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1. McConnel v. CA M. Dario and Aurea Ordrecio with a capital stock of P1,500.

00 divided into 1,500 shares at


G.R. No. L-10510, March 17, 1961 P1.00 a share. McConnel and Cochrane each owned 500 shares, Ricardo Rodriguez 408
Author: Lubag shares, and Dario and Ordrecio 1 share each. It is obvious that the shares of the last two
named persons were merely qualifying shares. On 1947, the defendants Cirilo Paredes and
Petitioners: M. MC CONNEL, W. P. COCHRANE, RICARDO RODRIGUEZ, ET AL. Ursula Tolentino purchased 1,496 shares of the said corporation and the remaining four
Respondents: THE COURT OF APPEALS and DOMINGA DE LOS REYES, assisted by her husband, shares were acquired by Bienvenido J. Claudio, Quintin C. Paredes, Segundo Tarictican, and
SABINO PADILLA Paulino Marquez at one share each. It is obvious that the last four shares bought by these
four persons were merely qualifying shares and that to all intents and purposes the spouses
Doctrine: Wherever circumstances have shown that the corporate entity is being used as an Cirilo Paredes and Ursula Tolentino composed the so-called Park Rite Co., Inc. That the
alter ego or business conduit for the sole benefit of the stockholders, or else to defeat public corporation was a mere extension of their personality is shown by the fact that the office of
convenience, justify wrong, protect fraud, or defend crime. Cirilo Paredes and that of Park Rite Co., Inc. were located in the same building, in the same
floor and in the same room. This is further shown by the fact that the funds of the corporation
Facts: Park Rite Co., Inc., a Philippine corporation. The corporation leased from Rafael Perez were kept by Cirilo Paredes in his own name. The corporation itself had no visible assets, as
Rosales y Samanillo a vacant lot on Juan Luna street which it used for parking motor vehicles correctly found by the trial court, except perhaps the toll house, the wire fence around the
for a consideration. lot and the signs thereon. It was for this reason that the judgment against it could not be fully
satisfied.
It turned out that in operating its parking business, the corporation occupied and used not
only the Samanillo lot it had leased but also an adjacent lot belonging to the respondents- The facts thus found can not be varied by us, and conclusively show that the corporation is a
appellees Padilla, without the owners' knowledge and consent. When the latter discovered mere instrumentality of the individual stockholder's, hence the latter must individually answer
the truth, they demanded payment for the use and occupation of the lot. for the corporate obligations. While the mere ownership of all or nearly all of the capital
stock of a corporation is a mere business conduit of the stockholder, that conclusion is amply
The corporation (then controlled by petitioners Cirilo Parades and Ursula Tolentino, who had justified where it is shown, as in the case before us, that the operations of the corporation
purchased and held 1,496 of its 1,500 shares) disclaimed liability, blaming the original were so merged with those of the stockholders as to be practically indistinguishable from
incorporators, McConnel, Rodriguez and Cochrane. Whereupon, the lot owners filed against them. To hold the latter liable for the corporation's obligations is not to ignore the
it a complaint for forcible entry in the Municipal Court of Manila on 7 October 1947 (Civil corporation's separate entity, but merely to apply the established principle that such entity
Case No. 4031). can not be invoked or used for purposes that could not have been intended by the law that
created that separate personality.
Trail court decision: Ordering the Park Rite Co., Inc. to pay. Upon execution, the corporation
was found without any assets. After their application to the judgment credit, there remained Finding no error in the judgment appealed from, the same is hereby affirmed, with costs
a balance of P11,182.50 outstanding and unsatisfied. against petitioners-appellants Cirilo Paredes and Ursula Tolentino.

The judgment creditors then filed suit against the corporation and its past and present
_____________________________________________________________________________
stockholders, to recover from them, jointly and severally, the unsatisfied balance of the
judgment, plus legal interest and costs.
2. Jacinto v. CA
The Court of First Instance denied recovery; G.R. No. 80043, June 6, 1991.|
Court of Appeals reversed, finding that the corporation was a mere alter ego or business By Bryce King
conduit of the principal stockholders that controlled it for their own benefit, and adjudged
them responsible for the amounts demanded by the lot owners Romeo G. Carlos for petitioner.
Jorge, Perez & Associates for private respondents.
Issue: Whether the individual stockholders maybe held liable for obligations contracted by
the corporation. – Yes. Doctrine
Section 5 of Rule 10 of the Rules of Court "when evidence is presented by one party, with the
Ruling: This Court has already answered the question in the affirmative wherever express or implied consent of the adverse party, as to issues not alleged in the pleadings,
circumstances have shown that the corporate entity is being used as an alter ego or judgment may be rendered validly as regards those issues, which shall be considered as if
business conduit for the sole benefit of the stockholders, or else to defeat public they have been raised in the pleadings. There is implied consent to the evidence thus
convenience, justify wrong, protect fraud, or defend crime. presented when the adverse party fails to object thereto."

There is no question that a wrong has been committed by the so-called Park Rite Co., Inc., Facts:
upon the plaintiffs when it occupied the lot of the latter without its prior knowledge and
consent and without paying the reasonable rentals for the occupation of said lot. There is This is an appeal by certiorari to partially set aside the Decision of the Court of Appeals in
also no doubt in our mind that the corporation was a mere alter ego or business conduit of C.A.-G.R. CV No. 08153 promulgated on 19 August 1987, which affirmed in toto the decision
the defendants Cirilo Paredes and Ursula Tolentino, and before them — the defendants M. of the Regional Trial Court of Manila, Branch 11, in Civil Case No. 133164 entitled
McConnel, W. P. Cochrane, and Ricardo Rodriguez. The evidence clearly shows that these "Metropolitan Bank and Trust Co. vs. Inland Industries Inc. and Roberto Jacinto," the
persons completely dominated and controlled the corporation and that the functions of the dispositive portion of which reads:
corporation were solely for their benefits.
"WHEREFORE, judgment is hereby rendered ordering defendants to pay,
The original incorporators were M. McConnel, W. P. Cochrane, Ricardo Rodriguez, Benedicto jointly and severally, the plaintiff, the principal obligation of P382,015.80
(Annex J-1 to J-3 of Stipulation), with interest charges thereon at the
rate of 16% per annum from January 1, 1979 up to the time the said (1) Control, not mere majority or complete stock control, but complete domination, not only
amount is fully paid, plus the sum of P20,000.00 as attorney's fees. Said of finances but of policy and business practice in respect to the transaction attacked so that
defendants are further ordered to pay in solidum the costs of this suit.” the corporate entity as to this transaction had at the time no separate mind, will or existence
of its own;
Petitioner, faults Court of Appeals for piercing the fiction of corporate identity of the
defendant corporation Inland Industries, Inc. even if there is no allegation in the complaint (2) Such control must have been used by the defendant to commit fraud or wrong, to
regarding the same, nor is there anything in the prayer demanding the piercing of the perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act
corporate veil of the corporation Inland Industries, Inc. in contravention of plaintiff’s legal right; and

Issue (3) The aforesaid control and breach of duty must [have] proximately caused the injury or
W/O petitioner can faults the courts for piercing the veil of corporate fiction despite the unjust loss complained of.
absence of any allegation in the complaint questioning the separate identity and existence
of Inland Industries, Inc. NO The absence of any one of these elements prevents ‘piercing the corporate veil’ in applying
the ‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality and not
Ruling||| form, with how the corporation operated and the individual defendant’s relationship to that
While on the face of the complaint there is no specific allegation that the corporation is a operation. Hence, all three elements should concur for the alter ego doctrine to be
mere alter ego of petitioner, subsequent developments, from the stipulation of facts up to applicable.
the presentation of evidence and the examination of witnesses, unequivocably show that The elements to allow the application of piercing must be properly pleaded and proved
respondent Metropolitan Bank and Trust Company sought to prove that petitioner and the during during the hearing on the merits, and cannot be merely raised for the first time in the
corporation are one or that he is the corporation. motion for the issuance of an alias writ of execution.

No serious objection was heard from petitioner. Pursuant to Section 5 of Rule 10 of the Rules
of Court "when evidence is presented by one party, with the express or implied consent of FACTS : (based on the first digest c/o Kuya Dan)
the adverse party, as to issues not alleged in the pleadings, judgment may be rendered
validly as regards those issues, which shall be considered as if they have been raised in the · Pacific Rehouse Corporation won a case against EIB Securities for the unauthorized sale of
pleadings. There is implied consent to the evidence thus presented when the adverse party 32.18M DMCI shares owned by Pacfic Rehouse Corporation.
fails to object thereto."||| · When the Writ of Execution was unsatisfied, Pacific Rehaouse Corporation moved for the
__________________________________________________________________________________ issuance of an alias writ of execution to hold Export and Industry Bank, Inc. liable for the
judgment obligation as E- Securities is “a wholly-owned controlled and dominated subsidiary
3. PACIFIC REHOUSE CORPORATION vs COURT OF APPEALS and EXPORT AND INDUSTRY BANK, of Export and Industry Bank, Inc., and is[,] thus[,] a mere alter ego and business conduit of
INC G.R. No. 199687 March 24, 2014 the latter.
Digest Author : HORARIO o 499,995 of 500,000 shares of E-Securities are owned by Export Bank.
· Export Bank was granted filed a petition for certiorari with Writ of Preliminary Injunction
Petitioner/s : PACIFIC REHOUSE CORPORATION before the CA. The injuction was granted.
Respondent/s : COURT OF APPEALS and EXPORT AND INDUSTRY
RULING OF THE LOWER COURTS:
"It is a fundamental principle of corporation law that a corporation is an entity separate and
distinct from its stockholders and from other corporations to which it may be connected. But, · RTC – In favor of Pacific Rehouse. E-Securities is a mere alter-ego of the parent corporation
this separate and distinct personality of a corporation is merely a fiction created by law for which justifies the piercing of corporate fiction.
convenience and to promote justice. So, when the notion of separate juridical personality is · CA – Reversed. the alter ego theory cannot be sustained because ownership of a
used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used subsidiary by the parent company is not enough justification to pierce the veil of corporate
as a device to defeat the labor laws, this separate personality of the corporation may be fiction. There must be proof, apart from mere ownership, that Export Bank exploited or
disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation misused the corporate fiction of E-Securities. The existence of interlocking incorporators,
is merely an adjunct, a business conduit or an alter ego of another corporation." directors and officers between the two corporations is not a conclusive indication that they
are one and the same.
"Where one corporation is so organized and controlled and its affairs are conducted so that it
is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of CONTENTIONS OF PACIFIC REHOUSE:
the "instrumentality" may be disregarded. The control necessary to invoke the rule is not · That because of the ownership (499,995/500,000) there is no need for finding of fault before
majority or even complete stock control but such domination of finances, policies and the piercing doctrine can be applied.
practices that the controlled corporation has, so to speak, no separate mind, will or
existence of its own, and is but a conduit for its principal. It must be kept in mind that the
control must be shown to have been exercised at the time the acts complained of took ISSUE: Whether majority ownership or interlocking directorship is sufficient ground to pierce
place. Moreover, the control and breach of duty must proximately cause the injury or unjust the veil of corporate entity. – NO.
loss for which the complaint is made."
RULING + RATIO:
The Court has laid down a three-pronged control test to establish when the alter ego doctrine
should be operative:
Furthermore, ownership by Export Bank of a great majority or all of stocks of E-Securities and ____________________________________________________________________________________
the existence of interlocking directorates may serve as badges of control, but ownership of
another corporation, per se, without proof of actuality of the other conditions are insufficient 4. CAGAYAN FISHING DEVELOPMENT CO., INC. vs. TEODORO SANDIKO
to establish an alter ego relationship or connection between the two corporations, which will G.R. No. L-43350 December 23, 1937
justify the setting aside of the cover of corporate fiction. The Court has declared that “mere Digest Author : Gutierrez
ownership by a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not of itself sufficient ground for disregarding the separate Petitioner/s : CAGAYAN FISHING DEVELOPMENT CO., INC
corporate personality.” The Respondent/s : TEODORO SANDIKO
Court has likewise ruled that the “existence of interlocking directors, corporate officers and
shareholders is not enough justification to pierce the veil of corporate fiction in the absence DOCTRINE: This is not saying that under no circumstances may the acts of promoters of a
of fraud or other public policy considerations.” corporation be ratified by the corporation if and when subsequently organized. There are, of
course, exceptions but under the peculiar facts and circumstances of the present case we
While the courts have been granted the colossal authority to wield the sword which pierces decline to extend the doctrine of ratification which would result in the commission of injustice
through the veil of corporate fiction, concomitant to the exercise of this power, is the or fraud to the candid and unwary.
responsibility to uphold the doctrine of separate entity, when rightly so; as it has for so long
encouraged businessmen to enter into economic endeavors fraught with risks and where FACTS :
only a few dared to venture. Hence, any application of the doctrine of piercing the  Manuel Tabora is the registered owner of four parcels of land in Cagayan.
corporate veil should be done with caution. A court should be mindful of the milieu where it  To guarantee the payment of a loan, Tabora executed in favor of the Philippine
is to be applied. It must be certain that the corporate fiction was misused to such an extent National Bank a first mortgage on the four parcels of land.
that injustice, fraud, or crime was committed against another, in disregard of its rights. The  A second mortgage in favor of the same bank was also executed thereafter.
wrongdoing must be clearly and convincingly established; it cannot be Subsequently, a third mortgage on the same lands was made in favor of Severina Buzon
presumed. Otherwise, an injustice that was never unintended may result from an erroneous to whom Tabora was indebted.
application.  On May 31, 1930, Tabora executed a public document entitled "Escritura de Transpaso
de Propiedad Inmueble" by virtue of which the four parcels of land owned by him was
Others: Alter Ego Doctrine sold to Cagayan Fishing Dev’t Co., said to under process of incorporation, in
consideration of one peso (P1) subject to the mortgages in favor of the Philippine
It is a fundamental principle of corporation law that a corporation is an entity separate and National Bank and Severina Buzon and, to the condition that the certificate of title to
distinct from its stockholders and from other corporations to which it may be connected. But, said lands shall not be transferred to the name of the plaintiff company until the latter
this separate and distinct personality of a corporation is merely a fiction created by law for has fully and completely paid Tabora's indebtedness to the Philippine National Bank.
convenience and to promote justice. So, when the notion of separate juridical personality is  Cagayan Fishing Dev’t Co. filed its article incorporation on October 22, 1930. A year
used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used later, on October 28, 1931, the board of directors of said company adopted a resolution
as a device to defeat the labor laws, this separate personality of the corporation may be authorizing its president, Jose Ventura, to sell the four parcels of lands in question to
disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation Teodoro Sandiko were thereafter made and executed.
is merely an adjunct, a business conduit or an alter ego of another corporation.  Cagayan Fishing sold, ceded and transferred to Sandiko all its right, titles, and interest in
and to the four parcels of land and Sandiko in turn obligated himself to shoulder the
Where one corporation is so organized and controlled and its affairs are conducted so that it three mortgages.
is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of  Sandiko having failed to pay the promissory note when it became due, Cagayan
the “instrumentality” may be disregarded. The control necessary to invoke the rule is not Fishing filed an action against Sandiko.
majority or even complete stock control but such domination of finances, policies and
practices that the controlled corporation has, so to speak, no separate mind, will or  RULING OF THE LOWER COURTS:
existence of its own, and is but a conduit for its principal. It must be kept in mind that the  RTC dismissed the complaint declaring that sale between Cagayan Fishing and Sandiko
control must be shown to have been exercised at the time the acts complained of took is invalid because of vice in consent and repugnancy to law.
place. Moreover, the control and breach of duty must proximately cause the injury or unjust
loss for which the complaint is made. ISSUE: Whether the sale between Tabora and Cagayan fishing is valid - NO

While the courts have been granted the colossal authority to wield the sword which pierces RULING + RATIO:
through the veil of corporate fiction, concomitant to the exercise of this power, is the
responsibility to uphold the doctrine of separate entity, when rightly so; as it has for so long Conclusion. (ex: The issue is an issue.)
encouraged businessmen to enter into economic endeavors fraught with risks and where
only a few dared to venture. The transfer made by Tabora to the Cagayan fishing Development Co., Inc., plaintiff herein,
was affected on May 31, 1930 and the actual incorporation of said company was affected
Hence, any application of the doctrine of piercing the corporate veil should be done with later on October 22, 1930. In other words, the transfer was made almost five months before
caution. A court should be mindful of the milieu where it is to be applied. It must be certain the incorporation of the company. Unquestionably, a duly organized corporation has the
that the corporate fiction was misused to such an extent that injustice, fraud, or crime was power to purchase and hold such real property as the purposes for which such corporation
committed against another, in disregard of its rights. The wrongdoing must be clearly and was formed may permit and for this purpose may enter into such contracts as may be
convincingly established; it cannot be presumed. Otherwise, an injustice that was never necessary. But before a corporation may be said to be lawfully organized, many things have
unintended may result from an erroneous application. to be done. Among other things, the law requires the filing of articles of incorporation. The
. contract itself referred to the plaintiff as "una sociedad en vias de incorporacion." It was not
even a de facto corporation at the time. Not being in legal existence then, it did not possess Doctrine (Relevant):
juridical capacity to enter into the contract.
1. The fact that a company is not completely incorporated at the time the grant
is made to it by a municipality does not, in most jurisdiction, affect the validity
That a corporation should have a full and complete organization and existence as an entity of the grant. But the grant cannot take effect until the corporation is
before it can enter into any kind of a contract or transact any business, would seem to be
organized.
self evident. . . . A corporation, until organized, has no being, franchises or faculties. Nor do
those engaged in bringing it into being have any power to bind it by contract, unless so
authorized by the charter there is not a corporation nor does it possess franchise or faculties Name of the parties:
for it or others to exercise, until it acquires a complete existence. Petitioner: Rizal Lght and Ice, Co., Inc for both petitions
Respondent: Municipality of Morong, Rizal for G.R. No. L-20993; Morong Electric Co., Inc for
Boiled down to its naked reality, the contract here was entered into not between Manuel G.R. No. L-21221; Public Service Commission for both petitions
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
Facts:
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 - Rizal Light and Ice Co., Inc is a domestic corporation which was granted a Certificate of
legal existence could have no agent. A corporation, until organized, has no life and Public Convenience and Necessity for the installation, operation and maintenance of an
therefore no faculties. It is, as it were, a child in ventre sa mere. This is not saying that under electric light, heat and power service by the Public Service Commission on August 15,
no circumstances may the acts of promoters of a corporation be ratified by the corporation if 1949.
and when subsequently organized. There are, of course, exceptions but under the peculiar
- On December 19, 1956, the Commission required Rizal Light to appear before it on
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. February 18, 1957 to show cause why it should not be penalized for the violation of the
conditions of its certificate, and the regulations of the Commission.
It should be observed that Manuel Tabora was the registered owner of the four parcels of - Rizal Light failed to appear, and the Commission ordered the cancellation and revocation
land, which he succeeded in mortgaging to the Philippine National Bank so that he might of its certificate and the necessity to forfeit its franchise.
have the necessary funds with which to convert and develop them into fishery. He
- However, Rizal Light moved for the Commission to reconsider its decision because its
appeared to have met with financial reverses. He formed a corporation composed of
himself, his wife, and a few others. From the articles of incorporation, it appears that out of manager, Juan D. Francisco was not aware of the hearing. The motion was granted and
the P48,700, amount of capital stock subscribed, P45,000 was subscribed by Manuel Tabora the Commision set aside the revocation of the Certificate, despite the opposition of the
himself and P500 by his wife, Rufina Q. de Tabora; and out of the P43,300, amount paid on Municipality of Morong, Rizal.
subscription, P42,100 is made to appear as paid by Tabora and P200 by his wife. Both Tabora - Morong formally filed a petition asking the Commission to revoke the petitioner’s
and His wife were directors and the latter was treasurer as well. In fact, to this day, the lands
certificate of public convenience and to forfeit its franchise on the ground that it failed to
remain inscribed in Tabora's name. The defendant always regarded Tabora as the owner of
the lands. comply with the conditions of said certificate and franchise. While this was filed, a series of
inspections were made by the Commission’s engineers in the electric plant and
He dealt with Tabora directly. Jose Ventura, president of the plaintiff corporation, intervened installations of Rizal Light.
only to sign the contract, in behalf of the corporation. Even the Philippine National Bank, - Rizal Light, again, failed to appear in the hearing for the motion of Morong. Morong
mortgagee of the four parcels of land, always treated Tabora as the owner of the same.
submitted its evidence, and the case was submitted for decision.
If the Cagayan Fishing could not and did not acquire the four parcels of land here involved, - Rizal Light moved for the case to be reopened on the ground that it was not given a copy
it follows that it did not possess any resultant right to dispose of them by sale to Teodoro of the report of the inspection. The Commission granted the motion, on the condition that
Sandiko. should it fail to reply to the said report within 10 days, the case will be decided. It failed,
and the Commission proceeded to decide the case.
Having arrived at the conclusion that the transfer by Manuel Tabora to the Cagayan Fishing
- On July 29, 1962, the electric plant was burned.
Development Company, Inc. was null because at the time it was affected the corporation
was non-existent, the Court AFFIRMED the decision of the RTC. - On August 20, 1962, the Commission found that Rizal Light failed to comply with the
directives contained in the letters. It ordered the cancellation and revocation of
petitioner’s certificate of public convenience and the forfeiture of its franchise.
5. Rizal Light and Ice, Co. Inc vs. Municipality of Morong, Rizal and Pulic Service Commission - Eight days before Rizal Light’s MR was filed, Morong Electric was granted a municipal
G.R. No. L-20993 | September 28, 1968 franchise on May 6, 1962 by Morong, Rizal to install, operate and maintan an electric heat,
light and power service in the said municipality. Morong Electric then filed with the
Rizal Light and Ice Co., Inc v. The Public Service Commission and Morong Electric Co., Inc Commission an application for a certificate of public convenience and necessity for the
G.R. No. L-21221 | September 28, 1968 said service.
Author: Fabula - Rizal Light opposed the application of Morong Electric, alleging that it is a holder of a
certificate of public convenience to operate an electric light, heat and power service in
Ponente: J. Zaldivar the same municipality of Morong, Rizal, and that the approval of the said application
would not promote public convenience but would only cause ruinous and wasteful Whether the grant of certificate of public convenience to Morong Electric is invalid because
competition. it was only a de facto corporation when it filed for such. - NO
- On January 4, 1963, Rizal Light filed another motion to dismiss the application of Morong
Electric on the ground that it has no legal personality when it filed its application with the HOLDING: Decisions of the Public Services Commission AFFIRMED.
Commission on September 10, 1962, because it Certificate of Incorporation was only
issued by SEC on October 17, 1962. Ruling:
- The Commission denied the motion on the ground that Morong Electric was a de facto MAIN ISSUE: Whether the Certificate of Public Convenience is invalid
corporation. Rizal Light: Morong Electric did not have a corporate personality at the time it was granted a
- The Commission approved the application of Morong Electric on February 15, 1963, finding franchise and when it applied for the certificate
that there was an absence of electric service in the municipality of Morong and that it has
the financial capacity to maintain the service. a. Pending the issuance of the Certificate of Incorporation, the incorporators cannot
- Rizal Light filed the Petition to Review to the Supreme Court for the Cancellation and be considered as de facto corporation. However, it does not render the franchise
Revocation of its Certificate and Franchise (G.R. No. L-20993), and for the Grant of the invalid because later on, it had obtained its certificate of incorporation and then
Certificate of Public Necessity to the Morong Electric (G.R. No. L-2122). accepted the franchise in accordance with the terms and conditions thereof.
b. The incorporation of Morong Electric on October 17, 1962 and its acceptance of
Contentions of the RIZAL LIGHT: the franchise not only perfected a contract between the municipality of
G.R. No. L-20993 Morong ,Rizal and the Morong Electric but also cured the deficiency pointed out
1. The Commission acted without or in excess of its jurisdiction when it delegated the by Rizal Light in its application.
hearing of the case and the reception of evidence to Mr. Pedro S. Talavera who was not c. The efficacy of the franchise however, arose only upon its approval by the
allowed by law to hear the same. Commission on March 13, 1963. Under Section 16 (b) of the Commonwealth Act
2. The cancellation of petitioner’s certificate of public convenience was unwarranted No. 146, the Commission is empowered to ‘approve, subject to constitutional
because no sufficient evidence was adduced against Rizal Light and that it was not able limitation any franchise or privilege granted under the provisions by any political
to present evidence in its defense subdivision of the Philippines when, in the judgment of the Commission, such
3. The Commission failed to give protection to the petitioner’s investment franchise or privilege will properly conserve the public interests, and the
4. The Commission erred in imposing the extreme penalty of revocation of certificate Commission shall in -so approving impose such conditions as to construction,
equipment, maintenance, service, or operation as the public interests and
G.R. No. L-21221 convenience may reasonably require, and to issue certificates of public
1. The Commission erred in denying its motion to dismiss and the proceeding with the hearing convenience and necessity when such is required or provided by any law or
of the application of the Morong Electric franchise.' Thus, the efficacy of a municipal electric franchise arises, therefore, only
2. The Commission erred in granting Morong Electric a certificate of public convenience and after the approval of the Public Service Commission.
necessity since it is not financially capable to render the service
3. The Commission erred when it made findings of facts that are not supported by the OTHER ISSUES:
evidence adduced by the parties at the trial. A. G.R. No. L-20993
4. The Commission erred when it did not give to the petitioner protection to its investment a
reiteration of the third assignment of error in other case. 1. Mr. Talavera is not a lawyer. The Commission can only authorize a division chief to
hear and investigate a case filed before it if he is a lawyer. However, Rizal Light only
Contention of the MORONG ELECTRIC (FOR THE MAIN ISSUE): raised in for the first time in the appeal. It never raised an objection to the authority
of Mr. Talavera to hear the case and to receive the evidence of the parties. It is
1. It was a de facto corporation at the time the franchise was granted and as such, it was only after the decision in the case turned out to be adverse to it that Riza Light
not incapacitated to enter into any contract or to apply for and accept a franchise. questioned the proceedings held before Mr. Talavera. Objections to authority is
waived by failure to interpose timely objection and the case had been decided by
Type of Case Filed: Petition For Review the Commission.
Ruling of Lower Courts: N/A (The Case was filed in the Public Service Commission – see facts 2. Court is not required to examine the proof de novo and determine for itself whether
for the grounds and decision) or not the preponderance of evidence really justifies the decision. The only function
of the Court is to determine WON there is evidence before the Commission upon
MAIN ISSUE (only the relevant issue for the subject. See the Ruling for the decision on Rizal which its decision might reasonably be based. The Commission based its decision
Light’s Contentions): on the inspection reports submitted by its engineers who conducted the inspection
of Rizal Light’s electric service upon its orders. The Court considers that said reports
are sufficient to serve as bases of the decision.
3. Nobody has an exclusive right to secure a franchise or a certificate of public - The lower court rendered the assailed decision holding not only FOA but also all the other
convenience. In the present case, it has been shown by ample evidence that the defendants who were involved in the preparatory stages of the incorporation, including
herein petitioner Caram liable.
petitioner, despite ample time and opportunity given to it by the Commission, had
Issue:
failed to render adequate, sufficient and satisfactory service and has violated Whether or not the petitioners Carams are also and personally liable? - NO
important conditions of its certificate as well as the directives and the rules and Ruling:
regulations of the Commission. - Petitioners Caram were not really involved in the initial steps that finally led to the
4. The contumacious refusal of Rizal Light since 1954 to comply with the directives, incorporation of the FOA. Elsewhere in the decision, Barretto was described as "the moving
spirit." The finding of the respondent court is that the project study was undertaken by the
rules and regulations of the Commission, its violation of the conditions of the
private respondent at the request of Barretto and Garcia who, upon its completion,
certificate, and the incapability to comply with its commitment as shown by its presented it to the petitioners to induce them to invest in the proposed airline. Petitioners
inadequate service were the circumstances that warranted the action of the Caram were not involved in the initial stages of the organization of the airline, which were
Commission in not merely imposing a fine but in revoking altogether petitioner’s being directed by Barretto as the main promoter. Petitioners Caram were merely among
certificate. To allow petitioner to continue its operation would be to sacrifice public the financiers who invested in the proposed airline.
- There was no showing that FOA was a fictitious corporation and did not have a separate
interest and convenience in favor of private interest.
juridical personality, to justify making the petitioners responsible for its obligations. As a
bona fide corporation, the Filipinas Orient Airways should alone be liable for its corporate
B. G.R. No. L-21221 acts as duly authorized by its officers and directors.
- Petitioners hence cannot be held personally liable for the compensation claimed by
1. The Commission has found the Morong Electric to be “financially qualified to install, Alberto Arellano for the services performed by him in the organization of the corporation.
maintain and operate the proposed electric light, heat and power service. This is The most that can be said is that petitioners Caram benefited from Arellano’s services, but
that surely is no justification to hold them personally liable therefor.
essentially a factual determination which the Court will not disturb unless patently - The Court holds that the petitioners are not liable at all, jointly or jointly and severally, under
unsupported by evidence. the first paragraph of the dispositive portion of the challenged decision.
2. The Court will not disturb the findings of the Commission which was based on the _______________________________________________________________________
report of its engineers.
7. Hall vs. Piccio
____________________________________________________________________ No. L-2598. June 29, 1950
Digest Author : Daguinod
6. Caram Jr., vs CA
G.R. No. L-48627 June 30, 1987 Petitioner/s : ARNOLD HALL and BRADLEY P. HALL
Author: Dayao, Abby Respondent/s : EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED
Name of the parties: BROWN, EMMA BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern
Petitioner: Fermin Caram, Jr. and Rosa O. De Caram Lumber and Commercial Co., Inc.,
Respondent: CA & Alberto Arellano
DOCTRINE: Persons acting as corporation may not claim rights of "de facto" corporation if
Ponente: Cruz they have not obtained certificate of incorporation.

Doctrine:
Investors who were not the “moving spirit” behind the organization of the FACTS
corporation, but who were merely convinced to invest in the proposed - Petitioners, C. Arnold Hall and Bradley P. Hall, and the respondents Fred Brown,
corporate venture on the basis of the feasibility study undertaken, are not Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and
liable personally with the corporation for the cost of the feasibility study. acknowledged in Leyte, the articles of incorporation of the Far Eastern Lumber and
Commercial Co., Inc., organized to engage in a general lumber business to carry
Since there was no representation that the corporation was fictitious, there was on as general contractors, operators and managers, etc.
no justification to hold the stockholders thereof personally liable. - 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 .
Facts: - Immediately after the execution of said articles of incorporation, the corporation
- The lower court has established the following facts: proceeded to do business with the adoption of by-laws and the election of its
- Herein defendant, Alberto Arellano, upon the request of Barretto and Garcia, officers.
handled the preparation of the project study for the incorporation of the Filipinas - The said articles of incorporation were filed in the office of the Securities and
Orient Airways (FOA). Such study was presented to petitioner Caram, Jr., which led Exchange Commissioner, for the issuance of the corresponding certificate of
Caram to invest in the proposed airlines. incorporation.
- Later, FOA was organized and rendered operational. Garcia, Barretto and Caram - Pending action on the articles of incorporation by the aforesaid governmental
became members of the Board of FOA. office, the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and
- Defendant Arellano, however, was not paid for his services worth Php 50,000 so he Ceferino S. Abella filed before the Court of First Instance of Leyte the civil case
filed a collection suit against FOA. numbered 381, entitled "Fred Brown et al. vs. Arnold C. Hall et al.",
- Respondents alleged among other things that the Far Eastern Lumber and certificate of incorporation by the Director of the Bureau of Commerce and Industry which
Commercial Co. was an unregistered partnership; that they wished to have it calls a corporation into being. The immunity of collateral attack is granted to corporations
dissolved because of bitter dissension among the members, mismanagement and 'claiming in good faith to be a corporation under this act.' Such a claim is compatible with
fraud by the managers and heavy financial losses. 
 the existence of errors and irregularities; but not with a total or substantial disregard of the
- The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion law. Unless there has been an evident attempt to comply with the law the claim to be a
to dismiss, contesting the court's jurisdiction and the sufficiency of the cause of corporation 'under this act' could not be made 'in good faith.'" (Fisher on the Philippine Law
action of Stock Corporations, p. 75. See also Humphreys vs. Drew, 59 Fla., 295; 52 So., 362.)

Ruling of CFI: the Hon. Edmundo S. Piccio ordered the dissolution of the company; and Second, this is not a suit in which the corporation is a party. This is a litigation between
at the request of plaintiffs, appointed the respondent Pedro A. Capuciong as receiver stockholders of the alleged corporation, for the purpose of obtaining its dissolution. Even the
of the properties thereof, upon the filing of a P20,000 bond. 
 existence of a de jure corporation may be terminated in a private suit for its dissolution
between stockholders, without the intervention of the state.
- The defendants therein (petitioners herein) offered to file a counter-bond for the
discharge of the receiver, but the respondent judge refused to accept the offer There might be room for argument on the right of minority stockholders to sue for dissolution;
and to discharge the receiver. Whereupon the present special civil action was but that question does not affect the court's jurisdiction, and is a matter for decision by the
instituted in this court. It is based upon two main propositions, to wit: 
 judge, subject to review on appeal. Which brings us to one principal reason why this petition
may not prosper, namely: the petitioners have their remedy by appealing the order of
(a) The court had no jurisdiction in civil case No. 381 to decree the dissolution of dissolution at the proper time.
the company, because it being a de facto corporation, dissolution thereof may
only be ordered in a quo warranto proceeding instituted in accordance with There is a secondary issue in connection with the appointment of a receiver. But it must be
section 19 of the Corporation Law. 
 admitted that receivership is proper in proceedings for dissolution of a company or
corporation, and it was no error to reject the counter-bond, the court having decreed the
dissolution. As to the amount of the bond to be demanded of the receiver, much depends
(b) Inasmuch as respondents Fred Brown and Emma Brown had signed the articles of
upon the discretion of the trial court, which in this instance we do not believe has been
incorporation, they are estopped from claiming that it is not a corporation but only a
clearly abused
partnership. 



The complaining associates have not represented to the others that they were incorporated
ISSUE:
any more than the latter had made similar representations to them. And as nobody was led
Whether the court has jurisdiction in to decree the dissolution of the company? – YES
to believe anything to his prejudice and damage, the principle of estoppel does not apply.
Whether the respondents are estopped from claiming that it is a partnership? - NO
Obviously this is not an instance requiring the enforcement of contracts with the corporation
through the rule of estoppel.
RULING + RATIO:

The Court has jurisdiction, Section 19 of the Corporation Law does not apply Dispositive Portion: The petition will, therefore, be dismissed, with costs. The preliminary
injunction heretofore issued will be dissolved.
All the parties are informed that the Securities and Exchange Commission has not, so far,
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, not before (sec. 11, Corporation Law).
8. Salvatierra v. Garlitos
The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern G.R. No. L-11442, May 23, 1958
Lumber and Commercial Co., is a de facto corporation, section 19 of the Corporation Law Author: Cornelio
applies, and therefore the court had no jurisdiction to take cognizance of said civil case
number 381. Petitioner: MANUELA T. VDA. DE SALVATIERRA
Private Respondent (s): HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of
First Instance of Leyte, Branch II, and SEGUNDINO REFUERZO
Section 19 reads in part as follows:
DOCTRINE: A corporation with registered has a juridical personality separate and distinct
"* * * The due incorporation of any corporations claiming in good faith to be a corporation from its component members or stockholders and officers such that a corporation cannot be
under this Act and its right to exercise corporate powers shall not be inquired into collaterally held liable for the personal indebtedness of a stockholder even if he should be its president
in any private suit to which the corporation may be a party, but such inquiry may be had at and conversely, a stockholder or member cannot be held personally liable for any financial
the suit of the Insular Government on information of the Attorney-General." obligation be, the corporation in excess of his unpaid subscription. But this rule is understood
to refer merely to registered corporations and cannot be made applicable to the liability of
There are at least two reasons why this section does not govern the situation. Not having members of an unincorporated association.
obtained the certificate of incorporation, the Far Eastern Lumber and Commercial Co. even An organization which before the law is non-existent has no personality and would be
its stockholders may not probably claim "in good faith" to be a corporation. incompetent to act and appropriate for itself the powers and attribute of a corporation as
provided by law; it cannot create agents or confer authority on another to act in its behalf;
"Under our statute it is to be noted (Corporation Law, sec. 11) that it is the issuance of a
thus, those who act or purport to act as its representatives or agents do so without authority of the fact that the Philippine Fibers Producers Co., Inc., had no juridical personality,
and at their own risk. defendant Refuerzo gave no confirmation or denial and the circumstances surrounding the
FACTS: execution of the contract lead to the inescapable conclusion that plaintiff Manuela T. Vda.
 Manuela T. Vda. de Salvatierra, owner of a parcel of land, entered into a contract de Salvatierra was really made to believe that such corporation was duly organized in
of lease with the Philippine Fibers Producers Co., Inc., allegedly a corporation "duly accordance with law.
organized and existing under the laws of the Philippines, domiciled at Burauen,
Leyte, Philippines, and with business address therein, represented in this instance by
There can be no question that a corporation with registered has a juridical personality
Mr. Segundino Q. Refuerzo, the President".
separate and distinct from its component members or stockholders and officers such that a
 It was provided in said contract, among other things, that the lifetime of the lease
corporation cannot be held liable for the personal indebtedness of a stockholder even if he
would be for a period of 10 years; that the land would be planted to kenaf, ramie
should be its president and conversely, a stockholder or member cannot be held personally
or other crops suitable to the soil; that the lessor would be entitled to 30 per cent of
liable for any financial obligation be, the corporation in excess of his unpaid subscription. But
the net income accruing from the harvest of any, crop without being responsible
this rule is understood to refer merely to registered corporations and cannot be made
for the cost of production thereof; and that after every harvest, the lessee was
applicable to the liability of members of an unincorporated association. The reason behind
bound to declare at the earliest possible time the income derived therefrom and to
this doctrine is obvious-since an organization which before the law is non-existent has no
deliver the corresponding share due the lessor.
personality and would be incompetent to act and appropriate for itself the powers and
 The aforementioned obligations imposed on the alleged corporation were not
attribute of a corporation as provided by law; it cannot create agents or confer authority on
complied with because Alanuela T. Vda, de Salvatierra filed with the CFI of Leyte a
another to act in its behalf; thus, those who act or purport to act as its representatives or
complaint against the Philippine Fibers Producers Co., Inc., and Segundino Q.
agents do so without authority and at their own risk. And as it is an elementary principle of
Refuerzo, for accounting, rescission and damages
law that a person who acts as an agent without authority or without a principal is himself
 She averred that sometime in April, 1954, defendants planted kenaf on 3 hectares
regarded as the principal, possessed of all the rights and subject to all the liabilities of a
of the leased property which crop was, at the time of the commencement of the
principal, a person acting or purporting to act on behalf of a corporation which has no valid
action, already harvested, processed and sold by defendants; that
existence assumes such privileges and obligations and comes personally liable for contracts
notwithstanding that fact, defendants refused to render an accounting of the
entered into or for other acts performed as such, agent. Considering that defendant
income derived therefrom and to deliver the lessor's share; that the estimated gross
Refuerzo, as president of the unregistered corporation Philippine Fibers Producers Co., Inc.,
income was P4,500, and the deductible expenses amounted to P1,000; that as
was the moving spirit behind the consummation of the lease agreement by acting as its
defendants' refusal to undertake such task was in violation of the terms of the
representative, his liability cannot be limited or restricted that imposed upon corporate
covenant entered into between the plaintiff and defendant corporation, a
shareholders. In acting on behalf of a corporation which he knew to be unregistered, he
rescission was but proper.
assumed the risk of reaping the consequential damages or resultant rights, if any, arising out
of such transaction.
Ruling of the Lower Courts:
 The lower Court rendered judgment granting plaintiff's prayer, and required
defendants to render a complete accounting of the harvest of the land subject of
the proceeding within 15 days from receipt of the decision and to deliver 30 per
cent of the net income realized from the last harvest to plaintiff, with legal interest
from the date defendants received payment for said crop. It was further provide 9. Albert vs. University Publishing, 13 SCRA
that upon defendants' failure to abide by the said requirement, the gross income
would be fixed at P4,200 or a net income of P3,200 after deducting the expenses ______________________________________________________________________________
for production, 30 per cent of which or P960 was held to be due the plaintiff
pursuant to the aforementioned contract of lease, which was declared rescinded. 10. Asia Banking Corporation v. Standard Products Co., Inc.
G.R. No. 22106 (1924)
ISSUE: Whether Refuerzo, as an agent of an unicorporated association, is liable for the Author: Princess Cariño
breach of obligation - YES
Plaintiff-Appellee: Asia Banking Corporation
RULING: Refuerzo, in praying for his exoneration from any liability resulting from the non- Defendant-Appellant: Standard Products Co., Inc.
fulfillment of the obligation imposed on defendant Philippine Fibers Producers Co., Inc.,
interposed the defense that the complaint filed with the lower court contained no allegation Doctrine:
which would hold him liable personally, for while it was stated therein that he was a signatory In the absence of fraud, a person who has contracted or dealt with an association in such a
to the lease contract, he did so in his capacity as president of the corporation. And this way as to recognize and in effect admit its legal existence as a corporate body is thereby
allegation was found by the Court a quo to be supported by the records. Plaintiff on the estopped to deny its corporate existence in an action leading out of or involving such
other hand tried to refute this averment by contending that her failure to specify defendant's contract or dealing, unless the existence is attacked for causes which have arisen since
personal liability was due to the fact that all the time she was under the impression that the making the contract or other dealing relied on as an estoppel.
Philippine Fibers Producers Co., Inc., represented by Refuerzo was a duly registered
corporation as appearing in the contract, but a subsequent inquiry from the Securities and OSTRAND, J.:
Exchange Commission yielded otherwise. While as a general rule a person who has
contracted or dealt with an association in such a way as to recognize its existence as a FACTS:
corporate body is estopped from denying the same in an action arising out of such  Standard Products executed a promissory note (PN) in favor of Asia Banking
transaction or dealing, yet this doctrine may not be held to be applicable where fraud takes Corporation (P37,757.22, with 10% interest per annum)
a part in the said transaction. In the instant case, on plaintiff's charge that she was unaware  Action for recovery of sum for the balance due on the PN.
 CFI ruled in favor of Asia Banking.  Subsequent letters were sent, the third one demanding respondent to vacant due to
 At the trial of the case the Asia Banking failed to prove affirmatively the corporate damage caused to an aircraft parked inside the hangar space, which Capt. Clarke
existence of the parties and Standard Products (borrower) insists that the judgment had supposedly promised to buy, but did not.
rendered against it was wrong. (1 page lang yung case so kahit i-full text niyo haha)
 It’s final letter strongly demanded the latter to immediately vacate and that the
ISSUE: Whether Standard Products is estopped in denying that Asia Banking is a corporate company will “apply for immediate electrical disconnection with the Davao Light and
entity. – YES. Power Company so as to compel them to desist from continuing with works thereon.

RULING:  Respondent was evicted. It then filed a complaint against petitioner for breach of
 The general rule is that in the absence of fraud a person who has contracted or contract.
otherwise dealt with an association in such a way as to recognize and in effect admit its
legal existence as a corporate body is thereby estopped to deny its corporate RESPONDENT’S CONTENTION:
existence in any action leading out of or involving such contract or dealing, unless its
existence is attacked for causes which have arisen since making the contract or other Petitioner violated the terms of the MOA when he took over the hangar space without giving
dealing relied on as an estoppel and this applies to foreign as well as to domestic respondent the requisite six (6)-month advance notice of termination.19
corporations.
 In this case, Standard Products, having recognized the corporate existence of the PETITIONER’S CONTENTION:
plaintiff by making a promissory note in its favor and making partial payments on the a) respondent had no cause of action against him as the MOA was executed between
same, is therefore estopped to deny said plaintiff's corporate existence. It is, of course, him and Capt. Clarke in the latter’s personal capacity;
also estopped from denying its own corporate existence. Under these circumstances, it b) there was no need to wait for the expiration of the MOA because Capt. Clarke
was unnecessary for the plaintiff to present other evidence of the corporate existence performed highly risky works in the leased premises that endangered other aircrafts
of either of the parties. It may be noted that there is no evidence showing within the vicinity
circumstances taking the case out of the rules stated. c) the six (6)-month advance notice of termination was already given in the letters he
sent to Capt. Clarke.
The judgment appealed from is AFFIRMED, with the costs against the appellant. So ordered.
 RTC issued a Writ of Preliminary Injunction ordering petitioner to give back the
______________________________________________________________________ possession and occupation of the hangar to respondent.--Petitioner did not comply.

11. PAZ vs. NEW INTERNATIONAL ENVIRONMENTAL RTC RULING:

G.R. No. 203993. April 20, 2015. Finding petitioner:


Digest Author: Bulacan (a) guilty of indirect contempt for contumaciously disregarding its Order
(b) liable for breach of contract for illegally terminating the MOA even before the expiration
Petitioner:PRISCILO B. PAZ of the term thereof.
Respondent: NEW INTERNATIONAL ENVIRONMENTAL UNIVERSALITY, INC. (c) On the challenge to respondent’s juridical personality,

DOCTRINE: Section 21 of the Corporation Code explicitly provides that one who assumes an the RTC quoted the Order of the SEC explaining that respondent was issued a Certificate of
obligation to an ostensible corporation, as such, cannot resist performance thereof on the Incorporation on 2001 as New International Environmental Universality, Inc. When it
ground that there was in fact no corporation. amended its Articles of Incorporation SEC erroneously used the name New International
Environmental University, Inc. The latter name was used by respondent when it filed its
FACTS: amended complaint on 2002. It was only on April 11, 2005 when the SEC directed it to revert
to its correct name.
 Paz, as the OIC of the Aircraft Hangar at the Davao International Airport, entered into a d.) MOA was executed by the parties not only in their personal capacities but also in
Memorandum of Agreement with Captain Allan J. Clarke, President of International representation of their respective corporations or entities.
Environmental University.
CA RULING: Affirmed.
 MOA indicates that for a period of 4 years, unless pre-terminated by both parties with
six (6) months advance notice, the former shall allow the latter to use the aircraft While there was no corporate entity at the time of the execution of the MOA on March 1,
hangar space at the said Airport “exclusively for company aircraft/helicopter.” 2000 when Capt. Clarke signed as “President of International Environmental University,”
petitioner is nonetheless estopped from denying that he had contracted with respondent as
 Petitioner complained in a letter addressed to “MR. ALLAN J. CLARKE, International a corporation, having recognized the latter as the “Second Party” in the MOA.
Environmental Universality, Inc. x x x” that the hangar space was being used “for trucks Petitioner was likewise found to have issued checks to respondent which belied his claim of
and equipment, vehicles maintenance and fabrication,” instead of for “company contracting with Capt. Clarke in the latter’s personal capacity.
helicopter/aircraft” only, and thereby threatened to cancel the MOA if the “welding,
grinding, and fabrication jobs” were not stopped immediately. Petitioner in the instant petition claimed that there’s a lack of legal capacity and personality
on the part of respondent
ISSUE: Whether petitioner is estopped in asserting that it executed the MOA with Capt.Clarke entered by it as a corporation or on any tort committed by it as such, it shall not be allowed
in his personal capacity--YES to use as a defense its lack of corporate personality."

RULING + RATIO:
FACTS :
 In 1993, Carlos Garcia, Patricio Botero, and Luisa Miraples were accused of illegal
Whether Capt. Clarke should have been impleaded as an indispensable party was correctly
recruitment. It was alleged that they represented themselves as the incorporators and
resolved by the CA which held that the former was merely an agent of respondent.
officers of Ricorn Philippine International Shipping Lines, Inc.; that Ricorn is a recruitment
agency for seamen; that Garcia is the president, Botero is the vice-president, and
While Capt. Clarke’s name and signature appeared on the MOA, his participation was,
Miraples (now at large) is the treasurer.
nonetheless, limited to being a representative of respondent. As a mere representative,
 Garcia and Botero assured complainants of employment after the May 11, 1992
Capt. Clarke acquired no rights whatsoever, nor did he incur any liabilities, arising from the
election. Accused Botero, as the vice-president of Ricorn, followed-up their passports,
contract between petitioner and respondent. Therefore, he was not an indispensable party
seaman's book and SOLAS. He told some applicants to wait for their papers and
to the case at bar.
informed the others that their papers were in order.
 After the election, complainants went back to Ricorn to check on their applications.
From the very language itself of the MOA entered into by petitioner whereby he obligated
They discovered that Ricorn had abandoned its office at Jovan Building for non-
himself to allow the use of the hangar space “for company aircraft/helicopter,” petitioner
payment of rentals. Hoping against hope, they went back to the building several times
cannot deny that he contracted with respondent.
to recover their money. Their persistence was to no avail for Garcia and Botero were
nowhere to be found. They then went to the Mandaluyong Police Station and filed their
Petitioner further acknowledged this fact in his final letter where he reiterated and strongly
complaints.
demanded the former to immediately vacate the hangar space his “company is
 It was later discovered that Ricorn was never registered with the Securities and
occupying/utilizing.”
Exchange Commission (SEC) and that it was never authorized to recruit by the Philippine
Overseas Employment Agency (POEA).
 They were charged with the crime of illegal recruitment in large scale
Section 21 of the Corporation Code explicitly provides that one who assumes an obligation
to an ostensible corporation, as such, cannot resist performance thereof on the ground that
RULING OF THE LOWER COURTS:
there was in fact no corporation.
 RTC – Convicted both Garcia and Botero (Life Imprisonment thus automatic appeal)
Clearly, petitioner is bound by his obligation under the MOA not only on estoppel but by
CONTENTIONS OF RESPONDENT:
express provision of law. As aptly raised by respondent in its Comment to the instant petition,
 Botero averred that he was not an incorporator; that he was merely an employee of
it is futile to insist that petitioner issued the receipts for rental payments in respondent’s name
Ricorn in charge of following up on their documents.
and not with Capt. Clarke’s, whom petitioner allegedly contracted in the latter’s personal
capacity, only because it was upon the instruction of an employee. Indeed, it is disputably
ISSUE: W/N Botero was just a mere employee of Ricorn. - NO
presumed that a person takes ordinary care of his concerns, and that all private transactions
have been fair and regular. Hence, it is assumed that petitioner, who is a pilot, knew what he
RULING + RATIO:
was doing with respect to his business with respondent.

The lower courts, therefore, did not err in finding petitioner liable for breach of contract for We reject appellant Botero's pretense that he is also a victim rather than a culprit in this case.
effectively evicting respondent from the leased premises even before the expiration of the He insist he was a mere applicant of Ricorn and not a conspirator of the other accused who
term of the lease. defrauded the complainants. He claims that even as a Ricorn employee, he merely
performed "minimal activities" like following-up applicants' passports, seaman's book and
Petitioner should have gone to court to make the respondent refrain from its ‘illegal’ SOLAS, and conducting simple interviews. He denies he had a hand in the selection of
activities or seek rescission of the MOA rather than taking the law into his own hands. workers to be employed abroad. These submissions are at war with the evidence on record.
His co-accused Garcia introduced him to the complainants as the vice-president of Ricorn.
DISPOSITION: DENIED He used a table with a nameplate confirming he was the vice-president of Ricorn. He
procured the passports, seaman's books and SOLAS for the applicants. It was from him that
______________________________________________________________ the complainants inquired about the status of their applications. He also admitted he gave
money to accused Garcia for Ricorn's incorporation.
12. PEOPLE v. GARCIA
G.R. No. 117010, APRIL 18, 1997 Beyond any reasonable doubt, appellant Botero engaged in recruitment and placement
Digest Author : BERNAL activities in that he, through Ricorn, promised the complainants employment abroad. Under
the Labor Code, recruitment and placement refers to "any act of canvassing, enlisting,
Petitioner/s : People of the Philippines contracting, transporting, utilizing, hiring or procuring workers, and includes referrals, contract
Respondent/s : Carlos Garcia, Patricio Botero and Luisa Miraples services, promising or advertising for employment, locally or abroad whether for profit or not:
Provided, That any person or entity which in any manner, offers or promises for a fee
Doctrine: Section 25 of the Corporation Code provides that "(a)ll persons who assume to act employment to two or more persons shall be deemed engaged in recruitment, and
as a corporation knowing it to be without authority to do so shall be liable as general placement."
partners for all the debts, liabilities and damages incurred or arising as a result thereof:
Provided, however, That when any such ostensible corporation is sued on any transaction
It is a fact that Ricorn had no license to recruit from DOLE. In the office of Ricorn, a notice o Respondent Kahn would have been correct in his contention had it been duly
was posted informing job applicants that its recruitment license is still being processed. Yet, established that the Federation is a corporation. The trouble, however, is that neither
Ricorn already entertained applicants and collected fees for processing their travel the petitioner nor Kahn has adduced any evidence proving the corporate existence
documents. of the Federation.
o Being the President of respondent Federation, its corporate existence is within the
personal knowledge of Kahn. He could have easily denied specifically the assertion
For engaging in recruitment of workers without obtaining the necessary license from the
of the petitioner that it is a mere sports association, if it were a domestic
POEA, Boteros should suffer the consequences of Ricorn's illegal act for "(i)f the offender is a
corporation. But he did not.
corporation, partnership, association or entity, the penalty shall be imposed upon the officer
o A voluntary unincorporated association like the Federation has no power to enter
or officers of the corporation, partnership, association or entity responsible for violation; . . .
into, or to ratify, a contract. The contract entered into by its officers or agents on
" The evidence shows that appellant Botero was one of the incorporators of Ricorn. For
behalf of such association is not binding on, or enforceable against it. The officers or
reasons that cannot be discerned from the records, Ricorn's incorporation was not
agents are themselves personally liable.
consummated. Even then, appellant cannot avoid his liabilities to the public as an
 CA – reversed and set aside the RTC ruling as it recognized the juridical existence of the
incorporator of Ricorn. He and his co-accused Garcia held themselves out to the public as
Federation.
officers of Ricorn. They received money from applicants who availed of their services. They
o Since petitioner failed to prove that Kahn guaranteed the obligation of the
are thus estopped from claiming that they are not liable as corporate officials of
Federation, he should not be held liable for the same as said entity has a separate
Ricorn. Section 25 of the Corporation Code provides that "(a)ll persons who assume to act as
and distinct personality from its officers.
a corporation knowing it to be without authority to do so shall be liable as general partners
o Even assuming that the Federation was defectively incorporated, petitioner cannot
for all the debts, liabilities and damages incurred or arising as a result thereof: Provided,
deny the corporate existence of the Federation because it had contracted and
however, That when any such ostensible corporation is sued on any transaction entered by it
dealt with the Federation in such a manner as to recognize and in effect admit its
as a corporation or on any tort committed by it as such, it shall not be allowed to use as a
existence.
defense its lack of corporate personality.
ISSUE: Whether petitioner cannot deny the corporate existence of the Philippine Football
_____________________________________________________________ Federation because it had contracted and dealt with the Federation in such a manner as to
recognize and in effect admit its existence. – NO.
13. INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES INC v. CA
G.R. No. 119002, 343 SCRA 674, 19 October 2000 RULING + RATIO:
Ponente: Kapunan The Court cannot subscribe to the position taken by the CA that even assuming that the
Digest Author: Joy Santos (revised by Camille Barredo) Federation was defectively incorporated, petitioner cannot deny the corporate existence of
the Federation because it had contracted and dealt with the Federation in such a manner
Petitioner: International Express Travel & Tour Services Inc. as to recognize and in effect admit its existence. The doctrine of corporation by estoppel is
Respondents: Hon. Court of Appeals, Henri Kahn, Philippine Football Federation mistakenly applied by 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
DOCTRINE: One who deals with an unincorporated association is not estopped to deny its benefited on the irrelevant ground of defective incorporation. In the case at bar, petitioner is
corporate existence when his purpose is not to avoid liability, but precisely to enforce the not trying to escape liability from the contract but rather is the one claiming from the
contract against the action for the purported corporation. contract. CA decision is reversed and set aside. RTC decision is reinstated.

FACTS: Note: SC ruled that Philippine Football Federation has no juridical personality. Before an
 Petitioner International Express Travel & Tour Services Inc. wrote a letter to respondent entity may be considered as a national sports association, such entity must be recognized by
Philippine Football Federation to offer its services as a travel agency to the latter for the the accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135,
South East Asian Games in Malaysia as well as other trips in China and Brisbane. and the Department of Youth and Sports Development under P.D. 604. In this
 The offer was accepted and respondent Federation made payments for the airline case, respondent Kahn failed to substantiate this fact of recognition. Also, nowhere can it be
tickets received found in R.A. 3135 or P.D. 604 any provision creating the Philippine Football Federation.
 The remaining balance, however, was left unpaid. Because the Philippine Football Federation is not a national sports association within the
 Petitioner sued respondent Henri Kahn in his personal capacity and as president of the purview of the aforementioned laws and does not have corporate existence of its own, it
Federation; the Federation was impleaded as an alternative defendant. follows that respondent Kahn should be held liable for the unpaid obligations of the
 Petitioner sought to hold Kahn liable for the unpaid balance for the tickets purchased by unincorporated Philippine Football Federation. It is a settled principal in corporation law that
the Federation on the ground that Henri Kahn allegedly guaranteed the said obligation. 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
CONTENTION OF RESPONDENT HENRI KAHN: for other acts performed as such agent. As president of the Federation, Kahn is presumed to
 Petitioner has no cause of action as against him as he did not guarantee payment but have known about the corporate existence or non-existence of the Federation.
merely acted as an agent of the Federation which has a separate and distinct juridical
personality.
________________________________________________________________________________
RULING OF THE LOWER COURTS:
 RTC – ruled in favor of petitioner and declared respondent Kahn personally liable for the [G.R. No. 84197. July 28, 1989.]
unpaid obligation of the Federation
14. PIONEER INSURANCE & SURETY CORPORATION, petitioner, vs. THE HON. COURT OF  Lim defaulted on his subsequent installment payments prompting JDA to request
APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. payments from the surety.
MAGLANA and JACOB S. LIM, respondents.  Pioneer paid a total sum of P298,626.12.
 Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel
[G.R. No. 84157. July 28, 1989.] mortgage before the Sheriff of Davao City.
JACOB S. LIM, petitioner, vs. COURT OF APPEALS, PIONEER INSURANCE AND SURETY  The Cervanteses and Maglana, however, filed a third party claim alleging that they
CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT CO., INC., FRANCISCO and are co-owners of the aircrafts.
MODESTO CERVANTES and CONSTANCIO MAGLANA, respondents.  On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for
Digest Author: Agorilla a writ of preliminary attachment against Lim and respondents, the Cervanteses,
Bormaheco and Maglana.
Ponente: Gutierrez, Jr.  In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against
Lim alleging that they were not privies to the contracts signed by Lim.
Doctrine:
Ruling of Lower Courts: Denied/Granted - brief basis
Where persons associate themselves together under articles to purchase property
to carry on a business, and their organization is so defective as to come short of creating a  The trial court rendered a decision holding Lim liable to pay Pioneer but dismissed
corporation within the statute, they become in legal effect partners inter se, and their rights Pioneer’s complaint against the Cervanteses, Bormaheco and Maglana.
as members of the company to the property acquired by the company will be recognized.  the CA modified the trial court's decision in that the Pioneer’s complaint against
Cervanteses, Bormaheco, Maglana, and Lim was dismissed.
However, such a relation does not necessarily exist, for ordinarily persons cannot  However, the CA held that defendant Lim should be held liable to pay his co-
be made to assume the relation of partners, as between themselves, when their purpose is defendants' cross-claims in the total amount of P184,878.74 as correctly found by the
that no partnership shall exist trial court, with the interest from the filing of the cross-claims until the amount is fully paid.
Defendant Lim should pay one-half of the said amount to Bormaheco and the
Facts: (Instead of using respondent and petitioner use the name please :)) Cervanteses and the other one-half to defendant Maglana. It is established in the
 In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business records that defendant Lim had duly received the amount of P151,000.00 from
as owner-operator of Southern Air Lines (SAL) a single proprietorship. defendants Bormaheco and Maglana representing the latter's participation in the
 On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered ownership of the subject airplanes and spare parts. In addition, the cross-party plaintiffs
into and executed a sales contract for the sale and purchase of two (2) DC-3A Type incurred additional expenses, hence, the total sum of P184,878.74.
aircrafts and one (1) set of necessary spare parts for the total agreed price of US
$109,000.00 to be paid in installments. Issue: The issue related to Corp. Law is the one raised in G.R. No. 84157:
 One DC-3 Aircraft arrived in Manila on June 7, 1965 while the other aircraft, arrived in
Manila on July 18, 1965. Whether or not as a result of the failure of respondents Bormaheco, Spouses Cervantes,
 On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in Constancio Maglana and Lim to incorporate, a de facto partnership among them was
G.R. No. 84197) as surety of Lim, executed and issued a Surety Bond in favor of JDA, in created, hence, all must share in the losses and/or gains of the venture in proportion to their
behalf of its principal, Lim, for the balance price of the aircrafts and spare parts. contribution. NO.
 It appears that Border Machinery and Heavy Equipment Company, Inc.
(Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and Constancio Ruling:
Maglana (respondents in both petitions) contributed some funds used in the purchase
of the above aircrafts and spare parts. Petitioner Jacob S. Lim poses the following questions:
 The funds were supposed to be their contributions to a new corporation proposed by
Lim to expand his airline business. "1. What legal rules govern the relationship among co-
 They executed two (2) separate indemnity agreements in favor of Pioneer, one investors whose agreement was to do business through the corporate
signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the vehicle but who failed to incorporate the entity in which they had
Cervanteses. chosen to invest? How are the losses to be treated in situations where
 The indemnity agreements stipulated that the indemnitors principally agree and bind their contributions to the intended 'corporation' were invested not
themselves jointly and severally to indemnify Pioneer from any damages, losses, costs, through the corporate form? This Petition presents these fundamental
taxes, penalties, charges and expenses of whatever kind and nature which Pioneer questions which we believe were resolved erroneously by the Court
may incur in consequence of having become surety upon the bond and to pay of Appeals ('CA')."
Pioneer, its successors and assigns, all sums and amounts of money which it or its
representatives should pay or become liable to pay on them of whatever kind and These questions are premised on the Pioneer's theory that as a result of the
nature. failure of respondents Bormaheco, Spouses Cervantes, Constancio Maglana and
 On June 10, 1965, Lim doing business under the name and style of SAL executed in petitioner Lim to incorporate, a de facto partnership among them was created, and
favor of Pioneer as deed of chattel mortgage as security for the latter's suretyship in that as a consequence of such relationship all must share in the losses and/or gains of
favor of the former. the venture in proportion to their contribution. Lim, therefore, questions the CA's findings
 It was stipulated therein that Lim transfer and convey to the surety the two aircrafts. ordering him to reimburse certain amounts given by the respondents to the petitioner as
 The deed (Exhibit D) was duly registered with the Office of the Register of Deeds of their contributions to the intended corporation.
the City of Manila and with the Civil Aeronautics Administration pursuant to the
Chattel Mortgage Law and the Civil Aeronautics Law. The Court first state the principles.
"While it has been held that as between themselves the ______________________________________________________________________________
rights of the stockholders in a defectively incorporated association
should be governed by the supposed charter and the laws of the 15. LIM TONG LIM vs PHILIPPINE FISHING GEAR INDUSTRIES, INC.
state relating thereto and not by the rules governing partners, it is G.R. No. 136448. November 3, 1999
ordinarily held that persons who attempt, but fail, to form a Digest Author : Agbon
corporation and who carry on business under the corporate name
occupy a position of partners inter se. Thus, where persons associate Petitioner/s : LIM TONG LIM
themselves together under articles to purchase property to carry on a Respondent/s : PHILIPPINE FISHING GEAR INDUSTRIES, INC.
business, and their organization is so defective as to come short of
creating a corporation within the statute, they become in legal effect DOCTRINE: Under the law on estoppel, those acting on behalf of an ostensible corporation
partners inter se, and their rights as members of the company to the and those benefited by it, knowing it to be without a valid existence, are held liable as
property acquired by the company will be recognized. So, where general partners.
certain persons associated themselves as a corporation for the
development of land for irrigation purposes, and each conveyed APPLICABLE LAWS: Section 21 of the Corporation Code of the Philippines, Article 1767 of the
land to the corporation, and two of them contracted to pay a third Civil Code
the difference in the proportionate value of the land conveyed by
him, and no stock was ever issued in the corporation, it was treated FACTS :
as a trustee for the associates in an action between them for an Lim Tong Lim requested Peter Yao and Antonio Chua to engage in commercial
accounting, and its capital stock was treated as partnership assets, fishing with him. The three agreed to purchase two fishing boats but since they do not have
sold, and the proceeds distributed among them in proportion to the the money they borrowed from Lim Tong Lim’s brother. Subsequently, they again borrowed
value of the property contributed by each. However, such a relation money for the purchase of fishing nets and other fishing equipments. Yao and Chua
does not necessarily exist, for ordinarily persons cannot be made to represented themselves as acting in behalf of “Ocean Quest Fishing Corporation” (OQFC)
assume the relation of partners, as between themselves, when their and they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of fishing
purpose is that no partnership shall exist, and it should be implied only nets amounting to more than P500k. However, they were unable to pay PFGI and hence
when necessary to do justice between the parties; thus, one who were sued in their own names as Ocean Quest Fishing Corporation is a non-existent
takes no part except to subscribe for stock in a proposed corporation corporation. Chua admitted his liability while Lim Tong Lim refused such liability alleging that
which is never legally formed does not become a partner with other Chua and Yao acted without his knowledge and consent in representing themselves as a
subscribers who engage in business under the name of the corporation.
pretended corporation, so as to be liable as such in an action for
settlement of the alleged partnership and contribution. A partnership RULING OF THE LOWER COURTS:
relation between certain stockholders and other stockholders, who  RTC – rendered its Decision, ruling that Chua, Yao and Lim, as general partners,
were also directors, will not be implied in the absence of an were jointly liable to pay respondent
agreement, so as to make the former liable to contribute for payment  CA – CA held that petitioner was a partner of Chua and Yao in a fishing business
of debts illegally contracted by the latter. and may thus be held liable as a such for the fishing nets and floats purchased by
and for the use of the partnership
In this case, it is to be noted that Lim was declared non-suited for his failure to
appear during the pre-trial despite notification. In his answer, Lim denied having received CONTENTIONS OF PETITIONER: Petitioner controverts the CA finding that a partnership existed
any amount from respondents Bormaheco, the Cervanteses and Maglana. The trial court between him, Peter Yao and Antonio Chua. He disclaims any direct participation in the
and the appellate court, however, found that Lim received the amount of P151,000.00 purchase of the nets, alleging that the negotiations were conducted by Chua and Yao only,
representing the participation of Bormaheco and Atty. Constancio B. Maglana in the and that he has not even met the representatives of the respondent company. Petitioner
ownership of the subject airplanes and spare parts. The record shows that defendant further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of
Maglana gave P75,000.00 to Lim thru the Cervanteses. Lease" dated February 1, 1990, showed that he had merely leased to the two the main asset
of the purported partnership -- the fishing boat F/B Lourdes
It is therefore clear that Lim never had the intention to form a corporation with the
respondents despite his representations to them. This gives credence to the cross-claims of ISSUE: Whether Lim Tong Lim is liable as a partner? Whether corporation by estoppel can
the respondents to the effect that they were induced and lured by Lim to make apply to Lim?
contributions to a proposed corporation which was never formed because Lim reneged on
their agreement. RULING + RATIO:
Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and
Applying therefore the principles of law earlier cited to the facts of the case, Lim had decided to engage in a fishing business, which they started by buying boats worth
necessarily, no de facto partnership was created among the parties which would entitle the P3.35 million, financed by a loan secured from Jesus Lim. In their Compromise Agreement,
Pioneer to a reimbursement of the supposed losses of the proposed corporation. The record they subsequently revealed their intention to pay the loan with the proceeds of the sale of
shows that the Lim was acting on his own and not in behalf of his other would-be the boats, and to divide equally among them the excess or loss. These boats, the purchase
incorporators in transacting the sale of the airplanes and spare parts. and the repair of which were financed with borrowed money, fell under the term “common
fund” under Article 1767. The contribution to such fund need not be cash or fixed assets; it
The petitions are dismissed. could be an intangible like credit or industry. That the parties agreed that any loss or profit
from the sale and operation of the boats would be divided equally among them also shows In the case before us the resolution releasing the shareholders from their obligation to pay 50
that they had indeed formed a partnership. 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
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only
and, having been effected without compliance with the statutory requirements, was wholly
be imputed to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the
ineffectual.
nets found in his boats, the boat which has earlier been proven to be an asset of the
partnership. Lim, Chua and Yao decided to form a corporation. Although it was never legally
_____________________________________________________
formed for unknown reasons, this fact alone does not preclude the liabilities of the three as
contracting parties in representation of it. Clearly, under the law on estoppel, those acting
17. 13. Halley vs. Printwell
on behalf of a corporation and those benefited by it, knowing it to be without valid
G.R. No. 157549
existence, are held liable as general partners.
Author: George F. Rasalan
CONCLUSION: Petition is DENIED.
Doctrine:

Stockholders of a corporation are liable for the debts of the corporation up to the extent of
16. Philippine Trust Co. vs. Rivera their unpaid subscriptions. They cannot invoke the veil of corporate identity as a shield from
No. 19761. January 29, 1923 liability, because the veil may be lifted to avoid defrauding corporate creditors.
Digest Author : Suarez
It is established doctrine that subscriptions to the capital of a corporation constitute a fund to
Petitioner/s : PHILIPPINE TRUST COMPANY which creditors have a right to look for satisfaction of their claims and that the assignee in
Respondent/s : MARCIANO RIVERA insolvency can maintain an action upon any unpaid stock subscription in order to realize
assets for the payment of its debts
Doctrine 1 : DIMINUTION OF CAPITAL.—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 Petitioner: Halley
take place only in the manner and under the conditions prescribed by law. Respondent: Printwell

FACTS : Articles Applicable:


 This is a insolvency case of La Cooperativa Naval Filipina institute (La Cooperativa)by
PHILIPPINE TRUST COMPANY (Philtrust) against MARCIANO RIVERA (Rivera ) Trust fund Doctrine
 La Cooperativa was incorporated with a capital of P100,000 (1,000 shares of P100 par
value). Rivera, who was among the incorporators, subscribed 450 shares for the value of Facts:
45,000.
 Rivera failed to pay the remaining subscription for the following reason : that not long 1. The petitioner was an incorporator and original director of Business Media Philippines, Inc.
after the Cooperativa Naval Filipina had been incorporated, a meeting of its (BMPI), which, at its incorporation on November 12, 1987, had an authorized capital stock of
stockholders occurred, at which a resolution was adopted to the effect that the capital P3,000,000.00 divided into 300,000 shares each with a par value of P10.00,of which 75,000
should be reduced by 50 per centum and the subscribers released from the obligation were initially subscribed, to wit:
to pay any unpaid balance of their subscription in excess of 50 per centum of the same.
 However, the formalities required by the law for the reduction of capital stock was not Subscriber No. of shares Total subscription
complied with. The formality required was : no certificate was filed before the Bureau of Donnina C. Halley 35,000 P 350,000.00
Commerce and Industry showing the reduction. Roberto V. Cabrera, Jr. 18,000 P 180,000.00
 Lower Court ruled that the resolution did not take effect and that Rivera remained Albert T. Yu 18,000 P 180,000.00
liable. Zenaida V. Yu 2,000 P 20,000.00
Rizalino C. Vineza 2,000 P 20,000.00
ISSUE: Whether RIVERA can held liable. – YES. TOTAL 75,000 P750,000.00

RULING + RATIO:
2. Printwell engaged in commercial and industrial printing.BMPI commissioned Printwell for
the printing of the magazine Philippines, Inc. (together with wrappers and subscription cards)
It is established doctrine that subscriptions to the capital of a corporation constitute a fund
that BMPI published and sold. For that purpose, Printwell extended 30-day credit
to which creditors have a right to look for satisfaction of their claims and that the assignee in
accommodations to BMPI.
insolvency can maintain an action upon any unpaid stock subscription in order to realize
assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802.) A corporation has no
3. In the period from October 11, 1988 until July 12, 1989, BMPI placed with Printwell several
power to release an original subscriber to its capital stock from the obligation of paying for
orders on credit, evidenced by invoices and delivery receipts totaling
his shares, without a valuable consideration for such release; and as against creditors a
P316,342.76.Considering that BMPI paid only P25,000.00, Printwell sued BMPIon January 26,
reduction of the capital stock can take place only in the manner and under the conditions
1990 for the collection of the unpaid balance of P291,342.76 in the RTC
prescribed by the statute or the charter or the articles of incorporation. Moreover, strict
compliance with the statutory regulations is necessary (14 C. J., 498, 620).
4. On February 8, 1990, Printwell amended the complaint in order to implead as defendants
all the original stockholders and incorporators to recover on their unpaid subscriptions, as
follows: Appellants SPS YU, argued that the fact of full payment for the unpaid subscriptions was
incontrovertibly established by competent testimonial and documentary evidence, namely
Name Unpaid Shares Exhibits 1, 2, 3 & 4, which were never disputed by appellee, clearly shows that they should
Donnina C. Halley P 262,500.00 not be held liable for payment of the said unpaid subscriptions of BMPI.
Roberto V. Cabrera, Jr. P135,000.00
Only Halley appealed in the SC
Albert T. Yu P135,000.00
Zenaida V. Yu P15,000.00
Issue:
Rizalino C. Vieza P15,000.00
TOTAL P 562,500.00 1. Whether or not Halley is liable for the unpaid amount to Printwell by piercing the vail and
used of doctrine of trust fund?-YES

5. The defendants filed a consolidated answer, averring that they all had paid their 2. Is the CA and RTC correctly distributed the payment to Printwell trough PRO-RATA- No
subscriptions in full; that BMPI had a separate personality from those of its stockholders; that
Rizalino C. Vieza had assigned his fully-paid up shares to a certain Gerardo R. Jacinto in Ruling: YES
1989; and that the directors and stockholders of BMPI had resolved to dissolve BMPI during
the annual meeting held on February 5, 1990. Although a corporation has a personality separate and distinct from those of its stockholders,
directors, or officers,such separate and distinct personality is merely a fiction created by law
6. To prove payment of their subscriptions, the defendant stockholders submitted in for the sake of convenience and to promote the ends of justice. The corporate personality
evidenceBMPI official receipt (OR) no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222, may be disregarded, and the individuals composing the corporation will be treated as
OR no. 223, andOR no. 227,to wit: individuals, if the corporate entity is being used as a cloak or cover for fraud or illegality; as a
justification for a wrong; as an alter ego, an adjunct, or a business conduit for the sole
Receipt No. Date Name Amount benefit of the stockholders.As a general rule, a corporation is looked upon as a legal entity,
217 November 5, 1987 Albert T. Yu P 45,000.00 unless and until sufficient reason to the contrary appears. Thus,the courts always presume
218 May 13, 1988 Albert T. Yu P 135,000.00 good faith, and for that reason accord prime importance to the separate personality of the
220 May 13, 1988 Roberto V. Cabrera, Jr. P 135,000.00 corporation, disregarding the corporate personality only after the wrongdoing is first clearly
221 November 5, 1987 Roberto V. Cabrera, Jr. P 45,000.00 and convincingly established.It thus behooves the courts to be careful in assessing the milieu
where the piercing of the corporate veil shall be done.
222 November 5, 1987 Zenaida V. Yu P 5,000.00
223 May 13, 1988 Zenaida V. Yu P 15,000.00
RTC and CA correctly apply the trust fund doctrine.
227 May 13, 1988 Donnina C. Halley P 262,500.00
We clarify that the trust fund doctrine is not limited to reaching the stockholders unpaid
subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not
only the capital stock, but also other property and assets generally regarded in equity as a
7.In addition, the stockholders submitted other documents in evidence, namely:(a) an audit trust fund for the payment of corporate debts. All assets and property belonging to the
report dated March 30, 1989 prepared by Ilagan, Cepillo & Associates (submitted to the SEC corporation held in trust for the benefit of creditors that were distributed or in the possession
and the BIR); (b) BMPIbalance sheet and income statement as of December 31, 1988; (c) of the stockholders, regardless of full payment of their subscriptions, may be reached by the
BMPI income tax return for the year 1988 (stamped received by the BIR); (d) journal vouchers; creditor in satisfaction of its claim.
(e) cash deposit slips; and(f)Bank of the Philippine Islands (BPI) savings account passbook in
the name of BPMI Also, under the trust fund doctrine, a corporation has no legal capacity to release an original
subscriber to its capital stock from the obligation of paying for his shares, in whole or in
part,without a valuable consideration, or fraudulently, to the prejudice of creditors. The
Ruling of Lower Courts: the decision in favor of Printwell, rejecting the allegation of payment creditor is allowed to maintain an action upon any unpaid subscriptions and thereby steps
in full of the subscriptions in view of an irregularity in the issuance of the ORs and observing into the shoes of the corporation for the satisfaction of its debt. To make out a prima facie
that the defendants had used BMPIs corporate personality to evade payment and create case in a suit against stockholders of an insolvent corporation to compel them to contribute
injustice. PRO RATA among stockholders to the payment of its debts by making good unpaid balances upon their subscriptions, it is
only necessary to establish that thestockholders have not in good faith paid the par value of
All appealed except BMPI the stocks of the corporation.

Ruling of CA: Affirmed the RTC decision. To reiterate, the petitioner was liable pursuant to the trust fund doctrine for the corporate
The CA declared that the inconsistency in the issuance of the ORs rendered the claim of full obligation of BMPI by virtue of her subscription being still unpaid. Printwell, as BMPIs
payment of the subscriptions to the capital stock unworthy of consideration; and held that creditor,had a right to reach her unpaid subscription in satisfaction of its claim.
the veil of corporate fiction could be pierced when it was used as a shield to perpetrate a
fraud or to confuse legitimate issues, 2. We do not agree. The RTC lacked the legal and factual support for its prorating the
liability. Hence, we need to modify the extent of the petitioners personal liability to Printwell.
The prevailing rule is that a stockholder is personally liable for the financial obligations of the
Conditioner of Petitioner corporation to the extent of his unpaid subscription.In view ofthe petitioners unpaid
subscription being worth P262,500.00, shew as liable up to that amount. - DEFENSES OF ONGs:
- The Ongs said that David S. Tiu and Cely Y. Tiu had in fact assumed the positions of
ACCORDINGLY, we deny the petition for review on certiorari; and affirm with modification Vice-President and Treasurer of FLADC but that it was they who refused to comply
the decision of CA and RTC. with the corporate duties assigned to them.
- It was the contention of the Ongs that they wanted the Tius to sign the checks of
the corporation and undertake their management duties but that the Tius shied
away from helping them manage the corporation.
18. Case Title: YONG v TIU
GR Number and Date: G.R. No. 144476. April 8, 2003 Ruling of Lower Courts:
Author: Santiago Arnel A.
- SEC - upheld the rescission.
Ponente: CORONA - SEC enbanc - affirmed the rescission.
Doctrine: - CA - affirmed with modifications
- SC - affrimed the decision of CA (FIRST CASE)
1. RESCISSION OF SUBSCRIPTION AGREEMENT - A subscription contract necessarily
involves the corporation as one of the contracting parties since the subject - Tius then filed a motion for execution of judgment.
matter of the transaction is property owned by the corporation its shares of - A motion of reconsideration was filed by Ongs.
stock.
a. the subscription contract (denominated by the parties as a Pre- Contentions of the PETITIONER/PLAINTIFF (ONGS):
Subscription Agreement) whereby the Ongs invested P100 million for
1,000,000 shares of stock was, from the viewpoint of the law, one - The Ongs also allege that, in view of the findings of the Court that both parties were guilty
between the Ongs and FLADC, not between the Ongs and the Tius. of violating the Pre-Subscription Agreement, neither of them could resort to rescission under
Otherwise stated, the Tius did not contract in their personal the principle of pari delicto.
capacities with the Ongs since they were not selling any of their own
shares to them. It was FLADC that did. Issue:

Name of the parties: (and their respective role in the case): - Whether the Tius could legally rescind the Pre-Subscription Agreement. - YES.
Ruling:
Petitioner: ONG et al.
Respondent: Tiu et al Nature of the contract is a Subscription Contract as defined in Sec. 60, Tittle VII of the
Corporation Code.

Facts: “ Any contract for the acquisition of unissued stock in an existing corporation or a
- First Landlink Asia Development Corporation (FLADC), which was owned by the Tius, corporation still to be formed shall be deemed a subscription within the meaning of this Title,
encountered dire financial difficulties. Due to that, the construction of the Masagana notwithstanding the fact that the parties refer to it as a purchase or some other contract
Citimall in Pasay City was threatened with stoppage and incompletion when its owner. (Italics supplied).”
- The company is heavily indebted to PNB with two lots are mortgaged.
- To stave off foreclosure of the mortgage on the two lots where the mall was being built, - A subscription contract necessarily involves the corporation as one of the contracting
the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong parties since the subject matter of the transaction is property owned by the corporation its
and Julia Ong Alonzo (the Ongs), to invest in FLADC. shares of stock.
- Under the Pre-Subscription Agreement they entered into,: - The Tius did not contract in their personal capacities with the Ongs since they were not
- the Ongs and the Tius agreed to maintain equal shareholdings in FLADC: the Ongs selling any of their own shares to them. It was FLADC that did.
were to subscribe to 1,000,000 shares at a par value of P100.00 each - Considering therefore that the real contracting parties to the subscription agreement were
- the Tius were to subscribe to an additional 549,800 shares at P100.00 each in FLADC and the Ongs alone, a civil case for rescission on the ground of breach of contract
addition to their already existing subscription of 450,200 shares. filed by the Tius in their personal capacities will not prosper. Assuming it had valid reasons
- they agreed that the Tius were entitled to nominate the Vice-President and the to do so, only FLADC (and certainly not the Tius) had the legal personality to file suit
Treasurer plus five directors while the Ongs were entitled to nominate the President, rescinding the subscription agreement with the Ongs inasmuch as it was the real party in
the Secretary and six directors (including the chairman) to the board of directors of interest therein. Article 1311 of the Civil Code provides that contracts take effect only
FLADC. Moreover, the Ongs were given the right to manage and operate the mall. between the parties, their assigns and heirs Therefore, a party who has not taken part in
- The business harmony between the Ongs and the Tius in FLADC, however, was shortlived the transaction cannot sue or be sued for performance or for cancellation thereof, unless
because the Tius, on February 23, 1996, rescinded the Pre-Subscription Agreement. The Tius he shows that he has a real interest affected thereby
accused the Ongs of the following:
- (1) refusing to credit to them the FLADC shares covering their real property RESCISSION IS NOT THE PROPER REMEDY
contributions;
- (2) preventing David S. Tiu and Cely Y. Tiu from assuming the positions of and - Although the Tius were adversely affected by the Ongs unwillingness to let them assume
performing their duties as Vice-President and Treasurer, respectively, and their positions, rescission due to breach of contract is definitely the wrong remedy for their
- (3) refusing to give them the office spaces agreed upon. personal grievances. The Corporation Code, SEC rules and even the Rules of Court provide
for appropriate and adequate intra-corporate remedies, other than rescission, in situations
like this. Rescission is certainly not one of them, specially if the party asking for it has no
legal personality to do so and the requirements of the law therefor have not been met. A
contrary doctrine will tread on extremely dangerous ground because it will allow just any
stockholder, for just about any real or imagined offense, to demand rescission of his
subscription and call for the distribution of some part of the corporate assets to him without
complying with the requirements of the Corporation Code. Hence, the Tius, in their
personal capacities, cannot seek the ultimate and extraordinary remedy of rescission of
the subject agreement based on a less than substantial breach of subscription contract.
Not only are they not parties to the subscription contract between the Ongs and FLADC;
they also have other available and effective remedies under the law.

- WHEREFORE, the motion for reconsideration, dated March 15, 2002, of petitioners Ong Yong,
Juanita Tan Ong, Wilson Ong, Anna Ong, William Ong, Willie Ong and Julie Ong Alonzo and
the motion for partial reconsideration, dated March 15, 2002, of petitioner Willie Ong are
hereby GRANTED. The Petition for Confirmation of the Rescission of the Pre-Subscription
Agreement docketed as SEC Case No. 02-96-5269 is hereby DISMISSED for lack of merit. The
unilateral rescission by the Tius of the subject Pre-Subscription Agreement, dated August 15,
1994, is hereby declared as null and void.

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