#1 CAGAYAN FISHING DEVELOPMENT Co., INC., plaintiff and appellant, vs.

TEODORO SANDIKO, defendant and

appellee

(TRANSFER MADE BY TABORA TO CAGAYAN FISHING WAS EFFECTED FIVE MONTHS BEFORE THE INCORPORATION OF
SAID COMPANY; AS THE CORPORATION HAS NO LEGAL EXISTENCE THEN, IT DID NOT POSSESS THE CAPACITY TO
ENTER INTO CONTRACT)

CORPORATIONS; TRANSFER MADE TO A NONEXISTENT CORPORATION; JURIDICAL CAPACITY TO ENTER INTO A

CONTRACT.—The transfer made by T to the C, F. D. Co,, Inc., was effected on May 31, 1930 and the actual incorporation
of said company was effected later on October 22, 1930. In other words, the transfer was made almost five months
before the incorporation of the company. Unquestionably, a duly organized corporation has the power to purchase and
hold such real property as the purposes for which such corporation was formed may permit and for this purpose may
enter into such contracts as may be necessary. But before a corporation may be said to be lawfully organized, many
things have to be done. Among other things, the law requires the filing of articles of incorporation. Although there is a
presumption that all the requirements of law have been complied with in the case before us it cannot be denied that the
plaintiff was not yet incorporated when it entered into the contract of sale. The contract itself referred to the plaintiff as
"una sociedad en vías de incorporación." It was not even a de facto corporation at the time. Not being in legal existence
then, it did not possess juridical capacity to enter into the contract.

Corporations are creatures of the law, and can only come into existence in the manner prescribed by law. General laws
authorizing the formation of corporations are general offers to any persons who may bring themselves within their
provisions; and if conditions precedent are prescribed in the statute, or certain acts are required to be done, they are
terms of the offer, and must be complied with substantially before legal corporate existence can be acquired. That a
corporation should have a full and complete organization and existence as an entity before it can enter into any kind' of
a contract or transact any business, would seem to be self-evident.

A corporation, until organized, has no life and, therefore, no faculties. It is, as it were, a child in ventre sa mere. This is
not saying that under no circumstances may the acts of promoters of a corporation be ratified by the corporation if
and when subsequently organized. There are, of course, exceptions, but under the peculiar facts and circumstances of
the present case the doctrine of ratification should not be extended because to do so would result in injustice or fraud to
the candid and unwary.

FACTS: Manuel Tabora is the registered owner of four parcels of land in Aparri, Cagayan and he wanted to build a
Fishery. He loaned from PNB P8,000 and to guarantee the payment of the loan, he mortgaged the said parcels of land.
Three subsequent mortgages were executed in favor of the same bank and to Severina Buzon, whom Tabora is indebted
to.

Tabora sold the four parcels of land to the plaintiff company, said to be under process of incorporation, in
consideration of one peso (P1) subject to the mortgages in favor of PNB and Severina Buzon and, to the condition that
the certificate of title to said lands shall not be transferred to the name of the plaintiff company until the latter has
fully and completely paid Tabora’s indebtedness to PNB.

The articles of incorporation were filed and the company sold the parcels of land to Sandiko on the reciprocal obligation
that Sandiko will shoulder the three mortgages. A deed of sale executed before a notary public by the terms of which
the plaintiff sold, ceded and transferred to the defendant all its rights, titles and interest in and to the four parcels of
land.

He executed a promissory note that he shall pay 25,300 after a year with interest and on the promissory notes; the
parcels were mortgaged as security.
A promissory note for P25,300 was drawn by the defendant in favor of the plaintiff, payable after one year from the date
thereof. Further, a deed of mortgage executed before a notary public in accordance with which the four parcels of land
were given as security for the payment of the said promissory note. All these three instruments were dated February 15,
1932.

Sandiko failed to pay, thus the action for payment. The lower court held that deed of sale was invalid.

The corporation filed a motion for reconsideration.

Issues:

WHETHER OR NOT CAGAYAN HAS JURIDICAL CAPACITY TO ENTER INTO THE CONTRACT? NO

The transfer made by T to the C, F. D. Co,, Inc., was effected on May 31, 1930 and the actual incorporation of said
company was effected later on October 22, 1930. In other words, the transfer was made almost five months before the
incorporation of the company. Unquestionably, a duly organized corporation has the power to purchase and hold such
real property as the purposes for which such corporation was formed may permit and for this purpose may enter into
such contracts as may be necessary. But before a corporation may be said to be lawfully organized, many things have to
be done. Among other things, the law requires the filing of articles of incorporation. Although there is a presumption
that all the requirements of law have been complied with in the case before us it cannot be denied that the plaintiff was
not yet incorporated when it entered into the contract of sale. The contract itself referred to the plaintiff as "una
sociedad en vías de incorporación." It was not even a de facto corporation at the time. Not being in legal existence then,
it did not possess juridical capacity to enter into the contract.

CAN PROMOTERS OF A CORPORATION ACT AS AGENTS? NO

The contract here was entered into not only between Manuel Tabora and a non-existent corporation but between
Manuel Tabora as owner of four parcels of land on the one hand and the same Manuel Tabora, his wife and others, as
mere promoters of a corporation on the other hand. For reasons that are self-evident, these promoters could not have
acted as agents for a projected corporation since that which had no legal existence could have no agent.

#2 RIZAL LIGHT & ICE Co., INC., petitioner, vs. THE MUNICIPALITY OF MORONG, RlZAL, and THE PUBLIC SERVICE
COMMISSION, respondents

A franchise was awarded in favor of a corporation was sought to be annulled on the ground that at the time the
application was filed, the corporation was then only in the process of incorporation. In dismissing the action, the Court
held that although a franchise may be treated as a contract, the eventual incorporation of the applicant corporation
after the grant of the franchise, “and its acceptance of the franchise as shown by its action in prosecuting the application
filed with the Commission for the approval of said franchise, not only perfected a contract between the respondent
municipality and Morong Electric but also cured the deficiency pointed out by the petitioner in the application of
Morong Electric.

The Court clarified also in this case that in deciding Cagayan Fishing, “this Court did not say in that case that the rule is
absolute or that under no circumstances may the acts of promoters of a corporation be ratified or accepted by the
corporation if and when subsequently organized. Of course, there are exceptions. It will be noted that American courts
generally hold that a contract made by the promoters of a corporation on its behalf may be adopted, accepted or
ratified by the corporation when organized.”

IMPORTANT: CAGAYAN FISHING and RIZAL LIGHT cases: not incompatible

The conclusion herein reached regarding the validity of the franchise granted to Morong Electric is not incompatible
with the holding of this Court in Cagayan Fishing Development Co., Inc. vs. Teodoro Sandiko upon which the petitioner
leans heavily in support of its position. In said case, this Court held that a corporation should have a full and complete
organization and existence as an entity before it can enter into any kind of a contract or transact any business. It should
be pointed out, however, that this Court did not say in that case that the rule is absolute or that under no circumstances
may the acts of promoters of a corporation be ratified or accepted by the corporation if and when subsequently
organized. Of course, there are exceptions. It will be noted that American courts generally hold that a contract made
by the promoters of a corporation on its behalf may be adopted, accepted or ratified by the corporation when
organized.

______________________________________________________________________________________________

#3 FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, petitioners, vs. THE HONORABLE COURT OF APPEALS and ALBERTO
V. ARELLANO, respondents

(ARELLANO WAS NOT PAID FOR HIS EFFORTS IN HIS PROJECT STUDY; CARAMS NOT PERSONALLY/SOLIDARILY LIABLE FOR
THEY WERE NOT THE ONES WHO CONTRACTED THE SERVICES OF THE PETITIONER; AT MOST, THEY MERELY BENEFITED
BUT STILL NO JUSTIFICATION TO MAKE THEM PERSONALLY LIABLE)

Corporation Law; A bona fide corporation should alone be liable for its corporate acts duly authorized by its officers
and directors.—Significantly, there was no showing that the Filipinas Orient Airways was a fictitious corporation and did
not have a separate juridical personality, to justify making the petitioners, as principal stockholders thereof, responsible
for its obligations. As a bona fide corporation, the Filipinas Orient Airways should alone be liable for its corporate acts
as duly authorized by its officers and directors.

Same; Contracts; Liability of stockholders; Petitioners cannot be held personally liable for the compensation claimed
by private respondent for services performed by him in the organization of the corporation since petitioners did not
contract such services.—In the light of these circumstances, we hold that the petitioners cannot be held personally
liable for the compensation claimed by the private respondent for the services performed by him in the organization of
the corporation. To repeat, the petitioners did not contract such services, it was only the results of such services that
Barretto and Garcia presented to them and which persuaded them to invest in the proposed airline. The most that can
be said is that they benefited from such services, but that surely is no justification to hold them personally liable therefor.
Otherwise, all the other stockholders of the corporation, including those who came in later, and regardless of the
amount of their shareholdings, would be equally and personally liable also with the petitioners for the claims of the
private respondent.

FACTS: A certain Barretto initiated the incorporation of a company called Filipinas Orient Airways (FOA). Barretto was
referred to as the “moving spirit” of said corporation because it was through his effort that it was created. Before FOA’s
creation though, Barretto contracted with a third party, Alberto Arellano, for the latter to prepare a project study for
the feasibility of creating a corporation like FOA. The project study was then presented to the would-be incorporators
and investors. On the basis of said project study, Fermin Caram, Jr. and Rosa Caram agreed to be incorporators of FOA.
Later however, Arellano filed a collection suit against FOA, Barretto, and the Carams. Arellano claims that he was not
paid for his work on the project study.
PETITIONERS’ ARGUMENT: Their position is that as mere subsequent investors in the corporation that was later
created, they should not be held solidarily liable with the Filipinas Orient Airways, a separate juridical entity, and with
Barretto and Garcia, their codefendants in the lower court, who were the ones who requested the said services from the
private respondent
ISSUE: Whether or not the Carams are personally and solidarily liable considering that the project study was
contracted before FOA became a corporation.
HELD: No. The Carams cannot be solidarily liable with FOA. The FOA is now a bona fide corporation. As such, FOA alone
should be liable for its corporate acts as duly authorized by its officers and directors. This includes acts which ultimately
led to its incorporation i.e., the project study made by Arellano. FOA has a separate and distinct personality from its
incorporators. At any rate, the airline was eventually organized on the basis of the project study with the petitioners
as major stockholders and, together with Barretto and Garcia, as principal officers.
Significantly, there was no showing that the Filipinas Orient Airways was a fictitious corporation and did not have a
separate juridical personality, to justify making the petitioners, as principal stockholders thereof, responsible for its
obligations. As a bona fide corporation, the Filipinas Orient Airways should alone be liable for its corporate acts as duly
authorized by its officers and directors.
It is not justified to make the Carams, as principal stockholders, to be responsible for FOA’s obligations.

#4 NAZARIO TRILLANA, administrator and appellee, vs. QUEZON COLLEGE, INC, claimant and appellant.
(UNDER THE OLD CIVIL CODE, OBLIGATIONS THE FULFILLMENT OF WHICH ARE DEPENDENT SOLELY ON THE WILL OF THE
DEBTOR ARE FACULTATIVE IN NATURE AND THUS, SHOULD BE ACCOMPANIED WITH ACCEPTANCE BY THE BOARD OF
TRUSTEES. ABSENT THE BOARD ACCEPTANCE, THE OFFER OF CRISOSTOMO HAS NOT RIPENED INTO AN ENFORCEABLE
CONTRACT)
OBLIGATIONS AND CONTRACTS STOCK SUBSCRIPTION; OFFER AND ACCEPTANCE, FACULTATIVE CONDITION—As the
appellant offered its stock for subscription on the term stated in a form letter, and D. C. applied for subscription fixing
her own plan of payment, the relation, in the absence of acceptance by the appellant of the counter offer of D.C., had
not ripened into an enforceable contract. There was imperative need for express acceptance on appellant's part,
because the proposal of D. C. to pay the value of the subscription after she had harvested fish, was a condition obviously
dependent upon her sole will and, therefore, facultative in nature, rendering the obligation void under article 1115 of
the old Civil Code.
Facts: Damasa Crisostomo subscribed 200 shares of capital stock with a par value of P100 each through a letter sent to
the Board of Trustees of the Quezon College, enclosed with the letter are a sum of money as her initial payment and
her assurance of full payment after she harvested fish. On October 26, 1948, Damasa Crisostomo passed away. As no
payment appears to have been made on the subscription mentioned in the foregoing letter, the Quezon College, Inc.
presented a claim before the CFI of Bulacan in her testate proceeding, for the collection of the sum of P20,000,
representing the value of the subscription to the capital stock of the Quezon College, Inc. which was then opposed by
the administrator of the estate.

Whether or not the contract entered into by both parties are valid

As the appellant offered its stock for subscription on the term stated in a form letter, and D. C. applied for subscription
fixing her own plan of payment, the relation, in the absence of acceptance by the appellant of the counter offer of
D.C., had not ripened into an enforceable contract. There was imperative need for express acceptance on appellant's
part, because the proposal of D. C. to pay the value of the subscription after she had harvested fish was a condition
obviously dependent upon her sole will and, therefore, facultative in nature, rendering the obligation void under article
1115 of the old Civil Code.

#5 SOFRONIO T. BAYLA ET AL., petitioners, vs. SILANG TRAFFIC CO., INC., respondent. SILANG TRAFFIC CO., INC.,
petitioner, vs. SOFRONIO BAYLA ET AL., respondents.
(THE AGREEMENT IN THIS CASE IS ONE OF SALE AND NOT OF SUBSCRIPTION AS IT WAS AN INDEPENDENT AGREEMENT
BETWEEN THE INDIVIDUAL PURCHASER AND THE CORPORATION TO PAY THE STIPULATED PRICE)
(THAT THE FORFEITURE WAS INEFFECTIVE AS THERE IS NO EXPRESS PROVISION TO THAT EFFECT)
(BEING A CONTRACT OF SALE, IT CAN BE RESCINDED BY MUTUAL AGREEMENT OF THE PARTIES – NOTE THAT THE BOARD
PASSED A RESOLUTION RESCINDING THE CONTRACTS FOR THE CORPORATION’S GOOD TO WHICH THE PETITIONERS
AGREED AS SHOWN BY THEIR DEMAND FOR REFUND)
FACTS: 8 Years after the Silang Traffic Co. was organized, it entered into an agreement for the sale on installment of its
shares of stock with various individuals, including the petitioners (BAYLA). After the latter had paid several installments
for the purchase price of said shares of stock, the petitioners defaulted in the payment of the subsequent installments.
Thus, the Board of directors passed a resolution authorizing for the refund of the amounts paid and the reversion of
the shares of stock to the corporation. Despite the said Board resolution, the amounts paid by petitioners were not
returned to them. Thus, they instituted an action in the CFI to recover the sums of money paid.

SILANG TRAFFIC: The respondent corporation contends that the resolution does not apply to petitioners as at the time
the resolution was passed, the shares had already automatically been reverted back to the corporation, and that the
resolution was no longer effective as it was cancelled by a subsequent resolution passed by the Board. The CFI declared
that the shares of stock had already been forfeited and absolved the respondent from the complaint.

Issues: Whether the contract herein involved is a subscription, and whether failure to pay any installment of the
purchase price of the shares of stock would result in its automatic forfeiture in favor of the corporation.

Held: The contract herein involved is one of sale and not of subscription as it is an independent agreement between the
individual purchaser and corporation to buy the shares of stock at a stipulated price. It does not involve a mutual
agreement of the subscribers to take and pay for the stock of the corporation. Whether a particular contract is a
purchase or a subscription of shares of stock is a matter of construction and depends upon its terms and the intention of
the parties. It has been held that a subscription to stock in an existing corporation is, as between the subscriber and the
corporation, simply a contract of purchase and sale.

As to forfeiture, the contract did not expressly provide that the failure of the purchaser to pay any installment would
give rise to the forfeiture and cancellation without the necessity of any demand from the seller. However, being a
contract of sale, it may be rescinded by mutual agreement of the parties.

In the subsequent Board resolution, it was stated that the contracts were rescinded (indicia that it was a contract of
sale) for the good of the corporation and in order to terminate a pending civil case involving the validity of such sales of
the shares. To such rescission, petitioners apparently agreed, as shown by their demand for the refund of the amount
they had already paid to the corporation.

CORPORATIONS; DISTINCTION BETWEEN SUBSCRIPTION TO CAPITAL STOCK AND CONTRACT OF SALE OF SHARES OF
STOCK.—Eight years after the corporation was organized, it entered into an "agreement for instalment sale" of its
shares of stock with various individuals. After the latter had paid several instalments on account of the purchase price
agreed upon, and upon default in the payment of the succeeding instalment, the board of directors of the corporation
passed a resolution authorizing the refund of the amounts paid and the reversion of the shares of stock to the
corporation.

Held: That such resolution is valid because the contract was not one of subscription but of purchase and sale. In some
particulars, the rules governing subscriptions and sales of shares are different. For instance, the provisions of our
Corporation Law regarding calls for unpaid subscriptions and assessment of stock do not apply to a purchase of stock.
Likewise the rule that the corporation has no legal capacity to release an original subscriber to its capital stock from the
obligation to pay for his shares, is inapplicable to a contract of purchase of shares
Whether a particular contract is a subscription or a sale of stock is a matter of construction and depends upon its terms
and the intention of the parties. In Salmon, Dexter & Co. vs. Unson, 47 Phil. 649, it was held that a subscription to stock
in an existing corporation is, as between the subscriber and the corporation, simply a contract of purchase and sale.
A subscription, properly speaking, is the mutual agreement of the subscribers to take and pay for the stock of a
corporation, while a purchase is an independent agreement between the individual and the corporation to buy shares of
stock from it at a stipulated price
OBLIGATIONS AND CONTRACTS; NECESSITY OF DEMAND UPON DEFAULT AS REQUISITE TO FORFEITURE.—The
contract here involved provides that if the purchaser fails to pay any of the instalments when due, the shares of stock
which are the object of the sale are to revert to the seller and the payments already made are to be forfeited in favor
of said seller. The seller, through its board of directors, annulled a previous resolution rescinding the sale and declared
the forfeiture of the payments already made and the reversion of the shares of stock to the corporation.
Held: That such forfeiture was ineffective. The contract did not expressly provide that the failure of the purchaser to pay
any instalment would give rise to forfeiture and cancellation without the necessity of any demand from the seller; and
under article 1100 of the Civil Code persons obliged to deliver or do something are not in default until the moment the
creditor demands of them judicially or extra judicially the fulfilment of their obligation, unless (1) the obligation or the
law expressly provides that demand shall not be necessary in order that default may arise, or (2) by reason of the
nature and circumstances of the obligation it shall appear that the designation of the time at which the thing was to be
delivered or the service rendered was the principal inducement to the creation of the obligation.

#6 MlGUEL VELASCO, assignee of The Philippine Chemical Product Co. (Ltd.), plaintiff and appellant, vs. JEAN M.
POIZAT, defendant and appellee.
(STOCK SUBSCRIPTION IS A CONTRACT BETWEEN A SUBSCRIBER AND THE CORPORATION WHICH THE COURTS MAY
ENFORCE FOR OR AGAINST EITHER)
(THAT IT IS A SUBSISTING LIABILITY FROM THE TIME THE SUBSCRIPTION IS MADE SINCE IT REQUIRES THE SUBSCRIBER TO
PAY INTEREST QUARTERLY FROM THAT DATE UNLESS HE IS RELIEVED FROM SUCH LIABILITY)
(THAT THE CONTENTION OF POIZAT THAT THE BOARD CALL WAS INVALID BECAME IMMATERIAL WHEN INSOLVENCY
SUPERVENES; IN SUCH A CASE, UNPAID SUBSCRIPTIONS BECOME AT ONCE DUE AND ENFORCEABLE)
FACTS: Poizat subscribed to 20 shares but only paid for 5. Board made a call for payment through a resolution. Poizat
refused to pay. Corporation became insolvent. Assignee in insolvency sued Poizat whose defense was that the call was
invalid for lack of publication.

ISSUE: WON Poizat is liable to the unpaid subscription.

HELD: YES. A stock subscription is subsisting liability from the time the subscription is made, since it requires the
subscriber to pay interest quarterly from that date unless he is relieved from such liability by the by-laws of the
corporation. The subscriber is as much bound to pay the amount of the share subscribed by him as he would be to pay
any other debt, and the right of the company to demand payment is no less incontestable. The Board call became
immaterial when insolvency supervenes; all unpaid subscriptions become at once due and enforceable. When
insolvency supervenes upon a corporation and the court assumes jurisdiction to wind it up, unpaid stock subscriptions
become payable on demand, and are at once recoverable in an action instituted by the assignee in insolvency.
CORPORATIONS; SUBSCRIPTION TO CAPITAL STOCK — a stock subscription is a contract between the corporation and
the subscriber, and courts will enforce it for or against either. No express promise to pay is necessary to make the
subscriber liable.
REMEDIES FOR ENFORCEMENT OF SUBSCRIPTION FOR STOCK.—The Corporation has two remedies against the
subscriber to the corporate shares, namely (1) to sell the stock for the account of the delinquent subscriber, and (2) to
bring a legal action against him for the amount due.
ACTION TO RECOVER STOCK SUBSCRIPTION.—The provisions of sections 38 to 48, inclusive, of the Corporation Law are
applicable only where the directors of a corporation intend to subject the stock of the delinquent subscriber to sale in
order to enforce payment of the subscription. They have no application in case a legal action is brought to recover upon
the stock subscription.
INSOLVENCY OF CORPORATION.—When insolvency supervenes upon a corporation and the court assumes jurisdiction
to wind it up, unpaid stock subscriptions become payable on demand, and are at once recoverable in an action
instituted by the assignee in insolvency.
RELEASE OF SUBSCRIBER.— A corporation has no legal capacity to release a subscriber to its capital stock from the
obligation to pay for his shares; and any agreement to this effect is invalid.

#7 PHILIPPINE NATIONAL BANK, plaintiff appellee, vs. BITULOK SAWMILL, INC., DINGALAN LUMBER Co., INC., SIERRA
MADRE LUMBER Co., INC., NASIPIT LUMBER Co., INC., WOODWORKS, INC., GONZALO PUYAT, TOMAS B. MORATO,
FlNDLAY MlLLAR LUMBER CO., INC., ET AL., INSULAR LUMBER Co., ANAKAN LUMBER CO., AND CANTILAN LUMBER
Co., INC., defendants appellees.
THE PHILIPPINE LUMBER DISTRIBUTING AGENCY INC WAS ORGANIZED UPON THE INITIATIVE OF LATE PRESIDENT
MANUEL ROXAS FOR THE PURPOSE OF ENSURING A STEADY SUPPLY OF LUMBER AND TO PRODUCE LUMBER WHICH
COULD BE SOLD AT REASONABLE PRICES TO ENABLE WAR SUFFERERS TO REHABILITATE THEIR DEVASTATED HOMES.
HE CONVICED THE LUMBER PRODUCERS TO FORM A COOPERATIVE TO POOL THEIR RESOURCES TOGETHER TO WREST
THE RETAIL TRADE FROM ALIENS WHO WERE ACTING AS MIDDLEMEN IN ITS DISTRIBUTION; THAT THE PRODUCERS
WERE HESITANT FOR IT WOULD NOT BE EASY TO ELIMINATE ALIEN MIDDLEMEN WHO HAD BEEN IN BUSINESS SINCE
TIME IMMEMORIAL. AS INDUCEMENT, THE PRESIDENT GUARANTEED THAT IT WOULD FINANCE THE AGENCY BY
MAKING THE GOVERNMENT INVEST NINE-PESO FOR EVERY ONE PESO THAT THE MEMBERS WOULD INVEST THEREIN.
DESPITE THIS, THE CONTRIBUTIONS WERE NOT SUFFICIENT TO PUT AN END TO ALIEN DOMINANCE IN THIS TRADE.
NEITHER THERE WAS APPROPRIATION MADE BY THE GOVERNMENT OF THE COUNTERPART FUND.
PRESIDENT ROXAS ACCORDINGLY INSTRUCTED THE PNB TO GRANT SAID AGENCY AN OVERDRAFT IN THE ORIGINAL SUM
OF 250,000 PHP WHICH INCREASED BY 100,000 PHP.
THE GOVERNMENT FAILED IN ITS PROMISE TO INVEST THE PROPORTIONAL 9 PESO PER 1 PESO INVESTMENT OF THE
MEMBERS OF THE LUMBER COOPERATIVE, LEAVING THEM UNABLE TO PAY THE DEBT TO PNB. THE ISSUE NOW IS
WHETHER THE PLDA SHOULD BE RELIEVED FROM THE OBLIGATION TO PAY THE AMOUNT IN VIEW OF GOVERNMENT’S
FAILURE TO INVEST.
THE COURT RULED IN THE NEGATIVE STATING THAT THE ESTABLISHED DOCTRINE IS THAT SUBSCRIPTIONS TO THE
CAPITAL OF THE CORPORATION CONSTITUTE A FUND TO WHICH CREDITORS HAVE A RIGHT TO LOOK FOR THE
SATISFACTION OF SUCH CLAIMS AND THE ASSIGNEE IN INSOLVENCY MAY MAINTAIN AN ACTION FOR ANY UNPAID
SUBSCRIPTION FOR THE PAYMENT OF ITS DEBT. A CORPORATION MOREOVER HAS NO POWER TO RELEASE AN ORIGINAL
SUBSCRIBER FROM ITS OBLIGATION TO PAY ITS SHARES WITHOUT VALUABLE CONSIDERATION
Corporation law; Subscription; An assignee in insolvency can maintain an action upon any unpaid stock subscription in
order to realize assets for the payment of its debts.—It is an established doctrine that subscriptions to the capital of a
corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee
in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its
debts.
Facts: The Philippine Lumber Distributing Agency, Inc. was organized upon the initiative and insistence of the late
President Manuel Roxas of the Republic of the Philippines who had called several conferences between him and the
subscribers and organizers of the Philippine Lumber Distributing Agency, Inc. The purpose was praiseworthy, to insure a
steady supply of lumber, which could be sold at reasonable prices to enable the war sufferers to rehabilitate their
devastated homes. He convinced the lumber producers to form a lumber cooperative and to pool their sources together
in order to wrest, particularly, the retail trade from aliens who were acting as middlemen in the distribution of lumber.
At the beginning, the lumber producers were reluctant to organize the cooperative agency as they believed that it would
not be easy to eliminate from the retail trade the alien middlemen who had been in this business from time
immemorial, but because the late President Roxas made it clear that such a cooperative agency would not be successful
without a substantial working capital which the lumber producers could not entirely shoulder, and as an inducement he
promised and agreed to finance the agency by making the Government invest P9.00 by way of counterpart for every
peso that the members would invest therein,...."
This was the assurance relied upon, which stated that the amount thus contributed by such lumber producers was not
enough for the operation of its business especially having in mind the primary purpose of putting an end to alien
domination in the retail trade of lumber products. Nor was there any appropriation by the legislature of the counterpart
fund to be put up by the Government, namely, P9.00 for every peso invested by defendant lumber producers.
Accordingly, the late President Roxas instructed the Philippine National Bank, for the latter to grant said agency an
overdraft in the original sum of P250,000.00 which was later increased to P350,000.00. The Philippine Government did
not invest the P9.00 for every peso coming from defendant lumber producers. The loan extended to the Philippine
Lumber Distributing Agency by the Philippine National Bank was not paid.
Issue: Whether or not the subscribers to the Corporation can be relieved from paying PNB because the Government
failed its promise of investment.
Held: Can’t be relieved. It is established doctrine that subscriptions to the capital of a corporation constitute a fund to
which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an
action upon any unpaid stock subscription in order to realize assets for the payment of its debt.
A corporation has no power to release an original subscriber to its capital stock from the obligation of paying for his
shares, without a valuable consideration for such release; and as against creditors a reduction of the capital stock can
take place only in the manner and under the conditions prescribed by the statute or the charter or the articles of
incorporation. In the case of Velasco v. Poizat, the corporation involved was insolvent, in which case all unpaid stock
subscriptions become payable on demand and are immediately recoverable in an action instituted by the assignee.

#8 THE GOVERNMENT OF THE PHILIPPINE ISLANDS, petitioner, vs. THE MANILA RAILROAD COMPANY and JOSE PAEZ,
as Manager of said Company, respondents.
(ACT NO. 1459 HAS BEEN SUPERSEDED BY ACT NO. 1510, THE LATTER PROVIDES THAT THE RAILROAD COMPANY IS
REQUIRED TO FURNISH ONLY FOUR WIRES WHILE THE FORMER PROVIDES FOR SIX)
(THAT ACT NO. 1459 IS APPLICABLE TO ALL CORPORATIONS IN GENERAL, WHILE ACT NO. 1510 IS APPLICABLE
PECULIARLY TO MANILA RAILROAD COMPANY)
(THAT ACT NO. 1510, BEING THE SPECIAL CHARTER OF THE COMPANY, HAS THE EFFECT OF SUPERSEDING ACT NO 1459,
MAKING THE FORMER AS THE OFFICIAL CONTRACT BETWEEN THE COMPANY AND THE STATE. FOR THE STATE TO
REQUIRE THE COMPANY TO PROVIDE IT WITH SERVICE NOT IN ACCORDANCE WITH ITS CHARTER WOULD AMOUNT TO A
VIOLATION OF THE CONTRACT ENTERED INTO BETWEEN THEM)
MANDAMUS, WRIT OF; WILL NOT BE GRANTED TO COERCE THE PERFORMANCE OF AN ACT WHICH THE LAW DOES
NOT SPECIFICALLY ENJOIN AS A DUTY RESULTING FROM AN OFFICE, TRUST OR STATION, OR AS A RESULT OF SOME
OFFICIAL DUTY; CHARTER, RIGHTS UNDER, DISCUSSED.—Held, under the facts stated and by reason of the charter of
the respondent company, that mandamus will not be issued to require it to provide and equip its telegraph poles with
crosspieces sufficient to carry six telegraph wires of the Government. The charter of a corporation is a contract between
three parties: (a) Between the state and the corporation, (b) between the stockholders and the state, and (c) between
the corporation and the stockholders. The state cannot require the performance of a duty on the part of a corporation
or entity, contrary to the provisions of the charter of said corporation or entity.
FACTS: Government of the Philippine Islands, presented before the Supreme Court a petition praying that the writ be
issued to compel the Manila Railroad Company and Jose Paez, as its manager, to provide and equip the telegraph poles
of said company between the municipality of Paniqui, Province of Tarlac, and the municipality of San Fernando, Province
of La Union, with crosspieces for six telegraph wires belonging to the Government, which, it is alleged, are necessary for
public service between said municipalities.
ARGUMENTS OF PLAINTIFF: The plaintiff contends that under said section 84 (Act 1459) the defendant company
is required to erect and maintain posts for its telegraph wires, of sufficient length and strength, and equipped
with sufficient crosspieces to carry the number of wires which the Government may consider necessary (for the
public service, and that six wires are now necessary for the public service.)
ARGUMENTS OF RESPONDENT: The respondents answered by a general and special defense. In their special
defense they contend that section 84 of Act No. 1459 has been repealed by section 1, paragraph 8, of Act No.
1510 of the United States Philippine Commission and that under the provisions of said Act No. 1510 the
Government is entitled to place on the poles of the company four wires only. Act No. 1510 is the charter of the
Manila Railroad Company. It was adopted by the United States Philippine Commission on July 7, 1906.
ISSUE: Whether the defendant company is required to provide and equip its telegraph poles with crosspieces sufficient
to carry six telegraph wires of the Government, or whether it is only required to (furnish poles with crosspieces
sufficient to carry four wires only (Act 1510)
To answer the question above stated, it becomes necessary to determine whether section 84 of Act No. 1459 is
applicable to the Manila Railroad Company, or whether the Manila Railroad Company is governed by section 1,
paragraph 8, of Act No. 1510. As has been said, Act No. 1459 is a general law applicable to corporations generally, while
Act No. 1510 is the charter of the Manila Railroad Company and constitutes a contract between it and the Government.
Inasmuch as Act No. 1510 is the charter of the Manila Railroad Company and constitutes a contract between it and the
Government, it would seem that the company is governed by its contract and not by the provisions of any general law
upon questions covered by said contract.
Sec. 1, par. 8 of Act. No 1510 provides: “In the construction of telegraph or telephone lines along the right of way the
grantee (the Manila Railroad Company) shall erect and maintain poles with sufficient space thereon to permit the
Philippine Government, at the expense of said Government, to place, operate, and maintain four wires for telegraph,
telephone, and electrical transmission for any Government purpose between the termini of the lines of railways main
or branch….”
Act No. 1510 applies only to the Manila Railroad Company, one of the respondents, and being a special charter of said
company, its adoption had the effect of superseding the provisions of the general Corporation Law which are applicable
to railroads in general.
Act No. 1510 is a special charter of the respondent company. It constitutes a contract between the respondent company
and the state; and the state and the grantee of a charter are equally bound by its provisions. For the state to impose
an obligation or a duty upon the respondent company, which is not expressly provided for in the charter (Act. No. 1510),
would amount to a violation of said contract between the state and the respondent company.
The question is not whether Act No. 1510 repealed Act No. 1459; but, whether, after the adoption of Act No. 1510, the
respondents are obliged to comply with the special provision contained in Act No. 1459. We must answer that
question in the negative. Both laws are still in force, unless otherwise repealed. Act No. 1510 is applicable to
respondents upon the question before us, while Act No. 1459 is not applicable. The petitioner, in view of all the
foregoing facts and the law applicable thereto, has not shown itself entitled to the remedy prayed for. The prayer of the
petition must, therefore, be denied.

#9 RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA TRIAS and FRANCISCO TRIAS, petitioners, vs. COURT
OF APPEALS, ** SECURITIES AND EXCHANGE COMMISSION, MELANIA A. GUERRERO, LUZ ANDICO, WILHELMINA G.
ROSALES, FRANCISCO M. GUERRERO, JR., and FRANCISCO GUERRERO, SR., respondents.
THAT THE CORPORATION’S OBLIGATION TO TRANSFER SHARES IS A MINISTERIAL ONE WHICH DOES NOT REQUIRE ANY
INQUIRY AS TO THE OWNERSHIP THEREOF
THAT THE RIGHT OF TRANSFEREE OR ASSIGNEE TO HAVE THE STOCKS TRANSFERRED TO HIS NAME IS AN INHERENT
RIGHT FLOWING FROM HIS OWNERSHIP OF THE STOCK
THAT THE SEC HAS EXCLUSIVE AND ORIGINAL JURISDICTION OVER INTRACORPORATE CONTROVERSIES – THOSE WHICH
INVOLVE DISPUTES BETWEEN STOCKHOLDERS AND THE CORPORATION
FACTS: Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special Power of Attorney in favor
of his wife, Melania to sell or otherwise dispose of and/or mortgage 473 shares of stock of the Bank registered in his
name, to execute the proper documents therefor, and to receive and sign receipts for the dispositions. Melania, as
Attorney-in-Fact, executed a Deed of Assignment for 472 shares out of the 473 shares, in favor of private respondents
Luz Andico (457 shares), Wilhelmina Rosales (10 shares) and Francisco Guerrero, Jr. (5 shares).

Melania Guerrero presented to Rural Bank of Salinas the 2 Deeds of Assignment for registration with a request for the
transfer in the Bank's stock and transfer book of the 473 shares of stock so assigned, the cancellation of stock
certificates in the name of Clemente, and the issuance of new stock certificates in the name of the new owners thereof,
Rural Bank denied such request. Melania filed with the SEC an action for mandamus against Rural Bank of Salinas, its
President and Corporate Secretary.

The Bank in their Answer with counterclaim alleged that upon the death of Clemente, his 473 shares of stock became
the property of his estate, and his property and that of his widow should first be settled and liquidated in accordance
with law before any distribution can be effected so that petitioners may not be a party to any scheme to evade payment
of estate or inheritance tax and in order to avoid liability to any third persons or creditors of the late Clemente.

Maripol Guerrero filed a motion for intervention (legally adopted daughter of the late Clemente and Melanie) stating
that a Petition for the administration of the estate of Clemente had been filed but her motion was denied. She then
filed before the CFI of Rizal, against Melanie for the annulment of the Deeds of Assignment for being fictitious, void or
simulated. The Bank then filed a motion to dismiss/suspend hearing pending resolution of the case for annulment.
However, SEC denied such motion.

SEC rendered a Decision granting the writ of Mandamus and directing petitioners to cancel stock certificates of the Bank,
and to issue new certificates in the names of private respondents, except Melania Guerrero. Appealed to the CA but CA
affirmed the decision of SEC.
ISSUES:

 WON SEC has the power to adjudicate the case. YES

 WON corporations may by its board, its by-laws, or the act of its officers, create restrictions in stock transfers.
NO
 WON the Bank being a corporation may refuse to transfer and register stocks. NO.

1. Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive jurisdiction to hear and decide cases
involving intracorporate controversies. An intracorporate controversy has been defined as one which arises between a
stockholder and the corporation. There is no distinction, qualification, nor any exception whatsoever (Rivera vs.
Florendo, 144 SCRA 643 [1986]). The case at bar involves shares of stock, their registration, cancellation and issuances
thereof by petitioner Rural Bank of Salinas. It is therefore within the power of respondent SEC to adjudicate.

2. A corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions in stock transfers,
because restrictions in the traffic of stock must have their source in legislative enactment, as the corporation itself
cannot create such impediment. By-laws are intended merely for the protection of the corporation, and prescribe
regulation, not restriction; they are always subject to the charter of the corporation. The corporation, in the absence of
such power, cannot ordinarily inquire into or pass upon the legality of the transactions by which its stock passes from
one person to another, nor can it question the consideration upon which a sale is based. . . . (Tomson on Corporation
Sec. 4137, cited in Fleisher vs. Nolasco, Supra).

The only limitation imposed by Section 63 of the Corporation Code is when the corporation holds any unpaid claim
against the shares intended to be transferred, which is absent here.

3. The right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing from his
ownership of the stocks. Respondent SEC correctly ruled in favor of the registering of the shares of stock in question in
private respondent's names. Such ruling finds support under Section 63 of the Corporation Code, to wit:

Sec. 63. . . . Shares of stock so issued are personal property and may be transferred by delivery of the
certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to
make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is
recorded in the books of the corporation . . .

The corporation's obligation to register is ministerial.

In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try to decide
the question of ownership. (Fletcher, Sec. 5528, page 434).

The duty of the corporation to transfer is a ministerial one and if it refuses to make such transaction without
good cause, it may be compelled to do so by mandamus. (See. 5518, 12 Fletcher 394)

Corporation Law; Securities and Exchange Commission; Section 5 (b) of P.D. No. 902A grants to the SEC the original
and exclusive jurisdiction to hear and decide cases involving intracorporate controversies; Intracorporate controversy
defined. —Section 5 (b) of P.D. No. 902A grants to the SEC the original and exclusive jurisdiction to hear and decide
cases involving intracorporate controversies. An intracorporate controversy has been defined as one which arises
between a stockholder and the corporation. There is no distinction, qualification, nor any exception whatsoever.
Same; A corporation cannot create restrictions in stock transfer.—A corporation, either by its board, its bylaws, or the
act of its officers, cannot create restrictions in stock transfers.
The right of a transferee/assignee to have stocks transferred to his name an inherent right.—The right of a transferee/
assignee to have stocks transferred to his name is an inherent right flowing from his ownership of the stocks.
Same; Corporation’s obligation to register is ministerial.—The Corporation’s obligation to register is ministerial. “In
transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try to decide the
question of ownership.” “The duty of the corporation to transfer is a ministerial one and if it refuses to make such
transaction without good cause, it may be compelled to do so by mandamus.”

#10 RED LINE TRANSPORTATION Co., petitioner and appellant, vs. RURAL TRANSIT CO., LTD., respondent and
appellee.
THE DISPUTE STEMMED FROM THE OPPOSITION OF RED LINE TRANSPORTATION TO ACCEPT THE APPLICATION FOR
CERTIFICATE OF PUBLIC CONVENIENCE TO OPERATE A TRANSPORTATION SERVICE BETWEEN ILIGAN IN ISABELA AND
TUGUEGARAO IN CAGAYAN PROVINCE

THAT THERE IS NO LAW EMPOWERING THE PUBLIC SERVICE COMMISSION TO GRANT ANY CORPORATION THE RIGHT TO
USE THE NAME OF ANOTHER AS ITS TRADE NAME.

THAT THE CORPORATION MAY ONLY CHANGE ITS NAME IN ACCORDANCE WITH THE MANNER AND PROCEDURE
PRESCRIBED BY STATUTE

THAT THE ORDER OF THE COMMISSION ORDERING AND ALLOWING BACHRACH MOTORS INC. TO USE THE NAME OF
RURAL TRANSIT IS VOID.

This is a petition for review of an order of the Public Service Commission granting to the Rural Transit Company, Ltd., a
certificate of public convenience to operate a transportation service between Ilagan in the Province of Isabela and
Tuguegarao in the Province of Cagayan, and additional trips in its existing express service between Manila Tuguegarao.

Facts:
 Rural Transit filed an application for certification of a new service between Tuguegarao and Ilagan with the
Public Company Service Commission (PSC), since the present service is not sufficient. Rural Transit further stated
that it is a holder of a certificate of public convenience to operate a passenger bus service between Manila and
Tuguegarao
 Red Line opposed said application, arguing that they already hold a certificate of public convenience for
Tuguegarao and Ilagan, and is rendering adequate service. They also argued that granting Rural Transit’s
application would constitute a ruinous competition over said route
 Public Service Commission approved Rural Transit’s application, with the condition that "all the other terms
and conditions of the various certificates of public convenience of the herein applicant and herein incorporated
are made a part hereof."
 A motion for rehearing and reconsideration was filed by Red Line since Rural Transit has a pending application
before the Court of First Instance for voluntary dissolution of the corporation
 A motion for postponement was filed by Rural Transit as verified by M. Olsen who swears "that he was the
secretary of the Rural Transit Company, Ltd
 During the hearing before the Public Service Commission, the petition for dissolution and the CFI’s decision
decreeing the dissolution of Rural Transit were admitted without objection
  At the trial of this case before the Public Service Commission an issue was raised as to who was the real party in
interest making the application, whether the Rural Transit Company, Ltd., as appeared on the face of the
application, or the Bachrach Motor Company, Inc., using name of the Rural Transit Company, Ltd., as a trade
name
 However, PSC granted Rural Transit’s application for certificate of public convenience and ordered that a
certificate be issued on its name
 PSC relied on a Resolution in case No. 23217, authorizing Bachrach Motor to continue using Rural Transit’s
name as its tradename in all its applications and petitions to be filed before the PSC. Said resolution was given
a retroactive effect as of the date of filing of the application or April 30, 1930

Issue: Can the Public Service Commission authorize a corporation to assume the name of another corporation as a trade
name? NO.

 The Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine corporations and the very law
of their creation and continued existence requires each to adopt and certify a distinctive name
 The incorporators "constitute a body politic and corporate under the name stated in the certificate."
 A corporation has the power "of succession by its corporate name." It is essential to its existence and cannot
change its name except in the manner provided by the statute. By that name alone is it authorized to transact
business.
 The law gives a corporation no express or implied authority to assume another name that is unappropriated: still
less that of another corporation, which is expressly set apart for it and protected by the law. If any corporation
could assume at pleasure as an unregistered trade name the name of another corporation, this practice would
result in confusion and open the door to frauds and evasions and difficulties of administration and supervision.
 In this case, the order of the commission authorizing the Bachrach Motor Co., Incorporated, to assume the name
of the Rural Transit Co., Ltd. likewise incorporated, as its trade name being void. Accepting the order of
December 21, 1932, at its face as granting a certificate of public convenience to the applicant Rural Transit Co.,
Ltd., the said order last mentioned is set aside and vacated on the ground that the Rural Transit Company,
Ltd., is not the real party in interest and its application was fictitious.

PUBLIC SERVICE ; AUTHORITY OF PUBLIC SERVICE COMMISSION TO AUTHORIZE A CORPORATION TO ASSUME THE
NAME OF ANOTHER.—There is no law that empowers the Public Service Commission or any court in this jurisdiction to
authorize one corporation to assume the name of another corporation as a trade name. Both the Rural Transit
Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine corporations and the very law of their creation and
continued existence requires each to adopt and certify a distinctive name.
ID.; ID.; CHANGE OF CORPORATION'S NAME.—The incorporators "constitute a body politic and corporate under the
name stated in the certificate." (Section 11, Act No. 1459, as amended.) A corporation has the power "of succession by
its corporate name." The name of a corporation is therefore essential to its existence. It cannot change its name except
in the manner provided by the statute. By that name alone is it authorized to transact business.
The law gives a corporation no express or implied authority to assume another name that is unappropriated; still less
that of another corporation, which is expressly set apart for it and protected by the law. If any corporation could assume
at pleasure as an unregistered trade name the name of another corporation this practice would result in confusion and
open the door to frauds and evasions and difficulties of administration and supervision.
ID.; ID.; ID.; POLICY OF THE LAW.—The policy of the law as expressed in our corporation statute and the Code of
Commerce is clearly against such a practice.
#11 PHILIPPINE FIRST INSURANCE COMPANY,INC., plaintiff appellant, vs. MARIA CARMEN HARTIGAN, CGH, and O.
ENGKEE, defendants appellees.
THERE IS NOTHING THAT MILITATES ON THE RIGHT OF THE CORPORATION TO CHANGE ITS NAME, IT IS JUST THAT IT CAN
BE SO DONE BY COMPLYING WITH THE STATUTORY REQUIREMENTS – SUCH AS THE SUBMISSION OF THE DULY
AMENDED AOI, CERTIFIED TO BE CORRECT BY THE PRESIDENT AND SECRETARY THEREOF AND APPROVED BY THE
MAJORITY OF THE BOARD, TO THE SEC.
THE PFIC ACTED RIGHTLY UNDER ITS OLD NAME WHEN IT ENTERED INTO INDEMNITY AGREEMENT ON MAY 15, 1961;
WHEREAS, IT WAS ONLY ABLE TO ACQUIRE ITS NEW NAME OF MAY 26 OF THE SAME YEAR AND THAT IT FILED THE
COMPLAINT UNDER A NEW NAME ON DECEMBER 1961.
It goes without saying then that appellant rightly acted in its old name when on May 15, 1961, it entered into the
indemnity agreement, Annex A, with the defendant-appellees; for only after the filing of the amended articles of
incorporation with the Securities & Exchange Commission on May 26, 1961, did appellant legally acquire its new
name; and it was perfectly right for it to file the present case In that new name on December 6, 1961
Corporation law; Corporations; Change of name; Corporation may change its name.—There is nothing in Section 18 of
the Corporation Law which prohibits a corporation from changing its name. The inference is clear that such a change is
allowed, for if the legislature had intended to enjoin corporations from changing names, it would have expressly stated
so in this section or in any other provision of the law.
How change of name may be effected.—A corporation may change its name by merely amending its charter in the
manner prescribed by law.
Change of name does not dissolve corporation.—The change of name of a corporation does not result in its dissolution.
The changing of the name of a corporation is no more the creation of a corporation than the changing of the name of a
natural person is the begetting of a natural person. The act, in both cases, would seem to be what the language which
we use to designate it imports—a change of name and not a change of being
When change of corporate name is effective.—The approval by the stockholders of the amendment of the articles of
incorporation changing the corporate name does not automatically change the name of the corporation as of that date.
To be effective, Section 18 of the Corporation Law requires that a copy of the articles of incorporation as amended, duly
certified to be correct by the president and the secretary of the corporation and a majority of the board of directors or
trustees, shall be filed with the Securities & Exchange Commissioner and it is only from the time of such filing, that the
corporation shall have the same powers and it and the members and stockholders thereof shall thereafter be subject to
the same liabilities as if such amendment had been embraced in the original articles of incorporation. FACTS: Plaintiff
was originally named as 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd’ an insurance corporation duly presented
with the Security and Exchange Commissioner and before a Notary Public as provided in their articles of incorporation. It
entered into indemnity agreement with the respondents on May 15, 1961. It later amended its articles of incorporation
and changed its name on May 26, 1961 as ‘Philippine First Insurance Co., Inc.’ pursuant to a certificate of the Board of
Directors.
The complaint alleges that: Philippine First Insurance Co., Inc., doing business under the name of 'The Yek Tong Lin Fire
and Marine Insurance Co., Lt.' signed as co-maker together with defendant Maria Carmen Hartigan, CGH, to which a
promissory note was made in favor of China Banking.
Said defendant failed to pay in full despite renewal of such note. The complaint ends with a prayer for judgment against
the defendants, jointly and severally, for the sum of P4,559.50 with interest at the rate of 12% per annum from
November 23, 1961 plus P911.90 by way of attorney's fees and costs. Defendants admitted the execution of the
indemnity agreement but they claim that they signed said agreement in favor of the Yek Tong Lin Fire and Marine
Insurance Co., Ltd.' and not in favor of the plaintiff Philippine Insurance.
They likewise admit that they failed to pay the promissory note when it fell due but they allege that since their
obligation with the China Banking Corporation based on the promissory note still subsists, the surety who co-signed the
promissory note is not entitled to collect the value thereof from the defendants otherwise they will be liable for double
amount of their obligation, there being no allegation that the surety has paid the obligation to the creditor.
In their special defense, defendants claim that there is no privity of contract between the plaintiff and the defendants
and consequently, the plaintiff has no cause of action against them, considering that the complaint does not allege
that the plaintiff and the 'Yek Tong Lin Fire and Marine Insurance Co., Ltd.' are one and the same or that the plaintiff
has acquired the rights of the latter.
ISSUE: MAY A PHILIPPINE CORPORATION CHANGE ITS NAME AND STILL RETAIN ITS ORIGINAL PERSONALITY AND
INDIVIDUALITY?
RULING: The court ruled in the affirmative.
As can be gleaned under Sections 6 and 18 of the Corporation Law, the name of a corporation is peculiarly important as
necessary to the very existence of a corporation. The general rule as to corporations is that each corporation shall have a
name by which it is to sue and be sued and do all legal acts. The name of a corporation in this respect designates the
corporation in the same manner as the name of an individual designates the person." Since an individual has the right to
change his name under certain conditions, there is no compelling reason why a corporation may not enjoy the same
right. There is nothing sacrosanct in a name when it comes to artificial beings. The sentimental considerations which
individuals attach to their names are not present in corporations and partnerships. Of course, as in the case of an
individual, such change may not be made exclusively by the corporation's own act. It has to follow the procedure
prescribed by law for the purpose. Strict adherence to such procedure is important and indispensably prescribed. A
general power to alter or amend the charter of a corporation necessarily includes the power to alter the name of the
corporation. Hence, a mere change in the name of a corporation, either by the legislature or by the corporators or
stockholders under legislative authority, does not, generally speaking, affect the identity of the corporation, nor in any
way affect the rights, privileges, or obligations previously acquired or incurred by it. Indeed, it has been said that a
change of name by a corporation has no more effect upon the identity of the corporation than a change of name by a
natural person has upon the identity of such person. The corporation, upon such change in its name, is in no sense a
new corporation, nor the successor of the original one, but remains and continues to be the original corporation. It is the
same corporation with a different name, and its character is in no respect changed.
As correctly pointed out by appellant, the approval by the stockholders of the amendment of its articles of incorporation
changing the name "The Yek Tong Lin Fire & Marine Insurance Co., Ltd." to "Philippine First Insurance Co., Inc." on
March 8, 1961, did not automatically change the name of said corporation on that date. To be effective, Section 18 of
the Corporation Law, earlier quoted, requires that "a copy of the articles of incorporation as amended, duly certified
to be correct by the president and the secretary of the corporation and a majority of the board of directors or trustees,
shall be filed with the Securities & Exchange Commissioner", and it is only from the time of such filing, that "the
corporation shall have the same powers and it and the members and stockholders thereof shall thereafter be subject to
the same liabilities as if such amendment had been embraced in the original articles of incorporation." It goes without
saying then that appellant rightly acted in its old name when on May 15, 1961, it entered into the indemnity
agreement, Annex A, with the defendant-appellees; for only after the filing of the amended articles of incorporation
with the Securities & Exchange Commission on May 26, 1961, did appellant legally acquire its new name; and it was
perfectly right for it to file the present case In that new name on December 6, 1961. Such is, but the logical effect of
the change of name of the corporation upon its actions.
Therefore, actions brought by a corporation after it has changed its name should be brought under the new name
although for the enforcement of rights existing at the time the change was made. The change in the name of the
corporation does not affect its right to bring an action on a note given to the corporation under its former name.
#12 UNIVERSAL MILLS CORPORATION, petitioner, vs. UNIVERSAL TEXTILE MILLS, INC., respondent.
UTMI WAS ORGANIZED IN 1953 WHILE UHMC WAS ORGANIZED THE FOLLOWING YEAR
IT WAS IN 1963 THAT UHMC DECIDED TO CHANGE ITS NAME TO UNIVERSAL MILLS CORPORATION WHICH THE SEC
GRANTED. THIS ACCORDINGLY BEARS AN UNDERTAKING THAT IN THE EVENT THAT THERE IS ANOTHER PERSON, FIRM
OR ENTITY WHO OR WHICH HAS OBTAINED A PRIOR RIGHT TO IT, IT SHALL CHANGE ITS NAME.
THE PRIOR RIGHT REFERRED TO IN THIS CASE WAS THE RIGHT OBTAINED BY UTMI. IT MUST BE NOTED THAT BOTH
CORPORATIONS OPERATE UNDER THE SAME BUSINESS AND THAT IT WAS AFTER A FIRE THAT RAVAGED UMC WHERE
THE CONFUSION ON THE PART OF UTMI’S INVESTORS AROSE, PROMPTING THE UTMI TO COMPEL UMC TO CHANGE ITS
NAME.
THE FACT THAT THERE WAS NO BAD FAITH IS IMMATERIAL AS THE UTMI DOES NOT SEEK FOR RECOVERY OF DAMAGES
Securities and Exchange Commission; Business Names; The business names “Universal Mills Corporation” and
“Universal Textile Mills, Inc.” though not identical are so similar as to cause confusion to the general public,
particularly where the former included the manufacture, dyeing and selling of fabrics of all kinds in which the latter
had been engaged for more than a decade ahead of the petitioner.—The corporate names in question are not
identical, but they are indisputably so similar that even under the test of “reasonable care and observation as the public
generally are capable of using and may be expected to exercise” invoked by appellant. We are apprehensive confusion
will usually arise, considering that under the second amendment of its articles of incorporation of August 14, 1964,
appellant included among its primary purposes the “manufacturing, dyeing, finishing and selling of fabrics of all kinds” in
which respondent had been engaged for more than a decade ahead of petitioner. Factually, the Commission found
existence of such confusion, and there is evidence to support its conclusion. Since respondent is not claiming damages in
this proceeding, it is, of course immaterial whether or not appellant has acted in good faith, but We cannot perceive why
of all names, it had to choose a name already being used by another firm engaged in practically the same business for
more than a decade enjoying well-earned patronage and goodwill, when there are so many other appropriate names it
could possibly adopt without arousing any suspicion as to its motive and, more importantly, any degree of confusion in
the mind of the public which could mislead even its own customers, existing or prospective.
FACTS: In 1953, Universal Textile Mills, Inc. (UTMI) was organized. In 1954, Universal Hosiery Mills Corporation (UHMC)
was also organized. Both are actually distinct corporations but they engage in the same business (fabrics). In 1963,
UHMC petitioned to change its name to Universal Mills Corporation (UMC). The Securities and Exchange Commission
(SEC) granted the petition.
Subsequently, a warehouse owned by UMC was gutted by fire. News about the fire spread and investors of UTMI
thought that it was UTMI’s warehouse that was destroyed. UTMI had to make clarifications that it was UMC’s
warehouse that got burned. Eventually, UTMI petitioned that UMC should be enjoined from using its name because of
the confusion it brought. The SEC granted UTMI’s petition. UMC however assailed the order of the SEC as it averred that
their tradename is not deceptive; that UTMI’s tradename is qualified by the word “Textile”, hence, there can be no
confusion.
ISSUE: Whether or not the decision of the SEC is correct.
HELD: Yes. There is definitely confusion as it was evident from the facts where the investors of UTMI mistakenly believed
that it was UTMI’s warehouse that was destroyed. Although the corporate names are not really identical, they are
indisputably so similar that it can cause, as it already did, confusion. The SEC did not act in abuse of its discretion when it
ordered UMC to drop its name because there was factual evidence presented as to the confusion. Further, when UMC
filed its petition for change of corporate name, it made an undertaking that it shall change its name in the event that
there is another person, firm or entity who has obtained a prior right to the use of such name or one similar to it. That
promise is still binding upon the corporation and its responsible officers.
#13 CLAVECILLA RADIO SYSTEM, petitioner and appellant, vs. HON. AGUSTIN ANTILLON, as City Judge of the
Municipal Court of Cagayan de Oro City and NEW CAGAYAN GROCERY, respondents and appellees.
THAT A CORPORATION MAY ONLY BE SUED IN ITS PRINCIPAL OFFICE, NOT IN ITS BRANCH OFFICE
THE TERM MAY BE SERVED WITH SUMMONS DOES NOT APPLY WHEN THE DEFENDANT RESIDES IN THE PHILIPPINES
SUCH THAT THE DEFENDANT SHALL STILL BE SUED IN THE MUNICIPALITY WHERE HE RESIDES REGARDLESS OF WHERE
THE SUMMONS MAY BE SERVED
THAT THE RESPONDENTS INSIST THAT THE CLAVECILLA MAY BE SUED IN ITS CAGAYAN DE ORO BRANCH, WHERE ITS
PRINCIPAL OFFICE IS NOT LOCATED
THAT THE COMPLAINT ORIGINATED FROM THE OMISSION ON THE PART OF CLAVECILLA OF THE WORD “NOT” IN A
MESSAGE ADDRESSED TO NEW CAGAYAN, SUCH OMISSION CAUSED DAMAGE ON ITS PART
Corporation Law; Domicile of a corporation.—The residence of a corporation is the place where its principal office is
established. It can be sued in that place, not in the place where its branch office is located.
Actions; Venue; Venue of a tort action against a, corporation in inferior court.—Where the action filed against a
corporation in the inferior court is based on tort, it should be filed in the place where the corporation has its principal
office, not in the place where it has its branch office. To allow an action against a corporation to be instituted in any
place where a corporate entity has its branch offices would create confusion and work untold inconvenience to the
corporation.
When provision, “may be served with summons”, applies.—The phrase “may be served with summons” in section 1,
Rule 4 of the Revised Rules of Court does not apply when the defendant resides in the Philippines, for, in such a case,
he may be sued only in the municipality of his residence, regardless of the place where he may be found and served with
summons.
Plaintiff may not choose venue of action.—The laying of the venue of an action is not left to plaintiff’s caprice because
the matter is regulated by the Rules of Court.
FACTS: New Cagayan Grocery filed a complaint against the Clavecilla Radio System alleging that on March 12, 1963, the
following message, addressed to the New Cagayan, was filed at the latter’s (Clavecilla) Bacolod Branch Office for
transmittal thru its branch office at Cagayan de Oro:
“NECAGRO CAGAYANDEORO (CLAVECILLA) REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF AGREEABLE
SHALL SHIP LATER REPLY POHANG"
The Cagayan de Oro branch office having received the said message omitted, in delivering the same to the New Cagayan
Grocery, the word “NOT" between the words “WASHED" and “AVAILABLE," thus changing entirely the contents and
purport of the same and causing the said addressee to suffer damages. After service of summons, the Clavecilla Radio
System filed a motion to dismiss the complaint on the grounds that it states no cause of action and that the venue is
improperly laid. Thereafter, the City Judge, on September 18, 1963, denied the motion to dismiss for lack of merit and
set the case for hearing. Hence, the Clavecilla Radio System filed a petition for prohibition with preliminary injunction
with the Court of First Instance praying that the City Judge, Honorable Agustin Antillon, be enjoined from further
proceeding with the case on the ground of improper venue. The respondents (New Cagayan) filed a motion to dismiss
the petition but this was opposed by the petitioner. Later, the motion was submitted for resolution on the pleadings.
In dismissing the case, the lower court held that the Clavecilla Radio System may be sued either in Manila where it has
its principal office or in Cagayan de Oro City where it may be served, as in fact it was served, with summons through the
Manager of its branch office in said city. In other words, the court upheld the authority of the city court to take
cognizance of the case. In appealing, the Clavecilla Radio System contends that the suit against it should be filed in
Manila where it holds its principal office.
ISSUE: WHETHER OR NOT THE COMPLAINT MAY BE FILED IN CAGAYAN DE ORO CITY, THE LATTER ALLEGEDLY AS
PETITIONER’S PRINCIPAL PLACE OF BUSINESS - NO
It is clear that the case for damages filed with the city court is based upon tort and not upon a written contract.
Section 1 of Rule 4 of the New Rules of Court, governing venue of actions in inferior courts, provides in its paragraph (b)
(3) that when “the action is not upon a written contract, then in the municipality where the defendant or any of the
defendants resides or may be served with summons.”
Settled is the principle in corporation law that the residence of a corporation is the place where its principal office is
established. Since it is not disputed that the Clavecilla Radio System has its principal office in Manila, it follows that the
suit against it may properly be filed in the City of Manila.
The appellee maintain, however, that with the filing of the action in Cagayan de Oro City, venue was properly laid on the
principle that the appellant may also be served with summons in that city where it maintains a branch office.
This Court has already held in the case of Cohen vs. Benguet Commercial Co., Ltd., 34 Phil. 526; that the term “may be
served with summons” does not apply when the defendant resides in the Philippines for, in such case, he may be sued
only in the municipality of his residence, regardless of the place where he may be found and served with summons.
As any other corporation, the Clavecilla Radio System maintains a residence which is Manila in this case, and a person
can have only one residence at a time.
The fact that it maintains branch offices in some parts of the country does not mean that it can be sued in any of these
places. To allow an action to be instituted in any place where a corporate entity has its branch offices would create
confusion and work untold inconvenience to the corporation.
It is important to remember, as was stated by this Court in Evangelista vs. Santos, et al., supra, that the laying of the
venue of an action is not left to plaintiff’s caprice because the matter is regulated by the Rules of Court. Applying the
provision of the Rules of Court, the venue in this case was improperly laid. The order appealed from is therefore
reversed, but without prejudice to the filing of the action in which the venue shall be laid properly.

__________________________________________________________________________________________
#14 UY SIULIONG, MARIANO LIMJAP, GACU UNG JIENG, EDILBERTO CALIXTO and UY CHO YEE, petitioners, vs. THE
DIRECTOR OF COMMERCE AND INDUSTRY, respondent.
PETITIONERS WERE FORMER PARTNERS THAT THEY DESIRED TO DISSOLVE THE PARTNERSHIP BY FORMING A
CORPORATION COMPOSED OF THE SAME PERSONS AS INCORPORATORS. ITS AOI, SAYS THE DCI, SEEMS TO CAST ISSUES.
THAT THE DCI FILED A DEMURRER CONTENDING THAT THE PROPOSED AOI CARRIES WITH IT MORE THAN ONE
PRINCIPAL PURPOSE AND THAT THE AOI AUTHORIZED IT TO ENGAGE INTO BANKING BUSINESS AS WELL AS TO ENGAGE
IN REAL ESTATE DEALINGS
PETITIONERS COUNTERED THE ALLEGATION BY RENOUNCING THAT THEIR AOI CARRIES SUCH PURPOSE; THAT ITS
RENOUNCEMENT OPERATES TO THE EFFECT THAT THEY ARE ENGAGED IN BUT ONE PURPOSE.
THE COURT RULED THAT UNDER PH LAWS, A CORPORATION MAY BE ORGANIZED FOR MERCANTILE PURPOSES AND TO
ENGAGE IN SUCH INCIDENTAL BUSINESS AS MAY BE NECESSARY IN THE CONDUCT OF ITS PRINCIPAL BUSINESS; THAT ALL
POWER AND AUTHORITY INCLUDED IN ITS AOI WERE ONLY INCIDENTAL TO THE PURPOSE OF ITS PROPOSED AOI THAT IS,
TO ENGAGE IN MERCANTILE BUSINESS.
MANDAMUS TO REQUIRE THE DIRECTOR OF COMMERCE AND INDUSTRY TO FILE AND REGISTER ARTICLES OF
INCORPORATION UPON PAYMENT OF THE LAWFUL FEES.—Held: That under the laws of the Philippine Islands, a
corporation may be organized for "mercantile purposes" and to engage in such incidental business as may be necessary
and advisable to give effect to, and aid in, the successful operation and conduct of the principal business; that all of the
power and authority included in the articles of incorporation of Siuliong & Co., Inc., were only incidental to the' principal
purpose of its proposed incorporation, to wit: "mercantile business."
FACTS: The petitioners pray that a writ of mandamus be obtained requiring the respondent to file and register its AOI
and to issue to the petitioners, as incorporators, a certificate under its seal certifying that the AOI have been duly filed
and registered in his office. Prior to the presentation of the petition, the petitioners had been associated together as
partners under the firm name of "Siuliong y Cia.” The petitioners who had been members of said partnership desired to
dissolve said partnership and to form a corporation composed of the same persons as incorporators, to be known as
"Siulong y Compañia, Incorporada.”
The purpose of said corporation is to acquire the business of the partnership known as Siuliong & Co., and to continue
said business with some of its objects or purposes. An examination of its articles of incorporation shows that it is to be
organized for the following purposes: to purchase and sale, importation and exportation of the products of the country,
as well as of foreign countries, to purchase and discount promissory notes, bills of exchange, bonds, negotiable
instruments, stock, and interest in other mercantile and industrial associations, to act as agent for insurance companies
as well as to buy, sell and equip boats and to buy and sell other establishments, and industrial and mercantile
businesses.
The respondent in his argument in support of the demurrer contends that the proposed articles of incorporation
presented for file and registry permitted the petitioners to engage in a business which had for its end more than one
purpose, that it permitted the petitioners to engage in the banking business, and to deal in real estate, in violation of the
Act of Congress of July 1, 1902. The petitioners expressly renounced in open court their right to engage in such business
under their articles of incorporation, even though said articles might be interpreted in a way to authorize them to so to
do. The renouncement on the part of the petitioners eliminates from the purposes of said proposed corporation any
right to engage in the banking business as such, or in the purchase and sale of real estate.
ISSUE: Whether or not a corporation organized for commercial purposes in the Philippine Islands can be organized for
more than one purpose.
While the subject articles of incorporation are somewhat loosely drawn, it is clear from a reading of the same that the
principal purpose of said corporation is to engage in a mercantile business, with the power to do and perform the
particular acts enumerated. We are of the opinion and so decide that a corporation may be organized under the laws of
the Philippine Islands for mercantile purposes, and to engage in such incidental business as may be
necessary and advisable to give effect to, and aid in, the successful operation and conduct of the principal business.
In the present case we are fully persuaded that all of the power and authority included in the articles of incorporation of
"Siuliong y Cia., Inc.," enumerated above are only incidental to the principal purpose of said proposed incorporation, to
wit: "mercantile business." The purchase and sale, importation and exportation of the products of the country, as well as
of foreign countries, might make it necessary to purchase and discount promissory notes, bills of exchange, bonds,
negotiable instruments, stock, and interest in other mercantile and industrial associations. It might also become
important and advisable for the successful operation of the corporation to act as agent for insurance companies as well
as to buy, sell and equip boats and to buy and sell other establishments, and industrial and mercantile businesses.
While we have arrived at the conclusion that the proposed articles of incorporation do not authorize the petitioners to
engage in a business with more than one purpose, we do not mean to be understood as having decided that
corporations under the laws of the Philippine Islands may not engage in a business with more than one purpose. Such an
interpretation might work a great injustice to corporations organized under the Philippine laws. Such an interpretation
would give foreign corporations, which are permitted to be registered under the laws here and which may be organized
for more than one purpose, a great advantage over domestic corporations.
Considering the particular purposes and objects of the proposed articles of incorporation which are specially
enumerated above, we are of the opinion that it contains nothing which violates in the slightest degree any of the
provisions of the laws of the Philippine Islands, and the petitioners are, therefore, entitled to have such articles of
incorporation filed and registered as prayed for by them and to have issued to them a certificate under the seal of the
office of the respondent, setting forth that such articles of incorporation have been duly filed in his office.

#15 ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC., petitioner, vs. SECURITIES & EXCHANGE
COMMISSION, respondent.
ALHAMBRA HAD EXPIRED ITS TERM ON JANUARY 1962; AS A RESULT, IT HAD TO LIQUIDATE. WHILE DOING SO, RA 3531
WAS PASSED AMENDING SECTION 18 OF THE CORPORATION LAW ALLOWING EXISTING CORPORATIONS TO EXTEND ITS
LIFE FOR NOT EXCEEDING FIFTY-YEARS.
THIS PROMPTED ALHAMBRA TO AMEND ITS AOI TO THE EFFECT OF EXTENDING ITS LIFE; THE SEC HOWEVER DENIED THE
APPLICATION.
THAT THE ALHAMBRA CANNOT AVAIL OF THE BENEFIT OF THE NEW LAW SINCE IT ALREADY EXPIRED UPON THE
ENACTMENT OF RA 3531
THAT THE CORPORATION CANNOT EXTEND ITS LIFE BY SIMPLY AMENDING ITS AOI EFFECTED DURING THE THREE-YEAR
STATUTORY PERIOD WITHIN WHICH THE CORPORATION IS ONLY ALLOWED TO CONTINUE FOR THE PURPOSE OF
SETTLING ITS AFFAIRS, FOR PURPOSE OF FINAL CLOSURE AND FOR NO OTHER PURPOSE.
THAT THE CORPORATION IS ENJOINED FROM CONTINUING ITS BUSINESS FOR WHICH IT WAS ESTABLISHED DURING THE
LIQUIDATION PERIOD – IN OTHER WORDS, DURING THE STATUTORY 3-YEAR LIQUIDATION PERIOD, THE CORPORATION
IN EFFECT CEASES TO OPERATE ITS BUSINESS.
Corporation law; Term of existence; Amendment of articles of incorporation after expiration of its corporate life.—A
corporation cannot extend its life by amendment of its articles of incorporation effected during the three-year statutory
period for liquidation when its original term of existence had already expired. Since the privilege of extension is purely
statutory, all of the statutory conditions precedent must be complied with in order that the extension may be
effectuated. And, generally, these conditions must be complied with, and the steps necessary to effect the extension
must be taken, during the life of the corporation, and before the expiration of its term of existence as originally fixed by
its charter or the general law, since, as a rule, the corporation is ipso facto dissolved as soon as that time expires.
FACTS: On January 15, 1912, Alhambra Cigar & Cigarette Manufacturing Company, Inc. was incorporated. Its lifespan
was for 50 years. On January 15, 1962, it expired. Thereafter, its Board authorized its liquidation. Under the prevailing
law, Alhambra has 3 years to liquidate.
In 1963, while Alhambra was liquidating, Republic Act 3531 was enacted. It amended Section 18 of the Corporation Law;
it empowered domestic private corporations to extend their corporate life beyond the period fixed by the articles of
incorporation for a term not to exceed fifty years in any one instance. Previous to Republic Act 3531, the maximum non-
extendible term of such corporations was fifty years.
Alhambra now amended its articles of incorporation to extend its lifespan for another 50 years. The Securities and
Exchange Commission (SEC) denied the amended articles of incorporation.
ISSUE: Whether or not a corporation under liquidation may still amend its articles of incorporation to extend its
lifespan.
HELD: No. Alhambra cannot avail of the new law because it has already expired at the time of its passage. When a
corporation is liquidating pursuant to the statutory period of three years to liquidate, it is only allowed to continue for
the purpose of final closure of its business and no other purposes. In fact, within that period, the corporation is
enjoined from “continuing the business for which it was established”. Hence, Alhambra’s board cannot validly amend its
articles of incorporation to extend its lifespan.

#16 BENGUET CONSOLIDATED MINING Co., petitioner, vs. MARIANO PINEDA, in his capacity as Securities and
Exchange Commissioner, respondent. CONSOLIDATED MINES, INC., intervenor.
BENGUET CONSOLIDATED MINING, ORGANIZED IN 1903 UNDER CODE OF COMMERCE (SPANISH), AGREED THAT THE
CORPORATION EXIST FOR 50 YEARS.
THREE YEARS LATER, CORPORATION LAW WAS ENACTED WHICH REPLACED THE CODE OF COMMERCE. THE FORMER
ESSENTIALLY INTRODUCED AN AMERICAL CONCEPT OF CORPORATION, THE PURPOSE OF WHICH MOREOVER IS TO MAKE
SOCIEDADES ANONIMAS OBSOLETE.
IN 1953, UPON EXPIRATION OF ITS LIFE, BENGGUET SUBMITTED TO SECC AN APPLICATION FOR THEM TO BE ALLOWED
TO EXTEND ITS LIFE TO WHICH COMMISSIONER PINEDA DISREGARDED STATING THAT IT RUNS AFOUL OF SEC. 18 OF
THE CORPORATION LAW THAT THE LIFE OF A CORPORATION SHALL NOT BE EXTENDED BY AMENDMENT BEYOND THE
TIME FIXED IN THEIR ORIGINAL ARTICLES.
BENGUET CONTENDS THAT IT HAS A VESTED RIGHT UNDER THE CODE OF COMMERCE, THE LAW WHICH ORGANIZED IT.
THAT UNDER SAID LAW, IT IS ENTITLED TO SUCH EXTENSION BY SIMPLY AMENDING ITS AOI
THAT SECTION 18 DOES NOT APPLY TO SOCIEDAD ANONIMAS EXISTING PRIOR TO ITS ENACTMENT;
THAT EVEN ON THE ASSUMPTION THAT THE PROVISION APPLIES, IT SHOULD BE ALLOWED TO ORGANIZE UNDER THE
CORPORATION LAW
CORPORATION LAW; PROHIBITION AGAINST EXTENSION OF CORPORATE EXISTENCE BY AMENDMENT OF THE
ORIGINAL ARTICLES, APPLICABLE TO “SOCIEDADES ANONIMAS."—The prohibition contained in section 18 of Act No.
1459, against extending the period of corporate existence by amendment of the original articles, was intended to apply,
and does apply, to sociedades anonimas, already formed, organized and existing at the time of the effectivity of the
Corporation Law (Act 1459) in 1906.
PROHIBITION VALID AND IMPAIRS NO VESTED RIGHTS.—The aforesaid statutory prohibition is valid and impairs no
vested rights or constitutional inhibition where no agreement to extend the original period of corporate life was
perfected before the enactment of the Corporation Law.
WHEN “SOCIEDAD ANONIMAS", MAY NOT CLAIM TO REFORM INTO A CORPORATION UNDER SECTION 75 OF THE
ACT.—A sociedad anónima, existing before the Corporation Law, that continues to do business as such for a reasonable
time after its enactment, is deemed to have made its election and may not subsequently claim to reform into a
corporation under section 75 of Act No. 1459. Particularly should this be the case where it has asserted its privileges as
such sociedad anónima before invoking its alleged right to reform into a corporation.
FACTS: Benguet Consolidated Mining Company was organized in 1903 under the Spanish Code of Commerce of 1886 as
a sociedad anonima. It was agreed by the incorporators that Benguet Mining was to exist for 50 years.
Three years later or on 1906, Act 1459 (Corporation Law) was enacted which superseded the Code of Commerce of
1886. Act 1459 essentially introduced the American concept of a corporation. The purpose of the law, among others, is
to eradicate the Spanish Code and make sociedades anonimas obsolete.
In 1953, the board of directors of Benguet Mining submitted to the Securities and Exchange Commission an application
for them to be allowed to extend the life span of Benguet Mining. Then Commissioner Mariano Pineda denied the
application as it ruled that the extension requested is contrary to Section 18 of the Corporation Law of 1906 which
provides that the life of a corporation shall not be extended by amendment beyond the time fixed in their original
articles.
Benguet Mining contends that they have a vested right under the Code of Commerce of 1886 because they were
organized under said law; that under said law, Benguet Mining is allowed to extend its life by simply amending its
articles of incorporation; that the prohibition in Section 18 of the Corporation Code of 1906 does not apply to sociedades
anonimas already existing prior to the Law’s enactment; that even assuming that the prohibition applies to Benguet
Mining, it should be allowed to be reorganized as a corporation under the said Corporation Law.
ISSUE: Whether or not Benguet Mining is correct.
HELD: No. Benguet Mining has no vested right to extend its life. It is a well settled rule that no person has a vested
interest in any rule of law entitling him to insist that it shall remain unchanged for his benefit. Had Benguet Mining
agreed to extend its life prior to the passage of the Corporation Code of 1906 such right would have vested. But when
the law was passed in 1906, Benguet Mining was already deprived of such right.
To allow Benguet Mining to extend its life will be inimical to the purpose of the law which sought to render obsolete
sociedades anonimas. If this is allowed, Benguet Mining will unfairly do something which new corporations organized
under the new Corporation Law can’t do – that is, exist beyond 50 years. Plus, it would have reaped the benefits of being
a sociedad anonima and later on of being a corporation. Further, under the Corporation Code of 1906, existing
sociedades anonimas during the enactment of the law must choose whether to continue as such or be organized as a
corporation under the new law. Once a sociedad anonima chooses one of these, it is already proscribed from choosing
the other. Evidently, Benguet Mining chose to exist as a sociedad anonima hence it can no longer elect to become a
corporation when its life is near its end.
____________________________________________________________________________________________
#17 NORBERTO ASUNCION ET AL., petitioners and appellants, vs. MANUEL DE YRIARTE, respondent and appellee.
THAT THE CHIEF OF THE DIVISION OF ARCHIVES EXERCISES A MINISTERIAL FUNCTION WHICH MAY AT TIMES INCLUDES
THE FUNCTION TO DETERMINE QUESTIONS OF LAW IN ONE WAY FASHION; THIS DOES NOT MAKE A CONTRADICTION AS
THIS IS STILL SUBJECT TO REVIEW AND IF UPON SHOWING THAT THE CHIEF ERRED IN HIS DUTIES, THE CHIEF MAY BE
COMPELLED BY MANDAMUS TO REGISTER SAID AOI
THAT THE OBJECT OF THE INCORPORATION WHICH IS TO ORGANIZE A BARRIO OF A GIVEN MUNICIPALITY FOR THYE
PURPOSE OF TAKING POSSESSION AND HAVING CONTROL OF ALL MUNICIPAL PROPERTY CONSTITUTES AN UNLAWFUL
PURPOSE FOR IT DEPRIVES THE MUNICIPAL GOVERNMENT OF ITS RIGHT OF CONTROL OVER THE PROPERTY AS WELL AS
CITIZENS TO HAVE ENJOYMENT THEREOF.
THAT THE FUNCTION OF THE CHIEF OF THE DIVISION OF ARCHIVES IS NOT ONLY LIMITED TO DECIDE AS TO SUFFICIENCY
IN FORM AND SUBSTANCE OF THE AOI, BUT ALSO TO DETERMINE THE LAWFULNESS OF ITS PURPOSE
CORPORATION LAW; POWERS AND DUTIES OF CHIEF OF DlVISION OF ARCHIVES, EXECUTIVE BUREAU.—The chief of
the division of archives, for and on behalf of the division, has authority under the Corporation Law (Act No. 1459) to
determine the sufficiency of the form of articles of incorporation offered for registration with the division.
The chief of the division of archives, on behalf of the division, has also the power and duty to determine from the
articles of incorporation presented for registration the lawfulness of the purposes of the proposed corporation and
whether or not those purposes bring the proposed corporation within the purview of the law authorizing corporations
for given purposes.
MANDAMUS TO COMPEL HIM TO PERFORM DUTIES.—The duties of the chief of the division of archives, so far as
relates to the registration of articles of incorporation, are purely ministerial and not discretional; and mandamus will lie
to compel him to perform his duties under the Corporation Law if, in violation of law, he refuse to perform them.
MUNICIPALITIES; ORGANIZATION OF BARRIO INTO SEPARATE CORPORATION.—When articles of incorporation
presented for registration show that the object of incorporators is to organize a pueblo or barrio of a given municipality
into a separate corporation for the purpose of taking possession and having control of all municipal property within the
pueblo or barrio so incorporated, and administer it exclusively for the benefit of the residents of that pueblo or barrio,
said articles of incorporation show upon their face that the object of the incorporation is unlawful in that it seeks to
deprive the municipality in which the pueblo or barrio is situated of its property and its citizens of the right of enjoying
the same and would, if permitted, disrupt and destroy the government of the municipalities of the Islands and abrogate
the laws relating to the formation and government of municipalities.
FACTS: The proposed incorporators began an action in the CFI to compel the chief of the division of archives to receive
and register said articles of incorporation and to do any and all acts necessary for the complete incorporation of the
persons named in the articles. The court found in favor of the defendant and refused to order the registration of the
articles mentioned, maintaining and holding that the defendant, under the Corporation Law, had authority to
determine both the sufficiency of the form of the articles and the legality of the object of the proposed corporation.
This appeal is taken from that judgment.

The chief of the division of archives, the respondent, refused to file the articles of incorporation, upon the ground that
the object of the corporation, as stated in the articles, was not lawful and that, in pursuance of section 6 of Act No.
1459, they were not registerable; hence, this action to obtain a writ of mandamus.

ISSUE: Whether or not the chief of the division of archives has authority, under the Corporation Law, on being presented
with articles of incorporation for registration, to decide not only as to the sufficiency of the form of the articles, but
also as to the lawfulness of the purposes of the proposed corporation.

HELD: YES. The chief of the division of archives, for and on behalf of the division, has authority under the Corporation
Law (Act No. 1459) to determine the sufficiency of the form of articles of incorporation offered for registration with the
division. Section 6 of the Corporation Law reads in part as follows:

“Five or more persons, not exceeding fifteen, a majority of whom are residents of the Philippine Islands, may form a
private corporation for any lawful purpose by filing with the division of archives, patents, copyrights, and trademarks
of the Executive Bureau articles of incorporation duly executed and acknowledged before a notary public, . . .”

Simply because the duties of an official happen to be ministerial, it does not necessarily follow that he may not, in the
administration of his office, determine questions of law. We are of the opinion that it is the duty of the division of
archives, when articles of incorporation are presented for registration, to determine whether the objects of the
corporation as expressed in the articles are lawful. We do not believe that, simply because articles of incorporation
presented for registration are perfect in form, the division of archives must accept and register them and issue the
corresponding certificate of incorporation no matter what the purpose of the corporation may be as expressed in the
articles. The chief of the division of archives, on behalf of the division, has also the power and duty to determine from
the articles of incorporation presented for registration the lawfulness of the purposes of the proposed corporation and
whether or not those purposes bring the proposed corporation within the purview of the law authorizing corporations
for given purposes.

The duties of the chief of the division of archives, so far as relates to the registration of articles of incorporation, are
purely ministerial and not discretional; and mandamus will lie to compel him to perform his duties under the
Corporation Law if, in violation of law, he refuse to perform them.

On the contrary, there is no incompatibility in holding, as we do hold, that his duties are ministerial and that he has no
authority to exercise discretion in receiving and registering articles of incorporation. He may exercise judgment —
that is, the judicial function — in the determination of the question of law referred to, but he may not use discretion.
The question whether or not the objects of a proposed corporation are lawful is one that can be decided one way only. If
he err in the determination of that question and refuse to file articles which should be filed under the law, that decision is
subject to review and correction and, upon proper showing, he will be ordered to file the articles.
Discretion is a faculty conferred upon a court or other official by which he may decide a question either way and still
be right. The power conferred upon the division of archives with respect to the registration of articles of incorporation is
not of that character. It is of the same character as the determination of a lawsuit by a court upon the merits. It can be
decided only one way correctly.
___________________________________________________________________________________________
#18 LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC., petitioner, vs. HON. COURT OF APPEALS,
HOME INSURANCE AND GUARANTY CORPORATION, EMDEN ENCARNACION and HORATIO AYCARDO, respondents.
Corporation Law; Statutory Construction; Words and Phrases; Ordinarily, the word “must” connotes an imperative act
or operates to impose a duty which may be enforced—it is synonymous with “ought” which connotes compulsion or
mandatoriness though the word “must” in a statute, like “shall,” is not always imperative and may be consistent with
an exercise of discretion.—As correctly postulated by the petitioner, interpretation of this provision of law begins with
the determination of the meaning and import of the word “must” in this section. Ordinarily, the word “must” connotes
an imperative act or operates to impose a duty which may be enforced. It is synonymous with “ought” which connotes
compulsion or mandatoriness. However, the word “must” in a statute, like “shall,” is not always imperative. It may be
consistent with an exercise of discretion. In this jurisdiction, the tendency has been to interpret “shall” as the context or
a reasonable construction of the statute in which it is used demands or requires. This is equally true as regards the word
“must.” Thus, if the language of a statute considered as a whole and with due regard to its nature and object reveals
that the legislature intended to use the words “shall” and “must” to be directory, they should be given that meaning.
By Laws; The legislative deliberations demonstrate that automatic corporate dissolution for failure to file the bylaws on
time was never the intention of the legislature. —This exchange of views demonstrates clearly that automatic corporate
dissolution for failure to file the bylaws on time was never the intention of the legislature. Moreover, even without
resorting to the records of deliberations of the Batasang Pambansa, the law itself provides the answer to the issue
propounded by petitioner.
Taken as a whole and under the principle that the best interpreter of a statute is the statute itself (optima statuli
interpretatix est ipsum statutum), Section 46 of the Corporation Code reveals the legislative intent to attach a
directory, and not mandatory, meaning for the word “must” in the first sentence thereof.—Taken as a whole and
under the principle that the best interpreter of a statute is the statute itself (optima statuti interpretatix est ipsum
statutum), Section 46 aforequoted reveals the legislative intent to attach a directory, and not mandatory, meaning for
the word “must” in the first sentence thereof. Note should be taken of the second paragraph of the law which allows the
filing of the bylaws even prior to incorporation. This provision in the same section of the Code rules out mandatory
compliance with the requirement of filing the bylaws “within one (1) month after receipt of official notice of the
issuance of its certificate of incorporation by the Securities and Exchange Commission.” It necessarily follows that failure
to file the bylaws within that period does not imply the “demise” of the corporation.
Bylaws may be necessary for the “government” of the corporation but these are subordinate to the articles of
incorporation as well as to the Corporation Code and related statutes.—Bylaws may be necessary for the
“government” of the corporation but these are subordinate to the articles of incorporation as well as to the Corporation
Code and related statutes. There are in fact cases where bylaws are unnecessary to corporate existence or to the valid
exercise of corporate powers, thus: “In the absence of charter or statutory provisions to the contrary, bylaws are not
necessary either to the existence of a corporation or to the valid exercise of the powers conferred upon it, certainly in all
cases where the charter sufficiently provides for the government of the body; and even where the governing statute in
express terms confers upon the corporation the power to adopt bylaws, the failure to exercise the power will be
ascribed to mere nonaction which will not render void any acts of the corporation which would otherwise be valid.”
Due Process; There can be no automatic corporate dissolution simply because the incorporators failed to abide by the
required filing of bylaws—the incorporators must be given the chance to explain their neglect or omission and to
remedy the same.—Even under the foregoing express grant of power and authority, there can be no automatic
corporate dissolution simply because the incorporators failed to abide by the required filing of bylaws embodied in
Section 46 of the Corporation Code. There is no outright “demise” of corporate existence. Proper notice and hearing are
cardinal components of due process in any democratic institution, agency or society. In other words, the incorporators
must be given the chance to explain their neglect or omission and remedy the same.
Presidential Decree 902A; Statutes in Materia; Securities and Exchange Commission; The failure of the Corporation
Code to provide for the consequences of the nonfiling of bylaws on time has been rectified by P.D. No. 902A; Every
statute must be so construed and harmonized with other statutes as to form a uniform system of jurisprudence.—
Although the Corporation Code requires the filing of bylaws, it does not expressly provide for the consequences of the
nonfiling of the same within the period provided for in Section 46. However, such omission has been rectified by
Presidential Decree No. 902A, the pertinent provisions on the jurisdiction of the Securities and Exchange Commission of
which state: * * * That the failure to file bylaws is not provided for by the Corporation Code but in another law is of no
moment. P.D. No. 902A, which took effect immediately after its promulgation on March 11, 1976, is very much apposite
to the Code. Accordingly, the provisions abovequoted supply the law governing the situation in the case at bar,
inasmuch as the Corporation Code and P.D. No. 902A are statutes in pari materia. Interpretare et concordare legibus est
optimus interpretandi. Every statute must be so construed and harmonized with other statutes as to form a uniform
system of jurisprudence.
Same; By Laws; Failure to file the bylaws within the period required by law by no means tolls the automatic
dissolution of a corporation.—As the “rules and regulations or private laws enacted by the corporation to regulate,
govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with
relation thereto and among themselves in their relation to it,” bylaws are indispensable to corporations in this
jurisdiction. These may not be essential to corporate birth but certainly, these are required by law for an orderly
governance and management of corporations. Nonetheless, failure to file them within the period required by law by no
means tolls the automatic dissolution of a corporation.
FACTS: In 1983, the Loyola Grand Villas Association, Inc. (LGVAI) was incorporated by the homeowners of the Loyola
Grand Villas (LGV), a subdivision. The Securities and Exchange Commission (SEC) issued a certificate of incorporation
under its official seal to LGVAI in the same year. LGVAI was likewise recognized by the Home Insurance and Guaranty
Corporation (HIGC), a government-owned-and-controlled corporation whose mandate is to oversee associations like
LGVAI.
Later, LGVAI later found out that there are two homeowners associations within LGV, namely: Loyola Grand Villas
Homeowners (South) Association, Inc. (LGVAI-South) and Loyola Grand Villas Homeowners (North) Association, Inc.
(LGVAI-North). The two associations asserted that they have to be formed because LGVAI is inactive. When LGVAI
inquired about its status with HIGC, HIGC advised that LGVAI was already terminated; that it was automatically dissolved
when it failed to submit it By-Laws after it was issued a certificate of incorporation by the SEC.
ISSUE: Whether or not a corporation’s failure to submit its by-laws results to its automatic dissolution.
HELD: No. A private corporation like LGVAI commences to have corporate existence and juridical personality from the
date the Securities and Exchange Commission (SEC) issues a certificate of incorporation under its official seal. The
submission of its by-laws is a condition subsequent but although it is merely such, it is a MUST that it be submitted by
the corporation. Failure to submit however does not warrant automatic dissolution because such a consequence was
never the intention of the law. The failure is merely a ground for dissolution which may be raised in a quo warranto
proceeding. It is also worthwhile to note that failure to submit can’t result to automatic dissolution because there are
some instances when a corporation does not require by-laws.
____________________________________________________________________________________
#19 PMI COLLEGES, petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION and ALEJANDRO GALVAN,
respondents
PMI COLLEGES HIRED GALVAN TO TEACH IN THE SAID INSTITUTION. PMI FAILED TO PAY REMUNERATIONS DUE GALVAN.
DESPITE DEMANDS, THE SAME WERE IGNORED PROMPTING GALVAN TO FILE LABOR CASE AGAINST PMI.
PMI SAYS THAT THE EMPLOYMENT OF GALVAN WAS VOID FOR FAILURE TO COMPLY WITH THE FORMER’S BY-LAWS
STATING THAT THE EMPLOYMEN CONTRACT MUST BE SIGNED BY THE CHAIRMAN OF THE BOARD OF PMI, WHICH
APPARENTLY DOES NOT BEAR SUCH.
SC HELD THAT THE AGREEMENT WAS NOT VOID. ASIDE FROM THE FACT THAT PMI NEVER PRESENTED A COPY OF SUCH
BYLAWS, THE LATTER ONLY OPERATE AS INTERNAL RULES AMONG STOCKHOLDERS AND THAT THEY CANNOT AFFECT OR
PREJUDICE THIRD PERSONS WHO DEAL WITH THE CORPORATION UNLESS THE THIRD PERSON HAS KNOWLEDGE OF THE
SAME. PMI FAILED TO ESTABLISH GALVAN’S KNOWLEDGE OF THE BY-LAW PROVISION; THUS RULING IN GALVAN’S
FAVOR.
Corporation Law; By-Laws; Since by-laws operate merely as internal rules among the stockholders, they cannot affect
or prejudice third persons who deal with the corporation, unless they have knowledge of the same.—Neither can we
concede that such contract would be invalid just because the signatory thereon was not the Chairman of the Board
which allegedly violated petitioner’s bylaws. Since bylaws operate merely as internal rules among the stockholders,
they cannot affect or prejudice third persons who deal with the corporation, unless they have knowledge of the same.
No proof appears on record that private respondent ever knew anything about the provisions of said bylaws. In fact,
petitioner itself merely asserts the same without even bothering to attach a copy or excerpt thereof to show that there
is such a provision. How can it now expect the Labor Arbiter and the NLRC to believe it? That this allegation has never
been denied by private respondent does not necessarily signify admission of its existence because technicalities of law
and procedure and the rules obtaining in the courts of law do not strictly apply to proceedings of this nature.
FACTS: In 1991, PMI Colleges hired the services of Alejandro Galvan for the latter to teach in said institution. However,
for unknown reasons, PMI defaulted from paying the remunerations due to Galvan. Galvan made demands but were
ignored by PMI. Eventually, Galvan filed a labor case against PMI. Galvan got a favorable judgment from the Labor
Arbiter; this was affirmed by the National Labor Relations Commission. On appeal, PMI reiterated, among others, that
the employment of Galvan is void because it did not comply with its by-laws. Apparently, the by-laws require that an
employment contract must be signed by the Chairman of the Board of PMI. PMI asserts that Galvan’s employment
contract was not signed by the Chairman of the Board.
ISSUE: Whether or not Galvan’s employment contract is void.
HELD: No. PMI Colleges never even presented a copy of the by-laws to prove the existence of such provision. But even if
it did, the employment contract cannot be rendered invalid just because it does not bear the signature of the Chairman
of the Board of PMI. By-Laws operate merely as internal rules among the stockholders, they cannot affect or prejudice
third persons who deal with the corporation, unless they have knowledge of the same. In this case, PMI was not able
to prove that Galvan knew of said provision in the by-laws when he was employed by PMI.
___________________________________________________________________________________________
#20 ROSITA PENA, petitioner, vs. THE COURT OF APPEALS, SPOUSES RISING T. YAP and CATALINA YAP, PAMPANGA
BUS CO., INC., JESUS DOMINGO, JOAQUIN BRIONES, SALVADOR BERNARDEZ, MARCELINO ENRIQUEZ and EDGARDO
A. ZABAT, respondents
PAMBUSCO TOOK A LOAN FROM DBP AND USED THE PARCEL OF LAND IT OWNS AS SECURITY. PAMBUSCO DEFAULTED
IN ITS OBLIGATION WHICH CAUSED DBP TO TAKE STEPS TO FORECLOSE THE MORTGAGE. ROSITA PENA WENT THE
HIGHEST BIDDER
SUBSEQUENTLY, THE BOARD CALLED A MEETING TO WHICH ONLY THREE OUT OF FIVE MEMBERS ATTENDED. THE
BOARD AUTHORIZED ONE OF ITS DIRECTORS BRIONES TO ASSIGN THE PROPERTIES OF PAMBUSCO, TO WHICH BRIONES
ASSIGNED IT TO ENRIQUEZ.
ENRIQUEZ REDEEMED THE MORTGAGED PROPERTY AND SOLD IT LATER TO YAP. YAP THEREFORE ASKED PENA TO LEAVE
THE PROPERTY. WITH PENA’S REFUSAL, YAP FILED A COMPLAINT AGAINST HER. PENA STATING THAT THE RESOLUTION
WAS VOID FOR IT DID NOT COMPLY WITH QUORUM UNDER PAMBUSCO’S BY-LAWS AND AS A NET RESULT, THE
SUBJECT DEED OF ASSIGNMENT WAS VOID, CAUSING YAP TO ACQUIRE NO TITLE OVER THE PROPERTY.
YAP QUESTIONED LEGAL STANDING OF PENA AS THE LATTER IS NOT A STOCKHOLDER. THE SC HOWEVER RULED IN
PENA’S FAVOR STATING THAT THE RESOLUTION, LIKENED INTO A CONTRACT, MAY BE QUESTIONED BY A THIRD PERSON
WHO MAY BE PREJUDICED BY THE SAID RESOLUTION. THIS IS NOT TO MENTION THAT PAMBUSCO VIOLATED ITS OWN
BY-LAWS AND THAT IT DID NOT COMPLY WITH THE REQUIREMENT UNDER CORPORATION LAW WHICH REQUIRES THE
AFFIRMATIVE VOTE OF STOCKHOLDERS HOLDING AT LEAST 2/3 OF THE VOTING POWER IN THE CORPORATION.
FINALLY, THE COURT FOUND THAT PAMBUSCO HAS BEEN INACTIVE FOR A LONG TIME AND THAT THE THREE DIRECTORS
WHO ATTENDED THE MEETING WERE NOT LISTED AS PAMBUSCO’S DIRECTORS.
Corporation Law; Bylaws; Quorum; Three (3) out of five (5) members of the board of directors present in the special
meeting of respondent PAMBUSCO do not constitute a quorum to validly transact business. Section 4 of its amended
bylaws requires at least four (4) members present to constitute a quorum in a special meeting of its board of
directors.—The bylaws of a corporation are its own private laws which substantially have the same effect as the laws of
the corporation. They are in effect, written, into the charter. In this sense they become part of the fundamental law of
the corporation with which the corporation and its directors and officers must comply. Apparently, only three (3) out of
five (5) members of the board of directors of respondent PAMBUSCO convened on November 19, 1974 by virtue of a
prior notice of a special meeting. There was no quorum to validly transact business since, under Section 4 of the
amended bylaws hereinabove reproduced; at least four (4) members must be present to constitute a quorum in a
special meeting of the board of directors of respondent PAMBUSCO.
Same; Board of Directors; Only persons who own at least one (1) share in their own right may qualify to be directors
of a corporation.—As a matter of fact, the three (3) alleged directors who attended the special meeting on November
19, 1974 were not listed as directors of respondent PAMBUSCO in the latest general information sheet of respondent
PAMBUSCO filed with the SEC dated 18 March 1951. Similarly, the latest list of stockholders of respondent PAMBUSCO
on file with the SEC does not show that the said alleged directors were among the stockholders of respondent
PAMBUSCO. Under Section 30 of the then applicable Corporation Law, only persons who own at least one (1) share in
their own right may qualify to be directors of a corporation. Further, under Section 28 1/2 of the said law, the sale or
disposition of all and/or substantially all properties of the corporation requires, in addition to a proper board resolution,
the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation in a
meeting duly called for that purpose. No doubt, the questioned resolution was not confirmed at a subsequent
stockholders meeting duly called for the purpose by the affirmative votes of the stockholders holding at least two-thirds
(2/3) of the voting power in the corporation. The same requirement is found in Section 40 of the present Corporation
Code.
Same; Deed of Assignment; Civil Law; Donation; Liberality as a consideration in the deed of assignment of the
respondent PAMBUSCO in favor of its former corporate officer for services rendered is not just an ordinary deed of
assignment but a donation.—Respondent court, in upholding the questioned deed of assignment, which appears to be
without any consideration at all, held that the consideration thereof is the liberality of the respondent PAMBUSCO in
favor of its former corporate officer, respondent Enriquez, for services rendered. Assuming this to be so, then as correctly
argued by petitioner, it is not just an ordinary, deed of assignment, but is in fact a donation. Under Article 725 of the
Civil Code, in order to be valid, such a donation must be made in a public document and the acceptance must be made
in the same or in a separate instrument. In the latter case, the donor shall be notified of the acceptance in an authentic
form and such step must be noted in both instruments. Noncompliance with this requirement renders the donation null
and void. Since undeniably the deed of assignment dated March 8, 1975 in question, shows that there was no acceptance
of the donation in the same and in a separate document, the said deed of assignment is thus void ab initio and of no
force and effect.
FACTS: In 1962, the Pampanga Bus Company (PAMBUSCO) took out a loan from the Development Bank of the
Philippines (DBP). PAMBUSCO used the parcels of land it owns to secure the loan. In October 1974, due to PAMBUSCO’s
nonpayment, DBP foreclosed the parcels of land. Rosita Peña was the highest bidder. Meanwhile, in November 1974,
the Board of Directors of PAMBUSCO had a meeting. The meeting was attended by only 3 out of the 5 Directors. In the
said meeting, the Board, through a resolution, authorized one of the directors, Atty. Joaquin Briones, to assign the
properties of PAMBUSCO. Pursuant to the resolution, Briones assigned PAMBUSCO’s assets to Marcelino Enriquez.
Enriquez, knowing that the properties were previously mortgaged and foreclosed, exercised PAMBUSCO’s right to
redeem. So in August 1975, he redeemed the said properties and thereafter he sold them to Rising Yap.
Yap then registered the properties under his name. He then demanded Peña to vacate the properties. Peña refused to
do hence Yap filed a complaint. In her defense, Peña averred that Yap acquired no legal title over the property because
the board resolution issued by PAMBUSCO in November 1974 is void; that it is void because the resolution was issued
without a quorum; that there was no quorum because under the by-laws of PAMBUSCO, a quorum constitutes the
presence of 4 out of 5 directors yet the meeting was only attended by three directors. As such, the authority granted to
Briones to assign the properties is void; that the subsequent assignment by Briones to Enriquez is void; that Enriquez
acquired no title; hence, likewise, Yap acquired no title. Yap insists that Peña has no legal standing to question the
board resolution because she is not a stockholder.
ISSUE: Whether or not the board resolution is valid.
HELD: No, it is void. The by-laws are the laws of the corporation. PAMBUSCO’s by-laws provide that a quorum consists
of at least four directors. Hence, the meeting attended by only three directors did not comply with the required quorum.
As such, the three directors were not able to come up with a valid resolution which could bind the corporation. Anent
the issue of Peña being a third person, she can question the board resolution. The resolution here is liken to a contract.
Under the law, a person who is not a party obliged principally or subsidiarily in a contract may exercise an action for
nullity of the contract if he or she is prejudiced in his or her rights with respect to one of the contracting parties, and
can show the detriment which would positively result to him or her from the contract in which he or she had no
intervention.
Further, the sale of the properties of PAMBUSCO did not comply with the procedure laid down by the Corporation Law.
Under the law, the sale or disposition of a and/or substantially all properties of the corporation requires, in addition to a
proper board resolution, the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power
in the corporation in a meeting duly called for that purpose. No doubt, the questioned resolution was not confirmed at
a subsequent stockholders meeting duly called for the purpose by the affirmative votes of the stockholders holding at
least two-thirds (2/3) of the voting power in the corporation.
Further still, the Supreme Court discovers a few other anomalies with PAMBUSCO. One is that PAMBUSCO has been
inactive since 1949 as per the records provided by the Securities and Exchange Commission. Its general information
sheet with the SEC has not been updated regularly even. And the three directors present were not even listed as
current directors of PAMBUSCO.
_____________________________________________________________________________________________
#21 BENJAMIN A. SANTOS, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, HON. LABOR ARBITER
FRUCTUOSO T. AURELLANO and MELVIN D. MILLENA, respondents.
MILLENA WAS HIRED BY THE MMDC AS ITS PROJECT ACCOUNTANT. MILLENA CALLED THE ATTENTION OF THE
CORPORATE TREASURER (ABANO) TO DELIVER MONTHLY REMITTANCES AND TO PAY WITHHOLDING TAX
REQUIREMENTS WITH THE BIR. ABANO TOLD MILLENA THAT IT WAS THE CORPORATION’S DECISION TO STOP ITS
OPERATIONS IN SORSOGON DUE TO RAINY SEASON AND INSURGENCIES THEREIN AND THAT A PROJECT ACCOUNTANT
WILL NOT BE NEEDED UNTIL THE CORPORATION GOES BACK IN ITS NORMAL OPERATION.

AGGRIEVED, MILLENA FILED BEFORE THE NLRC A COMPLAINT FOR ILLEGAL DISMISSAL TO WHICH THE LABOR ARBITER
RULED IN HIS FAVOR. IT ORDERED SANTOS, ET. AL. TO PAY MILLENA HIS CLAIMS AND BE HELD SOLIDARILY LIABLE
THEREFOR. APPEALS HAVE BEEN MADE BUT TO NO AVAIL.

SANTOS CLAIMED THAT HE WAS DENIED OF DUE PROCESS AND THAT THE NLRC COMMITTED GRAVE ABUSE OF
DISCRETION AS IT PROCEEDED TO AFFIRM THE LA DECISION IN SPITE OF PROCEDURAL DEFECTS. THE ISSUE WAS
WHETHER TO HOLD HIM PERSONALLY LIABLE FOR MILLENA’S CLAIMS.

SC RULED IN THE NEGATIVE. WHILE CORPORATIONS ARE VESTED WITH SEPARATE JURIDICAL PERSONALITY, SUCH MAY
BE PIERCED WHEN THE CORPORATION WAS USED AS A VEHICLE TO PERPETRATE INJUSTICE AND INEQUITY. ALSO THERE
ARE INSTANCES WHERE PERSONAL LIABILITY MAY BE ALLOCATED EVEN WITHOUT RESORTING TO PIERCING THE
CORPORATE VEIL DOCTRINE AS WHEN, AMONG OHER THINGS, THE OFFICER/DIRECTOR ASSENTS TO A PATENTLY
UNLAWFUL ACT OF THE CORPORATION.

IN THIS CASE, THERE WAS NO SHOWING THAT SANTOS, BEING THE PRESIDENT, HAS A DIRECT HAND LEADING TO
MILLENA’S DISMISSAL AND THAT THERE IS NO PROPER GROUND TO ATTRIBUTE TO SANTOS THE PERPETUATION OF
SUCH UNLAWFUL ACT FOR IT IS UNDISPUTED THAT THE DISMISSAL, RETRENCHMENT RATHER, OF MILLENA WAS FOR
COLLECTIVE REASONS, AND CANNOT BE UNJUSTLY ATTRIBUTED TO SANTOS. THE FACT THAT A PERSON HAPPENS TO BE
THE OWNER OF THE MAJORITY OR ALL OF THE CAPITAL STOCKS DOES NOT SUFFICE TO DISREGARD THE SEPARATE
JURIDICAL PERSONALITY OF THE SAME.

Corporation Law; Corporate Officers; Piercing the Veil of Corporate Fiction; A corporation is a juridical entity with
legal personality separate and distinct from those acting for and in its behalf and, in general, from the people
comprising it—obligations incurred by the corporation, acting through its directors, officers and employees, are its
sole liabilities.—A corporation is a juridical entity with legal personality separate and distinct from those acting for and
in its behalf and, in general, from the people comprising it. The rule is that obligations incurred by the corporation,
acting through its directors, officers and employees, are its sole liabilities. Nevertheless, being a mere fiction of law,
peculiar situations or valid grounds can exist to warrant, albeit done sparingly, the disregard of its independent being
and the lifting of the corporate veil. As a rule, this situation might arise when a corporation is used to evade a just and
due obligation or to justify a wrong, to shield or perpetrate fraud, to carry out similar other unjustifiable aims or
intentions, or as a subterfuge to commit injustice and so circumvent the law.
Instances when personal civil liability can also be said to lawfully attach to a corporate director, trustee or officer.—In
Tramat Mercantile, Inc. vs. Court of Appeals, the Court has collated the settled instances when, without necessarily
piercing the veil of corporate fiction, personal civil liability can also be said to lawfully attach to a corporate director,
trustee or officer; to wit: When—“(1) He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or
gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its
stockholders or other persons; “(2) He consents to the issuance of watered stocks or who, having knowledge thereof,
does not forthwith file with the corporate secretary his written objection thereto; “(3) He agrees to hold himself
personally and solidarily liable with the corporation; or “(4) He is made, by a specific provision of law, to personally
answer for his corporate action.”

The basic rule is still that which can be deduced from the Court’s pronouncement in Sunio v. National Labor Relations
Commission, i.e., that mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality.—
The basic rule is still that which can be deduced from the Court’s pronouncement in Sunio v. National Labor Relations
Commission, 127 SCRA 390, thus: “It is basic that a corporation is invested by law with a personality separate and
distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related.
Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation
is not of itself sufficient ground for disregarding the separate corporate personality. Petitioner Sunio, therefore, should
not have been made personally answerable for the payment of private respondents’ back salaries.” The Court, to be
sure, did appear to have deviated somewhat in Gudez vs. NLRC; however, it should be clear from our recent
pronouncement in Mam Realty Development Corporation and Manuel Centeno vs. NLRC that the Sunio doctrine still
prevails.

Facts: Melvin D. Millena was hired to be the project accountant for Mana Mining and Development Corporation's
(MMDC) mining operations in Sorsogon. Millena sent to Mr. Gil Abaño, the MMDC corporate treasurer, a memorandum
calling the latter's attention for the failure of the company to comply with the withholding tax requirements of, and to
make the corresponding monthly remittances to, the Bureau of Internal Revenue (BIR) on account of delayed
payments of accrued salaries to the company's laborers and employees. Abaño advised Millena that it was the board's
decision that it stop operation in Sorsogon due to the upcoming rainy seasons and the deterioration of the peace and
order in the said area; that the corporation will undertake only necessary maintenance and repair work and will keep
overhead down to the minimum manageable level; and that the corporation will not need a project accountant until
the corporation resumes full-scale operations. Millena expressed "shock" over the termination of his employment.

Millena filed with the NLRC a complaint against MMDC and its two top officials, namely, Benjamin A Santos (the
President) and Rodillano A. Velasquez. The Labor Arbiter ordered Santos, et. al. to pay Millena. Alleging abuse of
discretion by the Labor Arbiter, the company and its co-respondents filed a "motion for reconsideration and /or appeal.”
In a resolution, the NLRC affirmed the decision of the Labor Arbiter. A writ of execution correspondingly issued;
however, it was returned unsatisfied for the failure of the sheriff to locate the offices of the corporation in the
addressed indicated. Another writ of execution and an order of garnishment were thereupon served on Santos at his
residence. Contending that he had been denied due process, Santos filed a motion for reconsideration of the NLRC's
resolution along with a prayer for the quashal of the writ of execution and order of garnishment. He averred that he had
never received any notice, summons or even a copy of the complaint; hence, he said, the Labor Arbiter at no time had
acquired jurisdiction over him. The NLRC dismissed the motion for reconsideration. Santos filed the petition for
certiorari.

Issue: WHETHER SANTOS SHOULD BE MADE SOLIDARILY LIABLE WITH MMDC.

Held: A corporation is a judicial entity with legal personality separated and distinct from those acting for and in its behalf
and, in general, from the people comprising it. The rule is that obligations incurred by the corporation, acting through its
directors, officers and employees, are its sole liabilities.

Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can exist to warrant, albeit done sparingly,
the disregard of its independent being and the lifting of the corporate veil. As a rule, this situation might arise a
corporation is used to evade a just and due obligation or to justify a wrong, to shield or perpetrate fraud, to carry out
similar other unjustifiable aims or intentions, or as a subterfuge to commit injustice and so circumvent the law. Without
necessarily piercing the veil of corporate fiction, personal civil liability can also be said to lawfully attach to a corporate
director, trustee or officer; to wit:

When:
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing
its affairs, or (b) for conflict of interest, resulting in damages to the corporation, its stockholders or other
persons;
2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with
the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by a specific provision of law, to personally answer for his corporate action.

The case of Santos is way of these exceptional instances. It is not even shown that Santos has had a direct hand in the
dismissal of Millena enough to attribute to Santos a patently unlawful act while acting for the corporation. It is
undisputed that the termination of Millena's employment has been due, collectively, to the need for a further mitigation
of losses, the onset of the rainy season, the insurgency problem, in Sorsogon and the lack of funds to further support the
mining operation in Gatbo. It is basic that a corporation is invested by law with a personally separate and distinct from
those of the persons composing it as well as from that of any, other legal entity to which it may be related. Mere
ownership by a single stockholder or by another corporation of all nearly all of the capital stock of a corporation is not of
itself sufficient ground for disregarding the separate corporate personally. Santos should not have been made
personally answerable for the payment of Millena's back salaries.

_____________________________________________________________________________________________
#22 STOCKHOLDERS OF F. GUANZON AND SONS, INC., petitioners-appellants, vs. REGISTER OF DEEDS OF MANILA,
respondent appellee
FIVE STOCKHOLDERS OF F. GUANZON AND SONS, INC IN ITS DESIRE TO DISSOLVE THE CORPORATION EXECUTED A
CERTIFICATE OF LIQUIDATION OF ITS ASSETS. BY ITS RESOLUTION, IT RECITED THAT THEY HAVE DISTRIBUTED AMONG
THEMSELVES THE ASSETS OF THE CORPORATION IN PROPORTION TO THEIR SHAREHOLDINGS.
THE LIQUIDATION INCLUDES REAL PROPERTIES LOCATED IN MANILA. THE ROD OF MANILA DENIED THE REGISTRATION
OF THE CERTIFICATE ON SEVEN GROUNDS, FOUR OF WHICH WERE DISPUTED BY THE STOCKHOLDERS PARTICULARLY
THAT THE NUMBER OF PARCELS WAS NOT CERTIFIED AND BY ITS FAILURE TO PAY NECESSARY FEES AND TO ATTACH
DOCUMENTARY STAMP.
APPELANTS CONTEND THAT THE CERTIFICATE IS MERELY FOR THE DISTRIBUTION OF THE ASSETS OF THE CORPORATION
WHICH HAS CEASED TO EXIST DUE TO DISSOLUTION. ACCORDINGLY, NOT A CONVEYANCE, IT NEED NOT CERTIFY THE
NUMBER OF PARCELS; WHILE THE COMMISSIONER ON LAND REGISTRATION SHARES A DIFFERENT OPINION, STATING
THAT IT LOGICALLY REPRESENTS THE TRANSFER OF ASSETS FROM THE CORPORATE TITLE TO ITS STOCKHOLDERS; THUS,
A CONVEYANCE.
SC AGREED WITH THE COMMISSIONER AND THE REGISTER OF DEEDS. SHARES OF STOCK DO NOT REPRESENT THE
PROPERTY OF THE CORPORATION. THE CORPORATION ITSELF HAS ITS PROPERLY CHIEFLY CONSISTS OF REAL ESTATE.
SHARES OF STOCK ONLY TYPIFY THE RIGHT TO SHARE IN ITS PROCEEDS OR IN THE ALIQUOT PORTION OF THE PROPERTY
OF THE CORPORATION BUT THE HOLDER THEREOF SHALL NOT BE CONSTRUED THE OWNER OF ANY CAPITAL AND SHALL
NOT BE ENTITLED TO POSSESSION OF ANY PORTION OF THE CORPORATE PROPERTY.
IN SUBSTANCE, WHAT APPEARS TO BE THE PURPOSE OF LIQUIDATION AND THE DISTRIBUTION OF ASSETS COULD NOT
BE LESS THAN THE TRANSFER OF TITLE FROM THE CORPORATION TO ITS STOCKHOLDERS. ALSO, WORTHY OF NOTICE IS
THE FACT THAT THE DISTRIBUTION ALSO INCLUDES REAL ESTATES IN MANILA, WHICH ARE ESSENTIALLY PROPERTIES OF
THE CORPORATION ALONE. BEING IN THE NATURE OF TRANSFER, SUCH CANNOT BE EFFECTED WITHOUT A
CORRESPONDING DEED OF CONVEYANCE FROM THE CORPORATION TO THE STOCKHOLDERS.
Corporations; Liquidation and distribution of assets for transfer to stockholders; Certificate of liquidation in the
nature of transfer or conveyance.—Where the purpose of the liquidation, as well as the distribution of the assets of the
corporation, is to transfer their title from the corporation to the stockholders in proportion to their shareholdings, that
transfer cannot be effected without the corresponding deed of conveyance from the corporation to the stockholders,
and the certificate should be considered as one in the nature of a transfer or conveyance.
FACTS: The five stockholders of the F. Guanzon and Sons, Inc. executed a certificate of liquidation of the assets of the
corporation reciting that by virtue of a resolution of the stockholders adopted on September 17, 1960, dissolving the
corporation, they have distributed among themselves in proportion to their shareholdings, as liquidating dividends, the
assets of said corporation, including real properties located in Manila. The certificate of liquidation, when presented to
the Register of Deeds of Manila, was denied registration on seven grounds, of which the following were disputed by
the stockholders:
3. The number of parcels not certified to in the acknowledgment;
5. P430.50 Reg. fees need be paid;
6. P940.45 documentary stamps need be attached to the document;
7. The judgment of the Court approving the dissolution and directing the disposition of the assets of the
corporation need be presented
Deciding the consulta elevated by the stockholders, the Commissioner of Land Registration overruled ground No. 7 and
sustained requirements Nos. 3, 5 and 6. The stockholders interposed the present appeal.
Appellants contend that the certificate of liquidation is not a conveyance or transfer but merely a distribution of the
assets of the corporation which has ceased to exist for having been dissolved. This is apparent in the minutes of
dissolution attached to the document. Not being a conveyance, the certificate need not contain a statement of the
number of parcel of land involved in the distribution in the acknowledgment appearing therein.
The Commissioner of Land Registration, however, entertained a different opinion. He concurred in the view expressed
by the register of deeds to the effect that the certificate of liquidation in question, though it involves a distribution of
the corporation’s assets, in the last analysis represents a transfer of said assets from the corporation to the
stockholders. Hence, in substance it is a transfer or conveyance.
ISSUE: WHETHER OR NOT THE CERTIFICATE MERELY INVOLVES A DISTRIBUTION OF CORPORATION’S ASSETS OR A
TRANSFER OR CONVEYANCE
We agree with the opinion of these two officials. A corporation is a juridical person distinct from the members
composing it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct
from its members. While shares of stock constitute personal property, they do not represent property of the
corporation. The corporation has property of its own which consists chiefly of real estate. A share of stock only typifies
an aliquot part of the corporation’s property, or the right to share in its proceeds to that extent when distributed
according to law and equity but its holder is not the owner of any part of the capital of the corporation nor is he
entitled to the possession of any definite portion of its property or assets. The stockholder is not a co-owner or tenant
in common of the corporate property.
It is clear that the act liquidation made by the stockholders of the F. Guanzon and Sons, Inc. of the latter’s assets is not
and cannot be considered a partition of community property, but rather a transfer or conveyance of the title of its
assets to the individual stockholders. Indeed, since the purpose of the liquidation, as well as the distribution of the
assets of the corporation, is to transfer their title from the corporation to the stockholders in proportion to their
shareholdings,—and this is in effect the purpose which they seek to obtain from the Register of Deeds of Manila — that
transfer cannot be effected without the corresponding deed of conveyance from the corporation to the stockholders.
It is, therefore, fair and logical to consider the certificate of liquidation of as one in the nature of a transfer or
conveyance.
____________________________________________________________________________________________
#23 MANILA GAS CORPORATION, plaintiff and appellant, vs. THE COLLECTOR OF INTERNAL REVENUE, defendant and
appellee.

FACTS: This is an action brought by the Manila Gas Corporation against the Collector of Internal Revenue for the
recovery of P56,757.37, which the plaintiff was required by the defendant to deduct and withhold from the various sums
paid it to foreign corporations as dividends and interest on bonds and other indebtedness and which the plaintiff paid
under protest.

ISSUES: W/N the Collector of Internal Revenue was justified in withholding income taxes on interest on bonds and
other indebtedness paid to nonresident corporations

RULING: YES.

The approved doctrine is that no state may tax anything not within its jurisdiction without violating the due process
clause of the constitution. The taxing power of a state does not extend beyond its territorial limits, but within such it
may tax persons, property, income, or business. If an interest in property is taxed, the situs of either the property or
interest must be found within the state. If an income is taxed, the recipient thereof must have a domicile within the
state or the property or business out of which the income issues must be situated within the state so that the income
may be said to have a situs therein. Personal property may be separated from its owner, and he may be taxed on its
account at the place where the property is although it is not the place of his own domicile and even though he is not a
citizen or resident of the state which imposes the tax. But debts owing by corporations are obligations of the debtors,
and only possess value in the hands of the creditors. The Manila Gas Corporation operates its business entirely within
the Philippines. Its earnings therefore come from local sources. The place of material delivery of the interest to the
foreign corporations paid out of the revenue of the domestic corporation is of no particular moment. The place of
payment even if conceded to be outside of the country cannot alter the fact that the income was derived from the
Philippines. The word "source" conveys only one idea that of origin, and the origin of the income was the Philippines. It
held that a corporation has a personality distinct from that of its stockholders, enabling the taxing power to reach the
latter when they receive dividends from the corporation. It must be considered as settled in this jurisdiction that
dividends of a domestic corporation, which are paid and delivered in cash to foreign corporations as stockholders, are
subject to the payment of the income tax, the exemption clause in the charter of the corporation notwithstanding.

____________________________________________________________________________________________
#24 CONCEPCION MAGSAYSAYLABRADOR, SOLEDAD MAGSAYSAYCABRERA, LUISA MAGSAYSAYCORPUZ, assisted by
her husband, Dr. Jose Corpuz, FELICIDAD P. MAGSAYSAY, and MERCEDES MAGSAYSAYDIAZ, petitioners, vs. THE
COURT OF APPEALS and ADELAIDA RODRIGUEZMAGSAYSAY, Special Administratrix of the Estate of the late Genaro F.
Magsaysay, respondents.

ADELAIDA MAGSAYSAY SEEKS TO ANNUL THE DEED OF ASSIGNMENT EXECUTED BY LATE SENATOR MAGSAYSAY IN
FAVOR OF SUBIC, WHICH MORTGAGED THE SAID PROPERTY TO FILIMANBANK AND TO CANCEL THE TCT 22431 ISSUED
BY THE ROD TO SUBIC. IT WAS ALSO REQUESTED BY MAGSAYSAY THAT THE ROD ISSUE A NEW TITLE IN HER FAVOR.

MAGSAYSAY’S SISTERS FILED A MOTION TO INTERVENE AVERRING THAT THE LATE SENATOR CONVEYED TO THEM ½ OF
HIS SHAREHOLDINGS IN SUBIC AND THAT THEY HAVE LEGAL INTEREST IN THE SUCCESS OF THE CASE WITH RESPECT TO
SUBIC. THE TRIAL COURT DENIED THE SAME WITH THE APPELLATE COURT AFFIRMING THE FORMER’S DECISION,
STATING FURTHER THAT THE INTERESTS OF THE PETITIONERS CAN BE PROTECTED IN A SEPARATE PROCEEDING.

THE ISSUE IS WHETHER TO CONSIDER THE PARTIES AS INTERESTED PARTIES. FROM THIS, THE COURT RULED IN THE
NEGATIVE STATING THAT THE INTEREST OF THE PETITIONERS ARE MERELY REMOTE AND COLLATERAL. THAT THEIR
INTEREST IS MERELY INCHOATE PREDICATED ON THE EXPECTANCY OF A RIGHT IN THE MANAGEMENT OF THE
CORPORATION AND THE RIGHT TO SHARES THEREIN AFTER DISSOLUTION.

THE SHARES OF STOCK MERELY OPERATE AS A REPRESENTATION OF THE PROPORTIONATE OR ALIQUOT INTEREST IN THE
PROPERTY OF THE CORPORATION; IT DOES NOT HOWEVER MAKE THE OWNER THEREOF HAVE ANY LEGAL RIGHT OVER
THE PROPERTY OF THE CORPORATION.

SHAREHOLDERS ARE IN NO SENSE OWNERS OF THE CORPORATE PROPERTY, THE LATTER BEING OWNED BY THE
CORPORATION AS A DISTINCT LEGAL PERSON.

Corporations; A share of stock in a corporation does not vest the owner thereof with any legal right or title to any of
the property.—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.

Transfer of shares in a corporation must be registered in the books of the corporation to affect third persons.—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.”
Facts: On 9 February 1979, Adelaida Rodriguez-Magsaysay, special administratix of the estate of the late Senator Genaro
Magsaysay, brought before the then Court of First Instance of Olongapo an action against Artemio Panganiban, Subic
Land Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales, for the
annulment of the Deed of Assignment executed by the late Senator in favor of SUBIC (as a result of which TCT 3258
was cancelled and TCT 22431 issued in the name of SUBIC), for the annulment of the Deed of Mortgage executed by
SUBIC in favor of FILMANBANK, and cancellation of TCT 22431 by the Register of Deeds, and for the latter to issue a
new title in her favor.

Concepcion Magsaysay-Labrador et. al, sisters of the late senator, filed a motion for intervention on the ground that on
June 1978, their brother conveyed to them 1/2 of his shareholdings in SUBIC or a total of 416,566.6 shares and as
assignees of around 41% of the total outstanding shares of such stocks of SUBIC. The trial 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. On appeal, the Court of Appeals found no factual or legal
justification to disturb the findings of the lower court. The appellate court further stated that whatever claims the
Magsaysay sisters have against the late Senator or against SUBIC for that matter can be ventilated in a separate
proceeding. The motion for reconsideration of the Magsaysay sisters was denied. Hence, the petition for review on
certiorari.

Issue: Whether the Magsaysay sisters, allegedly stockholders of SUBIC, are interested parties in a case where corporate
properties are in dispute.

Held: NO. Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the Magsaysay sisters have no legal
interest in the subject matter in litigation so as to entitle them to intervene in the proceedings. To be permitted to
intervene in a pending action, the party must have a legal interest in the matter in litigation, or in the success of either of
the parties or an interest against both, or he must be so situated as to be adversely affected by a distribution or other
disposition of the property in the custody of the court or an officer thereof.

Here, the interest of the Magsaysay sisters 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.
___________________________________________________________________________________________

#25 GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners, vs. HONORABLE COURT OF APPEALS and ROCES-
REYES REALTY INC., respondents

A CONTRACT OF LEASE WAS ENTERED INTO BY AND BETWEEN ROCES-REYES REALTY INC AND GOOD EARTH EMPORIUM.
THE CONTRACT AS STIPULATED SHALL LAST FOR THREE YEARS. HOWEVER, FROM MARCH 1983, GEE FAILED IN ITS
OBLIGATION CAUSING PRIVATE RESPONDENTS TO FILE LEGAL ACTION AGAINST PETITIONERS

THE TRIAL COURT RENDERED A DECISION AGAINST PETITIONERS FROM WHICH THEY WERE ORDERED TO VACATE THE
PROPERTY. ROCES FILED A MOTION FOR EXECUTION WHICH WAS OPPOSED BY PETITIONERS CONTENDING THAT THEY
HAVE TENDERED PAYMENT OF THE ACCRUED RENTALS AND THAT IT WAS GIVEN TO ROCES BROTHERS. ROCES-REYES
HOWEVER REFUSED TO ACCEPT THAT FACT CONSIDERING THAT MARCOS AND JESUS REYES WERE NO LONGER OFFICERS
OF THE CORPORATION, AS EVIDENCED BY THE LATTER’S DENIAL OF SUCH AUTHORITY TO COLLECT.

THE COURT RULED THAT THE PAYMENT MADE BY GEE TO ROCES’ BROTHERS DOES NOT CONSTITUTE PAYMENT TO
PRIVATE RESPONDENT CORPORATION ON THE BASIS THAT THE FORMER ARE NO OFFICERS OF THE CORPORATION TO
WHOSE FAVOR THE OBLIGATION WAS CONSTITUTED NEITHER THEY WERE HELD AS ITS SUCCESSORS-IN-INTEREST NOR
PERSONS AUTHORIZED TO RECEIVE THE SAME NOR DOES THE RECEIPT SHOW THAT HE SIGNED IT IN SUCH CAPACITY AS
IF HE WERE STILL THE PRESIDENT OF THE CORPORATION.

TO CUT THE STORY SHORT, IT GOES WITHOUT SAYING THAT BEING A CORPORATE OFFICER OR STOCKHOLDERS DOES
NOT MAKE ONE’S PROPERTY AUTOMATICALLY THAT OF A CORPORATION AND VICE VERSA. SHAREOWNERS ARE IN NO
LEGAL SENSE THE OWNERS OF THE CORPORATE PROPERTY OR CREDITS WHICH ARE OWNED BY THE CORPORATION AS A
JURIDICAL PERSON. MORE SO, CORPORATE DEBT OR CREDIT IS NOT THE DEBT OR CREDIT OF THE STOCKHOLDER AND
THAT THE DEBT OR CREDIT OF A STOCKHOLDER IS NOT THE DEBT OR CREDIT OF THE CORPORATION (THUS, PAYMENT TO
ROCES BROTHERS WHO ARE NOT AUTHORIZED TO COLLECT THE RENTALS DOES NOT EFFECT TENDERING OF PAYMENT
IN THE CORPORATION).

Corporation Law; A corporation has a personality distinct and separate from its individual stockholders or members.
— A corporation has a personality distinct and separate from its individual stockholders or members. Being an officer or
stockholder of a corporation does not make one’s property also of the corporation, and vice versa, for they are separate
entities. Shareowners are in no legal sense the owners of corporate property (or credits) which is owned by the
corporation as a distinct legal person.

The corporate debt or credit is not the debt or credit of the stockholder nor is the stockholder’s debt or credit that of
the corporation.—As a consequence of the separate juridical personality of a corporation, the corporate debt or credit is
not the debt or credit of the stockholder, nor is the stockholder’s debt or credit that of the corporation.

Facts: A contract for lease of a five-story building situated in Sta. Cruz, Manila was entered into by and between Roces-
Reyes Realty Inc. as lessor and Good Earth Emporium Inc. (GEE) as lessee for a term of three years beginning November
1, 1981 and ending October 31, 1984 at a monthly rental of Php65,000. From March 1983 up to the complaint was filed,
the lessee had defaulted in the payment of rentals, private respondent Roces-Reyes Realty Inc. filed on October 14, 1984
an ejectment case against herein petitioners, Good Earth Emporium Inc. and Lim Ka Ring.

After the latter had tendered their responsive pleading, the lower court on motion of Roces rendered judgment on the
pleadings to which petitioners were ordered to vacate the premises and surrender the same to the plaintiffs. Roces
filed a motion for execution which was opposed by petitioners simultaneous with the latter’s filing of a notice of appeal.
However, GEE thru counsel filed a motion to withdraw said appeal citing as reason that they are satisfied with the
decision of the lower court.

Issue: Whether or not the payment made by GEE to the Roces brothers constitutes payment to private Respondent
Corporation which would result to the extinguishment of the obligation.

Held: No. Under Article 1240 of the Civil Code of the Philippines – Payment shall be made to the person in whose favor
the obligation has been constituted, on his successor in interest or any person authorized to receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty Inc. or to its successors in interest nor
is there positive evidence that payment was made to a person authorized to receive it. No such proof was submitted but
merely inferred by the RTC from Marcos Roces having signed the lease contract as President which was witnessed by
Jesus Marcos Roces. The later, however, was no longer President or even an officer of the Roces-Realty Inc. at the time
he received the money and signed the sale with pacto de retro. He, in fact denied being in possession of authority to
receive payment for the respondent corporation nor does the receipt show that he signed in the same capacity as he did
in the lease contract at a time when he was President for respondent corporation.

A corporation has a personality distinct and separate from its individual stockholders or members. Being an officer or
stockholder of a corporation does not make one’s property also of the corporation, and vice-versa, for they are separate
entities. Shareowners are in no legal sense the owners of the corporate property which is owned by the corporation as a
distinct legal person. As a consequence of the separate juridical personality of a corporation, the corporate debt or
credit is not the debt or credit of the stockholder, nor is the stockholder’s debt or credit that of the corporation.

____________________________________________________________________________________________

#26 FELIPE TAYKO, EDUARDO BUENO, BAUTISTA TAYKO, BERNARDO SOLDE and VICENTE ELUM, petitioners, vs.
NICOLAS CAPISTRANO, acting as Judge of First Instance of Oriental Negros, ALFREDO B. CACNIO, as Provincial Fiscal of
Oriental Negros, and JUAN GADIANI, respondents.

FACTS: The petitioners allege that Capistrano was appointed judge of the CFI of Oriental Negros, to hold office during
good behavior and until he should reach the age of 65 years; that he now has reached that age and, therefore, under the
provisions of the Administrative Code as amended, is disqualified from acting as a judge of the Court of First Instance.
The petitioners further allege that in view of the many election protests and criminal cases for violation of the election
law filed in the CFI of Oriental Negros arising in the from the last election, de la Costa was duly designated and acted as
auxiliary judge. There was an understanding that de la Costa would hear and take cognizance of all election protests and
criminal actions then pending or to filed arising from the said last general election, and that Capistrano would try and
hear the ordinary cases pending.

Notwithstanding the understanding, Capistrano tried and is still trying to take cognizance of the election protests an
criminal actions in said court; declared in open court that he will try the criminal cases for the reason that de la Costa
refused to try the same on the ground that the preliminary investigations were held before him, when, in truth and in
fact, the d la Costa did not make the statement imputed to him and was and is still willing to try the election protests
and criminal cases for violation of the election law pending in the court. Additionally that Capistrano, in spite of the fact
that he was holding and is now pretending to hold the office of judge took great interest and active part in the filing of
criminal charges against the petitioners to the unjustifiable extent of appointing a deputy fiscal, who then filed the
proper informations, when the provincial fiscal refused to file criminal charges against the petitioners for violation of the
election law for lack of sufficient evidence to sustain the same Finally, that Capistrano is neither a judge de jure nor de
facto, but that he continues to hold the office of judge and pretends to be duly qualified and acting judge of the said
province; and that he has tried, and continues to try, to act as such judge.

THE ISSUE: Whether or not Capistrano, upon reaching the age of 65, can still continue public office? Is he considered a
de facto judge?

THE RULING: Briefly defined, a de facto judge is one who exercises the duties of a judicial office under color of an
appointment or election thereto. He differs, on the one hand, from a mere usurper who undertakes to act officially
without any color of right, and on the other hand, from a judge de jure who is in all respects legally appointed and
qualified and whose term of office has not expired. Apart from any constitutional or statutory regulation on the subject
there seems to be a general rule of law that an incumbent of an office will hold over after the conclusion of his term
until the election and qualification of a successor. When a judge in good faith remains in office after his title has ended,
he is a de facto officer. Applying the principles stated to the facts set forth in the petition before us, we cannot escape
the conclusion that, on the assumption that said facts are true, the respondent judge must be considered a judge de
facto. His term of office may have expired, but his successor has not been appointed, and as good faith is presumed, he
must be regarded as holding over in good faith. The contention of counsel for the petitioners that the auxiliary judge
present in the district must be considered the regular judge seems obviously erroneous.

Accordingly, it is a well-established principle, dating from the earliest period and repeatedly confirmed by an unbroken
current of decisions, that the official acts of a de facto judge are just as valid for all purposes as those of a de jure judge,
so far as the public or third persons who are interested therein are concerned. The principle is one founded in policy and
convenience, for the right of no one claiming a title or interest under or through the proceedings of an officer having an
apparent authority to act would be safe, if it were necessary in every case to examine the legality of the title of such
officer up to its original source, and the title or interest of such person were held to be invalidated by some accidental
defect or flaw in the appointment, election or qualification of such officer, or in the rights of those from whom his
appointment or election emanated; nor could the supremacy of the laws be maintained, or their execution enforced, if
the acts of the judge having a colorable, but not a legal title, were to be deemed invalid. As in the case of judges of
courts of record, the acts of a justice de facto cannot be called in question in any suit to which he is not a party.

ID.; JUDGE HOLDING OVER AFTER CONCLUSION OF HIS TERM.—In the absence of any constitutional or statutory
regulation on the subject, the general rule is that an incumbent of an office will hold over after the conclusion of his
term until the election and qualification of his successor.

ID.; ID.; JUDGE "DE FACTO."—A judge who is holding over in good faith and whose successor has not' been appointed, is
a judge de facto.

ID.; VALIDITY OF OFFICIAL ACTS OF "DE FACTO" JUDGE.—The official acts of a de facto judge are as valid for all
purposes as those of a de jure judge so far as the public or third persons who are interested therein are concerned. The
rule applies both to civil and criminal matters.

"DE FACTO" OFFICER; TITLE CANNOT BE QUESTIONED IN PROHIBITION PROCEEDINGS. —The title of a de facto officer
cannot be indirectly questioned in a proceeding to obtain a writ of prohibition to prevent him from doing official acts.

The case discussed the policy of the doctrine as applied to public officers, and it held that “The principle is one founded
in policy and convenience, for the right of no one claiming a title or interest under or through the proceedings of an
officer having an apparent authority to act would be safe, if it were necessary in every case to examine the legality of the
title of such officer up to its original source, and the title or interest of such person were held to be invalidated by some
accidental defect or flaw in the appointment, election or qualification of such officer, or in the rights of those from
whom his appointment or election emanated; nor could the supremacy of the laws be maintained, or their execution
enforced, if the acts of the judge having a colorable, but not a legal title, were to be deemed invalid.”

____________________________________________________________________________________________

#27 FEDERICO FERNANDEZ, plaintiff appellant, vs. P. CUERVA & Co., defendant appellee.

Labor; Recovery of unauthorized salary deduction; Prescription of action.—Where the claim of plaintiff represented
the sum total of unauthorized deductions from his salaries and withheld commissions under Section 10, paragraph (f) of
Republic Act No. 602, then, under Section 17 of the same law, the action to recover the same must be filed within three
years after the cause of action accrued.

Same; When cause of action accrues; Case at bar.— Considering that the amounts withheld by defendant, though
actually deductions from plaintiff’s salaries and unpaid commissions, were, however, constituted as a bond or a deposit
to answer for any liability that he might incur in connection with the goods handled by him, the right of plaintiff to
commence an action for the return or refund of the amounts representing such bond or deposit accrued only when the
same was no longer needed, which was on October, 1959 when plaintiff was separated from the service.

Same; Judicial demand; Case at bar.—It is true that the claim filed by plaintiff with the regional office of the Department
of Labor is not a judicial demand in the strict sense of the term judicial demand” because the same was not instituted in
a court of justice. Judicial notice, however, should be taken that on December 10, 1956, Reorganization Plan No. 20A
was promulgated pursuant to Republic Act No. 997, and under Section 25 of said reorganization plan each regional office
of the Department of Labor was vested with original and exclusive jurisdiction over all cases affecting all money claims
arising from violations of labor standards on working conditions such as unpaid wages, underpayment, overtime and
separation pay, etc., to the exclusion of courts. Under the circumstances, the filing by plaintiff of his claim before the
regional office of the Department of Labor, which at that time was the only agency empowered to take cognizance of his
claim, had the attributes of a judicial demand for the purpose of interrupting the running of the period of prescription.

Executive orders; Unconstitutional executive orders; Effect. —Where it appears that the plaintiff had filed his claim
before Regional Office No. 4 of the Department of Labor on July 26, 1960 in accordance with the provisions of Section 25
of Reorganization Plan No. 20A, which was then in force, the fact that Section 25 of Reorganization Plan No. 20A was
subsequently declared unconstitutional should not be counted against plaintiff in the present case because the actual
existence of a statute prior to declaration of its nullity is an operative fact, and may have consequences which cannot
justly be ignored.

Issue in this case is can there be a de facto corporation organized under an enabling statute that is unconstitutional.
Following the “orthodox view” that an “unconstitutional act, whether legislative or executive, is not a law, confers no
right, imposes no dues, and affords no protection, the enabling statute being unconstitutional would absolutely be void,
and no corporation organized under it can achieve the status of being a de-facto corporation. Therefore, the prevailing
view is than an unconstitutional enabling law has the same effect as though there is no law under which to organize, and
even if the associates organize in GF in reliance upon it, the resulting association cannot claim to be a de facto
corporation.

_____________________________________________________________________________________________
#28 C. ARNOLD HALL and BRADLEY P. HALL, petitioners, vs. EDMUNDO S. PICCIO, Judge of the Court of First Instance
of Leyte, FRED BROWN, EMMA BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber
and Commercial Co., Inc., respondents.
PETITIONERS HALL AND PRIVATE RESPONDENTS SIGNED AND ACKNOWLDGED THE AOI OF FAR EASTERN LUMBER AND
COMMERCIAL COMPANY INC WHICH WAS ORGANIZED TO ENGAGE IN THE GENERAL LUMBER BUSINESS. IMMEDIATELY
AFTER EXECUTTION OF SAID AOD, THE CORPORATION PROCEEDED TO DO BUSINESS WITH THE ADOPTION OF BY-LAWS
AND ELECTION OF ITS OFFICERS.
THE AOI WAS LATER FILED WITH THE SEC TO HAVE THE CERTIFICATE OF INCORPORATION ISSUED. HOWEVER, PENDING
ACTION OF SEC, RESPONDENTRS FILED A SUIT AGAINST FELCO ALLEGING THAT IT WAS AN UNREGISTERED PARTNERSHIP
AND THAT THEY WISHED TO HAVE IT DISSOLVED BECAUSE OF ANIMOSITY AMONG THE MEMBERS. THE ISSUE IS TO
WHETHER THE CORPORATION IS A DE FACTO CORPORATION.
THE COURT RULED IN THE NEGATIVE STATING THAT NO CERTIFICATION OF INCORPORATION WAS ISSUED; THUS, IT
NEVER ACQUIRED JURIDICAL PERSONALITY. AS A RESULT, NEITHER CAN THE FELCO NOR ITS STOCKHOLDERS CLAIM IN
GOOD FAITH THAT IT WAS A CORPORATION. ALSO, THIS IS NOT A SUIT IN WHICH A CORPORATION IS A PARTY. NOT
BEING GRANTED OF LEGAL EXISTENCE, IT THEREFORE BEARS TRUISM THAT IT CAN DISSOLVE WITHOUT STATE
INTERVENTION. AT MOST, IT IS JUST A DISPUTE AMONG PERSONS FORMING A CORPORATION.
CORPORATION "DE FACTO"; DISSOLUTION BY SUIT OF STOCKHOLDERS; JURISDICTION OF COURT.—An entity whose
certificate of incorporation had not been obtained may be terminated in a private suit for its dissolution between
stockholders, without 'the intervention of the state. The question as to the right of minority stockholders to sue for
dissolution does not affect the court's jurisdiction, and is a matter for decision by the judge, subject to review on appeal
by the aggrieved party at the proper time.
RIGHTS OF.—Persons acting as corporation may not claim rights of "de facto" corporation if they have not obtained
certificate of incorporation.
Facts: Petitioners and respondents signed and acknowledged in Leyte, the Articles of incorporation of the Far Eastern
Lumber and Commercial Co., Inc., organized to engage in the general lumber business. Attached to the article was an
affidavit of the treasurer stating that 23,428 shares of stock had been subscribed and fully paid with certain properties
transferred to the corporation.
Immediately after the execution of said articles of incorporation, the corporation proceeded to do business with the
adoption of by-laws and the election of its officers. Later, the articles of incorporation were filed with the SEC, to have
the corresponding certificate of incorporation issued. Afterwards, pending action on the articles of incorporation by the
aforesaid governmental office, the respondents filed suit alleging that the Far Eastern Lumber and Commercial Co. was
an unregistered partnership; that they wished to have it dissolved because of bitter dissension among the members,
mismanagement and fraud by the managers and heavy financial losses.
Issue: Whether or not the corporation here is a de facto corporation.
Held: NO
The personality of a corporation begins to exist only from the moment such certificate is issued — not before. Here, all
the parties are informed that the Securities and Exchange Commission has not, so far, issued the corresponding
certificate of incorporation. Nobody was led to believe anything to his prejudice and damage. Next, there are least two
reasons why the SEC doesn’t have jurisdiction. 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.
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. Simply put, there was no
Corporation formed at all and was simply a suit between persons forming a corporation.
____________________________________________________________________________________________
#29 ASIA BANKING CORPORATION, plaintiff and appellee, vs. STANDARD PRODUCTS Co., INC., defendant and
appellant.
STANDARD PRODUCTS EXECUTED A PROMISSORY NOTE THROUGH ITS PRESIDENT, GEORGE SEAVER, IN FAVOR OF ASIA
BANKING CORP. STANDARD PRODUCTS ONLY PARTIALLY OBLIGED PROMPTING ASIA BANKING TO FILE AN ACTION
RECOVER THE BALANCE DUE ON SUCH NOTE. THE LOWER COURT RENDERED JUDGMENT IN FAVOR OF PLAINTIFF FOR
THE SUM DEMANDED. AT THE TRIAL, PLAINTIFF FAILED TO PROVE AFFIRMATTIVELY THE CORPORATE EXISTENCE OF THE
PARTIES AND STANDARD PRODUCTS CO. ARGUES THAT THE LOWER COURT ERRED IN FINDING THAT THE PARTIES WERE
CORPORATIONS WITH JURIDICAL PERSONALITY. THE ISSUE IS WHETHER OR NOT THE LC JUDGMENT WAS A REVERSIBLE
ERROR DESPITE ASIA BANKING’S FAILURE TO PRESENT EVIDENCE OF ITS CORPORATE EXISTENCE. THE SC RULED IN THE
NEGATIVE.
ABSENT FRAUD, A PERSON WHO HAS CONTRACTED WITH AN ASSOCIATTION IN SUCH A WAY AS TO ADMIT ITS LEGAL
EXISTENCE AS A CORPORATE BODY IS ESTOPPED TO DENY ITS CORPORATE EXISTENCE IN ANY ACTTION LEADING OUT OR
INVOLVING SUCH CONTRACT UNLESS IS EXISTENCE IS ATTACKED FOR CAUSES WHICH HAVE ARISES SINCE MAKING THE
CONTRACT RELIED ON AS AN ESTOPPEL.
HERE, STANDARD PRODUCTS HAS RECOGNIZED ASIA BANKING’S CORPORATE EXISTENCE. IT IS ALSO DENIED FROM
DENYING ITS OWN EXISTTENCE. THUS, IT WAS UNNECESSARY FOR ASIA BANKING TO PRESENT OTHER EVIDENCE OF THE
CORPORATE EXISTENCE OF EITHER PARTY.
CORPORATION; CORPORATE EXISTENCE, ESTOPPEL FROM DENYING.—In the absence of fraud, a person who has
contracted or dealt with an association in such a way as to recognize and in effect admit its legal existence as a
corporate body is thereby estopped to deny its corporate existence in an action leading out of or involving such contract
or dealing, unless the existence is attacked for causes which have arisen since making the contract or other dealing
relied on as an estoppel.
EVIDENCE.—The defendant having recognized the corporate existence of the plaintiff by making a promissory note in its
favor and making partial payments on the same, and the defendant having held itself out as a corporation and being
therefore estopped from denying its own corporate existence, it is unnecessary for the plaintiff to present other
evidence of the corporate existence of either of the parties
FACTS: The Standard Products Co., Inc., executed a promissory note through its President, George H. Seaver, in favor of
Asia Banking Corporation. Standard Products acquiesced with its promise albeit insufficient, prompting Asia Banking
Corporation to file an action to recover the sum of P24, 736.47 which is the balance due on such note. The Lower Court
rendered judgment in favor of plaintiff for the sum demanded in the complaint. From this judgment, the defendant
appeals to this court. At the trial, plaintiff failed to prove affirmatively the corporate existence of the parties, and
Standard Products Co. argues that the lower court erred in finding that the parties were corporations with judicial
personality.

ISSUES: WON the judgment of the lower court is a reversible error despite Asia Banking’s failure to present evidence
of its corporate existence (NO)

RATIO: The general rule is that in the absence of fraud, a person who has contracted or otherwise dealt with an
association in such a way as to recognize and in effect admit its legal existence as a corporate body is thereby
estopped to deny its corporate existence in any action leading out of or involving such contract or dealing, unless its
existence is attacked for causes which have arisen since making the contract or other dealing relied on as an estoppel.
This doctrine applies to domestic as well as foreign corporations. Since Standard Products has recognized the corporate
existence of Asia Banking by making a promissory note in its favor and making partial payments on the same, it is
estopped from denying Asia Banking’s corporate existence. It is also denied from denying its own corporate existence.
Under these circumstances, it was unnecessary for Asia Banking to present other evidence of the corporate existence of
either of the parties.

_____________________________________________________________________________________________

#30 MANUELA T. VDA. DE SALVATIERRA, petitioner, vs. HON. LORENZO C. GARLITOS, in his capacity as Judge of the
Court of First Instance of Leyte, Branch II, and SEGUNDINO REFUERZO, respondents.
FACTS: Salvatierra, as owner of a piece of land, entered into a contract of lease with corporation (Philippine Fiber
Producers Co. Inc.) allegedly “duly organized and existing under the laws of the Philippines,” represented by its
president. When the obligations imposed under the contract of lease on corporate lessee were not complied with,
Salvatierra brought an action for accounting, rescission and damages. Judgment was rendered against the corporation.
When a writ of execution was sought to be enforced, no properties in the name of the corporation could be located, and
consequently, properties registered in the name of its president were levied upon. The president sought to have the levy
against his properties lifted, since he was not even a party to the case against the corporation. On the other hand,
Salvatierra showed that the case was brought against the corporation in the belief that it was duly incorporated and that
he found out only after judgment that it had not been duly registered with the SEC.

ISSUE: WHETHER OR NOT THE PRESIDENT SHOULD BE HELD PERSONALLY LIABLE ON THE CONTRACT ENTERED INTO
ON BEHALF OF THE CORPORATION - YES

Under those proven facts, the SC held that the president is personally liable on the contract entered into on behalf of
the corporation. In resolving the case, the Court refused to apply the corporation by estoppel doctrine: While as a
general rule a person who has contracted or dealt with an association in such a way as to recognize its existence as a
corporate body is estopped from denying the same in an action arising out of such transaction or dealing, yet this
doctrine may not be held to be applicable where fraud takes a part in the said transaction. In the instant case, on
plaintiff's charge that she was unaware of the fact that the Philippine Fibers Producers Co., Inc., had no juridical
personality, defendant Refuerzo gave no confirmation or denial and the circumstances surrounding the execution of the
contract lead to the inescapable conclusion that plaintiff Manuela T. Vda. de Salvatierra was really made to believe that
such corporation was duly organized in accordance with law.

There can be no question that a corporation when registered has a juridical personality separate and distinct from its
component members or stockholders and officers such that a corporation cannot be held liable for the personal
indebtedness of a stockholder even if he should be its president and conversely, a stockholder or member cannot be
held personally liable for any financial obligation by the corporation in excess of his unpaid subscription. But this rule is
understood to refer merely to registered corporations and cannot be made applicable to the liability of members of an
unincorporated association.

The reason behind this doctrine is obvious — since an organization which before the law is non-existent has no
personality and would be incompetent to act and appropriate for itself the powers and attribute 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 rights 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. Considering that defendant Refuerzo, as
president of the unregistered corporation Philippine Fibers Producers Co., Inc., was the moving spirit behind the
consummation of the lease agreement by acting as its representative, his liability cannot be limited or restricted to that
imposed upon corporate shareholders. In acting on behalf of a corporation which he knew to be unregistered, he
assumed the risk of reaping the consequential damages or resultant rights, if any, arising out of such transaction.

________________________________________________________________________________________________________________________

#31 MARIANO A. ALBERT, plaintiff appellant, vs. UNIVERSITY PUBLISHING CO., INC., defendant appellee.

ALBERT ENTERED INTO A CONTRACT WITH UNIVERSITY PUBLISHING, WHEREBY THE LATTER WILL BE GIVEN UNDER THE
CONTRACT THE PRIVILEGE TO HAVE THE COMMENTARIES OF ALBERT IN RPC BE PUBLISHED. THE CONTRACT SAYS THAT
WHEN THE UNIVERSITY PUBLISHING FAILED TO PAY FOR ONE INSTALLMENT, IT WOULD RENDER IPSO FACTO ALL OTHER
INSTALLMENTS AS DUE.

UNIVERSITY FAILED IN ONE INSTALLMENT, PROMPTING ALBERT TO SUE THE UNIVERSITY PUBLISHING. UPON
EXECUTION, COMMISSION RECORDS DO NOT SHOW THAT UNIVERSITY PUBLISHING WAS REGISTERED EITHER AS
CORPORATION OR PARTNERSHIP. ALBERT PETITIONED THE PRESIDENT, JOSE ARUEGO, FOR EXECUTION AS THE REAL
DEFENDANT. THE UNIVERSITY PUBLISHING OPPOSED ON THE GROUND THAT ARUEGO WAS NOT A REAL PARTY TO THE
CASE.

BECAUSE OF NON-REGISTRATION, UNIVERSITY CANNOT BE CONSIDERED AS A CORPORATION, MUCH LESS OF DE FACTO.

HAVING NO SEPARATE PERSONALITY, IT CANNOT BE SUED INDEPENDENTLY. ARUEGO REPRESENTED (IN HIS CAPACITY AS
PRESIDENT THEREOF) A NON-EXISTENT ENTITY AND INDUCED THE COURT AND ALBERT TO BELIEVE IN THAT
REPRESENTATION. A PERSON ACTING IN BEHALF OF A NON-EXISTENT ENTITY ASSUMES THE PRIVILEGE AND
OBLIGATIONS AND BECOMES PERSONALLY LIABLE FOR CONTRACTS IT ENTER AND ACTS IT PERFORM AS SUCH AGENT.

Corporations; Principle of corporation by estoppel; Not invokable by one who misrepresented corporation as duly
organized against his victim.—One who has induced another to act upon his willful misrepresentation that a
corporation was duly organized and existing under the law, cannot thereafter set up against his victim the principle of
corporation by estoppel.

Person acting for corporation with no valid existence is personally liable for contracts entered into as such agent.—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.

Parties to Action; Suit against corporation with no valid existence; Real defendant is person who has control of its
proceedings.—In a suit against a corporation with no valid existence the person who had and exercised the rights to
control the proceedings, to make defense, to adduce and cross-examine witnesses, and to appeal from a decision, is the
real defendant, and .the enforcement of a judgment against the corporation upon him is substantial observance of due
process of law.

Same; Real party in interest; Person who acted as representative of nonexistent principal and who reaped benefits
from its contracts.—A person who acted as representative of a nonexistent principal, who reaped the benefits resulting
from a contract entered into by him as such, and who violated its terms, thereby precipitating a suit, is the real party to
the contract sued upon.

Facts: Fifteen years ago, on Sept. 1949, Mariano Albert entered into a contract with University Publishing Co., Inc.
through Jose M. Aruego, its President, whereby University would pay plaintiff for the exclusive right to publish his
revised Commentaries on the Revised Penal Code. The contract stipulated that failure to pay one installment would
render the rest of the payments due. When University failed to pay the second installment, Albert sued for collection and
won.

However, upon execution, it was found that the records of this Commission do not show the registration of
UNIVERSITY PUBLISHING CO., INC., either as a corporation or partnership. Albert petitioned for a writ of execution
against Jose M. Aruego as the real defendant. University opposed, on the ground that Aruego was not a party to the
case.
Issue: WON the non-registration of University Publishing Co., Inc. in the SEC would still make it an existing corporation
with an independent juridical personality.

Held: No. On account of the non-registration, it cannot be considered a corporation, not even a corporation de facto. It
has therefore no personality separate from Jose M. Aruego; it cannot be sued independently.

In the case at bar, Aruego represented a non-existent entity and induced not only Albert but the court to believe in such
representation. He signed the contract as “President” of “University Publishing Co., Inc.,” stating that this was “a
corporation duly organized and existing under the laws of the Philippines”. “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.”

Aruego, acting as representative of such non-existent principal, was the real party to the contract sued upon, and thus
assumed such privileges and obligations and became personally liable for the contract entered into or for other acts
performed as such agent.

The Supreme Court likewise held that the doctrine of corporation by estoppel cannot be set up against Albert since it
was Aruego who had induced him to act upon his (Aruego’s) willful representation that University had been duly
organized and was existing under the law.
_______________________________________________________________________________________________

#32 LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
LIM REQUESTED PETER YAO TO ENGAGE WITH HIM IN COMMERCIAL FISHING WITH ANTONIO CHUA. THEY AGREED TO
PURCHASE FISHING BOATS BUT DECIDED TO BORROW MONEY TO LIM’S BROTHER, JESUS LIM, FOR LACK OF MONEY.
THEY AGAIN BORROWED MONEY TO PURCHASE FISHING NETS AND OTHER EQUIPMENT.
YAO AND CHUA, REPRESENTED THEMSELVES AS ACTING IN BEHALF OF OQFC (OCEAN QUEST FISHING CORP) AND
CONTRACTED WITH PHILIPPINE FISHING GEAR INDUSTRIES FOR THE PROCUREMENT OF THE SAME FOR 500,000 PHP.
THEY WERE UNABLE TO PAY. PFGI SUED THEM PERSONALLY ON THE BASIS THAT THE OQFC HAS NO JURIDICAL
PERSONALITY. LIM DENIED HAVING LIABILITY AS YAO AND CHUA ACTED WITHOUT HIS KNOWLEDGE AND CONSENT AND
THAT HE WAS NOT AWARE THAT YAO AND CHUA REPRESENTED THEMSELVES AS A CORPORATE ENTITY.
THE COURT HOWEVER FOUND LIM TO BE LIABLE FOR THE MANNER IN WHICH THEY ORGANIZED THEIR ENTERPRISE
CONSTITUTES A PARTNERSHIP AS REVEALED BY THEIR INTENTION TO PAY THE LOAN WITH PROCEEDS OF THE SALE OF
BOATS AND TO DIVIDE EQUALLY AMONG THEM EXCESS AND LOSS. LIM CANNOT ARGUE THAT CORPORATION BY
ESTOPPEL CAN ONLY BE IMPUTED TO YAO AND CHUA BECAUSE LIM BENEFITED FROM THE USE OF NETS FOUND IN HIS
BOATS, PROVEN TO BE A PARTNERSHIP ASSET.
FINALLY, THE THREE DECIDED TO FORM A CORPORATION. ALTHOUGH NOT ORGANIZED, THIS FACT ALONE DOES NOT
PRECLUDE THEIR LIABILITIES IN REPRESENTATION OF IT (OQFC) FOR IT IS CLEAR THAT THOSE ACTING ON BEHALF OF A
NON-EXISTENT CORPORATION OR ENTITY AND BENEFITED THEREBY ARE HELD LIABLE AS GENERAL PARTNERS (THUS,
THEY ARE OF UNLIMITED LIABILITY)
Corporation Law; Estoppel; Corporation by Estoppel Doctrine; Agency; Those who act or purport to act as the
representatives or agents of an ostensible corporate entity who is proven to be legally inexistent do so without
authority and at their own risk.—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; An unincorporated
association, which represents itself to be a corporation, will be estopped from denying its corporate capacity in a suit
against it by a third person who relies in good faith on such representation.—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.
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.—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.
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.—It is difficult to disagree with the RTC and the CA that Lim, Chua
and Yao decided to form a corporation. Although it was never legally formed for unknown reasons, this fact alone does
not preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel,
those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held liable
as general partners.
A person who has reaped the benefits of a contract entered into by persons with whom he previously had an existing
relationship is deemed to be part of said association and is covered by the scope of the doctrine of corporation by
estoppel. —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.
FACTS: It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing with him and one
Antonio Chua. The three agreed to purchase two fishing boats but since they do not have the money they borrowed
from one Jesus Lim (brother of Lim Tong Lim). They again borrowed money and they agreed to purchase fishing nets and
other fishing equipment. Now, Yao and Chua represented themselves as acting in behalf of “Ocean Quest Fishing
Corporation” (OQFC) they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of fishing nets
amounting to more than P500k.
They were however unable to pay PFGI and so they were sued in their own names because apparently OQFC is a non-
existent corporation. Chua admitted liability and asked for some time to pay. Yao waived his rights. Lim Tong Lim
however argued that he’s not liable because he was not aware that Chua and Yao represented themselves as a
corporation; that the two acted without his knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a
fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim. In
their Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the
sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the repair of
which were financed with borrowed money, fell under the term “common fund” under Article 1767. The contribution to
such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that
any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they
had indeed formed a partnership.
Lim Tong Lim cannot argue that the principle of corporation by estoppel can only be imputed to Yao and Chua.
Unquestionably, Lim Tong Lim benefited from the use of the nets found in his boats, the boat which has earlier been
proven to be an asset of the partnership. Lim, Chua and Yao decided to form a corporation. Although it was never
legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in
representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by
it, knowing it to be without valid existence, are held liable as general partners.