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Topic: Attributes of Corporation

Case no. 5

ABS-CBN Broadcasting Corporation vs Court of Appeals

G.R. No.128690, January 21, 1999

Facts:

ABS CBN was granted the right of first refusal by VIVA for the exclusive exhibition of films which the
latter would be able to produce. When VIVA offered its films to ABS, the latter made a
counterproposal which only included a few of those films submitted to ABS. The counterproposal
was rejected by the BOD of VIVA. Thereafter, VIVA offered the same to RBS and the latter bought the
same. ABS then filed a case before the RTC to enjon the airing of some of the films which it earlier
agreed to air on its channel. The RTC ruled in favor of RBS and VIVA and, among others, awarded
moral damages for the former. The CA affirmed the decision, hence, this petition.

Issue:

Is the award for moral damages proper?

Held:

No, the award of moral damages cannot be granted in favor of a corporation because, being an
artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no
senses, It cannot, therefore, experience physical suffering and mental anguish, which call be
experienced only by one having a nervous system. 65 The statement in People v. Manero 66 and
Mambulao Lumber Co. v. PNB 67 that a corporation may recover moral damages if it "has a good
reputation that is debased, resulting in social humiliation" is an obiter dictum. On this score alone the
award for damages must be set aside, since RBS is a corporation.

Topic: Beneficial Ownership test

Case No. 24

Jose Roy III vs Chairperson Tersita Herbosa

G.R. No. 207246, November 22, 2016


Facts:
On June 28, 2011, the Court issued the Gamboa Decision that 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,
and thus in the present case only to common shares, and not to the total outstanding capital stock
(common and non-voting preferred shares).
The Gamboa Decision attained finality on October 18, 2012, and Entry of Judgment was thereafter
issued on December 11, 2012. On May 20, 2013, the SEC, through respondent Chairperson Teresita J.
Herbosa, issued SEC-MC No. 8.
In Section 2 thereof, it was stated that all covered corporations shall, at all times, observe the
constitutional or statutory ownership requirement. For purposes of determining compliance
therewith, the required percentage of Filipino ownership shall be applied to BOTH (a) the total
number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total
number of outstanding shares of stock, whether or not entitled to vote in the election of directors.
On June 10, 2013, petitioner Roy, as a lawyer and taxpayer, filed the Petition,[15] assailing the validity
of SEC-MC No. 8 for not conforming to the letter and spirit of the Gamboa Decision and Resolution
and for having been issued by the SEC with grave abuse of discretion.
Issues:
Whether the SEC gravely abused its discretion in issuing SEC-MC No. 8 in light of the Gamboa
Decision and Gamboa Resolution.
Held:
No. To the contrary, the Court found that the SEC-MC No. 8 to have been issued in fealty to the
Gamboa Decision and Resolution.
In Gamboa Decision, "capital" in Section II, Article XII of the I987 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, and not to the total outstanding capital stock (common and non-voting preferred shares).
While the Gamboa Resolution put to rest the Court's interpretation of the term "capital" in which it
was defined as the full beneficial ownership of stocks, coupled with appropriate voting rights is
essential... reiterates and confirms the interpretation that the term "capital" in Section 11, Article XII
of the 1987 Constitution refers to shares with voting rights, as well as with full beneficial ownership.
Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test or the controlling interest
requirement. In fact, Section 2 goes beyond requiring a 60-40 ratio in favor of Filipino nationals in the
voting stocks; it moreover requires the 60-40 percentage ownership in the total number of
outstanding shares of stock, whether voting or not. The SEC formulated SEC-MC No. 8 to adhere to
the Court's unambiguous pronouncement that "[f]ull beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights is required. Clearly, SEC-MC
No. 8 cannot be said to have been issued with grave abuse of discretion.
While SEC-MC No. 8 does not expressly mention the Beneficial Ownership Test or full beneficial
ownership of stocks requirement in the FIA, this will not, as it does not, render it invalid meaning, it
does not follow that the SEC will not apply this test in determining whether the shares claimed to be
owned by Philippine nationals are Filipino, i.e., are held by them by mere title or in full beneficial
ownership. To be sure, the SEC takes its guiding lights also from the FIA and its implementing rules,
the Securities Regulation Code
Topic: Liability for Torts and Crimes
Case no. 43

Republic Gas Corporation vs Petron Corporation

G.R. No. 194062, June 17, 2013

Facts:

Petitioners Petron Corporation (Petron) and Pilipinas Shell Petroleum Corporation (Shell) are two of
the largest bulk suppliers and producers of LPG in the Philippines. Petron is the registered owner in
the Philippines of the trademarks GASUL and GASUL cylinders used for its LGP products. It is the sole
entity in the Philippines authorized to allow refillers and distributors to refill, use, sell, and distribute
GASUL LPG containers, products and its trademarks.

Pilipinas Shell, on the other hand, is the authorized user in the Philippines of the tradename,
trademarks, symbols or designs of its principal, Shell International Petroleum Company Limited,
including the marks SHELLANE and SHELL device in connection with the production, sale and
distribution of SHELLANE LPGs. It is the only corporation in the Philippines authorized to allow
refillers and distributors to refill, use, sell and distribute SHELLANE LGP containers and products.
Private respondents, on the other hand, are the directors and officers of Republic Gas Corporation
("REGASCO" for brevity), an entity duly licensed to engage in, conduct and carry on, the business of
refilling, buying, selling, distributing and marketing at wholesale and retail of Liquefied Petroleum
Gas ("LPG").

LPG Dealers Associations, such as the Shellane Dealers Association, Inc., Petron Gasul Dealers
Association, Inc. and Totalgaz Dealers Association, received reports that certain entities were
engaged in the unauthorized refilling, sale and distribution of LPG cylinders bearing the registered
tradenames and trademarks of the petitioners.

Genesis Adarlo (hereinafter referred to as Adarlo), on behalf of the aforementioned dealers


associations, filed a letter-complaint in the National Bureau of Investigation ("NBI") regarding the
alleged illegal trading of petroleum products and/or underdelivery or underfilling in the sale of LPG
products.

An investigation was thereafter conducted, particularly within the areas of Caloocan, Malabon,
Novaliches and Valenzuela, which showed that several persons and/or establishments, including
REGASCO, were suspected of having violated provisions of Batas Pambansa Blg. 33 (B.P. 33). The
surveillance revealed that REGASCO LPG Refilling Plant in Malabon was engaged in the refilling and
sale of LPG cylinders bearing the registered marks of the petitioners without authority from the
latter.

NBI operatives then conducted a test-buy operation on February 19, 2004 with the former and a
confidential asset going undercover. They brought with them four (4) empty LPG cylinders bearing
the trademarks of SHELLANE and GASUL and included the same with the purchase of J&S, a
REGASCO’s regular customer. Inside REGASCO’s refilling plant, they witnessed that REGASCO’s
employees carried the empty LPG cylinders to a refilling station and refilled the LPG empty cylinders.
A search warrant was then issued by the RTC of the Manila.

Subsequently, on January 28, 2005, the NBI lodged a complaint in the Department of Justice against
the private respondents for alleged violations of Sections 155 and 168 of Republic Act (RA) No. 8293,
otherwise known as the Intellectual Property Code of the Philippines. On January 15, 2006, Assistant
City Prosecutor Armando C. Velasco recommended the dismissal of the complaint. The prosecutor
found that there was no proof introduced by the petitioners that would show that private
respondent REGASCO was engaged in selling petitioner’s products or that it imitated and
reproduced the registered trademarks of the petitioners. He further held that he saw no deception
on the part of REGASCO in the conduct of its business of refilling and marketing LPG. The Resolution
issued by Assistant City Prosecutor Velasco reads as follows in its dispositive portion. On appeal, the
Secretary of the Department of Justice affirmed the prosecutor’s dismissal of the complaint.The
Court of Appeals ruled in favor of respondents.

Issue:

Whether probable cause exist, if so, who should be held liable?

Held:

Yes, probable cause exists. The mere unauthorized use of a container bearing a registered trademark
in connection with the sale, distribution or advertising of goods or services which is likely to cause
confusion, mistake or deception among the buyers or consumers can be considered as trademark
infringement.

Here, petitioners have actually committed trademark infringement when they refilled, without the
respondents’ consent, the LPG containers bearing the registered marks of the respondents. As noted
by respondents, petitioners’ acts will inevitably confuse the consuming public, since they have no
way of knowing that the gas contained in the LPG tanks bearing respondents’ marks is in reality not
the latter’s LPG product after the same had been illegally refilled. The public will then be led to
believe that petitioners are authorized refillers and distributors of respondents’ LPG products,
considering that they are accepting empty containers of respondents and refilling them for resale.

From jurisprudence, unfair competition has been defined as the passing off (or palming off) or
attempting to pass off upon the public of the goods or business of one person as the goods or
business of another with the end and probable effect of deceiving the public.10

Passing off (or palming off) takes place where the defendant, by imitative devices on the general
appearance of the goods, misleads prospective purchasers into buying his merchandise under the
impression that they are buying that of his competitors. Thus, the defendant gives his goods the
general appearance of the goods of his competitor with the intention of deceiving the public that
the goods are those of his competitor.11

In the present case, respondents pertinently observed that by refilling and selling LPG cylinders
bearing their registered marks, petitioners are selling goods by giving them the general appearance
of goods of another manufacturer.
What's more, the CA correctly pointed out that there is a showing that the consumers may be misled
into believing that the LPGs contained in the cylinders bearing the marks "GASUL" and "SHELLANE"
are those goods or products of the petitioners when, in fact, they are not. Obviously, the mere use of
those LPG cylinders bearing the trademarks "GASUL" and "SHELLANE" will give the LPGs sold by
REGASCO the general appearance of the products of the petitioners.

In sum, this Court finds that there is sufficient evidence to warrant the prosecution of petitioners for
trademark infringement and unfair competition, considering that petitioner Republic Gas
Corporation, being a corporation, possesses a personality separate and distinct from the person of
its officers, directors and stockholders.12Petitioners, being corporate officers and/or directors,
through whose act, default or omission the corporation commits a crime, may themselves be
individually held answerable for the crime.

Topic: Grounds for Application of the Doctrine of Piercing the Veil of Corporate Fiction

Case No. 62

Atty. Andrea Uy vs Arlene Villanueva

G.R. No. 157851, Jun 29, 2007

Facts:

Countrywide Rural Bank of La Carlota, Inc. (Countrywide Bank) is a private banking corporation
engaged in rural banking and other allied services through its branches nationwide.

Sometime in 1998, Countrywide Bank experienced liquidity problems and its treasury department
was unable to comply with its branches' demands for fresh funds. Its various branches eventually
experienced bank runs.

Several of the bank's depositors were alarmed at the prospect of losing their deposits and
investments. Thus, a group of depositors, holding about 70% of the bank's deposit accounts, met and
agreed to organize themselves into a "Committee of Depositors." Petitioner Felix Yusay was elected
by the Committee as Chairman of the Interim Board of Directors, while petitioner Atty. Andrea Uy
was designated Secretary.

According to petitioners, the Committee was formed for the purpose of protecting their collective
interests and to increase their chances of recovering their deposits. With the consent and approval
of the incumbent Board of Directors, the Committee of Depositors assumed temporary
administrative control of the remaining operations of the bank.
The incumbent Board of Directors informed the Committee that some employees had tendered
courtesy resignations, while some had expressed their willingness to resign upon official request.
The Committee then accepted some of the courtesy resignations.

The Bangko Sentral ng Pilipinas (BSP) subsequently placed the bank under receivership and
appointed a liquidator. Realizing that their bid to rehabilitate the bank had failed, the Committee of
Depositors disbanded.

Eventually, three cases for illegal dismissal were filed against Countrywide Bank before the National
Labor Relations Commission (NLRC).The LA ruled in all three cases against Countryside Bank and in
doing so held petitioners solidarily liable to private respondent.The petitioners appealed the
decision. They argued that they cannot be held solidarily liable to private respondent because they
were mere depositors of the bank and not stockholders. Even assuming that they were stockholders,
they still cannot be held individually liable for the bank's obligations.The NLRC dismissed the
Appeal.The CA likewise dismissed the petition for certiorari file by petitioners.

Issue:

Whether petitioners shoud be held solidarily liable with the bank.

Held:

No. Settled is the rule in this jurisdiction that a corporation is vested by law with a legal personality
separate and distinct from those acting for and in its behalf and, in general, from the people
comprising it.

The general rule is that obligations incurred by the corporation, acting through its directors, officers,
and employees, are its sole liabilities. However, solidary liability may be incurred, but only under the
following exceptional circumstances:

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;

When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto;

When a director, trustee or officer has contractually agreed or stipulated to hold himself personally
and solidarily liable with the corporation; or

When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action.

Not one of these circumstances is present in this case.


Furthermore, the doctrine of piercing the veil of corporate fiction finds no application in the case.
Piercing the veil of corporate fiction may only be done when "the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime.

The general rule is that a corporation will be looked upon as a separate legal entity, unless and until
sufficient reason to the contrary appears. For the separate juridical personality of a corporation to be
disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed.
Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not in itself sufficient ground for disregarding the separate corporate
personality.

In the case at bar, petitioners are not even stockholders of the bank but mere depositors. That they
assumed temporary control of the bank's administration did not change the character of their
relationship with the bank. In fact, their bid to convert their interest in the bank to that of
stockholders failed as the BSP denied their plan to rehabilitate the bank.

Topic: Grounds for the Application of the Doctrine of Piercing the Veil of Corporate Fiction

Case no. 81

Buenaflor C. Umali et al vs Court of Appeals et al

G.R. No. 89561, September 13, 1990

Facts:
When Felipe Castillo died, Mauricia Castillo was appointed as administratix over a parcel of the
former's land. The said land was mortgaged to the Development Bank of the Philippines and was
about to be foreclosed but then Mauricia’s nephew, Santiago Rivera, proposed that they convert the
land into 4 subdivisions so that they can raise the necessary money to avoid foreclosure. Mauricia
agreed. Rivera sought to develop said land through his company, Slobec Realty Corporation (SRC), of
which he was also the president. SRC then contracted with Bormaheco, Inc. for the purchase of one
tractor. Bormaheco agreed to sell the tractor on an installment basis. At the same time, SRC
mortgaged said tractor to Bormaheco as security just in case SRC will default. As additional security,
Mauricia and other family members executed a surety agreement whereby in case of default in
paying said tractor, the Insurance Corporation of the Philippines (ICP) shall pay the balance. The
surety bond agreement between Mauricia and ICP was secured by Mauricia’s parcel of land (same
land to be developed).
SRC defaulted in paying said tractor. Bormaheco foreclosed the tractor but it wasn’t enough hence
ICP paid the deficiency. ICP then foreclosed the property of Mauricia. ICP later sold said property to
Philippine Machinery Parts Manufacturing Corporation (PMPMC). PMPMC then demanded Mauricia
et al to vacate the premises of said property.
While all this was going on, Mauricia died. Her successor-administratrix, Buenaflor Umali, questioned
the foreclosure made by ICP. Umali alleged that all the transactions are void and simulated hence
they were defrauded; that through Bormaheco’s machinations, Mauricia was fooled into entering
into a surety agreement with ICP; that Bormaheco even made the premium payments to ICP for said
surety bond; that the president of Bormaheco is a director of PMPMC; that the counsel who assisted
in all the transactions, Atty. Martin De Guzman, was the legal counsel of ICP, Bormaheco, and
PMPMC.
Issue:
Whether the veil of corporate fiction should be pierced.
Held:
No, the corporate fiction should not be pierced.
Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the
legal fiction that a corporation is an entity with a juridical personality separate and distinct from its
members or stockholders may be disregarded. In such cases, the corporation will be considered as a
mere association of persons. The members or stockholders of the corporation will be considered as
the corporation, that is, liability will attach directly to the officers and stockholders. 12 The doctrine
applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud,
or defend crime, or when it is made as a shield to confuse the legitimate issues 14 or where a
corporation is the mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.
The act of Bormaheco of paying the permium payments to the ICP should not be deemed to
constitute fraud. As it turned out, Bormaheco is an agent of ICP. SRC, through Rivera, agreed that
part of the payment of the mortgage shall be paid for the insurance. Naturally, when Rivera was
paying some portions of the mortgage to Bormaheco, Bormaheco is applying some parts thereof for
the payment of the premium – and this was agreed upon beforehand.
Further, piercing the veil of corporate fiction is not the proper remedy in order that the foreclosure
conducted by ICP be declared a nullity. The nullity may be attacked directly without disregarding the
separate identity of the corporations involved. Further still, Umali et al are not enforcing a claim
against the individual members of the corporations. They are not claiming said members to be liable.
Umali et al are merely questioning the validity of the foreclosure.
The veil of corporate fiction can’t be pierced also by the simple reason that the businesses of two or
more corporations are interrelated, absent sufficient showing that the corporate entity was
purposely used as a shield to defraud creditors and third persons of their rights. In this case, there is
no justification for disregarding their separate personalities.
Topic: Test in determining application of the doctrine of Piercing the Veil of Corporate Fiction

Case No. 100

Adalia Francisco et al vs Rita Mejia

G.R. No. 141617, August 14, 2001

Facts:

Andrea Cordova Gutierrez was the registered owner of a 25-hectare land. Said land was later
subdivided into five lots. In her lifetime, she Cardale Financing and Realty Corporation (Cardale)
executed a deed of sale with mortgage relating to four of the said lots for the sum of P 800,000.00.
Cardale paid Andrea P171, 000.00 as down payment and agreed to pay the balance in several
installments within five years. When Cardale failed to pay the said balance, Andrea filed a case for
rescission of the contract. While said case was pending, Andrea died thus she was substituted by Rita
Mejia as the former's executrix. The case, however, lapsed into an inactive status for about 14 years
due to Cardale's loss of interest in the proceedings. In the meantime, two of the mortgaged parcels
of land became delinquent which culminated in their levy and auction sale while the rescission case
was still pending. The highest bidder in the auction sale is Merryland Development
Corporation(Merryland) whose President and majority stockholder is Franciso who is, at the same
time, the Vice-President and Treasurer of Cardale. Before the expiration of the redemption period,
Mejia filed a motion for decision with the trial court the hearing of which was later on deferred due
to a motion for postponement filed by Cardale through Francisco who signed the motion as office-in-
charge by claiming that Cardale needed more time to hire a new counsel without mentioning the tax
deliquencies and sale in favor of Merryland. Subsequently, when the redemption period expired,
Francisco filed petitions for consolidation of title which then resulted to the issuance of new transfer
certificates of title free from any encumbrance in favor of Merryland for the four lots. This resulted
to the dismissal of the case for rescission on the ground that the issued became moot and academic.
Thus, Mejia as executrix filed with the RTC a complaint for damages with prayer for preliminary
attachment against Francisco, Merryland, and the Register of Deeds. The trial court ruled in favor of
Francisco. The CA reversed the decision of the court a quo holding that the corporate veil of Cardale
and Merryland must be pierced in order to hold Francisco and Merryland solidarily liable since these
two corporations were used as dummies by Francisco, who employed fraud in allowing Cardale to
default on the realty taxes for the properties mortgaged to Gutierrez so that Merryland could
acquire the same free from all liens and encumbrances in the tax delinquency sale and, as a
consequence thereof, frustrating Gutierrez’s rights as a mortgagee over the subject properties.

Issue:

Whether the veil of corporate fiction should be pierced.

Held:

Yes, the said doctrine should be applied in this case.

If any general rule can be laid down, in the present state of authority, it is that a corporation will be
looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears;
but, when the notion of legal entity is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, the law will regard the corporation as an association of persons.

Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the
legal fiction that a corporation is an entity with a juridical personality separate and distinct from its
members or stockholders may be disregarded. In such cases, the corporation will be considered as a
mere association of persons. The members or stockholders of the corporation will be considered as
the corporation, that is, liability will attach directly to the officers and stockholders. The doctrine
applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud,
or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a
corporation is the mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.

With specific regard to corporate officers, the general rule is that the officer cannot be held
personally liable with the corporation, whether civilly or otherwise, for the consequences of his acts,
if he acted for and in behalf of the corporation, within the scope of his authority and in good faith. In
such cases, the officers acts are properly attributed to the corporation. However, if it is proven that
the officer has used the corporate fiction to defraud a third party or that he has acted negligently,
maliciously or in bad faith then the corporate veil shall be lifted and he shall be held personally liable
for the particular corporate obligation involved.
The Court, after an assiduous study of this case, is convinced that the totality of the
circumstances appertaining conduce to the inevitable conclusion that petitioner Francisco acted in
bad faith. The events leading up to the loss by the Gutierrez estate of its mortgage security attest to
this. It has been established that Cardale failed to comply with its obligation to pay the balance of
the purchase price for the four parcels of land it bought from Gutierrez covered by TCT Nos. 7531 to
7534, which obligation was secured by a mortgage upon the lands covered by TCT Nos. 7531, 7532
and 7533. This prompted Gutierrez to file an action for rescission of the Deed of Sale with Mortgage
(Civil Case No. Q-12366), but the case dragged on for about fourteen years when Cardale, as
represented by Francisco, who was Vice-President and Treasurer of the same lost interest in
completing its presentation of evidence.
Even before 1984 when Mejia, in her capacity as executrix of Gutierrezs estate, filed a Motion for
Decision with the trial court, there is no question that Francisco knew that the properties subject of
the mortgage had become tax delinquent. In fact, as treasurer of Cardale, Francisco herself was the
officer charged with the responsibility of paying the realty taxes on the corporations properties. This
was admitted by the trial court in its decision. In addition, notices dated 9 July 1982 from the City
Treasurer of Caloocan demanding payment of the tax arrears on the subject properties and giving
warning that if the realty taxes were not paid within the given period then such properties would be
sold at public auction to satisfy the tax delinquencies were sent directly to Franciscos address in
White Plains, Quezon City. Thus, as early as 1982, Francisco could have informed the Gutierrez estate
or the trial court in Civil Case No. Q-12366 of the tax arrears and of the notice from the City Treasurer
so that the estate could have taken the necessary steps to prevent the auction sale and to protect its
interests in the mortgaged properties, but she did no such thing. Finally, in 1983, the properties were
levied upon and sold at public auction wherein Merryland - a corporation where Francisco is a
stockholder and concurrently acts as President and director - was the highest bidder.
Topic: Articles of Incorporation specifically as to limitations on use of corporate name

Case no. 119

Armco Steel Corporation (Philippines) vs Securities and Exchange Commission and Armco Steel
Coporation (Ohio) et al

G.R. No. L-54580, December 29, 1987

Facts:

Armco Steel Corporation (Armco- Ohio) was organized in Ohio, USA was able to obtain a Certificate
of Registration for its trademark consisting of the word "ARMCO" from the Philippine Patent Office.
It bought 40 percent of the capital stock of a corporation incorporated in the Philippines which is
now ARMCO Marsteel-Alloy Corporation. Both said corporations are engaged in the manufacture of
steel products. Its article of incorporation in part reads as follows as to its purposes: "to
manufacture, process ... and deal in all kinds, form, and combinations of iron, steel or other metals
and all or any products or articles particularly consisting of iron, steel or other metals.

On the other hand ARMCO Steel Corporation (Armco-Philippines) was incorporated in the Philippines
on April 25, 1973, hereinafter called ARMCO-Philippines. A pertinent portion of its articles of
incorporation provides as among its purposes: "to contract, fabricate ... manufacture ... regarding
pipelines, steel frames ...".

Armco-Ohio and Armco-Marsteel filed a petition in the Securities and Exchange Commission to
compel Armco-Philippines to change its corporate name on the ground that it exactly the same as
the name of petitioners. In ruling for Armco-Ohio and Armco-Marsteel, the SEC, in 1975, ordered
Armco-Philippines to remove "Armco" from its corporate name and substitute it with another word.

In compliance with the SEC 1975 order, it amended its articles of incorporation by changing its name
to ARMCO Structures, Inc. which was then approved by SEC. A year later, the SEC issued an order
requiring petitioner to comply with its 1975 order. Responding to said order, petitioner manifested
that it had already changed its name and that it was even approved by SEC. The respondent then
filed a comment that the change of name did not comply with the SEC order since petitioner still
uses the word ARMCO in its corporate name. The SEC then cited petitioner's directors and officers in
contempt for disobeying its 1975 order. Armco- Philippines' appeal was denied by the SEC en banc.

Issue:

Whether Armco-Philippines should be allowed to continue on using "Armco" in its corporate name.

Held:

By mere looking at the names it is clear that the name of petitioner, ARMCO STEEL CORPORATION
(of Ohio, U.S.A.), and that of the respondent, ARMCO STEEL CORPORATION, are not only similar but
Identical and the words "of Ohio, U.S.A.," are being used only to Identify petitioner ARMCO STEEL-
OHIO as a U.S. corporation.

It is indisputable that ARMCO-STEEL-OHIO, having patented the term 'Armco' as part of its
trademark on its steel products, is entitled to protection in the use thereof in the Philippines. The
term "Armco" is now being used on the products being manufactured and sold in this country by
Armco-Marsteel by virtue of its tie-up with ARMCO-STEEL-OHIO. Clearly, the two companies have the
right to the exclusive use and enjoyment of said term.

ARMCO STEEL-PHILIPPINES has not only an identical name but also a similar line of business, as
shown above, as that of ARMCO STEEL- OHIO. People who are buying and using products bearing
the trademark "Armco" might be led to believe that such products are manufactured by the
respondent, when in fact, they might actually be produced by the petitioners. Thus, the goodwill that
should grow and inure to the benefit of petitioners could be impaired and prejudiced by the
continued use of the same term by the respondent.
Topic: Articles of Incorporation specifically as to amendment of the corporate term
Case no. 138
Alhambra Cigar vs. Securities and Exchange Commission
G. R. No. L-23606, July 29, 1968
Facts:
Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc. (hereinafter referred to simply
as Alhambra) was duly incorporated under Philippine laws on January 15, 1912.
By its corporate articles it was to exist for fifty years (50) from incorporation. Its term of existence
expired on January 15, 1962. On that date, it ceased transacting business, entered into a state of
liquidation.
On June 20, 1963 - within Alhambra's three-year statutory period for liquidation - Republic Act 3531
was enacted into law. It amended Section 18 of the Corporation Law; it empowered domestic
private corporations to extend their corporate life beyond the period fixed by the articles of
incorporation for a term not to exceed fifty years in any one instance. Previous to Republic Act 3531,
the maximum non-extendible term of such corporations was fifty years.
On July 15, 1963, at a special meeting, Alhambra's board of directors resolved, to amend paragraph
"Fourth" of its articles of incorporation to extend is corporate life for an additional fifty years, or a
total, of 100 years from its incorporation.
On August 26, 1963 Alhambra's stockholders, representing more than two-thirds of its subscribed
capital stock, voted to approve the foregoing resolution. Alhambra's amended articles of
incorporation were then filed with respondent Securities and Exchange Commission (SEC).
The SEC, however, returned said amended articles of incorporation to Alhambra's counsel with the
ruling that Republic Act 3531 "which took effect only on June 20, 1963, cannot be availed of by the
said corporation, for the reason that its term of existence had already expired when the said law
took effect; in short, said law has no retroactive effect".
Issues:
May a corporation extend its life by amendment of its articles of incorporation effected during the
three-year statutory period for liquidation when its original term of existence had already expired?
Held:
No. Republic let 3531, amending Section 18 of the Corporation Law, is silent, is true, as to when such
act of extension may be made. But even with superficial knowledge of corporate principles, it does
not take much effort to reach a correct conclusion. For, implicit in Section 77 heretofore quoted is
that the privilege given to prolong corporate life under the amendment must be exercised before
the expiry of the term, fixed in the articles of incorporation
Fletcher has written:
"Since the privilege of extension is purely statutory, all of the statutory conditions precedent must
be complied with in order that the extension maybe effectuated. And generally these conditions
must be complied with, and the steps necessary to effect the extension must be taken during the life
of the corporation and before the expiration of its term of existence as originally fixed by its charter
or the general law, such as a rule the corporation is ipso factor dissolved as soon as that time
expires. So where the extension is by amendment of the articles of incorporation, the amendment
must be adopted before that time. And, similarly, the filing and recording of a certificate of
extension after that time cannot relate back to the date of the passage of a resolution by the
stockholders in favor of the extension so as to save the life of the corporation. The contrary is true,
however, and the doctrine of relation will apply, where the delay is due to the neglect of the officer
with whom the certificate is required to be filed, Or to a wrongful refusal on his part to receive
it. And statutes in some states specifically provide that a renewal may be had within a specified time
before or after the time fixed for the termination of the corporate existence".
On this point, we again draw from Fletcher: "There is a broad distinction between the extension of a
charter and the grant of a new one. To renew a charter is to revive a charter which has expired or, in
other words, to give a new existence to one which has been forfeited, or which has lost its vitality by
lapse of time. To extend a charter is to increase the time for the existence of one which would
otherwise reach its limit at an earlier period'" Nowhere in our statute Section 18, Corporation Law, as
amended by Republic Act 3531 - do we find the word "renew" in reference to the authority given to
corporations to protract their lives. Our law limits itself to extension of corporate existence. And, as
so understood, extension may be made only before the term provided in the corporate charter
expires.
Topic: Requisites of valid by laws/Contents/Authority to Elect Additional Officers

Case no.157

Gokongwei vs. Securities and Exchange Commission

G.R. No. L-45911, April 11, 1979

Facts:

John Gokongwei Jr., as stockholder of San Miguel Corporation, filed with the Securities and
Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of
certificate of filing of amended by-laws, injunction and damages with prayer for a preliminary
injunction" against the majority of the members of the Board of Directors and San Miguel
Corporation as an unwilling petitioner. As a first cause of action, Gokongwei alleged that on 18
September 1976, Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio
Buñao, Walthrode B. Conde, Miguel Ortigas, and Antonio Prieto amended by bylaws of the
corporation, basing their authority to do so on a resolution of the stockholders adopted on 13 March
1961, when the outstanding capital stock of the corporation was only P70,139.740.00, divided into
5,513,974 common shares at P10.00 per share and 150,000 preferred shares at P100.00 per share. At
the time of the amendment, the outstanding and paid up shares totalled 30,127,043, with a total par
value of P301,270,430.00.

The petitioner contended that according to section 22 of the Corporation Law and Article VIII of the
by-laws of the corporation, the power to amend, modify, repeal or adopt new by-laws may be
delegated to the Board of Directors only by the affirmative vote of stockholders representing not
less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3 should have
been computed on the basis of the capitalization at the time of the amendment. Since the
amendment was based on the 1961 authorization, Gokongwei contended that the Board acted
without authority and in usurpation of the power of the stockholders.

Private respondents, on the other hand, contend that the disputed amended by-laws were adopted
by the Board of Directors of San Miguel Corporation as a measure of self-defense to protect the
corporation from the clear and present danger that the election of a business competitor to the
Board may cause upon the corporation and the other stockholders "irreparable prejudice."

Issue:

Whether the amendment of the by-laws was valid.

Held:

It is recognized by all authorities that "every corporation has the inherent power to adopt by-laws
'for its internal government, and to regulate the conduct and prescribe the rights and duties of its
members towards itself and among themselves in reference to the management of its affairs.'"[12]
At common law, the rule was "that the power to make and adopt by-laws was inherent in every
corporation as one of its necessary and inseparable legal incidents. And it is settled throughout the
United States that in the absence of positive legislative provisions limiting it, every private
corporation has this inherent power as one of its necessary and inseparable legal incidents,
independent of any specific enabling provision in its charter or in general law, such power of self-
government being essential to enable the corporation to accomplish the purposes of its
creation."[13]

In this jurisdiction, under section 21 of the Corporation Law, a corporation may prescribe in its by-
laws "the qualifications, duties and compensation of directors, officers and employees * * *." This
must necessarily refer to a qualification in addition to that specified by section 30 of the Corporation
Law, which provides that "every director must own in his right at least one share of the capital stock
of the stock corporation of which he is a director * * *." In Government v. El Hogar,[14] the Court
sustained the validity of a provision in the corporate by-law requiring that persons elected to the
Board of Directors must be holders of shares of the paid up value of P5,000.00, which shall be held
as security for their action, on the ground that section 21 of the Corporation Law expressly gives the
power to the corporation to provide in its by-laws for the qualifications of directors and is "highly
prudent and in conformity with good practice."
Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of
incorporation by a vote or written assent of the stockholders representing at least two-thirds of the
subscribed capital stock of the corporation. If the amendment changes, diminishes or restricts the
rights of the existing shareholders, then the dissenting minority has only one right, viz.: "to object
thereto in writing and demand payment for his share." Under section 22 of the same law, the
owners of the majority of the subscribed capital stock may amend or repeal any by-law or adopt new
by-laws. It cannot be said, therefore, that petitioner has a vested right to be elected director, in the
face of the fact that the law at the time such right as stockholder was acquired contained the
prescription that the corporate charter and the by-law shall be subject to amendment, alteration and
modification.

Topic: Coporate Powers – Express, Implied, Incidental Powers

Case no. 176

Teresa Electric and Power Co. vs. Public Service Commission

G.R. No. L-21804, September 25, 1967

Facts:

Petitioner is a domestic corporation operating an electric plant in Rizal under a subsisting certificate
of public convenience and necessity. Respondent Filipinas Cement, on the other hand, is a domestic
corporation engaged in the manufacture and sale of cement. When respondent filed an application
with the PSC for a CPC to install, maintain and operate an electric plant for the purpose of supplying
electric power and light to its own factory and compound, the petitioner opposed contending that it
is the duly authorized operator of electric light and that respondent's purpose does not include the
operation of a power plant. Respondent, on the other hand, argued that the electric service will only
be used for its exclusive needs for manufacturing cement as well as for its employees who stay
within its compound.

Issue:
Whether Filipinas Cement may be allowed to operate a power plant.

Held:

Yes. It appears that the Articles of Incorporation of Filipinas (paragraph 7) provide for authority to
secure from any governmental, state, municipality, or provincial, city or other authority, and to utilize
and dispose of in any lawful manner, rights, powers, privileges, franchises and concessions —
obviously necessary or at least related to the operation of its cement factory. Moreover, said Articles
of Incorporation also provide that the corporation may generally perform any and all acts connected
with the business of manufacturing portland cement or arising therefrom or incidental thereto.

It cannot be denied that the operation of an electric light, heat and power plant is necessarily
connected with the business of manufacturing cement. If in the modern world where we live today
electricity is virtually a necessity for our daily needs, it is more so in the case of industries like the
manufacture of cement.

Topic: Power to deny pre-emptive rights

Case No. 195

Republic of the Philippines vs Sandiganbayan

G.R. No. 128606, December 4, 2000

Facts:

ETPI was one of the corporations sequestered by the Presidential Commission on Good Government
(PCGG). Among its stockholders were Roberto S. Benedicto and UNIMOLCO. Roberto is also a major
stockholder in UNIMOLCO. PCGG and Benedicto entered into a compromise whereby Benedicto
ceded to the government 204,000 shares of stock in ETPI represent his 51% equity therein while the
other 49% were adjudicated to Benedicto and UNIMOLCO.

ETPI's articles of incorporation afford the company as well as the stockholders the right of first
refusal. Article 10 thereof provides that a stockholder who wishes to sell his/her/its shares should first
offer the same to the company and that after 30 days from receipt of the letter containing the offer
to stockholders which shall be given the time to exercise their right of first refusal within 30 days
after the first period. Moreover, it requires that the payment be made only in cash or certified checks
or checks drawn on a Philippine bank or banks.

When UNIMOLCO decided to sell its shares in ETPI, it offered said shares to Melquiades Gutierrez
who is the ETPI's President and Chairperson. The ETPI did not, however, exercised its right to buy
said shares. Thereafter, UNIMOLCO offered the same to the stockholders but petitioners only
received the said offer on August 30, 1996. On July 24, 1996, UNIMOLCO sold its shares to Smart
Communications. Thus, the petitioner filed a case for rescission on the ground that it was denied its
pre-emptive right to purchase said shares of UNIMOLCO. Petitioner argued that the date from which
the 30-day period given to stockholders to exercise their pre-emptive right should be until until
September 26, 1996.

Issue:

Whether petitioner was denied its right to exercise its pre-emptive right.

Held:

No, petitioner was not denied its right to exercise its pre-emptive right.

The Court adopted the finding of the Sandiganbayan that the First Period and the Second Period are
continuous in character because the Second Period ends, in the very words of Article 10 of the ETPI
Articles, thirty (30) days after the First Period, and the expiry date being thirty (30) days after the end
of the First Period. The Second Period, therefore, covered the period from May 24, 1996 to June
24,1996.

Even on the assumption that petitioner exercised its right of first refusal on time, it nonetheless
failed to follow the requirement in the Articles of Incorporation that payment must be tendered in
cash or certified checks or checks drawn on a Philippine bank or banks. The set-off or compensation
it proposed does not fall under any of the recognized modes of payment in the Articles.

Topic: Limitation on Retention of Surplus Profits.

Case no. 214

Nora A. Bitong et al vs Court of Appeals et al

G.R. No. 123553, July 13, 1998

Facts:

Nora Bitong, petitioner, filed a derivative suit in behalf of Mr. & Ms. a corporation existing under the
laws of the Philippines before the SEC against respondent spouses Apostol, who were officers in said
corporation in order to hold them liable for fraud and mismanagement in directing its affairs. The
respondents moved that the case be dismissed on the ground that petitioner had no legal standing
to bring the suit as she is not a stockholder but merely a holder-in-trust of shares of JAKA
Investments which continued to be the true stockholder of Mr. & Ms.

Petitioner contends, among others, that she is a holder of proper stock certificates and that the
transfer was recorded. She further contends that JAKA sold its share in Mr. & Ms. to her and that
even in the absence of the actual certificate, mere recording will suffice for her to exercise all
stockholder rights, including the right to file a derivative suit in the name of the corporation. The SEC
Hearing Panel dismissed the suit. On appeal, the SEC En Banc found for petitioner. CA reversed the
SEC En Banc decision.

Issue:

Whether petitioner is the true holder of stock certificates which would result to her be treated as
stockholder and therefore able to institute a derivative suit.

Held:

No, she is merely a holder-in-trust of the shares of JAKA.

The rule is that the endorsement of the certificate of stock by the owner or his attorney-in-fact or
any other person legally authorized to make the transfer shall be sufficient to effect the transfer of
shares only if the same is coupled with delivery. The delivery of the stock certificate duly endorsed by
the owner is the operative act of transfer of shares from the lawful owner to the new transferee.

Thus, for a valid transfer of stocks, the requirements are as follows: (a) There must be delivery of the
stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or other
persons legally authorized to make the transfer; and, (c) to be valid against third parties, the transfer
must be recorded in the books of the corporation. At most, in the instant case, petitioner has
satisfied only the third requirement. Compliance with the first two requisites has not been clearly
and sufficiently shown.

That JAKA retained its ownership of its Mr. & Ms. shares was clearly shown by its receipt of the
dividends issued in December 1986. This only means, very obviously, that Mr. & Ms. shares in
question still belonged to JAKA and not to petitioner. For, dividends are distributed to stockholders
pursuant to their right to share in corporate profits. When a dividend is declared, it belongs to the
person who is the substantial and beneficial owner of the stock at the time regardless of when the
distribution profit was earned.

Topic: How corporate powers are exercised by the officers.

Case no. 233

People's Aircargo and Warehousing Co. Inc. vs. Court of Appeals

GR 117847, October 7, 1988


Facts:

People's Aircargo and Warehousing Co. Inc. (PAWCI) 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 Stefani Saño for the preparation of a feasibility
study. Saño submitted a letter-proposal dated 17 October 1986 ("First Contract") to Punsalan, for
the project feasibility study (market, technical, and financial feasibility) and preparation of
pertinent documentation requirements for the application, worth P350,000. Initially, Cheng
Yong, the majority stockholder of PAWCI, objected to Saño's offer, as another company priced
a similar proposal at only P15,000.However, Punsalan preferred Saño's services because of the
latter's membership in the task force, which was supervising the transition of the Bureau of
Customs from the Marcos government to the Aquino Administration.

On 17 October 1986, PAWCI, through Punsalan, sent Saño a letter confirming their agreement.
Accordingly, Saño prepared a feasibility study for PAWCI which eventually paid him the balance of
the contract price, although not according to the schedule agreed upon. On 4 December 1986, upon
Punsalan's request, Saño sent PAWCI another letter-proposal ("Second Contract") formalizing
its proposal for consultancy services in the amount of P400,000. On 10 January 1987, Andy Villaceren,
vice president of PAWCI, received the operations manual prepared by Saño.

PAWCI submitted said operations manual to the Bureau of Customs in connection with the former's
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. Saño also conducted, in the third week of January 1987 in the warehouse of
PAWCI, a three-day training seminar for the latter's employees. On 25 March 1987, Saño 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 7
March 1988. Meanwhile, Punsalan sold his shares in PAWCI and resigned as its president in 1987. On 9
February 1988, Saño filed a collection suit against PAWCI. He alleged that he had prepared an
operations manual for PAWCI, conducted a seminar-workshop for its employees and delivered
to it a computer program; but that, despite demand, PAWCI refused to pay him for his services.
PAWCI, in its answer, denied that Saño 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 Saño in order to unlawfully get some
money from PAWCI, 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. The
Regional Trial Court (RTC) of Pasay City, Branch 110, rendered a Decision dated 26 October
1990 declared the Second Contract unenforceable or simulated. However, since Saño had
actually prepared the operations manual and conducted a training seminar for PAWCI and its
employees, the trial court awarded P60,000 to the former, on the ground that no one should be
unjustly enriched at the expense of another (Article 2142, Civil Code). The trial Court determined the
amount "in light of the evidence presented by defendant on the usual charges made by a leading
consultancy firm on similar services." Upon appeal, and on 28 February 1994, the appellate court
modified the decision of the trial court, and declared the Second Contract valid and binding on
PAWCI,which was held liable to Saño in the full amount of P400,000, representing payment of
Saño services in preparing the manual of operations and in the conduct of a seminar for PAWCI. As
no new ground was raised by PAWCI, reconsideration of the decision was denied in the Resolution
promulgated on 28 October 1994. PAWCI filed the Petition for Review.

Issue:

Whether a single instance where the corporation had previously allowed its president to enter into a
contract with another without a board resolution expressly authorizing him, has clothed its
president with apparent authority to execute the subject contract.

Held:

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. Herein, PAWCI, through its president Antonio
Punsalan Jr., entered into the First Contract without first securing board approval. Despite such
lack of board approval, PAWCI did not object to or repudiate said contract, thus "clothing" its
president with the power to bind the corporation. The grant of apparent authority to
Punsalan is evident in the testimony of Yong —senior vice president, treasurer and major
stockholder of PAWCI. The First Contract was consummated, implemented and paid without
a hitch. Hence, Sano should not be faulted for believing that Punsalan's conformity to the
contract in dispute was also binding on petitioner. It is familiar doctrine that if a corporation
knowingly permits one of its officers, or any other agent, to act within the scope of an apparent
authority, it holds him out to the public as possessing the power to do those acts; and thus, the
corporation will, as against anyone who has in good faith dealt with it through such agent, be
estopped from denying the agent's authority. Furthermore, Saño prepared an operations manual
and conducted a seminar for the employees of PAWCI in accordance with their contract. PAWCI
accepted the operations manual, submitted it to the Bureau of Customs and allowed the
seminar for its employees. As a result of its aforementioned actions, PAWCI was given by the Bureau
of Customs a license to operate a bonded warehouse. Granting arguendo then that the Second
Contract was outside the usual powers of the president, PAWCI's ratification of said contract
and acceptance of benefits have made it binding, nonetheless. The enforceability of contracts
under Article 1403(2) is ratified "by the acceptance of benefits under them" under Article 1405.
Topic: Compensation (Section 30)

Case no. 252

Western Institute of Technology, Incorporated et al vs Antonio Salas

G.R. No. 113032, August 21, 1997

Facts:

Respondents are the majority and controlling members of the Board of Trustees of petitioner
corporation which is a stock corporation engaged in the operation, among others, of an educational
institution. Then, the board of directors amended their bylaws giving the members of board of
directors a compensation. The ten per centum of the net profits shall be distributed equally among
the ten members of the Board of Trustees. Few years later, the private respondents were charged of
falsification of public documents and estafa. The charge for falsification of public document was
anchored on the private respondents’ submission of WIT’s income statement for the fiscal year 1985-
1986 with the Securities and Exchange Commission (SEC) reflecting therein the disbursement of
corporate funds making it appear that the same was passed by the board on March 30, 1986, when in
truth, the same was actually passed on June 1, 1986, a date not covered by the corporation’s fiscal
year 1985-1986. After a full-blown hearing TC handed down a verdict of acquittal on both counts
without imposing any civil liability against the accused therein.
Issue:

Whether the compensation of the board of directors as stated in their bylaws violates the
corporation code.

Held:

No. When the directors or trustees, as the case may be, in performing nothing more than the usual
and ordinary duties of their office are not entitled to salary or other compensation. This rule is
founded upon a presumption that directors/trustees render service gratuitously, and that the return
upon their shares adequately furnishes the motives for service, without compensation.

Under the foregoing section, there are only two (2) ways by which members of the board can be
granted compensation apart from reasonable per diems: (1) when there is a provision in the by-laws
fixing their compensation; and (2) when the stockholders representing a majority of the outstanding
capital stock at a regular or special stockholders’ meeting agree to give it to them. In the case at
bench, Resolution No. 48, s. 1986 granted monthly compensation to private respondents not in their
capacity as members of the board, but rather as officers of the corporation, more particularly as
Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute of Technology. Clearly,
therefore, the prohibition with respect to granting compensation to corporate directors/trustees as
such under Section 30 is not violated in this particular case.

Topic: Qualifications and disqualifications; Authority and Liabilities

Case no. 271

Leslie Okol vs Slimmers World International

G.R. No. 160146, December 11, 2009

Facts:
Respondent Slimmers World International operating under the name Behavior Modifications, Inc.
(Slimmers World) employed petitioner Leslie Okol (Okol) as a management trainee. She rose up the
ranks to become Head Office Manager and then Director and Vice President until her dismissal. Prior
to Okol's dismissal, Slimmers World preventively suspended Okol. The suspension arose from the
seizure by the Bureau of Customs of seven Precor elliptical machines and seven Precor treadmills
belonging to or consigned to Slimmers World. The shipment of the equipment was placed under the
names of Okol and two customs brokers for a value less than US$500. For being undervalued, the
equipment was seized. Ultimately, Slimmers World terminated Okol's employment.
Okol filed a complaint with the Arbitration branch of the NLRC against Slimmers World, Behavior
Modifications, Inc. and Moy (collectively called respondents) for illegal suspension, illegal dismissal,
unpaid commissions, damages and attorney's fees, with prayer for reinstatement and payment of
backwages. Respondents filed a Motion to Dismiss on the ground that NLRC has no jurisdiction.
The labor arbiter granted the motion to dismiss. It ruled that Okol was the vice-president of Slimmers
World at the time of her dismissal. Since it involved a corporate officer, the dispute was an intra-
corporate controversy falling outside the jurisdiction of the Arbitration branch. The NLRC reversed
and set aside the labor arbiter's order. The Court of Appeals ruled that the case, being an intra-
corporate dispute, falls within the jurisdiction of the regular courts pursuant to Republic Act No.
8799.
Issues:
The issue is whether or not the NLRC has jurisdiction over the illegal dismissal case filed by petitioner.
Held:
Petitioner insists that the Court of Appeals erred in ruling that she was a corporate officer and that
the case is an intra-corporate dispute falling within the jurisdiction of the regular courts. Petitioner
asserts that even as vice-president, the work that she performed conforms to that of an employee
rather than a corporate officer. Mere title or designation in a corporation will not, by itself,
determine the existence of an employer-employee relationship. It is the "four-fold" test, namely (1)
the power to hire, (2) the payment of wages, (3) the power to dismiss, and (4) the power to control,
which must be applied.
The issue revolves mainly on whether petitioner was an employee or a corporate officer of Slimmers
World. Section 25 of the Corporation Code enumerates corporate officers as the president,
secretary, treasurer and such other officers as may be provided for in the by-laws. In Tabang v.
NLRC,[12] we held that an "office" is created by the charter of the corporation and the officer is
elected by the directors or stockholders. On the other hand, an "employee" usually occupies no
office and generally is employed not by action of the directors or stockholders but by the managing
officer of the corporation who also determines the compensation to be paid to such employee.
The relevant portions of the Amended By-Laws of Slimmers World which enumerate the power of
the board of directors as well as the officers of the corporation state:

4. Vice-President - Like the Chairman of the Board and the President, the Vice-President shall be
elected by the Board of Directors from [its] own members.

The Vice-President shall be vested with all the powers and authority and is required to perform all the
duties of the President during the absence of the latter for any cause.
The Vice-President will perform such duties as the Board of Directors may impose upon him from
time to time.
Clearly, from the documents submitted by respondents, petitioner was a director and officer of
Slimmers World. The charges of illegal suspension, illegal dismissal, unpaid commissions,
reinstatement and back wages imputed by petitioner against respondents fall squarely within... the
ambit of intra-corporate disputes. In a number of cases, we have held that a corporate officer's
dismissal is always a corporate act, or an intra-corporate controversy which arises between a
stockholder and a corporation. The question of remuneration involving a stockholder and officer, not
a mere employee, is not a simple labor problem but a matter that comes within the area of corporate
affairs and management and is a corporate controversy in contemplation of the Corporation Code.
Topic: Doctrine of Apparent Authority
Case No. 290

Rural Bank of Milaor vs Ocfemia


G.R. No. 137686; February 8, 2000

Facts:
Marife O. Niño claims that she is the daughter of Francisca Ocfemia and the late Renato Ocfemia
who died on July 23, 1994. The parents of her father, Renato Ocfemia, were Juanita Arellano Ocfemia
and Felicisimo Ocfemia.
Marife O. Niño knows the five (5) parcels of land which are located in Bombon, Camarines Sur and
that they are the ones possessing them which were originally owned by her grandparents. During
the lifetime of her grandparents, respondents mortgaged the said five (5) parcels of land and two (2)
others to the Rural Bank of Milaor.
The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able to redeem the
mortgaged properties consisting of 7 parcels of land and so the mortgage was foreclosed and
thereafter ownership thereof was transferred to the bank. Out of the 7 parcels that were foreclosed,
5 of them are in the possession of the respondents because these 5 parcels of land were sold by the
bank to the parents of Marife O. Niño as evidenced by a Deed of Sale executed in January 1988.
The aforementioned 5 parcels of land subject of the deed of sale, have not been, however
transferred in the name of the parents of Merife O. Niño after they were sold to her parents by the
bank because according to the Assessor's Office the five (5) parcels of land, subject of the sale,
cannot be transferred in the name of the buyers as there is a need to have the document of sale
registered with the Register of Deeds of Camarines Sur.
In view of the foregoing, Marife O. Niño went to the Register of Deeds of Camarines Sur with the
Deed of Sale in order to have the same registered. The Register of Deeds, however, informed her
that the document of sale cannot be registered without a board resolution of the Bank. Marife Niño
then went to the bank, showed to it the Deed of Sale, the tax declaration and receipt of tax
payments and requested the bank for a board resolution so that the property can be transferred to
the name of Renato Ocfemia the husband of petitioner Francisca Ocfemia and the father of the other
respondents having died already.
Despite several requests, the bank refused her request for a board resolution and made many alibis.
She was told that the bank had a new manager and it had no record of the sale.
Issue:
Whether the board of directors of a rural banking corporation be compelled to confirm a deed of
absolute sale of real property which deed of sale was executed by the bank manager without prior
authority of the board of directors of the rural banking corporation
Held:
Yes, the board of directors can be compelled to confirm a deed of absolute sale even though the
bank manager executed such deed without prior authority from the banking corporation.
The Supreme Court ruled that the bank acknowledged, by its own acts or failure to act, the authority
of the manager to enter into binding contracts. After the execution of the Deed of Sale, respondents
occupied the properties in dispute and paid the real estate taxes due thereon. If the bank
management believed that it had title to the property, it should have taken some measures to
prevent the infringement or invasion of its title thereto and possession thereof.
In this light, the bank is estopped from questioning the authority of the bank manager to enter into
the contract of sale. If a corporation knowingly permits one of its officers or any other agent to act
within the scope of an apparent authority, it holds the agent out to the public as possessing the
power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt
with it through such agent, be estopped from denying the agent's authority.
Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly, it has a
clear legal duty to issue the board resolution sought by respondents. Having authorized her to sell
the property, it behooves the bank to confirm the Deed of Sale so that the buyers may enjoy its full
use.

Topic: Business Judgment Rule


Case no. 309
Castillo vs Balinghasay
G.R. No. 150976, October 18, 2004

Facts:
Shares in Medical Center Paranaque, Inc were divided into two class which are classes A and B.
Petitioners hold Class B shares while respondents hold Class A. When the corporation was
incorporated, the old Corporation Code was still in effect. The Articles of Incorporation of MCPI
provided that only holders of Class A shares have the right to vote and elect as directors or as
corporate officers.
In the past, MCPI had seen Class B shareholders elected and served as board members. However,
during an annual meeting in 2001, respondent declared that no Class B shareholders are qualified.
Petitioner opposed this claiming that it Article VII is null and void for depriving them of their right to
vote and be voted upon in violation of the Corporation Code.
Issue:
May the holder of Class B shares of the MCPI be deprived of the right to vote and be vote upon.
Held:
No. When Article VII was amended in 1992, the phrase "except when otherwise provided by law"
was inserted in the provision governing the grant of voting powers to class A shareholders. The law
referred thereto is the Corporation Code and no other law. The right of a corporation to classify its
shares of stock was sanction in the old and the new Corporation Code. In Sec. 6 of B.P. 68, the
requirements and restrictions on voting rights were explicitly provided for such that no share may be
deprived of voting rights except those classified and issued as preferred or redeemable shares and
that there shall always be a class of series of shares which have complete voting rights. Hence, it
necessarily follows that unless Class B shares in MCPI are clearly categorized to be preferred or
redeemable shares, the holders of Class B shares may not be deprived of their voting rights.

Topic: Personal liabilities of directors and other corporate officers


Case no. 328
Ernestina Crisologo-Jose vs CA
G.R. No. 80599, September 15, 1989
Facts:
To accommodate Spouses Ong, the president of Movers Enterprises, issued a check in favor
of petitioner Crisologo-Jose. This was in consideration of a quitclaim by petitioner over a parcel of
land, which the GSIS agreed to sell to spouses Ong, with the understanding that upon approval
of the compromise agreement, the check will be encashed accordingly. As the compromise
agreement wasn't approved during the expected period of time, the aforesaid check was replaced
with another one for the same value. Upon deposit though of the checks by petitioner, it was
dishonored. This prompted the petitioner to file a case against Atty. Bernares and Santos for
violation of BP22. Meanwhile, during the preliminary investigation, Santos tried to tender a
cashier’s check for the value of the dishonored check but petitioner refused to accept such. This
was consigned by Santos with the clerk of court and he instituted charges against petitioner. The
trial court held that consignation wasn't applicable to the case at bar but was reversed by the CA.
Issue:
Whether Santos should be is personally liable.
Held:
Yes.Petitioner averred that it is not Santos who is the accommodation party to the instrument but
the corporation itself. But assuming arguendo that the corporation is the accommodation party, it
cannot be held liable to the check issued in favor of petitioner. The rule on accommodation
party doesn't include or apply to corporations which are accommodation parties. This is because the
issue or indorsement of another is ultra vires. Hence, one who has taken the instrument with
knowledge of the accommodation nature thereof cannot recover against a corporation where it
is only an accommodation party. If the form of the instrument, or the nature of the transaction, is
such as to charge the indorsee with the knowledge that the issue or indorsement of the
instrument by the corporation is for the accommodation of another, he cannot recover against
the corporation thereon.
By way of exception, an officer or agent of a corporation shall have the power to execute or
indorse a negotiable paper in the name of the corporation for the accommodation of a third
party only is specifically authorized to do so. Corollarily, corporate officers have no power to
execute for mere accommodation a negotiable instrument of the corporation for their
individual debts and transactions arising from or in relation to matters in which the
corporation has no legitimate concern. Since such accommodation paper cannot be
enforced against the corporation, the signatories thereof shall be personally liable therefore, as
well as the consequences arising from their acts in connection therewith.

Topic: Liability for Watered Stocks


Case no. 347
Lirag Textile Mills, Inc. vs Social Security System
G.R. no. L-33205, August 31, 1987
Facts:
The respondent and petitioner entered into a Purchase Agreement under which respondent agreed
to purchase preferred shares of stock worth P 1,000,000.00. Respondent paid P 500,000.00 and was
issued 5,000 preferred shares with a par value of P 100.00 per share. At a later time it again paid
P500,000.00 and was given 5,000 shares. Since the said contract gave petitioner the right to
repuchase, petitioner was allowed to repurchase the shares in interval of 1 year. To guarantee the
redemption of the stocks, the payment of dividends as well as other obligations of petitioner, Basilio
Lirag signed the Purchase Agreement not only as president of Lirag Textile but also as surety so that
should petitioner fail to perform any of its obligation, the surety shall immediately pay respondent
the amounts then outstanding. Petitioner, however, failed to redeem the shares and has not paid
dividends in the amounts and within the period said forth in the agreement. Petitioner argued that it
failed to redeem the shares and pay dividends due to business reverses.Thus, the respondent filed an
action for specific performance against petitioner.The lower court, ruling that the purchase
agreement was a debt instrument, decided in favor of SSS and sentenced Lirag Textile Mills, Inc. and
Basilio L. Lirag to pay SSS jointly and severally P1,000,000.00 plus legal interest until the said amount
is fully paid.
Issue:
Whether the Purchase Agreement entered into by petitioners and respondent SSS is a debt
instrument.
Held:
We uphold the lower court's finding that the Purchase Agreement is, indeed, a debt instrument. Its
terms and conditions unmistakably show that the parties intended the repurchase of the preferred
shares on the respective scheduled dates to be an absolute obligation which does not depend upon
the financial ability of petitioner corporation. This absolute obligation on the part of petitioner
corporation is made manifest by the fact that a surety was required to see to it that the obligation is
fulfilled in the event of the principal debtor's inability to do so. The unconditional undertaking of
petitioner corporation to redeem the preferred shares at the specified dates constitutes a debt
which is defined "as an obligation to pay money at some fixed future time, or at a time which
becomes definite and fixed by acts of either party and which they expressly or impliedly, agree to
perform in the contract. 2
A stockholder sinks or swims with the corporation and there is no obligation to return the value of
his shares by means of repurchase if the corporation incurs losses and financial reverses, much less
guarantee such repurchase through a surety.

Topic: Derivative Suit: Remedies to Enforce Personal Liability


Case no. 366
Harrie Everett et al vs The Asia Banking Corporation et al
G.R. No. L-25241, November 3, 1926

Facts:
The petitioners were the former directors of Teal and Company. They were allegedly removed from
their positions as such through fraudulent acts of respondent herein. Having no way for them to
check on the acts of the respondent which took over the operations of Teal and Company
Corporation. They request that the respondents give them the records of all and every one of their
acts and transactions with respect to Teal and Company since the same was taken by respondents
adding and including a full and true discovery of all sales of the property of Teal and Company of
every kind and nature with the full and true consideration received in every case, the amount
received from any compromise entered into by them in the name of Teal and Company and the true
consideration therefor.The lower court dismissed the complaint and sustained the demurrer filed by
respondents. It held that the complaint is vague and unintelligible and that Teal and Company should
have been joined as party plaintiff.
Issue:
Whether the trial court erred in dismissing the case on the ground that the petitioners are not
stockholders in Teal and Company.
Held:
Invoking the well-known rule that shareholders cannot ordinarily sue in equity to redress wrongs
done to the corporation, but that the action must be brought by the Board of Directors, the
appellees argue — and the court below held — that the corporation Teal and Company is a
necessary party plaintiff and that the plaintiff stockholders, not having made any demand on the
Board to bring the action, are not the proper parties plaintiff. But, like most rules, the rule in
question has its exceptions. It is alleged in the complaint and, consequently, admitted through the
demurrer that the corporation Teal and Company is under the complete control of the principal
defendants in the case, and, in these circumstances, it is obvious that a demand upon the Board of
Directors to institute an action and prosecute the same effectively would have been useless, and the
law does not require litigants to perform useless acts.
The conclusion of the court below that the plaintiffs, not being stockholders in the Philippine Motors
Corporation, had no legal right to proceed against that corporation in the manner suggested in the
complaint evidently rest upon a misconception of the character of the action. In this proceeding it
was necessary for the plaintiffs to set forth in full the history of the various transactions which
eventually led to the alleged loss of their property and, in making a full disclosure, references to the
Philippine Motors Corporation appear to have been inevitable. It is to be noted that the plaintiffs
seek no judgment against the corporation itself at this stage of the proceedings.