Lozano vs.

De Los Santos
Petitioner Lozano filed for damages against Adda before the MCTC in Pampanga.Lozano is the president of KAMAJDA while Anda was the president of SAMAJODA. Withthe request of the Sangguniang Bayan of Mabalacat, Lozano and Anda agreed toCONSOLIDATE their respective associations and from a unified jeepney operatorsassociation UMAJODA. They agreed to elect one set of officers who shall be given the SOLE authority tocollect the daily dues from the members of the consolidated assoc.Lozano won as president and Anda protested alleging fraud and refused to recognizethe results of the election. He also continued to collect the dues from the members of his assoc despite demands to resist.Anda claims that the jurisdiction was lodged with SEC. MCTC denied the motion.RTC: Intracorporate SEC. ISSUE: Jurisdiction Held: MCTC There is no intracorporate nor partnership relation between the petitioner and priv resp. Dispute arose of just a plan to consolidate into a single common assoc and is still aPROPOSAL.Not approved by SEC and had not submitted its articles nor its officers and members.CONSOLIDATION becomes effective not upon mere agreement but only UPONISSUANCE OF THE CERTIFICATE OF CONSOLIDATION OF SEC.Consolidation must not be against the provisions of the Corpo Code. The dispute is not among the members of the KAMAJDA or SAMAJODA butbetween members of separate and distinct associations. Sec. 5 of the PD 902-A sets forth the jurisdiction of SEC. The jurisdiction is determinedby a concurrence of two elements:1)status or relationship of the parties- relationship must arise our of intracorporate of partnership releations between and amoing stockholders,members or assoc etc.2)nature of the question that is the subject of their controversy requires thatthe dispute be INTRINSICALLY CONNECTED WITH THE REGULATION OF THECORPO, PARTN, ASSOC. and deal with the internal affairs of the corpo.Corporation by estoppel is founded on principles of equity and is designed to preventinjustice and unfairness. It applies when persons assume to form a corporation andexercises corporate functions and enter into business relations with third persons. Where there is no third person involved and the conflict arises only amongthose assuming the form of a corporation, who therefore know that it hasnot been registered, there is no corporation by estoppel.

Reynaldo Lozano vs Eliezer De Los Santos

274 SCRA 452 Business Organization Corporation Law Jurisdiction of the SEC Reynaldo Lozano was the president of KAMAJDA (Kapatirang Mabalacat-Angeles Jeepney Drivers Association, Inc.). Antonio Anda was the president of SAMAJODA (Samahang Angeles-Mabalacat Jeepney Operators and Drivers Association, Inc.). In 1995, the two agreed to consolidate the two corporations, thus, UMAJODA (Unified Mabalacat-Angeles Jeepney Operators and Drivers Association, Inc.). In the same year, elections for the officers of UMAJODA were held. Lozano and Anda both ran for president. Lozano won but Anda alleged fraud and the elections and thereafter he refused to participate with UMAJODA. Anda continued to collect fees from members of SAMAJODA and refused to recognize Lozano as president of UMAJODA. Lozano then filed a complaint for damages against Anda with the MCTC of Mabalacat (and Magalang), Pampanga. Anda moved for the dismissal of the case for lack of jurisdiction. The MCTC judge denied Andas motion. On certiorari, Judge Eliezer De Los Santos of RTC Angeles City reversed an d ordered the dismissal of the case on the ground that what is involved is an intra-corporate dispute which should be under the jurisdiction of the Securities and Exchange Commission (SEC). ISSUE: Whether or not the RTC Judge is correct. HELD: No. The regular courts have jurisdiction over the case. The case between Lozano and Anda is not an intra-corporate dispute. UMAJODA is not yet incorporated. It is yet to submit its articles of incorporation to the SEC. It is not even a dispute between KAMAJDA or SAMAJODA. The controversy between Lozano and Anda does not arise from intra-corporate relations but rather from a mere conflict from their plan to merge the two associations. NOTE: Regular courts can now hear intra-corporate disputes (expanded jurisdiction).

Lim Tong Lim vs. Phil Fishing Gear Industries

A partnership may be deemed to exist among parties who agree to borrow money topursue a business and to divide the profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of their won to a commonfund. Their contribution may be in the form of credit of industry, not necessarily cash orfixed assets.By being partners, they are liable fro debts incurred by or on behalf of thepartnership. The liability for a contract entered into on behalf of an unincorporatedassociation or ostensible corporation may lie in a person who may not havedirectly transacted on its behalf but reaped benefits from that contract. FACTS: Chua and Yao entered into a contract for the purchase of fishing nets on behalf of Ocean Quest Fishing Corpo from Phil Fishing Gear Industries.C and Y claimed that they were engaged in a business with Lim Tong Lim but who wasnot a signatory to the agreement.Failed to pay thus PFGI filed collection suit against the three: Chua, Yao and Lim asgeneral partners because Ocean Quest is a non-existing corpo as shown by a certfrom SEC.Lim filed for the lift of the Writ of Attachment but RTC maintained the write andordered the sale of the nets.RTC: There is partnership. There is a compromise agreement among the 3 which stated that they will have the 4vessels sold for 5.7M including the fishing net and that this amount shall be applied infull payment in favor of JL Holdings and Lim and that if these 4 vessels be sold higherthat 5.7M, the excess shall be divided among the three. If deficient, shall also bedivided among the 3.RTC: Compromise Agreement silent as to the nature of their obligations butpresumption is that equal distribution of the profit and loss.CA: Affirmed. ISSUE: WON Lim may be regarded as a partner when the sole basis is theCompromise Agreement and not considering the fact that he has not signed anytransaction nor met any of the rep of the Phil Fishing Gears. WON it is just a lease. HELD: There is partnership.It is clear in the factual findings that they have decided to engage in a fishingbusiness where they bought boats from the loan they got from JLim who is Limsborther. The partnership extended not only to the boats but also to the nets and the floats.Lim is not a lessor because in effect he would like the Court to believe that heconsented to the sale of his own boats to pay the debt or Chua and Yao with the excess of the proceeds to be divided among the three of them. No lessor would dothat.F/B Lourdes, although under his name, is not his own but an asset of the partnership.Not uncommon to register the properties acquired from a loan in the name of theperson the lender trusts.Corporation by Estoppel The doctrine may apply to the alleged corporation and to a third party. In the firstinstance, the unincorporated association which represented itself to be a corporationwill be estopped from DENYING its corpo capacity in a suit against it by a third person who RELIED ON GOOD FAITH on such representation. On the other hand, a third party who, knowing an association to beunincorporated, nonetheless treated it as a corporation and receivedbenefits from it, may be barred from denying its corporate existence in asuit brought against the alleged corporation. IN SUCH CASE, all those who benefited from the transaction made by theostensible corporation, despite knowledge of its legal defects, may be heldliable for contracts they impliedly assented to or took advantage of. ISSUE: WON Lim shall be JOINTLY liable with Chua and Yao. Held: No, he shall be jointly liable. He has benefited from the USE OF THE NETS foundinside F/B Lourdes which is an asset of the partnership. Under the law on estoppel, those acting on behalf of a corporation andthose benefited by it, knowing it to be without valid existence, are heldliable as general partners.Having reaped the benefits of the contract entered into by persons withwhom he previously had an existing relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of corporationby estoppel. Concurring Opinion of J. Vitug: Partners can be held SOLIDARILY liable with the partnership specifically in theseinstances: 1) where, by any wrongful act or omission of any partner acting in the ordinarycourse of the business of the partnership or with the authority of his co-partners, LOSS OR INJURY is cause to any person, NOT BEING A PARTNER inthe partnership, or nay penalty incurred, the partnership is liable therefore to the same extent as the partner so acting or omitting to act.

2)

Where on partner acting within the scope of his apparent authority receivesmoney or property of a third person and misapplies it.3)Where the partnership in the course of its business receives money orproperty of a third person and the money or property so received ismisapplied by any partner while it is in the custody of the partnership.

International Express Travel & Tour Services vs CA

FACTS: In June 1989, Express Travel wrote a letter to the Phil Football Federation thruthe president Henry Kahn offering its services to the latter and Kahn accepted this. The federation consisting of athletes and officials, went to the South East AsianGames in Malaysia and other trips to other countries. Federation incurred expensesand made two partial payments. In Dec 1989, Kahn issued a personal check as a partial payment then no morepayment.ET sued HK in his personal capacity and as president and impleaded the federation as an alternative defendant.HK: No cause of action against in his personal cap or official cap and that he did not guarantee the payment and merely acted as an agent. RTC: HK personally liable. No proof that the federation has a corporate existence.CA: reversed. Juridical existence of the Fed .ISSUE: WON the Federation is a juridical person. CA: RA 3135 Revised Charter of the Phil Amateur Athletic Fed and PD 604: Where the fed derives its existence. These laws recognize the juridical existence of NATIONAL SPORTS ASSOC.SC: But the mere passage of these laws DOES NOT AUTOMATICALLY vest the associations a CORPORATE STATUS. RULE: The State must give its consent: in the form of a special law of a generalenabling act. These laws merely recognized the existence of national sportsassociations.Before an entity may be considered a national sports assoc, the Phil Amateur AthleticFed and Dept of Youth and Sports Dev must recognize them as such.HK shall be held liable for the unpaid obligations of the unincorporated Fed.Settled rule: Any person acting or purporting to act on behalf of a corporation whichhas no valid existence assumes such privileges and obligations and becomespersonally liable for contracts entered into or for other acts performed as such agent.It cannot be held that ET is estopped because: The doctrine of corporation byestoppel is mistakenly applied by the responded court to the petitioner. Theapplication of the doctrine applies to a third party only when he tries toescape liability on a contract from which he has benefited on the irrelevantground of defective corporation. ET is not trying to escape liability but is the one claiming from the contract.

JG Summit Holdings Inc. vs. CA

G.R. No. 124293, November 20, 2000

FACTS: The National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. for the construction, operation and management of the Subic National Shipyard, Inc., later became the Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, NIDC and Kawasaki would maintain a shareholding proportion of 60%-40% and that the parties have the right of first refusal in case of a sale. Through a series of transfers, NIDCs rights, title and interest in PHILSECO eventually went to the National Government. In the interest of national economy, it was decided that PHILSECO should be privatized by selling 87.67% of its total outstanding capital stock to private entities. After negotiations, it was agreed that Kawasakis right of first refusal under the JVA be exchanged for the right to top by five percent the highest bid for said shares. Kawasaki that Philyards Holdings, Inc. (PHI), in which it was a stockholder, would exercise this right in its stead. During bidding, Kawasaki/PHI Consortium is the losing bidder. Even so, because of the right to top by 5% percent the highest bid, it was able to top JG Summits bid. JG Summit protested, contending that PHILSECO, as a shipyard is a public utility and, hence, must observe the 60%-40% Filipino-foreign capitalization. By buying 87.67% of PHILSECOs capital stock at bidding, Kawasaki/PHI in effect now owns more than 40% of the stock.

ISSUE:

Whether or not PHILSECO is a public utility Whether or not Kawasaki/PHI can purchase beyond 40% of PHILSECOs stocks

HELD: In arguing that PHILSECO, as a shipyard, was a public utility, JG Summit relied on sec. 13, CA No. 146. On the other hand, Kawasaki/PHI argued that PD No. 666 explicitly stated that a shipyard was not a public utility. But the SC stated that sec. 1 of PD No. 666 was expressly repealed by sec. 2 0, BP Blg. 391 and when BP Blg. 391 was subsequently repealed by EO 226, the latter law did not revive sec. 1 of PD No. 666. Therefore, the law that states that a shipyard is a public utility still stands. A shipyard such as PHILSECO being a public utility as provided by law is therefore required to comply with the 60%-40% capitalization under the Constitution. Likewise, the JVA between NIDC and Kawasaki manifests an intention of the parties to abide by this constitutional mandate. Thus, under the JVA, should the NIDC opt to sell its shares of stock to a third party, Kawasaki could only exercise its right of first refusal to the extent that its total shares of stock would not exceed 40% of the entire shares of stock. The NIDC, on the other hand, may purchase even beyond 60% of the total shares. As a government corporation and necessarily a 100% Filipino-owned corporation, there is nothing to prevent its purchase of stocks even beyond 60% of the capitalization as the Constitution clearly limits only foreign capitalization. Kawasaki was bound by its contractual obligation under the JVA that limits its right of first refusal to 40% of the total capitalization of PHILSECO. Thus, Kawasaki cannot purchase beyond 40% of the capitalization of the joint venture on account of both constitutional and contractual proscriptions.

Renato Tayag vs Benguet Consolidated, Inc.

26 SCRA 242 Business Organization Corporation Law Domicile of a Corporation By Laws Must Yield To a Court Order Corporation is an Artificial Being In March 1960, Idonah Perkins died in New York. She left behind properties here and abroad. One property she left behind were two stock certificates covering 33,002 shares of stocks of the Benguet Consolidated, Inc (BCI). Said stock certificates were in the possession of the Country Trust Company of New York (CTC-NY). CTC-NY was the domiciliary administrator of the estate of Perkins (obviously in the USA). Meanwhile, in 1963, Renato Tayag was appointed as the ancillary administrator (of the properties of Perkins she left behind in the Philippines). A dispute arose between CTC-NY and Tayag as to who between them is entitled to possess the stock certificates. A case ensued and eventually, the trial court ordered CTC-NY to turn over the stock certificates to Tayag. CTC-NY refused. Tayag then filed with the court a petition to have said stock certificates be declared lost and to compel BCI to issue new stock certificates in replacement thereof. The trial court granted Tayags petition. BCI assailed said order as it averred that it cannot possibly issue new stock certificates because the two stock certificates declared lost are not actually lost; that the trial court as well Tayag acknowledged that the stock certificates exists and that they are with CTC-NY; that according to BCIs by laws, it can only issue new stock certificates, in lieu of lost, stolen, or destroyed certificates of stocks, only after court of law has issued a final and executory order as to who really owns a certificate of stock. ISSUE: Whether or not the arguments of Benguet Consolidated, Inc. are correct. HELD: No. Benguet Consolidated is a corporation who owes its existence to Philippine laws. It has been given rights and privileges under the law. Corollary, it also has obligations under the law and one of those is to follow valid legal court orders. It is not immune from judicial control because it is domiciled here in the Philippines. BCI is a Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise as immune from lawful court orders. Further, to allow B CIs opposition is to render the court order against CTC -NY a mere scrap of paper. It will leave Tayag without any remedy simply because CTC-NY, a foreign entity refuses to comply with a valid court order. The final recourse then is for our local courts to create a legal fiction such that the stock certificates in issue be declared lost even though in reality they exist in the

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

National Development Company and New Agrix vs. Philippine VeteransBank (192 SCRA 257)
Facts: Agrix Marketing executed in favor of respondent a real estate mortgage overthree parcels of land. Agrix later on went bankrupt. In order to rehabilitate thecompany, then President Marcos issued Presidential Decree 1717 whichmandated, among others, the extinguishing of all the mortgages and liensattaching to the property of Agrix, and creating a Claims Committee to processclaims against the company to be administered mainly by NDC. Respondentthereon filed a claim against the company before the Committee. Petitionershowever filed a petition with the RTC of Calamba, Laguna invoking the provision of the law which cancels all mortgage liens against it. Respondent took measures toextrajudicially foreclose which the petitioners opposed by filing another case inthe same court. These cases were consolidated. The RTC held in favor of therespondent on the ground of unconstitutionality of the decree; mainly violation of the separation of powers, impairment of obligation of contracts, and violation of the equal protection clause. Hence this petition. Issue: Is the respondent estopped from questioning the constitutionality of the lawsince they first abided by it by filing a claim with the Committee? Is PD 1717 unconstitutional? Ruling: On the issue of estoppel, the Court held that it could not apply in thepresent case since when the respondent filed his claim, President Marcos was thesupreme ruler of the country and they could not question his acts even before thecourts because of his absolute power over all government institutions when hewas the President. The creation of New Agrix as mandated by the decree was also ruled asunconstitutional since it violated the prohibition that the Batasang Pambansa(Congress) shall not provide for the formation, organization, or regulation of private corporations unless such corporations are owned or controlled by the government. PD 1717 was held as unconstitutional on the other grounds that it was aninvalid exercise of police power, It had no lawful subject and no lawful method. Itviolated due process by extinguishing all mortgages and liens and interests whichare property rights unjustly taken. It also violated the equal protection clause bylumping together all secured and unsecured creditors. It also impaired theobligation of contracts, even though it only involved purely private interests.

Feliciano vs COA
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 F elicianos 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 government-owned 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 government-owned 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.

Smith, Bell & Company (Ltd.), pet vs.Joaquin Natividad, Collector of Customs of the port of Cebu, resp.
This is a petition for a writ of mandamus filed by the petitioner to compel Natividad to issue acertificate of Philippine registry in favor of the former for its motor vessel Facts: Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands.A majority of its stockholders are British subjects. It is the owner of a motor vessel known as the Batobuilt for it in the Philippine Islands in 1916, of more than fifteen tons gross The Bato was brought toCebu in the present year for the purpose of transporting plaintiff's merchandise between ports in theIslands. Application was made at Cebu, the home port of the vessel, to the Collector of Customs for acertificate of Philippine registry. The Collector refused to issue the certificate, giving as his reason thatall the stockholders of Smith, Bell & Co., Ltd., were not citizens either of the United States or of thePhilippine Islands. The instant action is the result.Counsel argues that Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection of the lawsbecause it, in effect, prohibits the corporation from owning vessels, and because classification of corporations based on the citizenship of one or more of their stockholders is capricious, and that ActNo. 2761 deprives the corporation of its property without due process of law because by the passageof the law company was automatically deprived of every beneficial attribute of ownership in the Batoand left with the naked title to a boat it could not use . Issue: Whether the Government of the Philippine Islands, through its Legislature, can deny the registry of vessel in its coastwise trade to corporations having alien stockholders Ruling: Yes. Act No. 2761 provides: Investigation into character of vessel No application for a certificate of Philippine register shall beapproved until the collector of customs is satisfied from an inspection of the vessel that it is engaged ordestined to be engaged in legitimate trade and that it is of domestic ownership as such ownership isdefined in section eleven hundred and seventy-two of this Code. Certificate of Philippine register Upon registration of a vessel of domestic ownership, and of morethan fifteen tons gross, a certificate of Philippine register shall be issued for it. If the vessel is of domestic ownership and of fifteen tons gross or less, the taking of the certificate of Philippine registershall be optional with the owner. While Smith, Bell & Co. Ltd., a corporation having alien stockholders, is entitled to the protectionafforded by the due-process of law and equal protection of the laws clause of the Philippine Bill of Rights, nevertheless, Act No. 2761 of the Philippine Legislature, in denying to corporations such asSmith, Bell &. Co. Ltd., the right to register vessels in the Philippines coastwise trade, does not belongto that vicious species of class legislation which must always be condemned, but does fall withinauthorized exceptions, notably, within the purview of the police power, and so does not offend againstthe constitutional provision.

Bataan Shipyard & Engineering Co., Inc. vs Presidential Commission on Good Government
150 SCRA 181 Business Organization Corporation Law A Corporation Cannot Invoke the Right Against Self-Incrimination When President Corazon Aquino took power, the Presidential Commission on Good Government (PCGG) was formed in order to recover ill gotten wealth allegedly acquired by former President Marcos and his cronies. Aquino then issued two executive orders in 1986 and pursuant thereto, a sequestration and a takeover order were issued against Bataan Shipyard & engineering Co., Inc. (BASECO). BASECO was alleged to be in actuality owned and controlled by the Marcoses through the Romualdez family, and in turn, through dummy stockholders. The sequestration order issued in 1986 required, among others, that BASECO produce corporate records from 1973 to 1986 under pain of contempt of the PCGG if it fails to do so. BASECO assails this order as it avers, among others, that it is against BASECOs right against sel f incrimination and unreasonable searches and seizures. ISSUE: Whether or not BASECO is correct. HELD: No. First of all, PCGG has the right to require the production of such documents pursuant to the power granted to it. Second, and more importantly, right against self-incrimination has no application to juridical persons. There is a reserve right in the legislature to investigate the contracts of a corporation and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation like BASECO to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose. Neither is the right against unreasonable searches and seizures applicable here. There were no searches made and no seizure pursuant to any search was ever made. BASECO was merely ordered to produce the corporate records.

Acebedo Optical vs Court of Appeals

Municipal Corporation Proprietary Functions Police Power Acebedo Optical applied for a business permit to operate in Iligan City. After hearing the sides of local optometrists, Mayor Cabili of Iligan granted the permit but he attached various special conditions which basically made Acebedos dependent upon prescription s to be issued by local optometrists. Acebedo is not allowed to practice optometry within the city. Acebedo however acquiesced to the said conditions and operated under the permit. Later, Acebedo was charged for violating the said conditions and was subsequently suspended from operating within Iligan. Acebedo then assailed the validity of the attached conditions. The local optometrists argued that Acebedo is estopped in assailing the said conditions because it acquiesced to the same and that the imposition of the special conditions is a valid exercise of police power; that such conditions were entered upon by the city in its proprietary function hence the permit is actually a contract. ISSUE: Whether or not the special conditions attached by the mayor is a valid exercise of police power. HELD: NO. Acebedo was applying for a business permit to operate its business and not to practice optometry (the latter being within the jurisdiction PRC Board of Optometry). The conditions attached by the mayor is ultra vires hence cannot be given any legal application therefore estoppel does not apply. It is neither a valid exercise of police power. Though the mayor can definitely impose conditions in the granting of permits, he must base such conditions on law or ordinances otherwise the conditions are ultra vires. Lastly, the granting of the license is not a contract, it is a special privilege estoppels does not apply.

Philippine National Bank vs Court of Appeals et al

83 SCRA 237 Business Organization Corporation Law Corporations Liability for Negligence Rita Tapnio owes PNB an amount of P2,000.00. The amount is secured by her sugar crops about to be harvested including her export quota allocation worth 1,000 piculs. The said export quota was later dealt by Tapnio to a certain Jacobo Tuazon at P2.50 per picul or a total of P2,500. Since the subject of the deal is mortgaged with PNB, the latter has to approve it. The branch manager of PNB recommended that the price should be at P2.80 per picul which was the prevailing minimum amount allowable. Tapnio and Tuazon agreed to the said amount. And so the bank manager recommended the agreement to the vice president of PNB. The vice president in turn recommended it to the board of directors of PNB. However, the Board of Directors wanted to raise the price to P3.00 per picul. This Tuazon does not want hence he backed out from the agreement. This resulted to Tapnio not being able to realize profit and at the same time rendered her unable to pay her P2,000.00 crop loan which would have been covered by her agreement with Tuazon. Eventually, Tapnio was sued by her other creditors and Tapnio filed a third party complaint against PNB where she alleged that her failure to pay her debts was because of PNBs negligence and unreasonableness. ISSUE: Whether or not Tapnio is correct. HELD: Yes. In this type of transaction, time is of the essence considering that Tapnios sugar quota for said year needs to be util ized ASAP otherwise her allotment may be assigned to someone else, and if she cant use it, she wont be able to export her crops. It is unreasonable for PNBs board of directors to disallow the agreement between Tapnio and Tuazon because of the mere difference of 0.20 in the agreed price rate. What makes it more unreasonable is the fact that the P2.80 was recommended both by the bank manager and PNBs VP yet it was disapproved by the board. Further, the P2.80 per picul rate is the minimum allowable rate pursuant to prevailing market trends that time. This unreasonable stand reflect s PNBs lack of the reasonable degree of care and vigilance in attending to the matter. PNB is therefore negligent. A corporation is civilly liable in the same manner as natural persons for torts, because generally speaking, the rules gover ning the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial person. All of the authorities agree that a principal or master is liable for every tort which it expressly directs or authorizes, and this is just as true of a corporation as of a natural person, a corporation is liable, therefore, whenever a tortious act is committed by an officer or agent under express direction or authority from the stockholders or members acting as a body, or, generally, from the directors as the governing body.

West Coast Life Insurance vs Geo Hurd

27 Phil 401 Business Organization Corporation Law No Criminal Actions Against A Corporation In 1912, West Coast Life Insurance caused the distribution of printed materials which impressed among the readers thereof that Insular Life Insurance Company is in bad shape. Insular Life then filed a criminal case for libel against West Coast Insurance. Judge Geo Hurd took cognizance of the case. West Coast Insurance opposed the same as it alleged that it the filing is against prevailing rules of criminal procedure. ISSUE: Whether or not West Coast Life Insurance is correct. HELD: Yes. There is no provision in the prevailing rules of criminal procedure to support the said criminal case filed against West Coast Life Insurance. A corporation cannot be proceeded against criminally in court primarily because a corporation cannot possibly commit a crime absent the essential element of malicious intent. The rule is to proceed against the officials of the corporation and not the corporation itself.

ABS-CBN BROADCASTING CORP. v CA, REPUBLIC BROADCASTING CORP., VIVA PRODUCTIONS, INC.,and VICENTE DEL ROSARIO (301 SCRA 589)Date: January 21, 1999Ponente: C.J. Davide, Jr.
Facts: In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement whereby VIVA gave ABS-CBN an exclusiveright to exhibit some VIVA films. According to the agreement, ABS-CBN shall have the right of first refusal to the next 24VIVA films for TV telecast under such terms as may be agreed upon by the parties, however, such right shall be exercisedby ABS-CBN from the actual offer in writing. Sometime in December 1991, VIVA, through Vicente Del Rosario (Executive Producer), offered ABS-CBNthrough VP Charo Santos-Concio, a list of 3 film packages from which ABS-CBN may exercise its right of first refusal.ABS-CBN, however through Mrs. Concio, tick off only 10 titles they can purchase among which is the film Maging SinoKa Man which is one of the subjects of the present case, therefore, it did not accept the said list as per the rejection letterauthored by Mrs. Concio sent to Del Rosario. Subsequently, Del Rosario approached Mrs. Concio with another list consisting of 52 original movie titles and 104re-runs, proposing to sell to ABS-CBN airing rights for P60M (P30M in cash and P30M worth of television spots). DelRosario and ABS-CBNs General Manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant in QC to discuss the package proposal but to no avail. Four days later, Del Rosario and Mr. Graciano Gozon, Senior VP of Finance of Republic Broadcasting Corporation (RBS/Channel 7) discussed the terms and conditions of VIVAs offer. A day after that, Mrs. Concio sent the draft of the contract between ABS -CBN and VIVA which contained a counter-proposal covering 53 films for P35M. VIVAs Board of Directors rejected the counter-proposal as it would not sell anything less than the package of 104 films for P60M.After said rejection, ABS-CBN closed a deal with RBS including the 14 films previously ticked off by ABS-CBN. Consequently, ABS-CBN filed a complaint for specific performance with prayer for a writ of preliminary injunctionand/or TRO against RBS, VIVA and Del Rosario. RTC then enjoined the latter from airing the subject films. RBS posted aP30M counterbond to dissolve the injunction. Later on, the trial court as well as the CA dismissed the complaint holding that there was no meeting of minds between ABS-CBN and VIVA, hence, there was no basis for ABS-CBNs demand, furthermore, the right of first refusal had previously been exercised Hence, the present petition, ABS-CBN argued that an agreement was made during the meeting of Mr. Lopez and Del Rosario jotted down on a napkin (this was never produced in court). Moreover, it had yet to fully exercise its right of first refusal since only 10 titles were chosen from the first list. As to actual, moral and exemplary damages, there was noclear basis in awarding the same. Issue: WON a contract was perfected between ABS-CBN and VIVA and WON moral damages may be awarded to acorporation Held: Both NO. Ratio: Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there isconcurrence between the offer and the acceptance upon the subject matter, consideration, and terms of payment acontract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absoluteand must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sortfrom the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is arejection of the original offer. Consequently, when something is desired which is not exactly what is proposed in the offer,such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offerannuls the offer.After Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN to discuss the package of films, ABS-CBN, sent throughMs. Concio, counter-proposal in the form a draft contract. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario. Clearly, there was no acceptance of VIVAs offer, for it was met by a counter-offer which substantially varied the terms of the offer. In the case at bar, VIVA through its Board of Directors, rejected such counter-offer. Even if it be conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as therewas no proof whatsoever that Del Rosario had the specific authority to do so. Under the Corporation Code, unless otherwise provided by said Code, corporate powers, such as thepower to enter into contracts, are exercised by the Board of Directors. However, the Board may delegate suchpowers to either an executive committee or officials or contracted managers. The delegation, except for theexecutive committee, must be for specific purposes. Delegation to officers makes the latter agents of the corporation;accordingly, the general rules of agency as to the binding effects of their acts would apply. For such officers to be deemed fully clothed by the corporation to exercise a

power of the Board, the latter must specially authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBNs counter -offer was best evidenced by his submission of the draft contract to VIVAs Board of Directors for the latters approval. In any event, there was between DelRosario and Lopez III no meeting of minds. The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is as it should be because corporate power to enter into a contract is lodged in the Board of Directors. (Sec. 23,Corporation Code). Without such board approval by the Viva board, whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid contact binding upon Viva. However, the Court find for ABS-CBN on the issue of damages. Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish, which can be experienced only by one having a nervous system. The statement that a corporation may recover moral damages if it has a good reputation that is debased, resulting in social humiliation is an obiter dictum. On this score alone the award for damages must be set aside, since RBS is a corporation.

MAMBULAO LUMBER COMPANY vs PHILIPPINE NATIONAL BANK and ANACLETOHERALDO Deputy Provincial Sheriff of Camarines Norte,
G.R. No. L-22973,January 30, 1968 ANGELES, FACTS: On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 (approved for a loan of P100,000 only) with the Naga Branch of defendant PNB. To secure payment, the plaintiff mortgaged aparcel of land, together with the buildings and improvements existing thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao), province of Camarines Norte. The PNB released from the approvedloan the sum of P27,500, and another release of P15,500.The plaintiff failed to pay the amortization on the amounts released to and received by it. It was found that the plaintiff had already stopped operation about the end of 1957 or early part of 1958.The unpaid obligation of the plaintiff as of September 22, 1961, amounted to P57,646.59, excludingattorney's fees. A foreclosure sale of the parcel of land, together with the buildings and improvementsthereon was, held on November 21, 1961, and the said property was sold to the PNB for the sum of P56,908.00, subject to the right of the plaintiff to redeem the same within a period of one year.The plaintiff sent a letter reiterating its request that the foreclosure sale of the mortgaged chattels bediscontinued on the grounds that the mortgaged indebtedness had been fully paid and that it could not belegally effected at a place other than the City of Manila.The trial court sentenced the Mambulao Lumber Company to pay to the defendant PNB the sum of P3,582.52 with interest thereon at the rate of 6% per annum. The plaintiff on appeal advanced that its totalindebtedness to the PNB as of November 21, 1961, was only P56,485.87 and not P58,213.51 as concludedby the court a quo; hence, the proceeds of the foreclosure sale of its real property alone in the amount of P56,908.00 on that date, added to the sum of P738.59 it remitted to the PNB thereafter was more thansufficient to liquidate its obligation, thereby rendering the subsequent foreclosure sale of its chattelsunlawful;That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard of plaintiff'svigorous opposition thereto, and in taking possession thereof after the sale thru force, intimidation,coercion, and by detaining its "man-in-charge" of said properties, the PNB is liable to plaintiff fordamages and attorney's fees. ISSUE: Whether or not PNB may be held liable to plaintiff Corporation for damages and attorne ys fees. HELD: Herein appellant's claim for moral damages, seems to have no legal or factual basis. Obviously, an artificial person like herein appellant corporation cannot experience physical sufferings, mentalanguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which arebasis of moral damages . A corporation may have a good reputation which, if besmirched, may also be aground for the award of moral damages. The same cannot be considered under the facts of this case,however, not only because it is admitted that herein appellant had already ceased in its business operationat the time of the foreclosure sale of the chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the chattels could have upon its reputation or business standing would undoubtedlybe the same whether the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is theplace agreed upon by the parties in the mortgage contract. But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila as provided for in the mortgage contract, to which their attentions were timely called by herein appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00, herein appellant should be awarded exemplary amages in the sum of P10,000.00. The circumstances of the case also warrant the award of P3,000.00 as attorney's fees for herein appellant.

Jardine Davies Inc. vs. CA and Far East Mills Supply Corporation; Pure Foods Corporation vs CA (June 19, 2000)
Corporation entitled to Moral Damages (reputation besmirched) Facts: In 1992 Purefoods decided to install 2 generators in its food processing plant in San Roque, Marikina. A bidding for the supply and installation was held among the bidders was Far East Mills Supply Corporation (FEMSCO). Thereafter, in a letter addressed to FEMSCO president, Purefoods confirmed the award of the contract. Immediately FEMSCO submitted the requirements such as a performance bond and all risk insurance policy as well as purchasing the necessary materials. However, in another letter, Purefoods unilaterally cancelled the award citing significant factors which were uncovered and brought to their attention which dictate the cancellation and warrant a total review and re-bid of the project. FEMSCO protested the cancellation but before the matter could be resolve, Purefoods awarded the project with Jardine Nell, a division of Jardine Davies. FEMSCO sued both Purefoods and Jardine. The RTC granted Jardines demurrer to evidence but found in favor of FEMSCO against Purefoods and order indemnification. FEMSCO appealed the granting of the demurrer filed by Jardine and Purefoods appealed the decision of the court. The CA affirmed the decision of the RTC but ordered Jardine to pay FEMSCO damages for inducing Purefoods to violate the contract as such, Jardine must pay moral damages. In addition, Purefoods was also directed to pay FEMSCO moral damages and exemplary damages Both Purefoods and Jardine filed motions for reconsideration which were denied. Issue: Whether or not moral damages may be granted to a corporation? Held: The Court has awarded in the past moral damages to a corporation whose reputation has been besmirched. (Asset Privatization Trust v. CA, 300 SCRA 379) In this case, respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered equipment from its suppliers on account of the urgency of the project, only to be canceled later. The Court thus, sustained respondent appellate courts award of moral damages. However, as there is no showing whatsoever that Jardine induced Purefoods, the decision of the CA is modified. The order to Jardine Davies to pay FEMSCO moral damages is reversed and set aside.

Filipinas Broadcasting Network Inc. vs. Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM)
[GR 141994, 17 January 2005] Facts: Expos is a radio documentary program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun Alegre (Alegre). Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. (FBNI). Expos is heard over Legazpi City, the Albay municipalities and other Bicol areas. In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students, teachers and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC) and its administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs College of Medicine, filed a complaint for damages against FBNI, Rima and Alegre on 27 February 1990. The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI, Rima and Alegre transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation. AMEC and Ago included FBN I as defendant for allegedly failing to exercise due diligence in the selection and supervision of its employees, particularly Rima and Alegre. On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer alleging that the broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public duty to report the goings-on in AMEC, *which is+ an institution imbued with public interest. Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea, collaborating counsel of Atty. Lozares, filed a Motion to Dismiss on FBNIs behalf. The trial court denied the motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the selection and supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an apprenticeship and training program after passing the interview. FBNI likewise claimed that it always reminds its broadcasters to observe truth, fairness and objectivity in their broadcasts and to refrain from using libelous and indecent language. Moreover, FBNI requires all br oadcasters to pass the Kapisanan ng mga Brodkaster sa Pilipinas (KBP) accreditation test and to secure a KBP permit. On 14 December 1992, the trial cou rt rendered a Decision finding FBNI and Alegre liable for libel except Rima. The trial court held that the broadcasts are libelous per se. The trial court rejected the broadcasters claim that their utterances were the result of straight reporting because it had no factual basis. The broadcasters did not even verify their reports before airing them to show good faith. In holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the selection and supervision of its employees. In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he agreed with Alegres expos. The trial court found Rimas statement within the bounds of freedom of speech, expression, and of the press. Both parties, namely, FB NI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision to the Court of Appeals. The C ourt of Appeals affirmed the trial courts judgment with modification. The appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos claim for damages and attorneys fees because the broadcasts were directed against AMEC, and not against her. FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000 Resolution. Hence, FBNI filed the petition for review.

Issue: Whether AMEC is entitled to moral damages. Held: A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al. to justify the award of moral damages. However, the Courts statement in Mambulao that a corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages is an obiter dictum. Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 of the Civil Code. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages. Moreover, where the broadcast is libelous per se, the law implies damages. In such a case, evidence of an honest mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. Neither in such a case is the plaintiff required to introduce evidence of actual damages as a condition precedent to the recovery of some damages. In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages. However, the Court found the award of P300,000 moral damages unreasonable. The record shows that even though the broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its reputation. Therefore, the Court reduced the award of moral damages from P300,000 to P150,000.

PEOPLE VS QUASHA
FACTS: William H. Quasha a member of the Philippine bar, committed a crime of falsification of a public and commercial document for causing it to appear that Arsenio Baylon, a Filipino citizen, had subscribed to and was the owner of 60.005 % of the subscribed capital stock of Pacific Airways Corp. (Pacific) when in reality the money paid belongs to an American citizen whose name did not appear in the article of incorporation, to circumvent the constitutional mandate that no corp. shall be authorize to operate as a public utility in the Philippines unless 60% of its capital stock is owned by Filipinos. Found guilty after trial and sentenced to a term of imprisonment and a fine Quasha appealed to this Court

Primary purpose: to carry on the business of a common carrier by air, land or water Baylon did not have the controlling vote because of the difference in voting power between the preferred shares and the common shares

ART. 171. Falsification by public officer, employee, or notary or ecclesiastic minister . The penalty of prision mayor and a fine not to exceed 5,000 pesos shall be imposed upon any public officer, employee, or notary who, taking advantage of his official position, shall falsify a document by committing any of the following acts:

4. Making untruthful statements in a narration of facts.

ART. 172. Falsification by private individuals and use of falsified documents . The penalty of prision correccional in its medium and maximum period and a fine of not more than 5,000 pesos shall be imposed upon: 1. Any private individual who shall commit any of the falsifications enumerated in the next preceding article in any public or official document or letter of exchange or any other kind of commercial document.

ISSUE: W/N Quasha should be criminally liable

HELD: NO. Acquitted. Falsification consists in not disclosing in the articles of incorporation that Baylon was a mere trustee ( or dummy as the prosecution chooses to call him) of his American co-incorporators, thus giving the impression that Baylon was the owner of the shares subscribed to by him For the mere formation of the corporation such revelation was not essential, and the Corporation Law does not require it. The moment for determining whether a corporation is entitled to operate as a public utility is when it applies for a franchise, certificate, or any other form of authorization for that

purpose. that can be done after the corporation has already come into being and not while it is still being formed so far as American citizens are concerned, the said act has ceased to be an offense within the meaning of the law, so that defendant can no longer be held criminally liable therefor.

Francisco Tatad vs Jesus Garcia, Jr.

243 SCRA 436 Business Organization Corporation Law Corporate Nationality Public Utility Nationality Requirement in Nationalized Areas of Activity In 1989, the government planned to build a railway transit line along EDSA. No bidding was made but certain corporations were invited to prequalify. The only corporation to qualify was the EDSA LRT Consortium which was obviously formed for this particular undertaking. An agreement was then made between the government, through the Department of Transportation and Communication (DOTC), and EDSA LRT Consortium. The agreement was based on the Build-Operate-Transfer scheme provided for by law (RA 6957, amended by RA 7718). Under the agreement, EDSA LRT Consortium shall build the facilities, i.e., railways, and shall supply the train cabs. Every phase that is completed shall be turned over to the DOTC and the latter shall pay rent for the same for 25 years. By the end of 25 years, it was projected that the government shall have fully paid EDSA LRT Consortium. Thereafter, EDSA LRT Consortium shall sell the facilities to the government for $1.00. However, Senators Francisco Tatad, John Osmea, and Rodolfo Biazon opposed the implementation of said agreement as they averred that EDSA LRT Consortium is a foreign corporation as it was organized under Hongkong laws; that as such, it cannot own a public utility such as the EDSA railway transit because this falls under the nationalized areas of activities. The petition was filed against Jesus Garcia, Jr. in his capacity as DOTC Secretary. ISSUE: Whether or not the petition shall prosper. HELD: No. The Supreme Court made a clarification. The SC ruled that EDSA LRT Consortium, under the agreement, does not and will not become the owner of a public utility hence, the question of its nationality is misplaced. It is true that a foreign corporation cannot own a public utility but in this case what EDSA LRT Consortium will be owning are the facilities that it will be building for the EDSA railway project. There is no prohibition against a foreign corporation to own facilities used for a public utility. Further, it cannot be said that EDSA LRT Consortium will be the one operating the public utility for it will be DOTC that will operate the railway transit. DOTC will be the one exacting fees from the people for the use of the railway and from the proceeds, it shall be paying the rent due to EDSA LRT Consortium. All that EDSA LRT Consortium has to do is to build the facilities and receive rent from the use thereof by the government for 25 years it will not operate the railway transit. Although EDSA LRT Consortium is a corporation formed for the purpose of building a public utility it does not automatically mean that it is operating a public utility. The moment for determining the requisite Filipino nationality is when the entity applies for a franchise, certificate or any other form of authorization for that purpose.

Filipinas Compania de Seguros v. Christern Huenefeld

G.R. No. L-2294, May 25, 1951

A corporation borrows its citizenship from the citizenship of majority of its stockholders, regardless of the country under whose laws it was organized and created.

FACTS: Christern Huenefeld Corporation bought a fire insurance policy from Filipinas Compania de Seguros to cover merchandise contained in a building. During the Japanese military occupation, this same merchandise and the building were burned, so Huenefeld filed a claim under the policy. Filipinas Compania refused to pay, alleging that the policy had ceased to be in force when the US declared war against Germany. Filipinas Compania contended that Huenefeld, although organized and created under Philippine laws, is a German subject, and hence, a public enemy, since majority of its stockholders are Germans. On the other hand, Filipinas Compania is under American jurisdiction. However, the Director of Bureau of Financing, Philippine Executive Commission ordered Filipinas Compania to pay, so Filipinas Compania did pay. The case at bar is about the recovery of that sum paid.

ISSUES:

W/N Christern Huenefeld is a German subject because majority of its stockholders are under German jurisdiction, despite the fact that it was organized and created under Philippine laws If so, W/N the fire insurance policy is enforceable against an enemy state

HELD: The Court of Appeals ruled that a private corporation is a citizen of the country or state by and under the laws of which it was created or organized. It rejected the theory that nationality of a private corporation is determined by the character or citizenship of its controlling stockholders. But the Supreme Court held that Christern Huenefeld is an enemy corporation since majority of its stockholders are German subjects. The two American cases relied up by the Court of Appeals have lost their force in view of a newer case where the control test was adopted. The Philippine Insurance Law provides that anyone, except a public enemy, may be insured. It stands to reason that an insurance policy ceases to be allowable as soon as the insured becomes a public enemy. Since Christern Huenefeld became a public enemy on Dec. 10, 1941, then the policy has ceased to be enforcible and therefore Huenefeld is not entitled to indemnity. However, elementary rules of justice require that the premium paid from Dec. 11, 1941 should be returned. Thus, Filipinas Compania is allowed to recover the sum paid but only its equivalent in actual Philippine currency, minus the premium that Huenefeld paid after Dec. 11.

Pedro Palting vs San Jose Petroleum, Inc.

18 SCRA 924 Business Organization Corporation Law Parity Rights Nationality Nationalized Areas of Activity In 1956, San Jose Petroleum, Inc. (SJP), a mining corporation organized under the laws of Panama, was allowed by the Securities and Exchange Commission (SEC) to sell its shares of stocks in the Philippines. Apparently, the proceeds of such sale shall be invested in San Jose Oil Company, Inc. (SJO), a domestic mining corporation. Pedro Palting opposed the authorization granted to SJP because said tie up between SJP and SJO is violative of the constitution; that SJO is 90% owned by SJP; that the other 10% is owned by another foreign corporation; that a mining corporation cannot be interested in another mining corporation. SJP on the other hand invoked that under the parity rights agreement (Laurel-Langley Agreement), SJP, a foreign corporation, is allowed to invest in a domestic corporation. ISSUE: Whether or not SJP is correct. HELD: No. The parity rights agreement is not applicable to SJP. The parity rights are only granted to American business enterprises or enterprises directly or indirectly controlled by US citizens. SJP is a Panamanian corporate citizen. The other owners of SJO are Venezuelan corporations, not Americans. SJP was not able to show contrary evidence. Further, the Supreme Court emphasized that the stocks of these corporations are being traded in stocks exchanges abroad which renders their foreign ownership subject to change from time to time. This fact renders a practical impossibility to meet the requirements under the parity rights. Hence, the tie up between SJP and SJO is illegal, SJP not being a domestic corporation or an American business enterprise contemplated under the Laurel-Langley Agreement.

Wilson P. Gamboa v. Finance Secretary Margarito Teves, et al., G.R.No. 176579, June 28, 2011
THE FACTS This is a petition to nullify the sale of shares of stock of Philippine TelecommunicationsInvestment Corporation (PTIC) by the government of the Republic of the Philippines, acting throughthe Inter-Agency Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), anaffiliate of First Pacific Company Limited (First Pacific), a Hong Kong-based investmentmanagement and holding company and a shareholder of the Philippine Long Distance TelephoneCompany (PLDT).The petitioner questioned the sale on the ground that it also involved an indirect sale of 12million shares (or about 6.3 percent of the outstanding common shares) of PLDT owned by PTIC toFirst Pacific. With the this sale, First Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasin g the total common shareholdings of foreigners in PLDT toabout 81.47%. This, according to the petitioner, violates Section 11, Article XII of the 1987 PhilippineConstitution which limits foreign ownership of the capital of a public utility to not more than 40%,thus: Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. (Emphasis supplied) II.THE ISSUE Does the term capital in Section 11, Article XII of the Constitution refer to the total commonshares only, or to the total outstanding capital stock (combined total of common and non-votingpreferred shares) of PLDT, a public utility? III. THE RULING [The Court partly granted the petition and held that the term capital in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors of a public utility, i.e., to the total common shares in PLDT.] Considering that common shares have voting rights which translate to control, as opposed topreferred shares which usually have no voting rights, the term capital in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term capital shall include such preferred shares because the right to participate in the co ntrol or management of the corporation is exercised through the right to vote in the election of directors. In short, the term capital in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors. To construe broadly the term capital as the total outstanding capital stock, including bothcommon andnon -voting preferred shares, grossly contravenes the intent and letter of thenConstitution that the State shall develop a self -reliant and independent national economy effectively controlled by Filipinos. A broad definition unjustifiably disregards who owns the all-important votingstock, which necessarily equates to control of the public utility.Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDTs Articles of Incorporation expressly state that the holders of Serial PreferredStock shall not be entitled to vote at any meeting of the stockholders for the election of directors or for any other purposenor otherwise participate in any action taken by the corporationor its stockholders, or to receive notice of any meeting of stockholders. On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDTs Arti cles of Incorporation state that each holder of Common Capital Stock shall have one vote in respect of each share of such stock held by him on all matters voted upon by the stockholders, and theholders of Common Capital Stock shall have the exclusive right to vote for the election of directors and for all other purposes. It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT. In fact, b ased on PLDTs 2010 General Information Sheet (GIS), which is a document required to be submitted annually to the Securities and ExchangeCommission, foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only66,750,622 common shares. In other words, foreigners hold 64.27% of the total number of PLDTs common shares, while Filipinos hold only 35.73%. Since h olding a majority of the common sharesequates to control, it is clear that foreigners exercise control over PLDT. Such amount of controlunmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expresslymandated in Section 11, Article XII of the Constitution. As shown in PLDTs 2010 GIS, as submitted to the SEC, the par value of PLDT commonshares is P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par value of common shares but cannot elect directors andhave only 1/70 of the

dividends of common shares. Moreover, 99.44% of the preferred shares areowned by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares. Worse,preferred shares constitute 77.85% of the authorized capital stock of PLDT while common sharesconstitute only 22.15%. This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with the common shares, blatantly violating the constitutionalrequirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility.In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percentof the dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that *n+o franchise, certificate, or any other form of authorization for the operation of a public utility shal l be granted except to x x x corporations x x x organized under the laws of thePhilippines, at least sixty per centum of whose capital is owned by such citizens x x x. To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of sharesexercises the sole right to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDTs common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have novoting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn; (5)preferred shares have twice the par value of common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution. Thus, the Respondent Chairperson of the Securities and Exchange Commission was DIRECTED by the Court to apply the foregoing definition of the term capital in determining theextent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law.]

G.R. No. 176579, October 9, 2012

[Constitutional Law, Corporation] The term capital does not refer to both preferred and commonstocks treated as the sameclass of shares regardless of differe nces in voting rights and privileges. Consistent with the constitutional mandate that the State shall develop a self -reliant and independent national economy effectively controlled by Filipinos, the term "capital" means the outstanding capital stock entitled to vote (voting stock), coupled with beneficia l ownership, both of which results to "effective control." "Mere legal title is insufficient to meet the 60 percent Filipino owned capital required in the Constitution for certain in dustries. Full beneficial ownership of 60 percent of the outstandingcapital stock, coupled with 60 percent of the voting rights, is required." In this case, suchtwin requirements must apply uniformly and across the board to all classes of sharescomprising the capital. Thus, "the 60-40 ownership requirement in favor of Filipino citizensmust apply separately to each class of shares, whether common, preferred non-voting, preferred voting or any other class of shares." This guarantees that the controlling interest in public utilities always lies in the hands of Filipino citizens.