merc recentjuris final

7/25/2019 Merc Recentjuris Final

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Recent Jurisprudence (April 2014 March 2015)

CORPORATIO !A"

#RA$%AT&'R R!'

ARRA IC'! MII# A$ $'*'!OPM'T CORP+, T'-ORO MII# A$$'*'!OPM'T, IC+, and McART&R MII#, IC+, vs.R'$MOT

COCO!I$AT'$ MI'- CORP+#+R+ .+ 1/550, Januar 2, 2015, J+ *elasc., Jr+

A corporation that complies with the 60-40 Filipino to foreign equityrequirement can be considered a Filipino corporation if there is no doubt as to whohas the benecial ownership and control of the corporation !n this case" afurther in#estigation as to the nationality of the personalities with the benecialownership and control of the corporate shareholders in both the in#esting and

in#estee corporations is necessary $oubt refers to #arious indicia that thebenecial ownership and control of the corporation do not in fact reside inFilipino shareholders but in foreign sta%eholders en if at rst glance the

petitioners comply with the 60-40 Filipino to foreign equity ratio" doubt e'ists in thepresent case that gi#es rise to a reasonable suspicion that the Filipino shareholdersdo not actually ha#e the requisite number of control and benecial ownership in

petitioners (arra" )esoro" and *cArthur +ence" the ,ourt is correct in using therandfather .ule in determining the nationality of the petitioners

%acts

Petitioner Narra Nickel and Mining Development Corp. (Narra) fled this

Motion or Reconsideration o the Supreme Courts !pril "#$ "%#& Decision 'hereinit armed the appellate courts ruling that petitioners$ eing oreign corporations$are not entitled to Mineral Production Sharing !greements (MPS!s ). *n reaching theassailed decision$ the Court upheld 'ith approval the appellate courts fnding thatthere 'as dout as to petitioners nationalit+ since a #%%, Canadian-o'ned frm$MM* Resources$ *nc. (MM*)$ e/ectivel+ o'ns 0%, o the common stocks o thepetitioners + o'ning e1uit+ interest o petitioners other ma2orit+ corporateshareholders.

3o petitioners$ the Court4s application o the 5randather Rule to determinetheir nationalit+ is erroneous and allegedl+ 'ithout asis in the Constitution$ the6oreign *nvestments !ct o #77# (6*!)$ the Philippine Mining !ct o #778$ and theRules issued + the Securities and 9:change Commission (S9C). 3hese la's andrules supposedl+ espouse the application o the Control 3est in veri+ing thePhilippine nationalit+ o corporate entities or purposes o determining compliance'ith Sec. "$ !rt. ;** o the Constitution that onl+ citi?ens@ ma+en2o+ certain rights and privileges$ like the e:ploration and development o naturalresources

Issue

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ATIOA!IT3 O% CORPORATIO-


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Ahether the Court erred in using the 5randather rule and not the controltest in determining the nationalit+ o the petitioners.

Rulin

No. !s defned + Dean Cesar Billanueva$ the 5randather Rule is


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!s e:plained in the !pril "#$ "%#" Decision$ the


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another MPS! application o SMM* 'as fled 'ith the D9NR Region *B-$ laeled asMPS!-!M!-*B-#8& (ormerl+ 9P!-*B-&H) over G$&%" hectares in aranga+s Malinaoand Princesa Lrdu2a$ Municipalit+ o Narra$ Province o Pala'an. SMM* suse1uentl+conve+ed$ transerred and assigned its rights and interest over the said MPS!

application to 3esoro.

Fn "%%H$ Redmont fled eore the Panel o !ritrators (PF!) o the D9NRthree (G) separate petitions or the denial o petitioners4 applications or MPS!. *nthe petitions$ Redmont alleged that at least 0%, o the capital stock o Mc!rthur$

3esoro and Narra are o'ned and controlled + MM* Resources$ *nc. (MM*)$ a #%%,Canadian corporation. Redmont reasoned that since MM* is a consideralestockholder o petitioners$ it 'as the driving orce ehind petitioners4 fling o theMPS!4s over the areas covered + applications since it kno's that it can onl+participate in mining activities through corporations 'hich are deemed 6ilipinociti?ens. Redmont argued that given that petitioners4 capital stocks 'ere mostl+o'ned + MM*$ the+ 'ere like'ise dis1ualifed rom engaging in mining activities

through MPS!s$ 'hich are reserved onl+ or 6ilipino citi?ens.

Issue

Ahether or not petitioner corporations Narra$ 3esoro and Mc!rthur are oreigncorporations ased on the 5randather Rule.

Rulin

es.

5randather Rule is a method to determine the nationalit+ o the corporation

+ making reerence to the nationalit+ o the stockholders o the investorcorporation. ased on a S9C Rule and DFO Fpinion$ the 5randather Rule or thesecond part o the S9C Rule applies onl+ 'hen the 0%-&% 6ilipino-oreign e1uit+o'nership is in dout (i.e.$ in cases 'here the 2oint venture corporation 'ith 6ilipinoand oreign stockholders 'ith less than 0%, 6ilipino stockholdings =or 87,> investsin other 2oint venture corporation 'hich is either 0%-&%, 6ilipino-alien or the 87,less 6ilipino). Stated di/erentl+$ 'here the 0%-&% 6ilipino- oreign e1uit+ o'nership isnot in dout$ the 5randather Rule 'ill not appl+.

!ter a scrutin+ o the evidence e:tant on record$ the Court fnds that thiscase calls or the application o the grandather rule since dout prevails andpersists in the corporate o'nership o petitioners. !lso dout is present in the 0%-&%

6ilipino e1uit+ o'nership o petitioners Narra$ Mc!rthur and 3esoro$ since theircommon investor$ the #%%, Canadian corporationMM*$ unded them. Fviousl+$the instant case presents a situation 'hich e:hiits a scheme emplo+ed +stockholders to circumvent the la'$ creating a cloud o dout in the Court4s mind. 3odetermine$ thereore$ the actual participation$ direct or indirect$ o MM*$ thegrandather rule must e used.

McArthur Minin, Inc+

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3o estalish the actual o'nership$ interest or participation o MM* in each opetitioners4 corporate structure$ the+ have to e grandathered. !s previousl+discussed$ Mc!rthur ac1uired its MPS! application rom MMC$ 'hich ac1uired itsapplication rom SMM*. Mc!rthur has a capital stock o ten million pesos (PhP

#%$%%%$%%%) divided into #%$%%% common shares at one thousand pesos (PhP #$%%%)per share$ suscried to + the ollo'ingQ

a6e ati.nalit

u67er .8-hares

A6.unt-u7scri7ed

A6.unt Paid

Madride2os MiningCorporation

6ilipino 8$77H PhP 8$77H$%%%.%% PhP I"8$%%%.%%

M9MI Res.urces,Inc+

Canadian G$77I PhP G$77I$%%%.% PhP #$IHI$#H&.0%

Jauro J. Sala?ar 6ilipino # PhP #$%%%.%% PhP #$%%%.%%

6ernando . 9sguerra 6ilipino # PhP #$%%%.%% PhP #$%%%.%%

Manuel !. !gcaoili 6ilipino # PhP #$%%%.%% PhP #$%%%.%%Michael 3. Mason !merican # PhP #$%%%.%% PhP #$%%%.%%

enneth Ca'kell Canadian # PhP #$%%%.%% PhP #$%%%.%%

3otal #%$%%% PhP #%$%%%$%%%.%% PhP "$H%I$#H&.0%

*nterestingl+$ looking at the corporate structure o MMC$ 'e take note that ithas a similar structure and composition as Mc!rthur. *n act$ it 'ould seem thatMM* is also a ma2or investor and controls MM* and also$ similar nominalshareholders 'ere present$ i.e. 6ernando . 9sguerra (9sguerra)$ Jauro J. Sala?ar(Sala?ar)$ Michael 3. Mason (Mason) and enneth Ca'kell (Ca'kell)Q

Madride:.s Minin C.rp.rati.n

*n the case o Madride2os Mining Corporation , noticeal+$ Fl+mpic Mines KDevelopment Corporation (Fl+mpic) as one o its stockholders did not pa+ an+amount 'ith respect to the numer o shares the+ suscried to in the corporation$'hich is 1uite asurd since Fl+mpic is the ma2or stockholder in MMC. MM*4s "%%0!nnual Report sheds light on 'h+ Fl+mpic ailed to pa+ an+ amount 'ith respect tothe numer o shares it suscried to. MM* states that Fl+mpic entered into 2ointventure agreements 'ith several Philippine companies$ 'herein MM* holds directl+and indirectl+ a 0%, e/ective e1uit+ interest in the Fl+mpic Properties. 3hus$ asdemonstrated in this frst corporation$ Mc!rthur$ 'hen it is grandathered$

compan+ la+ering 'as utili?ed + MM* to gain control over Mc!rthur. *t is apparentthat MM* has more than 0%, or more e1uit+ interest in Mc!rthur$ making the lattera oreign corporation.

Tes.r. Minin and $e;el.p6ent, Inc+

3esoro$ 'hich ac1uired its MPS! application rom SMM*$ has a capital stock oten million pesos (PhP #%$%%%$%%%) divided into ten thousand (#%$%%%) commonshares at PhP #$%%% per share. 9:cept or the name Sara Marie Mining$ *nc.$

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3esoro4s corporate structure sho's e:actl+ the same fgures as the corporatestructure o petitioner Mc!rthur$ do'n to the last centavo. !ll the othershareholders are the sameQ MM*$ Sala?ar$ 9sguerra$ !gcaoili$ Mason and Ca'kell.

3he fgures under Nationalit+$ Numer o Shares$ !mount Suscried$ and

!mount Paid are e:actl+ the same.

-ara Marie Minin, Inc+

!ter suse1uentl+ stud+ing SMM*4s corporate structure$ it is not aretchedor us to spot the glaring similarit+ et'een SMM* and MMC4s corporate structure.!gain$ the presence o identical stockholders$ namel+Q Fl+mpic$ MM*$ !mantiJimson (Jimson)$ 9sguerra$ Sala?ar$ Eernando$ Mason and Ca'kell. 3he fguresunder the headings Nationalit+$ Numer o Shares$ !mount Suscried$ and!mount Paid are e:actl+ the same e:cept or the amount paid + MM* 'hich no'reects the amount o t'o million seven hundred ninet+ our thousand pesos (PhP"$H7&$%%%). Fddl+$ the total value o the amount paid is t'o million eight hundred

nine thousand nine hundred pesos (PhP "$I%7$7%%). !ccordingl+$ atergrandathering petitioner 3esoro and actoring in Fl+mpic4s participation in SMM*4scorporate structure$ it is clear that MM* is in control o 3esoro and o'ns 0%, ormore e1uit+ interest in 3esoro. 3his makes petitioner 3esoro a non-6ilipinocorporation and$ thus$ dis1ualifes it to participate in the e:ploitation$ utili?ation anddevelopment o our natural resources.

arra ic


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Jauro J. Sala?ar 6ilipino # PhP #$%%%.%% PhP #$%%%.%%

Manuel !. !gcaoili 6ilipino # PhP #$%%%.%% PhP #$%%%.%%

a+ani E. !gain 6ilipino # PhP #$%%%.%% PhP #$%%%.%%

Michael 3. Mason !merican # PhP #$%%%.%% PhP #$%%%.%%

enneth Ca'kell Canadian # PhP #$%%%.%% PhP #$%%%.%%

3otal #%$%%% PhP#%$%%%$%%%.%%

PhP"$H%I$#H&.0%

et again$ the same stockholders in petitioners4 corporate structures arepresent. Similarl+$ the amount o mone+ paid + the "nd tier ma2orit+ stock holder$in this case$ Pala'an !lpha South Resources and Development Corp. (P!SRDC)$ is?ero.

Concluding rom the aove-stated acts$ it is 1uite sae to sa+ that petitionersMc!rthur$ 3esoro and Narra are not 6ilipino since MM*$ a #%%, Canadiancorporation$ o'ns 0%, or more o their e1uit+ interests. Such conclusion is derivedrom grandathering petitioners4 corporate o'ners$ namel+Q MM*$ SMM* and PJMDC.5oing urther and adding to the picture$ MM*4s Summar+ o Signifcant !ccountingPolicies statement regarding the 2oint venture agreements that it entered into'ith the Fl+mpic and !lpha groupsinvolves SMM*$ 3esoro$ PJMDC and Narra.Noticeal+$ the o'nership o the la+ered corporations oils do'n to MM*$Fl+mpic or corporations under the !lpha group 'herein MM* has 2oint ventureagreements 'ith$ practicall+ e:ercising ma2orit+ control over the corporationsmentioned. *n e/ect$ 'hether looking at the capital structure or the underl+ingrelationships et'een and among the corporations$ petitioners are NF3 6ilipinonationals and must e considered oreign since 0%, or more o their capital stocksor e1uit+ interests are o'ned + MM*.

$OCTRI'O%

CORPORAT' JRI$ICA! P'R-OA!IT3

P&I!IPPI' ATIOA! 9A vs. M'R'!O 9+ A?AR et al+#+R+ .+ 1@105, Ma 0, 2014, J+ !e.nard.$e Castr.

toc%holders cannot claim ownership o#er corporate properties by #irtue ofthe *inutes of a toc%holder


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*n #78I$ R*SCF ceased operation due to usiness reverses. Due to Merelo .!?nar$ Matias . !?nar ***$ Oose J. !?nar$ Rosario 3. arcenilla$ Oose . 9nad andRicardo 5au+a4s (!?nar et al)desire to rehailitate R*SCF$ the+ contriuted a total

amount o P"#"$H"%.%% 'hich 'as used in the purchase o the three (G) parcels oland located in various areas in the Ceu Province.

!ter the purchase o the aove lots$ titles 'ere issued in the name o R*SCF.3he amount contriuted + plainti/s constituted as liens and encumrances on theaorementioned properties as annotated in the titles o said lots. Such annotation'as made pursuant to the Minutes o the Special Meeting o the oard o Directorso R*SCF stating thatT

And that the respecti#e contributions abo#e-mentioned shallconstitute as their lien or interest on the property described abo#e" ifand when said property are titled in the name of .=.A> !(=.A(,& ?

=.&)@ ,1" !(," subect to registration as their ad#erse claim inpursuance of the ro#isions of >and .egistration Act" 3Act (o 486" asamended: until such time their respecti#e contributions are refundedto them completely

3hereater$ various suse1uent annotations 'ere made on the same titles inavor o PN. !s a result$ a Certifcate o Sale 'as issued in avor o PN$ eing thelone and highest idder o the three (G) parcels o land and 'as also issued 3ranserCertifcate o 3itle over the said parcels o land.

3his prompted !?nar et. al to fle a complaint seeking the 1uieting o theirsupposed title to the su2ect properties. 3he+ alleged that the suse1uent

annotations on the titles are su2ect to the prior annotation o their liens andencumrances. Fn the other hand$ asserts that plainti/s$ as mere stockholders oR*SCF do not have an+ legal or e1uitale right over the properties o thecorporation. PN posited that even i plainti/4s monetar+ lien had not e:pired$ theironl+ recourse 'as to re1uire the reimursement or reund o their contriution.

!?nar$ et al.$ fled a Maniestation and Motion or Oudgment on the Pleadings.3hus$ the trial court rendered the Novemer #I$ #77I Decision$ 'hich ruled againstPN. *t urther declared that the Minutes o the Special Meeting o the oard oDirectors o R*SCF annotated on the titles to su2ect properties as an e:press trust'here+ R*SCF 'as a mere trustee and the aove-mentioned stockholders asenefciaries eing the true and la'ul o'ners o Jots G87H$ HGI% and #G"G.

Fn appeal$ the C! set aside the ruling o the trial court and ruled that there'as no trust created. 3he lien is merel+ an evidence o the loan. 3hus$ it directedPN to pa+ !?nar$ et al.$ the amount o their contriutions plus legal interest romthe time o ac1uisition o the propert+ until fnalit+ o 2udgment.

Issue

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Ahether or not !?nar et al as stockholders has the legal or e1uitale rightsover the su2ect properties

Rulin

No. !?nar et al do not have an+ legal or e1uitale rights over the properties.

*ndeed$ 'e fnd that !?nar$ et al.$ have no right to ask or the 1uieting o titleo the properties at issue ecause the+ have no legal andor e1uitale rights overthe properties that are derived rom the previous registered o'ner 'hich is R*SCF.

!s a conse1uence thereo$ a corporation has a personalit+ separate anddistinct rom those o its stockholders and other corporations to 'hich it ma+ econnected. 3hus$ 'e had previousl+ ruled in Magsa+sa+-Jarador v. Court o!ppeals that the interest o the stockholders over the properties o the corporationis merel+ inchoate and thereore does not entitle them to intervene in litigation

involving corporate propert+.

Eere$ the interest$ i it e:ists at all$ o petitioners-movants is indirect$contingent$ remote$ con2ectural$ conse1uential and collateral. !t the ver+ least$ theirinterest is purel+ inchoate$ or in sheer e:pectanc+ o a right in the management othe corporation and to share in the profts thereo and in the properties and assetsthereo on dissolution$ ater pa+ment o the corporate dets and oligations.

*n the case at ar$ there is no allegation$ much less an+ proo$ that thecorporate e:istence o R*SCF has ceased and the corporate propert+ has eenli1uidated and distriuted to the stockholders. 3he records onl+ indicate that$ as perSecurities and 9:change Commission (S9C) Certifcation dated Oune #I$ #77H$ the

S9C merel+ suspended R*SCF4s Certifcate o Registration eginning on Septemer8$ #7II due to its non-sumission o S9C re1uired reports and its ailure to operateor a continuous period o at least fve +ears.

Beril+$ !?nar$ et al.$ 'ho are stockholders o R*SCF$ cannot claim o'nershipover the properties at issue in this case on the strength o the Minutes 'hich$ atmost$ is merel+ evidence o a loan agreement et'een them and the compan+.

3here is no indication or even a suggestion that the o'nership o said properties'ere transerred to them 'hich 'ould re1uire no less that the said properties eregistered under their names. 6or this reason$ the complaint should e dismissedsince !?nar$ et al.$ have no cause to seek a 1uieting o title over the su2ectproperties.

!t most$ 'hat !?nar$ et al.$ had 'as merel+ a right to e repaid the amountloaned to R*SCF. Lnortunatel+$ the right to seek repa+ment or reimursement otheir contriutions used to purchase the su2ect properties is alread+ arred +prescription.

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COMMI--IO'R O% C-TOM- vs+ OI!I IT'RATIOA! CORPORATIO#+R+ .+ 1>1@5/, Jul 2, 2014, J+ 9ersa6in

=., and 1ilin% had the same /oard of $irectors and 1ilin% was B005 owned

by =., )he ,ourt held that the doctrine of piercing the corporate #eil has noapplication here because the ,ommissioner of ,ustoms did not establish that 1ilin%had been set up to a#oid the payment of ta'es or duties" or for purposes that woulddefeat public con#enience" ustify wrong" protect fraud" defend crime" confuselegitimate legal or udicial issues" perpetrate deception or otherwise circum#ent thelaw

%acts*n the course o its usiness undertakings$ particularl+ in the period rom

#77# to #77&$ Lnion Refner+ Corporation (LRC) imported oil products into thecountr+. LRC and Filink had interlocking directors 'hen Filink started its usiness.

3he+ had the same oard o Directors and Filink 'as #%%, o'ned + LRC.

3he District Collector o the Port o Manila$ ormall+ demanded that LRC pa+the ta:es and duties on its oil imports that had arrived et'een Oanuar+ 0$ #77# andNovemer H$ #778 at the Port o Jucanin in Mariveles$ ataan.

Fn Oul+ "$ #777$ Commissioner 3an made a fnal demand or the total liailit+o P#GI$%0%$"%%.&7 upon LRC and Filink. Co re1uested rom Commissioner 3an acomplete fnding o the acts and la' in support othe assessment made in thelatter4s Oul+ "$ #777 fnal demand. Filink ormall+ protested the assessment on theground that it 'as not the part+ liale or the assessed defcienc+ ta:es.

Fn Oul+ #"$ #777$ ater receiving the letter rom Co$ Commissioner 3an

communicated in 'riting the detailed computation o the ta: liailit+$ stressing thatthe ureau o Customs (oC) 'ould not issue an+ clearance to Filink unless theamount o P#GI$%0%$"%%.&7 demanded as Filink4s ta: liailit+ e frst paid$ and aperormance ond e posted + LRCFilink to secure the pa+ment o an+ad2ustments that 'ould result rom the *R4s revie' o the liailities or B!3$ e:ciseta:$ special duties$ penalties$ etc.

3hus$ on Oul+ G%$ #777$ Filink appealed to the C3!$ seeking the nullifcation othe assessment or having een issued 'ithout authorit+ and 'ith grave ause odiscretion tantamount to lack o 2urisdiction ecause the 5overnment 'as there+shiting the imposition rom LRC to Filink.

3he C3! rendered its decision declaring as null and void the assessment o theCommissioner o Customs. 3he C! ruled in avor o Filink.

IssueAhether or not the Commissioner o Customs could pierce the veil o

corporate fction

Rulin

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No. ! corporation$ upon coming into e:istence$ is invested + la' 'ith apersonalit+ separate and distinct rom those o the persons composing it as 'ell asrom an+ other legal entit+ to 'hich it ma+ e related. 6or this reason$ a stockholderis generall+ not made to ans'er or the acts or liailities o the corporation$ and

viceversa. 3he separate and distinct personalit+ o the corporation is$ ho'ever$ amere fction estalished + la' or convenience and to promote the ends o 2ustice.*t ma+ not e used or invoked or ends that suvert the polic+ and purpose ehindits estalishment$ or intended + la' to 'hich the corporation o'es its eing. 3his istrue particularl+ 'hen the fction is used to deeat pulic convenience$ to 2usti+'rong$ to protect raud$ to deend crime$ to conuse legitimate legal or 2udicialissues$ to perpetrate deception or other'ise to circumvent the la'. 3his is like'isetrue 'here the corporate entit+ is eing used as an alter ego$ ad2unct$ or usinessconduit or the sole eneft o the stockholders or o another corporate entit+. *nsuch instances$ the veil o corporate entit+ 'ill e pierced or disregarded 'ithreerence to the particular transaction involved.

*n hilippine (ational /an% # .itratto roup" !nc$ the Court has outlined theollo'ing circumstances thatare useul in the determination o 'hether a susidiar+is a mere instrumentalit+ o the parent-corporation$ vi?Q

#. Control$ not mere ma2orit+ or complete control$ ut complete domination$not onl+ o fnances uto polic+ and usiness practice in respect to the transactionattacked so that the corporate entit+ as to this transaction had at the time noseparate mind$ 'ill or e:istence o its o'nT

". Such control must have een used + the deendant to commit raud or'rong$ to perpetrate the violation o a statutor+ or other positive legal dut+$ ordishonest and$ un2ust act incontravention o plainti/s legal rightsT and

G. 3he aoresaid control and reach o dut+ must pro:imatel+ cause the in2ur+or un2ust loss complained o.

*n appl+ing the instrumentalit+ or alter ego doctrine$ the courts areconcerned 'ith realit+$ not orm$ and 'ith ho' the corporation operated and theindividual deendants relationship to the operation. Conse1uentl+$ the asence oan+ one o the oregoing elements disauthori?es the piercing o the corporate veil.

*ndeed$ the doctrine o piercing the corporate veil has no application hereecause the Commissioner o Customs did not estalish that Filink had een set upto avoid the pa+ment o ta:es or duties$ or or purposes that 'ould deeat pulic

convenience$ 2usti+ 'rong$ protect raud$ deend crime$ conuse legitimate legal or2udicial issues$ perpetrate deception or other'ise circumvent the la'. *t is alsonote'orth+ that rom the outset the Commissioner o Customs sought to collect thedefcienc+ ta:es and duties rom LRC$ and that it 'as onl+ on Oul+ "$ #777 'hen theCommissioner o Customs sent the demand letter to oth LRC and Filink. 3hat 'asrevealing$ ecause the ailure o the Commissioner o Customs to pursue theremedies against Filink rom the outset maniested that its elated pursuit o Filink'as onl+ an aterthought.

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#IR!3 #+ ICO vs.-3-T'M- T'C&O!O#3 I-TITT', IC+, MOICO *+JACO9 and P'T'R + %'RA$'?

#+R+ .+ 15100, Jul /, 2014, J+ $el Castill.

A corporation" as a uridical entity" may act only through its directors" oCcersand employees 1bligations incurred as a result of the directors< and oCcers< actsas corporate agents" are not their personal liability but the direct responsibility ofthe corporation they represent As a rule" they are only solidarily liable with thecorporation for the illegal termination of ser#ices of employees if they acted withmalice or bad faith

)o hold a director or oCcer personally liable for corporate obligations" tworequisites must concurD 3B: it must be alleged in the complaint that the director oroCcer assented to patently unlawful acts of the corporation or that the oCcer wasguilty of gross negligence or bad faithE and 3: there must be proof that the oCceracted in bad faith

%acts

S+stems 3echnolog+ *nstitute$ *nc. (S3*) is an educational institution dul+incorporated$ organi?ed$ and e:isting under Philippine la's. Monico B. Oaco (Oaco)and Peter . 6ernande? (6ernande?) are S3* ocers$ the ormer eing the Presidentand Chie 9:ecutive Fcer (C9F) and the latter Senior Bice-President. S3* o/erspre-school$ elementar+$ secondar+ and tertiar+ education$ as 'ell as post-graduatecourses either through ranchisees or S3* 'holl+-o'ned schools.

5irl+ 5. *co (*co)$ a masteral degree holder 'ith doctorate units earned$ 'ashired as 6acult+ Memer + S3* College Makati (*nc.)$ 'hich operates S3* College-

Makati (S3*-Makati). S3* College Makati (*nc.) is a 'holl+-o'ned susidiar+ o S3*. *co'as suse1uent promoted as Dean o S3* College- ParaUa1ue and$ thereater$ asChie Fperating Fcer (CFF) o S3*-Makati.

Eo'ever$ ater the merger et'een S3* and S3* College Makati (*nc.)$ *co

received a memorandum cancelling her CFF assignment at S3*-Makati$ citingmanagement4s decision to undertake an organi?ational restructuring in line 'iththe merger o S3* and S3*-Makati. 6urther ordering *co to report to turn over her'ork to one Bictoria Ju? (Ju?)$ 'ho shall unction as S3*-Makati4s School!dministrator. !ccording to S3*$ the organi?ational re-structuring 'as undertakenin order to streamline operations. *n the process$ the positions o Chie 9:ecutiveFcer and Chie Fperating Fcer o S3* Makati 'ere aolished.

6urthermore$ the S3*4s Corporate !uditor!udit !dvisor+ 5roup conducted anaudit o S3*-Makati covering the 'hole period o *co4s stint as CFFSchool!dministrator therein. *n a report (!udit Report) later sumitted to 6ernande?$ theauditors claim to have discovered several irregularities. *n another memorandum$ it'as recommended that an investigation committee e ormed to investigate *co orgrave ause o authorit+$ alsifcation$ gross dishonest+$ maligning and causingintrigues$ and other charges. 6ernande? recommended that *co e placed underpreventive suspension pending investigation. Eence$ pursuant to said

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recommendation$ *co 'as placed under preventive suspension and anning herentr+ to an+ o S3*4s premises.

Jaor !riter (J!) ound *co to have een illegall+ constructivel+ and in ad

aith dismissed + respondents in her legall+ ac1uired status as regular emplo+eethus$ ordering respondents SS39MS 39CENFJF5 *NS3*3L39$ *NC. andor MFN*CFB. O!CF$ P939R . 69RN!ND9V in solido to reinstate her to her ormer position andpa+ *co4s ull ack 'ages plus damages. Fn appeal$ NJRC reversed the ruling o theJ!. Fn petition or certiorari + *co eore the C!$ C! armed the ruling o theNJRC$ hence$ this petition.

Issue

Ahether Oaco$ as ocer o S3*$ ma+ e held solidaril+ liale 'ith S3*.

Rulin

Nonetheless$ the Court ails to discern an+ ad aith or negligence on the parto respondent Oaco. 3he principal character that fgures prominentl+ in this case is6ernande?T he alone relentlessl+ caused petitioner4s hardships and su/ering. Eealone is guilt+ o persecuting petitioner. *ndeed$ some o his actions 'ere 'ithoutsanction o S3* itsel$ and 'ere committed outside o the authorit+ given to him +the schoolT the+ ordered on the personal$ rather than ocial. Eis superior$ Oaco$ma+ have een$ or the most part$ clueless o 'hat 6ernande? 'as doing topetitioner. !ter all$ 6ernande? 'as the Eead o the !cademic Services 5roup o the9MD$ and petitioner directl+ reported to him at the timeT his position enaled him topursue a course o action 'ith petitioner that Oaco 'as largel+ una'are o.

! corporation$ as a 2uridical entit+$ ma+ act onl+ through its directors$ ocersand emplo+ees. Fligations incurred as a result o the directors4 and ocers4 actsas corporate agents$ are not their personal liailit+ ut the direct responsiilit+ othe corporation the+ represent. !s a rule$ the+ are onl+ solidaril+ liale 'ith thecorporation or the illegal termination o services o emplo+ees i the+ acted 'ithmalice or ad aith.

3o hold a director or ocer personall+ liale or corporate oligations$ t'ore1uisites must concurQ (#) it must e alleged in the complaint that the director orocer assented to patentl+ unla'ul acts o the corporation or that the ocer 'asguilt+ o gross negligence or ad aithT and (") there must e proo that the oceracted in ad aith.

Eence$ Oaco is asolved rom an+ liailit+.

PA!M A*'' &O!$I# CO+,IC+, and PA!M A*'' R'A!T3 A$$'*'!OPM'T CORPORATIO vs.-A$I#A9A3A 5T& $i;isi.n, R'P9!ICO% T&' P&I!IPPI'-, represented 7 the PR'-I$'TIA! COMMI--IO O

#OO$ #O*'RM'T (PC##)#+R+ .+ 1@02, Auust >, 2014, J+ Peralta

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)he writ of sequestration issued against the assets of the corporation is not#alid because the suit in the ci#il case was against the shareholder in thecorporation and is not a suit against the latter )hus" the failure to implead thesecorporations as defendants and merely anne'ing a list of such corporations to the

complaints is a #iolation of their right to due process for it would be" in e;ect"disregarding their distinct and separate personality without a hearing

Furthermore" the sequestration order issued against the corporation isdeemed automatically lifted due to the failure of the .epublic to commence the

proper udicial action or to implead them therein within the period under the,onstitution

%acts

3hrough a 'rit o se1uestration dated Fctoer "H$ #7I0$ the PresidentialCommission on 5ood 5overnment (PC55) se1uestered all the assets$ properties$

records$ and documents o the Palm Companies.3he PC55 had relied on a letterrom the Palm Companies4 !ttorne+-in-6act$ Oose S. Sande2as$ specifcall+ identi+ingen2amin


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to e:cess o/ 2urisdiction in granting the Palm Companies motion to release allshares o stock and unds in the custod+ o the PC55

Rulin

No.

Lnder Sec. "0$ !rticle ;B*** o the #7IH Constitution$ it mandates the Repulicto fle the corresponding 2udicial action or proceedings 'ithin a si:-month period(rom its ratifcation on 6eruar+ "$ #7IH) in order to maintain se1uestration$ non-compliance 'ith 'hich 'ould result in the automatic liting o the se1uestrationorder. Eence$ there is a necessit+ on the part o the Repulic to actuall+ impleadcorporations as deendants in the complaint$ out o recognition or their distinct andseparate personalities$ ailure to do so 'ould necessaril+ e den+ing such entitiestheir right to due process.

Eere$ the 'rit o se1uestration issued against the assets o the PalmCompanies is not valid ecause the suit in Civil Case No. %%G8 against en2aminRomualde? as shareholder in the Palm Companies is not a suit against the latter.

3hus$ the ailure to implead these corporations as deendants and merel+ anne:inga list o such corporations to the complaints is a violation o their right to dueprocess or it 'ould e$ in e/ect$ disregarding their distinct and separate personalit+'ithout a hearing.

*n the case at ar$ the Palm Companies 'ere merel+ mentioned as *tem Nos.&H and &I$ !nne: ! o the Complaint$ as among the corporations 'here deendantRomualde? o'ns shares o stocks. 6urthermore$ 'hile the 'rit o se1uestration 'asissued on Fctoer "H$ #7I0$ the Palm Companies 'ere impleaded in the case onl+

in #77H$ or alread+ a decade rom the ratifcation o the Constitution in #7IH$ 'a+e+ond the prescried period.

3he se1uestration order issued against the Palm Companies is thereoredeemed automaticall+ lited due to the ailure o the Repulic to commence theproper 2udicial action or to implead them therein 'ithin the period under theConstitution. Eo'ever$ the liting o the 'rit o se1uestration 'ill not necessaril+ eatal to the main case since the same does not ipso acto mean that these1uestered properties are$ in act$ not illgotten. 3he e/ect o the liting o these1uestration 'ill merel+ e the termination o the government4s role asconservator.

O!O#APO CIT3 ;s+ -9IC "AT'R A$ -'"'RA#' CO+, IC+#+R+ .+ 1@1>2>, Auust >, 2014, J+ 9ri.n

1,G$ and ubic Gater are two separate and di;erent entities ubic Gaterclearly demonstrated that it was a separate corporate entity from 1,G$ 1,G$ is

ust a ten percent 3B05: shareholder of ubic Gater As a mere shareholder"1,G$


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and" in general" from the people comprising it =nder this corporate reality" ubicGater cannot be held liable for 1,G$


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3he R3C granted the motion or e:ecution and directed its issuance againstFCAD andor Suic Aater. 3he C! granted Suic Aater4s petition or certiorari andreversed the trial court4s rulings.

IssueAhether or not Suic Aater can e made liale under the 'rit o e:ecution

issued + R3C in avor o Flongapo Cit+

Rulin

No$ the 'rit o e:ecution issued + the R3C$ in avor o Flongapo Cit+$ is nulland void. FCAD and Suic Aater are t'o separate and di/erent entities.

Flongapo Cit+ practicall+ suggests that since Suic Aater took over FCAD4s'ater operations in Flongapo Cit+$ it also ac1uired FCAD4s 2uridical personalit+$

making the t'o entities one and the same.

3his is an interpretation that 'e cannot make or adopt under the acts andthe evidence o this case. Suic Aater clearl+ demonstrated that it 'as a separatecorporate entit+ rom FCAD. FCAD is 2ust a ten percent (#%,) shareholder o SuicAater. !s a mere shareholder$ FCAD4s 2uridical personalit+ cannot e e1uated norconused 'ith that o Suic Aater. *t is asic in corporation la' that a corporation isa 2uridical entit+ vested 'ith a legal personalit+ separate and distinct rom thoseacting or and in its ehal and$ in general$ rom the people comprising it.

Lnder this corporate realit+$ Suic Aater cannot e held liale or FCAD4scorporate oligations in the same manner that FCAD cannot e held liale or the

oligations incurred + Suic Aater as a separate entit+. 3he corporate veil shouldnot and cannot e pierced unless it is clearl+ estalished that the separate anddistinct personalit+ o the corporation 'as used to 2usti+ a 'rong$ protect raud$ orperpetrate a deception.

*n ,oncept /uilders" !nc # (>.,$ the Court enumerated the possileproative actors o identit+ 'hich could 2usti+ the application o the doctrine opiercing the corporate veil. 3hese areQ

(#) Stock o'nership + one or common o'nership o oth corporationsT(") *dentit+ o directors and ocersT(G) 3he manner o keeping corporate ooks and recordsT and

(&) Methods o conducting the usiness.

3he urden o proving the presence o an+ o these proative actors lies 'iththe one alleging it. Lnortunatel+$ Flongapo Cit+ simpl+ claimed that Suic Aatertook over FCADs 'ater operations in Flongapo Cit+. !part rom this allegation$Flongapo Cit+ ailed to demonstrate an+ link to 2usti+ the construction that SuicAater and FCAD are one and the same. Lnder this evidentiar+ situation$ our dut+ isto respect the separate and distinct personalities o these t'o 2uridical entities.

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6urthermore$ an ocer4s actions can onl+ ind the corporation i he had eenauthori?ed to do so. !n e:amination o the compromise agreement reveals that it'as not accompanied + an+ document sho'ing a grant o authorit+ to Mr. Noli!ldip to sign on ehal o Suic Aater.

Suic Aater is a corporation. ! corporation$ as a 2uridical entit+$ primaril+ actsthrough its oard o directors$ 'hich e:ercises its corporate po'ers. *n this capacit+$the general rule is that$ in the asence o authorit+ rom the oard o directors$ noperson$ not even its ocers$ can validl+ ind a corporation.

! corporate ocer or agent ma+ represent and ind the corporation intransactions 'ith third persons to the e:tent that the authorit+ to do so has eenconerred upon him$ and this includes po'ers 'hich have een intentionall+conerred$ and also such po'ers as$ in the usual course o the particular usiness$are incidental to$ or ma+ e implied rom$ the po'ers intentionall+ conerred$po'ers added + custom and usage$ as usuall+ pertaining to the particular ocer or

agent$ and such apparent po'ers as the corporation has caused persons dealing'ith the ocer or agent to elieve that it has conerred.

Mr. Noli !ldip signed the compromise agreement purel+ in his o'n capacit+.Moreover$ the compromise agreement did not e:pressl+ provide that Suic Aaterconsented to ecome FCAD4s co-maker. !s 'orded$ the compromise agreementmerel+ provided that oth parties also re1uest Suic Aater$ Philippines$ 'hich tookover the operations o Flongapo Cit+ Aater District e made as co-maker or theoligations aove-cited. 3his re1uest 'as never or'arded to Suic Aater4s oard odirectors. 9ven i due notifcation had een made ('hich does not appear in therecords)$ Suic Aater4s oard does not appear to have given an+ approval to suchre1uest. No document such as the minutes o Suic Aater4s oard o directors4

meeting or a secretar+4s certifcate$ purporting to e an authori?ation to Mr. !ldip toconorm to the compromise agreement$ 'as ever presented. *n e/ect$ Mr. !ldip4sact o signing the compromise agreement 'as outside o his authorit+ to undertake.

Since Mr. !ldip 'as never authori?ed and there 'as no sho'ing that SuicAater4s articles o incorporation or +-la's granted him such authorit+$ then thecompromise agreement he signed cannot ind Suic Aater. Suic Aater cannotlike'ise e made a suret+ or even a guarantor or FCAD4s oligations. FCAD4sdets under the compromise agreement are its o'n corporate oligations toFlongapo Cit+.

3he SC confrmed that the 'rit o e:ecution issued + R3C Flongapo$ in avor

o Flongapo Cit+$ is null and void. !ccordingl+$ Suic Aater cannot e made lialeunder the 'rit.

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#'RAR$O !A?A, JR+ A$ ATOIO 0+ O!9'- vs.9% CORPORATIO,-&A#RI !A PROP'RTI'-, IC+, A!%R'$O C+ RAMO-, R%O 9+ CO!A3CO,

MABIMO #+ !ICACO III, A$ 9'JAMI C+ RAMO-#+R+ .+ 1@4/, Oct.7er 01, 2014, J+ !e.nen

/F ,orporation led a collection complaint with the .egional )rial ,ourt

against hangri->a and the members of its board of directors A corporation


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*ndeed$ as petitioners point out$ their personalities as directors o Shangri-Jaare separate and distinct rom Shangri-Ja.

! corporation is an artifcial entit+ created + fction o la'. 3his means that'hile it is not a person$ naturall+$ the la' gives it a distinct personalit+ and treats itas such. ! corporation$ in the legal sense$ is an individual 'ith a personalit+ that is

distinct and separate rom other persons including its stockholders$ ocers$directors$ representatives$ and other 2uridical entities.

3he la' vests in corporations rights$ po'ers$ and attriutes as i the+ 'ere naturalpersons 'ith ph+sical e:istence and capailities to act on their o'n. 6or instance$the+ have the po'er to sue and enter into transactions or contracts. ! conse1uenceo a corporation4s separate personalit+ is that consent + a corporation through itsrepresentatives is not consent o the representative$ personall+. *ts oligations$incurred through ocial acts o its representatives$ are its o'n. ! stockholder$director$ or representative does not ecome a part+ to a contract 2ust ecause acorporation e:ecuted a contract through that stockholder$ director orrepresentative. Eence$ a corporation4s representatives are generall+ not ound +the terms o the contract e:ecuted + the corporation. 3he+ are not personall+

liale or oligations and liailities incurred on or in ehal o the corporation.

3his court recogni?ed in Eeirs o !ugusto Salas$ Or. v. Japeral Realt+Corporation that an aritration clause shall not appl+ to persons 'ho 'ere neitherparties to the contract nor assignees o previous parties$ thusQ

Eo'ever$ there are instances 'hen the distinction et'een personalities odirectors$ ocers$ and representatives$ and o the corporation$ are disregarded. 3heCourt calls this piercing the veil o corporate fction. Ahen there are allegations oad aith or malice against corporate directors or representatives$ it ecomes thedut+ o courts or triunals to determine i these persons and the corporation shoulde treated as one. Aithout a trial$ courts and triunals have no asis ordetermining 'hether the veil o corporate fction should e pierced. Courts ortriunals do not have such prior kno'ledge. 3hus$ the courts or triunals must frstdetermine 'hether circumstances e:ist to 'arrant the courts or triunals todisregard the distinction et'een the corporation and the persons representing it.

Eence$ 'hen the directors$ as in this case$ are impleaded in a case against acorporation$ alleging malice or ad aith on their part in directing the a/airs o thecorporation$ complainants are e/ectivel+ alleging that the directors and thecorporation are not acting as separate entities.

*n that case$ complainants have no choice ut to institute onl+ oneproceeding against the parties. Lnder the Rules o Court$ fling o multiple suits or a

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single cause o action is prohiited. *nstitution o more than one suit or the samecause o action constitutes splitting the cause o action$ 'hich is a ground or thedismissal o the others. 3hus$ in Rule "Q

Section G. Fne suit or a single cause o action. W ! part+ ma+ not institutemore than one suit or a single cause o action. (Ga)

Section &. Splitting a single cause o actionT e/ect o. W * t'o or more suitsare instituted on the asis o the same cause o action$ the fling o one or a

2udgment upon the merits in an+ one is availale as a ground or the dismissal othe others. (&a)

*t is ecause the personalities o petitioners and the corporation ma+ later eound to e indistinct that 'e rule that petitioners ma+ e compelled to sumit toaritration.

%*R -I!!- A$ -'R*IC'- 'BPO'T-, IC+ (-I!!'B), %!#'CIO *+RAA and MOIA R+ 9R#O- vs.JO*'RT -'* A, JO-'! *+ *

A!'C'RIA, JA'T A!CA?AR, A#'!ITO AMPARO, 9'JAMI AA', JR+,JO& &I!9'RT 9AR9A, 9OI%ACIO 9ATA#, JR+, *A!'RIAO 9I#CO,JR+,

ROA!$ CA-TRO, MAR!O CO-ORT', RO!A$O COR'!IO, '$ITOC!$ORA, R'! $CI!, M'R*I %!OR'-, !OR$ #A!I-IM, -OT'RO #ARCIA,JR+, R'3 #O?A!'-, $AT' I-IP, R3A I-M', JO'! JIO, CAR!ITO !ATOJA,?A!$3 MARRA, MIC&A'! PATAO, #!' PI!OTO, OR'!$O IRAT',

RO'! RAC', R'AT' RO-ARIO and !'OAR$A TAA'!#+R+ .+ 2005@, Oct.7er 22, 2014, J+ Artur. $+ 9ri.n

A corporation is a uridical entity with legal personality separate and distinctfrom those acting for and in its behalf and" in general" from the people comprisingit )he general rule is that" obligations incurred by the corporation" acting through

its directors" oCcers and employees" are its sole liabilities

A director or oCcer shall only be personally liable for the obligations of thecorporation" if the following conditions concurD 3B: the complainant alleged in thecomplaint that the director or oCcer assented to patently unlawful acts of thecorporation" or that the oCcer was guilty of gross negligence or bad faithE and 3:the complainant clearly and con#incingly pro#ed such unlawful acts" negligence orbad faith

!n the present case" the respondents failed to show the e'istence of the rstrequisite )hey did not specically allege in their complaint that .ana and /urgoswillfully and %nowingly assented to the petitionerHs patently unlawful act of forcingthe respondents to sign the dubious employment contracts in e'change for theirsalaries )he respondents also failed to pro#e that .ana and /urgos had been guiltyof gross negligence or bad faith in directing the a;airs of the corporation

%acts

3he t'ent+-eight ("I) respondents in this case 'ere emplo+ees o petitioner6BR Skills and Services 9:ponents$ *nc. (petitioner)$ an independent contractor

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engaged in the usiness o providing 2anitorial and other manpo'er services to itsclients.

Skille: entered into a Contract o Oanitorial Service (service contract) 'ithRoinsons Jand Corporation (Roinsons). oth agreed that the petitioner shallsuppl+ 2anitorial$ manpo'er and sanitation services to Roinsons Place 9rmita Mall

or a period o one +ear. Eal'a+ through the service contract$ the Skille: asked therespondents to e:ecute individual contracts 'hich stipulated that their respectiveemplo+ments shall end at the last da+ o the +ear.

3he Skille: and Roinsons no longer e:tended their contract o 2anitorialservices. Conse1uentl+$ the Skille: dismissed the respondents as the+ 'ere pro2ectemplo+ees 'hose duration o emplo+ment 'as dependent on the petitionersservice contract 'ith Roinsons.

Respondents fled a complaint or illegal dismissal 'ith the NJRC. 3he+argued that the+ 'ere not pro2ect emplo+eesT the+ 'ere regular emplo+ees 'homa+ onl+ e dismissed or 2ust or authori?ed causes. 3he J! ruled in the Skille:s

avor ut 'as reversed + NJRC considering that the respondents had een underthe petitioners emplo+ or more than a +ear alread+ and 'as armed + C!.

Issue

Ahether or not Rana and urgos should e held solidaril+ liale 'ith thecorporation or respondents monetar+ claims having personalities separate anddistinct rom the corporation.

Rulin

No$ Rana and urgos$ as the petitioners president and general manager$should not e held solidaril+ liale 'ith the corporation or its monetar+ liailities'ith the respondents.

! corporation is a 2uridical entit+ 'ith legal personalit+ separate and distinctrom those acting or and in its ehal and$ in general$ rom the people comprisingit. 3he general rule is that$ oligations incurred + the corporation$ acting throughits directors$ ocers and emplo+ees$ are its sole liailities.

! director or ocer shall onl+ e personall+ liale or the oligations o thecorporation$ i the ollo'ing conditions concurQ (#) the complainant alleged in thecomplaint that the director or ocer assented to patentl+ unla'ul acts o thecorporation$ or that the ocer 'as guilt+ o gross negligence or ad aithT and (")the complainant clearl+ and convincingl+ proved such unla'ul acts$ negligence orad aith.

*n the present case$ the respondents ailed to sho' the e:istence o the frst

re1uisite. 3he+ did not specifcall+ allege in their complaint that Rana and urgos'illull+ and kno'ingl+ assented to the petitioners patentl+ unla'ul act o orcingthe respondents to sign the duious emplo+ment contracts in e:change or their

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salaries. 3he respondents also ailed to prove that Rana and urgos had een guilt+o gross negligence or ad aith in directing the a/airs o the corporation.

3o hold an ocer personall+ liale or the dets o the corporation$ and thuspierce the veil o corporate fction$ it is necessar+ to clearl+ and convincingl+estalish the ad aith or 'rongdoing o such ocer$ since ad aith is never

presumed. ecause the respondents 'ere not ale to clearl+ sho' the defniteparticipation o urgos and Rana in their illegal dismissal$ the Court upholds thegeneral rule that corporate ocers are not personall+ liale or the mone+ claims othe discharged emplo+ees$ unless the+ acted 'ith evident malice and ad aith interminating their emplo+ment.

$OCTRI' O% PI'RCI# T&' CORPORAT' *'I!

ARCO P!P A$ PAP'R CO+, IC+ and CA$I$A A+ -ATO- vs. $A T+ !IM,d.in 7usiness under the na6e and stle .8 A!IT3 PAP'R- = P!A-TIC

PRO$CT- 'T'RPRI-'-#+R+ .+ 20>0>, June 25, 2014, J+ !e.nen

)he corporate e'istence may be disregarded where the entity is formed orused for non-legitimate purposes" such as to e#ade a ust and due obligation" or to

ustify a wrong" to shield or perpetrate fraud or to carry out similar or inequitableconsiderations" other unustiable aims or intentions" in which case" the ction willbe disregarded and the indi#iduals composing it and the two corporations will betreated as identical !n the case at bar" when petitioner Arco ulp and aperim became due and demandable" she not only issued an unfundedchec% but also contracted with a third party in an e;ort to shift petitioner Arco ulpand aper


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ra' materials 'ould e supplied + Dan 3. Jim$ through his compan+$ Xualit+ Paperand Plastic Products.

Despite repeated demands + Jim$ !rco Pulp and Paper did not pa+. Jim fleda complaint or collection o sum o mone+ 'ith pra+er or attachment 'ith the R3C.

3he trial court rendered a 2udgment in avor o !rco Pulp and Paper and dismissed

the complaint$ holding that 'hen !rco Pulp and Paper and 9ric S+ entered into thememorandum o agreement$ novation took place$ 'hich e:tinguished !rco Pulp andPaper4s oligation to. Jim. 3he C! reversed said decision.

Issue

Ahether or not Candida !. Santos 'as solidaril+ liale 'ith !rco Pulp andPaper Co.$ *nc.

Rulin

es.

*n +eirs of Fe )an =y # !nternational &'change /an%$ the Court has ruledQ

asic is the rule in corporation la' that a corporation is a 2uridical entit+'hich is vested 'ith a legal personalit+ separate and distinct rom those acting orand in its ehal and$ in general$ rom the people comprising it. 6ollo'ing thisprinciple$ oligations incurred + the corporation$ acting through its directors$ocers and emplo+ees$ are its sole liailities. ! director$ ocer or emplo+ee o acorporation is generall+ not held personall+ liale or oligations incurred + thecorporation. Nevertheless$ this legal fction ma+ e disregarded i it is used as ameans to perpetrate raud or an illegal act$ or as a vehicle or the evasion o ane:isting oligation$ the circumvention o statutes$ or to conuse legitimate issues.

eore a director or ocer o a corporation can e held personall+ liale orcorporate oligations$ ho'ever$ the ollo'ing re1uisites must concurQ (#) thecomplainant must allege in the complaint that the director or ocer assented topatentl+ unla'ul acts o the corporation$ or that the ocer 'as guilt+ o grossnegligence or ad aithT and (") the complainant must clearl+ and convincingl+prove such unla'ul acts$ negligence or ad aith.

!s a general rule$ directors$ ocers$ or emplo+ees o a corporation cannot eheld personall+ liale or oligations incurred + the corporation. Eo'ever$ this veilo corporate fction ma+ e pierced i complainant is ale to prove$ as in this case$that (#) the ocer is guilt+ o negligence or ad aith$ and (") such negligence orad aith 'as clearl+ and convincingl+ proven.

Eere$ Santos entered into a contract 'ith respondent in her capacit+ as thePresident and Chie 9:ecutive Fcer o !rco Pulp and Paper. She also issued thecheck in partial pa+ment o petitioner corporation4s oligations to respondent onehal o petitioner !rco Pulp and Paper. 3his is clear on the ace o the checkearing the account name$ !rco Pulp K Paper$ Co.$ *nc. !n+ oligation arising rom

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these acts 'ould not$ ordinaril+$ e Santos4 personal undertaking or 'hich she'ould e solidaril+ liale 'ith petitioner !rco Pulp and Paper.

3he Court ound$ ho'ever$ that the corporate veil must e pierced. *n >i#esey# /inswanger hilippinesQ

Piercing the veil o corporate fction is an e1uitale doctrine developedto address situations 'here the separate corporate personalit+ o acorporation is aused or used or 'rongul purposes. Lnder thedoctrine$ the corporate e:istence ma+ e disregarded 'here the entit+is ormed or used or non-legitimate purposes$ such as to evade a 2ustand due oligation$ or to 2usti+ a 'rong$ to shield or perpetrate raudor to carr+ out similar or ine1uitale considerations$ other un2ustifaleaims or intentions$ in 'hich case$ the fction 'ill e disregarded andthe individuals composing it and the t'o corporations 'ill e treated asidentical.

Ae agree 'ith the Court o !ppeals. Petitioner Santos cannot e

allo'ed to hide ehind the corporate veil. Ahen petitioner !rco Pulpand Paper4s oligation to respondent ecame due and demandale$she not onl+ issued an ununded check ut also contracted 'ith a thirdpart+ in an e/ort to shit petitioner !rco Pulp and Paper4s liailit+. Sheun2ustifal+ reused to honor petitioner corporation4s oligations torespondent. 3hese acts clearl+ amount to ad aith. *n this instance$the corporate veil ma+ e pierced$ and petitioner Santos ma+ e heldsolidaril+ liale 'ith petitioner !rco Pulp and Paper.

"PM IT'RATIOA! TRA$I# , IC+ and "AR!ITO P+ MA!APA? vs.%'CORA?O !A9A3'

#+R+ .+ 12@@0, -epte67er 1@, 2014, J+ 9ri.n

Ghen an oCcer owns almost all of the stoc%s of a corporation" it does notipso facto warrant the application of the principle of piercing the corporate #eilunless it is pro#en that the oCcer has complete dominion o#er the corporation

%acts

APM *nternational 3rading$ *nc. (APM) is engaged in the restaurant usiness$'ith Aarlito P. Manlapa? as its president. APM entered into a managementagreement 'ith the Jaa+en$ + virtue o 'hich the Jaa+en 'as authori?ed tooperate$ manage and rehailitate Xuickite$ a restaurant o'ned and operated +APM. !s part o her tasks$ the respondent looked or a contractor 'ho 'ouldrenovate the t'o e:isting Xuickite outlets. She engaged the services o CJN9ngineering Services to renovate one o the outlets at the cost o P&G"$IH0.%".Eo'ever$ out o the P&G"$IH0.%" renovation cost$ onl+ the amount o PG"%$%%%.%%'as paid to CJN$ leaving a alance o P##"$IH0.%".

CJN fled a complaint or sum o mone+ and damages eore the R3C againstthe respondent and Manlapa?. CJN later amended the complaint to e:cludeManlapa? as deendant. Jaa+en 'as declared in deault or her ailure to fle a

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responsive pleading. 3he R3C ound the respondent liale to pa+ CJN actualdamages in the amount o P##"$IH0.%" 'ith #", interest per annum and "%, othe amount recoverale as attorne+4s ees.

!s a result$ Jaa+en instituted a complaint or damages against APM andManlapa?. She alleged that she should e entitled to reimursement. Jaa+en also

contended that her participation in the management agreement 'as limited onl+ tointroducing Manlapa? to CJN4s general manager and that it 'as actuall+ Manlapa?and the general manager 'ho agreed on the terms and conditions o theagreement. Manlapa?$ on the other hand$ claimed Jaa+en had entered into therenovation agreement 'ith CJN in her o'n personal capacit+ and that since she hade:ceeded her authorit+ as agent o APM$ the renovation agreement should onl+ind her. 6urther$ APM has a separate and distinct personalit+$ Manlapa? cannot emade liale or the Jaa+en4s claim.

R3C held that Jaa+en 'as entitled to indemnit+ rom Manlapa?. 3he R3Cound that ased on the records$ there is a clear indication that APM is a mereinstrumentalit+ or usiness conduit o Manlapa? and as such$ APM and Manlapa?

are considered one and the same. 3he R3C also ound that Manlapa? had completecontrol over APM considering that he is its chairman$ president and treasurer at thesame time. 3he R3C thus concluded that Manlapa? is liale in his personal capacit+to reimurse the respondent the amount she paid to CJN in connection 'ith therenovation agreement. C! armed the decision o the R3C appl+ing the principle opiercing the veil o corporate fction.

Issue

Ahether or not C! correctl+ applied the principle o piercing the veil ocorporate fction

Rulin

No$ the C! erred in appl+ing the doctrine.

3he doctrine o piercing the corporate veil applies onl+ in three (G) asicinstances$ namel+Q a) 'hen the separate and distinct corporate personalit+ deeatspulic convenience$ as 'hen the corporate fction is used as a vehicle or theevasion o an e:isting oligationT ) in raud cases$ or 'hen the corporate entit+ isused to 2usti+ a 'rong$ protect a raud$ or deend a crimeT or c) is used in alter egocases$ ie.$ 'here a corporation is essentiall+ a arce$ since it is a mere alter ego orusiness conduit o a person$ or 'here the corporation is so organi?ed andcontrolled and its a/airs so conducted as to make it merel+ an instrumentalit+$agenc+$ conduit or ad2unct o another corporation.

Piercing the corporate veil ased on the alter ego theor+ re1uires theconcurrence o three elements$ namel+Q

(#) Control$ not mere ma2orit+ or complete stock control$ ut completedomination$ not onl+ o fnances ut o polic+ and usiness practice inrespect to the transaction attacked so that the corporate entit+ as to

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this transaction had at the time no separate mind$ 'ill or e:istence oits o'nT

(") Such control must have een used + the deendant to commitraud or 'rong$ to perpetuate the violation o a statutor+ or otherpositive legal dut+$ or dishonest and un2ust act in contravention o

plainti/4s legal rightT and

(G) 3he aoresaid control and reach o dut+ must have pro:imatel+caused the in2ur+ or un2ust loss complained o. 3he asence o an+ othese elements prevents piercing the corporate veil.

*n the present case$ the attendant circumstances do not estalish that APM isa mere alter ego o Manlapa?. !side rom the act that Manlapa? 'as the principalstockholder o APM$ records do not sho' that APM 'as organi?ed and controlled$and its a/airs conducted in a manner that made it merel+ an instrumentalit+$agenc+$ conduit or ad2unct o Manlapa?. !s held in Martine? v. Court o !ppeals$ themere o'nership + a single stockholder o even all or nearl+ all o the capital stocks

o a corporation is not + itsel a sucient ground to disregard the separatecorporate personalit+. 3o disregard the separate 2uridical personalit+ o acorporation$ the 'rongdoing must e clearl+ and convincingl+ estalished.

*n this connection$ the Court stresses that the control necessar+ to invoke theinstrumentalit+ or alter ego rule is not ma2orit+ or even complete stock control utsuch domination o fnances$ policies and practices that the controlled corporationhas$ so to speak$ no separate mind$ 'ill or e:istence o its o'n$ and is ut a conduitor its principal. 3he control must e sho'n to have een e:ercised at the time theacts complained o took place. Moreover$ the control and reach o dut+ mustpro:imatel+ cause the in2ur+ or un2ust loss or 'hich the complaint is made.

Eere$ Jaa+en ailed to prove that Manlapa?$ acting as president$ hadasolute control over APM. 9ven granting that he e:ercised a certain degree ocontrol over the fnances$ policies and practices o APM$ in vie' o his position aspresident$ chairman and treasurer o the corporation$ such control does notnecessaril+ 'arrant piercing the veil o corporate fction since there 'as not a singleproo that APM 'as ormed to deraud CJN or the respondent$ or that Manlapa? 'asguilt+ o ad aith or raud.

Fn the contrar+$ the evidence estalishes that CJN and Jaa+en kne' andacted on the kno'ledge that the+ 'ere dealing 'ith APM or the renovation o thelatter4s restaurant$ and not 'ith Manlapa?. 3hat APM later reneged on its monetar+oligation to CJN$ resulting to the fling o a civil case or sum o mone+ against therespondent$ does not automaticall+ indicate raud$ in the asence o an+ proo tosupport it.

&ACI'$A CATA3"ADMA'! *I!!A'*A, et al+ vs. RO-ARIO !OR'?O#+R+ .+ 1@/>40, March 1, 2015, J+ Peralta

)his ,ourt agrees with the petitioners that there is no need to pierce thecorporate #eil .espondent failed to substantiate her claim that *ancy and ons

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&nterprises" !nc and *anuel and 2ose *arie Iillanue#a are one and the same hebased her claim on the form wherein *anuel Iillanue#a appeared as employer+owe#er" this does not pro#e" in any way" that the corporation is used to defeat

public con#enience" ustify wrong" protect fraud" or defend crime" or when it ismade as a shield to confuse the legitimate issues" warranting that its separate anddistinct personality be set aside

%acts

Rosario Jore?o received$ upon in1uir+$ a letter rom the Social Securit+S+stem$ inorming her that she cannot avail o their retirement enefts since pertheir record she has onl+ paid #0 months. Such is #%& months short o theminimum re1uirement o #"% months pa+ment to e entitled to the eneft.

!ggrieved$ Jore?o then fled her !mended Petition eore the SSC$ allegingthat she 'as emplo+ed as laorer in Eda. Cata+'a managed + Oose MarieBillanueva in #7H% ut 'as reported to the SSS onl+ in #7HI. She alleged that SSScontriutions 'ere deducted rom her 'ages rom #7H% to #778$ ut not all 'ere

remitted to the SSS 'hich$ suse1uentl+$ caused the re2ection o her claim. She alsoimpleaded 3alisa+ 6arms$ *nc. + virtue o its *nvestment !greement 'ith Manc+ andSons 9nterprises. She also pra+ed that the veil o corporate fction e pierced sinceshe alleged that Manc+ and Sons 9nterprises and Manuel and Oose Marie Billanuevaare one and the same.

Petitioners Manuel and Oose Billanueva reuted in their ans'er$ theallegation that not all contriutions o respondent 'ere remitted. Petitioners allegedthat all arm 'orkers o Eda. Cata+'a 'ere reported and their contriutions 'eredul+ paid and remitted to SSS. *t 'as the late Domingo Ji?ares$ Or. 'ho managedand administered the hacienda. Ahile$ 3alisa+ 6arms$ *nc. fled a motion to dismisson the ground o lack o cause o action in the asence o an allegation that there'as an emplo+er-emplo+ee relationship et'een 3alisa+ 6arms and respondent.

3he SSC ound that Jore?o 'as a regular emplo+ee su2ect to compulsor+coverage o Eda. Cata+'aManuel Billanueva Manc+ and Sons 9nterprises$ *nc.'ithin the period o #7H% to 6eruar+ "8$ #77%. 3he SSC denied petitioners Motionor Reconsideration. 3he petitioners$ then$ elevated the case eore the C! 'herethe case 'as dismissed outright ecause the signator+ to the Berifcation ailed toattach his authorit+ to sign or and in ehal o the other Petitioners and thecertifed true copies o pleadings and documents relevant and pertinent to thepetition are incomplete.

Issues

Ahether or not the corporate veil should e pierced

Rulin

No. *t 'as held in .i#era # =nited >aboratories" !nc. that

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Ahile a corporation ma+ e:ist or an+ la'ul purpose$ the la' 'ill regard it asan association o persons or$ in case o t'o corporations$ merge them into one$'hen its corporate legal entit+ is used as a cloak or raud or illegalit+. 3his is thedoctrine o piercing the veil o corporate fction. 3he doctrine applies onl+ 'hensuch corporate fction is used to deeat pulic convenience$ 2usti+ 'rong$ protectraud$ or deend crime$ or 'hen it is made as a shield to conuse the legitimate

issues$ or 'here a corporation is the mere alter ego or usiness conduit o a person$or 'here the corporation is so organi?ed and controlled and its a/airs are soconducted as to make it merel+ an instrumentalit+$ agenc+$ conduit or ad2unct oanother corporation. 3o disregard the separate 2uridical personalit+ o a corporation$the 'rongdoing must e estalished clearl+ and convincingl+. *t cannot epresumed.

3his Court has cautioned against the inordinate application o this doctrine$reiterating the asic rule that the corporate veil ma+ e pierced onl+ i it ecomesa shield or raud$ illegalit+ or ine1uit+ committed against a third person.

3he Court has e:pressed the language o piercing doctrine 'hen applied to

alter ego cases$ as ollo'sQ Ghere the stoc% of a corporation is owned by oneperson whereby the corporation functions only for the benet of such indi#idualowner" the corporation and the indi#idual should be deemed the same.

3his Court agrees 'ith the petitioners that there is no need to pierce thecorporate veil. Respondent ailed to sustantiate her claim that Manc+ and Sons9nterprises$ *nc. and Manuel and Oose Marie Billanueva are one and the same. Sheased her claim on the SSS orm 'herein Manuel Billanueva appeared as emplo+er.Eo'ever$ this does not prove$ in an+ 'a+$ that the corporation is used to deeatpulic convenience$ 2usti+ 'rong$ protect raud$ or deend crime$ or 'hen it is madeas a shield to conuse the legitimate issues$ 'arranting that its separate and distinctpersonalit+ e set aside. !lso$ it 'as not alleged nor proven that Manc+ and Sons9nterprises$ *nc. unctions onl+ or the eneft o Manuel Billanueva$ thus$ onecannot e an alter ego o the other.

93!A"-

%OR'-T &I!!- #O!% A$ COTR3 C!9, IC+ vs. #AR$PRO, IC+#+R+ .+ 1>4>>, Oct.7er 22, 2014, J+ 9ersa6in

)he rele#ant pro#isions of the articles of incorporation and the by-laws ofForest +ills go#erned the relations of the parties as far as the issues between themwere concerned !ndeed" the articles of incorporation of Forest +ills dened its

charter as a corporation and the contractual relationships between Forest +ills andthe tate" between its stoc%holders and the tate" and between Forest +ills and itsstoc%holderE hence" there could be no gainsaying that the contents of the articles ofincorporation were binding not only on Forest +ills but also on its shareholders 1nthe other hand" the by-laws were the self-imposed rules resulting from theagreement between Forest +ills and its members to conduct the corporate businessin a particular way !n that sense" the by-laws were the pri#ate statutes by whichForest +ills was regulated" and would function )he charter and the by-laws werethus the fundamental documents go#erning the conduct of Forest +ills< corporate

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a;airsE they established norms of procedure for e'ercising rights" and reJected thepurposes and intentions of the incorporators =ntil repealed" the by-laws were acontinuing rule for the go#ernment of Forest +ills and its oCcers" the properfunction being to regulate the transaction of the incidental business of Forest +ills)he by-laws constituted a binding contract as between Forest +ills and its members"and as between the members themsel#es ery stoc%holder go#erned by the by-

laws was entitled to access them )he by-laws were self-imposed pri#ate lawsbinding on all members" directors and oCcers of Forest +ills )he pre#ailing rule isthat the pro#isions of the articles of incorporation and the by-laws must be strictlycomplied with and applied to the letter

%acts

Petitioner 6orest Eills 5ol and Countr+ Clu$ *nc. (interchangeal+ 6orest Eillsor Clu)$ a non-proft stock corporation$ 'as estalished to promote social$recreational and athletic activities among its memers. *t 'as an e:clusive andprivate clu organi?ed or the sole eneft o its memers. 6il-9state Properties$ *nc.$a part+ to a Pro2ect !greement to develop the 6orest Eills Residential 9states andthe 6orest Eills 5ol and Countr+ Clu$ undertook to market the gol clu shares o6orest Eills or a ee. *n Oul+ #778$ 6il-9state Properties$ *nc. (69P*) assigned its rightsand oligations under the Pro2ect !greement to 6il- 9state 5ol and Development$*nc. (695D*).

*n #778$ 69P* and 695D* engaged 6il-9state Marketing !ssociates *nc.$ (69M!*)to market and o/er or sale the shares o stocks o 6orest Eills. Jeandro de Mesa$the President o 69M!*$ oriented the sales sta/ on the inormation that 'ouldusuall+ e in1uired aout + prospective u+ers. Ee made it clear that memershipin the Clu 'as a privilege$ such that purchasers o shares o stock 'ould notautomaticall+ ecome memers o the Clu$ ut must appl+ or and compl+ 'ith allthe re1uirements in order to 1uali+ them or memership$ su2ect to the approvalo the oard o Directors.

5ardpro$ *nc. (5ardpro) ought class


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Jater$ 5ardpro fled a complaint in the S9C. S9C Eearing Fcer rendereddecision in avor o 5ardpro 'hich 'ere later armed + oth the S9C 9n ank andthe C!.

Issue

Ahether or not the replacement nominees o 5ardpro are re1uired to pa+memership ees.

Rulin

No. 6orest Eills 'as not authori?ed under its articles o incorporation and +-la's to collect ne' memership ees or the replacement nominees o 5ardpro.

3here is no 1uestion that 5ardpro held class


32/128

determined or ever+ change. 3he replacement could take place or an+ o theollo'ing reasons$ namel+Q (a) i the nominee should cease to e an ocer o thecorporate memerTor (b) i the corporate memer should re1uest the replacement.*n case o a replacement$ the pla+ing rights 'ould also e transerred to the ne'nominees.

3he relevant provisions o the articles o incorporation and the +-la's o6orest Eills governed the relations o the parties as ar as the issues et'een them'ere concerned. *ndeed$ the articles o incorporation o 6orest Eills defned itscharter as a corporation and the contractual relationships et'een 6orest Eills andthe State$ et'een its stockholders and the State$ and et'een 6orest Eills and itsstockholderT hence$ there could e no gainsa+ing that the contents o the articles oincorporation 'ere inding not onl+ on 6orest Eills ut also on its shareholders. Fnthe other hand$ the +-la's 'ere the sel-imposed rules resulting rom theagreement et'een 6orest Eills and its memers to conduct the corporate usinessin a particular 'a+. *n that sense$ the +-la's 'ere the private


33/128

)he petitioner assails the #alidity of sale of shares of stoc%s to therespondents claiming that there was no compliance with the requirement of priornotice to the /oard of $irectors when the /oard .esolution authoriKing the sale tothe respondent spouses were promulgated )he upreme ,ourt ruled that thegeneral rule is that a corporation" through its board of directors" should act in the

manner and within the formalities" if any" prescribed by its charter or by the generallaw+owe#er" the actions ta%en in such a meeting by the directors or trustees maybe ratied e'pressly or impliedly

%acts

3he petitioner Jope? Realt+$ *nc. issued a oard Resolution authori?ing !rturo$a memer o the oard o Directors o the corporation$ to negotiate 'ith the

3an2anco spouses or the sale o the Y shares o JR* (Jope? Realt+ Corporation).ecause o this$ !rturo and the spouses e:ecuted a Deed o Sale or the shares or aconsideration o PhpG.0M. Eo'ever$ !suncion$ another oard o Director o the saidcorporation$ sumitted a letter re1uesting the oard to deer an+ transaction 'ith

3an2anco as she 'as not apprised and given notice o the said transaction. Despitethis$ the e:ecution o the Deed o !solute Sale et'een !rturo and spouses

3an2anco proceeded. !suncion then fled a complaint or the !nnulment o the Deedo Sale 'ith a pra+er or a 'rit o preliminar+ in2uction in the Regional 3rial Court.!suncion alleges that she 'as neither notifed nor apprised o the on-going sale othe shares o JR*.

3he Regional 3rial Court granted the pra+er o !suncion and declared thesu2ect deed null and void or ailure to compl+ 'ith the strict proceduralre1uirements. 3he R3C ruled that or a oard Resolution authori?ing the sale oshare to e valid$ it is necessar+ that notice must e sent to the oard o Directorsat least one da+ prior to the said oard meeting. Eo'ever$ on appeal$ the Court o!ppeals reversed and set aside the decision o the R3C. Eence$ the current petition.

Issue

Ahether or not the sale o the shares o stock o JR* to respondent spouses3an2anco are valid pursuant to the oard Resolution promulgated + JR* despite lacko notice to !suncion$ one o its oard o Directors.

Rulin

3he sale o the shares o stock o JR* to the respondent spouses 3an2anco isdeemed valid ecause the oard Resolution rom 'hich it is derived is also validdespite the lack o the re1uired prior notice to its oard o Directors. 3he SupremeCourt reinstated the decision o the R3C and armed the decision o the Court o!ppeals.

Section 8G o the Corporation Code provides or the ollo'ingQ

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S9C. 8G. Regular and special meetings o directors or trustees.W Regularmeetings o the oard o directors or trustees o ever+ corporation shall eheld monthl+$ unless the +-la's provide other'ise.

Special meetings o the oard o directors or trustees ma+ e held at an+time upon call o the president or as provided in the +-la's.

Meetings o directors or trustees o corporations ma+ e held an+'here in oroutside o the Philippines$ unless the +-la's provide other'ise. Notice oregular or special meetings stating the date$ time and place o the meetingmust e sent to ever+ director or trustee at least one (#) da+ prior to thescheduled meeting$ unless other'ise provided + the +-la's. ! director ortrustee ma+ 'aive this re1uirement$ either e:pressl+ or impliedl+.

3he general rule is that a corporation$ through its oard o directors$ shouldact in the manner and 'ithin the ormalities$ i an+$ prescried + its charter or +the general la'. 3hus$ directors must act as a od+ in a meeting called pursuant tothe la' or the corporations +la's$ other'ise$ an+ action taken therein ma+ e

1uestioned + an+ o2ecting director or shareholder.

Eo'ever$ the actions taken in such a meeting + the directors or trusteesma+ e ratifed e:pressl+ or impliedl+. Ratifcation means that the principalvoluntaril+ adopts$ confrms and gives sanction to some unauthori?ed act o itsagent on its ehal. *t is this voluntar+ choice$ kno'ingl+ made$ 'hich amounts to aratifcation o 'hat 'as theretoore unauthori?ed and ecomes the authori?ed act othe part+ so making the ratifcation. 3he sustance o the doctrine is confrmationater conduct$ amounting to a sustitute or a prior authorit+. Ratifcation can emade either e:pressl+ or impliedl+. *mplied ratifcation ma+ take various orms Wlike silence or ac1uiescence$ acts sho'ing approval or adoption o the act$ oracceptance and retention o enefts o'ing thererom.

*n the present case$ the ratifcation 'as e:pressed through the Oul+ G%$ #7I"oard Resolution. !suncion claims that the Oul+ G%$ #7I" oard Resolution did notrati+ the oard Resolution dated !ugust #H$ #7I# or lack o the re1uired numer ovotes ecause Ouanito is not entitled to vote 'hile Jeo voted no to the ratifcationo the sale even i the minutes stated other'ise.

RI#&T TOI-P'CT

A$'RITO ?+ 3JICO A$ 9OI%ACIO C+ -M9I!!Avs+ C'?AR T+ IAM9AOA$ 'RIC C+ PI!API!

#+R+ .+ 1041>, June 02, 2014, J+ PereE

A criminal action based on the #iolation of a stoc%holderHs right to e'amine orinspect the corporate records and the stoc% and transfer hoo% of a corporationunder the second and fourth paragraphs of ection L4 of the ,orporation ,ode canonly he maintained against corporate oCcers or any other persons acting on behalfof such corporation )he complaint and the e#idence Muiambao and umbillasubmitted during preliminary in#estigation do not establish that Muiambao and

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ilapil were acting on behalf of ).A$&, Iiolations of ection L4 contemplates asituation wherein a corporation" acting thru one of its oCcers or agents" denies theright of any of its stoc%holders to inspect the records" minutes and the stoc% andtransfer boo% of such corporation )hus" the dismissal is #alid

%acts

Strategic !lliance Development Corporation is a domestic corporationoperating as a usiness development and investment compan+. Fn # March "%%&$during the annual stockholders meeting o S3R!D9C$ !derito V. u2uico 'as electedas president and chairman o the compan+. u2uico replaced Ce?ar 3. Xuiamao$'ho had een the president and chairman o S3R!D9C since #77&. S3R!D9Cappointed petitioner oniacio C. Sumilla as treasurer and one Ooselito Oohn 5.lando as corporate secretar+. lando replaced respondent 9ric C. Pilapil$ theprevious corporate secretar+ o S3R!D9C. Fn #" !ugust "%%8$ u2uico and Sumillafled a criminal complaint against Xuiamao and Pilapil and one 5iovanni 3.Casanova eore the Fce o the Cit+ Prosecutor o Pasig Cit+. 3he complaintaccuses Xuiamao$ Pilapil and Casanova o violating Section H& in relation to

Section #&& o the Corporation Code.

3hat during the stockholders meeting$ u2uico--as ne'l+ elected presidentand chairman o S3R!D9C--demanded Xuiamao or the turnover o the corporaterecords o the compan+$ particularl+ the accounting fles$ ledgers$ 2ournals and otherrecords o the corporations usiness. Xuiamao reused. !ter the stockholdersmeeting$ Xuiamao and Casanova caused the removal o the corporate records oS3R!D9C rom the compan+s oces in Pasig Cit+. Lpon his appointment ascorporate secretar+$ lando like'ise demanded Pilapil or the turnover o the stockand transer ook o S3R!D9C. Pilapil reused. Fn "8 Oune "%%&$ Pilapil proposed tolando to have the stock and transer ook deposited in a saet+ deposit o: 'ith91uitale Pel ank. lando acceded to the proposal and the stock and transer ook'as deposited in a saet+ deposit o: 'ith the ank identifed. *t 'as agreed thatthe saet+ deposit o: ma+ onl+ e opened in the presence o oth Xuiamao andlando. Xuiamao and Pilapil 'ithdre' the stock and transer ook rom the saet+deposit o: and rought it to the oces o the Stradcom Corporation in Xue?on Cit+.Xuiamao thereater asked lando to proceed to the S3R!DCFM oces. Lponarriving thereat$ Xuiamao pressured lando to make certain entries in the stockand transer ooks. !ter making such entries$ lando again demanded that he egiven possession o the stock and transer ook. Xuiamao reused.

lando received an order issued + the R3C o Pasig Cit+$ 'hich directed himto cancel the entries he made in the stock and transer ook. lando 'rote letters toXuiamao and Pilapil once again demanding or the turnover o the stock andtranser ook. Pilapil replied 'here he appeared to agree to landos demand.Eo'ever$ Xuiamao still reused to turnover the stock and transer ook to lando.lando 'as once again constrained to agree to a proposal + Pilapil to have thestock and transer ook deposited 'ith the R3C o Pasig Cit+. 3he said court$ho'ever$ reused to accept such deposit on the ground that it had no place orsaekeeping.

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Since Xuiamao and Pilapil still reused to turnover the stock and transerook$ lando again acceded to have the ook deposited in a saet+ deposit o:$ thistime$ 'ith the 9:port and *ndustr+ ank. u2uico and Sumilla theori?e that thereusal + the Xuiamao$ Pilapil and Casanova to turnover S3R!D9Cs corporaterecords and stock and transer ook violates their right$ as stockholders$ directorsand ocers o the corporation$ to inspect such records and ook under Section H&

o the Corporation Code and ma+ e held criminall+ liale pursuant to Section #&&o the Corporation Code.

3he Me3C partiall+ granted the Lrgent Fmnius Motion. 3he Me3C orderedthe issuance o a 'arrant o arrest against Xuiamao and Pilapil. 3he R3C issued a

3RF en2oining the Me3C rom conducting urther proceedings in Criminal Case No.I7H"&.

3he R3C granted Xuiamao and Pilapil4s certiorari petition and directing thedismissal o Criminal Case No. I7H"&. !ccording to the R3C$ the Me3C committedgrave ause o discretion in issuing a 'arrant o arrest against Xuiamao andPilapil. 3he R3C opined that reusing to allo' inspection o the stock and transer

ook$ as opposed to reusing e:amination o other corporate records$ is notpunishale as an o/ense under the Corporation Code. 3he petitioners moved orreconsideration$ ut the R3C remained steadast. Eence$ this petition + u2uico andSumilla.

Issue

Ahether or not the R3C4s reusal to allo' inspection o the stock and transerook o a corporation is not a punishale o/ense under the Corporation Code$ sucha reusal still amounts to a violation o Section H& o the Corporation Code$ or 'hichSection #&& o the same code prescries a penalt+.cra#a'

Rulin

No$ there is no violation o the Corporation$ thus$ dismissal o the complaint is'arranted.

3he act o reusing to allo' inspection o the stock and transer ook o acorporation$ 'hen done in violation o Section H&(&) o the Corporation Code$ ispunishale as an o/ense under Section #&& o the same code. *n 2usti+ing thisconclusion$ the R3C seemingl+ relied on the act that$ under Section H& o theCorporation Code$ the application o Section #&& is e:pressl+ mentioned onl+ inrelation to the act o reusing to allo' an+ director$ trustees$ stockholder ormemer o the corporation to e:amine and cop+ e:cerpts rom thecorporations records or minutes that e:cludes its stock and transer ook$ thesame does not mean that the latter section no longer applies to an+ other possileviolations o the ormer section. *t must e emphasi?ed that Section #&& alread+purports to penali?e violations o an+ provision o the Corporation Code notother'ise specifcall+ penali?ed therein. Eence$ 'e fnd inconse1uential the actthat that Section H& e:pressl+ mentions the application o Section #&& onl+ to aspecifc act$ ut not 'ith respect to the other possile violations o the ormersection.

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! criminal action ased on the violation o a stockholders right to e:amine orinspect the corporate records and the stock and transer hook o a corporationunder the second and ourth paragraphs o Section H& o the Corporation Code canonl+ he maintained against corporate ocers or an+ other persons acting on ehalo such corporation. 3he sumissions o the u2uico and Sumilla during the

preliminar+ investigation clearl+ suggest that Xuiamao and Pilapil are neither inrelation to S3R!D9C. 3hus$ 'e sustain the dismissal o Criminal Case No. I7H"&.

Criminal Case No. I7H"& accuses Xuiamao and Pilapil o den+ing u2uicoand Sumillas right to e:amine or inspect the corporate records and the stock andtranser ook o S3R!D9C. *t is thus a criminal action that is ased on the violationo the second and ourth paragraphs o Section H& o the Corporation Code. !perusal o the second and ourth paragraphs o Section H&$ as 'ell as the frstparagraph o the same section$ reveal that the+ are provisionsthat oligates a corporationQ the+ prescrie 'hat ooks or records a corporation isre1uired to keepT 'here the corporation shall keep themT and 'hat are the otheroligations o the corporation to its stockholders or memers in relation to such

ooks and records. Eence$ + parit+ o reasoning$ the second and ourthparagraphs o Section H&$ including the frst paragraph o the same section$ canonl+ e violated + a corporation.

*t is clear then that a criminal action ased on the violation o the second orourth paragraphs o Section H& can onl+ e maintained against corporate ocersor such other persons that are acting on ehal o the corporation. Biolations oSection H& contemplates a situation 'herein a corporation$ acting thru one o itsocers or agents$ denies the right o an+ o its stockholders to inspect the records$minutes and the stock and transer ook o such corporation.

3he prolem 'ith the u2uico and Sumillas complaint and the evidence thatthe+ sumitted during preliminar+ investigation is that the+ do not estalish thatXuiamao and Pilapil 'ere acting on ehal o S3R!D9C. Xuiamao and Sumillaare not actuall+ invoking their right to inspect the records and the stock andtranser ook o S3R!D9C under the second and ourth paragraphs o SectionH&. Ahat the+ seek to enorce is the proprietar+ right o S3R!D9C to e inpossession o such records and ook. Such right$ though certainl+ legall+enorceale + other means$ cannot e enorced + a criminal prosecution ased ona violation o the second and ourth paragraphs o Section H&.

$'RI*ATI*' -IT

'-TOR C&I# and A$R'" "'!!I#TO vs. -9IC 9A3 #O!% A$COTR3 C!9, IC+, & &O &-I !I' alias --A &, & T-# C&I'&

alias JAC &, & T-# &I, & T-# T? and R'3A!$ R+ -AR'?#+R+ .+ 1@45, -epte67er 10, 2014, J+!'OAR$O$' CA-TRO

A deri#ati#e suit cannot prosper without rst complying with the legalrequisites for its institution )hus" a complaint which contained no allegationwhatsoe#er of any e;ort to a#ail of intra-corporate remedies allows the court todismiss it" e#en motu proprio !ndeed" e#en if petitioners thought it was futile to

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e'haust intra-corporate remedies" they should ha#e stated the same in the,omplaint and specied the reasons for such opinion )he requirement of thisallegation in the ,omplaint is not a useless formality which may be disregarded atwill

%acts

Fn 6eruar+ "0$ "%%G$ petitioners Nestor Ching and !ndre' Aellington fled aComplaint 'ith the R3C o Flongapo Cit+ on ehal o the memers o Suic a+5ol and Countr+ Clu$ *nc. (S5CC*) against the said countr+ clu and its oard oDirectors and ocers under the provisions o Presidential Decree No. 7%"-! inrelation to Section 8." o the Securities Regulation Code. 3he complaint alleged thatthe deendant corporation sold shares to plainti/s at LSZ""$%%%.%% per share$presenting to them the !rticles o *ncorporation. Eo'ever$ on Oune "H$ #770$ anamendment to the !rticles o *ncorporation 'as approved + the Securities and9:change Commission (S9C).

Petitioners claimed in the Complaint that S5CC* did not disclose to them the

aove amendment 'hich allegedl+ makes the shares non-proprietar+$ as it takesa'a+ the right o the shareholders to participate in the pro-rata distriution o theassets o the corporation ater its dissolution. !ccording to petitioners$ this is inraud o the stockholders 'ho onl+ discovered the amendment 'hen the+ fled acase or in2unction to restrain the corporation rom suspending their rights to use allthe acilities o the clu. 6urthermore$ petitioners alleged that the oard o Directorsand ocers o the corporation did not call an+ stockholders4 meeting rom the timeo the incorporation$ in violation o Section 8% o the Corporation Code and the +-Ja's o the corporation. Neither did the deendant directors and ocers urnish thestockholders 'ith the fnancial statements o the corporation nor the fnancial reporto the operation o the corporation in violation o Section H8 o the CorporationCode. Petitioners also claim S5CC* presented to the S9C an amendment to the +-Ja's o the corporation suspending the voting rights o the shareholders e:cept orthe fve ounders4 shares. Said amendment 'as allegedl+ passed 'ithout an+stockholders4 meeting or notices to the stockholders in violation o Section &I o theCorporation Code.

3he Complaint urthermore enumerated several instances o raud in themanagement o the S5CC* allegedl+ committed + the oard o Directors andocers o the corporation.

3he R3C issued an Frder dismissing the Complaint. 3he R3C held that theaction is a derivative suit. Petitioners Ching and Aellington elevated the case to theCourt o !ppeals 'hich rendered the assailed Decision arming that o the R3C.

Eence$ petitioners resort to the present Petition or Revie'$ 'herein the+argue that the Complaint the+ fled 'ith the R3C 'as not a derivative suit.

Issue

Ahether or not the Complaint is indeed a derivative suit.

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Rulin

3he nature o an action$ as 'ell as 'hich court or od+ has 2urisdiction overit$ is determined ased on the allegations contained in the complaint o the plainti/$irrespective o 'hether or not the plainti/ is entitled to recover upon all or some othe claims asserted therein.

Ahile there 'ere allegations in the Complaint o raud in their suscriptionagreem

merc recentjuris final

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