Topic: Classifications of Corporations

Case No. 17

The Veterans Federation of the Philippines vs.

Hon. Angelo T. Reyes in his capacity as Secretary of National Defense; and Hon. Edgardo E. Batenga
in his capacity as Undersecretary for Civil Relations and Administration of the Department of
National Defense
G. R. No. 155027, February 28, 2006

Facts:

Petitioner Veterans Federation of the Philippines (VFP) is a corporate body organized under
Republic Act No. 2640. Sometime in August 2002, petitioner received a letter from Undersecretary
Angelo Reyes (Reyes) of the Department of National Defense (DND) to conduct Management Audit
of VFP pursuant to RA 2640, where it stated that VFP is under the supervision and control of the
Secretary of National Defense. The petitioner complained about the broadness of audit and
requested suspension until issues are threshed out, which was subsequently denied by Reyes. As a
result, petitioner sought relief under Rule 65 of the Rules of Court assailing that it is a private non-
government corporation.

Issue:

Is the Veterans Federation of the Philippines a public corporation?

Held:

Yes, the Veterans Federation of the Philippines is a public corporation. In the case of Laurel
v. Desierto, public office is defined as the right, authority and duty, created and conferred by law, by
which, for a given period, is invested with some portion of the sovereign functions of the
government, to be exercised for the benefit of the public.

In the instant case, the functions of the VFP which is “the protection of the interests of war
veterans which promotes social justice and reward patriotism,” certainly falls within the category of
sovereign functions. The fact that VFP has no budgetary appropriation is only a product of
erroneous application of the law by public officers in the DBM which will not bar subsequent correct
application.

Hence, placing it under the control and supervision of DND is proper.

Topic: Doctrine of Separate Juridical Personality/ Doctrine of Corporate Entity

Case No. 36
Harry Stonehill, Robert Brooks, John Brooks and Karl Beck
vs. Hon. Jose Diokno
GR No. L-19550, June 19, 1967

Facts:

Respondents prosecutors and several judges issued a total of 42 search warrants against
petitioners and/or the corporations of which they were officers, to search “books of accounts,
financial records, vouchers, correspondence, receipts, ledgers, journals, portfolios, credit journals,
typewriters, and other documents and/or papers showing all business transactions including
disbursements receipts, balance sheets and profit and loss statements and Bobbins (cigarette
wrappers),” as “the subject of the offense; stolen or embezzled and proceeds or fruits of the
offense,” or “used or intended to be used as the means of committing the offense,” which is
described in the applications adverted to above as “violation of Central Bank Laws, Tariff and
Customs Laws, Internal Revenue (Code) and the Revised Penal Code.”

The petitioner contended that the search warrants are null and void as their issuance violated
the Constitution and the Rules of Court for being general warrants.

The documents, papers, and things seized under the alleged authority of the warrants in
question may be split into two (2) major groups, namely: (a) those found and seized in the offices of
the aforementioned corporations, and (b) those found and seized in the residences of petitioners
herein.

Issue:
Can petitioners validly assail the search warrant against the corporation?

Held:

As regards the first group, the Supreme Court held that petitioners have no cause of action
to assail the legality of the contested warrants and of the seizures made in pursuance thereof, for
the simple reason that said corporations have their respective personalities, separate and distinct
from the personality of the petitioners, regardless of the amount of shares of stock or of the interest
of each of them in said corporations, and whatever the offices they hold therein may be. Indeed, it is
well settled that the legality of a seizure can be contested only by the party whose rights have been
impaired thereby, and that the objection to an unlawful search and seizure is purely personal and
cannot be availed of by third parties. Consequently, petitioners herein may not validly object to the
use in evidence against them of the documents, papers and things seized from the offices and
premises of the corporations adverted to above, since the right to object to the admission of said
papers in evidence belongs exclusively to the corporations, to whom the seized effects belong, and
may not be invoked by the corporate officers in proceedings against them in their individual capacity.
Topic: Doctrine of Piercing the Veil of Corporate Fiction

Case No. 55
Dennis T. Gabionza vs. Court of Appeals
G.R. No. 161057, September 12, 2008

Facts:

Betty Go Gabionza (Gabionza) and Isabelita Tan (Tan) filed a complaint charging respondents
Luke Roxas (Roxas) and Evelyn Nolasco (Nolasco) with several criminal acts. Roxas was the
president of ASB Holdings, Inc. (ASBHI) while Nolasco was the senior vice president and treasurer of
the same corporation. Gabionza and Tan had previously placed monetary investment with the Bank
of Southeast Asia (BSA). They alleged that they were convinced by the officers of ASBHI to lend or
deposit money with the corporation. they were issued receipts reflecting the name “ASB Realty
Development” which they were told was the same entity as BSA or was connected therewith but
beginning in March 1998, the receipts were issued in the name of ASBHI. DBS Bank started to refuse
to pay for the checks purportedly by virtue of “stop payment” orders from ASBHI. ASBHI filed a
petition for rehabilitation and receivership with the Securities and Exchange Commission (SEC), and
it was able to obtain an order enjoining it from paying its outstanding liabilities. This lead to the filing
of complaints by the petitioners and others against ASBHI. The complaints were for estafa under
Article 315(2)(a) and (2)(d) of the Revised Penal Code, estafa under Presidential Decree No. 1689,
violation of the Revised Securities Act and violation of the General Banking Act.

Task Force on Financial Fraud (Task Force) was created by the Department of Justice (DOJ)
which dismissed the said complaints. Such dismissal was concurred by the in by the assistant chief
state prosecutor and approved by the chief state prosecutor. Petitioners filed a motion for
reconsideration but it was denied.

With respect to the charges of estafa under Article 315(2) of the Revised Penal Code and of
violation of the Revised Securities Act the Task Force concluded that the subject transactions were
loans which gave rise only to civil liability; that petitioners were satisfied with the arrangement x x x;
that petitioners never directly dealt with Nolasco and Roxas; and that a check was not a security as
contemplated by the Revised Securities Act. However, the DOJ made a Resolution alleging that it
also made it clear that the false representations have been made to petitioners prior to or
simultaneously with the commission of the fraud. The assurance given to them by ASBHI that it is a
worthy credit partner occurred before they parted with their money. Relevantly, ASBHI is not the
entity with whom petitioners initially transacted with, and they averred that they had to be
convinced with such representations that Roxas and the same group behind BSA were also involved
with ASBHI.

Issue:

Can the charges against the corporation also be pinned against Roxas and Nolasco?

Held:

Yes. The charges against the corporation can be pinned against Roxas and Nolasco.
 The material misrepresentations have been made by the agents or employees of ASBHI to
petitioners, to the effect that the corporation was structurally sound and financially able to
undertake the series of loan transactions that it induced petitioners to enter into.

The false representations made by the ASB agents who dealt with the complainant-
petitioners and who inveigled them into investing their funds in ASB are properly imputable to
respondents Roxas and Nolasco, because they, as ASB’s president and senior vice
president/treasurer, respectively, respectively, in charge of its operations, directed its agents to
make the false representations to the public, including the complainant-petitioners, in order to
convince them to invest their moneys in ASB. It is difficult to make a different conclusion, judging
from the fact that respondents Roxas and Nolasco authorized and accepted for ASB the fraud-
induced loans.
Topic: Doctrine of Piercing the Veil of Corporate Fiction

Case No. 74

San Juan Steel and Structural Fabricators, Inc. vs. Court of Appeals
G.R. No. 129459, September 29, 1998

Facts:

San Juan Structural and Steel Fabricators entered into an agreement with Motorich Sales
Corporation through Nenita Gruenberg, corporate treasurer of Motorich, for the transfer to the
former a parcel of land upon a P100,000 earnest money, balance to be payable within March 2, 1989.
Upon payment of the earnest money, and on March 1, 1989, San Juan allegedly asked to be
submitted a computation of the balance due to Motorich. The latter, despite repeated demands,
refused to execute the Deed of Assignment of the land. San Juan discovered that Motorich entered
into a Deed of Absolute Sale of the land to ACL Development Corporation. Hence, San Juan filed a
complaint with the RTC.

On the other hand, Motorich contends that since Nenita Gruenberg was only the treasurer of
said corporation, and that its president, Reynaldo Gruenberg, did not sign the agreement entered
into by San Juan and Motorich, the treasurer’s signature was inadequate to bind Motorich to the
agreement. Furthermore, Nenita contended that since San Juan was not able to pay within the
stipulated period, no deed of assignment could be made. The deed was agreed to be executed only
after receipt of the cash payment, and since according to Nenita, no cash payment was made on the
due date, no deed could have been executed.

The RTC dismissed the case holding that Nenita Gruenberg was not authorized by Motorich
to enter into said contract with San Juan, and that a majority vote of the BoD was necessary to sell
assets of the corporation in accordance with Sec. 40 of the Corporation Code. CA affirmed this
decision.

Issue:
Can there be a piercing of the veil of corporate fiction?

Held:

No. There can be no piercing of the veil of corporate fiction.

San Juan argues that the veil of corporate fiction should be pierced because the spouses
Reynaldo and Nenita Gruenberg own 99.96% of the subscribed capital stock; they needed no
authorization from the Board of Directors to enter into the said contract.

The veil can only be disregarded when it is utilized as a shield to commit fraud, illegality or
inequity, defeat public convenience, confuse legitimate issues, or serve as a mere alter ego or
business conduit of a person or an instrumentality, agency or adjunct of another corporation. Hence,
the question of piercing the veil becomes a matter of proof. In the case at bar, the Supreme found
no reason to pierce the veil. San Juan failed to establish that said corporation was formed for the
purpose of shielding any fraudulent act of its officers and stockholders.
Topic: Test in Determining Applicability

Case No. 93
Pamplona Plantation vs. Tinghil
G.R. No. 159121, February 3, 2005

Facts:

Pamplona Plantations Company, Inc. (petitioner) was organized in 1993 for the purpose of
taking over the operations of the coconut and sugar plantation of Hacienda Pamplona. The Hacienda
was formerly owned by Mr. Bower who had in his employ several agricultural workers. When the
company took over the operation of Hacienda Pamplona, it did not absorb all the workers of the
Hacienda. Some, however, were hired by the company during harvest season as coconut hookers or
sakador, coconut filers, coconut haulers, coconut scoopers or lugiteros, and charcoal makers. In
1995, Pamplona Plantation Leisure Corporation was established for the purpose of engaging in the
business of operating tourist resorts, hotels, and inns, with complementary facilities, such as
restaurants, bars, boutiques, service shops, entertainment, golf courses, tennis courts, and other
land and aquatic sports and leisure facilities. The Pamplona Plantation Labor Independent Union
(PAPLIU) conducted an organizational meeting wherein several respondents who are either union
members or officers participated in said meeting. Upon learning that some of the respondents
attended the said meeting, Petitioner Bondoc, manager of the company, did not allow them to work
anymore in the plantation. Thereafter, respondents filed their labor complaints with the NLRC
against petitioners. Carlito Tinghil amended his complaint to implead Pamplona Plantation Leisure
Corporation.

Issue:

Can the protective shroud that distinguishes one corporation from a seemingly separate one
be cast-aside by the courts to reveal its true nature?

Held:

Yes. The following instances are grounds provided by the Supreme Court for piercing the
corporate veil:

1. The corporate mask may be removed and the corporate veil pierced when a corporation is
the mere alter ego of another (Heirs of Ramon Durano Sr. v. Uy, 344 SCRA 238, October 24, 2000);

2. Where badges of fraud exist, where public convenience is defeated, where a wrong is sought
to be justified thereby, or where a separate corporate identity is used to evade financial obligations
to employees or to third parties and the factual truth upheld (Concept Builders, Inc. v. NLRC, 257
SCRA 149, May 29, 1996);

When any or all of the above instances happens, the corporate character is not necessarily
abrogated. It continues for other legitimate objectives.

In the case at bar, the corporations have basically the same incorporators and directors and
are headed by the same official. Both use only one office and one payroll and are under one
management. In their individual Affidavits, respondents allege that they worked under the
supervision and control of Petitioner Bondoc, who is the common managing director of both the
petitioner-company and the leisure corporation. Some of the laborers of the plantation also work in
the golf course. Thus, the attempt to make the two corporations appear as two separate entities,
insofar as the workers are concerned, should be viewed as a devious but obvious means to defeat
the ends of the law. Such a ploy should not be permitted to cloud the truth and perpetrate an
injustice.
Topic: Incorporation and Organization Proper, Subscription Contract

Case No. 112

Bayla vs. Silang Traffic
G.R. Nos. L-48195 and 48196, May 1, 1942

Facts:

Petitioners purchased their respective shares at a purchase price to be paid 5% upon the
execution of the contract and the remainder in installments of 5%, payable within the 1st month of
each and every quarter starting July 1, 1935, with interest on deferred payments at 6% per annum
until paid. They also agreed to forfeit in favor of seller in case of default without court proceedings. A
Board resolution Aug 1, 1937 later on was issued rescinding the agreement. Petitioners thereafter
filed an action against Silang Traffic Co. to recover certain sum of money which they had paid
severally to the corporation on account of shares of stock they individually agreed to take and pay
for under certain conditions. The petitioners Sofronio T. Bayla, Josefa Naval, and Paz Toledo in their
defense stated that the resolution is not applicable to them because on the date thereof "their
subscribed shares of stock had already automatically reverted to the defendant, and the installments
paid by them had already been forfeited" and that said resolution was revoked and cancelled by a
subsequent resolution.

Issue:

Is the subsequent BOD resolution is valid?

Held:

No. The noted agreement is entitled "Agreement for Installment Sale of Shares in the Silang
Traffic Company, Inc.,” that while the purchaser is designated as "subscriber," the corporation is
described as "seller". Whether a particular contract is a subscription or a sale of stock is a matter of
construction and depends upon its terms and the intention of the parties. Subscription is defined as
the mutual agreement of the subscribers to take and pay for the stock of a corporation. Purchase is
the independent agreement between the individual and the corporation to buy shares of stock from
it at stipulated price. The rules governing subscriptions and sales of shares are different. Corporation
Law regarding calls for unpaid subscription and assessment of stock (sections 37-50) do not apply to
a purchase of stock. The corporation has no legal capacity to release an original subscriber to its
capital stock from the obligation to pay for his shares, is inapplicable to a contract of purchase of
shares. The contract in question being one of purchase and not subscription as we have heretofore
pointed out, we see no legal impediment to its rescission by agreement of the parties. The Supreme
Court even held that there is no intimation in this case that the corporation was insolvent, or that the
right of any creditor of the same was in any way prejudiced by the rescission. The attempted
revocation of said rescission by the resolution of August 22, 1937, was invalid, it not having been
agreed to by the petitioners.
Topic: Incorporation and Organization Proper, Primary Purpose

Case No. 131

Uy Siulong vs. Director
G.R. No. L-15429, December 1, 1919

Facts:

Petitioners have been members of said partnership of "Siulong y Cia.," desired to dissolve the
partnership and to form a corporation composed of the same persons as incorporators, to be known
as "Siulong y Compañia, Incorporada;" That the purpose of said corporation, "Siuliong y Cia.,Inc.," is
to acquire the business of the partnership theretofore known as Siuliong & Co., and to continue said
business with some of its objects or purposes; An examination of the articles of incorporation of the
said "Siuliong y Compañia, Incorporada" (Exhibit A) shows that it is to be organized for the purchase
and sale, importation and exportation, of the products of the country as well as of foreign countries;
To discount promissory notes, bills of exchange, and other negotiable instruments; The purchase and
sale of bills of exchange, bonds, stocks, or joint account of mercantile and industrial associations and
of all classes of mercantile documents; commissions, consignments;". The respondent contends (a)
that the proposed articles of incorporation presented for file and registry permitted the petitioners
to engage in a business which had for its end more than one purpose; (b) that it permitted the
petitioners to engage in the banking business, and (c) to deal in real estate, in violation of the Act of
Congress of July 1, 1902. The petitioners, insisted that said proposed articles of incorporation do not
permit it to enter into the banking business nor to engage in the purchase and sale of real estate in
violation of said Act of Congress, expressly renounced in open court their right to engage in such
business under their articles of incorporation, even though said articles might be interpreted in a way
to authorize them to do.

Issue:

Can a corporation organized for commercial purposes in the Philippine Islands be organized
for more than one purpose?

Held:

Yes. Considering the purposes and objects of the proposed articles of incorporation which
are enumerated, we are of the opinion that it contains nothing which violates in the slightest degree
any of the provisions of the laws of the Philippine Islands, and the petitioners are, therefore, entitled
to have such articles of incorporation filed and registered as prayed for by them and to have issued
to them a certificate under the seal of the office of the respondent, setting forth that such articles of
incorporation have been duly filed in his office.
Topic: Treasury Shares

Case No. 150

CIR vs. Manning

G.R. No. L-28398, August 6, 1975

Facts:

MANTRASCO had an authorized capital stock of P2,500,000 divided into 25,000 common
shares; 24,700 of these were owned by Reese, and the rest, at 100 shares each, by the three
respondents. In view of Reese’s desire that upon his death MANTRASCO and its two subsidiaries
would continue under the management of the respondents, a trust agreement was executed by and
among Reese, MANTRASCO, the law firm as trustees, and the respondents. Reese died. After
MANTRASCO made full payment of Reese’s shares and a new certificate was issued in the name of
MANTRASCO. A special meeting of MANTRASCO stockholders that the 24,700 shares in the Treasury
be reverted back to the capital account of the company as a stock dividend to be distributed to
shareholders. Bureau of Internal Revenue disclosed that the respondents failed to declare the 24,700
shares declared as dividends had been proportionately distributed to the respondents as part of
their taxable income.

Issue:

Are the 24,700 shares are treasury shares and dividends may be declared from said shares?

Held:

No. The Supreme Court held that a careful study of the trust agreement shows that the said
shares were not treasury shares. Treasury shares are stocks issued and fully paid for and re-acquired
by the corporation either by purchase, donation, forfeiture or other means. Treasury shares are
therefore issued shares, but being in the treasury they do not have the status of outstanding shares.
Consequently, although a treasury share, not having been retired by the corporation re-acquiring it,
may be re-issued or sold again, such share, as long as it is held by the corporation as a treasury share,
participates neither in dividends, because dividends cannot be declared by the corporation to itself,
nor in the meetings of the corporation as voting stock, for otherwise equal distribution of voting
powers among stockholders will be effectively lost and the directors will be able to perpetuate their
control of the corporation, though it still represents a paid-for interest in the property of the
corporation. The foregoing essential features of a treasury stock are lacking in the 24,700 shares. The
manifest intention of the parties to the trust agreement was to treat the 24,700 shares of Reese as
absolutely outstanding shares of Reese’s estate until they were fully paid. Such being the true nature
of the 24,700 shares, their declaration as treasury stock dividend in 1958 was a complete nullity and
plainly violative of public policy.
Topic: Corporate Powers

Case No. 169

Tam Wing Tak vs. Hon. Ramon P. Makasiar (in his Capacity as Presiding Judge of the Regional Trial
Court of Manila, Branch 35) and Zenon De Guia (in his capacity as Chief State Prosecutor)
G.R. No. 122452, January 29, 2001

Facts:

On November 11, 1992, petitioner, in his capacity as director of Concord-World Properties,

Inc., (Concord for brevity), a domestic corporation, filed an affidavit-complaint with the Quezon City
Prosecutor’s Office, charging Vic Ang Siong with violation of B.P. Blg. 22. Docketed by the Prosecutor
as I.S. No. 93-15886, the complaint alleged that a check for the amount of P83,550,000.00, issued by
Vic Ang Siong in favor of Concord, was dishonored when presented for encashment.
Vic Ang Siong sought the dismissal of the case on two grounds: First, that petitioner had no authority
to file the case on behalf of Concord, the payee of the dishonored check, since the firm’s board of
directors had not empowered him to act on its behalf. Second, he and Concord had already agreed
to amicably settle the issue after he made a partial payment of P19, 000,000.00 on the dishonored
check.

Issue:

Does the petitioner have the power to sue Ang Siong on behalf of Concord?

Held:

No. It is not disputed in the instant case that Concord, a domestic corporation, was the payee
of the bum check, not petitioner. Therefore, it is Concord, as payee of the bounced check, which is
the injured party. Since petitioner was neither a payee nor a holder of the bad check, he had neither
the personality to sue nor a cause of action against Vic Ang Siong. Under Section 36 of the
Corporation Code18, read in relation to Section 23, it is clear that where a corporation is an injured
party, its power to sue is lodged with its board of directors or trustees. Note that petitioner failed to
show any proof that he was authorized or deputized or granted specific powers by Concord’s board
of director to sue Victor Ang Siong for and on behalf of the firm. Clearly, petitioner as a minority
stockholder and member of the board of directors had no such power or authority to sue on
Concord’s behalf. Nor can we uphold his act as a derivative suit. For a derivative suit to prosper, it is
required that the minority stockholder suing for and on behalf of the corporation must allege in his
complaint that he is suing on a derivative cause of action on behalf of the corporation and all other
stockholders similarly situated who may wish to join him in the suit. There is no showing that
petitioner has complied with the foregoing requisites. It is obvious that petitioner has not shown any
clear legal right which would warrant the overturning of the decision of public respondents to
dismiss the complaint against Vic Ang Siong.
Topic: Corporate Powers, Specific Powers

Case No. 190

Philippine Trust Company vs. Marciano Rivera

G.R. No. L-19761, January 29, 1923

Facts:

Cooperativa Naval Filipina was duly incorporated with a capital of P100, 000, divided into 100
shares at a par value of P100 each. Among its incorporators was Marciano Rivera, who subscribed for
450 shares, representing a value of P45,000. The company however became insolvent. Philippine
Trust became its assignee in bankruptcy. PhilTrust sought to recover ½ of the stock subscription of
Rivera, which admittedly, has never been paid. Rivera contends that he never paid because the
stockholders of Naval issued a resolution shortly after the company’s incorporation, stating that the
capital shall be reduced by 50%. As a result, Rivera contends that the subscribers were released from
the obligation to pay any unpaid balance of their subscription in excess of 50% of their subscriptions.
Rivera further contends that the subscriptions of the subscribers were 50% cancelled, and certificates
of shares of stock were issued for the said remaining 50% of the subscriptions.

Issue:

Is the reduction of the capital stock valid?

Held:

No. The Supreme Court held that the said resolution is without effect for being: 1. An
attempted withdrawal of so much capital from the fund which the company’s creditors were entitled
ultimately to rely; 2. For having been effected without compliance with the statutory requirements of
§ 17 of the Corpora=on Law regarding reduction of capital stock; and 3. For failure to file a certificate
with the Bureau of Commerce and Industry, showing such reduction. Thus, stockholder is still liable
for the unpaid balance of his subscription. 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. A corpora=on has no power to release an original subscriber to its capital
stock from the obligation of paying for his shares, w/o a valuable consideration for such release; and
as against creditors a reduction of the capital stock can take place only in the manner and under the
conditions prescribed by the statute or the charter or the AOI. Moreover, strict compliance with
statutory regulations is necessary.
Topic: Power to Declare Dividends

Case No. 207

COJUANGCO ET AL. V. SANDIGANBAYAN ET AL.

G.R. No. 183278, April 24, 2009

Facts:

On July 16, 1987, respondent Republic of the Philippines filed before the Sandiganbayan a
Complaint for Reconveyance, Reversion, Accounting, Restitution and Damages praying for the
recovery of alleged ill-gotten wealth from the late President Marcos and former First Lady Imelda
Marcos and their cronies, including some 2.4 million shares of stock in the Philippine Long Distance
Telephone Company (PLDT). The complaint, which was later amended to implead herein petitioners
Ramon and Imelda Cojuangco (the Cojuangcos), alleged that the Marcoses ill-gotten wealth included
shares in the PLDT covered by shares of stock in the Philippine Telecommunications Investment
Corporation (PTIC), registered in the name of Prime Holdings, Inc. (Prime Holdings). The
Sandiganbayan dismissed the complaint with respect to the recovery of the PLDT shares, but upon
appeal to the Supreme Court, the Republic was declared to be the owner of 111,415 PTIC shares
registered in the name of Prime Holdings. The Decision became final and executory on October 26,
2006, hence, the Republic filed on November 20, 2006 with the Sandiganbayan a Motion for the
Issuance of a Writ of Execution, praying for the cancellation of the 111,415 shares/certificates of stock
registered in the name of Prime Holdings and the annotation of the change of ownership on PTIC’s
Stock and Transfer Book.

Issue:

Is the Republic, having transferred the shares to a third party, entitled to the dividends,
interests, and earnings thereof?

Held:

Yes. Dividends are payable to the stockholders of record as of the date of the declaration of
dividends or holders of record on a certain future date, as the case may be, unless the parties have
agreed otherwise. And a transfer of shares which is not recorded in the books of the corporation is
valid only as between the parties, hence, the transferor has the right to dividends as against the
corporation without notice of transfer but it serves as trustee of the real owner of the dividends,
subject to the contract between the transferor and transferee as to who is entitled to receive the
dividends. It is thus clear that the Republic is entitled to the dividends accruing from the subject
111,415 shares since 1986 when they were sequestered up to the time they were transferred to Metro
Pacific via the Sale and Purchase Agreement of February 28, 2007; and that the Republic has since
the latter date been serving as trustee of those dividends for the Metro Pacific up to the present,
subject to the terms and conditions of the said agreement they entered into.
Topic: Ultra Vires Acts

Case No. 226

Pilipinas Loan Company vs. SEC
G.R. No. 104720, April 4, 2001

Facts:

Private respondent Filipinas Pawnshop, Inc. is a duly organized corporation registered with
the Securities and Exchange Commission on February 9, 1959. The articles of incorporation of private
respondent states that its primary purpose is to extend loans at legal interest on the security of
either personal properties or on the security of real properties, and to finance installment sales of
motor vehicles, home appliances and other chattels. Petitioner is a lending corporation duly
registered with the SEC on July 27, 1989. Based on its articles of incorporation, the primary purpose
of petitioner is “to act as a lending investor or, otherwise, to engage in the practice of lending money
or extending loans on the security of real or personal, tangible or intangible properties whether as
pledge, real or chattel mortgage or otherwise, xxx without however, engaging in pawn broking as
defined under PD 114." Private respondent filed a complaint with the Prosecution and Enforcement
Department (PED) of the SEC and alleged that: (1) petitioner, contrary to the restriction set by the
Commission, has been operating and doing business as a pawnbroker, pawnshop or "sanglaan" in
the same neighborhood where private respondent has had its own pawnshop for 30 years in
violation of its primary purpose and without the imprimatur of the Central Bank to engage in the
pawnshop business thereby causing unjust and unfair competition with private respondent.
Petitioner denied that it is engaged in the pawnshop business, alleging that it is a lending investor
duly registered with the Central Bank.

Issue:

Did the petitioner violate its primary franchise?

Held:

A corporation, under the Corporation Code, has only such powers as are expressly granted to
it by law and by its articles of incorporation, those which may be incidental to such conferred
powers, those reasonably necessary to accomplish its purposes and those which may be incident to
its existence. In the case at bar, the limit of the powers of petitioner as a corporation is very clear, it
is categorically prohibited from "engaging in pawn broking as defined under PD 114". Hence, in
determining what constitutes pawn brokerage, the relevant law to consider is PD 114. Indispensable
therefore to the determination of whether or not petitioner had violated its articles of incorporation,
was an inquiry by the SEC if petitioner was holding out itself to the public as a pawnshop. It must be
stressed that the determination of whether petitioner violated PD 114 was merely incidental to the
regulatory powers of the SEC, to see to it that a corporation does not go beyond the powers granted
to it by its articles of incorporation.
Topic: Board of Directors and Trustees

Case No. 245

Premium Marble vs. CA

GR No. 96551, November 4, 1996

Facts:

Ayala Investment and Development Corporation issued three checks payable to the Premium
Marble Resources, Inc. (Premium). Former officers of Premium deposited the checks to the current
account of its conduit corporation, Intervest. Although the checks were clearly payable to Premium,
International Corporated Bank (ICB) accepted the checks and deposited to the current account of
Intervest. New officers of Premium sued ICB for damages for the alleged the latter’s illegal and
irregular acts. Former officers of Premium then filed a motion to dismissed the complaint on the
ground that the filing of the case was without authority from its duly constituted board of directors.
New officers countered the motion to dismiss by presenting the Articles of Incorporation wherein
they were stated as the Directors of Premium and the Minutes of the Meeting of the Board on April
1, 1982 that they were the newly elected officers of the year. Former officers argued that the best
evidence is the general information sheet filed with the Securities and Exchange Commission (SEC)
and the latter’s Certification stating that as of March 4, 1981, they were the officers and members of
the board of directors of Premium.

Issue:

Is the filing of the case for damages authorized by a duly constituted Board of Directors of
Premium?

Held:

No. By express mandate of the Corporation Code, all corporations duly organized pursuant
thereto are required to submit within 30 days to the SEC the names, nationalities and residences of
the directors, trustees and officers elected:

Sec. 26. Report of election of directors, trustees and officers. — Within thirty (30) days after
the election of the directors, trustees and officers of the corporation, the secretary, or any other
officer of the corporation, shall submit to the Securities and Exchange Commission, the names,
nationalities and residences of the directors, trustees and officers elected. . . .

Evidently, the objective sought to be achieved by Section 26 is to give the public information,
under sanction of oath of responsible officers, of the nature of business, financial condition and
operational status of the company together with information on its key officers or managers so that
those dealing with it and those who intend to do business with it may know or have the means of
knowing facts concerning the corporation's financial resources and business responsibility. While the
Minutes of the Meeting of the Board on April 1, 1982 states that the newly elected officers for the
year 1982 were the new officers, they failed to show proof that this election was reported to the SEC.
In fact, the last entry in their General Information Sheet with the SEC, as of 1986 appears to be
former officers. The claim, therefore, of the new officers as the incumbent officers of Premium has
not been fully substantiated. The power of the corporation to sue and be sued in any court is lodged
with the board of directors that exercises its corporate powers. In the absence of an authority from
the board of directors, no person, not even the officers of the corporation, can validly bind the
corporation. Their claim for damages must be dismissed.
Topic: Delegation of Authority of Corporate Officers, Corporate Office

Case No. 264

Real vs. Sangu Philippines, Inc.

G.R. No. 168757, January 19, 2011.

Facts:

Renato Real was the Manager of respondent corporation Sangu Philippines, Inc. which is
engaged in the business of providing manpower for general services. He filed a complaint for illegal
dismissal against the respondents stating that he was neither notified of the Board meeting during
which his removal was discussed nor was he formally charged with any infraction.

Issue:

Does the petitioner’s complaint for illegal dismissal constitute an intra-corporate

controversy?

Held:

To determine whether a case involves an intra-corporate controversy, and is to be heard and

decided by the branches of the RTC specifically designated by the Court to try and decide such cases,
two elements must concur: (a) the status or relationship of the parties, and (2) the nature of the
question that is the subject of their controversy. The first element requires that the controversy
must arise out of intra-corporate or partnership relations between any or all of the parties and the
corporation. The second element requires that the dispute among the parties be intrinsically
connected with the regulation of the corporation. If the nature of the controversy involves matters
that are purely civil in character, necessarily, the case does not involve an intra-corporate
controversy. Guided by this recent jurisprudence, we thus find no merit in respondents’ contention
that the fact alone that petitioner is a stockholder and director of Respondent Corporation
automatically classifies this case as an intra-corporate controversy. To reiterate, not all conflicts
between the stockholders and the corporation are classified as intra-corporate. There are other
factors to consider in determining whether the dispute involves corporate matters as to consider
them as intra-corporate controversies. Corporate officers; definition “‘Corporate officers’ in the
context of Presidential Decree No. 902-A are those officers of the corporation who are given that
character by the Corporation Code or by the corporation’s by-laws. There are three specific officers
whom a corporation must have under Section 25 of the Corporation Code. These are the president,
secretary and the treasurer. The number of officers is not limited to these three. A corporation may
have such other officers as may be provided for by its by-laws like, but not limited to, the vice-
president, cashier, auditor or general manager. The number of corporate officers is thus limited by
law and by the corporation’s by-laws. It has been consistently held that “an ‘office’ is created by the
charter of the corporation and the officer is elected (or appointed) by the directors or stockholders.”
Clearly here, respondents failed to prove that petitioner was appointed by the board of directors.
Thus, we cannot subscribe to their claim that petitioner is a corporate officer. Having said this, we
find that there is no intra-corporate relationship between the parties insofar as petitioner’s
complaint for illegal dismissal is concerned and that same does not satisfy the relationship test.

Topic: Delegation of Authority of Corporate Officers

Case No. 283

Associated Bank (UOB) vs. Sps. Ponstroller

G.R. No. 148444, July 14, 2008

Facts:

The spouses Eduardo and Ma. Pilar Vaca executed a Real Estate Mortgage in favor of the
petitioner over their parcel of residential land with an area of 953 sq. m. and the house constructed
thereon. For failure of the spouses to pay their obligation, the subject property was sold at public
auction with the petitioner as the highest bidder. Transfer Certificate of Title in the name of spouses
Vaca, was cancelled and a new one was issued in the name of the petitioner. The spouses, however,
commenced an action for the nullification of the real estate mortgage and the foreclosure sale.
Petitioner, on the other hand, filed a petition for the issuance of a writ of possession which was
denied by the RTC. Petitioner, thereafter, obtained a favorable judgment when the CA granted its
petition but the spouses Vaca questioned the CA decision before this Court. During the pendency of
the aforesaid cases, petitioner advertised the subject property for sale to interested buyers for P9,
700,000.00. Respondents Rafael and Monaliza Pronstroller offered to purchase the property for P7,
500,000.00. Said offer was made through Atty. Jose Soluta, Jr., petitioner’s Vice-President,
Corporate Secretary and a member of its Board of Directors. Petitioner accepted respondents offer
of P7.5 million. Consequently, respondents paid petitioner P750, 000.00, or 10% of the purchase price,
as down payment. On March 18, 1993, petitioner, through Atty. Soluta, and respondents, executed a
Letter Agreement setting forth therein the terms and conditions of the sale, to wit: 1. Selling price
shall be at P7,500,000.00 payable as follows: a. 10% deposit and balance of P6,750,000.00 to be
deposited under escrow agreement. Said escrow deposit shall be applied as payment upon delivery
of the aforesaid property to the buyers free from occupants. b. The deposit shall be made within
ninety (90) days from date hereof. Any interest earned on the aforesaid investment shall be for the
buyers account. However, the 10% deposit is noninterest earning. Prior to the expiration of the 90-
day period within which to make the escrow deposit, in view of the pendency of the case between
the spouses Vaca and petitioner involving the subject property, respondents requested that the
balance of the purchase price be made payable only upon service on them of a final decision or
resolution of this Court affirming petitioners right to possess the subject property. Atty. Soluta
referred respondent’s proposal to petitioners Asset Recovery and Remedial Management
Committee but the latter deferred action thereon. A month after they made the request and after
the payment deadline had lapsed, respondents and Atty. Soluta, acting for the petitioner, executed
another Letter-Agreement allowing the former to pay the balance of the purchase price upon receipt
of a final order from this Court and/or the delivery of the property to them free from occupants. In
early 1994, petitioner reorganized its management. Atty. Braulio Dayday became petitioner’s
Assistant Vice-President and Head of the Documentation Section, while Atty. Soluta was relieved of
his responsibilities. Atty. Dayday reviewed petitioner’s records of its outstanding accounts and
discovered that respondents failed to deposit the balance of the purchase price of the subject
property. The matter was then resubmitted to the ARRMC during its meeting, and it was
disapproved. ARRMC, thus, referred the matter to petitioners Legal Department for rescission or
cancellation of the contract due to respondents breach thereof. Atty. Dayday informed respondents
that their request for extension was disapproved by ARRMC and, in view of their breach of the
contract; petitioner was rescinding the same and forfeiting their deposit. Petitioner added that if
respondents were still interested in buying the subject property, they had to submit their new
proposal. Respondents went to the petitioner’s office, talked to Atty. Dayday and gave him the
Letter-Agreement to show that they were granted an extension. However, Atty. Dayday claimed that
the letter was a mistake and that Atty. Soluta was not authorized to give such extension.
Respondents proposed to pay the balance of the purchase price as follows: P3, 000,000.00 upon the
approval of their proposal and the balance after six (6) months. However, the proposal was
disapproved by the petitioners President. Petitioner advised respondents that the former would
accept the latter’s proposal only if they would pay interest at the rate of 24.5% per annum on the
unpaid balance. Petitioner also allowed respondents a refund of their deposit of P750, 000.00 if they
would not agree to petitioners’ new proposal. For failure of the parties to reach an agreement,
respondents, through their counsel, informed petitioner that they would be enforcing their
agreement dated July 14, 1993. Petitioner countered that it was not aware of the existence of the
July 14 agreement and that Atty. Soluta was not authorized to sign for and on behalf of the bank. It,
likewise, reiterated the rescission of their previous agreement because of the breach committed by
respondents. In the Vaca case, this Court upheld petitioner’s right to possess the subject property.
Respondents commenced the instant suit by filing a Complaint for Specific Performance before the
RTC of Antipolo, Rizal.

Issue:

Is the petitioner bound by the July 14, 1993 Letter-Agreement signed by Atty. Soluta under
the doctrine of apparent authority?

Held:

Yes. Petitioner failed to show why the above doctrine should not be applied to the instant
case. The Court notes that the March 18, 1993 Letter-Agreement was written on a paper with
petitioner’s letterhead. It was signed by Atty. Soluta with the conformity of respondents. The
authority of Atty. Soluta to act for and on behalf of petitioner was not reflected in said letter or on a
separate paper attached to it. Yet, petitioner recognized Atty. Solutas authority to sign the same
and, thus, acknowledged its binding effect. On the other hand, the July 14, 1993 letter was written on
the same type of paper with the same letterhead and of the same form as the earlier letter. It was
also signed by the same person with the conformity of the same respondents. Again, nowhere in said
letter did petitioner specifically authorize Atty. Soluta to sign it for and on its behalf. This time,
however, petitioner questioned the validity and binding effect of the agreement, arguing that Atty.
Soluta was not authorized to modify the earlier terms of the contract and could not in any way bind
the petitioner. However, such is not the case. 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. The
power and responsibility to decide whether the corporation should enter into a contract that will
bind the corporation is lodged in the board of directors. However, just as a natural person may
authorize another to do certain acts for and on his behalf, the board may validly delegate some of its
functions and powers to officers, committees and 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.
The authority of a corporate officer or agent in dealing with third persons may be actual or apparent.
The doctrine of apparent authority, with special reference to banks, had long been recognized in this
jurisdiction. 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, within or beyond the scope of his ordinary powers. Accordingly, the authority to act for and
to bind a corporation may be presumed from acts of recognition in other instances, wherein the
power was exercised without any objection from its board or shareholders. Undoubtedly, petitioner
had previously allowed Atty. Soluta to enter into the first agreement without a board resolution
expressly authorizing him; thus, it had clothed him with apparent authority to modify the same via
the second letter-agreement. 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. Naturally,
the third person has little or no information as to what occurs in corporate meetings; and he must
necessarily rely upon the external manifestations of corporate consent. The integrity of commercial
transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by
its agents in accordance with law. What transpires in the corporate board room is entirely an internal
matter. Hence, petitioner may not impute negligence on the part of the respondents in failing to find
out the scope of Atty. Solutas authority. Indeed, the public has the right to rely on the
trustworthiness of bank officers and their acts. As early as June 1993, or prior to the 90-day period
within which to make the full payment, respondents already requested a modification of the earlier
agreement such that the full payment should be made upon receipt of this Court’s decision
confirming petitioners right to the subject property. The matter was brought to the petitioner’s
attention and was in fact discussed by the members of the Board. Instead of acting on said request
(considering that the 90-day period was about to expire), the board deferred action on the request.
It was only after one year and after the banks reorganization that the board rejected respondents’
request. We cannot therefore blame the respondents in relying on the July 14, 1993 Letter-
Agreement. Petitioner’s inaction, coupled with the apparent authority of Atty. Soluta to act on
behalf of the corporation, validates the July 14 agreement and thus binds the corporation. All these
taken together, lead to no other conclusion than that the petitioner attempted to defraud the
respondents. This is bolstered by the fact that it forged another contract involving the same
property, with another buyer, the spouses Vaca, notwithstanding the pendency of the instant case.
If a corporation knowingly permits its officer, or any other agent, to perform acts within the scope of
an apparent authority, holding him out to the public as possessing power to do those acts, the
corporation will, as against any person who has dealt in good faith with the corporation through
such agent, be estopped from denying such authority.
Topic: Delegation of Authority of Corporate Officers

Case No. 302

Philippine Realty and Holdings Corporation vs. Ley Construction and Development Corporation
G. R. No. 165548, June 13, 2011

Facts:

Ley Construction and Development Corporation (LCDC) was the project contractor for the
construction of several buildings for Philippine Realty & Holdings Corporation (PRHC), the project
owner. Engineer Dennis Abcede (Abcede) was the project construction manager of PRHC, while
Joselito Santos (Santos) was its general manager and vice-president for operations. The two
corporations then entered into four major construction projects, as evidenced by four duly notarized
"construction agreements." LCDC committed itself to the construction of the buildings needed by
PRHC, which in turn committed itself to pay the contract price agreed upon. The agreement covering
the construction of the Tektite Building was signed by a Mr. Campos under the words "Phil. Realty &
Holdings Corp." and by Santos as a witness.Manuel Ley, the president of LCDC, signed under the
words "Ley Const. & Dev. Corp." The terms embodied in the afore-listed construction agreements
were almost identical. Each agreement provided for a fixed price to be paid by PRHC for every
project. In the course of the construction of the Tektite Building, it became evident to both parties
that LCDC would not be able to finish the project within the agreed period.Thus, through its
president, LCDC met with Abcede to discuss the cause of the delay. LCDC explained that the
unanticipated delay in construction was due mainly to the sudden, unexpected hike in the prices of
cement and other construction materials. It claimed that, without a corresponding increase in the
fixed prices found in the agreements, it would be impossible for it to finish the construction of the
Tektite Building. In their analysis of the project plans for the building and of all the external factors
affecting the completion of the project, the parties discovered that even if LCDC were able to collect
the entire balance from the contract, the collected amount would still be insufficient to purchase all
the materials needed to complete the construction of the building. Seeking to recover all the above-
mentioned amounts, LCDC filed a Complaint with Application for the Issuance of a Writ of
Preliminary Attachment.

Issue:

Is LCDC liable for liquidated damages for delay in the construction of the buildings for PRHC?

Held:

No. There is no question that LCDC was not able to fully construct the Tektite Building and
Projects 1, 2, and 3 on time. It reasons that it should not be made liable for liquidated damages,
because its rightful and reasonable requests for time extension were denied by PRHC. It is important
to note that PRHC does not question the veracity of the factual representations of LCDC to justify
the latter’s requests for extension of time. It insists, however, that in any event LCDC agreed to the
limits of the time extensions it granted. The practice of the parties is that each time LCDC requests
for more time, an extension agreement is executed and signed by both parties to indicate their joint
approval of the number of days of extension agreed upon. As previously mentioned, LCDC sent a
letter to PRHC claiming that, in a period of over two years; only 256 out of the 618 days of extension
requested were considered. The Supreme Court disregarded these numbers presented by LCDC
because of its failure to present evidence to prove its allegation. The tally that we will accept as
reflected by the evidence submitted to the lower court is as follows: out of the 564 days requested,
only 237 were considered. Essentially the same aforementioned reasons or causes are presented by
LCDC as defense against liability for both Projects 1 and 2. Inasmuch as LCDCs claimed exemption
from liability are beyond the approved time extensions, LCDC, according to the majority of the CA, is
liable therefor. JusticeJuan Q. Enriquez, in his Dissenting Opinion, held that the reasons submitted by
LCDC fell under the definition offorce majeure. This specific point was not refuted by the majority.
The court agreed with Justice Enriquez on this point and disagreed with the majority ruling of the CA.

Article 1174 of the Civil Code provides: "Except in cases expressly specified by the law, or
when it is otherwise declared by stipulation or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which could not be foreseen, or
which though foreseen, were inevitable." A perusal of the construction agreements shows that the
parties never agreed to make LCDC liable even in cases offorce majeure. Neither was the assumption
of risk required. Thus, in the occurrence of events that could not be foreseen, or though foreseen
were inevitable, neither party should be held responsible.

Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of an
obligation due to an "act of God" orforce majeure, the following must concur: (a) the cause of the
breach of the obligation must be independent of the will of the debtor; (b) the event must be either
unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to
fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or
aggravation of the injury to the creditor.

The shortage in supplies and cement may be characterized asforce majeure. In the present
case, hardware stores did not have enough cement available in their supplies or stocks at the time of
the construction in the 1990s. Likewise, typhoons, power failures and interruptions of water supply
all clearly fall underforce majeure. Since LCDC could not possibly continue constructing the building
under the circumstances prevailing, it cannot be held liable for any delay that resulted from the
causes aforementioned. Further, PRHC is barred by the doctrine of promissory estoppel from
denying that it agreed, and even promised, to hold LCDC free and clear of any liquidated damages.
Abcede and Santos also promised that the latter corporation would not be held liable for liquidated
damages even for a single day of delay despite the non-approval of the requests for extension.
Topic: Three-Fold Duties of Directors and Officers: Diligence, Loyalty and Obedience

Case No. 321

ARB Construction Co., Inc. vs. Court of Appeals

332 SCRA 427, May 31, 2000

Facts:

In 1993, ARB Construction Co., Inc. (ARB) entered into a contract with TBS Security and
Investigation Agency (TBS) for the latter to provide security guards to guard the premises of ARB.
But in 1994, while the contract is still subsisting, ARB, through its Vice President for Operations Mark
Molina, pre-terminated the contract because it alleged that the TBS guards were grossly negligent
and inefficient. TBS opposed the same. ARB reconsidered but it removed all other TBS guards except
for one. ARB, through Molina, also withheld payroll payments to TBS as it alleged that due to the
negligence of the guards, the premises of ARB incurred losses through burglary that happened while
the guards were on duty. TBS filed an injunction case against ARB. It later amended said complaint to
include claims for damages against ARB as well as against Molina in his personal capacity as it was
alleged that Molina concocted some of these facts.

Issue:

Should Molina should be impleaded?

Held:

No. It is basic that a corporation is invested by law with a personality separate and distinct
from those of the persons composing it as well as from that of any other legal entity to which it may
be related. As a general rule, a corporation may not be made to answer for acts or liabilities of its
stockholders or those of the legal entities to which it may be connected and vice versa. Molina can’t
be held liable jointly and severally liable with ARB. There was no showing that he acted with bad
faith. The salary deductions he made as vice president were not without basis; there was no malice
on his part.
Topic: Delegation of Authority of Corporate Officers

Case No. 340

ESPIRITU et al. v. PETRON G.R. No. 170891 24 November 2009

Facts:

Petron Corporation sells and distributes LPG in cylinder tanks bearing the trademark Gasul.
Kristina Patricia Enterprises (KPE) is the exclusive distributor of Gasul LPG in the whole Sorsogon.
Carmen and Jose are the latters’ owner and manager respectively. Bicol Gas ReTilling Plant
Corporation on the other hand, is also in the business of selling and distributing LPGs in Sorsogon in
cylinder tanks bearing the trademark Bicol Savers Gas. Audie is the manager. Bicol Gas and KPE
agreed for the swapping of “captured” cylinders since one distributor cannot legally reTill the
captured cylinders with its own brand. One time, Jose visited Bicol Gas plant and noticed more or
less 30 Gasul tanks prompting him to make the swap which was granted. However, Jose noticed that
Bicol Gas had more Gasul tanks in its yard but his offer to make a swap was declined by Audie saying
that the owners wanted to send those tanks to Batangas. Jose observed daily the trucks that plied
the streets carrying load of Gasul tanks. One time, when a truck stopped, he asked the driver
Leorena and sales representative Misal about the Gasul tanks. The two admitted that the tank
belonged to a customer who had them Tilled up by Bicol Gas. Thus, KPE Tiled a complaint for
violations of RA 623 for illegally Tilling up registered cylinder tanks, infringement of trademarks as
well as unfair competition. The complaint charged the following: Misal, Leorena, Mirabena, and
Audie as well as herein petitioners who were stockholders and directors of Bicol Gas. When it
reached the CA, it ruled that the stockholders and members of the board should be charged along
with the employees in violating RA 623 upon the sole evidence that the employees acted under the
direct orders of the owners of Bicol Gas – the stockholders, when Audie allegedly consulted them.

Issue:

Whether or not the stockholders of Bicol Gas should be impleaded in the charge?

Held:
No. Bicol Gas is a corporation. As such, it is an entity separate and distinct from the persons
of its officers, directors, and stockholders. It has been held, however, that corporate ofTicers or
employees, through whose act, default or omission the corporation commits a crime, may
themselves be individually held answerable for the crime. The owners of a corporate organization
are its stockholders and they are to be distinguished from its directors and ofTicers. The petitioners
here are being charged in their capacities as stockholders. The Court of Appeals erred because it
forgot that in a corporation, the management of its business is generally vested in its board of
directors, not its stockholders. Stockholders are basically investors in a corporation. They do not
have a hand in running the day-to-day business operations of the corporation unless they are at the
same time directors or ofTicers of the corporation. Before a stockholder may be held criminally liable
for acts committed by the corporation, therefore, it must be shown that he had knowledge of the
criminal act committed in the name of the corporation and that he took part in the same or gave his
consent to its commission, whether by action or inaction. The Tinding of the Court of Appeals that
the employees could not have committed the crimes without the consent, permission, or
participation of the owners of Bicol Gas is a sweeping speculation especially since, as demonstrated
above, what was involved was just one Petron Gasul tank found in a truck Tilled with Bicol Gas tanks.
Although the KPE manager heard petitioner Llona say that he was going to consult the owners of
Bicol Gas regarding the offer to swap additional captured cylinders, no indication was given as to
which Bicol Gas stockholders Llona consulted. It would be unfair to charge all the stockholders
involved, some of whom were proved to be minors. No evidence was presented establishing the
names of the stockholders who were charged with running the operations of Bicol Gas. The
complaint even failed to allege who among the stockholders sat in the board of directors of the
company or served as its officers.
Topic: Derivative Suit: Remedies to Enforce Personal Liability

Case No. 359

Strategic Alliance Development Corporation vs. Radstock Securities Ltd.

G.R. No. 178158, December 4, 2009
Facts:

Philippine National Construction Corporation (PNCC) was incorporated in 1966 for a term of
fifty years under the Corporation Code with the name Construction Development Corporation of the
Philippines (CDCP). PD 1113 issued on March 31, 1977, granted CDCP a 30-year franchise to construct,
operate and maintain toll facilities in the North and South Luzon Tollways. Between 1978 and 1981,
Basay Mining Corporation (Basay Mining), an affiliate of CDCP obtained loans from Marubeni
Corporation of Japan amounting to 5,460,000,000 yen and US$5 million. A CDCP official issued
letters of guarantee for the loans, committing CDCP to pay solidarily for the full amount of
5,460,000,000 yen loan and to the extent of P20 million for the US$5 million loan. However, there
was no CDCP Board Resolution authorizing the issuance of the letters of guarantee. Later, Basay
Mining changed its name to CDCP Mining Corporation (CDCP Mining). CDCP Mining secured the
Marubeni loans when CDCP and CDCP Mining were still privately owned and managed. In 1983, CDCP
changed its corporate name to PNCC to reflect the extent of the Government’s equity investment in
the company, which arose when government financial institutions converted their loans to PNCC into
equity following PNCC’s inability to pay the loans. Various governments financial institutions held a
total of 77.48% of PNCC’s voting equity, most of which were later transferred to the Asset
Privatization Trust (APT). Also, the Presidential Commission on Good Government holds some 13.82%
of PNCC’s voting equity under a writ of sequestration and through the voluntary surrender of certain
PNCC shares. In fine, the Government owns 90.3% of the equity of PNCC and only 9.7% of PNCC’s
voting equity is under private ownership. On October 20, 2000, the PNCC Board of Directors passed
Board Resolution No. BD-092-2000 admitting PNCC’s liability to Marubeni for P10,743,103,388 as of
September 30, 1999. In January 2001, barely three months after the PNCC Board first admitted
liability for the Marubeni loans, Marubeni assigned its entire credit to Radstock for US$2 million or
less than P100 million. In short, Radstock paid Marubeni less than 10% of the P10.743 billion admitted
amount. Radstock immediately sent a notice and demand letter to PNCC. On January 15, 2001,
Radstock filed an action for collection and damages against PNCC.

Issue:

Is a derivative suit possible to question the validity of the Compromise Agreement entered
into by the PNCC Board?

Held:

In this case, a derivative suit is possible. As declared by the Supreme Court, Sison has a legal
standing to challenge the Compromise Agreement. Although there was no allegation that Sison filed
the case as a derivative suit in the name of PNCC, it could be fairly deduced that Sison was assailing
the Compromise Agreement as a stockholder of PNCC. In such situation, a stockholder of PNCC can
sue on behalf of PNCC to annul the Compromise Agreement. A derivative action is a suit by a
stockholder to enforce a corporate cause of action. Under the corporation code, where a
corporation is an injured party, its power to sue is lodged with its board of directors or trustees.
However, an individual stockholder may file a derivative suit on behalf of the corporation to protect
or indicate corporate rights whenever the officials of the corporation refuse to sue, or are the ones
to be sued, or hold control of the corporation. In such actions, the corporation is the real party-in-
interest while the suing stockholder, on behalf of the corporation, is only a nominal party.
In this case, the PNCC Board cannot conceivably be expected to attack the validity of the
Compromise Agreement since the PNCC Board itself approved the Compromise Agreement. In fact,
the PNCC Board steadfastly defends the Compromise Agreement for allegedly being advantageous
to PNCC. When the case was on appeal before the CA, there was no need for Sison to avail of any
remedy, until PNCC and Radstock entered into the Compromise Agreement, which disposed of all or
substantially all of PNCC’s assets. Sison came to know of the Compromise Agreement only in
December 2006. PNCC and Radstock submitted the Compromise Agreement to the CA for approval
on January 10, 2007. The CA approved the Compromise Agreement on January 25, 2007. To require
Sison to exhaust all the remedies within the corporation will render such remedies useless as the
Compromise Agreement had already been approved by the CA. PNCC’s assets are in danger of being
dissipated in favor of a private foreign corporation. Thus, Sison had no recourse but to avail of an
extraordinary remedy to protect PNCC’s assets.