CORPORATION LAW ATTY.

DANTE DELA CRUZ

CASE DOCTRINES 3H 2017-2018

1. Union Glass & Container Corporation v. The 5. PHILCOMSAT v. Sandiganbayan

Securities and Exchange Commission G.R. No. 203023 June 17, 2015
L-64013 November 28, 1983
A combined application of the relationship test and the
Section 3 of PD No. 902-A confers upon the SEC nature of the controversy test has become the norm in
"absolute jurisdiction, supervision, and control over all determining whether a case is an intra-corporate
corporations, partnerships or associations, who are controversy to be “heard and decided by the [b]ranches
grantees of primary franchise and/or license or permit of the RTC specifically designed by the Court to try and
issued by the government to operate in the Philippines." decide such cases.”

Thus the law explicitly specified and delimited its

jurisdiction to matters intrinsically connected with the 6. The Collector of Internal Revenue V. The Club
regulation of corporations, partnerships and Filipino, Inc. De Cebu
associations and those dealing with the internal affairs G.R. No. L-12719 May 31, 1962
of such corporations, partnerships or associations.
For a stock corporation to exist, two requisites must be
The fact that the controversy at bar involves the rights complied with, to wit: (1) a capital stock divided into
of petitioner Union Glass who has no intra-corporate shares and (2) an authority to distribute to the holders
relation either with complainant or the DBP, places the of such shares, dividends or allotments of the surplus
suit beyond the jurisdiction of the respondent SEC. profits on the basis of the shares held.

2. Spouses Jose and Aurora Abejo, et. al v. Hon. 7. Dulay v. Court of Appeals
Rafael Dela Cruz G.R. No. 91889 August 27, 1993
GR No. L-63558 19 May 1987
A corporate action taken at a board meeting without
An intracorporate controversy is one which arises proper call or notice in a close corporation is deemed
between the stockholders and the corporation; it is ratified by the absent director unless the latter promptly
broad enough to cover all kinds of controversies files his written objection with the secretary of the
between the said parties. Thus, jurisdiction over corporation after having knowledge of the meeting.
intracorporate controversies fall within the exlusive and
original jurisdiction of the SEC as provided in PD 902-A
Sec. 5. 8. National Development Company v. Philippine
Veterans Bank
G.R. Nos. 84132-33 December 10, 1990
3. Alma Magalad v Priemier Financing Corp.
G.R. No. 87135 May 22, 1992 A private corporation should be organized under the
Corporation Law in accordance with Article XIV, Section
The fact that Premiere's authority to engage in financing 4 of the 1973 Constitution (now Sec. 16, Art. XII of the
already expired will not have the effect of divesting the 1987 Constitution).
SEC of its original and exclusive jurisdiction. The
expanded jurisdiction of the SEC was conceived
primarily to protect the interest of the investing public. 9. Pioneer Insurance & Surety Corporation v. CA
G.R. No. 84197 July 28, 1989

4. Securities and Exchange Commission v. Subic Where persons associate themselves together under
Bay Golf and Country Club, Inc. and Universal articles to purchase property to carry on a business, and
International Group Development Corporation their organization is so defective as to come short of
G.R. No. 179047 March 11, 2015 creating a corporation within the statute, they become
in legal effect partners inter se, and their rights as
Intra-corporate controversies, previously under the members of the company to the property acquired by
SEC’s jurisdiction, are now under the jurisdiction of the the company will be recognized. One who takes no part
Regional Trial Courts. However it does not necessarily except to subscribe for stock in a proposed corporation,
oust the SEC’s of its regulatory and administrative which is never legally formed, does not become a
jurisdiction to determine and act if there were partner with other subscribers who engage in business
administrative violations committed. under the name of the pretended corporation, so as to
be liable as such in an action for settlement of the
alleged partnership and contribution.

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10. IRON AND STEEL AUTHORITY v. CA

G.R. No. 102976 October 25, 1995 15. Municipality of Malabang v. Benito
G.R. No. L-28113 March 28, 1969
When the statutory term of a non-incorporated agency
expires, the powers, duties and functions as well as the It is indeed true that, generally, an inquiry into the legal
assets and liabilities of that agency revert back to, and existence of a municipality is reserved to the State in a
are re-assumed by, the Republic of the Philippines, in proceeding for quo warranto or other direct proceeding,
the absence of special provisions of law specifying and that only in a few exceptions may a private person
some other disposition thereof such as, e.g., devolution exercise this function of government. But the rule
or transmission of such powers, duties, functions, etc. disallowing collateral attacks applies only where the
to some other identified successor agency or municipal corporation is at least a de facto corporations.
instrumentality of the Republic of the Philippines. When For where it is neither a corporation de jure nor de facto,
the expiring agency is an incorporated one, the but a nullity, the rule is that its existence may be,
consequences of such expiry must be looked for, in the questioned collaterally or directly in any action or
first instance, in the charter of that agency and, by way proceeding by anyone whose rights or interests ate
of supplementation, in the provisions of the Corporation affected thereby, including the citizens of the territory
Code. Since, in the instant case, ISA is a non- incorporated unless they are estopped by their conduct
incorporated agency or instrumentality of the Republic, from doing so. In the cases where a de facto municipal
its powers, duties, functions, assets and liabilities are corporation was recognized as such despite the fact
properly regarded as folded back into the Government that the statute creating it was later invalidated, the
of the Republic of the Philippines and hence assumed decisions could fairly be made to rest on the
once again by the Republic, no special statutory consideration that there was some other valid law giving
provision having been shown to have mandated corporate vitality to the organization.
succession thereto by some other entity or agency of
the Republic.
16. Jose Yulo Agricultural Corporation v. Sps. Davis
G.R. No. 197709 August 03, 2015
11. Jacinto v CA
G.R. No. 80043/ 198 SCRA 211 June 6, 1991 Where two certificates of title purport to include the
same land, the earlier in date prevails.
Corporate veil was pierced because it was used as a
shield to perpetuate fraud and/or confuse legitimate Yulo, and petitioner for that matter, which is a
issues. There was no clear cut delimitation between the corporation that belonged to Yulo himself or is
personality of Jacinto and the corporation. connected to him and which became his successor-in-
interest, knew everything as far as his land is
concerned, or is charged with knowledge at least. Yulo
12. was the sole owner of the properties involved, and he
and his outfit were the sellers of the properties which
eventually were acquired by the respondents and the
13. Philippine First Insurance Company v. Maria Trajeras. They cannot claim to be ignorant of everything
Carmen Hartigan, CGH, and O. Engkee that went on with the properties they owned. They
G.R. No. L-26370 July 31, 1970 cannot be allowed to benefit from their own mistakes at
the expense of the respondents.
The general rule as to corporations is that each
corporation shall have a name by which it is to sue and
be sued and do all legal acts. The name of a corporation 17. Asia Banking Corporation v. Standard Products,
in this respect designates the corporation in the same Co., Inc.
manner as the name of an individual designates the G.R. No. 22106 September 11, 1924
person." Since an individual has the right to change his
name under certain conditions, there is no compelling The defendant having recognized the corporate
reason why a corporation may not enjoy the same right. existence of the plaintiff by making a promissory note in
Of course, as in the case of an individual, such change its favor and making partial payments on the same is
may not be made exclusively. by the corporation's own therefore estopped to deny said plaintiff's corporate
act. It has to follow the procedure prescribed by law for existence. It is, of course, also estopped from denying
the purpose; and this is what is important and its own corporate existence. Under these
indispensably prescribed — strict adherence to such circumstances it was unnecessary for the plaintiff to
procedure. present other evidence of the corporate existence of
either of the parties.

14.
18.

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21. Lim Tong Lim v. Philippine Fishing Gear

Industries, Inc.
19. Chiang Kai Shek School v.CA and Faustina G.R. No. 136448 November 3, 1999
Franco Oh
G.R. No. L-58028 April 18, 1989 Under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be
Having been recognized by the government, it was without valid existence, are held liable as general
under obligation to incorporate under the Corporation partners.
Law within 90 days from such recognition. It appears
that it had not done so at the time the complaint was
filed notwithstanding that it had been in existence even 22. International Express Travel & Tour Services,
earlier than 1932. The petitioner cannot now invoke its Inc. v. Hon. Court of Appeals, Henri Kahn,
own non-compliance with the law to immunize it from Philippines Football Federation
the private respondent's complaint. G.R. No. 119020 G.R. No. 119020

Any person acting or purporting to act on behalf of a

20. Reynaldo M. Lozano, v . Hon. Eliezer R. De Los corporation which has no valid existence assumes such
Santos, Presiding Judge, RTC, Br. 58, Angeles City; privileges and becomes personally liable for contract
and Antonio Anda entered into or for other acts performed as such agent
G.R. No. 125221 June 19, 1997

The jurisdiction of the Securities and Exchange 23. Loyola Grand Villas Homeowners (South)
Commission is determined by a concurrence of two Association, Inc. v. CA
elements: (1) the status or relationship of the parties; – G.R. No. 117188 August 7, 1997.
and (2) the nature of the question that is the subject of
their controversy. Failure to file the by-laws within any period does not
imply the "demise" of the corporation. The failure to
The principal function of the Securities and Exchange exercise the power will be ascribed to mere non-action
Commission is the supervision and control of which will not render void any acts of the corporation
corporations, partnerships and associations with the which would otherwise be valid. By-laws are
end in view that investments in these entities may be indispensable to corporations in this jurisdiction
encouraged and protected, and their activities pursued Nonetheless, failure to file them within the period
for the promotion of economic development. required by law by no means tolls the automatic
dissolution of a corporation. Incorporators must be
There is no intracorporate nor partnership relation given the chance to explain their neglect or omission
between two jeepney drivers’ and operators’ and remedy the same.
associations whose plan to consolidate into a single
common association is still a proposal—consolidation
becomes effective not upon mere agreement of the 24. Fleischer v. Botica Nolasco Co. Inc.
members but only upon issuance of the certificate of G.R. No. L-23241 March 14, 1925
consolidation by the SEC.
Section 13, par. 7, empowers a corporation to make by-
The SEC has no jurisdiction over a dispute between laws, not inconsistent with any existing law, for the
members of separate and distinct associations. transferring of its stock. It follows that a by-law adopted
by a corporation relating to transfer of stock should be
The doctrine of corporation by estoppel cannot override in harmony with the law on the subject of transfer of
jurisdictional requirements—jurisdiction is fixed by law stock. Section 35 specifically provides that the shares
and cannot be acquired through or waived, enlarged or of stock "are personal property and may be transferred
diminished by, any act or omission of the parties, and by delivery of the certificate indorsed by the owner, etc."
neither can it be conferred by the acquiescence of the
court. Said section 35 defines the nature, character and
transferability of shares of stock, stating that they are
Corporation by estoppel is founded on principles of personal property and may be transferred as therein
equity and is designed to prevent injustice and provided. It contemplates no restriction as to whom they
unfairness, and where there is no third person involved may be transferred or sold. It does not suggest that any
and the conflict arises only among those assuming the discrimination may be created by the corporation in
form of a corporation, who know that it has not been favor or against a certain purchaser.
registered, there is no corporation by estoppel.
The holder of shares, as owner of personal property, is
at liberty, under said section, to dispose of them in favor

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of whomsoever he pleases, without any other limitation 26. Stockholders of F. Guanzon and Sons, Inc. v.
in this respect, than the general provisions of law. Register of Deeds of Manila
G.R. No. L-18216 October 30, 1962
Therefore, a stock corporation in adopting a by-law
governing transfer of shares of stock should take into While shares of stock constitute personal property they
consideration the specific provisions of section 35 of Act do not represent property of the corporation. The
No. 1459, and said by-law should be made to corporation has property of its own which consists
harmonize with said provisions. It should not be chiefly of real estate. A share of stock only typifies an
inconsistent therewith. aliquot part of the corporation's property, or the right to
share in its proceeds to that extent when distributed
according to law and equity, but its holder is not the
25. The Government of the Philippine Islands (on owner of any part of the capital of the corporation. Nor
Relation of the Attorney-General) v. El Hogar is he entitled to the possession of any definite portion of
Filipino its property or assets.
G.R. No. L-26649 July 13, 1927

While the Constitution and the statutes provide that no 27. Caram v Court of Appeals
corporation shall engage in any business other than that G.R. No. L-48627 June 30, 1987
expressly authorized by its charter, we are of opinion
that, in renting out the unoccupied and unused portions The petitioners were merely among the financiers
of the building so erected, the association could not be whose interest was to be invited and who were in fact
said to engaged in any other business than that persuaded, on the strength of the project study, to invest
authorized by its charter. The renting of the unused in the proposed airline. As a bona fide corporation, the
portions of the building is a mere incident in the conduct Filipinas Orient Airways should alone be liable for its
of its real business. (2nd COA) corporate acts as duly authorized by its officers and
directors.
Unless the law or the charter of a corporation expressly
provides that an office shall become vacant at the The most that can be said is that they benefited from
expiration of the term of office for which the officer was such services, but that surely is no justification to hold
elected, the general rule is to allow the officer to them personally liable therefor.
holdover until his successor is duly qualified. (5th COA) Otherwise, all the other stockholders of the corporation,
including those who came in later, and regardless of the
It is true that the corporation law does not expressly amount of their share holdings, would be equally and
grant this power to maintain these reserves, but we personally liable also with the petitioners for the claims
think it is to be implied. The government insists, we of the private respondent.
thing, upon an interpretation of section 188 of the
Corporation Law that is altogether too strict and literal.
But it will be noted that it is provided in the same section 28. Palay, Inc. v Jacobo Clave
that the profits and losses shall be determined by the GR NO. L-56076 21 September 1983
board of directors and this means that they shall
exercise the usual discretion of good businessmen in The veil of corporate fiction cannot be pierced when no
allocating a portion of the annual profits to purposes sufficient proof exists that the corporation was used to
needful to the welfare of the association. (11th and 12th commit acts of fraud. Thus, the President cannot be
COA) held personally liable, jointly and severally, with the
corporation for the latter’s liabilities.
There is no statute here expressly declaring that loans
may be made by these associations solely for the
purpose of building homes. On the contrary, the building 29. JG Summit Holdings vs. CA
of homes is mentioned in section 171 of the Corporation G.R. No. 124293 September 24, 2003
Law as only one among several ends which building
and loan associations are designed to promote. Public bidding is the accepted method in arriving at a
Furthermore, section 181 of the Corporation Law fair and reasonable price and ensures that overpricing,
expressly authorities the Board of directors of the favoritism and other anomalous practices are
association from time to time to fix the premium to be eliminated or minimized. But the requirement for public
charged. (13th COA) bidding does not negate the exercise of the right of first
refusal.

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30. Young Auto Supply Co. and Nemesio Garcia v. 35. Concepcion Magsaysay-Labrador v. The Court
The Honorable Court of Appeals of Appeals
G.R. No. 104175 June 25, 1993 G.R. No. 58168 December 19, 1989

A corporation has no residence in the same sense in While a share of stock represents a proportionate or
which this term is applied to a natural person. But for aliquot interest in the property of the corporation, it does
practical purposes, a corporation is in a metaphysical not vest the owner thereof with any legal right or title to
sense a resident of the place where its principal office any of the property, his interest in the corporate property
is located as stated in the articles of incorporation. being equitable or beneficial in nature. Shareholders are
in no legal sense the owners of corporate property,
which is owned by the corporation as a distinct legal
31. Marvel Building v. Saturnino David person.
G.R. No. L-5081 February 24, 1954

Piercing the veil of corporate fiction; Castro would not 36. Indophil Textile Mill Workers Union-Ptgwo v.
have asked them to endorse their stock certificates, or Voluntary Arbitrator Teodorico P. Calica and
be keeping these in her possession, if they were really Indophil Textile Mills, Inc.
the owners. G.R. No. 96490 February 3, 1992

Under the doctrine of piercing the veil of corporate

32. Gregorio Palacio v. Fely Transportation entity, when valid grounds therefore exist, the legal
Company fiction that a corporation is an entity with a juridical
G.R. No. L-15121 August 31, 1962 personality separate and distinct from its members or
stockholders may be disregarded. In such cases, the
Corporation should not be heard to say that it has a corporation will be considered as a mere association of
personality separate and distinct from its members persons. The members or stockholders of the
when to allow it to do so would be to sanction the use of corporation will be considered as the corporation, that
the fiction of corporate entity as a shield to further an is liability will attach directly to the officers and
end subversive of justice. stockholders. The doctrine applies when the corporate
fiction is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, or when it is
33. National Marketing Corp. v. Associated Finance made as a shield to confuse the legitimate issues, or
Co., Inc. where a corporation is the mere alter ego or business
G.R. No. L-20886 April 27, 1967 conduit of a person, or where the corporation is so
organized and controlled and its affairs are so
It is settled law in this and other jurisdictions that when conducted as to make it merely an instrumentality,
the corporation is the mere alter ego of a person, the agency, conduit or adjunct of another corporation.
corporate fiction may be disregarded; the same being
true when the corporation is controlled, and its affairs
are so conducted as to make it merely an 37. Lyceum vs CA
instrumentality, agency or conduit of another. G.R. No. 101897/ 219 SCRA 610 March 5, 1993

The policy underlying the prohibition in Section 18

34. Tan Boon Bee & Co., Inc. v. The Honorable against the registration of a corporate name which is
Hilarion U. Jarencio, Presiding Judge Of Branch "identical or deceptively or confusingly similar" to that of
XXIII of the Court of First Instance of Manila, any existing corporation or which is "patently deceptive"
Graphic Publishing, Inc., and Philippine American or "patently confusing" or "contrary to existing laws," is
Drug Company the avoidance of fraud upon the public which would
G.R. No. L-41337 June 30, 1988 have occasion to deal with the entity concerned, the
evasion of legal obligations and duties, and the
It is true that a corporation, upon coming into being, is reduction of difficulties of administration and
invested by law with a personality separate and distinct supervision over corporations. We do not consider that
from that of the persons composing it as well as from the corporate names of private respondent institutions
any other legal entity to which it may be related. are "identical with, or deceptively or confusingly similar"
However, this separate personality of the corporation to that of the petitioner institution. True enough, the
may be disregarded, or the veil of corporate fiction corporate names of private respondent entities all carry
pierced, in cases where it is used as a cloak or cover for the word "Lyceum" but confusion and deception are
fraud or illegality, or to work an injustice, or where effectively precluded by the appending of geographic
necessary to achieve equity or when necessary for the names to the word "Lyceum." Thus, we do not believe
protection of creditors. that the "Lyceum of Aparri" can be mistaken by the
general public for the Lyceum of the Philippines, or that

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the "Lyceum of Camalaniugan" would be confused with

the Lyceum of the Philippines.
43. Cease v Court Of Appeals
G.R. No. L-33172 October 18, 1979
38.
Generally, a corporation is invested by law with a
personality separate and distinct from that of the
39. Eduardo Claparols v. Court of Industrial persons composing it as well as from that of any other
Relations, Allied Workers' Association and/or legal entity to which it may be related. By virtue of this
Demetrio Garlitos attribute, a corporation may not, generally, be made to
G.R. No. L-30822 July 31, 1975 answer for acts or liabilities of its stockholders or those
of the legal entities to which it may be connected, and
When the notion of legal entity is used to defeat public vice versa. This separate and distinct personality is,
convenience, justify wrong, protect fraud, or defend however, merely a fiction created by law for
crime, the law will regard the corporation as an convenience and to promote the ends of justice
association or persons, or, in the case of two
corporations, will merge them into one.
44.

40.
45. Jardine Davies, Inc. v. JRB Realty, Inc.,
G.R. No. 151438 July 15, 2005
41. Secosa v. Heirs of Francisco
G.R. No. 160039 June 29, 2004 While it is true that Aircon is a subsidiary of the
petitioner, it does not necessarily follow that Aircons’
The so-called veil of corporation fiction treats as corporate legal existence can just be disregarded. In
separate and distinct the affairs of a corporation and its applying the doctrine, the following requisites must be
officers and stockholders. As a general rule, a established: (1) control, not merely majority or complete
corporation will be looked upon as a legal entity, unless stock control; (2) such control must have been used by
and until sufficient reason to the contrary appears. the defendant to commit fraud or wrong, to perpetuate
When the notion of legal entity is used to defeat public the violation of a statutory or other positive legal duty,
convenience, justify wrong, protect fraud, or defend or dishonest acts in contravention of plaintiffs legal
crime, the law will regard the corporation as an rights; and (3) the aforesaid control and breach of duty
association of persons.[19] Also, the corporate entity must proximately cause the injury or unjust loss
may be disregarded in the interest of justice in such complained of.
cases as fraud that may work inequities among
members of the corporation internally, involving no
rights of the public or third persons. In both instances, 46. Koppel (Philippines), Inc.-Koppel (Philippines),
there must have been fraud and proof of it. For the Inc, v. Alfredo L. Yatco, Collector of Internal
separate juridical personality of a corporation to be Revenue
disregarded, the wrongdoing must be clearly and G.R. No. L-47673 October 10, 1946
convincingly established. It cannot be presumed.
A corporation will be looked upon as a legal entity as a
general rule, and until sufficient reason to the contrary
42. Benjamin Yu v. Nlrc and Jade Mountain appears; but, when the notion of legal entity is used to
Products Company Limited, et. al. defeat public convenience, justify wrong, protect fraud,
G.R. No. 97212 June 30, 1993 or defend crime, the law will regard the corporation as
an association of persons.
The legal effect of the changes in the membership of the
partnership was the dissolution of the old partnership Control by another corporation - The corporate entity is
and the emergence of a new firm. The occurrence of disregard where it is so organized and controlled, and
events which precipitate the legal consequence of its affairs are so conducted, as to make it merelan
dissolution of a partnership do not, however, instrumentality, agency, conduit or adjunct of another
automatically result in the termination of the legal corporation.
personality of the old partnership. Article 1829 of the
Civil Code states that “on dissolution the partnership is
not terminated, but continues until the winding up of
partnership affairs is completed.” In the ordinary course
of events, the legal personality of the expiring
partnership persists for the limited purpose of winding
up and closing of the affairs of the partnership.

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47. Liddell & Co., Inc. v. The Collector of Internal Thus, in cases alleging solidary liability with the
Revenue corporation or praying for the piercing of the corporate
G.R. No. L-9687 June 30, 1961 veil, parties who are normally treated as distinct
individuals should be made to participate in the
Where a corporation is a dummy and serves no arbitration proceedings in order to determine if such
business purpose and is intended only as a blind, the distinction should indeed be disregarded and, if so, to
corporate form may be ignored. determine the extent of their liabilities.

51. Jose Emmanuel P. Guillermo v. Crisanto P.

48. La Campana Coffee Factory, Inc.,aAnd Tan Uson,
Tong, doing business under the trade name "La G.R. No. 198967 March 07, 2016
Campana Gaugau Packing" v. Kaisahan Ng Mga
Manggagawa Sa La Campana (KKM) and The Court The veil of corporate fiction can be pierced, and
of Industrial Relations responsible corporate directors and officers or even a
G.R. No. L-5677 May 25, 1953. separate but related corporation, may be impleaded and
held answerable solidarily in a labor case, even after
The doctrine that a corporation is a legal entity existing final judgment and on execution, so long as it is
separate and apart from the persons composing it is a established that such persons have deliberately used
legal theory introduced for purposes of convenience the corporate vehicle to unjustly evade the judgment
and to subserve the ends of justice. The concept obligation, or have resorted to fraud, bad faith or malice
cannot, therefore, be extended to a point beyond its in doing so.
reason and policy, and when invoked in support of an
end subversive of this policy, will be disregarded by the
courts. 52. Viuda De Tan Toco v. The Municipal Council of
Iloilo
G.R. No. L-24950 March 25, 1926
49. WPM International Trading, Inc v. Fe Corazon
Labayen It is evident that the movable and immovable property
G.R. No. 182770 September 17, 2014 of a municipality, necessary for governmental purpose,
may not be attached and sold for the payment of a
The mere ownership by a single stockholder of even all judgment against the municipality. The supreme reason
or nearly all of the capital stocks of a corporation is not for this rule is the character of the public use to which
by itself a sufficient ground to disregard the separate such kind of property is devoted. The necessity for
corporate personality. The control necessary to invoke government service justifies that the property of public
the instrumentality or alter ego rule is not majority or of the municipality be exempt from execution just as it
even complete stock control but such domination of is necessary to exempt certain property of private
finances, policies and practices that the controlled individuals in accordance with section 452 of the Code
corporation has, so to speak, no separate mind, will or of Civil Procedure.
existence of its own, and is but a conduit for its principal.
The control must be shown to have been exercised at
the time the acts complained of took place. Moreover, 53. Adelio C. Cruz v. Quiterio L. Dalisay
the control and breach of duty must proximately cause Adm. Matter No. R-181-P July 31, 1987
the injury or unjust loss for which the complaint is made.
Respondent (Deputy Sheriff) chose to "pierce the veil of
corporate entity" usurping a power belonging to the
50. Lanuza v. BF Corporation court and assumed improvidently that since the
G.R. No. 174938 October 1, 2014 complainant is the owner/president of Qualitrans
Limousine Service, Inc., they are one and the same.
When the courts disregard the corporation’s distinct and
separate personality from its directors or officers, the It is a well-settled doctrine both in law and in equity that
courts do not say that the corporation is the same as its as a legal entity, a corporation has a personality distinct
directors, stockholders, officers, and agents. Courts and separate from its individual stockholders or
merely discount the distinction and treat them as one, in members. The mere fact that one is president of a
relation to a specific act, in order to extend the terms of corporation does not render the property he owns or
the contract and the liabilities for all damages to erring possesses the property of the corporation, since the
corporate officials who participated in the corporation’s president, as individual, and the corporation are
illegal acts. This is done so that the legal fiction cannot separate entities.
be used to perpetrate illegalities and injustices.

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54. NASECO Guards Association-PEMA v. National Thus, a stockholder does not automatically assume the
Service Corporation liabilities of the corporation of which he is a stockholder.
GR No. 165442 25 August 2010

Control, by itself, does not mean that the controlled 60. Eric Godfrey Stanley Livesey v Binswanger
corporation is a mere instrumentality or a business Philippines, Inc. and Keith Elliot
conduit of the mother company. There must be a G.R. No. 177493 March 19, 2014
perpetuation of fraud behind the control or at least a
fraudulent or illegal purpose behind the control in order Evasion of unfulfilled financial obligation can only be
to justify piercing the veil of corporate fiction. attributed to the President as it was apparent that
Binswanger's stockholders had nothing to do with the
corporation’s operations. The President knew that the
55. Pacific Rehouse vs. CA and EIB-Securities corporation had not fully complied with its financial
G.R. No. 199687 March 24, 2014 obligation under the compromise agreement. He made
sure that it would not be fulfilled when he allowed the
Existence of interlocking directors, corporate officers corporation's closure, despite the condition in the
and shareholders is not enough justification to pierce agreement that "unless and until the Compromise
the veil of corporate fiction in the absence of fraud or Amount has been fully settled and paid by, the
other public policy considerations. Company shall not suspend, discontinue, or cease its
entire or a substantial portion of its business
operations."

56. Kukan International Corporation v. Hon. Amor

Reyes 61. Heirs of Fe Tan Uy (Represented by her heir,
G.R. No. 182729 September 29, 2010 Mauling Uy Lim) v. International Exchange Bank
G.R. No. 166282 February 13, 2013
The principle of piercing the veil of corporate fiction, and
the resulting treatment of two related corporations as A corporation is a juridical entity which is vested with a
one and the same juridical person with respect to a legal personality separate and distinct from those acting
given transaction, is basically applied only to determine for and in its behalf and, in general, from the people
established liability; it is not available to confer on the comprising it. Following this principle, obligations
court a jurisdiction it has not acquired, in the first place, incurred by the corporation, acting through its directors,
over a party not impleaded in a case. officers and employees, are its sole liabilities. A director,
officer or employee of a corporation is generally not held
personally liable for obligations incurred by the
57. Philippine National Bank v. Hydro Resources corporation. Nevertheless, this legal fiction may be
G.R. No. 167530 March 13, 2013 disregarded if it is used as a means to perpetrate fraud
or an illegal act, or as a vehicle for the evasion of an
Piercing the corporate veil based on the alter ego theory existing obligation, the circumvention of statutes, or to
requires the concurrence of three elements: control of confuse legitimate issues. Before a director or officer of
the corporation by the stockholder or parent a corporation can be held personally liable for corporate
corporation, fraud or fundamental unfairness imposed obligations, however, the following requisites must
on the plaintiff, and harm or damage caused to the concur: (1) the complainant must allege in the complaint
plaintiff by the fraudulent or unfair act of the corporation. that the director or officer assented to patently unlawful
The absence of any of these elements prevents piercing acts of the corporation, or that the officer was guilty of
the corporate veil. gross negligence or bad faith; and (2) the complainant
must clearly and convincingly prove such unlawful acts,
negligence or bad faith
58. Macasaet v. Co
G.R. No. 156759 June 5, 2013
62.
A corporation by estoppel is a result of having
represented itself to the reading public as a corporation
despite its not being incorporated.
63. Medical Plaza Makati Condominium Corporation
v. Cullen
59. Aboitiz Equity Ventures, Inc. v. Chiongbian GR no. 181416 November 11, 2013
G.R. No. 197530 July 9, 2014
The nature of an action involving any dispute as to the
It is basic that a corporation has a personality separate validity of the assessment of association dues has been
and distinct from that of its individual stockholders. settled by the Court in Chateau de Baie Condominium

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Corporation v. Moreno. The Court held that the dispute the Philippines, sixty per centum at least of the stock or
as to the validity of the assessments is purely an intra- paid-up capital of which belongs entirely to citizens of
corporate matter. More so in this case as respondent the Philippines or of the United States; (2) the applicant
repeatedly questioned his characterization as a must be financially capable of undertaking the proposed
delinquent member and, consequently, petitioner’s service and meeting the responsibilities incident to its
decision to bar him from exercising his rights to vote and operation; and (3) the applicant must prove that the
be voted for. These issues are clearly corporate and the operation of the public service proposed and the
demand for damages is just incidental. Being corporate authorization to do business will promote the public
in nature, the issues should be threshed out before the interest in a proper and suitable manner.
RTC sitting as a special commercial court. Pursuant to
Section 5.2 of RA No. 8799, otherwise known as the
Securities Regulation Code, the jurisdiction of the SEC 69. Republic of the Philippines v. Acoje Mining
over all cases enumerated under Section 5 of Company, Inc.
Presidential Decree No. 902-A has been transferred to G.R. No. L-18062 February 28, 1963
RTCs designated by this Court as Special Commercial
Courts. While as a rule an ultra vires act is one committed
outside the object for which a corporation is created as
defined by the law of its organization and therefore
64. beyond the powers conferred upon it by law (19 C.J.S.,
Section 965, p. 419), there are however certain
corporate acts that may be performed outside of the
65. Narra Nickel Mining and Development Corp. v. scope of the powers expressly conferred if they are
Redmont Consolidated Mines Corp. necessary to promote the interest or welfare of the
G.R. No. 195580 April 21, 2014 corporation.

The Grandfather Rule applies only when the 60-40

Filipino-foreign equity ownership is in doubt. Stated 70. Irineo G. Carlos v. Mindoro Sugar Co., et al.
differently, where the 60-40 Filipino- foreign equity G.R. No. L-36207 October 26, 1932
ownership is not in doubt, the Grandfather Rule will not
apply. It is not, however, ultra vires for a corporation to enter
into contracts of guaranty or suretyship where it does so
in the legitimate furtherance of its purposes and
66. business. And it is well settled that where a corporation
acquires commercial paper or bonds in the legitimate
transaction of its business it may sell them, and in
67. Cagayan Fishing Development Co. Inc. v. furtherance of such a sale it may, in order to make them
Sandiko the more readily marketable, indorse or guarantee their
G.R. No. L-43350 December 23, 1937 payment.

A corporation, until organized, has no life and therefore

no faculties. It is, as it were, a child in ventre sa mere. 71.
This is not saying that under no circumstances may the
acts of promoters of a corporation be ratified by the
corporation if and when subsequently organized. There 72. National Power Corporation v. Honorable
are, of course, exceptions but under the peculiar facts Abraham P. Vera
and circumstances of the present case we decline to G.R. No. 83558 February 27, 1989
extend the doctrine of ratification which would result in
the commission of injustice or fraud to the candid and For if that act is one which is lawful in itself and not
unwary. otherwise prohibited, and is done for the purpose of
serving corporate ends, and reasonably contributes to
the promotion of those ends in a substantial and not in
68. Rizal Light & Ice Co., Inc. v. The Public Service a remote and fanciful sense, it may be fairly considered
Commission and Morong Electric Co., Inc. within the corporation's charter powers.
G.R. No. L-21221 September 28, 1968

Before any certificate may be granted, authorizing the 73. Madrigal & Company, Inc. v. Hon. Ronaldo B.
operation of a public service, three requisites must be Zamora
complied with, namely: (1) the applicant must be a G.R. No. L-48237 June 30, 1987
citizen of the Philippines or of the United States, or a
corporation or co-partnership, association or joint-stock It is incorrect to say that such profits — in the form of
company constituted and organized under the laws of dividends — are beyond the reach of the petitioner's

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creditors since the petitioner had received them as continue their business, instead of reforming and
compensation for its management services in favor of reorganizing under the Corporation Law, should
the companies it managed as a shareholder thereof. As continue to be governed by the laws that were in force
such shareholder, the dividends paid to it were its own prior to the passage of this Act.
money, which may then be available for wage
increments. It is not a case of a corporation distributing
dividends in favor of its stockholders, in which case, 77 Stonehill v Diokno
such dividends would be the absolute property of the G.R. No. L-19550 June 19, 1967
stockholders and hence, out of reach by creditors of the
corporation. The right to object to the admission of said papers in
evidence belongs exclusively to the corporations, to
whom the seized effects belong, and may not be
74. Henry Dela Rama Co v. Admiral United Savings invoked by the corporate officers in proceedings against
Bank them in their individual capacity.
G.R. No. 154740 April 16, 2008

An accommodation party who lends his name to enable 78. Bache and Co v. Hon. Ruiz
the accommodated party to obtain credit or raise money G.R. No. L-32409 February 27, 1971
is liable on the instrument to a holder for value even if
he receives no part of the consideration. He assumes A search warrant may be said to particularly describe
the obligation to the other party and binds himself to pay the things to be seized when the description therein is
the note on its due date. By signing the note, Co thus as specific as the circumstances will ordinarily allow; or
became liable for the debt even if he had no direct when the description expresses a conclusion of fact —
personal interest in the obligation or did not receive any not of law — by which the warrant officer may be guided
benefit therefrom. in making the search and seizure; or when things
described are limited to those which bear direct relation
to the offense for which the warrant is being issued
75. University of Mindanao, Inc v. Bangko Sentral (Sec. 2, Rule 126, Revised Rules of Court).
Ng Pilipinas
G.R. Nos. 194964-65 January 11, 2016. The herein search warrant does not conform to any of
the foregoing tests. If the articles desired to be seized
Acts of an officer that are not authorized by the board of have any direct relation to an offense committed, the
directors/trustees do not bind the corporation unless the applicant must necessarily have some evidence, other
corporation ratifies the acts or holds the officer out as a than those articles, to prove the said offense; and the
person with authority to transact on its behalf. articles subject of search and seizure should come in
handy merely to strengthen such evidence. In this
event, the description contained in the herein disputed
76. Harden v. Benguet Consolidated Mining warrant should have mentioned, at least, the dates,
Company amounts, persons, and other pertinent data regarding
G.R. No. L-37331 March 18, 1933 the receipts of payments, certificates of stocks and
securities, contracts, promissory notes, deeds of sale,
Section 75 of the Corporation Law, a provision is found messages and communications, checks, bank deposits
making the sociedad anonima subject to the provisions and withdrawals, records of foreign remittances, among
of the Corporation Law "so far as such provisions may others, enumerated in the warrant.
be applicable", and giving to the sociedades anonimas
previously created in the Islands the option to continue
business as such or to reform and organize under the 79. Mambulao Lumber Company v PNB
provisions of the Corporation Law. G.R. No. L-22973 January 30, 1968

Again, in section 191 of the Corporation Law, the Code Obviously, an artificial person like herein appellant
of Commerce is repealed in so far as it relates to corporation cannot experience physical sufferings,
sociedades anonimas. mental anguish, fright, serious anxiety, wounded
feelings, moral shock or social humiliation which are
The purpose of the commission in repealing this part of basis of moral damages. A corporation may have a
the Code of Commerce was to compel commercial good reputation which, if besmirched, may also be a
entities thereafter organized to incorporate under the ground for the award of moral damages.
Corporation Law, unless they should prefer to adopt
some form or other of the partnership.

To this provision was added another to the effect that

existing sociedades anonimas, which elected to

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80. LBC Express, Inc. v Court Of Appeals 86. Expertravel & Tours, Inc., v. Court of Appeals
GR No. 108670 21 September 1994 and Korean Airlines
G.R. No. 152392 May 26, 2005
Moral damages cannot be awarded to a corporation, the
latter being an artificial person which has no feelings, no The authority of the resident agent of a foreign
emotions, no senses; thus, cannot experience physical corporation with license to do business in the
suffering and mental anguish. Philippines is to receive, for and in behalf of the foreign
corporation, services and other legal processes in all
actions and other legal proceedings against such
81. ABS-CBN v. CA, Republic Broadcasting, and corporation.
Viva Productions
G.R. No. 128690 January 21, 1999 He is not specifically authorized to execute a certificate
of non-forum shopping as required by Section 5, Rule 7
The award of moral damages cannot be granted in favor of the Rules of Court. This is because while a resident
of a corporation because, being an artificial person and agent may be aware of actions filed against his principal
having existence only in legal contemplation, it has no (a foreign corporation doing business in the
feelings, no emotions, no senses. Philippines), such resident may not be aware of actions
initiated by its principal, whether in the Philippines
against a domestic corporation or private individual, or
82. Filipinas Broadcasting Network Inc v Ago in the country where such corporation was organized
Medical and registered, against a Philippine registered
G.R. No. 141994 January 17, 2005 corporation or a Filipino citizen.

A juridical person is generally not entitled to moral

damages because, unlike a natural person, it cannot 87. Citibank vs Chua
experience physical suffering or such sentiments as G.R. No. 102300 March 17, 1993
wounded feelings, serious anxiety, mental anguish or
moral shock, however, a corporation may have a good In the corporate hierarchy, there are three levels of
reputation which, if besmirched, may also be a ground control: (1) the board of directors, which is responsible
for the award of moral damages. for corporate policies and the general management of
the business affairs of the corporation; (2) the officers,
who in theory execute the policies laid down by the
83. board, but in practice often have wide latitude in
determining the course of business operations; and (3)
the stockholders who have the residual power over
fundamental corporate changes, like amendments of
84. J. F. Ramirez v. The Orientalist Co., and Ramon
the articles of incorporation. However, just as a natural
J. Fernandez
person may authorize another to do certain acts in his
G.R. No. 11897 September 24, 1918
behalf, so may the board of directors of a corporation
validly delegate some of its functions to individual
If a corporation knowingly permits one of its officer, or
officers or agents appointed by it.
any other agent, to do acts within the scope of an
apparent authority, and thus hold him out to the public
as possessing power to do those acts, the corporation
will as against anyone who has in good faith dealt with 88.
the corporation through such agent, be estopped from
denying his authority.
89. EPG Construction Company, Inc v. CA
GR no. 103372 June 22, 1992
85. Lopez v. Ericta
G.R. No. L-32991 June 29, 1972 It is settled that a corporation is invested by law with a
personality separate and distinct from those of the
The votes of abstention, viewed in their setting, can in persons composing it as well as from that of any other
no way be construed as votes for confirmation of the entity to which it may be related. The exception noted
appointment. is where the official "had acted maliciously or in bad
faith," in which event he may be made personally liable
for his own act.

90.

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91 Woodchild Holdings, Inc., v. Roxas and may appoint a receiver to collect such assets and
G.R. No. 140667 August 12, 2004 pay the debts of the corporation;" (2) under Section 77
of the Corporation Law, whereby a corporation whose
Absent estoppel or ratification, apparent authority corporate existence is terminated, "shall nevertheless
cannot remedy the lack of the written power required be continued as a body corporate for three years after
under the statement of frauds. In addition, the the time when it would have been so dissolved, for the
petitioners fallacy is its wrong assumption of the purpose of prosecuting and defending suits by or
unproved premise that the respondent had full against it and of enabling it gradually to settle and close
knowledge of all the terms and conditions contained in its affairs, to dispose of and convey its property and to
the deed of absolute sale when Roxas executed it. divide its capital stock, but not for the purpose of
There can be no apparent authority of an agent without continuing the business for which it was established;"
acts or conduct on the part of the principal and such acts and (3) under Section 78 of the Corporation Law, by
or conduct of the principal must have been known and virtue of which the corporation, within the three year
relied upon in good faith and as a result of the exercise period just mentioned, "is authorized and empowered to
of reasonable prudence by a third person as claimant convey all of its property to trustees for the benefit of
and such must have produced a change of position to members, stockholders, creditors, and others
its detriment. The apparent power of an agent is to be interested.”
determined by the acts of the principal and not by the
acts of the agent.
95. Advance Paper Corporation v. Arma Traders
For the principle of apparent authority to apply, the Corporation
petitioner was burdened to prove the following: (a) the G.R. No.176897 December 11, 2013
acts of the respondent justifying belief in the agency by
the petitioner; (b) knowledge thereof by the respondent The doctrine of apparent authority provides that a
which is sought to be held; and, (c) reliance thereon by corporation will be estopped from denying the agent’s
the petitioner consistent with ordinary care and authority if it knowingly permits one of its officers or any
prudence. In this case, there is no evidence on record other agent to act within the scope of an apparent
of specific acts made by the respondent showing or authority, and it holds him out to the public as
indicating that it had full knowledge of any possessing the power to do those acts. The doctrine of
representations made by Roxas to the petitioner that the apparent authority does not apply if the principal did not
respondent had authorized him to grant to the commit any acts or conduct which a third party knew
respondent an option to buy a portion of Lot No. 491-A- and relied upon in good faith as a result of the exercise
3-B-1 covered by TCT No. 78085, or to create a burden of reasonable prudence. Moreover, the agent’s acts or
or lien thereon, or that the respondent allowed him to do conduct must have produced a change of position to the
so. third party’s detriment.

92. 96.

93. Lapulapu foundation v. Tan 97. Grace Christian High School vs. CA
G.R. No. 126006 January 29, 2004 G.R. No. 108905 October 23, 1997

It is a familiar doctrine that if a corporation knowingly The provisions of the former and present corporation
permits one of its officers, or any other agent, to act law leave no room for doubt as to their meaning: the
within the scope of an apparent authority, it holds him board of directors of corporations must be elected from
out to the public as possessing the power to do those among the stockholders or members. There may be
acts; and thus, the corporation will, as against anyone corporations in which there are unelected members in
who has in good faith dealt with it through such agent, the board but it is clear that in the examples cited by
be estopped from denying the agents authority. petitioner the unelected members sit as ex officio
members, i.e., by virtue of and for as long as they hold
a particular office. But in the case of petitioner, there is
94. Board of Liquidators vs. Kalaw no reason at all for its representative to be given a seat
G.R. No. L-18805 August 14, 1967 in the board. Nor does petitioner claim a right to such
seat by virtue of an office held. In fact it was not given
Accepted in this jurisdiction are three methods by which such seat in the beginning. It was only in 1975 that a
a corporation may wind up its affairs: (1) under Section proposed amendment to the by-laws sought to give it
3, Rule 104, of the Rules of Court [which superseded one.
Section 66 of the Corporation Law] whereby, upon
voluntary dissolution of a corporation, the court may Since the provision in question is contrary to law, the
direct "such disposition of its assets as justice requires, fact that for fifteen years it has not been questioned or

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challenged but, on the contrary, appears to have been 101. Detective & Protective Bureau, Inc v.
implemented by the members of the association cannot Gaudencio Cloribel, and Fausto S. Alberto
forestall a later challenge to its validity. Neither can it G.R. No. L-23428 November 29, 1968
attain validity through acquiescence because, if it is
contrary to law, it is beyond the power of the members Every director must own in his own right at least one
of the association to waive its invalidity. For that matter share of the capital stock of the stock corporation of
the members of the association may have formally which he is a director, which stock shall stand in his
adopted the provision in question, but their action would name on the books of the corporation (Sec. 30,
be of no avail because no provision of the by-laws can Corporation Law). So that, if the By-Laws of the
be adopted if it is contrary to law. Corporation provides that "The manager shall be
elected by the Board of Directors from among its
members," one could not be a managing director of said
98. Zamboanga Tansporation v The Bachrach corporation unless he owns at least one share of stock
G.R. No. 27694 October 24, 1928 thereof.

When the president of a corporation, who is one of the Where ownership of the controlling interest in the
principal stockholders and at the same time its general corporation is in dispute, the party in control or in
manager, auditor, attorney or legal adviser, is possession of the disputed interest is presumed to have
empowered by its by-laws to enter into chattel mortgage the better right (to the position of managing corporate
contracts, subject to the approval of the board of director) until the contrary is adjudged, and hence, that
directors, and enters into such contracts with the tacit party should not be deprived of the control or
approval of two members of the board of directors, one possession until the court is prepared to adjudicate the
of whom is a principal shareholder, both of whom, controverted right in favor of the other party.
together with the president, form a majority, and said
corporation takes advantage of the benefits afforded by
said contract, such acts are equivalent to an implied 102. Roxas v Delarosa
ratification of said contract by the board of directors and G.R. No. L-26555 November 16, 1926
binds the corporation even if not formally approved by
said board of directors as required by the by-laws of the Under the law the directors of a corporation can only be
aforesaid corporation. removed from office by a vote of the stockholders
representing at least two-thirds of the subscribed capital
Though a chattel mortgage contract entered into by a stock entitled to vote (Act No. 1459, sec. 34); while
public service corporation is ineffective without the vacancies in the board, when they exist, can be filled by
authorization and approval of the Public Utility mere majority vote, (Act No. 1459, sec. 25).
Commission, it may be valid if it contains all the material
and formal requisites demanded by the law for its Moreover, the law requires that when action is to be
validity, and said Public Utility Commission may make it taken at a special meeting to remove the directors, such
retroactive by nunc pro tunc authorization and approval. purpose shall be indicated in the call (Act No. 1459, sec.
34).

99. Board of Directors v. Tan Upon examining into the number of shares controlled by
G.R. No. L-12282 March 31, 1959 the voting trust, it will be seen that, while the trust
controls a majority of the stock, it does not have a clear
When it appears that a fair election cannot be had, the two-thirds majority.
court in the exercise of its equity jurisdiction may
appoint a committee with the authority to call, conduct It was therefore impolitic for the petitioners, in forcing
and supervise the election of the directors or the the call for the meeting of August 16.
association.
Instead, the call was limited to the election of the board
of directors, it being the evident intention of the voting
100. Ponce v Encarnacion trust to elect a new board as if the directorate had been
G.R. No. L-5883 November 28, 1953 then vacant.

With respect to Sec. 26 of the Corporation Law, The

requirement that "on the showing of good cause 103. Angeles v. Santos
therefor," the court may grant to a stockholder the G.R. No. L-43413 August 31, 1937
authority to call such meeting and to preside thereat
does not mean that the petition must be set for hearing It is well settled in this jurisdiction that where corporate
with notice served upon the board of directors –it may directors are guilty of a breach of trust — not of mere
be granted ex parte. error of judgment or abuse of discretion — and
intracorporate remedy is futile or useless, a stockholder

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may institute a suit in behalf of himself and other 107. Everette v. Asia Banking Corp.
stockholders and for the benefit of the corporation, to G.R. No. L-25241 November 3, 1926
bring about a redress of the wrong inflicted directly upon
the corporation and indirectly upon the stockholers. Shareholders cannot ordinarily sue in equity to redress
wrongs done to the corporation, but that the action must
There are abundant authorities, however, which hold be brought by the Board of Directors, except if a
that if the court has acquire jurisdiction to appoint a demand upon the Board of Directors to institute an
receiver because of the mismanagement of directors action and prosecute the same effectively would have
these may thereafter be remove and others appointed been useless, and the law does not require litigants to
in their place by the court in the exercise of its equity perform useless acts.

104. Bernas v. Sinco 108.

G.R. Nos. 163356-57 July 1, 2015

A corporation's board of directors is understood to be 109. Alfredo Montelibano. v. Bacolod-Murcia Milling

that body which (1) exercises all powers provided for G.R. No. L-15092 May 18, 1962
under the Corporation Code; (2) conducts all business
of the corporation; and (3) controls and holds all the As the resolution in question was passed in good faith
property of the corporation. Its members have been by the board of directors, it is valid and binding, and
characterized as trustees or directors clothed with whether or not it will cause losses or decrease the
fiduciary character. It is ineluctably clear that the profits of the central, the court has no authority to review
fiduciary relation is between the stockholders and the them.
board of directors and who are vested with the power to
manage the affairs of the corporation. The ordinary trust
relationship of directors of a corporation and 110. Philippine Stock Exchange, Inc v. CA
stockholders is not a matter of statutory or technical law. G.R. No. 125469 October 27, 1997
It springs from the fact that directors have the control
and guidance of corporate affairs and property and A corporation is but an association of individuals,
hence of the property interests of the stockholders. allowed to transact under an assumed corporate name,
and with a distinct legal personality. In organizing itself
as a collective body, it waives no constitutional
105. De la Rama vs. Ma-Ao Sugar Central Co., Inc. immunities and perquisites appropriate to such body. As
G.R. No. L-17504 & L-17506 February 28, 1969 to its corporate and management decisions, therefore,
the state will generally not interfere with the same.
An investment of corporate funds in another Questions of policy and of management are left to the
corporation, if done in pursuance of the corporate honest decision of the officers and directors of a
purpose, does not need the approval of the corporation, and the courts are without authority to
stockholders. But when the purchase of shares of substitute their judgment for the judgment of the board
another corporation is done solely for investment and of directors. The board is the business manager of the
not to accomplish the purpose of its incorporation, the corporation, and so long as it acts in good faith, its
vote of approval of the stockholders is necessary. orders are not reviewable by the courts.

Further, when the purpose is as stated in its articles of

incorporation, the approval of the stockholders is not 111. Steinberg v. Velasco
necessary. The Corporation Law allows a corporation to G.R. No. 30460 March 12, 1929
invest its funds in any other corporation or business, or
for any purpose other than the main purpose for which Creditors of a corporation have the right to assume that
it was organized, provided that its board of directors has so long as there are outstanding debts and liabilities, the
been so authorized by the affirmative vote of board of directors will not use the assets of the
stockholders holding shares entitling them to exercise corporation to purchase its own stock, and that it will not
at lease 2/3 of the voting power. declare dividends to stockholders when the corporation
is insolvent.

106.
112. Pedro R. Palting v. San Jose Petroleum
Incorporated
G.R. No. L-14441 December 17, 1966

The privilege to utilize, exploit and develop the natural

resources of the Philippines was granted by Article XIII

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of the [1935] Constitution, to Filipino citizens or to because the Corporation Law gives the corporation the
corporations or associations 60% of the capital of which power to provide qualifications of its directors.
is owned by such citizens. With the Parity Amendment
to the Constitution, the same right was extended to
citizens of the United States and business enterprise 116.
owned or controlled, directly or indirectly, by citizens of
the United States. There can be no serious doubt as to
the meaning of the word "citizens" used in the 117. Central Cooperative Exchange, Inc. v.
aforementioned provisions of the Constitution. The right Concordio Tibe, Sr. and The Honorable Court of
was granted to two types of persons; natural persons Appeals
(Filipino or American citizen) and juridical persons G.R. No. L-27972 June 30, 1970.
(corporations 60% of which capital is owned by Filipinos
and business enterprises owned or controlled directly or The matter of providing for their compensations are
indirectly by citizens of the United States). specifically withheld from the board of directors, and
reserved to the stockholders.
NB: This case was decided during the effectivity of the
1935 Constitution and the Corporation Law (Act No.
1459). The parity right is found in the Bell Trade Act; it
118.
lasted until July 3, 1974 as indicated in Article VII of the
Act.
119. Gokongwei Jr. v. SEC
G.R. No. L-45911 April 11, 1979
113. Mead v McCullough
G.R. No. 102300 March 17, 1993
Ex. conclusion of a competitor from the Board is
legitimate corporate purpose, considering that being a
In the corporate hierarchy, there are three levels of
competitor, petitioner cannot devote an unselfish and
control: (1) the board of directors, which is responsible
undivided Loyalty to the corporation; that it is essentially
for corporate policies and the general management of
a preventive measure to assure stockholders of San
the business affairs of the corporation; (2) the officers,
Miguel Corporation of reasonable protective from the
who in theory execute the policies laid down by the
unrestrained self-interest of those charged with the
board, but in practice often have wide latitude in
promotion of the corporate enterprise; that access to
determining the course of business operations; and (3)
confidential information by a competitor may result
the stockholders who have the residual power over
either in the promotion of the interest of the competitor
fundamental corporate changes, like amendments of
at the expense of the San Miguel Corporation, or the
the articles of incorporation. However, just as a natural
promotion of both the interests of petitioner and
person may authorize another to do certain acts in his
respondent San Miguel Corporation, which may,
behalf, so may the board of directors of a corporation
therefore, result in a combination or agreement in
validly delegate some of its functions to individual
violation of Article 186 of the Revised Penal Code by
officers or agents appointed by it.
destroying free competition to the detriment of the
consuming public.
114. It is recognized by an authorities that 'every corporation
has the inherent power to adopt by-laws 'for its internal
government, and to regulate the conduct and prescribe
115. The Government of the Philippine Islands v. El the rights and duties of its members towards itself and
Hogar Filipino among themselves in reference to the management of
GR no. L-26649 July 13, 1927 its affairs. 12 At common law, the rule was "that the
power to make and adopt by-laws was inherent in every
A provision in the by-laws allowing the BOD, by vote of corporation as one of its necessary and inseparable
absolute majority, to cancel shares is a patent nullity, legal incidents. In this jurisdiction, under section 21 of
being in direct conflict with Sec. 187 of the Corp. Law the Corporation Law, a corporation may prescribe in its
which prohibits forced surrender of unmatured stocks by-laws "the qualifications, duties and compensation of
except in case of dissolution. directors, officers and employees ... " This must
necessarily refer to a qualification in addition to that
A provision in the by-laws fixing the salary of directors specified by section 30 of the Corporation Law, which
is valid since the Corporation Law does not prescribe provides that "every director must own in his right at
the rate of compensation, the power to fix compensation least one share of the capital stock of the stock
lies with the corporation. corporation of which he is a director.

A provision requiring persons elected to the Board of It being settled that the corporation has the power to
Directors to own at least P 5,000 shares is valid provide for the qualifications of its directors, the next

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question that must be considered is whether the

disqualification of a competitor from being elected to the Assuming arguendo that the Board of Directors of SMC
Board of Directors is a reasonable exercise of corporate had no authority to make the assailed investment, there
authority. is no question that a corporation, like an individual, may
ratify and thereby render binding upon it the originally
Although in the strict and technical sense, directors of a unauthorized acts of its officers or other agents. 70 This
private corporation are not regarded as trustees, there is true because the questioned investment is neither
cannot be any doubt that their character is that of a contrary to law, morals, public order or public policy. It
fiduciary insofar as the corporation and the stockholders is a corporate transaction or contract which is within the
as a body are concerned. As agents entrusted with the corporate powers, but which is defective from a
management of the corporation for the collective benefit supported failure to observe in its execution the
of the stockholders, "they occupy a fiduciary relation, requirement of the law that the investment must be
and in this sense the relation is one of trust. authorized by the affirmative vote of the stockholders
holding two-thirds of the voting power. This requirement
Thus, it has been held that an officer of a corporation is for the benefit of the stockholders. The stockholders
cannot engage in a business in direct competition with for whose benefit the requirement was enacted may,
that of the corporation where he is a director by utilizing therefore, ratify the investment and its ratification by
information he has received as such officer, under "the said stockholders obliterates any defect which it may
established law that a director or officer of a corporation have had at the outset.
may not enter into a competing enterprise which
cripples or injures the business of the corporation of
which he is an officer or director. 120.

It is also well established that corporate officers "are not

permitted to use their position of trust and confidence to 121. Pardo v. The Hercules Lumber Co., Inc.
further their private interests." 27 In a case where G.R. No. L-22442 August 1, 1924
directors of a corporation cancelled a contract of the
corporation for exclusive sale of a foreign firm's Our statute declares that the right of inspection can be
products, and after establishing a rival business, the exercised "at reasonable hours." This means at
directors entered into a new contract themselves with reasonable hours on business days throughout the
the foreign firm for exclusive sale of its products, the year, and not merely during some arbitrary period of a
court held that equity would regard the new contract as few days chosen by the directors.
an offshoot of the old contract and, therefore, for the
benefit of the corporation, as a "faultless fiduciary may
not reap the fruits of his misconduct to the exclusion of
122. Ramon A. Gonzales v. The Philippine National
his principal.
Bank
G.R. No. L-33320 May 30, 1983
The doctrine of "corporate opportunity" 29 is precisely a
recognition by the courts that the fiduciary standards
Among the changes introduced in the new Code with
could not be upheld where the fiduciary was acting for
respect to the right of inspection granted to a
two entities with competing interests. This doctrine rests
stockholder are the following the records must be kept
fundamentally on the unfairness, in particular
at the principal office of the corporation; the inspection
circumstances, of an officer or director taking advantage
must be made on business days; the stockholder may
of an opportunity for his own personal profit when the
demand a copy of the excerpts of the records or
interest of the corporation justly calls for protection.
minutes; and the refusal to allow such inspection shall
subject the erring officer or agent of the corporation to
There is another important consideration in determining
civil and criminal liabilities. However, while seemingly
whether or not the amended by-laws are reasonable.
enlarging the right of inspection, the new Code has
The Constitution and the law prohibit combinations in
prescribed limitations to the same. It is now expressly
restraint of trade or unfair competition. Thus, section 2
required as a condition for such examination that the
of Article XIV of the Constitution provides: "The State
one requesting it must not have been guilty of using
shall regulate or prohibit private monopolies when the
improperly any information through a prior examination,
public interest so requires. No combinations in restraint
and that the person asking for such examination must
of trade or unfair competition shall be snowed."
be "acting in good faith and for a legitimate purpose in
making his demand.
The test must be whether the business does in fact
compete, not whether it is capable of an indirect and
highly unsubstantial duplication of an isolated or non-
characteristics activity. 47 It is, therefore, obvious that
not every person or entity engaged in business of the
same kind is a competitor.

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123. Veraguth v Isabela Sugar Company assets on the basis of their respective holdings. (dapat
G.R. No. L-37064 October 4, 1932 yung prayer nila is pay the value to the corporation., not
to them)
Directors of a corporation have the unqualified right to While plaintiffs ask for a remedy to which they are not
inspect the books and records of the corporation at all entitled unless the requirement of section 16 of the
reasonable times. Pretexts may not be put forward by Corporation Law be first complied with, we note that the
officers of corporations to keep a director or shareholder action stated in their complaint is susceptible of being
from inspecting the books and minutes of the converted into a derivative suit for the benefit of the
corporation, and the right of inspection is not to be corporation by a mere change in the prayer.
denied on the ground that the director or shareholder is
on unfriendly terms with the officers of the corporation
whose records are sought to be inspected. 127. Republic Bank v. Miguel Cuaderno
G.R. No. L-22399 March 30, 1967

124. Pascual v. Del Saz Orozco Whenever the officials of the corporation refuse to sue,
G.R. No. L-5174 March 17, 1911 or are the ones to be sued or hold the control of the
corporation, an individual stockholder is permitted to
A stockholder in a banking corporation had a right to institute a derivative or representative suit on behalf of
maintain a suit for and on behalf of the corporation, but the corporation wherein he holds stock, in order to
the extent of such right depends upon when and for protect or vindicate corporate rights. In such actions, the
what purpose he acquired the shares of stock of which suing stockholder is regarded as a nominal party, with
he is the owner. A stockholder in a corporation who was the corporation as the real party in interest.
not such at the time when alleged objectionable
transactions took place, or whose shares of stock have In corporate derivative suits it is not important whether
not since devolved upon him by operation of law, cannot the corporation is made party plaintiff or party defendant
maintain suits of this character, unless such because the trial court has the power to direct
transactions continue and are injurious to such amendments of the pleadings, by adding or dropping
stockholder or affect him especially or specifically in parties, as may be required in the interest of justice. It
some other way. is enough that the corporation is made a party to the suit
so that judgment will be binding upon it to bar future
relitigation of issues.
125. Yujuico v. Quiambao
G.R. No. 180416 June 2, 2014
128. Reyes v. Tan
Section 144 already purports to penalize "violations" of G.R. No. L-16982 September 30, 1961
"any provision" of the Corporation Code "not otherwise
specifically penalized therein." Hence, we find Where corporate directors are guilty of a breach of trust
inconsequential the fact that that Section 74 expressly - not of mere error of judgment or abuse of discretion -
mentions the application of Section 144 only to a and intra-corporate remedy is futile or useless, a
specific act, but not with respect to the other possible stockholder may institute a suit in behalf of himself and
violations of the former section; other stockholders and for the benefit of the corporation,
to bring about a redress of the wrong inflicted directly
A criminal action based on the violation of the upon the corporation and indirectly upon the
stockholder’s right to examine or inspect the corporate stockholders.
records and the stock and transfer book of a corporation
under the second and fourth paragraphs of Section 74
of the Corporation Code can only be maintained against 129. Elton W. Chase v CFI
corporate officers or any other persons acting on behalf G.R. No. L-20457 October 29, 1966
of such corporation.
The appointment of a receiver is a matter addressed to
the sound discretion of the court, and it has been
126. Evangelista v Santos frequently held that such discretion to appoint a receiver
G.R. No. L-1721 May 19, 1950 who would take over the administration of the corporate
business should be exercised with great caution and
MISMANAGEMENT BY ITS OFFICER; RIGHT OF only when the necessity therefor is clear.
STOCKHOLDERS TO BEING SUIT. — The plaintiff
stockholders have brought the action not for the benefit
of the corporation but for their own benefit, since they
ask that the defendant make good the losses
occasioned by his mismanagement and pay to them the
value of their respective participation in the corporate

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130. Gamboa v. Victoriano 133. Ang v. Ang

G.R. No. L-40620 May 5, 1979 G.R. No. 201675 June 19, 2013

An individual stockholder is permitted to institute a The directors or officers, as provided under the by-laws,
derivative suit on behalf of the corporation wherein he have the right to decide whether or not a corporation
holds stock in order to protect and vindicate corporate should sue. Since these directors or officers will never
rights, whenever the officials of the corporation refuses be willing to sue themselves, or impugn their wrongful
to sue, or are the ones to be used or hold the control of or fraudulent decisions, stockholders are permitted by
the corporation. In such actions, the suing stockholders law to bring an action in the name of the corporation to
is regarded as a nominal party, with the corporation as hold these directors and officers accountable.
the real party in interest. Thus, a derivative suit will not
lie where stockholders are vindicating their own
individual interest or prejudice, and not that of the 134. Tirso Garcia v. Lim Chu Sing
corporation. G.R. No. L-39427 February 24, 1934

A share of stock or the certificate thereof is not an

131. indebtedness to the owner nor evidence of
indebtedness and, therefore, it is not a credit.
Stockholders, as such, are not creditors of the
132. Alfredo Villamor, Jr. v. John S. Umale corporation.
GR No. 172843 24 September 2014

The 5 requisites for a derivative suit to prosper must be 135.

complied with and alleged by the stockholder or
member instituting the action. Failure to do so will result
to the filing of merely an individual suit. 136. Datu Tagoranao Benito v. SEC
G.R. No. L-56655 July 25, 1983
Rule 8, Section 1 of the Interim Rules of Procedure for
Intra-corporate Controversies provides the 5 requisites Pre-emptive right is recognized only with respect to new
for filing derivative suits: issue of shares, and not with respect to additional
SECTION1. Derivative Action – A stockholder or issues of originally authorized shares. This is on the
member may bring an action in the name of the theory that when a corporation at its inception offers its
corporation or association, as the case may be, first shares, it is presumed to have offered all of those
provided, that: which it is authorized to issue.
1. He was a stockholder or member at the time the
acts or transactions subject of the action occurred
and at the time the action was filed; 137. Velasco v. Poizat
2. He exerted all reasonable efforts, and alleges the G.R. No. L-11528 March 15, 1918
same with particularity in the complaint, to
exhaust all remedies available under the AOI, by- The better doctrine is that when insolvency supervenes
laws, laws or rules governing the corporation or all unpaid subscription become at once due and
partnership to obtain the relief he desires; enforceable.
3. No appraisal rights are available for the act or acts
complained of; and When insolvency supervenes upon a corporation and
4. The suit is not a nuisance or harassment suit. the court assumes jurisdiction to wind it up, all unpaid
stock subscriptions become payable on demand, and
The fifth requisite for filing derivative suits, while not are at once recoverable in an action instituted by the
included in the enumeration, is implied in the first assignee or receiver appointed by the court.
paragraph, which states that “the action must be in the
name of the corporation or association.” It evidently cannot be permitted that a subscriber should
escape from his lawful obligation by reason of the failure
Among the basic requirements for a derivative suit to of the officers of the corporation to perform their duty in
propser is that the minority shareholder who is suing for making a call; and when the original mode of making the
and on behalf of the corporation must allege in his call becomes impracticable, the obligation must be
complaint that he is suing for and on behalf of the treated as due upon demand. If the corporation were
corporation. It is thus important that the corporation be still an active entity, and this action should be dismissed
made a party to the case. for irregularity in the making of the call, other steps
could be taken by the board to cure the defect and
another action taken by the board to cure the defect and
another action could be brought; but where the

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company is being wound up, no such procedure would 141. The National Exchange Co., Inc v. I. B. Dexter
be practicable. GR no. L-27872 February 25, 1928

The prohibition against the issuance of shares by

138. Lingayen Gulf Electric Power Company, Inc. v. corporations except for actual cash to the par value of
Irineo Baltazar the stock to its full equivalent in property is thus
G.R. No. L-4824 June 30, 1953 enshrined in both the organic and statutory law of the
Philippine; Islands; A stipulation such as that now under
In order to effect the release of a stockholder from his consideration, in a stock subcription, is illegal, for this
stock subscription, there must be unanimous consent of stipulation obligates the subcriber to pay nothing for the
the stockholders of the corporation. From this rule, shares except as dividends may accrue upon the stock.
however, there are exceptions: "Where it is given In the contingency that dividends are not paid, there is
pursuant to a bona fide compromise, or to set off a debt no liability at all. This is a discrimination in favor of the
due from the corporation, a release, supported by particular subcriber, and hence the stipulation is
consideration, will be effectual as against dissenting unlawful.
stockholders and subsequent and existing creditors. A
release which might originally have been held invalid
may be sustained after a considerable lapse of time." 142.

NB: This is a 1953 case decided under the effectivity of

the Corporation Law. The Corporation Code we now 143. Fua Cun vs. Ricardo Summers and the China
use took effect on May 1, 1980. The Corp Code now Banking Corporation
provides under Sec. 61 that a subscription for shares of G.R. No. L-19441 March 27, 1923
stock of a corporation still to be formed shall be
irrevocable for a period of at least six (6) months from A corporation has no lien upon the shares of
the date of subscription, unless all of the other stockholders for any indebtedness to the corporation.
subscribers consent to the revocation, or unless the The reasons for this doctrine are obvious. If banking
incorporation of said corporation fails to materialize corporations were given a lien on their own stock for the
within said period or within a longer period as may be indebtedness of the stockholders, the prohibition
stipulated in the contract of subscription: Provided, That against granting loans or discounts upon the security of
no pre-incorporation subscription may be revoked after the stock would become largely ineffective.
the submission of the articles of incorporation to the
Securities and Exchange Commission.
144.

139. Miranda vs Tarlac Rice Mill Co.

G.R. No. L-35961 December 2, 1932 145. Nava v. Peers Marketing Corporation, Cusi
G.R. No. L-28120 November 25, 1976
Section 38 of the Corporation Law provides that the
board of directors of every corporation may at any time As already stressed, in this case no stock certificate was
declare due and payable to the corporation unpaid issued to Po. Without stock certificate, which is the
subscriptions to the capital stock and may collect the evidence of ownership of corporate stock, the
same with interest accrued thereon or such percentage assignment of corporate shares is effective only
of said unpaid subscriptions as it may deem necessary. between the parties to the transaction.
No call is necessary when a subscription is payable, not The delivery of the stock certificate, which represents
upon call or demand by the directors or stockholders, the shares to be alienated, is essential for the protection
but immediately, or on specified day, or on or before a of both the corporation and its stockholders.
specified day, or when it is payable in installments at
specified times. In such cases it is the duty of the
subscriber to pay the subscription or instalment thereof
146.
as soon as it is due, without any call or demand, and, if
he fails to do so, an action may be brought at any time.
147. Turner v. Lorenzo Shipping Corporation
G.R. No. 157479 November 24, 2010
140.
A corporation can purchase its own shares, provided
payment is made out of surplus profits and the
acquisition is for a legitimate corporate purpose. In the
Philippines, this new rule is embodied in Section 41 of
the Corporation Code.

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153. Enrique Razon v. IAC and Vicente B. Chuidian

148. Philippine Trust Company v. Marciano Rivera G.R. No. 74306 March 16, 1992
G.R. No. L-19761 January 29, 1923
For an effective transfer of shares of stock the mode
A corporation has no power to release an original and manner of transfer as prescribed by law must be
subscriber to its capital stock from the obligation of followed. Shares of stock may be transferred by delivery
paying for his shares, without a valuable consideration to the transferee of the certificate properly indorsed.
for such release; and as against creditors a reduction of Title may be vested in the transferee by the delivery of
the capital stock can take place only in the manner an the duly indorsed certificate of stock. Indorsement of the
under the conditions prescribed by the statute or the certificate of stock is a mandatory requirement of law for
charter or the articles of incorporation. Moreover, strict an effective transfer of a certificate of stock.
compliance with the statutory regulations is necessary.

154. Rural Bank Of Salinas v. CA

149. G.R. No. 96674 June 26, 1992

Section 5 (b) of P.D. No. 902-A grants to the SEC the

150. Escano v. Filipinas Mining Corp original and exclusive jurisdiction to hear and decide
G.R. No. L-49003 July 28, 1944 cases involving intra-corporate controversies. An intra-
corporate controversy has been defined as one that
The registration of transfers of shares of stock upon the arises between a stockholder and the corporation. The
books of the corporation is required as a condition case at bar involves shares of stock, their registration,
precedent to their validity against the corporation and cancellation and issuances thereof by petitioner Rural
third parties, is also applicable to unissued shares held Bank of Salinas. It is therefore within the power of
by the corporation in escrow respondent SEC to adjudicate.

Sec. 63 of the Corporation Code contemplates no

restriction as to whom the stocks may be transferred.
151. Rivera v. Florendo
The owner of shares, as owner of personal property, is
G.R. No. L-57586 October 8, 1986
at liberty, under said section to dispose them in favor of
whomever he pleases, without limitation in this respect,
Intracorporate controversy would call for the jurisdiction
than the general provisions of law. Corporation's
of the SEC. An intra-corporate controversy has been
obligation to register is ministerial. In transferring stock,
defined as "one which arises between a stockholder
the secretary of a corporation acts in purely ministerial
and the corporate. There is no distinction, qualification,
capacity, and does not try to decide the question of
nor any exemption whatsoever." This Court has also
ownership.
ruled that cases of private respondents who are not
shareholders of the corporation, cannot be a
"controversy arising out of intracorporate or partnership
relations between and among stockholders, members 155. Santamaria v HSBC
or associates; between any or all of them and the G.R. No. L-2808 August 31, 1951
corporation, partnership or association, of which they
are stockholders, members or associates, respectively." It is a well-known rule that a bona fide pledgee or
transferee of a stock from the apparent owner is not
Shares of stock may be transferred by delivery to the chargeable with knowledge of the limitations placed on
transferee of the certificate properly indorsed. `Title may it by the real owner, or of any secret agreement relating
be vested in the transferee by delivery of the certificate to the use which might be made of the stock by the
with a written assignment or indorsement thereof. There holder
should be compliance with the mode of transfer
prescribed by law. It is a well-known practice that a certificate of stock,
indorsed in blank, deemed quasi negotiable, and as
such the transferee thereof is justified in believing that it
belongs to the holder and transferor.
152. Nautica Canning Corporation, First Dominion
Prime Holdings, Inc. v. Roberto C. Yumul
G.R. No. 164588 October 19, 2005
156. Delos Santos v. Republic
As between the corporation on the one hand, and its G.R. No. L-4818 February 28, 1955
shareholders and third persons on the other, the
corporation looks only to its books for the purpose of a share of stock may be transferred by endorsement of
determining who its shareholders are. the corresponding stock certificate, coupled with its
delivery. However, the transfer shall "not be valid,

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except as between the parties," until it is "entered and 161. Financing Corporation and J. Amado Araneta
noted upon the books of the corporation." no such entry v. Hon. Jose Teodoro
in the name of the plaintiffs herein having been made G.R. No. L-4900 August 31, 1953

Although as a rule minority stockholders of a

157. Chua Guan v. Samahang Magsasaka, Inc. corporation may not ask for its dissolution in a private
G.R. No. L-42091 November 2, 1935 suit and such action should be brought by the
Government through its legal officer in a quo warranto
It is to be noted, however, that section 35 of the case at their instance and request, there might be
Corporation Law (Act No. 1459) enacts that shares of exceptional cases wherein the intervention of the State,
stock "may be transferred by delivery of the certificate for one reason or another, cannot be obtained, as when
endorsed by the owner or his attorney in fact or other the State is not interested because the complaint is
person legally authorized to make the transfer." The use strictly a matter between the stockholders and does not
of the verb "may" does not exclude the possibility that a involve, in the opinion of the legal officer of the
transfer may be made in a different manner, thus Government, any of the acts or omissions warranting
leaving the creditor in an insecure position even though quo warranto proceedings in which minority
he has the certificate in his possession. stockholders are entitled to have such dissolution.

Moreover, the shares still standing in the name of the

debtor on the books of the corporation will be liable to 162. Republic of the Philippines v Bisaya Land
seizure by attachment or levy on execution at the Transportation Co., Inc.
instance of other creditors. The transfer by G.R. No. L-31490 January 6, 1978
endorsement and delivery of a certificate with intention
to pledge the shares covered thereby should be And, as a rule, the attorney-general has power, both
sufficient to give legal effect to that intention and to under the common law and by statute, to make any
consummate the juristic act without necessity for disposition of the state's litigation that the deems for its
registration. best interest; for instance, he may abandon,
discontinue, dismiss, or compromise it. But he cannot
enter into any agreement with respect to the conduct of
158. Makati Sports Club, Inc. v. Cecile H. Cheng litigation which will bind his successor in office, nor can
G.R. No. 178523 16 June 2010 he empower any other person to do so. ... The attorney-
general may dismiss any suit or proceeding, prosecuted
Fraud committed by a corporation’s officer is a question solely in the public interest, regardless of the relator's
of fact that must be alleged and proved. It cannot be wishes. ... Where the attorney-general is empowered,
presumed and must be established by clear and either generally or specifically, to conduct a criminal
convincing evidence. The party alleging the existence prosecution, he may do any act which the prosecuting
of fraud has the burden of proof. attorney might do in the premises; that is, he can do
each and every thing essential to prosecute in
accordance e with the law of the land, and this includes
159. Nora Bitong v. CA, Eugenia Apostol appearing in proceedings before the grand jury. So an
G.R. No. 123553 July 13, 1998 attorney-general, even at common law. had the right to
enter a nolle prosequi; although he could not do so
The basis of a stockholder’s suit is always one in equity. during the trial without leave of court.
However, it cannot prosper without first complying with
the legal requisites for its institution. The most important
of these is the bona fide ownership by a stockholder of 163. Gonzales v. Sugar Regulatory Administration
a stock in his own right at the time of the transaction G.R. No. 84606 June 28, 1989
complained of which invests him with standing to
institute a derivative action for the benefit of the The termination of the life of a juridical entity does not
corporation. by itself imply the diminution or extinction of rights
demandable against such juridical entity.

160. Manuel A. Torres, Jr. v Court of Appeals

G.R. No. 120138 September 5, 1997 164. Pepsi-Cola Products Philippines, Inc. v .The
Court of Appeals,
It is the corporate secretary's duty and obligation to G.R. No. 145855 November 24, 2004
register valid transfers of stocks. Stock and Transfer
books must be kept at the principal office of the A corporation whose corporate existence is terminated
corporation. All corporations, big or small, must abide in any manner continues to be a body corporate for
by the provisions of the code including the requirements three (3) years after its dissolution for purposes of
in Section 74. prosecuting and defending suits by and against it and to

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enable it to settle and close its affairs, culminating in the despite such dissolution, the parties involved in the
disposition and distribution of its remaining assets. It litigation are still corporate actors. The dissolution does
may, during the three-year term, appoint a trustee or a not automatically convert the parties into total strangers
receiver who may act beyond that period. or change their intra-corporate relationships. Neither
does it change or terminate existing causes of action,
which arose because of the corporate ties between the
165. National Abaca and Other Fibers Corporation parties. Thus, a cause of action involving an intra-
v. Apolonia Pore corporate controversy remains and must be filed as an
G.R. No. L-16779 August 16, 1961 intra-corporate dispute despite the subsequent
dissolution of the corporation.
It is to be noted that the time during which the
corporation, through its own officers, may conduct the
liquidation of its assets and sue and be sued as a 170.
corporation is limited to three years from the time the
period of dissolution commences; but that there is no
time limited within the trustees must complete a 171. The Edward Nell co. v. Pacific Farms Inc.
liquidation placed in their hands. It is provided only that G.R. No. L-20850 November 29, 1965
the conveyance to the trustees must be made within the
three-year period. It may be found impossible to Generally where one corporation sells or otherwise
complete the work of liquidation within the three-year transfers all of its assets to another corporation, the
period or to reduce disputed claims to judgment. The latter is not liable for the debts and liabilities of the
authorities are to the effect that suits by or against a transferor, except: (1) where the purchaser expressly or
corporation abate when it ceased to be an entity impliedly agrees to assume such debts; (2) where the
capable of suing or being sued but trustees to whom the transaction amounts to a consolidation or merger of the
corporate assets have been conveyed pursuant to the corporations; (3) where the purchasing corporation is
authority of section 78 may sue and be sued as such in merely a continuation of the selling corporation; and (4)
all matters connected with the liquidation. By the terms where the transaction is entered into fraudulently in
of the statute the effect of the conveyance is to make order to escape liability for such debts.
the trustees the legal owners of the property conveyed,
subject to the beneficial interest therein of creditors and
stockholders. 172.

166. 173. Marshall-Wells Company v. Henry W. Elser &

Co., Inc.
G.R. No. 22015 September 1, 1924
167. Republic of the Philippines v. Marsman
Development Company It was never the purpose of the Legislature to exclude a
GR no. 18956 April 27, 1972 foreign corporation which happens to obtain an isolated
order for business from the Philippines, from securing
While section 77 of the Corporation Law provides for a redress in the Philippine courts, and thus, in effect, to
three-year period for the continuation of the corporate permit persons to avoid their contracts made with such
existence of the corporation for purposes of liquidation, foreign corporations.
there is nothing in said provision which bars an action
for the recovery of the debts of the corporation against
the liquidator thereof, after the lapse of the said three- 174. Columbia Pictures, Inc. v. CA
year period. G.R. No. 110318 August 28, 1996

The obtainment of a license prescribed by Section 125

168. of the Corporation Code is not a condition precedent to
the maintenance of any kind of action in Philippine
courts by a foreign corporation. However, under the
169. Aguirre v. FQB+7, Inc. aforequoted provision, no foreign corporation shall be
G.R. No. 170770 January 9, 2013 permitted to transact business in the Philippines, as this
phrase is understood under the Corporation Code,
Pursuant to Section 145 of the Corporation Code, an unless it shall have the license required by law, and until
existing intra-corporate dispute, which does not it complies with the law in transacting business here, it
constitute a continuation of corporate business, is not shall not be permitted to maintain any suit in local
affected by the subsequent dissolution of the courts. As thus interpreted, any foreign corporation not
corporation. The dissolution of the corporation simply doing business in the Philippines may maintain an
prohibits it from continuing its business. However, action in our courts upon any cause of action, provided

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CASE DOCTRINES 3H 2017-2018

that the subject matter and the defendant are within the that the foreign corporation is allowed there under to
jurisdiction of the court. It is not the absence of the sue "whether or not it has been licensed to do business
prescribed license but "doing business" in the in the Philippines" pursuant to the Corporation Law.
Philippines without such license which debars the
foreign corporation from access to our courts. In other
words, although a foreign corporation is without license 176. La Chemise Lacoste S.A. v. Fernandez
to transact business in the Philippines, it does not follow G.R. No. L-65659 May 21, 1984)
that it has no capacity to bring an action. Such license
is not necessary if it is not engaged in business in the The registration of transfers of shares of stock upon the
Philippines. books of the corporation is required as a condition
precedent to their validity against the corporation and
No general rule or governing principles can be laid down third parties, is also applicable to unissued shares held
as to what constitutes "doing" or "engaging in" or by the corporation in escrow.
"transacting" business. Each case must be judged in the
light of its own peculiar environmental circumstances.
The true tests, however, seem to be whether the foreign 177. Litton Mills, Inc. v. CA and Gelhaar Uniform
corporation is continuing the body or substance of the Company, Inc.
business or enterprise for which it was organized or [G.R. No. 94980 May 15, 1996
whether it has substantially retired from it and turned it
over to another. In accordance with Rule 14, Sec. 14, service upon
Gelhaar could be made in three ways: (1) by serving
The Corporation Code does not itself define or upon the agent designated in accordance with law to
categorize what acts constitute doing or transacting accept service of summons; (2) if there is no resident
business in the Philippines. Jurisprudence has, agent, by service on the government official designated
however, held that the term implies a continuity of by law to that effect; and (3) by serving on any officer or
commercial dealings and arrangements, and agent of said corporation within the Philippines.
contemplates, to that extent, the performance of acts or
works or the exercise of some of the functions normally
incident to or in progressive prosecution of the purpose
178. The Mentholatum Co., Inc. v. Anacleto
and subject of its organization.
Mangaliman
G.R. No. 47701 June 27, 1941
The fact that petitioners are admittedly copyright owners
or owners of exclusive distribution rights in the
A foreign corporation doing business in the Philippines
Philippines of motion pictures or films does not convert
without the license required by section 68 of the
such ownership into an indicium of doing business
Corporation Law, may not prosecute an action for
which would require them to obtain a license before they
violation of trade mark and unfair competition. Neither
can sue upon a cause of action in local courts.
its agent in the Philippines may maintain the action for
the reason that the distinguishing features of the agent
As a general rule, a foreign corporation will not be
being his representative character and derivative
regarded as doing business in the State simply because
authority, it cannot now, to the advantage of its principal,
it enters into contracts with residents of the State, where
claim an independent standing in court.
such contracts are consummated outside the State. In
fact, a view is taken that a foreign corporation is not
doing business in the State merely because sales of its
product are made there or other business furthering its 179. Agilent Technologies Singapore (PTE) Ltd v.
interests is transacted there by an alleged agent, Integrated Silicon Technology Philippines
whether a corporation or a natural person, where such Corporation
activities are not under the direction and control of the G.R. No. 154618 April 14, 2004
foreign corporation but are engaged in by the alleged
agent as an independent business. There is no definitive rule on what constitutes “doing”,
“engaging in”, or “transacting” business in the
Philippines. Jurisprudence has it, however, that the term
“implies a continuity of commercial dealings and
175. General Garments Corp. vs. Director of Patents
arrangements, and contemplates, to that extent, the
G.R. No. L-24295 September 30, 1971
performance of acts or works or the exercise of some of
the functions normally incident to or in progressive
Petitioner argues that Section 21-A militates against
prosecution of the purpose and subject of its
respondent's capacity to maintain a suit for cancellation,
organization.” By and large, to constitute “doing
since it requires, before a foreign corporation may bring
business”, the activity to be undertaken in the
an action, that its trademark or tradename has been
Philippines is one that is for profit-making.
registered under the Trademark Law. The argument
misses the essential point in the said provision, which is

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180. Merrill Lynch Futures, Inc. v. CA 183. Cargill, Inc., v. Intra Strata Assurance
G.R. No. 97816 July 24, 1992 Corporation
G.R. No. 168266 March 15, 2010
The rule is that a party is estopped to challenge the
personality of a corporation after having acknowledged Under Article 123 of the Corporation Code, a foreign
the same by entering into a contract with it. corporation must first obtain a license and a certificate
from the appropriate government agency before it can
And the "doctrine of estoppel to deny corporate transact business in the Philippines
existence applies to foreign as well as to domestic
corporations;" "one who has dealt with a corporation of To be doing or transacting business in the Philippines
foreign origin as a corporate entity is estopped to deny for purposes of Section 133 of the Corporation Code,
its corporate existence and capacity." the foreign corporation must actually transact business
in the Philippines, that is, perform specific business
The principle "will be applied to prevent a person transactions within the Philippine territory on a
contracting with a foreign corporation from later taking continuing basis in its own name and for its own
advantage of its noncompliance with the statutes, account. Actual transaction of business within the
chiefly in cases where such person has received the Philippine territory is an essential requisite for the
benefits of the contract where such person has acted as Philippines to to acquire jurisdiction over a foreign
agent for the corporation and has violated his fiduciary corporation and thus require the foreign corporation to
obligations as such, and where the statute does not secure a Philippine business license. If a foreign
provide that the contract shall be void, but merely fixes corporation does not transact such kind of business in
a special penalty for violation of the statute. the Philippines, even if it exports its products to the
Philippines, the Philippines has no jurisdiction to require
The general rule that in the absence of fraud of person such foreign corporation to secure a Philippine business
who has contracted or otherwise dealt with an license.
association in such a way as to recognize and in effect
admit its legal existence as a corporate body is thereby
estopped to deny its corporate existence in any action 184. Rev. Jorge Barlin v. P. Vicente Ramirez
leading out of or involving such contract or dealing, GR No. L-2832 24 November 1906
unless its existence is attacked for causes which have
arisen since making the contract or other dealing relied The Roman Catholic Church is a juridical entity capable
on as an estoppel and this applies to foreign as well as of owning property in the Philippines its own name. The
domestic corporations. Church, like any other juridical entity, depends its
existence and the exercise of its rights under the laws
of the Roman Empire.
181. Top-Weld Manufacturing, Inc. v. ECED, S.A.,
IRTI, S.A., Eutectic Corporation, Victor C. Gaerlan,
and The Hon. Court of Appeals 185. Gertubos v De Leon, PNRC
G.R. No. L-44944 August 9, 1985 G.R. No. 199440 January 18, 2016

The term ‘doing business’ implies a continuity of The PNRC, as a National Society of the International
commercial dealings and arrangements, and Red Cross and Red Crescent Movement, can neither
contemplates, to that extent, the performance of acts or "be classified as an instrumentality of the State, so as
works or the exercise of some of the functions normally not to lose its character of neutrality" as well as its
incident to, and in progressive prosecution of, the independence, nor strictly as a private corporation since
purpose and object of its organization. it is regulated by international humanitarian law and is
treated as an auxiliary of the State.

182. Antam Consolidated v. CA Although it is neither a subdivision, agency, or

G.R. No. L-61523 July 31, 1986 instrumentality of the government, nor a government-
owned or -controlled corporation or a subsidiary thereof,
Where a single act or transaction, however, is not so much so that respondent, under the Decision, was
merely incidental or casual but indicates the foreign correctly allowed to hold his position as Chairman
corporation's intention to do other business in the thereof concurrently while he served as a Senator, such
Philippines, said single act or transaction constitutes a conclusion does not ipso facto imply that the PNRC is
'doing' or 'engaging in' or 'transacting' business in the a "private corporation" within the contemplation of the
Philippines. provision of the Constitution, that must be organized
under the Corporation Code. The sui generis character
of PNRC requires us to approach controversies
involving the PNRC on a case-to-case basis.

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