LBC Express, Inc. vs. Court of Appeals, G.R. No.

108670, 236 SCRA 602 , September 21, 1994

In this Petition for Review on Certiorari, petitioner LBC questions the decision 1 of respondent Court of Appeals
affirming the judgment of the Regional Trial Court of Dipolog City, Branch 8, awarding moral and exemplary
damages, reimbursement of P32,000.00, and costs of suit; but deleting the amount of attorney's fees.
Private respondent Adolfo Carloto, incumbent President-Manager of private respondent Rural Bank of Labason,
alleged that on November 12, 1984, he was in Cebu City transacting business with the Central Bank Regional
Office. He was instructed to proceed to Manila on or before November 21, 1984 to follow-up the Rural Bank's plan
of payment of rediscounting obligations with Central Bank's main office in Manila. 2 He then purchased a round
trip plane ticket to Manila. He also phoned his sister Elsie Carloto-Concha to send him ONE THOUSAND PESOS
(P1,000.00) for his pocket money in going to Manila and some rediscounting papers thru petitioner's LBC Office at
Dipolog City. 3
On November 16, 1984, Mrs. Concha thru her clerk, Adelina Antigo consigned thru LBC Dipolog Branch the
pertinent documents and the sum of ONE THOUSAND PESOS (P1,000.00) to respondent Carloto at No. 2
Greyhound Subdivision, Kinasangan, Pardo, Cebu City. This was evidenced by LBC Air Cargo, Inc., Cashpack Delivery
Receipt No. 34805.
On November 17, 1984, the documents arrived without the cashpack. Respondent Carloto made personal follow-
ups on that same day, and also on November 19 and 20, 1984 at LBC's office in Cebu but petitioner failed to deliver
to him the cashpack.
Consequently, respondent Carloto said he was compelled to go to Dipolog City on November 24, 1984 to claim the
money at LBC's office. His effort was once more in vain. On November 27, 1984, he went back to Cebu City at LBC's
office. He was, however, advised that the money has been returned to LBC's office in Dipolog City upon shipper's
request. Again, he demanded for the ONE THOUSAND PESOS (P1,000.00) and refund of FORTY-NINE PESOS
(P49.00) LBC revenue charges. He received the money only on December 15, 1984 less the revenue charges.
Respondent Carloto claimed that because of the delay in the transmittal of the cashpack, he failed to submit the
rediscounting documents to Central Bank on time. As a consequence, his rural bank was made to pay the Central
Bank THIRTY-TWO THOUSAND PESOS (P32,000.00) as penalty interest. 4 He allegedly suffered embarrassment and
humiliation.
Petitioner LBC, on the other hand, alleged that the cashpack was forwarded via PAL to LBC Cebu City branch on
November 22, 1984. 5 On the same day, it was delivered at respondent Carloto's residence at No. 2 Greyhound
Subdivision, Kinasangan, Pardo, Cebu City. However, he was not around to receive it. The delivery man served
instead a claim notice to insure he would personally receive the money. This was annotated on Cashpack Delivery
Receipt No. 342805. Notwithstanding the said notice, respondent Carloto did not claim the cashpack at LBC Cebu.
On November 23, 1984, it was returned to the shipper, Elsie Carloto-Concha at Dipolog City.
Claiming that petitioner LBC wantonly and recklessly disregarded its obligation, respondent Carloto instituted an
action for Damages Arising from Non-performance of Obligation docketed as Civil Case No. 3679 before the
Regional Trial Court of Dipolog City on January 4, 1985. On June 25, 1988, an amended complaint was filed where
respondent rural bank joined as one of the plaintiffs and prayed for the reimbursement of THIRTY-TWO
THOUSAND PESOS (P32,000.00).
After hearing, the trial court rendered its decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered:
1. Ordering the defendant LBC Air Cargo, Inc. to pay unto plaintiff Adolfo M. Carloto and Rural Bank of Labason,
Inc., moral damages in the amount of P10,000.00; exemplary damages in the amount of P5,000.00; attorney's fees
in the amount of P3,000.00 and litigation expenses of P1,000.00;
2. Sentencing defendant LBC Air Cargo, Inc., to reimburse plaintiff Rural Bank of Labason, Inc. the sum of
P32,000.00 which the latter paid as penalty interest to the Central Bank of the Philippines as penalty interest for
failure to rediscount its due bills on time arising from the defendant's failure to deliver the cashpack, with legal
interest computed from the date of filing of this case; and
3. Ordering defendant to pay the costs of these proceedings.
SO ORDERED. 6
On appeal, respondent court modified the judgment by deleting the award of attorney's fees. Petitioner's Motion
for Reconsideration was denied in a Resolution dated January 11, 1993.
Hence, this petition raising the following questions, to wit:
1. Whether or not respondent Rural Bank of Labason Inc., being an artificial person should be awarded moral
damages.
2. Whether or not the award of THIRTY-TWO THOUSAND PESOS (P32,000.00) was made with grave abuse of
discretion.
3. Whether or not the respondent Court of Appeals gravely abused its discretion in affirming the trial court's
decision ordering petitioner LBC to pay moral and exemplary damages despite performance of its obligation.
We find merit in the petition.
The respondent court erred in awarding moral damages to the Rural Bank of Labason, Inc., an artificial person.
Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. 7 A corporation,
being an artificial person and having existence only in legal contemplation, has no feelings, no emotions, no
senses; therefore, it cannot experience physical suffering and mental anguish. 8 Mental suffering can be
experienced only by one having a nervous system and it flows from real ills, sorrows, and griefs of life 9 — all of
which cannot be suffered by respondent bank as an artificial person.
We can neither sustain the award of moral damages in favor of the private respondents. The right to recover moral
damages is based on equity. Moral damages are recoverable only if the case falls under Article 2219 of the Civil
Code in relation to Article 21. 10 Part of conventional wisdom is that he who comes to court to demand equity,
must come with clean hands.
In the case at bench, respondent Carloto is not without fault. He was fully aware that his rural bank's obligation
would mature on November 21, 1984 and his bank has set aside cash for these bills payable. 11 He was all set to go
to Manila to settle this obligation. He has received the documents necessary for the approval of their rediscounting
application with the Central Bank. He has also received the plane ticket to go to Manila. Nevertheless, he did not
immediately proceed to Manila but instead tarried for days allegedly claiming his ONE THOUSAND PESOS
(P1,000.00) pocket money. Due to his delayed trip, he failed to submit the rediscounting papers to the Central
Bank on time and his bank was penalized THIRTY-TWO THOUSAND PESOS (P32,000.00) for failure to pay its
obligation on its due date. The undue importance given by respondent Carloto to his ONE THOUSAND PESOS
(P1,000.00) pocket money is inexplicable for it was not indispensable for him to follow up his bank's rediscounting
application with Central Bank. According to said respondent, he needed the money to "invite people for a snack or
dinner." 12 The attitude of said respondent speaks ill of his ways of business dealings and cannot be countenanced
by this Court. Verily, it will be revolting to our sense of ethics to use it as basis for awarding damages in favor of
private respondent Carloto and the Rural Bank of Labason, Inc.
We also hold that respondents failed to show that petitioner LBC's late delivery of the cashpack was motivated by
personal malice or bad faith, whether intentional or thru gross negligence. In fact, it was proved during the trial
that the cashpack was consigned on November 16, 1984, a Friday. It was sent to Cebu on November 19, 1984, the
next business day. Considering this circumstance, petitioner cannot be charged with gross neglect of duty. Bad
faith under the law can not be presumed; it must be established by clearer and convincing evidence. 13 Again, the
unbroken jurisprudence is that in breach of contract cases where the defendant is not shown to have acted
fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences of the branch
of the obligation which the parties had foreseen or could reasonable have foreseen. The damages, however, will
not include liability for moral damages. 14
Prescinding from these premises, the award of exemplary damages made by the respondent court would have no
legal leg to support itself. Under Article 2232 of the Civil Code, in a contractual or quasi-contractual relationship,
exemplary damages may be awarded only if the defendant had acted in "a wanton, fraudulent, reckless,
oppressive, or malevolent manner." The established facts of not so warrant the characterization of the action of
petitioner LBC.
IN VIEW WHEREOF, the Decision of the respondent court dated September 30, 1992 is REVERSED and SET ASIDE;
and the Complaint in Civil Case No. 3679 is ordered DISMISSED. No costs.
SO Ordered
PNOC-Energy Development Corporation vs National Labor Relations Commission

201 SCRA 487 – Business Organization – Corporation Law – Jurisdiction over GOCCs and
their subsidiaries in labor cases
In June 1985, Danilo Mercado was dismissed by PNOC-Energy Development Corporation
(PNOC-EDC) due to serious acts of dishonesty allegedly committed by Mercado. Mercado
then filed a complaint for illegal dismissal against PNOC-EDC. PNOC-EDC filed a motion to
dismiss on the ground that the Labor arbiter and/or the National Labor Relations
Commission (NLRC) has no jurisdiction over PNOC-EDC because it is a subsidiary of the
Philippine National Oil Company (PNOC), a government owned or controlled corporation,
and as a subsidiary, it is also a GOCC and as such, the proper forum for Mercado’s suit is
the Civil Service Commission.
ISSUE: Whether or not PBOC-EDC is correct.
HELD: No. The issue in this case has been decided already in the case of PNOC-EDC vs
Leogardo. It is true that PNOC is a GOCC and that PNOC-EDC, being a subsidiary of
PNOC, is likewise a GOCC. It is also true that under the 1973 Constitution, all GOCCs are
under the jurisdiction of the CSC. However, the 1987 Constitution change all this as it now
provides:
The Civil Service embraces all branches, subdivisions, instrumentalities and agencies of the
Government, including government-owned or controlled corporations with original
charters. (Article IX-B, Section 2 [1]) [emphasis supplied]
Hence, the above provision sets the rule that the mere fact that a corporation is a GOCC
does not automatically place it under the CSC. Under this provision, the test in determining
whether a GOCC is subject to the Civil Service Law is the manner of its creation such that
government corporations created by special charter are subject to its provisions while those
incorporated under the general Corporation Law are not within its coverage.
In the case at bar, PNOC-EDC, even though it is a GOCC, was incorporated under the
general Corporation Law – it does not have its own charter, hence, it is under the
jurisdiction of the MOLE.
Even though the facts of this case occurred while the 1973 Constitution was still in force,
the provisions of the 1987 Constitution regarding the legal matters [procedural aspect] are
applicable because it is the law in force at the time of the decision.

National Coal Company vs Collector of Internal Revenue

46 Phil 583 [GR No. L-22619 December 2, 1924]

Facts: The plaintiff corporation was created on the 10th day of March 1917, by Act No. 2705, for the purpose of
developing the coal industry in the Philippine Islands , in harmony with the general plan of the government to
encourage the development of natural resources of the country, and to provide facilities therefore. By the said act,
the company was granted the general powers of a corporation and such other powers as may be necessary to enable
it to prosecute the business of developing coal deposits in the Philippine Islands of mining, extracting, transporting,
and selling the coal contained in said deposits. By the same law, the government of the Philippine Islands is made
the majority stockholder, evidently in order to ensure proper government supervision and control and thus to place
the government in a position to render all possible encouragement, assistance, and help in the prosecution and
furtherance of the company’s business. On May 14, 1917, two months after the passage of Act no. 2705, creating the
national coal company, the Philippine legislature passed Act 2719, “to provide for the leasing and development of
coal lands in the Philippine islands.” On October 18, 1917, upon petition of the national coal company, the
governor-general, by proclamation no. 39, withdrew from settlement, entry, sale or other deposition, all coal-bearing
public lands within the province of Zamboanga, Department of Mindanao and Sulu, and the island of Polillo,
Province of Tayabas. Almost immediately after the issuance of said proclamation the national coal company took
possession of the coal lands within the said reservation with an area of about 400 hectares, without any further
 formality, contract of lease. Of the 30,000 shares of stock issued by the company, the government of the Philippine
islands is the owner of 29,809 shares, that is, of 99 1/3 per centum of the whole capital stock.

Issue: Whether or not plaintiff is a private corporation.

Held: Yes. The plaintiff is a private corporation. The mere fact that the government happens to the majority
stockholder does not make it a public corporation. Act 2705, as amended by Act 2822, makes it subject to all the
provisions of the corporation law, in so far as they are not inconsistent with said act. No provisions of Act 2705 are
found to be inconsistent with the provisions of the corporation law. As a private corporation, it has no greater rights,
powers or privileges than any other corporation which might be organized for the same purpose under the
corporation law, and certainly it was not the intention of the legislature to give it a preference or right or privilege
over other legitimate private corporations in the mining of coal. While it is true that said proclamation no. 39
withdrew from settlement entry, sale or other disposition of coal-bearing public lands within the province of
Zamboanga, and the islands of Polillo, it made no provision for the occupation and operation by the plaintiff, to the
exclusion of other persons or corporations who might under proper permission, enter upon to operate the coal mines

Red Line Transportation Co. vs. Rural Transit Co.

GR No. 41570 | Sept. 6, 1934

Facts:
 This is a petition for review of an order of the Public Service Commission granting to the Rural Transit Company, Ltd., a
certificate of public convenience to operate a transportation service between Ilagan in the Province of Isabela and Tuguegarao
in the Province of Cagayan, and additional trips in its existing express service between Manila Tuguegarao.
 On June 4, 1932, Rural Transit filed an application for certification of a new service between Tuguegarao and Ilagan with the
Public Company Service Commission (PSC), since the present service is not sufficient
 Rural Transit further stated that it is a holder of a certificate of public convenience to operate a passenger bus service between
Manila and Tuguegarao
 Red Line opposed said application, arguing that they already hold a certificate of public convenience for Tuguegarao and Ilagan,
and is rendering adequate service. They also argued that granting Rural Transit’s application would constitute a ruinous
competition over said route
 On Dec. 21, 1932, Public Service Commission approved Rural Transit’s application, with the condition that "all the other terms
and conditions of the various certificates of public convenience of the herein applicant and herein incorporated are made a part
hereof."
 A motion for rehearing and reconsideration was filed by Red Line since Rural Transit has a pending application before the Court
of First Instance for voluntary dissolution of the corporation
 A motion for postponement was filed by Rural Transit as verified by M. Olsen who swears "that he was the secretary of the
Rural Transit Company, Ltd
 During the hearing before the Public Service Commission, the petition for dissolution and the CFI’s decision decreeing the
dissolution of Rural Transit were admitted without objection
 At the trial of this case before the Public Service Commission an issue was raised as to who was the real party in interest
making the application, whether the Rural Transit Company, Ltd., as appeared on the face of the application, or the Bachrach
Motor Company, Inc., using name of the Rural Transit Company, Ltd., as a trade name
 However, PSC granted Rural Transit’s application for certificate of public convenience and ordered that a certificate be issued
on its name
 PSC relied on a Resolution in case No. 23217, authorizing Bachrach Motor to continue using Rural Transit’s name as its
tradename in all its applications and petitions to be filed before the PSC. Said resolution was given a retroactive effect as of the
date of filing of the application or April 30, 1930

Issue: Can the Public Service Commission authorize a corporation to assume the name of another corporation as a trade name?

Ruling: NO
 The Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine corporations and the very law of their
creation and continued existence requires each to adopt and certify a distinctive name
 The incorporators "constitute a body politic and corporate under the name stated in the certificate."
 A corporation has the power "of succession by its corporate name." It is essential to its existence and cannot change its name
except in the manner provided by the statute. By that name alone is it authorized to transact business.
 The law gives a corporation no express or implied authority to assume another name that is unappropriated: still less that of
another corporation, which is expressly set apart for it and protected by the law. If any corporation could assume at pleasure as
an unregistered trade name the name of another corporation, this practice would result in confusion and open the door to
frauds and evasions and difficulties of administration and supervision.
In this case, the order of the commission authorizing the Bachrach Motor Co., Incorporated, to assume the name of the Rural
Transit Co., Ltd. likewise incorporated, as its trade name being void. Accepting the order of December 21, 1932, at its face as
granting a certificate of public convenience to the applicant Rural Transit Co., Ltd., the said order last mentioned is set aside and
vacated on the ground that the Rural Transit Company, Ltd., is not the real party in interest and its application was fictitious

Universal Mills Corporation vs Universal Textile Mills, Inc.

78 SCRA 62 – Business Organization – Corporation Law – Tradenames

In 1953, Universal Textile Mills, Inc. (UTMI) was organized. In 1954, Universal Hosiery Mills
Corporation (UHMC) was also organized. Both are actually distinct corporations but they
engage in the same business (fabrics). In 1963, UHMC petitioned to change its name to
Universal Mills Corporation (UMC). The Securities and Exchange Commission (SEC)
granted the petition.
Subsequently, a warehouse owned by UMC was gutted by fire. News about the fire spread
and investors of UTMI thought that it was UTMI’s warehouse that was destroyed. UTMI had
to make clarifications that it was UMC’s warehouse that got burned. Eventually, UTMI
petitioned that UMC should be enjoined from using its name because of the confusion it
brought. The SEC granted UTMI’s petition. UMC however assailed the order of the SEC as
it averred that their tradename is not deceptive; that UTMI’s tradename is qualified by the
word “Textile”, hence, there can be no confusion.
ISSUE: Whether or not the decision of the SEC is correct.
HELD: Yes. There is definitely confusion as it was evident from the facts where the
investors of UTMI mistakenly believed that it was UTMI’s warehouse that was destroyed.
Although the corporate names are not really identical, they are indisputably so similar that it
can cause, as it already did, confusion. The SEC did not act in abuse of its discretion when
it order UMC to drop its name because there was a factual evidence presented as to the
confusion. Further, when UMC filed its petition for change of corporate name, it made an
undertaking that it shall change its name in the event that there is another person, firm or
entity who has obtained a prior right to the use of such name or one similar to it. That
promise is still binding upon the corporation and its responsible officers

LYCEUM OF THE PHILS. V. CA

FACTS:

1. Petitioner had sometime commenced before in the SEC a complaint against Lyceum of Baguio, to
require it to change its corporate name and to adopt another name not similar or identical with that of
petitioner. SEC decided in favor of petitioner. Lyceum of Baguio filed petition for certiorari but was denied
for
lack of merit.
2. Armed with the resolution of the Court, petitioner instituted before the SEC to compel private
respondents, which are also educational institutions, to delete word “Lyceum” from their corporate names
and permanently to enjoin them from using such as part of their respective names.
3. Hearing officer sustained the claim of petitioner and held that the word “Lyceum” was capable of
appropriation and that petitioner had acquired an enforceable right to the use of that word.
4. In an appeal, the decision was reversed by the SEC En Banc. They held that the word “Lyceum” to
have become identified with petitioner as to render use thereof of other institutions as productive of
consfusion about the identity of the schools concerned in the mind of the general public.
5. Petitioner went to appeal with the CA but the latter just affirmed the decision of the SEC En Banc.

HELD: Under the corporation code, no corporate name may be allowed by the SEC if the
proposed name is identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is patently deceptive, confusing or
contrary to existing laws. The policy behind this provision is to avoid fraud upon the public, which
would have the occasion to deal with the entity concerned, the evasion of legal obligations and
duties, and the reduction of difficulties of administration and supervision over corporations.

The corporate names of private respondents are not identical or deceptively or confusingly similar to that
of petitioner’s. Confusion and deception has been precluded by the appending of geographic names to
the word “Lyceum”. Furthermore, the word “Lyceum” has become associated in time with schools and
other institutions providing public lectures, concerts, and public discussions. Thus, it generally refers to a
school or an institution of learning.
Petitioner claims that the word has acquired a secondary meaning in relation to petitioner with the result
that the word, although originally generic, has become appropriable by petitioner to the exclusion of other
institutions.
The doctrine of secondary meaning is a principle used in trademark law but has been extended to
corporate names since the right to use a corporate name to the exclusion of others is based upon the
same principle, which underlies the right to use a particular trademark or tradename. Under this doctrine,
a word or phrase originally incapable of exclusive appropriation with reference to an article in the market,
because geographical or otherwise descriptive might nevertheless have been used for so long and so
exclusively by one producer with reference to this article that, in that trade and to that group of purchasing
public, the word or phrase has come to mean that the article was his produce. The doctrine cannot be
made to apply where the evidence didn't prove that the business has continued for so long a time that it
has become of consequence and acquired good will of considerable value such that its articles and
produce have acquired a well known reputation, and confusion will result by the use of the disputed
name.
Petitioner didn't present evidence, which provided that the word “Lyceum” acquired secondary meaning.
The petitioner failed to adduce evidence that it had exclusive use of the word. Even if petitioner used the
word for a long period of time, it hadn’t acquired any secondary meaning in its favor because the
appellant failed to prove that it had been using the same word all by itself to the exclusion of others.

PHILIPS EXPORT VS. COURT OF APPEALS- Corporate Trade Name

A corporation’s right to use its corporate and trade name is a property right, a right in rem, which it may
assert and protect against the whole world.
FACTS: Philips Export B.V. (PEBV) filed with the SEC for the cancellation of the word “Philips” the
corporate name of Standard Philips Corporation in view of its prior registration with the Bureau of Patents
and the SEC. However, Standard Philips refused to amend its Articles of Incorporation so PEBV filed with
the SEC a petition for the issuance of a Writ of Preliminary Injunction, however this was denied ruling that
it can only be done when the corporate names are identical and they have at least 2 words different. This
was affirmed by the SEC en banc and the Court of Appeals thus the case at bar.
ISSUE: Whether or not Standard Philips can be enjoined from using Philips in its corporate name

RULING: YES A corporation’s right to use its corporate and trade name is a property right, a right
in rem, which it may assert and protect against the whole world. According to Sec. 18 of the
Corporation Code, no corporate name may be allowed if the proposed name is identical or
deceptively confusingly similar to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or contrary to existing law.

For the prohibition to apply, 2 requisites must be present:

(1) the complainant corporation must have acquired a prior right over the use of such corporate name and
(2) the proposed name is either identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or patently deceptive, confusing or contrary to
existing law.
With regard to the 1st requisite, PEBV adopted the name “Philips” part of its name 26 years before
Standard Philips. As regards the 2nd, the test for the existence of confusing similarity is whether the
similarity is such as to mislead a person using ordinary care and discrimination. Standard Philips only
contains one word, “Standard”, different from that of PEBV. The 2 companies’ products are also the
same, or cover the same line of products. Although PEBV primarily deals with electrical products, it has
also shipped to its subsidiaries machines and parts which fall under the classification of “chains, rollers,
belts, bearings and cutting saw”, the goods which Standard Philips also produce. Also, among Standard
Philips’ primary purposes are to buy, sell trade x x x electrical wiring devices, electrical component,
electrical supplies. Given these, there is nothing to prevent Standard Philips from dealing in the same line
of business of electrical devices. The use of “Philips” by Standard Philips tends to show its intention to
ride on the popularity and established goodwill of PEBV.
COMMISSIONER vs. MANNING G.R. No. L-28398. August 6, 1975 Income Tax on Stock Dividends

FACTS: Manila Trading and Supply Co. (MANTRASCO) had an authorized capital stock of P2.5 million divided
into 25,000 common shares: 24,700 were owned by Reese and the rest at 100 shares each by the Respondents. Reese
entered into a trust agreement whereby it is stated that upon Reese’s death, the company would purchase back all of
its shares. Reese died. MANTRASCO repurchased the 24,700 shares. Thereafter, a resolution was passed
authorizing that the 24,700 shares be declared as stock dividends to be distributed to the stockholders. The BIR
ordered an examination of MANTRASCO’s books and discovered that the 24,700 shares declared as dividends were
not disclosed by respondents as part of their taxable income for the year 1958. Hence, the CIR issued notices of
assessment for deficiency income taxes to respondents. Respondents protested but the CIR denied. Respondents
appealed to the CTA. The CTA ruled in their favor. Hence, this petition by the CIR

ISSUE: Whether the respondents are liable for deficiency income taxes on the stock dividends?

HELD: Dividends means any distribution made by a corporation to its shareholders out of its earnings or profits.
Stock dividends which represent transfer of surplus to capital account is not subject to income tax. But if a
corporation redeems stock issued so as to make a distribution, this is essentially equivalent to the distribution of a
taxable dividend the amount so distributed in the redemption considered as taxable income. The distinctions
between a stock dividend which does not and one which does constitute taxable income to the shareholders is that a
stock dividend constitutes income if its gives the shareholder an interest different from that which his former
stockholdings represented. On the other hand, it does constitute income if the new shares confer no different rights
or interests than did the old shares. Therefore, whenever the companies involved parted with a portion of their
earnings to bnuy the corporate holdings of Reese, they were making a distribution of such earnings to respondents.
These amounts are thus subject to income tax as a flow of cash benefits to respondents. Hence, respondents are
liable for deficiency income taxes.
CLAVECILLA Radio System v. Hon. Agustin AntillonFacts:
1 New Cagayan Grocery (NECAGRO) filed a complaint for damages against Clavecilla Radio
system. They alleged
that Clavecilla omitted the word “NOT” in the letter addressed to NECAGRO for transmittal at
Clavecilla Cagayande Oro Branch.2.

NECAGRO alleged that the omission of the word “not” between the word WASHED and AVAILABLE
altered the
contents of the same causing them to suffer from damages. 3.

Clavecilla filed a motion to dismiss on the ground of failure to state a cause of action and improper venue.
4.

City Judge of CDO denied the MTD. Clavecilla filed a petition for prohibition with preliminary Injunction
with the CFIpraying that the City Judge be enjoined from further proceeding with the case because of
improper venue. 5.

CFI
–
dismissed the case and held that Clavecilla may be sued either in Manila (principal office) or in CDO
(branchoffice).6.

Clavecilla appealed to the SC contending that the suit against it should be filed in Manila where it holds its
principaloffice.
Issue: WON the present case against Clavecilla should be filed in Manila where it holds its
principal office.
Held: YES
It is clear that the case from damages is based upon a written contract.Under par. (b)(3) Sec. 1 Rule 4 of
the New Rules of Court, when an action is not upon a written contract then the caseshould be filed in the
municipality where the defendant or any of the defendant resides or maybe served upon withsummons.In
corpo. Law, the residence of the corporation is the place whe
re the principal office is established. Since Clavecilla’s
principal office is in Manila, then the suit against it may properly be file in the City of Manila.As stated in
Evangelista v. Santos, the laying of the venue of an action is not left to plaintiff’s caprice because the
matter is regulated by the Rules of Court

Gamboa v. Teves etal., GR No. 176579, October 9, 2012

Facts: The issue started when petitioner Gamboa questioned the indirect sale of shares involving
almost 12 million shares of the Philippine Long Distance Telephone Company (PLDT) owned by PTIC to
First Pacific. Thus, First Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37
percent, thereby increasing the total common shareholdings of foreigners in PLDT to about 81.47%. The
petitioner contends that it violates the Constitutional provision on filipinazation of public utility, stated
in Section 11, Article XII of the 1987 Philippine Constitution, which limits foreign ownership of the capital
of a public utility to not more than 40%. Then, in 2011, the court ruled the case in favor of the
petitioner, hence this new case, resolving the motion for reconsideration for the 2011 decision filed by
the respondents.

Issue: Whether or not the Court made an erroneous interpretation of the term ‘capital’ in its 2011
decision?
Held/Reason: The Court said that the Constitution is clear in expressing its State policy of developing an
economy ‘effectively controlled’ by Filipinos. Asserting the ideals that our Constitution’s Preamble want
to achieve, that is – to conserve and develop our patrimony , hence, the State should fortify a Filipino-
controlled economy. In the 2011 decision, the Court finds no wrong in the construction of the term
‘capital’ which refers to the ‘shares with voting rights, as well as with full beneficial ownership’ (Art. 12,
sec. 10) which implies that the right to vote in the election of directors, coupled with benefits, is
tantamount to an effective control. Therefore, the Court’s interpretation of the term ‘capital’ was not
erroneous. Thus, the motion for reconsideration is denied.

CAGAYAN FISHING DEVELOPMENT CO., INC., vs.TEODORO SANDIKO G.R. No. 43350 December 23,

FACTS: Manuel Tabora is the registered owner of four parcels of land and he wanted to build a Fishery. He
loaned from PNB P8,000 and to guarantee the payment of the loan, he mortgaged the said parcels of land. Three
subsequent mortgages were executed in favor of the same bank and to Severina Buzon, whom Tabora is indebted to.
Tabora sold the four parcels of land to the plaintiff company, said to be under process of incorporation, in
consideration of one peso (P1) subject to the mortgages in favor of PNB and Severina Buzon and, to the condition
that the certificate of title to said lands shall not be transferred to the name of the plaintiff company until the latter
has fully and completely paid Tabora’s indebtedness to PNB. The articles of incorporation were filed and the
company sold the parcels of land to Sandiko on the reciprocal obligation that Sandiko will shoulder the three
mortgages. A deed of sale executed before a notary public by the terms of which the plaintiff sold, ceded and
transferred to the defendant all its rights, titles and interest in and to the four parcels of land. He executed a
promissory note that he shall be 25,300 after a year with interest and on the promissory notes, the parcels were
mortgage as security. A promissory note for P25,300 was drawn by the defendant in favor of the plaintiff, payable
after one year from the date thereof. Further, a deed of mortgage executed before a notary public in accordance with
which the four parcels of land were given as security for the payment of the said promissory note. All these three
instruments were dated February 15, 1932. Sandiko failed to pay, thus the action for payment. The lower court held
that deed of sale was invalid. The corporation filed a motion for reconsideration.

ISSUE: 1.Whether Cagayan Fishing Dev’t. has juridical capacity to enter into the contract. 2. Can promoters of
a corporation act as agents of a corporation?

RULING: 1. The transfer made by Tabora to the Cagayan Fishing Development Co., Inc., plaintiff herein, was
effected on May 31, 1930 and the actual incorporation of said company was effected later on October 22, 1930. In
other words, the transfer was made almost five months before the incorporation of the company. A duly organized
corporation has the power to purchase and hold such real property as the purposes for which such corporation was
formed may permit and for this purpose may enter into such contracts as may be necessary. But before a corporation
may be said to be lawfully organized, many things have to be done. Among other things, the law requires the filing
of articles of incorporation. Although there is a presumption that all the requirements of law have been complied
with, in the case before us it can not be denied that the plaintiff was not yet incorporated when it entered into the
contract of sale. The contract itself referred to the plaintiff as “una sociedad en vias de incorporacion.” It was not
even a de facto corporation at the time. Not being in legal existence then, it did not possess juridical capacity to enter
into the contract. “Corporations are creatures of the law, and can only come into existence in the manner prescribed
by law. As has already been stated, general laws authorizing the formation of corporations are general offers to any
persons who may bring themselves within their provisions; and if conditions precedent are prescribed in the statute,
or certain acts are required to be done, they are terms of the offer, and must be complied with substantially before
legal corporate existence can be acquired.” “That a corporation should have a full and complete organization and
existence as an entity before it can enter into any kind of a contract or transact any business, would seem to be 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. Until organized as authorized
by the charter there is not a corporation, nor does it possess franchises or faculties for it or others to exercise, until it
acquires a complete existence.”
2. The contract here was entered into not only between Manuel Tabora and a non-existent corporation but between
Manuel Tabora as owner of four parcels of land on the one hand and the same Manuel Tabora, his wife and others,
as mere promoters of a corporation on the other hand. For reasons that are self-evident, these promoters could not
have acted as agents for a projected corporation since that which had no legal existence could have no agent. A
corporation, until organized, has no life and therefore no faculties. It is, as it were, a child in ventre sa mere. This is
not saying that under no circumstances may the acts of promoters of a corporation be ratified by the corporation if
and when subsequently organized. There are, of course, exceptions , but under the peculiar facts and circumstances
of the present case we decline to extend the doctrine of ratification which would result in the commission of
injustice or fraud to the candid and unwary. The transfer by Manuel Tabora to the Cagayan Fishing Development
Company, Inc. was null because at the time it was effected the corporation was non-existent, we deem it
unnecessary to discuss this point

Hall vs. Piccio

[GR L-2598, 29 June 1950]

Facts: On 28 May 1947, C. Arnold Hall and Bradley P. Hall, and Fred Brown, Emma Brown, Hipolita
D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the article of incorporation
of the Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber
business to carry on as general contractors, operators and managers, etc. Attached to the article
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 described in a list appended thereto.
Immediately after the execution of said articles of incorporation, the corporation proceeded to do
business with the adoption of by-laws and the election of its officers.

On 2 December 1947, the said articles of incorporation were filed in the office of the Securities and
Exchange Commissioner, for the issuance of the corresponding certificate of incorporation. On 22
March 1948, pending action on the articles of incorporation by the aforesaid governmental office,
Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed before the Court of
First Instance of Leyte the civil case, alleging among other things that the Far Eastern Lumber and
Commercial Co. was an unregistered partnership; that they wished to have it dissolved because of
bitter dissension among the members, mismanagement and fraud by the managers and heavy
financial losses. C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss, contesting the court's
jurisdiction and the sufficiently of the cause of action.

After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and at
the request of Brown, et. al., appointed Pedro A. Capuciong as the receiver of the properties thereof,
upon the filing of a P20,000 bond. Hall and Hall offered to file a counter-bond for the discharge of the
receiver, but Judge Piccio refused to accept the offer and to discharge the receiver. Whereupon, Hall
and Hall instituted the present special civil action with the Supreme Court.

Issue: Whether Brown, et. al. may file an action to cause the dissolution of the Far Eastern Lumber
and Commercial Co., without State intervention.

Held: The Securities and Exchange Commission has not issued the corresponding certificate of
incorporation. The personality of a corporation begins to exist only from the moment such certificate
is issued — not before. Not having obtained the certificate of incorporation, the Far Eastern Lumber
and Commercial Co. — even its stockholders — may not probably claim "in good faith" to be a
corporation. Under the statue it is to be noted that it is the issuance of a certificate of incorporation
by the Director of the Bureau of Commerce and Industry which calls a corporation into being. The
immunity if collateral attack is granted to corporations "claiming in good faith to be a corporation
under this act." Such a claim is compatible with the existence of errors and irregularities; but not with
a total or substantial disregard of the law. Unless there has been an evident attempt to comply with
the law the claim to be a corporation "under this act" could not be made "in good faith."

This is not a suit in which the corporation is a party. This is a litigation between stockholders of the
alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure
corporation may be terminated in a private suit for its dissolution between stockholders, without the
intervention of the state.