CASE #1

[G.R. No. 142936. April 17, 2002]

PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT CORPORATION,
petitioners, vs. ANDRADA ELECTRIC & ENGINEERING COMPANY, respondent.
FACTS
Nature of Business of Respondents and Defendants
Philippine National Bank (PNB), is a semi-government corporation duly organized,
existing and operating under the laws of the Philippines, with office and principal place of
business at Escolta Street, Sta. Cruz, Manila.
NASUDECO (National Sugar Development Corporation) is a semi-government
corporation and the sugar arm of the PNB, with office at Sampaguita Building, Cubao,
Quezon City.
PASUMIL (Pampanga Sugar Mill) is a corporation organized, existing and operating
under the 1975 laws of the Philippines with its office at Del Carmen, Floridablanca,
Pampanga.
Andrada Electric & Engineering Company is a partnership duly organized, existing,
and operating under the laws of the Philippines with its office at Del Monte Avenue,
Quezon City. It is engaged in the business of general construction for the repairs and/or
construction of different kinds of machineries and buildings.
Transactions and Contracts
Prior to October 29, 1971, PASUMIL engaged the services of Andrada Electric &
Engineering Company for electrical rewinding and repair, most of which were partially paid
by the PASUMIL, leaving several unpaid accounts with the Andrada Electric.
On October 29, 1971, Andrada Electric and PASUMIL entered into a contract. Out of
the total obligation of P777,263.80, PASUMIL had paid only P250,000.00, leaving an unpaid
balance, as of June 27, 1973, amounting to P527,263.80.
Out of said unpaid balance of P527,263.80, PASUMIL made a partial payment to
Andrada Electric of P14,000.00, in broken amounts, covering the period from January 5,
1974 up to May 23, 1974, leaving an unpaid balance of P513,263.80
On August 26, 1975, PNB acquired the assets of PASUMIL that were earlier
foreclosed by the Development Bank of the Philippines (DBP) under LOI No. 311;
PNB organized the NASUDECO in September, 1975, to take ownership and
possession of the assets and ultimately to nationalize and consolidate its interest in other
PNB controlled sugar mills.
Filing at RTC
According to Andrada Electric, the President of the NASUDECO is also the VicePresident of the PNB, and Andra Electric besought this official to pay the outstanding
obligation of the PASUMIL, inasmuch as defendant PNB and NASUDECO now owned and
possessed the assets of the PASUMIL, and all benefited from the works, and the electrical,
as well as the engineering and repairs, performed by the Andrada Electric. Because of the
failure and refusal of the PNB, NASUDECO and PASUMIL to pay their just, valid, and
demandable obligations, plaintiff suffered actual damages in the total amount
of P513,263.80 plus interest and attorneys fee, Andrada Electric filed the case at Regional
Trial Court of Manila.
The PNB and NASUDECO filed a joint motion to dismiss but their motion was denied
and was directed by RTC to submit an answer to complaint within 15days.

Answers to the Complaint at RTC

In answer to the complaint, NASUDECO reiterated the grounds of its motion to
dismiss:

Digested Corporation Cases by Roli S. Arangote

That the complaint does not state a sufficient cause of action against the defendant
NASUDECO because:
(a) NASUDECO is not privy to the various electrical construction jobs being sued upon by
the plaintiff under the present complaint;
(b) the taking over by NASUDECO of the assets of defendant PASUMIL was solely for the
purpose of reconditioning the sugar central of defendant PASUMIL pursuant to martial law
powers of the President under the Constitution;
(c) nothing in the LOI No. 189-A (as well as in LOI No. 311) authorized or commanded the
PNB or its subsidiary corporation, the NASUDECO, to assume the corporate obligations of
PASUMIL as that being involved in the present case; and,
(d) all that was mentioned by the said letter of instruction insofar as the PASUMIL liabilities
were concerned was for the PNB, or its subsidiary corporation the NASUDECO, to make a
study of, and submit a recommendation on the problems concerning the same.
In its answer, the PNB likewise reiterated the grounds of its motion to dismiss,
namely:
(1) the complaint states no cause of action against the defendant PNB;
(2) that PNB is not a party to the contract alleged in par. 6 of the complaint and that the
alleged services rendered by the plaintiff to the defendant PASUMIL upon which plaintiffs
suit is erected, was rendered long before PNB took possession of the assets of the
defendant PASUMIL under LOI No. 189-A;
(3) that the PNB take-over of the assets of the defendant PASUMIL under LOI 189-A was
solely for the purpose of reconditioning the sugar central so that PASUMIL may resume its
operations in time for the 1974-75 milling season, and that nothing in the said LOI No. 189A, as well as in LOI No. 311, authorized or directed PNB to assume the corporate
obligation/s of PASUMIL, let alone that for which the present action is brought;
(4) that PNBs management and operation under LOI No. 311 did not refer to any asset of
PASUMIL which the PNB had to acquire and thereafter [manage], but only to those which
were foreclosed by the DBP and were in turn redeemed by the PNB from the DBP;
(5) that conformably to LOI No. 311, on August 15, 1975, the PNB and the Development
Bank of the Philippines (DBP) entered into a Redemption Agreement whereby DBP sold,
transferred and conveyed in favor of the PNB, by way of redemption, all its (DBP) rights
and interest in and over the foreclosed real and/or personal properties of PASUMIL, which
is made an integral part of the answer;
(6) that again, conformably with LOI No. 311, PNB pursuant to a Deed of Assignment dated
October 21, 1975, conveyed, transferred, and assigned for valuable consideration, in favor
of NASUDECO, a distinct and independent corporation, all its (PNB) rights and interest in
and under the above Redemption Agreement.
[7] that as a consequence of the said Deed of Assignment, PNB on October 21, 1975
ceased to managed and operate the above-mentioned assets of PASUMIL, which function
was now actually transferred to NASUDECO. In other words, so asserted PNB, the
complaint as to PNB, had become moot and academic because of the execution of the said
Deed of Assignment;
[8] that moreover, LOI No. 311 did not authorize or direct PNB to assume the corporate
obligations of PASUMIL, including the alleged obligation upon which this present suit was
brought; and

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[9] that, at most, what was granted to PNB in this respect was the authority to make a
study of and submit recommendation on the problems concerning the claims of PASUMIL
creditors, under sub-par. 5 LOI No. 311.
RTC Decision
Regional Trial Court rendered judgment in favor of Andrada Electric and Engineering
Company
Court of Appeals Decision
Court of Appeals rendered judgment in favor of Andrada Electric and Engineering
Company
ISSUE: Whether or not PNB and NASUDECO liable for the debt of PASUMIL to Adrada
Electric
SUPREME COURT RULING
Basic is the rule that a corporation has a legal personality distinct and separate
from the persons and entities owning it. The corporate veil may be lifted only if it has
been used to shield fraud, defend crime, justify a wrong, defeat public convenience,
insulate bad faith or perpetuate injustice.
As a rule, a corporation that purchases the assets of another will not be liable for
the debts of the selling corporation, provided the former acted in good faith and paid
adequate consideration for such assets, except when any of the following circumstances is
present: (1) where the purchaser expressly or impliedly agrees to assume the debts, (2)
where the transaction amounts to a consolidation or merger of the corporations, (3) where
the purchasing corporation is merely a continuation of the selling corporation, and (4)
where the transaction is fraudulently entered into in order to escape liability for those
debts.
WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET
ASIDE.
CASE #2
[ G. R. No. L-18216, October 30, 1962 ]
STOCKHOLDERS OF F. GUANZON AND SONS, INC., PETITIONERS AND APPELLANTS, VS.
REGISTER OF DEEDS OF MANILA, RESPONDENT AND APPELLEE.
FACTS
On September 19, 1960, the five stockholders of the F. Guanzon and Sons, Inc.
executed a certificate of liquidation of the assets of the corporation reciting, among other
things, that by virtue of a resolution of the stockholders adopted on September 17, 1960,
dissolving the corporation, they have distributed among themselves in proportion to their
shareholdings, as liquidating dividends, the assets of said corporation, including real
properties located in Manila.
Certificate of Liquidation Presented to Register of Deeds
The certificate of liquidation, when presented to the Register of Deeds of Manila,
was denied registration on seven grounds, of which the following were disputed by the
stockholders:
"3. The number of parcels not certified to in the acknowledgment;
"5. P430.50 Reg. fees need be paid;
"6. P940.45 documentary stamps need be attached to the document;
"7. The judgment of the Court approving the dissolution and directing the disposition of
the assets of the corporation need be presented (Rules of Court, Rule 104, Sec. 3)."
Case Elevated to the Commissioner of Land Registration
Deciding the consulta elevated by the stockholders, the Commissioner of Land
Registration overruled ground No. 7 and sustained requirements Nos. 3, 5 and 6.
As correctly stated by the Commissioner of Land Registration, the propriety or
impropriety of the three grounds on which the denial of the registration of the certificate of

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liquidation was predicated hinges on whether or not that certificate merely involves a
distribution of the corporation assets or should be considered a transfer or conveyance.
ISSUE: Whether or not the certificate of liquidation of a dissolved corporation is a
distribution of the corporation assets or a transfer or conveyance.
SUPREME COURT RULING
A corporation is a juridical person distinct from the members composing it.
Properties registered in the name of the corporation are owned by it as an entity separate
and distinct from its members. While shares of stock constitute personal property, they do
not represent property of the corporation. The corporation has property of its own which
consists chiefly of real estate. A share of stock only typifies an aliquot part of the
corporation's property, or the right to share in its proceeds to that extent when distributed
according to law and equity, but its holder is not the owner of any part of the capital of the
corporation. Nor is he entitled to the possession of any definite portion of its property or
assets. The stockholder is not a co-owner or tenant in common of the corporate property.
Since the purpose of the liquidation, as well as the distribution of the assets of the
corporation, is to transfer their title from the corporation to the stockholders in proportion
to their shareholdings,and this is in effect the purpose which they seek to obtain from
the Register of Deeds of Manila,that transfer cannot be effected without the
corresponding deed of conveyance from the corporation to the stockholders. It is,
therefore, fair and logical to consider the certificate of liquidation as one in the nature of a
transfer or conveyance.

CASE #3
[ G.R. NO. 162814-17, August 25, 2005 ]
JOSE F. MANACOP, HARISH C. RAMNANI, CHANDRU P. PESSUMAL AND MAUREEN M.
RAMNANI, PETITIONERS, VS. EQUITABLE PCIBANK, LAVINE LOUNGEWEAR MANUFACTURING
INC., PHILIPPINE FIRE AND MARINE INSURANCE CORPORATION AND FIRST LEPANTO-TAISHO
INSURANCE CORPORATION, RESPONDENTS.
FACTS
Insurance Transaction
Lavine Loungewear Manufacturing, Inc. ("Lavine") insured its buildings and supplies
against fire with Philippine Fire and Marine Insurance Corporation ("PhilFire"), Rizal Surety
and Insurance Company ("Rizal Surety"), Tabacalera Insurance Company ("TICO"), First
Lepanto-Taisho Insurance Corporation ("First Lepanto"), Equitable Insurance Corporation
("Equitable Insurance"), and Reliance Insurance Corporation ("Reliance Insurance"). Except
for Policy No. 13798 issued by First Lepanto, all the policies provide that:
Loss, if any, under this policy is payable to Equitable Banking Corporation-Greenhills
Branch, as their interest may appear subject to the terms, conditions, clauses and
warranties under this policy.
On August 1, 1998, a fire gutted Lavine's buildings and their contents thus claims
were made against the policies. As found by the Office of the Insurance Commission, the
insurance proceeds payable to Lavine is P112,245,324.34.
Insurance Claim
Lavine was then represented by Harish C. Ramnani ("Harish") but his authority was
withdrawn on March 17, 2000 by the Board of Directors. Chandru C. Ramnani ("Chandru")
was appointed in his stead and was designated, together with Atty. Mario A. Aguinaldo, as
Lavine's
representatives
in
negotiating
with
the
insurance
companies.
Prior to the release of the proceeds, the insurance companies required Lavine to
sign a Sworn Statement in Proof of Loss and Subrogation Agreement [2] whereby the former

Digested Corporation Cases by Roli S. Arangote

would be absolved from their liabilities upon payment of the proceeds to Equitable Bank.
Only Harish signed the document while the rest of Lavine's directors refused to sign.
Chandru's requested that Insurance Companies that payments be made first to
Lavine who shall thereafter pay Equitable Bank as the latter's interest may appear. Certain
insurance companies released the proceeds directly to Equitable Bank thus Chandru
filed, in behalf of Lavine, a Petition for the Issuance of a Writ of Preliminary Injunction with
Prayer for a Temporary Restraining Order before the Regional Trial Court (RTC) of Pasig
City, against PhilFire, Rizal Surety, TICO, First Lepanto and Equitable Bank.
Harish, Jose F. Manacop, Chandru P. Pessumal, Maureen M. Ramnani and Salvador
Cortez, moved to intervene claiming they were Lavine's incumbent directors and that
Harish was Lavine's authorized representative. They disclaimed Chandru's designation as
president of Lavine as well as his and Atty. Aguinaldo's authority to file the action.
Motion for Intervention Granted by RTC
On February 14, 2001, the trial court granted the motion for intervention and
thereafter denied Lavine's (represented by Chandru) motion for reconsideration.
Decision of RTC
Equitable Bank alleged it had sufficiently established the amount of its claim and as
beneficiary of the insurance policies, it was entitled to collect the proceeds
The intervenors in their Amended Answer-in-Intervention with cross-claim against
the insurance companies alleged that as of August 1, 1998, Lavine's obligations to
Equitable Bank amounted to P71,000,000.00 and since Equitable Insurance and Reliance
Insurance have already paid the bank more than this amount, respondent insurance
companies should be ordered to immediately deliver to Lavine the remaining insurance
proceeds through the intervenors and to pay interests thereon from the time of submission
of proof of loss.
Rizal Surety stated its willingness to pay the insurance proceeds but only to the
rightful claimant. PhilFire, TICO, First Lepanto and Equitable Bank has released some
payment to Equitable Bank but withheld paying the balance until the rightful claimant has
been determined.
On April 2, 2002, the trial court rendered a decision in favor of Intervenors which
includes ORDERING the Equitable Bank to refund to Levine through the Intervenors the
amount of P65,819,936.05 representing the overpayment as actual or compensatory
damages, with legal rate of interest at six (6%) per cent per annum from the date of this
decision until full payment and ORDERING PhilFire, Rizal Surety, First Lapanto, and TICO to
pay Levine through Intervenors the certain amount representing unpaid insurance
proceeds as actual or compensatory damages, with twenty-nine (29%) per cent interest
per annum from October 1, 1998 until full payment.
Counterclaims filed by Equitable Bank against intervenors and cross-claims filed by
all insurance companies against intervenors and counterclaims are hereby DISMISSED for
lack of merit.
Motion for Execution Pending Appeal
On April 3, 2002, the intervenors filed a Motion for Execution Pending Appeal on the
following grounds: (a) TICO was on the brink of insolvency; (b) Lavine was in imminent
danger of extinction; and (c) any appeal from the trial court's judgment would be merely
dilatory.
Judge Lavia granted intervenors' motion for execution pending appeal and issued a
writ of execution on May 20, 2002 which was implemented the following day.
Decision of Court of Appeals
In view of the issuance of the writ of execution by the trial court, Equitable Bank
filed an Amended and/or Supplemental Petition for Certiorari, Prohibition and Mandamus in
Court of Appeals G.R. SP No. 70298 on June 11, 2002, assailing the trial court's order
granting execution pending appeal as well as the issuance of the writ of execution. In due
course, the Court of Appeals promulgated a consolidated decision, the dispositive part of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered:
(1) SETTING ASIDE the decision dated April 2, 2001;

Digested Corporation Cases by Roli S. Arangote

(2) declaring NULL and VOID the Special Order dated May 17, 2002 and the Writ of
Execution dated May 20, 2002;
(3) remanding the case to the lower court for the conduct of pre-trial conference on the
Second Amended Answer-in-Intervention and the subsequent pleadings filed in relation
thereto; and
(4) in the event that the lower court decides that Lavine is the one entitled to the proceeds
of the insurance policies, payment thereof should be withheld, subject to the outcome of
the decision on the issue on the rightful members of the Board of Directors of Lavine which
is pending before the intra-corporate court.
The intervenors took recourse at the Supreme Court.
ISSUE: Whether or not execution pending appeal is allowed due to financial distress
where the winning party is a Corporation?
SUPREME COURT RULING
The petitioners assert that Lavine's financial distress is sufficient reason to order
execution pending appeal. Citing Borja v. Court of Appeals, they claim that execution
pending appeal may be granted if the prevailing party is already of advanced age and in
danger of extinction.
Borja is not applicable to the case at bar because its factual milieu is different. In
Borja, the prevailing party was a natural person who, at 76 years of age, "may no longer
enjoy the fruit of the judgment before he finally passes away." Lavine, on the other hand,
is a juridical entity whose existence cannot be likened to a natural person. Its precarious
financial condition is not by itself a compelling circumstance warranting
immediate execution and does not outweigh the long standing general policy of
enforcing only final and executory judgments.

CASE #4
[ G.R. No. 146608, October 23, 2003 ]
SPOUSES CONSTANTE FIRME AND AZUCENA E. FIRME, PETITIONERS, VS. BUKAL
ENTERPRISES AND DEVELOPMENT CORPORATION, RESPONDENT.
FACTS
Petitioner Spouses Constante and Azucena Firme ("Spouses Firme") are the registered
owners of a parcel of land ("Property") located on Dahlia Avenue, Fairview Park, Quezon
City. Renato de Castro ("De Castro"), the vice president of Bukal Enterprises and
Development Corporation ("Bukal Enterprises") authorized his friend, Teodoro Aviles
("Aviles"), a broker, to negotiate with the Spouses Firme for the purchase of the Property.
Dr. Firme testified that on 30 January 1995, he and his wife met with Aviles at the
Aristocrat Restaurant in Quezon City. Aviles arranged the meeting with the Spouses Firme
involving their Property in Fairview. Aviles offered to buy the Property at P2,500 per square
meter. The Spouses Firme did not accept the offer because they were reserving the
Property for their children. On 6 February 1995, the Spouses Firme met again with Aviles
upon the latter's insistence. Aviles showed the Spouses Firme a copy of a draft deed of
sale ("Third Draft") which Aviles prepared. The Spouses Firme did not accept the Third
Draft because they found its provisions one-sided.
On 6 March 1995, the squatter families on the property were each paid P60,000 in the
presence of De Castro and Aviles. Thereafter, they voluntarily demolished their houses and
vacated the Property.

Digested Corporation Cases by Roli S. Arangote

On 6 March 1995, the Spouses Firme visited their Property and discovered that there was a
hollow block fence on one side, concrete posts on another side and bunkers occupied by
workers of a certain Florante de Castro.
On 28 March 1995, Bukal Enterprises filed a complaint for specific performance and
damages with the trial court, alleging that the Spouses Firme reneged on their agreement
to sell the Property. The complaint asked the trial court to order the Spouses Firme to
execute the deed of sale and to deliver the title to the Property to Bukal Enterprises upon
payment of the agreed purchase price.
Decision of RTC
On 7 August 1998, the trial court rendered judgment against Bukal Enterprises. The
trial court held there was no perfected contract of sale. Bukal Enterprises failed to
establish that the Spouses Firme gave their consent to the sale of the Property.
Furthermore, Aviles had no valid authority to bind Bukal Enterprises in the sale
transaction. Under Sections 23 and 36 (No. 7) of the Corporation Code, the corporate
power to purchase a specific property is exercised by the Board of Directors of the
corporation. Without an authorization from the Board of Directors, Aviles could not validly
finalize the purchase of the Property on behalf of Bukal Enterprises.
Decision of Court of Appeals
Bukal Enterprises appealed to the Court of Appeals, which reversed and set aside
the decision of the trial court. The Court of Appeals held that the lack of a board resolution
authorizing Aviles to act on behalf of Bukal Enterprises in the purchase of the Property was
cured by ratification. Bukal Enterprises ratified the purchase when it filed the complaint for
the enforcement of the sale.
The Court of Appeals also held there was a perfected contract of sale. The appellate court
ruled that the Spouses Firme revealed their intent to sell the Property when they met with
Aviles twice. When Aviles presented the Second Draft without the objectionable provisions,
the Spouses Firme no longer had any cause for refusing to sell the Property.

ISSUE: Whether or not there is a valid sale

SUPREME COURT RULING
There is no valid sale
It is elementary that consent is an essential element for the existence of a contract,
and where it is wanting, the contract is non-existent. The essence of consent is the
conformity of the parties on the terms of the contract, the acceptance by one of
the offer made by the other. Another piece of evidence which supports the contention
of the Spouses Firme that they did not consent to the contract of sale is the fact they
never signed any deed of sale.
There is no valid sale because there was no approval from the Board of Directors of
Bukal Enterprises as would finalize any transaction with the Spouses Firme. There is no
Board Resolution authorizing Aviles to negotiate and purchase the Property on behalf of
Bukal Enterprises.
It is the board of directors or trustees which exercises almost all the corporate
powers in a corporation. Citing Section 23 & 36 of Corporation Code, under these
provisions, the power to purchase real property is vested in the board of directors or
trustees. While a corporation may appoint agents to negotiate for the purchase of real
property needed by the corporation, the final say will have to be with the board, whose
approval will finalize the transaction. A corporation can only exercise its powers and
transact its business through its board of directors and through its officers and agents
when authorized by a board resolution or its by-laws.
Thus, contracts or acts of a corporation must be made either by the board of
directors or by a corporate agent duly authorized by the board. Absent such valid
Digested Corporation Cases by Roli S. Arangote

delegation/authorization, the rule is that the declarations of an individual director relating

to the affairs of the corporation, but not in the course of, or connected with, the
performance of authorized duties of such director, are held not binding on the corporation.
The verification and certification of non-forum shopping was not accompanied by
proof that Bukal Enterprises authorized Aviles to file the complaint on behalf of Bukal
Enterprises.
The power of a corporation to sue and be sued is exercised by the board of
directors. "The physical acts of the corporation, like the signing of documents, can be
performed only by natural persons duly authorized for the purpose by corporate by-laws or
by a specific act of the board of directors."

CASE #5
[ G.R. No. 105774, April 25, 2002 ]
GREAT ASIAN SALES CENTER CORPORATION AND TAN CHONG LIN, PETITIONERS, VS. THE
COURT OF APPEALS AND BANCASIA FINANCE AND INVESTMENT CORPORATION,
RESPONDENTS.
FACTS
Transactions
Great Asian is engaged in the business of buying and selling general merchandise,
in particular household appliances. On March 17, 1981, the board of directors of Great
Asian approved a resolution authorizing its Treasurer and General Manager, Arsenio Lim
Piat, Jr. (Arsenio) to secure a loan from Bancasia in an amount not to exceed P1.0 million.
The board resolution also authorized Arsenio to sign all papers, documents or promissory
notes necessary to secure the loan. On February 10, 1982, the board of directors of Great
Asian approved a second resolution authorizing Great Asian to secure a discounting line
with Bancasia in an amount not exceeding P2.0 million. The second board resolution also
designated Arsenio as the authorized signatory to sign all instruments, documents and
checks necessary to secure the discounting line.

Digested Corporation Cases by Roli S. Arangote

On March 4, 1981 and January 29, 1982, Tan Chong Lin signed a Surety Agreement
and Comprehensive and Continuing Surety Agreement, respectively, in favor of Bancasia
to guarantee, solidarily, the debts of Great Asian to Bancasia.
Great Asian, through its Treasurer and General Manager Arsenio, signed four (4)
Deeds of Assignment of Receivables (Deeds of Assignment), assigning to Bancasia
fifteen (15) postdated checks.
Great Asian, through its Treasurer and General Manager Arsenio, signed four (4)
Deeds of Assignment of Receivables (Deeds of Assignment for brevity), assigning to
Bancasia fifteen (15) postdated checks.
Dishonored Checks
The drawee banks dishonored the fifteen checks on maturity when deposited for
collection by Bancasia, with any of the following as reason for the dishonor: account
closed, payment stopped, account under garnishment, and insufficiency of funds.
The total amount of the fifteen dishonored checks is P1,042,005.00.
Arsenio endorsed all the fifteen dishonored checks by signing his name at the back of the
checks. Eight of the dishonored checks bore the endorsement of Arsenio below the
stamped name of Great Asian Sales Center, while the rest of the dishonored checks just
bore the signature of Arsenio.
After the drawee bank dishonored Check No. 097480 dated March 16, 1982,
Bancasia referred the matter to its lawyer, Atty. Eladia Reyes, who sent by registered mail
to Tan Chong Lin a letter dated March 18, 1982, notifying him of the dishonor and
demanding payment from him. Subsequently, Bancasia sent by personal delivery a letter
dated June 16, 1982 to Tan Chong Lin, notifying him of the dishonor of the fifteen checks
and demanding payment from him. Neither Great Asian nor Tan Chong Lin paid Bancasia
the dishonored checks.
Petition for Insolvency
On May 21, 1982, Great Asian filed with the then Court of First Instance of Manila a
petition for insolvency, verified under oath by its Corporate Secretary, Mario Tan. Attached
to the verified petition was a Schedule and Inventory of Liabilities and Creditors of Great
Asian Sales Center Corporation, listing Bancasia as one of the creditors of Great Asian in
the amount of P1,243,632.00.
Decision of RTC and Court of Appeals
On June 23, 1982, Bancasia filed a complaint for collection of a sum of money
against Great Asian and Tan Chong Lin. Great Asian further raised the alleged lack of
authority of Arsenio to sign the Deeds of Assignment as well as the absence of
consideration and consent of all the parties to the Surety Agreements signed by Tan Chong
Lin.
The trial court rendered its decision on January 26, 1988 in favor of Bancasia. The
Court finds that Bancasia has established its causes of action against the Great Asian
because through its Board Resolution it authorized Arsenio Lim Piat, Jr. to apply and
negotiate for a loan accommodation or credit line not exceeding One Million Pesos with the
Bancasia and to obtain a discounting line with Bancasia at prevailing discounting rates in
an amount not to exceed Two Million Pesos. Great Asian admitted an existing liability to
Bancasia in its aforementioned Schedule and Inventory of Liabilities and Creditors
attached to its Verified Petition for Insolvency, dated May 12, 1982, in the amount of
P1,243,632.00, sufficiently establish the liability of the Great Asian to Bancasia the amount
of P1,042,005.00 sought to be recovered by the latter.

Digested Corporation Cases by Roli S. Arangote

On appeal, the Court of Appeals sustained the decision of the lower court, deleting
only the award of attorneys fees.
ISSUE
Whether or not Arsenio Lim Piat, Jr. had authority to execute the deeds of assignment and
thus bind Great Asian
SUPREME COURT RULING
The Corporation Code of the Philippines, specifically Section 23, vests in the board
of directors the exercise of the corporate powers of the corporation, save in those
instances where the Code requires stockholders approval for certain specific acts.
In the ordinary course of business, a corporation can borrow funds or dispose of
assets of the corporation only on authority of the board of directors. The board of
directors normally designates one or more corporate officers to sign loan documents or
deeds of assignment for the corporation.
The two board resolutions also categorically designate Arsenio as the authorized
signatory to sign and deliver all the implementing documents, including checks, for Great
Asian.
Arsenio had all the proper and necessary authority from the board of directors of
Great Asian to sign the Deeds of Assignment and to endorse the fifteen postdated checks.
Arsenio signed the Deeds of Assignment as agent and authorized signatory of Great Asian
under an authority expressly granted by its board of directors. The signature of Arsenio on
the Deeds of Assignment is effectively also the signature of the board of directors of Great
Asian, binding on the board of directors and on Great Asian itself. Evidently, Great Asian
shows its bad faith in disowning the Deeds of Assignment signed by its own Treasurer,
after receiving valuable consideration for the checks assigned under the Deeds.

CASE #6

[G.R. No. 114286. April 19, 2001]

THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), petitioner, vs. THE COURT OF APPEALS,
CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and SPOUSE, respondents.

Digested Corporation Cases by Roli S. Arangote

FACTS
Transactions
On July 13, 1982, Continental Cement Corporation and Gregory T. Lim, executive Vice-President of
Continental, obtained from Consolidated Bank and Trust Corporation Letter of Credit No. DOM-23277 in the
amount of P1,068,150.00 On the same date, Continental paid a marginal deposit of P320,445.00 to
Consolidated. The letter of credit was used to purchase around five hundred thousand liters of bunker fuel oil
from Petrophil Corporation, which the latter delivered directly to Continental in its Bulacan plant. In relation to
the same transaction, a trust receipt for the amount of P1,001,520.93 was executed by Continental, with Lim
as signatory.

Complaint of Collection for Sum of Money at RTC

Claiming that Continental failed to turn over the goods covered by the trust receipt or the proceeds
thereof, Consolidated filed a complaint for sum of money with application for preliminary attachment before
the Regional Trial Court of Manila.
In answer to the complaint, Continental averred that the transaction between them was a simple loan
and not a trust receipt transaction, and that the amount claimed by Consolidated did not take into account
payments already made by them. Lim also denied any personal liability in the subject transactions. In a
Supplemental Answer, Continental prayed for reimbursement of alleged overpayment to Consolidated of the
amount of P490,228.90.
Decision of RTC & Court of Appeals
On September 17, 1990, the trial court rendered its Decision, dismissing the Complaint and ordering
Consolidated to pay Continental the following amounts under their counterclaim: P490,228.90 representing
overpayment of Continental, with interest thereon at the legal rate from July 26, 1988 until fully paid;
P10,000.00 as attorneys fees; and costs.
Both parties appealed to the Court of Appeals, which partially modified the Decision by deleting the
award of attorneys fees in favor of Continental and, instead, ordering Continental to pay petitioner
P37,469.22 as and for attorneys fees and litigation expenses.

CORPORATION ISSUE: Whether or not Gregory Lim and his spouse liable?
SUPREME COURT DECISION
The transactions sued upon were clearly entered into by Lim in his capacity as
Executive Vice President of Continental. We stress the hornbook law that corporate
personality is a shield against personal liability of its officers. Thus, we agree that Gregory
T. Lim and his spouse cannot be made personally liable since Lim entered into and signed
the contract clearly in his official capacity as Executive Vice President. The personality of
the corporation is separate and distinct from the persons composing it.

CASE #7
[G.R. No. 113907. April 20, 2001]
MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD (MSMG-UWP) VS COURT
OF APPEALS

Digested Corporation Cases by Roli S. Arangote

FACTS
Previous Decision of Supreme Court
In G.R. No. 113907, February 28, 2000, The Malayang Samahan ng mga
Manggagawa sa M. Greenfield filed a Petition for Certiorari at Supreme Court under Rule
65 of the Revised Rules of Court to annul the decision of the National Labor Relations
Commission in an unfair labor practice case against its employer company (M. Grienfield,
Inc.) and the officers of its national federation (United Lumber and General Workers of the
Philippines or ULGWP).
The petition was GRANTED and the decision of the National Labor Relations
Commission in Case No. NCR-00-09-04199-89 was REVERSED and SET ASIDE. M.
Grienfield, Inc. was ordered to immediately reinstate the petitioners to their respective
positions. Should reinstatement be not feasible, respondent company shall pay separation
pay of one month salary for every year of service. Since petitioners were terminated
without the requisite written notice at least 30 days prior to their termination, the
respondent company is hereby ordered to pay full backwages to petitioner-employees
while the Federation is also ordered to pay full backwages to petitioner-union officers who
were dismissed upon its instigation. Since the dismissal of petitioners was without cause,
backwages shall be computed from the time the herein petitioner employees and union
officers were dismissed until their actual reinstatement. Should reinstatement be not
feasible, their backwages shall be computed from the time petitioners were terminated
until the finality of the Courts decision.
Petitioners Motion for Partial Reconsideration
Petitioners alleged that Supreme Court committed patent and palpable error in
holding that the respondent company officials cannot be held personally liable for
damages on account of employees dismissal because the employer corporation has a
personality separate and distinct from its officers who merely acted as its agents whereas
the records clearly established that respondent company officers Saul Tawil, Carlos T.
Javelosa and Renato C. Puangco have caused the hasty, arbitrary and unlawful dismissal of
petitioners from work; that as top officials of the respondent company who handed down
the decision dismissing the petitioners, they are responsible for acts of unfair labor
practice; that these respondent corporate officers should not be considered as mere
agents of the company but the wrongdoers.
ISSUE: Whether or not M. Greenfield, Inc. officials should be made personally liable for
damages on account of petitioners dismissal
SUPREME COURT DECISION
A corporation is a juridical entity with legal personality separate and distinct from
those acting for and in its behalf and, in general from the people comprising it. The rule is
that obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities. True, solidary liabilities may at times be incurred but only
when exceptional circumstances warrant such as, generally, in the following cases:
1. When directors and trustees or, in appropriate cases, the officers of a corporation
(a) Vote for or assent to patently unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in directing the corporate affairs;
(c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or
members, and other persons.

Digested Corporation Cases by Roli S. Arangote

(2) When a director or officer has consented to the issuance of watered stocks or who,
having knowledge thereof, did not forthwith file with the corporate secretary his written
objection thereto.
(3) When a director, trustee or officer has contractually agreed or stipulated to hold
himself personally and solidarily liable with the Corporation.
(4) When a director, trustee or officer is made, by specific provision of law, personally
liable for his corporate action.
In labor cases, particularly, the Court has held corporate directors and officers solidarily
liable with the corporation for the termination of employment of corporate employees
done with malice or in bad faith. Bad faith or negligence is a question of fact and is
evidentiary. It has been held that bad faith does not connote bad judgment or negligence;
it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it
means breach of a known duty thru some motive or interest or ill will; it partakes of the
nature of fraud.
In the instant case, there is nothing substantial on record to show that respondent officers
acted in patent bad faith or were guilty of gross negligence in terminating the services of
petitioners so as to warrant personal liability.

Digested Corporation Cases by Roli S. Arangote

CASE #8
[ G.R. No. 67626, April 18, 1989 ]
JOSE REMO, JR., PETITIONER, VS. THE HON. INTERMEDIATE APPELLATE COURT AND E.B.
MARCHA TRANSPORT COMPANY, INC., REPRESENTED BY APIFANIO B. MARCHA,
RESPONDENTS.
FACTS
Transactions
In the latter part of December, 1977 the board of directors of Akron Customs
Brokerage Corporation (Akron), including petitioner Jose Remo, Jr., adopted a resolution
authorizing the purchase of thirteen (13) trucks for use in its business to be paid out of a
loan the corporation may secure from any lending institution.
Feliciano Coprada, as President and Chairman of Akron, purchased thirteen trucks
from private respondent E.B. Marcha Transport Company, Inc. on January 25, 1978 for and
in consideration of P525,000.00 as evidenced by a deed of absolute sale. On the same
date, the parties agreed on a downpayment of P50,000.00 and that the balance of
P475,000.00 shall be paid within sixty (60) days from the date of the execution of the
agreement. The parties also agreed that until said balance is fully paid, the down
payment of P50,000.00 shall accrue as rentals of the 13 trucks; and that if Akron fails to
pay the balance within the period of 60 days, then the balance shall constitute as a
chattel mortgage lien covering said cargo trucks. The parties may allow an extension of 30
days and thereafter private respondent may ask for a revocation of the contract and the
reconveyance of all said trucks.
Collection of Payment
The obligation is further secured by a promissory note executed by Coprada in favor
of Akron. It is stated in the promissory note that the balance shall be paid from the
proceeds of a loan obtained from the Development Bank of the Philippines (DBP) within
sixty (60) days. After the lapse of 90 days, private respondent tried to collect from
Coprada but the latter promised to pay only upon the release of the DPB loan. Private
respondent sent Coprada a letter of demand dated May 10, 1978. Coprada replied and
reiterated that he was applying for a loan from the DBP from the proceeds of which
payment of the obligation shall be made. Later on, it was found out that no loan
application was ever filed by Akron with DBP.
Meanwhile, two of the trucks were sold under a pacto de retro sale to a certain Mr.
Bais of the Perpetual Loans and Savings Bank at Baclaran. The sale was authorized by a
board resolution made in a meeting held on March 15, 1978.
In the meantime, Akron paid rentals of P500.00 a day pursuant to a subsequent
agreement, from April 27, 1978 (the end of the 90-day period to pay the balance) to May
31, 1978. Thereafter, no more rental payments were made.
On July 17, 1978, Coprada wrote private respondent begging for a grace period of
until the end of the month to pay the balance of the purchase price; that he will update
the rentals within the week; and in case he fails, then he will return the 13 units should
private respondent elect to get back the same. Private respondent, through counsel, wrote
Akron on August 1, 1978 demanding the return of the 13 trucks and the payment of
P25,000.00 back rentals covering the period from June 1 to August 1, 1978.

Digested Corporation Cases by Roli S. Arangote

Coprada wrote private respondent on August 8, 1978 asking for another grace
period of up to August 31, 1978 to pay the balance, stating as well that he is expecting the
approval of his loan application from a certain financing company, and that ten (10) trucks
been returned to Bagbag, Novaliches.
On December 9, 1978, Coprada informed private respondent anew that he had
returned ten (10) trucks to Bagbag and that a resolution was passed by the board of
directors confirming the deed of assignment to private respondent of P475,000 from the
proceeds of a loan obtained by Akron from the State investment House, Inc.
Decision of RTC
In due time, private respondent filed a complaint for the recovery of P525,000.00 or
the return of the 13 trucks with damages against Akron and its officers and directors with
the Court of First Instance of Rizal. Only petitioner Jose Remo, Jr. answered the complaint
denying any participation in the transaction and alleging that Akron has a distinct
corporate personality. He was, however, declared in default for his failure to attend the
pre-trial.
In the meanwhile, petitioner Jose Remo, Jr. sold all his shares in Akron to Coprada. It
also appears that Akron amended its articles of incorporation thereby changing its name
to Akron Transport International, Inc. which assumed the liability of Akron to private
respondent.
After an ex parte reception of the evidence of the private respondent, a decision
was rendered on October 28, 1980 in favor E.B. Marcha Transport and against the
defendants.
Motions
A motion for new trial filed by petitioner Remo was denied so he appealed to the
Intermediate Appellate Court (IAC). On June 30, 1983, IAC set aside the decision of RTC as
far as petitioner Remo is concerned.
EB Marcha Transport filed a motion for reconsideration. The IAC, in a resolution
dated February 8, 1984, set aside the decision dated June 30, 1983. The appellate court
affirmed the appealed decision of the trial court.
ISSUE: Whether Jose Remo, Jr., as member of Board of Directors of Akron, be held liable
for Akrons debt
SUPREME COURT RULING
A corporation is an entity separate and distinct from its stockholders. While not in
fact and in reality a person, the law treats a corporation as though it were a person by
process of fiction or by regarding it as an artificial person distinct and separate from its
individual stockholders.
However, the corporate fiction or the notion of legal entity may be disregarded
when it "is used to defeat public convenience, justify wrong, protect fraud, or defend
crime" in which instances "the law will regard the corporation as an association of persons,
or in case of two corporations, will merge them into one." The corporate fiction may also
be disregarded when it is the "mere alter ego or business conduit of a person."
While it is true that in December, 1977 petitioner Jose Remo, Jr. was still a member
of the board of directors of Akron and that he participated in the adoption of a resolution
authorizing the purchase of 13 trucks for the use in the brokerage business of Akron to be
paid out of a loan to be secured from a lending institution, it does not appear that said

Digested Corporation Cases by Roli S. Arangote

resolution was intended to defraud anyone and more particularly private respondent. It
was Coprada, President and Chairman of Akron, who negotiated with said respondent for
the purchase of 13 cargo trucks on January 25, 1978. It was Coprada who signed a
promissory note to guarantee the payment of the unpaid balance of the purchase price out
of the proceeds of a loan he supposedly sought from the DBP. The word "WE" in the said
promissory note must refer to the corporation which Coprada represented in the execution
of the note and not its stockholders or directors. Petitioner did not sign the said
promissory note so he cannot be personally bound thereby.
There is the fact that petitioner sold his shares in Akron to Coprada during the
pendency of the case. Since petitioner has no personal obligation to private respondent, it
is his inherent right as a stockholder to dispose of his shares of stock anytime he so
desires.
If the private respondent is the victim of fraud in this transaction, it has not been
clearly shown that petitioner had any part or participation in the perpetration of the same
Fraud. It must be established by clear and convincing evidence. If at all, the principal
character on whom fault should be attributed is Feliciano Coprada, the President of Akron,
whom private respondent dealt with personally all throughout.

CASE #9
[ G.R. No. 142616, July 31, 2001 ]
PHILIPPINE NATIONAL BANK, PETITIONER, VS. RITRATO GROUP INC.,
INTERNATIONAL, INC., AND DADASAN GENERAL MERCHANDISE, RESPONDENT.

RIATTO

FACTS
Transactions
Petitioner Philippine National Bank (PNB) is a domestic corporation organized and
existing under Philippine law. Meanwhile, respondents Ritratto Group, Inc., Riatto
International, Inc. and Dadasan General Merchandise are domestic corporations, likewise,
organized and existing under Philippine law.
On May 29, 1996, PNB International Finance Ltd. (PNB-IFL), a subsidiary company of
PNB, organized and doing business in Hong Kong, extended a letter of credit in favor of the
respondents in the amount of US$300,000.00 secured by real estate mortgages
constituted over four (4) parcels of land in Makati City. This credit facility was later
increased successively to US$1,140,000.00 in September 1996 and reaching to
US$1,421,316.18 in April 1998; Respondents made repayments of the loan incurred by
remitting those amounts to their loan account with PNB-IFL in Hong Kong.
However, as of April 30, 1998, their outstanding obligations stood at
US$1,497,274.70. Pursuant to the terms of the real estate mortgages, PNB-IFL, through its
attorney-in-fact PNB, notified the respondents of the foreclosure of all the real estate
mortgages and that the properties subject thereof were to be sold at a public auction on
May 27, 1999 at the Makati City Hall.
Complaints and Motions
On May 25, 1999, respondents filed a complaint for injunction with prayer for the
issuance of a writ of preliminary injunction and/or temporary restraining order before the
Regional Trial Court of Makati. The Executive Judge of the Regional Trial Court of Makati
issued a 72-hour temporary restraining order.

Digested Corporation Cases by Roli S. Arangote

On May 28, 1999, the case was raffled to Branch 147 of the Regional Trial Court of
Makati. The trial judge then set a hearing on June 8, 1999.
On June 15, 1999, petitioner filed an opposition to the application for a writ of
preliminary injunction to which the respondents filed a reply.
On June 25, 1999, petitioner filed a motion to dismiss on the grounds of failure to
state a cause of action and the absence of any privity between the petitioner and
respondents.
On June 30, 1999, the trial court judge issued an Order for the issuance of a writ of
preliminary injunction, which writ was correspondingly issued on July 14, 1999.
On October 4, 1999, the motion to dismiss was denied by the trial court judge for
lack of merit.
Petitioner, thereafter, in a petition for certiorari and prohibition assailed the
issuance of the writ of preliminary injunction before the Court of Appeals but the court
dismissed the petition.
ISSUE: Whether or not the PNB is merely an alter ego or a business conduit of PNB-IFL
SUPREME COURT RULING
The general rule is that as a legal entity, a corporation has a personality distinct and
separate from its individual stockholders or members, and is not affected by the personal
rights, obligations and transactions of the latter. The mere fact that a corporation owns all
of the stocks of another corporation, taken alone is not sufficient to justify their being
treated as one entity. If used to perform legitimate functions, a subsidiary's separate
existence may be respected, and the liability of the parent corporation as well as the
subsidiary will be confined to those arising in their respective business. The courts may in
the exercise of judicial discretion step in to prevent the abuses of separate entity privilege
and pierce the veil of corporate entity.
The court has held that the doctrine of piercing the corporate veil is an equitable
doctrine developed to address situations where the separate corporate personality of a
corporation is abused or used for wrongful purposes. The doctrine applies when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud or
defend crime, or when it is made as a shield to confuse the legitimate issues, or where a
corporation is the mere alter ego or business conduit of a person, or where the corporation
is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.
In Concept Builders, Inc. v. NLRC, the Court laid the test in determining the
applicability of the doctrine of piercing the veil of corporate fiction, to wit:
1.
Control, not mere majority or complete control, but complete domination, not only
of finances but of policy and business practice in respect to the transaction attacked so
that the corporate entity as to this transaction had at the time no separate mind, will or
existence of its own.
2.
Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and,
unjust act in contravention of plaintiff's legal rights; and,
3.
The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.
The absence of any one of these elements prevents "piercing the corporate veil." In
applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality

Digested Corporation Cases by Roli S. Arangote

and not form, with how the corporation operated and the individual defendant's
relationship to the operation.
Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB,
there is no showing of the indicative factors that the former corporation is a mere
instrumentality of the latter are present. Neither is there a demonstration that any of the
evils sought to be prevented by the doctrine of piercing the corporate veil exist.
Inescapably, therefore, the doctrine of piercing the corporate veil based on the alter ego or
instrumentality doctrine finds no application in the case at bar.

CASE #10
[ G.R. No. 178158, December 04, 2009 ]
STRATEGIC ALLIANCE DEVELOPMENT CORPORATION, PETITIONER, VS. RADSTOCK
SECURITIES LIMITED AND PHILIPPINE NATIONAL CONSTRUCTION CORPORATION,
RESPONDENTS. ASIAVEST MERCHANT BANKERS BERHAD, INTERVENOR.
FACTS
Construction Development Corporation of the Philippines (CDCP) was incorporated
in 1966. It was granted a franchise to construct, operate and maintain toll facilities in the
North and South Luzon Tollways and Metro Manila Expressway. CDCP Mining Corporation
(CDCP Mining), an affiliate of CDCP, obtained loans from Marubeni Corporation of Japan
(Marubeni). A CDCP official issued letters of guarantee for the loans although there was no
CDCP Board Resolution authorizing the issuance of such letters of guarantee. CDCP Mining
secured the Marubeni loans when CDCP and CDCP Mining were still privately owned and
managed. In 1983, CDCPs name was changed to Philippine National Construction
Corporation (PNCC) in order to reflect that the Government already owned 90.3% of PNCC
and only 9.70% is under private ownership. Meanwhile, the Marubeni loans to CDCP Mining
remained unpaid. On 20 October 2000 and 22 November 2000, the PNCC Board of
Directors (PNCC Board) passed Board Resolutions admitting PNCCs liability to Marubeni.

Digested Corporation Cases by Roli S. Arangote

Previously, for two decades the PNCC Board consistently refused to admit any liability for
the Marubeni loans. In January 2001, Marubeni assigned its entire credit to Radstock
Securities Limited (Radstock), a foreign corporation. Radstock immediately sent a notice
and demand letter to PNCC. PNCC and Radstock entered into a Compromise Agreement.
Under this agreement, PNCC shall pay Radstock the reduced amount of P6,185,000,000.00
in full settlement of PNCCs guarantee of CDCP Minings debt allegedly totaling
P17,040,843,968.00 (judgment debt as of 31 July 2006). To satisfy its reduced obligation,
PNCC undertakes to (1) "assign to a third party assignee to be designated by Radstock all
its rights and interests" to the listed real properties of PNCC; (2) issue to Radstock or its
assignee common shares of the capital stock of PNCC issued at par value which shall
comprise 20% of the outstanding capital stock of PNCC; and (3) assign to Radstock or its
assignee 50% of PNCCs 6% share, for the next 27 years, in the gross toll revenues of the
Manila North Tollways Corporation. Strategic Alliance Development Corporation (STRADEC)
moved for reconsideration. STRADEC alleged that it has a claim against PNCC as a bidder
of the National Governments shares, receivables, securities and interests in PNCC.
ISSUE
Whether or not the Compromise Agreement between PNCC and Radstock is valid in
relation to the Constitution, existing laws, and public policy.
SUPREME COURT RULING
Radstock is a private corporation incorporated in the British Virgin Islands. Its office
address is at Suite 14021Duddell Street, Central Hongkong. As a foreign corporation, with
unknown owners whose nationalities are also unknown, Radstock is not qualified to own
land inthe Philippines pursuant to Section 7, in relation to Section3, Article XII of the
Constitution. Consequently, Radstock is also disqualified to own the rights to ownership of
lands in the Philippines. Contrary to the OGCCs claim, Radstock cannot own the rights to
ownership of any land in the Philippines because Radstock cannot lawfully own the land
itself. Otherwise, there will be a blatant circumvention of the Constitution, which prohibits
a foreign private corporation from owning land in the Philippines. In addition, Radstock
cannot transfer the rights to ownership of land in the Philippines if it cannot own the land
itself. It is basic that an assignor or seller cannot assign or sell something he does not own
at the time the ownership, or the rights to the ownership, are to be transferred to the
assignee or buyer.

CASE #11
[ G.R. NO. 124293, January 31, 2005 ]
J.G. SUMMIT HOLDINGS, INC., PETITIONER, VS. COURT OF APPEALS; COMMITTEE ON
PRIVATIZATION, ITS CHAIRMAN AND MEMBERS; ASSET PRIVATIZATION TRUST; AND
PHILYARDS HOLDINGS, INC., RESPONDENTS.
FACTS
Joint Venture
On January 27, 1977, the National Investment and Development Corporation (NIDC),
a government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki
Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and
management of the Subic National Shipyard, Inc. (SNS) which subsequently became the
Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC and
KAWASAKI will contribute P330 million for the capitalization of PHILSECO in the proportion
of 60%-40% respectively.

Digested Corporation Cases by Roli S. Arangote

One of its salient features is the grant to the parties of the right of first refusal
should either of them decide to sell, assign or transfer its interest in the joint venture but it
shall not apply if the transferee is a corporation owned or controlled by the GOVERNMENT
or by a KAWASAKI affiliate. On November 25, 1986, NIDC transferred all its rights, title and
interest in PHILSECO to the Philippine National Bank (PNB).
Such interests were subsequently transferred to the National Government pursuant
to Administrative Order No. 14. On December 8, 1986, President Corazon C. Aquino issued
Proclamation No. 50 establishing the Committee on Privatization (COP) and the Asset
Privatization Trust (APT) to take title to, and possession of, conserve, manage and dispose
of non-performing assets of the National Government.
Thereafter, on February 27, 1987, a trust agreement was entered into between the
National Government and the APT wherein the latter was named the trustee of the
National Governments share in PHILSECO. In 1989, as a result of a quasi-reorganization of
PHILSECO to settle its huge obligations to PNB, the National Governments shareholdings
in PHILSECO increased to 97.41% thereby reducing KAWASAKIs shareholdings to 2.59%.
In the interest of the national economy and the government, the COP and the APT
deemed it best to sell the National Governments share in PHILSECO to private entities.
After a series of negotiations between the APT and KAWASAKI, they agreed that the latters
right of first refusal under the JVA be exchanged for the right to top by five percent (5%)
the highest bid for the said shares. They further agreed that KAWASAKI would be entitled
to name a company in which it was a stockholder, which could exercise the right to top.
On September 7, 1990, KAWASAKI informed APT that Philyards Holdings, Inc. (PHI) would
exercise its right to top.
Bidding
At the pre-bidding conference held on September 18, 1993, interested bidders were
given copies of the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding
Rules (ASBR) drafted for the National Governments 87.6% equity share in PHILSECO
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc.
submitted a bid of Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an
acknowledgement of KAWASAKI/Philyards right to top. On February 7, 1994, the APT
notified petitioner that PHI had exercised its option to top the highest bid and that the COP
had approved the same on January 6, 1994. On February 24, 1994, the APT and PHI
executed a Stock Purchase Agreement.
Petitions
Consequently, petitioner filed with this Court a Petition for Mandamus under G.R.
No. 114057. On May 11, 1994, said petition was referred to the Court of Appeals. On July
18, 1995, the Court of Appeals denied the same for lack of merit. It ruled that the petition
for mandamus was not the proper remedy to question the constitutionality or legality of
the right of first refusal and the right to top that was exercised by KAWASAKI/PHI, and that
the matter must be brought by the proper party in the proper forum at the proper time
and threshed out in a full blown trial.
The Court of Appeals further ruled that the right of first refusal and the right to top
are prima facie legal and that the petitioner, by participating in the public bidding, with
full knowledge of the right to top granted to KASAWASAKI/Philyards is . . . estopped from
questioning the validity of the award given to Philyards after the latter exercised the right
to top and had paid in full the purchase price of the subject shares, pursuant to the ASBR.
Petitioner filed a Motion for Reconsideration of said Decision which was denied on March
15, 1996.
Petitioner thus filed a Petition for Certiorari with Supreme Court alleging grave
abuse of discretion on the part of the appellate court.
On November 20, 2000, Supreme Court ruled that a shipyard like PHILSECO is a
public utility whose capitalization must be sixty percent (60%) Filipino-owned.
Consequently, the right to top granted to KAWASAKI under the Asset Specific
Bidding Rules (ASBR) drafted for the sale of the 87.67% equity of the National Government
in PHILSECO is illegal---not only because it violates the rules on competitive bidding--- but
more so, because it allows foreign corporations to own more than 40% equity in the
shipyard.

Digested Corporation Cases by Roli S. Arangote

It also held that although the petitioner had the opportunity to examine the ASBR
before it participated in the bidding, it cannot be estopped from questioning the
unconstitutional, illegal and inequitable provisions thereof.
Thus, Supreme Court voided the transfer of the national governments 87.67%
share in PHILSECO to Philyard Holdings, Inc., and upheld the right of JG Summit, as the
highest bidder, to take title to the said shares.
Respondents filed separate Motions for Reconsideration. In a Resolution dated
September 24, 2003, Supreme Court ruled in favor of the respondents. The Court held that
PHILSECO is not a public utility and that no law declares a shipyard to be a public utility. It
also ruled that they found nothing in the 1977 Joint Venture Agreement (JVA) which
prevents KAWASAKI from acquiring more than 40% of PHILSECOs total capitalization. The
Court held also that the right to top granted to KAWASAKI in exchange for its right of first
refusal did not violate the principles of competitive bidding.
ISSUE: Whether or not KAWASAKI, a foreign corporation, can exercise the right of first
refusal even it will exceed 40% shares of PHILSECOs total capitalization
SUPREME COURT RULING
The Court upholds the validity of the mutual rights of first refusal under the JVA
between KAWASAKI and NIDC. First of all, the right of first refusal is a property right of
PHILSECO shareholders, KAWASAKI and NIDC, under the terms of their JVA. This right
allows them to purchase the shares of their co-shareholder before they are offered to a
third party. The agreement of co-shareholders to mutually grant this right to each other,
by itself, does not constitute a violation of the provisions of the Constitution limiting land
ownership to Filipinos and Filipino corporations. As PHILYARDS correctly puts it, if PHILSECO
still owns land, the right of first refusal can be validly assigned to a qualified Filipino entity
in order to maintain the 60%-40% ratio. This transfer, by itself, does not amount to a
violation of the Anti-Dummy Laws, absent proof of any fraudulent intent. The transfer
could be made either to a nominee or such other party which the holder of the right of first
refusal feels it can comfortably do business with. Alternatively, PHILSECO may divest of its
landholdings, in which case KAWASAKI, in exercising its right of first refusal, can exceed
40% of PHILSECOs equity. In fact, it can even be said that if the foreign
shareholdings of a landholding corporation exceeds 40%, it is not the foreign
stockholders ownership of the shares which is adversely affected but the
capacity of the corporation to own land that is, the corporation becomes
disqualified to own land. This finds support under the basic corporate law principle that
the corporation and its stockholders are separate juridical entities. In this vein, the right
of first refusal over shares pertains to the shareholders whereas the capacity to
own land pertains to the corporation. Hence, the fact that PHILSECO owns land
cannot deprive stockholders of their right of first refusal. No law disqualifies a person
from purchasing shares in a landholding corporation even if the latter will
exceed the allowed foreign equity, what the law disqualifies is the corporation
from owning land.

CASE #12
[ G.R. No. 172671, April 16, 2009 ]
MARISSA R. UNCHUAN, PETITIONER, VS. ANTONIO J.P. LOZADA, ANITA LOZADA AND THE
REGISTER OF DEEDS OF CEBU CITY, RESPONDENTS.
FACTS
Sisters Anita Lozada Slaughter and Peregrina Lozada Saribay were the registered coowners of Lot Nos. 898-A-3 and 898-A-4 covered by Transfer Certificates of Title (TCT) Nos.
53258 and 53257 in Cebu City.

Digested Corporation Cases by Roli S. Arangote

The sisters, who were based in the United States, sold the lots to their nephew
Antonio J.P. Lozada (Antonio) under a Deed of Sale dated March 11, 1994. Armed with a
Special Power of Attorney from Anita, Peregrina went to the house of their brother, Dr.
Antonio Lozada (Dr. Lozada), located at Long Beach California. Dr. Lozada agreed to
advance the purchase price of US$367,000 or P10,000,000 for Antonio, his nephew, in
preparation for their plan to form a corporation. The lots are to be eventually infused in the
capitalization of Damasa Corporation, where he and Antonio are to have 40% and 60%
stake, respectively. The Deed of Sale was later notarized and authenticated at the
Philippine Consul's Office. Dr. Lozada then forwarded the deed, special power of attorney,
and owners' copies of the titles to Antonio in the Philippines. Upon receipt of said
documents, the latter recorded the sale with the Register of Deeds of Cebu. Accordingly,
TCT Nos. 128322 and 128323 were issued in the name of Antonio Lozada.
Pending registration of the deed, petitioner Marissa R. Unchuan caused the
annotation of an adverse claim on the lots claiming that Anita donated an undivided share
in the lots to her under an unregistered Deed of Donation dated February 4, 1987.
Filing of Cases
Antonio and Anita brought a case against Marissa for quieting of title with
application for preliminary injunction and restraining order. Marissa for her part, filed an
action to declare the Deed of Sale void and to cancel TCT Nos. 128322 and 128323. On
motion, the cases were consolidated and tried jointly.
On June 9, 1997, RTC Judge Leonardo B. Caares held in favor of the plaintiff Antonio and Anita.

On motion for reconsideration by petitioner, the RTC of Cebu City, Branch 10, with
Hon. Jesus S. dela Pea as Acting Judge, issued an Order dated April 5, 1999 declaring the
Deed of Sale void and declared the Deed of Donation in favor of Marissa valid. The RTC
gave credence to the medical records of Peregrina.
Respondents moved for reconsideration. On July 6, 2000, now with Hon. Soliver C. Peras, as Presiding
Judge, the RTC of Cebu City, Branch 10, reinstated the Decision dated June 9, 1997.

Petitioner appealed to the Court of Appeals. On February 23, 2006 the appellate
court affirmed with modification the July 6, 2000 Order of the RTC.
Petitioner raised the case at the Supreme Court. One of her contention is she finds it
anomalous that Dr. Lozada, an American citizen, had paid the lots for Antonio. Thus, she
accuses the latter of being a mere dummy of the former.
ISSUE: Whether or not Dr. Lozada, an American, can own a lot in the Philippines
SUPREME COURT RULING
The Court finds nothing to show that the sale between the sisters Lozada and their
nephew Antonio violated the public policy prohibiting aliens from owning lands in the
Philippines. Even as Dr. Lozada advanced the money for the payment of Antonio's share,
at no point were the lots registered in Dr. Lozada's name. Nor was it contemplated that the
lots be under his control for they are actually to be included as capital of Damasa
Corporation. According to their agreement, Antonio and Dr. Lozada are to hold 60% and
40% of the shares in said corporation, respectively. Under Republic Act No. 7042,
particularly Section 3, a corporation organized under the laws of the Philippines of which at
least 60% of the capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines, is considered a Philippine National. As such, the corporation
may acquire disposable lands in the Philippines.

CASE #13
[ G.R. No. L-2598, June 29, 1950 ]
C. ARNOLD HALL AND BRADLEY P. HALL, PETITIONER, VS. EDMUNDO S. PICCIO, JUDGE OF
THE COURT OF FIRST INSTANCE OF LEYTE, FRED BROWN, EMMA BROWN, HIPOLITA
CAPUCIONG, IN HIS CAPACITY AS RECEIVER OF THE FAR EASTERN LAMBER AND
COMMERCIAL CO., INC., RESPONDENTS.

Digested Corporation Cases by Roli S. Arangote

FACTS
On May 26, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the
respondents Fred Brown, Emma Brown, Hipolita D, Chapman and Ceferino S. Abella, signed
and acknowledged in Leyte, the articles of incorporation of the Far Eastern Lumber and
Commercial Co., Inc., organized to engage in a general lumber business, to carry on as
general contractors, operators and managers, etc. Attached to the articles was an affidavit
of the treasurer stating that 23,428 shares of stock had been subscribed and fully paid
with certain properties transferred to the corporation described in a list appended thereto.
Immediately after the execution of said articles of incorporation, the corporation
proceeded to do business with the adoption of by-laws and the election of its officers.
On December 2, 1947, the said articles were filed in the office of the Securities and
Exchange Commissioner, for the issuance of the corresponding certificate of incorporation.
On March 22, 1948, pending action on the articles of incorporation by the aforesaid
governmental office, the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and
Ceferino S. Abella filed before the Court of First Instance of Leyte the civil case numbered
381, entitled "Fred Brown et al., vs. Arnold C. Hall et al.", alleging among other things that
the Far Eastern Lumber and Commercial Co. was an unregistered partnership; that they
wished to have it dissolved because of bitter dissension among the members,
mismanagement and fraud by the managers and heavy financial losses.
The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion
to dismiss, contesting the court's jurisdiction and the sufficiency of the cause of action.
After hearing the parties, the Hon. Edmundo S. Piccio ordered the dissolution of the
company; and at the request of plaintiffs, appointed the respondent Pedro A. Capuciong as
receiver of the properties thereof, upon the filing of a twenty-thousand-peso bond.
The defendants therein (petitioners herein) offered to file a counter-bond for the
discharge of the receiver. But the respondent judge refused to accept the offer and to
discharge the receiver.
ISSUES
1. Whether or not Fred Brown and Emma Brown are estopped (Corporation by
estoppel) from claiming that it is not a corporation even they acknowledge and
signed the Articles of Incorporation
2. Whether or not the provision of Corporation Law about de facto corporation
applicable in this case
SUPREME COURT RULING
All the parties are informed that the Securities and Exchange Commission has not,
so far, issued the corresponding certificate of incorporation. All of them know, or ought to
know, that the personality of a corporation begins to exist only from the moment such
certificate is issued not before (Sec. 11, Corporation Law). The complaining associates
have not represented to the others that they were incorporated any more than the latter
had made similar representations to them. And as nobody was led to believe anything to
his prejudice and damage, the principle of estoppel does not apply. Obviously this is not an
instance requiring the enforcement of contracts with the corporation through the rule of
estoppel.
Far Eastern Lumber and Commercial Co. is a de facto corporation. However,
provision in Corporation Law regarding de facto corporations cannot be applied in this case
because, (1) the Far Eastern Lumber and Commercial Co.even its stockholdersmay not
probably claim "in good faith" to be a corporation. The immunity to collateral attack is
granted to corporations 'claiming in good faith to be a corporation under this act.' (2) This
is not a suit in which the corporation is a party. This is a litigation between stockholders of
the alleged corporation, for the purpose of obtaining its dissolution.
CASE #14
[ G.R. No. 22106, September 11, 1924 ]
ASIA BANKING CORPORATION, PLAINTIFF AND APPELLEE, VS. STANDARD PRODUCTS CO.,
INC., DEFENDANT AND APPELLANT.

Digested Corporation Cases by Roli S. Arangote

FACTS
The Standard Products Co., Inc., signed by its President George H. Seaver, issued a
promissory note dated Nov. 28, 1921 to the Asia Banking Corporation, the sum P37,757.22
for value received, together with interest at the rate of 10% per annum.
The Asia Banking Corporation brought an action to recover the sum of P24,736.47,
the balance due on the amount of Promissory Note. The court rendered judgment in favor
of the plaintiff for the sum demanded in the complaint, with interest on the sum of
P24,147.34 from November 1, 1923, at the rate of 10 per cent per annum, and the costs.
From this judgment the defendant appeals to Supreme Court.
At the trial of the case the plaintiff failed to prove affirmatively the corporate
existence of the parties and the appellant insists that under these circumstances the court
erred in finding that the parties were corporations with juridical personality and assigns
same as reversible error.
ISSUE: Whether or not Corporation estoppels is applicable in this case
SUPREME COURT RULING
The general rule is that in the absence of fraud a person who has contracted or
otherwise dealt with an 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 leading out of or involving such contract or dealing, unless its existence is
attacked for causes which have arisen since making the contract or other dealing relied on
as an estoppel and this applies to foreign as well as to domestic corporations. (14 C. J.,
227; Chinese Chamber of Commerce vs. Pua Te Ching, 14 Phil., 222.)
The defendant having recognized the corporate existence of the plaintiff by making
a promissory note in its favor and making partial payments on the same is therefore
estopped to deny said plaintiff's corporate existence. It is, of course, also estopped from
denying its own corporate existence.

CASE #15
[ G.R. No. 136448, November 03, 1999 ]
LIM TONG LIM, PETITIONER, VS. PHILIPPINE FISHING GEAR INDUSTRIES, INC., RESPONDENT.

Digested Corporation Cases by Roli S. Arangote

FACTS
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao
entered into a Contract dated February 7, 1990, for the purchase of fishing nets of various
sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed
that they were engaged in a business venture with Petitioner Lim Tong Lim, who however
was not a signatory to the agreement. The total price of the nets amounted to P532,045.
Four hundred pieces of floats worth P68,000 were also sold to the Corporation.
The buyers, however, failed to pay for the fishing nets and the floats; hence, private
respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a
prayer for a writ of preliminary attachment. The suit was brought against the three in their
capacities as general partners, on the allegation that "Ocean Quest Fishing Corporation"
was a nonexistent corporation as shown by a Certification from the Securities and
Exchange Commission.
On September 20, 1990, the lower court issued a Writ of Preliminary Attachment,
which the sheriff enforced by attaching the fishing nets on board F/B Lourdes which was
then docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability
and requesting a reasonable time within which to pay. He also turned over to respondent
some of the nets which were in his possession.
Peter Yao filed an Answer, after which he was deemed to have waived his right to
cross-examine witnesses and to present evidence on his behalf, because of his failure to
appear in subsequent hearings.
Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim
and moved for the lifting of the Writ of Attachment.
The trial court maintained the Writ, and upon motion of private respondent, ordered
the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries won the
bidding and deposited with the said court the sales proceeds of P900,000.
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine
Fishing Gear Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim,
as general partners, were jointly liable to pay respondent.
On November 26, 1998, Court of Appeals affirmed the decision of RTC
Petitioner went to Supreme Court as recourse. Petitioner argues that under the
doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not
to him.
ISSUE: Whether or not Corporation by estoppels applicable in this case
SUPREME COURT RULING
The doctrine of corporation by estoppel may apply to the alleged corporation and to
a third party. In the first instance, an unincorporated association, which represented itself
to be a corporation, will be estopped from denying its corporate capacity in a suit against
it by a third person who relied in good faith on such representation. It cannot allege lack of
personality to be sued to evade its responsibility for a contract it entered into and by
virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated,
nonetheless treated it as a corporation and received benefits from it, may be barred from
denying its corporate existence in a suit brought against the alleged corporation. In such
case, all those who benefited from the transaction made by the ostensible corporation,
despite knowledge of its legal defects, may be held liable for contracts they impliedly
assented to or took advantage of.
Clearly, under the law on estoppel, those acting on behalf of a corporation and
those benefited by it, knowing it to be without valid existence, are held liable as general
partners.
Technically, it is true that petitioner did not directly act on behalf of the corporation.
However, having reaped the benefits of the contract entered into by persons with whom
he previously had an existing relationship, he is deemed to be part of said association and
is covered by the scope of the doctrine of corporation by estoppel.
CASE #16
[ G.R. No. 117010, April 18, 1997 ]
PEOPLE OF THE PHILIPPINES, PLAINTIFF-APPELLEE, VS.ENGR. CARLOS GARCIA Y PINEDA,
PATRICIO BOTERO Y VALES, LUISA MIRAPLES (AT LARGE), ACCUSED, PATRICIO BOTERO Y
VALES, ACCUSED-APPELLANT.
DECISION

Digested Corporation Cases by Roli S. Arangote

FACTS
In an Information dated July 21, 1992, accused-appellant Patricio Botero together
with Carlos P. Garcia and Luisa Miraples were charged with the crime of illegal recruitment
in large scale defined by Article 38 (b) and penalized under Article 39 (a) of the Labor
Code, as amended by Presidential Decree Nos. 1920 and 2018.
That on or before March 2, 1992, and subsequently thereafter, in the Municipality of
Mandaluyong, Metro Manila, Philippines, , the above-named accused, conspiring and
confederating together and mutually helping and aiding each other, representing
themselves to have authority, license and/or permit to contract, enlist and recruit workers
for overseas employment, did then and there willfully, unlawfully and feloniously for a fee,
recruit and promise job placement/employment abroad to the 16 individuals without first
securing the required license or authority from the Department of Labor and Employment.
Accused Garcia and Botero pleaded not guilty upon arraignment on January 19,
1993 and March 31, 1993, respectively. Miraples remained at large as the warrant of arrest
against her was returned unserved. A joint trial was conducted against the two (2) accused
considering that their cases involve the same parties and issues.
The witnesses testified that on various dates in March 1992, they went to Ricorn
Philippine International Shipping Lines, Inc. (hereinafter Ricorn), an entity which recruits
workers for overseas employment, with office at Rm. 410, Jovan Building, 600 Shaw Blvd.,
Mandaluyong, Metro Manila. Garcia represented himself as the President of Ricorn and
Botero as the Vice-President. They collected from the applicants the necessary documents
and processing fees.
After the election, complainants went back to Ricorn to check on their applications.
They discovered that Ricorn had abandoned its office at Jovan Building for non-payment of
rentals and Garcia and Botero were nowhere to be found. They then went to the
Mandaluyong Police Station and filed their complaints. They also checked with the
Securities and Exchange Commission (SEC) and discovered that Ricorn was not yet
incorporated. They also found that Ricorn was not licensed by the Department of Labor
and Employment (DOLE) to engage in recruitment activities.
After trial, in a decision dated April 19, 1995 accused Garcia and Botero were
convicted beyond reasonable doubt of the offense of illegal recruitment on (sic) a large
scale constituting economic sabotage. The case against accused Miraples was archived by the
court. She has remained at large.

Thru counsel, accused Botero filed a Notice of Appeal. He claims that even as a
Ricorn employee, he merely performed "minimal activities" like following-up applicants'
passports, seaman's book and SOLAS, and conducting simple interviews. He argues that
he is not responsible for illegal recruitment activities of co-accused Carlos P. Garcia.
ISSUE: Whether or not Corporation by estoppels applicable in this case
SUPREME COURT RULING
For engaging in recruitment of workers without obtaining the necessary license from
the POEA, Botero should suffer the consequences of Ricorn's illegal act for "if the offender
is a corporation, partnership, association or entity, the penalty shall be imposed upon the
officer or officers of the corporation, partnership, association or entity responsible for
violation. The evidence shows that appellant Botero was one of the incorporators of
Ricorn. For reasons that cannot be discerned from the records, Ricorn's incorporation was
not consummated. Even then, appellant cannot avoid his liabilities to the public as an
incorporator of Ricorn. He and his co-accused Garcia held themselves out to the public as
officers of Ricorn. They received money from applicants who availed of their services. They
are thus estopped from claiming that they are not liable as corporate officials of Ricorn.
Section 25 of the Corporation Code provides that "all persons who assume to act as a
corporation knowing it to be without authority to do so shall be liable as general partners
for all the debts, liabilities and damages incurred or arising as a result thereof: Provided,
however, That when any such ostensible corporation is sued on any transaction entered by
it as a corporation or on any tort committed by it as such, it shall not be allowed to use as
a defense its lack of corporate personality."
CASE #17
[ G.R. No. 127937, July 28, 1999 ]
NATIONAL TELECOMMUNICATIONS COMMISSION, PETITIONER, VS. HONORABLE COURT OF
APPEALS AND PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, RESPONDENTS.
FACTS

Digested Corporation Cases by Roli S. Arangote

Sometime in 1988, the National Telecommunications Commission (NTC) served on

the Philippine Long Distance Telephone Company (PLDT) the following assessment notices
and demands for payment:
"1. the amount of P7,495,161.00 as supervision and regulation fee under Section 40 (e) of
the PSA for the said year, 1988, computed at P0.50 per P100.00 of the PLDT
outstanding capital stock as at December 31, 1987 which then consisted of Serial
Preferred Stock amounting to P1,277,934,390.00 (Billion) and Common Stock of
P221,097,785 (Million) or a total of P1,499,032,175.00 (Billion).
2. the amount of P9.0 Million as permit fee under Section 40 (f) of the PSA for the approval
of the protestant's increase of its authorized capital stock from P2.7 Billion to P4.5 Billion;
and
3. the amounts of P12,261,600.00 and P33,472,030.00 as permit fees under Section 40 (g)
of the PSA in connection with the Commission's decisions in NTC Cases Nos. 86-13 and 87008 respectively, approving the Protestant's equity participation in the Fiber Optic
Interpacific Cable systems and X-5 Service Improvement and Expansion Program."
In its two letter-protests dated February 23, 1988 and July 14, 1988, and position
papers dated November 8, 1990 and March 12, 1991, respectively, the PLDT challenged
the aforesaid assessments. One of its protests is that the assessment under
Section 40 (e) should only have been on the basis of the par values of private
respondent's outstanding capital stock.
On September 29, 1993, the NTC rendered a Decision in NTC Case No. 90-223,
denying the protest of PLDT. On October 22, 1993, PLDT interposed a Motion for
Reconsideration, which was denied by NTC in an Order issued on May 3, 1994.
On May 12, 1994, PLDT appealed the aforesaid Decision to the Court of Appeals,
which came out with its questioned Decision of October 30, 1996, modifying the
disposition of NTC orderering the latter to recompute its assessments and demands for
payment from petitioner PLDT as follows:
For annual supervision and regulation fees (SRF) under Section 40 (e) of the Public
Service Act, as amended, they should be computed at fifty centavos for each one hundred
pesos or fraction thereof of the par value of the capital stock subscribed or paid excluding
stock dividends, premiums or capital in excess of par.
On November 20, 1996, NTC moved for partial reconsideration of the
abovementioned Decision, but the Court of Appeals denied its motion through its
Resolution January 27, 1997.
ISSUE: Whether or not the basis of computation of the fee to be charged by NTC to PLDT
is (1) the par value of the capital stock subscribed or paid or (2) the market value of the
capital stock subscribed
SUPREME COURT RULING
Succinct and clear is the ruling of this Court in the case of Philippine Long Distance
Telephone Company vs. Public Service Commission, 66 SCRA 341, that the basis for
computation of the fee to be charged by NTC on PLDT, is "the capital stock subscribed
or paid and not, alternatively, the property and equipment."
Capital refers to the value of the property or assets of a corporation. The capital
subscribed is the total amount of the capital that persons (subscribers or shareholders)
have agreed to take and pay for, which need not necessarily be, and can be more than,
the par value of the shares. In fine, it is the amount that the corporation receives, inclusive
of the premiums if any, in consideration of the original issuance of the shares. In the case
of stock dividends, it is the amount that the corporation transfers from its surplus profit
account to its capital account. It is the same amount that can loosely be termed as the
"trust fund" of the corporation. The "Trust Fund" doctrine considers this subscribed capital
as a trust fund for the payment of the debts of the corporation, to which the creditors may
look for satisfaction. Until the liquidation of the corporation, no part of the subscribed
capital may be returned or released to the stockholder (except in the redemption of
redeemable shares) without violating this principle. Thus, dividends must never impair the
subscribed capital; subscription commitments cannot be condoned or remitted; nor can
the corporation buy its own shares using the subscribed capital as the consideration
therefor.
CASE #18

Digested Corporation Cases by Roli S. Arangote

[ G.R. No. 144476, April 08, 2003 ]

Ong Yong vs. Tiu
FACTS
Pre-Subscription Agreement
In 1994, the construction of the Masagana Citimall in Pasay City was threatened
with stoppage and incompletion when its owner, the First Landlink Asia Development
Corporation (FLADC), which was owned by David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen
See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu (the Tius), encountered dire financial
difficulties. It was heavily indebted to the Philippine National Bank (PNB) for P190 million.
To stave off foreclosure of the mortgage on the two lots where the mall was being built,
the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and
Julia Ong Alonzo (the Ongs), to invest in FLADC. Under the Pre-Subscription Agreement
they entered into, the Ongs and the Tius agreed to maintain equal shareholdings in
FLADC: the Ongs were to subscribe to 1,000,000 shares at a par value of P100.00 each
while the Tius were to subscribe to an additional 549,800 shares at P100.00 each in
addition to their already existing subscription of 450,200 shares. Furthermore, they agreed
that the Tius were entitled to nominate the Vice-President and the Treasurer plus 5
directors while the Ongs were entitled to nominate the President, the Secretary and 6
directors (including the chairman) to the board of directors of FLADC. Moreover, the Ongs
were given the right to manage and operate the mall.
Accordingly, the Ongs paid P100 million in cash for their subscription to 1,000,000
shares of stock while the Tius committed to contribute to FLADC a four-storey building and
two parcels of land respectively valued at P20 million (for 200,000 shares), P30 million (for
300,000 shares) and P49.8 million (for 49,800 shares) to cover their additional 549,800
stock subscription therein. The Ongs paid in another P70 million 3 to FLADC and P20
million to the Tius over and above their P100 million investment, the total sum of which
(P190 million) was used to settle the P190 million mortgage indebtedness of FLADC to
PNB. The business harmony between the Ongs and the Tius in FLADC, however, was
shortlived because the Tius, on 23 February 1996, rescinded the Pre-Subscription
Agreement.
Controversies
The Tius accused the Ongs of (1) refusing to credit to them the FLADC shares
covering their real property contributions; (2) preventing David S. Tiu and Cely Y. Tiu from
assuming the positions of and performing their duties as Vice-President and Treasurer,
respectively, and (3) refusing to give them the office spaces agreed upon.
The controversy finally came to a head when the case was commenced by the Tius
on 27 February 1996 at the Securities and Exchange Commission (SEC), seeking
confirmation of their rescission of the Pre-Subscription Agreement. After hearing, the SEC,
through then Hearing Officer Rolando G. Andaya, Jr., issued a decision on 19 May 1997
confirming the rescission sought by the Tius.
On motion of both parties, the above decision was partially reconsidered but only
insofar as the Ongs' P70 million was declared not as a premium on capital stock but an
advance (loan) by the Ongs to FLADC and that the imposition of interest on it was correct.
Both parties appealed to the SEC en banc which rendered a decision on 11
September 1998, affirming the 19 May 1997 decision of the Hearing Officer. The SEC en
banc confirmed the rescission of the Pre-Subscription Agreement but reverted to
classifying the P70 million paid by the Ongs as premium on capital and not as a loan or
advance to FLADC, hence, not entitled to earn interest.
On appeal, the Court of Appeals (CA) rendered a decision on 5 October 1999,
modifying the SEC order of 11 September 1998. Their motions for reconsideration were
denied.
Both parties filed separate petitions for review before the Supreme Court. On 1
February 2002, the Supreme Court promulgated its Decision, affirming the assailed
decision of the Court of Appeals but with the modifications that the P20 million loan
extended by the Ongs to the Tius shall earn interest at 12% per annum to be computed
from the time of judicial demand which is from 23 April 1996; that the P70 million
advanced by the Ongs to the FLADC shall earn interest at 10% per annum to be computed
from the date of the FLADC Board Resolution which is 19 June 1996; and that the Tius shall
be credited with 49,800 shares in FLADC for their property contribution, specifically, the
151 sq. m. parcel of land. The Court affirmed the fact that both the Ongs and the Tius
violated their respective obligations under the Pre-Subscription Agreement.
On 15 March 2002, the Tius filed before the Court a Motion for Issuance of a Writ of
Execution. Aside from their opposition to the Tius' Motion for Issuance of Writ of Execution,
the Ongs filed their own "Motion for Reconsideration; Alternatively, Motion for Modification
(of the February 1, 2002 Decision)" on 15 March 2002.

Digested Corporation Cases by Roli S. Arangote

Willie Ong filed a separate "Motion for Partial Reconsideration" dated 8 March 2002,
pointing out that there was no violation of the Pre-Subscription Agreement on the part of
the Ongs, among others. On 29 January 2003, the Special Second Division of this Court
held oral arguments on the respective positions of the parties. On 27 February 2003, Dr.
Willie Ong and the rest of the movants Ong filed their respective memoranda. On 28
February 2003, the Tius submitted their memorandum.
ISSUE: Whether or not the pre-Subscription Agreement executed by the Ongs is actually a
subscription contract.
SUPREME COURT RULING
FLADC was originally incorporated with an authorized capital stock of 500,000
shares with the Tius owning 450,200 shares representing the paid-up capital. When the
Tius invited the Ongs to invest in FLADC as stockholders, an increase of the authorized
capital stock became necessary to give each group equal (50-50) shareholdings as agreed
upon in the Pre-Subscription Agreement. The authorized capital stock was thus increased
from 500,000 shares to 2,000,000 shares with a par value of P100 each, with the Ongs
subscribing to 1,000,000 shares and the Tius to 549,800 more shares in addition to their
450,200 shares to complete 1,000,000 shares. Thus, the subject matter of the contract
was the 1,000,000 unissued shares of FLADC stock allocated to the Ongs.
Since these were unissued shares, the parties' Pre-Subscription Agreement was in
fact a subscription contract as defined under Section 60, Title VII of the Corporation Code
Any contract for the acquisition of unissued stock in an existing corporation or a
corporation still to be formed shall be deemed a subscription within the meaning of this
Title, notwithstanding the fact that the parties refer to it as a purchase or some
other contract. A subscription contract necessarily involves the corporation as one of
the contracting parties since the subject matter of the transaction is property owned by
the corporation its shares of stock. Thus, the subscription contract (denominated by the
parties as a Pre-Subscription Agreement) whereby the Ongs invested P100 million for
1,000,000 shares of stock was, from the viewpoint of the law, one between the Ongs and
FLADC, not between the Ongs and the Tius. Otherwise stated, the Tius did not contract in
their personal capacities with the Ongs since they were not selling any of their own shares
to them. It was FLADC that did.
Considering therefore that the real contracting parties to the subscription
agreement were FLADC and the Ongs alone, a civil case for rescission on the ground of
breach of contract filed by the Tius in their personal capacities will not prosper. Assuming
it had valid reasons to do so, only FLADC (and certainly not the Tius) had the legal
personality to file suit rescinding the subscription agreement with the Ongs inasmuch as it
was the real party in interest therein.
Regarding the rescission of the Pre-Subscription Agreement, it will effectively result
in the unauthorized distribution of the capital assets and property of the corporation,
thereby violating the Trust Fund Doctrine and the Corporation Code, since rescission
of a subscription agreement is not one of the instances when distribution of capital assets
and property of the corporation is allowed. The Trust Fund Doctrine, first enunciated by
this Court in the 1923 case of Philippine Trust Co. vs. Rivera, provides that subscriptions to
the capital stock of a corporation constitute a fund to which the creditors have a right to
look for the satisfaction of their claims. This doctrine is the underlying principle in the
procedure for the distribution of capital assets, embodied in the Corporation Code, which
allows the distribution of corporate capital only in three instances: (1) amendment of the
Articles of Incorporation to reduce the authorized capital stock, (2) purchase of
redeemable shares by the corporation, regardless of the existence of unrestricted retained
earnings, and (3) dissolution and eventual liquidation of the corporation. Furthermore, the
doctrine is articulated in Section 41 on the power of a corporation to acquire its own
shares and in Section 122 on the prohibition against the distribution of corporate assets
and property unless the stringent requirements therefor are complied with.

Digested Corporation Cases by Roli S. Arangote