1

Indian Chamber Of Commerce Phils., Inc.

versus
Filipino Indian Chamber Of Commerce In The Philippines, Inc.
G.R. No. 184008, August 03, 2016

Digested by: GLICELMEI S. FABRIGA

“The Corporation Code expressly prohibits the use of a corporate name which is
identical or deceptively or confusingly similar to that of any existing corporation. To fall
within the prohibition, two requisites must be proven, to wit: 1)that the complainant
corporation acquired a prior right over the use of such corporate name; and 2)the
proposed name is either: a) identical; or b)deceptively or confusingly similar to that of
any existing corporation or to any other name already protected by law; or c)patently
deceptive, confusing or contrary to existing law.”

FACTS:
On January 20, 2005, Mr. Naresh Mansukhani reserved the corporate name "Filipino
Indian Chamber of Commerce in the Philippines, Inc."(FICCPI) with CRMD of the SEC.
Ram Sitaldas, claiming to be a representative of the defunct FICCPI whose term of existence
expired last November 24, 2001, opposed to the application of Mansukhani and alleged that
the corporate name has been used by the defunct FICCPI since 1951, and that the
reservation by another person who is not its member or representative is illegal. On March
14, 2006, the SEC issued the Certificate of Incorporation of FICCPI.
Meanwhile, on December 2005, Mr. Pracash Dayacanl, who allegedly represented
the defunct FICCPI, filed an application with the CRMD for the reservation of the corporate
name "Indian Chamber of Commerce Phils., Inc." (ICCPI). Upon knowledge, Mansukhani,
formally opposed the application. Mansukhani cited the SEC En Banc decision recognizing
him as the one possessing the better right over the corporate name "Filipino Chamber of
Commerce in the Philippines, Inc and argued that ICCPI is identical or deceptively or
confusingly similar to FICCPI.

ISSUE:
Whether or not ICCPI is identical or deceptively or confusingly similar to FICCPI.

RULING:
Yes.
Requisite no. 1 (FICCPI acquired a prior right over the use of the corporate name)
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In this case, FICCPI was incorporated on March 14, 2006. On the other hand, ICCPI
was incorporated only on April 5, 2006, or a month after FICCPI registered its corporate
name. Thus, we hold that FICCPI, which was incorporated earlier, acquired a prior right
over the use of the corporate name.
It is also settled that a corporation is ipso facto dissolved as soon as its term of
existence expires. When the term of existence of the defunct FICCPI expired on November
24, 2001, its corporate name cannot be used by other corporations within three years from
that date, until November 24, 2004. FICCPI reserved the name "Filipino Indian Chamber of
Commerce in the Philippines, Inc." on January 20, 2005, or beyond the three-year period.
Thus, the SEC was correct when it allowed FICCPI to use the reserved corporate name.

Requisite no. 2 (ICCPI's name is identical and deceptively or confusingly similar to that
of FICCPI)
ICCPI's name is identical to that of FICCPI. ICCPFs and FICCPFs corporate names
both contain the same words "Indian Chamber of Commerce." ICCPI argues that the word
"Filipino" in FICCPFs corporate name makes it easily distinguishable from ICCPI.Further,
ICCPI claims that the corporate name of FICCPI uses the words "in the Philippines" while
ICCPI uses only "Phils, Inc."
ICCPFs arguments are without merit.These words do not effectively distinguish the
corporate names. On the one hand, the word "Filipino" is merely a description, referring to a
Filipino citizen or one living in the Philippines, to describe the corporation's members. On
the other, the words "in the Philippines" and "Phils., Inc." are simply geographical locations
of the corporations which, even if appended to both the corporate names, will not make one
distinct from the other. Under the facts of this case, these words cannot be separated from
each other such that each word can be considered to add distinction to the corporate names.
Taken together, the words in the phrase "in the Philippines" and in the phrase "Phils. Inc."
are synonymous—they both mean the location of the corporation.
ICCPI's corporate name is deceptively or confusingly similar to that of FICCPI. It is
settled that to determine the existence of confusing similarity in corporate names, the test is
whether the similarity is such as to mislead a person, using ordinary care and discrimination.
In so doing, the court must examine the record as well as the names themselves. Proof of
actual confusion need not be shown. It suffices that confusion is probably or likely to occur.
In this case, the overriding consideration in determining whether a person, using
ordinary care and discrimination, might be misled is the circumstance that both ICCPI and
FICCPI have a common primary purpose, that is, the promotion of Filipino-Indian
business in the Philippines.
Considering these corporate purposes, the SEC En Banc made a finding that "it is
apparent that both from the standpoint of their corporate names and the purposes for which
they were established, there exist a similarity that could inevitably lead to confusion."
 3

GSIS FAMILY BANK - THRIFT BANK [Formerly Inc.]

versus
BPI FAMILY BANK
G.R. NO. 175278, September 23, 2015

Digested by: GLICELMEI S. FABRIGA

“The Corporation Code expressly prohibits the use of a corporate name which is
identical or deceptively or confusingly similar to that of any existing corporation. To fall
within the prohibition, two requisites must be proven, to wit: 1)that the complainant
corporation acquired a prior right over the use of such corporate name; and 2)the
proposed name is either: a) identical; or b)deceptively or confusingly similar to that of
any existing corporation or to any other name already protected by law; or c)patently
deceptive, confusing or contrary to existing law.”

FACTS:
In 1987, the Government Service Insurance System (GSIS) acquired Comsavings
Bank, Inc. and its management and control was thus transferred to GSIS. To improve its
marketability to the public, especially to the members of the GSIS, it sought Securities and
Exchange Commission (SEC) approval to change its corporate name to "GSIS Family Bank,
a Thrift Bank." It likewise applied with the Department of Trade and Industry (DTI) and
Bangko Sentral ng Pilpinas (BSP) for authority to use "GSIS Family Bank, a Thrift Bank" as
its business name. The DTI and the BSP approved the applications. Thus, it operates under
the corporate name "GSIS Family Bank – a Thrift Bank," pursuant to the DTI Certificate of
Registration and the Monetary Board Circular approval.
On March 8, 2002, BPI Family Bank (BPI) petitioned the SEC Company
Registration and Monitoring Department (SEC CRMD) to disallow or prevent the
registration of the name "GSIS Family Bank" or any other corporate name with the words
"Family Bank" in it. BPI claimed exclusive ownership to the name "Family Bank," having
acquired the name since its purchase and merger with Family Bank and Trust Company way
back 1985. BPI also alleged that through the years, it has been known as "BPI Family Bank"
or simply "Family Bank" both locally and internationally. As such, it has acquired a
reputation and goodwill under the name, not only with clients here and abroad, but also with
correspondent and competitor banks, and the public in general.

ISSUE:
Whether the names BPI Family Bank and GSIS Family Bank are confusingly similar
as to require the amendment of the name of the latter corporation.
 4

RULING:

These two requisites are present in this case. BPI was incorporated in 1969 as Family
Savings Bank and in 1985 as BPI Family Bank. GSIS, on the other hand, was incorporated
as GSIS Family – Thrift Bank only in 2002, or at least seventeen (17) years after BPI started
using its name. Following the precedent in the IRCP case, we rule that BPI has the prior
right over the use of the corporate name.

The second requisite in the Philips Export case likewise obtains on two points: the
proposed name is (a) identical or (b) deceptive or confusingly similar to that of any existing
corporation or to any other name already protected by law.

On the first point (a), the words "Family Bank" present in both GSIS and BPI's
corporate name satisfy the requirement that there be identical names in the existing
corporate name and the proposed one.

On the second point (b), there is a deceptive and confusing similarity between GSIS's
proposed name and BPI's corporate name, as found by the SEC. In determining the existence
of confusing similarity in corporate names, the test is whether the similarity is such as to
mislead a person using ordinary care and discrimination. And even without such proof of
actual confusion between the two corporate names, it suffices that confusion is probable or
likely to occur.

Petitioner's corporate name is "GSIS Family Bank—A Thrift Bank" and respondent's
corporate name is "BPI Family Bank." The only words that distinguish the two are "BPI,"
"GSIS," and "Thrift." The first two words are merely the acronyms of the proper names by
which the two corporations identify themselves; and the third word simply describes the
classification of the bank. The overriding consideration in determining whether a person,
using ordinary care and discrimination, might be misled is the circumstance that both
petitioner and respondent are engaged in the same business of banking. "The likelihood of
confusion is accentuated in cases where the goods or business of one corporation are the
same or substantially the same to that of another corporation.
 5

NORTHERN MINDANAO INDUSTRIAL PORT And SERVICES CORPORATION

versus
Iligan Cement Corporation
GR NO. 215387, April 23, 2018

Digested by: JAYNE KAY A. ORTEGA

“The effect of the change of name was not a change of the corporate being, for, as
well stated in Philippine First Insurance Co., Inc. v. Hartigan: "The changing of the name of
a corporation is no more the creation of a corporation than the changing of the name of a
natural person is begetting of a natural person. The act, in both cases, would seem to be
what the language which we use to designate it imports - a change of name, and not a
change of being.”

FACTS:

On 27 June 2007, ICC invited NOMIPSCO to a pre-bidding conference for a two-

year cargo handling contract. Apart from NOMIPSCO, RC Barreto Enterprises, MN Seno
Marketing, VIRLO Stevedoring and Oroport also joined the conference.

NOMIPSCO submitted its proposal in which it offered the lowest bid of ₱1.788 per a
40 kilogram bag, but ICC awarded the cargo handling contract to Europort Logistics and
Equipment Incorporated (Europort).

NOMIPSCO filed a Complaint for Damages and Attorney's fees against ICC for
awarding the bid to Europort when such did not participate in the bidding process.
NOMIPSCO, thus, contended that the acts of ICC amounted to an abuse of its rights or
authority, the same acts that led NOMIPSCO to suffer great losses and unearned income.

ISSUE:

Whether or not the Oroport and Europort are the same making the award of the cargo
handling contract valid?

RULING:

Contrary to what petitioner would have this Court believe, it appears that there was
a bona fide bidding process for respondent's designated cargo handling contract, and the
project or contract was awarded to one of the participating bidders, which - for whatever
reason - eventually changed its corporate name during the bidding process, prompting the
execution of the awarded cargo handling contract under its new corporate name instead of
the old one used during the submission of bids.

Thus, it appears that one of the five bidders that participated in the subject bidding,
Oroport, was eventually chosen by respondent -- although it did not necessarily submit the
lowest bid. At or about the time that Oroport and respondent were consummating the cargo
 6

handling contract, Oroport changed its corporate name to Europort Logistics and Equipment
Incorporated, or Europort. As a result, the cargo handling contract executed was between
respondent and Europort, the new name of Oroport. This is not proscribed by law. The fact
that the original bidder and winner was Oroport, and the resulting cargo handling contract
was between respondent and Europort-Oroport's derivative - has no bearing; in legal
contemplation, Oroport and Europort are one and the same.
 7

PAZ
versus
New International Environmental Universality, Inc.
G . R. No . 203993, April20,2015

Digested by: JAYNE KAY A. ORTEGA

“Section 21 of the Corporation Code explicitly provides that one who assumes an
obligation to an ostensible corporation, as such, cannot resist performance thereof on the
ground that there was in fact no corporation. (Doctrine of Estoppel)”

FACTS:

Priscillo Paz, entered into a MOA with Captain Allan J. Clarke, president of
International Environmental University , for the use of the aircraft hangar space at the said
airport exclusively for “company aircraft/helicopter” for a period of four years, unless pre-
terminated with 6-months notice.

By letters to “MR ALLAN J. CLARK, International Environmental Universality Inc.

, Paz threatened to cancel the contract since the company was using it to park trucks and
equipments instead of aircraft. More letters were sent demanding compliance with the
MOA, to no avail.

Paz then caused disconnection of electric and telephone lines of respondent’s

premises; and ordered security guards to prevent respondent’s employees from entering the
premises - without giving respondent the 6- month notice as required under the MOA ●
Respondent then filed an action for breach of contract against Paz, alleging that his acts
violated the terms of the MOA

In his answer, Paz alleged that the company had no cause of action since he dealt
with Mr. Allan J. Clark in his personal capacity; there was no need to wait for the expiration
of the contract since the company was performing high risk works in the leased premises
and the six-month notice was given thru his letters given to Mr. Allan J. Clarke.

RTC rendered judgment in favour of the corporation

CA dismissed Priscillo’s appeal, ruling that, while there was no corporate entity at
the time of the execution of the MOA on March 1, 2000 when Capt. Clarke signed as
“President of International Environmental University,” petitioner is nonetheless estopped
from denying that he had contracted with respondent as a corporation, having recognized the
latter as the “Second Party” in the MOA that “will use the hangar space exclusively for
company aircraft/ helicopter.”

Paz elevated his case to the SC, contending that case should be dismissed for failure
to implead Allan J. Clarke, and lack of legal capacity of the corporation.
 8

ISSUE/S:

(1) WON Capt. Clarke should have been impleaded in the case as an indispensable party?
(2) WON there was breach of contract on the part of petitioner?

RULING:

(1) NO. Capt. Clarke was not an indispensable party because he was merely an agent of
respondent company. While Capt. Clarke’s name and signature appeared on the MOA, his
participation was, nonetheless, limited to being a representative of respondent. As a mere
representative, Capt. Clarke acquired no rights whatsoever, nor did he incur any liabilities,
arising from the contract between petitioner and respondent. Therefore, he was not an
indispensable party to the case at bar. CA had correctly pointed out that, from the very
language itself of the MOA entered into by petitioner whereby he obligated himself to allow
the use of the hangar space "for company aircraft/helicopter," petitioner cannot deny that he
contracted with respondent. Petitioner further acknowledged this fact in his final demand
letter where he reiterated and strongly demanded the respondent to immediately vacate the
hangar space his "company is occupying/utilizing” Section 21 of the Corporation Code
explicitly provides that one who assumes an obligation to an ostensible corporation, as such,
cannot resist performance thereof on the ground that there was in fact no corporation.
Clearly, petitioner is bound by his obligation under the MOA not only on estoppel but by
express provision of law. Courts have no power to relieve parties from obligations they
voluntarily assumed, simply because their contracts turn out to be disastrous deals or unwise
investments.
(2) YES. Petitioner is liable for breach of contract for effectively evicting respondent from
the leased premises even before the expiration of the term of the lease.1 If it were true that
respondent was violating the terms and conditions of the lease, "[petitioner] should have
gone to court to make the [former] refrain from its 'illegal' activities or seek rescission of the
[MOA], rather than taking the law into his own hands."
 9

Company Registration and Monitoring Department and Securities and Exchange

Commission, En Banc
versus
Ching Bee Trading Corporation
G.R. No. 205291, November 12, 2014
Digested by: DARRYLLE ANGELOU A. DALID

“Doctrine of Relation - under this principle, where the delay is due to the neglect of
the officer with whom the certificate is required to be filed, or to a wrongful refusal on his
part to receive the application, such as in this case, the amendments shall take effect from
the date the documents were filed.”

FACTS:
CBTC was registered with the SEC on December 23, 1960. Its corporate existence
being limited to a period of only 50 years, it was to expire on December 23, 2010. On
December 22, 2010 or one (1) day before the last day of its corporate existence, CBTC filed
with the Company Registration and Monitoring Department (CRMD) of the SEC, an
application seeking the approval of its amended articles of incorporation extending its term
for another 50 years. CRMD, however, refused to accept the application because of CBTC's
failure to state in the required Director's Certificate that the stockholders, owning and
representing at least two (2/3) of its capital stock, voted and approved the amendment. The
CRMD processor in the name of Erlinda Cabatic then verbally advised CBTC to submit a
letter requesting an extension to file the requirements.
On December 23, 2010, or just hours before CBTC's corporate personality expired,
such a letter was filed pursuant to the CRMD processor's suggestion. On January 6, 2011,
however, the SEC denied the request, citing SEC Resolution No. 394,5 dated November 13,
2008, as basis. The said resolution contained SEC's policy of denying the filing of any
amended articles of incorporation extending the corporate life of a corporation, whose
original term had expired. On appeal to the SEC En Banc, the request was likewise
denied. Thus, CBTC went to the CA. In its October 10, 2012 Decision and January 14, 2013
Resolution, the CA ordered the SEC to admit CBTC's amended articles of incorporation. In
reversing the SEC, the CA stated that CBTC should have been given reasonable time within
which to correct or modify any portion in the articles.

ISSUE:
WHETHER OR NOT the CRMD failed to at least provide CBTC a reasonable
time within which compliance with the requirements for extension may be made in full.
 10

RULING:
The Sumpreme Court held that the CRMD failed toat least provide CBTC a
reasonable time within which compliance with the requiremnets for extension may be made
in full. CBTC should have been given reasonable time within which to correct or modify
any portion in the articles following Section 17 of the Corporation Code, which states as
follows:
Sec.17. Grounds when articles of incorporation or amendment may be refected or
disapproved. The Securities and Exchange Commission may reject the articles of
incorporation or disapprove any amendment thereto if the same is not in compliance
with the requirements of this Code: Provided, That the Commission shall give the
incorporators a reasonable time within which to correct or modify the
objectionable portions of the articles or amendment.

The problem here is the assertion of the SEC that nothing was even filed as the
application was rightly rejected by the CRMD. Then again, the Court believes that despite
that rightful rejection, CBTC was deprived of its right to a reasonable one ( 1 )-day period to
complete the requirements in view of the suggestion made by the processor to instead
submit a letter requesting for extension. That suggestion caused a misunderstanding as to the
proper recourse that CBTC should have taken. Had the processor notified CBTC about the
urgency of fulfilling the requirements prior to the expiration of the corporate tenn, it would
have been likely that the requirements for the filing would have been completed. The Court
takes notice of the fact that the deficiency has been remedied by the submission of the
amended December 23, 2010 Director's Ce1iificate and with this compliance, it is but fair
that CBTC be considered to have sufficiently complied in good faith with all the
requirements for a valid extension, as if such was made prior to the expiration of its
corporate life or, to be precise, on December 23, 2010. This ruling runs in accord with the
doctrine of relation. Under the said principle, where the delay is due to the neglect of the
officer with whom the certificate is required to be filed, or to a wrongful refusal on his part
to receive the application, such as in this case, the amendments shall take effect from the
date the documents were filed.
WHEREFORE, the petition is DENIED. The SEC is ordered to act on the
application with dispatch.
 11

Marites R. Cusap,
versus
Adidas Philippines, Inc., (Adidas), Promotion Resources & Inter-Marketing
Exponents, Inc. (Prime) And Jc Athletes, Inc. (Jca)
G.R. No. 201494, July 29, 2015

Digested by: DARRYLLE ANGELOU A. DALID

“The veil of separate corporate personality may be lifted when such personality is
used to defeat public convenience, justify wrong, protect fraud or defend crime; or used as a
shield to confuse the legitimate issues; or when the corporation is merely an adjunct, a
business conduit or an alter ego of another corporation 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; or when the corporation
is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to
achieve equity or for the protection of the creditors. In such cases, the corporation will be
considered as a mere association of persons. The liability will directly attach to the
stockholders or to the other corporation.”

FACTS:
Marites R. Cusap and 27 other employees filed a complaint for illegal dismissal
against the respondents Adidas Philippines, Inc., (Adidas), Promotion Resources & Inter-
Marketing Exponents, Inc. (Prime), and later amended to include JC Athletes, Inc. (JCA).
They alleged that they were regular employees of Adidas after having worked as promo girls
and stockmen at the company’s various rented outlets for years, ranging from one year to
seven years. After its contract with its former distributor, World Sports, Inc. (WOSI)
expired, Adidas allegedly contracted JCA to be its exclusive distributor. In turn, JCA
entered into a promotional contract with PRIME.

Petitioners claimed that they were dismissed from employment when the service
contract between PRIME and JCA was terminated. They argued that Adidas was their real
employer, not PRIME, which was merely a recruitment agency supplying Adidas with
human resources. They pointed out that for years that they were employed, they worked for
Adidas, under its supervision and control and that of JCA personnel. Their work being
related to and in pursuit of Adidas’ principal business activity, they claimed they are its
regular employees.
Further, the complainants maintained that JCA was a mere alter ego of Adidas and
was being used to further muddle the employment relationship between them and Adidas.
JCA's actual role as a dummy (together with PRIME) for Adidas, the complainants
explained, was evidenced by the fact that JCA and Adidas occupied the same office. JCA
took the place of WOSI as distributor of Adidas products.
 12

To substantiate their assertion that PRIME was just an intermediary of Adidas, they
submitted documentary proof that it was not even a registered corporation, labor recruiter, or
agency when it supposedly entered into a contract with JCA; neither with the Securities and
Exchange Commission nor with the Department of Trade and Industry. It was registered as a
"job contractor/subcontractor" only on May 20, 2002. They thus maintained that PRIME
was just a labor-only contractor at the time it claimed it had employed them for its supposed
undertaking with JCA.

In defense, Adidas argued that in 2002, it amended its Articles of

Incorporation to enable it to engage in the retail business without the need to contract
the services of distributors such as JCA, following the approval by the Board of
Investments of the application of its mother company, Adidas Solomon AG, to operate as a
foreign retailer in the country.

ISSUE:
Whether Or Not Prime And JCA Were A Mere Alter Ego Of Adidas

RULING:
Prime and JCA were a mere alter ego of Adidas. The fact that Adidas avoided being
identified as the complainants' direct employer so that it would not have to bear the
consequences of the complainants' and the petitioner's regularization. Notably, the records
show that these complainants and the petitioner were engaged not only in 2002, but much
earlier; some were even hired in 1995, including the petitioner, who started selling Adidas
products on October 28, 1995. In fact, LA Salinas relied on the complainants' several years
of service of selling Adidas products in awarding financial assistance to them.

Under these circumstances, we have reason to believe that PRIME, the supposed
JCA subcontractor, just assumed the act of paying the complainants' wages and benefits on
behalf of Adidas, indicating thereby that it was a mere agent of Adidas or a labor-only
contractor. The Adidas has the complete control (dominance), the control was use of fraud
and the control was the proximate cause of loss and damage.
Adidas Philippines, Inc., Promotion Resources & Inter-Marketing Exponents, Inc.,
and JC Athletes Inc., are ordered to pay the petitioner, jointly and solidarity, moral damages
of P50,000.00, exemplary damages of P50,000.00 and 10% of all the sums due under this
Decision as attorney's fees
 13

Georg et. Al.

Versus
Holy Trinity College Inc
G.R. no. 190408, July 20, 2016

Digested by: JHONJIE C. ALVIAR

“The doctrine of apparent authority provides that a corporation will be stopped from
denying the agent’s authority if it knowingly permits one of it’s 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 existence of apparent authority 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.”

FACTS:
The Holy Trinity College Grand Chorale and Dance Group were organized by Sister
Medalle, the President of Holy Trinity College. In 2001, the group was selected to perform
in Greece, Italy, Spain, and Germany. Enriquez, who allegedly represented Sr. Medalle,
contacted Benjie George to seek assistance for payment of the group’s international airplane
ticket. Benjie George owns a German Travel agency. Petitioner George, in turn, requested
her brother Atty. Belarmino to represent her in negotiation with Enriquez. On April 24,
2001, a MOA was executed between petitioner and the group. Under the MOA, petitioner,
through her travel agency will advance the payment of international airplane ticket
amounting to 4,624,705 in favor of the group on the assurance of the group that there is a
confirmed financial allocation from the foundation-grantor S.C. Roque Foundation.
Petitioner paid for the group’s domestic and international airplane tickets. A complaint for a
sum of money with damages was filed. Petitioner claimed that the second-party
assignor/respondent and the foundation grantor have not paid and refused to pay their
obligation under the MOA.

ISSUE:
Whether or not any agreement or contact entered into by Sr. Medalle as president of
Holy Trinity college relating to the Group bears the consent and approval of respondent.

RULING:
 14

RTC ordered the defendants S.C. Group of Companies, S.C. Roque Foundation,
Holy Trinity College, Sr. Medalle, to jointly and severally liable to pay the plaintiff.
The doctrine of Corporation by estoppels operates against respondents. The school
administration had itself allowed the existence of the Group and much more allowed its
president, Sr. Medalle to operate the same under that calling before the general public and
petitioner had truly acted in good faith in dealing with it. The personality of the Holy Trinity
College Inc. and Sr. Medalle may be disregarded and may well be considered as identical.
Petitioner failed to exercise reasonable diligence in ascertaining the existence and
extent of Enriquez’ authority to act for and in behalf of the group.
There was no showing that Sr. Medalle was duly authorized by respondent Holy Trinity
to enter into the subject MOA. The Group’s general affiliation with respondent cannot be
used by petitioner to justify her failure to exercise reasonable diligence in the conduct of her
business. The doctrine of corporation by estoppels cannot apply to respondent in absent of
showing that it was complicit to or had benefited from said misrepresentation.
The doctrine of apparent authority provides that a corporation will be stopped 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.
In this case, Sr. Medalle formed and organized the group. She had been giving
financial support to the Group in her capacity as president of Holy Trinity College. Thus,
any agreement or contact entered into by Sr. Medalle as president of Holy Trinity college
relating to the Group bears the consent and approval of respondent.
 15

Heirs of Fe Tan Uy
versus
International Exchange Bank
G.R. no. 166282 &166283, February 13, 2013

Digested by: JHONJIE C. ALVIAR

“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.”
FACTS:
Ibank granted loans to hammer garments. The loans were secured by a real estate
mortgage exucuted by Goldkey Corporation. Hammer defaulted in the payment of its loans,
prompting ibank to foreclose on Goldkey’s third-party real estate mortgage. The mortgage
properties were sold during the foreclosure sale, leaving an unpaid balance. For failure of
hammer to pay deficiency, ibank filed a complaint for sum of money against hammer, Chua
Uy, and Goldkey. Uy claimed that she was not liable to ibank because she never executed a
surety agreement in favor of ibank. Goldkey denies liability, averring that it acted only as a
third-party mortgagor and that it was a corporation separate and distinct from hammer.
ISSUE:
Whether or not Uy is liable to ibank for the loan obligation of hammer as an officer
and stockholder.
RULING:
RTC: Goldkey and Hammer were one and the same entity for the following reasons: 1.) both
were family corporations of Chua and Uy; 2.) both corporations shared the same office; 3.)
the assets of hammer and Goldkey were co-mingled. As such the piercing of the veil of
corporate fiction was warranted. Uy, as an officer and stockholder of Hammer and Goldkey
found liable to ibank together with Chua, Hammer and Goldkey.
CA: because petitioners acted maliciously and in bad faith and used the corporate fiction to
defend ibank, they should be treated as one and the same as Hammer.
SC: Uy is not liable; the piercing of the veil of corporte fiction is not justified. Before a
director or officer of a corporation can be held personally liable for corporate obligations,
the following requisites must concur: 1.) the complainant must allege in the complaints that
 16

the director or officer assented to patently unlawful acts of the corporation or that the officer
was guilty of gross negligence or bad faith; 2.) the complainant must clearly and
convincingly prove such unlawful acts, negligence or bad faith. There is no showing that Uy
committed gross negligence. And in the absence of any of the aforementioned requisites for
making a corporate officer, director or stockholder personally liable for the obligations of a
corporation. Uy, as a treasurer and stockholder of hammer cannot be made to answer for the
unpaid debts of the corporation.
 17

Angeles P. Balinghasay, Et Al.

versus
CECILIA CASTILLO, Et Al.
G.R. No. 185664, April 8, 2015

Digested by: LELANIE N. MANTOS

“In the case at bar, the ultrasound investors pooled together the amount of
₱850,000.00, which was used to purchase the equipment. Because of the MOA’s invalidity,
the ultrasound investors can no longer operate the ultrasound unit within MCP.
Nonetheless, it is only fair for the ultrasound investors to retain ownership of the equipment,
which they may use or dispose of independently of MCPI.”

FACTS:

The respondent MCPI, a domestic corporation organized in 1977, operates the

Medical Center Parañaque (MCP). Nine (9) of the herein petitioners are holders of shares
and were Board Directors of MCPI.

In 1997, the MCPI’s Board of Directors awarded the operation of the ultrasound unit
to a group of investors referred in this case as ultrasound investors. The petitioners are part
of a group who invested in the purchase of ultrasound equipment.

In the meeting of the MCPI’s Board of Directors held on August 14, 1998, seven (7)
of the twelve (12) Directors present were part of the ultrasound investors. The Board
Directors made a counter offer anent the operation of the ultrasound unit. Hence, essentially
then, the award of the ultrasound operation still bore no formal stamp of approval.

On February 5, 1999, twelve (12) Board Directors attended the Board meeting and
eight (8) of them were among the ultrasound investors. A Memorandum of Agreement
(MOA) was entered into by and between MCPI, represented by its President then, Bernabe,
and the ultrasound investors, represented by Oblepias. Per MOA, the gross income to be
derived from the operation of the ultrasound unit, minus the sonologists’ professional fees,
shall be divided between the ultrasound investors and MCPI, in the proportion of 60% and
40%, respectively. Come April 1, 1999, MCPI’s share would be 45%, while the ultrasound
investors would receive 55%. Further, the ownership of the ultrasound machine would
eventually be transferred to MCPI.

Respondents filed with the RTC a derivative suit against the petitioners for violation
of Section 31of the Corporation Code. Among the prayer in the Complaint was the
annulment of the MOA.

The petitioners likewise claimed that under Section 32 of the Corporation Code, the
MOA was merely voidable. Since there was no proof that the subsequent Board of Directors
of MCPI moved to annul the MOA, the same should be considered as having been ratified.
 18

Further, in the Annual Stockholders Meeting held on February 11, 2000, the MOA had
already been discussed and passed upon.

ISSUE: Whether or not the MOA is invalid.

RULING:

Yes. The Supreme Court finds the CA’s ruling anent to the invalidity of the MOA as
amply supported by both evidence and jurisprudence.

"Quorum" is defined as that number of members of a body which, when legally

assembled in their proper places, will enable the body to transact its proper business.

"Majority," when required to constitute a quorum, means the greater number than
half or more than half of any total.

In the case at bar, the majority of the number of directors, if it is indeed thirteen (13),
is seven (7), while if it is eleven (11), the majority is six (6). During the meetings held by the
MCPI Board of Directors, on 14 August 1998 meeting, twelve (12) directors were present,
and of said number, seven (7) of them belong to the ultrasound investors, and at which
meeting, the Board decided to make a counter-offer to the ultrasound group and; 2) 05
February 1999 meeting, twelve (12) directors were present, and of said number, eight (8) of
them belong to the ultrasound investors , and at which meeting, the Board decided to
proceed with the signing of the MOA. As can be gleaned from the Minutes of said Board
meetings, without the presence of the petitioners directors/ultrasound investors, there can be
no quorum. At any rate, during the Board meeting on 14 August 1998, the MOA was not
approved as only a counter-offer was agreed upon. As to the 05 February 1999 Board
meeting, without considering the votes of the petitioners directors/ultrasound investors, in
connection with the signing of the MOA, no valid decision can be made. It further appears
that Oblepias, who signed the MOA on behalf of the ultrasound/Ob-Gyne group as OWNER
of the ultrasound equipment, and President Dr. Bernabe, who signed the same on behalf of
MCPI, are both ultrasound investors.

Thus, the MOA was not validly approved by the MCPI Board. Plainly, the
petitioners/directors, in acquiring an interest adverse to the corporation, are liable as trustees
for the corporation and must account for the profits under the MOA which otherwise would
have accrued to MCPI.

The presence of the petitioners directors/ultrasound investors who approved the

signing of the MOA was necessary to constitute a quorum for such meeting on 05 February
1999 and the votes of the petitioners directors/ultrasound investors were necessary in
connection with the decision to proceed with the signing of the MOA.
 19

SME BANK INC., et al

versus
DE GUZMAN
G.R. No. 184517 and G.R. No. 186641, October 8, 2013

Digested by: JOANA MARIE M. BACANG

“A mere change in the equity composition of a corporation is neither a just nor an

authorized cause that would legally permit the dismissal of the corporation’s employees en
masse.”

FACTS:

Respondent employees Elicerio Gaspar (Elicerio), Ricardo Gaspar, Jr.(Ricardo),

Eufemia Rosete (Eufemia), Fidel Espiritu (Fidel), Simeon Espiritu, Jr. (Simeon, Jr.), and
Liberato Mangoba (Liberato) were employees of Small and Medium Enterprise Bank,
Incorporated (SME Bank).Originally, the principal shareholders and corporate directors of
the bank were Eduardo M. Agustin, Jr. (Agustin) and Peregrin de Guzman, Jr. (De
Guzman).

In June 2001, SME Bank experienced financial difficulties. To remedy the situation,
the bank officials proposed its sale to Abelardo Samson (Samson).

Agustin and De Guzman accepted the terms and conditions proposed by Samson and
signed the conforme portion of the Letter Agreements.

Simeon Espiritu (Espiritu), then the general manager of SME Bank, held a meeting with all
the employees of the head office and of the Talavera and Muñoz branches of SME Bank and
persuaded them to tender their resignations, with the promise that they would be rehired
upon reapplication.

Relying on this representation, Elicerio, Ricardo, Fidel, Simeon, Jr.,1and Liberato

tendered their resignations.

Elicerio,Ricardo, Fidel, Simeon, Jr.,and Liberatosubmitted application letters.

Agustin and De Guzman signified their conformity to the Letter Agreements and
sold 86.365% of the shares of stock of SME Bank to spouses Abelardo and Olga Samson.
Spouses Samson then became the principal shareholders of SME Bank, while Aurelio
Villaflor, Jr. was appointed bank president. As it turned out, respondent employees, except
for Simeon, Jr. were not rehired. After a month in service, Simeon, Jr. again resigned on
October 2001.

Respondent-employees demanded the payment of their respective separation pays,

but their requests were denied.
 20

The labor arbiter ruled that the buyer of an enterprise is not bound to absorb its
employees, unless there is an express stipulation to the contrary. However, he also found
that respondent employees were illegally dismissed, because they had involuntarily executed
their resignation letters after relying on representations that they would be given their
separation benefits and rehired by the new management.

Dissatisfied with the Decision of the labor arbiter, respondent employees, Agustin
and De Guzman brought separate appeals to the NLRC.

The NLRC found that there was only a mere transfer of shares – and therefore, a
mere change of management – from Agustin and De Guzman to the Samson Group. As the
change of management was not a valid ground to terminate respondent bank employees, the
NLRC ruled that they had indeed been illegally dismissed. It further ruled that Agustin, De
Guzman and the Samson Group should be held jointly and severally liable for the
employees’ separation pay and backwages.

NLRC denied the Motions for Reconsideration filed by Agustin, De Guzman and the
Samson Group.

CA rendered a Decision in affirming that of the NLRC. The appellate court denied
the Motions for Reconsideration filed by the parties. The Samson Group then filed two
separate Rule 45 Petitions questioning the CA Decisions and Resolutions. The Supreme
Court resolved to consolidate both Petitions.

ISSUE:

Whether or not after the stock sale the corporation continues to be the employer of
its people and continues to be liable for the payment of their just claims.

RULING:

There are two types of corporate acquisitions: asset sales and stock sales. In asset
sales, the corporate entity sells all or substantially all of its assets to another entity. In stock
sales, the individual or corporate shareholders sell a controlling block of stock to new or
existing shareholders. In asset sales, the rule is that the seller in good faith is authorized to
dismiss the affected employees, but is liable for the payment of separation pay under the
law. The buyer in good faith, on the other hand, is not obliged to absorb the employees
affected by the sale, nor is it liable for the payment of their claims. The most that it may do,
for reasons of public policy and social justice, is to give preference to the qualified separated
personnel of the selling firm. In contrast with asset sales, in which the assets of the selling
corporation are transferred to another entity, the transaction in stock sales takes place at the
shareholder level. Because the corporation possesses a personality separate and distinct from
that of its shareholders, a shift in the composition of its shareholders will not affect its
existence and continuity. Thus, notwithstanding the stock sale, the corporation continues to
be the employer of its people and continues to be liable for the payment of their just claims.
Furthermore, the corporation or its new majority shareholders are not entitled to lawfully
 21

dismiss corporate employees absent a just or authorized cause. In Manlimos vs NLRC dealt
with a stock sale in which a new owner or management group acquired complete ownership
of the corporation at the shareholder level. The employees of the corporation were later
"considered terminated, with their conformity" by the new majority shareholders. The
employees then re-applied for their jobs and were rehired on a probationary basis. After
about six months, the new management dismissed two of the employees for having
abandoned their work, and it dismissed the rest for committing "acts prejudicial to the
interest of the new management." Thereafter, the employees sought reinstatement, arguing
that their dismissal was illegal, since they "remained regular employees of the corporation
regardless of the change of management." In disposing of the merits of the case, we upheld
the validity of the second termination, ruling that "the parties are free to renew the contract
or not [upon the expiration of the period provided for in their probationary contract of
employment]." The rule should be different in Manlimos, as this case involves a stock sale.
It is error to even discuss transfer of ownership of the business, as the business did not
actually change hands. The transfer only involved a change in the equity composition of the
corporation. To reiterate, the employees are not transferred to a new employer, but remain
with the original corporate employer, notwithstanding an equity shift in its majority
shareholders. This being so, the employment status of the employees should not have been
affected by the stock sale. A change in the equity composition of the corporate shareholders
should not result in the automatic termination of the employment of the corporation’s
employees. Neither should it give the new majority shareholders the right to legally dismiss
the corporation’s employees, absent a just or authorized cause.
 22

Y-I Leisure Philippines, Inc., Yats International Ltd. And Y-I Clubs And Resorts, Inc.
versus
James Yu, Respondent
G.R. No. 207161, September 8, 2015

Digested by: JOANA MARIE M. BACANG

“While the Corporation Code allows the transfer of all or substantially all of the
assets of a corporation, the transfer should not prejudice the creditors of the assignor
corporation.”

FACTS:

Respondent Yu, a businessman interested in purchasing golf and country club shares,
bought 500 golf and 150 country club shares from Mt. Arayat Development Co. Inc.
(MADCI) a real estate development corporation. However, upon full payment of the shares
to MADCI, Yu visited the supposed site of the golf and country club and discovered that it
was non-existent. He filed with the RTC a complaint for collection of sum of money and
damages with prayer for preliminary attachment against MADCI and its president Rogelio
Sangil (Sangil) to recover his payment for the purchase of golf and country club shares. In
its answer, MADCI claimed that it was Sangil who defrauded Yu. It invoked the
Memorandum of Agreement (MOA) entered into by MADCI, Sangil and petitioner Yats
International Ltd. (YIL). Under the MOA, Sangil undertook to redeem MADCI proprietary
shares sold to third persons or settle in full all their claims for refund of payments. Thus, it
was MADCI's position that Sangil should be ultimately liable to refund the payment for
shares purchased. After the pre-trial, Yu filed an Amended Complaint, wherein he also
impleaded petitioner YIL, Y-I Leisure Phils., Inc. (YILPI) and Y-I Club & Resorts, Inc.
(YICRI). According to Yu, he discovered in the Registry of Deeds of Pampanga that,
substantially, all the assets of MADCI, consisting of one hundred twenty (120) hectares of
land located in Magalang, Pampanga, were sold to YIL, YILPI and YICRI. The transfer was
done in fraud of MADCI's creditors, and without the required approval of its stockholders
and board of directors under Section 40 of the Corporation Code.

RTC Ruling - because MADCI did not deny its contractual obligation with Yu, it
must be liable for the return of his payments. However, it exonerated YIL, YILPI and
YICRI from liability because they were not part of the transactions between MADCI and
Sangil, on one hand and Yu, on the other hand.

CA Ruling - party granted the appeals and modified the RTC decision by holding
YIL and its companies, YILPI and YICRI, jointly and severally, liable for the satisfaction of
Yu's claim. Now, petitioners counter that they did not assume such liabilities because the
transfer of assets was not committed in fraud of the MADCI's creditors.

ISSUE:
 23

Whether or not the transfer of all or substantially all the assets of a corporation
carries with it the assumption of corporate liabilities.

RULING:

While the Corporation Code allows the transfer of all or substantially all of the assets
of a corporation, the transfer should not prejudice the creditors of the assignor corporation.

Under the business-enterprise transfer, the petitioners have consequently inherited

the liabilities of MADCI because they acquired all the assets of the latter corporation.
The continuity of MADCI's land developments is now in the hands of the
petitioners, with all its assets and liabilities. There is absolutely no certainty that Yu can still
claim its refund from MADCI with the latter losing all its assets. To allow an assignor to
transfer all its business, properties and assets without the consent of its creditors will place
the assignor's assets beyond the reach of its creditors. Thus, the only way for Yu to recover
his money would be to assert his claim against the petitioners as transferees of the assets.
The protection of the creditors of the transferor corporation, and does not depend on any
deceit committed by the transferee -corporation, fraud is certainly not an element of the
business enterprise doctrine.
 24

University Of Mindanao, Inc.

vesus
BSP, ET AL.,
G.R. No. 194964-65, January 11, 2016

Digested by: CHARISSE A. NANO

“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.”

FACTS:

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.

Before 1982, Guillermo and Dolores incorporated and operated two thrift banks:
First Iligan Savings & Loan Association, Inc. (FISLAI); and Davao Savings and Loan
Association, Inc. (DSLAI). Guillermo 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.

Upon Guillermo’s 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. All these promissory notes were signed by Guillermo, and were
co-signed by either his wife.

On 1982, University of Mindanao’s VP for Finance, Saturnino Petalcorin, executed a

deed of real estate mortgages over University of Mindanao’s property in Cagayan de Oro
and its two properties in Iligan City in favor of BSP. The mortgage served as security for
FISLAI’s P1.9 Million loan. It was allegedly executed on University of Mindanao’s behalf.
The mortgage was annotated on the certificate of title.

As proof of his authority to execute a real estate mortgage for University of

Mindanao, Saturnino Petalcorin showed a Secretary’s Certificate signed by University of
Mindanao’s Corporate Secretary, Aurora de Leon.

FISLAI and DSLAI later became known as Mindanao Savings and Loan
Association, Inc. (MSLAI). MSLAI failed to recover from its losses and was liquidated on
May 24, 1991.

On 1999, BSP 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. In its reply to BSP, University of Mindanao denied that its properties were
 25

mortgaged. It also denied having received any loan proceeds from BSP. University of
Mindanao filed two Complaints for nullification and cancellation of mortgage. One
Complaint was filed before the RTC of Cagayan de Oro City and Iligan City.

ISSUES:

I. Whether Petitioner University of Mindanao is bound by the real estate mortgage contracts;
and

II. Whether the act of mortgaging real properties of University of Mindanao to guarantee
FSLAI Loan is within the powers of the corporation.

RULING:

I. 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. It does
not appear that securing third-party loans was necessary to maintain petitioner’s business of
providing instruction to individuals.

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" are ultra vires.

The execution of the mortgage contract was ultra vires. As an educational institution,
it may not secure the loans of third persons. Securing loans of third persons is not among the
purposes for which petitioner was established. The 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.

II. 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 because of
the merger.

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 and its articles of incorporation.
 26

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.
 27

The Orchard Golf & Country Club, Inc.

versus
YU and YUHICO
G.R. No. 191033, January 11, 2016

Digested by: CHARISSE A. NANO

“The Corporation should not be powerless to discipline its members and be helpless
against acts inimical to its interest just because one director had been suspended and
refused to take part in the management affairs.”

FACTS:

On May 28, 2000, Ernesto Yu and Manuel Yuhico went to the Orchard Golf &
Country Club to play a round of golf. However, that other member informed that he could
not play with them. Due to the "no twosome" policy of the Orchard contained in the
membership handbook prohibiting groups of less than three players from teeing off on
weekends and public holidays before 1:00 p.m., [respondents] requested management to
look for another player to join them.

Because Orchard were unable to find their third player, Yu tried to convince Francis
Montallana, Orchard’s assistant golf director, to allow them to play twosome, even if they
had to tee off from hole no. 10 of the Palmer golf course. Montallana refused, stating that
the flights which started from the first nine holes might be disrupted. Yu then shouted
invectives at Montallana, at which point he told Yuhico that they should just tee off anyway,
regardless of what management's reaction would be. Respondents then teed off, without
permission from Montallana. They were thus able to play, although they did so without
securing a tee time control slip before teeing off, again in disregard of a rule in the
handbook. As a result of their actions, Montallana filed a report on the same day with the
board.

The board, through Clemente, requested respondents to submit their written

comments on Montallana’s incident report. The report was submitted for the consideration
of the board. Subsequently, the board resolved to suspend respondents.

ISSUE:

Whether or not the suspension was valid exercise of the right of the corporation.

RULING:.

Respondents were suspended in accordance with the procedure set forth in the
Club’s By-laws. There is no merit on their insistence that their suspension is invalid on the
ground that the affirmative vote of eight (8) members is required to support a decision
suspending or expelling a Club member. Both the provisions of Articles of
 28

Incorporation and By-Laws of the Club expressly limit the number of directors to seven (7);
hence, the provision on suspension and expulsion of a member which requires the
affirmative vote of eight (8) members is obviously a result of an oversight. Former Senator
Helena Z. Benitez, the Honorary Chairperson named in the Membership Handbook, could
not be included as a regular Board member since there was no evidence adduced by
respondents that she was elected as such pursuant to the Corporation Code and the By-laws
of the Club or that she had the right and authority to attend and vote in Board meetings. In
addition, at the time the Board resolved to suspend respondents, the affirmative votes of
only six (6) Board members already sufficed. The testimony of Jesus A. Liganor, who
served as Assistant Corporate Secretary, that Rodrigo Francisco had not attended a single
Board meeting since 1997 remains uncontroverted. The Court agrees with petitioners that
the Club should not be powerless to discipline its members and be helpless against acts
inimical to its interest just because one director had been suspended and refused to take part
in the management affairs.
 29

Forest Hills Golf

versus
Vertex Sales
GR No. 202205, March 06, 2013

Digested by: KRISTOPHER MARK B. CORTEZ

“A necessary consequence of rescission is restitution: the parties to a rescinded

contract must be brought back to their original situation prior to the inception of the
contract; hence, they must return what they received pursuant to the contract.”

FACTS:

Petitioner Forest Hills Golf & Country Club (Forest Hills) is a domestic non-profit
stock corporation that operates and maintains a golf and country club facility in Antipolo
City. Forest Hills was created as a result of a joint venture agreement between Kings
Properties Corporation (Kings) and Fil-Estate Golf and Development, Inc. (FEGDI).

In August 1997, FEGDI sold to RS Asuncion Construction Corporation (RSACC)

one (1) Class "C" common share of Forest Hills for P1.1 million. Prior to the full payment of
the purchase price, RSACC transferred its interests over FEGDI's Class "C" common share
to respondent Vertex Sales and Trading, Inc. (Vertex). RSACC advised FEGDI of the
transfer and FEGDI, in turn, requested Forest Hills to recognize Vertex as a shareholder.
Forest Hills acceded to the request, and Vertex was able to enjoy membership privileges in
the golf and country club.

Despite the sale of FEGDI's Class "C" common share to Vertex, the share remained
in the name of FEGDI, prompting Vertex to demand for the issuance of a stock certificate in
its name. As its demand went unheeded, Vertex filed a complaint for rescission with
damages against defendants Forest Hills, FEGDI, and Fil-Estate Land, Inc. (FELI) the
developer of the Forest Hills golf course. Vertex averred that the defendants defaulted in
their obligation as sellers when they failed and refused to issue the stock certificate covering
the Class "C" common share. It prayed for the rescission of the sale and the return of the
sums it paid; it also claimed payment of actual damages for the defendants' unjustified
refusal to issue the stock certificate.

Forest Hills denied transacting business with Vertex and claimed that it was not a
party to the sale of the share; FELI claimed the same defense. While admitting that no stock
certificate was issued, FEGDI alleged that Vertex nonetheless was recognized as a
stockholder of Forest Hills and, as such, it exercised rights and privileges of one. FEGDI
added that during the pendency of Vertex's action for rescission, a stock certificate was
issued in Vertex's name, but Vertex refused to accept it.

RTC’S RULING:
 30

The Regional Trial Court (RTC) dismissed Vertex's complaint after finding that the
failure to issue a stock certificate did not constitute a violation of the essential terms of the
contract of sale that would warrant its rescission. The RTC noted that the sale was already
consummated notwithstanding the non-issuance of the stock certificate. The issuance of a
stock certificate is a collateral matter in the consummated sale of the share; the stock
certificate is not essential to the creation of the relation of a shareholder. Hence, the RTC
ruled that the non- issuance of the stock certificate is a mere casual breach that would not
entitle Vertex to rescind the sale.

CA’S RULING:

The CA reversed the RTC. It declared that "in the sale of shares of stock, physical
delivery of a stock certificate is one of the essential requisites for the transfer of ownership
of the stocks purchased.". The CA rescinded the sale of the share and ordered the defendants
to return the amount paid by Vertex by reason of the sale.

ISSUE:

Whether or not rescission should be allowed only for substantial breaches that would
defeat the very object of the parties making the agreement.

RULING:

At the outset, we declare that the question of rescission of the sale of the share is a
settled matter that the Court can no longer review in this petition. While Forest Hills
questioned and presented its arguments against the CA ruling rescinding the sale of the share
in its... petition, it is not the proper party to appeal this ruling.

A necessary consequence of rescission is restitution: the parties to a rescinded

contract must be brought back to their original situation prior to the inception of the
contract; hence, they must return what they received pursuant to the contract.24 Not being a
party to the rescinded contract, however, Forest Hills is under no obligation to return the
amount paid by Vertex by reason of the sale. Indeed, Vertex failed to present sufficient
evidence showing that Forest Hills received the purchase price for the share or any other fee
paid on account of the sale (other than the membership fee which we will deal with after) to
make Forest Hills jointly or solidarily liable with FEGDI for restitution.

As correctly pointed out by Forest Hills, it was not a party to the sale even though
the subject of the sale was its share of stock. The corporation whose shares of stock are the
subject of a transfer transaction (through sale, assignment, donation, or any other mode of...
conveyance) need not be a party to the transaction, as may be inferred from the terms of
Section 63 of the Corporation Code. However, to bind the corporation as well as third
parties, it is necessary that the transfer is recorded in the books of the corporation. In the
present... case, the parties to the sale of the share were FEGDI as the seller and Vertex as the
 31

buyer (after it succeeded RSACC). As party to the sale, FEGDI is the one who may appeal
the ruling rescinding the sale. The remedy of appeal is available to a party who has "a
present interest... in the subject matter of the litigation and is aggrieved or prejudiced by the
judgment. A party, in turn, is deemed aggrieved or prejudiced when his interest, recognized
by law in the subject matter of the lawsuit, is injuriously affected by the judgment, order or...
decree." The rescission of the sale does not in any way prejudice Forest Hills in such a
manner that its interest in the subject matter the share of stock is injuriously affected. Thus,
Forest Hills is in no position to appeal the ruling rescinding... the sale of the share. Since
FEGDI, as party to the sale, filed no appeal against its rescission, we consider as final the
CA's ruling on this matter.
 32

Interport Resources Corporation

versus
Securities Specialist
GR No. 154069, June 06, 2016

Digested by: KRISTOPHER MARK B. CORTEZ

“The assignment of the subscription agreements is a form of novation by substitution

of a new debtor and which required the consent of or notice to the creditor”

FACTS:

Oceanic and Interport, both domestic corporations entered into a merger with
Interport as the surviving corporation. Previously, a subscription agreement was entered into
by Oceanic and R.C. Lee (a domestic corporation trading stocks and securities), covering 5
million shares worth P50,000. R.C. Lee paid 25% leaving 75% unpaid.

Later on, SSI, a domestic corporation dealing with securities, had an agreement with
R.C. Lee, covering the same 5 million shares, with 75% unpaid, and received from R.C. Lee
corresponding subscription agreements. On the other hand, R.C. Lee went to Interport and
requested list of all subscription agreements in its name, but Interport found no record of any
transfer or assignment of the Oceanic subscription agreements and R.C. Lee paid the unpaid
subscriptions.

Later, when Interport issued a call for the full payment of subscriptions, SSI tried to
tender payment but Interport refused to accept stating that the Oceanic subscription
agreements purportedly held by SSI should have been previously converted to shares in
Interport. However, Interport cannot produce any evidence of such rule and even SEC
informed SSI that it had no record of such rule/resolution of Interport.

16 days after its tender of payment, SSI learned that Interport had issued the 5
million shares to R.C. Lee, relying on the latter's registration as the owner of the
subscription agreements in the books of the former, and on the affidavit executed by the
President of R.C. Lee stating that no transfers or encumbrances of the shares had ever been
made. Thus SSI wrote R.C. Lee demanding the delivery of the 5 million Interport shares.
However, R.C. Lee had already sold the same to other parties. SSI thus demanded that R.C.
Lee pay not just the 25% it had paid but the whole 5 million shares at current market value.

ISSUE:

Is Interport liable to deliver to SSI the Oceanic shares?

HELD:

Yes. The assignment of the subscription agreements is a form of novation by

substitution of a new debtor and which required the consent of or notice to the creditor. In
 33

this case, the change of debtor took place when R.C. Lee assigned subscription agreements
to SSI so that the latter became obliged to settle the 75% unpaid balance on the subscription.
Interport was duly notified of the assignment when SSI tendered its payment. The effect of
the assignment of the subscription agreements is that Interport was no longer obliged to
accept any payment from R.C. Lee. The statutory rule that, no transfer of shares of stock
shall be valid, except as between the parties, until the transfer is recorded in the books of the
corporation so as to show the names of the parties to the transaction, the date of the transfer,
the number of the certificate or certificates and the number of shares transferred cannot be
strictly applied herein, however, because Interport had unduly refused to recognize the
assignment of the shares between R.C. Lee and SSI. The subscription agreements were now
binding between Interport and SSI only, and only such parties were expected to comply with
the terms thereof.
 34

ROQUE
versus
People of the Philippines
G.R. No. 211108, June 7, 2017

Digested by: GLORY JOY T. PAGHASIAN

“Section 74 of the Corporation Code provides for the liability for damages of any
officer or agent of the corporation for refusing to allow any director, trustee, stockholder or
member of the corporation to examine and copy excerpts from its records or minutes.”

FACTS:

Sometime in August 2003, Ongjoco, a member of BMTODA, learned that

BMTODA's funds were missing. Ongjoco requested copies of the Association's documents
pursuant to his right to examine records under Section 74 of the Corporation Code of the
Philippines. However, Singson, the Secretary of BMTODA, denied his request.

Ongjoco also learned that the incumbent officers were holding office for three years
already, in violation of the one-year period provided for in BMTODA's by-laws. He then
requested from Roque, the President of BMTODA, a copy of the tricycle fees and the
franchise fees paid by each member, but Roque denied Ongjoco's request.

Ongjoco filed an Affidavit-Complaint against Roque and Singson. The RTC ruled
that said association failed to prove its existence as a corporation. The CA reversed and set
aside the Order of the RTC. The CA ruled that BMTODA is a duly registered corporation.

ISSUE:

1. Whether or not the petitioner has the right to examine documents and records of
its corporation.
2.
2. Whether or not the revocation of BMTODA's registration automatically strip off
petitioner of his right to examine pertinent documents and records relating to
such association.

RULING:

Section 74 of the Corporation Code provides for the liability for damages of any
officer or agent of the corporation for refusing to allow any director, trustee, stockholder or
member of the corporation to examine and copy excerpts from its records or minutes.
Section 144 of the same Code further provides for other applicable penalties in case of
violation of any provision of the Corporation Code.

Hence, to prove any violation under the aforementioned provisions, it is necessary

that: (1) a director, trustee, stockholder or member has made a prior demand in writing for a
 35

copy of excerpts from the corporations records or minutes; (2) any officer or agent of the
concerned corporation shall refuse to allow the said director, trustee, stockholder or member
of the corporation to examine and copy said excerpts; (3) if such refusal is made pursuant to
a resolution or order of the board of directors or trustees, the liability under this section for
such action shall be imposed upon the directors or trustees who voted for such refusal;· and
(4) where the officer or agent of the corporation sets up the defense that the person
demanding to examine and copy excerpts from the corporation's records and minutes was
not acting in good faith the contrary must be shown or proved.

Clearly, Ongjoco, as a member of BMTODA, had a right to examine documents and

records pertaining to said association. To recall, Ongjoco made a prior demand in writing for
copy of pertinent records of BMTODA from Roque and Singson. However, both of them
refused to furnish copies of such pertinent records.

Roque argues that when the letters were received by him and Singson, BMTODA's
registration was·.already revoked. Hence, BMTODA ceased to exist as a corporation.

While it appears that the registration of BMTODA as a corporation with the SEC
was revoked on September 30, 2003, the letter-request of Ongjoco to Singson was actually
received by Singson after the revocation was lifted. The letter-request was received by
Singson on September 23, 2004 when BMTODA had regained its active status. Even so, the
termination of the life of a juridical entity does not, cause the extinction or diminution of the
rights and liabilities of such entity nor those of its owners and creditors. Thus, the revocation
of BMTODA's registration does not automatically strip off Ongjoco of his right to examine
pertinent documents and records relating to such association.
 36

Alfredo L. Chua, Tomas L. Chua And Mercedes P. Diaz

versus
People Of The Philippines
G.R. No. 216146, August 24, 2016.

Directed by: AMIHAN B. DULATRE

“The corporation continues to be a body corporate for three (3) years after its
dissolution for purposes of prosecuting and defending suits by and against it and for
enabling it to settle and close its affairs, culminating in the disposition and distribution of its
remaining assets. The termination of the life of a juridical entity does not by itself cause the
extinction or diminution of the rights and liabilities of such entity nor those of its owners
and creditors.”

FACTS:

Joselyn was a stockholder of Chua Tee Corporation of Manila. Alfredo was the
president and chairman of the board, while Tomas was the corporate secretary and also a
member of the board of the same corporation. Mercedes was the accountant/bookkeeper
tasked with the physical custody of the corporate records.

On or about August 24, 2000, Joselyn invoked her right as a stockholder pursuant to
Sec 74 of the Corporation Code to inspect the records of the books of the business
transactions of the corporation, the minutes of the meetings of the board of directors and
stockholders, as well as the financial statements of the corporation. She hired a lawyer to
send demand letters to each of the petitioners for her right to inspect to be heeded. However,
she was denied of such right to inspect.

Joselyn likewise hired the services of Mr. Velayo from the accounting firm to assist
her in examining the books of the corporation. Armed with a letter request, together with the
list of schedules of audit materials, Mr. Velayo and his group visited the corporation's
premises for the supposed examination of the accounts. However, the books of accounts
were not formally presented to them and there was no list of schedules, which would allow
them to pursue their inspection. Mr. Velayo testified that they failed to complete their
objective of inspecting the books of accounts and examine the recorded documents.

In the Complaint-Affidavit, Joselyn alleged that despite written demands, the

petitioners conspired in refusing without valid cause the exercise of her right to inspect
CTCM records.

The petitioners attested, they did not prevent Joselyn from inspecting the records.
What happened was that Mercedes was severely occupied with winding up the affairs of
CTCM after it ceased operations. Joselyn and her lawyers then failed to set up an
appointment with Mercedes.
 37

An Information indicting the petitioners for alleged violation of Sec 74, in relation to
Sec 144, of the Corporation Code was filed before the MeTC.

The petitioners filed a Motion to Quash, they argued that CTCM had ceased to exist
as a corporate entity since May 26, 1999. Consequently, when the acts complained of by
Joselyn were allegedly committed in August of 2000, the petitioners cannot be considered
anymore as responsible officers of CTCM. The MeTC rendered convicting the petitioners as
charged. In appeal, the RTC affirmed the MeTC.

In pending resolution of the motion, Rosario Sui Lian Chua, mother of the now
deceased Joselyn, filed an Affidavit of Desistance, stated that the reason to believe that the
filing of the instant criminal case was merely the result of serious misunderstanding anent
the management and operation of CTCM, which had long ceased to exist as a corporate
entity even prior to the alleged commission of the crime in question, rather than by reason of
any criminal intent or actuation on the part of the petitioners.

ISSUE:

Whether or not Joselyn, as a stockholder has the right to inspect the records of the
books of the business transactions, the minutes of the meetings of the BOD and
stockholders, and the financial statements of the corporation

RULING:

YES. The corporation continues to be a body corporate for three (3) years after its
dissolution for purposes of prosecuting and defending suits by and against it and for
enabling it to settle and close its affairs, culminating in the disposition and distribution of its
remaining assets.

The termination of the life of a juridical entity does not by itself cause the extinction
or diminution of the rights and liabilities of such entity nor those of its owners and creditors.

Further, as correctly pointed out by the OSG, Sections 122 and 145 of the
Corporation Code explicitly provide for the continuation of the body corporate for three
years after dissolution. The rights and remedies against, or liabilities of, the officers shall not
be removed or impaired by reason of the dissolution of the corporation. Corollarily then, a
stockholder's right to inspect corporate records subsists during the period of liquidation.
Hence, Joselyn, as a stockholder, had the right to demand for the inspection of records.
Lodged upon the corporation is the corresponding duty to allow the said inspection.
 38

Bank Of Commerce
versus
Radio Philippines Network, Inc.,Et Al,
G.R. No. 195615, April 21, 2014

Digested by: JERRICOH N. REVIL

“Merger is a re-organization of two or more corporations that results in their

consolidating into a single corporation, which is one of the constituent corporations, one
disappearing or dissolving and the other surviving. To put it another way, merger is the
absorption of one or more corporations by another existing corporation, which retains its
identity and takes over the rights, privileges, franchises, properties, claims, liabilities and
obligations of the absorbed corporation(s). The absorbing corporation continues its
existence while the life or lives of the other corporation(s) is or are terminated."

FACTS:

In late 2001 the Traders Royal Bank (TRB) proposed to sell to petitioner Bank of
Commerce (Bancommerce) for ₱10.4 billion its banking business consisting of specified
assets and liabilities. Bancommerce agreed subject to prior BangkoSentralngPilipinas'
(BSP's) approval of their Purchase and Assumption (P & A) Agreement. On November 8,
2001 the BSP approved that agreement subject to the condition that Bancommerce and TRB
would set up an escrow fund of Php 5O million with another bank to cover TRB liabilities
for contingent claims that may subsequently be adjudged against it, which liabilities were
excluded from the purchase.

To comply with the BSP mandate, on December 6, 2001 TRB placed ₱50 million in
escrow with Metropolitan Bank and Trust Co. (Metrobank) to answer for those claims and
liabilities that were excluded from the P & A Agreement and remained with TRB.
Accordingly, the BSP finally approved such agreement on July 3, 2002.

Shortly after or on October 10, 2002, acting in G.R. 138510, Traders Royal Bank v.
Radio Philippines Network (RPN), Inc., this Court ordered TRB to pay respondents RPN,
Intercontinental Broadcasting Corporation, and Banahaw Broadcasting Corporation
(collectively, RPN, et al.) actual damages of ₱9,790,716.87 plus 12% legal interest and some
amounts. Based on this decision, RPN, etal.filed a motion for execution against TRB before
the Regional Trial Court (RTC) of Quezon City. But rather than pursue a levy in execution
of the corresponding amounts on escrow with Metrobank, RPN, et al. filed a Supplemental
Motion for Execution1 where they described TRB as "now Bank of Commerce" based on the
assumption that TRB had been merged into Bancommerce.

ISSUE:
Whether or not merger or a de facto merger took place between Bancommerce and TRB.
RULING:
 39

Merger and De Facto Merger

Merger is a re-organization of two or more corporations that results in their

consolidating into a single corporation, which is one of the constituent corporations, one
disappearing or dissolving and the other surviving. To put it another way, merger is the
absorption of one or more corporations by another existing corporation, which retains its
identity and takes over the rights, privileges, franchises, properties, claims, liabilities and
obligations of the absorbed corporation(s). The absorbing corporation continues its existence
while the life or lives of the other corporation(s) is or are terminated.

The Corporation Code requires steps for merger or consolidation.

Indubitably, it is clear that no merger took place between Bancommerce and TRB as
the requirements and procedures for a merger were absent. A merger does not become
effective upon the mere agreement of the constituent corporations. All the requirements
specified in the law must be complied with in order for merger to take effect. Section 79 of
the Corporation Code further provides that the merger shall be effective only upon the
issuance by the Securities and Exchange Commission (SEC) of a certificate of merger.

Here, Bancommerce and TRB remained separate corporations with distinct corporate
personalities. What happened is that TRB sold and Bancommerce purchased identified
recorded assets of TRB in consideration of Bancommerce’s assumption of identified
recorded liabilities of TRB including booked contingent accounts. There is no law that
prohibits this kind of transaction especially when it is done openly and with appropriate
government approval. Indeed, the dissenting opinions of Justices Jose Catral Mendoza and
Marvic Mario Victor F. Leonen are of the same opinion. In strict sense, no merger or
consolidation took place as the records do not show any plan or articles of merger or
consolidation. More importantly, the SEC did not issue any certificate of merger or
consolidation.

No de facto merger took place in the present case simply because the TRB owners
did not get in exchange for the bank’s assets and liabilities an equivalent value in
Bancommerce shares of stock. Bancommerce and TRB agreed with BSP approval to
exclude from the sale the TRB’s contingent judicial liabilities, including those owing to
RPN, et al

Indubitably, since the transaction between TRB and Bancommerce was neither a
merger nor a de facto merger but a mere "sale of assets with assumption of liabilities

Since there had been no merger, Bancommerce cannot be considered as TRB’s

successor-in-interest and against which the Court’s Decision of October 10, 2002 in G.R.
138510 may been forced. Bancommerce did not hold the former TRBs assets in trust for it
as to subject them to garnishment for the satisfaction of the latter’s liabilities to RPN, et al.
Bancommerce bought and acquired those assets and thus, became their absolute owner.

WHEREFORE, the petition is GRANTED.

 40

Sumifru (Philippines) Corporation (Surviving Entity In A Merger With Davao Fruits

Corporation And Other Companies)
versus
Bernabe Baya
G.R. No. 188269, April 17, 2017

Digested by: ELDRIN KEM M. NACILLA

FACTS:

The instant case stemmed from a complaint for, inter alia, illegal/constructive
dismissal filed by Baya against AMSFC and DFC before the NLRC. Baya alleged that he
had been employed by AMSFC since February 5, 1985, and from then on, worked his way
to a supervisory rank on September 1, 1997. As a supervisor, Baya joined the union of
supervisors, and eventually, formed AMS Kapalong Agrarian Reform Beneficiaries
Multipurpose Cooperative (AMSKARBEMCO), the basic agrarian reform organization of
the regular employees of AMSFC. In June 1999, Baya was reassigned to a series of
supervisory positions in AMSFC’s sister company, DFC, where he also became a member
of the latter’s supervisory union while at the same time, remaining active at
AMSKARBEMCO. Later on and upon AMSKARBEMCO’s petition before the Department
of Agrarian Reform (DAR), some 220 hectares of AMSFC’s 513-hectare banana plantation
were covered by the Comprehensive Agrarian Reform Law. Eventually, said portion was
transferred to AMSFC’s regular employees as Agrarian Reform Beneficiaries (ARBs),
including Baya. Thereafter, the ARBs explored a possible agribusiness venture agreement
with AMSFC, but the talks broke down, prompting the Provincial Agrarian Reform Officer
to terminate negotiations and, consequently, give AMSKARBEMCO freedom to enter into
similar agreement with other parties. In October 2001, the ARBs held a referendum in order
to choose as to which group between AMSKARBEMCO or SAFFPAI, an association of
pro-company beneficiaries, they wanted to belong. 280 went to AMSKARBEMCO while 85
joined SAFFPAI.

In their defense, AMSFC and DFC maintained that they did not
illegally/constructively dismiss Baya, considering that his termination from employment
was the direct result of the ARBs’ takeover of AMSFC’s banana plantation through the
government’s agrarian reform program. They even shifted the blame to Baya himself,
arguing that he was the one who formed AMSKARBEMCO and, eventually, caused the
ARBs’ aforesaid takeover.

ISSUE:

Whether or not the corporation is liable for monetary awards arising from the labor
dispute.

RULING:
 41

Yes. Section 80 of the Corporation Code of the Philippines clearly states that one of
the effects of a merger is that the surviving company shall inherit not only the assets, but
also the liabilities of the corporation it merged with
 42

Joselito Hernand M.Bustos

versus
Millians Shoe Inc., Spouses Fernando And Amelia Cruz, And The Register Of Deeds
Of Marikina City
GR No. 185024, April 4, 2017

Digested by: PHILIP JASON G. LOPEZ

“Properties merely owned by the stockholders cannot be included in the inventory of

assets of a corporation under rehabilitation.”

FACTS:

Joselito Hernand M.Bustos is the highest bidder in an auction sale of a parcel of land
that was previously owned by the spouses Fernando and Amelia Cruz but was levied by the
City Government of Marikina for non-payment of real estate taxes.

The spouses Fernando and Amelia Cruz were also stockholders of Millians Shoe Inc.
(MSI for brevity). MSI was undergoing rehabilitation at that time and it was alleged that
MSI is a close corporation which, according to the CA, makes the stockholders personally
liable for the debts and obligations of the corporation. Thus, the Cruz Spouses being
stockholders of MSI are personally liable for the latter’s debts and obligations. The court
then issued a stay order which included the property in question. Bustos moved for the
exclusion of the property in the stay order alleging among others that since it was property
owned by the spouses and not by MSI, it should not be included as an asset of the
corporation, and he further alleged that MSI is not a close corporation because it lacks the
necessary requisites to be classified as one.

ISSUE:

Whether or not MSI is a close corporation

RULING:

In finding the subject property answerable for the obligations of MSI, the CA
characterized respondent spouses as stockholders of a close corporation who, as such, are
liable for its debts. This conclusion is baseless. To be considered a close corporation, we
must look into the articles of incorporation to find provisions stating that (1) the number of
stockholders shall not exceed 20; or (2) a pre-emption of shares is restricted in favor of any
stockholder or of the corporation; or (3) the listing of the corporate stocks in any stock
exchange or making a public offering of those stocks is prohibited. The CA never showed
any basis for finding MSI to be a close corporation. In effect, the CA deemed MSI a close
corporation based on the allegation of the spouses Cruz that it was so. For this reason alone,
the CA rulings should be set aside.
 43

Vitaliano Aguirre II
versus
Fqb+7, Inc. , Nathaniel Bocobo,Priscila Bocobo And Antonio De Villa
G.R. No. 170770, January 9, 2013

Digested by: JUNNEL A. BATALIRAN

“Pursuant to Section 145 of the Corporation Code, an existing intra-corporate

dispute, which does not constitute a continuation of corporate business, is not affected by
the subsequent dissolution of the corporation.”

FA CT S :

Vitaliano filed a Complaint for intra-corporate dispute, injunction, inspection of

corporate books and records, and damages, against respondents Nathaniel, Priscila and Antonio for
the usurpation of the management powers and prerogatives of the "real" Board of Directors. The
application was granted when the respondents failed to attend the hearing. The respondents filed a Petition
for Certiorari and Prohibition before the CA seeking the annulment of all the proceedings .The
CA postulated that Section 122 of the Corporation Code allows a dissolved corporation to continue
as a body corporate for the limited purpose of liquidating the corporate assets and
distributing them to its creditors, stockholders, and others in interest. It does not allow the
dissolved corporation to continue its business. That being the state of the law, the CA
determined that Vitaliano’s Complaint, being geared towards the continuation of FQB+7,
Inc.’s business, should be dismissed because the corporation has lost its juridical personality.
Moreover, the CA held that the trial court does not have jurisdiction to entertain an intra-
corporate dispute when the corporation is already dissolved.

ISSUE:

Whether the RTC has jurisdiction over an intra-corporate dispute involving a dissolved
corporation.

HELD:

Intra-corporate disputes remain even when the corporation is dissolved. Jurisdiction

over the subject matter is conferred by law. R.A. No. 8799 conferred jurisdiction over intra-
corporate controversies on courts of general jurisdiction or RTCs, to be designated by the
Supreme Court. Thus, as long as the nature of the controversy is intra-corporate, the designated
RTCs have the authority to exercise jurisdiction over such cases. And to be considered as an
intra-corporate dispute, the case: (a) must arise out of intra-corporate or partnership
relations, and (b) the nature of the question subject of the controversy must be such that it is
intrinsically connected with the regulation of the corporation or the enforcement of the
parties' rights and obligations under the Corporation Code and the internal regulatory rules
of the corporation. So long as these two criteria are satisfied, the dispute is intra-corporate
and the RTC, acting as a special commercial court, has jurisdiction over it.
 44

In this case in relation to these two criteria, the Court finds and so holds that the case
is essentially an intra-corporate dispute. It obviously arose from the intra-corporate relations
between the parties, and the questions involved pertain to their rights and obligations under
the Corporation Code and matters relating to the regulation of the corporation.
 45

Steelcase, Inc.
versus
Design International Selections, Inc. (DISI)
GR No. 171995, April 18, 2012

Digested by: MARVIN D. ESPINOSA

FACTS:

Steelcase, Inc. (Steelcase) granted Design International Selections, Inc. (DISI) the
right to market, sell, distribute, install, and service its products to end-user customers within
the Philippines.Steelcase argues that Section 3(d) of R.A. No. 7042 or the Foreign
Investments Act of 1991 (FIA) expressly states that the phrase doing business excludes the
appointment by a foreign corporation of a local distributor domiciled in the Philippines
which transacts business in its own name and for its own account. On the other hand, DISI
argues that it was appointed by Steelcase as the latter’s exclusive distributor of Steelcase
products. The dealership agreement between Steelcase and DISI had been described by the
owner himself as basically a buy and sell arrangement.

ISSUE:

Whether Steelcase had been doing business in the Philippines.

RULING:

NO.

The appointment of a distributor in the Philippines is not sufficient to constitute

doing business unless it is under the full control of the foreign corporation. On the other
hand, if the distributor is an independent entity which buys and distributes products, other
than those of the foreign corporation, for its own name and its own account, the latter cannot
be considered to be doing business in the Philippines. Here, DISI was an independent
contractor which sold Steelcase products in its own name and for its own account. As a
result, Steelcase cannot be considered to be doing business in the Philippines by its act of
appointing a distributor as it falls under one of the exceptions under R.A. No. 7042.
 46

Republic of the Philippines

versus
Judge Eugenio
G.R. No. 174629, February 14, 2008

Digested by: HERMAN I TING

“Sec. 2 of the Bank Secrecy Act itself prescribes exceptions whereby these bank
accounts may be examined by any person, government official, bureau or offial; namely
when: (1) upon written permission of the depositor; (2) in cases of impeachment; (3) the
examination of bank accounts is upon order of a competent court in cases of bribery or
dereliction of duty of public officials; and (4) the money deposited or invested is the subject
matter of the litigation. Section 8 of R.A. Act No. 3019, the Anti-Graft and Corrupt Practices
Act, has been recognized by this Court as constituting an additional exception to the rule of
absolute confidentiality, and there have been other similar recognitions as well.”

FACTS:

Under the authority granted by the Resolution, the AMLC filed an application to
inquire into or examine the deposits or investments of Alvarez, Trinidad, Liongson and
Cheng Yong before the RTC of Makati, Branch 138, presided by Judge (now Court of
Appeals Justice) Sixto Marella, Jr. The application was docketed as AMLC No. 05-005. The
Makati RTC heard the testimony of the Deputy Director of the AMLC, Richard David C.
Funk II, and received the documentary evidence of the AMLC. Thereafter, on 4 July 2005,
the Makati RTC rendered an Order (Makati RTC bank inquiry order) granting the AMLC
the authority to inquire and examine the subject bank accounts of Alvarez, Trinidad,
Liongson and Cheng Yong, the trial court being satisfied that there existed probable cause
[to] believe that the deposits in various bank accounts, details of which appear in paragraph
1 of the Application, are related to the offense of violation of Anti-Graft and Corrupt
Practices Act now the subject of criminal prosecution before the Sandiganbayan as attested
to by the Informations, Exhibits C, D, E, F, and G Pursuant to the Makati RTC bank inquiry
order, the CIS proceeded to inquire and examine the deposits, investments and related web
accounts of the four.

Meanwhile, the Special Prosecutor of the Office of the Ombudsman, Dennis Villa-
Ignacio, wrote a letter dated 2 November 2005, requesting the AMLC to investigate the
accounts of Alvarez, PIATCO, and several other entities involved in the nullified contract.
The letter adverted to probable cause to believe that the bank accounts were used in the
commission of unlawful activities that were committed a in relation to the criminal cases
then pending before the Sandiganbayan. Attached to the letter was a memorandum on why
the investigation of the [accounts] is necessary in the prosecution of the above criminal
cases before the Sandiganbayan. In response to the letter of the Special Prosecutor, the
AMLC promulgated on 9 December 2005 Resolution No. 121 Series of 2005, which
authorized the executive director of the AMLC to inquire into and examine the accounts
 47

named in the letter, including one maintained by Alvarez with DBS Bank and two other
accounts in the name of Cheng Yong with Metrobank. The Resolution characterized the
memorandum attached to the Special Prosecutors letter as extensively justifying the
existence of probable cause that the bank accounts of the persons and entities mentioned in
the letter are related to the unlawful activity of violation of Sections 3(g) and 3(e) of Rep.
Act No. 3019, as amended.

ISSUE:
Whether or not the bank accounts of respondents can be examined.

RULING:

Any exception to the rule of absolute confidentiality must be specifically legislated.

Section 2 of the Bank Secrecy Act itself prescribes exceptions whereby these bank accounts
may be examined by any person, government official, bureau or offial; namely when: (1)
upon written permission of the depositor; (2) in cases of impeachment; (3) the examination
of bank accounts is upon order of a competent court in cases of bribery or dereliction of duty
of public officials; and (4) the money deposited or invested is the subject matter of the
litigation. Section 8 of R.A. Act No. 3019, the Anti-Graft and Corrupt Practices Act, has
been recognized by this Court as constituting an additional exception to the rule of absolute
confidentiality, and there have been other similar recognitions as well.
The AMLA also provides exceptions to the Bank Secrecy Act. Under Section 11, the AMLC
may inquire into a bank account upon order of any competent court in cases of violation of
the AMLA, it having been established that there is probable cause that the deposits or
investments are related to unlawful activities as defined in Section 3(i) of the law, or a
money laundering offense under Section 4 thereof. Further, in instances where there is
probable cause that the deposits or investments are related to kidnapping for ransom, certain
violations of the Comprehensive Dangerous Drugs Act of 2002,hijacking and other
violations under R.A. No. 6235, destructive arson and murder, then there is no need for the
AMLC to obtain a court order before it could inquire into such accounts. It cannot be
successfully argued the proceedings relating to the bank inquiry order under Section 11 of
the AMLA is a litigation encompassed in one of the exceptions to the Bank Secrecy Act
which is when money deposited or invested is the subject matter of the litigation. The
orientation of the bank inquiry order is simply to serve as a provisional relief or remedy. As
earlier stated, the application for such does not entail a full-blown trial. Nevertheless, just
because the AMLA establishes additional exceptions to the Bank Secrecy Act it does not
mean that the later law has dispensed with the general principle established in the older law
that all deposits of whatever nature with banks or banking institutions in the Philippines x x
x are hereby considered as of an absolutely confidential nature. Indeed, by force of statute,
all bank deposits are absolutely confidential, and that nature is unaltered even by the
legislated exceptions referred to above.
 48

Republic Of The Philippines

versus
Glasgow Credit And Collection Services, Inc, And City State Savings Bank, Inc.,
GR No. 170281, January 18, 2008

Prepared by: ABDULMOIN W. MOHAMMAD

“In the absence of a pattern or scheme to delay the disposition of the case or a
wanton failure to observe the mandatory requirement of the rules on the part of the plaintiff,
as in the case at bar, courts should decide to dispense with rather than wield their authority
to dismiss.”

FACTS:

On July 18, 2003, the Republic, as represented by the Anti-Money Laundering Council
(AMLC) filed a complaint in the Manila RTC for civil forfeiture of assets (with urgent plea
for issuance of a TRO and a writ of preliminary investigation) against the bank deposits in
an account maintained by Glasgow in City state Savings Bank, Inc (CSBI). While the trial
court granted the TRO and the writ of preliminary injunction, the summons to Glasgow was
returned “unserved” since it can no longer be found at its last known address.

October 8, 2003, the omnibus motion for issuance of summons and leave of court to
serve summons by publication by the Republic

October 15, the trial court directed issuance of summons but no mention re: leave of
court.

January 30, 2004, the trial court archived the case allegedly for failure of the Republic to
serve the alias summons but the Republic filed another motion to reinstate the case and
resolve the motion for leave of court

May 3, 2004, the court reinstated case but still did not resolve the motion for leave of
court to serve summons by publication on the reason that “any action on such motion would
be untenable if not premature.” This motion remains unsolved.

August 11, 2005, the Republic filed a manifestation and ex parte motion to resolve the
above motion.

August 12, 2005, the OSG received a copy of Glasgow’s Motion to Dismiss (By Way of
Special Appearance). The motion alleged that the trial court had no jurisdiction over its
person as summons had not yet been served on it; that the complaint was premature and
stated no cause of action as there was still no conviction for estafa or other criminal
violations and there was failure to prosecute on the part of the Republic.
 49

The Republic opposed the Motion to Dismiss but on October 27, the trial court
dismissed the case.

ISSUES:

Whether the complaint for civil forfeiture was correctly dismissed on grounds of
improper venue, insufficiency in form and substance and failure to prosecute

RULING:

The complaint for civil forfeiture was not correctly dismissed. Petition by the
Republic was granted.

1. On issue of venue: the complaint was filed in the proper venue.

Under Section 3, Title II of the Rule of Procedure in Cases of Civil Forfeiture, “A petition
for civil forfeiture shall be filed in any regional trial court of the judicial region where the
monetary instrument, property or proceeds representing, involving or relating to an unlawful
activity or to a money laundering offense are located xxx”

In this case, RTC Manila, as one of the RTCs of the NCR Judicial Region was a proper
venue of the Republic’s complaint for civil forfeiture of Glasgow’s account since the
account sought to be forfeited was in Pasig City, which is likewise situated within the NCR
Judicial Region.

2. On issue of sufficiency of complaint: the complaint was sufficient in form and in

substance

Under Section 4 of the aforementioned Rules, “the petition for civil forfeiture shall be
verified and shall contain the following allegations: (a) the name and address of the
respondent; a description with reasonable particularity of the monetary instrument, property
xxx; and (c) the acts or omissions prohibited by the specific provisions of the AMLA, which
are alleged to be the grounds relied upon for the forfeiture of the monetary instrument,
property xxx.”

In this case, the verified complaint contained the name and address of Glasgow
(principal office at Unit 703, 7th floor, City state Center, No 709, Shaw Boulevard, Pasig
City); a description of the proceeds of Glasgow’s unlawful activities in the amount of
P21,301,430.28 maintained with CSBI; and the acts prohibited by RA 9160 (AMLA),
particularly suspicious transaction reports showed that Glasgow engaged in unlawful
activities of estafa and violation of the Securities Regulation Code, the proceeds were
transacted and deposited with CSBI, thereby making them appear to have originated from
legit sources and the AMLC subjected the account to a freeze order.
 50

Pertinent provisions of RA 9160 also provide two conditions when applying for civil
forfeiture:

a. When there is a suspicious transaction report or a covered transaction report

deemed suspicious after investigation by the AMLC and
b. The court has, in a petition filed for the purpose, ordered the seizure of any
monetary instrument or property, in whole or in part, directly or indirectly,
related to said report.

The account of Glasgow in CSBI complies with the above conditions since it was
covered by several suspicious reports and it was placed under control of the trial court upon
issuance of the writ of preliminary injunctions.

Also, there need not be any prior charge, pendency or conviction necessary for the
commencement of a petition for civil forfeiture.

3. On issue of failure to prosecute: there was no failure to prosecute

The Republic continued to exert efforts to obtain information from government agencies
on the whereabouts of Glasgow (it must be recalled that Glasgow could not be found on its
last known office address during the course of the proceedings) despite its earlier motions
for summons and leave of court to serve summons by publication. There could not have
been any failure on the part of the Republic to prosecute and the delay could not be entirely
ascribed to the Republic. It must likewise be recalled that despite efforts of the Republic to
prosecute such case, no prompt action was taken by the trial court (i.e. re: motion for leave
of court to serve summons by publication).
 51

LISAM ENTERPRISES, INC.

versus
BANCO DE ORO UNIBANK, INC.
G.R. No. 143264, April 23, 2012
Digested by: RANDY REBUYON

“The foregoing pronouncements of the Court are exactly in point with the issues in the
present case. Here, the complaint is for annulment of mortgage with the mortgagee bank as
one of the defendants, thus, as held in Saura,[10] jurisdiction over said complaint is lodged
with the regular courts because the mortgagee bank has no intra-corporate relationship
with the stockholders.There can also be no forum shopping, because there is no identity of
issues. The issue being threshed out in the SEC case is the due execution, authenticity or
validity of board resolutions and other documents used to facilitate the execution of the
mortgage, while the issue in the case filed by petitioners with the RTC is the validity of the
mortgage itself executed between the bank and the corporation, purportedly represented by
the spouses Leandro and Lilian Soriano, the President and Treasurer of petitioner LEI,
respectively. Thus, there is no reason to dismiss the complaint in this case.”

FACTS:

The controversy arises when spouses Soriano made a misrepresentation when they
mortgage the property of the corporation by manipulation or invented a BOARD
RESOLUTION authorizing the spouses to mortgage the property duly signed by the Board
Secretary Lolita Soriano.

Spouses Soriano were President and Treasurer of the company respectively who
successfully obtained a loan in the amount of P20 Million pesos before the PCIB;

When the illegal transaction discovered, Ms. Lolita Soriano thru the Board made a demand
to the spouses to clean and returned the property: to quote:

“Lolita A. Soriano likewise made demands upon the Board of Directors of

Lisam Enterprises, Inc., to make legal steps to protect the interest of the corporation
from said fraudulent transaction, but unfortunately, until now, no such legal step was
ever taken by the Board, hence, this action for the benefit and in behalf of the
corporation;”

But despite of repeated demand, hence, spouses Soriano continued to ignore them
and strongly held that the transaction were legal and with authority as evidenced by the
genuineness of the signature of the Board Secretary;

Moreso, in order to cure the defect of the transaction, spouses also successfully
executed a document of Deed of Assumption of Mortgage, meaning, the loan/obligation
they obtained were assume by the company, in which, the company denied the veracity of
the documents and the same is unauthorized transaction;
 52

ISSUE:

WHETHER OR NOT THE UNATHORIZED TRANSACTION OF

MORTGAGED TAKEN BY SPOUSES SORIANO ABSORB AS THE COMPANY
ACT AND PLAINTIFF LOLITA SORIANO DOES NOT HAVE LEGAL
CAPACITY TO SUE?

RULING:

The court finds that the transaction is null and void, that the RTC committed at fault
when dismissing the complaint for failure to state cause of action and motion for
reconsideration filed by the plaintiff and failed to admit the amended complaint because The
trial court held that no new argument had been raised by petitioners in their motion for
reconsideration to address the fact of plaintiffs' failure to allege in the complaint that
petitioner Lolita A. Soriano made demands upon the Board of Directors of Lisam
Enterprises, Inc. to take steps to protect the interest of the corporation against the fraudulent
acts of the Spouses Soriano and PCIB. The trial court further ruled that the Amended
Complaint can no longer be admitted, because the same absolutely changed petitioners'
cause of action. and overlook the PCIB negligence of failure to investigate knowingly the
property is of the company, failed to verify the veracity and truthfulness or genuineness of
the resolution in question;

The courts should be liberal in allowing amendments to pleadings to avoid a

multiplicity of suits and in order that the real controversies between the parties are
presented, their rights determined, and the case decided on the merits without unnecessary
delay. This liberality is greatest in the early stages of a lawsuit, especially in this case where
the amendment was made before the trial of the case, thereby giving the petitioners all the
time allowed by law to answer and to prepare for trial.

Furthermore, amendments to pleadings are generally favored and should be

liberally allowed in furtherance of justice in order that every case, may so far as possible,
be determined on its real facts and in order to speed up the trial of the case or prevent the
circuitry of action and unnecessary expense. That is, unless there are circumstances such as
inexcusable delay or the taking of the adverse party by surprise or the like, which might
justify a refusal of permission to amend.[

The duplicity of the suits does not constitute a violation against forum shopping
because the ruling that the issue of recovery of corporate assets and funds pending with the
SEC is a totally different issue from the issue of the validity of the transaction, so a decision
in the SEC case would not amount to res judicata in the case before the regular court.

The foregoing pronouncements of the Court are exactly in point with the issues in
the present case. Here, the complaint is for annulment of mortgage with the mortgagee bank
as one of the defendants, thus, as held in Saura,[10] jurisdiction over said complaint is lodged
with the regular courts because the mortgagee bank has no intra-corporate relationship with
 53

the stockholders. There can also be no forum shopping, because there is no identity of
issues. The issue being threshed out in the SEC case is the due execution, authenticity or
validity of board resolutions and other documents used to facilitate the execution of the
mortgage, while the issue in the case filed by petitioners with the RTC is the validity of the
mortgage itself executed between the bank and the corporation, purportedly represented by
the spouses Leandro and Lilian Soriano, the President and Treasurer of petitioner LEI,
respectively. Thus, there is no reason to dismiss the complaint in this case.

As to the legal capacity of plaintiff Lolita Soriano to sue defendant, Lolita Soriano being a
Stockholder has the duty to protect her interest and more so as she is a member of the board
and being the Board Secretary and since the discovery of the unauthorized transaction, the
board failed act and in order to protect the interest of the company, hence, Ms. Lolita
Soriano, as Stockholder lodge the compliant;

The decision rendered by the RTC set aside.

 54

Lily Sy
versus
Hon. Secretary Of Justice Ma. Merceditas N. Gutierrez, Benito Fernandez Go,
Berthold Lim, Jennifer Sy, Glenn Ben Tiak Sy And Merry Sy
G.R. No. 171579, November 14, 2012

Digested by: LODIVINA OTERO

“One of the elements of the Crime of Robbery is that the subject is personal property
belonging to another which is not present in this case. Taking as an element of robbery
means depriving the offended party of ownership of the thing taken with the character of
permanency. Hence, even if we are to assume that private respondents took the said
personal properties from the 10th floor of the Fortune Wealth Mansion Corporation, they
cannot be charged with robbery because again, the taking was made under a claim of
ownership.”

FACTS:

Lily Sy accused respondents that they went to her residence and forcibly opened the
door, destroyed and dismantled the door lock then replaced it with a new one, without her
consent. She also alleged that that there were 34 boxes stolen of valued property valued at
PHP 10,244,196.

Respondents countered that their act was authorized by board resolution since Lily
Sy stayed in a condominium unit owned by Fortune Wealth Mansion Corporation of which
Lily Sy and the herein respondents are stockholders.

Respondents also added that Lily Sy had a grudge with them because they have an
unsettled issue on the partition of estate left by their parents.

Assistant City Prosecutor recommended that respondents be charged with robbery in

an uninhabited place which was sustained by the Office of the City Prosecutor. The
Secretary of Justice reversed ACT recommendation on the ground that the taking was made
under a claim of ownership hence, no robbery committed.

The Court of Appeals set aside the decision of the Secretary of Justice, hence this
petition.

ISSUE:

Whether or not respondents should be charged of robbery.

 55

RULING: NO

The Supreme Court ruled that the taking made under the claim of ownership and the removal
of the 34 boxes and other alleged belongings of Lily Sy was supported and allowed by virtue of the
board resolution issued by the Fortune Wealth Mansion Corporation
 56

Jose A. Bernas
versus
Jovencio F. Cinco
G.R. Nos. 163356-57, July 10, 2015

Digested by: LODIVINA OTERO

“Section 28 of The Corporation Code provides for the requisites for the Removal of
Directors or Trustees such as, vote of the stockholders holding or representing at least two-
thirds (2/3) of the outstanding capital stock, or if the corporation be a non-stock
corporation, by a vote of at least two-thirds (2/3) of the members entitled to vote, held in a
regular or special meeting called for that purpose and prior notice.

Special meeting on the other hand, must be called by the Secretary or on the order of
the President or on the written demand of stockholders holding at least majority of the
outstanding capital stock.

The removal of Bernas Group from their position was null and void on the ground
that the special meeting was called merely by MSC Oversight Committee (MSCOC) which is
NOT allowed under the Corporation Code and Makati Sports Club’s by-laws.”

FACTS:

Makati Sports Club (MSC) is a domestic corporation duly organized and existing
under Philippine laws for the primary purpose of establishing, maintaining, and providing
social, cultural, recreational and athletic . activities among its members. Petitioners Jovencio
Cinco, Ricardo Librea · and Alex Y. Pardo (Cinco Group) are the members and stockholders
of the corporation who were elected Members of the Board of Directors and Officers of the
club during the 17 December 1997 Special Stockholders Meeting.

Alarmed with the rumored anomalies in handling the corporate funds, the MSC
Oversight Committee (MSCOC), composed of the past presidents of the club, demanded
from the Bernas Group, who were then incumbent officers of the corporation, to resign from
their respective positions to pave the way for the election of new set of officers. Resonating
this clamor were the stockholders of the corporation representing at least 100 shares who
sought the assistance of the MSCOC to call for a special stockholders meeting for the
purpose of removing the sitting officers and electing new ones. Pursuant to such request, the
MSCOC called a Special Stockholders' Meeting and sent out notices to all stockholders and
members stating therein the time, place and purpose of the meeting. For failure of the Bernas
Group to secure an injunction before the Securities Commission (SEC), the meeting
proceeded wherein Jose A. Bernas, Cecile H. Cheng, Victor Africa, Jesus Maramara, Jose T.
Frondoso, Ignacio T. Macrohon, Jr. and Paulino T. Lim were removed from office and, in
their place and stead, Jovencio F. Cinco, Ricardo G. Librea, Alex Y. Pardo, Roger T.
 57

Aguiling, Rogelio G. · Villarosa, Armando David, Norberto Maronilla, Regina de Leon-

Herlihy and Claudio B. Altura, were elected.

Bernas Group question the validity of the special meetings which ousted them from
office and the subsequent meetings.

ISSUE:

Whether or not the Special Meeting was validly called by the MSC Oversight
Committee (MSCOC) which consequently resulted to the ouster of the Bernas group.

RULING:

The Supreme Court ruled in the NEGATIVE.

As per Makati Sports Club by-laws, only the President & BOD are authorized to call
a special meeting. If they refuse to call such meeting, stockholders representing at least 100
shares upon written request may file a petition to call a special meeting.

In this case, MSCOC called the meeting which is NOT authorized in by-laws even if
it was made upon the request of the stockholders. The subsequent notification of the
stockholders does not cure the defect of the said special meeting.

Moreover, the Special Meeting called by MSCOC has no legal effect and the
removal of the Bernas’ Group was void. Since Cinco’s Group has no legal right. The
subsequent acts of expelling the selling the shares of Bernas’ Group is likewise INVALID.