G.R. No.

211145, October 14, 2015

SAMAHAN NG MANGGAGAWA SA HANJIN SHIPYARD REP. BY ITS PRESIDENT,

ALFIE ALIPIO, Petitioner, v. BUREAU OF LABOR RELATIONS, HANJIN HEAVY
INDUSTRIES AND CONSTRUCTION CO., LTD. (HHIC-PHIL.), Respondents.

Facts

On February 16, 2010, Samahan, through its authorized representative, Alfie F. Alipio, filed an
application for registration of its name "Samahan ng Mga Manggagawa sa Hanjin Shipyard"
with the DOLE. Attached to the application were the list of names of the association's officers
and members, signatures of the attendees of the February 7, 2010 meeting, copies of their
Constitution and By-laws. The application stated that the association had a total of 120 members.

On February 26, 2010, the DOLE Regional Office No. 3, City of San Fernando, Pampanga
(DOLE-Pampanga), issued the corresponding certificate of registration in favor of Samahan.

On March 15, 2010, respondent Hanjin Heavy Industries and Construction Co., Ltd. Philippines
(Hanjin), with offices at Greenbeach 1, Renondo Peninsula, Sitio Agustin, Barangay Cawag,
Subic Bay Freeport Zone, filed a petition with DOLE-Pampanga praying for the cancellation of
registration of Samahan's association on the ground that its members did not fall under any of the
types of workers enumerated in the second sentence of Article 243 (now 249).

Hanjin opined that only ambulant, intermittent, itinerant, rural workers, self-employed, and those
without definite employers may form a workers' association. It further posited that one third (1/3)
of the members of the association had definite employers and the continued existence and
registration of the association would prejudice the company's goodwill.

On March 18, 2010, Hanjin filed a supplemental petition, adding the alternative ground that
Samahan committed a misrepresentation in connection with the list of members and/or voters
who took part in the ratification of their constitution and by-laws in its application for
registration. Hanjin claimed that Samahan made it appear that its members were all qualified to
become members of the workers' association.

On March 26, 2010, DOLE-Pampanga called for a conference, wherein Samahan requested for a
10-day period to file a responsive pleading. No pleading, however, was submitted. Instead,
Samahan filed a motion to dismiss on April 14, 2010.
Issue:

Whether the CA erred in ordering the removal of Hanjin in the name of the Union.

Held:

Yes. Based on the foregoing, the Court concludes that misrepresentation, to be a ground for the
cancellation of the certificate of registration, must be done maliciously and deliberately. Further,
the mistakes appearing in the application or attachments must be grave or refer to significant
matters. The details as to how the alleged fraud was committed must also be indubitably shown.

The records of this case reveal no deliberate or malicious intent to commit misrepresentation on
the part of Samahan. The use of such words "KAMI, ang mga Manggagawa sa HANJIN
Shipyard" in the preamble of the constitution and by-laws did not constitute misrepresentation so
as to warrant the cancellation of Samahan's certificate of registration. Hanjin failed to indicate
how this phrase constitutes a malicious and deliberate misrepresentation. Neither was there any
showing that the alleged misrepresentation was serious in character. Misrepresentation is a
devious charge that cannot simply be entertained by mere surmises and conjectures.

Even granting arguendo that Samahan's members misrepresented themselves as employees or

workers of Hanjin, said misrepresentation does not relate to the adoption or ratification of its
constitution and by-laws or to the election of its officers.
G.R. No. 203786, October 23, 2013

AQUILES RIOSA, Petitioners, v. TABACO LA SUERTE CORPORATION, Respondent.

Facts:

On February 26, 2002, petitioner Aquiles Riosa (Aquiles) filed his Complaint for
Annulment/Declaration of Nullity of Deed of Absolute Sale and Transfer Certificate of Title,
Reconveyance and Damages against respondent Tabaco La Suerte Corporation (La Suerte)
before the RTC.

In his complaint, Aquiles alleged that he was the owner and in actual possession of a 52-square
meter commercial lot situated in Barangay Quinale, Tabaco City, Albay; that he acquired the said
property through a deed of cession and quitclaim executed by his parents, Pablo Riosa, Sr. and
Sabiniana Biron; that he declared the property in his name and had been religiously paying the
realty tax on the said property; that thereafter, his daughter, Annie Lyn Riosa Zampelis,
renovated the commercial building on the lot and introduced improvements costing no less than
P300,000.00; that subsequently, on three (3) occasions, he obtained loans from Sia Ko Pio in the
total amount of P50,000.00; that as a security for the payment of loans, Sia Ko Pio requested
from him a photocopy of the deed of cession and quitclaim; that Sia Ko Pio presented to him a
document purportedly a receipt for the P50,000.00 loan with an undertaking to pay the total
amount of P52,000.00 including the P2,000.00 attorneys fees; that without reading the
document, he affixed his signature thereon; and that in September 2001, to his surprise, he
received a letter from La Suerte informing him that the subject lot was already registered in its
name.

Aquiles claimed that by means of fraud, misrepresentation and deceit employed by Sia Ko Pio,
he was made to sign the document which he thought was a receipt and undertaking to pay the
loan, only to find out later that it was a document of sale. Aquiles averred that he did not appear
before the notary public to acknowledge the sale, and that the notary public, a municipal judge,
was not authorized to notarize a deed of conveyance. He further claimed that he could not have
sold the commercial building on the lot as he had no transmissible right over it, as it was not
included in the deed of cession and quitclaim. He, thus, prayed for the nullification of the deed
of sale and certificate of title in the name of La Suerte and the reconveyance of the subject
property to him.4

In its Answer, La Suerte averred that it was the actual and lawful owner of the commercial
property, after purchasing it from Aquiles on December 7, 1990; that it allowed Aquiles to
remain in possession of the property to avoid the ire of his father from whom he had acquired the
property inter vivos, subject to his obligation to vacate the premises anytime upon demand; that
on February 13, 1991, the Register of Deeds of Albay issued Transfer Certificate of Title (TCT)
No. T-80054 covering the subject property in its name; that Aquiles necessarily undertook the
cost of repairs and did not pay rent for using the premises; that Aquiles transacted with it,
through Sia Ko Pio, now deceased, who was then its Chief Executive Officer; that his opinion
that only the land was sold was absurd because the sale of the principal included its accessories,
not to mention that he did not make any reservation at the time the deed was executed; that it
repeatedly asked Aquiles to vacate the premises but to no avail; that, instead, he tried to renovate
the building in 2001 which prompted it to lodge a complaint with the Office of the Mayor on the
ground that the renovation work was without a building permit; and that Aquiles complaint was
barred by prescription, laches, estoppel and indefeasibility of La Suertes title.5

ISSUE:

Whether Tabaco is the real owner of the disputed property

Held:

No. As to La Suertes contention that a deed of absolute sale was purportedly executed by
Aquiles in its favor, it failed to adduce convincing evidence to effectively rebut his consistent
claim that he was not aware that what he had signed was already an instrument of sale,
considering his trust and confidence on Sia Ko Pio who was his long-time friend and former
employer.

The fact that the alleged deed of sale indubitably bore Aquiles signature deserves no evidentiary
value there being no consent from him to part with his property. Had he known that the
document presented to him was an instrument of sale, he would not have affixed his signature on
the document. It has been held that the existence of a signed document purporting to be a
contract of sale does not preclude a finding that the contract is invalid when the evidence shows
that there was no meeting of the minds between the seller and buyer.19

Indeed, if Aquiles sold the property in favor of La Suerte, he would not have religiously and
continuously paid the real property taxes. Also of note is the fact that his daughter spent
P300,000.00 for the renovation of improvements. More important, La Suerte did not earlier ask
him to transfer the possession thereof to the company. These uncontroverted attendant
circumstances bolster Aquiles positive testimony that he did not sell the property.
And for said reasons, the CA should not have favorably considered the validity of the deed of
absolute sale absent any written authority from La Suertes board of directors for Sia Ko Pio to
negotiate and purchase Aquiles property on its behalf and to use its money to pay the purchase
price. The Court notes that when Sia Ko Pios son, Juan was presented as an officer of La
Suerte, he admitted that he could not find in the records of the corporation any board resolution
authorizing his father to purchase the disputed property.20 In Spouses Firme v. Bukal
Enterprises and Development Corporation,21 it was written:chanRoblesvirtualLawlibrary

It is the board of directors or trustees which exercises almost all the corporate powers in a
corporation. Thus, the Corporation Code provides:
SEC. 23. The board of directors or trustees. Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stock, or where there is no stock, from among
the members of the corporation, who shall hold office for one (1) year and until their successors
are elected and qualified. x x x

SEC. 36. Corporate powers and capacity. Every corporation incorporated under this Code has
the power and capacity:

xxx

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise
deal with such real and personal property, including securities and bonds of other corporations,
as the transaction of a lawful business of the corporation may reasonably and necessarily require,
subject to the limitations prescribed by the law and the Constitution.

xxx
Under these provisions, the power to purchase real property is vested in the board of directors or
trustees. While a corporation may appoint agents to negotiate for the purchase of real property
needed by the corporation, the final say will have to be with the board, whose approval will
finalize the transaction. A corporation can only exercise its powers and transact its business
through its board of directors and through its officers and agents when authorized by a board
resolution or its by-laws. As held in AF Realty & Development, Inc. v. Dieselman Freight
Services, Co.:
Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may authorize
another to do certain acts in his behalf, so may the board of directors of a corporation validly
delegate some of its functions to individual officers or agents appointed by it. Thus, contracts or
acts of a corporation must be made either by the board of directors or by a corporate agent duly
authorized by the board. Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the corporation, but not in the
course of, or connected with, the performance of authorized duties of such director, are held not
binding on the corporation.22 [Emphases supplied]
In the case at bench, Sia Ko Pio, although an officer of La Suerte, had no authority from its
Board of Directors to enter into a contract of sale of Aquiles property. It is, thus, clear that the
loan obtained by Aquiles from Sia Ko Pio was a personal loan from the latter, not a transaction
between Aquiles and La Suerte. There was no evidence to show that Sia Ko Pio was clothed
with authority to use his personal fund for the benefit of La Suerte. Evidently, La Suerte was
never in the picture.

CALTEX (CHEVRON) PHILIPPINES, INC.

vs.
NLRC and ROMEO STO. TOMAS
GR 159641, 15 October 2007
FACTS:

In a letter dated October 21, 1996, Caltex informed the Department of Labor and
Employment (DOLE) of its plan to implement a redundancy program in its Marketing Division
and some departments in its Batangas Refinery for the period starting October 1996 to December
1998. The letter alleged that the redundancy program is a response to the market situation which
constrained petitioner to rationalize and simplify its business processes.
Santo Tomas was notified of his termination effective July 31, 1997 due to the
redundancy of his position and awarded him a separation package in the amount of P559,458.90.
On June 8, 1998, respondent filed with the Labor Arbiter a complaint for illegal dismissal against
petitioner and its President and Chief Executive Officer, Mr. Clifton Hon. Private respondent
alleged that: being petitioners regular employee, he is entitled to security of tenure; he did not
commit any serious misconduct, willful disobedience, gross and habitual neglect of duty or fraud
and willful breach of trust to warrant the penalty of dismissal from employment; there was no
independent proof or evidence presented by petitioner to substantiate its claim of redundancy nor
was he afforded due process as he was not given any opportunity to present his side; he was
dismissed due to his active participation in union activities; petitioner opened positions for hiring
some of which offered jobs that are the same as what private respondent was performing;
petitioner failed to give written notice to him and DOLE at least one month before the intended
date of termination as required by the Labor Code.

ISSUE:

Whether or not Santo Tomas was illegally dismissed.

RULING:

YES.

Caltex failed to prove the necessity of the redundancy program. It is the rule that the
characterization of an employees services as no longer necessary or sustainable, and therefore,
properly terminable, is an exercise of business judgment on the part of the employer, and that the
wisdom or soundness of such characterization or decision is not subject to discretionary review.
However, such characterization may be rejected if the same is found to be in violation of law or
is arbitrary or malicious.
In the instant case, there was no substantial evidence presented by petitioner to justify
private respondent's dismissal due to redundancy. As correctly found by the CA, petitioners
evidence to show redundancy merely consisted of a copy of petitioners letter to the DOLE
informing the latter of its intention to implement a redundancy program and nothing more. The
letter which merely stated that petitioner undertook a review, restructuring and streamlining of its
organization which resulted in consolidation, abolition and outsourcing of certain functions; and
which resulted in identified and redundant positions instead of simplifying its business process
restructuring, does not satisfy the requirement of substantial evidence, that is, the amount of
evidence which a reasonable mind might accept as adequate to justify a conclusion.
 Petitioner failed to demonstrate the superfluity of private respondents position as
there was nothing in the records that would establish any concrete and real factors
recognized by law and relevant jurisprudence, such as overhiring of workers, decreased
volume of business, or dropping of a particular product line or service activity previously
manufactured or undertaken by the enterprise, which were adopted by petitioner in
implementing the redundancy program.

LAUREANO INVESTMENT & DEVELOPMENT CORPORATION

vs.
THE HONORABLE COURT OF APPEALS and BORMAHECO, INC.
G.R. No. 100468. May 6, 1997

FACTS:

The Spouses Reynaldo Laureano and Florence Laureano are majority stockholders of
petitioner Corporation who entered into a series of loan and credit transactions with Philippine
National Cooperative Bank. To secure payment of the loans, they executed Deeds of Real Estate
Mortgage dated December 11, 1962, January 9, 1963, July 2, 1963 and September 5, 1964, for
the following amounts: P100,000.00, P20,000.00, P70,000.00 and P13,424.04, respectively.
Spouses Laureano failed to pay their indebtedness, thus PNCB applied for extrajudicial
foreclosure of the real estate mortgages. The bank was the purchaser of the properties in question
in the foreclosure sale and titles thereof were consolidated in PNCB's name on February 20,
1984. PNCB did not secure a writ of possession nor did it file ejectment proceedings against the
Laureano spouses, because there were then pending cases involving the titles of ownership of
subject two lots, which are situated at Bel-Air Subdivision, Makati, Metro Manila.
Private respondent Bormaheco, Inc. became the successor of the obligations and
liabilities of PNCB over subject lots by virtue of a Deed of Sale/Assignment. Transfer Certificate
of Title Nos. 157724 and 157725 over the lots in question were issued on October 12, 1988 in the
name of Bormaheco.
Five (5) days after securing titles over the said properties, Petitioner Corporation filed on
January 18, 1989 its Motion for Intervention and to Admit Attached Complaint in Intervention in
said. Respondent Bormaheco filed its Motion to Strike out the Complaint in Intervention and all
related pleadings filed by LIDECO Corporation. The motion was granted stating that Intervenor
LIDECO Corporation and LAUREANO INVESTMENT AND DEVELOPMENT
CORPORATION are two (2) separate and distinct entities, therefore, no way whatsoever that
LIDECO Corporation's interests will be adversely affected by the outcome of the instant case.
Thus, intervenor LIDECO lacks personality to intervene in the instant

ISSUES:

Whether or not Respondent Bormaheco, Inc. is estopped from contesting the legal
personality to sue of "Lideco Corporation".

RULING:

NO.

Bad faith implies a conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity; bad faith contemplates a state of mind affirmatively operating with
furtive design or ill will.
Other than its bare allegations that private respondent acted in bad faith, petitioner failed
to show that the former acted consciously and deliberately to achieve a dishonest purpose or
moral obliquity, or was motivated by ill will. Rather, as discussed above, no false representation
was contrived nor concealment made by private respondent. Neither did it deliberately convey
facts other than, or inconsistent with, what it now asserts and upon which petitioner had relied or
acted upon due to the representations of private respondent.
BOARD OF LIQUIDATORS
vs.
HEIRS OF MAXIMO KALAW
GR L-18805, 14 August 1967

FACTS:

National Coconut Corporation (NACOCO) is with Maximo Kalaw as its General

Manager and Chairman of the BOD. Under his tenure NACOCO entered into different contracts
involving the trade of coconuts. It failed, however, due to natural calamities that greatly affected
the production of coconuts. This led to some customers of NACOCO suing the corporation for
undelivered coconuts due to them under the contracts that they signed. This was settled by
NACOCO by paying the customers.
Thereafter, NACOCO seeks to recover the above sum of P1,343,274.52 from general
manager and board chairman Maximo M. Kalaw, and directors Juan Bocar, Casimiro Garcia and
Leonor Moll. It charges Kalaw with negligence under Article 1902 of the old Civil Code (now
Article 2176, new Civil Code); and defendant board members, including Kalaw, with bad faith
and/or breach trust for having approved the contracts.

ISSUE:

Whether or not Kalaw may be held liable by NACOCO for the debts the corporation
incurred under his administration.

RULING:

NO.

They were done with implied authority from the BOD. These previous contracts, it
should be stressed, were signed by Kalaw without prior authority from the board. Said contracts
were known all along to the board members. Nothing was said by them. The aforesaid contracts
stand to prove one thing. Obviously NACOCO board met the difficulties attendant to forward
sales by leaving the adoption of means to end, to the sound discretion of NACOCO's general
manager Maximo M. Kalaw.
Settled jurisprudence has it that where similar acts have been approved by the directors as
a matter of general practice, custom, and policy, the general manager may bind the company
without formal authorization of the board of directors. In varying language, existence of such
authority is established, by proof of the course of business, the usages and practices of the
company and by the knowledge which the board of directors has, or must be presumed to have,
of acts and doings of its subordinates in and about the affairs of the corporation.
Authorities, great in number, are one in the idea that "ratification by a corporation of an
unauthorized act or contract by its officers or others relates back to the time of the act or contract
ratified, and is equivalent to original authority;" and that "[t]he corporation and the other party to
the transaction are in precisely the same position as if the act or contract had been authorized at
the time." The language of one case is expressive: "The adoption or ratification of a contract by a
corporation is nothing more nor less than the making of an original contract. The theory of
corporate ratification is predicated on the right of a corporation to contract, and any ratification
or adoption is equivalent to a grant of prior authority.
VALLEY GOLF & COUNTRY CLUB, Inc., petitioner
vs.
VDA. DE CARAM, respondent
G.R. No. 158805 April 16, 2009

FACTS:

Valley Golf & Country Club (Valley Golf) is a duly constituted non-stock, non-profit
corporation which operates a golf course. The members and their guests are entitled to play golf
on the said course and otherwise avail of the facilities and privileges provided by Valley
Golf. The shareholders are likewise assessed monthly membership dues.
In 1961, the late Congressman Fermin Z. Caram, Jr. (Caram), the husband of the present
respondent, subscribed to purchased and paid for in full one share (Golf Share) in the capital
stock of Valley Golf. He was issued Stock Certificate No. 389 dated 26 January 1961 for the Golf
Share. The Stock Certificate likewise indicates a par value of P9,000.00.
Valley Golf would subsequently allege that beginning 25 January 1980, Caram stopped
paying his monthly dues, which were continually assessed until 31 June 1987. Valley Golf claims
to have sent five (5) letters to Caram concerning his delinquent account within the period from
27 January 1986 until 3 May 1987, all forwarded to P.O. Box No. 1566, Makati Commercial
Center Post Office, the mailing address which Caram allegedly furnished Valley Golf.
The Golf Share was sold at public auction on 11 June 1987 for P25,000.00 after the
Board of Directors had authorized the sale in a meeting on 11 April 1987, and the Notice of
Auction Sale was published in the 6 June 1987 edition of the Philippine Daily Inquirer.

ISSUE:

Whether or not a non-stock corporation seize and dispose of the membership share of a
fully-paid member on account of its unpaid debts to the corporation when it is authorized to do
so under the corporate by-laws but not by the Articles of Incorporation.

RULING:

NO.

It may be conceded that the actions of Valley Golf were, technically speaking, in accord
with the provisions of its by-laws on termination of membership, vaguely defined as these are.
Yet especially since the termination of membership in Valley Golf is inextricably linked to the
deprivation of property rights over the Golf Share, the emergence of such adverse consequences
make legal and equitable standards come to fore.
The commentaries of Lopez advert to an SEC Opinion dated 29 September 1987 which
we can cite with approval. Lopez cites: In order that the action of a corporation in expelling a
member for cause may be valid, it is essential, in the absence of a waiver, that there shall be a
hearing or trial of the charge against him, with reasonable notice to him and a fair opportunity to
be heard in his defense. If the method of trial is not regulated by the by-laws of the association, it
should at least permit substantial justice. The hearing must be conducted fairly and openly and
the body of persons before whom it is heard or who are to decide the case must be unprejudiced.
It is unmistakably wise public policy to require that the termination of membership in a
non-stock corporation be done in accordance with substantial justice. No matter how one may
precisely define such term, it is evident in this case that the termination of Carams membership
betrayed the dictates of substantial justice.
ANTONIO PARDO
vs.
THE HERCULES LUMBER CO., INC., and IGNACIO FERRER
G.R. No. L-22442 August 1, 1924

FACTS:

The petitioner, Antonio Pardo, a stockholder in the Hercules Lumber Company, Inc., one
of the respondents herein, seeks by this original proceeding in the Supreme Court to obtain a writ
of mandamus to compel the respondents to permit the plaintiff and his duly authorized agent and
representative to examine the records and business transactions of said company. To this petition
the respondents interposed an answer, in which, after admitting certain allegations of the petition,
the respondents set forth the facts upon which they mainly rely as a defense to the petition. To
this answer the petitioner in turn interposed a demurrer, and the cause is now before us for
determination of the issue thus presented.

ISSUE:

Whether or not the respondent have the right to deny inspection request by petitioner.

RULING:

YES.

The general right given by the statute may not be lawfully abridged to the extent
attempted in this resolution. It may be admitted that the officials in charge of a corporation may
deny inspection when sought at unusual hours or under other improper conditions; but neither the
executive officers nor the board of directors have the power to deprive a stockholder of the right
altogether. A by-law unduly restricting the right of inspection is undoubtedly invalid. Authorities
to this effect are too numerous and direct to require extended comment. Under a statute similar to
our own it has been held that the statutory right of inspection is not affected by the adoption by
the board of directors of a resolution providing for the closing of transfer books thirty days
before an election.
It will be noted that our statute declares that the right of inspection can be exercised "at
reasonable hours." This means at reasonable hours on business days throughout the year, and not
merely during some arbitrary period of a few days chosen by the directors.
In addition to relying upon the by-law, to which reference is above made, the answer of
the respondents calls in question the motive which is supposed to prompt the petitioner to make
inspection; and in this connection it is alleged that the information which the petitioner seeks is
desired for ulterior purposes in connection with a competitive firm with which the petitioner is
alleged to be connected. It is also insisted that one of the purposes of the petitioner is to obtain
evidence preparatory to the institution of an action which he means to bring against the
corporation by reason of a contract of employment which once existed between the corporation
and himself. These suggestions are entirely apart from the issue, as, generally speaking, the
motive of the shareholder exercising the right is immaterial.
GMBH & CO.
vs.
Hon. ISNANI et al
G.R. No. 109272 August 10, 1994

FACTS:

Petitioner is a multinational company organized and existing under the laws of the
Federal Republic of Germany. On July 6, 1983, petitioner filed an application with the SEC for
the establishment of a RAH in the Philippines. The application was approved by the BOI on Sep.
6, 1983. Consequently, on Sep. 20, 1983, the SEC issued a Certificate of Registration and
License to petitioner.
Private respondent Romana Lanchinebre was a sales representative of petitioner. On
March 1992, she secured a loan of P25,000.00 from petitioner. Subsequently she made additional
cash advances in the sum of P10,000.00. Of the total amount, P12,170.37 remained unpaid.
Despite demand, private respondent Romana failed to settle her obligation.
On September 2, 1992, petitioner filed a Complaint for collection of sum of money
against private respondents spouses Romana and Teofilo Lanchinebre w/ the RTC. Instead of
filing their Answer, private respondents moved to dismiss the Complaint. This was opposed by
petitioner.

ISSUE:

Whether or not the petitioner has capacity to sue and be sued in the Philippines despite
the fact that petitioner is duly licensed by the SEC to set up and operate a RAH in the country
and that it has continuously operated as such for the last 9 years.

RULING:

YES.

It is clear that petitioner is a foreign corporation doing business in the Philippines. Hence,
Petitioner is covered by the Omnibus Investment Code of 1987. Petitioner does not engage in
commercial dealings or activities in the country because it is precluded from doing so by P.D.
No. 218, under which it was established.
Nonetheless, it has been continuously, since 1983, acting as supervision, communications
and coordination center for its home office's affiliates in Singapore, and in the process has named
its local agent and has employed Philippine nationals like private respondent Romana
Lanchinebre (an employee).
From this uninterrupted performance by petitioner of acts pursuant to its primary
purposes and functions as a regional/area headquarters for its home office, it is clear that
petitioner is doing business in the country. Moreover, private respondents are estopped from
assailing the personality of petitioner.
The rule is that a party is estopped to challenge the personality of a corporation after
having acknowledged the same by entering into a contract with it.
 And the doctrine of estoppel to deny corporate existence applies to foreign as well as to
domestic corporations. One who has dealt with a corporation of foreign origin as a corporate
entity is estopped to deny its corporate existence and capacity. The principle will be applied to
prevent a person contracting with a foreign corporation from later taking advantage of its
noncompliance with the statutes chiefly in cases where such person has received the benefits of
the contract.

G.R. No. 89252 May 24, 1993

RAUL SESBREO, petitioner,

vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS
BANK, respondents.
Salva, Villanueva & Associates for Delta Motors Corporation.

Reyes, Salazar & Associates for Pilipinas Bank.

Facts:

On 9 February 1981, petitioner Raul Sesbreo made a money market placement in the amount of
P300,000.00 with the Philippine Underwriters Finance Corporation ("Philfinance"), Cebu
Branch; the placement, with a term of thirty-two (32) days, would mature on 13 March 1981,
Philfinance, also on 9 February 1981, issued the following documents to petitioner:

(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one
(1) Delta Motors Corporation Promissory Note ("DMC PN") No. 2731 for a term
of 32 days at 17.0% per annum;

(b) the Certificate of securities Delivery Receipt No. 16587 indicating the sale of
DMC PN No. 2731 to petitioner, with the notation that the said security was in
custodianship of Pilipinas Bank, as per Denominated Custodian Receipt ("DCR")
No. 10805 dated 9 February 1981; and

(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of
petitioner's investment), with petitioner as payee, Philfinance as drawer, and
Insular Bank of Asia and America as drawee, in the total amount of P304,533.33.

On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance.
However, the checks were dishonored for having been drawn against insufficient funds.

On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas,
Makati Branch, and handed her a demand letter informing the bank that his placement with
Philfinance in the amount reflected in the DCR No. 10805 had remained unpaid and outstanding,
and that he in effect was asking for the physical delivery of the underlying promissory note.
Petitioner then examined the original of the DMC PN No. 2731 and found: that the security had
been issued on 10 April 1980; that it would mature on 6 April 1981; that it had a face value of
P2,300,833.33, with the Philfinance as "payee" and private respondent Delta Motors Corporation
("Delta") as "maker;" and that on face of the promissory note was stamped "NON
NEGOTIABLE." Pilipinas did not deliver the Note, nor any certificate of participation in respect
thereof, to petitioner.

Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981, again asking
private respondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas
allegedly referred all of petitioner's demand letters to Philfinance for written instructions, as has
been supposedly agreed upon in "Securities Custodianship Agreement" between Pilipinas and
Philfinance. Philfinance did not provide the appropriate instructions; Pilipinas never released
DMC PN No. 2731, nor any other instrument in respect thereof, to petitioner.

Petitioner also made a written demand on 14 July 1981 3 upon private respondent Delta for the
partial satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had
assigned to him said Note to the extent of P307,933.33. Delta, however, denied any liability to
petitioner on the promissory note, and explained in turn that it had previously agreed with
Philfinance to offset its DMC PN No. 2731 (along with DMC PN No. 2730) against Philfinance
PN No. 143-A issued in favor of Delta.

In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the
Securities and exchange commission ("SEC") and the Central Bank. Pilipinas delivered to the
SEC DMC PN No. 2731, which to date apparently remains in the custody of the SEC.

As petitioner had failed to collect his investment and interest thereon, he filed on 28 September
1982 an action for damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21,
against private respondents Delta and Pilipinas. The trial court, in a decision dated 5 August
1987, dismissed the complaint and counterclaims for lack of merit and for lack of cause of
action, with costs against petitioner.

Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a Decision

dated 21 March 1989, the Court of Appeals denied the appeal and held:

Be that as it may, from the evidence on record, if there is anyone that appears
liable for the travails of plaintiff-appellant, it is Philfinance. As correctly observed
by the trial court:

This act of Philfinance in accepting the investment of plaintiff and

charging it against DMC PN No. 2731 when its entire face value
was already obligated or earmarked for set-off or compensation is
difficult to comprehend and may have been motivated with bad
faith. Philfinance, therefore, is solely and legally obligated to
return the investment of plaintiff, together with its earnings, and to
answer all the damages plaintiff has suffered incident thereto.
Unfortunately for plaintiff, Philfinance was not impleaded as one
of the defendants in this case at bar; hence, this Court is without
jurisdiction to pronounce judgement against it. (p. 11, Decision)
 WHEREFORE, finding no reversible error in the decision appealed from, the
same is hereby affirmed in toto. Cost against plaintiff-appellant.

Petitioner moved for reconsideration of the above Decision, without success.

Hence, this Petition for Review on Certiorari.

Issue:

Whether the petition is worthy of merit.

Held:

After consideration of the allegations contained and issues raised in the pleadings, the Court
resolved to give due course to the petition and required the parties to file their respective
memoranda.

There are at least two (2) sets of relationships which we need to address: firstly, the relationship
of petitioner vis-a-vis Delta; secondly, the relationship of petitioner in respect of Pilipinas.
Actually, of course, there is a third relationship that is of critical importance: the relationship of
petitioner and Philfinance. However, since Philfinance has not been impleaded in this case,
neither the trial court nor the Court of Appeals acquired jurisdiction over the person of
Philfinance. It is, consequently, not necessary for present purposes to deal with this third
relationship, except to the extent it necessarily impinges upon or intersects the first and second
relationships.

Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be
distinguished from the assignment or transfer of an instrument whether that be negotiable or
non-negotiable. Only an instrument qualifying as a negotiable instrument under the relevant
statute may be negotiated either by indorsement thereof coupled with delivery, or by delivery
alone where the negotiable instrument is in bearer form. A negotiable instrument may, however,
instead of being negotiated, also be assigned or transferred. The legal consequences of
negotiation as distinguished from assignment of a negotiable instrument are, of course, different.
A non-negotiable instrument may, obviously, not be negotiated; but it may be assigned or
transferred, absent an express prohibition against assignment or transfer written in the face of the
instrument:
 The words "not negotiable," stamped on the face of the bill of lading, did not
destroy its assignability, but the sole effect was to exempt the bill from the
statutory provisions relative thereto, and a bill, though not negotiable, may be
transferred by assignment; the assignee taking subject to the equities between the
original parties.

The Court found nothing in his "Letter of Agreement" which can be reasonably construed as a
prohibition upon Philfinance assigning or transferring all or part of DMC PN No. 2731, before
the maturity thereof. It is scarcely necessary to add that, even had this "Letter of Agreement" set
forth an explicit prohibition of transfer upon Philfinance, such a prohibition cannot be invoked
against an assignee or transferee of the Note who parted with valuable consideration in good
faith and without notice of such prohibition. It is not disputed that petitioner was such an
assignee or transferee. Our conclusion on this point is reinforced by the fact that what
Philfinance and Delta were doing by their exchange of their promissory notes was this: Delta
invested, by making a money market placement with Philfinance, approximately P4,600,000.00
on 10 April 1980; but promptly, on the same day, borrowed back the bulk of that placement, i.e.,
P4,000,000.00, by issuing its two (2) promissory notes: DMC PN No. 2730 and DMC PN No.
2731, both also dated 10 April 1980. Thus, Philfinance was left with not P4,600,000.00 but only
P600,000.00 in cash and the two (2) Delta promissory notes.

t is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No.
2731 to Philfinance, an entity engaged in the business of buying and selling debt instruments and
other securities, and more generally, in money market transactions. In Perez v. Court of
Appeals, the Court, speaking through Mme. Justice Herrera, made the following important
statement:

There is another aspect to this case. What is involved here is a money market
transaction. As defined by Lawrence Smith "the money market is a market dealing
in standardized short-term credit instruments (involving large amounts) where
lenders and borrowers do not deal directly with each other but through a middle
manor a dealer in the open market." It involves "commercial papers" which are
instruments "evidencing indebtness of any person or entity. . ., which are issued,
endorsed, sold or transferred or in any manner conveyed to another person or
entity, with or without recourse". The fundamental function of the money market
device in its operation is to match and bring together in a most impersonal manner
both the "fund users" and the "fund suppliers." The money market is an
"impersonal market", free from personal considerations. "The market mechanism
is intended to provide quick mobility of money and securities."
 The impersonal character of the money market device overlooks the individuals
or entities concerned. The issuer of a commercial paper in the money market
necessarily knows in advance that it would be expenditiously transacted and
transferred to any investor/lender without need of notice to said issuer. In
practice, no notification is given to the borrower or issuer of commercial paper of
the sale or transfer to the investor.

xxx xxx xxx

There is need to individuate a money market transaction, a relatively novel

institution in the Philippine commercial scene. It has been intended to facilitate
the flow and acquisition of capital on an impersonal basis. And as specifically
required by Presidential Decree No. 678, the investing public must be given
adequate and effective protection in availing of the credit of a borrower in the
commercial paper market.

The court turned now that Pilipinas became solidarily liable with Philfinance and Delta when
Pilipinas issued DCR No. 10805 with the following words:

Upon your written instruction, we [Pilipinas] shall undertake physical delivery of

the above securities fully assigned to you .

The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part
of Pilipinas to pay petitioner the amount of P307,933.33 nor any assumption of liability in
solidum with Philfinance and Delta under DMC PN No. 2731. We read the DCR as a
confirmation on the part of Pilipinas that:

(1) it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of
a certain face value, to mature on 6 April 1981 and payable to the order of
Philfinance;

(2) Pilipinas was, from and after said date of the assignment by Philfinance to
petitioner (9 February 1981), holding that Note on behalf and for the benefit of
petitioner, at least to the extent it had been assigned to petitioner by payee
Philfinance; 24

(3) petitioner may inspect the Note either "personally or by authorized

representative", at any time during regular bank hours; and

(4) upon written instructions of petitioner, Pilipinas would physically deliver the
DMC PN No. 2731 (or a participation therein to the extent of
 P307,933.33) "should this Denominated Custodianship receipt remain outstanding
in [petitioner's] favor thirty (30) days after its maturity."

Thus, court found nothing written in printers ink on the DCR which could reasonably be read as
converting Pilipinas into an obligor under the terms of DMC PN No. 2731 assigned to petitioner,
either upon maturity thereof or any other time. We note that both in his complaint and in his
testimony before the trial court, petitioner referred merely to the obligation of private respondent
Pilipinas to effect the physical delivery to him of DMC PN No. 2731. Accordingly, petitioner's
theory that Pilipinas had assumed a solidary obligation to pay the amount represented by a
portion of the Note assigned to him by Philfinance, appears to be a new theory constructed only
after the trial court had ruled against him. The solidary liability that petitioner seeks to impute
Pilipinas cannot, however, be lightly inferred. Under article 1207 of the Civil Code, "there is a
solidary liability only when the law or the nature of the obligation requires solidarity," The
record here exhibits no express assumption of solidary liability vis-a-vis petitioner, on the part of
Pilipinas. Petitioner has not pointed to us to any law which imposed such liability upon Pilipinas
nor has petitioner argued that the very nature of the custodianship assumed by private respondent
Pilipinas necessarily implies solidary liability under the securities, custody of which was taken
by Pilipinas. Accordingly, we are unable to hold Pilipinas solidarily liable with Philfinance and
private respondent Delta under DMC PN No. 2731.

The court however, mean to suggest that Pilipinas has no responsibility and liability in respect of
petitioner under the terms of the DCR. To the contrary, we find, after prolonged analysis and
deliberation, that private respondent Pilipinas had breached its undertaking under the DCR to
petitioner Sesbreo.

The Court believes and so hold that a contract of deposit was constituted by the act of
Philfinance in designating Pilipinas as custodian or depositary bank. The depositor was initially
Philfinance; the obligation of the depository was owed, however, to petitioner Sesbreo as
beneficiary of the custodianship or depository agreement. We do not consider that this is a simple
case of a stipulation pour autri. The custodianship or depositary agreement was established as an
integral part of the money market transaction entered into by petitioner with Philfinance.
Petitioner bought a portion of DMC PN No. 2731; Philfinance as assignor-vendor deposited that
Note with Pilipinas in order that the thing sold would be placed outside the control of the vendor.
Indeed, the constituting of the depositary or custodianship agreement was equivalent to
constructive delivery of the Note (to the extent it had been sold or assigned to petitioner) to
petitioner. It will be seen that custodianship agreements are designed to facilitate transactions in
the money market by providing a basis for confidence on the part of the investors or placers that
the instruments bought by them are effectively taken out of the pocket, as it were, of the vendors
and placed safely beyond their reach, that those instruments will be there available to the placers
of funds should they have need of them. The depositary in a contract of deposit is obliged to
return the security or the thing deposited upon demand of the depositor (or, in the presented case,
of the beneficiary) of the contract, even though a term for such return may have been established
in the said contract. Accordingly, any stipulation in the contract of deposit or custodianship that
runs counter to the fundamental purpose of that agreement or which was not brought to the
notice of and accepted by the placer-beneficiary, cannot be enforced as against such beneficiary-
placer.

The court believes that the position taken above is supported by considerations of public policy.
If there is any party that needs the equalizing protection of the law in money market transactions,
it is the members of the general public whom place their savings in such market for the purpose
of generating interest revenues. The custodian bank, if it is not related either in terms of equity
ownership or management control to the borrower of the funds, or the commercial paper dealer,
is normally a preferred or traditional banker of such borrower or dealer (here, Philfinance). The
custodian bank would have every incentive to protect the interest of its client the borrower or
dealer as against the placer of funds. The providers of such funds must be safeguarded from the
impact of stipulations privately made between the borrowers or dealers and the custodian banks,
and disclosed to fund-providers only after trouble has erupted.

In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security
deposited with it when petitioner first demanded physical delivery thereof on 2 April 1981. We
must again note, in this connection, that on 2 April 1981, DMC PN No. 2731 had not yet matured
and therefore, compensation or offsetting against Philfinance PN No. 143-A had not yet taken
place. Instead of complying with the demand of the petitioner, Pilipinas purported to require and
await the instructions of Philfinance, in obvious contravention of its undertaking under the DCR
to effect physical delivery of the Note upon receipt of "written instructions" from petitioner
Sesbreo. The ostensible term written into the DCR (i.e., "should this [DCR] remain outstanding
in your favor thirty [30] days after its maturity") was not a defense against petitioner's demand
for physical surrender of the Note on at least three grounds: firstly, such term was never brought
to the attention of petitioner Sesbreo at the time the money market placement with Philfinance
was made; secondly, such term runs counter to the very purpose of the custodianship or
depositary agreement as an integral part of a money market transaction; and thirdly, it is
inconsistent with the provisions of Article 1988 of the Civil Code noted above. Indeed, in
principle, petitioner became entitled to demand physical delivery of the Note held by Pilipinas as
soon as petitioner's money market placement matured on 13 March 1981 without payment from
Philfinance.

The court concludes, therefore, that private respondent Pilipinas must respond to petitioner for
damages sustained by arising out of its breach of duty. By failing to deliver the Note to the
petitioner as depositor-beneficiary of the thing deposited, Pilipinas effectively and unlawfully
deprived petitioner of the Note deposited with it. Whether or not Pilipinas itself benefitted from
such conversion or unlawful deprivation inflicted upon petitioner, is of no moment for present
purposes. Prima facie, the damages suffered by petitioner consisted of P304,533.33, the portion
of the DMC PN No. 2731 assigned to petitioner but lost by him by reason of discharge of the
Note by compensation, plus legal interest of six percent (6%) per annum containing from 14
March 1981.

The conclusion we have reached is, of course, without prejudice to such right of reimbursement
as Pilipinas may have vis-a-vis Philfinance.

III.

The third principal contention of petitioner that Philfinance and private respondents Delta and
Pilipinas should be treated as one corporate entity need not detain us for long.

In the first place, as already noted, jurisdiction over the person of Philfinance was never acquired
either by the trial court nor by the respondent Court of Appeals. Petitioner similarly did not seek
to implead Philfinance in the Petition before us.

Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have
been organized as separate corporate entities. Petitioner asks us to pierce their separate corporate
entities, but has been able only to cite the presence of a common Director Mr. Ricardo
Silverio, Sr., sitting on the Board of Directors of all three (3) companies. Petitioner has neither
alleged nor proved that one or another of the three (3) concededly related companies used the
other two (2) as mere alter egos or that the corporate affairs of the other two (2) were
administered and managed for the benefit of one. There is simply not enough evidence of record
to justify disregarding the separate corporate personalities of delta and Pilipinas and to hold them
liable for any assumed or undetermined liability of Philfinance to petitioner.

SEC v W.J. Howey Co.

328 US 290
Facts:

Howey owned a large citrus grove and solicited investors to participate in his business venture.
Howey would implement a land sale contract for a small portion of the grove to the investor
while also having them enter into a service contract for cultivation of that land. The service
contract granted Howey the complete right to possession due to the investor not taking part in
cultivation of any sort. Once harvested, the investor would get an account for the produce
yielded by the strip they invested in, however the fruit was marketed exclusively by Howey.
Howey utilized various agencies of interstate commerce when endorsing this arrangement but
failed to register the contracts and securities with the SEC. This led to the SEC bringing an
action seeking an injunction against the use of interstate commerce on the grounds that Howey
established sales of unregistered securities, violating 5(a) of Securities Act of 1933. Trial court
denied the injunction, saying that the contract arrangement did not provide sales of securities.
The court of appeals affirmed. The SEC sought certiorari.

Issue

Is the term security referencing any document(s) that provide evidence of a monetary investment
in a common enterprise whose profits come only through the labors of others?

Held:

Yes. As defined by 2(a)(1) of the Act, a security includes the documents traded for
investment or conjecture, having substance over form, regulating the type of a specific document
or agreement. Howey is offering an arrangement to invest money in and obtain a portion of the
profits of a large citrus fruit operation. Therefore, the documents in this case are representative of
shares in the company. The court rejects the court of appeals idea that due to the business being
unpredictable and promotional in nature, that this deal did not represent the sale of securities.
Transference of something with tangible value is not enough to exclude the agreementfrom the
1933 Act. This case has been quoted for its defining of the terms investment contracts and
securities. A common enterprise is required to bring a promotional investment deal within the
scope of 5(a). In this case, it is obvious that investors were purchasing the land in order to
receive a larger payout down the line without having to do any work. This mirrors the sale of
stock.