MATLING INDUSTRIAL VS COROS (G.R. NO.

157802 OCTOBER
13, 2010)
Matling Industrial and Commercial Corporation vs Coros
G.R. No. 157802 October 13, 2010

Facts: After his dismissal by Matling as its Vice President for Finance and Administration, the respondent filed on
August 10, 2000 a complaint for illegal suspension and illegal dismissal against Matling and some of its corporate
officers (petitioners) in the NLRC, Sub-Regional Arbitration Branch XII, Iligan City. The petitioners moved to dismiss
the complaint, raising the ground, among others, that the complaint pertained to the jurisdiction of the Securities and
Exchange Commission (SEC) due to the controversy being intracorporate inasmuch as the respondent was a member
of Matlings Board of Directors aside from being its Vice-President for Finance and Administration prior to his
termination. The respondent opposed the petitioners motion to dismiss, insisting that his status as a member of
Matlings Board of Directors was doubtful, considering that he had not been formally elected as such; that he did not
own a single share of stock in Matling, considering that he had been made to sign in blank an undated indorsement of
the certificate of stock he had been given in 1992; that Matling had taken back and retained the certificate of stock in
its custody; and that even assuming that he had been a Director of Matling, he had been removed as the Vice President
for Finance and Administration, not as a Director, a fact that the notice of his termination dated April 10, 2000 showed.
On October 16, 2000, the LA granted the petitioners motion to dismiss, ruling that the respondent was a corporate
officer because he was occupying the position of Vice President for Finance and Administration and at the same time
was a Member of the Board of Directors of Matling; and that, consequently, his removal was a corporate act of Matling
and the controversy resulting from such removal was under the jurisdiction of the SEC, pursuant to Section 5,
paragraph (c) of Presidential Decree No. 902.

Issue: Whether or not the respondent is a corporate officer within the jurisdiction of the regular courts.

Held: No. As a rule, the illegal dismissal of an officer or other employee of a private employer is properly
cognizable by the LA. This is pursuant to Article 217 (a) 2 of the Labor Code, as amended, which provides as
follows:

Article 217. Jurisdiction of the Labor Arbiters and the Commission. (a) Except as otherwise provided under this
Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar
days after the submission of the case by the parties for decision without extension, even in the absence of stenographic
notes, the following cases involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay,
hours of work and other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code, including questions involving the legality of strikes
and lockouts; and
6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims
arising from employer-employee relations, including those of persons in domestic or household service, involving an
amount exceeding five thousand pesos (P 5,000.00) regardless of whether accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters. (c) Cases
arising from the interpretation or implementation of collective bargaining agreements and those arising from the
interpretation or enforcement of company personnel policies shall be disposed of by the Labor Arbiter by referring
the same to the grievance machinery and voluntary arbitration as may be provided in said agreements.

Where the complaint for illegal dismissal concerns a corporate officer, however, the controversy falls under the
jurisdiction of the Securities and Exchange Commission (SEC), because the controversy arises out of intra-corporate
or partnership relations between and among stockholders, members, or associates, or between any or all of them and
the corporation, partnership, or association of which they are stockholders, members, or associates, respectively; and
between such corporation, partnership, or association and the State insofar as the controversy concerns their individual
franchise or right to exist as such entity; or because the controversy involves the election or appointment of a director,
trustee, officer, or manager of such corporation, partnership, or association. Such controversy, among others, is known
as an intra-corporate dispute.

Effective on August 8, 2000, upon the passage of Republic Act No. 8799, otherwise known as The Securities
Regulation Code, the SECs jurisdiction over all intra-corporate disputes was transferred to the RTC, pursuant to
Section 5.2 of RA No. 8799.

Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the corporate officers
enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no power to create other
Offices without amending first the corporate By-laws. However, the Board may create appointive positions other
than the positions of corporate Officers, but the persons occupying such positions are not considered as corporate
officers within the meaning of Section 25 of the Corporation Code and are not empowered to exercise the functions
of the corporate Officers, except those functions lawfully delegated to them. Their functions and duties are to be
determined by the Board of Directors/Trustees.

Moreover, the Board of Directors of Matling could not validly delegate the power to create a corporate office to the
President, in light of Section 25 of the Corporation Code requiring the Board of Directors itself to elect the corporate
officers. Verily, the power to elect the corporate officers was a discretionary power that the law exclusively vested
in the Board of Directors, and could not be delegated to subordinate officers or agents. The office of Vice President
for Finance and Administration created by Matlings President pursuant to By Law No. V was an ordinary, not a
corporate, office.

The criteria for distinguishing between corporate officers who may be ousted from office at will, on one hand, and
ordinary corporate employees who may only be terminated for just cause, on the other hand, do not depend on the
nature of the services performed, but on the manner of creation of the office. In the respondents case, he was
supposedly at once an employee, a stockholder, and a Director of Matling. The circumstances surrounding his
appointment to office must be fully considered to determine whether the dismissal constituted an intra-corporate
controversy or a labor termination dispute. We must also consider whether his status as Director and stockholder had
any relation at all to his appointment and subsequent dismissal as Vice President for Finance and Administration.

Prince Transport Inc v. Garcia, G.R. No. 167291, January 12 2011 [DIGEST]
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Facts:

Herein respondents were employees of Prince Transport, Inc. (PTI), a company engaged in the business
of transporting passengers by land. They were hired either as drivers, conductors, mechanics or
inspectors, except for respondent Diosdado Garcia (Garcia), who was assigned as Operations Manager.

Respondents decided to form a union for their mutual aid and protection. However, they were transferred
to one of its sub-companies, Lubas Transport (Lubas) before they were able to continue the formation of
the said union.

Despite such transfer, the schedule of the respondents, as well as their company identification cards,
were issued by PTI. Their daily time records, tickets and reports were also filed at the PTI office. Likewise,
all their claims for salaries were transacted at the same office.

Later, the business of Lubas deteriorated because of the refusal of PTI to maintain and repair the units
being used therein, which resulted in the virtual stoppage of its operations and respondents' loss of
employment.

Respondents consequently filed a complaint charging petitioners with illegal dismissal, unfair labor
practice and illegal deductions and praying for the award of premium pay for holiday and rest day, holiday
pay, service leave pay, 13th month pay, moral and exemplary damages and attorney's fees.

Petitioners, on the other hand, contended that respondents were no longer their employees, since they all
transferred to Lubas at their own request. Petitioners had nothing to do with the management and
operations of Lubas as well as the control and supervision of the latter's employees. Petitioners were not
aware of the existence of any union in their company and came to know of the same only in June 1998
when they were served a copy of the summons in the petition for certification election filed by the union.
That before the union was registered, the complaint was already filed. The real motive in the filing of the
complaints was because PTI asked respondents to vacate the bunkhouse where the respondents and
their respective families were staying because PTI wanted to renovate the same.

The Labor Arbiter ruled that petitioners were not guilty of unfair labor practice in the absence of evidence
to show that they violated respondents right to self-organization. The Labor Arbiter also held that Lubas
is the respondents employer and that it (Lubas) is an entity which is separate, distinct and independent
from PTI. Nonetheless, the Labor Arbiter found that Lubas is guilty of illegally dismissing respondents
from their employment.

Respondents filed an appeal with the National Labor Relations Commission (NLRC) praying, among
others, that PTI should also be held equally liable as Lubas.

Here, the NLRC sustained the Decision of the Labor Arbiter.

Respondents then filed a petition for certiorari with the CA assailing the Decision and Resolution of the
NLRC.

The CA ruled that petitioners were guilty of unfair labor practice; that Lubas is a mere instrumentality,
agent conduit or adjunct of PTI; and that petitioners act of transferring respondents employment to
Lubas is indicative of their intent to frustrate the efforts of respondents to organize themselves into a
union.

Petitioners went to the Supreme Court (SC) and filed a petition for review on certiorari. They argued that
the CA should have respected the findings of the Labor Arbiter and the NLRC; that it should not have
given due course to the petition for certiorari with respect to several respondents who failed to file an
appeal to the NLRC and considering that only one of the respondents executed and verified the said
petition; that Petitioners Prince Transport, Inc. and Mr. Renato Claros, and Lubas Transport are separate
and distinct entities; and that reinstatement should not have been awarded as it was not one of the issues
raised in their petition for certiorari.

Issues:

1. Does the CA have the power to resolve factual issues?

2. Does it have the power to conduct its own evaluation of the evidence on record despite the factual
findings of the Labor Arbiter and the NLRC?

3. Did the petition for certiorari suffer from a fatal defect considering that its verification and certification
against forum shopping was signed only by respondent Garcia?
4. Did the CA err in applying the doctrine of piercing the corporate veil with respect to Lubas?

5. Did the CA err in awarding reinstatement to respondents?

6. Did petitioners commit unfair labor practice?

Ruling:

1. The CA has the power to resolve factual issues. Under Section 9 of Batas Pambansa Blg. 129, as
amended by Republic Act No. 7902, the CA pursuant to the exercise of its original jurisdiction over
petitions for certiorari is specifically given the power to pass upon the evidence, if and when
necessary, to resolve factual issues.

2. The CA has the power to conduct its own evaluation of evidence despite the factual findings of the
Labor Arbiter and the NLRC. When there is a showing that the findings were arrived at arbitrarily or in
disregard of the evidence on record, they may be examined by the CA. The CA can grant the petition for
certiorari if it finds that the NLRC, in its assailed decision or resolution, made a factual finding not
supported by substantial evidence. It is within the jurisdiction of the CA, whose jurisdiction over labor
cases has been expanded to review the findings of the NLRC. In this case, the SC ruled that the CA did
not err in arriving at the following factual findings and conclusions.

3. Firstly, respondents' petition did not suffer from a fatal defect when its verification and certification
against forum shopping was signed only by respondent Garcia.

While the general rule is that the certificate of non-forum shopping must be signed by all the plaintiffs in a
case and the signature of only one of them is insufficient, the rules on forum shopping, which were
designed to promote and facilitate the orderly administration of justice, should not be interpreted with
such absolute literalness as to subvert its own ultimate and legitimate objective. Strict compliance with the
provision regarding the certificate of non-forum shopping underscores its mandatory nature in that the
certification cannot be altogether dispensed with or its requirements completely disregarded. It does not,
however, prohibit substantial compliance therewith under justifiable circumstances, considering especially
that although it is obligatory, it is not jurisdictional. In a number of cases, it has been consistently held that
when all the petitioners share a common interest and invoke a common cause of action or defense, the
signature of only one of them in the certification against forum shopping substantially complies with the
rules. In the present case, there is no question that respondents share a common interest and invoke a
common cause of action. Hence, the signature of respondent Garcia is a sufficient compliance with the
rule governing certificates of non-forum shopping. In the first place, some of the respondents actually
executed a Special Power of Attorney authorizing Garcia as their attorney-in-fact in filing a petition for
certiorari with the CA.

With respect to the absence of some of the workers signatures in the verification, the verification
requirement is deemed substantially complied with when some of the parties who undoubtedly have
sufficient knowledge and belief to swear to the truth of the allegations in the petition had signed the same.
Such verification is deemed a sufficient assurance that the matters alleged in the petition have been
made in good faith or are true and correct, and not merely speculative. Moreover, respondents' Partial
Appeal shows that the appeal stipulated as complainants-appellants, meaning that there were more than
one appellant who were all workers of petitioners. In any case, the settled rule is that a pleading which is
required by the Rules of Court to be verified, may be given due course even without a verification if the
circumstances warrant the suspension of the rules in the interest of justice. Indeed, the absence of a
verification is not jurisdictional, but only a formal defect, which does not of itself justify a court in refusing
to allow and act on a case. Hence, the failure of some of the respondents to sign the verification attached
to their Memorandum of Appeal filed with the NLRC is not fatal to their cause of action.

4. Secondly, the CA did not err in applying the doctrine of piercing the corporate veil with respect to
Lubas.

Lubas is a mere agent, conduit or adjunct of PTI. A settled formulation of the doctrine of piercing the
corporate veil is that when two business enterprises are owned, conducted and controlled by the same
parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal
fiction that these two entities are distinct and treat them as identical or as one and the same. It may be
true that Lubas is a single proprietorship and not a corporation. However, petitioners attempt to isolate
themselves from and hide behind the supposed separate and distinct personality of Lubas so as to evade
their liabilities is precisely what the classical doctrine of piercing the veil of corporate entity seeks to
prevent and remedy. In the present case it was Prince Transport who made the decision to transfer its
employees to Lubas. Prince Transport never regarded Lubas Transport as a separate entity, as it admits
to having referred to said entity as Lubas operations. Moreover, it admits that it did not transfer the
employees for it assigned the respondents. Lastly, the existing funds and 201 file of the employees were
turned over not to a new company but a new management. PTI even exercised the decision as to which
employees shall work in Lubas. What is telling is the fact that PTI admitted that Lubas is one of its sub-
companies. In addition, PTI, in its letters to its employees who were transferred to Lubas, referred to the
latter as its New City Operations Bus. Moreover, petitioners failed to refute the contention of
respondents that despite the latters transfer to Lubas of their daily time records, reports, daily income
remittances of conductors, schedule of drivers and conductors were all made, performed, filed and kept at
the office of PTI. In fact, respondents identification cards bear the name of PTI.

5. Thirdly, the CA did not err in awarding reinstatement to respondents.

It is clear from the amended complaints filed by respondents that they are seeking reinstatement. In any
case, Section 2 (c), Rule 7 of the Rules of Court provides that a pleading shall specify the relief sought,
but may add a general prayer for such further or other reliefs as may be deemed just and equitable.
Under this rule, a court can grant the relief warranted by the allegation and the proof even if it is not
specifically sought by the injured party; the inclusion of a general prayer may justify the grant of a remedy
different from or together with the specific remedy sought, if the facts alleged in the complaint and the
evidence introduced so warrant. Moreover, the general prayer is broad enough to justify extension of a
remedy different from or together with the specific remedy sought. Even without the prayer for a specific
remedy, proper relief may be granted by the court if the facts alleged in the complaint and the evidence
introduced so warrant. The court shall grant relief warranted by the allegations and the proof even if no
such relief is prayed for.The prayer in the complaint for other reliefs equitable and just in the premises
justifies the grant of a relief not otherwise specifically prayed for. In the instant case, aside from their
specific prayer for reinstatement, respondents, in their separate complaints, prayed for such reliefs which
are deemed just and equitable.

6. Lastly, petitioners in this case have committed unfair labor practice.

Respondents transfer of work assignments to Lubas was designed by petitioners as a subterfuge to foil
the formers right to organize themselves into a union. Under Article 248 (a) and (e) of the Labor Code, an
employer is guilty of unfair labor practice if it interferes with, restrains or coerces its employees in the
exercise of their right to self-organization or if it discriminates in regard to wages, hours of work and other
terms and conditions of employment in order to encourage or discourage membership in any labor
organization. In this case, after respondents' transfer to Lubas, petitioners left them high and dry insofar
as the operations of Lubas was concerned. Petitioners withheld the necessary financial and logistic
support such as spare parts, and repair and maintenance of the transferred buses until only two units
remained in running condition. This left respondents virtually jobless.
Emile Justin Cebrian Marc II Marketing, Inc., et al. vs. Alfredo Joson G.R. No. 171993
December 12, 2011
FACTS: Petitioner Marc II Marketing, Inc. (Marc II) is a domestic corporation engaged in buying and
distributing household appliances, among others. It took over the operations of Marc Marketing, Inc.
(Marc), which was made non-operational following its incorporation and registration with the
Securities and Exchange Commission (SEC). Petitioner Lucila Joson (Lucila) is Marc II's President
and majority stockholder. She was also the former President and majority stockholder of the now-
defunct Marc. Before Marc II was officially incorporated, Alfredo Joson (Alfredo) had already been
engaged by Lucila, in her capacity as President of Marc to work as Marc II's general manager.
Pending Marc II's incorporation, Alfredo was designated as Marc's General Manager (Marc being in
in the process of winding up at the time). Later on, Marc II was officially incorporated, and Alfredo
became its General Manager. However, Marc II decided to cease its operations due to poor sales
collection aggravated by inefficient management of its affairs. Alfredo was then informed of the
termination of his services since such would no longer be necessary for the winding up of Marc II's
affairs. Aggrieved, Alfredo filed a complaint for reinstatement with the Labor Arbiter, who ruled
against now-petitioners on the ground that as Alfredo was no corporate officer under Marc II's by-
laws, an employer-employee relationship subsisted. Petitioners appealed to the NLRC, which
reversed the LA's decision, ratiocinating that Alfredo was a corporate officer. The matter was brought
before the Court of Appeals, which affirmed the LA's decision of illegal dismissal.
ISSUE: Was Alfredo a corporate officer?
RULING: NO. In Easycall Communications Phils., Inc. v. King, this Court held that in the context of
Presidential Decree No. 902-A, corporate officers are those officers of a corporation who are given
that character either by the Corporation Code or by the corporations by-laws. Section 25 of the
Corporation Code specifically enumerated who are these corporate officers, to wit: (1) president; (2)
secretary; (3) treasurer; and (4) such other officers as may be provided for in the by-laws. [...] A
careful perusal of petitioner corporations by-laws, particularly paragraph 1, Section 1, Article IV,
would explicitly reveal that its corporate officers are composed only of: (1) Chairman; (2) President;
(3) one or more Vice-President; (4) Treasurer; and (5) Secretary. The position of General Manager
was not among those enumerated. Case # 29 Emile Justin Cebrian Harpoon Marine Services, Inc.,
et al., vs. Fernan Francisco G.R. No. 167751 March 2, 2011 FACTS: Petitioner Harpoon Marine
Services, Inc. (Harpoon) originally hired respondent Fernan Francisco (Fernan) as its Yard
Supervisor, tasked to oversee and supervise all projects of the company. Later, Fernan averred that
he was unceremoniously dismissed by petitioner Jose Rosit (Jose), Harpoon's President and CEO
and filed an illegal dismissal case against Harpoon and Jose. The Labor Arbiter held that Fernan
was validly dismissed due to unjustified absences and tardiness, and that same was done in
compliance with due process requirements. The NLRC reversed the LA's findings, ruling that
Fernan's dismissal was illegal. The matter was brought before the CA, which affirmed the NLRC's
decision -- hence, this petition. ISSUE: Should Jose be held solidarily liable with Harpoon? RULING:
NO. As held in the case of MAM Realty Development Corporation v. National Labor Relations
Commission, "obligations incurred by [corporate officers], acting as such corporate agents, are not
theirs but the direct accountabilities of the corporation they represent." As such, they should not be
generally held jointly and solidarily liable with the corporation. The Court, however, cited
circumstances when solidary liabilities may be imposed, as exceptions: 1. When directors and
trustees or, in appropriate cases, the officers of a corporation (a) Vote for or assent to [patently]
unlawful acts of the corporation; (b) Act in bad faith or with gross negligence in directing the
corporate affairs; (c) Are guilty of conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons. 2. When the director or officer has consented to the
issuance of watered stock or who, having knowledge thereof, did not forthwith file with the corporate
secretary his written objection thereto. 3. When a director, trustee or officer has contractually agreed
or stipulated to hold himself personally and solidarily liable with the corporation. 4. When a director,
trustee or officer is made, by specific provision of law, personally liable for his corporate action. The
general rule is grounded on the theory that a corporation has a legal personality separate and
distinct from the persons comprising it. To warrant the piercing of the veil of corporate fiction, the
officer s bad faith or wrongdoing "must be established clearly and convincingly" as "[b]ad faith is
never presumed." In the case at bench, the CA s basis for Jose s liability was that he acted
in bad faith when he approached respondent and told him that the company could no longer afford
his salary and that he will be paid instead his separation pay and accrued commissions. This finding,
however, could not substantially justify the holding of any personal liability against Jose. The records
are bereft of any other satisfactory evidence that Jose acted in bad faith with gross or inexcusable
negligence, or that he acted outside the scope of his authority as company president. Case # 52
Emile Justin Cebrian Heirs of Fausto Ignacio vs. Home Bankers Savings and Trust Co. G.R. No.
177783 January 23, 2013 FACTS: Petitioner Fausto Ignacio (Fausto) mortgaged two parcels of land
to Home Savings Bank and Trust Co., the predecessor of respondent Home Bankers Savings and
Trust Company (Home Bankers), as security for the loan extended to him. When Fausto defaulted in
the payment of his loan, Home Bankers proceeded to foreclose the mortgage. At the foreclosure
sale, Home Bankers was the highest bidder, and with Fausto's failure to redeem the properties
within one year from registration, title to the same was consolidated in Home Bankers' favor. Despite
the lapse of the redemption period and the subsequent consolidation of title, Fausto offered to
repurchase the properties. While Home Bankers considered the offer, there was no repurchase
contract executed. The present controversy was fueled by Fausto's stance that a verbal
repurchase/compromise agreement was actually reached and implemented by the parties. The RTC
found for Fausto, but the CA reversed -- hence, this petition. ISSUE: Was there indeed a
repurchase/compromise agreement? RULING: NO. Section 23 of the Corporation Code expressly
provides that the corporate powers of all corporations shall be exercised by the board of directors.
Just as a natural person may authorize another to do certain acts in his behalf, so may the board of
directors of a corporation validly delegate some of its functions to individual officers or agents
appointed by it. Thus, contracts or acts of a corporation must be made either by the board of
directors or by a corporate agent duly authorized by the board. Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating to the
affairs of the corporation, but not in the course of, or connected with, the performance of authorized
duties of such director, are held not binding on the corporation. Thus, a corporation can only execute
its powers and transact its business through its Board of Directors and through its officers and
agents when authorized by a board resolution or its by-laws. In the absence of conformity or
acceptance by properly authorized bank officers of [Fausto's] counter-proposal, no perfected
repurchase contract was born out of the talks or negotiations between [Fausto and certain persons,
Mr. Fajardo and Mr. Lazaro]. [Fausto] therefore had no legal right to compel respondent bank to
accept the P600,000 being tendered by him as payment for the supposed balance of repurchase
price.

Marc II Marketing, Inc. vs. Alfredo M. Joson

[GR No. 171993, December 12, 2011]
FACTS: Respondent Alfredo Joson was the General Manager, incorporator, director and stockholder of Marc II Marketing
(Petitioner Corporation). Before Petitioner Corporation was officially incorporated, respondent has already been engaged by
petitioner Lucila Joson, in her capacity as President of Marc Marketing Inc., to work as the General Manager of Petitioner
Corporation through a management contract.

However, Petitioner Corporation decided to stop and cease its operation wherein respondent's services were then terminated.
Feeling aggrieved, respondent filed a Complaint for Reinstatement and Money Claim against petitioners before the Labor Arbiter
which ruled in favor of respondent. The National Labor and Relations Commission (NLRC) reversed said decision. The Court of
Appeals (CA) however, upheld the ruling of the Labor Arbiter. Hence, this petition.

ISSUE: Whether or not the Labor Arbiter has jurisdiction over the controversy at bar

RULING: Yes. While Article 217(a) 229 of the Labor Code, as amended, provides that it is the Labor Arbiter who has the original
and exclusive jurisdiction over cases involving termination or dismissal of workers when the person dismissed or terminated is a
corporate officer, the case automatically falls within the province of the Regional Trial Court (RTC). The dismissal of a corporate
officer is always regarded as a corporate act and/or an intra-corporate controversy.

In conformity with Section 25 of the Corporation Code, whoever are the corporate officers enumerated in the by-laws are the
exclusive officers of the corporation and the Board has no power to create other officers without amending first the corporate
by-laws. However, the Board may create appointive positions other than the positions of the corporate officers, but the persons
occupying such positions are not considered as corporate officers within the meaning of Section 25 of the Corporation Code and
are not empowered to exercise the functions of the corporate officers, except those functions lawfully delegated to them. Their
functioning and duties are to be determined by the Board of Directors/Trustees.

In the case at bar, the respondent was not a corporate officer of Petitioner Corporation because his position as General Manager
was not specifically mentioned in the roster of corporate officers in its corporate by-laws. Thus respondent, can only be regarded
as its employee or subordinate official. Accordingly, respondent's dismissal as Petitioner Corporations General Manager did not
amount to an intra-corporate controversy. Jurisdiction therefore properly belongs with the Labor Arbiter and not with the RTC.

In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, herein petitioners Marc II Marketing, Inc. and Lucila
V. Joson assailed the Decision[1] dated 20 June 2005 of the Court of Appeals in CA-G.R. SP No. 76624 for reversing and setting
aside the Resolution[2] of the National Labor Relations Commission (NLRC) dated 15 October 2002, thereby affirming the Labor
Arbiters Decision[3] dated 1 October 2001 finding herein respondent Alfredo M. Josons dismissal from employment as illegal. In
the questioned Decision, the Court of Appeals upheld the Labor Arbiters jurisdiction over the case on the basis that respondent
was not an officer but a mere employee of petitioner Marc II Marketing, Inc., thus, totally disregarding the latters allegation of
intra-corporate controversy. Nonetheless, the Court of Appeals remanded the case to the NLRC for further proceedings to
determine the proper amount of monetary awards that should be given to respondent.
--

Donnina Halley vs. Printwell, Inc.

Facts:

o BMPI (Business Media Philippines Inc.) is a corporation under the control of its stockholders, including Donnina
Halley.
o In the course of its business, BMPI commissioned PRINTWELL to print Philippines, Inc. (a magazine published and
distributed by BMPI)
o PRINTWELL extended 30-day credit accommodation in favor of BMPI and in a period of 9 mos. BMPI placed several
orders amounting to 316,000.
o However, only 25,000 was paid hence a balance of 291,000
o PRINTWELL sued BMPI for collection of the unpaid balance and later on impleaded BMPIs original stockholders and
incorporators to recover on their unpaid subscriptions.
o It appears that BMPI has an authorized capital stock of 3M divided into 300,000 shares with P10 par value.
o Only 75,000 shares worth P750,000 were originally subscribed of which P187,500 were paid up capital.
o Halley subscribed to 35,000 shares worth P350,000 but only paid P87,500.
Halley contends that:

1. They all had already paid their subscriptions in full

2. BMPI had a separate and distinct personality
3. BOD and SH had resolved to dissolve BMPI

RTC and CA

o Defendant merely used the corporate fiction as a cloak/cover to create an injustice (against PRINTWELL)
o Rejected allegations of full payment in view of irregularity in the issuance of ORs (Payment made on a later date was
covered by an OR with a lower serial number than payment made on an earlier date.

Issue: WON a stockholder who was in active management of the business of the corporation and still has unpaid
subscriptions should be made liable for the debts of the corporation by piercing the veil of corporate fiction

Held: YES! Such stockholder should be made liable up to the extent of her unpaid subscription

Ratio:

It was found that at the time the obligation was incurred, BMPI was under the control of its stockholders who know
fully well that the corporation was not in a position to pay its account (thinly capitalized).
And, that the stockholders personally benefited from the operations of the corporation even though they never paid
their subscriptions in full.

The stockholders cannot now claim the doctrine of corporate fiction otherwise (to deny creditors to collect from SH) it would
create an injustice because creditors would be at a loss (limbo) against whom it would assert the right to collect.

On piercing the veil:

Although the corporation has a personality separate and distinct from its SH, such personality is merely a legal fiction (for the
convenience and to promote the ends of justice) which may be disregarded by the courts if it is used as a cloak or cover for
fraud, justification of a wrong, or an alter ego for the sole benefit of the SH.

As to the Trust Fund Doctrine:

The RTC and CA correctly applied the Trust Fund Doctrine

Under which corporate debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate debts
Subscriptions to the capital of a corporation constitutes a trust fund for the payment of the creditors (by mere
analogy) In reality, corporation is a simple debtor.
Moreover, the corporation has no legal capacity to release an original subscriber to its capital stock from the
obligation of paying for his shares, in whole or in part, without valuable consideration, or fraudulently, to the
prejudice of the creditors.
The creditor is allowed to maintain an action upon any unpaid subscriptions and thereby steps into the shoes of the
corporation for the satisfaction of its debt.
The trust fund doctrine is not limited to reaching the SHs unpaid subscriptions. The scope of the doctrine when the
corporation is insolvent encompasses not only the capital stock but also other property and assets generally
regarded in equity as a trust fund for the payment of corporate debts.
ALERT SECURITY AND INVESTIGATION AGENCY, INC. VS. PASAWILAN

FACTS

Respondents Saidali Pasawilan, Wilfredo Verceles and Melchor Bulusan were all
employed by petitioner Alert Security and Investigation Agency, Inc. (Alert Security) as security
guards.

Respondents aver that because they were underpaid, they filed a complaint for money
claims against Alert Security and its president and general manager, petitioner Manuel D. Dasig,
before Labor Arbiter Ariel C. Santos. As a result thereof, the respondents were not given new
assignments and were terminated from employment. Hence, they filed a complaint for illegal
dismissal.

The Labor arbiter rendered a Decision finding respondents to have been illegally dismissed.

Aggrieved, petitioners appealed the decision to the NLRC and the latter rendered a
Decision dismissing the complaint for illegal dismissal after ruling that the fact of dismissal or
termination of employment was not sufficiently established.

Unfazed, respondents filed a petition for certiorari with the CA questioning the NLRC
decision and alleging grave abuse of discretion.

On February 1, 2008, the CA rendered the assailed Decision reversing and setting aside the
NLRC decision. The dispositive portion of said decision ruled that respondents should be paid
their monetary awards in solidum by Alert Security and Manuel D. Dasig, its President and General
Manager.

Hence, this Petition arguing that Alert Security is a duly organized domestic corporation
which has a legal personality separate and distinct from its members or owners. Hence, liability
for whatever compensation or money claims owed to employees must be borne solely by Alert
Security and not by any of its individual stockholders or officers.

ISSUE

Whether or not the President/General Manager is liable in solidum with the petitioner corporation.

RULING

No.
 Basic is the rule that a corporation has a separate and distinct personality apart from its
directors, officers, or owners. In exceptional cases, courts find it proper to breach this corporate
personality in order to make directors, officers, or owners solidarily liable for the companies acts.
Section 31, Paragraph 1 of the Corporation Code provides:

Sec. 31. Liability of directors, trustees or officers. - Directors or trustees

who willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the affairs
of the corporation or acquire any personal or pecuniary interest in conflict with their
duty as such directors, or trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its stockholders or
members and other persons.
xxxx

Jurisprudence has been consistent in defining the instances when the separate and distinct
personality of a corporation may be disregarded in order to hold the directors, officers, or owners
of the corporation liable for corporate debts. In McLeod v. National Labor Relations Commission,
the Court ruled:

Thus, the rule is still that the doctrine of piercing the corporate veil applies
only when the corporate fiction is used to defeat public convenience, justify wrong,
protect fraud, or defend crime. In the absence of malice, bad faith, or a specific
provision of law making a corporate officer liable, such corporate officer cannot be
made personally liable for corporate liabilities. x x x

Further, in Carag v. National Labor Relations Commission, the Court clarified the McLeod
doctrine as regards labor laws, to wit:

We have already ruled in McLeod v. NLRC and Spouses Santos v. NLRC

that Article 212(e) of the Labor Code, by itself, does not make a corporate
officer personally liable for the debts of the corporation. The governing law on
personal liability of directors for debts of the corporation is still Section 31 of the
Corporation Code. x x x

In the present case, there is no evidence to indicate that Manuel D. Dasig, as president and
general manager of Alert Security, is using the veil of corporate fiction to defeat public
convenience, justify wrong, protect fraud, or defend crime. Further, there is no showing that Alert
Security has folded up its business or is reneging in its obligations. In the final analysis, it is Alert
Security that respondents are after and it is also Alert Security who should take responsibility for
their illegal dismissal.

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL CENTER-
BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO,respondents. G.R. No.
141994. January 17, 2005
 Facts:
Rima & Alegre were host of FBNI radio program Expose. Respondent Ago was the owner of the Medical &
Educational center, subject of the radio program Expose. AMEC claimed that the broadcasts were defamatory and
owner Ago and school AMEC claimed for damages. The complaint further alleged that AMEC is a reputable learning
institution. With the supposed expose, FBNI, Rima and Alegre transmitted malicious imputations and as such,
destroyed plaintiffs reputation. FBNI was included as defendant for allegedly failing to exercise due diligence in the
selection and supervision of its employees. The trial court found Rimas statements to be within the bounds of freedom
of speech and ruled that the broadcast was libelous. It ordered the defendants Alegre and FBNI to pay AMEC 300k for
moral damages.

ISSUE: Whether or not AMEC is entitled to moral damages.

RULING: YES.
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.
Nevertheless, AMECs claim, or moral damages fall under item 7 of Art 2219 of the NCC.
This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of
defamation. Art 2219 (7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical
person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages.
Moreover, where the broadcast is libelous per se, the law implied damages. In such a case, evidence of an honest
mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. In this case, the
broadcasts are libelous per se. thus, AMEC is entitled to moral damages. However, we find the award P500,000 moral
damages unreasonable. The record shows that even though the broadcasts were libelous, per se, AMEC has not
suffered any substantial or material damage to its reputation. Therefore, we reduce the award of moral damages to
P150k.

GAMBOA v FINANCE SECRETARY TEVES

TOPIC: CONTROL TEST
CARPIO, J.:
FACTS:
On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the right
to engage in telecommunications business.
In 1969, General Telephone and Electronics Corporation (GTE), an American company and a major PLDT stockholder,
sold 26 percent of the outstanding common shares of PLDT to PTIC.
In 1977, Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and Jose Campos,
Jr. Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignment
executed by PTIC stockholdersRamon Cojuangco and Luis Tirso Rivilla.
In 1986, the 111,415 shares of stock of PTIC held by PHI were sequestered by the Presidential Commission on Good
Government (PCGG). The 111,415 PTIC shares, which represent about 46.125 percent of the outstanding capital stock
of PTIC, were later declared by this Court to be owned by the Republic of the Philippines.
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent of
the outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the
Philippine Government announced that it would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding
capital stock of PTIC, through a public bidding to be conducted on 4 December 2006. Subsequently, the public bidding
was reset to 8 December 2006, and only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio
Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510 million.
Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the
111,415 PTIC shares by matching the bid price of Parallax. However, First Pacific failed to do so by the 1 February
2007 deadline set by IPC and instead, yielded its right to PTIC itself which was then given by IPC until 2 March 2007
to buy the PTIC shares.
On 14 February 2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale and Purchase
Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, with the Philippine
Government for the price of P25,217,556,000 or US$510,580,189. The sale was completed on 28 February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is
actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of PLDT. With the
sale, First Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby
increasing the common shareholdings of foreigners in PLDT to about 81.47 percent. This violates Section 11,
Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more
than 40 percent.
 Public respondents Finance Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and PCGG Commissioner
Ricardo Abcede allege the following relevant facts:
On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a public hearing
on the particulars of the then impending sale of the 111,415 PTIC shares. Respondents Teves and Sevilla were among
those who attended the public hearing. The HR Committee Report No. 2270 concluded that: (a) the auction of the
governments 111,415 PTIC shares bore due diligence, transparency and conformity with existing legal procedures;
and (b) First Pacifics intended acquisition of the governments 111,415 PTIC shares resulting in First Pacifics
100% ownership of PTIC will not violate the 40 percent constitutional limit on foreign ownership of a public
utility since PTIC holds only 13.847 percent of the total outstanding common shares of PLDT. 5 On 28 February
2007, First Pacific completed the acquisition of the 111,415 shares of stock of PTIC.
Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of
111,415 PTIC shares or 46 percent of the outstanding capital stock of PTIC (the remaining 54 percent of PTIC shares
was already owned by First Pacific and its affiliates); (b) Parallax offered the highest bid amounting to P25,217,556,000;
(c) pursuant to the right of first refusal in favor of PTIC and its shareholders granted in PTICs Articles of Incorporation,
MPAH, a First Pacific affiliate, exercised its right of first refusal by matching the highest bid offered for PTIC shares on
13 February 2007; and (d) on 28 February 2007, the sale was consummated when MPAH paid IPC P25,217,556,000
and the government delivered the certificates for the 111,415 PTIC shares. Respondent Pangilinandenies the other
allegations of facts of petitioner.
On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and declaration
of nullity of sale of the 111,415 PTIC shares. Petitioner claims, among others, that the sale of the 111,415 PTIC shares
would result in an increase in First Pacifics common shareholdings in PLDT from 30.7 percent to 37 percent, and this,
combined with Japanese NTT DoCoMos common shareholdings in PLDT, would result to a total foreign common
shareholdings in PLDT of 51.56 percent which is over the 40 percent constitutional limit.
ISSUE: Whether the term capital in Section 11, Article XII of the Constitution refers to the total common shares
only or to the total outstanding capital stock (combined total of common and non-voting preferred shares) of
PLDT, a public utility.
HELD: The term capital in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled
to vote in the election of directors. In the present case only to common shares, and not to the total outstanding
capital stock (common and non-voting preferred shares).
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public
utilities, to wit:
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall
be granted except to citizens of the Philippines or to corporations or associations organized under the laws of
the Philippines, at least sixty per centum of whose capital is owned by such citizens xxx
Father Joaquin G. Bernas, S.J: The provision is [an express] recognition of the sensitive and vital position of
public utilities both in the national economy and for national security. 26 The evident purpose of the citizenship
requirement is to prevent aliens from assuming control of public utilities, which may be inimical to the national
interest. This specific provision explicitly reserves to Filipino citizens control of public utilities, pursuant to an overriding
economic goal of the 1987 Constitution: to conserve and develop our patrimony and ensure a self-reliant and
independent national economy effectivelycontrolled by Filipinos.
The term capital in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election
of directors, and thus in the present case only to common shares, 41 and not to the total outstanding capital stock
comprising both common and non-voting preferred shares.

The Corporation Code of the Philippines classifies shares as common or preferred, thus:
Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes or series of
shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be
stated in the articles of incorporation: Provided, That no share may be deprived of voting rights except those
classified and issued as preferred or redeemable shares, unless otherwise provided in this Code xxx
Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the
corporation.43 This is exercised through his vote in the election of directors because it is the board of directors that
controls or manages the corporation. In the absence of provisions in the articles of incorporation denying voting rights
to preferred shares, preferred shares have the same voting rights as common shares. However, preferred shareholders
are often excluded from any control, that is, deprived of the right to vote in the election of directors and on other matters,
on the theory that the preferred shareholders are merely investors in the corporation for income in the same manner
as bondholders. In fact, under the Corporation Code only preferred or redeemable shares can be deprived of the right
to vote. Common shares cannot be deprived of the right to vote in any corporate meeting, and any provision in the
articles of incorporation restricting the right of common shareholders to vote is invalid.
Considering that common shares have voting rights which translate to control, as opposed to preferred shares which
usually have no voting rights, the term capital in Section 11, Article XII of the Constitution refers only to common shares.
However, if the preferred shares also have the right to vote in the election of directors, then the term capital shall include
 such preferred shares because the right to participate in the control or management of the corporation is exercised
through the right to vote in the election of directors. In short, the term capital in Section 11, Article XII of the
Constitution refers only to shares of stock that can vote in the election of directors.
This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino citizens
the control and management of public utilities. As revealed in the deliberations of the Constitutional Commission, capital
refers to the voting stock or controlling interest of a corporation, to wit:
xxx
MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40 percent of
the capital is owned by them, but it is the voting capital, whereas, the Filipinos own the nonvoting shares. So
we can have a situation where the corporation is controlled by foreigners despite being the minority because
they have the voting capital. That is the anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word stock as stated in the 1973 and 1935 Constitutions is
that according to Commissioner Rodrigo, there are associations that do not have stocks. That is why we say
CAPITAL.
MR. AZCUNA. We should not eliminate the phrase controlling interest.
MR. BENGZON. In the case of stock corporations, it is assumed.
In this case, Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors.
PLDTs Articles of Incorporation expressly state that the holders of Serial Preferred Stock shall not be entitled to
vote at any meeting of the stockholders for the election of directors or for any other purpose or otherwise
participate in any action taken by the corporation or its stockholders, or to receive notice of any meeting of stockholders.

On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDTs
Articles of Incorporation52 state that each holder of Common Capital Stock shall have one vote in respect of each share
of such stock held by him on all matters voted upon by the stockholders, and the holders of Common Capital Stock
shall have the exclusive right to vote for the election of directors and for all other purposes.53

In short, only holders of common shares can vote in the election of directors, meaning only common shareholders
exercise control over PLDT. Conversely, holders of preferred shares, who have no voting rights in the election of
directors, do not have any control over PLDT. In fact, under PLDTs Articles of Incorporation, holders of common shares
have voting rights for all purposes, while holders of preferred shares have no voting right for any purpose whatsoever.

Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of
PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that [n]o franchise,
certificate, or any other form of authorization for the operation of a public utility shall be granted except to
x x x corporations x x x organized under the laws of the Philippines, at least sixty per centum of whose capital is
owned by such citizens x x x.

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right
to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDTs
common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred
shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that
common shares earn; (5) preferred shares have twice the par value of common shares; and (6) preferred shares
constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of ownership
and control of a public utility is a mockery of the Constitution.

xxx
Indisputably, construing the term capital in Section 11, Article XII of the Constitution to include both voting and non-
voting shares will result in the abject surrender of our telecommunications industry to foreigners, amounting to a clear
abdication of the States constitutional duty to limit control of public utilities to Filipino citizens. Such an interpretation
certainly runs counter to the constitutional provision reserving certain areas of investment to Filipino citizens, such as
the exploitation of natural resources as well as the ownership of land, educational institutions and advertising
businesses. The Court should never open to foreign control what the Constitution has expressly reserved to Filipinos
for that would be a betrayal of the Constitution and of the national interest. The Court must perform its solemn duty to
defend and uphold the intent and letter of the Constitution to ensure, in the words of the Constitution, a self-reliant and
independent national economy effectively controlled by Filipinos.

Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to
Filipinos specific areas of investment, such as the development of natural resources and ownership of land, educational
institutions and advertising business, is self-executing. There is no need for legislation to implement these self-
executing provisions of the Constitution.
 Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove the Articles
of Incorporation of any corporation where the required percentage of ownership of the capital stock to be owned
by citizens of the Philippines has not been complied with as required by existing laws or the Constitution. Thus,
the SEC is the government agency tasked with the statutory duty to enforce the nationality requirement prescribed in
Section 11, Article XII of the Constitution on the ownership of public utilities. This Court, in a petition for declaratory
relief that is treated as a petition for mandamus as in the present case, can direct the SEC to perform its statutory duty
under the law, a duty that the SEC has apparently unlawfully neglected to do based on the 2010 GIS that respondent
PLDT submitted to the SEC.

Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested with the power and function to suspend or
revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships
or associations, upon any of the grounds provided by law. The SEC is mandated under Section 5(d) of the same
Code with the power and function to investigate x x x the activities of persons to ensure compliance with the laws
and regulations that SEC administers or enforces. The GIS that all corporations are required to submit to SEC annually
should put the SEC on guard against violations of the nationality requirement prescribed in the Constitution and existing
laws. This Court can compel the SEC, in a petition for declaratory relief that is treated as a petition for mandamus as
in the present case, to hear and decide a possible violation of Section 11, Article XII of the Constitution in view of the
ownership structure of PLDTs voting shares, as admitted by respondents and as stated in PLDTs 2010 GIS that PLDT
submitted to SEC.

FIRST PHILIPPINE INTERNATIONAL BANK VS CA (252

SCRA 259)
First Philippine International Bank vs Court of Appeals
252 SCRA 259 [GR No. 115849 January 24, 1996]

Facts: In the course of its banking operations, the defendant Producer Bank of the Philippines acquired 6 parcels of
land with a total area of 101 hectares located at Don Jose, Sta. Rosa, Laguna and covered by TCT No. T-106932 to T-
106937. The property used to be owned by BYME Investment and Development Corporation which hd them
mortgaged with the bank as collateral for a loan. The plaintiff originals, Demetrio Demetria and Jose Janolo wanted
to purchase the property and thus initiated negotiations for that purpose. In the early part of August 1987 said plaintiffs,
upon the suggestion of BYME investments legal counsel, Fajardo met with defendant Mercurio Rivera, manager of
the property management department of the defendant bank. The meeting was held in pursuant to plaintiffs plan to
buy the property. After the meeting, plaintiff Janolo, following the advice of defendant Rivera made a formal purchase
offer to the Bank through a letter dated August 30,1987. Negotiations took place and an offer price was fixed at
P5.5million. During the course of the negotiations, the defendant bank was placed under conservatorship and a new
conservator was appointed to which the name has been refused to recognize. A derivative suit has been filed against
Rivera for the damages suffered from the alleged perfect contract of sale involving the 6 parcels of land.

Issue: Whether or not a derivative suit may lie involving the bank and its stockholders.

Held: No. An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he
hold stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or
are the ones, to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a
nominal party with the corporation as the real party in interest.

In the face of the damaging admissions taken from the complaint in the second case, petitioners, quite strangely, sought
to deny that the second case was a derivative suit, reasoning that it was brought not by the minority shareholders, but
by Henry Co. etal. who not only hold or control over 80% of the outstanding capital stock, but also constitute the
majority in the board of directors of petitioners bank. That being so, then they really represent the bank, so whether
they sued derivatively or directly, there is undeniably an identity of interest/entity represented.

In addition to the many cases, where the corporate fiction has been regarded, we now add the instant case, and declare
herewith that the corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against forum
shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a derivative suit, cannot
be allowed to trifle with court processes particularly where, as in this case, the corporation itself has not been remiss
in vigorously prosecuting or defending corporate causes and in using and applying remedies available to it. To rule
otherwise would be to encourage corporate litigants to use their shareholders as fronts to circumvent the stringent
rules against forum shopping.

From the facts, the official bank price, at any rte, the bank placed its official, Rivera is a position of authority to accept
offers to buy and negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn around
and say, as it now does, that what Rivera states as the banks action on the matter is not in fact so. It is a familiar
doctrine, the doctrine of ostensible authority, that if a corporation on knowingly permits one of its officers, or any
other agent, to do acts within the scope of apparent authority, and thus holds him out to the public as possessing power
to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such
agent, he estopped from denying his authority.

A bank is liable for wrongful acts of its officers done in the interest of the bank or in he course of dealings of the
officers in their representative capacity but not for acts outside the scope of their authority. A bank holding out its
officers and agents as worthy of confidence will not be permitted to profit by the frauds they my thus be enabled to
perpetrate in the apparent scope of their employment; nor will it be permitted to shrink its responsibility for such fraud
even through no benefit may accrue to the bank therefrom. Accordingly, a banking corporation is liable to innocent
third persons where the representation is made in the course of its business by an agent acting within the general scope
of its authority even though, in the particular case, the agent is secretly abusing his authority and attempting to
perpetrate fraud upon his principal or some other person, for his own ultimate benefit.

Section 28-A of BP 68 merely gives the conservator power to revoke contracts that are, under existing law, deemed
not to be effective i.e void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of
a banks board of directors. What the said board cannot do such as repudiating a contract validly entered into under
the doctrine of implied authority the conservator cannot do either.

G.R. No. 137592 December 12, 2001

ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO HESUS, H.S.K. SA BANSANG PILIPINAS, INC., petitioner,
vs.
IGLESIA NG DIOS KAY CRISTO JESUS, HALIGI AT SUHAY NG KATOTOHANAN, respondent.

Facts: Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (Church of God in Christ Jesus,
the Pillar and Ground of Truth), is a non-stock religious society or corporation registered in 1936. Sometime in
1976, one Eliseo Soriano and several other members of respondent corporation disassociated themselves from the
latter and succeeded in registering in 1977 a new non-stock religious society or corporation, named Iglesia ng Dios
Kay Kristo Hesus, Haligi at Saligan ng Katotohanan.

Consequently, respondent corporation (Iglesia ng Dios Kay Cristo Jesus) filed with the SEC a petition to compel the
Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan to change its corporate name, which petition
was docketed as SEC Case No. 1774.

The SEC rendered judgment in favor of respondent corporation (Iglesia ng Dios Kay Cristo Jesus), ordering the
Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan to change its corporate name to another name
that is not similar or identical to any name already used by a corporation, partnership or association registered
with the Commission.

It appears that during the pendency of SEC Case No. 1774, Soriano, et al., caused the registration in 1980 of
petitioner corporation, Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K, sa Bansang Pilipinas. The
acronym "H.S.K." stands for Haligi at Saligan ng Katotohanan.
Subsequently, respondent corporation (Iglesia ng Dios Kay Cristo Jesus) filed before the SEC a petition praying that
petitioner corporation (Ang Mga Kaanib) be compelled to change its corporate name and be barred from using the
same or similar name on the ground that the same causes confusion among their members as well as the public.

The SEC rendered a decision ordering petitioner corporation (Ang Mga Kaanib) to change its corporate name.

Petitioner corporation (Ang Mga Kaanib) appealed to the SEC En Banc.

The SEC En Banc affirmed the above decision, upon a finding that petitioner corporation's (Ang Mga Kaanib)
corporate name was identical or confusingly or deceptively similar to that of respondent corporation's (Iglesia ng
Dios Kay Cristo Jesus) corporate name.

Petitioner corporation (Ang Mga Kaanib) filed a petition for review with the CA.

The CA affirmed the decision of the SEC En Banc.

Petitioner corporation (Ang Mga Kaanib) claims that it complied with the aforecited SEC guideline by adding not
only two but eight words to their registered name, to wit: "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.,"
which, petitioner corporation (Ang Mga Kaanib) argues, effectively distinguished it from respondent corporation
(Iglesia ng Dios Kay Cristo Jesus).

Issue: Whether or not petitioner corporation's (Ang Mga Kaanib) corporate name is identical or confusingly or
deceptively similar to that of respondent corporation's (Iglesia ng Dios Kay Cristo Jesus) corporate name.

Held: Yes. The SEC has the authority to de-register at all times and under all circumstances corporate names which
in its estimation are likely to spawn confusion. It is the duty of the SEC to prevent confusion in the use of corporate
names not only for the protection of the corporations involved but more so for the protection of the public.

Section 18 of the Corporation Code provides:

Corporate Name. No corporate name may be allowed by the Securities and Exchange
Commission if the proposed name is identical or deceptively or confusingly similar to that of any
existing corporation or to any other name already protected by law or is patently deceptive,
confusing or is contrary to existing laws. When a change in the corporate name is approved, the
Commission shall issue an amended certificate of incorporation under the amended name.

Corollary thereto, the pertinent portion of the SEC Guidelines on Corporate Names states:
(d) If the proposed name contains a word similar to a word already used as part of the firm name
or style of a registered company, the proposed name must contain two other words different
from the name of the company already registered;

Parties organizing a corporation must choose a name at their peril; and the use of a name similar to one adopted
by another corporation, whether a business or a nonprofit organization, if misleading or likely to injure in the
exercise of its corporate functions, regardless of intent, may be prevented by the corporation having a prior right,
by a suit for injunction against the new corporation to prevent the use of the name.

In the case at bar, the additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc." in petitioner
corporation's (Ang Mga Kaanib) name are, as correctly observed by the SEC, merely descriptive of and also
referring to the members, or kaanib, of respondent corporation (Iglesia ng Dios Kay Cristo Jesus) who are likewise
residing in the Philippines. These words can hardly serve as an effective differentiating medium necessary to avoid
confusion or difficulty in distinguishing petitioner from respondent. This is especially so, since both petitioner and
respondent corporations are using the same acronym H.S.K.; not to mention the fact that both are espousing
religious beliefs and operating in the same place. Parenthetically, it is well to mention that the acronym H.S.K. used
by petitioner corporation (Ang Mga Kaanib) stands for "Haligi at Saligan ng Katotohanan."

Significantly, the only difference between the corporate names of petitioner and respondent are the words
SALIGAN and SUHAY. These words are synonymous both mean ground, foundation or support. Hence, this case
is on all fours with Universal Mills Corporation v. Universal Textile Mills, Inc., where the Court ruled that the
corporate names Universal Mills Corporation and Universal Textile Mills, Inc., are undisputably so similar that even
under the test of "reasonable care and observation" confusion may arise.

SEVENTH DAY ADVENTIST CONFERENCE CHURCH OF SOUTHERN PHILIPPINES, INC., and/or

represented by MANASSEH C. ARRANGUEZ, BRIGIDO P. GULAY, FRANCISCO M. LUCENARA, DIONICES
O. TIPGOS, LORESTO C. MURILLON, ISRAEL C. NINAL, GEORGE G. SOMOSOT, JESSIE T. ORBISO, LORETO
PAEL and JOEL BACUBAS, petitioners vs. NORTHEASTERN MINDANAO MISSION OF SEVENTH DAY
ADVENTIST, INC., and/or represented by JOSUE A. LAYON, WENDELL M. SERRANO, FLORANTE P. TY
and JETHRO CALAHAT and/or SEVENTH DAY ADVENTIST CHURCH [OF] NORTHEASTERN MINDANAO
MISSION, Respondents

G.R. No. 150416 July 21, 2006

FACTS: This case involves two supposed transfers of the lot previously owned by the spouses Cosio. The
first transfer was a donation to petitioners alleged predecessors-in-interest in 1959 while the second
transfer was through a contract of sale to respondents in 1980. A TCT was later issued in the name of
respondents. Claiming to be the alleged donees successors-in-interest, petitioners filed a case for
cancellation of title, quieting of ownership and possession, declaratory relief and reconveyance with
prayer for preliminary injunction and damages against respondents. Respondents, on the other hand,
argued that at the time of the donation, petitioners predecessors-in-interest has no juridical personality
to accept the donation because it was not yet incorporated. Moreover, petitioners were not members of
the local church then.

The RTC upheld the sale in favor of respondents, which was affirmed by the Court of Appeals, on
the ground that all the essential requisites of a contract were present and it also applied the indefeasibility
of title.

ISSUE: Whether or not the donation was void.

HELD: Yes, the donation was void because the local church had neither juridical personality nor capacity
to accept such gift since it was inexistent at the time it was made.

The Court denied petitioners contention that there exists a de facto corporation. While there
existed the old Corporation Law (Act 1459), a law under which the local church could have been organized,
petitioners admitted that they did not even attempt to incorporate at that time nor the organization was
registered at the Securities and Exchange Commission. Hence, petitioners obviously could not have
claimed succession to an entity that never came to exist. And since some of the representatives of
petitioner Seventh Day Adventist Conference Church of Southern Philippines, Inc. were not even members
of the local church then, it necessarily follows that they could not even claim that the donation was
particularly for them.

JOHN F. MCLEOD vs. NATIONAL LABOR RELATIONS COMMISSION (FIRST DIVISION),

FILIPINAS SYNTHETIC FIBER CORPORATION (FILSYN), FAR EASTERN TEXTILE MILLS,
INC., STA. ROSA TEXTILES, INC., (PEGGY MILLS, INC.), PATRICIO L. LIM, AND ERIC HU
G.R. NO. 146667 January 23, 2007
Ponente: CARPIO, J.

FACTS:

On February 2, 1995, John F. McLeod filed a complaint for:

1. retirement benefits
2. vacation and sick leave benefits
3. non-payment of unused airline tickets
4. holiday pay
5. underpayment of salary
6. 13th month pay
7. moral and exemplary damages
8. attorneys fees plus interest,

against Filipinas Synthetic Corporation (FILSYN), Far Eastern Textile Mills, Inc., Sta. Rosa
Textiles, Inc. (SRTI), Patricio Lim (President of PMI) and Eric Hu.

Complainant was the Vice President and Plant Manager of the plant of Peggy Mills, Inc. (PMI) at
Sta. Rosa, Laguna. Filsyn sold Peggy Mills, Inc. to Far Eastern Textile Mills, Inc. and this was
renamed as Sta. Rosa Textile (SRTI) with Patricio Lim as Chairman and President. The owners
of Far Eastern Textiles decided for cessation of operations of Sta. Rosa Textiles. On two
occasions, complainant wrote letters to Patricio Lim requesting for his retirement and other
benefits. In the last quarter of 1994 respondents offered complainant compromise settlement of
only P300,000.00 which complainant rejected.

The Labor Arbiter held all respondents as jointly and solidarily liable for complainants money
claims.

The NLRC reversed and set aside the ruling of the Labor Arbiter and a new one was entered
ordering only respondent Peggy Mills, Inc. (PMI) to pay the money claims. All other claims were
dismissed for lack of merit.

The Court of Appeals affirmed the decision of the NLRC with modification. It held Patricio Lim as
jointly and solidarily liable with Peggy Mills, Inc. (PMI) to pay the money claims to McLeod.

ISSUE:
Whether or not Patricio Lim, as President of PMI, could be held jointly and solidarily liable with
PMI.

HELD:

No, Patricio Lim is absolved from personal liability.

A corporation is a juridical entity with legal personality separate and distinct from those acting for
and in its behalf and, in general, from the people comprising it. The rule is that obligations incurred
by the corporation, acting through its directors, officers, and employees, are its sole liabilities.

Personal liability of corporate directors, trustees or officers attaches only when:

(1) they assent to a patently unlawful act of the corporation, or when they are guilty of bad faith
or gross negligence in directing its affairs, or when there is a conflict of interest resulting in
damages to the corporation, its stockholders or other persons;
(2) they consent to the issuance of watered down stocks or when, having knowledge of such
issuance, do not forthwith file with the corporate secretary their written objection;
(3) they agree to hold themselves personally and solidarily liable with the corporation; or
(4) they are made by specific provision of law personally answerable for their corporate action.

Considering that McLeod failed to prove any of the foregoing exceptions in the present case,
McLeod cannot hold Patricio solidarily liable with PMI.

The records are bereft of any evidence that Patricio acted with malice or bad faith. Bad faith is a
question of fact and is evidentiary. Bad faith does not connote bad judgment or negligence. It
imports a dishonest purpose or some moral obliquity and conscious wrongdoing. It means breach
of a known duty through some ill motive or interest. It partakes of the nature of fraud.

In the present case, there is nothing substantial on record to show that Patricio acted in bad faith
in terminating McLeods services to warrant Patricios personal liability. PMI had no other choice
but to stop plant operations. The work stoppage therefore was by necessity. The company could
no longer continue with its plant operations because of the serious business losses that it had
suffered. The mere fact that Patricio was president and director of PMI is not a ground to conclude
that he should be held solidarily liable with PMI for McLeods money claims.

Mcleod vs NLRC
FACTS:

On February 2, 1995, John F. McLeod filed a complaint for retirement benefits, vacation and sick leave
benefits and other benefits against Filipinas Synthetic Corporation (Filsyn), Far Eastern Textile Mills, Inc.,
Sta. Rosa Textiles, Inc., Complainant was the former VP and Plant Manager of Peggy Mills, Inc.; that he
was hired in June 1980 and Peggy Mills closed operations due to irreversible losses but its assets were
acquired by Sta. Rosa Textile Corporation complainant was hired by Sta. Rosa Textile but he resigned and
that while complainant was Vice President and Plant Manager of Peggy Mills, the union staged a strike up
to July 1992 resulting in closure of operations due to irreversible losses as per Notice .The complainant was
relied upon to settle the labor problem but due to his lack of attention and absence the strike continued
resulting in closure of the company. Mcleod contends that the corporations are solidarily liable. On 3 April
1998, the Labor Arbiter rendered his decision in favor of Mcleod The NLRC Reversed decision CA-
Modified the NLRCs decision. Lim was solidarily liable

Issue:

whether there is merger/ consolidation

w/n Patricio Lim must be solidarily liable with PMI

Held:

There was also no merger or consolidation of PMI and SRTI. Consolidation is the union of two or more
existing corporations to form a new corporation called the consolidated corporation. It is a combination by
agreement between two or more corporations by which their rights, franchises, and property are united and
become those of a single, new corporation, composed generally, although not necessarily, of the
stockholders of the original corporations. Merger, on the other hand, is a union whereby one corporation
absorbs one or more existing corporations, and the absorbing corporation survives and continues the
combined business.

The parties to a merger or consolidation are called constituent corporations. In consolidation, all the
constituents are dissolved and absorbed by the new consolidated enterprise. In merger, all constituents,
except the surviving corporation, are dissolved. In both cases, however, there is no liquidation of the assets
of the dissolved corporations, and the surviving or consolidated corporation acquires all their properties,
rights and franchises and their stockholders usually become its stockholders. The surviving or consolidated
corporation assumes automatically the liabilities of the dissolved corporations, regardless of whether the
creditors have consented or not to such merger or consolidation.27 In the present case, there is no showing
that the subject dation in payment involved any corporate merger or consolidation. Neither is there any
showing of those indicative factors that SRTI is a mere instrumentality of PMI.

Moreover, SRTI did not expressly or impliedly agree to assume any of PMIs debts. 2. In the present case,
there is nothing substantial on record to show that Patricio acted in bad faith in terminating McLeods
services to warrant Patricios personal liability. PMI had no other choice but to stop plant operations. The
work stoppage therefore was by necessity. The company could no longer continue with its plant operations
because of the serious business losses that it had suffered. The mere fact that Patricio was president and
director of PMI is not a ground to conclude that he should be held solidarily liable with PMI for McLeods
money claims.

The ruling in A.C. Ransom Labor Union-CCLU v. NLRC,59 which the Court of Appeals cited, does not apply
to this case. We quote pertinent portions of the ruling, thus:

(a) Article 265 of the Labor Code, in part, expressly provides: "Any worker whose employment has been
terminated as a consequence of an unlawful lockout shall be entitled to reinstatement with full backwages."
Article 273 of the Code provides that: "Any person violating any of the provisions of Article 265 of this Code
shall be punished by a fine of not exceeding five hundred pesos and/or imprisonment for not less than one
(1) day nor more than six (6) months."

(b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is
found in Article 212 (c) of the Labor Code which provides: "(c) Employer includes any person acting in the
interest of an employer, directly or indirectly. The term shall not include any labor organization or any of
its officers or agents except when acting as employer.". The foregoing was culled from Section 2 of RA 602,
the Minimum Wage Law. Since RANSOM is an artificial person, it must have an officer who can be
presumed to be the employer, being the "person acting in the interest of (the) employer" RANSOM. The
corporation, only in the technical sense, is the employer. The responsible officer of an employer corporation
can be held personally, not to say even criminally, liable for non-payment of back wages. That is the policy
of the law.

HALL vs. PICCIO DIGEST

DECEMBER 21, 2016 ~ VBDIAZ

ARNOLD HALL vs. EDMUNDO PICCIO

G.R. No. L-2598 / June 29, 1950
FACTS:

On May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the
respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella,
signed and acknowledged in Leyte, the articles of incorporation of the Far Eastern
Lumber and Commercial Co., Inc., organized to engage in a general lumber business
to carry on as general contractors, operators and managers, etc. Attached to the
articles was an affidavit of the treasurer stating that 23,428 shares of stock had been
subscribed and fully paid with certain properties transferred to the corporation
described in a list appended thereto.
Immediately after the execution of said articles of incorporation, the corporation
proceeded to do business with the adoption of by-laws and the election of its officers.
On December 2, 1947, the said articles of incorporation were filed in the office of the
Securities and Exchange Commission for the issuance of the corresponding
certificate of incorporation.
On March 22, 1948, pending action on the articles of incorporation by the
SEC, respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S.
Abella filed a suit against petitioners before the Court of First Instance of Leyte
alleging among other things that the Far Eastern Lumber and Commercial Co. was an
unregistered partnership; that they wished to have it dissolved because of bitter
dissension among the members, mismanagement and fraud by the managers and
heavy financial losses.
The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion
to dismiss, contesting the courts jurisdiction and the sufficiency of the cause of
action.
After hearing the parties, the Hon. Edmundo S. Piccio ordered the dissolution of the
company; and at the request of plaintiffs, appointed the respondent Pedro A.
Capuciong as receiver of the properties thereof, upon the filing of a P20,000 bond.
The defendants therein (petitioners herein) offered to file a counter-bond for the
discharge of the receiver, but the respondent judge refused to accept the offer and to
discharge the receiver.
Hence, this petition.
ISSUE:

Whether or not the trial court has jurisdiction over the case?
HELD:

No. The court had no jurisdiction in civil case No. 381 to decree the dissolution of the
company, because it being a de facto corporation, dissolution thereof may only be
ordered in a quo warranto proceeding instituted in accordance with section 19 of the
Corporation Law.
Under our statute it is to be noted that it is the issuance of a certificate of
incorporation by the Director of the Bureau of Commerce and Industry which calls a
corporation into being. The immunity of collateral attack is granted to corporations
claiming in good faith to be a corporation under this act.
Further, this is not a suit in which the corporation is a party. This is a litigation
between stockholders of the alleged corporation, for the purpose of obtaining its
dissolution. Even the existence of a de jure corporation may be terminated in a private
suit for its dissolution between stockholders, without the intervention of the state.
WHEREFORE, the petition is dismissed.

SECTION 20
Sec. 20. De facto corporations. The due incorporation of any corporation claiming in good faith to be a corporation
under this Code, and its right to exercise corporate powers, shall not be inquired into collaterally in any private suit to
which such corporation may be a party. Such inquiry may be made by the Solicitor General in a quo warranto
proceeding.

HALL v PICCIO
86 Phil 603, GR No L-2598, June 29, 1950

Facts: On May 28, 1947, petitioners C. Arnold Hall and Bradley P. Hall, and respondents Fred Brown, Emma Brown,
Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the article of incorporation of the Far
Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber business to carry on as general
contractors, operators and managers, . Attached to the article was an affidavit of the treasurer stating that 23,428
shares of stock had been subscribed and fully paid with certain properties transferred to the corporation. The said
articles of incorporation was filed in the office of SEC. Pending action of the articles of incorporation by SEC, the
respondents filed a civil case against the petitioners alleging that Far Eastern Lumber and Commercial Co was an
unregistered partnership and that they wished it dissolved because of bitter dissension among the members,
mismanagement and fraud by the managers and heavy financial losses. The court (thru Judge Piccio) ordered the
dissolution of the company. Halls offered to file a counter bond for the discharge of the receiver but the judge refused
to accept the offer and discharge the receiver.

Issue: W/N the court had jurisdiction to decree the dissolution of the company, because it being a de facto
corporation, dissolution thereof may only be ordered in a quo warranto proceeding instituted in accordance with
section 19 of the Corporation Law.

Held: Yes, the court has jurisdiction to take cognizance of the case!

Section 20 of the Corporation Law does not apply in this situation

First, not having obtained the certificate of incorporation, the Far Eastern Lumber and Commercial Co. even its
stockholders may not probably claim "in good faith" to be a corporation. (Under our statue it is to be noted
(Corporation Law, sec. 11) that it is the issuance of a certificate of incorporation by the Director of the Bureau of
Commerce and Industry which calls a corporation into being. The immunity if collateral attack is granted to
corporations "claiming in good faith to be a corporation under this act." Such a claim is compatible with the existence
of errors and irregularities; but not with a total or substantial disregard of the law. Unless there has been an evident
attempt to comply with the law the claim to be a corporation "under this act" could not be made "in good faith." )

Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders of the alleged
corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure corporation may be
terminated in a private suit for its dissolution between stockholders, without the intervention of the state.

Wednesday, February 19, 2014

Case Digest: Loyola Grand Villas Homeowners (South)

Association v. CA
LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC., petitioner, vs. HON.
COURT OF APPEALS, HOME INSURANCE AND GUARANTY CORPORATION, EMDEN
ENCARNACION and HORATIO AYCARDO, respondents.

G.R. No. 117188 August 7, 1997

ROMERO, J.:

Loyola Grand Villas Homeowners Association, Inc. (LGVHAI) was organized on 8 February 1983 as the
homeoenwers' association for Loyola Grand Villas. It was also registered as the sole homeowners'
association in the said village with the Home Financing Corporation (which eventually became Home
Insurance Guarantee Corporation ["HIGC"]). However, the association was not able file its corporate by-
laws.

The LGVHAI officers then tried to registered its By-Laws in 1988, but they failed to do so. They then
discovered that there were two other homeowners' organizations within the subdivision - the Loyola
Grand Villas Homeowners (North) Association, Inc. [North Association] and herein Petitioner Loyola
Grand Villas Homeowners (South) Association, Inc.["South Association].

Upon inquiry by the LGVHAI to HIGC, it was discovered that LGVHAI was dissolved for its failure to
submit its by-laws within the period required by the Corporation Code and for its non-user of corporate
charter because HIGC had not received any report on the association's activities. These paved the way
for the formation of the North and South Associations.

LGVHAI then lodged a complaint with HIGC Hearing Officer Danilo Javier, and questioned the revocation
of its registration. Hearing Officer Javier ruled in favor of LGVHAI, revoking the registration of the North
and South Associations.

Petitioner South Association appealed the ruling, contending that LGVHAI's failure to file its by-laws within
the period prescribed by Section 46 of the Corporation Code effectively automatically dissolved the
corporation. The Appeals Board of the HIGC and the Court of Appeals both rejected the contention of the
Petitioner affirmed the decision of Hearing Officer Javier.

Issue: W/N LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of the
Corporation Code had the effect of automatically dissolving the said corporation.

Ruling: No.

The pertinent provision of the Corporation Code that is the focal point of controversy in this case states:

Sec. 46. Adoption of by-laws. - Every corporation formed under this Code, must within one (1) month after
receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange
Commission, adopt a code of by-laws for its government not inconsistent with this Code.

Ordinarily, the word "must" connotes an imposition of duty which must be enforced. However, the word
"must" in a statute, like "shall," is not always imperative. It may be consistent with an ecercise of
discretion. If the language of a statute, considered as a whole with due regard to its nature and object,
reveals that the legislature intended to use the words "shall" and "must" to be directory, they should be
given that meaning.

The legislative deliberations of the Corporation Code reveals that it was not the intention of Congress to
automatically dissolve a corporation for failure to file the By-Laws on time.

Moreover, By-Laws may be necessary to govern the corporation, but By-Laws are still subordinate to the
Articles of Incorporation and the Corporation Code. In fact, there are cases where By-Laws are
unnecessary to the corporate existence and to the valid exercise of corporate powers.

The Corporation Code does not expressly provide for the effects of non-filing of By-Laws. However, these
have been rectified by Section 6 of PD 902-A which provides that SEC shall possess the power to
suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of
corporations upon failure to file By-Laws within the required period.

This shows that there must be notice and hearing before a corporation is dissolved for failure to file its By-
Laws. Even assuming that the existence of a ground, the penalty is not necessarily revocation, but may
only be suspension.

By-Laws are indispensable to corporations, since they are required by law for an orderly management of
corporations. However, failure to file them within the period prescribed does not equate to the automatic
dissolution of a corporation.

Hacienda Luisita, Inc. (HLI) vs. Presidential Agrarian Reform Council

(PARC), et al. - GR No. 171101 Case Digest
I. THE FACTS

On July 5, 2011, the Supreme Court en banc voted unanimously (11-0) to DISMISS/DENY the
petition filed by HLI and AFFIRM with MODIFICATIONS the resolutions of the PARC revoking
HLIs Stock Distribution Plan (SDP) and placing the subject lands in Hacienda Luisita under
compulsory coverage of the Comprehensive Agrarian Reform Program (CARP) of the
government.

The Court however did not order outright land distribution. Voting 6-5, the Court noted that there
are operative facts that occurred in the interim and which the Court cannot validly ignore. Thus,
the Court declared that the revocation of the SDP must, by application of the operative fact
principle, give way to the right of the original 6,296 qualified farmworkers-beneficiaries (FWBs) to
choose whether they want to remain as HLI stockholders or [choose actual land distribution]. It
thus ordered the Department of Agrarian Reform (DAR) to immediately schedule meetings with
the said 6,296 FWBs and explain to them the effects, consequences and legal or practical
implications of their choice, after which the FWBs will be asked to manifest, in secret voting, their
choices in the ballot, signing their signatures or placing their thumbmarks, as the case may be,
over their printed names.

The parties thereafter filed their respective motions for reconsideration of the Court decision.

II. THE ISSUES

(1) Is the operative fact doctrine available in this case?

(2) Is Sec. 31 of RA 6657 unconstitutional?

(3) Cant the Court order that DARs compulsory acquisition of Hacienda Lusita cover the full
6,443 hectares allegedly covered by RA 6657 and previously held by Tarlac Development
Corporation (Tadeco), and not just the 4,915.75 hectares covered by HLIs SDP?

(4) Is the date of the taking (for purposes of determining the just compensation payable to HLI)
November 21, 1989, when PARC approved HLIs SDP?

(5) Has the 10-year period prohibition on the transfer of awarded lands under RA 6657 lapsed on
May 10, 1999 (since Hacienda Luisita were placed under CARP coverage through the SDOA
scheme on May 11, 1989), and thus the qualified FWBs should now be allowed to sell their land
interests in Hacienda Luisita to third parties, whether they have fully paid for the lands or not?

(6) THE CRUCIAL ISSUE: Should the ruling in the July 5, 2011 Decision that the qualified FWBs
be given an option to remain as stockholders of HLI be reconsidered?

III. THE RULING

[The Court PARTIALLY GRANTED the motions for reconsideration of respondents PARC, et al.
with respect to the option granted to the original farmworkers-beneficiaries (FWBs) of Hacienda
Luisita to remain with petitioner HLI, which option the Court thereby RECALLED and SET ASIDE.
It reconsidered its earlier decision that the qualified FWBs should be given an option to remain as
stockholders of HLI, and UNANIMOUSLY directed immediate land distribution to the qualified
FWBs.]

1. YES, the operative fact doctrine is applicable in this case.

[The Court maintained its stance that the operative fact doctrine is applicable in this case since,
contrary to the suggestion of the minority, the doctrine is not limited only to invalid or
unconstitutional laws but also applies to decisions made by the President or the administrative
agencies that have the force and effect of laws. Prior to the nullification or recall of said decisions,
they may have produced acts and consequences that must be respected. It is on this score that
the operative fact doctrine should be applied to acts and consequences that resulted from the
implementation of the PARC Resolution approving the SDP of HLI. The majority stressed that the
application of the operative fact doctrine by the Court in its July 5, 2011 decision was in fact
favorable to the FWBs because not only were they allowed to retain the benefits and homelots
they received under the stock distribution scheme, they were also given the option to choose for
themselves whether they want to remain as stockholders of HLI or not.]

2. NO, Sec. 31 of RA 6657 NOT unconstitutional.

[The Court maintained that the Court is NOT compelled to rule on the constitutionality of Sec. 31
of RA 6657, reiterating that it was not raised at the earliest opportunity and that the resolution
thereof is not the lis mota of the case. Moreover, the issue has been rendered moot and academic
since SDO is no longer one of the modes of acquisition under RA 9700. The majority clarified that
in its July 5, 2011 decision, it made no ruling in favor of the constitutionality of Sec. 31 of RA 6657,
but found nonetheless that there was no apparent grave violation of the Constitution that may
justify the resolution of the issue of constitutionality.]
3. NO, the Court CANNOT order that DARs compulsory acquisition of Hacienda Lusita cover the
full 6,443 hectares and not just the 4,915.75 hectares covered by HLIs SDP.

[Since what is put in issue before the Court is the propriety of the revocation of the SDP, which
only involves 4,915.75 has. of agricultural land and not 6,443 has., then the Court is constrained
to rule only as regards the 4,915.75 has. of agricultural land. Nonetheless, this should not prevent
the DAR, under its mandate under the agrarian reform law, from subsequently subjecting to
agrarian reform other agricultural lands originally held by Tadeco that were allegedly not
transferred to HLI but were supposedly covered by RA 6657.

However since the area to be awarded to each FWB in the July 5, 2011 Decision appears too
restrictive considering that there are roads, irrigation canals, and other portions of the land that
are considered commonly-owned by farmworkers, and these may necessarily result in the
decrease of the area size that may be awarded per FWB the Court reconsiders its Decision and
resolves to give the DAR leeway in adjusting the area that may be awarded per FWB in case the
number of actual qualified FWBs decreases. In order to ensure the proper distribution of the
agricultural lands of Hacienda Luisita per qualified FWB, and considering that matters involving
strictly the administrative implementation and enforcement of agrarian reform laws are within the
jurisdiction of the DAR, it is the latter which shall determine the area with which each qualified
FWB will be awarded.

On the other hand, the majority likewise reiterated its holding that the 500-hectare portion of
Hacienda Luisita that have been validly converted to industrial use and have been acquired by
intervenors Rizal Commercial Banking Corporation (RCBC) and Luisita Industrial Park
Corporation (LIPCO), as well as the separate 80.51-hectare SCTEX lot acquired by the
government, should be excluded from the coverage of the assailed PARC resolution. The Court
however ordered that the unused balance of the proceeds of the sale of the 500-hectare converted
land and of the 80.51-hectare land used for the SCTEX be distributed to the FWBs.]

4. YES, the date of taking is November 21, 1989, when PARC approved HLIs SDP.

[For the purpose of determining just compensation, the date of taking is November 21, 1989
(the date when PARC approved HLIs SDP) since this is the time that the FWBs were considered
to own and possess the agricultural lands in Hacienda Luisita. To be precise, these lands became
subject of the agrarian reform coverage through the stock distribution scheme only upon the
approval of the SDP, that is, on November 21, 1989. Such approval is akin to a notice of coverage
ordinarily issued under compulsory acquisition. On the contention of the minority (Justice Sereno)
that the date of the notice of coverage [after PARCs revocation of the SDP], that is, January 2,
2006, is determinative of the just compensation that HLI is entitled to receive, the Court majority
noted that none of the cases cited to justify this position involved the stock distribution scheme.
Thus, said cases do not squarely apply to the instant case. The foregoing notwithstanding, it
bears stressing that the DAR's land valuation is only preliminary and is not, by any means, final
and conclusive upon the landowner. The landowner can file an original action with the RTC acting
as a special agrarian court to determine just compensation. The court has the right to review with
finality the determination in the exercise of what is admittedly a judicial function.]
5. NO, the 10-year period prohibition on the transfer of awarded lands under RA 6657 has NOT
lapsed on May 10, 1999; thus, the qualified FWBs should NOT yet be allowed to sell their land
interests in Hacienda Luisita to third parties.

[Under RA 6657 and DAO 1, the awarded lands may only be transferred or conveyed after 10
years from the issuance and registration of the emancipation patent (EP) or certificate of land
ownership award (CLOA). Considering that the EPs or CLOAs have not yet been issued to the
qualified FWBs in the instant case, the 10-year prohibitive period has not even started.
Significantly, the reckoning point is the issuance of the EP or CLOA, and not the placing of the
agricultural lands under CARP coverage. Moreover, should the FWBs be immediately allowed the
option to sell or convey their interest in the subject lands, then all efforts at agrarian reform would
be rendered nugatory, since, at the end of the day, these lands will just be transferred to persons
not entitled to land distribution under CARP.]

6. YES, the ruling in the July 5, 2011 Decision that the qualified FWBs be given an option to
remain as stockholders of HLI should be reconsidered.

[The Court reconsidered its earlier decision that the qualified FWBs should be given an option to
remain as stockholders of HLI, inasmuch as these qualified FWBs will never gain control [over
the subject lands] given the present proportion of shareholdings in HLI. The Court noted that the
share of the FWBs in the HLI capital stock is [just] 33.296%. Thus, even if all the holders of this
33.296% unanimously vote to remain as HLI stockholders, which is unlikely, control will never be
in the hands of the FWBs. Control means the majority of [sic] 50% plus at least one share of the
common shares and other voting shares. Applying the formula to the HLI stockholdings, the
number of shares that will constitute the majority is 295,112,101 shares (590,554,220 total HLI
capital shares divided by 2 plus one [1] HLI share). The 118,391,976.85 shares subject to the
SDP approved by PARC substantially fall short of the 295,112,101 shares needed by the FWBs
to acquire control over HLI.]

Hacienda Luisita vs PARC

Case Digest GR 171101 July 5 2011 Nov 22 2011
Facts:
In 1988, RA 6657 or the CARP law was passed. It is a program aimed at redistributing public and
private agricultural lands to farmers and farmworkers who are landless. One of the lands covered by
this law is the Hacienda Luisita, a 6,443-hectare mixed agricultural-industrial-residential expanse
straddling several municipalities of Tarlac. Hacienda Luisita was bought in 1958 from the Spanish
owners by the Tarlac Development Corporation (TADECO), which is owned and/or controlled by
Jose Cojuanco Sr., Group. Back in 1980, the Martial Law administration filed an expropriation suit
against TADECO to surrender the Hacienda to the then Ministry of Agrarian Reform (now DAR) so
that the land can be distributed to the farmers at cost. The RTC rendered judgment ordering
TADECO to surrender Hacienda Luisita to the MAR.
In 1988, the OSG moved to dismiss the governments case against TADECO. The CA dismissed it,
but the dismissal was subject to the condition that TADECO shall obtain the approval of FWB (farm
worker beneficiaries) to the SDP (Stock Distribution Plan) and to ensure its implementation.

Sec 31 of the CARP Law allows either land transfer or stock transfer as two alternative modes in
distributing land ownership to the FWBs. Since the stock distribution scheme is the preferred option
of TADECO, it organized a spin-off corporation, the Hacienda Luisita Inc. (HLI), as vehicle to
facilitate stock acquisition by the farmers.

After conducting a follow-up referendum and revision of terms of the Stock Distribution Option
Agreement (SDOA) proposed by TADECO, the Presidential Agrarian Reform Council (PARC), led by
then DAR Secretary Miriam Santiago, approved the SDP of TADECO/HLI through Resolution 89-12-
2 dated Nov 21, 1989.
From 1989 to 2005, the HLI claimed to have extended those benefits to the farmworkers. Such claim
was subsequently contested by two groups representing the interests of the farmers the HLI
Supervisory Group and the AMBALA. In 2003, each of them wrote letter petitions before the DAR
asking for the renegotiation of terms and/or revocation of the SDOA. They claimed that they havent
actually received those benefits in full, that HLI violated the terms, and that their lives havent really
improved contrary to the promise and rationale of the SDOA.

The DAR created a Special Task Force to attend to the issues and to review the terms of the SDOA
and the Resolution 89-12-2. Adopting the report and the recommendations of the Task Force, the
DAR Sec recommended to the PARC (1) the revocation of Resolution 89-12-2 and (2) the acquisition
of Hacienda Luisita through compulsory acquisition scheme. Consequently, the PARC revoked the
SDP of TADECO/HLI and subjected those lands covered by the SDP to the mandated land
acquisition scheme under the CARP law. These acts of the PARC was assailed by HLI via Rule 65.
On the other hand, FARM, an intervenor, asks for the invalidation of Sec. 31 of RA 6657, insofar as
it affords the corporation, as a mode of CARP compliance, to resort to stock transfer in lieu of
outright agricultural land transfer. For FARM, this modality of distribution is an anomaly to be
annulled for being inconsistent with the basic concept of agrarian reform ingrained in Sec. 4, Art. XIII
of the Constitution.

Administrative Law
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Issue 1: W/N PARC has the authority to revoke the Stock Distribution Plan or SDP
Yes. Under Sec. 31 of RA 6657, as implemented by DAO 10, the authority to approve the plan for stock
distribution of the corporate landowner belongs to PARC. It may be that RA 6657 or other executive issuances
on agrarian reform do not explicitly vest the PARC with the power to revoke/recall an approved SDP, but such
power or authority is deemed possessed by PARC under the principle of necessary implication, a basic
postulate that what is implied in a statute is as much a part of it as that which is expressed.
Following this doctrine, the conferment of express power to approve a plan for stock distribution of the
agricultural land of corporate owners necessarily includes the power to revoke or recall the approval of the
plan.

Constitutional Law
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Issue 2: W/N the Court may exercise its power of judicial review over the constitutionality of Sec 31 of RA
6657
No. First, the intervenor FARM failed to challenged the constitutionality of RA 6657, Sec 31 at the earliest
possible opportunity. It should have been raised as early as Nov 21, 1989, when PARC approved the SDP of
HLI or at least within a reasonable time thereafter.
Second, the constitutionality of RA 6657 is not the very lis mota of this case. Before the SC, the lis mota of the
petitions filed by the HLI is whether or not the PARC acted with grave abuse of discretion in revoking the SDP
of HLI. With regards to the original positions of the groups representing the interests of the farmers, their very
lis mota is the non-compliance of the HLI with the SDP so that the the SDP may be revoked. Such issues can
be resolved without delving into the constitutionality of RA 6657.
Hence, the essential requirements in passing upon the constitutionality of acts of the executive or legislative
departments have not been met in this case.

Statutory Construction
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Issue 3: W/N Sec 31 of RA 6657 is consistent with the Constitutions concept of agrarian reform
Yes. The wording of the Art XIII, Sec 4 of the Constitution is unequivocal: the farmers and regular
farmworkers have a right to own directly or collectively the lands they till.

The basic law allows two (2) modes of land distribution: direct and indirect ownership. Direct transfer to
individual farmers is the most commonly used method by DAR and widely accepted. Indirect transfer through
collective ownership of the agricultural land is the alternative to direct ownership of agricultural land by
individual farmers. Sec. 4 EXPRESSLY authorizes collective ownership by farmers. No language can be
found in the 1987 Constitution that disqualifies or prohibits corporations or cooperatives of farmers from being
the legal entity through which collective ownership can be exercised.

The word collective is defined as indicating a number of persons or things considered as constituting one
group or aggregate, while collectively is defined as in a collective sense or manner; in a mass or body. By
using the word collectively, the Constitution allows for indirect ownership of land and not just outright
agricultural land transfer. This is in recognition of the fact that land reform may become successful even if it is
done through the medium of juridical entities composed of farmers.

The stock distribution option devised under Sec. 31 of RA 6657 hews with the agrarian reform policy, as
instrument of social justice under Sec. 4 of Article XIII of the Constitution. Albeit land ownership for the
landless appears to be the dominant theme of that policy, the Court emphasized that Sec. 4, Article XIII of the
Constitution, as couched, does not constrict Congress to passing an agrarian reform law planted on direct land
transfer to and ownership by farmers and no other, or else the enactment suffers from the vice of
unconstitutionality. If the intention were otherwise, the framers of the Constitution would have worded said
section in a manner mandatory in character.

* The SC, through a resolution dated Nov 21 2011 of the motion for reconsideration filed by HLI,
affirmed the revocation of HLIs SDP and the placing of Hacienda Luisita under the compulsory land
distribution scheme of the CARP law. It was also held that the date of taking was Nov 21 1989, when
the PARC, by Resolution 89-12-2, approved the SDP of HLI. ##