1.

2.
3.
4.
5.
6.
7.
8.
9.

10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.

Monfort Hermanos Agricultural Dev. Corp. vs Monfort III (434 SCRA 27, 2004)
Reynoso IV vs CA (345 SCRA 335, 2000)
Shipside, Inc. vs CA (352 SCRA 334, 2001)
Tayag vs Benguet Consolidated, Inc (26 SCRA 242, 1968)
International Express Travel vs CA (343 SCRA 674, GR 119002, 19 October 2000) 15
Corp by stoppel
PSE vs CA (281 SCRA 232, 1997)
Tan Boon Bee & Co. vs Jarencio (163 SCRA 205, 1988)
NDC vs Philippine Veterans Bank (192 SCRA 257, 1990)
Feliciano (GM of LMWD) vs COA (419 SCRA 363, GR 147402, 14 January 2004) - 1
type of corpo, gocc - Constitution emphatically prohibits the creation of private corporations except by a
general law
PLDT vs NTC (190 SCRA 717, 1990)
DBP vs NLRC (186 SCRA 841, 1990)
Edward A. Keller vs COB Group Marketing (141 SCRA 86, 1968)
San Juan Structural vs CA (296 SCRA 631, 1998)
LBP vs CA (364 SCRA 375, 2001) p190 doctrine of piercing the veil was applied
Lim vs CA (323 SCRA 102, 2000)
Ago Industrial Corp vs CA (188 SCRA 709, 1990)
Traders Royal Bank vs CA (177 SCRA 789, 1989)
Hi-Cement Corp vs Insular Bank of Asia (534 SCRA 169, 2007)
Pantranco Employees Association (PEA-PT GWO) vs NLRC (581 SCRA 598, 2009)
General Credit Corp vs Alsons Dev. & Investment Corp (513 SCRA 225, 2007)
Lipat vs Pacific Banking Corp (402 SCRA 339, GR 142435, 30 April 2003) 9
p192

elements to justify the doctrine of piercing the veil, control being proximate cause
Sta. Monica Industrial vs DAR Regional Director (555 SCRA 97, 2008)
Martinez vs CA (438 SCRA 139, 2004)
PNB vs Andrada Electric & Engineering Co (381 SCRA 244, GR 142936, 17 April 2002) 8
p192

elements to justify the doctrine of piercing the veil, control being proximate cause
Reynoso IV vs CA(345 SCRA 335, 2000)
Secosa vs Heirs of Erwin Suarez Francisco (433 SCRA 273, 2004)
Gochan vs Young (335 SCRA 207, GR 131889, 12 March 2001) - 69
Traders Royal Bank vs CA (269 SCRA 15, 1997)
Umali vs CA (189 SCRA 529, 1990)
Lim vs CA (323 SCRA 102, 2000)

1. MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION vs ANTONIO B.

MONFORT III
Facts: Monfort Hermanos Agricultural Development Corporation, a domestic private corporation, is the registered
owner of a farm, fishpond and sugar cane plantation known as Haciendas San Antonio II, Marapara, Pinanoag and
Tinampa-an, all situated in Cadiz City. It also owns one unit of motor vehicle and two units of tractors. The same
allowed Ramon H. Monfort, its Executive Vice President, to breed and maintain fighting cocks in his personal
capacity at Hacienda San Antonio. In 1997, the group of Antonio Monfort III, through force and intimidation,
allegedly took possession of the 4 Haciendas, the produce thereon and the motor vehicle and tractors, as well as the
fighting cocks of Ramon H. Monfort.
In G.R. No. 155472: The Corporation, represented by its President, Ma. Antonia M. Salvatierra, and Ramon H.
Monfort, in his personal capacity, filed against the group of Antonio Monfort III, a complaint for delivery of motor
vehicle, tractors and 378 fighting cocks, with prayer for injunction and damages. Motion to dismiss on the ground
of Ma. Antonia M. Salvatierra's lack of capacity to sue on behalf of the Corporation was denied.
In G.R. No. 152542: Ma. Antonia M. Salvatierra filed on behalf of the Corporation a complaint for forcible entry,
preliminary mandatory injunction with temporary restraining order and damages against the group of Antonio
Monfort III.
The group of Antonio Monfort III alleged that they are possessing and controlling the Haciendas and harvesting the
produce therein on behalf of the corporation and not for themselves. They likewise raised the affirmative defense of
lack of legal capacity of Ma. Antonia M. Salvatierra to sue on behalf of the Corporation.
Complaint was eventually dismissed.
Basis of claim of Salvatierra\s lack of capacity to sue: The group of Antonio Monfort III claims that the March 31,
1997 Board Resolution authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to represent the
Corporation is void because the purported Members of the Board who passed the same were not validly elected
officers of the Corporation.
Issue/ Held: WON Ma. Antonia M. Salvatierra has the legal capacity to sue on behalf of the Corporation. -NO.
Ma. Antonia M. Salvatierra failed to prove that four of those who authorized her to represent the Corporation
were the lawfully elected Members of the Board of the Corporation. As such, they cannot confer valid authority
for her to sue on behalf of the corporation.
Ratio:
A corporation has no power except those expressly conferred on it by the Corporation Code and those that
are implied or incidental to its existence. In turn, a corporation exercises said powers through its board of
directors and/or its duly authorized officers and agents. Thus, it has been observed that the power of a
corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate
powers. In turn, physical acts of the corporation, like the signing of documents, can be performed only by
natural persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of
directors.
Corporation failed to comply with Section 26 of the Corporation Code, requiring submission to the SEC within
thirty (30) days after the election the names, nationalities and residences of the elected directors, trustees and
officers of the Corporation.
1.

In the case at bar, the fact that four of the six Members of the Board listed in the 1996 General Information
Sheet are already dead at the time the March 31, 1997 Board Resolution was issued, does not automatically
make the four signatories (i.e., Paul M. Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and Ester S.
Monfort) to the said Board Resolution (whose name do not appear in the 1996 General Information Sheet)
as among the incumbent Members of the Board. This is because it was not established that they were duly
elected to replace the said deceased Board Members.

To correct the alleged error in the General Information Sheet, the retained accountant of the Corporation informed
the SEC in its November 11, 1998 letter that the non-inclusion of the lawfully elected directors in the 1996 General

Information Sheet was attributable to its oversight and not the fault of the Corporation. This belated attempt,
however, did not erase the doubt as to whether an election was indeed held.
What further militates against the purported election of those who signed the March 31, 1997 Board Resolution was
the belated submission of the alleged Minutes of the October 16, 1996 meeting where the questioned officers were
elected. The issue of legal capacity of Ma. Antonia M. Salvatierra was raised before the lower court by the group of
Antonio Monfort III as early as 1997, but the Minutes of said October 16, 1996 meeting was presented by the
Corporation only in its September 29, 1999 Comment before the Court of Appeals. Moreover, the Corporation
failed to prove that the same October 16, 1996 Minutes was submitted to the SEC.

2.

Reynoso IV vs CA (345 SCRA 335, 2000)

Doctrine of Piercing the Veil of Corporate Fiction

Facts:
Reynoso was the branch manager of Commercial Credit Corporation Quezon City (CCC-QC), a branch of
Commercial Credit Corporation (CCC). It was alleged that Reynoso was opposed to certain questionable
commercial practices being facilitated by Corporation which caused its branches, like CCC-QC, to rack up debts.
Eventually, Reynoso withdrew his own funds from CCC-QC. This prompted CCC-QC to file criminal cases for
estafa and qualified theft against Reynoso. The criminal cases were dismissed and Reynoso was exonerated and at
the same time CCC-QC was ordered to pay Reynosos counterclaims which amounted to millions. A writ of
execution was issued against CCC-QC. The writ was opposed by CCC-QC as it now claims that it has already
closed and that its assets were taken over by the mother company, CCC.
Meanwhile, CCC changed its name to General Credit Corporation (GCC).
Reynoso then filed a petition for an alias writ of execution. GCC opposed the writ as it argued that it is a separate
and distinct corporation from CCC and CCC-QC, in short, it raises the defense of corporate fiction.
ISSUE: Whether or not GCC is correct.
HELD: No. The veil of corporate fiction must be pierced. It is obvious that CCCs change of name to GCC was made
in order to avoid liability. CCC-QC willingly closed down and transferred its assets to CCC and thereafter changed
its name to GCC in order to avoid its responsibilities from its creditors. GCC and CCC are one and the same; they
are engaged in the same line of business and single transaction process, i.e. finance and investment. When the
mother corporation and its subsidiary cease to act in good faith and honest business judgment, when the corporate
device is used by the parent to avoid its liability for legitimate obligations of the subsidiary, and when the corporate
fiction is used to perpetrate fraud or promote injustice, the law steps in to remedy the problem. When that
happens, the corporate character is not necessarily abrogated. It continues for legitimate objectives. However, it is
pierced in order to remedy injustice, such as that inflicted in this case.

3. SHIPSIDE INCORPORATED vs CA (352 SCRA 334, 2001)

Facts:

On October 29, 1958, Original Certificate No. 0-381 was issued in favour of Rafael Galvez, over four parcels of land.
On April 11, 1960, Lots No. 1 and 4 were sold by Rafael Galvez to Filipina Mamaril, Cleopatra Llana, Regina Bustos,
and Erlinda Balatbat, with deed of sale inscribed as entry no. 9115OCT 0-381 on August 10,1960. Consequently,
Transfer Certificate No. T-4304 was issued in favour of the buyers covering Lots No. 1 and 4.
On August 16, 1960, Mamaril, et al. sold Lots No. 1 and 4 to Lepanto Consolidated Mining Company. The deed of
sale covering the aforesaid property was inscribed as Entry No. 9173 on TCT No. T-4304. Subsequently, Transfer
Certificate No. T-4314 was issued in the name of Lepanto Consolidated Mining Company as owner of Lots 1 and 4.
On February 1, 1963, unknown to Lepanto Consolidated Mining Company, the Court of First Instance of La Union,
Second Judicial District, issued an order in Land registration Case No. N-361 entitled Rafael Galvez, Applicant,
Eliza Bustos, et al., Parties-In-Interest; Republic of the Philippines, Movant declaring OCT No. 0-381 of the
Registry of Deeds for the Province of La Union issued in the name of Rafel Galvez, null and void, and ordered the
cancellation thereof.
On October 28, 1963, Lepanto Consolidated Mining Company sold to the petitioner Lots No. 1 and 4, with the
deed being entered in TCT No. 4314 as entry No. 12381. Transfer Certificate of Title No T-5710 was thus issued in
favour of the petitioner which starting since then exercised proprietary rights over Lots No. 1 and 4.
In the meantime, Rafael Galvez filed his motion for reconsideration against the order by the trial court declaring
OCT No. 0-381 null and void. The motion was denied on January 25, 1965. On appeal, the court of Appeals ruled in
favor of the Republic of the Philippines in a resolution promulgated on August 14, 1973 in CA-G.R. No. 36061`-R.
Thereafter, the court of Appeals, issued an Entry of judgement, certifying that its decision dated August 14, 1973
became final and executor on October 23, 1973.
On April 22, 1974, the trial court in L.R.C. Case No. N-361 is sued a writ of execution of the judgement which was
served on the Register of Deeds, San Fernando, La Union on April 29, 1974
On January 14, 1999, the office of the Solicitor General received a letter dated January 11, 1999, from Mr. Victor
Floresca, Vice-President, John Hay Poro Point Development Corporation, stating that the aforementioned orders
and decision of the trial court in L.R.C. No. N-361 have not been executed by the Register of Deeds, San Fernando,
La Union despite receipt of the writ of execution.
On April 21, 1999, the Office of the Solicitor General filed a complaint for the revival of judgment and cancellation
of titles before the Regional Trial Court of the First judicial Region (Branch 26, San Fernando, La Union) docketed
therein as Civil Case No., 6346 entitled, Republic of the Philippines, Plaintiff, vs. Heirs of Rafael Galvez,
represented by Teresita Tan, Reynaldo Mamaril, Elisa Bustos, Erlinda Balatbat, Regina Bustos, Shipside
Incorporated and the Register of Deeds of La Union, defendants.
In its complaint in Civil Case No. 6346, the Solicitor General argued that since the trial court in LRC Case no. 361
had ruled and declared OCT No. 0381 to be null and void, which ruling was subsequently affirmed by the court of

appeals, the defendants-successors-in-interest of Rafael Galvez have no valid title over the property covers by OCT
No. 0-381, and the subsequent Torrens titles issued in their names should be consequently cancelled.
On July 22, 1999, petitioner Shipside, Inc. Filed its Motion to Dismiss, based on the following grounds: (1) the
complaint stated no cause of action because only final and executor judgements may be subject of an action for
revival for judgment; (2) the plaintiff is not the real party-in-interest because the real property covered by the
Torrens titles sought to be cancelled, allegedly part of Camp Wallace (Wallace Air Station), were under the
ownership and administration of the Bases Conversion Development Authority under RA No. 7227; (3) Plaintiffs
cause of action is barred by prescription; (4) twenty-five years having lapsed since the issuance of the writ of
execution, no action for revival of judgment may be instituted because under Paragraph 3 of Article 1144 of the
Civil Code, such action may be brought only within ten (10) years from the time the judgement had been
rendered.
On August 31, 1999, the trial court denied petitioners motion to dismiss and on October 14, 1999, its motion for
reconsideration was likewise turned down.
On October 21, 1999, petitioner instituted a petition for certiorari and prohibition with the Court of Appeals,
docketed therein as CA-G.R. SP No. 55535, on the ground that the orders of the trial court denying its motion to
dismiss and its subsequent motion for reconsideration were issued in excess of jurisdiction.
On Novemeber 4, 1999, the court of Appeals dismissed the petition in CA-G.R. SP No. 55535 on the ground that
the verification and certification in the petition, under the signature of Lorenzo Balbin, Jr., was made without
authority, there being no proof therein that Balbin was authorized to institute the petition for and in behalf and of
petitioner.
On May 23, 2000, the Court of Appeals denied petitioners motion for reconsideration on the grounds that: (1) a
complaint filed on behalf of a corporation can be made only if authorized by its Board of Directors, and in the
absence thereof, the petition cannot prosper and be granted due course; and (2) the petitioner was unable to
show that it had substantially complied with the rule requiring proof of authority to institute an action or
proceeding.
In support of its petition, Shipside, Inc. asseverates that:
1. The honourable Court of Appeals gravely abused its discretion in dismissing the petition when it made a
conclusive legal presumption that Mr. Balbin had no authority to sign the petition despite the clarity of
laws, jurisprudence and Secretary certificate to the contrary.
2. The honourable Court of Appeals abused its discretion when it dismissed the petition, in effect affirming
the grave abuse of discretion committed by the lower court, when it refused to dismiss the 1999
Complaint for Revival of a 1973 judgment, in violation of clear laws and jurisprudence.
Issues:
(1) Whether an authorization from petitioners Board of Directors is still required in order for its resident
manager to institute or commence a legal action for and in behalf of the corporation;
(2) Whether the instant petition should be allowed; and
(3) Whether the republic of the Philippines can maintain action for revival of judgment therein.

Held:
(1) Yes. The court of Appeals dismissed the petition for certiorari on the ground that Lorenzo Balbin, the
resident manager for petitioner, who was the signatory in the verification and certification on non-forum
shopping, failed to show proof that he was authorized by petitioners board of directors to file such a
petition.
A corporation, such as petitioner, has no power except those expressly conferred on it by the Corporation
Code and those that are implied or incidental to its existence. In turn, a corporation exercises said powers
through its board of directors and /or its duly authorized officers and agents. Thus, it has been observed
that the power of a corporation to sue and be sued in any court is lodged with the board of directors that
exercises its corporate powers. In turn, physical acts of the corporation, like the signing of documents, can
be performed only by natural persons duly authorized for the purpose by the corporate by-laws or by a
specific act of the board of directors to file said petition.
On October 21, 1999, when Balbin filed the petition, there was no proof attached thereto that Balbin was
authorized to sign the verification and non-forum shopping certification therein. As a consequence, the
petition was dismissed by the Court of Appeals. However, subsequent to such dismissal, petitioner filed a
motion for reconsideration, attaching to said motion a certificate issued by its board secretary stating that
on October 11, 1999, or ten days prior to the filing of the petition, Balbin had been authorized by
petitioners board of directors to file said petition.
Verification is simply intended to secure an assurance that the allegations in the pleading are true and
correct and not the product of the imagination or a matter of speculation, and that the pleading is filed in
good faith. The court may order the correction of the pleading if verification is lacking or act on the
pleading although it is not verified, if the attending circumstances are such that strict compliance with the
rules may be dispensed with in order that the ends of justice may thereby be served.
On the other hand, the lack of certification against forum shopping is generally incurable by the
submission thereof after filing of the petition. Section 5, Rule 45 of the 1997 Rules of Civil Procedure
provides that the failure of the petitioner to submit the required documents that should accompany the
petition, including the certification against forum shopping, shall be sufficient ground for the dismissal
thereof. The same rule applies to certifications against forum shopping signed by a person on behalf of a
corporation which are unaccompanied by proof that said signatory is authorized to file a petition on behalf
of the corporation.
(2) Yes. In the instant case, the merits of the petitioners case should be considered special circumstances or
compelling reasons that justify tempering the requirement in regard to the certificate of non-forum
shopping. With more reason should the instant petition be allowed since the petitioner did submit a
certification on non-forum shopping, failing only to show proof that the signatory was authorized to do so.
That petitioner subsequently submitted a secretarys certificate attesting that Balbin was authorized to file
an action.

It must also be kept in mind that while the requirement of the certificate of non-forum shopping is
mandatory, nonetheless the requirements should not be interpreted literally and thus defeat the objective
of preventing the undesirable practice of forum- shopping. Lastly, technical rules of procedure should be
used to promote, not frustrate justice. While the swift unclogging of court dockets is a laudable objective,
the granting of substantial justice is an even more urgent ideal.
(3) No. The action instituted by the Solicitor General in the trial court is one for revival of judgment which is
governed by Article 1144 (3) of the Civil Code and Section 6, Rule 39 of the 1997 Rules on Civil Procedure.
Article1144 (3) provides that an action upon a judgement must be brought within 10 years from the time
the right of action accrues. On the other hand, Section 6, Rule 39 provides that a final and executor
judgment or order may be executed on motion within five (5) years from the date of its entry, but that
after the lapse of such time, and before it is barred by the statute of limitations, a judgement may be
enforced by action. Taking those two provisions into consideration, it is plain that an action for revival of
judgment must be brought within ten years from the time said judgment becomes final.
From the records of the case, it is clear that the judgment sought to be revived became final on October
23, 1973. On the other hand, the action for revival of judgment was instituted only in 1999, or more than
25 years after the judgment had become final. Hence, the action is a barred by extinctive prescription
considering that such an action can be instituted only within ten (10) years from the time the cause of
action accrues.
The Solicitor-generals contention that the states cause of action in the cancellation of the land title
issued to petitioners predecessor-in-interest is imprescriptible because it is included in Camp Wallace,
which belong to the government, is misleading. While it is true that the prescription does not run against
the State, the same may not be invoked by the government in this case since it is no longer interested in
the subject matter. While Camp Wallace may have belonged to the Government at the time Rafael
Galvezs title was ordered cancelled in Land Registration Case no N-361, the same no longer holds true
today.
With the transfer of Camp Wallace to the BCDA, the government no longer has a right or interest to protect.
Consequently, the republic is not a real party in interest and it may not institute the instant action. Nor may it
raise the defense of imprescriptibility the same being applicable only in cases where the government is a party in
interest. Under section 2 of Rule 3 of the 1997 Rules of Civil procedure, every action must be prosecuted or
defined in the name of the real party in interest. And to qualify a person to be a real party in interest whose
name in action must be prosecuted, he must appear to be the present real owner of the right sought to be
enforced (Pioneer Insurance v. CA, 175 SCRA 668 [1989]). A real party in interest is the party who stands to be
benefitted or injured by the judgment in the suit, or the party entitled to the avails of the suit. And by real interest
is meant a present substantial interest, as distinguished from a mere expectancy, or a future, contingent,
subordinate or consequential interest (Ibonilla v. Province of Cebu, 210 SCRA 526 [1992]). Being the owner of the
areas covered by Camp Wallace, it is the Bases Conversion and Development Authority, not the Government,
which stands to be benefited if the land covered by TCT No. T5710 issued in the name of petitioner is cancelled.

4. TAYAG vs. BENGUET CONSOLIDATED, INC

Facts:
Idonah Slade Perkins, died in New York in 1960, left among others, two stock certificates covering 33,002 shares of
Benguet Consolidated, the certificates being in the possession of the County Trust Company of New York, the
domiciliary administrator of the estate of the deceased.
A dispute arose between the domiciliary administrator in New York and the ancillary administrator in the
Philippines as to which of them was entitled to the possession of the stock certificates in question. Ancillary
administrator wanted possession of the shares so as to satisfy the legitimate claims of local creditors.
On January 27, 1964, the Court of First Instance of Manila ordered the domiciliary administrator, County Trust
Company, to "produce and deposit" them with the ancillary administrator or with the Clerk of Court. The
domiciliary administrator did not comply with the order, and on February 11, 1964, the ancillary administrator
petitioned the court to "issue an order declaring the certificate or certificates of stocks covering the 33,002 shares
issued in the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as lost."
The order of the Lower Court is of the following tenor: (1) considers as lost for all purposes in connection with the
administration and liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates covering the
33,002 shares of stock standing in her name in the books of the Benguet Consolidated, Inc., (2) orders said
certificates cancelled, and (3) directs said corporation to issue new certificates in lieu thereof, the same to be
delivered by said corporation to either the incumbent ancillary administrator or to the Probate Division of this
Court."
Appeal to the order was made by Benguet Consolidated. Appellant opposed the petition of the ancillary
administrator because the said stock certificates are in existence, they are today in the possession of the domiciliary
administrator, the County Trust Company, in New York, U.S.A...."
Issue/ Held: WON the appeal is meritorious.- NO. The order was called for by the realities of the situation.
Ratio: The Court took into account the factual circumstances in upholding the order by the Lower Court that the
shares of stock be considered lost t for all purposes in connection with the administration and liquidation of the
Philippine estate of Idonah Slade Perkins.
1.

2.

3.

Territorial scope of authority of administrator. It is a "general rule universally recognized" that

administration, whether principal or ancillary, certainly "extends to the assets of a decedent found within
the state or country where it was granted," the corollary being "that an administrator appointed in one state
or country has no power over property in another state or country." Since the actual situs of the shares of
stock of a domestic corporation is in the Philippines, it should be administered by the ancillary
admisnitrator.
Element of fiction of loss is necessary given the factual circumstances. Since there is a refusal,
persistently adhered to by the domiciliary administrator in New York, to deliver the shares of stocks of
appellant corporation owned by the decedent to the ancillary administrator in the Philippines, there was
nothing unreasonable or arbitrary in considering them as lost and requiring the appellant to issue new
certificates in lieu thereof. Otherwise, to yield to the stubborn refusal of the domiciliary administrator, the
task incumbent under the law of the ancillary administrator could not be discharged and his responsibility
fulfilled.
Lawful order of the court overrides the by-laws of Benguet Consolidated. Benguet Consolidated stresses
that in the event of a contest or the pendency of an action regarding ownership of such certificate or
certificates of stock allegedly lost, stolen or destroyed, the issuance of a new certificate or certificates would
await the "final decision by [a] court regarding the ownership [thereof]." SC held that Benguet

4.

Consolidated's obedience to a lawful court order certainly constitutes a valid defense, assuming that such
apprehension of a possible court action against it could possibly materialize.
A corporation is not immune from judicial action.

Definitions of Corporation:
"...a corporation is an artificial being created by operation of law...." It owes its life to the state, its birth being
purely dependent on its will. As Berle so aptly stated: "Classically, a corporation was conceived as an artificial
person, owing its existence through creation by a sovereign power." (Berle, The Theory of Enterprise Entity, 47
Co. Law Rev. 343 (1907).
"an artificial being, invisible, intangible, and existing only in contemplation of law." (Chief Justice Marshall,
Dartmouth College v. Woodward )
"A corporation is not in fact and in reality a person, but the law treats it as though it were a person by process
of fiction or by regarding it as an artificial person distinct and separate from its individual stockholders.... It
owes its existence to law. It is an artificial person created by law for certain specific purposes, the extent of
whose existence, powers and liberties is fixed by its charter." (Fletcher, Cyclopedia Corporations )
...a juristic person, resulting from an association of human beings granted legal personality by the state, puts
the matter neatly. (Pound on Jurisprudence)

There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from Friedmann, "is the
reality of the group as a social and legal entity, independent of state recognition and concession." A corporation as
known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the
state according to law. It is logically inconceivable therefore that it will have rights and privileges of a higher
priority than that of its creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state
organs, certainly not excluding the judiciary, whenever called upon to do so.
As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in
our jurisdiction, comes more often within the ken of the judiciary than the other two coordinate branches. It
institutes the appropriate court action to enforce its right. Correlatively, it is not immune from judicial control in
those instances, where a duty under the law as ascertained in an appropriate legal proceeding is cast upon it.
To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy
which may be conceded but license which cannot be tolerated. It is to argue that it may, when so minded, overrule
the state, the source of its very existence; it is to contend that what any of its governmental organs may lawfully
require could be ignored at will. So extravagant a claim cannot possibly merit approval.

5. International Express Travel & Tour Services, Inc. vs. CA [GR 119002, 19 October2000]
Facts: On 30 June 1989, the International Express Travel and Tour Services, Inc. (IETTSI), through its managing
director, wrote a letter to the Philippine Football Federation (Federation), through its president, Henri Kahn,
wherein the former offered its services as a travel agency to the latter. The offer was accepted. IETTSI secured the
airline tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in Kuala
Lumpur as well as various other trips to the People's Republic of China and Brisbane. The total cost of the tickets
amounted to P449,654.83. For the tickets received, the Federation made two partial payments, both in September of
1989, in the total amount of P176,467.50. On 4 October 1989, IETTSI wrote the Federation, through Kahn a demand
letter requesting for the amount of P265,894.33. On 30 October 1989, the Federation, through the Project Gintong
Alay, paid the amount of P31,603.00. On 27 December 1989, Henri Kahn issued a personal check in the amount of
P50,000 as partial payment for the outstanding balance of the Federation. Thereafter, no further payments were
made despite repeated demands. This prompted IETTSI to file a civil case before the Regional Trial Court of Manila.
IETTSI sued Henri Kahn in his personal capacity and as President of the Federation and impleaded the Federation
as an alternative defendant. IETTSI sought to hold Henri Kahn liable for the unpaid balance for the tickets
purchased by the Federation on the ground that Henri Kahn allegedly guaranteed the said obligation. Kahn filed
his answer with counterclaim, while the Federation failed to file its answer and was declared in default by the trial
court. In due course, the trial court rendered judgment and ruled in favor of IETTSI and declared Henri Kahn
personally liable for the unpaid obligation of the Federation. The complaint of IETTSI against the Philippine
Football Federation and the counterclaims of Henri Kahn were dismissed, with costs against Kahn. Only Henri
Kahn elevated the decision to the Court of Appeals. On 21 December 1994, the appellate court rendered a decision
reversing the trial court. IETTSI filed a motion for reconsideration and as an alternative prayer pleaded that the
Federation be held liable for the unpaid obligation. The same was denied by the appellate court in its resolution of 8
February 1995. IETTSI filed the petition with the Supreme Court.
Issue [1]: Whether the Philippine Football Federation has a corporate existence of its own.
Held [1]: Both RA 3135 (the Revised Charter of the Philippine Amateur Athletic Federation) and PD 604 recognized
the juridical existence of national sports associations. This may be gleaned from the powers and functions granted
to these associations (See Section 14 of RA 3135 and Section 8 of PD 604). The powers and functions granted to
national sports associations indicate that these entities may acquire a juridical personality. The power to purchase,
sell, lease and encumber property are acts which may only be done by persons, whether natural or artificial, with
juridical capacity. However, while national sports associations may be accorded corporate status, such does not
automatically take place by the mere passage of these laws. It is a basic postulate that before a corporation may
acquire juridical personality, the State must give its consent either in the form of a special law or a general enabling
act. The Philippine Football Federation did not come into existence upon the passage of these laws. Nowhere can it
be found in RA 3135 or PD 604 any provision creating the Philippine Football Federation. These laws merely
recognized the existence of national sports associations and provided the manner by which these entities may
acquire juridical personality. Section 11 of RA 3135 and Section 8 of PD 604 require that before an entity may be
considered as a national sports association, such entity must be recognized by the accrediting organization, the
Philippine, Amateur Athletic Federation under RA 3135, and the Department of Youth and Sports Development
under PD 604. This fact of recognition, however, Henri Kahn failed to substantiate. A copy of the constitution and
by-laws of the Philippine Football Federation does not prove that said Federation has indeed been recognized and
accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports
Development. Accordingly, the Philippine Football Federation is not a national sports association within the
purview of the aforementioned laws and does not have corporate existence of its own.
Issue [2]: Whether Kahn should be made personally liable for the unpaid obligations of the Philippine Football
Federation.
Held [2]: Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football
Federation. It is a settled principal in corporation law that any person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such privileges and becomes personally liable for contract
entered into or for other acts performed as such agent. As president of the Federation, Henri Kahn is presumed to
have known about the corporate existence or non-existence of the Federation.

Issue [3]: Whether the appellate court properly applied the doctrine of corporation by estoppel.
Held [3]: The Court cannot subscribe to the position taken by the appellate court that even assuming that the
Federation was defectively incorporated, IETTSI cannot deny the corporate existence of the Federation because it
had contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence. The
doctrine of corporation by estoppel is mistakenly applied by the appellate court to IETTSI. The application of the
doctrine applies to a third party only when he tries to escape liabilities on a contract from which he has benefited on
the irrelevant ground of defective incorporation. Herein, IETTSI is not trying to escape liability from the contract
but rather is the one claiming from the contract.

6. PHILIPPINE STOCK EXCHANGE, INC., vs. THE HONORABLE COURT OF APPEALS - G.R. No. 125469
Facts:
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to the public in
order to raise funds allegedly to develop its properties and pay its loans with several banking institutions. In
January, 1995, PALI was issued a Permit to Sell its shares to the public by the Securities and Exchange Commission
(SEC). To facilitate the trading of its shares among investors, PALI sought to course the trading of its shares through
the Philippine Stock Exchange, Inc. (PSE), for which purpose it filed with the said stock exchange an application to
list its shares, with supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALI's application, recommended to the
PSE's Board of Governors the approval of PALI's listing application.
On February 14, 1996, before it could act upon PALI's application, the Board of Governors of the PSE received a
letter from the heirs of Ferdinand E. Marcos, claiming that the late President Marcos was the legal and beneficial
owner of certain properties forming part of the Puerto Azul Beach Hotel and Resort Complex which PALI claims to
be among its assets and that the Ternate Development Corporation, which is among the stockholders of PALI,
likewise appears to have been held and continue to be held in trust by one Rebecco Panlilio for then President
Marcos and now, effectively for his estate, and requested PALI's application to be deferred. PALI was requested to
comment upon the said letter.
PALI's answer stated that the properties forming part of the Puerto Azul Beach Hotel and Resort Complex were not
claimed by PALI as its assets. On the contrary, the resort is actually owned by Fantasia Filipina Resort, Inc. and the
Puerto Azul Country Club, entities distinct from PALI. Furthermore, the Ternate Development Corporation owns
only 1.20% of PALI.
The Board of Governors of the PSE reached its decision to reject PALI's application, citing the existence of serious
claims, issues and circumstances surrounding PALI's ownership over its assets that adversely affect the suitability
of listing PALI's shares in the stock exchange.
PALI wrote a letter to the SEC addressed to the then Acting Chairman, Perfecto R. Yasay, Jr., bringing to the SEC's
attention the action taken by the PSE. SEC rendered its Order, reversing the PSE's decision. SEC ordered to
immediately cause the listing of the PALI shares in the Exchange.
CA: SEC had both jurisdiction and authority to look into the decision of the petitioner PSE, for the purpose of
ensuring fair administration of the exchange. Both as a corporation and as a stock exchange, the petitioner is subject
to public respondent's jurisdiction, regulation and control. PALI complied with all the requirements for public
listing, affirming the SEC's ruling.
Issue/Held: WON SEC has the authority to order the PSE to list the shares of PALI in the stock exchange. - YES,
but he Court finds that the SEC had acted arbitrarily in arrogating unto itself the discretion of approving the
application for listing in the PSE of the private respondent PALI, since this is a matter addressed to the sound
discretion of the PSE, a corporation entity, whose business judgments are respected in the absence of bad faith.
Ratio:
1.

SEC with jurisdition. It is undeniable that the petitioner PSE is not an ordinary corporation, in that
although it is clothed with the markings of a corporate entity, it functions as the primary channel through
which the vessels of capital trade ply. The PSE's relevance to the continued operation and filtration of the
securities transactions in the country gives it a distinct color of importance such that government
intervention in its affairs becomes justified, if not necessarily. Indeed, as the only operational stock
exchange in the country today, the PSE enjoys a monopoly of securities transactions, and as such, it yields
an immense influence upon the country's economy.

Due to this special nature of stock exchanges, the country's lawmakers has seen it wise to give special treatment to
the administration and regulation of stock exchanges
Sections 3, 6, and 38 of PD 902-A give the SEC the special mandate to be vigilant in the supervision of the affairs of
stock exchanges so that the interests of the investing public may be fully safeguard.
Section 31 of Presidential Decree 902-A, standing alone, is enough authority to uphold the SEC's challenged control
authority over the petitioner PSE even as it provides that "the Commission shall have absolute jurisdiction,
supervision, and control over all corporations, partnerships or associations, who are the grantees of primary
franchises and/or a license or permit issued by the government to operate in the Philippines. . ." The SEC's
regulatory authority over private corporations encompasses a wide margin of areas, touching nearly all of a
corporation's concerns. This authority springs from the fact that a corporation owes its existence to the concession
of its corporate franchise from the state.
The SEC's power to look into the subject ruling of the PSE, therefore, may be implied from or be considered as
necessary or incidental to the carrying out of the SEC's express power to insure fair dealing in securities traded
upon a stock exchange or to ensure the fair administration of such exchange. It is, likewise, observed that the
principal function of the SEC is the supervision and control over corporations, partnerships and associations with
the end in view that investment in these entities may be encouraged and protected, and their activities for the
promotion of economic development.
This is not to say, however, that the PSE's management prerogatives are under the absolute control of the SEC.
The PSE is, alter all, a corporation authorized by its corporate franchise to engage in its proposed and duly
approved business.
A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and
with a distinct legal personality. In organizing itself as a collective body, it waives no constitutional immunities
and perquisites appropriate to such a body. As to its corporate and management decisions, therefore, the state
will generally not interfere with the same. Questions of policy and of management are left to the honest
decision of the officers and directors of a corporation, and the courts are without authority to substitute their
judgment for the judgment of the board of directors. The board is the business manager of the corporation, and
so long as it acts in good faith, its orders are not reviewable by the courts.

Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the
PSE's decision in matters of application for listing in the market, the SEC may exercise such power only if the PSE's
judgment is attended by bad faith. In Board of Liquidators vs. Kalaw, it was held that bad faith does not simply
connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing
of wrong. It means a breach of a known duty through some motive or interest of ill will, partaking of the nature of
fraud.
2.

There was no bad faith in the decision of PSE not to allow listing of PALI shares. In reaching its decision
to deny the application for listing of PALI, the PSE considered important facts, which, in the general
scheme, brings to serious question the qualification of PALI to sell its shares to the public through the stock
exchange.

During the time for receiving objections to the application, the PSE heard from the representative of the
late President Ferdinand E. Marcos and his family who claim the properties of the private respondent

1
This Act shall be administered by the (Securities and Exchange) Commission which shall continue to have the organization, powers, and functions
provided by Presidential Decree Numbered 902-A, 1653, 1758, and 1799 and Executive Order No. 708. The Commission shall, except as otherwise expressly
provided, have the power to promulgate such rules and regulations as it may consider appropriate in the public interest for the enforcement of the provisions hereof.

to be part of the Marcos estate. In time, the PCGG confirmed this claim. In fact, an order of
sequestration has been issued covering the properties of PALI, and suit for reconveyance to the state
has been filed in the Sandiganbayan Court. How the properties were effectively transferred, despite
the sequestration order, from the TDC and MSDC to Rebecco Panlilio, and to the private respondent
PALI, in only a short span of time, are not yet explained to the Court, but it is clear that such
circumstances give rise to serious doubt as to the integrity of PALI as a stock issuer.
For the purpose of determining whether PSE acted correctly in refusing the application of PALI, the true ownership
of the properties of PALI need not be determined as an absolute fact. What is material is that the uncertainty of the
properties' ownership and alienability exists, and this puts to question the qualification of PALI's public offering.

7. TAN BOON BEE & CO., INC. vs. JARENCIO - G.R. No. L-41337

Facts: Anchor Supply Co. sold on credit to Graphic Publishing, Inc paper products. Partial payments were made
and the balance was covered by a promissory note. n the said promissory note, it was stipulated that the amount
will be paid on monthly installments and that failure to pay any installment would make the amount immediately
demandable with an interest of 12% per annum. For failure of GRAPHIC to pay any installment, petitioner filed
with the CFI a collection case. The trial court ordered GRAPHIC to pay the petitioner the sum of P30,365.99 with
12% interest from March 30, 1973 until fully paid, plus the costs of suit. A writ of execution was issued.
Pursuant to the said issued alias writ of execution, the executing sheriff levied upon one (1) unit printing machine
found in the premises of GRAPHIC. The printing machine was already scheduled for auction sale but Philippine
American Drug Company (PADCO for short) had informed the sheriff that the printing machine is its property and
not that of GRAPHIC, and accordingly, advised the sheriff to cease and desist from carrying out the scheduled
auction sale. Notwithstanding the said letter, the sheriff proceeded with the scheduled auction sale, sold the
property to the petitioner, it being the highest bidder, and issued a Certificate of Sale in favor of petitioner. More
than five (5) hours after the auction sale and the issuance of the certificate of sale, PADCO filed an "Affidavit of
Third Party Claim" with the Office of the City Sheriff; thereafter a Motion was filed to nullify the sale. Respondent
judge ruled in favor of PADCO; hence the auction sale was nullified.
The petitioner, however, contends that the controlling stockholders of the Philippine American Drug Co. are also
the same controlling stockholders of the Graphic Publishing, Inc. and, therefore, the levy upon the said machinery
which was found in the premises occupied by the Graphic Publishing, Inc. should be upheld.
Issue/ Held: WON the respondent judge gravely abused his discretion when he refused to pierce the PADCO's
(identity) and despite the abundance of evidence clearly showing that PADCO was conveniently shielding
under the theory of corporate petition.- YES, Respondent judge should have pierced PADCO's veil of corporate
Identity. espondent judge should have pierced PADCO's veil of corporate Identity.
Ratio: It is true that a corporation, upon coming into being, is invested by law with a personality separate and
distinct from that of the persons composing it as well as from any other legal entity to which it may be related. As a
matter of fact, the doctrine that a corporation is a legal entity distinct and separate from the members and
stockholders who compose it is recognized and respected in all cases which are within reason and the law.
However, this separate and distinct personality is merely a fiction created by law for convenience and to promote
justice. Accordingly, this separate personality of the corporation may be disregarded, or the veil of corporate fiction
pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work an injustice, or where
necessary to achieve equity or when necessary for the protection of creditors. Corporations are composed of natural
persons and the legal fiction of a separate corporate personality is not a shield for the commission of injustice and
inequity. Likewise, this is true when the corporation is merely an adjunct, business conduit or alter ego of another
corporation. In such case, the fiction of separate and distinct corporation entities should be disregarded.
Factual indicators that PADCO and GRAPHIC are one and the same entity:
PADCO was never engaged in the printing business;
The board of directors and the officers of GRAPHIC and PADCO were the same;

PADCO holds 50% share of stock of GRAPHIC.

The printing machine in question had been in the premises of GRAPHIC since May, 1965, long before PADCO even
acquired its alleged title on July 11, 1966 from Capitol Publishing. That the said machine was allegedly leased by
PADCO to GRAPHIC on January 24, 1966, even before PADCO purchased it from Capital Publishing on July 11,
1966, only serves to show that PADCO's claim of ownership over the printing machine is not only farce and sham
but also unbelievable.
9. Feliciano vs. Commission on Audit [GR 147402, 14 January 2004]

Facts: A Special Audit Team from Commission on Audit (COA) Regional Office No. VIII audited the accounts of
the Leyte Metropolitan Water District (LMWD). Subsequently, LMWD received a letter from COA dated 19 July
1999 requesting payment of auditing fees. As General Manager of LMWD, Engr. Ranulfo C. Feliciano sent a reply
dated 12 October 1999 informing COAs Regional Director that the water district could not pay the auditing fees.
Feliciano cited as basis for his action Sections 6 and 20 of PD 198, as well as Section 18 of RA 6758. The Regional
Director referred Felicianos reply to the COA Chairman on 18 October 1999. On 19 October 1999, Feliciano wrote
COA through the Regional Director asking for refund of all auditing fees LMWD previously paid to COA. On 16
March 2000, Feliciano received COA Chairman Celso D. Gangans Resolution dated 3 January 2000 denying
Felicianos request for COA to cease all audit services, and to stop charging auditing fees, to LMWD. The COA also
denied Felicianos request for COA to refund all auditing fees previously paid by LMWD. Feliciano filed a motion
for reconsideration on 31 March 2000, which COA denied on 30 January 2001. On 13 March 2001, Felicaino filed the
petition for certiorari.
Issue: Whether a Local Water District (LWD) is a government-owned or controlled corporation.
Held: The Constitution recognizes two classes of corporations. The first refers to private corporations created under
a general law. The second refers to government-owned or controlled corporations created by special charters. The
Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all
citizens. The purpose of this constitutional provision is to ban private corporations created by special charters,
which historically gave certain individuals, families or groups special privileges denied to other citizens. In short,
Congress cannot enact a law creating a private corporation with a special charter. Such legislation would be
unconstitutional. Private corporations may exist only under a general law. If the corporation is private, it must
necessarily exist under a general law. Stated differently, only corporations created under a general law can qualify
as private corporations. Under existing laws, that general law is the Corporation Code, except that the Cooperative
Code governs the incorporation of cooperatives. The Constitution authorizes Congress to create governmentowned or controlled corporations through special charters. Since private corporations cannot have special charters,
it follows that Congress can create corporations with special charters only if such corporations are governmentowned or controlled. Obviously, LWDs are not private corporations because they are not created under the
Corporation Code. LWDs are not registered with the Securities and Exchange Commission. Section 14 of the
Corporation Code states that [A]ll corporations organized under this code shall file with the Securities and
Exchange Commission articles of incorporation x x x. LWDs have no articles of incorporation, no incorporators
and no stockholders or members. There are no stockholders or members to elect the board directors of LWDs as in
the case of all corporations registered with the Securities and Exchange Commission. The local mayor or the
provincial governor appoints the directors of LWDs for a fixed term of office. LWDs exist by virtue of PD 198,
which constitutes their special charter. Since under the Constitution only government-owned or controlled
corporations may have special charters, LWDs can validly exist only if they are government-owned or controlled.
To claim that LWDs are private corporations with a special charter is to admit that their existence is constitutionally
infirm. Unlike private corporations, which derive their legal existence and power from the Corporation Code,
LWDs derive their legal existence and power from PD 198.

21. Lipat vs. Pacific Banking Corporation [GR 142435, 30 April 2003]

Facts: The spouses Alfredo Lipat and Estelita Burgos Lipat, owned "Bela's Export Trading" (BET), a single
proprietorship with principal office at No. 814 Aurora Boulevard, Cubao, Quezon City. BET was engaged in the
manufacture of garments for domestic and foreign consumption. The Lipats also owned the "Mystical Fashions" in
the United States, which sells goods imported from the Philippines through BET. Mrs. Lipat designated her
daughter, Teresita B. Lipat, to manage BET in the Philippines while she was managing "Mystical Fashions" in the
United States. In order to facilitate the convenient operation of BET, Estelita Lipat executed on 14 December 1978, a
special power of attorney appointing Teresita Lipat as her attorney-in-fact to obtain loans and other credit
accommodations from Pacific Banking Corporation (Pacific Bank). She likewise authorized Teresita to execute
mortgage contracts on properties owned or co-owned by her as security for the obligations to be extended by
Pacific Bank including any extension or renewal thereof. Sometime in April 1979, Teresita, by virtue of the special
power of attorney, was able to secure for and in behalf of her mother, Mrs. Lipat and BET, a loan from Pacific Bank
amounting to P583,854.00 to buy fabrics to be manufactured by BET and exported to "Mystical Fashions" in the
United States. As security therefor, the Lipat spouses, as represented by Teresita, executed a Real Estate Mortgage
over their property located at No. 814 Aurora Blvd., Cubao, Quezon City. Said property was likewise made to
secure other additional or new loans, etc. On 5 September 1979, BET was incorporated into a family corporation
named Bela's Export Corporation (BEC) in order to facilitate the management of the business. BEC was engaged in
the business of manufacturing and exportation of all kinds of garments of whatever kind and description and
utilized the same machineries and equipment previously used by BET. Its incorporators and directors included the
Lipat spouses who owned a combined 300 shares out of the 420 shares subscribed, Teresita Lipat who owned 20
shares, and other close relatives and friends of the Lipats. Estelita Lipat was named president of BEC, while Teresita
became the vice-president and general manager. Eventually, the loan was later restructured in the name of BEC and
subsequent loans were obtained by BEC with the corresponding promissory notes duly executed by Teresita on
behalf of the corporation. A letter of credit was also opened by Pacific Bank in favor of A. O. Knitting
Manufacturing Co., Inc., upon the request of BEC after BEC executed the corresponding trust receipt therefor.
Export bills were also executed in favor of Pacific Bank for additional finances. These transactions were all secured
by the real estate mortgage over the Lipats' property. The promissory notes, export bills, and trust receipt
eventually became due and demandable. Unfortunately, BEC defaulted in its payments. After receipt of Pacific
Bank's demand letters, Estelita Lipat went to the office of the bank's liquidator and asked for additional time to
enable her to personally settle BEC's obligations. The bank acceded to her request but Estelita failed to fulfill her
promise. Consequently, the real estate mortgage was foreclosed and after compliance with the requirements of the
law the mortgaged property was sold at public auction. On 31 January 1989, a certificate of sale was issued to
respondent Eugenio D. Trinidad as the highest bidder. On 28 November 1989, the spouses Lipat filed before the
Quezon City RTC a complaint for annulment of the real estate mortgage, extrajudicial foreclosure and the certificate
of sale issued over the property against Pacific Bank and Eugenio D. Trinidad. The complaint alleged, among
others, that the promissory notes, trust receipt, and export bills were all ultra vires acts of Teresita as they were
executed without the requisite board resolution of the Board of Directors of BEC. The Lipats also averred that
assuming said acts were valid and binding on BEC, the same were the corporation's sole obligation, it having a
personality distinct and separate from spouses Lipat. It was likewise pointed out that Teresita's authority to secure
a loan from Pacific Bank was specifically limited to Mrs. Lipat's sole use and benefit and that the real estate
mortgage was executed to secure the Lipats' and BET's P583,854.00 loan only. In their respective answers, Pacific
Bank and Trinidad alleged in common that petitioners Lipat cannot evade payments of the value of the promissory
notes, trust receipt, and export bills with their property because they and the BEC are one and the same, the latter
being a family corporation. Trinidad further claimed that he was a buyer in good faith and for value and that the
Lipat spouses are estopped from denying BEC's existence after holding themselves out as a corporation. After trial
on the merits, the RTC dismissed the complaint. The Lipats timely appealed the RTC decision to the Court of
Appeals in CA-G.R. CV 41536. Said appeal, however, was dismissed by the appellate court for lack of merit. The
Lipats then moved for reconsideration, but this was denied by the appellate court in its Resolution of 23 February
2000. The Lipat spouses filed the petition for review on certiorari.
Issue: Whether BEC and BET are separate business entities, and thus the Lipt spouses can isolate themselves behind
the corporate personality of BEC.
Held: When the corporation is the mere alter ego or business conduit of a person, the separate personality of the
corporation may be disregarded. This is commonly referred to as the "instrumentality rule" or the alter ego doctrine,
which the courts have applied in disregarding the separate juridical personality of corporations. As held in one

case, where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate entity of the 'instrumentality' may be
disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such
domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind,
will or existence of its own, and is but a conduit for its principal. The evidence on record shows BET and BEC are
not separate business entities. (1) Estelita and Alfredo Lipat are the owners and majority shareholders of BET and
BEC, respectively; (2) both firms were managed by their daughter, Teresita; 19 (3) both firms were engaged in the
garment business, supplying products to "Mystical Fashion," a U.S. firm established by Estelita Lipat; (4) both firms
held office in the same building owned by the Lipats; (5) BEC is a family corporation with the Lipats as its majority
stockholders; (6) the business operations of the BEC were so merged with those of Mrs. Lipat such that they were
practically indistinguishable; (7) the corporate funds were held by Estelita Lipat and the corporation itself had no
visible assets; (8) the board of directors of BEC was composed of the Burgos and Lipat family members; (9) Estelita
had full control over the activities of and decided business matters of the corporation; and that (10) Estelita Lipat
had benefited from the loans secured from Pacific Bank to finance her business abroad and from the export bills
secured by BEC for the account of "Mystical Fashion." It could not have been coincidental that BET and BEC are so
intertwined with each other in terms of ownership, business purpose, and management. Apparently, BET and BEC
are one and the same and the latter is a conduit of and merely succeeded the former. The spouses' attempt to isolate
themselves from and hide behind the corporate personality of BEC so as to evade their liabilities to Pacific Bank is
precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy. BEC is a
mere continuation and successor of BET, and the Lipat spouses cannot evade their obligations in the mortgage
contract secured under the name of BEC on the pretext that it was signed for the benefit and under the name of
BET.

24. PNB vs. Andrada Electric & Engineering Co. [GR 142936, 17 April 2002]

Facts: On 26 August 1975, the Philippine national Bank (PNB) acquired the assets of the Pampanga Sugar Mills
(PASUMIL) that were earlier foreclosed by the Development Bank of the Philippines (DBP) under LOI 311. The
PNB organized the ational Sugar Development Corporation (NASUDECO) in September 1975, to take ownership
and possession of the assets and ultimately to nationalize and consolidate its interest in other PNB controlled sugar
mills. Prior to 29 October 1971, PASUMIL engaged the services of the Andrada Electric & Engineering Company
(AEEC) for electrical rewinding and repair, most of which were partially paid by PASUMIL, leaving several unpaid
accounts with AEEC. On 29 October 1971, AEEC and PASUMIL entered into a contract for AEEC to perform the (a)
Construction of a power house building; 3 reinforced concrete foundation for 3 units 350 KW diesel engine
generating sets, 3 reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo generator sets, among
others. Aside from the work contract, PASUMIL required AEEC to perform extra work, and provide electrical
equipment and spare parts. Out of the total obligation of P777,263.80, PASUMIL had paid only P250,000.00, leaving
an unpaid balance, as of 27 June 1973, amounting to P527,263.80. Out of said unpaid balance of P527,263.80,
PASUMIL made a partial payment to AEEC of P14,000.00, in broken amounts, covering the period from 5 January
1974 up to 23 May 1974, leaving an unpaid balance of P513,263.80. PASUMIL and PNB, and now NASUDECO,
allegedly failed and refused to pay AEEC their just, valid and demandable obligation (The President of the
NASUDECO is also the Vice-President of the PNB. AEEC besought said official to pay the outstanding obligation of
PASUMIL, inasmuch as PNB and NASUDECO now owned and possessed the assets of PASUMIL, and these
defendants all benefited from the works, and the electrical, as well as the engineering and repairs, performed by
AEEC). Because of the failure and refusal of PNB, PASUMIL and/or NASUDECO to pay their obligations, AEEC
allegedly suffered actual damages in the total amount of P513,263.80; and that in order to recover these sums, AEEC
was compelled to engage the professional services of counsel, to whom AEEC agreed to pay a sum equivalent to
25% of the amount of the obligation due by way of attorney's fees. PNB and NASUDECO filed a joint motion to
dismiss on the ground that the complaint failed to state sufficient allegations to establish a cause of action against
PNB and NASUDECO, inasmuch as there is lack or want of privity of contract between the them and AEEC. Said
motion was denied by the trial court in its 27 November order, and ordered PNB nad NASUDECO to file their
answers within 15 days. After due proceedings, the Trial Court rendered judgment in favor of AEEC and against
PNB, NASUDECO and PASUMIL; the latter being ordered to pay jointly and severally the former (1) the sum of
P513,623.80 plus interest thereon at the rate of 14% per annum as claimed from 25 September 1980 until fully paid;
(2) the sum of P102,724.76 as attorney's fees; and, (3) Costs. PNB and NASUDECO appealed. The Court of Appeals
affirmed the decision of the trial court in its decision of 17 April 2000 (CA-GR CV 57610. PNB and NASUDECO
filed the petition for review.
Issue: Whether PNB and NASUDECO may be held liable for PASUMILs liability to AEEC.
Held: Basic is the rule that a corporation has a legal personality distinct and separate from the persons and entities
owning it. The corporate veil may be lifted only if it has been used to shield fraud, defend crime, justify a wrong,
defeat public convenience, insulate bad faith or perpetuate injustice. Thus, the mere fact that the Philippine
National Bank (PNB) acquired ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL),
which had earlier been foreclosed and purchased at the resulting public auction by the Development Bank of the
Philippines (DBP), will not make PNB liable for the PASUMIL's contractual debts to Andrada Electric &
Engineering Company (AEEC). Piercing the veil of corporate fiction may be allowed only if the following elements
concur: (1) control not mere stock control, but complete domination not only of finances, but of policy and
business practice in respect to the transaction attacked, must have been such that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own; (2) such control must have been used by
the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or
a dishonest and an unjust act in contravention of plaintiff's legal right; and (3) the said control and breach of duty
must have proximately caused the injury or unjust loss complained of. The absence of the foregoing elements in the
present case precludes the piercing of the corporate veil. First, other than the fact that PNB and NASUDECO
acquired the assets of PASUMIL, there is no showing that their control over it warrants the disregard of corporate
personalities. Second, there is no evidence that their juridical personality was used to commit a fraud or to do a
wrong; or that the separate corporate entity was farcically used as a mere alter ego, business conduit or
instrumentality of another entity or person. Third, AEEC was not defrauded or injured when PNB and
NASUDECO acquired the assets of PASUMIL. Hence, although the assets of NASUDECO can be easily traced to
PASUMIL, the transfer of the latter's assets to PNB and NASUDECO was not fraudulently entered into in order to
escape liability for its debt to AEEC. Neither was there any merger or consolidation with respect to PASUMIL and

PNB. The procedure prescribed under Title IX of the Corporation Code 59 was not followed. In fact, PASUMIL's
corporate existence had not been legally extinguished or terminated. Further, prior to PNB's acquisition of the
foreclosed assets, PASUMIL had previously made partial payments to AEEC for the former's obligation in the
amount of P777,263.80. As of 27 June 1973, PASUMIL had paid P250,000 to AEEC and, from 5 January 1974 to 23
May 1974, another P14,000. Neither did PNB expressly or impliedly agree to assume the debt of PASUMIL to
AEEC. LOI 11 explicitly provides that PNB shall study and submit recommendations on the claims of PASUMIL's
creditors. Clearly, the corporate separateness between PASUMIL and PNB remains, despite AEEC's insistence to
the contrary.

27. Gochan vs. Young [GR 131889, 12 March 2001]

Facts: Felix Gochan and Sons Realty Corporation (Gochan Realty) was registered with the SEC on June 1951, with
Felix Gochan, Sr., Maria Pan Nuy Go Tiong, Pedro Gochan, Tomasa Gochan, Esteban Gochan and Crispo Gochan as
its incorporators. Felix Gochan Sr.'s daughter, Alice inherited 50 shares of stock in Gochan Realty from the former.
Alice died in 1955, leaving the 50 shares to her husband, John Young, Sr. In 1962, the Regional Trial Court of Cebu
adjudicated 6/14 of these shares to her children, Richard Young, David Young, Jane Young Llaban, John Young Jr.,
Mary Young Hsu and Alexander Thomas Young (the Youngs). Having earned dividends, these stocks numbered
179 by 20 September 1979. 5 days later (25 September), at which time all the children had reached the age of
majority, their father John Sr., requested Gochan Realty to partition the shares of his late wife by cancelling the
stock certificates in his name and issuing in lieu thereof, new stock certificates in the names of the Youngs. On 17
October 1979, Gochan Realty refused, citing as reason, the right of first refusal granted to the remaining
stockholders by the Articles of Incorporation. In 1990, John, Sr. died, leaving the shares to the Youngs. On 8
February 1994, Cecilia Gochan Uy and Miguel Uy filed a complaint with the SEC for issuance of shares of stock to
the rightful owners, nullification of shares of stock, reconveyance of property impressed with trust, accounting,
removal of officers and directors and damages against Virginia Gochan, et. al. (Gochans) A Notice of Lis Pendens
was annotated to the real properties of the corporation. On 16 March 1994, the Gochans moved to dismiss the
complaint alleging that: (1) the SEC had no jurisdiction over the nature of the action; (2) the the Youngs were not
the real parties-ininterest and had no capacity to sue; and (3) the Youngs' causes of action were barred by the
Statute of Limitations. The motion was opposed by the Youngs. On 29 March 1994, the Gochans filed a Motion for
cancellation of Notice of Lis Pendens. The Youngs opposed the said motion. On 9 December 1994, the SEC, through
its Hearing Officer, granted the motion to dismiss and ordered the cancellation of the notice of lis pendens
annotated upon the titles of the corporate lands; holding that the Youngs never been stockholders of record of
FGSRC to confer them with the legal capacity to bring and maintain their action, and thus, the case cannot be
considered as an intra-corporate controversy within the jurisdiction of the SEC; and that on the allegation that the
Youngs brought the action as a derivative suit on their own behalf and on behalf of Gochan Realty, rhe failure to
comply with the jurisdictional requirement on derivative action necessarily result in the dismissal of the complaint.
The Youngs filed a Petition for Review with the Court of Appeals. On 28 February 1996, the Court of Appeals ruled
that the SEC had no jurisdiction over the case as far as the heirs of Alice Gochan were concerned, because they were
not yet stockholders of the corporation. On the other hand, it upheld the capacity of Cecilia Gochan Uy and her
spouse Miguel Uy. It also held that the Intestate Estate of John Young Sr. was an indispensable party. The appellate
court further ruled that the cancellation of the notice of lis pendens on the titles of the corporate real estate was not
justified. Moreover, it declared that the Youngs' Motion for Reconsideration before the SEC was not pro forma;
thus, its filing tolled the appeal period. The Gochans moved for reconsideration but were denied in a Resolution
dated 18 December 1997. The Gochans filed the Petition for Review on Certiorari.
Issue: Whether the action filed by the Spouses Uy was not a derivative suit, because the spouses and not the
corporation were the injured parties.
Held: The following portions of the Complaint shows allegations of injury to the corporation itself, to wit: "That on
information and belief, in further pursuance of the said conspiracy and for the fraudulent purpose of depressing the
value of the stock of the Corporation and to induce the minority stockholders to sell their shares of stock for an
inadequate consideration as aforesaid, respondent Esteban T. Gochan . . ., in violation of their duties as directors
and officers of the Corporation . . ., unlawfully and fraudulently appropriated [for] themselves the funds of the
Corporation by drawing excessive amounts in the form of salaries and cash advances . . . and by otherwise charging
their purely personal expenses to the Corporation"; and "That the payment of P1,200,000.00 by the Corporation to
complainant Cecilia Gochan Uy for her shares of stock constituted an unlawful, premature and partial liquidation
and distribution of assets to a stockholder, resulting in the impairment of the capital of the Corporation and
prevented it from otherwise utilizing said amount for its regular and lawful business, to the damage and prejudice
of the Corporation, its creditors, and of complainants as minority stockholders." As early as 1911, the Court has
recognized the right of a single stockholder to file derivative suits. "Where corporate directors have committed a
breach of trust either by their frauds, ultra vires acts, or negligence, and the corporation is unable or unwilling to
institute suit to remedy the wrong, a single stockholder may institute that suit, suing on behalf of himself and other
stockholders and for the benefit of the corporation, to bring about a redress of the wrong done directly to the
corporation and indirectly to the stockholders." Herein, the Complaint alleges all the components of a derivative
suit. The allegations of injury to the Spouses Uy can coexist with those pertaining to the corporation. The personal

injury suffered by the spouses cannot disqualify them from filing a derivative suit on behalf of the corporation. It
merely gives rise to an additional cause of action for damages against the erring directors. This cause of action is
also included in the Complaint filed before the SEC. The Spouses Uy have the capacity to file a derivative suit in
behalf of and for the benefit of the corporation. The reason is that the allegations of the Complaint make them out as
stockholders at the time the questioned transaction occurred, as well as at the time the action was filed and during
the pendency of the action.

PLDT vs NTC

Facts:
Petitioner Philippine Long Distance Telephone Company (PLDT) assails, by way of certiorari and Prohibition
under Rule 65, two (2) Orders of public respondent National Telecommunications Commission (NTC), namely,
the Order of 12 December 1988 granting private respondent Express Telecommunications Co., Inc. (ETCI)
provisional authority to install, operate and maintain a Cellular Mobile Telephone System in Metro-Manila
(Phase A) in accordance with specified conditions, and the Order, dated 8 May 1988, denying reconsideration.
On 22 June 1958, Rep. Act No. 2090, was enacted, otherwise known as "An Act Granting Felix Alberto and
Company, Incorporated, a Franchise to Establish Radio Stations for Domestic and Transoceanic
Telecommunications." Felix Alberto & Co., Inc. (FACI) was the original corporate name, which was changed to
ETCI with the amendment of the Articles of Incorporation in 1964. Much later, "CELLCOM, Inc." was the name
sought to be adopted before the Securities and Exchange Commission, but this was withdrawn and
abandoned.
On 13 May 1987, alleging urgent public need, ETCI filed an application with public respondent NTC (docketed
as NTC Case No. 87-89) for the issuance of a Certificate of Public Convenience and Necessity (CPCN) to
construct, install, establish, operate and maintain a Cellular Mobile Telephone System and an Alpha Numeric
Paging System in Metro Manila and in the Southern Luzon regions, with a prayer for provisional authority to
operate Phase A of its proposal within Metro Manila.
PLDT filed an Opposition with a Motion to Dismiss, based primarily on the following grounds: (1) ETCI is not
capacitated or qualified under its legislative franchise to operate a systemwide telephone or network of
telephone service such as the one proposed in its application; (2) ETCI lacks the facilities needed and
indispensable to the successful operation of the proposed cellular mobile telephone system; (3) PLDT has
itself a pending application with NTC, Case No. 86-86, to install and operate a Cellular Mobile Telephone
System for domestic and international service not only in Manila but also in the provinces and that under the
"prior operator" or "protection of investment" doctrine, PLDT has the priority or preference in the operation of
such service; and (4) the provisional authority, if granted, will result in needless, uneconomical and harmful
duplication, among others.
In an Order, dated 12 November 1987, NTC overruled PLDT's Opposition and declared that Rep. Act No.
2090 (1958) should be liberally construed as to include among the services under said franchise the operation
of a cellular mobile telephone service.
In the same Order, ETCI was required to submit the certificate of registration of its Articles of Incorporation
with the Securities and Exchange Commission, the present capital and ownership structure of the company
and such other evidence, oral or documentary, as may be necessary to prove its legal, financial and technical
capabilities as well as the economic justifications to warrant the setting up of cellular mobile telephone and
paging systems. The continuance of the hearings was also directed.
After evaluating the reconsideration sought by PLDT, the NTC, in October 1988, maintained its ruling that
liberally construed, applicant's franchise carries with it the privilege to operate and maintain a cellular mobile
telephone service.
On 12 December 1988, NTC issued the first challenged Order. Opining that "public interest, convenience and
necessity further demand a second cellular mobile telephone service provider and finds PRIMA FACIE
evidence showing applicant's legal, financial and technical capabilities to provide a cellular mobile service
using the AMPS system," NTC granted ETCI provisional authority to install, operate and maintain a cellular
mobile telephone system initially in Metro Manila, Phase A only, subject to the terms and conditions set forth
in the same Order. One of the conditions prescribed (Condition No. 5) was that, within ninety (90) days from
date of the acceptance by ETCI of the terms and conditions of the provisional authority, ETCI and PLDT "shall
enter into an interconnection agreement for the provision of adequate interconnection facilities between

applicant's cellular mobile telephone switch and the public switched telephone network and shall jointly submit
such interconnection agreement to the Commission for approval."
In a "Motion to Set Aside the Order" granting provisional authority, PLDT alleged essentially that the
interconnection ordered was in violation of due process and that the grant of provisional authority was
jurisdictionally and procedurally infirm. On 8 May 1989, NTC denied reconsideration and set the date for
continuation of the hearings on the main proceedings. This is the second questioned Order.
PLDT urges us now to annul the NTC Orders of 12 December 1988 and 8 May 1989 and to order ETCI to
desist from, suspend, and/or discontinue any and all acts intended for its implementation.
On 27 February 1990, we issued a Temporary Restraining Order enjoining NTC to "Cease and Desist from all
or any of its on-going proceedings and ETCI from continuing any and all acts intended or related to or which
will amount to the implementation/execution of its provisional authority." This was upon PLDT's urgent
manifestation that it had been served an NTC Order, dated 14 February 1990, directing immediate compliance
with its Order of 12 December 1988, "otherwise the Commission shall be constrained to take the necessary
measures and bring to bear upon PLDT the full sanctions provided by law."
PLDT relies on the following grounds for the issuance of the Writs prayed for:
1. Respondent NTC's subject order effectively licensed and/or authorized a corporate entity
without any franchise to operate a public utility, legislative or otherwise, to establish and
operate a telecommunications system.
2. The same order validated stock transactions of a public service enterprise contrary to and/or
in direct violation of Section 20(h) of the Public Service Act.
3. Respondent NTC adjudicated in the same order a controverted matter that was not heard at
all in the proceedings under which it was promulgated.
The case was set for oral argument on 21 August 1990 with the parties directed to address, but not limited to,
the following issues: (1) the status and coverage of Rep. Act No. 2090 as a franchise; (2) the transfer of
shares of stock of a corporation holding a CPCN; and (3) the principle and procedure of interconnection. The
parties were thereafter required to submit their respective Memoranda, with which they have complied.
We find no grave abuse of discretion on the part of NTC, upon the following considerations:
1. NTC has Jurisdiction
2. The Coverage of ETCI's Franchise
Rep. Act No. 2090 grants ETCI (formerly FACI) "the right and privilege of constructing, installing, establishing
and operating in the entire Philippines radio stations for reception and transmission of messages on radio
stations in the foreign and domestic public fixed point-to-point and public base, aeronautical and land mobile
stations, ... with the corresponding relay stations for the reception and transmission of wireless messages on
radiotelegraphy and/or radiotelephony ...." PLDT maintains that the scope of the franchise is limited to "radio
stations" and excludes telephone services such as the establishment of the proposed Cellular Mobile
Telephone System (CMTS). However, in its Order of 12 November 1987, the NTC construed the technical
term "radiotelephony" liberally as to include the operation of a cellular mobile telephone system. It said:
In resolving the said issue, the Commission takes into consideration the different definitions of
the term "radiotelephony." As defined by the New International Webster Dictionary the term
"radiotelephony" is defined as a telephone carried on by aid of radiowaves without connecting

wires. The International Telecommunications Union (ITU) defines a "radiotelephone call" as a

"telephone call, originating in or intended on all or part of its route over the radio
communications channels of the mobile service or of the mobile satellite service." From the
above definitions, while under Republic Act 2090 a system-wide telephone or network of
telephone service by means of connecting wires may not have been contemplated, it can be
construed liberally that the operation of a cellular mobile telephone service which carries
messages, either voice or record, with the aid of radiowaves or a part of its route carried over
radio communication channels, is one included among the services under said franchise for
which a certificate of public convenience and necessity may be applied for.
The foregoing is the construction given by an administrative agency possessed of the necessary special
knowledge, expertise and experience and deserves great weight and respect (Asturias Sugar Central, Inc. v.
Commissioner of Customs, et al., L-19337, September 30, 1969, 29 SCRA 617). It can only be set aside on
proof of gross abuse of discretion, fraud, or error of law (Tupas Local Chapter No. 979 v. NLRC, et al., L60532-33, November 5, 1985, 139 SCRA 478). We discern none of those considerations sufficient to warrant
judicial intervention.
3. The Status of ETCI Franchise
PLDT alleges that the ETCI franchise had lapsed into nonexistence for failure of the franchise holder to begin
and complete construction of the radio system authorized under the franchise as explicitly required in Section
4 of its franchise, Rep. Act No. 2090. 1 PLDT also invokes Pres. Decree No. 36, enacted on 2 November 1972,
which legislates the mandatory cancellation or invalidation of all franchises for the operation of communications
services, which have not been availed of or used by the party or parties in whose name they were issued.

However, whether or not ETCI, and before it FACI, in contravention of its franchise, started the first of its radio
telecommunication stations within (2) years from the grant of its franchise and completed the construction
within ten (10) years from said date; and whether or not its franchise had remained unused from the time of its
issuance, are questions of fact beyond the province of this Court, besides the well-settled procedural
consideration that factual issues are not subjects of a special civil action for certiorari (Central Bank of the
Philippines vs. Court of Appeals, G.R. No. 41859, 8 March 1989, 171 SCRA 49; Ygay vs. Escareal, G.R. No.
44189, 8 February 1985, 135 SCRA 78; Filipino Merchant's Insurance Co., Inc. vs. Intermediate Appellate
Court, G.R. No. 71640, 27 June 1988, 162 SCRA 669). Moreover, neither Section 4, Rep. Act No. 2090 nor
Pres. Decree No. 36 should be construed as self-executing in working a forfeiture. Franchise holders should
be given an opportunity to be heard, particularly so, where, as in this case, ETCI does not admit any breach,
in consonance with the rudiments of fair play. Thus, the factual situation of this case differs from that
in Angeles Ry Co. vs. City of Los Angeles (92 Pacific Reporter 490) cited by PLDT, where the grantee therein
admitted its failure to complete the conditions of its franchise and yet insisted on a decree of forfeiture.
More importantly, PLDT's allegation partakes of a Collateral attack on a franchise Rep. Act No. 2090), which is
not allowed. A franchise is a property right and cannot be revoked or forfeited without due process of law. The
determination of the right to the exercise of a franchise, or whether the right to enjoy such privilege has been
forfeited by non-user, is more properly the subject of the prerogative writ of quo warranto, the right to assert
which, as a rule, belongs to the State "upon complaint or otherwise" (Sections 1, 2 and 3, Rule 66, Rules of
Court), 2 the reason being that the abuse of a franchise is a public wrong and not a private injury. A forfeiture of a
franchise will have to be declared in a direct proceeding for the purpose brought by the State because a franchise is
granted by law and its unlawful exercise is primarily a concern of Government.

A ... franchise is ... granted by law, and its ... unlawful exercise is the concern primarily of the
Government. Hence, the latter as a rule is the party called upon to bring the action for such ...
unlawful exercise of franchise. (IV-B V. FRANCISCO, 298 [1963 ed.], citing Cruz vs. Ramos,
84 Phil. 226).
4. ETCI's Stock Transactions

ETCI admits that in 1964, the Albertos, as original owners of more than 40% of the outstanding capital stock
sold their holdings to the Orbes. In 1968, the Albertos re-acquired the shares they had sold to the Orbes. In
1987, the Albertos sold more than 40% of their shares to Horacio Yalung. Thereafter, the present stockholders
acquired their ETCI shares. Moreover, in 1964, ETCI had increased its capital stock from P40,000.00 to
P360,000.00; and in 1987, from P360,000.00 to P40M.
PLDT contends that the transfers in 1987 of the shares of stock to the new stockholders
amount to a transfer of ETCI's franchise, which needs Congressional approval pursuant to
Rep. Act No. 2090, and since such approval had not been obtained, ETCI's franchise had
been invalidated. The provision relied on reads, in part, as follows:
SECTION 10. The grantee shall not lease, transfer, grant the usufruct of, sell or assign this
franchise nor the rights and privileges acquired thereunder to any person, firm, company,
corporation or other commercial or legal entity nor merge with any other person, company or
corporation organized for the same purpose, without the approval of the Congress of the
Philippines first had. ...
It should be noted, however, that the foregoing provision is, directed to the "grantee" of the franchise, which is
the corporation itself and refers to a sale, lease, or assignment of that franchise. It does not include the
transfer or sale of shares of stock of a corporation by the latter's stockholders.
The sale of shares of stock of a public utility is governed by another law, i.e., Section 20(h) of the Public
Service Act (Commonwealth Act No. 146). Pursuant thereto, the Public Service Commission (now the NTC) is
the government agency vested with the authority to approve the transfer of more than 40% of the subscribed
capital stock of a telecommunications company to a single transferee, thus:
SEC. 20. Acts requiring the approval of the Commission. Subject to established stations and
exceptions and saving provisions to the contrary, it shall be unlawful for any public service or
for the owner, lessee or operator thereof, without the approval and authorization of the
Commission previously had
xxx xxx xxx
(h) To sell or register in its books the transfer or sale of shares of its capital stock, if the result
of that sale in itself or in connection with another previous sale, shall be to vest in the
transferee more than forty per centum of the subscribed capital of said public service. Any
transfer made in violation of this provision shall be void and of no effect and shall not be
registered in the books of the public service corporation. Nothing herein contained shall be
construed to prevent the holding of shares lawfully acquired. (As amended by Com. Act No.
454).
In other words, transfers of shares of a public utility corporation need only NTC approval, not Congressional
authorization. What transpired in ETCI were a series of transfers of shares starting in 1964 until 1987. The
approval of the NTC may be deemed to have been met when it authorized the issuance of the provisional
authority to ETCI. There was full disclosure before the NTC of the transfers. In fact, the NTC Order of 12
November 1987 required ETCI to submit its "present capital and ownership structure." Further, ETCI even filed
a Motion before the NTC, dated 8 December 1987, or more than a year prior to the grant of provisional
authority, seeking approval of the increase in its capital stock from P360,000.00 to P40M, and the stock
transfers made by its stockholders.
A distinction should be made between shares of stock, which are owned by stockholders, the sale of
which requires only NTC approval, and the franchise itself which is owned by the corporation as the
grantee thereof, the sale or transfer of which requires Congressional sanction. Since stockholders
own the shares of stock, they may dispose of the same as they see fit. They may not, however,
transfer or assign the property of a corporation, like its franchise. In other words, even if the original

stockholders had transferred their shares to another group of shareholders, the franchise granted to
the corporation subsists as long as the corporation, as an entity, continues to exist The franchise is
not thereby invalidated by the transfer of the shares. A corporation has a personality separate and
distinct from that of each stockholder. It has the right of continuity or perpetual succession
(Corporation Code, Sec. 2).
To all appearances, the stock transfers were not just for the purpose of acquiring the ETCI franchise,
considering that, as heretofore stated, a series of transfers was involved from 1964 to 1987. And, contrary to
PLDT's assertion, the franchise was not the only property of ETCI of meaningful value. The "zero" book value
of ETCI assets, as reflected in its balance sheet, was plausibly explained as due to the accumulated
depreciation over the years entered for accounting purposes and was not reflective of the actual value that
those assets would command in the market.
But again, whether ETCI has offended against a provision of its franchise, or has subjected it to misuse or
abuse, may more properly be inquired into in quo warranto proceedings instituted by the State. It is the
condition of every franchise that it is subject to amendment, alteration, or repeal when the common good so
requires (1987 Constitution, Article XII, Section 11).
5. The NTC Interconnection Order
PLDT cannot justifiably refuse to interconnect.
The interconnection which has been required of PLDT is a form of "intervention" with property rights dictated
by "the objective of government to promote the rapid expansion of telecommunications services in all areas of
the Philippines, ... to maximize the use of telecommunications facilities available, ... in recognition of the vital
role of communications in nation building ... and to ensure that all users of the public telecommunications
service have access to all other users of the service wherever they may be within the Philippines at an
acceptable standard of service and at reasonable cost" (DOTC Circular No. 90-248). Undoubtedly, the
encompassing objective is the common good. The NTC, as the regulatory agency of the State, merely
exercised its delegated authority to regulate the use of telecommunications networks when it decreed
interconnection.