CORPO LAW | SET 2 | COMPILED DIGEST

B. FORMATION OF CORPORATIONS
1. Organizing the Corporation
a. Promoters
CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-appellant, vs. TEODORO SANDIKO,
G.R. No. L-43350 December 23, 1937
FACTS: Manuel Tabora obtained loans from PNB, and certain Severina Buzon. In order to secure payment, he executed
a real estate mortgage in favor of the said creditors over four parcels of land owned by him. Said loans were obtained
so that he might have the necessary funds with which to convert and develop them into fishery. He appeared to have
met with financial reverses. He formed a corporation composed of himself, his wife, and a few others.
On 31 May 1930, Tabora executed a public document entitled "Escritura de Transpaso de Propiedad Inmueble" (Exhibit
A) by virtue of which the four parcels of land owned by him was sold to the Cagayan Fishing Development Corp, said to
under process of incorporation, in consideration of one peso (P1) subject to the mortgages in favor of the Philippine
National Bank 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
the Philippine National Bank.
However, it was only on 22 October 1920 that the Cagayan Fishing submitted its article of incorporation with the
Bureau of Commerce and Industry. A year after the said date, the board of directors of the said company authorized its
president, Jose Ventura, to sell the four parcels of land to certain Teodoro Sandiko for P42k. A deed of sale was
executed before a notary public by the terms of which the plaintiff sold ceded and transferred to the defendant all its
right, titles, and interest in and to the four parcels of land described in transfer certificate in turn obligated himself to
shoulder the three mortgages hereinbefore referred to.
Sandiko failed to pay and so Cagayan Fishing filed a complaint against Sandiko before the CFI which only rendered a
decision absolving Sandiko. Cagayan Fishing appealed.
ISSUE: Whether or not Cagayan Fishing Development Corporation has validly transferred (thru a contract
of sale) the four parcels of land to Teodoro Sandiko.
RULING: NO. 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 (sec. 13, pars. 5 and 9, and sec. 14, Act No. 1459). 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
(secs. 6 et seq., Act. No. 1459). Although there is a presumption that all the requirements of law have been complied
with (sec. 334, par. 31 Code of Civil Procedure), in the case before us it cannot be denied that the plaintiff was not yet
incorporated when it entered into a contract of sale. The contract itself referred to the plaintiff as "una sociedad en
vias de incorporacion." 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.
Boiled down to its naked reality, 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 selfevident, these promoters could not have acted as agent for a projected corporation since that which no legal existence
could have no agent. 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 we decline to extend the doctrine of ratification which
would result in the commission of injustice or fraud to the candid and unwary.
RIZAL LIGHT & ICE CO., INC., petitioner, vs. THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC
SERVICE COMMISSION, respondents.
G.R. No. L-20993 September 28, 1968
FACTS: Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation with business address at Morong, Rizal. On
August 15, 1949, it was granted by the Commission a certificate of public convenience and necessity for the
installation, operation and maintenance of an electric light, heat and power service in the municipality of Morong,
Rizal. However, the said certificate was revoked due to Rizal Lights violation of the conditions of its certificate of public
convenience and the regulations of the Commission, and for its failure to comply with the directives to raise its service
voltage and maintain them within the limits prescribed in the Revised Order No. 1 of the Commission, and to acquire
and install a kilowattmeter to indcate the load in kilowatts at any particular time of the generating unit.
Meanwhile, on 10 September 1962, Morong Electric, having been granted a municipal franchise on May 6, 1962 by
respondent municipality to install, operate and maintain an electric heat, light and power service in said municipality
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 approved by the Provincial Board of Rizal on August 31, 1962 filed with the Commission an application for a
certificate of public convenience and necessity for said service. Rizal Light then sought the dismissal of the application
upon the ground that applicant Morong Electric had no legal personality when it filed its application on September 10,
1962, because its certificate of incorporation was issued by the Securities and Exchange Commission only on October
17, 1962.
ISSUE: Whether or not the franchise granted to Moring Electric was rendered invalid by the fact that it
had no corporate existence on the day the franchise was granted under its name.
RULING: NO. Rizal Lights contention that Morong Electric did not yet have a legal personality on May 6, 1962 when a
municipal franchise was granted to it is correct. The juridical personality and legal existence of Morong Electric began
only on October 17, 1962 when its certificate of incorporation was issued by the SEC. Before that date, or pending the
issuance of said certificate of incorporation, the incorporators cannot be considered as de facto corporation.
HOWEVER, fact that Morong Electric had no corporate existence on the day the franchise was granted in
its name does not render the franchise invalid, because later Morong Electric obtained its certificate of
incorporation and then accepted the franchise in accordance with the terms and conditions thereof.
While a franchise cannot take effect until the grantee corporation is organized, the franchise may, nevertheless, be
applied for before the company is fully organized. A grant of a street franchise is valid although the corporation is not
created until afterwards.
The incorporation of Morong Electric on October 17, 1962 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 EIectric.
**NOTE: 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.
FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, petitioners vs. THE HONORABLE COURT OF APPEALS and
ALBERTO V. ARELLANO, respondents.
G.R. No. L-48627 June 30, 1987
FACTS: Fermin Caram Jr. and Rosa De Caram (CARAMS) were ordered to jointly and severally pay Arellano the amount
of 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;
The CARAMS 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. 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 co-defendants in the lower court.
ISSUE: Whether or not CARAMS (petitioners) should be held personally liable with the Filipinas Orient
Airways.
RULING: NO. Petitioners were not really involved in the initial steps that finally led to the incorporation of the Filipinas
Orient Airways. Elsewhere in the decision, Barretto was described as "the moving spirit." The finding of the respondent
court is that the project study was undertaken by the private respondent at the request of Barretto and Garcia who,
upon its completion, presented it to the petitioners to induce them to invest in the proposed airline. The study could
have been presented to other prospective investors. 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.
CARAMS were not involved in the initial stages of the organization of the airline, which were being directed by Barretto
as the main promoter. It was he who was putting all the pieces together, so to speak. 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.
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.
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CARAMS 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, they 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.
b.

Subscription Contracts (Sections 60 and 72 of the Corporation Code)

NAZARIO TRILLANA, administrator-appellee, vs. QUEZON COLLEGE, INC., claimant-appellant.

G.R. No. L-5003 June 27, 1953
FACTS: On 1 June 1948, Damasa Crisostomo wrote a letter to Quezon College asking the latter to enter her
subscription to 200 shares of its capital stock and undertaking to enclose an initial payment and pay the balance in
accordance with the law and the rules and regulations of the Quezon College.
Damasa Crisostomo died on October 26, 1948. 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 Court of First Instance 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. This claim was opposed by the administrator of the estate, and the
Court of First Instance of Bulacan, after hearing issued an order dismissing the claim of the Quezon College, Inc. on the
ground that the subscription in question was neither registered in nor authorized by the Securities and Exchange
Commission. From this order the Quezon College, Inc. has appealed.
ISSUE: Whether or not Damasas subscription to Quezon College, Inc. had been successfully registered or
at least perfected.
RULING: There is nothing in the record to show that the Quezon College, Inc. accepted the term of payment
suggested by Damasa Crisostomo, or that if there was any acceptance the same came to her knowledge during her
lifetime. As the application of Damasa Crisostomo is obviously at variance with the terms evidenced in the form letter
issued by the Quezon College, Inc., there was absolute necessity on the part of the College to express its agreement to
Damasa's offer in order to bind the latter. Conversely, said acceptance was essential, because it would be unfair to
immediately obligate the Quezon College, Inc. under Damasa's promise to pay the price of the subscription after she
had caused fish to be caught. In other words, the relation between Damasa Crisostomo and the Quezon
College, Inc. had only thus reached the preliminary stage whereby the latter offered its stock for
subscription on the terms stated in the form letter, and Damasa applied for subscription fixing her own
plan of payment, a relation, in the absence as in the present case of acceptance by the Quezon College, Inc. of the
counter offer of Damasa Crisostomo, that had not ripened into an enforceable contract.

1. Purchase Agreement
BAYLA VS. SILANG TRAFFIC, CO.
Facts: Petitioners are individual who agreed and paid severally to the Respondent Corporation sums of money as
account of shares of stock. Petitioners further agreed to pay their shares in installments. However, upon failure to pay,
the Respondent automatically reverted in its favor the subscribed shares of stock and installments already paid by the
Petitioners. The latter instituted an action for the recovery of sums of money.
Issue: Whether the Contract between the parties is Sale or Subscription
Held: SALE. 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. The Agreement of the parties is entitledAgreement for Installment
Sale of Shares in the Silang Traffic Company, Inc. and it was entered on March 1935, long after the incorporation of
the respondent, which took place in 1927. The Court ruled that a subscription to stock in an existing corporation is, as
between the subscriber and the corporation, simply a contract of purchase and sale.
The lower courts erred in overlooking the distinction between subscription and purchase "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 stipulated
price."

3. Release from subscription obligation

VELASCO VS. POIZAT
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Facts: The Philippine Chemical Product Company was originally organized by several residents of Manila with a capital
of P50,000 divided into 50 shares. The Defendant Poizat was a stock holder therein and acted as treasurer and
manager. It appears however that Poizat was not able to give the full amount of his stock. 0n 1914, a meeting of the
board of the directors was held and two resolutions was made, (1) a proposal that the directors/shareholders should
make new subscription and (2) defendant Poizat, who was absent during the meeting, should be required to pay the
remaining subscription for which he was still indebted to the company.
Therafter, the Company went into voluntary insolvency and assigned Petitioner Velasco as the assignee. Velasco
instituted an action against Poizat for the recovery of the remaining subscription.
Issue: WON Respondent Poizat is deemed release in its subscription obligation
Held: NOPE. Section 36 of the Corporation Law clearly recognizes that 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.
Further, the Court ruled that when insolvency supervenes upon a corporation and the court assumes jurisdiction to
wind up, all unpaid stock subscriptions become payable on demand, and are at once recoverable in an action
instituted by the assignee or receiver appointed by the court. The doctrine is that when insolvency supervenes, all
unpaid subscriptions become at once due and enforceable.
The general doctrine is that the corporation has no legal capacity to release an original subscriber to
its capital stock from the obligation of paying for his shares, in whole or in part, . . . (10 Cyc., 450.)
PNB VS. BITULOK SAWMILL, INC
Facts: Petitioner-creditor Phil. National Bank extended loan to the Phil. Lumber Distributing Agency Inc. as capital for
its lumber industry. Thereafter, Petitioner was allowed to substitute the receiver of the Phil. Lumber Distributing
Agency Inc. By virtue of which, Petitioner instituted 9 actions against Respondents seeking for the recovery of the
balance of their stock subscriptions to the said agency. The Lower Court dismissed the action merely based on equity.
Issue: WON the Respondents are released from their subscription obligation
Held: NOPE. The Court relied on its own ruling in the leading case of Velasco v. Poizat, where it held: "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. Further, 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.
a. Generally
GOVERNMENT OF THE PHIL VS. MANILA RAILROAD
Facts: Petitioner filed a Petition in SC praying that a Writ be issued to compel Respondent Manila Railroad Company to
provide and equip the telegraph poles of said company. The petitioner relies upon Sec. 84 of Act No. 1459 which is the
General Corporation law. By virtue of which, according to the petitioner, the respondent 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.
On the other hand, respondent contends that Sec 84 of Act No. 1459 has been repealed by Act No. 1510 which is the
special charter of the Manila Railroad Company. Under the provisions of this Charter, the respondent may place four
wires only.
Issue: Whether Respondent is governed by its own special charter and not by general law

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Held: YES. Inasmuch as Act No. 1510 is the charter of Manila Railroad Company and constitute 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.
Section 84 of the Corporation Law (Act No. 1459) was intended to apply to all railways in the Philippine Islands which
did not have a special charter contract. Act No. 1510 applies only to respondent, 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. The special charter (Act No. 1510) had the effect of superseding the general
Corporation Law upon all matters covered by said special charter. Said Act, inasmuch as it contained a special
provision relating to the erection of telegraph and telephone poles, and the number of wires which the Government
might place thereon, superseded the general law upon that question.
The charter of a corporation is a contract between three parties: (a) it is a contract between the
state and the corporation to which the charter is granted; (b) it is a contact between the stockholders
and the state and (c) it is also a contract between the corporation and its stockholders.
Rural Bank of Salinas vs. CA, 210 SCRA 510 (1992)
FACTS: Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special Power of Attorney in
favor of his wife`, private respondent Melania Guerrero, giving and granting the latter full power and authority 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.
Pursuant to said Special Power of Attorney, private respondent Melania Guerrero, as Attorney-in-Fact, executed
a Deed of Assignment for 472 shares out of the 473 shares, in favor of private. 2 days before the death of Clemente
Guerrero, private respondent Melania Guerrero, pursuant to the same Special Power of Attorney, executed a Deed of
Assignment for the remaining 1 share of stock in favor of private respondent Francisco Guerrero, Sr.
Subsequently, private respondent Melania Guerrero presented to petitioner 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 G. Guerrero, and the issuance of new
stock certificates covering the transferred shares of stocks in the name of the new owners thereof. However, petitioner
Bank denied the request of respondent Melania Guerrero.
Private respondent Melania Guerrero filed with the Securities and Exchange Commission" an action
for mandamus against petitioners Rural Bank of Salinas, its President and Corporate Secretary.
Petitioners filed their Answer with counterclaim alleging the upon the death of Clemente G. Guerrero, 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 G. Guerrero.
Intervenor Maripol Guerrero (a legally adopted daughter, would result to deprivation of her rightful share in
the inheritance.), filed a complaint before the then CFI Rizal against private respondents for the annulment of the
Deeds of Assignment. Petitioners, on the other hand, filed a Motion to Dismiss and/or to Suspend Hearing of SEC Case
until after the question of whether the subject Deeds of Assignment are fictitious, void or simulated is resolved in Civil
Case. The SEC Hearing Officer denied said motion.
The SEC rendered a Decision granting the writ of Mandamus prayed for by the private respondents and
directing petitioners to cancel stock certificates of the Bank, all in the name of Clemente G. Guerrero, and to issue new
certificates in the names of private respondents, except Melania Guerrero. Granted rendered in favor of the petitioners
and against the respondents, directing the latter, particularly the corporate secretary of respondent Rural Bank of
Salinas, Inc., to register in the latter's Stock and Transfer Book the transfer of 473 shares.
On appeal, the SEC En Banc affirmed the decision of the Hearing Officer. Petitioner filed a petition for review with the
Court of Appeals but said Court likewise affirmed the decision of the SEC.
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ISSUE: Whether the Rural Bank of Salinas may refuse to register in the latter's Stock and Transfer Book
the transfer of 473 shares?

HELD: We rule in favor of the respondents.

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.
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 . . .
In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court interpreted Sec. 63 in his wise:
Said Section (Sec. 35 of Act 1459 [now Sec. 63 of the Corporation Code]) contemplates no restriction as to whom the
stocks may be transferred. It does not suggest that any discrimination may be created by the corporation in favor of,
or against a certain purchaser. The owner of shares, as owner of personal property, is at liberty, under said section to
dispose them in favor of whomever he pleases, without limitation in this respect, than the general provisions of
law. . . .
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.
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.

The right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing from his
ownership of the stocks. Thus: Whenever a corporation refuses to transfer and register stock in cases like
the present, mandamus will lie to compel the officers of the corporation to transfer said stock 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. 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.
For the petitioner Rural Bank of Salinas to refuse registration of the transferred shares in its stock and transfer book,
which duty is ministerial on its part, is to render nugatory and ineffectual the spirit and intent of Section 63 of the
Corporation Code. Thus, respondent Court of Appeals did not err in upholding the Decision of respondent SEC affirming
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the Decision of its Hearing Officer directing the registration of the 473 shares in the stock and transfer book in the
names of private respondents. At all events, the registration is without prejudice to the proceedings in court to
determine the validity of the Deeds of Assignment of the shares of stock in question.

b. Articles of Incorporation
1. Procedure and Documentary Requirements
- As to contents and form (Section 14 and 15)
- As to corporate name (Section 18)
Red Line Transit vs. Rural Transit, 60 PHIL 549 (1934)
FACTS: The Rural Transit Company, Ltd., a Philippine corporation, filed with the Public Company Service Commission
an application in which it is stated in substance that it is the holder of a certificate or public convenience to operate a
passenger bus service between Manila and Tuguegarao; that it is the only operator of direct service between said
points and the present authorized schedule of only one trip daily is not sufficient; that it will be also to the public
convenience to grant the applicant a certificate for a new service between Tuguegarao and Ilagan.
The appellant, Red Line Transportation Company, filed an opposition to the said application alleging in substance that
as to the service between Tuguegarao and Ilagan, the oppositor already holds a certificate of public convenience and is
rendering adequate and satisfactory service; that the granting of the application of the Rural Transit Company, Ltd.,
would not serve public convenience but would constitute a ruinous competition for the oppositor over said route.
The commission approved the application of the Rural Transit Company, Ltd., and ordered that the certificate of public
convenience applied for be "issued to the applicant Rural Transit Company, Ltd.," 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."
The oppositor Red Line Transportation Company filed a motion for rehearing and reconsideration in which it
called the commission's attention to the fact that there was pending in the Court of First Instance of Manila an
application for the voluntary dissolution of the corporation, Rural Transit Company, Ltd. Court of First Instance of
Manila, decreeing the dissolution of the Rural Transit Company, Ltd.
The Public Service Commission raised an issue 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.
The Bachrach Motor Company is the principal stockholder. The real applicant in this case is the Rural Transit
Company, Ltd. However, the Bachrach Motor Company, Inc., doing business under the name of the Rural Transit
Company, Ltd.
However, the application was made in the name of one party but the real owner is another party.
The Bachrach Motor Company, Inc., entered no appearance and ostensibly took no part in the hearing of the
application of the Rural Transit Company, Ltd. The court authorize the Bachrach Motor Co., Inc., to continue using the
name of "Rural Transit Co., Ltd.," as its trade name in all the applications, motions or other petitions to be filed in this
commission in connection with said business and that this authority is given retroactive effect as of the date, of filing
of the application.

ISSUE: Whether the Public Service Commission committed an error in granting respondents application
despite the fact that Bachrach Motor Co assumed the name of respondent.

HELD: Yes. Decision of Public Service Commission was set aside.

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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.
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." 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. The policy of the law expressed in our corporation statute and the Code
of Commerce is clearly against such a practice.
The order of the commission, authorizing the Bachrach Motor Co., Incorporated, to assume the name of the Rural
Transit Co., Ltd. likewise in corporated, as its trade name being void, and accepting the order granting a certificate of
public convenience to the applicant Rural Transit Co., Ltd., 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.

Philippine Insurance vs. Hartigan, 34 SCRA 252 (1970)

FACTS: In 1953, The plaintiff Yek Tong Lin Fire and Marine Insurance Co. was incorporated. Thereafter, in 1961 the
Board of Directors issued a Certificate changing its name to Philippine First Insurance Company (PFIC).
An Indemnity Agreement signed by Yek Tong Lin and the defendant Maria Carmen Hartigan. Yek Tong Lin amended its
Articles of Incorporation, changed its name to PFIC. The plaintiff tried to collect from the defendants on the Indemnity
Agreement.

The defendants argued that they are not liable to PFIC because of the following:
They signed the Indemnity Agreement in favor of Yek Tong Lin, not PFIC.
There is no privity of contract between the PFIC and the defendants and hence, PFIC has no cause of action against
them.
They cannot be liable on the indemnity agreement as the promissory note still subsists.
The CFI Manila rendered decision:
Change of name dissolved the original corporation by process of dissolution not authorized under the Corporation Law.
While the Corporation Law authorizes the amendment of the AI, it does not include the corporate name as one of those
which may be amended.
Once a corporation is organized, it shall continue to exist under its corporate name for the lifetime of its corporate
existence fixed in its AI, unless sooner dissolved.
The power to change its corporate name is not one of the general powers conferred on corporations.
Change of name is dubious. Even if valid, the original corporation had no more power to enter into any agreement
when it signed the indemnity agreement.
There is no evidence showing that PFIC was subrogated to the rights of the original corporation.
Change of name is against public policy and may be effected only by express authority of law.
ISSUE: Whether a Philippine corporation change its name and still retain its original personality and
individuality as such?
HELD: The Corporation Law requires to be stated is the corporate name, it is only but one among many matters
equally if not more important to be stated therein.
The Corporation law explicitly permits the Articles of Incorporation to be amended.
There is no prohibition against the change of name.
If legislature had intended to enjoin corporations from changing names, it would have expressly stated so.
Indeed, the name of a corporation is peculiarly important as necessary to the very existence of a corporation. It is the
name by which it is to sue and be sued and do all legal acts.
The name of a corporation designates the corporation in the same manner that 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.
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Change of name is not against public policy
What was held contrary to public policy was the use by one corporation of the name of another corporation as its trade
name.

Change of name does not result in its dissolution

An authorized change in the name of a corporation has no more effect upon its identity as a corporation than a change
of name of a natural person has upon his identity. It does not affect the rights of the corporation or lessen or add to its
obligations.
The corporation, upon such a 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.

PFIC validly entered into the agreement

The mere certification of the Board of DIrectors changing the name of the corporation on March 8, 1961 did not
automatically change the name of the corporation. It had to follow the procedure required under the law.
PFIC rightly acted in its old name when, on May 15, 1961, it entered into the indemnity agreement.
WHEREFORE, judgment of the lower court is reversed, and this case is remanded to the trial court for further
proceedings consistent herewith With costs against appellees.
Universal Mills vs. Universal Textile, 78 SCRA 62 (1977)
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.
The immediate cause of this present complaint, however, was the occurrence of a fire which gutted respondent's
spinning mills in Pasig, Rizal. Petitioner alleged that as a result of this fire and because of the similarity of respondent's
name to that of herein complainant, the news items appearing in the various metropolitan newspapers carrying
reports on the fire created uncertainty and confusion among its bankers, friends, stockholders and customers
prompting petitioner to make announcements, clarifying the real Identity of the corporation whose property was
burned. Petitioner presented documentary and testimonial evidence in support of this allegation.
On the other hand, respondent's position is that the names of the two corporations are not similar and even if there be
some similarity, it is not confusing or deceptive; that the only reason that respondent changed its name was because it
expanded its business to include the manufacture of fabrics of all kinds; and that the word 'textile' in petitioner's name
is dominant and prominent enough to distinguish the two. It further argues that petitioner failed to present evidence of
confusion or deception in the ordinary course of business; that the only supposed confusion proved by complainant
arose out of an extraordinary occurrence a disastrous fire.
The SEC granted UTMIs petition. UMC however assailed the order of the SEC as it averred that their tradename is not
deceptive; that UTMIs 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. Under the circumstances, it appears necessary to enjoin the respondent
Universal Mills Corporation from further using its present corporate name. The confusion is not only apparent, but
possible. It does not matter that the instance of confusion between the two corporate names was occasioned only by a
fire or an extraordinary occurrence. It is precisely the duty of this Commission to prevent such confusion at all times
and under all circumstances not only for the purpose of protecting the corporations involved but more so for the
protection of the public.
In today's modern business life where people go by tradenames and corporate images, the corporate name becomes
the more important. The Commission cannot close its eyes to the fact that usually it is the sound of all the other words
composing the names of business corporations that sticks to the mind of those who deal with them. The word "textile"
in Universal Textile Mills, Inc.' can not possibly assure the exclusion of all other entities with similar names from the
mind of the public especially so, if the business they are engaged in are the same, like in the instant case.
It is obvious that the matter at issue is within the competence of the Securities and Exchange Commission to resolve in
the first instance in the exercise of the jurisdiction it used to possess under Commonwealth Act 287 as amended by
Republic Act 1055 to administer the application and enforcement of all laws affecting domestic corporations and
associations, reserving to the courts only conflicts of judicial nature.
Clearly, it has rational basis. 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, 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.
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
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FACTS: Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (Church of God in Christ Jesus,
the Pillar and Ground of Truth), 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. Respondent filed with SEC a petition to compel the Iglesia ng Dios
Kay Kristo Hesus, Haligi at Saligan ng Katotohanan to change its corporate name.. During its pendency, 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. The acronym H.S.K. stands for Haligi at Saligan ng Katotohanan. Respondent filed another
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. SEC favored
respondents. SEC En Banc and CA affirmed.
ISSUE: Whether there was a failure to consider and properly apply the exceptions established by
jurisprudence in the application of section 18 of the corporation code to the instant case
HELD: NA! At any rate, the SEC has the authority to de-register at all times and under all circumstances corporate
names which in its estimation are likely to spawn confusion. It is the duty of the SEC to prevent confusion in the use of
corporate names not only for the protection of the corporations involved but more so for the protection of the public.
Section 18 of the Corporation Code provides:
Corporate Name. --- No corporate name may be allowed by the Securities and Exchange Commission if the proposed
name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or is contrary to existing laws. When a change in the corporate
name is approved, the Commission shall issue an amended certificate of incorporation under the amended name.
Corollary thereto, the pertinent portion of the SEC Guidelines on Corporate Names states:
(d) If the proposed name contains a word similar to a word already used as part of the firm name or style of a
registered company, the proposed name must contain two other words different from the name of the company
already registered;
Parties organizing a corporation must choose a name at their peril; and the use of a name similar to one adopted
by another corporation, whether a business or a nonprofit organization, if misleading or likely to injure in the exercise
of its corporate functions, regardless of intent, may be prevented by the corporation having a prior right, by a suit for
injunction against the new corporation to prevent the use of the name.

2. As to purpose (Section 14 [2])

UY SIULIONG, MARIANO LIMJAP, GACU UNG JIENG, EDILBERTO CALIXTO and UY CHO YEE vs. THE
DIRECTOR OF COMMERCE AND INDUSTRY
FACTS: Petitioners had been associated together as partners, which partnership was known as "mercantil regular
colectiva, under the style and firm name of "Siuliong y Cia. They desired to dissolve said partnership and to form a
corporation composed of the same persons as incorporators, to be known as "Siulong y Compaia, Incorporada.
Puepose: (a) to acquire the business of the partnership theretofore known as Siuliong & Co., and (b) to continue said
business with some of its objects or purposes. However, it was found upon an examination of the purposes
enumerated in the proposed articles of incorporation of "Siuliong y Cia., Inc.," that some of the purposes of the original
partnership of "Siuliong y Cia." have been omitted. Respondent argued; (a) 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; (b) that it permitted the petitioners to engage in the banking business, and (c) to deal in real estate, in
violation of the Act of Congress of July 1, 1902.

ISSUE: Whether a corporation organized for commercial purposes in the Philippine Islands can be
organized for more than one purpose.

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HELD: After careful scrutiny, it was found 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.

The court wasfully persuaded that all of the power and authority included in the articles of incorporation of "Siuliong y
Cia., Inc.," 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.

3. As to principal office (Section 14 [3])

CLAVECILLIA RADIO SYSTEM, vs. HON. AGUSTIN ANTILLON, as City Judge of the Municipal Court of
Cagayan de Oro City and NEW CAGAYAN GROCERY,
FACTS: New Cagayan Grocery filed a complaint against Clavecillia Radio System. On the other hand, Clavecillia prayed
in its petition that Judge, Honorable Agustin Antillon, be enjoined from further proceeding with the case on the ground
of improper venue. 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. Clavecillia contends that the suit against it should be filed in Manila where it
holds its principal office.
ISSUE: Whether the venue where the case be filed is in Manila
HELD: 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 (See Alcantara vs. Secretary of the Interior, 61 Phil. 459; Evangelists vs. Santos,
86 Phil. 387). 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.
4. As to Corporate Term (Section 11)
ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC., vs. SECURITIES & EXCHANGE
COMMISSION,
FACTS: Alhambra was duly incorporated under Philippine laws on January 15, 1912. By its corporate articles it was to
exist for fifty (50) years from incorporation. Its term of existence expired on January 15, 1962. On that date, it ceased
transacting business, entered into a state of liquidation. Thereafter, a new corporation. Alhambra Industries, Inc.
was formed to carry on the business of Alhambra. Within Alhambra's three-year statutory period for liquidation Republic Act 3531 was enacted into law. 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. Alahambra board extend its corporate life for an additional fifty years, or a total of 100
years from its incorporation.
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SEC, however, returned said amended articles of incorporation to Alhambra's counsel with the ruling that Republic Act
3531 "which took effect only on June 20, 1963, cannot be availed of by the said corporation, for the reason that its
term of existence had already expired when the said law took effect in short, said law has no retroactive effect."
ISSUE: Whether the corporates term may be extended after it has already been dissolved
HELD: No. SEC. 77. Every corporation whose charter expires by its own limitation or is annulled by forfeiture or
otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be
continued as a body corporate for three years after the time when it would have been so dissolved, for the purpose of
prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of
and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it
was established.
Plain from the language of the provision is its meaning: continuance of a "dissolved" corporation as a body corporate
for three years has for its purpose the final closure of its affairs, and no other; the corporation is specifically enjoined
from "continuing the business for which it was established". The liquidation of the corporation's affairs set forth in
Section 77 became necessary precisely because its life had ended. For this reason alone, the corporate existence and
juridical personality of that corporation to do business may no longer be extended.

The moment a corporation's right to exist as an "artificial person" ceases, its corporate powers are terminated "just as
the powers of a natural person to take part in mundane affairs cease to exist upon his death. There is nothing left but
to conduct, as it were, the settlement of the estate of a deceased juridical person.

Republic Act 3531, amending Section 18 of the Corporation Law, is silent, it is true, as to when such act of extension
may be made. But even with a superficial knowledge of corporate principles, it does not take much effort to reach a
correct conclusion. For, implicit in Section 77 heretofore quoted is that the privilege given toprolong corporate life
under the amendment must be exercised before the expiry of the term fixed in the articles of incorporation.

Silence of the law on the matter is not hard to understand. Specificity is not really necessary. The authority to prolong
corporate life was inserted by Republic Act 3531 into a section of the law that deals with the power of a corporation
to amend its articles of incorporation. (For, the manner of prolongation is through an amendment of the articles.) And
it should be clearly evident that under Section 77 no corporation in a state of liquidation can act in any way, much
less amend its articles, "for the purpose of continuing the business for which it was established".
All these dilute Alhambra's position that it could revivify its corporate life simply because when it attempted to do so,
Alhambra was still in the process of liquidation. It is surely impermissible for us to stretch the law that merely
empowers a corporation to act in liquidation to inject therein the power to extend its corporate existence.

BENGUET CONSOLIDATED MINING CO., Petitioner, vs. MARIANO PINEDA, in his capacity as Securities and
Exchange Commissioner, Respondent. CONSOLIDATED MINES, INC., Intervenor.
FACTS: Benguet Co was organized on June 24,1903, as a sociedad anonima under the Spanish Code of Commerce in
1886. The articles of association expressly provided that it was organized for a term of fifty (50) years. In 1906, the
governing Philippine Commission enacted Act 1459, commonly known as the Corporation Law, it took effect on April 1,
1906. Said law became the general law for Corporations.
As the expiration of its original 50 year term of existence approached, the Board of Directors of Benguet
adopted in 1946 a resolution to extend its life for another 50 years from July 3, 1946 and submitted it for registration
to the Respondent Securities and Exchange Commissioner. Upon advice of the Secretary of Justice, such extension was
contrary to law, the registration was denied. The matter was dropped, allegedly because the stockholders of Benguet
did not approve of the Directors action.
In 1953, the shareholders of Benguet adopted a resolution empowering the Director to effectuate the
extension of the Companys business life for not less than 20 and not more than 50 years, and this by amending to the
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Articles of Association or Charter of this Company. The 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 Laws 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 Benguet shall be allowed to extend its life as a corporation.
RULING: HINDI NA!!
Sustaining the opinions of the Securities and Exchange Commissioner and of the Secretary of Justice, the court ruled
that:
(1) 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 No. 1459) in 1906;
(2) The 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;
(3) A sociedad anonima, existing before the Corporation Law, that continues to do business as such for a reasonable
time after its enactments, is deemed to have made its election and may not subsequently claim to reform into a
corporation under section 75 of Act No. 1459.
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.
8. Grounds for Disapproval (Section 17)
NORBERTO ASUNCION, ET AL., vs. MANUEL DE YRIARTE
FACTS: The petitioners as proposed incorporators began an action in the CFI of Manila to compel the chief of the
division of archives to receive and register their proposed articles of incorporation and to do any and all acts necessary
for the complete incorporation of the persons named in the articles. The court below 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 petitioners argue that the duties of the defendant are purely ministerial and that he has no authority to pass upon
the lawfulness of the object for which the incorporators propose to organize. No authorities are cited to support this
proposition and we are of the opinion that it is not sound.
The defendant, on the other hand averred that he refused to file the articles of incorporation on 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 qualified to be registered. To wit, the purpose of the proposed corporation: to make of the barrio of Pulo
or San Miguel a corporation which will become the owner of and have the right to control and administer any property
belonging to the municipality of Pasig found within the limits of that barrio.
ISSUE: Whether the refusal of the chief of the division of archives to register the articles of incorporation
is valid.
RULING: YES. The object of the proposed corporation, as appears from the articles offered for registration, is to make
of the barrio of Pulo or San Miguel a corporation which will become the owner of and have the right to control and
administer any property belonging to the municipality of Pasig found within the limits of that barrio. This clearly
cannot be permitted. Otherwise municipalities as now established by law could be deprived of the property which
they now own and administer. Each barrio of the municipality would become under the scheme proposed, a separate
corporation, would take over the ownership, administration, and control of that portion of the municipal territory within
its limits. This would disrupt, in a sense, the municipalities of the Islands by dividing them into a series of smaller
municipalities entirely independent of the original municipality.

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What the law does not permit cannot be obtained by indirection. The object of the proposed corporation is clearly
repugnant to the provisions of the Municipal Code and the governments of municipalities as they have been organized
thereunder. (Act No. 82, Philippine Commission.)
** NOTE: Just in case na magtanong si Atty Cabras about the duty of the chief: The chief of the division of archives, on
behalf of the division, has 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. **

c.

By-Laws

LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC. vs. HON. COURT OF APPEALS, HOME
INSURANCE AND GUARANTY CORPORATION, EMDEN ENCARNACION and HORATIO AYCARDO, .
FACTS: LGVHAI was organized on February 8, 1983 as the association of homeowners and residents of the Loyola
Grand Villas. It was registered with the Home Financing Corporation, the predecessor of herein respondent HIGC, as
the sole homeowners' organization in the said subdivision. For unknown reasons, however, LGVHAI did not file its
corporate by-laws.
Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They failed to do so. In July 1989, when
Soliven inquired about the status of LGVHAI, Atty. Joaquin A. Bautista, the head of the legal department of the HIGC,
informed him that LGVHAI had been automatically dissolved for two reasons. First, it did not submit its by-laws within
the period required by the Corporation Code and, second, there was non-user of corporate charter because HIGC had
not received any report on the association's activities. Apparently a new association of homeowners of the Loyola
Grand Villas was established because LGVHAI has allegedly been dissolved.
These discoveries prompted the officers of the LGVHAI to lodge a complaint with the HIGC. They questioned the
revocation of LGVHAI's certificate of registration and its dissolution without due notice and hearing.
ISSUE: Whether the failure of a corporation to file its by-laws within one month from the date of its
incorporation, as mandated by Section 46 of the Corporation Code, result in its automatic dissolution.
RULING: NO! Under Sec. 46. Of Corporation Code: Adoption of by-laws. - Every corporation formed under this Code,
must within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the
Securities and Exchange Commission, adopt a code of by-laws for its government not inconsistent with this Code
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 by-laws even prior to incorporation. This provision in the
same section of the Code rules out mandatory compliance with the requirement of filing the by-laws 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 by-laws within that period does not imply the demise of the
corporation.
By-laws 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 by-laws 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, by-laws 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 by-laws, 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. (Italics supplied.)
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DUE PROCESS: 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 by-laws 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.
PMI COLLEGES, vs. THE NATIONAL LABOR RELATIONS COMMISSION and ALEJANDRO GA LVA N,
FACTS: On July 7, 1991, PMI colleges, an educational institution offering courses on basic seaman's training and other
marine-related courses, hired Galvan as contractual instructor. Galvan handled marine engineering classes.
For some reasons, Galvan stopped receiving payment for the succeeding rendition of services. This claim of nonpayment was embodied in a letter, written by PMIs Acting Director, Casimiro A. Aguinaldo, addressed to its President,
Atty. Santiago Pastor, calling attention to and appealing for the early approval and release of the salaries of its
instructors including that of Galvan .
Galvans claims were denied by PMI colleges. Later in the proceedings below, PMI colleges manifested that Mr.
Tomas G. Cloma, Jr., a member of the PMIs Board of Trustees wrote a letter 5 to the Chairman of the Board, clarifying
the case of Galvan and stating therein, that under PMIs by-laws only the Chairman is authorized to sign any
contract and that Galvan, in any event, failed to submit documents on the alleged shipyard and plant visits in
Cavite Naval Base. (Dami nila pinagsasabi pero ito lang yon. Hehe: or in simpler terms, the PMI contends that Galvan
cannot produce any contract proving his rendered services and even if he presented one, it wouldnt be valid because
it was not signed by the Chairman of the Board since it is required by their corp by-laws that it must be signed by the
latter).
ISSUE: Whether the contract of employment of Galvan valid even if the signatory therein was not the
Chairman of the Board.
RULING: YES. Petitioner places so much emphasis on its argument that private respondent did not produce a copy of
the contract pursuant to which he rendered services. This argument is, of course, puerile. The absence of such copy
does not in any manner negate the existence of a contract of employment since (C)ontracts shall be obligatory, in
whatever form they have been entered into, provided all the essential requisites for their validity are present. The
only exception to this rule is when the law requires that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way. However, there is no requirement under the law that the
contract of employment of the kind entered into by petitioner with private respondent should be in any particular form.
While it may have been desirable for private respondent to have produced a copy of his contract if one really exists,
but the absence thereof, in any case, does not militate against his claims.
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 petitioners bylaws. 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. No proof appears on record that private respondent ever knew anything about
the provisions of said by-laws. 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.
Pena vs. CA, 193 SCRA 7117 (1991)
Facts: Spouses Yap sought to recover the possession of the lots from Pea. The latter countered that she is now the
legitimate owner of the subject lands for having purchased the same in a foreclosure proceeding instituted by the DBP
against PAMBUSCO and no valid redemption having been effected within the period provided by law.
The defense was that since the deed of assignment executed by PAMBUSCO in favor of Enriquez was void ab initio for
being an ultra vires act of its board of directors and for being without any valuable consideration, it could not have had
any legal effect.
(It should be noted that the by-laws of PAMBUSCO provide that four out of five directors must be present in a special
meeting of the board to constitute a quorum, and that the corporation has already ceased to operate.)
CFI ruled in favor of Petitioner Pea, but the same was overturned by the CA.
Issue: W/N there Pea is entitled to the lots.
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Ruling: Yes. The by-laws 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 by
virtue of a prior notice of a special meeting. There was no quorum to validly transact business since it is required
under its by-laws that at least four (4) members must be present to constitute a quorum in a special meeting of the
board of directors.
Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation or by-laws of the corporation
may fix a greater number than the majority of the number of board members to constitute the quorum necessary for
the valid transaction of business. Any number less than the number provided in the articles or by-laws therein cannot
constitute a quorum and any act therein would not bind the corporation; all that the attending directors could do is to
adjourn.
Moreover, the records show that respondent PAMBUSCO ceased to operate for about 25 years prior to the board
meeting. Being a dormant corporation for several years, it was highly irregular, for a group of three (3) individuals
representing themselves to be the directors of respondent PAMBUSCO to pass a resolution disposing of the only
remaining asset of the corporation in favor of a former corporate officer.
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. 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, in contravention of the rule requiring a director to own one (1) share in
their to qualify as director of a corporation.
Further, under the Corporation Law, the sale or disposition of any 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. This was not complied with in the
case at bar.
At the time of the passage of the questioned resolution, respondent PAMBUSCO was insolvent and its only remaining
asset was its right of redemption over the subject properties. Since the disposition of said redemption right of
respondent PAMBUSCO by virtue of the questioned resolution was not approved by the required number of
stockholders, the said resolution, as well as the subsequent assignment and sale, were null and void.
Lastly, for lack of consideration, the assignment should be construed as 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. Since assignment to Enriquez 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.
C. RECOGNITION AND DISREGARD OF CORPORATENESS
1. Separate Juridical Personality
SANTOS v. NLRC
Facts: Melvin MIllena was hired to be the project accountant for MMDCs mining operations in Gatbo, Bacon, Sorsogon.
He sent to Mr. Gil Abao, the MMDC corporate treasurer, a memorandum calling the latters attention to 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 companys laborers
and employees. In response, Abao advised him that the boards decision was that it would be useless to continue
operations due to the rainy season. They would stop production until the advent of the dry season, and until the
insurgency problem clears. And for the same reason, they would not be needing the services of MIllena, and so the
latter was eventually terminated.
Millena requested that he be reimbursed the advances he had made for the company and be paid his accrued
salaries/claims. However his claims were not heeded. He filed a complaint for illegal dismissal before the Labor Arbiter
pay against MMDC and its two top officials, namely, herein petitioner Benjamin A. Santos (the President) and Rodillano
A. Velasquez (the executive vice-president). The Labor Arbiter ruled in favor of Millena and against the MMDC and the
petitioners. Upon appeal, the NLRC affirmed the LAs decision. It further held that they are personally liable for
Millenas claim; the NLRC cited Article 289[14] of the Labor Code and the ruling in A.C. Ransom Labor Union-CCLU vs.
NLRC[15] to the effect that (t)he responsible officer of an employer corporation (could) be held personally, not to say
even criminally, liable for non-payment of backwages, and that of Gudez vs. NLRC[16] which amplified that where the
employer corporation (was) no longer existing and unable to satisfy the judgment in favor of the employee, the officer
should be liable for acting on behalf of the corporation.
Issue: Whether or not Santos is solidarily liable with MMDC even (in) the absence of bad faith and malice on his part
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Ruling: NO.
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.[25] As a rule, this situation might arise when a corporation is used to evade a just and due
obligation or to justify a wrong,[26] to shield or perpetrate fraud,[27] to carry out similar other unjustifiable aims or
intentions, or as a subterfuge to commit injustice and so circumvent the law.[28] In Tramat Mercantile, Inc., vs. Court of
Appeals,[29] 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.
In the case at bar, it is not even shown that petitioner has had a direct hand in the dismissal of private respondent
enough to attribute to him (petitioner) a patently unlawful act while acting for the corporation. Neither can Article
289[30] of the Labor Code be applied since this law specifically refers only to the imposition of penalties under the
Code. It is undisputed that the termination of petitioners employment has, instead, 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.
Similar to the case of Sunio vs. National Labor Relations Commission, Santos should not have been made personally
answerable for the payment of Millena's back salaries.
STOCKHOLDERS OF F. GUANZON v. REGISTER OF DEEDS
Facts: The five stockholders of the F. Guanzon and Sons, Inc. executed a certificate of liquidation of the assets of the
corporation stating that by virtue of a resolution of the stockholders dissolving the corporation, they have distributed
among themselves in proportion to their shareholdings, as liquidating dividends, the assets of said corporation.
The certificate of liquidation, when presented to the Register of Deeds 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 (Rules of Court, Rule 104, Sec. 3).
In deciding. the Commissioner of Land Registration overruled ground No. 7 and sustained requirements Nos. 3, 5 and
6.
The stockholders 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. Upon the other hand, the
Commissioner of Land Registration entertained a different opinion. He concurred in the view expressed by the register
of deed to the effect that the certificate of liquidation 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 transfer of the corporate assets to the stockholder is in the nature of a conveyance from
one party to another
Ruling: YES.
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.
In the case at bar, it is clear that the act of 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, 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 as one in
the nature of a transfer or conveyance.
MANILA GAS v. CIR
Facts: The Manila Gas is a corporation that operates a gas plant in the City of Manila and furnishes gas service to the
people of the metropolis and surrounding municipalities by virtue of a franchise granted to it by the Philippine
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Government. Associated with the plaintiff are the Islands Gas and Electric Company domiciled in New York, United
States, and the General Finance Company domiciled in Zurich, Switzerland. Neither of these last mentioned
corporations is resident in the Philippines. For the years 1930 to 1932, dividends, bonds, and interests of other
indebtedness were paid by it to the companies it was associated with in the capacity of stockholders upon which
withholding income taxes were paid to the defendant.
Manila Gas contended that the dividends paid by it to its stockholders, the Islands Gas and Electric Company , were
not subject to tax because to impose a tax thereon would be to do so on the plaintiff corporation, in violation of the
terms of its franchise and would, moreover, be oppressive and inequitable. This argument was predicated on the
constitutional provision that no law impairing the obligation of contracts shall be enacted. The particular portion of the
franchise which is invoked provides that, The grantee shall annually on the fifth day of January of each year pay to the
City of Manila and the municipalities in the Province of Rizal in which gas is sold, two and one half per centum of the
gross receipts within said city and municipalities, respectively, during the preceding year. Said payment shall be in lieu
of all taxes, Insular, provincial and municipal, except taxes on the real estate, buildings, plant, machinery, and other
personal property belonging to the grantee.
The trial judge ruled that the dividends paid by the plaintiff corporation were subject to income tax in the hands of its
stockholders
Issue: Whether or not the dividends paid by the plaintiff corporation were subject to income tax in the hands of its
stockholders
Ruling: YES.
The trial judge was of the opinion that the instant case was governed by our previous decision in the case of Philippine
Telephone and Telegraph Co., vs. Collector of Internal Revenue. In this view the Supreme Court concurred. It is true
that the tax exemption provision relating to the Manila Gas Corporation differs in phraseology from the tax exemption
provision to be found in the franchise of the Telephone and Telegraph Company, but the ratio decidendi of the two
cases is substantially the same. As there held and as now confirmed, 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 in the income tax, the exemption
clause in the charter of the corporation notwithstanding. For the foreign reasons, the Supreme Court was led to sustain
the decision of the trial court and to overrule appellant's first assigned error.

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