Cagayan Fishing Development Co., Inc., vs.
Sandiko The transfer made by Tabora to the Cagayan fishing Development Co., Inc.,
Facts:
Manuel Tabora is the registered owner of four parcels of land. To guarantee
the payment of two loans, Manuel Tabora, executed in favor of PNB two
mortgages over the four parcels of land between August, 1929, and April
1930. Later, a third mortgage on the same lands was executed also on April,
1930 in favor of Severina Buzon to whom Tabora was indebted.
On May, 1930, Tabora executed a public document entitled "Escritura de
Transpaso de Propiedad Inmueble" (Exhibit A) by virtue of which the four
parcels of land owned by him was sold to the plaintiff company, said to
under process of incorporation. The plaintiff company filed its article
incorporation with the Bureau of Commerce and Industry only on October,
1930 (Exhibit 2).
A year later, the board of directors of said company adopted a resolution
authorizing its president to sell the four parcels of lands in question to
Teodoro Sandiko. Exhibits B, C and D were thereafter made and executed.
Exhibit B is a deed of sale where the plaintiff sold ceded and transferred to
the defendant all its right, titles, and interest in and to the four parcels of
land. Exhibit C is a promissory note drawn by the defendant in favor of the
plaintiff, payable after one year from the date thereof. Exhibit D is a deed of
mortgage executed where the four parcels of land were given a security for
the payment of the promissory note, Exhibit C.
The defendant having failed to pay the sum stated in the promissory note,
plaintiff, brought this action in the Court of First Instance of Manila praying
that judgment be rendered against the defendant for the sum stated in the
promissory note. After trial, the court rendered judgment absolving the
defendant. Plaintiff
denied by the trial presented a motion
court. After for new and
due exception trial,notice,
which plaintiff
motion was
has
appealed to this court and makes an assignment of various errors.
Issue: Whether Exhibit B, the deed of sale executed in favor of Teodoro
Sandiko, was valid.
Held: No, it was not.
plaintiff herein, was affected on May 31, 1930 (Exhibit A) and the actual
incorporation of said company was affected later on October 22, 1930
(Exhibit 2). In other words, the transfer was made almost five months before
the incorporation of the company.
Unquestionably, a duly organized corporation has the power to purchase and
hold such real property as the purposes for which such corporation was
formed may permit and for this purpose may enter into such contracts as
may be necessary. But before a corporation may be said to be lawfully
organized, many things have to be done. Among other things, the law
requires the filing of articles of incorporation.
In the case before us it can not be denied that the plaintiff was not yet
incorporated when it entered into a contract of sale, Exhibit A. Not being in
legal existence then, it did not possess juridical capacity to enter into the
contract.
Boiled down to its naked reality, the contract here (Exhibit A) was entered
into not between Manuel Tabora and a non-existent corporation but between
the Manuel Tabora as owner of the four parcels of lands on the one hand
and the same Manuel Tabora, his wife and others, as mere promoters of a
corporations on the other hand.
For reasons that are self-evident, these promoters could not have acted as
agent for a projected corporation since that which no legal existence could
have no agent. A corporation, until organized, has no life and therefore no
faculties.
This is not saying that under no circumstances may the acts of promoters of
a corporation be ratified by the corporation if and when subsequently
organized.
There are, of course, exceptions, but under the peculiar facts and
circumstances of the present case we decline to extend the doctrine of
ratification which would result in the commission of injustice or fraud to the
candid and unwary.
Hall vs. Piccio
Facts:
Petitioners Arnold Hall, Bradley Hall and Private Respondents Fred Brown,
Emma Brown, Hipolita Chapman and Ceferino Abella signed and
acknowledged the articles of incorporation of the Far Eastern Lumber and
Commercial Co., Inc. organized to engage in a general lumber business to
carry on as general contractors, operators and managers. Attached to the
articles was an affidavit of the treasurer stating that 23, 428 shares of stock
had been subscribed and fully paid with certain properties transferred to the
corporation.
Immediately after the execution of the articles of incorporation, the
corporation proceeded to do business with the adoption of by-laws and the
election of its officers.
Then, the articles of incorporation were filed in SEC for the issuance of the
corresponding certificate of incorporation.
Pending action on the articles of incorporation, Fred Brown, Emma Brown,
Hipolita Chapman and Ceferino Abella filed a civil case against the Halls
alleging among other things that Far Eastern Lumber and Commercial Co,
was an unregistered partnership and that they wished to have it dissolved
because of bitter dissension among the members, mismanagement and
fraud by the managers and heavy financial losses.
The Halls filed a Motion to Dismiss contesting the court‘s jurisdiction and the
sufficiency of the cause of action but Judge Piccio ordered the dissolution of
the company and appointed a receiver.
Issues :
(1) Whether or not the court had jurisdiction to decree the dissolution of the
company because it being a de facto corporation, dissolution may only be
ordered in a quo warranto proceeding in accordance with Section 19.
(2) Inasmuch as the Browns had signed the articles of incorporation,
whether or not they are estopped from claiming that it is not a corporation
but only a partnership.
Held:
(1) YES. The court had jurisdiction but Section 19 does not apply.
First, not having obtained the certificate of incorporation, the Far Eastern
Lumber and Commercial Co. – even its stockholders – may not probably
claim ―in good faith‖ to be a corporation.
The immunity of collateral attack is granted to corporations ―claiming in good
faith to be corporation under this act.‖ Such a claim is compatible with the
existence of errors and irregularities but not with a total or substantial
disregard of the law. Unless there has been an evident attempt to comply
with the law, the claim to be a corporation ―under this act‖ could not be
made ―in good faith.‖
Second, this is not a suit in which the corporation is a party. This is a
litigation between stockholders of the alleged corporation for the purpose of
obtaining its dissolution. Even the existence of a de jure corporation may be
terminated in a private suit for its dissolution between stockholders, without
the intervention of the state.
(2) NO. The Browns are not estopped. Because the SEC has not yet issued
the corresponding certificate of incorporation, all of them know or ought to
know that the personality of a corporation begins to exist only from the
moment such certificate is issued and not before.
The complaining associates have not represented to the others that they
were incorporated any more than the latter had made similar representations
to them.
And as nobody
principle was led
of estoppel to believe
does anyt hing
not apply. This to
is his
not prejudice andrequiring
an instance damage, the
the
enforcement of contracts with the corporation through the rule of estoppel.
 (Jan. 30, 1965)
ALBERT VS UNIVERSITY PUBLISHING CO., INC.
Mariano Albert entered into a contract with University Publishing
Co., Inc. through Jose M. Aruego, its President, whereby University would
pay plaintiff for the exclusive right to publish his revised Commentaries on
the Revised Penal Code. The contract stipulated that failure to pay one
installment would render the rest of the payments due. When University
failed to pay the second installment, Albert sued for collection and won.
However, upon execution, it was found that University was not registered
with the SEC. Albert petitioned for a writ of execution against Jose M. Aruego
as the real defendant. University opposed, on the ground that Aruego was
not a party to the case.
The Supreme Court found that Aruego represented a non-existent
entity and induced not only Albert but the court to believe in such
representation. Aruego, acting as representative of such non-existent
principal, was the real party to the contract sued upon, and thus assumed
such privileges and obligations and became personally liable for the contract
entered into or for other acts performed as such agent.
The Supreme Court likewise held that the doctrine of corporation by
estoppel cannot be set up against Albert since it was Aruego who had
induced him to act upon his (Aruego's) willful representation that University
had been duly organized and was existing under the law.
(29 SCRA 533; 1969)
MUNICIPALITY OF MALABANG V. BENITO
WON a corporation organized under a statute subsequently declared
void acquires status as ‗de facto‘ corporation.
No. A corporation organized under a statute subsequently declared
invalid cannot acquire the status of a ‗de facto‘ corporation unless there is
some other statute under which the supposed corporation may be validly
organized. Hence, in the case at bar, the mere fact that the municipality was
organized before the statute had been invalidated cannot conceivably make
it a ‗de facto‘ corporation since there is no other valid statute to give color of
authority to its creation.
Reynaldo Lozano vs Eliezer De Los Santos
Corporation Law – Jurisdiction of the SEC
Facts:
Reynaldo Lozano was the president of KAMAJDA (Kapatirang Mabalacat-
Angeles Jeepney Drivers‘ Association, Inc.). Antonio Anda was the president
of SAMAJODA (Samahang Angeles-Mabalacat Jeepney Operators‘ and
Drivers‘ Association, Inc.). In 1995, the two agreed to consolidate the two
corporations, thus, UMAJODA (Unified Mabalacat-Angeles Jeepney Operators‘
and Drivers Association, Inc.). In the same year, elections for the officers of
UMAJODA were held. Lozano and Anda both ran for president. Lozano won
but Anda alleged fraud and the elections and thereafter he refused to
participate with UMAJODA. Anda continued to collect fees from members of
SAMAJODA and refused to recognize Lozano as president of UMAJODA.
Lozano then filed a complaint for damages against Anda with the MCTC of
Mabalacat (and Magalang), Pampanga. Anda moved for the dismissal of the
case for lack of jurisdiction. The MCTC judge denied Anda‘s motion. On
certiorari, Judge Eliezer De Los Santos of RTC Angeles City reversed and
ordered the dismissal of the case on the ground that what is involved is an
intra-corporate dispute which should be under the jurisdiction of the
Securities and Exchange Commission (SEC).
ISSUE: Whether or not the RTC Judge is correct.
HELD: No.
The regular courts have jurisdiction over the case. The case between Lozano
and Anda is not an intra-corporate dispute. UMAJODA is not yet
incorporated. It is yet to submit its articles of incorporation to the SEC. It is
not even a dispute between KAMAJDA or SAMAJODA. The controversy
between Lozano
rather from andconflict
a mere Anda from
does their
not arise
plan from intra-corporate
to merge relations but
the two associations.
NOTE: Regular courts can now hear intra-corporate disputes (expanded
jurisdiction).
Manuela Vda. De Salvatierra vs Lorenzo Garlitos
Corporation Law – Separate and Distinct Personality – When Not Applicable
Facts:
In 1954, Manuela Vda. De Salvatierra entered into a lease contract with
Philippine Fibers Producers Co., Inc. (PFPC). PFPC was represented by its
president Segundino Refuerzo. It was agreed that Manuela shall lease her
land to PFPC in exchange of rental payments plus shares from the sales of
crops. However, PFPC failed to comply with its obligations and so in 1955,
Manuela sued PFPC and she won. An order was issued by Judge Lorenzo
Garlitos of CFI Leyte ordering the execution of the judgment against
Refuerzo‘s property (there being no property under PFPC). Refuerzo moved
for reconsideration on the ground that he should not be held personally
liable because he merely signed the lease contract in his official capacity as
president of PFPC. Garlitos granted Refuerzo‘s motion.
Manuela assailed the decision of the judge on the ground that she sued P FPC
without impleading Refuerzo because she initially believed that PFPC was a
legitimate corporation. However, during trial, she found out that PFPC was
not actually registered with the Securities and Exchange Commission (SEC)
hence Refuerzo should be personally liable.
ISSUE:Whether or not Manuela is correct.
HELD: Yes.
It is true that as a general rule, the corporation has a personality separate
and distinct from its incorporators and as such the incorporators cannot be
held personally liable for the obligations of the corporation. However, this
doctrine is not applicable to unincorporated associations. The reason behind
this doctrine is obvious-since an organization which before the law is non-
existent has no personality and would be incompetent to act and appropriate
for itself
cannot the powers
create and
agents or attribute
confer of a on
authority corporation
another toas
actprovided by law;
in its behalf; thus,it
those who act or purport to act as its representatives or agents do so
without authority and at their own risk. In this case, Refuerzo was the
moving spirit behind PFPC. As such, his liability cannot be limited or
restricted that imposed upon [would-be] corporate shareholders. In acting
on behalf of a corporation which he knew to be unregistered, he assumed
the risk of reaping the consequential damages or resultant rights, if any,
arising out of such transaction.
(103 Phil. 757; 1958)
SALVATIERRA VS GARLITOS
Salvatierra leased his land to the corporation. He filed a suit for
accounting, rescission and damages against the corporation and its president
for his share of the produce. Judgment against both was obtained.
President complains for being held personally liable.
He is liable. An agent who acts for a non-existent principal is himself
the principal. In acting on behalf of a corporation which he knew to be
unregistered, he assumed the risk arising from the transaction.
46 Phil. 145; 1924)
ASIA BANKING VS STANDARD PRODUCT(S
The corporation sued another corporation a promissory note. The
defense was that the plaintiff was not able to prove the corporate existence
of both parties.
The defendant is estopped from denying its own corporate
existence. It is also estopped from denying the other‘s corporate existence.
The general rule is that in the absence of fraud, a person who has
contracted or otherwise dealt with an association is such a way as to
recognize and in effect admit its legal existence as a corporate body is
thereby estopped from denying its corporate existence.
LA CAMPANA VS. KAISAHAN(93 Phil. 160; 1953)
The La Campana Gaugau Packing and La Campana Coffee Factory
were operating under one single business although with 2 trade names. It is
a settled doctrine that the fiction of law of having the corporate identity
separate
invoked toandfurther
distinctthe
from
endthesubversive
identity of of
thethe
persons running
purpose it cannot
for which be
it was
created. In the case at bar, the attempt to make the two businesses appear
as one is but a device to defeat the ends of the law governing capital and
labor relations and should not be permitted to prevail.
International Express Travel & Tour Services, Inc. vs Court of
Appeals
Corporation Law – Corporation by Estoppel – When Applied
In 1989, International Express Travel & Tour Services, Inc. (IETTI), offered
to the Philippine Football Federation (PFF) its travel services for the South
East Asian Games. PFF, through Henri Kahn, its president, agreed. IETTI
then delivered the plane tickets to PFF, PFF in turn made a down payment.
However, PFF was not ab le to complete the full payment in s ubsequent
installments despite repeated demands from IETTI. IETTI then sued PFF and
Kahn was impleaded as a co-defendant.
Kahn averred that he should not be impleaded because he merely acted as
an agent of PFF which he averred is a corporation with separate and distinct
personality from him. The trial court ruled against Kahn and held him
personally liable for the said obligation (PFF was declared in default for
failing to file an answer). The trial court ruled that Kahn failed to prove that
PFF is a corporation. The Court of Appeals however reversed the decision of
the trial court. The Court of Appeals took judicial notice of the existence of
PFF as a national sports association; that as such, PFF is empowered to enter
into contracts through its agents; that PFF is therefore liable for the contract
entered into by its agent Kahn. The CA further ruled that IETTI is in
estoppel; that it cannot now deny the corporate existence of PFF because it
had contracted and dealt with PFF in such a manner as to recognize and in
effect admit its existence.
ISSUE:Whether or not the Court of Appeals is correct.
HELD: No. PFF, upon its creation, is not automatically considered a national
sports association. It must first be recognized and accredited by the
Philippine Amateur Athletic Federation and the Department of Youth and
Sports Development. This fact was never substantiated by Kahn. As such,
PFF is considered as an unincorporated sports association. And under the
law, any person acting or purporting to act on behalf of a corporation which
has no valid existence assumes such privileges and becomes personally liable
for contract entered into or for other acts performed as such agent. Kahn is
therefore personally liable for the contract entered into by PFF with IETTI.
There is also no merit on the finding of the CA that IETTI is in estoppel. The
application of the doctrine of corporation by estoppel applies to a third party
only when he tries to escape liability on a contract from which he has
benefited on the irrelevant ground of defective incorporation. In the case at
bar, IETTI is not trying to escape liability from the contract but rather is the
one claiming from the contract.
(94 Phil. 376; 1954)
MARVEL BLDG. CORP. V. DAVID
The fact that:
certificates in possession of Castro were endorsed in blank;
Castro had enormous profits and had motive to hide them;
other subscribers had no incomes of sufficient magnitude; and
directors never met;
shows that other shareholders may be considered dummies of Castro.
Hence, corporate veil may be pierced.
Adelio Cruz vs Quiterio Dalisay
Corporation Law – Piercing the Veil of Corporate Fiction – Exercised by the
Wrong Person
In 1984, the National Labor Relations Commission issued an order against
Qualitrans Limousine Service, Inc. (QLSI) ordering the latter to reinstate the
employees it terminated and to pay them backwages. Quiterio Dalisay,
Deputy Sheriff of the court, to satisfy the backwages, then garnished the
bank account of Adelio Cruz. Dalisay justified his act by averring that Cruz
was the owner and president of QLSI. Further, he claimed that the counsel
for the discharged employees advised him to garnish the account of Cruz.
ISSUE: Whether or not the action of Dalisay is correct.
HELD: No.
What Dalisay did is tantamount to piercing the veil of corporate fiction. He
actually usurped the power of the court. He also overstepped his duty as a
deputy sheriff. His duty is merely ministerial and it is incumbent upon him to
execute the decision of the court according to its tenor and only against the
persons obliged to comply. In this case, the person judicially named to
comply was QLSI and not Cruz. It is a well-settled doctrine both in law and in
equity that as a legal entity, a corporation has a personality distinct and
separate from its individual stockholders or members. The mere fact that one
is president of a corporation does not render the property he owns or
possesses the property of the corporation, since the president, as individual,
and the corporation are separate entities.
Fermin Caram Jr. vs Court of Appeals
Corporation Law – Separate and Distinct Personality
Facts:
A certain Barretto initiated the incorporation of a company called Filipinas
Orient Airways (FOA). Barretto was referred to as the ―moving spirit‖ of said
corporation because it was through his effort that it was created. Before
FOA‘s creation though, Barretto contracted with a third party, Alberto
Arellano, for the latter to prepare a project study for the feasibility of
creating a corporation like FOA. The project study was then presented to the
would-be incorporators and investors. On the basis of said project study,
Fermin Caram, Jr. and Rosa Caram agreed to be incorporators of FOA. Later
however, Arellano filed a collection suit against FOA, Barretto, and the
Carams. Arellano claims that he was not paid for his work on the project
study.
ISSUE: Whether or not the Carams are personally and solidarily liable
considering that the project study was contracted before FOA became a
corporation.
HELD: No. The Carams cannot be solidarily liable with FOA. The FOA is now
a bona fide corporation. As such, FOA alone should be liable for its corporate
acts as duly authorized by its officers and directors. This includes acts which
ultimately led to its incorporation i.e., the project study made by Arellano.
FOA has a separate and distinct personality from its incorporators. It is not
justified to make the Carams, as p rincipal stockholders, to be responsible for
FOA‘s obligations.
CARAM V. CA(151 SCRA 373; 1987)
The case of the unpaid compensation for the preparation of the project study.
The petitioners were not involved in the initial stages of the organization of
the airline. They were merely among the financiers whose interest was to be invited
and who were in fact persuaded, on the strength of the project study, to invest in the
proposed airline.
There was no showing that the Airline was a fictitious corp and did not have
a separate juridical personality to justify making the petitioners, as principal
stockholders thereof, responsible for its obligations. As a bona fide corp, the Airline
should alone be liable for its corporate acts as duly authorized by its officers and
directors. Granting that the petitioners benefited from the services rendered, such is
no justification to hold them personally liable therefor. Otherwise, all the other
stockholders of the corporation, including those who came in late, and regardless of
the amount of their shareholdings, would be equally and personally liable also with
the petitioner for the claims of the private respondent.
Emilio Cano Enterprises, Inc. vs Court of Industrial Relations
Corporation Law – Principle of the Corporate Fiction – Equity Case
Facts:
Honorata Cruz was terminated by Emilio Cano Enterprises, Inc. (ECEI). She
then filed a complaint for unfair labor practice against Emilio Cano, in his
capacity as president and proprietor, and Rodolfo Cano, in his capacity as
manager. Cruz won and the Court of Industrial Relations (CIR) ordered the
Canos to reinstate Cruz plus pay her backwages with interest. The Canos
appealed to the CIR en banc but while on appeal Emilio died. The Canos lost
on appeal and an order of execution was levied against ECEI‘s property.
ECEI filed an ex parte motion to quash the writ as ECEI avers that it is a
corporation with a separate and distinct personality from the Canos. Their
motion was denied and ECEI filed a petition for certiorari with the Supreme
Court.
ISSUE: Whether or not the judgment of the Court of Industrial Relations is
correct.
HELD: Yes.
This is an instance where the corporation and its members can be
considered as one. ECEI is a close family corporation – the incorporators are
members of the Cano family. Further, the Canos were sued in their capacity
as officers of ECEI not in their private capacity. Having been sued officially
their connection with the case must be deemed to be impressed with the
representation of the corporation. The judgment against the Canos has a
direct bearing to ECEI. Verily, the order against them is in effect against the
corporation. Further still, even if this technicality be strictly observed, what
will simply happen is for will
this still
casebetothe
be same
remanded,
party, but the judgment – therechange
can bethe
no name of the
real benefit
and will only subversive to the ends of justice. In this case, to hold ECEI
liable is not to ignore the legal fiction but merely to give meaning to the
principle that such fiction cannot be invoked if its purpose is to use it as a
shield to further an end subversive of justice.

Sulo ng Bayan vs. Araneta
Facts: On 26 April 1966, Sulo ng Bayan, Inc. filed an accion de revindicacion
with the Court of First Instance of Bulacan, Fifth Judicial District, Valenzuela,
Bulacan, against Gregorio Araneta Inc. (GAI), Paradise Farms Inc., National
Waterworks & Sewerage Authority (NAWASA), Hacienda Caretas Inc., and
the Register of Deeds of Bulacan to recover the ownership and possession of
a large tract of land in San Jose del Monte, Bulacan, containing an area of
27,982,250 sq. ms., more or less, registered under the Torrens System in
the name of GAI, et. al.'s predecessors-in-interest (who are members of the
corporation). On 2 September 1966, GAI filed a motion to dismiss the
amended complaint on the grounds that (1) the complaint states no cause of
action; and (2) the cause of action, if any, is barred by prescription and
laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to
dismiss
dismiss. based on the
However, it same
pleadedgrounds.
in its NAWASA
answer as did special
not file and
any affirmative
motion to
defenses lack of cause of action by Sulo ng Bayan Inc. and the barring of
such action by prescription and laches. On 24 January 1967, the trial court
issued an Order dismissing the (amended) complaint. On 14 February 1967,
Sulo ng Bayan filed a motion to reconsider the Order of dismissal, arguing
among others that the complaint states a sufficient cause of action because
the subject matter of the controversy in one of common interest to the
members of the corporation who are so numerous that the present complaint
should be treated as a class suit. The motion was denied by the trial court in
its Order dated 22 February 1967.
Sulo ng Bayan appealed to the Court of Appeals. On 3 September 1969, the
Court of Appeals, upon finding that no question of fact was involved in the
appeal but only questions of law and jurisdiction, certified the case to the
Supreme Court for resolution of the legal issues involved in the controversy.
Issue:
1. Whether the corporation (non-stock) may institute an action in
behalf of its individual members for the recovery of certain parcels of
2. land allegedly
Whether the owned by said
complaint filedmembers, among others.
by the corporation in behalf of its
members may be treated as a class suit
Held:
1. It is a doctrine well-established and obtains both at law and in equity that
a corporation is a distinct legal entity to be considered as separate and apart
from the individual stockholders or members who compose it, and is not
affected by the personal rights, obligations and transactions of its
stockholders or members. The property of the corporation is its property and
not that of the stockholders, as owners, although they have equities in it.
Properties registered in the name of the corporation are owned by it as an
entity separate and distinct from its members. Conversely, a corporation
ordinarily has no interest in the individual property of its stockholders unless
transferred to the corporation, "even in the case of a one-man corporation."
The mere fact that one is president of a corporation does not render the
property which he owns or possesses the property of the corporation, since
the president, as individual, and the corporation are separate similarities.
Similarly, stockholders in a corporation engaged in buying and dealing in real
estate whose certificates of stock entitled the holder thereof to an allotment
in the distribution of the land of the corporation upon surrender of their
stock certificates were considered not to have such legal or equitable title or
interest in the land, as would support a suit for title, especially against
parties other than the corporation. It must be noted, however, that the
juridical personality of the corporation, as separate and distinct from the
persons composing it, is but a legal fiction introduced for the purpose of
convenience and to subserve the ends of justice. This separate personality of
the corporation may be disregarded, or the veil of corporate fiction pierced,
in cases where it is used as a cloak or cover for fraud or illegality, or to work
-an injustice, or where necessary to achieve equity. It has not been claimed
that the members have assigned or transferred whatever rights they may
have on the land in question to the corporation. Absent any showing of
interest, therefore, a corporation, has no personality to bring an action for
and in behalf of its stockholders or members for the purpose of recovering
property which belongs to said stockholders or members in their personal
capacities.
2. In order that a class suit may prosper, the following requisites must be
present: (1) that the subject matter of the controversy is one of common or
general interest to many persons; and (2) that the parties are so numerous
that it is impracticable to bring them all before the court. Here, there is only
one party plaintiff, and the corporation does not even have an interest in the
subject matter of the controversy, and cannot, therefore, represent its
members or stockholders who claim to own in their individual capacities
ownership of the said property. Moreover, a class suit does not lie in actions
for the recovery of property where several persons claim partnership of their
respective portions of the property, as each one could alleged and prove his
respective right in a different way for each portion of the land, so that they
cannot all be held to have identical title through acquisition/prescription.
RUSTAN PULP & PAPER MILLS, INC., ET AL. vs. INTERMEDIATE
APPELLATE COURT, ET AL.
FACTS:
1. Petitioner established a pulp and paper mill with Lluch as one of its
supplier of row materials.
2. In there contract of sale entered in to between petitioner and Lluch, it is
provided that the contract to supply is not exclusive because the petitioner
has the option to buy from other supplier who are qualified to sell and That
the BUYER shall have the right to stop delivery of the said raw materials by
the seller covered by this contract when supply of the same shall become
sufficient until such time when need for said raw materials shall have
become necessarily provided, however, that the SELLER is given sufficient
notice.
2. during the test run of the pulp mill, the machinery line thereat had major
defects while deliveries of the raw materials piled up, which prompted the
Japanese supplier of the machinery to recommend the stoppage of the
deliveries and so the suppliers were informed to stop deliveries.
4. Private respondent try to clarify whether the the respondent is terminating
there contract but Respondent did not answer so Private respondent file a
complaint of contractual breach but was dismiss by the court of srcin.
5. On appeal to IAC, it modified the judgment by ordering the petitioner to
pay private respondent moral damages and attorney‘sfees and hold Tantoko
the representative of the respondent and Vergara president manager of the
petitioner personally liable.
ISSUE: Whether or not, Tantoko and Vergara will be held liable.
Petitioners argue next that Tantoco and Vergara should not have been
adjudged to pay moral damages and attorney's fees because Tantoco merely
represented the interest of Rustan Pulp and Paper Mills, Inc. while Romeo S.
Vergara was not privy to the contract of sale. On this score, We have to
agree with petitioners' citation of authority to the effect that the President
and Manager of a corporation who entered into and signed a contract in his
official capacity, cannot be made liable thereunder in his individual capacity
in the absence of stipulation to that effect due to the personality of the
corporation being separate and distinct from the person composing it
(Bangued Generale Belge vs. Walter Bull and Co., Inc., 84 Phil. 164). And
because of this precept, Vergara's supposed non-participation in the contract
of sale although he signed the letter dated September 30, 1968 is completely
immaterial. The two exceptions contemplated by Article 1897 of the New
Civil Code where agents are directly responsible are absent and wanting.
WHEREFORE, the decision appealed from is hereby MODIFIED in the sense
that only petitioner Rustan Pulp and Paper Mills is ordered to pay moral
damages and attorney's fees as awarded by respondent Court.
SO ORDERED.
CLAPAROLS V. CIR(65 SCRA 613; 1975)
Both predecessor and successor were owned and controlled by
petitioner and there was no break in the succession and continuity of the
same business. All the assets of the dissolved Plant were turned over to the
emerging corporation. The veil of corporate fiction must be pierced as it was
deliberately and maliciously designed to evade its financial obligation to its
employees.
CEASE V. CA(93 SCRA 483; 1979)
The Cease plantation was solely composed of the assets and
properties of the defunct Tiaong plantation whose license to operate already
expired. The legal fiction of separate corporate personality was attempted to
be used to delay and deprive the respondents of their succession rights to
the estate of their deceased father.
While
developed intosrcinally,
a closedthere werecorporation
family other incorporators
(Cease). of
TheTiaong,
head itof has
the
corporation, Cease, used the Tiaong plantation as his instrumentality. It was
his business conduit and an extension of his personality. There is not even a
showing that his children were subscribers or purchasers of the stocks they
own.
PALAY V. CLAVE(124 SCRA 640; 1983)

The case of the reliance on a default provision of the contract granting respondent Clave, the Presidential Executive Assistant affirmed. Hence, this
automatic extra-judicial rescission. petition.

The court found no badges of fraud on the part of the president of
the corporation. The BOD had literally and mistakenly relied on the default
provision of the contract. As president and controlling stockholder of the
corp, no sufficient proof exists on record that he used the corp to defraud
private respondent. He cannot, therefore, be made personally liable because
he appears to be the controlling stockholder. 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.
Palay, Inc. v. Clave
Facts:
That Palay, Inc., through its President, Albert Onstott executed in favor of
private respondent, Nazario Dumpit, a Contract to Sell a parcel of Land
payable with a downpayment and monthly installments until fully paid.
Paragraph 6 of the contract provided for automatic extrajudicial rescission
upon default in payment of any monthly installment after the lapse of 90
days from the expiration of the grace period of one month, without need of
notice and with forfeiture of all installments paid. Private respondent Dumpit
paid the downpayment and several installments. However, Dumpit failed to
continue paying the installments for almost 6 years. Thereafter, Dumpit
wrote petitioner offering to update all his overdue accounts with interest,
and seeking its written consent to the assignment of his rights to a certain
Issues:
(1) Whether or not the doctrine of piercing the veil of corporate fiction
applies.
(2) Whether or not petitioner Onstott is solidarily liable with Palay, Inc. for
the refund.
Held:
(1) No. The SC held that 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. As a general rule, a
corporation may not be made to answer for acts or liabilities of its
stockholders or those of the legal entities to which it may be connected and
vice versa. However, the veil of corporate fiction may be pierced when it is
used as a shield to further an end subversive of justice; or for purposes that
could not have been intended by the law that created it; or to defeat public
convenience, justify wrong, protect fraud, or defend crime; or to perpetuate
fraud or confuse legitimate issues; or to circumvent the law or perpetuate
deception; or as an alter ego, adjunct or business conduit for the sole benefit
of the stockholders.
In this case, there was no finding of fraud on petitioners' part. They had
literally relied, although mistakenly, on paragraph 6 of its contract with
private respondent when it rescinded the contract to sell extrajudicially and
had sold it to a third person.

Lourdes
rescindedDizon. Petitioners
pursuant replied 6that
to paragraph of the
the Contract
contract, to Sellthat
and hadthe
long
lot been
had (2) No. The
petitioner SCthe
used held that no sufficient
corporation proof
to defraud exists
private on recordHe
respondent. that said
cannot,
already been resold. Consequently, Dumpit filed a complaint questioning the therefore, be made personally liable just because he "appears to be the
validity of the rescission with the National Housing Authority (NHA) for controlling stockholder". Mere ownership by a single stockholder or by
reconveyance with an alternative prayer for refund. The NHA found the another corporation is not of itself sufficient ground for disregarding the
rescission void in the absence of either judicial or notarial demand. Thus, it separate corporate personality.
ordered Palay, Inc. and Alberto Onstott in his capacity as President of the
corporation, jointly and severally, to refund immediately to Dumpit the
amount paid with 12% interest from the filing of the complaint. On appeal,
Yutivo Sons Hardware Co. vs. CTA
Facts:
Yutivo, a domestic corporation incorporated in 1916 under Philippine laws,
was engaged in the importation and sale of hardware supplies and
equipment. After the first world war, it resumed its business and bought a
number of cars and trucks from General Motors(GM), an American
Corporation licensed to do business in the Philippines.
On June 13, 1946, the Southern Motors Inc,(SM) was organized to engage in
the business of selling cars, trucks and spare parts. One of the subscribers of
stocks during its incorporation was Yu Khe Thai, Yu Khe Siong and Hu Kho
Jin, who are sons of Yu Tiong Yee, one of Yutivo‘s founders.
After SM‘s incorporation and until the withdrawal of GM from the Philippines,
the cars and trucks purchased by Yutivo from GM were sold by Yutivo to SM
which the latter sold to the public.
Yutivo was appointed importer for Visayas and Mindanao by the US
manufacturer of cars and trucks sold by GM. Yutivo paid the sales tax
prescribed on the basis of selling price to SM. SM paid no sales tax on its
sales to the public.
An assessment was made upon Yutivo for deficiency sales tax. The Collector
of Internal Revenue, contends that the taxable sales were the retail sales by
SM to the public and not the sales at wholesale made by Yutivo to the latter
inasmuch as SM and Yutivo were one and the same corporation, the former
being a subsidiary of the latter.
The assessment was disputed by petitioner. After reinvestigation, a second
assessment was made, sustaining the validity of the first assessment. Yutivo
contested the corporate
disregard the second assessment,
personality alleging
of SM andthat
to there is noit valid
hold that is an ground
adjunct to
of
petitioner.
Issue: Whether or not the corporate personality of SM could be
disregarded.
Held: Yes. A corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be connected.
However, when the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, the law will
regard the corporation as an association of persons, or, in the case of two
corporations, merge them into one. When the corporation is a mere alter ego
or business conduit of a person, it may be disregarded.
SC ruled that CTA was not justified in finding that SM was organized to
defraud the Government. SM was organized in June 1946, from that date
until June 30, 1947, GM was the importer of the cars and trucks sold to
Yutivo, which in turn was sold to SM. GM, as importer was the one solely
liable for sales taxes. Neither Yutivo nor SM was subject to the sales taxes.
Yutivo‘s liability arose only until July 1, 1947 when it became the importer.
Hence, there was no tax to evade.
However, SC agreed with the respondent court that SM was actually owned
and controlled by petitioner. Consideration of various circumstances indicate
that Yutivo treated SM merely as its department or adjunct:
a. The founders of the corporation are closely related to each other by blood
and affinity.
b. The object and purpose of the business is the same; both are engaged in
sale of vehicles, spare parts, hardware supplies and equipment.
c. The accounting system maintained by Yutivo shows that it maintained
high degree of control over SM accounts.
d. Several correspondences have reference to Yutivo as the head office of
SM. SM may even freely use forms or stationery of Yutivo.
e. All cash collections of SM‘s branches are remitted directly to Yutivo.
f. The controlling majority of the Board of Directors of Yutivo is also the
controlling majority of SM.
g. The principal officers of both corporations are identical. Both corporations
have a common comptroller in the person of Simeon Sy, who is a brother-in-
law of Yutivo‘s president, Yu Khe Thai.
h. Yutivo, financed principally the business of SM and actually extended all
the credit to the latter not only in the form of starting capital but also in the
form of credits extended for the cars and vehicles allegedly sold by Yutivo to
SM.
YUTIVO VS. CTA(1 SCRA 160; 1961)
Southern Motors was actually owned and controlled by Yutivo as to make it
a mere subsidiary or branch of the latter created for the purpose of selling vehicles at
retail. Yutivo financed principally, if not wholly, the business of Southern Motors and
actually exceeded the credit of the latter . At all times, Yutivo, through the officers
and directors common to it and the Southern Motors exercised full control over the
cash funds, policies, expenditures and obligations of the latter. Hence, Southern
Motors, being a mere instrumentality or adjunct of Yutivo, the CTA correctly
disregarded the technical defense of separate corporate identity in order to arrive at
the true tax liability of Yutivo.
Concept Builders Inc. vs. NLRC
Facts: Concept Builders, Inc., (CBI) a domestic corporation, with principal
office at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the
construction business while Norberto Marabe; Rodolfo Raquel, Cristobal
Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto
Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea,
Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador
Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres,
Felipe Basilan, and Ruben Robalos were employed by said company as
laborers, carpenters and riggers. On November 1981, Marabe, et. al. were
served individual written notices of termination of employment by CBI,
effective on 30 November 1981. It was stated in the individual notices that
their contracts of employment had expired and the project in which they
were hired had been completed. The National Labor Relations Commission
(NLRC) found it to be, the fact, however, that at the time of the termination
of Marabe, et.al.'s employment, the project in which they were hired had not
yet been finished and completed. CBI had to engage the services of sub-
contractors whose workers performed the functions of Marabe, et. al.
Aggrieved, Marabe, et. al. filed a complaint for illegal dismissal, unfair labor
practice and non-payment of their legal holiday pay, overtime pay and
thirteenth-month pay against CBI. On 19 December 1984, the Labor Arbiter
rendered judgment ordering CBI to reinstate Marabe et. al. and to pay them
back wages equivalent to 1 year or 300 working days. On 27 November
1985, the NLRC dismissed the motion for reconsideration filed by CBI on the
ground that the said decision had already become final and executory.
On 16 October 1986, the NLRC Research and Information Department made
the finding that Marabe, et. al.'s back wages amounted to P199,800.00. On
29 October 1986, the Labor Arbiter issued a writ of execution directing the
sheriff to execute the Decision, dated 19 December 1984. The writ was
partially satisfied through garnishment of sums from CBI's debtor, the
Metropolitan Waterworks and Sewerage Authority, in the amount of
P81,385.34. Said amount was turned over to the cashier of the NLRC. On 1
February 1989, an Alias Writ of Execution was issued by the Labor Arbiter
directing theof
the balance sheriff to collect award,
the judgment from CBI thetosum
and of P117,414.76,
reinstate representing
Marabe, et. al. to their
former positions. On 13 July 1989, the sheriff issued a report stating that he
tried to serve the alias writ of execution on petitioner through the security
guard on duty but the service was refused on the ground that CBI no longer
occupied the premises. On 26 September 1986, upon motion of Marabe, et.
al., the Labor Arbiter issued a second alias writ of execution. The said writ
had not been enforced by the special sheriff because, as stated in his
progress report dated 2 November 1989, that all the employees inside CBI's
premises claimed that they were employees of Hydro Pipes Philippines, Inc.
(HPPI) and not by CBI; that levy was made upon personal properties he
found in the premises; and that security guards with high-powered guns
prevented him from removing the properties he had levied upon. The said
special sheriff recommended that a "break-open order" be issued to enable
him to enter CBI's premises so that he could proceed with the public auction
sale of the aforesaid personal properties on 7 November 1989. On 6
November 1989, a certain Dennis Cuyegkeng filed a third-party claim with
the Labor Arbiter alleging that the properties sought to be levied upon by the
sheriff were owned by HPPI, of which he is the Vice-President. On 23
November 1989, Marabe, et. al. filed a "Motion for Issuance of a Break-Open
Order," alleging that HPPI and CBI were owned by the same
incorporator/stockholders. They also alleged that petitioner temporarily
suspended its business operations in order to evade its legal obligations to
them and that Marabe, et. al. were willing to post an indemnity bond to
answer for any damages which CBI and HPPI may suffer because of the
issuance of the break-open order. On 2 March 1990, the Labor Arbiter issued
an Order which denied Marabe, et. al.'s motion for break-open order.
Marabe, et. al. then appealed to the NLRC. On 23 April 1992, the NLRC set
aside the order of the Labor Arbiter, issued a break-open order and directed
Marabe, et. al. to file a bond. Thereafter, it directed the sheriff to proceed
with the auction sale of the properties already levied upon. It dismissed the
third-party claim for lack of merit. CBI moved for reconsideration but the
motion was denied by the NLRC in a Resolution, dated 3 December 1992.
Hence, the petition.
Issue: Whether the NLRC was correct in issuing the break-open order to levy the
―HPPI properties‖ located at CBI amd/or HPPI‘s premises at 355 Maysan Road,
Valenzuela, Metro Manila.
Held: It is a fundamental principle of corporation law that a corporation is
an entity separate and distinct from its stockholders and from other
corporations to which it may be connected. But, this separate and distinct
personality of a corporation is merely a fiction created by law for
convenience and to promote justice. So, when the notion of separate
juridical personality is used to defeat public convenience, justify wrong,
protect fraud
laws, this or defend
separate crime,oforthe
personality is corporation
used as a device
may betodisregarded
defeat the orlabor
the
veil of corporate fiction pierced. This is true likewise when the corporation is
merely an adjunct, a business conduit or an alter ego of another corporation.
The conditions under which the juridical entity may be disregarded vary
according to the peculiar facts and circumstances of each case. No hard and
fast rule can be accurately laid down, but certainly, there are some probative
factors of identity that will justify the application of the doctrine of piercing
the corporate veil, to wit: (1) Stock ownership by one or common ownership
of both corporations; (2) Identity of directors and officers; (3) The manner of
keeping corporate books and records; and (4) Methods of conducting the
business. The SEC en banc explained the "instrumentality rule" which the
courts have applied in disregarding the separate juridical personality of
corporations as "Where one corporation is so organized and controlled and
its affairs are conducted so that it is, in fact, a mere instrumentality or
adjunct of the other, the fiction of the corporate entity of the
"instrumentality" may be disregarded. The control necessary to invoke the
rule is not majority or even complete stock control but such domination of
instances, policies and practices that the controlled corporation has, so to
speak, no separate mind, will or existence of its own, and is but a conduit for
its principal. It must be kept in mind that the control must be shown to have
been exercised at the time the acts complained of took place. Moreover, the
control and breach of duty must proximately cause the injury or unjust loss
for which the complaint is made." The test in determining the applicability of
the doctrine of piercing the veil of corporate fiction is as (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 rights; and (3) The aforesaid control
and breach of duty must proximately cause the injury or unjust loss
complained of. The absence of any one of these elements prevents "piercing
the corporate veil." In applying the "instrumentality" or "alter ego" doctrine,
the courts are concerned with reality and not form, with how the corporation
operated and the individual defendant's relationship to that operation. Thus
the question of whether a corporation is a mere alter ego, a mere sheet or
paper corporation, a sham or a subterfuge is purely one of fact. Here, while
CBI claimed that it ceased its business operations on 29 April 1986, it filed an
Information Sheet with the Securities and Exchange Commission on 15 May
1987, stating that its office address is at 355 Maysan Road, Valenzuela,
Metro Manila. On the other hand, HPPI, the third-party claimant, submitted
on the same day, a similar information sheet stating that its office address is
at 355 Maysan Road, Valenzuela, Metro Manila. Further, both information
sheets were filed by the same Virgilio O. Casiño as the corporate secretary of
both corporations. Both corporations had the same president, the same
board of directors, the same corporate officers, and substantially the same
subscribers. From the foregoing, it appears that, among other things, the CBI and
the HPPI shared the same address and/or premises. Under these circumstances, it
cannot be said that the property levied upon by the sheriff were not of CBI's. Clearly,
CBI ceased its business operations in order to evade the payment to Marabe, et. al.
of back wages and to bar their reinstatement to their former positions. HPPI is
obviously a business conduit of CBI and its emergence was skillfully orchestrated to
avoid the financial liability that already attached to CBI.
(163 SCRA 205; 1988)
TAN BOON BEE CO. V. JARENCIO
Tan BBC (T) supplies paper to Graphics Publishing Inc (G) but the latter fails
to pay. G's printing machine levied upon to satisfy claim but PADCO, another corpo
intercedes, saying it is the owner of the machine, having leased such to G.
Printing machine was allowed by the Court to satisfy G's liability. Both G and
PADCO's corporate entities pierced because they have: the same board of directors,
PADCO owns 50% of G, PADCO never engaged in the business of printing. Obviously,
the board is using PADCO to shield G from fulfilling liability to T.
Corporation Law – Piercing the Veil of Corporate Fiction – Alter Ego Case
In 1972, Anchor Supply Co. (ASC), through Tan Boon Bee, entered into a
contract of sale with Graphic Publishing Inc. (GPI) whereby ASC shall deliver
paper products to GPI. GPI paid a down payment but defaulted in paying the
rest despite demand from ASC. ASC sued GPI and ASC won. To satisfy the
indebtedness,
that one of the the printing
trial court, presided
machines of by
GPIJudge Hilarion Jarencio,
be auctioned. ordered
But before the
auction can be had, Philippine American Drug Company (PADCO) notified the
sheriff that PADCO is the actual owner of said printing machine.
Notwithstanding, the sheriff still went on with the auction sale where Tan
Boon Bee was the highest bidder.
Later, PADCO filed with the same court a motion to nullify the sale on
execution. The trial court ruled in favor of PADCO and it nullified said auction
sale. Tan Boon Bee assailed the order of the trial court. Tan Boon Bee
averred that PADCO holds 50% of GPI; that the board of directors of PADCO
and GPI is the same; that the veil of corporate fiction should be pierced
based on the premises. PADCO on the other hand asserts ownership over
the said printing machine; that it is merely leasing it to GPI.
ISSUE: Whether or not the veil of corporate fiction should be pierced.
HELD: Yes. PADCO , as its name suggests , is a drug company not engaged
in the printing business. So it is dubious that it really owns the said printing
machine regardless of PADCO‘s title over it. Further, the printing machine, as
shown by evidence, has been in GPI‘s premises even before the date when
PADCO alleged that it acquired ownership thereof. Premises considered, the
veil of corporate fiction should be pierced; PADCO and GPI should be
considered as one. When a corporation is merely an adjunct, business
conduit or alter ego of another corporation the fiction of separate and
distinct corporation entities should be disregarded.
Remo Jr. v. IAC a. Coprada reiterated that he was
Lesson Applicable: Dealings Between Corporation and Stockholders applying for a loan from the DBP
FACTS: from the proceeds of which
1. December, 1977: the BOD of Akron Customs Brokerage Corporation payment of the obligation shall be
(Akron), composed of Jose Remo, Jr., Ernesto Bañares, Feliciano made.
Coprada, Jemina Coprada, and Dario Punzalan with Lucia Lacaste as
Secretary, adopted a resolution authorizing the purchase of 13 c. Meanwhile, 2 of the trucks were sold under a pacto de
trucks for use in its business to be paid out of a loan the corporation retro sale to a Mr. Bais of the Perpetual Loans and Savings
may secure from any lending institution Bank at Baclaran.

2. January 25, 1978: Feliciano Coprada, as President and Chairman of
Akron, purchased the trucks from E.B. Marcha Transport Company,
Inc. (Marcha) for P 525K as evidenced by a deed of absolute sale.
a. parties agreed on a downpayment in the amount of P50K
and that the balance of P 475K shall be paid within 60 days
from the date of the execution of the agreement.
b. They also agreed that until balance is fully paid, the down
payment of P 50K shall accrue as rentals and failure to pay
the balance within 60 days, then the balance shall constitute
as a chattel mortgage lien covering the cargo trucks and the
parties may allow an extension of 30 days and Marcha may
ask for a revocation of the contract and the reconveyance of
all trucks.
i. March 15, 1978: sale was authorized by board
resolution
3. Marsha found that no loan application was ever filed by Akron with
DBP.
4. Akron paid rentals of P 500/day pursuant to a subsequent
agreement, from April 27, 1978 (the end of the 90-days to pay the
balance) to May 31, 1978. Thereafter, no more rental payments
were made.
5. June 17, 1978: Coprada wrote Marsha begging for a grace period of
until the end of the month to pay the balance of the purchase price;
that he will update the rentals within the week; and in case he fails,
then he will return the 13 units should Marsha elect

i. The obligation is further secured by a promissory 6. August 1, 1978: Marsha through counsel, wrote Akron demanding
note executed by Coprada in favor of Akron. It is the return of the 13 trucks and the payment of P 25K back rentals
stated that the balance shall be paid from the from June 1 to August 1, 1978.
proceeds of a loan obtained from the Development

Bank of the Philippines (DBP) within 60 days 7. August

August 8,
31,1978:
1978Coprada
to pay asked for another
the balance, grace
stating periodthat
as well of up
he to
is
ii. After the lapse of 90 days, Marsha tried to collect expecting the approval of his loan application from a financing
from Coprada but the Coprada promised to pay only company, and that 10 trucks have been returned to Bagbag,
upon the release of the DBP loan. Novaliches.

1. Marsha sent Coprada a letter of demand 8. December 9, 1978: Coprada informed Marsha that he had returned
dated May 10, 1978. 10 trucks to Bagbag and that a resolution was passed by the board
of directors confirming the deed of assignment to Marsha of P 475K
 from the proceeds of a loan obtained by Akron from the State
Investment House, Inc.
9. In due time, Marsha filed a compliant for the recovery of P 525K or
the return of the 13 trucks with damages against Akron and its
officers and directors
a. Remo Jr. sold all his shares in Akron to Coprada. It also
appears that Akron amended its articles of incorporation
thereby changing its name to Akron Transport International,
Inc. which assumed the liability of Akron to Marsha.
10. CA affirmed RTC: favor of Marsha
ISSUE: W/N Remo Jr. should be held personally liable together with Akron
Transport International, Inc.
HELD: NO. Petition is granted.
 The environmental facts of this case show that there is no cogent
basis to pierce the corporate veil of Akron and hold petitioner
personally liable
 While it is true that in December, 1977 petitioner was still a member
of the board of directors of Akron and that he participated in the
adoption of a resolution authorizing the purchase of 13 trucks for the
use in the brokerage business of Akron to be paid out of a loan to be
secured from a lending institution, it does not appear that said
resolution was intended to defraud anyone

Coprada, President and Chairman of Akron, who negotiated
o The word "WE' in the said promissory note must refer to the
corporation which Coprada represented in the execution of
the note and not its stockholders or directors. Petitioner did
not sign the said promissory note so he cannot be personally
bound thereby.
 As to the sale through pacto de retro of the two units to a third
person by the corporation by virtue of a board resolution, Remo Jr.
asserts that he never signed the resolution.
o Be that as it may, the sale is not inherently fraudulent as the
13 units were sold through a deed of absolute sale to Akron
so that the corporation is free to dispose of the same. Of
course, it was stipulated that in case of default , a chattel
mortgage lien shall be constituted on the 13 units.
 the new corporation confirmed and assumed the obligation of the
old corporation. There is no indication of an attempt on the part of
Akron to evade payment of its obligation
 it is his inherent right as a stockholder to dispose of his shares of
stock anytime he so desires.
 Fraud must be established by clear and convincing evidence. If at all,
the principal character on whom fault should be attributed is
Feliciano Coprada, the President of Akron. Fortunately, a judgment
against him from the trial court has long been final and executory.
(38 Phil. 634; 1918)
RAMIREZ VS. ORIENTALIST CO AND FERNANDEZ
In this case, the board of directors, before the financial inability of
the corporation to proceed with the project was revealed, had already
recognized the contracts as being in existence and had proceed with the
necessary steps to utilize the films. The subsequent action by the
stockholders in not ratifying the contract must be ignored. The functions of
the stockholders are limited of nature. The theory of a corporation is that the
stockholders
management may have
of the all the profits
enterprise to theirbut shall return over
representatives the complete
and agents, called
directors. Accordingly, there is little for the stockholders to do beyond
electing directors, making by-laws, and exercising certain other special
powers defined by law. In conformity with this idea, it is settled that
contracts between a corporation and a third person must be made by
directors and not stockholders.
 (205 SCRA
INDOPHIL TEXTILE MILL WORKERS UNION V. CALICA
698)
Rule: The doctrine of piercing the veil of corporate entity applies when
corporate fiction is used to defeat public convenience, justify wrong, protect
fraud or defend crime, or when it is made as a shield to confuse the
legitimate issues or where a corporation is the mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.
Case at bar: Union sought to pierce corporate veil alleging that the creation
of Acrylic is a devise to evade the application of the CBA Indophil had with
them (or it sought to include the other union in its bargaining leverage).
SC: Legal corporate entity is disregarded only if it is sought to hold the
officers and stockholders directly liable for a corporate debt or obligation.
Union does not seek to impose such claim against Acrylic. Mere fact that
businesses were related, that some of the employees of Indophil are the
same persons manning and providing for auxiliary services to the other
company, and that physical plants, officers and facilities are situated in the
same compound - not sufficient to apply doctrine.
(20
THE BOARD OF LIQUIDATORS V. HEIRS OF MAXIMO KALAW
SCRA 987; 1967)
Kalaw was a corporate officer entrusted with general management
and control of NACOCO. He had implied authority to make any contract or
do any act which is necessary for the conduct of the business. He may,
without authority from the board, perform acts of ordinary nature for as long
as these redound
contracted to the
forward sales withinterest
businessofentities.
the corporation.
Long beforeParticularly,
some of thesehe
contracts were disputed, he contracted by himself alone, without board
approval. All of the members of the board knew about this practice and
have entrusted fully such decisions with Kalaw. He was never questioned
nor reprimanded nor prevented from this practice. In fact, the board itself,
through its acts and by acquiescence, have laid aside the by-law requirement
of prior board approval. Thus, it cannot now declare that these contracts
(failures) are not binding on NACOCO.
EVANGELISTA vs. SANTOS
Facts: Plaintiff‘s are minority stockholders of the Vitali Lumber Company,
Inc., a Philippine corporation organized for the exploitation of a lumber
concession in Zamboanga, Philippines; that defendant holds more than 50
per cent of the stocks of said corporation and also is and always has been
the president, manager, and treasurer thereof; and that defendant, in such
triple capacity, through fault, neglect, and abandonment allowed its lumber
concession to lapse and its properties and assets to disappear, thus causing
the complete ruin of the corporation and total depreciation of its stocks.
Their complaint therefore prays for judgment requiring defendant: (1) to
render an account of his administration of the corporate affairs and assets:
(2) to pay plaintiffs the value of their respective participation in said assets
on the basis of the value of the stocks held by each of them; and (3) to pay
the costs of suit.
The complaint does not give plaintiffs‘ residence, but, for purposes of venue,
alleges that defendant resides at 2112 Dewey Boulevard, corner Libertad
Street, Pasay, province of Rizal. Having been served with summons at that
place, defendant filed a motion for the dismissal of the complaint on the
ground of improper venue and also on the ground that the complaint did not
state a cause of action in favor of plaintiffs.
In support of the objection to the venue, defendant states that he is a
resident of Iloilo City and not of Pasay, defendant also presented further
affidavit to the effect that while he has a house in Pasay, where members of
his family who are studying in Manila live and where he himself is sojourning
for the purpose of attending to his interests in Manila, yet he has his
permanent residence in the City of Iloilo where he is registered as a voter for
election purposes and has been paying his residence certificate.
Issue: Whether or not defendant is a resident of Iloilo, therefore, there was
no proper venue when he was served with summons in Pasay.
Held: The facts in this case show that the objection to the venue is well-
founded. Where the plaintiff is a nonresident and the contract upon which
suit is brought was made in the Philippine Islands it may safely be asserted
that the convenience of the defendant would be best served by a trial in the
province where he resides. The fact that defendant was sojourning in Pasay
at the time he was served with summons does not make him a resident of
that place for purposes of venue. Residence is ―the permanent home, the
place to which, whenever absent for business or pleasure, one intends to
return.
Alhambra Cigar & Cigarette Manufacturing Company, Inc. vs Ramirez vs Orientalist Co.
Securities and Exchange Commission
Corporation Law – Corporate Lifespan Facts:
On January 15, 1912, Alhambra Cigar & Cigarette Manufacturing
Company, Inc. was incorporated. Its lifespan was for 50 years so on
January 15, 1962, it expired. Thereafter, its Board authorized its
liquidation. Under the prevailing law, Alhambra has 3 years to
liquidate.
In 1963, while Alhambra was liquidating, Republic Act 3531 was
enacted. It amended Section 18 of the Corporation Law; it
empowered domestic private corporations to extend their corporate
life beyond the period fixed by the articles of incorporation for a term
not to exceed fifty years in any one instance. Previous to Republic Act
3531, the maximum non-extendible term of such corporations was
fifty years.
Alhambra now amended its articles of incorporation to extend its
lifespan for another 50 years. The Securities and Exchange
Commission (SEC) denied the amended articles of incorporation.
ISSUE: Whether or not a corporation under liquidation may still
amend its articles of incorporation to extend its lifespan.
HELD: No.
Alhambra cannot avail of the new law because it has already expired
at the time of its passage. When a corporation is liquidating pursuant
to the statutory period of three years toliquidate, it is only allowed
to continue for the purpose of final closure of its business and no
other purposes. In fact, within that period, the corporation is enjoined
from ―continuing the business for which it was established‖. Hence,
Alhambra‘s board cannot validly amend its articles of incorporation to
extend its lifespan.
Orientalist Company was engaged in the business of maintaining and
conducting a theatre in the city of Manila for the exhibition of
cinematographic films. engaged in the business of marketing films for a
manufacturer or manufacturers, there engaged in the production or
distribution of cinematographic material. In this enterprise the plaintiff was
represented in the city of Manila by his son, Jose Ramirez. The directors of
the Orientalist Company became apprised of the fact that the plaintiff in
Paris had control of the agencies for two different marks of films, namely,
the ―Eclair Films‖ and the ―Milano Films;‖ and negotiations were begun with
said officials of the Orientalist Company by Jose Ramirez, as agent of the
plaintiff. The defendant Ramon J. Fernandez, one of the directors of the
Orientalist Company and also its treasure, was chiefly active in this matter.
Ramon J. Fernandez had an informal conference with all the members of the
company‘s board of directors except one, and with approval of those with
whom he had communicated, addressed a letter to Jose Ramirez, in Manila,
accepting the offer contained in the memorandum the exclusive agency of
the Eclair films and Milano films. In due time the films began to arrive in
Manila, it appears that the Orientalist Company was without funds to meet
these obligations. Action was instituted by the plaintiff to Orientalist
Company, and Ramon J. Fernandez for sum of money.
Issue: WON the Orientalist Co. is liable for the acts of its treasurer,
Fernandez?
Held: Yes.
It will be observed that Ramon J. Fernandez was the particular officer and
member of the board of directors who was most active in the effort to secure
the films for the
the knowledge corporation.
and consent of The
othernegotiations
members ofwere conducted
the board; and bythehim with
contract
was made with their prior approval. In the light of all the circumstances of
the case, we are of the opinion that the contracts in question were thus
inferentially approved by the company‘s board of directors and that the
company is bound unless the subsequent failure of the stockholders to
approve said contracts had the effect of abrogating the liability thus created.

BARRETO V. LA PREVISORA FILIPINA
An amendment to the by-laws of a loan and building association which
provides for the payment of life pension to the persons named therein for
past services they have gratuitously rendered to the association cannot be
held to be in consonance with the power granted to corporations to grant
salaries to their board of directors. The authority conferred upon
corporations refers only to providing compensation for the future services of
directors, officers, and employees thereof after the adoption of the by-law or
other provision in relation thereto, and cannot in any sense be held to
authorize the giving of continuous compensation to particular directors after
their employment has terminated for past services rendered gratuitously by
them to the corporation.
STRONG V. REPIDE
The director and controlling stockholder who purchased the shares of
another stockholder through an agent was held to be guilty of concealing the
impending purchase of the friar lands they own by the government, a
significant fact which would affect the price of the shares. Although
ordinarily, the relationship between directors and stockholders of a
corporation is not of a fiduciary character as to oblige the director to disclose
to a stockholder the general knowledge which he may possess regarding the
value of the shares of the company before he purchases any form a
shareholder, there are cases when such duty and obligation upon the
director is present. Being the chief negotiator for the sale of the lands, the
director was the only person who knew of the advantages and the
impending increase in the value of the shares such that he is precluded from
acquiring stocksaffecting
pertinent facts from other
the shareholders withoutbeing
value of the shares first bought.
informing them of the
It is fraudulent for a stockholder to buy from a shareholder without
disclosing his identity.
EVERETT V. ASIA BANKING49
( Phil. 512; 1926)
This case illustrates how VTA can give rise to effective control and
how it can be abused. Original stockholders can set aside the VTA when their
rights are trampled upon by the trustee.
REPUBLIC BANK V. CUADERNO, ET AL
Facts:
This is an appeal from a dismissal of the case against respondent Roman for
alleged fraudulent grant of loans to relatives (while he was chairman of the
Board of Directors of Republic Bank and its Executive Loan Committee) and
for the selection of respondents Cuaderno and Dizon (as technical consultant
and chairman of the board respectively) in order to shield himself from the
alleged wrongdoing and from any prosecution that may be instituted against
him. The complaint also alleges that the present composition of the board of
directors of the bank are constituted by men chosen by respondent Roman
so that it was futile to ask them, in the first place, to institute this action on
behalf of the bank.
Ruling:
In a derivative suit, the corporation is the real party in interest and the
stockholder is merely a nominal party. Normally, it is the corporation
through its board of directors that should bring the suit. But where, as in this
case and it is alleged in the complaint, that the members of the board of
directors of the bank were the nominees and creatures of respondent
Roman, thus, any demand for an intra-corporate remedy would be futile, the
stockholder is permitted to bring a derivative suit.
As to the question of ―should the corporation be made a party‖, the English
practice
practice isis to
tomake
makeit the corporation
a party a party
defendant. plaintiff
However, while
in our in the what
jurisdiction US the
is
important is that the corporation should be made a party in order to make
the court‘s judgment binding upon it, and thus bar future litigation of the
issues. Misjoinder of parties (in a derivative suit) is not a ground to dismiss
the action.
Charles Mead vs E. C. McCullough
Corporation Law – The Corporation and Its Members
Charles Mead, Edwin McCullough and three others organized the corporation
called The Philippine Engineering and Construction Company (PECC). The 4
organizers, except Mead, contributed to the majority of the capital stock of
PECC, the remaining shares were offered to the public. Mead contributed
some personal properties. Mead was assigned as a manager but he resigned
as such when he accepted an engineering job in China. But even so, he
remained as one of the five directors (the organizers).
At that time, PECC was alread y incurring losses. McCullough, the president,
proposed that he shall buy the assets of the corporation. The three other
directors
transferredthen voted in favor
to McCullough. Mead of learned
this proposal
of this hence
and sotheheassets were
opposed it
because the personal properties he contributed were also transferred to
McCullough.
Mead also argued that under the articles of incorporation of PECC, the board
of directors only have ordinary powers; that the authorization made by the
three directors to allow the sale of company assets to McCullough constitutes
an act of agency which is invalid at that because no express commission was
made, i.e., no power of attorney was made in favor of the directors. The
requirement for a commission can be inferred from Article 1713 of the Civil
Code which provides:
An agency stated in general terms only includes acts of administration.
In order to compromise, alienate, mortgage, or execute any other
act of strict ownership an express commission is required. (Emphasis
supplied).
Mead also insists that under their charter, no resolution affecting the
administration of the affairs of PECC should be binding upon the corporation
unless the unanimous consent of the entire board was first obtained
ISSUE:
Whether or not the three directors had the authority to allow the
sale/transfer of the company assets to McCullough.
HELD: Yes.
Several factors have to be considered. First is the fact that Mead abandoned
his post when he took the job offer to work in China. He knew for a fact that
the nature of the job offered is permanent. Second, a close reading of the
articles of incorporation of PECC shows that there is no such intention for
unanimity when it comes to votes affecting matters of administration. The
only requirement is that ―At least three of said board must be present in
order to constitute a legal meeting.‖ Which was complied with when the
other four directors were present when the decision to transfer the company
assets was made.
Third is the fact that PECC was in a downhill situation. A corporation is
essentially a partnership, except in form. ―The directors are the trustees or
managing partners, and the stockholders are thecestui que trust and have a
joint interest in all the property and effects of the corporation.‖ McCullough
as a director himself and the president can be considered an agent but not
the ―agent‖ contemplated in Article 1713 of the Civil Code. Article 1713 deals
with the broad aspect of agency and in ordinary cases but not in the case of
a corporation and its directors. In the case at bar, the more appropriate
analogy is that PECC, being a losing corporation, has its directors as the
trustees. The trustees-directors hold the company assets in trust for the
beneficiaries, which are the creditors. As trustees, they decided that it is
beneficial to sell the company assets to McCullough to at least recover some
cash equivalents in the winding up of the corporate affairs. Besides, there is
no prohibition against the selling of company assets to one of its directors
either from law or from PECC‘s articles of i ncorporation.
Yao Ka Sin Trading vs Court of Appeals
Corporation Law – Liability of Officers – Apparent Authority
In 1973, Constancio Maglana, president of Prime White Cement Corporation, sent an
offer letter to Yao Ka Sin Trading. The offer states that Prime White is willing to sell
45,000 bags of cement at P24.30 per bag. The offer letter was received by Yao Ka
Sin‘s manager, Henry Yao. Yao accepted the letter and pursuant to the letter, he sent
a check in the amount of P243,000.00 equivalent to the value of 10,000 bags of
cement. However, the Board of Directors of Prime White rejected the of fer letter sent
by Maglana but it considered Yao‘s acceptance letter as a new contract offer hence
the Board sent a letter to Yao telling him that Prime White is instead willing to sell
only 10,000 bags to Yao Ka Sin and that he has ten days to reply; that if no reply is
made by Yao then they will consider it as an acceptance and that thereafter Prime
White shall deposit the P243k check in its account and then deliver the cements to
Yao Ka Sin. Henry Yao never replied.
Later, Yao Ka Sin sued Prime White to compel the latter to comply with what Yao Ka
Sin considered as the true contract, i.e., 45,000 bags at P24.30 per bag. Prime White
in its defense averred that although Maglana is empowered to sign contracts in behalf
of Prime White, such contracts are still subject to approval by Prime White‘s Board,
and then it still requires further approval by the National Investment and
Development Corporation (NIDC), a government owned and controlled corporation
because Prime White is a subsidiary of NIDC.
Henry Yao asserts that the letter from Maglana is a binding contract because it was
made under the apparent authority of Maglana. The trial court ruled in favor of Yao
Ka Sin. The Court of Appeals reversed the trial court.
ISSUE:
Whether or not the president of a corporation is clothed with apparent authority to
enter into binding contracts with third persons without the authority of the Board.
HELD: No.
The Board may enter into contracts through the president. The president may only
enter into contracts upon authority of the Board. Hence, any agreement signed by
the president is subject to approval by the Board. Unlike a general manager (like the
case of Francisco vs GSIS), the president has no apparent authority to enter into
binding contracts with third persons. Further, if indeed the by-laws of Prime White did
provide Maglana with apparent authority, this was not proven by Yao Ka Sin.
As a rule, apparent authority may result from (1) the general manner, by w hich the
corporation holds out an officer or agent as having power to act or, in other words,
the apparent authority with which it clothes him to act in general or (2) acquiescence
in his acts of a particular nature, with actual or constructive knowledge thereof,
whether within or without the scope of his ordinary powers. These are not present in
this case.
Also, the subsequent letter by Prime White to Yao Ka Sin is binding because Yao Ka
Sin‘s failure to respond constitutes an acceptanc e, per stated in the letter itself –
which was not contested by Henry Yao during trial.
Francisco vs GSIS (1963)
Facts:
The plaintiff, Trinidad J. Francisco, in consideration of a loan mortgaged in
favor of the defendant, Government Service Insurance System a parcel of
land known as Vic-Mari Compound, located at Baesa, Quezon City. The
System extrajudicially foreclosed the mortgage on the ground that up to that
date the plaintiff-mortgagor was in arrears on her monthly instalments. The
System itself was the buyer of the property in the foreclosure sale. The
plaintiff‘s father, Atty. Vicente J. Francisco, sent a letter to thegeneral
manager of the defendant corporation, Mr. Rodolfo P. Andal. And latter the
System approved the request of Francisco to redeem the land through a
telegram. Defendant received the payment and it did not, however, take
over the administration of the compound. The System then sent a letter to
Francisco informing of his indebtedness and the 1 year period of redemption
has been expired. And the System argued that the telegram sent to
Francisco saying that the System has approved the request in redeeming the
property is incorrect due to clerical problems.
Issue:
WON the System is liable for the acts of its employees regarding the
telegram?
Held: Yes.
There was nothing in the telegram that hinted at any anomaly, or gave
ground to suspect its veracity, and the plaintiff, therefore, can not be blamed
for relying upon it. There is no denying that the telegram was within Andal‘s
apparent authority. Hence, even if it were the board secretary who sent the
telegram, the corporation could not evade the binding effect produced by the
telegram. Knowledge of facts acquired or possessed by an officer or agent of
a corporation in the course of his isemployment,
within the scope of his authority, notice to theand in relationwhether
corporation, to matters
he
communicates such knowledge or not. Yet, notwithstanding this notice, the
defendant System pocketed the amount, and kept silent about the telegram
not being in accordance with the true facts, as it now alleges. This silence,
taken together with the unconditional acceptance of three other subsequent
remittances from plaintiff, constitutes in itself a binding ratification of the
srcinal agreement.
Trinidad Francisco vs Government Service Insurance System
Corporation Law – Corporate Liability
In 1956, Trinidad Francisco obtained a P400k loan from the Government
Service Insurance System (GSIS). She secured the loan with a parcel of land.
In 1959 however, due to some difficulties, Trinidad incurred huge arrears.
This prompted GSIS to foreclose the property. But then, Trinidad‘s father,
Atty. Vicente Francisco, wr ote a letter to GSIS offering that he pay P30k off
the loan and then allow GSIS to administer the mortgaged property instead
of foreclosing it; that thereafter, GSIS shall receive rents from the tenants of
the land until the arrears are paid and the account is made current or up to
date (because the total of the monthly rents is bigger than the monthly loan
payments supposed to be paid by Trinidad to GSIS).
GSIS, through its general manager Rodolfo Andal, responded with a letter
which states that the GSIS Board had accepted Vicente‘s offer. But GSIS for
some reason did not take over the property. Nevertheless, the Franciscos
collected rents and turned them over to GSIS.
Then in 1960, GSIS demanded Francisco to pay off the loan. Vicente then
reminded GSIS that the agreement in 1959 which is actually a compromise is
binding upon GSIS. GSIS then averred that the letter sent to Vicente in
response to his offer was not sent in error because Andal‘s secretary sent the
poorly worded response without Andal‘s knowledge.
ISSUE:
Whether or not a corporation like GSIS is bound by the acts of its officers
acting in their apparent authority.
HELD: Yes.
A third party transacting with a corporation cannot be expected to know
what occurs within a corporation, its meetings, without any external
manifestations
GSIS to Vicentefrom the of
by way corporation.
a telegram, In isthe casethe
within at apparent
bar, the response
authority by
of
Andal. If there are any irregularities in the telegra ph i.e., the sending of the
secretary without the authority of Andal, Vicente is not expected to know it
because the telegram on its face is clear as to the acceptance. Vicente
cannot therefore be faulted for relying on the telegram; that GSIS accepted
his offer. Hence, GSIS cannot now ask Francisco to suddenly pay off the
debt. If a corporation knowingly permits one of its officers, or any other
agent, to do acts within the scope of an apparent authority, and thus holds
him out to the public as possessing power to do those acts, the corporation
will, as against anyone who has in good faith dealt with the corporation
through such agent, be estopped from denying his authority; and where it is
said ―if the corporation permits‖ this means the same as ―if the thing is
permitted by the directing power of the corporation.
GSIS cannot also deny that it has knowledge of the acceptance. A
corporation cannot see, or know, anything except through its officers.
Knowledge of facts acquired or possessed by an officer or agent of a
corporation in the course of his employment, and in relation to matters
within the scope of his authority, is notice to the corporation, whether he
communicates such knowledge or not. Andal is presumed to have knowledge
of the acceptance because it was his office which sent it to Vicente.
Knowledge of Andal, an officer of GSIS, is deemed knowledge of GSIS.
At any rate, even if the compromise agreement is void because of the
―unauthorized‖ telegram, GSIS‘s silence and acceptance of the subsequent
remittances of the Franciscos ratified the compromise agreement.
DETECTIVE AND PROTECTIVE BUREAU VS. CLORIBEL
The Corporation Law says that every director must own at least one
(1) share of the capital stock of the corporation.
CENTRAL COOPERATIVE EXCHANGE, INC. V. TIBE, ET. AL.
This is an action instituted by the corporation against one of its former
directors for advances drawn from the corporation by virtue of resolutions
adopted by the board of directors allowing such directors to claim travel
expenses and other allowances. The corporation claims that the board of
directors has noadopted
the resolutions right tobydetermine
the boardthe remuneration
of directors of directors
are void. and
The fixing of that
the
compensation of board of directors is lodged with the members of the
cooperative as provided for in its by- laws. Even without the reservation in
the by-laws, directors are not entitled to compensation.
Western Institute of Technology Inc. vs. Salas
Facts: Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio
S. Salas, and Richard S. Salas, belonging to the same family, are the
majority and controlling members of the Board of Trustees of Western
Institute of Technology, Inc. (WIT), a stock corporation engaged in the
operation, among others, of an educational institution. According to Homero
L. Villasis, Dimas Enriquez, peston F. Villasis, and Reginald F. Villasis, the
minority stockholders of WIT, sometime on 1 June 1986 in the principal
office of WIT at La Paz, Iloilo City, a Special Board Meeting was held. In
attendance were other members of the Board including Reginald Villasis.
Prior to said Special Board Meeting, copies of notice thereof, dated 24 May
1986, were distributed to all Board Members.The notice allegedly indicated
that the meeting to be held on 1 June 1986 included Item 6 which states
that "Possible implementation of Art. III, Sec. 6 of the Amended By-Laws of
Western Institute
corporation." of Technology,
In said meeting, theInc. on compensation
Board of all officers
of Trustees passed of the
Resolution 48,
series 1986, granting monthly compensation to Salas, et. al. as corporate
officers retroactive 1 June 1985, in the following amounts: ―Chairman
9,000.00/month, Vice Chairman P3,500.00/month, Corporate Treasurer
P3,500.00/month and Corporate Secretary P3,500.00/month, retroactive
June 1, 1985 and the ten percentum of the net profits shall be distributed
equally among the ten members of the Board of Trustees. This shall amend
and supercede any previous resolution.‖
A few years later, or on 13 March 1991, Homero Villasis, Preston Villasis,
Reginald Villasis and Dimas Enriquez filed an affidavit-complaint against
Salas, et. al. before the Office of the City Prosecutor of Iloilo, as a result of
which 2 separate criminal informations, one for falsification of a public
document under Article 171 of the Revised Penal Code and the other for
estafa under Article 315, par. 1(b) of the RPC, were filed before Branch 33 of
the Regional Trial Court of Iloilo City. The charge for falsification of public
document was anchored on Salas, et. al.'s submission of WIT's income
statement for the fiscal year 1985-1986 with the Securities and Exchange
Commission (SEC) reflecting therein the disbursement of corporate funds for
the compensation of Salas, et. al. based on Resolution 4, series of 1986,
making it appear that the same was passed by the board on 30 March 1986,
when in truth, the same was actually passed on 1 June 1986, a date not
covered by the corporation's fiscal year 1985-1986 (beginning May 1, 1995
and ending April 30, 1986). Thereafter, trial for the two criminal cases
(Criminal Cases 37097 and 37098), was consolidated. After a full-blown
hearing, Judge Porfirio Parian handed down a verdict of acquittal on both
counts dated 6 September 1993 without imposing any civil liability against
the accused therein. Villasis, et. al. filed a Motion for Reconsideration of the
civil aspect of the RTC Decision which was, however, denied in an Order
dated 23 November 1993. Villasis, et. al. filed the petition for review on
certiorari. Significantly on 8 December 1994, a Motion for Intervention, dated
2 December 1994, was filed before this Court by Western Institute of
Technology, Inc., disowning its inclusion in the petition and submitting that
Atty. Tranquilino R. Gale, counsel for Villasis, et. al., had no authority
whatsoever to represent the corporation in filing the petition. Intervenor
likewise prayed for the dismissal of the petition for being utterly without
merit. The Motion for Intervention was granted on 16 January 1995.
Issue: Whether the grant of compensation to Salas, et. al. is proscribed
under Section 30 of the Corporation Code.
Held: Directors or trustees, as the case may be, are not entitled to salary or
other compensation when they perform nothing more than the usual and
ordinary duties of their office. This rule is founded upon a presumption that
directors/trustees render service gratuitously, and that the return upon their
shares adequately furnishes the motives for service, without compensation.
Under Section 30 of the Corporation Code, there are only two (2) ways by
which members of the board can be granted compensation apart from
reasonable per diems: (1) when there is a provision in the by-laws fixing
their compensation; and (2) when the stockholders representing a majority
of the outstanding capital stock at a regular or special stockholders' meeting
agree to give it to them. Also, the proscription, however, against granting
compensation to director/trustees of a corporation is not a sweeping rule.
Worthy of note is the clear phraseology of Section 30 which state: "[T]he
directors shall not receive any compensation, as such directors." The phrase
as such directors is not without significance for it delimits the scope of the
prohibition to compensation given to them for services performed purely in
their capacity as directors or trustees. The unambiguous implication is that
members of the board may receive compensation, in addition to reasonable
per diems, when they render services to the corporation in a capacity other
than as directors/trustees. Herein, resolution 48, s. 1986 granted monthly
compensation to Salas, et. al. not in their capacity as members of the board,
but rather as officers of the corporation, more particularly as Chairman, Vice-
Chairman, Treasurer and Secretary of Western Institute of Technology.
Clearly, therefore, the prohibition with respect to granting compensation to
corporate directors/trustees as such under Section 30 is not violated in this
particular case. Consequently, the last sentence of Section 30 which provides
that "In no case shall the total yearly compensation of directors, as such
directors, exceed ten (10%) percent of the net income before income tax of
the corporation during the preceding year" does not likewise find application
in this case since the compensation is being given to Salas, et. al. in their
capacity as officers of WIT and not as board members.
GOV’T v. EL HOGAR(50 Phil 399; 1932)
(This case is an example of how the implied powers concept may be used to justify certain acts
of a corporation.)
A quo warranto proceeding instituted by the Gov't against El Hogar, a
building and loan ass'n to deprive it of its corp. franchise.
1. El Hogar held title to real property for a period in excess of 5 years in
good faith, hence this cause will not prosper.
2. El Hogar owned a lot and bldg. at a business district in Manila allegedly in
excess of its reasonable requirements, held valid bec, it was found to be
necessary and legally acquired and developed.
3. El Hogar leased some office space in its bldg.; it administered and
managed properties belonging to delinquent SHs; and managed properties of
its SHs even if such were not mortgaged to them.
Held: first two valid, but the third is ultra vires bec. the administration of
property in that manner is more befitting of the business of a real estate
agent or trust company and not of a building and loan ass'n.
4. Compensation to the promoter and organizer allegedly excessive and
unconscionable.
Held: Court cannot dwell on the issue since the promoter is not a party
in the proceeding and it is the corp. or its SHs who may bring a
complaint on such.
5. Issuance of special shares did not affect El Hogar's character as a building
and loan ass'n nor make its loans usurious.
6. Corporate policy of using a depreciation rate of 10 % per annum is not
excessive, bec. accdg. to the SC, the by-laws expressly authorizes the BOD
to determine each year the amount to be written down upon the expenses of
installation and the property of the corp.
7. The Corp. Law does not expressly grant the power of maintaining reserve
funds but such power is implied. All business enterprises encounter periods
of gains and losses, and its officers would usually provide for the creation of
a reserve to act as a buffer for such circumstances.
8. That loans issued to member borrowers are being used for purposes other
than the bldg. of homes not invalid bec. there is no statute which expressly
declares that loans may be made by these ass'ns solely for the purpose of
bldg. homes.
9. Sec. 173 of the Corp. Law provides that "any person" may become a SH
on a bldg. and loan ass'n. The word "person" is used on a broad sense
including not only natural persons but also artificial persons.
REYES V. TAN, ET AL
Facts:
This is an action instituted by a stockholder of Roxas-Kalaw Textile Mills, Inc.
praying for the appointment of a receiver of the said corporation.
The case is filed against the corporation‘s board of directors for the
purchases made by the manager in New York supposedly for raw materials
but it turned out that what was bought were finished products from
companies where said manger had interests. Said purchases led to the
central bank‘s stoppage of all dollar allocations in favor of said corporation
which in turn paralyzed the entire operation of the corporation.
It is alleged that said directors failed to act on the fraudulent purchases for a
period of two (2) years, thus, forcing plaintiff to bring this derivative suit.
Ruling:
The importation of textiles instead of raw materials as well as the failure of
the board of directors to take actions against those directly responsible for
the misuse of the dollar allocations constitute fraud or consent thereto on
the part of the directors. Therefore, a breach of trust was committed which
justifies the minority stockholders to institute a derivative suit on behalf of
the corporation.
The appointment of a receiver was not only expedient but also necessary to
restore the faith and confidence of the Central Bank authorities in the
administration of the affairs of the corporation, thus ultimately leading to a
restoration of the dollar allocation so essential to the operation of the textile
mills
notes: The remedies of minority stockholders (by the institution of a
derivative suit) include the appointment of a receiver or constitution of a
management committee
Jacinto implies that thisorlast
removal of aisdirector
remedy (personal note:
not automatically it seems
available as Sir
a
consequence of a derivative suit).
As regards the exhaustion of intra-corporate remedies, it is sufficient to
allege that there was an actual exhaustion or that it is futile to resort to such
remedy.
Montelibano, et.al. vs. Bacolod Murcia Milling Co. Inc.
Facts: Plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano, and
the Limited co-partnership Gonzaga and Company, had been and are sugar
planters adhered to the defendant-appellee's sugar central mill under
identical milling contracts.
The contracts were stipulated to be in force for 30 years and that the
resulting product should be divided in the ratio of 45% for the mill and 55%
for the planters. It was later proposed to execute amended milling contracts,
increasing the planters' share to 60% of the manufactured sugar and
resulting molasses, besides other concessions, but extending the operation
of the milling contract from the srcinal 30 years to 45 years.
The Board of Directors of the appellee Bacolod-Murcia Milling Co., Inc.,
adopted a resolution granting further concessions to the planters over and
above those contained in the printed Amended Milling Contract. Appellants
signed and executed the printed Amended Milling Contract but a copy of the
resolution was not attached to the printed contract.
In 1953, the appellants initiated the present action, contending that three
Negros sugar centrals had already granted increased participation to their
planters, and that under paragraph 9 of the abovementioned resolution, the
appellee had become obligated to grant similar concessions to the plaintiffs
(appellants herein).
However, the appellee Bacolod-Murcia Milling Co., inc., resisted the claim,
and defended by urging that the stipulations contained in the resolution were
made without consideration; that the resolution in question was, therefore,
null and void ab initio, being in effect a donation that was ultra vires and
beyond the powers of the corporate directors to adopt.
After trial, the court below rendered judgment upholding the stand of the
defendant Milling company, and dismissed the complaint. Thereupon,
plaintiffs duly appealed to this Court.
Issue: Whether or not the resolution is valid and binding between the
corporation and planters.
Held:
The Supreme Court held in the affirmative. There can be no doubt that the
directors of the appellee company had authority to modify the proposed
terms of the Amended Milling Contract for the purpose of making its terms
more acceptable to the other contracting parties. The rule is that—
It is a question, therefore, in each case of the logical relation of the act to
the corporate purpose expressed in the charter. If that act is one which is
lawful in itself, and not otherwise prohibited, is done for the purpose of
serving corporate ends, and is reasonably tributary to the promotion of those
ends, in a substantial, and not in a remote and fanciful sense, it may fairly
be considered within charter powers. The test to be applied is whether the
act in question is in direct and immediate furtherance of the corporation's
business, fairly incident to the express powers and reasonably necessary to
their exercise. If so, the corporation has the power to do it; otherwise, not.
As the resolution in question was passed in good faith by the board of
directors, it is valid and binding, and whether or not it will cause losses or
decrease the profits of the central, the court has no authority to review
them.
It is a well-known rule of law that questions of policy or of management are
left solely to the honest decision of officers and directors of a corporation,
and the court is without authority to substitute its judgment of the board of
directors; the board is the business manager of the corporation, and so long
as it acts in good faith its orders are not reviewable by the courts. Hence,
the appellee Bacolod-Murcia Milling Company is, under the terms of its
Resolution,
herein. duty bound to grant similar increases to plaintiffs-appellants
Prime White Cement vs IAC
Facts: On or about 16 July 1969, Alejandro Te and Prime White Cement
Corporation (PWCC) thru its President, Mr. Zosimo Falcon and Justo C.
Trazo, as Chairman of the Board, entered into a dealership agreement
whereby Te was obligated to act as the exclusive dealer and/or distributor of
PWCC of its cement products in the entire Mindanao area for a term of 5
years and providing among others that (a) the corporation shall,
commencing September, 1970, sell to and supply Te, as dealer with 20,000
bags (94 lbs/bag) of white cement per month; (b) Te shall pay PWCC P9.70,
Philippine Currency, per bag of white cement, FOB Davao and Cagayan de
Oro ports; (c) Te shall every time PWCC is ready to deliver the good, open
with any bank or banking institution a confirmed, unconditional, and
irrevocable letter of credit in favor of PWCC and that upon certification by
the boat captain on the bill of lading that the goods have been loaded on
board
releasethe
thevessel bound foramount
corresponding Davao as
thepayment
said bank or banking
of the goods soinstitution
shipped."shall
Right after Te entered into the dealership agreement, he placed an
advertisement in a national, circulating newspaper the fact of his being the
exclusive dealer of PWWC's white cement products in Mindanao area, more
particularly, in the Manila Chronicle dated 16 August 1969 and was even
congratulated by his business associates, so much so, he was asked by some
of his businessmen friends and close associates if they can be his sub-dealer
in the Mindanao area. Relying heavily on the dealership agreement, Te
sometime in the months of September, October, and December, 1969,
entered into a written agreement with several hardware stores dealing in
buying and selling white cement in the Cities of Davao and Cagayan de Oro
which would thus enable him to sell his allocation of 20,000 bags regular
supply of the said commodity, by September, 1970. After Te was assured by
his supposed buyer that his allocation of 20,000 bags of white cement can
be disposed of, he informed the defendant corporation in his letter dated 18
August 1970 that he is making the nece ssary pr eparation for the opening of
the requisite letter of credit to cover the price of the due initial delivery for
the month of September 1970, looking forward to PWCC's duty to comply
with the dealership agreement.
In reply to the aforesaid letter of Te, PWCC thru its corporate secretary,
replied that the board of directors of PWCC decided to impose the following
conditions: (a) Delivery of white cement shall commence at the end of
November, 1970; (b) Only 8,000 bags of white cement per month for only a
period of three (3) months will be delivered; (c) The price of white cement
was priced at P13.30 per bag; (d) The price of white cement is subject to
readjustment unilaterally on the part of the defendant; (e) The place of
delivery of white cement shall be Austurias (sic); (f) The letter of credit may
be opened only with the Prudential Bank, Makati Branch; (g) Payment of
white cement shall be made in advance and which payment shall be used by
the defendant as guaranty in the opening of a foreign letter of credit to
cover costs and expenses in the procurement of materials in the
manufacture of white cement. Several demands to comply with the
dealership agreement were made by Te to PWCC, however, PWCC refused to
comply with the same, and Te by force of circumstances was constrained to
cancel his agreement for the supply of white cement with third parties, which
were concluded in anticipation of, and pursuant to the said dealership
agreement. Notwithstanding that the dealership agreement between Te and
PWCC was in force and subsisting, PWCC, in violation of, and with evident
intention not to be bound by the terms and conditions thereof, entered into
an exclusive dealership agreement with a certain Napoleon Co for the
marketing of white cement in Mindanao. Te filed suit. After trial, the trial
court adjudged PWCC liable to Alejandro Te in the amount of P3,302,400.00
as actual damages, P100,000.00 as moral damages, and P10,000 00 as and
for attorney's fees and costs. The appellate court affirmed the said decision.
Hence, PWCC filed the petition for review on certiorari.
Issue: Whether the "dealership agreement" referred by the President and
Chairman of the Board of PWCC is a valid and enforceable contract.
Held: The ―dealership agreement‖ is not valid and unenforceable. Under the
Corporation Law, which was then in force at the time the case arose, as well
as under the present Corporation Code, all corporate powers shall be
exercised by the Board of Directors, except as otherwise provided by law.
Although it cannot completely abdicate its power and responsibility to act for
the juridical entity, the Board may expressly delegate specific powers to its
President or any of its officers. In the absence of such express delegation, a
contract entered into by its President, on behalf of the corporation, may still
bind the corporation if the board should ratify the same expressly or
impliedly. Implied ratification may take various forms — like silence or
acquiescence; by acts showing approval or adoption of the contract; or by
acceptance and retention of benefits flowing therefrom. Furthermore, even
in the absence of express or implied authority by ratification, the President
as such may, as a general rule, bind the corporation by a contract in the
ordinary course of business, provided the same is reasonable under the
circumstances. These rules are basic, but are all general and thus quite
flexible. They apply where the President or other officer, purportedly acting
for the corporations, is dealing with a third person, i.e., a person outside the
corporation. The situation is quite different where a director or officer is
dealing with his own corporation. Herein, Te was not an ordinary
stockholder; he was a member of the Board of Directors and Auditor of the
corporation as well. He was what is often referred to as a "self-dealing"
director. A director of a corporation holds a position of trust and as such, he
owes a duty of loyalty to his corporation. In case his interests conflict with
those of the corporation, he cannot sacrifice the latter to his own advantage
and benefit. As corporate managers, directors are committed to seek the
maximum amount of profits for the corporation. A director's contract with his
corporation is not in all instances void or voidable. If the contract is fair and
reasonable under the circumstances, it may be ratified by the stockholders
provided a full disclosure of his adverse interest is made.
Granting arguendo that the "dealership agreement" would be valid and
enforceable if entered into with a person other than a director or officer of
the corporation, the fact that the other party to the contract was a Director
and Auditor of PWCC changes the whole situation. First of all, the contract
was neither fair nor reasonable. The "dealership agreement" entered into in
July 1969, was to sell and supply to Te 20,000 bags of white cement per
month, for 5 years starting September 1970, at the fixed price of P9.70 per
bag. Te is a businessman himself and must have known, or at least must be
presumed to know, that at that time, prices of commodities in general, and
white cement in particular, were not stable and were expected to rise. At the
time of the contract, PWCC had not even commenced the manufacture of
white cement, the reason why delivery was not to begin until 14 months
later. He must have known that within that period of 6 years, there would be
a considerable rise in the price of white cement. In fact, Te's own
Memorandum shows that in September 1970, the price per bag was P14.50,
and by the middle of 1975, it was already P37.50 per bag. Despite this, no
provision was made in the "dealership agreement" to allow for an increase in
price mutually acceptable to the parties. Instead, the price was pegged at
P9.70 per bag for the whole 5 years of the contract. Fairness on his part as a
director of the corporation from whom he was to buy the cement, would
require such a provision. In fact, this unfairness in the contract is also a basis
which renders a contract entered into by the President, without authority
from the Board of Directors, void or voidable, although it may have been in
the ordinary course of business. The fixed price of P9.70 per bag for a period
of 5 years was not fair and reasonable. As director, specially since he was
the other party in interest, Te's bounden duty was to act in such manner as
not to unduly prejudice the corporation. In the light of the circumstances of
this case, it is to Us quite clear that he was guilty of disloyalty to the
corporation; he was attempting in effect, to enrich himself at the expense of
the corporation. There is no showing that the stockholders ratified the
"dealership agreement" or that they were fully aware of its provisions. The
contract was therefore not valid and the Court cannot allow him to reap the
fruits of his disloyalty.
Western Institute of Technology Inc. vs. Salas
Facts: Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio
S. Salas, and Richard S. Salas, belonging to the same family, are the
majority and controlling members of the Board of Trustees of Western
Institute of Technology, Inc. (WIT), a stock corporation engaged in the
operation, among others, of an educational institution. According to Homero
L. Villasis, Dimas Enriquez, peston F. Villasis, and Reginald F. Villasis, the
minority stockholders of WIT, sometime on 1 June 1986 in the principal
office of WIT at La Paz, Iloilo City, a Special Board Meeting was held. In
attendance were other members of the Board including Reginald Villasis.
Prior to said Special Board Meeting, copies of notice thereof, dated 24 May
1986, were distributed to all Board Members.The notice allegedly indicated
that the meeting to be held on 1 June 1986 included Item 6 which states
that "Possible implementation of Art. III, Sec. 6 of the Amended By-Laws of
Western Institute
corporation." of Technology,
In said meeting, theInc. on compensation
Board of all officers
of Trustees passed of the
Resolution 48,
series 1986, granting monthly compensation to Salas, et. al. as corporate
officers retroactive 1 June 1985, in the following amounts: ―Chairman
9,000.00/month, Vice Chairman P3,500.00/month, Corporate Treasurer
P3,500.00/month and Corporate Secretary P3,500.00/month, retroactive
June 1, 1985 and the ten percentum of the net profits shall be distributed
equally among the ten members of the Board of Trustees. This shall amend
and supercede any previous resolution.‖
A few years later, or on 13 March 1991, Homero Villasis, Preston Villasis,
Reginald Villasis and Dimas Enriquez filed an affidavit-complaint against
Salas, et. al. before the Office of the City Prosecutor of Iloilo, as a result of
which 2 separate criminal informations, one for falsification of a public
document under Article 171 of the Revised Penal Code and the other for
estafa under Article 315, par. 1(b) of the RPC, were filed before Branch 33 of
the Regional Trial Court of Iloilo City. The charge for falsification of public
document was anchored on Salas, et. al.'s submission of WIT's income
statement for the fiscal year 1985-1986 with the Securities and Exchange
Commission (SEC) reflecting therein the disbursement of corporate funds for
the compensation of Salas, et. al. based on Resolution 4, series of 1986,
making it appear that the same was passed by the board on 30 March 1986,
when in truth, the same was actually passed on 1 June 1986, a date not
covered by the corporation's fiscal year 1985-1986 (beginning May 1, 1995
and ending April 30, 1986). Thereafter, trial for the two criminal cases
(Criminal Cases 37097 and 37098), was consolidated. After a full-blown
hearing, Judge Porfirio Parian handed down a verdict of acquittal on both
counts dated 6 September 1993 without imposing any civil liability against
the accused therein. Villasis, et. al. filed a Motion for Reconsideration of the
civil aspect of the RTC Decision which was, however, denied in an Order
dated 23 November 1993. Villasis, et. al. filed the petition for review on
certiorari. Significantly on 8 December 1994, a Motion for Intervention, dated
2 December 1994, was filed before this Court by Western Institute of
Technology, Inc., disowning its inclusion in the petition and submitting that
Atty. Tranquilino R. Gale, counsel for Villasis, et. al., had no authority
whatsoever to represent the corporation in filing the petition. Intervenor
likewise prayed for the dismissal of the petition for being utterly without
merit. The Motion for Intervention was granted on 16 January 1995.
Issue: Whether the grant of compensation to Salas, et. al. is proscribed
under Section 30 of the Corporation Code.
Held: Directors or trustees, as the case may be, are not entitled to salary or
other compensation when they perform nothing more than the usual and
ordinary duties of their office. This rule is founded upon a presumption that
directors/trustees render service gratuitously, and that the return upon their
shares adequately furnishes the motives for service, without compensation.
Under Section 30 of the Corporation Code, there are only two (2) ways by
which members of the board can be granted compensation apart from
reasonable per diems: (1) when there is a provision in the by-laws fixing
their compensation; and (2) when the stockholders representing a majority
of the outstanding capital stock at a regular or special stockholders' meeting
agree to give it to them. Also, the proscription, however, against granting
compensation to director/trustees of a corporation is not a sweeping rule.
Worthy of note is the clear phraseology of Section 30 which state: "[T]he
directors shall not receive any compensation, as such directors." The phrase
as such directors is not without significance for it delimits the scope of the
prohibition to compensation given to them for services performed purely in
their capacity as directors or trustees. The unambiguous implication is that
members of the board may receive compensation, in addition to reasonable
per diems, when they render services to the corporation in a capacity other
than as directors/trustees. Herein, resolution 48, s. 1986 granted monthly
compensation to Salas, et. al. not in their capacity as members of the board,
but rather as officers of the corporation, more particularly as Chairman, Vice-
Chairman, Treasurer and Secretary of Western Institute of Technology.
Clearly, therefore, the prohibition with respect to granting compensation to
corporate directors/trustees as such under Section 30 is not violated in this
particular case. Consequently, the last sentence of Section 30 which provides
that "In no case shall the total yearly compensation of directors, as such
directors, exceed ten (10%) percent of the net income before income tax of
the corporation during the preceding year" does not likewise find application
in this case since the compensation is being given to Salas, et. al. in their
capacity as officers of WIT and not as board members.
SAN MIGUEL V. KAHN
Facts:
14 corporations initially acquired shares of outstanding capital stock of San
Miguel Corporation and constituted a Voting Trust thereon in favor of
Andres Soriano, Jr. When the latter died Eduardo Cojuanco was elected as
the substitute trustee. However, after the EDSA revolution, Cojuanco fled out
of the country, and subsequently an agreement was entered into between
the 14 corporations and Andres Soriano III (as an agent of several persons)
for the purchase of the shares held by the former.
Actually the buyer of the shares was Neptunia Corporation, a foreign
corporation and wholly-owned subsidiary of another subsidiary wholly owned
by San Miguel Corporation. Neptunia paid the downpayment from the
proceeds of certain loans. PCGG then sequestered the shares subject of the
sale so San Miguel suspended all the other installments of the price to the
sellers. The 14 corporations then sued for recission and damages.
Meanwhile, PCGG directed San Miguel to issue qualifying shares to seven (7)
individuals including Eduardo de los Angeles from the sequestered shares for
them to hold in trust.
Then, the San Miguel board of directors passed a resolution assuming the
loans incurred by Neptunia for the downpayment. De los Angeles assailed
the resolution alleging that it was not passed by the board aside from its
delitorious effects on the corporation‘s interest. When his efforts to obtain
relief within the corporation proved futile, he filed this action with the SEC.
Respondent directors alleged that de los Angeles has no legal standing
having been merely ―imposed‖ by the PCGG and that the twenty (20) shares
owned by him personally cannot fairly and adequately represent the interest
of the minority.
Ruling: The requisites of a derivative suit are:
1. the party bringing the suit should be a stockholder as of the time of the
act or transactions complained of, the number of shares not being material;
2. exhaustion of intra-corporate remedies (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
3. the cause of action actually devolves on the corporation and not to the
particular stockholder bringing the suit.
The bona fide ownership by a stockholder in his own right suffices to invest
him with the standing to bring a derivative suit for the benefit of the
corporation. The number of his shares is immaterial since he is not suing in
his own behalf, or for the protection or vindication of his own particular right,
or the redress of a wrong committed against him individually but in behalf
and for the benefit of the corporation. It is undisputed that apart from the
qualifying shares given to him by the PCGG, he owns 20 shares in his own
right, as regards which he cannot from any aspect be deemed to be
beholden to the PCGG, his ownership of his shares being precisely what he
invokes as the source of his authority to bring the derivative suit.

Furthermore, it was not necessary for de los Angeles to be a director in order

to bring a derivative suit.

De los Angeles‘ complaint is confined to the issue of the validity of the

assumption by the corporation of the indebtedness of Neptunia, allegedly for
the benefit of certain of its officers and stockholders and is distinct from the
ownership of the sequestered shares. The dispute concerns the acts of the
board of directors claimed to amount to fraud and misrepresentation which
may be detrimental to the interest of the stockholders, or is one arising out
of intra-corporate relations between and among stockholders, or between
any or all of them and the corporation of which they are stockholders
(meaning that the cause of action still belongs to t he corporation).
Class notes: In effect the result of the acts of the directors of San Miguel is
the use of corporate assets for the benefit of certain directors/stockholders
to the extent that the corporation will not be able to devote its assets in
acquiring its own shares. But even without the presence of a self-interested
director, still the transaction would result to a premature retirement of the
shares (meaning a reduction of capital).

In a derivative suit, the number of shares of a suing stockholder is

immaterial.

Even assuming that the suing stockholder had only qualifying shares, the law
requires only ―one share‖ without any distinction or qualification. besides, it
is precisely within the scope of PCGG‘s duty to preserve the assets of the
corporation.