VALLEY GOLF & COUNTRY CLUB, INC., Petitioner, vs. ROSA O. VDA.

DE CARAM,
Respondent.

G.R. No. 158805 | April 16, 2009

FACTS:

Petitioner is a duly constituted non-stock, non-profit corporation which operates a golf course.
The members and their guests are entitled to play golf on the said course and avail of the
facilities and privilege. The shareholders are likewise assessed monthly membership dues.

Cong. Fermin Z. Caram, Jr., respondent’s husband, subscribed and paid in full 1 Golf Share of
the petitioner and was subsequently issued with a stock certificate which indicated a par value
of P9,000.00. It was alleged by the petitioner that Caram stopped paying his monthly dues and
that it has sent 5 letters to Caram concerning his delinquent account. The Golf Share was
subsequently sold at public auction for P25,000.00 after the BOD had authorized the sale and
the Notice of Auction Sale was published in the Philippine Daily Inquirer

Caram thereafter died and hiis wife initiated intestate proceedings before the RTC of
IloIlo. Unaware of the pending controversy over the Golf Share, the Caram family and
the RTC included the Golf Share as part of Caram’s estate. The RTC approved a project of
partition of Caram’s estate and the Golf Share was adjudicated to the wife, who paid the
corresponding estate tax due, including that on the golf Share.

It was only through a letter that the heirs of Caram learned of the sale of the Golf Share
following their inquiry with Valley Golf about the Golf Share. After a series of correspondence,
the Caram heirs were subsequently informed in a letter that they were entitled to the refund of
P11,066.52 out of the proceeds of the sale of the Golf Share, which amount had been in the
custody of the petitioner.

Caram’s wife filed an action for reconveyance of the Golf Share with damages before the SEC
against Valley Golf. The SEC Hearing Officer rendered a decision in favor of the wife, ordering
Valley Golf to convey ownership of the Golf Share, or in the alternative. to issue one fully paid
share of stock of Valley Golf of the same class as the Golf Share to the wife. Damages
totaling P90,000.00 were also awarded to the wife.

The SEC hearing officer ruled that under Section 67, paragraph 2 of the Corporation Code, a
share stock could only be deemed delinquent and sold in an extrajudicial sale at public auction
only upon the failure of the stockholder to pay the unpaid subscription or balance for the share.
However, the section could not have applied in Caram’s case since he had fully paid for the Golf
Share and he had been assessed not for the share itself but for his delinquent club dues.
Proceeding from the foregoing premises, the SEC hearing officer concluded that the auction
sale had no basis in law and was thus a nullity. The SEC en banc and the Court of Appeals
affirmed the hearing officer’s decision, and so the petitioner appealed before SC.

ISSUE:

WON a non-stock corporation seize and dispose of the membership share of a fully-paid
member on account of its unpaid debts to the corporation when it is authorized to do so
under the corporate by-laws but not by the Articles of Incorporation?

RULING:

The Supreme Court ruled that there is a specific provision under Title XI on Non-Stock
Corporations of the Corporation Code dealing with the termination of membership in a non-stock
corporation such as Valley Golf.

Section 91 of the Corporation Code provides:

SEC. 91. Termination of membership.—Membership shall be terminated in the manner

and for the causes provided in the articles of incorporation or the by-laws. Termination of
membership shall have the effect of extinguishing all rights of a member in the
corporation or in its property, unless otherwise provided in the articles of incorporation or
the by-laws. (Emphasis supplied)

A share can only be deemed delinquent and sold at public auction only upon the failure of the
stockholder to pay the unpaid subscription. Delinquency in monthly club dues was merely an
ordinary debt enforceable by judicial action in a civil case. A provision creating a lien upon
shares of stock for unpaid debts, liabilities, or assessments of stockholders to the corporation,
should be embodied in the Articles of Incorporation, and not merely in the by-laws. Moreover,
the by-laws of petitioner should have provided formal notice and hearing procedure
before a member’s share may be seized and sold.

The procedure for stock corporation’s recourse on unpaid subscription is not applicable
in member’s shares in a non-stock corporation.

SC proceeded to declare the sale as invalid. SC found that Valley Golf acted in bad faith when
it sent the final notice to Caram under the pretense they believed him to be still alive, when in
fact they had very well known that he had already died. The Court stated:
 Whatever the reason Caram was unable to respond to the earlier notices, the fact
remains that at the time of the final notice, Valley Golf knew that Caram, having died and
gone, would not be able to settle the obligation himself, yet they persisted in sending him
notice to provide a color of regularity to the resulting sale.

That reason alone, evocative as it is of the absence of substantial justice in the sale of the Golf
Share, is sufficient to nullify the sale and sustain the rulings of the SEC and the Court of
Appeals.

Moreover, the utter and appalling bad faith exhibited by Valley Golf in sending out the final
notice to Caram on the deliberate pretense that he was still alive could bring into operation
Articles 19, 20 and 21 under the Chapter on Human Relations of the Civil Code. These
provisions enunciate a general obligation under law for every person to act fairly and in good
faith towards one another. Non-stock corporations and its officers are not exempt from that
obligation.

CIR vs. THE CLUB FILIPINO, INC. DE CEBU

GR No. L-12719 | May 31, 1962 | Paredes, J.

FACTS: The Club Filipino, is a civic corporation organized under the laws of the Philippines with
an original authorized capital stock of P22,000, which was subsequently increased to P200,000
to operate and maintain a golf course, tennis, gymnasiums, bowling alleys, billiard tables and
pools, and all sorts of games not prohibited by general laws and general ordinances, and
develop and nurture sports of any kind and any denomination for recreation and healthy
training of its members and shareholders" (sec. 2, Escritura de Incorporacion (Deed of
Incorporation) del Club Filipino, Inc.). There is no provision either in the articles or in the by-laws
relative to dividends and their distribution, although it is covenanted that upon its dissolution, the
Club's remaining assets, after paying debts, shall be donated to a charitable Phil. Institution in
Cebu (Art. 27, Estatutos del (Statutes of the) Club).

The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from
the government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and
short orders to its members and their guests. The bar-restaurant was a necessary incident to
the operation of the club and its golf-course. The club is operated mainly with funds derived
from membership fees and dues. Whatever profits it had, were used to defray its overhead
expenses and to improve its golf-course. In 1951, as a result of a capital surplus, arising from
the re-valuation of its real properties, the value or price of which increased, the Club declared
stock dividends; but no actual cash dividends were distributed to the stockholders.
In 1952, a BIR agent discovered that the Club has never paid percentage tax on the gross
receipts of its bar and restaurant, although it secured licenses. In a letter, the Collector
assessed against and demanded from the Club P12,068.841 as fixed and percentage taxes,
surcharge and compromise penalty. Also, the Collector denied the Club’s request to cancel the
assessment.

On appeal, the CTA reversed the Collector and ruled that the Club is not liable for the assessed
tax liabilities of P12,068.84 allegedly due from it as a keeper of bar and restaurant as it is a non-
stock corporation. Hence, the Collector filed the instant petition for review.

ISSUE: WON the Club is a stock corporation

HELD: NO. It is a non-stock corporation.

The facts that the capital stock of the Club is divided into shares, does not detract from the
finding of the trial court that it is not engaged in the business of operator of bar and restaurant.
What is determinative of whether or not the Club is engaged in such business is its
object or purpose, as stated in its articles and by-laws. The actual purpose is not controlled
by the corporate form or by the commercial aspect of the business prosecuted, but may be
shown by extrinsic evidence, including the by-laws and the method of operation. From the
extrinsic evidence adduced, the CTA concluded that the Club is not engaged in the business as
a barkeeper and restaurateur.

For a stock corporation to exist, two requisites must be complied with:

1. a capital stock divided into shares and

2. an authority to distribute to the holders of such shares, dividends or allotments of the

surplus profits on the basis of the shares held (sec. 3, Act No. 1459).

Nowhere in its articles of incorporation or by-laws could be found an authority for the distribution
of its dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a stock
corporation, within the contemplation of the corpo law. The Club derived profit from the
operation of its bar and restaurant, but such fact does not necessarily convert it into a profit-
making enterprise. The bar and restaurant are necessary adjuncts of the Club to foster its
purposes and the profits derived therefrom are necessarily incidental to the primary object of
developing and cultivating sports for the healthful recreation and entertainment of the
stockholders and members. That a Club makes some profit, does not make it a profit-making
Club. As has been remarked a club should always strive, whenever possible, to have surplus
(Jesus Sacred Heart College v. CIR, 1954; CIR v. Sinco Educational Corp., 1956).

1P9, 599.07 as percentage tax on its gross receipts (tax years 1946-1951), P2,399.77 surcharge, P70 fixed tax (tax years 1946-1952, and P500
compromise penalty.
McArthur v. Times Printing Co. case brief summary
51 N.W. 216 (1892)

CASE SYNOPSIS

Defendant appealed a Hennepin County District Court (Minnesota) denial of its request for a
new trial on plaintiff's claims for damages for breach of an employment contract.

CASE FACTS
Plaintiff alleged that defendant contracted with him for a period of one year and that defendant
discharged him in violation of its contract. Defendant argued that plaintiff's employment was
from week to week and that he was discharged with good cause. Trial court found for plaintiff,
as the evidence showed that a promoter had made the contract on behalf of defendant while
defendant was contemplating organization of corporation. Evidence further showed that after
organization, defendant's board never took any formal action with regards to the contract, but
that all of its stockholders, directors, and officers knew of the contract and they retained plaintiff
without implementing any new contracts. The defendant appealed the decision.

DISCUSSION
The court affirmed judgment, holding that while defendant was not bound by the contract made
by its promoter before its organization, after its organization, it made the contract on its own by
acquiescing in plaintiff's employment by retaining him without other contracts.

CONCLUSION
Denial of defendant's request for a new trial on plaintiff's claims of breach of employment
contract affirmed. Court held while defendant was not bound by contracts made by promoters
before organization of corporation; after organization, it made the contract its own by
acquiescing in plaintiff's employment and retaining him without other contracts.

G.R. No. L-43350 December 23, 1937

CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-appellant,

vs.
TEODORO SANDIKO, defendant-appellee.

Arsenio P. Dizon for appellant.

Sumulong, Lavides and Sumulong for appellee.

LAUREL, J.:

FACTS:
 Manuel Tabora is the registered owner of four parcels of land. The four parcels were
mortgaged for loans and indebtedness. However, Tabora executed a public document (Exhibit
A) by virtue of which the four parcels of land owned by him was sold to the plaintiff company,
which at that time is still under the process of incorporation.

A year later, the BOD of said company adopted a resolution authorizing its president to
sell the four parcels of lands in question to Teodoro Sandiko. Exhibits B, C and D were
thereafter made and executed. Exhibit B is a deed of sale where the plaintiff sold, ceded and
transferred to the defendant the four parcels of land. Exhibit C is a promissory note drawn by
the defendant in favor of the plaintiff. Exhibit D is a deed of mortgage executed where the four
parcels of land were given a security for the payment of the promissory note. Defendant failed to
pay thus plaintiff filed a collection of sum of money in the Court of First Instance in Manila. The
latter rendered judgment absolving the defendant. Plaintiff has appealed to this court and makes
an assignment of various errors.

ISSUE:

WON the sale made by the plaintiff corporation is valid.

HELD:

The contract here was entered into not between Manuel Tabora and a non-existent corporation
but between the Manuel Tabora as owner of the four parcels of lands on the one hand and the
same Manuel Tabora, his wife and others, as mere promoters of a corporations on the other
hand. For reasons that are self-evident, these promoters could not have acted as agent for a
projected corporation since that which no legal existence could have no agent. 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, however, under the peculiar facts and
circumstances of the present the court declined to extend the doctrine of ratification which would
result in the commission of injustice or fraud to the candid and unwary. A corporation, until
organized, has no life and therefore no faculties. Cagayan Fishing Dev’t Corp could not and did
not acquire the four parcels of land sold by Tabora, it also follows that it did not possess any
resultant right to dispose of them by sale to the defendant, Teodoro Sandiko. The corporation
had no juridical personality to enter into a contract.

Corporations are creatures of the law, and can only come into existence in the manner
prescribed by law. It 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.
FERMIN CARAM, JR. and ROSE DE CARAM v. CA and ALBERTO V. ARELLANO

151 SCRA 372 (June 30, 1987)

CRUZ, J.

Topic: Corporate Entity, Disregarding the corporate entity

Facts:

1. The services of Barretto was requested to initiate the incorporation of Filipinas Orient
Airways (FOA).

2. 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.

3. The project study was then presented to the would-be incorporators and investors.

4. 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.

5. Arellano claims that he was not paid for his work on the project study.

6. Lower Court: Orders the Carams to jointly and severally pay Arellano P50,000.00 for the
preparation of the project study and his technical services that led to the organization of
the defendant corporation, plus P10,000.00 attorney’s fees

- It was upon the request of Barretto and Garcia that Arellano handled the preparation
of the project study which project study was presented to Caram so the latter was
convinced to invest in the proposed airlines.

- The project study was revised for purposes of presentation to financiers and the
banks. It was on the basis of this study that defendant corporation was actually
organized and rendered operational.

- Garcia and Caram, and Barretto became members of the Board and/or officers of
defendant corporation

- All the other defendants who were involved in the preparatory stages of the
incorporation must be liable

7. The petitioners claim that this order has no support in fact and law because they had no
contract whatsoever with the private respondent regarding the above-mentioned
services.
 8. Their position is that as mere subsequent investors in the corporation that was later
created, they should not be held solidarily liable with FOA, a separate juridical entity, and
with Barretto and Garcia (their co-defendants in the lower court) who were the ones who
requested the said services from Arellano.

Issue:

Whether or not petitioners themselves are also personally liable for such expenses and, if so, to
what extent? NO. The petitioners did not contract the services of Arellano. 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.

Ruling: GRANTED. Petitioners are not liable.

Held: The petitioners were not really involved in the initial steps that finally led to the
incorporation of FAO, which were being directed by Barretto as the main promoter. It was he
who was putting all the pieces together. 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. The petitioners were merely among the financiers whose interest was to be
invited and who were in fact persuaded, on the strength of the project study, to invest in the
proposed airline.

There was no showing that FAO 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, FAO should alone be liable for its
corporate acts as duly authorized by its officers and directors.

The petition is rather hazy and seems to be flawed by an ambiguous ambivalence. It is

unnecessary to examine at this time the rules on solidary obligations, which the parties-
needlessly, as it turns out have belabored unto death.

Philippine Trust Co. vs. Rivera

G.R. No. L-19761; January 29, 1923

FACTS:

Cooperative Naval Filipinas was incorporated under the Philippine laws. Mariano Rivera
was one of the incorporators. The AOI were registered in the Bureau of Commerce and
Industry. In the course of time, the corporation became insolvent and went into the hands of
Phil. Trust Co., as assignee in bankruptcy. The latter instituted an action to recover unpaid stock
subscription of defendant. Defendant insists the resolution that has been made on the reduction
of the capital, the reason why he did not fully pay the entire subscription.

ISSUE:

WON the reduction of the corporate capital by releasing the subscribers from payment of
their subscription is valid and proper.

HELD:

It is established doctrine that subscription to the capital of a corporation constitute a find

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. (Velasco vs. Poizat, 37 Phil., 802.) 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 an under the conditions prescribed by the
statute or the charter or the articles of incorporation. Moreover, strict compliance with the
statutory regulations is necessary

In the case at bar, therefore held that the resolution relied upon the defendant was
without effect and that the defendant was still liable for the unpaid balance of his subscription.

Marcus vs. RH Macy

74 N.E. 2d 228; 1947

FACTS: The Board of Directors gave notice to SH that among the matters to be acted upon in
its annual meeting would be a proposal to amend certificate of incorporation to add to the rights
of preferred stockholders, voting rights equal to those of common stockholders. Marcus
objected and demanded payment for the common stock owned by her.

ISSUE: WON Marcus can exercise her appraisal right.

HELD: mThe Court held that Marcus may invoke her appraisal right. The aggregate number of
shares having voting rights equal to those of common shares was substantially increased and
thereby the voting power of each common share outstanding prior to the meeting was altered or
limited by the resulting pro rata diminution of its potential worth as a factor in the management
of the corporate affairs. Considering that she held diminished voting power; that she notified the
corporation of her objection; that her shares were voted against the amendment—these were
sufficient to qualify her to invoke her statutory appraisal right.

Iglesia Evangelica Metodista En Las Islas Filipinas vs. Bishop Lazaro

G.R. No. 184088; July 6, 2010

FACTS;

IEMELIF is a corporation sole. It was registered and by-laws were created which
empowered the election of officers to manage the affairs of the organization. Although, the
petitioner remained a corporation sole on paper, it had always acted like a corporation
aggregate. The Consistory, IEMELIF’s BOD, together with the general membership change the
organizational structure from corporation sole to corporation aggregate, which was approved by
SEC. However, the corporate papers remained unaltered as a corporation sole.

About 28 years later, the issue reemerge. The SEC answered, this time, is that the
conversion was not properly carried out and documented and that it needed to amend its AOI
for that purpose. Acting on the advice, the Consistory resolved to convert but petitioner Rev.
Nestor Pineda in IEMELIF’s name did not support the conversion. Petitioners claim that a
complete shift from IEMELIF’s status as a corporation sole to a corporation aggregate required,
not just an amendment of the IEMELIF’s articles of incorporation, but a complete dissolution of
the existing corporation sole followed by a re-incorporation.

ISSUE:

WON a corporation sole may be converted into a corporation aggregate by mere

amendment of its articles of incorporation.

HELD:

A corporation may change its character as a corporation sole into a corporation

aggregate by mere amendment of its articles of incorporation without first going through the
process of dissolution.
 True, the Corporation Code provides no specific mechanism for amending the articles of
incorporation of a corporation sole. However, Section 109 of the Corporation Code allows the
application to religious corporations of the general provisions governing non-stock corporations.

For non-stock corporations, the power to amend its articles of incorporation lies in its
members. The code requires two-thirds of their votes for the approval of such an
amendment. So how will this requirement apply to a corporation sole that has technically but
one member (the head of the religious organization) who holds in his hands its broad corporate
powers over the properties, rights, and interests of his religious organization?

Although a non-stock corporation has a personality that is distinct from those of its
members who established it, its articles of incorporation cannot be amended solely through the
action of its board of trustees. The amendment needs the concurrence of at least two-thirds of
its membership. If such approval mechanism is made to operate in a corporation sole, its one
member in whom all the powers of the corporation technically belongs, needs to get the
concurrence of two-thirds of its membership. The one member, here the General
Superintendent, is but a trustee, according to Section 110 of the Corporation Code, of its
membership.

There is no point to dissolving the corporation sole of one member to enable the
corporation aggregate to emerge from it. Whether it is a non-stock corporation or a corporation
sole, the corporate being remains distinct from its members, whatever be their number. The
increase in the number of its corporate membership does not change the complexion of its
corporate responsibility to third parties. The one member, with the concurrence of two-thirds of
the membership of the organization for whom he acts as trustee, can self-will the
amendment. He can, with membership concurrence, increase the technical number of the
members of the corporation from “sole” or one to the greater number authorized by its amended
articles.

Armco Steel Corp. vs. SEC

G.R. No. L-54580; December 29, 1987

FACTS:

ARMCO Steel Corp. is a corporation organized in Ohio, USA, hereinafter called

ARMCO-OHIO. ARMCO Marsteel-Alloy Corporation was incorporated in the Philippines under
its original name Marsteel Alloy Company, Inc. but its name was changed to ARMCO-Marsteel
Alloy Corporation hereinafter called ARMCO-Marsteel, by amendment of its Articles of
Incorporation after the ARMCO-Ohio purchased 40% of its capital stock. Both said corporations
are engaged in the manufacture of steel products.
 On the other hand, ARMCO Steel Corporation was incorporated in the Philippines,
hereinafter called ARMCO-Philippines. A pertinent portion of its articles of incorporation
provides as among its purposes: "to contract, fabricate ... manufacture ... regarding pipelines,
steel frames ... ."

ARMCO-Ohio and ARMCO-Marsteel then filed a petition in the SEC to compel ARMCO-
Philippines to change its corporate name on the ground that it is very similar, if not exactly the
same as the name of one of the petitioners. SEC granted the petition. Respondent amended its
articles of incorporation by changing its name to "ARMCO structures, Inc." which was filed with
and approved by the SEC. Petitioners filed a comment alleging that the change of name of said
respondent was not done in good faith and is not in accordance with the order of the
Commission which was to take out ARMCO and substitute another word in lieu thereof in its
corporate name by amending the articles of incorporation.

ISSUE:

WON ARMCO-Philippines had substantially complied in good faith with said order and
said compliance had achieved the purpose of the order, by changing its corporate name with
the approval of SEC.

HELD:

NO. The said amendment in the corporate name of petitioner is not in substantial
compliance with the order. To repeat, the order was for the removal of the word "ARMCO" from
the corporate name of the petitioner which it failed to do. And even if this change of corporate
name was erroneously accepted and approved in the SEC it cannot thereby legalize nor change
what is clearly unauthorized if not contemptuous act of petitioner in securing the registration of a
new corporate name against the very previous order of the SEC. Certainly the said previous
order is not rendered functus oficio thereby. Had petitioner revealed at the time of the
registration of its amended corporate name that there was the said order, the registration of the
amended corporate name could not have been accepted and approved by the persons in-
charge of the registration. The actuations in this respect of petitioner are far from regular much
less in good faith.

Noted in fact, ARMCO STEEL-PHILIPPINES has not only an identical name but also a
similar line of business. People who are buying and using products bearing the trademark
"Armco" might be led to believe that such products are manufactured by the respondent, when
in fact, they might actually be produced by the petitioners. Thus, the goodwill that should grow
and inure to the benefit of petitioners could be impaired and prejudiced by the continued use of
the same term by the respondent.
P.C. Javier & Sons vs. CA

G.R. No. 129552; June 29, 2005

FACTS:

Petitioner applied with First Summa Bank for a loan accommodation under the Industrial
Guarantee Loan Fund (IGLF). The corporation through Pablo Javier was advised that its loan
application was approved and that the same shall be forwarded to the Central Bank for
processing. The Central Bank released the loan. To secure the loan, Javier executed chattel
mortgage in favor of the bank. In the meantime, the bank changed its named to PAIC Savings
and Mortgage Bank Inc. Thereafter, the corporation failed to pay; this prompted the bank to
move for the extrajudicial foreclosure of the mortgages. Petitioner filed an action to restrain the
extrajudicial foreclosure on the ground that First Summa Bank and PAIC Bank are separate
entities.

ISSUE:

WON the debtor should be formally notified of the corporate creditor’s change of name.

HELD:

NO. There is no such requirement under the law or any regulation ordering a bank that
changes its corporate name to formally notify all its debtors. This Court cannot impose on a
bank that changes its corporate name to notify a debtor of such change absent any law, circular
or regulation requiring it. Such act would be judicial legislation. The formal notification is,
therefore, discretionary on the bank. Unless there is a law, regulation or circular from the SEC
or BSP requiring the formal notification of all debtors of banks of any change in corporate name,
such notification remains to be a mere internal policy that banks may or may not adopt.

A change in the corporate name does not make a new corporation, whether effected by
a special act or under a general law. It has no effect on the identity of the corporation, or on its
property, rights, or liabilities. The corporation, upon such change in its name, is in no sense a
new corporation, nor the successor of the original corporation. It is the same corporation with a
different name, and its character is in no respect changed.

Young Auto Supply vs. CA

G.R. No. 104175; June 25, 1993

FACTS:

YASCO sold all their shares of stock in CMDC to George Roxas. The latter was able to
make a 50% downpayment of the purchase price in cash while the other half were made in
post-dated checks. Subsequently, the post-dated checks were dishonoured which prompted
YASCO to file an action for collection of sum of money in RTC of Cebu. Roxas failed to answer
hence he was declared in default. Without waiting for the resolution of the motion for lifting the
order of default, he filed a petition for certiorari in CA on the ground of improper venue.

ISSUE:

WON the venue was improperly laid.

HELD:

A corporation has no residence in the same sense in which this term is applied to a
natural person. But for practical purposes, a corporation is in a metaphysical sense a resident of
the place where its principal office is located as stated in the articles of incorporation. The
Corporation Code precisely requires each corporation to specify in its articles of incorporation
the "place where the principal office of the corporation is to be located which must be within the
Philippines." The purpose of this requirement is to fix the residence of a corporation in a definite
place, instead of allowing it to be ambulatory.

Actions cannot be filed against a corporation in any place where the corporation
maintains its branch offices. The Court ruled that to allow an action to be instituted in any place
where the corporation has branch offices, would create confusion and work untold
inconvenience to said entity. By the same token, a corporation cannot be allowed to file
personal actions in a place other than its principal place of business unless such a place is also
the residence of a co-plaintiff or a defendant.

With the finding that the residence of YASCO for purposes of venue is in Cebu City,
where its principal place of business is located, it becomes unnecessary to decide whether
Garcia is also a resident of Cebu City and whether Roxas was in estoppel from questioning the
choice of Cebu City as the venue. The decision of the Court of Appeals was set aside.

INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES, petitioner, v. COURT

OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and REFRACTORIES
CORPORATION OF THE PHILIPPINES, respondents.
Facts: Respondent Refractories Corporation of the Philippines (Refractories Corp) is a
corporation duly organized on 1976 engaged in the business of manufacturing, producing,
selling, exporting and otherwise dealing in any and all refractory bricks, its by-products and
derivatives.

Petitioner Industrial Refractories Corporation (Industrial Refractories) on the other hand,

was incorporated in 1979 originally under the name Synclaire Manufacturing Corporation. Its
amended Articles of Incorporation changed its corporate name. It is engaged in the business of
manufacture of all kinds of ceramics and other products.

Both companies are local suppliers of monolithic gunning mix. When respondent
Refractories Corp discovered that petitioner was using such corporate name, they filed before
the Securities and Exchange Commission a petition to compel petitioner to change its corporate
name on the ground that it is confusingly similar with that of petitioners such that the public may
be confused or deceived into believing that they are one and the same corporation.

On appeal, petitioner Industrial Refractories contend that there is no confusing similarity

between their corporate names, hence, the said complaint must be denied.

ISSUE: Whether or not there is a need for petitioner Industrial Refractories to change its
corporate name on the ground of confusing similarity with that of the respondent’s?

COURT RULING: Petitioner must change its corporate name. Confusing and deceptive
similarity of corporate names is prohibited under Section 18 of the Corporation Code. The policy
behind the prohibition is to avoid fraud upon the public that will have the occasion to deal with
the entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties
of administration and supervision over the corporation. Pursuant to the said law, the Revised
Guidelines in the Approval of Corporate and Partnership Names specifically requires that: (1)
corporate name shall not be identical, misleading or confusingly similar to one already
registered by another corporation with the Commission, and (2) if the proposed name is similar
to the name of a registered firm, the proposed name must contain at least one distinctive word
different from the name of the company already registered.

Further, as held in Philips Export B.V. v. Court of Appeals, to fall within the prohibition of
the law, two requisites must be proven, to wit: (1) that the complainant corporation acquired a
prior right over the use of such corporate name, and (2) the proposed name is either identical,
deceptively or confusingly similar to that of any existing corporation or to any other name
protected by law, or patently deceptive, confusing or contrary to existing law.

Moreover, as to the first requisite or the Priority of Adoption rule, the Court says that the
right to the exclusive use of a corporate name with the freedom from infringement by similarity is
determined by priority of adoption. In this case, respondent Refractories Corp was incorporated
in 1976 while petitioner Industrial Refractories, incorporated in 1979, only started using its name
when it amended its Articles of Incorporation in1985. Hence, being the prior registrant,
Refractories Corp has acquired the right to use ‘Refractories’ as part of its corporate name.
 Lastly, with respect to the second requisite, the Court stressed the fact that petitioner’s
corporate name is “Industrial Refractories Corporation of the Philippines”, while respondent is
“Refractories Corporation of the Philippines”. Obviously, both names contain the words:
‘refractories’, ‘corporation’ and ‘Philippines’. The only word that distinguishes the former from
the latter is the word ‘Industrial’, which merely identifies a corporation’s general field of activities
or organization

ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO HESUS, H.S.K. SA BANSANG PILIPINAS, INC
vs.
IGLESIA NG DIOS KAY CRISTO JESUS, HALIGI AT SUHAY NG KATOTOHANAN

G.R. No. 137592 December 12, 2001

FACTS: Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan, is a non-stock
religious society or corporation registered in 1936. Sometime in 1976, one Eliseo Soriano and several
other members of Respondent Corporation disassociated themselves from the latter and succeeded in
registering on March 30, 1977 a new non-stock religious society or corporation, named Iglesia ng Dios
Kay Kristo Hesus, Haligi at Saligan ng Katotohanan. On July 16, 1979, Respondent Corporation filed with
the SEC a petition to compel the petitioner to change its corporate name. On May 4, 1988, the SEC
rendered judgment in favor of respondent, ordering the petitioner to change its corporate name to
another name that is not similar or identical to any name already used by a corporation, partnership or
association registered with the Commission. No appeal was taken from said decision. It appears that
during the pendency of SEC Case, Soriano, et al., caused the registration on April 25, 1980 of Petitioner
Corporation, Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K, sa Bansang Pilipinas. On March
2, 1994, respondent corporation filed before the SEC a petition, praying that petitioner be compelled to
change its corporate name and be barred from using the same or similar name on the ground that the
same causes confusion among their members as well as the public. The SEC rendered a decision
ordering petitioner to change its corporate name. Petitioner then filed a petition for review with the CA.
On October 7, 1997, the CA rendered the assailed decision affirming the decision of the SEC. Petitioner's
motion for reconsideration was denied by the CA. Hence, this petition for review.

ISSUE: Whether or not petitioner’s corporate name is deceptively or confusingly similar to that of
petitioner.

RULING: Petitioner claims that it complied with the aforecited SEC guideline by adding not only two but
eight words to their registered name, to wit: "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.," which,
petitioner argues, effectively distinguished it from respondent corporation.

The additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc." in petitioner's name are, as
correctly observed by the SEC, merely descriptive of and also referring to the members, or kaanib, of
respondent who are likewise residing in the Philippines. These words can hardly serve as an effective
differentiating medium necessary to avoid confusion or difficulty in distinguishing petitioner from
respondent. This is especially so, since both petitioner and respondent corporations are using the same
acronym — H.S.K.; not to mention the fact that both are espousing religious beliefs and operating in the
same place. Parenthetically, it is well to mention that the acronym H.S.K. used by petitioner stands for
"Haligi at Saligan ng Katotohanan."

Then, too, the records reveal that in holding out their corporate name to the public, petitioner highlights
the dominant words "IGLESIA NG DIOS KAY KRISTO HESUS, HALIGI AT SALIGAN NG KATOTOHANAN,"
which is strikingly similar to respondent's corporate name, thus making it even more evident that the
additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.", are merely descriptive of and
pertaining to the members of respondent corporation.

Significantly, the only difference between the corporate names of petitioner and respondent are the
words SALIGAN and SUHAY. These words are synonymous — both mean ground, foundation or support.
Hence, this case is on all fours with Universal Mills Corporation v. Universal Textile Mills, Inc., where the
Court ruled that the corporate names Universal Mills Corporation and Universal Textile Mills, Inc., are
undisputably so similar that even under the test of "reasonable care and observation" confusion may
arise. 

Gamboa vs. Teves

G.R. No. 176579; June 28, 2011

This is a petition to nullify the sale of shares of stock of Philippine Telecommunications

Investment Corporation (PTIC) by the government of the Republic of the Philippines, acting
through the Inter-Agency Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc.
(MPAH), an affiliate of First Pacific Company Limited (First Pacific), a Hong Kong-based
investment management and holding company and a shareholder of the Philippine Long
Distance Telephone Company (PLDT).

The petitioner questioned the sale on the ground that it also involved an indirect sale of
12 million shares (or about 6.3 percent of the outstanding common shares) of PLDT owned by
PTIC to First Pacific. With this sale, First Pacific’s common shareholdings in PLDT increased
from 30.7 percent to 37 percent, thereby increasing the total common shareholdings of
foreigners in PLDT to about 81.47%. This, according to the petitioner, violates Section 11,
Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a
public utility to not more than 40%, thus:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least sixty per centum of whose
capital is owned by such citizens; x x x
ISSUE:

Does the term “capital” in Section 11, Article XII of the Constitution refer to the total
common shares only, or to the total outstanding capital stock (combined total of common and
non-voting preferred shares) of PLDT, a public utility?

HELD:

[The Court partly granted the petition and held that the term “capital” in Section 11,
Article XII of the Constitution refers only to shares of stock entitled to vote in the election of
directors of a public utility, i.e., to the total common shares in PLDT.]

Considering that common shares have voting rights which translate to control, as
opposed to preferred shares which usually have no voting rights, the term “capital” in Section
11, Article XII of the Constitution refers only to common shares. However, if the preferred
shares also have the right to vote in the election of directors, then the term “capital” shall include
such preferred shares because the right to participate in the control or management of the
corporation is exercised through the right to vote in the election of directors. In short, the term
“capital” in Section 11, Article XII of the Constitution refers only to shares of stock that can vote
in the election of directors.

To construe broadly the term “capital” as the total outstanding capital stock, including
both common and non-voting preferred shares, grossly contravenes the intent and letter of the
Constitution that the “State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos.” A broad definition unjustifiably disregards who owns
the all-important voting stock, which necessarily equates to control of the public utility.

Pioneer Insurance vs. CA

G.R. No. 84197; July 28, 1989

FACTS:

Jacob S. Lim is an owner-operator of Southern Airlines (SAL), a single proprietorship.

Japan Domestic Airlines (JDA) and Lim entered into a sales contract. Pioneer Insurance and
Surety Corp. as surety executed its surety bond in favor of JDA on behalf of its principal Lim.
Border Machinery and Heacy Equipment Co, Inc., Francisco and Modesto Cervantes, and
Constancio Maglana contributed funds for the transaction based on the misrepresentation of
Lim that they will form a new corporation to expand his business.
 Lim as SAL executed in favor of Pioneer a deed of chattel mortgage as security.
Restructuring of obligation to change the maturity was done twice without the knowledge of the
other defendants. Upon default on the payments, Pioneer paid for him and filed a petition for the
foreclosure of chattel mortgage as security. Maglana, Bormaheco and the Cervantes’s filed
cross-claims against Lim alleging that they were not privies to the contracts signed by Lim and,
by way of counterclaim, sought for damages for being exposed to litigation and for recovery of
the sums of money they advanced to Lim for the purchase of the aircrafts in question. After trial
on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed
Pioneer's complaint against all other defendants.

ISSUE:

WON failure of the respondents to incorporate automatically resulted to de facto

partnership.

HELD:

NO. Partnership inter se does not necessarily exist, for ordinarily persons cannot be
made to assume the relation of partners as between themselves, when their purpose is that no
partnership shall exist and it should be implied only when necessary to do justice between the
parties; thus, one who takes no part except to subscribe for stock in a proposed corporation
which is never legally formed does not become a partner with other subscribers who engage in
business under the name of the pretended corporation, so as to be liable as such in an action
for settlement of the alleged partnership and contribution.

The petitioner, in his answer, denied having received any amount from respondents
Bormaheco, the Cervantes’s and Maglana. It is therefore clear that the petitioner never had the
intention to form a corporation with the respondents despite his representations to them.
Applying therefore the principles of law, no de facto partnership was created among the parties
which would entitle the petitioner to a reimbursement of the supposed losses of the proposed
corporation.

Municipality of Malabang vs. Benito

G.R. No. L-28113; March 28, 1969

FACTS:
 Petitioner Balindong is the municipal mayor of Malabang, Lanao del Sur while
respondents are Mayor Benito and councilors of Municipality of Balabagan of the same
province. Balabagan (formerly part of Malabang) was created by Executive Order 386 of the
then President Carlos P. Garcia, out of barrios and sitios of the Malabang.

Citing Pelaez ruling that Republic Act 2370 (Barrio Charter Act), vested power to create
barrios in the provincial board, and Section 68 of the Administrative Code, insofar as it gives the
President the power to create municipalities, is unconstitutional. Petitioner sought to nullify E.O.
386 and restrain respondents from performing their official functions. Respondents argued that
Pelaez ruling did not apply because unlike the municipalities involved therein, the municipality
of Balabagan is at least a de facto corporation, having been organized under color of a statute
before this was declared unconstitutional (by Pelaez ruling), its officers having been either
elected or appointed, and the municipality itself having discharged its corporate functions for the
past five years preceding the institution of this action.

ISSUE:

WON a corporation organized under a statute subsequently declared void acquires

status as ‘de facto’ corporation.

HELD:

NO. A corporation organized under a statute subsequently declared invalid cannot

acquire the status of a ‘de facto’ corporation unless there is some other statute under which the
supposed corporation may be validly organized. Hence, in the case at bar, the mere fact that
the municipality was organized before the statute had been invalidated cannot conceivably
make it a ‘de facto’ corporation since there is no other valid statute to give color of authority to
its creation.

Hall vs. Piccio

G.R. No. L-2598; June 29, 1950

FACTS:
 Petitioners Arnold Hall, Bradley Hall and private respondents Fred Brown, Emma Brown,
Hipolita Chapman and Ceferino Abella signed and acknowledged the AOI of the Far Eastern
Lumber and Commercial Co., Inc. organized to engage in a general lumber business to carry on
as general contractors, operators and managers.

Immediately after the execution of the articles of incorporation, the corporation proceeded to do
business with the adoption of by-laws and the election of its officers. Then, the articles of
incorporation were filed in SEC for the issuance of the corresponding certificate of incorporation.

Pending action on the AOI, private respondents filed a civil case against the Halls
alleging among other things that Far Eastern Lumber and Commercial Co, was an unregistered
partnership and that they wished to have it dissolved because of bitter dissension among the
members, mismanagement and fraud by the managers and heavy financial losses. The
petitioners filed a Motion to Dismiss contesting the court’s jurisdiction and the sufficiency of the
cause of action but Judge Piccio ordered the dissolution of the company and appointed a
receiver.

ISSUE:

WON the court had jurisdiction to decree the dissolution of the company because it
being a de facto corporation, dissolution may only be ordered in a quo warranto proceeding in
accordance with Section 19.

HELD:

YES. The court had jurisdiction but Section 19 does not apply. It held that there was no
‘de facto’ corporation on the ground that the corporation cannot claim to be in ‘good faith’ to be a
corporation when it has not yet obtained its certificate of incorporation.

The immunity of collateral attack is granted to corporations “claiming in good faith to be

corporation under this act.” Such a claim is compatible with the existence of errors and
irregularities but not with a total or substantial disregard of the law. Unless there has been an
evident attempt to comply with the law, the claim to be a corporation “under this act” could not
be made “in good faith.”

Moreover, this is not a suit in which the corporation is a party. This is 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.
Cagayan Fishing vs. Sandiko

G.R. No. L-43350; December 23, 1937

FACTS:

Manuel Tabora is the registered owner of four parcels of land. The four parcels were
mortgaged for loans and indebtedness. However, Tabora executed a public document (Exhibit
A) by virtue of which the four parcels of land owned by him was sold to the plaintiff company,
which at that time is still under the process of incorporation.

A year later, the BOD of said company adopted a resolution authorizing its president to
sell the four parcels of lands in question to Teodoro Sandiko. Exhibits B, C and D were
thereafter made and executed. Exhibit B is a deed of sale where the plaintiff sold, ceded and
transferred to the defendant the four parcels of land. Exhibit C is a promissory note drawn by
the defendant in favor of the plaintiff. Exhibit D is a deed of mortgage executed where the four
parcels of land were given a security for the payment of the promissory note. Defendant failed to
pay thus plaintiff filed a collection of sum of money in the Court of First Instance in Manila. The
latter rendered judgment absolving the defendant. Plaintiff has appealed to this court and makes
an assignment of various errors.

ISSUE:

WON the sale made by the plaintiff corporation is valid.

HELD:

NO. The transfer was made almost five months before the incorporation of the
company. Although, 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. However 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 can not be denied that the plaintiff was not yet incorporated when it
entered into a contract of sale. 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. It 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.
Harill vs. Davis

168 F. 187; 1909

FACTS:

The constitutive documents were filed with the clerk of the Court of Appeals but not with
the clerk of court in the judicial district where the business was located. Arkansas law requires
filing in both offices.

ISSUE:

Was there ‘colorable’ compliance enough to give the supposed corporation at least the
status of a ‘de facto’ corporation?

HELD:

NO. Neither the hope, the belief, nor the statement by parties that they are incorporated,
nor the signing of the articles of incorporation which are not filed, where filing is requisite to
create the corporation, nor the use of the pretended franchise of the nonexistent corporation,
will constitute such a corporation de facto as will exempt those who actively and knowingly uses
name to incur legal obligations from their individual liability to pay them. There could be no
incorporation or color of it under the law until the articles were filed (requisites for valid
incorporation).

Chiang Kai Shek School vs. CA

G.R. No. L-58028; April 18, 1989

FACTS:

Fausta F. Oh reported for work at the Chiang Kai Shek School in Sorsogon on the first
week of July, 1968. She was told she had no assignment for the next semester. Oh was
shocked for she had been teaching in the school since1932 for a continuous period of almost 33
years. And now, for no apparent or given reason, this abrupt dismissal. She demanded
separation pay, social security benefits, salary differentials, maternity benefits and moral and
exemplary damages.

The original defendant was the Chiang Kai Shek School but when it filed a motion to
dismiss on the ground that it could not be sued, the complaint was amended. Certain officials of
the school were also impleaded to make them solidarily liable with the school. Court of First
Instance of Sorsogon dismissed the complaint. On appeal, its decision was set aside by the
respondent court, which held the school suable and liable while absolving the other defendants.

ISSUE:

WON a school that has not been incorporated may be sued by reason alone of its long
continued existence and recognition by the government.

HELD:

YES. Having been recognized by the government, it was under obligation to incorporate
under the Corporation Law within 90 days from such recognition. It appears that it had not done
so at the time the complaint was filed notwithstanding that it had been in existence even earlier
than 1932. The petitioner cannot now invoke its own non-compliance with the law to immunize it
from the private respondent's complaint.

There should also be no question that having contracted with the private respondent
every year for thirty two years and thus represented itself as possessed of juridical personality
to do so, the petitioner is now estopped from denying such personality to defeat her claim
against it. According to Article 1431 of the Civil Code, "through estoppel an admission or
representation is rendered conclusive upon the person making it and cannot be denied
or disproved as against the person relying on it."

Lim Tong Lim vs. Phil. Fishing Gear Industries

G.R. No. 136448; November 3, 1999

FACTS:

Chua and Yao entered into a contract for the purchase of fishing nets on behalf
of Ocean Quest Fishing Corp. from Phil Fishing Gear Industries. Chua and Yao claimed that
they were engaged in a business with Lim Tong Lim but who was not a signatory to the
agreement. They failed to pay thus PFGI filed collection suit against the three: Chua, Yao and
Lim as general partners because Ocean Quest is a non-existing corporation as shown by a
certificate from SEC. Lim filed for the lift of the Writ of Attachment but RTC maintained the writ
and ordered the sale of the nets. RTC maintains that there is partnership because of the
Compromise Agreement entered by them, although silent as to the nature of their obligations
but presumes that there is equal distribution of the profit and loss. CA affirmed.

ISSUE:

WON Lim may be regarded as a partner when the sole basis is the Compromise
Agreement and not considering the fact that he has not signed any transaction nor met any of
the representatives of the Phil. Fishing Gears.

HELD:

YES. There is partnership. It is clear in the factual findings that they have decided to
engage in a fishing business where they bought boats from the loan they got from J. Lim, who is
Lim’s brother. The partnership extended not only to the boats but also to the nets and the floats.

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 of
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
case of fixed assets; it could be an intangible like credit or industry. That the parties agreed that
any loss or profits from the sale and operation of the boats would be divided early among them
also shows that they had indeed formed a partnership.

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 person 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.

International Express Travel vs. CA

G.R. No. 119002; October 19, 2000

FACTS:

Express Travel wrote a letter to the Phil. Football Federation thru the president Henry
Kahn offering its services to the latter and Kahn accepted this. The federation consisting of
athletes and officials, went to the South East Asian Games in Malaysia and other trips to other
countries. Federation incurred expenses and made two partial payments. Kahn issued a
personal check as a partial payment then failed to pay thereafter. Express Travel sued Henry
Kahn in his personal capacity and as president and impleaded the federation as an alternative
defendant. Henry Kahn allege that there is no cause of action against him in his personal
capacity or official capacity and that he did not guarantee the payment and merely acted as an
agent. RTC ruled that Henry Kahn is personally liable and that there is no proof that the
federation has a corporate existence. CA reversed on the ground that Federation has juridical
existence.

ISSUE:

WON Federation has a juridical existence.

HELD:

NO. The basis of CA that RA 3135 Revised Charter of the Phil. Amateur Athletic
Federation and PD 604 that recognizes the juridical existence of National Sports Association is
not correct. Mere passage of these laws DOES NOT AUTOMATICALLY vest the associations a
CORPORATE STATUS. The State must give its consent: in the form of a special law of a
general enabling act. These laws merely recognized the existence of national sports
associations.

Henry Kahn shall be held liable for the unpaid obligations of the unincorporated
Federation. It is a settled rule that any 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.

Petitioner cannot be held estopped because the doctrine of corporation by estoppel is

mistakenly applied by the respondent court to the petitioner. The application of the doctrine
applies to a third party only when he tries to escape liability on a contract from which he has
benefited on the irrelevant ground of defective corporation. Petitioner is not trying to escape
liability but is the one claiming from the contract.