De Castro-Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008-2015) CORPORATION LAW

DOCTRINE OF SEPARATE LEGAL PERSONALITY Stockholders cannot claim ownership over corporate properties by virtue of the Minutes of a Stockholder’s meeting which merely evidence a loan agreement between the stockholders and the corporation. As such, there interest over the properties are merely inchoate. - Philippine National Bank vs. Merelo B. Aznar et al., G.R. No. 171805, May 30, 2011 DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION In this connection, case law lays down a three-pronged test to determine the application of the alter ego theory, which is also known as the instrumentality theory, namely: (1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal right; and (3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss complained of. The first prong is the “instrumentality” or “control” test. This test requires that the subsidiary be completely under the control and domination of the parent. It examines the parent corporation’s relationship with the subsidiary. It inquires whether a subsidiary corporation is so organized and controlled and its affairs are so conducted as to make it a mere instrumentality or agent of the parent corporation such that its separate existence as a distinct corporate entity will be ignored. It seeks to establish whether the subsidiary corporation has no autonomy and the parent corporation, though acting through the subsidiary in form and appearance, “is operating the business directly for itself.” The second prong is the “fraud” test. This test requires that the parent corporation’s conduct in using the subsidiary corporation be unjust, fraudulent or wrongful. It examines the relationship of the plaintiff to the corporation. It recognizes that piercing is appropriate only if the parent corporation uses the subsidiary in a way that harms the plaintiff creditor. As such, it requires a showing of “an element of injustice or fundamental unfairness.” The third prong is the “harm” test. This test requires the plaintiff to show that the defendant’s control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered. A causal connection between the fraudulent

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Justice Teresita Leonardo-De Castro Cases (2008-2015) conduct committed through the instrumentality of the subsidiary and the injury suffered or the damage incurred by the plaintiff should be established. The plaintiff must prove that, unless the corporate veil is pierced, it will have been treated unjustly by the defendant’s exercise of control and improper use of the corporate form and, thereby, suffer damages. - Development Bank of the Philippines vs. Hydro Resources Contractors Corporation, GR. No. 167603, 167561 & 167603, March 13, 2013 GOVERNMENT CORPORATIONS 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. Its structure is sui generis. 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. - Dante V. Liban, Reynaldo M. Bernardo and Salvador M. Viari vs. Richard J. Gordon, Philippine National Red Cross, Intervenor, G. R. No. 175352, January 18, 2011 Not all corporations, which are not government owned or controlled, are ipso facto to be considered private corporations as there exists another distinct class of corporations or chartered institutions which are otherwise known as "public corporations." These corporations are treated by law as agencies or instrumentalities of the government which are not subject to the tests of ownership or control and economic viability but to different criteria relating to their public purposes/interests or constitutional policies and objectives and their administrative relationship to the government or any of its Departments or Offices. - Boy Scouts of the Philippines vs. Commission On Audit, G.R. No. 177131, June 7, 2011 CORPORATE NAME While the SC stand by in its pronouncement on the importance of the corporate name to the very existence of corporations and the significance thereof in the corporations right to sue, it shall not go so far as to dismiss a case filed by the proper party using its former name when adequate identification is presented. - NM Rothschild & Sons (Australia) Limited vs. Lepanto Consolidated Mining Company, G.R. No. 175799, November 28, 2011 BOARD OF DIRECTORS/CORPORATE OFFICERS Except for the powers which are expressly conferred on it by the Corporation Code and those that are implied by or are incidental to its existence, a corporation has no powers. Physical acts, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate bylaws or by a specific act of the board of directors. - Cebu Bionic Builders Supply, Inc. and Lydia Sia vs. Development Bank of the Philippines, Jose To Chip, Patricio Yap and Roger Balila, G.R. No. 154366, November 17, 2010 Page 2 of 5

Justice Teresita Leonardo-De Castro Cases (2008-2015) The requirement of the certification of non-forum shopping is rooted in the principle that a party-litigant shall not be allowed to pursue simultaneous remedies in different fora, as this practice is detrimental to an orderly judicial procedure. However, the Court has relaxed, under justifiable circumstances, the rule requiring the submission of such certification considering that, although it is obligatory, it is not jurisdictional. Not being jurisdictional, it can be relaxed under the rule of substantial compliance. Thus, a President of a corporation, among other enumerated corporate officers and employees, can sign the verification and certification against of non-forum shopping in behalf of the said corporation without the benefit of a board resolution. - South Cotabato Communications Corporation and Gauvain J. Benzonan vs. Hon. Patricia A. Sto. Tomas, Secretary of Labor And Employment, Rolando Fabrigar, Merlyn Velarde, Vince Lamboc, Felipe Galindo, Leonardo Miguel, Julius Rubin, Edel Roderos, Merlyn Coliao and Edgar Jopson, G.R. No. 173326, December 15, 2010 DERIVATIVE SUIT A derivative suit cannot prosper without first complying with the legal requisites for its institution. Thus, a complaint which contained no allegation whatsoever of any effort to avail of intra-corporate remedies allows the court to dismiss it, even motu proprio. Indeed, even if petitioners thought it was futile to exhaust intra-corporate remedies, they should have stated the same in the Complaint and specified the reasons for such opinion. The requirement of this allegation in the Complaint is not a useless formality which may be disregarded at will. - Nestor Ching and Andrew Wellington vs. Subic Bay Golf And Country Club, Inc., Hu Ho Hsiu Lien alias Susan Hu, Hu Tsung Chieh alias Jack Hu, Hu Tsung Hui, Hu Tsung Tzu and Reynald R. Suarez, G.R. No. 174353, September 10, 2014 MERGER FEBTC employees that were absorbed by petitioner upon the merger between FEBTC and BPI should be covered by the Union Shop Clause found in the existing CBA between petitioner and respondent Union. The Court believes that it is contrary to public policy to declare the former FEBTC employees as forming part of the assets or liabilities of FEBTC that were transferred and absorbed by BPI in the Articles of Merger. Assets and liabilities, should be deemed to refer only to property rights and obligations of FEBTC and do not include the employment contracts of its personnel. A corporation cannot unilaterally transfer its employees to another employer like chattel. Even though FEBTC employees had no choice or control over the merger of their employer with BPI, they had a choice whether or not they would allow themselves to be absorbed by BPI. Employment is a personal consensual contract and absorption by BPI of a former FEBTC employee without the consent of the employee is in violation of an individual’s freedom to contract. - Bank of the Philippine Islands vs. BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank, G.R. No. 164301, August 10, 2010 SECURITIES AND REGULATIONS CODE Page 3 of 5

Justice Teresita Leonardo-De Castro Cases (2008-2015) It is axiomatic that jurisdiction over the subject matter is conferred by law and is determined by the allegations of the complaint or the petition irrespective of whether the plaintiff is entitled to all or some of the claims or reliefs asserted therein. - Philippine Stock Exchange, Inc. vs. The Manila Banking Corporation et.al, G.R. No. 147778. July 23, 2008 INTRA-CORPORATE CONTROVERSIES Civil cases involving the inspection of corporate books are governed by the rules of procedure set forth in the Interim Rules of Procedure for Intra-Corporate Controversies under Republic Act No. 8799 (Interim Rules). In order to assail the decision or order issued under the Interim order must be sought from the appellate court to enjoin the enforcement or implementation of the decision or order, and unless a restraining order is so issued, the decision or order rendered under the Interim Rules shall remain to be immediately executory. In the inspection of Corporate Books, the burden of proof lies with the corporation who refuses to grant to the stockholder the right to inspect corporate records. Supervening events refer to facts which transpire after judgment has become final and executory or to new circumstances which developed after the judgment has acquired finality, including matters which the parties were not aware of prior to or during the trial as they were not yet in existence at that time, a supervening event affects or changes the substance of the judgment and renders the execution thereof inequitable, impossible or unjust. - Dee Ping Wee, Araceli Wee and Marina U. Tan vs. Lee Hiong Wee and Rosalind Wee, G.R. No. 169345, August 25, 2010 BANKING LAWS Banks, their business being impressed with public interest, are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands. The rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks. - Philippine Trust Company (also known as Philtrust Bank) vs. Hon. Court of Appeals and Forfom Development Corporation, G.R. No. 150318, November 22, 2010 Bangko Sentral ng Pilipinas placed Rural Bank of Tuba (RBTI) under receivership with the Philippine Deposit Insurance Corporation as the receiver. Accordingly, PDIC filed a petition for assistance in the liquidation of RBTI which was approved by the trial court. As an incident of the proceeding, BIR intervened as one of the creditors of RBTI. BIR contends that a tax clearance is required before the approval of project of distribution of the assets of a bank. In denying their contention, the Court held the law expressly provides that debts and liabilities of the bank under liquidation are to be paid in accordance with the rules on concurrence and preference of credit under the Civil Code. With reference to the other real and personal property of the debtor, sometimes referred to as “free property,” the taxes and assessments due the Page 4 of 5

Justice Teresita Leonardo-De Castro Cases (2008-2015) National Government, other than those in Articles 2241(1) and 2242(1) of the Civil Code, such as the corporate income tax, will come only in ninth place in the order of preference. If the BIR’s contention that a tax clearance be secured first before the project of distribution of the assets of a bank under liquidation may be approved, then the tax liabilities will be given absolute preference in all instances, including those that do not fall under Articles 2241(1) and 2242(1) of the Civil Code. Philippine Deposit Insurance Corporation vs. Bureau Of Internal Revenue, G.R. No. 172892, June 13, 2013 INTELLECTUAL PROPERTY LAW The conviction of Gemma for trademark infringement under Section 155 of Republic Act No. 8293, as the counterfeit goods seized were not only found in her possession and control, but also in the building registered under her business. The counterfeit cigarettes seized from Gemma’s possession were intended to confuse and deceive the public as to the origin of the cigarettes intended to be sold. - Gemma Ong a.k.a. Maria Teresa Gemma Catacutan vs. People of the Philippines, G.R. No. 169440, November 23, 2011 NEGOTIABLE INSTRUMENTS LAW Banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and depositors who transact business with them. - Bank Of America NT & SA vs. Philippine Racing Club, G.R. No. 150228, July 30, 2009

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