Case Digests - Corpo

7/22/2019 Case Digests - Corpo

1/27

Cagayan Fishing Development Co., Inc., vs. Sandiko

Facts:

Manuel Tabora is the registered owner of four parcels of land. To guarantee

the payment of two loans, Manuel Tabora, executed in favor of PNB two

mortgages over the four parcels of land between August, 1929, and April

1930. Later, a third mortgage on the same lands was executed also on April,

1930 in favor of Severina Buzon to whom Tabora was indebted.

On May, 1930, Tabora executed a public document entitled "Escritura de

Transpaso de Propiedad Inmueble" (Exhibit A) by virtue of which the four

parcels of land owned by him was sold to the plaintiff company, said to

under process of incorporation. The plaintiff company filed its article

incorporation with the Bureau of Commerce and Industry only on October,

1930 (Exhibit 2).

A year later, the board of directors of said company adopted a resolution

authorizing its president to sell the four parcels of lands in question toTeodoro Sandiko. Exhibits B, C and D were thereafter made and executed.

Exhibit B is a deed of sale where the plaintiff sold ceded and transferred to

the defendant all its right, titles, and interest in and to the four parcels of

land. Exhibit C is a promissory note drawn by the defendant in favor of the

plaintiff, payable after one year from the date thereof. Exhibit D is a deed of

mortgage executed where the four parcels of land were given a security for

the payment of the promissory note, Exhibit C.

The defendant having failed to pay the sum stated in the promissory note,

plaintiff, brought this action in the Court of First Instance of Manila prayingthat judgment be rendered against the defendant for the sum stated in the

promissory note. After trial, the court rendered judgment absolving the

defendant. Plaintiff presented a motion for new trial, which motion was

denied by the trial court. After due exception and notice, plaintiff has

appealed to this court and makes an assignment of various errors.

Issue: Whether Exhibit B, the deed of sale executed in favor of Teodoro

Sandiko, was valid.

Held: No, it was not.

The transfer made by Tabora to the Cagayan fishing Development Co., Inc.,

plaintiff herein, was affected on May 31, 1930 (Exhibit A) and the actual

incorporation of said company was affected later on October 22, 1930

(Exhibit 2). In other words, the transfer was made almost five months before

the incorporation of the company.

Unquestionably, a duly organized corporation has the power to purchase and

hold such real property as the purposes for which such corporation wasformed may permit and for this purpose may enter into such contracts as

may be necessary. But before a corporation may be said to be lawfully

organized, many things have to be done. Among other things, the law

requires the filing of articles of incorporation.

In the case before us it can not be denied that the plaintiff was not yet

incorporated when it entered into a contract of sale, Exhibit A. Not being in

legal existence then, it did not possess juridical capacity to enter into the

contract.

Boiled down to its naked reality, the contract here (Exhibit A) was entered

into not between Manuel Tabora and a non-existent corporation but between

the Manuel Tabora as owner of the four parcels of lands on the one hand

and the same Manuel Tabora, his wife and others, as mere promoters of a

corporations on the other hand.

For reasons that are self-evident, these promoters could not have acted as

agent for a projected corporation since that which no legal existence could

have no agent. A corporation, until organized, has no life and therefore no

faculties.

This is not saying that under no circumstances may the acts of promoters of

a corporation be ratified by the corporation if and when subsequently

organized.

There are, of course, exceptions, but under the peculiar facts and

circumstances of the present case we decline to extend the doctrine of

ratification which would result in the commission of injustice or fraud to the

candid and unwary.


2/27

Hall vs. Piccio

Facts:

Petitioners Arnold Hall, Bradley Hall and Private Respondents Fred Brown,

Emma Brown, Hipolita Chapman and Ceferino Abella signed and

acknowledged the articles of incorporation of the Far Eastern Lumber and

Commercial Co., Inc. organized to engage in a general lumber business to

carry on as general contractors, operators and managers. Attached to thearticles was an affidavit of the treasurer stating that 23, 428 shares of stock

had been subscribed and fully paid with certain properties transferred to the

corporation.

Immediately after the execution of the articles of incorporation, the

corporation proceeded to do business with the adoption of by-laws and the

election of its officers.

Then, the articles of incorporation were filed in SEC for the issuance of the

corresponding certificate of incorporation.

Pending action on the articles of incorporation, Fred Brown, Emma Brown,

Hipolita Chapman and Ceferino Abella filed a civil case against the Halls

alleging among other things that Far Eastern Lumber and Commercial Co,

was an unregistered partnership and that they wished to have it dissolved

because of bitter dissension among the members, mismanagement and

fraud by the managers and heavy financial losses.

The Halls filed a Motion to Dismiss contesting the courts jurisdiction and the

sufficiency of the cause of action but Judge Piccio ordered the dissolution ofthe company and appointed a receiver.

Issues:

(1) Whether or not the court had jurisdiction to decree the dissolution of the

company because it being a de facto corporation, dissolution may only be

ordered in a quo warranto proceeding in accordance with Section 19.

(2) Inasmuch as the Browns had signed the articles of incorporation,

whether or not they are estopped from claiming that it is not a corporation

but only a partnership.

Held:

(1) YES. The court had jurisdiction but Section 19 does not apply.

First, not having obtained the certificate of incorporation, the Far Eastern

Lumber and Commercial Co. even its stockholders may not probably

claim in good faith to be a corporation.

The immunity of collateral attack is granted to corporations claiming in good

faith to be corporation under this act. Such a claim is compatible with the

existence of errors and irregularities but not with a total or substantial

disregard of the law. Unless there has been an evident attempt to comply

with the law, the claim to be a corporation under this act could not be

made in good faith.

Second, this is not a suit in which the corporation is a party. This is a

litigation between stockholders of the alleged corporation for the purpose of

obtaining its dissolution. Even the existence of a de jure corporation may beterminated in a private suit for its dissolution between stockholders, without

the intervention of the state.

(2) NO. The Browns are not estopped. Because the SEC has not yet issued

the corresponding certificate of incorporation, all of them know or ought to

know that the personality of a corporation begins to exist only from the

moment such certificate is issued and not before.

The complaining associates have not represented to the others that they

were incorporated any more than the latter had made similar representationsto them.

And as nobody was led to believe anything to his prejudice and damage, the

principle of estoppel does not apply. This is not an instance requiring the

enforcement of contracts with the corporation through the rule of estoppel.
http://coffeeafficionado.blogspot.com/2012/02/hall-vs-piccio.htmlhttp://coffeeafficionado.blogspot.com/2012/02/hall-vs-piccio.html


3/27

ALBERT VS UNIVERSITY PUBLISHING CO., INC. (Jan. 30, 1965)

Mariano Albert entered into a contract with University Publishing

Co., Inc. through Jose M. Aruego, its President, whereby University would

pay plaintiff for the exclusive right to publish his revised Commentaries on

the Revised Penal Code. The contract stipulated that failure to pay one

installment would render the rest of the payments due. When University

failed to pay the second installment, Albert sued for collection and won.However, upon execution, it was found that University was not registered

with the SEC. Albert petitioned for a writ of execution against Jose M. Aruego

as the real defendant. University opposed, on the ground that Aruego was

not a party to the case.

The Supreme Court found that Aruego represented a non-existent

entity and induced not only Albert but the court to believe in such

representation. Aruego, acting as representative of such non-existent

principal, was the real party to the contract sued upon, and thus assumed

such privileges and obligations and became personally liable for the contractentered into or for other acts performed as such agent.

The Supreme Court likewise held that the doctrine of corporation by

estoppel cannot be set up against Albert since it was Aruego who had

induced him to act upon his (Aruego's) willful representation that University

had been duly organized and was existing under the law.

MUNICIPALITY OF MALABANG V. BENITO(29 SCRA 533; 1969)

WON a corporation organized under a statute subsequently declared

void acquires status as de facto corporation.

No. A corporation organized under a statute subsequently declared

invalid cannot acquire the status of a de facto corporation unless there is

some other statute under which the supposed corporation may be validly

organized. Hence, in the case at bar, the mere fact that the municipality was

organized before the statute had been invalidated cannot conceivably make

it a de facto corporation since there is no other valid statute to give color of

authority to its creation.

Reynaldo Lozano vs Eliezer De Los Santos

Corporation Law Jurisdiction of the SEC

Facts:

Reynaldo Lozano was the president of KAMAJDA (Kapatirang Mabalacat-

Angeles Jeepney Drivers Association, Inc.). Antonio Anda was the president

of SAMAJODA (Samahang Angeles-Mabalacat Jeepney Operators andDrivers Association, Inc.). In 1995, the two agreed to consolidate the two

corporations, thus, UMAJODA (Unified Mabalacat-Angeles Jeepney Operators

and Drivers Association, Inc.). In the same year, elections for the officers of

UMAJODA were held. Lozano and Anda both ran for president. Lozano won

but Anda alleged fraud and the elections and thereafter he refused to

participate with UMAJODA. Anda continued to collect fees from members of

SAMAJODA and refused to recognize Lozano as president of UMAJODA.

Lozano then filed a complaint for damages against Anda with the MCTC of

Mabalacat (and Magalang), Pampanga. Anda moved for the dismissal of the

case for lack of jurisdiction. The MCTC judge denied Andas motion. Oncertiorari, Judge Eliezer De Los Santos of RTC Angeles City reversed and

ordered the dismissal of the case on the ground that what is involved is an

intra-corporate dispute which should be under the jurisdiction of the

Securities and Exchange Commission (SEC).

ISSUE: Whether or not the RTC Judge is correct.

HELD: No.

The regular courts have jurisdiction over the case. The case between Lozano

and Anda is not an intra-corporate dispute. UMAJODA is not yetincorporated. It is yet to submit its articles of incorporation to the SEC. It is

not even a dispute between KAMAJDA or SAMAJODA. The controversy

between Lozano and Anda does not arise from intra-corporate relations but

rather from a mere conflict from their plan to merge the two associations.

NOTE: Regular courts can now hear intra-corporate disputes (expanded

jurisdiction).


4/27

Manuela Vda. De Salvatierra vs Lorenzo GarlitosCorporation Law Separate and Distinct Personality When Not Applicable

Facts:

In 1954, Manuela Vda. De Salvatierra entered into a lease contract with

Philippine Fibers Producers Co., Inc. (PFPC). PFPC was represented by its

president Segundino Refuerzo. It was agreed that Manuela shall lease her

land to PFPC in exchange of rental payments plus shares from the sales ofcrops. However, PFPC failed to comply with its obligations and so in 1955,

Manuela sued PFPC and she won. An order was issued by Judge Lorenzo

Garlitos of CFI Leyte ordering the execution of the judgment against

Refuerzos property (there being no property under PFPC). Refuerzo moved

for reconsideration on the ground that he should not be held personally

liable because he merely signed the lease contract in his official capacity as

president of PFPC. Garlitos granted Refuerzos motion.

Manuela assailed the decision of the judge on the ground that she sued PFPC

without impleading Refuerzo because she initially believed that PFPC was a

legitimate corporation. However, during trial, she found out that PFPC wasnot actually registered with the Securities and Exchange Commission (SEC)

hence Refuerzo should be personally liable.

ISSUE: Whether or not Manuela is correct.

HELD:Yes.

It is true that as a general rule, the corporation has a personality separate

and distinct from its incorporators and as such the incorporators cannot be

held personally liable for the obligations of the corporation. However, this

doctrine is not applicable to unincorporated associations. The reason behindthis doctrine is obvious-since an organization which before the law is non-

existent has no personality and would be incompetent to act and appropriate

for itself the powers and attribute of a corporation as provided by law; it

cannot create agents or confer authority on another to act in its behalf; thus,

those who act or purport to act as its representatives or agents do so

without authority and at their own risk. In this case, Refuerzo was the

moving spirit behind PFPC. As such, his liability cannot be limited or

restricted that imposed upon [would-be] corporate shareholders. In acting

on behalf of a corporation which he knew to be unregistered, he assumed

the risk of reaping the consequential damages or resultant rights, if any,arising out of such transaction.

SALVATIERRA VS GARLITOS(103 Phil. 757; 1958)

Salvatierra leased his land to the corporation. He filed a suit for

accounting, rescission and damages against the corporation and its president

for his share of the produce. Judgment against both was obtained.

President complains for being held personally liable.

He is liable. An agent who acts for a non-existent principal is himselfthe principal. In acting on behalf of a corporation which he knew to be

unregistered, he assumed the risk arising from the transaction.

ASIA BANKING VS STANDARD PRODUCTS(46 Phil. 145; 1924)

The corporation sued another corporation a promissory note. The

defense was that the plaintiff was not able to prove the corporate existence

of both parties.

The defendant is estopped from denying its own corporateexistence. It is also estopped from denying the others corporate existence.

The general rule is that in the absence of fraud, a person who has

contracted or otherwise dealt with an association is such a way as to

recognize and in effect admit its legal existence as a corporate body is

thereby estopped from denying its corporate existence.

LA CAMPANA VS. KAISAHAN(93 Phil. 160; 1953)

The La Campana Gaugau Packing and La Campana Coffee Factorywere operating under one single business although with 2 trade names. It is

a settled doctrine that the fiction of law of having the corporate identity

separate and distinct from the identity of the persons running it cannot be

invoked to further the end subversive of the purpose for which it was

created. In the case at bar, the attempt to make the two businesses appear

as one is but a device to defeat the ends of the law governing capital and

labor relations and should not be permitted to prevail.


5/27

International Express Travel & Tour Services, Inc. vs Court ofAppealsCorporation Law Corporation by Estoppel When Applied

In 1989, International Express Travel & Tour Services, Inc. (IETTI), offeredto the Philippine Football Federation (PFF) its travel services for the South

East Asian Games. PFF, through Henri Kahn, its president, agreed. IETTIthen delivered the plane tickets to PFF, PFF in turn made a down payment.However, PFF was not able to complete the full payment in subsequentinstallments despite repeated demands from IETTI. IETTI then sued PFF andKahn was impleaded as a co-defendant.Kahn averred that he should not be impleaded because he merely acted asan agent of PFF which he averred is a corporation with separate and distinctpersonality from him. The trial court ruled against Kahn and held himpersonally liable for the said obligation (PFF was declared in default forfailing to file an answer). The trial court ruled that Kahn failed to prove thatPFF is a corporation. The Court of Appeals however reversed the decision ofthe trial court. The Court of Appeals took judicial notice of the existence of

PFF as a national sports association; that as such, PFF is empowered to enterinto contracts through its agents; that PFF is therefore liable for the contractentered into by its agent Kahn. The CA further ruled that IETTI is inestoppel; that it cannot now deny the corporate existence of PFF because ithad contracted and dealt with PFF in such a manner as to recognize and ineffect admit its existence.

ISSUE: Whether or not the Court of Appeals is correct.

HELD: No. PFF, upon its creation, is not automatically considered a nationalsports association. It must first be recognized and accredited by the

Philippine Amateur Athletic Federation and the Department of Youth andSports Development. This fact was never substantiated by Kahn. As such,PFF is considered as an unincorporated sports association. And under thelaw, any person acting or purporting to act on behalf of a corporation whichhas no valid existence assumes such privileges and becomes personally liablefor contract entered into or for other acts performed as such agent. Kahn istherefore personally liable for the contract entered into by PFF with IETTI.There is also no merit on the finding of the CA that IETTI is in estoppel. The

application of the doctrine of corporation by estoppel applies to a third party

only when he tries to escape liability on a contract from which he has

benefited on the irrelevant ground of defective incorporation. In the case at

bar, IETTI is not trying to escape liability from the contract but rather is theone claiming from the contract.

MARVEL BLDG. CORP. V. DAVID(94 Phil. 376; 1954)

The fact that:

certificates in possession of Castro were endorsed in blank;

Castro had enormous profits and had motive to hide them;

other subscribers had no incomes of sufficient magnitude; anddirectors never met;

shows that other shareholders may be considered dummies of Castro.

Hence, corporate veil may be pierced.

Adelio Cruz vs Quiterio Dalisay

Corporation Law Piercing the Veil of Corporate Fiction Exercised by the

Wrong Person

In 1984, the National Labor Relations Commission issued an order againstQualitrans Limousine Service, Inc. (QLSI) ordering the latter to reinstate the

employees it terminated and to pay them backwages. Quiterio Dalisay,

Deputy Sheriff of the court, to satisfy the backwages, then garnished the

bank account of Adelio Cruz. Dalisay justified his act by averring that Cruz

was the owner and president of QLSI. Further, he claimed that the counsel

for the discharged employees advised him to garnish the account of Cruz.

ISSUE: Whether or not the action of Dalisay is correct.

HELD: No.What Dalisay did is tantamount to piercing the veil of corporate fiction. He

actually usurped the power of the court. He also overstepped his duty as a

deputy sheriff. His duty is merely ministerial and it is incumbent upon him to

execute the decision of the court according to its tenor and only against the

persons obliged to comply. In this case, the person judicially named to

comply was QLSI and not Cruz. It is a well-settled doctrine both in law and in

equity that as a legal entity, a corporation has a personality distinct and

separate from its individual stockholders or members. The mere fact that one

is president of a corporation does not render the property he owns or

possesses the property of the corporation, since the president, as individual,and the corporation are separate entities.


6/27

Fermin Caram Jr. vs Court of Appeals

Corporation Law Separate and Distinct Personality

Facts:

A certain Barretto initiated the incorporation of a company called Filipinas

Orient Airways (FOA). Barretto was referred to as the moving spirit of said

corporation because it was through his effort that it was created. Before

FOAs creation though, Barretto contracted with a third party, AlbertoArellano, for the latter to prepare a project study for the feasibility of

creating a corporation like FOA. The project study was then presented to the

would-be incorporators and investors. On the basis of said project study,

Fermin Caram, Jr. and Rosa Caram agreed to be incorporators of FOA. Later

however, Arellano filed a collection suit against FOA, Barretto, and the

Carams. Arellano claims that he was not paid for his work on the project

study.

ISSUE: Whether or not the Carams are personally and solidarily liable

considering that the project study was contracted before FOA became a

corporation.HELD: No. The Carams cannot be solidarily liable with FOA. The FOA is now

a bona fide corporation. As such, FOA alone should be liable for its corporate

acts as duly authorized by its officers and directors. This includes acts which

ultimately led to its incorporation i.e., the project study made by Arellano.

FOA has a separate and distinct personality from its incorporators. It is not

justified to make the Carams, as principal stockholders, to be responsible for

FOAs obligations.

CARAM V. CA(151 SCRA 373; 1987)

The case of the unpaid compensation for the preparation of the project study.The petitioners were not involved in the initial stages of the organization of

the airline. They were merely among the financiers whose interest was to be invitedand who were in fact persuaded, on the strength of the project study, to invest in theproposed airline.

There was no showing that the Airline was a fictitious corp and did not havea separate juridical personality to justify making the petitioners, as principalstockholders thereof, responsible for its obligations. As a bona fide corp, the Airlineshould alone be liable for its corporate acts as duly authorized by its officers anddirectors. Granting that the petitioners benefited from the services rendered, such isno justification to hold them personally liable therefor. Otherwise, all the otherstockholders of the corporation, including those who came in late, and regardless of

the amount of their shareholdings, would be equally and personally liable also withthe petitioner for the claims of the private respondent.

Emilio Cano Enterprises, Inc. vs Court of Industrial Relations

Corporation Law Principle of the Corporate Fiction Equity Case

Facts:

Honorata Cruz was terminated by Emilio Cano Enterprises, Inc. (ECEI). She

then filed a complaint for unfair labor practice against Emilio Cano, in hiscapacity as president and proprietor, and Rodolfo Cano, in his capacity as

manager. Cruz won and the Court of Industrial Relations (CIR) ordered the

Canos to reinstate Cruz plus pay her backwages with interest. The Canos

appealed to the CIR en banc but while on appeal Emilio died. The Canos lost

on appeal and an order of execution was levied against ECEIs property.

ECEI filed an ex parte motion to quash the writ as ECEI avers that it is a

corporation with a separate and distinct personality from the Canos. Their

motion was denied and ECEI filed a petition for certiorari with the Supreme

Court.

ISSUE: Whether or not the judgment of the Court of Industrial Relations is

correct.

HELD:Yes.

This is an instance where the corporation and its members can be

considered as one. ECEI is a close family corporation the incorporators are

members of the Cano family. Further, the Canos were sued in their capacity

as officers of ECEI not in their private capacity. Having been sued officially

their connection with the case must be deemed to be impressed with the

representation of the corporation. The judgment against the Canos has adirect bearing to ECEI. Verily, the order against them is in effect against the

corporation. Further still, even if this technicality be strictly observed, what

will simply happen is for this case to be remanded, change the name of the

party, but the judgment will still be the same there can be no real benefit

and will only subversive to the ends of justice. In this case, to hold ECEI

liable is not to ignore the legal fiction but merely to give meaning to the

principle that such fiction cannot be invoked if its purpose is to use it as a

shield to further an end subversive of justice.


7/27

Sulo ng Bayan vs. Araneta

Facts:On 26 April 1966, Sulo ng Bayan, Inc. filed an accion de revindicacionwith the Court of First Instance of Bulacan, Fifth Judicial District, Valenzuela,Bulacan, against Gregorio Araneta Inc. (GAI), Paradise Farms Inc., NationalWaterworks & Sewerage Authority (NAWASA), Hacienda Caretas Inc., andthe Register of Deeds of Bulacan to recover the ownership and possession ofa large tract of land in San Jose del Monte, Bulacan, containing an area of27,982,250 sq. ms., more or less, registered under the Torrens System inthe name of GAI, et. al.'s predecessors-in-interest (who are members of thecorporation). On 2 September 1966, GAI filed a motion to dismiss theamended complaint on the grounds that (1) the complaint states no cause ofaction; and (2) the cause of action, if any, is barred by prescription andlaches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions todismiss based on the same grounds. NAWASA did not file any motion todismiss. However, it pleaded in its answer as special and affirmativedefenses lack of cause of action by Sulo ng Bayan Inc. and the barring ofsuch action by prescription and laches. On 24 January 1967, the trial court

issued an Order dismissing the (amended) complaint. On 14 February 1967,Sulo ng Bayan filed a motion to reconsider the Order of dismissal, arguingamong others that the complaint states a sufficient cause of action becausethe subject matter of the controversy in one of common interest to themembers of the corporation who are so numerous that the present complaintshould be treated as a class suit. The motion was denied by the trial court inits Order dated 22 February 1967.Sulo ng Bayan appealed to the Court of Appeals. On 3 September 1969, theCourt of Appeals, upon finding that no question of fact was involved in theappeal but only questions of law and jurisdiction, certified the case to theSupreme Court for resolution of the legal issues involved in the controversy.

Issue:1. Whether the corporation (non-stock) may institute an action in

behalf of its individual members for the recovery of certain parcels ofland allegedly owned by said members, among others.

2. Whether the complaint filed by the corporation in behalf of itsmembers may be treated as a class suit

Held:

1. It is a doctrine well-established and obtains both at law and in equity that

a corporation is a distinct legal entity to be considered as separate and apart

from the individual stockholders or members who compose it, and is notaffected by the personal rights, obligations and transactions of its

stockholders or members. The property of the corporation is its property and

not that of the stockholders, as owners, although they have equities in it.

Properties registered in the name of the corporation are owned by it as an

entity separate and distinct from its members. Conversely, a corporation

ordinarily has no interest in the individual property of its stockholders unless

transferred to the corporation, "even in the case of a one-man corporation."

The mere fact that one is president of a corporation does not render the

property which he owns or possesses the property of the corporation, sincethe president, as individual, and the corporation are separate similarities.

Similarly, stockholders in a corporation engaged in buying and dealing in real

estate whose certificates of stock entitled the holder thereof to an allotment

in the distribution of the land of the corporation upon surrender of their

stock certificates were considered not to have such legal or equitable title or

interest in the land, as would support a suit for title, especially against

parties other than the corporation. It must be noted, however, that the

juridical personality of the corporation, as separate and distinct from the

persons composing it, is but a legal fiction introduced for the purpose of

convenience and to subserve the ends of justice. This separate personality ofthe corporation may be disregarded, or the veil of corporate fiction pierced,

in cases where it is used as a cloak or cover for fraud or illegality, or to work

-an injustice, or where necessary to achieve equity. It has not been claimed

that the members have assigned or transferred whatever rights they may

have on the land in question to the corporation. Absent any showing of

interest, therefore, a corporation, has no personality to bring an action for

and in behalf of its stockholders or members for the purpose of recovering

property which belongs to said stockholders or members in their personal

capacities.

2. In order that a class suit may prosper, the following requisites must bepresent: (1) that the subject matter of the controversy is one of common orgeneral interest to many persons; and (2) that the parties are so numerousthat it is impracticable to bring them all before the court. Here, there is onlyone party plaintiff, and the corporation does not even have an interest in thesubject matter of the controversy, and cannot, therefore, represent itsmembers or stockholders who claim to own in their individual capacitiesownership of the said property. Moreover, a class suit does not lie in actionsfor the recovery of property where several persons claim partnership of theirrespective portions of the property, as each one could alleged and prove his

respective right in a different way for each portion of the land, so that theycannot all be held to have identical title through acquisition/prescription.


8/27

RUSTAN PULP & PAPER MILLS, INC., ET AL. vs. INTERMEDIATE

APPELLATE COURT, ET AL.

FACTS:

1. Petitioner established a pulp and paper mill with Lluch as one of its

supplier of row materials.

2. In there contract of sale entered in to between petitioner and Lluch, it isprovided that the contract to supply is not exclusive because the petitioner

has the option to buy from other supplier who are qualified to sell and That

the BUYER shall have the right to stop delivery of the said raw materials by

the seller covered by this contract when supply of the same shall become

sufficient until such time when need for said raw materials shall have

become necessarily provided, however, that the SELLER is given sufficient

notice.

2. during the test run of the pulp mill, the machinery line thereat had major

defects while deliveries of the raw materials piled up, which prompted theJapanese supplier of the machinery to recommend the stoppage of the

deliveries and so the suppliers were informed to stop deliveries.

4. Private respondent try to clarify whether the the respondent is terminating

there contract but Respondent did not answer so Private respondent file a

complaint of contractual breach but was dismiss by the court of origin.

5. On appeal to IAC, it modified the judgment by ordering the petitioner to

pay private respondent moral damages and attorneys fees and hold Tantoko

the representative of the respondent and Vergara president manager of thepetitioner personally liable.

ISSUE: Whether or not, Tantoko and Vergara will be held liable.

Petitioners argue next that Tantoco and Vergara should not have been

adjudged to pay moral damages and attorney's fees because Tantoco merely

represented the interest of Rustan Pulp and Paper Mills, Inc. while Romeo S.

Vergara was not privy to the contract of sale. On this score, We have to

agree with petitioners' citation of authority to the effect that the President

and Manager of a corporation who entered into and signed a contract in hisofficial capacity, cannot be made liable thereunder in his individual capacity

in the absence of stipulation to that effect due to the personality of the

corporation being separate and distinct from the person composing it

(Bangued Generale Belge vs. Walter Bull and Co., Inc., 84 Phil. 164). And

because of this precept, Vergara's supposed non-participation in the contract

of sale although he signed the letter dated September 30, 1968 is completely

immaterial. The two exceptions contemplated by Article 1897 of the New

Civil Code where agents are directly responsible are absent and wanting.

WHEREFORE, the decision appealed from is hereby MODIFIED in the sensethat only petitioner Rustan Pulp and Paper Mills is ordered to pay moral

damages and attorney's fees as awarded by respondent Court.

SO ORDERED.

CLAPAROLS V. CIR(65 SCRA 613; 1975)

Both predecessor and successor were owned and controlled by

petitioner and there was no break in the succession and continuity of the

same business. All the assets of the dissolved Plant were turned over to theemerging corporation. The veil of corporate fiction must be pierced as it was

deliberately and maliciously designed to evade its financial obligation to its

employees.

CEASE V. CA(93 SCRA 483; 1979)

The Cease plantation was solely composed of the assets and

properties of the defunct Tiaong plantation whose license to operate already

expired. The legal fiction of separate corporate personality was attempted to

be used to delay and deprive the respondents of their succession rights tothe estate of their deceased father.

While originally, there were other incorporators of Tiaong, it has

developed into a closed family corporation (Cease). The head of the

corporation, Cease, used the Tiaong plantation as his instrumentality. It was

his business conduit and an extension of his personality. There is not even a

showing that his children were subscribers or purchasers of the stocks they

own.


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PALAY V. CLAVE(124 SCRA 640; 1983)

The case of the reliance on a default provision of the contract granting

automatic extra-judicial rescission.

The court found no badges of fraud on the part of the president of

the corporation. The BOD had literally and mistakenly relied on the default

provision of the contract. As president and controlling stockholder of thecorp, no sufficient proof exists on record that he used the corp to defraud

private respondent. He cannot, therefore, be made personally liable because

he appears to be the controlling stockholder. Mere ownership by a single

stockholder or by another corporation of all or nearly all of the capital stock

of a corporation is not of itself sufficient ground for disregarding the separate

corporate personality.

Palay, Inc. v. Clave

Facts:

That Palay, Inc., through its President, Albert Onstott executed in favor of

private respondent, Nazario Dumpit, a Contract to Sell a parcel of Land

payable with a downpayment and monthly installments until fully paid.

Paragraph 6 of the contract provided for automatic extrajudicial rescission

upon default in payment of any monthly installment after the lapse of 90

days from the expiration of the grace period of one month, without need of

notice and with forfeiture of all installments paid. Private respondent Dumpit

paid the downpayment and several installments. However, Dumpit failed to

continue paying the installments for almost 6 years. Thereafter, Dumpitwrote petitioner offering to update all his overdue accounts with interest,

and seeking its written consent to the assignment of his rights to a certain

Lourdes Dizon. Petitioners replied that the Contract to Sell had long been

rescinded pursuant to paragraph 6 of the contract, and that the lot had

already been resold. Consequently, Dumpit filed a complaint questioning the

validity of the rescission with the National Housing Authority (NHA) for

reconveyance with an alternative prayer for refund. The NHA found the

rescission void in the absence of either judicial or notarial demand. Thus, it

ordered Palay, Inc. and Alberto Onstott in his capacity as President of the

corporation, jointly and severally, to refund immediately to Dumpit theamount paid with 12% interest from the filing of the complaint. On appeal,

respondent Clave, the Presidential Executive Assistant affirmed. Hence, this

petition.

Issues:

(1) Whether or not the doctrine of piercing the veil of corporate fiction

applies.(2) Whether or not petitioner Onstott is solidarily liable with Palay, Inc. for

the refund.

Held:

(1) No. The SC held 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. However, the veil of corporate fiction may be pierced when it isused as a shield to further an end subversive of justice; or for purposes that

could not have been intended by the law that created it; or to defeat public

convenience, justify wrong, protect fraud, or defend crime; or to perpetuate

fraud or confuse legitimate issues; or to circumvent the law or perpetuate

deception; or as an alter ego, adjunct or business conduit for the sole benefit

of the stockholders.

In this case, there was no finding of fraud on petitioners' part. They had

literally relied, although mistakenly, on paragraph 6 of its contract with

private respondent when it rescinded the contract to sell extrajudicially andhad sold it to a third person.

(2) No. The SC held that no sufficient proof exists on record that said

petitioner used the corporation to defraud private respondent. He cannot,

therefore, be made personally liable just because he "appears to be the

controlling stockholder". Mere ownership by a single stockholder or by

another corporation is not of itself sufficient ground for disregarding the

separate corporate personality.


10/27

Yutivo Sons Hardware Co. vs. CTA

Facts:

Yutivo, a domestic corporation incorporated in 1916 under Philippine laws,

was engaged in the importation and sale of hardware supplies and

equipment. After the first world war, it resumed its business and bought a

number of cars and trucks from General Motors(GM), an American

Corporation licensed to do business in the Philippines.

On June 13, 1946, the Southern Motors Inc,(SM) was organized to engage in

the business of selling cars, trucks and spare parts. One of the subscribers of

stocks during its incorporation was Yu Khe Thai, Yu Khe Siong and Hu Kho

Jin, who are sons of Yu Tiong Yee, one of Yutivos founders.

After SMs incorporation and until the withdrawal of GM from the Philippines,

the cars and trucks purchased by Yutivo from GM were sold by Yutivo to SM

which the latter sold to the public.

Yutivo was appointed importer for Visayas and Mindanao by the US

manufacturer of cars and trucks sold by GM. Yutivo paid the sales tax

prescribed on the basis of selling price to SM. SM paid no sales tax on its

sales to the public.

An assessment was made upon Yutivo for deficiency sales tax. The Collectorof Internal Revenue, contends that the taxable sales were the retail sales bySM to the public and not the sales at wholesale made by Yutivo to the latterinasmuch as SM and Yutivo were one and the same corporation, the formerbeing a subsidiary of the latter.

The assessment was disputed by petitioner. After reinvestigation, a secondassessment was made, sustaining the validity of the first assessment. Yutivocontested the second assessment, alleging that there is no valid ground todisregard the corporate personality of SM and to hold that it is an adjunct ofpetitioner.

Issue: Whether or not the corporate personality of SM could be

disregarded.

Held: Yes. A corporation is an entity separate and distinct from itsstockholders and from other corporations to which it may be connected.

However, when the notion of legal entity is used to defeat public

convenience, justify wrong, protect fraud, or defend crime, the law willregard the corporation as an association of persons, or, in the case of twocorporations, merge them into one. When the corporation is a mere alter egoor business conduit of a person, it may be disregarded.

SC ruled that CTA was not justified in finding that SM was organized todefraud the Government. SM was organized in June 1946, from that dateuntil June 30, 1947, GM was the importer of the cars and trucks sold to

Yutivo, which in turn was sold to SM. GM, as importer was the one solelyliable for sales taxes. Neither Yutivo nor SM was subject to the sales taxes.

Yutivos liability arose only until July 1, 1947 when it became the importer.Hence, there was no tax to evade.

However, SC agreed with the respondent court that SM was actually ownedand controlled by petitioner. Consideration of various circumstances indicatethat Yutivo treated SM merely as its department or adjunct:

a. The founders of the corporation are closely related to each other by bloodand affinity.b. The object and purpose of the business is the same; both are engaged in

sale of vehicles, spare parts, hardware supplies and equipment.c. The accounting system maintained by Yutivo shows that it maintainedhigh degree of control over SM accounts.d. Several correspondences have reference to Yutivo as the head office ofSM. SM may even freely use forms or stationery of Yutivo.e. All cash collections of SMs branches are remitted directly to Yutivo.f. The controlling majority of the Board of Directors of Yutivo is also thecontrolling majority of SM.g. The principal officers of both corporations are identical. Both corporationshave a common comptroller in the person of Simeon Sy, who is a brother-in-law of Yutivos president, Yu Khe Thai.h. Yutivo, financed principally the business of SM and actually extended all

the credit to the latter not only in the form of starting capital but also in theform of credits extended for the cars and vehicles allegedly sold by Yutivo toSM.

YUTIVOVS. CTA(1 SCRA 160; 1961)Southern Motors was actually owned and controlled by Yutivo as to make it

a mere subsidiary or branch of the latter created for the purpose of selling vehicles atretail. Yutivo financed principally, if not wholly, the business of Southern Motors andactually exceeded the credit of the latter . At all times, Yutivo, through the officersand directors common to it and the Southern Motors exercised full control over thecash funds, policies, expenditures and obligations of the latter. Hence, SouthernMotors, being a mere instrumentality or adjunct of Yutivo, the CTA correctlydisregarded the technical defense of separate corporate identity in order to arrive atthe true tax liability of Yutivo.
http://coffeeafficionado.blogspot.com/2012/03/yutivo-sons-hardware-co-vs-cta.htmlhttp://coffeeafficionado.blogspot.com/2012/03/yutivo-sons-hardware-co-vs-cta.html


11/27

Concept Builders Inc. vs. NLRC

Facts: Concept Builders, Inc., (CBI) a domestic corporation, with principaloffice at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in theconstruction business while Norberto Marabe; Rodolfo Raquel, CristobalRiego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, NorbertoComendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea,

Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, DominadorSabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres,Felipe Basilan, and Ruben Robalos were employed by said company aslaborers, carpenters and riggers. On November 1981, Marabe, et. al. wereserved individual written notices of termination of employment by CBI,effective on 30 November 1981. It was stated in the individual notices thattheir contracts of employment had expired and the project in which theywere hired had been completed. The National Labor Relations Commission(NLRC) found it to be, the fact, however, that at the time of the terminationof Marabe, et.al.'s employment, the project in which they were hired had notyet been finished and completed. CBI had to engage the services of sub-contractors whose workers performed the functions of Marabe, et. al.

Aggrieved, Marabe, et. al. filed a complaint for illegal dismissal, unfair labor

practice and non-payment of their legal holiday pay, overtime pay andthirteenth-month pay against CBI. On 19 December 1984, the Labor Arbiterrendered judgment ordering CBI to reinstate Marabe et. al. and to pay themback wages equivalent to 1 year or 300 working days. On 27 November1985, the NLRC dismissed the motion for reconsideration filed by CBI on theground that the said decision had already become final and executory.

On 16 October 1986, the NLRC Research and Information Department madethe finding that Marabe, et. al.'s back wages amounted to P199,800.00. On29 October 1986, the Labor Arbiter issued a writ of execution directing thesheriff to execute the Decision, dated 19 December 1984. The writ waspartially satisfied through garnishment of sums from CBI's debtor, theMetropolitan Waterworks and Sewerage Authority, in the amount ofP81,385.34. Said amount was turned over to the cashier of the NLRC. On 1February 1989, an Alias Writ of Execution was issued by the Labor Arbiterdirecting the sheriff to collect from CBI the sum of P117,414.76, representingthe balance of the judgment award, and to reinstate Marabe, et. al. to theirformer positions. On 13 July 1989, the sheriff issued a report stating that hetried to serve the alias writ of execution on petitioner through the securityguard on duty but the service was refused on the ground that CBI no longeroccupied the premises. On 26 September 1986, upon motion of Marabe, et.al., the Labor Arbiter issued a second alias writ of execution. The said writhad not been enforced by the special sheriff because, as stated in his

progress report dated 2 November 1989, that all the employees inside CBI'spremises claimed that they were employees of Hydro Pipes Philippines, Inc.

(HPPI) and not by CBI; that levy was made upon personal properties hefound in the premises; and that security guards with high-powered gunsprevented him from removing the properties he had levied upon. The saidspecial sheriff recommended that a "break-open order" be issued to enablehim to enter CBI's premises so that he could proceed with the public auctionsale of the aforesaid personal properties on 7 November 1989. On 6November 1989, a certain Dennis Cuyegkeng filed a third-party claim withthe Labor Arbiter alleging that the properties sought to be levied upon by the

sheriff were owned by HPPI, of which he is the Vice-President. On 23November 1989, Marabe, et. al. filed a "Motion for Issuance of a Break-OpenOrder," alleging that HPPI and CBI were owned by the sameincorporator/stockholders. They also alleged that petitioner temporarilysuspended its business operations in order to evade its legal obligations tothem and that Marabe, et. al. were willing to post an indemnity bond toanswer for any damages which CBI and HPPI may suffer because of theissuance of the break-open order. On 2 March 1990, the Labor Arbiter issuedan Order which denied Marabe, et. al.'s motion for break-open order.

Marabe, et. al. then appealed to the NLRC. On 23 April 1992, the NLRC setaside the order of the Labor Arbiter, issued a break-open order and directedMarabe, et. al. to file a bond. Thereafter, it directed the sheriff to proceedwith the auction sale of the properties already levied upon. It dismissed thethird-party claim for lack of merit. CBI moved for reconsideration but themotion was denied by the NLRC in a Resolution, dated 3 December 1992.Hence, the petition.

Issue:Whether the NLRC was correct in issuing the break-open order to levy theHPPI properties located at CBI amd/or HPPIs premises at 355 Maysan Road,

Valenzuela, Metro Manila.

Held: It is a fundamental principle of corporation law that a corporation isan entity separate and distinct from its stockholders and from othercorporations to which it may be connected. But, this separate and distinctpersonality of a corporation is merely a fiction created by law forconvenience and to promote justice. So, when the notion of separate

juridical personality is used to defeat public convenience, justify wrong,protect fraud or defend crime, or is used as a device to defeat the laborlaws, this separate personality of the corporation may be disregarded or theveil of corporate fiction pierced. This is true likewise when the corporation ismerely an adjunct, a business conduit or an alter ego of another corporation.The conditions under which the juridical entity may be disregarded varyaccording to the peculiar facts and circumstances of each case. No hard andfast rule can be accurately laid down, but certainly, there are some probativefactors of identity that will justify the application of the doctrine of piercing

the corporate veil, to wit: (1) Stock ownership by one or common ownershipof both corporations; (2) Identity of directors and officers; (3) The manner of


12/27

keeping corporate books and records; and (4) Methods of conducting thebusiness. The SEC en banc explained the "instrumentality rule" which thecourts have applied in disregarding the separate juridical personality ofcorporations as "Where one corporation is so organized and controlled andits affairs are conducted so that it is, in fact, a mere instrumentality oradjunct of the other, the fiction of the corporate entity of the"instrumentality" may be disregarded. The control necessary to invoke therule is not majority or even complete stock control but such domination of

instances, policies and practices that the controlled corporation has, so tospeak, no separate mind, will or existence of its own, and is but a conduit forits principal. It must be kept in mind that the control must be shown to havebeen exercised at the time the acts complained of took place. Moreover, thecontrol and breach of duty must proximately cause the injury or unjust lossfor which the complaint is made." The test in determining the applicability ofthe doctrine of piercing the veil of corporate fiction is as (1) Control, notmere majority or complete stock control, but complete domination, not onlyof finances but of policy and business practice in respect to the transactionattacked so that the corporate entity as to this transaction had at the timeno separate mind, will or existence of its own; (2) Such control must havebeen used by the defendant to commit fraud or wrong, to perpetuate theviolation of a statutory or other positive legal duty or dishonest and unjustact in contravention of plaintiff's legal rights; and (3) The aforesaid controland breach of duty must proximately cause the injury or unjust losscomplained of. The absence of any one of these elements prevents "piercingthe corporate veil." In applying the "instrumentality" or "alter ego" doctrine,the courts are concerned with reality and not form, with how the corporationoperated and the individual defendant's relationship to that operation. Thusthe question of whether a corporation is a mere alter ego, a mere sheet orpaper corporation, a sham or a subterfuge is purely one of fact. Here, whileCBI claimed that it ceased its business operations on 29 April 1986, it filed anInformation Sheet with the Securities and Exchange Commission on 15 May

1987, stating that its office address is at 355 Maysan Road, Valenzuela,Metro Manila. On the other hand, HPPI, the third-party claimant, submittedon the same day, a similar information sheet stating that its office address isat 355 Maysan Road, Valenzuela, Metro Manila. Further, both informationsheets were filed by the same Virgilio O. Casio as the corporate secretary ofboth corporations. Both corporations had the same president, the sameboard of directors, the same corporate officers, and substantially the samesubscribers. From the foregoing, it appears that, among other things, the CBI andthe HPPI shared the same address and/or premises. Under these circumstances, itcannot be said that the property levied upon by the sheriff were not of CBI's. Clearly,CBI ceased its business operations in order to evade the payment to Marabe, et. al.of back wages and to bar their reinstatement to their former positions. HPPI is

obviously a business conduit of CBI and its emergence was skillfully orchestrated toavoid the financial liability that already attached to CBI.

TAN BOON BEE CO. V. JARENCIO(163 SCRA 205; 1988)

Tan BBC (T) supplies paper to Graphics Publishing Inc (G) but the latter fails

to pay. G's printing machine levied upon to satisfy claim but PADCO, another corpo

intercedes, saying it is the owner of the machine, having leased such to G.

Printing machine was allowed by the Court to satisfy G's liability. Both G and

PADCO's corporate entities pierced because they have: the same board of directors,

PADCO owns 50% of G, PADCO never engaged in the business of printing. Obviously,

the board is using PADCO to shield G from fulfilling liability to T.

Corporation Law Piercing the Veil of Corporate Fiction Alter Ego Case

In 1972, Anchor Supply Co. (ASC), through Tan Boon Bee, entered into a

contract of sale with Graphic Publishing Inc. (GPI) whereby ASC shall deliver

paper products to GPI. GPI paid a down payment but defaulted in paying the

rest despite demand from ASC. ASC sued GPI and ASC won. To satisfy the

indebtedness, the trial court, presided by Judge Hilarion Jarencio, ordered

that one of the printing machines of GPI be auctioned. But before the

auction can be had, Philippine American Drug Company (PADCO) notified the

sheriff that PADCO is the actual owner of said printing machine.

Notwithstanding, the sheriff still went on with the auction sale where TanBoon Bee was the highest bidder.

Later, PADCO filed with the same court a motion to nullify the sale on

execution. The trial court ruled in favor of PADCO and it nullified said auction

sale. Tan Boon Bee assailed the order of the trial court. Tan Boon Bee

averred that PADCO holds 50% of GPI; that the board of directors of PADCO

and GPI is the same; that the veil of corporate fiction should be pierced

based on the premises. PADCO on the other hand asserts ownership over

the said printing machine; that it is merely leasing it to GPI.

ISSUE: Whether or not the veil of corporate fiction should be pierced.

HELD: Yes. PADCO, as its name suggests, is a drug company not engaged

in the printing business. So it is dubious that it really owns the said printing

machine regardless of PADCOs title over it. Further, the printing machine, as

shown by evidence, has been in GPIs premises even before the date when

PADCO alleged that it acquired ownership thereof. Premises considered, the

veil of corporate fiction should be pierced; PADCO and GPI should be

considered as one. When a corporation is merely an adjunct, business

conduit or alter ego of another corporation the fiction of separate and

distinct corporation entities should be disregarded.


13/27

Remo Jr. v. IAC

Lesson Applicable: Dealings Between Corporation and Stockholders

FACTS:

1. December, 1977: the BOD of Akron Customs Brokerage Corporation(Akron), composed of Jose Remo, Jr., Ernesto Baares, Feliciano

Coprada, Jemina Coprada, and Dario Punzalan with Lucia Lacaste as

Secretary, adopted a resolution authorizing the purchase of 13

trucks for use in its business to be paid out of a loan the corporationmay secure from any lending institution

2. January 25, 1978: Feliciano Coprada, as President and Chairman ofAkron, purchased the trucks from E.B. Marcha Transport Company,

Inc. (Marcha) for P 525K as evidenced by a deed of absolute sale.

a. parties agreed on a downpayment in the amount of P50Kand that the balance of P 475K shall be paid within 60 days

from the date of the execution of the agreement.

b. They also agreed that until balance is fully paid, the downpayment of P 50K shall accrue as rentals and failure to pay

the balance within 60 days, then the balance shall constitute

as a chattel mortgage lien covering the cargo trucks and the

parties may allow an extension of 30 days and Marcha may

ask for a revocation of the contract and the reconveyance of

all trucks.

i. The obligation is further secured by a promissorynote executed by Coprada in favor of Akron. It isstated that the balance shall be paid from the

proceeds of a loan obtained from the Development

Bank of the Philippines (DBP) within 60 days

ii. After the lapse of 90 days, Marsha tried to collectfrom Coprada but the Coprada promised to pay only

upon the release of the DBP loan.

1. Marsha sent Coprada a letter of demanddated May 10, 1978.

a. Coprada reiterated that he wasapplying for a loan from the DBP

from the proceeds of which

payment of the obligation shall be

made.

c. Meanwhile, 2 of the trucks were sold under a pacto deretrosale to a Mr. Bais of the Perpetual Loans and SavingsBank at Baclaran.

i. March 15, 1978: sale was authorized by boardresolution

3. Marsha found that no loan application was ever filed by Akron withDBP.

4. Akron paid rentals of P 500/day pursuant to a subsequentagreement, from April 27, 1978 (the end of the 90-days to pay thebalance) to May 31, 1978. Thereafter, no more rental payments

were made.

5. June 17, 1978: Coprada wrote Marsha begging for a grace period ofuntil the end of the month to pay the balance of the purchase price;

that he will update the rentals within the week; and in case he fails,

then he will return the 13 units should Marsha elect

6. August 1, 1978: Marsha through counsel, wrote Akron demandingthe return of the 13 trucks and the payment of P 25K back rentalsfrom June 1 to August 1, 1978.

7. August 8, 1978: Coprada asked for another grace period of up toAugust 31, 1978 to pay the balance, stating as well that he is

expecting the approval of his loan application from a financing

company, and that 10 trucks have been returned to Bagbag,

Novaliches.

8. December 9, 1978: Coprada informed Marsha that he had returned10 trucks to Bagbag and that a resolution was passed by the boardof directors confirming the deed of assignment to Marsha of P 475K


14/27

from the proceeds of a loan obtained by Akron from the State

Investment House, Inc.

9. In due time, Marsha filed a compliant for the recovery of P 525K orthe return of the 13 trucks with damages against Akron and its

officers and directors

a. Remo Jr. sold all his shares in Akron to Coprada. It alsoappears that Akron amended its articles of incorporation

thereby changing its name to Akron Transport International,

Inc. which assumed the liability of Akron to Marsha.

10.CA affirmed RTC: favor of MarshaISSUE: W/N Remo Jr. should be held personally liable together with Akron

Transport International, Inc.

HELD: NO. Petition is granted.

The environmental facts of this case show that there is no cogentbasis to pierce the corporate veil of Akron and hold petitioner

personally liable

While it is true that in December, 1977 petitioner was still a memberof the board of directors of Akron and that he participated in the

adoption of a resolution authorizing the purchase of 13 trucks for the

use in the brokerage business of Akron to be paid out of a loan to be

secured from a lending institution, it does not appear that saidresolution was intended to defraud anyone

Coprada, President and Chairman of Akron, who negotiatedo The word "WE' in the said promissory note must refer to the

corporation which Coprada represented in the execution of

the note and not its stockholders or directors. Petitioner did

not sign the said promissory note so he cannot be personally

bound thereby.

As to the sale through pacto de retro of the two units to a thirdperson by the corporation by virtue of a board resolution, Remo Jr.

asserts that he never signed the resolution.

o Be that as it may, the sale is not inherently fraudulent as the13 units were sold through a deed of absolute sale to Akron

so that the corporation is free to dispose of the same. Of

course, it was stipulated that in case of default , a chattelmortgage lien shall be constituted on the 13 units.

the new corporation confirmed and assumed the obligation of theold corporation. There is no indication of an attempt on the part of

Akron to evade payment of its obligation

it is his inherent right as a stockholder to dispose of his shares ofstock anytime he so desires.

Fraud must be established by clear and convincing evidence. If at all,the principal character on whom fault should be attributed is

Feliciano Coprada, the President of Akron. Fortunately, a judgment

against him from the trial court has long been final and executory.

RAMIREZ VS. ORIENTALIST CO AND FERNANDEZ (38 Phil. 634; 1918)

In this case, the board of directors, before the financial inability of

the corporation to proceed with the project was revealed, had already

recognized the contracts as being in existence and had proceed with the

necessary steps to utilize the films. The subsequent action by thestockholders in not ratifying the contract must be ignored. The functions of

the stockholders are limited of nature. The theory of a corporation is that the

stockholders may have all the profits but shall return over the complete

management of the enterprise to their representatives and agents, called

directors. Accordingly, there is little for the stockholders to do beyond

electing directors, making by-laws, and exercising certain other special

powers defined by law. In conformity with this idea, it is settled that

contracts between a corporation and a third person must be made by

directors and not stockholders.


15/27

INDOPHIL TEXTILE MILL WORKERS UNION V. CALICA (205 SCRA

698)

Rule: The doctrine of piercing the veil of corporate entity applies when

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 controlledand its affairs are so conducted as to make it merely an instrumentality,

agency, conduit or adjunct of another corporation.

Case at bar: Union sought to pierce corporate veil alleging that the creation

of Acrylic is a devise to evade the application of the CBA Indophil had with

them (or it sought to include the other union in its bargaining leverage).

SC: Legal corporate entity is disregarded only if it is sought to hold the

officers and stockholders directly liable for a corporate debt or obligation.

Union does not seek to impose such claim against Acrylic. Mere fact thatbusinesses were related, that some of the employees of Indophil are the

same persons manning and providing for auxiliary services to the other

company, and that physical plants, officers and facilities are situated in the

same compound - not sufficient to apply doctrine.

THE BOARD OF LIQUIDATORS V. HEIRS OF MAXIMO KALAW (20

SCRA 987; 1967)

Kalaw was a corporate officer entrusted with general management

and control of NACOCO. He had implied authority to make any contract ordo any act which is necessary for the conduct of the business. He may,

without authority from the board, perform acts of ordinary nature for as long

as these redound to the interest of the corporation. Particularly, he

contracted forward sales with business entities. Long before some of these

contracts were disputed, he contracted by himself alone, without board

approval. All of the members of the board knew about this practice and

have entrusted fully such decisions with Kalaw. He was never questioned

nor reprimanded nor prevented from this practice. In fact, the board itself,

through its acts and by acquiescence, have laid aside the by-law requirement

of prior board approval. Thus, it cannot now declare that these contracts(failures) are not binding on NACOCO.

EVANGELISTA vs. SANTOS

Facts: Plaintiffs are minority stockholders of the Vitali Lumber Company,

Inc., a Philippine corporation organized for the exploitation of a lumber

concession in Zamboanga, Philippines; that defendant holds more than 50

per cent of the stocks of said corporation and also is and always has been

the president, manager, and treasurer thereof; and that defendant, in such

triple capacity, through fault, neglect, and abandonment allowed its lumber

concession to lapse and its properties and assets to disappear, thus causing

the complete ruin of the corporation and total depreciation of its stocks.

Their complaint therefore prays for judgment requiring defendant: (1) to

render an account of his administration of the corporate affairs and assets:

(2) to pay plaintiffs the value of their respective participation in said assets

on the basis of the value of the stocks held by each of them; and (3) to pay

the costs of suit.

The complaint does not give plaintiffs residence, but, for purposes of venue,

alleges that defendant resides at 2112 Dewey Boulevard, corner Libertad

Street, Pasay, province of Rizal. Having been served with summons at thatplace, defendant filed a motion for the dismissal of the complaint on the

ground of improper venue and also on the ground that the complaint did not

state a cause of action in favor of plaintiffs.

In support of the objection to the venue, defendant states that he is a

resident of Iloilo City and not of Pasay, defendant also presented further

affidavit to the effect that while he has a house in Pasay, where members of

his family who are studying in Manila live and where he himself is sojourning

for the purpose of attending to his interests in Manila, yet he has his

permanent residence in the City of Iloilo where he is registered as a voter for

election purposes and has been paying his residence certificate.Issue:Whether or not defendant is a resident of Iloilo, therefore, there was

no proper venue when he was served with summons in Pasay.

Held:The facts in this case show that the objection to the venue is well-founded. Where the plaintiff is a nonresident and the contract upon whichsuit is brought was made in the Philippine Islands it may safely be assertedthat the convenience of the defendant would be best served by a trial in theprovince where he resides. The fact that defendant was sojourning in Pasayat the time he was served with summons does not make him a resident ofthat place for purposes of venue. Residence is the permanent home, theplace to which, whenever absent for business or pleasure, one intends to

return.


16/27

Alhambra Cigar & Cigarette Manufacturing Company, Inc. vs

Securities and Exchange Commission

Corporation Law Corporate Lifespan

On January 15, 1912, Alhambra Cigar & Cigarette Manufacturing

Company, Inc. was incorporated. Its lifespan was for 50 years so on

January 15, 1962, it expired. Thereafter, its Board authorized itsliquidation. Under the prevailing law, Alhambra has 3 years to

liquidate.

In 1963, while Alhambra was liquidating, Republic Act 3531 was

enacted. 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.

Alhambra now amended its articles of incorporation to extend its

lifespan for another 50 years. The Securities and Exchange

Commission (SEC) denied the amended articles of incorporation.

ISSUE: Whether or not a corporation under liquidation may still

amend its articles of incorporation to extend its lifespan.

HELD: No.

Alhambra cannot avail of the new law because it has already expired

at the time of its passage. When a corporation is liquidating pursuant

to the statutory period of three years to liquidate, it is only allowed

to continue for the purpose of final closure of its business and no

other purposes. In fact, within that period, the corporation is enjoined

from continuing the business for which it was established. Hence,

Alhambras board cannot validly amend its articles of incorporation to

extend its lifespan.

Ramirez vs Orientalist Co.

Facts:

Orientalist Company was engaged in the business of maintaining and

conducting a theatre in the city of Manila for the exhibition of

cinematographic films. engaged in the business of marketing films for a

manufacturer or manufacturers, there engaged in the production or

distribution of cinematographic material. In this enterprise the plaintiff wasrepresented in the city of Manila by his son, Jose Ramirez. The directors of

the Orientalist Company became apprised of the fact that the plaintiff in

Paris had control of the agencies for two different marks of films, namely,

the Eclair Films and the Milano Films; and negotiations were begun with

said officials of the Orientalist Company by Jose Ramirez, as agent of the

plaintiff. The defendant Ramon J. Fernandez, one of the directors of the

Orientalist Company and also its treasure, was chiefly active in this matter.

Ramon J. Fernandez had an informal conference with all the members of the

companys board of directors except one, and with approval of t hose with

whom he had communicated, addressed a letter to Jose Ramirez, in Manila,accepting the offer contained in the memorandum the exclusive agency of

the Eclair films and Milano films. In due time the films began to arrive in

Manila, it appears that the Orientalist Company was without funds to meet

these obligations. Action was instituted by the plaintiff to Orientalist

Company, and Ramon J. Fernandez for sum of money.

Issue: WON the Orientalist Co. is liable for the acts of its treasurer,

Fernandez?

Held: Yes.It will be observed that Ramon J. Fernandez was the particular officer and

member of the board of directors who was most active in the effort to secure

the films for the corporation. The negotiations were conducted by him with

the knowledge and consent of other members of the board; and the contract

was made with their prior approval. In the light of all the circumstances of

the case, we are of the opinion that the contracts in question were thus

inferentially approved by the companys board of directors and that the

company is bound unless the subsequent failure of the stockholders to

approve said contracts had the effect of abrogating the liability thus created.


17/27

BARRETO V. LA PREVISORA FILIPINA

An amendment to the by-laws of a loan and building association which

provides for the payment of life pension to the persons named therein for

past services they have gratuitously rendered to the association cannot be

held to be in consonance with the power granted to corporations to grant

salaries to their board of directors. The authority conferred uponcorporations refers only to providing compensation for the future services of

directors, officers, and employees thereof after the adoption of the by-law or

other provision in relation thereto, and cannot in any sense be held to

authorize the giving of continuous compensation to particular directors after

their employment has terminated for past services rendered gratuitously by

them to the corporation.

STRONG V. REPIDE

The director and controlling stockholder who purchased the shares of

another stockholder through an agent was held to be guilty of concealing the

impending purchase of the friar lands they own by the government, a

significant fact which would affect the price of the shares. Although

ordinarily, the relationship between directors and stockholders of a

corporation is not of a fiduciary character as to oblige the director to disclose

to a stockholder the general knowledge which he may possess regarding the

value of the shares of the company before he purchases any form a

shareholder, there are cases when such duty and obligation upon the

director is present. Being the chief negotiator for the sale of the lands, thedirector was the only person who knew of the advantages and the

impending increase in the value of the shares such that he is precluded from

acquiring stocks from other shareholders without first informing them of the

pertinent facts affecting the value of the shares being bought.

It is fraudulent for a stockholder to buy from a shareholder without

disclosing his identity.

EVERETT V. ASIA BANKING (49 Phil. 512; 1926)

This case illustrates how VTA can give rise to effective control and

how it can be abused. Original stockholders can set aside the VTA when their

rights are trampled upon by the trustee.

REPUBLIC BANK V. CUADERNO, ET AL

Facts:

This is an appeal from a dismissal of the case against respondent Roman for

alleged fraudulent grant of loans to relatives (while he was chairman of the

Board of Directors of Republic Bank and its Executive Loan Committee) and

for the selection of respondents Cuaderno and Dizon (as technical consultant

and chairman of the board respectively) in order to shield himself from the

alleged wrongdoing and from any prosecution that may be instituted against

him. The complaint also alleges that the present composition of the board of

directors of the bank are constituted by men chosen by respondent Romanso that it was futile to ask them, in the first place, to institute this action on

behalf of the bank.

Ruling:

In a derivative suit, the corporation is the real party in interest and the

stockholder is merely a nominal party. Normally, it is the corporation

through its board of directors that should bring the suit. But where, as in this

case and it is alleged in the complaint, that the members of the board of

directors of the bank were the nominees and creatures of respondent

Roman, thus, any demand for an intra-corporate remedy would be futile, thestockholder is permitted to bring a derivative suit.

As to the question of should the corporation be made a party, the English

practice is to make the corporation a party plaintiff while in the US the

practice is to make it a party defendant. However, in our jurisdiction what is

important is that the corporation should be made a party in order to make

the courts judgment binding upon it, and thus bar future litigation of the

issues. Misjoinder of parties (in a derivative suit) is not a ground to dismiss

the action.


18/27

Charles Mead vs E. C. McCullough

Corporation Law The Corporation and Its Members

Charles Mead, Edwin McCullough and three others organized the corporation

called The Philippine Engineering and Construction Company (PECC). The 4

organizers, except Mead, contributed to the majority of the capital stock of

PECC, the remaining shares were offered to the public. Mead contributedsome personal properties. Mead was assigned as a manager but he resigned

as such when he accepted an engineering job in China. But even so, he

remained as one of the five directors (the organizers).

At that time, PECC was already incurring losses. McCullough, the president,

proposed that he shall buy the assets of the corporation. The three other

directors then voted in favor of this proposal hence the assets were

transferred to McCullough. Mead learned of this and so he opposed it

because the personal properties he contributed were also transferred to

McCullough.

Mead also argued that under the articles of incorporation of PECC, the boardof directors only have ordinary powers; that the authorization made by the

three directors to allow the sale of company assets to McCullough constitutes

an act of agency which is invalid at that because no express commission was

made, i.e., no power of attorney was made in favor of the directors. The

requirement for a commission can be inferred from Article 1713 of the Civil

Code which provides:

An agency stated in general terms only includes acts of administration.

In order to compromise, alienate, mortgage, or execute any other

act of strict ownership an express commission is required. (Emphasissupplied).

Mead also insists that under their charter, no resolution affecting the

administration of the affairs of PECC should be binding upon the corporation

unless the unanimous consent of the entire board was first obtained

ISSUE:

Whether or not the three directors had the authority to allow the

sale/transfer of the company assets to McCullough.

HELD:Yes.

Several factors have to be considered. First is the fact that Mead abandoned

his post when he took the job offer to work in China. He knew for a fact that

the nature of the job offered is permanent. Second, a close reading of thearticles of incorporation of PECC shows that there is no such intention for

unanimity when it comes to votes affecting matters of administration. The

only requirement is that At least three of said board must be present in

order to constitute a legal meeting. Which was complied with when the

other four directors were present when the decision to transfer the company

assets was made.

Third is the fact that PECC was in a downhill situation. A corporation is

essentially a partnership, except in form. The directors are the trustees or

managing partners, and the stockholders are the cestui que trust and have ajoint interest in all the property and effects of the corporation. McCullough

as a director himself and the president can be considered an agent but not

the agent contemplated in Article 1713 of the Civil Code. Article 1713 deals

with the broad aspect of agency and in ordinary cases but not in the case of

a corporation and its directors. In the case at bar, the more appropriate

analogy is that PECC, being a losing corporation, has its directors as the

trustees. The trustees-directors hold the company assets in trust for the

beneficiaries, which are the creditors. As trustees, they decided that it is

beneficial to sell the company assets to McCullough to at least recover some

cash equivalents in the winding up of the corporate affairs. Besides, there isno prohibition against the selling of company assets to one of its directors

either from law or from PECCs articles of incorporation.


19/27

Yao Ka Sin Trading vs Court of Appeals

Corporation Law Liability of Officers Apparent Authority

In 1973, Constancio Maglana, president of Prime White Cement Corporation, sent anoffer letter to Yao Ka Sin Trading. The offer states that Prime White is willing to sell45,000 bags of cement at P24.30 per bag. The offer letter was received by Yao KaSins manager, Henry Yao. Yao accepted the letter and pursuant to the letter, he senta check in the amount of P243,000.00 equivalent to the value of 10,000 bags of

cement. However, the Board of Directors of Prime White rejected the of fer letter sentby Maglana but it considered Yaos acceptance letter as a new contract offer hencethe Board sent a letter to Yao telling him that Prime White is instead willing to sellonly 10,000 bags to Yao Ka Sin and that he has ten days to reply; that if no reply ismade by Yao then they will consider it as an acceptance and that thereafter PrimeWhite shall deposit the P243k check in its account and then deliver the cements toYao Ka Sin. Henry Yao never replied.Later, Yao Ka Sin sued Prime White to compel the latter to comply with what Yao KaSin considered as the true contract, i.e., 45,000 bags at P24.30 per bag. Prime Whitein its defense averred that although Maglana is empowered to sign contracts in behalfof Prime White, such contracts are still subject to approval by Prime Whites Board,and then it still requires further approval by the National Investment andDevelopment Corporation (NIDC), a government owned and controlled corporation

because Prime White is a subsidiary of NIDC.

Henry Yao asserts that the letter from Maglana is a binding contract because it wasmade under the apparent authority of Maglana. The trial court ruled in favor of YaoKa Sin. The Court of Appeals reversed the trial court.

ISSUE:Whether or not the president of a corporation is clothed with apparent authority toenter into binding contracts with third persons without the authority of the Board.

HELD: No.The Board may enter into contracts through the president. The president may onlyenter into contracts upon authority of the Board. Hence, any agreement signed by

the president is subject to approval by the Board. Unlike a general manager (like thecase of Francisco vs GSIS), the president has no apparent authority to enter intobinding contracts with third persons. Further, if indeed the by-laws of Prime White didprovide Maglana with apparent authority, this was not proven by Yao Ka Sin.As a rule, apparent authority may result from (1) the general manner, by which thecorporation holds out an officer or agent as having power to act or, in other words,the apparent authority with which it clothes him to act in general or (2) acquiescencein his acts of a particular nature, with actual or constructive knowledge thereof,whether within or without the scope of his ordinary powers. These are not present inthis case.Also, the subsequent letter by Prime White to Yao Ka Sin is binding because Yao KaSins failure to respond constitutes an acceptance, per stated in the letter itself which was not contested by Henry Yao during trial.

Francisco vs GSIS (1963)

Facts:

The plaintiff, Trinidad J. Francisco, in consideration of a loan mortgaged in

favor of the defendant, Government Service Insurance System a parcel of

land known as Vic-Mari Compound, located at Baesa, Quezon City. The

System extrajudicially foreclosed the mortgage on the ground that up to that

date the plaintiff-mortgagor was in arrears on her monthly instalments. TheSystem itself was the buyer of the property in the foreclosure sale. The

plaintiffs father, Atty. Vicente J. Francisco, sent a letter to the general

manager of the defendant corporation, Mr. Rodolfo P. Andal. And latter the

System approved the request of Francisco to redeem the land through a

telegram. Defendant received the payment and it did not, however, take

over the administration of the compound. The System then sent a letter to

Francisco informing of his indebtedness and the 1 year period of redemption

has been expired. And the System argued that the telegram sent to

Francisco saying that the System has approved the request in redeeming the

property is incorrect due to clerical problems.

Issue:

WON the System is liable for the acts of its employees regarding the

telegram?

Held: Yes.

There was nothing in the telegram that hinted at any anomaly, or gave

ground to suspect its veracity, and the plaintiff, therefore, can not be blamed

for relying upon it. There is no denying that the telegram was within Andals

apparent authority. Hence, even if it were the board secretary who sent thetelegram, the corporation could not evade the binding effect produced by the

telegram. Knowledge of facts acquired or possessed by an officer or agent of

a corporation in the course of his employment, and in relation to matters

within the scope of his authority, is notice to the corporation, whether he

communicates such knowledge or not. Yet, notwithstanding this notice, the

defendant System pocketed the amount, and kept silent about the telegram

not being in accordance with the true facts, as it now alleges. This silence,

taken together with the unconditional acceptance of three other subsequent

remittances from plaintiff

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