1.
Organizing the Corporation
1. CAGAYAN FISHING DEVELOPMENT CO., INC.,
vs.TEODORO SANDIKO G.R. No. 43350 December 23, 1937
Corporation, Incorporation, Promoters of Corporation.
OCTOBER 14, 2017
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.
XXXXXXXXXXX
Chapter 5: Promoters’ Contracts Prior to Incorporation
25 SCRA 285 - RIZAL LIGHT & ICE CO., INC. vs. PSC and Morong Elec.
Co. (1968)
ZALDIVAR, J.:
PSC granted Morong Electric’s application for a CPCN. Rizal Light, a prior
operator contested this decision stating that such grant was invalid
considering SEC issued Morong Electrics certificate of incorporation months
after the decision. SC held that while a franchise cannot take effect until the
grantee corporation is organized, the franchise may, nevertheless, be applied
for before the company is fully organized; a grant of a franchise is valid
although the corporation is not created until afterwards.
DOCTRINE
McQuillin: “The fact that a company is not completely incorporated at the
time the grant is made to it by a municipality to use the streets does not, in
most jurisdictions, affect the validity of the grant. But such grant cannot take
effect until the corporation is organized…”
Fletcher: “While a franchise cannot take effect until the grantee
corporation is organized, the franchise may, nevertheless, be applied
for before the company is fully organized. A grant of a street franchise
is valid although the corporation is not created until afterwards.”
Thompson (explains reason for these rules^): “…an ordinance granting a
privilege to a corporation is not void because the beneficiary of the ordinance
is not fully organized at the time of the introduction of the ordinance. It is
enough that organization is complete prior to the passage and acceptance of
the ordinance. The reason is that a privilege of this character is a mere
license to the corporation until it accepts the grant and complies with
its terms and conditions.”
xxx
[IMPT] The ruling 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 is NOT ABSOLUTE. Under American
jurisprudence, a contract made by the promoters of a corporation on its
behalf may be adopted, accepted or ratified by the corporation when
organized.
FACTS
1. Morong Electric applied for a CPCN with the PSC to provide for electric
service in Morong, Rizal.
2. In May 1962, Morong Electric was granted a franchise. PSC found that
“Morong Electric is a corporation duly organized and existing under the
laws of the Philippines, the stockholders of which are Filipino citizens,
that it is financially capable of operating an electric light, heat and power
service, and that at the time the decision was rendered there was
absence of electric service in Morong, Rizal”
3. It was only on October 17 of the same year that the SEC issued Morong
Electric’s certificate of incorporation.
4. Rizal Light, a prior operator, contends that Morong should not have been
granted the CPCN because:
o it did not have a corporate personality at the time it was granted a
franchise and when it applied for said certificate
o it is not financially capable of undertaking an electric service
o petitioner was rendering efficient service before its electric plant was
burned, and therefore, being a prior operator its investment should
be protected and no new party should be granted a franchise and
certificate of public convenience and necessity to operate an electric
service in the same locality.
ISSUE with HOLDING
WON the franchise granted to Morong Electric is valid despite the fact that
such was granted before Morong Electric’s certificate of incorporation was
issued by the SEC – VALID
 Petitioner: until a corporation has come into being, in this jurisdiction, by
the issuance of a certificate of incorporation by the SEC, it cannot enter
into any contract as a corporation. The franchise was granted to Morong
Electric when it was not yet in esse is null and void
 SC: Petitioner's contention that Morong Electric did not yet have a legal
personality when a municipal franchise was granted to it is correct. The
juridical personality and legal existence of Morong Electric began only
when its certificate of incorporation was issued by the SEC.
o Before that date, or pending the issuance of said certificate of
incorporation, the incorporators cannot be considered as de facto
corporation, but the fact that Morong Electric had no corporate
existence on the day the franchise was granted in its name does
not render the franchise invalid, because later Morong Electric
obtained its certificate of incorporation and then accepted the
franchise in accordance with tshe terms and conditions thereof. This
view is sustained by eminent American authorities (see doctrine)
 Thus, the incorporation of Morong Electric on October 17, 1962 and its
acceptance of the franchise as shown by its action in prosecuting the
application filed with the Commission for the approval of said franchise 1)
perfected a contract between the respondent municipality and Morong
Electric and 2) cured the deficiency pointed out by the petitioner in the
application of Morong EIectric.
 The conclusion regarding the validity of the franchise granted to Morong
Electric is not incompatible with the holding of this Court in Cagayan
Fishing Development Co., Inc. vs. Teodoro Sandiko wherein Court held
that a corporation should have a full and complete organization and
existence as an entity before it can enter into any kind of a contract or
transact any business.
o this Court did not say in that case that the rule is absolute or that
under no circumstances may the acts of promoters of a
corporation be ratified or accepted by the corporation if and
when subsequently organized
o there are exceptions such as the fact that American courts generally
hold that a contract made by the promoters of a corporation on its
behalf may be adopted, accepted or ratified by the corporation when
organized
DISPOSITIVE PORTION
PSC decision affirmed.
DIGESTER: MTR
XXXXXXXXXXXXXXXXXXXX
028 FERMIN CARAM, JR. and ROSE DE CARAM v. CA and ALBERTO V. ARELLANO
151 SCRA 372 (June 30, 1987)
CRUZ, J.
Topic: Corporate Entity, Disregarding the corporate entity
Facts:
1. The services of Barretto was requested to initiate the incorporation of
Filipinas Orient Airways (FOA).
2. Barretto was referred to as the “moving spirit” of said corporation because
it was through his effort that it was created. Before FOA’s creation though,
Barretto contracted with a third party, Alberto Arellano, for the latter to
prepare a project study for the feasibility of creating a corporation like
FOA.
3. The project study was then presented to the would-be incorporators and
investors.
4. On the basis of said project study, Fermin Caram, Jr. and Rosa Caram
agreed to be incorporators of FOA. Later however, Arellano filed a
collection suit against FOA, Barretto, and the Carams.
5. Arellano claims that he was not paid for his work on the project study.
6. Lower Court: Orders the Carams to jointly and severally pay Arellano
P50,000.00 for the preparation of the project study and his technical
services that led to the organization of the defendant corporation, plus
P10,000.00 attorney’s fees
- It was upon the request of Barretto and Garcia that Arellano handled
the preparation of the project study which project study was
presented to Caram so the latter was convinced to invest in the
proposed airlines.
- The project study was revised for purposes of presentation to
financiers and the banks. It was on the basis of this study that
defendant corporation was actually organized and rendered
operational.
- Garcia and Caram, and Barretto became members of the Board and/or
officers of defendant corporation
- All the other defendants who were involved in the preparatory stages
of the incorporation must be liable
7. The petitioners claim that this order has no support in fact and law
because they had no contract whatsoever with the private respondent
regarding the above-mentioned services.
8. Their position is that as mere subsequent investors in the corporation that
was later created, they should not be held solidarily liable with FOA, a
separate juridical entity, and with Barretto and Garcia (their co-defendants
 in the lower court) who were the ones who requested the said services
from Arellano.
Issue:
Whether or not petitioners themselves are also personally liable for such expenses
and, if so, to what extent? NO. The petitioners did not contract the services of
Arellano. It was only the results of such services that Barretto and Garcia presented
to them and which persuaded them to invest in the proposed airline.
Ruling:
GRANTED. Petitioners are not liable.
subscription mentioned in the foregoing letter, the Quezon College, Inc. presented
a claim before the CFI of Bulacan in her testate proceeding, for the collection of the
sum of P20,000, representing the value of the subscription to the capital stock of
the Quezon College, Inc. which was then opposed by the administrator of the
estate.
Issue: Whether or not the condition entered into by both parties are valid.
Held: No, Under article 1115 of the old Civil Code which provides as follows: "If the
fulfillment of the condition should depend upon the exclusive will of the debtor, the
conditional obligation shall be void.”

Held: XXXXXXXXXXXXXXXXXXXXXXX

The petitioners were not really involved in the initial steps that finally led to the
incorporation of FAO, which were being directed by Barretto as the main promoter.
It was he who was putting all the pieces together. The airline was eventually
organized on the basis of the project study with the petitioners as major
stockholders and, together with Barretto and Garcia, as principal officers. The 1. Purchase Agreement
petitioners were merely among the financiers whose interest was to be invited and
Bayla v Silang Traffic Co.
who were in fact persuaded, on the strength of the project study, to invest in the
proposed airline.
GR. No. L-48195-96, May 01, 1942
There was no showing that FAO was a fictitious corporation and did not have a
separate juridical personality, to justify making the petitioners, as principal Ozaeta, J.:
stockholders thereof, responsible for its obligations. As a bona fide corporation,
FAO should alone be liable for its corporate acts as duly authorized by its officers
and directors.
The petition is rather hazy and seems to be flawed by an ambiguous ambivalence. It FACTS: Sofronio Bayla, along with the other petitioners in this case, individually
is unnecessary to examine at this time the rules on solidary obligations, which the purchased shares of stock of Silang Traffic Co. Each of the petitioners had different
parties-needlessly, as it turns out have belabored unto death. specified terms and conditions of payment. Similar among them is that 5% is to be
paid upon the execution of the contract, and the remainder in installments of 5%
XXXXXXXXXXXXXXXXXXXXXXX quarterly due within the first month of the quarter. Deferred payments will incur 6%
interest per annum until paid, and failure to pay any of said installments when they
b. Subscription Contracts are due will revert the shares back to the seller and the payments already made are to
be forfeited in favor of the company, without resort to court proceedings.
Trillana vs Quezon College, G. R. No. L-5003, June 27, 1953

Facts: Damasa Crisostomo subscribed 200 shares of capital stock with a par value of
P100 each through a letter sent to the Board of Trustees of the Quezon College,
enclosed with the letter are a sum of money as her initial payment and her
assurance of full payment after she harvested fish. On October 26, 1948, Damasa
Crisostomo passed away. As no payment appears to have been made on the
Petitioners have already paid sums of money for the shares of stock they
wanted to purchase. However, they failed to pay the installment which fell due on or
before July 31, 1937. On August 1, 1937, the board of directors of Silang Traffic Co.
released a resolution stating a rescission was to be made for the good of the
corporation and in order to terminate the then pending civil case involving the
validity of the sale of the shares in question. Those who would agree can refund the
installments already paid. The petitioners agreed to the rescission and demanded for
the refund of the amounts they had paid. Silang Traffic Co. refused to refund the
petitioners’ money stating that because of their failure to pay the installment due on
or before July 31, the clause stating that their shares would revert back to the
corporation and their payments forfeited had taken effect, and that there was nothing
to refund. Moreover, a later resolution on August 22 already cancelled the resolution
of August 1.
The trial court absolved the corporation and forfeited the petitioners’ shares
and payments to the corporation. The Court of Appeals affirmed the decision but
allowed the petitioners 30 days to pay the arrears in their subscription. From this
decision, petitioner and respondent appealed to the Supreme Court.
ISSUE: Were the petitioners’ shares of stock automatically forfeited in favor of
Silang Traffic Corporation upon their failure to pay the installment due on or before
July 31?
RULING: No. The Court held that for their stocks to be forfeited to the corporation,
a demand must first be given by the corporation for the payments due on or before
July 31. It did not automatically revert to the corporation. Under Article 1100 of the
Civil Code, persons obliged to deliver or do something are not in default until the
moment the creditor demands of them judicially or extra-judicially the fulfillment of
their obligation. The current situation does not fall under the any of the exceptions.
The contract itself did not expressly provide that the failure of the purchaser to pay
any installment would give rise to forfeiture and cancellation without the necessity of
any demand from the seller. In fact, it states that there would be a 6% interest on
deferred payments which shows that there was no intention of automatic forfeiture
and cancellation of contract. As such, the Court reversed the decision of the Court of
Appeals and ordered Silang Traffic Co. to refund the petitioners’ money.
XXXXXXXXXXXXXXX
2. Pre-Incorporation Subscription
3. Release from subscription obligation
VELASCO VS. POIZAT
G.R. No. L-11528
FACTS: The plaintiff, as assignee in insolvency of "The Philippine Chemical
Product Company" (Ltd.) is seeking to recover of the defendant, Jean M.
Poizat, the sum of P1,500, upon a subscription made by him to the corporate
stock of said company. It appears that the corporation in question was
originally organized by several residents of the city of Manila, where the
company had its principal place of business, with a capital of P50,000,
divided into 500 shares. The defendant subscribed for 20 shares of the stock
of the company, an paid in upon his subscription the sum of P500, the par
value of 5 shares . The action was brought to recover the amount subscribed
upon the remaining shares. It appears that the defendant was a stock holder
in the company from the inception of the enterprise, and for sometime acted
as its treasurer and manager. While serving in this capacity he called in and
collected all subscriptions to the capital stock of the company, except the
aforesaid 15 shares subscribed by himself and another 15 shares owned by
Jose R. Infante.
A meeting of the board of directors of the company was held at which a
majority of the stock was presented. Upon this occasion two resolutions were
adopted. The first was a proposal that the directors, or shareholders, of the
company should make good by new subscriptions, in proportion to their
respective holdings, 15 shares which had been surrendered by Infante. It
seems that this shareholder had already paid 25 per cent of his subscription
upon 20 shares, leaving 15 shares unpaid for, and an understanding had
been reached by him and the management by which he was to be released
from the obligation of his subscription, it being understood that what he had
already paid should not be refunded. Accordingly the directors present at this
meeting subscribed P1,200 toward taking up his shares, leaving a deficiency
of P300 to be recovered by voluntary subscriptions from stockholders not
present at the meeting. The other proposition was o the effect that Juan
[Jean] M. Poizat, who was absent, should be required to pay the amount of
his subscription upon the 15 shares for which he was still indebted to the
company. The resolution further provided that, in case he should refuse to
make such payment, the management of the corporation should be
authorized to undertake judicial proceedings against him. When notification
of this resolution reached Poizat through the mail it evoked from him a
manifestation of surprise and pain, which found expression in a letter written
by him in reply, dated July 27, 1914, and addressed to Velasco, as treasurer
and administrator. In this letter Poizat states that he had been given to
understand by some member of the board of directors that he was to be
relieved from his subscription upon the terms conceded to Infante. The
company soon went into voluntary insolvency, Velasco being named as the
assignee. At the hearing of the Court of First Instance, judgment was
rendered in favor of the defendant, and the complaint was dismissed. From
this action the plaintiff has appealed.
ISSUE: WON Poizat is liable upon this subscription?
HELD: Poizat is liable upon his subscription. Section 36 of the Corporation
Law clearly recognizes that a stock subscription is subsisting liability from the
time the subscription is made, since it requires the subscriber to pay interest
quarterly from that date unless he is relieved from such liability by the by-
laws of the corporation. The subscriber is as much bound to pay the amount
of the share subscribed by him as he would be to pay any other debt, and the
right of the company to demand payment is no less incontestable. The
provisions of the Corporation Law (Act No. 1459) given recognition of two
remedies for the enforcement of stock subscriptions. The first and most
special remedy given by the statute consists in permitting the corporation to
put up the unpaid stock for sale and dispose of it for the account of the
delinquent subscriber. In this case the provisions of section 38 to 48,
inclusive, of the Corporation Law are applicable and must be followed.
Nothing in this Act shall prevent the directors from collecting, by action in any
court of proper jurisdiction, the amount due on any unpaid subscription,
together with accrued interest and costs and expenses incurred. The
assignee of the insolvent corporation succeeds to all the corporate rights of
action vested in the corporation prior to its insolvency; and the assignee
therefore has the same freedom with respect to suing upon the stock
subscription as the directors themselves would have had under section 49
above cited. There is another reason why the present plaintiff must prevail in
this case. That reason is this: When insolvency supervenes upon a
corporation and the court assumes jurisdiction to wind up, all unpaid stock
subscriptions become payable on demand, and are at once recoverable in an
action instituted by the assignee or receiver appointed by the court. It is now
quite well settled that when the corporation becomes insolvent, with
proceedings instituted by creditors to wind up and distribute its assets, no call
or assessment is necessary before the institution of suits to collect unpaid
balances on subscription. It evidently cannot be permitted that a subscriber
should escape from his lawful obligation by reason of the failure of the
officers of the corporation to perform their duty in making a call; and when
the original model of making the call becomes impracticable, the obligation
must be treated as due upon demand. The better doctrine is that when
insolvency supervenes all unpaid subscriptions become at once due and
enforceable.
The circumstance that the board of directors in their meeting of July 13,
1914, resolved to release Infante from his obligation upon a subscription for
15 shares is no wise prejudicial to the right of the corporation or its assignee
to recover from Poizat upon a subscription made by him. In releasing Infante
the board transcended its powers, and he no doubt still remained liable on
such of his shares as were not taken up and paid for by other persons.The
general doctrine is that the 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.The suggestion contained in Poizat's letter of July
27, 1914, to the effect that he understood that he was to be relieved upon the
same terms as Infante is, for the same reason, of no merit as matter of
defense, even if an agreement to that effect had been duly proved.
XXXXXXXXXXXXXXXX
132 Phil. 758
FERNANDO, J.:
In the face of a statutory norm, which, as interpreted in a uniform Line of
decisions by this Court, speaks unequivocally and is free from doubt, the
lower court with full recognition that the case for the plaintiff creditor,
Philippine National Bank, "is meritorious strictly from the legal
standpoint"[1] but apparently unable to "close its eyes to the equity of the
case"[2] dismissed nine (9) cases filed by it, seeking "to recover from the
defendant lumber producers [Bitulok Sawmill, Inc.; Dingalan Lumber Co.,
Inc.; Sierra Madre Lumber Co., Inc.; NasipitLumber Co., Inc.; Woodworks,
Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay Millar Lumber Co., Inc.;
Insular Lumber Co. Inc.; AnakanLumber Co., Inc., and Cantilan Lumber Co.,
Inc.] the balance of their stock subscriptions to the Philippine Lumber
Distributing Agency, Inc."[3] In essence then, the crucial question posed by
this appeal from such a decision of the lower court is adherence to the rule of
law. Otherwise stated, would non-compliance with a plain statutory
command, considering the persuasiveness of the plea that defendants-
appellees would "not have subscribed to [the] capital stock" of the Philippine
Lumber Distributing Agency "were it not for the assurance of the [then]
President of the Republic of the Philippines that the Government would back
[it] up by investing P9.00 for every peso"[4]subscribed, a condition which was
not fulfilled, such commitment not having been complied with, be
justified? The answer must be in the negative.
It cannot be otherwise even if an element of unfairness and injustice could be
predicated, as the lower court, in a rather sympathetic mood, did find in the
plaintiff bank as creditor, compelling defendant lumber producers under the
above circumstances to pay the balance of their subscriptions. For a plain
and statutory command, if applicable, must be respected. The rule of law
cannot be satisfied with anything Less. The appeal must be sustained.
In these various suits decided jointly, the Philippine National Bank, as
creditor, and therefore the real party in interest, was allowed by the lower
court to substitute the receiver of the Philippine Lumber Distributing Agency
in these respective actions for the recovery from defendant lumber producers
the balance of their stock subscriptions. The amount sought to be collected
from defendants-appelleesBitulok Sawmill, Inc., Dingalan Lumber Co., Inc.,
and Sierra Madre Lumber Co., Inc., is P5,000.00, defendants-
appellees having made a partial payment of P15,000.00 of their total
subscription worth P20,000.00; from defendant-appellee Nasipit Lumber
Co., Inc., the sum of P10,000.00, defendant-appellee having made a partial
payment of P10,000.00 of its total subscription worth P20,000.00; from
defendant-appellee Woodworks, Inc., the sum of P10,886.00, defendant-
appellee having made a partial payment of P9,114.00 of its total subscription
worth P20,000.00; from defendant-appellee Gonzalo Puyat the sum of
P10,000,00, defendant-appellee having made a partial payment of
P10,000.00 of his total subscription worth. P20,000.00; from defendant-
appellee Tomas Morato the sum of P10,000.00, defendant-appellee having
made a partial payment of P10,000.00, of his total subscription worth
P20,000.00; from defendant-appellee Findlay Millar Lumber Co., Inc., the
sum of P10,000.00, defendant-appellee having made a partial payment of
P10,000.00 of its total subscription worth P20,000.00; from defendant-
appellee Insular Lumber Co., Inc., the sum of P5,000.00, defendant-
appellee having made a partial payment of P15,000.00 of its total
subscription worth P20,000.00; from defendant-appelleeAnakan Lumber
Co., Inc., the sum of P15,000.00, defendant-appellee having made a partial
payment of P5,000.00 of its total subscription worth P20,000.00; and from
defendant-appellee Cantilan Lumber Co., Inc., the sum of P7,500.00,
defendant-appellee having made a partial payment of P2,500.00 of its total
subscription worth P10,000.00, plus interest et the legal rate from the filing
of the suits and the costs of the suits in all the nine (9) cases.
The Philippine Lumber Distributing Agency, Inc., according to the lower
court, "was organized sometime in the early part of 1947 upon the initiative
and insistence of the late President Manuel Roxas of the Republic of the
Philippines who for the purpose, had called several conferences between him
and the subscribers and organizers of the Philippine Lumber Distributing
Agency, Inc."[5] The purpose was praiseworthy, to insure a steady supply of
lumber, which could be sold at reasonable prices to enable the war sufferers
to rehabilitate their devastated homes. The decision continues: "He con-
vinced the lumber producers to form a lumber cooperative and to pool their
resources together in order to wrest, particularly, the retail trade from aliens
who were acting as middle men in the distribution of lumber. At the
beginning, the lumber producers were reluctant to organize the cooperative
agency as they believed that it would not be easy to eliminate from the retail
trade the alien middlemen who had been in this business from time
immemorial, but because the late President Roxasmade it clear that such a
cooperative agency would not be successful without a substantial working
capital which the lumber producers could not entirely shoulder, and as an
inducement he promised and agreed to finance the agency by making the
Government invest P9.00 by way of counterpart for every peso that the
members would invest therein, * * *."[6]
This was the assurance relied upon according to the decision, which stated
that the amount thus contributed by such lumber producers was not enough
for the operation of its business especially having in mind the primary
purpose of putting an end to alien domination in the retail trade of lumber
products. Nor was there any appropriation by the legislature of the
counterpart fund to be put up by the Government, namely, P9.00 for every
peso invested by defendant lumber producers. Accordingly, "the Late
President Roxas instructed the Hon. Emilio Abello, then Executive Secretary
and Chairman of the Board of Directors of the Philippine National Bank, for
the latter to grant said agency an overdraft in the original sum of
P250,000.00 which was later increased to P350,000.00, which was
approved by said Board of Directors of the Philippine National Bank on July
28, 1947, payable on or before April 30, 1958, with interest at the rate of 6%
per annum, and secured by the chattel mortgages on the stock of lumber of
said agency."[7] The Philippine Government did not invest the P9.00 for every
peso coming from defendant lumber producers. The loan extended to the
Philippine Lumber Distributing Agency by the Philippine National Bank was
not paid. Hence these suits.
For the lower courts the above facts sufficed for their dismissal. To its mind
it is grossly unfair and unjust for the plaintiff bank now to compel the lumber
producers to pay the balance of their subscriptions* * *. Indeed, when the
late President Roxas made representations to the plaintiff bank, thru the
Hon. Emilio Abello who was then the Executive Secretary and Chairman of
its Board of Directors, to grant said overdraft to the agency, it was the only
way by which President Roxas could make good his commitment that the
Government would invest in said agency to the extent already mentioned
because, according to said late President Roxas, the legislature had not
appropriated any amount for such Counterpart. Consequently, viewing from
all considerations of equity in the case, the Court finds that plaintiff bank
should not collect any more from the defendants the balance of their
subscriptions to the capital stock of the Philippine Lumber Distributing
Agency, Inc."[8]
Even with the case for defendant lumber producers being put forth in its
strongest possible light in the appealed decision, the plaintiff creditor, the
Philippine National Bank, should have been the prevailing party. On the law
as it stands, the judgment reached by the lower court cannot be
sustained. The appeal as earlier made clear, possesses merit.
In Philippine Trust Co. v. Rivera,[9] citing the leading case of Velasco
v. Poizat,[10] this Court: held: "It is established doctrine that subscriptions to
the capital of a corporation constitute a fund to which creditors have a right
to look for satisfaction of their claims and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription in order to realize
assets for the payment of its debts. * * * A corporation has no power to
release an original subscriber to its capital stock from the obligation of paying
for his shares, without a valuable consideration for such release; and as
against creditors a reduction of the capital stock can take place only in the
manner and under the conditions prescribed by the statute or the charter or
the articles of incorporation. Moreover, strict compliance with the statutory
regulations is necessary * * *" The Poizat doctrine found acceptance in later
cases.[11] One of the latest cases, LingayenGulf Electric Power
v. Baltazar,[12] speaks to this effect: "In the case of Velasco v. Poizat,[13] the
corporation involved was insolvent, in which case all unpaid stock
subscriptions become payable on demand and are immediately recoverable
in an action instituted by the assignee."
It would be unwarranted to ascribe to the late President Roxas the view that
the payment of the stock subscriptions, as thus required by Law, could be
condoned in the event that the counter part fund to be invested by the
Government would not be available. Even if such were the case, however,
and such a promise were in fact made, to further the Laudable purpose to
which the proposed corporation would be devoted and the possibility that the
lumber producers would lose money in the process, still the plain and specific
wording of the applicable legal prevision as interpreted by this Court must be
controlling. It is a well settled principle that with all the vast powers lodged in
the Executive, he is still devoid of the prerogative of suspending the
operations of any statute or any of its terms.
The emphatic and categorical language of an American decision cited by the
late Justice Laurel, In People v. Vera,[14] comes to mind: '"By the twentieth
article of the declaration of rights in the constitution of commonwealth, it is
declared that the power of suspending the laws, or the execution of the Laws,
ought never to be exercised but by the legislature, or by authority derived
from it, to be exercised in such particular cases only as the Legislature shall
expressly provide for.'" Nor could it be otherwise considering that the
Constitution specifically enjoins the President to see to it that all Laws be
faithfully executed.[15] There may be a discretion as to what a particular legal
provision requires; there can be none whatsoever as to the enforcement and
application thereof once its meaning has been ascertained. What it decrees
must be followed; what it commands must be obeyed. It must be respected,
the wishes of the President, to the contrary notwithstanding, even if impelled
by the most worthy of motives and the most persuasive equitable
considerations. To repeat, such is not the case here. For at no time did
President Roxas ever give defendant lumber producers to understand that
the failure of the Government for any reason to put up the counterpart fund
could terminate their statutory liability.
Such is not the law. Unfortunately, the lower court was of a different
mind. Mat is not to pay homage to the rule of law. Its decision then, one it is
to be repeated influenced by what it considered to be the "equity of the case",
is not legally impeccable.
WHEREFORE, the decision of the lower court is reversed and the cases
remanded to the lower court for judgment according to law, with full
consideration of the legal defenses raised by defendants-
appellees, Bitulok Sawmill, Inc.; Dingalan Lumber Co., Inc.; Sierra Madre
Lumber Co., Inc.; Nasipit Lumber Co., Inc.; Woodworks, Inc.; Gonzalo Puyat;
Tomas B. Morato; Findlay Millar Lumber Co., Inc.; AnakanLumber Co., Inc.;
and Cantilan Lumber Co., Inc. No pronouncement as to costs.
Concepcion, C.J., Reyes, Dizon, Makalintal, Zaldivar,
Sanchez, and Angeles, JJ., concur.
Castro, J., did not take part.
XXXXXXXXXXXXXXXX
2. Formalities in Organizing
a. Generally
G.R. No. L-30646 January 30, 1929
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, petitioner,
vs.
THE MANILA RAILROAD COMPANY and JOSE PAEZ as Manager of said
Company, respondents
This is a petition in the Supreme Court of the extraordinary legal writ
of mandamus presented by the Government of the Philippine Islands, praying that the
writ be issued to compel the Manila Railroad Company and Jose Paez, as its
manager, to provide and equip the telegraph poles of said company between the
municipality of Paniqui, Province of Tarlac, and the Municipality of San Fernando,
Province of La Union, with crosspieces for six telegraph wires belonging to the
Government, which, it is alleged, are necessary for public service between said
municipalities.
Facts:
The government of the Philippines entered into a contract with the manila rail road
company under a special charter act no. 1510. The government of the Philippines is
now demanding from the defendant that it should provide and equip its telegraph
poles with crosspieces to carry six telegraph wires of the Government. This claim is
based on the provisions of section 84 of act No. 1459. Act No. 1459 is the General
Corporation Law and was adopted by the United States Philippine Commission on
March 1, 1906. (Vol. 5, Pub. Laws, pp. 224-268.) Section 84 of the said Act provides:
The railroad corporation shall establish along the whole length of the road a
telegraph line for the use of the railroad. The posts of this line may be used
for Government wires and shall be of sufficient length and strength and
equipped with sufficient crosspiece to carry the number of wires which the
Government may consider necessary for the public service. The
establishment, protection, and maintenance of the wires and stations
necessary for the public service shall be at the cost of the Government. (Vol.
5, P. L., p. 247.)
The defense of the defendant is that it is not bound by the provisions of the
corporation code because it has a charter of his own Act. No 1510. Under that act the
government is entitled to place on the poles of the company four wires only.
Issue:
Whether or not the provisions of the corporation law apply between the parties.
Ruling:
Inasmuch as Act No. 1510 is the charter of Manila Railroad Company and constitute
a contract between it and the Governmemnt, it would seem that the company is
governd by its contract and not by the provisions of any general law upon questions
covered by said contract. From a reading of the said charter or contract it would be
seen that there is no indication that the Government intended to impose upon said
company any other conditions as obligations not expressly found in said charter or
contract. If that is true, then certainly the Government cannot impose upon said
company any conditions or obligations found in any general law, which does not
expressly modify said contract.
Section 84 of the Corporation Law (Act No. 1459) was intended to apply to all
railways in the Philippine Islands which did not have a special charter contract. Act
No. 1510 applies only to the Manila Railroad Company, one of the respondents, and
being a special charter of said company, its adoption had the effect of superseding
the provisions of the general Corporation Law which are applicable to railraods in
general. The special charter (Act No. 1510) had the effect of superseding the general
Corporation Law upon all matters covered by said special charter. Said Act, inasmuch
as it contained a special provision relating to the erection of telegraph and telephone
poles, and the number of wires which the Government might place thereon,
superseded the general law upon that question.
Act No. 1510 of the United States Philippine Commission (vol. 5, P. L., pp. 350-358),
and that under the provisions of said Act No. 1510 the Government is entitled to place
on the poles of the company four wires only.
XXXXXXXXXXXXXX
Rural Bank of Salinas, Inc. v. CA
210 SCRA 510
FACTS: Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed
a Special Power of Attorney in favor of his wife, Melania to sell or otherwise dispose
of and/or mortgage 473 shares of stock of the Bank registered in his name
(represented by the Bank's stock certificates nos. 26, 49 and 65), to execute the
proper documents therefor, and to receive and sign receipts for the dispositions.
Melania, as Attorney-in-Fact, executed a Deed of Assignment for 472 shares out of
the 473 shares, in favor of private respondents Luz Andico (457 shares), Wilhelmina
Rosales (10 shares) and Francisco Guerrero, Jr. (5 shares). Melania Guerrero
presented to Rural Bank of Salinas the 2 Deeds of Assignment for registration with a
request for the transfer in the Bank's stock and transfer book of the 473 shares of
stock so assigned, the cancellation of stock certificates in the name of Clemente,
and the issuance of new stock certificates in the name of the new owners thereof.,
Rural Bank denied such request. Melania filed with the SEC an action for mandamus
against Rural Bank of Salinas, its President and Corporate Secretary.
The Bank in their Answer with counterclaim alleged that upon the death of
Clemente, his 473 shares of stock became the property of his estate, and his
property and that of his widow should first be settled and liquidated in accordance
with law before any distribution can be effected so that petitioners may not be a
party to any scheme to evade payment of estate or inheritance tax and in order to
avoid liability to any third persons or creditors of the late Clemente.
Maripol Guerrero filed a motion for intervention (legally adopted daughter of the
late Clemente and Melanie) stating that a Petition for the administration of the
estate of Clemente had been filed but her motion was denied. She then filed
before the CFI of Rizal, against Melanie for the annulment of the Deeds of
Assignment for being fictitious, void or simulated. The Bank then filed a motion to
dissmiss/suspend hearing pending resolution of the case for annulment. However,
SEC denied such motion.
SEC rendered a Decision granting the writ of Mandamus and directing petitioners to
cancel stock certificates of the Bank, and to issue new certificates in the names of
private respondents, except Melania Guerrero. Appealed to the CA but CA affirmed
the decision of SEC.
ISSUES:
1. WON SEC has the power to adjudicate the case. -Yes
2. WON corporatons may by its board, its by-laws, or the act of its officers create
restrictions in stock transfers.No.
3. WON the Bank being a corporation may refuse to transfer and register stocks.
No.
HELD: 1. Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive
jurisdiction to hear and decide cases involving intracorporate controversies. An
intracorporate controversy has been defined as one which arises between a
stockholder and the corporation. There is no distinction, qualification, nor any
exception whatsoever (Rivera vs. Florendo, 144 SCRA 643 [1986]). The case at bar
involves shares of stock, their registration, cancellation and issuances thereof by
petitioner Rural Bank of Salinas. It is therefore within the power of respondent SEC
to adjudicate.
2. A corporation, either by its board, its by-laws, or the act of its officers, cannot
create restrictions in stock transfers, because:. . Restrictions in the traffic of stock
must have their source in legislative enactment, as the corporation itself cannot
create such impediment. By-laws are intended merely for the protection of the
corporation, and prescribe regulation, not restriction; they are always subject to the
charter of the corporation. The corporation, in the absence of such power, cannot
ordinarily inquire into or pass upon the legality of the transactions by which its stock
passes from one person to another, nor can it question the consideration upon
which a sale is based. . . . (Tomson on Corporation Sec. 4137, cited in Fleisher vs.
Nolasco, Supra).
The only limitation imposed by Section 63 of the Corporation Code is when the
corporation holds any unpaid claim against the shares intended to be transferred,
which is absent here.
3. The right of a transferee/assignee to have stocks transferred to his name is an
inherent right flowing from his ownership of the stocks. Respondent SEC correctly
ruled in favor of the registering of the shares of stock in question in private
respondent's names. Such ruling finds support under Section 63 of the Corporation
Code, to wit:
Sec. 63. . . . Shares of stock so issued are personal property and may be transferred
by delivery of the certificate or certificates indorsed by the owner or his attorney-in-
fact or other person legally authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the transfer is recorded in the
books of the corporation . . .
The corporation's obligation to register is ministerial.
In transferring stock, the secretary of a corporation acts in purely
ministerial capacity, and does not try to decide the question of ownership.
(Fletcher, Sec. 5528, page 434).
The duty of the corporation to transfer is a ministerial one and if it refuses
to make such transaction without good cause, it may be compelled to do
so by mandamus. (See. 5518, 12 Fletcher 394)
XXXXXXXXXXXXXXXXXXXX
b. Articles of Incorporation
1. Procedure and Documentary Requirements
- As to contents and form (Section 14 and 15)
- As to corporate name (Section 18)
Red Line Transport vs. Rural Transit
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
pison-arceo agricultural and development corp vs nlrc
279 SCRA 312 – Business Organization – Corporation Law – Suit Under a
Corporate Name
In 1988, a labor case for illegal dismissal was filed against Jose Edmundo
Pison and Hacienda Lanutan. The labor arbiter issued a favorable for the
dismissed workers. Pison appealed and the National Labor Relations
Commission (NLRC) affirmed the labor arbiter. However, in the NLRC ruling,
it ordered Pison-Arceo Agricultural and Development Corporation (PADC) as
solidarily liable together with Pison and the Hacienda, PADC being the
owner of the Hacienda and in which Pison is a majority stockholder. PADC
assails the order of the NLRC on due process grounds as it averred that it
was not issued summons hence it was not able to defend itself in court and
therefore the judgment against it is void.
ISSUE: Whether or not the contention of PADC is correct.
HELD: No. The Supreme Court emphasized that in labor cases and other
administrative cases, the Rule of Civil Procedure are not strictly applied
especially so in the interest of laborers. So long as there is a substantial
compliance, a party can be placed under the jurisdiction of the labor court.
In the case at bar, there is substantial compliance when summons was
served to Jose Edmundo Pison who was also the administrator of the
Hacienda. PADC is therefore adequately represented by Pison in the
proceedings in the labor tribunal. If at all, the non-inclusion of the corporate
name of PADC in the case before the executive labor arbiter was a mere
procedural error which did not at all affect the jurisdiction of the labor
tribunals.