a quota for
surgeries without specifying how to achieve it, suggesting the petitioner must have
been aware of the recruitment schemes used to meet that quota.

ISSUE: Whether or not petitioner is liable based on the doctrine of apparent authority
which mandates that a health care provider is vicariously liable for the negligent
acts of a physician providing care at the facility, even in cases where the doctor is
an independent contractor, unless the patient himself or herself knows, or should
have known, of such status of the doctor concerned.
RULING: We are not persuaded.

First, the doctrine of apparent authority is applied to determine the liability of a

hospital in a medical malpractice case against an independent contractor
physician. Nogales v. Capitol Medical Center127 enunciates, thus:

In general, a hospital is not liable for the negligence of an independent

contractor-physician. There is, however, an exception to this principle. The hospital
may be liable if the physician is the "ostensible" agent of the hospital. This exception
is also known as the "doctrine of apparent authority." In Gilbert v. Sycamore
Municipal Hospital, the Illinois Supreme Court explained the doctrine of apparent
authority in this wise:

[U]nder the doctrine of apparent authority[,] a

hospital can be held vicariously liable for the
negligent acts of a physician providing care at the
hospital, regardless of whether the physician is an
 independent contractor, unless the patient knows, or
should have known, that the physician is an
independent contractor. The elements of the action
have been set out as follows:

"For a hospital to be liable under the doctrine of

apparent authority, a plaintiff must show that: (1) the
hospital, or its agent, acted in a manner that would
lead a reasonable person to conclude that the
individual who was alleged to be negligent was an
employee or agent of the hospital; (2) where the acts
of the agent create the appearance of authority, the
plaintiff must also prove that the hospital had
knowledge of and acquiesced in them; and (3) the
plaintiff acted in reliance upon the conduct of the
hospital or its agent, consistent with ordinary care
and prudence."

The element of "holding out" on the part of the

hospital does not require an express representation
by the hospital that the person alleged to be
negligent is an employee. Rather, the element is
satisfied if the hospital holds itself out as a provider
of emergency room care without informing the
patient that the care is provided by independent
contractors.

The element of justifiable reliance on the part of

the plaintiff is satisfied if the plaintiff relies upon the
hospital to provide complete emergency room care,
rather than upon a specific physician.

The doctrine of apparent authority essentially involves two factors to determine

the liability of an independent-contractor physician.128 (Citations omitted)

Hence, the "doctrine of apparent authority" does not apply where the cause of
action as in this case is breach of petitioner's warranties of accreditation under
PhilHealth rules and regulations and not medical malpractice arising from
negligence or recklessness. And rightly so, since medical malpractice is a form of
negligence or recklessness which consists in the failure of a physician or surgeon
to apply to his practice that degree of care and skill that the profession generally
and ordinarily employs under similar conditions and circumstances.

In fine, PhilHealth's invocation of the "doctrine of apparent authority" for the

purpose of making petitioner liable with Drs. Valdez and Yadao for these doctors'
supposed acts of "cataract sweep" or "solicitation schemes," is misplaced.1aшphi1
 CORPORATION LAW
TITLE: MANDAUE CITY COLLEGE, petitioner,
vs.
COMMISSION ON HIGHER EDUCATION, respondents.
CITATION: G.R. NO. 252063
DATE: FEBRUARY 22, 2023
PONENTE: INTING, J.:
TOPIC: EDUCATIONAL CORPORATION
FACTS: ◼ MCC was established as a community college through Mandaue City
Ordinance , It aimed at providing technical and professional training in various
fields.

◼ Dr. CaAete was appointed as the MCC College Administrator under a one-
year contract

◼ During Dr. CaAete's tenure, allegations of administrative irregularities arose,

leading the MCC Board of Trustees to issue resolutions , directing Dr. CaAete
to cease his functions and appointing Dr. Susana Cabahug as caretaker.

◼ Despite the MCC Board's directives, Dr. CaAete continued to operate MCC
under his administration (MCC-CaAete), while Dr. Cabahug operated a
separate MCC (MCC-Cabahug).

◼ CHED conducted an investigation and found that both MCCs lacked the legal
mandate to offer higher education programs. Consequently, CHED issued
cease and desist orders against both institutions.

◼ MCC-Cabahug complied with CHED's requirements and was granted

authority to operate, while MCC-CaAete failed to comply, leading CHED to
issue a Closure Order

◼ In response to the Closure Order, MCC-CaAete filed a petition for nullification

against CHED, arguing that it had legal recognition due to its establishment
by ordinance and that CHED lacked authority to impose sanctions.

◼ The Regional Trial Court (RTC) dismissed the petition, affirming CHED's
authority to issue the Closure Order. The Court of Appeals (CA) upheld this
decision, classifying MCC-CaAete as a "rogue school" without legal authority
to operate.

ISSUE:
Whether MCC-CaAete complied with the necessary requirements for
recognition as a non-stock educational corporation under the Revised Corporation
Code?

RULING: MCC-CaAete lacked the necessary legal authority to operate as an

educational institution. MCC-CaAete was not duly registered and recognized under
the Revised Corporation Code, which is a requisite for an educational corporation
in the Philippines. The court highlighted that without proper recognition and
compliance with legal requirements, MCC-CaAete could not be classified as a
legitimate educational corporation, thus affirming the validity of the closure order
issued by the Commission on Higher Education (CHED).
 CORPORATION LAW
TITLE: EFRAIM C. GENUINO, petitioner,
vs.
COMMISSION ON AUDIT, et. al, respondents.
CITATION: G.R. NO. 230818
DATE: FEBRUARY 14, 2023
PONENTE: HERNANDO, J.:
TOPIC: CLASSES OF CORPORATIONS
FACTS: ◼ Parties Involved are Efraim C. Genuino and Rene C. Figueroa who are former
high-ranking officers of the Philippine Amusement and Gaming Corporation
(PAGCOR).

◼ In 2011, the Commission on Audit (COA) issued a Notice of Suspension,

halting the payment of a PHP 2,000,000 financial grant to the Pleasant Village
Homeowners Association (PVHA) for a flood control project.

◼ Figueroa contended that his inclusion in the notice was wrongful, asserting
his role was merely ministerial as an alternate signatory.

◼ Genuino claimed that the grant was aligned with PAGCOR's corporate social
responsibility.

◼ After lifting the suspension, COA issued a Notice of Disallowance, stating that
the payment to PVHA was improper since it is a private association and the funds
were for a private purpose.

◼ Both petitioners appealed the disallowance, but COA denied their appeals.

◼ This led them to file petitions for certiorari.

◼ The Supreme Court initially ruled in favor of Genuino, limiting COA's audit
jurisdiction over PAGCOR funds.
ISSUE:
Whether or not a Government-owned and controlled corporation (GOCC) like
PAGCOR can use its funds for private purpose?

RULING: A Government-owned and controlled corporation (GOCC) like PAGCOR

cannot use its funds for private purposes. The Supreme Court ruled that
government funds must be spent solely for public purposes. The financial
assistance granted by PAGCOR to a private association was disallowed because it
was found to serve a private purpose, violating the requirement that government
funds be used for public benefit.
 CORPORATION LAW
TITLE: HARBOUR CENTRE PORT TERMINAL, INC., petitioner,
vs.
LA FILIPINA UY GONGCO CORPORATION AND PHILIPPINE
FOREMOST MILLING CORPORATION, respondents.
CITATION: G.R. NO. 230159
DATE: MARCH 01, 2023
PONENTE: LEONEN, SAJ.:
TOPIC: DOCTRINE OF CORPORATE ENTITY
FACTS: La Filipina is a corporation involved in importing fertilizers, dairy products,
and trading sugar, while its sister company, Philippine Foremost, imports wheat and
mills flour. Harbour Centre operates the Manila Harbour Centre Port Terminal, with
R-II Builders as the developer. In 1997, R-II Builders invited La Filipina to establish
its business at the port, leading to La Filipina purchasing land after assurances of
specific operational requirements, including priority berthing and facilities for
unloading grains.

However, La Filipina later discovered that Harbour Centre lacked a proper

operating permit from the Philippine Ports Authority (PPA). They secured a
temporary permit and entered a Lease Agreement with Harbour Centre, agreeing
initially not to collect rent. In 2004, Harbour Centre sought to amend their
agreements and later demanded substantial fees in 2008 for various charges, which
La Filipina contested as baseless. In response, La Filipina filed a complaint against
Harbour Centre and the PPA, alleging breaches of their agreements, including
violations of priority berthing rights and inadequate maintenance of the navigational
channel depth.

La Filipina et al. sought damages from Harbour Centre for breaches of their
contractual obligations, including nominal and exemplary damages, litigation
expenses, and attorney's fees. A Temporary Restraining Order was issued in their
favor, leading to a court case where La Filipina claimed actual damages due to
delays in berthing their vessels and additional costs incurred, including expenses
for underwater surveys and diversions. The Regional Trial Court ruled in favor of
La Filipina, ordering Harbour Centre to dredge the berthing area and pay various
damages, including liquidated damages for failing to maintain navigational depths.

Harbour Centre maintains that the Regional Trial Court's October 11, 2011
Decision is void since it had no jurisdiction over the subject matter. It insists that
while La Filipina et al. made it appear that the case involves a maritime dispute, a
review of their Complaint and Amended and Supplemental Complaint reveals that
their cause of action is based on Harbour Centre's alleged breach of the
Memorandum of Agreement. It argues that the case is purely civil in nature, and
thus, beyond the jurisdiction of the Regional Trial Court sitting as a special
commercial court.

Harbour Centre adds that even if the case involves a maritime dispute, it is
beyond the jurisdiction of special commercial courts, which are tasked to handle
only intracorporate controversies.

Harbour Centre further assails the validity of the Memorandum of Agreement,

saying that it is void for being ultra vires and for lacking cause or consideration. It
alleged that the agreement was signed by Michael Romero (Romero), Harbour
Centre's former chief executive officer, without authority from the board of directors;
 thus, it is not binding on Harbour Centre. It adds that while La Filipina et al. are
provided with numerous services and privileges, such as port and cargo handling
for foreign and domestic vessels, priority berthing rights, and dredging obligations,
they pay Harbour Centre only for port and cargo handling for foreign vessels.

La Filipina et al. also stress that Harbour Centre is estopped from

questioning the Memorandum of Agreement's validity as this issue was not raised
before the Regional Trial Court. In any case, they aver that Romero had the
apparent authority to enter into the agreement, which is binding on Harbour Centre,
it having received the port and cargo handling charges paid by La Filipina et al. They
also reject the claim that the agreement lacked consideration, asserting that it
provides for the payment of port and handling charges, and that they have also
granted Harbour Centre numerous concessions in exchange for priority berthing
rights, among others.
ISSUE: Whether or not the agreement signed by Michael Romero, Harbour Centre`s
former Chief Executive Officer, without authority from the board of directors is not
binding on Harbour Centre.
RULING: "A corporation is an artificial being vested by law with a personality distinct
and separate from those of the persons composing it[.]" It is a juridical entity that
exercises its powers and conducts business through its board of directors. To bind
the corporation, an act must be performed by the board of directors as a body.
When a corporate act is performed by an individual board member, the act is not
binding on the corporation.

However, like a natural person, the board of directors, through a board

resolution, "may validly delegate some of its functions and powers to officers,
committees[,] or agents."The law on agency shall govern their relation.

Under Article 1317 of the Civil Code, contracts entered into in the name of
another by a person without authority shall be deemed unenforceable.

That being so, an act or a contract shall be binding on the corporation when
it is executed by the board of directors or by a person authorized by the board. In
contrast, when an act or contract is performed without a board authorization, it
cannot be enforced against the corporation.

The rule admits of an exception.

In University of Mindanao, Inc. v. Bangko Sentral ng Pilipinas, this Court

explained that when an agent acts in excess of their delegated power, the act
shall not be binding on the principal unless the latter had impliedly or expressly
ratified the unauthorized act, thus:

Thus, even though a person did not give another person authority to act on
his or her behalf, the action may be enforced against him or her if it is shown that
he or she ratified it or allowed the other person to act as if he or she had full authority
to do so. ..

Ratification is a voluntary and deliberate confirmation or adoption of a

previous unauthorized act. It converts the unauthorized act of an agent into an act
of the principal. It cures the lack of consent at the time of the execution of the
contract entered into by the representative, making the contract valid and
enforceable. It is, in essence, consent belatedly given through express or implied
acts that are deemed a confirmation or waiver of the right to impugn the
unauthorized act. Ratification has the effect of placing the principal in a position as
if he or she signed the original contract. In Board of Liquidators v. Heirs of M. Kalaw,
el al.:
Authorities, great in number, are one in the idea that "ratification by a
corporation of an unauthorized act or contract by its officers or others relates back
to the time of the act or contract ratified, and is equivalent to original authority;" and
that "[t]he corporation and the other party to the transaction are in precisely the
same position as if the act or contract had been authorized at the time." The
language of one case is expressive: "The adoption or ratification of a contract by a
corporation is nothing more nor less than the making of an original contract. The
theory of corporate ratification is predicated on the right of a corporation to contract,
and any ratification or adoption is equivalent to a grant of prior authority."
Implied ratification may take the form of silence, acquiescence, acts
consistent with approval of the act, or acceptance or retention of benefits. However,
silence, acquiescence, retention of benefits, and acts that may be interpreted as
approval of the act do not by themselves constitute implied ratification. For an act
to constitute an implied ratification, there must be no acceptable explanation for the
act other than that there is an intention to adopt the act as his or her own. "[it] cannot
be inferred from acts that a principal has a right to do independently of the
unauthorized act of the agent." (Citations omitted)
Here, it is undisputed that Harbour Centre had received from La Filipina et
al. advance payments representing future port and handling charges based on the
formula provided under the Memorandum of Agreement. The proceeds of these
loans were received by Jeremillo, who, as evidenced by the Secretary's
Certificates, was authorized by Harbour Centre's board of directors to "sign,
accomplish[,] and execute any agreement or document to secure the loan and
receive the proceeds thereof." Harbour Centre's act of retaining the benefits
arising from the Memorandum of Agreement is deemed an implied ratification of
the allegedly ultra vires contract. Hence, the Memorandum of Agreement is
binding on Harbour Centre.
 CORPORATION LAW
TITLE: PARAÑAQUE INDUSTRY OWNERS’ ASSOCIATION, INC., petitioner,
vs.
JAMES PAUL G. RECIO, et. al., respondent.
CITATION: G.R. NO. 243368
DATE: MARCH 27, 2023
PONENTE: KHO, JR., J.:
TOPIC: CORPORATE LIQUIDATION
FACTS: On November 15, 2012, petitioner Parañaque Industry Owners Association, Inc.,
represented by Patricia Sy and Rosalinda Escobilla (petitioner), a nonstock
corporation, filed a Complaint for unlawful detainer against respondents before the
MeTC. Petitioner alleged that it is the lawful owner of a 200 sqm. parcel of land
which is being illegally occupied by respondents. Petitioner claimed that only
respondents' predecessor-in interest, the late Mario Recio (Mario) alone, was
allowed to stay in the property as the caretaker of the subject property and the water
tank located therein. Hence, in 1982, Mario built his house therein. However,
without petitioner's consent, Mario had his family live there with him.

Eventually, petitioner intended to use the subject property as its office and in
2009, the water tank was found to be dangerous for public safety. Thus, petitioner
sent several demand letters to respondents to vacate and surrender the subject
property. However, despite receipt of such letter, respondents still failed to vacate
the same. Thus, petitioner was constrained to file the instant Complaint.

In their answer respondents averred that the MeTC did not obtain jurisdiction
over their persons for improper service of summons and that petitioner failed to
prove that the property occupied was included in TCT No. (70115) 123145. More
importantly, respondents emphasized that petitioner is not a real party in interest in
the suit because, the real owner of the subject property is Parañaque Industry
Owners Association (PIOA) a corporation with Securities and Exchange
Commission (SEC) Registration, whose registration was revoked by the SEC for
noncompliance with the SEC's reportorial requirement.

The MeTC ruled in favor of petitioner and accordingly, ordered respondents to:
(a) vacate the subject property and surrender its possession to petitioner; (b) pay
reasonable compensation for the use and occupation of the property in the amount
of PHP 10,000.00 a month from July 30, 2012 until they have vacated the premises;
(c) pay PHP 10,000.00 as attorney's fees; and (d) pay the cost of suit.

Thereafter, aggrieved with the MeTC's ruling, respondents appealed to the

RTC.

The RTC affirmed the MeTC ruling. The RTC held that respondents failed to
show the applicability of the rule on possession by builder in good faith, considering
that they did not adduce any positive evidence that would establish a claim of actual
or constructive permission to occupy the subject property. The RTC also found that
the MeTC did not commit any reversible error in concluding that the subject property
is registered under petitioner's name and that respondents' possession was by
mere tolerance. Hence, petitioner, as the registered owner, had the right to recover
the possession of the property.
 Respondents filed a motion for reconsideration, but was denied. Undaunted, they
filed a Petition for Review Under Rule 4223 before the CA.

The CA found that petitioner is not the owner of the subject property, pointing
out that the original owner thereof is PIOA, whose SEC registration was revoked by
the SEC due to noncompliance of reportorial requirements. According to the CA,
since said revocation resulted in PIOA 's dissolution that ceased as a body
corporate to conduct the business for which it was established, its assets must then
undergo liquidation and legal titles of the remaining corporate properties should be
transferred to the stockholders who became co-owners thereof.
ISSUE: Whether or not petitioner is the rightful owner of the subject property even after
the revocation of its Certificate of Registration.

RULING: Under Section 122 of the Corporation Code, it states that every corporation
whose charter expires by its own limitation or is annulled by forfeiture or otherwise,
or whose corporate existence for other purposes is terminated in any other manner,
shall nevertheless be continued as a body corporate for three (3) years after the
time when it would have been so dissolved, for the purpose of prosecuting and
defending suits by or against it and enabling it to settle and close its affairs, to
dispose of and convey its property and to distribute its assets, but not for the
purpose of continuing the business for which it was established.

At any time during said three (3) years, the corporation is authorized and
empowered to convey all of its property to trustees for the benefit of stockholders,
members, creditors, and other persons in interest. From and after any such
conveyance by the corporation of its property in trust for the benefit of its
stockholders, members, creditors and others in interest, all interest which the
corporation had in the property terminates, the legal interest vests in the trustees,
and the beneficial interest in the stockholders, members, creditors or other persons
in interest.

Based on this provision, a defunct corporation loses the right to sue and be sued
in its name upon the expiration of the aforementioned three (3) year winding-up
period provided by law. However, case law has carved out exceptions to this rule,
particularly instructing that an appointed receiver, assignee, or a trustee of such
defunct corporation may institute suits or continue pending actions on the latter's
behalf even after the expiration of the winding-up period. For this purpose, it is
further clarified that: (a) a receiver or an assignee need not be even appointed for
the purpose of bringing suits or continuing those that are pending; (b) in the absence
of a receiver or an assignee, suits may be instituted or continued by a trustee
specifically designated for a particular matter, such as a lawyer representing the
corporation in a certain case; and (c) the board of directors of a corporation may be
considered trustees by legal implication for the purpose of winding up its affairs.

In this case, records clearly show that the subject property is owned by PIOA.
As the Supreme Court held in Republic v. Tancinco, "the dissolution of juridical
entity does not by itself cause the extinction or diminution of the rights and liability
of such entity, since it is allowed to continue as a juridical entity for 3 years for the
purpose of prosecution and defending suits by or against it and enabling it to settle
and close its affairs, to dispose of and convey its property, and to distribute its
assets."
 Further, corporate liquidation may still be continued even after expiration of
the given three (3) year period.
 CORPORATION LAW
TITLE: GILDA E. PICO AND CAREL D. HALOG, PETITIONERS,
vs.
OFFICE OF THE OMBUDSMAN AND FIELD INVESTIGATION OFFICE,
REPRESENTED BY DAYID A. LUCERO, RESPONDENTS.
CITATION: G.R. NO. 238138
DATE: APRIL 26, 2023
PONENTE: LEONEN, SAJ.:
TOPIC: POWER TO DECLARE DIVIDENDS.
FACTS: • On March 2, 2007, the Privatization Management Office of the Department of
Finance invited Land Bank to participate in its block sale of Meralco shareholdings
of government entities amounting to 29% of its outstanding shares. The proposed
block sale is said to enhance the value for the shares where the Privatization
Management Office will act as disposition entity. On March 13, 2007, Vergara
requested the Board approval to join the block sale. The Board concurred to join
on March 16, 2007.
• But the sale was not made as the Government Service Insurance System had
already sold their own interest at the highest percentage of shares in Meralco to
San Miguel Corporation.
• On November 7, 2008, Halog and Vergara put on offer for block sale at PHP 90.00
per share the 4% interest of Land Bank in Meralco. As part of the transaction, the
common shares of 46.597 million; its nominal income of PHP 61.22 per share was
projected for a total consideration of PHP 4.193 billion, excluding interest to be
acquired during the period of installment. On November 10, 2008, the board of
directors approved the proposal and authorized Land Bank President and Chief
Executive Officer Pico to negotiate and execute the contract on its behalf.
• On December 2, 2008, Pico entered into a Share Purchase Agreement with
Global 5000 Investment, Inc. (Global 5000). However, this never materialized
since On July 3, 2014, Global 5000 filed a complaint for specific performance
against Land Bank compelling it to comply with its obligations under the Share
Purchase Agreement.
• The Office of the Ombudsman filed a Complaint against several Land Bank
officers, including Teves (collectively, Teves et al.).The Field Investigation Office
further alleged that Teves et al. gave unwarranted preference when they allowed
Global 5000 to implement the Share Purchase Agreement without public bidding.
It said that they entered into an unsecured transaction of over PHP 4.193 billion
government assets without conducting proper verification of the identity of the
buyer and his capacity to fund such a transaction. It alleged that the capitalization
of PHP 62.5 million made by Global 5000 is only 17.67% of the total obligation
and hence, it does not have capitalization sufficient enough to even secure the
20% down payment, besides not having any track record since it only existed for
10 months. The Field Investigation Office insists that Teves et. al accorded Global
5000 undue benefits by "extending the time within which it may make its 20%
down payment from 15 to 30 days, and granted it rights to receive all dividends
and to vote upon tender of down payment."
• On petitioner’s allegations, they argue that the automatic rescission clause in the
Share Purchase Agreement ensured that Land Bank's interests were protected,
and that the pricing of shares is a specialized field; thus, the management of Land
Bank validly exercised its prerogative without the interference of the Ombudsman.
They contest that the Ombudsman should have compared the fixed interest rate
against prevailing rates and highlighted a 58% premium in the sale of the shares.
Petitioners assert also that they conducted comprehensive market studies and
 capitalized on a favorable market price, resulting in a good judgment call on selling
shares at PHP 90.00 versus a lower market price and that Global 5000's financial
standing should not be an issue since the payment was structured. The
company's resources totaling PHP 39.199 billion were indicative of its capability
to fulfill obligations.
• Petitioner Land Bank officials filed a Joint Motion for Partial Reconsideration
which was denied by the Office of the Ombudsman in its February 24, 2017
Omnibus Order.
• Hence petitioners filed a Petition for Certiorari with Application for Temporary
Restraining Order and/or Writ of Preliminary Injunction.

ISSUE: Whether or not the Landbank official Pico and Halog breach their duties under
Section 42 of the Revised Corporation Code concerning the power to declare dividends?
RULING: The right to earn dividends is an inchoate right. The Revised Corporation Code
provides that the board of directors may choose to declare dividends from its unrestricted
retained earnings. There is no guaranty in the declaration of dividends as it is contingent
on the existence of surplus profit and the discretion of the board of directors.
The court found that the petitioners acted within their authority and exercised sound
business judgment. It ruled that the contract did not demonstrate bias or gross
disadvantage to the government.

The Ombudsman allegedly misapplied standards by relying on actual dividends

declared during the installment period as a basis for evaluating the agreement's terms.
It was ruled that findings should consider that business risks taken by financial institutions
are acceptable within reasonable bounds as long as there is no manifestation of bad faith
or gross negligence.

SECTION 42. Power to Declare Dividends. - The board of directors of a stock

corporation may declare dividends out of the unrestricted retained earnings which shall
be payable in cash, property, or in stock to all stockholders on the basis of outstanding
stock held by them: Provided, That any cash dividends due on delinquent stock shall first
be applied to the unpaid balance on the subscription plus costs and expenses, while stock
dividends shall be withheld from the delinquent stockholders until their unpaid
subscription is fully paid: Provided, further, That no stock dividend shall be issued without
the approval of stockholders representing at least two-thirds (2/3) of the outstanding
capital stock at a regular or special meeting duly called for the purpose.

Stock corporations are prohibited from retaining surplus profits in excess of one
hundred percent (100%) of their paid-in capital stock, except: (a) when justified by definite
corporate expansion projects or programs approved by the board of directors; or (b) when
the corporation is prohibited under any loan agreement with financial institutions or
creditors, whether local or foreign, from declaring dividends without their consent, and
such consent has not yet been secured; or (c) when it can be clearly shown that such
retention is necessary under special circumstances obtaining in the corporation, such as
when there is need for special reserve for probable contingencies.

The complaint against the petitioners was dismissed; thus, there was no need to
address further issues in the petition.
 CORPORATION LAW
TITLE: SURVIVOR OF AGRICHIMICHAL IN GENSAN (SAGING), INC, petitioner,
vs.
STANDARD FRUIT COMPANY, respondents.
CITATION: G.R. NO. 206005
DATE: APRIL 12, 2023
PONENTE: LEONEN, J.:
TOPIC: FOREIGN CORPORATION
FACTS: • The case involves a complaint by Survivors of Agrichemicals in Gensan
(SAGING), Inc., its chairperson Arturo G. Luardo, and its members against
several foreign corporations.
• Defendants include Standard Fruit Company, Standard Fruit and
Steamship, Co., DOLE Food Company, Inc., DOLE Fresh Fruit Company,
Inc., Del Monte Fresh Produce N.A., Inc., and Del Monte Tropical Fruit Co.
• Filed on October 10, 1998, the complaint alleges serious health issues like
cancer and sterility due to exposure to nematodes containing
dibromochloropropane (DBCP) used in banana plantations.
• The Court of Appeals initially dismissed the complaint without prejudice for
improper service of summons.
• The Supreme Court issued an Entry of Judgment on June 2, 2009.
• SAGING refiled the complaint on September 9, 2010.
• The trial court dismissed the refiled complaint, citing lack of jurisdiction
over the foreign corporations due to improper service of summons and
failure to state a cause of action.
• The trial court also denied SAGING's motions for reconsideration.
• SAGING filed a Petition for Review on Certiorari under Rule 45,
questioning the trial court's dismissal.

ISSUE: Whether or not the summonses on the foreign corporations were validly
served.
RULING:
The Supreme Court ruled in favor of the Survivors of Agrichemicals in
Gensan, Inc. (SAGING) and its members, stating that the summonses on the
foreign corporations were validly served. Summonses were served through the
Department of Foreign Affairs by extraterritorial service, the Court rejected the
respondents' argument that the summons was served only by mail, as they failed
to present evidence to substantiate this claim.

The supreme court reiterated its ruling in the following cases:

In Atiko Trans, Inc. v. Prudential Guarantee and Assurance, Inc., this Court
outlined the individuals upon whom summons may be served in cases involving
foreign private juridical entities:
1. Its resident agent designated in accordance with law for that purpose;
2. The government official designated by law to receive summons if the corporation
does not have a resident agent; or,
3. Any of the corporation's officers or agents within the Philippines.

In Northwest Orient Airlines, Inc. v. Court of Appeals: If the foreign

corporation has designated an agent to receive summons, the designation is
exclusive, and service of summons is without force and gives the court no
jurisdiction unless made upon them.
 Where the corporation has no such agent, service shall be made on the
government official designated by law, to wit: (a) the Insurance Commissioner, in
the case of a foreign insurance company; (b) the Superintendent of Banks, in the
case of a foreign banking corporation; and (c) the Securities and Exchange
Commission, in the case of other foreign corporations duly licensed to do business
in the Philippines. Whenever service of process is so made, the government office
or official served shall transmit by mail a copy of the summons or other legal process
to the corporation at its home or principal office. The sending of such copy is a
necessary part of the service.

In this case, summonses were served through the Department of Foreign

Affairs by extraterritorial service of summons.
 CORPORATION LAW
TITLE: PHILIPPINES HEALTH INSURANCE CORPORATION, petitioner,
vs.
COMMISSION ON AUDIT, respondents.
CITATION: G.R. NO. 253043
DATE: JUNE 13, 2023
PONENTE: KHO, Jr., J.:
TOPIC: CORPORATE OFFICERS/ POWER OF CORPORATION
FACTS: • The case involves the Philippine Health Insurance Corporation (PHIC) as
the petitioner and the Commission on Audit (COA) as the respondent.
• The dispute centers on the disallowance of PHP 1,445,793.69 in salaries,
allowances, and benefits granted to Atty. Valentin C. Guanio, appointed as
Corporate Secretary of PHIC from September 1, 2009, to December 31,
2010.
• The PHIC Board of Directors (BOD) created the position of Corporate
Secretary through PhilHealth Board Resolution No. 1135, series of 2008,
and appointed Atty. Guanio via PhilHealth Board Resolution No. 1301,
series of 2009.
• On May 24, 2010, the Supervising Auditor issued an Audit Observation
Memorandum (AOM) recommending PHIC seek approval from the
Department of Budget and Management (DBM) for the position.
• PHIC argued the position was integral to its operations and did not require
DBM approval.
• Despite this, the Supervising Auditor issued a Notice of Disallowance on
May 19, 2011, due to the lack of DBM approval.
• The COA Cluster Director (COA CD) and the COA Commission Proper
(COA Proper) upheld the disallowance.
• PHIC filed a Petition for Certiorari under Rule 64, in relation to Rule 65, of
the Rules of Court.

ISSUE: Whether or not PHIC’s creation of the position of corporate secretary was
valid and within its power under fiscal autonomy.
RULING: NO. PHIC’s failed to comply with the requirements of creating a new
position.

Consistent with the requirements under the SSL and PD 1597, DBM
Corporate Compensation Circular No. 10-99 details the procedure GOCCs must
comply with anent the positions that are created. The records of the case fail to
show that PHIC complied with the aforementioned requirements when the PHIC
BOD through their resolutions created the position of corporate secretary and the
consequent appointment of Atty. Guanio to the position.

Neither can PHIC seek refuge in citing that the position of the corporate
secretary can be found under the Code of Corporate Governance for GOCCs.
Similar to the DBM Circular, the Code of Corporate Governance for GOCCs
requires a GOCC's BOD to comply with the GOCC Compensation and Position
Classification System.

Here, PHIC was unable to show that the organizational and compensation
structure attributed to the creation of the position of corporate secretary, as well as
the grant of salaries, benefits, and allowances to Atty. Guanio were consistent with
the GOCC Compensation and Position Classification System.
 PHIC's fiscal autonomy pursuant to Section 16(n), RA 7875 is subject to
limitations.

In supporting the creation of the position of corporate secretary and the grant
of salaries, allowances, and benefits to Atty. Guanio, PHIC invokes its fiscal
autonomy as provided under Section 16(n) of RA 7875, to wit:
Section 16. Powers and Functions. – The Corporation shall have the following
powers and functions:
n) to organize its office, fix the compensation of and appoint personnel as may be
deemed necessary and upon the recommendation of the president of the
Corporation;

The court held that the PHIC's fiscal autonomy under RA 787543 is limited in
nature. The Court has consistently held that PHIC's power to organize its office, fix
the compensation of and appoint personnel does not necessarily mean that it has
the absolute and unbridled discretion to exercise the same.

Thus, notwithstanding the authority of PHIC to organize its office, fix the
compensation of and appoint its personnel, PHIC is still required to: (a) comply with
the requirements found in the SSL with regard to the creation of positions under
Compensation and Position Classification System; (b) observe the policies and
guidelines issued by the President with respect to position classification, salary
rates, levels of allowances, project and other honoraria, overtime rates, and other
forms of compensation and fringe benefits; (c) report to the President, through the
Budget Commission (now the DBM), on their position classification and
compensation plans, policies, rates and other related details following such
specifications as may be prescribed by the President.
 CORPORATION LAW
TITLE: MANILA ELECTRIC COMPANY (MERALCO, petitioner,
vs.
LUCY YU, respondent.
CITATION: G.R. NO. 255038
DATE: JUNE 26, 2023
PONENTE: KHO, JR., J.:
TOPIC: DOCTRINE OF CORPORATE ENTITY
FACTS: MERALCO is a domestic public utility corporation duly organized and existing
under the laws of the Philippines and engaged in the business of providing electric
power for the consumption of the general public in Metro Manila and nearby areas.
On the other hand, Yu is engaged in the business of manufacturing spare parts of
appliances through New Supersonic Industrial Corporation (NSIC) — a corporation
owned by Yu's family. Yu is a registered customer of MERALCO.

On January 24, 2000, Yu filed a Complaint for damages with prayer for
preliminary and permanent mandatory injunction with the RTC, claiming that she
had been deprived of due process when her electricity supply was illegally and
abruptly cut. She averred that on December 9, 1999, MERALCO's representatives,
headed by Engineer William T. Chan (Chan), along with several armed persons in
plain clothing, forcibly entered the premises of NSIC's factory to inspect the
electricity meter, which had been installed pursuant to MERALCO' s contract with
Yu. After the inspection, and within the same day, Chan and his team issued a
Notice of Disconnection and immediately disconnected the electricity supply of
NSIC's factory and Yu's residence. Further, Yu averred that the lifeblood of NSIC's
business is electricity, and that due to the unjustified disconnection of the electrical
services, she suffered actual damages. She alleged in her complaint that
MERALCO's acts caused her sleepless nights, serious anxieties, wounded feelings,
besmirched reputation, and similar injuries. In an Order dated December 12, 2003,
the RTC granted the motion for a writ of preliminary injunction and ordered
MERALCO to restore the electrical services of Yu. Despite this Order, Yu noted that
MERALCO only restored electricity services in 2008.

Thereafter, trial ensued. MERALCO, for its part, denied in its answer that its
representatives forcibly entered Yu's business. Its representative, Chan, inspected
Yu's electric metering installation in the presence of NSIC employees, Reynaldo G.
Sandel (Sandel), Victor E. Magno, Jr., and Dennis Encarnacion. MERALCO's
representatives were accompanied by members of the Philippine National Police
(PNP), Senior Police Officer 2 Leoncio Dela Cruz (SPO2 Dela Cruz) and Police
Officer 2 Noel Ramirez (PO2 Ramirez). During the inspection, Chan found that Yu
had been using a reversing current transformer with removable tapping wire. Thus,
he issued a Notice of Disconnection, which was signed by Sandel. MERALCO
insisted that this was enough to comply with the requirements in RA 7832.
Thereafter, MERALCO confiscated the transformer and took photographs.

Unfortunately, a fire gutted the Operations Building of MERALCO where the

pieces of evidence were stored. A Certification was issued by the Office of the Fire
Chief, Bureau of Fire Protection about the fire that took place. To prove the
tampering, MERALCO presented the remaining photographic evidence of the
reversing transformer taken during the inspection, the Field Order detailing the
inspection, and the testimonies of Chan and PO2 Ramirez. Further, MERALCO
determined that they had suffered losses amounting to P33,936,707.1524 from the
 tampering, based on Yu' s billing records and their own laboratory findings. Thus,
MERALCO sent ' a letter dated December 9, 1999 for the payment of the said
amount or differential billing, which was duly received and acknowledged· by Yu's
representative. Hence, MERALCO prayed that Yu's complaint be dismissed, and
as a counterclaim, prayed that Yu be ordered to pay MERALCO P33,936,707.15
representing the value of used but unregistered electric consumption plus interest
thereon from date of demand; Pl50,000.00 as attorney's fees and expenses of
litigation; PI00,000.00 as exemplary damages; and costs of suit. Regional Trial
Court decision ruled in Yu’s favor. Aggrieved, MERALCO appealed to Court of
Appeals. The Court of Appeals decision affirmed the Regional Trial Court ruling with
modification. Hence this instant Petition
ISSUE: Whether or not MERALCO is liable to Yu for damages.
RULING: The courts a quo erroneously based the award of temperate damages in favor
of Yu on an estimation of NSIC's loss of earnings. In this regard, it is axiomatic that
a corporation has a separate juridical personality from its stockholders or
members. Yu and NSIC are separate and distinct persons under the law. Even if
Yu, as a stockholder of NSIC, may be affected by any loss of earnings of the latter,
the same does not give her the right to file a suit for damages to seek redress for
the wrong done to NSIC. NSIC is an entity separate and distinct from Yu. It is,
therefore, NSIC who should have itself sued MERALCO for the wrong done
resulting in the corporation's loss of earnings. Here, Yu sued MERALCO in her
individual capacity and not in representation of NSIC. Considering their separate
and distinct juridical personalities, shareholders cannot individually enforce
obligations owed to a corporation and vice-versa. Thus, Yu cannot claim damages
on the basis of NSIC's loss of earnings.
 CORPORATION LAW
TITLE: CALI REALTY CORPORATION, REPRESENTED BY DR. CAMILO M.
ENRIQUEZ, JR., PETITIONER.
vs.
PAZ M. ENRIQUEZ, RESPONDENT.
CITATION: G.R. NO. 257454
DATE: JULY 26, 2023
PONENTE: LAZARO-JAVIER, J.:
TOPIC: PIERCING OF CORPORATE VEIL.
FACTS: • Camilo, Sr. and Librada Machica Enriquez (Librada) got married and they
had five children, namely: Ernesto M. Enriquez (Ernesto), Camilo M.
Enriquez, Jr. (Camilo, Jr.), Bella E. Brendel (Bella), Paz, and Diosdado M.
Enriquez (Diosdado). Aside from this, they also acquired several properties
covered by several transfer certificate of titles (TCTs) which were then
registered under the name of Camilo, Sr...
• Unfortunately, Librada Machica Enriquez (Librada) died on June 23, 1995
and was survived by Camilo, Sr., and their five children. Months after the
death of Librada, a company under the name of CRC “Cali Realty
Corporation” was organized with Camilo, Sr., together with the four other
children as its named incorporators.
• Shortly after this, Camilo, Sr. executed a Deed of Assignment in favor of
CRC which effectively conveyed to the latter certain parcels of land and
caused the transfer of the TCTs to the latter. Aggrieved, PAZ M.
ENRIQUEZ, the only child who was not an incorporator of CRC, challenged
the said conveyance and argued that the properties are, in fact, conjugal in
nature and that she is entitled over the same in so far as her 1/6 share in
the estate of her mother.
• Both the Regional Trial Court and Court of Appeals ruled in Paz’s favor.
• On appeal, CRC argued that the lands transferred to the corporation were
exclusive properties of Camilo, Sr., and that the other shareholders (the
other heirs of Camilo, Sr.,) were not impleaded resulting into a deprivation
of property without due process.

ISSUE: Whether or not the piercing the corporate fiction may be allowed in this case?
RULING: The Supreme Court took into consideration the fact that Camilo, Sr.
transferred the subject properties to CRC in exchange for shares of stock and that
these shares were later transferred to the other children, and other third persons to
the exclusion of Paz. Upon the death of Camilo, Sr., Paz’s siblings did not take any
measures to rectify the situation. This, to the mind of the Supreme Court, evidence
the clear fact that CRC was merely used as a subterfuge by Camilo, Sr. and Paz’s
siblings to perpetuate fraud and injustice against Paz and exclude her from enjoying
her share as a compulsory heir, in violation of the laws on succession. The Supreme
Court emphasized that the privilege of corporations being considered a distinct and
separate entity from the people comprising it is confined to legitimate uses and is
subject to equitable limitations to prevent it being exercised for fraudulent, unfair or
illegal purposes. As such, a party whose corporation is vulnerable to piercing of its
corporate veil cannot argue violation of due process, such as in this case where the
Court found company was used to perpetuate fraud and injustice and violate the
laws on succession. As such, the piercing of the corporate veil is merited and CRC’s
claim for violation of due process must necessarily fail.
 CORPORATION LAW
TITLE: PETER PAUL G. MARASIGAN, petitioner,
vs.
BENITO G. MARASIGAN, et. al., respondents.
CITATION: G.R. NO. 261125
DATE: JULY 26, 2023
PONENTE: SINGH, J.:
TOPIC: VOTING REQUIREMENTS FOR CORPORATE MEETINGS.
FACTS: All the parties in the original complaint are children of the late spouses Cesar
Marasigan (Cesar) and Luz Marasigan (Luz) (collectively, the Spouses Marasigan),
save for Cesar Augustine C. Marasigan III (Cesar Augustine), who is the grandson
of the Spouses Marasigan. The Spouses Marasigan acquired several properties,
including La Luz Beach Resort, a private beach resort in San Juan, Batangas, and
their conjugal dwelling in Mabini Street, Addition Hills, San Juan City (Mabini Street
property). Cesar passed away in 2001, but his estate has not yet been settled.
Becoming the President of Ganco, in August 2017, Peter requested for an authority
to take a leave of absence for six weeks to visit his daughter in Australia and to also
visit New Zealand. On November 3, 2017, while Peter was still on vacation, Luz
passed away. He then cut his vacation on November 4, 2017 and returned to Manila
on the following day.

On November 6, 2017, the children of the Spouses Marasigan, who are

likewise Ganco's stockholders, met at the office of Rommel and elected a new set
of officers. Of the then 13 stockholders, eight stockholders were considered present
– only five were physically present at the said meeting, but they were joined by three
others via video conference.

According to Peter, the meeting was conducted despite the lack of any prior
notice, agenda, or valid call for a meeting. Then Corporate Secretary Orlando
declared a quorum, and it was tagged as a Special Board and Stockholders
Meeting.

In the said meeting, Benito declared that he was assuming the position of
President, as Peter had been on absence without leave. Thus, Peter was removed
and replaced by Benito as Interim President.

On May 11, 2018, Orlando, the Corporate Secretary, issued an official notice
to the stockholders that the Annual Shareholders' Meeting shall not proceed as the
majority shares of Luz had to be settled and distributed.
Thereafter, the respondents refused to recognize the new officers, and to turnover
possession and control of the assets and records of Ganco to the newly elected
officers.

As the corporation's bank accounts had been frozen, the respondents

allegedly collected fees and payments from guests of La Luz Beach Resort, in cash
or through their personal bank accounts, and disallowed checks or online
payments.

The respondents, together with stockholders and siblings, Jose and Gerardo,
filed a Complaint for Declaration of Nullity of Meetings, Board Resolutions and
Election of Officers with Prayer for Issuance of a Temporary Restraining Order
(TRO) and/or Writ of Preliminary Injunction.
 On June 1, 2018, the RTC denied the TRO prayed for by the respondents
after finding that there was no extreme urgency for the issuance of the TRO.
Similarly, the RTC denied the application for a Writ of Preliminary Injunction through
its Order, dated January 6, 2020.

The CA held that under Section 25 of the Corporation Code, the quorum for
election of officers is not based on the majority of outstanding capital stock, but on
all members of the board of directors. As such, it found that the remaining 13
stockholders of Ganco, who are also its directors, may elect their officers based on
a valid quorum of eight stockholders or directors. The CA also noted that there was
no prompt written objection to the meeting or election, hence, such acts were
considered ratified under Section 101 of the Corporation Code.
ISSUE: Whether the CA erred in ruling that the special meeting and election of
petitioners as officers of Ganco on November 6 and 12, 2017 are valid and that the
same had been ratified?
RULING: The CA correctly considered the special meetings held on November 6
and 12, 2017 as directors' meetings.

The practice of the Marasigan siblings, as reflected in the Minutes of their

November 6 and 12, 2017 meetings, is quite telling. The Minutes clearly indicate
that despite the ambiguity in the language of Ganco's AOI and by-laws as regards
the quorum requirement for directors' meetings, the number of directors present is
considered in the determination of the quorum.

Further, the agenda of the special meeting held on November 6, 2017

included an item on the "Status of the President and a call for a vote on the said
position." The Minutes of the special meeting clearly captured the understanding of
the directors that it was a special board and stockholders meeting. The nature of
the said meeting as such was discussed therein, thereby contradicting the assertion
of Peter that it was only intended as a stockholders meeting, or that there was such
a distinction. The Minutes also showed how Peter, who was then the President, was
removed and an Interim President installed in his stead upon the vote of the
directors.

The Minutes of the special meeting on November 6, 2017 was silent on

whether it was meant to be a stockholders meeting, a directors meeting, or both.
However, during this special meeting, the directors elected a new set of board
officers – the Chairperson, President, Vice President, Treasurer, and Secretary.
The election of board officers clearly pertains to the prerogative of the board of
directors and is a practice observed in Ganco.

The election of Ganco's officers was clearly made by the stockholders

sitting as its board of directors, and the meetings wherein such election took place
were aptly directors' meetings subject to the rules governing directors' meetings.
The CA cannot thus be faulted for considering the meetings on November 6 and
12, 2017 as directors' meetings, as this conclusion is inevitable from the facts of
this case.

Therefore, the CA, through its assailed Decision and Resolution, did not
commit a reversible error to warrant the exercise of the Court's discretionary
appellate jurisdiction.
 CORPORATION LAW
TITLE: Hj. MAULANA M. OMAR, KALIBE A. DALUS, and the Estate of HARUN
L. DEMARUNSING rep. by ARQUIN L. DEMARUNSING-Complainants-
Appellees

vs

Z.C. INTEGRATED PORT SERVICES, INC. (SEC Reg. No. CS200525520),

EDWIN JOSEPH G. GALVEZ in his capacity as Chairman, and MARVEE
M. ESPEJO, in his capacity as President-Respondents-Appellants
CITATION: SEC EN BANC CASE NO. 07-22-503
DATE: JULY 25, 2023
PONENTE:
TOPIC: VIOLATION OF RIGHT TO INSPECTION AND/OR REPRODUCTION OF
CORPORATE RECORDS
FACTS: Appellant is a corporation duly organized and existing under Philippine Laws
with an address at Port Area, Zamboanga City joined by its Chairman Galvez and
President Espejo while the Appellees are stockholders of said corporation
represented by Arquin L. Demarunsing.

On August 14, 2021 Appellees sent a letter dated August 11, 2021 requesting
a meeting and for relevant documents from Appellants which the latter allegedly
failed to act upon. Thereafter, the Appellees sent a letter dated December 9, 2021
requesting to be allowed to inspect and make copies of the corporate records of
board resolutions and/or minutes that are related to or connected with the Joint
Venture and the contracts, on December 15, 2021. Appellants, through counsel in
a letter dated December 14, 2021 requested for the deferment of the inspection of
the corporate books and records to “early next year” for it need the service of an
auditor to prepare and finalize the books and records. On December 18, 2021,
Appellees sent another letter dated 17 December 2021 requesting again to inspect
and make copies of the corporate records on 23 December 2021. In a reply letter
of the Appellant dated 22 December 2021 informing that they will not be able to
provide the requested books and records on the desired schedule, but manifested
therein that “the company will inform you immediately of the available schedule for
inspection next month”.

Unknown to Appellants, herein Appellees already filed a Verified Complaint

with the Zamboanga EO on January 18, 2022 therein alleging that the Individual
Appellants, through their counsel, denied their request to inspect and reproduce the
books and records of the Appellant Corporation. They alleged that the denial was
because that the Corporation has ceased its operations at the Port Area of
Zamboanga City, the necessity to obtain the services of an auditor to prepare the
books and records, and the lack of available personnel of the Corporation to assist.

The Appellants prayed for dismissal of the Complaint for lack of jurisdiction,
arguing that Rule 1, Section 1 in relation to Section 5 of the Interim Rules of
Procedure for Intra-Corporate Controversies, issues involving inspection of
corporate books are under the jurisdiction of the Regional Trial Court. They invoke
that they should not be held liable for they did not deny the request instead they
merely proposed a rescheduling of the conduct of inspection. Appellants also
proffered the following grounds which justifies the rescheduling/deferment of the
conduct of inspection to the following month, to wit; a) that the purpose of the
 request for inspection is not germane to the interest of the Corporation or their
interest as stockholders; b) the implementation of precautionary measure to avoid
the spread of COVID-19, as well as the onset of the holiday season; c.) the need of
the Appellant Corporation to vacate its office at the Port Area with assumption of
new operator of its functions and the employees and officers who will accompany
the Appellees in inspecting the records will be coming from Manila.

Zamboanga EO issued a copy of the Final Order to Appellants ordering them

to allow the Appellees to conduct inspection and/or reproduce the corporate records
requested. Appellant then filed a Motion for Reconsideration which was denied by
Zamboanga EO, then forthwith filed this instant Appeal.
ISSUE: 1.) Whether or not the Zamboanga EO made a reversible error in finding that
Appellants denied Appellees the exercise of the right to inspect the
corporate books and records of the corporation, and in order the former to
allow the inspection.
2.) Whether SEC or RTC has jurisdiction over the subject matter of the case.
RULING: After a careful review of the allegations and evidence presented by the
parties, this Commission finds the Appeal to be impressed with merit. The decision
and resolution of the SEC Zamboanga Extension Office are REVERSED and SET
ASIDE.

The Commission addressed the issue presented by Appellants that the

subject matter of the instant case partakes of the nature of an intra-corporate
dispute under the jurisdiction of the RTC per Section 1(a)(5) of A.M. No. 01-2-04-
SC, said provision however, has been repealed by the RCC Section 73 which
expressly grants the Commission the jurisdiction to act and pass upon a matter
relating to the right to inspection and/or reproduction of requested records.

Section 161 of the RCC is explicit in requiring that there must be an unjustified
failure or refusal to allow the inspection and/or reproduction of records before a
corporation can be adjudge liable for violating the right to inspect under Section 73
of the RCC which has also been further emphasized and clarified in SEC
Memorandum Circular No. 25, Series of 2020 (MC25) that it is the outright refusal
to allow the director, trustee, stockholder or member to inspect and/or reproduce
the corporate records that constitutes a violation of the right to inspect.

In the instant case, there was no outright and/or unjustified refusal on the part
of Appellants to allow the inspection by Appellees of the corporate books and
records. The Appellees has immediately filed a complaint invoking Section 73 of
the RCC after they had sent their letter of request for inspection dated December
17, 2021 without waiting for the reply of the Appellants who promptly sent their reply
letter dated December 22, 2021 which showed that the Corporation had made an
effort to schedule the inspection at a reasonable time not far from the date proposed
by the Appellee. With these facts, this Commission finds the actions of the Appellee
to be premature as they have not yet been denied of the exercise of their right to
inspect. Had the Appellees at least considered the proposal of Appellants to
conduct the inspection and reproduction of records on a month later, which to the
mind of this Commission is reasonable, instead of immediately concluding that
Appellants’ denial of their request to inspect was unreasonable, unjustified,
inadequate and evasive, the parties could have saved their time and resources in
litigating the instant case. Wherefore the instant Appeal Memorandum is hereby
Granted.
 CORPORATION LAW
TITLE: NEXT MOBILE, INC., petitioner,
vs.
NATIONAL TELECOMMUNICATIONS COMMISSION, respondent.
CITATION: G.R. NO. 188655
DATE: NOVEMBER 13, 2023
PONENTE: LEONEN, SAJ.:
TOPIC: STOCKS
FACTS: Republic Act No. 7925 emphasizes that the radio frequency spectrum is a
limited public resource, allocated only to service providers that effectively meet
public demand. The National Telecommunications Commission (NTC) manages
this allocation and evaluates applicants based on specific qualifications. Courts
generally uphold the NTC's decisions unless there are clear legal violations.
The petitions in court arise from NTC's orders regarding the assignment of five 3G
radio frequency bands, with several applicants disqualified and the NTC contesting
court decisions that reversed its rulings. The NTC aims to ensure quality
telecommunications services and began exploring 3G technology in 2002, issuing
rules for frequency allocation in 2005. By the end of that year, four frequencies were
awarded to Smart, Globe, Digitel, and CURE.

The NTC held one frequency (1965-1980 MHz) in abeyance until a qualified
applicant emerged, following principles of technology-neutrality. Disqualified
applicants, including MTI, AZ, and Next Mobile, filed motions for reconsideration,
which the NTC ultimately denied in 2008.

Next Mobile challenged the NTC’s assessment of unpaid fees in the Court of
Appeals, which upheld the NTC’s position. It later filed a petition regarding due
process violations, but this was dismissed. Bayantel contested the NTC's rating
system, but the Court of Appeals initially supported the NTC’s authority. An
amended decision found that the NTC lacked the power to disqualify applicants and
that Bayantel would have qualified for the fifth frequency slot.

The NTC subsequently filed a Petition for Review with the Supreme Court after
the Court of Appeals issued an Amended Decision affecting multiple parties. MTI's
challenge to the 20-point threshold was dismissed as consistent with published
rules. Similar challenges by AZ were also denied.

In later developments, Bayantel underwent corporate rehabilitation, with Globe

acquiring a majority stake. MTI (now ABS-CBN Convergence) entered a network
sharing agreement with Globe, while PLDT acquired CURE and its subscribers.
On September 20, 2018, the NTC issued rules for selecting a New Major Player in
telecommunications, leading to the allocation of vacant 3G frequencies to Dito
Telecom, a consortium of Udenna Corporation, Chelsea Holdings, and China
Telecom.

Next Mobile argued against its disqualification, it should not have been
disqualified based on an assessment it had not yet received nor had yet been given
the opportunity to pay. It asserts that the National Telecommunications Commission
should not have included its paid-in-capital and stock issuances from debt-to-equity
conversions in the computation of its alleged unpaid Supervision and Regulation
Fees since it did not receive these amounts in actual payments and were not part
of its capital stock. It contends that had it not been disqualified, it could have
 garnered 23.5 points and be ranked fourth among the qualified applicants since it
was a duly authorized Public Telecommunications Entity with 139 base stations in
13 different locations, a 90% coverage for its proposed rollout, and a schedule of
rates beneficial to consumers.

The National Telecommunications Commission argues that Next Mobile's

Petition had been correctly dismissed by the Court of Appeals for being insufficient
in form and was the improper remedy for its lost appeal.125 It pointed out that Next
Mobile was correctly disqualified for unpaid fees, since all other applicants paid their
Spectrum User Fees and Supervision and Regulation Fees, even under
protest.126 It claimed that Next Mobile acted with bad faith when it argued that the
Additional Paid in Capital should have been excluded in the computation since
these amounts, being included in the Audited Financial Statement are clear
evidence of a company's financial standing.127 It held that CURE and Bayantel
were scored differently as to track record since CURE, as a new entrant in the
telecommunications industry, as opposed to an existing Public Telecommunications
Entity as Bayantel, would have unimpaired capital stocks that could be fully utilized
in their proposed network.128 It insists that the Court of Appeals contradicted itself
when it awarded a frequency bandwidth to Bayantel in "using the same point system
it previously annulled"129 by awarding Bayantel points contrary to the factual
finding that it was unable to complete its previous existing cellular mobile telephone
system authorization and ignoring its ability to commence rollout of its network due
to financial rehabilitation proceedings.
ISSUE: Whether or not the petitioner was correctly disqualified.
RULING: There is no merit to Next Mobile's argument that the National
Telecommunications Commission should not have included its additional paid in
capital from its debt-to-equity conversion as part of the assessment of its
Supervision and Regulation Fee, on the basis that the subscription did not form part
of its capital stock.

In National Telecommunications Commission v. Court of Appeals:

The term "capital" and other terms used to describe the capital
structure of a corporation are of universal acceptance, and their
usages have long been established in jurisprudence. Briefly, capital
refers to the value of the property or assets of a corporation. The
capital subscribed is the total amount of the capital that persons
(subscribers or shareholders) have agreed to take and pay for,
which need not necessarily be, and can be more than, the par value
of the shares. In fine, it is the amount that the corporation receives,
inclusive of the premiums if any, in consideration of the original
issuance of the shares. In the case of stock dividends, it is the
amount that the corporation transfers from its surplus profit account
to its capital account. It is the same amount that can loosely be
termed as the "trust fund" of the corporation. The "Trust Fund"
doctrine considers this subscribed capital as a trust fund for the
payment of the debts of the corporation, to which the creditors may
look for satisfaction. Until the liquidation of the corporation, no part
of the subscribed capital may be returned or released to the
stockholder (except in the redemption of redeemable shares)
without violating this principle. Thus, dividends must never impair
the subscribed capital; subscription commitments cannot be
 condoned or remitted; nor can the corporation buy its own shares
using the subscribed capital as the consideration therefor.

When Next Mobile converted its creditors' liabilities to stock subscriptions, there
was a corresponding increase in its capital stock. It is erroneous for Next Mobile to
argue that this could not be considered as part of the capital stock since no payment
was received when the liabilities were converted into equity. The consideration in
this instance would be the extinguishment of the liability. The stocks their creditors
subscribed to are now considered as paid stocks. It would have formed part of their
additional paid in capital.

As of December 2005, Next Mobile had an unpaid Supervision and Regulation

Fee of PHP 126,094,195.67 and a Spectrum User Fee of PHP 9,674,190.00.208 As
the National Telecommunications Commission pointed out Next Mobile did not pay
these fees even under protest.209 Next Mobile was, thus, correctly disqualified for
non-payment of fees.
 CORPORATION LAW
TITLE: AUXILIA, INC., petitioner,
vs.
NELYN CARPIO MESINA, respondent.
CITATION: G.R. NO. 252186
DATE: NOVEMBER 06, 2023
PONENTE: INTING, J.
TOPIC: DETERMINING A PERSON’S STATUS AS A CORPORATE OFFICER OR
AN EMPLOYEE AND LEGITIMACY OF EMPLOYMENT TERMINATION.
FACTS: Petitioner hired Mesina as Vice President, Head of Legal, and Head of
Liaison Officers, for Philippine Overseas Employment Administration (POEA)
Matters. In April 2018, petitioner's Chairman of the Board directed Mesina to stop
performing her functions, vacate her office, and turn over all company properties as
a condition for the release of her last salary. The directive was reiterated through a
Memorandum, Mesina complied but petitioner still withheld her last salary. Despite
non-payment of her salary, Mesina continued to report for work. On May 25, 2018,
a personnel of petitioner informed Mesina of the company’s order to physically leave
the premises otherwise, the security will escort her out of the premises. On the
same date, Mesina filed a Complaint against petitioner for illegal dismissal and non-
payment of wages and her two months of parking allowance. Petitioner did not
inform her of the reason for her termination and unceremoniously dismissed her
from employment.

Petitioner denied Mesina's allegations it argued that Mesina was not an

employee she was a corporate officer, its former Vice President, Head of Legal, and
Head of Liaison Officers– a fact reported to and acknowledged by the POEA.
Petitioner avers that the 2017 General Information Sheet it submitted to the
Securities and Exchange Commission stated that Mesina was its Vice President
and the fact that said position was mentioned in the company's by-laws, indicates
that Mesina was a corporate officer. The LA dismissed the complaint of Mesina for
the claims being an intra-corporate dispute should be dismissed for want of
jurisdiction.

Aggrieved, Mesina appealed to the NLRC who later on granted said appeal.
It noted that petitioner did not present its by-laws to substantiate its defense that
Mesina was a corporate officer. It held that, under the circumstances, Mesina
cannot be removed or dismissed from work without just and/or authorized cause
and due process of law. Petitioner then filed a motion for reconsideration, but the
NLRC denied it in a Resolution. Unsatisfied, petitioner filed a Petition for
Certiorari27 under Rule 65 of the Rules with the CA.

CA dismissed the petition, it confirmed the NLRC's ruling. It ratiocinated that

even if it considered petitioners belatedly submitted Amended By-Laws, there was
no proof that Mesina was actually elected as the company's Vice President as the
allegation was not supported by the minutes of the meeting. Petitioner moved for a
reconsideration, but the CA denied the motion for lack of merit. Hence, the present
petition.
ISSUE: (1) Whether or not Mesina is a corporate officer or a regular employee of the
petitioner?
(2) Whether or not petitioner validly terminated Mesina from employment?
RULING: The petition is denied, the Court agrees with the NLRC and the CA. Mesina
then was a regular employee of petitioner.

Labor tribunals are not precluded from receiving evidence submitted on

appeal. Nevertheless, this liberal policy should still conform with the rudiments of
equitable principles of law. Delay in the submission of evidence should be justified
and sufficiently prove the allegations sought to be proven. Petitioner did not cite any
reason for its failure to present the company's by-laws before the labor tribunals.
The belated submission of the by-laws before the CA, long after the NLRC found
Mesina's dismissal as illegal, weighs against petitioner's credibility, especially when
such document is not even newly discovered evidence. It must be underscored that
petitioner submitted the purported Amended By-Laws after it already filed its Reply
to Mesina's comment to the petition for certiorari. Why the by-laws were not
presented at the earliest opportunity is an interesting question which petitioner
neither addressed nor discussed in the present petition. Hence, the CA correctly
ruled that petitioners' belatedly submitted by-laws was inadmissible as evidence.

Corporate officers are given character by the Corporation Code or by the

corporation's by-laws. Being a corporate officer it is essential that: (1) his office or
position is one of those specifically enumerated by the Corporation Code, as
amended, or created by the corporation's by-laws; and (2) he is elected by the
directors or stockholders to occupy such office or position. Mesina cannot be
considered as a corporate officer because the record is bereft of any evidence that
she was duly elected or appointed to hold said position. Petitioner did not submit
any copy of the board resolution showing that Mesina was appointed to the position
of Vice President, Head of Legal, and Head of Liaison Officers by action of the
Board of Directors. Hence, the NLRC, as affirmed by the CA, correctly ruled that
Mesina was a regular employee and not a corporate officer.

Mesina's dismissal from employment was illegal and without due process of
law. Evidence must clearly and convincingly establish the facts upon which the
ground for termination of employment is based. Petitioner failed to produce any
convincing proof that there was a just or authorized cause to terminate Mesina's
employment. The twin requirements of notice and hearing constitute the essential
elements of procedural due process. The law requires the employer to furnish the
employee sought to be dismissed with two written notices before termination of
employment can be legally effected. Here, Mesina's dismissal was summarily
effected through a Memorandum, wherein petitioner suddenly informed the
employee of its decision to terminate her employment. No prior notice was given to
her, she was neither given the opportunity to explain her side nor refute petitioner's
allegations.

Mesina is entitled to separation pay. As a rule, an illegally dismissed employee

is entitled to backwages and reinstatement. However, when reinstatement is no
longer viable as an option separation pay is awarded in lieu of reinstatement.

The case is REFERRED to the Labor Arbiter for the determination of whether
the total monetary award has already been fully or partially satisfied. Any unpaid
amount should be further satisfied or any excess payment returned to petitioner
Auxilia, Inc.
 CORPORATION LAW
TITLE: PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, petitioner,
vs.
FELIX M. ERECE, JR., JANICE DAY E. ALEJANDRINO, MIRIAM M.
PASETES, YOLANDA C. MORTEL, AND HENRY B. SALAZAR,
respondents.

CITATION: G.R. NO. 235673

DATE: JULY 22, 2024
PONENTE: INTING, J.:
TOPIC: CLASSES OF CORPORATIONS
FACTS: On November 22, 1966, the Construction Development Corporation of the
Philippines (CDCP) was established under Philippine law, focusing on construction
and urban development. Due to loan defaults, the government converted CDCP’s
debts into equity, making government financial institutions its majority stockholders
by 1988, and it was renamed Philippine National Construction Corporation (PNCC) to
reflect this change.

Despite ongoing operations, PNCC faced significant losses and implemented

a retrenchment program in 2011, during which some employees executed
quitclaims but were later rehired. The Commission on Audit (COA) raised concerns
about excessive allowances granted to PNCC executives, citing the company's
financial struggles and recommending a review of its car plan policies.

In September 2014, PNCC halted these allowances without prior COA

disallowance. Employees, feeling wronged, filed a complaint for payment of the
allowances and damages. They averred that PNCC is not a government-owned and
controlled corporation but a private corporation organized under
the Corporation Code, thus their claims should be protected under the Labor Code.
Conversely, PNCC asserted that it is a government-owned and controlled
corporation (GOCC) pursuant to the Court's ruling in Strategic Alliance
Development Corporation v. Radstock Securities Ltd. (Strategic
Alliance);[33] hence, it is subject to COA audit.

The National Labor Relations Commission (NLRC) affirmed PNCC’s status

as a GOCC, and the Court of Appeals (CA) ruled that the Labor Code applied to
the employees' claims. PNCC’s request for reconsideration was denied, and after
subsequent procedural issues, the Supreme Court reinstated PNCC's petition on
February 27, 2023.
ISSUE: Whether PNCC is a GOCC or a private corporation.
RULING: PNCC is a GOCC without an Original Charter.

Prefatorily, the Court clarifies that the status of PNCC as a GOCC without an
original charter is jurisprudentially settled. In Alejandrino v. Commission on
Audit, citing Strategic Alliance, the Court declared that PNCC is a GOCC without
an original charter that is under the direct supervision of the Office of the President,
despite being organized and chartered under the Corporation Code. The Court
emphasized that PNCC is 90.3% owned by the government and could not be
considered an autonomous entity just because it was incorporated under
the Corporation Code.
 BASIC SECURITIES LAW
TITLE: JOSE T. TENGCO III AND ANTHONY KEIRULF, petitioners,
vs.
PEOPLE OF THE PHILIPPINES, respondent.
CITATION: G.R. NO. 236620
DATE: FEBRUARY 1, 2023
PONENTE: ZALAMEDA, J.:
TOPIC: POWERS AND FUNCTIONS OF SECURITIES AND EXCHANGE
COMMISSION
FACTS: Caravaggio Holdings, Inc. was incorporated on February 21, 2001, and
changed its name to Philippine International Planning Center Corporation (PIPCC)
a month later. PIPCC was only authorized to act as a research arm for foreign
clients, and it was not registered to solicit or sell securities, nor were its officers and
agents licensed for such activities.

On July 17, 2007, PIPCC's Chairman and President Michael H.K. Liew
disappeared with approximately US$250 million in investments from the
corporation.

Following this, 31 investors filed complaints with the SEC Enforcement and
Investor Protection Department (SEC-EIPD), claiming that PIPCC, through agents
and brokers (including Santos, Mendoza, and Morris), lured them into investing US
Dollars or Euros in PIPCC with promises of 12% to 18% returns at low risk. PIPCC
falsely claimed to be a Philippine branch of Performance Investments Products
Corporation (British Virgin Islands), engaged in offshore foreign currency trading,
and misrepresented that it had the proper licenses from the SEC to sell securities.

The SEC Enforcement and Investor Protection Department (SEC-EIPD)

conducted an investigation and held a preliminary conference with the officers and
directors of PIPCC. It confirmed that PIPCC was not licensed to solicit, offer, or sell
securities to the public. Despite this, PIPCC's officers, directors, brokers, and
agents, including petitioners Santos, Mendoza, and Morris, continued to sell
securities to investors.

Based on its investigation, the SEC-EIPD found probable cause to charge the
petitioners for violating Section 28 of the Securities Regulation Code, which
prohibits anyone from acting as a broker or dealer of securities without being
registered with the SEC. As a result, the SEC-EIPD filed a complaint on November
27, 2007, with the Department of Justice (DOJ) against the petitioners and other
key figures in PIPCC.

ISSUE: Whether or not SEC has the jurisdiction to investigate violations in relation to
SRC.

RULING: According to the provision of Section 53.1 of the Securities Regulation Code, the
SEC has discretion in the conduct of investigations for violations of the SRC.

SEC. 53. Investigations, Injunctions and Prosecution of Offenses. —

53.1. The Commission may, in its discretion, make such investigations as it

deems necessary to determine whether any person has violated or is about to
violate any provision of this Code, any rule, regulation or order thereunder, or any
rule of an Exchange, registered securities association, clearing agency, other self-
regulatory organization, arid may require or permit any person to file with it a
statement in writing, under oath or otherwise, as the Commission shall determine,
as to all facts and circumstances concerning the matter to be investigated. The
Commission may publish information concerning any such violations, and to
investigate any fact, condition, practice or matter which it may deem necessary or
proper to aid in the enforcement of the provisions of this Code, in the prescribing of
rules and regulations thereunder, or in securing information to serve as a basis for
recommending further legislation concerning the matters to which this Code
relates: Provided, however, That any person requested or subpoenaed to produce
documents or testify in any investigation shall simultaneously be notified in writing
of the purpose of such investigation: Provided, further, That all criminal complaints
for violations of this Code, and the implementing rules and regulations enforced or
administered by the Commission shall be referred to the Department of Justice for
preliminary investigation and prosecution before the proper court: Provided,
furthermore, That in instances where the law allows independent civil or criminal
proceedings of violations arising from the same act, the Commission shall take
appropriate action to implement the same: Provided, finally, That the investigation,
prosecution, and trial of such cases shall be given priority.

Clearly, Section 53.1 does not prescribe the specific manner by which the SEC
shall make its investigations. The SEC has the discretion to determine what are
necessary in the conduct of its investigations. However, the SEC is mandated to
refer criminal complaints for violations of the SRC to the DOJ for preliminary
investigation and prosecution before the proper court.
 BASIC SECURITIES LAW
TITLE: PEOPLE OF THE PHILIPPINES, petitioner,
VS.
NOEL M. CARIÑO, FERDINAND T. SANTOS, ROBERT JOHN L.
SOBREPEÑA, EXEQUIEL E. ROBLES, ROBERTO J. CHAN, SUSANA S.
CHAN, RUBEN C. SY, SOFIA C. SY, VICENTE SANTOS, AND IGMIDIO
ROBLES, respondents.
CITATION: GR NO. 230649
DATE: APRIL 26, 2023
PONENTE: DIMAAMPAO, J.:
TOPIC: PROCEDURE FOR REGISTRATION OF SECURITIES; PENALTIES
FACTS: The case is about accusing respondents Noel M. Cariño, Ferdinand T. Santos,
Robert John L. Sobrepeña, Exequiel E. Robles, Roberto J. Chan, Susana S. Chan,
Ruben C. Sy, Sofia C. Sy, Vicente Santos, and Igmidio Robles [collectively,
respondents], in their capacities as incorporators, board of directors/members, and
officers of Caliraya Springs Golf Club, Inc. (Caliraya), of violating Section 12.7, in
relation to Section 73, of RA No. 8799, or the Securities Regulation Code.

In 1997, Caliraya submitted a Registration Statement to the SEC for securities

registration, indicating its goal to raise funds for constructing two golf courses and
related facilities in Laguna. The project was to be financed through a secondary
offering of shares, with contributions from landowners and developers.

However, by 2003, an SEC review revealed that Caliraya had not fulfilled its
project commitments, prompting the SEC to demand an amendment to the
Registration Statement and explanations for the discrepancies. Following non-
compliance, the SEC revoked Caliraya's securities registration in February 2004.

By 2005, Caliraya reported that the first golf course was completed but had not
yet started operations. In 2009, the SEC sought explanations for the continued
misrepresentations regarding project development. When no satisfactory responses
were provided, the SEC initiated legal action against Caliraya and its incorporators
for potential violations of the Securities Regulation Code.

The trial court initially dismissed the case, citing insufficient evidence of
misrepresentation and stating that projected completion dates are common in
corporate communications. After a reconsideration motion, the court allowed the
introduction of additional evidence but ultimately reaffirmed its dismissal due to a lack
of direct knowledge of wrongdoing by the respondents.

The Court of Appeals upheld the trial court's decision, ruling that the evidence
did not establish a material false statement as defined by the Securities Regulation
Code, and that the trial court acted within its discretion. The petition for
reconsideration was also denied, leading to the present legal proceedings.
ISSUE: Whether or not Caliraya Springs Golf Club, Inc. violated Section 12.7 in relation
To Section 73, of RA 8799, or the Securities Regulation Code.
RULING: The Court answers in the negative.

SECTION 12. Procedure for Registration of Securities. — x x x x

12.7. Upon effectivity of the registration statement, the issuer shall state under oath
in every prospectus that all registration requirements have been met and that all
information are true and correct as represented by the issuer or the one making the
statement. Any untrue statement of fact or omission to state a material fact
required to be stated therein or necessary to make the statement therein not
misleading shall constitute fraud.

SECTION 73. Penalties. — Any person who violates any of the provisions of
this Code, or the rules and regulations promulgated by the Commission under
authority thereof, or any person who, in a registration statement filed under this
Code, makes any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, shall, upon conviction, suffer a fine of not less
than Fifty thousand pesos (P50,000.00) nor more than Five million pesos
(P5,000,000.00) or imprisonment of not less than seven (7) years nor more than
twenty-one (21) years, or both in the discretion of the court. If the offender is a
corporation, partnership or association or other juridical entity, the penalty may in
the discretion of the court be imposed upon such juridical entity and upon the officer
or officers of the corporation, partnership, association or entity responsible for the
violation, and if such officer is an alien, he shall in addition to the penalties
prescribed, be deported without further proceedings after service of sentence.

The contention here revolves around whether a contingent or projected date of

completion may fall under the definition of "making an untrue statement" if the project
or event does not come to pass on the said date.

To be sure, the Securities Regulation Code and its implementing rules do not
define an untrue statement. Thus, the word should be interpreted in its "natural,
plain and ordinary acceptation and signification, unless it is evident that the
legislature intended a technical or special legal meaning to those words," as "[t]he
intention of the lawmakers — who are, ordinarily, untrained philologists and
lexicographers — to use statutory phraseology in such a manner is always
presumed."74

An untruthful statement means one not in accord with facts or one made in
deceit for ulterior motives.75 Certainly, a statement may be factually untrue, with or
without the knowledge of the maker, or one made intentionally false with ill-intent.
However, the Securities Regulations Code goes a step further and assumes all
untrue statements, whether intentional or unintentional, shall constitute fraud, as is
evident in the express wording of Section 12.7, as abovequoted. Given that the law
does not distinguish, the courts should likewise not distinguish. Ubi lex non
distinguit, nec nos distinguere debemus.

However, the very nature of contingent or forward looking statements means

that, at the time they are made, their inherent truth or falsity is not evident even to
the issuer itself. To recall, what the law punishes is making an untruthful statement
at the time the registration statement is filed. This is necessarily impossible to do for
projected events that rely on external factors for its completion that may be beyond
the control of the issuer. Consequently, at the time the alleged violation occurred in
April 1997, i.e., when the Registration Statement was first filed, there could have
been no untruthful statements made on the part of Caliraya as to the completion
date of its project. Nevertheless, this is not to say that Caliraya was not without
fault. Its failure to amend its Registration Statement after the lapse of the original
estimated completion date based on its own timeline, despite repeated notices from
the SEC, would have rendered it liable for a separate clause under Section
12.7, i.e., "[omitting] to state any material fact required to be stated therein
or necessary to make the statements therein not misleading."78 Indeed, when it
became clear that such estimate would not come to pass, it was incumbent on the
registered issuer to amend its registration statement to correct the same in order to
reasonably protect the investing public. This Caliraya failed to do.

However, three barriers prevent criminal liability from being imputed to

respondents themselves. First, the Information charges respondents for making an
untruthful statement in the Registration Statement which, as above-discussed, is
not the proper mode involved in this particular instance constituting a violation of
Section 12.7 of the Securities Regulation Code. Second, the Information does not
charge Caliraya, but only private respondents in their capacity as incorporators,
members of the Board, and corporate officers. Third, nothing in the record directly
links the respondents to the purported violation.

Generally, corporate agents are not personally liable for violations of the
corporation unless they willfully and knowingly vote for or assent to a patently
unlawful act, or are guilty of gross negligence or bad faith.79 In either case, their
liability should not be presumed but must be proved.

Even the Securities Regulation Code recognizes this limited culpability by only
imposing a penalty on officers of the corporation "responsible for the violation."80

Thus, unless it is shown how respondents were directly responsible for failing
to correct the Registration Statement, no criminal liability may be imputed on them.
Thus, the lower courts did not err in concluding that no probable cause existed to
hold them personally liable for Caliraya's seeming violation of Section 12.7 in
relation to Section 73 of the Securities Regulations Code.

XXX END XXX