REVISED SECURITIES ACT (B.P. 178) SEC 2.

(r) "Promoter" includes (1) any person who, acting alone or in conjunction with one or more other persons, directly or indirectly, takes initiative in founding and organizing the business or enterprise of an issuer; or (2) any person who, in connection with the founding and organizing of the business of an issuer, directly or indirectly, receives in consideration of services or property or both services or property ten (10%) per centum or more of any class of securities of the issuer or ten (10%) per centum or more of the proceeds from the sale of any class of such securities. However, a person who receives such securities or proceeds either solely as underwriting commissions or solely as consideration of property shall not be deemed a promoter within the meaning of this paragraph if such person does not otherwise take part in founding and organizing the enterprise.

This claim was opposed by the administrator of the estate, and the court after hearing, issued an order dismissing the claim of Quezon College, Inc. HELD: It appears that the application sent by Crisostomo to the College was written on a general form indicating that an applicant will enclose an amount as initial payment and will pay the balance in accordance with law and the rules or regulations of the College. On the other hand, in the letter actually sent by Damasa Crisostomo, the latter (who requested that her subscription for 200 shares be entered) not only did not enclose any initial payment but stated that babayaran kong lahat pagkatapos na ako ay makapanghuli ng isda. There is nothing in the record to show that the Quezon College, Inc. accepted the term of payment suggested by Crisostomo, or that if there was any acceptance the same came to her knowledge during her lifetime. The relation between Crisostomo and the College had only thus reached the preliminary stage whereby the latter offered its stock for subscription on 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 College of the counter offer of Crisostomo, that had not ripened into an enforceable contract. Indeed, the need for express acceptance on the part of the College becomes the more imperative, in view of the proposal of Crisostomo to pay the value of the subscription after she had harvested fish, a condition obviously dependent upon her sole will and, therefore, facultative in nature, rendering the obligation void under the Civil Code.

25. Trillana vs. Quezon College, Inc. (Subscription Contracts: Sec. 60 and 72 of the Corporation Code) 93 Phil 383 June 27, 1953 Paras, C.J. FACTS: Damasa Crisostomo sent the following letter to the board of Trustees of the Quezon College: Gentlemen: Please enter my subscription to dalawang daan (200) shares of your capital stock with a par value of P100 each. Enclosed you will find (Babayaran kong lahat pagkatapos na ako ay makapaghuli ng isda) pesos as my initial payment and the balance payable in accordance with law and the rules and regulations of the Quezon College. x x x 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 CFI of Bulacan in her estate proceeding, for the collection of P20,000, representing the value of the subscription to the capital stock of the Quezon College, Inc.

BUSS. ORGANIZATION 2_CORPO

26. Bayla vs. Silang Traffic Co., Inc. Facts: Petitioners Bayla et. al paid the respondent corporation for shares of stock they agreed to take under certain specified terms and conditions. The agreement provides that the shares shall be paid in installment; failure to pay the same shall mean forfeiture of payment and shares shall revert to the seller. Petitioner defaulted in the payment and so the BOD of respondent corporation issued a resolution regarding forfeiture of subject shares/subscription. Subsequently, petitioners filed an action to recover the amount they paid. The lower court absolved the corporation and declared them the owner of the shares of stock in question. CA reversed the said decision declaring that petitioners subscription is not cancelled/forfeited in favor of the corporation. Both parties filed an appeal. Issue: Whether or not the agreement is a contract of subscription or of sale. Held: SC held that the agreement between the parties is a contract of sale because of the ff. reasons: 1.agreement is entitled Agreement for Installment Sale of Shares; 2.contract was entered into before the incorporation and organization of the corporation. The contract did not expressly provide that failure of the purchaser to pay any installment would give rise to forfeiture and cancellation without necessity of demand from the seller. Further, Had it been the intention of the parties to provide for automatic forfeiture/cancellation, the provision regarding interest on deferred payments should not have been inserted. Since the contract in question is one of sale, rescission can be done by agreement of the parties. Respondent Corporation was ordered to refund the petitioners of the amount they paid. Note: Distinction between contract of sale and subscription. Contract of sale/purchase-is an independent agreement between the individual and the corporation to buy shares of stock from it at a stipulated price.

Contract of subscription-is the mutual agreement of the subscribers to take and pay for the stock of a corporation.

BUSS. ORGANIZATION 2_CORPO

27. Velasco(plaintiff) (defendant)

v.

Poizat

Facts: The plaintiff, as assignee in insolvency of "The Philippine Chemical Product Company" (Ltd.) is seeking to recover of the defendant, Jean M. Poizat, the sum of P1,500, upon a subscription made by him to the corporate stock of said company. The defendant subscribed for 20 shares of the stock of the company, an paid in upon his subscription the sum of P500, the par value of 5 shares . The action was brought to recover the amount subscribed upon the remaining shares. Defendant was a stockholder in the company from the inception of the enterprise, and for sometime acted as its treasurer and manager.Whileserving in this capacity he called in and collected all subscriptions to the capital stock of the company, except the aforesaid 15 shares subscribed by himself and another 15 shares owned by Jose R. Infante.

On July 13, 1914, the company in a proposition was to effect that Juan [Jean] M. Poizat, who was absent, should be required to pay the amount of his subscription upon the 15 shares for which he was still indebted to the company. The resolution further provided that, in case he should refuse to make such payment, the management of the corporation should be authorized to undertake judicial proceedings against him. Poizat questioned the resolution claiming that his decision not to pay was based on poor opinion which he entertain of the business and the faint hope of ever recovering any money invested. He also claimed that, he cannot be compelled to pay because the board failed to make a call.At the hearing of the Court of First Instance, judgment was rendered in favor of the defendant, and the complaint was dismissed. From this action the plaintiff has appealed.

it for or against either. It is a rule, accepted by the Supreme Court of the United States, that a subscription for shares of stock does not require an express promise to pay the amount subscribed, as the law implies a promise to pay on the part of the subscriber. 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.The provisions of the Corporation Law (Act No. 1459) given recognition of two remedies for the enforcement of stock subscriptions. The first and most special remedy given by the statute consists in permitting the corporation to put up the unpaid stock for sale and dispose of it for the account of the delinquent subscriber. The other remedy is by action in court. When the corporation becomes insolvent, with proceedings instituted by creditors to wind up and distribute its assets, no call or assessment is necessary before the institution of suits to collect unpaid balances on subscription. It evidently cannot be permitted that a subscriber should escape from his lawful obligation by reason of the failure of the officers of the corporation to perform their duty in making a call; and when the original model of making the call becomes impracticable, the obligation must be treated as due upon demand. When insolvency supervenes all unpaid subscriptions become at once due and enforceable.The defendant is liable for P1,500, the amount of his subscription upon the unpaid shares. Under section 36 of the Corporation Law he is also liable for interest at the lawful rate from the date of his subscription, unless relieved from this liability by the by-laws of the company.

Issue: Whether or not Poizat is liable upon his subscription?

Held: The Court held him to be liable. A stock subscription is a contract between the corporation on one side, and the subscriber on the other, and courts will enforce
BUSS. ORGANIZATION 2_CORPO

28. PNB vs. Bitulok (Subscription Contracts: Subscription Obligation)

Sawmill, Inc. Release from

23 SCRA 1366 June 29, 1968 Fernando, J. FACTS: President Roxas organized the Philippine Lumber Distributing Agency for the purpose of insuring the steady supply of lumber to enable the war sufferers to rehabilitate their devastated homes. Roxas convinced the lumber producers to form a lumber cooperative and to pool their resources together. The President promised and agreed to finance the agency by making the government invest P9.00 for every peso the members would invest. Relying on the assurance, Bitulok and several others subscribed to the stocks of Philippine Distributing Agency. The legislature was not able to appropriate the counterpart fund to be put up by the government, hence, President Roxas instructed PNB to grant loan to the Philippine Distributing Agency. The loan was not paid as a consequence, PNB filed a suit on their subscriptions to the Philippine Distributing Agency. ISSUE: May PNB collect the balance on the subscription in spite of the conditions attached thereto which were not fulfilled? HELD: The Court held that it is a well-settled principle that with all the vast powers lodged in the President, he is still devoid of the prerogative of suspending the operation of any statute or any of its terms. The power of suspending laws is lodged with the Legislature, which has indicated that the obligation for the payment of subscription by the defendants shall be governed by the Corporation Law. The President could not suspend the effectivity of the Corporation Law; therefore, the defendants remain liable to the balance of their subscription. This case gives the essence of a subscription contract. It is indeed a species of the Law on Contracts, but the principles in Corporate Law prevail. One of the principles in Corporate law is that, when one enters into a subscription agreement, one cannot deny the obligation to pay, even when the corporation becomes insolvent. When one enters into a subscription agreement, the principles of Corporate Law

become part and parcel of the contract. The cases therefore hold that any contradiction to modify the condition of the obligation to pay is essentially void. It does not avoid the subscription agreement but avoids the condition. The obligation to pay then becomes a purely simple obligation. The lumber producers are therefore liable for the balance of their respective subscriptions. Decision reversed and cases remanded to lower court for judgment.

BUSS. ORGANIZATION 2_CORPO

29.1 GOVERNMENT OF THE PHILIPPINE ISLANDS, vs. THE MANILA RAILROAD COMPANY FACTS: This is a petition in the Supreme Court of the extraordinary legal writ of mandamus presented by the Government of the Philippine Islands, praying that the writ be issued to compel the Manila Railroad Company and Jose Paez, as its manager, to provide and equip the telegraph poles of said company between the municipality of Paniqui, Province of Tarlac, and the Municipality of San Fernando, Province of La Union, with crosspieces for six telegraph wires belonging to the Government, which, it is alleged, are necessary for public service between said municipalities. The present poles and crosspieces between said municipalities are sufficient to carry four telegraph wires and that they do now carry four telegraph wires, by virtue of an agreement between the respondents and the Bureau of the Posts of the Philippine Government. It is admitted that the poles and not sufficient to carry six telegraph wires. Petitioners contention - under said section 84 the defendant company is required to erect and maintain posts for its telegraph wires, of sufficient length and strength, and equipped with sufficient crosspieces to carry the number of wires which the Government may consider necessary for the public service, and that six wires are now necessary for the public service. Respondents answer in their special defense they contend that section 84 of Act No. 1459 has been repealed by section 1, paragraph 8 of Act No. 1510 of the United States Philippine Commission, and that under the provisions of said Act No. 1510 the Government is entitled to place on the poles of the company four wires only. Act No. 1510 is the charter of the Manila Railroad Company. ISSUE: W/N section 84 of Act No. 1459 is applicable to the Manila Railroad Company, or W/N the manila Railroad Company is governed by section 1, paragraph 8, of Act No. 1510. HELD: Act No. 1459 is a general law applicable

From a reading of the said charter or contract it would be seen that there is no indication that the Government intended to impose upon said company any other conditions as obligations not expressly found in said charter or contract. If that is true, then certainly the Government cannot impose upon said company any conditions or obligations found in any general law, which does not expressly modify 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 the Manila Railroad Company, one of the respondents, and being a special charter of said company, its adoption had the effect of superseding the provisions of the general Corporation Law which are applicable to railroads in general. 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 Act No. 1510 is a special charter of the respondent company. It constitutes a contract between the respondent company and the state; and the state and the grantee of a charter are equally bound by its provisions. For the state to impose an obligation or a duty upon the respondent company, which is not expressly provided for in the charter (Act No. 1510), would amount to a violation of said contract between the state and the respondent company. The provisions of Act No. 1459 relating to the number of wires which the Government may place upon the poles of the company are different and more onerous than the provisions of the charter upon the same question. Therefore, to allow the plaintiff to require of the respondent company a compliance with said section 84 of Act No. 1459, would be to require of the respondent company and the performance of an obligation which is not imposed upon it by its charter. 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.

to corporations generally, while Act No. 1510 is the charter of the Manila Railroad Company and constitute a contract between it and the Government.

BUSS. ORGANIZATION 2_CORPO

29.2 Rural Bank of Salinas inc vs C.A Facts: Clemente Guerrero President of Rural Bank of Salinas executed a Special Power of Attorney in favour of his wife and herein private respondent Melania Guerrero giving and granting the later full power and authority to sell or otherwise dispose and/or mortgage 473 shares of stock of the bank registered in his name. Melenia then executed deed of assignment pursuant to the SPA in favor of four persons (472 shares out of the 473 shares, in favor of private respondents Luz Andico (457 shares), Wilhelmina Rosales (10 shares) and Francisco Guerrero, Jr. (5 shares) distributing unto them the shares of the bank. When Clemente died, melenia request the bank to cancel the shares of stock named under Clemente and issue new stocks in favour of the four persons. The bank refused to do so and Melenia seek the help of the SEC filing therein an action for mandamus for the same reason. Maripol Guerrero daughter of Clemente filed an intervention.

Corporation Sec. 4137, cited in Fleisher vs. Nolasco, Supra). Respondent SEC correctly ruled in favor of the registering of the shares of stock in question in private respondent's names. Such ruling finds support under Section 63 of the Corporation Code, to wit: Sec. 63. . . . Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation The corporation's ministerial. obligation to register is

Issue: Whether or not the bank can refuse to cancel the stocks named under Clemente and issue new stocks in favour of the four persons.

In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try to decide the question of ownership. (Fletcher, Sec. 5528, page 434). The duty of the corporation to transfer is a ministerial one and if it refuses to make such transaction without good cause, it may be compelled to do so by mandamus. (See. 5518, 12 Fletcher 394)

Held: The SC held that the SEC is correct in ordering the Bank to cancel the stocks under the name of Clemente and to issue new stocks in favour of the four persons. A corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions in stock transfers, because: . . . Restrictions in the traffic of stock must have their source in legislative enactment, as the corporation itself cannot create such impediment. By-laws are intended merely for the protection of the corporation, and prescribe regulation, not restriction; they are always subject to the charter of the corporation. The corporation, in the absence of such power, cannot ordinarily inquire into or pass upon the legality of the transactions by which its stock passes from one person to another, nor can it question the consideration upon which a sale is based. . . . (Tomson on
BUSS. ORGANIZATION 2_CORPO

30. Red Line Transportation Co vs. Rural Transit Co., INc. (G.R. 41570; 1934) Facts: Red Line Transportation Co. filed an opposition to the application of the Rural Transit Co. for the grant of new service between Tuguegarao and Manila, contending that they already holds the certificate of public convenience and is rendering adequate and satisfactory service and the granting of the application for Rural Transit would constitute a ruinous competition for their route. The Public Service Commission approved the application of Rural Transit, then the oppositor Red Liner filed a motion and called the attention of the Commission to the fact that there was a pending application for the voluntary dissolution of Rural Transit. At the trial in the Public Service Commission, an issue was raised as to who was the real party in interest, whether the Rural transit Company, Ltd. as appeared on the face of the application or the Bachrach Motor Company, Inc. using the name of the Rural Transit Company, Inc. as a trade name. The hearing proceeded without the participation of Bachrach Motor Co. and the Pubic Service Commission rendered decision in favor of the Rural Transit and authorizing the Bachrach to continue using the name of Rural Transit.as its trade name. Issue: Whether or not the Public Service Commission has the jurisdiction to authorize one corporation to assume the name of another as a trade name? Held: The order of the Commission authorizing the Bachrach to assume the name of the Rural Transit is void on the ground that the rural Transit is not the real party in interest and its application was fictitious. We know of 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." (Section 11, Act No. 1459, as amended.) A corporation has the power " of succession by its corporate name ." (Section 13, ibid.) 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.

BUSS. ORGANIZATION 2_CORPO

31. PHILIPPINE FIRST INSURANCE COMPANY, INC., V. HARTIGAN FACTS: According to the complaint, plaintiff was originally organized as an insurance corporation under the name of 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' The articles of incorporation originally presented before the Security and Exchange Commissioner and acknowledged before Notary Public Mr. E. D. Ignacio on June 1, 1953 state that the name of the corporation was 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' On May 26, 1961 the articles of incorporation were amended pursuant to a certificate of the Board of Directors dated March 8, 1961 changing the name of the corporation to 'Philippine First Insurance Co., Inc.'. The complaint alleges that the plaintiff Philippine First Insurance Co., Inc., doing business under the name of 'The Yek Tong Lin Fire and Marine Insurance Co., Lt.' signed as co-maker together with defendant Maria Carmen Hartigan, CGH, a promissory note for P5,000.00 in favor of the China Banking Corporation payable within 30 days after the date of the promissory note and signed an indemnity agreement in favor of plaintiff in case Hartigan fails to pay the PN. Defendant Hartigan failed to pay the amount of the PN, hence, this action for collection of sum of money. Defendants in their defense denies the allegations and claim that plaintiff has no cause of action against them considering that it was not alleged in the complaint that Yek Tong and Phil. First Insurance is one and the same. ISSUE: WON the change of corporate name of plaintiff is valid. RULING: Section 18 of the Corporation Code does not only authorize corporations to amend their charter; it also lays down the procedure for such amendment; and, what is more relevant to the present discussion, it contains provisos restricting the power to amend when it comes to the term of their existence and the increase or decrease of the capital stock. There is no prohibition therein against the change of name. The inference is clear that such a change is allowed, for if the legislature had intended to enjoin corporations from changing names, it would have expressly stated so in this section or in any other provision of the law. As correctly pointed out by appellant, the approval by the stockholders of the

amendment of its articles of incorporation changing the name "The Yek Tong Lin Fire & Marine Insurance Co., Ltd." to "Philippine First Insurance Co., Inc." on March 8, 1961, did not automatically change the name of said corporation on that date. To be effective, Section 18 of the Corporation Law, earlier quoted, requires that "a copy of the articles of incorporation as amended, duly certified to be correct by the president and the secretary of the corporation and a majority of the board of directors or trustees, shall be filed with the Securities & Exchange Commissioner", and it is only from the time of such filing , that "the corporation shall have the same powers and it and the members and stockholders thereof shall thereafter be subject to the same liabilities as if such amendment had been embraced in the original articles of incorporation." It goes without saying then that appellant rightly acted in its old name when on May 15, 1961, it entered into the indemnity agreement, Annex A, with the defendantappellees; for only after the filing of the amended articles of incorporation with the Securities & Exchange Commission on May 26, 1961, did appellant legally acquire its new name; and it was perfectly right for it to file the present case In that new name on December 6, 1961. Such is, but the logical effect of the change of name of the corporation upon its actions.

BUSS. ORGANIZATION 2_CORPO

32. UNIVERSAL MILLS CORPORATION vs. UNIVERSAL TEXTILE MILLS, INC. (G.R. No. L-28351 July 28, 197) Facts: Universal Textile Mills, Inc. was organ on December 29, 1953, as a textile manufacturing firm for which it was issued a certificate of registration on January 8, 1954. The Universal Mills Corporation, on the other hand, was registered in the SEC on October 27, 1954, under its original name, Universal Hosiery Mills Corporation, having as its primary purpose the "manufacture and production of hosieries and wearing apparel of all kinds.On May 24, 1963, it filed an amendment to its articles of incorporation changing its name to Universal Mills Corporation, its present name, for which this Commission issued the certificate of approval on June 10, 1963. 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. 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. Issue: Whether or not the order of the Commission enjoining petitioner to its corporate name constitutes, in the light of the circumstances found by the Commission, a grave abuse of discretion.

Held: 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 on August 14, 1964, appellant included among its primary purposes the "manufacturing, dyeing, finishing and selling of fabrics of all kinds" in which respondent had been engaged for more than a decade ahead of petitioner. Factually, the Commission found existence of such confusion, and there is evidence to support its conclusion. ------------uy siulong-----------

BUSS. ORGANIZATION 2_CORPO

34. Clavecilla Radio System vs Antillon Facts: It appears that on June 22, 1963, the New Cagayan Grocery filed a complaint against the Clavecilla Radio System alleging, in effect, that on March 12, 1963, the following message, addressed to the former, was filed at the latter's Bacolod Branch Office for transmittal thru its branch office at Cagayan de Oro: NECAGRO CAGAYAN DE ORO (CLAVECILLA) REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF AGREEABLE SHALL SHIP LATER REPLY POHANG The Cagayan de Oro branch office having received the said message omitted, in delivering the same to the New Cagayan Grocery, the word "NOT" between the words "WASHED" and "AVAILABLE," thus changing entirely the contents and purport of the same and causing the said addressee to suffer damages. After service of summons, the Clavecilla Radio System filed a motion to dismiss the complaint on the grounds that it states no cause of action and that the venue is improperly laid. Issue: Whether or not Clavecilla Radio System may be sued in its branch office in Cagayan? Held: 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.

35. Alhambra Cigar & Cigarette Manufacturing Company Inc. vs. S.E.C. Facts: Petitioner Alhambra Corporations corporate existence is to expire on Jan. 15, 1962. On the said date, the corporation ceased transacting business and was in a state of liquidation. On June 20, 1963 R.A. 3531 was enacted. The said law empowered private corporations to extend their corporate life beyond the period fixed by the articles of incorporation for a term not to exceed 50 years (prior to enactment of RA 3531 the maximum non-extendible term of corporations was 50 years). On October 28, 1963, Alhambra filed with SEC their amended articles of incorporation seeking for extension of another 50 years. SEC denied their application holding that Alhambra Corporation cannot avail the extension granted by RA 3531 since its term of existence had already expired when the law took effect, and such has no retroactive effect. Issue: Whether or not a corporation may extend its life by amendment of its articles of incorporation effected at the time its original term of existence had already expired. Held: SC affirmed the SECs decision denying the extension sought by the Corporation. It ruled that the privilege given to prolong corporate life under the amendment must be exercised before the expiry of the term fixed in the articles of incorporation. Further, Section 77 of the Corporation Law provides that 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.

BUSS. ORGANIZATION 2_CORPO

10

36. BENGUET CONSOLIDATED MINING CO. V. PINEDA FACTS: The Petitioner, the Benguet Consolidated Mining Co. (hereafter termed Benguet for short), was organized on June 24,1903, as a sociedad anonima regulated by Articles 151 et seq., of the Spanish Code of Commerce of 1886, then in force in the Philippines. 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, establishing in the islands the American type of juridical entities known as corporation, to take effect on April 1, 1906. Prior to the expiration of its corporate term, petitioner filed with the SEC an alternative registration, extending its term of existence for another 50 years and reformation or reorganization of the corporation in accordance with the Corporation Code. Respondent herein, Securities and Exchange Commissioner denied the registration relying mainly upon the opinion of the Sec. of Justice on the ground that petitioner has no right to extend the original term of its corporate existence as stated in the Articles of Incorporation being a sociedad anonima.

contingency that did not fulfill the requirements of a vested right entitled to constitutional protection. Since there was no agreement as yet to extend the period of Benguets corporate existence (beyond the original 50 years) when the Corporation Law was adopted in 1906, neither Benguet nor its members had any actual or vested right to such extension at that time. Therefore, when the Corporation Law, by section 18, forbade extensions of corporate life, neither Benguet nor its members were deprived of any actual or fixed right constitutionally protected. The election of Benguet to remain a sociedad anonima after the enactment of the Corporation Law is evidence, not only by its failure, from 1906 to 1953, to adopt the alternative to transfer its corporate interests to a new corporation, as required by section 75; chan roblesvirtualawlibraryit also appears from positive acts. Thus around 1933, Benguet claimed and defended in court its acquisition of shares of the capital stock of the Balatoc Mining Company, on the ground that as a sociedad anonima it (Benguet) was not a corporation within the purview of the laws prohibiting a mining corporation from becoming interested in another mining corporation (Harden vs. Benguet Mining Corp., 58 Phil., p. 149). Even in the present proceedings, Benguet has urged its right to amend its original articles of association as sociedad anonima and extend its life as such under the provisions of the Spanish Code of Commerce. Such appeals to privileges as sociedad anonima under the Code of 1886 necessarily imply that Benguet has rejected the alternative of reforming under the Corporation Law. 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. 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.

ISSUE: WON petitioner has the right to extend the term of its corporate existence in accordance with the Corporation Code. RULING: Petitioner Benguet (and here lies the second issue in this appeal) that the possibility to extend its corporate life under the Code of Commerce constituted a right already vested when Act No. 1459 was adopted. At that time, Benguets existence was well within the 50 years period set in its articles of association; and its members had not entered into any agreement that such period should be extended. It is safe to say that none of the members of Benguet anticipated in 1906 any need to reach an agreement to increase the term of its corporate life, barely three years after it had started. The prorogation was purely speculative; a mere possibility that could not be taken for granted. It was as yet conditional, depending upon the ultimate decision of the members and directors. They might agree to extend Benguets existence beyond the original 50 years; or again they might not. It must be remembered that in 1906, the success of Benguet in its mining ventures was by no means so certain as to warrant continuation of its operations beyond the 50 years set in its articles. The records of this Court show that Benguet ran into financial difficulties in the early part of its existence, to the extent that, as late as 1913, ten years after it was found, 301,100 shares of its capital stock (with a par value of $1 per share) were being offered for sale at 25 centavos per share in order to raise the sum of P75,000 that was needed to rehabilitate the company (Hanlon vs. Hausermann and Beam, 40 Phil., 796). Certainly the prolongation of the corporate existence of Benguet in 1906 was merely a possibility in futuro, a

BUSS. ORGANIZATION 2_CORPO

11

37. Asuncion vs. De Yriarte (Grounds for Disapproval: Section 17) (28 Phil 67 September 24, 1914 Moreland, J). FACTS: The proposed incorporators began an action in the CFI of Manila to compel the division of archives to register their articles of incorporation. ISSUES: 1) Whether the chief of the division or archives has authority, under the Corporation Law, on being presented with the articles of incorporation for registration, to decide not only as to the sufficiency of the form of the articles, but also as to the lawfulness of the purposes of the proposed corporation. 2) Whether or not the purposes of the corporation as stated in the articles of incorporation are lawful within the meaning of the Corporation Law. HELD: 1) Although the duties of the official concerned happened to be ministerial, it does not necessarily follow that he may not, in the administration of his office, determine questions of law. It is his duty to determine whether the objects of the corporation as expressed in the articles of incorporation are lawful pursuant to the then Corporation Law. And just because the articles of incorporation are perfect in form, it does not mean that the division of the archives must accept and register them and issue the corresponding certificate of incorporation no matter, as what the corporations purpose is. It is not only the right but also the duty of the appropriate government agency to determine the lawfulness of the objects and purpose of the corporation before it issues a certificate of incorporation. 2) Where the purpose in the articles of incorporation sought to take possession and control of municipal property within a barrio and administer the same exclusively for the benefit of the residents of the barrio, said articles of incorporation showed the object of incorporation to be unlawful in that it sought to deprive the municipality in
BUSS. ORGANIZATION 2_CORPO

which that barrio was situated of its property and its citizens of the right of enjoying the same and would, if permitted, disrupt and destroy the government of the municipalities of the State and abrogate the laws relating to the formation and government of municipalities. The articles were denied outright registration. The court held that when on the face of the articles of incorporation presented for registration it is shown that it is organized for a purpose contrary to law or public policy, the same may be denied outright registration.

12

38. Loyola Grand Villas Homeowners (South) Association Inc. vs. Court of Appeals (G.R. No. 117188, August 7, 199) Facts: Loyola Grand Villas Homeowners Association (LGVHAI) was organized as the association of homeowners and residents of the Loyola Grand Villas. It was registered with the Home Financing Corporation, the predecessor of HIGC, as the sole homeowners' organization in the said subdivision. It was organized by the developer of the subdivision and its first president was Victorio V. Soliven. 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. To the officers' dismay, they discovered that there were two other organizations within the subdivision the Loyola Grand Villas Homeowners (North) Association Incorporated and the Loyola Grand Villas Homeowners (South) Association Incorporated. According to Emden Encarnaction and Horatio Aycardo, a non-resident and Soliven himself, respectively headed these associations. They also discovered that these associations had 5 registered homeowners each who were also the incorporators, directors and officers thereof. None of the members of the LGVHAI was listed as member of the North Association while 3 members of LGVHAI were listed as members of the South Association. The North Association was registered with the HIGC on 13 February 1989. It submitted its by-laws on 20 December 1988. 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 bylaws within the period required by the Corporation Code and, second, there was nonuser of corporate charter because HIGC had not received any report on the association's activities. Apparently, this information resulted in the registration of the South Association with the HIGC on 27 July 1989. It filed its bylaws on 26 July 1989. These developments prompted the officers of the LGVHAI to lodge a complaint with the HIGC. They questioned the revocation of LGVHAI's certificate of registration without due notice and hearing and concomitantly prayed for the cancellation of the certificates of registration of the North and South Associations by reason of the earlier issuance of a certificate of registration in favor of LGVHAI. After due notice and hearing,

Encarnacion and Aycaydo obtained a favorable ruling from HIGC recognizing the LGVHAI as the duly registered and existing homeowners association for Loyola Grand Villas homeowners, and declaring the Certificates of Registration of North and South Associations as revoked or cancelled, among others. The South Association appealed to the Appeals Board of the HIGC. In its Resolution, the Board dismissed the appeal for lack of merit. Rebuffed, the South Association in turn appealed to the Court of Appeals. However, the Court of Appeals affirmed the Resolution of the HIGC Appeals Board. The South Association filed the petition for review on certiorari. Issue: Whether the LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of the Corporation Code had the effect of automatically dissolving the said corporation. Held: Automatic corporate dissolution for failure to file the by-laws on time was never the intention of the legislature. Moreover, even without resorting to the records of deliberations of the Batasang Pambansa, the law itself provides the answer to the issue. Taken as a whole and under the principle that the best interpreter of a statute is the statute itself (optima statuli interpretatix est ipsum statutum), Section 46 reveals the legislative intent to attach a directory, and not mandatory, meaning for the word ''must" in the first sentence thereof. 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 1 month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission." It necessarily follows that failure to file the bylaws within that period does not imply the "demise" of the corporation. 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

BUSS. ORGANIZATION 2_CORPO

13

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." Although the Corporation Code requires the filing of by-laws, it does not expressly provide for the consequences of the non-filing of the same within the period provided for in Section 46. And even if such omission has been rectified by Presidential Decree 902-A, and under the express grant of power and authority to the SEC, 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. That the failure to file by-laws is not provided for by the Corporation Code but in another law is of no moment. PD 902-A, which took effect immediately after its promulgation on 11 March 1976, is very much apposite to the Code. The Corporation Code and PD 902-A are statutes in pari materia. Every statute must be so construed and harmonized with other statutes as to form a uniform system of jurisprudence. As the "rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it," by-laws are indispensable to corporations in this jurisdiction. These may not be essential to corporate birth but certainly, these are required by law for an orderly governance and management of corporations. Nonetheless, failure to file them within the period required by law by no means tolls the automatic dissolution of a corporation.

BUSS. ORGANIZATION 2_CORPO

14

39. PMI Colleges vs. NLRC (By-Laws) 277 SCRA 462, August 15, 1997, Romero, J. FACTS: On July 7, 1991, petitioner, an educational institution offering courses on basic seamans training and other marine-related courses, hired private respondent as contractual instructor with an agreement that the latter shall be paid at an hourly rate of P30.00 to P50.00, depending on the description of load subjects and on the schedule for teaching the same. Pursuant to this engagement, private respondent then organized classes in marine engineering. Initially, private respondent and other instructors were compensated for services rendered during the first three periods of the abovementioned contract. However, for reasons unknown to private respondent, he stopped receiving payment for the succeeding rendition of services. This claim of nonpayment was embodied in a letter dated March 3, 1992, written by petitioners 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 private respondent. It appeared further in said letter that the salary of private respondent corresponding to the shipyard and plant visits and the ongoing on-the-job training of Class 41 on board MV Sweet Glory of Sweet Lines, Inc. was not yet included. This request of the Acting Director apparently went unheeded. Repeated demands having likewise failed, private respondent was soon constrained to file a complaint before the National Capital Region Arbitration Branch on September 14, 1993 seeking payment for salaries earned from the following: (1) basic seaman course Classes 41 and 42 for the period covering October 1991 to September 1992; (2) shipyard and plant visits and on-the-job training of Classes 41 and 42 for the period covering October 1991 to September 1992 on board M/V Sweet Glory vessel; and (3) as Acting Director of Seaman Training Course for 3-1/2 months. The corporation sought to avoid liability under a contract of service which was not signed by

the Chairman of the Board as clearly mandated under the corporations by-laws. ISSUE: Whether or not the corporation is liable under the said contract of service. HELD: Such contract cannot be held as invalid just because the signatory thereon was not the Chairman of the Board which allegedly violated the Corporations by laws, since by-laws operate merely as internal rules among the stockholders, they cannot affect or prejudice third persons who deal with the corporation, unless they have knowledge of the same.

BUSS. ORGANIZATION 2_CORPO

15

40.

PENA

V.

COURT

OF

APPEALS Issue: Whether or not the act of the Board of Directors on November 19, 1974 is void pursuant to Section 4, Article 3 of its by laws?

Facts: [Pampanga Bus Co.] PAMBUSCO, mortgaged lots to DBP. This mortgage was foreclosed. In the foreclosure sale under Act No. 3135, the said properties were awarded to Rosita Pea as highest bidder. A certificate of sale was issued in her favor by the Senior Deputy Sheriff of Pampanga, Edgardo A. Zabat, upon payment of the sum of P128,000.00. The certificate of sale was then registered on October 29, 1974. On November 19, 1974, the board of directors of PAMBUSCO, through three (3) out of its five (5) directors, resolved to assign its right of redemption over the aforesaid lots and authorized one of its members, Atty. Joaquin Briones. Consequently, Briones executed a Deed of Assignment of PAMBUSCO's redemption right over the subject lots in favor of Marcelino Enriquez . The latter then redeemed the said properties and a certificate of redemption was issued in his favor by Sheriff Zabat upon payment of P140,474.00 to the Office of the Provincial Sheriff. Section 4, Article III of the amended by-laws of respondent PAMBUSCO, provides as follows: Sec. 4. Notices of regular and special meetings of the Board of Directors shall be mailed to each Director not less than five days before any such meeting, and notices of special meeting shall state the purpose or purposes thereof Notices of regular meetings shall be sent by the Secretary and notices of special meetings by the President or Directors issuing the call. No failure or irregularity of notice of meeting shall invalidate any regular meeting or proceeding thereat; Provided a quorum of the Board is present, nor of any special meeting; Provided at least four Directors are present. In the meeting of November 19, 1974 when the questioned resolution was approved, the three members of the Board of Directors of PAMBUSCO who were present were Jesus Domingo, Joaquin Briones, and Salvador Bernardez The remaining 2 others, namely: Judge Pio Marcos and Alfredo Mamuyac were both absent therefrom.

Held: The act is void. 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 on November 19, 1974 by virtue of a prior notice of a special meeting. There was no quorum to validly transact business since, under Section 4 of the amended by-laws hereinabove reproduced, at least four (4) members must be present to constitute a quorum in a special meeting of the board of directors of respondent PAMBUSCO. 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 as of November 15, 1949 as evidenced by a letter of the SEC to said corporation dated April 17, 1980. Being a dormant corporation for several years, it was highly irregular, to pass a resolution disposing of the only remaining asset of the corporation in favor of a former corporate officer.

BUSS. ORGANIZATION 2_CORPO

16