Topic: Classification of Corporations, Other Corporations

Case No. 15

Seventh Day Adventist Conference Church of Southern Philippines, Inc. vs. Northeastern
Mindanao Mission of Seventh Day Adventist, Inc.
G.R. No. 150416, July 21, 2006

FACTS:

On April 21, 1959, the spouses Cosio donated a 1,069-sq. m. lot in Bayugan, Agusan del Sur to
the South Philippines Union Mission of Seventh Day Adventist Church of Bayugan (SPUM
SDA Bayugan). The donation was allegedly accepted by one Liberato Rayos, an elder of the
Seventh Day Adventist Church, in behalf of the donee.

On February 28, 1980, the same parcel of land was sold by the spouses Cosio to the
Northeastern Mindanao Mission of Seventh Day Adventist, Inc. (NEMM-SDA). TCT No. 4468
was thereafter issued in the name of NEMM-SDA.

Claiming to be SPUM-SDA Bayugan's successors-in-interest, Seventh Day Adventist

Conference Church of Southern Philippines, Inc. (petitioner) asserted ownership over the
property. This was opposed by respondent NEMM-SDA who argued that at the time of the
donation, the SPUM-SDA Bayugan could not legally be a donee because, not having been
incorporated yet, it had no juridical personality. Neither were individual petitioners members
of the local church then, hence, the donation could not have been made particularly to them.

ISSUE:

Was the donation valid?

HELD:

No. The alleged donation to the petitioners was void. Donation is an act of liberality whereby
a person disposes gratuitously of a thing or right in favor of another person who accepts it.
SPUM- SDA Bayugan at the time of donation had neither juridical personality nor capacity to
accept such gift.

The allegation of petitioners that they should benefit from the donation as a de facto
corporation has no merit. The following are the requisites before one can qualify as a de
facto corporation:
a. the existence of a valid law under which it may be incorporated; b. an attempt in
good faith to incorporate; and
c. assumption of corporate powers.

While there existed the old Corporation Law (Act 1459), a law under which SPUM-SDA
Bayugan could have been organized, there is no proof that there was an attempt to
incorporate at that time. The filing of the Articles of Incorporation and the issuance of the
certificate of incorporation are essential for the existence of a de facto corporation. An
organization not registered with the SEC cannot be considered a corporation in any concept,
not even as a corporation de facto.

As the Deed of Absolute Sale in favor of respondents has all the essential requisites of
contracts; no evidence of fraud, mistake, or undue influence was adduced by petitioners; and
the presence of the TCT in their name, the ownership of NEMM-SDA is upheld.
Topic: Doctrine of Separate Juridical Personality / Doctrine of Corporate Entity

Case No. 34

Ricardo S. Silverio, Jr., et al. v. Filipino Business Consultants, Inc.

G.R. No. 143312, August 12, 2005

FACTS:

The parties are wrangling over possession of a 62 hectare-land in Calatagan, Batangas after
Esses and Tri-Star failed to redeem the Calatagan Property from FBCI. During the pendency
of the case, FBCI filed with the an Urgent Ex-Parte Motion to Suspend Enforcement of Writ
of Possession. FBCI pointed out that it is now the new owner of Esses and Tri-Star having
purchased the substantial and controlling shares of stocks of the two corporations. It
claimed that since it is now the owner of the controlling shares of stocks, the property must
be awarded in its favor.

ISSUE:

Did FBCI become the owner of the subject property by reason of its purchase of the
substantial and controlling shares of stocks of Esse and Tri-Star?

HELD:

No. FBCIs acquisition of the substantial and controlling shares of stocks of Esses and Tri-Star
does not create a substantial change in the rights or relations of the parties that would
entitle FBCI to possession of the Calatagan Property, a corporate property of Esses and Tri-
Star. Esses and Tri-Star, just like FBCI, are corporations. A corporation has a personality
distinct from that of its stockholders.

A corporation is a juridical person distinct from the members composing it. Properties
registered in the name of the corporation are owned by it as an entity separate and distinct
from its members. While shares of stock constitute personal property, they do not represent
property of the corporation. The corporation has property of its own which consists chiefly
of real estate. A share of stock only typifies an aliquot part of the corporation's property, or
the right to share in its proceeds to that extent when distributed according to law and
equity, but its holder is not the owner of any part of the capital of the corporation. Nor is he
entitled to the possession of any definite portion of its property or assets. The stockholder is
not a co-owner or tenant in common of the corporate property.

Thus, FBCIs alleged controlling shareholdings in Esses and Tri-Star merely represent a
proportionate or aliquot interest in the properties of the two corporations. Such controlling
shareholdings do not vest FBCI with any legal right or title to any of Esses and Tri-Stars
corporate properties. As a stockholder, FBCI has an interest in Esses and Tri-Stars corporate
properties that is only equitable or beneficial in nature. Even assuming that FBCI is the
controlling shareholder of Esses and Tri-Star, it does not legally make it the owner of the
Calatagan Property, which is legally owned by Esses and Tri-Star as distinct juridical persons.
As such, FBCI is not entitled to the possession of any definite portion of the Calatagan
Property or any of Esses and Tri-Stars properties or assets. FBCI is not a co-owner or tenant in
common of the Calatagan Property or any of Esses and Tri-Stars corporate properties.
Topic: Doctrine of Piercing the Veil of Corporation Fiction, Alter Ego / Instrumentality

Case No. 53

Hacienda Luisita, Inc. v. Presidential Agrarian Reform Council, et al.

G.R. No. 171101, July 5, 2011

FACTS:

In 1955, Land Reform Act [RA 1400] was passed which set the expropriation of all tenanted
estates. In 1957, the Spanish owners of the Compañia General de Tabacos de Filipinas
(Tabacalera) sold to Tarlac Development Corporation (TADECO) Hacienda Luisita and their
controlling interest in the sugar mill within the hacienda, the Central Azucarera de Tarlac
(CAT), to be paid in Philippine pesos and in US dollars.
The Philippine Government, through the Central Bank of the Philippines, aided the buyer to
obtain a dollar loan from a US bank. The GSIS Board of Trustees extended on November 27,
1957 a PhP 5.911M loan in favour of TADECO to pay the peso price with a condition under
GSIS Resolution No. 3203, later amended by Resolution No. 356, Series of 1958, which states:
“...the lots comprising Hacienda Luisita shall be subdivided by the applicant-corporation and
sold at cost to the tenants, should there be any, and whenever conditions should exist
warranting such action under the provisions of the Land Tenure Act.”
On March 31, 1958, TADECO had fully paid the purchase price for the acquisition of Hacienda
Luisita.

On August 8, 1963, the Agricultural Land Reform Code (RA 3844) was enacted, abolishing
share tenancy and converting it to leasehold tenancy. It also created the Land Band of the
Philippines (LBP). However, the law’s application was found to be limited to specific areas in
the Central Luzon.

Subsequently, Congress passed the Code of Agrarian Reform (RA 6389) declaring the entire
country a land reform area and automatically converting tenancy to leasehold tenancy in all
areas and reducing the retention limit from 75 Ha to 7 Ha.

A month after the declaration of Martial Law in September of 1972, President Marcos issued
Presidential Decree No. 27 which allows tenant-farmers to purchase the land they tilled or to
change from shared-tenancy to fixed-rent leasehold tenancy, as a way to go about the
“emancipation of the tillers from the bondage of the soil”.

On May 7, 1980, the Martial Law Administration filed a suit before the RTC of Manila against
TADECO to surrender Hacienda Luisita to the Ministry of Agrarian Reform (now the DAR) for
its distribution to farmers. The RTC ordered TADECO to surrender the hacienda to the MAR.
Then during the time of President Corazon C. Aquino, after Marcos was ousted, Proclamation
No. 131, Series of 1987, was issued instituting a CARP. On July 22, 1987, EO 229 was issued to
provide for mechanisms for CARP implementation. It also created the PARC as its policy-
making body. On March 17, 1988, the OSG moved to withdraw the government’s case against
TADECO, et al.
On May 18, 1988, the CA dismissed the case the Marcos administration initially instituted and
won against TADECO, et al. However, the dismissal was conditioned that there be an
approval of a stock distribution plan (SDP) to be submitted, approved by PARC, and
implemented as an alternative mode of land distribution, and failure to comply will cause the
revival of previous decision.

On June 15, 1988, the Comprehensive Agrarian Reform Law of 1988 (RA 6657) took effect,
providing a new process of land classification, acquisition, and distribution. This tested the
application of the law in the current case of Hacienda Luisita. On August 23, 1988, HLI was
formed as a spin-off corporation to facilitate the SDP.

On March 22, 1989, a TADECO, via a Deed of Assignment and Conveyance, transferred and
conveyed to HLI the titles over the lot in question, valued at PhP 196.630,000.00 (33.296% of
the total asset of PhP 590,554,220.00). In line with accommodating such transfer, the HLI
increased its capital share to PhP 400,000,000 at PhP1/share, PhP 150,000,000 of which were
to be issued only to qualified and registered beneficiaries of the CARP, and the remaining
PhP250,000,000 to any stockholder of the corporation. (Obviously, the controlling shares of
FWBs are lower in this case.) HLI guaranteed to the qualified beneficiaries of the SDP
production-sharing that “every year they will receive, on top of their regular compensation,
an amount that approximates 3% of the total gross sale from the production of the
agricultural land, whether it is in the form of cash dividends or incentive bonuses or both.”
The production sharing is payable irrespective of whether HLI makes money or not. HLI also
assured each family beneficiary to be guaranteed a homelot of not more than 240 sq. m. in
the barrio or barangay where they reside.

On May 9, 1989, about 93% of the FWBs accepted and signed the proposed SDOP.
On May 11, 1989, SDOA was entered into by TADECO/HLI and 5,848 qualified FWBs.
On October 14, 1989, the referendum conducted by DAR showed that 5,177 FWBs out of 5,315
participants opted to receive shares in the HLI (that’s about 97.403575% of the participants),
and only 132 chose actual land distribution.

On November 6, 1989, the DAR Secretary Mirriam Defensor-Santiago (now deceased)

proposed the revision of the SDP. On November 14, 1989, TADECO told DAR Sec. MDS that
the proposed revision were already in place in the SDP and MOA. Hence, On November 21,
1989, a Resolution No. 89-12-2 approved the SDP of TADECO/HLI.
From 1989 to 2005, HLI claimed to have extended the following benefits to FWBs: PhP 3
Billion worth of salaries, wages and fringe benefits;
59 Million shares of stock distribution for
free to FWBs; PhP 150M, PhP 37.5M, PhP 2.4M, all representing 3% of the gross produce, the
sale of 500 Ha of converted agricultural land of Hacienda Luisita, and the sale of 80 Ha at PhP
80M for SCTEX, respectively.
240 sq.m. homelots distributed for free;
Social service benefits
On August 15, 1995, HLI applied for conversion of the 500 Ha land from agricultural to
industrial, which was approved by DAR Secretary Ernesto Garilao a year later, or on August
14, 1996, conditioned on the payment of 3% of gross selling price to FWBs and HLI’s continued
compliance with its undertakings under the SDP.
On December 13, 1996, HLI ceded 200 Ha to Luisita Realty Corp. (LRC) at PhP 250 Million each
in 1997 and 1998, and 300 Ha of its converted areas to Centennary Holdings, Inc.
(Centennary), who later sold the same to LIPCO for PhP 750 Million, the latter acquiring it for
purpose of developing an industrial complex.

On November 25, 2004, LIPCO transferred portion of the lands acquired to RCBC by way of
dation en pago in payment of LIPCO’s PhP 431,634,732.10 loan.
Another 80.51 Ha was later detached from Hacienda Luisita and acquired by the government
as part of the SCTEX complex. About 4,335.75 Ha out of the 4,915 Ha remained of the original
area ceded by TADECO to HLI.

With the prevailing situation, earlier in 2003, DAR received two petitions seeking to
renegotiate, and/or revoke the SDOA for violation by the HLI of the SDOA’s terms.
In the first petition, Jose Julio Suniga and Windsor Andaya (Supervisory Group of HLI) and 60
other supervisors alleged that HLI failed to give their dividends, and their share in the gross
sales and proceeds of the sales of the converted area 500 Ha area. They claimed that their
lives have not improved contrary to the guarantees of the SDOA.
In the second petition (Petisyon), they call for the revocation and nullification of the SDOA
and the distribution of the lands. The Petisyon was filed by the AMBALA (composing about
80% of the 5,339 FWBs of Hacienda Luisita).

DAR constituted a Special Task Force to attend to the issues relating to the SDP of HLI and
the latter found that HLI failed to comply with their undertakings.
On December 22, 2005, PARC affirmed the recommendation of DAR to recall/revoke the
SDOP of TADECO/HLI and the land be placed under compulsory coverage or mandated land
acquisition.

On January 2, 2006, HLI sought reconsideration. On the same day, DAR issued a Notice of
Coverage, which HLI received 2 days after.

On May 3, 2006, PARC’s Resolution denied MR by HLI. But on June 14, 2006, the Court, acting
on HLI’s motion, issued a TRO, enjoining the implementation of PARC’s Resolution and the
notice of coverage.

On December 2, 2006, Mallari filed a manisfestation and motion, alleging that he broke up
with AMBALA and formed FARM with Renato Lalic, and thus prayed to be allowed to
intervene. In this moment, two factions were created due to shirt and re-shift of allegiance,
as Mallari would later return to create an AMBALA-Noel Mallari faction, leaving Renato Lalic
with the rest of the members in FARM.

On October 30, 2007, RCBC and LIPCO intervened and alleged that the assailed resolution
effectively nullified the TCTs under their respective names as the properties covered in the
TCTs were included in the January 2, 2006 Notice of Coverage. They claim that the revocation
of SDP cannot legally affect their rights as innocent purchasers for value. They both asserted
to have acquired vested and indefeasible rights over certain portions of the covered
properties.

On August 31, 2010, the Court created a Mediation Panel in a bid to resolve the dispute but no
acceptable agreement was reached.
ISSUE:

What law shall govern the rights, obligations and remedies of the parties in the case?

HELD:

RA 6657 governs.
Contrary to the view of HLI, the rights, obligations and remedies of the parties to the SDOA
embodying the SDP are primarily governed by RA 6657. It should abundantly be made clear
that HLI was precisely created in order to comply with RA 6657, which the OSG aptly
described as the "mother law" of the SDOA and the SDP. It is, thus, paradoxical for HLI to
shield itself from the coverage of CARP by invoking exclusive applicability of the Corporation
Code under the guise of being a corporate entity.

Without in any way minimizing the relevance of the Corporation Code since the FWBs of HLI
are also stockholders, its applicability is limited as the rights of the parties arising from the
SDP should not be made to supplant or circumvent the agrarian reform program.
Without doubt, the Corporation Code is the general law providing for the formation,
organization and regulation of private corporations. On the other hand, RA 6657 is the
special law on agrarian reform. As between a general and special law, the latter shall prevail--
generalia specialibus non derogant. Besides, the present impasse between HLI and the
private respondents is not an intra-corporate dispute which necessitates the application of
the Corporation Code. What private respondents questioned before the DAR is the proper
implementation of the SDP and HLI's compliance with RA 6657. Evidently, RA 6657 should be
the applicable law to the instant case.
Topic: Doctrine of Piercing the Veil of Corporation Fiction, Alter Ego / Instrumentality

Case No. 72

COMPLEX ELECTRONICS CORP vs. NLRC, COMPLEX ELECTRONICS EMPLOYEES

ASSOCIATION (CEEA), represented by Union President, TALAVERA
G.R. No. 122136, July 19, 1999

FACTS:

Due to losses on production of the petitioner, it was constrained to cease operations. In the
evening of April 6, 1992, the machinery, equipment and materials being used for production
at Complex were pulled-out from the company premises and transferred to the premises of
Ionics Circuit, Inc. (Ionics) at Cabuyao, Laguna. The following day, a total closure of company
operation was effected at Complex.

A complaint was, thereafter, filed with the Labor Arbitration Branch of the NLRC for unfair
labor practice, illegal closure/illegal lockout, money claims for vacation leave, sick leave,
unpaid wages, 13th month pay, damages and attorney’s fees. The Union alleged that the
pull-out of the machinery, equipment and materials from the company premises, which
resulted to the sudden closure of the company was in violation of Section 3 and 8, Rule XIII,
Book V of the Labor Code of the Philippines and the existing CBA. Ionics was impleaded as a
party defendant because the officers and management personnel of Complex were also
holding office at Ionics with Lawrence Qua as the President of both companies.

The Union anchors its position on the fact that Lawrence Qua is both the president of
Complex and Ionics and that both companies have the same set of Board of Directors. It
claims that business has not ceased at Complex but was merely transferred to Ionics, a
runaway shop. To prove that Ionics was just a runaway shop, petitioner asserts that out of
the 80,000 shares comprising the increased capital stock of Ionics, it was Complex that owns
majority of said shares with P1,200,000.00 as its capital subscription and P448,000.00 as its
paid up investment, compared to P800,000.00 subscription andP324,560.00 paid-up owing
to the other stockholders, combined. Thus, according to the Union, there is a clear ground to
pierce the veil of corporate fiction.

ISSUE:

Is Ionics merely a runaway shop?

HELD:

NO. A “runaway shop” is defined as an industrial plant moved by its owners from one
location to another to escape union labor regulations or state laws, but the term is also used
to describe a plant removed to a new location in order to discriminate against employees at
the old plant because of their union activities. It is one wherein the employer moves its
business to another location or it temporarily closes its business for anti-union purposes. A
“runaway shop” in this sense, is a relocation motivated by anti-union animus rather than for
business reasons.
In this case, however, Ionics was not set up merely for the purpose of transferring the
business of Complex. At the time the labor dispute arose at Complex, Ionics was already
existing as an independent company. As earlier mentioned, it has been in existence since
July 5, 1984 (8 years prior to the dispute). It cannot, therefore, be said that the temporary
closure in Complex and its subsequent transfer of business to Ionics was for anti-union
purposes. The Union failed to show that the primary reason for the closure of the
establishment was due to the union activities of the employees.

The mere fact that one or more corporations are owned or controlled by the same or single
stockholder is not a sufficient ground for disregarding separate corporate
personalities. Mere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality.

At first glance after reading the decision a quo, it would seem that the closure of
respondent’s operation is not justified. However, a deeper examination of the records along
with the evidence, would show that the closure, although it was done abruptly as there was
no compliance with the 30-day prior notice requirement, said closure was not intended to
circumvent the provisions of the Labor Code on termination of employment. The closure of
operation by Complex on April 7, 1992 was not without valid reasons. Customers of
respondent alarmed by the pending labor dispute and the imminent strike to be foisted by
the union, as shown by their strike vote, directed respondent Complex to pull-out its
equipment, machinery and materials to other safe bonded warehouse. Respondent being
mere consignees of the equipment, machinery and materials were without any recourse but
to oblige the customers’ directive. The pull-out was effected on April 6, 1992. We can see
here that Complex’s action, standing alone, will not result in illegal closure that would cause
the illegal dismissal of the complainant workers. Hence, the Labor Arbiter’s conclusion that
since there were only 2 of respondent’s customers who have expressed pull-out of business
from respondent Complex while most of the customer’s have not and, therefore, it is not
justified to close operation cannot be upheld. The determination to cease operation is a
prerogative of management that is usually not interfered with by the State as no employer
can be required to continue operating at a loss simply to maintain the workers in
employment. That would be taking of property without due process of law, which the
employer has the right to resist.
Topic: Doctrine of Piercing the Veil of Corporation Fiction, Test in Determining Applicability

Case No. 91

Child Learning Center, Inc., et al. v. Timothy Tagario, assisted by his parents Basilio Tagorio
and Herminia Tagorio
G.R. No. 150920; November 25, 2005

FACTS:

This petition started with a tort case filed with the Regional Trial Court of Makati by Timothy
Tagorio and his parents, Basilio R. Tagorio and Herminia Tagorio. The complaint alleged that
during the school year 1990-1991, Timothy was a Grade IV student at Marymount School, an
academic institution operated and maintained by Child Learning Center, Inc. (CLC). In the
afternoon of March 5, 1991, between 1 and 2 p.m., Timothy entered the boys comfort room at
the third floor of the Marymount building to answer the call of nature. He, however, found
himself locked inside and unable to get out. Timothy started to panic and so he banged and
kicked the door and yelled several times for help. When no help arrived, he decided to open
the window to call for help. In the process of opening the window, Timothy went right
through and fell down three stories. Timothy was hospitalized and given medical treatment
for serious multiple physical injuries.

An action was filed by respondents against the CLC, the members of its Board of Directors,
namely Spouses Edgardo and Sylvia Limon, Alfonso Cruz, Carmelo Narciso and Luningning
Salvador, and the Administrative Officer of Marymount School, Ricardo Pilao. In its defense,
CLC maintained that there was nothing defective about the locking mechanism of the door
and that the fall of Timothy was not due to its fault or negligence. CLC further maintained
that it had exercised the due care and diligence of a good father of a family to ensure the
safety, well-being and convenience of its students.

After trial, the court a quo found in favor of respondents and ordered petitioners CLC and
Spouses Limon to pay respondents, jointly and severally, actual and compensatory damages,
moral damages, exemplary damages. The trial court disregarded the corporate fiction of CLC
and held the Spouses Limon personally liable because they were the ones who actually
managed the affairs of the CLC. Petitioners CLC and the Spouses Limon appealed the
decision to the Court of Appeals but the latter affirmed the decision in toto. Their motion for
reconsideration was denied, hence, this petition.

ISSUE:

Is the piercing of the veil of corporate fiction proper in this case?

HELD:

No. In the tort case, respondents contend that CLC failed to provide precautionary measures
to avoid harm and injury to its students in two instances: (1) failure to fix a defective door
knob despite having been notified of the problem; and (2) failure to install safety grills on the
window where Timothy fell from. It must be noted that the trial court found that the lock
was defective on March 5, 1991. The fact, however, that Timothy fell out through the window
shows that the door could not be opened from the inside. That sufficiently points to the fact
that something was wrong with the door, if not the doorknob. Petitioners are clearly
answerable for failure to see to it that the doors of their school toilets are at all times in
working condition. The fact that a student had to go through the window, instead of the
door, shows that something was wrong with the door.

As to the absence of grills on the window, petitioners contend that there was no such
requirement under the Building Code. Nevertheless, the fact is that such window, as
petitioners themselves point out, was approximately 1.5 meters from the floor, so that it was
within reach of a student who finds the regular exit, the door, not functioning. Petitioners,
with the due diligence of a good father of the family, should have anticipated that a student,
locked in the toilet by a non-working door, would attempt to use the window to call for help
or even to get out. Considering all the circumstances, therefore, there is sufficient basis to
sustain a finding of liability on petitioners’ part.

The Court, however, agrees with petitioners that there was no basis to pierce CLCs separate
corporate personality. To disregard the corporate existence, the plaintiff must prove:
(1) Control by the individual owners, not mere majority or complete stock ownership,
resulting in complete domination not only of finances but of policy and business practice in
respect to a transaction 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 a dishonest and unjust
act in contravention of the plaintiffs legal right; and
(3) the control and breach of duty must proximately cause the injury or unjust loss
complained of. The absence of these elements prevents piercing the corporate veil.
The evidence on record fails to show that these elements are present, especially given the
fact that plaintiffs complaint had pleaded that CLC is a corporation duly organized and
existing under the laws of the Philippines. Petitioners Spouses Edgardo and Sylvia Limon are
absolved from personal liability but the Court found the school liable for torts under Article
2176 of the Civil Code for the injuries sustained by the child due to the school’s fault and
negligence.
Topic: Incorporation and Organization Proper, Subscription Contract

Case No. 100

EDWARD KELLER & Co., Ltd. vs. COB GROUP MARKETING

G.R. No. L-68097, January 16, 1986

FACTS:

Edward A. Keller & Co., Ltd. appointed COB Group Marketing, Inc. as exclusive
distributor of its household products, Brite and Nuvan in Panay and Negros, as shown in the
sales agreement dated March 14, 1970 . Under that agreement Keller sold on credit its
products to COB Group Marketing.
As security for COB Group Marketing's credit purchases up to the amount of P35,000,
one Asuncion Manahan mortgaged her land to Keller. Manahan assumed solidarily with COB
Group Marketing the faithful performance of all the terms and conditions of the sales
agreement.
In July, 1970 the parties executed a second sales agreement whereby COB Group
Marketing's territory was extended to Northern and Southern Luzon. As security for the
credit purchases up to P25,000 of COB Group Marketing for that area, Tomas C. Lorenzo, Jr.
and his father Tomas, Sr. (now deceased) executed a mortgage on their land in Nueva Ecija.
Like Manahan, the Lorenzos were solidarily liable with COB Group Marketing for its
obligations under the sales agreement.
The credit purchases of COB Group Marketing, which started on October 15, 1969,
limited up to January 22, 1971. On May 8, the board of directors of COB Group Marketing
were apprised by Jose E. Bax the firm's president and general manager, that the firm owed
Keller about P179,000. Bax was authorized to negotiate with Keller for the settlement of his
firm's liability. On the same day, May 8, Bax and R. Oefeli of Keller signed the conditions for
the settlement of COB Group Marketing's liability. Twelve days later, or on May 20, COB
Group Marketing, through Bax executed two second chattel mortgages over its 12 trucks
(already mortgaged to Northern Motors, Inc.) as security for its obligation to Keller
amounting to P179,185.16 as of April 30, 1971.

ISSUE:

Whether or not the lower courts erred in nullifying the admissions of liability made in
1971 by Bax as president and general manager of COB Group Marketing and in giving
credence to the alleged overpayment computed by Bax.

HELD:

YES.

The lower courts not only allowed Bax to nullify his admissions as to the liability of
COB Group Marketing but they also erroneously rendered judgment in its favor in the
amount of its supposed overpayment in the sum of P100,596.72, in spite of the fact that COB
Group Marketing was declared in default and did not file any counterclaim for the supposed
overpayment. The lower courts harped on Keller's alleged failure to thresh out with
representatives of COB Group Marketing their "diverse statements of credits and payments".
This contention has no factual basis. That means that there was a conference on the COB
Group Marketing's liability. Bax in that discussion did not present his reconciliation
statements to show overpayment.
Bax admitted that Keller sent his company monthly statements of accounts but he
could not produce any formal protest against the supposed inaccuracy of the said
statements. He lamely explained that he would have to dig up his company's records for the
formal protest. He did not make any written demand for reconciliation of accounts.
As to the liability of the stockholders, it is settled that a stockholder is personally
liable for the financial obligations of a corporation to the extent of his unpaid subscription.
Topic: Incorporation and Organization Proper, Corporate Name

Case No. 129

COFFEE PARTNERS V. SAN FRANCISCO COFFEE & ROASTERY

G.R. NO. 169504, March 3, 2010

FACTS:

Petitioner Coffee Partners entered into a franchise agreement with Coffee Partners Ltd. to
operate coffee shops in the country using the trademark ‘San Francisco Coffee.’ Respondent
on the other hand, is a local corporation engaged in the wholesale and retail sale of coffee
and uses the business name ‘San Francisco Coffee & Roastery’ registered with the DTI. Later,
respondent filed an infringement and/or unfair competition complaint against petitioner
alleging that the latter was about to open a coffee shop under the name ‘San Francisco
Coffee’ causing confusion in the minds of the public as it bore a similar name and is engaged
also in selling of coffee. Petitioner contended no infringement would arise because
respondent’s trade name was not registered.

ISSUE:

Is there an infringement of the respondent’s trade name?

HELD:

YES. In Prosource International, Inc. v. Horphag Research Management SA, this Court laid
down what constitutes infringement of an unregistered trade name, thus:

(1) The trademark being infringed is registered in the Intellectual Property Office; however, in
infringement of trade name, the same need not be registered;
(2) The trademark or trade name is reproduced, counterfeited, copied, or colorably imitated
by the infringer;
(3) The infringing mark or trade name is used in connection with the sale, offering for sale, or
advertising of any goods, business or services; or the infringing mark or trade name is applied
to labels, signs, prints, packages, wrappers, receptacles, or advertisements intended to be
used upon or in connection with such goods, business, or services;
(4) The use or application of the infringing mark or trade name is likely to cause confusion or
mistake or to deceive purchasers or others as to the goods or services themselves or as to
the source or origin of such goods or services or the identity of such business; and
(5) It is without the consent of the trademark or trade name owner or the assignee thereof.
RA 8293, which took effect on 1 January 1998, has dispensed with the registration
requirement. Section 165.2 of RA 8293 categorically states that trade names shall be
protected, even prior to or without registration with the IPO, against any unlawful act
including any subsequent use of the trade name by a third party, whether as a trade name or
a trademark likely to mislead the public.

It is the likelihood of confusion that is the gravamen of infringement. Applying the

dominancy test or the holistic test, petitioner’s “SAN FRANCISCO COFFEE” trademark is a
clear infringement of respondent’s “SAN FRANCISCO COFFEE & ROASTERY, INC.” trade
name. The descriptive words “SAN FRANCISCO COFFEE” are precisely the dominant features
of respondent’s trade name. Petitioner and respondent are engaged in the same business of
selling coffee, whether wholesale or retail. The likelihood of confusion is higher in cases
where the business of one corporation is the same or substantially the same as that of
another corporation. In this case, the consuming public will likely be confused as to the
source of the coffee being sold at petitioner’s coffee shops.
Topic: Incorporation and Organization Proper, Classification of Shares

Case No. 148

CIR vs. CA
G.R. NO. 108576, JANUARY 20, 1999

FACTS:

Sometime in the 1930s, Don Andres Soriano, a citizen and resident of the United States,
formed the corporation "A. Soriano Y Cia", predecessor of ANSCOR, with a P1,000,000.00
capitalization divided into 10,000 common shares at a par value of P100/share. In 1937, Don
Andres subscribed to 4,963 shares of the 5,000 shares originally issued. On September 12,
1945, ANSCOR's authorized capital stock was increased to P2,500,000.00 divided into 25,000
common shares with the same par value of the additional 15,000 shares, only 10,000 was
issued which were all subscribed by Don Andres. A month later, Don Andres transferred 1,250
shares each to his two sons, Jose and Andres, Jr., as their initial investments in ANSCOR.
Both sons are foreigners. By 1947, ANSCOR declared stock dividends.

As of that date, the records revealed that he has total shareholdings of 185,154 shares,
50,495 of which are original issues and the balance of 134.659 shares as stock dividend
declarations. Correspondingly, one-half of that shareholdings or 92,577 shares were
transferred to his wife, Doña Carmen Soriano, as her conjugal share. The other half formed
part of his estate.

A day after Don Andres died, ANSCOR increased its capital stock to P20M and in 1966 further
increased it to P30M. In the same year (December 1966), stock dividends worth 46,290 and
46,287 shares were respectively received by the Don Andres estate and Doña Carmen from
ANSCOR. Hence, increasing their accumulated shareholdings to 138,867 and 138,864
common shares each.

ISSUE:

Is ANSCOR's redemption of stocks from its stockholder as well as the exchange of common
with preferred shares can be considered as "essentially equivalent to the distribution of
taxable dividend" making the proceeds thereof taxable?

HELD:

YES. Stock dividends, strictly speaking, represent capital and do not constitute income to its
recipient. So that the mere issuance thereof is not yet subject to income tax as they are
nothing but enrichment through increase in value of capital investment." As capital, the
stock dividends postpone the realization of profits because the "fund represented by the
new stock has been transferred from surplus to capital and no longer available for actual
distribution." In a loose sense, stock dividends issued by the corporation, are considered
unrealized gain, and cannot be subjected to income tax until that gain has been realized.
Before the realization, stock dividends are nothing but a representation of an interest in the
corporate properties. As capital, it is not yet subject to income tax.
However, if a corporation cancels or redeems stock issued as a dividend at such time and in
such manner as to make the distribution and cancellation or redemption, in whole or in part,
essentially equivalent to the distribution of a taxable dividend, the amount so distributed in
redemption or cancellation of the stock shall be considered as taxable income to the extent
it represents a distribution of earnings or profits accumulated after March first, nineteen
hundred and thirteen.
Topic: Corporate Powers – General Powers, Theory of General Capacities

Case No. 167

UMALE vs. ASB REALTY CORP.

G.R. No. 181126, June 15, 2011
FACTS:

In 1996, Amethyst Pearl executed a Deed of Assignment in liquidation of a parcel of land in

favor of ASB Realty in consideration of Amethyst Pearl’s outstanding capital stock from ASB
Realty making ASB the owner of the parcel of land. Sometime in 2003, ASB commenced an
action in the MTC for unlawful detainer against Umale. It alleged that it entered into lease
contract with Umale for the period June 1, 1999 – May 31, 2000. Their agreement was for
Umale to conduct a pay-parking business on the property and pay a monthly rent of P60,
720.00. Upon the contract’s expiration, such still continued occupying the premises and
paying rentals.

On June 2003, ASB served on Umale a Notice of Termination of Lease and Demand to vacate
and pay. ASB stated that it was terminating the lease effective midnight of June 30, 2003.
Umale failed to comply with ASB’s demands and continued in possession of the subject
premises, even constructing commercial establishments thereon.

ISSUE:

Can a corporate officer of ASB Realty, duly authorized by the Board of Directors file a suit to
recover an unlawfully detained corporate property despite the fact that the corporation had
already been under rehabilitation?

HELD:

Yes. What petitioners argue is that the corporate officer of ASB Realty is incapacitated to file
this suit to recover a corporate property because ASB Realty has a duly appointed
rehabilitation receiver. Allegedly, this rehabilitation receiver is the only one that can file the
instant suit. Corporations, such as ASB Realty, are judicial entities that exist by operation of
law. As a creature of law, the powers and attributes of corporation are those set out
expressly or impliedly. Coporate rehabilitation’s concept of preserving the the corporation’s
business as a going concern while it is undergoing rehabilitation is called debtor-in-
possession or debtor-in-place.

Corporate rehabilitation is defined as “the restoration of the debtor to as position of

successful operation and solvency, if it is shown that its continuance of operation is
economically feasible and its creditors can recover by way of the present value of payments
projected in the plan more if the corporation continues as a going concern than if it is
immediately liqudated.”
Topic: Corporate Powers – General Powers

Case No. 186

Mariveles Shipyard Corp vs. Court of Appeals

G.R. No. 144134, Novemeber 11, 2003
FACTS:

Sometime on October 1993, Mariveles Shipyard Corporation engaged the services of Longest
Force Investigation and Security Agency, Inc. to render security services at its premises.
Pursuant to their agreement, Longest Force deployed its security guards, the private
respondents herein, at the petitioner’s shipyard in Mariveles, Bataan. According to
petitioner, it religiously complied with the terms of the security contract with Longest Force,
promptly paying its bills and the contract rates of the latter. However, it found the services
being rendered by the assigned guards unsatisfactory and inadequate, causing it to
terminate its contract with Longest Force on April 1995. Longest Force, in turn, terminated
the employment of the security guards it had deployed at petitioner’s shipyard.

On September 1996, private respondents filed a case for illegal dismissal, underpayment of
wages pursuant to the PNPSOSIA-PADPAO rates, non-payment of overtime pay, premium
pay for holiday and rest day, service incentive leave pay, 13th month pay and attorney’s fees,
against both Longest Force and petitioner, before the Labor Arbiter. The case sought the
guards’ reinstatement with full back wages and without loss of seniority rights. Longest
Force admitted that it employed private respondents and assigned them as security guards
at the premises of petitioner rendering a 12 hours duty per shift for the said period. It likewise
admitted its liability as to the non-payment of the alleged wage differential in the total
amount of P2,618,025 but passed on the liability to petitioner.

The petitioner denied any liability on account of the alleged illegal dismissal, stressing that no
employer-employee relationship existed between it and the security guards. It further
pointed out that it would be the height of injustice to make it liable again for monetary claims
which it had already paid. Anent the cross-claim filed by Longest Force against it, petitioner
prayed that it be dismissed for lack of merit. Petitioner averred that Longest Force had
benefited from the contract; it was now estopped from questioning said agreement on the
ground that it had made a bad deal.

The Labor Arbiter rendered judgment that Longest Force and Mariveles Shipping be jointly
and severally liable to pay the money claims of the complainants. Petitioner appealed the
foregoing to the NLRC. The labor tribunal, affirmed the decision of the Labor Arbiter.
Petitioner moved for reconsideration, but this was denied by the NLRC. The petitioner then
filed a special civil action for certiorari assailing the NLRC judgment for having been rendered
with grave abuse of discretion with the Court of Appeals. The Court of Appeals denied due
course to the petition and dismissed it outright.

ISSUE:
Whether or not the petitioner should be held jointly and severally liable, together with
‘Longest Force’ in the payment of back wages to the private respondents as affirmed by
respondent CA.

HELD:

Yes. When petitioner contracted for security services with Longest Force as the security
agency that hired private respondents to work as guards for the shipyard corporation,
petitioner became an indirect employer of private respondents pursuant to Article 107
abovecited. Following Article 106, when the agency as contractor failed to pay the guards,
the corporation as principal becomes jointly and severally liable for the guards’ wages. This is
mandated by the Labor Code to ensure compliance with its provisions, including payment of
statutory minimum wage.

The security agency is held liable by virtue of its status as direct employer, while the
corporation is deemed the indirect employer of the guards for the purpose of paying their
wages in the event of failure of the agency to pay them. This statutory scheme gives the
workers the ample protection consonant with labor and social justice provisions of the 1987
Constitution. Petitioner cannot evade its liability by claiming that it had religiously paid the
compensation of guards as stipulated under the contract with the security agency. Labor
standards are enacted by the legislature to alleviate the plight of workers whose wages
barely meet the spiraling costs of their basic needs. Labor laws are considered written in
every contract. Stipulations in violation thereof are considered null. Similarly, legislated wage
increases are deemed amendments to the contract. Thus, employers cannot hide behind
their contracts in order to evade their (or their contractors’ or subcontractors’) liability for
noncompliance with the statutory minimum wage.

However, the court emphasizes that the solidary liability of petitioner with that of Longest
Force does not preclude the application of the Civil Code provision on the right of
reimbursement from his co-debtor by the one who paid. As held in Del Rosario & Sons
Logging Enterprises, Inc. v. NLRC , the joint and several liability imposed on petitioner is
without prejudice to a claim for reimbursement by petitioner against the security agency for
such amounts as petitioner may have to pay to complainants, the private respondents
herein. The security agency may not seek exculpation by claiming that the principal’s
payments to it were inadequate for the guards’ lawful compensation. As an employer, the
security agency is charged with knowledge of labor laws; and the adequacy of the
compensation that it demands for contractual services is its principal concern and not any
other’s.
Topic: Corporate Powers – General Powers

Case No. 205

GOKONGWEI vs. SEC, ANDRES SORIANO, et al.

GR L-45911, 11 April 1979
FACTS:

Gokongwei alleged that on September 18, 1976, individual respondents amended by bylaws
of San Miguel Corporation, basing their authority to do so on a resolution of the stockholders
adopted on March 13, 1961, when the outstanding capital stock of respondent corporation
was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share and
150,000 preferred shares at P100.00 per share. At the time of the amendment, the
outstanding and paid up shares totalled 30,127,043, with a total par value of P301,270,430.00.
It was contended that according to section 22 of the Corporation Law and Article VIII of the
by-laws of the corporation, the power to amend, modify, repeal or adopt new by-laws may
be delegated to the Board of Directors only by the affirmative vote of stockholders
representing not less than 2/3 of the subscribed and paid up capital stock of the corporation,
which 2/3 should have been computed on the basis of the capitalization at the time of the
amendment. Since the amendment was based on the 1961 authorization, petitioner
contended that the Board acted without authority and in usurpation of the power of the
stockholders.

It was claimed that prior to the questioned amendment, petitioner had all the qualifications
to be a director of respondent corporation, being a substantial stockholder thereof; that as a
stockholder, petitioner had acquired rights inherent in stock ownership, such as the rights to
vote and to be voted upon in the election of directors; and that in amending the by-laws,
respondents purposely provided for petitioner's disqualification and deprived him of his
vested right as afore-mentioned, hence the amended by-laws are null and void.

ISSUE:

Whether or not SMC’s BoD acted in bad faith in making the amendment which disqualified
Gokongwei from being elected as Director.

HELD:

NO. SMC is merely protecting its interest from Gokongwei, who owns companies in direct
competition with SMC’s business. Although in the strict and technical sense, directors of a
private corporation are not regarded as trustees, there cannot be any doubt that their
character is that of a fiduciary insofar as the corporation and the stockholders as a body are
concerned. As agents entrusted with the management of the corporation for the collective
benefit of the stockholders, they occupy a fiduciary relation, and in this sense the relation is
one of trust. It springs from the fact that directors have the control and guidance of
corporate affairs and property; hence of the property interests of the stockholders. Equity
recognizes that stockholders are the proprietors of the corporate interests and are
ultimately the only beneficiaries thereof
It is obviously to prevent the creation of an opportunity for an officer or director of San
Miguel Corporation, who is also the officer or owner of a competing corporation, from taking
advantage of the information which he acquires as director to promote his individual or
corporate interests to the prejudice of San Miguel Corporation and its stockholders, that the
questioned amendment of the by-laws was made.

Certainly, where two corporations are competitive in a substantial sense, it would seem
improbable, if not impossible, for the director, if he were to discharge effectively his duty, to
satisfy his loyalty to both corporations and place the performance of his corporation duties
above his personal concerns.
Topic: Corporate Power, Ultra Vires

Case No. 224

Republic of the Philippines vs. Security Credit and Acceptance Corporation

G.R. No. L-20583, January 23, 1967

FACTS:

The Articles of Incorporation of defendant corporation were registered with the Securities
and Exchange Commission on March 27, 1961. Thereafter, the Board of Directors of the
corporation adopted a set of by-laws which were filed with said Commission on April 5, 1961

On September 19, 1961, the Superintendent of Banks of the Central Bank of the Philippines
asked its legal counsel an opinion on whether or not said corporation is a banking institution,
within the purview of Republic Act No. 337; that, acting upon this request, on October 11,
1961, said legal counsel rendered an opinion resolving the query in the affirmative

On March 9, 1961, the corporation had applied with the Securities and Exchange Commission
for the registration and licensing of its securities under the Securities Act. However, SCAC’s
registration of its Articles of Incorporation was denied on the ground that it has not complied
with the requirements under the General Banking Act (RA No. 337). Later, a Search Warrant
was issued against SCAC where documents and records relative to its business operation
were seized.

Even when SCAC was duly advised of the findings, SCAC and its BOD and Officers still
continued operations prompting the Solicitor General to file a quo warranto proceedings for
the dissolution of SCAC.

ISSUE:

Whether or not SCAC was illegally engaged in the business of banking.

HELD:

Yes. In dissolving SCAC, the Court held that the corporation was indeed engaged in the
business of banking without first securing the administrative authority required by RA No.
337.

Although, admittedly, SCAC has not secured the requisite authority to engage in banking,
defendants deny that its transactions partake of the nature of banking operations. Note
however that, in consequence of their propaganda campaign, a total of 59,463 savings
account deposits have been made by the public with SCAC and its 74 branches, with an
aggregate deposit of P1,689,136.74, which has been lent out to such persons as SCAC
deemed suitable. It is clear that these transactions partake of the nature of banking, as the
term is used in Section 2 of RA No. 337. Indeed, a bank has been defined as: A moneyed
institute founded to facilitate the borrowing, lending, and safe-keeping of money and to deal
in notes, bills of exchange, and credits; an investment company which loans out the money
of its customers, collects the interests, and charges a commission to both lender and
borrower is a bank; any person engaged in the business carried on by banks of deposit, of
discount, or of circulation is doing a banking business, although but one of these functions is
exercised.

The illegal transactions thus undertaken by SCAC to warrant its dissolution is apparent from
the fact that the foregoing misuser of the corporate funds and franchise affects the essence
of its business, that it is willful and has been repeated 59,643 times, and that its continuance
inflicts injury upon the public, owing to the number of persons affected thereby.
Topic: Board of Directors and Trustees, Elections

Case No. 243

AURBACH, et al. vs. SANITARY WARES MANUFACTURING CORPORATION, et al.

G.R. No. 75875, Dec 15, 1989

FACTS:

In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of
manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young
went abroad to look for foreign partners, European or American who could help in its
expansion plans.

ASI, a foreign corporation domiciled in Delaware, United States entered into an Agreement
with Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to
participate in the ownership of an enterprise which would engage primarily in the business of
manufacturing in the Philippines and selling here and abroad vitreous china and sanitary
wares. The parties agreed that the business operations in the Philippines shall be carried on
by an incorporated enterprise and that the name of the corporation shall initially be "Sanitary
Wares Manufacturing Corporation."

The conflict arose when there had dissentions from ASI for the proposed export expansion
by the other stockholders. When the next annual election of the Board came, further
conflicts arose on the manner of voting, it resulted to the uncertainty as to who were duly
elected. The contending groups of Lagdameo Group and ASI Group claim claimed to be the
legitimate directors of the corporation.

ISSUE:

Whether or not petitioners were the duly elected members of the Board.

HELD:

NO. The Court ruled that Wolfgang Aurbach, John Griffin, David P Whittingham, Ernesto V.
Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo,
and George F. Lee as the duly elected directors of Saniwares at the March 8, 1983 annual
stockholders’ meeting were the duly elected members of the Board. Under their agreement,
both parties were given the right their shares cumulatively. ASI, however, should not be
allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be able to
designate more than the three directors it is allowed to designate under the Agreement, and
may even be able to get a majority of the board seats, a result which is clearly contrary to the
contractual intent of the parties. The foreign Group (ASI) was limited to designate three
directors . This is the allowable participation of the ASI Group. Hence, in future dealings, this
limitation of six to three board seats should always be maintained as long as the joint venture
agreement exists considering that in limiting 3 board seats in the 9-man board of directors
there are provisions already agreed upon and embodied in the parties' Agreement to protect
the interests arising from the minority status of the foreign investors.
Topic: Board of Directors and Trustees, Authority of the Board of Directors

Case No. 262

PREMIUM MARBLE RESOURCES, INC. vs. CA

G.R. No. 96551, Nov 4, 1996

FACTS:

Premium Marble Resources, assisted by Atty. Dumadag as counsel, filed an action for
damages against respondent bank on the ground that the latter allowed the checks issued to
petitioner to be deposited to the account of the former officer of Premium and that
respondent bank refused to restitute the value of the checks to the prejudice of Premium.
Meantime, the same corporation Premium but this time represented by Siguion Reyna,
Montecillo and Ongsiako Law Office as counsel, moved to dismiss on the ground that the
filing of the case was without authority from its duly constituted board of directors. Premium
thru Atty. Dumadag opposed contending that based on the Articles of Incorporation the
persons who signed the board resolution are not majority stockholders. On the other hand,
Siguion Reyna law firm asserted that it is the general information sheet filed with the SEC
that is the best evidence to show who the stockholders of a corporation are. The lower court
and CA both ruled to dismiss the case.

ISSUE:

Whether or not the filing of the case for damages against private respondent was authorized
by a duly constituted Board of Directors of the petitioner corporation.

HELD:

NO. While the Minutes of the Meeting of the Board on April 1, 1982 states that the newly
elected officers for the year 1982 were Oscar Gan, Mario Zavalla, Aderito Yujuico and Rodolfo
Millare, petitioner failed to show proof that this election was reported to the SEC. In fact, the
last entry in their General Information Sheet with the SEC, as of 1986 appears to be the set of
officers elected in March 1981 who were Saturnino G. Belen, Jr., Alberto C. Nograles and Jose
L.R. Reyes. These officers presented a Resolution dated July 30, 1986, to show that Premium
did not authorize the filing in its behalf of any suit against the private respondent
International Corporate Bank.

We agree with the finding of public respondent Court of Appeals, that “in the absence of
/any board resolution from its board of directors the authority to act for and in behalf of the
corporation, the present action must necessarily fail. The power of the corporation to sue
and be sued in any court is lodged with the board of directors that exercises its corporate
powers. The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa,
et al., are the incumbent officers of Premium has not been fully substantiated. In the absence
of an authority from the board of directors, no person, not even the officers of the
corporation, can validly bind the corporation.
By the express mandate of the Corporation Code (Section 26), all corporations duly
organized pursuant thereto are required to submit within the period therein stated (30 days)
to the Securities and Exchange Commission the names, nationalities and residences of the
directors, trustees and officers elected.
Topic: Board of Directors and Trustees, Qualifications and Disqualifications; Authority and
Liabilities

Case No. 281

LOUIS VUITTON S.A. vs. VILLANUEVA

A.M. No. MTJ-92-643, November 27, 1992
FACTS:

In Criminal Case No. XXXVI-62431, entitled "People of the Philippines vs. Jose V. Rosario",
Louis Vuitton, S.A. accused the latter of unfair competition as defined by paragraph 1 of
Article 189, Revised Penal Code.

Complainant also assailed respondent judge's findings that there was no unfair competition
because the elements of the crime were not met, and that he seized articles did not come
close to the appearance of a genuine Louis Vuitton product, the counterfeit items having
been poorly, done.

ISSUE:

Whether or not respondent judge is guilty of knowingly rendering a manifestly unjust

judgment.

HELD:

NO. The ground which was relied upon by the trial court in acquitting the accused finds basis
in the well-settled doctrine that a corporation has a distinct personality from that of its
stockholders/owners. A corporation is vested by law with a personality of its own, separate
and distinct from that of its stockholders and from that of its officers who manage and run
its affairs. This decision is assailed to be unjust mainly because it did not consider the
Prosecution's Memorandum with Motion and Motion for Early Resolution filed by private
prosecutor, herein complainant, on February 8, 1991 and February 11, 1991, respectively.
According to complainant, had respondent judge taken the former motion into account, he
would not have acquitted the accused, Jose V. Rosario. Instead, he would have been held
guilty for giving others an opportunity engage in unfair competition as prescribed by Article
189 of the Revised Penal Code.

In the first place, it would not have made any difference because Jose v. Rosario was charged
as owner/proprietor. COD is not a single proprietorship but one that is run and owned by a
corporation, Rosario Bros., Inc., of which the accused is stockholder and Executive Vice-
President. A stockholder generally does not have a hand in the management of the corporate
affairs. On the other hand, the Vice-President had no inherent power to bind the corporation.

As general rule, his duties must be specified in the by-laws. In the criminal case, the
information did not specify his duties as Executive Vice-President. The trial court had no basis
for holding that as such, the accused entered into a contract with the concessionaire thereby
giving the latter an opportunity to practice unfair competition. Whereas, Section 23 of the
Corporation Code is explicit that the directors, acting as a body, exercise corporation powers
and conduct the corporation's business.
Topic: Board of Directors and Trustees

Case No. 300

COSARE vs. BROADCOM ASIA, INC., ET AL.,

G.R. No. 201298, February 5, 2014

FACTS:

Cosare filed a complaint against the respondents forconstructive dismissal, illegal

suspension, and monetaryclaims with the NLRC.

Cosare's claims:
1. He was first hired by respondent Arevalo(President of respondent Broadcom Asia) as a
salesman, when the latter was still selling broadcast equipment to television networks and
production houses.
2. When Arevalo set up Broadcom in December2000 to continue his business, Cosare was
named an incorporator of Broadcom. He was assigned 100 shares of stock with par value
ofP1.00 per share. Later, in October of 2001 Cosare was promoted to AVP for Sales and Head
of Technical Coordination.
3. In March 23, 2009, Cosare sent a confidential memo to Arevalo to inform him of the
anomalies being committed by Alex Abiog (VP for Sales, Cosare’s immediate supervisor).
4. Arevalo failed to act on the said information.
5. In March 25, 2009, Cosare was called for a meeting by Arevalo where he was asked to
resign in exchange for "financial assistance" ofP300k. When he refused to comply, Arevalo
sent him a memo charging him of serious misconduct and willful breach of trust on March30,
2009. He was given 48 hours from the date of the memo within which to present his
explanation on the charges.
6. On March 31, 2009, Cosare was suspended rom having access to company files and records
and precluded from reporting for work. On April 1, 2009, he was totally barred from entering
the company premises.
7. He tried to furnish the company with a Memo where he addressed and denied the
accusations against him. The respondents refused to receive the memo on the ground of late
filing, hence, Cosare served a copy of the same by registered mail. On April 3, 2009, he filed a
labor complaint against the respondents.

Respondents' claims:
1. Cosare was neither illegally suspended nor dismissed from employment. He abandoned
his job by continually failing to report for work beginning April 1, 2009, prompting them to
issueon April 14 a memo accusing Cosare of absence without leave beginning April 1.
2. Cosare committed the following acts inimical to the interests of Broadcom:
he failed to sell any broad cast equipment since 2007 he attempted to sell a camera sourced
from a competitor he made an unauthorized request in Broadcom's name for its principal,
Panasonic USA, to issue an invitation for Cosare's friend, Alex Paredes, to attend the National
Association of Broadcasters' Conference in Las Vegas.

ISSUE:
Is the case instituted by Cosare an intra-corporate dispute within the original jurisdiction of
the RTC, and not of the Las?

HELD:

It is not an intra-corporate dispute, hence, it is the Labor Arbiter, not the regular courts which
has the original jurisdiction over the subject controversy.
Topic: Three-Fold Duties of Directors and Officers: Diligence, Loyalty and Obedience

Case No. 319

CALTEX INC. vs. NLRC
G.R. No. 159641, October 15, 2007

FACTS:

In a letter dated October 21, 1996, Caltex informed the Department of Labor and
Employment (DOLE) of its plan to implement a redundancy program in its Marketing Division
and some departments in its Batangas Refinery for the period starting October 1996 to
December 1998. The letter alleged that the redundancy program is a response to the market
situation which constrained petitioner to rationalize and simplify its business processes.

Santo Tomas was notified of his termination effective July 31, 1997 due to the redundancy of
his position and awarded him a separation package in the amount of P559,458.90. On June 8,
1998, respondent filed with the Labor Arbiter a complaint for illegal dismissal against
petitioner and its President and Chief Executive Officer, Mr. Clifton Hon. Private respondent
alleged that: being petitioner’s regular employee, he is entitled to security of tenure; he did
not commit any serious misconduct, willful disobedience, gross and habitual neglect of duty
or fraud and willful breach of trust to warrant the penalty of dismissal from employment;
there was no independent proof or evidence presented by petitioner to substantiate its claim
of redundancy nor was he afforded due process as he was not given any opportunity to
present his side; he was dismissed due to his active participation in union activities; petitioner
opened positions for hiring some of which offered jobs that are the same as what private
respondent was performing; petitioner failed to give written notice to him and DOLE at least
one month before the intended date of termination as required by the Labor Code.

ISSUE:

Whether or not Santo Tomas was illegally dismissed.

HELD:

Caltex failed to prove the necessity of the redundancy program. It is the rule that the
characterization of an employee’s services as no longer necessary or sustainable, and
therefore, properly terminable, is an exercise of business judgment on the part of the
employer, and that the wisdom or soundness of such characterization or decision is not
subject to discretionary review. However, such characterization may be rejected if the same
is found to be in violation of law or is arbitrary or malicious.

In the instant case, there was no substantial evidence presented by petitioner to justify
private respondent's dismissal due to redundancy. As correctly found by the CA, petitioner’s
evidence to show redundancy merely consisted of a copy of petitioner’s letter to the DOLE
informing the latter of its intention to implement a redundancy program and nothing more.
The letter which merely stated that petitioner undertook a review, restructuring and
streamlining of its organization which resulted in consolidation, abolition and outsourcing of
certain functions; and which resulted in identified and redundant positions instead of
simplifying its business process restructuring, does not satisfy the requirement of substantial
evidence, that is, the amount of evidence which a reasonable mind might accept as adequate
to justify a conclusion.

Petitioner failed to demonstrate the superfluity of private respondent’s position as

there was nothing in the records that would establish any concrete and real factors
recognized by law and relevant jurisprudence, such as overhiring of workers,
decreased volume of business, or dropping of a particular product line or service
activity previously manufactured or undertaken by the enterprise, which were
adopted by petitioner in implementing the redundancy program.
Topic: Three-Fold Duties of Directors and Officers: Diligence, Loyalty and Obedience

Case No. 338

PEOPLE vs. TAN BOON KONG

G.R. No. 32652, 1930 Mar 15
FACTS:

On and during the four quarters of the year 1924, in Municipality of Iloilo, Province of Iloilo,
the defendant, as manager of the Visayan General Supply Co., Inc., a corporation organized
under the laws of the Philippine Islands and engaged in the purchase and sale of sugar,
`bayon,’ coprax, and other native products and as such subject to the payment of internal-
revenue taxes upon its sales, declared in 1924 for purpose of taxation only the sum of
P2,352,761.94, when in truth and in fact, and the accused knew that the total gross sales of
said corporation during that year amounted to P2,543,303.44, thereby failing to declare
P190,541.50, and voluntarily not paying the percentage taxes the sum of P2,960.12,
corresponding to 1½ per cent of said undeclared sales.

ISSUE:

Is the defendant, as manager of the corporation, criminally liable for violation of the tax law
for the benefit of said corporation?

HELD:

A corporation can act only through its officers and agents, and where the business itself
involves a violation of the law, all who participate in it are liable
In case of State vs. Burnam, the court hold that the manager of a dairy corporation was
criminally liable for the violation of a statute by the corporation though he was not present
when the offense was committed.

In the present case the information alleges that the defendant was the manager of a
corporation which was engaged in business as a merchant, and as such manager, he made a
false return, for purposes of taxation, of the total amount of sales made by said corporation
during the year 1924. As the filing of such false return constitutes a violation of law, the
defendant, as the author of the illegal act, must necessarily answer for its consequences,
provided that the allegations are proven.

The ruling of the court below sustaining the demurrer to the complaint is therefore reversed,
and the case will be returned to said court for further proceedings not inconsistent with our
view as hereinbefore stated.
Topic: Three-Fold Duties of Directors and Officers: Diligence, Loyalty and Obedience – Derivative
Suit: Remedies to Enforce Personal Liability

Case No. 357

LEGASPI TOWERS 300, INC v. AMELIA P. MUER

G.R. No. 170783, June 18, 2012

FACTS:

Pursuant to the by-laws of Legaspi Towers 300, Inc., petitioners, the incumbent Board of
Directors, set the annual meeting of the members of the condominium corporation and the
election of the new Board of Directors at the lobby of Legaspi Towers 300, Inc. The
Committee on Elections of Legaspi Towers 300, Inc., however, found most of the proxy
votes, at its face value, irregular, thus, questionable; and for lack of time to authenticate the
same, petitioners adjourned the meeting for lack of quorum. However, the group of
respondents challenged the adjournment of the meeting. Despite petitioners’ insistence that
no quorum was obtained during the annual meeting held on April 2, 2004, respondents
pushed through with the scheduled election and were elected as the new Board of Directors
and officers of Legaspi Towers 300, Inc. and subsequently submitted a General Information
Sheet to the Securities and Exchange Commission (SEC). On plaintiffs’ motion to admit
amended complaint to include Legaspi Towers 300, Inc. as plaintiff),the RTC ruled denying
the motion for being improper. Then, petitioners filed with the Court of Appeals and held
that Judge Antonio I. De Castro of the Regional Trial Court (RTC) of Manila, did not commit
grave abuse of discretion in issuing the Orders denying petitioners’ Motion to Admit Second
Amended Complaint and that petitioners the justified the inclusion of Legaspi Towers 300,
Inc. as plaintiff by invoking the doctrine of derivative suit. Petitioners’ motion for
reconsideration was denied by the Court of Appeals thereafter. Hence this petition.

ISSUE:

Is Derivative Suit proper in this case?

HELD:

The Supreme Court DENIED the petition and AFFIRMED the Decision of the Court of Appeals.
Derivative Suit is not applicable. Since it is the corporation that is the real party-in-interest in a
derivative suit, then the reliefs prayed for must be for the benefit or interest of the
corporation. When the reliefs prayed for do not pertain to the corporation, then it is an
improper derivative suit. The requisites for a derivative suit are as follows:

a) the party bringing suit should be a shareholder as of the time of the act or transaction
complained of, the number of his shares not being material;
b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of
directors for the appropriate relief but the latter has failed or refused to heed his plea; and
c) the cause of action actually devolves on the corporation, the wrongdoing or harm having
been, or being caused to the corporation and not to the particular stockholder bringing the
suit.
As stated by the Court of Appeals, petitioners’ complaint seek to nullify the said election, and
to protect and enforce their individual right to vote. The cause of action devolves on
petitioners, not the condominium corporation, which did not have the right to vote. Hence,
the complaint for nullification of the election is a direct action by petitioners, who were the
members of the Board of Directors of the corporation before the election, against
respondents, who are the newly-elected Board of Directors. Under the circumstances, the
derivative suit filed by petitioners in behalf of the condominium corporation in the Second
Amended Complaint is improper.
Topic: Three-Fold Duties of Directors and Officers: Diligence, Loyalty and Obedience

Case No. 376

LOZADA VS. MENDOZA
G.R. No. 196134, October 12, 2016

FACTS:

On October 13, 1997, the Magtanggol Mendoza was employed as a technician by VSL Service
Center, a single proprietorship owned and managed by Valentin Lozada. Sometime in August
2003, the VSL Service Center was incorporated and changed its business name to LB&C
Services Corporation. Subsequently, Magtanggol was asked by respondent Lozada to sign a
new employment contract. The petitioner did not accede because the respondent company
did not consider the number of years of service that he had rendered to VSL Service Center.
From then on, the his work schedule was reduced to one to three days a week. In December
2003, He was given his regular working schedule by the company. However, on January 12,
2004, Magtanggol was advised by the respondent company’s Executive Officer, Angeline
Aguilar, not to report for work and just wait for a call from the respondent company
regarding his work schedule. Due to the continued failure of respondent company to give
work schedule to Magtanggol, the latter filed a complaint against the respondent company
on January 21, 2004 for illegal dismissal with a prayer for the payment of his 13th month pay,
service incentive leave pay, holiday pay and separation pay and with a claim for moral and
exemplary damages, and attorney’s fees. The case was docketed as NLRC NCR Case No. 00-
01-00968-2004. On February 23, 2005, the Labor Arbiter declared the dismissal of the
petitioner from employment as illegal. LB&C Services Corporation appealed, but the NLRC
dismissed the appeal for non-perfection thereof due to failure to deposit the required cash or
surety bond. Thus, the Labor Arbiter’s decision attained finality on August 4, 2006, and the
entry of judgment was issued by the NLRC on August 16, 2006. The respondent moved for
the issuance of the writ of execution, which the Labor Arbiter granted on November 21,
2006.

ISSUE:

Whether or not the petitioner may be held liable for the monetary awards granted to the
respondent despite the absence of a pronouncement of his being solidarily liable with LB&C
Services Corporation.

HELD:

No. A corporation, as a juridical entity, may act only through its directors, officers and
employees. Obligations incurred as a result of the acts of the directors and officers as the
corporate agents are not their personal liability but the direct responsibility of the
corporation they represent. As a general rule, corporate officers are not held solidarily liable
with the corporation for separation pay because the 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 of
itself sufficient ground for disregarding the separate corporate personality.
To hold a director or officer personally liable for corporate obligations, two requisites must
concur, to wit: (1) the complaint must allege that the director or officer assented to the
patently unlawful acts of the corporation, or that the director or officer was guilty of gross
negligence or bad faith; and (2) there must be proof that the director or officer acted in bad
faith.

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: 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 records of this case do not warrant the application of the exception. The rule, which
requires malice or bad faith on the part of the directors or officers of the corporation, must
still prevail. The petitioner might have acted in behalf of LB&C Services Corporation but the
corporation’s failure to operate could not be hastily equated to bad faith on his part. Verily,
the closure of a business can be caused by a host of reasons, including mismanagement,
bankruptcy, lack of demand, negligence, or lack of business foresight. Unless the closure is
clearly demonstrated to be deliberate, malicious and in bad faith, the general rule that a
corporation has, by law, a personality separate and distinct from that of its owners should
hold sway. In view of the dearth of evidence indicating that the petitioner had acted
deliberately, maliciously or in bad faith in handling the affairs of LB&C Services Corporation,
and such acts had eventually resulted in the closure of its business, he could not be validly
held to be jointly and solidarily liable with LB&C Services Corporation.