Corporation Law Case Digest

Law 321_Corporation LAW_ Case Digest

In Partial FulfilmentOf the Requirements for the SubjectLaw 321 (Corporation Law)

Corporation LawCase Digest

Submitted to:

Atty. Maria Lulu G. Reyes

Submitted by:

ARUMIN, Lesley Jane B.BAGUIDUDOL, Valentin Jr. G.BAGUILAT, Lauriz G.BUENO, Marc Crisante C.CAMSOL, Haryeth M.LUBANTE, Jessica B.ORALLO, Joanna Marie C.ORAS, Phylian Corazon W.SANTOS, Hyacinth B.SECTEL, Florence O.TUGUIC, Joshua B.

Date Submitted:

March 8, 2014

CORPORATION CODE OF THE PHILIPPINES(Batas Pambansa Blg. 68)

I. FORMATION AND ORGANIZATION OF CORPORATIONS

A.General Principles

1.History of Business Organizations2.Constitutional Basis, Art. XII, Sec. 163.Definitions of Corporation (Sec. 2)4. Attributes of Corporation Petron v. NCBA, 516 S 168 ___________________________________20 APT v. CA, 300 S 582 ________________________________________21 Mambulao Lumber v. PNB, 22 S 359 Hanil v. CA, 362 S 1 Bache and Co. v. Ruiz , 637 S 823 Sulo ng Bayan v. Araneta, 72 S 347

B. Classification of Corporations

1.Private v. Public Corporation Boy Scout of the Phil. v. COA, June 7, 2011 ____________________26 Liban v. Gordon, July 15, 2009 Baluyot v. Holganza, 325 S 526 Vet. Fel. Of the Phil. v. Reyes, 483 S 526 MIA v. CA, 495 S 591

2.Stock (Sec. 3) v. non-Stock (Sec. 3 and 87)3. Open v. Close Corporation (Sec. 96 et. seq.)4.Domestic v. foreign Corporation (Sec. 123 et. seq.)5.Special Charter Corporation6.Educational (Sec. 106 et. seq.)7.Religious sole and aggregate (Sec. 109 et. seq.)

C.Stages in the Formation/Organization of a Corporation

1.Promotion March II Marketing v. Joson, December 12, 2011 _______________32 Cagayan Fishing v. Sandiko, 65 P 223 Caram v. CA, 151 S 372 Pioneer Insurance v. CA, 175 S 668 Rizal Light v. Municipality of Morong, 25 S 258

2.Incorporation3.Organization

D.Articles of Incorporation (Sec. 14 and 15): Contents Lanuza v. CA, 454 S 54 ______________________________________37

1.Corporate Name (Sec. 18) Alonso v. Cebu, 417 S 115 ___________________________________38 Industrial Refractories v. CA, 390 S 252 Ang mga Kaanib sa Iglesia ng Diyos v. Iglesia, December 12, 2001 Universal Mills v. Universal Textile Mills, 78 S 62 Lyceum of the Phil. v. CA, 219 S 610 Indiana Aerospace University v. CHED, April 4, 2001 Philips Export BV v. CA, 206 S 457

2.Primary Purpose (Sec. 14) Gala v. Ellice, 418 S 431 _____________________________________45 Heirs of Pael v. CA, December 7, 2001 Uy Siulong v. Director, 40 P 541 Asuncion v. De Yriarte, 28 P 67

3.Secondary Purpose/s (Sec. 14)

4.Principal Office/Domicile (Sec. 14) Davao Light and Power Co. v. CA, August 20, 2001 _____________49 Clavecilla Radio Sytem v. Antillon, 19 S 379 Sy v. Tyson Enterprise, 119 S 367 Young Auto Supply v. CA, 223 S 670

5.Term (Sec. 11 in rel. to Sec. 37, 81 and 120) Alhambra Cigar and Cigarette Mfg. v. SEC, 24 S 269 _____________53

6.Incorporators (Secs. 10 and 5)

7.Incorporating Directors (Sec. 14)

8.Capital Stocka)Authorized (Sec. 12)b)Subscribed (Sec. 13)c)Paid-up (Sec 13)

MISCI-NACUSIP Local Chapter v. NWPC, 269 S 173 ______________54

d)Outstanding (Sec. 143)e)Minimum Requirements for Incorporation

9.Classification of Shares (Sec. 6)a)Common v. Preferredb)Par value v. No par value sharesc)Voting v. Non-votingd)Founders Shares (Sec. 7)e)Redeemable Preferred (Sec. 8)f)Treasury (Sec. 9)

10.Subscribers (Sec. 14)11.Treasurer-in-trust (Sec. 15)12.Special Provisionsa)No Transfer Clause

13.Amendment and/or rejection of Articles of Incorporation (Secs. 16 and 17) Republic Planters Bank v. CA, 216 S 738 _______________________55

E. Commencement of Corporate Existence (Sec. 19)/Theory of Concession

F.Doctrine of Corporate Entity

G.Doctrine of Piercing the Veil of Corporate Fiction: Instances

1.Public Convenience Cases;2.Fraud Cases;3.Alter Ego/Instrumentality Cases. PNB v. Hydro Resources, March 13, 2013 ______________________57 Ramirez v. Mar Fishing, Inc., June 13, 2012 Sarona v. NLRC, January 18, 2012 Gold Line Tours v. heirs of Lacsa, June 18, 2012 Hacianda Luisita v. Presidential Agrarian Council, January 22, 2011 Pantranco Employees Assoc., et al. v. NLRC, March 17, 2009 Cagayan Valley Drug Corp v. CIR, 545 S 10 Heirs of Pajarillo v. CA, 537 S 96 Petron v. NLRC, 505 S 596 China Banking v. Dyne-Sem, 494 S 493 Marubeni v. Lirag, August 10, 2001 Francisco v. Mejia, August 14, 2001 PNB v. Andrada Electric, 382 S 244 AZCOR Mfg. v. NLRC, 303 S 26 Claparols v. CIR, 65 S 613 CIR v. Norton and Harrison, August 31, 1964 Concept Builders v. NLRC, 257 S 149 Complex Electronics Employees Assoc. v. NLRC, 310 S 403 Cordon v. Balicanta, October 4, 2002 Delpher Trades v. IAC, January 2, 1988 Del Rosario v. NLRC, July 24, 1990 First International Bank v. CA, 252 S 259 Francisco Motors v. CA, 309 S 73 Laguio v. NLRC, 262 S 709 Lim v. CA, 323 S 102 Matuguina Integrated Wood Products v. CA, 263 S 490 Manila Hotel Corp. v. NLRC, October 13, 2000 Norton and Harrison v. Collector, 11 S 74 San Juan Structural v. CA, 296 S 634 Tan Boon Bee v. Jarencio, 163 S 205 Telephone Engg and Service Co. v. WCC, 104 S 354 Umali v. CA, September 13, 1990 Vlason Enterprises v. CA, 310 S 26 Villa Rey transit v. Ferrer, October 29, 1968

H.De Facto Corporation (Sec. 20) Hall v. Piccio, 86 P 603 ______________________________________90

I.Corporation by Estoppel (Sec. 21) International Express v. CA, 343 S 74 __________________________91 Lim Tiong v. PFGI, Inc., 317 S 728 Albert v. University Publishing, 13 S 84

J.Non-user of Charters v. Continuous Inoperation (Sec. 22) Loyola Grand Villas v. CA, 276 S 681 __________________________94

II.BOARD OF DIRECTORS (SEC. 22 ET. SEQ.)

A.Nature of Office

B.Requirements1.Qualifications/Qualifying shares (Sec. 24) Villafuerte v. Moreno, October 2, 2009 ________________________95 Baguio v. CA, 26S 366 Detective and Protective Bureau v. Cloribel, 26 S 255 Grace Christian HS. CA, 281 S 133 Lee v. CA, 205 S 752

2.Disqualifications (Sec. 27) Brias v. Hord, 24 P 286 _____________________________________100

3.Residence4.NationalityC.Election (Sec. 24)1.Quorum2.Voting Aurbach v. Sanitary Wares, 180 S 131 ________________________101 Bataan Shipyard v. PCGG, 150 S 181

D.Report on Election (Sec. 26) Premium Marble v. CA, 264 S 11 _____________________________103

E.Term of Office/Holdover Seneres v. COMELEC and Robles, April 16, 2009 _______________104

F.How removed (Sec. 28) Lambert v. Fox, 26 P 588 ___________________________________105

G.How Vacancy filled (Sec. 29) Valle Verde Country Club v. Africa, September 4, 209 __________106

H.How Compensated (Sec. 30) Singson, et al. v. COA, August 9, 2010 ________________________107 Western institute v. Salas, 278 S 216 Central Coop Exchange v. Tibe, 33 S 593 Lingayen Gulf v. Baltazar, 93 P 404

I.Authority of the Board of Directors (Sec. 24) La Bugaal v. Ramos, 421 S 148 _________________________111 Shipside v. CA, 352 S 334 ABS-CBN v. CA, 301 S 573 Asset Privatization Trust v. CA, 300 S 582 BA Savings Bank v. Sia, 336 S 484 Montelibano v. Bacolod Murcia, 5 S 36 Powers v. Marshall, May 9, 1988 Premium Marble v. CA, 264 S 11 Ramirez v. Orientalist, 38 P 634

J.Delegation of Authority to Corporate Officers

1.Corporate Officers/meaning of Office vis--vis Employment Real v. Sangu Phil., January 19, 2011 _________________________120 Matling v. Coros, October 13, 2010 Manila Metal v. PNB, 511 S 444 Ongkiko v. NLRC, 270 S 613 Lao v. CA, 325 S 694 De Tevera v. Phil. Tuberculosis Society, 112 S 243

2.Corporate Officers (Sec. 25); Qualifications and Disqualifications; Authority and Liabilities Matling v. Coros, October 13, 2010 __________________________126 Okol v. Slimmers World, December 11, 2011 Gomez v. PNOC DMC, November 27, 2009 E.B. Villarosa and Partners, Co. v. Benito, 312 S 65 SSPC v. Bardaje, 522 S 155 Cagayan Valley Drug Corp v. CIR, 545 S 10 Pabon v. NLRC, 296 S 8 Vlason Enterprise v. CA, 310 S 26 Prime White Cement v. IAC, 220 S 103 Louis Vuitton SA v. Villanueva, 216 S 1213.Executive Committee (Sec. 35)

4.Doctrine of Apparent Authority Banate v. Philippine Countryside, July 13, 2010 ________________136 Sargasso v. PPA, July 5, 2010 Associated Bank v. Sps. Ponstroller, 3 September 2009 Acuna v. Batac Producers, 20 S 326 Board of Liquidators v. Kalaw, 20 S 987 Francisco v. GSIS, 7 S 577 Rural Bank v. Ocfemia, 325 S 99

K. Three-Fold Duties of Directors and Officers: Diligence, Loyalty and Obedience1.Duties (Sec. 31): Business Judgment Rule

2.Personal Liability of Directors and other Corporate Officers Ever Electrical v. Samahang Manggagawa, 13 June 2012 ________143 Harpoon v. Francisco, 2 March 2011 Ty v. NBI, 15 December 2010 Queensland-Tokyo Commodities v. George, 8 September 2010 Wensha Spa Center v. Yung, 16 August 2010 Cebu Mactan v. Masahiro, 17 July 2009 David v. National Federation of Labor Unions, 21 April 2009 Soriano v. People, BSP and PDIC, 30 June 2009 Cebu Country Club v. Elizagaque, 542 SCRA 65 Caltex Inc. v. NLRC, 536 SCRA 175 Atrium Management v. CA, 353 SCRA 23 ARB Construction v. CA 332 SCRA 426 Lim v. CA, 232 SCRA 102 Francisco v. Mejia, 14 August 2001 DBP v. CA, 16 August 2001 AHS Philippines v. CA, 257 SCRA 319 Complex Electronics v. NLRC, 310 SCRA 403 Crisologo-Jose v. CA, 15 September 1989 FCY Construction v. CA, 324 SCRA 270 Llamado v. CA, 270 SCRA 423 MAM Realty Development v. NLRC, 244 SCRA 797 Naguiat v. NLRC, 269 SCRA 564 Progress Homes v. NLRC, 269 SCRA 274 REAHS Corporation v. NLRC, 271 SCRA 247 Santos v. NLRC, 254 SCRA 673 Sia v. People, 121 SCRA 655 Tramat Mercantile v. CA, 238 SCRA 14

3.Self-Dealing Director/Officer Cojuangco v. Republic, 12 April 2011 _________________________170 Mead v. McCullough, 21 P 95 Prime White Cement v. IAC, 220 SCRA 103

4.Contracts between Corporations with Interlocking Directors Palting v. San Jose Petroleum, 18 SCRA 924 ____________________173 DBP v. CA, 363 SCRA 307

5.Disloyalty Gokongwei Jr. V. SEC, 89 SCRA 336 __________________________175 Strong v. Repide, 41 P 947

6.Watered Stocks Lirag Textile Mills v. SSS, 31 August 1987 ______________________177 Nava v. Peers Marketing, 25 November 1976

7.Derivative Suit: Remedies to Enforce Personal Liability Ang v. Ang, 19 June 2013 __________________________________179 Legaspi Towers 300 v. Muer, et. al, 18 July 2012 Lisam Enterprises v. BDO, 23 April 2012 STRADEC v. Radstock & PNCC, 4 December 2009 Yu v. Yukayguan, 18 June 2009 Gochan v. Young, 12 March 2001 Western Institute v. Salas, 278 SCRA 216 First International Bank v. CA, 252 SCRA 259 Commart Philippines v. SEC, 198 SCRA 73 Chase v. Buencamino, 136 SCRA 367 San Miguel Corporation v. Kahn, 11 August 1989 Everett v. Asia Banking, 49 P 512 Gamboa v. Victoriano, 90 SCRA 40 Reyes v. Tan, 3 SCRA 198 Pascual v. Orozco, 19 P 84

III.POWERS OF CORPORATION (SECS. 36, ET. SEQ.)

A.In General (Sec. 36 in rel. to Arts. 44-46 of the Civil Code of the Philippines)

1.Theory of Special Capacities v. Theory of General Capacities Acebedo Optical v. CA, 31 March 2000 _______________________193

2.Express, Implied and Incidental Powers, Distinguished Pilipinas v. SEC, 356 SCRA 193 _______________________________194 Luneta Motors v. Santos, 5 SCRA 809 Teresa Electric v. PSC, 21 SCRA 199 Powers v. Marshall, 9 May 1988

3.Power to Have/Use Corporate Name and Seal Laureano Investment v. CA, 272 SCRA 253 ____________________198

4.Power to sue and be sued Tam v. Hon. Makasiar, 29 January 2001 _______________________199 Bitong v. CA, 292 SCRA 503 Special Services Corporation v. Centro La Paz, 28 April 1983 R Transport Corporation v. CA, 241 SCRA 76

5.Power to acquire, dispose, encumber propertyArt. XII, Section 2-3, 1987 Constitution Director of Lands v. CA, 14 March 1988 _______________________203

6.Power to Make Donations Pirovano v. Dela Rama Steamship Co., 96 P 335 ________________204

7.Other Powers

B. To Increase or Decrease Capital Stock (Sec. 38) Madrigal V. Zamora, 51 S 355 ______________________________________205 Philtrust v. Rivera, 44 P 469

C.To Incur, Create, Or Increase Bonded Indebtedness (Sec. 38)

D. To Deny Pre-Emptive Rights (Sec. 39) Datu Benito v. SEC, 123 S 722 and __________________________________207 Dee v. SEC, 199 S 238 as clarified through SEC Letter Opinion, 10 March 2000 PCGG v. SEC, 30 June 1988 Republic v. Sandiganbayan, 4 December 2000

E.To Sell Or Otherwise Dispose Of All or Substantially All Of Corporate Assets (Sec. 40) In relation to Bulk Sales Law PNB v. Andrada Electric, 381 S 244 __________________________________211 Islamic Directorate v. CA, 272 S 454 Edward J. Nell Co. v. Pacific Farms, 15 S 415 Esguerra v. CA, 3 February 1997 Lopez Realty v. Fontecha, 247 S 183

F. To Invest Corporate Funds In Another Corporation or Business (Sec. 42) Gokongwei v. SEC, 89 S 336 _______________________________________216 Dela Rama v. Ma-ao Sugar, 7 S 247

G. To Acquire Own Shares (Sec. 41) Boman Environmental v. CA, 22 November 1988 _____________________218 Steinberg v. Velasco, 52 P 953

H. To Declare Dividends

1. Kinds: Cash, Stock, Property, Scrip Conjuangco v. Republic, 24 April 2009 ________________________2202. Declaration, Payment and Record Dates Cojuangco, et al v. Sandiganbayan, 24 April 2009 _______supra (220)

3. Limitation on Retention of Surplus Profits Steinberg v. Velasco, 52 P 953 _______________________________222 Nielson v. Lepanto, 26 S 540 CIR v. Manning, 66 S 14 Madrigal v. Zamora, 151 S 355 Republic Planters v. Agana, 269 S 1 Bitong v. CA, 292 S 503 CIR v. CA, 301 S 152

I.To Enter into a Management Contract (Sec. 44) Aurbach v. Sanitary Wares, 180 S 131 (joint venture) __________________229 PNB v. Producers Warehouse, 42 P 608 Nielson and Co. v. Lepanto Mining, 26 S 541 Tuason v. Bolanos, 28 May 1954

J.Ultra Vires Acts (Sec. 45) Heirs of Pael v. CA, 371 S 587 ______________________________________233 Pilipinas Loan v. SEC, 356 S 193 Crisologo v. Ca, 117 S 594 Carlos v. Mindoro Sugar, 57 P 343 Pirovano v. Dela Rama Steamship Co., 96 P 335 Republic v. Acoje Mining, 7 S 361 Republic v. Security Credit and Acceptance Corp., 19 S 58

IV.BY-LAWS (Sec. 46, et. seq)

A. Function Nakpil v. IBC, 370 S 653 ___________________________________________240 PMI Colleges v. NLRC, 277 S 462 Loyola Grand Villas v. CA, 276 S 681 Citibank NA v. Chua, 220 S 75

B.Kinds

C.When to adopt and file (Sec. 46) Loyola Grand Villas v. Ca, 276 S 681 _________________________________244

D. Contents (Sec. 47)1.SEC policy on date of annual stockholders meeting

2.Authority to elect additional by-laws officers Fleischer v. Botica Nolasco, 47 P 583 __________________________245 Gokongwei Jr. v. SEC, 89 S 336 Government v. El Hogar Filipino, 50 P 399

E.Amendment and/or rejection of By Laws Salafranca v. PhilAmLife, 300 S 469 _________________________________248

V.MEETINGS OF STOCKHOLDERS AND THE BOARD OF DIRECTORS

A. Kinds (Sec. 49) Pena v CA, 193 S 717 ________________________________________249

B.When and where held (Secs. 50, 51 and 52 in rel. to Sec 93)

C.Notice required (Secs. 50 and 53) Board of Liquidators v. Tan, 105 P 426 _______________________________250

D.Quorum required (Secs. 25 and 52) Javellana v. Tayo, 29 December 1962 _______________________________251

E.Who presides (Sec. 54)

F. Who could attend and vote (Secs. 25 and 58) Sales v. SEC, 13 January 1989 ______________________________________252 Ponce v. Encarnacion, 94 P 81 Lopez v. Ericta, 45 S 539

VI.VOTING

A.Who May Exercise Gamboa v. Teves, 28 June 2011 ____________________________________255 COCOFED, et al. vs. Republic, 11 February 2010 ______________________257 Republic v. COCOFED, 372 S 462 Lee v. CA, 205 S 752 Republic v. Sandiganbayan, 402 S 84

B. Pledgors, mortgagors, executors, receivers and administrators (Sec. 55)C.Joint owners of stack, ITF shares, and/or shares (Sec. 56)D. Non-voting shares (Sec. 6)E. Treasury Shares (Sec. 57 in rel. to Sec. 9)F. Proxies (Sec. 58)

G.Voting trust agreement (Sec. 59) Cordon v. Balicanta, 4 October 2002 ________________________________261 NIDC v. Aquino, 163 S 153 Lambert v. Fox, 26 P 588

VII.CAPITAL STRUCTURE STOCKS AND STOCKHOLDERS

A.Capital Stock, Meaning

1.Distinguished from Capital

2.Authorized (Sec. 12)

3.Subscribed (Sec. 13)

4.Paid-up (Sec. 13)

5.Outstanding (Sec. 143)

6.Pre-requisites to Incorporation (Sec. 13)7.As Legal/Stated Capital: Trust Fund Doctrine PLDT v. NTC, 539 S 365 _____________________________________264 NTC v CA, 370 P 538 (1999)

8.As Nationality Basis: Control Test vs. Grandfather Rule

9.Voting Control Test v. Beneficial Control TestR.A. 7042, Foreign Investment Act, as amendedSEC Letter-Opinion dated 28 November 2007 Gamboa v. Teves, 28 June 2011 and 9 October 2012 ___________266 Express Investment v. BayanTel, 5 December 2012 _____________268 Redmont Consolidated v. McArthur Mining, SEC En Banc Case No. 09-09-177, 25 March 2010 _____________________________________270 Agan v. PIATCO, 21 January 2004 ____________________________271

B. Classification of Shares (Sec. 6)

1. Par Value v. No Par Value Shares2. Voting v. Non-voting Gamboa v. Teves, 28 June 2011 _______________________supra (266) Castillo v. Balinghasay, 18 October 2004 ______________________272 Sales v. SEC, 169 S 109

3. Common v. Preferred4. Kinds of Preferred Shares5. Founders Shares (Sec. 7)

6. Redeemable Preferred (Sec. 8) Republic Planters Bank v. Agana, 269 S 1 _____________________274

7. Treasury (Sec. 9) CIR v. Manning, 66 S 14 _____________________________________275 San Miguel Corporation v. Sandiganbayan, 14 September 2000

C. Trust Fund Doctrine National Telecommunications Commission v. SEC, 311 S 509 ________277 Ong v. Tiu, 401 S 1

D. What is an issue

E. What is a subscription (Sec. 60) Ong v. Tiu, 401 S 1 ____________________________________________279 Bayla v. Silang Traffic, 73 P 557 Salmon, Dexter and Co. v. Unson, 47 P 649 Sunset View Condominium v. Campos, 104 S 295 Velasco v. Poizat, 37 P 802

F. Acquisition and Ownership of Shares in a Corporation; Extent of Proprietary Right/Doctrine of Limited Liability

Cojuangco v. Republic, 12 April 2011 ____________________________284 Espiritu v. Petron, 24 November 2009 Crisostomo v. SEC, 179 S 146 Garcia v. Lim, 59 P 562 Magsaysay-Labrador v. CA, 180 S 266 Nicolas v. CA, 27 March 1998 Ramos v. CA, 179 S 719 Saw v. CA, 195 S 740

G. Pre-incorporation Subscriptions (Sec. 61)

H.Consideration for Stocks (Sec. 62) Apodaca v. NLRC, 172 S 442 ____________________________________292 Fua Cun v. Summers, 44 P 705 National Exchange Co. v. Dexter, 51 P 601 Nielson and Co. v. Lepanto Mining, 26 S 541 Trillana v. Quezon College, 93 P 383

I. Unpaid Subscriptions

1. Interest on unpaid subscriptions (Sec. 66)2. Right of unpaid shares (Sec. 72)3. Collection of unpaid subscription

a) Call: When necessary (Sec. 67) Garcia v. Suarez, 67 P 441 _________________________297 PNB v. Bitulok Sawmill, 23 S 1366 Velasco v. Poizat, 37 P 802

b) Court action (Sec. 70) Lumanlan v. Cura, 59 P 746 ________________________300 Edward Keller v. COB Group Marketing, 16 January 1986

4. How shares become delinquent (Sec. 67)

5. Effect of Delinquency (Sec. 71 in rel. to Sec. 43) Valley Golf & Country Club, Inc. v. Caram, 16 April 2009 ______302 Calatagan Golf Club, Inc. v. Clemente, Jr., 16 April 2009

6. Delinquency Sale (Sec. 68)7. Grounds to Question Delinquency Sale (Sec. 69)

J. Issuance of Certificates of Stock (Sec. 64) Fua Cun v. Summers, 44 P 705 as compared with __________________304 Baltazar v. Lingayen Gulf, 14 S 522 Tan v. SEC, 206 S 740 Embassy Farms v. CA, 188 S 492

K. Right to Transfer of Shares/Validity of Restrictions on Right (Sec. 98 in rel. to S15) Makati Sports Club v. Cheng, 16 June 2010 _______________________308 Fleischer v. Botica Nolasco, 47 P 583 Padgett and Babcock v. Templeton, 59 P 232 Rural Bank of Salinas v. CA, 210 S 510 Thompson v. CA, 298 S 280 Yuchengco v. Velayo, 115 S 307 Lim Tay v. CA, 293 S 634

L. Transfer of Shares of Stock and Registration (Sec. 63) Musni Puno v. Puno Enterprises, 11 September 2009 _______________315 Cojuangco, et al v. Sandiganbayan, 24 April 2009 Republic v. Sandiganbayan, 402 S 84 Rural Bank of LIpa v. CA, 366 S 188 BLTB v. Bitanga, 10 August 2001 Abejo v. Dela Cruz, 149 S 643 Batong Buhay Gold Mines v. CA, 147 S 4 Chemphil Export v. CA, 251 S 257 Chua Guan v. Samahang Magsasaka , 62 P 472 CIR v. Anglo-California Bank, 106 P 903 Delos Santos v. Republic, 96 P 577 De Erquiaga v. CA, 27 September 1989 Garcia v. Jomouad, 26 January 2000 Lopez v. CA, 114 S 671 Monserrat v. Ceron, 58 P 469 Puyat v. De Guzman, 113 S 31 Razon v. IAC, 207 S 234 Rivera v. Florendo, 144 S643 Santamaria v. Hongkong and Shanghai Bank, 89 P781 Torres v. CA, 278 S 793 Won v. Wack-wack Golf and Country Club, 104 P 466

M. Lost or Destroy Certificates (Sec. 73) PHILEX Mining v. Reyes, 118 S602 _______________________________336

VIII.CORPORATE BOOKS AND RECORDS

A.Books to be kept (Sec. 74)

1.Stock and transfer book Bitong v. CA, 292 S 503 __________________________________337

2.Stock transfer agent (Sec. 74)3.Minutes book4.Record of Business transactions

B.Inspection of corporate books and records (Sec. 74) Sy, et al. v. 30 March 2009 ______________________________________338 Africa v. PCGG, 205 S39 RP V. Sandiganbayan, 199 S 39 Gokongwei v. SEC, 89 S 336 Gonzales v. PNB, 122 S 489 Pardo v. Hercules Lumber, 47 P 964 Philpotts v. Philippine Manufacturing Co, 40 P 471 Republic v. Sandiganbayan, 199 S 39

C.Right to financial statements (Sec. 75)

IX.MERGER AND CONSOLIDATION

A.Corporate Combinations, Purposes and MethodsB.Constituent corporation vs. consolidated corporation (Sec. 76)C.Corporate approvals required (Sec. 77)D.Plan of merger or consolidation (Sec. 76)E.Articles of merger or consolidation (Sec. 78)

F.Effects of merger or consolidation (Sec. 80) BPI v. BPI Employees Union, 18 August 2010 ______________________346 PNB v. Andrada Electric, 381 S 244 Babst v. CA, 135 S 37 Associated Bank v. CA, 290 S 639 Alger Electric v. CA, 135 S 37 CIR v. Norton and Harrison, 11 S 714 CIR v. Rufino, 27 February 1987 CIR v. Bio Hong, 8 April 1991

X.APPRAISAL RIGHT

A.Instances of appraisal right (Sec. 81)B.Requirements of exercise of appraisal right (Sec. 82 and 86)C.Effect of demand (Sec. 83)D.Who bears costs of appraisal (Sec. 85)E.Notation on stock certificates of dissenting stockholders (Sec. 86)

XI. NON-STOCK CORPORATIONS

A. Purposes (Sec. 88) Chinese YMCA v. Ching, S 460 __________________________________354 CIR v. Club Filipino, 5 S 321

B. Distribution of Income (Sec. 87)C. Scope to right to vote (Sec. 89)

D. Voting (Sec. 89) Litonjua v. CA, 286 S136 _______________________________________356 PPSTA v. Apostol, 55 S 743

E. Transferability of interest or membership (Sec. 90)F. Governing Board (Sec. 92) 1.Number 2.Term

G. Election of Officers (Sec. 92)H. Place of meetings (Sec. 93)I. Distribution of assets in case of dissolution (Sec. 94)

XII.CLOSE CORPORATIONS

A.Requirements for formation (Sec. 96) Dulay Enterprises v. CA, 225 S 658 _______________________________358 San Juan Structural Steel v. CA, 296 S 63 Naguiat v. NLRC, 269 S 54

B.Restrictions on formation of close corporations (Sec. 96)

C.Distinctions from regular corporations1.Management (Sec. 97) 2.Meetings (Sec. 101)3.Voting (Sec. 97)4.Quorum (Sec. 97)5.Board authority (Sec. 97)6.Pre-emptive rights (Sec. 102)7.Buy back of shares8.Resolutions of deadlocks (Sec. 104)

D.Provisional director (Sec. 104)E.Appraisal right in regular corporations vs. withdrawal right of a stockholder of a close corporation (Sec. 105)

XIII.SPECIAL CORPORATIONS

A.Educational corporations1.Distinguished from ordinary stocks / Non-Stock Corporations2.Art. IV, Sec. 28 (3) in rel. to Art. XIV, Sec. 4 (2)(3)(4), 1987 ConstitutionB.Religious corporations

1.Art. IV, Sec. 28 (3) and Art. 29 (2), 1987 Constitution RP v. IAC, 15 January 1988 _______________________________361 Director of Lands v. CA, 14 March 1988

2.Corporation sole

3.Corporation aggregate IEMELIF, Inc., et al. v. Bishop Lazaro, et al., 6 July 2010 _______363 IEMELIF, Inc., et al. v. Juane, 18 September 2009

XIV.DISSOLUTION OF CORPORATIONS

A.Methods

1.Voluntary

a.Where creditors are not affected (Sec. 118) Vesagas v. CA, 5 December 2001 ___________________365

b.Where creditors are affected (Sec. 119) Avon Dale Garments v. NLRC, 246 S 733 ____________366 Daguhoy Enterprises v. Ponce, 96 P 15

2.Involuntary (Sec. 121 in rel. to Sec. 6, par. N, PD 902-A) PNB v. CFI of Pasig, 209 S 294 ____________________________368

3.Shortening of corporate term (Sec. 120 in rel. to Secs. 16 and 37)

B.Liquidation (Sec. 122)

1.Methods Metropolitan v. Centro Development, 13 June 2012 _________369 Metropolitan Bank Inc. v. Riverside Mills, 8 September 2010 Yam v. CA, 303 S 1 Alhambra Cigar and Cigarette Mfg. v. 24 S 269 Chungka Bio v. IAC, 26 July 1988 Republic v. Marsman Dev., 27 April 1972 Tan Tiong Bio v. CIR, 4S 986

2.Duration Reynolds, Phil. V. ca, 169 s 220 ___________________________376 Mambulao v. PNB, 22 S 359

3.Powers of corporation at liquidation Aguirre v. FQB7, 9 January 2013 __________________________378 Catmon Sales v. Liquidator, 15 January 2010 Knecht v. United Cigarette, 384 S 45 Chua v. NLRC, 190 S 558 Clemente v. CA, 242 S 717 Gelano v. CA, 103 S 90 Reburian v. CA, 301 S 344 Republic Planters Bank v. CA, 216 S 738

XV. FOREIGN CORPORATIONS

A.Definition and Rights Avon v. Court of Appeals, August 29, 1997 ________________________386 San Jose Petroleum v. Court of Appeals, 18 SCRA 591

B. Requirements for the Establishment of a Branch/License to do Business in the Philippines

1.Documentary Georg Grotjahn vs. Isnani, 235 SCRA 216 __________________388

2.Deposit

3.Appointment of Resident Agent New York Marine Managers vs. CA, 249 S 417 ______________389

C. Applicable laws

D. Amendment of License Aetna Casualty vs. Pacific Star, 29 December 1977 __________________390 Bulakhidas vs. Navarro, 7 April 1986 Shmid and Oberly vs RJL, 18 October 1988

E. Doing business with or without license: Suits By or Against Foreign Corporation AM No. 11-3-6-SC New Rule on Service Summons on Foreign Juridical Entities Steelcase, Inc. vs. Desing International, 18 April 2012 _______________393 PDIC vs. Citibank, 11 April 2012 Cargill, Inc. vs. Intra Strata, 15 March 2010 Sehwani vs. In and Out Burger, 536 S 225 MR Holdings vs. Bajar, 380 S 617 Commissioner of Customs vs. KMK Gani, 182 S 591 Communications an Materials Designs vs. CA, 260 S 144 Columbia Pictures vs. Court of Appeals, 261 S 144 Eriks PTE Ltd. Vs. CA, 276 S 567 Far East International vs. Nnkai Kogyo, 6 S 725 Facilities Management vs. Dela Osa, 89 S 131 HB Zachray and Co. vs. Court of Appeals, 232 S 29 Hutchison Ports vs. SBMA, 31 August 2000 La Chemise Lacoste vs. Fernandez, 129 S 373 Marubeni Nederlands vs. Tensuan, 28 September 1990 Phil. Columbia vs. Lantin, 39 S 376 Philip Morris vs. Fortune Tobacco, 493 S 333 Puma vs. IAC, 158 S 233 SBMA vs. Universal International, 14 September 2000 Tibe vs. Reyes, 39 S 304 Universal Rubber vs. Court of Appeals, 130 S 104 Van Zuiden vs. GTVL Industries, 523 S 233SECURITIES AND EXCHANGE COMMISSION LAW(P.D. No. 902-A, as Amended by R.A. No. 8799 or Securities Regulation Code)

I.STRUCTURE OF THE SECURITIES AND EXCHANGE COMMISSION

II.ENTITIES UNDER ABSOLUTE JURISDICTION, SUPERVISION AND CONTROL OF THE SEC

A.Corporations, partnerships or associations which are grantees of primary franchisesB.Investment Houses C.Financing Companies

III.POWERS AND FUNCTIONS OF THE SEC SEC vs. PFEC, 495 S 579 _______________________________________________415 Arranza vs. B.F. Homes, Inc., 19 June 2000 Quasha vs. SEC, 83 S 557 Traders Royal Bank vs. Court of Appeals, 26 September 1989 VICMAR Development vs. Court of Appeals, 185 S 634

IV.ORIGINAL AND EXCLUSIVE JURISDICTION OF THE REGIONAL TRIAL COURTS Orendain vs. BF Homes, 506 S 634 _____________________________________420 Pascual vs. Court of Appeals, 339 S 117

A.Devices of schemes amounting to fraud of misrepresentation Fabia vs. Court of Appeals, 388 S 574 ____________________________422 A & A continental vs. SEC, 225 S 314 Alleje vs. Court of Appeals, 240 S 495 Banez vs. Dimensional Construction , 140 S 249 Sesbreno vs. Court of Appeals, 240 S 606

B.Controversies arising out of intra-corporate of partnership relations Aguirre vs. FQB7, 9 January 2013 _______________________________427 Go, Lim, et al. vs. Distinction Properties, 25 April 2012 Strategic Alliance vs. Star Infrastructure, 17 November 2010 GD Express vs. Court of Appeals, 8 May 2009 Iglesia vs. Juane 18 September 2009 GD Express Worldwide N.V. vs. Court of Appeals, 8 May 2009 Intestate Estate of Ty vs. Court of Appeals, 356 S 661 Fabia vs. Court of Appeals, 363 S 427 Vesagas vs. Court of Appeals, 371 S 508 Abejo vs. Dela Cruz, 149 S 654 Aguinaldo vs. SEC, 163 S 262 Pereyra vs. IAC, 181 S 244 Mainland Construction vs. Molvilla, 250 S 290 SEC vs. Court of Appeals, 201 S 124 Sunsetview Condominum vs. Campos, 104 S 295 Western Institute of Technology vs. Salas, 21 August 1997

C.Controversies in the Election or appointment of corporate officers Real v. Sangu Phil., 19 January 2011 _____________________________442 March II marketing v. Joson, 12 December 2011 Matling v. Coros, 13 October 2010 Garcia v. Eastern Telecom, 1 April 2009 De Rossi v. NLRC, 314 S 245 Espino v. NRC, 240 S 52 Estrada v. NLRC, 262 S 709 Islamic Directorate v. CA 272 S 454 Ongkiko v. NLRC, 270 S 613 Paguio v. NLRC, 253 S 166 Pearson and George v. NLRC, 253 S 136 Apodaca v. NLRC, 172 S 442 PSBA v. Leano, 127 S 778 Tabang v. NLRC, 266 S 462 Union Motors v. NLRC, 314 S 531

D.Petitions for declaration in the state of suspension of paymentsR.A. 10142 The Financial Rehabilitation and Insolvency Act of 2010A.M. No. 12-12-11-SC 2013 Financial Rehabilitation Rules of Procedure Express Investment v. Bayantel, 5 December 2012 _________________457 Advent Capital v. Alcantara, 25 January 2012 Siochi Fichery v. BPI, 19 October 2011 Panililio v. RTC, 2 February 2011 Castillo v. Uniwide Warehouse, 30 April 2010 Pacific Wide v. Puerto Asul, 25 November 2009 PNB and ECPIB v. CA, 20 January 2009 Pryce Corp. v. CA, 543 S 657 Uniwide v. Jandecs Corp. 541 S 158 BPI v. SEC, 541 S 294 Ching v. Land Bank of the Philippines, 201 S 191 PCIB v. CA, 18 April 1989 Radiola-Toshiba v. IAC, 18 July 1991 RCBC v. IAC, 213 S 223 Rubberworld v. NLRC, 305 S 722 Union Bank v. CA, 19 May 1998

SECURITIES REGULATIONS CODE(Republic Act No. 8799)

I.OVERVIEW OF THE FINANCIAL MARKETS

A.Capital Markets1.Equities Capital (e.g. stock market)2.Debt Capital (e.g. money market or bond market)

B.Non-Capital Markets1.Commodities Market2.Foreign Exchange Market3.Options Market

II.REGISTRATION OF SECURITIES

A.Securities Defined (Sec. 3.1)B.Elements of an Investment Contract Securities and Exchange Commission v. W.J. howey Co., 328 U.S. 293 (1946) Securities and Exchange Commission v. prosperity.Com, Inc., 25 January 2012 Power homes Unlimited v. SEC and Manero, 2 February 2008 SFC v. Performance, 495 S 579 Suzuki v. De Guzman, 496 S 651 Baviera v. Paglinawan, 515 S 170

C.What securities are required to be registered (Sec. 8) Timeshare Realty v. Lao, 544 S 254 Makati Stock Exchange v. SEC, 14 S 620 La Orden v. Stiver and Philtrust, 93 P 341 Philippine Stock Exchenge v. SEC, 281 S 232

D.Exempt Securities (Sec. 9)

E.Exempt Transactions 9Sec 10) Timeshare Realty Co. v. Lao, 522 S 254 Nestle Phils. V. CA, 203 S 504

F.Public Companies Philippine Veterans Bank v. Callangan, 3 August 2011

G.Registration Statement (Sec. 12)1.Contents (Sec. 12.1-2.3)2.Attachments3.Signature (Sec. 12.4)

H.Grounds for Rejection of Registration Statement (Sec. 13)

I.False Registration (Sec. 56)J.Limitations on Actions for False Registration Statement (Sec. 62)

III.TRADING IN SECURITIES

A.Margin Requirements (Sec. 48) and Restrictions on Borrowings (Sec. 49)

Carolina Industries v. CMS Stock Brokerage, 97 S 734

B.Brokers/Dealers: Chinese Wall; Self-Regulatory Organizations; Stock ExchangeC.Regulation of Options Trading (Sec. 25)1.Option2.Put3.Call4.Straddle or Spread

D.Manipulations of Security Prices; Devices and Practices (Sec. 24)1.Boiler Room Operations2.Wash Sales3.Daisy Chain4.Painting the Tape5.Marketing the Close6.Hype and Dump7.Short Sale8.Matched Order9.Stop-Loss Order

E.Fraudulent Transactions (Sec. 26)

Phil. Asso. Of Stock Transfer and Agencies v. CA SEC v. CA, 246 S 738 Onapal v. CA, 218 S 281

F.Insiders Duty to Disclose When Trading (Sec. 27)1.Insider Defined2.Material or Significant Facts Strong v. Repide, 41 P 947

3.Disclosure Regulations for Publicly-Listed Shares Union Bank of the Phil. v. SEC, June 2001

IV.PROTECTION OF SHAREHOLDERS INTEREST

A.Tender Offers (Sec. 19) CEMCO v. National Life, 7 August 2007B.Transactions of Directors, Officers and Principal Stockholders (Sec 23)

V. LIABILITIES

A.Administrative Sanctions (Sec. 54)B.Civil Liabilities (Secs. 58-61)1.Amount and Kinds of Damages (Sec. 63.1)2.Solidary Liability (Secs. 63.2 and 63.3)3.Limitation of Actions (Sec. 62)C.Criminal Liabilities (Sec. 73)D.Settlements/Nolo Contendere or Consent Decree (Sec. 55)

CORPORATION CODE(Batas Pambansa Blg. 68)

Formation and Organization of Corporations Attributes of Corporation

PETRON CORPORATIONvs.NATIONAL COLLEGE OF BUSINESS AND ARTSG.R. No. 155683. February 16, 2007

FACTS:

The V. Mapa properties owned by Felipe and Enrique Monserrat, Jr., were mortgaged to DBP as part of the security for the loan of P5.2 million by MYTC and Monserrat Co. MYTC mortgaged four parcels of land located in Manila. One-half of Felipes undivided interest in the V. Mapa properties was levied upon in execution of a money judgment rendered by the RTC in the Manila case. DBP challenged the levy through a third-party claim asserting that the V. Mapa properties were mortgaged to it and were, for that reason, exempt from levy or attachment. The RTC quashed it. MYTC and the Monserrats got DBP to accept a dacion en pago arrangement whereby MYTC conveyed to the bank the four mortgaged Quiapo properties as full settlement of their loan obligation. But despite this agreement, DBP did not release the V. Mapa properties from the mortgage. Felipe, acting for himself and as Enriques attorney-in-fact, sold the V. Mapa properties to respondent NCBA. The Monserrats failed to comply with this undertaking. This instigated the civil action filed by NCBA.During the pendency of the case, of Enriques undivided interest in the V. Mapa properties was levied on in execution of a judgment of the Makati case holding him liable to Petron on a 1972 promissory note. Petron, the highest bidder, acquired both Felipes and Enriques undivided interests in the property. Petron intervened in the NCBA case.

ISSUE:

Whether or not Petron should be held liable for exemplary damages and attorneys fees.

RULING:

NO.

Article 2208(5) contemplates a situation where one refuses unjustifiably and in evident bad faith to satisfy anothers plainly valid, just and demandable claim, compelling the latter needlessly to seek redress from the courts. In such a case, the law allows recovery of money the plaintiff had to spend for a lawyers assistance in suing the defendant expenses the plaintiff would not have incurred if not for the defendants refusal to comply with the most basic rules of fair dealing. It does not mean, however, that the losing party should be made to pay attorneys fees merely because the court finds his legal position to be erroneous and upholds that of the other party, for that would be an intolerable transgression of the policy that no one should be penalized for exercising the right to have contending claims settled by a court of law. In fact, even a clearly untenable defense does not justify an award of attorneys fees unless it amounts to gross and evident bad faith.No gross and evident bad faith could be imputed to Petron merely for intervening in NCBAs suit against DBP and the Monserrats in order to assert what it believed and had good reason to believe. The rule in this jurisdiction is that the plaintiff must show that he is entitled to moral, temperate or compensatory damages before the court may even consider the question of whether exemplary damages should be awarded. No exemplary damages may be awarded without the plaintiffs right to moral, temperate, liquidated or compensatory damages having first been established.ASSET PRIVATIZATION TRUSTvs.COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS S. CABARRUS, JR., JAIME T. CABARRUS, JOSE MIGUEL CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO U. MIRANDA, and MIGUEL M. ANTONIO, as Minority Stock-Holders of Marinduque Mining and Industrial CorporationG.R. No. 121171. December 29, 1998

FACTS:

MMIC, PNB and DBP executed a Mortgage Trust Agreementwhereby MMIC, as mortgagor, agreed to constitute a mortgage in favor or PNB and DBP as mortgagees, over all MMIC's assets. Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly includes the event that the MORTGAGOR shall fail to pay any amount secured by this Mortgage Trust Agreement when due. In various requests for advances/remittances of loans if huge amounts, Deeds of Undertaking, Promissory Notes, Loan Documents, Deeds of Real Estate Mortgages, MMIC invariably committed to pay either on demand or under certain terms the loans and accommodations secured from or guaranteed by both DBP and PNB. Because of the tremendous loans obtained, a financial restructuring plan (FRP) designed to reduce MMIC's interest expense through debt conversion to equity was drafted SGV, however, it was never adopted.The various loans and advances made by DBP and PNB to MMIC had become overdue and since any restructuring program relative to the loans was no longer feasible, and in compliance with the directive of Presidential Decree No. 385, DBP and PNB as mortgagees of MMIC assets, decided to exercise their right to extrajudicially foreclose the mortgages in accordance with the Mortgage Trust Agreement. The assets were eventually transferred to APT. SHs of MMIC thereafter filed a derivative suit against DBP and PNB praying that the foreclosure be annulled, that the FRP be followed and damages. In arbitration proceedings, MMIC obtained a favorable decision. Court of Appeals denied due course and dismissed the petition for certiorari.

ISSUE:

Whether or not theMMIC is entitled to moral damages.

RULING:

NO.

As a rule, a corporation exercises its powers, including the power to enter into contracts, through its board of directors. While a corporation may appoint agents to enter into a contract in its behalf, the agent should not exceed his authority. In the case at bar, there was no showing that the representatives of PNB and DBP in MMIC even had the requisite authority to enter into a debt-for-equity swap. And if they had such authority, there was no showing that the banks, through their board of directors, had ratified the FRP.Further, how the MMIC could be entitled to a big amount of moral damages when its credit reputation was not exactly something to be considered sound and wholesome. Under Article 2217 of the Civil Code, moral damages include besmirched reputation which a corporation may possibly suffer. A corporation whose overdue and unpaid debts to the Government alone reached a tremendous amount of P22 Billion Pesos cannot certainly have a solid business reputation to brag about.

MAMBULAO LUMBER COMPANYvs.PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of Camarines NorteG.R. No.L-22973.January 30, 1968

FACTS:

Plaintiff applied for an industrial loan of P155, 000.00 with the PNB and the former offered real estate, machinery, logging and transportation equipment as collaterals. The application was approved for a loan of P100, 000.00 only. To secure the payment of the loan, the plaintiff mortgaged to defendant PNB a parcel of land, together with the buildings and improvements existing thereon, situated in the province of Camarines Norte, and covered by TCT No. 381 of the land records of said province, as well as various sawmill equipment, rolling unit and other fixed assets of the plaintiff, all situated in its compound in the aforementioned municipality.PNB released from the approved loan the sum of P27, 500.00, for which the plaintiff signed a promissory note wherein it promised to pay to the PNB. PNB made another release of P15,500.00 as part of the approved loan granted to the plaintiff and so on the said date, the latter executed another promissory note. Plaintiff failed to pay the amortization on the amounts released to and received by it. Repeated demands were made upon the plaintiff to pay its obligation but it failed or otherwise refused to do so. Upon inspection and verification made by employees of the PNB, it was found that the plaintiff had already stopped operation.PNB initiated steps to have the properties extrajudicially foreclosed. The Plaintiff opposed. The foreclosure sale of the parcel of land, together with the buildings and improvements thereon, was held and the said property was sold to the PNB for the sum of P56, 908.00, subject to the right of the plaintiff to redeem the same within a period of one year. PNB sold the properties to Mariano Bundok. The Security guard of the properties refused to let PNBs successor in interest to retrieve properties inside the premises of the property bought by them.RTC sentenced the Mambulao Lumber Company to pay to the defendant PNB. Mambulao therefore appealed.

ISSUE:

Whether or not a corporation can be awarded moral damages.

RULING:

NO.

An artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis or moral damages.A Corporation may have a good reputation if besmirched, may also be a ground for the award of moral damages. The same cannot be considered under the facts of this case, however, not only because it is admitted that herein appellant had already ceased in its business operation at the time of the foreclosure sale of the chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the chattels could have upon its reputation or business standing would undoubtedly be the same whether the sale was conducted at Camarines Norte, or in Manila which is the place agreed upon by the parties in the mortgage contract.But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila as provided for in the mortgage contract, to which their attentions were timely called by herein appellant, and in disposing of the chattels in gross for the miserable amount of P4, 200.00, herein appellant should be awarded exemplary damages in the sum of P10, 000.00. The circumstances of the case also warrant the award of P3, 000.00 as attorney's fees for herein appellant.

HANIL DEVELOPMENT CO., LTD.vs.COURT OF APPEALS AND M.R. ESCOBAR EXPLOSIVE ENGINEERS, INC.G.R. No. 113176.July 30, 2001

FACTS:

MPWH awarded petitioner Hanil the contract to construct the 200-kilometer Iligan-Cagayan de Oro-Butuan Highway Project. Hanil sub-let the rock-blasting work portion of the contract to private respondent Escobar. For the duration of the contract, it worked on the segments of the construction undertaking designated in the agreement as A-2, B-2, B-3, B-4, and C-1. It was fully paid for the areas A-2 and B-4. It claimed, however, that Hanil still partially owes it one million three hundred forty one thousand seven hundred twenty-seven and 40/100 (P1, 341,727.40) pesos for blastings done in the B-2, B-3 and C-1 areas. The claim was predicated on the theory that the rocks it caused to explode in the contested areas were solid in nature, and therefore the volume should be computed using the cross-section approach.Escobar filed an action for recovery of a sum of money with damages against Hanil in the CFI. CFI ordered Hanil to pay P1,341,727.40 for the value of rocks blasted by Escobar; 10% of the amount due for attorney's fees; and the costs of suit. CFI garnished the bank accounts of Hanil and levied its equipment. CFI also granted Escobar's Ex-parte Motion to Deposit Cash praying that the Finance Manager of the NAPOCOR be directed to withdraw Hanil's funds from the NAPOCOR and deposit the same with the Clerk of Court. Hanil challenged the Orders before the CA, who voided said orders.

ISSUE:Whether or not Hanil should be awarded a much higher grant of nominal damages and attorneys fees and whether they are entitled to moral and exemplary damages.

RULING:

NO.

As to the temperate damages in form of nominal damages, Hanil is not entitled for it failed to prove that it deserves a grant of a higher amount. Thus, P20,000.00 is just. Hanil failed to prove the actual value of pecuniary injury which it sustained as a consequence of Escobar's institution of an unfounded civil suit. The testimony of one of its witnesses presented in the CFI, to the effect that "the filing of the complaint affected Hanil's reputation and that it affected the management and engineers working in the site," is not enough proof. The institution of the suit, unfounded though it may be, does not always lead to pecuniary loss as to warrant an award of actual or temperate damages. The link between the cause (the suit) and the effect (the loss) must be established by the required proof.Its demand for payment of moral damages must also fail. The rule is that moral damages cannot be granted in favor of a corporation. Being an artificial person and having existence only in legal contemplation, a corporation has no feelings, no emotions, and no senses. It cannot, therefore, experience physical suffering, mental anguish, fright, serious anxiety, wounded feelings or moral shock or social humiliation, which can be suffered only by one having a nervous system. Hanil's prayer for exemplary damages must likewise be denied. It must be remembered that this kind of damages cannot be recovered as a matter of right. Its allowance rests in the sound discretion of the court, and only upon a showing of its legal foundation. Under the Civil Code, the claimant must first establish that he is entitled to moral, temperate, compensatory or liquidated damages before it may be imposed in his favor. Hanil failed to do so, hence, it cannot claim exemplary damages.

BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMANvs.HON. JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in his capacity as Commissioner of Internal Revenue, et al.G.R. No.L-32409. February 27, 1971

FACTS:

Misael P. Vera, CIR wrote a letter to respondent Judge Vivencio M. Ruiz requesting the issuance of a search warrant against petitioners for violation of Section 46(a) of the National Internal Revenue Code, in relation to all other pertinent provisions thereof, particularly Sections 53, 72, 73, 208 and 209, and authorizing Revenue Examiner Rodolfo de Leon, one of herein respondents, to make and file the application for search warrant which was attached to the letter. De Leon and his witness, respondent Arturo Logronio, went to the Court of First Instance of Rizal. They brought with them the following papers: respondent Veras aforesaid letter-request; an application for search warrant already filled up but still unsigned by respondent De Leon; an affidavit of respondent Logronio subscribed before respondent De Leon; a deposition in printed form of respondent Logronio already accomplished and signed by him but not yet subscribed; and a search warrant already accomplished but still unsigned by respondent Judge. Judge was hearing a certain case so he instructed his Deputy Clerk of Court to take the depositions of respondents De Leon and Logronio. After the session had adjourned, respondent Judge was informed that the depositions had already been taken. Respondent Judge signed respondent de Leons application for search warrant and respondent Logronios deposition, Search Warrant No. 2-M-70 was then sign by respondent Judge and accordingly issued. BIR agents served the search warrant petitioners at the offices of petitioner corporation. Petitioners lawyers protested the search on the ground that no formal complaint or transcript of testimony was attached to the warrant. The agents nevertheless proceeded with their search which yielded six boxes of documents.

ISSUES:

Whether or not a corporation is entitled to protection against unreasonable search and seizures.

RULING:

YES.

Although, for the reasons above stated, the Supreme Court is of the opinion that an officer of a corporation which is charged with a violation of a statute of the state of its creation, or of an act of Congress passed in the exercise of its constitutional powers, cannot refuse to produce the books and papers of such corporation, the Court does not wish to be understood as holding that a corporation is not entitled to immunity against unreasonable searches and seizures. A corporation is, after all, but an association of individuals under an assumed name and with a distinct legal entity. In organizing itself as a collective body it waives no constitutional immunities appropriate to such body. Its property cannot be taken without compensation. It can only be proceeded against by due process of law, and is protected against unlawful discrimination.

SULO NG BAYAN INC.vs.GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL WATERWORKS & SEWERAGE AUTHORITY, HACIENDA CARETAS, INC, and REGISTER OF DEEDS OF BULACANG.R. No.L-31061. August 17, 1976

FACTS:

Sulo ng Bayan, Inc. filed an accion de revindicacion with the CFI against defendants-appellees to recover the ownership and possession of a large tract of land. The complaint specifically alleged that plaintiff is a corporation organized and existing under the laws of the Philippines, with its principal office and place of business at San Jose del Monte, Bulacan; that its membership is composed of natural persons residing at San Jose del Monte, Bulacan; that the members of the plaintiff corporation, through themselves and their predecessors-in-interest, had pioneered in the clearing of the fore-mentioned tract of land, cultivated the same since the Spanish regime and continuously possessed the said property openly and public under concept of ownership adverse against the whole world.

ISSUE:Whether or not plaintiff corporation may institute an action in behalf of its individual members for the recovery of certain parcels of land allegedly owned by said members; for the nullification of the transfer certificates of title issued in favor of defendants appellees covering the aforesaid parcels of land; for a declaration of "plaintiff's members as absolute owners of the property" and the issuance of the corresponding certificate of title; and for damages.

RULING:

NO.

It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or members. The property of the corporation is its property and not that of the stockholders, as owners, although they have equities in it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. Conversely, a corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the corporation, "even in the case of a one-man corporation. The mere fact that one is president of a corporation does not render the property which he owns or possesses the property of the corporation, since the president, as individual, and the corporation are separate similarities. Similarly, stockholders in a corporation engaged in buying and dealing in real estate whose certificates of stock entitled the holder thereof to an allotment in the distribution of the land of the corporation upon surrender of their stock certificates were considered not to have such legal or equitable title or interest in the land, as would support a suit for title, especially against parties other than the corporation. It must be noted, however, that the juridical personality of the corporation, as separate and distinct from the persons composing it, is but a legal fiction introduced for the purpose of convenience and to subserve the ends of justice. This separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work -an injustice, or where necessary to achieve equity. Clearly, no right of action exists in favor of plaintiff corporation, for as shown heretofore it does not have any interest in the subject matter of the case which is material and, direct so as to entitle it to file the suit as a real party in interest.

Private v. Public Corporation

BOY SCOUTS OF THE PHILIPPINESvs.COMMISSION ON AUDITG.R. No. 177131.June 7, 2011

FACTS:The COA maintains that the functions of the BSP that include, among others, the teaching to the youth of patriotism, courage, self-reliance, and kindred virtues, are undeniably sovereign functions enshrined under the Constitution and discussed by the Court in Boy Scouts of the Philippines v. National Labor Relations Commission. The COA contends that any attempt to classify the BSP as a private corporation would be incomprehensible since no less than the law which created it had designated it as a public corporation and its statutory mandate embraces performance of sovereign functions. The COA claims that the only reason why the BSP employees fell within the scope of the Civil Service Commission even before the 1987 Constitution was the fact that it was a government-owned or controlled corporation; that as an attached agency of the Department of Education, Culture and Sports (DECS), the BSP is an agency of the government; and that the BSP is a chartered institution under Section 1(12) of the Revised Administrative Code of 1987, embraced under the term government instrumentality. The COA concludes that being a government agency, the funds and property owned or held by the BSP are subject to the audit authority of the COA pursuant to Section 2(1), Article IX (D) of the 1987 Constitution.BSP claims that it has a unique characteristic which "neither classifies it as a purely public nor a purely private corporation"; that it is not a quasi-public corporation; and that it may belong to a different class altogether.

ISSUE:Whether or not the BSP is public corporation.

RULING:

YES.

BSP is a public corporation and its funds are subject to the COAs audit jurisdiction. It is a public corporation or a government agency or instrumentality with juridical personality, which does not fall within the constitutional prohibition in Article XII, Section 16, notwithstanding the amendments to its charter. Not all corporations, which are not government owned or controlled, are ipso facto to be considered private corporations as there exist another distinct class of corporations or chartered institutions which are otherwise known as "public corporations." These corporations are treated by law as agencies or instrumentalities of the government which are not subject to the tests of ownership or control and economic viability but to different criteria relating to their public purposes/interests or constitutional policies and objectives and their administrative relationship to the government or any of its Departments or Offices.Note that the Administrative Code of 1987 designates the BSP as one of the attached agencies of the Department of Education, Culture and Sports ("DECS"). An "agency of the Government" is defined as referring to any of the various units of the Government including a department, bureau, office, and instrumentality, government-owned or -controlled corporation, or local government or distinct unit therein. BSP still remains an instrumentality of the national government. It is a public corporation created by law for a public purpose, attached to the DECS pursuant to its Charter and the Administrative Code of 1987. It is not a private corporation which is required to be owned or controlled by the government and be economically viable to justify its existence under a special law.DANTE V. LIBAN, REYNALDO M. BERNARDO, and SALVADOR M. VIARIvs.RICHARD J. GORDONG.R. No. 175352.July 15, 2009

FACTS:

Petitioners filed with this Court a Petition to Declare Richard J. Gordon as Having Forfeited His Seat in the Senate. Petitioners are officers of the Board of Directors of the Quezon City Red Cross Chapter while respondent is Chairman of the Philippine National Red Cross (PNRC) Board of Governors.During respondents incumbency as a member of the Senate of the Philippines, he was elected Chairman of the PNRC during the February 23, 2006 meeting of the PNRC Board of Governors. Petitioners allege that by accepting the chairmanship of the PNRC Board of Governors, respondent has ceased to be a member of the Senate as provided in Section 13, Article VI of the Constitution, which reads: No Senator or Member of the House of Representatives may hold any other office or employment in the Government, or any subdivision, agency, or instrumentality thereof, including government-owned or controlled corporations or their subsidiaries, during his term without forfeiting his seat. Neither shall he be appointed to any office which may have been created or the emoluments thereof increased during the term for which he was elected.

ISSUE:

Whether or not the office of the PNRC Chairman is a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the Constitution.

RULING:

NO.

PNRC is a Private Organization Performing Public Functions. The Republic of the Philippines, adhering to the Geneva Conventions, established the PNRC as a voluntary organization for the purpose contemplated in the Geneva Convention of 27 July 1929. The PNRC must not appear to be an instrument or agency that implements government policy; otherwise, it cannot merit the trust of all and cannot effectively carry out its mission as a National Red Cross Society. It is imperative that the PNRC must be autonomous, neutral, and independent in relation to the State.To ensure and maintain its autonomy, neutrality, and independence, the PNRC cannot be owned or controlled by the government. Indeed, the Philippine government does not own the PNRC. The PNRC does not have government assets and does not receive any appropriation from the Philippine Congress. The PNRC is financed primarily by contributions from private individuals and private entities obtained through solicitation campaigns organized by its Board of Governors.The government does not control the PNRC. Under the PNRC Charter, as amended, only six of the thirty members of the PNRC Board of Governors are appointed by the President of the Philippines. The PNRC is not government-owned but privately owned. The vast majority of the thousands of PNRC members are private individuals, including students. Under the PNRC Charter, those who contribute to the annual fund campaign of the PNRC are entitled to membership in the PNRC for one year. Thus, the PNRC is a privately owned, privately funded, and privately run charitable organization.Hence, the office of the PNRC Chairman is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. However, since the PNRC Charter is void insofar as it creates the PNRC as a private corporation, the PNRC should incorporate under the Corporation Code and register with the Securities and Exchange Commission if it wants to be a private corporation.

DANTE V. LIBAN, REYNALDO M. BERNARDO and SALVADOR M. VIARIvs.RICHARD J. GORDONG. R. No. 175352.January 18, 2011

ISSUE:

Whether or not considering the PNRCs structure is sui generis; it is a class of its own, while it is performing humanitarian functions as an auxiliary to government, it is a neutral entity separate and independent of government control, yet it does not qualify as strictly private in character.

RULING:

YES.

A National Society partakes of a sui generis character. It is a protected component of the Red Cross movement under Articles 24 and 26 of the First Geneva Convention, especially in times of armed conflict. These provisions require that the staff of a National Society shall be respected and protected in all circumstances. Such protection is not ordinarily afforded by an international treaty to ordinary private entities or even non-governmental organizations (NGOs). This sui generis character is also emphasized by the Fourth Geneva Convention which holds that an Occupying Power cannot require any change in the personnel or structure of a National Society. National societies are therefore organizations that are directly regulated by international humanitarian law, in contrast to other ordinary private entities, including NGOs.The PNRC, as a National Society of the International Red Cross and Red Crescent Movement, can neither "be classified as an instrumentality of the State, so as not to lose its character of neutrality" as well as its independence, nor strictly as a private corporation since it is regulated by international humanitarian law and is treated as an auxiliary of the State.The PNRC is one of the National Red Cross and Red Crescent Societies, which, together with the International Committee of the Red Cross (ICRC) and the IFRC and RCS, make up the International Red Cross and Red Crescent Movement (the Movement). They constitute a worldwide humanitarian movement.Based on the above, the sui generis status of the PNRC is now sufficiently established. Although it is neither a subdivision, agency, or instrumentality of the government, nor a government-owned or -controlled corporation or a subsidiary thereof, as succinctly explained in the Decision of July 15, 2009, so much so that respondent, under the Decision, was correctly allowed to hold his position as Chairman thereof concurrently while he served as a Senator, such a conclusion does not ipso facto imply that the PNRC is a "private corporation" within the contemplation of the provision of the Constitution, that must be organized under the Corporation Code. As correctly mentioned by Justice Roberto A. Abad, the sui generis character of PNRC requires us to approach controversies involving the PNRC on a case-to-case basis.In sum, the PNRC enjoys a special status as an important ally and auxiliary of the government in the humanitarian field in accordance with its commitments under international law. This Court cannot all of a sudden refuse to recognize its existence, especially since the issue of the constitutionality of the PNRC Charter was never raised by the parties. Thus, Respondent Richard J. Gordons Motion for Clarification and/or for Reconsideration and movant-intervenor PNRCs Motion for Partial Reconsideration of the Decision in G.R. No. 175352 dated July 15, 2009 are GRANTED. The constitutionality of R.A. No. 95, as amended, the charter of the Philippine National Red Cross, was not raised by the parties as an issue and should not have been passed upon by this Court. The structure of the PNRC is sui generis being neither strictly private nor public in nature. R.A. No. 95 remains valid and constitutional in its entirety.

FRANCISCA S. BALUYOTvs.PAUL E. HOLGANZA and the OFFICE OF THE OMBUDSMAN (VISAYAS) represented by its Deputy Ombudsman for the Visayas ARTURO C. MOJICA, Director VIRGINIA PALANCA-SANTIAGO, and Graft Investigation Officer I ANNA MARIE P. MILITANTEG.R. No. 136374.February 9, 2000

FACTS:

During a spot audit in 1977, the auditors from the Philippine National Red Cross (PNRC) headquarters discovered a case shortage in the funds of its Bohol chapter. The chapter administrator, petitioner Baluyot, was held accountable and thereafter, respondent Holganza as member of the board Bohol chapter, filed a complaint with the Ofc. of the Ombudsman for malversation. Upon recommendation of respondent Militante, an administratiave docket of dishonesty was also opened against Baluyot. Baluyot raised the defense that the Ombudsman had no jurisdiction as he had authority only over government owned or controlled corporations which the PNRC was not. She gives as evidence of its private character 1) it does not receive budgetary support from the government and all money given to it by the latter and its instrumentalities become private funds of the organization. 2) funds for the payment of personnels salaries and other emoluments come from yearly fund campaigns, private contributions and rentals from its properties. 3) it is not audited by COA. PNRC, petitioner claims falls under the International Federation of Red Cross, Swiss-based organization.

ISSUE:

Whether or not PNRC is a government owned or controlled corporation.

RULING:YES.

PNRC is a government owned and controlled corporation, with an original charter under RA No. 95, as amended. The test to determine whether a corporation is government owned or controlled or private in nature is simple. Is it created by its own charter for the exercise of a public function, or by incorporation under the general corporation law? Those with special charters are government corporations subject to its provisions, and its employees are under the jurisdiction of the Civil Service Commission, and are compulsory members of the GSIS. The PNRC was not impliedly converted to a private corporation simply because its charter was amended to vest in it the authority to secure loans, be exempted from payment of all duties, taxes, fees and other charges of all kinds on all importations and purchases for its exclusive use, on donations for its disaster relief work and other services and in its benefits and fund raising drives. Clearly then, public respondent has jurisdiction over the matter.

THE VETERANS FEDERATION OF THE PHILIPPINES represented by Esmeraldo R. Acordavs.Hon. ANGELO T. REYES in his capacity as Secretary of National Defense; and Hon. EDGARDO E. BATENGA in his capacity as Undersecretary for Civil Relations and Administration of the Department of National DefenseG. R. No. 155027.February 28, 2006

FACTS:

Petitioner claims that it is not a public nor a governmental entity but a private organization, and advances this claim to prove that the issuance of DND Department Circular No. 04 is an invalid exercise of respondent Secretarys control and supervision. Petitioner claims that its funds are not public funds because no budgetary appropriations or government funds have been released to the VFP directly or indirectly from the DBM, and because VFP funds come from membership dues and lease rentals earned from administering government lands reserved for the VFP.

ISSUE:

Whether or not the VFPA is a private corporation.

RULING:

NO.

The functions of petitioner corporation enshrined in Section 4 of Rep. Act No. 2640 should most certainly fall within the category of sovereign functions. The protection of the interests of war veterans is not only meant to promote social justice, but is also intended to reward patriotism. All of the functions in Section 4 concern the well-being of war veterans, our countrymen who risked their lives and lost their limbs in fighting for and defending our nation. It would be injustice of catastrophic proportions to say that it is beyond sovereigntys power to reward the people who defended her.Like the holding of the National Centennial Celebrations, the functions of the VFP are executive functions, designed to implement not just the provisions of Rep. Act No. 2640, but also, and more importantly, the Constitutional mandate for the State to provide immediate and adequate care, benefits and other forms of assistance to war veterans and veterans of military campaigns, their surviving spouses and orphans.The fact that no budgetary appropriations have been released to the VFP does not prove that it is a private corporation. The DBM indeed did not see it fit to propose budgetary appropriations to the VFP, having itself believed that the VFP is a private corporation. If the DBM, however, is mistaken as to its conclusion regarding the nature of VFPs incorporation, its previous assertions will not prevent future budgetary appropriations to the VFP. The erroneous application of the law by public officers does not bar a subsequent correct application of the law. Since petitioner VFP is a public corporation. As such, it can be placed under the control and supervision of the Secretary of National Defense, who consequently has the power to conduct an extensive management audit of Petitioner Corporation.

MANILA INTERNATIONAL AIRPORT AUTHORITYvs.COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE, SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY ASSESSOR OF PARAAQUE, and CITY TREASURER OF PARAAQUEG.R. No. 155650. July 20, 2006

FACTS:

MIAA operates the Ninoy Aquino International Airport (NAIA) Complex in Paraaque City under E.O. No. 903, otherwise known as the Revised Charter of the Manila International Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently, E.O. Nos. 909 and 298 amended the MIAA Charter.As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land, including the runways and buildings and provided that no portion of the land transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved by the President of the Philippines. In 2001, the Paraaque city government issued notices of levy and warrants of levy on MIAAs Airport Lands and Buildings for its failure to pay real estate taxes plus penalties amounting to Php624.5 million for the taxable years 1992 to 2001. The city government then put the subject properties up for sale at a public auction. Thus, MIAA brought a case for prohibition to the Court of Appeals against the City of Paraaque.

ISSUES:

Whether or not MIAA is a public corporation owned by the State.

RULING:

YES.

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any other government instrumentality; the only difference is that MIAA is vested with corporate powers.When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, police authority and the levying of fees and charges. At the same time, MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order." Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called government corporate entities. However, they are not government-owned or controlled corporations in the strict sense as understood under the Administrative Code, which is the law defining the legal relationship and status of government entities.

Promotion

MARC II MARKETING, INC. and LUCILA V. JOSONvs.ALFREDO M. JOSONG.R. No. 171993.December 12, 2011

FACTS:

Marc II Marketing, Inc. and Lucila Joson is assailing the decision of the CA for reversing and settling aside the Resolution of the National Labor Relations Commission. Marc II Marketing, Inc. is a corporation duly organized and existing under and by virtue of the laws of the Philippines. It is primarily engaged in buying, marketing, selling and distributing in retail or wholesale for export or import household appliances and products and other items. Petitioner Lucila is the President and majority stockholder of the corporation. Before Marc II Marketing, Inc. was officially incorporated, Alfredo has already been engaged by Lucila, in her capacity as President, to work as General Manager of the corporation and it was formalized through the execution of a Management Contract dated in 1994 under Marc Marketing, Inc., as Marc II Marketing, Inc. was yet to be incorporated. For occupying the said position, respondent was among the corporations corporate officers by the express provision of Section 1, Article IV of its by-laws.Alfredo was appointed as one of its officers with the designation or title of General Manager to function as a managing director with other duties and responsibilities that the Board may provide and authorized. However, in 1997, Marc II Marketing Inc. decided to stop and cease its operation as evidenced by an Affidavit of Non-Operation due to poor sales collection aggravated by the inefficient management of its affairs. Alfredo was informed of the cessation of its business operations and the termination of his services as General Manager. He filed action for reinstatement and money claim against petitioners.

ISSUE:

Whether or not Marc II Marketing Inc.s Board of Directors could create a position for corporate officers through an enabling clause found in its corporate by-laws.

RULING:

YES.

The Court held that in the context of PD 902-A, corporate officers are those officers of a corporation who are given that character either by the Corporation Code or by the corporations by-laws. Section 25 of the Corporation Code specifically enumerated who are these corporate officers, namely: president, secretary, treasurer and such other officers as may be provided for in the by-laws. A careful examination of Marc II Marketing Inc.s by-laws, particularly paragraph 1, Section 1of Article IV explicitly revealed that its corporate officers are composed only of chairman, president, one/more vice president, treasurer and secretary. The position of general manager was not among those enumerated. Meanwhile, paragraph 2, Section 1 of Article IV of the corporations by-laws empowered its Board of Directors to appoint such officers as it may determine necessary or proper, making this an enabling provision for approving a resolution to make the position of general manager a corporate officer. All of these acts were done without first amending its by-laws so as to include the General Manager in its roster of corporate officers. Though the Board of Directors may create appointive positions other than the positions of corporate officers, the persons occupying such positions cannot be viewed as corporate officers under Section 25 of the Corporation Code. The said provision of the Corporation Code safeguards the constitutionally enshrined right of every employee to security of tenure and prevents the creation of a corporate officer position by a simple inclusion in the corporate by-laws of an enabling clause empowering the Board of Directors.CAGAYAN FISHING DEVELOPMENT CO., INC.vs.TEODORO SANDIKOG.R. No. L-43350. December 23, 1937

FACTS:

Manuel Tabora is the registered owner of four parcels of land. To guarantee the payment of a loan in the sum of P8,000, Manuel Tabora executed in favor of the Philippine National Bank a first mortgage on the four parcels of land above-mentioned. A second mortgage in favor of the same bank was executed by Tabora over the same lands to guarantee the payment of another loan amounting to P7,000. A third mortgage on the same lands was executed in favor of Severina Buzon to whom Tabora was indebted in the sum of P2,9000. These mortgages were registered and annotations thereof appear at the back of transfer certificate of title No. 217.The board of directors of plaintiff adopted a resolution authorizing its president, Jose Ventura, to sell the four parcels of lands in question to Teodoro Sandiko for P42,000. The defendant having failed to pay the sum stated in the promissory note, plaintiff, brought this action in the Court of First Instance of Manila praying that judgment be rendered against the defendant for the sum of P25,300, with interest at legal rate from the date of the filing of the complaint, and the costs of the suits.

ISSUE:

Whether or not the transfers were valid.

RULING:NO.

The contract here was entered into not between Manuel Tabora and a non-existent corporation but between the Manuel Tabora as owner of the four parcels of lands on the one hand and the same Manuel Tabora, his wife and others, as mere promoters of a corporations on the other hand. For reasons that are self-evident, these promoters could not have acted as agent for a projected corporation since that which no legal existence could have no agent. A corporation, until organized, has no life and therefore no faculties. It is, as it were, a child in ventre sa mere. This is not saying that under no circumstances may the acts of promoters of a corporation be ratified by the corporation if and when subsequently organized. There are, of course, but under the peculiar facts and circumstances of the present case we decline to extend the doctrine of ratification which would result in the commission of injustice or fraud to the candid and unwary. If the plaintiff corporation could not and did not acquire the four parcels of land here involved, it follows that it did not possess any resultant right to dispose of them by sale to the defendant, Teodoro Sandiko.Some of the members of this court are also of the opinion that the transfer from Manuel Tabora to the Cagayan Fishing Development Company, Inc., which transfer is evidenced by Exhibit A, was subject to a condition precedent (condicion suspensiva), namely, the payment of the mortgage debt of said Tabora to the Philippine National Bank, and that this condition not having been complied with by the Cagayan Fishing Development Company, Inc., the transfer was ineffective. However, having arrived at the conclusion that the transfer by Manuel Tabora to the Cagayan Fishing Development Company, Inc. was null because at the time it was affected the corporation was non-existent, we deem it unnecessary to discuss this point.

FERMIN Z. CARAM, JR. and ROSA O. DE CARAMvs.THE HONORABLE COURT OF APPEALS and ALBERTO V. ARELLANOG.R. No. L-48627. June 30, 1987

FACTS:

The petitioners claim that this order has no support in fact and law because they had no contract whatsoever with the private respondent regarding the above-mentioned services. Their position is that as mere subsequent investors in the corporation that was later created, they should not be held solidarily liable with the Filipinas Orient Airways, a separate juridical entity, and with Barretto and Garcia, their co-defendants in the lower court, ** who were the ones who requested the said services from the private respondent.

ISSUE:

Whether or not the petitioners should be held liable.

RULING:

NO.

The petitioners were not involved in the initial stages of the organization of the airline. They were merely among the financiers whose interest was to be invited and who were in fact persuaded, on the strength of the project study, to invest in the proposed airline.There was no showing that the Airline was a fictitious corporation and did not have a separate juridical personality to justify making the petitioners, as principal stockholders thereof, responsible for its obligations. As a bona fide corporation, the Airline should alone be liable for its corporate acts as duly authorized by its officers and directors. Granting that the petitioners benefited from the services rendered, such is no justification to hold them personally liable therefor. Otherwise, all the other stockholders of the corporation, including those who came in late, and regardless of the amount of their shareholdings, would be equally and personally liable also with the petitioner for the claims of the private respondent.Petitioners cannot be held personally liable for the compensation claimed by the private respondent for the services performed by him in the organization of the corporation. To repeat, the petitioners did not contract such services. It was only the results of such services that Barretto and Garcia presented to them and which persuaded them to invest in the proposed airline. The most that can be said is that they benefited from such services, but that surely is no justification to hold them personally liable therefor.A promoter could not have acted as agent for a corporation that had no legal existence. A corporation, until organized, has no life therefore no faculties. The corporation had no juridical personality to enter into a contract.

PIONEER INSURANCE & SURETY CORPORATION vs. THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIMG.R. No. 84197. July 28, 1989

FACTS:

In 1965, Jacob S. Lim, owner-operator of Southern Airlines (SAL), a single proprietorship entered into a sales contract with regarding Japan Domestic Airlines (JDA) regarding 2 DC-#A type aircrafts, 1 set of necessary spare parts where a Total of $ 190,000 in instalments are to be paid. Pioneer Insurance and Surety Corp. as surety executed its surety bond in favor of JDA on behalf of its principal Lim. Border Machinery and Heavy Equipment Co, Inc. of Francisco and Modesto Cervantes and Constancio Maglana contributed funds for the transaction based on the misrepresentation of Lim that they will form a new corporation to expand his business.Lim as owner operator for SAL executed in favor of Pioneer a deed of chattel mortgage as security. A restructuring of obligation to change the maturity was done twice without the knowledge of other defendants made the surety of JDA prescribed so not entitled to reimbursement. Upon default on the 2/8 payments, Pioneer paid for him and filed a petition for the foreclosure of chattel mortgage as security. CA affirmed Trial of Merits: Only Lim is liable to pay

ISSUE:

Whether or not there is failure of respondents to incorporate leading to a de facto partnership.

RULING:NO.

Partnership inter se does not necessarily exist, for ordinarily CANNOT be made to assume the relation of partners as between themselves, when their purpose is that no partnership shall exists. It should be implied only when necessary to do justice between the parties (i.e. only pretend to make others liable). Lim never intended to form a corporation.

RIZAL LIGHT & ICE CO., INC.vs.THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC SERVICE COMMISSIONG.R. No. L-20993.September 28, 1968

FACTS:

The bulk of petitioner's arguments assailing the personality of Morong Electric dwells on the proposition that since a franchise is a contract, 23 at least two competent parties are necessary to the execution thereof, and parties are not competent except when they are in being. Hence, it is contended that until a corporation has come into being, in this jurisdiction, by the issuance of a certificate of incorporation by the Securities and Exchange Commission (SEC) it cannot enter into any contract as a corporation. The certificate of incorporation of the Morong Electric was issued by the SEC on October 17, 1962, so only from that date, not before, did it acquire juridical personality and legal existence. Petitioner concludes that the franchise granted to Morong Electric on May 6, 1962 when it was not yet in esse is null and void and cannot be the subject of the Commission's consideration. On the other hand, Morong Electric argues, and to which argument the Commission agrees, that it was a de facto corporation at the time the franchise was granted and, as such, it was not incapacitated to enter into any contract or to apply for and accept a franchise. Not having been incapacitated, Morong Electric maintains that the franchise granted to it is valid and the approval or disapproval thereof can be properly determined by the Commission.

ISSUE:

Whether the lack or corporate existence on the part of Morong rendered the franchise valid.

RULING:

YES.

The incorporation of (Morong) and its acceptance of the franchise as shown by this action in prosecuting the application filed with the Commission for approval of said franchise, not only perfected a contract between the municipality and Morong but also cured the deficiency pointed out by the petition. The fact that Morong did not have a corporate existence on the day the franchise was granted does not render the franchise invalid, as Morong later obtained its certificate of incorporation and accepted the franchise.The two decisions of the Public Service Commission, appealed from, should be, as they are hereby affirmed, with costs in the two cases against petitioner Rizal Light & Ice Co., Inc.

Articles of Incorporation

JESUS V. LANUZA, MAGADYA REYES, BAYANI REYES and ARIEL REYESvs.COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, DOLORES ONRUBIA, ELENITA NOLASCO, JUAN O. NOLASCO III, ESTATE OF FAUSTINA M. ONRUBIA, PHILIPPINE MERCHANT MARINE SCHOOL, INC.G.R. No. 131394.March 28, 2005

FACTS:

Philippine Merchant Marine School, Inc. (PMMSI) had seven hundred founders shares and seventy-six common shares as its initial capital stock subscription reflected in the articles of incorporation. However, private respondents and their predecessors who were in control of PMMSI registered the companys stock and transfer book for the first time in 1978, recording thirty-three (33) common shares as the only issued and outstanding shares of PMMSI. Sometime in 1979, a special stockholders meeting was called and held on the basis of what was considered as a quorum of twenty-seven common shares, representing more than two-thirds of the common shares issued and outstanding. In 1982, the heirs of one of the original incorporators, Juan Acayan, filed a petition with the SEC for the registration of their property rights over one hundred (120) founders shares and twelve (12) common shares owned by their father. The SEC held that the heirs were entitled to the claimed shares and called for a special stockholders meeting to elect a new set of officers. As a result, the shares of Acayan were recorded in the stock and transfer book.A special stockholders meeting was held to elect a new set of directors. Private respondents thereafter filed a petition with the SEC questioning the validity of the 06 May 1992 stockholders meeting, alleging that the quorum for the said meeting should not be based on the 165 issued and outstanding shares as per the stock and transfer book, but on the initial subscribed capital stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of Incorporation.

ISSUE:Whether or not the basis of quorum for a stockholders meeting is the outstanding capital stock as indicated in the articles of incorporation.

RULING:

YES.

The stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it does not reflec

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