Professional Documents
Culture Documents
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
CORPORATION
LAW
REVIEWER
(2013-‐2014)
ATTY.
JOSE
MARIA
G.
HOFILEÑA
Securities
and
Exchange
Commission
just
before
the
Certificate
of
Public
Held:
NO.
The
transfer
to
Cagayan
was
null
because
at
the
time
it
was
Convenience
was
granted
to
it.
Rizal
Light
contended
that
Morong
effected,
Cagayan
was
non-‐existent.
If
Cagayan
could
not
and
did
not
Electric
did
not
have
a
corporate
personality
at
the
time
it
was
granted
a
acquire
the
4
parcels
of
land,
it
follows
that
it
had
no
right
to
sell
them
franchise
by
the
Municipality
and
as
such
was
not
even
a
de
facto
to
Sandiko.
A
corporation,
until
organized,
has
no
being,
franchise
or
corporation.
faculties.
Nor
do
those
engaged
in
bringing
it
into
being
have
any
power
to
bind
it
by
contract,
unless
so
authorized
by
the
charter.
Manuel
Issue:
Whether
or
not
Morong
Electric
could
validly
be
granted
a
Tabora,
his
wife
and
others,
as
mere
promoters
of
a
corporation
on
the
franchise
and
apply
for
a
Certificate
of
Public
Convenience
even
when
it
other
hand.
The
lands
remain
inscribed
in
Tabora’s
name.
Sandiko
did
not
yet
have
a
separate
corporate
legal
personality
at
those
times
always
regarded
Tabora
as
the
owner
of
the
lands.
He
dealt
with
the
latter
directly.
The
President
of
Cagayan
only
intervened
to
sign
the
Held:
YES.
Morong
Electric
might
not
yet
have
a
corporate
personality
at
contract
in
behalf
of
Cagayan.
Even
PNB
always
treated
Tabora
as
the
those
times
but
ultimately,
it
was
granted
its
certificate
of
incorporation
owner
of
the
lands.
by
the
SEC
and
it
accepted
its
franchise
according
to
the
terms
and
conditions.
In
effect,
the
doctrine
of
ratification
was
applied
in
favor
of
Doctrine:
These
promoters
could
not
have
acted
as
agent
for
a
Morong
Electric.
projected
corporation
since
that
which
had
no
legal
existence
could
have
no
agent.
A
corporation,
until
organized,
has
no
life
and
therefore
Doctrine:
“The
fact
that
a
company
is
not
completely
incorporated
at
no
faculties.
However,
this
does
not
mean
that
acts
of
promoters
can
the
time
the
grant
is
made
to
it
does
not
affect
the
validity
of
the
grant.
never
be
ratified
by
the
corporation
when
it
is
subsequently
organized.
But
such
grant
cannot
take
effect
until
the
corporation
is
organized.”
There
are
exceptions
American
courts
generally
hold
that
contracts
made
by
the
promoters
of
a
corporation
on
its
behalf
may
be
adopted,
accepted,
or
ratified
by
the
Rizal
Light
&
Ice
Co.,
Inc.
v.
Public
Service
Comm.
corporation
when
organized.
Facts:
Rizal
Light
and
Ice
has
been
distributing
electricity
in
the
Morong,
General
Rule:
For
corporations
that
are
not
yet
incorporated,
they
don’t
Rizal
Area
since
1949
when
it
was
awarded
a
Certificate
of
Public
have
capacity
to
act
yet.
Convenience
by
the
Public
Service
Commission.
In
1962,
Morong
Electric
Company
was
granted
a
franchise
to
operate
an
electric
service
in
the
Caram,
Jr.
v.
CA
Municipality
of
Morong,
and
it
applied
for
a
Certificate
of
Public
Convenience.
Its
Certificate
of
Incorporation
was
granted
by
the
Facts:
The
Carams
are
challenging
the
validity
of
the
Court
of
Appeal’s
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
CORPORATION
LAW
REVIEWER
(2013-‐2014)
ATTY.
JOSE
MARIA
G.
HOFILEÑA
decision
ordering
them
to
pay
jointly
and
severally
with
Filipinas
Orient
powers,
shall
not
be
inquired
into
collaterally
in
any
private
suit
to
Airways
and
with
Barretto
and
Garcia
plaintiff
Arellano
for
his
services
which
such
corporation
may
be
a
party.
Such
inquiry
may
be
made
by
which
helped
in
the
incorporation
of
Filipinas
Orient
Airways.
The
the
Solicitor
General
in
a
quo
warranto
proceeding.
Carams
claim
that
they
were
not
the
ones
who
requested
the
services
of
Arellano,
and
were
merely
financiers
of
the
airways.
As
such
they
• A
de
facto
corporation
is
one
that
has
not
yet
been
certified
as
cannot
be
held
personally
liable.
existing
by
the
SEC,
but
who
believes
in
good
faith
that
it
has
authority
and
power
to
operate
as
a
corporation.
Issue:
Whether
or
not
the
Carams
are
also
and
personally
liable
for
such
o You
can’t
claim
to
be
in
good
faith
if
there
is
no
expenses
and,
if
so,
to
what
extent.
certificate
of
incorporation
since
you
know
that
it
is
only
upon
the
issuance
of
the
certificate
by
the
SEC
that
the
Held:
NO.
After
a
perusal
of
the
decision
of
the
CA,
the
SC
found
that
corporation
is
given
juridical
personality.
the
Carams
were
not
really
involved
in
the
initial
steps
that
finally
led
to
the
incorporation
of
the
Filipinas
Orient
Airways.
It
was
Barretto
and
A.
Elements:
Arnold
Hall
v.
Piccio,
86
Phil.
634
(1950).
Garcia
who
handled
the
preparation
of
the
project
study.
The
said
study
being
then
subsequently
presented
to
the
Carams
to
induce
the
latter
in
Arnold
Hall
v.
Piccio
investing
to
the
proposed
airlines.
The
Carams
were
merely
among
the
financiers
who
were
persuaded
by
the
strength
of
the
project
study
to
Facts:
Arnold
and
Bradley
Hall
(petitioners)
and
Fred
and
Emma
Brown,
invest
in
the
proposed
airline.
Furthermore,
there
was
no
showing
that
Chapman,
and
Abella
(respondents)
signed
and
acknowledged
the
the
Filipinas
Orient
Airways
was
a
fictitious
corporation
and
did
not
have
articles
of
incorporation
of
the
Far
Eastern
Lumber
and
Commercial
Co.,
a
separate
juridical
personality,
to
be
able
to
justify
making
the
Carams,
Inc.
Attached
to
the
articles
of
incorporation
was
an
affidavit
of
the
as
principal
stockholders
thereof,
responsible
for
its
obligations.
treasurer
stating
that
about
23k
of
the
stocks
were
subscribed
and
fully
paid
with
properties
transferred
to
the
corporation.
Doctrine:
Pending
action
of
the
SEC
concerning
the
articles,
the
respondents
filed
II.
De
Facto
Corporation
(Section
20)
a
case
against
petitioners
where
they
claimed
that
FELC
was
an
unregistered
partnership
and
now
they
wished
to
dissolve
it
due
to
Section
20.
De
facto
corporations.
dissension
among
members.
The
Halls
filed
a
case,
claiming
that
the
The
due
incorporation
of
any
corporation
claiming
in
good
faith
to
be
a
court
had
no
jurisdiction
to
decree
the
dissolution
of
the
company,
corporation
under
this
Code,
and
its
right
to
exercise
corporate
because
it
being
a
de
facto
corporation,
dissolution
may
only
be
ordered
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
CORPORATION
LAW
REVIEWER
(2013-‐2014)
ATTY.
JOSE
MARIA
G.
HOFILEÑA
in
a
quo
warranto
proceeding
before
the
Solicitor
General
and
that
the
III.
Corporation
by
Estoppel
Doctrine
(Section
21;
Salvatierra
v.
respondents,
having
signed
the
articles
of
incorporation,
are
estopped
Garlitos,
103
Phil.
757
[1958];
Albert
v.
University
Publishing
Co.,
13
from
denying
that
it
is
a
corporation.
SCRA
84
[1965];
Asia
Banking
Corp.
v.
Standard
Products,
46
Phil.
145
[1924];
Madrigal
Shipping
Co.,
v.
Ogilvie,
55
O.G.
No.
35,
p.
7331)
Issue:
Whether
or
not
the
court
had
jurisdiction
to
decree
the
dissolution
Section
21.
Corporation
by
estoppel.
All
persons
who
assume
to
act
as
a
corporation
knowing
it
to
be
Held:
YES.
The
parties
very
well
know
that
the
SEC
has
not
issued
the
without
authority
to
do
so
shall
be
liable
as
general
partners
for
all
certificate
of
corporation.
Thus,
they
couldn’t
claim
in
good
faith
to
be
a
debts,
liabilities
and
damages
incurred
or
arising
as
a
result
thereof:
corporation.
In
this
case,
there
is
no
de
facto
corporation
immune
from
Provided,
however,
That
when
any
such
ostensible
corporation
is
sued
collateral
attack.
Besides,
this
corporation
is
not
a
party
to
this
case.
The
on
any
transaction
entered
by
it
as
a
corporation
or
on
any
tort
case
is
a
litigation
between
stockholders,
for
the
purpose
of
obtaining
committed
by
it
as
such,
it
shall
not
be
allowed
to
use
as
a
defense
its
dissolution.
Even
the
existence
of
a
de
jure
corporation
may
be
lack
of
corporate
personality.
terminated
in
a
private
suit
for
its
dissolution
between
stockholders,
without
the
intervention
of
the
state.
One
who
assumes
an
obligation
to
an
ostensible
corporation
as
such,
cannot
resist
performance
thereof
on
the
ground
that
there
was
in
fact
Doctrine:
Personality
of
a
corporation
begins
to
exist
only
from
the
no
corporation.
moment
such
certificate
is
issued.
Immunity
from
collateral
attack
is
granted
to
corporations
“claiming
in
good
faith
to
be
a
corporation”
A.
Elements
of
the
Doctrine
Corporation
by
Estoppel
under
the
Corporation
Law.
When
both
parties
are
aware
that
a
1. One
who
assumes
an
obligation
to
an
ostensible
corporation
as
corporation
has
not
been
duly
organized,
then
the
corporation
by
such,
cannot
resist
performance
thereof
on
the
ground
that
estoppel
doctrine
does
not
apply.
there
was
in
fact
no
corporation.
Section
21(2)
2. Both
parties
must
recognize
the
corporate
party
even
when
one
• By
its
failure
to
submit
its
by-‐laws
on
time,
the
AIIBP
may
be
does
not
exist.
At
least
one
party
to
the
contract
was
under
the
considered
a
de
facto
corporation
whose
right
to
exercise
impression
that
the
other
corporate
party
was
a
duly
corporate
powers
may
not
be
inquired
into
collaterally
in
any
incorporated
entity.
It
can
only
apply
when
a
certificate
is
issued
private
suit
to
which
such
corporations
may
be
a
party.
but
where,
for
lack
of
the
other
criteria,
the
de
facto
Sawadjaan
v.
Court
of
Appeals,
459
SCRA
516
(2005).
corporation
doctrine
cannot
apply.
Arnold
Hall
v.
Piccio,
86
Phil.
634
(1950).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
CORPORATION
LAW
REVIEWER
(2013-‐2014)
ATTY.
JOSE
MARIA
G.
HOFILEÑA
out
of
such
transaction.
Salvatierra
v.
Garlitos
Doctrine
1:
A
registered
corporation
has
a
juridical
personality
separate
Facts:
Manuela
Salvatierra
entered
into
a
contract
of
lease
with
and
distinct
from
its
component
members
or
stockholders
and
officers
Philippine
Fibers
Producers
Corp.
(represented
by
its
President
and
conversely,
a
stockholder
or
member
cannot
be
held
personally
Refuerzo)
over
a
parcel
of
land
in
Leyte
owned
by
the
former.
Barely
a
liable
for
any
financial
obligation
of
the
corporation
in
excess
of
his
year
after
the
lease,
Salvatierra
filed
for
damages,
accounting
and
unpaid
subscription.
But
this
rule
is
understood
to
refer
merely
to
rescission;
she
averred
that
the
corporation
violated
the
provisions
in
registered
corporations
and
cannot
be
made
applicable
to
the
liability
of
the
contract.
The
Court
rendered
a
judgment
in
favour
of
Salvatierra,
members
of
an
unincorporated
association.
and
moved
to
subject
parcels
of
land
owned
by
Refuerzo
to
attachment
because
the
corporation
had
no
properties
in
its
name.
Refuerzo
filed
a
motion
claiming
that
the
decision
rendered
was
null
and
void
with
Issue
2:
Whether
or
not
the
doctrine
of
corporation
by
estoppel
is
respect
to
him,
there
being
no
allegation
in
the
complaint
pointing
to
his
applicable
in
this
case.
personal
liability.
His
defense
was
that
for
while
it
was
stated
in
the
complaint
that
he
was
a
signatory
to
the
lease
contract,
he
did
so
in
his
Held
2:
NO.
The
doctrine
of
corporation
by
estoppel
does
not
apply
in
capacity
as
president
of
the
corporation.
this
case
because
fraud
was
part
of
the
transaction.
In
the
instant
case,
on
plaintiff's
charge
that
she
was
unaware
of
the
fact
that
the
Philippine
Issue
1:
Whether
or
not
Refuerzo,
in
his
personal
capacity,
can
be
held
Fibers
Producers
Co.,
Inc.,
had
no
juridical
personality,
defendant
liable
for
corporate
debts.
Refuerzo
gave
no
confirmation
or
denial
and
the
circumstances
surrounding
the
execution
of
the
contract
lead
to
the
inescapable
Held
1:
YES.
A
person
who
acts
as
an
agent
without
authority
or
without
conclusion
that
plaintiff
Manuela
T.
Vda.
de
Salvatierra
was
really
made
a
principal
is
himself
regarded
as
the
principal;
a
person
acting
or
to
believe
that
such
corporation
was
duly
organized
in
accordance
with
purporting
to
act
on
behalf
of
a
corporation
which
has
no
valid
law.
existence
assumes
such
obligations
and
comes
personally
liable
for
contracts
entered
into.
Refuerzo,
as
president
of
the
unregistered
Doctrine
2:
While
as
a
general
rule
a
person
who
has
contracted
or
dealt
corporation
Phil.
Fibers,
was
the
agent
of
a
non-‐existent
principal,
his
with
an
association
in
such
a
way
as
to
recognize
its
existence
as
a
liability
cannot
be
limited
or
restricted
to
that
imposed
upon
corporate
corporate
body
is
estopped
from
denying
the
same
in
an
action
arising
shareholders.
In
acting
on
behalf
of
a
corporation
which
he
knew
to
be
out
of
such
transaction
or
dealing,
yet
this
doctrine
may
not
be
held
to
unregistered,
he
assumed
the
risk
of
reaping
the
consequential
arising
be
applicable
where
fraud
takes
a
part
in
the
said
transaction.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
CORPORATION
LAW
REVIEWER
(2013-‐2014)
ATTY.
JOSE
MARIA
G.
HOFILEÑA
there
is
no
such
entity
as
University
Publishing
Co.,
Inc.
The
SEC
records
• Agency
Doctrine:
Making
the
agent
of
an
inexistent
principal
show
that
UP
Co.
was
never
registered
either
as
a
corporation
or
liable
on
the
contract
entered
upon.1
partnership.
Aruego
claimed
he
is
not
a
party
to
the
case.
o This
agency
doctrine
applies
only
where
there
is
fraud
or
misrepresentation
on
the
part
of
one
of
the
contract
Issue:
Whether
or
not
the
judgment
may
be
executed
against
Jose
M.
parties.
The
doctrine
of
corporation
by
estoppel
has
not
Aruego,
supposed
President
of
University
Publishing
Co.,
Inc.,
as
the
real
application
to
a
situation
where
both
parties
to
the
defendant.
contract
acted
in
the
honest
belief
that
a
contracting
corporate
entity
did
exist.
Held:
YES.
On
account
of
the
non-‐registration
UP
Co.
cannot
be
o It
is
in
such
no-‐fraud
or
no-‐misrepresentation
cases
that
considered
a
corporation,
not
even
a
corporation
de
facto.
It
has
Salvatierra
v.
Garlitos
is
clearly
inadequate.
This
is
therefore
no
personality
separate
from
Jose
M.
Aruego;
it
cannot
be
where
the
present
statutory
version
of
the
corporation
sued
independently.
It
is
patently
clear
that
Jose
M.
Aruego,
acting
as
by
estoppel
doctrine
applies,
since
its
applicability
does
representative
of
a
non-‐existent
principal,
was
the
real
party
to
the
not
require
fault
or
conscious
misrepresentation.
contract
sued
upon,
reaping
the
benefits
resulting
from
it.
Responsibility
under
the
judgment
falls
on
him
since
partial
payments
of
the
Albert
v.
University
Publishing
Co.
consideration
were
made
by
him,
he
violated
its
terms,
which
precipitated
the
previous
suit
in
question.
Facts:
UP
Co.
through
Jose
Aruego,
its
President,
entered
into
a
contract
NOTE:
Doctrine
of
corporation
by
estoppel
did
not
apply
to
this
case.
with
Mariano
Albert
for
the
exclusive
right
to
publish
his
revised
Commentaries
on
the
Revised
Penal
Code.
Because
of
UP
Co.’s
failure
to
Doctrine:
In
a
suit
against
a
corporation
with
no
valid
existence,
the
pay
its
installments
to
Albert,
the
latter
sued
UP
Co.
alleging
that
it
was
person
who
had
and
exercised
the
rights
to
control
the
proceedings,
to
a
corporation
duly
organized
and
existing
under
the
laws
of
the
make
defense,
to
adduce
and
to
cross-‐examine
witnesses,
and
to
appeal
Philippines.
UP
Co.
also
admitted
to
Albert’s
allegation
of
its
corporate
from
a
decision,
is
the
real
defendant,
and
the
enforcement
of
a
existence
as
well
as
to
the
execution
and
terms
of
the
contract.
Albert
judgment
against
the
corporation
upon
him
is
substantial
observance
of
won
the
case,
and
thereafter
petitioned
for
a
writ
of
execution
against
due
process
of
law.
Aruego
as
the
real
defendant
because
it
was
recently
discovered
that
• Albert
therefore
offers
us
the
"philosophical
bridge"
between
the
two
doctrines:
1
Villanueva,
C.
L.,
&
Villanueva-‐Tiansay,
T.
S.
(2013).
Philippine
Corporate
Law.
(2013
ed.).
Manila,
Philippines:
Rex
Book
Store.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
CORPORATION
LAW
REVIEWER
(2013-‐2014)
ATTY.
JOSE
MARIA
G.
HOFILEÑA
o First.
That
a
corporation
can
be
deemed
to
exist
when
in
corporate
existence.
Under
these
circumstances
it
was
unnecessary
for
fact
none
may
exist,
in
order
to
validate
a
contract;
and
the
plaintiff
to
present
other
evidence
of
the
corporate
existence
of
o Second.
That
although
the
veil
of
corporate
fiction
is
set
either
of
the
parties.
up,
it
will
be
pierced
to
enforce
the
contract,
to
hold
the
actors
behind
such
misrepresentation
liable
for
the
Doctrine:
The
general
rule
is
that
in
the
absence
of
fraud
a
person
who
obligations
arising
from
such
contract.1
has
contracted
or
otherwise
dealt
with
an
association
in
such
a
way
as
to
recognize
and
in
effect
admit
its
legal
existence
as
a
corporate
body
is
Asia
Banking
Corp.
v.
Standard
Products
thereby
estopped
to
deny
its
corporate
existence
in
any
action
leading
out
of
or
involving
such
contract
or
dealing,
unless
its
existence
is
Facts:
Standard
Products,
Co.,
Inc.
was
indebted
to
Asia
Banking
attacked
for
cause
which
have
arisen
since
making
the
contract
or
other
Corporation
and
secured
its
indebtedness
through
a
promissory
note.
dealing
relied
on
as
an
estoppel
and
this
applies
to
foreign
as
well
as
to
Upon
demand
for
the
balance
due,
Standard
failed
to
pay.
Hence
an
domestic
corporations.
action
was
brought
by
Asia
Banking
Corporation,
which
it
won.
But,
Standard
Products,
Inc.
contended
that
Asia
Banking
Corp
failed
to
NOTE:
Atty.
Hofileña
à
The
doctrines
in
three
cases
were
laid
down
prove
affirmatively
the
corporate
existence
of
the
parties,
and
the
before
the
Corporate
Code.
As
such,
these
doctrines
were
embodied
in
appellant
insists
that
under
these
circumstances
the
court
erred
in
the
Section
21
of
the
Corporation
Code.
finding
that
the
parties
were
corporations
with
juridical
personality
and
assigns
same
as
reversible
error.
B.
Nature
of
Doctrine
• Founded
on
principles
of
equity
and
designed
to
prevent
Issue:
Whether
or
not
respondent
Standard
Products
is
estopped
from
injustice
and
unfairness,
the
doctrine
applies
when
persons
denying
the
corporate
existence
of
the
plaintiff
Asia
Banking
Corp.
assume
to
form
a
corporation
and
exercise
corporate
functions
and
enter
into
business
relations
with
third
persons.
Where
no
Held:
YES.
The
defendant
having
recognized
the
corporate
existence
of
third
person
is
involved
in
the
conflict,
there
is
no
corporation
the
plaintiff
by
making
a
promissory
note
in
its
favor
and
making
partial
by
estoppel.
A
failed
consolidation
therefore
cannot
result
in
a
payments
on
the
same
is
therefore
estopped
to
deny
said
plaintiff's
consolidated
corporation
by
estoppel.
Lozano
v.
De
Los
Santos,
corporate
existence.
It
is,
of
course,
also
estopped
from
denying
its
own
274
SCRA
452
(1997)
• The
doctrine
is
meant
to
hold
contractual
parties
to
their
representations
or
expectations
at
the
time
the
contract
was
1
Villanueva,
C.
L.,
&
Villanueva-‐Tiansay,
T.
S.
(2013).
Philippine
Corporate
Law.
perfected;
and
it
does
not
allow
parties
to
draw
on
a
basic
(2013
ed.).
Manila,
Philippines:
Rex
Book
Store.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
CORPORATION
LAW
REVIEWER
(2013-‐2014)
ATTY.
JOSE
MARIA
G.
HOFILEÑA
defect
—
lack
of
one
contracting
party
—
to
avoid
the
• Under
the
law
on
estoppel
including
that
under
Section
21
of
enforcement
of
the
contract.1
Corporation
Code,
those
acting
on
behalf
of
an
ostensible
o A
party
cannot
challenge
the
personality
of
the
plaintiff
corporation
and
those
benefited
by
it,
knowing
it
to
be
without
as
a
duly
organized
corporation
after
having
valid
existence,
are
held
liable
as
general
partners.
Lim
Tong
Lim
acknowledged
same
when
entering
into
the
contract
v.
Philippine
Fishing
Gear
Industries,
Inc.,
317
SCRA
728
(1999).
with
the
plaintiff
as
such
corporation
for
the
transportation
of
its
merchandise.
Ohta
Dev.
Co.
v.
Lim
Tong
Lim
v.
Philippine
Fishing
Gear
Industries,
Inc.
Steamship
Pompey,
49
Phil.
117
(1926).2
o A
person
who
accepts
employment
in
an
Facts:
Chua
and
Yao,
on
behalf
of
Ocean
Quest
Fishing
Corp.,
entered
unincorporated
charitable
association
is
estopped
from
into
a
contract
for
the
purchase
of
fishing
nets
from
respondent-‐PFGI.
alleging
its
lack
of
juridical
personality.
Christian
They
claimed
that
they
were
engaged
in
a
business
with
petitioner-‐Lim
Children’s
Fund
v.
NLRC,
174
SCRA
681
(1989).
who
was
not
a
signatory
of
the
agreement.
However,
the
buyers
failed
• The
doctrine
has
evolved
in
Corporate
Law
primarily
as
a
rule
to
to
pay
for
their
purchases;
hence,
PFGI
filed
a
collection
suit
against
promote
the
integrity
of
commercial
contracts;
the
basic
role
of
Chua,
Yao
and
Lim
with
a
prayer
for
a
writ
of
preliminary
attachment.
the
doctrine
of
corporation
by
estoppel
is
to
promote
the
The
trial
court
ruled
that
a
partnership
existed
among
the
Lim,
Chua
and
public's
underlying
faith
in
contracts
drawn
with
corporate
Yao
and
held
them
jointly
liable
to
pay
PFGI
based
on
the
testimonies
of
entities,
rather
than
to
promote
corporate
principles.3
witnesses
presented
and
the
Compromise
Agreement
executed
by
the
o One
who
deals
with
an
unincorporated
association
three.
Lim
claims
that
he
should
not
be
held
liable
for
the
purchase
price
which
is
not
duly
incorporated
is
not
estopped
to
deny
since
he
was
not
part
of
the
negotiations
with
respondent-‐PFGI.
its
corporate
existence
when
his
purpose
is
not
to
avoid
liability,
but
precisely
to
enforce
the
contract
against
Issue:
Whether
or
not
under
the
doctrine
of
corporation
by
estoppel,
the
action
for
the
purported
corporation.
Int’l
Express
liability
can
be
imputed
only
to
Chua
and
Yao
and
not
to
Lim.
Travel
v.
Court
of
Appeals,
343
SCRA
674
(2000).
Held:
NO.
Unquestionably,
petitioner
benefited
from
the
use
of
the
nets
1
Villanueva,
C.
L.,
&
Villanueva-‐Tiansay,
T.
S.
(2013).
Philippine
Corporate
Law.
found
inside
F/B
Lourdes,
the
boat
that
has
earlier
been
proven
to
be
an
(2013
ed.).
Manila,
Philippines:
Rex
Book
Store.
asset
of
the
partnership.
Although
it
was
never
legally
formed
for
2
The
same
principle
applied
in
Compania
Agricole
de
Ultramar
v.
Reyes,
4
Phil.
1
(1911),
but
that
case
pertained
to
a
commercial
partnership
which
required
unknown
reasons,
this
fact
alone
does
not
preclude
the
liabilities
of
the
registration
in
the
registry
under
the
terms
of
the
Code
of
Commerce).
three
as
contracting
parties
in
representation
of
it.
Technically,
it
is
true
3
Villanueva,
C.
L.,
&
Villanueva-‐Tiansay,
T.
S.
(2013).
Philippine
Corporate
Law.
that
petitioner
did
not
directly
act
on
behalf
of
the
corporation.
(2013
ed.).
Manila,
Philippines:
Rex
Book
Store.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
CORPORATION
LAW
REVIEWER
(2013-‐2014)
ATTY.
JOSE
MARIA
G.
HOFILEÑA
However,
having
reaped
the
benefits
of
the
contract
entered
into
by
thereof.
People
v.
Garcia,
271
SCRA
621
(1997);
People
persons
with
whom
he
previously
had
an
existing
relationship,
he
is
v.
Pineda,
G.R.
No.
117010,
18
April
1997
(unpub).
deemed
to
be
part
of
said
association
and
is
covered
by
the
scope
of
the
2. On
the
other
hand,
when
no
fraud
or
misrepresentation
occurs,
doctrine
of
corporation
by
estoppel.
although
it
does
not
make
persons
acting
for
the
purported
corporation
liable
personally,
it
would
prevent
both
sides
from
Doctrine:
Clearly,
under
the
law
on
estoppel,
those
acting
on
behalf
of
a
raising
the
non-‐existence
of
the
corporation
as
a
means
to
avoid
corporation
and
those
benefited
by
it,
knowing
it
to
be
without
valid
enforcement
of
the
contract.2
existence,
are
held
liable
as
general
partners.
o In
no-‐fraud
or
no-‐misrepresentation
cases,
the
estoppel
doctrine
under
Section
21
would
create
a
corporation
C.
Two
Levels:
(i)
With
“Fraud;”
and
(ii)
Without
“Fraud”
when
none
exists
to
uphold
the
validity
and
1. When
fraud
or
misrepresentation
occurs
with
the
perfection
of
enforceability
of
the
contract
the
contract
with
a
purported
corporation,
then
section
makes
o Limited
Partner
liability
à
One
who
acts
for
a
purported
the
actor
personally
liable
on
the
contract
as
a
general
partner.1
corporation
not
knowing
that
it
had
no
authority
to
do
o General
Partners
à
liable
not
only
with
what
he
so
would
be
liable,
by
way
of
distinction,
only
as
a
purported
to
invest
in
the
venture,
but
he
could
be
held
limited
partner;
that
is,
he
would
be
liable
only
to
the
liable
to
all
his
properties,
even
those
not
actually
extent
of
his
investment
or
promised
investment
in
the
invested
or
promised
to
be
invested
in
the
venture.
purported
corporate
venture.
In
a
no-‐fraud
or
no-‐
o When
the
incorporators
represent
themselves
to
be
misrepresentation
case,
the
persons
acting
in
good
faith
officers
of
the
corporation
which
was
never
duly
for
the
purported
corporation
would
still
be
personally
registered
with
SEC,
and
engage
in
the
name
of
the
liable,
but
only
to
the
extent
of
their
actual
or
promised
purported
corporation
in
illegal
recruitment,
they
are
investment
in
the
corporate
venture.
This
logically
ties
estopped
from
claiming
that
they
are
not
liable
as
in
with
the
limited
liability
feature
of
a
purported
corporate
officers
under
Section
25
of
Corporation
Code
corporation
given
legal
recognition
in
the
estoppel
which
provides
that
all
persons
who
assume
to
act
as
a
doctrine.
corporation
knowing
it
to
be
without
authority
to
do
so
3. When
there
was
clear
intention
to
form
a
partnership
venture
shall
be
liable
as
general
partners
for
all
the
debts,
through
a
corporate
vehicle,
which
essentially
means
that
the
liabilities
and
damages
incurred
or
arising
as
a
result
partners
had
intended
to
be
active
participants
in
the
business
1 2
Villanueva,
C.
L.,
&
Villanueva-‐Tiansay,
T.
S.
(2013).
Philippine
Corporate
Law.
Villanueva,
C.
L.,
&
Villanueva-‐Tiansay,
T.
S.
(2013).
Philippine
Corporate
Law.
(2013
ed.).
Manila,
Philippines:
Rex
Book
Store.
(2013
ed.).
Manila,
Philippines:
Rex
Book
Store.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
CORPORATION
LAW
REVIEWER
(2013-‐2014)
ATTY.
JOSE
MARIA
G.
HOFILEÑA
of
the
corporation,
then
even
those
who
did
not
directly
capital
stock,
property
and
other
assets
of
a
corporation
are
participate
in
the
contract
or
transaction
being
sued
upon,
but
regarded
as
equity
in
trust
for
the
payment
of
corporate
benefited
therefrom
may
be
held
liable
as
general
partners
creditors.
The
reason
is
that
creditors
of
a
corporation
are
under
the
corporation
by
estoppel
doctrine.
On
the
other
hand,
preferred
over
the
stockholders
in
the
distribution
of
corporate
when
the
investors
intended
only
to
invest
in
a
corporate
assets.
There
can
be
no
distribution
of
assets
among
the
venture
with
no
intention
of
participating
in
its
corporate
stockholders
without
first
paying
corporate
creditors.
Hence,
affairs,
and
the
corporation
was
not
formed,
no
partnership
any
disposition
of
corporate
funds
to
the
prejudice
of
creditors
relation
is
deemed
established
by
the
failure
to
incorporate,
and
is
null
and
void.
Boman
Environmental
Dev.
Corp.
v.
CA,
167
such
investors
cannot
even
be
held
liable
for
the
contracts
and
SCRA
540
(1988).
transaction
sued
upon
even
when
such
contracts
and
• Under
the
trust
fund
doctrine,
the
capital
stock,
property
and
transactions
were
entered
into
by
the
corporate
actors
in
the
other
assets
of
the
corporation
are
regarded
as
equity
in
trust
name
of
an
ostensible
corporation.1
Lim
Tong
Lim
v.
Philippine
for
the
payment
of
the
corporate
creditors.
Comm.
of
Internal
Fishing
Gear
Industries,
Inc.,
317
SCRA
728
(1999).
Revenue
v.
Court
of
Appeals,
301
SCRA
152
(1999).
IV.
TRUST
FUND
DOCTRINE
B.
Nature
and
Coverage
of
the
Trust
Fund
Doctrine:
• The
subscriptions
to
the
capital
stock
of
a
corporation
constitute
A.
Commercial/Common
Law
Premise:
Equity
versus
Debts;
Preference
a
fund
to
which
the
creditors
have
a
right
to
look
for
satisfaction
of
Creditors
over
Equity
Holders
(Art.
2236,
Civil
Code)
of
their
claims
and
that
the
assignee
in
insolvency
can
maintain
an
action
upon
any
unpaid
stock
subscription
in
order
to
realize
CIVIL
CODE
assets
for
the
payment
of
its
debts.
Phil.
Trust
Co.
v.
Rivera,
44
Article
2236.
Phil.
469
(1923).
The
debtor
is
liable
with
all
his
property,
present
and
future,
for
the
o Atty.
Hofileña
à
a
shareholder
cannot
be
compelled
to
fulfillment
of
his
obligations,
subject
to
the
exemptions
provided
by
pay
more
than
what
they
subscribed
to
in
order
to
law.
(1911a)
address
the
debts
of
the
corporation.
• Even
when
the
foreclosure
on
the
corporate
assets
was
• The
requirement
of
unrestricted
retained
earnings
to
cover
the
wrongfully
done,
stockholders
have
no
standing
to
recover
for
shares
is
based
on
the
trust
fund
doctrine
which
means
that
the
themselves
moral
damages;
otherwise,
it
would
amount
to
the
appropriation
by,
and
the
distribution
to,
such
stockholders
of
1
Villanueva,
C.
L.,
&
Villanueva-‐Tiansay,
T.
S.
(2013).
Philippine
Corporate
Law.
part
of
the
corporation’s
assets
before
the
dissolution
of
the
(2013
ed.).
Manila,
Philippines:
Rex
Book
Store.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
CORPORATION
LAW
REVIEWER
(2013-‐2014)
ATTY.
JOSE
MARIA
G.
HOFILEÑA
corporation
and
the
liquidation
of
its
debts
and
liabilities.
APT
v.
Halley
v.
Printwell,
Inc.
Court
of
Appeals,
300
SCRA
579
(1998).
• The
“trust
fund”
doctrine
considers
the
subscribed
capital
stock
Facts:
BMPI
(Business
Media
Philippines
Inc.)
is
a
corporation
under
the
as
a
trust
fund
for
the
payment
of
the
debts
of
the
corporation,
control
of
its
stockholders,
including
Donnina
Halley.
In
the
course
of
its
to
which
the
creditors
may
look
for
satisfaction.
Until
the
business,
BMPI
commissioned
PRINTWELL
to
print
Philippines,
Inc.
(a
liquidation
of
the
corporation,
no
part
of
the
subscribed
capital
magazine
published
and
distributed
by
BMPI).
BMPI
placed
several
stock
may
be
turned
over
or
released
to
the
stockholder
(except
orders
amounting
to
P316,000
but
was
only
able
to
pay
P25,000.
in
the
redemption
of
the
redeemable
shares)
without
violating
PRINTWELL
sued
BMPI
for
collection
of
the
unpaid
balance
and
later
on
this
principle.
Thus
dividends
must
never
impair
the
subscribed
impleaded
BMPI’s
original
stockholders
and
incorporators
to
recover
on
capital
stock;
subscription
commitments
cannot
be
condoned
or
their
unpaid
subscriptions.
remitted;
nor
can
the
corporation
buy
its
own
shares
using
the
subscribed
capital
as
the
consideration
therefore.
NTC
v.
Court
Issue:
Whether
or
not
a
stockholder
(Halley
in
this
case)
who
was
in
of
Appeals,
311
SCRA
508
(1999).
active
management
of
the
business
of
the
corporation
and
still
has
o Atty.
Hofileña
à
the
creditors
have
no
right
to
compel
unpaid
subscriptions
should
be
made
liable
for
the
debts
of
the
the
company
to
sell
the
unsubscribed
shares
it
has
left
corporation
by
piercing
the
veil
of
corporate
fiction
of
the
authorized
capital
stock.
• We
clarify
that
the
trust
fund
doctrine
is
not
limited
to
reaching
Held:
YES.
Such
stockholder
should
be
made
liable
up
to
the
extent
of
the
stockholders’
unpaid
subscriptions.
The
scope
of
the
her
unpaid
subscription.
It
was
found
that
at
the
time
the
obligation
was
doctrine
when
the
corporation
is
insolvent
encompasses
not
incurred,
BMPI
was
under
the
control
of
its
stockholders
who
know
fully
only
the
capital
stock,
but
also
other
property
and
assets
well
that
the
corporation
was
not
in
a
position
to
pay
its
account
(thinly
generally
regarded
in
equity
as
a
trust
fund
for
the
payment
of
capitalized).
And,
that
the
stockholders
personally
benefited
from
the
corporate
debts.
All
assets
and
property
belonging
to
the
operations
of
the
corporation
even
though
they
never
paid
their
corporation
held
in
trust
for
the
benefit
of
creditors
that
were
subscriptions
in
full.
distributed
or
in
the
possession
of
the
stockholders,
regardless
of
full
payment
of
their
subscriptions
may
be
reached
by
the
Doctrine:
TRUST
FUND
DOCTRINE.
Under
which
corporate
debtors
creditors
in
satisfaction
of
its
claim.
Halley
v.
Printwell,
Inc.
649
might
look
to
the
unpaid
subscriptions
for
the
satisfaction
of
unpaid
SCRA
116
(2011),
citing
VILLANUEVA,
PHILIPPINE
CORPORATE
corporate
debts.
Subscriptions
to
the
capital
of
a
corporation
LAW
(2001),
p.
558.
constitutes
a
trust
fund
for
the
payment
of
the
creditors
(by
mere
analogy)
In
reality,
corporation
is
a
simple
debtor.
The
creditor
is
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
CORPORATION
LAW
REVIEWER
(2013-‐2014)
ATTY.
JOSE
MARIA
G.
HOFILEÑA
allowed
to
maintain
an
action
upon
any
unpaid
subscriptions
and
§ Decision
to
issue
stock
dividends
is
made
by
2/3
thereby
steps
into
the
shoes
of
the
corporation
for
the
satisfaction
of
its
of
the
stockholders
and
majority
of
the
Board.
debt.
The
trust
fund
doctrine
is
not
limited
to
reaching
the
stockholder’s
o Cash
Dividend
à
liquidated
cash
unpaid
subscriptions.
The
scope
of
the
doctrine
when
the
corporation
is
§ Distribution
is
decided
upon
by
the
Board
of
insolvent
encompasses
not
only
the
capital
stock
but
also
other
Directors.
property
and
assets
generally
regarded
in
equity
as
a
trust
fund
for
the
• Redeemable
shares
need
to
be
classified
from
the
beginning
payment
of
corporate
debts.
that
they
are
redeemable.
o This
is
the
exception
to
the
general
rule
that
you
need
C.
To
Purchase
Own
Shares
(Sections
8,
41,
43
and
122,
last
paragraph)
URE
in
order
to
buy-‐back
shares.
Section
8.
Redeemable
shares.
Section
41.
Power
to
acquire
own
shares.
Redeemable
shares
may
be
issued
by
the
corporation
when
expressly
A
stock
corporation
shall
have
the
power
to
purchase
or
acquire
its
so
provided
in
the
articles
of
incorporation.
They
may
be
purchased
or
own
shares
for
a
legitimate
corporate
purpose
or
purposes,
including
taken
up
by
the
corporation
upon
the
expiration
of
a
fixed
period,
but
not
limited
to
the
following
cases:
Provided,
That
the
corporation
regardless
of
the
existence
of
unrestricted
retained
earnings
in
the
has
unrestricted
retained
earnings
in
its
books
to
cover
the
shares
to
books
of
the
corporation,
and
upon
such
other
terms
and
conditions
as
be
purchased
or
acquired:
may
be
stated
in
the
articles
of
incorporation,
which
terms
and
conditions
must
also
be
stated
in
the
certificate
of
stock
representing
1.
To
eliminate
fractional
shares
arising
out
of
stock
dividends;
said
shares.
2.
To
collect
or
compromise
an
indebtedness
to
the
corporation,
• Unrestricted
Retained
Earnings
à
These
are
earnings
which
is
arising
out
of
unpaid
subscription,
in
a
delinquency
sale,
and
to
not
earmarked
for
any
particular
purpose.
purchase
delinquent
shares
sold
during
said
sale;
and
• Dividends
come
from
the
unrestricted
retained
earnings.
Otherwise,
you
will
impair
the
capital
of
the
corporation.
3.
To
pay
dissenting
or
withdrawing
stockholders
entitled
to
payment
o Stock
Dividend
à
instead
of
giving
you
cash
dividend
to
for
their
shares
under
the
provisions
of
this
Code.
(n)
which
you
are
entitled
to,
you
will
be
given
a
stock
as
equivalent.
It’s
like
reinvesting
your
dividends
to
the
• The
URE
is
also
what
the
corporation
can
use
to
buy-‐back
its
corporation.
shares
from
its
stockholders.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
CORPORATION
LAW
REVIEWER
(2013-‐2014)
ATTY.
JOSE
MARIA
G.
HOFILEÑA
Section
43.
Power
to
declare
dividends.
be
continued
as
a
body
corporate
for
three
(3)
years
after
the
time
The
board
of
directors
of
a
stock
corporation
may
declare
dividends
when
it
would
have
been
so
dissolved,
for
the
purpose
of
prosecuting
out
of
the
unrestricted
retained
earnings
which
shall
be
payable
in
and
defending
suits
by
or
against
it
and
enabling
it
to
settle
and
close
cash,
in
property,
or
in
stock
to
all
stockholders
on
the
basis
of
its
affairs,
to
dispose
of
and
convey
its
property
and
to
distribute
its
outstanding
stock
held
by
them:
Provided,
That
any
cash
dividends
assets,
but
not
for
the
purpose
of
continuing
the
business
for
which
it
due
on
delinquent
stock
shall
first
be
applied
to
the
unpaid
balance
on
was
established.
the
subscription
plus
costs
and
expenses,
while
stock
dividends
shall
be
withheld
from
the
delinquent
stockholder
until
his
unpaid
At
any
time
during
said
three
(3)
years,
the
corporation
is
authorized
subscription
is
fully
paid:
Provided,
further,
That
no
stock
dividend
and
empowered
to
convey
all
of
its
property
to
trustees
for
the
benefit
shall
be
issued
without
the
approval
of
stockholders
representing
not
of
stockholders,
members,
creditors,
and
other
persons
in
interest.
less
than
two-‐thirds
(2/3)
of
the
outstanding
capital
stock
at
a
regular
From
and
after
any
such
conveyance
by
the
corporation
of
its
property
or
special
meeting
duly
called
for
the
purpose.
(16a)
in
trust
for
the
benefit
of
its
stockholders,
members,
creditors
and
others
in
interest,
all
interest
which
the
corporation
had
in
the
Stock
corporations
are
prohibited
from
retaining
surplus
profits
in
property
terminates,
the
legal
interest
vests
in
the
trustees,
and
the
excess
of
one
hundred
(100%)
percent
of
their
paid-‐in
capital
stock,
beneficial
interest
in
the
stockholders,
members,
creditors
or
other
except:
(1)
when
justified
by
definite
corporate
expansion
projects
or
persons
in
interest.
programs
approved
by
the
board
of
directors;
or
(2)
when
the
corporation
is
prohibited
under
any
loan
agreement
with
any
financial
Upon
the
winding
up
of
the
corporate
affairs,
any
asset
distributable
institution
or
creditor,
whether
local
or
foreign,
from
declaring
to
any
creditor
or
stockholder
or
member
who
is
unknown
or
cannot
dividends
without
its/his
consent,
and
such
consent
has
not
yet
been
be
found
shall
be
escheated
to
the
city
or
municipality
where
such
secured;
or
(3)
when
it
can
be
clearly
shown
that
such
retention
is
assets
are
located.
necessary
under
special
circumstances
obtaining
in
the
corporation,
such
as
when
there
is
need
for
special
reserve
for
probable
Except
by
decrease
of
capital
stock
and
as
otherwise
allowed
by
this
contingencies.
(n)
Code,
no
corporation
shall
distribute
any
of
its
assets
or
property
except
upon
lawful
dissolution
and
after
payment
of
all
its
debts
and
Section
122.
Corporate
liquidation.
liabilities.
(77a,
89a,
16a)
Every
corporation
whose
charter
expires
by
its
own
limitation
or
is
annulled
by
forfeiture
or
otherwise,
or
whose
corporate
existence
for
• Under
common
law,
there
were
originally
conflicting
views
on
other
purposes
is
terminated
in
any
other
manner,
shall
nevertheless
whether
a
corporation
had
the
power
to
purchase
its
own
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
CORPORATION
LAW
REVIEWER
(2013-‐2014)
ATTY.
JOSE
MARIA
G.
HOFILEÑA
stocks.
Only
a
few
American
jurisdictions
adopted
the
strict
English
rule
forbidding
a
corporation
from
purchasing
its
own
Ong
Yong
v.
Tiu
shares.
In
some
American
states
where
the
English
rule
used
to
be
adopted,
statutes
granting
authority
to
purchase
out
of
Facts:
The
Tiu
family
members
are
the
owners
of
First
Landlink
Asia
surplus
funds
were
enacted,
while
in
others,
shares
might
be
Development
Corporation
(FLADC).
One
of
the
corporation’s
projects
is
purchased
even
out
of
capital
provided
the
rights
of
creditors
the
construction
of
Masagana
Citimall
in
Pasay
City.
However,
due
to
were
not
prejudiced.
The
reason
underlying
the
limitation
of
financial
difficulties
(they
were
indebted
to
PNB
for
P190
million),
the
share
purchases
sprang
from
the
necessity
of
imposing
Tius
feared
that
the
construction
would
not
be
finished.
So
to
prevent
safeguards
against
the
depletion
by
a
corporation
of
its
assets
the
foreclosure
of
the
mortgage
on
the
two
lots
where
the
mall
was
and
against
the
impairment
of
its
capital
needed
for
the
being
built,
they
invited
the
Ongs
to
invest
in
FLADC.
The
two
parties
protection
of
creditors.
Turner
v.
Lorenzo
Shipping
Corp.,
636
entered
into
a
Presubscription
Agreement
whereby
each
of
them
would
SCRA
13
(2010).
hold
1,000,000
shares
each
and
be
entitled
to
nominate
certain
officers.
The
Tiu’s
contributed
a
building
and
two
lots,
while
the
Ongs
D.
Rescission
of
Subscription
Agreement
contributed
P100M.
• The
violation
of
terms
embodied
in
a
subscription
agreement,
with
are
personal
commitments,
do
not
constitute
legal
ground
Two
years
later,
the
Tui’s
filed
for
rescission
of
the
Presubscription
to
rescind
the
subscription
agreement
since
such
would
violate
Agremement
because
the
Ongs
refused
to
issue
them
their
shares
of
the
Trust
Fund
Doctrine
and
the
procedures
for
the
valid
stock
and
from
assuming
positions
of
VP
and
Treasurer
to
which
they
distribution
of
assets
and
property
under
the
Corporation
Code.
were
entitled
to
nominate.
The
Ongs
contended
that
they
could
not
“In
the
instant
case,
the
rescission
of
the
Pre-‐Subscription
issue
the
new
shares
to
the
Tius
because
the
latter
did
not
pay
the
Agreement
will
effectively
result
in
the
unauthorized
capital
gains
tax
and
the
documentary
stamp
tax
of
the
lots.
And
distribution
of
the
capital
assets
and
property
of
the
because
of
this,
the
SEC
would
not
approve
the
valuation
of
the
corporation,
thereby
violating
the
Trust
Fund
Doctrine
and
the
property
contribution
of
the
Tius.
The
Court
of
Appeals
ordered
Corporation
Code,
since
the
rescission
of
a
subscription
liquidation
of
FLADC
to
enforce
rescission
of
the
contract.
agreement
is
not
one
of
the
instances
when
distribution
of
capital
assets
and
property
of
the
corporation
is
allowed.”
Issue:
Whether
or
not
the
liquidation
of
FLADC
violated
the
Trust
Fund
Distribution
of
corporate
assets
among
the
stockholders
cannot
Doctrine
even
be
resorted
to
achieve
“corporate
peace.”
Ong
Yong
v.
Tiu,
401
SCRA
1
(2003).
Held:
YES.
In
this
case,
the
rescission
would
certainly
be
a
violation
of
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
CORPORATION
LAW
REVIEWER
(2013-‐2014)
ATTY.
JOSE
MARIA
G.
HOFILEÑA
the
doctrine
and
also
of
the
Corporation
Code
because
the
rescission
would
result
in
the
unauthorized
distribution
of
the
assets
of
the
corporation.
Rescission
based
on
a
breach
in
the
terms
of
a
subscription
agreement
is
not
one
of
the
instances
when
distribution
of
a
corporation’s
assets
and
property
is
allowed
(Section
122).
It
would
not
only
be
unlawful
but
it
would
also
be
prejudicial
to
the
corporate
creditors
who
enjoy
absolute
priority
of
payment
over
any
individual
stockholder.
Doctrine:
This
doctrine
enunciates
that
subscriptions
to
the
capital
stock
of
a
corporation
constitute
a
fund
to
which
the
creditors
have
a
right
to
look
for
the
satisfaction
of
their
claims.
This
doctrine
is
the
underlying
principle
in
the
procedure
for
the
distribution
of
capital
assets,
embodied
in
the
Corporation
Code,
which
allows
the
distribution
of
corporate
capital
only
in
three
instances:
(1)
amendment
of
the
Articles
of
Incorporation
to
reduce
the
authorized
capital
stock,
(2)
purchase
of
redeemable
shares
by
the
corporation,
regardless
of
the
existence
of
unrestricted
retained
earnings,
and
(3)
dissolution
and
eventual
liquidation
of
the
corporation.
NOTE:
Atty.
Hofileña
à
To
release
a
person
from
his
obligation
to
pay
his
subscribed
shares
is
offensive
to
the
Trust
Fund
Doctrine.
• Trust
Fund
Doctrine
applies
to
all
properties
of
the
company,
and
not
limited
to
simply
the
unpaid
subscriptions.
• A
company
may
do
what
it
wills
with
its
properties,
but
creditors
are
protected.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)