PSPCA vs Commission on Audit

Posted on October 19, 2012

Philippine Society for the Prevention of Cruelty to Animals vs Commission on Audit
G.R. No. 169752
September 25, 2007
Facts:
PSPCA was incorporated as a juridical entity by virtue of Act No. 1285 by the Philippine
Commission in order to enforce laws relating to the cruelty inflicted upon animals and for the
protection of and to perform all things which may tend to alleviate the suffering of animals and
promote their welfare.

In order to enhance its powers, PSPCA was initially imbued with (1) power to apprehend
violators of animal welfare laws and (2) share 50% of the fines imposed and collected through
its efforts pursuant to the violations of related laws.

However, Commonwealth Act No. 148 recalled the said powers. President Quezon then issued
Executive Order No. 63 directing the Commission of Public Safety, Provost Marshal General
as head of the Constabulary Division of the Philippine Army, Mayors of chartered cities and
every municipal president to detail and organize special officers to watch, capture, and
prosecute offenders of criminal-cruelty laws.

On December 1, 2003, an audit team from the Commission on Audit visited petitioners office
to conduct a survey. PSPCA demurred on the ground that it was a private entity and not under
the CoAs jurisdiction, citing Sec .2(1), Art. IX of the Constitution.

Issues:
WON the PSPCA is subject to CoAs Audit Authority.

Held:
No.

The charter test cannot be applied. It is predicated on the legal regime established by the 1935
Constitution, Sec.7, Art. XIII. Since the underpinnings of the charter test had been introduced
by the 1935 Constitution and not earlier, the test cannot be applied to PSPCA which was
incorporated on January 19, 1905. Laws, generally, have no retroactive effect unless the
contrary is provided. There are a few exceptions: (1) when expressly provided; (2) remedial
statutes; (3) curative statutes; and (4) laws interpreting others.
None of the exceptions apply in the instant case.

The mere fact that a corporation has been created by a special law doesnt necessarily qualify
it as a public corporation. At the time PSPCA was formed, the Philippine Bill of 1902 was the
applicable law and no proscription similar to the charter test can be found therein. There was
no restriction on the legislature to create private corporations in 1903. The amendments
introduced by CA 148 made it clear that PSPCA was a private corporation, not a government
agency.

PSPCAs charter shows that it is not subject to control or supervision by any agency of the
State. Like all private corporations, the successors of its members are determined voluntarily
and solely by the petitioner, and may exercise powers generally accorded to private
corporations.

PSPCAs employees are registered and covered by the SSS at the latters initiative and not
through the GSIS.

The fact that a private corporation is impressed with public interest does not make the entity a
public corporation. They may be considered quasi-public corporations which areprivate
corporations that render public service, supply public wants and pursue other exemplary
objectives. The true criterion to determine whether a corporation is public or private is found in
the totality of the relation of the corporate to the State. It is public if it is created by the latters
own agency or instrumentality, otherwise, it is private.

NPC vs. PHILIPP BROTHERS OCEANIC, INC. G.R. No. 126204 November 20, 2001
FACTS:
On May 14, 1987, the NPC issued invitations to bid for the supply and delivery of 120,000 metric
tons of imported coal for its Batangas Coal-Fired Thermal Power Plant in Calaca, Batangas. The
Philipp Brothers Oceanic, Inc. (PHIBRO) participated as one of the bidders which PHIBRO's bid
was accepted. NPC's acceptance was conveyed in a letter dated July 8, 1987, which was
received by PHIBRO on July 15, 1987.The "Bidding Terms and Specifications" provide for the
manner of shipment of coals, which states that the winning TENDERER who then becomes the
SELLER shall arrange and provide gearless bulk carrier for the shipment of coal to arrive at
discharging port on or before thirty (30) calendar days after receipt of the Letter of Credit by the
SELLER or its nominee as per Section XIV hereof to meet the vessel arrival schedules at Calaca,
Batangas, Philippines as follows: 60,000 +/ - 10 % July 20, 1987; 60,000 +/ - 10% September 4,
1987.
On July 10, 1987, PHIBRO sent word to NPC that industrial disputes might soon plague
Australia, which could seriously hamper PHIBRO's ability to supply the needed coal. From July
23 to July 31, 1987, PHIBRO again explained NPC that the ship owners therein are not willing
to load cargo unless a "strike-free" clause is incorporated in the charter party or the contract of
carriage and that they equally share the burden of a "strike-free" clause. NPC refused. On
August 6, 1987, PHIBRO received from NPC a confirmed and workable letter of credit. However,
PHIBRO effected its first shipment only on November 17, 1987.
In October 1987, NPC once more advertised for the delivery of coal to its Calaca thermal plant.
PHIBRO participated anew but was disapproved. PHIBRO found that the real reason for the
disapproval was its purported failure to satisfy NPC's demand for damages due to the delay in
the delivery of the first coal shipment. PHIBRO filed an action for damages with application for
injunction against NPC with the RTC Makati City. PHIBRO alleged that NPC's act of disqualifying
it in the October bidding and in all subsequent biddings was tainted with malice and bad faith.
PHIBRO prayed for actual, moral and exemplary damages and attorney's fees.
In its answer, NPC averred that the strikes could not be the reason for the since PHIBRO
admitted on July 28, 1987 those strikes had already ceased. And, even assuming that the strikes
were still ongoing, PHIBRO should have shouldered the burden of a "strike-free" clause because
their contract was "C and F Calaca, Batangas, Philippines," meaning, the cost and freight from
the point of origin until the point of destination would be for the account of PHIBRO. Furthermore,
due to PHIBRO's failure to deliver the coal on time, it was compelled to purchase coal from
ASEA at a higher price. NPC claimed for actual damages in the amount of P12,436,185.73,
representing the increase in the price of coal, and a claim of P500,000.00 as litigation expenses.
RTC rendered a decision in favor of PHIBRO, which ordered NPC to reinstate PHIBRO in the
list of accredited bidders and allow to participate in any and all future tenders of NPC for the
supply and delivery of imported steam coal; and to pay PHIBRO actual damages, moral
damages, exemplary damages, reimbursement for expenses, cost of litigation, attorney's fees;
and costs of suit. The counterclaims of dNPC are dismissed for lack of merit.
Unsatisfied, NPC, through the Sol Gen, elevated the case to the CA. On August 27, 1996, the
CA rendered a Decision affirming in toto the Decision of the RTC. It ratiocinated that PHIBRO's
delivery of the shipment of coal was delayed through NPC's own delay in opening a workable
letter of credit; and b) the strikes are included in the definition of force majeure in Section XVII
of the Bidding Terms and Specifications, (supra), so Phibro is not liable for any delay caused
thereby.
NPC filed a petition for review ascribing to the CA the following errors:

ISSUES:
I. WON, CA gravely erred in concluding that PHIBRO's delay in the delivery of imported coal
was due to NPC's alleged delay in opening a letter of credit and to force majeure, and not to
PHIBRO's own deliberate acts and faults.
II. WON, CA gravely erred in concluding that NPC acted maliciously and unjustifiably in
disqualifying PHIBRO from participating in the December 8, 1987 and future biddings.

III. WON, CA gravely erred in concluding that PHIBRO was entitled to injunctive relief, to actual
or compensatory, moral and exemplary damages, attorney's fees and litigation expenses despite
the clear absence of legal and factual bases for such award.

IV. WON, CA gravely erred in absolving PHIBRO from any liability for damages to NPC for its
unjustified and deliberate refusal and/or failure to deliver the contracted imported coal within the
stipulated period.

V. WON, CA gravely erred in dismissing NPC's counterclaims for damages and litigation
expenses.
RULE:
The CA is justified in sustaining the RTC's decision exonerating PHIBRO from any liability for
damages to NPC. It is worthy to note that PHIBRO and NPC explicitly agreed in Section XVII of
the "Bidding Terms and Specifications" that "neither seller (PHIBRO) nor buyer (NPC) shall be
liable for any delay in or failure of the performance of its obligations, other than the payment of
money due, if any such delay or failure is due to Force Majeure." Specifically, they defined
force majeure as "any disabling cause beyond the control of and without fault or negligence of
the party, which causes may include but are not restricted to Acts of God or of the public enemy;
acts of the Government in either its sovereign or contractual capacity; governmental restrictions;
strikes, fires, floods, wars, typhoons, storms, epidemics and quarantine restrictions." The law is
clear and so is the contract between NPC and PHIBRO. Therefore, we have no reason to rule
otherwise.
However, does it necessarily follow that NPC acted unjustly, capriciously, and unfairly in
disapproving PHIBRO's application for pre-qualification to bid? First, it must be stressed that
NPC was not bound under any contract to approve PHIBRO's pre-qualification requirements. In
fact, NPC had expressly reserved its right to reject bids which is found in the "Post-Qualification
Documents/Specifications for the Supply and Delivery of Coal for the Batangas Coal-Fired
Thermal Power Plant I at Calaca, Batangas Philippines,"25 is explicit, thus: NPC reserves the
right to reject any or all bids, to waive any minor informality in the bids received.The right is also
reserved to reject the bids of any bidder who has previously failed to properly perform or
complete on time any and all contracts for delivery of coal or any supply undertaken by a bidder.
This Court has held that where the right to reject is so reserved, the lowest bid or any bid for that
matter may be rejected on a mere technicality. And where the government as advertiser, availing
itself of that right, makes its choice in rejecting any or all bids, the losing bidder has no cause to
complain nor right to dispute that choice unless an unfairness or injustice is shown. Accordingly,
a bidder has no ground of action to compel the Government to award the contract in his favor,
nor to compel it to accept his bid. Even the lowest bid or any bid may be rejected.
Did NPC abuse its right or act unjustly in disqualifying PHIBRO from the public bidding? We rule
in the negative. In practice, courts, in the sound exercise of their discretion, will have to determine
under all the facts and circumstances when the exercise of a right is unjust, or when there has
been an abuse of right. We are convinced that NPC's act of disapproving PHIBRO's application
for pre-qualification to bid was without any intent to injure or a purposive motive to perpetrate
damage. Apparently, NPC acted on the strong conviction that PHIBRO had a "seriously-
impaired" track record. NPC cannot be faulted from believing so. At this juncture, it is worth
mentioning that at the time NPC issued its subsequent Invitation to Bid, i.e., October 1987,
PHIBRO had not yet delivered the first shipment of coal under the July 1987 contract, which was
due on or before September 5, 1987. Naturally, NPC is justified in entertaining doubts on
PHIBRO's qualification or capability to assume an obligation under a new contract.
That NPC believed all along that PHIBRO's failure to deliver on time was unfounded is manifest
from its letters reminding PHIBRO that it was bound to deliver the coal within 30 days from its
(PHIBRO's) receipt of the Letter of Credit, otherwise it would be constrained to take legal action.
Thus, one who acted pursuant to the sincere belief that another willfully committed an act
prejudicial to the interest of the government cannot be considered to have acted in bad faith.
Bad faith has always been a question of intention. It is that corrupt motive that operates in the
mind. As understood in law, it contemplates a state of mind affirmatively operating with furtive
design or with some motive of self-interest or ill-will or for ulterior purpose. While confined in the
realm of thought, its presence may be ascertained through the party's actuation or through
circumstantial evidence. The circumstances under which NPC disapproved PHIBRO's pre-
qualification to bid do not show an intention to cause damage to the latter. The measure it
adopted was one of self-protection. Consequently, we cannot penalize NPC for the course of
action it took. NPC cannot be made liable for actual, moral and exemplary damages.
Corollarily, in awarding to PHIBRO actual damages in the amount of $864,000, the RTC
computed what could have been the profits of PHIBRO had NPC allowed it to participate in the
subsequent public bidding. It ruled that "PHIBRO would have won the tenders for the supply of
about 960,000 metric tons out of at least 1,200,000 metric tons" from the public bidding of
December 1987 to 1990. We find this to be erroneous. Basic is the rule that to recover actual
damages, the amount of loss must not only be capable of proof but must actually be proven with
reasonable degree of certainty, premised upon competent proof or best evidence obtainable of
the actual amount thereof. A court cannot merely rely on speculations, conjectures, or
guesswork as to the fact and amount of damages. Thus, while indemnification for damages shall
comprehend not only the value of the loss suffered, but also that of the profits which the obligee
failed to obtain, it is imperative that the basis of the alleged unearned profits is not too speculative
and conjectural as to show the actual damages which may be suffered on a future period.
In Pantranco North Express, Inc. v. CA, this Court denied the plaintiff's claim for actual damages
which was premised on a contract he was about to negotiate on the ground that there was still
the requisite public bidding to be complied with.
The award of moral damages is likewise improper. To reiterate, NPC did not act in bad faith.
Moreover, moral damages are not, as a general rule, granted to a corporation. While it is true
that besmirched reputation is included in moral damages, it cannot cause mental anguish to a
corporation, unlike in the case of a natural person, for a corporation has no reputation in the
sense that an individual has, and besides, it is inherently impossible for a corporation to suffer
mental anguish. In LBC Express, Inc. v. CA, we ruled: "Moral damages are granted in
recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury. A corporation,
being an artificial person and having existence only in legal contemplation, has no feelings, no
emotions, no senses; therefore, it cannot experience physical suffering and mental anguish.
Mental suffering can be experienced only by one having a nervous system and it flows from real
ills, sorrows, and griefs of life all of which cannot be suffered by respondent bank as an
artificial person."
Neither can we award exemplary damages under Article 2234 of the Civil Code. Before the court
may consider the question of whether or not exemplary damages should be awarded, the plaintiff
must show that he is entitled to moral, temperate, or compensatory damages. NPC, in this
petition, likewise contests the judgment of the lower courts awarding PHIBRO the amount of
$73,231.91 as reimbursement for expenses, cost of litigation and attorney's fees. We agree with
NPC.
This Court has laid down the rule that in the absence of stipulation, a winning party may be
awarded attorney's fees only in case plaintiff's action or defendant's stand is so untenable as to
amount to gross and evident bad faith. This cannot be said of the case at bar. NPC is justified in
resisting PHIBRO's claim for damages. As a matter of fact, we partially grant the prayer of NPC
as we find that it did not act in bad faith in disapproving PHIBRO's pre-qualification to bid.
Trial courts must be reminded that attorney's fees may not be awarded to a party simply because
the judgment is favorable to him, for it may amount to imposing a premium on the right to redress
grievances in court. We adopt the same policy with respect to the expenses of litigation. A
winning party may be entitled to expenses of litigation only where he, by reason of plaintiff's
clearly unjustifiable claims or defendant's unreasonable refusal to his demands, was compelled
to incur said expenditures. Evidently, the facts of this case do not warrant the granting of such
litigation expenses to PHIBRO.
At this point, we believe that, in the interest of fairness, NPC should give PHIBRO another
opportunity to participate in future public bidding. As earlier mentioned, the delay on its part was
due to a fortuitous event.
But before we dispose of this case, we take this occasion to remind PHIBRO of the
indispensability of coal to a coal-fired thermal plant. With the deleterious possible consequences
that may result from failure to deliver the needed coal, we believe there is greater strain of
commitment in this kind of obligation.
WHEREFORE, the decision of the CA in CA-G.R. CV No. 126204 dated August 27, 1996 is
hereby MODIFIED. The award, in favor of PHIBRO, of actual, moral and exemplary damages,
reimbursement for expenses, cost of litigation and attorney's fees, and costs of suit, is
DELETED.
SO ORDERED.
Justice Melo's dissent:
Despite the favorable findings of the lower court and the Court of Appeals attributing no fault to
PHIBRO, the harm done to PHIBRO's good standing in the market by the blacklisting of
NAPOCOR, at least as far as Philippine setting is concerned, has already been done. There is
likewise uncontested or unrefuted evidence that as a result of PHIBRO's disqualification by
NAPOCOR, PHIBRO suffered damages in its international reputation and lost credibility in
Government and business circle, and hence an award is authorized by Art. 2205 of our Civil
Code. For the damage done to the business reputation of PHIBRO, I respectfully submit that
the Court of Appeals was likewise correct in sustaining the award of US$100,000.00 as moral
damages to private respondent a corporate body under Article 2217 of the Civil Code.
When moral damages are awarded, exemplary damages may also be decreed. Exemplary
damages are imposed by way of example or correction for the public good, in addition to
moral, temperate, liquidated or compensatory damages. According to the Code Commission,
"exemplary damages are required by public policy, for wanton acts must be suppressed. They
are an antidote so that the poison of wickedness may not run through the body politic." These
damages are legally assessible against him. In addition, NAPOCOR's baseless and
unwarranted discrimination against PHIBRO constrained the latter to seek the aid of the courts
in order to obtain redress. This calls for an award of attorney's fees, which the lower court
correctly made.
Consequently, I vote to dismiss the petition and to affirm the decision of the Court of Appeals.

G.R. No. 160236 October 16, 2009

G HOLDINGS, INC., Petitioner,

vs.
NATIONAL MINES AND ALLIED WORKERS UNION Local 103 (NAMAWU); SHERIFFS
RICHARD H. APROSTA and ALBERTO MUNOZ, all acting Sheriffs; DEPARTMENT OF
LABOR AND EMPLOYMENT, Region VI, Bacolod District Office, Bacolod
City, Respondents.

FACTS: The petitioner, G Holdings, Inc. (GHI), bought ninety percent (90%) of MMCs shares
and financial claims. These financial claims were converted into three Promissory
Notes issued by MMC in favor of GHI totaling P500M and secured by mortgages over MMCs
properties. National Mines and Allied Workers Union Local 103 (NAMAWU), was the exclusive
bargaining agent of the rank and file employees of Maricalum Mining Corporation (MMC).

GHI immediately took physical possession of the mine site and its facilities, and took full
control of the management and operation of MMC.

Almost four years thereafter, or on August 23, 1996, a labor dispute (refusal to bargain
collectively and unfair labor practice) arose between MMC and NAMAWU

ISSUE: WON the Deed of Real Estate and Chattel Mortgage was entered into between MMC
and G Holdings for the purpose of evading the satisfaction of the legitimate claims of the
petitioner against MMC.

HELD: No

Since the factual antecedents of this case do not warrant a finding that the mortgage and loan
agreements between MMC and GHI were simulated, then their separate personalities must be
recognized. To pierce the veil of corporate fiction would require that their personalities as
creditor and debtor be conjoined, resulting in a merger of the personalities of the creditor (GHI)
and the debtor (MMC) in one person, such that the debt of one to the other is thereby
extinguished. But the debt embodied in the 1992 Financial Notes has been established, and
even made subject of court litigation (Civil Case No. 95-76132, RTC Manila). This can only
mean that GHI and MMC have separate corporate personalities.

Neither was MMC used merely as an alter ego, adjunct, or business conduit for the sole
benefit of GHI, to justify piercing the formers veil of corporate fiction so that the latter could be
held liable to claims of third-party judgment creditors, like NAMAWU.

Time and again, we have reiterated that mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not, by itself, a sufficient
ground for disregarding a separate corporate personality.

It is basic that a corporation has a personality separate and distinct from that composing it as
well as from that of any other legal entity to which it may be related. Clear and convincing
evidence is needed to pierce the veil of corporate fiction.

In this case, the mere interlocking of directors and officers does not warrant piercing the
separate corporate personalities of MMC and GHI. Not only must there be a showing that there
was majority or complete control, but complete domination, not only of finances but of policy
and business practice in respect to the transaction attacked, so that the corporate entity as to
this transaction had at the time no separate mind, will or existence of its own. The mortgage
deed transaction attacked as a basis for piercing the corporate veil was a transaction that was
an offshoot, a derivative, of the mortgages earlier constituted in the Promissory Notes dated
October 2, 1992. But these Promissory Notes with mortgage were executed by GHI with APT
in the name of MMC, in a full privatization process. It appears that if there was any control or
domination exercised over MMC, it was APT, not GHI, that wielded it. Neither can we conclude
that the constitution of the loan nearly four (4) years prior to NAMAWUs notice of strike could
have been the proximate cause of the injury of NAMAWU for having been deprived of MMCs
corporate assets.

Lim v Philippine Fishing Gear Industries Ins

t was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing with
him and one Antonio Chua. The three agreed to purchase two fishing boats but since they do
not have the money they borrowed from one Jesus Lim (brother of Lim Tong Lim). They again
borrowed money and they agreed to purchase fishing nets and other fishing equipments. Now,
Yao and Chua represented themselves as acting in behalf of Ocean Quest Fishing
Corporation (OQFC) they contracted with Philippine Fishing Gear Industries (PFGI) for the
purchase of fishing nets amounting to more than P500k.

They were however unable to pay PFGI and so they were sued in their own names because
apparently OQFC is a non-existent corporation. Chua admitted liability and asked for some
time to pay. Yao waived his rights. Lim Tong Lim however argued that hes not liable because
he was not aware that Chua and Yao represented themselves as a corporation; that the two
acted without his knowledge and consent.

ISSUE: Whether or not Lim Tong Lim is liable.

HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim
had decided to engage in a fishing business, which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus Lim. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats,
and to divide equally among them the excess or loss. These boats, the purchase and the
repair of which were financed with borrowed money, fell under the term common fund under
Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an
intangible like credit or industry. That the parties agreed that any loss or profit from the sale
and operation of the boats would be divided equally among them also shows that they had
indeed formed a partnership.

Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be imputed
to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets found in
his boats, the boat which has earlier been proven to be an asset of the partnership. Lim, Chua
and Yao decided to form a corporation. Although it was never legally formed for unknown
reasons, this fact alone does not preclude the liabilities of the three as contracting parties in
representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation
and those benefited by it, knowing it to be without valid existence, are held liable as general
partners.

INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES vs. COURT OF

APPEALS, SECURITIES AND EXCHANGE COMMISSION and REFRACTORIES
CORPORATION OF THE PHILIPPINES

G.R. No. 122174, October 3, 2002

Facts:

Respondent Refractories Corporation of the Philippines (RCP) is a corporation duly organized

on October 13, 1976. On June 22, 1977, it registered its corporate and business name with the
Bureau of Domestic Trade.

Petitioner IRCP was incorporated on August 23, 1979 originally under the name "Synclaire
Manufacturing Corporation". It amended its Articles of Incorporation on August 23, 1985 to
change its corporate name to "Industrial Refractories Corp. of the Philippines".

Both companies are the only local suppliers of monolithic gunning mix.

Respondent RCP then filed a petition with the Securities and Exchange Commission to compel
petitioner IRCP to change its corporate name.

The SEC rendered judgment in favor of respondent RCP.

Petitioner appealed to the SEC En Banc. The SEC En Banc modified the appealed decision
and the petitioner was ordered to delete or drop from its corporate name only the word
"Refractories".

Petitioner IRCP filed a petition for review on certiorari to the Court of Appeals and the appellate
court upheld the jurisdiction of the SEC over the case and ruled that the corporate names of
petitioner IRCP and respondent RCP are confusingly or deceptively similar, and that
respondent RCP has established its prior right to use the word "Refractories" as its corporate
name.

Petitioner then filed a petition for review on certiorari

Issue:

Are corporate names Refractories Corporation of the Philippines (RCP) and "Industrial
Refractories Corp. of the Philippines" confusingly and deceptively similar?

Ruling:

Yes, the petitioner and respondent RCPs corporate names are confusingly and deceptively
similar.
Further, Section 18 of the Corporation Code expressly prohibits the use of a corporate name
which is "identical or deceptively or confusingly similar to that of any existing corporation or to
any other name already protected by law or is patently deceptive, confusing or contrary to
existing laws". The policy behind said prohibition is to avoid fraud upon the public that will have
occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the
reduction of difficulties of administration and supervision over corporation.

The Supreme Court denied the petition for review on certiorari due for lack of merit.
Gloria vs. PNOC
November 27, 2009

Facts:
Petitioner Gloria V. Gomez used to work as Manager of the Legal Department of Petron
Corporation, then a government-owned corporation. With Petrons privatization, she availed of
the companys early retirement program and left that organization on April 30, 1994. On the
following day, May 1, 1994, however, Filoil Refinery Corporation (Filoil), also a government-
owned corporation, appointed her its corporate secretary and legal counsel, with the same
managerial rank, compensation, and benefits that she used to enjoy at Petron. However, the
privatization did not materialize so Gomez continued to serve as corporate secretary of
respondent PDMC. On September 23, 1996 its president re-hired her as administrator and legal
counsel of the company.

On March 29, 1999 the new board of directors of respondent PDMC removed petitioner Gomez
as corporate secretary. Further, at the boards meeting on October 21, 1999 the board
questioned her continued employment as administrator. In answer, she presented the former
presidents May 24, 1998 letter that extended her term. Dissatisfied with this, the board sought
the advice of its legal department, which expressed the view that Gomezs term extension was
an ultra vires act of the former president. It reasoned that, since her position was functionally
that of a vice-president or general manager, her term could be extended under the companys
by-laws only with the approval of the board. The legal department held that her de facto tenure
could be legally put to an end.

Petitioner Gomez for her part conceded that as corporate secretary, she served only as a
corporate officer. But, when they named her administrator, she became a regular managerial
employee. Consequently, the respondent PDMCs board did not have to approve either her
appointment as such or the extension of her term in 1998.

Issue:
Is Gomez an ordinary employee whose complaint is within the jurisdiction of the NLRC?

Held:
Yes. The relationship of a person to a corporation, whether as officer or agent or employee, is
not determined by the nature of the services he performs but by the incidents of his relationship
with the corporation as they actually exist. That the employee served concurrently as corporate
secretary for a time is immaterial. A corporation is not prohibited from hiring a corporate officer
to perform services under circumstances which will make him an employee. Indeed, it is possible
for one to have a dual role of officer and employee. NLRC has jurisdiction over a complaint filed
by one who served both as corporate officer and employee, when the money claims were made
as an employee and not as a corporate officer.

Atrium Management Corporation v CA

FACTS:

Hi-Cement Corporation borrowed money from E.T. Henry and Co. The said loan was secured
by 4 checks amounting to P2 million in total. The checks were signed by Lourdes M. de
Leon,[2] treasurer, and the late Antonio de las Alas, Chairman.

E.T. Henry and Co., Inc., in turn, endorsed the four checks to petitioner Atrium Management
Corporation for valuable consideration, after Enrique Tan, or E.T. Henry approached Atrium for
financial assistance, offering to discount four RCBC checks.
Atrium agreed to Tan's offer based on two letters, dated February 6, 1981 and February 9,
1981 issued by Hi-Cement through Lourdes M. de Leon, as treasurer, confirming the issuance
of the four checks in favor of E.T. Henry in payment for petroleum products.

Upon presentment for payment, the drawee bank dishonored all four checks for the common
reason payment stopped. Atrium, thus, instituted this action after its demand for payment of
the value of the checks was denied.

RTC Ruling:
The trial court ordered all the defendants (Hi-Cement, E.T. Henry, and Lourdes M. de Leon)
except defendant Antonio de las Alas to pay Atrium jointly and severally P2,000,000.00 with
the legal rate of interest from the filling of the complaint until fully paid, plus P20,000.00 as
attorneys fees and the cost of suit.

Lourdes de Leon and Hi-Cement appealed the trial court decision.

CA Ruling:

CA
(1) dismissed the plaintiffs complaint as against defendants Hi-Cement and De las Alas; (2)
ordered the defendants E.T. Henry de Leon, jointly and severally to pay the plaintiff Atrium
(P2,000,000.00) with interest at the legal rate from the filling of the complaint until fully paid,
plus P20,000.00 for attorneys fees. (3) ordered the plaintiff and defendants E.T. Henry de
Leon, jointly and severally to pay defendant Hi-Cement P20,000.00 as attorneys fees.

De Leon and Atrium appealed the CA decision separately.

ISSUES:

1. Whether the issuance of the questioned checks was an ultra vires act;

2. Whether Atrium was not a holder in due course and for value;

3. Whether the Court of Appeals erred in holding de Leon personally liable for the Hi-Cement
checks issued to E.T. Henry;

RULING:

1. It is a valid corporate act.

There is basis to rule that the act of issuing the checks was well within the ambit of a valid
corporate act, for it was for securing a loan to finance the activities of the corporation, hence,
not an ultra vires act. An ultra vires act is one committed outside the object for which a
corporation is created as defined by the law of its organization and therefore beyond the power
conferred upon it by law The term ultra vires is distinguished from an illegal act for the former
is merely voidable which may be enforced by performance, ratification, or estoppel, while the
latter is void and cannot be validated.

2. Atrium could not be considered a holder in due course.

A holder in due course is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face; (b) That he became the holder of it before it
was overdue, and without notice that it had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he
had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.
In the instant case, the checks were crossed checks and specifically indorsed for deposit to
payees account only.

From the beginning, Atrium was aware of the fact that the checks were all for deposit only to
payees account, meaning E.T. Henry.

3. De Leon is personally liable.

"Personal liability of a corporate director, trustee or officer along (although not necessarily) with
the corporation may so validly attach, as a rule, only when: 1. He assents (a) to a patently
unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or
(c) for conflict of interest, resulting in damages to the corporation, its stockholders or other
persons; 2. He consents to the issuance of watered down stocks or who, having knowledge
thereof, does not forthwith file with the corporate secretary his written objection thereto; 3. He
agrees to hold himself personally and solidarily liable with the corporation; or 4. He is made, by
a specific provision of law, to personally answer for his corporate action.

In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of
Hi-Cement were authorized to issue the checks. However, Ms. de Leon was negligent when
she signed the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry
for the rediscounting of the crossed checks issued in favor of E.T. Henry. She was aware that
the checks were strictly endorsed for deposit only to the payees account and not to be further
negotiated. What is more, the confirmation letter contained a clause that was not true, that is,
that the checks issued to E.T. Henry were in payment of Hydro oil bought by Hi-Cement from
E.T. Henry. Her negligence resulted in damage to the corporation. Hence, Ms. de Leon may be
held personally liable therefor.

Republic Planters Bank vs. Agana

[GR 51765, 3 March 1997]

Facts: On 18 September 1961, the Robes-Francisco Realty & Development Corporation

(RFRDC) secured a loan from the Republic Planters Bank in the amount of P120,000.00. As
part of the proceeds of the loan, preferred shares of stocks were issued to RFRDC through its
officers then, Adalia F. Robes and one Carlos F. Robes. In other words, instead of giving the
legal tender totaling to the full amount of the loan, which is P120,000.00, the Bank lent such
amount partially in the form of money and partially in the form of stock certificates numbered
3204 and 3205, each for 400 shares with a par value of P10.00 per share, or for P4,000.00 each,
for a total of P8,000.00. Said stock certificates were in the name of Adalia F. Robes and Carlos
F. Robes, who subsequently, however, endorsed his shares in favor of Adalia F. Robes.

Said certificates of stock bear the following terms and conditions: "The Preferred Stock shall
have the following rights, preferences, qualifications and limitations, to wit: 1. Of the right to
receive a quarterly dividend of 1%, cumulative and participating. xxx 2. That such preferred
shares may be redeemed, by the system of drawing lots, at any time after 2 years from the date
of issue at the option of the Corporation." On 31 January 1979, RFRDC and Robes proceeded
against the Bank and filed a complaint anchored on their alleged rights to collect dividends under
the preferred shares in question and to have the bank redeem the same under the terms and
conditions of the stock certificates. The bank filed a Motion to Dismiss 3 private respondents'
Complaint on the following grounds: (1) that the trial court had no jurisdiction over the subject-
matter of the action; (2) that the action was unenforceable under substantive law; and (3) that
the action was barred by the statute of limitations and/or laches. The bank's Motion to Dismiss
was denied by the trial court in an order dated 16 March 1979. The bank then filed its Answer
on 2 May 1979. Thereafter, the trial court gave the parties 10 days from 30 July 1979 to submit
their respective memoranda after the submission of which the case would be deemed submitted
for resolution. On 7 September 1979, the trial court rendered the decision in favor of RFRDC
and Robes; ordering the bank to pay RFRDC and Robes the face value of the stock certificates
as redemption price, plus 1% quarterly interest thereon until full payment. The bank filed the
petition for certiorari with the Supreme Court, essentially on pure questions of law.

Issue:
1. Whether the bank can be compelled to redeem the preferred shares issued to RFRDC
and Robes.
2. Whether RFRDC and Robes are entitled to the payment of certain rate of interest on the
stocks as a matter of right without necessity of a prior declaration of dividend.
Held:
1. While the stock certificate does allow redemption, the option to do so was clearly vested in
the bank. The redemption therefore is clearly the type known as "optional". Thus, except as
otherwise provided in the stock certificate, the redemption rests entirely with the corporation and
the stockholder is without right to either compel or refuse the redemption of its stock.
Furthermore, the terms and conditions set forth therein use the word "may". It is a settled doctrine
in statutory construction that the word "may" denotes discretion, and cannot be construed as
having a mandatory effect. The redemption of said shares cannot be allowed. The Central Bank
made a finding that the Bank has been suffering from chronic reserve deficiency, and that such
finding resulted in a directive, issued on 31 January 1973 by then Gov. G. S. Licaros of the
Central Bank, to the President and Acting Chairman of the Board of the bank prohibiting the
latter from redeeming any preferred share, on the ground that said redemption would reduce the
assets of the Bank to the prejudice of its depositors and creditors. Redemption of preferred
shares was prohibited for a just and valid reason. The directive issued by the Central Bank
Governor was obviously meant to preserve the status quo, and to prevent the financial ruin of a
banking institution that would have resulted in adverse repercussions, not only to its depositors
and creditors, but also to the banking industry as a whole. The directive, in limiting the exercise
of a right granted by law to a corporate entity, may thus be considered as an exercise of police
power.

2. Both Section 16 of the Corporation Law and Section 43 of the present Corporation Code
prohibit the issuance of any stock dividend without the approval of stockholders, representing
not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly
called for the purpose. These provisions underscore the fact that payment of dividends to a
stockholder is not a matter of right but a matter of consensus. Furthermore, "interest bearing
stocks", on which the corporation agrees absolutely to pay interest before dividends are paid to
common stockholders, is legal only when construed as requiring payment of interest as
dividends from net earnings or surplus only. In compelling the bank to redeem the shares and
to pay the corresponding dividends, the Trial committed grave abuse of discretion amounting to
lack or excess of jurisdiction in ignoring both the terms and conditions specified in the stock
certificate, as well as the clear mandate of the law.

MAM REALTY CORPORATION v. NLRC, CELSO BALBASTRO

GR 114787, 02 June 1995
Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)
(Topic: Doctrine of Piercing the Veil of Corporate Fiction)

FACTS:

a complaint filed with the Labor Arbiter by private respondent Celso B. Balbastro against herein
petitioners, MAM Realty Development Corporation ("MAM") and its Vice President Manuel P.
Centeno, for wage differentials, "ECOLA," overtime pay, incentive leave pay, 13th month pay
(for the years 1988 and 1989), holiday pay and rest day pay. Balbastro alleged that he was
employed by MAM as a pump operator in 1982 and had since performed such work at its Rancho
Estate, Marikina, Metro Manila.

MAM countered that Balbastro had previously been employed by Francisco Cacho and Co., Inc.,
the developer of Rancho Estates. Sometime in May 1982, his services were contracted by MAM
for the operation of the Rancho Estates' water pump. He was engaged, however, not as an
employee, but as a service contractor, at an agreed fee of P1,590.00 a month. Similar
arrangements were likewise entered into by MAM with one Rodolfo Mercado and with a security
guard of Rancho Estates III Homeowners' Association. Under the agreement, Balbastro was
merely made to open and close on a daily basis the water supply system of the different phases
of the subdivision in accordance with its water rationing scheme. He worked for only a maximum
period of three hours a day, and he made use of his free time by offering plumbing services to
the residents of the subdivision. He was not at all subject to the control or supervision of MAM
for, in fact, his work could so also be done either by Mercado or by the security guard. On 23
May 1990, prior to the filing of the complaint, MAM executed a Deed of Transfer, 1 effective 01
July 1990, in favor of the Rancho Estates Phase III Homeowners Association, Inc., conveying to
the latter all its rights and interests over the water system in the subdivision.
National Labor Relations Commission ("NLRC") rendered judgment on 21 March 1994, ordered
MAM Realty Development Corporation ("MAM") and its Vice President Manuel P. Centeno are
hereby directed to pay jointly and severally complainant the sum of P86,641.05.

ISSUE:

Whether or not that the NLRC erred in holding Centeno jointly and severally liable with MAM?

RULING:

NO.

the NLRC erred in holding Centeno jointly and severally liable with MAM. A corporation, being a
juridical entity, may act only through its directors, officers and employees. Obligations incurred
by them, acting as such corporate agents, are not theirs but the direct accountabilities of the
corporation they represent. True, solidary liabilities may at times be incurred but only when
exceptional circumstances.

In labor cases, for instance, the Court has held corporate directors and officers solidarily liable
with the corporation for the termination of employment of employees done with malice or in bad
faith.

In the case at Bench, there is nothing substantial on record that can justify, prescinding from the
foregoing, petitioner Centeno's solidary liability with the corporation.

The case is REMANDED to the NLRC for a re-computation of private respondent's monetary
awards, which, conformably with this opinion, shall be paid solely by petitioner MAM Realty
Development Corporation. No special pronouncement on costs.

Ong Yong v. Tiu (2003)

Facts:
Tiu is the owner/developer of Masagana Citimall, under the First Landlink Asia Development
Corporation (FLADC). Its construction was threatened by financial constraints, thus Tiu
invited Tiu to invest in said mall. A Pre-subscription agreement was made to the effect that
Ongs would subscribe to 1,000,000 shares while the Tius will subscribe to an additional
549,800 shares in addition to their already existing subscription of 450,200 shares. Squabble
later on ensued which prompted Tiu to rescind the pre-subscription agreement.
Issue: Whether or not the rescission of the pre-subscription agreement was proper.
Held: No, it was not proper.
Ratio:
The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of Philippine Trust
Co. vs. Rivera, provides that subscriptions to the capital stock of a corporation constitute a
fund to which the creditors have a right to look for the satisfaction of their claims. This doctrine
is the underlying principle in the procedure for the distribution of capital assets, embodied in
the Corporation Code, which allows the distribution of corporate capital only in three instances:
(1) amendment of the Articles of Incorporation to reduce the authorized capital stock, (2)
purchase of redeemable shares by the corporation, regardless of the existence of unrestricted
retained earnings, and (3) dissolution and eventual liquidation of the corporation. Furthermore,
the doctrine is articulated in Section 41 on the power of a corporation to acquire its own shares
and in Section 122 on the prohibition against the distribution of corporate assets and property
unless the stringent requirements therefor are complied with.
The distribution of corporate assets and property cannot be made to depend on the whims and
caprices of the stockholders, officers or directors of the corporation, or even, for that matter, on
the earnest desire of the court a quo "to prevent further squabbles and future litigations" unless
the indispensable conditions and procedures for the protection of corporate creditors are
followed. Otherwise, the "corporate peace" laudably hoped for by the court will remain nothing
but a dream because this time, it will be the creditors' turn to engage in "squabbles and
litigations" should the court order an unlawful distribution in blatant disregard of the Trust Fund
Doctrine.
In the instant case, the rescission of the Pre-Subscription Agreement will effectively result in
the unauthorized distribution of the capital assets and property of the corporation, thereby
violating the Trust Fund Doctrine and the Corporation Code, since rescission of a subscription
agreement is not one of the instances when distribution of capital assets and property of the
corporation is allowed.
Contrary to the Tius' allegation, rescission will, in the final analysis, result in the premature
liquidation of the corporation without the benefit of prior dissolution in accordance with
Sections 117, 118, 119 and 120 of the Corporation Code. The Tius maintain that rescinding
the subscription contract is not synonymous to corporate liquidation because all rescission will
entail would be the simple restoration of the status quo ante and a return to the two groups of
their cash and property contributions. We wish it were that simple. Very noticeable is the fact
that the Tius do not explain why rescission in the instant case will not effectively result in
liquidation. The Tius merely refer in cavalier fashion to the end-result of rescission (which
incidentally is 100% favorable to them) but turn a blind eye to its unfair, inequitable and
disastrous effect on the corporation, its creditors and the Ongs.

CENTRAL TEXTILE MILLS, INC. vs. NATIONAL WAGES AND PRODUCTIVITY COMMISSION
[G.R. No. 104102, August 7, 1996]
TOPIC: CORPORATE POWERS
PONENTE: ROMERO, J.

FACTS:
On December 29, 1990, respondent Regional Tripartite Wages and Productivity Board-NCR (the Board)
issued a WAGE ORDER which mandated a P12.00 increase in the minimum daily wage of all employees
and workers in the private sector in the NCR, but exempted from its application distressed employers whose
capital has been impaired by at least 25% in the preceding year.
The Guidelines on Exemption From Compliance With the Prescribed Wage/Cost of Living Allowance
Increase Granted by the Regional Tripartite Wage and Productivity Boards, issued on February 25, 1991,
defined capital as the paid-up capital at the end of the last full accounting period (in case of
corporations). Under said guidelines, (a)n applicant firm may be granted exemption from payment of the
prescribed increase in wage/cost-of-living allowance for a period not to exceed one (1) year from effectivity
of the Order x x x when accumulated losses at the end of the period under review have been impaired
by at least 25 percent the paid-up capital at the end of the last full accounting period preceding the
application.
Petitioner Central Textile Mills filed an application for exemption from compliance with the subject wage
order due to financial losses.
The Boards Vice p-Chairman, Ernesto Gorospe, disapproved of petitioners application for exemption after
concluding form the documents submitted that petitioner sustained an impairment of only 22.41%.
Petitioners motion for reconsideration was likewise dismissed by the Board, which opined that petitioners
total paid-up capital of P305,767, 900.00 should be the basis for determining the capital impairment of
petitioner, instead of the authorized capital stock of P128M which petitioner insists should be the basis of
computation. . The Board also noted that petitioner did not file with the SEC its board resolution
approving an increase in petitioners authorized capital stock. Neither did petitioner file any petition to
amend its AOI brought about by such increase in its capitalization.
Petitioner argues that its authorized capital stock, not its unauthorized paid-up capital, should be used in
determining its capital impairment. Citing two SEC Opinions which interpreted Sec 38 of the Corporation
Code, it claims that the capital stock of a corporation stand(s) increased or decreased only from and after
approval and the issuance of the certificate of filing of increase of capital stock.

ISSUE(S): Whether petitioners authorized capital stock should be the basis for determining its capital impairment.

HELD: YES. Petition for review GRANTED.

RATIO:
 The guidelines on exemption specifically refer to paid-up capital, not authorized capital stock, as the basis
of capital impairment for exception from the subject wage order.
The records reveal, however, that petitioner included in its total paid-up capital payments on advance
subscriptions, although the proposed increase in its capitalization had not yet been approved by, let alone
presented for the approval of, the SEC.
These payments cannot as yet be deemed part of petitioners paid-up capital, technically speaking, because
its capital stock has not yet been legally increased.
Thus, it's authorized capital stock in the year when exemption from the subject wage order was sought stood
at P128M, which was impaired by losses of nearly 50%.
Since the subject wage order exempts from its coverage employers whose capital has been impaired by at
least 25%, and petitioner suffered losses of nearly 50%, petitioner qualifies for the exemption and its
application for the same should be approved.