Corporation Law Case Digest 20 Cases for Merge

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CORPORATION LAW case digest ISSUE:

1) Bourns vs. Carman, 7 Phils. 117 (1906) 1. PARTNERSHIP OF "CUENTAS EN PARTICIPACION." — A partnership constituted in such a manner that its existence was only known to those who had an interest in the same, there being no mutual agreement between the partners, and without a corporate name indicating to the public in some way that there were other people besides the one who ostensibly managed and conducted the business, is exactly the accidental partnership of cuentas en participacion defined in article 239 of the Code of Commerce. 2. ID. — Those who contracted with the person in whose name the business of a partnership of cuentas en participacion is conducted, shall have only the right of action against such person and not against the other persons interested, and the latter, on the other hand, shall have no right of action against the third person who contracted with the manager unless such manager formally transferred his right to them. (Art. 242, Code of Commerce.) FACTS: An action to recover the sum of $437.50 balance due on a contract for the sawing of lumber yard of Lo-Chim-Lim was filed by Bourns (Plaintiff). The contract was entered into by Lo-Chim-Lim, acting as in his own name with the plaintiff, and it appears that Lo-Chim-Lim personally agreed to pay for the work himself. The plaintiff brought the action against Lo-Chim-Lim and his codefendants jointly, alleging that at the time the contract was made, they were the joint proprietors and operators of the said lumber yard engaged in the purchase and sale of lumber under the name and style of Lo-Chim-Lim, hence were partners. The lower court dismissed the action on the ground that defendants D.M. Carman, Fulgencio and Tan-Tongco, except Vicente Palance and Go-Tauco were not the partners of Lo-Chim-Lim.

Whether appellants are deemed partners of Lo-Chim-Lim and hence are liable to Bourns HELD: No. The alleged partnership between Lo-Chim-Lim and the appellants was formed by verbal agreement only. There is no evidence tending to show that the said agreement was reduced to writing, or that it was ever recorded in a public instrument. Moreover, the partnership had no corporate name. The partnership was engaged in business under the name and style of Lo-ChimLim only. Moreover, it does not appear that there was any mutual agreement between the parties and if there were any, it has not been shown what the agreement was. The contracts made with the plaintiff were made by Lo-ChimLim individually in his own name, and there is no evidence that the partnership over contracted in any form. Hence, the partnership is one of cuentasen participacion. It is but a simple business conducted by Lo-ChimLim exclusively in his own name. A partnership constituted in such a manner, the existence of which was only known to those who had an interest in the same, being no mutual agreements between the partners and without a corporate name indicating to the public in some way that there were other people besides the one who ostensibly managed and conducted the business, is exactly the accidental partnership of cuentas en participacion defined in Art. 239 of the Code of Commerce. Those who contract with the person under whose name the business of such partnership of cuentas en participacion is conducted, shall have only a right of action against such person and not against the other persons interested, and the latter, on the other hand, shall have no right of action against the third person who contracted with the manager unless such manager formally transfers his right to them.

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2) HARDEN v BENGUET CONSOLIDATED MINING COMPANY G.R. No. L37331, March 18, 1933

Section 1. Title of the Code. - This Code shall be known as "The Corporation Code of the Philippines".

The total cost incurred by Benguet in developing Balatoc was P1,417,952.15. A certificate for 600,000 shares of the stock of the Balatoc Company was given to Benguet and the excess value was paid to Benguet by Balatoc in cash. Due to the improvements made by Benguet, the value of shares of Balatoc increased in the market (from P1 to more than P11) and dividends enriched its stockholders. Harden, the owner of thousands of shares of Balatoc, questioned the transfer of 600,000 shares to Benguet with the success of the development.

FACTS:

Benguet Consolidated Mining Co. was organized in June, 1903, as a sociedad anonima in conformity with the provisions of Spanish law. Balatoc Mining Co. was organized in December 1925, as a corporation, in conformity with the provisions of the Corporation Law (Act No. 1459). Both were organized for mining of gold and their respective properties are located only a few miles apart in Benguet. Balatoc capital stock consists of one million shares of the par value of one peso (P1) each.

When the Balatoc was first organized, its properties were largely undeveloped. To improve its operations, the company’s committee approached A. W. Beam, then president and general manager of the Benguet Company, to secure the capital necessary to the development of the Balatoc property. A contract was entered into wherein Benguet will (1) construct a milling plant for the Balatoc mine, of a capacity of 100 tons of ore per day, and with an extraction of at least 85 per cent of the gold content; (2) erect an appropriate power plant. In return, Benguet will receive from Balatoc shares of a par value of P600,000.

ISSUE: W/N it is unlawful for Benguet Company to hold any interest in a mining corporation. W/N, assuming the first question to be answered in the affirmative, the Benguet Company, which was organized as a sociedad anonima, is a corporation within the meaning of the language used by the Congress of the United States, and later by the Philippine Legislature, prohibiting a mining corporation from becoming interested in another mining corporation?

RULING:

1st Issue: The defendant Benguet Company has committed no civil wrong against the plaintiffs, and if a public wrong has been committed, the directors of the Balatoc Company, and the plaintiff Harden himself, were the active inducers of the commission of that wrong. The contract, supposing it to have been unlawful in fact, has been performed on both sides.

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2nd Issue: Having shown that the plaintiffs in this case have no right of action against the Benguet Company for the infraction of law supposed to have been committed, we forego any discussion of the further question whether a sociedad anonima created under Spanish law, such as the Benguet Company, is a corporation within the meaning of the prohibitory provision already so many times mentioned.

A sociedad anonima is something very much like the English joint stock company, with features resembling those of both the partnership is shown in the fact that sociedad, the generic component of its name in Spanish, is the same word that is used in that language to designate other forms of partnership, and in its organization it is constructed along the same general lines as the ordinary partnership.

in agriculture or in mining was so modified as merely to prohibit any such member from holding more than fifteen per centum of the outstanding capital stock of another such corporation. Moreover, the explicit prohibition against the holding by any corporation (except for irrigation) of an interest in any other corporation engaged in agriculture or in mining was so modified as to limit the restriction to corporations organized for the purpose of engaging in agriculture or in mining.

Further and more importantly, the Corporation Law of 1925 provides that if the person who allegedly violated the provisions of said law is a corporation, the proper action is a quo warranto which should be initiated by the AttorneyGeneral or its deputized provincial fiscal and not a private action as the one filed by Harden.

In section 75 of the Corporation Law, a provision is found making the sociedad anonima subject to the provisions of the Corporation Law "so far as such provisions may be applicable", and giving to the sociedades anonimas previously created in the Islands the option to continue business as such or to reform and organize under the provisions of the Corporation Law. 3) Benguet Consolidated Mining Co. Vs. Mariano Pineda 098 Phil 711 G.R. No. L-7231 | 1956-03-28 The provision in Section 75 of the Act Congress of July 1, 1902 (Philippine Bill), generally prohibiting corporations engaged in mining and members of such from being interested in any other corporation engaged in mining, was amended by section 7 of Act No. 3518 of the Philippine Legislature, approved by Congress March 1, 1929. The change in the law effected by this amendment was in the direction of liberalization. Thus, the inhibition contained in the original provision against members of a corporation engaged in agriculture or mining from being interested in other corporations engaged

Benguet Consolidated Mining Company was organized in 1903 under the Spanish Code of Commerce of 1886 as a sociedad anonima. It was agreed by the incorporators that Benguet Mining was to exist for 50 years.

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In 1906, Act 1459 (Corporation Law) was enacted which superseded the

Corporation Code of 1906 such right would have vested. But when the law

Code of Commerce of 1886. Act 1459 essentially introduced the American

was passed in 1906, Benguet Mining was already deprived of such right.

concept of a corporation. The purpose of the law, among others, is to eradicate the Spanish Code and make sociedades anonimas obsolete.

To allow Benguet Mining to extend its life will be inimical to the purpose of the law which sought to render obsolete sociedades anonimas. If this is allowed,

In 1953, the board of directors of Benguet Mining submitted to the Securities

Benguet Mining will unfairly do something which new corporations organized

and Exchange Commission an application for them to be allowed to extend

under the new Corporation Law can’t do – that is, exist beyond 50 years.

the life span of Benguet Mining. Then Commissioner Mariano Pineda denied

Plus, it would have reaped the benefits of being a sociedad anonima and

the application as it ruled that the extension requested is contrary to Section

later on of being a corporation. Further, under the Corporation Code of

18 of the Corporation Law of 1906 which provides that the life of a

1906, existing sociedades anonimas during the enactment of the law

corporation shall not be extended by amendment beyond the time fixed in

must choose whether to continue as such or be organized as a

their original articles.

corporation under the new law. Once a sociedad anonima chooses one of

CONTENTION oF BENGUET: Benguet Mining contends that they have a vested right under the Code of Commerce of 1886 because they were organized under said law; that under

these, it is already proscribed from choosing the other. Evidently, Benguet Mining chose to exist as a sociedad anonima hence it can no longer elect to become a corporation when its life is near its end.

said law, Benguet Mining is allowed to extend its life by simply amending its articles of incorporation; that the prohibition in Section 18 of the Corporation Code of 1906 does not apply to sociedades anonimas already existing prior to the Law’s enactment; that even assuming that the prohibition applies to

4) Dante V. Liban, et al vs. Richard J. Gordon,GRN, 175352 , July 15, 2009 En Banc Resolution of the Court in in the same case of Liban, issued on January 18, 2011

Benguet Mining, it should be allowed to be reorganized as a corporation under the said Corporation Law. ISSUE: Whether or not Benguet Mining is correct. HELD: No. Benguet Mining has no vested right to extend its life. It is a well settled rule that no person has a vested interest in any rule of law entitling him to insist that it shall remain unchanged for his benefit. Had Benguet Mining agreed to extend its life prior to the passage of the

DANTE V. LIBAN, REYNALDO M. BERNARDO, and SALVADOR M. VIARI vs. RICHARD J. GORDON G.R. No. 175352.July 15, 2009 FACTS: Petitioners filed with this Court a Petition to Declare Richard J. Gordon as Having Forfeited His Seat in the Senate. Petitioners are officers of Page 4 of 40

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the Board of Directors of the Quezon City Red Cross Chapter while respondent is Chairman of the Philippine National Red Cross (PNRC) Board of Governors. During respondent’s incumbency as a member of the Senate of the Philippines, he was elected Chairman of the PNRC during the February 23, 2006 meeting of the PNRC Board of Governors. Petitioners allege that by accepting the chairmanship of the PNRC Board of Governors, respondent has ceased to be a member of the Senate as provided in Section 13, Article VI of the Constitution, which reads: “No Senator or Member of the House of Representatives may hold any other office or employment in the Government, or any subdivision, agency, or instrumentality thereof, including government-owned or controlled corporations or their subsidiaries, during his term without forfeiting his seat. Neither shall he be appointed to any office which may have been created or the emoluments thereof increased during the term for which he was elected.” Petitioners cited the case of Camporedondo vs. NLRC, G.R. No. 129049, decided August 6, 1999, which held that the PNRC is a GOCC, in supporting their argument that respondent Gordon automatically forfeited his seat in the Senate when he accepted and held the position of Chairman of the PNRC Board of Governors. ISSUE: Whether or not the office of the PNRC Chairman is a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the Constitution. RULING: NO. PNRC is a Private Organization Performing Public Functions. The Republic of the Philippines, adhering to the Geneva Conventions, established

the PNRC as a voluntary organization for the purpose contemplated in the Geneva Convention of 27 July 1929. The PNRC must not appear to be an instrument or agency that implements government policy; otherwise, it cannot merit the trust of all and cannot effectively carry out its mission as a National Red Cross Society. It is imperative that the PNRC must be autonomous, neutral, and independent in relation to the State.To ensure and maintain its autonomy, neutrality, and independence, the PNRC cannot be owned or controlled by the government. Indeed, the Philippine government does not own the PNRC. The PNRC does not have government assets and does not receive any appropriation from the Philippine Congress. The PNRC is financed primarily by contributions from private individuals and private entities obtained through solicitation campaigns organized by its Board of Governors.The government does not control the PNRC. Under the PNRC Charter, as amended, only six of the thirty members of the PNRC Board of Governors are appointed by the President of the Philippines. The PNRC is not government-owned but privately owned. The vast majority of the thousands of PNRC members are private individuals, including students. Under the PNRC Charter, those who contribute to the annual fund campaign of the PNRC are entitled to membership in the PNRC for one year. Thus, the PNRC is a privately owned, privately funded, and privately run charitable organization. Hence, the office of the PNRC Chairman is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. However, since the PNRC Charter is void insofar as it creates the PNRC as a private corporation, the PNRC should incorporate under the Corporation Code and register with the Securities and Exchange Commission if it wants to be a private corporation. Formerly, in its Decision dated July 15, 2009, the Court, voting 7-5, [1] held thatthe office of the PNRC Chairman is NOT a government office or an office in a GOCC for purposes of the prohibition in Sec. 13, Article VI of the 1987 Constitution. The PNRC Chairman is elected by the PNRC Board of Governors; he is not appointed by the President or by any subordinate Page 5 of 40

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government official. Moreover, the PNRC is NOT a GOCC because it is a privately-owned, privately-funded, and privately-run charitable organization and because it is controlled by a Board of Governors four-fifths of which are private sector individuals. Therefore, respondent Gordon did not forfeit his legislative seat when he was elected as PNRC Chairman during his incumbency as Senator. The Court however held further that the PNRC Charter, R.A. 95, as amended by PD 1264 and 1643, is void insofar as it creates the PNRC as a private corporation since Section 7, Article XIV of the 1935 Constitution states that “[t]he Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations, unless such corporations are owned or controlled by the Government or any subdivision or instrumentality thereof.” The Court thus directed the PNRC to incorporate under the Corporation Code and register with the Securities and Exchange Commission if it wants to be a private corporation. The fallo of the Decision read: WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. We also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National Red Cross, or Republic Act No. 95, as amended by Presidential Decree Nos. 1264 and 1643, are VOID because they create the PNRC as a private corporation or grant it corporate powers. Respondent Gordon filed a Motion for Clarification and/or for Reconsideration of the Decision. The PNRC likewise moved to intervene and filed its own Motion for Partial Reconsideration. They basically

questioned the second part of the Decision with regard to the pronouncement on the nature of the PNRC and the constitutionality of some provisions of the PNRC Charter.

II. THE ISSUE Was it correct for the Court to have passed upon and decided on the issue of the constitutionality of the PNRC charter? Corollarily: What is the nature of the PNRC?

III. THE RULING [The Court GRANTED reconsideration and MODIFIED the dispositive portion of the Decision by deleting the second sentence thereof.] NO, it was not correct for the Court to have decided on the constitutional issue because it was not the very lis mota of the case. The PNRC is sui generis in nature; it is neither strictly a GOCC nor a private corporation. The issue of constitutionality of R.A. No. 95 was not raised by the parties, and was not among the issues defined in the body of the Decision; thus, it was not the very lis mota of the case. We have reiterated the rule as to when the Court will consider the issue of constitutionality in Alvarez v. PICOP Resources, Inc., thus: This Court will not touch the issue of unconstitutionality unless it is the very lis mota. It is a well-established rule that a court should not pass upon a constitutional question and decide a law to be unconstitutional or invalid, unless such question is raised by the parties and that when it is raised, if the record also presents some other ground upon which the court may [rest] its Page 6 of 40

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judgment, that course will be adopted and the constitutional question will be left for consideration until such question will be unavoidable.

Charter and its amendatory laws have not been questioned or challenged on constitutional grounds, not even in this case before the Court now.

[T]his Court should not have declared void certain sections of . . . the PNRC Charter. Instead, the Court should have exercised judicial restraint on this matter, especially since there was some other ground upon which the Court could have based its judgment. Furthermore, the PNRC, the entity most adversely affected by this declaration of unconstitutionality, which was not even originally a party to this case, was being compelled, as a consequence of the Decision, to suddenly reorganize and incorporate under the Corporation Code, after more than sixty (60) years of existence in this country.

[T]his Court [must] recognize the country’s adherence to the Geneva Convention and respect the unique status of the PNRC in consonance with its treaty obligations. The Geneva Convention has the force and effect of law. Under the Constitution, the Philippines adopts the generally accepted principles of international law as part of the law of the land. This constitutional provision must be reconciled and harmonized with Article XII, Section 16 of the Constitution, instead of using the latter to negate the former. By requiring the PNRC to organize under the Corporation Code just like any other private corporation, the Decision of July 15, 2009 lost sight of the PNRC’s special status under international humanitarian law and as an auxiliary of the State, designated to assist it in discharging its obligations under the Geneva Conventions.

Since its enactment, the PNRC Charter was amended several times, particularly on June 11, 1953, August 16, 1971, December 15, 1977, and October 1, 1979, by virtue of R.A. No. 855, R.A. No. 6373, P.D. No. 1264, and P.D. No. 1643, respectively. The passage of several laws relating to the PNRC’s corporate existence notwithstanding the effectivity of the constitutional proscription on the creation of private corporations by law is a recognition that the PNRC is not strictly in the nature of a private corporation contemplated by the aforesaid constitutional ban. A closer look at the nature of the PNRC would show that there is none like it[,] not just in terms of structure, but also in terms of history, public service and official status accorded to it by the State and the international community. There is merit in PNRC’s contention that its structure is sui generis. It is in recognition of this sui generis character of the PNRC that R.A. No. 95 has remained valid and effective from the time of its enactment in March 22, 1947 under the 1935 Constitution and during the effectivity of the 1973 Constitution and the 1987 Constitution. The PNRC

The PNRC, as a National Society of the International Red Cross and Red Crescent Movement, can neither “be classified as an instrumentality of the State, so as not to lose its character of neutrality” as well as its independence, nor strictly as a private corporation since it is regulated by international humanitarian law and is treated as an auxiliary of the State. Although [the PNRC] is neither a subdivision, agency, or instrumentality of the government, nor a GOCC or a subsidiary thereof . . . so much so that respondent, under the Decision, was correctly allowed to hold his position as Chairman thereof concurrently while he served as a Senator, such a conclusion does not ipso facto imply that the PNRC is a “private corporation” within the contemplation of the provision of the Constitution, that must be organized under the Corporation Code. [T]he sui generis character of PNRC requires us to approach controversies involving the PNRC on a case-to-case basis. Page 7 of 40

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In sum, the PNRC enjoys a special status as an important ally and auxiliary of the government in the humanitarian field in accordance with its commitments under international law. This Court cannot all of a sudden refuse to recognize its existence, especially since the issue of the constitutionality of the PNRC Charter was never raised by the parties. It bears emphasizing that the PNRC has responded to almost all national disasters since 1947, and is widely known to provide a substantial portion of the country’s blood requirements. Its humanitarian work is unparalleled. The Court should not shake its existence to the core in an untimely and drastic manner that would not only have negative consequences to those who depend on it in times of disaster and armed hostilities but also have adverse effects on the image of the Philippines in the international community. The sections of the PNRC Charter that were declared void must therefore stay. [Thus, R.A. No. 95 remains valid and constitutional in its entirety. The Court MODIFIED the dispositive portion of the Decision by deleting the second sentence, to now read as follows: WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution.]

5) Tayag v. Benguet Consolidated, 26 SCRa 242 (1968) Corporation Law– Domicile of a Corporation– By Laws Must Yield To a Court Order–Corporation is an Artificial Being Facts:

In March 1960, Idonah Perkins died in New York. She left behind properties here and abroad. One property she left behind were two stock certificates covering 33,002 shares of stocks of the Benguet Consolidated, Inc (BCI). Said stock certificates were in the possession of the Country Trust Company of New York (CTC-NY). CTC-NY was the domiciliary administrator of the estate of Perkins in the USA. Meanwhile, in 1963, Renato Tayag was appointed as the ancillary administrator of the properties of Perkins she left behind in the Philippines. A dispute arose between CTC-NY and Tayag as to who between them is entitled to possess the stock certificates. A case ensued and eventually, the trial court ordered CTC-NY to turn over the stock certificates to Tayag. CTC-NY refused. Tayag then filed with the court a petition to have said stock certificates be declared lost and to compel BCI to issue new stock certificates in replacement thereof. The trial court granted Tayag‘s petition. BCI assailed said order as it averred that it cannot possibly issue new stock certificates because the two stock certificates declared lost are not actually lost; that the trial court as well Tayag acknowledged that the stock certificates exists and that they are with CTC- NY; that according to BCI‘s by laws, it can only issue new stock certificates, in lieu of lost, stolen, or destroyed certificates of stocks, only after court of law has issued a final and executory order as to who really owns a certificate of stock. ISSUE: Whether or not the arguments of Benguet Consolidated, Inc. are correct? HELD: No. Benguet Consolidated is a corporation who owes its existence to Philippine laws. It has been given rights and privileges under the law. Corollary, it also has obligations under the law and one of those is to follow valid legal court orders. It is not immune from judicial control because it is domiciled here in the Philippines. BCI is a Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise as immune Page 8 of 40

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from lawful court orders. Further, to allow BCI‘s opposition is to render the court order against CTC-NY a mere scrap of paper. It will leave Tayag without any remedy simply because CTC-NY, a foreign entity refuses to comply with a valid court order. The final recourse then is for our local courts to create a legal fiction such that the stock certificates in issue be declared lost even though in reality they exist in the hands of CTC-NY. This is valid. As held time and again, fictions which the law may rely upon in the pursuit of legitimate ends have played an important part in its development. Further still, the argument invoked by BCI that it can only issue new stock certificates in accordance with its bylaws is misplaced. It is worth noting that CTC-NY did not appeal the order of the court – it simply refused to turn over the stock certificates hence ownership can be said to have been settled in favor of estate of Perkins here. Also, assuming that there really is a conflict between BCI‘s bylaws and the court order, what should prevail is the lawful court order. It would be highly irregular if court orders would yield to the bylaws of a corporation. Again, a corporation is not immune from judicial orders.

6) Arnold v. Willits & Patterson Limited, 44 Phils. 634 (1923)

signed without the authority of the defendant corporation and also filed a counterclaim. 

contract with Arnold whereby Arnold was to be employed for a period of five years as the agent of the firm here in the PI to operate an oil mill for which he was to receive a minimum salary of $200/mth, a 1% brokerage fee from all purchases and sales of merchandise, and half of the profits of the oil business and other businesses. provided if the 

business was at a loss, Arnold would receive $400/mth. Later, Patterson retired and Willits acquired all interests of the



business. Willits organized a new Corp in San Francisco which took over and acquired all assets of the Firm Willits & Patterson. Willits was the



owner of all the capital stock. New corp had the same name. After, Willits, organized a new Corporation here in the PI to take over all the business and assets of the firm here in the PI. Willits was the

FACTS: Arnold and Willits and Patterson, Ltd. entered into a contract by which plaintiff was appointed agent for a period of 5 years. A dispute arose as to the amount which plaintiff should receive for his services. Patterson retired and Willits became the sole owner of the assets of the firm. Willits then organized a corporation. He became exclusive owner except for a few stocks (nominal shares to qualify the directors) for organizational purposes. Another instrument was executed between Arnold and Willits. Such defined and specified the compensation of Arnold. Nothing shows that such was formally ratified or approved by the corporation. A statement of the corporation's account showed that there was due and owing the plaintiff a sum of money. The corporation's creditor's committee protested against such amount. Arnold filed suit to collect. Willits argued that the document was

1916. The Firm Willits & Patterson in San Francisco entered into a



owner of all the capital stock. Later, there was dispute with regard to the construction of the contract as a result, a new contract in the form of a letter was entered into.



Willits signed this. The statements of account showed that 106K was due and owing to



Arnold. W&P Corp was in financial trouble and all assets were turned over to



a creditor’s committee. 1922. Arnold filed this complaint to recover 106K from W&P.

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W&P argues that the 2nd contract was signed without authority. And as counterclaim alleged that Arnold took 30K from the Corp but only



19.1K was due to him thus he owed 10.1K to W&P. CFI ordered Arnold to return the 10.1K.

ISSUE:

Whether plaintiff may collect from defendant corporation.

HELD: Yes. The proposition that a corporation has an existence separate and distinct from its membership has its limitations. It must be noted that this separate existence is for particular purposes. It must also be remembered that there can be no corporate existence without persons to compose it; there can be no association without associates. This separate existence is to a certain extent a legal fiction. Whenever necessary for the interests of the public or for the protection or enforcement of the rights of the membership, courts will disregard this legal fiction and operate upon both the corporation and the persons composing it. He continued his employment and rendered his services after the corporation was organized and the second document was signed just the same as he did before, and both corporations recognized and accepted his services. It was a one man corporation, and Willits, as the owner of all of the stock, was the force and dominant power which controlled them. After the document was signed it was recognized by Willits that the plaintiff's services were to be performed and measured by its term and provisions, and there never was any dispute between plaintiff and Willits upon that question. Statements of account were made and prepared by the accountant on the assumption that the document was in full force and effect as between the plaintiff and the defendant. Previous financial statements show upon their face that the account of plaintiff was credited with several small items on the same basis, and it was not until the 23d of March, 1921, that any objection was ever made by anyone.

The first Philippine case to apply the piercing doctrine was actually Arnold v. Willets and Patterson, Ltd., and it was clearly an alter ego case. It expressed the language of piercing doctrine when applied to alter ego cases, as follows: "Where the stock of a corporation is owned by one person whereby the corporation functions only for the benefit of such individual owner, the corporation and the individual should be deemed the same." In Arnold the creditors' committee of the corporation opposed the payment of compensation due to the plaintiff Arnold under a contract-letter signed by Willits, the controlling stockholder, without board approval. The signing president was the controlling stockholder of the corporation. The Court held the validity of contract and "[a]lthough the plaintiff was the president of the local corporation, the testimony is conclusive that both of them were what is known as a one man corporation, and Willits, as the owner of all the stocks, was the force and dominant power which controlled them."

7) Pantranco Employees Asso., et al. Vs. NLRC, et al.,G.R. No. 170689 | 2009-03-17

former employees of a company sought to satisfy their unpaid labor claims against another company that eventually acquired, and then sold, the employer company. The Gonzales family owned two corporations, namely, the Pantranco North Express, Inc. (PNEI) and Macris Realty Corporation (Macris). PNEI provided transportation services to the public, and had its bus terminal at the corner of Quezon and Roosevelt Avenues in Quezon City. The terminal stood on four valuable pieces of real estate (known as Pantranco properties) registered Page 10 of 40

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under the name of Macris. The Gonzales family later incurred huge financial losses despite attempts of rehabilitation and loan infusion. In March 1975, their creditors took over the management of PNEI and Macris. By 1978, full ownership was transferred to one of their creditors, the National Investment Development Corporation (NIDC), a subsidiary of the PNB. Macris was later renamed as the National Realty Development Corporation (Naredeco) and eventually merged with the National Warehousing Corporation (Nawaco) to form the new PNB subsidiary, the PNB-Madecor. In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a company owned by Gregorio Araneta III. In 1986, PNEI was among the several companies placed under sequestration by the Presidential Commission on Good Government (PCGG) shortly after the historic events in EDSA. In January 1988, PCGG lifted the sequestration order to pave the way for the sale of PNEI back to the private sector through the Asset Privatization Trust (APT). APT thus took over the management of PNEI.

In 1992, PNEI applied with the Securities and Exchange Commission (SEC) for suspension of payments. A management committee was thereafter created which recommended to the SEC the sale of the company through privatization. As a cost-saving measure, the committee likewise suggested the retrenchment of several PNEI employees. Eventually, PNEI ceased its operation. Along with the cessation of business came the various labor claims commenced by the former employees of PNEI where the latter obtained favorable decisions.

On July 5, 2002, the Labor Arbiter issued the Sixth Alias Writ of Execution commanding the National Labor Relations Commission (NLRC) sheriffs to levy on the assets of PNEI in order to satisfy the P722,727,150.22 due its former employees, as full and final satisfaction of the judgment awards in the labor cases. The sheriffs were likewise instructed to proceed against PNB,

PNB-Madecor and Mega Prime. In implementing the writ, the sheriffs levied upon the four valuable pieces of real estate located at the corner of Quezon and Roosevelt Avenues, on which the former Pantranco Bus Terminal stood. These properties were covered by Transfer Certificate of Title (TCT) Nos. 87881-87884, registered under the name of PNB-Madecor. Subsequently, Notice of Sale of the foregoing real properties was published in the newspaper and the sale was set on July 31, 2002.

Having been notified of the auction sale, motions to quash the writ were separately filed by PNB-Madecor and Mega Prime, and PNB. They likewise filed their Third-Party Claims. PNB-Madecor anchored its motion on its right as the registered owner of the Pantranco properties, and Mega Prime as the successor-in-interest. For its part, PNB sought the nullification of the writ on the ground that it was not a party to the labor case. In its Third-Party Claim, PNB alleged that PNB-Madecor was indebted to the former and that the Pantranco properties would answer for such debt.

On September 10, 2002, the Labor Arbiter declared that the subject Pantranco properties were owned by PNB-Madecor. It being a corporation with a distinct and separate personality, its assets could not answer for the liabilities of PNEI. Considering, however, that PNBMadecor executed a promissory note in favor of PNEI for P7,884,000.00, the writ of execution to the extent of the said amount was concerned was considered valid. PNB’s third-party claim – to nullify the writ on the ground that it has an interest in the Pantranco properties being a creditor of PNBMadecor, – on the other hand, was denied because it only had an inchoate interest in the properties.

The NLRC affirmed the Labor Arbiter’s decision. The CA also affirmed the NLRC’s decision. The appellate court pointed out that PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and distinct Page 11 of 40

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from PNEI. As such, there being no cogent reason to pierce the veil of corporate fiction, the separate personalities of the above corporations should be maintained. The CA added that the Pantranco properties were never owned by PNEI; rather, their titles were registered under the name of PNBMadecor. If PNB and PNB-Madecor could not answer for the liabilities of PNEI, with more reason should Mega Prime not be held liable being a mere successor-in-interest of PNB-Madecor.

The former PNEI employees argued before the Supreme Court that PNB, through PNB-Madecor, directly benefited from the operation of PNEI and had complete control over the funds of PNEI. Hence, they are solidarily answerable with PNEI for the unpaid money claims of the employees. Citing A.C. Ransom Labor Union-CCLU v. NLRC, the employees insist that where the employer corporation ceases to exist and is no longer able to satisfy the judgment awards in favor of its employees, the owner of the employer corporation should be made jointly and severally liable.

RULING:The Supreme Court ruled that the former PNEI employees cannot attach the properties (specifically the Pantranco properties) of PNB, PNBMadecor and Mega Prime to satisfy their unpaid labor claims against PNEI. According to the Supreme Court: “First, the subject property is not owned by the judgment debtor, that is, PNEI. Nowhere in the records was it shown that PNEI owned the Pantranco properties. Petitioners, in fact, never alleged in any of their pleadings the fact of such ownership. What was established, instead, in PNB MADECOR v. Uy and PNB v. Mega Prime Realty and Holdings Corporation/Mega Prime Realty and Holdings Corporation v. PNB was that the properties were owned by Macris, the predecessor of PNB-Madecor. Hence, they cannot be pursued against by the creditors of PNEI. We would like to stress the settled rule that the power of the court in executing judgments extends only to properties unquestionably belonging to the judgment debtor alone. To be sure, one

man’s goods shall not be sold for another man’s debts. A sheriff is not authorized to attach or levy on property not belonging to the judgment debtor, and even incurs liability if he wrongfully levies upon the property of a third person.

Second, PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and distinct from that of PNEI. PNB is sought to be held liable because it acquired PNEI through NIDC at the time when PNEI was suffering financial reverses. PNB-Madecor is being made to answer for petitioners’ labor claims as the owner of the subject Pantranco properties and as a subsidiary of PNB. Mega Prime is also included for having acquired PNB’s shares over PNB-Madecor.

The general rule is that a corporation has a personality separate and distinct from those of its stockholders and other corporations to which it may be connected. This is a fiction created by law for convenience and to prevent injustice. Obviously, PNB, PNB-Madecor, Mega Prime, and PNEI are corporations with their own personalities. The “separate personalities” of the first three corporations had been recognized by this Court in PNB v. Mega Prime Realty and Holdings Corporation/Mega Prime Realty and Holdings Corporation v. PNB where we stated that PNB was only a stockholder of PNB-Madecor which later sold its shares to Mega Prime; and that PNBMadecor was the owner of the Pantranco properties. Moreover, these corporations are registered as separate entities and, absent any valid reason, we maintain their separate identities and we cannot treat them as one.

Neither can we merge the personality of PNEI with PNB simply because the latter acquired the former. Settled is the rule that where one corporation sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor. Page 12 of 40

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Lastly, while we recognize that there are peculiar circumstances or valid grounds that may exist to warrant the piercing of the corporate veil, none applies in the present case whether between PNB and PNEI; or PNB and PNB-Madecor. Under the doctrine of “piercing the veil of corporate fiction,” the court looks at the corporation as a mere collection of individuals or an aggregation of persons undertaking business as a group, disregarding the separate juridical personality of the corporation unifying the group. Another formulation of this doctrine is that when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or as one and the same.

Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice. After all, the concept of corporate entity was not meant to promote unfair objectives. As between PNB and PNEI, petitioners want us to disregard their separate personalities, and insist that because the company, PNEI, has already ceased operations and there is no other way by which the judgment in favor of the employees can be satisfied, corporate officers can be held jointly and severally liable with the company. Petitioners rely on the pronouncement of this Court in A.C. Ransom Labor Union-CCLU v. NLRC and subsequent cases. This reliance fails to persuade. We find the aforesaid decisions inapplicable to the instant case.

For one, in the said cases, the persons made liable after the company’s cessation of operations were the officers and agents of the corporation. The rationale is that, since the corporation is an artificial person, it must have an officer who can be presumed to be the employer, being the person acting in the interest of the employer. The corporation, only in the technical sense, is the employer. In the instant case, what is being made liable is another corporation (PNB) which acquired the debtor corporation (PNEI). Moreover, in the recent cases Carag v. National Labor Relations Commission and McLeod v. National Labor Relations Commission, the Court explained the doctrine laid down in AC Ransom relative to the personal liability of the officers and agents of the employer for the debts of the latter. In AC Ransom, the Court imputed liability to the officers of the corporation on the strength of the definition of an employer in Article 212(c) (now Article 212[e]) of the Labor Code. Under the said provision, employer includes any person acting in the interest of an employer, directly or indirectly, but does not include any labor organization or any of its officers or agents except when acting as employer. It was clarified in Carag and McLeod that Article 212(e) of the Labor Code, by itself, does not make a corporate officer personally liable for the debts of the corporation. It added that the governing law on personal liability of directors or officers for debts of the corporation is still Section 31 of the Corporation Code. More importantly, as aptly observed by this Court in AC Ransom, it appears that Ransom, foreseeing the possibility or probability of payment of backwages to its employees, organized Rosario to replace Ransom, with the latter to be eventually phased out if the strikers win their case. The execution could not be implemented against Ransom because of the disposition posthaste of its leviable assets evidently in order to evade its just and due obligations. Hence, the Court sustained the piercing of the corporate veil and made the officers of Ransom personally liable for the debts of the latter.

Clearly, what can be inferred from the earlier cases is that the doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: Page 13 of 40

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1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities. The Court ruled that assuming, for the sake of argument, that PNB may be held liable for the debts of PNEI, petitioners still cannot proceed against the Pantranco properties, the same being owned by PNB-Madecor, notwithstanding the fact that PNB-Madecor was a subsidiary of PNB. The general rule remains that PNB-Madecor has a personality separate and distinct from PNB. 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 shall be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective businesses.

8) Ruperto Suldao Vs. Cimech System Construction, Inc., G.R. No. 171392 | 2006-10-30 FACTS Respondent Cimech employed the services of petitioner Ruperto Suldao as a machinist with a daily wage of P300.00 on a contractual status for a period of five months, but was later on retained his services, making him a permanent employee.

Petitioner alleged that owing to a dearth in projects being handled by the respondent, he was ordered by Ms. Elsa Labocay to take a leave of absence from November 1 to 6, 2002. He reported for work on November 7, 2002 but was again ordered to take a leave of absence from November 7 to 14, 2002. On November 15, 2002, he was purportedly ordered to make a letter-request for field work transfer which he complied. The following day, he failed to report back for work because he was sick. On November 17, 2002, he reported for work but was allegedly barred from entering by the security guard on duty. On November 21, 2002, he was again barred from entering the premises. Hence he filed the instant complaint for constructive dismissal.

On the other hand, respondent alleged that due to lack of available work in the machine shop, petitioner was temporarily transferred to its fabrication department sometime in November 2002. Petitioner refused to accept the transfer and insisted to work as a machinist. Because of petitioner’s arrogant and unruly behavior, he was led away by a guard. When petitioner returned for work, he purportedly demanded a salary increase and wages for the days that he did not work. Respondent considered the actuations of petitioner tantamount to insubordination, hence, it suspended the petitioner for six days. After his suspension on November 28, 2002, petitioner accepted his transfer to the fabrication department but worked for only one day. During the company’s Christmas party on December 21, 2002, petitioner came and asked for his 13th month pay. On January 13, 2003, petitioner demanded to get his one day salary deposit but was told to secure a clearance which he failed to comply. Thereafter, petitioner filed the instant complaint for illegal dismissal. ISSUE Whether or not petitioner was constructively dismissed. Page 14 of 40

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HELD YES The SC held that petitioner was constructively dismissed. Constructive dismissal or a constructive discharge has been defined as quitting because continued employment is rendered impossible, unreasonable or unlikely, as an offer involving a demotion in rank and a diminution in pay. In the instant case, there is constructive dismissal because the continued employment of petitioner is rendered impossible so as to foreclose any choice on his part except to resign from such employment. While the decision to transfer employees to other areas of its operations forms part of the well recognized prerogatives of management, it must be stressed, however, that the managerial prerogative to transfer personnel must not be exercised with grave abuse of discretion, bearing in mind the basic elements of justice and fair play. Having the right should not be confused with the manner in which that right is exercised. Thus it cannot be used as a subterfuge by the employer to rid himself of an undesirable worker. In the instant case, while petitioner’s transfer was valid, the manner by which respondent unjustifiably prevented him from returning to work on several occasions runs counter to the claim of good faith on the part of respondent corporation. By reporting for work, petitioner manifested his willingness to comply with the regulations of the corporation and his desire to continue working for the latter. However, he was barred from entering the premises without any explanation. This is a clear manifestation of disdain and insensibility on the part of an employer towards a particular employee and a veritable hallmark of constructive dismissal.

9) Mambulao Lumber Co. v. PNB. 22 SCRA 359 (1969) MAMBULAO LUMBER COMPANY, plaintiff-appellant, vs. PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of Camarines Norte, defendantsappellees. G.R. No. L-22973, January 30, 1968 ANGELES, J.: FACTS: On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 (approved for a loan of P100,000 only) with the Naga Branch of defendant PNB. To secure payment, the plaintiff mortgaged a parcel of land, together with the buildings and improvements existing thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao), province of Camarines Norte. The PNB released from the approved loan the sum of P27,500, and another release of P15,500. The plaintiff failed to pay the amortization on the amounts released to and received by it. It was found that the plaintiff had already stopped operation about the end of 1957 or early part of 1958. The unpaid obligation of the plaintiff as of September 22, 1961, amounted to P57,646.59, excluding attorney's fees. A foreclosure sale of the parcel of land, together with the buildings and improvements thereon was, held on November 21, 1961, and the said property was sold to the PNB for the sum of P56,908.00, subject to the right of the plaintiff to redeem the same within a period of one year.

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The plaintiff sent a letter reiterating its request that the foreclosure sale of the mortgaged chattels be discontinued on the grounds that the mortgaged indebtedness had been fully paid and that it could not be legally effected at a place other than the City of Manila. The trial court sentenced the Mambulao Lumber Company to pay to the defendant PNB the sum of P3,582.52 with interest thereon at the rate of 6% per annum. The plaintiff on appeal advanced that its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87 and not P58,213.51 as concluded by the court a quo; hence, the proceeds of the foreclosure sale of its real property alone in the amount of P56,908.00 on that date, added to the sum of P738.59 it remitted to the PNB thereafter was more than sufficient to liquidate its obligation, thereby rendering the subsequent foreclosure sale of its chattels unlawful; That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard of plaintiff's vigorous opposition thereto, and in taking possession thereof after the sale thru force, intimidation, coercion, and by detaining its "man-in-charge" of said properties, the PNB is liable to plaintiff for damages and attorney's fees. ISSUE: Whether or not PNB may be held liable to plaintiff Corporation for damages and attorney’s fees. HELD: Herein appellant's claim for moral damages, seems to have no legal or factual basis. Obviously, an artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis of moral damages. A corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral

damages. The same cannot be considered under the facts of this case, however, not only because it is admitted that herein appellant had already ceased in its business operation at the time of the foreclosure sale of the chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the chattels could have upon its reputation or business standing would undoubtedly be the same whether the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place agreed upon by the parties in the mortgage contract. But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila as provided for in the mortgage contract, to which their attentions were timely called by herein appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00, herein appellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances of the case also warrant the award of P3,000.00 as attorney's fees for herein appellant.

10) ABS-CBN v. Court of Appeals, 310 SCRA 572 (1999) Case: ABS-CBN BROADCASTING CORP. v. CA, REPUBLIC BROADCASTING CORP., VIVA PRODUCTIONS, INC., and VICENTE DEL ROSARIO (301 SCRA 589) Date: January 21, 1999 Ponente: C.J. Davide, Jr. Facts: In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement whereby VIVA gave ABS-CBN an exclusive right to exhibit some VIVA films. According to the agreement, ABS-CBN shall have the right of first refusal to Page 16 of 40

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the next 24 VIVA films for TV telecast under such terms as may be agreed upon by the parties, however, such right shall be exercised by ABS-CBN from the actual offer in writing. Sometime in December 1991, VIVA, through Vicente Del Rosario (Executive Producer), offered ABS-CBN through VP Charo Santos-Concio, a list of 3 film packages from which ABS-CBN may exercise its right of first refusal. ABS-CBN, however through Mrs. Concio, tick off only 10 titles they can purchase among which is the film “Maging Sino Ka Man” which is one of the subjects of the present case, therefore, it did not accept the said list as per the rejection letter authored by Mrs. Concio sent to Del Rosario.

Hence, the present petition, ABS-CBN argued that an agreement was made during the meeting of Mr. Lopez and Del Rosario jotted down on a “napkin” (this was never produced in court). Moreover, it had yet to fully exercise its right of first refusal since only 10 titles were chosen from the first list. As to actual, moral and exemplary damages, there was no clear basis in awarding the same. Issue: WON a contract was perfected between ABS-CBN and VIVA and WON moral damages may be awarded to a corporation Held: Both NO.

Subsequently, Del Rosario approached Mrs. Concio with another list consisting of 52 original movie titles and 104 re-runs, proposing to sell to ABS-CBN airing rights for P60M (P30M in cash and P30M worth of television spots). Del Rosario and ABS-CBN’s General Manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant in QC to discuss the package proposal but to no avail. Four days later, Del Rosario and Mr. Graciano Gozon, Senior VP of Finance of Republic Broadcasting Corporation (RBS/Channel 7) discussed the terms and conditions of VIVA’s offer. A day after that, Mrs. Concio sent the draft of the contract between ABS-CBN and VIVA which contained a counterproposal covering 53 films for P35M. VIVA’s Board of Directors rejected the counter-proposal as it would not sell anything less than the package of 104 films for P60M. After said rejection, ABS-CBN closed a deal with RBS including the 14 films previously ticked off by ABS-CBN. Consequently, ABS-CBN filed a complaint for specific performance with prayer for a writ of preliminary injunction and/or TRO against RBS, VIVA and Del Rosario. RTC then enjoined the latter from airing the subject films. RBS posted a P30M counterbond to dissolve the injunction. Later on, the trial court as well as the CA dismissed the complaint holding that there was no meeting of minds between ABS-CBN and VIVA, hence, there was no basis for ABS-CBN’s demand, furthermore, the right of first refusal had previously been exercised.

Ratio: Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of payment a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls the offer. After Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN to discuss the package of films, ABS-CBN, sent through Ms. Concio, counter-proposal in the form a draft contract. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario. Clearly, there was no acceptance of VIVA’s offer, for it was met by a counter-offer which substantially varied the terms of the offer. In the case at bar, VIVA through its Board of Directors, rejected such counter-offer. Even if it be conceded arguendo that Del Rosario had accepted the Page 17 of 40

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counter-offer, the acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the specific authority to do so. Under the Corporation Code, unless otherwise provided by said Code, corporate powers, such as the power to enter into contracts, are exercised by the Board of Directors. However, the Board may delegate such powers to either an executive committee or officials or contracted managers. The delegation, except for the executive committee, must be for specific purposes . Delegation to officers makes the latter agents of the corporation; accordingly, the general rules of agency as to the binding effects of their acts would apply. For such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBN’s counter-offer was best evidenced by his submission of the draft contract to VIVA’s Board of Directors for the latter’s approval. In any event, there was between Del Rosario and Lopez III no meeting of minds. The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is as it should be because corporate power to enter into a contract is lodged in the Board of Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board, whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid contact binding upon Viva. However, the Court find for ABS-CBN on the issue of damages. Moral damages are in the category of an award designed

to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish, which can be experienced only by one having a nervous system. The statement that a corporation may recover moral damages if it “has a good reputation that is debased, resulting in social humiliation” is an obiter dictum. On this score alone the award for damages must be set aside, since RBS is a corporation.

11. NAPOCOR VS CA

G.R. No. 126204

November 20, 2001

Lessons Applicable: Who may recover (Torts and Damages) FACTS: 

May 14, 1987: National Power Corporation (NAPOCOR) issued invitations to bid for the supply and delivery of 120,000 metric tons of imported coal for its Batangas Coal-Fired Thermal Power Plant of which Philipp Brothers Oceanic, Inc. (PHIBRO) bidded and was accepted.



July 10, 1987: PHIBRO told NAPOCOR that disputes might soon plague Australia that will seriously hamper its ability to supply coal



July 23 to July 31, 1987: PHIBRO informed NAPOCOR that unless a "strike-free" clause is incorporated in the charter party or the contract Page 18 of 40

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of carriage shipowners are unwilling to load their cargo. In order to hasten the transfer of coal, they should share the burden of the "strike-free" clause but NAPOCOR refused. 



November 17, 1987: PHIBRO effected its first shipment which was suppose to be on the 30th dat after receipt of the letter of credit of which it received on August 6, 1987

NAPOCOR's act of disapproving PHIBRO's application for prequalification to bid was without any intent to injure or a purposive motive to perpetrate damage. Apparently, NAPOCOR acted on the strong conviction that PHIBRO had a "seriously-impaired" track record



The circumstances under which NAPOCOR disapproved PHIBRO's pre-qualification to bid do not show an intention to cause damage to the latter. The measure it adopted was one of self-protection. Consequently, we cannot penalize NAPOCOR for the course of action it took. NAPOCOR cannot be made liable for actual, moral and exemplary damages.



Corollarily, in awarding to PHIBRO actual damages in the amount of $864,000, the Regional Trial Court computed what could have been the profits of PHIBRO had NAPOCOR allowed it to participate in the subsequent public bidding. - Erroneous

October 1987: NAPOCOR once more advertised for the delivery of coal to its Calaca thermal plant of which PHIBRO applied but was rejected since it was not able to satisfy the demand for damages on its delay.



PHIBRO filed for damages in the RTC alleging that the rejection was tainted with malice and bad faith



RTC: favored PHIBRO. Ordering NAPCOR to reinstate PHIBRO as accredited bidder, to pay $864,000 actual damages, $100,000 moral damages, $50,000 exemplary damages, $73,231.91 reimbursement for expenses, cost of litigation and attorney's fees, cost of suit and dismissed counterclaim of NAPOCOR.





CA: affirmed in toto. "Strikes" are undoubtedly included in the force majeure clause of the Bidding Terms and Specifications

o



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



a winning party may be awarded attorney's fees only in case plaintiff's action or defendant's stand is so untenable as to amount to gross and evident bad faith - none here

ISSUE: W/N PHIBRO is entitled to damages. HELD: NO. Modified actual, moral and exemplary damages, reimbursement for expenses, cost of litigation and attorney's fees, and costs of suit, is DELETED 

Since there is no evidence to prove bad faith and arbitrariness on the part of the petitioners in evaluating the bids, we rule that the private respondents are not entitled to damages representing lost profits

Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty, premised upon competent proof or best evidence obtainable of the actual amount thereof.

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12. MANILA ELECTRIC COMPANY vs. T.E.A.M. ELECTRONICS CORPORATION, TECHNOLOGY ELECTRONICS ASSEMBLY and MANAGEMENT PACIFIC CORPORATION; and ULTRA ELECTRONICS INSTRUMENTS, INC.

-

On September 28, 1987, a team of petitioner's inspectors conducted a surprise inspection of the electric meters installed at the DCIM building which were found to be allegedly tampered with and did not register the actual power consumption in the building.

-

MERALCO informed TEC of the results of the inspection and demanded from the latter the payment representing its unregistered consumption from February 10, 1986 until September 28, 1987, as a result of the alleged tampering of the meters.

-

Since Ultra was in possession of the subject building during the covered period, TEC's Managing Director, Mr. Bobby Tan, referred the demand letter to Ultra.

-

For failure of TEC to pay the differential billing, petitioner disconnected the electricity supply to the DCIM building.

-

TEC demanded from petitioner the reconnection of electrical service, claiming that it had nothing to do with the alleged tampering but the latter refused to heed the demand.

-

Hence, TEC filed a complaint before the Energy Regulatory Board (ERB) which immediately ordered the reconnection of the service.

-

However, prior to the reconnection, petitioner conducted a scheduled inspection of the questioned meters and found them to have been tampered anew.

FACTS: -

T.E.A.M. Electronics Corporation (TEC) was formerly known as NS Electronics (Philippines), Inc. before 1982 and National SemiConductors (Phils.) before 1988. o

TEC is wholly owned by respondent Technology Electronics Assembly and Management Pacific Corporation (TPC).

-

On the other hand, petitioner Manila Electric Company (Meralco) is a utility company supplying electricity in the Metro Manila area.

-

MERALCO and NS Electronics (Philippines), Inc., the predecessor-ininterest of respondent TEC, entered into two separate contracts denominated as Agreements for the Sale of Electric Energy wherein:

-

o

petitioner undertook to supply TEC's building known as Dyna Craft International Manila (DCIM) with electric power.

o

Another contract was entered into for the supply of electric power to TEC's NS Building under Account No. 19389-090010.

TEC, under its former name National Semi-Conductors (Phils.) entered into a Contract of Lease with respondent Ultra Electronics Industries, Inc. for the use of the former's DCIM building for a period of five years or until September 1991.

Ultra was, however, ejected from the premises on February 12, 1988 by virtue of a court order, for repeated violation of the terms and conditions of the lease contract.

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-

Meanwhile, on April 25, 1988, petitioner conducted another inspection, this time, in TEC's NS Building. The inspection allegedly revealed that the electric meters were not registering the correct power consumption.

3) whether or not petitioner was justified in disconnecting the electric power supply in TEC's DCIM building.

-

MERALCO sent a letter demanding payment of representing the differential billing.

HELD: The petition must fail.

-

TEC denied petitioner's allegations and claim.

-

Petitioner, thus, sent TEC another letter demanding payment of the aforesaid amount, with a warning that the electric service would be disconnected in case of continued refusal to pay the differential billing.

-

To avert the impending disconnection of electrical service, TEC paid the above amount, under protest.

-

TEC and TPC filed a complaint for damages against petitioner and Ultra before the RTC which rendered a decision in their favor and affirmed by CA.

-

Petitioner now comes before this Court in this petition for review on certiorari.

ISSUES: 1) whether or not TEC tampered with the electric meters installed at its DCIM and NS buildings; 2) If so, whether or not it is liable for the differential billing as computed by petitioner; and

As to the alleged tampering of the electric meter in TEC's NS building, suffice it to state that the allegation was not proven, considering that the meters therein were enclosed in a metal cabinet the metal seal of which was unbroken, with petitioner having sole access to the said meters.38 In view of the negative finding on the alleged tampering of electric meters on TEC's DCIM and NS buildings, petitioner's claim of differential billing was correctly denied by the trial and appellate courts. With greater reason, therefore, could petitioner not exercise the right of immediate disconnection. However, recourse to differential billing with disconnection was subject to the prior requirement of a 48-hour written notice of disconnection.44 Petitioner, in the instant case, resorted to the remedy of disconnection without prior notice. While it is true that petitioner sent a demand letter to TEC for the payment of differential billing, it did not include any notice that the electric supply would be disconnected. In fine, petitioner abused the remedies granted to it under P.D. 401 and Revised General Order No. 1 by outrightly depriving TEC of electrical services without first notifying it of the impending disconnection. Accordingly, the CA did not err in affirming the RTC decision. We, however, deem it proper to delete the award of moral damages. TEC's claim was premised allegedly on the damage to its goodwill and reputation.50 As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and Page 21 of 40

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moral shock. The only exception to this rule is when the corporation has a reputation that is debased, resulting in its humiliation in the business realm.51 But in such a case, it is imperative for the claimant to present proof to justify the award. It is essential to prove the existence of the factual basis of the damage and its causal relation to petitioner's acts.52 In the present case, the records are bereft of any evidence that the name or reputation of TEC/TPC has been debased as a result of petitioner's acts. Besides, the trial court simply awarded moral damages in the dispositive portion of its decision without stating the basis thereof.

o

13. Ching vs Secretary of Justice

Under the receipts, Ching agreed to hold the goods in trust for RCBC, with authority to sell but not by way of conditional sale, pledge or otherwise 

In case such goods were sold, to turn over the proceeds thereof as soon as received, to apply against the relative acceptances and payment of other indebtedness to respondent bank.



In case the goods remained unsold within the specified period, the goods were to be returned to RCBC without any need of demand.



goods, manufactured products or proceeds thereof, whether in the form of money or bills, receivables, or accounts separate and capable of identification RCBC’s property

Lessons Applicable: Corp. Officers or employees, through whose act, default or omission the corp. commits a crime, are themselves individually guilty of the crime (Corporate Law) 

FACTS: 

Sept-Oct 1980: PBMI, through Ching, Senior VP of Philippine Blooming Mills, Inc. (PBMI), applied with the Rizal Commercial Banking Corporation (RCBC) for the issuance of commercial letters of credit to finance its importation of assorted goods



RCBC approved the application, and irrevocable letters of credit were issued in favor of Ching.



The goods were purchased and delivered in trust to PBMI. o

Ching signed 13 trust receipts as surety, acknowledging delivery of the goods

When the trust receipts matured, Ching failed to return the goods to RCBC, or to return their value amounting toP6,940,280.66 despite demands. o

RCBC filed a criminal complaint for estafa against petitioner in the Office of the City Prosecutor of Manila. 



December 8, 1995: no probable cause to charge petitioner with violating P.D. No. 115, as petitioner’s liability was only civil, not criminal, having signed the trust receipts as surety

RCBC appealed the resolution to the Department of Justice (DOJ) via petition for review o

On July 13, 1999: reversed the assailed resolution of the City Prosecutor Page 22 of 40

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execution of said receipts is enough to indict the Ching as the official responsible for violation of P.D. No. 115

respondent in RCBC vs. Court of Appeals case is clearly separate and distinct from his criminal liability under PD 115



April 22, 2004: CA dismissed the petition for lack of merit and on procedural grounds



Ching’s being a Senior Vice-President of the Philippine Blooming Mills does not exculpate him from any liability



Ching filed a petition for certiorari, prohibition and mandamus with the CA



The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It may be committed by a corporation or other juridical entity or by natural persons. However, the penalty for the crime is imprisonment for the periods provided in said Article 315.



law specifically makes the officers, employees or other officers or persons responsible for the offense, without prejudice to the civil liabilities of such corporation and/or board of directors, officers, or other officials or employees responsible for the offense

ISSUE: W/N Ching should be held criminally liable. HELD: YES. DENIED for lack of merit 

There is no dispute that it was the Ching executed the 13 trust receipts. o

law points to him as the official responsible for the offense

o

Since a corporation CANNOT be proceeded against criminally because it CANNOT commit crime in which personal violence or malicious intent is required, criminal action is limited to the corporate agents guilty of an act amounting to a crime and never against the corporation itself

o

execution by Ching of receipts is enough to indict him as the official responsible for violation of PD 115

o

RCBC is estopped to still contend that PD 115 covers only goods which are ultimately destined for sale and not goods, like those imported by PBM, for use in manufacture.

o

Moreover, PD 115 explicitly allows the prosecution of corporate officers ‘without prejudice to the civil liabilities arising from the criminal offense’ thus, the civil liability imposed on

o



rationale: officers or employees are vested with the authority and responsibility to devise means necessary to ensure compliance with the law and, if they fail to do so, are held criminally accountable; thus, they have a responsible share in the violations of the law

If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other officers thereof responsible for the offense shall be charged and penalized for the crime, precisely because of the nature of the crime and the penalty therefor. A corporation cannot be arrested and imprisoned; hence, cannot be penalized for a crime punishable by imprisonment. However, a corporation may be charged and prosecuted for a crime if the imposable penalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may be fined

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When a criminal statute designates an act of a corporation or a crime and prescribes punishment therefor, it creates a criminal offense which, otherwise, would not exist and such can be committed only by the corporation. But when a penal statute does not expressly apply to corporations, it does not create an offense for which a corporation may be punished. On the other hand, if the State, by statute, defines a crime that may be committed by a corporation but prescribes the penalty therefor to be suffered by the officers, directors, or employees of such corporation or other persons responsible for the offense, only such individuals will suffer such penalty. Corporate officers or employees, through whose act, default or omission the corporation commits a crime, are themselves individually guilty of the crime. The principle applies whether or not the crime requires the consciousness of wrongdoing. It applies to those corporate agents who themselves commit the crime and to those, who, by virtue of their managerial positions or other similar relation to the corporation, could be deemed responsible for its commission, if by virtue of their relationship to the corporation, they had the power to prevent the act. Benefit is not an operative fact

14. JG Summit Holdings INC. vs. Court of Appeals G.R. No. 124293 January 31, 2005 Facts: 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 NDC and KAWASAKI will contribute P330M for the capitalization of PHILSECO in the proportion of 60%-40% respectively. One of its salient features is the grant to the parties of the right of first refusal should either of them decide to sell, assign or transfer its interest in the joint venture. 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 an Administrative Order. When the former President 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, a trust agreement was entered into between the National Government and the APT wherein the latter was named the trustee of the National Government’s share in PHILSECO. In the interest of the national economy and the government, the COP and the APT deemed it best to sell the National Government’s share in PHILSECO to private entities. After a series of negotiations between the APT and KAWASAKI , they agreed that the latter’s right of first refusal under the JVA be “exchanged” for the right to top by 5%, the highest bid for the said shares. They further agreed that KAWASAKI woul.d be entitled to name a company in which it was a stockholder, which could exercise the right to top. KAWASAKI then informed APT that Page 24 of 40

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Philyards Holdings, Inc. (PHI) would exercise its right to top. At the public bidding, petitioner J.G. Summit Holdings Inc. submitted a bid of Two Billion and Thirty Million Pesos (Php2,030,000,000.00) with an acknowledgement of KAWASAKI/PHILYARDS right to top. As petitioner was declared the highest bidder, the COP approved the sale “subject to the right of Kawasaki Heavy Industries, Inc. / PHILYARDS Holdings Inc. to top JG’s bid by 5% as specified in the bidding rules.” On the other hand, the respondent by virtue of right to top by 5%, the highest bid for the said shares timely exercised the same. Petitioners, in their motion for reconsideration, raised, inter alia, the issue on the maintenance of the 60%-40% relationship between the NIDC and KAWASAKI arising from the Constitution because PHILSECO is a landholding corporation and need not be a public utility to be bound by the 60%-40% constitutional limitation. ISSUE: o

Whether or not PHILSECO is a public utility

o

Whether or not Kawasaki/PHI can purchase beyond 40% of

SC stated that sec. 1 of PD No. 666 was expressly repealed by sec. 20, BP Blg. 391 and when BP Blg. 391 was subsequently repealed by EO 226, the latter law did not revive sec. 1 of PD No. 666. Therefore, the law that states that a shipyard is a public utility still stands. A shipyard such as PHILSECO being a public utility as provided by law is therefore required to comply with the 60%-40% capitalization under the Constitution. Likewise, the JVA between NIDC and Kawasaki manifests an intention of the parties to abide by this constitutional mandate. Thus, under the JVA, should the NIDC opt to sell its shares of stock to a third party, Kawasaki could only exercise its right of first refusal to the extent that its total shares of stock would not exceed 40% of the entire shares of stock. The NIDC, on the other hand, may purchase even beyond 60% of the total shares. As a government corporation and necessarily a 100% Filipino-owned corporation, there is nothing to prevent its purchase of stocks even beyond 60% of the capitalization as the Constitution clearly limits only foreign capitalization. Kawasaki was bound by its contractual obligation under the JVA that limits its right of first refusal to 40% of the total capitalization of PHILSECO. Thus, Kawasaki cannot purchase beyond 40% of the capitalization of the joint venture on account of both constitutional and contractual proscriptions.

PHILSECO’s stocks HELD: In arguing that PHILSECO, as a shipyard, was a public utility, JG Summit relied on sec. 13, CA No. 146. On the other hand, Kawasaki/PHI argued that PD No. 666 explicitly stated that a “shipyard” was not a “public utility.” But the

15. General Credit Corp v. Alsons Dev. and Investment Corp FACTS: Petitioner General Credit Corporation (GCC), then known as Commercial Credit Corporation (CCC), established CCC franchise companies in different urban centers of the country. In furtherance Page 25 of 40

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of its business, GCC was able to secure license from Central Bank (CB) and SEC to engage also in quasi-banking activities. On the other hand, respondent CCC Equity Corporation (EQUITY) was organized in by GCC for the purpose of, among other things, taking over the operations and management of the various franchise companies. At a time material hereto, respondent Alsons Development and Investment Corporation (ALSONS) and the Alcantara family, each owned, just like GCC, shares in the aforesaid GCC franchise companies, e.g., CCC Davao and CCC Cebu. ALSONS and the Alcantara family, for a consideration of P2M, sold their shareholdings (101,953 shares), in the CCC franchise companies to EQUITY. EQUITY issued ALSONS et al., a "bearer" promissory note for P2M with a one-year maturity date.4 years later, the Alcantara family assigned its rights and interests over the bearer note to ALSONS which became the holder thereof. But even before the execution of the assignment deal aforestated, letters of demand for interest payment were already sent to EQUITY. EQUITY no longer then having assets or property to settle its obligation nor being extended financial support by GCC, pleaded inability to pay. ALSONS, having failed to collect on the bearer note aforementioned, filed a complaint for a sum of money against EQUITY and GCC. GCC is being impleaded as party-defendant for any judgment ALSONS might secure against EQUITY and, under the doctrine of piercing the veil of corporate fiction, against GCC, EQUITY having been organized as a tool and mere conduit of GCC. According to EQUITY (cross-claim against GCC): it acted merely as intermediary or bridge for loan transactions and other dealings of GCC to its franchises and the investing public; and is solely dependent upon GCC for its funding requirements. Hence, GCC is solely and directly liable to ALSONS, the former having failed to provide EQUITY the necessary funds to meet its obligations to ALSONS. GCC filed its ANSWER to Cross-

claim, stressing that it is a distinct and separate entity from EQUITY. RTC, finding that EQUITY was but an instrumentality or adjunct of GCC and considering the legal consequences and implications of such relationship, rendered judgment for Alson. CA affirmed. ISSUE: WON the doctrine of "Piercing the Veil of Corporate Fiction" should be applied in the case at bar. HELD: YES. The notion of separate personality, however, may be disregarded under the doctrine – "piercing the veil of corporate fiction" – as in fact the court will often look at the corporation as a mere collection of individuals or an aggregation of persons undertaking business as a group, disregarding the separate juridical personality of the corporation unifying the group. Another formulation of this doctrine is that when two (2) business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or one and the same. Authorities are agreed on at least three (3) basic areas where piercing the veil, with which the law covers and isolates the corporation from any other legal entity to which it may be related, is allowed. These are: 1) defeat of public convenience, as when the corporate fiction is used as vehicle for the evasion of an existing obligation; Page 26 of 40

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2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or

respondent EQUITY; and the establishment of respondent EQUITY by the petitioner to circumvent CB rules.

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

Some of the detailed circumstances:

The CA found valid grounds to pierce the corporate veil of petitioner GCC, there being justifiable basis for such action. When the appellate court spoke of a justifying factor, the reference was to what the trial court said in its decision, namely: the existence of certain circumstances [which], taken together, gave rise to the ineluctable conclusion that [respondent] EQUITY is but an instrumentality or adjunct of [petitioner] GCC. The Court agrees with the disposition of the CA on the application of the piercing doctrine to the transaction subject of this case. Per the Court’s count, the trial court enumerated no less than 20 documented circumstances and transactions, which, taken as a package, indeed strongly supported the conclusion that respondent EQUITY was but an adjunct, an instrumentality or business conduit of petitioner GCC. This relation, in turn, provides a justifying ground to pierce petitioner’s corporate existence as to ALSONS’ claim in question. Foremost of what the trial court referred to as "certain circumstances" are the commonality of directors, officers and stockholders and even sharing of office between petitioner GCC and respondent EQUITY; certain financing and management arrangements between the two, allowing the petitioner to handle the funds of the latter; the virtual domination if not control wielded by the petitioner over the finances, business policies and practices of

[respondent] EQUITY and [petitioner] GCC had common directors and/or officers as well as stockholders. Disclosed likewise is the fact that when [EQUITYs President] Labayen sold the shareholdings of EQUITY in said franchise companies, practically the entire proceeds thereof were surrendered to GCC, and not received by EQUITY - GCC financed EQUITY and EQUITY was, in fact, a wholly owned subsidiary of GCC, funds invested by EQUITY in the CCC franchise companies actually came from CCC Phils. or GCC - GCC cause the incorporation of EQUITY and its business affairs were considered as GCCs own business endeavors. - EQUITY never acted independently but took their orders from GCC - EQUITY was organized by GCC for the purpose of circumventing [CB] rules and regulations and the Anti-Usury Law ((a) using as a conduit its non-quasi bank affiliates . (b) issuing without recourse facilities to enable GCC to extend credit to affiliates like EQUITY which go beyond the single borrowers limit without the need of showing outstanding balance in the book of accounts.) There being a parent-subsidiary corporation relationship between EQUITY and GCC, GCC maybe held responsible for the acts and contracts of its subsidiary EQUITY, especially that the latter has no sufficient property to settle its obligations.For, after all, GCC was the entity which initiated and benefited immensely from the fraudulent scheme perpetrated in violation of the law. -

16) Mel Velarde vs Lopez Inc, G.R. No. 153886 | 2004-01-14 Page 27 of 40

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FACTS: On January 6, 1997, Eugenio Lopez Jr., then President of respondent Lopez, Inc., as LENDER, and petitioner Mel Velarde, then General Manager of Sky Vision Corporation, a subsidiary of respondent, as BORROWER, forged a notarized loan agreement covering the amount of P10,000,000.00. The agreement expressly provided for, among other things, the manner of payment and the circumstances constituting default which would give the lender the right to declare the loan together with accrued interest immediately due and payable. As petitioner failed to pay the instalments as they became due, respondent, apparently in answer to a proposal of petitioner respecting the settlement of the loan, advised him by letter dated July 15, 1998 that he may use his retirement benefits in Sky Vision in partial settlement of his loan after he settles his accountabilities to the latter and gives his written instructions to it. Petitioner protested the computation indicated in the July 15, 1998 letter, he asserting that the imputed unliquidated advances from Sky Vision had already been properly liquidated. On August 18, 1998, respondent filed a complaint for collection of sum of money with damages at the RTC of Pasig City against petitioner because of failure to comply with the loan agreement and refusal to pay upon demand. Respondent filed a manifestation and a motion to dismiss the counterclaim for want of jurisdiction, which drew petitioner to assert in his comment and opposition thereto that the veil of corporate fiction must be pierced to hold respondent liable for his counterclaims. RTC of Pasig denied respondent’s motion to dismiss the counterclaim and ruled that there is identity of interest between respondent and Sky Vision to merit the piercing of the veil of corporate fiction. Respondent’s motion for reconsideration having been denied, it filed a Petition for Certiorari at the CA which held that respondent is not the real party-in-interest on the counterclaim

and that there was failure to show the presence of any of the circumstances to justify the application of the principle of "piercing the veil of corporate fiction." Motion for Reconsideration was likewise denied. Hence this Petition for Review on Certiorari. ISSUE: Whether or not the veil of corporate fiction must be pierced to hold respondent liable. RULING: In applying the doctrine of piercing the veil of corporate fiction, the following requisites must be established: (1) control, not merely majority or complete stock control; (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 acts 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. Nowhere, however, in the pleadings and other records of the case can it be gathered that respondent has complete control over Sky Vision, not only of finances but of policy and business practice in respect to the transaction attacked, so that Sky Vision had at the time of the transaction no separate mind, will or existence of its own. The existence of interlocking directors, corporate officers and shareholders is not enough justification to pierce the veil of corporate fiction in the absence of fraud or other public policy considerations. Petitioner muddles the issues by arguing that respondent fraudulently took advantage of the control over the matter of compensation and benefits of an employee of Sky Vision to deceive petitioner into signing the loan agreement on the misleading assurance that it was merely for the purpose of documenting the reward to him of ten million pesos. This argument does not Page 28 of 40

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persuade. Petitioner, being a lawyer, is presumed to know the legal and binding effects of loan agreements. As for the trial court’s ruling that the agreement to set-off is an amendment of the loan agreement resulting to an identity of interest between respondent and Sky Vision and, therefore, sufficient to pierce the veil of corporate fiction, it is untenable. In the letter sent to petitioner it was mentioned that, to effect a set-off, it is a condition sine qua non that the approval thereof by "Sky/Central" must be obtained, and that petitioner liquidate his advances from Sky Vision. These conditions hardly manifest that respondent possessed that degree of control over Sky Vision as to make the latter its mere instrumentality, agency or adjunct.

17. Heirs of Ramon Durano, Sr. vs. Uy (344 SCRA 238) July 27, 2010 Separate Juridical Personality Alter Ego: Piercing the Veil of Corporate Fiction Facts: Ramon Durano III & wife instituted an action for damages against Uy, etc. accusing them of officiating a hate campaign against them by lodging complaints in the police for ‘invasion of property’; sending complaints to the Office of the President depicting them as oppressors, landgrabbers & usurpers; spreading false rumors & damaging tales w/c put them into public contempt & ridicule. In their answer, Uy, etc. lodged affirmative defenses, demanded the return of their property & made counterclaims for actual, moral & exemplary damages. They claim that in the first week of August 1970, they received mimeographed notices signed by Durano, Sr. informing them that the land they were tilling, formerly owned by Cepco was purchased by Durano & Co,

directing them to immediately turn over the property. Even before they could vacate, Durano & Co. proceeded to bulldoze & destroy their property & fire at air even. September 15, 1970 Durano & Co. sold the property to Durano III who proceeded to register the lands in his name. They claim that they were deprived of their independent source of income, were made victims of serious violence & demanded damages for cost of improvements on the land that were destroyed. The Duranos moved for the dismissal of their complaint w/c the trial court granted w/o prejudice to the right of Uy, etc. to maintain their counterclaim. The counterclaim was later upheld. This decision was affirmed by the CA. Hence this petition. Issue: WON Durano can invoke the doctrine of separate corporate personality to evade liability for damages Held: Denied & CA decision modified. The Duranos hinge their claim on the TCTs issued in the name of Durano III. Their validity was put into serious doubt by the ff: a) the certificates reveal the lack of registered title of Cepoc to the Properties; b) alleged reconstituted titles of Cepoc were not produced in evidence; c) deed of sale between Cepoc & Durano & Co. was unnotarized & thus unregisterable Fraud in the issuance of a certificate of title may be raised only in an action expressly instituted for that purpose; and not collaterally as in an action for reconveyance & damages. The rule on indefeasibility of title – Torrens titles can only be attacked for fraud w/in 1 year from the date of issuance of the decree of registration; an action for reconveyance may prosper if a property wrongfully registered has not passed to an innocent purchaser for value. The purchase of Durano & Co. could not be said to have been in good faith since it is not disputed that Durano III acquired the property w/ full knowledge of Uy’s occupancy thereon. Uy’s action for reconveyance will prosper, it being clear that the property, wrongfully registered in the name of Durano III, has not passed to an innocent purchaser for value. Notarization of the deed of sale is essential to its registrability, & the action of

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the RD in allowing the registration of the unacknowledged deed of sale was unauthorized & did not render validity to the registration of the document. A buyer who could not have failed to know or discover that the land sold to him was in the adverse possession of another is a buyer in bad faith. A purchaser cannot just close his eyes to facts w/c should put a reasonable man upon his guard, such as when the subject of the sale is in the possession of persons other than the seller. Uy & company were in open possession & occupancy of the properties when Durano & Co. supposedly purchased the same from Cepoc. In applying the instrumentality or alter ego doctrine, the courts are concerned w/ reality & not form, w/ how the corp operated & the individual defendant’s relationship to that operation. Whether a corporation is a mere alter ego is purely one of fact. Shortly after the sale by Cepco to Durano & Co., the latter sold the property to Durano III, who immediately procured the registration of the property in his name. Obviously, Durano & Co. was used by Durano III,etc. as an instrumentality to appropriate the disputed property for themselves.

requires possession of the thing in good faith & w/ just title for a period of 10 years. • Remedies of an owner on whose land somebody has built in bad faith: a) appropriate what has been built w/o any obligation to pay indemnity; b) demand that the builder remove what he had built; c) compel the builder to pay the value of the land. In any case, landowner is entitled to damages (Art.451)

18. PNB VS RITRATTO GROUP FACTS: 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 Ritratto Group, Inc. (Ritartto) in the amount of US$300K secured by real estate mortgages constituted over 4 parcels of land in Makati City September 1996: increased successively to US$1,140,000.00 1996: to US$1,290,000.00

November

Test to enable piercing of the veil, except in express agency, estoppel or direct tort:

February 1997: US$1,425,000.00 US$1,421,316.18

a)Control, not mere majority or complete domination; b)Such control must have e=been used by the defendant to commit fraud or wrong, etc.; c)The aforesaid control & breach of duty must approximately cause the injury or unjust loss complained of.

Ritratto Group, Inc. made repayments of the loan incurred by remitting those amounts to their loan account with PNB-IFL in Hong Kong.

• Sec.8 Rule 51 indicates that the CA is not limited to reviewing only those errors assigned by appellant but also those closely related to or dependent on an assigned error. CA is imbued w/ sufficient discretion to review matters. • Ordinary acquisitive prescription, in the case of immovable property,

April 1998: decreased to

April 30, 1998: outstanding amounted to US$1,497,274.70 PNB-IFL, through its attorney-in-fact PNB, notified them of the foreclosure of all the real estate mortgages and that the properties subjected

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May 25, 1999: Ritratto Group, Inc filed a complaint for injunction with prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order before the RTC. -granted 72-hour TRO

•The Circumstance rendering the subsidiary an instrumentality (common circumstances)

RTC and CA: dismissed motion to dismiss

(a) The parent corporation owns all or most of the capital stock of the subsidiary.

PNB-IFL, is a wholly owned subsidiary of defendant Philippine National Bank, the suit against the defendant PNB is a suit against PNB-IFL

(b) The parent and subsidiary corporations have common directors or officers.

Rittratto: entire credit facility is void as it contains stipulations in violation of the principle of mutuality of contracts

(c) The parent corporation finances the subsidiary.

ISSUE: W/N PNB is an alter ego of PNB-IFL

(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation.

HELD: NO. Petition is granted

(e) The subsidiary has grossly inadequate capital.

•PNB is an agent with limited authority and specific duties under a special power of attorney incorporated in the real estate mortgage.

(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.

•not privy to the loan contracts entered into by PNB-IFL.

(g) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation.

•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. •general rule the stock ownership alone by one corporation of the stock of another does not thereby render the dominant corporation liable for the torts of the subsidiary unless the separate corporate existence of the subsidiary is a mere sham, or unless the control of the subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation.

(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own. (i) The parent corporation uses the property of the subsidiary as its own. (j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation.

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(k) The formal legal requirements of the subsidiary are not observed. 20. G. No. L-12719

May 31, 1962

19) Sunio vs.NLRC,127 SCRA 390

THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. THE CLUB FILIPINO, INC. DE CEBU, respondent.

EM Ramos & Co., Inc (EMRACO) and Cabugao Ice Plant, Inc. (CIPI), sister corporations, sold an ice plant to Rizal Development and Finance, Corp. (RDFC). To secure RDFC’s payment of the purchase price, the ice plant was mortgaged to EMRACO-CIPI. Because of the sale, EMRACO-CIPI terminated all of their employees, including private respondents.

This is a petition to review the decision of the Court of Tax Appeals, reversing the decision of the Collector of Internal Revenue, assessing against and demanding from the "Club Filipino, Inc. de Cebu", the sum of P12,068.84 as fixed and percentage taxes, surcharge and compromise penalty, allegedly due from it as a keeper of bar and restaurant.

Later, RDFC sold the ice plant, subject to the mortgage in favor of EMRACO-CIPI, to petitioner Ilocos Commercial Corp. (ICC). When RDFC and ICC defaulted on the payment of the balance of the purchase price, EMRACO-CIPI extrajudicially foreclosed the ice plant. It then sold it to Nilo Villanueva, subject to RDFC’s right of redemption. Nilo Villanueva rehired private respondents. When RDFC redeemend the ice plant, private respondents were again dismissed. Thus, the latter filed complaints against the petitioner corporation, and its President and General Manager, Alberto Sunio, for illegal dismissal. The Assistance Regional Director of the Ministry of Labor and Employment ordered petitioners to reinstate private respondents. NLRC affirmed. Petitioner Sunio, who owned ½ of ICC, was made jointly and severally liable with ICC and CIPI for the payment of backwages. RATIO: A corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not itself sufficient ground for disregarding the separate corporate personality. Therefore, Sunio should not have been made personally liable for the payment of backwages to private respondents.

As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for short), is a civic corporation organized under the laws of the Philippines with an original authorized capital stock of P22,000.00, which was subsequently increased to P200,000.00, among others, to it "proporcionar, operar, y mantener un campo de golf, tenis, gimnesio (gymnasiums), juego de bolos (bowling alleys), mesas de billar y pool, y toda clase de juegos no prohibidos por leyes generales y ordenanzas generales; y desarollar y cultivar deportes de toda clase y denominacion cualquiera para el recreo y entrenamiento saludable de sus miembros y accionistas" (sec. 2, Escritura de Incorporacion del Club Filipino, Inc. Exh. A). Neither in the articles or bylaws is there a provision relative to dividends and their distribution, although it is covenanted that upon its dissolution, the Club's remaining assets, after paying debts, shall be donated to a charitable Philippine Institution in Cebu (Art. 27, Estatutos del Club, Exh. A-a.). The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and short orders to its members and their guests. The bar-restaurant was a necessary incident to the operation of the club and its golf-course. The club is operated mainly with funds derived from membership fees and dues. Whatever profits it had, were used to defray its overhead expenses and to improve its golf-course. In 1951. as a result of a capital surplus, arising from the re-valuation of its real properties, Page 32 of 40

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the value or price of which increased, the Club declared stock dividends; but no actual cash dividends were distributed to the stockholders. In 1952, a BIR agent discovered that the Club has never paid percentage tax on the gross receipts of its bar and restaurant, although it secured B-4, B-9(a) and B-7 licenses. The Club wrote the Collector, requesting for the cancellation of the assessment. The request having been denied, the Club filed the instant petition for review. The dominant issues involved in this case are twofold: 1. Whether the respondent Club is liable for the payment of the sum of 12,068.84, as fixed and percentage taxes and surcharges prescribed in sections 182, 183 and 191 of the Tax Code, under which the assessment was made, in connection with the operation of its bar and restaurant, during the periods mentioned above; and 2. Whether it is liable for the payment of the sum of P500.00 as compromise penalty. Section 182, of the Tax Code states, "Unless otherwise provided, every person engaging in a business on which the percentage tax is imposed shall pay in full a fixed annual tax of ten pesos for each calendar year or fraction thereof in which such person shall engage in said business." Section 183 provides in general that "the percentage taxes on business shall be payable at the end of each calendar quarter in the amount lawfully due on the business transacted during each quarter; etc." And section 191, same Tax Code, provides "Percentage tax . . . Keepers of restaurants, refreshment parlors and other eating places shall pay a tax three per centum, and keepers of bar and cafes where wines or liquors are served five per centum of their gross receipts . . .". It has been held that the liability for fixed and percentage taxes, as provided by these sections, does not ipso facto attach by mere reason of the operation of a bar and restaurant. For the liability to attach, the

operator thereof must be engaged in the business as a barkeeper and restaurateur. The plain and ordinary meaning of business is restricted to activities or affairs where profit is the purpose or livelihood is the motive, and the term business when used without qualification, should be construed in its plain and ordinary meaning, restricted to activities for profit or livelihood (The Coll. of Int. Rev. v. Manila Lodge No. 761 of the BPOE [Manila Elks Club] & Court of Tax Appeals, G.R. No. L-11176, June 29, 1959, giving full definitions of the word "business"; Coll. of Int. Rev. v. Sweeney, et al. [International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21, 1959, the facts of which are similar to the ones at bar; Manila Polo Club v. B. L. Meer, etc., No. L-10854, Jan. 27, 1960). Having found as a fact that the Club was organized to develop and cultivate sports of all class and denomination, for the healthful recreation and entertainment of its stockholders and members; that upon its dissolution, its remaining assets, after paying debts, shall be donated to a charitable Philippine Institution in Cebu; that it is operated mainly with funds derived from membership fees and dues; that the Club's bar and restaurant catered only to its members and their guests; that there was in fact no cash dividend distribution to its stockholders and that whatever was derived on retail from its bar and restaurant was used to defray its overall overhead expenses and to improve its golf-course (cost-plus-expenses-basis), it stands to reason that the Club is not engaged in the business of an operator of bar and restaurant (same authorities, cited above). It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does not necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary adjuncts of the Club to foster its purposes and the profits derived therefrom are necessarily incidental to the primary object of developing and cultivating sports for the healthful recreation and entertainment of the stockholders and members. That a Club makes some profit, does not make it a profit-making Club. As has been remarked a club should always strive, whenever possible, to have surplus (Jesus Sacred Heart College v. Collector of Int. Rev., G.R. No. L6807, May 24, 1954; Collector of Int. Rev. v. Sinco Educational Corp., G.R. No. L-9276, Oct. 23, 1956).1äwphï1.ñët Page 33 of 40

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It is claimed that unlike the two cases just cited (supra), which are non-stock, the appellee Club is a stock corporation. This is unmeritorious. The facts that the capital stock of the respondent Club is divided into shares, does not detract from the finding of the trial court that it is not engaged in the business of operator of bar and restaurant. What is determinative of whether or not the Club is engaged in such business is its object or purpose, as stated in its articles and by-laws. It is a familiar rule that the actual purpose is not controlled by the corporate form or by the commercial aspect of the business prosecuted, but may be shown by extrinsic evidence, including the by-laws and the method of operation. From the extrinsic evidence adduced, the Tax Court concluded that the Club is not engaged in the business as a barkeeper and restaurateur. Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital stock divided into shares and (2) an authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of the shares held (sec. 3, Act No. 1459). In the case at bar, nowhere in its articles of incorporation or by-laws could be found an authority for the distribution of its dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation, within the contemplation of the corporation law. A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit, nonstock organizations, unless the intent to the contrary is manifest and patent" (Collector v. BPOE Elks Club, et al., supra), which is not the case in the present appeal. Having arrived at the conclusion that respondent Club is not engaged in the business as an operator of a bar and restaurant, and therefore, not liable for fixed and percentage taxes, it follows that it is not liable for any penalty, much less of a compromise penalty. WHEREFORE, the decision appealed from is affirmed without costs.

21. Shipside Inc vs. Court of Appeals, G.R. No. 1433 | 2001-02-20 Doctrine: Prescription of action does not run against the State: it is not applicable to artificial bodies created by the State for special purpose.

Facts: On October 29, 1958, Original Certificate of Title No. 0-381 was issued in favor of Rafael Galvez, over four parcels of land - Lot 1; Lot 2,; Lot 3; and Lot 4,. On April 11, 1960, Lots No. 1 and 4 were conveyed by Rafael Galvez in favor of Filipina Mamaril, Cleopatra Llana, Regina Bustos, and Erlinda Balatbat in a deed of sale . August 16, 1960, Mamaril, et al. sold Lots No. 1 and 4 to Lepanto Consolidated Mining Company. On February 1, 1963, unknown to Lepanto Consolidated Mining Company, the Court of First Instance of La Union, issued an order declaring OCT No. 0381 of the Registry of Deeds for the Province of La Union issued in the name of Rafael Galvez, null and void, and ordered the cancellation thereof. On October 28, 1963, Lepanto Consolidated Mining Company sold to Shipside Inc (petitioner) Lots No. 1 and 4. In the meantime, Rafael Galvez filed his motion for reconsideration against the order issued by the trial court declaring OCT No. 0-381 null and void. The motion was denied. The Court of Appeals ruled in favor of the Republic of the Philippines. Thereafter, the Court of Appeals issued an Entry of Judgment, certifying that its decision dated August 14, 1973 became final and executory on October 23, 1973. Twenty four long years, on January 14, 1999, the Office of the Solicitor General received a letter dated January 11, 1999 from Mr. Victor G. Floresca, Vice-President, John Hay Poro Point Development Corporation, stating that the aforementioned orders and decision of the trial court in L.R.C. No. N-361 have not been executed by the Register of Deeds, San Fernando, La Union despite receipt of the writ of execution. On April 21, 1999, the Page 34 of 40

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Office of the Solicitor General filed a complaint for revival of judgment and cancellation of titles before the Regional Trial Court of the First Judicial Region (Branch 26, San Fernando, La Union)

and be granted due course;and (2) petitioner was unable to show that it had substantially complied with the rule requiring proof of authority to institute an action or proceeding

In its complaint in Civil Case No. 6346, the Solicitor General argued that since the trial court in LRC Case No. 361 had ruled and declared OCT No. 0381 to be null and void, which ruling was subsequently affirmed by the Court of Appeals, the defendants-successors-in-interest of Rafael Galvez have no valid title over the property covered by OCT No. 0-381, and the subsequent Torrens titles issued in their names should be consequently cancelled.

Issue:

On July 22, 1999, petitioner Shipside, Inc. filed its Motion to Dismiss, based on the following grounds: (1) the complaint stated no cause of action because only final and executory judgments may be subject of an action for revival of judgment; (2) the plaintiff is not the real party-in-interest because the real property covered by the Torrens titles sought to be cancelled, allegedly part of Camp Wallace (Wallace Air Station), were under the ownership and administration of the Bases Conversion Development Authority (BCDA) under Republic Act No. 7227; (3) plaintiffs cause of action is barred by prescription; (4) twenty-five years having lapsed since the issuance of the writ of execution, no action for revival of judgment may be instituted because under Paragraph 3 of Article 1144 of the Civil Code, such action may be brought only within ten (10) years from the time the judgment had been rendered.

An opposition to the motion to dismiss was filed by the Solicitor General on August 23, 1999, alleging among others, that: (1) the real party-in-interest is the Republic of the Philippines;and (2) prescription does not run against the State. Court of Appeals denied petitioners motion for reconsideration on the grounds that: (1) a complaint filed on behalf of a corporation can be made only if authorized by its Board of Directors, and in the absence thereof, the petition cannot prosper

Whether or not the Republic may still for revival of judgment. RULING The Court of Appeals dismissed the petition for certiorari on the ground that Lorenzo Balbin, the resident manager for petitioner, who was the signatory in the verification and certification on non-forum shopping, failed to show proof that he was authorized by petitioners board of directors to file such a petition. A corporation, such as petitioner, has no power except those expressly conferred on it by the Corporation Code and those that are implied or incidental to its existence. In turn, a corporation exercises said powers through its board of directors and / or its duly authorized officers and agents. Thus, it has been observed that the power of a corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers (Premium Marble Resources, Inc. v. CA, 264 SCRA 11 [1996]). In turn, 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. It is undisputed that on October 21, 1999, the time petitioners Resident Manager Balbin filed the petition, there was no proof attached thereto that Balbin was authorized to sign the verification and non-forum shopping certification therein, as a consequence of which the petition was dismissed by the Court of Appeals. However, subsequent to such dismissal, petitioner filed a motion for reconsideration, attaching to said motion a certificate issued by its board secretary On the other hand, the lack of certification against forum shopping is generally not curable by the submission thereof after the filing of Page 35 of 40

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the petition. Section 5, Rule 45 of the 1997 Rules of Civil Procedure provides that the failure of the petitioner to submit the required documents that should accompany the petition, including the certification against forum shopping, shall be sufficient ground for the dismissal thereof. The same rule applies to certifications against forum shopping signed by a person on behalf of a corporation which are unaccompanied by proof that said signatory is authorized to file a petition on behalf of the corporation In the instant case, the merits of petitioners case should be considered special circumstances or compelling reasons that justify tempering the requirement in regard to the certificate of non-forum shopping. Moreover, in Loyola, Roadway, and Uy, the Court excused noncompliance with the requirement as to the certificate of non-forum shopping. With more reason should we allow the instant petition since petitioner herein did submit a certification on non-forum shopping, failing only to show proof that the signatory was authorized to do so. That petitioner subsequently submitted a secretarys certificate attesting that Balbin was authorized to file an action on behalf of petitioner likewise mitigates this oversight.

It must also be kept in mind that while the requirement of the certificate of non-forum shopping is mandatory, nonetheless the requirements must not be interpreted too literally and thus defeat the objective of preventing the undesirable practice of forum-shopping (Bernardo v. NLRC, 255 SCRA 108 [1996]). Lastly, technical rules of procedure should be used to promote, not frustrate justice. While the swift unclogging of court dockets is a laudable objective, the granting of substantial justice is an even more urgent ideal.

Second Issue: The action instituted by the Solicitor General in the trial court is one for revival of judgment which is governed by Article 1144(3) of the Civil Code

and Section 6, Rule 39 of the 1997 Rules on Civil Procedure. Article 1144(3) provides that an action upon a judgment must be brought within 10 years from the time the right of action accrues." On the other hand, Section 6, Rule 39 provides that a final and executory judgment or order may be executed on motion within five (5) years from the date of its entry, but that after the lapse of such time, and before it is barred by the statute of limitations, a judgment may be enforced by action. Taking these two provisions into consideration, it is plain that an action for revival of judgment must be brought within ten years from the time said judgment becomes final.

From the records of this case, it is clear that the judgment sought to be revived became final on October 23, 1973. On the other hand, the action for revival of judgment was instituted only in 1999, or more than twenty-five (25) years after the judgment had become final. Hence, the action is barred by extinctive prescription considering that such an action can be instituted only within ten (10) years from the time the cause of action accrues.

The Solicitor General, nonetheless, argues that the States cause of action in the cancellation of the land title issued to petitioners predecessor-ininterest is imprescriptible because it is included in Camp Wallace, which belongs to the government.

The argument is misleading.

While it is true that prescription does not run against the State, the same may not be invoked by the government in this case since it is no longer interested in the subject matter. While Camp Wallace may have belonged to the government at the time Rafael Galvezs title was ordered cancelled in Land Registration Case No. N-361, the same no longer holds true today. Page 36 of 40

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Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of 1992, created the Bases Conversion and Development Authority. Section 4 pertinently provides:

Section 4. Purposes of the Conversion Authority. The Conversion Authority shall have the following purposes:

(a) To own, hold and/or administer the military reservations of John Hay Air Station, Wallace Air Station, ODonnell Transmitter Station, San Miguel Naval Communications Station, Mt. Sta. Rita Station (Hermosa, Bataan) and those portions of Metro Manila military camps which may be transferred to it by the President;

Section 2 of Proclamation No. 216, issued on July 27, 1993, also provides:

Section 2. Transfer of Wallace Air Station Areas to the Bases Conversion and Development Authority. All areas covered by the Wallace Air Station as embraced and defined by the 1947 Military Bases Agreement between the Philippines and the United States of America, as amended, excluding those covered by Presidential Proclamations and some 25-hectare area for the radar and communication station of the Philippine Air Force, are hereby transferred to the Bases Conversion Development Authority

With the transfer of Camp Wallace to the BCDA, the government no longer has a right or interest to protect. Consequently, the Republic is not a real party in interest and it may not institute the instant action. Nor may it raise the defense of imprescriptibility, the same being applicable only in

cases where the government is a party in interest. Under Section 2 of Rule 3 of the 1997 Rules of Civil Procedure, every action must be prosecuted or defended in the name of the real party in interest. To qualify a person to be a real party in interest in whose name an action must be prosecuted, he must appear to be the present real owner of the right sought to enforced (Pioneer Insurance v. CA, 175 SCRA 668 [1989]). A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. And by real interest is meant a present substantial interest, as distinguished from a mere expectancy, or a future, contingent, subordinate or consequential interest (Ibonilla v. Province of Cebu, 210 SCRA 526 [1992]). Being the owner of the areas covered by Camp Wallace, it is the Bases Conversion and Development Authority, not the Government, which stands to be benefited if the land covered by TCT No. T-5710 issued in the name of petitioner is cancelled.

We, however, must not lose sight of the fact that the BCDA is an entity invested with a personality separate and distinct from the government. Section 3 of Republic Act No. 7227 reads:

Section 3. Creation of the Bases Conversion and Development Authority. There is hereby created a body corporate to be known as the Conversion Authority which shall have the attribute of perpetual succession and shall be vested with the powers of a corporation.

It may not be amiss to state at this point that the functions of government have been classified into governmental or constituent and proprietary or ministrant. While public benefit and public welfare, particularly, the promotion of the economic and social development of Central Luzon, may be attributable to the operation of the BCDA, yet it is certain that the functions Page 37 of 40

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performed by the BCDA are basically proprietary in nature. The promotion of economic and social development of Central Luzon, in particular, and the countrys goal for enhancement, in general, do not make the BCDA equivalent to the Government. Other corporations have been created by government to act as its agents for the realization of its programs, the SSS, GSIS, NAWASA and the NIA, to count a few, and yet, the Court has ruled that these entities, although performing functions aimed at promoting public interest and public welfare, are not government-function corporations invested with governmental attributes. It may thus be said that the BCDA is not a mere agency of the Government but a corporate body performing proprietary functions.

Having the capacity to sue or be sued, it should thus be the BCDA which may file an action to cancel petitioners title, not the Republic, the former being the real party in interest. One having no right or interest to protect cannot invoke the jurisdiction of the court as a party plaintiff in an action (Ralla v. Ralla, 199 SCRA 495 [1991]). A suit may be dismissed if the plaintiff or the defendant is not a real party in interest. If the suit is not brought in the name of the real party in interest, a motion to dismiss may be filed, as was done by petitioner in this case, on the ground that the complaint states no cause of action (Tanpingco v. IAC, 207 SCRA 652 [1992]).

Moreover, to recognize the Government as a proper party to sue in this case would set a bad precedent as it would allow the Republic to prosecute, on behalf of government-owned or controlled corporations, causes of action which have already prescribed, on the pretext that the Government is the real party in interest against whom prescription does not run, said corporations having been created merely as agents for the realization of government programs.

Parenthetically, petitioner was not a party to the original suit for cancellation of title commenced by the Republic twenty-seven years for which it is now being made to answer, nay, being made to suffer financial losses.

It should also be noted that petitioner is unquestionably a buyer in good faith and for value, having acquired the property in 1963, or 5 years after the issuance of the original certificate of title, as a third transferee. If only not to do violence and to give some measure of respect to the Torrens System, petitioner must be afforded some measure of protection.

One more point. Since the portion in dispute now forms part of the property owned and administered by the Bases Conversion and Development Authority, it is alienable and registerable real property. We find it unnecessary to rule on the other matters raised by the herein parties. 22. Roman Catholic Apostolic vs. Register of Deeds of Davao G.R. No. L-8451 December 20, 1957 Lesson Applicable: Exploitation of Natural Resources (Corporate Law) FACTS: 

October 4, 1954: Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed a deed of sale of a parcel of land in favor of the Roman Catholic Apostolic Administrator of Davao Inc. (Roman), a corporation sole organized and existing in accordance with Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent.

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The Register of Deeds of Davao for registration, having in mind a previous resolution of the CFI in Carmelite Nuns of Davao were made to prepare an affidavit to the effect that 60% of the members of their corp. were Filipino citizens when they sought to register in favor of their congregation of deed of donation of a parcel of land, required it to submit a similar affidavit declaring the same.

ISSUE: W/N Roman is qualified to acquire private agricultural lands in the Philippines pursuant to the provisions of Article XIII of the Constitution HELD: YES. Register of Deeds of the City of Davao is ordered to register the deed of sale 



June 28, 1954: Roman in the letter expressed willingness to submit an affidavit but not in the same tenor as the Carmelite Nuns because it had five incorporators while as a corporation sole it has only one and it was ownership through donation and this was purchased



As the Register of the Land Registration Commissioner (LRC) : Deeds has some doubts as to the registerability, the matter was referred to the Land Registration Commissioner en consulta for resolution (section 4 of Republic Act No. 1151)



LRC: o

o

In view of the provisions of Section 1 and 5 of Article XIII of the Philippine Constitution, the vendee was not qualified to acquire private lands in the Philippines in the absence of proof that at least 60 per centum of the capital, property, or assets of the Roman Catholic Apostolic Administrator of Davao, Inc., was actually owned or controlled by Filipino citizens, there being no question that the present incumbent of the corporation sole was a Canadian citizen ordered the Registered Deeds of Davao to deny registration of the deed of sale in the absence of proof of compliance with such condition

o



action for mandamus was instituted by Roman alleging the land is held in true for the benefit of the Catholic population of a place

In this sense, the king is a sole corporation; so is a bishop, or dens, distinct from their several chapters

corporation sole

1. composed of only one persons, usually the head or bishop of the diocese, a unit which is not subject to expansion for the purpose of determining any percentage whatsoever 2.

only the administrator and not the owner of the temporalities located in the territory comprised by said corporation sole and such temporalities are administered for and on behalf of the faithful residing in the diocese or territory of the corporation sole

3. has no nationality and the citizenship of the incumbent and ordinary has nothing to do with the operation, management or administration of the corporation sole, nor effects the citizenship of the faithful connected with their respective dioceses or corporation sole. 



A corporation sole consists of one person only, and his successors (who will always be one at a time), in some particular station, who are incorporated by law in order to give them some legal capacities and advantages, particularly that of perpetuity, which in their natural persons they could not have had.

Constitution demands that in the absence of capital stock, the controlling membership should be composed of Filipino citizens. (Register of Deeds of Rizal vs. Ung Sui Si Temple)

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undeniable proof that the members of the Roman Catholic Apostolic faith within the territory of Davao are predominantly Filipino citizens o



CORPORATION LAW case digest source that the friars had to acquire their big haciendas during the Spanish regime), is a clear indication that the requisite that bequests or gifts of real estate be for charitable, benevolent, or educational purposes, was, in the opinion of the legislators, considered sufficient and adequate protection against the revitalization of religious landholdings.

presented evidence to establish that the clergy and lay members of this religion fully covers the percentage of Filipino citizens required by the Constitution

fact that the law thus expressly authorizes the corporations sole to receive bequests or gifts of real properties (which were the main



as in respect to the property which they hold for the corporation, they stand in position of TRUSTEES and the courts may exercise the same supervision as in other cases of trust

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