Topic: attributes of a corporation

Case no.3

Filipinas Broadcasting vs. Ago Medical Center

GR No. 141994 January 17, 2005

Facts:

Rima & Alegre were hosts of Filipinas Broadcasting radio program “Expose”. Respondent Ago was
the owner of the Medical & Educational center, and AMEC was subjected as the topic in 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 plaintiff’s 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 Rima’s
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:

Is AMEC entitled to damages?

Held:

Yes. The Supreme Court held that 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, AMEC’s 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, the award of P500,000 moral damages is 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, thus the award was reduced to P150,000 pesos.

Topic: classification of corporations, other corporations

Case no.22

MARIANO A. ALBERT
vs.
UNIVERSITY PUBLISHING CO., INC.
G.R. No. L-19118, January 30, 1965
Facts:

In the original case, the court had awarded P P15,000.00 in favor of the petitioner for damages
arising out of a breach of contract. Such breach of contract arose when the publishing company
failed to pay the petitioner the agreed amount for latter to have the exclusive right to publish his
revised Commentaries on the Revised Penal Code and for his share in previous sales of the book's
first edition. The order became final and executory. A writ of execution was issued against the
company, however the petitioner petitioned for a writ of execution against Jose M. Aruego, as the
real defendantstating, plaintiff's counsel and the Sheriff of Manila discovered that there is no such
entity as University Publishing Co., Inc. and no such entity is registered with the SEC.
This case asks the court whether or not the judgment may be executed against Jose M.
Aruego, supposed President of University Publishing Co., Inc., as the real defendant.

Issue:

Can the judgment be executed against Jose M. Aruego, supposed President of University Publishing
Co., Inc., as the real defendant?

Held:

NO.

The Court ruled that the doctrine of corporation by estoppel was not applicable. Although the rule is
that a person acting or purporting to act on behalf of a corporation which has no valid existence
assumes such privileges and obligations and becomes personally liable for contracts entered into or
for other acts performed as such agent, in this case, Aruego was not named as a defendant. Since he
was not named, he could not be served and be made liable for the claim because to do so would
violate his right to due process. He was not given the chance to defend himself and be heard during
trial.
Wherefore, the order was reversed and set aside and was remanded lower court to hold
supplementary proceedings for the purpose of carrying the judgment into effect against University
Publishing Co., Inc. and/or Jose M. Aruego.

Topic: other cases

Case no.41

WISE & COMPANY, INC., vs.MAN SUN LUNG

EL SHERIFF PROVINCIAL DE CAMARINES SUR

G.R. No. 46997 January 11, 1940

Facts:
Wise & Company appealed against the ruling of the Court of First Instance of Manila for the denial of
the motion, presented by said plaintiff entity dated February 15, 1937, in the one that requested that
the Provincial Sheriff of Camarines Sur be ordered to sell the different properties seized by him and
the product of the sale was delivered to said plaintiff entity. In support of its appeal, the repeated
plaintiff entity, Wise & Company, Inc., points out the following errors of law as committed by the
Court a quo, namely:

1. The lower court erred in failing to distinguish between the natural person, Man Sun Lung from the
corporation, Man Sun Lung & Co., Inc.

2. The lower court erred in gratuitously relinguishing its custody of the goods put under preliminary
attachment to the prejudice of Wise & Company, Inc.

Issue: Does Man Sun Lung has separate personality from Man Sun Lung & Co. ?

Held:

Yes.

The Court held that undoubtedly, Man Sun Lung, the defendant in this case, is legally different from
Man Sun Lung & Co., Inc., declared insolvent in the corresponding insolvency file: the first is a natural
person and the last is a legal person with a distinct personality and independent of that of the one,
not showing that the property seized by the Sheriff of Camarines Sur, believing that they were the
property of defendant Man Sun Lung, they were really of this, the presumption is that they belong to
the Man Sun Lung & Co., Inc. corporation, as part of the assets of said mercantile entity. Having
appointed a trustee to take possession and custody of the assets of the insolvent, subject to the
orders of the Court that knew of the insolvency, only this had jurisdiction to order the provision that
should be made of such property. Having seized the Provincial Sheriff of Camarines Sur of the
property in discussion as of the property of defendant Man Un Lung and not including, prima facie,
that they were of this, but of the commercial entity, Man Sun Lung & Co., Inc. , in doing so, its seizure
was illegal, and the Court acted within its jurisdiction to order the delivery of said assets to the
insolvency representative, who then sold them by order of the Court of the repeated insolvency,
depositing the proceeds of the sale, which amounted to P656.64, by order of the same Court of
Camarines Sur of January 20, 1937, in the possession of the scribe of the same court.

Topic: alter-ego/instrumentality
Case no.60

CAGAYAN VALLEY DRUG CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 151413. February 13, 2008

Facts:
Petitioner granted 20% sales discounts to qualified senior citizens on purchases of medicine pursuant
to RA 7432 and its IRR. Petitioner filed with the BIR a claim for tax refund/tax credit of the full
amount of the 20% sales discount it granted to senior citizens for the year 1995, in accordance with
RA 7432.
The BIR’s inaction on petitioner’s claim for refund/tax credit compelled petitioner to file a petition for
review before the CTA, until the case reached the CA. The CA dismissed the petition because the
person who signed the verification and certification of absence of forum shopping, a certain Jacinto
J. Concepcion, President of petitioner, failed to adduce proof that he was duly authorized by the
board of directors to do so.
Issue:
Is it valid when the petitioner’s president signs the subject verification and certification sans the
approval of its Board of Directors?

Held:

NO.
A corporation has a separate and distinct personality from its directors and officers and can only
exercise its corporate powers through the board of directors. Thus, it is clear that an individual
corporate officer cannot solely exercise any corporate power pertaining to the corporation without
authority from the board of directors.
Only individuals vested with authority by a valid board resolution may sign the certificate of
non-forum shopping on behalf of a corporation. The action can be dismissed if the certification was
submitted unaccompanied by proof of the signatory’s authority. Hence, the power to sue and be
sued in any court or quasi-judicial tribunal is necessarily lodged with the said board.
There is a complete listing of authorized signatories to the verification and certification
required by the rules, the determination of the sufficiency of the authority was done on a case to
case basis. The rationale applied in the foregoing cases is to justify the authority of corporate officers
or representatives of the corporation to sign the verification or certificate against forum shopping,
being in a position to verify the truthfulness and correctness of the allegations in the petition.

Topic: Grounds for Application of Doctrine; public convenience, fraud, alter ego or instrumentality

Case no.79

TAN BOON BEE & CO., INC.

vs.
THE HONORABLE HILARION U. JARENCIO, PRESIDING JUDGE OF BRANCH XVIII of the Court of First
Instance of Manila, GRAPHIC PUBLISHING, INC., and PHILIPPINE AMERICAN CAN DRUG COMPANY
G.R. No. L-41337. June 30, 1988

Facts:
Petitioner herein, doing business under the name and style of Anchor Supply Co., sold on credit to
herein private respondent Graphic Publishing, Inc. (GRAPHIC) paper products amounting to
P55,214.73. On December 20, 1972, GRAPHIC made partial payment by check to petitioner in the total
amount of P24,848.74; and on December 21, 1972, a promissory note was executed to cover the
balance of P30,365.99. In the said promissory note, it was stipulated that the amount will be paid on
monthly installments and that failure to pay any installment would make the amount immediately
demandable with an interest of 12% per annum. On September 6, 1973, for failure of GRAPHIC to pay
any installment, petitioner filed a complaint for collection of Sum of Money.
A decision was rendered and became final and executory, where one (1) unit printing machine
identified as "Original Heidelberg Cylinder Press" Type H 222, NR 78048, found in the premises of
GRAPHIC was levied. However, a third party claim was filed by Philippine American Drug Company
(PADCO), hence after trial the levy was rendered to be without force.

Issue:
Can the properties of PADCO be levied due to the allegation that it is mere an adjunct or conduit of
Graphic?
Held:
YES.
In the instant case, petitioner's evidence established that PADCO was never engaged in the printing
business; that the board of directors and the officers of GRAPHIC and PADCO were the same; and
that PADCO holds 50% share of stock of GRAPHIC. Petitioner likewise stressed that PADCO's own
evidence shows that the printing machine in question had been in the premises of GRAPHIC since
May, 1965, long before PADCO even acquired its alleged title on July 11, 1966 from Capitol Publishing.
That the said machine was allegedly leased by PADCO to GRAPHIC on January 24, 1966, even before
PADCO purchased it from Capital Publishing on July 11, 1966, only serves to show that PADCO's claim
of ownership over the printing machine is not only farce and sham but also unbelievable.
Considering the aforestated principles and the circumstances established in this case, respondent
judge should have pierced PADCO's veil of corporate identity.

Topic: test in determining applicability

Case no.98
LAND BANK OF THE PHILIPPINES vs. THE COURT OF APPEALS
G.R. No. 127181. September 4, 2001

Facts:
On various dates in September, October, and November, 1980, appellant Land Bank of the
Philippines extended a series of credit accommodations to appellee ECO, using the trust funds of the
Philippine Virginia Tobacco Administration in the aggregate amount of P26,109,000.00. The proceeds
of the credit accommodations were received on behalf of ECO by appellee Oate. On the respective
maturity dates of the loans, ECO failed to pay the same. Oral and written demands were made, but
ECO was unable to pay. ECO claims that the company was in financial difficulty for it was unable to
collect its investments with companies which were affected by the financial crisis brought about by
the Dewey Dee scandal. On October 20, 1981, ECO proposed and submitted to LBP a Plan of Payment
whereby the former would set up a financing company which would absorb the loan obligations. It
was proposed that LBP would participate in the scheme through the conversion of P9,000,000.00
which was part of the total loan, into equity. On March 4, 1982, LBP informed ECO of the action taken
by the formers Trust Committee concerning the Plan of Payment. On May 5, 1982, ECO submitted to
LBP a Revised Plan of Payment deleting the latters participation in the proposed financing
company. The Trust Committee deliberated on the Revised Plan of Payment and resolved to reject
it. LBP then sent a letter to the PVTA for the latters comments. The letter stated that if LBP did not
hear from PVTA within five (5) days from the latters receipt of the letter, such silence would be
construed to be an approval of LBPs intention to file suit against ECO and its corporate officers. PVTA
did not respond to the letter.

On June 28, 1982, Landbank filed a complaint for Collection of Sum of Money against ECO and
Emmanuel C. Oate before the Regional Trial Court of Manila, Branch 50. A judgment was rendered in
favor of LBP; however, appellee Oate was absolved from personal liability for insufficiency of
evidence. Dissatisfied, both parties filed their respective Motions for Reconsideration. LBP claimed
that there was an error in computation in the amounts to be paid. LBP also questioned the dismissal
of the case with regard to Oate. On the other hand, ECO questioned its being held liable for the
amount of the loan.

Issue:
Was Oate acting as an alter ego of ECO?

Held:

No. A corporation, upon coming into existence, is invested by law with a personality separate and
distinct from those persons composing it as well as from any other legal entity to which it may be
related. By this attribute, a stockholder may not, generally, be made to answer for acts or liabilities
of the said corporation, and vice versa. This separate and distinct personality is, however, merely a
fiction created by law for convenience and to promote the ends of justice. For this reason, it may not
be used or invoked for ends subversive to the policy and purpose behind its creation or which could
not have been intended by law to which it owes its being. This is particularly true when the fiction is
used to defeat public convenience, justify wrong, protect fraud, defend crime, confuse legitimate
legal or judicial issues, perpetrate deception or otherwise circumvent the law.

The burden is on petitioner to prove that the corporation and its stockholders are, in fact, using
the personality of the corporation as a means to perpetrate fraud and/or escape a liability and
responsibility demanded by law. In order to disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly established. In the absence of any
malice or bad faith, a stockholder or an officer of a corporation cannot be made personally liable for
corporate liabilities.The mere fact that Oate owned the majority of the shares of ECO is not a ground
to conclude that Oate and ECO is one and the same. Mere ownership by a single stockholder of all or
nearly all of the capital stock of a corporation is not by itself sufficient reason for disregarding the
fiction of separate corporate personalities. Neither is the fact that the name ECO represents the first
three letters of Oates name sufficient reason to pierce the veil. Even if it did, it does not mean that
the said corporation is merely a dummy of Oate. A corporation may assume any name provided it is
lawful. There is nothing illegal in a corporation acquiring the name or as in this case, the initials of
one of its shareholders.
That respondent corporation in this case was being used as a mere alter ego of Oate to obtain
the loans had not been shown. Bad faith or fraud on the part of ECO and Oate was not also shown.
As the Court of Appeals observed, if shareholders of ECO meant to defraud petitioner, then they
could have just easily absconded instead of going out of their way to propose Plans of Payment.

Topic: Articles of Incorporation

Case no.117

JOHN SY and UNIVERSAL PARTS SUPPLY CORPORATION

vs.
TYSON ENTERPRISES, INC., JUDGE GREGORIO G. PINEDA of the Court of First Instance of Rizal,
Pasig Branch XXI and COURT OF APPEALS
G.R. No.L-56763. December 15, 1982

Facts:
On August 29, 1979, Tyson Enterprises, Inc. filed against John Sy and Universal Parts Supply
Corporation, residents of Bacolod, a complaint for the collection of money in Pasig, Rizal. However,
there is no allegation in the complaint as to the office or place of business of plaintiff Tyson
Enterprises, Inc., which is located in Manila. What is alleged is the postal address or residence of
Dominador Ti, the president and general manager of plaintiff firm, which is in San Juan, Rizal.
Defendant Sy and Universal Parts Supply Corporation filed a motion to dismiss on the ground of
improper venue. The plaintiff opposed the motion to dismiss which the trial court denied. On
appeal, the Appellate Court dismissed the petition. It ruled that the parties did not intend Manila as
the exclusive venue of the actions arising under their transactions and that since the action was filed
in Pasig, which is near Manila, no useful purpose would be served by dismissing the same and
ordering that it be filed in Manila.

Issue:
Was the venue improperly laid in this case?

Held:
YES.
The place of business of plaintiff Tyson Enterprises, Inc., which for purposes of venue is considered
as its residence is in Manila and not in Rizal. The residence of its president is not the residence of the
corporation because a corporation has a personality separate and distinct from that of its officers
and stockholders. Consequently, the collection suit should have been filed in Manila, the residence of
plaintiff corporation and the place designated in its sales invoice, or it could have been filed also in
Bacolod City, the residence of defendant Sy.
The decision of the Court of Appeals and the order of respondent judge denying the motion to
dismiss are reversed and set aside. The writ of prohibition is granted. Civil Case No. 34302 should be
considered dismissed without prejudice to refiling it in the Court of First Instance of Manila or
Bacolod City at the election of plaintiff which should be allowed to withdraw the documentary
evidence submitted in that case. All the proceedings in said case, including the decision, were also
set aside.
The decision of the Court of Appeals and the order of respondent judge denying the motion
to dismiss are reversed and set aside.

Topic: Principal office or domicile

Case no.136

JOHN SY and UNIVERSAL PARTS SUPPLY CORPORATION

vs.
TYSON ENTERPRISES, INC., JUDGE GREGORIO G. PINEDA of the Court of First Instance of Rizal,
Pasig Branch XXI and COURT OF APPEALS
G.R. No.L-56763. December 15, 1982

Facts:
On August 29, 1979, Tyson Enterprises, Inc. filed against John Sy and Universal Parts Supply
Corporation, residents of Bacolod, a complaint for the collection of money in Pasig, Rizal. However,
there is no allegation in the complaint as to the office or place of business of plaintiff Tyson
Enterprises, Inc., which is located in Manila. What is alleged is the postal address or residence of
Dominador Ti, the president and general manager of plaintiff firm, which is in San Juan, Rizal.
Defendant Sy and Universal Parts Supply Corporation filed a motion to dismiss on the ground of
improper venue. The plaintiff opposed the motion to dismiss which the trial court denied. On
appeal, the Appellate Court dismissed the petition. It ruled that the parties did not intend Manila as
the exclusive venue of the actions arising under their transactions and that since the action was filed
in Pasig, which is near Manila, no useful purpose would be served by dismissing the same and
ordering that it be filed in Manila.
Issue:
What is considered the residence of a corporation?

Held:
The residence of its president is not the residence of the corporation because a corporation has a
personality separate and distinct from that of its officers and stockholders.
The place of business of plaintiff Tyson Enterprises, Inc., which for purposes of venue is considered
as its residence is in Manila and not in Rizal. Consequently, the collection suit should have been filed
in Manila, the residence of plaintiff corporation and the place designated in its sales invoice, or it
could have been filed also in Bacolod City, the residence of defendant Sy.
The decision of the Court of Appeals and the order of respondent judge denying the motion to
dismiss are reversed and set aside. The writ of prohibition is granted. Civil Case No. 34302 should be
considered dismissed without prejudice to refiling it in the Court of First Instance of Manila or
Bacolod City at the election of plaintiff which should be allowed to withdraw the documentary
evidence submitted in that case. All the proceedings in said case, including the decision, were also
set aside.
The decision of the Court of Appeals and the order of respondent judge denying the motion to
dismiss are reversed and set aside.

Topic: Adoption of by laws

Case no.155

CITIBANK, N.A.
vs.
HON. SEGUNDINO G. CHUA, SANTIAGO M. KAPUNAN and LUIS L. VICTOR, ASSOCIATE JUSTICES OF
THE HON. COURT OF APPEALS, THIRD DIVISION, MANILA, HON. LEONARDO B. CANARES, Judge of
Regional, Trial Court of Cebu, Branch 10, and SPOUSES CRESENCIO AND ZENAIDA VELEZ
G.R. No. 102300. March 17, 1993

Facts:
Citibank is a foreign commercial banking corporation duly licensed to do business in the Philippines.
Private respondents, spouses Cresencio and Zenaida Velez, who were good clients alleged that the
petitioner bank extended to them credit lines sufficiently secured with real estate and chattel
mortgages on equipment. They claim that a restructuring agreement has been entered into between
them and the bank. However, the bank failed to comply thereto thus spouses Velez sued for specific
performance and damages.
On March 30, 1990, the date of the pre-trial conference, counsel for petitioner bank appeared,
presenting a special power of attorney executed by Citibank officer Florencia Tarriela in favor of
petitioner bank's counsel, the J.P. Garcia & Associates, to represent and bind petitioner bank at the
pre-trial conference of the case at bar. Inspite of this special power of attorney, counsel for spouses
Velez orally moved to declare petitioner bank as in default on the ground that the special power of
attorney was not executed by the Board of Directors of Citibank. Thus petitioner bank executed
another special power of attorney made by William W. Ferguson, Vice President and highest ranking
officer of Citibank, Philippines, constituting and appointing the J.P. Garcia & Associates to represent
and bind the BANK. Unsatisfied, private respondents moved again for declaration of default. Though
the bank again executed anotherspecial power of attorney through William W. Ferguson in favor of
Citibank employees, the court issued an order declaring petitioner bank as in default. The CA
dismissed the petition filed by the bank. The CA relied on Section 46 of the Corporation Code to
support its conclusion that the by-laws in question are without effect because they were not
approved by the SEC.

Issue:
Whether or not petitioner bank's by-laws, which constitute the basis for Ferguson's special power of
attorney in favor of petitioner bank's legal counsel are effective, considering that petitioner bank has
been previously granted a license to do business in the Philippines.

Held:
YES.
Section 46 (which was relied upon by the CA) starts with the phrase "Every corporation formed
under this Code", which can only refer to corporations incorporated in the Philippines. Hence,
Section 46, in so far as it refers to the effectivity of corporate by-laws, applies only to domestic
corporations and not to foreign corporations. On the other hand, Section 125 of the same Code
requires that a foreign corporation applying for a license to transact business in the Philippines must
submit, among other documents, to the SEC, a copy of its articles of incorporation and by-laws,
certified in accordance with law. Unless these documents are submitted, the application cannot be
acted upon by the SEC.
Since the SEC will grant a license only when the foreign corporation has complied with all the
requirements of law, it follows that when it decides to issue such license, it is satisfied that the
applicant's by-laws, among the other documents, meet the legal requirements. This, in effect, is an
approval of the foreign corporations’ by-laws. It may not have been made in express terms; still it is
clearly an approval. Therefore, petitioner bank's by-laws, though originating from a foreign
jurisdiction, are valid and effective in the Philippines.

Topic: Power to make donations

Case no.174

Pirovano V. De La Rama Steamship Co., Inc

No. 5377. December 29, 1954

Facts:
Enrico Pirovano, president of the defendant company, managed the companyuntil it became a multi-
million corporation by the time Pirovano was executed by the Japanese during the occupation. The
BOD came up with a Resolution in effect out of the proceeds, the sum of P400,000 be set aside for
equal division among the 4 minor children, convertible into shares of stock of the De la Rama
Steamship Company, at par and, for that purpose, that the present registered stockholders of the
corporation be requested to waive their preemptive right to 4,000 shares of the unissued stock of
the company in order to enable each of the 4 minor heirs to obtain 1,000 shares at par if the Pirovano
children would given shares of stock, the voting strength of the 5 daughters of Don Esteban would
be adversely affected and Mrs. Pirovano would have a voting power twice that of her sisters.
Lourdes de la Rama wrote secretary of the corporation, Atty. Marcial Lichauco, asking him to cancel
the waiver she supposedly gave of her pre-emptive right. The company ammended the resolution
turning it into a loan with 5% interest payable when the obligation can be met. The company revoked
its donation of the life premium proceeds since it is not in compliance with the SEC. The minor
children of the late Enrico represented by their mother and judicial guardian demanded the payment
of the credit due them as of December 31, 1951, amounting to P564,980.89. The RTC held that the
contract or donation is not ultra vires.

Issue:
Was the contract or donation valid?

Held:
Yes, remunerative donation is that which is made to a person in consideration of his merits or for
services rendered to the donor, provided they do not constitute recoverable debts, or that in which a
burden less than the value of the thing given is imposed upon the donee, is also a donation." (Art.
619, old Civil Code)

In donations made to a person for services rendered to the donor, the donor's will is moved by acts
which directly benefit him. The motivating cause is gratitude, acknowledgment of a favor, a desire to
compensate donation has reached the stage of perfection which is valid and binding upon the
corporation and as such cannot be rescinded unless there is exists legal grounds for doing so. In this
case donation was embodied in a resolution duly approved by the Board of Directors on January 6,
1947. However, 2 reasons given for the rescission of donation in the resolution of the corporation
adopted on March 8, 1951 - valid and legal as to justify the rescission, thus, the corporation failed to
comply with the conditions to which the above donation was made subject

Topic: power to deny preemptive rights

Case no.193

PEDRO LOPEZ DEE

vs.
SECURITIES AND EXCHANGE COMMISSION, HEARING OFFICER EMMANUEL SISON, NAGA
TELEPHONE CO., INC., COMMUNICATION SERVICES, INC., LUCIANO MAGGAY, AUGUSTO FEDERIS,
NILDA RAMOS, FELIPA JAVALERA, DESIDERIO SAAVEDRA
G.R. No. L-60502. July 16, 1991

JUSTINO DE JESUS, SR., PEDRO LOPEZ DEE, JULIO LOPEZ DEE, and VICENTE TORDILLA, JR.
vs.
INTERMEDIATE APPELLATE COURT, LUCIANO MAGGAY, NILDA I. RAMOS, DESIDERIO SAAVEDRA,
AUGUSTO FEDERIS, ERNESTO MIGUEL, COMMUNICATION SERVICES, INC., and NAGA TELEPHONE
COMPANY, INC.
G.R. No. L-63922. July 16, 1991

Facts:
Naga Telephone Company, Inc. was organized in 1954, the authorized capital was P100,000.00. In
1974 Naga Telephone Co., Inc. (Natelco) decided to increase its authorized capital to P3,000,000.00.
As required by the Public Service Act, Natelco filed an application for the approval of the increased
authorized capital with the then Board of Communications on which a decision was rendered
approving the application subject to certain conditions, among which was: That the issuance of the
shares of stocks will be for a period of one year from the date hereof, "after which no further issues
will be made without previous authority from this Board."
Natelco filed its Amended Articles of Incorporation with the Securities and Exchange Commission.
When the amended articles were filed with the SEC, the original authorized capital of P100,000.00
was already paid. Of the increased capital of P2,900,000.00 the subscribers subscribed to
P580,000.00 of which P145,000 was fully paid.

Issue:
Whether or not Natelco stockholders have a right of preemption to the 113,800 shares in question.

Held:
NO.
The general rule is that pre-emptive right is recognized only with respect to new issues of shares, and
not with respect to additional issues of originally authorized shares. This is on the theory that when a
corporation at its inception offers its first shares, it is presumed to have offered all of those which it
is authorized to issue. An original subscriber is deemed to have taken his shares knowing that they
form a definite proportionate part of the whole number of authorized shares. When the shares left
unsubscribed are later re-offered, he cannot therefore claim a dilution of interest.
Thus, the questioned issuance of the 113,800 stocks is not invalid even assuming that it was made
without notice to the stockholders as claimed by the petitioner. The power to issue shares of stocks
in a corporation is lodged in the board of directors and no stockholders meeting is required to
consider it because additional issuance of shares of stocks does not need approval of the
stockholders. Consequently, no pre-emptive right of Natelco stockholders was violated by the
issuance of the 113,800 shares to CSI.
Accordingly, it is clear that since the trial judge in the lower court did not have jurisdiction in issuing
the questioned restraining order, disobedience thereto did not constitute contempt, as it is
necessary that the order be a valid and legal one. It is an established rule that the court has no
authority to punish for disobedience of an order issued without authority.

Topic: limitation on retention of surplus profits

Case no.212

MADRIGAL & COMPANY, INC.

vs.
HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS, THE HON.
SECRETARY OF LABOR, and MADRIGAL CENTRAL OFFICE EMPLOYEES UNION
G.R. No. L-48237. June 30, 1987

MADRIGAL & COMPANY, INC.

vs.
HON. MINISTER OF LABOR and MADRIGAL CENTRAL OFFICE EMPLOYEES UNION
No. L-49023. June 30, 1987

Facts:
The petitioner was engaged, among several other corporate objectives, in the management of Rizal
Cement Co., Inc.Admittedly, the petitioner and Rizal Cement Co., Inc. are sister companies.Both are
owned by the same or practically the same stockholders.On December 28, 1973, the respondent, the
Madrigal Central Office Employees Union, sought for the renewal of its collective bargaining
agreement with the petitioner, which was due to expire on February 28, 1974.Specifically, it
proposed a wage increase of P200.00 a month, an allowance of P100.00 a month, and other
economic benefits.The petitioner, however, requested for a deferment in the negotiations.
After the petitioner's failure to sit down with the respondent union, the latter, commenced a
complaint for unfair labor practice.Pending the resolution of the case, the petitioner, in a letter
informed the Secretary of Labor that Rizal Cement Co., Inc., "from which it derives income" had
"ceased operating temporarily."In addition, because of the desire of the stockholders to phase out
the operations of the Madrigal & Co., Inc. due to lack of business incentives and prospects, and in
order to prevent further losses,it had to reduce its capital stock on two occasions, the Madrigal &
Co., Inc. is without substantial income to speak of, necessitating a reorganization, by way of
retrenchment, of its employees and operations.

Issue:
Whether or not the profits earned by the Corporation were in the nature of dividends declared on its
shareholdings in other companies in the earning of which the employees had no participation
whatsoever.

Held:
NO.
The Court agreed with the National Labor Relations Commission that "the dividends received by the
company are corporate earnings arising from corporate investment."Indeed, as found by the
Commission, the petitioner had entered such earnings in its financial statements as profits, which it
would not have done if they were not in fact profits.
Moreover, it is incorrect to say that such profits — in the form of dividends — are beyond the reach
of the petitioner's creditors since the petitioner had received them as compensation for its
management services in favor of the companies it managed as a shareholder thereof. As such
shareholder, the dividends paid to it were its own money, which may then be available for wage
increments. It is not a case of a corporation distributing dividends in favor of its stockholders, in
which case, such dividends would be the absolute property of the stockholders and hence, out of
reach by creditors of the corporation. Here, the petitioner was acting as stockholder itself, and in
that case, the right to a share in such dividends, by way of salary increases, may not be denied its
employees.

Topic: trust fund doctrine

Case no.231

DONNINA C. HALLEY,
vs
PRINTWELL, INC.
G.R. No. 157549 May 30, 2011
Facts:
The petitioner was an incorporator and original director of Business Media Philippines, Inc. (BMPI),
with an initial authorized capital stock of P3,000,000.00 divided into 300,000 shares each with a par
value of P10.00,of which 75,000 were initially subscribed by Halley and 4 others. Printwell engaged in
commercial and industrial printing. BMPI commissioned Printwell for the printing of the
magazine Philippines, Inc. that BMPI published and sold. For that purpose, Printwell extended 30-day
credit accommodations to BMPI. In the period from October 11, 1988 until July 12, 1989, BMPI
placedwith Printwell several orders on credit, evidenced by invoices and delivery receipts
totalingP316,342.76. Considering that BMPI paid only P25,000.00,Printwell sued BMPI on January 26,
1990 for the collection of the unpaid balance of P291,342.76 in the RTC. On February 8,
1990,Printwell amended the complaint in order to implead as defendants all the original stockholders
and incorporators to recover on their unpaid subscriptions.

Issue:
Are the stockholders liable?

Held:
Yes. The trust fund doctrine enunciates rule that the property of a corporation is a trust fund for the
payment of creditors, but such property can be called a trust fund only by way of analogy or
metaphor. As between the corporation itself and its creditors it is a simple debtor, and as between
its creditors and stockholders its assets are in equity a fund for the payment of its debts.
The trust fund doctrine, first enunciated in the American case of Wood v. Dummer, was adopted in
our jurisdiction in Philippine Trust Co. v. Rivera where thisCourt declared that: It is established
doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a
right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action
upon any unpaid stock subscription in order to realize assets for the payment of its debts.

We clarify that the trust fund doctrine is not limited to reaching the stockholders 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.[36]All assets and property belonging to the corporation held in trust for
the benefit of creditors thatwere distributed or in the possession of the stockholders, regardless of
full paymentof their subscriptions, may be reached by the creditor in satisfaction of its claim.
Under the trust fund doctrine,a 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 a valuable
consideration, or fraudulently, to the prejudice of 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. To make out a prima facie case in a suit against stockholders of an insolvent
corporation to compel them to contribute to the payment of its debts by making good unpaid
balances upon their subscriptions, it is only necessary to establish that the stockholders have not in
good faith paid the par value of the stocks of the corporation.

Topic: Replacement and hold-over of directors

Case no.250

VALLE VERDE COUNTRY CLUB, INC., et al.

vs.
VICTOR AFRICA
G.R. No. 151969, September 4, 2009
Facts:
During the Annual Stockholders’ Meeting of petitioner Valle Verde Country Club, Inc. (VVCC), the
following were elected as members of the VVCC Board of Directors: Ernesto Villaluna, Jaime C.
Dinglasan, Eduardo Makalintal, Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato
Dee, Augusto Sunico, and Ray Gamboa. In the years 1997, 1998, 1999, 2000, and 2001, however, the
requisite quorum for the holding of the stockholders’ meeting could not be obtained. Consequently,
the above-named directors continued to serve in the VVCC Board in a hold-over capacity. Two of the
said members resigned (Makalintal and Dinglasan). After the resignation of Dinglasan, Eric Roxas
was elected. Makalintal was replaced by Jose Ramirez.
Respondent Africa, a member of VVCC, questioned the election of Roxas and Ramirez as members of
the VVCC Board with the Securities and Exchange Commission (SEC) and the Regional Trial Court.
Africa alleged that the election of Roxas was contrary to Section 29, in relation to Section 23, of the
Corporation Code of the Philippines. The respective trial courts ruled in favor of Africa.

Issue:
Whether or not the elections were valid.

Held:
YES.
Section 23of the Corporation Code declares that "the board of directors shall hold office for one (1)
year until their successors are elected and qualified," we construe the provision to mean that the
term of the members of the board of directors shall be only for one year; their term expires one year
after election to the office. The holdover period – that time from the lapse of one year from a
member’s election to the Board and until his successor’s election and qualification – is not part of the
director’s original term of office, nor is it a new term; the holdover period, however, constitutes part
of his tenure. Corollary, when an incumbent member of the board of directors continues to serve in a
holdover capacity, it implies that the office has a fixed term, which has expired, and the incumbent is
holding the succeeding term.
After the lapse of one year from his election as member of the VVCC Board in 1996, Makalintal’s term
of office is deemed to have already expired. That he continued to serve in the VVCC Board in a
holdover capacity cannot be considered as extending his term. This holdover period, however, is not
to be considered as part of his term, which, as declared, had already expired.
With the expiration of Makalintal’s term of office, a vacancy resulted which, by the terms of Section
29of the Corporation Code, must be filled by the stockholders of VVCC in a regular or special meeting
called for the purpose. As correctly pointed out by the RTC, when remaining members of the VVCC
Board elected Ramirez to replace Makalintal, there was no more unexpired term to speak of, as
Makalintal’s one-year term had already expired. Pursuant to law, the authority to fill in the vacancy
caused by Makalintal’s leaving lies with the VVCC’s stockholders, not the remaining members of its
board of directors.

Topic: delegation of authority to corporate officers

Case no.269

MITA PARDO DE TAVERA v. PHILIPPINE TUBERCULOSIS SOCIETY

GR No. L-48928, Feb 25, 1982

Facts:

On March 23, 1976, plaintiff-appellant Mita Pardo de Tavera filed with the Court of First Instance of
Rizal a complaint against the Philippine Tuberculosis Society, Inc., Miguel Cañizares, Ralph Nubla,
Bernardo Pardo, Enrique Garcia, Midpantao Adil, Alberto Romulo, and the present Board of Directors
of the Philippine Tuberculosis Society, Inc., subsequently Francisco Ortigas, Jr. was impleaded as
party defendant.

The complaint alleged that plaintiff is a doctor of Medicine by profession and a recognized specialist
in the treatment of tuberculosis, having been in the continuous practice of her profession since 1945;
that she is a member of the Board of Directors of the defendant Society, in representation of the
Philippine Charity Sweepstakes Office; that she was duly appointed on April 27, 1973 as Executive
Secretary of the Society; that on May 29, 1974, the past Board of Directors removed her summarily
from her position, the lawful cause of which she was not informed, through the simple expedient of
declaring her position vacant; that immediately thereafter, defendant Alberto Romulo was
appointed to the position by an affirmative vote of seven directors, with two abstentions and one
objection; and that defendants Pardo, Nubla, Garcia and Adil, not being members of defendant
Society when they were elevated to the position of members of the Board of Directors, are not
qualified to be elected as such and hence, all their acts in said meeting of May 29, 1974 are null and
void.
The defendants deny that plaintiff was illegally removed from her position as Executive Secretary
and averring that under the Code of By-Laws of the Society, said position is held at the pleasure of
the Board of Directors and when the pleasure is exercised, it only means that the incumbent has to
vacate the same because her term has expired.
Issue:
Was there an illegal removal of the petitioner?

Held:

None. The act of the Board in declaring her position as vacant is not only in accordance with the
Code of By-Laws of the Society but also meets the exacting standards of honesty and good faith. The
meeting of May 29, 1974, at which petitioner's position was declared vacant, was called specifically
to take up the unfinished business of the Reorganizational Meeting of the Board of April 30, 1974.
Hence, said act cannot be said to impart a dishonest purpose or some moral obliquity and conscious
doing to wrong but rather emanates from the desire of the Board to reorganize itself.

The proscription against removal without just cause and due process of law under the Civil Service
Law does not have a bearing on the case at bar for the reason, as We have explained, that there was
no removal in her case but merely an expiration of term pursuant to Section 7.02 of the Code of By-
Laws. Hence, whether or not the petitioner falls within the protective mantle of the Civil Service Law
is immaterial and definitely unnecessary to resolve this case.

Topic: doctrine of apparent authority

Case no.288

PEOPLES AIRCARGO AND WAREHOUSING CO. INC., vs. COURT OF APPEALS and STEFANI SAO
G.R. No. 117847. October 7, 1998
Facts:
The petitioner is a domestic corporation, which was organized in the middle of 1986 to operate a
customs bonded warehouse at the old Manila International Airport in Pasay City. To obtain a license
for the corporation from the Bureau of Customs, Antonio Punsalan Jr., the corporation president,
solicited a proposal from private respondent for the preparation of a feasibility study. Private
respondent submitted a letter-proposal dated October 17, 1986 to Punsalan. Initially, Cheng Yong,
the majority stockholder of petitioner, objected to private respondents offer, as another company
priced a similar proposal at only P15,000. However, Punsalan preferred private respondents services
because of the latters membership in the task force, which was supervising the transition of the
Bureau of Customs from the Marcos government to the Aquino administration. On October 17, 1986,
petitioner, through Punsalan, sent private respondent a letter, confirming their agreement.
Accordingly, private respondent prepared a feasibility study for petitioner which eventually paid him
the balance of the contract price, although not according to the schedule agreed upon. On
December 4, 1986, upon Punsalans request, private respondent sent petitioner another letter-
proposal. On January 10, 1987, Andy Villaceren, vice president of petitioner, received the operations
manual prepared by private respondent. Petitioner submitted said operations manual to the Bureau
of Customs in connection with the formers application to operate a bonded warehouse; thereafter,
in May 1987, the Bureau issued to it a license to operate, enabling it to become one of the three
public customs bonded warehouses at the international airport. Private respondent also conducted,
in the third week of January 1987 in the warehouse of petitioner, a three-day training seminar for the
latters employees.
On March 25, 1987, private respondent joined the Bureau of Customs as special assistant to then
Commissioner Alex Padilla, a position he held until he became technical assistant to then
Commissioner Miriam Defensor-Santiago on March 7, 1988. Meanwhile, Punsalan sold his shares in
petitioner-corporation and resigned as its president in 1987. On February 9, 1988, private respondent
filed a collection suit against petitioner. He alleged that he had prepared an operations manual for
petitioner, conducted a seminar-workshop for its employees and delivered to it a computer program;
but that, despite demand, petitioner refused to pay him for his services.
Petitioner, in its answer, denied that private respondent had prepared an operations manual and a
computer program or conducted a seminar-workshop for its employees. It further alleged that the
letter-agreement was signed by Punsalan without authority, in collusion with [private respondent] in
order to unlawfully get some money from [petitioner], and despite his knowledge that a group of
employees of the company had been commissioned by the board of directors to prepare an
operations manual.
Issue:
Is the letter-agreement for services binding on the corporation simply because it was entered into by
its president?
Held:
Yes. The general rule is that, in the absence of authority from the board of directors, no person, not
even its officers, can validly bind a corporation. A corporation is a juridical person, separate and
distinct from its stockholders and members, having powers, attributes and properties expressly
authorized by law or incident to its existence. Being a juridical entity, a corporation may act through
its board of directors, which exercises almost all corporate powers, lays down all corporate business
policies and is responsible for the efficiency of management, as provided in Section 23 of the
Corporation Code of the Philippines: SEC. 23. unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors or trustees.
Under this provision, the power and the responsibility to decide whether the corporation should
enter into a contract that will bind the corporation is lodged in the board, subject to the articles of
incorporation, bylaws, or relevant provisions of law. However, just as a natural person may authorize
another to do certain acts for and on his behalf, the board of directors may validly delegate some of
its functions and powers to officers, committees or agents. The authority of such individuals to bind
the corporation is generally derived from law, corporate bylaws or authorization from the board,
either expressly or impliedly by habit, custom or acquiescence in the general course of business.

A corporate officer or agent may represent and bind the corporation in transactions with third
persons to the extent that [the] authority to do so has been conferred upon him, and this includes
powers which have been intentionally conferred, and also such powers as, in the usual course of the
particular business, are incidental to, or may be implied from, the powers intentionally conferred,
powers added by custom and usage, as usually pertaining to the particular officer or agent, and such
apparent powers as the corporation has caused persons dealing with the officer or agent to believe
that it has conferred.

Apparent authority is derived not merely from practice. Its existence may be ascertained through (1)
the general manner in which the corporation holds out an officer or agent as having the power to act
or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the
acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof,
whether within or beyond the scope of his ordinary powers. It requires presentation of evidence of
similar act(s) executed either in its favor or in favor of other parties. It is not the quantity of similar
acts which establishes apparent authority, but the vesting of a corporate officer with the power to
bind the corporation.
In the case at bar, petitioner, through its president Antonio Punsalan Jr., entered into the First
Contract without first securing board approval. Despite such lack of board approval, petitioner did
not object to or repudiate said contract, thus clothing its president with the power to bind the
corporation.

Topic: Business judgment rule

Case no.307

Philippine Stock Exchange Inc. vs Court of Appeals

281 SCRA 232 [GR No. 125469 October 27, 1997]

Facts:
The Puerto Azul Land Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to
the public in order to raise funds allegedly to develop its properties and pay its loans with several
banking institutions. In January, 1995, PALI was issued a permit to sell its shares to the public by the
Securities and Exchange Commission (SEC). To facilitate the trading of its shares among investors,
PALI sought to course the trading of its shares through the Philippine Stock Exchange Inc. (PSEi), for
which purpose it filed with the said stock exchange an application to list its shares, with supporting
documents attached pending the approval of the PALI’s listing application, a letter was received by
PSE from the heirs of Ferdinand Marcos to which the latter claims to be the legal and beneficial
owner of some of the properties forming part of PALI’s assets. As a result, PSE denied PALI’s
application which caused the latter to file a complaint before the SEC. The SEC issued an order to PSE
to grant listing application of PALI on the ground that PALI have certificate of title over its assets and
properties and that PALI have complied with all the requirements to enlist with PSE.

Issue:

Was the denial of PALI’s application is proper?

Held:

Yes. This is in accord with the “Business Judgement Rule” whereby the SEC and the courts are barred
from intruding into business judgements of corporations, when the same are made in good faith. The
same rule precludes the reversal of the decision of the PSE, to which PALI had previously agreed to
comply, the PSE retains the discretion to accept or reject applications for listing. Thus, even if an
issuer has complied with the PSE listing rules and requirements, PSE retains the discretion to accept
or reject the issuer’s listing application if the PSE determines that the listing shall not serve the
interests of the investing public.

It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed
with the markings of a corporate entity, it functions as the primary channel through which the
vessels of capital trade ply. The PSEi’s relevance to the continued operation and filtration of the
securities transaction in the country gives it a distinct color of importance such that government
intervention in its affairs becomes justified, if not necessarily. Indeed, as the only operational stock
exchange in the country today, the PSE enjoys monopoly of securities transactions, and as such it
yields a monopoly of securities transactions, and as such, it yields an immerse influence upon the
country’s economy.

The SEC’s power to look into the subject ruling of the PSE, therefore, may be implied from or be
considered as necessary or incidental to the carrying out of the SEC’s express power to insure fair
dealing in securities traded upon a stock exchange or to ensure the fair administration of such
exchange. It is likewise, observed that the principal function of the SEC is the supervision and control
over corporations, partnerships and associations with the end in view that investment in these
entities may be encouraged and protected and their activities for the promotion of economic
development.

A corporation is but an association of individuals, allowed to transact under an assumed corporate

name, and with a distinct legal personality. In organizing itself as a collective body, it waives no
constitutional immunities and requisites appropriate to such a body as to its corporate and
management decisions, therefore, the state will generally not interfere with the same. Questions of
policy and management are left to the honest decision of the officers and directors of a corporation,
and the courts are without authority to substitute their judgements for the judgement of the board
of directors. The board is the business manager of the corporation and so long as it acts in good
faith, its orders are not reviewable by the courts.

In matters of application for listing in the market the SEC may exercise such power only if the PSE’s
judgement is attended by bad faith. The petitioner was in the right when it refused application of
PALI, for a contrary ruling was not to the best interest of the general public.

Topic: personal liability of directors and corporate officers

Case no.326

AMERICAN HOSPITAL SUPPLIES/PHILIPPINES et al. vs. COURT OF APPEALS, ALFONSO BAYANI

GR 111807, 14 June 1996

Facts:
American Hospital Supplies was engaged in the sale and manufacture of medicines and
pharmaceuticals in the country and did substantial business with government hospitals. On 1 June
1970 it hired Alfonso Bayani as an Area Manager for Visayas and Mindanao, and later appointed him
Manager of its Cebu branch. On 30 January 1978 private respondent was dismissed from the service.
At that time he was receiving a monthly compensation of P3,180.00.
On 5 May 1978 private respondent filed a complaint for damages before the trial court alleging that
in the course of their business petitioners were directly encouraging, abetting and promoting bribery
in the guise of "commissions," "entertainment expenses" and "representation expenses" which
were given to various government hospital officials in exchange for favorable recommendations,
approvals and actual purchases of medicines and pharmaceuticals. For his refusal to take direct and
personal hand in giving "bribe money" he was dismissed. He then implicated AHS President Gervacio
Amistoso and Vice President Constancio Halili as responsible for his illegal dismissal.

Issue:
Whether or not Amistoso and Halili be held solidarily liable with the corporation.

Held:
NO. Corporate officers are not personally liable for money claims of discharged corporate employees
unless they acted with evident malice and bad faith in terminating their employment. In the case at
bar, while petitioners Amistoso and Halili may have had a hand in the relief of respondent. Bayani,
there are no indications of malice and bad faith on their part. We take exception to the conclusion of
respondent Court of Appeals that "the manner by which Halili and Amistoso acted is characterized
by bad faith and malice, thus binding them personally liable to plaintiff-appellee,'' On the contrary it
is apparent that the relief order was a business judgment on the part of the officers, with the best
interest of the corporation in mind, based on their opinion that respondent Bayani had failed to
perform the duties expected of him. Hence both the trial court and respondent Court of Appeals
committed a reversible error in holding petitioners Amistoso and Halili jointly and solidarily liable
with Petitioner Corporation.
Topic: solidary liability for damages
Case no.345

ATCI OVERSEAS CORPORATION, AMALIA G. IKDAL and MINISTRY OF PUBLIC HEALTH-KUWAIT

vs.
MA. JOSEFA ECHIN

G.R. No. 178551 October 11, 2010

Facts:

Echin was hired by petitioner ATCI Overseas Corporation in behalf of its principal-co-petitioner, the
Ministry of Public Health of Kuwait for the position of medical technologist under a two-year
contract, denominated as a Memorandum of Agreement (MOA), with a monthly salary of
US$1,200.00.

Under the MOA, all newly-hired employees undergo a probationary period of one (1) year and are
covered by Kuwait’s Civil Service Board Employment Contract No. 2. Respondent was deployed on
February 17, 2000 but was terminated from employment on February 11, 2001, she not having
allegedly passed the probationary period. As the Ministry denied respondent’s request for
reconsideration, she returned to the Philippines on March 17, 2001, shouldering her own air fare.

On July 27, 2001, respondent filed with the National Labor Relations Commission (NLRC) a
complaint for illegal dismissal against petitioner ATCI as the local recruitment agency, represented by
petitioner, Amalia Ikdal (Ikdal), and the Ministry, as the foreign principal. By Decision of November
29, 2002, the Labor Arbiter, finding that petitioners neither showed that there was just cause to
warrant respondent’s dismissal nor that she failed to qualify as a regular employee, held that
respondent was illegally dismissed and accordingly ordered petitioners to pay her US$3,600.00,
representing her salary for the three months unexpired portion of her contract.

Issue:

Is there solidary liability of ATCI and its foreign principal?

Held:

Yes. Petitioner ATCI, as a private recruitment agency, cannot evade responsibility for the money
claims of Overseas Filipino workers (OFWs) which it deploys abroad by the mere expediency of
claiming that its foreign principal is a government agency clothed with immunity from suit, or that
such foreign principal’s liability must first be established before it, as agent, can be held jointly and
solidarily liable.

In providing for the joint and solidary liability of private recruitment agencies with their foreign
principals, Republic Act No. 8042 precisely affords the OFWs with a recourse and assures them of
immediate and sufficient payment of what is due them. Skippers United Pacific v. Maguad explains:
that the obligations covenanted in the recruitment agreement entered into by and between the local
agent and its foreign principal are not coterminous with the term of such agreement so that if either
or both of the parties decide to end the agreement, the responsibilities of such parties towards the
contracted employees under the agreement do not at all end, but the same extends up to and until
the expiration of the employment contracts of the employees recruited and employed pursuant to
the said recruitment agreement. Otherwise, this will render nugatory the very purpose for which the
law governing the employment of workers for foreign jobs abroad was enacted.

The imposition of joint and solidary liability is in line with the policy of the state to protect and
alleviate the plight of the working class. Verily, to allow petitioners to simply invoke the immunity
from suit of its foreign principal or to wait for the judicial determination of the foreign principal’s
liability before petitioner can be held liable renders the law on joint and solidary liability inutile.

The liability of the principal/employer and the recruitment/placement agency for any and all claims
under this section shall be joint and several. This provision shall be incorporated in the contract for
overseas employment and shall be a condition precedent for its approval. The performance bond to
be filed by the recruitment/placement agency, as provided by law, shall be answerable for all money
claims or damages that may be awarded to the workers. If the recruitment/placement agency is a
juridical being, the corporate officers and directors and partners as the case may be, shall themselves
be jointly and solidarily liable with the corporation or partnership for the aforesaid claims and
damages.

Topic: derivative suit

Case no.364
ELTON CHASE vs. DR. VICTOR BUENCAMINO
GR L-20395, 13 May 1985

Facts:
Plaintiff Elton Chase, on the other hand, was the owner of Production Manufacturing Company, of
Portland, Oregon, USA, a corporation primarily dedicated to the operation of a machine shop and
heat-treating plant for the production of tractor parts.
Sometime in 1954, Chase was notified by the Highway Commission of the State of Oregon that his
factory was going to be in the path of a proposed highway. He was then advised to sell or face
expropriation and warned to remove his plant within a year. His distributor Craig Carrol told him of a
Dr. Buencamino of Manila who he said was interested in establishing a manufacturing plant in the
Philippines. Craig Carrol contacted Buencamino who told him to contact his associate William
Cranker in the United States. 8 Thereafter, a series of negotiations took place both here in Manila,
and in the United States, between Chase on the one hand, and Cranker and Buencamino, on the
other, for the purchase of Chase's factory (Production Manufacturing Company) and the
establishment of a new factory in Manila which was to be called the American Machinery
Engineering Parts, Inc. (Amparts for short). These negotiations culminated in a final agreement to
the effect that - Elton Chase was to be paid One Hundred Thousand Dollars ($100,000.00) and he
would also be given a one-third interest in Amparts, with the other two, Dr. Buencamino and
Cranker, as the owner of the other two-thirds (2/3) interest, 1/3 interest each; that in exchange for
said $100,000.00 and the 1/3 interest, Chase was to transfer to Amparts his tractor plant, ship his
machineries to Manila, assuming all costs of dismantling, preserving and crating for shipment to
Manila, install said machineries at Amparts plant with the aid of five technicians and finally, he has to
be the production manager of Amparts.
Chase had shipped his machineries and had them installed in the Amparts plant in Pasig, Rizal.
Amparts then began operation with Dr. Buencamino as President, William Cranker as Manager and
Elton Chase as Production Manager. For sometime the three maintained harmonious relations but
later on distrust came in until finally Chase tendered his letter of resignation as Production Manager.
He then filed a derivative suit against Buencamino and Chase, who allegedly stole from the
corporation. He sought for the dissolution of the corporation.

Issue:
Can the corporation be dissolved?

Held:
NO.
The case is of derivative in nature, therefore, it was filed for the benefit of the corporation. The Court
grant a dissolution because the action is a derivative one for the benefit of Amparts and not for the
personal benefit of Chase, and Amparts can not be benefited by its extinction; as to the ouster of Dr.
Buencamino from management, it should not be forgotten that Dr. Buencamino is not only a
manager, but is in fact 2/3 owner of Amparts and to oust him from management would amount to his
disenfranchisement as owner of the majority of the enterprise apart from the fact that it is also
established in the proofs that Amparts is already picking up and has been a going concern after
Cranker left unto him the direction of its affairs; the Court therefore having in mind all these finds
that the solution most equitable and just would be to limit its decision to imposing a monetary
judgment upon the guilty parties for the benefit of Amparts.

Topic: Right to vote

Case no. 383

Republic of the Philippines (Presidential Commission on Good Government),

vs.
Sandiganbayan
GR 107789 30 April 2003

Facts:
On 7 August 1991, the PCGG conducted an Eastern Telecommunications, Philippines, Inc. (ETPI)
stockholders meeting during which a PCGG controlled board of directors was elected. A special
stockholders meeting was later convened by the registered ETPI stockholders wherein another set
of board of directors was elected, as a result of which two sets of such board and officers were
elected. Victor Africa, a stockholder of ETPI, alleging that the PCGG had since been "illegally
'exercising' the rights of stockholders of ETPI," especially in the election of the members of the
board of directors, filed a motion before the Sandiganbayan, prayed that said court order the "calling
and holding of the ETPI annual stockholders meeting for 1992 under the court's control and
supervision and prescribed guidelines." The PCGG did not object to Africa's motion provided that "(1)
An Order be issued upholding the right of PCGG to vote all the Class "A" shares of ETPI; (2) In the
alternative, in the remote event that PCGG's right to vote the sequestered shares be not upheld, an
Order be issued (a) disregarding the Stock and Transfer Book and Booklet of Stock Certificates of
ETPI in determining who can vote the shares in an Annual Stockholders Meeting of ETPI, (b) allowing
PCGG to vote 23.9% of the total subscription in ETPI, and (c) directing the amendment of the Articles
of Incorporation and By-laws of ETPI providing for the minimum safeguards for the conservation of
assets prior to the calling of a stockholders meeting. The Sandiganbayan resolved Africa's motion,
ordering the conduct of an annual stockholders meeting of ETPI, for 1992. Assailing the foregoing
resolution, the PCGG filed before the Supreme Court a petition for Certiorari, Mandamus and
Prohibition.

Issue:
Can the PCGG can vote the sequestered ETPI Class "A" shares in the stockholders meeting for the
election of the board of directors?

Held:
YES.
The PCGG cannot vote sequestered shares to elect the ETPI Board of Directors or to amend the
Articles of Incorporation for the purpose of increasing the authorized capital stock unless there is a
prima facie evidence showing that said shares are ill-gotten and there is an imminent danger of
dissipation. (2)The ETPI Stock and Transfer Book should be the basis for determining which persons
have the right to vote in the stockholders meeting for the election of the ETPI Board of Directors. (3)
The PCGG is entitled to vote the shares ceded to it by Roberto S. Benedicto and his controlled
corporations under the Compromise Agreement, provided that the shares are first registered in the
name of the PCGG. The PCGG may not register the transfer of the Malacañang and the Nieto shares
in the ETPI Stock and Transfer Book; however, it may vote the same as conservator provided that the
PCGG satisfies the two-tiered test devised by the Court in Cojuangco v. Calpo. (4) The safeguards laid
down in the case of Cojuangco v. Roxas shall be incorporated in the ETPI Articles of Incorporation
substantially contemporaneous to, but not before, the election of the ETPI Board of Directors. (5)
Members of the Sandiganbayan shall not participate in the stockholders meeting for the election of
the ETPI Board of Directors.