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G.R. No.


May 21, 1955

THE REGISTER OF DEEDS OF RIZAL, petitioner-appellee, vs. UNG SIU SI TEMPLE, respondent-appellant. Alejo F. Candido for appellant. Office of the Solicitor General Querube C. Makalintal and Solicitor Felix V. Makasiar for appellee. REYES, J.B.L., J.: The Register of Deeds for the province of Rizal refused to accept for record a deed of donation executed in due form on January 22, 1953, by Jesus Dy, a Filipino citizen, conveying a parcel of residential land, in Caloocan, Rizal, known as lot No. 2, block 48-D, PSD-4212, G.L.R.O. Record No. 11267, in favor of the unregistered religious organization "Ung Siu Si Temple", operating through three trustees all of Chinese nationality. The donation was duly accepted by Yu Juan, of Chinese nationality, founder and deaconess of the Temple, acting in representation and in behalf of the latter and its trustees. The refusal of the Registrar was elevated en Consultato the IVth Branch of the Court of First Instance of Manila. On March 14, 1953, the Court upheld the action of the Rizal Register of Deeds, saying: The question raised by the Register of Deeds in the above transcribed consulta is whether a deed of donation of a parcel of land executed in favor of a religious organization whose founder, trustees and administrator are Chinese citizens should be registered or not. It appearing from the record of the Consulta that UNG SIU SI TEMPLE is a religious organization whose deaconess, founder, trustees and administrator are all Chinese citizens, this Court is of the opinion and so hold that in view of the provisions of the sections 1 and 5 of Article XIII of the Constitution of the Philippines limiting the acquisition of land in the Philippines to its citizens, or to corporations or associations at least sixty per centum of the capital stock of which is owned by such citizens adopted after the enactment of said Act No. 271, and the decision of the Supreme Court in the case of Krivenko vs. the Register of Deeds of Manila, the deed of donation in question should not be admitted for admitted for registration. (Printed Rec. App. pp 17-18). Not satisfied with the ruling of the Court of First Instance, counsel for the donee Uy Siu Si Temple has appealed to this Court, claiming: (1) that the acquisition of the land in question, for religious purposes, is authorized and permitted by Act No. 271 of the old Philippine Commission, providing as follows: SECTION 1. It shall be lawful for all religious associations, of whatever sort or denomination, whether incorporated in the Philippine Islands or in the name of other

country, or not incorporated at all, to hold land in the Philippine Islands upon which to build churches, parsonages, or educational or charitable institutions. SEC. 2. Such religious institutions, if not incorporated, shall hold the land in the name of three Trustees for the use of such associations; . . .. (Printed Rec. App. p. 5.) and (2) that the refusal of the Register of Deeds violates the freedom of religion clause of our Constitution [Art. III, Sec. 1(7)]. We are of the opinion that the Court below has correctly held that in view of the absolute terms of section 5, Title XIII, of the Constitution, the provisions of Act No. 271 of the old Philippine Commission must be deemed repealed since the Constitution was enacted, in so far as incompatible therewith. In providing that, Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to individuals, corporations or associations qualified to acquire or hold lands of the public domain in the Philippines, the Constitution makes no exception in favor of religious associations. Neither is there any such saving found in sections 1 and 2 of Article XIII, restricting the acquisition of public agricultural lands and other natural resources to "corporations or associations at least sixty per centum of the capital of which is owned by such citizens" (of the Philippines). The fact that the appellant religious organization has no capital stock does not suffice to escape the Constitutional inhibition, since it is admitted that its members are of foreign nationality. The purpose of the sixty per centum requirement is obviously to ensure that corporations or associations allowed to acquire agricultural land or to exploit natural resources shall be controlled by Filipinos; and the spirit of the Constitution demands that in the absence of capital stock, the controlling membership should be composed of Filipino citizens. To permit religious associations controlled by non-Filipinos to acquire agricultural lands would be to drive the opening wedge to revive alien religious land holdings in this country. We can not ignore the historical fact that complaints against land holdings of that kind were among the factors that sparked the revolution of 1896. As to the complaint that the disqualification under article XIII is violative of the freedom of religion guaranteed by Article III of the Constitution, we are by no means convinced (nor has it been shown) that land tenure is indispensable to the free exercise and enjoyment of religious profession or worship; or that one may not worship the Deity according to the dictates of his own conscience unless upon land held in fee simple. The resolution appealed from is affirmed, with costs against appellant.

People vs quasha FACTS:

William H. Quasha o 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. o 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. o 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.

Filipinas compania vs chirstern 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.

Corporate Law Case Digest: Roman Catholic Apostolic Administrator of Davao v. LRC (1957)
G.R. No. L-8451 December 20, 1957 Lesson Applicable: Exploitation of Natural Resources (Corporate Law) FACTS:

October 4, 1954: Mateo L. Rodis, a Filipino citizen and resident of the City of

Davao, executed a deed of sale of a parcel of land in favor of the Roman Catholic Apostolic Administrator of Davao Inc.(Roman), a corporation sole organized and existing in accordance with Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent. The Register of Deeds of Davao for registration, having in mind a previous resolution of the CFI in Carmelite Nuns of Davao were made to prepare an affidavit to the effect that 60% of the members of their corp. were Filipino citizens when they sought to register in favor of their congregation of deed of donation of a parcel of land, required it to submit a similar affidavit declaring the same. June 28, 1954: Roman in the letter expressed willingness to submit an affidavit but not in the same tenor as the Carmelite Nuns because it had five incorporators while as a corporation sole it has only one and it was ownership through donation and this was purchased
As the Register of the Land Registration Commissioner (LRC) : Deeds has some doubts as to the registerability, the matter was referred to the Land Registration Commissioner en consulta for resolution (section 4 of Republic Act No. 1151) LRC: o In view of the provisions of Section 1 and 5 of Article XIII of the Philippine Constitution, the vendee was not qualified to acquire private lands in the Philippines in the absence of proof that at least 60 per centum of the capital, property, or assets of the Roman Catholic Apostolic Administrator of Davao, Inc., was actually owned or controlled by Filipino citizens, there being no question that the present incumbent of the corporation sole was a Canadian citizen o ordered the Registered Deeds of Davao to deny registration of the deed of sale in the absence of proof of compliance with such condition action for mandamus was instituted by Roman alleging the land is held in true for the benefit of the Catholic population of a place

ISSUE: W/N Roman is qualified to acquire private agricultural lands in the Philippines

pursuant to the provisions of Article XIII of the Constitution HELD: YES. Register of Deeds of the City of Davao is ordered to register the deed of sale

A corporation sole consists of one person only, and his successors (who will always be one at a time), in some particular station, who are incorporated by law in order to give them some legal capacities and advantages, particularly that of perpetuity, which in their natural persons they could not have had. o In this sense, the king is a sole corporation; so is a bishop, or dens, distinct from their several chapters

corporation sole

1. composed of only one persons, usually the head or bishop of the diocese, a unit which is not subject to expansion for the purpose of determining any percentage whatsoever 2. only the administrator and not the owner of the temporalities located in the territory comprised by said corporation sole and such temporalities are administered for and on behalf of the faithful residing in the diocese or territory of the corporation sole 3. has no nationality and the citizenship of the incumbent and ordinary has nothing to do with the operation, management or administration of the corporation sole, nor effects the citizenship of the faithful connected with their respective dioceses or corporation sole.

Constitution demands that in the absence of capital stock, the controlling membership should be composed of Filipino citizens. (Register of Deeds of Rizal
vs. Ung Sui Si Temple)

undeniable proof that the members of the Roman Catholic Apostolic faith within the territory of Davao are predominantly Filipino citizens o presented evidence to establish that the clergy and lay members of this religion fully covers the percentage of Filipino citizens required by the Constitution fact that the law thus expressly authorizes the corporations sole to receive bequests or gifts of real properties (which were the main source that the friars had to acquire their big haciendas during the Spanish regime), is a clear indication that the requisite that bequests or gifts of real estate be for charitable, benevolent, or educational purposes, was, in the opinion of the legislators, considered sufficient and adequate protection against the revitalization of religious landholdings.
as in respect to the property which they hold for the corporation, they stand in position of TRUSTEES and the courts may exercise the same supervision as in other cases of trust

Business Organization Corporation Law Corporations are not Filipino Citizens Registration of Public Lands In 1978, Iglesia ni Cristo (INC) purchased a parcel of land from one Carmen Racimo in Ilocos Norte. In 1979, INC sought to register said land under its name pursuant to Section 48 (b) of the Public Land Law. The Director of Lands opposed the application as it averred that the said parcel of land is part of the alienable public land; that INC cannot register said land because it is not a Filipino citizen. INC argues that it is a private land because Racimo, its predecessor-in-interest has been in possession thereof for more than 30 years; that the Constitutional prohibition does not apply to INC, a corporation sole (solely incorporated by one man, Erao Manalo, a Filipino citizen), hence it can acquire said property. ISSUE: Whether or not INC can register said parcel of land under its name. HELD: No. 1. The disputed land has never lost its public character. Racimo, though occupying said land for more than 30 years, never applied for confirmation of incomplete or imperfect title over said land. Under the law, all lands that were not acquired from the Government either by purchase or by grant, belong to the public domain. As exception to the rule would be any land that should have been in the possession of an occupant and of his predecessors-in-interest since time immemorial, for such possession would justify the presumption that the land had never been part of the public domain or that it had been a private property even before the Spanish conquest. 2. Section 48 (b) of the Public Land Law allows the registration of alienable public lands but only by Filipino citizens. INC is not a Filipino citizen. There is no basis on the contention that as a corporation sole, INC is not prohibited from holding said land. The benefit only applies to Filipino citizens not to a corporation sole which has citizenship. NOTE: 60% rule: Corporations and Partnerships of which at least 60% of their capital belong to Filipinos may acquire real property.

Manuel R. Dulay Enterprises vs. CA Case Digest Manuel R. Dulay Enterprises vs. Court of Appeals [GR 91889, 27 August 1993]

Facts: Manuel R.Dulay Enterprises, Inc., a domestic corporation with the following as members of its Board of Directors: Manuel R. Dulay with 19,960 shares and designated as president, treasurer and general manager; Atty. Virgilio E. Dulay with 10 shares and designated as vicepresident; Linda E. Dulay with 10 shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and designated as secretary, owned a property covered by TCT 17880 4 and known as Dulay Apartment consisting of 16 apartment units on a 689 square meter lot, more or less, located at Seventh Street (now Buendia Extension) and F.B. Harrison Street, Pasay City. The corporation through its president, Manuel Dulay, obtained various loans for the construction of its hotel project, Dulay Continental Hotel (now Frederick Hotel). It even had to borrow money from Virgilio Dulay to be able to continue the hotel project. As a result of said loan, Virgilio Dulay occupied one of the unit apartments of the subject property since 1973 while at the same time managing the Dulay Apartment as his shareholdings in the corporation was subsequently increased by his father.

On 23 December 1976, Manuel Dulay by virtue of Board Resolution 18 of the corporation sold the subject property to spouses Maria Theresa and Castrense Veloso in the amount of P300,000.00 as evidenced by the Deed of Absolute Sale. Thereafter, TCT 17880 was cancelled and TCT 23225 was issued to Maria Theresa Veloso. Subsequently, Manuel Dulay and the spouses Veloso executed a Memorandum to the Deed of Absolute Sale of 23 December 1976 dated 9 December 1977 giving Manuel Dulay within 2 years or until 9 December 1979 to repurchase the subject property for P200,000.00 which was, however, not annotated either in TCT 17880 or TCT 23225. On 24 December 1976, Maria Veloso, without the knowledge of Manuel Dulay, mortgaged the subject property to Manuel A. Torres for a loan of P250,000.00 which was duly annotated as Entry 68139 in TCT 23225. Upon the failure of Maria Veloso to pay Torres, the subject property was sold on 5 April 1978 to Torres as the highest bidder in an extrajudicial foreclosure sale as evidenced by the Certificate of Sheriff's Sale issued on 20 April 1978.

On 20 July 1978, Maria Veloso executed a Deed of Absolute Assignment of the Right to Redeem in favor of Manuel Dulay assigning her right to repurchase the subject property from Torres as a result of the extrajudicial sale. As neither Maria Veloso nor her assignee Manuel Dulay was able to redeem the subject property within the one year statutory period for redemption, Torres filed an Affidavit of Consolidation of Ownership 13 with the Registry of Deeds of Pasay City and TCT 24799 was subsequently issued to Torres on 23 April 1979. On 1 October 1979, Torres filed a petition for the issuance of a writ of possession against spouses

Veloso and Manuel Dulay in LRC Case 1742-P. However, when Virgilio Dulay appeared in court to intervene in said case alleging that Manuel Dulay was never authorized by the corporation to sell or mortgage the subject property, the trial court ordered Torres to implead the corporation as an indispensable party but the latter moved for the dismissal of his petition which was granted in an Order dated 8 April 1980. On 20 June 1980, Torres and Edgardo Pabalan, real estate administrator of Torres, filed an action against the corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay Apartment Unit No. 8-A for the recovery of possession, sum of money and damages with preliminary injunction in Civil Case 8198-P with the then Court of First Instance of Rizal.

On 21 July 1980, the corporation filed an action against spouses Veloso and Torres for the cancellation of the Certificate of Sheriff's Sale and TCT 24799 in Civil Case 8278-P with the then Court of First Instance of Rizal. On 29 January 1981, Pabalan and Torres filed an action against spouses Florentino and Elvira Manalastas, a tenant of Dulay Apartment Unit No. 7-B, with the corporation as intervenor for ejectment in Civil Case 38-81 with the Metropolitan Trial Court of Pasay City which rendered a decision on 25 April 1985, in favor of Pabalan, et al., ordering the spouses Manalastas and all persons claiming possession under them to vacate the premises; and to pay the rents in the sum of P500.00 a month from May 1979 until they shall have vacated the premises with interest at the legal rate; and to pay attorney's fees in the sum of P2,000.00 and P1,000.00 as other expenses of litigation and for them to pay the costs of the suit.

Thereafter or on 17 May 1985, the corporation and Virgilio Dulay filed an action against the presiding judge of the Metropolitan Trial Court of Pasay City, Pabalan and Torres for the annulment of said decision with the Regional Trial Court of Pasay in Civil Case 2880-P. Thereafter, the 3 cases were jointly tried and the trial court rendered a decision in favor of Pabalan and Torres. Not satisfied with said decision, the corporation, et al. appealed to the Court of Appeals which rendered a decision on 23 October 1989, affirming the trial court decision. On 8 November 1989, the corporation, et al. filed a Motion for Reconsideration which was denied on 26 January 1990. The corporation, et al. filed the petition for review on certiorari. During the pendency of the petition, Torres died on 3 April 1991 as shown in his death certificate and named Torres-Pabalan Realty & Development Corporation as his heir in his holographic will dated 31 October 1986.

Issue: Whether the sale of the subject property between spouses Veloso and Manuel Dulay has no binding effect on the corporation as Board Resolution 18 which authorized the sale of the subject property was resolved without the approval of all the members of the board of directors and said Board Resolution was prepared by a person not designated by the corporation to be its secretary.

Held: Section 101 of the Corporation Code of the Philippines provides that "When board meeting is unnecessary or improperly held. Unless the by-laws provide otherwise, any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if: (1) Before or after such action is taken, written consent thereto is signed by all the directors; or (2) All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing; or (3) The directors are accustomed to take informal action with the express or implied acquiesce of all the stockholders; or (4) All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing. If a directors' meeting is held without proper call or notice, an action taken therein within the corporate powers is deemed ratified by a director who failed to attend, unless he promptly files his written objection with the secretary of the corporation after having knowledge thereof." Herein, the corporation is classified as a close corporation and consequently a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its president. At any rate, a corporate action taken at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his written objection with the secretary of the corporation after having knowledge of the meeting which, in this case, Virgilio Dulay failed to do. The corporation's claim that the sale of the subject property by its president, Manuel Dulay, to spouses Veloso is null and void as the alleged Board Resolution 18 was passed without the knowledge and consent of the other members of the board of directors cannot be sustained. Virgilio E. Dulay's protestations of complete innocence to the effect that he never participated nor was even aware of any meeting or resolution authorizing the mortgage or sale of the subject premises is difficult to believe. On the contrary, he is very much privy to the transactions involved. To begin with, he is an incorporator and one of the board of directors designated at the time of the organization of Manuel R. Dulay Enterprises, Inc. In ordinary parlance, the said entity is loosely referred to as a "family corporation." The nomenclature, if imprecise, however, fairly reflects the cohesiveness of a group and the parochial instincts of the individual members of such an aggrupation of which Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its incorporators being close relatives namely, 3 children and their father whose name identifies their corporation. Besides, the fact that Virgilio Dulay on 24 June 1975 executed an affidavit that he was a signatory witness to the execution of the post-dated Deed of Absolute Sale of the subject property in favor of Torres indicates that he was aware of the transaction executed between his father and Torres and had, therefore, adequate knowledge about the sale of the subject property to Torres. Consequently, the corporation is liable for the act of Manuel Dulay and the sale of the subject property to Torres by Manuel Dulay is valid and binding.

CIR VS. CLUB FILIPINO (5 SCRA 321; 1962) FACTS: Club Filipino owns and operates a club house, a sports complex, and a bar restaurant, which is incident to the operation of the club and its gold course. The club is operated mainly with funds derived from membership fees and dues. The BIR seeks to tax the said restaurant as a business. HELD: The Club was organized to develop and cultivate sports of all class and denomination for the healthful recreation and entertainment of its stockholders and members. There was in fact, no cash dividend distribution to its stockholders and whatever was derived on retail from its bar and restaurants used were to defray its overhead expenses and to improve its golf course. For a stock corporation to exist, 2 requisites must be complied with:

(1) a capital stock divided into shares (2) an authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of shares held.

In the case at bar, nowhere in the AOI or by-laws of Club Filipino could be found an authority for the distribution of its dividends or surplus profits.

CIR vs. THE CLUB FILIPINO, INC. DE CEBU GR No. L-12719 | May 31, 1962 | Paredes, J. FACTS: The Club Filipino, is a civic corporation organized underthe laws of the Philippines with an original authorized capitalstock of P22,000, which was subsequently increased to P200,000to operate and maintain a golf course, tennis, gymnasiums,bowling alleys, billiard tables and pools, and all sortsof games not prohibited by general laws and general ordinances,and develop and nurture sports of any kindand any denomination for recreation and healthy training of itsmembers and shareholders" (sec. 2, Escritura de Incorporacion(Deed of Incorporation) del Club Filipino, Inc.). There is noprovision either in the articles or in the by-laws relative todividends and their distribution, although it is covenanted thatupon its dissolution, the Club's remaining assets, after payingdebts, shall be donated to a charitable Phil. Institution in Cebu(Art. 27, Estatutos del (Statutes of the) Club).The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the government), and a bar-restaurant where it sells wines and liquors, soft drinks,mealsandshort orders to its members and their guests. The bar-restaurant

was a necessary incident to the operation of the cluband its golf-course. The club is operated mainly with fundsderived from membership fees and dues. Whatever profits ithad, were used to defray its overhead expenses and to improveits golf-course. In 1951, as a result of a capital surplus, arisingfrom the revaluation of its real properties, the value or price of which increased, the Club declared stock dividends; but no actualcash dividends were distributed to the stockholders.In 1952, a BIR agent discovered that the Club has never paidpercentage tax on the gross receipts of its bar and restaurant,although it secured licenses. In a letter, the Collector assessedagainst and demanded from the Club P12,068.84 1 as fixed andpercentage taxes, surcharge and compromise penalty. Also, theCollector denied the Clubs request to cancel the assessment .On appeal, the CTA reversed the Collector and ruled that theClub is not liable for the assessed tax liabilities of P12,068.84allegedly due from it as a keeper of bar and restaurant as it is anon-stock corporation. Hence, the Collector filed the instantpetition for review. ISSUE: WON the Club is a stock corporation HELD: NO. It is a non-stock corporation.The facts that the capital stock of the Club is divided into shares,does not detract from the finding of the trial court that it is notengaged in the business of operator of bar and restaurant. Whatis determinative of whether or not the Club is engaged in suchbusiness is its object or purpose, as stated in its articles and by1 P9, 599.07 as percentage tax on its gross receipts (tax years 1946-1951),P2,399.77 surcharge, P70 fixed tax (tax years 1946-1952, and P500 compromisepenalty. laws. The actual purpose is not controlled by the corporate formor by the commercial aspect of the business prosecuted, but maybe shown by extrinsic evidence, including the by-laws and themethod of operation. From the extrinsic evidence adduced, theCTA concluded that the Club is not engaged in the business as abarkeeper and restaurateur.For a stock corporation to exist, two requisites must be compliedwith:1. a capital stock divided into shares and2. an authority to distribute to the holders of such shares,dividends or allotments of the surplus profits on the basis of the shares held (sec. 3, Act No. 1459).Nowhere in its articles of incorporation or by-laws could befound an authority for the distribution of its dividends or surplusprofits. Strictly speaking, it cannot, therefore, be considered astock corporation, within the contemplation of the corpo law. ISSUE: WON the Club is liable for the payment of P12,068.84, asfixed and percentage taxes and surcharges prescribed in sec.182 2 , 183 3 and 191 4 of the Tax Code, in connection with theoperation of its bar and restaurant; and for P500 as compromisepenalty. HELD: NO. A tax is a burden, and, as such, it should not bedeemed imposed upon fraternal, civic, non-profit, nonstockorganizations, unless the intent to the contrary is manifest andpatent" (Collector v. BPOE Elks Club, et al.), which is not the casehere.Having found as a fact that the Club was organized to developand

cultivate sports of all class and denomination, for thehealthful recreation and entertainment of its stockholders andmembers; that upon its dissolution, its remaining assets, afterpaying debts, shall be donated to a charitable Phil. Institution inCebu; that it is operated mainly with funds derived frommembership fees and dues; that the Club's bar and restaurantcatered only to its members and their guests; that there was infact no cash dividend distribution to its stockholders and thatwhatever was derived on retail from its bar and restaurant wasused to defray its overall overhead expenses and to improve itsgolf-course (cost-plus-expenses-basis), it stands to reason thatthe Club is not engaged in the business of an operator of bar andrestaurant. 2 Sec. 182, of the Tax Code states, "Unless otherwise provided, every personengaging in a business on which the percentage tax is imposed shall pay in full afixed annual tax of ten pesos for each calendar year or fraction thereof in whichsuch person shall engage in said business." 3 Sec. 183 provides in general that "the percentage taxes on business shall bepayable at the end of each calendar quarter in the amount lawfully due on thebusiness transacted during each quarter; etc." 4 Sec. 191, same Tax Code, provides "Percentage tax . . . Keepers of restaurants,refreshment parlors and other eating places shall pay a tax three per centum , andkeepers of bar and cafes where wines or liquors are served five per centum of their gross receipts . . .".