2.1.

Artificial Being
• DOCTRINE OF CORPORATE ENTITY (SEPARATE PERSONALITY)
PHILIPPINE NATIONAL BANK v. MERELO B. AZNAR, GR No. 171805, 2011-05-30
Facts:
In 1958, RISCO ceased operation due to business reverses. In plaintiffs' desire to
rehabilitate RISCO, they contributed a total amount of P212,720.00 which was used in the
purchase of the three (3) parcels of land described as follows
:
A parcel of land (Lot No. 3597 of the Talisay-Minglanilla Estate, G.L.R.O. Record No. 3732)
)
) situated in the Municipality of Talisay, Province of Cebu, Island of Cebu. xxx containing an
area of SEVENTY[-]
A parcel of land (Lot 7380 of the Talisay Minglanilla Estate, G.L.R.O. Record No. 3732
A parcel of land (Lot 1323 of the subdivision plan Psd-No. 5988
After the purchase of the above lots, titles were issued in the name of RISCO. The amount
contributed by plaintiffs constituted as liens and encumbrances on the aforementioned
properties as annotated in the titles of said lots. Such annotation was made pursuant to the
Minutes... of the Special Meeting of the Board of Directors of RISCO
(hereinafter referred to as the "Minutes") on March 14, 1961,... . The President then
explained that in a special meeting of the stockholders previously called for the purpose of
putting up certain amount of P212,720.00 for the rehabilitation of the Company
Thereafter, various subsequent annotations were made on the same titles, including the
Notice of Attachment and Writ of Execution both dated August 3, 1962 in favor of herein
defendant PNB, to w
On TCT No. 8921 for Lot 3597:
Entry No. 7416-V-4-D.B. - Notice of Attachment - By the Provincial Sheriff of Cebu, Civil
Case No. 47725, Court of First Instance of Manila, entitled "Philippine National Bank,
Plaintiff, versus Iluminada Gonzales, et al., Defendants", attaching all rights, interest and...
participation of the defendant Iluminada Gonzales and Rural Insurance & Surety Co., Inc. of
the two parcels of land covered by T.C.T. Nos. 8921, Attachment No. 330 and 185.
Entry No. 7416-V-4-D.B. - Notice of Attachment - By the Provincial Sheriff of Cebu, Civil
Case No. 47725, Court of First Instance of Manila, entitled "Philippine National Bank,
Plaintiff, versus Iluminada Gonzales, et al., Defendants", attaching all rights, interest and...
participation of the defendant Iluminada Gonzales and Rural Insurance & Surety Co., Inc. of
the two parcels of land covered by T.C.T. Nos. 8921, Attachment No. 330 and 185... ntry
No. 7416-V-4-D.B. - Notice of Attachment - By the Provincial Sheriff of Cebu, Civil Case No.
47725, Court of First Instance of Manila, entitled "Philippine National Bank, Plaintiff, versus
Iluminada Gonzales, et al., Defendants", attaching all rights, interest and... participation of
the defendant Iluminada Gonzales and Rural Insurance & Surety Co., Inc. of the two
parcels of land covered by T.C.T. Nos. 8921, Attachment No. 330 and 185.
Entry No. 7417-V-4-D.B.
Entry No. 7512-V-4-D.B.
Entry No. 7513-V-4-D.B.
O
On TCT No. 8922 for Lot 7380:
(Same as the annotations on TCT 8921)
On TCT No. 24576 for Lot 1328
Entry No. 1660-V-7-D.B.
Entry No. 1661-V-7-D.B.
Entry No. 1861-V-7-D.B.
Entry No. 1862-V-7-D.B

 Writ of Execution - by the Municipal Court of Manila, commanding the Provincial

Sheriff of Cebu, of

As a result, a Certificate of Sale was issued in favor of Philippine National Bank, being the
lone and highest bidder of the three (3) parcels of land known as Lot Nos. 3597 and 7380,
covered by T.C.T. Nos. 8921 and 8922, respectively, both situated at Talisay, Cebu, and
Lot No.
1328-C covered by T.C.T. No. 24576 situated at Cebu City, for the amount of Thirty-One
Thousand Four Hundred Thirty Pesos (P31,430.00). Thereafter, a Final Deed of Sale dated
May 27, 1991 in favor of the Philippine National Bank was also issued and Transfer
Certificate of Title
No. 24576 for Lot 1328-C (corrected to 1323-C) was cancelled and a new certificate of title,
TCT 119848 was issued in the name of PNB on August 26, 1991.
Issues:
What is essential only, to repeat, is that the facts demonstrating the lapse of the prescriptive
period, be otherwise sufficiently and satisfactorily apparent on the record; either in the
averments of the plaintiffs complaint, or... otherwise established by the evidence.[
Ruling:
Coming now to the question of prescription raised by defendant Lepanto, it is contended by
the latter that the period to be considered for the prescription of the claim regarding
participation in the profits is only four years, because the modification of the sharing...
embodied in the management contract is merely verbal, no written document to that effect
having been presented. This contention is untenable. The modification appears in the
minutes of the special meeting of the Board of Directors of Lepanto held on August 21,
1940, it having... been made upon the authority of its President, and in said minutes the
terms of modification had been specified. This is sufficient to have the agreement
considered, for the purpose of applying the statute of limitations, as a written contract even
if the minutes were not signed... by the parties (3 A.L.R., 2d, p. 831). It has been held that a
writing containing the terms of a contract if adopted by two persons may constitute a
contract in writing even if the same is not signed by either of the parties (3 A.L.R., 2d, pp.
812-813). Another authority says... that an unsigned agreement the terms of which are
embodied in a document unconditionally accepted by both parties is a written contract
(Corbin on Contracts, Vol. I, p. 85).[31]
Applied to the case at bar, the Minutes which was approved on March 14, 1961 is
considered as a written contract between Aznar, et al., and RISCO for the reimbursement of
the contributions of the former. As such, the former had a period of ten (10) years from
1961... within which to enforce the said written contract. However, it does not appear that
Aznar, et al., filed any action for reimbursement or refund of their contributions against
RISCO or even against PNB. Instead the suit that Aznar, et al., brought before... the trial
court only on January 28, 1998 was one to quiet title over the properties purchased by
RISCO with their contributions. It is unmistakable that their right of action to claim for refund
or payment of their contributions had long prescribed. Thus, it was... reversible error for the
Court of Appeals to order PNB to pay Aznar, et al., the amount of their liens based on the
Minutes with legal interests from the time of PNB's acquisition of the subject properties.
In view of the foregoing, it is unnecessary for the Court to pass upon the other issues raised
by the parties.
WHEREFORE, the petition of Aznar, et al., in G.R. No. 172021 is DENIED for lack of meri
NATIONALITY
a. Incorporation test
b. Control test
c. Grandfather rule
Gamboa v. Teves etal., GR No. 176579, October 9, 2012
Facts:
The issue started when petitioner Gamboa questioned the indirect sale of shares involving
almost 12 million shares of the Philippine Long Distance Telephone Company (PLDT) owned by
PTIC to First Pacific. Thus, First Pacific’s common shareholdings in PLDT increased from 30.7
percent to 37 percent, thereby increasing the total common shareholdings of foreigners in PLDT
to about 81.47%. The petitioner contends that it violates the Constitutional provision on
filipinazation of public utility, stated in Section 11, Article XII of the 1987 Philippine
Constitution, which limits foreign ownership of the capital of a public utility to not more than
40%. Then, in 2011, the court ruled the case in favor of the petitioner, hence this new case,
resolving the motion for reconsideration for the 2011 decision filed by the respondents.
Issue: Whether or not the Court made an erroneous interpretation of the term ‘capital’ in its
2011 decision?
Held/Reason: The Court said that the Constitution is clear in expressing its State policy of
developing an economy ‘effectively controlled’ by Filipinos. Asserting the ideals that our
Constitution’s Preamble want to achieve, that is – to conserve and develop our patrimony ,
hence, the State should fortify a Filipino-controlled economy. In the 2011 decision, the Court
finds no wrong in the construction of the term ‘capital’ which refers to the ‘shares with voting
rights, as well as with full beneficial ownership’ (Art. 12, sec. 10) which implies that the right to
vote in the election of directors, coupled with benefits, is tantamount to an effective control.
Therefore, the Court’s interpretation of the term ‘capital’ was not erroneous. Thus, the motion
for reconsideration is denied.
NARRA NICKEL MINING VS REDMONT (G.R. NO. 195580 APRIL 21, 2014)
Narra Nickel Mining and Development Corp. vs Redmont Consolidated Mines Corporation
G.R. No. 195580 April 21, 2014
Facts: Sometime in December 2006, respondent Redmont Consolidated Mines Corp.
(Redmont), a domestic corporation organized and existing under Philippine laws, took interest
in mining and exploring certain areas of the province of Palawan. After inquiring with the
Department of Environment and Natural Resources (DENR), it learned that the areas where it
wanted to undertake exploration and mining activities where already covered by Mineral
Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed
an application for an MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences
Bureau (MGB), Region IV-B, Office of the Department of Environment and Natural Resources
(DENR). Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782
hectares in Barangay Sumbiling, Municipality of Bataraza, Province of Palawan and EPA-IVB-44
which includes an area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan. The MPSA
and EP were then transferred to Madridejos Mining Corporation (MMC) and, on November 6,
2006, assigned to petitioner McArthur. Petitioner Narra acquired its MPSA from Alpha
Resources and Development Corporation and Patricia Louise Mining & Development
Corporation (PLMDC) which previously filed an application for an MPSA with the MGB, Region
IV-B, DENR on January 6, 1992. Through the said application, the DENR issued MPSA-IV-1-12
covering an area of 3.277 hectares in barangays Calategas and San Isidro, Municipality of Narra,
Palawan. Subsequently, PLMDC conveyed, transferred and/or assigned its rights and interests
over the MPSA application in favor of Narra. Another MPSA application of SMMI was filed with
the DENR Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over 3,402
hectares in Barangays Malinao and Princesa Urduja, Municipality of Narra, Province of Palawan.
SMMI subsequently conveyed, transferred and assigned its rights and interest over the said
MPSA application to Tesoro. On January 2, 2007, Redmont filed before the Panel of Arbitrators
(POA) of the DENR three (3) separate petitions for the denial of petitioners’ applications for
MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12. In the petitions, Redmont
alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and
controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned
that since MBMI is a considerable stockholder of petitioners, it was the driving force behind
petitioners’ filing of the MPSAs over the areas covered by applications since it knows that it can
only participate in mining activities through corporations which are deemed Filipino citizens.
Redmont argued that given that petitioners’ capital stocks were mostly owned by MBMI, they
were likewise disqualified from engaging in mining activities through MPSAs, which are
reserved only for Filipino citizens.
Issue: Whether or not the petitioner corporations are Filipino and can validly be issued MPSA
and EP.
Held: No. The SEC Rules provide for the manner of calculating the Filipino interest in a
corporation for purposes, among others, of determining compliance with nationality
requirements (the ‘Investee Corporation’). Such manner of computation is necessary since the
shares in the Investee Corporation may be owned both by individual stockholders (‘Investing
Individuals’) and by corporations and partnerships (‘Investing Corporation’). The said rules thus
provide for the determination of nationality depending on the ownership of the Investee
Corporation and, in certain instances, the Investing Corporation.
Under the SEC Rules, there are two cases in determining the nationality of the Investee
Corporation. The first case is the ‘liberal rule’, later coined by the SEC as the Control Test in its
30 May 1990 Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules
which states, ‘(s)hares belonging to corporations or partnerships at least 60% of the capital of
which is owned by Filipino citizens shall be considered as of Philippine nationality.’ Under the
liberal Control Test, there is no need to further trace the ownership of the 60% (or more)
Filipino stockholdings of the Investing Corporation since a corporation which is at least 60%
Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in
said Paragraph 7 of the 1967 SEC Rules which states, “but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality.” Under the
Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and
the Investee Corporation must be traced (i.e., “grandfathered”) to determine the total
percentage of Filipino ownership. Moreover, the ultimate Filipino ownership of the shares must
first be traced to the level of the Investing Corporation and added to the shares directly owned
in the Investee Corporation.
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the
second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in
doubt (i.e., in cases where the joint venture corporation with Filipino and foreign stockholders
with less than 60% Filipino stockholdings [or 59%] invests in other joint venture corporation
which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-
40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will not apply.
CONSTITUTIONAL RIGHTS
27. G.R. No. 195580 April 21, 2014
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC.,
and MCARTHUR MINING, INC., Petitioners,
vs.
 REDMONT CONSOLIDATED MINES CORP.,
Respondent.

FACTS:
Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a
domestic corporation organized and existing under Philippine laws, took interest in mining and
exploring certain areas of the province of Palawan. After inquiring with the Department of
Environment and Natural Resources (DENR), it learned that the areas where it wanted to
undertake exploration and mining activities where already covered by Mineral Production
Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur Narra and Tesoro, filed an application for an MPSA and Exploration Permit
(EP) which was subsequently issued.
On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3)
separate petitions for the denial of petitioners’ applications for MPSA.
Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are
owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation.
Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it was the
driving force behind petitioners’ filing of the MPSAs over the areas covered by applications
since it knows that it can only participate in mining activities through corporations which are
deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks were
mostly owned by MBMI, they were likewise disqualified from engaging in mining activities
through MPSAs, which are reserved only for Filipino citizens.
Petitioners averred that they were qualified persons under Section 3(aq) of Republic Act No.
(RA) 7942 or the Philippine Mining Act of 1995. They stated that their nationality as applicants
is immaterial because they also applied for Financial or Technical Assistance Agreements (FTAA)
denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra,
which are granted to foreign-owned corporations. Nevertheless, they claimed that the issue on
nationality should not be raised since McArthur, Tesoro and Narra are in fact Philippine
Nationals as 60% of their capital is owned by citizens of the Philippines.
On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining
MPSAs. The POA considered petitioners as foreign corporations being "effectively controlled"
by MBMI, a 100% Canadian company and declared their MPSAs null and void.
Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a
Complaint with the Securities and Exchange Commission (SEC), seeking the revocation of the
certificates for registration of petitioners on the ground that they are foreign-owned or
controlled corporations engaged in mining in violation of Philippine laws.
CA found that there was doubt as to the nationality of petitioners when it realized that
petitioners had a common major investor, MBMI, a corporation composed of 100% Canadians.
Pursuant to the first sentence of paragraph 7 of Department of Justice (DOJ) Opinion No. 020,
Series of 2005, adopting the 1967 SEC Rules which implemented the requirement of the
Constitution and other laws pertaining to the exploitation of natural resources, the CA used the
"grandfather rule" to determine the nationality of petitioners.
In determining the nationality of petitioners, the CA looked into their corporate structures and
their corresponding common shareholders. Using the grandfather rule, the CA discovered that
MBMI in effect owned majority of the common stocks of the petitioners as well as at least 60%
equity interest of other majority shareholders of petitioners through joint venture agreements.
The CA found that through a "web of corporate layering, it is clear that one common controlling
investor in all mining corporations involved x xx is MBMI."Thus, it concluded that petitioners
McArthur, Tesoro and Narra are also in partnership with, or privies-in-interest of, MBMI.
ISSUE:
Whether or notthe Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign
corporations based on the "Grandfather Rule" is contrary to law, particularly the express
mandate of the Foreign Investments Act of 1991, as amended, and the FIA Rules.
HELD:
No. There are two acknowledged tests in determining the nationality of a corporation: the
control test and the grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005,
adopting the 1967 SEC Rules which implemented the requirement of the Constitution and other
laws pertaining to the controlling interests in enterprises engaged in the exploitation of natural
resources owned by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned
by Filipino citizens shall be considered as of Philippine nationality (CONTROL TEST), but if the
percentage of Filipino ownership in the corporation or partnership is less than 60%, only the
number of shares corresponding to such percentage shall be counted as of Philippine
nationality (GRANDFATHER RULE). Thus, if 100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital stock or capital, respectively, of which
belong to Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if less
than 60%, or say, 50% of the capital stock or capital of the corporation or partnership,
respectively, belongs to Filipino citizens, only 50,000 shares shall be counted as owned by
Filipinos and the other 50,000 shall be recorded as belonging to aliens.
 The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case
since the definition of a "Philippine National" under Sec. 3 of the FIA does not provide for it.
They further claim that the grandfather rule "has been abandoned and is no longer the
applicable rule." They also opined that the last portion of Sec. 3 of the FIA admits the
application of a "corporate layering" scheme of corporations. Petitioners claim that the clear
and unambiguous wordings of the statute preclude the court from construing it and prevent
the court’s use of discretion in applying the law. They said that the plain, literal meaning of the
statute meant the application of the control test is obligatory.
SC disagreed. "Corporate layering" is admittedly allowed by the FIA; but if it is used to
circumvent the Constitution and pertinent laws, then it becomes illegal. Further, the
pronouncement of petitioners that the grandfather rule has already been abandoned must be
discredited for lack of basis.
Petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian
corporation, owns 60% or more of their equity interests. Such conclusion is derived from
grandfathering petitioners’ corporate owners, namely: MMI, SMMI and PLMDC. The "control
test" is still the prevailing mode of determining whether or not a corporation is a Filipino
corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake
the exploration, development and utilization of the natural resources of the Philippines. When
in the mind of the Court there is doubt, based on the attendant facts and circumstances of the
case, in the 60-40 Filipino-equity ownership in the corporation, then it may apply the
"grandfather rule”.
CONSTITUTIONAL RIGHTS
12. SMITH, BELL & COMPANY (LTD.) vs NATIVIDAD
G.R. No. 15574 September 17, 1919

Facts:

Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the
Philippine Islands. A majority of its stockholders are British subjects. It is the owner of a
motor vessel known as the Bato built for it in the Philippine Islands in 1916, of more than
fifteen tons gross The Bato was brought to Cebu in the present year for the purpose of
transporting plaintiff's merchandise between ports in the Islands. Application was made at
Cebu, the home port of the vessel, to the Collector of Customs for a certificate of Philippine
registry. The Collector refused to issue the certificate, giving as his reason that all the
stockholders of Smith, Bell & Co., Ltd., were not citizens either of the United States or of the
Philippine Islands. The instant action is the result.

On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first section of this
law amended section 1172 of the Administrative Code to read as follows:
SEC. 1172. Certificate of Philippine register. — Upon registration of a vessel of domestic
ownership, and of more than fifteen tons gross, a certificate of Philippine register shall be
issued for it. If the vessel is of domestic ownership and of fifteen tons gross or less, the taking
of the certificate of Philippine register shall be optional with the owner.
"Domestic ownership," as used in this section, means ownership vested in some one or more
of the following classes of persons: (a) Citizens or native inhabitants of the Philippine Islands;
(b) citizens of the United States residing in the Philippine Islands; (c) any corporation or
company composed wholly of citizens of the Philippine Islands or of the United States or of
both, created under the laws of the United States, or of any State thereof, or of thereof, or
the managing agent or master of the vessel resides in the Philippine Islands
Any vessel of more than fifteen gross tons which on February eighth, nineteen hundred and
eighteen, had a certificate of Philippine register under existing law, shall likewise be deemed
a vessel of domestic ownership so long as there shall not be any change in the ownership
thereof nor any transfer of stock of the companies or corporations owning such vessel to
person not included under the last preceding paragraph.
The first paragraph of the Philippine Bill of Rights of the Philippine Bill, repeated again in the
first paragraph of the Philippine Bill of Rights as set forth in the Jones Law, provides "That no
law shall be enacted in said Islands which shall deprive any person of life, liberty, or property
without due process of law, or deny to any person therein the equal protection of the laws."

Counsel says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection of the
laws because it, in effect, prohibits the corporation from owning vessels, and because
classification of corporations based on the citizenship of one or more of their stockholders is
capricious, and that Act No. 2761 deprives the corporation of its properly without due
process of law because by the passage of the law company was automatically deprived of
every beneficial attribute of ownership in the Bato and left with the naked title to a boat it
could not use .

Issue/Held: WON the Government of the Philippine Islands, through its Legislature, can deny
the registry of vessel in its coastwise trade to corporations having alien stockholders.- YES,
this is a valid exercise of police power. Common carriers which in the Philippines as in the
United States and other countries are, as Lord Hale said, "affected with a public interest," can
only be permitted to use these public waters as a privilege and under such conditions as to
the representatives of the people may seem wise. Act No. 2761 of the Philippine Legislature,
in denying to corporations such as Smith, Bell &. Co. Ltd., the right to register vessels in the
Philippines coastwise trade, does not belong to that vicious species of class legislation which
must always be condemned, but does fall within authorized exceptions, notably, within the
purview of the police power, and so does not offend against the constitutional provision.

Ratio: The guaranties of the Fourteenth Amendment and so of the first paragraph of the
Philippine Bill of Rights, are universal in their application to all person within the territorial
jurisdiction, without regard to any differences of race, color, or nationality. The word
"person" includes aliens. Private corporations, likewise, are "persons" within the scope of the
guaranties in so far as their property is concerned. Classification with the end in view of
providing diversity of treatment may be made among corporations, but must be based upon
some reasonable ground and not be a mere arbitrary selection. Examples of laws held
unconstitutional because of unlawful discrimination against aliens could be cited. Generally,
these decisions relate to statutes which had attempted arbitrarily to forbid aliens to engage
in ordinary kinds of business to earn their living.

One of the exceptions to the general rule, most persistent and far reaching in influence is,
that neither the Fourteenth Amendment to the United States Constitution, broad and
comprehensive as it is, nor any other amendment, "was designed to interfere with the power
of the State, sometimes termed its `police power,' to prescribe regulations to promote the
health, peace, morals, education, and good order of the people, and legislate so as to
increase the industries of the State, develop its resources and add to its wealth and
prosperity. From the very necessities of society, legislation of a special character, having
these objects in view, must often be had in certain districts." his is the same police power
which the United States Supreme Court say "extends to so dealing with the conditions which
exist in the state as to bring out of them the greatest welfare in of its people." For quite
similar reasons, none of the provision of the Philippine Organic Law could could have had the
effect of denying to the Government of the Philippine Islands, acting through its Legislature,
the right to exercise that most essential, insistent, and illimitable of powers, the sovereign
police power, in the promotion of the general welfare and the public interest.

Another notable exception permits of the regulation or distribution of the public domain or
the common property or resources of the people of the State, so that use may be limited to
its citizens. Even as to classification, it is admitted that a State may classify with reference to
the evil to be prevented; the question is a practical one, dependent upon experience.
STONEHILL V. DIOKNO - CASE DIGEST - CONSTITUTIONAL LAW
STONEHILL V. DIOKNO G.R. No. L-19550 June 19, 1967

FACTS:

l Stonehill et al, herein petitioners, and the corporations they form were alleged to have
committed acts in “violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue
(Code) and Revised Penal Code.”
l Respondents issued, on different dates, 42 search warrants against petitioners personally,
and/or corporations for which they are officers directing peace officers to search the persons of
petitioners and premises of their offices, warehouses and/or residences to search for personal
properties “books of accounts, financial records, vouchers, correspondence, receipts, ledgers,
journals, portfolios, credit journals, typewriters, and other documents showing all business
transactions including disbursement receipts, balance sheets and profit and loss statements
and Bobbins(cigarette wrappers)” as the subject of the offense for violations of Central Bank
Act, Tariff and Customs Laws, Internal Revenue Code, and Revised Penal Code.
l The documents, papers, and things seized under the alleged authority of the warrants in
question may be split into (2) major groups, namely:

(a) those found and seized in the offices of the aforementioned corporations and
(b) those found seized in the residences of petitioners herein.

l Petitioners averred that the warrant is null and void for being violative of the constitution and
the Rules of court by:

(1) not describing with particularity the documents, books and things to be seized;
(2) money not mentioned in the warrants were seized;
(3) the warrants were issued to fish evidence for deportation cases filed against the petitioner;
(4) the searches and seizures were made in an illegal manner; and
(5) the documents paper and cash money were not delivered to the issuing courts for disposal
in accordance with law.
l The prosecution counters that the search warrants are valid and issued in accordance with
law; The defects of said warrants were cured by petitioners consent; and in any event, the
effects are admissible regardless of the irregularity.
l The Court granted the petition and issued the writ of preliminary injunction. However, by a
resolution, the writ was partially lifted dissolving insofar as paper and things seized from the
offices of the corporations.

ISSUE:

WON the search warrant issued is valid.

HELD:

NO the search warrant is invalid.

l The SC ruled in favor of petitioners.

l The constitution protects the people’s right against unreasonable search and seizure. It
provides; (1) that no warrant shall issue but upon probable cause, to be determined by the
judge in the manner set forth in said provision; and (2) that the warrant shall particularly
describe the things to be seized. In the case at bar, none of these are met.

l The warrant was issued from mere allegation that petitioners committed a “violation of
Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal Code.”

l In other words, no specific offense had been alleged in said applications. The averments
thereof with respect to the offense committed were abstract.
l As a consequence, it was impossible for the judges who issued the warrants to have found the
existence of probable cause, for the same presupposes the introduction of competent proof
that the party against whom it is sought has performed particular acts, or committed specific
omissions, violating a given provision of our criminal laws.

l As a matter of fact, the applications involved in this case do not allege any specific acts
performed by herein petitioners. It would be a legal heresy, of the highest order, to convict
anybody of a “violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code)
and Revised Penal Code,” — as alleged in the aforementioned applications — without reference
to any determinate provision of said laws or codes.

l The warrants authorized the search for and seizure of records pertaining to all business
transactions of petitioners regardless of whether the transactions were legal or illegal.

l Thus, openly contravening the explicit command of the Bill of Rights — that the things to be
seized be particularly described — as well as tending to defeat its major objective: the
elimination of general warrants.

l However, SC emphasized that petitioners cannot assail the validity of the search warrant
issued against their corporation because petitioners are not the proper party.

l The petitioners have no cause of action to assail the legality of the contested warrants and of
the seizures made in pursuance thereof, for the simple reason that said corporations have their
respective personalities, separate and distinct from the personality of herein petitioners,
regardless of the amount of shares of stock or of the interest of each of them in said
corporations, and whatever the offices they hold therein may be.8 Indeed, it is well settled that
the legality of a seizure can be contested only by the party whose rights have been impaired
thereby and that the objection to an unlawful search and seizure is purely personal and cannot
be availed of by third parties.G.R. No. 75885 Case Digest

G.R. No. 75885, May 27, 1987

Bataan Shipyard & Engineering Co
vs. PCGG
Ponente: Narvasa

Facts:
Bataan Shipyard and Engineering Co., Inc (BASECO) – private corporation

Presidential Commission on Good Government (PCGG) – issued the sequestration order

The corporation known as BASECO was owned or controlled by President Marcos during his
administration, through nominees, by taking undue advantage of his public office and/or using
his powers, authority, or influence, and that it was by and through the same means, that
BASECO had taken over the business and/or assets of the National Shipyard and Engineering
Co., Inc., and other government-owned or controlled entities.

As evidence found in Malacanang shortly after the sudden flight of President Marcos were
certificates corresponding to more than ninety-five percent (95%) of all the outstanding shares
of stock of BASECO, endorsed in blank, together with deeds of assignment of practically all the
outstanding shares of stock of the three (3) corporations above mentioned (which hold 95.82%
of all BASECO stock), signed by the owners thereof although not notarized. While the
petitioner's counsel was quick to dispute this asserted fact, assuring the Court that the BASECO
stockholders were still in possession of their respective stock certificates and had never
endorsed them in blank or to anyone else, that denial is exposed by his own prior and
subsequent recorded statements as a mere gesture of defiance rather than a verifiable factual
declaration.

In accordance with Executive Orders Numbered 1 and 2 promulgated by President Corazon

Aquino, PCGG through its commissioners and agent ordered sequestration, takeover and other
provisional orders affecting BASECO.

Commissioner Diaz invoked the provisions of Section 3 (c) of Executive Order No. 1,
empowering the Commission —To provisionally takeover in the public interest or to prevent its
disposal or dissipation, business enterprises and properties taken over by the government of
the Marcos Administration or by entities or persons close to former President Marcos, until the
transactions leading to such acquisition by the latter can be disposed of by the appropriate
authorities.
Issues:
1. Are the provisional remedies involved in this case unconstitutional?
2. Are the acts of PCGG and its Commissioners done without or in excess of its powers or
with grave abuse of discretion?
3. Was there a violation of the right against self-Incrimination and unreasonable searches
and seizures?

Ruling:
1. No.
The Provisional or "Freedom" Constitution recognizes the power and duty of the President to
enact "measures to achieve the mandate of the people to recover ill- gotten properties
amassed by the leaders and supporters of the Marcos regime and protect the interest of the
people through orders of sequestration or freezing of assets or accounts. And as also already
adverted to, Section 26, Article XVIII of the 1987 Constitution treats of, and ratifies the
authority to issue sequestration or freeze orders under Proclamation No. 3. The institution of
these provisional remedies is also premised upon the State's inherent police power, regarded,
as t lie power of promoting the public welfare by restraining and regulating the use of liberty
and property, and as the most essential, insistent and illimitable of powers in the promotion of
general welfare and the public interest, and said to be co-extensive with self-protection and not
inaptly termed also the law of overruling necessity.

2. No, PCGG’s general function is to conduct investigations in order to collect evidence

establishing instances of ill-gotten wealth, issue sequestration, and such orders as may be
warranted by the evidence thus collected and as may be necessary to preserve and conserve
the assets of which it takes custody and control and prevent their disappearance, loss or
dissipation; and eventually file and prosecute in the proper court of competent jurisdiction all
cases investigated by it as may be warranted by its findings. It does not try and decide, or hear
and determine, or adjudicate with any character of finality or compulsion, cases involving the
essential issue of whether or not property should be forfeited and transferred to the State
because ill-gotten within the meaning of the Constitution and the executive orders.
3. No. The right against self-incrimination has no application to juridical persons. While an
individual may lawfully refuse to answer incriminating questions unless protected by an
immunity statute, it does not follow that a corporation, vested with special privileges and
franchises, may refuse to show its hand when charged with an abuse of such privileges.
CIVIL AND CRIMINAL LIABILITY
Corporate Law Case Digest: PNB V. CA (1978)

G.R. No. L-27155 May 18, 1978

Lessons Applicable: Liability for Torts (Corporate Law)
FACTS:
PNB executed its bond w/ Rita Gueco Tapnio as principal, in favor of the PNB to guarantee the
payment of Tapnio's account with PNB.
Indemnity Agreement w/ 12% int. and 15% atty. fees
Sept 18 1957: PNB sent a letter of demand for Tapnio to pay the reduced amount of 2,379.91
PNB demanded both oral and written but to no avail
Tapnio mortgaged to the bank her lease agreement w/ Jacobo Tuazon for her unused export
sugar quota at P2.80 per picular or a total of P2,800 which was more than the value of the bond
PNB insisted on raising it to P3.00 per picular so Tuazon rejected the offer
ISSUE: W/N PNB should be liable for tort
HELD: YES. affirmed.
While Tapnio had the ultimate authority of approving or disapproving the proposed lease since
the quota was mortgaged to the bank, it certainly CANNOT escape its responsibility of
observing, for the protection of the interest of Tapnio and Tuazon, that the degree of care,
precaution and vigilance which the circumstances justly demand in approving or disapproving
the lease of said sugar quota
Art. 21 of the Civil Code: any person who wilfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public policy shall compensate the latter for the
damage.
PSI VS AGANA (GR NO. 126297 JANUARY 31, 2007)
Professional Services Inc. vs Agana
GR No. 126297 January 31, 2007

Facts: On April 4, 1984, Natividad Agana was rushed to the Medical City General Hospital
because of difficulty of bowel movement and bloody anal discharge. After a series of medical
examinations, Dr. Miguel Ampil diagnosed her to be suffering from Cancer of the sigmoid. On
April 11, 1984, Dr. Ampil assisted by the medical staff of the Medical City Hospital performed an
Anterior resection surgery on Natividad. He found that the malignancy on her sigmoid area had
spread on her left ovary, necessitating the removal of certain portions of it. Thus, Dr. Ampil
obtained the consent of Natividad’s husband, Enrique Agana, to permit Dr. Juan Fuentes to
perform hysterectomy on her. After Dr. Fuentes had completed the hysterectomy, Dr. Ampil
took over, completed the operation and closed the incision after searching for the missing 2
gauzes as indicated by the assisting nurses but failed to locate it. After a couple of days,
Natividad complained of excruciating pains in her anal region but Dr. Ampil said it is a natural
consequence of the operation/surgery and recommended that she consult an oncologist to
examine the cancerous nodes which were not removed during the operation. Natividad and her
husband went to the US to seek further treatment and she was declared free from cancer. A
piece of gauze portruding from Natividad’s vagina was found by her daughter which was then
removed by hand by Dr. Ampil and assured that the pains will vanished. However, it didn’t. The
pains intensified prompting Natividad to seek treatment at the Polymedic General Hospital.
While confined there, Dr. Ramon Guttierez detected the presence of another foreign object in
her vagina – a foul smelling gauze measuring 1.5 inches in width which badly infected her
vagina. A recto-vaginal fistula had forced stool to excrete through her vagina. Another surgical
operation was needed to remedy the damage.

Issue: Whether or not Dr. Ampil and Fuentes are liable for medical malpractice and the PSI for
damages due to the negligence of the said doctors.

Held: Yes. No. Yes. An operation requiring the placing of sponges in the incision is not complete
until the sponges are properly removed and it is settled that the leaving of sponges or other
foreign substances in the wound after the incision has been closed is at least prima facie
negligence by the operating surgeon. To put it simply, such act is considered so inconsistent
with due care as to raise inference of negligence. There are even legions of authorities to the
effect that such act is negligence per se.
This is a clear case of medical malpractice or more appropriately, medical negligence. To
successfully pursue this kind of case, a patient must only prove that a health care provider
either failed to do something which a reasonably prudent health care provider would have
done, or that he did something that a reasonably prudent provider would not have done; and
that failure or action caused injury to the patient. Simply puts the elements are duty, breach,
injury, and proximate causation. Dr. Ampil, as the lead surgeon, had the duty to remove all
foreign objects, such as gauzes, from Natividad’s body before closure of the incision. When he
failed to do so, it was his duty to inform Natividad about it. Dr. Ampil breached both duties.
Such breach caused injury to Natividad, necessitating her further examination by American
doctors and another surgery. That Dr. Ampil’s negligence is the proximate cause of Natividad’s
injury could be traced from his act of closing the incision despite the information given by the
attending nurses that 2 pieces of gauze were still missing. That they were later on extracted
from Natividad’s vagina established the causal link between Dr. Ampil’s negligence and the
injury. And what further aggravated such injury was his deliberate concealment of this missing
gauzes from the knowledge of Natividad and her family.

The requisites for the applicability of the doctrine of res ipsa liquitor are:

1. Occurrence of an injury;
2. The thing which caused the injury was under the control and management of the
defendant;
3. The occurrence was such that in the ordinary course of things would not have happened
if those who had control or management used proper care, and;
4. The absence of explanation by the defendant
Of the foregoing, the most instrumental is the “Control and management of the thing which
caused the injury.”
Under the “Captain of the ship” rule, the operating surgeon is the person in complete charge of
the surgery room and all personnel connected with the operation.
The knowledge of any of the staff of Medical City constitutes knowledge of PSI.
The doctrine of corporate responsibility, has the duty to see that it meets the standards of
responsibilities for the care of patients. Such duty includes the proper supervision of the
members of its medical staff. The hospital accordingly has the duty to make a reasonable effort
to monitor and over see the treatment prescribed and administered by the physician practicing
in its premises.
CHILD LEARNING CENTER, INC. and
SPOUSES EDGARDO L. LIMON and SYLVIA S. LIMON, vs.
TIMOTHY TAGARIO, assisted by his parents BASILIO TAGORIO and HERMINIA TAGORIO
GR No. 150920, November 25, 2005

FACTS:
Timothy Tagoria was a grade IV student at Marymount School, an academic institution operated
and maintained by Child Learning Center, Inc. (CLC). One afternoon, he found himself locked
inside the boy’s comfort room in Marymount. He started to panic so he banged and kicked the
door and yelled for help. No help arrived. He then decided to open the window to call for help. As
he opened the window, Timothy went right through and fell down three stories. Timothy was
hospitalized and given medical treatment for serious multiple physical injuries. He, assisted by his
parents, filed a civil action against the CLC, the members of its Board of Directors which includes
the Spouses Limon. They claim that the school was negligent for not installing iron grills at the
window of the boy’s comfort room. CLC, in its defense, maintained that there was nothing
defective about the locking mechanism of the door and that the fall of Timothy was not due to its
fault or negligence. CLC further maintained that it had exercised the due care and diligence of a
good father of a family to ensure the safety, well-being and convenience of its students. The trial
court ruled in favor of the respondents. The respondents proceeded their appeal to the Court of
Appeals who affirmed the trial court’s ruling in toto.

ISSUE:
Whether or not the school was negligent for the boy’s accidental fall.

RULING:
YES. In every tort case filed under Article 2176 of the Civil Code, plaintiff has to prove by a
preponderance of evidence: (1) the damages suffered by the plaintiff; (2) the fault or negligence
of the defendant or some other person for whose act he must respond; and (3) the connection of
cause and effect between the fault or negligence and the damages incurred.

In this tort case, respondents contend that CLC failed to provide precautionary measures to avoid
harm and injury to its students in two instances: (1) failure to fix a defective door knob despite
having been notified of the problem; and (2) failure to install safety grills on the window where
Timothy fell from. During trial, it was found that the lock was defective. The architect witness
testified that he did not verify if the doorknob at the comfort room was actually put in place. Further,
the fact that Timothy fell out through the window shows that the door could not be opened from
the inside. That sufficiently points to the fact that something was wrong with the door, if not the
door knob, under the principle of res ipsa loquitor. The doctrine of res ipsa loquitor applies where
(1) the accident was of such character as to warrant an inference that it would not have happened
except for the defendant’s negligence; (2) the accident must have been caused by an agency or
instrumentality within the exclusive management or control of the person charged with the
negligence complained of; and (3) the accident must not have been due to any voluntary action
or contribution on the part of the person injured. Petitioners are clearly answerable for failure to
see to it that the doors of their school toilets are at all times in working condition. The fact that a
student had to go through the window, instead of the door, shows that something was wrong with
the door. As to the absence of grills on the window, petitioners contend that there was no such
requirement under the Building Code. Nevertheless, the fact is that such window, as petitioners
themselves point out, was approximately 1.5 meters from the floor, so that it was within reach of
a student who finds the regular exit, the door, not functioning.
Petitioners, with the due diligence of a good father of the family, should have anticipated that a
student, locked in the toilet by a non-working door, would attempt to use the window to call for
help or even to get out. Considering all the circumstances, therefore, there is sufficient basis to
sustain a finding of liability on petitioners’ part.

Petitioners’ argument that CLC exercised the due diligence of a good father of a family in the
selection and supervision of its employees is not decisive. Due diligence in the selection and
supervision of employees is applicable where the employer is being held responsible for the acts
or omissions of others under Article 2180 of the Civil Code. In this case, CLC’s liability is under
Article 2176 of the Civil Code, premised on the fact of its own negligence in not ensuring that all
its doors are properly maintained. The Court’s pronouncement that Timothy climbed out of the
window because he could not get out using the door, negates petitioners’ other contention that
the proximate cause of the accident was Timothy’s own negligence. The injuries he sustained
from the fall were the product of a natural and continuous sequence, unbroken by any intervening
cause, that originated from CLC’s own negligence.
G.R. No. L-30896 Case Digest
G.R. No. L-30896, April 28, 1983
Jose Sia
vs The people of the Philippines
Ponente: De Castro

Facts:
This is a petition for review of the decision of the CA affirming the decision of the CFI of Manila
convicting the appellant of estafa.

Based on the information filed, the accused allegedly defraud the Continental Bank, under the
obligation on the part of said accused of holding the said steel sheets in trust receipt
agreement, which cold rolled steel sheets were consigned to the continental bank.

In reviewing the evidence, the CA came up with the following findings of facts which the
solicitor general alleges should be conclusive upon this court:
Sia was general manager of the Metal Manufacturing Company of the Philippines, Inc. engaged
in the manufacture of steel office equipment. He applied for a letter of credit to import steel
sheets from Mitsui Bussan Kaisha, Ltd. of Japan, the application being directed to the
Continental Bank.

Issue: (1) whether Sia, having only acted for and in behalf of the Metal Manufacturing Company
of the Philippines as president thereof in dealing with the complainant, the continental bank he
may be liable for the crime charged.

Ruling:
(1st issue) In disputing the theory of petitioner, the Solicitor General relies on the general
principle that when a corporation commits an act which would constitute a punishable offense
under the law, it is the responsible officers thereof, acting for the corporation, who would be
punished for the crime, The Court of Appeals has subscribed to this view when it quoted
approvingly from the decision of the trial court the following:
A corporation is an artificial person, an abstract being. If the defense theory is followed
unscrupulously legions would form corporations to commit swindle right and left where nobody
could be convicted, for it would be futile and ridiculous to convict an abstract being that cannot
be pinched and confined in jail like a natural, living person, hence the result of the defense
theory would be hopeless chose in business and finance. It is completely untenable. (Rollo [CA],
p. 108.)
The act is imposed by agreement of parties, as a practice observed in the usual pursuit of a
business or a commercial transaction. The offense may arise, if at all, from the peculiar terms
and condition agreed upon by the parties to the transaction, not by direct provision of the law.
The intention of the parties, therefore, is a factor determinant of whether a crime was
committed or whether a civil obligation alone intended by the parties.

In the absence of an express provision of law making the petitioner liable for the criminal
offense committed by the corporation of which he is a president as in fact there is no such
provisions in the Revised Penal Code under which petitioner is being prosecuted, the existence
of a criminal liability on his part may not be said to be beyond any doubt. In all criminal
prosecutions, the existence of criminal liability for which the accused is made answerable must
be clear and certain. The maxim that all doubts must be resolved in favor of the accused is
always of compelling force in the prosecution of offenses. This Court has thus far not ruled on
the criminal liability of an officer of a corporation signing in behalf of said corporation a trust
receipt of the same nature as that involved herein.

(2nd issue) We consider the view that the trust receipt arrangement gives rise only to civil
liability as the more feasible, before the promulgation of P.D. 115. The transaction being
contractual, the intent of the parties should govern. The parties, therefore, are deemed to have
consciously entered into a purely commercial transaction that could give rise only to civil
liability, never to subject the "entrustee" to criminal prosecution.
Espiritu vs Petron Corporation (G.R. No. 170891, November 24, 2009
FACTS:
1. Respondent Petron Corporation (Petron) sold and distributed liquefied
petroleum gas (LPG) in cylinder tanks that carried its trademark Gasul Respondent
Carmen J. Doloiras owned and operated Kristina Patricia Enterprises (KPE), the exclusive
distributor of Gasul LPGs in the whole of Sorsogon. Bicol Gas Refilling Plant Corporation
(Bicol Gas) was also in the business of selling and distributing LPGs in Sorsogon but
theirs carried the trademark Bicol Savers Gas.
2. In the course of trade and competition, any given distributor of LPGs at times
acquired possession of LPG cylinder tanks belonging to other distributors operating in
the same area. They called these captured cylinders. It is a common practice to swap captured
cylinders and return it to their respective LPG owners.
3. A KPE employee visited Bicol Gas, he requested for a swap but the employee
of Bicol Gas refused as he first needed to ask the permission of the Bicol Gas Owners.
4. KPE filed a complaint for violation of RA 623 (illegally filling up of registered
cylinder tanks), infringement of trade marks and unfair competition. The provincial
prosecutors only found probable cause on the violation of RA 623.

5. KPE and Petron filed a special civil action for certiorari. CA ruled in their favor,
holding that unfair competition do not absorb trademark infringement,

ISSUE:
Whether Bicol Gas committed the following:
1. Trademark Infringement
2. Unfair Competition
3. RA 623

RULING:

1. Anent Trademark Infringment: NO

Section 155 of R.A. 8293 (in relation to Section 170[13]) provides that it is
committed by any person who shall, without the consent of the owner of the registered
mark:
 1. Use in commerce any reproduction, counterfeit, copy or colorable imitation
of a registered mark or the same container or a dominant feature thereof in connection
with the sale, offering for sale, distribution, advertising of any goods or services
including other preparatory steps necessary to carry out the sale of any goods or
services on or in connection with which such use is likely to cause confusion, or to cause
mistake, or to deceive; or

2. Reproduce, counterfeit, copy or colorably imitate a registered mark or a

dominant feature thereof and apply such reproduction, counterfeit, copy or colorable
imitation to labels, signs, prints, packages, wrappers, receptacles or advertisements
intended to be used in commerce upon or in connection with the sale, offering for sale,
distribution, or advertising of goods or services on or in connection with which such use
is likely to cause confusion, or to cause mistake, or to deceive.

KPE and Petron have to show that the alleged infringer, the responsible officers and
staff of Bicol Gas, used Petrons Gasul trademark or a confusingly similar trademark on
Bicol Gas tanks with intent to deceive the public and defraud its competitor as to what
it is selling.
Here, however, the allegations in the complaint do not show that Bicol Gas
painted on its own tanks Petrons Gasul trademark or a confusingly similar version of
the same to deceive its customers and cheat Petron. Indeed, in this case, the one tank
bearing the mark of Petron Gasul found in a truck full of Bicol Gas tanks was a genuine
Petron Gasul tank, more of a captured cylinder belonging to competition. No proof has
been shown that Bicol Gas has gone into the business of distributing imitation Petron
Gasul LPGs.

2. Anent Unfair Competition: NO

Section 168.3 (a) of R.A. 8293 (also in relation to Section 170) describes the acts
constituting the offense as follows:

168.3. In particular, and without in any way limiting the scope of protection
against unfair competition, the following shall be deemed guilty of unfair competition:
 (a) Any person, who is selling his goods and gives them the general appearance
of goods of another manufacturer or dealer, either as to the goods themselves or in the
wrapping of the packages in which they are contained, or the devices or words thereon,
or in any other feature of their appearance, which would be likely to influence
purchasers to believe that the goods offered are those of a manufacturer or dealer,
other than the actual manufacturer or dealer, or who otherwise clothes the goods with
such appearance as shall deceive the public and defraud another of his legitimate trade,
or any subsequent vendor of such goods or any agent of any vendor engaged in selling
such goods with a like purpose;

Essentially, what the law punishes is the act of giving ones goods the general
appearance of the goods of another, which would likely mislead the buyer into believing
that such goods belong to the latter.

3. Anent RA 623: NO
R.A. 623, as amended punishes any person who, without the written consent of
the manufacturer or seller of gases contained in duly registered steel cylinders or tanks,
fills the steel cylinder or tank, for the purpose of sale, disposal or trafficking, other than
the purpose for which the manufacturer or seller registered the same. This was what
happened in this case, assuming the allegations of KPEs manager to be true. Bicol Gas
employees filled up with their firms gas the tank registered to Petron and bearing its
mark without the latters written authority. Consequently, they may be prosecuted for
that offense.

As to liability:
No evidence was presented establishing the names of the stockholders who
were charged with running the operations of Bicol Gas. The complaint even failed to
allege who among the stockholders sat in the board of directors of the company or
served as its officers.

The Court of Appeals of course specifically mentioned petitioner stockholder

Manuel C. Espiritu, Jr. as the registered owner of the truck that the KPE manager
brought to the police for investigation because that truck carried a tank of Petron
Gasul. But the act that R.A. 623 punishes is the unlawful filling up of registered tanks of another. It
does not punish the act of transporting such tanks. And the complaint did not allege that the truck
owner connived with those responsible for filling up that Gasul tank with Bicol Gas LPG.
G.R. No. 173807 April 16, 2009

JAIME U. GOSIACO, Petitioner,

vs.
LETICIA CHING and EDWIN CASTA, Respondents.

DECISION

TINGA, J.:

The right to recover due and demandable pecuniary obligations incurred by juridical persons such as
corporations cannot be impaired by procedural rules. Our rules of procedure governing the litigation
of criminal actions for violation of Batas Pambansa Blg. 22 (B.P. 22) have given the appearance of
impairing such substantive rights, and we take the opportunity herein to assert the necessary
clarifications.

Before us is a Rule 45 petition1 which seeks the reversal of the Decision2 of the Court of Appeals in
CA-GR No. 29488. The Court of Appeals' decision affirmed the decision3 of the Regional Trial Court
of Pasig, Branch 68 in Criminal Case No. 120482. The RTC's decision reversed the decision4 of the
Metropolitan Trial Court of San Juan, Branch 58 in Criminal Case No. 70445 which involved a
charge of violation of B.P. Blg. 22 against respondents Leticia Ching (Ching) and Edwin Casta
(Casta).

On 16 February 2000, petitioner Jaime Gosiaco (petitioner) invested ₱8,000,000.00 with ASB
Holdings, Inc. (ASB) by way of loan. The money was loaned to ASB for a period of 48 days with
interest at 10.5% which is equivalent to ₱112,000.00. In exchange, ASB through its Business
Development Operation Group manager Ching, issued DBS checks no. 0009980577 and
0009980578 for ₱8,000,000.00 and ₱112,000.00 respectively. The checks, both signed by Ching,
were drawn against DBS Bank Makati Head Office branch. ASB, through a letter dated 31 March
2000, acknowledged that it owed petitioner the abovementioned amounts.5

Upon maturity of the ASB checks, petitioner went to the DBS Bank San Juan Branch to deposit the
two (2) checks. However, upon presentment, the checks were dishonored and payments were
refused because of a stop payment order and for insufficiency of funds. Petitioner informed
respondents, through letters dated 6 and 10 April 2000,6 about the dishonor of the checks and
demanded replacement checks or the return of the money placement but to no avail. Thus, petitioner
filed a criminal complaint for violation of B.P. Blg. 22 before the Metropolitan Trial Court of San Juan
against the private respondents.

Ching was arraigned and tried while Casta remained at large. Ching denied liability and claimed that
she was a mere employee of ASB. She asserted that she did not have knowledge as to how much
money ASB had in the banks. Such responsibility, she claimed belonged to another department.

On 15 December 2000, petitioner moved7 that ASB and its president, Luke Roxas, be impleaded as
party defendants. Petitioner, then, paid the corresponding docket fees. However, the MTC denied
the motion as the case had already been submitted for final decision.8

On 8 February 2001, the MTC acquitted Ching of criminal liability but it did not absolve her from civil
liability. The MTC ruled that Ching, as a corporate officer of ASB, was civilly liable since she was a
signatory to the checks.9
Both petitioner and Ching appealed the ruling to the RTC. Petitioner appealed to the RTC on the
ground that the MTC failed to hold ASB and Roxas either jointly or severally liable with Ching. On
the other hand, Ching moved for a reconsideration which was subsequently denied. Thereafter, she
filed her notice of appeal on the ground that she should not be held civilly liable for the bouncing
checks because they were contractual obligations of ASB.

On 12 July 2005, the RTC rendered its decision sustaining Ching's appeal. The RTC affirmed the
MTC’s ruling which denied the motion to implead ASB and Roxas for lack of jurisdiction over their
persons. The RTC also exonerated Ching from civil liability and ruled that the subject obligation fell
squarely on ASB. Thus, Ching should not be held civilly liable.10

Petitioner filed a petition for review with the Court of Appeals on the grounds that the RTC erred in
absolving Ching from civil liability; in upholding the refusal of the MTC to implead ASB and Roxas;
and in refusing to pierce the corporate veil of ASB and hold Roxas liable.

On 19 July 2006, the Court of Appeals affirmed the decision of the RTC and stated that the amount
petitioner sought to recover was a loan made to ASB and not to Ching. Roxas’ testimony further
bolstered the fact that the checks issued by Ching were for and in behalf of ASB. The Court of
Appeals ruled that ASB cannot be impleaded in a B.P. Blg. 22 case since it is not a natural person
and in the case of Roxas, he was not the subject of a preliminary investigation. Lastly, the Court of
Appeals ruled that there was no need to pierce the corporate veil of ASB since none of the requisites
were present.11

Hence this petition.

Petitioner raised the following issues: (1) is a corporate officer who signed a bouncing check civilly
liable under B.P. Blg. 22; (2) can a corporation be impleaded in a B.P. Blg. 22 case; and (3) is there
a basis to pierce the corporate veil of ASB?

B.P. Blg. 22 is popularly known as the Bouncing Checks Law. Section 1 of B.P. Blg. 22 provides:

xxx xxx xxx

Where the check is drawn by a corporation, company or entity, the person or persons, who actually
signed the check in behalf of such drawer shall be liable under this Act.

B.P. Blg. 22 was enacted to address the rampant issuance of bouncing checks as payment for pre-
existing obligations. The circulation of bouncing checks adversely affected confidence in trade and
commerce. The State criminalized such practice because it was deemed injurious to public
interests12 and was found to be pernicious and inimical to public welfare.13 B.P. Blg. 22 punishes the
act of making and issuing bouncing checks. It is the act itself of issuing the checks which is
considered malum prohibitum. The law is an offense against public order and not an offense against
property.14 It penalizes the issuance of a check without regard to its purpose. It covers all types of
checks.15 Even checks that were issued as a form of deposit or guarantee were held to be within the
ambit of B.P. Blg. 22.16
1avvphi 1.zw+

When a corporate officer issues a worthless check in the corporate name he may be held personally
liable for violating a penal statute.17 The statute imposes criminal penalties on anyone who with
intent to defraud another of money or property, draws or issues a check on any bank with knowledge
that he has no sufficient funds in such bank to meet the check on presentment.18 Moreover, the
personal liability of the corporate officer is predicated on the principle that he cannot shield himself
from liability from his own acts on the ground that it was a corporate act and not his personal
act.19 As we held in Llamado v. Court of Appeals:20

Petitioner's argument that he should not be held personally liable for the amount of the check
because it was a check of the Pan Asia Finance Corporation and he signed the same in his capacity
as Treasurer of the corporation, is also untenable. The third paragraph of Section 1 of BP Blg. 22
states: "Where the check is drawn by a corporation, company or entity, the person or persons who
actually signed the check in behalf of such drawer shall be liable under this Act."

The general rule is that a corporate officer who issues a bouncing corporate check can only be held
civilly liable when he is convicted. In the recent case of Bautista v. Auto Plus Traders Inc.,21 the
Court ruled decisively that the civil liability of a corporate officer in a B.P. Blg. 22 case is
extinguished with the criminal liability. We are not inclined through this case to revisit so recent a
precedent, and the rule of stare decisis precludes us to discharge Ching of any civil liability arising
from the B.P. Blg. 22 case against her, on account of her acquittal in the criminal charge.

We recognize though the bind entwining the petitioner. The records clearly show that it is ASB is
civilly obligated to petitioner. In the various stages of this case, petitioner has been proceeding from
the

premise that he is unable to pursue a separate civil action against ASB itself for the recovery of the
amounts due from the subject checks. From this premise, petitioner sought to implead ASB as a
defendant to the B.P. Blg. 22 case, even if such case is criminal in nature.22

What supplied the notion to the petitioner that he was unable to pursue a separate civil action
against ASB? He cites the Revised Rules on Criminal Procedure, particularly the provisions
involving B.P. Blg. 22 cases, which state that:

Rule 111, Section 1—Institution of criminal and civil action.

xxx

(b) The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to include the
corresponding civil action. No reservation to file such civil action separately shall be allowed.

Upon filing of the aforesaid joint criminal and civil actions, the offended party shall pay in full the filing
fees based on the amount of the check involved, which shall be considered as the actual damages
claimed. Where the complainant or information also seeks to recover liquidated, moral, nominal,
temperate or exemplary damages, the offended party shall pay the filing fees based on the amounts
alleged therein. If the amounts are not so alleged but any of these damages are subsequently
awarded by the court, the filing fees based on the amount awarded shall constitute a first lien on the
judgment.

Where the civil action has been filed separately and trial thereof has not yet commenced, it may be
consolidated with the criminal action upon application with the court trying the latter case. If the
application is granted, the trial of both actions shall proceed in accordance with section 2 of this Rule
governing consolidation of the civil and criminal actions.23

We are unable to agree with petitioner that he is entitled to implead ASB in the B.P. Blg. 22 case, or
any other corporation for that matter, even if the Rules require the joint trial of both the criminal and
civil liability. A basic maxim in statutory construction is that the interpretation of penal laws is strictly
construed against the State and liberally construed against the accused. Nowhere in B.P. Blg. 22 is
it provided that a juridical person may be impleaded as an accused or defendant in the prosecution
for violations of that law, even in the litigation of the civil aspect thereof.

Nonetheless, the substantive right of a creditor to recover due and demandable obligations against a
debtor-corporation cannot be denied or diminished by a rule of procedure. Technically, nothing in
Section 1(b) of Rule 11 prohibits the reservation of a separate civil action against the juridical person
on whose behalf the check was issued. What the rules prohibit is the reservation of a separate civil

action against the natural person charged with violating B.P. Blg. 22, including such corporate officer
who had signed the bounced check.

In theory the B.P. Blg. 22 criminal liability of the person who issued the bouncing check in behalf of a
corporation stands independent of the civil liability of the corporation itself, such civil liability arising
from the Civil Code. B.P. Blg. 22 itself fused this criminal liability of the signer of the check in behalf
of the corporation with the corresponding civil liability of the corporation itself by allowing the
complainant to recover such civil liability not from the corporation, but from the person who signed
the check in its behalf. Prior to the amendments to our rules on criminal procedure, it though clearly
was permissible to pursue the criminal liability against the signatory, while going after the corporation
itself for the civil liability.

However, with the insistence under the amended rules that the civil and criminal liability attaching to
the bounced check be pursued jointly, the previous option to directly pursue the civil liability against
the person who incurred the civil obligation–the corporation itself–is no longer that clear. In theory,
the implied institution of the civil case into the criminal case for B.P. Blg. 22 should not affect the civil
liability of the corporation for the same check, since such implied institution concerns the civil liability
of the signatory, and not of the corporation.

Let us pursue this point further. B.P. Blg. 22 imposes a distinct civil liability on the signatory of the
check which is distinct from the civil liability of the corporation for the amount represented from the
check. The civil liability attaching to the signatory arises from the wrongful act of signing the check
despite the insufficiency of funds in the account, while the civil liability attaching to the corporation is
itself the very obligation covered by the check or the consideration for its execution. Yet these civil
liabilities are mistaken to be indistinct. The confusion is traceable to the singularity of the amount of
each.

If we conclude, as we should, that under the current Rules of Criminal Procedure, the civil action that
is impliedly instituted in the B.P. Blg. 22 action is only the civil liability of the signatory, and not that of
the corporation itself, the distinctness of the cause of action against the signatory and that against
the corporation is rendered beyond dispute. It follows that the actions involving these liabilities
should be adjudged according to their respective standards and merits. In the B.P. Blg. 22 case,
what the trial court should determine whether or not the signatory had signed the check with
knowledge of the insufficiency of funds or credit in the bank account, while in the civil case the trial
court should ascertain whether or not the obligation itself

is valid and demandable. The litigation of both questions could, in theory, proceed independently
and simultaneously without being ultimately conclusive on one or the other.

It might be argued that under the current rules, if the signatory were made liable for the amount of
the check by reason of the B.P. Blg. 22 case, such signatory would have the option of recovering the
same amount from the corporation. Yet that prospect does not ultimately satisfy the ends of justice.
If the signatory does not have sufficient assets to answer for the amount of the check–a distinct
possibility considering the occasional large-scale transactions engaged in by corporations – the
corporation would not be subsidiarily liable to the complainant, even if it in truth the controversy, of
which the criminal case is just a part, is traceable to the original obligation of the corporation. While
the Revised Penal Code imposes subsidiary civil liability to corporations for criminal acts engaged in
by their employees in the discharge of their duties, said subsidiary liability applies only to
felonies,24 and not to crimes penalized by special laws such as B.P. Blg. 22. And nothing in B.P. Blg.
22 imposes such subsidiary liability to the corporation in whose name the check is actually issued.
Clearly then, should the check signatory be unable to pay the obligation incurred by the corporation,
the complainant would be bereft of remedy unless the right of action to collect on the liability of the
corporation is recognized and given flesh.

There are two prevailing concerns should civil recovery against the corporation be pursued even as
the B.P. Blg. 22 case against the signatory remains extant. First, the possibility that the plaintiff might
be awarded the amount of the check in both the B.P. Blg. 22 case and in the civil action against the
corporation. For obvious reasons, that should not be permitted. Considering that petitioner herein
has no chance to recover the amount of the check through the B.P. Blg. 22 case, we need not
contend with that possibility through this case. Nonetheless, as a matter of prudence, it is best we
refer the matter to the Committee on Rules for the formulation of proper guidelines to prevent that
possibility.

The other concern is over the payment of filing fees in both the B.P. Blg. 22 case and the civil action
against the corporation. Generally, we see no evil or cause for distress if the plaintiff were made to
pay filing fees based on the amount of the check in both the B.P. Blg. 22 case and the civil action.
After all, the plaintiff therein made the deliberate option to file two separate cases, even if the
recovery of the amounts of the check against the corporation could evidently be pursued through the
civil action alone.

Nonetheless, in petitioner’s particular case, considering the previous legal confusion on whether he
is authorized to file the civil case against ASB, he should, as a matter of equity, be exempted from
paying the filing fees based on the amount of the checks should he pursue the civil action against
ASB. In a similar vein and for a similar reason, we likewise find that petitioner should not be barred
by prescription should he file the civil action as the period should not run from the date the checks
were issued but from the date this decision attains finality. The courts should not be bound strictly by
the statute of limitations or the doctrine of laches when to do so, manifest wrong or injustice would
result.25

WHEREFORE, the petition is DENIED, without prejudice to the right of petitioner Jaime U. Gosiaco
to pursue an independent civil action against ASB Holdings Inc. for the amount of the subject
checks, in accordance with the terms of this decision. No pronouncements as to costs.

Let a copy of this Decision be REFERRED to the Committee on Revision of the Rules for the
formulation of the formal rules of procedure to govern the civil action for the recovery of the amount
covered by the check against the juridical person which issued it.

SO ORDERED.
Corporate Law Case Digest: Ching V. Sec. Of Justice (2006)
G. R. No. 164317 February 6, 2006
Lessons Applicable: Corp. Officers or employees, through whose act, default or omission the corp.
commits a crime, are themselves individually guilty of the crime (Corporate Law)

FACTS:

Sept-Oct 1980: PBMI, through Ching, Senior VP of Philippine Blooming Mills, Inc. (PBMI), applied with
the Rizal Commercial Banking Corporation (RCBC) for the issuance of commercial letters of credit to
finance its importation of assorted goods
RCBC approved the application, and irrevocable letters of credit were issued in favor of Ching.
The goods were purchased and delivered in trust to PBMI.
Ching signed 13 trust receipts as surety, acknowledging delivery of the goods
Under the receipts, Ching agreed to hold the goods in trust for RCBC, with authority to sell but not by
way of conditional sale, pledge or otherwise
In case such goods were sold, to turn over the proceeds thereof as soon as received, to apply against
the relative acceptances and payment of other indebtedness to respondent bank.
In case the goods remained unsold within the specified period, the goods were to be returned to RCBC
without any need of demand.
goods, manufactured products or proceeds thereof, whether in the form of money or bills, receivables,
or accounts separate and capable of identification - RCBC’s property
When the trust receipts matured, Ching failed to return the goods to RCBC, or to return their value
amounting toP6,940,280.66 despite demands.
RCBC filed a criminal complaint for estafa against petitioner in the Office of the City Prosecutor of
Manila.
December 8, 1995: no probable cause to charge petitioner with violating P.D. No. 115, as petitioner’s
liability was only civil, not criminal, having signed the trust receipts as surety
RCBC appealed the resolution to the Department of Justice (DOJ) via petition for review
On July 13, 1999: reversed the assailed resolution of the City Prosecutor
execution of said receipts is enough to indict the Ching as the official responsible for violation of P.D.
No. 115
April 22, 2004: CA dismissed the petition for lack of merit and on procedural grounds
Ching filed a petition for certiorari, prohibition and mandamus with the CA
ISSUE: W/N Ching should be held criminally liable.
HELD: YES. DENIED for lack of merit
There is no dispute that it was the Ching executed the 13 trust receipts.
law points to him as the official responsible for the offense
Since a corporation CANNOT be proceeded against criminally because it CANNOT commit crime in
which personal violence or malicious intent is required, criminal action is limited to the corporate agents
guilty of an act amounting to a crime and never against the corporation itself
execution by Ching of receipts is enough to indict him as the official responsible for violation of PD
115
RCBC is estopped to still contend that PD 115 covers only goods which are ultimately destined for
sale and not goods, like those imported by PBM, for use in manufacture.
Moreover, PD 115 explicitly allows the prosecution of corporate officers ‘without prejudice to the civil
liabilities arising from the criminal offense’ thus, the civil liability imposed on respondent in RCBC vs.
Court of Appeals case is clearly separate and distinct from his criminal liability under PD 115
Ching’s being a Senior Vice-President of the Philippine Blooming Mills does not exculpate him from
any liability
The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph
1(b), Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It may be committed
by a corporation or other juridical entity or by natural persons. However, the penalty for the crime is
imprisonment for the periods provided in said Article 315.
law specifically makes the officers, employees or other officers or persons responsible for the offense,
without prejudice to the civil liabilities of such corporation and/or board of directors, officers, or other
officials or employees responsible for the offense
rationale: officers or employees are vested with the authority and responsibility to devise means
necessary to ensure compliance with the law and, if they fail to do so, are held criminally accountable;
thus, they have a responsible share in the violations of the law
If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or
other officers thereof responsible for the offense shall be charged and penalized for the crime,
precisely because of the nature of the crime and the penalty therefor. A corporation cannot be arrested
and imprisoned; hence, cannot be penalized for a crime punishable by imprisonment. However, a
corporation may be charged and prosecuted for a crime if the imposable penalty is fine. Even if the
statute prescribes both fine and imprisonment as penalty, a corporation may be prosecuted and, if
found guilty, may be fined
When a criminal statute designates an act of a corporation or a crime and prescribes punishment
therefor, it creates a criminal offense which, otherwise, would not exist and such can be committed
only by the corporation. But when a penal statute does not expressly apply to corporations, it does not
create an offense for which a corporation may be punished. On the other hand, if the State, by statute,
defines a crime that may be committed by a corporation but prescribes the penalty therefor to be
suffered by the officers, directors, or employees of such corporation or other persons responsible for
the offense, only such individuals will suffer such penalty. Corporate officers or employees, through
whose act, default or omission the corporation commits a crime, are themselves individually guilty of
the crime. The principle applies whether or not the crime requires the consciousness of wrongdoing.
It applies to those corporate agents who themselves commit the crime and to those, who, by virtue of
their managerial positions or other similar relation to the corporation, could be deemed responsible for
its commission, if by virtue of their relationship to the corporation, they had the power to prevent the
act. Benefit is not an operative fact.
RECOVERY OF MORAL DAMAGES
Torts And Damages Case Digest: ABS-CBN V. CA (1999)

G.R. No. 128690 January 21, 1999

Lessons Applicable: Who may recover (Torts and Damages)

Laws Applicable: Articles 19, 20, and 21 of the Civil Code

FACTS:

•Viva, through Del Rosario, offered ABS-CBN through its vice-president Charo Santos-Concio, a list
of 3 film packages or 36 titles from which ABS-CBN may exercise its right of first refusal
•Mrs. Concio informed Vic through a letter that they can only purchase 10 titles to be schedules on
non-primetime slots because they were very adult themes which the ruling of the MTRCB advises to
be aired at 9:00 p.m
•February 27, 1992: Del Rosario approached ABS-CBN's Ms. Concio with a list consisting of 52
original movie titles as well as 104 re-runs proposing to sell to ABS-CBN airing rights for P60M (P30M
cash and P30M worth of television spots)
•April 2, 1992: Del Rosario and ABS-CBN general manager, Eugenio Lopez III met wherein Del
Rosario allegedly agreed to grant rights for 14 films for P30M
•April 06, 1992: Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance
discussed the terms and conditions of Viva's offer to sell the 104 films, after the rejection of the same
package by ABS-CBN
•April 07, 1992: Ms. Concio sent the proposal draft of 53 films for P35M which Viva's Board rejected
since they will not accept anything less than P60M
•April 29, 1992: Viva granted RBS exclusive grants for P60M
•RTC: Issued TRO against RBS in showing 14 films as filed by ABS-CBN.
•RBS also set up a cross-claim against VIVA
•RTC: ordered ABS-CBN to pay RBS P107,727 premium paid by RBS to the surety which issued their
bond to lift the injunction, P191,843.00 for the amount of print advertisement for "Maging Sino Ka Man"
in various newspapers, P1M attorney's fees, P5M moral damages, P5M exemplary damages and
costs. Cross-claim to VIVA was dismissed.
•ABS-CBN appealed. VIVA and Del Rosario also appealed seeking moral and exemplary damages
and additional attorney's fees.
•CA: reduced the awards of moral damages to P2M, exemplary damages to P2M and attorney's fees
to P500,000. Denied VIVA and Del Rosario's appeal because it was RBS and not VIVA which was
actually prejudiced when the complaint was filed by ABS-CBN
ISSUE:
1. W/N RBS is entitled to damages. -YES
2. W/N VIVA is entitled to damages. - NO

HELD: REVERSED except as to unappealed award of attorney's fees in favor of VIVA Productions,
Inc.

1. YES.

•One is entitled to compensation for actual damages only for such pecuniary loss suffered by him as
he has duly proved. The indemnification shall comprehend not only the value of the loss suffered, but
also that of the profits that the obligee failed to obtain. In contracts and quasi-contracts the damages
which may be awarded are dependent on whether the obligor acted with good faith or otherwise, It
case of good faith, the damages recoverable are those which are the natural and probable
consequences of the breach of the obligation and which the parties have foreseen or could have
reasonably foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad
faith, malice, or wanton attitude, he shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation. In crimes and quasi-delicts, the defendant shall be
liable for all damages which are the natural and probable consequences of the act or omission
complained of, whether or not such damages has been foreseen or could have reasonably been
foreseen by the defendant. Actual damages may likewise be recovered for loss or impairment of
earning capacity in cases of temporary or permanent personal injury, or for injury to the plaintiff's
business standing or commercial credit.
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict.
It arose from the fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause
of action. Needless to state the award of actual damages cannot be comprehended under the above
law on actual damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil
Code.
•In this case, ABS-CBN had not yet filed the required bond; as a matter of fact, it asked for reduction
of the bond and even went to the Court of Appeals to challenge the order on the matter, Clearly then,
it was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for
the premium RBS paid for the counterbond
•Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of
sufficient legal basis.
•Article 2217 thereof defines what are included in moral damages, while Article 2219 enumerates the
cases where they may be recovered, Article 2220 provides that moral damages may be recovered in
breaches of contract where the defendant acted fraudulently or in bad faith. RBS's claim for moral
damages could possibly fall only under item (10) of Article 2219
•(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
•The award of moral damages cannot be granted in favor of a corporation because, being an artificial
person and having existence only in legal contemplation, it has no feelings, no emotions, no senses,
It cannot, therefore, experience physical suffering and mental anguish, which call be experienced only
by one having a nervous system. A corporation may recover moral damages if it "has a good
reputation that is debased, resulting in social humiliation" is an obiter dictum. On this score alone the
award for damages must be set aside, since RBS is a corporation.
•Exemplary damages are imposed by way of example or correction for the public good, in addition to
moral, temperate, liquidated or compensatory damages. They are recoverable in criminal cases as
part of the civil liability when the crime was committed with one or more aggravating circumstances in
quasi-contracts, if the defendant acted with gross negligence and in contracts and quasi-contracts, if
the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner
•It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract,
delict, or quasi-delict, Hence, the claims for moral and exemplary damages can only be based on
Articles 19, 20, and 21 of the Civil Code.
•There is no adequate proof that ABS-CBN was inspired by malice or bad faith. If damages result
from a person's exercise of a right, it is damnum absque injuria.
Filipinas Broadcasting vs. Ago Medical Center
GRN 141994 January 17, 2005
Carpio, J.
FACTS:
Rima & Alegre were host of FBNI radio program “Expose”. Respondent Ago was the owner of the
Medical & Educational center, subject of the radio program “Expose”. AMEC claimed that the
broadcasts were defamatory and owner Ago and school AMEC claimed for damages. The complaint
further alleged that AMEC is a reputable learning institution. With the supposed expose, FBNI, Rima
and Alegre “transmitted malicious imputations and as such, destroyed plaintiff’s reputation. FBNI was
included as defendant for allegedly failing to exercise due diligence in the selection and supervision
of its employees. The trial court found Rima’s statements to be within the bounds of freedom of speech
and ruled that the broadcast was libelous. It ordered the defendants Alegre and FBNI to pay AMEC
300k for moral damages.”
ISSUE:
Whether or not AMEC is entitled to moral damages.
RULING:
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental
anguish or moral shock. Nevertheless, AMEC’s claim, or moral damages fall under item 7 of Art –
2219 of the NCC.
This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any
other form of defamation. Art 2219 (7) does not qualify whether the plaintiff is a natural or juridical
person. Therefore, a juridical person such as a corporation can validly complain for libel or any other
form of defamation and claim for moral damages. Moreover, where the broadcast is libelous per se,
the law implied damages. In such a case, evidence of an honest mistake or the want of character or
reputation of the party libeled goes only in mitigation of damages. In this case, the broadcasts are
libelous per se. thus, AMEC is entitled to moral damages. However, we find the award P500,000 moral
damages unreasonable. The record shows that even though the broadcasts were libelous, per se,
AMEC has not suffered any substantial or material damage to its reputation. Therefore, we reduce the
award of moral damages to P150k.
MERALCO vs.TEC ET AL DIGEST
DECEMBER 21, 2016 ~ VBDIAZ
TOPIC: ENTITLEMENT TO MORAL DAMAGES
MERALCO vs.TEC ET AL
G.R. No. 131723
December 13, 2007

FACTS: Respondent T.E.A.M. Electronics Corporation (TEC) is wholly owned by respondent

Technology Electronics Assembly and Management Pacific Corporation (TPC). On the other hand,
petitioner Manila Electric Company (Meralco) is a utility company supplying electricity in the Metro
Manila area.

MERALCO alleges that TEC tampered the electric meters in its buildings and should thus be liable for
differential billings. For failure of TEC to pay such differential billing, petitioner disconnected the
electricity supply to said buildings.

TEC and TPC filed a complaint for damages against MERALCO before the RTC Pasig. The RTC ruled
in favor of TEC-TPC and ordered MERALCO to pay the former AD, MD, ED and AF. The court found
the evidence of petitioner insufficient to prove that TEC was guilty of tampering the meter installations.
The CA affirmed the RTC decision with modifications, hence this petition for review on certiorari under
Rule 45.

ISSUE: is the award of MD proper?

HELD: NO

We, however, deem it proper to delete the award of moral damages. TEC’s claim was premised
allegedly on the damage to its goodwill and reputation. As a rule, a corporation is not entitled to moral
damages because, not being a natural person, it cannot experience physical suffering or sentiments
like wounded feelings, serious anxiety, mental anguish and moral shock.

The only exception to this rule is when the corporation has a reputation that is debased, resulting in
its humiliation in the business realm. But in such a case, it is imperative for the claimant to present
proof to justify the award. It is essential to prove the existence of the factual basis of the damage and
its causal relation to petitioner’s acts. In the present case, the records are bereft of any evidence that
the name or reputation of TEC/TPC has been debased as a result of petitioner’s acts.
 CRYSTAL vs. BANK OF THE PHILIPPINE ISLANDS

G.R. No. 172428 November 28, 2008

J. TINGA

Facts: On 28 March 1978, spouses Crystal obtained a P300, 000.00 loan in behalf of the Cebu
Contractors Consortium Co. (CCCC) from the BPI-Butuan. The loan was secured by a chattel mortgage on
heavy equipment and machinery of CCCC. On the same date, the spouses executed in favor of BPI-
Butuan a Continuing Suretyship where they bound themselves as surety of CCCC in the aggregate
principal sum of not exceeding P300, 000.00. Thereafter, or on 29 March 1979, Raymundo Crystal
executed a promissory note for the amount of P300, 000.00, also in favor of BPI-Butuan. Sometime in
August 1979, CCCC renewed a previous loan, this time from BPI, Cebu City branch (BPI-Cebu City).
However, CCCC had no real property to offer as security for the loan; hence, the spouses executed a real
estate mortgage over their own real property. They executed another real estate mortgage over the
same lot in favor of BPI-Cebu City, to secure an additional loan of P20,000.00 of CCCC. CCCC failed to pay
its loans to both BPI-Butuan and BPI-Cebu City when they became due. CCCC, as well as the spouses,
failed to pay their obligations despite demands. Thus, BPI resorted to the foreclosure of the chattel
mortgage and the real estate mortgage. The foreclosure sale on the chattel mortgage was initially
stalled and done. BPI filed a complaint for sum of money against CCCC and the spouses before the
Regional Trial Court, seeking to recover the deficiency of the loan of CCCC and the spouses with BPI-
Butuan Before the Court, petitioners who are the heirs of the spouses argue that the failure of the
spouses to pay the BPI-Cebu City loan of P120,000.00 was due to BPI’s illegal refusal to accept payment
for the loan unless the P300,000.00 loan from BPI-Butuan would also be paid. Consequently, in view of
BPI’s unjust refusal to accept payment of the BPI-Cebu City loan, the loan obligation of the spouses was
extinguished, petitioners contend.

Issues: Whether or not the obligation of the spouses is extinguished

Whether or not BPI is entitled to moral damages

Held: No, the obligation is not yet extinguished. Under Art. 1236 of the Civil Code, the creditor is not
bound to accept payment or performance by a third person who has no interest in the fulfillment of the
obligation, unless there is a stipulation to the contrary. The Court sees no stipulation in the promissory
note which states that a third person may fulfill the spouses’ obligation. Thus, it is clear that the spouses
alone bear responsibility for the same. A solidary obligation is one in which each of the debtors is liable
for the entire obligation, and each of the creditors is entitled to demand the satisfaction of the whole
obligation from any or all of the debtors. A liability is solidary "only when the obligation expressly so
states, when the law so provides or when the nature of the obligation so requires."24 Thus, when the
obligor undertakes to be "jointly and severally" liable, it means that the obligation is solidary. More
importantly, the promissory note, wherein the spouses undertook to be solidarily liable for the principal
loan, partakes the nature of a suretyship and therefore is an additional security for the loan.
No, they are not entitled to moral damages. BPI is not entitled to moral damages. A juridical person is
generally not entitled to moral damages because, unlike a natural person, it cannot experience physical
suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. The
Court of Appeals found BPI as "being famous and having gained its familiarity and respect not only in the
Philippines but also in the whole world because of its good will and good reputation must protect and
defend the same against any unwarranted suit such as the case at bench. Obviously, an artificial person
like herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious
anxiety, wounded feelings, moral shock or social humiliation which are basis of moral damages. A
corporation may have good reputation which, if besmirched may also be a ground for the award of
moral damages. Indeed, while the Court may allow the grant of moral damages to corporations, it is not
automatically granted; there must still be proof of the existence of the factual basis of the damage and
its causal relation to the defendant’s acts. This is so because moral damages, though incapable of
pecuniary estimation, are in the category of an award designed to compensate the claimant for actual
injury suffered and not to impose a penalty on the wrongdoer.
UP V. DIZON (G.R. NO. 171182; AUGUST 23, 2012)
CASE DIGEST: UNIVERSITY OF THE PHILIPPINES, JOSE V. ABUEVA, RAUL P. DE GUZMAN,
RUBEN P. ASPIRAS, EMMANUEL P. BELLO, WILFREDO P. DAVID, CASIANO S. ABRIGO, and
JOSEFINA R. LICUANAN, Petitioners, vs. HON. AGUSTIN S. DIZON, his capacity as Presiding Judge
of the Regional Trial Court of Quezon City, Branch 80, STERN BUILDERS, INC., and SERVILLANO
DELA CRUZ, Respondents. (G.R. No. 171182; August 23, 2012)

FACTS: University of the Philippines (UP) entered into a General Construction Agreement with
respondent Stern Builders Corporation (Stern Builders) for the construction and renovation of the
buildings in the campus of the UP in Los Bas. UP was able to pay its first and second billing. However,
the third billing worth P273,729.47 was not paid due to its disallowance by the Commission on Audit
(COA). Thus, Stern Builders sued the UP to collect the unpaid balance.

On November 28, 2001, the RTC rendered its decision ordering UP to pay Stern Builders. Then on
January 16, 2002, the UP filed its motion for reconsideration. The RTC denied the motion. The denial
of the said motion was served upon Atty. Felimon Nolasco (Atty.Nolasco) of the UPLB Legal Office on
May 17, 2002. Notably, Atty. Nolasco was not the counsel of record of the UP but the OLS inDiliman,
Quezon City.

Thereafter, the UP filed a notice of appeal on June 3, 2002. However, the RTC denied due course to
the notice of appeal for having been filed out of time. On October 4, 2002, upon motion of Stern
Builders, the RTC issued the writ of execution.

On appeal, both the CA and the High Court denied UPs petition. The denial became final and
executory. Hence, Stern Builders filed in the RTC its motion for execution despite their previous motion
having already been granted and despite the writ of execution having already issued. On June 11,
2003, the RTC granted another motion for execution filed on May 9, 2003 (although the RTC had
already issued the writ of execution on October 4, 2002). Consequently, the sheriff served notices of
garnishment to the UPs depositary banks and the RTC ordered the release of the funds.

Aggrieved, UP elevated the matter to the CA. The CA sustained the RTC. Hence, this petition.

ISSUES:

I. Was UP's funds validly garnished?

II. Has the UP's appeal dated June 3, 2002 been filed out of time?
HELD: UP's funds, being government funds, are not subject to garnishment. (Garnishment of public
funds; suability vs. liability of the State)

Despite its establishment as a body corporate, the UP remains to be a "chartered institution"

performing a legitimate government function. Irrefragably, the UP is a government instrumentality,
performing the States constitutional mandate of promoting quality and accessible education. As a
government instrumentality, the UP administers special funds sourced from the fees and income
enumerated under Act No. 1870 and Section 1 of Executive Order No. 714, and from the yearly
appropriations, to achieve the purposes laid down by Section 2 of Act 1870, as expanded in Republic
Act No. 9500. All the funds going into the possession of the UP, including any interest accruing from
the deposit of such funds in any banking institution, constitute a "special trust fund," the disbursement
of which should always be aligned with the UPs mission and purpose, and should always be subject
to auditing by the COA. The funds of the UP are government funds that are public in character. They
include the income accruing from the use of real property ceded to the UP that may be spent only for
the attainment of its institutional objectives.

A marked distinction exists between suability of the State and its liability. As the Court succinctly stated
in Municipality of San Fernando, La Union v. Firme: A distinction should first be made between suability
and liability. "Suability depends on the consent of the state to be sued, liability on the applicable law
and the established facts. The circumstance that a state is suable does not necessarily mean that it is
liable; on the other hand, it can never be held liable if it does not first consent to be sued. Liability is
not conceded by the mere fact that the state has allowed itself to be sued. When the state does waive
its sovereign immunity, it is only giving the plaintiff the chance to prove, if it can, that the defendant is
liable.

The Constitution strictly mandated that "no money shall be paid out of the Treasury except in
pursuance of an appropriation made by law." The execution of the monetary judgment against the UP
was within the primary jurisdiction of the COA. It was of no moment that a final and executory decision
already validated the claim against the UP.

HELD: The period of appeal did not start without effective service of decision upon counsel of record.
(The doctrine of immutability of a final judgment; service of judgments; fresh-period rule; computation
of time)
At stake in the UPs plea for equity was the return of the amount of P16,370,191.74 illegally garnished
from its trust funds. Obstructing the plea is the finality of the judgment based on the supposed tardiness
of UPs appeal, which the RTC declared on September 26, 2002. It is true that a decision that has
attained finality becomes immutable and unalterable, and cannot be modified in any respect, even if
the modification is meant to correct erroneous conclusions of fact and law, and whether the
modification is made by the court that rendered it or by this Court as the highest court of the land. But
the doctrine of immutability of a final judgment has not been absolute, and has admitted several
exceptions, among them: (a) the correction of clerical errors; (b) the so-called nunc pro tunc entries
that cause no prejudice to any party; (c) void judgments; and (d) whenever circumstances transpire
after the finality of the decision that render its execution unjust and inequitable. We rule that the UPs
plea for equity warrants the Courts exercise of the exceptional power to disregard the declaration of
finality of the judgment of the RTC for being in clear violation of the UPs right to due process.
Firstly, the service of the denial of the motion for reconsideration upon Atty. Nolasco of the UPLB Legal
Office was invalid and ineffectual because he was admittedly not the counsel of record of the UP.
Verily, the service of the denial of the motion for reconsideration could only be validly made upon the
OLS in Diliman, and no other. It is settled that where a party has appeared by counsel, service must
be made upon such counsel. This is clear enough from Section 2, second paragraph, of Rule 13,
Rules of Court, which explicitly states that: "If any party has appeared by counsel, service upon him
shall be made upon his counsel or one of them, unless service upon the party himself is ordered by
the court. Where one counsel appears for several parties, he shall only be entitled to one copy of any
paper served upon him by the opposite side."

Secondly, even assuming that the service upon Atty. Nolasco was valid and effective, such that the
remaining period for the UP to take a timely appeal would end by May 23, 2002, it would still not be
correct to find that the judgment of the RTC became final and immutable thereafter due to the notice
of appeal being filed too late on June 3, 2002. In so declaring the judgment of the RTC as final against
the UP, the CA and the RTC applied the rule contained in the second paragraph of Section 3, Rule 41
of the Rules of Court to the effect that the filing of a motion for reconsideration interrupted the running
of the period for filing the appeal; and that the period resumed upon notice of the denial of the motion
for reconsideration. For that reason, the CA and the RTC might not be taken to task for strictly adhering
to the rule then prevailing.

However, equity calls for the retroactive application in the UPs favor of the fresh-period rule that the
Court first announced in mid-September of 2005 through its ruling in Neypes v. Court of Appeals, viz:
"to standardize the appeal periods provided in the Rules and to afford litigants fair opportunity to appeal
their cases, the Court deems it practical to allow a fresh period of 15 days within which to file the notice
of appeal in the Regional Trial Court, counted from receipt of the order dismissing a motion for a new
trial or motion for reconsideration." The retroactive application of the fresh-period rule, a procedural
law that aims "to regiment or make the appeal period uniform, to be counted from receipt of the order
denying the motion for new trial, motion for reconsideration (whether full or partial) or any final order
or resolution," is impervious to any serious challenge. This is because there are no vested rights in
rules of procedure.

Consequently, even if the reckoning started from May 17, 2002, when Atty. Nolasco received the
denial, the UPs filing on June 3, 2002 of the notice of appeal was not tardy within the context of the
fresh-period rule. For the UP, the fresh period of 15-days counted from service of the denial of the
motion for reconsideration would end on June 1, 2002, which was a Saturday. Hence, the UP had until
the next working day, or June 3, 2002, a Monday, within which to appeal, conformably with Section 1
of Rule 22, Rules of Court, which holds that: "If the last day of the period, as thus computed, falls on
a Saturday, a Sunday, or a legal holiday in the place where the court sits, the time shall not run until
the next working day. GRANTED.
JARDINE DAVIES INC. vs. CA and FAR EAST MILLS DIGEST
DECEMBER 21, 2016 ~ VBDIAZ
JARDINE DAVIES INC., petitioner, vs. COURT OF APPEALS and FAR EAST MILLS SUPPLY
CORPORATION, respondents. GRN 128066 June 19, 2000

PURE FOODS CORPORATION, petitioner, vs. COURT OF APPEALS and FAR EAST MILLS
SUPPLY CORPORATION, respondents. GRN 128069 June 19, 2000

FACTS:

In 1992, petitioner PUREFOODS decided to install two 1500 KW generators in its food processing
plant in San Roque, Marikina City. A bidding for the supply and installation of the generators was held.
Out of the 8 prospective bidders who attended the pre-bidding conference, only 3 bidders, namely,
respondent FAR EAST MILLS SUPPLY CORPORATION (FEMSCO), MONARK and ADVANCE
POWER submitted bid proposals and gave bid bonds.

In a letter dated 12 December 1992 addressed to FEMSCO President Alfonso Po, PUREFOODS
confirmed the award of the contract to FEMSCO. FEMSCO submitted the required performance bond
in the amount of P1,841,187.90 and contractor’s all-risk insurance policy in the amount of
P6,137,293.00 which PUREFOODS through its VP Benedicto G. Tope acknowledged in a letter dated
18 December 1992.

However, in a letter dated 22 December 1992, PUREFOODS through its Senior VP Teodoro L.
Dimayuga unilaterally canceled the award as “significant factors were uncovered and brought to their
attention which dictate the cancellation and warrant a total review and re-bid of the project. FEMSCO
protested the cancellation of the award. Before the matter could be resolved, PUREFOODS awarded
the project and entered into a contract with JARDINE NELL, a division of Jardine Davies, Inc.
(JARDINE), which was not one of the bidders.

FEMSCO sued PUREFOODS and JARDINE: PUREFOODS for reneging on its contract, and
JARDINE for its unwarranted interference and inducement.

RTC- Pasig, granted JARDINE’s Demurrer to Evidence. The RTC ordered PUREFOODS to indemnify
FEMSCO. FEMSCO and PUREFOODS appealed to CA. FEMSCO appealed the Resolution of the
trial court which granted the Demurrer to Evidence filed by JARDINE resulting in the dismissal of the
complaint against it.
CA affirmed the Decision of the trial court. It also reversed the Resolution of the lower court and
ordered JARDINE to pay FEMSCO moral damages for inducing PUREFOODS to violate the latter’s
contract with FEMSCO. CA denied MR. Hence, these 2 petitions for review.

ISSUE: WON FEMSCO should be awarded with Moral Damages.

RULING:

YES. Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made
by the offeror. From that moment, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law. The acceptance must not qualify the terms of the offer.
However, the acceptance may be express or implied. For a contract to arise, the acceptance must be
made known to the offeror. Acceptance can be withdrawn or revoked before it is made known to the
offeror.

In the instant case, since PUREFOODS started the process of entering into the contract by conducting
a bidding, Art. 1326 of the Civil Code, which provides that “advertisements for bidders are simply
invitations to make proposals,” applies.

The 12 December 1992 letter of petitioner PUREFOODS to FEMSCO constituted acceptance of

respondent FEMSCO’s offer as contemplated by law. The tenor of the letter, i.e., “This will confirm that
Pure Foods has awarded to your firm (FEMSCO) the project,” could not be more categorical. While
the same letter enumerated certain “basic terms and conditions,” these conditions were imposed on
the performance of the obligation rather than on the perfection of the contract.

But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted
a “conditional counter-offer,” respondent FEMCO’s submission of the performance bond and
contractor’s all-risk insurance was an implied acceptance, if not a clear indication of its acquiescence
to, the “conditional counter-offer,”

Petitioner PUREFOODS also argues that it was never in bad faith. But by the unilateral cancellation
of the contract, the defendant (petitioner PURE FOODS) has acted with bad faith and this was further
aggravated by the subsequent inking of a contract between defendant Purefoods and erstwhile co-
defendant Jardine. It is very evident that Purefoods thought that by the expedient means of merely
writing a letter would automatically cancel or nullify the existing contract entered into by both parties
after a process of bidding. This, to the Court’s mind, is a flagrant violation of the express provisions of
the law and is contrary to fair and just dealings to which every man is due.

This Court has awarded in the past moral damages to a corporation whose reputation has been
besmirched. In the instant case, respondent FEMSCO has sufficiently shown that its reputation was
tarnished after it immediately ordered equipment from its suppliers on account of the urgency of the
project, only to be canceled later. We thus sustain respondent appellate court’s award of moral
damages. We however reduce the award from P2Mto P1M, as moral damages are never intended to
enrich the recipient. Likewise, the award of exemplary damages by way of example for the public good
is excessive and should be reduced to P100,000.00.

Petitioner JARDINE maintains on the other hand that respondent appellate court erred in ordering it
to pay moral damages to respondent FEMSCO as it supposedly induced PUREFOODS to violate the
contract with FEMSCO. We agree. While it may seem that petitioners PUREFOODS and JARDINE
connived to deceive respondent FEMSCO, we find no specific evidence on record to support such
perception. There is no showing whatsoever that petitioner JARDINE induced petitioner
PUREFOODS. The similarity in the design submitted to petitioner PUREFOODS by both petitioner
JARDINE and respondent FEMSCO, and the tender of a lower offer by petitioner JARDINE are
insufficient to show that petitioner JARDINE indeed induced petitioner PUREFOODS to violate its
contract with respondent FEMSCO.
PRACTICE OF PROFESSION
G.R. No. 117097 March 21, 1997

SAMAHAN NG OPTOMETRISTS SA PILIPINAS, ILOCOS SUR-ABRA CHAPTER, EDUARDO MA.

GUIRNALDA, DANTE G. PACQUING and OCTAVIO A. DE PERALTA, Petitioners, v. ACEBEDO
INTERNATIONAL CORPORATION and the HON. COURT OF APPEALS, Respondents.

HERMOSISIMA, JR., J.:

Before us is a petition seeking the review and ultimately the reversal of the decision 1 of the Court of
Appeals 2 which rejected what petitioners vehemently claim to be a prohibition, under Republic Act
(R.A.) No. 1998, popularly known as the old Optometry Law, against the employment by corporations,
usually optical shops and eyeware stores, of optometrists, such practice, according to petitioners,
being an indirect violation of the rule against corporations exercising professions reserved only to
natural persons. Petitioners understandably did not welcome the herein assailed decision because
they have, earlier, obtained a decision 3 favorable to them from the Regional Trial Court of Candon,
Ilocos Sur, Branch 23, presided over by Judge Gabino Balbin, Jr. The said judge had, in the main,
ruled that the operations of private respondent Acebedo International Corporation involves the practice
of optometry which is precluded by R.A. No. 1998.

The undisputed facts of the case, as found by the respondent Court of Appeals and quoted by
petitioners, are as follows:

On February 22, 1991, . . . [private respondent] filed an application with the Office of the Mayor of
Candon, Ilocos Sur, for the issuance of a permit for the opening and operation of a branch of the
Acebedo Optical in that municipality.

The application was opposed by the . . . [petitioner] Samahan ng Optometrists sa Pilipinas (SOP)
which contended that . . . [private respondent] is a juridical entity not qualified to practice optometry.

On March 6, 1991, . . . [private respondent] filed its answer, arguing it is not the corporation, but the
optometrists employed by it, who would be practicing optometry.

On April 17, 1991, the Mayor of Candon created a committee, composed of public respondents
Eduardo Ma. Guirnalda, Dante G. Pacquing and Octavio de Peralta, to pass on [private respondent's]
application.
On September 26, 1991 the committee rendered a decision denying [private respondent's] application
for a mayor's permit to operate a branch in Candon and ordering . . . [private respondent] to close its
establishment within fifteen (15) days from receipt of the decision. Acebedo moved for a
reconsideration but its motion was denied on November 14, 1991. . . . [Private respondent] was
ordered to close its establishment within ten (10) days from receipt of the order.

On December 9, 1991, . . . [private respondent] filed with the Court of Appeals a petition for certiorari
(CA G.R SP No. 26782), questioning the decision of respondent committee. Its petition, however, was
referred to the court a quo, which on December 16, 1992, dismissed Acebedo's petition. Hence, . . .
[the] appeal [to the respondent Court of Appeals]. 4

The singular issue, admittedly extensively debated and intensely contested not only by the members
of the optometry profession and the players in the business of selling optical ware, supplies,
substances and instruments but also by the members of the Senate during the deliberations respecting
R. A. 8050, otherwise known as Revised New Optometry Law, is this: May corporations, engaged in
the business of selling optical wares, supplies, substances and instruments which, as an incident to
and in the ordinary course of the business hire optometrists, be said to be practicing the profession of
optometry which, by legal mandate, may only be engaged in by natural persons possessed of specific
legal qualifications?

The trial court resolved this issue in the affirmative. In so finding, it explained, thus:

The denial of the application of Acebedo rested on the grounds that it is operating an optical shop and
it is practicing optometry where its charter does not grant to it authority to practice the former. Acebedo
submits that the findings of the Commission have no basis both in law and in fact. It argues that the
hiring of optometrists by the petitioner is merely incidental to its main business which is the sale of
optical products. Acebedo contends further that its employees have a personality separate and distinct
from that of Acebedo which is a juridical entity, and it cannot therefore be considered as engaged in
optometry.

The Court disagrees.

Quoted for the enlightenment of both parties is a portion of the contested Decision, to wit:

The visit revealed the following:

1. The establishment was manned by three personnel: Dr. Salvador Pagarigan, optometrist; Miss
Lilibeth Begonia, receptionist; and a Laboratory technician, who refused to give his name;

2. There were several shelves containing eyeglasses;

3. There were benches where, according to Miss Begonia, would-be clients can sit while waiting for
their turn to be examined;

4. An examination room complete with an optical chair and optical charts; and,

5. An optical laboratory.

The Court is very much aware of the existence of several shops owned by Acebedo. They are
operating up to the present. But the Court has to rely in this case on the findings of the Commission
created by the Mayor of Candon in the absence of proof that the same was arrived at hastily and
without regard for the rights of the parties. In fact, the contested Decision was issued only after an
ocular inspection was conducted and the parties have submitted their respective memorandum.

The findings of the Commission reveal that the operation of Acebedo's local shop involves the practice
of optometry. If indeed Acebedo is engaged in the sale of optical products, the absence of sales clerks
more than demonstrate its real business. In the contested Decision, the floor plan of the shop was
even commented on as that of an optical shop. As noted by the members of the Commission, there
was also a banner in front of the shop prominently display advertising free consultations (libreng
consulta sa mata). These facts, taken together, denote that Acebedo was operating in Candon an
optical shop contrary to law.

While it is also true that a corporation has a personality separate and distinct from that of its personnel,
the veil of corporate fiction cannot be used for the purpose of some illegal activity. The veil of corporate
fiction can be pierced, as in this case, and the acts of the personnel of the corporation will be
considered as those of the corporation. Acebedo then is engaged in the practice of optometry. 5

Disagreeing with the foregoing decision of the trial court, private respondent appealed therefrom and
asked the respondent Court of Appeals to reverse the same on the ground that the court a quo erred
in concluding that private respondent was engaged in the practice of optometry by operating an optical
shop.
Respondent appellate court found that private respondent's contentions merited the reversal of the
court a quo's decision. The respondent court, speaking through Court of Appeals Presiding Justice,
now Supreme Court Associate Justice Vicente V. Mendoza, ratiocinated in this wise:

First. . . . [Private respondent] maintains that it is not practicing optometry nor is it operating an optical
clinic. The contention has merit. The amended Articles of Incorporation of . . . [private respondent] in
part states:

PRIMARY PURPOSES

1. To own, maintain, conduct, operate and carry on the business of dispensing opticians and optical
establishments, and in the course of the business, to buy, sell, ship, store and otherwise use, deal in,
acquire and dispose of every kind of optical, ophthalmic and scientific instrument, glass, lens, optical
solutions or equipment necessary or convenient to the operation and conduct of the general business
of dispensing opticians.

SECONDARY PURPOSES

xxx xxx xxx

3. To do all and everything necessary, suitable or proper for the accomplishment of any of the
purposes, the attainment of any of the objects, or in the exercise of any of the powers herein set forth,
either alone or in conjunction with other corporations, firms or individuals and either as principal or
agents and to do every other act or acts, thing or things, incidental or appurtenant to or growing out of
or connected with the abovementioned objects, purposes or powers.

Clearly, the corporation is not an optical clinic. Nor is it - but rather the optometrists employed by it
who are - engaged in the practice of optometry. Petitioner-appellant simply dispenses optical and
ophthalmic instruments and supplies.

Indeed, the Optometry Law (Rep. Act No. 1998), which . . . [petitioners] cite, does not prohibit
corporations, like . . . [private respondent] from employing licensed optometrists.

What it prohibits is the practice of the profession without license by those engaged in it. This is clear
from sec. 2 of the law which provides:
No person shall practice or attempt to practice optometry as defined in this Act, without holding a valid
certificate of registration as optometrist issued to him by the Board of Examiners in Optometry herein
created and in accordance with the provisions hereof: Provided, that valid certificates of registration
as optometrists shall be issued to optometrists of good moral character now registered in accordance
with the provisions of chapter thirty-three of the Revised Administrative Code, who shall, by application
within a period of one year from the effectivity of this Act, be exempt from the provisions of sections
eleven, twelve and twenty-three of this Act. . . .

The prohibition is thus addressed to natural persons who are required to have "a valid certificate of
registration as optometrist" and who must be of "good moral character". The prohibition can have no
application to . . . [private respondent] which is not itself engaged in the practice of optometry. As the
Professional Regulation Commission said, "Acebedo Optical, Acebedo Optical Clinic, Acebedo Optical
Co., Inc. and Acebedo International, Inc. are not natural persons who can take the Optometrist
licensure examinations. They are not, and cannot be registered as Optometrist under RA 1998 [The
Optometry Law]. 6

Petitioners filed a Motion for Reconsideration of the aforegoing decision. It was, however, denied by
respondent appellate court. Hence, this petition anchored on the following sole ground:

ISSUE

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT

PRIVATE RESPONDENT ACEBEDO INTERNATIONAL CORPORATION DOES NOT VIOLATE THE
OPTOMETRY LAW (RA NO. 1998) WHEN IT EMPLOYS OPTOMETRISTS TO ENGAGE IN THE
PRACTICE OF OPTOMETRY UNDER ITS NAME AND FOR ITS BEHALF

The herein petitioner most respectfully submits that the private respondent Acebedo International
Corporation flagrantly violates R.A. No. 1998 and the Corporation Code of the Philippines when it
employs optometrists to engage in the practice of optometry under its name and for its behalf. 7

We hold that the petition lacks merit.

Private respondent does not deny that it employs optometrists whose role in the operations of its
optical shops is to administer the proper eye examination in order to determine the correct type and
grade of lenses to prescribe to persons purchasing the same from private respondent's optical shops.
Petitioners vehemently insist that in so employing said optometrists, private respondent is in effect
itself practicing optometry. Such practice, petitioners conclude, is in violation of RA. No. 1998, which,
it must be noted at this juncture, has been repealed and superseded by R.A. 8050.

Petitioners' contentions are, however, untenable. The fact that private respondent hires optometrists
who practice their profession in the course of their employment in private respondent's optical shops,
does not translate into a practice of optometry by private respondent itself. Private respondent is a
corporation created and organized for the purpose of conducting the business of selling optical lenses
or eyeglasses, among others. The clientele of private respondent understably, would largely be
composed of persons with defective vision and thus need the proper lenses to correct the same and
enable them to gain normal vision. The determination of the proper lenses to sell to private
respondent's clientele entails the employment of optometrists who have been precisely trained for that
purpose. Private respondent's business is not the determination itself of the proper lenses needed by
persons with defective vision. Private respondent's business, rather, is the buying and importing of
eyeglasses and lenses and other similar or allied instruments from suppliers thereof and selling the
same to consumers.

For petitioners' argument to hold water, there need be clear showing that R.A. No. 1998 prohibits a
corporation from hiring optometrists, for only then would it be undeniably evident that the intention of
the legislature is to preclude the formation of the so-called optometry corporations because such is
tantamount to the practice of the profession of optometry which is legally exercisable only by natural
persons and professional partnerships. We have carefully reviewed R.A. No. 1998 however, and we
find nothing therein that supports petitioner's insistent claims. 8

It is significant to note that even under R.A. No. 8050, known as the Revised Optometry Law, 9 we
find no prohibition against the hiring by corporations of optometrists. The pertinent provisions of R.A.
No. 8050 regarding the practice of optometry, are reproduced below for ready reference:

THE PRACTICE OF OPTOMETRY

Sec. 4. Acts Constituting the practice of Optometry. Any of the following acts constitute the practice of
optometry:

a) The examination of the human eye through the employment of subjective and objective procedures,
including the use of specific topical diagnostic pharmaceutical agents or drugs and instruments, tools,
equipment, implements, visual aids, apparatuses, machines, ocular exercises and related devices, for
the purpose of determining the condition and acuity of human vision to correct and improve the same
in accordance with subsections (b), (c) and (d) hereof; vision to correct and improve the same in
accordance with subsections (b), (c) and (d) hereof;

b) The prescription and dispensing of ophthalmic lenses, prisms, contact lenses and their accessories
and solutions, frames and their accessories, and supplies for the purpose of correcting and treating
defects, deficiencies and abnormalities of vision.

c) The conduct of ocular exercises and vision training, the provision of orthoptics and other devices
and procedures to aid and correct abnormalities of human vision, and the installation of prosthetic
devices;

d) The counseling of patients with regard to vision and eye care and hygiene;

e) The establishment of offices, clinics, and similar places where optometric services are offered; and

f) The collection of professional fees for the performance of any of the acts mentioned in paragraphs
(a), (b), (c) and (d) of this section.

Sec. 5. Prohibition Against the Unauthorized Practice of Optometry. - No person shall practice
optometry as defined in Section 3 of this Act nor perform any of the acts, constituting the practice of
optometry as setforth in Section 4 hereof, without having been first admitted to the practice of this
profession under the provisions of this Act and its implementing rules and regulations: Provided, That
this prohibition shall not apply to regularly licensed and duly registered physicians who have received
post-graduate training in the diagnosis and treatment of eye diseases: Provided, however, That the
examination of the human eye by duly registered physicians in connection with the physical
examination of patients shall not be considered as practice of optometry: Provided, further, That public
health workers trained and involved in the government's blindness prevention program may conduct
only visual acuity test and visual screening.

Sec. 6. Disclosure of Authority to Practice. - An optometrist shall be required to indicate his

professional license number and the date of its expiration in the documents he issues or signs in
connection with the practice of his profession. He shall also display his certificate of registration in a
conspicuous area of his clinic or office.
All told, there is no law that prohibits the hiring by corporations of optometrists or considers the hiring
by corporations of optometrists as a practice by the corporation itself of the profession of optometry.

WHEREFORE, the instant petition is hereby DISMISSED.

Costs against the petitioners.

SO ORDERED.
SECOND DIVISION

[G.R. No. 148384. April 17, 2002

DOCTORS ROSA P. ALFAFARA, VIVIAN DYHONGPO, MARIA TORRES, EMMA YBAEZ, ELSA
CABARDO, REBECCA SANTIAGO, PRISCILLA NARVASA, SUSIE CHAN, CLARO CINCO, FELIPE
CINCO, CARMEN MODESTO, FELISA LIMKIMSO, ARLENE DORIO, ROSALINDA BONO, and
SUSAN YU, in their own behalf and in behalf of all the other 80 optometrists-members of the
SAMAHAN NG OPTOMETRISTS SA PILIPINAS-CEBU CHAPTER, petitioners, vs. ACEBEDO
OPTICAL, CO., INC., Respondent.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari of the decision, 1 dated January 20, 2000, of the Court of
Appeals, setting aside the decision, 2 dated September 3, 1993, of the Regional Trial Court, Branch
9, Cebu City, which enjoined respondent Acebedo Optical Co., Inc., its agents, representatives, and/or
employees from practicing optometry, as defined in 1(a) of Republic Act No. 1998, in the province and
cities of Cebu, and the resolution, dated May 10, 2001, of the appeals court denying petitioners motion
for reconsideration.

Petitioners are optometrists. They brought, in their own behalf and in behalf of 80 other optometrists,
who are members of the Samahan ng Optometrists sa Pilipinas-Cebu Chapter, an injunctive suit in
the Regional Trial Court, Branch 9, Cebu City to enjoin respondent Acebedo Optical Co., Inc. and its
agents, representatives, and/or employees from practicing optometry in the province of Cebu. In their
complaint, they alleged that respondent opened several optical shops in Cebu and announced to the
public, through leaflets, newspapers, and other forms of advertisement, the availability of ready-to-
wear eyeglasses for sale at P60.00 each and free services by optometrists in such outlets. They
claimed that, through the licensed optometrists under its employ, respondent had been engaging in
the practice of optometry by examining the human eye, analyzing the ocular functions, prescribing
ophthalmic lenses, prisms, and contact lenses; and conducting ocular exercises, visual trainings,
orthoptics, prosthetics, and other preventive or corrective measures for the aid, correction, or relief of
the human eye. They contended that such acts of respondent were done in violation of the Optometry
Law (R.A. No. 1998) 3 and the Code of Ethics for Optometrists, promulgated by the Board of
Examiners in Optometry on July 11, 1983. They sought payment to them of attorneys fees, litigation
expenses, and the costs of the suit. 4cräläwvirtualibräry

The trial court at first dismissed the suit but, on motion of petitioners, reinstated the action and granted
their prayer for a writ of preliminary injunction and/or restraining order. Petitioners argued that the case
involved a pure question of law, i.e., whether or not respondents hiring of optometrists was violative
of the applicable laws, and that, as such, the case was an exception to the rule requiring exhaustion
of administrative remedies as a condition for the filing of an injunctive suit. They further alleged that
the Board of Optometry held itself to be without jurisdiction over the president of respondent Acebedo
Company as he was not duly registered with the Professional Regulation Commission.

In its answer, respondent averred that the advertisements referred to by petitioner were part of its
promotion to make known to the public the opening of its new branches in Cebu; that incidental to its
business of selling optical products, it hired duly licensed optometrists who conducted eye
examination, prescribed ophthalmic lenses, and rendered other services; that it exercised neither
control nor supervision over the optometrists under its employ; and that the hired optometrists
exercised neither control nor supervision in the sale of optical products and accessories by
respondent. By way of special and affirmative defense, respondent stated that the optometrists should
be impleaded as party-defendants because they were indispensable parties; that the trial court had
no jurisdiction over the case; that the filing of the complaint was barred by res judicata as similar suits
had been previously dismissed by the Court of First instance of Lucena City and the Securities and
Exchange Commission; and that the petitioners were guilty of forum-shopping. Respondent sought
the recovery of P100,000.00 as moral damages, P500,000.00 as exemplary damages, and
P100,000.00 as attorneys fees. 5cräläwvirtualibräry

During the pre-trial conference, the parties entered into the following stipulation of facts: that the
petitioners were duly licensed optometrists; that the petitioners were all members of the Samahan ng
Optometrists ng Pilipinas (SOP)-Cebu Chapter; that SOP-Cebu Chapter was a chapter of SOP
Incorporated, a national organization; that the SOP-Cebu Chapter had a program called Sight Saving
Month; that the Sight Saving Month program was also a program of the SOP nationwide; that
petitioners SOP Sight Saving Month program provided free consultations; that respondent was a
corporation with several outlets in Cebu; that respondent was selling optical products and ready-to-
wear eyeglasses of limited grades; that during the opening of its new branches in Cebu, the
respondent advertised its products through leaflets, newspapers, and other similar means, such as
streamers and loudspeakers on board a vehicle; that respondent hired optometrists who conducted
eye examinations, prescribed ophthalmic lenses, and rendered other optometry services; and that
while the hired optometrists received their salary from respondent, they are not precluded from seeking
other sources of income. 6cräläwvirtualibräry

The evidence for the petitioners showed that respondent advertised its ready-to-wear eyeglasses in
newspapers, posters pasted on the walls, and announcements made in roving jeeps. A witness
testified that he purchased a pair of eyeglasses for P66.00 (P60.00 plus P6.00 for VAT) without any
prior eye examination by an optometrist. A week later, he had vision difficulty and consulted an
optometrist who advised him to buy a pair of eyeglasses with the correct grade. Petitioners thus sought
to prove that the selling of ready-to-wear eyeglasses by respondent was detrimental to the public.

On the other hand, respondent maintained that before the customers purchased the ready-to-wear
eyeglasses on display, they either have a prior prescription from an optometrist or had to be examined
first by the branch optometrist. Customers thus had the option either to buy the ready-to-wear
eyeglasses on display or to order a new pair of eyeglasses.

After hearing, judgment was rendered in favor of petitioners. The trial court found that the hiring of
licensed optometrists by the respondent was unlawful because it resulted in the practice of the
optometry profession by respondent, a juridical person. It ruled that respondent could not raise the
issue of res judicata as there was no decision on the merits of the case rendered by any court of
competent jurisdiction and, consequently, petitioners could not be guilty of forum-shopping. As to
petitioners failure to implead the optometrists in the employ of respondent, the trial court explained
that since the issue involved the propriety of respondents hiring of optometrists to perform optometry
services, the optometrists did not have to be impleaded as defendants. As to whether respondents
selling of ready-to-wear eyeglasses to customers without prior eye examination violated the applicable
laws and was detrimental to the public, the trial court ruled that petitioners failed to substantiate such
claim.

Respondent appealed to the Court of Appeals contending that the trial court erred in holding that
respondent was illegally engaged in the practice of Optometry; that being indispensable parties, the
licensed optometrists employed by respondent should have been impleaded as defendants; and that
the trial court erred in not holding that petitioners, by filing several harassment suits before various
fora, were guilty of forum-shopping.

The Court of Appeals reversed the decision of the trial court and dismissed the complaint of petitioners.
Citing the case of Samahan ng Optometrists sa Pilipinas, Ilocos Sur-Abra Chapter v. Acebedo
International Corporation, 7 the appeals court ruled that respondents hiring of licensed optometrists
did not constitute practice of optometry nor violate any law. As to the second issue raised, the Court
of Appeals stated that since the complaint was lodged solely against respondent for its hiring of
optometrists, whatever decision the trial court would render would solely affect respondent since what
was sought to be restrained was the employment of licensed optometrists; hence, the optometrists
were not indispensable parties. Anent the issue of forum-shopping, the appeals court found no cogent
reason to reverse the findings of the trial court that the administrative case before the Professional
Regulation Commission was not decided on the merits while the letters of petitioners sent to
government officials did not constitute judicial proceedings.

Petitioners filed a motion for reconsideration but their motion was denied. Hence, this petition alleging
that the Court of Appeals erred in holding that respondent Acebedo was not engaged in the practice
of optometry.

The petition has no merit.

First. Petitioners contend that the ruling in Samahan ng Optometrists sa Pilipinas, Ilocos Sur-Abra
Chapter v. Acebedo International Corporation 8 is no longer controlling because of the later case of
Apacionado v. Professional Regulation Commission. 9 In Apacionado, petitioners Ma. Cristina
Apacionado and Zenaida Robil, who were employed by Acebedo as optometrists, were suspended
from the practice of optometry for two (2) years by the Board of Optometry for violation of R.A. No.
1998 and Art. III, 6 of the Code of Ethics for Optometrists for having participated in the promotional
advertisement of Acebedo, entitled Libreng Konsulta sa Mata: Reading Glasses P60.00, held from
July 5-14, 1989 in Tuguegarao, Cagayan. In affirming the suspension of the optometrists, the
Professional Regulation Commission found that by rendering professional services to Acebedos
clientele (free eye consultations and refractions), petitioners were guilty of unprofessional conduct.
Consequently, their professional licenses as optometrists were suspended for two (2) years. This was
because the services of the two optometrists were the ones being offered to the public for free. The
decision of the Professional Regulation Commission was affirmed by the Court of Appeals and later
by this Court. As our resolution, dated July 12, 1999, 10 stated in pertinent parts:

Thus, the instant petition which must likewise fail.

The Court finds the decision of the Court of Appeals to be in accordance with the law. The Rules and
Regulation[s] of the Board of Examiners for [O]ptometry are quite explicit, and Rule 56 provides:
Rule 56. Acts Constituting Unprofessional Conduct.- It shall be considered unprofessional for any
registered optometrist:

(1) To make optometric examinations outside of his regular clinic, unless he shall have received an
unsolicited written request by the person or persons to be examined;

(2) To advertise a price or prices [of] spectacle frames, mountings, or ophthalmic lenses and other
ophthalmic devices used in the practice of Optometry and to be associated with, or remain in the
employ of, any person who does such advertising;

(4) To advertise free examination, examination included, discounts, installments, wholesale and retail,
or similar words and phrases which would tend to remove the spirit of professionalism;

(11) To use Mobile Units for conducting refraction in any area within ten (10) kilometers of a
Municipality.

Likewise, Section 6 of the Code of Ethics for optometrists states:

SEC. 6. The following are deemed, among others, to be unethical and are deemed to constitute
unprofessional conduct:

c. Performing optometric examination outside of the regular office, unless he shall have received
unsolicited request to make such an examination.

u. To use Mobile Units for conducting refraction in any area within ten (10) kilometers of a Municipality.

These provisions petitioners, through Acebedo, were found to have violated.

Petitioners cannot deny that it was their skills as optometrists as well as their licenses which Acebedo
used in order to enable itself to render optometric services to its clientele. Under such arrangement,
petitioners acted as tools of Acebedo so that the latter can offer the whole package of services to its
clientele.

Corollarily, Republic Act No. 1998 pertinently provides:

SEC. 20. Revocation or suspension of certificate. - The Board may, after giving proper notice and
hearing to the party concerned, revoke or suspend a certificate of registration for the causes mentioned
in the next preceding section, or for unprofessional conduct.

Having knowingly allowed themselves to be used as tools in furtherance of [the] unauthorized practice
of optometry, petitioners are clearly liable for unethical and unprofessional practice of their profession.
The Court, thus finds no error committed by the Court of Appeals.

WHEREFORE, petition is denied due course.

Petitioners cite the Tennessee Supreme Court statement in Lens Crafter, Inc. v. Sunquist, 11 stating
that:

The logical result would be that corporations and business partnerships might practice law, medicine,
dentistry or any other profession by the simple expedient of employing licensed agents. And, if this
were permitted, professional standards would be practically destroyed and professions requiring
special training would be commercialized, to the public detriment.The ethics of any profession is based
upon personal or individual responsibility.

The contention has no merit. An optometrist is a person who has been certified by the Board of
Optometry and registered with the Professional Regulation Commission as qualified to practice
optometry in the Philippines. 12 Thus, only natural persons can engage in the practice of optometry
and not corporations. Respondent, which is not a natural person, cannot take the licensure
examinations for optometrist and, therefore, it cannot be registered as an optometrist under R.A. No.
1998. It is noteworthy that, in Apacionado, the Court did not find Acebedo to be engaged in the practice
of optometry. The optometrists in that case were found guilty of unprofessional conduct and their
licenses were suspended for two (2) years for having participated, in their capacities as optometrists,
in the implementation of the promotional advertisement of Acebedo. In contrast, in the case at bar,
respondent is merely engaged in the business of selling optical products, not in the practice of
optometry, whether directly or indirectly, through its hired optometrists.

In Samahan ng Optometrists sa Pilipinas, Ilocos Sur-Abra Chapter v. Acebedo International

Corporation, 13 petitioners opposed respondent Acebedos application for a municipal permit to
operate a branch in Candon, Ilocos Sur. They brought suit to enjoin respondent Acebedo from
employing optometrists as this allegedly constituted an indirect violation of R.A. No. 1998, which
prohibits corporations from exercising professions reserved only to natural persons. The committee
created by the Mayor of Candon to pass on Acebedos application denied the same and ordered the
closure of Acebedo optical shops. Acebedo appealed but its appeal was dismissed by the trial court
on the ground that it was practicing optometry. On appeal, the Court of Appeals held that Acebedo
was not operating as an optical clinic nor engaged in the practice of optometry, although it employed
licensed optometrists. Acebedo simply dispensed optical and ophthalmic instruments and supplies. It
was pointed out that R.A. No. 1998 does not prohibit corporations from employing licensed
optometrists. What it prohibits is the practice of optometry by individuals who do not have a license to
practice. The prohibition is addressed to natural persons who are required to have a valid certificate
of registration as optometrist and who must be of good moral character. This Court affirmed the ruling
of the appeals court and explained that even under R.A. No. 8050 (Revised Optometry Law) there is
no prohibition against the hiring by corporations of optometrists. The fact that Acebedo hired
optometrists who practiced their profession in the course of their employment in Acebedos optical
shops did not mean that it was itself engaged in the practice of optometry.

We see no reason to deviate from the ruling that a duly licensed optometrist is not prohibited from
being employed by respondent and that respondent cannot be said to be exercising the optometry
profession by reason of such employment.

Second. Petitioners argue that an optometrist, who is employed by a corporation, such as Acebedo,
is not acting on his own capacity but as an employee or agent of the corporation. They contend that,
as a mere employee or agent, such optometrist cannot be held personally liable for his acts done in
the course of his employment as an optometrist under the following provisions of the Civil Code. Thus,

Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts,
unless he expressly binds himself or exceeds the limits of his authority without giving such party
sufficient notice of his powers.
Art. 1910. The principal must comply with all the obligations which the agent may have contracted
within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except
when he ratifies it expressly or tacitly.

This contention likewise has no merit. While the optometrists are employees of respondent, their
practice of optometry is separate and distinct from the business of respondent of selling optical
products. They are personally liable for acts done in the course of their practice in the same way that
if respondent is sued in court in connection with its business of selling optical products, the
optometrists need not be impleaded as party defendants. In that regard, the Board of Optometry and
the Professional Regulation Commission regulate their practice and have exclusive original jurisdiction
over them.

In the later case of Acebedo Optical Company, Inc. v. Court of Appeals, 14 petitioner Acebedo was
granted by the City Mayor of Iligan a business permit subject to certain conditions, to wit:

1. Since it is a corporation, Acebedo cannot put up an optical clinic but only a commercial store;

2. Acebedo cannot examine and/or prescribe reading and similar optical glasses for patients, because
these are functions of optical clinics;

3. Acebedo cannot sell reading and similar eyeglasses without a prescription having first been made
by an independent optometrist (not its employee) or independent optical clinic. Acebedo can only sell
directly to the public, without need of a prescription, Ray-Ban and similar eyeglasses;

4. Acebedo cannot advertise optical lenses and eyeglasses, but can advertise Ray-Ban and similar
glasses and frames;

5. Acebedo is allowed to grind lenses but only upon the prescription of an independent optometrist.

The Samahang Optometrist sa Pilipinas-Iligan Chapter sought the cancellation and/or revocation of
Acebedos permit on the ground that it had violated the conditions for its business permit. After due
investigation, Acebedo was found guilty of violating the conditions of its permit and, as a consequence,
its permit was cancelled. Acebedo was advised that its permit would not be renewed. Acebedo filed a
petition for certiorari, prohibition, and mandamus in the Regional Trial Court, but its petition was
dismissed for non-exhaustion of administrative remedies. Acebedo then filed a petition for certiorari,
prohibition, and mandamus with the Court of Appeals. At first, its petition was dismissed. On appeal,
however, the decision of the Court of Appeals was reversed. This Court held that a business permit is
issued primarily to regulate the conduct of a business and, therefore, the City Mayor cannot, through
the issuance of such permit, regulate the practice of a profession, like optometry. This Court held
Acebedo to be entitled to a permit to do business as an optical shop because, although it had duly
licensed optometrists in its employ, it did not apply for a license to engage in the practice of optometry
as a corporate body or entity.

WHEREFORE , the petition is DENIED for lack of showing that the Court of Appeals committed a
reversible error.

SO ORDERED.
DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION
Concept Builders vs NLRC DIGEST
DECEMBER 21, 2016 ~ VBDIAZ
Concept Builders vs NLRC

GR 108734; 29 May 1996

Facts:

Petitioner Concept Builders, Inc., a domestic corporation engaged in the construction business.
Private respondents were employed by said company as laborers, carpenters and riggers. However,
they were illegally dismissed.

Aggrieved, private respondents filed a complaint for illegal dismissal. The Labor Arbiter rendered
judgment ordering petitioner to reinstate private respondents and to pay them back wages. It became
final and executory.

The alias Writ of Execution cannot be enforced by the sheriff because all the employees inside
petitioner’s premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were
employees of Hydro Pipes Philippines, Inc. (HPPI) and not by petitioner. Thus, NLRC issued a break-
open order against Concept Builders and HPPI.

Issue: Whether the piercing the veil of corporate entity is proper.

Held: Yes.

It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from
its stockholders and from other corporations to which it may be connected. But, this separate and
distinct personality of a corporation is merely a fiction created by law for convenience and to promote
justice. So, when the notion of separate juridical personality is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this
separate personality of the corporation may be disregarded or the veil of corporate fiction pierced. This
is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another
corporation.
The conditions under which the juridical entity may be disregarded vary according to the peculiar facts
and circumstances of each case. No hard and fast rule can be accurately laid down, but certainly,
there are some probative factors of identity that will justify the application of the doctrine of piercing
the corporate veil, to wit:
Stock ownership by one or common ownership of both corporations.
Identity of directors and officers.
The manner of keeping corporate books and records.
Methods of conducting the business.
The SEC en banc explained the “instrumentality rule” which the courts have applied in disregarding
the separate juridical personality of corporations as follows:
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact,
a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the “instrumentality”
may be disregarded. The control necessary to invoke the rule is not majority or even complete stock
control but such domination of instances, policies and practices that the controlled corporation has, so
to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must
be kept in mind that the control must be shown to have been exercised at the time the acts complained
of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust
loss for which the complaint is made.
The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as
follows:
Control, not mere majority or complete stock control, but complete domination, not only of finances
but of policy and business practice in respect to the transaction attacked so that the corporate entity
as to this transaction had at the time no separate mind, will or existence of its own;
Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of
plaintiff’s legal rights; and
The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained
of.
The absence of any one of these elements prevents “piercing the corporate veil.” In applying the
“instrumentality” or “alter ego” doctrine, the courts are concerned with reality and not form, with how
the corporation operated and the individual defendant’s relationship to that operation.

Clearly, petitioner ceased its business operations in order to evade the payment to private respondents
of back wages and to bar their reinstatement to their former positions. HPPI is obviously a business
conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial
liability that already attached to petitioner corporation.
HEIRS OF VENCILAO V. CA

One may not acquire property by prescription when that property is titled to another under the Torrens
System. It does not even matter whether occupation by the adverse claimant was open, notorious and
continuous. As long as the TCT is in someone else’s name, the property belongs to person who holds
the TCT

FACTS:
On Feb 12, 1990, the heirs of Vencilao filed a complaint to quiet the title and recover a piece of land
against spouses Gepalgo.
Said heirs asserted that they acquired the land from their father who was in open, peaceful and
notorious enjoyment of the same. They presented tax declarations to prove said ownership
On the other hand, the Gepalgo spouses denied the claim and for proof as registered owners,
presented TCT No. 16042 which they acquired on public auction from the PNB.
RTC ruled in favor of Vencilao because the latter had been in possession, cultivation and enjoyment
for more than 30 years- long before a title was ever issued to the Gepalgos.
Upon appeal, the CA reversed and awared the property to Gepalgos because the latter were buyers
in good faith and holders in due course. Furthermore, they held a Torrens Title. That was the gold
standard of ownership for registered land.
Naturally, the heirs of Vencilao trooped to the Supreme Court.
ISSUE:
Whether or not the Gepalgos had better right to the land.
HELD:
No. The RTC erroneously found for the petitioners. True, the Vencilaos enjoyed the property for more
than 30 years. However, prescription does not run against registered land. No one may acquire by
prescription or adverse possession land that is titled and registered even if occupation is adverse,
open and notorious. A Certificate of Title is absolute and unbeatable evidence of ownership in favor
of the person whose name appears upon it. It binds the whole world.
TOMAS LAO CONSTRUCTION, LVM CONSTRUCTION CORPORATION, THOMAS and JAMES
DEVELOPERS (PHIL.), INC., vs. NLRC, MARIO O. LABENDIA, SR., ROBERTO LABENDIA,
NARCISO ADAN, FLORENCIO GOMEZ, ERNESTO BAGATSOLON, SALVADOR BABON,
PATERNO BISNAR, CIRPRIANO BERNALES, ANGEL MABUHAY, SR., LEO SURIGAO, and
ROQUE MORILLO. G.R. No. 116781 September 5, 1997
March 13, 2018
FACTS:
Petitioners were hired for various periods as construction workers in different capacities. Within those
periods, they alternately worked for petitioner TLC, T&J and LVM Construction Corporation, altogether
informally referred to as the “Lao Group of Companies”, the three entities comprising a business
conglomerate exclusively controlled and managed by members of the Lao Family.

TLC, T&J and LVM are engaged in the construction of public roads and bridges. They entered joint
ventures among each other and lease tools and equipment of one another. Each one also allows the
utilization of their employees by the other two. In 1989, petitioners were dismissed due to non-
compliance with a memorandum which they believe is a scheme to downgrade their status from
regular to contractual employee. Petitioners filed a case in NLRC for illegal dismissal which is granted
and ordered the 3 corporations solidary liable for back wages and separation pay of petitioners.
ISSUE:
Whether corporate veil may be pierced to held the 3 corporations solidary liable to petitioner
employees.
RULING:
YES. The records disclose that the 3 corporations were in fact substantially owned and controlled by
members of the Lao family. A majority of the outstanding shares of stock in LVM and T&J is owned by
the Lao Family. T&J is 100% owned by the Lao’s as reflected in its Articles of Incorporation. The Lao
Group of Companies therefore is a closed corporation where the incorporators and directors belong
to a single family.
The corporations were also engaged in the same line of business under one management and use
the same equipment including manpower services. Where it appears that business enterprises are
owned, conducted and controlled by the same parties, both law and equity will, when necessary to
protect the right of third persons, disregard the legal fiction that the corporations are distinct entities,
and treat them as identical.

It is held that the liability of petitioner corporation extends to the responsible officers acting in the
interest of the corporations.
Francisco Motors Corporation v. CA and Sps. Manuel (G.R. No. 100812)
Facts:

Petitioner Francisco Motors Corp filed a complaint to recover from respondent spouses Manuel the
unpaid balance of the jeepney bought by the latter from them. As their answer, respondent spouses
interposed a counterclaim for unpaid legal services by Gregorio Manuel which was not paid by
petitioner corporation’s directors and officers. Respondent Manuel alleges that he represented
members of the Francisco family who were directors and officers of herein petitioner corporation in an
intestate estate proceeding but even after its termination, his services were not paid. The trial court
ruled in favor of petitioner but also allowed respondent spouses’ counterclaim. CA affirmed.

Issue:

Whether or not petitioner corporation may be held liable for the liability incurred by its directors and
officers in their personal capacity.

Ruling: NO.

In our view, however, given the facts and circumstances of this case, the doctrine of piercing the
corporate veil has no relevant application here. Respondent court erred in permitting the trial court’s
resort to this doctrine.

In the case at bar, instead of holding certain individuals or persons responsible for an alleged corporate
act, the situation has been reversed. It is the petitioner as a corporation which is being ordered to
answer for the personal liability of certain individual directors, officers and incorporators concerned.
Hence, it appears to us that the doctrine has been turned upside down because of its erroneous
invocation. Note that according to private respondent Gregorio Manuel his services were solicited as
counsel for members of the Francisco family to represent them in the intestate proceedings over Benita
Trinidad’s estate. These estate proceedings did not involve any business of petitioner.

Furthermore, considering the nature of the legal services involved, whatever obligation said
incorporators, directors and officers of the corporation had incurred, it was incurred in their personal
capacity. When directors and officers of a corporation are unable to compensate a party for a personal
obligation, it is far-fetched to allege that the corporation is perpetuating fraud or promoting injustice,
and be thereby held liable therefore by piercing its corporate veil.
TIMOTEO H. SARONA v. NATIONAL LABOR RELATIONS COMMISSION G.R. No. 185280, January
18, 2012

TIMOTEO H. SARONA v.
NATIONAL LABOR RELATIONS COMMISSION
G.R. No. 185280, January 18, 2012
Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)
(Topic: Doctrine of Piercing the Veil of Corporate Fiction)

FACTS:

On June 20, 2003, the petitioner, who was hired by Sceptre as a security guard sometime in April
1976, was asked by Karen Therese Tan (Karen), Sceptre’s Operation Manager, to submit a
resignation letter as the same was supposedly required for applying for a position at Royale. The
petitioner was also asked to fill up Royale’s employment application form, which was handed to him
by Royale’s General Manager, respondent Cesar Antonio Tan II (Cesar).

After several weeks of being in floating status, Royale’s Security Officer, Martin Gono (Martin),
assigned the petitioner at Highlight Metal Craft, Inc. (Highlight Metal) from July 29, 2003 to August 8,
2003. Thereafter, the petitioner was transferred and assigned to Wide Wide World Express, Inc.
(WWWE, Inc.).

On September 17, 2003, the petitioner was informed that his assignment at WWWE, Inc. had been
withdrawn because Royale had allegedly been replaced by another security agency. The petitioner,
however, shortly discovered thereafter that Royale was never replaced as WWWE, Inc.’s security
agency. When he placed a call at WWWE, Inc., he learned that his fellow security guard was not
relieved from his post.

On September 21, 2003, the petitioner was once again assigned at Highlight Metal, albeit for a short
period from September 22, 2003 to September 30, 2003. Subsequently, when the petitioner reported
at Royale’s office on October 1, 2003, Martin informed him that he would no longer be given any
assignment per the instructions of Aida Sabalones-Tan (Aida), general manager of Sceptre. This
prompted him to file a complaint for illegal dismissal on October 4, 2003.

ISSUE:
Whether or not Royale’s corporate fiction should be pierced for the purpose of compelling it to
recognize the petitioner’s length of service with Sceptre and for holding it liable for the benefits that
have accrued to him arising from his employment with Sceptre?

RULING:

Yes.

The doctrine of piercing the corporate veil applies in alter ego cases, where a corporation is merely a
farce since it is a mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.

The respondents’ scheme reeks of bad faith and fraud and compassionate justice dictates that Royale
and Sceptre be merged as a single entity, compelling Royale to credit and recognize the petitioner’s
length of service with Sceptre. The respondents cannot use the legal fiction of a separate corporate
personality for ends subversive of the policy and purpose behind its creation53 or which could not
have been intended by law to which it owed its being.

Also, Sceptre and Royale have the same principal place of business. As early as October 14, 1994,
Aida and Wilfredo became the owners of the property used by Sceptre as its principal place of business
by virtue of a Deed of Absolute Sale they executed with Roso.57 Royale, shortly after its incorporation,
started to hold office in the same property. These, the respondents failed to dispute.

Royale also claimed a right to the cash bond which the petitioner posted when he was still with Sceptre.
If Sceptre and Royale are indeed separate entities, Sceptre should have released the petitioner’s cash
bond when he resigned and Royale would have required the petitioner to post a new cash bond in its
favor.

However, the manner by which the petitioner was made to resign from Sceptre and how he became
an employee of Royale suggest the perverted use of the legal fiction of the separate corporate
personality.

Royale is a continuation or successor of Sceptre.

006. Wensha Spa Center, Inc. vs. Yung
Gr no. 185122 August 16, 2010

Facts:
Wensha Spa is in the business of sauna bath and massage services. Xu is the president and
Loreta was the administrative manager at the time of her termination from employment. Loreta
used to be employed by Manmen where Xu was a client. Since Su was impressed with Loreta’s
performance, he convinced Loreta to transfer and work at Wensha. Loreta started working on April
21, 2004 as Xu’s personal assistant and interpreter. She was promoted to the position of
Administrative Manager. Loreta was asked to resign from Wensha because according to a Feng
Shui master, her aura did not match that of Xu. Loreta filed a case for illegal dismissal against Xu
and Wensha. The Labor Arbiter dismissed Loreta’s complaint for lack of merit. He found it more
probable that Loreta was dismissed due to loss of trust and confidence in her. The CA reversed the
ruling of the NLRC.
Issue:
Whether or not Xu is solidarily liable with Wensha, assuming that Loreta was illegally
dismissed.
Ruling:
No. Xu is not solidarily liable with Wensha. Elementary is the rule that a corporation is
invested by law with a personality separate and distinct from those of the persons composing it
and from that of any other legal entity to which it may be related. “Mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not
of itself sufficient ground for disregarding the separate corporate personality.”
In labor cases, corporate directors and officers may be held solidarily liable with the
corporation for the termination of employment only if done with malice or in bad faith. Bad faith
does not connote bad judgment or negligence; it imports a dishonest purpose or some moral
obliquity and conscious doing of wrong; it means breach of a known duty through some motive or
interest or ill will; it partakes of the nature of fraud. In the subject decision, the CA concluded that
petitioner Xu and Wensha are jointly and severally liable to Loreta. We have read the decision in
its entirety but simply failed to come across any finding of bad faith or malice on the part of Xu.
There is, therefore, no justification for such a ruling. To sustain such a finding, there should be an
evidence on record that an officer or director acted maliciously or in bad faith in terminating the
services of an employee. Moreover, the finding or indication that the dismissal was effected with
malice or bad faith should be stated in the decision itself. Wensha Spa Center, Inc. vs. Yung, 628
SCRA 311, G.R. No. 185122 August 16, 2010
G.R. No. 132403 September 28, 2007

HI-CEMENT CORPORATION, Petitioner,

vs.
INSULAR BANK OF ASIA AND AMERICA (later PHILIPPINE COMMERCIAL INTERNATIONAL
BANK and now, EQUITABLE-PCI BANK) Respondent.

x-----------------------x

G.R. No. 132419

E.T. HENRY & CO. and SPOUSES ENRIQUE TAN and LILIA TAN, Petitioners,
vs.
INSULAR BANK OF ASIA AND AMERICA (later PHILIPPINE COMMERCIAL INTERNATIONAL
BANK and now, EQUITABLE-PCI BANK), Respondent.

DECISION

CORONA, J.:

At bar are consolidated petitions assailing the decision of the Court of Appeals (CA) dated January
21, 1998 in CA-G.R. CV No. 31600 entitled Insular Bank of Asia and America [now Philippine
Commercial International Bank/(PCIB)] v. E.T. Henry & Co., et al.1

The antecedent facts follow.

Petitioners Enrique Tan and Lilia Tan (spouses Tan) were the controlling stockholders of E.T. Henry
& Co., Inc. (E.T. Henry), a company engaged in the business of processing and distributing bunker
fuel.2 Among E.T. Henry's customers were petitioner Hi-Cement Corporation (Hi-Cement),3 Riverside
Mills Corporation (Riverside) and Kanebo Cosmetics Philippines, Inc. (Kanebo). For their purchases,
these corporations issued postdated checks to E.T. Henry.

Sometime in 1979, respondent Insular Bank of Asia and America (later PCIB and now Equitable
PCI-Bank) granted E.T. Henry a credit facility known as "Purchase of Short Term Receivables."
Through this arrangement, E.T. Henry was able to encash, with pre-deducted interest, the postdated
checks of its clients. In other words, E.T. Henry and respondent were into "re-discounting" of checks.

For every transaction, respondent required E.T. Henry to execute a promissory note and a deed of
assignment bearing the conformity of the client to the re-discounting.4

From 1979 to 1981, E.T. Henry was able to re-discount its clients' checks (with deeds of assignment)
with respondent. However, in February 1981, 20 checks5 of Hi-Cement (which were crossed and
which bore the restriction "deposit to payee’s account only") were dishonored. So were the checks of
Riverside and Kanebo.6

Respondent filed a complaint for sum of money7 in the then Court of First Instance of Rizal8 against
E.T. Henry, the spouses Tan, Hi-Cement (including its general manager9 and its treasurer 10 as
signatories of the postdated crossed checks), Riverside and Kanebo.11
In its complaint, respondent claimed that, due to the dishonor of the checks, it suffered actual
damages equivalent to their value, exclusive of accrued and accruing interests, charges and
penalties such as attorney’s fees and expenses of litigation, as follows:

1. Riverside Mills Corporation ₱ 115,312.50

2. Kanebo Cosmetics Philippines, Inc. 5,811,750.00

3. Hi-Cement Corporation 10,000,000.00

Respondent also sought to collect from E.T. Henry and the spouses Tan other loan obligations
(amounting to ₱1,661,266.51 and ₱4,900,805, respectively) as deficiencies resulting from the
foreclosure of the real estate mortgage on E.T. Henry's property in Sucat, Parañaque.12

Hi-Cement filed its answer alleging, among others, that: (1) its general manager and treasurer were
not authorized to issue the postdated crossed checks in E.T. Henry's favor; (2) the deed of
assignment purportedly executed by Hi-Cement assigning them to respondent only bore the
conformity of its treasurer and (3) respondent was not a holder in due course as it should not have
discounted them for being "crossed checks."13

In their answer (with counterclaim against respondent and cross-claims against Hi-Cement,
Riverside and Kanebo),14 E.T. Henry and the spouses Tan claimed that: (1) the drawers of the
postdated checks failed to honor them due to the adverse economic conditions prevailing at the time
respondent presented them for payment; (2) the extra-judicial sale of the mortgaged Sucat property
was void due to gross inadequacy of the bid price15 and (3) their loans were subjected to a usurious
interest rate of 21% p.a.

For their part, Riverside and Kanebo sought the dismissal of the case against them, arguing that
they were not privy to the re-discounting arrangement between respondent and E.T. Henry.

On June 30, 1989, the trial court rendered a decision which read:

WHEREFORE, in view of the foregoing, and as a consequence of the preponderance of evidence,

this Court hereby renders judgment in favor of [respondent] and against [E.T. Henry, spouses Tan,
Hi-Cement, Riverside and Kanebo], to wit:

1. Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo], jointly and
severally, to pay [respondent] damages represented by the face value of the postdated
checks as follows:

(a) Riverside Mills Corporation ₱ 115,312.50

(b) Kanebo Cosmetics Philippines, Inc. 5,811,750.00

(c) Hi-Cement Corporation 10,000,000.00

plus interests, services, charges and penalties until fully paid;

2. Ordering [E.T. Henry] and/or [spouses Tan] to pay to [respondent] the sum of
₱4,900,805.00 plus accrued interests, charges, penalties until fully paid;
 3. Ordering [E.T. Henry and spouses Tan] to pay [respondent] the sum of ₱1,661,266.51
plus interests, charges, and penalties until fully paid;

4. Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo] to pay
[respondent] [a]ttorney’s fees and expenses of litigation in the amount of ₱200,000.00 and
pay the cost of this suit.16

SO ORDERED.17

Only petitioners appealed the decision to the CA which affirmed it in toto. Hence, these petitions.

In G.R. No. 132403, petitioner Hi-Cement disclaims liability for the postdated crossed checks
because (1) it did not authorize their issuance; (2) respondent was not a holder in due course and
(3) there was no basis for the lower court’s holding that it was solidarily liable for the face value of
Riverside’s and Kanebo’s checks.18

In G.R. No. 132419, on the other hand, E.T. Henry and the spouses Tan essentially contend that the
lower courts erred in: (1) applying the doctrine of piercing the veil of the corporate entity to make the
spouses Tan solidarily liable with E.T. Henry; (2) not ruling on their cross-claims and counterclaims,
and (3) not declaring the foreclosure of E.T. Henry's Sucat property as void.19

(A) G.R. 132403

As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to review of errors of
law.20 The factual findings of the trial court, specially when affirmed by the appellate court, are
generally binding on us unless there was a misapprehension of facts or when the inference drawn
from the facts was manifestly mistaken.21 This case falls within the exception.

Authority of Hi-Cement’s General Manager and Treasurer to Issue the Postdated Crossed
Checks

Both the trial court and the CA concluded that Hi-Cement authorized its general manager and
treasurer to issue the subject postdated crossed checks. They both held that Hi-Cement was already
estopped from denying such authority since it never objected to the signatories' issuance of all
previous checks to E.T. Henry which the latter, in turn, was able to re-discount with respondent.

We agree with the lower courts that both the general manager and treasurer of Hi-Cement were
authorized to issue the subjects checks. However, notwithstanding such fact, respondent could not
be considered a holder in due course.

Respondent Bank Not a Holder In Due Course

The Negotiable Instruments Law (NIL), specifically Section 191,22 provides:

"Holder" means the payee or indorsee of a bill or a note, or the person who is in possession of it, or
the bearer thereof.

On the other hand, Section 5223 states:

A holder in due course is a holder who has taken the instrument under the following conditions: (a) it
is complete and regular on its face; (b) he became the holder of it before it was overdue, and without
notice that it has previously been dishonored, if such was the fact; (c) he took it in good faith and for
value and (d) at the time it was negotiated to him, he had no notice of any infirmity in the instrument
or defect in the title of the person negotiating it.

Absent any of the elements set forth in Section 52, the holder is not a holder in due course. In the
case at bar, the last two requirements were not met.

In Bataan Cigar and Cigarette Factory, Inc. (BCCF) v. CA,24 we held that the holder of crossed
checks was not a holder in due course. There, the drawer (BCCF) issued postdated crossed checks
in favor of one of its suppliers (George King) who promised to deliver bales of tobacco leaf but failed.
George King, however, sold the checks on discount to State Investment House, Inc. (SIHI) and upon
the latter’s presentment to the drawee bank, BCCF ordered a "stop payment." Thereafter, SIHI filed
a collection case against it. In ruling that SIHI was not a holder in due course, we explained:

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of
a check should have the following effects: (a) the check may not be encashed but only deposited in
the bank; (b) the check may be negotiated only once – to one who has an account with a bank [and];
(c) the act of crossing the checks serves as warning to the holder that the check has been issued for
a definite purpose so that he must inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course.

Likewise, in Atrium Management Corporation v. CA,25 where E.T. Henry, Hi-Cement and its
treasurer26 again engaged in a legal scuffle over four postdated crossed checks, we held that Atrium
(with which the checks were re-discounted) was not a holder in due course. In that case, E.T. Henry
was the payee of four Hi-Cement postdated checks which it endorsed to Atrium. When the latter
presented the crossed checks to the drawee bank, Hi-Cement stopped payment.27 We held that
Atrium was not a holder in due course:

In the instant case, the checks were crossed and specifically indorsed for deposit to payee’s account
only. From the beginning, Atrium was aware of the fact that the checks were all for deposit only to
payee’s account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in due
course.

In the case at bar, respondent's claim that it acted in good faith when it accepted and discounted Hi-
Cement’s postdated crossed checks from E.T. Henry (as payee therein) fails to convince us. Good
faith becomes inconsequential amidst proof of respondent's grossly negligent conduct in dealing with
the subject checks.

Respondent was all too aware that subject checks were crossed and bore restrictions that they were
for deposit to payee's account only; hence, they could not be further negotiated to it. The records
likewise reveal that respondent completely disregarded a telling sign of irregularity in the re-
discounting of the checks when the general manager did not acquiesce to it as only the treasurer's
signature appeared on the deed of assignment. As a banking institution, it behooved respondent to
act with extraordinary diligence in every transaction.28 Its business is impressed with public interest,
thus, it was not expected to be careless and negligent, specially so where the checks it dealt with
were crossed. In Bataan Cigar and Cigarette Factory, Inc.,29 we ruled:

It is then settled that crossing of checks should put the holder on inquiry and upon him
devolves the duty to ascertain the indorser’s title to the check or the nature of his
possession. Failing in this respect, the holder is declared guilty of gross negligence
amounting to legal absence of good faith…and as such[,] the consensus of authority is to the
effect that the holder of the check is not a holder in due course. (emphasis supplied)
The next query is whether Hi-Cement can still be made liable for the checks. We answer in the
negative.

In State Investment House, Inc. (SIHI) v. Intermediate Appellate Court,30 SIHI re-discounted crossed
checks and was declared not a holder in due course. As a result, when it presented the checks for
deposit, we deemed that its presentment to the drawee bank was not proper, hence, the liability did
not attach to the drawer of the checks. We ruled that:

The three subject checks in the case at bar had been crossed…which could only mean that the
drawer had intended the same for deposit only by the rightful person, i.e., the payee named therein.
Apparently, it was not the payee who presented the same for payment and therefore, there was no
proper presentment, and the liability did not attach to the drawer. Thus, in the absence of due
presentment, the drawer did not become liable. 31

Our resolution in the foregoing case was reiterated in Atrium Management Corporation v.
CA,32 where we affirmed the CA ruling that the drawer of the postdated crossed checks was not
liable to the holder who was deemed not a holder in due course.

We note, however, that in the two aforementioned cases, we made it clear that the NIL does not
absolutely bar a holder who is not a holder in due course from recovering on the checks. In both, we
ruled that it may recover from the party who indorsed/encashed the checks "if the latter has no valid
excuse for refusing payment." Here, there was no doubt that it was E.T. Henry that re-discounted Hi-
Cement's checks and received their value from respondent. Since E.T. Henry had no justification to
refuse payment, it should pay respondent.

Solidary Liability of Hi-Cement for The Face Value of Riverside's and Kanebo's Checks

Hi-Cement could not also be made solidarily liable with Riverside and Kanebo for the face value of
their checks. Hi-Cement had nothing to do with the checks of these two corporations. However,
although the language of the trial court decision's dispositive portion seemed confusing, a reading of
the decision in its entirety reveals that the fallo was for each corporation to be liable solidarily with
E.T. Henry and/or the spouses Tan for the respective values of their checks.

Furthermore, solidary liability cannot be presumed but must be established by law or contract.
Neither is present here. Articles 1207 and 1208 of the Civil Code provide:

Art. 1207. The concurrence of two or more debtors in one and the same obligation does not imply
that each one of the former has a right to demand, or that each one of the latter is bound to render,
entire compliance with the presentation. There is solidary liability only when the obligation
expressly so states, or when the obligation requires solidarity. (emphasis supplied)

Art. 1208. If from the law, or the nature of the wording of the obligations to which the preceding
article refers to the contrary does not appear, the credit or debt shall be presumed to be divided into
as many equal shares as there are creditors or debtors, the credits or debts being considered
distinct from one another, subject to the Rules governing the multiplicity of suits.

At any rate, the issue has become moot in view of our ruling that Hi-Cement is not liable for the
checks.

(B) G.R. No. 132419

 Doctrine of Piercing the
Veil of Corporate Entity

In their petition, E.T. Henry and the spouses Tan argue that the lower courts erred in applying the
"piercing the veil of corporate entity" doctrine to their case. They claim that both the trial and
appellate courts failed to cite the reasons why the doctrine was relevant to them.

We agree with petitioners E.T. Henry and the spouses Tan in this respect.

If any general rule can be laid down, it is that the corporation will be looked upon as a legal entity
until sufficient reasons to the contrary appear. 33 It is only when the fiction or notion of legal entity is
used to defeat public convenience, justify wrong, perpetuate fraud or defend crime that the law will
shred the corporate legal veil and regard it as a mere association of persons.34 This is referred to as
the doctrine of piercing the veil of corporate entity.

After a careful study of the records, we hold that E.T. Henry's corporate veil should not have been
pierced at all.

First, the trial court failed to provide a clear ground why the doctrine was used. It merely stated that it
agreed with respondent’s arguments but did not explain why the doctrine was relevant to petitioner
E.T. Henry's and the spouses Tan’s case. On the other hand, the CA held:

…It appears that spouses Tan are controlling stockholders of E.T. Henry & Co., Inc. as well as its
authorized signatories. The business of the corporation was conducted solely for the benefit of the
spouses Tan who colluded with [Hi-Cement] in defrauding [respondent]. As the lower court cited…[I]t
is a settled law in this and other jurisdictions that when the corporation is a mere alter ego of a
person, same being true when the corporation is controlled, and its affairs are so conducted to make
it merely an instrumentality, agency or conduit of another.35

Similarly, the CA left a gaping hole by failing to provide the basis for its ruling that E.T. Henry and the
spouses Tan defrauded respondent. It did not also state what act constituted the fraud. Fraud is an
allegation of fact that demands clear and convincing evidence.36 It is never presumed.37

Second, the mere ownership by a single stockholder or by another corporation of all or nearly all of
the capital stock of a corporation is not of itself sufficient ground for disregarding the separate
corporate personality.38 For this ground to stand in this case, there must be proof that the spouses
Tan: (1) had control or complete domination of E.T. Henry’s finances and that the latter had no
separate existence with respect to the act complained of; (2) used such control to commit fraud or
wrong and (3) the control was the proximate cause of the loss or injury complained of by
respondent.39 The records of this case do not show that these elements were present.

Inadequacy of the Bid Price to Annul Foreclosure Proceeding

With respect to the allegation that foreclosure was void due to the inadequacy of the bid price, we
agree with the CA that the "mere inadequacy of the price obtained at the [s]heriff’s sale, unless
shocking to the conscience, (was) not sufficient to set aside the sale if there (was) no showing that,
in the event of a regular sale, a better price (could) be obtained."40 1âwphi1

Furthermore, in the absence of any irregularity in the foreclosure proceeding or proof that it was
carried out without strict observance of the procedure, we will continue to assume its regularity and
strike down any attempt to vitiate it. In this case, E.T. Henry and the spouses Tan made no mention
of any anomaly to support the nullification of the foreclosure sale but merely alleged a disparity in the
bid price and the property’s fair market value.

Counterclaims and Cross-claims

Lastly, E.T. Henry and the spouses Tan call this Court's attention to the alleged failure of the lower
court to pass upon their counterclaim against respondent or cross-claims against Hi-Cement,
Riverside and Kanebo. They ask us now to hold these parties liable on the basis of said claims. We
decline to do so.

First, E.T. Henry and the spouses Tan failed to implead Hi-Cement, Riverside and Kanebo as parties
in the case at bar. Under Rule 3 of the Rules of Court, every action, including a counterclaim (or a
cross-claim), must be prosecuted or defended in the name of the real party in interest.41 The term
"defendant" may refer to the original defending party, the defendant in a counterclaim, the cross-
defendant or the third (fourth, etc.) party defendant.42 Hence, for this technical lapse, we are
constrained not to pass on E.T. Henry's and the spouses Tan's cross-claims.

Second, E.T. Henry and the spouses Tan filed the counterclaim against respondent on the basis of
an alleged void foreclosure proceeding on E.T. Henry's Sucat property due to an inadequate bid
price. It is no longer necessary to delve into this matter in view of our finding that the mere
inadequacy of the bid price on the property did not automatically render the foreclosure sale irregular
or void.

Incidentally, the petition in G.R. No. 132419 posed no contest on the lower courts’ ruling on E.T.
Henry’s and the spouses Tan’s solidary liability with Riverside and Kanebo vis-a-vis their
checks.43 To be consistent, however, with our dictum on the separate personality of E.T. Henry and
the spouses Tan, the solidarity liability arising from the checks of Riverside and Kanebo shall only be
enforced against E.T. Henry.

WHEREFORE, the assailed decision of the Court of Appeals in CA-G.R. CV No. 31600 is
hereby AFFIRMED with MODIFICATION. Accordingly, petitioner Hi-Cement Corporation is
discharged from any liability. Only petitioner E.T. Henry & Co. is ORDERED to pay respondent
Insular Bank of Asia and America (later Philippine Commercial International Bank and now Equitable
PCI-Bank) the following:

1. ₱10,000,000 representing the value of Hi-Cement's checks it received from respondent

plus accrued interests, charges and penalties until fully paid, and

2. the loans for ₱1,661,266.51 and ₱4,900,805 plus accrued interests, charges and penalties
until fully paid.

Let the records of this case be remanded to the trial court for the proper computation of E.T. Henry's,
Riverside's and Kanebo's liabilities for the checks, attorney's fees and costs of litigation.
RIGHT OF SUCCESSION
CASE DIGEST: SME BANK V. DE GUZMAN
G.R. No. 184517 : October 8, 2013

SME BANK INC., ABELARDO P. SAMSON, OLGA SAMSON and AURELIO VILLAFLOR,
JR.,Petitioners, v. PEREGRIN T. DE GUZMAN,EDUARDO M. AGUSTIN, JR., ELICERIO GASPAR, ,
RICARDO GASPAR JR., EUFEMIA ROSETE, FIDEL ESPIRITU, SIMEONESPIRITU, JR., and
LIBERATO MANGOBA, Respondents.

FACTS: Respondent employees Elicerio Gaspar (Elicerio), Ricardo Gaspar, Jr. (Ricardo), Eufemia
Rosete (Eufemia), Fidel Espiritu (Fidel), Simeon Espiritu, Jr. (Simeon, Jr.), and Liberato Mangoba
(Liberato) were employees of Small and Medium Enterprise Bank, Incorporated (SME
Bank).Originally, the principal shareholders and corporate directors of the bank were Eduardo M.
Agustin, Jr. (Agustin) and Peregrin de Guzman, Jr. (De Guzman).

SME Bank experienced financial difficulties. To remedy the situation, the bank officials proposed its
sale to Samson.

Accordingly, negotiations ensued, Letter Agreements were sent to Agustin and De Guzman,
conditioning that it shall guarantee the peaceful turn over of all assets as well as the peaceful transition
of management of the bank and shall terminate/retire the employees we mutually agree upon, upon
transfer of shares in favor of groups nominees; and all retirement benefits, if any of the above
officers/stockholders/board of directors are hereby waived upon consummation of the above sale. The
retirement benefits of the rank and file employees including the managers shall be honored by the new
management. Thereafter, the Letter Agreement was accepted.

Simeon Espiritu (Espiritu), then the general manager of SME Bank, held a meeting with all the
employees and persuaded them to tender their resignations,with the promise that they would be
rehired upon reapplication. His directive was allegedly done at the behest of petitioner Olga Samson.

Relying on this representation, Elicerio,Ricardo,Fidel,Simeon, Jr.,and Liberatotendered their

resignations. As for Eufemia, she first tendered a resignation letterand then a retirement letter.

Agustin and De Guzman signified their conformity to the Letter Agreements and sold 86.365% of the
shares of stock of SME Bank to spouses Abelardo and Olga Samson. Spouses Samson then became
the principal shareholders of SME Bank, while Aurelio Villaflor, Jr. was appointed bank president. As
it turned out, respondent employees, except for Simeon, Jr.,were not rehired. After a month in service,
Simeon, Jr. again resigned on October 2001.

Respondent-employees demanded the payment of their respective separation pays, but their requests
were denied. Aggrieved by the loss of their jobs, respondent employees filed a Complaint before NLRC
and sued SME Bank, spouses Abelardo and Olga Samson and Aurelio Villaflor (the Samson Group).
Subsequently, they amended their Complaint to include Agustin and De Guzman as respondents to
the case.

The labor arbiter ruled that the buyer of an enterprise is not bound to absorb its employees, unless
there is an express stipulation to the contrary. However, he also found that respondent employees
were illegally dismissed, because they had involuntarily executed their resignation letters after relying
on representations that they would be given their separation benefits and rehired by the new
management. Accordingly, the labor arbiter decided the case against Agustin and De Guzman, but
dismissed the Complaint against the Samson Group.

Respondent employees questioned the labor arbiters failure to award backwages, while Agustin and
De Guzman contended that they should not be held liable for the payment of the employees claims.

The NLRC found that there was only a mere transfer of shares and therefore, a mere change of
management. As the change of management was not a valid ground to terminate respondent bank
employees, the NLRC ruled that they had indeed been illegally dismissed. It further ruled that Agustin,
De Guzman and the Samson Group should be held jointly and severally liable for the employees
separation pay and backwages.

On appeal, the CA affirmed the decision of the NLRC.

ISSUE: Whether or not the respondents were illegally dismissed.

HELD: The decision of the Court of Appeals is overruled.

LABOR LAW

Here, the records show that Elicerio, Ricardo, Fidel, and Liberato only tendered resignation letters
because they were led to believe that, upon reapplication, they would be reemployed by the new
management.As it turned out, except for Simeon, Jr., they were not rehired by the new management.
Their reliance on the representation that they would be reemployed gives credence to their argument
that they merely submitted courtesy resignation letters because it was demanded of them, and that
they had no real intention of leaving their posts. We therefore conclude that Elicerio, Ricardo, Fidel,
and Liberato did not voluntarily resign from their work; rather, they were terminated from their
employment.

Retirement, like resignation, should be an act completely voluntary on the part of the employee. If the
intent to retire is not clearly established or if the retirement is involuntary, it is to be treated as a
discharge. De Leon v. NLRC, 188 Phil. 666 (1980).

In San Miguel Corporation v. NLRC, 354 Phil. 815 (1998),we have explained that involuntary
retirement is tantamount to dismissal, as employees can only choose the means and methods of
terminating their employment, but are powerless as to the status of their employment and have no
choice but to leave the company.

This rule squarely applies to Eufemias case. Indeed, she could only choose between resignation and
retirement, but was made to understand that she had no choice but to leave SME Bank. Thus, we
conclude that, similar to her other co-employees, she was illegally dismissed from employment.

LABOR LAW

The law permits an employer to dismiss its employees in the event of closure of the business
establishment. However, the employer is required to serve written notices on the worker and the
Department of Labor at least one month before the intended date of closure.Moreover, the dismissed
employees are entitled to separation pay, except if the closure was due to serious business losses or
financial reverses.However, to be exempt from making such payment, the employer must justify the
closure by presenting convincing evidence that it actually suffered serious financial reverses. Indino
v. NLRC, 258 Phil. 792, 799 (1989).

LABOR LAW

Petitioner bank also argues that, there being a transfer of the business establishment, the innocent
transferees no longer have any obligation to continue employing respondent employees, and that the
most that they can do is to give preference to the qualified separated employees; hence, the
employees were validly dismissed.
The argument is misleading and unmeritorious. Contrary to petitioner banks argument, there was no
transfer of the business establishment to speak of, but merely a change in the new majority
shareholders of the corporation.

There are two types of corporate acquisitions : asset sales and stock sales.In asset sales, the
corporate entitysells all or substantially all of its assetsto another entity. In stock sales, the individual
or corporate shareholderssell a controlling block of stockto new or existing shareholders.

In contrast with asset sales, in which the assets of the selling corporation are transferred to another
entity, the transaction in stock sales takes place at the shareholder level. Because the corporation
possesses a personality separate and distinct from that of its shareholders, a shift in the composition
of its shareholders will not affect its existence and continuity. Thus, notwithstanding the stock sale, the
corporation continues to be the employer of its people and continues to be liable for the payment of
their just claims. Furthermore, the corporation or its new majority share holders are not entitled to
lawfully dismiss corporate employees absent a just or authorized cause.

In the case at bar, the Letter Agreements show that their main object is the acquisition by the Samson
Group of 86.365% of the shares of stock of SME Bank.Hence, this case involves a stock sale, whereby
the transferee acquires the controlling shares of stock of the corporation. Thus, following the rule in
stock sales, respondent employees may not be dismissed except for just or authorized causes under
the Labor Code.

The right to security of tenure guarantees the right of employees to continue in their employment
absent a just or authorized cause for termination.

It is thus erroneous on the part of the corporation to consider the employees as terminated from their
employment when the sole reason for so doing is a change of management by reason of the stock
sale. The conformity of the employees to the corporations act of considering them as terminated and
their subsequent acceptance of separation pay does not remove the taint of illegal dismissal.
Acceptance of separation pay does not bar the employees from subsequently contesting the legality
of their dismissal, nor does it estop them from challenging the legality of their separation from the
service. Sari-sari Group of Companies, Inc. v. Piglas Kamao, G.R. No. 164624, 11 August 2008
B. CLASSIFICATION AND CREATION OF CORPORATIONS
1. STOCK AND NON-STOCK
2. PUBLIC AND PRIVATE
3. DE JURE, DE FACTO AND CORPORATION BY ESTOPPELS
Sappari K. Sawadjaan v. CA (G.R. No. 141735)
Facts:
Petitioner Sawadjaan was an appraiser/investigator in the Philippine Amanah Bank (PAB) when on
the basis of his report, a credit line was granted to Compressed Air Machineries and Equipment
Corporation (CAMEC) by virtue of the two parcels of land it offered as collaterals. Meanwhile,
Congress passed a law which created Al-Amanah Investment Bank of the Philippines (AIIBP) and
repealed the law creating PAB, transferring all its assets, liabilities and capital accounts to AIIBP.
Later, AIIBP discovered that the collaterals were spurious, thus conducted an investigation and found
petitioner Sawadjaan at fault. Petitioner appealed before the SC which ruled against him. Petitioner
moved for a new trial claiming he recently discovered that AIIBP had not yet adopted its corporate by-
laws and since it failed to file within 60 days from the passage of its law, it had forfeited its franchise
or charter and thus has no legal standing to initiate an administrative case. The motion was denied.
Issue:
Whether or not the failure of AIIBP to file its by-laws within the period prescribed results to a nullity of
all actions and proceedings it has initiated.
Ruling: NO.
The AIIBP was created by Rep. Act No. 6848. It has a main office where it conducts business, has
shareholders, corporate officers, a board of directors, assets, and personnel. It is, in fact, here
represented by the Office of the Government Corporate Counsel, “the principal law office of
government-owned corporations, one of which is respondent bank.” At the very least, by its failure to
submit its by-laws on time, the AIIBP may be considered a de facto corporation whose right to exercise
corporate powers may not be inquired into collaterally in any private suit to which such corporations
may be a party.

Moreover, a corporation which has failed to file its by-laws within the prescribed period does not ipso
facto lose its powers as such. The SEC Rules on Suspension/Revocation of the Certificate of
Registration of Corporations, details the procedures and remedies that may be availed of before an
order of revocation can be issued. There is no showing that such a procedure has been initiated in
this case.
Lim vs. Philippine Fishing Gear Industries Inc
Lim vs. Philippine Fishing Gear Industries Inc. [GR 136448, 3 November 1999]

FACTS: Lim Tong Lim requested Peter Yao and Antonio Chuato engage in commercial
fishing with him. The three agreed to purchase two fishing boats but since they do not
have the money they borrowed from one Jesus Lim the brother of Lim Tong Lim.
Subsequently, they again borrowed money for the purchase of fishing nets and other
fishing equipments. Yao and Chua represented themselves as acting in behalf of “Ocean
Quest Fishing Corporation” (OQFC) and they contracted with Philippine Fishing Gear
Industries (PFGI) for the purchase of fishing nets amounting to more than P500k.
However, they were unable to pay PFGI and hence were sued in their own names as
Ocean Quest Fishing Corporation is a non-existent corporation. Chua admitted his liability
while Lim Tong Lim refused such liability alleging that Chua and Yao acted without his
knowledge and consent in representing themselves as a corporation.

ISSUE: Whether Lim Tong Lim is liable as a partner

HELD: Yes. It is apparent from the factual milieu that the three decided to engage in a
fishing business. Moreover, their Compromise Agreement had revealed their intention to
pay the loan with the proceeds of the sale and to divide equally among them the excess
or loss. The boats and equipment used for their business entails their common fund. The
contribution to such fund need not be cash or fixed assets; it could be an intangible like
credit or industry. That the parties agreed that any loss or profit from the sale and
operation of the boats would be divided equally among them also shows that they had
indeed formed a partnership. The principle of corporation by estoppel cannot apply in the
case as Lim Tong Lim also benefited from the use of the nets in the boat, which was an
asset of the partnership. Under the law on estoppel, those acting in behalf of a corporation
and those benefited by it, knowing it to be without valid existence are held liable as
general partners. Hence, the question as to whether such was legally formed for unknown
reasons is immaterial to the case.
INTERNATIONAL EXPRESS TRAVEL vs. CA ET AL DIGEST
DECEMBER 21, 2016 ~ VBDIAZ
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON. COURT OF
APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION, respondents.,

G.R. No. 119002

2000 Oct 19.

FACTS:

On June 30 1989, petitioner, through its managing director, wrote a letter to the Philippine Football
Federation (Federation), through its president private respondent Henri Kahn, wherein the former
offered its services as a travel agency to the latter. The offer was accepted.

Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the
South East Asian Games in Kuala Lumpur as well as various other trips to China and Brisbane. The
total cost of the tickets amounted to P449,654.83. The Federation made two partial payments, both
in September of 1989, in the total amount of P176,467.50.

On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter
requesting for the amount of P265,894.33. On 30 October 1989, the Federation, through the Project
Gintong Alay, paid the amount of P31,603.00.

On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial
payment for the outstanding balance of the Federation. No further payments were made despite
repeated demands.

Petitioner to filed a civil case before RTC- Manila. Petitioner sued Henri Kahn in his personal capacity
and as President of the Federation and impleaded the Federation as an alternative defendant.
Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by the
Federation on the ground that Henri Kahn allegedly guaranteed the said obligation.

Henri Kahn averred that the petitioner has no cause of action against him either in his personal
capacity or in his official capacity as president of the Federation because he did not guarantee
payment but merely acted as an agent of the Federation which has a separate and distinct juridical
personality. The Federation failed to file its answer, hence, was declared in default by the trial court.

The trial court ruled in favor of the petitioner and declared Henri Kahn personally liable for the unpaid
obligation of the Federation. CA reversed the trial court. Hence this Petition.

ISSUE: WON the doctrine of corporation by estoppel applies in this case.

RULING:

CA cited RA 3135 (Revised Charter of the Philippine Amateur Athletic Federation), and PD 604 as the
laws from which said Federation derives its existence. Both R.A. 3135 and P.D. No. 604 recognized
the juridical existence of national sports associations. These laws granted to national sports
associations certain powers and functions which clearly indicate that these entities may acquire a
juridical personality. Among these powers is the power to purchase, sell, lease and encumber property
which are acts that may only be done by persons, whether natural or artificial, with juridical capacity.
However, while we agree with the appellate court that national sports associations may be accorded
corporate status, such does not automatically take place by the mere passage of these laws. It is a
basic postulate that before a corporation may acquire juridical personality, the State must give its
consent either in the form of a special law or a general enabling act.

We cannot agree with the view of the CA and the private respondent that the Philippine Football
Federation came into existence upon the passage of these laws. Nowhere can it be found in R.A.
3135 or P.D. 604 any provision creating the Philippine Football Federation. These laws merely
recognized the existence of national sports associations and provided the manner by which these
entities may acquire juridical personality.

The said laws require that before an entity may be considered as a national sports association, such
entity must be recognized by the accrediting organization, the Philippine Amateur Athletic Federation
under R.A. 3135, and the Department of Youth and Sports Development under P.D. 604. This fact of
recognition, however, Henri Kahn failed to substantiate. In attempting to prove the juridical existence
of the Federation, Henri Kahn attached to his MR before the trial court a copy of the constitution and
by-laws of the Philippine Football Federation. Unfortunately, the same does not prove that said
Federation has indeed been recognized and accredited by either the Philippine Amateur Athletic
Federation or the Department of Youth and Sports Development. We rule that the Philippine Football
Federation is not a national sports association within the purview of the aforementioned laws and does
not have corporate existence of its own.

It follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the
unincorporated Philippine Football Federation. It is a settled principle in corporation law that any
person acting or purporting to act on behalf of a corporation which has no valid existence assumes
such privileges and becomes personally liable for contract entered into or for other acts performed as
such agent. As president of the Federation, Henri Kahn is presumed to have known about the
corporate existence or non-existence of the Federation.

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

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

 4. DOMESTIC AND FOREIGN
5. PARENT, SUBSIDIARY AND AFFILIATE
6. OPEN AND CLOSE
REPUBLIC v. CITY OF PARAÑAQUE, GR No. 191109, 2012-07-18
Facts:
The Public Estates Authority (PEA) is a government corporation created by virtue of
Presidential Decree (P.D.) No. 1084 (Creating the Public Estates Authority, Defining its
Powers and Functions, Providing Funds Therefor and For Other Purposes) which took...
effect on February 4, 1977 to provide a coordinated, economical and efficient reclamation of
lands, and the administration and operation of lands belonging to, managed and/or
operated by, the government with the object of maximizing their utilization and hastening
their... development consistent with public interest.
On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued by then President
Ferdinand Marcos, PEA was designated as the agency primarily responsible for integrating,
directing and coordinating all reclamation projects for and on behalf of the National
Government.
On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380
transforming PEA into PRA, which shall perform all the powers and functions of the PEA
relating to reclamation activities.
By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore
areas of Manila Bay, including those located in Parañaque City, and was issued Original
Certificates of Title (OCT Nos. 180, 202, 206, 207, 289, 557, and 559) and Transfer
Certificates of
Title (TCT Nos. 104628, 7312, 7309, 7311, 9685, and 9686) over the reclaimed lands.
On February 19, 2003, then Parañaque City Treasurer Liberato M. Carabeo (Carabeo)
issued Warrants of Levy on PRA's reclaimed properties (Central Business Park and
Barangay San Dionisio) located in Parañaque City based on the assessment for delinquent
real property... taxes made by then Parañaque City Assessor Soledad Medina Cue for tax
years 2001 and 2002.
On January 8, 2010, the RTC rendered its decision dismissing PRA's petition. In ruling that
PRA was not exempt from payment of real property taxes, the RTC reasoned out that it was
a GOCC under Section 3 of P.D. No. 1084. It was organized as a stock corporation
because it had an... authorized capital stock divided into no par value shares. In fact, PRA
admitted its corporate personality and that said properties were registered in its name as
shown by the certificates of title. Therefore, as a GOCC, local tax exemption is withdrawn
by virtue of Section 193... of Republic Act (R.A.) No. 7160 [Local Government Code (LGC)]
which was the prevailing law in 2001 and 2002 with respect to real property taxation. The
RTC also ruled that the tax exemption claimed by PRA under E.O. No. 654 had already
been expressly repealed by R.A. No.
7160 and that PRA failed to comply with the procedural requirements in Section 206
thereof.
PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the
Administrative Code. Neither is it a GOCC under Section 16, Article XII of the 1987
Constitution because it is not required to meet the test of economic viability. Instead, PRA is
a... government instrumentality vested with corporate powers and performing an essential
public service pursuant to Section 2(10) of the Introductory Provisions of the Administrative
Code. Although it has a capital stock divided into shares, it is not authorized to distribute...
dividends and allotment of surplus and profits to its stockholders. Therefore, it may not be
classified as a stock corporation because it lacks the second requisite of a stock corporation
which is the distribution of dividends and allotment of surplus and profits to the...
stockholders.
It insists that it may not be classified as a non-stock corporation because it has no members
and it is not organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like...
trade, industry, agriculture and like chambers as provided in Section 88 of the Corporation
Code.
Moreover, PRA points out that it was not created to compete in the market place as there
was no competing reclamation company operated by the private sector. Also, while PRA is
vested with corporate powers under P.D. No. 1084, such circumstance does not make it a
corporation but... merely an incorporated instrumentality and that the mere fact that an
incorporated instrumentality of the National Government holds title to real property does not
make said instrumentality a GOCC. Section 48, Chapter 12, Book I of the Administrative
Code of 1987 recognizes a... scenario where a piece of land owned by the Republic is titled
in the name of a department, agency or instrumentality.
Thus, PRA insists that, as an incorporated instrumentality of the National Government, it is
exempt from payment of real property tax except when the beneficial use of the real
property is granted to a taxable person. PRA claims that based on Section 133(o) of the
LGC, local... governments cannot tax the national government which delegate to local
governments the power to tax.
It explains that reclaimed lands are part of the public domain, owned by the State, thus,
exempt from the payment of real estate taxes. Reclaimed lands retain their inherent
potential as areas for public use or public service. While the subject reclaimed lands are still
in its... hands, these lands remain public lands and form part of the public domain. Hence,
the assessment of real property taxes made on said lands, as well as the levy thereon, and
the public sale thereof on April 7, 2003, including the issuance of the certificates of sale in
favor of... the respondent Parañaque City, are invalid and of no force and effect.
Issues:
Whether the Trial Court erred when it failed to consider that reclaimed lands are
part of the public domain.

THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT RECLAIMED

LANDS ARE PART OF THE PUBLIC DOMAIN AND, HENCE, EXEMPT FROM REAL
PROPERTY TAX.
Ruling:
The Court finds merit in the petition.
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.
Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of the Administrative
Code of 1987, thus:
SEC 14. Power to Reserve Lands of the Public and Private Dominion of the Government.-
(1) The President shall have the power to reserve for settlement or public use, and for
specific public purposes, any of the lands of the public domain, the use of which is not
otherwise directed by law. The reserved land shall thereafter remain subject to the specific
public... purpose indicated until otherwise provided by law or proclamation.
Reclaimed lands such as the subject lands in issue are reserved lands for public use. They
are properties of public dominion. The ownership of such lands remains with the State
unless they are withdrawn by law or presidential proclamation from public use.
Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of
Manila Bay are part of the "lands of the public domain, waters x x x and other natural
resources" and consequently "owned by the State." As such, foreshore and submerged
areas
"shall not be alienated," unless they are classified as "agricultural lands" of the public
domain. The mere reclamation of these areas by PEA does not convert these inalienable
natural resources of the State into alienable or disposable lands of the public domain. There
must be... a law or presidential proclamation officially classifying these reclaimed lands as
alienable or disposable and open to disposition or concession. Moreover, these reclaimed
lands cannot be classified as alienable or disposable if the law has reserved them for some
public or... quasi-public use.
As the Court has repeatedly ruled, properties of public dominion are not subject to
execution or foreclosure sale.
Thus, the assessment, levy and foreclosure made on the subject reclaimed lands by
respondent, as well as the issuances of certificates of... title in favor of respondent, are
without basis.
Principles:
Two requisites must concur before one may be classified as a stock corporation, namely:
(1) that it has capital stock divided into shares; and (2) that it is authorized to distribute
dividends and allotments of surplus and profits to its stockholders. If only one... requisite is
present, it cannot be properly classified as a stock corporation. As for non-stock
corporations, they must have members and must not distribute any part of their income to
said members.
CASE DIGEST: BOY SCOUTS OF THE PHILIPPINES v. COMMISSION
ON AUDIT. G.R. No.177131; June 7, 2011.

FACTS: This case arose when the COA issued Resolution No. 99-011on August
19, 1999 ("the COA Resolution"), with the subject "Defining the Commissions
policy with respect to the audit of the Boy Scouts of the Philippines." In its
whereas clauses, the COA Resolution stated that the BSP was created as a public
corporation under Commonwealth Act No. 111, as amended by Presidential
Decree No. 460 and Republic Act No. 7278; that in Boy Scouts of the Philippines
v. National Labor Relations Commission, the Supreme Court ruled that the BSP,
as constituted under its charter, was a "government-controlled corporation
within the meaning of Article IX(B)(2)(1) of the Constitution"; and that "the BSP
is appropriately regarded as a government instrumentality under the 1987
Administrative Code." The COA Resolution also cited its constitutional mandate
under Section 2(1), Article IX (D).Finally, the COA Resolution reads:

NOW THEREFORE, in consideration of the foregoing premises, the

COMMISSION PROPER HAS RESOLVED, AS IT DOES HEREBY RESOLVE,to
conduct an annual financial audit of the Boy Scouts of the Philippines in
accordance with generally accepted auditing standards, and express an opinion
on whether the financial statements which include the Balance Sheet, the Income
Statement and the Statement of Cash Flows present fairly its financial position
and results of operations.

xxxx

BE IT RESOLVED FURTHERMORE, that for purposes of audit supervision,the

Boy Scouts of the Philippines shall be classified among the government
corporations belonging to the Educational, Social, Scientific, Civic and Research
Sectorunder the Corporate Audit Office I, to be audited, similar to the subsidiary
corporations, by employing the team audit approach
ISSUE: Does COA have jurisdiction over BSP?

HELD: After looking at the legislative history of its amended charter and
carefully studying the applicable laws and the arguments of both parties, [the
Supreme Court found] that the BSP is a public corporation and its funds are
subject to the COA's audit jurisdiction.

The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936),
entitled "An Act to Create a Public Corporation to be Known as the Boy Scouts of
the Philippines, and to Define its Powers and Purposes" created the BSP as a
"public corporation"
There are three classes of juridical persons under Article 44 of the Civil Code and
the BSP, as presently constituted under Republic Act No. 7278,falls under the
second classification.Article 44 reads:

Art. 44. The following are juridical persons:

(1) The State and its political subdivisions;

(2)Other corporations,institutions and entities for public interest or purpose
created by law; their personality begins as soon as they have been constituted
according to law;
(3) Corporations, partnerships and associations forprivate interest or purposeto
which the law grants a juridical personality, separate and distinct from that of
each shareholder, partner or member.

The BSP, which is a corporation created for a public interest or purpose, is

subject to the law creating it under Article 45 of the Civil Code, which provides:

Art. 45.Juridical persons mentioned in Nos. 1 and 2 of the preceding article are
governed by the laws creating or recognizing them.

Private corporations are regulated by laws of general application on the subject.

Partnerships and associations for private interest or purpose are governed by the
provisions of this Code concerning partnerships.

The purpose of the BSP as stated in its amended charter shows that it was created
in order to implement a State policy declared in Article II, Section 13 of the
Constitution, which reads:

Section 13. The State recognizes the vital role of the youth in nation-building and
shall promote and protect their physical, moral, spiritual, intellectual, and social
well-being. It shall inculcate in the youth patriotism and nationalism, and
encourage their involvement in public and civic affairs.

Evidently, the BSP, which was created by a special law to serve a public purpose
in pursuit of a constitutional mandate, comes within the class of "public
corporations" defined by paragraph 2, Article 44 of the Civil Code and governed
by the law which creates it, pursuant to Article 45 of the same Code. DENIED.
CASE DIGEST: DANTE V. LIBAN, REYNALDO M. BERNARDO and SALVADOR M.
VIARI, Petitioners, vs. RICHARD J. GORDON, Respondent. PHILIPPINE
NATIONAL RED CROSS, Intervenor.

FACTS: Respondent filed a motion for partial reconsideration on a Supreme Court decision
which ruled that being chairman of the Philippine National Red Cross (PNRC) did not disqualify
him from being a Senator, and that the charter creating PNRC is unconstitutional as the PNRC
is a private corporation and the Congress is precluded by the Constitution to create such.The
Court then ordered the PNRC to incorporate itself with the SEC as a private corporation.
Respondent takes exception to the second part of the ruling, which addressed the
constitutionality of the statute creating the PNRC as a private corporation. Respondent avers
that the issue of constitutionality was only touched upon in the issue of locus standi. It is a rule
that the constitutionality will not be touched upon if it is not the lis mota of the case.

ISSUE: Was it proper for the Court to have ruled on the constitutionality of the
PNRC statute?
HELD: In the case at bar, the constitutionality of the PNRC statute was raised in the issue of
standing. As such, the Court should not have declared certain provisions of such as
unconstitutional. On the substantive issue, the PNRC is sui generis. It is unlike the private
corporations that the Constitution wants to prevent Congress from creating. First, the PNRC is
not organized for profit. It is an organization dedicated to assist victims of war and administer
relief to those who have been devastated by calamities, among others. It is entirely devoted to
public service. It is not covered by the prohibition since the Constitution aims to eliminate abuse
by the Congress, which tend to favor personal gain. Secondly, the PNRC was created in order to
participate in the mitigation of the effects of war, as embodied in the Geneva Convention. The
creation of the PNRC is compliance with international treaty obligations. Lastly, the PNRC is a
National Society, an auxiliary of the government. It is not like government instrumentalities and
GOCC.

The PNRC is regulated directly by international humanitarian law, as opposed to local law
regulating the other mentioned entities. As such, it was improper for the Court to have declared
certain portions of the PNRC statute as unconstitutional. However, it is the stand of Justice
Carpio that there is no mandate for the Government to create a National Society to this effect.
He also raises the fact that the PNRC is not sui generis in being a private corporation organized
for public needs. Justice Abad is of the opinion that the PNRC is neither private or
governmental, hence it was within the power of Congress to create.

It has been consistently held in Jurisprudence that the Court should exercise
judicial restraint when it comes to issues of constitutionality where it is not the lis
mota of the case.
Feliciano vs. COA (G.R. No. 147402, January 14, 2004
Facts: COA assessed Leyte Metropolitan Water District (LMWD) auditing fees. Petitioner Feliciano,
as General Manager of LMWD, contended that the water district could not pay the said fees on the
basis of Sections 6 and 20 of P.D. No. 198 as well as Section 18 of R.A. No. 6758. He primarily claimed
that LMWD is a private corporation not covered by COA's jurisdiction. Petitioner also asked for refund
of all auditing fees LMWD previously paid to COA. COA Chairman denied petitioner’s requests.
Petitioner filed a motion for reconsideration which COA denied. Hence, this petition.

Issue: Whether a Local Water District (“LWD”) created under PD 198, as amended, is a government-
owned or controlled corporation subject to the audit jurisdiction of COA or a private corporation which
is outside of COA’s audit jurisdiction.

Held: Petition lacks merit. The Constitution under Sec. 2(1), Article IX-D and existing laws mandate
COA to audit all government agencies, including government-owned and controlled corporations with
original charters. An LWD is a GOCC with an original charter.

The Constitution recognizes two classes of corporations. The first refers to private corporations
created under a general law. The second refers to government-owned or controlled corporations
created by special charters. Under existing laws, that general law is the Corporation Code.

Obviously, LWD’s are not private corporations because they are not created under the Corporation
Code. LWD’s are not registered with the Securities and Exchange Commission. Section 14 of the
Corporation Code states that “all corporations organized under this code shall file with the SEC articles
of incorporation x x x.” LWDs have no articles of incorporation, no incorporators and no stockholders
or members. There are no stockholders or members to elect the board directors of LWDs as in the
case of all corporations registered with the SEC. The local mayor or the provincial governor appoints
the directors of LWDs for a fixed term of office. The board directors of LWDs are not co-owners of the
LWDs. The board directors and other personnel of LWDs are government employees subject to civil
service laws and anti-graft laws. Clearly, an LWD is a public and not a private entity, hence, subject
to COA’s audit jurisdiction.
C. INCOPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS
1. CONTENTS AND FORM OF THE ARTICLES OF INCORPORATION
1.1 CORPORATE NAME
CASE DIGEST: Universal Mills Corporation vs. Universal Textile Mills
78 SCRA 62 (1977)

FACTS:

This is an appeal from the order of the Securities and Exchange Commission granting a petition by
the respondent to have the petitioner’s corporate name be changed as it is “confusingly and
deceptively similar” to that of the former.

On January 8, 1954, respondent Universal Textile Mills was issued a certificate of Corporation as a
textile manufacturing firm. On the other hand, petitioner, which deals in the production of hosieries and
apparels, acquired its current name by amending its articles of incorporation, changing its name from
Universal Hosiery mills Corporation to Universal Mills corporation.

ISSUE:

Whether or not petioner’s trade name is confusingly similar with that of respondent’s.

HELD:

Yes. The corporate names in question are not identical, but they are indisputably so similar that even
under the test of reasonable care and observation as the public generally are capable of using and
may be expected to exercise” invoked by appellant. We are apprehensive confusion will usually arise,
considering that x x x appellant included among its primary purposes the manufacturing, dyeing,
finishing and selling of fabrics of all kinds” which respondent had been engaged for more than a decade
ahead of petitioner.
Ang Mga Kaanib vs. Iglesia (December 12, 2001)
FACTS: Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (Church of
God in Christ Jesus, the Pillar and Ground of Truth), is a non-stock religious society or corporation
registered in 1936. Sometime in 1976, one Eliseo Soriano and several other members of respondent
corporation disassociated themselves from the latter and succeeded in registering on March 30, 1977
a new non-stock religious society or corporation, named Iglesia ng Dios Kay Kristo Hesus, Haligi at
Saligan ng Katotohanan. Respondent corporation filed with the SEC a petition to compel the Iglesia
ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan to change its corporate name to another
name that is not similar or identical to any name already used by a corporation, partnership or
association registered with the Commission. Petitioner is compelled to change its corporate name and
be barred from using the same or similar name on the ground that the same causes confusion among
their members as well as the public. SEC rendered a decision ordering petitioner to change its
corporate name. The Court of Appeals rendered the assailed decision affirming the decision of the
SEC En Banc.

ISSUE: Whether the court of appeals failed to properly appreciate the scope of the constitutional
guarantee on religious freedom

RULING: The additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc." in petitioner's
name are, as correctly observed by the SEC, merely descriptive of and also referring to the members,
or kaanib, of respondent who are likewise residing in the Philippines. These words can hardly serve
as an effective differentiating medium necessary to avoid confusion or difficulty in distinguishing
petitioner from respondent. This is especially so, since both petitioner and respondent corporations
are using the same acronym — H.S.K.; not to mention the fact that both are espousing religious beliefs
and operating in the same place. The fact that there are other non-stock religious societies or
corporations using the names Church of the Living God, Inc., Church of God Jesus Christ the Son of
God the Head, Church of God in Christ & By the Holy Spirit, and other similar names, is of no
consequence. It does not authorize the use by petitioner of the essential and distinguishing feature of
respondent's registered and protected corporate name. Ordering petitioner to change its corporate
name is not a violation of its constitutionally guaranteed right to religious freedom. In so doing, the
SEC merely compelled petitioner to abide by one of the SEC guidelines in the approval of partnership
and corporate names, namely its undertaking to manifest its willingness to change its corporate name
in the event another person, firm, or entity has acquired a prior right to the use of the said firm name
or one deceptively or confusingly similar to it. The instant petition for review is DENIED. The appealed
decision of the Court of Appeals is AFFIRMED in toto.
INDUSTRIAL REFRACTORIES CORP OF THE PHIL vs. CA ET AL DIGEST
DECEMBER 21, 2016 ~ VBDIAZ
[G.R. No. 122174. October 3, 2002]

INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES, petitioner, vs. COURT OF

APPEALS, SECURITIES AND EXCHANGE COMMISSION and REFRACTORIES CORPORATION
OF THE PHILIPPINES, respondents.

FACTS:

Respondent Refractories Corporation of the Philippines (RCP) is a corporation duly organized on

October 13, 1976 for the purpose of engaging in the business of manufacturing, producing, selling,
exporting and otherwise dealing in any and all refractory bricks, its by-products and derivatives. On
June 22, 1977, it registered its corporate and business name with the Bureau of Domestic Trade.

Petitioner IRCP on the other hand, was incorporated on August 23, 1979 originally under the name
“Synclaire Manufacturing Corporation”. It amended its Articles of Incorporation on August 23, 1985 to
change its corporate name to “Industrial Refractories Corp. of the Philippines”. It is engaged in the
business of manufacturing all kinds of ceramics and other products, except paints and zincs.

Both companies are the only local suppliers of monolithic gunning mix.

Discovering that petitioner was using such corporate name, respondent RCP filed on April 14, 1988
with the Securities and Exchange Commission (SEC) a petition to compel petitioner to change its
corporate name on the ground that its corporate name is confusingly similar with that of petitioner’s
such that the public may be confused or deceived into believing that they are one and the same
corporatio.

The SEC decided in favor of respondent RCP and rendered judgment declaring the latter’s corporate
name ‘Industrial Refractories Corporation of the Philippines’ as deceptively and confusingly similar to
that of petitioner’s corporate name ‘Refractories Corporation of the Philippines’. Accordingly,
respondent is hereby directed to amend its Articles of Incorporation by deleting the name ‘Refractories
Corporation of the Philippines’ in its corporate name within thirty (30) days from finality of this Decision.
Likewise, respondent is hereby ordered to pay the petitioner the sum of P50,000.00 as attorney’s
fees.”
Petitioner appealed to the SEC En Banc, arguing that it does not have any jurisdiction over the case,
and that respondent RCP has no right to the exclusive use of its corporate name as it is composed of
generic or common words.[4]

In its Decision dated July 23, 1993, the SEC En Banc modified the appealed decision in that petitioner
was ordered to delete or drop from its corporate name only the word “Refractories”.[5]

ISSUES:

(1) Whether or not the SEC has jurisdiction to hear and decide the case at bar;

(2) Whether or not there is confusing similarity between the corporate names of the petitioner and the
defendant; and

(3) Whether or not the respondent RCP is entitled to use the generic name “refractories”;

HELD:

(1) The jurisdiction of the SEC is not merely confined to the adjudicative functions provided in Section
5 of P.D. 902-A, as amended. By express mandate, it has absolute jurisdiction, supervision and control
over all corporations. It also exercises regulatory and administrative powers to implement and enforce
the Corporation Code, one of which is Section 18, which provides:

“SEC. 18. Corporate name. — No corporate name may be allowed by the Securities and Exchange
Commission if the proposed name is identical or deceptively or confusingly similar to that of any
existing corporation or to any other name already protected by law or is patently deceptive, confusing
or contrary to existing laws. When a change in the corporate name is approved, the Commission shall
issue an amended certificate of incorporation under the amended name.”

It is the SEC’s duty to prevent confusion in the use of corporate names not only for the protection of
the corporations involved but more so for the protection of the public, and it has authority to de-register
at all times and under all circumstances corporate names which in its estimation are likely to generate
confusion. Clearly therefore, the present case falls within the ambit of the SEC’s regulatory powers.

(2) Yes, there is confusing or deceptive similarity between petitioner and respondent RCP’s corporate
names.
As held in Philips Export B.V. vs. Court of Appeals, to fall within the prohibition of the law, two requisites
must be proven, to wit:

(1) that the complainant corporation acquired a prior right over the use of such corporate name;
and

(2) the proposed name is either: (a) identical, or (b) deceptively or confusingly similar to that of
any existing corporation or to any other name already protected by law; or (c) patently deceptive,
confusing or contrary to existing law.

As regards the first requisite, it has been held that the right to the exclusive use of a corporate name
with freedom from infringement by similarity is determined by priority of adoption. In this case,
respondent RCP was incorporated on October 13, 1976 and since then has been using the corporate
name “Refractories Corp. of the Philippines”. Meanwhile, petitioner was incorporated on August 23,
1979 originally under the name “Synclaire Manufacturing Corporation”. It only started using the name
“Industrial Refractories Corp. of the Philippines” when it amended its Articles of Incorporation on
August 23, 1985, or nine (9) years after respondent RCP started using its name. Thus, being the prior
registrant, respondent RCP has acquired the right to use the word “Refractories” as part of its
corporate name.

Anent the second requisite, in determining the existence of confusing similarity in corporate names,
the test is whether the similarity is such as to mislead a person using ordinary care and discrimination
and the Court must look to the record as well as the names themselves. Petitioner’s corporate name
is “Industrial Refractories Corp. of the Phils.”, while respondent’s is “Refractories Corp. of the Phils.”
Obviously, both names contain the identical words “Refractories”, “Corporation” and “Philippines”. The
only word that distinguishes petitioner from respondent RCP is the word “Industrial” which merely
identifies a corporation’s general field of activities or operations. It must be noted that both cater to
the same clientele, i.e.¸ the steel industry. And even without proof of actual confusion between the
two corporate names, it suffices that confusion is probable or likely to occur.

While the word “refractories” is a generic term, its usage is not widespread and is limited merely to the
industry/trade in which it is used, and its continuous use by respondent RCP for a considerable period
has made the term so closely identified with it.
PHILIPS EXPORT VS. COURT OF APPEALS- Corporate Trade Name
A corporation’s right to use its corporate and trade name is a property right, a right in rem, which it
may assert and protect against the whole world.

FACTS:
Philips Export B.V. (PEBV) filed with the SEC for the cancellation of the word “Philips” the corporate
name of Standard Philips Corporation in view of its prior registration with the Bureau of Patents and
the SEC. However, Standard Philips refused to amend its Articles of Incorporation so PEBV filed with
the SEC a petition for the issuance of a Writ of Preliminary Injunction, however this was denied ruling
that it can only be done when the corporate names are identical and they have at least 2 words
different. This was affirmed by the SEC en banc and the Court of Appeals thus the case at bar.

ISSUE:
Whether or not Standard Philips can be enjoined from using Philips in its corporate name

RULING: YES
A corporation’s right to use its corporate and trade name is a property right, a right in rem, which it
may assert and protect against the whole world. According to Sec. 18 of the Corporation Code, no
corporate name may be allowed if the proposed name is identical or deceptively confusingly similar to
that of any existing corporation or to any other name already protected by law or is patently deceptive,
confusing or contrary to existing law.

For the prohibition to apply, 2 requisites must be present:

(1) the complainant corporation must have acquired a prior right over the use of such corporate name
and

(2) the proposed name is either identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or patently deceptive, confusing or contrary
to existing law.

With regard to the 1st requisite, PEBV adopted the name “Philips” part of its name 26 years before
Standard Philips. As regards the 2nd, the test for the existence of confusing similarity is whether the
similarity is such as to mislead a person using ordinary care and discrimination. Standard Philips only
contains one word, “Standard”, different from that of PEBV. The 2 companies’ products are also the
same, or cover the same line of products. Although PEBV primarily deals with electrical products, it
has also shipped to its subsidiaries machines and parts which fall under the classification of “chains,
rollers, belts, bearings and cutting saw”, the goods which Standard Philips also produce. Also, among
Standard Philips’ primary purposes are to buy, sell trade x x x electrical wiring devices, electrical
component, electrical supplies. Given these, there is nothing to prevent Standard Philips from dealing
in the same line of business of electrical devices. The use of “Philips” by Standard Philips tends to
show its intention to ride on the popularity and established goodwill of PEBV.
DOCTRINE OF SECONDARY MEANING
Lyceum of the Philippines v. CA (G.R. No. 101897)
Facts:

Petitioner Lyceum of the Philippines had commenced before the SEC a proceeding against the
Lyceum of Baguio to change its corporate name alleging that the 2 names are substantially
identical because of the word ‘Lyceum’. SEC found for petitioner and the SC denied the
consequent appeal of Lyceum of Baguio in a resolution. Petitioner then basing its ground on
the resolution, wrote to all educational institutions which made use of the word ‘Lyceum’ as
part of their corporate name to discontinue their use. When this recourse failed, petitioner
moved before the SEC to enforce its exclusive use of the word ‘Lyceum.’ Petitioner further
claimed that the word ‘Lyceum’ has acquired a secondary meaning in its favor. The SEC
Hearing Officer found for petitioner. Both SEC En Banc and CA ruled otherwise.

Issues:

(1) Whether or not ‘Lyceum’ is a generic word which cannot be appropriated by petitioner to
the exclusion of others.

(2) Whether or not the word ‘Lyceum’ has acquired a secondary meaning in favor of petitioner.

(3) Whether or not petitioner is infringed by respondent institutions’ corporate names.

Ruling:

(1) YES. “Lyceum” is in fact as generic in character as the word “university.” In the name of
the petitioner, “Lyceum” appears to be a substitute for “university;” in other places, however,
“Lyceum,” or “Liceo” or “Lycee” frequently denotes a secondary school or a college. It may
be that the use of the word “Lyceum” may not yet be as widespread as the use of “university,”
but it is clear that a not inconsiderable number of educational institutions have adopted
“Lyceum” or “Liceo” as part of their corporate names. Since “Lyceum” or “Liceo” denotes a
school or institution of learning, it is not unnatural to use this word to designate an entity which
is organized and operating as an educational institution.

(2) NO. Under the doctrine of secondary meaning, a word or phrase originally incapable of
exclusive appropriation with reference to an article in the market, because geographical or
otherwise descriptive might nevertheless have been used so long and so exclusively by one
producer with reference to this article that, in that trade and to that group of the purchasing
public, the word or phrase has come to mean that the article was his produce. With the
foregoing as a yardstick, [we] believe the appellant failed to satisfy the aforementioned
requisites. While the appellant may have proved that it had been using the word ‘Lyceum’ for
a long period of time, this fact alone did not amount to mean that the said word had acquired
secondary meaning in its favor because the appellant failed to prove that it had been using the
same word all by itself to the exclusion of others. More so, there was no evidence presented
to prove that confusion will surely arise if the same word were to be used by other educational
institutions.

(3) NO. We do not consider that the corporate names of private respondent institutions are
“identical with, or deceptively or confusingly similar” to that of the petitioner institution. True
enough, the corporate names of private respondent entities all carry the word “Lyceum” but
confusion and deception are effectively precluded by the appending of geographic names to
the word “Lyceum.” Thus, we do not believe that the “Lyceum of Aparri” can be mistaken by
the general public for the Lyceum of the Philippines, or that the “Lyceum of Camalaniugan”
would be confused with the Lyceum of the Philippines. We conclude and so hold that petitioner
institution is not entitled to a legally enforceable exclusive right to use the word “Lyceum” in
its corporate name and that other institutions may use “Lyceum” as part of their corporate
names.
1.2 PURPOSE CLAUSE

Gala vs. Ellice Agro-Industrial Corp. (418 SCRA 431 [2003])

Corp Law Topic: Purpose Clauses

On March 28, 1979, the spouses Manuel and Alicia Gala, their children Guia Domingo, Ofelia Gala, Raul
Gala, and Rita Benson, and their encargados Virgilio Galeon and Julian Jader formed and organized the
Ellice Agro-Industrial Corporation.

As payment for their subscriptions, the Gala spouses transferred several parcels of land located in the
provinces of Quezon and Laguna to Ellice.

Issue:

Petitioners want this Court to disregard the separate juridical personalities of Ellice and Margo for the
purpose of treating all property purportedly owned by said corporations as property solely owned by the
Gala spouses.

Whether or not the purposes for which Ellice and Margo were organized should be declared as
illegal and contrary to public policy?

They claim that the respondents never pursued exemption from land reform coverage in good faith and
instead merely used the corporations as tools to circumvent land reform laws and to avoid estate taxes.

Specifically, they point out that respondents have not shown that the transfers of the land in favor of Ellice
were executed in compliance with the requirements of Section 13 of R.A. 3844.
Held:
The Court holds that petitioners’ contentions impugning the legality of the purposes for which Ellice and
Margo were organized, amount to collateral attacks which are prohibited in this jurisdiction.

The best proof of the purpose of a corporation is its articles of incorporation and by-laws. The articles of
incorporation must state the primary and secondary purposes of the corporation, while the by-laws outline
the administrative organization of the corporation, which, in turn, is supposed to insure or facilitate the
accomplishment of said purpose.

In the case at bar, a perusal of the Articles of Incorporation of Ellice and Margo shows no sign of the
allegedly illegal purposes that petitioners are complaining of.

If a corporation’s purpose, as stated in the Articles of Incorporation, is lawful, then the SEC has
no authority to inquire whether the corporation has purposes other than those stated, and
mandamus will lie to compel it to issue the certificate of incorporation.

Assuming there was even a grain of truth to the petitioners’ claims regarding the legality of what are
alleged to be the corporations’ true purposes, we are still precluded from granting them relief. We cannot
address here their concerns regarding circumvention of land reform laws, for the doctrine of primary
jurisdiction precludes a court from arrogating unto itself the authority to resolve a controversy the
jurisdiction over which is initially lodged with an administrative body of special competence.

With regard to their claim that Ellice and Margo were meant to be used as mere tools for the avoidance of
estate taxes, suffice it say that the legal right of a taxpayer to reduce the amount of what otherwise could
be his taxes or altogether avoid them, by means which the law permits, cannot be doubted.

Thus, even if Ellice and Margo were organized for the purpose of exempting the properties of the Gala
spouses from the coverage of land reform legislation and avoiding estate taxes, we cannot disregard their
separate juridical personalities.
1.3 PRINCIPAL OFFICE
1.4 TERM OF EXISTENCE
ALHAMBRA CIGAR VS SEC (G.R. NO. L-23606 JULY 29, 1968)

Alhambra Cigar & Cigarette Manufacturing Company Inc. vs Securities and Exchange
Commission
G.R. No. L-23606 July 29, 1968

Facts: Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc. (hereinafter
referred to simply as Alhambra) was duly incorporated under Philippine laws on January 15, 1912.
By its corporate articles it was to exist for fifty (50) years from incorporation. Its term of existence
expired on January 15, 1962. On that date, it ceased transacting business, entered into a state of
liquidation. Thereafter, a new corporation. — Alhambra Industries, Inc. — was formed to carry
on the business of Alhambra. On May 1, 1962, Alhambra’s stockholders, by resolution named
Angel S. Gamboa trustee to take charge of its liquidation. On June 20, 1963 — within Alhambra’s
three-year statutory period for liquidation – Republic Act 3531 was enacted into law. It amended
Section 18 of the Corporation Law; it empowered domestic private corporations to extend their
corporate life beyond the period fixed by the articles of incorporation for a term not to exceed fifty
years in any one instance. Previous to Republic Act 3531, the maximum non-extendible term of
such corporations was fifty years. On July 15, 1963, at a special meeting, Alhambra’s board of
directors resolved to amend paragraph “Fourth” of its articles of incorporation to extend its
corporate life for an additional fifty years, or a total of 100 years from its incorporation. On August
26, 1963, Alhambra’s stockholders, representing more than two-thirds of its subscribed capital
stock, voted to approve the foregoing resolution. On October 28, 1963, Alhambra’s articles of
incorporation as so amended certified correct by its president and secretary and a majority of its
board of directors, were filed with respondent Securities and Exchange Commission (SEC). On
November 18, 1963, SEC, however, returned said amended articles of incorporation to Alhambra’s
counsel with the ruling that Republic Act 3531 “which took effect only on June 20, 1963, cannot
be availed of by the said corporation, for the reason that its term of existence had already expired
when the said law took effect in short, said law has no retroactive effect.”

Issue: Whether or not the corporate life of a corporation be extended during the period of
winding up or after it’s charter has already expired.

Held: No. The common law rule, at the beginning, was rigid and inflexible in that upon its
dissolution, a corporation became legally dead for all purposes. Statutory authorizations had to
be provided for its continuance after dissolution “for limited and specified purposes incident to
complete liquidation of its affairs”. Thus, the moment a corporation’s right to exist as an
“artificial person” ceases, its corporate powers are terminated “just as the powers of a natural
person to take part in mundane affairs cease to exist upon his death”. There is nothing left but to
conduct, as it were, the settlement of the estate of a deceased juridical person.

From July 15 to October 28, 1963, when Alhambra made its attempt to extend its corporate
existence, its original term of fifty years had already expired (January 15, 1962); it was in the
midst of the three-year grace period statutorily fixed in Section 77 of the Corporation Law, thus:
.
SEC. 77. 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 years after the time when it would
have been so dissolved, for the purpose of prosecuting and defending suits by or against it and of
enabling it gradually to settle and close its affairs, to dispose of and convey its property and to
divide its capital stock, but not for the purpose of continuing the business for which it was
established.

Plain from the language of the provision is its meaning: continuance of a “dissolved” corporation
as a body corporate for three years has for its purpose the final closure of its affairs, and no other;
the corporation is specifically enjoined from “continuing the business for which it was
established”. The liquidation of the corporation’s affairs set forth in Section 77 became necessary
precisely because its life had ended. For this reason alone, the corporate existence and juridical
personality of that corporation to do business may no longer be extended.

Silence of the law on the matter is not hard to understand. Specificity is not really necessary. The
authority to prolong corporate life was inserted by Republic Act 3531 into a section of the law
that deals with the power of a corporation to amend its articles of incorporation. (For, the manner
of prolongation is through an amendment of the articles.) And it should be clearly evident that
under Section 77 no corporation in a state of liquidation can act in any way, much less amend its
articles, “for the purpose of continuing the business for which it was established”.

All these dilute Alhambra’s position that it could revivify its corporate life simply because when
it attempted to do so, Alhambra was still in the process of liquidation. It is surely impermissible
for us to stretch the law — that merely empowers a corporation to act in liquidation — to inject
therein the power to extend its corporate existence.

The pari materia rule of statutory construction, in fact, commands that statutes must be
harmonized with each other. So harmonizing, the conclusion is clear that Section 18 of the
Corporation Law, as amended by Republic Act 3531 in reference to extensions of corporate
existence, is to be read in the same light as Republic Act 1932. Which means that domestic
corporations in general, as with domestic insurance companies, can extend corporate existence
only on or before the expiration of the term fixed in their charters.

CASE DIGEST: MAJORITY STOCKHOLDERS OF RUBY V. LIM

G.R. No. 165887: June 7, 2011

MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL

CORPORATION, Petitioner, v. MIGUEL LIM et al., Respondents.

VILLARAMA, JR., J.:

FACTS:

Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass

manufacturing.Reeling from severe liquidity problems beginning in 1980, RUBY
filed onDecember 13, 1983a petition for suspension of payments with the
Securities and Exchange Commission (SEC) docketed as SEC Case No. 2556.On
December 20, 1983, the SEC issued an order declaring RUBY under suspension
of payments and enjoining the disposition of its properties pending hearing of the
petition, except insofar as necessary in its ordinary operations, and making
payments outside of the necessary or legitimate expenses of its business.

OnAugust 10, 1984, the SEC Hearing Panel created the management committee
(MANCOM) for RUBY, composed of representatives from Allied Leasing and
Finance Corporation (ALFC), Philippine Bank of Communications (PBCOM),
China Banking Corporation (China Bank), Pilipinas Shell Petroleum Corporation
(Pilipinas Shell), and RUBY represented by Mr. Yu Kim Giang.The MANCOM
was tasked to perform the following functions: (1) undertake the management of
RUBY; (2) take custody and control over all existing assets and liabilities of
RUBY; (3) evaluate RUBYs existing assets and liabilities, earnings and
operations; (4) determine the best way to salvage and protect the interest of its
investors and creditors; and (5) study, review and evaluate the proposed
rehabilitation plan for RUBY.

Subsequently, two (2) rehabilitation plans were submitted to the SEC: the
BENHAR/RUBY Rehabilitation Plan of the majority stockholders led by Yu Kim
Giang, and the Alternative Plan of the minority stockholders represented by
Miguel Lim (Lim).

Both plans were endorsed by the SEC to the MANCOM for evaluation.

OnApril 26, 1991, over ninety percent (90%) of RUBYs creditors objected to the
Revised BENHAR/RUBY Plan and the creation of a new management
committee.Instead, they endorsed the minority stockholders Alternative Plan.At
the hearing of the petition for the creation of a new management committee,
three (3) members of the original management committee (Lim, ALFC and
Pilipinas Shell) opposed the Revised BENHAR/RUBY Plan on grounds that:(1) it
would legitimize the entry of BENHAR, a total stranger, to RUBY as BENHAR
would become the biggest creditor of RUBY;(2) it would put RUBYs assets
beyond the reach of the unsecured creditors and the minority stockholders; and
(3) it was not approved by RUBYs stockholders in a meeting called for the
purpose.

Notwithstanding the objections of 90% of RUBYs creditors and three members of

the MANCOM, the SEC Hearing Panel approved on September 18, 1991the
Revised BENHAR/RUBY Plan and dissolved the existing management
committee.It also created a new management committee and appointed
BENHAR as one of its members. In addition to the powers originally conferred to
the management committee under Presidential Decree (P.D.) No. 902-A, the new
management committee was tasked to oversee the implementation by the Board
of Directors of the revised rehabilitation plan for RUBY.

ISSUE: Whether the minoritys pre-emptive rights were violated

HELD: Yes.

COMMERCIAL LAW: Corporation Law, Pre-emptive right

Pre-emptive right under Sec. 39 of the Corporation Code refers to the right of a
stockholder of a stock corporation to subscribe to all issues or disposition of
shares of any class, in proportion to their respective shareholdings.The right may
be restricted or denied under the articles of incorporation, and subject to certain
exceptions and limitations.The stockholder must be given a reasonable time
within which to exercise their preemptive rights.Upon the expiration of said
period, any stockholder who has not exercised such right will be deemed to have
waived it.

The validity of issuance of additional shares may be questioned if done in breach

of trust by the controlling stockholders.Thus, even if the pre-emptive right does
not exist, either because the issue comes within the exceptions in Section 39 or
because it is denied or limited in the articles of incorporation, an issue of shares
may still be objectionable if the directors acted in breach of trust and their
primary purpose is to perpetuate or shift control of the corporation, or to "freeze
out" the minority interest. In this case, the following relevant observations should
have signaled greater circumspection on the part of the SEC -- upon the third and
last remand to it pursuant to our January 20, 1998 decision -- to demand
transparency and accountability from the majority stockholders, in view of the
illegal assignments and objectionable features of the Revised BENHAR/RUBY
Plan, as found by the CA and as affirmed by this Court:

There can be no gainsaying the well-established rule in corporate practice and

procedure that the will of the majority shall govern in all matters within the limits
of the act of incorporation and lawfully enacted by-laws not proscribed by law.It
is, however, equally true that other stockholders are afforded the right to
intervene especially during critical periods in the life of a corporation like
reorganization, or in this case, suspension of payments, more so,when the
majority seek to impose their will and through fraudulent means, attempt to
siphon off Rubys valuable assets to the great prejudice of Ruby itself, as well as
the minority stockholders and the unsecured creditors.

Certainly, the minority stockholders and the unsecured creditors are given some
measure of protection by the law from the abuses and impositions of the
majority, more so in this case, considering thegive-away signs of private
respondents perfidy strewn all over the factual landscape.Indeed, equity cannot
deprive the minority of a remedy against the abuses of the majority, and the
present action has been instituted precisely for the purpose of protecting the true
and legitimate interests of Ruby against the Majority Stockholders.On this score,
the Supreme Court, has ruled that:

"Generally speaking, the voice of the majority of the stockholders is the law of the
corporation, but there are exceptions to this rule.There must necessarily be a
limit upon the power of the majority.Without such a limit the will of the majority
will be absolute and irresistible and might easily degenerate into absolute
tyranny.x x x" (Additional emphasis supplied.)

Lamentably, the SEC refused to heed the plea of the minority stockholders and
MANCOM for the SEC to order RUBY to commence liquidation proceedings,
which is allowed under Sec. 4-9 of the Rules on Corporate Recovery.Under the
circumstances, liquidation was the only hope of the minority stockholders for
effecting an orderly and equitable settlement of RUBYs obligations, and
compelling the majority stockholders to account for all funds, properties and
documents in their possession, and make full disclosure on the nullified credit
assignments.Oblivious to these pending incidents so crucial to the protection of
the interest of the majority of creditors and minority shareholders, the SEC
simply stated that in the interim, RUBYs corporate term was validly extended, as
if such extension would provide the solution to RUBYs myriad problems.

Extension of corporate term requires the vote of 2/3 of the outstanding capital
stock in a stockholders meeting called for the purpose.The actual percentage of
shareholdings in RUBY as of September 3, 1996 -- when the majority
stockholders allegedly ratified the board resolution approving the extension of
RUBY's corporate life to another 25 years was seriously disputed by the minority
stockholders,and we find the evidence of compliance with the notice and quorum
requirements submitted by the majority stockholders insufficient and
doubtful.Consequently, the SEC had no basis for its ruling denying the motion of
the minority stockholders to declare as without force and effect the extension of
RUBY's corporate existence.

DENIED.
 1.5 INCORPORATORS
1.6 DIRECTORS/TRUSTEES
1.7 AUTHORIZED CAPITAL STOCK/CAPITAL
1.8 SUBSCRIBED AND PAID-UP CAPITAL
Lanuza vs. CA

GR No. 131394 | March 28, 2005

Facts:

 Petitioners seek to nullify the Court of Appeals’ Decision in CA–G.R. SP No. 414731 promulgated on 18
August 1997, affirming the SEC Order dated 20 June 1996, and the Resolution2 of the Court of Appeals
dated 31 October 1997 which denied petitioners’ motion for reconsideration.

 In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven hundred
(700) founders’ shares and seventy-six (76) common shares as its initial capital stock subscription reflected
in the articles of incorporation

 Onrubia et. al, who were in control of PMMSI registered the company’s stock and transfer book for the
first time in 1978, recording thirty-three (33) common shares as the only issued and outstanding shares
of PMMSI.

 In 1979, a special stockholders’ meeting was called and held on the basis of what was considered as a
quorum of twenty-seven (27) common shares, representing more than two-thirds (2/3) of the common
shares issued and outstanding.

 In 1982, Juan Acayan, one of the heirs of the incorporators filed a petition for the registration of their
property rights was filed before the SEC over 120 founders’ shares and 12 common shares owned by their
father

 SEC Hearing Officer: heirs of Acayan were entitled to the claimed shares and called for a special
stockholders’ meeting to elect a new set of officers.

 SEC en banc: affirmed the decision

 As a result, the shares of Acayan were recorded in the stock and transfer book.

 On May 6, 1992, a special stockholders’ meeting was held to elect a new set of directors

 Onrubia et al filed a petition with SEC questioning the validity of said meeting alleging that the quorum
for the said meeting should not be based on the 165 issued and outstanding shares as per the stock and
transfer book, but on the initial subscribed capital stock of seven hundred seventy-six (776) shares, as
reflected in the 1952 Articles of Incorporation

 Petition was dismissed

 SC en banc: shares of the deceased incorporators should be duly represented by their respective
administrators or heirs concerned. Called for a stockholders meeting on the basis of the stockholdings
 reflected in the articles of incorporation for the purpose of electing a new set of officers for the
corporation

 Lanuza, Acayan et al, who are PMMSI stockholders, filed a petition for review with the CA, raising the
following issues:

1. whether the basis the outstanding capital stock and accordingly also for determining the quorum at
stockholders’ meetings it should be the 1978 stock and transfer book or if it should be the 1952 articles
of incorporation

(They contended that the basis is the stock and transfer book, not articles of incorporation in computing
the quorum)

2. whether the Espejo decision (decision of SEC en banc ordering the recording of the shares of Jose
Acayan in the stock and transfer book) is applicable to the benefit of Onrubia et al

 CA decision:

1. For purposes of transacting business, the quorum should be based on the outstanding capital stock as
found in the articles of incorporation

2. To require a separate judicial declaration to recognize the shares of the original incorporators would
entail unnecessary delay and expense. Besides. the incorporators have already proved their stockholdings
through the provisions of the articles of incorporation.

 Appeal was made by Lanuza et al before the SC

 Lanuza et al’ contention:

a. 1992 stockholders’ meeting was valid and legal

b. Reliance on the 1952 articles of incorporation for determining the quorum negates the
existence and validity of the stock and transfer book Onrubia et al prepared
c. Onrubia et al must show and prove entitlement to the founders and common shares in a
separate and independent action/proceeding in order to avail of the benefits secured by the heirs
of Acayan
 Onrubia et al’s contention, based on the Memorandum: petition should be dismissed on the ground of
res judicata

 Another appeal was made

 Lanuza et al’s contention: instant petition is separate and distinct from G.R. No. 131315, there being
no identity of parties, and more importantly, the parties in the two petitions have their own distinct rights
and interests in relation to the subject matter in litigation

 Onrubia et al’s manifestation and motion: moved for the dismissal of the case

Issue: What should be the basis of quorum for a stockholders’ meeting—the outstanding capital stock as
indicated in the articles of incorporation or that contained in the company’s stock and transfer book?
 Ruling:

 Articles of Incorporation

- Defines the charter of the corporation and the contractual relationships between the State and the
corporation, the stockholders and the State, and between the corporation and its stockholders.

- Contents are binding, not only on the corporation, but also on its shareholders.

 Stock and transfer book

- Book which records the names and addresses of all stockholders arranged alphabetically, the installments
paid and unpaid on all stock for which subscription has been made, and the date of payment thereof; a
statement of every alienation, sale or transfer of stock made, the date thereof and by and to whom made;
and such other entries as may be prescribed by law

- necessary as a measure of precaution, expediency and convenience since it provides the only certain and
accurate method of establishing the various corporate acts and transactions and of showing the
ownership of stock and like matters

- Not public record, and thus is not exclusive evidence of the matters and things which ordinarily are or
should be written therein

 In this case, the articles of incorporation indicate that at the time of incorporation, the incorporators
were bona fide stockholders of 700 founders’ shares and 76 common shares. Hence, at that time, the
corporation had 776 issued and outstanding shares.

 According to Sec. 52 of the Corp Code, “a quorum shall consist of the stockholders representing a
majority of the outstanding capital stock.” As such, quorum is based on the totality of the shares which
have been subscribed and issued, whether it be founders’ shares or common shares

 To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and
transfer book, and completely disregarding the issued and outstanding shares as indicated in the articles
of incorporation would work injustice to the owners and/or successors in interest of the said shares.

 The stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as
it does not reflect the totality of shares which have been subscribed, more so when the articles of
incorporation show a significantly larger amount of shares issued and outstanding as compared to that
listed in the stock and transfer book.

 One who is actually a stockholder cannot be denied his right to vote by the corporation merely because
the corporate officers failed to keep its records accurately. A corporation’s records are not the only
evidence of the ownership of stock in a corporation.

 It is no less than the articles of incorporation that declare the incorporators to have in their name the
founders and several common shares. Thus, to disregard the contents of the articles of incorporation
would be to pretend that the basic document which legally triggered the creation of the corporation does
not exist and accordingly to allow great injustice to be caused to the incorporators and their heirs
 Donnina Halley vs. Printwell, Inc.

Facts:
o BMPI (Business Media Philippines Inc.) is a corporation under the control of its
stockholders, including Donnina Halley.
o In the course of its business, BMPI commissioned PRINTWELL to print Philippines, Inc. (a
magazine published and distributed by BMPI)
o PRINTWELL extended 30-day credit accommodation in favor of BMPI and in a period of
9 mos. BMPI placed several orders amounting to 316,000.
o However, only 25,000 was paid hence a balance of 291,000
o PRINTWELL sued BMPI for collection of the unpaid balance and later on impleaded
BMPI’s original stockholders and incorporators to recover on their unpaid subscriptions.
o It appears that BMPI has an authorized capital stock of 3M divided into 300,000 shares
with P10 par value.
o Only 75,000 shares worth P750,000 were originally subscribed of which P187,500 were
paid up capital.
o Halley subscribed to 35,000 shares worth P350,000 but only paid P87,500.

Halley contends that:

1. They all had already paid their subscriptions in full
2. BMPI had a separate and distinct personality
3. BOD and SH had resolved to dissolve BMPI

RTC and CA
o Defendant merely used the corporate fiction as a cloak/cover to create an injustice
(against PRINTWELL)
o Rejected allegations of full payment in view of irregularity in the issuance of ORs
(Payment made on a later date was covered by an OR with a lower serial number than
payment made on an earlier date.

Issue: WON a stockholder who was in active management of the business of the corporation
and still has unpaid subscriptions should be made liable for the debts of the corporation by
piercing the veil of corporate fiction

Held: YES! Such stockholder should be made liable up to the extent of her unpaid subscription
Ratio:
 It was found that at the time the obligation was incurred, BMPI was under the control of
its stockholders who know fully well that the corporation was not in a position to pay its
account (thinly capitalized).
 And, that the stockholders personally benefited from the operations of the corporation
even though they never paid their subscriptions in full.

The stockholders cannot now claim the doctrine of corporate fiction otherwise (to deny
creditors to collect from SH) it would create an injustice because creditors would be at a loss
(limbo) against whom it would assert the right to collect.

On piercing the veil:

Although the corporation has a personality separate and distinct from its SH, such personality is
merely a legal fiction (for the convenience and to promote the ends of justice) which may be
disregarded by the courts if it is used as a cloak or cover for fraud, justification of a wrong, or an
alter ego for the sole benefit of the SH.

As to the Trust Fund Doctrine:

 The RTC and CA correctly applied the Trust Fund Doctrine
 Under which corporate debtors might look to the unpaid subscriptions for the
satisfaction of unpaid corporate debts
 Subscriptions to the capital of a corporation constitutes a trust fund for the payment of
the creditors (by mere analogy) In reality, corporation is a simple debtor.
 Moreover, the corporation has no legal capacity to release an original subscriber to its
capital stock from the obligation of paying for his shares, in whole or in part, without
valuable consideration, or fraudulently, to the prejudice of the creditors.
 The creditor is allowed to maintain an action upon any unpaid subscriptions and thereby
steps into the shoes of the corporation for the satisfaction of its debt.
 The trust fund doctrine is not limited to reaching the SH’s unpaid subscriptions. The
scope of the doctrine when the corporation is insolvent encompasses not only the
capital stock but also other property and assets generally regarded in equity as a trust
fund for the payment of corporate debts.
1.9 ARBITRATION AGREEMENT
1.10 UNDERTAKING TO CHANGE CORPORATE NAME
1.11 UNDERTAKING NOT TO TRANSFER STOCK OR INTEREST
1.12 OTHER MATTERS

2. AMENDMENT OF ARTICLES OF INCOPORATION