Cases Flashcards
CHINA BANKING CORPORATION, vs. DYNE-SEM ELECTRONICS CORPORATION
Facts: Dynetics Inc. obtained a loan from China Bank. The latter filed a complaint since the former failed to pay the obligation. Since Dynetics closed down and Lim denied being solidaily liable, the bank is contending that Dyne-Sem is an alter-ego of the of Dynetics and should be held liable. According to the bank, the respondent corporation is also engaged in the same line of business, Dynetic’s principal office and factory site is used by the respondent corp, machineries and equipment of Dynetics are acquired by respondent and that some of the officers of Dynetics are retained by the respondent.
Issue: Is the respondent an alter ego of the Dynetics, Inc?
No.
Held: The general rule is that a corporation has a personality separate and distinct from that of its stockholders and other corporations to which it may be connected. However, the veil of separate corporate personality may be lifted when such personality is used to defeat public convenience, justify wrong, protect fraud or defend crime; or used as a shield to confuse the legitimate issues; or when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation; or when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to achieve equity or for the protection of the creditors. In such cases, the corporation will be considered as a mere association of persons. The liability will directly attach to the stockholders or to the other corporation. To disregard the separate juridical personality of a corporation, the wrongdoing must be proven clearly and convincingly.
In this case, no factual and legal basis exists to hold respondent Dyne-Sem liable for the obligations of Dynetics to petitioner.
San Juan Structural and Steel Fabricators, Inc. v. CA; G.R. No. 129459, 29 September 1998
Facts: San Juan filed a complaint against Motorich. According to the former, there was an agreement that the latter will transfer the parcel of land in their favor and that it was signed by Nenita who is the treasurer Motorich.
Issue: May a corporate treasurer, by herself without any authorization from the board of directors, validly sell a parcel of land owned by the corporation?
Held: No. A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporation’s board of directors.
In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita Gruenberg, its treasurer, to sell the subject parcel of land. Consequently, petitioner had the burden of proving that Nenita Gruenberg was in fact authorized to represent and bind Motorich in the transaction. Petitioner failed to discharge this burden.
Issue: May the veil of corporate fiction be pierced on the mere ground that almost all of the shares of stock of the corporation are owned by said treasurer and her husband?
Held: No. It is true that one of the advantages of a corporate form of business organization is the limitation of an investor’s liability to the amount of the investment. This feature flows from the legal theory that a corporate entity is separate and distinct from its stockholders. However, the statutorily granted privilege of a corporate veil may be used only for legitimate purposes. On equitable considerations, the veil can be disregarded when it is utilized as a shield to commit fraud, illegality or inequity; defeat public convenience; confuse legitimate issues; or serve as a mere alter ego or business conduit of a person or an instrumentality, agency or adjunct of another corporation.
In this case, the Court finds no reason to pierce the corporate veil of Respondent Motorich. Petitioner utterly failed to establish that said corporation was formed, or that it is operated, for the purpose of shielding any alleged fraudulent or illegal activities of its officers or stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the expense of third persons like petitioner.
DBP v. Hydro Resources Contractors Corporation, G.R. No. 167603, 13 March 2013
Facts: The properties of Marinduque Mining and Industrial Corporation (MMIC) was foreclosure, DBP and PNB. As a result, DBP(57% shares) amd PNB(43% shares) acquired substantially all the assets of MMIC and resumed the business operations of the defunct MMIC by organizing NMIC. The latter engaged into the services of Hercon for Mine and Road construction. NMIC, then failed to pay the balance so Hercon wants NMIC, DBP and PNB solidarily liable. ATP who is Trustee of DPB and PNW was likewise impleaded.
Issue: WON NMIC is a mere alter-ego of PNB and DBP?
Held: No. The doctrine of piercing the corporate veil applies in 3 basic areas. First, when it is used to defeat public convenience; second, in fraud cases and third; in alter ego cases. In alter ego cases, the corporation is merely a farce since it is a mere alter ego or business conduit of a person, or the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.
To determine the applicability of the alter-ego theory, the 3-pronged test must be proven.
Control test- requires that the subsidiary be completely under the control and domination of the parent corporation.
Fraud Test- requires that the parent corporation’s conduct in using the subsidiary corporation be unjust, fraudulent or wrongful.
Harm test- requires the plaintiff to show that the defendant’s control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered.
In the present case, the Court finds that none of the tests has been satisfactorily met. As to the first test, the existence of interlocking directors, corporate officers and shareholders is not enough justification to pierce the veil of corporate fiction in the absence of fraud or other public policy considerations. As to the second test, the wrongdoing or unjust act in contravention of a plaintiff’s legal rights was not clearly and convincingly established. As to the Third test, since both control and fraud was not sufficiently established, no harm could be said to have been proximately caused by DBP and PNB on HRCC for which HRCC could hold DBP and PNB solidarily liable with NMIC.
Heirs of Tan Uy v. International Exchange Bank; G.R. Nos. 166282 & 166283, 13 February 2013
Facts: iBank granted loans to Hammer (owned by Chua). The loan was secured by 9M REM executed by Goldkey Corporation(also owned by chua) over several of its properties and 25M Surety agreement signed by Chua, his wife and Uy. Since Hammer defaulted, the bank foreclosed the the properties of Goldkey.
Issue: Whether Uy can be held liable to iBank for the loan obligation of Hammer as an officer and stockholder of the said corporation?
Held: No. Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. Following this principle, obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. A director, officer or employee of a corporation is generally not held personally liable for obligations incurred by the corporation.
Before a director or officer of a corporation can be held personally liable for corporate obligations, however, the following requisites must concur:
the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and
the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith.
In this case, petitioners are correct to argue that it was not alleged, much less proven, that Uy committed an act as an officer of Hammer that would permit the piercing of the corporate veil.
Issue: Whether Goldkey can be held liable for the obligation of Hammer for being a mere alter ego of the latter?
Held: Yes. Goldkey is a mere alter ego of Hammer. Accordingly, they must be treated as one and the same entity, making Goldkey accountable for the debts of Hammer.
Under a variation of the doctrine of piercing the veil of corporate fiction, when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or one and the same.
While the conditions for the disregard of the juridical entity may vary, the following are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, as laid down in Concept Builders, Inc. v. NLRC:
Stock ownership by one or common ownership of both corporations;
Identity of directors and officers;
The manner of keeping corporate books and records; and
Methods of conducting the business.
Rosales vs. NEW A.N.J.H. ENTERPRISES & N.H. OIL MILL CORPORATION, NOEL AWAYAN, MA. FE AWAYAN, BYRON ILAGAN, HEIDI A. ILAGAN AND AVELINO AWAYAN
Facts: Petitioners are the dismissed workers of the respondent Corp. They were terminated due to the closure of the company by reason of lack of capital. They filed a case for illegal dismissal. They alleged in their complaint that while New ANJH stopped its operations, it resumed its operations as NH Oil using the same machineries and with the same owners and management.
Issue: Is the doctrine applicable in this case?
Held: Yes. It has been ruled that the Court will not hesitate to disregard the corporate fiction if it is used to such an extent that injustice, fraud, or crime is committed against another in disregard of his rights.
In this case, petitioners advance the application of the doctrine because they were terminated from employment on the pretext that there will be an impending permanent closure( due to lack of capital) of the business as a result of an intended sale of its assets to an undisclosed corporation, and that there will be a change in the management. However,it was revealed that the buyer of the assets of their employer was a corporation owned by the same employer and members of his family. Furthermore, the business re-opened in less than a month under the same management. Clearly, NH Oil’s is just an alter-ego and its corporate identify was used as a shield for fraud, illegality and inequity against the dismissed workers.
Francisco Motor’s Inc. v. CA G No. 100812, June 25, 1999
Facts: Petitioner Motor Corporation filed a complaint against private respondents to recover balance of the jeep body purchased by the Manuels, as well as cost of repair of the vehicle. The respondent on the other hand, filed a counterclaim contending that the incorporators, directors and officers of the petitioner corporation did not paid for his legal fees during the extrajudicial partition of the estate of Trinidad. It turns out that the respondent wants to make the corporation liable for the obligation of its incorporators, directors and officers.
Issue: Should the counterclaim be granted and the corporation be held liable for the obligation the incorporators, directors and officers?
Held: No. Basic in corporation law is the principle that a corporation has a separate personality distinct from its stockholders and from other corporations.
In this case, instead of holding certain individuals or persons responsible for an alleged corporate act, the situation has been reversed. It is the corporation which is being ordered to answer for the personal liabilities of certain individual directors, officers and incorporators concerned. The doctrine has been turned upside down because of its erroneous invocation. Furthermore, if this will be permitted, it will result to the prejudice of the corporation.
The personality of the corporation and those of its incorporators, directors and officers in their personal capacities ought to be kept separate.
Kukan International v. Reyes; G.R. No. 182729, 29 September 2010
Facts: Kukan, Inc. conducted a bidding for the supply and installation of signages in a building being constructed in Makati City. Morales tendered the winning bid. Despite his compliance with his contractual undertakings, Morales was only paid the amountof 1.9 M leaving a balance of 1.4M , which Kukan, Inc. refused to pay despite demands. Thereafter, Kukan International Corporation was incorporated so Morales Morales filed a Motion to Pierce the Veil of Corporate Fiction and to declare KIC as having no existence separate from Kukan, Inc.
Issue: Should the separate personality of KIC be disregarded?
Held: No. The principle of piercing the veil of corporate fiction finds no application to the instant case.
To justify the piercing of the veil of corporate fiction, it must be shown by clear and convincing proof that the separate and distinct personality of the corporation was purposefully employed to evade a legitimate and binding commitment and perpetuate a fraud or like wrongdoings. To be sure, the Court has, on numerous occasions, applied the principle where a corporation is dissolved and its assets are transferred to another to avoid a financial liability of the first corporation with the result that the second corporation should be considered a continuation and successor of the first entity. Furthermore, there are instances when the Court pierced the veil of corporate fiction of two corporations. Especially on the confluence of the following factors:
A first corporation is dissolved;
The assets of the first corporation is transferred to a second corporation to avoid a financial liability of the first corporation; and
Both corporations are owned and controlled by the same persons such that the second corporation should be considered as a continuation and successor of the first corporation.
Here, 2 and 3 are absent.
Issue: WON KIC is an alter-ego Kukan INC.?
Held:No. KIC’s properties were the ones seized upon levy on execution and not that of Kukan, Inc. or of Michael Chan for that matter. Mere ownership by a single stockholder or by another corporation of a substantial block of shares of a corporation does not, standing alone, provide sufficient justification for disregarding the separate corporate personality. For this ground to hold sway in this case, there must be proof that Chan had control or complete dominion of Kukan and KIC’s finances, policies, and business practices; he used such control to commit fraud; and the control was the proximate cause of the financial loss complained of by Morales. The absence of any of the elements prevents the piercing of the corporate veil. And indeed, the records do not show the presence of these elements.
The suggestion that KIC is but a continuation and successor of Kukan, Inc., owned and controlled as they are by the same stockholders, stands without factual basis.
International Academy of Management and Economics (I/AME) vs. Litton and Company, Inc., G.R. No. 191525, December 13, 2017
Facts: Atty Santos is leasing on a property owned by Litton and Company. Atty Santos did not pay for the rentals so the latter filed a case for unlawful detainer and payment for the rental arrears and realty taxes against Atty Santos. The property of the academy (I/AME) was executed to answer for the judgment against Santos. Academy in their motion said that they have a separate and distinct personality from Santos and its properties should not be made to answer for the latter’s liabilities.
Issue: Should the Court pierced the corporate veil of the academy and made it answer for the liability of Santos despite the fact that it was not impleaded in the main case?
Held: Yes. The general rule is that in order to pierce the veil of of the corporation, it must be impleaded as a party and its guilt be determined after a full-blown trial. The corporation concerned must have been properly served with summons or properly subjected to the jurisdiction of the court.
The exception to this rule is when if it is shown “by clear and convincing proof that the separate and distinct personality of the corporation was purposefully employed to evade a legitimate and binding commitment and perpetuate a fraud or like wrongdoings.
This case clearly falls on the exception. The subject real property was transferred to I/AME during the pendency of the appeal. As concluded by the court, Santos merely used I/AME as a shield to protect his property from the coverage of the writ of execution.
CONCEPT BUILDERS, INC. v. NLRC G.R. No. 108734. May 29, 1996
Facts: The respondents are dismissed employees of the petitioner Corporation. The respondents were given a termination letter stating that contracts of employment had expired and the project in which they were hired had been completed. The Labor Arbiter’s decision in favor of the respondents became final and executory. However, when the when the sheriff was about to execute the writ, he was refused because the corporation no longer occupied the premises and its already occupied by another corporation (Hydro Pipes Philippines, Inc). Now, respondent are alleging that HPPI and petitioner corporation were owned by the same incorporator and stockholders.
Issue: Should the corporated veil or HPPI be disregarded?
Held: Yes. General is the rule that that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. However, the separate personality may be disregarded when it is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws.
In applying the instrumentality or alter ego doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant’s relationship to that operation.
In this case, it can be observed that both corporation submitted same day, a similar information sheet stating that its office address.Both information sheets were filed by the same Virgilio O. Casino as the corporate secretary of both corporations and as indicated both corporation had the same president, the same board of directors, the same corporate officers, and substantially the same subscribers. Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of back wages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation.
SPS. PEDRO AND FLORENCIA VIOLAGO vs. BA FINANCE CORPORATION and AVELINO VIOLAGO, G.R. No. 158262 July 21, 2008
Facts: Avelino Violago, President of Violago Motor Sales Corporation (VMSC), offered to sell a car to his cousin Pedro. The 60k downpayment was paid bt the Sps and the balance was financed by BA Finance. Consequently, Sps should pay the monthly intallment to BA Finance. The problem arise when the car was not delivered to the Sps. as Avelino sold it to Esmeraldo. Eventually, the Sps did not pay the monthly installment to BA Finance. BA Finance then filed a complaint against the Sps but the latter claimed that the action should be against VMSC.
Issue: Should the corporate viel of VMSC be disregard?
Held: Yes. It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. However, this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote justice. So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation.
To determine the applicability of the alter-ego theory, the 3-pronged test must be proven.
Control test- requires that the subsidiary be completely under the control and domination of the parent corporation.
Fraud Test- requires that the parent corporation’s conduct in using the subsidiary corporation be unjust, fraudulent or wrongful.
Harm test- requires the plaintiff to show that the defendant’s control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered.
This case meets the foregoing test. First, VMSC is a family-owned corporation of which Avelino was president. Avelino committed fraud in selling the vehicle to petitioners, a vehicle that was previously sold to Avelino’s other cousin, Esmeraldo. Avelino clearly defrauded petitioners and his actions were the proximate cause of petitioners’ loss. Therefore, he cannot now hide behind the separate corporate personality of VMSC to escape from liability for the amount adjudged by the trial court in favor of petitioners.Additionally, the fact that VMSC was not impleaded will not preclude recovery especially when it is “by clear and convincing proof that the separate and distinct personality of the corporation was purposefully employed to evade a legitimate and binding commitment and perpetuate a fraud or like wrongdoings.
Facts: Petitioner Silverio Jr. is the president of Essess and Tri-Star.The latter being in the possession of the Calatagan Property. The Corp executed a Deed of executed a Deed of Sale with Assumption of Mortgage in favor of FBCI. Said corporation failed to redeem the property and a title was issued in FBCI’s favor. Initially, the court ruled in favor of FBCI but later on, they nullified the decision because they found out that summons were not served (There was an allegation that FBCI forged the service of summons). FBCI, on the other hand claims that there is a supervening event which is its ownership of Esses and Tri-Star.
Issue:Did FBCI’s acquisition of substantial and controlling shares of stocks entitle it to the possession of the property?
Held:No. FBCI’s acquisition of the “substantial and controlling shares of stocks” of Esses and Tri-Star does not create a substantial change in the rights or relations of the parties that would entitle FBCI to possession of the Calatagan Property, a corporate property of Esses and Tri-Star.
A corporation is a juridical person distinct from the members composing it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute personal property, they do not represent property of the corporation. The corporation has property of its own which consists chiefly of real estate. A share of stock only typifies an aliquot part of the corporation’s property, or the right to share in its proceeds to that extent when distributed according to law and equity, but its holder is not the owner of any part of the capital of the corporation. Nor is he entitled to the possession of any definite portion of its property or assets. The stockholder is not a co-owner or tenant in common of the corporate property.
In this case, FBCI’s alleged controlling shareholdings in Esses and Tri-Star merely represent a proportionate or aliquot interest in the properties of the two corporations. Such controlling shareholdings do not vest FBCI with any legal right or title to any of Esses and Tri-Star’s corporate properties. Even assuming that FBCI is the controlling shareholder of Esses and Tri-Star, it does not legally make it the owner of the Calatagan Property, which is legally owned by Esses and Tri-Star as distinct juridical persons. As such, FBCI is not entitled to the possession of any definite portion of the Calatagan Property or any of Esses and Tri-Star’s properties or assets.
Facts: Redmont is a domestic corporation. They wanted to engage in exploration and mining activities ni Palawan but the area they are interested in was already covered by a MPSA in favor of the petitioners Narra, McArthus and Tessoro. Redmont contended before the POA that 60% of the capital stocks owned by the petitioners are owned and controlled by MBMI, a 100% Canadian Corp. Petitioners, on the other hand claimed that they are qualified under the law and that the 60% of their capital is owned by Filipinos. They also alleged that the issue on nationality as applicants is immaterial because they already applied for Financial or Technical Assistance Agreements (FTAA). CA applied the grandfather rule as it observed that there was a doubt as to the nationality of the petitioners when it realized MBMI is their common major investor. It therefore looked into their corporate structures and their corresponding common shareholders.
Issue:WON grandfather rule shall be applied?
Held: Yes, There are two test in order to determine tha nationality of the corporation. The Control test and the Grandfather Rule.
The Cotrol test or the liberal rule is to be applied when there is no need to further trace the ownership of the 60% (or more) Filipino stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-owned is considered as Filipino. However, under the Grandfather rule, the combined totals in the Investing Corporation and the Investee Corporation must be traced to determine the total percentage of Filipino ownership. Grandfather Rule is applicable only when the 60-40 Filipino-foreign equity ownership is in doubt while the the control test is applicable when the 60-40 Filipino-foreign equity ownership is not in doubt.
In this case, the grandfather rule is applicable since there is doubt as to corporate ownership of the petitioners. Consequently, after studying the the structure of the petitioner corporation and grandfathering its corporate owners (MMI, SMMI and PLMDC), it was found out that MBMI, a 100% Canadian corporation, owns 60% or more of their equity interests. In effect, petitioners are NOT Filipino nationals and must be considered foreign since 60% or more of their capital stocks or equity interests are owned by MBMI.
Facts: Petitioner Gamboa is a stockholder of PLDT. He filed a petiiton to declare as null and void the sale of shares of the PTIC. GTE, an American company and a major PLDT stockholder sold 26% of its outstanding common shares to PTIC. The latter assigned the 111,415 shares of stock to PHI but was later on sequestered by the Government. Meanwhile, the First Pacific (Hong Kong-based investment firm) acquired the 54% outstanding capital stocks of PTIC.
What happened here is that, the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC was acquired by the First Pacific through its subsidiary, MPA. according to the petitioner, With the sale, First Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the common shareholdings of foreigners in PLDT to about 81.47 percent which is violative of the constitution. Furthermore the petitioner seeks to clarify the definition of capital as stated in the Constitution.
Issue: Whether the term “capital” in the Constitution refers to the total common shares only or to the total outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a public utility?
Held: SC ruled that that the term “capital” under the Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock (common and non-voting preferred shares). As also provided under the law, the legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required for the State’s grant of authority to operate a public utility.
In this, 64.27% of the common shares with righ to vote during the election of directors is owned by foreigners while only 35% of the common shares is owned by the Filipinos. Hence it is the foreign corporation who has the control over the PLDT. The contention of that the Filipinos own 99.44% of the equity on the preferred shares cannot be admitted since the same refers to shares without voting rights.
Facts: This case is in relation to the decision of the court in the case of Gamboa vs. Teves where the court ruled that the term “capital” in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock (common and non-voting preferred shares). Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this definition of the term “capital” in determining the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law”. The SEC through Chairperson Herbosa, issued SEC-MC No. 8 which provided for the guidelines on compliance with the Filipino-Foreign ownership requirements prescribed in the constitution and/or existing laws by corporations engaged in nationalized and partly nationalized activities. Section 2 of which provides:
Section 2. All covered corporations shall, at all times, observe the constitutional or statutory ownership requirement. For purposes of determining compliance therewith, the required percentage of Filipino ownership shall be applied to BOTH
the total number of outstanding shares of stock entitled to vote in the election of directors; AND
the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors.
Roy, as a lawyer and taxpayer, assailed the validity of SEC-MC No. 8 for not conforming to the letter and spirit of the Gamboa Decision and Resolution. According to him, it was issued by SEC erroneously and with GAOD.
Issue: WON SEC-MC No. 8 SEC gravely abused its discretion in issuing SEC-MC No. 8 in light of the Gamboa Decision and Gamboa Resolution?
Held: No, it was compliant with the decision. Term “capital” in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock (common and non-voting preferred shares). However, if the preferred shares also have the right to vote in the election of directors, then the term “capital” shall include such preferred shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the election of directors. In short, the term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors.
For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential. Beneficial ownership means any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power and/or investment returns or power (which includes the power to dispose of, or direct the disposition of such security)
Facts: Sps Casio donated a parcel of land in favor of the Petitioner-7th Day Adventist of Bayugan. Said donation was allegedly accepted by an Elder on the Donee’s behalf. 20 years after, said parcel of land was sold by Sps. Casio to the Respondent-7th Day Adventist of Northern Mindano Mission. According to the respondent, PUM-SDA Bayugan could not legally be a donee because, not having been incorporated yet, it had no juridical personality. Neither were petitioners members of the local church then, hence, the donation could not have been made particularly to them.
Issue: WON the petitioner is a De facto corporation as to make the donation in their favor, valid?
Held: No. In order to qualify as a de facto corporation, the following requisites must concur. First, a statute must exist under which the corporation could have been validly incorporated. Second, an attempt in good faith to incorporate and third, assumption of corporate powers. Furthermore, the filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the existence of a de facto corporation. The court has consitently held that an organization not registered with the Securities and Exchange Commission (SEC) cannot be considered a corporation in any concept, not even as a corporation de facto.
In this case, petitioners themselves admitted that at the time of the donation, they were not registered with the SEC, nor did they even attempt to organize to comply with legal requirements. Corporate existence begins only from the moment a certificate of incorporation is issued. No such certificate was ever issued to petitioners or their supposed predecessor-in-interest at the time of the donation.
Facts: Purificacion, is the registered owner of parcels of land. She suffered from a lunf cancer and requested Mother Conception, Petitioner’s superior to take care of her. Thereafter, she donated her house and lot and riceland to the petitioner Peach Sisters of Laguna. However, the petitioner is not yet registered with the SEC so Mother Conception filed an application. Purificacion executed a Deed of Donation Inter Vivos (Deed) in favor of the petitioner. When this was presented in the registry of Deeds, his brother filed an adverse claim. His brother contended that the petitioner is not was not registered with the SEC and has no juridical personality and cannot legally accept the donation. RTC dismissed the complaint and ruled that petitioner was a de facto corporation and as such has the personality to be a beneficiary and has the power to acquire and possess property.
Issue: WON the petitioner is a De facto Corporation?
Held: No. Jurisprudence settled that the filing of articles of incorporationand the issuance of the certificate of incorporation are essential for the existence of a de facto corporation. In fine, it is the act of registration with SEC through the issuance of a certificate of incorporation that marks the beginning of an entity’s corporate existence.
In this case, the Petitioner filed its Articles of Incorporation and by-laws on August 28, 2001. However, the SEC issued the corresponding Certificate of Incorporation only on August 31, 2001, two (2) days after Purificacion executed a Deed of Donation on August 29, 2001. Clearly, at the time the donation was made, the Petitioner cannot be considered a corporation de facto.
Issue: WON the doctrine of corporation by estoppel should be applied?
Held: Yes. The doctrine of corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness. It applies when a non-existent corporation enters into contracts or dealings with third persons. In which case, the person who has contracted or otherwise dealt with the non-existent corporation is estopped to deny the latter’s legal existence in any action leading out of or involving such contract or dealing.
In this controversy, Purificacion dealt with the petitioner as if it were a corporation. This is evident from the fact that Purificacion executed two (2) documents conveying her properties in favor of the petitioner — first, via handwritten letter, and second, through a Deed; the latter having been executed the day after the petitioner filed its application for registration with the SEC.
Facts: The petitioner is the owner of the parcel of land leased by Philippine Fibers, a corporation allegedly organizing and existing under the law of the Ph. Based on the agreement, the lease is good for 10 years and the land will planted with crops. The lessor is entitled of 30% in the net income. The petitioner filed a complaint since the said corporation did not account the income and to deliver the lessor’s share. Refuerzo (President of the corporation) was personally held liable. He contended that there is no allegation in the complaint pointing to his personal liability and thus prayed that an order be issued limiting such liability to defendant corporation.
Issue: Should Defendant Refuerzo be held personally liable?
Held: Yes, General is the rule that a corporation has a juridical personality separate and distinct from its component members or stockholders and officers such that a corporation cannot be held liable for the personal indebtedness of a stockholder even if he should be its president. But this rule is understood to refer merely to registered corporations and cannot be made applicable to the liability of members of an unincorporated association. The reason behind this doctrine is obvious — since an organization which before the law is non-existent has no personality and would be incompetent to act and appropriate for itself the powers and attribute of a corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their own risk.
In this case, Manuela T. Vda. de Salvatierra was really made to believe that such corporation was duly organized in accordance with law. Refuerzo, in acting on behalf of a corporation which he knew to be unregistered, assumed the risk of reaping the consequential damages or resultant rights arising out of such transaction.
