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ENGR. RANULFO C. FELICIANO, in his capacity as General Manager (LMWD), petitioner, vs. COMMISSION ON AUDIT, et al. respondents. The COA denied petitioner Ranulfo C.Felicianos request for COA to cease all audit services,

and to stop charging auditing fees, to Leyte Metropolitan Water District (LMWD). The COA also denied petitioners request for COA to refund all auditing fees previously paid by LMWD.

The CTA ruled that this Court has already settled COAs audit jurisdiction over local water districts. Also, it denied petitioners request for COA to stop charging auditing fees as well as petitioners request for COA to refund all auditing fees already paid.

Petitioner maintains that LWDs are not government-owned and controlled corporations with original charters. 

ISSUE: Whether a Local Water District (LWD) created under PD 198, as amended, is a government-owned or controlled corporation subject to the audit jurisdiction of COA.SC RULING: 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. Section 16, Article XII of the Constitution provides:

Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.

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.

Unlike private corporations, which derive their legal existence and power from the Corporation Code, LWDs derive their legal existence and power from PD 198. The ineluctable conclusion is that LWDs are government-owned and controlled corporations with a special charter.

The Court reiterated the meaning of the phrase GOCC with original charters in this wise: “By government-owned or controlled corporation with original charter, We mean

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government owned or controlled corporation created by a special law and not under the Corporation Code of the Philippines.”

The Constitution vests in the COA audit jurisdiction over government-owned and controlled corporations with original charters, as well as government-owned or controlled corporations without original charters. GOCCs with original charters are subject to COA pre-audit, while GOCCs without original charters are subject to COA post-audit.GOCCs without original charters refer to corporations created under the Corporation Code but are owned or controlled by the government. The nature or purpose of the corporation is not material in determining COAs audit jurisdiction. Neither is the manner of creation of a corporation, whether under a general or special law.

If LWDs are neither GOCCs with original charters nor GOCCs without original charters, then they would fall under the term agencies or instrumentalities of the government and thus still subject to COAs audit jurisdiction

COA may charge GOCCs actual audit cost but GOCCs must pay the same directly to COA and not to COA auditors.Petitioner has not alleged that COA charges LWDs auditing fees in excess of COAs actual audit cost. Neither has petitioner alleged that the auditing fees are paid by LWDs directly to individual COA auditors. Thus, petitioners contention must fail.

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. COURT OF APPEALS, et al. respondents. G.R. No. 155650, July 20, 2006

LGU Code of 1991 withdrew the exemption from real estate tax granted to MIAA under its Charter. MIAA received Final Notices of Real Estate Tax Delinquency from the respondent. Respondent issued notices of levy and warrants of levy on the Airport Lands and Buildings. It also threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency.

When the respondent announced the public auction sale of the Airport Lands and Buildings, MIAA filed before the SC an Issuance of a TRO. SC issued a TRO.

MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government Code because the Airport Lands and Buildings are owned by the Republic. To justify the exemption, MIAA invokes the principle that the government cannot tax itself. MIAA points out that the reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor.

Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate tax.

ISSUE: Whether MIAA, an agency vested with corporate powers but neither a stock nor non-stock corporation, is deemed GOCC.SC RULING:

NO. the government-owned or controlled corporations created through special charters are those that meet the two conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the government-owned or controlled corporation must be established for the common good. The second condition is that the government-

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owned or controlled corporation must meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides:

SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.

The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations" through special charters only if these entities are required to meet the twin conditions of common good and economic viability. In other words, Congress has no power to create government-owned or controlled corporations with special charters unless they are made to comply with the two conditions of common good and economic viability. The test of economic viability applies only to government-owned or controlled corporations that perform economic or commercial activities and need to compete in the market place. Being essentially economic vehicles of the State for the common good — meaning for economic development purposes — these government-owned or controlled corporations with special charters are usually organized as stock corporations just like ordinary private corporations.

In contrast, government instrumentalities vested with corporate powers and performing governmental or public functions need not meet the test of economic viability. These instrumentalities perform essential public services for the common good, services that every modern State must provide its citizens. These instrumentalities need not be economically viable since the government may even subsidize their entire operations. These instrumentalities are not the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with corporate powers but performing essential governmental or public functions. Congress has plenary authority to create government instrumentalities vested with corporate powers provided these instrumentalities perform essential government functions or public services. However, when the legislature creates through special charters corporations that perform economic or commercial activities, such entities — known as "government-owned or controlled corporations" — must meet the test of economic viability because they compete in the market place.

Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation as follows:SEC. 2. General Terms Defined. – x x x x(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock

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corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)

MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. Under its Charter, MIAA does not have capital stock that is divided into shares. MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares.

MIAA is also not a non-stock corporation because it has no members. Non-stock corporations cannot distribute any part of their income to their members. MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury. 

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a government "instrumentality" as follows:SEC. 2. General Terms Defined. –– x x x x(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied)

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or controlled corporation.

CONCEPCION MAGSAYSAY-LABRADOR, et al., petitioners, vs. CA, et al., respondents. G.R. No. 58168 December 19, 1989

Adelaida Rodriguez-Magsaysay filed an action against Artemio Panganiban, SUBIC, FILMANBANK and the ROD of Zambales.

She prayed to annul the Deed of Assignment and the Deed of Mortgage over the conjugal property sold by SUBIC to FILMANBANK and a new TCT be issued to her.

However, a motion for intervention was filed by petitioner on the ground that their brother conveyed to them 1/2 of his shareholdings in SUBIC and as assignees of around 41 % of the total outstanding shares of such stocks of SUBIC, they have a substantial and legal interest in the subject matter of litigation and that they have a legal interest in the success of the suit with respect to SUBIC.

The court denied the motion for intervention, and ruled that petitioners have no legal interest whatsoever in the matter in litigation and their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a personality separate and distinct from its stockholders.

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On appeal, respondent Court of Appeals found no factual or legal justification to disturb the findings of the lower court.

ISSUE: Whether petitioners are owners of corporate property which grants them a substantial and legal interest in the subject matter of litigation and also a legal interest in the success of the suit with respect to SUBIC.

SC RULING: NO. The interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,

conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the management of the corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after payment of the corporate debts and obligations.

While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person.

The factual findings of the trial court are clear on this point. The petitioners cannot claim the right to intervene on the strength of the transfer of shares allegedly executed by the late Senator. The corporation did not keep books and records. Perforce, no transfer was ever recorded, much less effected as to prejudice third parties. The transfer must be registered in the books of the corporation to affect third persons. The law on corporations is explicit. Section 63 of the Corporation Code provides, thus: "No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred."

And even assuming arguendo that there was a valid transfer, petitioners are nonetheless barred from intervening inasmuch as their rights can be ventilated and amply protected in another proceeding.

SULO NG BAYAN INC.,   plaintiff-appellant,   vs. GREGORIO ARANETA, INC., et al. defendants-appellees. G.R. No. L-31061 August 17, 1976 FACTS:

Sulo ng Bayan, Inc. filed an accion de revindicacion with the CFI against defendants-appellees to recover the ownership and possession of a large tract of land in San Jose del Monte, Bulacan.

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CFI dismissed the case due to lack of cause of action. It ruled that the people whose rights were alleged to have been violated by being deprived and dispossessed of their land are the members of the corporation and not the corporation itself. The corporation has a separate and distinct personality from its members, and this is not a mere technicality but a matter of substantive law. There is no allegation that the members have assigned their rights to the corporation or any showing that the corporation has in any way or manner succeeded to such rights. The corporation evidently did not have any rights violated by the defendants for which it could seek redress.

ISSUE: Whether plaintiff, a non- stock corporation, may institute an action in behalf of its individual members for the recovery of certain parcels of land allegedly owned by said members.

SC RULING: NO. It has not been claimed that the members have assigned or transferred whatever

rights they may have on the land in question to the plaintiff corporation. Absent any showing of interest, therefore, a corporation, like plaintiff-appellant herein, has no personality to bring an action for and in behalf of its stockholders or members for the purpose of recovering property which belongs to said stockholders or members in their personal capacities.

It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or members. 4 The property of the corporation is its property and not that of the stockholders, as owners, although they have equities in it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. 5 Conversely, a corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the corporation, "even in the case of a one-man corporation.

It must be noted, however, that the juridical personality of the corporation, as separate and distinct from the persons composing it, is but a legal fiction introduced for the purpose of convenience and to subserve the ends of justice. 9This separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work -an injustice, or where necessary to achieve equity. 

Thus, when "the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, ... the law will regard the corporation as an association of persons, or in the case of two corporations, merge them into one, the one being merely regarded as part or instrumentality of the other. 11 The same is true where a corporation is a dummy and serves no business purpose and is intended only as a blind, or an alter ego

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or business conduit for the sole benefit of the stockholders. 12 This doctrine of disregarding the distinct personality of the corporation has been applied by the courts in those cases when the corporate entity is used for the evasion of taxes 13 or when the veil of corporate fiction is used to confuse legitimate issue of employer-employee relationship, 14 or when necessary for the protection of creditors, in which case the veil of corporate fiction may be pierced and the funds of the corporation may be garnished to satisfy the debts of a principal stockholder. 15 The aforecited principle is resorted to by the courts as a measure protection for third parties to prevent fraud, illegality or injustice. 

It is fundamental that there cannot be a cause of action 'without an antecedent primary legal right conferred' by law upon a person. Thus, the essential elements of a cause of action are legal right of the plaintiff, correlative obligation of the defendant, an act or omission of the defendant in violation of the aforesaid legal right. 19Clearly, no right of action exists in favor of plaintiff corporation, for as shown heretofore it does not have any interest in the subject matter of the case which is material and, direct so as to entitle it to file the suit as a real party in interest.

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner, vs. PCGG, et al., respondents. G.R. No. 75885 May 27, 1987

When circumstances had shown the actuality of the control by President Marcos of BASECO and that he actually owned one hundred percent of its outstanding stock, several E.Os were issued by the Commissioner for the "urgent need to recover all ill-gotten wealth," and postulates that "vast resources of the government have been amassed by Marcos. PCGG then was empowered to implement several provisional orders against BASECO under EO No. 2.

BASECO asserted its right against self incrimination and unreasonable searches and seizures when the PCGG required it "to produce corporate records under pain of contempt of the Commission if it fails to do so."

ISSUE: 1. Whether the BASECO has the right to question the implementation of an Executive

Order issued by the Commissioner.2. Whether BASECO, as a corporation, has a right against self incrimination and

unreasonable searches and seizures.

SC RULING:1. NO. In the light of the affirmative showing by the Government that, prima facie at least,

the stockholders and directors of BASECO were mere "dummies," nominees or alter egos of President Marcos; at any rate, that they are no longer owners of any shares of stock in the corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no standing whatever to cause the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the petition, would in effect be to restore the assets, properties and business sequestered and taken

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over by the PCGG to persons who are "dummies," nominees or alter egos of the former president.

2. NO with respect to self-incrimination. It is elementary that the right against self-incrimination has no application to juridical persons.

While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse of such privileges * * 

Relevant jurisprudence is also cited by the Solicitor General. * * corporations are not entitled to all of the constitutional protections which private individuals have. * *They are not at all within the privilege against self-incrimination, although this court more than once has said that the privilege runs very closely with the 4th Amendment's Search and Seizure provisions. It is also settled that an officer of the company cannot refuse to produce its records in its possession upon the plea that they will either incriminate him or may incriminate it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's).* * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserve right in the legislature to investigate its contracts and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation 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. The defense amounts to this, that an officer of the corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a refusal to produce its books. To state this proposition is to answer it.While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises may refuse to show its hand when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor General's])

The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. There has been no search undertaken by any agent or representative of the PCGG, and of course no seizure on the occasion thereof.

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LUXURIA HOMES, INC., and/or AIDA M. POSADAS,   petitioners, vs.   HONORABLE COURT OF APPEALS, JAMES BUILDER CONSTRUCTION and/or JAIME T. BRAVO,   respondents. [ G.R. No. 125986.   January 28, 1999]

Posadas entered into negotiations with Bravo regarding the development of the said property into a residential subdivision. On May 3, 1989, she authorized Bravo to negotiate with the squatters to leave the said property. With a written authorization, Bravo buckled down to work and started negotiations with the squatters.

Meanwhile, Posadas executed a Deed of Assignment and assigned the said property to Luxuria Homes, Inc., purportedly for organizational and tax avoidance purposes.  Bravo signed as one of the witnesses to the execution of the Deed of Assignment and the Articles of Incorporation of Luxuria Homes, Inc.

The harmonious relationship of Posadas and Bravo turned sour when the former supposedly could not accept the management contracts to develop the 1.6 hectare property into a residential subdivision, the latter was proposing. 

Bravo demanded payment for services rendered in connection with the development of the land. Posadas refused to pay the amount demanded. Thus, James Builder Construction and Jaime T. Bravo instituted a complaint for specific performance before the trial court against Posadas and Luxuria Homes, Inc. 

The trial court ordered Posadas as the Representative of the Corporation Luxuria Homes to execute the management contract she committed to do.

On appeal, CA affirmed the decision of the trial court with modification on damages.

ISSUE: Whether Luxuria Homes, Inc., was a party to the transactions entered into by petitioner Posadas and private respondents and thus could be held jointly and severally with petitioner Posadas

SC RULING: NO. Private respondents failed to show proof that petitioner Posadas acted in bad faith.

Consequently since private respondents failed to show that petitioner Luxuria Homes, Inc., was a party to any of the supposed transactions, not even to the agreement to negotiate with and relocate the squatters, it cannot be held liable, nay jointly and in solidum, to pay private respondents. In this case since it was petitioner Aida M. Posadas who contracted respondent Bravo to render the subject services, only she is liable to pay the amounts adjudged herein.

It cannot be said then that the incorporation of petitioner Luxuria Homes and the eventual transfer of the subject property to it were in fraud of private respondent as such were done with the full knowledge of respondent Bravo himself.

Besides petitioner Posadas is not the majority stockholder of petitioner Luxuria Homes, Inc., as erroneously stated by the lower court. The Articles of Incorporation of petitioner Luxuria Homes, Inc., clearly show that petitioner Posadas owns approximately 33% only of the capital stock. Hence petitioner Posadas cannot be considered as an alter ego of petitioner Luxuria Homes, Inc.

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To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed. This is elementary. Thus in Bayer-Roxas v. Court of Appeals,[17] we said that the separate personality of the corporation may be disregarded only when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary for the protection of the creditors. Accordingly in Del Rosario v. NLRC,[18] where the Philsa International Placement and Services Corp. was organized and registered with the POEA in 1981, several years before the complainant was filed a case in 1985, we held that this cannot imply fraud.

CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION G.R. No. 108734 May 29, 1996

The Labor Arbiter rendered judgment ordering petitioner to reinstate private respondents and to pay them back wages equivalent to one year. The award was partially satisfied through garnishment of sums from petitioner's debtor MWSS.

To collect the balance of the judgment award, the Labor Arbiter issued an Alias Writ of Execution. However, said writ had not been enforced from removing the properties had levied upon.

A certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President.

Petitioner’s prayer: That the motion for break-open order be denied because HPPI is a corporation separate and distinct from petitioner as evidenced by the different kinds of business they are engaged in, i.e., HPPI is a manufacturing firm while petitioner was then engaged in construction

Private respondent’s prayer: That a break-open order be issued on the ground that HPPI was created to evade Concept Builders’ liability to private respondents

NLRC’s ruling: That a break-open order be enforced against personal property found in the premises of petitioner’s sister company because the two corporations are one and the same, sharing the same premises, the same President and the same set of officers and subscribers

ISSUE: Whether HPPI is a corporation separate and distinct from petitioner.

SC RULING:NO. It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its employees.

Some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit: 1. Stock ownership by one or common ownership of both corporations. 2.

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Identity of directors and officers. 3. The manner of keeping corporate books and records. 4. Methods of conducting the business.

The SEC en banc explained the "instrumentality rule" which the courts have applied in disregarding the separate juridical personality of corporations as follows:

Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the "instrumentality" may be disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such domination of instances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the time the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made.

The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:1. Control, not mere majority or complete stock 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;2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of plaintiff's legal rights; and3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant's relationship to that operation.

VILLA REY TRANSIT, INC., et al., petitioners, vs. FAR EAST MOTOR CORPORATION and CA, respondents. G.R. No. L-31339 January 31, 1978

Far East Motor sued Villa Rey Transit for various sums of money before the CFI. Summons was issued to petitioner and Sheriff Salita went to petitioner's sub-station and handed some papers to Atty. Reyes, Assistant General Manager for Operations: after reading the contents of the same, he suggested that service of the complaint and the corresponding summons be made directly on Villarama, the present President and General Manager; instead, the sheriff left the papers with one of their night tellers, Cruz who forgot all about the papers; hence, the papers were delivered late to their main office.

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Villa Rey was in default and its Motion was denied. Villa Rey claims that service of summons on its mere Assistant General Manager holding office at its sub-station is not a valid service; thus, the court did not acquire jurisdiction over its person.

Far East Motor Corporation filed a Motion for Execution of the decision. The lower court denied Far East motion for execution; granted Villa Rey’s MR; set aside the judgment already rendered. Far East moved to reconsider the above order but was denied.

Far East then filed a petition for certiorari, mandamus and prohibition before the Supreme Court. However, the case was certified to the appellate court whose decision, sustaining the petition and ordering the lower court to issue the writ of execution upon the judgement.

Hence this appeal by the Villa Rey who claimed that the enumeration provided under the Rules of Court with regard to the service of summon is exclusive. That the service of summons is without force and effect unless made upon any one of them.

ISSUE: Whether an Assistant General Manager for Operations may properly be within the terms manager or agent that renders the service of summons a valid service.

SC RULING:

YES. Based on the particular facts of this case, service of summons upon Atty. Virgilio A. Reyes has served the purpose of the law. And as he refused to receive the summons, tender unto him was sufficient to confer jurisdiction over the petitioner.

Service of process on a corporation is controlled by Section 13, Rule 14 of the Revised Rules of Court, thus —Sec. 13. Service upon private domestic corporation for partnership. — If the defendant is a corporation organized under the laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent, or any of its directors.

Atty. Virgilio A. Reyes is the Assistant General Manager, and admittedly, the former President and General Manager of the petitioner corporation. He is in charge of Operations which does not make him a mere branch manager so insistently pointed out by petitioner. We take the opposite view, for precisely, as the Assistant General Manager for Operations; he is in charge of the main bulk of the corporate business of the petitioner transit corporation. "Operations" is the main concern, if not all, of a transit corporation.

According to jurisprudence, the rationale of all rules for service of process on corporation is that service must be made on a representative so integrated with the corporation sued as to make it a

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priori supposable that he will realize his responsibilities and know what he should do with any legal papers served on him.

FRANCISCO MOTORS CORPORATION,   petitioner ,   vs . COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA MANUEL,   respondents . [ G.R. No. 100812.   June 25, 1999]

Francisco Motors filed a complaint against Spouses Manuel for some of money. Spouses Manuel interposed a counterclaim for unpaid legal services by Gregorio Manuel which was not paid by the incorporators, directors and officers of the petitioner. 

Petitioner submits that respondent court should not have resorted to piercing the veil of corporate fiction because the transaction concerned only respondent Gregorio Manuel and the heirs of the late Benita Trinidad.

According to petitioner, there was no cause of action by said respondent against petitioner; personal concerns of the heirs should be distinguished from those involving corporate affairs. Petitioner further contends that the present case does not fall among the instances wherein the courts may look beyond the distinct personality of a corporation. According to petitioner, the services for which respondent Gregorio Manuel seeks to collect fees from petitioner are personal in nature. Hence, it avers the heirs should have been sued in their personal capacity, and not involve the corporation.

ISSUE: 1. Whether the doctrine of piercing the veil of corporate entity is applicable in this case. 2. Whether the obligation to stockholders are obligations of the corporation.

SC RULING:1. NO. In our view, however, given the facts and circumstances of this case, the doctrine of

piercing the corporate veil has no relevant application here. Respondent court erred in permitting the trial courts resort to this doctrine. The rationale behind piercing a corporations identity in a given case is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities. In the case at bar, instead of holding certain individuals or persons responsible for an alleged corporate act, the situation has been reversed. It is the petitioner as a corporation which is being ordered to answer for the personal liability of certain individual directors, officers and incorporators concerned. Hence, it appears to us that the doctrine has been turned upside down because of its erroneous invocation.

2. NO. whatever obligation said incorporators, directors and officers of the corporation had incurred, it was incurred in their personal capacity. When directors and officers of a corporation are unable to compensate a party for a personal obligation, it is far-fetched to allege that the corporation is perpetuating fraud or promoting injustice, and be thereby held liable therefor by piercing its corporate veil.

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The personality of the corporation and those of its incorporators, directors and officers in their personal capacities ought to be kept separate in this case. The claim for legal fees against the concerned individual incorporators, officers and directors could not be properly directed against the corporation without violating basic principles governing corporations. Moreover, every action including a counterclaim must be prosecuted or defended in the name of the real party in interest. It is plainly an error to lay the claim for legal fees of private respondent Gregorio Manuel at the door of petitioner (FMC) rather than individual members of the Francisco family.

SPOUSES LIPAT, petitioners, vs. PACIFIC BANKING CORPORATION, et al., respondents. [G.R. No. 142435. April 30, 2003]FACTS OF THE CASE:

Petitioners, the spouses Lipat, owned Belas Export Trading (BET). Mrs. Estelita Lipat appointed her daughter Teresita as her attorney-in-fact to obtain loans and other credit accommodations from respondent Pacific Bank. She likewise authorized Teresita to execute mortgage contracts on properties owned or co-owned by her as security for the obligations to be extended by Pacific Bank including any extension or renewal thereof. As security for the loan obtained from the Pacific Bank, the Lipat spouses, as represented by Teresita, executed a Real Estate Mortgage over their property.

Later, BET was incorporated into a family corporation named Belas Export Corporation (BEC). Its incorporators and directors included the Lipat spouses (Mrs Lipat as president), Teresita Lipat (as vice-president) and other close relatives and friends of the Lipats. 

Eventually, the loan from Pacific Bank was later restructured in the name of BEC and subsequent loans were obtained by BEC with the corresponding promissory notes duly executed by Teresita on behalf of the corporation. These transactions were all secured by the real estate mortgage over the Lipats property. BUT, BEC defaulted in its payments. Even after additional time was given, Mrs. Lipat failed to fulfill her promise.

Consequently, the real estate mortgage was foreclosed. The spouses Lipat filed before the Quezon City RTC a complaint for annulment of the real estate mortgage, extrajudicial foreclosure and the certificate of sale issued over the property against Pacific Bank and Eugenio D. Trinidad (buyer). 

RTC Ruling : This Court dismissed the complaint of Lipat based on the evidence that BEC was a mere extension of petitioners personality and business and a mere alter ego or business conduit of the Lipats established for their own benefit. 

CA Ruling : The appeal was dismissed due to the evidence on record to support the application of the doctrine of piercing the veil of corporate fiction. It was noted that Mrs. Lipat had full control over the activities of the corporation and used the same to further her business interests.

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Lipat alleged that they cannot be held liable for the obligations incurred by BEC through the application of the doctrine of piercing the veil of corporate fiction absent any clear showing of fraud on their part. Pacific Bank and Trinidad alleged in common that petitioners that BEC was organized as a business conduit for the benefit of petitioners Lipat.

ISSUE: Whether the doctrine of piercing the veil of corporate fiction is applicable in this

case.SUPREME COURT RULING:

YES. When the corporation is the mere alter ego or business conduit of a person, the separate personality of the corporation may be disregarded. This is commonly referred to as the instrumentality rule or the alter ego doctrine, which the courts have applied in disregarding the separate juridical personality of corporations.

As held in one case, “Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the instrumentality may be disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. -xxx-“

Apparently, BET and BEC are one and the same and the latter is a conduit of and merely succeeded the former. Petitioners attempt to isolate themselves from and hide behind the corporate personality of BEC so as to evade their liabilities to Pacific Bank is precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy. In our view, BEC is a mere continuation and successor of BET, and petitioners cannot evade their obligations in the mortgage contract secured under the name of BEC on the pretext that it was signed for the benefit and under the name of BET. We are thus constrained to rule that the Court of Appeals did not err when it applied the instrumentality doctrine in piercing the corporate veil of BEC.

TIMES TRANSPORTATION COMPANY, INC.,   petitioner,   vs. SANTOS SOTELO, et al.,   respondents. G.R. No. 163786, February 16, 2005

Prior to the closure of Times Co., the Times Employees Union (TEU) was formed. TEU held a strike vote on grounds of unfair labor practice on the part of Times. For alleged participation in what it deemed was an illegal strike, Times terminated all the striking employees. After the strike was ended, the employees were no longer admitted back to work.

Meanwhile, Mencorp Transport Systems, Inc. (Mencorp) had acquired ownership over Times’ Certificates of Public Convenience and a number of its bus units by virtue of several deeds of sale. Mencorp is controlled and operated by Mrs. Virginia Mendoza, daughter of Santiago Rondaris, the majority stockholder of Times.

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The dismissed employees impleaded Mencorp and the Spouses Reynaldo and Virginia Mendoza.

Times claimed that "to drag Mencorp, [Spouses] Mendoza and Rondaris into the picture on the purported ground that a fictitious sale of Times’ assets in their favor was consummated with the end in view of frustrating the ends of justice and for purposes of evading compliance with the judgment is … the height of judicial arrogance. The Court of Appeals believes otherwise and reckons that Times and Mencorp failed to adduce evidence to refute allegations of collusion between them.

SC RULING: We uphold the findings of the labor arbiter and the Court of Appeals. The sale of Times’

franchise as well as most of its bus units to a company owned by Rondaris’ daughter and family members, right in the middle of a labor dispute, is highly suspicious. It is evident that the transaction was made in order to remove Times’ remaining assets from the reach of any judgment that may be rendered in the unfair labor practice cases filed against it.

We have held that piercing the corporate veil is warranted only in cases when the separate legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, such that in the case of two corporations, the law will regard the corporations as merged into one.27 It may be allowed only if the following elements concur: (1) control—not mere stock control, but complete domination—not only of finances, but of policy and business practice in respect to the transaction attacked; (2) such control must have been used to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of a legal right; and (3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of.

YAO. et al.,   petitioners,   vs. People of the Philippines,   respondents. G.R. No. 168306, June 19, 2007 Petitioners are incorporators and officers of MASAGANA GAS CORP. Private

respondents Petron Corporation (Petron) and Pilipinas Shell Petroleum Corporation (Pilipinas Shell) are two of the largest bulk suppliers and producers of LPG in the Philippines. 

The NBI filed two applications for search warrant with the RTC against petitioners (officers) and other occupants of the MASAGANA for alleged violation of The Intellectual Property Code of the Philippines. The two applications for search warrant uniformly alleged that the petitioners are actually producing, selling, offering for sale and/or distributing LPG products using steel cylinders owned by, and bearing the tradenames, trademarks, and devices of Petron and Pilipinas Shell, without authority and in violation of the rights of the said entities.

Petitioners (in individual capacity) filed with the RTC a Motion to Quash Search Warrants. MASAGANA, as third party claimant, filed with the RTC a Motion for the Return of Motor Compressor and LPG Refilling Machine. It claimed that it is the owner of the said motor compressor and LPG refilling machine; that these items were used in

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the operation of its legitimate business; and that their seizure will jeopardize its business interests. But RTC denied these Motions. Even the CA affirmed the assailed decision.

Petitioners claimed that MASAGANA has the right to intervene and to move for the return of the seized items; that the items seized by the raiding team were being used in the legitimate business of MASAGANA; that the raiding team had no right to seize them under the guise that the same were being used in refilling GASUL and SHELLANE LPG cylinders.

ISSUE: Whether the complaint against the officers of MASAGANA CORP is directed to the corporation, hence, said corporation is prohibited to be considered as third party claimant who alleges its rights were violated as a result of the seizure.

 SC RULING:

o YES. The petitioners, as directors/officers of MASAGANA, are utilizing the latter in violating the intellectual property rights of Petron and Pilipinas Shell. Thus, petitioners collectively and MASAGANA should be considered as one and the same person for liability purposes. Consequently, MASAGANAs third party claim serves no refuge for petitioners.

o It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders, directors or officers. However, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons, or in the case of two corporations merge them into one. In other words, the law will not recognize the separate corporate existence if the corporation is being used pursuant to the foregoing unlawful objectives. This non-recognition is sometimes referred to as the doctrine of piercing the veil of corporate entity or disregarding the fiction of corporate entity. Where the separate corporate entity is disregarded, the corporation will be treated merely as an association of persons and the stockholders or members will be considered as the corporation, that is, liability will attach personally or directly to the officers and stockholders.

o Even if we were to sustain the separate personality of MASAGANA from that of the petitioners, the effect will be the same. The law does not require that the property to be seized should be owned by the person against whom the search warrants is directed. Ownership, therefore, is of no consequence, and it is sufficient that the person against whom the warrant is directed has control or possession of the property sought to be seized. Hence, even if, as petitioners claimed, the properties seized belong to MASAGANA as a separate entity, their seizure pursuant to the search warrants is still valid.

o Further, it is apparent that the motor compressor, LPG refilling machine and the GASUL and SHELL LPG cylinders seized were the corpus delicti, the body or

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substance of the crime, or the evidence of the commission of trademark infringement. These were the very instruments used or intended to be used by the petitioners in trademark infringement. It is possible that, if returned to MASAGANA, these items will be used again in violating the intellectual property rights of Petron and Pilipinas Shell. Thus, the RTC was justified in denying the petitioners motion for their return so as to prevent the petitioners and/or MASAGANA from using them again in trademark infringement.

 C. ARNOLD HALL and BRADLEY P. HALL,   petitioners,   vs. EDMUNDO S. PICCIO, et al., respondents. G.R. No. L-2598, June 29, 1950 Petitioners and Respondents organized a company to engage in a general lumber business. Immediately after the execution of their Articles of Incorporation, they filed it in the office of the SEC for the issuance of the corresponding certificate of incorporation.Pending action on the articles of incorporation by the SEC, respondents filed before the CFI, alleging among other things that the Far Eastern Lumber and Commercial Co. was an unregistered partnership and they wished to have it dissolved because of bitter dissension among the members, mismanagement and fraud by the managers and heavy financial losses. Then, Petitioners filed a motion to dismiss, contesting the court's jurisdiction and the sufficiently of the cause of action.ISSUE: Whether the Far Eastern Lumber and Commercial Company is a de facto corporation,where the Court has no jurisdiction to decree the dissolution of the company. SC RULING:NO. The Securities and Exchange Commission has not, so far, issued the corresponding certificate of incorporation. The personality of a corporation begins to exist only from the moment such certificate is issued — not before (sec. 11, Corporation Law). The complaining associates have not represented to the others that they were incorporated any more than the latter had made similar representations to them. And as nobody was led to believe anything to his prejudice and damage, the principle of estoppel does not apply. Obviously this is not an instance requiring the enforcement of contracts with the corporation through the rule of estoppel.The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern Lumber and Commercial Co., is a de facto corporation, section 19 of the Corporation Law applies, and therefore the court had not jurisdiction to take cognizance of said civil case number 381. Section 19 reads as follows:

. . . The due incorporation of any corporations claiming in good faith to be a corporation under this Act and its right to exercise corporate powers shall not be inquired into collaterally in any private suit to which the corporation may be a party, but such inquiry may be had at the suit of the Insular Government on information of the Attorney-General.

There are least two reasons why this section does not govern the situation. Not having obtained the certificate of incorporation, the Far Eastern Lumber and Commercial Co. — even its stockholders — may not probably claim "in good faith" to be a corporation.

Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance of a certificate of incorporation by the Director of the Bureau of Commerce and Industry

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which calls a corporation into being. The immunity if collateral attack is granted to corporations "claiming in good faith to be a corporation under this act." Such a claim is compatible with the existence of errors and irregularities; but not with a total or substantial disregard of the law. Unless there has been an evident attempt to comply with the law the claim to be a corporation "under this act" could not be made "in good faith . "

Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders of the alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure corporation may be terminated in a private suit for its dissolution between stockholders, without the intervention of the state.

SEVENTH DAY ADVENTIST V. NORTHEASTERN MINDANAO MISSION GR NO. 150416 (2006)

Spouses Cosio donated the land to the South Philippine Union Mission of Seventh Day Adventist Church.The donation was allegedly accepted by an elder of the Seventh Day Adventist Church, on behalf of the donee. Twenty-one years later, however, the same parcel of land was sold by the spouses Cosio to the Seventh Day Adventist Church of Northeastern Mindanao Mission.

Claiming to be the alleged donees successors-in-interest, petitioners asserted ownership over the property. This was opposed by respondents who argued that at the time of the donation, SPUM-SDA Bayugan could not legally be a donee because, not having been incorporated yet, it had no juridical personality. Neither were petitioners members of the local church then, hence, the donation could not have been made particularly to them.

Petitioners filed a case in the RTC, who rendered a decision upholding the sale in favor of respondents. The CA affirmed the RTC decision.

SC RULING:The deed of donation was not in favor of any informal group of SDA members but a

supposed SPUM-SDA Bayugan (the local church) which, at the time, had neither juridical personality nor capacity to accept such gift. Declaring themselves a de facto corporation, petitioners allege that they should benefit from the donation. But there are stringent requirements before one can qualify as a de facto corporation:

1. the existence of a valid law under which it may be incorporated;2. an attempt in good faith to incorporate; and3. assumption of corporate powers.

The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the existence of a de facto corporation. We have held that an organization not registered with the Securities and Exchange Commission (SEC) cannot be considered a

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corporation in any concept, not even as a corporation de facto. Petitioners themselves admitted that at the time of the donation, they were not registered with the SEC, nor did they even attempt to organize to comply with legal requirements.

Corporate existence begins only from the moment a certificate of incorporation is issued. No such certificate was ever issued to petitioners or their supposed predecessor-in-interest at the time of the donation. Petitioners obviously could not have claimed succession to an entity that never came to exist. Neither could the principle of separate juridical personality apply since there was never any corporation to speak of. And, as already stated, some of the representatives of petitioner Seventh Day Adventist Conference Church of Southern Philippines, Inc. were not even members of the local church then, thus, they could not even claim that the donation was particularly for them.

 The de facto doctrine thus effects a compromise between two conflicting public interest[s]the one opposed to an unauthorized assumption of corporate privileges; the other in favor of doing justice to the parties and of establishing a general assurance of security in business dealing with corporations. Generally, the doctrine exists to protect the public dealing with supposed corporate entities, not to favor the defective or non-existent corporation.

In view of the foregoing, petitioners arguments anchored on their supposed de factostatus hold no water. We are convinced that there was no donation to petitioners or their supposed predecessor-in-interest.

LIM TONG LIM,   petitioner,   vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC.,   respondent. G.R. No. 136448 November 3, 1999 On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their capacities as general partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as shown by a Certification from the Securities and Exchange Commission. Both Chua and Yao admitted their liabilities, Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment.  Lim argued that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not to him.ISSUE: Whether petitioner should be held jointly liable with Chua and Yao under the Doctrine of Corporation by Estoppel.SC RULING:

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YES. 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. Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits of the contract entered into by persons with whom 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 corporation by estoppel. Sec. 21 of the Corporation Code of the Philippines provides:

Sec. 21. Corporation by estoppel. — All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality.One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation.

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from denying its corporate existence. "The reason behind this doctrine is obvious — an unincorporated association has no personality and would be incompetent to act and appropriate for itself the power and attributes of a corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent without authority or without a principal is himself regarded as the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent. The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages and benefits.On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of.

INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC.,   petitioner, vs.   HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION,   respondents. [ G.R. No. 119002.   October 19, 2000]

Henri Kahn, president of Federation, issued a personal check as partial payment for the outstanding balance of the Federation to the International Express Travel & Tours for the

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airline tickets it purchased. Thereafter, no further payments were made despite repeated demands.

Petitioner to file a civil case against Henri Kahn in his personal capacity and as President of the Federation and impleaded the Federation as an alternative defendant. Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by the Federation on the ground that Henri Kahn allegedly guaranteed the said obligation.

Henri Kahn filed his answer with counterclaim. He averred that the petitioner has no cause of action against him either in his personal capacity or in his official capacity as president of the Federation.He maintained that he did not guarantee payment but merely acted as an agent of the Federation which has a separate and distinct juridical personality.

The appellate court recognized the existence of the Federation. In support of this, the CA cited Republic Act 3135 and Presidential Decree No. 604 as the laws from which said Federation derives its existence.

Also, the appellate court maintained that even assuming that the Federation was defectively incorporated, the petitioner cannot deny the corporate existence of the Federation because it had contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence.

ISSUE: 1. Whether the Federation is a corporation, if not, whether Kahn who acted on behalf of

the Federation may be held liable for the unpaid obligation of the Federation. 2. Whether the doctrine of corporation by estoppels is applicable in this case.

SC RULING:1. NO. It is a basic postulate that before a corporation may acquire juridical personality, the

State must give its consent either in the form of a special law or a general enabling act. We cannot agree with the view of the appellate court and the private respondent that the Philippine Football Federation came into existence upon the passage of R.A. 3135 or P.D. 604 any provision creating the Philippine Football Federation. These laws merely recognized the existence of national sports associations and provided the manner by which these entities may acquire juridical personality. Clearly the provisions provided in R.A. 3135 or P.D. 604 require that before an entity may be considered as a national sports association, such entity must be recognized by the accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth and Sports Development under P.D. 604. Accordingly, we rule that the Philippine Football Federation is not a national sports association within the purview of the aforementioned laws and does not have corporate existence of its own.YES. It follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football Federation. It is a settled principal in corporation law that any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or for other acts performed as such agent. As president of the Federation, Henri Kahn is presumed to have known about the corporate existence or non-existence of the Federation. We cannot subscribe to the position taken by the appellate court that even assuming that the Federation was defectively incorporated, the petitioner

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cannot deny the corporate existence of the Federation because it had contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence. 

2. NO. The doctrine of corporation by estoppel is mistakenly applied by the respondent court to the petitioner. The application of the doctrine applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective incorporation. In the case at bar, the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract.

FILIPINAS BROADCASTING NETWORK, INC.,   petitioner, vs.   AGO MEDICAL AND EDUCATIONAL CENTER (AMEC-BCCM) and ANGELITA F. AGO,   respondents. [G.R. No. 141994. January 17, 2005]

Expos program of Filipinas Broadcasting Network exposed various alleged complaints 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.

FBNI contends that AMEC is not entitled to moral damages because it is a corporation.ISSUE: Whether a corporation may recover moral damages.

SC RULING: YES. As a general rule, 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. However, 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.

COASTAL PACIFIC TRADING, INC.,   petitioner,   vs. SOUTHERN ROLLING MILLS, CO., INC. (renamed as VISCO) ,et al.   respondents. G.R. No. 118692, July 28, 2006 VISCO defaulted in the performance of its obligation to respondent banks. Bank Creditors group themselves as “Consortium” which assumed management and control over the former. Consortium was already in control of VISCO when it obtained obligation to Coastal for the

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delivery of hot rolled steel coils and recognized its outstanding liability to Coastal until the offer of a Compromise Agreement. Consortium took steps to hide VISCO's unexpended funds by eliminating entirely the name VISCO, so that the account name would read "Board of Trustees Consortium of Banks." This move was found to be necessary to avoid a takeover by the government, which was also a creditor of VISCO. They even agreed that VISCO should sell some of its properties so that they can collect from it.Coastal filed a Complaint for Annulment or Rescission of Sale, Damages with Preliminary Injunction.  Coastal alleged that, despite the Writ of Attachment issued in its favor in the still pending, the Consortium had sold the properties to NSC. Further, despite the attachment of the properties, the Consortium was allegedly able to sell and place them beyond the reach of VISCO's other creditors. Thus imputing bad faith to respondent banks' actions, petitioner said that the sale was intended to defraud VISCO's other creditors.ISSUE: Whether Coastal is entitled for moral damages and exemplary damages for the fraudulent acts of Consortium. SC RULING: NO as to moral damages. As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is when the corporation has a good reputation that is debased, resulting in its humiliation in the business realm. In the present case, the records do not show any evidence that the name or reputation of petitioner has been sullied as a result of the Consortium's fraudulent acts. Accordingly, moral damages are not warranted.It is essential that for damages to be awarded, a claimant must satisfactorily prove during the trial that they have a factual basis, and that the defendant's acts have a causal connection to them. Thus, the question of damages should normally call for a remand of the case to the lower court for further proceedings. Considering, however, the length of time that petitioner's just claim has been thwarted, we find it in the best interest of substantial justice to decide the issue of damages now on the basis of the available records. A remand for further proceedings would only result in a needless delay.YES as to exemplary damages. On the basis of the finding of fraud, the award of exemplary damages is in order, to serve as a warning to other creditors not to abuse their rights. Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public good. By their nature, exemplary damages should be imposed in an amount sufficient and effective to deter possible future similar acts by respondent banks.