Corpo cases

Renato Tayag vs Benguet Consolidated, Inc.

26 SCRA 242 – Business Organization – Corporation Law – Domicile of a Corporation – By Laws Must
Yield To a Court Order – Corporation is an Artificial Being

In March 1960, Idonah Perkins died in New York. She left behind properties here and abroad. One
property she left behind were two stock certificates covering 33,002 shares of stocks of the Benguet
Consolidated, Inc (BCI). Said stock certificates were in the possession of the Country Trust Company of
New York (CTC-NY). CTC-NY was the domiciliary administrator of the estate of Perkins (obviously in the
USA). Meanwhile, in 1963, Renato Tayag was appointed as the ancillary administrator (of the properties
of Perkins she left behind in the Philippines).

A dispute arose between CTC-NY and Tayag as to who between them is entitled to possess the stock
certificates. A case ensued and eventually, the trial court ordered CTC-NY to turn over the stock
certificates to Tayag. CTC-NY refused. Tayag then filed with the court a petition to have said stock
certificates be declared lost and to compel BCI to issue new stock certificates in replacement thereof.
The trial court granted Tayag’s petition.

BCI assailed said order as it averred that it cannot possibly issue new stock certificates because the two
stock certificates declared lost are not actually lost; that the trial court as well Tayag acknowledged that
the stock certificates exists and that they are with CTC-NY; that according to BCI’s by laws, it can only
issue new stock certificates, in lieu of lost, stolen, or destroyed certificates of stocks, only after court of
law has issued a final and executory order as to who really owns a certificate of stock.

ISSUE: Whether or not the arguments of Benguet Consolidated, Inc. are correct.

HELD: No. Benguet Consolidated is a corporation who owes its existence to Philippine laws. It has been
given rights and privileges under the law. Corollary, it also has obligations under the law and one of those
is to follow valid legal court orders. It is not immune from judicial control because it is domiciled here in
the Philippines. BCI is a Philippine corporation owing full allegiance and subject to the unrestricted
jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise as immune
from lawful court orders. Further, to allow BCI’s opposition is to render the court order against CTC-NY a
mere scrap of paper. It will leave Tayag without any remedy simply because CTC-NY, a foreign entity
refuses to comply with a valid court order. The final recourse then is for our local courts to create a legal
fiction such that the stock certificates in issue be declared lost even though in reality they exist in the
hands of CTC-NY. This is valid. As held time and again, fictions which the law may rely upon in the pursuit
of legitimate ends have played an important part in its development.

Further still, the argument invoked by BCI that it can only issue new stock certificates in accordance with
its bylaws is misplaced. It is worth noting that CTC-NY did not appeal the order of the court – it simply
refused to turn over the stock certificates hence ownership can be said to have been settled in favor of
estate of Perkins here. Also, assuming that there really is a conflict between BCI’s bylaws and the court
order, what should prevail is the lawful court order. It would be highly irregular if court orders would
yield to the bylaws of a corporation. Again, a corporation is not immune from judicial orders.

2.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-7922 February 22, 1957

RECREATION AND AMUSEMENT ASSOCIATION OF THE PHILIPPINES, plaintiff-appellant,

vs.
THE CITY OF MANILA, THE MAYOR OF MANILA, THE CITY TREASURER OF MANILA, and
THE CHIEF OF POLICE OF MANILA, defendants-appellees.

Leandro H. Fernandez, Jr. for appellant.

City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serrano for appellees.

FELIX, J.:

On March 30, 1954, the Recreation and Amusement Association of the Philippines, Inc., allegedly a
non-stock corporation organized and existing under the laws of the Philippines, whose 35 members
are licensed owner and operators in the City of Manila, of Five-Ball-Flipper-Action-Pinball machines
(also known as slot machines), filed a complaint in the Court of First Instance of said City praying
that a preliminary injunction be issued to restrain the City Mayor and the City Treasurer from
enforcing Ordinance No. 3628 passed by the Municipal Board of Manila on March 19, 1954, and
approved by the City Mayor on the following day, which reads as follows:

ORDINANCE NO. 3628.

AN ORDINANCE AMENDING SECTIONS SEVEN HUNDRED SEVENTY THREE AND

SEVEN HUNDRED SEVENTY FOUR ORDINANCE NUMBERED ONE THOUSAND SIX
HUNDRED KNOWN AS "THE REVISED ORDINANCES OF THE CITY OF MANILA", AS
LASTLY AMENDED BY HUNDRED FORTY SEVEN.

Be it ordained by the Municipal Board of the City of Manila, that:

SECTION 1. Sections seven hundred seventy-three and seven hundred seventy-four of

Ordinance Numbered One thousand six hundred, known as "The Revised Ordinances of the
City of Manila, as lastly amended by Ordinance Numbered Three thousand three hundred
forty-seven, are hereby amended to read as follows:

SEC. 773. Licenses. — No person, entity or corporation shall install or cause to be installed
for the use of the public for compensation any mechanical contrivance or automatic
apparatus which functions through the introduction of money not otherwise prohibited by law
of weights and measure and not a gambling device, for purposes of amusement or of
confronting the weight of persons or things, or printing letters or numbers, or displaying
features inside the apparatus or reproducing recorded music including other kinds of
machines or apparatus without having first obtained a license therefor from the City
Treasurer. Such license must be posted on the apparatus concerned, Provided, that the
operation or maintenance of pinball machines, not otherwise failing under the category of
gambling device, shall not be allowed within a radius of two hundred (200) meters from any
church, hospital, institution of learning public market, plaza, and government buildings.
 SEC. 774. Fees. — There shall be paid for every license granted for the installation and use
of an apparatus provided in this chapter, an annual fee of P300 which is payable in advance:
Provided, that person-coin operated weighing or scale machines shall pay only an annual
fee of P12, payable in advance.

SEC. 2. This Ordinance shall take effect on its approval.

Enacted, March 19, 1954.
Approved, March 20, 1954.

It is further prayed in the complaint that the City Mayor and the Treasurer be compelled to issue
permits and licenses to the members of the said corporation upon compliance with the provisions of
the ordinance (No. 3347) enforced before the enactment of Ordinance No. 3628; that after hearing,
said ordinance he declared null and void, the writ of preliminary injunction be made permanent, and
that plaintiff be granted such other relief to which it may be entitled under the law.

Acting upon this complaint, the lower court required plaintiff to file, as it did file, a bond in the amount
of P2,000 for the issuance of a writ of preliminary injunction to restrain the defendant City Officials
from enforcing the ordinance in question, and said writ was actually issued on April 1, 1954.
Thereupon, Assistant City Fiscal filed on April 14, 1954, a motion to lift the writ of preliminary
injunction issued as well as a motion to dismiss on the ground that plaintiff has no legal capacity to
sue and that the complaint states no cause of action. Defendants argue that the complaint does not
state that plaintiff is the owner of any pinball machine to be affected by the ordinance in question; on
the contrary, it appears from the complaint that the real parties in interest are the individual members
of said organization whose names are not given. Such being the case, plaintiff association cannot be
in any way adversely affected by the enforcement of the questioned ordinance, from which it follows
that the complaint does not state a cause of action.

A supplement to the Motion to Dismiss and the Motion to lift the Preliminary Injunction was
subsequently filed on April 21, 1954, wherein defendants' counsel endeavors to substantiate its
previous contention by alleging, among others, that the ordinance subject of litigation is a valid
legislation and within the power of the Municipal Board to enact; that the power of the Board to
regulate slot machines is embodied in the Revised Charter of the City of Manila (section 18-(1) of
Republic Act No. 409); that the regulation of the operation and maintenance of this kind of machine
which they alleged to be inimical to the general welfare of the population especially the school
children, is a lawful exercise of the police power of the State (section 18-kk), Republic Act No. 409);
and that as it a discretionary function of the Mayor to deny or issue permits and licenses, he cannot
be compelled by mandamus to issue the same.

Upon defendants' motion, the hearing of the motion to dismiss was re-set for April 24, 1954, and on
that date the Court granted defendants' counsel a period of 5 days from April 26, 1954, to file an
answer to plaintiff's opposition to the motions to dismiss and to lift the preliminary injunction, and
another 5 days to plaintiff's counsel to reply, if necessary.

On May 7, 1954, plaintiff was served with a "Resolucion" dated April 30, 1954, issued by the trial
Judge, wherein the Court dismissed the complaint and dissolved the injunction issued thereby on the
ground that the City Mayor has discretionary power to issue or refuse the issuance of a license or
permit, declaring at the same time that Ordinance No. 3628 is valid and within the power of the
Municipal Board to enact. The motion for reconsideration filed by plaintiff having been denied, the
case was brought to us on appeal and in this instance plaintiff ascribes to the lower Court the
commission of the following errors:
1. In motu proprio resolving upon the constitutionality or Ordinance No. 3628 at said stage of the
proceeding (before defendants' answer and hearing on the merits), and consequently, in dissolving
the writ of preliminary injunction;

2. In finding the Mayor of Manila vested with discretionary powers to grant or refuse to issue
municipal licenses and permits, and that the same cannot be controlled by mandamus; and

3. In finding Ordinance No. 3628 valid and constitutional assuming that it had the power to do so at
such stage of the proceeding.

There is no dispute that the Municipal Board of the City of Manila passed Ordinance No. 3628
limiting the operation and maintenance of a certain kind of slot machine to areas not within the
radius of 200 hundred meters from any church, hospital, institution of learning, public market, plaza
and government buildings and that it increased the annual fee from P55 to P300 payable in
advance. It is likewise clear that at the expiration of the period allowed the parties within which to file
certain pleadings in connection with defendants' motion to dismiss, the Court issued a "Resolucion"
dated April 30, 1954, the dispositive part of which, translated into English, reads as follows:

In view of the foregoing consideration the Court is of the opinion and consequently declares
Ordinance No. 3628 of the City of Manila valid and that the writ of preliminary injunction
issued by this Court shall be dissolved with costs against plaintiff.

It is to be stated in this connection that defendants did not file in time their answer to plaintiff's
opposition to their two motions, but on May 4, 1954, and that is undoubtedly the reason why the
Court prepared its Resolution before the lapse of plaintiff's period to reply if necessary" (which was
conditioned on defendants' pleading which the latter failed to submit in time), though it was released
thereafter, or on May 7, 1956. It is true that the trial Judge, instead of ruling on the motion to dismiss
on either of the two grounds stated therein, namely, lack of legal capacity to sue and failure to state
a cause of action, elected to ignore the same and dismissed the complaint upon its own findings.
However, it is to be remembered that it was only the motion to dismiss that was set for hearing and
that section 3, Rule 8 of the Rules of Court provides for the manner in which such kind of motion
may be resolved:

SEC. 3. Order. — After hearing the Court may deny or grant the motion or allow amendment
of pleading, or may defer the hearing and determination of the motion until the trial if the
ground alleged therein does not appear to be indubitable.

By arriving at a conclusion upholding the constitutionality of the ordinance and stating the reasons in
support of such declaration, the lower court though in effect it passed upon the merits of the case,
also assumed the lack of sufficient cause of action on the part of the plaintiff. Moreover, the question
relative to the constitutionality of a statute or ordinance is one of law which does not need to be
supported by evidence.

In the complaint filed with the lower court, plaintiff alleged that it was a non-stock corporation duly
organized and existing in accordance with the laws of the Philippines. Subsequent inquires from the
Securities and Exchange Commission and the Bureau of Commerce disclosed that the Recreation
and Amusement Association of the Philippines, Inc., is not registered and does not appear in the files
of said Offices. Most probably, owners and operators of such pin-ball machines met, put up their set
of officers and thus an association was formed, after which they merely folded their arms and
exerted no further effort to effectuate the necessary registration that would bestow juridicial
personality upon it. The right to be and to act as a corporation is not a natural or civil right any
person; such right as well as the right to enjoy the immunities and privileges resulting from
incorporation constitute a franchise and a corporation, therefore cannot be created except by or
under a special authority from the state (Vol. II, Tolentino's Commentaries and Jurisprudence on the
Commercial Law of the Philippines, p. 734). When there is no legal organization of a corporation, the
association of a group of men for business or other endeavors does not absorb the personality of the
group and merge it into the personality of another separate and independent entity which is not
given corporate life by the mere formation of the group. Such conglomeration of persons is
incompetent to act as a corporation, cannot create agents, or exercise by itself authority in its behalf.
(See Fay vs. Noble, 7 Cushing (Mass.) 188.)

Section 1-(c), Rule 8 of the Rules of Court provides for the grounds upon which an action may be
dismissed upon motion of defendant and one of them is "that the plaintiff has no legal capacity to
sue." The City Fiscal rightly capitalized on this basis because as far as the Court was concerned,
appellant herein, being an association not organized as a juridicial entity, did not possess the
personality to conduct or maintain an action. The term "lack of legal capacity to sue" means either
that the plaintiff does not have the necessary qualifications to appear in the case . . . or when he
does not have the character or representation which he claims, as, when he is not a duly appointed
executor or administrator of the estate he purports to represent, or that the plaintiff is not a
corporation duly registered in accordance with law. (I Moran's Comments on the Rules of Court, p.
168, 1952 ed.)

It may be argued that under the law plaintiff could be considered as a civil association, but in this
case plaintiff-appellant does not claim to be a civil association but a corporation and as such it has
no capacity to sue.

If from the records of the case We shall find, as We do: (1) that plaintiff has no legal capacity to sue;
(2) that the complaint states no cause of action; and (3) that a proper and adequate interpretation of
section 18, paragraph (1) and (kk) of Republic Act No. 409, would lead Us to conclude that
Ordinance No. 3628 of the City of Manila is valid, would We be justified in annuling or setting aside
the order of the Court dismissing this case, just because it was issued before the filing of defendants'
answer and before hearing on the merits but after defendants had submitted their motion to dismiss
and argued maintaining the constitutionality of said ordinance? On the strenght of the foregoing
considerations, the answer is obviously in the negative.

Wherefore, the order appealed from is hereby affirmed, with costs against appellant. It is so ordered.

3.

BOYER – ROXAS VS. COURT OF APPEALS

211 SCRA 470 (1992)

FACTS OF THE CASE

When Eugenia V. Roxas died, her heirs formed a corporation under the name and style of Heirs of
Eugenia V. Roxas, Inc. using her estate as the capital of the corporation, the private respondent herein. It
was primarily engaged in agriculture business, however it amended its purpose to enable it to engage in
resort and restaurant business. Petitioners are stockholders of the corporation and two of the heirs of
Eugenia. By tolerance, they were allowed to occupy some of the properties of the corporation as their
residence. However, the board of directors of the corporation passed a resolution evicting the
petitioners from the property of the corporation because the same will be needed for expansion.
At the RTC, private respondent presented its evidence averring that the subject premises are owned by
the corporation. Petitioners failed to present their evidence due to alleged negligence of their counsel.
RTC handed a decision in favor of private respondent.

Petitioners appealed to the Court of Appeals but the latter denied the petition and affirmed the ruling of
the RTC. Hence, they appealed to the Supreme Court. In their appeal, petitioners argues that the CA
made a mistake in upholding the decision of the RTC, and that their occupancy of the subject premises
should be respected because they own an aliquot part of the corporation as stockholders, and that the
veil of corporate fiction must be pierced by virtue thereof.

ISSUE

1. Whether petitioner’s contention were correct as regards the piercing of the corporate veil.

2. Whether petitioners were correct in their contention that they should be respected as regards their
occupancy since they own an aliquot part of the corporation.

RULING

1.Petitioner’s contention to pierce the veil of corporate fiction is untenable. As aptly held by the court:
“..The separate personality of a corporation may ONLY be disregarded when the corporation is used as a
cloak or cover for fraud or illegality, or to work injustice, or when necessary to achieve equity or when
necessary for the protection of creditors.”

2. As regards petitioners contention that they should be respected on their occupancy by virtue of an
aliquot part they own on the corporation as stockholders, it also fails to hold water. The court held that
“properties owned by a corporation are owned by it as an entity separate and distinct from its members.
While shares of stocks are personal property, they do not represent property of the corporation. A share
of stock only typifies an aliquot part of the corporation’s property, or the right to share in its proceeds to
that extent when distributed according to law and equity, but its holder is not the owner of any part of
the capital of the corporation. Nor is he entitled to the possession of any definite portion of its property
or assets. The holder is not a co-owner or a tenant in common of the corporate property.”

4.

Republic of the Philippines, represented by Dante Quindoza, in his capacity as

Zone Administrator of the Bataan Economic Zone v
Coalbrine International Philippines, Inc. v Sheila F. Neri
April 7, 2010

Peralta, J.

Digest by Ces
Short version: Neri, the managing director of the hotel, filed an
action in the RTC against PEZA and the Bataan Economic Zone. The
Facts:
SC held that the case should be dismissed. The real party in interest
was the hotel because the damage was done to it and not to Neri. If  The Export Processing Zone
the real party in interest is a corporate body, an officr of the Authority (EPZA),
corporation can sign the certification against forum shopping so long predecessor of the Philippine
as he has been duly authorized by a resolution of its board of Economic Zone Authority
directors. There was no such authority in this case. (PEZA), is the owner of the
Bataan Hilltop Hotel and
Country Club, located at the Bataan Export Processing Zone, Mariveles, Bataan. Dante M. Quindoza
is the Zone Administrator of the Bataan Economic Zone.
 The EPZA and Coalbrine International Philippines, Inc. entered into a contract in which Coalbrine
would rehabilitate and lease the Bataan Hilltop Hotel, Golf Course and Clubhouse for 25 years, which
commenced on January 1, 1994, and renewable for another 25 years at the option of Coalbrine.
Sheila F. Neri was the Managing Director of the hotel.
 The PEZA Board passed Resolution No. 96-231 rescinding the contract to rehabilitate and lease, on
the ground of Coalbrine's repeated violations and non-performance of its obligations as provided in
the contract.
 Coalbrine filed with the RTC a Complaint for specific performance with prayer for the issuance of a
TRO and/or writ of preliminary injunction with damages against PEZA and/or Bataan Economic Zone.
 While that first complaint was pending, Coalbrine and Neri filed with the RTC a Complaint for
damages with prayer for the issuance of a TRO and/or writ of preliminary prohibitory/mandatory
injunction against Zone Administrator Quindoza. Coalbrine alleged that Quindoza harassed the
hotel's operations by causing the excavation of the only road leading to the hotel, by placing a big
"ROAD CLOSED" sign near the hotel, etc., etc.
 Administrator Quindoza, through the Solicitor General, filed a Motion to Dismiss, which was denied.
 The Republic of the Philippines, represented by Dante Quindoza, in his capacity as Zone
Administrator of the Bataan Economic Zone, filed with the CA a petition for certiorari under Rule 65
seeking to annul the RTC Orders..
 The CA dismissed the petition for certiorari.

Issue: Did Neri have authority to file the complaint for damages in the RTC?

Ratio:

1) The Republic claims that respondent Neri's signature in the verification and certification against non-
forum shopping attached to the complaint filed by respondents in the RTC was defective, since there
was no proof of her authority to institute the complaint on behalf of the corporation; and that
respondent Neri is not a real party-in-interest.
2) The SC agrees!!!
3) Neri is not a real party in interest. "Interest" means material interest, an interest in issue and to be
affected by the decree, as distinguished from mere interest in the question involved, or a mere
incidental interest.
4) A reading of the allegations in the complaint shows that the acts complained of and said to have
been committed by the Republic against respondents have solely affected the hotel's operations
 where Neri was the hotel's Managing Director and whose interest in the suit was incidental. Thus,
we find that respondent Neri has no cause of action. Consequently, the plaintiff in this case would
only be Coalbrine.
5) A corporation has no power, except those expressly conferred on it by the Corporation Code and
those that are implied or incidental to its existence. In turn, a corporation exercises said powers
through its board of directors and/or its duly authorized officers and agents.Thus, it has been
observed that the power of a corporation to sue and be sued in any court is lodged with the board of
directors that exercises its corporate powers. In turn, physical acts of the corporation, like the signing
of documents, can be performed only by natural persons duly authorized for the purpose by
corporate by-laws or by a specific act of the board of directors.
6) Coalbrine is a corporation. However, when Neri filed the complaint in the RTC, there was no proof
that she was authorized to sign the verification and the certification against non-forum shopping.
7) Only individuals vested with authority by a valid board resolution may sign the certificate of non-
forum shopping on behalf of a corporation. Proof of such authority must also be attached. Failure to
provide a certificate of non-forum shopping is sufficient ground to dismiss the petition. Likewise, the
petition is subject to dismissal if a certification was submitted unaccompanied by proof of signatory's
authority.
8) The authority of respondent Neri to file the complaint in the RTC had not been proven. The
certification against non-forum shopping did not even contain a statement that she was authorized
by the corporate secretary to file the case on behalf of Coalbrine as she claimed. More importantly,
while she testified that she was authorized by the corporate secretary, there was no showing that
there was a valid board resolution authorizing the corporate secretary to file the action, and to
authorize respondent Neri to file the action. In fact, such proof of authority had not been submitted
even belatedly to show subsequent compliance.
9) As to respondents' claim that petitioner Republic of the Philippines was not a party to the civil case
subject of this petition since Administrator Quindoza was the sole defendant therein and, thus, has
no personality to file this petition, their claim is not persuasive.
10) Thus, the RTC committed grave abuse of discretion amounting to lack of jurisdiction when it failed to
consider the lack of proof of authority of respondent Neri to file the action on behalf of the
corporation as we have discussed above.

Petition granted. CA decision reversed and case filed by Neri in the RTC is dismissed.

5.

Good Earth Emporium Inc. vs Court of Appeals

194 SCRA 544 [GR No. 82797 February 27, 1991]

Facts: A lease contract, dated October 16, 1981, was entered into by and between Roces-Reyes Realty Inc. as lessor,
and Good Earth Emporium Inc. (GEE) as lessee for a term of three years beginning November 1, 1981 and ending
October 31, 1984 at a monthly rental of Php65,000. The building which was the subject of the contract of lease is a
five story building located at the corner of Rizal Avenue and Bustos Street in Sta. Cruz, Manila. From March 1983
up to the complaint was filed, the lessee had defaulted in the payment of rentals, as a consequence of which, private
respondent Roces-Reyes Realty Inc. filed on October 14, 1984 an ejectment case against herein petitioners, Good
Earth Emporium Inc. and Lim Ka Ring. After the latter had tendered their responsive pleading, the lower court on
motion of Roces rendered judgement on the pleadings dated April 17, 1984 to which petitioners were ordered to
vacate the premises and surrender the same to the plaintiffs. On May 16, 1984, Roces filed a motion for execution
which was opposed by petitioners on May 28, 1984 simultaneous with the latter’s filing of a notice of appeal.
However, on August 15, 1984, GEE thru counsel filed a motion to withdraw said appeal citing as reason that they
are satisfied with the decision of the lower court.

Issue: Whether or not the payment made by GEE to the Roces brothers constitute payment to private respondent
corporation which would result to the extinguishment of the obligation.

Held: No. Under article 1240 of the civil code of the Philippines – Payment shall be made to the person in whose
favor the obligation has been constituted, on his successor in interest or any person authorized to receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty Inc. or to its successors in interest
nor is there positive evidence that payment was made to a person authorized to receive it. No such proof was
submitted but merely inferred by the RTC from Marcos Roces having signed the lease contract as President which
was witnessed by Jesus Marcos Roces. The later, however, was no longer President or even an officer of the Roces-
Realty Inc at the time he received the money and signed the sale with pacto de retro. He, in fact denied being in
possession of authority to receive payment for the respondent corporation nor does the receipt show that he signed in
the same capacity as he did in the lease contract at a time when he was President for respondent corporation.

A corporation has a personality distinct and separate from its individual stockholders or members. Being an officer
or stockholder of a corporation does not make one’s property also of the corporation, and vice-versa, for they are
separate entities. Share owners are in no legal sense the owners corporate property which is owned by the
corporation as a distinct legal person. As a consequence of the separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder’s debt or credit that of the
corporation.

6.

Re: When Piercing Doctrine Not Applicable Adelio O. Cruz, petitioner, vs. Quiterio L. Dalisay,
Deputy Sheriff, RTC, Manila, respondent Adm. Matter No. R-181-P July 31, 1987 FERNAN,J.: Facts:
In 1984, the National Labor Relations Commission issued an order against Qualitrans
Limousine Service, Inc. (QLSI) ordering the latter to reinstate the employees it terminated and
to pay them backwages. QuiterioDalisay, 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. respondentDalisay explained that when he garnished
complainant’s cash deposit at the Philtrust bank, he was merely performing a ministerial duty.
While it is true that said writ was addressed to Qualitrans Limousine Service, Inc., yet it is also a
fact that complainant had executed an affidavit before the Pasay City assistant fiscal stating
that he is the owner/president of said corporation and, because of that declaration, the counsel
for the plaintiff in the labor case advised him to serve notice of garnishment on the Philtrust
bank. Prior to the termination of the proceedings, however, complainant executed an affidavit
of desistance stating that he is no longer interested in prosecuting the case against respondent
Dalisay and that it was just a “misunderstanding” between them.

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

Ruling: 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. Respondent’s actuation in enforcing a
judgment against complainant who is not the judgment debtor in the case calls for disciplinary
action. Considering the ministerial nature of his duty in enforcing writs of execution, what is
incumbent upon him is to ensure that only that portion of a decision ordained or decreed in the
dispositive part should be the subject of execution. No more, no less. That the title of the case
specifically names complainant as one of the respondents is of no moment as execution must
conform to that directed in the dispositive portion and not in the title of the case. It has been
held that the desistance of complainant does not preclude the taking of disciplinary action
against respondent. Neither does it dissuade the Court from imposing the appropriate
corrective sanction. One who holds a public position, especially an office directly connected
with the administration of justice and the execution of judgments, must at all times be free
from the appearance of impropriety.

152 SCRA 482 – Business Organization – Corporation Law – Piercing the Veil of
Corporate Fiction – Exercised by the Wrong Person
In 1984, the National Labor Relations Commission issued an order against Qualitrans
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.

7.
Seventh Day Adventist Conference Church of Southern Philippines vs. North Eastern
Mindanao Mission of Seventh Day Adventist, Inc. (496 SCRA 215)

FACTS:
Spouses Felix Cosio and Felisa Cuysona donate a parcel of land to South Philippine [Union] Mission of
Seventh Day Adventist Church, and was received by Liberato Rayos, an elder of the Seventh Day
Adventist Church, on behalf of the donee.

However, twenty years later, the spouses sold the same land to the Seventh Day Adventist Church of
Northeastern Mindanao Mission.

Claiming to be the alleged donee’s successors-in-interest, petitioners asserted ownership over the
property. This was opposed by respondents who argued that at the time of the donation, SPUM-SDA
Bayugan could not legally be a donee because, not having been incorporated yet, it had no juridical
personality. Neither were petitioners members of the local church then, hence, the donation could not
have been made particularly to them.

ISSUE:
Should the Seventh Day Adventist Church of Northeastern Mindanao Mission's ownership of the lot be
upheld?

HELD:
We answer in the affirmative.

Donation is undeniably one of the modes of acquiring ownership of real property. Likewise, ownership of a
property may be transferred by tradition as a consequence of a sale.

Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of
another person who accepts it. The donation could not have been made in favor of an entity yet inexistent
at the time it was made. Nor could it have been accepted as there was yet no one to accept it.

The deed of donation was not in favor of any informal group of SDA members but a supposed SPUM-
SDA Bayugan (the local church) which, at the time, had neither juridical personality nor capacity to accept
such gift.

(With questions regarding de facto corporation and law of sales.)

Petition Denied.

8.

SAPPARI K. SAWADJAAN V. CA (G.R. NO. 141735)

Facts:

Petitioner Sawadjaan was an appraiser/investigator in the Philippine Amanah Bank (PAB) when on the
basis of his report, a credit line was granted to Compressed Air Machineries and Equipment Corporation
(CAMEC) by virtue of the two parcels of land it offered as collaterals. Meanwhile, Congress passed a law
which created Al-Amanah Investment Bank of the Philippines (AIIBP) and repealed the law creating PAB,
transferring all its assets, liabilities and capital accounts to AIIBP. Later, AIIBP discovered that the
collaterals were spurious, thus conducted an investigation and found petitioner Sawadjaan at fault.
Petitioner appealed before the SC which ruled against him. Petitioner moved for a new trial claiming he
recently discovered that AIIBP had not yet adopted its corporate by-laws and since it failed to file within
60 days from the passage of its law, it had forfeited its franchise or charter and thus has no legal standing
to initiate an administrative case. The motion was denied.
Issue:

Whether or not the failure of AIIBP to file its by-laws within the period prescribed results to a nullity of
all actions and proceedings it has initiated.

Ruling: NO.

The AIIBP was created by Rep. Act No. 6848. It has a main office where it conducts business, has
shareholders, corporate officers, a board of directors, assets, and personnel. It is, in fact, here
represented by the Office of the Government Corporate Counsel, “the principal law office of
government-owned corporations, one of which is respondent bank.” At the very least, by its failure to
submit its by-laws on time, the AIIBP may be considered a de facto corporation whose right to exercise
corporate powers may not be inquired into collaterally in any private suit to which such corporations
may be a party.

Moreover, a corporation which has failed to file its by-laws within the prescribed period does not ipso
facto lose its powers as such. The SEC Rules on Suspension/Revocation of the Certificate of Registration
of Corporations, details the procedures and remedies that may be availed of before an order of
revocation can be issued. There is no showing that such a procedure has been initiated in this case.

9.

Pioneer Insurance & Surety Corporation vs Court of Appeals

175 SCRA 668 –Business Organization – Corporation Law – When De Facto Partnership Does Not Exist

Jacob Lim was the owner of Southern Air Lines, a single proprietorship. In 1965, Lim convinced
Constancio Maglana, Modesto Cervantes, Francisco Cervantes, and Border Machinery and Heavy
Equipment Company (BORMAHECO) to contribute funds and to buy two aircrafts which would form part
a corporation which will be the expansion of Southern Air Lines. Maglana et al then contributed and
delivered money to Lim.

But instead of using the money given to him to pay in full the aircrafts, Lim, without the knowledge of
Maglana et al, made an agreement with Pioneer Insurance for the latter to insure the two aircrafts which
were brought in installment from Japan Domestic Airlines (JDA) using said aircrafts as security. So when
Lim defaulted from paying JDA, the two aircrafts were foreclosed by Pioneer Insurance.

It was established that no corporation was formally formed between Lim and Maglana et al.

ISSUE: Whether or not Maglana et al must share in the loss as general partners.
HELD: No. There was no de facto partnership. Ordinarily, when co-investors agreed to do business
through a corporation but failed to incorporate, a de facto partnership would have been formed, and as
such, all must share in the losses and/or gains of the venture in proportion to their contribution. But in
this case, it was shown that Lim did not have the intent to form a corporation with Maglana et al. This
can be inferred from acts of unilaterally taking out a surety from Pioneer Insurance and not using the
funds he got from Maglana et al. The record shows that Lim was acting on his own and not in behalf of
his other would-be incorporators in transacting the sale of the airplanes and spare parts.

10.

Macasaet etal vs Co
G.R. No. 156759 June 5, 2013

Facts: On July 3, 2000, respondent, a retired police officer assigned at the Western
Police District in Manila, sued Abante Tonite, a daily tabloid of general circulation; its
Publisher Allen A. Macasaet; its Managing Director Nicolas V. Quijano; its Circulation
Manager Isaias Albano; its Editors Janet Bay, Jesus R. Galang and Randy Hagos; and
its Columnist/Reporter Lily Reyes (petitioners), claiming damages because of an
allegedly libelous article petitioners published in the June 6, 2000 issue of Abante
Tonite. The suit, docketed as Civil Case No. 0097907, was raffled to Branch 51 of the
RTC, which in due course issued summons to be served on each defendant, including
Abante Tonite, at their business address at Monica Publishing Corporation, 301-305 3rd
Floor, BF Condominium Building, Solana Street corner A. Soriano Street, Intramuros,
Manila. In the morning of September 18, 2000, RTC Sheriff Raul Medina proceeded to
the stated address to effect the personal service of the summons on the defendants.
But his efforts to personally serve each defendant in the address were futile because
the defendants were then out of the office and unavailable. He returned in the afternoon
of that day to make a second attempt at serving the summons, but he was informed that
petitioners were still out of the office. He decided to resort to substituted service of the
summons, and explained why in his sheriff’s return dated September 22, 2005.

Issue: Whether or not jurisdiction over the petitioners have been acquired.

Held: Yes. Jurisdiction over the person, or jurisdiction in personam –the power of the
court to render a personal judgment or to subject the parties in a particular action to the
judgment and other rulings rendered in the action – is an element of due process that is
essential in all actions, civil as well as criminal, except in actions in rem or quasi in rem.
Jurisdiction over the defendant in an action in rem or quasi in rem is not required, and
the court acquires jurisdiction over an action as long as it acquires jurisdiction over the
res that is the subject matter of the action. The purpose of summons in such action is
not the acquisition of jurisdiction over the defendant but mainly to satisfy the
constitutional requirement of due process.

The distinctions that need to be perceived between an action in personam, on the one
hand, and an action in rem or quasi in rem, on the other hand, are aptly delineated
in Domagas v. Jensen, thusly:
The settled rule is that the aim and object of an action determine its character. Whether
a proceeding is in rem, or in personam, or quasi in rem for that matter, is determined by
its nature and purpose, and by these only. A proceeding in personam is a proceeding to
enforce personal rights and obligations brought against the person and is based on the
jurisdiction of the person, although it may involve his right to, or the exercise of
ownership of, specific property, or seek to compel him to control or dispose of it in
accordance with the mandate of the court. The purpose of a proceeding in personam is
to impose, through the judgment of a court, some responsibility or liability directly upon
the person of the defendant. Of this character are suits to compel a defendant to
specifically perform some act or actions to fasten a pecuniary liability on him. An action
in personam is said to be one which has for its object a judgment against the person, as
distinguished from a judgment against the property to determine its state. It has been
held that an action in personam is a proceeding to enforce personal rights or
obligations; such action is brought against the person. As far as suits for injunctive relief
are concerned, it is well-settled that it is an injunctive act in personam. In Combs v.
Combs, the appellate court held that proceedings to enforce personal rights and
obligations and in which personal judgments are rendered adjusting the rights and
obligations between the affected parties is in personam. Actions for recovery of real
property are in personam.

On the other hand, a proceeding quasi in rem is one brought against persons seeking to
subject the property of such persons to the discharge of the claims assailed. In an
action quasi in rem, an individual is named as defendant and the purpose of the
proceeding is to subject his interests therein to the obligation or loan burdening the
property. Actions quasi in rem deal with the status, ownership or liability of a particular
property but which are intended to operate on these questions only as between the
particular parties to the proceedings and not to ascertain or cut off the rights or interests
of all possible claimants. The judgments therein are binding only upon the parties who
joined in the action.

As a rule, Philippine courts cannot try any case against a defendant who does not
reside and is not found in the Philippines because of the impossibility of acquiring
jurisdiction over his person unless he voluntarily appears in court; but when the case is
an action in rem or quasi in rem enumerated in Section 15, Rule 14 of the Rules of
Court, Philippine courts have jurisdiction to hear and decide the case because they
have jurisdiction over the res, and jurisdiction over the person of the non-resident
defendant is not essential. In the latter instance, extraterritorial service of summons can
be made upon the defendant, and such extraterritorial service of summons is not for the
purpose of vesting the court with jurisdiction, but for the purpose of complying with the
requirements of fair play or due process, so that the defendant will be informed of the
pendency of the action against him and the possibility that property in the Philippines
belonging to him or in which he has an interest may be subjected to a judgment in favor
of the plaintiff, and he can thereby take steps to protect his interest if he is so minded.
On the other hand, when the defendant in an action in personam does not reside and is
not found in the Philippines, our courts cannot try the case against him because of the
impossibility of acquiring jurisdiction over his person unless he voluntarily appears in
court.

As the initiating party, the plaintiff in a civil action voluntarily submits himself to the
jurisdiction of the court by the act of filing the initiatory pleading. As to the defendant, the
court acquires jurisdiction over his person either by the proper service of the summons,
or by a voluntary appearance in the action.

The significance of the proper service of the summons on the defendant in an action in
personam cannot be overemphasized. The service of the summons fulfills two
fundamental objectives, namely: (a) to vest in the court jurisdiction over the person of
the defendant; and (b) to afford to the defendant the opportunity to be heard on the
claim brought against him. As to the former, when jurisdiction in personam is not
acquired in a civil action through the proper service of the summons or upon a valid
waiver of such proper service, the ensuing trial and judgment are void. If the defendant
knowingly does an act inconsistent with the right to object to the lack of personal
jurisdiction as to him, like voluntarily appearing in the action, he is deemed to have
submitted himself to the jurisdiction of the court. As to the latter, the essence of due
process lies in the reasonable opportunity to be heard and to submit any evidence the
defendant may have in support of his defense. With the proper service of the summons
being intended to afford to him the opportunity to be heard on the claim against him, he
may also waive the process. In other words, compliance with the rules regarding the
service of the summons is as much an issue of due process as it is of jurisdiction.

Under the Rules of Court, the service of the summons should firstly be effected on the
defendant himself whenever practicable. Such personal service consists either in
handing a copy of the summons to the defendant in person, or, if the defendant refuses
to receive and sign for it, in tendering it to him. The rule on personal service is to be
rigidly enforced in order to ensure the realization of the two fundamental objectives
earlier mentioned. If, for justifiable reasons, the defendant cannot be served in person
within a reasonable time, the service of the summons may then be effected either (a) by
leaving a copy of the summons at his residence with some person of suitable age and
discretion then residing therein, or (b) by leaving the copy at his office or regular place
of business with some competent person in charge thereof. The latter mode of service
is known as substituted service because the service of the summons on the defendant
is made through his substitute.

There is no question that Sheriff Medina twice attempted to serve the summons upon
each of petitioners in person at their office address, the first in the morning of
September 18, 2000 and the second in the afternoon of the same date. Each attempt
failed because Macasaet and Quijano were “always out and not available” and the other
petitioners were “always roving outside and gathering news.” After Medina learned from
those present in the office address on his second attempt that there was no likelihood of
any of petitioners going to the office during the business hours of that or any other day,
he concluded that further attempts to serve them in person within a reasonable time
would be futile. The circumstances fully warranted his conclusion. He was not expected
or required as the serving officer to effect personal service by all means and at all times,
considering that he was expressly authorized to resort to substituted service should he
be unable to effect the personal service within a reasonable time. In that regard, what
was a reasonable time was dependent on the circumstances obtaining. While we are
strict in insisting on personal service on the defendant, we do not cling to such
strictness should the circumstances already justify substituted service instead. It is the
spirit of the procedural rules, not their letter, that governs.

11.
) Ridgewood Estate (erroneously sued as "Camella Homes") vs. Belaos (GR 166751,
6/8/06)

12.
Lozano vs. Delos Santos (GR 125221, 6/19/97)

274 SCRA 452 – Business Organization – Corporation Law – Jurisdiction of the SEC
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’ and Drivers’ 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 Anda’s motion. On certiorari, 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 yet incorporated. 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.

13. CRYSTAL vs. BANK OF THE PHILIPPINE ISLANDS

 G.R. No. 172428 November 28, 2008

J. TINGA

Facts: On 28 March 1978, spouses Crystal obtained a P300, 000.00 loan in behalf of the Cebu Contractors
Consortium Co. (CCCC) from the BPI-Butuan. The loan was secured by a chattel mortgage on heavy
equipment and machinery of CCCC. On the same date, the spouses executed in favor of BPI-Butuan a
Continuing Suretyship where they bound themselves as surety of CCCC in the aggregate principal sum of
not exceeding P300, 000.00. Thereafter, or on 29 March 1979, Raymundo Crystal executed a promissory
note for the amount of P300, 000.00, also in favor of BPI-Butuan. Sometime in August 1979, CCCC
renewed a previous loan, this time from BPI, Cebu City branch (BPI-Cebu City). However, CCCC had no
real property to offer as security for the loan; hence, the spouses executed a real estate mortgage over
their own real property. They executed another real estate mortgage over the same lot in favor of BPI-
Cebu City, to secure an additional loan of P20,000.00 of CCCC. CCCC failed to pay its loans to both BPI-
Butuan and BPI-Cebu City when they became due. CCCC, as well as the spouses, failed to pay their
obligations despite demands. Thus, BPI resorted to the foreclosure of the chattel mortgage and the real
estate mortgage. The foreclosure sale on the chattel mortgage was initially stalled and done. BPI filed a
complaint for sum of money against CCCC and the spouses before the Regional Trial Court, seeking to
recover the deficiency of the loan of CCCC and the spouses with BPI-Butuan Before the Court, petitioners
who are the heirs of the spouses argue that the failure of the spouses to pay the BPI-Cebu City loan of
P120,000.00 was due to BPI’s illegal refusal to accept payment for the loan unless the P300,000.00 loan
from BPI-Butuan would also be paid. Consequently, in view of BPI’s unjust refusal to accept payment of
the BPI-Cebu City loan, the loan obligation of the spouses was extinguished, petitioners contend.

Issues: Whether or not the obligation of the spouses is extinguished

Whether or not BPI is entitled to moral damages

Held: No, the obligation is not yet extinguished. Under Art. 1236 of the Civil Code, the creditor is not
bound to accept payment or performance by a third person who has no interest in the fulfillment of the
obligation, unless there is a stipulation to the contrary. The Court sees no stipulation in the promissory
note which states that a third person may fulfill the spouses’ obligation. Thus, it is clear that the spouses
alone bear responsibility for the same. A solidary obligation is one in which each of the debtors is liable
for the entire obligation, and each of the creditors is entitled to demand the satisfaction of the whole
obligation from any or all of the debtors. A liability is solidary "only when the obligation expressly so
states, when the law so provides or when the nature of the obligation so requires."24 Thus, when the
obligor undertakes to be "jointly and severally" liable, it means that the obligation is solidary. More
importantly, the promissory note, wherein the spouses undertook to be solidarily liable for the principal
loan, partakes the nature of a suretyship and therefore is an additional security for the loan.

No, they are not entitled to moral damages. BPI is not entitled to moral damages. A juridical person is
generally not entitled to moral damages because, unlike a natural person, it cannot experience physical
suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. The
Court of Appeals found BPI as "being famous and having gained its familiarity and respect not only in the
Philippines but also in the whole world because of its good will and good reputation must protect and
defend the same against any unwarranted suit such as the case at bench. Obviously, an artificial person
like herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious
anxiety, wounded feelings, moral shock or social humiliation which are basis of moral damages. A
corporation may have good reputation which, if besmirched may also be a ground for the award of moral
damages. Indeed, while the Court may allow the grant of moral damages to corporations, it is not
automatically granted; there must still be proof of the existence of the factual basis of the damage and
its causal relation to the defendant’s acts. This is so because moral damages, though incapable of
pecuniary estimation, are in the category of an award designed to compensate the claimant for actual
injury suffered and not to impose a penalty on the wrongdoer.

14. West Coast Life Insurance vs. Judge Hurd (GR L-8527, 3/30/1914)

27 Phil 401 – Business Organization – Corporation Law – No Criminal Actions Against A

Corporation
In 1912, West Coast Life Insurance caused the distribution of printed materials which
impressed among the readers thereof that Insular Life Insurance Company is in bad shape.
Insular Life then filed a criminal case for libel against West Coast Insurance. Judge Geo
Hurd took cognizance of the case.
West Coast Insurance opposed the same as it alleged that it the filing is against prevailing
rules of criminal procedure.
ISSUE: Whether or not West Coast Life Insurance is correct.
HELD: Yes. There is no provision in the prevailing rules of criminal procedure to support the
said criminal case filed against West Coast Life Insurance. A corporation cannot be
proceeded against criminally in court primarily because a corporation cannot possibly
commit a crime absent the essential element of malicious intent. The rule is to proceed
against the officials of the corporation and not the corporation itself.
15. Sia vs. People (GR L-30896, 4/28/83)

SIA vs. PEOPLE

G.R. No. L-30896

April 28, 1983

FACTS:

Petitioner, Jose O. Sia, was the president and general manager of Metal Manufacturing of the
Philippines (MEMAP). He was convicted of estafa for his failure to return the cold rolled steel sheets or
account for the proceeds of those which were sold, to Continental Bank, herein complainant. Petitioner
contended that he cannot be made liable for the crime charged as he only acted for and in behalf of
MEMAP as its president.

ISSUE:

Whether petitioner could be held liable for estafa.

RULING:

The Court ruled in the negative.

The case of People vs. Tan Boon Kong (54 Phil. 607) provides for the general principle that for
crimes committed by a corporation, the responsible officers thereof would personally bear the criminal
liability as a corporation is an artificial person, an abstract being. However, the Court ruled that such
principle is not applicable in this case because the act alleged to be a crime is not in the performance of
an act directly ordained by law to be performed by the corporation. The act is imposed by agreement of
parties, as a practice observed in the usual pursuit of a business or a commercial transaction. The
offense may arise, if at all, from the peculiar terms and condition agreed upon by the parties to the
transaction, not by direct provision of the law. In the absence of an express provision of law making the
petitioner liable for the criminal offense committed by the corporation of which he is a president as in
fact there is no such provisions in the Revised Penal Code under which petitioner is being prosecuted,
the existence of a criminal liability on his part may not be said to be beyond any doubt. In all criminal
prosecutions, the existence of criminal liability for which the accused is made answerable must be clear
and certain. Further, the civil liability imposed by the trust receipt is exclusively on the Metal Company.
Speaking of such liability alone, the petitioner was never intended to be equally liable as the corporation.
Without being made so liable personally as the corporation is, there would then be no basis for holding
him criminally liable, for any violation of the trust receipt.

16. 204. People vs. Chowdury, 325 SCRA 572, G.R. Nos. 129577-80 February 15, 2000
Facts
Bulu Chowdury was charged with the crime of illegal recruitment in large scale by recruiting
Estrella B. Calleja, Melvin C. Miranda and Aser S. Sasis for employment in Korea. Evidence shows that
accused –appellant interviewed private complainant in 1994 at Craftrade’s office, and required them to
submit requirements such as passport, NBI clearance, ID pictures, medical certificate and birth certificate.
Chowdury also required them to pay placements fee for a certain amount. At that time, he was an
interviewer of Craftrade which was operating under temporary authority given by POEA pending the
renewal of license. He was charged based on the fact that he was not registered with the POEA as
employee of Craftrade and he is not in his personal capacity, licensed to recruit overseas workers. The
complainants also averred that during their applications for employment for abroad, the license of
Craftrade was already expired.
For his defense Chowdury testified that he worked as interviewer at Craftrade from 1990 until
1994. His primary duty was to interview job applicants for abroad. As a mere employee, he only followed
the instructions given by his superiors, Mr. Emmanuel Geslani, the agency's President and General
Manager, and Mr. UtkalChowdury, the agency's Managing Director.
The trial Court found Chowdury huilty beyond reasonable doubt of the crime of illegal recruitment
in large scale.

Issue: Whether or not accused-appellant knowingly and intentionally participated in the commission of the
crime charged.

Held
No. The elements of illegal recruitment in large scale are:

(1) The accused undertook any recruitment activity defined under Article 13 (b) or any prohibited
practice enumerated under Article 34 of the Labor Code;
(2) He did not have the license or authority to lawfully engage in the recruitment and placement of
workers; and
(3) He committed the same against three or more persons, individually or as a group.

The last paragraph of Section 6 of Republic Act (RA) 804219 states who shall be held liable for
the offense, thus: “The persons criminally liable for the above offenses are the principals, accomplices
and accessories. In case of juridical persons, the officers having control, management or direction of their
business shall be liable.”
An employee of a company or corporation engaged in illegal recruitment may be held liable as
principal, together with his employer, if it is shown that he actively and consciously participated in illegal
recruitment. The culpability of the employee therefore hinges on his knowledge of the offense and his
active participation in its commission. Where it is shown that the employee was merely acting under the
direction of his superiors and was unaware that his acts constituted a crime, he may not be held criminally
liable for an act done for and in behalf of his employer.
In this case, Chowdury merely performed his tasks under the supervision of its president and
managing director. The prosecution failed to show that the accused-appellant is conscious and has an
active participation in the commission of the crime of illegal recruitment. Moreover, accused-appellant was
not aware of Craftrade's failure to register his name with the POEA and the prosecution failed to prove
that he actively engaged in recruitment despite this knowledge. The obligation to register its personnel
with the POEA belongs to the officers of the agency. A mere employee of the agency cannot be expected
to know the legal requirements for its operation. The accused-appellant carried out his duties as
interviewer of Craftrade believing that the agency was duly licensed by the POEA and he, in turn, was
duly authorized by his agency to deal with the applicants in its behalf. Accused-appellant in fact confined
his actions to his job description. He merely interviewed the applicants and informed them of the
requirements for deployment but he never received money from them. Chowdury did not knowingly and
intentionally participated in the commission of illegal recruitment being merely performing his task and
unaware of illegality of recruitment.

17. Ching vs. Sec. of Justice (GR 164317, 6 February 2006)

The failure of person to turn over the proceeds of the sale of the goods covered
by the trust receipt to the entruster or to return said goods, if not sold, is a public
nuisance to be abated by the imposition of penal sanctions

Facts: Ching was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI).
Sometime in September to October 1980, PBMI, through petitioner, applied with the Rizal
Commercial Banking Corporation (respondent bank) for the issuance of commercial letters of
credit to finance its importation of assorted goods. Under the receipts, petitioner agreed to
hold the goods in trust for the said bank, with authority to sell but not by way of conditional
sale, pledge or otherwise; and in case such goods were sold, to turn over the proceeds
thereof as soon as received, to apply against the relative acceptances and payment of other
indebtedness to respondent bank. In case the goods remained unsold within the specified
period, the goods were to be returned to respondent bank without any need of demand.
Thus, said “goods, manufactured products or proceeds thereof, whether in the form of
money or bills, receivables, or accounts separate and capable of identification” were
respondent bank’s property. When the trust receipts matured, petitioner failed to return the
goods to respondent bank, or to return their value amounting to P6,940,280.66 despite
demands. Thus, the bank filed a criminal complaint for estafa 6 against petitioner in the Office
of the City Prosecutor of Manila.
Issue: Whether or not Ching is liable for Estafa

Held: In the case at bar, the transaction between petitioner and respondent bank falls under
the trust receipt transactions envisaged in P.D. No. 115. Respondent bank imported the
goods and entrusted the same to PBMI under the trust receipts signed by petitioner, as
entrustee, with the bank as entruster. The failure of person to turn over the proceeds of the
sale of the goods covered by the trust receipt to the entruster or to return said goods, if not
sold, is a public nuisance to be abated by the imposition of penal sanctions.—It must be
stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of public
policy, the failure of person to turn over the proceeds of the sale of the goods covered by a
trust receipt or to return said goods, if not sold, is a public nuisance to be abated by the
imposition of penal sanctions.

Failure of the entrustee to turn over the proceeds of the sale of the goods covered by the
trust receipts to the entruster or to return said goods if they were not disposed of in
accordance with the terms of the trust receipt is a crime under P.D. No. 115, without need of
proving intent to defraud.—In Colinares v. Court of Appeals, the Court declared that there are
two possible situations in a trust receipt transaction. The first is covered by the provision
which refers to money received under the obligation involving the duty to deliver it
(entregarla) to the owner of the merchandise sold. The second is covered by the provision
which refers to merchandise received under the obligation to return it (devolvera) to the
owner. Thus, failure of the entrustee to turn over the proceeds of the sale of the goods cov-
ered by the trust receipts to the entruster or to return said goods if they were not disposed
of in accordance with the terms of the trust receipt is a crime under P.D. No. 115, without
need of proving intent to defraud. The law punishes dishonesty and abuse of confidence in
the handling of money or goods to the prejudice of the entruster, regardless of whether the
latter is the owner or not. A mere failure to deliver the proceeds of the sale of the goods, if
not sold, constitutes a criminal offense that causes prejudice, not only to another, but more
to the public interest.

P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b), Article
315 of the Revised Penal Code, or estafa with abuse of confidence.—The crime defined in
P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b), Article
315 of the Revised Penal Code, or estafa with abuse of confidence. It may be committed by a
corporation or other juridical entity or by natural persons. However, the penalty for the
crime is imprisonment for the periods provided in said Article 315.

18. ABS-CBN Corp., petitioner vs. GMA Pres. and CEO Atty. Felipe Gozon, GMA
Vice
President and COO Gilberto Duavit Jr., Marissa L. Flores, Jessica A. Soho, GMA
Head of News Operations Grace Dela Peña-Reyes, GMA News Program
Manager
John Oliver Manalastas, et. al., respondents.
G.R. No. 195956, 1 March 2015
Ponente: Justice Marvic F. Leonen
FACTS
On August 13, 2004, petitioner ABS-CBN filed a criminal complaint against
respondent GMA for (alleged) act of copyright infringement under Sections
177 and
211 of the Intellectual Property Code (RA 8293, as amended), because the
respondent aired footage of the arrival and homecoming of OFW Angelo dela
Cruz
at NAIA from Iraq without the petitioner's consent. ABS-CBN stated that it has
an
agreement with Reuter's that the petition will contribute news and content
that it
owns and makes to Reuters in exchange of the latter's news and video
material, and
Reuters will ensure that ABS-CBN's materials cannot be aired in the country.
The respondent was a subscriber of Reuter's and CNN live feeds. After it
received
the live feed of Angelo Dela Cruz's arrival and homecoming from Reuter's, it
immediately aired the video from that news feed. The respondent alleged
that its
news staff was not aware that there was (a news embargo) agreement
between ABSCBN
and Reuters. Respondent alleged that it was not also aware that it aired
petitioner's footage.
Assistant City Prosecutor Dindo Venturanza issued resolution on 3 December
2004
which found probable cause to indict Dela Peña-Reyes and Manalastas. The
respondents appealed the Prosccutor's resolution before DOJ. DOJ Secretary
Raul
M. Gonzalez ruled in favor of respondents in his resolution dated 1 August
2005 and
held that good faith may be raised as a defense in the case.
Meanwhile, DOJ Acting Secretary Alberto C. Agra issued a resolution on 29
June
2010 which reversed Sec. Gonzalez's resolution and found probable cause to
charge
Dela Peña-Reyes, Manalastas, as well as to indict Gozon, Duavit, Jr., Flores,
and
Soho for violation of the Intellectual Property Code (due to copyright
infringement).
The Court of Appeals rendered a decision on 9 November 2010, which
granted the
Petition for Certiorari to reverse and set aside DOJ Sec. Alberto Agra's
resolution
and a prayer for issuance of a temporary restraining order and/or Writ of
Preliminary Injunction.
The appellate court stated that the petitioner has copyright of its news
coverage, but
respondents’ act of airing five (5) seconds of the homecoming footage
without notice
of the “No Access Philippines” restriction of the live Reuter's video feed, was
undeniably attended by good faith and thus, serves to exculpate from
criminal
liability under the Intellectual Property Code.
ISSUES
W/N there is probable cause to find respondents to be held liable criminally
for the
case of copyright infringement under the Intellectual Property Law (RA 8293,
as
amended)?
HELD
The Supreme Court PARTIALLY GRANTED ABS-CBN’s petition and ordered RTC
Q.C. Branch 93 to continue with the criminal proceedings against Grace Dela
Peña-
Reyes and John Oliver Manalastas due to copyright infringement.
The other respondents, Atty. Felipe Gozon, Gilberto Duavit Jr., Marissa L.
Flores,
and Jessica A. Soho were held not liable for the (criminal) act of copyright
infringement. The Court held that their mere membership in GMA7's Board of
Directors does not mean that they have knowledge, approval, or
participation in the
criminal act of copyright infringement., as there is a need for their
direct/active
participation in such act. Also, there was lack of proof that they actively
participated or exercised moral ascendancy over Manalastas and Dela Cruz-
Pena.
Contrary to GMA’s contention, the Supreme Court deemed GMA's mere act of
rebroadcast of ABS-CBN’s news footage (arrival and homecoming of OFW
Angelo
dela Cruz at NAIA from Iraq last 22 July 2004) for 2 mins and 40 secs.without
the
latter's authority creates probable cause to find GMA's news personnel
Manalastas
and Dela Peña-Reyes criminally liable for violating provisions of Intellectual
Property Code (Section 216217
of RA 8293, as amended) that imposes strict
liability for copyright infringement, since they have not been diligent in their
functions to prevent that footage from being aired on television. They knew
that
there would be consequences in carrying ABS-CBN’s footage in their
broadcast –
which is why they allegedly cut the feed from Reuters upon seeing ABS-
CBN’s logo
and reporter.
The difference of an act mala in se and mala prohibita was stated in the
present
case. Acts mala in se requires presence of criminal intent and the person's
knowledge of the nature of his/her act, while in acts mala prohibita, presence
of
criminal intent and the person's knowledge is not necessary. The Court also
stated
that Philippine laws on copyright infringement does not require criminal
intent
(mens rea) and does not support good faith as a defense. Thus, the act of
infringement and not the intent is the one that causes the damage.
It held that ABS-CBN's video footage is copyrightable because it is under
“audiovisual works and cinematographic works and works produced by a
process
analogous to cinematography or any process for making audiovisual
recordings.” It
also stated that news or the event itself is not copyrightable. The Court
differentiated idea and expression – idea meant as “a form, the look or
appearance
of a thing” while expression is its reality or the “external, perceptible world of
articulate sounds and visible written symbols that others can understand.”
Thus,
the Supreme Court stated that “only the expression of an idea is protected
by
copyright, not the idea itself”, citing the US Supreme Court's decision in
Baker vs
Selden (101 U.S. 99). In the present case, expression applies to the event
captured
and presented in a specific medium via cinematography or processes
analogous to it.
The Court also gave the four-fold test under the Fair Use Doctrine (stated in
section
185 of RA 8293 or the Intellectual Property Code, as amended) to determine
fair
use:
a. The purpose and character of the use, including whether such use is of a
commercial nature or is for non-profit educational purposes;
b. The nature of the copyrighted work;
c. The amount and substantiality of the portion used in relation to the
copyrighted work as a whole; and
d. The effect of the use upon the potential market for or value of the
copyrighted work.
Fair use, which is an exception to copyright owner’s monopoly of the work's
usage,
was defined by the Supreme Court as privilege to use the copyrighted
material in a
reasonable manner without the copyright owner's consent or by copying the
material's theme or idea rather than its expression.
It also said that determination of whether the Angelo dela Cruz footage is
subject to
fair use is better left to the trial court where the proceedings are currently
pending.

19. Ty vs. NBI Supervising Agent De Jemil

Arnel U. Ty, MARIE ANTONETTE TY, JASON ONG, WILLY DY, and ALVIN TY, vs.
NBI SUPERVISING AGENT MARVIN E. DE JEMIL, PETRON GASUL DEALERS
ASSOCIATION, and TOTALGAZ DEALERS ASSOCIATION
G.R. No. 182147 | December 15, 2010 | Velasco, Jr.,J.:

Facts:

Petitioners are stockholders of Omni Gas Corporation ("Omni"). They are being
suspected of engaging in illegal trading of petroleum products and underfilling of
branded LPG cylinders in violation of B.P. 33, as amended by P.D. 1865. NBI Agents
Marvin De Jemil and Edgardo Kawada conducted surveillance operations on Omni. On
15 April 2004, the NBI Agents carried out a test-buy. Using eight branded LPG cylinders
from Shell, Petron and Total, they went to Omni for refilling. Omni refilled the cylinders.
The NBI agents paid more than P1500. LPG Inspector Noel Navio found that the LPG
cylinders were without LPG valve seals and one of the cylinders was actually
underfilled.

On 28 April 2004, Agent De Jemil obtained a search warrant from Pasig RTC branch
167. The NBI seized several items from Omni's premises. Subsequently, Agent De
Jemil filed his Complaint-Affidavit before the DOJ. The Assistant City Prosecutor of
Pasig found probable cause for violation of BP 33. This was later approved by Chief
State Prosecutor Jovencito Zuno.

Petitioners appealed the decision to the Secretary of Justice, who later reversed the
decision of the Office of the Chief State Prosecutor. NBI Agent De Jemil moved for
reconsideration. Denied. He thus filed a petition for certiorari under Rule 65 with the
Court of Appeals.

The Court of Appeals affirmed the decision of Secretary of Justice. It later reversed itself
and reinstated the Resolution of the Chief State Prosecutor.
Issues:
(1) Whether the petition for certiorari with the Court of Appeals was proper even if Agent
De Jemil did not appeal to the Office of the President?
(2) Whether probable cause exists against petitioners for violations of Sec. 2 (a) and (c)
of BP 33, as amended?
(3) Whether petitioners can be held liable therefor?

Held:
(1) YES. The determination of probable cause by the public prosecutor, and, later on, by
the Secretary of Justice, is subject to judicial review where it is established that grave
abuse of discretion tainted the determination. The aggrieved party need not resort to the
Office of the President before availing of judicial remedies because the Secretary of
Justice is an alter ego of the President who may opt to exercise or not to exercise his or
her power of review over the former’s determination in criminal investigation cases.
Also, under the doctrine of qualified political agency, the determination of probable
cause by the Secretary of Justice is presumably that of the Chief Executive unless
disapproved or reprobated by the latter.

(2) YES. The test-buy conducted on 15 April 2004 tends to show that Omni illegally
refilled the eight branded cylinders. Such act is a clear violation of Sec. 2 (a), in relation
to Secs. 3 (c) and 4 of BP 33, as amended.

Omni has no authority to refill LPG cylinders as shown by the certifications provided by
Shell, Petron and Total. The seized items also show that Omni has no authority to refill
the cylinders. It shows that Omni really refilled branded cylinders without authorization.
Omni’s unauthorized refilling of branded LPG cylinders, contrary to Sec. 2 (a) in relation
to Sec. 3 (c) of BP 33, as amended.

Granting arguendo that the customers already owned the LPG cylinders, such fact does
give Omni authority to refill the cylinders without authorization from the brand owners.
Only the duly authorized dealers and refillers of the brand owners may refill the branded
LPG cylinders. The offense of refilling a branded LPG cylinder without the written
consent of the brand owner constitutes the offense regardless of the buyer or possessor
of the branded LPG cylinder.

Petitioner's contention that they are not liable because the underfilling that took place
during the test-buy is an isolated event is UNTENABLE. A single underfilling under BP
33 is already a criminal act.

(3) Only Arnel Ty, as President of Omni, is liable. The other petitioners, who are
members of Omni's Board of Directors, are not liable. Sec. 4 of BP 33 enumerates the
persons who may be held liable, viz: (1) the president, (2) general manager, (3)
managing partner, (4) such other officer charged with the management of the business
affairs of the corporation or juridical entity, or (5) the employee responsible for such
violation. The Board of Directors is primarily a policy-making body of the Corporation
who doesn't concern itself with day-to-day operations

Piercing the veil of Corporate fiction

20. Heirs of Fe Tan Uy v. International Exchange Bank (Corporate Entity)
G.R. No. 166282, 13 February 2013 (690 SCRA 519)
FACTS:
Respondent International Exchange Bank (iBank), granted loans to Hammer Garments
Corporation (Hammer), covered by promissory notes and deeds of assignment. The loans were
likewise secured by a P 9 Million-Peso Real Estate Mortgage executed by Goldkey Development
Corporation (Goldkey) over several of its properties and a P 25 Million-Peso Surety Agreement
signed by Chua and his wife, Fe Tan Uy (Uy).
However, Hammer defaulted in the payment of its loans, prompting iBank to foreclose on
Goldkey’s third-party Real Estate Mortgage. The mortgaged properties were sold for P 12 million
during the foreclosure sale, leaving an unpaid balance of P 13,420,177.62.9. For failure of
Hammer to pay the deficiency, iBank filed a Complaint for sum of money on December 16, 1997
against Hammer, Chua, Uy, and Goldkey before the Regional Trial Court, Makati City (RTC).
Hammer did not file any Answer, thus it was held in default. On the other hand, Uy claimed that
she was not liable to iBank because she never executed a surety agreement in favor of iBank.
Goldkey also denies liability, averring that it acted only as a third-party mortgagor and that it
was a corporation separate and distinct from Hammer.
RTC decision: ruled in favor of iBank. The lower court said that while it made the
pronouncement that the signature of Uy on the Surety Agreement was a forgery, it nevertheless
held her liable for the outstanding obligation of Hammer because she was an officer and
stockholder of the said corporation. The RTC agreed with Goldkey that as a third-party
mortgagor, its liability was limited to the properties mortgaged. It came to the conclusion,
however, that Goldkey and Hammer were one and the same entity.
Aggrieved, the heirs of Uy and Goldkey (petitioners) elevated the case to the CA.

CA decision: affirming the findings of the RTC. The CA found that iBank was not negligent in
evaluating the financial stability of Hammer. According to the appellate court, iBank was
induced to grant the loan because petitioners, with intent to defraud the bank, submitted a
falsified Financial Report for 1996 which incorrectly declared the assets and cashflow of
Hammer. Because petitioners acted maliciously and in bad faith and used the corporate fiction
to defraud iBank, they should be treated as one and the same as Hammer.
Hence, the present petitions filed separately by the heirs of Uy and Goldkey which later on
consolidated by this Court.
ISSUE: Whether or not the doctrine of piercing the corporate veil should apply in this case?
RULING: NO.
RATIO:
Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a
legal personality separate and distinct from those acting for and in its behalf and, in general,
from the people comprising it. Following this principle, obligations incurred by the corporation,
acting through its directors, officers and employees, are its sole liabilities. A director, officer or
employee of a corporation is generally not held personally liable for obligations incurred by the
corporation.
Nevertheless, this legal fiction may be disregarded if it is used as a means to perpetrate fraud or
an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention of
statutes, or to confuse legitimate issues.
In this case, petitioners are correct to argue that it was not alleged, much less proven, that Uy
committed an act as an officer of Hammer that would permit the piercing of the corporate veil.
A reading of the complaint reveals that with regard to Uy, iBank did not demand that she be
held liable for the obligations of Hammer because she was a corporate officer who committed
bad faith or gross negligence in the performance of her duties such that the lifting of the
corporate mask would be merited. What the complaint simply stated is that she, together with
her errant husband Chua, acted as surety of Hammer, as evidenced by her signature on the
Surety Agreement which was later found by the RTC to have been forged.
The Court emphasized that the application of the doctrine of piercing the corporate veil should
be done with caution. A court should be mindful of the milieu where it is to be applied. It must
be certain that the corporate fiction was misused to such an extent that injustice, fraud, or
crime was committed against another, in disregard of its rights. The wrongdoing must be clearly
and convincingly established; it cannot be presumed. Otherwise, an injustice that was never
unintended may result from an erroneous application.
However, the Court finds Goldkey liable for it is a mere alter ego of Hammer.
Goldkey contends, among others, that iBank is estopped from expanding Goldkey’s liability
beyond the real estate mortgage. It adds that it did not authorize the execution of the said
mortgage. Finally, it passes the blame on to iBank for failing to exercise the requisite due
diligence in properly evaluating Hammer’s creditworthiness before it was extended an omnibus
line.
The Court disagrees.
Goldkey’s argument, that iBank is barred from pursuing Goldkey for the satisfaction of the
unpaid obligation of Hammer because it had already limited its liability to the real estate
mortgage, is completely absurd. Goldkey needs to be reminded that it is being sued not as a
consequence of the real estate mortgage, but rather, because it acted as an alter ego of
Hammer. Accordingly, they must be treated as one and the same entity, making Goldkey
accountable for the debts of Hammer.
Similarly, Goldkey is undoubtedly mistaken in claiming that iBank is seeking to enforce an
obligation of Chua. The records clearly show that it was Hammer, of which Chua was the
president and a stockholder, which contracted a loan from iBank. What iBank sought was
redress from Goldkey by demanding that the veil of corporate fiction be lifted so that it could
not raise the defense of having a separate juridical personality to evade liability for the
obligations of Hammer.
Under a variation of the doctrine of piercing the veil of corporate fiction, when two business
enterprises are owned, conducted and controlled by the same parties, both law and equity will,
when necessary to protect the rights of third parties, disregard the legal fiction that two
corporations are distinct entities and treat them as identical or one and the same.
21. KUKAN INTERNATIONAL CORPORATION VS. HON. AMOR REYES
G.R. NO. 182729, SEPTEMBER 29, 2010
FACTS:
Private respondent Romeo M. Morales doing business under the name RM Morales Trophies
and Plaques was awarded a P5 million contract for the supply and installation of signages in a
building constructed in Makati sometime in March 1998. The contract price was later reduced to
P3,388,502 because some items were deleted from the contract. Morales complied with his
contractual obligations but he was paid only the amount of P1,976,371.07 leaving a balance of
P1,412,130.93. He filed a case against Kukan, Inc., for sum of money with the RTC of Manila
docketed as Civil Case No. 99-93173. Kukan Inc., stopped participating in the proceedings in
November 2000, hence, it was declared in default and Morales presented his evidence ex-parte
against petitioner.
On November 28, 2002, the RTC rendered a decision in favor of Morales and against
Kunkan, Inc. ordering the latter to pay the sum of P1,201,724.00 with legal interest of 12% per
annum until fully paid; P50,000.00 as moral damages,P20,000.00 as attorney's fees and
P7,960.06
as litigation expenses. The counterclaimfiled by Kunkan, Inc. was dismissed. The decision
became
final and executory During the execution, the sheriff levied the personal properties found at the
office of Kukan, Inc.. Claiming it owned the properties levied, Kukan International Corporation
(KIC) fied an Affidavit of Third Party Claim. Morales filed an Omnibus Motion praying to apply
the principle of piercing the veil of corporate entity. He alleged that Kankun, Inc. and KIC are
one
and the same corporation His Motion was denied. On Motion of Morales the presiding Judge of
Branch 17 of RTC Manila inhibited himself from hearing the case. It was raffled to Branch 21
which granted the Motion filed by Morales on March 12, 2007 and decreed that Kukan, Inc.
and
Kukan International Inc., as one and the same corporation; that the levy made on the
properties of
KIC is valid; and ordering Kunkan International Corp. and Michael Chan as jointly and severally
liable to pay the award pursuant to the Decision dated November 28, 2002. KIC filed a Motion
for
Reconsideration which was denied.KIC brought the case to the Court of Appeals which rendered
the Decision n January 23, 2008 denying KIC's petition. The CA also denied its Motion for
Reconsideration in the Resolution dated June 7, 2007.
Hence, this case.
ISSUE/S: One of the issues raised is whether or not the trial court and the appellate court
correctly applied the principle of piercing the veil of corporate entity.
HELD: The Supreme Court ruled that the doctrine of piercing the veil of corporate entity finds
no application in this case.
According to the Supreme Court, the principle of piercing the veil of corporate entity and the
resulting treatment of two related corporation as one and the same juridical person applies only
to established liability and not to confer jurisdiction. In this case, the Supreme Court ruled that
KIC was not made a party defendant in Civil Case No. 99-93173. It entered a special but not a
voluntary appearance in the trial court to assert that it was a separate entity and has a separate
legal personality from Kunkan, Inc. KIC was not impleaded nor served with summons. Hence, it
could only assert its claim through the affidavits, comments and motions filed by special
apperance before the RTC that it is a separate juridical entity.
The Supreme stated that the doctrine of piercing the veil of corporate entity comes to play during
the trial of the case after the court has already acquired jurisdiction over the corporation.
To justify the piercing of the veil of corporate fiction, it must be shown by clear and convincing
proof that the separate and distinct personality of the corporation was purposely employed to
evade a legitimate and binding comittment and perpetuate a fraud or like a wrongdoings.
In those instances when the Court pierced the veil of corporate fiction of two corporations, there
was a confluence of the following factors:
1. A first corporation is dissolved;
2. The assets of the first corporation is transferred to a second corporation to avoid a financial
liability of the first corporation; and
3. Both corporations are owned and controlled by the same persons such that the second
corporation should be considered as a continuation and successor of the first corporation.
In this case, the second and third factors are conspicuously absent. There is, therefore, no
compelling justification for disregarding the fiction of corporate entity separating Kukan, Inc.
from
KIC. In applying the principle, both the RTC and the CA miserably failed to identify the
presence
of the abovementioned factors.
The High Court stated that neither should the level of paid-up capital of Kukan, Inc. upon its
incorporation be viewed as a badge of fraud, for it is in compliance with Sec. 13 of the
Corporation
Code, which only requires a minimum paid-up capital of PhP 5,000.
The suggestion that KIC is but a continuation and successor of Kukan, Inc., owned and
controlled as they are by the same stockholders, stands without factual basis. The fact that
Michael
Chan, a.k.a. Chan Kai Kit, owns 40% of the outstanding capital stock of both corporations
standing
alone, is insufficient to establish identity. There must be at least a substantial identity of
stockholders for both corporations in order to consider this factor to be constitutive of corporate
identity.
Petition granted.
22. Pacific Rehouse Corporation v. Court of Appeals, G.R. No. 199687, March 24, 2014.
FACTS
A complaint was instituted with the Makati City Regional Trial Court (RTC), Branch 66, against
EIB Securities Inc. (E–Securities) for unauthorized sale of 32,180,000 DMCI shares of Pacific
Rehouse Corporation, Pacific Concorde Corporation, Mizpah Holdings, Inc., Forum Holdings
Corporation, and East Asia Oil Company, Inc. In its October 18, 2005 Resolution, the RTC
rendered judgment on the pleadings, directing the E–Securities to return to the petitioners
32,180,000 DMCI shares, as of judicial demand. On the other hand, petitioners are directed to
reimburse the defendant the amount of [P]10,942,200.00, representing the buy back price of
the 60,790,000 KPP shares of stocks at [P]0.18 per share. The Resolution was ultimately
affirmed by the Supreme Court and attained finality.
When the Writ of Execution was returned unsatisfied, petitioners moved for the issuance of an
alias writ of execution to hold Export and Industry Bank, Inc. liable for the judgment obligation
as E–Securities is “a wholly–owned controlled and dominated subsidiary of Export and Industry
Bank, Inc., and is[,] thus[,] a mere alter ego and business conduit of the latter. E–Securities
opposed the motion[,] arguing that it has a corporate personality that is separate and distinct
from the respondent.
The RTC eventually concluded that E–Securities is a mere business conduit or alter ego of
petitioner, the dominant parent corporation, which justifies piercing of the veil of corporate
fiction, and issued an alias writ of summons directing defendant EIB Securities, Inc., and/or
Export and Industry Bank, Inc., to fully comply therewith. It ratiocinated that being one and the
same entity in the eyes of the law, the service of summons upon EIB Securities, Inc. (E–
Securities) has bestowed jurisdiction over both the parent and wholly–owned subsidiary.
Export and Industry Bank, Inc. (Export Bank) filed before the Court of Appeals a petition for
certiorari with prayer for the issuance of a temporary restraining order (TRO) seeking the
nullification of the RTC Order. The Court of Appeals reversed the RTC Order and explained that
the alter ego theory cannot be sustained because ownership of a subsidiary by the parent
company is not enough justification to pierce the veil of corporate fiction. There must be proof,
apart from mere ownership, that Export Bank exploited or misused the corporate fiction of E–
Securities. The existence of interlocking incorporators, directors and officers between the two
corporations is not a conclusive indication that they are one and the same. The records also do
not show that Export Bank has complete control over the business policies, affairs and/or
transactions of E–Securities. It was solely E–Securities that contracted the obligation in
furtherance of its legitimate corporate purpose; thus, any fall out must be confined within its
limited liability.
ISSUE
Whether or not E-Securities is merely an alter ego of Export Bank so that “piercing the veil of
corporate fiction” is proper.
RULING
NO. An alter ego exists where one corporation is so organized and controlled and its affairs are
conducted so that it is, in fact, a mere instrumentality or adjunct of the other. The control
necessary to invoke the alter ego doctrine is not majority or even complete stock control but
such domination of finances, policies and practices that the controlled corporation has, so to
speak, no separate mind, will or existence of its own, and is but a conduit for its principal.
The Court has laid down a three–pronged control test to establish when the alter ego doctrine
should be operative:
Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;
Such control must have been used by the defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiff’s legal right; and
The aforesaid control and breach of duty must [have] proximately caused the injury or unjust
loss complained of.
The absence of any one of these elements prevents ‘piercing the corporate veil’ in applying the
‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality and not form,
with how the corporation operated and the individual defendant’s relationship to that
operation. Hence, all three elements should concur for the alter ego doctrine to be applicable.
In this case, the alleged control exercised by Export Bank upon its subsidiary E–Securities, by
itself, does not mean that the controlled corporation is a mere instrumentality or a business
conduit of the mother company. Even control over the financial and operational concerns of a
subsidiary company does not by itself call for disregarding its corporate fiction. There must be a
perpetuation of fraud behind the control or at least a fraudulent or illegal purpose behind the
control in order to justify piercing the veil of corporate fiction. Such fraudulent intent is lacking
in this case.
While the courts have been granted the colossal authority to wield the sword which pierces
through the veil of corporate fiction, concomitant to the exercise of this power, is the
responsibility to uphold the doctrine of separate entity, when rightly so; as it has for so long
encouraged businessmen to enter into economic endeavors fraught with risks and where only a
few dared to venture.
The decision of the Court of Appeals in favor of Export Bank (reversing the RTC Order) is
affirmed.
23. TIMOTEO H. SARONA v.
NATIONAL LABOR RELATIONS COMMISSION
G.R. No. 185280, January 18, 2012
Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)
(Topic: Doctrine of Piercing the Veil of Corporate Fiction)
FACTS:
On June 20, 2003, the petitioner, who was hired by Sceptre as a security guard sometime in
April 1976, was asked by Karen Therese Tan (Karen), Sceptre’s Operation Manager, to submit a
resignation letter as the same was supposedly required for applying for a position at Royale. The
petitioner was also asked to fill up Royale’s employment application form, which was handed to
him by Royale’s General Manager, respondent Cesar Antonio Tan II (Cesar).
After several weeks of being in floating status, Royale’s Security Officer, Martin Gono (Martin),
assigned the petitioner at Highlight Metal Craft, Inc. (Highlight Metal) from July 29, 2003 to
August 8, 2003. Thereafter, the petitioner was transferred and assigned to Wide Wide World
Express, Inc. (WWWE, Inc.).
On September 17, 2003, the petitioner was informed that his assignment at WWWE, Inc. had
been withdrawn because Royale had allegedly been replaced by another security agency. The
petitioner, however, shortly discovered thereafter that Royale was never replaced as WWWE,
Inc.’s security agency. When he placed a call at WWWE, Inc., he learned that his fellow security
guard was not relieved from his post.
On September 21, 2003, the petitioner was once again assigned at Highlight Metal, albeit for a
short period from September 22, 2003 to September 30, 2003. Subsequently, when the
petitioner reported at Royale’s office on October 1, 2003, Martin informed him that he would
no longer be given any assignment per the instructions of Aida Sabalones-Tan (Aida), general
manager of Sceptre. This prompted him to file a complaint for illegal dismissal on October 4,
2003.
ISSUE:
Whether or not Royale’s corporate fiction should be pierced for the purpose of compelling it to
recognize the petitioner’s length of service with Sceptre and for holding it liable for the benefits
that have accrued to him arising from his employment with Sceptre?
RULING:
Yes.
The doctrine of piercing the corporate veil applies in alter ego cases, where a corporation is
merely a farce since it is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it merely
an instrumentality, agency, conduit or adjunct of another corporation.
The respondents’ scheme reeks of bad faith and fraud and compassionate justice dictates that
Royale and Sceptre be merged as a single entity, compelling Royale to credit and recognize the
petitioner’s length of service with Sceptre. The respondents cannot use the legal fiction of a
separate corporate personality for ends subversive of the policy and purpose behind its
creation53 or which could not have been intended by law to which it owed its being.
Also, Sceptre and Royale have the same principal place of business. As early as October 14,
1994, Aida and Wilfredo became the owners of the property used by Sceptre as its principal
place of business by virtue of a Deed of Absolute Sale they executed with Roso.57 Royale,
shortly after its incorporation, started to hold office in the same property. These, the
respondents failed to dispute.
Royale also claimed a right to the cash bond which the petitioner posted when he was still with
Sceptre. If Sceptre and Royale are indeed separate entities, Sceptre should have released the
petitioner’s cash bond when he resigned and Royale would have required the petitioner to post
a new cash bond in its favor.
However, the manner by which the petitioner was made to resign from Sceptre and how he
became an employee of Royale suggest the perverted use of the legal fiction of the separate
corporate personality.

24, Lozada vs Magtanggol Mendoza

G.R. No. 196134, October 12, 2016

Facts: On October 13, 1997, the Magtanggol Mendoza was employed as a technician by VSL
Service Center, a single proprietorship owned and managed by Valentin Lozada. Sometime in
August 2003, the VSL Service Center was incorporated and changed its business name to LB&C
Services Corporation. Subsequently, Magtanggol was asked by respondent Lozada to sign a new
employment contract. The petitioner did not accede because the respondent company did not
consider the number of years of service that he had rendered to VSL Service Center. From then
on, the his work schedule was reduced to one to three days a week. In December 2003, He was
given his regular working schedule by the company. However, on January 12, 2004, Magtanggol
was advised by the respondent company’s Executive Officer, Angeline Aguilar, not to report for
work and just wait for a call from the respondent company regarding his work schedule. Due to
the continued failure of respondent company to give work schedule to Magtanggol, the latter
filed a complaint against the respondent company on January 21, 2004 for illegal dismissal with
a prayer for the payment of his 13th month pay, service incentive leave pay, holiday pay and
separation pay and with a claim for moral and exemplary damages, and attorney’s fees. The case
was docketed as NLRC NCR Case No. 00-01-00968-2004. On February 23, 2005, the Labor
Arbiter declared the dismissal of the petitioner from employment as illegal. LB&C Services
Corporation appealed, but the NLRC dismissed the appeal for non-perfection thereof due to
failure to deposit the required cash or surety bond. Thus, the Labor Arbiter’s decision attained
finality on August 4, 2006, and the entry of judgment was issued by the NLRC on August 16,
2006. The respondent moved for the issuance of the writ of execution, which the Labor Arbiter
granted on November 21, 2006.

Issue: Whether or not the petitioner may be held liable for the monetary awards granted to the
respondent despite the absence of a pronouncement of his being solidarily liable with LB&C
Services Corporation.

Held: No. A corporation, as a juridical entity, may act only through its directors, officers and
employees. Obligations incurred as a result of the acts of the directors and officers as the
corporate agents are not their personal liability but the direct responsibility of the corporation
they represent. As a general rule, corporate officers are not held solidarily liable with the
corporation for separation pay because the 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. 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.

To hold a director or officer personally liable for corporate obligations, two requisites must
concur, to wit: (1) the complaint must allege that the director or officer assented to the patently
unlawful acts of the corporation, or that the director or officer was guilty of gross negligence or
bad faith; and (2) there must be proof that the director or officer acted in bad faith.

Clearly, what can be inferred from the earlier cases is that the doctrine of piercing the corporate
veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the
corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or
when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter
ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of
a person, or where the corporation is so organized and controlled and its affairs are so conducted
as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. In the
absence of malice, bad faith, or a specific provision of law making a corporate officer liable,
such corporate officer cannot be made personally liable for corporate liabilities.

The records of this case do not warrant the application of the exception. The rule, which requires
malice or bad faith on the part of the directors or officers of the corporation, must still prevail.
The petitioner might have acted in behalf of LB&C Services Corporation but the corporation’s
failure to operate could not be hastily equated to bad faith on his part. Verily, the closure of a
business can be caused by a host of reasons, including mismanagement, bankruptcy, lack of
demand, negligence, or lack of business foresight. Unless the closure is clearly demonstrated to
be deliberate, malicious and in bad faith, the general rule that a corporation has, by law, a
personality separate and distinct from that of its owners should hold sway. In view of the dearth
of evidence indicating that the petitioner had acted deliberately, maliciously or in bad faith in
handling the affairs of LB&C Services Corporation, and such acts had eventually resulted in the
closure of its business, he could not be validly held to be jointly and solidarily liable with LB&C
Services Corporation.

25. Francisco v Mallen G.R. No. 173169

Facts:
 On 5 April 1994, respondent Numeriano Mallen, Jr. was hired as a waiter for VIPS Coffee
Shop and Restaurant, a fine dining restaurant which used to operate at the Harrison
Plaza Commercial Complex in Manila.
 On 30 January 1998 to 1 February 1998, respondent took an approved sick leave. On 15
February 1998, respondent took a vacation leave. Thereafter, he availed of his paternity
leave.
 On 18 April 1998, respondent suffered from tonsillitis, forcing him to take a three-day
sick leave from 18 April 1998 to 20 April 1998. However, instead of his applied three-day
sick leave, respondent was given three months leave.
 On 5 May 1998, respondent filed before the Department of Labor and Employment-
National Capital Region (DOLE-NCR) a complaint for underpayment of wages and non-
payment of holiday pay. Sometime in June 1998, respondent reported back to work with
a medical certificate stating he was fit to work but he was refused work.
 Labor Arbiter Madjayran H. Ajan rendered a decision in favor of respondent declaring
the dismissal of the complainant illegal.
 NLRC modified the Labor Arbiter’s ruling stating that respondent’s filing of a complaint
for illegal dismissal was premature. The memorandum directing him to avail of his
sick/vacation leave was to last from April 30, 1998 to August 1, 1998. The complaint
therefore filed on May 5, 1998 has no legal basis to support itself. When he filed his
complaint on May 5, 1998, his cause of action based on illegal dismissal has not yet
accrued.
 CA set aside the NLRC ruling and reinstated the Labor Arbiter’s decision.

Issue:
 Whether petitioner is personally liable for the monetary awards granted in favor of
respondent arising from his alleged illegal termination.

Held:
 No. Petitioner Irene Martel Francisco was not liable for the monetary awards specified in
the reinstated Labor Arbiter’s Decision.
 A corporation is a juridical entity with legal personality separate and distinct from those
acting for and in its behalf and, in general, from the people comprising it. The rule is that
 obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities.
 To hold a director or officer personally liable for corporate obligations, two requisites
must concur: (1) complainant must allege in the complaint that the director or officer
assented to patently unlawful acts of the corporation, or that the officer was guilty of
gross negligence or bad faith; and (2) complainant must clearly and convincingly prove
such unlawful acts, negligence or bad faith.
 Respondent failed to allege either in his complaint or position paper that petitioner, as
Vice-President of VIPS Coffee Shop and Restaurant, acted in bad faith. Neither did
respondent clearly and convincingly prove that petitioner, as Vice-President of VIPS
Coffee Shop and Restaurant, acted in bad faith. In fact, there was no evidence
whatsoever to show petitioner’s participation in respondent’s alleged illegal dismissal.
Clearly, the twin requisites of allegation and proof of bad faith, necessary to hold
petitioner personally liable for the monetary awards to respondent, are lacking.

CITIBANK, N.A., petitioner, vs. HON. SEGUNDINO G. CHUA, SANTIAGO M. KAPUNAN and LUIS L. VICTOR,
ASSOCIATE JUSTICES OF THE HON. COURT OF APPEALS, THIRD DIVISION, MANILA, HON. LEONARDO B.
CANARES, Judge of Regional, Trial Court of Cebu, Branch 10, and SPOUSES CRESENCIO AND ZENAIDA
VELEZ, respondents.

March 17, 1993, J. Campos

FACTS:
 Citibank NA, petitioner is a foreign commercial banking corporation duly licensed to do business
in the Philippines. Private respondents, spouses Cresencio and Zenaida Velez, were good clients
of petitioner bank's branch in Cebu until they filed a complaint for specific performance and
damages against it in a civil case before the RTC of Cebu.

 Spouses Velez claimed that they had an arrangement with Citibank for credit lines and the bank
allegedly refused to continue with the arrangement even after repeated demands. The bank
proposed a restructuring agreement but they said the bank did not comply with the agreement.

 Citibank has a different version of their relationship. Crescencio Velez would deposit his
unfunded personal checks with his current account with Citibank asking the bank officer to
credit checks as if they were cash deposits at the same time assuring them that the personal
checks were fully funded. [Velez was a trusted client already because of past transactions] He
would then withdraw sums of money by way of manager’s check and deposit them to his various
current accounts in other banks to cover his previously deposited unfunded personal checks
with Citibank. This deceptive and criminal scheme he did every banking day without fail from
September 4, 1985 up to March 11, 1986. For the last time, he deposited personal checks
totalling P3.095M and withdrew P3.244 from Citibank. Instead of depositing proceeds like what
he used to do, he ran away with the money and the personal checks bounced.

 Citibank filed a criminal complaint against Spouses Velez for violation of Bouncing Checks Law
and estafa under Art 315 par 2(d)
  The date of the pre-trial conference, counsel for Citibank appeared, presenting a special power
of attorney (SPA 1) executed by Citibank officer Florencia Tarriela in favor of Citibank's counsel,
the J.P. Garcia & Associates, to represent and bind Citibank at the pre-trial conference.

 Counsel for spouses Velez orally moved to declare Citibank as in default on the ground that the
SPA was not executed by the Board of Directors of Citibank.

 In its opposition to declare it in default, Citibank attached another SPA (SPA 2) made by William
W. Ferguson, Vice President and highest ranking officer of Citibank, Philippines, constituting and
appointing the J.P. Garcia & Associates to represent and bind the BANK at the pre-trial
conference and/or trial of the case of "Cresencio Velez, et al. vs. Citibank, N.A.". RTC judge
denied spouses' oral motion to declare bank as in default.

 On the scheduled pre-trial conference, spouses reiterated their oral motion to declare bank in
default for its failure to appear thru authorized agent and documents not according to
requirement of the law. In its opposition Citibank promised to secure another SPA (SPA 3) from
Mr. William W. Ferguson in favour of Citibank employees to represent and bind Citibank in pre-
trial conference.

 Respondent judge issued order declaring Citibank as in default. It found that Citibank, although a
foreign corp., is bound by Phil. laws when doing and conducting business in the Phils. and its
corporate powers could only be exercised by its BoD. The SPA 3 executed by Mr. William W.
Ferguson in favour of Citibank employees made no mention of J.P. Garcia & Assoc as one of the
employees. Citibank has no proper representation in the pre-trial conference for purposes of
Rules of Court.

 Court of Appeals also dismissed Citibank’s petition for certiorari, prohibition and mandamus
because Citibank did not present BoD reso for appointing Atty Neri as its atty-in-fact. Also, it said
that its “By-Laws” were not approved by SEC as required in Sec 46.

ISSUES:
1. WON BoD Reso is always necessary for granting authority to an agent to represent the corpo in
court cases. - NO
2. WON by-laws of the petitioner foreign corporation which has previously been granted a license
to do business in the Philippines, are effective in this jurisdiction - YES

RATIO:

ON GRANTING AUTHORITY

 In the corporate hierarchy, there are three levels of control:

o the board of directors, which is responsible for corporate policies and the general
management of the business affairs of the corporation;
o the officers, who in theory execute the policies laid down by the board, but in practice
often have wide latitude in determining the course of business operations; and
o the stockholders who have the residual power over fundamental corporate changes, like
amendments of the articles of incorporation.
  See Sec 23, 25, and 47 of the Corpo code. It is clear that corporate powers may be directly
conferred upon corporate officers or agents by statute, the articles of incorporation, the by-laws
or by resolution or other act of the board of directors. In addition, an officer who is not a
director may also appoint other agents when so authorized by the by-laws or by the board of
directors. Such are referred to as express powers. There are also powers incidental to express
powers conferred. It is a fundamental principle in the law of agency that every delegation of
authority, whether general or special, carries with it, unless the contrary be expressed, implied
authority to do all of those acts, naturally and ordinarily done in such cases, which are
reasonably necessary and proper to be done in order to carry into effect the main authority
conferred.

 Since the by-laws are a source of authority for corporate officers and agents of the corporation,
a resolution of the Board of Directors of Citibank appointing an attorney in fact to represent and
bind it during the pre-trial conference of the case at bar is not necessary because its by-laws
allow its officers, the Executing Officer and the Secretary Pro-Tem, ** to execute a power of
attorney to a designated bank officer, William W. Ferguson in this case, clothing him with
authority to direct and manage corporate affairs.

 Since Paragraph XXI of the general power of attorney, specifically allows Ferguson to delegate his
powers in whole or in part, there can be no doubt that the special power of attorney in favor,
first, of J.P. Garcia & Associates and later, of the bank's employees, constitutes a valid delegation
of Ferguson's express power to represent petitioner bank in the pre-trial conference in the lower
court.

ON BY-LAWS

 The Court of Appeals relied on Sec 46 [Adoption of By-Laws] of the Corporation Code to support
its conclusion that the by-laws in question are without effect because they were not approved by
the SEC. A careful reading of the provision would show that a corporation can submit its by-laws,
prior to incorporation, or within one month after receipt of official notice of the issuance of its
certificate of incorporation by the SEC. Said provision also starts with the phrase "Every
corporation formed under this Code", which can only refer to corporations incorporated in the
Philippines.

 Sec 125 of the same Code requires that a foreign corporation applying for a license to transact
business in the Philippines must submit, among other documents, to the SEC, a copy of its
articles of incorporation and by-laws, certified in accordance with law. Unless these documents
are submitted, the application cannot be acted upon by the SEC. Therefore Citibank’s by-laws
though origination from a foreign jurisdiction are valid and effective in the Philippines.

 In pursuance of the authority granted to him by petitioner bank's by-laws, its Executing Officer
appointed William W. Ferguson, a resident of the Philippines, as its Attorney-in-Fact empowering
the latter, among other things, to represent petitioner bank in court cases. In turn, William W.
Ferguson executed a power of attorney in favor of J.P. Garcia & Associates (petitioner bank's
counsel) to represent petitioner bank in the pre-trial conference before the lower court. This act
of delegation is explicity authorized by paragraph XXI of his own appointment,
On validity of SPA

Under Rule 138, Section 23 of the Rules of Court, an attorney has authority to bind his client in any case
by an agreement in relation thereto made in writing, and this authority would include taking appeals and
all matters of ordinary judicial procedure. But he cannot, without special authority, compromise his
client's litigation or receive anything in discharge of a client's claim but the full amount in cash. The
special powers of attorney separately executed by Florencia Tarriela and William W. Ferguson granted to
J.P. Garcia & Associates are very explicit in their terms as to the counsel's authority in the case at bar.

It is also error on the part of the Court of Appeals to state that the power of attorney given to the four
(4) Citibank employees is not a special power of attorney as required in paragraph 3, Article 1878 of the
Civil Code and Section 1 (a), Rule 20 of the Rules of Court. The power of attorney granted to petitioner
bank's employees should be considered a special power of attorney granting, conferring and delegating
authorities and binding the Bank in the Pre-Trial Conference and/or Trial of the case.

From the outset, petitioner bank showed a willingness, if not zeal, in pursuing and defending this case. It
even acceded to private respondent's insistence on the question of proper representation during the
pre-trial by presenting not just one, but three, special powers of attorney.

In fact, there was no need for the third power of attorney because we believe that the second power of
attorney was sufficient under the by-law provision authorizing Fersugon to delegate any of his functions
to any one or more employees of the petitioner bank. A reasonable interpretation of this provision
would include an appointment of a legal counsel to represent the bank in court, for, under the
circumstances, such legal counsel can be considered, and in fact was considered by the petitioner bank,
an employee for a special purpose. Furthermore, Fersugon, who heads the Philippine office thousands of
miles away from its main office in the United States, must be understood to have sufficient powers to act
promptly in order to protect the interests of his principal.

HELD: The litigants should be allowed to settle their claims on the arena of the court based on a trial on
the merits rather than on mere technicalities. Petition by Citibank granted. CA ruling set aside. Case
remanded.

Yao Ka Sin Trading vs Court of Appeals

209 SCRA 763 – Business Organization – Corporation Law – Liability of Officers – Apparent Authority

In 1973, Constancio Maglana, president of Prime White Cement Corporation, sent an offer letter to Yao
Ka Sin Trading. The offer states that Prime White is willing to sell 45,000 bags of cement at P24.30 per
bag. The offer letter was received by Yao Ka Sin’s manager, Henry Yao. Yao accepted the letter and
pursuant to the letter, he sent a 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 offer letter sent by
Maglana but it considered Yao’s acceptance letter as a new contract offer hence the Board sent a letter
to Yao telling him that Prime White is instead willing to sell only 10,000 bags to Yao Ka Sin and that he
has ten days to reply; that if no reply is made by Yao then they will consider it as an acceptance and that
thereafter Prime White shall deposit the P243k check in its account and then deliver the cements to Yao
Ka Sin. Henry Yao never replied.

Later, Yao Ka Sin sued Prime White to compel the latter to comply with what Yao Ka Sin considered as the
true contract, i.e., 45,000 bags at P24.30 per bag. Prime White in its defense averred that although
Maglana is empowered to sign contracts in behalf of Prime White, such contracts are still subject to
approval by Prime White’s Board, and then it still requires further approval by the National Investment
and Development 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 was made under the
apparent authority of Maglana. The trial court ruled in favor of Yao Ka Sin. The Court of Appeals reversed
the trial court.

ISSUE: Whether or not the president of a corporation is clothed with apparent authority to enter 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 only enter 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 the case of Francisco vs GSIS), the president has no
apparent authority to enter into binding contracts with third persons. Further, if indeed the by-laws of
Prime White did provide 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 the corporation 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) acquiescence in 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 in this case.

Also, the subsequent letter by Prime White to Yao Ka Sin is binding because Yao Ka Sin’s failure to
respond constitutes an acceptance, per stated in the letter itself – which was not contested by Henry Yao
during trial.

People's Aircargo and Warehousing Co. Inc. vs. Court of Appeals [GR 117847, 7 October 1998] First
Division, Panganiban (J): 4 concur

Facts: People's Aircargo and Warehousing Co. Inc. (PAWCI) is a domestic corporation, which was
organized in the middle of 1986 to operate a customs bonded warehouse at the old Manila International
Airport in Pasay City. To obtain a license for the corporation from the Bureau of Customs, Antonio
Punsalan Jr., the corporation president, solicited a proposal from Stefani Saño for the preparation of a
feasibility study. Saño submitted a letter-proposal dated 17 October 1986 ("First Contract") to Punsalan,
for the project feasibility study (market, technical, and financial feasibility) and preparation of pertinent
documentation requirements for the application, worth P350,000. Initially, Cheng Yong, the majority
stockholder of PAWCI, objected to Saño's offer, as another company priced a similar proposal at only
P15,000. However, Punsalan preferred Saño's services because of the latter's membership in the task
force, which was supervising the transition of the Bureau of Customs from the Marcos government to
the Aquino Administration. On 17 October 1986, PAWCI, through Punsalan, sent Saño a letter confirming
their agreement. Accordingly, Saño prepared a feasibility study for PAWCI which eventually paid him the
balance of the contract price, although not according to the schedule agreed upon. On 4 December
1986, upon Punsalan's request, Saño sent PAWCI another letter-proposal ("Second Contract") formalizing
its proposal for consultancy services in the amount of P400,000. On 10 January 1987, Andy Villaceren,
vice president of PAWCI, received the operations manual prepared by Saño. PAWCI submitted said
operations manual to the Bureau of Customs in connection with the former's application to operate a
bonded warehouse; thereafter, in May 1987, the Bureau issued to it a license to operate, enabling it to
become one of the three public customs bonded warehouses at the international airport. Saño also
conducted, in the third week of January 1987 in the warehouse of PAWCI, a three-day training seminar
for the latter's employees. On 25 March 1987, Saño joined the Bureau of Customs as special assistant to
then Commissioner Alex Padilla, a position he held until he became technical assistant to then
Commissioner Miriam Defensor-Santiago on 7 March 1988. Meanwhile, Punsalan sold his shares in
PAWCI and resigned as its president in 1987. On 9 February 1988, Saño filed a collection suit against
PAWCI. He alleged that he had prepared an operations manual for PAWCI, conducted a seminar-
workshop for its employees and delivered to it a computer program; but that, despite demand, PAWCI
refused to pay him for his services. PAWCI, in its answer, denied that Saño had prepared an operations
manual and a computer program or conducted a seminar-workshop for its employees. It further alleged
that the letter-agreement was signed by Punsalan without authority, in collusion with Saño in order to
unlawfully get some money from PAWCI, and despite his knowledge that a group of employees of the
company had been commissioned by the board of directors to prepare an operations manual. The
Regional Trial Court (RTC) of Pasay City, Branch 110, rendered a Decision dated 26 October 1990 declared
the Second Contract unenforceable or simulated. However, since Saño had actually prepared the
operations manual and conducted a training seminar for PAWCI and its employees, the trial court
awarded P60,000 to the former, on the ground that no one should be unjustly enriched at the expense
of another (Article 2142, Civil Code). The trial Court determined the amount "in light of the evidence
presented by defendant on the usual charges made by a leading consultancy firm on similar services."
Upon appeal, and on 28 February 1994, the appellate court modified the decision of the trial court, and
declared the Second Contract valid and binding on PAWCI, which was held liable to Saño in the full
amount of P400,000, representing payment of Saño services in preparing the manual of operations and
in the conduct of a seminar for PAWCI. As no new ground was raised by PAWCI, reconsideration of the
decision was denied in the Resolution promulgated on 28 October 1994. PAWCI filed the Petition for
Review.

Issue: Whether a single instance where the corporation had previously allowed its president to enter into
a contract with another without a board resolution expressly authorizing him, has clothed its president
with apparent authority to execute the subject contract.
Held: Apparent authority is derived not merely from practice. Its existence may be ascertained through
(1) the general manner in which the corporation holds out an officer or agent as having the power to act
or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the
acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether
within or beyond the scope of his ordinary powers. It requires presentation of evidence of similar act(s)
executed either in its favor or in favor of other parties. It is not the quantity of similar acts which
establishes apparent authority, but the vesting of a corporate officer with the power to bind the
corporation. Herein, PAWCI, through its president Antonio Punsalan Jr., entered into the First Contract
without first securing board approval. Despite such lack of board approval, PAWCI did not object to or
repudiate said contract, thus "clothing" its president with the power to bind the corporation. The grant
of apparent authority to Punsalan is evident in the testimony of Yong — senior vice president, treasurer
and major stockholder of PAWCI. The First Contract was consummated, implemented and paid without a
hitch. Hence, Sano should not be faulted for believing that Punsalan's conformity to the contract in
dispute was also binding on petitioner. It is familiar doctrine that if a corporation knowingly permits one
of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to
the public as possessing the power to do those acts; and thus, the corporation will, as against anyone
who has in good faith dealt with it through such agent, be estopped from denying the agent's authority.
Furthermore, Saño prepared an operations manual and conducted a seminar for the employees of
PAWCI in accordance with their contract. PAWCI accepted the operations manual, submitted it to the
Bureau of Customs and allowed the seminar for its employees. As a result of its aforementioned actions,
PAWCI was given by the Bureau of Customs a license to operate a bonded warehouse. Granting
arguendo then that the Second Contract was outside the usual powers of the president, PAWCI's
ratification of said contract and acceptance of benefits have made it binding, nonetheless. The
enforceability of contracts under Article 1403(2) is ratified "by the acceptance of benefits under them"
under Article 1405.

Rural Bank of Milaor vs. Francisca Ocfemia et. al

G.R. No 137686

February 8, 2000

FACTS: Several parcels of land were mortgaged by the respondents during the lifetime of the
respondent’s grandparents to the Rural bank of Milaor as shown by the Deed of Real Estate Mortgage
and the Promissory Note. Spouses Felicisimo Ocfemia and Juanita Ocfemia, one of the respondents,
were not able to redeem the mortgaged properties consisting of seven parcels of land and so the
mortgage was foreclosed and thereafter ownership was transferred to the petitioner bank. Out of the
seven parcels of land that were foreclosed, five of them are in the possession of the respondents
because these five parcels of land were sold by the petitioner bank to the respondents as evidenced by a
Deed of Sale. However, the five parcels of land cannot be transferred in the name of the parents of
Merife Nino, one of the respondents, because there is a need to have the document of sale registered.
The Register of deeds, however, said that the document of sale cannot be registered without the board
resolution of the petitioner bank confirming both the Deed of sale and the authority of the bank
manager, Fe S. Tena, to enter such transaction.
The petitioner bank refused her request for a board resolution and made many alibis. Respondents
initiated the present proceedings so that they could transfer to their names the subject five parcel of
land and subsequently mortgage said lots and to use the loan proceeds for the medical expenses of their
ailing mother.

ISSUE: May the Board of Directors of a rural banking corporation be compelled to confirm a deed of
absolute sale of real property owned by the corporation which deed of sale was executed by the bank
manager without prior authority of the board of directors of the rural banking corporation?

HELD: YES. The bank acknowledges, by its own acts or failure to act, the authority of Fe S. Tena to enter
into binding contracts. After the execution of the Deed of Sale, respondents occupied the properties in
dispute and paid the real estate taxes. If the bank management believed that it had title to the property,
it should have taken measured to prevent the infringement and invasion of title thereto and possession
thereof. Likewise, Tena had previously transacted business on behalf of the bank, and the latter had
acknowledged her authority. A bank is liable to innocent third persons where representation is made in
the course of its normal business by an agent like Manager Tena even though such agent is abusing her
authority. Clearly, persons dealing with her could not be blamed for believing that she was authorized to
transact business for and on behalf of the bank.

The bank is estopped from questioning the authority of the bank to enter into contract of sale. If a
corporation knowingly permits one of its officers or any other agent to act within the scope of an
apparent authority, it holds the agent out to the public as possessing the power to do those acts; thus,
the corporation will, as against anyone who has in good faith dealt with it through such agent, be
estopped from denying the agent’s authority.

Matling Industrial and Commercial Corporation vs Coros

G.R. No. 157802 October 13, 2010

Facts: After his dismissal by Matling as its Vice President for Finance and Administration, the respondent
filed on August 10, 2000 a complaint for illegal suspension and illegal dismissal against Matling and some
of its corporate officers (petitioners) in the NLRC, Sub-Regional Arbitration Branch XII, Iligan City. The
petitioners moved to dismiss the complaint, raising the ground, among others, that the complaint
pertained to the jurisdiction of the Securities and Exchange Commission (SEC) due to the controversy
being intracorporate inasmuch as the respondent was a member of Matlings Board of Directors aside
from being its Vice-President for Finance and Administration prior to his termination. The respondent
opposed the petitioners motion to dismiss, insisting that his status as a member of Matlings Board of
Directors was doubtful, considering that he had not been formally elected as such; that he did not own a
single share of stock in Matling, considering that he had been made to sign in blank an undated
indorsement of the certificate of stock he had been given in 1992; that Matling had taken back and
retained the certificate of stock in its custody; and that even assuming that he had been a Director of
Matling, he had been removed as the Vice President for Finance and Administration, not as a Director, a
fact that the notice of his termination dated April 10, 2000 showed. On October 16, 2000, the LA granted
the petitioners motion to dismiss, ruling that the respondent was a corporate officer because he was
occupying the position of Vice President for Finance and Administration and at the same time was a
Member of the Board of Directors of Matling; and that, consequently, his removal was a corporate act of
Matling and the controversy resulting from such removal was under the jurisdiction of the SEC, pursuant
to Section 5, paragraph (c) of Presidential Decree No. 902.
Issue: Whether or not the respondent is a corporate officer within the jurisdiction of the regular courts.

Held: No. As a rule, the illegal dismissal of an officer or other employee of a private employer is properly
cognizable by the LA. This is pursuant to Article 217 (a) 2 of the Labor Code, as amended, which provides
as follows:

Article 217. Jurisdiction of the Labor Arbiters and the Commission. – (a) Except as otherwise provided
under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide,
within thirty (30) calendar days after the submission of the case by the parties for decision without
extension, even in the absence of stenographic notes, the following cases involving all workers, whether
agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages,
rates of pay, hours of work and other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee
relations;
5. Cases arising from any violation of Article 264 of this Code, including questions involving the legality of
strikes and lockouts; and
6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other
claims arising from employer-employee relations, including those of persons in domestic or household
service, involving an amount exceeding five thousand pesos (P 5,000.00) regardless of whether
accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters.
(c) Cases arising from the interpretation or implementation of collective bargaining agreements and
those arising from the interpretation or enforcement of company personnel policies shall be disposed of
by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitration as may
be provided in said agreements.

Where the complaint for illegal dismissal concerns a corporate officer, however, the controversy falls
under the jurisdiction of the Securities and Exchange Commission (SEC), because the controversy arises
out of intra-corporate or partnership relations between and among stockholders, members, or
associates, or between any or all of them and the corporation, partnership, or association of which they
are stockholders, members, or associates, respectively; and between such corporation, partnership, or
association and the State insofar as the controversy concerns their individual franchise or right to exist as
such entity; or because the controversy involves the election or appointment of a director, trustee,
officer, or manager of such corporation, partnership, or association. Such controversy, among others, is
known as an intra-corporate dispute.

Effective on August 8, 2000, upon the passage of Republic Act No. 8799, otherwise known as The
Securities Regulation Code, the SECs jurisdiction over all intra-corporate disputes was transferred to the
RTC, pursuant to Section 5.2 of RA No. 8799.

Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the corporate
officers enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no
power to create other Offices without amending first the corporate By-laws. However, the Board may
create appointive positions other than the positions of corporate Officers, but the persons occupying
such positions are not considered as corporate officers within the meaning of Section 25 of the
Corporation Code and are not empowered to exercise the functions of the corporate Officers, except
those functions lawfully delegated to them. Their functions and duties are to be determined by the
Board of Directors/Trustees.

Moreover, the Board of Directors of Matling could not validly delegate the power to create a corporate
office to the President, in light of Section 25 of the Corporation Code requiring the Board of Directors
itself to elect the corporate officers. Verily, the power to elect the corporate officers was a discretionary
power that the law exclusively vested in the Board of Directors, and could not be delegated to
subordinate officers or agents. The office of Vice President for Finance and Administration created by
Matlings President pursuant to By Law No. V was an ordinary, not a corporate, office.

The criteria for distinguishing between corporate officers who may be ousted from office at will, on one
hand, and ordinary corporate employees who may only be terminated for just cause, on the other hand,
do not depend on the nature of the services performed, but on the manner of creation of the office. In
the respondents case, he was supposedly at once an employee, a stockholder, and a Director of Matling.
The circumstances surrounding his appointment to office must be fully considered to determine whether
the dismissal constituted an intra-corporate controversy or a labor termination dispute. We must also
consider whether his status as Director and stockholder had any relation at all to his appointment and
subsequent dismissal as Vice President for Finance and Administration.

G.R. No.176897 December 11, 2013 !

ADVANCE PAPER CORPORATION and GEORGE HAW, in his capacity as President

of Advance Paper Corporation, Petitioners,

vs.

ARMA TRADERS CORPORATION, MANUEL TING, CHENG GUI and BENJAMIN NG,

Respondents. !

x-------------------------------------------------x !

ANTONIO TAN and UY SENG KEE WILLY, Respondents. !

FACTS: !

Advance Paper is a domestic corporation engaged in the business of producing, printing,

manufacturing, distributing and selling of various paper products where George Haw is

President and his wife, Connie Haw is the General Manager. Arma Traders is also a

domestic corporation engaged in the wholesale and distribution of school and office

supplies, and novelty products where Antonio Tan (Tan) was formerly the President while

respondent Uy Seng Kee Willy (Uy) is the Treasurer of Arma Traders. They represented
Arma Traders when dealing with its supplier, Advance Paper, for about 14 years. Manuel

Ting, Cheng Gui and Benjamin Ng worked for Arma Traders as Vice-President, General

Manager and Corporate Secretary, respectively. !

From September to December 1994, Arma traders purchased, on credit, notebooks and

other paper products amounting to 7.5 million from Advance Paper. Because of Arma

Trader’s good relations with Advanced Paper, Uy and Tan were able to obtain loans from

Advanced Paper amounting to 7.7 million in order to pay their obligation to other suppliers.

Tan and Uy issued 82 postdated checks payable to cash or to Advance Paper with an

aggregate amount of 15. 1 million pesos. !

Advance Paper presented the checks to drawee bank but were dishonoured either

because "insufficiency of funds" or "account closed”. Arma Traders failed to settle its

account with Advance Paper. On December 29, 1994, the petitioners filed a complaint for

collection of sum of money with application for preliminary attachment against Arma

Traders, Tan, Uy, Ting, Gui, and Ng. !

Claims of the Petitioner: The petitioners claimed that the respondents fraudulently issued

the postdated checks as payment for the purchases and loan transactions knowing that

they did not have sufficient funds with the drawee banks. Arma Traders led the petitioners

to believe that Tan and Uy had the authority to obtain loans since the respondents left the

active and sole management of the company to Tan and Uy since 1984. In fact, Ng

testified that Arma Traders’ stockholders and board of directors never conducted a meeting

from 1984 to 1995. Therefore, if the respondents’ position will be sustained, they will have

the absurd power to question all the business transactions of Arma Traders. Citing Lipat v.

Pacific Banking Corporation, the petitioners said that if a corporation knowingly permits

one of its officers or any other agent to act within the scope of an apparent authority, it

holds him out to the public as possessing the power to do those acts; thus, the corporation

will, as against anyone who has in good faith dealt with it through such agent, be estopped

from denying the agent’s authority. !

Claims of the Respondent: the loan transactions were ultra vires because the board of

directors of Arma Traders did not issue a board resolution authorising Tan and Uy to obtain
the loans from Advance Paper. They claimed that the borrowing of money must be done

only with the prior approval of the board of directors because without the approval, the

corporate officers are acting in excess of their authority of ultra vires. When the acts of

the corporate officers are ultra vires, the corporation is not liable for whatever acts

that these officers committed in excess of their authority. Further, the respondents

claimed that Advance Paper failed to verify Tan and Uy’s authority to transact business

with them. Hence, Advance Paper should suffer the consequences. !

RTC Ruling: The RTC ruled that the purchases on credit and loans were sufficiently

proven by the petitioners. Hence, the RTC ordered Arma Traders to pay Advance Paper

the sum of P15,321,798.25 with interest, and P1,500,000.00 for attorney’s fees, plus the

cost of the suit. RTC dismissed the complaint against Tan, Uy, Ting, Gui and Ng due to the

lack of evidence showing that they bound themselves, either jointly or solidarily, with Arma

Traders for the payment of its account. !

CA Ruling: RTC ruling was set aside. The CA held that the petitioners failed to prove by

preponderance of evidence the existence of the purchases on credit and loans based on

the following: !

1. Arma Traders was not liable for the loan in the absence of a board resolution

authorizing Tan and Uy to obtain the loan from Advance Paper. The authority to sign

the checks is different from the required authority to contract a loan.

2. The CA also held that the petitioners presented incompetent and inadmissible

evidence to prove the purchases on credit since the sales invoices were hearsay.

identification of the sales invoices was not an exception to the hearsay rule.

3. Petitioners failed to satisfactorily rebut the badges of fraud. !

ISSUE: !

Whether Arma Traders is liable to pay the loans applying the doctrine of apparent

authority? !

RULING: !

Arma Traders is liable to pay the loans on the basis of the doctrine of apparent

authority. !
The doctrine of apparent authority provides that a corporation will be estopped from

denying the agent’s authority if it knowingly permits one of its officers or any other agent to

act within the scope of an apparent authority, and it holds him out to the public as

possessing the power to do those acts. The doctrine of apparent authority does not apply if

the principal did not commit any acts or conduct which a third party knew and relied upon

in good faith as a result of the exercise of reasonable prudence. Moreover, the agent’s

acts or conduct must have produced a change of position to the third party’s detriment. !

A corporate officer or agent may represent and bind the corporation in transactions with

third persons to the extent that [the] authority to do so has been conferred upon him, and

this includes powers as, in the usual course of the particular business, are incidental to, or

may be implied from, the powers intentionally conferred, powers added by custom and

usage, as usually pertaining to the particular officer or agent, and such apparent powers

as the corporation has caused person dealing with the officer or agent to believe that it has

conferred. !

[A]pparent authority is derived not merely from practice. Its existence may be ascertained

through: !

(1) the general manner in which the corporation holds out an officer or agent as having the

power to act or, in other words the apparent authority to act in general, with which it

clothes him; or

(2) the acquiescence in his acts of a particular nature, with actual or constructive

knowledge thereof, within or beyond the scope of his ordinary powers. It requires

presentation of evidence of similar act(s) executed either in its favor or in favor of other

parties. It is not the quantity of similar acts which establishes apparent authority, but

the vesting of a corporate officer with the power to bind the corporation. !

In the absence of a charter or bylaw provision to the contrary, the president is

presumed to have the authority to act within the domain of the general objectives of

its business and within the scope of his or her usual duties. !

In the present petition, we do not agree with the CA’s findings that Arma Traders is not

liable to pay the loans due to the lack of board resolution authorizing Tan and Uy to obtain
the loans. To begin with, Arma Traders’ Articles of Incorporation provides that the

corporation may borrow or raise money to meet the financial requirements of its business

by the issuance of bonds, promissory notes and other evidence of indebtedness. Likewise,

it states that Tan and Uy are not just ordinary corporate officers and authorised bank

signatories because they are also Arma Traders’ incorporators along with respondents Ng

and Ting, and Pedro Chao. Furthermore, the respondents, through Ng who is Arma

Traders’ corporate secretary, incorporator, stockholder and director, testified that the sole

management of Arma Traders was left to Tan and Uy and that he and the other officers

never dealt with the business and management of Arma Traders for 14 years. He also

confirmed that since 1984 up to the filing of the complaint against Arma Traders, its

stockholders and board of directors never had its meeting.

Thus, Arma Traders bestowed upon Tan and Uy broad powers by allowing them to

transact with third persons without the necessary written authority from its non-performing

board of directors. Arma Traders failed to take precautions to prevent its own corporate

officers from abusing their powers. Because of its own laxity in its business dealings, Arma

Traders is now estopped from denying Tan and Uy’s authority to obtain loan from Advance

Paper.

Corporations; doctrine of apparent authority. The doctrine of apparent authority provides that a
corporation will be estopped from denying the agent’s authority if it knowingly permits one of its officers
or any other agent to act within the scope of an apparent authority, and it holds him out to the public as
possessing the power to do those acts. The doctrine of apparent authority does not apply if the
principal did not commit any acts or conduct which a third party knew and relied upon in good faith as a
result of the exercise of reasonable prudence. Moreover, the agent’s acts or conduct must have
produced a change of position to the third party’s detriment. Advance Paper Corporation and George
Haw, in his capacity as President of Advance Paper Corporation v. Arma Traders Corporation, Manuel
Ting, et al., G.R. No. 176897, December 11, 2013.

Associated Bank V. Pronstroller (2008)

G.R. No. 148444 July 14, 2008

Lessons Applicable: Powers of Corporate Officers (Corporate Law)

FACTS:

April 21, 1988: Spouses Eduardo and Ma. Pilar Vaca (spouses Vaca) executed a Real Estate Mortgage
(REM) in favor of the Associated Bank (Associated) over their parcel of residential land and house
Due to failure to pay its obligation, Associated won its bidding in the public auction and was issued the
title thereto

spouses Vaca commenced an action for the nullification of the REM and the foreclosure sale.

CA: favored Associated

During the pendency of the cases, Associated advertised the subject property for sale to interested
buyers for P9,700,000.00

Rafael and Monaliza Pronstroller (Pronstrollers) bought it for P7.5M with 10% as downpayment

March 18, 1993: Associated, through Atty. Soluta, and the Pronstrollers, executed a Letter-Agreement

Prior to the expiration of the 90-day period within which to make the escrow deposit, in view of the
pendency of the cases the Pronstrollers requested that the balance be payable upon service on them of
a final decision affirming Associated's right to possess the property

Atty. Soluta referred respondents' proposal to Associated's Asset Recovery and Remedial Management
Committee (ARRMC) who deferred action

July 14, 1993 (a month after they made the request and after the payment deadline had lapsed): Atty.
Soluta executed another Letter-Agreement allowing the request

Early 1994: Associated reorganized its management

Atty. Braulio Dayday (Atty. Dayday) became Assist. VP and Head of the Documentation Section, while
Atty. Soluta was relieved of his responsibilities

Atty. Dayday discovered that the Pronstrollers failed to deposit the balance and the request

March 4, 1994: It was resubmitted and disapproved at its ARRMC meeting

ARRMC referred the matter to the Legal Department for rescission or cancellation due to breach of
contract

May 5, 1994: Atty. Dayday informed the disapproval, rescinding and deposit forfeiture. They were also
asked to submit their new proposal if they were still interested

The Pronstrollers went to talked to Atty. Dayday and showed him the Letter-Agreement showing that
they were granted extension but Atty. Dayday told them it was a mistake and Atty. Soluta was not
authorized to give such extension

June 6, 1994: The Pronstrollers proposed to pay the balance with P3M upon the approval of their
proposal and the balance after 6 months but it was disapproved by Associated's President

June 9, 1994: They were advised that their proposal will be accepted if they will pay 24.5% per annum
interest and if they do not agree, they are allowed to refund the 750 K

July 14, 1994: Vaca Case: court upheld Associated's right to possess the subject property

July 28, 1994: The Pronstrollers commenced the instant suit by filing a Complaint for Specific
Performance before the RTC
During the pendency of the case, Associated sold the subject property to the spouses Vaca who started
demolishing the house which, however, was not completed by virtue of the writ of preliminary
injunction issued by the court

November 14, 1997:trial court favored the Pronstrollers (rescission of the Agreement to Sell to be null
and void for being contrary to law and public policy)

CA affirmed RTC

ISSUE: W/N Associated can rescind the contract

HELD: NO. CA Affirmed

GR: in the absence of authority from the board of directors, no person, not even its officers, can validly
bind a corporation

EX: board may validly delegate some of its functions and powers to officers, committees and agents

doctrine of apparent authority - with special reference to banks

existence may be ascertained through

the general manner in which the corporation holds out an officer or agent as having the power to act, or
in other words, the apparent authority to act in general, with which it clothes him; or

the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within
or beyond the scope of his ordinary powers

petitioner had previously allowed Atty. Soluta to enter into the first agreement without a board
resolution expressly authorizing him; thus, it had clothed him with apparent authority to modify the
same via the second letter-agreement

Admittedly, during the pendency of the case, respondents timely registered a notice of lis pendens to
warn the whole world that the property was the subject of a pending litigation:

to keep the subject matter of the litigation within the power of the court until the entry of the final
judgment to prevent the defeat of the final judgment by successive alienations; and

to bind a purchaser, bona fide or not, of the land subject of the litigation to the judgment or decree that
the court will promulgate subsequently.

This registration gives the court clear authority to cancel the title of the spouses Vaca, since the sale of
the subject property was made after the notice of lis pendens

Woodchild Holdings v. Roxas Electric

G.R. No. 140667, August 12, 2004

Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)
(Topic: Doctrine of Piercing the Veil of Corporate Fiction)

FACTS:

The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the Roxas Electric and
Construction Company, was the owner of two parcels of land. A portion of one Lot which abutted the
other Lot was a dirt road accessing to the Sumulong Highway, Antipolo, Rizal.

At a special meeting on May 17, 1991, the respondent's Board of Directors approved a resolution
authorizing the corporation, through its president, Roberto B. Roxas, to sell the Lots, at a price and under
such terms and conditions which he deemed most reasonable and advantageous to the corporation; and
to execute, sign and deliver the pertinent sales documents and receive the proceeds of the sale for and
on behalf of the company.

Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy the Lot on which it planned to construct its
warehouse building, and a portion of the adjoining lot, so that its 45-foot container van would be able to
readily enter or leave the property.

On September 5, 1991, a Deed of Absolute Sale in favor of WHI was issued, under which the Lot was
sold for P5,000,000, receipt of which was acknowledged by Roxas under the following terms and
conditions:

The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee the beneficial use of and a
right of way from Sumulong Highway to the property herein conveyed consists of 25 square meters wide
to be used as the latter's egress from and ingress to and an additional 25 square meters in the corner of
Lot No. 491-A-3-B-1, as turning and/or maneuvering area for Vendee's vehicles.

The Vendor agrees that in the event that the right of way is insufficient for the Vendee's use (ex entry of
a 45-foot container) the Vendor agrees to sell additional square meters from its current adjacent
property to allow the Vendee full access and full use of the property.

the respondent posits that Roxas was not so authorized under the May 17, 1991 Resolution of its Board
of Directors to impose a burden or to grant a right of way in favor of the petitioner on Lot No. 491-A-3-B-
1, much less convey a portion thereof to the petitioner. Hence, the respondent was not bound by such
provisions contained in the deed of absolute sale.

ISSUE:

Whether or not the respondent is bound by the provisions in the deed of absolute sale granting to the
petitioner beneficial use and a right of way over a portion of Lot accessing to the Sumulong Highway and
granting the option to the petitioner to buy a portion thereof, and, if so, whether such agreement is
enforceable against the respondent?

HELD: No. Generally, the acts of the corporate officers within the scope of their authority are binding on
the corporation. However, under Article 1910 of the New Civil Code, acts done by such officers beyond
the scope of their authority cannot bind the corporation unless it has ratified such acts expressly or
tacitly, or is estopped from denying them.

Thus, contracts entered into by corporate officers beyond the scope of authority are unenforceable
against the corporation unless ratified by the corporation.
Evidently, Roxas was not specifically authorized under the said resolution to grant a right of way in favor
of the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to sell to the petitioner a portion
thereof. The authority of Roxas, under the resolution, to sell Lot No. 491-A-3-B-2 covered by TCT No.
78086 did not include the authority to sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or to create
or convey real rights thereon. Neither may such authority be implied from the authority granted to Roxas
to sell Lot No. 491-A-3-B-2 to the petitioner "on such terms and conditions which he deems most
reasonable and advantageous."

The general rule is that the power of attorney must be pursued within legal strictures, and the agent can
neither go beyond it; nor beside it. The act done must be legally identical with that authorized to be
done.30 In sum, then, the consent of the respondent to the assailed provisions in the deed of absolute
sale was not obtained; hence, the assailed provisions are not binding on it.

There can be no apparent authority of an agent without acts or conduct on the part of the principal and
such acts or conduct of the principal must have been known and relied upon in good faith and as a result
of the exercise of reasonable prudence by a third person as claimant and such must have produced a
change of position to its detriment.

The apparent power of an agent is to be determined by the acts of the principal and not by the acts of
the agent.

G.R. No. L-15092 May 18, 1962

ALFREDO MONTELIBANO, ET AL., plaintiffs-appellants,

vs.
BACOLOD-MURCIA MILLING CO., INC., defendant-appellee.

Tañada, Teehankee and Carreon for plaintiffs-appellants.

Hilado and Hilado for defendant-appellee.

REYES, J.B.L., J.:

Appeal on points of law from a judgment of the Court of First Instance of Occidental Negros, in its
Civil Case No. 2603, dismissing plaintiff's complaint that sought to compel the defendant Milling
Company to increase plaintiff's share in the sugar produced from their cane, from 60% to 62.33%,
starting from the 1951-1952 crop year. 1äwphï1.ñët

It is undisputed that plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano, and the

Limited co-partnership Gonzaga and Company, had been and are sugar planters adhered to the
defendant-appellee's sugar central mill under identical milling contracts. Originally executed in 1919,
said contracts were stipulated to be in force for 30 years starting with the 1920-21 crop, and
provided that the resulting product should be divided in the ratio of 45% for the mill and 55% for the
planters. Sometime in 1936, it was proposed to execute amended milling contracts, increasing the
planters' share to 60% of the manufactured sugar and resulting molasses, besides other
concessions, but extending the operation of the milling contract from the original 30 years to 45
years. To this effect, a printed Amended Milling Contract form was drawn up. On August 20, 1936,
the Board of Directors of the appellee Bacolod-Murcia Milling Co., Inc., adopted a resolution (Acts
No. 11, Acuerdo No. 1) granting further concessions to the planters over and above those contained
in the printed Amended Milling Contract. The bone of contention is paragraph 9 of this resolution,
that reads as follows:
 ACTA No. 11
SESSION DE LA JUNTA DIRECTIVA
AGOSTO 20, 1936

xxx xxx xxx

Acuerdo No. 1. — Previa mocion debidamente secundada, la Junta en consideracion

a una peticion de los plantadores hecha por un comite nombrado por los mismos,
acuerda enmendar el contrato de molienda enmendado medientelas siguentes:

xxx xxx xxx

9.a Que si durante la vigencia de este contrato de Molienda Enmendado,

lascentrales azucareras, de Negros Occidental, cuya produccion anual de azucar
centrifugado sea mas de una tercera parte de la produccion total de todas
lascentrales azucareras de Negros Occidental, concedieren a sus plantadores
mejores condiciones que la estipuladas en el presente contrato, entonces esas
mejores condiciones se concederan y por el presente se entenderan concedidas a
los platadores que hayan otorgado este Contrato de Molienda Enmendado.

Appellants signed and executed the printed Amended Milling Contract on September 10, 1936, but a
copy of the resolution of August 10, 1936, signed by the Central's General Manager, was not
attached to the printed contract until April 17, 1937; with the notation —

Las enmiendas arriba transcritas forman parte del contrato de molienda enmendado,
otorgado por — y la Bacolod-Murcia Milling Co., Inc.

In 1953, the appellants initiated the present action, contending that three Negros sugar centrals (La
Carlota, Binalbagan-Isabela and San Carlos), with a total annual production exceeding one-third of
the production of all the sugar central mills in the province, had already granted increased
participation (of 62.5%) to their planters, and that under paragraph 9 of the resolution of August 20,
1936, heretofore quoted, the appellee had become obligated to grant similar concessions to the
plaintiffs (appellants herein). The appellee Bacolod-Murcia Milling Co., inc., resisted the claim, and
defended by urging that the stipulations contained in the resolution were made without
consideration; that the resolution in question was, therefore, null and void ab initio, being in effect a
donation that was ultra viresand beyond the powers of the corporate directors to adopt.

After trial, the court below rendered judgment upholding the stand of the defendant Milling company,
and dismissed the complaint. Thereupon, plaintiffs duly appealed to this Court.

We agree with appellants that the appealed decisions can not stand. It must be remembered that the
controverted resolution was adopted by appellee corporation as a supplement to, or further
amendment of, the proposed milling contract, and that it was approved on August 20, 1936, twenty-
one days prior to the signing by appellants on September 10, of the Amended Milling Contract itself;
so that when the Milling Contract was executed, the concessions granted by the disputed resolution
had been already incorporated into its terms. No reason appears of record why, in the face of such
concessions, the appellants should reject them or consider them as separate and apart from the
main amended milling contract, specially taking into account that appellant Alfredo Montelibano was,
at the time, the President of the Planters Association (Exhibit 4, p. 11) that had agitated for the
concessions embodied in the resolution of August 20, 1936. That the resolution formed an integral
part of the amended milling contract, signed on September 10, and not a separate bargain, is further
shown by the fact that a copy of the resolution was simply attached to the printed contract without
special negotiations or agreement between the parties.

It follows from the foregoing that the terms embodied in the resolution of August 20, 1936 were
supported by the same causa or consideration underlying the main amended milling contract; i.e.,
the promises and obligations undertaken thereunder by the planters, and, particularly, the extension
of its operative period for an additional 15 years over and beyond the 30 years stipulated in the
original contract. Hence, the conclusion of the court below that the resolution constituted gratuitous
concessions not supported by any consideration is legally untenable.

All disquisition concerning donations and the lack of power of the directors of the respondent sugar
milling company to make a gift to the planters would be relevant if the resolution in question had
embodied a separate agreement after the appellants had already bound themselves to the terms of
the printed milling contract. But this was not the case. When the resolution was adopted and the
additional concessions were made by the company, the appellants were not yet obligated by the
terms of the printed contract, since they admittedly did not sign it until twenty-one days later, on
September 10, 1936. Before that date, the printed form was no more than a proposal that either
party could modify at its pleasure, and the appellee actually modified it by adopting the resolution in
question. So that by September 10, 1936 defendant corporation already understood that the printed
terms were not controlling, save as modified by its resolution of August 20, 1936; and we are
satisfied that such was also the understanding of appellants herein, and that the minds of the parties
met upon that basis. Otherwise there would have been no consent or "meeting of the minds", and no
binding contract at all. But the conduct of the parties indicates that they assumed, and they do not
now deny, that the signing of the contract on September 10, 1936, did give rise to a binding
agreement. That agreement had to exist on the basis of the printed terms as modified by the
resolution of August 20, 1936, or not at all. Since there is no rational explanation for the company's
assenting to the further concessions asked by the planters before the contracts were signed, except
as further inducement for the planters to agree to the extension of the contract period, to allow the
company now to retract such concessions would be to sanction a fraud upon the planters who relied
on such additional stipulations.

The same considerations apply to the "void innovation" theory of appellees. There can be no
novation unless two distinct and successive binding contracts take place, with the later designed to
replace the preceding convention. Modifications introduced before a bargain becomes obligatory can
in no sense constitute novation in law.

Stress is placed on the fact that the text of the Resolution of August 20, 1936 was not attached to the
printed contract until April 17, 1937. But, except in the case of statutory forms or solemn agreements
(and it is not claimed that this is one), it is the assent and concurrence (the "meeting of the minds")
of the parties, and not the setting down of its terms, that constitutes a binding contract. And the fact
that the addendum is only signed by the General Manager of the milling company emphasizes that
the addition was made solely in order that the memorial of the terms of the agreement should be full
and complete.

Much is made of the circumstance that the report submitted by the Board of Directors of the appellee
company in November 19, 1936 (Exhibit 4) only made mention of 90%, the planters having agreed
to the 60-40 sharing of the sugar set forth in the printed "amended milling contracts", and did not
make any reference at all to the terms of the resolution of August 20, 1936. But a reading of this
report shows that it was not intended to inventory all the details of the amended contract; numerous
provisions of the printed terms are alao glossed over. The Directors of the appellee Milling Company
had no reason at the time to call attention to the provisions of the resolution in question, since it
contained mostly modifications in detail of the printed terms, and the only major change was
paragraph 9 heretofore quoted; but when the report was made, that paragraph was not yet in effect,
since it was conditioned on other centrals granting better concessions to their planters, and that did
not happen until after 1950. There was no reason in 1936 to emphasize a concession that was not
yet, and might never be, in effective operation.

There can be no doubt that the directors of the appellee company had authority to modify the
proposed terms of the Amended Milling Contract for the purpose of making its terms more
acceptable to the other contracting parties. The rule is that —

It is a question, therefore, in each case of the logical relation of the act to the corporate
purpose expressed in the charter. If that act is one which is lawful in itself, and not otherwise
prohibited, is done for the purpose of serving corporate ends, and is reasonably tributary to
the promotion of those ends, in a substantial, and not in a remote and fanciful sense, it may
fairly be considered within charter powers. The test to be applied is whether the act in
question is in direct and immediate furtherance of the corporation's business, fairly incident
to the express powers and reasonably necessary to their exercise. If so, the corporation has
the power to do it; otherwise, not. (Fletcher Cyc. Corp., Vol. 6, Rev. Ed. 1950, pp. 266-268)

As the resolution in question was passed in good faith by the board of directors, it is valid and
binding, and whether or not it will cause losses or decrease the profits of the central, the court has
no authority to review them.

They hold such office charged with the duty to act for the corporation according to their best
judgment, and in so doing they cannot be controlled in the reasonable exercise and
performance of such duty. Whether the business of a corporation should be operated at a
loss during depression, or close down at a smaller loss, is a purely business and economic
problem to be determined by the directors of the corporation and not by the court. It is a well-
known rule of law that questions of policy or of management are left solely to the honest
decision of officers and directors of a corporation, and the court is without authority to
substitute its judgment of the board of directors; the board is the business manager of the
corporation, and so long as it acts in good faith its orders are not reviewable by the courts.
(Fletcher on Corporations, Vol. 2, p. 390).

And it appearing undisputed in this appeal that sugar centrals of La Carlota, Hawaiian Philippines,
San Carlos and Binalbagan (which produce over one-third of the entire annual sugar production in
Occidental Negros) have granted progressively increasing participations to their adhered planter at
an average rate of

62.333% for the 1951-52 crop year;

64.2% for 1952-53;
64.3% for 1953-54;
64.5% for 1954-55; and
63.5% for 1955-56,

the appellee Bacolod-Murcia Milling Company is, under the terms of its Resolution of August 20,
1936, duty bound to grant similar increases to plaintiffs-appellants herein.

WHEREFORE, the decision under appeal is reversed and set aside; and judgment is decreed
sentencing the defendant-appellee to pay plaintiffs-appellants the differential or increase of
participation in the milled sugar in accordance with paragraph 9 of the appellee Resolution of August
20, 1936, over and in addition to the 60% expressed in the printed Amended Milling Contract, or the
value thereof when due, as follows:

0,333% to appellants Montelibano for the 1951-1952 crop year, said appellants having
received an additional 2% corresponding to said year in October, 1953;

2.333% to appellant Gonzaga & Co., for the 1951-1952 crop year; and to all appellants
thereafter —
4.2% for the 1952-1953 crop year;
4.3% for the 1953-1954 crop year;
4.5% for the 1954-1955 crop year;
3.5% for the 1955-1956 crop year;

with interest at the legal rate on the value of such differential during the time they were withheld; and
the right is reserved to plaintiffs-appellants to sue for such additional increases as they may be
entitled to for the crop years subsequent to those herein adjudged.

Costs against appellee, Bacolod-Murcia Milling Co.

Padilla, Bautista Angelo, Labrador, Concepcion, Barrera, Paredes and Dizon, JJ., concur.

[ G.R. No. 194964-65, January 11, 2016 ]

UNIVERSITY OF MINDANAO, INC., PETITIONER, VS. BANGKO SENTRAL PILIPINAS, ET AL.,

RESPONDENTS.

DECISION

LEONEN, J.:

Acts of an officer that arc not authorized by the board of directors/trustees do not bind the corporation
unless the corporation ratifies the acts or holds the officer out as a person with authority to transact on
its behalf.

This is a Petition for Review on Certiorari[1] of the Court of Appeals' December 17, 2009 Decision[2] and
December 20, 2010 Resolution.[3] The Court of Appeals reversed the Cagayan De Oro City trial court's
and the Iligan City trial court's Decisions to nullify mortgage contracts involving University of Mindanao's
properties.[4]

University of Mindanao is an educational institution. For the year 1982, its Board of Trustees was chaired
by Guillermo B. Torres. His wife, Dolores P. Torres, sat as University of Mindanao's Assistant Treasurer.[5]

Before 1982, Guillermo B. Torres and Dolores P. Torres incorporated and operated two (2) thrift banks:
(1) First Iligan Savings & Loan Association, Inc. (FISLAI); and (2) Davao Savings and Loan Association, Inc.
(DSLAI). Guillermo B. Torres chaired both thrift banks. He acted as FISLAI's President, while his wife,
Dolores P. Torres, acted as DSLAI's President and FISLAI's Treasurer.[6]

Upon Guillermo B. Torres' request, Bangko Sentral ng Pilipinas issued a P1.9 million standby emergency
credit to FISLAI. The release of standby emergency credit was evidenced by three (3) promissory notes
dated February 8, 1982, April 7, 1982, and May 4, 1982 in the amounts of P500,000.00, P600,000.00,
and P800,000.00, respectively. All these promissory notes were signed by Guillermo B. Torres, and were
co-signed by either his wife, Dolores P. Torres, or FISLAI's Special Assistant to the President, Edmundo G.
Ramos, Jr.[7]

On May 25, 1982, University of Mindanao's Vice President for Finance, Saturnino Petalcorin, executed a
deed of real estate mortgage over University of Mindanao's property in Cagayan de Oro City (covered by
Transfer Certificate of Title No. T-14345) in favor of Bangko Sentral ng Pilipinas.[8] "The mortgage served
as security for FISLAI's PI.9 Million loan[.]"[9] It was allegedly executed on University of Mindanao's
behalf.[10]

As proof of his authority to execute a real estate mortgage for University of Mindanao, Saturnino
Petalcorin showed a Secretary's Certificate signed on April 13, 1982 by University of Mindanao's
Corporate Secretary, Aurora de Leon.[11] The Secretary's Certificate stated:

That at the regular meeting' of the Board of Trustees of the aforesaid corporation [University of
Mindanao] duly convened on March 30, 1982, at which a quorum was present, the following resolution
was unanimously adopted:

"Resolved that the University of Mindanao, Inc. be and is hereby authorized, to mortgage real estate
properties with the Central Bank of the Philippines to serve as security for the credit facility of First Iligan
Savings and Loan Association, hereby authorizing the President and/or Vice-president for Finance,
Saturnino R. Petalcorin of the University of Mindanao,- Inc. to sign, execute and deliver the covering
mortgage document or any other documents which may be proper[l]y required."[12]

The Secretary's Certificate was supported by an excerpt from the minutes of the January 19, 1982
alleged meeting of University of Mindanao's Board of Trustees. The excerpt was certified by Aurora de
Leon on March 13, 1982 to be a true copy of University of Mindanao's records on file.[13] The excerpt
reads:

3 - Other Matters:

(a) Cagayan de Oro and Iligan properties:

Resolution No. 82-1-8

Authorizing the Chairman to appoint Saturnino R. Petalcorin, Vice-President for Finance, to represent the
University of Mindanao to transact, transfer, convey, lease, mortgage, or otherwise hypothecate any or
all of the following properties situated at Cagayan de Oro and Iligan City and authorizing further Mr.
Petalcorin to sign any or all documents relative thereto:

A parcel of land situated at Cagayan de Oro City, covered and technically described in TRANSFER
CERTIFICATE OF TITLE No. T-14345 of the Registry of Deeds of Cagayan de Oro City;

A parcel of land situated at Iligan City, covered and technically described in TRANSFER CERTIFICATE OF
TITLE NO..T-15696 (a.t.) of the Registry of Deeds of Iligan City; and

A parcel of land situated at Iligan City, covered and technically described in TRANSFER CERTIFICATE OF
TITLE NO. T-15697 (a.f.) of the Registry of Deeds of Iligan City.[14]
The mortgage deed executed by Saturnino Petalcorin in favor of Bangko Sentral ng Pilipinas was
annotated on the certificate of title of the Cagayan de Oro City property (Transfer Certificate of Title No.
14345) on June 25, 1982. Aurora de Leon's'certification was also annotated on the Cagayan de Oro City
property's certificate of title (Transfer Certificate of Title No. 14345).[15]

On October 21, 1982, Bangko Sentral ng Pilipinas granted FISLAI an additional loan of P620,700.00.
Guillermo B. Torres and Edmundo Ramos executed a promissory note on October 21, 1982 to cover that
amount.[16]

On November 5, 1982, Saturnino Petalcorin executed another deed of real estate mortgage, allegedly on
behalf of University of Mindanao, over its two properties in Iligan City. This mortgage served as
additional security for FISLAI's loans. The two Iligan City properties were covered by Transfer Certificates
of Title Nos, T-15696 and T-15697.[17]

On January 17, 1983, Bangko Sentral ng Pilipinas' mortgage lien over the Iligan City properties and
Aurora de Leon's certification were annotated on Transfer Certificates of Title Nos. T-15696 and T-15697.
[18] On January 18, 1983, Bangko Sentral ng Pilipinas' mortgage lien over the Iligan City properties was
also annotated on the tax declarations covering the Iligan City properties.[19]

Bangko Sentral ng Pilipinas also granted emergency advances to DSLAI on May 27, 1983 and on August
20, 1984 in the amounts of P1,633,900.00 and P6,489,000.00, respectively.[20]

On January 11, 1985, FISLAI, DSLAI, and Land Bank of the Philippines entered into a Memorandum of
Agreement intended to rehabilitate the thrift banks, which had been suffering from their depositors'
heavy withdrawals. Among the terms of the agreement was the merger of FISLAI and DSLAI, with DSLAI
as the surviving corporation. DSLAI later became known as Mindanao Savings and Loan Association, Inc.
(MSLAI).[21]

Guillermo B. Torres died on March 2, 1989.[22]

MSLAI failed to recover from its losses and was liquidated on May 24, 1991.[23]

On June 18, 1999, Bangko Sentral ng Pilipinas sent a letter to University of Mindanao, informing it that
the bank would foreclose its properties if MSLAI's total outstanding obligation of P12,534,907.73
remained unpaid.[24]

In its reply to Bangko Sentral ng Pilipinas' June 18, 1999 letter, University of Mindanao, through its Vice
President for Accounting, Gloria E. Detoya, denied that University of Mindanao's properties were
mortgaged. It also denied having received any loan proceeds from Bangko Sentral ng Pilipinas.[25]

On July 16, 1999, University of Mindanao filed two Complaints for nullification and cancellation of
mortgage. One Complaint was filed before the Regional Trial Court of Cagayan de Oro City, and the other
Complaint was filed before the Regional Trial Court of Iligan City.[26]

University of Mindanao alleged in its Complaints that it did not obtain any loan from Bangko Sentral ng
Pilipinas. It also did not receive any loan proceeds from the bank.[27]
University of Mindanao also alleged that Aurora de Leon's certification was anomalous. It never
authorized Saturnino Petalcorin to execute real estate mortgage contracts involving its properties to
secure FISLAI's debts. It never ratified the execution of the mortgage contracts. Moreover, as an
educational institution, it cannot mortgage its properties to secure another person's debts.[28]

On November 23, 2001, the Regional Trial Court of Cagayan de Oro City rendered a Decision in favor of
University of Mindanao,[29] thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against
defendants:

1. DECLARING the real estate mortgage Saturnino R. Petalcorin executed in favor of BANGKO SENTRAL
NG PILIPINAS involving Lot 421-A located in Cagayan de Oro City with an area of 482 square meters
covered by TCT No. T-14345 as annuled [sic];

2. ORDERING the Register of Deeds of Cagayan de Oro City to cancel Entry No. 9951 and Entry No. 9952
annotated at the back of said TCT No. T-14345, Registry of Deeds of Cagayan de Oro City;

Prayer for attorney's fee [sic] is hereby denied there being no proof that in demanding payment of the
emergency loan, defendant BANGKO SENTRAL NG PILIPINAS was motivated by evident bad faith,

SO ORDERED.[30] (Citation omitted)

The Regional Trial Court of Cagayan de Oro City found that there was no board resolution giving
Saturnino Petalcorin authority to execute mortgage contracts on behalf of University of Mindanao. The
Cagayan de Oro City trial court gave weight to Aurora de Leon's testimony that University ofMindanao's
Board of Trustees did not issue a board resolution that would support the Secretary's Certificate she
issued. She testified that she signed the Secretary's Certificate only upon Guillermo B. Torres' orders.[31]

Saturnino Petalcorin testified that he had no authority to execute a mortgage contract on University
ofMindanao's behalf. He merely executed the contract because of Guillermo B. Torres' request.[32]

Bangko Sentral ng Pilipinas' witness Daciano Pagui, Jr. also admitted that there was no board resolution
giving Saturnino Petalcorin authority to execute mortgage contracts on behalf of University of Mindanao.
[33]

The Regional Trial Court of Cagayan de Oro City ruled that Saturnino Petalcorin was not authorized to
execute mortgage contracts for University of Mindanao. Hence, the mortgage of University
ofMindanao's Cagayan de Oro City property was unenforceable. Saturnino Petalcorin's unauthorized acts
should be annulled.[34]

Similarly, the Regional Trial Court of Iligan City rendered a Decision on December 7, 2001 in favor of
University of Mindanao.[35] The dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the
defendants, as follows:
1. Nullifying and canceling [sic] the subject Deed of Real Estate Mortgage dated November 5, 1982 for
being unenforceable or void contract;

2. Ordering the Office of the Register of Deeds of Iligan City to cancel the entries on TCT No. T-15696 and
TCT No. T- 15697 with respect to the aforesaid Deed of Real Estate Mortgage dated November 5, 1982
and all other entries related thereto;

3. Ordering the defendant Bangko Sentral ng Pilipinas to return the owner's duplicate copies of TCT No.
T-15696 and TCT No. 15697 to the plaintiff;

4. Nullifying the subject [foreclosure [proceedings and the [a]uction [s]ale conducted by defendant Atty.
Gerardo Paguio, Jr. on October 8, 1999 including all the acts subsequent thereto and ordering the
Register of Deeds of Iligan City not to register any Certificate of Sale pursuant to the said auction sale nor
make any transfer of the corresponding titles, and if already registered and transferred, to cancel all the
said entries in TCT No. T-15696 and TCT No. T-15697 and/or cancel the corresponding new TCTs in the
name of defendant Bangko Sentral ng Pilipinas;

5. Making the Preliminary Injunction per Order of this Court dated October 13, 2000 permanent.

No pronouncement as to costs.[36] (Citation omitted)

The Iligan City trial court found that the Secretary's Certificate issued by Aurora de Leon was
fictitious[37] and irregular for being unnumbered.[38] It also did not specify the identity, description, or
location of the mortgaged properties.[39]

The Iligan City trial court gave credence to Aurora de Leon's testimony that the University of Mindanao's
Board of Trustees did not take up the documents in its meetings. Saturnino Petalcorin corroborated her
testimony.[40]

The Iligan City trial court ruled that the lack of a board resolution authorizing Saturnino Petalcorin to
execute documents of mortgage on behalf of University of Mindanao made the real estate mortgage
contract unenforceable under Article 1403[41] of the Civil Code.[42] The mortgage contract and the
subsequent acts of foreclosure and auction sale were void because the mortgage contract was executed
without University of Mindanao' s authority.[43]

The Iligan City trial court also ruled that the annotations on the titles of University of Mindanao's
properties do not operate as notice to the University because annotations only bind third parties and not
owners.[44] Further, Bangko Sentral ng Pilipinas' right to foreclose the University of Mindanao's
properties had already prescribed.[45]

Bangko Sentral ng Pilipinas separately appealed the Decisions of both the Cagayan de Oro City and the
Iligan City trial courts.[46]

After consolidating both cases, the Court of Appeals issued a Decision on December 17, 2009 in favor of
Bangko Sentral ng Pilipinas, thus:

FOR THE REASONS STATED, the Decision dated 23 November 2001 of the Regional Trial Court of Cagayan
de Oro City, Branch 24 in Civil Case No. 99-414 and the Decision dated 7 December 2001 of the Regional
Trial Court of Iligan City, Branch 1 in Civil Case No. 4790 are REVERSED and SET ASIDE. The Complaints in
both cases before the trial courts are DISMISSED. The Writ of Preliminary Injunction issued by the
Regional Trial Court of Iligan City, Branch 1 in Civil Case No. 4790 is LIFTED and SET ASIDE.

SO ORDERED.[47]

The Court of Appeals ruled that "[although BSP failed to prove that the UM Board of Trustees actually
passed a Board Resolution authorizing Petalcorin to mortgage the subject real properties,"[48] Aurora de
Leon's Secretary's Certificate "clothed Petalcorin with apparent and ostensible authority to execute the
mortgage deed on its behalf[.]"[49] Bangko Sentral ng Pilipinas merely relied in good faith on the
Secretary's Certificate.[50] University of Mindanao is estopped from denying Saturnino Petalcorin's
authority.[51]

Moreover, the Secretary's Certificate was notarized. This meant that it enjoyed the presumption of
regularity as to the truth of its statements and authenticity of the signatures.[52] Thus, "BSP cannot be
faulted for relying on the [Secretary's Certificate.]"[53]

The Court of Appeals also ruled that since University of Mindanao's officers, Guillermo B. Torres and his
wife, Dolores P. Torres, signed the promissory notes, University of Mindanao was presumed to have
knowledge of the transaction.[54] Knowledge of an officer in relation to matters within the scope of his
or her authority is notice to the corporation.[55]

The annotations on University of Mindanao's certificates of title also operate as constructive notice to it
that its properties were mortgaged.[56] Its failure to disown the mortgages for more than a decade was
implied ratification.[57]

The Court of Appeals also ruled that Bangko Sentral ng Pilipinas' action for foreclosure had not yet
prescribed because the due date extensions that Bangko Sentral ng Pilipinas granted to FISLAI extended
the due date of payment to five (5) years from February 8, 1985.[58] The bank's demand letter to
Dolores P. Torres on June 18, 1999 also interrupted the prescriptive period.[59]

University of Mindanao and Bangko Sentral ng Pilipinas filed a Motion for Reconsideration60 and Motion
for Partial Reconsideration respectively of the Court of Appeals' Decision. On December 20, 2010, the
Court of Appeals issued a Resolution, thus:

Acting on the foregoing incidents, the Court RESOLVES to:

GRANT the appellant's twin motions for extension of time to file comment/opposition and NOTE the
Comment . on the appellee's Motion for Reconsideration it subsequently filed on June 23, 2010;

GRANT the appellee's three (3) motions for extension of time to file comment/opposition and NOTE the
Comment on the appellant's Motion for Partial Reconsideration it filed on July 26, 2010;

NOTE the appellant's "Motion for Leave to File Attached Reply Dated August 11, 2010" filed on August
13, 2010 and DENY the attached "Reply to Comment Dated July 26, 2010";

DENY the appellee's Motion for Reconsideration as it does' not offer any arguments sufficiently
meritorious to warrant modification or reversal of the Court's 17 December 2009 Decision. The Court
finds that there is no compelling reason to reconsider its ruling; and
GRANT the appellant's Motion for Partial Reconsideration, as the Court finds it meritorious, considering
that it ruled in its Decision that "BSP can still foreclose on the UM's real property in Cagayan de Oro City
covered by TCT No. T- 14345." It then follows that the injunctive writ issued by the RTC of Cagayan de
Oro City, Branch 24 must be lifted. The Court's 17 December 2009 Decision is accordingly MODIFIED and
AMENDED to read as follows:

"FOR THE REASONS STATED, the Decision dated 23 November 2001 of the Regional Trial Court of
Cagayan de Oro City, Branch 24 in Civil Case No. 99-414 and the Decision dated 7 December 2001 of the
Regional Trial Court of Iligan City, Branch 1 in Civil Case No. 4790 are REVERSED and SET ASIDE. The
Complaints in both cases before the trial courts are DISMISSED. The Writs of Preliminary Injunction
issued by the Regional Trial Court of Iligan City, Branch 1 in Civil Case No. 4790 and in the Regional Trial
Court of Cagayan de Oro City, Branch 24 in Civil Case No. 99-414 are LIFTED and SET ASIDE."

SO ORDERED.[61] (Citation omitted)

Hence, University of Mindanao filed this Petition for Review. The issues for resolution are:

First, whether respondent Bangko Sentral ng Pilipinas' action to foreclose the mortgaged properties had
already prescribed; and

Second, whether petitioner University of Mindanao is bound by the real estate mortgage contracts
executed by Saturnino Petalcorin.

We grant the Petition.

Petitioner argues that respondent's action to foreclose its mortgaged properties had already prescribed.

Petitioner is mistaken.

Prescription is the mode of acquiring or losing rights through the lapse of time.[62] Its purpose is "to
protect the diligent and vigilant, not those who sleep on their rights."[63]

The prescriptive period for actions on mortgages is ten (10) years from the day they may be brought.[64]
Actions on mortgages may be brought not upon the execution of the mortgage contract but upon default
in payment of the obligation secured by the mortgage.[65]

A debtor is considered in default when he or she fails to pay the obligation on due date and, subject to
exceptions, after demands for payment were made by the creditor. Article 1169 of the Civil Code
provides:

ART. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially
or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the
time when the thing is to be delivered or the service is to be rendered was a controlling motive for the
establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

Article 1193 of the Civil'Code provides that an obligation is demandable only upon due date. It provides:

ART. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only
when that day comes.

Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.

A day certain is understood to be that which must necessarily come, although it may not be known
when.

If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall
be regulated by the rules of the preceding Section.

In other words, as a general rule, a person defaults and prescriptive period for action runs when (1) the
obligation becomes due and demandable; and (2) demand for payment has been made.

The prescriptive period neither runs from the date of the execution of a contract nor does the
prescriptive period necessarily run on the date when the loan becomes due and demandable.[66]
Prescriptive period runs from the date of demand,[67] subject to certain exceptions.

In other words, ten (10) .years may lapse from the date of the execution of contract, without barring a
cause of action on the mortgage when there is a gap between the period of execution of the contract
and the due date or between the due date and the demand date in cases when demand is necessary.[68]

The mortgage contracts in this case were executed by Saturnino Petalcorin in 1982. The maturity dates
of FISLAI's loans were repeatedly extended until the loans became due and demandable only in 1990.
[69] Respondent informed petitioner of its decision to foreclose its properties and demanded payment in
1999.

The running of the prescriptive period of respondent's action on the mortgages did not start when it
executed the mortgage contracts with Saturnino Petalcorin in 1982.

The prescriptive period for filing an action may run either (1) from 1990 when the loan became due, if
the obligation was covered by the exceptions under Article 1169 of the Civil Code; (2) or from 1999 when
respondent demanded payment, if the obligation was not covered by the exceptions under Article 1169
of the Civil Code.

In either case, respondent's Complaint with cause of action based on the mortgage contract was filed
well within the prescriptive period.

Given the termination of all traces of FISLAI's existence,[70] demand may have been rendered
unnecessary under Article 1169(3)[71] of the Civil Code. Granting that this is the case,.respondent would
have had ten (10) years from due date in 1990 or until 2000 to institute an action on the mortgage
contract.

However, under Article 1155[72] of the Civil Code, prescription of actions may be interrupted by (1) the
filing of a court action; (2) a written extrajudicial demand; and (3) the written acknowledgment of the
debt by the debtor.

Therefore, the running of the prescriptive period was interrupted when respondent sent its demand
letter to petitioner on June 18, 1999. This eventually led to petitioner's filing of its annulment of
mortgage complaints before the Regional Trial Courts of Iligan City and Cagayan De Oro City on July 16,
1999.

Assuming that demand was necessary, respondent's action was within the ten (10)-year prescriptive
period. Respondent demanded payment of the loans in 1999 and filed an action in the same year.

II

Petitioner argues that the execution of the mortgage contract was ultra vires. As an educational
institution, it may not secure the loans of third persons.[73] Securing loans of third persons is not among
the purposes for which petitioner was established.[74]

Petitioner, is correct.

Corporations are artificial entities granted legal personalities upon their creation by their incorporators in
accordance with law. Unlike natural persons, they have no inherent powers. Third persons dealing with
corporations cannot assume that corporations have powers. It is up to those persons dealing with
corporations to determine their competence as expressly defined by the law and their articles of
incorporation.[75]

A corporation may exercise its powers only within those definitions. Corporate acts that are outside
those express definitions under the law or articles of incorporation or those "committed outside the
object for which a corporation is created"[76] are ultra vires.

The only exception to this, rule is when acts are necessary and incidental to carry out a corporation's
purposes, and to the exercise of powers conferred by the Corporation Code and under a corporation's
articles of incorporation.[77] This exception is specifically included in the general powers of a
corporation under Section 36 of the Corporation Code:

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

To sue and be sued in its corporate name;

Of succession by its corporate name for the period of time stated in the articles of incorporation and the
certificate of incorporation;
To adopt and use a corporate seal;

To amend its articles of incorporation in accordance with the provisions of this Code;

To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in
accordance with this Code;

In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in
accordance with the provisions of this Code; and to admit members to the corporation if it be a non
stock corporation;

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 the lawful business of the corporation may reasonably and necessarily require, subject to the
limitations prescribed by law and the Constitution;

To enter into merger or consolidation with other corporations as provided in this Code;

To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural,
scientific, civic, or similar purposes: Provided, That no corporation, domestic or foreign, shall give
donations in aid of any political party or candidate or for purposes of partisan political activity;

To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and
employees; and

To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as
stated in its articles of incorporation. (Emphasis supplied)

Montelibano, et al. v. Bacolod-Murcia Milling Co., Inc.[78] stated the test to determine if a corporate act
is in accordance with its purposes:

It is a question, therefore, in each case, of the logical relation of the act to the corporate purpose
expressed in the charter. If that act is one which is lawful in itself, and not otherwise prohibited, is done
for the purpose of serving corporate ends, and is reasonably tributary to the promotion of those ends, in
a substantial, and not in a remote and fanciful, sense, it may fairly be considered within charter powers.
The test to be applied is whether the act in question is in direct and immediate furtherance of the
corporation's business, fairly incident to the express powers and reasonably necessary to their exercise.
If so, the corporation has the power to do it; otherwise, not.[79] (Emphasis supplied)

As an educational institution, petitioner serves:

To establish, conduct and operate a college or colleges, and/or university;

To acquire properties,, real and/or personal, in connection with the establishment and operation of such
college or colleges;

To do and perform the various and sundry acts and things permitted by the laws of the Philippines unto
corporations like classes and kinds;

To engage in agricultural, industrial, and/or commercial pursuits in line with educational program of the
corporation and to acquire all properties, real and personal [,] necessary for the purposes[;]
To establish, operate, and/or acquire broadcasting and television stations also in line with the
educational program of the corporation and for such other purposes as the Board of Trustees may
determine from time to time;

To undertake housing projects of faculty members and employees, and to acquire real estates for this
purpose;

To establish, conduct and operate and/or invest in educational foundations; [As amended on December
15, 1965][;]

To establish, conduct and operate housing and dental schools, medical facilities and other related
undertakings;

To invest in other corporations. [As amended on December 9, 1998]. [Amended Articles of Incorporation
of the University of Mindanao, Inc. - the Petitioner].[80]

Petitioner does not have the power to mortgage its properties in order to secure loans of other persons.
As an educational institution, it is limited to developing human capital through formal instruction. It is
not a corporation engaged in the business of securing loans of others.

Hiring professors, instructors, and personnel; acquiring equipment and real estate; establishing housing
facilities for personnel and students; hiring a concessionaire; and other activities that can be directly
connected to the operations and conduct of the education business may constitute the necessary and
incidental acts of an educational institution.

Securing FISLAI's loans by mortgaging petitioner's properties does not appear to have even the remotest
connection to the operations of petitioner as an educational institution. Securing loans is not an adjunct
of the educational institution's conduct of business.[81] It does not appear that securing third-party
loans was necessary to maintain petitioner's business of providing instruction to individuals.

This court upheld the validity of corporate acts when those acts were shown to be clearly within the
corporation's powers or were connected to the corporation's purposes.

In Pirovano, et al. v. De la Rama Steamship Co.,[82] this court declared valid the donation given to the
children of a deceased person who contributed to the growth of the corporation.[83] This court found
that this donation was within the broad scope of powers and purposes of the corporation to "aid in any
other manner any person . . . in which any interest is held by this corporation or in the affairs or
prosperity of which this corporation has a lawful interest."[84]

In Twin Towers Condominium Corporation v. Court of Appeals, et al.,[85] this court declared valid a rule
by Twin Towers Condominium denying delinquent members the right to use condominium facilities.[86]
This court ruled that the condominium's power to promulgate rules on the use of facilities and to
enforce provisions of the Master Deed was clear in the Condominium Act, Master Deed, and By-laws of
the condominium.[87] Moreover, the promulgation of such rule was "reasonably necessary" to attain the
purposes of the condominium project.[88]

This court has, in effect, created a presumption that corporate acts are valid if, on their face, the acts
were within the corporation's powers or purposes. This presumption was explained as early as in 1915 in
Coleman v. Hotel De France,[89] where this court ruled that contracts entered into by corporations in the
exercise of their incidental powers are not ultra vires.[90]

Coleman involved a hotel's cancellation of an employment contract it executed with a gymnast. One of
the hotel's contentions was the supposed ultra vires nature of the contract.- It was executed outside its
express and implied powers under the articles of incorporation.[91]

In ruling in favor of the contract's validity, this court considered the incidental powers of the hotel to
include the execution of employment contracts with entertainers for the purpose of providing its guests
entertainment and increasing patronage.[92]

This court ruled that a contract executed by a corporation shall be presumed valid if on its face its
execution was not beyond the powers of the corporation to do.[93] Thus:

When a contract is not on its face necessarily beyond the scope of the power of the corporation by
which it was made, it will, in the absence of proof to the contrary, be presumed to be valid. Corporations
are presumed to contract within their powers. The doctrine of ultra vires, when invoked for or against a
corporation, should not be allowed to prevail where it would defeat the ends of justice or work a legal
wrong.[94]

However, this should not be interpreted to mean that such presumption applies to all cases, even when
the act in question is on its face beyond the corporation's power to do or when the evidence contradicts
the presumption.

Presumptions are "inference[s] as to the existence of a fact not actually known, arising from its usual
connection with another which is known, or a conjecture based on past experience as to what course
human affairs ordinarily take."[95] Presumptions embody values and revealed behavioral expectations
under a given set of circumstances.

Presumptions may be conclusive[96] or disputable.[97]

Conclusive presumptions are presumptions that may not be overturned by evidence, however strong the
evidence is.[98] They are made conclusive not because there is an established uniformity in behavior
whenever identified circumstances arise. They are conclusive because they are declared as such under
the law or the rules. Rule 131, Section 2 of the Rules of Court identifies two (2) conclusive presumptions:

SEC. 2. Conclusive presumptions.— The following are instances of conclusive presumptions:

(a) Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led
another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising
out of such declaration, act or omission, be permitted to falsify it;

(b) The tenant is not permitted to deny the title of his landlord at the time of the commencement of the
relation of landlord and tenant between them.

On the other hand, disputable, presumptions are presumptions that may be overcome by contrary
evidence.[99] They are disputable in recognition of the variability of human behavior. Presumptions are
not always true. They may be wrong under certain circumstances, and courts are expected to apply
them, keeping in mind the nuances of every experience that may render the expectations wrong.

Thus, the application of disputable presumptions on a given circumstance must be based on the
existence of certain facts on which they are meant to operate. "[Presumptions are not allegations, nor do
they supply their absence[.]"[100] Presumptions are conclusions. They do not apply when there are no
facts or allegations to support them.

If the facts exist to set in motion the operation of a disputable presumption, courts may accept the
presumption. However, contrary evidence may be presented to rebut the presumption.

Courts cannot disregard contrary evidence offered to rebut disputable presumptions. Disputable
presumptions apply only in the absence of contrary evidence or explanations. This court explained in
Philippine Agila Satellite Inc. v. Usec. Trinidad-Lichauco:[101]

We do not doubt the existence of the presumptions of "good faith" or "regular performance of official
duty," yet these presumptions are disputable and may be contradicted and overcome by other evidence.
Many civil actions are oriented towards overcoming any number of these presumptions, and a cause of
action can certainly be geared towards such effect. The very purpose of trial is to allow a party to present
evidence to overcome the disputable presumptions involved. Otherwise, if trial is deemed irrelevant or
unnecessary, owing to the perceived indisputability of the presumptions, the judicial exercise would be
relegated to a mere ascertainment of what presumptions apply in a given case, nothing more.
Consequently, the entire Rules of Court is rendered as excess verbiage, save perhaps for the provisions
laying down the legal presumptions.

If this reasoning of the Court of Appeals were ever adopted as a jurisprudential rule, no public officer
could ever be sued for acts executed beyond their official functions or authority, or for tortious conduct
or behavior, since such acts would "enjoy the presumption of good faith and in the regular performance
of official duty." Indeed, few civil actions of any nature would ever reach the trial stage, if a case can be
adjudicated by a mere determination from the complaint or answer as to which legal presumptions are
applicable. For-example, the presumption that a person is innocent of a wrong is a disputable
presumption on the same level as that of the regular performance of official duty. A civil complaint for
damages necessarily alleges that the defendant committed a wrongful act or omission that would serve
as basis for the award of damages. With the rationale of the Court of Appeals, such complaint can be
dismissed upon a motion to dismiss solely on the ground that the presumption is that a person is
innocent of a wrong.[102] (Emphasis supplied, citations omitted)

In this case, the presumption that the execution of mortgage contracts was within petitioner's corporate
powers does not apply. Securing third-party loans is not connected to petitioner's purposes as an
educational institution.

III

Respondent argues that petitioner's act of mortgaging its properties to guarantee FISLAI's loans was
consistent with petitioner's business interests, since petitioner was presumably a FISLAI shareholder
whose officers and shareholders interlock with FISLAI. Respondent points out that petitioner and its key
officers held substantial shares in MSLAI when DSLAI and FISLAI merged. Therefore, it was safe to
assume that when the mortgages were executed in 1982, petitioner held substantial shares in FISLAI.
[103]

Parties dealing with corporations cannot simply assume that their transaction is within the corporate
powers. The acts of a corporation are still limited by its powers and purposes as provided in the law and
its articles of incorporation.

Acquiring shares in another corporation is not a means to create new powers for the acquiring
corporation. Being a shareholder of another corporation does not automatically change the nature and
purpose of a corporation's business. Appropriate amendments must be made either to the law or the
articles of incorporation before a corporation can validly exercise powers outside those provided in law
or the articles of incorporation. In other words, without an amendment, what is ultra vires before a
corporation acquires shares in other corporations is still ultra vires after such acquisition.

Thus, regardless of the number of shares that petitioner had with FISLAI, DSLAI, or MSLAI, securing loans
of third persons is still beyond petitioner's power to do. It is still inconsistent with its purposes under the
law[104] and its articles of incorporation.[105]

In attempting to show petitioner's interest in securing FISLAI's loans by adverting to their interlocking,
directors and shareholders, respondent disregards petitioner's separate personality from its officers,
shareholders, and other juridical persons.

The separate personality of corporations means that they are "vest[ed] [with] rights, powers, and
attributes [of their own] as if they were natural persons[.]"[106] Their assets and liabilities are their own
and not their officers', shareholders', or another corporation's. In the same vein, the assets and liabilities
of their officers and shareholders are not the corporations'. Obligations incurred by corporations are not
obligations of their officers and shareholders. Obligations of officers and shareholders are not obligations
of corporations.[107] In other words, corporate interests are separate from the personal interests of the
natural persons that comprise corporations.

Corporations are given separate personalities to allow natural persons to balance the risks of business as
they accumulate capital. They are, however, given limited competence as a means to protect the public
from fraudulent acts that may be committed using the separate juridical personality given to
corporations.

Petitioner's key officers, as shareholders of FISLAI, may have an interest in ensuring the viability of FISLAI
by obtaining a loan from respondent and securing it by whatever means. However, having interlocking
officers and stockholders with FISLAI does not mean that petitioner, as an educational institution, is or
must necessarily be interested in the affairs of FISLAI.

Since petitioner is an entity distinct and separate not only from its own officers and shareholders but
also from FISLAI, its interests as an educational institution may not be consistent with FISLAI's.

Petitioner and FISLAI have different constituencies. Petitioner's constituents comprise persons who have
committed to developing skills and acquiring knowledge in their chosen fields by availing the formal
instruction provided by petitioner. On the other hand, FISLAI is a thrift bank, which constituencies
comprise investors.
While petitioner and FISLAI exist ultimately to benefit their stockholders, their constituencies affect the
means by which they can maintain their existence. Their interests are congruent with sustaining their
constituents' needs because their existence depends on that. Petitioner can exist only if it continues to
provide for the kind and quality of instruction that is needed by its constituents. Its operations and
existence are placed at risk when resources are used on activities that are not geared toward the
attainment of its purpose. Petitioner has no business in securing FISLAI, DSLAI, or MSLAI's loans. This
activity is not compatible with its business of providing quality instruction to its constituents.

Indeed, there are instances when we disregard the separate corporate personalities of the corporation
and its stockholders, directors, or officers. This is called piercing of the corporate veil.

Corporate veil is pierced when the separate personality of the corporation is being used to perpetrate
fraud, illegalities, and injustices.[108] In Lanuza, Jr. v. BF Corporation:[109]

Piercing the corporate veil is warranted when "[the separate personality of a corporation] is used as a
means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, or to confuse legitimate issues." It is also warranted in alter ego cases "where
a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation."[110]

These instances have not been shown in this case. There is no evidence pointing to the possibility that
petitioner used its separate personality to defraud third persons or commit illegal acts. Neither is there
evidence to show that petitioner was merely a farce of a corporation. What has been shown instead was
that petitioner, too, had been victimized by fraudulent and unauthorized acts of its own officers and
directors.

In this case, instead of guarding against fraud, we perpetuate fraud if we accept respondent's
contentions.

IV

Petitioner argues that it did not authorize Saturnino Petalcorin to mortgage its properties on its behalf.
There was no board resolution to that effect. Thus, the mortgages executed by Saturnino Petalcorin were
unenforceable.[111]

The mortgage contracts executed in favor of respondent do not bind petitioner. They were executed
without authority from petitioner.

Petitioner must exercise its.powers and conduct its business through its Board of Trustees. Section 23 of
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 stocks, 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.

Being a juridical person, petitioner cannot conduct its business, make decisions, or act in any manner
without action from its Board of Trustees. The Board of Trustees must act as a body in order to exercise
corporate powers. Individual trustees are not clothed with corporate powers just by being a trustee.
Hence, the individual trustee cannot bind the corporation by himself or herself.

The corporation may, however, delegate through a board resolution its corporate powers or functions to
a representative, subject to limitations under the law and the corporation's articles of incorporation.
[112]

The relationship between a corporation and its representatives is governed by the general principles of
agency.[113] Article 1317 of the Civil Code provides that there must be authority from the principal
before anyone can act in his or her name:

ART. 1317. No one may contract in the name of another without being authorized by the latter, or unless
he has by law a right to represent him.

Hence, without delegation by the board of directors or trustees, acts of a person—including those of the
corporation's directors, trustees, shareholders, or officers—executed on behalf of the corporation are
generally not binding on the corporation.[114]

Contracts entered into in another's name without authority or valid legal representation are generally
unenforceable. The Civil Code provides:

ART. 1317. . . .

A contract entered into in the name of another by one who has no authority or legal representation, or
who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked by the other contracting party.

....

ART. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers[.]

The unenforceable status of contracts entered into by an unauthorized person on behalf of another is
based on the basic principle that contracts must be consented to by both parties.[115] There is no
contract without meeting of the minds as to the subject matter and cause of the obligations created
under the contract.[116]

Consent of a person cannot be presumed from representations of another, especially if obligations will
be incurred as a result. Thus, authority is required to make actions made on his or her behalf binding on
a person. Contracts entered into by persons without authority from the corporation shall generally be
considered ultra vires and unenforceable[117] against the corporation.

Two trial courts[118] found that the Secretary's Certificate and the board resolution were either non-
existent or fictitious. The trial courts based their findings on the testimony of the Corporate Secretary,
Aurora de Leon herself. She signed the Secretary's Certificate and the excerpt of the minutes of the
alleged board meeting purporting to authorize Saturnino Petalcorin to mortgage petitioner's properties.
There was no board meeting to that effect. Guillermo B. Torres ordered the issuance of the Secretary's
Certificate. Aurora de Leon's testimony was corroborated by Saturnino Petalcorin.

Even the Court of Appeals, which reversed the trial courts' decisions, recognized that "BSP failed to prove
that the UM Board of Trustees actually passed a Board Resolution authorizing Petalcorin to mortgage the
subject real properties[.]"[119]

Well-entrenched is the rule that this court, not being a trier of facts, is bound by the findings of fact of
the trial courts and the Court of Appeals when such findings are supported by evidence on record.[120]
Hence, not having the proper board resolution to authorize Saturnino Petalcorin to execute the
mortgage contracts for petitioner, the contracts he executed are unenforceable against petitioner. They
cannot bind petitioner.

However, personal liabilities may be incurred by directors who assented to such unauthorized act[121]
and by the person who contracted in excess of the limits of his or her authority without the corporation's
knowledge.[122]

Unauthorized acts that are merely beyond the powers of the corporation under its articles of
incorporation are not void ab initio.

In Pirovano, et al, this court explained that corporate acts may be ultra vires but not void.[123] Corporate
acts may be capable of ratification:[124]

[A] distinction should be made between corporate acts or contracts which are illegal and those which are
merely ultra vires. The former contemplates the doing of an act which is contrary to law, morals, or
public order, or contravene some rules of public policy or public duty, and are, like similar transactions
between individuals, void. They cannot serve as basis of a court action, nor acquire validity by
performance, ratification, or estoppel. Mere ultra vires acts, on the other hand, or those which are not
illegal and void ab initio, but are not merely within the scope of the articles of incorporation, are merely
voidable and may become binding and enforceable when ratified by the stockholders.[125]

Thus, even though a person did not give another person authority to act on his or her behalf, the action
may be enforced against him or her if it is shown that he or she ratified it or allowed the other person to
act as if he or she had full authority to do so. The Civil Code provides:
ART. 1910. The principal must comply with all the obligations which the agent may have contracted
within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when
he ratifies it expressly or tacitly.

ART. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the
agent if the former allowed the latter to act as though he had full powers. (Emphasis supplied)

Ratification is a voluntary and deliberate confirmation or adoption of a previous unauthorized act.[126] It

converts the unauthorized act of an agent into an act of the principal.[127] It cures the lack of consent at
the time of the execution of the contract entered into by the representative, making the contract valid
and enforceable.[128] It is, in essence, consent belatedly given through express or implied acts that are
deemed a confirmation or waiver of the right to impugn the unauthorized act.[129] Ratification has the
effect of placing the principal in a position as if he or she signed the original contract. In Board of
Liquidators v. Heirs ofM. Kalaw, et al.:[130]

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."[131] (Citations omitted)

Implied ratification may take the form of silence, acquiescence, acts consistent with approval of the act,,
or acceptance or retention of benefits.[132] However, silence, acquiescence, retention of benefits, and
acts that may be interpreted as approval of the act do not by themselves constitute implied ratification.
For an act to constitute an implied ratification, there must be no acceptable explanation for the act-other
than that there is an intention to adopt the act as his or her own.[133] "[It] cannot be inferred from acts
that a principal has a right to do independently of the unauthorized act of the agent."[134]

No act by petitioner can be interpreted as anything close to ratification. It was not shown that it issued a
resolution ratifying the execution of the mortgage contracts. It was not shown that it received proceeds
of the loans secured by the mortgage contracts. There was also no showing that it received any
consideration for the execution of the mortgage contracts. It even appears that petitioner was unaware
of the mortgage contracts until respondent notified it of its desire to foreclose the mortgaged properties.

Ratification must be knowingly and voluntarily done.[135] Petitioner's lack of knowledge about the
mortgage executed in its name precludes an interpretation that there was any ratification on its part.

Respondent further argues that petitioner is presumed to have knowledge of its transactions with
respondent because its officers, the Spouses Guillermo and Dolores Torres, participated in obtaining the
loan.[136]
Indeed, a corporation, being a person created by mere fiction of law, can act only through natural
persons such as its directors, officers, agents, and representatives. Hence, the general rule is that
knowledge of an officer is considered knowledge of the corporation.

However, even though the Spouses Guillermo and Dolores Torres were officers of both the thrift banks
and petitioner, their knowledge of the mortgage contracts cannot be considered as knowledge of the
corporation.

The rule that knowledge of an officer is considered knowledge of the corporation applies only when the
officer is acting within the authority given to him or her by the corporation. In Francisco v. Government
Service Insurance System:[137]

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.[138]

The public should be able to rely on and be protected from the representations of a corporate
representative acting within the scope of his or her authority. This is why an authorized officer's
knowledge is considered knowledge of corporation. However, just as the public should be able to rely on
and be protected from corporate representations, corporations should also be able to expect that they
will not be bound by unauthorized actions made on their account.

Thus, knowledge should be actually communicated to the corporation through its authorized
representatives. A corporation cannot be expected to act or not act on a knowledge that had not been
communicated to it through an authorized representative. There can be no implied ratification without
actual communication. Knowledge of the existence of contract must be brought to the corporation's
representative who has authority to ratify it. Further, "the circumstances must be shown from which
such knowledge may be presumed."[139]

The Spouses Guillermo and Dolores Torres' knowledge cannot be interpreted as knowledge of petitioner.
Their knowledge was not obtained as petitioner's representatives. It was not shown that they were
acting for and within the authority given by petitioner when they acquired knowledge of the loan
transactions and the mortgages. The knowledge was obtained in the interest of and as representatives of
the thrift banks.

VI

Respondent argues that Satnrnino Petalcorin was clothed with the authority to transact on behalf of
petitioner, based on the board resolution dated March 30, 1982 and Aurora de Leon's notarized
Secretary's Certificate.[140] According to respondent, petitioner is bound by the mortgage contracts
executed by Saturnino Petalcorin.[141]

This court has recognized presumed or apparent authority or capacity to bind corporate representatives
in instances when the corporation, through its silence or other acts of recognition, allowed others to
believe that persons, through their usual exercise of corporate powers, were conferred with authority to
deal on the corporation's behalf.[142]
The doctrine of apparent authority does not go into the question of the corporation's competence or
power to do a particular act. It involves the question of whether the officer has the power or is clothed
with the appearance of having the power to act for the corporation. A finding that there is apparent
authority is not the same as a finding that the corporate act in question is within the corporation's
limited powers.

The rule on apparent authority is based on the principle of estoppel. The Civil Code provides:

ART. 1431. Through estoppel an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon.

....

ART, 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of
action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without
authority.

Agency may be oral, unless the law requires a specific form.

A corporation is estopped by its silence and acts of recognition because we recognize that there is
information asymmetry between third persons who have little to no information as to what happens
during corporate meetings, and the corporate officers, directors, and representatives who are insiders to
corporate affairs.[143]

In People's Air car go and Warehousing Co. Inc. v. Court of Appeals,[144] this court held that the contract
entered into by the corporation's officer without a board resolution was binding upon the corporation
because it previously allowed the officer to contract on its behalf despite the lack of board resolution.
[145]

In Francisco, this court ruled that Francisco's proposal for redemption of property was accepted by and
binding upon the Government Service Insurance System. This court did not appreciate the Government
Service Insurance System's defense that since it was the Board Secretary and not the General Manager
who sent Francisco the acceptance telegram, it could not be made binding upon the Government Service
Insurance System. It did not authorize the Board Secretary to sign for the General Manager. This court
appreciated the Government Service Insurance System's failure to disown the telegram sent by the
Board Secretary and its silence while it accepted all payments made by Francisco for the redemption of
property.[146]

There can be no apparent authority and the corporation cannot be estopped from denying the binding
affect of an act when there is no evidence pointing to similar acts and other circumstances that can be
interpreted as the corporation holding out a representative as having authority to contract on its behalf.
In Advance Paper Corporation v. Arma Traders Corporation,[147] this court had the occasion to say:

The doctrine of apparent authority does not apply if the principal did not commit any acts or conduct
which a third party knew and relied upon in good faith as a result of the exercise of reasonable
prudence. Moreover, the agent's acts or conduct must have produced a change of position to the third
party's detriment.[148] (Citation omitted)

Saturnino Petalcorin's authority to transact on behalf of petitioner cannot be presumed based on a

Secretary's Certificate and excerpt from the minutes of the alleged board meeting that were found to
have been simulated. These documents cannot be considered as the corporate acts that held out
Saturnino Petalcorin as petitioner's authorized representative for mortgage transactions. They were not
supported by an actual board meeting.[149]

VII

Respondent argues that it may rely on the Secretary's Certificate issued by Aurora de Leon because it
was notarized.

The Secretary's Certificate was void whether or not it was notarized.

Notarization creates a presumption of regularity and authenticity on the document. This presumption
may be rebutted by "strong, complete and conclusive proof"[150] to the contrary. While notarial
acknowledgment "attaches full faith and credit to the document concerned[,]"[151] it does not give the
document its validity or binding effect. When there is evidence showing that the document is invalid, the
presumption of regularity or authenticity is not applicable.

In Basilio v. Court of Appeals[152] this court was convinced that the purported signatory on a deed of
sale was not as represented, despite testimony from the notary public that the signatory appeared
before him and signed the instrument.[153] Apart from finding that there was forgery,[154] this court
noted:

The notary public, Atty. Ruben Silvestre, testified that he was the one who notarized the document and
that Dionisio Z. Basilio appeared personally before him and signed the. instrument himself. However, he
admitted that he did not know Dionisio Z. Basilio personally to ascertain if the person who signed the
document was actually Dionisio Z. Basilio himself, or another person who stood in his place. He could not
even recall whether the document had been executed in his office or not.

Thus, considering the testimonies of various witnesses and a comparison of the signature in question
with admittedly genuine signatures, the Court is convinced that Dionisio Z. Basilio did not execute the
questioned deed of sale. Although the questioned deed of sale was a public document having in its favor
the presumption of regularity, such presumption was adequately refuted by competent witnesses
showing its forgery and the Court's own visual analysis of the document.[155] (Emphasis supplied,
citations omitted)

In Suntay v. Court of Appeals,[156] this court held that a notarized deed of sale was void because it was a
mere sham.[157] It was not intended to have any effect between the parties.[158] This court said:
[I]t is not the intention nor the function of the notary public to validate and make binding' an instrument
never, in the first place, intended to have any binding legal effect upon the parties thereto.[159]

Since the notarized Secretary's Certificate was found to have been issued without a supporting board
resolution, it produced no effect. It is not binding upon petitioner. It should not have been relied on by
respondent especially given its status as a bank.

VIII

The banking institution is "impressed with public interest"[160] such that the public's faith is "of
paramount importance."[161] Thus, banks are required to exercise the highest degree of diligence in
their transactions.[162] In China Banking Corporation v. Lagon,[163] this court found that the bank was
not a mortgagee in good faith for its failure to question the due execution of a Special Power of Attorney
that was presented to it in relation to a mortgage contract.[164] This court said:

Though petitioner is not expected to conduct an exhaustive investigation on the history of the
mortgagor's title, it cannot be excused from the duty of exercising the due diligence required of a
banking institution. Banks are expected to exercise more care and prudence than private individuals in
their dealings, even those that involve registered lands, for their business is affected with public interest.
[165] (Citations omitted)

For its failure to exercise the degree of diligence required of banks, respondent cannot claim good faith
in the execution of the mortgage contracts with Saturnino Petalcorin. Respondent's witness, Daciano
Paguio, Jr., testified that there was no board resolution authorizing Saturnino Petalcorin to act on behalf
of petitioner.[166] Respondent did not inquire further as to Saturnino Petalcorin's authority.

Banks cannot rely on assumptions. This will be contrary to the high standard of diligence required of
them.

VI

According to respondent, the annotations of respondent's mortgage interests on the certificates of titles
of petitioner's properties operated as constructive notice to petitioner of the existence of such interests.
[167] Hence, petitioners are now estopped from claiming that they did not know about the mortgage.

Annotations of adverse claims on certificates of title to properties operate as constructive notice only to
third parties—not to the court or the registered owner. In Sajonas v. Court of Appeals:[168]
[Annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of
real property where the registration of such interest or right is not otherwise provided for by the Land
Registration Act or Act 496 (now [Presidential Decree No.] 1529 or the Property Registration Decree),
and serves a warning to third parties dealing with said property that someone is claiming an interest on
the same or a better right than that of the registered owner thereof.[169] (Emphasis supplied)

Annotations are merely claims of interest or claims of the legal nature and incidents of relationship
between the person whose name appears on the document and the person who caused the annotation.
It does not say anything about the validity of the claim or convert a defective claim or document into a
valid one.[170] These claims may be proved or disproved during trial.

Thus, annotations are not conclusive upon courts or upon owners who may not have reason to doubt
the security of their claim as their properties' title holders.

WHEREFORE, the Petition is GRANTED. The Court of Appeals' Decision dated December 17, 2009 is
REVERSED and SET ASIDE. The Regional Trial Courts' Decisions of November 23, 2001 and December 7,
2001 are REINSTATED.

SO ORDERED.