CIR vs. THE CLUB FILIPINO, INC.

DE CEBU
GR No. L-12719 | May 31, 1962 | Paredes, J.
FACTS: The Club Filipino, is a civic corporation organized under the laws of the
Philippines with an original authorized capital stock of P22,000, which was
subsequently increased to P200,000 to operate and maintain a golf course, tennis,
gymnasiums, bowling alleys, billiard tables and pools, and all sorts of games not
prohibited by general laws and general ordinances, and develop and nurture sports of
any kind and any denomination for recreation and healthy training of its
members and shareholders" (sec. 2, Escritura de Incorporacion (Deed of
Incorporation) del Club Filipino, Inc.). There is no provision either in the articles or in
the by-laws relative to dividends and their distribution, although it is covenanted that
upon its dissolution, the Club's remaining assets, after paying debts, shall be donated
to a charitable Phil. Institution in Cebu (Art. 27, Estatutos del (Statutes of the) Club).
The Club owns and operates a club house, a bowling alley, a golf course (on a lot
leased from the government), and a bar-restaurant where it sells wines and liquors,
soft drinks, meals and short orders to its members and their guests. The barrestaurant was a necessary incident to the operation of the club and its golf-course.
The club is operated mainly with funds derived from membership fees and dues.
Whatever profits it had, were used to defray its overhead expenses and to improve
its golf-course. In 1951, as a result of a capital surplus, arising from the re-valuation
of its real properties, the value or price of which increased, the Club declared stock
dividends; but no actual cash dividends were distributed to the stockholders.
In 1952, a BIR agent discovered that the Club has never paid percentage tax on the
gross receipts of its bar and restaurant, although it secured licenses. In a letter, the
Collector assessed against and demanded from the Club P12,068.84 1 as fixed and
percentage taxes, surcharge and compromise penalty. Also, the Collector denied the
Clubs request to cancel the assessment.
On appeal, the CTA reversed the Collector and ruled that the Club is not liable for the
assessed tax liabilities of P12,068.84 allegedly due from it as a keeper of bar and
restaurant as it is a non-stock corporation. Hence, the Collector filed the instant
petition for review.
ISSUE: WON the Club is a stock corporation
HELD: NO. It is a non-stock corporation.
The facts that the capital stock of the Club is divided into shares, does not detract
from the finding of the trial court that it is not engaged in the business of operator of
bar and restaurant. What is determinative of whether or not the Club is
engaged in such business is its object or purpose, as stated in its articles
and by-laws. The actual purpose is not controlled by the corporate form or by the
commercial aspect of the business prosecuted, but may be shown by extrinsic
evidence, including the by-laws and the method of operation. From the extrinsic
evidence adduced, the CTA concluded that the Club is not engaged in the business as
a barkeeper and restaurateur.
For a stock corporation to exist, two requisites must be complied with:

1. a capital stock divided into shares and

2. an authority to distribute to the holders of such shares, dividends or allotments of
the surplus profits on the basis of the shares held (sec. 3, Act No. 1459).
Nowhere in its articles of incorporation or by-laws could be found an authority for the
distribution of its dividends or surplus profits. Strictly speaking, it cannot, therefore,
be considered a stock corporation, within the contemplation of the corpo law.

PHILIPPINE TRUST COMPANY, vs .MARCIANO RIVERA

G.R. No. L-19761
January 29, 1923
Facts: Cooperativa Naval Filipina was duly incorporated with a capital of P100,000, divided into 100
shares at a par value of P100 each. Among its incorporators was Marciano Rivera, who subscribed for 450
shares, representing a value of P45,000. The company however became insolvent. Philippine Trust became
its assignee in bankruptcy. PhilTrust sought to recover of the stock subscription of Rivera, which
admittedly, has never been paid. Rivera contends that he never paid because the stockholders of Naval
issued a resolution shortly after the companys incorporation, stating that the capital shall be reduced by
50%. As a result, Rivera contends that the subscribers were released from the obligation to pay any unpaid
balance of their subscription in excess of 50% of their subscriptions. Rivera further contends that the
subscriptions of the subscribers were 50% cancelled, and certificates of shares of stock were issued for the
said remaining 50% of the subscriptions.
Issue: Whether such reduction of the capital stock is valid.
Held: No. SC held that the said resolution is without effect for being:
1.
An attempted withdrawal of so much capital from the fund which the companys creditors were
entitled ultimately to rely, and
2.
For having been effected without compliance with the statutory requirements of 17 of the
Corporation Law regarding reduction of capital stock, and
3.
For failure to file a certificate with the Bureau of Commerce and Industry, showing such reduction.
Thus, stockholder is still liable for the unpaid balance of his subscription.
Ratio: Subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look
for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid
stock subscription in order to realize assets for the payment of its debts. A corporation has no power to
release an original subscriber to its capital stock from the obligation of paying for his shares, w/o 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 AOI.
Moreoever, strict compliance with statutory regulations is necessary.
Note: that for reasons 2 and 3, Campos says that 17 has been replaced by 38, and now, even if all the
requirements are complied with, if creditors are prejudiced by such reduction, it is most unlikely that the
SEC will approve it.

ASIA BANKING CORPORATION vs. STANDARD PRODUCTS, CO.,

INC
G.R. No. 22106

September 11, 1924

FACTS: Standard Products, Co., Inc., was indebted to Asia Banking

Corporation for the amount of P37,757.22. To secure its indebtedness,
it executed a promissory note in favor of plaintiff-appellee. Upon
demand for the balance due, the respondent-appellant failed to pay.
Hence an action was brought by plaintiff-appellee to recover the sum
of P24,736.47. The court rendered judgment in favor of the plaintiffappellee for the sum demanded in the complaint, with interest on the
sum of P24,147.34 from November 1, 1923, at the rate of 10 per cent
per annum, and the costs. Hence this appeal by the respondentappellant. At the trial of the case the plaintiff failed to prove
affirmatively the corporate existence of the parties and the appellant
insists that under these circumstances the court erred in finding that
the parties were corporations with juridical personality and assigns
same as reversible error.
ISSUE: Whether or not respondent is estopped from denying the
corporate existence of the plaintiff.
RULING: The general rule is that in the absence of fraud a person who
has contracted or otherwise dealt with an association in such a way as
to recognize and in effect admit its legal existence as a corporate body
is thereby estopped to deny its corporate existence in any action
leading out of or involving such contract or dealing, unless its
existence is attacked for cause which have arisen since making the
contract or other dealing relied on as an estoppel and this applies to
foreign as well as to domestic corporations. The defendant having
recognized the corporate existence of the plaintiff by making a
promissory note in its favor and making partial payments on the same
is therefore estopped to deny said plaintiff's corporate existence. It is,
of course, also estopped from denying its own corporate existence.

Under these circumstances it was unnecessary for the plaintiff to

present other evidence of the corporate existence of either of the
parties. It may be noted that there is no evidence showing
circumstances taking the case out of the rules stated.

MANUELA VS. SALVATIERRA

In1954,ManuelaVda.DeSalvatierraenteredintoalease contractwith
PhilippineFibersProducersCo.,Inc.(PFPC).PFPCwasrepresentedbyits
presidentSegundinoRefuerzo.ItwasagreedthatManuelashallleaseher
landtoPFPCinexchangeofrentalpaymentsplussharesfromthesalesof
crops.However,PFPCfailedtocomplywithitsobligationsandsoin1955,
ManuelasuedPFPCandshewon.AnorderwasissuedbyJudgeLorenzo
Garlitos of CFI Leyte ordering the execution of the judgment against
Refuerzosproperty(therebeingnopropertyunderPFPC).Refuerzomoved
forreconsiderationonthegroundthatheshouldnotbeheldpersonallyliable
because he merely signed the lease contract in his official capacity as
presidentofPFPC.GarlitosgrantedRefuerzosmotion.
ManuelaassailedthedecisionofthejudgeonthegroundthatshesuedPFPC
withoutimpleadingRefuerzobecausesheinitiallybelievedthatPFPCwasa
legitimatecorporation.However,duringtrial,shefoundoutthatPFPCwas
notactuallyregisteredwiththeSecuritiesandExchangeCommission(SEC)
henceRefuerzoshouldbepersonallyliable.
ISSUE:WhetherornotManuelaiscorrect.
HELD: Yes. It is true that as a general rule, the corporation has a
personality separate and distinct from its incorporators and as such the
incorporators cannot be held personally liable for the obligations of the
corporation. However, this doctrine is not applicable to unincorporated
associations. The reason behind this doctrine is obvioussince an
organizationwhichbeforethelawisnonexistenthasnopersonalityand
would be incompetent to act and appropriate for itself the powers and

attribute of a corporation as provided by law; it cannot create agents or

conferauthorityonanothertoactinitsbehalf;thus,thosewhoactorpurport
toactasitsrepresentativesoragentsdosowithoutauthorityandattheir
ownrisk.Inthiscase,RefuerzowasthemovingspiritbehindPFPC.As
such,hisliabilitycannotbelimitedorrestrictedthatimposedupon[would
be]corporateshareholders.Inactingonbehalfofacorporationwhich he
knew tobeunregistered,heassumedtheriskofreapingtheconsequential
damagesorresultantrights,ifany,arisingoutofsuchtransaction.