Darvin's - Corp

Fraternal Order of UTOPIA
PHILIPPINE CORPORATE LAW DARVINS DIGESTS
Brods,
These digests are not intended as substitutes for the original text of the decisions. These are meant only to guide you
during recitation as well as to expedite your review come the exam weeks. Do not forego reading the originals; only by
reading them will you truly appreciate the design and the symmetry of the body of rules comprising what is now Philippine
Corporate Law. Excellence Brods! Utopia Fight!
CONCEPTS
TAYAG v. BENGUET CONSOLIDATED administrator dispute / lost certificates / concession theory Perkins
died in NY leaving 2 stock certificates issued by Benguet Consolidated w/c the domiciliary administrator in NY
refuses to surrender to the ancillary (local) administrator. The trial court declared the said certificates lost for
purposes of the administration of Perkins estate, and ordered Benguet to issue new certificates. Benguet
refused, stating that the said certificates are still in existence, and invoking its by-laws providing requirements
and procedures for issuance of new certificates. There is nothing arbitrary in declaring the certificates lost;
such fiction is warranted by the situation to preserve judicial dignity. Between a by-law and a court order, the
latter prevails. A corporation is an artificial being created by law; it owes its life only to the state. It is a
person but only by legal fiction, whose powers and liberties are provided only by law. It is not immune from
judicial control.
The SC rejects the genossenchaft theory w/c views a corporation as a social & legal entity independent
of state recognition & concession. Under Phil. law, it has no existence until it receives the imprimatur of
the State. It cannot thus disobey orders of state organs especially the judiciary.
STOCKHOLDERS OF F. GUNAZON v. REGISTER OF DEEDS partition vs. conveyance / juridical person The 5
stockholders of F. Guanzon & Sons Inc. dissolved the corporation and executed a Certificate of Liquidation of
Assets distributing among themselves proportionally the corporate assets w/c include real properties. The
Register of Deeds refused to register their Certificate arguing that what took place was a conveyance and
not a mere distribution or partition of assets. Thus, it must be embodied in a Deed of Conveyance. The
Commissioner of Land registration affirmed the ROD. The 2 officials are correct.
A corporation is a juridical person distinct from its members. The properties registered in the name of the
corporation are owned by it, and not by its shareholders. Shares of stock merely represent an aliquot part of
the corporate property w/a right to share in the proceeds. But the holder is not owner of any definite part thereof
neither is he entitled to possession. There being no co-ownership among the shareholders, it only follows
that there was no partition; and what took place was a transfer or conveyance from the corporation to the
shareholders.
DD: Notice that this emphasizes the fact that the corporation has a personality separate and distinct from its
stockholders. Therefore, stockholders have no ownership over corporate assets.
PIONEER INSURANCE v. CA defective corporation / partners inter se / no intent to incorporate Lim owned
Southern Airlines (sole proprietor). He proposed to expand the business and induced Bormaheco, the Cervantes
Spouses, and Maglana to incorporate w/ him and to contribute funds for the purchase of new aircrafts and spare
parts from Japan Domestic Airlines (JDA). He received some P 150,000.00 from them. The corporation failed to
materialize. Lim, by himself, purchased the aircraft and secured the balance in favor of JDA by procuring a
surety bond from Pioneer and, in behalf of the other supposed-incorporators, executed a counter bond in favor of
Pioneer. He failed to pay; Pioneer paid JDA and now goes after the would-be incorporators. The other
incorporators thereafter filed a counter-claim against Lim for their contributions. Lim argues that a de facto
partnership nonetheless resulted from their dealings and that they should be liable w/ him for the
supposed corporations debts. He prays for reimbursement.
The rights of the stockholders as between themselves to a defective corporation should be governed by
their supposed charter. Nonetheless, it has been ordinarily held that they are to be treated as partners
inter se. However, this rule should be applied only when needed to do justice among the parties. Thus, a
supposed stockholder who does nothing more but subscribe for stock should not assume the liability of a
partner as to be liable for the corporate debts. He in fact never intended for a partnership to exist.
In this case, Lim reneged on their agreement and did not intend to form a corporation despite his representations.
That being the case, no de facto partnership was formed as to entitle Lim to reimbursement. He in fact,
acted on his own in transacting the purchase of the airlines and spare parts.
LIM TONG LIM v. PHIL. FISHING GEARS fish nets / corporation by estoppel / deriving benefits Chua & Yao, in
behalf of Ocean Quest Fishing Corp. purchased fish nets from Phil. Fishing Gears. They were engaged in a
business venture w/ Lim Tong Lim who, as the lower courts found, furnished the fishing boat. They were proven to
have entered into a partnership to engage in a fishing venture. They failed to pay for the fish nets; therefore
Phil. Fishing Gears sued them, in their capacity as general partners alleging that Ocean Quest is a non-
existent corporation as certified by the SEC. The trial court held them jointly liable for the debt. Lim alleges
1 BY BROD DANIEL NICHOLAS C. DARVIN

that, by virtue of the doctrine of corporation by estoppel, only Chua and Yao should be liable as they were the
only ones who dealt w/ Phi. Fishing Gear in the name of Ocean Quest. The court disagrees.
Under the doctrine of corporation by estoppel, the incorporators thereof who knew its lack of authority are liable as
general partners. They are precluded from denying its existence for the purpose of evading liability. The same
rule applies to a person who actually benefited therefrom despite knowing its legal defects. He is deemed
part of the association and is covered by the doctrine of corporation by estoppel. He may therefore be
held liable for contracts he impliedly assented to or took advantage of such as the case of Lim Tong
Lim. The fish nets were, in fact, found inside his boat.
It is clear that Lim, Yao, and Chua intended to incorporate (at least based on the facts), but the corporation did not
materialize for unknown reasons. Under the law on corporations by estoppel, those acting in behalf thereof
(Chua & Yao) and those deriving the benefits therefrom (Lim) knowing the legal defect of its existence, are
held liable as general partners.
NATURE & ATTRIBUTES OF CORPORATIONS
PNB v. CA crop loan / tort / corporation liable Rita Tapnio was indebted to PNB (crop loans) secured by mortgage
thereon and other securities. She leased to Tuazon her export sugar quota for P 2,500.00 at P 2.80 per picul. The
contract of lease was subject to approval of the PNB. The Branch Manager and VP of PNB recommended its
approval but the Board of Directors disapproved the same and insisted that the lease should be for P 3.00 per
picul. It must be noted that in the approval of such a lease, time is of the essence since it must be utilized
during the milling season. Also by insisting on P 3.00 per picul, the value thereof increases by a measly P
200.00 in total. As a result of the delay, Tuazon withdrew from the lease, the sugar quota was not utilized, and
Tapnio incurred losses. Now she sues PNB for tort.
A corporation can be held liable for torts. The rule on torts is the same whether the principal or agent is a
natural or artificial person. A principal is liable for a tort committed by his agent w/c he directs or
authorizes. The same applies to a corporation where its agent or officer commits a tort under the express
direction of the stockholders or members acting as a body, or by the directors acting as the governing
body.
DD: If the tort is committed during the regular course of business, it is as if it was committed under the express
direction of the Corporation. But the corporation is not liable if there is a significant or substantial deviation from
the regular course.
WEST COAST LIFE v. HURD defamatory circulars / criminal process West Coast is a foreign corporation doing
business in the Philippines. An Information was filed against it and its officers (Northcott & Grey as manager &
treasurer) for libel for having printed and disseminated defamatory circulars against Insular Life which alleged
that the latter was in dire financial straits. The trial court issued summons addressed to the corporation, w/c
then sought to enjoin the prosecution from proceeding. Corporations are very much capable of violating many
penal laws, but the courts may only proceed against corporations if the laws so provide the manner by
w/c to do the same. Courts too are creatures of the State and exercise only the powers conferred upon them by
law. They have no common law powers.
Under Spanish criminal law, a corporation (if thered be such an entity) cannot be proceeded against
criminally. Willful purpose and malicious intent are necessary. Criminal actions are restricted to the
officials of such corporation and cannot be directed against the corporation itself. That being the case,
neither do the courts have authority to issue process for the said purpose. The same rule applies to other forms of
associations.
PEOPLE v. TAN BOON KONG under-declaring income to avoid tax / officers responsible should be liable Tan
was manager of Visayan General Supply, a corporation engaged in the sale of native products. He was charged
criminally for having under-declared its income by some P 190,000.00 for purposes of taxation. He alleges that the
offense should be deemed as having been committed by the corporation. This is untenable. A corporation can
only act through its agents and officers. If the business violates the law, all who participated should be the
ones held liable. As the alleged author of the illegal act, Tan should be the one prosecuted.
SIA v. PEOPLE trust receipts / estafa / act must be required by law & expressly punished Sia, as President and
acting in behalf of Metal Manufacturing Co., entered in to a trust receipt agreement w/ Continental Bank. For
failure to turn over the goods or the proceeds of the goods covered thereby, he was prosecuted for estafa. The
Solicitor General advances that Tan Boon Kong should be applied to make Sia liable criminally. The SC
disagrees. Tan Boon Kong does not apply squarely. A corporate officer can be held personally liable for a
crime committed in behalf of a corporation only if the corporation was directly required by law to do the
act in a given manner, and the same law makes the person who failed to act in such manner liable. It must
be noted that the act was committed prior to PD No. 115 which expressly penalizes the responsible officers, when

only the Revised Penal Code was in effect. The trust contemplated under estafa is not the same as trust in the
commercial sense in case of trust receipts.
The obligation in this case does not arise from law but instead from contract. To penalize Sia for breach
thereof would amount to imprisonment for non-payment of debt. All doubts must be resolved in favor of the
accused. Considering that it arises from contract, the civil liability is also attributable only to the
corporation.
Teehankee Concurring:
The acts committed by Sia were all corporate acts. There is no evidence that the corporate acts were
unauthorized, or that he had personally committed fraud or deceit, or that he personally benefited.
CHING v. SECRETARY OF JUSTICE criminal liability / expressly penalized / how the law is worded Ching was
Senior VP of Phil. Blooming Mills. In behalf of PBM he contracted 13 Trust Receipt Agreements w/ RCBC, and
counter-signed as surety. For failure to turn over or account for the proceeds of the goods covered thereby, he
was prosecuted for estafa under PD No. 115 in relation to the RPC. He now seeks to hide behind the corporate
veil to evade prosecution. Although Ching signed the agreement as mere representative of the corporation,
he cannot avoid prosecution. Even though the entrustee is a corporation (PBM), nonetheless, the law
expressly makes the officers personally liable for the offense w/o prejudice to the civil liability of the
corporation and other responsible persons.
Rules regarding prosecution of corporations:
! A corporation cannot be penalized by imprisonment. But it can be charged if the imposable penalty
is (or includes) a fine.
! When the law designates an act of a corporation as a crime, it creates an offense w/c can be
committed by the corporation itself. This has yet to be applied, but doctrinally possible.
! But when the penal law does not expressly apply to a corporation, then the corporation cannot be
prosecuted.
! If the law defines a crime that can be committed by the corporation, but imposes the penalty
specifically to its officers or responsible persons, then only such persons will suffer the penalty.
Stray
CONSOLIDATED BANK v. CA phony trust receipt / separate personality Gregory Lim, in behalf of Continental
Ruling; Cement Corp. purchased bunker fuel from Petrophil through CBTC and executed a Trust Receipt to secure
payment of the same. The evidence however reveals that what took place was a simple loan, and CBTC only
controlling made Continental execute the trust receipt to facilitate its collection (a reprehensible practice). Ownership was
already transferred to Continental when the trust receipt was issued. Continental failed to pay. CBTC seeks to
is 2006 hold Lim and his spouse personally liable for the debt. Lim clearly acted in behalf of the corporation as EVP of
case, the same. Corporate personality is a shield against personal liability of its officers. A corporation
possesses a separate juridical personality.
Ching
ROMAN CATHOLIC v. LAND REGISTRATION COMMISSION corporation sole / administrator Rodis (Filipino)
sold a parcel of land to the Roman Catholic Administrator of Davao Incorporated a corporation sole. Its actual
incumbent was Canadian. It was refused registration by the Land Registration Commission considering that for a
corporation to be qualified to own lands in the Philippines, its membership must be at least 60% Filipino. A
corporation sole is a special form of corporation associated w/ the clergy, incorporated for the purpose of
administering temporalities properties and to hold and transmit the same to the successors to its
office. It is a separate entity from the Vatican, enjoying the privileges granted to such artificial beings
under the laws of the country in w/c it is situated, independent of the Holy See.
That being the case, it has no nationality as to disqualify it from owning agricultural lands in the
Philippines. The said constitutional prohibition was in fact not intended for corporation soles it was not
contemplated by the Constitutional Commission. Also, the corporation sole holds the properties merely in
trust for the Catholic faithful, who can be deemed to be the real (more appropriately theoretical) owners
of such properties. It is a mere administrator of such. The nationality of the constituents, and not that of the
incumbent, should therefore be taken into consideration. The constitutional provision also speaks of
ownership and does not extend to control over the said properties.
PEOPLE v. QUASHA formation vs. operation / primary vs. secondary franchise Atty. Quasha was charged for
and convicted of falsification of public & commercial documents. He facilitated the incorporation of the Pacific
Airways Corp. w/c was to engage in business as a common carrier a utility the operation of w/c under the
Constitution is limited to xxx corporations at least 60% of w/c are owned by Filipinos. The shares were distributed
such that Baylon (Filipino) would own a little more than 60% of the shares, but w/ no voting rights (due to preferred
vs. common shares). All other shares, and consequently the power of control, are vested in American citizens. It
was allegedly for the purpose of circumventing the constitutional provision.

The Constitution does not prohibit the formation (primary franchise) of a public utility w/o the required
proportion of Filipino capital. What it prohibits is operation or the granting of a franchise (secondary) to a
corporation already in existence w/o the required Filipino capital. In fact a corporation originally formed w/
alien capital stock may eventually be allowed to operate such utilities if at the time of its application, it changed its
nationality to Filipino though the transfer of shares of stock.
DD: Primary franchise pertains to existence; secondary franchise pertains to operation.
TATAD v. GARCIA LRT / ownership of facilities / not itself the franchise / ownership vs. operation The DOTC,
w/ authority from the President, negotiated w/ and concluded a Build-Lease-Transfer Agreement w/ EDSA LRT
Consortium (composed of 10 foreign & local corporations) for the construction of the EDSA LRT. Under the
agreement, the consortium shall shoulder all expenses for building the facilities. After building the same, it shall
lease the facilities to the government so that the latter may operate it to serve the public. After 25 years of lease,
the facilities will be turned over to the State for a nominal amount. It was assailed, among others, on the basis of
the Constitutional provision requiring at least 60% Filipino ownership for the operation of public utilities.
Mere ownership of the facilities (railway tracks, coaches, etc.) does not itself comprise the utility. What
constitutes utility is their use or operation to serve the public, not their mere ownership. Ownership and
operation are different. A franchisee is not even required to own the facilities. One can own the facilities w/o
operating them as a public utility. In this case, the Consortium is only owner-lessor of the facilities. It does not
operate the same.
DD: Take note that the arrangement was Build-Lease-Transfer, not Build-Operate-Transfer. The latter would have
been violative of the Constitution if applied to this case, but the former is perfectly valid.
PALTING v. SAN JOSE PETROLEUM oil companies / patently unlawful provisions on directors Palting, an
investor, filed an opposition before the SEC contesting the licensing and sale in the Philippines of 5 million shares
of San Jose Petroleum (a Panama Corporation). The proceeds of the sales were allegedly to be used to finance
San Jose Oil, a domestic mining corporation. Palting opposed the registration on constitutional grounds
warranting an inspection of the tie-up between San Jose Petroleum and San Jose Oil. It must be noted that
exploitation of minerals and other natural resources is limited to Filipino citizens and corporations at least 60% of
w/c is Filipino owned. It must also be noted that this case was decided when the Laurel-Langley Agreement was
in force granting equal right to Americans to exploit our natural resources.
San Jose Petroleum contends that it complies w/ the citizenship requirement, tracing its ownership and control as
follows. San Jose Oil is 90% owned by San Jose Petroleum (Panama), w/c in turn is owned (majority) by Oil
Investments (Panama) w/c is then 100% owned by Pantepec & Pancoastal Corporations (both Venezuela), w/c
then have thousands of capital stock owned by people residing in the US.
For reasons already stated, it is unreasonable to trace the ownership and control of a corporation ad
infinitum to satisfy the ownership-control requirements. This is an unreasonable proposition that would
defeat the purpose of the citizenship requirement. Also, there are provisions in the Articles of San Jose
Petroleum w/c are patently contrary to law such as the fact that directors need not be shareholders and may be
represented in the meeting by proxy, that they are absolutely immune from any liability arising from contracts they
entered into in behalf of the corporation, even ones for their own benefit. Oil Investments as holder of all shares of
San Jose Petroleum executed a voting trust agreement in favor of Buckley and Taylor w/ full authority to act in
behalf of all future stockholders. All these taken together, there is no doubt that to allow the local sale of San
Joses shares would tend to work fraud upon the Philippine investors.
PIERCING THE CORPORATE VEIL

DBP v. NLRC smelter workers / majority stockholder / no employer-employee relation Phil. Smelters loaned
from DBP in order to finance its iron smelting business. By virtue of the loan, DBP became the majority
stockholder of Smelters and took over the management. For failure to pay, DBP then foreclosed on its mortgaged
realty and chattels. Various employees of Smelters then field a case for Involuntary Insolvency (of Smelters) and
impleaded the DBP (oddly in its capacity as foreclosing creditor) before the Labor Arbiter, claiming unpaid wages,
incentives, separation pay, etc. The mere fact that the DBP was majority owner of Smelters, or that majority
of Smelters directors are from DBP is insufficient to create an employer-employee relation between DBP
and Smelters workers. That being the case, the Labor Arbiter has no jurisdiction. DBP however, was
estopped since it submitted to its jurisdiction.
DD: There are simply not enough grounds to pierce the corporate veil in this case; thus the separate juridical
personality must be upheld.
UNITED STATES v. MILWAUKEE REF. -

FRANCISCO MOTORS v. CA doctrine turned upside-down / jeep services vs. legal fees The Spouses Manuel
purchased a jeep body and availed of repair services from Francisco Motors (FM). They refused to pay. FM filed a
collection suit. Atty. Manuel (husband) interposed a counter-claim, alleging that the Francisco Family
(incorporators of FM) availed of his legal services in an intestate proceeding, and have yet to pay him. Hence,
there should be a set-off. Piercing has no application in this case. The rationale of the rule is to remove a
barrier between the corporation and its incorporators to thwart their fraudulent schemes and use the
corporate personality as a shield. But in this case, the reverse is sought. The separate juridical
personality must be respected. The Francisco Family availed of Manuels legal services in their personal
capacity and does not involve any business of the corporation. A court should be cautious in applying the
piercing doctrine. The corporation, in this case, was not a real-party-in-interest w/ regard to Atty. Manuels cause
of action.
TRADERS ROYAL BANK v. CA mere 90% ownership / no fraud Filriters was the registered owner of CB
Certificates of Indebtedness (CBCI). Banaria, VP of Treasury of Filriters assigned the CBCI, w/o Board
authorization, (fictitiously) to Philfinance, w/c then assigned it to Traders. The CB refused to register the same as
the transfer was not made in compliance w/ the CB Rules & Regulations the assignment was not made by the
registered owner or his representative. Traders now claims that the veil of corporate fiction must be pierced as
Philfinance owns 90% of Filriters, and payment to Philfinance is tantamount to payment to Filriters.
Piercing the veil is an equitable remedy available only in case the corporate fiction is used to protect
fraud, justify wrong, defend crime, or if a corporation is a mere alter ego of another person. Its primary
rd
intent is the protection of 3 persons. The mere fact that Philfinance owns 90% of Filriters is not itself
sufficient to warrant piercing in the absence of the above circumstances. In this case, Traders was not
defrauded. On its face, the certificates were in the name of Filriters; as a commercial bank it should have
automatically put it on guard. The transfer also did not conform w/ the Rules & Regulations and the CBCI formed
part of Filriters required legal reserves required w/c cannot be taken out of the said funds w/o violating the law.
DD: There was negligence in this case; and piercing the corporate veil cannot be used as a means to extricate the
negligent party from the consequences of its own fault or non-compliance with the rules.
PNB v. RITTRATO GROUP letter of credit / attorney-in-fact corporation / subsidiary The Rittrato Group procured
a Letter of Credit from PNB International Finance (PNB-IFL) based in Hong Kong and a subsidiary of PNB. It was
secured by real estate mortgages. The debts swelled to some $ 1.4 million. PNB-IFL, through its attorney-in-fact
PNB sought to foreclose. Rittrato, averring that the credit facility is void, procured an Order of Injunction against
PNB (not PNB-IFL), w/c was granted by the lower courts. It also seeks a re-computation of its debt. Rittrato also
avers that PNB is a real-party-in-interest for being a mere alter ego of PNB-IFL. The trial court stated that since
PNB-IFL is a subsidiary of PNB, then a suit against latter is a suit against PNB-IFL as well. Untenable!
If used to perform legitimate functions, a subsidiarys separate existence must be respected. Rittrato
failed to show any reason why the corporate veil must be pierced. The doctrine will apply only if the veil is
used to shield fraud, justify wrong, defend crime, confuse legitimate issues, or where a corporation is a
mere alter ego or business conduit of the other. Various factors mostly indicating total control may be
considered which, if combined, may reasonably indicate that a corporation is but a conduit of another. No such
circumstances exist in this case to warrant piercing.
DD: Refer to Concept Builders v. NLRC for the test to determine the applicability of the piercing doctrine. The
fact that a corporation is a subsidiary of another, by itself, does not suffice as a ground to pierce.
UMALI v. CA tangled web / last resort / mere inter-relation insufficient The Castillo Family owned lands about to
be foreclosed by DBP. Rivera proposed to them the development of their other 4 adjacent lots to raise the funds.
They thus entered into an agreement w/ Slobec (Rivera was President) for the development of the 4 lots. Rivera
then purchased tractors from Bormaheco, the balance of the price secured by Insurance Corp. (ICP). He then
mortgaged the 4 lots to ICP to secure the surety in favor of Bormaheco. ICP then foreclosed on the 4 lots,
consolidated ownership, and sold the same to PM Parts. Now, PM Parts wants the Castillos to vacate. Castillos
allege that the foreclosure (and all the other transactions) by ICP was void. They invoke the piercing doctrine
alleging that every transaction was fraudulent.
Piercing the veil is not the proper remedy. It can only be employed if the stockholders/officers are sought
to be held liable for corporate debts or where they have used the corporate medium to protect fraud, etc.
There was in act no proof of fraud in this case. Further, piercing is a remedy of last resort, w/c need not be
resorted to in this case in order to resolve the controversy. Considering that ICP made no payment based on
the surety, it thus had no right to foreclose on the mortgage; thus the conveyance in favor of PM Parts cannot be
sustained considering that it is not a purchaser in good faith considering that its president, Cervantes, is also
VP of Bormaheco, and Atty. De Guzman was EVP of Bormaheco and legal counsel of ICP. They are chargeable
w/ knowledge. But the mere fact that their businesses are inter-related is not justification for piercing the
corporate veil.
DD: Take note that fraud was alleged in this case. If fraud is alleged, there must be a monetary claim against the
corporation; this is an indispensable requirement to fraud piercing.

INDOPHIL WORKERS UNION v. CALICA unions / purpose of piercing Indophil Textile Mills was engaged in
manufacture & sale of yarns. The Indophil Union was the exclusive bargaining unit of its rank-and-file employees.
Then Indophil Acrylic was incorporated. The Union now claims that Acrylic is only an extension of Indophil, and
that the employees of Acrylic should be recognized as w/in the scope of their collective bargaining agreement.
They allege that it is only a devise to evade the application of the CBA, that they are engaged in the same
business and having some common employees, located in the same compound, using common machineries,
having common incorporators, and that 70 % of the total stock subscription of Acrylic pertained to Indophil.
The foregoing facts are not sufficient to warrant piercing the corporate veil w/c is only employed when it
is sought to hold the officers / stockholders liable for corporate obligations. In this case, no claim is
interposed against the members of Acrylic. That being the case, their separate juridical personalities must
be respected.
DD: Here the Union made the fatal mistake of alleging fraud. Once fraud is alleged, a monetary claim against the
corporation becomes indispensable as a requirement for piercing. The Union should have just alleged that one is
the alter ego of another in which case, a monetary claim is not required. Compare this with the La Campaa
Case.
BOYER-ROXAS v. HEIRS OF EUGENIA ROXAS INC. Hidden Valley Resort Eugenia Roxas died and left several
properties. Her heirs incorporated and used her estate properties to engage in a resort business: Hidden Valley.
Edilberto, then GM, allowed his son Guillermo as well as Rebecca to use the resort staff-house and recreation hall
respectively as residences. The Board tolerated this. Both Guillermo and Rebecca were stockholders. Several
years later, the Board approved a resolution ordering them to vacate. They allege that as stockholders, they are
co-owners of the property w/ a right to stay in the premises. They propose that the corporate veil be pierced
considering the circumstances under w/c the corporation was formed. The corporation has a separate juridical
personality. Shares of stock do not represent corporate property it only typifies the right to share in its
proceeds. Therefore are they not entitled to the possession of any definite portion of its property. Piercing
can only be done when the corporation is being used as a cloak to cover fraud or illegality, etc. It is not
available for the purpose of justifying a theory of co-ownership for the purpose of utilizing corporate
property.
DD: Piercing is a remedy intended to protect third persons.
GOCHAN v. YOUNG derivative suit / conveyance of corporate property to alter ego Felix Gochan Sr. was a
stockholder w/ the Felix Gochan & Sons Inc. His daughter Alice inherited his shares, w/c were, in turn inherited by
her spouse (John Young) and then her children. During his life, Felix had requested that the shares be issued in
the name of his children, but the Board continues to refuse alleging a right of first refusal embodied in the
Articles of Incorporation. Now the heirs bring the matter to court by filing a derivative suit in behalf thereof
alleging breach of trust and confidence, and usurpation of business opportunities in conflict w/ their
fiduciary duties on the part of members of the Board, exhausting the corporate properties. They procured
notices of lis pendens and ask for the delivery to the corporation of certain corporate properties conveyed to the
Mactan & Lapu-Lapu Corporations w/c are mere alter egos of the directors of the corporation.
This is an appropriate circumstance not only to file a derivative suit, but also to pierce the corporate veil,
when the corporate medium is being used as a cloak to cover fraud of illegality, as a justification for
wrong, alter ego, or mere business conduit for the benefit of the stockholders. The case is remanded to the
trial court for further trial the notices of lis pendens are retained.
DD: As a general rule, piercing is a remedy to protect third persons; but in this case it was used to settle an intra-
corporate dispute. This case can be considered a case of equity piercing.
GENERAL CREDIT v. ALSONS package of circumstances / alter ego case / collection of circumstances
General Credit Corp. (GCC) was licensed by the CB & SEC to engage in quasi-banking activities. It organized the
Equity Corp. (Equity) so that the latter may take-over the operation and management of its various franchise
companies in the Philippines. The Alcantara Family owned shares w/ the GCC franchise companies. They sold
their shares to Equity which issued them a Bearer Promissory Note for P 2 million. The Alcantaras then
assigned the note to Alsons Development. Alsons failed to collect in the note and now sue both GCC and
Equity arguing that the latter is but a conduit or instrumentality of the former, seeking to pierce the corporate veil.
The corporate veil must be pierced & GCC made liable.
There are several circumstances in this case that would warrant piercing. These circumstances, taken
together, will illustrate that Equity was nothing more than a conduit or adjunct of GCC. They have
common office, directors, and stockholders (90% the same). The directors of Equity only take orders from
GCC. Equity doesnt have enough funds for its business, and is heavily indebted to GCC w/c totally
manages its finances. It was even established that GCC incorporated Equity to evade CB Rules. There are 3
main reasons to pierce: (1) when the veil is used to defeat public convenience such as evade obligations, (2)
fraud cases, defending crime, protecting wrongs, and (3) alter ego cases.

CONCEPT BUILDERS v. NLRC evasion of labor laws / fraud piercing Concept Builders employed the herein
respondent-workers. They were dismissed but it was found out that that project they were hired for was not yet
complete. Thus, they brought the matter before the NLRC (illegal dismissal, unfair labor practice, etc). The NLRC
rendered judgment ordering Concept to reinstate the workers and pay the backwages, and then issued a Writ of
Execution w/c could not be carried out since the business premises of Concept are now occupied by Hydro
Phils w/c resisted the execution. Thus the NLRC issued a break-open order, alleging that Concept merely
stopped operations to defeat the execution. What happened was Hydro simply filed an info sheet w/ the SEC,
claiming that its address was that of Concepts to make it appear that Concept was no longer doing business
there. It was found out however that Concept and Hydro have exactly the same stockholders, same
officers, same Board of Directors, and same business address. The veil was used as a device to defeat
labor laws thus piercing is in order.
The test to determine the applicability of (fraud) piercing is as follows:
1. There must be complete control or domination not only of finances but also of policy and
business practice such that the corporate entity, as to the assailed transaction, had no separate
mind, will, or existence of its own;
2. Such control must have been used to defraud or commit wrong, to perform unjust acts, or to
perpetuate a violation of any statutory or legal duty;
3. The aforesaid control or breach of duty must be the proximate cause of the injury or unjust loss
complained of.
FRANCISCO v. MEJIA tax delinquent lands / scheme to defraud mortgagee Gutierrez sold 4 parcels of land to
Cardale Corp. whose VP & Treasurer was Francisco. The lots were mortgaged to Gutierrez to secure the balance
of the purchase price. For failure to settle the debt, Gutierrez filed a case for rescission. The case dragged on for
14 years, Cardale lost interest in prosecuting the same. Cardale, however, did not pay for its real estate taxes,
causing the lots to be levied upon and sold at public auction. The highest bidder was Merryland Corp. whose
President was also Francisco. She did not inform the court or the administrator of (now deceased) Gutierrez about
the delinquencies, and sale to Merryland. She only did so after having consolidated ownership in favor of
Merryland. Based on the totality of the circumstances, the inevitable conclusion was that Francisco acted
in bad faith. She knew of the tax delinquencies, as the notices of assessment were mailed to her as
Treasurer. She was also president & director of Merryland. There was a fraudulent scheme to deprive the
estate of Gutierrez of its rights as mortgagee and allow Cardale to evade its obligations.
Thus, Francisco must be held solidarily liable; Cardale has already been dissolved. But Merryland cannot
be held liable as no evidence had been adduced that it acted as a mere alter ego to Cardale. The mere fact
that their businesses are interrelated is not sufficient justification for piercing unless theres a clear
showing that Merryland was used as a mere shield to defraud creditors.
NAMARCO v. ASSOCIATED FINANCE sugar deal / majority stockholder representing corporation NAMARCO
entered into an agreement with Associated Finance (represented by its president, Sycip) for the exchange of raw
and refined sugar. Associated failed to deliver to NAMARCO the Victoria and National sugar agreed upon and
instead offered to pay its price. NAMARCO refused and filed a suit for damages. The trial court held Associated
liable but not Sycip. There are facts w/c are sufficient to hold Sycip liable solidarily w/ Associated. He
asserted that he entered into the contract personally, he had full knowledge of the fact that Associated
was in no position to comply. At the same time, he was majority stockholder of Associated; w/ 60,000 of
its 105,000 total shares in his name, and another 20,000 in the name of his wife. He had full control over
Associated. Thus, he cannot seek refuge behind the separate personality of the corporation w/c was his
mere alter ego.
DD: Sycip as agent personally bound himself to answer for the obligation. There was no need to pierce.
PALACIO v. FELY TRANSPORT vehicle ran over kid / subsequent transfer of vehicle to corporation
Calingasans vehicle was being driven by Carillo when it ran over a kid, Mario Palacio. Carillo was convicted. After
the conviction, Calingasan sold the vehicle to Fely Transport. Marios parents are seeking to hold Fely Transport
subsidiarily liable for damages alleging that the mishap placed them in dire financial straits and caused them
great anguish. They allege that the sale to Fely was an attempt by Calingasan to evade his subsidiary liability.
Both Calingasan and Fely Transport should be held subsidiarily liable. The incorporation of Fely and the
transfer of the vehicle to it was only an attempt to evade civil liability. All the incorporators of Fely are
members of the Calingasan Family (he, his wife, and his kids). The corporate fiction cannot be used as a
shield to further an end subversive of justice. Calingasan can be substituted in the case in place of Fely Transport
to avoid multiplicity of suits.
DD: In this case, the doctrine was used to hold the corporation itself liable not the stockholder or officer. The veil
was not in fact pierced, it was set up to prevent fraud.

certificates of public VILLA REY TRANSIT v. FERRER bus operators / restrictive clause / avoiding obligations Jose Villarama
operated a bus business. He sold to PANTRANCO his 2 certificates of public convenience, subject to the
convenience stipulation that the seller (Villarama) shall not for a period of 10 years from this sale, apply for any TPU service
identical to or competing w/ the buyer. Barely a few months later, Villa Rey Transit was incorporated, and
purchased 5 certificates of public convenience. It turned out that Villarama actually funded the incorporation of
Villa Rey. He purchased the vehicles with his personal checks. It was not true that he was just part-time manager
as he contended; he supplied all organizational expenses and equipment. There was no payment of dividends to
the subscribers. His wife was the treasurer, ad they co-mingled their personal finances w/ that of Villa Rey w/o
regard at all to the other stockholders. All the gasoline products were purchased in his name. All these facts put
together lead to the inevitable conclusion that Villa Rey was only an alter ego of Villarama. Thus, the
restrictive clause in the contract w/ PANTRANCO should be held binding upon Villa Rey.
McCONNEL v. CA parking business / no assets / mere extension of personality Park Rite Corp. had capital
stock of only P 1,500 at P 1 per share. Paredes and Tolentino owned 1,496 of the 1,500 shares. It leased a lot
owned by Samanillo for its parking business, but it encroached upon the lot owned by Padilla. Thus, Padilla
demanded payment for the use and occupation thereof, and was awarded by the court some P 7,400. It turned out
that the Park Rite had only P 550 in assets; it had no other assets other than the fence and the toll house. Thus,
Padilla sought to recover from the stockholders. In this case, the corporate entity is only used as an alter ego
of Tolentino and Paredes. The evidence showed that they completely dominated and controlled the
corporation, and its functions redounded to their sole benefit. The office of Paredes and Park Rite are in
the same building, and the corporate funds are kept in Paredes account. The corporation had no assets. It
is clear that it is a mere extension of the personality of Paredes and Tolentino thus the latter two should
be held liable for the debt.
ARNOLD v. WILLITS & PATTERSON one man corporation Willits & Patterson was a California corp. It engaged
the services of Arnold, as its agent in the Phils through Exhibit A (a document). Through the efforts of Arnold, the
business flourished. Paterson retired and Willits became sole owner. Willits practically owned all of the stocks of
Willits & Patterson. Willits then organized a corporation in the Phils. under the same name; he likewise owned
everything. Willits thereafter negotiated w/ Arnold, and they came up w/ Exhibit B, modifying the terms of Exhibit
A. The question now is whether Exhibit B can be binding upon the corporation in the absence of any ratification of
the Board or any corporate seal, and whether it can bind the creditors committee organized for the purpose of
liquidating the now defunct California corporation. The agreement must be binding. Willits was the sole
dominant power w/c controlled the corporation. Where the stock of a corporation are owned by one
person, and the corp. functions for the sole benefit of such individual owner, then the corporation and the
individual should be deemed the same. Board ratification and affixing of the corporate seal are obviously
immaterial in this case.
GENERAL CREDIT v. ALSONS same as above; aggregate or combination of circumstances
YUTIVO & SONS v. CTA importer / seller of cars / tax avoidance General Motors imported cars to the Phils w/c
were purchased by Yutivo & Sons w/c in turn sold the same to the public. Thereafter, Southern Motors (SM) was
organized, the controlling members thereof being among the founders of Yutivo, to w/c Yutivo sold the cars. SM
then sold the cars to the public. Later GM withdrew from the Phils. and Yutivo directly imported the cars. They
continued their previous arrangement, and paid taxes only based on the initial sale by Yutivo to SM. No
further taxes were paid upon sales by SM to the public. The BIR investigated the matter and assessed them for
deficiency income tax. The CTA ruled that SM was not organized for any bona fide purpose except to evade
taxes, being a mere conduit or instrumentality of Yutivo.
The CTA erred in fining that SM was a corporation devised as a mere mechanism to evade taxes. Fraud is not
lightly presumed. The tax liability of Yutivo had arisen only when GM had withdrawn and already after SM
had been incorporated. The transactions between Yutivo & SM were legitimate, and their returns were
correctly filed w/ the BIR. A taxpayer is allowed to decrease through whatever means w/in the law his liability for
taxes. The provision in the Tax Law stating that taxes were to be paid once only for every original sale, barter, etc.
was susceptible of many interpretations. Thus, no liability for surcharges need be imposed in the absence of fraud.
Nonetheless, there are circumstances to justify that SM is but a conduit or instrumentality of Yutivo. Their
officers are all the same and such officers are all closely related. The other shareholders are nominal.
Yutivo had absolute control over the management and finances of SM. All cash transactions passed
through Yutivo and were recorded in its books. SM was nothing more than a department of Yutivo thus
their separate personalities must be disregarded for the purpose of determining the true tax liability of
Yutivo.
LA CAMPANA v. KKM gaugau & coffee factories / labor dispute / same entities Tan Tong owned the La
Campana Gaugau Co. (GAUGAU). Later on, he and his family incorporated La Campana Coffee Factory
(COFFEE). He entered into Collective Bargaining Agreement w/ Phil. Legion (labor) but later his employees
formed their own union (KMM). They demanded higher wages and more privileges. Mediation was to no avail.
Thus, they brought the matter to the Industrial Court. La Campana sought to dismiss on the ground that the case
was filed against 2 separate companies (GAUGAU & COFFEE) and that GAUGAU had only 14 employees
below the required minimum jurisdictional requirement for the Industrial Court. The SC disregarded the separate
personalities of GAUGAU and COFFEE for several reasons. The Tan Tong Family owned both of them,

shared the same office, management, and payroll. Their employees were interchangeable. Thus, the
separate personality of GAUGAU cannot be interposed as a defense to subvert the ends of the law
governing capital-labor relations.
DD: This was a case of alter ego piercing (arguably also equity piercing). Unlike the case of Indophil, there was no
invocation of fraud in this case. Hence no monetary claim against the corporation is needed. This ruling is
reiterated by Shoemart v. NLRC.
SHOEMART v. NLRC leather workers / alter ego piercing Morris Industries was engaged in production of leather
products. Its workers unionized, associated w/ the PAFLU, and invited the same to negotiate for a CBA. Suddenly,
Morris closed shop. Now the workers want to enforce their claims (reinstatement, separation pay & other benefits)
against SM and Henry Sy, alleging that Morris is but a conduit of SM. The labor arbiter ruled in favor of the
workers. The SC sustained the workers and pierced the corporate veil. Its basis: except for Elizabeth Sy,
all other incorporators of Morris are the same as SM, that SM is the exclusive buyer of Morris products,
that Morris uses SMs payrolls and letterheads, and that they are both housed in the same building.
Considering that reinstatement has become impossible, as the leather workers cannot be absorbed into the SM
workforce because of their different expertise, the SC simply held SM and Henry Sy, together w/ Morris, solidarily
liable for separation pay.
PADILLA v. CA writ of execution / sister companies / separate personalities Susana Realty entered into a
tripartite agreement w/ LRT Authority and Phoenix Omega where Phoenix agreed to construct commercial stalls in
certain portions of the property bought by LRTA from Susana, subject to the approval of the latter. Phoenix
thereafter assigned all its rights thereto to PKA Development. PKA then leased certain portions of Susanas
property (Phoenix was no longer party to this). PKAs permit to construct was revoked due to certain violations,
and Susana refused to authorize the constructions. An action for rescission was commenced; the trial court ruled
in favor of Susana and ordered PKA (only) to pay damages, rentals, etc. A Writ of Execution was issued not
only against Susana, but also against Phoenix, and their common president Padilla. The trial court ruled that
they are one and the same entity.
The Writ of Execution was improperly issued; the RTC did not acquire jurisdiction over Phoenix and
Padilla. True that Padilla testified and participated in court, but he did so in his capacity as president of
PKA only. In the absence of fraud or any other circumstance indicating that the corporate medium was
used to defeat public convenience! the separate juridical personalities of PKA and Phoenix must be
respected. The fact that they were sister companies w/ a common executive head is insufficient. To
warrant piercing, the wrongdoing must be clearly and convincingly established. In this case, Phoenix was denied
due process and cannot be bound by a ruling to w/c it was not party.
LIPAT v. PACIFIC BANKING garments / alter ego The Lipat Spouses owned Belas Export Trading (BET) w/c
manufactured and exported garments to Mystical Fashions in the US also owned by them. Their daughter Teresita
managed BET and was granted an SPA to contract and secure loans. Teresita loaned from Pacific and secured
the same w/ a real estate mortgage. Later on, Belas Export Corporation (BEC) was incorporated. Teresita availed
of more credit accommodations. It utilized the same machines, same office, and had the same family as
incorporators. For failure to settle their debts, Pacific bank foreclosed on the mortgage. Now, they claim that the
mortgage and various accommodations were ultra vires acts of Teresita that there was no Board resolution for
the purpose.
There is clear evidence that BEC is a mere successor to BET and is but an alter ego of the members of the
Lipat Family. The alter ego rule was applied in this case as opposed to fraud. In this case, the
corporation is but a business conduit or an instrumentality. The control needed is of such nature that not
only finances but also policy and practice are dominated, such that the corporation has no mind or
existence of its own so to speak. There is more than sufficient evidence in this case to support this finding
commonality of incorporators, management, office, directors, operations, machineries, and many more. The
operations of BEC and its predecessor BET as well as its incorporators are practically indistinguishable. It only
follows that the obligations contracted by BET and its members are binding upon BEC.
JACINTO v. CA not raised in the pleadings / proven during trial / no objection The trial court pierced the
corporate veil and held that Jacinto and Inland Industries are one and the same. Jacinto alleges that the issue was
not even specifically raised in the pleadings of the plaintiff Metrobank. While on the face of the complaint there
is no specific allegation that the corporation is a mere alter ego of Jacinto, the same can be gleaned from
the stipulation of facts, presentation of evidence, and cross-examination of witnesses, and Jacinto failed
to object thereto. That being the case, judgment can be rendered on the basis thereof as if they have been
raised in the pleadings.

CORPORATE CONTRACT LAW
CAGAYAN FISHING DEVT CO. v. SANDIKO sale to corporation prior to existence Tabora owned 4 parcels of
land. He mortgaged it twice to PNB to guarantee loans for his fishing venture, and a third time to Buzon also as a
guarantee. His business suffered reverses. Later, he executed an Escritura selling the same to Cagayan
Fishing Development Co. for P 1.00 subject to the condition that the Company pays his indebtedness to PNB.
It is to be noted that Tabora was a promoter of this corporation and was to own majority of its stock. Its articles of
incorporation (AOI) were filed w/ the then Bureau of Commerce. When the PNB threatened to foreclose, a Board
Resolution was then passed authorizing the sale thereof to Sandiko who was induced to shoulder the mortgages;
he executed a note for P 25,300 in favor of Cagayan (to keep them away from Taboras attaching creditors) but he
failed to pay, constraining the latter to sue. Sandiko now alleges that the sale is illegal and invokes vice of
consent.
The transfer to the Company was effected almost 5 months prior to its incorporation. A corporation can only come
to existence in the manner prescribed by law but before that happens, certain legal requirements have to be
complied with. Until it is organized, it has no being and no capacity to contract. It is like a child in ventra
samere. Under certain circumstances, the acts of promoters may be ratified by the corporation when it is
finally organized, but not in this case where ratification will lead to injustice to the unwary. Considering
that the Corporation did not acquire the lots, it only follows that it had nothing to transfer to Sandiko.
RIZAL LIGHT & ICE CO. v. MORONG subsequent incorporation / ratified Rizal Light & Ice Co.s certificate of
public convenience & necessity for the operation of an electric light & heat power service was revoked for failure to
comply w/ regulations of the Pubic Service Commission. On May 6, Morong Electric was granted a municipal
franchise to operate such utility. On September 10, Morong applied for a similar certificate of public convenience
w/ the Commission. Its certificate of incorporation was issued by the SEC on October 17. It subsequently
accepted the franchise. Rizal asked for the dismissal of Morongs application on the ground that at the time of its
application, Morong had no legal personality. When the same was granted by the Commission based on the
argument that Morong was then a de facto corporation, Rizal appealed.
True that Morong had no legal personality when the municipal franchise was granted to it, as its legal
existence began only upon issuance of its certificate of incorporation; nonetheless, that fact does not
render the franchise invalid because when Morongs corporate existence began, it accepted the franchise.
This has the effect of curing the initial defect pointed out by Rizal. There is plenty of US jurisprudence to
support the tenet that a franchise may be granted to a company that is not yet fully incorporated, although the
same takes full effect only after incorporation and acceptance. This ruling is not incompatible w/ Cagayan Fishing
v. Sandiko as the rule enunciated therein was not absolute.
CARAM v. CA project studies / corporate expenses Barretto and Garcia contracted the services of Arellano for the
preparation of project studies and pre-organizational plans that became the basis for Filipinas Orient
Airways. They presented the study to Fermin & Rosa Caram who decided to invest in the venture. The same was
also presented to the banks to obtain credit accommodations. The question now is whether the Carams can be
held solidarily liable to Arellano for the value of his services. Carams were not involved in the initial stages of
the organization; they were mere investors or financiers. They never contracted the services of Arellano.
Although they may have benefited therefrom, this however is not sufficient justification to hold them
liable. As a bona fide corporation, it is Filipinas Orient w/c should alone be liable for the corporate acts of
its duly authorized officers and directors in this case Barretto and Garcia who were the moving spirits so to
speak for the incorporation of the same.
DD: Once incorporated, the separate juridical personality of a corporation operates; the corporation alone then
becomes liable for corporate debts.
HALL v. PICCIO - de facto corporation / dispute among stockholders / certificate / good faith Arnold & Bradley
Hall (petitioners) along w/ Fred & Emma Brown, Chapman, and Abella (respondents) signed and acknowledged
the Articles of Incorporation (AOI) of Far Eastern Lumber, filed before the SEC. Before the issuance of the
Certificate, the respondents filed a civil case to dissolve the unregistered partnership (Far Eastern Lumber)
alleging bitter dissent among members, mismanagement, fraud, and financial losses. The Halls allege that the
Corporation has become a de facto corporation w/c may only be dissolved in quo warranto proceedings and that
the respondents, having signed the AOI are estopped from denying that it is a corporation.
There is no de facto corporation immune from collateral attack in this case. All of them ought to know that
a corporation begins to exist only upon the issuance of the Certificate of Incorporation w/c in this case
has not yet been issued. Thus none of them could claim in good faith that the corporation existed. Also,
the corporation is not even a party; this is a litigation between the stockholders. Even a de jure corporation may be
terminated in a private suit between stockholders w/o the intervention of the state. Considering that this is an
intra-corporate dispute, and nobody was led to believe anything to his detriment, estoppel cannot
likewise apply.

SALVATIERRA v. GARLITOS lot lease / inexistent corporation / agency rules applied Salvatierra owned a parcel
of land w/c she leased to what she was made to believe was the Phil. Fibers Co. Inc. represented by its President
Refuerzo. The lease was for 10 years and Salvatierra was to be entitled to 30% of the net profits of the harvest.
She was not given her share, prompting her to file a case for accounting, rescission, and damages against both
Phil. Fibers and Refuerzo. It turns out that Phil. Fibers was inexistent upon Salvatierras inquiry w/ the SEC. She
prevailed at the trial court and a writ of execution was issued causing 3 of Referzos lots to be attached.
Refuerzo now claims that there was nothing in the complaint pointing to his personal liability; he prayed that the
liability be limited to that of the corporation. He alleges to have signed the contract as mere representative of the
corporation.
It is true that a stockholder cannot be held personally liable for the obligations of the corporation in excess of his
subscription; but this rule does not apply to unregistered corporations. An inexistent corporation has no
personality and is incapable of creating or designating agents. Thus those who purport to act as agents in
behalf of an inexistent corporation act at their own risk. It is elementary in agency that a person who acts
as agent w/o a principal (or w/o authority therefrom) is himself regarded as principal possessing all the
rights and liabilities thereof. The same rule applies to Refuerzo.
ALBERT v. UNIVERSITY PUBLISHING publishing deal / real party / corporation by estoppel Albert sued
University Publishing Co. Inc. (represented by Aruego) for failure to comply w/ their publishing agreement. He was
awarded by the court P 15,000.00. Now, Albert seeks to obtain a writ of execution against Aruego alleging that he
was the real party to the case presenting a certification from the SEC that University Publishing is an inexistent
corporation, and alleging that he was induced into believing its existence. University alleges that a separate
proceeding should have been instituted against Aruego and had this been the case, Albert would have to reckon
w/ the Statute of Limitations.
On account of non-registration, University Publishing could not be considered as a corporation de facto.

Thus, it has no personality apart form Aruego that can be sued independently. The doctrine of corporation
by estoppel, though not invoked, is applicable to this case. Aruego led Albert (and the court) to believe his
representation. He even signed the contract as President of the corporation. The corporation was
represented by Aruegos law firm during the proceedings.
One who induced another to act upon his willful misrepresentation that a corporation was duly organized
cannot thereafter set up against his victim the principle of corporation by estoppel. Neither can Aruego
claim that he was denied his day in court as he was, in fact, the one who litigated and controlled the
proceedings. Due process was substantially served.
INTERNATIONAL EXPRESS TRAVEL v. CA corporation by estoppel / enforcement vs. evasion of debt

International Express Travel provided travel agency services to Phil. Football Federation, represented by its
president Henry Khan, for its trip to the Southeast Asian Games. A remaining balance of some P 265,000
remained. Henry Khan paid P 50,000 using his personal check, but no further payments were made. Thus,
International Express sued both the Federation and Khan. Khan raises as a defense the Federations separate
juridical personality. True that under RA No. 3135 and PD No. 604, the Federation may acquire a separate
juridical personality; however, certain legal requirements have to be met. It must be recognized by the Phil.
Amateur Athletic Federation and the Dept. of Youth & Sports Development. That being the case, the Federation
in this case has failed to acquire a corporate existence of its own. Khan is therefore liable. Any person
purporting to act as agent for an inexistent corporation becomes personally liable for contracts entered
into as such agent. Besides, Kahn, as President, is chargeable w/ knowledge as to the corporate existence of
the Federation.
The CA stated that assuming that the Federation has been defectively incorporated, International Express, having
recognized and dealt w/ it as such a corporation is now estopped from denying its corporate existence. This is a
wrong application of the doctrine of corporation by estoppel. The rule applies to a third party only when
he tries to escape liability on a contract from w/c he benefited on the irrelevant ground of defective
corporation. In this case, International Express is not trying to evade liability but is instead the one
claiming from the contract.
LIM TONG LIM v. PHIL. FISHING GEARS fish nets / corporation by estoppel / deriving benefits Chua & Yao, in
behalf of Ocean Quest Fishing Corp. purchased fish nets from Phil. Fishing Gears. They were engaged in a
business venture w/ Lim Tong Lim who, as the lower courts found, furnished the fishing boat. They were proven to
have entered into a partnership to engage in a fishing venture. They failed to pay for the fish nets; therefore
Phil. Fishing Gears sued them, in their capacity as general partners alleging that Ocean Quest is a non-
existent corporation as certified by the SEC. The trial court held them jointly liable for the debt. Lim alleges
that, by virtue of the doctrine of corporation by estoppel, only Chua and Yao should be liable as they were the
only ones who dealt w/ Phi. Fishing Gear in the name of Ocean Quest. The court disagrees.
Under the doctrine of corporation by estoppel, the incorporators who knew of the corporations lack of authority are
liable as general partners. They are precluded from denying its existence for the purpose of evading liability. The
same rule applies to a person who actually benefited therefrom despite knowing its legal defects. He is
deemed part of the association and is covered by the doctrine of corporation by estoppel. He may

therefore be held liable for contracts he impliedly assented to or took advantage of such as the case of
Lim Tong Lim. The fish nets were, in fact, found inside his boat.
It is clear that Lim, Yao, and Chua intended to incorporate based on the facts of the case, but the corporation did
not materialize for unknown reasons. Under the law on corporations by estoppel, those acting in behalf
thereof (Chua & Yao) and those deriving the benefits therefrom (Lim) knowing the defect in its existence,
are liable as general partners.
ONG YONG v. TIU pulling a fast one / subscription contract / trust fund doctrine / business judgment rule The
Tius owned the First Landlink Corporation (FLADC) w/c owned the Masagana Citimall. They were in dire financial
straits and were indebted to the PNB for some P 190 million. PNB was at their doorstep ready to foreclose. To
save the venture, the Tius invited the Ongs to infuse capital. Through the Pre-Subscription Agreement, they
agreed to equal shareholdings. The Ongs contributed a total of P 190 million used to settle the debt to PNB. The
Tius, in addition to cash, contributed a building and 2 parcels of land. The end goal was for the Tius and the Ongs
to own FLADC 50-50 and so it was. Then business relations soured.
Breaches on both ends took place although the breach committed by the Ongs was relatively minor compared to
those of the Tius. The Ongs prevented Cely Tiu from assuming the position of Treasurer and Wilson Ong was
both president and treasurer contrary to the Corp. Code. The Tius on the other hand, refused to pay capital gains
tax and documentary stamp tax on the transfer of real properties to FLADC, thus the Ongs refused to transfer in
their name the corresponding shares. Worse, one of the parcels of land to be contributed by the Tius turned out to
be in the name of FLADC already. The Tius alleged that the Ongs refused to allow them office spaces. Then, the
Tius sought to rescind the Pre-Subscription Agreement and the return to the Ongs of their cash
investment; the Tius will then get to keep everything else. The SC, in a previous ruling, decided to rescind
the agreement. Hence, a motion for reconsideration by the Ongs.
Rescission cannot be granted; it will work a terrible injustice to the Ongs and allow the Tius to reap all the rewards
of the venture. The Pre-Subscription Agreement was, in fact, a subscription contract under Sec. 60 of the
Corp. Code. It is an agreement between the stockholder (the Ongs) and the corporation (FLADC); thus the
Tius are not proper parties to sue for rescission of the same. It should be the corporation that should be party
thereto assuming that rescission can be granted. The separate juridical personality must be respected.
Assuming that the Tius were aggrieved by the Ongs refusal to let Cely Tiu assume as treasurer, there are other
remedies w/in the Corp Code, the Rules of Court, and the SEC Rules available to them. Rescission is not the
proper remedy. To allow rescission will be dangerous, as it will allow any stockholder to rescind and cause
the distribution of corporate assets w/o complying w/ the requirements of the Corp. Code. More
importantly, it will violate the Trust Fund Doctrine w/c states that the capital stock of a corporation
constitutes a fund to w/c the creditors have a right to look at for satisfaction of debts. Thus, there are only
3 instances where corporate assets may be distributed: (1) amendment of the AOI, (2) purchase of
redeemable shares by the corporation, or (3) dissolution.
Distribution of corporate assets cannot depend on the whims of the stockholders. It will undermine the corporate
peace. In this case, rescission will result to the unauthorized distribution of the corporate assets. The
result is premature dissolution w/o compliance w/ the procedures under the Corp. Code. Neither is this a
petition for decrease in capital stock w/c requires at least 2/3 Board approval, treasurers affidavit, and proof that
no third persons are prejudiced. Neither can the courts be asked to decree that the Board should file a petition for
decrease in capital stock as this will violate the business judgment rule. That is a decision for the Board, not
for the courts. All in all, the Tius tried to pull a fast one on the Ongs and the courts will not allow the Ongs to be
deprived of their investment based on petty grounds.
DD; The Trust Fund Doctrine is a rule applied usually for the benefit of third parties; however in this case, the rule
was applied in settling an intra-corporate dispute.
BY-LAWS
GOKONGWEI v. SEC competitor wants to be director / by-law prohibiting it / sound policy John Gokongwei
was a stockholder of San Miguel Corp. (SMC). He was also the president and controlling shareholder of both
Universal Robina Corp. and CFC Corp. both of w/c are major competitors of SMC in the production and
distribution of food products. It must also be noted that Robina and CF have already acquired significant shares in
SMC. He sought to be elected to the Board of Directors of SMC; however, the Board, foreseeing the danger of
having the president of a competitor as member thereof, amended the by-laws of SMC (1976) pursuant to an
authority from the stockholders representing 2/3 of the capital stock (dated 1961). The amendment disqualifies
persons engaged in competitive business w/ SMC from being nominated and elected as members of the
Board. The amendment was later ratified by a significant majority of the stockholders. Gokongwei sought to annul
the said amendment alleging that it is unreasonable, oppressive, and deprives him of a vested right to become
member of the Board.

The assailed by-laws are valid; every corporation has the inherent power to adopt by-laws for internal
government and to regulate the conduct and relationships of its members even in the absence of specific
enabling provisions in the charter. Sec. 21 of the Corp. Law expressly allows a corporation to prescribe
qualifications (among others) of its officers and employees. The corporation has the power to amend its by-
laws and the dissenting minority has only one right: to object in writing and demand their shares. There is no
vested right to membership in the Board.
Directors have control of corporate affairs and their duties to the shareholders are fiduciary in nature. It is
perfectly reasonable to disqualify a competitor from membership of the Board a person cannot serve
two hostile masters w/o betraying either. It is based on sound policy and human experience. Besides, directors
have access to sensitive and confidential information. Further, to allow Gokongwei to become director of SMC
could violate the Constitution and the laws prohibiting unfair competition and combinations in restraint of trade.
Considering also that SMC, Robina, and CFC are engaged in agriculture, Gokongwei cannot assume directorship
of SMC w/o violating the Corp. Law allowing stockholders to become director of only 1 such corporation, and any
participation in another shall be limited to investment.
The by-law was not discriminatory as it applies generally. Gokongwei, though, must be allowed to prove his
qualifications, and the decisions of the Board may be appealed to the SEC.
Separate Opinion of Justice Teehankee:

The prohibition, assuming that it is valid, should only be applied to Gokongwei after a proper hearing, and the
decision of the Board should be appealable to the SEC and eventually to the SC. The said by-laws are
specifically tailored to discriminate against Gokongwei. They also contravene the Corp. Law w/c
recognizes the right of a minority stockholder to be elected director through the process of cumulative
voting. What the Corp. Law has granted cannot be taken away by the by-laws.
PEA v. CA redemption right assigned / by-laws are laws of the corporation / incorporated to charter
Pampanga Bus Co. (PAMBUSCO) mortgaged a lot to DBP w/c foreclosed on the same. Pea was highest bidder.
Thereafter, the Board of PAMBUSCO resolved to assign its right of redemption, eventually to Enriquez. Enriquez
redeemed the property and sold the same to the Yap Spouses. Now Pea and the Yaps dispute ownership over
the lot. Pea contends that the assignment of the right of redemption was void under the by-laws of
PAMBUSCO. Under the said by-laws no irregularities of notice of the meeting will invalidate the proceedings
provided that there is a quorum, or in case of a special meeting, at least 4 members are present. When the
resolution was passed during the special meeting, there were only 3 members in attendance.
By-laws of a corporation are its own private laws w/c have substantially the same effect as the laws of the
corporation. They are, in effect, written into the charter and become part of the fundamental law of the
corporation to w/c its officers must comply. It is free to stipulate a greater majority to constitute a quorum, and
in the absence thereof, the present members can only adjourn.
At the time of the anomalous adoption of the resolution, PAMBUSCO was insolvent; its right of redemption
remained its only property. A sale of all or substantially all the properties of a corporation must be approved by 2/3
of the voting power in the corporation in a meeting called for the purpose. Also, there is no proof that the 3
members present were even stockholders and a person must own at least 1 share to be entitled to qualify as a
director. In view of all the foregoing, the assignment of the right of redemption, as well as the subsequent
transactions leading to the sale to the Yap Spouses should be deemed null and void.
DD: Insofar as by-laws are concerned, do not follow this ruling.
CHINA BANKING CORP. v. CA by-laws not binding upon third persons / time of transaction Calapatia was a
stockholder of Valley Golf & Country Club (VGCC). He pledged his stock certificate therefor to China Banking
Corp (CBC). CBC wrote VGCC to inform the latter of the pledge, and VGCC noted the same in its record books.
Calapatia thereafter loaned P 20,000.00 from CBC secured by the same pledge, and for his failure to pay, CBC
extra-judicially foreclosed on the same, and was highest bidder. However, the VGCC refused to transfer the same
to the name of CBC and record the sale in its books. Instead it invoked its by-laws w/c authorized it to sell the
same in public auction for the purpose of satisfying Calapatias debts (monthly dues) to VGCC. Thus, CBC filed a
complaint before the SEC to nullify VGCCs sale of the share of stock.
This is an intra-corporate dispute cognizable by the SEC. Upon the purchase by CBC of the share of stock,
ownership thereof was transferred to it and is thus entitled to have the stock registered in its name. CBC became
a bona fide stockholder.
Third parties are not bound by the by-laws of a corporation unless they have actual or constructive notice
thereof at the time of the transaction, w/c in this case, was the time the pledge agreement was executed in
good faith. At that time, CBC was still a third person to VGCC. Knowledge at the time of the foreclosure will no
longer affect the pledgees rights contrary to the contention of VGCC. By-laws, after all, are internal rules and
have no status as public law. When VGCC recognized the pledge agreement, it did not even bother to notify
CBC of the by-laws or of Calapatias outstanding debts. Besides, VGCC sent such notices already after having
been informed of the foreclosure proceedings. This belated notice will not suffice. CBCs rights as pledgee must
be respected.

CORPORATE POWERS, AUTHORITY, & ACTIVITY

ATRIUM MANAGEMENT v. CA treasurer signing checks / not ultra vires / negligence Lourdes (treasurer) and
Antonio (chairman) of Hi-Cement Corp. (Hi-Cement) issued 4 crossed checks amounting to P 2 million to ET
Henry Co. Inc. for the purpose of extending financial assistance to the latter. ET Henry indorsed the same to
Atrium Management Corp. Upon presentment, it was dishonored (stopped payment); thus Atrium sues Hi-
Cement, Lourdes and her husband, and Antonio for collection. The CA absolved Hi-Cement stating that Lourdes
was not authorized to issue the checks hence the act was ultra vires. Lourdes was held liable.
The act was not ultra vires, Hi-Cement is liable. Lourdes, as treasurer, was authorized to sign the checks
for the corporation. Such act is well w/in the ambit of a valid corporate act for it was to secure a loan to
finance the activities of the corporation. An ultra vires act is done outside the object for w/c the corporation was
created as defined by the law of its organization. As opposed to an illegal act, it can be ratified.
Lourdes, however, must also be held personally liable because she acted negligently when she signed the
confirmation for the rediscounting of the crossed checks well aware that they were for deposit only to
the payees (ET Henry) account resulting to damage to the corporation.
PIROVANO v. DE LA RAMA STEAMSHIP CO. donation of premiums / ratified / consummated Pirovano was
president of De La Rama Steamship Co. and under his leadership, the small company turned into a multi-million
venture. He was also married to Don Estebans (majority owner) daughter, and had 4 children. The corporation
procured life insurance policies in favor of Pirovano w/ it as beneficiary. Pirovano was executed by the
Japanese; his heirs were left w/ nothing. Thus the Board, acknowledging great indebtedness to Pirovano, decided
to donate the proceeds to his heirs.
The agreement was amended from payment in the form of stock, to a renunciation in favor of the heirs of its rights
as beneficiary w/ the condition that the proceeds are to be retained by the company as loan for the purpose of
settling its bonded indebtedness to National Development Co., its primary creditor. A house in NY was also
purchased, payment to be taken out of the proceeds of the insurance. All these acts were duly approved by the
stockholders in meetings held for the purpose, and even by National Development the only creditor that
could be prejudiced thereby, if ever. At the instance of its (then) current president, the donation was
investigated by the SEC w/c stated that the donation was beyond the scope of the powers of the corporation.
Thus, it refused to deliver the credits due to the heirs and sought to revoke the donation.
The (remunerative) donation was embraced by the broad powers enumerated in its articles of incorporation.
Nonetheless, assuming that the donation was ultra vires, the same was ratified and the corporation is now
estopped from disputing it. It was decided by the Board itself and approved by the stockholders. An ultra
vires act, as opposed to an illegal act (contrary to law, morals, etc) is merely voidable and can be ratified
as in this case. No creditors are prejudiced and the donation has, in fact, already been consummated. The ultra
vires defense cannot be availed against completed transactions.
HARDEN v. BENGUET CONSOLIDATED MINING mining dispute / unlawful but with no civil wrong The
properties of Balatoc Mining Corp. were undeveloped and its stockholders were unable to supply the means for
operation, thus its Board resolved to interest outside capital; thus they approached Benguet Mining a sociedad
anonima to secure the capital needed. A contract was forged; Benguet infused the capital, constructed a milling
plant and power plant and was issued Balatoc shares w/ par value of P 600,000. The business progressed. Then,
Harden, a stockholder of Balatoc, sought to annul the contract alleging that it was unlawful for Benguet (a
mining firm) to be interested in another mining corporation as provided in the then Corporation Law. He even
invoked the penal provisions thereof such as fines, imprisonment, and quo warranto proceedings. These
remedies, however, are for the Attorney General to pursue, not his.
The agreement cannot be annulled. Assuming that it was illegal, there was no civil wrong against the
plaintiff Harden (or Balatoc), and even if a public wrong was indeed committed, it was Balatoc and its
members that are the active inducers. There is now no possibility of undoing what was already done
such as demolishing the mill, or worse, returning Benguets investment w/ interest and leaving Balatoc
and its members in possession of the developed business, mulcting Benguet many millions of dollars. To
such a proposition, no court can assent.
DE LA RAMA v. MA-AO SUGAR CENTRAL investment / primary purpose / 2/3 vote not needed De la Rama,
among other minority stockholders of Ma-ao Sugar Central filed a derivative suit against the corporation and some
of its directors, primarily Amado Araneta, alleging mismanagement, diversion of funds, and unauthorized
investments. Araneta made investments in Phil. Fiber Processing totaling to P 300,000 as well as w/ Acoje
Mining and Mabuhay Printing. The lower court ordered Ma-ao to refrain from making such investments since the
purposes therefor were not connected to the main purpose for w/c the corporation was organized. This order
must be reversed. The Corporation Law (now Code) allows a corporation to invest its funds in another
corporation for any other purpose other than the main purpose provided the Board has been authorized
by affirmative vote of stockholders representing 2/3 of the voting power. If the required vote is obtained, Ma-
ao can make such investments.

According to Prof. Guevara, to w/c the SC agrees, if such investment was made in pursuance of the primary
purpose, then stockholder approval is not needed. But if it is solely for investment and not pursuant to the
main purpose, then the affirmative vote is necessary.
NIELSON & CO. v. LEPANTO CONSOLIDATED MINING management contract / stock dividends A management
contract was entered into between Lepanto and Nielson & Co. where the Nielson agreed, for a 5 year period, to
develop and operate the mining claims of Lepanto, to mine and market the ore found therein, hire staff and
laborers, act as purchasing agent for supplies, and basically to take complete charge of the business subject to
the supervision of Lepantos Board of Directors. Lepanto terminated the contract for failure of Nielson to prosecute
the venture due to the war. This of course is force majeure w/c suspended the contract and the obligations arising
therefrom. Now, on a Motion for Reconsideration, Lepanto claims that the contract was one of agency
terminable at the will of the principal. This of course is simply untenable. The paramount undertaking of
Nielson was management; the element of representation is missing. The management contract was a
simple lease of work or services not terminable unless for cause as in fact provided clearly in the
contract.
In its decision, the SC ordered Lepanto to issue and deliver to Nielson shares of stock (stock dividends) including
their fruits. This must be reconsidered. Consideration for w/c shares of stock may be issued include: (1)
cash, (2) property, and (3) undistributed profits. True that services such as those rendered by Nielson
are property w/c can be paid for using shares of stock; but such shares of stock should be part of the
original stock or at least the result of increase in capitalization.
Shares of stock in the form of stock dividends cannot be issued to one who is not a stockholder. They
come from the surplus available for distribution, not from capital. They are dividends, and only
stockholders are entitled to dividends. They are civil fruits of the original investment. Thus they pertain to
the owners of the original investments. As per the management agreement, the intent of the parties was to use
stock dividends merely as basis for computing Nielsons compensation but not to use them as payment
themselves. Nielson should thus be paid the equivalent corresponding to the agreed upon 10% of the cash value
of the stock dividends.
TUASON & CO. v. BOLANOS corporations / partnership vs. joint venture / in line w/ nature of business This is
an action for recovery of possession of real property; Tuason was the registered owner and complainant, Bolanos,
the defendant, alleges ownership by prescription. Of course prescription does not run against registered property.
JM Tuason & Co. Inc. (Tuason) is a corporation; the action was brought in its behalf by its Managing
Partner, Gregorio Araneta Inc. (Araneta). Bolanos alleges that the complaint by Tuason must be dismissed for
not having been brought by the real party in interest, but this contention was struck down. The Rules only require brought in the
brought by that an action should be brought in the name of the real party in interest, not necessarily by the said party. There
Managing Partner is nothing against one corporation being represented by another person natural or juridical in a suit in name of the real
court. The theory that Araneta cannot act as managing partner of Tuason on the theory that it is illegal party in interest
for 2 corporations to enter into a partnership is w/o merit.
The true rule is that although a corporation has no power to enter into a partnership, it may nonetheless
venture is in line with enter into a joint venture w/ another where the nature of that venture is in line w/ the business authorized
the business authorizedby its charter. There is nothing in the record to indicate that the venture in w/c Araneta represented Tuason as its
managing partner is not in line w/ the corporate business of either.
by its charter
DIRECTORS, TRUSTEES, & OFFICERS

FILIPINAS PORT SERVICES v. GO creation of positions / management prerogatives / no bad faith Eliodoro
Cruz, former president of Filipinas Port (Filport) questioned the creation by the Board of Filport of certain positions
such as Assistant VPs for Operations, Finance, and Administration, as well as Assistants to the Chairman &
President as well as the payment of compensation to such officers considering that Filport is not a big
corporation. He also questions the increase in the salaries of such officers and demands that the members of the
Board be held solidarily liable therefor. The case hibernated in the SEC until it reached the courts through a
derivative suit. Cruzs contentions are untenable. The governing body of a corporation is the Board of
Directors w/c has sole authority to determine policies and enter into contracts, and conduct the
business of the corporation in accord w/ its charter and by-laws. Concentration of powers in the Board is
necessary considering that stockholders are too many and scattered and are mostly unfamiliar w/ the
business. in accordance with the regular business of hte corporation, authorized by by-laws
In this case, the creation of the positions was in accordance w/ the regular business of the corporation
and is even authorized by its by-laws. Similarly, the fixing of compensation is provided in Filports by-
laws. The determination of the necessity to create additional positions is a management prerogative
vested in the Board. The power to create an executive committee, however, must be provided in the by-laws.
Nonetheless, the executive committee contemplated by the Corporation Code pertains to one as powerful as
the Board, as distinguished from one merely subject to its control. There was also no mismanagement, but
even assuming that there was, in order to hold the directors liable therefor, there must be bad faith. If the

losses are caused by simple errors of judgment, the directors cannot be held liable. Neither is there
evidence to support the allegation that the positions are created for mere accommodation.
DD: All corporate powers are vested in the Board, unless otherwise provided by the Corporation Code. This is the
rule. Its powers are broad and all-encompassing. This is true even in case there are contrary by-laws, which, after
all, cannot contravene the law. See Sec. 23.
ANGELES v. SANTOS dissipation of assets / receivership Angeles, among several of minority stockholders of
Paraaque Rice Mill (PRM) field a derivative suit against the Board of Directors of PRM alleging, based on the
findings of the investigative committee constituted by the stockholders, that Teodorico Santos (president) denied
access to corporate books and accounts w/c under the by-laws should be under the control of the Treasurer,
appropriated corporate properties, as well as refused unduly to call Board meetings and sign and issue certificates
of stock duly paid for. The court found the allegations to be substantiated by evidence. Thus, the officers,
especially Santos, are guilty of breach of trust as directors of the corporation. The members of the Board
hold a position of trusteeship in relation to the minority of the stock. They must exercise good faith and
diligence in the management of corporate affairs, and should protect also the rights of the minority.
If the majority dissipates corporate assets, performs ultra vires acts, or fraudulently disposes of the
properties, the courts may, in the exercise of equity jurisdiction, and upon showing that an intra-corporate
remedy is unavailing (as in this case), entertain a derivative suit filed by the stockholders for and in
behalf of the corporation to prevent the dissipation of assets and performance of illegal acts. The
appointment of a receiver is discretionary upon the court, and in this case, it is warranted. The receivership is to
continue until the election of a new Board. Santos is ordered to render an accounting of the funds that may have
come to his possession.
The Corporation Law does not expressly confer upon the courts the power to remove a director due to
mismanagement; the courts may nonetheless do so in the interest of equity. But in this case, considering that a
receiver has already been appointed that power need not be exercised.
DD: It is not correct to say that the members of the Board act as agents of the stockholders. Agents are subject to
control of the principal; the Board is not controlled by the stockholders. The relationship is more in the nature of
trusteeship than agency.
TAN v. SYCIP Board acting as a body / dead members / quorum Grace Christian High School (GCHS) is a non-
stock corporation; its 15 members are themselves the trustees. There are 11 living trustees. They held an
annual members meeting w/c was attended by 7 members. During the meeting, 4 members were elected to
replace the dead ones. Pacis (member) objected and alleged lack of quorum. Question: should dead members be
counted in determining quorum for the purpose of holding the annual members meeting? No. In stock
corporations, the stockholders have the right to vote for and elect members of the Board to whom they
relinquish complete powers. This is one of their most important rights. The acts of management thereafter
pertain to the Board. In stock corporations, quorum is determined on the basis of outstanding capital stock. In
non-stock corporations, voting rights attach to membership. Each member is entitled to one vote unless
otherwise provided in the Articles or by-laws.
However, only those who are actual members w/ voting rights should be counted. In stock corporations,
the death of the stockholder passes his voting rights to his estate administrator; but in non-stock
corporations, all membership rights are personal and non-transferable, unless otherwise provided in the
Articles or by-laws. Obviously, dead members cannot be counted. The same is provided by GCHSs by-
laws. Thus, w/ 11 remaining members, 6 would constitute a quorum.
However, the by-laws of GCHC provide that the manner of filling in vacancies is by majority vote of the remaining
Members of the Board of Trustees. In this case, the members convened in their capacity as members, not as
trustees as required by the by-laws. They must sit as a Board to validly elect new members. The trustees
must act as a body in a lawful meeting. There is a difference between corporate acts done by the Board,
as opposed to ones done by the members. Thus, the election of the 4 new members cannot be given effect.
FILIPINAS PORT SERVICES v. GO Same facts as above. On executive committee: The authority of the Board to
create an executive committee should be provided for in the by-laws. Filports by-laws are silent on the matter.
Nonetheless, the executive committee created by the Board remains valid. The executive committee
contemplated by Sec. 35 of the Corp. Code is one as powerful as the Board and in effect acts for the
Board itself as distinguished from other committees w/c are w/in the competency of the Board to create
anytime, and whose actions still require confirmation of the same.
DD: An agent may designate subagents unless prohibited by the principal. Nevertheless, for reasons already
mentioned, the Board is not a mere agent but is itself the decision-making body of the Corporation.
BOARD OF LIQUIDATORS v. KALAW general manager / acquiescence / general practice Kalaw was the GM of
NACOCO w/c was engaged in the production and sale of copra. As GM, Kalaw had been concluding sales
contracts w/ various purchasers, some involving substantial amounts all w/ the knowledge and
acquiescence of the Board. Through his efforts, NACOCO obtained significant earnings; the board even granted

Kalaw a special bonus for his performance. In this case, Kalaw concluded several substantial contracts for the
supply of copra, however, due to unforeseen events, such as 4 typhoons, the same proved to be unprofitable.
Nonetheless, he submitted the same to the approval of the Board, w/c after due consideration, and to save the
reputation of NACOCO, recognized and ratified the contracts. NACOCO failed to deliver. One of its buyers, Louis
Dreyfus & Co. sued NACOCO but a settlement was reached for some P 567,000.00. Now, NACOCO seeks to
recover the losses from Kalaw alleging breach of trust and bad faith, and that the contracts required Board
approval under the by-laws.
The contracts are valid in spite of lack of Board approval; and Kalaw is not liable therefor as he did not act
in bad faith. A corporate officer entrusted w/ general management has implied authority to make contracts
or do acts w/c are in the regular course of business. Due regard must be had for the nature of copra; it had to
be disposed of immediately. Also through the acts of Kalaw, NACOCO reaped great benefits; his acts were all
known or at least presumably known to the Board, w/c never objected thereto, or at least, were ratified only after
they were consummated. This has become the practice of the corporation. Thus, the acts of Kalaw are valid
corporate acts. And even assuming that they were entered into w/o prior authority, the same were later
ratified by the Board, cleansing the same of whatever defects it may have previously had.
MONTELIBANO v. BACOLOD-MURICA MILLING milling concession grants / business judgment The Bacolod-
Murica Milling entered into Milling Contracts w/ Montelibano and Gonzaga & Co. (planters) w/c were later
amended to give the planters an increased participation of 60%. The Board of Bacolod-Murica later adopted a
Resolution granting further concessions to the planters depending on the granting by the other Sugar Centrals of
Negros the similar concessions to the said planters. This was in fact further consideration for the planters (and
was incorporated into the milling contracts) who now claim that their concessions should appropriately be
increased pursuant to the Resolution. Bacolod-Murica seeks to renege on the undertaking alleging it is void.
Bacolod-Murica should be bound by the terms of the agreement. It is w/in the powers of the Board to
amend the contracts to make them more acceptable to the planters. The Resolution has been passed in
good faith, and the fact that it may cause losses to the corporation does not suffice to warrant the courts
to review them. This is a matter left to the judgment of the Board, a question of policy, and as long as they
are not illegal and are executed in good faith, they will not be disturbed by the courts. Bacolod must honor
its undertakings.
PHIL. STOCK EXCHANGE v. CA listing shares / regulation / not absolute control / business judgment Puerto
Azul Land Inc. (PALI) applied to the PSE to have its shares listed for the purpose of selling the same to the
public. The PSE, however, taking into consideration the claims of the heirs of Pres. Marcos to certain properties in
the name of PALI, deferred and eventually rejected the application. PALI brought the matter to the SEC w/c
reversed the PSE and ordered the same to list PALI shares. True that the PSE, as the only stock exchange in
the country today, is engaged in a business imbued w/ public interest and is covered by the control and
supervision of the SEC pursuant to the latters mandate to protect the interests of the investing public.
This is especially true considering that the PSE is grantee of a public franchise. Government intervention
in its affairs, to a certain extent, is definitely justified. However, the SEC acted arbitrarily in reversing the
PSE.
The PSE is not under the absolute control of the SEC. Questions of management and policy, in the
absence of bad faith cannot be disturbed. The PSE considered important facts in arriving at its decision. There
was even a sequestration order from the PCGG. The manner of their transfer to PALI was questionable. There
were also allegations that the lands owned by PALI pertain to the public domain. PSE was in fact correct in
finding that to list PALI shares in the stock market will not be in the best interest of the public and would
not be conducive to the goodwill and standards of the PSE.
ONG YONG v. TIU pulling a fast one / decrease of capital stock The Tius owned the First Landlink Corporation
(FLADC) w/c owned the Masagana Citimall. They were in dire financial straits and were indebted to the PNB for
some P 190 million w/c was at their doorstep ready to foreclose. To save the venture, the Tius invited the Ongs to
infuse the needed capital. Through the Pre-Subscription Agreement, they agreed to equal shareholdings. The
Ongs contributed a total of P 190 million used to settle the debt to PNB. The Tius, in addition to cash, contributed
a building and 2 parcels of land. The end goal was for the Tius and the Ongs to own FLADC 50-50 and so it
was. Then business relations soured.
Breaches on both ends took place although the breach committed by the Ongs was relatively minor compared to
those of the Tius. The Ongs refused Cely Tiu to assume the position of Treasurer and Wilson Ong was both
president and treasurer contrary to the Corp. Code. The Tius on the other hand, refused to pay capital gains tax
and documentary stamp tax on the transfer of real properties to FLADC, thus the Ongs refused to transfer in their
name the corresponding shares. Worse, one of the parcels of land to be contributed by the Tius turned out to be in
the name of FLADC already. The Tius alleged that the Ongs refuse to allow them office spaces. Then, the Tius
sought to rescind the Pre-Subscription Agreement and the return to the Ongs of their cash investment;
the Tius get to keep everything else. The SC, in a previous ruling, decided to rescind the agreement.
Hence, a motion for reconsideration by the Ongs.
Considering that rescission cannot be granted for reasons already discussed, and one of the only recognized
ways by w/c corporate assets can be distributed is by way of decease in capital stock, the Tius seek an order
from the court compelling FLADC to file w/ the SEC a petition for decrease of capital stock. This of course is

untenable. This will violate the business judgment rule. That is a decision that only the directors and
stockholders can make. It is a corporate act. Courts will not make decisions for the Board as they are not
in the business of business and are not equipped to make such decisions. Contracts intra vires entered
into by the Board will not be disturbed by the courts unless they are unconscionable, oppressive, or violative of the
rights of the minority.
LIPAT v. PACIFIC BANKING garments / apparent authority / acquiescence / estoppel The Lipat Spouses owned
Belas Export Trading (BET) w/c manufactured and exported garments to Mystical Fashions in the US also owned
by them. Their daughter Teresita managed BET and was granted an SPA to contract and secure loans. Teresita
loaned from Pacific and secured the same w/ a real estate mortgage. Later on, Belas Export Corporation (BEC)
was incorporated w/ the same members/incorporators. Teresita availed of more credit accommodations. It utilized
the same machines, same office, and had the same family as incorporators. For failure to settle their debts, Pacific
bank foreclosed on the mortgage. Now, they claim that the mortgage and various accommodations were ultra
vires acts of Teresita that there was no Board resolution for the purpose.
Untenable! First, BEC never held Board meetings and has never issued Resolutions since its inception. Also,
Pacific had every right to rely upon the apparent authority of Teresita. Apparent authority may be gleaned from
the general manner by w/ a corporation holds business, holding out an officer to the public as having
such powers to act in its behalf, and all w/ the actual or constructive knowledge and acquiescence of the
Board. As against anyone acting in good faith, such as Pacific, the corporation would be estopped from
denying such authority.
WOODCHILD HOLDINGS v. ROXAS ELECTRIC SPA to sell or encumber land / particular acts Roxas Electric
(RECCI) passed a Board Resolution authorizing its president (Roxas) to sell Lot 2 and to execute and sign the
pertinent documents. He transacted w/ Woodchild Holdings and sold the same to the latter, but also conferred
upon it a right of way over Lot 1, as well as an option to purchase certain portions thereof. The sale proceeded,
and Woodchild constructed its warehouse and commenced operations. When it decided to exercise the option as
per the Contract, RECCI refused to sell alleging that Roxas (now dead) was not authorized to sell or encumber
Lot 1. Woodchild invokes the apparent authority of Roxas to sell or encumber the same. Woodchilds contention
cannot be sustained. The authority to sell real property or any real rights thereto must be embodied in a
Special Power. The authority of Roxas was only to sell Lot 2, and thats it. Thus, the right of way over Lot 1
and the option to purchase the same cannot bind RECCI. It is unenforceable.
There can be no apparent authority w/o any act or conduct of the principal w/c has been relied upon in
good faith by the claimant. Woodchild had the burden of proving: (1) the acts of RECCI justifying belief in
such agency, (2) knowledge thereof by RECCI, and (3) reliance thereon by Woodchild. There is no
evidence of any specific acts of RECCI. More so, where a written authority is required to grant authority,
then ratification must likewise be in writing. For there to be implied ratification, the conduct of the principal
must be inconsistent w/ any other hypothesis other than that he approved the acts of his agent. This burden
Woodchild failed to discharge.
DD: Sec. 23 applies even against third parties unless the corporation is barred by estoppel or by its ratification.
FRANCISCO v. GSIS telegrams / apparent authority / notice to officer Trinidad Francisco mortgaged the Vic-Mari
Compound to the GSIS to secure a loan. She defaulted in payment, hence the extra-judicial foreclosure by
GSIS. The outstanding balance of the loan was some P 50,000. Her father, Vicente, wrote GSIS proposing in lieu
of the foreclosure that he pay the same P 30,000 and then the GSIS would be allowed to administer Vic-Mari
Compound for the purpose of applying the proceeds to the balance of the debt. GSIS sent a telegram stating
that the Board approved of the request and bearing the name of its GM, Andal. Vicente paid the amount,
attaching therewith the telegram, but the GSIS did not administer the compound. Thus, the Franciscos
continued to administer the same, but remitting the proceeds to the GSIS. Later on, the GSIS consolidated
ownership of the compound alleging that the telegram did not express the contents of the Board Resolution
(incorrect wording). The GSIS maintain that the true intent was for the Franciscos to also bear the expenses of
foreclosure.
The compromise made through the telegrams is binding. There was apparent authority that of the GM,
Andal. Even assuming it is true that Andal didnt sign it and that it was sent by the Secretary in his name, how are
the Franciscos to know? Persons transacting w/ corporations need not disbelieve every act of its officers,
especially those regular on their face. They are entitled to rely upon external manifestations of corporate
consent. And if a corporation knowingly permits its officers to do acts w/ apparent authority, it is
estopped from denying such authority.
Also, assuming there was a mistake in the telegram, GSIS notified the Franciscos too late and only after having
received several remittances. There was also notice to the GSIS, because Vicente attached the disputed
telegram in replying to that w/c was sent by GSIS. Notice to an officer w/ regard to matters w/in his
authority is tantamount to notice to the corporation. There was thus implied ratification.
DD: The notice to GSIS through the attached telegram was the clincher.

PRIME WHITE CEMENT v. IAC cement deal / no stranger / conflict of interest / disloyalty Alejandro Te entered
into a Dealership Agreement w/ Prime White Cement Inc. through the latters President (Falcon) and Chairman
(Trazo) for him to be the exclusive distributor of the cement produced by Prime White at a fixed price of P 9.70
per bag for a period of 5 years, and at 20,000 bags per month. These terms are very favorable to Te. The Board
of Prime White, however, imposed modifications to the agreement that only 8,000 bags per month be supplied,
and w/ prices subject to readjustment and refused to comply w/ the original agreement, constraining Te to sue.
The Dealership Agreement is unenforceable. There was no express delegation of powers by the Board;
neither was there ratification.
True that the acts of the President may, as a general rule, bind the corporation even in the absence of
express or implied authority whenever done in the ordinary course of business. However, in this case, Te
was no stranger; he was a member of the Board of Directors of Prime White and was Auditor of the same.
This changes the whole scenario. There is conflict of interest in this case; and as director possessing a duty of
loyalty to the corporation, he cannot sacrifice the latters interest for his own benefit. He protected his own
interests by imposing fixed rates knowing full well how cement prices fluctuate but he didnt protect the interests
of the corporation. That being the case, Te, as well as Falcon and Trazo, are all guilty of disloyalty to the
corporation. The contract was lopsided and unfair.
A directors contract w/ his corporation is not always voidable at the instance of the corporation. It may be
ratified by the stockholders, provided it is reasonable and there is full disclosure of his adverse interest.
The same is not the case here. 4 requisites must attend: (1) the presence of such director in the meeting for the
purpose was not necessary, (2) his vote was not necessary, (3) the contract is fair and reasonable, and (4) the
contract has been previously authorized by the Board.
YAO KA SIN v. CA burden of proof / general manager vs. president / general control over the business
Maglana, President and Chairman of the Board of Prime White, sent a letter-offer (Exhibit A) to Yao Ka Sin
Trading (YKS) offering a package deal for the sale and delivery of 45,000 bags of cement for P 243,000. It was
counter-signed and approved by Yao Ka Sin. However, the Board of Directors of Prime White disapproved the
same for being unacceptable to the corporation, although it agreed to a separate sale of 10,000 bags. Thus, YKS
brought a suit for specific performance, seeking to enforce the agreement. Prime White claims that the
agreement was unenforceable as Maglana was not authorized by the Board. The SC ruled in favor of Prime
White. Maglana was not authorized, hence the agreement is unenforceable. The by-laws authorize the
President merely to sign the contracts entered into in behalf of the corporation; but this presupposes a
prior act of the corporation through the Board.
True that there are authorities to suggest that if the president is given general control over business
affairs, it is presumed that he has authority to enter into contracts in the regular course of business. But
such is not the case here. Prime White has a GM who is in charge of the active management of the business.
Maglana, on the other hand, never had a direct hand in the management of the business, and no evidence has
been adduced to suggest that he entered into such contracts before.
Considering that YKS alleges apparent authority, it was up to it to prove that Prime White indeed, through
its acts or conduct, clothed Maglana w/ such authority. This YKS failed to do so. On the other hand, there is
ample evidence to suggest that Maglana cannot sign any contract w/o prior approval by the Board as well as the
NDIC and its legal counsel.
NYCO SALES CORP. v. BA FINANCE discounting checks / prior instances / estoppel Rufino Yao was president
of Nyco Sales. He was approached by the Fernandez Brothers requesting him to allow them to take advantage of
the discounting privileges that Nyco has w/ BA Finance. Thus, the Fernandezes discounted a check w/ Nyco, w/c
thereafter assigned the same to BA Finance. A Deed of Assignment was also entered into. The check bounced,
and now BA Finance goes after both the Fernandezes and Nyco Sales. Nyco alleges that Yao was not authorized
to enter into such contracts, thus the debt is unenforceable as to it. This contention is untenable. The corporate
by-laws themselves empower the president to enter into contracts, borrow money, and sign and indorse
checks for and in behalf of he corporation. Nonetheless, there were already previous and similar
transactions where Yao was allowed to discount such checks w/ BA Finance w/o authorization from the
Board. Nonetheless, BA Finance has always been able to collect from Nyco.
That being the case, Nyco is now in estoppel in pais. By its acts or representations, or by virtue of its
silence, it induced another (BA Finance) to believe that such facts exist and to rely thereupon. It cannot
now repudiate the contract and Yaos authority to enter into such.
GOKONGWEI v. SEC competitor-director / power to impose qualifications / corporate opportunity John

Gokongwei was a stockholder of San Miguel Corp. (SMC). He was also the president and controlling shareholder
of both Universal Robina Corp. and CFC Corp. both of w/c are major competitors of SMC in the production and
distribution of food products. It must also be noted that Robina and CF have already acquired significant shares in
SMC. He sought to be elected to the Board of Directors of SMC; however, the Board, foreseeing the danger of
having the president of a competitor as member thereof, amended the by-laws of SMC (1976) pursuant to an
authority from the stockholders representing 2/3 of the capital stock (dated 1961). The amendment disqualifies
persons engaged in competitive business w/ SMC from being nominated and elected as members of the
Board. The amendment was later ratified by a significant majority of the stockholders. Gokongwei sought to annul

the said amendment alleging that it is unreasonable, oppressive, and deprives him of a vested right to become
member of the Board.
The assailed by-laws are valid; every corporation has the inherent power to adopt by-laws for internal
government and to regulate the conduct and relationships of its members even in the absence of specific enabling
provisions in the charter. Sec. 21 of the Corp. Law expressly allows a corporation to prescribe for
qualifications (among others) of its officers and employees. This is covered by the broad powers of the
Board of Directors. There is no vested right to membership in the Board.
Directors have control of corporate affairs and their duties to the shareholders are fiduciary in nature. It is
perfectly reasonable to disqualify a competitor from membership of the Board as a person cannot serve
two hostile masters w/o betraying either. It is based on sound policy and human experience. Besides,
directors have access to sensitive and confidential information. The rule is consistent w/ the doctrine of
corporate opportunity. It seeks to prevent the opportunity for directors of SMC to take advantage of the
information they gain as such to serve the interests of a business adverse to the same.
Further, to allow Gokongwei to become director of SMC could violate the Constitution and the laws
prohibiting unfair competition and combinations in restraint of trade. Considering also that SMC, Robina,
and CFC are engaged in agriculture, Gokongwei cannot assume directorship of SMC w/o violating the Corp. Law
allowing stockholders to become director of only 1 such corporation, and any participation in another shall be
limited to investment. The by-law was not discriminatory as it applies generally. Gokongwei, though, must
be allowed to prove his qualifications, and the decisions of the Board may be appealed to the SEC.
Separate Opinion of Justice Teehankee:

The prohibition, assuming that it is valid, should only be applied to Gokongwei after a proper hearing, and the
decision of the Board should be appealable to the SEC and eventually to the SC. The said by-laws are
specifically tailored to discriminate against Gokongwei. They also contravene the Corp. Law w/c
recognizes the right of a minority stockholder to be elected director through the process of cumulative
voting. What the Corp. Law has granted cannot be taken away by the by-laws.
DD: According to CLV, it would be sound business practice for additional qualifications of directors to be embodied
in the by-laws.
LEE v. CA summons / trust agreements / legal title A third-party complaint was filed against Alfa Integrated Textile
Mills (Alfa); summons was served through Lee and Lacdao, who alleged that they are no longer directors of the
same as they executed a trust agreement in favor of DBP, w/c now controls the entire business. Under a trust
agreement, a stockholder may confer upon the trustee voting and other rights arising from the shares for a period
not exceeding 5 years (unless made pursuant to a loan agreement). 3 elements must attend: (1) voting rights are
separated from other attributes of ownership, (2) irrevocable for a period of time, and (3) its principal purpose is to
acquire voting control in the corporation. Thus, it may create a dichotomy between legal title ad beneficial
ownership over the shares. Under the present Code, in order to be eligible as director, what is material is
the legal title to, and not beneficial ownership of the stock as appearing in the books of the corporation.
This is the new rule.
Based on the facts, Lee and Lacdao disposed of all their shares through assignment and delivery to DBP;
consequently they ceased to own at least 1 share standing in their name in the books, and are therefore no
longer directors of the same authorized to receive summons in its behalf. There is nothing to indicate that the trust
agreement has already expired when summons was served to Lee and Lacdao. They have in fact ceased to take
part at all in the management.
PALTING v. SAN JOSE PETROLEUM oil companies / patently unlawful provisions on directors Palting, an
investor, filed an opposition before he SEC contesting the licensing and sale in the Philippines of 5 million shares
of San Jose Petroleum (a Panama Corporation). The proceeds of the sales were allegedly to be used to finance
San Jose Oil, a domestic mining corporation. Palting opposed the registration on constitutional grounds
warranting an inspection of the tie-up between San Jose Petroleum and San Jose Oil. It must be noted that
exploitation of minerals and other natural resources is limited to Filipino citizens and corporations at least 60% of
w/c is Filipino owned. It must also be noted that this case was decided when the Laurel-Langley Agreement was
in force granting equal right to Americans to exploit our natural resources.
San Jose Petroleum contends that it complies w/ the citizenship requirement, tracing its ownership and control as
follows. San Jose Oil is 90% owned by San Jose Petroleum (Panama), w/c in turn is owned (majority) by Oil
Investments (Panama) w/c is then 100% owned by Pantepec & Pancoastal Corporations (both Venezuela), w/c
then have thousands of capital stock owned by people residing in the US.
For reasons already stated, it is unreasonable to trace the ownership and control of a corporation ad infinitum to
satisfy the ownership-control requirements. Also, there are provisions in the Articles of San Jose Petroleum
w/c are patently contrary to law such as the fact that directors need not be shareholders and may be
represented in the meeting by proxy, that they are absolutely immune from any liability arising from
contracts they entered into in behalf of the corporation, even ones for their own benefit. Oil Investments as
holder of all shares of San Jose Petroleum executed a voting trust agreement in favor of Buckley and Taylor w/ full

authority to act in behalf of all future stockholders. All these taken together, there is no doubt that to allow the
local sale of San Joses shares would tend to work fraud upon the Philippine investors.
DD: This case was decided even prior to the Corporation Code; but the common-law duties of directors were
upheld.
PRIME WHITE CEMENT v. IAC cement deal / no stranger / conflict of interest / disloyalty Same facts as above.
There is conflict of interest in this case; and as director possessing a duty of loyalty to the corporation, he
cannot sacrifice the latters interest for his own benefit. He protected his own interests by imposing fixed
rates knowing full well how cement prices fluctuate but he didnt protect the interests of the corporation.
That being the case, Te, as well as Falcon and Trazo, are all guilty of disloyalty to the corporation. The contract
was lopsided and unfair. A directors contract w/ his corporation is not always voidable at the instance of
the corporation. It may be ratified by the stockholders, provided it is reasonable and there is full
disclosure of his adverse interest. Such is not the case here.
STEINBERG v. VELASCO re-purchase of shares / dividends during financial crisis / imprudence Steinberg, as
receiver of Sibuguey Trading, goes after Velasco (President), Castillo (VP), Navallo (Secretary-Treasurer), and
Manuel (Director) for amounts corresponding to the (1) purchases of the corporations own capital stock as
well as (2) dividends distributed during a time when the corporation was in dire financial straits. It in fact
later on filed for insolvency. They all contend that when they distributed dividends as well a repurchased corporate
stock, the corporation was then in good condition, but this is belied by the evidence. There was no proof that the
receivables were even attempted to be collected; there is reason to believe that they are useless receivables
already. By purchasing its own stock and distributing dividends, during a financial crisis, the corporations assets
were dissipated, to the prejudice of its creditors, who are entitled to rely upon the fact that corporate stock will not
be repurchased, nor dividends distributed unless there is a bona fide surplus. Also, the persons from whom the
shares were purchased were former directors and this is an indicator of bad faith, or at least, gross ignorance of
duties.
Directors are bound to care for the corporations property and to manage its affairs in good faith. True that they
are not liable for losses caused by honest mistakes of judgment provided they acted w/in the scope of
their authority, but they cannot be excused for imprudence or errors arising from recklessness. They are
bound to exercise at least ordinary skill and judgment. That being the case, the directors in this case are held
secondarily liable or the claimed amounts.
BATES v. DRESSES bank bookkeeper thief / unnoticed by president / lack of diligence Dresser was President
and majority shareholder of a small bank in Cambridge. The bookkeeper, Coleman, devised a scheme to steal
money from the bank. First, since the bank initially lacked a safe, he just pilfered the money manually. But later on,
his scheme became more intricate. He drew checks from his own account, discounted the same, and when the
checks arrived at the bank for clearing, he intercepted the same, charged the amounts to other accounts, and
falsified the records to make the balances agree. All in all, he was able to steal some $ 310,000. The monthly
deposits declined. Upon insolvency, the receiver now goes after the directors as well as Bates for failing to
exercise due diligence.
The directors are not liable. They could have relied on the statements of the cashier, and the fraud employed by
Coleman was then a novelty. Their confidence was warranted by the semi-annual inspections by the government
examiner. However, the same does not apply to Dresser. He had more control and was more exposed to
the problem w/c was in fact apparent given the lavish lifestyle of Coleman at supposedly $ 12 a week
salary. The unexpected shortages and decline in deposits should have warranted him to examine the
records more closely. Through the exercise of diligence, he could have prevented the fraud from being further
perpetrated. Thus, he must be held liable.
SMITH v. VAN GORKOM cheap merger / cannot hide behind business judgment rule The Marmon Group
proposed to buy out the Trans-Union Corporation, the President and CEO of w/c was Van Gorkom. Without any
consultation whatsoever from experts, he chose a proposed price of $ 55. He only consulted w/ the corporations
financial officer. During Board meeting for the purpose, he did not disclose the anomalous manner by w/c he
arrived at the price; objections were not discussed, and the proposal was passed. Thus, the directors are now
sought to be held liable for failure to exercise due diligence.
In this case, there is no doubt that the directors breached their duty of diligence and they cannot hide
behind the business judgment rule. The business judgment rule only establishes a presumption that the
Board acted in an honest and informed manner in the pursuit of the best interest of the corporation. This
presumption can be rebutted; and it can be established that the directors failed to exercise due diligence.
The directors also have the duty of disclosure that they should disclose all facts germane to the transaction
subject to a shareholder vote.
MEAD v. McCULLOUGH wrecking contract / transfer of business / good faith Mead, McCullough, and 3 others
organized what was the Phil. Engineering & Construction Co. (PECC). They each contributed $ 2,000 Mexican
currency, except for Mead who turned over property. Mead was the GM. However, he left for China after
accepting the position as engineer of the Canton & Shanghai Railway Co. In the meantime, the business of PECC
was an utter failure the wrecking contract w/ the naval authorities couldnt be performed, and the business was

going from bad to worse. Thus, the Board convened and decided to sell all the rights and interests of PECC to
the contract in favor of McCullough who thereafter incorporated the Manila Salvage Assoc. and transferred the
said rights thereto. Now Mead goes after McCullough for his investment and for the alleged profits of the same,
among others.
The transfer of the contract to McCullough was done w/ the assent or both majorities of the Board as well
as of the stockholders. There is also nothing to preclude an officer or director from purchasing corporate
property so long as it is done in good faith. Nonetheless, the moment a corporation becomes insolvent, the
directors become trustees of the corporate creditors, and if they themselves are likewise creditors, they cannot
favor their interests over that of the others. The general rule is that a contract entered into by the corporation
w/ its director is voidable at its option. It must be subject to scrutiny. But, this of course may be ratified.
Considering that the abovementioned sale was w/ the consent of both the Board and the stockholders, its validity
can no longer be assailed.
In this case, the transfer in favor of McCullough was done in good faith. It was in fact the only feasible
thing for the Board to do at that time. It therefore would be harsh and unreasonable for a minority
stockholder to hold the majority to his investment where the business can no longer be operated except
at a loss. In fact, McCullough lost a lot of money in the transfer; he acted in good faith throughout. A transaction
done in good faith w/c achieves substantial justice cannot be disturbed based on mere suspicions.
GOKONGWEI v. SEC same facts as above. Directors have control of corporate affairs and their duties to the
shareholders are fiduciary in nature. It is perfectly reasonable to disqualify a competitor from membership of the
Board as a person cannot serve two hostile masters w/o betraying either. It is based on sound policy and human
experience. Besides, directors have access to sensitive and confidential information. The rule
disqualifying competitors from the Board is thus consistent w/ the doctrine of corporate opportunity. It
seeks to prevent the opportunity for directors of SMC to take advantage of the information they gain as
such to serve the interests of a business adverse to the same.
GURREA v. LEZAMA general manager / not officer / must be in the by-laws Gurrea was GM of La Paz Ice Plant
& Cold Storage Co. By virtue of a Board Resolution, he was removed from office. He alleges that he should be
deemed an officer of the corporation w/c under it by-laws can only be removed by 2/3 vote of the outstanding
capital stock. It must be noted that the by-laws makes no mention of the GM, it only mention officers for
purposes of the 2/3 vote requirement. His contention is untenable. Only those enumerated by law, the
charter, or the by-laws are deemed to be officers of the corporation. The rest are mere employees of
subordinates. The GM, no matter how pervasive his powers are, is a mere appointee, agent, or alter ego of
the Board. But he is not an officer. The power to appoint necessarily carries w/ it the power to remove. In
this case, the removal of Gurrea was not illegal. The fact that the manager is held by some criminal statutes
liable for certain acts is only tangential to the issue at hand.
Consolidated Dissents:
The manager is the principal executive officer of the corporation. This is the intent of the legislature in
punishing him for certain criminal acts attributable to the corporation. He should even be placed higher in the
hierarchy than the secretary and the treasurer as he is allowed to take part in the actual administration of the
business. The fact that the Board is the appointing power does not necessarily lead to the conclusion that the GM
is at its mercy.
DD: Follow the majority opinion.
PARDO DE TAVERA v. TUBERCULOSIS SOCIETY executive secretary / service at Boards pleasure Dr.
Buktaw was Executive Secretary of the Tuberculosis Society Inc. When he signified his intent to retire, Dr. Mita
Pardo de Tavera was appointed in his stead by the Board in a temporary capacity. There was no signification in
the letter to her that her appointment has permanent. She was thereafter removed from office by the Board. She
thus filed a suit for damages (not quo warranto) and also praying that she be reinstated. Her suit cannot prosper.
Under the by-laws of the corporation, it is stated that the Exec. Secretary shall hold office at the pleasure
of the Board unless their employment has been fixed by contract. The mere statement by the President in the
Minutes of the Meeting that there is a need for a permanent appointee to the said position does not suffice.
Absent a fixed term, the term of Tavera was coterminous w/ the desire of the Board. Technically, there is
no removal, only an expiration of the term of office. Hence no need for prior notice and hearing.
Considering that the decision of the Board was done in good faith and for the legitimate purpose of reorganization,
no damages are due.
DE ROSSI v. NLRC removal of officers / intra-corporate dispute / SEC jurisdiction De Rossi was an Italian
Citizen and Executive VP and GM of Matling Industrial & Commercial Corp. (MICC). For his failure to secure his
employment permit, as well as mismanagement of business affairs and misuse of corporate funds, he was
removed from office. He thus filed a case before the NLRC for illegal dismissal. Does the NLRC have
jurisdiction over the case? No! The jurisdiction in this case is w/ the SEC. The SEC has jurisdiction over
removal of corporate officers as well as intra-corporate affairs regarding election and appointment of such
corporate officers. Considering that the position of EVP was in the by-laws of MICC, then De Rossi was an
officer. A corporate officers removal, after all, is a corporate act in the nature of an intra-corporate

dispute over management and corporate affairs. It is the thus the SEC, not the NLRC, w/c has not only
jurisdiction but also competence and adjudicative expertise on the matter.
NACPIL v. IBC comptroller / board approval of employment / power of board to create offices / SEC Nacpil was
employed as Asst. GM and Comptroller of the IBC Corporation. Upon the election of the new president thereof
(Templo), his services were terminated due to alleged mismanagement. Nacpil then brought the matter to the
NLRC in a case for illegal dismissal. IBC contends that Nacpil was a corporate officer, thus jurisdiction is w/ the
SEC. Does NLRC have jurisdiction? No! Controversies involving election or appointment of directors,
trustees, officers, or managers of such corporations fall under the jurisdiction of the SEC. There are 2
elements to be considered: (1) status of the relationship between the parties, and (2) nature of the question
subject to the controversy. The fact that as Comptroller he was appointed by the GM is immaterial, as it
required the approval of the Board. The fact that his position was not created under the by-laws is
immaterial. The Board is empowered to create additional officers as may be necessary. A mere employee
occupies no office and is employed only by the manager; no prior Board approval is necessary. It is clear in this
case that Nacpil was not an ordinary employee.
The inclusion of money claims does not convert the action into a labor dispute. On the contrary, the controversy
is one in the nature of corporate affairs and management. It is a corporate controversy w/in the
competence and jurisdiction of the SEC. Note: Under the Securities Regulation Code (RA No. 8799),
jurisdiction over matters covered by Sec. 5 of PD No. 902-A now fall under the RTC.
PEOPLES AIRCARGO v. CA feasibility study and other services / presidents apparent authority Punsalan
was President of Peoples Aircargo. For and in behalf of the corporation, he solicited a proposal for a feasibility
study from Sao, who offered services for P 350,000. Punsalan sent a letter confirming the same. The feasibility
study was accepted by the corporation w/o any objection, and payment was made. Then, Punsalan again
solicited an offer this time for a service manual as well as training program for employees. The manual was
accepted by the corporation and submitted to the Bureau of Customs, enabling it to institute a bonded
warehouse; the training program was also conducted in its warehouse. Meanwhile, Punsalan retired, and
Sao couldnt collect from the new members of the Board who allege that the second contract was unenforceable
as Punsalan was not authorized by the Board.
Based on the facts of the case, Punsalan was obviously clothed w/ apparent authority; thus the contract is
binding. Apparent authority can be gleaned from (1) the general manner by w/c a corporation holds out an officer
to the public as possessing such authority, or (2) acquiescence despite knowledge of his actions. Even assuming
that the contract was unenforceable, it was ratified by acceptance of benefits. The strict rule that corporate
officers have no authority to act for the corporation is slowly giving way to the realization that such
officers have certain limited powers in transacting in the ordinary course of business. In the absence of
a by-law or charter provision to the contrary, the president is presumed to have authority to act w/in the
domain of the general objectives and w/in the scope of his usual duties. A party dealing w / the president is
entitled to assume that he has authority to enter into contracts w/in the scope of the powers of the corporation, and
not otherwise prohibited by law.
BORJA v. VASQUEZ rice deal / separate entity / culpa aquiliana independent of the contract Vasquez (acting
president and manager), for and in behalf of the Natividad-Vasquez Sabani Development Co. obligated the latter
to sell to Borja 4,000 cavans of palay. The corporation was only able to deliver some 2,400 cavans. Thus, Borja
sued Vasquez (not the corporation) seeking to hold him liable for damages and for the sums corresponding to the
undelivered cavans. Based on the preponderance of evidence, Vasquez entered in behalf of the corporation, and
not in his own behalf. That being the case, the Borja has no case against Vasquez, who is not liable, either
principally or subsidiarily. A corporation is a separate entity from its officers. There is no basis to hold Vasquez
liable in the absence of proof that he used the corporate fiction as a mere cloak or device to hide unlawful or
fraudulent purposes, or that he acted in bad faith. It is the corporation that acted negligently in this case.
Assuming, on the other hand, Vasquez caused damage to Borja due to his fault, he would be liable for
culpa aquiliana and not under the contract subject to this suit. In such a case, his liability would be
principal not subsidiary.
Paras Dissent:
Vasquez was president and manager of the corporation, and when he entered into the contract he knew
full well that the corporation was already insolvent. It was in fact thereafter dissolved. He was thus guilty of
fault in preventing the performance of the obligation; it even borders on fraud. He should not now be allowed to
seek refuge under the veil of corporate fiction.
PALAY INC. vs. CLAVE real estate / auto-rescission / prior notice / no bad faith on part of officer Palay Inc.
entered into a Contract to Sell w/ Dumpit. In the contract, there was a stipulation for automatic rescission after 90
days from the grace period in case of default in payment of the stipulated installments. Almost 6 years after the
agreement, Dumpit wrote Palay seeking to update his overdue accounts so that he could assign his rights to
Lourdes Dizon. He then found out that the contract was already cancelled by Palay, and the lot sold to a third
person. He brought the matter to the NHA, w/c ruled that the rescission was void for want of due notice, and
holding Alberto Onstott (president and majority stockholder) solidarily liable w/ Palay for refund, w/ legal interest.
The decision was approved by the Office of the President. The rescission in this case is void for want of prior

notice as required by RA No. 6551. Considering that the lot has been sold to a buyer in good faith, Palay
should be liable for the refund.
But Onstott cannot be held solidarily liable w/ the corporation. There were no badges of fraud just a
mistaken reliance upon the provisions of the contract regarding automatic rescission and waiver of
notice. In the absence of proof that Onstott used the corporate fiction to defraud Dumpit, the former
cannot be held personally and solidarily liable. There is no sufficient ground in this case to set aside the
separate corporate personality of Palay.
DD: If there is only simple negligence, without fraud, there is no personal liability.
ARATEA v. SUICO mining deal / prevented sales / bad faith basis of liability Aratea and Canonigo were the
controlling stockholders of Samar Mining Corp. (SAMDECO). Armed w/ a Board Resolution, they entered into an
agreement w/ Suico, a businessman, for the latter to make certain advances to SAMDECO in consideration for the
grant of exclusive right to market 50% of the total coal extracted by SAMDECO. He also reserved the right of
first priority to operate the mining facilities in case of inability of SAMDECO and was appointed VP of
Administration. Suico started releasing the loans, but failed to sell any of his 50% share of coal produce due to the
stubborn refusal of Aratea and Canonigo to accept his buyers prices stating only that they were too low,
but w/o any supporting reason. Aratea and Canonigo then sold their mining rights to SPMI and their shares in
SAMDECO to SPMIs president, Arturo Dy all in violation of the agreement w/ Suico. Hence, the latter sued
for sum of money w/ damages, seeking to hold Aratea and Canonigo solidarily liable.
True that there is not enough reason to pierce the corporate veil in the absence of any indication that Suico was
misled to believe that the advances were to be for the personal benefit of Aratea and Canonigo. All the loans were
used for the mining project. However, there is basis to hold Aratea and Canonigo liable as directors who
acted in bad faith in carrying out the business of the corporation. They prevented the sales to Suicos
buyers even though their prices were competitive and w/o any standard whatsoever; and they manifestly
violated their agreement by transferring the business. On the basis of their bad faith, they can be held
solidarily and personally liable along w/ SAMDECO.
DD: In this case, there is fraud under Sec. 31.
SINGIAN v. SANDIGANBAYAN behest loans / criminal liability / personally bound The PNB granted an
Irrevocable Letter of Credit and 8 other loan accommodations in favor of Integrated She Inc. (ISI) for the purpose
of financing its business. The loans were allegedly unsupported by enough collateral thereby being in the
nature of behest loans prejudicial to the government and tainted w/ undue favor. Thus, the members of the Board
of PNB as well as ISI including Gregorio Singian, were prosecuted before the Sandiganbayan by the
Ombudsman for violation of the Anti-Graft Law. The SB found the existence of probable cause w/c is not being
questioned before the SC. Of course, such findings cannot easily be disturbed by the SC in the absence of grave
abuse of discretion. Singian alleges that he should not be held liable therefor and the separate personality of the
corporation must be upheld.
Suffice it to say that Singian, in his capacity as Exec. VP of ISI affixed his signature and categorically
bound himself personally to the undertakings in the various loan agreements w/ the PNB. He is thus being
held liable therefor on the basis of his consent. True that the power to increase capitalization (as required in
the loan agreement) as well as to secure the indebtedness w/ more collateral (also required therein) are w/in the
powers of the Board. But it does not follow that corporate officers cannot be held criminally liable for their
criminal acts if it can be proven that they participated in the grand scheme to defraud the government. The
findings of the SB are therefore sustained.
TRAMAT MERCANTILE v. CA tractor / rundown of instances Melchor de la Cuesta sold a tractor to Tramat
Mercantile w/c tendered payment of the same (check). It then sold the tractor along w/ a fabricated lawnmower to
NAWASA, but stopped payment on the check paid to Melchor alleging that the machine was defective and
reconditioned. Thus, Melchor filed a case for collection against Tramat and Ong (its president). The evidence
discloses that the cause for the breakdown of the machinery was Tramats own fault by attempting to fabricate
the same. But there is no basis to hold Ong personally liable. The separate personality of the corporation
must be respected. Personal liability may only attach to the director/trustee when:
1. He assents to patently unlawful acts, for bad faith or gross negligence, or conflict of interest
resulting to damage to the corporation;
2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not
forthwith file w/ the corporate secretary his written objection thereto;
3. He agrees to hold himself liable personally and solidarily w/ the corporation;
4. He is made by specific provision of law to personally answer for his corporate action.

AC RANSOM LABOR UNION v. NLRC AC Ransom Corp. was a family corporation owned by the Hernandezes
engaged in the manufacture of ink products. Its work compound was in Las Pias. Its employees went on strike,
but eventually the same was lifted. 22 of its employees were refused reinstatement. Foreseeing the claim for
reinstatement or backwages, AC Ransom ceased operations and instead incorporated Rosario Industrial Corp.
w/c operated in the same compound. Now the 22 workers claim their backwages and sought to hold AC Ransom
liable. Unable to find any more leviable assets of Ransom, the said workers asked that the responsible officers
thereof be held personally liable for the backwages.
Under the Labor Code, employer includes any person acting in the interest of an employer, directly or
indirectly in this case the responsible officer of the corporation. The corporation is only the employer in
a technical sense. Had the policy of the law been otherwise, then corporations can come up with all sorts of
devices to evade payment of such backwages. Considering that the record does not clearly identify the
responsible officer, the SC held that it should be presumed that such officer is the President of the
corporation who could be deemed its chief operation officer. It in fact is to be a continuing joint and several
personal liability to attach to any subsequent president to assume the post; otherwise the strikers would be unable
to collect should a president w/o leviable assets be elected.
DD: The ruling in this case must be qualified (or better yet, tempered) by the ruling in Del Rosario v. NLRC w/c
requires proof, by clear and convincing evidence, of the participation by the corporate officer in the act.
STOCKHOLDERS & MEMBERS

GARCIA v. LIM CHU SING compensation / shares are not credits Lim Cuan Sy was a stockholder of Mercantile
Bank of China. He held 200 shares worth P 10,000. The Bank was now under dissolution. He previously
guaranteed a debt in favor of the Bank (Lim Chu Sings debt), executing a promissory note therefor w/ an
acceleration clause. Lim Chu Sing failed to pay, leaving a balance of some P 9,000. Now, they claim that their
debts should be deemed compensated. This contention is untenable. A share of stock is not an
indebtedness to the owner; hence it is not a credit. The capital stock is a trust fund for the benefit of the
corporate creditors who deal with it on the credit of its capital stock. Not being a creditor of the Bank, Lim
Cuan Sy cannot claim compensation.
BAYLA v. SILANG TRAFFIC CO. purchase and sale vs. subscription agreement Bayla, among others, entered
into an Agreement for Installment Sale of Shares w/ the Silang Traffic Co. w/ a stipulation that in case of failure
to pay or to comply w/ obligations arising thereunder, or if the shares are attached or levied upon by the
subscribers creditors, then the said shares shall automatically revert to the corporation and payments previously
made are deemed forfeited. For alleged failure to pay, Silang deemed the agreement rescinded and forfeited the
payments. Bayla contends that a corporation has no capacity to release an original subscriber to its capital stock
from the obligation to pay for shares, and any such agreement is invalid. He thus seeks to recover the monies
paid.
The stipulation is valid. The agreement was not a subscription agreement but only one of purchase and
sale. While Bayla was designated as subscriber, the corporation was designated as seller. The corporation
was already existing at that time; and a subscription of stock in an existing corporation is, between the subscriber
and corporation, simply a contract of purchase and sale. A subscription is the mutual agreement of the
subscribers to take and pay for stock of a corporation, while a purchase and sale is merely an
independent agreement to buy shares of stock at a stipulated price. Certain provisions of the Corporation
Law such as assessment and call for unpaid subscriptions do not apply to mere purchase and sale agreements.
Nonetheless, in the absence of demand on the part of the corporation, the obligations of Bayla have yet to
become due.
ONG YONG v. TIU (2002) rescission / assets contributed / no shares credited It must be noted that this case is
only a predecessor to the 2003 case of the same name. The Tius owned the First Landlink Corporation
(FLADC) w/c owned the Masagana Citimall. They were in dire financial straits and were indebted to the PNB for
some P 190 million w/c was at their doorstep ready to foreclose. To save the venture, the Tius invited the Ongs to
infuse the needed capital. Through the Pre-Subscription Agreement, they agreed to equal shareholdings. The
Ongs contributed a total of P 190 million used to settle the debt to PNB. The Tius, in addition to cash,
contributed a building and 2 parcels of land. The end goal was for the Tius and the Ongs to own FLADC 50-
50 and so it was. Then business relations soured. The Ongs refused to credit the land to the Tius for the
purpose of issuing to them the corresponding shares; they also refused to allow the Tius to assume certain
corporate offices agreed upon.
The SC in this case affirmed the decision of the CA rescinding the Pre-Subscription Agreement. The agreement
gave rise to mutual and reciprocal obligations and thus can be the proper object of rescission under Art. 1191.
Upon the execution of the necessary Deeds of Assignment over the agreed parcels of land to be
contributed to FLADC, it was then incumbent upon the Ongs to credit the corresponding shares to the
Tius. In failing to do so, they violated their obligation arising from the subscription agreement. The CA, in
ordering rescission, did not violate the rule against distribution of corporate assets prior to dissolution;
what is being ordered here is liquidation, not dissolution. Since rescission has been granted, it only

follows that the properties contributed to the corporation for w/c it has failed to issue the corresponding
shares should be returned to the subscriber. There can be no misappropriation in such a case.
TAN v. SYCIP dead members / release from subscription Grace Christian High School (GCHS) is a non-stock
corporation; its 15 members are themselves the trustees. There are 11 living trustees. They held an annual
members meeting w/c was attended by 7 members. During the meeting, 4 members were elected to replace the
dead ones. Pacis (member) objected and alleged lack of quorum. Question: should dead members be counted in
determining quorum for the purpose of holding the annual members meeting? No! In stock corporations, the
stockholders have the right to vote for and elect members of the Board to whom they relinquish complete
powers. This is one of their most important rights. The acts of management thereafter pertain to the Board. In
stock corporations, quorum is determined on the basis of outstanding capital stock. In non-stock corporations,
voting rights attach to membership. Each membership is entitled to one vote unless otherwise provided
in the Articles or by-laws.
However, only those who are actual members w/ voting rights should be counted. In stock corporations,
the death of the stockholder passes his voting rights to his estate administrator; but in non-stock
corporations, all membership rights are personal and non-transferable, unless otherwise provided in the
Articles or by-laws. Obviously, dead members cannot be counted unless there is a provision in the
Articles or By-Laws allowing transmission of such rights. Under the by-laws of GCHS only remaining or
actual members may be allowed to vote. Thus, w/ 11 remaining members, 6 would constitute a quorum.
TAN v. SEC certificate of stock / tangible representation / transfer through other means Alfonso Tan held 400
shares w/ Visayan Educ. Supply Corp. During his presidency, he transferred 50 shares to his brother Angel so that
the latter may assume the position of Director in the Board. His Certificate No. 2 representing his 400 shares
was thereafter cancelled by the Board; Cert. No. 6 was issued to Angel for his 50 shares, and Cert. No. 8 was
issued to Alfonso for his remaining 350 shares. However, Alfonzo refused to endorse Cert. No. 2 and instead
kept the same. When Alfonso was dislodged from the presidency, he withdrew from the Corporation. He
exchanged Cert. No. 8 for a vast quantity of stocks in trade (worth some P 2 million), but now he argues that the
cancellation of his original Cert. No. 2 was illegal and violative of due process due to his non-endorsement. His
contention is untenable.
True that shares of stock may be transferred through delivery coupled w/ endorsement; but that is not
the only way by w/c to transfer such shares. The Certificate of Stock is only a paper representation to
evidence the holders interest and status in the corporation. It merely expresses the contract but is not itself
the contract. In this case, there was already a valid transfer; that is why Angel was able to assume the position of
director through the transfer to him of 50 shares from Alfonsos Cert. No. 2. Certificates of Stock are not
negotiable instruments, and the holder thereof takes the same subject to the rights or defenses of the
transferor or creditors.
DD: There was already enjoyment of the prerogatives of ownership; there was thus a valid delivery.
DE LOS SANTOS v. REPUBLIC wartime transfer / no record in the books / questionable circumstances De Los
Santos purchased from Campos and Hess, during the Japanese Occupation, Certificates of Stock representing
1,600,000 shares w/ the Lepanto Consolidated Mining Corp. The Certificates were in the name of Madrigal,
who was trustee for the Japanese Mitsui Corporation, but they purchased it nonetheless. After the liberation,
the shares are now being confiscated by the Republic pursuant to the Trading with the Enemy Act. De Los Santos
asserts title, claiming that he validly purchased the same. His contentions cannot stand. He presented no
evidence to substantiate his claim; both Hess and Campos are dead and cannot testify as to the alleged sale.
Transfers of Certificates of Stock are not valid except as between the parties, until they are entered in the
books of the corporation. In this case, assuming there was a sale between De Los Santos and
Hess/Campos, the sale is valid only between them and cannot prejudice the rights of Mitsui, Madrigal, or
the Republic.
Certificates of Stock are not negotiable. They may be transferred by delivery coupled w/ endorsement, but
the holder takes them w/o prejudice to such rights or defenses as the registered owners or creditors
thereof may have under the law, except to the extent that they are barred by estoppel. Further, De Los
Santos cannot feign good faith. He was not an innocent purchaser, because he purchased the Certificates under
circumstances that warranted him to investigate. The Certificates were in the name of Madrigal in trust for the
Mitsui Corporation w/c was prohibited by the Japanese Government from transferring the same. Also, they were
then worthless to Filipinos or Americans, as the Japanese were at the height of their victories at the time of their
purchase.
PONCE v. ALSONS CEMENT not recorded in books / cannot compel secretary / power of attorney Fausto Gaid
was an original incorporator of Victory Cement (now Alsons). He executed a Deed of Undertaking and
Indorsement in favor of Ponce for the transfer of some 239,000 shares w/ the said corporation. Ponce seeks to
compel the corporate secretary to issue him the corresponding Certificates of Stock, but the latter refused thus
the petition for mandamus. The corporate secretary cannot be compelled to issue the said Certificates
because the transfer of the shares was not recorded in the books of the corporation. Thus, the transfer is
binding only as between the parties thereto, but does not bind the corporation or other parties. A

corporation looks only to its books to determine who its stockholders are. Only upon recording of the
same is the corporation mandated to recognize such right and issue the corresponding Certificate.
Similarly, Ponce cannot validly compel the secretary to record the transfer in the books. It should be Gaid
who should order the transfer, or at least Ponce should present a power of attorney authorizing him to
demand the recording thereof. Absent such proof, and armed with only a Deed of
Undertaking/Indorsement, the secretary could validly refuse registration. It only follows that the secretary
may refuse the issuance of the Certificate.
DD: The Deed of Undertaking and Indorsement is actually just an assignment. There must be specific instruction
from the stockholder to cause the transfer in the books of the corporation.
BACHRACH MOTORS v. LACSON LEDESMA pledge / quasi-negotiable / tug-of-war between creditors The
facts of the case, stripped of non-essentials, are as follows. Bachrach Motors and PNB are both creditors of
Lacson Ledesma, battling over his properties for the purpose of satisfying their claims. Subject to this controversy,
among others, are stock certificates w/ the Talisay-Silay Milling Corporation in the name of Ledesma. Ledesma
mortgaged various real properties to PNB for the purpose of securing his debts, and in the same transactions, he
pledged Stock Certificate No. 772 (later cancelled and replaced by Stock Certificate No. 1155) in favor of the
PNB. He delivered to the possession of the PNB the said certificates. Bachrach, on the other hand, obtained
favorable rulings in civil cases against Ledesma. Bachrach was able to garnish or attach various properties of
Ledesma including whatever proceeds he may derive from his interest in the Talisay-Silay Milling Corp. Bachrach
claims that it has a preferred right because the Certificated pledged to the PNB are not themselves the
shares, arguing that the shares being intangible cannot be delivered to the possession of PNB, hence they
cannot be the subject matter of pledge. This contention is of course untenable.
True that Stock Certificates are merely tangible representations of the shares they represent. However,
they are quasi-negotiable instruments in the sense that they can be given in pledge or mortgaged to
secure an obligation. Modern commercial practice has been towards the trend of placing them near the plane of
commercial paper. They may pass form hand to hand and whenever accompanied by duly executed Deeds of
Assignment and powers of attorney (w/c may be in blank), they confer good title.
RAZON v. IAC endorsement is mandatory / close friend but w/ covetous heir Enrique Razon incorporated the E.
Razon Corporation for the purpose of engaging in arrastre services. Some of the other incorporators backed out,
but Razon continued the business and transferred certain shares to his friends who are to serve as nominal
parties. He transferred 1,500 shares to his close friend Juan Chuidian, but paid for the same. The Certificate was
placed in the name of Chuidian and recorded in the books as such. They had a verbal agreement that
title thereto was to remain w/ Razon, but Chuidian had the option to purchase the same. The Certificate of
Stock remained in the possession of Razon all along, until they deposited the same in the bank for joint custody.
Then Chuidian died, and his son Enrique now wants the shares. Razon has nothing to support his claim of a
verbal agreement.
The procedures for transfer of shares are mandatory. From the point of view of the corporation, Chuidian
was the owner of the shares. Considering that Razon claims otherwise, he assumed the burden of proving
the transfer to him according to the procedure in the by-laws, or in the absence thereof, the procedure in
the law. This Razon failed to do. There was no proper indorsement, and the shares were registered in the
name of Chuidian. For failure to comply w/ the said rules, Razon lost the case.
BITONG v. CA fraudulent compliance / requirements / no presumption of regularity Nora Bitong filed a

derivative suit against the Board of Directors of Mr. & Ms. Publishing (MM) alleging mismanagement (among
others), but the members of the Board questioned her standing to sue alleging that the true party to this case
true party is JAKA was JAKA Investments. The evidence discloses that Bitong is only a minor stockholder and holder-in-trust for
JAKA. Bitong alleges that she is a bona fide stockholder, alleging that she acquired the same from JAKA through
a Deed of Sale. She also presents as evidence the fact that Cert. of Stock No. 008 appears in the record books of
Deed of Sale MM in her name. The said Certificate was also in her name.
CoS - record However, in spite of the foregoing, her contentions cannot be sustained. The records of the corporation
are not conclusive but merely prima facie evidence and can be proved otherwise though other evidence
w/c, in this case, point to the fact that it is still JAKA that is the true party to the case, and she was acting
as mere agent thereof hence w/o standing to file the derivative suit. The records appear to be fraudulent,
and the books were placed in her custody where she made the entries. Also the Certificate in her favor appears to
have been fraudulently antedated to 1983, when her right as stockholder accrued only in 1989 already after the
alleged mismanagement took place.
The procedure in the Corp. Code contemplates certain steps: (1) the certificate must be signed by the
president/VP and countersigned by the secretary or asst. secretary and under the corporate seal (2)
indorsement and delivery thereof w/c is the operative act of transferring the same, (3) payment of full
subscription or par value as the case may be, (4) the original certificate must be surrendered in case of
transfer, and (5) to bind third persons, the same must be registered in the books of the corporation.
Presumption of regularity does not apply. Bitongs compliance w/ such requirements is doubtful. She was not a
bona fide stockholder at the time she instituted the derivative suit.

DD: But let us say that Bitong sold the shares to an innocent purchaser for value. Such a sale would be valid as
the purchaser is entitled to rely upon the books of the corporation (extra-corporate level).
RURAL BANK OF LIPA v. CA delivery / mere assignment / no stockholder rights conferred yet Reynaldo
Villanueva executed a Deed of Assignment, assigning his shares in the Lipa Rural Bank, in favor of certain
stockholders of the said bank represented by the Directors. The Villanuevas were also heavily indebted to the
Bank. The bank demanded the surrender of their Certificates of Stock, but the latter ignored the demand.
Thereafter, an annual stockholders meeting was conducted where new Directors were elected, w/o notice to the
Villanuevas. The Bank alleged that they were no longer entitled to such notice and that they have already
relinquished their rights as stockholders to the said Bank. The contention of the Bank is untenable. There is a
procedure mandated by law for the transfer of ownership over shares of stock. There must be (1) delivery
of the stock certificate, (2) endorsement by the owner or his authorized representative, and (3) the transfer
must be recorded in the books of the corporation to bind third parties. The absence of endorsement
coupled w/ delivery is a fatal defect; the execution of the Deed of Assignment is insufficient.
While it is true that there are no third parties involved and the agreement is binding, it doesnt follow that
the transfer was automatically effective. As mere assignees, the other stockholders cannot enjoy the
status of a stockholder such as the right to vote or be voted for, and to receive dividends. There was yet
no transfer of ownership.
SANTAMARIA v. HSBC street certificate / purchaser in good faith Santamaria purchased through the brokerage
of Woo Uy-Tioco, 10,000 shares of Batangas Mineral Inc. She was issued Stock Cert. No. 517 but it was issued
in the name of Woo Uy-Tioco. She then dealt w/ Campos & Co. (another brokerage) for the purchase of Crown
Mines shares, and she delivered Stock Cert. No. 517 to the latter; it must be noted that the Certificate was
indorsed in blank. However, in violation w/ its agreement w/ Santamaria, Campos pledged the Certificate to
HSBC, w/c thereafter foreclosed on the same after failure of Campos to comply w/ its obligations. HSBC then
wrote Batangas Mineral for the purpose of registering the transfer of shares in its books. Now Santamaria goes
after HSBC, asserting her title thereto.
Santamaria can no longer claim the same from HSBC, w/c is a bona fide purchaser in good faith. It was
her own negligence that gave rise to her predicament. Her Certificate was in the name of Woo Uy-Tioco,
and it was indorsed in blank. It therefore was quasi-negotiable or what is otherwise known as a street
certificate. It was in such form as would entitle any possessor thereof to a transfer in the books of the
corporation. By clothing Campos w/ apparent authority to indorse the same and failing to take precaution, she is
now barred by estoppel.
NEUGENE MARKETING v. CA stolen certificates / true import of the blank indorsement Neugene Marketing
was a corporation engaged in trading. Yang, Sy, and Suen (Respondents), allegedly holders of at least 2/3 of the
outstanding capital stock convened a stockholders meeting for the purpose of dissolving the corporation. The
SEC affirmed the dissolution. However, a few months thereafter, Tan, Martin, Moreno, and Lee (Petitioners)
surfaced and assailed the validity of the dissolution alleging that at the time when the Petitioners convened and
voted for the dissolution, they were no longer stockholders of Neugene. The Petitioners on the contrary
contend that they are the true stockholders owning at least 80% of the outstanding capital stock.
It turns out that the Respondents endorsed their stock certificates in blank to the Uy Family the beneficial
owners of Neugene. The evidence would disclose that the said stock certificates were stolen from the vault
of the Uy Family by Lee (member of the Uy Family) and Moreno (corporate secretary) and subsequently
endorsed to the Petitioners. The said transfers were also not recorded in the books of the corporation
w/c reflects that the Respondents had title to such shares. The inscriptions in the Stock Transfer Book
stating that the certificates pertaining to the Respondents were cancelled are obviously fraudulent.
Lee and Moreno acted in bad faith in assigning the subject certificates to the Petitioners knowing full
well the true import of the blank indorsements w/c was for the Respondents to divest themselves of
ownership in favor of the Uy Family. The assignment in favor of the Petitioners is obviously not supported
by any consideration making it void and inexistent. The assignments also lacked the proper approval of
the transferors. All that taken together, the Respondents are obviously the true stockholders of Neugene at the
time they dissolved the same. Thus the dissolution stands.
FUA CUN v. CHINA BANK mortgaged shares / valid between parties / notice to third parties Chua Soco
subscribed for 500 shares of stock w/ China Bank and paid half the price therefor. He was issued a receipt
stating that the certificates for the 500 shares will be issued to Chua upon payment of the full purchase price.
Chua Soco then executed a chattel mortgage over the said shares in favor of Fua Cun to secure a debt. He
endorsed the receipt and delivered the same to the mortgagee. Chua then became heavily indebted to the Bank
w/c attached his interest in the 500 shares. It must be noted that the attachment was done already after the Bank
received notice of the chattel mortgage. Who has a better right to the shares, Fua (as mortgagee) or the
Bank? Fua Cun has a better right. First of all, a corporation holds no lien upon shares of stockholders for
the latters indebtedness to the corporation. Chattel mortgages over shares of stock are valid as between
the parties. Equity in shares of stock can be validly assigned (or mortgaged) and such transaction is valid

as between the parties and as to persons who have notice thereof. It must be noted that the Bank had notice
of the mortgage. It cannot therefore claim a better right.
Obiter: shares of stock are intangible and it is somewhat difficult to be treated as a chattel and mortgaged in such
manner. Hence the recording of the mortgage constitutes constructive notice to third parties who are not
expected to look elsewhere than the books of the corporation to secure themselves of the title or right of
the transferor or mortgagor.
Note: Payment by the subscriber of ! of the price for the subscription does not entitle him to a certificate of stock
for ! of the said shares.
MONSERRAT v. CERON usufruct over shares / mortgage / need not be recorded / not transfers Monserrat was
president and manager of Manila Yellow Taxicab. He owned 1,200 shares. Due to his indebtedness to Ceron, he
assigned to the latter the usufruct over 600 of his shares. Ceron only enjoyed the right to collect the fruits thereof,
but Monserrat reserved ownership and the right to dispose the same. For this purpose, Certificate No. 7 was
issued in favor of Ceron and recorded in the books of the corporation. Ceron thereafter mortgaged the said
shares to Matute and delivered to the latter possession of the certificate. Matute was also shown the books of the
corporation where no notation of the usufruct was seen. Now, Monserrat seeks to declare the mortgage to Matute
null and void.
The mortgage is valid. Matute was a purchaser in good faith and is thus entitled to the protection of the
law; he even proceeded to the corporate office to check the books and found nothing conspicuous there.
Recording the mortgage in the books of the corporation is not essential to its validity or binding effect
upon third persons. The Corporation Law states that only transfers need be recorded in the books to
bind third persons. Transfer means passing absolute ownership over the property, not merely
constituting it as a security, as in the case of a mortgage.
CHUA GUAN v. SAMAHANG MAGSASAKA attaching creditors / registration in Register of Deeds Gonzalo Co
Toco was owner of some 5,800 shares w/ the Samahang Magsasaka Corp. w/c has principal office in Nueva
Ecija. He mortgaged the shares to Chua Chiu to secure a debt; Chua Chiu then assigned his rights to the
mortgage to Chua Guan. The encumbrances were registered w/ the Manila Register of Deeds and in the office of
the said corporation. However, the corporation received notice from attaching creditors of garnishment of the
said shares prior to registration of the mortgage. Gonzalo failed to pay, thus Chua Guan foreclosed on the
same and was declared highest bidder. He tendered the certificates of stock to the President, Secretary, and
Treasurer of the corporation for the purpose of cancellation and issuance of new ones, but the latter refused. Thus
he seeks a writ of mandamus to compel the said corporate officers to issue in his favor the said certificates. Who
has a better right, the mortgagee or attaching creditors? Did the registration in the register of Deeds (Manila)
constitute constructive notice?
In this case, the SC ruled in favor of the attaching creditors. As pointed out, the garnishment was received
by the corporation prior to registration therewith of the mortgage. Neither will the registration in the
Registry of Deeds rescue the mortgagees claim. Considering that shares are intangible, registration of
mortgages thereon seems problematic. The SC ruled in this case that the proper place for registration of
such mortgage is the registry of the place where the principal place of business is located (Nueva Ecija). If
the registrant and the principal office are domiciled in different places, then registration must be done in
both places. What is registered is not the Certificate of Shares but the participation in the corporation.
Considering that the mortgage was defectively registered, the rights of the attaching creditors must be favored.
Note: True that the Corporation Law states that shares may be transferred by endorsement coupled w/ delivery;
this however does not preclude the owner from transferring his interest therein through other means. But the
shares still standing in the books of the corporation may be subject to levy or attachment.
USON v. DIOSOMITO recording in the books / no prejudice to third persons or attaching creditors Diosomito
was owner of 75 shares w/ the North Electric Co. He sold the same to Barcelon who did not present the same to
the corporation for cancellation and issuance of new certificates as well as registration is the books of the
corporation. In the meantime, Uson was able to obtain a favorable ruling in a civil action and attached the shares
of Diosomito when the same still stood in his name in the books of the corporation. The sale to Barcelon was not
recorded until some 9 months after the attachment. So who has a better right? The attaching creditors have a
better right. The court still adheres to the principle that no transfer shall be valid except as between the
parties until the transfer is entered and noted upon the books of the corporation. When Uson obtained the
attachment, the shares still stood in the name of Diosomito in the books of the corporation; thus her
rights cannot be prejudiced.
ESCAO v. FILIPINA MINING un-issued shares / same rule applies Salvosa owned both active and un-issued
shares held in escrow w/ the Filipinas Mining Co. The said shares stood in his name in the books of the
corporation. Escao sued Salvosa and secured a garnishment over his issued and un-issued shares held in
escrow. Before judgment was rendered, Salvosa sold the said shares to Bengzon, who thereafter sold the shares
to Standard Investment. None of the said sales was notified to the corporation or recorded in its books until after 3
years from the attachment. Now, Standard Investment is claiming that there must be a distinction between duly
issued shares and un-issued shares for the purpose of applying the recording requirement under the

Corporation Law. They allege that the transfer of un-issued shares held in escrow is valid as to the whole world
even w/o being recorded in the books of the corporation.
Untenable. There is no reason to treat them differently. The purpose of the law in requiring registration
applies to both kinds of shares, namely: (1) to enable the corporation to know at all times who its actual
stockholders are due to the mutual rights between them, (2) to afford the corporation an opportunity to
object or refuse to consent to the transfers for valid reasons, and (3) to avoid fictitious and fraudulent
transfers.
It is also illogical to hold that un-issued shares still held by the corporation in escrow pending
authorization of the government for their issuance may be negotiated more freely than active or issued
shares evidenced by certificates of stock. All the foregoing considered, Escao should be deemed to possess
the better right.
NAVA v. PEERS MARKETING unpaid subscription / no duty to issue certificate / transfer valid inter se Teofilo
Po was subscribed to 80 shares w/ the Peers Marketing Corp. for w/c he has paid the value equivalent to 20
shares only. Thus the corporation has an unpaid claim for the 60 shares. Po sold 20 of his shares to Nava. Nava
thereafter requested the officers of the corp. to register the sale in its books, but the latter refused, thus
constraining him to seek the remedy of mandamus. The officers claim that no shares of stock against w/c the
corporation holds an unpaid claim may be transferred in the books of the corporation. The SC ruled against
Nava. The procedure for the registration of the transaction in this case cannot be complied with
considering that no certificate of stock has yet to be issued. The corporation is under no obligation to
register the same in its books considering the unpaid claims of the latter; hence there is no cause for
mandamus.
The subscriber is as much bound to pay his subscription as he would any other debt. In this case, in the
absence of the certificate of stock, w/c the corporation is yet obliged to issue, then the assignment of the
corporate shares is valid only as between the parties thereto (Po and Nava).
RIGHTS OF STOCKHOLDERS & MEMBERS

LAMBERT v. FOX suspension of right to sell / reasonable length / valid / liquidated damages John R. Edgar
Co. was a business engaged in the sale of books and stationery. Its creditors took over and incorporated the
business and received in consideration of their credits, shares of stock. Lambert and Fox were the largest
stockholders. Recognizing that the success of the corporation depends in them retaining their shares of the next
year, they entered into an agreement not to sell, transfer, or otherwise dispose of their shares until after 1
year. In case of violation, there was a stipulation for liquidated damages amounting to P 1,000. Fox, despite the
objection of Lambert, sold his shares to McCullough of EC McCullough & Co., a competitor of their business. Now,
Lambert seeks to recover the liquidated damages. Fox contends that the stipulation is illegal, in restraint of trade,
and against public policy. The SC disagreed. The suspension of the power to sell has a beneficial purpose,
results in the protection of the corporation as well as the parties to the contract, and is reasonable as to
the length of time of the suspension. The suspension is legal and valid. Thus, Fox is liable for the liquidated
damages.
PADGETT v. BABCOCK & TEMPLETON INC. non-transferable / unreasonable restraint Padgett was an
employee of the Babcock & Templeton Corp. During his employment he bought 35 shares at P 100 per share, and
received by way of bonus, 9 shares, for w/c 12 Certificates of Stock were issued to him all bearing the words
non-transferable. Before severing his relations w/ the corporation, he proposed to sell the shares to the latter,
but the corporation refused to buy the shares unless for P 80 per share. Padgett also alleges that the non-
transferable provision in the Certificates is void. The restriction imposed regarding the disposition of the
shares is null and void for being in restraint of trade and for constituting an unreasonable limitation to the
right of ownership. Shares are personal property and may be disposed of by the stockholder unless the
corporation is dissolved, or his right is restricted due to his own action. Any such restriction must be
strictly construed. However, there is no existing agreement or law that would compel the corporation to buy the
shares at their par value of P 100.
FLEISCHER v. BOTICA NOLASCO preferential right / void Gonzales owned 5 shares w/ Botica Nolasco Inc. He
assigned and delivered the same to Fleischer by accomplishing the endorsement form in the back of the
Certificate. When Fleischer sought to have the transfer recorded in the books of the corporation, the Corporate
Secretary refused alleging that there is a by-law giving the said corporation a preferential right to purchase the
shares of retiring stockholders. Fleischer refused to sell the same to the corporation, and brought this action for
mandamus. Shares of stock are personal property and may be transferred w/o any restriction as to whom
the transfer may be made. The law does not suggest that any discrimination may be created by the
corporation for or against any buyer; and the stockholder is at liberty to dispose of them to whomever he
pleases. The by-law is thus contrary to law.
The right to unrestrained transfer of shares inheres in the very nature of the corporation. Only the law may provide
restraints thereupon. The only restriction in the law states that no transfer is valid unless only as between

the parties unless the same is recorded in the books of the corporation. The by-laws may only provide for
the manner by w/c the transfers can be made, but not any restrictions thereto. Finally, the by-law cannot
prejudice Fleischer who was not privy thereto and was a purchaser in good faith.
DD: By-laws cannot restrict the free transferability of shares.
PONCE v. ALSONS CEMENT not recorded in books / cannot compel secretary / power of attorney Fausto Gaid
was an original incorporator of Victory Cement (now Alsons). He executed a Deed of Undertaking and
Indorsement in favor of Ponce for the transfer of some 239,000 shares w/ the said corporation. Ponce seeks to
compel the corporate secretary to issue him the corresponding Certificates of Stock, but the latter refused thus
the petition for mandamus. The corporate secretary cannot be compelled to issue the said Certificates
because the transfer of the shares was not recorded in the books of the corporation. Thus, the transfer is
binding only as between the parties thereto, but does not bind the corporation or other parties. A
corporation looks only to its books to determine who its stockholders are. Only upon recording of the
same is the corporation mandated to recognize such right and issue the corresponding Certificate.
Similarly, Ponce cannot validly compel the secretary to record the transfer in the books. It should be Gaid
who should order the transfer, or at least Ponce should present a power of attorney authorizing him to
demand the recording thereof. Absent such proof, and armed with only a Deed of
Undertaking/Indorsement, the secretary could validly refuse registration. It only then follows that the
secretary may refuse the issuance of the Certificate.
In view of the foregoing, in the absence of registration in the books of the corporation and a right to compel the
same due to a lack of a power of attorney for the purpose, mandamus will not lie against the Secretary to compel
the latter to issue the said Certificates as the Secretary has no clear legal duty to do so.
LEE v. CA summons / voting trust agreements / legal title A third-party complaint was filed against Alfa Integrated
Textile Mills (Alfa); summons was served through Lee and Lacdao, who alleged that they are no longer directors
of the same as they (along w/ all other stockholders) executed a voting trust agreement over their shares in
favor of DBP, w/c now controls the entire of business. They allege that they are divested of their status as
directors and thus ineligible to receive summons in behalf of the corporation. Their contention is meritorious.
For there to be a voting trust agreement, 3 elements must attend: (1) voting rights are separated from other
attributes of ownership, (2) irrevocable for a certain period of time, and (3) its principal purpose is to acquire voting
control in the corporation. A voting trust agreement may confer to the trustee (DBP) not only voting rights,
but also other rights pertaining to the shares, provided the same is done for a legitimate purpose. It may
create a dichotomy between beneficial or equitable ownership and legal title.
Under the Corporation Code, a director must have legal title to at least 1 share standing in the books of
the corporation to be eligible as such. Legal title, not beneficial ownership, is material. Based on this alone,
Lee and Lacdao can no longer be deemed directors of Alfa for the purpose of receiving summons. When
summons was served upon them, there is no evidence to suggest that the voting trust agreement has expired
especially considering that the same was entered into pursuant to a loan and coterminous w/ the same.
Nonetheless, an examination of the provisions of the agreement will reveal that not only title to but also
beneficial ownership was transferred to DBP w/c has taken full control of the business.
GONZALES v. PNB right to inspect / good faith & legitimate purpose / interest as stockholder Gonzales
purchased 1 share w/ the PNB and thereafter demanded to be allowed to inspect the records of its transactions
especially since he wanted to inquire into the validity of certain transactions, such as the PNBs guaranteeing of
obligations of Southern Negros Development Corp. for the construction of a sugar mill, and its funding of the
constructions of the Cebu-Mactan Bridge and the Passi Sugar Mill. Having been denied by the Secretary, he
brought this case of mandamus. The right of inspection under the Corporation Code limited the broad grant
under the old law. Now, the following conditions must be present: (1) the inspection must be during
reasonable business hours, (2) that the person using the info must not have been guilty of improperly
using the same, and (3) that he must be acting in good faith and for a legitimate purpose. The
circumstances do not indicate good faith on his part. His obvious purpose in acquiring 1 share was to pry into
transactions entered into even prior to the time when he became a stockholder. This may be impelled by some
sense of civic duty, but it is not germane to his interest as a stockholder.
Also, to allow him to pry into the records of the PNB will violate its charter w/c is the specific law
applicable here. The PNB is not generally governed by the Corporation Code, but is governed by its charter w/c
mandates confidentiality of its records.
SAN MIGUEL CORP. v. KHAN derivative suit / miniscule shares / immaterial Del Rosario held 20 shares w/ SMC
and was issued qualifying shares pursuant to orders of the PCGG arising from a sequestration case enabling
him to assume a position in the Board. The Board of SMC agreed to assume the all obligations of the
Neptunia Corporation in consideration for the sale of some 33 million SMC shares and for a down
payment of P 500 million. The members of the Board allege that there is nothing wrong w/ the assumption of
liabilities, as Neptunia is wholly a subsidiary of SMC. Del Rosario impugned the Resolution of the Board
alleging that the members thereof are only orchestrating a scheme to use corporate funds to pay for personal
obligations and allow the purchase by directors of Neptunia of SMC corporate shares using the very funds of the

corporation itself. Having been denied, he filed this derivative suit. Khan, a director of SMC sought to dismiss
the case on the ground that Del Rosario had no personality to bring the suit because his stock holding is
miniscule.
A stockholder need not own substantial shares to bring a derivative suit. The only requisites are: (1) that
he must be a shareholder at the time when the act or transaction complained of was committed, (2) that he
has tried to exhaust intra-corporate remedies, and (3) that the cause of action devolved on the corporation
w/c is the real party in interest, not to the particular stockholder bringing the suit. The number of shares is
immaterial, and he is not suing in his own behalf but in behalf of the corporation.
There is no conflict of interest in this case. It does not follow that since Del Rosario is a member of the PCGG he
must vote according to the latters interest and not based on his personal judgment. Besides, he owns 20 shares
in his own right; he need not even be a member of the Board to bring the derivative suit. That being the case, the
proceedings must be allowed to prosper.
CHUA v. CA falsification / derivative suit / for and in behalf / non-party but aggrieved party Hao was treasurer
of Siena Realty Crop. She filed a criminal complaint against Francis & Elsa Chua for falsification of public
documents, for having prepared and certified in the Minutes of the Annual Stockholders Meeting that Hao
was present and participated therein, when in fact she did not. Hao employed the services of private prosecutors
whom Chua sought to exclude alleging that no civil liability was alleged. The motion was granted and the
prosecutors were excluded; then Hao filed a petition for certiorari, in her own behalf and for the benefit of Siena
Realty Corporation. Chua alleged that Hao had no authority to brig a suit in behalf of the corporation in the
absence of a Board Resolution for the purpose. Hao alleges that it is a derivative suit.
True that the power to sue is lodged in the Board, but the stockholders may be permitted to bring a suit
for an in behalf of the corporation to protect and vindicate corporate rights whenever the Board refuses to
sue or the members thereof are the ones to be sued themselves. Also, when a corporation has a defense
available to it and is not asserting it, the stockholders may intervene and defend in its behalf.
In this case, clearly the corporation is itself an offended party. The Board did not institute the action. But not every
suit brought in behalf of the corporation is a derivative suit. It must be alleged in the complaint that he is suing
in a derivative cause in behalf of the corporation and other stockholders willing to join. The corporation is
an indispensable party, and it must be served w/ process. Insofar as the criminal complaint is concerned,
nowhere is it stated that the suit was filed for and in behalf of the corporation. Thus, it is not a derivative suit.
But the corporation was proper party to the petition for certiorari even if it was not party to the criminal
case. Even a non-party may institute a petition for certiorari. Though not a complainant in the criminal action,
the subjects of falsification were corporate documents; hence the corporation is a proper party to the certiorari
petition. Also, in the absence of waiver or reservation, the civil case is deemed instituted w the criminal case.
Thus, participation of private prosecutors should be allowed.
CAPITAL STRUCTURES
REPUBLIC PLANTERS BANK v. AGANA preferred shares / no surplus / redeemable shares / insolvent Robes
Francisco Realty secured a loan from Republic Planters Bank (RPB); the loan was granted partially in the form of
stocks w/c granted the stockholder (1) the right to receive quarterly dividends of 1% and (2) that such preferred
shares may be redeemed after 2 years from issuance. Some 16 years thereafter, Robes seeks to compel the
bank to redeem the shares. It also claims that it holds interest bearing stocks and as such it is entitled to
quarterly dividends w/o need of a prior declaration of dividends by the Board. Both contentions are untenable. A
preferred share confers certain preferences or privileges to induce persons to subscribe. They may be
preferences as to (1) assets upon liquidation, or (2) as to dividends. Nonetheless, dividends may only be
declared if there are unrestricted retained earnings. Holders of preferred shares do not hold a lien against nor
are they creditors of the corporation.
Redeemable shares may be issued, redeemable at the option of the corporation or the stockholder based
on what is stipulated. But before they can be redeemed, it must be shown that the corporation has assets
in its books to cover its debts; in this case, RPB is insolvent. Also, the terms in the certificate clearly grant the
right to redeem to the corporation and not to the shareholder thus the use of the word may implying discretion.
Also, the CB has already prohibited RPB from redeeming its shares since it was in a state of deficiency. The claim
is also barred by laches (16 years).
GOVERNMENT v. PHIL. SUGAR ESTATES hybrid shares / indirect participation / quo warranto Phil. Sugar
Estates (PSE) entered into contract w/ Tayabas Land Co. where it delivered to the latter some P 400,000 for the
purpose of the purchase by Tayabas of real estate, particularly along the right of way of Manila Railroad
Co. so that the same lot can be sold to Manila Railroad at a higher price. The terms of the contract include:
PSE shall take part in the business of Tayabas, and shall be entitled to 25% share of the net profits derived from
all business of Tayabas. They also share the expenses in proportion to their contributions; all lands bought on the

credit are deemed security for the alleged loan. PSE was also considered as treasurer and depositary for the
said credit, and its approval was required for the sale of land below P 0.50 per sq. meter.
As a result of the arrangement, the Republic instituted quo warranto proceedings against PSE, alleging misuse of
its franchise. PSE alleges that it was not engaging in the real estate business, but only loaned the money to
Tayabas. The lower court found that PSE and Tayabas entered into a cuentas en participacion and ordered it to
desist from further acts.
The agreement was hardly a loan. There was no period for the payment thereof. The return of the capital
was not by a fixed rate but by a rate of 25% of the profits earned by Tayabas. The return was dependent
solely on the profit to be derived from the business. And even assuming that the value of the loan was
already returned, PSE will still be entitled to 25% of the profits. PSE also played an active role in the
business and even acted a treasurer. That being the case, PSE was at least indirectly engaged in the sale
of real estate (contrary to its charter) and to the prejudice of the public. Thus, its franchise is indeed due to
be forfeited.
Note: The arrangement between PSE and Tayabas was more in the nature of a partnership, w/ the amount loaned
constituting actual equity investment in the venture.
MERGERS, ACQUISITIONS, & CONSOLIDATION

EDWARD J. NELL CO. v. PACIFIC FARMS sale of all assets / no assumption of liability / exceptions Edward J.
Nell Co. (Nell) sold a pump to Insular Farms and eventually sued the latter for the price. A favorable ruling was
granted but the Writ of Execution was returned unsatisfied because Insular had no properties left. It turned out that
Insular, even prior to the suit, sold substantially all its shares and properties to Pacific Farms. Nell alleges that
Pacific is only an alter ego of Insular and should be liable for its debts. This contention is untenable. Where a
corporation sells or transfers all or substantially all of its assets to another, the latter is not liable for the
debts and liabilities of the transferor unless: (1) there was an agreement for the purpose, (2) the
transaction amounts to a consolidation or merger, (3) the purchasing corporation is merely a continuation
of the selling corporation, or (4) the transaction was fraudulent and for the purpose of evading liabilities.
None of the above circumstances attend. The purchase is bona fide and Pacific was highest bidder in an
auction sale by a foreclosing creditor (bank). There was no consolidation or merger, and the theory that Pacific is
an alter ego of Insular strongly militates against it, as no corporation can be its own alter ego. The transactions
also took place 1 month before Insular was even sued by Nell, and bore SEC approval.
MCLEOD v. NLRC dacion en pago / no merger or consolidation / no employer-employee relation McLeod was
employee of Peggy Mills Inc. (PMI) as VP and GM. When the PMI employees staged a strike, it was forced close
down. Thereafter, Santa Rosa Textiles Inc. (SRTI) to w/c PMI was indebted, agreed to a dacion en pago where in
payment of PMIs liabilities, PMI agreed to transfer all its rights, title, and interest to SRTI. McLeod alleges that
SRTI, and its President Patricio Lim, should be held liable, and that the corporate veil should be pierced. This
contention is untenable. Where a corporation sells or transfers all or substantially all of its assets to
another, the latter is not liable for the debts and liabilities of the transferor unless: (1) there was an
agreement for the purpose, (2) the transaction amounts to a consolidation or merger, (3) the purchasing
corporation is merely a continuation of the selling corporation, or (4) the transaction was fraudulent and
for the purpose of evading liabilities.
None of the above circumstances attend. There was no fraud in the transfer the purpose of w/c was merely to
settle obligations. There was neither merger not consolidation. In consolidation, there is a union of 2 or more
existing corporations into 1 new consolidated corporation w/ a new personality. In merger, one corporation
absorbs another, and the absorbing corporations personality survives and continues the business. In both cases
there is no liquidation, and the surviving corporation succeeds to both rights and liabilities. But no such
circumstances attend in this case. Thus there can be no employer-employee relation between SRTI and
McLeod, neither can the SRTIs holding corporations (Filsyn & Far Eastern Textile) be held liable.
CALTEX v. PNOC SHIPPING accion pauliana / express assumption of debt Luzon Stevedoring entered into an
Agreement of Assumption of Obligations w/ PNOC Shipping (PSTC) where the latter agreed to assume
substantially all assets and all the obligations of the former. Enumerated therein is the action between Caltex and
Agreement of Luzon. Caltex was able to obtain a favorable judgment against Luzon, but the Writ of Execution was returned
Assumption of unsatisfied because Luzon has no more properties. Caltex decided to proceed against PSTC w/c reused to honor
Obligations the obligation, alleging that Caltex has no personality to sue not being party to the Agreement, neither is there a
stipulation pour autrui. PSTC is liable. It agreed expressly to assume the obligations of Luzon, particularly
the one involved in the action against Caltex.
Nonetheless, even assuming that there was no express assumption of the debt, PSTC is still liable. While
the Corp. Code allows transfer of all or substantially all of corporate assets, it cannot prejudice the rights
of creditors. This means that the transferee should be made to assume the liabilities, not only the assets

of the transferor. To allow otherwise will open the door for fraud. Besides there are badges of fraud in this case,
as the transfers were made after a suit has been commenced, and at a time when Luzon was in dire financial
straits.
Contracts entered into in fraud of creditors may be rescinded by them, even if they are not parties thereto.
Besides, in cases of novation where there is change of debtor, it cannot be done w/o the consent of the creditor.
Thus Caltex cannot be prejudiced by the transfer and may go after the transferee.
DD: This was a case of transfer in fraud of creditors.
A.D. SANTOS INC. v. VASQUEZ sick taxicab driver / compensation / claim against predecessor Vasquez was a
taxi driver of A. D. Vasquez Inc. Over the course of his employment he contracted pulmonary tuberculosis. He
filed a claim for compensation w/ the then Workmans Compensation Commission against AD Santos. The WCC
granted the claim. AD Santos avers that the claim should be dismissed because the claim, as per the testimony of
Vasquez during the trial, is directed against City Cab (sole proprietorship), w/c was owned by Amador Santos, and
not against AD Santos Inc. This will not detract from the claim of Vasquez because at one time, Amador
Santos was the sole owner and operator of the City Cab. It was subsequently transferred to AD Santos of
w/c Amador was officer. The mention of Amador as the employer during the testimony should not be
allowed to confuse legitimate issues.
DD; Here the assets of a sole proprietorship were transferred to the corporation; but the corporation merely
continued the business. This is a case of business enterprise transfer; hence obligations are also transmitted.
1949 LAGUNA TRANS v. SSS corporation is mere continuance of partnership Laguna Transport was an unregistered
1956 partnership and commenced operations in 1949. The partnership was later converted into a corporation in 1956;
that same year, the SSS required it to compulsory member. It must be noted that an employer cannot be
compelled to be member of SSS unless it has been in operation for at least 2 years. Laguna claims that it has not
yet been in operation for at least 2 years because it was incorporated only on 1956, thus it is exempt. Untenable.
The corporation merely continued the business of the partnership, using the same lines and equipment.
Thus, it has been employer for over 3 years now. When the legal fiction is used to subvert public policy,
then it will be disregarded. There was in fact no transfer of business from the partnership to the
corporation, but merely a change in the form of the organization. Thus the corporation must assume also
the obligations of the former partnership.
DD: Business enterprise level, a mere continuation of he business; hence obligations are transmitted.
PEPSI-COLA BOTTLING v. NLRC illegal dismissal / successor corporation liable / implied assumption Encabo
was an engineer employed at the plant of Pepsi-Cola Distributors (PCD). When the soaker machine broke down
he was by-passed and an outside contractor was hired to fix the machine. The contractor failed to fix it, but
Encabo was able to. Later Encabo was dismissed for alleged failure to install preventive measures and for not
closely supervising the job of the outside contractors. He filed a complaint for reinstatement. Later on, PCD
closed down its business. The writ of execution was served on the new franchise holder Pepsi-Cola
Products (PCPPI), w/c is now invoking its separate juridical personality. First, the dismissal was unfounded and
illegal; hence Encabo is entitled to reinstatement.
Even assuming that PCD has closed down and PCPPI succeeded its franchise, it does not follow that
PCPPI cannot be held liable for the illegal acts of the earlier firm. Besides, in filing its bond, both PCD and
PCPPI bound themselves to answer for the monetary awards in case of an adverse judgment; this implies
that PCPPI as a result of the transfer, agreed to assume the obligations of PCD. Considering however their
severely strained relations, Encabo should be awarded separation pay as an alternative to reinstatement.
DD: This is also a case of business enterprise level; the clincher was the express assumption of obligations.
BUAN v. ALCANTARA Phil. Rabbit / corporation continuing business of estate / alter egos / liabilities The
Spouses Buan owned the Phil. Rabbit Bus Lines. They died, survived by 5 kids; Natividad & Bienvenido (who later
died) were the administrators. The administrators incorporated Phil. Bus Lines Inc. and the estate was
majority owner of practically all the shares of stock (over 99%). But the interest of the estate thereto was later
reduced to 35% when the administrators waived the pre-emptive right and the assets of the estate were placed in
other corporations (Bupar Motors, Tarlac Development Bank, and later on, Ledi Realty). Blesilo, one of the heirs,
was later on appointed as co-administrator. He called for the closure of the intestate proceedings, alleging that
it has been over 12 years since the death of the Spouses Buan.
Natividad alleges that the pendency of the damage suits against the corporation (due to vehicular accidents)
prevented the closure of the intestate proceedings as the corporation was incorporated for the purpose of
assuming all the rights and obligations of the estate of the Buan Spouses. At the time of the incorporation, the
Buan Spouses Estate and the corporation (Phil. Rabbit) became alter egos. Thus, the corporation
should naturally be held liable for the obligations of the estate as owner of Phil. Rabbit. The business of
the Spouses was in fact only transferred to the corporation. Hence, the liability of the corporation subsists
even if the interest of the estate was later diluted.

Nonetheless, the intestate proceedings should be terminated. After incorporation, the damage suits ceased to
have an intimate relation w/ the estate per se. Besides, vehicular accidents are common in the transportation
business, and to await the termination of all the damage cases before ending the intestate proceedings will place
the estate under perpetual administration contrary to the intendment of the law.
PHIVIDEC v. CA stipulation to hold transferee harmless / piercing the corporate veil Borres was injured in an
accident due to the negligence of an employee of Phividec Railways (PRI). PRI was a subsidiary of and fully
controlled by Phil. Veterans Investment (PHIVIDEC) w/c later transferred all its interest thereto to PHILSUCOM.
There was a stipulation in the Agreement between PHIVIDEC and PHILSUCOM that the former holds the latter
harmless from any action or claim resulting from acts or omissions prior to the transfer. By virtue of this
provision, PHIVIDEC should be held liable. It assumed liability for acts or omissions prior to the
transaction. Considering that PHIVIDEC had full control over PRI and the latter has ceased operations, then the
corporate veil must be pierced and PHIVIDEC held liable for the debt.
PHILSUCOM is not the one to be held liable. Where a corporation sells or transfers all or substantially all
of its assets to another, the latter is not liable for the debts and liabilities of the transferor unless: (1) there
was an agreement for the purpose, (2) the transaction amounts to a consolidation or merger, (3) the
purchasing corporation is merely a continuation of the selling corporation, or (4) the transaction was
fraudulent and for the purpose of evading liabilities. In this case, it was PHIVIDEC that expressly assumed
liability.
DD: This transfer was equity level but there was express assumption of liabilities.
CENTRAL AZUCARRERA v. CA termination of employees upon transfer / separation pay Bana-ay, Cosculluela,
and Palma (trio) were employed by Central Azucarrera del Danao (Central). Central then sold its sugar mill
properties to Danao Development w/c took over the business. It later on hired the trio, but they were later
terminated from service. The trio now claims separation pay against Central corresponding to the period prior to
the transfer of the business to Danao. Central alleges that the claim should be directed to Danao as the
purchasing corporation. Untenable. True that closing out or cessation of operations is a valid cause for
termination of employees; but this case falls short of actual cessation. There was merely disposition of
all or substantially all of the business of Central to Danao w/c continued the same. There was thus merely
a change of ownership. That being the case, upon the transfer of the business to Danao, there was an
illegal termination of employees (w/o prior notice) such that would entitle the latter to separation pay.
There is no law requiring the purchasing corporation to hire the old employees of the selling corporation. In this
case, what happened was the employees were hired anew by Danao as new employer; this is an interruption of
their employment in the sugar central. That being the case, their claim is against Central.
COMPLEX ELECTRONICS v. NLRC runaway shop / anti-labor motive / business judgment Complex Electronics
was suffering financial distress and was forced to close down its Lite-On Line, a sector of its business. Thus, it
notified its employees who demanded separation pay at the rate of 1 month salary for every year of service. For
failure to reach a settlement, the workers waged a strike. Complex was forced to pull out its equipment from the
plant and transfer the same to the plant of Ionics Circuit Inc. Now the laborers are seeking to hold Ionics liable for
the claims alleging that the corporate veil must be pierced as Complex and Ionics have similar officers and that
Complex was a substantial investor of Ionics. These of course are insufficient grounds to pierce.
The Union claims that Ionics is a runaway shop or a plant moved to another location in order to discriminate
against employees of the old plant due to their labor activities. This is untenable. Ionics has already been
existing for several years even prior to the dispute. It was not set up for the purpose of transferring the
business of Complex; neither was the transfer motivated by anti-union intent but rather by legitimate
business judgment and by necessity such as by its greatly alarmed customers. Nonetheless, the SC held
that the workers are entitled to separation pay from Complex (but not from Ionics).
PEPSI-COLA DISTRIBUTORS v. NLRC illegal dismissal / purchasing corporation / evasion of liability Yute was
a contractual maintenance electrician w/ Pepsi-Cola Bottling (PCBCP) w/c was later absorbed by Pepsi-Cola
Distributors (PCD). PCD dismissed him, but as a result of a favorable ruling in an illegal dismissal case, he was
reinstated. He was, however, again dismissed this time on the ground that PCD had already sold all its business
interest to Pepsi-Cola Products (PCPPI), a separate entity, and due to the formers closure resulting from business
losses. The NLRC ordered PCPPI to reinstate Yute; the latter contends that it is not even party to the case and
that its separate personality should be respected. This is nothing but an attempt of PCD to evade liability for
illegally dismissing Yute and to shield the purchasing corporation (PCPPI) from said liability. The case of
Pepsi-Cola Bottlers vs. NLRC was applied in deciding the case. Pepsi-Cola never stopped doing business
when PCD bowed out and PCPPI came to being. In lieu of reinstatement, Yute is therefore entitled to
separation pay considering their severely strained relations and antagonism.
MANLIMOS v. NLRC bona fide change of ownership / no duty to absorb / probationary employees Manlimos
and other workers were employed by Super Mahogany Plywood Corp. A new management took over, and they
were notified of their termination, paid their separation pay, and they freely signed Release & Waiver undertakings
acknowledged before the Labor Arbiter himself. Some of them were re-hired but on probationary basis. They were
later on dismissed for having committed acts prejudicial to the new management. They now claim that their first

dismissal is illegal and that they remained employed despite the new management. This of course is untenable.
The change of ownership in this case was made in good faith; there is no evidence of any attempt to
insulate the new management from liability of the former management to its workers. That being the case,
the innocent transferee has no legal duty to absorb the employees of the old management.
Manlimos and his group were separated from work due to a bona fide change of ownership. More so, they freely
accepted their termination. The hiring of employees on probationary basis is an exclusive management
prerogative. That being the case, the new management is not liable for the first dismissal.
DD: Nevertheless, mere change in majority ownership does not affect the existence of an employer-employee
relation.
FILIPINAS PORT SERVICES v. NLRC merger / labor contracts / personal in nature / transferee not liable There
were 7 stevedoring and arrastre providers in the Port of Davao, one of w/c was DAMASTICOR. Silva was
employee of DAMASTICOR. All the providers were integrated into a single and unified service resulting to the
formation of the Filipinas Port Services (FILPORT). Silva was absorbed as employee. He later retired, but he was
paid separation pay only for the years of service to FILPORT excluding his years of service to DAMASTICOR,
for w/c he now claims further separation pay, alleging that there was a succession of rights and obligations. His
contention must fail. FILPORT came to being as a result of a merger among different handling operators.
Unless expressly assumed, labor contracts are not enforceable against a transferee of an enterprise,
because labor contract are personal in nature (in personam), unless there is bad faith. That being the case,
the labor contract w/ DAMASTICOR cannot be passed to FILPORT, w/c is not liable.
DD: This ruling was later overturned. It runs contrary to the rule under Sec. 80.
SMC EMPLOYEES UNION v. CONFESOR spin-off / good faith / collective bargaining units / separate SMC had
4 main operating divisions: (1) Beer, (2) Packaging, (3) Feeds & Livestock, and (4) Magnolia. Pursuant to its long-
term vision of corporate expansion, it spun-off the Magnolia and the Feeds & Livestock Divisions to form and
operate as separate corporations Magnolia & SMFI. Now, the SMC Employees Union, w/c holds a CBA w/ SMC
and w/c wants to have a big mass base of employees, wants the 2 spun-off corporations to also be part of the
collective bargaining unit w/ SMC. Untenable.
The transformation of the 2 divisions into separate corporations is a management prerogative w/c will
not be looked into in the absence of bad faith or illegality. In fact, the employees of the old divisions were
freely absorbed by the new corporations w/o impairment of their old benefits. Magnolia and SMFI became
separate entities w/ separate personalities. They cannot thus be covered by the same collective
bargaining unit as SMC.
Besides, there is no more commonality of interests among the employees of the 2 new corporations (engaged in
dairy products and agricultural feeds) and those of the old corporations (beer and packaging). It would be best to
have separate bargaining units for each of them.
DISSOLUTION
GONZALES v. SUGAR REGULATORY ADMIN. no right to perpetual existence / transmission of liability
Spouses Gonzales obtained a loan (secured by real mortgage) from Republic Planers Bank (RPB), the
amortizations to be paid by Philsucom to RPB. The Spouses made overpayments and Philsucom also made
unauthorized deductions, thus being liable to the Spouses for some P 200,000. Exec. Order No. 18 abolished
Philsucom and created the Sugar Regulatory Admin. (SRA) to w/c the formers assets were transferred. The
Spouses allege that EO 18 is unconstitutional because it destroyed their right to recover from Philsucom (invoking
impairment clause). The Spouses implicitly aver that they have the right to follow Philsucoms assets now in the
hands of SRA.
Their contentions are partly correct. One who has a claim against a juridical entity has no vested right to
its perpetual existence. Corporations may be dissolved for a variety of reasons. But the termination of
corporate life does not imply the diminution or extinction of claims against it. EO 18 provides that the assets
to be taken over by SRA from Philsucom are only the net or residual assets or assets remaining after settlement
of all obligations. Thus, SRA must be held liable for the debts of Philsucom but only to the extent of the
assets taken over by the former from the latter. A trustee may also be appointed for the purpose.
DD: Remember the principle of transmissibility of rights and obligations.
BOARD OF LIQUIDATORS v. KALAW methods of dissolution / 3 yr. period / no time limit for the Board Kalaw
was the GM of NACOCO w/c was engaged in the production and sale of copra. As GM, Kalaw had been
concluding sales contracts w/ various purchasers, some involving substantial amounts all w/ the
knowledge and acquiescence of the Board. Through his efforts, NACOCO obtained significant earnings; the
board even granted Kalaw a special bonus for his performance. In this case, Kalaw concluded several substantial
contracts for the supply of copra, however, due to unforeseen events, such as 4 typhoons, the same proved to

be unprofitable. Nonetheless, he submitted the same to the approval of the Board, w/c after due consideration,
and to save the reputation of NACOCO, recognized and ratified the contracts. NACOCO failed to deliver.
One of its buyers, Louis Dreyfus & Co. sued NACOCO but a settlement was reached for some P 567,000.00.
Now, NACOCO seeks to recover the losses from Kalaw alleging breach of trust and bad faith, and that the
contracts required Board approval under the by-laws. Kalaw counters that the Board has lost its personality to
sue because NACOCO has been dissolved by EO 372 (resulting to the appointment of the Board of
Liquidators) and that the 3 year period for the winding up and prosecution of claims has lapsed.
There are 3 methods of liquidation:
1. Upon voluntary dissolution, the court may direct such disposition of assets as justice requires and may
appoint a receiver to collect such assets and pay corporate debts;
2. The dissolved corporation shall be continued as a body corporate for 3 years after the time when it
should have been dissolved for the purpose of prosecuting or defending suits, to close its affairs,
dispose of or covey its assets, but not to continue the business;
3. Within the 3 year period may convey all its assets to trustees for the benefit of the members,
stockholders, creditors, and other interested parties.
In this case, no time limit has been tacked to the existence of the Board of Liquidators. Thus, it still has
personality to proceed. In fact, the complete loss of personality of the corporation after the lapse of the
statutory 3 year period is what impelled the President to create the Board of Liquidators. Considering also that
the Government is the sole stockholder of NACOCO, the Board is a trustee in favor of the Government. At no
time has the Government withdrawn the assets or the property from the Board.
NATIONAL ABACA v. PORE expiration of 3 year period / creation of Board of Liquidators National Abaca field a
collection suit against Apolonia Pore who alleged that Abaca had no more personality to sue as it has been
dissolved by EO No. 372 (w/c also created the Board of Liquidators to settle and close its affairs) and that the 3
year period for the prosecution of claims by the corporation has already expired. Her contention is untenable. True
that in the absence of statutory authority, the corporation becomes defunct upon the expiration of the 3
year period, and actions pending by or against the corporation are ordinarily abated. There is no such
statutory authority in our Corporation Law. However, considering that it is usually impossible to fully wind
up corporate affairs during the said period, trustees may be appointed to whom all the assets are
conveyed and who may sue or be sued regarding all matters pertinent to the liquidation (even after the 3
year period). Such is the case here where the Board of Liquidators was created. The imminent termination of the
corporate existence was in fact what impelled the President to create the Board whose existence is not limited as
to time.
TAN TIONG BIO v. BIR sales tax assessment / inconsistent stand of government / substitution Central
Syndicate purchased goods (so-called Mystery Pile) from the Foreign Liquidation Commission and made it appear
that the same goods were purchased by one Dee Hong Lue in trust for Syndicate so as to avoid sales tax. It was
assessed by the BIR for deficiency tax. Considering that the corporation has ceased to exist and there are no
more properties left, the BIR sought to hold the officers liable (civilly and criminally). Syndicate appealed the BIR
Ruling to the CTA. The Solicitor General then sought to dismiss their appeal on the ground that Syndicate no
longer had capacity to sue, as its corporate life has expired.
If it be true that Syndicate has no more personality to dispute the assessment, then it is equally true that
no valid assessment can be made against an inexistent corporation. The government cannot assess an
inexistent corporation for tax and then later on allege that it has no existence to appeal the ruling.
Nonetheless, the rule is that corporate existence can only be prolonged for 3 years after termination of the
corporate term for the purpose of winding up its affairs. That being the case, the appeal should not be
dismissed, and the officers thereof as parties-appellants considering that they are in fact the ones sought to be
held personally liable.
DD: Creditors may trace the properties of the debtor corporation for the satisfaction of their credits.
GELANO v. CA pending litigation / lapse of 3 year period / counsel as trustee / substantial compliance Insular
Sawmill was lessee of land owned by Guillermina Gelano. Her husband loaned various amounts from Insular,
chargeable to the rentals. They also purchased materials w/c remain unpaid for. Insular even accommodated
them in procuring a loan from China Bank. Insular was made to pay and now claims from the Spouses. Insular
filed a collection suit. While the case was pending, Insular amended its Articles shortening the corporate term.
The court was not informed of the amendment and rendered judgment holding the Spouses solidarily liable. When
the spouses came to know of the dissolution, they moved for reconsideration of the appellate courts decision,
averring that Insular has no more personality to sue as the same has been dissolved and the 3 year continuation
of its life for the purpose of winding up has expired.
Their contention is untenable. Unless otherwise authorized by statute, all pending suits and actions by and against
the corporation are abated by its dissolution as it ceases to exist for all purposes, but its existence may continue

for 3 years for the purpose of winding up its affairs. At any time during the 3 year period, it may convey all its
assets to a trustee for the benefit of its stockholders and creditors, who may then prosecute or defend its
claims w/o any time limit. Although the corporation appointed no trustee, a corporation w/c commenced
suit before the expiration of the 3 year period (1959) may continue the same even despite the lapse of the
period (on 1960) because the counsel who prosecuted the case for them can be considered as trustee
but only for the purpose of that particular case. Hence there is substantial compliance w/ the legal
requirement. The case therefore may prosper. The word trustee must be understood in its general concept and
w/c includes the counsel. To rule otherwise will allow the Spouses to be unjustly enriched based on mere
technicality.
CHUNG KA BIO v. IAC re-incorporation / transfer of assets to new corporation / stockholders consent
Philippine Blooming Mills (PBM) was incorporated in Jan. 1952. Its charter expired on January 1977. On May
1977, the Board executed a Deed of Assignment of all receivables, assets, properties, and obligations in favor of
Chung Siong Pek in his capacity as Treasurer of the New PBM. On June 1977, New PBM was issued its
certificate of incorporation by the SEC. Then, some 4 years thereafter, Chung Ka Bio (and other stockholders of
the Old PBM) filed a case for Liquidation of both Old and New PBM alleging that the Board of a dissolved
corporation has no power to convey all its assets to a new corporation w/o authority from the stockholders, and
that the new corporation should account to the stockholders of the old corporation for the assets transferred
thereto.
True that the Board is not permitted by law to engage in any activity outside of the usual liquidation
during the 3 year statutory period after dissolution. However, there is nothing to prevent stockholders
from conveying their respective shareholdings towards the creation of a new corporation to continue the
business of the old. So long as the stockholders give their consent, it is not unlawful for the Board to take
such action. There was stockholders consent in this case based on the Unanimous Resolution dated March
1977. It is entitled to presumption of regularity.
Also under Sec. 28 ! of the Old Corporation Law the dissenting stockholders had 40 days to file their written
objection and demand payment of their shares. In this case, they surfaced only 4 years thereafter. They are
barred by laches. Worse, Chung Siong Pek was one of those seeking the liquidation when he was the treasurer of
the New PBM and the said assets were transferred to him in trust for the New PBM.
DD: According to CLV this ruling is problematic. The stockholders rights to the distribution of their shares upon
dissolution cannot be waived by the majority in their behalf. They cannot be compelled to join in the
reincorporation as this would violate their freedom to contract.
FOREIGN CORPORATIONS
MENTHOLATUM INC. v. MANGALIMAN trademark / doing business / exclusive distributor / no license

Mentholatum Inc. is a Kansas corporation. It did not have a license to transact business in the Phils. In its
complaint, along w/ Phil.-American Drug Co., it declared that the latter was its distributing agent in the Phils., and
thereafter claimed trademark infringement against Mangaliman who allegedly produced and distributed the
Mentholiman drug. Mangaliman alleges that Mentholatum does not possess the required license, is engaged in
transacting business in the Phils., and therefore is not allowed by law to prosecute this action. The question that
has to be decided is whether Mentholatum is engaged in trade or business in the Phils. Doing business
implies a continuity of commercial dealings and arrangements, performance of acts or works aimed at or
in progressive prosecution of the purpose or object of its organization. In this case, Mentholatum itself
declared that Phil-Am Drug is its exclusive distributing agent in the Phils. w/c has been selling its
products here since 1929. Neither can Phil-Am Drug maintain the action here for the reason that it possesses
merely derivative authority; it cannot allege to be an importer possessing independent standing.
Dissent of Justice Moran:

Sec. 69 of the Corporation Law does not cover trademark infringement cases or unfair competition. A trademark is
a right in rem w/c may be asserted in any court of the world even in countries where it does not transact business.
Trademarks do not acknowledge any territorial boundaries.
AGILENT TECHNOLOGIES v. INTEGRATED SILICON substance + continuity test / mere stock of goods
Integrated Silicone entered into a 5-year Value Added Assembly Service Agreement (VAASA) w/ HP Singapore,
where the latter supplied raw materials for the formers production. HP assigned its rights to Agilent (unlicensed).
Integrated sued Agilent for specific performance for refusal to honor an alleged verbal agreement for the extension
of the VAASA; Agilent countered w/ a suit also for specific performance w/ Replevin for the recovery of its
equipment here. Integrated sought to dismiss Agilents complaint based on the latters lack of personality
alleging that it was doing business in the Philippines w/o a license, thus incapacitated to sue in our courts. There
are instances where an unlicensed foreign corporation may bring a suit in Phil. courts and it is when the
party against whom the suit is brought is barred by estoppel from denying its corporate existence after
having transacted w/ the same.

There are 2 tests to determine if a corporation is doing business. Substance test: whether the corporation
is continuing the body of the business for w/c it was organized or if it has substantially retired from it.
Continuity test: continuity of commercial dealings and arrangements, performance of acts or works aimed
at or in progressive prosecution of the purpose or object of its organization. By and large, the purpose of
the activity must be profit-making. In the final analysis, the acts of Agilent do not suffice to classify it as doing
business in the Philippines such as mere maintaining a stock of goods locally for the purpose of having them
processed by Integrated, and consignment of equipment to be used for the said processing.
The Four Basic Rules:
1. If a foreign corporation does business in the Phils. w/o a license, it cannot sue in our courts;
2. A foreign corporation not doing business in the Phils. may sue in our courts;
3. The Philippine citizen or entity may be estopped from challenging the foreign corporations personality;
4. If the foreign corporation does business w/ a license, it may sue on any transaction.
ANTAM CONSOLIDATED v. CA coconut oil / isolated transaction / mere attempt to recover from it Stokely Van
Camp Inc. purchased 500 long tons of coconut oil from Comphil Inc. w/c failed to deliver. For the purpose of
recovering its losses due to the default, Stokely agreed to sell back the said 500 long tons to Comphil for an
amount w/c will allow Stokely to make good the loss. Comphil again failed to pay. They entered into a third
contract where Comphil agreed to sell to Stokely coconut oil at a discounted rate all w/ the end in view of
allowing Comphil to perform its obligation arising from the first sale and so that Stokely can recover the loss.
Again, Comphil failed to comply; thus Stokely sued it for damages. Now, Comphil alleges that Stokely is engaged
in business in the Phils. w/o license and is thus incapacitated to sue.
The suit may prosper. The transactions entered into were not the series of commercial dealings that
would signify an intent on the part of Stokely to engage in business. It was an isolated transaction. There
was in fact only 1 transaction, and the other 2 are only aimed at recovering the loss arising from
Comphils default. Considering that Stokely was not engaged in business, it need not procure the license to
enable it to sue. The Motion to Dismiss is nothing more than a common ploy on the part of Comphil to evade
liability.
ATLANTIC MUTUAL INSURANCE v. CEBU STEVEDORING doing business / must be averred Atlantic Mutual
and Continental Insurance are foreign insurance corporations. They insured a shipment of copra shipped by Cebu
Stevedoring w/c was damaged. They sued Cebu Stevedoring for collection; the latter alleged that they are
incapacitated to sue, being engaged in business in the Phils and not having the required permit and that there was
no cause of action because the Complaint did not aver compliance w/ Sec. 69 of the Corporation Law (on
licenses). They refused to amend their complaint to make the averment and instead raised the issue to the SC.
This is a matter concerned more w/ pleading and procedure. All that is averred is that they are foreign
corporations. These can give rise to 2 possibilities: either they are engaged or not engaged in business in
the Philippines. Capacity to sue must be averred (affirmatively pleaded) and is an essential element of the
cause of action. No inference can be made from the bare allegation that a corporation is a foreign corporation.
AETNA CASUALTY & SURETY v. PACIFIC STAR LINE place of contract / mere assignee of claim I. Shalom &
Co. insured w/ Aetna Casualty its shipment of 33 packages of Linen & Cotton Piece Goods to be delivered from
the US to the Phils. by Pacific Star Line. The goods were damaged, thus the insurer Aetna, as subrogee, sued for
damages Pacific (carrier) w/c now alleged that Aetna has no capacity to sue being a foreign corporation
(unlicensed) doing business in the Phils. The suit may prosper. Aetna, though unlicensed, was not engaged
in business here. The contract of insurance was entered into in NY and payment to the consignee was
made in its NY Branch. Aetna is not engaged in the business of insurance in the Phils. and is merely
collecting a claim assigned to it by the consignee.
GRANGER ASSOCIATES v. MICROWAVE SYSTEMS not mere isolated case / extension of operations Granger
Associates (US) has no license. It entered into a series of transactions w/ Microwave Systems (MSI) where it
licensed MSI to manufacture and sell its products, and extended it loans, equipment, and parts. For failure of MSI
to comply w/ the manner by w/c the contracts were agreed upon, Granger filed a Complaint against it. MSI alleged
that Granger has no personality to sue (no license and doing business). The contracts entered into have to be
examined to determine if Granger is engaged in business in the Philippines or it was only an isolated
transaction. The Initial Agreement for the right to manufacture and sell Granger equipment granted to MSI
is isolated and all contracts such as the Agreement to Purchase Shares, Exclusive Distributorship
Agreement, and Sales Agency Agreement are merely ancillary thereto.
However, there was a Multiplex Agreement the terms of w/c demonstrate an intention on the part of
granger to engage in business here. By it, Granger extended its personality in the Phils. and received
orders for its products and discharged its warranties through MSI w/c was mere agent thereof for the said
purposes and for the development of possible markets here and w/in the ASEAN Region. It was also
assured a seat in the Board of MSI, purchased 30% of the latters shares (substantial), and approved the transfer
of its stocks. In short, it had a say in the management of MSI.
Thus, the business of Granger here was not meant to be isolated; Granger wanted to extend its operations
to the Phils. Even a single act can bring a foreign corporation w/in the purview of doing business if the

same was done in the ordinary course of its business (not mere incidental) and is of such a character as
to indicate a purpose to make the Phils. a base for its operations. That being the case, for lack of proper
license, Granger has no standing to sue.
WESTERN EQUIPMENT v. REYES trade name / right in rem / no boundaries Western Electric (NY) was known
worldwide for the manufacture of electrical and telephone apparatus and supplies and has been so for some 50
years already. It has never done business in the Phils. Western Equipment has been importing the products of
Western Electric to the Phils. and was granted provisional license by the Director of the Bureau of Commerce.
Herman and his cohorts filed their Articles of Incorporation for the Western Electric Company obviously for the
purpose of using the said name and goodwill, to deceive the public. The real Western Electric, as well as Western
Equipment, filed their objections thereto alleging unfair competition and trademark infringement; Herman alleged
that Western Electric had no right to sue.
A corporate and trade name is a property right in rem w/c the lawful owner may assert against the world,
even in jurisdictions where it does not transact business. A trademark acknowledges no territorial
boundaries but extends to every market where the traders goods have become known or identified w/ the
mark. That being the case, the suit may prosper, and unauthorized use thereof is properly enjoined.
HOME INSURANCE CO. v. EASTERN SHIPPING contracts w/o license / unenforceable only / penalty Home
Insurance is a foreign insurance corporation. Before it obtained a license to do business in the Phils., it
insured 2 shipments to the Phils. both carried by Eastern Shipping 1 from Germany and 1 from Japan. Both
sustained damage; thus Home compensated the consignees and now goes after Eastern Shipping. Later on, it
was able to secure a license and thereafter appointed a resident agent (Bello) and had an office in Makati.
Eastern Shipping alleges that Home has no personality to sue and that the contracts are null and void because
Home lacked license to transact business in the Phils.
The suit must prosper. At the time when Home filed the complaints, it had already procured the license.
The contracts entered into prior to the acquisition of the license are not void, they are only unenforceable.
Possession of license affects only the remedy. The purpose of the law, after all, is to subject foreign
corporations to the jurisdiction of the courts. To give it an unduly harsh interpretation (such as declaring the
contracts void) will severely hamper trade relations . There is also already a penalty (Sec. 144) for transacting
business w/o license (imprisonment of not more than 6 months + fine). This is sufficient form the
viewpoint of legislative policy and there is no need to nullify the contracts. That being the case, Eastern
Shipping should be liable to Home for the damages claimed.
TOP-WELD MANUFACTURING v. ECED unclean hands / chargeable w/ knowledge Top-Weld Manufacturing

(local) entered into a License and Technical Agreement w/ IRTI Corp. (Swiss) and a Distributor Agreement w/
ECED (Panama). Both had no license. The agreements were restrictive and exclusive in nature. Top-Weld found
out that the 2 foreign corporations were already transacting w/ other corporations and sought to enjoin the same.
IRTI and ECED later on terminated the agreement for breaches committed by Top-Weld (failure to pay interest,
use of substandard or wrong materials, re-labeling, etc.). Top-Weld now invokes RA No. 5455 prohibiting foreign
corporations from transacting business and engaging in economic activity in the Phils. w/o a permit and from
terminating any franchise or agreement w/ a resident unless for just cause and upon compensation.
From the evidence, it is apparent that the 2 foreign corporations are doing business in the Phils. They were
carrying out here the purposes for their creation (manufacture and marketing of welding products) and even
negotiated w/ other groups for the transfer of franchising rights. That being the case, permit or no permit, they are
covered and bound by the provisions of RA No. 5455. However, Top-Weld is not entitled to relief. It does not
come to court w/ clean hands. It is chargeable w/ knowledge of the law, w/c by the way it in fact invokes
before the court. It was incumbent upon Top-Weld to know whether IRTI or ECED are authorized to
transact business. Since all are parties to an illegal agreement, the court will leave them where it finds
them.
COMMUNICATION MATERIALS v. CA foreign corporation sues / estoppel from denying capacity ASPAC
entered into a Representative Agreement w/ ITEC (US), unlicensed, for the sale in the Phils. of the latters
electronic products, and to ASPACs sole customer, PLDT. ITEC later on terminated the agreement and sought to
enjoin ASPAC after having found out that the latter was using the information gathered from ITECs products
for the purpose of developing similar if not identical equipment. ITEC sought an injunction; ASPAC
countered that ITEC has no personality to sue, the same being engaged in business here w/o a license. From the
evidence presented, ITEC is in fact engaged in business in the Phils. The agreement w/ ASPAC was very
restrictive, reducing ASPAC to a mere conduit of ITEC. It also contracted w TESSI Inc. as its local
technical representative w/c sold and serviced ITEC products and gave the consumers the impression
that they are dealing w/ ITEC directly. It required monthly reports for repairs and warranties, requisitioned
materials, and stipulated for No Competing Product provisions among others.
However, ITEC is nonetheless entitled to relief. ASPAC is estopped from allege the lack of capacity of
ITEC after having recognized its existence by contracting therewith. The reason is to prevent a person
contracting w/ a foreign corporation from taking advantage of the latters non-compliance w/ the law and
after having reaped the benefits therefrom. No person ought to benefit from his own wrong. This is in fact a

common scheme of defaulting local companies for the purpose of avoiding obligations. ASPAC was chargeable
w/ knowledge that ITEC was not licensed.
MERRILL LYNCH FUTURES v. CA futures contracts / no license / 7 years of transacting / estoppel Merrill
Lynch Futures (MLF), US based and unlicensed, entered into Futures Contracts w/ the Lara Spouses where it
agreed to act as broker for the purchase and sale of futures contracts in the US. Orders were transmitted to MLF
by the Lara Spouses through Merrill Lynch Phils. Their transactions continued for some 7 years. The Lara
Spouses accumulated a debt of some $84,000 w/c they refused to pay. Having been sued, the Spouses alleged
that the transactions were null and void and that MLF had no personality to sue, neither did Merrill Lynch Phils.
have such right as it was not licensed to operate as a commodity and financial futures broker. The evidence will
disclose that MLF was indeed engaged in business in the Phils. and over several years w/ the Lara Spouses
through ML Phils.
However, the suit may prosper. The Lara Spouses are estopped from challenging the personality of MLF
after having recognized its existence by contracting therewith. The reason is to prevent a person
contracting w/ a foreign corporation from taking advantage of the latters non-compliance w/ the law and
after having reaped the benefits therefrom (w/c the Lara Spouses did for many years). No person ought to
benefit from his own wrong. The same rule applies where a person has acted as agent for the said corporation.
The Lara Spouses were also aware at the outset of the lack of authority of MLF. It cannot now evade a
legitimate obligation on the plea that the said corporation should have not done business in the Phils. in the first
place.
ERIKS LTD. v. CA proper doctrine / get a license first / doing business = nature, not frequency Eriks Ltd.
(Singapore), unlicensed to do business in the Phils., sold some 16 times over the course of 5 months various
pumps, valves, and other such supplies to Delfin Enriquez. The transfer of goods was done in Singapore. Delfin
failed to pay and was indebted by some SD 42,000. Eriks filed a collection case before the RTC; Delfin sought to
dismiss for lack of personality to sue alleging that Eriks is engaged in business in the Phils. w/o a license and is
thus barred from invoking relief from our courts. First of all, it is not true that the transactions were isolated.
There was obviously a continuity of commercial dealings. Eriks had every intention to continue and repeat
the transactions and even granted Delfin a credit line. Besides, it is not the sheer number or frequency of
commercial dealings that determines if a corporation is engaged in business in the Phils. but rather the
nature and character of the transactions as to evidence such an intention.
That being the case, Eriks is barred from invoking the jurisdiction of the courts. They must first comply w/
the requirements of the law. By securing the license, a foreign corporation gives assurance that it will abide by he
decisions of the courts, even those adverse to it. However, that doesnt mean that Eriks has no remedy. There
is no ruling on the merits yet; hence no res judicata. That being the case, after proper compliance w/ the
requirements of the law (license), then it may bring the proper action in court for the enforcement of its
claim. The purpose of the law is only to compel the foreign corporation to get a license, not to exclude the same
from the state.
True that the country must foster good trade relations w/ other states. However, there is also a need to strengthen
our laws that regulate foreigners who engage in business here.
DD: Extending a credit line manifests an intention to engage in continuous business.
FACILITIES MANAGEMENT CORP. v. DE LA OSA odd doctrine Dela Osa was employed a painter, houseboy, and
cashier by Facilities Management (Wake Island); he rendered overtime and night shift for w/c he was not paid.
Dela Osa filed a complaint for reinstatement and backwages against Facilities; summons was served upon its
resident agent (appointed in compliance w/ a DOLE Order) but Facilities averred that it is beyond the territorial
jurisdiction of the Phil. Courts being domiciled in Wake Forest. The case had become moot considering that
Facilities eventually paid Dela Osa. But is the mere act of recruiting Filipino workers sufficient for a
corporation to be considered as doing business in the Phils. even though it is domiciled elsewhere? The
reasoning of the SC goes like this: if a foreign corporation not engaged in business in the Phils is not
completely barred from seeking redress in our courts, then similarly, the same corporation cannot claim
exemption from being sued in Phil courts for acts done against persons of the Philippines. Go figure"
DD: The reasoning in this case is downright fallacious. The SC has always had a tendency to distort the rules
whenever labor issues are involved.
SIGNETICS CORP. v. CA reaching a foreign corporation not doing business here This case is procedural in
nature. Signetics Corp. (US), through Signetics Phils (Sig-Fil) its wholly-owned subsidiary, leased a piece of land
from Freuhauf Electronics, w/c later sued it for return of possession as well as damages and for the return of
various equipment. Prior to the suit, Signetics transferred all its shareholdings to TEAM Holdings (later TEAM
Pacific). Summons was served to Signetics through TEAM Pacific. Signetics moved to Dismiss the complaint
due to lack of jurisdiction over the person. It alleges that it only has an equity investment in Sig-Fil and that
there were no specific allegations that it was doing business in the Philippines for the various modes of
summons under Sec. 14 of Rule 7 to apply (resident agent, government official designated by law, or any other
officer or agent).

The fact of doing business in the Phils must be specifically alleged in the complaint; and this requirement
was complied w/ in this case. Jurisdiction must be based on the allegations in the complaint; and
considering that Freuhauf has invoked the piercing doctrine that the transfer of equity was fraudulent
the case should be allowed to prosper and their respective contentions threshed out in the lower court.
So what doctrinal value can we derive from this case? Assuming that Signetics was indeed not engaged in
business in the Phils, still the SC said: a foreign corporation, though not engaged in business in the Phils,
may still look to our courts for relief; thus reciprocally, it may likewise be sued in our courts for acts done
against persons in the Phils. provided that it would not be impossible for the court process to reach the
foreign corporation a matter that can be consequential in the proper execution of the judgment. A state
may not exercise jurisdiction in the absence of good basis for effectively exercising it.
DD: This case somehow qualifies the ruling in Facilities Management v. De La Osa.
Drag your weary spirits amidst the battlefront of life,

For nature never fails to toss a dying son above the sky,
Yours is not a petty quest,
But that which heroic mortals tread.
Do not despair; lest surrender!
It is but a minute challenge that beholds.
For tomorrow shall cast a myriad of mighty storms,
That only those with firm determination
And Utopian Vision do survive!
Darvins Digests
Dedicated to the source of my inspiration,
Ms. Margaret E. Bosshard

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Fraternal Order of UTOPIA

PHILIPPINE CORPORATE LAW DARVINS DIGESTS

1 BY BROD DANIEL NICHOLAS C. DARVIN

NATURE & ATTRIBUTES OF CORPORATIONS

2 BY BROD DANIEL NICHOLAS C. DARVIN

Rules regarding prosecution of corporations:

3 BY BROD DANIEL NICHOLAS C. DARVIN

DD: Primary franchise pertains to existence; secondary franchise pertains to operation.

PIERCING THE CORPORATE VEIL

UNITED STATES v. MILWAUKEE REF. -

4 BY BROD DANIEL NICHOLAS C. DARVIN

5 BY BROD DANIEL NICHOLAS C. DARVIN

DD: Piercing is a remedy intended to protect third persons.

6 BY BROD DANIEL NICHOLAS C. DARVIN

The test to determine the applicability of (fraud) piercing is as follows:

7 BY BROD DANIEL NICHOLAS C. DARVIN

GENERAL CREDIT v. ALSONS same as above; aggregate or combination of circumstances

8 BY BROD DANIEL NICHOLAS C. DARVIN

9 BY BROD DANIEL NICHOLAS C. DARVIN

CORPORATE CONTRACT LAW

10 BY BROD DANIEL NICHOLAS C. DARVIN

On account of non-registration, University Publishing could not be considered as a corporation de facto.

INTERNATIONAL EXPRESS TRAVEL v. CA corporation by estoppel / enforcement vs. evasion of debt

11 BY BROD DANIEL NICHOLAS C. DARVIN

12 BY BROD DANIEL NICHOLAS C. DARVIN

Separate Opinion of Justice Teehankee:

DD: Insofar as by-laws are concerned, do not follow this ruling.

13 BY BROD DANIEL NICHOLAS C. DARVIN

CORPORATE POWERS, AUTHORITY, & ACTIVITY

14 BY BROD DANIEL NICHOLAS C. DARVIN

DIRECTORS, TRUSTEES, & OFFICERS

15 BY BROD DANIEL NICHOLAS C. DARVIN

16 BY BROD DANIEL NICHOLAS C. DARVIN

17 BY BROD DANIEL NICHOLAS C. DARVIN

18 BY BROD DANIEL NICHOLAS C. DARVIN

GOKONGWEI v. SEC competitor-director / power to impose qualifications / corporate opportunity John

19 BY BROD DANIEL NICHOLAS C. DARVIN

Separate Opinion of Justice Teehankee:

20 BY BROD DANIEL NICHOLAS C. DARVIN

21 BY BROD DANIEL NICHOLAS C. DARVIN

DD: Follow the majority opinion.

22 BY BROD DANIEL NICHOLAS C. DARVIN

23 BY BROD DANIEL NICHOLAS C. DARVIN

DD: In this case, there is fraud under Sec. 31.

3. He agrees to hold himself liable personally and solidarily w/ the corporation;

24 BY BROD DANIEL NICHOLAS C. DARVIN

STOCKHOLDERS & MEMBERS

25 BY BROD DANIEL NICHOLAS C. DARVIN

26 BY BROD DANIEL NICHOLAS C. DARVIN

BITONG v. CA fraudulent compliance / requirements / no presumption of regularity Nora Bitong filed a

27 BY BROD DANIEL NICHOLAS C. DARVIN

28 BY BROD DANIEL NICHOLAS C. DARVIN

29 BY BROD DANIEL NICHOLAS C. DARVIN

RIGHTS OF STOCKHOLDERS & MEMBERS

30 BY BROD DANIEL NICHOLAS C. DARVIN

DD: By-laws cannot restrict the free transferability of shares.

31 BY BROD DANIEL NICHOLAS C. DARVIN

32 BY BROD DANIEL NICHOLAS C. DARVIN

MERGERS, ACQUISITIONS, & CONSOLIDATION

33 BY BROD DANIEL NICHOLAS C. DARVIN

DD: This was a case of transfer in fraud of creditors.

34 BY BROD DANIEL NICHOLAS C. DARVIN

35 BY BROD DANIEL NICHOLAS C. DARVIN

DD: Remember the principle of transmissibility of rights and obligations.

Darvin's - Corp

Darvin's - Corp