CORPO CASES THEORY OF CONCESSION

1.

Renato Tayag vs Benguet Consolidated, Inc.

THEORY OF CONCESSION

By: Almalbis
26 SCRA 242 Business Organization Corporation Law
Domicile of a Corporation By Laws Must Yield To a Court
Order Corporation is an Artificial Being
In March 1960, Idonah Perkins died in New York. She left
behind properties here and abroad. One property she left
behind were two stock certificates covering 33,002 shares of
stocks of the Benguet Consolidated, Inc (BCI). Said stock
certificates were in the possession of the Country Trust
Company of New York (CTC-NY). CTC-NY was the
domiciliary administrator of the estate of Perkins (obviously in
the USA). Meanwhile, in 1963, Renato Tayag was appointed
as the ancillary administrator (of the properties of Perkins she
left behind in the Philippines).
A dispute arose between CTC-NY and Tayag as to who
between them is entitled to possess the stock certificates. A
case ensued and eventually, the trial court ordered CTC-NY to
turn over the stock certificates to Tayag. CTC-NY refused.
Tayag then filed with the court a petition to have said stock
certificates be declared lost and to compel BCI to issue new
stock certificates in replacement thereof. The trial court
granted Tayags petition.
BCI assailed said order as it averred that it cannot possibly
issue new stock certificates because the two stock certificates
declared lost are not actually lost; that the trial court as well
Tayag acknowledged that the stock certificates exists and that
they are with CTC-NY; that according to BCIs by laws, it can
only issue new stock certificates, in lieu of lost, stolen, or
destroyed certificates of stocks, only after court of law has
issued a final and executory order as to who really owns a
certificate of stock.
ISSUE: Whether or not the
Consolidated, Inc. are correct.

arguments

of

Benguet

HELD: No. Benguet Consolidated is a corporation who owes

its existence to Philippine laws. It has been given rights and
privileges under the law. Corollary, it also has obligations
under the law and one of those is to follow valid legal court
orders. It is not immune from judicial control because it is
domiciled here in the Philippines. BCI is a Philippine
corporation owing full allegiance and subject to the
unrestricted jurisdiction of local courts. Its shares of stock
cannot therefore be considered in any wise as immune from
lawful court orders. Further, to allow BCIs opposition is to
render the court order against CTC-NY a mere scrap of paper.
It will leave Tayag without any remedy simply because CTC-

NY, a foreign entity refuses to comply with a valid court order.

The final recourse then is for our local courts to create a legal
fiction such that the stock certificates in issue be declared lost
even though in reality they exist in the hands of CTC-NY. This
is valid. As held time and again, fictions which the law may
rely upon in the pursuit of legitimate ends have played an
important part in its development.
Further still, the argument invoked by BCI that it can only
issue new stock certificates in accordance with its bylaws is
misplaced. It is worth noting that CTC-NY did not appeal the
order of the court it simply refused to turn over the stock
certificates hence ownership can be said to have been settled
in favor of estate of Perkins here. Also, assuming that there
really is a conflict between BCIs bylaws and the court order,
what should prevail is the lawful court order. It would be
highly irregular if court orders would yield to the bylaws of a
corporation. Again, a corporation is not immune from judicial
orders.
2.

International Express Travel 7 Tours Srvices, inc

vs CA

In 1989, International Express Travel & Tour Services, Inc.

(IETTI), offered to the Philippine Football Federation (PFF)
its travel services for the South East Asian Games. PFF,
through Henri Kahn, its president, agreed. IETTI then
delivered the plane tickets to PFF, PFF in turn made a down
payment. However, PFF was not able to complete the full
payment in subsequent installments despite repeated demands
from IETTI. IETTI then sued PFF and Kahn was impleaded as
a co-defendant.
Kahn averred that he should not be impleaded because he
merely acted as an agent of PFF which he averred is a
corporation with separate and distinct personality from him.
The trial court ruled against Kahn and held him personally
liable for the said obligation (PFF was declared in default for
failing to file an answer). The trial court ruled that Kahn failed
to prove that PFF is a corporation. The Court of
Appeals however reversed the decision of the trial court.
The Court of Appeals took judicial notice of the existence of
PFF as a national sports association; that as such, PFF is
empowered to enter into contracts through its agents; that
PFF is therefore liable for the contract entered into by its agent
Kahn. The CA further ruled that IETTI is in estoppel; that it
cannot now deny the corporate existence of PFF because it
had contracted and dealt with PFF in such a manner as to
recognize and in effect admit its existence.
ISSUE: Whether or not the Court of Appeals is correct.
HELD: No. PFF, upon its creation, is not automatically
considered a national sports association. It must first be
recognized and accredited by the Philippine Amateur Athletic
Federation and the Department of Youth and Sports

Development. This fact was never substantiated by Kahn. As

such, PFF is considered as an unincorporated sports
association. And under the law, any person acting or
purporting to act on behalf of a corporation which has no valid
existence assumes such privileges and becomes personally
liable for contract entered into or for other acts performed as
such agent. Kahn is therefore personally liable for the contract
entered into by PFF with IETTI.
There is also no merit on the finding of the CA that IETTI is in
estoppel. The application of the doctrine of corporation by
estoppel applies to a third party only when he tries to escape
liability on a contract from which he has benefited on the
irrelevant ground of defective incorporation. In the case at bar,
IETTI is not trying to escape liability from the contract but
rather is the one claiming from the contract.
Theory of Enterprise Entity
3.

Philippine Stock Exchange, Inc vs. CA, 287 Scra

232

Puerto Azul Land, Inc. (PALI) is a corporation engaged in the

real estate business. PALI was granted permission by the
Securities and Exchange Commission (SEC) to sell its shares
to the public in order for PALI to develop its properties.
PALI then asked the Philippine Stock Exchange (PSE) to list
PALIs stocks/shares to facilitate exchange. The PSE Board of
Governors denied PALIs application on the ground that there
were multiple claims on the assets of PALI. Apparently, the
Marcoses, Rebecco Panlilio (trustee of the Marcoses), and
some other corporations were claiming assets if not ownership
over PALI.
PALI then wrote a letter to the SEC asking the latter to review
PSEs decision. The SEC reversed PSEs decisions and
ordered the latter to cause the listing of PALI shares in the
Exchange.
ISSUE: Whether or not it is within the power of the SEC to
reverse actions done by the PSE.
HELD: Yes. The SEC has both jurisdiction and authority to
look into the decision of PSE pursuant to the Revised
Securities Act and for the purpose of ensuring fair
administration of the exchange. PSE, as a corporation itself
and as a stock exchange is subject to SECs jurisdiction,
regulation, and control. In order to insure fair dealing of
securities and a fair administration of exchanges in the PSE,
the SEC has the authority to look into the rulings issued by the
PSE. The SEC is the entity with the primary say as to whether
or not securities, including shares of stock of a corporation,
may be traded or not in the stock exchange.

HOWEVER, in the case at bar, the Supreme Court

emphasized that the SEC may only reverse decisions issued by
the PSE if such are tainted with bad faith. In this case, there
was no showing that PSE acted with bad faith when it denied
the application of PALI. Based on the multiple adverse claims
against the assets of PALI, PSE deemed that granting PALIs
application will only be contrary to the best interest of the
general public. It was reasonable for the PSE to exercise its
judgment in the manner it deems appropriate for its business
identity, as long as no rights are trampled upon, and public
welfare is safeguarded.
Corporation as a creature of law and constitutional
provisions on the creations of corporation.
4. THE VETERANS FEDERATION OF THE
PHILIPPINES represented by Esmeraldo R. Acorda vs.
Hon. ANGELO T. REYES G. R. No. 155027
February 28, 2006
By: Red Convocar
Facts:
Petitioner Veterans Federation of the Philippines (VFP) is a
corporate bodyorganized under Republic Act No. 2640.
Sometime in August 2002, petitioner Emmanuel De Ocampo,
president of VFP, received a letter from Undersecretary of the
Department of National Defense(DND) to conduct
Management Audit of VFP pursuant to RA 2640, where it
statedthat VFP is under the supervision and control of the
Secretary of National Defense. The VFP shall also make and
transmit to the President of Philippines or to the SEC of ND
areport of its proceedings, including afull & complete report
of receipts andexpenditures of whatever kind.
DND Secretary Angelo Reyes issues the Department Circular
no. 4 entitled FurtherImplementing the Provisions of Sections
1 & 12 of RA 2640.
Petitioner complained about the broadness of audit and
requested suspension untilissues are threshed out, which was
subsequently denied by DND. Petitioner mainly alleges that
the rules and guidelines laid down in the assailed Department
Circular No. 04 expanded the scope of "control and
supervision" beyond what has been laid down in Rep. Act No.
2640.As a result, petitioner sought relief under Rule 65
assailing that it is a private non-governmentcorporation.
Issue:
Whether or not VFP is a private corporation
Held:
VFP is a public corporation.

This Court has defined the power of control as "the power of

an officer to alter or modify or nullify or set aside what a
subordinate has done in the performance of his duties and to
substitute the judgment of the former to that of the latter." The
power of supervision, on the other hand, means "overseeing,
or the power or authority of an officer to see that subordinate
officers perform their duties. If the latter fail or neglect to
fulfill them, the former may take such action or step as
prescribed by law to make them perform their duties." These
definitions are synonymous with the definitions in the assailed
Department Circular No. 04.
Rep. Act No. 2640 is entitled "An Act to Create a Public
Corporation to be Known as the Veterans Federation of the
Philippines, Defining its Powers, and for Other Purposes."
Any action or decision of the Federation or of the Supreme
Council shall be subject to the approval of the Secretary of
Defense.
The VFP is required to submit annual reports of its
proceedings for the past year, including a full, complete and
itemized report of receipts and expenditures of whatever kind,
to the President of the Philippines or to the Secretary of
National Defense.
Under Executive Order No. 37 dated 2 December 1992, the
VFP was listed as among the government-owned and
controlled corporations that will not be privatized.
In AngBagongBayani OFW Labor Party v. COMELEC, this
Court held in a minute resolution that the "VFP [Veterans
Federation Party] is an adjunct of the government, as it is
merely an incarnation of the Veterans Federation of the
Philippines.
1. Petitioner claims that the VFP does not possess the elements
which would qualify it as a public office, particularly the
possession/delegation of a portion of sovereign power of
government to be exercised for the benefit of the public

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.
3. Petitioner argues that it is a civilian federation where
membership is voluntary.
The Constitution does not contain any prohibition, express or
implied, against the grant of control and/or supervision to the
Secretary of National Defense over a civilian organization.The
membership of the VFP is not the individual membership of
the affiliate organizations, but merely the aggregation of the
heads of such affiliate organizations.
4. Petitioner claims that the Administrative Code of 1987 does
not provide that the VFP is an attached agency, and nor does it
provide that it is an entity under the control and supervision of
the DND in the context of the provisions of said code.
The Administrative Code, by giving definitions of the various
entities covered by it, acknowledges that its enumeration is not
exclusive. The Administrative Code could not be said to have
repealed nor enormously modified Rep. Act No. 2640 by
implication, as such repeal or enormous modification by
implication is not favored in statutory construction.
5. Petitioner offers as evidence the DBM opinion that the VFP
is a non-government organization in its certification that the
VFP "has not been a direct recipient of any funds released by
the DBM."
The declaration of the DBM that petitioner is a nongovernment organization is not persuasive, since DBM is not a
quasi-judicial agency. The DND is clearly more of an expert
with respect to the determination of the entities under it, and
its Administrative Rules and Regulations are entitled to great
respect and have in their favor the presumption of legality.

In Laurel v. Desierto, public officeis defined as the right,

authority and duty, created and conferred by law, by which,for
a given period, is invested with some portion of the sovereign
functions of thegovernment, to be exercised for the benefit of
the public.In the instant case, the functions of VFP the
protection of the interests of war veterans which promotes
social justice and reward patriotism certainly fallwithin the
category of sovereign functions.

The DBM opinion furthermore suffers from its lack of

explanation and justification in the "certification of nonreceipt" where said opinion was given. The DBM has not
furnished, in said certification or elsewhere, an explanation for
its opinion that VFP is a non-government organization

2. Petitioner claims that VFP funds are not public funds.

During the 11th Congress, 57 bills seeking the conversion of

municipalities into component cities were filed before the
House of Representatives. However, Congress acted only on
33 bills. It did not act on bills converting 24 other
municipalities into cities. During the 12thCongress, R.A. No.
9009 became effective revising Section 450 of the Local

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

5. League of Cities of the Philippines vs Comelec GR. No.

176951 and GR no 177499

Government Code. It increased the income requirement to

qualify for conversion into a city from P20 million annual
income to P100 million locally-generated income. In the
13th Congress, 16 of the 24 municipalities filed, through their
respective sponsors, individual cityhood bills. Each of the
cityhood bills contained a common provisionexempting the
particular municipality from the 100 million income
requirement imposed by R.A. No. 9009. Are the cityhood laws
converting 16 municipalities into cities constitutional?
SUGGESTED ANSWER:
November 18, 2008 Ruling
No. The SC (voting 6-5) ruled that the exemptions in the City
Laws is unconstitutional because sec. 10, Art. X of the
Constitution requires that such exemption must be written into
the LGC and not into any other laws. The Cityhood Laws
violate sec. 6, Art. X of the Constitution because they prevent
a fair and just distribution of the national taxes to local
government units. The criteria, as prescribed in sec. 450 of
the LGC, must be strictly followed because such criteria
prescribed by law, are material in determining the just share
of local government units (LGUs) in national taxes. (League
of Cities of the Philippines v. Comelec GR No. 176951,
November 18, 2008)
March 31, 2009 Ruling
No. The SC denied the first Motion for Reconsideration. 7-5
vote.
April 28, 2009 Ruling
No. The SC En Banc, by a split vote (6-6), denied a second
motion for reconsideration.
December 21, 2009 Ruling
Yes. The SC (voting 6-4) reversed its November 18, 2008
decision and declared as constitutional the Cityhood Laws or
Republic Acts (RAs) converting 16 municipalities into cities.
It said that based on Congress deliberations and clear
legislative intent was that the then pending cityhood bills
would be outside the pale of the minimum income requirement
of PhP100 million that Senate Bill No. 2159 proposes; and RA
9009 would not have any retroactive effect insofar as the
cityhood bills are concerned. The conversion of a municipality
into a city will only affect its status as a political unit, but not
its property as such, it added. The Court held that the
favorable treatment accorded the sixteen municipalities by the
cityhood
laws
rests
on
substantial
distinction.
The Court stressed that respondent LGUs were qualified
cityhood applicants before the enactment of RA 9009. To
impose on them the much higher income requirement after
what they have gone through would appear to be indeed

unfair. Thus, the imperatives of fairness dictate that they

should be given a legal remedy by which they should be
allowed to prove that they have all the necessary qualifications
for city status using the criteria set forth under the LGC of
1991 prior to its amendment by RA 9009. (GR No. 176951,
League of Cities of the Philippines v. COMELEC; GR No.
177499, League of Cities of the Philippines v. COMELEC;
GR No. 178056, League of Cities of the Philippines v.
COMELEC, December 21, 2009) NOTE: The November 18,
2008 ruling already became final and executory and was
recorded in the SCs Book of Entries of Judgments on May 21,
2009.)
August 24, 2010 Ruling
No. The SC (voting 7-6) granted the motions for
reconsideration of the League of Cities of the Philippines
(LCP), et al. and reinstated its November 18, 2008 decision
declaring unconstitutional the Cityhood Laws or Republic
Acts
(RAs)
converting
16
municipalities
into
cities. Undeniably, the 6-6 vote did not overrule the prior
majority en banc Decision of 18 November 2008, as well as
the prior majority en banc Resolution of 31 March 2009
denying reconsideration. The tie-vote on the second motion
for reconsideration is not the same as a tie-vote on the main
decision where there is no prior decision, the Court said. In
the latest resolution, the Court reiterated its November 18,
2008 ruling that the Cityhood Laws violate sec. 10, Art. X of
the Constitution which expressly provides that no cityshall
be createdexcept in accordance with the criteria established
in the local government code. It stressed that while all the
criteria for the creation of cities must be embodied exclusively
in the Local Government Code, the assailed Cityhood Laws
provided an exemption from the increased income requirement
for the creation of cities under sec. 450 of the LGC. The
unconstitutionality of the Cityhood Laws lies in the fact that
Congress provided an exemption contrary to the express
language of the Constitution.Congress exceeded and abused
its law-making power, rendering the challenged Cityhood
Laws void for being violative of the Constitution, the Court
held.
The Court further held that limiting the exemption only to the
16 municipalities violates the requirement that the
classification must apply to all similarly situated.
Municipalities with the same income as the 16 respondent
municipalities cannot convert into cities, while the 16
respondent municipalities can. Clearly, as worded the
exemption provision found in the Cityhood Laws, even if it
were written in Section 450 of the Local Government Code,
would still be unconstitutional for violation of the equal
protection clause. (GR No. 176951,League of Cities of the
Philippines v. Comelec; GR No. 177499, League of Cities of
the Philippines v. Comelec; GR No. 178056, League of Cities
of the Philippines v. Comelec, August 24, 2010)

February 15, 2011 Ruling

Yes, the laws are constitutional. The February 15, 2011
resolution is the fourth ruling since the High Court first
resolved the Cityhood case in 2008.
April 12, 2011Ruling
Yes! Its final. The 16 Cityhood Laws are constitutional. We
should not ever lose sight of the fact that the 16 cities covered
by the Cityhood Laws not only had conversion bills pending
during the 11th Congress, but have also complied with the
requirements of the [Local Government Code] LGC
prescribed prior to its amendment by RA No. 9009. Congress
undeniably gave these cities all the considerations that justice
and fair play demanded. Hence, this Court should do no less
by stamping its imprimatur to the clear and unmistakable
legislative intent and by duly recognizing the certain collective
wisdom of Congress, the SC said.
The Court stressed that Congress clearly intended that the
local government units covered by the Cityhood Laws be
exempted from the coverage of RA 9009, which imposes a
higher income requirement of PhP100 million for the creation
of cities.
The Court reiterated that while RA 9009 was being
deliberated upon, the Congress was well aware of the
pendency of conversion bills of several municipalities,
including those covered by the Cityhood Laws. It pointed out
that RA 9009 took effect on June 30, 2001, when the 12th
Congress was incipient. By reason of the clear legislative
intent to exempt the municipalities covered by the conversion
bills pending during the 11th Congress, the House of
Representatives adopted Joint Resolution No. 29 entitled Joint
Resolution to Exempt Certain Municipalities Embodied in
Bills Filed in Congress before June 30, 2001 from the
coverage of Republic Act No. 9009. However, the Senate
failed to act on the said Joint Resolution. Even so, the House
readopted Joint Resolution No. 29 as Joint Resolution No. 1
during the 12th Congress, and forwarded the same for
approval to the Senate, which again failed to prove it.
Eventually, the conversion bills of respondents were
individually
filed
in
the
Lower
House
and
fellesters.blogspot.com were all unanimously and favorably
voted upon. When forwarded to the Senate, the bills were also
unanimously approved. The acts of both Chambers of
Congress show that the exemption clauses ultimately
incorporated in the Cityhood Laws are but the express
articulations of the clear legislative intent to exempt the
respondents, without exception, from the coverage of RA No.
9009. Thereby, RA 9009, and, by necessity, the LCG, were
amended, not by repeal but by way of the express exemptions
being
embodied
in
the
exemption

clauses.(http://sc.judiciary.gov.ph/news/courtnews
%20flash/2011/04/04141101.php)
The Court held that the imposition of the income requirement
of P100 million from local sources under RA 9009 was
arbitrary. While the Constitution mandates that the creation
of local government units must comply with the criteria laid
down in the LGC, it cannot be justified to insist that the
Constitution must have to yield to every amendment to the
LGC despite such amendment imminently producing effects
contrary to the original thrusts of the LGC to promote
autonomy, decentralization, countryside development, and the
concomitant national growth. (GR No. 176951, League of
City of the Philippines v. COMELEC; GR No.
177499, League of City of the Philippines v. COMELEC: GR
No. 178056, League of City of the Philippines v. COMELEC,
April 12, 2011)
Civil Code Provision Suppletory
6. Litonjua, Jr vs. Eternit Corporation, GR. No. 144805
Facts: The Eternit Corporation (EC) manufactures roofing
materials and pipe products. Ninety (90%) percent of the
shares of stocks of EC were owned by Eteroutremer S.A.
Corporation (ESAC), a corporation registered under the laws
of Belgium. Glanville was the General Manager and President
of EC, while Delsaux was the Regional Director for Asia of
ESAC. In 1986, because of the political situation in the
Philippines the management of ESAC wanted to stop its
operations and to dispose the land in Mandaluyong City. They
engaged the services of realtor/broker Lauro G. Marquez.
Marquez thereafter offered the land to Eduardo B. Litonjua, Jr.
for P27,000,000.00. Litonjua counter offered P20,000,000.00
cash. Marquez apprised Glanville & Delsaux of the offer.
Delsaux sent a telex stating that, based on the "Belgian/Swiss
decision," the final offer was "US$1,000,000.00 and
P2,500,000.00.
The
Litonjua
brothers
deposited
US$1,000,000.00 with the Security Bank & Trust Company,
and drafted an Escrow Agreement to expedite the sale.
Meanwhile, with the assumption of Corazon C. Aquino as
President, the political situation improved. Marquez received a
letter from Delsaux that the ESAC Regional Office decided
not to proceed with the sale. When informed of this, the
Litonjuas, filed a complaint for specific performance and
payment for damages on account of the aborted sale. Both the
trial court and appellate court rendered judgment in favor of
defendants and dismissed the complaint.
The lower court declared that since the authority of the
agents/realtors was not in writing, the sale is void and not
merely unenforceable.

Issue: WON the appellate court committed grave error of law

in holding that Marquez needed a written authority from
respondent ETERNIT before the sale can be perfected.
Held: Respondents maintain that Glanville, Delsaux and
Marquez had no authority from the stockholders of EC and its
Board of Directors to offer the properties for sale to the
petitioners.
Petitioners assert that there was no need for a written authority
from the Board of Directors of EC for Marquez to validly act
as broker. As broker, Marquez was not an ordinary agent
because his only job as a broker was to look for a buyer and to
bring together the parties to the transaction. He was not
authorized to sell the properties; hence, petitioners argue,
Article 1874 of the New Civil Code does not apply.
A corporation is a juridical person separate and distinct from
its stockholders and is not affected by the personal rights,
obligations and transactions of the latter. It may act only
through its board of directors or, when authorized by its board
resolution, through its officers or agents. The general
principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of
incorporation, by-laws, or relevant provisions of law.
Agency may be oral unless the law requires a specific form.
However, to create or convey real rights over immovable
property, a special power of attorney is necessary. Thus, when
a sale of a piece of land or any portion thereof is through an
agent, the authority of the latter shall be in writing, otherwise,
the sale shall be void.
In this case, the petitioners failed to adduce in evidence any
resolution of the Board of Directors of EC empowering
Marquez, Glanville or Delsaux as its agents, to sell, let alone
offer for sale, for and in its behalf, the eight parcels of land
owned by it.
Moreover, the evidence of petitioners shows that Adams and
Glanville acted on the authority of Delsaux, who, in turn,
acted on the authority of ESAC, through its Committee for
Asia, and the Belgian/Swiss component of the management of
ESAC. The offer of Delsaux emanated only from the
"Belgian/Swiss decision," and not the entire management or
Board of Directors of ESAC. While it is true that petitioners
accepted the counter-offer of ESAC, EC was not a party to the
transaction between them; hence, EC was not bound by such
acceptance. Decision of the lower court is affirmed.
Franchises of a Corporation
7. J.R.S Business Corp vs. Imperial Insurance, INC.,, GR.
NO. L-19881
Facts:

Petitioner is JR Da Silva, president of JRS Business

Corporation, an establishment duly franchised by the Congress
of the Philippines, to conduct a messenger and delivery
express service. The respondent, Imperial Insurance Inc.,
presented with the CFI of Manila a complaint for the sum of
money against the petitioner corporation. After the submission
of the answer of the defendants, a compromise agreement was
entered into by the parties with the following provisions:
The Defendants (JRS Business Corporation) admit and
confess their joint and solidary indebtedness to the Plaintiff in
the sum of P61, 172. 32)
The Defendants bind themselves, jointly and severally, and
hereby promise to pay the obligation to plaintiff at their
business address located at Escolta Manila within sixty (60)
days from March 16, 1962 or on or before May 14, 1962.
In the event the defendants fail to pay in full the total amount
mentioned above, for ANY reason whatsoever, Plaintiff shall
be entitled, as a matter of right, to move for the execution of
the decision rendered in the above-entitled case by the
honorable court based on the Compromise Agreement.
On March 17, the court approved the compromise agreement
and rendered judgment enjoining the parties to comply
faithfully and strictly with the terms and conditions thereof,
without special pronouncements as to the cost.
On May 15, 1962, the debt was not paid which prompted
Imperial Insurance Inc to file a Motion for the Insurance of a
Writ of Execution. On May 23, 1962, a Writ of Execution was
issued by the Sheriff of Manila and on May 26, a Notice of
Sale was sent out for the auction of the personal properties of
JRS Business Corporation.
On June 2, a Notice of Sale of the whole capital stocks of the
defendants JRS Business Corporation, the business name,
right of operation, the whole assets, furniture and equipment,
the total liabilities, and Net Worth, books of accounts, etc of
the petitioner corporation was handed down. JRS filed an
Urgent Petition for Postponement of Auction Sale and Release
of Levy in the Business Name and Right to Operate. In
addition, the counsel of petitioner filed a Supplemental Motion
for Release of Execution claiming that capital stocks cannot be
levied upon and sold under execution. Another Very Urgent
Motion for Postponement of Auction Sale was filed. The
auction sale was set for June 21, 1962; however, respondents
opposed and the lower court denied the motion for
postponement.
In the sale, all the properties of the corporation were bought
by the respondent Imperial Insurance Inc for ten thousand
pesos which was the highest bid. Immediately after the sale,
respondent Insurance company took possession of the

properties and started running the affairs and operating the

business of JRS Business Corporation.
Issues:
W/N the respondent judge acted without or in excess of his
jurisdiction or with grave abuse of discretion?
W/N the business name or trade name, franchise (right to
operate) and capital stocks of the petitioner are properties or
property rights which could be subject of levy, execution and
sale?
Ruling:
On the first issue:
The respondent courts act of postponing the scheduled sale
was within the discretion of the respondent judge, the exercise
of which, one way or the other, did not constitute grave abuse
of discretion and/or excess of jurisdiction. Respondent judge
had jurisdiction over the matter and erroneous conclusions of
law or fact, if any, committed in the exercise of such
jurisdiction are merely errors of judgment, not correctible by
certiorari.
The corporation law, on forced sale of franchises, provides:
Any franchise granted to a corporation to collect tolls or to
occupy, enjoy, or use public property or any portion of the
public domain or any right of way over public property or the
public domain, and any rights and privileges acquired under
such franchise may be levied upon and sold under execution,
together with the property necessary for the enjoyment, the
exercise of the powers, and the receipt of the proceeds of such
franchise or right of way, in the same manner and with like
effect as any other property to satisfy any judgment against the
corporation: Provided, That the sale of the franchise or right of
way and the property necessary for the enjoyment, the
exercise of the powers, and the receipt of the proceeds of said
franchise or right of way is especially decreed and ordered in
the judgment: And provided, further, That the sale shall not
become effective until confirmed by the court after due notice.
(Sec. 56, Corporation Law.)
In order to reach a conclusion, the word franchise must be
understood. It is defined as:
"A franchise is a special privilege conferred by governmental
authority, and which does not belong to citizens of the country
generally as a matter of common right. ... Its meaning depends
more or less upon the connection in which the word is
employed and the property and corporation to which it is
applied. It may have different significations.
"For practical purposes, franchises, so far as relating to
corporations, are divisible into (1) corporate or general

franchises; and (2) special or secondary franchises. The former

is the franchise to exist as a corporation, while the latter are
certain rights and privileges conferred upon existing
corporations, such as the right to use the streets of a
municipality to lay pipes or tracks, erect poles or string wires."
2 Fletcher's Cyclopedia Corp. See. 1148; 14 C.J. p. 160;
Adams v. Yazon & M. V. R. Co., 24 So. 200, 317, 28 So. 956,
77 Miss. 253, 60 L.R.A. 33 et seq.
The right to operate a messenger and express delivery service,
by virtue of a legislative enactment, is admittedly a secondary
franchise (R.A. No. 3260, entitled "An Act granting the JRS
Business Corporation a franchise to conduct a messenger and
express service)" and, as such, under our corporation law, is
subject to levy and sale on execution together and including
all the property necessary for the enjoyment thereof. The law,
however, indicates the procedure under which the same may
be sold under execution. Said franchise can be sold under
execution, when such sale is especially decreed and ordered in
the judgment and it becomes effective only when the sale is
confirmed by the Court after due notice (Sec. 56, Corp. Law).
The compromise agreement and the judgment based thereon,
do not contain any special decree or order making the
franchise answerable for the judgment debt. The same thing
may be stated with respect to petitioner's trade name or
business name and its capital stock. Incidentally, the trade
name or business name corresponds to the initials of the
President of the petitioner corporation and there can be no
serious dispute regarding the fact that a trade name or business
name and capital stock are necessarily included in the
enjoyment of the franchise. Like that of a franchise, the law
mandates, that property necessary for the enjoyment of said
franchise, can only be sold to satisfy a judgment debt if the
decision especially so provides. As we have stated heretofore,
no such directive appears in the decision. Moreover, a trade
name or business name cannot be sold separately from the
franchise, and the capital stock of the petitioner corporation or
any other corporation, for the matter, represents the interest
and is the property of stockholders in the corporation, who can
only be deprived thereof in the manner provided by law
(Therbee v. Baker, 35 N.E. Eq. [8 Stew.] 501, 505; In re Wells'
Estate, 144 N.W. 174, 177, Wis. 294, cited in 6 Words and
Phrases, 109).
It, therefore, results that the inclusion of the franchise, the
trade name and/or business name and the capital stock of the
petitioner corporation, in the sale of the properties of the JRS
Business Corporation, has no justification. The sale of the
properties of Petitioner Corporation is set aside, in so far as it
authorizes the levy and sale of its franchise, trade name and
capital stocks without pronouncement as to costs.

Attributes of a Corporation
8. PNB vs. Andrada Electric & Engineering Co.. 381 Scra
244
Doctrine: Basic is the rule that a corporation has a legal
personality distinct and separate from the persons and entities
owning it. The corporate veil may be lifted only if it has been
used to shield fraud, defend crime, justify a wrong, defeat
public convenience, insulate bad faith or perpetuate
injustice. Thus, the mere fact that the Philippine National
Bank (PNB) acquired ownership or management of some
assets of the Pampanga Sugar Mill (PASUMIL), which had
earlier been foreclosed and purchased at the resulting public
auction by the Development Bank of the Philippines (DBP),
will not make PNB liable for the PASUMILs contractual
debts to respondent.
Facts:
PASUMIL (Pampanga Sugar Mills) engaged the services of
Andrada Electric for electrical rewinding, repair, the
construction of a power house building, installation of
turbines, transformers, among others. Most of the services
were partially paid by PASUMIL, leaving several unpaid
accounts.
On August 1975, PNB, a semi-government corporation,
acquired the assets of PASUMILassets that were earlier
foreclosed by the DBP.
On September 1975, PNB organized NASUDECO (National
Sugar Development Corporation), under LOI No. 311 to take
ownership and possession of the assets and ultimately, to
nationalize and consolidate its interest in other PNB controlled
sugar mills. NASUDECO is a semi-government corporation
and the sugar arm of the PNB.
Andrada Electric alleges that PNB and NASUDECO should
be liable for PASUMILs unpaid obligation amounting to
500K php, damages, and attorneys fees, having owned and
possessed the assets of PASUMIL.
Issue:
Whether PNB and NASUDECO may be held liable for
PASUMILs liability to Andrada Electric and Engineering
Company.
Held: NO.
Basic is the rule that a corporation has a legal personality
distinct and separate from the persons and entities owning it.
The corporate veil may be lifted only if it has been used to
shield fraud, defend crime, justify a wrong, defeat public
convenience, insulate bad faith or perpetuate injustice.

Thus, the mere fact that the Philippine National Bank (PNB)
acquired ownership or management of some assets of the
Pampanga Sugar Mill (PASUMIL), which had earlier been
foreclosed and purchased at the resulting public auction by the
Development Bank of the Philippines (DBP), will not make
PNB liable for the PASUMIL's contractual debts to Andrada
Electric & Engineering Company (AEEC).
Piercing the veil of corporate fiction may be allowed only if
the following elements concur: (1) control not mere stock
control, but complete domination not only of finances, but of
policy and business practice in respect to the transaction
attacked, must have been such that the corporate entity as to
this transaction had at the time no separate mind, will or
existence of its own; (2) such control must have been used by
the defendant to commit a fraud or a wrong to perpetuate the
violation of a statutory or other positive legal duty, or a
dishonest and an unjust act in contravention of plaintiff's legal
right; and (3) the said control and breach of duty must have
proximately caused the injury or unjust loss complained of.
The absence of the foregoing elements in the present case
precludes the piercing of the corporate veil.
First, other than the fact that PNB and NASUDECO acquired
the assets of PASUMIL, there is no showing that their control
over it warrants the disregard of corporate personalities.
Second, there is no evidence that their juridical personality
was used to commit a fraud or to do a wrong; or that the
separate corporate entity was farcically used as a mere alter
ego, business conduit or instrumentality of another entityor
person. Third, AEEC was not defrauded or injured when PNB
and NASUDECO acquired the assets of PASUMIL. Hence,
although the assets of NASUDECO can be easily traced to
PASUMIL, the transfer of the latter's assets to PNB and
NASUDECO was not fraudulently entered into in order to
escape liability for its debt to AEEC.
There was NO merger or consolidation with respect to
PASUMIL and PNB.
Respondent further claims that petitioners should be held
liable for the unpaid obligations of PASUMIL by virtue of
LOI Nos. 189-A and 311, which expressly authorized
PASUMIL and PNB to merge or consolidate (allegedly).
On the other hand, petitioners contend that their takeover of
the operations of PASUMIL did not involve any corporate
merger or consolidation, because the latter had never lost its
separate identity as a corporation.
A consolidation is the union of two or more existing entities to
form a new entity called the consolidated corporation. A
merger, on the other hand, is a union whereby one or more

existing corporations are absorbed by another corporation that

survives and continues the combined business.
The merger, however, does not become effective upon the
mere agreement of the constituent corporations. Since a
merger or consolidation involves fundamental changes in the
corporation, as well as in the rights of stockholders and
creditors, there must be an express provision of law
authorizing them.
For a valid merger or consolidation, the approval by the SEC
of the articles of merger or consolidation is required. These
articles must likewise be duly approved by a majority of the
respective stockholders of the constituent corporations.
In the case at bar, there is no merger or consolidation with
respect to PASUMIL and PNB. The procedure prescribed
under Title IX of the Corporation Code was not followed.
In fact, PASUMILs corporate existence, as correctly found by
the CA, had not been legally extinguished or terminated.
Further, prior to PNBs acquisition of the foreclosed assets,
PASUMIL had previously made partial payments to
respondent for the formers obligation in the amount
of P777,263.80. As of June 27, 1973, PASUMIL had
paid P250,000 to respondent and, from January 5, 1974 to
May 23, 1974, another P14,000.
Neither did petitioner expressly or impliedly agree to assume
the debt of PASUMIL to respondent. LOI No. 11 explicitly
provides that PNB shall study and submit recommendations
on the claims of PASUMILs creditors. Clearly, the corporate
separateness between PASUMIL and PNB remains, despite
respondents insistence to the contrary.
9. Vasquez vs Borja 74 Phil. 560
In January 1932, Francisco De Borja entered into a contract of
sale with the NVSD (Natividad-Vasquez Sabani Development
Co., Inc.). The subject of the sale was 4,000 cavans of rice
valued at Php2.10 per cavan. On behalf of the company, the
contract was executed by Antonio Vasquez as the companys
acting president. NVSD. only delivered 2,488 cavans and
failed and refused despite demand to deliver the rest hence De
Borja incurred damages (apparently, NVSD was insolvent).
He then sue Vasquez for payment of damages.
ISSUE: Whether or not Vasquez is liable for damages.
HELD: No. Vasquez is not party to the contract as it was
NVSD which De Borja contracted with. It is well known that
a corporation is an artificial being invested by law with a
personality of its own, separate and distinct from that of its
stockholders and from that of its officers who manage and run
its affairs. The mere fact that its personality is owing to a legal
fiction and that it necessarily has to act thru its agents, does

not make the latter personally liable on a contract duly entered

into, or for an act lawfully performed, by them for an in its
behalf.
The fact that the corporation, acting thru Vazquez as its
manager, was guilty of negligence in the fulfillment of the
contract did not make Vazquez principally or even subsidiarily
liable for such negligence. Since it was thecorporations
contract, its non fulfillment, whether due to negligence or fault
or to any other cause, made thecorporation and not its agent
liable.
JUSTICE PARAS Dissenting :
Vasquez as president of NVSD is liable for damages. Vasquez,
as acting president and manager of NVSD, and with full
knowledge of the then insolvent status of his company, agreed
to sell to De Borja 4,000 cavans of palay. Further, NVSD was
soon thereafter dissolved.
Separate Opinion
PARAS, J., dissenting:
Upon the facts of this case as expressly or impliedly admitted
in the majority opinion, the plaintiff is entitled to a judgment
against the defendant. The latter, as acting president and
manager of Natividad-Vazquez Sabani Development Co., Inc.,
and with full knowledge of the then insolvent status of his
company, agreed to sell to theplaintiff 4,000 cavans of palay.
Notwithstanding the receipt from the plaintiff of the full
purchase price, the defendant delivered only 2,488 cavans and
failed and refused to deliver the remaining 1,512 cavans and
failed and refused to deliver the remaining 1,512 cavans and a
quantity of empty sacks, or their value. Such failure resulted,
according to the Court of First Instance of Manila and the
Court of Appeals, from his fault or negligence.
It is true that the cause of action made out by the complaint is
technically based on a contract between theplaintiff and
Natividad-Vazquez Sabani Development Co., Inc. which is not
a party to this case. Nevertheless, inasmuch as it was proven at
the trial that the defendant was guilty of fault in that he
prevented the performance of the plaintiffs contract and also
of negligence bordering on fraud which cause damage to
theplaintiff, the error of procedure should not be a hindrance
to the rendition of a decision in accordance with the evidence
actually introduced by the parties, especially when in such a
situation we may order the necessary amendment of the
pleadings, or even consider them correspondingly amended.
As already stated, the corporation of which the defendant was
acting president and manager was, at the time he made the sale
of the plaintiff, known to him to be insolvent. As a matter of
fact, said corporation was soon thereafter dissolved. There is
admitted damage on the part of the plaintiff, proven to have

been inflicted by reason of the fault or negligence of the

defendant. In the interest of simple justice and to avoid
multiplicity of suits I am therefore impelled to consider the
present action as one based on fault or negligence and to
sentence the defendant accordingly. Otherwise, he would be
allowed to profit by his own wrong under the protective cover
of the corporate existence of the company he represented. It
cannot be pretended that any advantage under the sale inured
to the benefit of Natividad-Vazquez Sabani Development Co.,
Inc. and not of the defendant personally, since the latter
undoubtedly owned a considerable part of its capital.
10. WENSHA Spa Center, Inc vs Yung, 628 SCRA 244
PETITIONER Wensha Spa Center Inc. (Wensha) is a sauna
bath and massage services busi ness. Xu Zhi Jie (Xu) is its
president. In a case for illegal dismissal filed by Loreta Yung
(Loreta) against petitioner, the Court of Appeals found for the
former and held Xu jointly and severally liable with Wensha to
pay the award to Loreta. Did the Court of Appeals (CA) err?
Ruling: Yes.
The Court finds merit in the argument of petitioner Xu that the
CA erred in ruling that he is solidarily liable with Wensha.
Elementary is the rule that a corporation is invested by law
with a personality separate and distinct from those of the
persons composing it and from that of any other legal entity to
which it may be related.
Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding
the separate corporate personality.
In labor cases, corporate directors and officers may be held
solidarily liable with the corporation for the termination of
employment, only if done with malice or in bad faith. Bad
faith does not connote bad judgment or negligence; it imports
a dishonest purpose or some moral obliquity and conscious
doing of wrong; it means breach of a known duty through
some motive or interest or ill will; it partakes of the nature of
fraud.
In the subject decision, the CA concluded that petitioner Xu
and Wensha are jointly and severally liable to Loreta. We
have read the decision in its entirety but simply failed to come
across any finding of bad faith or malice on the part of
Xu. There is, therefore, no justification for such a ruling. To
sustain such a finding, there should be an evidence on record
that an officer or director acted maliciously or in bad faith in
terminating the services of an employee. Moreover, the
finding or indication that the dismissal was effected with
malice or bad faith should be stated in the decision itself.

(Wensha Spa Center, Inc. and/or Xu Zhi Jie vs. Loreta T.

Yung, G.R. No 185122, August 16, 2010).
11.
MONFORT
HERMANOS
AGRICULTURAL
DEVELOPMENT CORPORATION vs. MONFORT
By: Joefrey Uy
Facts:
These are two consolidated cases before SC.
In first case (G.R. No. 155472) Petitioner was
represented by its President, Ma. Antonia M. Salvatierra, and
Ramon H. Monfort, in his personal capacityfiled against the
group of Antonio Monfort III, a complaint for delivery of
motor vehicle, tractors and 378 fighting cocks, with prayer for
injunction and damages before RTC. Respondents moved to
dismiss contending Salvatierras capacity to sue on behalf of
the Corp. because the Board Resolution authorizing the latter
is void as the purported Members of the Board who passed the
same were not validly elected officers of the Corporation. RTC
denied the dismissal of Respondents. On appeal, CA dismissed
Respondents petition. Hence, the latter went to SC.
In Second Case (G.R. No. 152542) Salvatierra on
behalf of the Corp. filed a complaint for forcible entry
preliminary mandatory injunction with temporary restraining
order and damages against Respondents before MTC. It
contended that the latter through force and intimidation,
unlawfully took possession of the 4 Haciendas and deprived
the Corporation of the produce thereon. Respondents raised
the affirmative defense of lack of legal capacity of Salvatierra
to sue on behalf of the Corporation. MTC dismissed the
complaint. On appeal RTC remanded. Respondents petitioned
before CA and the complaint was dismissed. Hence, Petitioner
petitioned before SC.
Issue:
WON Ma. Antonia M. Salvatierra has the legal capacity to sue
on behalf of the Corporation.
Held:
A corporation has no power except those expressly conferred
on it by the Corporation Code and those that are implied or
incidental to its existence. In turn, a corporation exercises said
powers through its board of directors and/or its duly
authorized officers and agents. Thus, it has been observed that
the power of a corporation to sue and be sued in any court is
lodged with the board of directors that exercises its corporate
powers. In turn, physical acts of the corporation, like the
signing of documents, can be performed only by natural
persons duly authorized for the purpose by corporate by-laws
or by a specific act of the board of directors.

Corollary thereto, corporations are required under

Section 26 of the Corporation Code to submit to the SEC
within thirty (30) days after the election the names,
nationalities and residences of the elected directors, trustees
and officers of the Corporation. In order to keep stockholders
and the public transacting business with domestic corporations
properly informed of their organizational operational status,
the SEC issued the following rules:

they cannot confer valid authority for her to sue on behalf of

the corporation.
12 San Juan Structural and steel fabrications, inc vs. CA
296 S 631
By: Jose Vencer

Facts: On 14 February 1989, San Juan Structural and Steel

Fabricators, Inc. (SJSSFI) entered into an agreement with
A General Information Sheet shall be filed with this
Motorich Sales Corporation (MSC) for the transfer to it of a
Commission within thirty (30) days following the date of the
parcel of land identified as Lot 30, Block 1 of the Acropolis
annual stockholders meeting. No extension of said period
Greens Subdivision located in the District of Murphy, Quezon
shall be allowed, except for very justifiable reasons stated in
City, Metro Manila, containing an area of 414 square meters,
writing by the President, Secretary, Treasurer or other officers,
covered by TCT (362909) 2876 (the lot was still registered in
upon which the Commission may grant an extension for not
the name of ACL Development Corporation [ADC] at that
more than ten (10) days
time). As stipulated in the Agreement of 14 February 1989,
SJSSFI paid the downpayment in the sum of P100,000.00, the
Should a director, trustee or officer die, resign or in any
balance to be paid on or before 2 March 1989. On 1 March
manner, cease to hold office, the corporation shall report such
1989, Mr. Andres T. Co, SJSSFI president, wrote a letter to
fact to the Commission with fifteen (15) days after such death,
MSC requesting for a computation of the balance to be paid.
resignation or cessation of office.
Said letter was coursed through MSC's broker, Linda Aduca,
In the instant case:
who wrote the computation of the balance. On 2 March 1989,
SJSSFI was ready with the amount corresponding to the
March 31, 1997 Board Resolution
1996 Generalbalance,
Information
Sheetby Metrobank Cashier's Check 004223,
covered
Ma. Antonia M. Salvatierra, President;
1.
Ma. Antonia
M.
Salvatierra
(Chairman);
payable to MSC. SJSSFI
and MSC were supposed to meet in
Ramon H. Monfort, Executive Vice President; Directors 2.
Ramonthe
H. Monfort
(Member);
office of SJSSFI but MSC's treasurer, Nenita Lee
Paul M. Monfort,
3.
Antonio
H. Monfort,
(Member);
Gruenberg,
didJr.,not
appear. MSC, despite repeated demands
Yvete M. Benedicto and
4.
Joaquin
H.
Monfort
(Member);
and in utter disregard of its commitments had refused to
Jaqueline M. Yusay; and
5.
Francisco
H. Monfort
(Member)
and
execute
the Transfer
of Rights/Deed
of Assignment which is
Ester S. Monfort, Secretary.
6.
Jesus Antonio
H.
Monfort
(Member).
necessary to transfer the certificate of title. On 6 April 1989,
ADC and MSC entered into a Deed of Absolute Sale whereby
the former transferred to the latter the subject property. By
In the case at bar, the fact that four of the six
reason of said transfer, the Registry of Deeds of Quezon City
Members of the Board listed in the 1996 General Information
issued a new title in the name of MSC, represented by Nenita
Sheet are already dead at the time the March 31, 1997 Board
Lee Gruenberg and Reynaldo L Gruenberg, under Transfer
Resolution was issued, does not automatically make the four
Certificate of Title 3571. SJSSFI filed the complaint for
signatories (i.e., Paul M. Monfort, Yvete M. Benedicto,
damages against MSC, and Nenita Lee Gruenberg, as a result
Jaqueline M. Yusay and Ester S. Monfort) to the said Board
of the latters alleged bad faith in refusing to execute a formal
Resolution (whose name do not appear in the 1996 General
Transfer of Rights/Deed of Assignment. It impleaded ADC
Information Sheet) as among the incumbent Members of the
and JNM Realty & Development Corp. (JRDC) as necessary
Board. This is because it was not established that they were
parties, since Transfer Certificate of Title (362909) 2876 was
duly elected to replace the said deceased Board Members.
in the name of ADC, and that JRDC is the transferor of right
in favor of MDC. In its answer, MSC and Nenita Lee
As previously stated, a corporation is mandated to
Gruenberg interposed as affirmative defense that the President
inform the SEC of the names and the change in the
and Chairman of Motorich did not sign the agreement
composition of its officers and board of directors within 30
adverted to; that Mrs. Gruenberg's signature on the agreement
days after election if one was held, or 15 days after the death,
is inadequate to bind MSC as the other signature, that of Mr.
resignation or cessation of office of any of its director, trustee
Reynaldo Gruenberg, President and Chairman of MSC, is
or officer if any of them died, resigned or in any manner,
required; that SJSSFI knew this from the very beginning as it
ceased to hold office. This, the Corporation failed to do.
was presented a copy of the Transfer of Rights at the time the
Considering the foregoing, we find that Ma. Antonia
Agreement was signed; that SJSSFI itself drafted the
M. Salvatierra failed to prove that four of those who
Agreement and insisted that Mrs. Gruenberg accept the
authorized her to represent the Corporation were the lawfully
P100,000.00 as earnest money; that granting, without
elected Members of the Board of the Corporation. As such,
admitting, the enforceability of the agreement, SJSSFI

nonetheless failed to pay in legal tender within the stipulated

period (up to 2 March 1989); that it was the understanding
between Mrs. Gruenberg and SJSSFI that the Transfer of
Rights/Deed of Assignment will be signed only upon receipt
of cash payment; thus they agreed that if the payment be in
check, they will meet at a bank designated by SJSSFI where
they will encash the check and sign the Transfer of
Rights/Deed, but that SJSSFI informed Mrs. Gruenberg of the
alleged availability of the check, by phone, only after banking
hours. On the basis of the evidence, and on 18 June 1994, the
Regional Trial Court of Makati, Metro Manila, Branch 63
(Civil Case 89-3511) rendered judgment, dismissing SJSSFI's
complaint, finding that Nenita Lee Gutenberg was not
authorized by the corporation to dispose of the property as
such disposition is governed by the requirements of Section
40, Corporation Code; and that Nenita Lee Gutenberg did not
in anyway misrepresent herself to be authorized by the
corporation to sell the property to SJSSFI. The trial court also
dismissed the counterclaim. SJSSFI appealed. On 18 March
1997, the Court of Appeals (CA GR CV 46801) modified the
decision of the trial court by ordering Nenita Lee Gutenberg to
refund or return to SJSSFI the downpayment of P100,000.00
which she received from the latter. SJSSFI moved for
reconsideration, which was denied by the appellate court on
10 June 1997. SJSSFI filed the Petition for Review on
Certiorari. SJSSFI argues, among others, that the veil of
corporate fiction of MSC should be pierced, because the latter
is a close corporation. Since "Spouses Reynaldo L. Gruenberg
and Nenita R. Gruenberg owned all or almost all or 99.866%
to be accurate, of the subscribed capital stock" 25 of Motorich,
petitioner argues that Gruenberg needed no authorization from
the board to enter into the subject contract. It adds that, being
solely owned by the Spouses Gruenberg the company can be
treated as a close corporation which can be bound by the acts
of its principal stockholder who needs no specific authority.
Issue: Whether MSC is a close corporation, based on the fact
that almost all of the shares of stock of the corporation are
owned by said treasurer and her husband.
Held: Section 96 of the Corporation Code defines a close
corporation provides that "A close corporation, within the
meaning of this Code, is one whose articles of incorporation
provide that: (1) All of the corporation's issued stock of all
classes, exclusive of treasury shares, shall be held of record by
not more than a specified number of persons, not exceeding
twenty (20); (2) All of the issued stock of all classes shall be
subject to one or more specified restrictions on transfer
permitted by this Title; and (3) The corporation shall not list in
any stock exchange or make any public offering of any of its
stock of any class. Notwithstanding the foregoing, a
corporation shall be deemed not a close corporation when at
least two-thirds (2/3) of its voting stock or voting rights is
owned or controlled by another corporation which is not a
close corporation within the meaning of this Code." The

articles of incorporation of MSC does not contain any

provision stating that (1) the number of stockholders shall not
exceed 20, or (2) a preemption of shares is restricted in favor
of any stockholder or of the corporation, or (3) listing its
stocks in any stock exchange or making a public offering of
such stocks is prohibited. From its articles, it is clear that MSC
is not a close corporation. MSC does not become one either,
just because Spouses Reynaldo and Nenita Gruenberg owned
99.866% of its subscribed capital stock. The mere ownership
by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate
personalities. So, too, a narrow distribution of ownership does
not, by itself, make a close corporation.

Elements to Constitutional Guarantees

13. Stonehill vs Diokno
By: Jet Villaruel
Stonehill et al and the corporation they form were alleged to
have committed acts in violation of Central Bank Laws,
Tariff and Customs Laws, Internal Revenue (Code) and
Revised Penal Code. By the strength of this allegation a
search warrant was issued against their persons and their
corporation. The warrant provides authority to search the
persons above-named and/or the premises of their offices,
warehouses and/or residences, and to seize and take
possession of the following personal property to wit: Books
of accounts, financial records, vouchers, correspondence,
receipts, ledgers, journals, portfolios, credit journals,
typewriters, and other documents and/or papers showing all
business transactions including disbursements receipts,
balance sheets and profit and loss statements and Bobbins
(cigarette wrappers). The documents, papers, and things
seized under the alleged authority of the warrants in question
may be split into (2) major groups, namely: (a) those found
and seized in the offices of the aforementioned corporations
and (b) those found seized in the residences of petitioners
herein. Stonehill averred that the warrant is illegal for: (1) they
do not describe with particularity the documents, books and
things to be seized; (2) cash money, not mentioned in the
warrants, were actually seized; (3) the warrants were issued to
fish evidence against the aforementioned petitioners in
deportation cases filed against them; (4) the searches and
seizures were made in an illegal manner; and (5) the
documents, papers and cash money seized were not delivered
to the courts that issued the warrants, to be disposed of in
accordance with law. The prosecution counters, invoking the
Moncado doctrine, that the defects of said warrants, if any,
were cured by petitioners consent; and (3) that, in any event,
the effects seized are admissible in evidence against them. In

short, the criminal cannot be set free just because the

government blunders.

BACHE & CO (PHIL) and FREDERICK E.

SSEGGERMAN vs HON. JUDGE VIVENCIO M. RUIZ

ISSUE: Whether or not the search warrant issued is valid.

GR No. L-32409

HELD: The SC ruled in favor of Stonehill et al. The SC

emphasized however that Stonehill et al cannot assail the
validity of the search warrant issued against their corporation
for Stonehill are not the proper party hence has no cause of
action. It should be raised by the officers or board members of
the corporation. The constitution protects the peoples right
against unreasonable search and seizure. It provides; (1) that
no warrant shall issue but upon probable cause, to be
determined by the judge in the manner set forth in said
provision; and (2) that the warrant shall particularly describe
the things to be seized. In the case at bar, none of these are
met. The warrant was issued from mere allegation that
Stonehill et al committed a violation of Central Bank Laws,
Tariff and Customs Laws, Internal Revenue (Code) and
Revised Penal Code. In other words, no specific offense had
been alleged in said applications. The averments thereof with
respect to the offense committed were abstract. As a
consequence, it was impossible for the judges who issued the
warrants to have found the existence of probable cause, for the
same presupposes the introduction of competent proof that the
party against whom it is sought has performed particular acts,
or committed specific omissions, violating a given provision
of our criminal laws. As a matter of fact, the applications
involved in this case do not allege any specific acts performed
by herein petitioners. It would be a legal heresy, of the highest
order, to convict anybody of a violation of Central Bank
Laws, Tariff and Customs Laws, Internal Revenue (Code) and
Revised Penal Code, as alleged in the aforementioned
applications without reference to any determinate provision
of said laws or codes. The grave violation of the Constitution
made in the application for the contested search warrants was
compounded by the description therein made of the effects to
be searched for and seized, to wit: Books of accounts,
financial records, vouchers, journals, correspondence, receipts,
ledgers, portfolios, credit journals, typewriters, and other
documents and/or papers showing all business transactions
including disbursement receipts, balance sheets and related
profit and loss statements. Thus, the warrants authorized the
search for and seizure of records pertaining to all business
transactions of Stonehill et al, regardless of whether the
transactions were legal or illegal. The warrants sanctioned the
seizure of all records of Stonehill et al and the aforementioned
corporations, whatever their nature, thus openly contravening
the explicit command of the Bill of Rights that the things to
be seized be particularly described as well as tending to
defeat its major objective: the elimination of general warrants.
The Moncado doctrine is likewise abandoned and the right of
the accused against a defective search warrant is emphasized.

FACTS:

14. Bache & Co vs Ruiz 37 Scra 823

Section 4 (Examination of the Applicant):

Respondent Misael P. Vera, Commissioner of Internal

Revenue, wrote a letter addressed to respondent Judge
Vivencio M. Ruiz requesting the issuance of Search Warrant
for violation of Section 46 of National Internal Revenue Code
and authorizing Revenue examiner Rodolfo de Leon, to make
and file the application for Search Warrant which was attached
to the letter. At that time Judge was hearing a certain case; so,
by means of a note he instructed the Deputy Clerk of Court to
take the depositions of respondents de Leon and Logronio.
The stenographer, upon request of respondent Judge, read to
him her stenographic notes; and thereafter, respondent Judge
asked responded Logronio to take the oath and warned him
that if his deposition was found to be false and without legal
basis, he could be charged for perjury.
ISSUE:
Whether or not Judge Vivencio M. Ruiz conducted a personal
examination?
HELD:
No. The petition for Certiorari, prohibition and Mandamus are
granted. Search Warrant No. 2-M-70 issued by respondent
Judge is declared null and void.
RATIONALE:
Personal examination by the Judge of the complainant and the
witnesses is necessary to enable him to determine the
existence or non-existence of a probable cause, the
determination of whether or not a probable cause exists calls
for the exercise of judgment after a judicial appraisal of facts
and should not be allowed to be delegated in the absence of
any rule to the contrary.
In this case at bar, no personal examination at all was
conducted by respondent Judge of the complainant and his
witnesses.
The participation of respondent Judge in the proceedings
which led to the issuance of Search Warrant 2-M-70 was thus
limited to listening to the stenographers readings of her notes
to a few words of warning against the commission of perjury,
and to administering the oath to the complainant and his
witness. This cannot be considered a personal examination. If
there was an examination at all of the complainant and his
witness, it was one conducted by the Deputy Clerk of Court

The Judge or Justice of the peace must, before issuing the

warrant, personally examine on oath or affirmation the
complaint and any witnesses he may produce and take their
depositions in writing, and attached them to the record, in
addition to any affidavits presented to him.
15. Bataan Shipyard Engineering Co., Inc. (Baseco) vs.
PCGG (G.R. No. 75885 May 27, 1987)

Held: No. First of all, PCGG has the right to require the
production of such documents pursuant to the power granted
to it. The order to produce documents was issued upon the
authority of Section 3 (e)of Executive Order No. 1, treating of
the PCGG's power to "issue subpoenas requiring * *the
production of such books, papers, contracts, records,
statements of accounts and other documents as may be
material to the investigation conducted by the Commission.

By: Roz Camacho

Entitlement to Constitutional Guarantees - A Corporation
Cannot Invoke the Right Against Self-Incrimination
Facts: When President Corazon Aquino took power, the
Presidential Commission on Good Government (PCGG) was
formed in order to recover ill gotten wealth allegedly acquired
by former President Marcos and his cronies. Aquino then
issued two executive orders in 1986: (1) Executive Orders
Numbered 1 and 2 and pursuant thereto, a sequestration and a
takeover order were issued against Bataan Shipyard &
Engineering Co., Inc. (BASECO). BASECO was alleged to be
in actuality owned and controlled by the Marcoses through the
Romualdez family, and in turn, through dummy stockholders.
The sequestration order issued in 1986 required, among
others,that BASECO produce corporate records from 1973 to
1986 under pain of contempt of the PCGG if it fails to do so.
BASECO assails this order as it avers that it is against
BASECOs right against self incrimination and unreasonable
searches and seizures.
Issue:
Whether BASECOs right against self-incrimination and
unreasonable searches and seizures was violated

Second, and more importantly, right against self-incrimination

has no application to juridical persons. The right against selfincrimination has no application to juridical persons. While an
individual may lawfully refuse to answer incriminating
questions unless protected by an immunity statute, it does not
follow that a corporation, vested with special privileges and
franchises, may refuse to show its hand when charged with an
abuse of such privileges. Corporations are not entitled to all of
the constitutional protections, which private individuals have.
Furthermore, there is a reserve right in the legislature to
investigate the contracts of a corporation and find out whether
it has exceeded its powers. It would be a strange anomaly to
hold that a state, having chartered a corporation like BASECO
to make use of certain franchises, could not, in the exercise of
sovereignty, inquire how these franchises had been employed,
and whether they had been abused, and demand the production
of the corporate books and papers for that purpose. Neither
is the right against unreasonable searches and seizures
applicable here. There were no searches made and no seizure
pursuant to any search was ever made. BASECO was merely
ordered to produce the corporate records.