BUS.ORG2 OUTLINE NO.

2 (2016)
Prof. M.I.P. Romero
lV. CLASSES OF CORPORATIONS UNDER THE CORP.
CODE
1.

Sec. 3, 87, 88 --- stock and non-stock corporation

Section 3. Classes of corporations. Corporations formed

or organized under this Code may be stock or non-stock
corporations. Corporations which have capital stock divided
into shares and are authorized to distribute to the holders of
such shares dividends or allotments of the surplus profits on
the basis of the shares held are stock corporations. All other
corporations are non-stock corporations. (3a)
TITLE XI
NON-STOCK CORPORATIONS
Section 87. Definition. For the purposes of this Code, a
non-stock corporation is one where no part of its income is
distributable as dividends to its members, trustees, or
officers, subject to the provisions of this Code on dissolution:
Provided, That any profit which a non-stock corporation may
obtain as an incident to its operations shall, whenever
necessary or proper, be used for the furtherance of the
purpose or purposes for which the corporation was
organized, subject to the provisions of this Title.
The provisions governing stock corporation, when pertinent,
shall be applicable to non-stock corporations, except as may
be covered by specific provisions of this Title. (n)
Section 88. Purposes. Non-stock corporations may be
formed or organized for charitable, religious, educational,
professional, cultural, fraternal, literary, scientific, social, civic
service, or similar purposes, like trade, industry, agricultural
and like chambers, or any combination thereof, subject to the
special provisions of this Title governing particular classes of
non-stock corporations. (n)
1.Valley Golf Club v. Vda. De Caram
2. Coll. of Int. Rev. v. Club Filipino

585 SCRA 218 (2009)

5 SCRA 321 (1962)

1. Valley Golf and Country Club vs Rosa O. vda de Caram

Facts:
Valley Golf & Country Club (Valley Golf) is a duly constituted
non-stock, non-profit corporation which operates a golf course. The
shareholders are assessed monthly membership dues.
Late congressman Fermin Caram, husband of respondent,
subscribed to and paid for in full, one share in the capital stock of
Valley Golf, for a par value of P9k.
Starting Jan 25 1980, Caram stopped paying his monthly
dues, which were assessed until 1987. 5 demand letters were sent,
which prompted Valley Golf to sell his share to satisfy the claims of
Valley Golf which amounted to P 7525.45.
The Golf share was sold at public auction for P25k. As it
turned out, Caram died on Oct 6 1986. Respondent initiated
intestate proceedings before the RTC for settlement of husbands
estate. The Golf share was included as part of the estate. The Golf
share was adjudicated to respondent. When heirs of Caram
learned of the sale of the share, Valley Golf informed them they
were entitled to the refund of 11 out of the proceeds of the sale of
the Golf Share.
Respondent filed action for reconveyance with damages
before the SEC against Valley Golf. SEC rendered decision in
favor of respondent, ordering Valley Gold to convey ownership of
the share or alternatively, to issue one fully paid share of stock of
the same class as the Golf Share. Damages totaling 90k were also
awarded.
under Section 67, paragraph 2 of the Corporation Code, a
share stock could only be deemed delinquent and sold in an
extrajudicial sale at public auction only upon the failure of the
stockholder to pay the unpaid subscription or balance for the
share. The section could not have applied in Caram's case
since he had fully paid for the Golf Share and he had been
assessed not for the share itself but for his delinquent club
dues. Proceeding from the foregoing premises, the SEC hearing
officer concluded that the auction sale had no basis in law and was
thus a nullity. IEDHAT

The SEC hearing officer did entertain Valley Golf's argument

that the sale of the Golf Share was authorized under the by-laws.
However, it was ruled that pursuant to Section 6 of the Corporation
Code, "a provision creating a lien upon shares of stock for unpaid
debts, liabilities, or assessments of stockholders to the corporation,
should be embodied in the Articles of Incorporation, and not
merely in the by-laws, because Section 6 (par. 1) prescribes
that the shares of stock of a corporation may have such
rights, privileges and restrictions as may be stated in the
articles of incorporation." It was observed that the Articles of
Incorporation of Valley Golf did not impose any lien, liability or
restriction on the Golf Share or, for that matter, even any
conditionality that the Golf Share would be subject to assessment
of monthly dues or a lien on the share for non-payment of such
dues. In all, the decision concluded that the sale of the Golf Share
was effectively a deprivation of property without due process of
law.
SEC en banc ruling: affirmed the hearing officers decision
CA ruling: affirmed the SEC hearing officer and en banc
decisions
Issue: WON a non-stock corporation may seize and dispose if the
membership shares of a fully paid member on account of its unpaid
debts to the corporation when it is authorized to do so under the
corporate by-laws but not by the Articles of Incorporation?
Held: As found by the SEC and the Court of Appeals, the Articles of
Incorporation of Valley Golf does not contain any provision
authorizing the corporation to create any lien on a member's Golf
Share as a consequence of the member's unpaid assessments or
dues to Valley Golf. Before this Court, Valley Golf asserts that such
a provision is contained in its by-laws. We required the parties to
submit a certified copy of the bylaws of Valley Golf in effect as of 11
June 1987. In compliance, Valley Golf submitted a copy of its bylaws, originally adopted on 6 June 1958 and amended on 26
November 1986. The amendments bear no relevance to the issue
of delinquent membership dues.

However, there is a specific provision under the Title XI, on

Non-Stock Corporations of the Corporation Code dealing with
termination of membership. Section 91 of the Corporation Code
provides:
SEC. 91. Termination of membership . Membership shall
be terminated in the manner and for the causes provided in
the articles of incorporation or the by-laws. Termination of
membership shall have the effect of extinguishing all rights of a
member in the corporation or in its property, unless otherwise
provided in the articles of incorporation or the by-laws.
Clearly, the right of a non-stock corporation such as Valley
Golf to expel a member through the forfeiture of the Golf Share
may be established in the by-laws alone, as is the situation in this
case. Thus, both the SEC and the appellate court are wrong in
holding that the establishment of a lien and the loss of the Golf
Share consequent to the enforcement of the lien should have been
provided for in the articles of incorporation.
It may be conceded that the actions of Valley Golf were,
technically speaking, in accord with the provisions of its by-laws on
termination of membership, vaguely defined as these are. Yet
especially since the termination of membership in Valley Golf is
inextricably linked to the deprivation of property rights over the Golf
Share, the emergence of such adverse consequences make legal
and equitable standards come to fore.
The commentaries of Lopez advert to an SEC Opinion dated
29 September 1987 which we can cite with approval. Lopez cites:
TaHIDS
[I]n order that the action of a corporation in expelling a
member for cause may be valid, it is essential, in the absence of a
waiver, that there shall be a hearing or trial of the charge against
him, with reasonable notice to him and a fair opportunity to be
heard in his defense. (Fletcher Cyc. Corp., supra) If the method of
trial is not regulated by the by-laws of the association, it
should at least permit substantial justice. The hearing must be
conducted fairly and openly and the body of persons before whom
it is heard or who are to decide the case must be unprejudiced.

(SEC Opinion dated September 29, 1987, Baclaran-Sucat Drivers

Association)
It is unmistakably wise public policy to require that the
termination of membership in a non-stock corporation be done in
accordance with substantial justice. No matter how one may
precisely define such term, it is evident in this case that the
termination of Caram's membership betrayed the dictates of
substantial justice.
Valley Golf alleges in its present petition that it was notified of
the death of Caram only in March of 1990, a claim which is
reiterated in its Reply to respondent's Comment. Yet this claim is
belied by the very demand letters sent by Valley Golf to Caram's
mailing address. The letters dated 25 January 1987 and 7 March
1987, both of which were sent within a few months after Caram's
death are both addressed to "Est. of Fermin Z. Caram, Jr.;" and the
abbreviation "[e]st." can only be taken to refer to "estate". This is to
be distinguished from the two earlier letters, both sent prior to
Caram's death on 6 October 1986, which were addressed to
Caram himself. Inexplicably, the final letter dated 3 May 1987 was
again addressed to Caram himself, although the fact that the two
previous letters were directed at the estate of Caram stands as
incontrovertible proof that Valley Golf had known of Caram's death
even prior to the auction sale.
What do these facts reveal? Valley Golf acted in clear bad
faith when it sent the
final notice to Caram under the pretense they believed him to
be still alive, when in fact they had very well known that he had
already died.
Whatever the reason Caram was unable to respond to the
earlier notices, the fact remains that at the time of the final
notice, Valley Golf knew that Caram, having died and gone,
would not be able to settle the obligation himself, yet they
persisted in sending him notice to provide a color of regularity
to the resulting sale.
The Court also respects the fact that membership is * nonstock corporations is a voluntary arrangement, and that the

member who signs up is bound to adhere to what the articles of

incorporation or the by-laws provide, even if provisions are
detrimental to the interest of the member. At the same time, in the
absence of a satisfactory procedure under the articles of
incorporation or the by-laws that affords a member the opportunity
to defend against the deprivation of significant property rights in
accordance with substantial justice, the terms of the by-laws or
articles of incorporation will not suffice. There will be need in such
case to refer to substantive law. Such a flaw attends the articles of
incorporation and bylaws of Valley Golf. The Court deems it
judicious to refer to the protections afforded by the Civil Code, with
respect to the preservation, maintenance, and defense from loss of
property rights.
2. COLLECTOR OF INTERNAL REVENUE vs. THE CLUB
FILIPINO, INC. DE CEBU
G.R. No. L-12719. May 31, 1962.
Doctrine: 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.
FACTS: "Club Filipino, Inc. de Cebu," is a civic corporation
organized under the laws of the Philippines, with an original
authorized capital stock of P22,000.00, which was subsequently
increased to P200,000.00, among others. Neither in the articles or
by-laws is there a provision 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 Philippine Institution in Cebu.
The Club owns and operates a club house, a bowling alley, a
golf course (on a lot leased from the government), and a barrestaurant where it sells wines and liquors, soft drinks, meals and
short orders to its members and their guests. The bar-restaurant
was a necessary incident to the operation of the club and its golfcourse. 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. Thus, the CIR assessed against and
demanded from the Club P12,068.84 as fixed and percentage
taxes, surcharge and compromise penalty. The Club wrote the CIR
for the cancellation of the assessment but the same was denied.
The Court of Tax Appeals reversed the decision of the CIR. Thus,
this petition for review.
ISSUE: Whether Club Filipino de Cebu may be considered a stock
corporation and is therefore liable to pay fixed and percentage
taxes and compromise penalty.
HELD: No. The facts that the capital stock of the respondent 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. It is a familiar rule that 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
Tax Court concluded that the Club is not engaged in the business
as a barkeeper and restaurateur.
Moreover, for a stock corporation to exist, two requisites
must be complied with, to wit: (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). In the case at
bar, while the respondent Club's, capital stock is divided into
shares, 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 corporation law.
2.
Code:

Other classes of corporations under the Corporation

Close corporation Sec. 96
Special corporations Educational, religious

(Title XIII)
Foreign corporations --- Sec. 123

Others: subsidiary (wholly-owned v. majority owned),

affiliate,
parent/holding company, joint venture
corporation, open vs. close, lay vs. religious,
eleemosynary vs. civil corp., etc.
GOVERNED primarily by specific titles, then
suppletorily by the other applicable provisions of the
Corp. Code
TITLE XII
CLOSE CORPORATIONS
Section 96. Definition and applicability of Title. - A close
corporation, within the meaning of this Code, is one whose
articles of incorporation provide that: (1) All the corporations
issued stock of all classes, exclusive of treasury shares, shall
be held of record by not more than a specified number of
persons, not exceeding twenty (20); (2) all the issued stock of
all classes shall be subject to one or more specified
restrictions on transfer permitted by this Title; and (3) The
corporation shall not list in any stock exchange or make any
public offering of any of its stock of any class.
Notwithstanding the foregoing, a corporation shall not be
deemed a close corporation when at least two-thirds (2/3) of
its voting stock or voting rights is owned or controlled by
another corporation which is not a close corporation within
the meaning of this Code.
Any corporation may be incorporated as a close
corporation, except mining or oil companies, stock
exchanges, banks, insurance companies, public utilities,
educational institutions and corporations declared to be
vested with public interest in accordance with the provisions
of this Code.
The provisions of this Title shall primarily govern close
corporations: Provided, That the provisions of other Titles of
this Code shall apply suppletorily except insofar as this Title
otherwise provides.
TITLE XIII
SPECIAL CORPORATIONS
CHAPTER I - EDUCATIONAL CORPORATIONS

Section 106. Incorporation. Educational corporations

shall be governed by special laws and by the general
provisions of this Code. (n)
Section 107. Pre-requisites to incorporation. Except upon
favorable recommendation of the Ministry of Education and
Culture, the Securities and Exchange Commission shall not
accept or approve the articles of incorporation and by-laws of
any educational institution. (168a)
Section 108. Board of trustees. Trustees of educational
institutions organized as non-stock corporations shall not be
less than five (5) nor more than fifteen (15): Provided,
however, That the number of trustees shall be in multiples of
five (5).
Unless otherwise provided in the articles of incorporation on
the by-laws, the board of trustees of incorporated schools,
colleges, or other institutions of learning shall, as soon as
organized, so classify themselves that the term of office of
one-fifth (1/5) of their number shall expire every year.
Trustees thereafter elected to fill vacancies, occurring before
the expiration of a particular term, shall hold office only for the
unexpired period. Trustees elected thereafter to fill vacancies
caused by expiration of term shall hold office for five (5)
years. A majority of the trustees shall constitute a quorum for
the transaction of business. The powers and authority of
trustees shall be defined in the by-laws.
For institutions organized as stock corporations, the number
and term of directors shall be governed by the provisions on
stock corporations. (169a)
TITLE XV
FOREIGN CORPORATIONS
Section 123. Definition and rights of foreign corporations.
For the purposes of this Code, a foreign corporation is one
formed, organized or existing under any laws other than
those of the Philippines and whose laws allow Filipino
citizens and corporations to do business in its own country or
state. It shall have the right to transact business in the
Philippines after it shall have obtained a license to transact
business in this country in accordance with this Code and a
certificate of authority from the appropriate government
agency. (n)

Others:
1. subsidiary corporation (wholly-owned v. majority owned) o ne
which is so related to another corporation that the majority
of its directors can be elected either directly or indirectly by
such other corporation. It is always controlled. A corporation
more than 50% of the voting stock of which is owned or
controlled directly or indirectly through one or more
intermediaries by another corporation, which thereby
becomes its parent corporation.
2. Affiliate - a corporation that, directly or indirectly, through one or
more intermediaries, is controlled by, or is under the
common control of another corporation, which thereby
becomes its parent corporation. One related to another by
owning or being owned by common management or by a
long term lease of its properties or other control device. It
may be controlled or controlling corporation, or under
common control.
3. parent/holding company (holding corporation) -it is one which
controls another as a subsidiary by the power to elect
management. It is one that holds stocks in other companies
for purposes of control rather than for mere investment.
4. Parent and subsidiary corporation- when a corporation has a
controlling financial interest in one or more corporations, the
one having control is the parent corporation, and the others
are the subsidiary corporations.
5. joint venture corporation6. open vs. close corporationopen corporationclose corporation7. lay vs. religious/ecclesiastical corporation
lay corporation- one organized for a purpose other than for
religion
religious/ecclesiastical corporation- one organized for
religious purposes
8. Eleemosynary vs. civil corporation
Eleemosynary corporation- one established for or devoted to
charitable purposes or those supported by charity
Civil corporation- one established for business or profit

V. CREATION OF CORPORATION
Steps in the formation of a corporation
a. Promotional Stage (See SEC. 2. Definitions)
b. Drafting articles of incorporation (See SEC.
14)
c. Filing of articles; payment of fees.
d. Examination of articles; approval or rejection by
SEC.
e. Issuance of certificate of incorporation.
1. Promotion (relate to Sec. 3.10. of Securities Regulation
Code)
Sec. 3.10. Promoter is a person who, acting alone
or with others, takes initiative in founding and organizing
the business or enterprise of the issuer and receives
consideration therefor.
Promotion- activities done by the promoter for the
founding and organizing of the business or enterprise of
the issuer. Not a formal part of the organization of
corporation.
3. Rizal Light & Ice,Inc. v. Pub. Serv. Comm

25 SCRA

285
4. McArthur v. Times Printing Co.
31 Am. St.
Rep. 653
5. Cagayan Fishing v. Sandiko
65 Phil
223
6. Caram v. CA
151 SCRA 373
(1987)
7. Old Dominion Copper Mining Co. v. Bigelow
203
Mass. 159
3. RIZAL LIGHT & ICE CO., INC., vs. THE MUNICIPALITY OF
MORONG, RIZAL and THE PUBLIC SERVICE COMMISSION
G.R. No. L-20993/ L-21221
September 28, 1968
FACTS: Petitioner is a domestic corporation 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. The

Commission required the petitioner to appear to show cause why it

should not be penalized for violation of the conditions of its
certificate of public convenience and the regulations of the
Commission, and for failure to comply with the directives to raise
its service voltage and maintain them within the limits prescribed in
of the Commission, and to acquire and install a kilowattmeter to
indcate the load in kilowatts at any particular time of the generating
unit. The Commission found that the petitioner had failed to comply
with the directives, and had violated the conditions of its certificate
of public convenience as well as the rules and regulations of the
Commission. The Commission concluded that the petitioner
"cannot render the efficient, adequate and satisfactory electric
service required by its certificate and that it is against public
interest to allow it to continue its operation." Accordingly, it ordered
the cancellation and revocation of petitioner's certificate of public
convenience and the forfeiture of its franchise. Petitioner moved for
reconsideration of the decision. But eight days before said motion
for reconsideration was filed, or on September 10, 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
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. Petitioner filed another
motion, asking for 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. This motion to dismiss was
denied by the Commission in a formal order issued on January 17,
1963 on the premise that applicant Morong Electric was a de facto
corporation. On the basis of the evidence adduced, the
Commission, in its decision dated March 13, 1963, found that there
was an absence of electric service in the municipality of Morong
and that applicant Morong Electric, a Filipino-owned corporation
duly organized and existing under the laws of the Philippines, has
the financial capacity to maintain said service. These
circumstances, considered together with the denial of the motion
for reconsideration filed by petitioner in, such that as far as the
Commission was concerned the certificate of the petitioner was
already declared revoked and cancelled, the Commission

approved the application of Morong Electric and ordered the

issuance in its favor of the corresponding certificate of public
convenience and necessity.
Petitioner filed with this Court a petition to review the decision
in Case No. 39715 (now G. R. No. L-20993). Then on April 26,
1963, petitioner also filed a petition to review the decision in Case
No. 62-5143 (now G. R. No. L-21221).It claims, in effect, that
Morong Electric should not have been granted the certificate of
public convenience and necessity because it did not have a
corporate personality at the time it was granted a franchise and
when it applied for said certificate.
ISSUE: WON Morong Electric did not have a corporate personality
at the time the franchise was granted and therefore renders the
franchise invalid.
HELD: Petitioner's 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.
But the 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.
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.
Thus, the Commission did not err in denying petitioner's motion to
dismiss said application and in proceeding to hear the same. The
efficacy of the franchise, however, arose only upon its approval by
the Commission. The reason is that
Under Act No. 667, as amended by Act No. 1022, a municipal
council has the power to grant electric franchises, subject to the
approval of the provincial board and the President. However, under
Section 16(b) of Commonwealth Act No. 146, as amended, the

Public Service Commission is empowered "to approve, subject to

constitutional limitations any franchise or privilege granted under
the provisions of Act No. 667, as amended by Act No. 1022, by any
political subdivision of the Philippines when, in the judgment of the
Commission, such franchise or privilege will properly conserve the
public interests and the Commission shall in so approving impose
such conditions as to construction, equipment, maintenance,
service, or operation as the public interests and convenience may
reasonably require, and to issue certificates of public convenience
and necessity when such is required or provided by any law or
franchise." Thus, the efficacy of a municipal electric franchise
arises, therefore, only after the approval of the Public Service
Commission. (Almendras vs. Ramos, 90 Phil. 231) .
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.
4. McArthur v. Times Printing Co. case brief summary 51 N.W.
216 (1892)
CASE SYNOPSIS
Defendant appealed a Hennepin County District Court
(Minnesota) denial of its request for a new trial on plaintiff's claims
for damages for breach of an employment contract.
FACTS: Plaintiff alleged that defendant contracted with him for a
period of one year and that defendant discharged him in violation
of its contract. Defendant argued that plaintiff's employment was
from week to week and that he was discharged with good cause.

Trial court found for plaintiff, as the evidence showed that a

promoter had made the contract on behalf of defendant while
defendant was contemplating organization of corporation.
Evidence further showed that after organization, defendant's board
never took any formal action with regards to the contract, but that
all of its stockholders, directors, and officers knew of the contract
and they retained plaintiff without implementing any new contracts.
The
defendant
appealed
the
decision.

frauds make the contract void because its performance was to be

completed more than a year from the date the promoters created
it? Held No. Such a theory assumes ratification under a theory of
agency. Ratification is not appropriate, because it creates the
contract at a time in which the corporation did not exist. In reality,
the time of the start of the contract was when the corporation
adopted the contract, after the formation of the corporation, which
allowed less than a year for fulfillment of performance.

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

5. Cagayan Fishing Development Co., Inc., vs. Sandiko, [G.R.

No. L-43350 December 23, 1937]

CONCLUSION
Denial of defendant's request for a new trial on plaintiff's claims of
breach of employment contract affirmed. Court held while
defendant was not bound by contracts made by promoters before
organization of corporation; after organization, it made the contract
its own by acquiescing in plaintiff's employment and retaining him
without other contracts.
Facts: Nimrocks and others were promoters of a corporation to
publish a newspaper, and contracted with plaintiff to be advertising
solicitor for one year after the company was formed. The
corporation after formation never formally adopted the contract,
although all the stockholders, directors, and officers of the
corporation knew of the contract and didn't object, but instead
retained plaintiff as an employee.
Issue: Is a corporation liable for promoters' contracts to which the
corporation implicitly accepts?
Held Yes. A corporation is not bound to a contract made by
promoters before the company's organization, but the corporation
can adopt a contract as if it were making the contract originally: by
acceptance by the board of directors. The contract must be one the
corporation would have made and one for which the agents of the
corporation would have express or implied authority to make. Here
the plaintiff's employment contract was inferred from acts and/or
acquiescence on the part of the corporation. Does the statute of

Facts: Manuel Tabora is the registered owner of four parcels of

land. To guarantee the payment of two loans, Manuel Tabora,
executed in favor of PNB two mortgages over the four parcels of
land between August, 1929, and April 1930. Later, a third mortgage
on the same lands was executed also on April, 1930 in favor of
Severina Buzon to whom Tabora was indebted.
On 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 plaintiff company, said to under process of incorporation. The
plaintiff company filed its article incorporation with the Bureau of
Commerce and Industry only on October, 1930 (Exhibit 2).
A year later, the board of directors of said company adopted
a resolution authorizing its president to sell the four parcels of
lands in question to Teodoro Sandiko. Exhibits B, C and D
were thereaftermade and executed. Exhibit B is a deed of
sale where the plaintiff sold ceded and transferred to the defendant
all its right, titles, and interest in and to the four parcels of land.
Exhibit C is a promissory note drawn by the defendant in favor of
the plaintiff, payable after one year from the date thereof. Exhibit D
is a deed of mortgage executed where the four parcels of land
were given a security for the payment of the promissory note,
Exhibit C.
The defendant having failed to pay the sum stated in the
promissory note, plaintiff, brought this action in the Court of First
Instance of Manila praying that judgment be rendered against the

defendant for the sum stated in the promissory note. After trial, the
court rendered judgment absolving the defendant. Plaintiff
presented a motion for new trial, which motion was denied by the
trial court. After due exception and notice, plaintiff has appealed to
this court and makes an assignment of various errors.

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.

Issue: Whether Exhibit B, the deed of sale executed in favor of

Teodoro Sandiko, was valid.

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.

Held: No, it was not.

The transfer made by Tabora to the Cagayan fishing
Development Co., Inc., plaintiff herein, was affected on May 31,
1930 (Exhibit A) and the actual incorporation of said company was
affected later on October 22, 1930 (Exhibit 2). In other words, the
transfer was made almost five months before the incorporation of
the company.
Unquestionably, a duly organized corporation has the power
to purchase and hold such real property as the purposes for which
such corporation was formed may permit and for this purpose may
enter into such contracts as may be necessary. But before a
corporation may be said to be lawfully organized, many things
have to be done. Among other things, the law requires the
filing of articles of incorporation.
In the case before us it can not be denied that the plaintiff
was not yet incorporated when it entered into a contract of sale,
Exhibit A. 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 (Exhibit A)
was entered into not between Manuel Tabora and a non-existent
corporation but between the Manuel Tabora as owner of the four
parcels of lands on the one hand and the same Manuel Tabora, his
wife and others, as mere promoters of a corporations on the other
hand.
For reasons that are self-evident, these promoters could not
have acted as agent for a projected corporation since that which no
legal existence could have no agent. A corporation, until organized,
has no life and therefore no faculties.

6. FERMIN Z. CARAM, JR. and ROSA O. DE CARAM

vs. THE HONORABLE COURT OF APPEALS and ALBERTO V.
ARELLANO
G.R. No. L-48627 June 30, 1987
Doctrine:
A bona fide corporation is liable for its corporate acts as duly
authorized by its officers and directors.
Facts:
Respondent Alberto Arellano was contracted by Barretto and
Garcia to do a project study and other technical services in forming
a corporation, which was later on named Filipinas Orient Airways.
The project study was presented by Barretto and Garcia to the
Carams. After seeing the project study, the Carams were
convinced to invest and become stockholders of the said company.
The case involves the collection of the unpaid compensation
for Arellanos services. The CA decided that the Carams were
jointly and severally liable to Arellano stating that:
It was on the basis of this study that defendant corporation
was actually organized and rendered operational. Defendants
Garcia and Caram, and Barretto became members of the Board
and/or officers of defendant corporation. Thus, not only the
defendant corporation but all the other defendants who were
involved in the preparatory stages of the incorporation, who caused
the preparation and/or benefited from the project study and the
technical services of plaintiff must be liable. Hence this petition.
Issue/s:WON the CA was correct in holding the Carams liable?
Held:

The Court held that the Carams were not liable. The
petitioners 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.
In the light of these circumstances, we hold that the
petitioners cannot be held personally liable for the compensation
claimed by the private respondent for the services performed by
him in the organization of the corporation. To repeat, the petitioners
did not contract such services. It was only the results of such
services that Barretto and Garcia presented to them and which
persuaded them to invest in the proposed airline. The most that
can be said is that they benefited from such services, but that
surely is no justification to hold them personally liable therefor.
Otherwise, all the other stockholders of the corporation, including
those who came in later, and regardless of the amount of their
share holdings, would be equally and personally liable also with the
petitioners for the claims of the private respondent.
2. Incorporation
3. Formal organization versus commencement of business
Sec. 19
Section
19. Commencement
of
corporate
existence. A private corporation formed or organized
under this Code commences to have corporate existence
and juridical personality and is deemed incorporated from
the date the Securities and Exchange Commission
issues a certificate of incorporation under its official seal;
and thereupon the incorporators, stockholders/members
and their successors shall constitute a body politic and
corporate under the name stated in the articles of

incorporation for the period of time mentioned therein,

unless said period is extended or the corporation is
sooner dissolved in accordance with law. (n)
VI. INCORPORATION
1) Steps in incorporation
a. drafting and execution of articles of Incorporation by the
incorporators and other documents required for
registration of the corporation. The personc hosen as
temporary treasurer pending incorporation must also
execute: 1. An affidavit certifying compliance with
subscription and paid-up requirements as to capital
stock.
b. filing with the SEC of the articles of Incorporation
together with: 1. Treasurers affidavit. 2. In case the
corp. is governed by special law , a favorable
recommendation of the appropriate government agency
that such Articles of incorporation is in accordance with
law.
c. payment of filing and publication fees
d. issuance by the SEC of the Certificate of Incorporation
2) Sections 5, 10 19, 88, 96, 97
Section 5. Corporators and incorporators, stockholders
and members. Corporators are those who compose a
corporation, whether as stockholders or as members.
Incorporators are those stockholders or members mentioned
in the articles of incorporation as originally forming and
composing the corporation and who are signatories thereof.
Corporators in a stock corporation are called
stockholders or shareholders. Corporators in a non-stock
corporation are called members. (4a)
TITLE II
INCORPORATION AND ORGANIZATION OF PRIVATE
CORPORATIONS
Section
10. Number
and
qualifications
of
incorporators. Any number of natural persons not less than
five (5) but not more than fifteen (15), all of legal age and a
majority of whom are residents of the Philippines, may form a

private corporation for any lawful purpose or purposes. Each

of the incorporators of s stock corporation must own or be a
subscriber to at least one (1) share of the capital stock of the
corporation. (6a)
Section 11. Corporate term. A corporation shall exist
for a period not exceeding fifty (50) years from the date of
incorporation unless sooner dissolved or unless said period is
extended. The corporate term as originally stated in the
articles of incorporation may be extended for periods not
exceeding fifty (50) years in any single instance by an
amendment of the articles of incorporation, in accordance
with this Code; Provided, That no extension can be made
earlier than five (5) years prior to the original or subsequent
expiry date(s) unless there are justifiable reasons for an
earlier extension as may be determined by the Securities and
Exchange Commission. (6)
Section 12. Minimum capital stock required of stock
corporations. Stock corporations incorporated under this
Code shall not be required to have any minimum authorized
capital stock except as otherwise specifically provided for by
special law, and subject to the provisions of the following
section.
Section 13. Amount of capital stock to be subscribed
and paid for the purposes of incorporation. At least twentyfive percent (25%) of the authorized capital stock as stated in
the articles of incorporation must be subscribed at the time of
incorporation, and at least twenty-five (25%) per cent of the
total subscription must be paid upon subscription, the
balance to be payable on a date or dates fixed in the contract
of subscription without need of call, or in the absence of a
fixed date or dates, upon call for payment by the board of
directors: Provided, however, That in no case shall the paidup capital be less than five Thousand (P5,000.00) pesos. (n)
Section 14. Contents of the articles of incorporation.
All corporations organized under this code shall file with the
Securities and Exchange Commission articles of
incorporation in any of the official languages duly signed and
acknowledged by all of the incorporators, containing
substantially the following matters, except as otherwise
prescribed by this Code or by special law:
1. The name of the corporation;

2. The specific purpose or purposes for which the

corporation is being incorporated. Where a corporation has
more than one stated purpose, the articles of incorporation
shall state which is the primary purpose and which is/are the
secondary purpose or purposes: Provided, That a non-stock
corporation may not include a purpose which would change
or contradict its nature as such;
3. The place where the principal office of the
corporation is to be located, which must be within the
Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the
incorporators;
6. The number of directors or trustees, which shall not
be less than five (5) nor more than fifteen (15);
7. The names, nationalities and residences of persons
who shall act as directors or trustees until the first regular
directors or trustees are duly elected and qualified in
accordance with this Code;
8. If it be a stock corporation, the amount of its
authorized capital stock in lawful money of the Philippines,
the number of shares into which it is divided, and in case the
share are par value shares, the par value of each, the
names, nationalities and residences of the original
subscribers, and the amount subscribed and paid by each on
his subscription, and if some or all of the shares are without
par value, such fact must be stated;
9. If it be a non-stock corporation, the amount of its
capital, the names, nationalities and residences of the
contributors and the amount contributed by each; and
10. Such other matters as are not inconsistent with law
and which the incorporators may deem necessary and
convenient.
The Securities and Exchange Commission shall not
accept the articles of incorporation of any stock corporation
unless accompanied by a sworn statement of the Treasurer
elected by the subscribers showing that at least twenty-five
(25%) percent of the authorized capital stock of the
corporation has been subscribed, and at least twenty-five
(25%) of the total subscription has been fully paid to him in
actual cash and/or in property the fair valuation of which is

equal to at least twenty-five (25%) percent of the said

subscription, such paid-up capital being not less than five
thousand (P5,000.00) pesos.
Section 15. Forms of Articles of Incorporation. Unless
otherwise prescribed by special law, articles of incorporation
of all domestic corporations shall comply substantially with
the following form:
Section 16. Amendment of Articles of Incorporation.
Unless otherwise prescribed by this Code or by special law,
and for legitimate purposes, any provision or matter stated in
the articles of incorporation may be amended by a majority
vote of the board of directors or trustees and the vote or
written assent of the stockholders representing at least twothirds (2/3) of the outstanding capital stock, without prejudice
to the appraisal right of dissenting stockholders in
accordance with the provisions of this Code, or the vote or
written assent of at least two-thirds (2/3) of the members if it
be a non-stock corporation.
The original and amended articles together shall
contain all provisions required by law to be set out in the
articles of incorporation. Such articles, as amended shall be
indicated by underscoring the change or changes made, and
a copy thereof duly certified under oath by the corporate
secretary and a majority of the directors or trustees stating
the fact that said amendment or amendments have been duly
approved by the required vote of the stockholders or
members, shall be submitted to the Securities and Exchange
Commission.
The amendments shall take effect upon their approval
by the Securities and Exchange Commission or from the date
of filing with the said Commission if not acted upon within six
(6) months from the date of filing for a cause not attributable
to the corporation.
Section 17. Grounds when articles of incorporation or
amendment may be rejected or disapproved. The
Securities and Exchange Commission may reject the articles
of incorporation or disapprove any amendment thereto if the
same is not in compliance with the requirements of this Code:
Provided, That the Commission shall give the incorporators a
reasonable time within which to correct or modify the

objectionable portions of the articles or amendment. The

following are grounds for such rejection or disapproval:
1. That the articles of incorporation or any amendment
thereto is not substantially in accordance with the form
prescribed herein;
2. That the purpose or purposes of the corporation are
patently unconstitutional, illegal, immoral, or contrary to
government rules and regulations;
3. That the Treasurers Affidavit concerning the amount
of capital stock subscribed and/or paid is false;
4. That the percentage of ownership of the capital stock
to be owned by citizens of the Philippines has not been
complied with as required by existing laws or the
Constitution.
No articles of incorporation or amendment to articles of
incorporation of banks, banking and quasi-banking
institutions, building and loan associations, trust companies
and other financial intermediaries, insurance companies,
public utilities, educational institutions, and other corporations
governed by special laws shall be accepted or approved by
the Commission unless accompanied by a favorable
recommendation of the appropriate government agency to
the effect that such articles or amendment is in accordance
with law. (n)
Section 18. 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 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. (n)
Section 19. Commencement of corporate existence.
A private corporation formed or organized under this Code
commences to have corporate existence and juridical
personality and is deemed incorporated from the date the
Securities and Exchange Commission issues a certificate of
incorporation under its official seal; and thereupon the
incorporators, stockholders/members and their successors
shall constitute a body politic and corporate under the name

stated in the articles of incorporation for the period of time

mentioned therein, unless said period is extended or the
corporation is sooner dissolved in accordance with law. (n)
Section 88. Purposes. Non-stock corporations may
be formed or organized for charitable, religious, educational,
professional, cultural, fraternal, literary, scientific, social, civic
service, or similar purposes, like trade, industry, agricultural
and like chambers, or any combination thereof, subject to the
special provisions of this Title governing particular classes of
non-stock corporations. (n)
TITLE XII
CLOSE CORPORATIONS
Section 96. Definition and applicability of Title. - A close
corporation, within the meaning of this Code, is one whose
articles of incorporation provide that: (1) All the corporations
issued stock of all classes, exclusive of treasury shares, shall
be held of record by not more than a specified number of
persons, not exceeding twenty (20); (2) all the issued stock of
all classes shall be subject to one or more specified
restrictions on transfer permitted by this Title; and (3) The
corporation shall not list in any stock exchange or make any
public offering of any of its stock of any class.
Notwithstanding the foregoing, a corporation shall not be
deemed a close corporation when at least two-thirds (2/3) of
its voting stock or voting rights is owned or controlled by
another corporation which is not a close corporation within
the meaning of this Code.
Any corporation may be incorporated as a close
corporation, except mining or oil companies, stock
exchanges, banks, insurance companies, public utilities,
educational institutions and corporations declared to be
vested with public interest in accordance with the provisions
of this Code.
The provisions of this Title shall primarily govern close
corporations: Provided, That the provisions of other Titles of
this Code shall apply suppletorily except insofar as this Title
otherwise provides.
Section 97. Articles of incorporation. The articles of
incorporation of a close corporation may provide:

1. For a classification of shares or rights and the

qualifications for owning or holding the same and restrictions
on their transfers as may be stated therein, subject to the
provisions of the following section;
2. For a classification of directors into one or more
classes, each of whom may be voted for and elected solely
by a particular class of stock; and
3. For a greater quorum or voting requirements in
meetings of stockholders or directors than those provided in
this Code.
The articles of incorporation of a close corporation may
provide that the business of the corporation shall be
managed by the stockholders of the corporation rather than
by a board of directors. So long as this provision continues in
effect:
1. No meeting of stockholders need be called to elect
directors;
2. Unless the context clearly requires otherwise, the
stockholders of the corporation shall be deemed to be
directors for the purpose of applying the provisions of this
Code; and
3. The stockholders of the corporation shall be subject
to all liabilities of directors.
The articles of incorporation may likewise provide that
all officers or employees or that specified officers or
employees shall be elected or appointed by the stockholders,
instead of by the board of directors.
3) Articles of Incorporation
a) Sec. 14, 15
Section 14. Contents of the articles of incorporation.
All corporations organized under this code shall file with the
Securities and Exchange Commission articles of
incorporation in any of the official languages duly signed and
acknowledged by all of the incorporators, containing
substantially the following matters, except as otherwise
prescribed by this Code or by special law:
1. The name of the corporation;
2. The specific purpose or purposes for which the
corporation is being incorporated. Where a corporation has

more than one stated purpose, the articles of incorporation

shall state which is the primary purpose and which is/are the
secondary purpose or purposes: Provided, That a non-stock
corporation may not include a purpose which would change
or contradict its nature as such;
3. The place where the principal office of the
corporation is to be located, which must be within the
Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the
incorporators;
6. The number of directors or trustees, which shall not
be less than five (5) nor more than fifteen (15);
7. The names, nationalities and residences of persons
who shall act as directors or trustees until the first regular
directors or trustees are duly elected and qualified in
accordance with this Code;
8. If it be a stock corporation, the amount of its
authorized capital stock in lawful money of the Philippines,
the number of shares into which it is divided, and in case the
share are par value shares, the par value of each, the
names, nationalities and residences of the original
subscribers, and the amount subscribed and paid by each on
his subscription, and if some or all of the shares are without
par value, such fact must be stated;
9. If it be a non-stock corporation, the amount of its
capital, the names, nationalities and residences of the
contributors and the amount contributed by each; and
10. Such other matters as are not inconsistent with law
and which the incorporators may deem necessary and
convenient.
The Securities and Exchange Commission shall not
accept the articles of incorporation of any stock corporation
unless accompanied by a sworn statement of the Treasurer
elected by the subscribers showing that at least twenty-five
(25%) percent of the authorized capital stock of the
corporation has been subscribed, and at least twenty-five
(25%) of the total subscription has been fully paid to him in
actual cash and/or in property the fair valuation of which is
equal to at least twenty-five (25%) percent of the said

subscription, such paid-up capital being not less than five

thousand (P5,000.00) pesos.
Section 15. Forms of Articles of Incorporation. Unless
otherwise prescribed by special law, articles of incorporation
of all domestic corporations shall comply substantially with
the following form:
ARTICLES
OF
INCORPORATION
OF
__________________________
(Name of Corporation)
KNOW ALL MEN BY THESE PRESENTS:
The undersigned incorporators, all of legal age and a
majority of whom are residents of the Philippines, have this
day voluntarily agreed to form a (stock) (non-stock)
corporation under the laws of the Republic of the Philippines;
AND WE HEREBY CERTIFY:
FIRST: That the name of said corporation shall be
"_____________________, INC. or CORPORATION";
SECOND: That the purpose or purposes for which such
corporation is incorporated are: (If there is more than one
purpose, indicate primary and secondary purposes);
THIRD: That the principal office of the corporation is
located
in
the
City/Municipality
of
________________________,
Province
of
_______________________, Philippines;
FOURTH: That the term for which said corporation is to
exist is _____________ years from and after the date of
issuance of the certificate of incorporation;
FIFTH: That the names, nationalities and residences of
the incorporators of the corporation are as follows:
b) Amendment of A/I Sec. 16, Relate to:
Sec. 36.4 power to amend
Sec. 6 voting rights of non-voting shares
Sec. 81[1]--- appraisal right
Secs. 37, 38, 103 re written assent
Section 16. Amendment of Articles of Incorporation.
Unless otherwise prescribed by this Code or by special law,
and for legitimate purposes, any provision or matter stated in
the articles of incorporation may be amended by a majority

vote of the board of directors or trustees and the vote or

written assent of the stockholders representing at least twothirds (2/3) of the outstanding capital stock, without prejudice
to the appraisal right of dissenting stockholders in
accordance with the provisions of this Code, or the vote or
written assent of at least two-thirds (2/3) of the members if it
be a non-stock corporation.
The original and amended articles together shall
contain all provisions required by law to be set out in the
articles of incorporation. Such articles, as amended shall be
indicated by underscoring the change or changes made, and
a copy thereof duly certified under oath by the corporate
secretary and a majority of the directors or trustees stating
the fact that said amendment or amendments have been duly
approved by the required vote of the stockholders or
members, shall be submitted to the Securities and Exchange
Commission.
The amendments shall take effect upon their approval
by the Securities and Exchange Commission or from the date
of filing with the said Commission if not acted upon within six
(6) months from the date of filing for a cause not attributable
to the corporation.
Section 36. Corporate powers and capacity. Every
corporation incorporated under this Code has the power and
capacity:
4. To amend its articles of incorporation in accordance
with the provisions of this Code;
Section 6. Classification of shares. The shares of
stock of stock corporations may be divided into classes or
series of shares, or both, any of which classes or series of
shares may have such rights, privileges or restrictions as
may be stated in the articles of incorporation: Provided, That
no share may be deprived of voting rights except those
classified and issued as "preferred" or "redeemable" shares,
unless otherwise provided in this Code: Provided, further,
That there shall always be a class or series of shares which
have complete voting rights. Any or all of the shares or series
of shares may have a par value or have no par value as may
be provided for in the articles of incorporation: Provided,
however, That banks, trust companies, insurance companies,

public utilities, and building and loan associations shall not be

permitted to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation
may be given preference in the distribution of the assets of
the corporation in case of liquidation and in the distribution of
dividends, or such other preferences as may be stated in the
articles of incorporation which are not violative of the
provisions of this Code: Provided, That preferred shares of
stock may be issued only with a stated par value. The board
of directors, where authorized in the articles of incorporation,
may fix the terms and conditions of preferred shares of stock
or any series thereof: Provided, That such terms and
conditions shall be effective upon the filing of a certificate
thereof with the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be
deemed fully paid and non-assessable and the holder of such
shares shall not be liable to the corporation or to its creditors
in respect thereto: Provided; That shares without par value
may not be issued for a consideration less than the value of
five (P5.00) pesos per share: Provided, further, That the
entire consideration received by the corporation for its no-par
value shares shall be treated as capital and shall not be
available for distribution as dividends.
A corporation may, furthermore, classify its shares for
the purpose of insuring compliance with constitutional or legal
requirements.
Except as otherwise provided in the articles of
incorporation and stated in the certificate of stock, each share
shall be equal in all respects to every other share.
Where the articles of incorporation provide for nonvoting shares in the cases allowed by this Code, the holders
of such shares shall nevertheless be entitled to vote on the
following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the corporate property;
4. Incurring, creating or increasing bonded
indebtedness;
5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with

another corporation or other corporations;
7. Investment of corporate funds in another corporation
or business in accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding
paragraph, the vote necessary to approve a particular
corporate act as provided in this Code shall be deemed to
refer only to stocks with voting rights. (5a)
TITLE X
APPRAISAL RIGHT
Section 81. Instances of appraisal right. Any
stockholder of a corporation shall have the right to dissent
and demand payment of the fair value of his shares in the
following instances:
1. In case any amendment to the articles of
incorporation has the effect of changing or restricting the
rights of any stockholder or class of shares, or of authorizing
preferences in any respect superior to those of outstanding
shares of any class, or of extending or shortening the term of
corporate existence;
Section 37. Power to extend or shorten corporate
term. A private corporation may extend or shorten its term
as stated in the articles of incorporation when approved by a
majority vote of the board of directors or trustees and ratified
at a meeting by the stockholders representing at least twothirds (2/3) of the outstanding capital stock or by at least twothirds (2/3) of the members in case of non-stock corporations.
Written notice of the proposed action and of the time and
place of the meeting shall be addressed to each stockholder
or member at his place of residence as shown on the books
of the corporation and deposited to the addressee in the post
office with postage prepaid, or served personally: Provided,
That in case of extension of corporate term, any dissenting
stockholder may exercise his appraisal right under the
conditions provided in this code. (n)
Section 38. Power to increase or decrease capital
stock; incur, create or increase bonded indebtedness. No
corporation shall increase or decrease its capital stock or
incur, create or increase any bonded indebtedness unless

approved by a majority vote of the board of directors and, at

a stockholders meeting duly called for the purpose, twothirds (2/3) of the outstanding capital stock shall favor the
increase or diminution of the capital stock, or the incurring,
creating or increasing of any bonded indebtedness. Written
notice of the proposed increase or diminution of the capital
stock or of the incurring, creating, or increasing of any
bonded indebtedness and of the time and place of the
stockholders meeting at which the proposed increase or
diminution of the capital stock or the incurring or increasing of
any bonded indebtedness is to be considered, must be
addressed to each stockholder at his place of residence as
shown on the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or served
personally.
A certificate in duplicate must be signed by a majority of
the directors of the corporation and countersigned by the
chairman and the secretary of the stockholders meeting,
setting forth:
(1) That the requirements of this section have been
complied with;
(2) The amount of the increase or diminution of the
capital stock;
(3) If an increase of the capital stock, the amount of
capital stock or number of shares of no-par stock thereof
actually subscribed, the names, nationalities and residences
of the persons subscribing, the amount of capital stock or
number of no-par stock subscribed by each, and the amount
paid by each on his subscription in cash or property, or the
amount of capital stock or number of shares of no-par stock
allotted to each stock-holder if such increase is for the
purpose of making effective stock dividend therefor
authorized;
(4) Any bonded indebtedness to be incurred, created or
increased;
(5) The actual indebtedness of the corporation on the
day of the meeting;
(6) The amount of stock represented at the meeting;
and

(7) The vote authorizing the increase or diminution of

the capital stock, or the incurring, creating or increasing of
any bonded indebtedness.
Any increase or decrease in the capital stock or the
incurring, creating or increasing of any bonded indebtedness
shall require prior approval of the Securities and Exchange
Commission.
One of the duplicate certificates shall be kept on file in
the office of the corporation and the other shall be filed with
the Securities and Exchange Commission and attached to
the original articles of incorporation. From and after approval
by the Securities and Exchange Commission and the
issuance by the Commission of its certificate of filing, the
capital stock shall stand increased or decreased and the
incurring, creating or increasing of any bonded indebtedness
authorized, as the certificate of filing may declare: Provided,
That the Securities and Exchange Commission shall not
accept for filing any certificate of increase of capital stock
unless accompanied by the sworn statement of the treasurer
of the corporation lawfully holding office at the time of the
filing of the certificate, showing that at least twenty-five (25%)
percent of such increased capital stock has been subscribed
and that at least twenty-five (25%) percent of the amount
subscribed has been paid either in actual cash to the
corporation or that there has been transferred to the
corporation property the valuation of which is equal to twentyfive (25%) percent of the subscription: Provided, further, That
no decrease of the capital stock shall be approved by the
Commission if its effect shall prejudice the rights of corporate
creditors.
Non-stock corporations may incur or create bonded
indebtedness, or increase the same, with the approval by a
majority vote of the board of trustees and of at least twothirds (2/3) of the members in a meeting duly called for the
purpose.
Bonds issued by a corporation shall be registered with
the Securities and Exchange Commission, which shall have
the authority to determine the sufficiency of the terms thereof.
(17a)
c) Binding effect of amendment

the contents of the AOI are binding Not only

on the corporation but also on its
shareholders. It constitutes the constitution of
the corporation
8. Phil. Trust Co. v. Rivera

44 Phil. 469

(1923)
9. Marcus v. RH Macy
74 N.E. 2d
228 (1947)
10. IglesiaEvangelica v. Bishop Lazaro
(G.R.
184088, July 6, 2010)
8. PHILIPPINE TRUST COMPANY, as assignee in insolvency of
"La
Cooperativa
Naval
Filipina," plaintiff-appellee,
vs.
MARCIANO RIVERA, defendant-appellant.
G.R. No. L-19761
January 29, 1923
Facts : The Cooperativa Naval Filipina was duly incorporated
under the laws of the Philippine Islands, with a capital of P100,000,
divided into one thousand shares of a par value of P100 each.
Among the incorporators of this company was numbered the
defendant Mariano Rivera, who subscribed for 450 shares
representing a value of P45,000, the remainder of the stock being
taken by other persons.
The company became insolvent and went into the hands of
the Philippine Trust Company, as assignee in bankruptcy; and by it
this action was instituted to recover one-half of the stock
subscription of the defendant, which admittedly has never been
paid.
The reason behind it was that there was a meeting of the
stockholders at which a resolution was adopted to the effect that
the capital should be reduced by 50 per centum and the
subscribers released from the obligation to pay any unpaid balance
of their subscription in excess of 50 per centum of the same.
This resulted to cancellation of subscription of various
shareholders and fully paid subscription to those who paid for of
their shares. It does not appear that the formalities prescribed in

section 17 of the Corporation Law (Act No. 1459), as amended,

relative to the reduction of capital stock in corporations were
observed, and in particular it does not appear that any certificate
was at any time filed in the Bureau of Commerce and Industry,
showing such reduction.
Issue : Whether or not the defendant is still liable for the of the
share
Held : Yes. It is established doctrine that subscription to the capital
of a corporation constitute a find to which creditors have a right to
look for satisfaction of their claims and that the assignee in
insolvency can maintain an action upon any unpaid stock
subscription in order to realize assets for the payment of its debts.
A corporation has no power to release an original subscriber
to its capital stock from the obligation of paying for his shares,
without a valuable consideration for such release; and as against
creditors a reduction of the capital stock can take place only in the
manner an under the conditions prescribed by the statute or the
charter or the articles of incorporation. Moreover, strict compliance
with the statutory regulations is necessary.
The resolution releasing the shareholders from their
obligation to pay 50 per centum of their respective subscriptions
was an attempted withdrawal of so much capital from the fund
upon which the company's creditors were entitled ultimately to rely
and, having been effected without compliance with the statutory
requirements, was wholly ineffectual.

to add to the rights of preferred stockholders voting rights, equal

share for share, to those to which the holders of the corporation/s
common stock are entitled.
On October 27, 1945, prior to the annual meeting to which
such notice referred, the appellant sent to the respondent via
registered mail a written notice that, as a common stockholder, she
objected to the proposed amendment of the certificate of
incorporation. By her written notice of objection the appellant also
demanded payment for the common stock then owned by her.
Subsequently, at the annual meeting of the corporation 2
when the proposal to amend the certificate of incorporation was
approved by the stockholders, the common stock owned by the
appellant was voted against such amendment.
Thereafter, as a nonconsenting common stockholder, the
appellant instituted the present proceeding to determine the value
of her stock as a basis for the enforcement of payment therefor.
Her application for the appointment of appraisers to evaluate her
stock was denied and the petition herein was dismissed. Upon her
appeal to the Appellate Division the order of Special Term was
unanimously affirmed.
Issue: Whether or not, the appellant may invoke paragraph (d)
subdivision 9 of section 38 of the Stock Corporation Law as
a means legally appropriate to accomplish the appraisal of
her stock and to enforce payment therefor.
Held:

9. Marcus v. R.H. Macy

Facts:
Appellant, Hazel Marcus, was the registered owner of 50
shares of common stock of the respondent R.H. Macy Co.
On September 19, 1943, the respondent gave formal notice
to its stockholders, including the appellant, that among other
matters to be acted upon at its annual meeting to be held on
October 30, 1945, would be a proposal, recommended by its board
of directors, that its certificate of incorporation be so amended as

The Court held that Marcus may invoke her appraisalright.

The aggregate number of shares having voting rightsequal to those
of common shares was substantiallyincreased and thereby the
voting power of each commonshare outstanding prior to the
meeting was altered orlimited by the resulting pro rata diminution of
its potential worth as a factor in the management of the
corporateaffairs. Considering that she held diminished voting
power;that she notified the corporation of her objection; that
hershares were voted against the amendmentthese were
sufficient to qualify her to invoke her statutory appraisalright.

IEMELIF to file amended articles of incorporation with the SEC.

Bishop Lazaro filed an affidavit-certification in support of the
conversion.
10. IGLESIA EVANGELICA V. BISHOP LAZARO
DOTRINE:
A corporation sole may be converted into a corporation aggregate
by mere amendment of its articles of incorporation.
There is no point to dissolving the corporation sole of one
member to enable the corporation aggregate to emerge from it.
Whether it is a non-stock corporation or a corporation sole, the
corporate being remains distinct from its members, whatever be
their number.
FACTS:
In 1909, Bishop Nicolas Zamora established the petitioner
Iglesia Evangelica Metodista En Las Islas Filipinas, Inc. (IEMELIF)
as a corporation sole with Bishop Zamora acting as its "General
Superintendent." Thirty-nine years later in 1948, the IEMELIF
enacted and registered a by-laws that established a Supreme
Consistory of Elders (the Consistory), made up of church ministers,
who were to serve for four years. The by-laws empowered the
Consistory to elect a General Superintendent, a General Secretary,
a General Evangelist, and a Treasurer General who would manage
the affairs of the organization. For all intents and purposes, the
Consistory served as the IEMELIF's board of directors.
Apparently, although the IEMELIF remained a corporation
sole on paper (with all corporate powers theoretically lodged in the
hands of one member, the General Superintendent), it had always
acted like a corporation aggregate.
Subsequently, during its 1973 General Conference, the
general membership voted to put things right by changing
IEMELIF's organizational structure from a corporation sole to a
corporation aggregate. On May 7, 1973 the Securities and
Exchange Commission (SEC) approved the vote.
The SEC said that the IEMELIF needed to amend its
articles of incorporation for that purpose. Acting on this advice, the
general membership approved the conversion, prompting the

Petitioners Reverend Nestor Pineda, et al., which belonged

to a faction that did not support the conversion, filed a civil case for
"Enforcement of Property Rights of Corporation Sole, Declaration
of Nullity of Amended Articles of Incorporation from Corporation
Sole to Corporation Aggregate with Application for Preliminary
Injunction and/or Temporary Restraining Order" in IEMELIF's name
against respondent members of its Consistory. Petitioners claim
that a complete shift from IEMELIF's status as a
corporation sole to a corporation aggregate required, not just
an amendment of the IEMELIF's articles of incorporation, but a
complete dissolution of the existing corporation sole followed by a
re-incorporation.
ISSUE: WON a corporation sole may be converted into a
corporation aggregate by mere amendment of its articles of
incorporation?
HELD:
Yes. A corporation sole may be converted into a corporation
aggregate by mere amendment of its articles of incorporation.
What IEMELIF needed to authorize the amendment was merely
the vote or written assent of at least two-thirds of the IEMELIF
membership.
True, the Corporation Code provides no specific mechanism
for amending the articles of incorporation of a corporation sole.
But, as the RTC correctly held, Section 109 of the Corporation
Code allows the application to religious corporations of the general
provisions governing non-stock corporations.
Although a non-stock corporation has a personality that is
distinct from those of its members who established it, its articles of
incorporation cannot be amended solely through the action of its
board of trustees. The amendment needs the concurrence of at
least two-thirds of its membership. If such approval mechanism is
made to operate in a corporation sole, its one member in whom all
the powers of the corporation technically belongs, needs to get the

concurrence of two-thirds of its membership. The one member,

here the General Superintendent, is but a trustee, according to
Section 110 of the Corporation Code, of its membership.
There is no point to dissolving the corporation sole of one
member to enable the corporation aggregate to emerge from it.
Whether it is a non-stock corporation or a corporation sole, the
corporate being remains distinct from its members, whatever be
their number. The increase in the number of its corporate
membership does not change the complexion of its corporate
responsibility to third parties. The one member, with the
concurrence of two-thirds of the membership of the organization for
whom he acts as trustee, can self-will the amendment. He can,
with membership concurrence, increase the technical number of
the members of the corporation from "sole" or one to the greater
number authorized by its amended articles.
4) Citizenship requirements --- Sec. 140
--- pertinent provisions of the 1987 Constitution
--- meaning of CAPITAL under Sec. 11, Art. 12 of the
Constitution
Section 140. Stock ownership in certain corporations.
Pursuant to the duties specified by Article XIV of the
Constitution, the National Economic and Development
Authority shall, from time to time, make a determination of
whether the corporate vehicle has been used by any
corporation or by business or industry to frustrate the
provisions thereof or of applicable laws, and shall submit to
the Batasang Pambansa, whenever deemed necessary, a
report of its findings, including recommendations for their
prevention or correction.
Maximum limits may be set by the Batasang Pambansa
for stockholdings in corporations declared by it to be vested
with a public interest pursuant to the provisions of this
section, belonging to individuals or groups of individuals
related to each other by consanguinity or affinity or by close
business interests, or whenever it is necessary to achieve
national objectives, prevent illegal monopolies or
combinations in restraint or trade, or to implement national

economic policies declared in laws, rules and regulations

designed to promote the general welfare and foster economic
development.
In recommending to the Batasang Pambansa
corporations, businesses or industries to be declared vested
with a public interest and in formulating proposals for
limitations on stock ownership, the National Economic and
Development Authority shall consider the type and nature of
the industry, the size of the enterprise, the economies of
scale, the geographic location, the extent of Filipino
ownership, the labor intensity of the activity, the export
potential, as well as other factors which are germane to the
realization and promotion of business and industry.
ARTICLE IV
CITIZENSHIP
Section 1. The following are citizens of the Philippines:
1. Those who are citizens of the Philippines at the time
of the adoption of this Constitution;
2. Those whose fathers or mothers are citizens of the
Philippines;
3. Those born before January 17, 1973, of Filipino
mothers, who elect Philippine Citizenship upon reaching the
age of majority; and
4. Those who are naturalized in the accordance with
law.
Section 2. Natural-born citizens are those who are
citizens of the Philippines from birth without having to perform
any act to acquire or perfect their Philippine citizenship.
Those who elect Philippine citizenship in accordance with
paragraph (3), Section 1 hereof shall be deemed natural-born
citizens.
Section 3. Philippine citizenship may be lost or
reacquired in the manner provided by law.
Section 4. Citizens of the Philippines who marry aliens
shall retain their citizenship, unless by their act or omission
they are deemed, under the law to have renounced it.
Section 5. Dual allegiance of citizens is inimical to the
national interest and shall be dealt with by law.

Section 11. No franchise, certificate, or any other form

of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the
Philippines, at least sixty per centum of whose capital is
owned by such citizens; nor shall such franchise, certificate,
or authorization be exclusive in character or for a longer
period than fifty years. Neither shall any such franchise or
right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress
when the common good so requires. The State shall
encourage equity participation in public utilities by the general
public. The participation of foreign investors in the governing
body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and
managing officers of such corporation or association must be
citizens of the Philippines.
11. Gamboa v. Teves, et al (GR 176579; June 28, 2011 and
Oct. 9, 2012)
11. Wilson P. Gamboa v. Finance Secretary Margarito Teves, et al.,
G.R. No. 176579, June 28, 2011
CARPIO, J.:
FACTS:
This is a petition to nullify the sale of shares of stock of
Philippine Telecommunications Investment Corporation (PTIC) by
the government of the Republic of the Philippines, acting through
the Inter-Agency Privatization Council (IPC), to Metro Pacific
Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company
Limited (First Pacific), a Hong Kong-based investment
management and holding company and a shareholder of the
Philippine Long Distance Telephone Company (PLDT).
The petitioner questioned the sale on the ground that it also
involved an indirect sale of 12 million shares (or about 6.3 percent
of the outstanding common shares) of PLDT owned by PTIC to
First Pacific. With the this sale, First Pacifics common
shareholdings in PLDT increased from 30.7 percent to 37 percent,
thereby increasing the total common shareholdings of foreigners in
PLDT to about 81.47%. This, according to the petitioner, violates

Section 11, Article XII of the 1987 Philippine Constitution which

limits foreign ownership of the capital of a public utility to not more
than 40%, thus:
Section 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the
Philippines, at least sixty per centum of whose capital is
owned by such citizens; nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than
fifty years. Neither shall any such franchise or right be granted
except under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common good so
requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign investors
in the governing body of any public utility enterprise shall be limited
to their proportionate share in its capital, and all the executive and
managing officers of such corporation or association must be
citizens of the Philippines. (Emphasis supplied)
ISSUE : Does the term capital in Section 11, Article XII of the
Constitution refer to the total common shares only, or to the total
outstanding capital stock (combined total of common and nonvoting preferred shares) of PLDT, a public utility?
RULING:
[The Court partly granted the petition and held that the term
capital in Section 11, Article XII of the Constitution refers only to
shares of stock entitled to vote in the election of directors of a
public utility, i.e., to the total common shares in PLDT.]
Considering that common shares have voting rights which
translate to control, as opposed to preferred shares which usually
have no voting rights, the term capital in Section 11, Article XII of
the Constitution refers only to common shares. However, if the
preferred shares also have the right to vote in the election of
directors, then the term capital shall include such preferred
shares because the right to participate in the control or
management of the corporation is exercised through the right to
vote in the election of directors. In short, the term capital in

Section 11, Article XII of the Constitution refers only to shares

of stock that can vote in the election of directors.
To construe broadly the term capital as the total outstanding
capital stock, including both common and non-voting preferred
shares, grossly contravenes the intent and letter of the Constitution
that the State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos. A broad definition
unjustifiably disregards who owns the all-important voting stock,
which necessarily equates to control of the public utility.
Holders of PLDT preferred shares are explicitly denied of the
right to vote in the election of directors. PLDTs Articles of
Incorporation expressly state that the holders of Serial Preferred
Stock shall not be entitled to vote at any meeting of the
stockholders for the election of directors or for any other
purpose or otherwise participate in any action taken by the
corporation or its stockholders, or to receive notice of any meeting
of stockholders. On the other hand, holders of common shares are
granted the exclusive right to vote in the election of directors.
PLDTs Articles of Incorporation state that each holder of Common
Capital Stock shall have one vote in respect of each share of such
stock held by him on all matters voted upon by the stockholders,
and the holders of Common Capital Stock shall have the
exclusive right to vote for the election of directors and for all
other purposes.
It must be stressed, and respondents do not dispute, that
foreigners hold a majority of the common shares of PLDT. In fact,
based on PLDTs 2010 General Information Sheet (GIS), which is
a document required to be submitted annually to the Securities and
Exchange Commission, foreigners hold 120,046,690 common
shares of PLDT whereas Filipinos hold only 66,750,622 common
shares. In other words, foreigners hold 64.27% of the total number
of PLDTs common shares, while Filipinos hold only 35.73%. Since
holding a majority of the common shares equates to control, it is
clear that foreigners exercise control over PLDT. Such amount of
control unmistakably exceeds the allowable 40 percent limit on
foreign ownership of public utilities expressly mandated in Section
11, Article XII of the Constitution.

As shown in PLDTs 2010 GIS, as submitted to the SEC, the

par value of PLDT common shares is P5.00 per share, whereas
the par value of preferred shares is P10.00 per share. In other
words, preferred shares have twice the par value of common
shares but cannot elect directors and have only 1/70 of the
dividends of common shares. Moreover, 99.44% of the preferred
shares are owned by Filipinos while foreigners own only a
minuscule 0.56% of the preferred shares. Worse, preferred shares
constitute 77.85% of the authorized capital stock of PLDT while
common shares constitute only 22.15%. This undeniably shows
that beneficial interest in PLDT is not with the non-voting preferred
shares but with the common shares, blatantly violating the
constitutional requirement of 60 percent Filipino control and Filipino
beneficial ownership in a public utility.
In short, Filipinos hold less than 60 percent of the voting
stock, and earn less than 60 percent of the dividends, of
PLDT. This directly contravenes the express command in Section
11, Article XII of the Constitution that [n]o franchise, certificate, or
any other form of authorization for the operation of a public utility
shall be granted except to x x x corporations x x x organized under
the laws of the Philippines, at least sixty per centum of whose
capital is owned by such citizens x x x.
To repeat, (1) foreigners own 64.27% of the common shares
of PLDT, which class of shares exercises the sole right to vote in
the election of directors, and thus exercise control over PLDT; (2)
Filipinos own only 35.73% of PLDTs common shares, constituting
a minority of the voting stock, and thus do not exercise control over
PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no
voting rights; (4) preferred shares earn only 1/70 of the dividends
that common shares earn; (5) preferred shares have twice the par
value of common shares; and (6) preferred shares constitute
77.85% of the authorized capital stock of PLDT and common
shares only 22.15%. This kind of ownership and control of a public
utility is a mockery of the Constitution.
[Thus, the Respondent Chairperson of the Securities and
Exchange Commission was DIRECTED by the Court to apply the
foregoing definition of the term capital in determining the extent of
allowable foreign ownership in respondent Philippine Long

Distance Telephone Company, and if there is a violation of Section

11, Article XII of the Constitution, to impose the appropriate
sanctions under the law.]
SEC Memo Circ. No. 8, s2013 (Guidelines in Fil-Foreign
ownership)
-- Foreign Investments Act (FIA) of 1991, as
amended
--- other laws imposing maximum foreign equity
--- Philippine national under the FIA
--- under the BSP
--- Phil. corporation under the Corp. Code
--- Foreign corporation under the Corp. Code
TITLE XV
FOREIGN CORPORATIONS
Section 123. Definition and rights of foreign
corporations. For the purposes of this Code, a foreign
corporation is one formed, organized or existing under any
laws other than those of the Philippines and whose laws
allow Filipino citizens and corporations to do business in its
own country or state. It shall have the right to transact
business in the Philippines after it shall have obtained a
license to transact business in this country in accordance
with this Code and a certificate of authority from the
appropriate government agency. (n)
Section
124. Application
to
existing
foreign
corporations. Every foreign corporation which on the date
of the effectivity of this Code is authorized to do business in
the Philippines under a license therefore issued to it, shall
continue to have such authority under the terms and
condition of its license, subject to the provisions of this Code
and other special laws. (n)
Section 125. Application for a license. A foreign
corporation applying for a license to transact business in the
Philippines shall submit to the Securities and Exchange
Commission a copy of its articles of incorporation and bylaws, certified in accordance with law, and their translation to
an official language of the Philippines, if necessary. The
application shall be under oath and, unless already stated in

its articles of incorporation, shall specifically set forth the

following:
1. The date and term of incorporation;
2. The address, including the street number, of the
principal office of the corporation in the country or state of
incorporation;
3. The name and address of its resident agent
authorized to accept summons and process in all legal
proceedings and, pending the establishment of a local office,
all notices affecting the corporation;
4. The place in the Philippines where the corporation
intends to operate;
5. The specific purpose or purposes which the
corporation intends to pursue in the transaction of its
business in the Philippines: Provided, That said purpose or
purposes are those specifically stated in the certificate of
authority issued by the appropriate government agency;
6. The names and addresses of the present directors
and officers of the corporation;
7. A statement of its authorized capital stock and the
aggregate number of shares which the corporation has
authority to issue, itemized by classes, par value of shares,
shares without par value, and series, if any;
8. A statement of its outstanding capital stock and the
aggregate number of shares which the corporation has
issued, itemized by classes, par value of shares, shares
without par value, and series, if any;
9. A statement of the amount actually paid in; and
10. Such additional information as may be necessary or
appropriate in order to enable the Securities and Exchange
Commission to determine whether such corporation is
entitled to a license to transact business in the Philippines,
and to determine and assess the fees payable.
Attached to the application for license shall be a duly
executed certificate under oath by the authorized official or
officials of the jurisdiction of its incorporation, attesting to the
fact that the laws of the country or state of the applicant allow
Filipino citizens and corporations to do business therein, and
that the applicant is an existing corporation in good standing.
If such certificate is in a foreign language, a translation

thereof in English under oath of the translator shall be

attached thereto.
The application for a license to transact business in the
Philippines shall likewise be accompanied by a statement
under oath of the president or any other person authorized by
the corporation, showing to the satisfaction of the Securities
and Exchange Commission and other governmental agency
in the proper cases that the applicant is solvent and in sound
financial condition, and setting forth the assets and liabilities
of the corporation as of the date not exceeding one (1) year
immediately prior to the filing of the application.
Foreign banking, financial and insurance corporations
shall, in addition to the above requirements, comply with the
provisions of existing laws applicable to them. In the case of
all other foreign corporations, no application for license to
transact business in the Philippines shall be accepted by the
Securities and Exchange Commission without previous
authority from the appropriate government agency, whenever
required by law. (68a)
--- Control Test v. Grandfather Rule
control test- determined by the nationality of the controlling
stockholders or members . this test is applied in times of war.
This is used to determine nationality for investment purposes.
This test is adopted under foreign investment act. Also known
as wartime test.
Grandfather rule- Used to determine the nationality of a
corporation by which the percentage of Filipino equity in
corporations engaged in nationalized and/or partly
nationalized areas of activities, provided for under the
constitution and other nationalization laws, is computed, in
cases where corporate shareholders are present in the
situation, by attributing the nationality of the second or even
subsequent tier of ownership to determine the nationality of
the corporate stockholder. (Villanueva, 2003)
SEC formula: SEC Letter Opinion
Shares belonging to corporations or partnerships at
least 60% of the capital of which is owned by Filipino citizens
shall be considered as of Philippine nationality, but if the

percentage of Filipino ownership in the corporation or

partnership is less than 60% only the number of shares
corresponding to such percentage shall be considered as of
Philippine nationality.
12. Narra Nickel Mining v. Redmont
2014)

(G.R. 195580; April 21,

12. NARRA NICKEL MINING AND DEVELOPMENT CORP.,

TESORO MINING AND DEVELOPMENT, INC., and MCARTHUR
MINING, INC., Petitioners, vs.REDMONT CONSOLIDATED
MINES CORP., Respondent.
G.R. No. 195580
April 21, 2014
FACTS:
Sometime in December 2006, respondent Redmont
Consolidated Mines Corp. (Redmont), a domestic corporation
organized and existing under Philippine laws, took interest in
mining and exploring certain areas of the province of Palawan.
After inquiring with the Department of Environment and Natural
Resources (DENR), it learned that the areas where it wanted to
undertake exploration and mining activities where already covered
by Mineral Production Sharing Agreement (MPSA) applications of
petitioners Narra, Tesoro and McArthur.
Petitioner McArthur Narra and Tesoro, filed an application for
an MPSA and Exploration Permit (EP) which was subsequently
issued.
On January 2, 2007, Redmont filed before the Panel of
Arbitrators (POA) of the DENR three (3) separate petitions for the
denial of petitioners applications for MPSA.
Redmont alleged that at least 60% of the capital stock of
McArthur, Tesoro and Narra are owned and controlled by MBMI
Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont
reasoned that since MBMI is a considerable stockholder of
petitioners, it was the driving force behind petitioners filing of the
MPSAs over the areas covered by applications since it knows that
it can only participate in mining activities through corporations
which are deemed Filipino citizens. Redmont argued that given

that petitioners capital stocks were mostly owned by MBMI, they

were likewise disqualified from engaging in mining activities
through MPSAs, which are reserved only for Filipino citizens.
Petitioners averred that they were qualified persons under
Section 3(aq) of Republic Act No. (RA) 7942 or the Philippine
Mining Act of 1995. They stated that their nationality as applicants
is immaterial because they also applied for Financial or Technical
Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for
McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra,
which are granted to foreign-owned corporations. Nevertheless,
they claimed that the issue on nationality should not be raised
since McArthur, Tesoro and Narra are in fact Philippine Nationals
as 60% of their capital is owned by citizens of the Philippines.
On December 14, 2007, the POA issued a Resolution
disqualifying petitioners from gaining MPSAs. The POA considered
petitioners as foreign corporations being "effectively controlled" by
MBMI, a 100% Canadian company and declared their MPSAs null
and void.
Pending the resolution of the appeal filed by petitioners with
the MAB, Redmont filed a Complaint with the Securities and
Exchange Commission (SEC), seeking the revocation of the
certificates for registration of petitioners on the ground that they are
foreign-owned or controlled corporations engaged in mining in
violation of Philippine laws.
CA found that there was doubt as to the nationality of
petitioners when it realized that petitioners had a common major
investor, MBMI, a corporation composed of 100% Canadians.
Pursuant to the first sentence of paragraph 7 of Department of
Justice (DOJ) Opinion No. 020, Series of 2005, adopting the 1967
SEC Rules which implemented the requirement of the Constitution
and other laws pertaining to the exploitation of natural resources,
the CA used the "grandfather rule" to determine the nationality of
petitioners.
In determining the nationality of petitioners, the CA looked
into their corporate structures and their corresponding common
shareholders. Using the grandfather rule, the CA discovered
that MBMI in effect owned majority of the common stocks of

the petitioners as well as at least 60% equity interest of other

majority shareholders of petitioners through joint venture
agreements. The CA found that through a "web of corporate
layering, it is clear that one common controlling investor in all
mining corporations involved x x x is MBMI." Thus, it
concluded that petitioners McArthur, Tesoro and Narra are
also in partnership with, or privies-in-interest of, MBMI.
ISSUE: Whether or not the Court of Appeals ruling that Narra,
Tesoro and McArthur are foreign corporations based on the
"Grandfather Rule" is contrary to law, particularly the
express mandate of the Foreign Investments Act of 1991,
as amended, and the FIA Rules.
HELD:
No. There are two acknowledged tests in determining the
nationality of a corporation: the control test and the grandfather
rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005,
adopting the 1967 SEC Rules which implemented the requirement
of the Constitution and other laws pertaining to the controlling
interests in enterprises engaged in the exploitation of natural
resources owned by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least
60% of the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality (CONTROL TEST), but if
the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine
nationality (GRANDFATHER RULE). Thus, if 100,000 shares are
registered in the name of a corporation or partnership at least 60%
of the capital stock or capital, respectively, of which belong to
Filipino citizens, all of the shares shall be recorded as owned by
Filipinos. But if less than 60%, or say, 50% of the capital stock or
capital of the corporation or partnership, respectively, belongs to
Filipino citizens, only 50,000 shares shall be counted as owned by
Filipinos and the other 50,000 shall be recorded as belonging to
aliens.
The grandfather rule, petitioners reasoned, has no leg to
stand on in the instant case since the definition of a "Philippine
National" under Sec. 3 of the FIA does not provide for it. They

further claim that the grandfather rule "has been abandoned and is
no longer the applicable rule." They also opined that the last
portion of Sec. 3 of the FIA admits the application of a "corporate
layering" scheme of corporations. Petitioners claim that the clear
and unambiguous wordings of the statute preclude the court from
construing it and prevent the courts use of discretion in applying
the law. They said that the plain, literal meaning of the statute
meant the application of the control test is obligatory.
SC disagreed. "Corporate layering" is admittedly allowed by
the FIA; but if it is used to circumvent the Constitution and pertinent
laws, then it becomes illegal. Further, the pronouncement of
petitioners that the grandfather rule has already been abandoned
must be discredited for lack of basis.
Petitioners McArthur, Tesoro and Narra are not Filipino since
MBMI, a 100% Canadian corporation, owns 60% or more of their
equity interests. Such conclusion is derived from grandfathering
petitioners corporate owners, namely: MMI, SMMI and PLMDC.
The "control test" is still the prevailing mode of determining
whether or not a corporation is a Filipino corporation, within the
ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to
undertake the exploration, development and utilization of the
natural resources of the Philippines. When in the mind of the Court
there is doubt, based on the attendant facts and circumstances of
the case, in the 60-40 Filipino-equity ownership in the corporation,
then it may apply the "grandfather rule."
--- Nationality of corporation sole
13. Roman Catholic Apostolic Admin.of Davao (102 Phil.596)
13. Roman Catholic Apostolic Adm. Of Davao, Inc. v. Land
Registration Commission
- On October 4, 1954, Mateo L. Rodis, a Filipino citizen and
resident of the City of Davao, executed a deed of sale of a parcel
of land located in the same city in favor of the Roman Catholic
Administrator of Davao, Inc., (RCAD) a corporation sole organized
and existing in accordance with Philippine laws, with Msgr. Clovis
Thibault, a Canadian citizen, as actual incumbent.
- The Commissioner of the LRC denied RCADs request to
register the parcel of land in its name, holding that in view of the

provisions of Sections 1 and 5 of Article XIII of the Philippine

Constitution, RCAD was not qualified to acquire private lands in the
Philippines in the absence of proof that at least 60 per centum of
the capital, property, or assets of the Roman Catholic Administrator
of Davao, Inc., was actually owned or controlled by Filipino
citizens, there being no question that the present incumbent of the
corporation sole was a Canadian citizen.
- The RCAD argued that a corporation sole, irrespective of
the citizenship of its incumbent, is not prohibited or disqualified to
acquire and hold real properties. The Corporation Law and the
Canon Law are explicit in their provisions that a corporation sole or
"ordinary" is not the owner of the properties that he may acquire
but merely the administrator thereof.
- The Canon Law also specified that church temporalities are
owned by the Catholic Church as a "moral person" or by the
dioceses as minor "moral persons" with the ordinary or bishop as
administrator.
- And elaborating on the composition of the Catholic Church
in the Philippines, RCAD explained that as a religious society or
organization, it is made up of 2 elements or divisions the clergy
or religious members and the faithful or lay members.
The 1948 figures of the Bureau of Census and Statistics
showed that there were 277,551 Catholics in Davao and aliens
residing therein numbered 3,465. Even granting that all these
foreigners are Catholics, RCAD contends that Filipino citizens
form more than 80 per cent of the entire Catholics population of
that area.
ISSUE: Whether or not the LRC may be compelled to register the
land in RCADs name?
HELD:
- YES. Lands held in trust for specific purposes may be
subject of registration, and the capacity of a corporation sole, like
RCAD, to register lands belonging to it is acknowledged, and title
thereto may be issued in its name.
- The bishops or archbishops, as the case may be, as
corporation's sole are merely administrators of the church
properties that come to their possession, and which they hold in
trust for the church.

- Through this legal fiction, church properties acquired by the

incumbent of a corporation sole pass, by operation of law, upon his
death not to his personal heirs but to his successor in office.
- Although a branch of the Universal Roman Catholic
Apostolic Church, every Roman Catholic Church in different
countries, if it exercises its mission and is lawfully incorporated in
accordance with the laws of the country where it is located, is
considered an entity or person with all the rights and privileges
granted to such artificial being under the laws of that country,
separate and distinct from the personality of the Roman Pontiff or
the Holy See, without prejudice to its religious relations with the
latter which are governed by the Canon Law or their rules and
regulations.
- When the specific provision of the Constitution invoked by
respondent Commissioner (section 1, Art. XIII), was under
consideration, the framers of the same did not have in mind
corporations sole (prohibition limited to foreign corporation).
The corporation sole by reason of their peculiar constitution
and form of operation have no designed owner of its temporalities,
although by the terms of the law it can be safely implied that they
ordinarily hold them in trust for the benefit of the Roman Catholic
faithful of their respective locality or diocese. They can not be
considered as aliens because they have no nationality at all. In
determining, therefore, whether the constitutional provision
requiring 60 per centum Filipino capital is applicable to
corporations sole, the nationality of the constituents of the diocese,
and not the nationality of the actual incumbent of the parish, must
be taken into consideration. In the present case, even if the
question of nationality be considered, the aforesaid constitutional
requirement is fully met and satisfied, considering that the
corporation sole in question is composed of an overwhelming
majority of Filipinos.
- A corporation sole consists of one person only, and his
successors (who will always be one at a time), in some particular
station, who are incorporated by law in order to give them some
legal capacities and advantages, particularly that of perpetuity,
which in their natural persons they could not have had. In this
sense, the king is a sole corporation; so is a bishop, or deans,
distinct from their several chapters
- Characteristics of corporation sole:

(1) the corporation sole, unlike the ordinary corporations

which are formed by no less than 5 incorporators, is composed of
only one person, usually the head or bishop of the diocese, a unit
which is not subject to expansion for the purpose of determining
any percentage whatsoever;
(2) the corporation sole is only the administrator and not the
owner of the temporalities located in the territory comprised by said
corporation sole;
(3) such temporalities are administered for and on behalf of
the faithful residing in the diocese or territory of the corporation
sole; and
(4) the latter, as such, has no nationality and the citizenship
of the incumbent Ordinary has nothing to do with the operation,
management or administration of the corporation sole, nor affects
the citizenship of the faithful connected with their respective
diocese or corporation sole.
5) Residence of corporation 14. Young Auto Supply Co. v. CA

(1993) 223 SCRA 670

14. Young Auto Supply vs. Court of Appeals

[GR 104175, 25 June 1993]
Facts: On 28 October 1987, Young Auto Supply Co. Inc. (YASCO)
represented by Nemesio Garcia, its president, Nelson Garcia and
Vicente Sy, sold all of their shares of stock in Consolidated
Marketing & Development Corporation (CMDC) to George C.
Roxas. The purchase price was P8,000,000.00 payable as follows:
a down payment of P4,000,000.00 and the balance of
P4,000,000.00 in four postdated checks of P1,000,000.00 each.
Immediately after the execution of the agreement, Roxas took full
control of the four markets of CMDC. However, the vendors held
on to the stock certificates of CMDC as security pending full
payment of the balance of the purchase price. The first check of
P4,000,000.00, representing the down payment, was honored by
the drawee bank but the four other checks representing the
balance of P4,000,000.00 were dishonored. In the meantime,
Roxas sold one of the markets to a third party. Out of the proceeds
of the sale, YASCO received P600,000.00, leaving a balance of
P3,400,000.00.

Subsequently, Nelson Garcia and Vicente Sy assigned all

their rights and title to the proceeds of the sale of the CMDC
shares to Nemesio Garcia. On 10 June 1988, YASCO and Garcia
filed a complaint against Roxas in the Regional Trial Court, Branch
11, Cebu City, praying that Roxas be ordered to pay them the sum
of P3,400,000.00 or that full control of the three markets be turned
over to YASCO and Garcia. The complaint also prayed for the
forfeiture of the partial payment of P4,600,000.00 and the payment
of attorney's fees and costs. Failing to submit his answer, and on
19 August 1988, the trial court declared Roxas in default. The order
of default was, however, lifted upon motion of Roxas. On 22 August
1988, Roxas filed a motion to dismiss. After a hearing, wherein
testimonial and documentary evidence were presented by both
parties, the trial court in an Order dated 8 February 1991 denied
Roxas' motion to dismiss. After receiving said order, Roxas filed
another motion for extension of time to submit his answer. He also
filed a motion for reconsideration, which the trial court denied in its
Order dated 10 April 1991 for being pro-forma. Roxas was again
declared in default, on the ground that his motion for
reconsideration did not toll the running of the period to file his
answer. On 3 May 1991, Roxas filed an unverified Motion to Lift the
Order of Default which was not accompanied with the required
affidavit of merit. But without waiting for the resolution of the
motion, he filed a petition for certiorari with the Court of Appeals.
The Court of Appeals dismissal of the complaint on the ground of
improper venue. A subsequent motion for reconsideration by
YASCO was to no avail. YASCO and Garcia filed the petition.

allowing it to be ambulatory. Actions cannot be filed against a

corporation in any place where the corporation maintains its branch
offices. The Court ruled that to allow an action to be instituted in
any place where the corporation has branch offices, would create
confusion and work untold inconvenience to said entity. By the
same token, a corporation cannot be allowed to file personal
actions in a place other than its principal place of business unless
such a place is also the residence of a co-plaintiff or a defendant.
With the finding that the residence of YASCO for purposes of
venue is in Cebu City, where its principal place of business is
located, it becomes unnecessary to decide whether Garcia is also
a resident of Cebu City and whether Roxas was in estoppel from
questioning the choice of Cebu City as the venue. The decision of
the Court of Appeals was set aside.

Issue: Whether the venue for the case against YASCO and Garcia
in Cebu City was improperly laid.

7) Name of corporation
2000)

(SEC Memo Circ. 14, Series of

Held: A corporation has no residence in the same sense in which

this term is applied to a natural person. But for practical purposes,
a corporation is in a metaphysical sense a resident of the place
where its principal office is located as stated in the articles of
incorporation. The Corporation Code precisely requires each
corporation to specify in its articles of incorporation the "place
where the principal office of the corporation is to be located which
must be within the Philippines." The purpose of this requirement is
to fix the residence of a corporation in a definite place, instead of

15. Republic Planters Bank v. CA

GR 93073
(Dec. 21,1992)
16. Philips Export B.V. v. CA
(1992) 206
SCRA 457
17. Lyceum of the Phils. v. CA
(1993) 219
SCRA 610
18. Armco Steel Corp. v. SEC
(L-54580; Dec.
29, 1987)

19. P.C. Javier & Sons, Inc. v. CA

462 SCRA 36
20. Industrial Refractories Corp. v. CA
SCRA 252

(2005)
(2002) 390

18. Republic Planters Bank vs. Court of Appeals

[GR 93073, 21 December 1992]
Second Division, Campos Jr. (J): 4 concur
Facts:
Shozo Yamaguchi and Fermin Canlas were President/Chief
Operating Officer and Treasurer respectively, of Worldwide
Garment Manufacturing, Inc.. By virtue of Board Resolution 1
dated 1 August 1979, Shozo Yamaguchi and Fermin Canlas were
authorized to apply for credit facilities with the petitioner Republic
Planters Bank (RPB) in the forms of export advances and letters of
credit/trust receipts accommodations. Republic Planters Bank
issued nine promissory notes, each of which were uniformly
worded in the following manner: "___________, after date, for
value received, I/we, jointly and severaIly promise to pay to the
ORDER of the REPUBLIC PLANTERS BANK, at its office in
Manila, Philippines, the sum of ___________ PESOS(....)
Philippine Currency..." On the right bottom margin of the
promissory notes appeared the signatures of Shozo Yamaguchi
and Fermin Canlas above their printed names with the phrase "and
(in) his personal capacity" typewritten below. At the bottom of the
promissory notes appeared: "Please credit proceeds of this note
to: "________ Savings Account ______XX Current", "Account No.
1372-00257-6", and "of WORLDWIDE GARMENT MFG. CORP."
These entries were separated from the text of the notes with a bold
line which ran horizontally across the pages. In three promissory
notes, the name Worldwide Garment Manufacturing, Inc. was
apparently rubber stamped above the signatures of Yamaguchi
and Canlas. On 20 December 1982, Worldwide Garment
Manufacturing, Inc. (WGMI) noted to change its corporate name to
Pinch Manufacturing Corporation (PMC). On 5 February 1982,
RPB filed a complaint for the recovery of sums of money covered
among others, by the nine promissory notes with interest thereon,
plus attorney's fees and penalty charges. The complainant was
originally brought against WGMI inter alia, but it was later amended
to drop WGMI as defendant and substitute PMC it its place. PMC

and Shozo Yamaguchi did not file an Amended Answer and failed
to appear at the scheduled pre-trial conference despite due notice.
Only Canlas filed an Amended Answer wherein he, denied having
issued the promissory notes in question since according to him, he
was not an officer of PMC, but instead of WGMI, and that when he
issued said promissory notes in behalf of WGMI, the same were in
blank, the typewritten entries not appearing therein prior to the time
he affixed his signature. On 20 June 1985, The Regional Trial
Court rendered a decision in favor of RPB, ordering PMC (formerly
WGMI),Yamaguchi and Canlas to pay, jointly and severally, RPB
the following sums with interest thereon at 16% per annum under 7
promissory notes, the sum of P300,000.00 with interest from 29
January 1981 until fully paid; P40,000.00 with interest from 27
November 1980; P166,466.00 which interest from 29 January
1981; P86,130.31 with interest from 29 January 1981; P12,703.70
with interest from 27 November 1980; P281,875.91 with interest
from 29 January 1981; and P200,000.00 with interest from 29
January 1981. PMC and Yamaguchi were also ordered to pay
jointly and severally, RPB the sum of P367,000.00 with interest of
16% per annum from 29 January 1980 under another promissory
note. PMC was ordered to pay PRB the sum of P140,000.00 with
interest at 16% per annum from 27 November 1980 until fully paid,
under another promissory note; to pay the sum of P231,120.81
with interest at 12% per annum from 1 July 1981, until fully paid
and the sum of P331,870.97 with interest from 28 March 1981,
until fully paid. The court also ordered PMC, Yamaguchi, and
Canlas to pay, jointly and severally, RPB the sum of P100,000.00
as and for reasonable attorney's fee and the further sum equivalent
to 3% per annum of the respective principal sums from the dates
above stated as penalty charge until fully paid, plus 1% of the
principal sums as service charge; with costs against PMC, et al.
From the above decision only Canlas appealed to the then
Intermediate Court (now the Court Appeals). His contention was
that inasmuch as he signed the promissory notes in his capacity as
officer of the defunct WGMI, he should not be held personally liable
for such authorized corporate acts that he performed. The
appellate court affirmed the decision of trial court except that it
completely absolved Canlas from liability under the promissory
notes and reduced the award for damages and attorney's fees.
RPB appealed by a way of a petition for review on certiorari. It is
the contention of RPB that having unconditionally signed the 9

promissory notes with Yamaguchi, jointly and severally, Canlas is

solidarity liable with Yamaguchi on each of the nine notes.
Issue [1]: Whether Fermin Canlas is solidarily liable on each
of the promissory notes bearing his signature.
Held [1]: Fermin Canlas is solidarily liable on each of the
promissory notes bearing his signature. The promissory motes are
negotiable instruments and must be governed by the Negotiable
Instruments Law. Under the Negotiable lnstruments Law, persons
who write their names on the face of promissory notes are makers
and are liable as such. By signing the notes, the maker promises to
pay to the order of the payee or any holder according to the tenor
thereof. Based on the above provisions of law, there is no denying
that Canlas is one of the co-makers of the promissory notes. As
such, he cannot escape liability arising therefrom. Where an
instrument containing the words "I promise to pay" is signed by two
or more persons, they are deemed to be jointly and severally liable
thereon. An instrument which begins" with "I" ,We" , or "Either of
us" promise to, pay, when signed by two or more persons, makes
them solidarily liable. The fact that the singular pronoun is used
indicates that the promise is individual as to each other; meaning
that each of the co-signers is deemed to have made an
independent singular promise to pay the notes in full. Herein, the
solidary liability of Canlas is made clearer and certain, without
reason for ambiguity, by the presence of the phrase "joint and
several" as describing the unconditional promise to pay to the
order of RPB. A joint and several note is one in which the makers
bind themselves both jointly and individually to the payee so that all
may be sued together for its enforcement, or the creditor may
select one or more as the object of the suit. A joint and several
obligation in common law corresponds to a civil law solidary
obligation; that is, one of several debtors bound in such wise that
each is liable for the entire amount, and not merely for his
proportionate share. By making a joint and several promise to pay
to the order of RPB, Canlas assumed the solidary liability of a
debtor and the payee may choose to enforce the notes against him
alone or jointly with Yamaguchi and PMC as solidary debtors. As to
whether the interpolation of the phrase "and (in) his personal
capacity" below the signatures of the makers in the notes will affect
the liability of the makers, it is immaterial and will not affect to the
liability of Canlas as a joint and several debtor of the notes. With or

without the presence of said phrase, Canlas is primarily liable as a

co-maker of each of the notes and his liability is that of a solidary
debtor.
Issue [2]: Whether Canlas can avoid liability on the
promissory notes by claiming to be a mere agent of the
corporation.
Held [2]: As a general rule, officers or directors under the old
corporate name bear no personal liability for acts done or contracts
entered into by officers of the corporation, if duly authorized.
Inasmuch as such officers acted in their capacity as agent of the
old corporation and the change of name meant only the
continuation of the old juridical entity, the corporation bearing the
same name is still bound by the acts of its agents if authorized by
the Board. Under the Negotiable Instruments Law, the liability of a
person signing as an agent is specifically provided for in Section 20
thereof, which provides that "Liability of a person signing as agent
and so forth. Where the instrument contains or a person adds to
his signature words indicating that he signs for or on behalf of a
principal , or in a representative capacity, he is not liable on the
instrument if he was duly authorized; but the mere addition of
words describing him as an agent, or as filling a representative
character, without disclosing his principal, does not exempt him
from personal liability. Where the agent signs his name but
nowhere in the instrument has he disclosed the fact that he is
acting in a representative capacity or the name of the third party for
whom he might have acted as agent, the agent is personally liable
to take holder of the instrument and cannot be permitted to prove
that he was merely acting as agent of another and parol or
extrinsic evidence is not admissible to avoid the agent's personal
liability."
Issue [3]: Whether the promissory notes were delivered to
Canlas in blank for his signature, or were incomplete instruments,
to allow the application of Section 14 of the Negotiable Instruments
Law.
Held [3]: A careful examination of the notes in question
shows that they are the stereotype printed form of promissory
notes generally used by commercial banking institutions to be
signed by their clients in obtaining loans. Such printed notes are
incomplete because there are blank spaces to be filled up on

material particulars such as payee's name, amount of the loan,

rate of interest, date of issue and the maturity date. The terms and
conditions of the loan are printed on the note for the borrowerdebtor's perusal. An incomplete instrument which has been
delivered to the borrower for his signature is governed by Section
14 of the Negotiable Instruments Law. Proof that the notes were
signed in blank was only the self-serving testimony of Canlas. The
Court chose to believe the bank's testimony that the notes were
filled up before they were given to Canlas and Yamaguchi for their
signatures as joint and several promissors. For signing the notes
above their typewritten names, they bound themselves as
unconditional makers. The court took judicial notice of the
customary procedure of commercial banks of requiring their
clientele to sign promissory notes prepared by the banks in printed
form with blank spaces already filled up as per agreed terms of the
loan, leaving the borrowers-debtors to do nothing but read the
terms and conditions therein printed and to sign as makers or comakers. When the notes were given to Canlas for his signature,
the notes were complete in the sense that the spaces for the
material particular had been filled up by the bank as per
agreement. The notes were not incomplete instruments; neither
were they given to Canlas in blank as he claims. Thus, Section 14
of the NegotiabIe Instruments Law is not applicable.
16. PHILIPS EXPORT VS. CA
FACTS:
Philips Export B.V. (PEBV) filed with the SEC for the
cancellation of the word Philips the corporate name of Standard
Philips Corporation in view of its prior registration with the Bureau
of Patents and the SEC. However, Standard Philips refused to
amend its Articles of Incorporation so PEBV filed with the SEC a
petition for the issuance of a Writ of Preliminary Injunction,
however this was denied ruling that it can only be done when the
corporate names are identical and they have at least 2 words
different. This was affirmed by the SEC en banc and the Court of
Appeals thus the case at bar.
ISSUE:
Whether or not Standard Philips can be enjoined from using
Philips in its corporate name

RULING: YES
A corporations right to use its corporate and trade name is a
property right, a right in rem, which it may assert and protect
against the whole world. According to Sec. 18 of the Corporation
Code, no corporate name may be allowed if the proposed name is
identical or deceptively confusingly similar to that of any existing
corporation or to any other name already protected by law or is
patently deceptive, confusing or contrary to existing law.
For the prohibition to apply, 2 requisites must be present:
(1) the complainant corporation must have acquired a prior right
over the use of such corporate name and
(2) the proposed name is either identical or deceptively or
confusingly similar to that of any existing corporation or to any
other name already protected by law or patently deceptive,
confusing or contrary to existing law.
With regard to the 1st requisite, PEBV adopted the name Philips
part of its name 26 years before Standard Philips. As regards the
2nd, the test for the existence of confusing similarity is whether the
similarity is such as to mislead a person using ordinary care and
discrimination. Standard Philips only contains one word,
Standard, different from that of PEBV. The 2 companies products
are also the same, or cover the same line of products. Although
PEBV primarily deals with electrical products, it has also shipped to
its subsidiaries machines and parts which fall under the
classification of chains, rollers, belts, bearings and cutting saw,
the goods which Standard Philips also produce. Also, among
Standard Philips primary purposes are to buy, sell trade x x x
electrical wiring devices, electrical component, electrical supplies.
Given these, there is nothing to prevent Standard Philips from
dealing in the same line of business of electrical devices. The use
of Philips by Standard Philips tends to show its intention to ride
on the popularity and established goodwill of PEBV.
17. Lyceum of the Philippines vs CA
(1993) 219 SCRA 610
FACTS:

Petitioner is an educational institution duly registered with the

SEC since Sept 1950. Before the case at bar, Petitioner
commenced a proceeding against Lyceum of Baguio with the SEC
to require it to change its corporate name and adopt a new one not
similar or identical to the Petitioner. SEC granted noting that there
was substantial because of the dominant word Lyceum. CA and
SC affirmed. Petitioner filed similar complaint against other schools
and obtain a favorable decision from the hearing officer. On
appeal, SEC En banc reversed the decision and held that the word
Lyceum have not become so identified with the petitioner and that
the use thereof will cause confusion to the general public.
ISSUE:
1. Whether or not the corporate names of the private
respondents are identical with or deceptively similar to that of the
petitioner.
2. Whether or not the use by the petitioner of Lyceum in its
corporate name has been for such length of time and with such
exclusivity as to have become associated or identified with the
petitioner institution in the mind of the general public (Doctrine of
Secondary meaning).
RULING: NO and NO.
True enough, the corporate names of the parties carry the
word Lyceum but confusion and deception are precluded by the
appending of geographic names. Lyceum generally refers to a
school or an institution of learning and it is natural to use this word
to designate an entity which is organized and operating as an
educational institution.
Doctrine of Secondary meaning is a word of phrase originally
incapable of exclusive appropriation, might nevertheless have
been used so long and so exclusively by one producer with
reference to his article that, in trade and to that branch of the
purchasing public, the word or phrase has come to mean that the
article was his product.
Lyceum of the Philippines has not gained exclusive use of
Lyceum by long passage of time. The number alone of the private
respondents suggests strongly that the use of Lyceum has not

been attended with the exclusivity essential for the applicability of

the doctrine. It may be noted that one of the respondents
Western Pangasinan Lyceum used such term 17 years before the
petitioner registered with the SEC. Moreover, there may be other
schools using the name but not registered with the SEC because
they have not adopted the corporate form of organization.
Doctrine of Secondary Meaning
Doctrine of secondary meaning can be extended to
corporation name but must comply with the requirement that it has
been used so long and so exclusively by one and that the said
name has come to mean that it is referred to as that corporation.
18. ARMCO STEEL CORPORATION (OF THE PHILIPPINES),
petitioner,
vs. SECURITIES AND EXCHANGE COMMISSION, ARMCO
STEELCORPORATION (of Ohio, U.S.A.) and ARMCO
MARSTEEL ALLOY CORPORATION
FACTS:
oIn 1965, ARMCO Steel Corporation, a corporation
organized in Ohio, U.S.A., hereinafter called ARMCO-OHIO,
obtained from the Philippine Patent Office, a Certificate of
Registration for its trademark, consisting of the word ARMCO
(and a triangular device for ferrous metals, castings and forgings).
It was subsequently granted an affidavit of use for the trademark.
oGood faith: In 1972, Marsteel-Alloy Corporation was
incorporated. In 1973, it changed its name to ARMCO MarsteelAlloy Corporation by amending its articles of incorporation.
ARMCO-OHIO had then purchased 40% of its capital stock, with
both corporations engaged in the manufacture of steel products. Its
purpose under the articles of incorporation is to manufacture,
process and deal in all kinds and combinations of metals and metal
products
oBad faith: In 1973, ARMCO Steel Corporation was
incorporated in the Philippines, hereinafter called ARMCOPhilippines. A pertinent portion of its articles of incorporation
provides as among its purposes: "to contract, fabricate . . .
manufacture . . . regarding pipelines, steel frames . . ."

oARMCO-OHIO and Marsteel filed a petition with the SEC to

compel ARMCO-Philippines to change its corporate name on the
ground that it is similar, if not exactly the same as theirs.
SEC: Issued Feb. 1975 order - ARMCO STEEL
CORPORATION, is hereby ordered to take out 'ARMCO' and
substitute another word in lieu thereof in its corporate name by
amending the articles of incorporation to that effect, within thirty
(30) days from date of receipt of a copy of this Order. MR with SEC
denied for filing out of time. Appeal with CA denied for perfecting
the appeal after reglementary period.
o1976: ARMCO-Philippines changed its name to ARMCO
Structures Inc. approved by SEC. Realizing its mistake, in 1977,
SEC issued order requiring ARMCO-Philippines to comply with the
Feb. 1975 order. ARMCO Philippines argued that it already
substantially complied with order.
oARMCO-OHIO and Marsteel bad faith! Did not follow
order of Feb. 1975 to change the word ARMCO. Motion to cite
ARMCO-Phils in contempt!
oSEC: Change within 10 days otherwise, cite in contempt!
ARMCO Phils appealed to SEC en banc. SEC EB dismissed!
ISSUE: Whether the SEC erred when it did not consider the
change of name of ARMCO Philippines as substantial compliance
in good faith, even after it had approved the same.
HELD:
oNO, the order of Feb. 1975 had long become final and
executory. The actuations of ARMCO-Phils are not in
substantial compliance and are far from regular, much less in
good faith. It clearly indicated that the word ARMCO had to be
changed. Far from complying with said order, respondent kept
ARMCO and added structures, Inc. The said amendment was
made without the knowledge of the proper authorities of the SEC,
and was shown by their subsequent order to comply with the Feb.
1975 order. The Securities and Exchange Commission and/or its
administrative personnel were made to issue such certificate
during its unguarded moment. Verily, the certificate could not have
been issued were it not for such lapses or had respondent been in
good faith by making the proper disclosures of the circumstances
which led it to amend its articles of incorporation.

oIt is indisputable that ARMCO-STEEL-OHIO, having

patented the term 'Armco' as part of its trademark on its steel
products, is entitled to protection in the use thereof in the
Philippines. The term 'Armco' is now being used on the products
being manufactured and sold in this country by Armco-Marsteel by
virtue of its tie-up with ARMCO-STEEL-OHIO. Clearly, the two
companies have the right to the exclusive use and enjoyment of
said term. ARMCO STEEL-PHILIPPINES, has not only an identical
name but also a similar line of business, as shown above, as that
of ARMCO STEEL-OHIO. People who are buying and using
products bearing the trademark 'Armco' might be led to believe that
such products are manufactured by the respondent, when in fact,
they might actually be produced by the petitioners. Thus, the
goodwill that should grow and inure to the benefit of petitioners
could be impaired and prejudiced by the continued use of the same
term by the respondent.
oAn order or resolution granting execution of the final
judgment cannot be appealed 9 otherwise there will be no end to
the litigation.
19. P.C. JAVIER & SONS, INC., SPS. PABLO C. JAVIER, SR.
and ROSALINA F. JAVIER, petitioners, vs. HON. COURT OF
APPEALS, PAIC SAVINGS & MORTGAGE BANK, INC.,
SHERIFFS GRACE BELVIS, SOFRONIO VILLARIN, PIO
MARTINEZ and NICANOR BLANCO, respondents.
FACTS:
Plaintiff P.C. Javier and Sons Services, Inc., Plaintiff
Corporation, applied with First Summa Savings and Mortgage
Bank, later on renamed as PAIC Savings and Mortgage Bank,
Defendant Bank, for a loan accommodation under the Industrial
Guarantee Loan Fund (IGLF) for P1.5 Million. On March 21, 1981,
Plaintiff Corporation through Plaintiff Pablo C. Javier, Plaintiff Javier
was advised that its loan application was approved and that the
same shall be forwarded to the Central Bank (CB) for processing
and release. The release of the loans were made in two tranches.
Petitioners contend that the release of the loan was delayed but
defendant bank claimed that the 2nd release of the loan was
delayed because of the shortfall in the collateral cover of plaintiff
Javier and to comply with the commitment to submit additional
security and open a time deposit. The plaintiff then defaulted in the

payment of the loan which resulted to the extrajudicial foreclosure

of the chattel mortgage executed by plaintiff in favor of defendant
bank. The RTC ruled in favor of defendant bank which was
affirmed by the CA dismissing the motion for reconsideration of the
plaintiff.
ISSUE: WON First Summa Savings and Mortgage Bank, who
originally granted said loans, and PAIC Savings and
Mortgage Bank, Inc. are one and the same entity.
HELD:
YES. Their defense that they should first be formally notified
of the change of corporate name of First Summa Savings and
Mortgage Bank to PAIC Savings and Mortgage Bank, Inc., before
they will continue paying their loan obligations to respondent bank
presupposes that there exists a requirement under a law or
regulation ordering a bank that changes its corporate name to
formally notify all its debtors. After going over the Corporation Code
and Banking Laws, as well as the regulations and circulars of both
the SEC and the BSP, we find that there is no such requirement.
This being the case, this Court cannot impose on a bank that
changes its corporate name to notify a debtor of such change
absent any law, circular or regulation requiring it. Such act would
be judicial legislation. The formal notification is, therefore,
discretionary on the bank. Unless there is a law, regulation or
circular from the SEC or BSP requiring the formal notification of all
debtors of banks of any change in corporate name, such
notification remains to be a mere internal policy that banks may or
may not adopt.A change in the corporate name does not make a
new corporation, whether effected by a special act or under a
general law. It has no effect on the identity of the corporation, or on
its property, rights, or liabilities. The corporation, upon such change
in its name, is in no sense a new corporation, nor the successor of
the original corporation. It is the same corporation with a different
name, and its character is in no respect changed.
20. INDUSTRIAL REFRACTORIES CORPORATION OF THE
PHILIPPINES, petitioner, vs. COURT OF APPEALS,
SECURITIES
AND
EXCHANGE
COMMISSION
and
REFRACTORIES CORPORATION OF THE PHILIPPINES,
respondents.

Respondent Refractories Corporation of the Philippines

(RCP) is a corporation duly organized on October 13, 1976 for the
purpose of engaging in the business of manufacturing, producing,
selling, exporting and otherwise dealing in any and all refractory
bricks, its by-products and derivatives. On June 22, 1977, it
registered its corporate and business name with the Bureau of
Domestic Trade.
Petitioner IRCP on the other hand, was incorporated on
August 23, 1979 originally under the name Synclaire
Manufacturing Corporation. It amended its Articles of Incorporation
on August 23, 1985 to change its corporate name to Industrial
Refractories Corp. of the Philippines. It is engaged in the business
of manufacturing all kinds of ceramics and other products, except
paints and zincs.
Both companies are the only local suppliers of monolithic
gunning mix.
Discovering that petitioner was using such corporate name,
respondent RCP filed on April 14, 1988 with the Securities and
Exchange Commission (SEC) a petition to compel petitioner to
change its corporate name on the ground that its corporate
name is confusingly similar with that of petitioners such that
the public may be confused or deceived into believing that they are
one and the same corporation.
The SEC decided in favor of respondent RCP and
rendered judgment on July 23, 1993. Respondent was directed to
amend its Articles of Incorporation by deleting the name
Refractories Corporation of the Philippines in its corporate name
within thirty (30) days from finality of the Decision
Petitioner appealed to the SEC En Banc, arguing that it does
not have any jurisdiction over the case, and that respondent RCP
has no right to the exclusive use of its corporate name as it is
composed of generic or common words.
Petitioner IRCP elevated the decision of the SEC En Banc
through a petition for review on certiorari to the Court of Appeals
which upheld the jurisdiction of the SEC over the case and
ruled that the corporate names of petitioner IRCP and respondent
RCP are confusingly or deceptively similar, and that respondent
RCP has established its prior right to use the word Refractories as
its corporate name.

The appellate court also found that the petition was filed
beyond the reglementary period. Hence the SC must deny the
petition. (Procedural law issue)
Summary of Petitioners arguments, substantially, are as
follows: (1) jurisdiction is vested with the regular courts as the
present case is not one of the instances provided in P.D. 902-A; (2)
respondent RCP is not entitled to use the generic name
refractories; (3) there is no confusing similarity between their
corporate names; and (4) there is no basis for the award of
attorneys fees
Issue: 1.) Whether or not respondent is entitled to the use of the
generic name refractories (YES);
2.) WON there is confusing similarity between corporate names
(YES) (issues relative to Corpo)
Held:
Petitioners argument on the SECs jurisdiction over the case
is utterly myopic. The jurisdiction of the SEC is not merely confined
to the adjudicative functions provided in Section 5 of P.D. 902-A, as
amended.By express mandate, it has absolute jurisdiction,
supervision and control over all corporations. It also exercises
regulatory and administrative powers to implement and enforce the
Corporation Code, one of which is Section 18, which provides:
SEC. 18.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 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.
It is the SECs duty 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, and it has
authority to de-register at all times and under all circumstances
corporate names which in its estimation are likely to generate
confusion. Clearly therefore, the present case falls within the ambit
of the SECs regulatory powers.
Likewise untenable is petitioners argument that there is no
confusing or deceptive similarity between petitioner and

respondent RCPs corporate names. Section 18 of the

Corporation Code expressly prohibits the use of a corporate
name which 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
contrary to existing laws. The policy behind the foregoing
prohibition is to avoid fraud upon the public that will have occasion
to deal with the entity concerned, the evasion of legal
obligationsand duties, and the reduction of difficulties of
administration and supervision over corporation.
Pursuant thereto, the Revised Guidelines in the Approval of
Corporate and Partnership Names specifically requires that: (1) a
corporate name shall not be identical, misleading or confusingly
similar to one already registered by another corporation with the
Commission; and (2) if the proposed name is similar to the name of
a registered firm, the proposed name must contain at least one
distinctive word different from the name of the company already
registered
As held in Philips Export B.V. vs. Court of Appeals,[28] to fall
within the prohibition of the law, two requisites must be proven, to
wit:
(1) that the complainant corporation acquired a prior right
over the use of such corporate name;
(2) the proposed name is either: (a) identical, or (b)
deceptively or confusinglysimilar to that of any existing
corporation or to any other name already protected by law; or (c)
patently deceptive, confusing or contrary to existing law.
As regards the first requisite, it has been held that the right to
the exclusive use of a corporate name with freedom from
infringement by similarity is determined by priority of adoption.
RCP was incorporated 3 years before IRCP.
As to the second requisite, in determining the existence of
confusing similarity in corporate names, the test is whether the
similarity is such as to mislead a person using ordinary care and
discrimination and the Court must look to the record as well as the
names themselves.
WHEREFORE, the instant petition for review on certiorari is
hereby DENIED for lack of merit.

8) De jure corporations requisites, powers, liabilities,

validity

9) De facto corporations Sec. 20

(requisites, basis, powers, rights, liabilities, validity )

De Jure [Latin, In law.]

Legitimate; lawful, as a Matter
of
Law.
Having complied with all the requirements imposed by law.

TITLE II. INCORPORATION AND ORGANIZATION OF

PRIVATE CORPORATIONS
Section 20. De facto corporations. The due incorporation of
any corporation claiming in good faith to be a corporation under
this Code, and its right to exercise corporate powers, shall not be
inquired into collaterally in any private suit to which such
corporation may be a party. Such inquiry may be made by the
Solicitor General in a quo warranto proceeding. (n)

De jure is commonly paired with de facto, which means "in fact."

In the course of ordinary events, the term de jure issuperfluous.
For example, in everyday discourse, when one speaks of a corpor
ation or a government, the understood
meaning is a de jure corporation or a de jure government.
A de jure corporation is one that has completely fulfilled the
statutory formalities imposed by state corporation law in order t
obe granted corporate existence. In comparison, a de facto cor
poration is one that has acted in GoodFaith and would be an
ordinary corporation but for failure to comply with some technic
al requirements.
Source: http://legal-dictionary.thefreedictionary.com/de+jure
DEFINITION of 'De Jure Corporation'
A business that has fulfilled its requirements for
formation according to the regulations for earning a state
charter. De jure, meaning "a matter of law," indicates that the
company has been fully and legally chartered, and is therefore
entitled to do business. A government's granting of
a charter assumes that the de jure corporation will remain in
compliance; however, while unusual, certain circumstances may
lead to the revocation of the charter.
A de jure corporation is one that is lawfully chartered by a
state government, and is recognized as a corporation for all
purposes.
Source:
http://www.investopedia.com/terms/d/de-jurecorporation.asp

REQUISITES:
To constitute a corporation de facto under Section 20, the
weight of authority is that there must be:
1. A valid law under which the corporation is organized;
2. An attempt in good faith to incorporate; and
3. An assumption of corporate powers.
BASIS:
SECTION 20 of BP 68 (the Corporation code of the
Philippines)
POWERS:
Assumption of Powers. It is also required that there is
user of corporate powers. A corporation must have
exercised its franchise to be a corporation by doing
business under it. There must be some corporate act or
acts in attempted execution of the powers conferred by
the Articles of Incorporation or by special charter granted
by the legislature. The acts relied upon as showing user
must be corporate acts, as distinguished from acts which
might just as well be performed by an unincorporated
association or from acts of individuals which would not
be corporate acts if there were a charter.
RIGHTS:
Nature and Status of De Facto Corporations. The
personality of a de facto corporation is subject to attack
by the State in a proper proceeding. However, so long as

it exists, a de facto sorporation is a reality and has

substatntial, legal existence and independent status
recognized by the law as distinct from that of its members
or shareholders. A de facto corporation enjoys the
attributes of a corporation until the State questions its
existence.
The only difference between the powers rights and
liabilities of a de jure and a de facto corporation is that
the latter may have its existence inquired into and
forfeited by the State.
Stockholders in a de facto corporation have the same
rights possessed by the stockholders in a de jure
corporation unless otherwise provided by the Statute but
no greater rights than the latter class.
As Justice Fisher observed: the result is, therefore, that a
corporation de facto which, if regularly organized might
have been one de jure, may contract, hold property, and
sue and be sued in the same manner as if it were a
corporation de jure, for no one can object but the
government, and that in a direct proceeding. As to all the
world except the paramount authority from which it
receives its charter it occupies the same position as
though in all respects valid.
LIABILITIES:
Generally, there is no difference between the liabilities of
stockholders in a de facto corporation and those
stockholders in a de jure corporation.
VALIDITY:
Valid Law. No de facto corporation will result if there is
no law under which the corporation is organized even if
the components thereof assume corporate powers. This
is consistent with proposition that to be a de facto
corporation, it must be possible to be a corporation de
jure. The absence of law erases such possibility.

2 views regarding the effect of unconstitutional or invalid laws:

1. (orthodox view) an unconstitutional law is not a law,
confers no rights, imposes no duties and affords no
protection. Therefore, if the law under which the
corporation is organized is void, there is no resulting de
facto corporation.
2. (other view) declares unconstitutional laws as an
operative fact; that for a period of time, the law is
actually in existence. Thus, an unconstitutional law does
not bar the existence of a de facto corporation.
Reference: Philippine Corporate Law Compendium by Timoteo
B. Aquino

21.Pioneer Insurance v. CA
(GR 84157) 175 SCRA
668 (1989)
22. Municipality of Malabang v. Benito
(1969)
27 SCRA 533
23. Hall v. Piccio
(1950)
86 Phil. 603
24. Cagayan Fishing. v. Sandiko
GR L-43350
(12/23/1937)
25. Harill v. Davis
(1909) 168 F.
187
21. Pioneer Insurance vs. CAG.R. No. 84197; July
28, 1989
FACTS:
Lim is an owner-operator of Southern Airlines
(SAL). Japan Domestic Airlines (JDA) and Lim
entered
into
a
sales
contract.
Pioneer
Insurance and Surety Corp. as surety executed its
surety bond in favor of JDA on behalf of its
principal Lim. Border Machinery and Heacy
Equipment Co, Inc., Francisco and Modesto
Cervantes, and Constancio Maglana contributed

funds based on the misrepresentation of Lim that

they willform a new corporation to expand his
business. They executed two separate indemnity
agreements in favour of Pioneer, one signed by
Maglana and the other jointly signed by Lim for
SAL, Bormaheco and the Cervanteses. The
indemnity agreements stipulated that the
indemnitors principally agree and bind themselves
jointly and severally to indemnify and hold and
save Pioneer from and against any/all damages,
losses, etc. of whatever kind and nature may incur
in consequence of having become surety.Lim
executed in favor of Pioneer a deed of chattel
mortgage as security. Upon default on the
payments, Pioneer paid for him and filed a petition
for the foreclosure of chattel mortgage as security.
Maglana, Bormaheco and the Cervantess filed
cross-claims against Lim alleging that they were
not privies tothe contracts signed by Lim and for
recovery of the sum of money they advanced to
Lim for the purchase of the aircrafts. The decision
was rendered holding Lim liable to pay.
ISSUE: 1. Whether Pioneer has a cause of action against
respondents
2. Whether failure to incorporate automatically
resulted to de facto partnership
HELD:1. Pioneer has no right to institute and maintain in
its own name an action for the benefit of there
insurers. It is well-settled that an action brought
by an attorney-in-fact in his own name instead of
that of the principal will not prosper, and this is so
even where the name of the principal is disclosed
in the complaint. An attorney-in-fact is not a real
party in interest, that there is no law permitting an
action to be brought by an attorney-in-fact.
2. NO. Partnership inter se does not necessarily
exist, for ordinarily persons cannot be made to

assume the relation of partners as between

themselves, when their purpose is that no
partnership shall exist and it should be implied
only when necessary to do justice between the
parties; thus, one who takes no part except to
subscribe for stock in a proposed corporation
which is never legally formed does not become a
partner with other subscribers who engage in
business under the name of the pretended
corporation, so as to be liable as such in an action
for settlement of the alleged partnership and
contribution.
22.

MUNICIPALITY OF MALABANG and AMER

BALINDONG v. PANGANDAPUN BENITO et al

FACTS:The Municipality of Balabagan was formerly a

part of the Municipality of Malabang, having been
created by EO 386 of the then President Carlos P.
Garcia. Petitioner Balindong is the mayor of
Malabang while Benito is the mayor, and the rest
of the respondents are the councilors, of
Balabagan. The petitioners brought this action for
prohibition to nullify EO 386 and to restrain the
respondent municipal officials from performing the
functions of their respective office.
Petitioners relied on the ruling of the case
Pelaez v. Auditor Generalwhere the Supreme Court
held that Sec. 68 of the Revised Administrative
Code is unconstitutional because: (a) itconstitutes
an undue delegation of legislative power and (b) it
offends against Section 10 (1) of Article VII of the
1935 Constitution, which limits the President's
power
over
localgovernments
to
mere
supervision.Section 68 of said Code, approved
onMarch 10, 1917, must be deemed repealed by
the subsequentadoption of the Constitution, in
1935,
which
is
utterlyincompatible
and

inconsistent with said statutory enactment. The

Respondents, on the other hand, argue that the
Municipality of Balabagan is at least a de facto
corporation for having beenorganized under color
of
a
statute
before
this
was
declaredunconstitutional, its officers having been
either elected orappointed, and the municipality
itself having discharged itscorporate functions for
the past five years preceding theinstitution of this
action. It is contended that as a de
factocorporation,
its
existence
cannot
be
collaterally attacked,although it may be inquired
into directly in an action for quowarranto at the
instance of the State and not of an individual like
the petitioner Balindong.
Generally, an inquiry into the legal
existence of a municipality is reserved to the
State in a proceeding for quo warranto or other
direct proceeding, and that only in a few
exceptions may a private person exercise this
function of government. But the rule disallowing
collateral attacks applies only where the municipal
corporation is at least a de facto corporation. For
where it is neither a corporation de jure nor de
facto, but a nullity, the rule is that its existence
may be, questioned collaterally or directly in any
action or proceeding by any one whose rights or
interests ate affected thereby, including the
citizens of the territory incorporated unless they
are estopped by their conduct from doing so.
ISSUE: WON the Municipality of Balabagan is a de facto
corporation.
HELD: No, because there is no other valid statute to
give color of authority to its creation when EO 386
was subsequently declaredas unconstitutional.

The Supreme Court laid down the following

principles:
I. The color of authority requisite to the organization of a
de factomunicipal corporation may be:
1. A valid law enacted by the legislature.
2. An unconstitutional law, valid on its face,
which has either:
(a)been upheld for a time by the courts; or,
(b) not yet been declaredvoid; provided that
a warrant for its creation can be found insome
other valid law or in the recognition of its
potentialexistence by the general laws or
constitution of the state.
II. There can be no de facto municipal corporation
unless either directly or potentially, such a de jure
corporation is authorized by some legislative
order.
III. There can be no color of authority in an
unconstitutional statute alone, the invalidity of
which is apparent on its face.
IV. There can be no de facto corporation created to take
the place of an existing de jure corporation, as
such organization would clearly be a usurper.
In the cases where a de facto municipal corporation was
recognized as such despite the fact that the
statute creating it was later invalidated, the
decisions could fairly be made to rest on the
consideration that there was some other valid law
giving corporate vitality to the organization.
Hence, in the case at bar, the mere fact that
Balabagan was organized at a time when the
statute had not been invalidated cannot
conceivably make it a de facto corporation, as,
independently of the Administrative Code
provision in question, there is no other valid
statute to give color of authority to its creation.
23. Hall vs. Piccio

Facts: Petitioners Arnold Hall, Bradley Hall and Private

Respondents Fred Brown, Emma Brown, Hipolita
Chapman and Ceferino Abella signed and
acknowledged the articles of incorporation of the
Far Eastern Lumber and Commercial Co., Inc.
organized to engage in a general lumber business
to carry on as general contractors, operators and
managers. Attached to the articles was an
affidavit of the treasurer stating that 23, 428
shares of stock had been subscribed and fully paid
with certain properties transferred to the
corporation.
Immediately after the execution of the articles of
incorporation, the corporation proceeded to do
business with the adoption of by-laws and the
election
of
its
officers.
Then, the articles of incorporation were filed in
SEC
for
the issuanceof
the
corresponding certificate
of
incorporation.
Pending action on the articles of incorporation,
Fred Brown, Emma Brown, Hipolita Chapman and
Ceferino Abella filed a civil caseagainst the Halls
alleging among other things that Far Eastern
Lumber and Commercial Co, was an unregistered
partnership and that they wished to have it
dissolved because of bitter dissension among the
members, mismanagement and fraud by the
managers
and
heavy
financial
losses.
The Halls filed a Motion to Dismiss contesting the
courts jurisdiction and the sufficiency of
the cause of action but Judge Piccio ordered the
dissolution of the company and appointed a
receiver.

Issues:
(1) Whether or not the court had jurisdiction to
decree the dissolution of the company because it
being a de facto corporation, dissolution may only
be ordered in a quo warranto proceeding in
accordance
with
Section
19.
(2) Inasmuch as the Browns had signed
the articles of incorporation, whether or not they
are estopped from claiming that it is not a
corporation
but
only
a
partnership.
Held:
(1) YES. The court had jurisdiction but Section 19
does
not
apply.
First, not having obtained the certificate of
incorporation, the Far Eastern Lumber and
Commercial Co. even its stockholders may not
probably claim in good faith to be a corporation.
The immunity of collateral attack is granted to
corporations claiming in good faith to be
corporation under this act. Such a claim is
compatible with the existence of errors and
irregularities but not with a total or substantial
disregard of the law. Unless there has been an
evident attempt to comply with the law, the claim
to be a corporation under this act could not be
made
in
good
faith.
Second, this is not a suit in which the corporation
is a party. This is a litigation between stockholders
of the alleged corporation for the purpose of
obtaining its dissolution. Even the existence of
a de jurecorporation may be terminated in a
private
suit
for
its
dissolution
between
stockholders, without the intervention of the
state.

(2) NO. The Browns are not estopped. Because the

SEC
has
not
yet
issued
the
corresponding certificate of incorporation, all of
them know or ought to know that the personality
of a corporation begins to exist only from the
moment such certificate is issued and not before.
The complaining associates have not represented
to the others that they were incorporated any
more than the latter had made similar
representations
to
them.
And as nobody was led to believe anything to his
prejudice and damage, the principle of estoppel
does not apply. This is not an instance requiring
the enforcement of contracts with the corporation
through the rule of estoppel.
24. Cagayan Fishing Development Co., Inc., vs.
Sandiko, [G.R. No. L-43350 December 23,
1937]
Facts: Manuel Tabora is the registered owner of four
parcels of land. To guarantee the payment of two
loans, Manuel Tabora, executed in favor of PNB
two mortgages over the four parcels of land
between August, 1929, and April 1930. Later, a
third mortgage on the same lands was executed
also on April, 1930 in favor of Severina Buzon to
whom Tabora was indebted.
On

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 plaintiff company, said to under
process of incorporation. The plaintiff company

filed its article incorporation with the Bureau of

Commerce and Industry only on October, 1930
(Exhibit 2).
A year later, the board of directors of said company
adopted a resolution authorizing its president to
sell the four parcels of lands in question to
Teodoro Sandiko. Exhibits B, C and D were
thereafter made and executed. Exhibit B is a deed
of sale where the plaintiff sold ceded and
transferred to the defendant all its right, titles,
and interest in and to the four parcels of land.
Exhibit C is a promissory note drawn by the
defendant in favor of the plaintiff, payable after
one year from the date thereof. Exhibit D is a deed
of mortgage executed where the four parcels of
land were given a security for the payment of the
promissory note, Exhibit C.
The defendant having failed to pay the sum stated in
the promissory note, plaintiff, brought this action
in the Court of First Instance of Manila praying
that judgment be rendered against the defendant
for the sum stated in the promissory note. After
trial, the court rendered judgment absolving the
defendant. Plaintiff presented a motion for new
trial, which motion was denied by the trial court.
After due exception and notice, plaintiff has
appealed to this court and makes an assignment
of various errors.
Issue: Whether Exhibit B, the deed of sale executed in
favor of Teodoro Sandiko, was valid.
Held: No, it was not.
The transfer made by Tabora to the Cagayan fishing
Development Co., Inc., plaintiff herein, was
affected on May 31, 1930 (Exhibit A) and the

actual incorporation of said company was affected

later on October 22, 1930 (Exhibit 2). In other
words, the transfer was made almost five months
before the incorporation of the company.
Unquestionably, a duly organized corporation has the
power to purchase and hold such real property as
the purposes for which such corporation was
formed may permit and for this purpose may
enter into such contracts as may be necessary.
But before a corporation may be said to be
lawfully organized, many things have to be done.
Among other things, the law requires the
filing of articles of incorporation.
In the case before us it can not be denied that the
plaintiff was not yet incorporated when it entered
into a contract of sale, Exhibit A. 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
(Exhibit
A)
was
entered
into
not
between Manuel Tabora
and
a
non-existent
corporation but between the Manuel Tabora as
owner of the four parcels of lands on the one hand
and the same Manuel Tabora, his wife and others,
as mere promoters of a corporations on the other
hand.
For reasons that are self-evident, these promoters could
not have acted as agent for a projected
corporation since that which no legal existence
could have no agent. A corporation, until
organized, has no life and therefore no faculties.
This is not saying that under no circumstances may the
acts of promoters of a corporation be ratified by

the corporation
organized.

if

and

when

subsequently

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.
25. Harill vs. Davis
168 F. 187; 1909
FACTS:
The constitutive documents were filed with the
clerk of the Court of Appeals but not with the clerk
of court in the judicial district where the business
was located. Arkansas law requires filing in both
offices.
ISSUE:
Was there colorable compliance enough to give
the supposed corporation at least the status of a
de facto corporation?
HELD:
NO. Neither the hope, the belief, nor the
statement by parties that they are incorporated,
nor the signing of the articles of incorporation
which are not filed, where filing is requisite to
create the corporation, nor the use of the
pretended
franchise
of
the
nonexistent
corporation, will constitute such a corporation de
facto as will exempt those who actively and
knowingly use s name to incur legal obligations
from their individual liability to pay them. There
could be no incorporation or color of it under the
law until the articles were filed (requisites for valid
incorporation).

those who act or purport to act as its representatives or

agents do so without authority and at their own risk.
10 ) Corporation by Estoppel Sec. 21 (rationale, liabilities,
validity)
TITLE II. INCORPORATION AND ORGANIZATION OF
PRIVATE CORPORATIONS
Section 21. Corporation by estoppel. All persons who assume
to act as a corporation knowing it to be without authority to do
so shall be liable as general partners for all debts, liabilities and
damages incurred or arising as a result thereof: Provided,
however, That when any such ostensible corporation is sued on
any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a
defense its lack of corporate personality.
One who assumes an obligation to an ostensible
corporation as such, cannot resist performance thereof on the
ground that there was in fact no corporation. (n)
Estoppel. One who assumes an obligation to an ostensible
corporation as such, cannot resist performance thereof on
the ground that there was in fact no corporation. When a
third person has enetered into a contract with an
assoiciation which represented itself to be a corporation,
the association will be estopped from denying its
corporate capacity in a suit against it by such third
person. It cannot allege lack of capacity to be sued to
evade responsibility on a contract it had entered into and
by virtue of which it received advantages and benefit.
RATIONALE:
Even if the ostensible corporate entity is proven to be
legally non-existent, a party may be estopped from
denying its corporate existence. The reason behind this
doctrine is obviousan unincorporated association has
no personality and would be incompetent to act and
appropriate for itself the power and attributes of a
corporation as provided by law; it cannot create agents or
confer authority on another to act in its behalf; thus,

LIABILITIES:
(the doctrine of corporation by estoppel may apply to the
alleged corporation and to a third party)
1. Liability as General Partner. Those who assume to act
as a corporation knowing it to be without authority to od
so shall be liable as a general partner. Therefore, they are
liable beyond their investment; in other words, their
personal properties may be made to answer for what is
purportedly a corporate debt of the non-existent
corporation.
This also means that those without knowledge of the nonexistence of the corporation are liable as if they are
regular stockholders of a corporation. They are not liable
beyond their investments.
2. Enterprise Liability.
3. Tort liability. The liability under section 21 in case
there is an ostensible corporation is applicable to tort
liability. There is a difference between tort liability and
contractual liability with respect to the application of
estoppel. Thus, there are many types of tort or tort cases
when there is no contractual relationship beween the
parties. Hence, there is ordinarily no reliance by a third
person on representations of the components of the
ostensible corporation when the cause of action arose.
For example, in a case involving negligence based on
quasi-delict under Article 2176 of the New Civil Code, the
injured party may file an action against an ostensible
corporation with whom he or she has no previous
dealings.
VALIDITY:
Reference: Philippine Corporate Law Compendium by Timoteo
B. Aquino

parties were corporations with juridical personality

and assigns same as reversible error.

26. Asia Banking Corp. v. Std. Products Co. (1924) 46

Phil. 145
27. Cranson v. IBM Corp.(1964) 234 Md. 477; 200 A.
ISSUE: Whether or not respondent is estopped from
2d 33
denying the corporate existence of the plaintiff.
28. Salvatierra v. Garlitos et al.(1958) 103 Phil. 757
29. Albert v. University Publishing Co., Inc. (1965) 13 SCRA RULING: YES
84
The general rule is that in the absence of fraud a
30. Chiang Kai Shek School v. CA
(1989) 172
person who has contracted or otherwise dealt with
SCRA 389
an association in such a way as to recognize and
31. Lim Tong Lim v. Phil. Fishing Gear
(1999) 317
in effect admit its legal existence as a corporate
SCRA 728
body is thereby estopped to deny its corporate
32. Intl Express Travel v. CA
(2000)
343
existence in any action leading out of or involving
SCRA 674
such contract or dealing, unless its existence is
attacked for cause which have arisen since
26. ASIA BANKING CORPORATION vs. STANDARD
making the contract or other dealing relied on as
PRODUCTS, CO., INC
an estoppel and this applies to foreign as well as
G.R. No. 22106
September 11, 1924
to domestic corporations.
The defendant having recognized the
FACTS:
corporate existence of the plaintiff by making a
Standard Products, Co., Inc., was indebted to Asia
promissory note in its favor and making partial
Banking
Corporation
for
the
amount
of
payments on the same is therefore estopped to
P37,757.22. To secure its indebtedness, it
deny said plaintiff's corporate existence. It is, of
executed a promissory note in favor of plaintiffcourse, also estopped from denying its own
appellee. Upon demand for the balance due, the
corporate existence. Under these circumstances it
respondent-appellant failed to pay. Hence an
was unnecessary for the plaintiff to present other
action was brought by plaintiff-appellee to recover
evidence of the corporate existence of either of
the sum of P24,736.47.
the parties. It may be noted that there is no
The court rendered judgment in favor of the
evidence showing circumstances taking the case
plaintiff-appellee for the sum demanded in the
out of the rules stated.
complaint, with interest on the sum of P24,147.34
from November 1, 1923, at the rate of 10 per cent
27. Cranson vs. International Business Machines
per annum, and the costs. Hence this appeal by
Corp.
the respondent-appellant.
234 MD. 477, 200 A. 2D 33; 1964
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

FACTS:
Cranson was asked to be an investor in a new
business corporation and after he acceded, there
are other people who had formed the corporation

with him. A stock certificate evidencing his

ownership of shares in the corporation was given
to him. The transactions were done as if it were a
corporation and eventually Cranson was elected
president and all the dealings with IBM were
conducted by him for the corporation. At no time
did he assume personal obligation or pledge his
individual credit to IBM. But the lawyers of the
corporation made an oversight of not filing the
certificate of incorporation and when claim for
payment were charged against the Real Estate
Service Bureau, IBM charged Cranson in his
personal capacity.
ISSUE:
WON a defectively incorporated association would
warrant a charge against officers in their personal
capacity.
HELD:
NO. Traditionally, two doctrines have been used by
the courts to clothe an officer of a defectively
incorporated association with the corporate
attribute of limited liability. The first, often
referred to as the doctrine of de facto
corporations, has been applied in those cases
where there are elements showing: (1) the
existence of law authorizing incorporation: (2) an
effort in good faith to incorporate under the
existing law; and (3) actual user or exercise of
corporate powers. The second, doctrine of
estoppel: employed when the person seeking to
hold the officer personally liable has contracted or
otherwise dealt with the association in such a
manner as to recognize and in effect admit its
existence as a corporate body.
When there is a concurrence of the three
elements necessary for the application of the de
facto corporation doctrine, there exists an entity

which is a corporation de jure against all persons

BUT THE STATE. On the other hand, the estoppel
theory is applied only to the facts of each
particular case and may be invoked even when
there is no corporation de facto.
IBM, having dealt with the Bureau as if it were a
corporation and relied on its credit rather than
that of Cranson, is estopped to assert that the
Bureau was not incorporated at the time the
typewriters were franchised.
Where one has recognized the corporate
existence of an association, he is estopped to
assert the contrary with respect to claim arising
out of such dealings.
28. MANUELA T. VDA DE SALVATIERRA VS HON.
GARLITOS, SEGUNDINO REFUERZO /
GR. L-1142 / May 23, 1958
Doctrine:
1. Corporation by estoppel. A person who deals with
an association in such a way to recognize its
existence as a corporate body is estopped from
denying the same in an action arising out of such
transaction, yet this doctrine ay not be held
applicable where fraud takes part in the said
transaction.
2. A corporation when registered has a juridical
personality separate and distinct from its
component members, but it cannot be made
applicable to the liability of members of an
unincorporated association.
FACTS:
In 1954, Manuela Vda. De Salvatierra
entered into a lease contract with Philippine Fibers
Producers Co., Inc. (PFPC). PFPC was represented
by its president, Segundino Refuerzo. It was
agreed that Salvatierra shall lease her land to

PFPC in exchange of rental payments plus shares

from the sales of kenaf, ramie, or other crops
suitable to the soil. However, PFPC failed to
comply with its obligations and so in 1955,
Salvatierra sued PFPC and she won. Judge Lorenzo
Garlitos of CFI Leyte ordering the execution of the
judgment against Refuerzos personal property
because there was no property under PFPC.
Refuerzo moved for reconsideration on the ground
that he should not be held personally liable
because he merely signed the lease contract in
his official capacity as president of PFPC. Motion
was granted.
Salvatierra assailed the decision of the
judge on the ground that she sued PFPC without
impleading Refuerzo because she initially believed
that PFPC was a legitimate corporation. However,
during trial, she found out that PFPC was not
actually registered with the Securities and
Exchange Commission (SEC) hence Refuerzo
should be personally liable.

provided by law; it cannot create agents or confer

authority on another to act in its behalf; thus,
those who act or purport to act as its
representatives or agents do so without authority
and at their own risk. In this case, Refuerzo was
the moving spirit behind PFPC. As such, his
liability cannot be limited or restricted that
imposed upon [would-be] corporate shareholders.
In acting on behalf of a corporation which he knew
to be unregistered, he assumed the risk of reaping
the consequential damages or resultant rights, if
any, arising out of such transaction.
Salvatierras charge that she was unaware of the
fact that PFPC had no juridical personality,
Refuerzo gave no confirmation or denial and the
circumstances surrounding the execution of the
contract lead to the inescapable conclusion that
Salvatierra was really made to believe that such
corporation was duly organized in accordance with
law.
29. Albert vs. University Publishing Co.
G.R. No. L-19118; January 30, 1965

ISSUE: Whether or not, Refuerzo being the President of

PFPC, an unregistered association, be personally
liable to the obligation of PFPC.
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
obvious-since an organization which before the
law is non-existent has no personality and would
be incompetent to act and appropriate for itself
the powers and attribute of a corporation as

FACTS:
Mariano Albert entered into a contract with
University Publishing Co., Inc. through Jose M.
Aruego, its President, whereby University would
pay plaintiff for the exclusive right to publish his
revised Commentaries on the Revised Penal
Code. The contract stipulated that failure to pay
one installment would render the rest of the
payments due. When University failed to pay the
second installment, Albert sued for collection and
won. However, upon execution, it was found that
University was not registered with the SEC. Albert
petitioned for a writ of execution against Jose M.
Aruego as the real defendant. University opposed,

on the ground that Aruego was not a party to the

case.
ISSUE:
WON Aruego can be held personally liable to the
plaintiff.
HELD:
YES. The Supreme Court found that Aruego
represented a non-existent entity and induced not
only Albert but the court to believe in such
representation. Aruego, acting as representative
of such non-existent principal, was the real party
to the contract sued upon, and thus assumed such
privileges and obligations and became personally
liable for the contract entered into or for other
acts performed as such agent. One who has
induced another to act upon his wilful
misrepresentation that a corporation was duly
organized and existing under the law, cannot
thereafter set up against his victim the principle of
corporation by estoppel
The Supreme Court likewise held that the doctrine
of corporation by estoppel cannot be set up
against Albert since it was Aruego who had
induced him to act upon his (Aruego's) willful
representation that University had been duly
organized and was existing under the law.
30. CHIANG KAI SHEK SCHOOL, vs. COURT OF
APPEALS
G.R. No. L-58028 April 18, 1989
FACTS:
Fausta F. Oh reported for work at the Chiang Kai
Shek School in Sorsogon on the first week of July,
1968. She was told she had no assignment for the
next semester. Oh was shocked. She had been
teaching in the school since 1932 for a continuous

period of almost 33 years. And now, out of the

blue, and for no apparent or given reason, this
abrupt dismissal. She demanded separation pay,
social security benefits, salary differentials,
maternity benefits and moral and exemplary
damages. The original defendant was the Chiang
Kai Shek School but when it filed a motion to
dismiss on the ground that it could not be sued,
the complaint was amended. Certain officials of
the school were also impleaded to make them
solidarily liable with the school.
Court of First Instance of Sorsogon dismissed the
complaint. On appeal, its decision was set aside
by the respondent court, which held the school
suable and liable while absolving the other
defendants
ISSUE: Whether or not a school that has not been
incorporated may be sued by reason alone of its
long continued existence and recognition by the
government.
HELD:
It is true that Rule 3, Section 1, of the Rules of
Court clearly provides that "only natural or
juridical persons may be parties in a civil action."
It is also not denied that the school has not been
incorporated. However, this omission should not
prejudice the private respondent in the assertion
of her claims against the school.
As a school, the petitioner was governed by Act
No. 2706 as amended by C.A. No. 180, which p rovided
as follows:
Unless exempted for special reasons by the
Secretary of Public Instruction, any private school
or college recognized by the government shall be
incorporated under the provisions of Act No. 1459

known as the Corporation Law, within 90 days

after the date of recognition, and shall file with
the Secretary of Public Instruction a copy of its
incorporation papers and by-laws.
Having been recognized by the government,
it was under obligation to incorporate under the
Corporation Law within 90 days from such
recognition. It appears that it had not done so at
the time the complaint was filed notwithstanding
that it had been in existence even earlier than
1932. The petitioner cannot now invoke its own
non-compliance with the law to immunize it from
the private respondent's complaint.
There should also be no question that
having contracted with the private respondent
every year for thirty two years and thus
represented itself as possessed of juridical
personality to do so, the petitioner is now
estopped from denying such personality to defeat
her claim against it. According to Article 1431 of
the Civil Code, "through estoppel an admission or
representation is rendered conclusive upon the
person making it and cannot be denied or
disproved as against the person relying on it."
As the school itself may be sued in its own
name, there is no need to apply Rule 3, Section
15, under which the persons joined in an
association without any juridical personality may
be sued with such association. Besides, it has
been shown that the individual members of the
board of trustees are not liable, having been
appointed only after the private respondent's
dismissal.
31. LIM TONG LIM vs. PHILIPPINE FISHING GEAR
INDUSTRIES, INC.
G.R. No. 136448 / November 3, 1999

FACTS:
On February 7, 1990, Antonio Chua and Peter Yao,
on behalf of Ocean Quest Fishing Corporation
and claiming to be in a business venture with Lim
Tong Lim, entered into an agreement with
Philippine Fishing Gear Industries. The agreement
concerned the sale of fishing nets and floats
costing P532, 045 and P68, 000, respectively.
The two failed to pay which caused
Philippine Fishing Gear to file a collection case
against Chua, Yao and Lim. Chua admitted his
liability, Yao answered but did not appear, while
Lim filed a counterclaim, a crossclaim and a
motion to lift the writ of attachment upon the nets
and floats.
The RTC and CA ruled in favor of Philippine
Fishing Gear and held Chua, Yao and Lim jointly
liable. Lim contests this and argues that under the
doctrine of estoppel, he should not be held liable
with Chua and Yao, since it was only Chua and Yao
who personally dealt with Philippine Fishing Gear.
ISSUE: W/N Lim can be held jointly liable with Chua and
Yao
HELD:
Yes. All those who benefited from the transaction made
by the ostensible corporation despite knowledge
of its legal defects may be held liable for contracts
they impliedly assented to or took advantage of.
Under the law on estoppel, those acting on behalf
of a corporation and those benefited by it,
knowing it to be without valid existence, are held
liable as general partners. True, Lim did not
directly act on behalf of Ocean Quest Fishing
Corporation but he reaped the benefits of the
contract entered into by persons with whom he
previously had an existing relationship.

32. INTERNATIONAL EXPRESS TRAVEL VS CA

FACTS:
On June 30 1989, petitioner International
Express Travel and Tour Services, Inc., through its
managing director, wrote a letter to the Philippine
Football Federation (Federation), through its president
private respondent Henri Kahn, wherein the former
offered its services as a travel agency to the latter.
[1]
The offer was accepted.
Petitioner secured the airline tickets for the trips of
the athletes and officials of the Federation to the South
East Asian Games in Kuala Lumpur as well as various
other trips to the People's Republic of China and
Brisbane. The total cost of the tickets amounted to
P449,654.83. For the tickets received, the Federation
made two partial payments, both in September of 1989,
in the total amount of P176,467.50.[2]
On 4 October 1989, petitioner wrote the Federation,
through the private respondent a demand letter
requesting for the amount of P265,894.33. [3] On 30
October 1989, the Federation, through the Project
Gintong Alay, paid the amount of P31,603.00.[4]
On 27 December 1989, Henri Kahn issued a personal
check in the amount of P50,000 as partial payment for
the outstanding balance of the Federation.[5] Thereafter,
no further payments were made despite repeated
demands.
This prompted petitioner to file a civil case before
the Regional Trial Court of Manila. Petitioner sued Henri
Kahn in his personal capacity and as President of the
Federation and impleaded the Federation as an
alternative defendant. Petitioner sought to hold Henri
Kahn liable for the unpaid balance for the tickets
purchased by the Federation on the ground that Henri
Kahn allegedly guaranteed the said obligation.[6]
Henri Kahn filed his answer with counterclaim. While
not denying the allegation that the Federation owed the
amount P207,524.20, representing the unpaid balance
for the plane tickets, he averred that the petitioner has
no cause of action against him either in his personal

capacity or in his official capacity as president of the

Federation. He maintained that he did not guarantee
payment but merely acted as an agent of the Federation
which has a separate and distinct juridical personality. [7]
On the other hand, the Federation failed to file its
answer, hence, was declared in default by the trial
court.[8]
In due course, the trial court rendered judgment and
ruled in favor of the petitioner and declared Henri
Kahn personally liable for the unpaid obligation of the
Federation. In arriving at the said ruling, the trial court
rationalized:
Defendant Henri Kahn would have been correct in his
contentions had it been duly established that defendant
Federation is a corporation. The trouble, however, is
that neither the plaintiff nor the defendant Henri Kahn
has adduced any evidence proving the corporate
existence of the defendant Federation. In paragraph 2 of
its complaint, plaintiff asserted that "Defendant
Philippine Football Federation is a sports association
xxx." This has not been denied by defendant Henri Kahn
in his Answer. Being the President of defendant
Federation, its corporate existence is within the personal
knowledge of defendant Henri Kahn. He could have
easily denied specifically the assertion of the plaintiff
that it is a mere sports association, if it were a domestic
corporation. But he did not.
xxx
A voluntary unincorporated association, like defendant
Federation has no power to enter into, or to ratify, a
contract. The contract entered into by its officers or
agents on behalf of such association is not binding on,
or enforceable against it. The officers or agents are
themselves personally liable.
The CA reversed the said ruling and recognized the
juridical existence of the Federation. It rationalized
that since petitioner failed to prove that Henri
Kahn guaranteed the obligation of the Federation,
he should not be held liable for the same as said

entity has a separate and distinct personality from

its officers.
Petitioner now seeks recourse.
ISSUE: W/N CA ERRED IN HOLDING THAT PHILIPPINE
FOOTBALL FEDERATION IS A CORPORATE ENTITY
AND IN NOT HOLDING THAT PRIVATE RESPONDENT
IS LIABLE
HELD: YES.
It is a basic postulate that before a corporation may
acquire juridical personality, the State must give
its consent either in the form of a special law or a
general enabling act. We cannot agree with the
view of the appellate court and the private
respondent that the Philippine Football Federation
came into existence upon the passage of these
laws. Nowhere can it be found in R.A. 3135 or P.D.
604 any provision creating the Philippine Football
Federation. These laws merely recognized the
existence of national sports associations and
provided the manner by which these entities may
acquire juridical personality.
Clearly the above cited provisions require that before an
entity may be considered as a national sports
association, such entity must be recognized by
the accrediting organization, the Philippine
Amateur Athletic Federation under R.A. 3135, and
the Department of Youth and Sports Development
under P.D. 604. This fact of recognition, however,
Henri Kahn failed to substantiate. In attempting to
prove the juridical existence of the Federation,
Henri Kahn attached to his motion for
reconsideration before the trial court a copy of the
constitution and by-laws of the Philippine Football
Federation. Unfortunately, the same does not

prove that said Federation has indeed been

recognized and accredited by either the Philippine
Amateur Athletic Federation or the Department of
Youth and Sports Development. Accordingly, we
rule that the Philippine Football Federation is not a
national sports association within the purview of
the aforementioned laws and does not have
corporate existence of its own.
Thus being said, it follows that private respondent Henry
Kahn should be held liable for the unpaid
obligations of the unincorporated Philippine
Football Federation. It is a settled principal in
corporation law that any person acting or
purporting to act on behalf of a corporation which
has no valid existence assumes such privileges
and becomes personally liable for contract
entered into or for other acts performed as such
agent. As president of the Federation, Henri
Kahn is presumed to have known about the
corporate existence or non-existence of the
Federation. We cannot subscribe to the position
taken by the appellate court that even assuming
that the Federation was defectively incorporated,
the petitioner cannot deny the corporate
existence of the Federation because it had
contracted and dealt with the Federation in such a
manner as to recognize and in effect admit its
existence. The doctrine of corporation by estoppel
is mistakenly applied by the respondent court to
the petitioner. The application of the doctrine
applies to a third party only when he tries to
escape liability on a contract from which he has
benefited on the irrelevant ground of defective
incorporation.In the case at bar, the petitioner is
not trying to escape liability from the contract but
rather is the one claiming from the contract.

11) Corps. that are neither de jure, de facto, nor by estoppel