1.

HARDEN VS BENGUET CONSOLIDATED MINING (1933)

There are two fundamental questions involved in this controversy.
1. Whether the plaintiffs can maintain an action based upon the violation of law supposedly committed by
the Benguet Company in this case.
2. Whether, assuming the first question to be answered in the affirmative, the Benguet Company, which
was organized as a sociedad anonima, is a corporation within the meaning of the language used by the
Congress of the United States, and later by the Philippine Legislature, prohibiting a mining corporation
from becoming interested in another mining corporation.
For the purposes general description only, it may be stated that the sociedad anonima is something very
much like the English joint stock company, with features resembling those of both the partnership is shown
in the fact that sociedad, the generic component of its name in Spanish, is the same word that is used in
that language to designate other forms of partnership, and in its organization it is constructed along the
same general lines as the ordinary partnership.
SEC. 190 (A). Penalties. The violation of any of the provisions of this Act and its amendments not
otherwise penalized therein, shall be punished by a fine of not more than five thousand pesos and
by imprisonment for not more than five years, in the discretion of the court. If the violation is
committed by a corporation, the same shall, upon such violation being proved, be dissolved
by quo warranto proceedings instituted by the Attorney-General or by any provincial
fiscal by order of said Attorney-General: .

1. The defendant Benguet Company has committed no civil wrong against the plaintiffs, and if
a public wrong has been committed, the directors of the Balatoc Company, and the plaintiff
Harden himself, were the active inducers of the commission of that wrong. The contract,
supposing it to have been unlawful in fact, has been performed on both sides, by the building of the
Balatoc plant by the Benguet Company and the delivery to the latter of the certificate of 600,000 shares of
the Balatoc Company.
Upon the first point it is at once obvious that the provision referred to was adopted by the lawmakers with
a sole view to the public policy that should control in the granting of mining rights. Furthermore, the
penalties imposed in what is now section 190 (A) of the Corporation Law for the violation of the prohibition
in question are of such nature that they can be enforced only by a criminal prosecution or by an action of
quo warranto. But these proceedings can be maintained only by the Attorney-General in representation of
the Government.
2. Having shown that the plaintiffs in this case have no right of action against the Benguet Company for
the infraction of law supposed to have been committed, we forego cny discussion of the further question
whether a sociedad anonima created under Spanish law, such as the Benguet Company, is a corporation
within the meaning of the prohibitory provision already so many times mentioned. That important question
should, in our opinion, be left until it is raised in an action brought by the Government.
2. PHILIPPINE STOCK EXCHANGE VS CA AND PUERTO AZUL LAND (1997)
Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, sought to offer its shares to the public in
order to raise funds allegedly to develop its properties and pay its loans with several banking institutions.
In January, 1995, PALI was issued a Permit to Sell its shares by the SEC. To facilitate the trading of its
shares among investors, PALI sought to course the trading of its shares through the Philippine Stock
Exchange, Inc. (PSE), for which purpose it filed with the said stock exchange an application to list its
shares, with supporting documents attached.
The Listing Committee of the PSE recommended to the PSE's Board of Governors the approval of PALI's
listing application.

Before it could act upon PALI's application, the Board of Governors of the PSE received a letter from the
heirs of Ferdinand E. Marcos, claiming that the late President Marcos was the legal and beneficial owner of
certain properties forming part of the Puerto Azul Beach Hotel and Resort Complex which PALI claims to be
among its assets and that the Ternate Development Corporation, which is among the stockholders of PALI,
likewise appears to have been held and continue to be held in trust by Rebecco Panlilio for President
Marcos and now, effectively for his estate, and requested PALI's application to be deferred. PALI was
requested to comment upon the said letter.
PALI's answer stated that the properties forming part of the Puerto Azul Beach Hotel and Resort Complex
were not claimed by PALI as its assets. On the contrary, the resort is actually owned by Fantasia Filipina
Resort, Inc. and the Puerto Azul Country Club, entities distinct from PALI. Furthermore, the Ternate
Development Corporation owns only 1.20% of PALI. The Marcoses responded that their claim is not
confined to the facilities forming part of the Puerto Azul Hotel and Resort Complex, thereby implying that
they are also asserting legal and beneficial ownership of other properties titled under the name of PALI.
The PSE wrote Chairman Magtanggol Gunigundo of the Presidential Commission on Good Government
(PCGG) requesting for comments on the letters of the PALI and the Marcoses. The PSE was informed that
the Marcoses received a TRO, enjoining the Marcoses from "further impeding, obstructing, delaying or
interfering in any manner by or any means with the consideration, processing and approval by the PSE of
the initial public offering of PALI."
In its regular meeting, the Board of Governors of the PSE rejected PALI's application, citing the existence of
serious claims, issues and circumstances surrounding PALI's ownership over its assets that adversely affect
the suitability of listing PALI's shares in the stock exchange.
PALI wrote a letter to the SEC bringing to the SEC's attention the action taken by the PSE and requesting
that the SEC, in the exercise of its supervisory and regulatory powers over stock exchanges under Section
6(j) of P.D. No. 902-A, review the PSE's action on PALI's listing application and institute such measures as
are just and proper under the circumstances.
The SEC wrote to the PSE directing PSE to file its comments within five days and for its authorized
representative to appear for an "inquiry" on the matter.
On April 24, 1996, SEC rendered its Order, reversing PSE's decision.
PSE filed a motion for reconsideration but was denied by the Commission. Dissatisfied with this ruling, the
PSE filed with the Court of Appeals a Petition for Review (with Application for Writ of Preliminary Injunction
and Temporary Restraining Order).
The Court of Appeals dismissed PSE's Petition for Review.
Issues:
1.
WON SEC erred in reversing the decision of PSE.
2.
WON PSE acted erred disapproving the application of PALI for listing of its shares.
Ruling:
1.

YES. SEC is the entity with the primary say as to whether or not securities, including shares of stock of a
corporation, may be traded or not in the stock exchange. This is in line with the SEC's mission to ensure
proper compliance with the laws, such as the Revised Securities Act and to regulate the sale and
disposition of securities in the country

This is not to say, however, that the PSE's management prerogatives are under the absolute control
of the SEC. The PSE is, after all, a corporation authorized by its corporate franchise to engage in its
proposed and duly approved business. One of the PSE's main concerns, as such, is still the
generation of profit for its stockholders. Moreover, the PSE has all the rights pertaining to
corporations, including the right to sue and be sued, to hold property in its own name, to enter (or
not to enter) into contracts with third persons, and to perform all other legal acts within its
allocated express or implied powers.
Questions of policy and of management are left to the honest decision of the officers and directors
of a corporation, and the courts are without authority to substitute their judgment for the judgment
of the board of directors. The board is the business manager of the corporation, and so long as it
acts in good faith, its orders are not reviewable by the courts.
Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant
authority to reverse the PSE's decision in matters of application for listing in the
market, the SEC may exercise such power only if the PSE's judgment is attended by bad
faith.
2.

YES. The Court of Appeals erred in ruling that the SEC had authority to order the PSE to list the shares of
PALI in the stock exchange. Under presidential decree No. 902-A, the powers of the SEC over stock
exchanges are more limited as compared to its authority over ordinary corporations.
The case records reveal that PALI did not comply with the listing rules and disclosure requirements. In fact,
PALI's documents supporting its application contained misrepresentations and misleading statements, and
concealed material information. The matter of sequestration of PALI's properties and the fact that the same
form part of military/naval/forest reservations were not reflected in PALI's application.
The purpose of the Revised Securities Act, after all, is to give adequate and effective protection to the
investing public against fraudulent representations, or false promises, and the imposition of worthless
ventures.
In any case, for the purpose of determining whether PSE acted correctly in refusing the
application of PALI, the true ownership of the properties of PALI need not be determined as an
absolute fact. What is material is that the uncertainty of the properties' ownership and
alienability exists, and this puts to question the qualification of PALI's public offering.
3. REYNOSO VS CA AND GENERAL CREDIT CORP (2000)
Commercial Credit Corporation, a financing and investment firm, decided to organize franchise
companies in different parts of the country, wherein it shall hold thirty percent (30%)
equity. Employees of the CCC were designated as resident managers of the franchise
companies. Petitioner Reynoso1980, a complaint for sum of money with preliminary attachment,
[1]
docketed as Civil Case No. Q-30583, was instituted in the then Court of First Instance of Rizal by
CCC-QC against petitioner, who had in the meantime been dismissed from his employment by CCCEquity. was designated as the resident manager of the franchise company in Quezon City, known as
the Commercial Credit Corporation of Quezon City.

CCC-QC entered into an exclusive management contract with CCC whereby CCC was granted the
management and full control of the business activities of CCC-QC.

Under the contract, CCC-QC shall sell, discount and/or assign its receivables to CCC. Subsequently,
however, this discounting arrangement was discontinued pursuant to the so-called DOSRI Rule,
prohibiting the lending of funds by corporations to its directors, officers, stockholders and other
persons with related interests therein.

On account of the new restrictions by virtue of the DOSRI Rule, CCC decided to form CCC Equity
Corporation, a wholly-owned subsidiary, to which CCC transferred its thirty (30%) percent equity in
CCC-QC.

Several officials of CCC, including Reynoso, became employees of CCC-Equity. While petitioner
continued to be the Resident Manager of CCC-QC, he drew his salaries and allowances from CCCEquity. Furthermore, although an employee of CCC-Equity, petitioner, as well as all employees of
CCC-QC, became qualified members of the Commercial Credit Corporation Employees Pension
Plan.

As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and supervised its
employees.
o

Business activities of CCC-QC:

- acceptance of funds from depositors who are issued interest-bearing
promissory notes
- the amounts deposited are then loaned out to various borrowers

In order to boost the business activities of CCC-QC, Reynoso deposited his personal funds in the
company. In return, CCC-QC issued to him its interest-bearing promissory notes.
In 1980, a complaint for sum of money with preliminary attachment, was instituted in the then CFI
of Rizal by CCC-QC against petitioner, who had in the meantime been dismissed from his
employment by CCC-Equity.
The complaint alleged that petitioner embezzled the funds of CCC-QC amounting to
P1,300,593.11. Out of this amount, at least P630,000.00 was used for the purchase of a house. The
property was mortgaged to CCC, and was later foreclosed.
---Reynoso, denied the unlawful use of funds of CCC-QC.
---The trial court dismissed the complaint, to pay defendant the sum of P185,000.00 plus
14% interest per annum and to pay for damages.

The judgment remained unsatisfied, prompting Reynoso to file a Motion for Alias Writ of Execution,
Examination Debtor and to bring financial records for examination to court.
Meanwhile, in 1983, CCC became known as the General Credit Corporation.
On November 22, 1991, the RTC of Quezon City issued an Order directing General Credit
Corporation to file its comment on petitioners motion for alias writ of execution.
o GCC filed an opposition alleging that it was not a party to the case and Reynoso should
direct its claim against CCC-QC and not GCC.
o Reynoso filed his reply, stating that CCC_QC is an adjunct instrumentality and agency of
CCC. He insisted that General Credit Corporation is just the new name of Commercial Credit
Corporation; hence, GCC and CCC should be treated as one and the same entity.
RTC of Quezon City denied the Omnibus Motion. On March 5, 1992, it issued an Order directing the
issuance of an alias writ of execution.
On Feb. 21, 1992, GCC instituted a complaint before the RTC against Reynoso and Tanangco in his
capacity as Deputy Sheriff, praying that levy on its parcel of land be declared null and void.
The RTC, did not issue a temporary restraining order. Thus, GCC instituted two (2) petitions for
certiorari with the CA. These cases were later consolidated.
CA granted the TRO.

Issue:
W/N the judgment in favor of Reynoso may be executed against respondent GCC?
Ruling: YES.
Contention of GCC:
it is a corporation separate and distinct from CCC-QC and, therefore, its properties may not be
levied upon to satisfy the monetary judgment in favor of petitioner

GCC raises corporate fiction as its defense.

Hence, it is necessary to apply the doctrine of piercing the veil of corporate entity in order to
determine if General Credit Corporation, formerly CCC, may be held liable for the obligations of CCC-QC.
A corporation is an artificial being created by operation of law, having the right of succession and the
powers, attributes, and properties expressly authorized by law or incident to its existence. It is an artificial
being invested by law with a personality separate and distinct from those of the persons composing it as
well as from that of any other legal entity to which it may be related.
Any piercing of the corporate veil has to be done with caution. However, the Court will not hesitate to
use its supervisory and adjudicative powers where the corporate fiction is used as an unfair device to
achieve an inequitable result, defraud creditors, evade contracts and obligations, or to shield it from the
effects of a court decision. The corporate fiction has to be disregarded when necessary in the interest of
justice.
It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation
was intended to publicly identify it as a component of the CCC group of companies engaged in
one and the same business, i.e., investment and financing.
Aside from CCC-Quezon City, other franchise companies were organized such as CCC-North
Manila and CCC-Cagayan Valley.
The organization of subsidiary corporations as what was done here is usually resorted to for
the aggrupation of capital, the ability to cover more territory and population, the
decentralization of activities best decentralized, and the securing of other legitimate
advantages. But when the mother corporation and its subsidiary cease to act in good faith and
honest business judgment, when the corporate device is used by the parent to avoid its
liability for legitimate obligations of the subsidiary, and when the corporate fiction is used to
perpetrate fraud or promote injustice, the law steps in to remedy the problem. When that
happens, the corporate character is not necessarily abrogated. It continues for legitimate
objectives. However, it is pierced in order to remedy injustice, such as that inflicted in this
case.
The CCC had dominant control of the business operations of CCC-QC. The exclusive management
contract insured that CCC-QC would be managed and controlled by CCC and would not deviate from the
commands of the mother corporation. In addition to the exclusive management contract, CCC appointed
its own employee, petitioner, as the resident manager of CCC-QC.

UBERDIGEST:
Reynoso was the branch manager of Commercial Credit Corporation Quezon City (CCC-QC), a branch of
Commercial Credit Corporation (CCC). It was alleged that Reynoso was opposed to certain questionable
commercial practices being facilitated by CCC which caused its branches, like CCC-QC, to rack up debts.
Eventually, Reynoso withdrew his own funds from CCC-QC. This prompted CCC-QC to file criminal cases for
estafa and qualified theft against Reynoso. The criminal cases were dismissed and Reynoso was
exonerated and at the same time CCC-QC was ordered to pay Reynosos counterclaims which amounted to
millions. A writ of execution was issued against CCC-QC. The writ was opposed by CCC-QC as it now claims
that it has already closed and that its assets were taken over by the mother company, CCC.
Meanwhile, CCC changed its name to General Credit Corporation (GCC).
Reynoso then filed a petition for an alias writ of execution. GCC opposed the writ as it argued that it is a
separate and distinct corporation from CCC and CCC-QC, in short, it raises the defense of corporate fiction.
ISSUE: Whether or not GCC is correct.

HELD: No. The veil of corporate fiction must be pierced. It is obvious that CCCs change of name to GCC
was made in order to avoid liability. CCC-QC willingly closed down and transferred its assets to CCC and
thereafter changed its name to GCC in order to avoid its responsibilities from its creditors. GCC and CCC
are one and the same; they are engaged in the same line of business and single transaction process, i.e.
finance and investment. When the mother corporation and its subsidiary cease to act in good faith and
honest business judgment, when the corporate device is used by the parent to avoid its liability for
legitimate obligations of the subsidiary, and when the corporate fiction is used to perpetrate fraud or
promote injustice, the law steps in to remedy the problem. When that happens, the corporate character is
not necessarily abrogated. It continues for legitimate objectives. However, it is pierced in order to remedy
injustice, such as that inflicted in this case.
4. SAN JUAN STRUCTURAL VS CA AND MOTORICH (1998)
Facts: San Juan Structural and Steel Fabricators entered into an agreement with Motorich Sales
Corporation through Nenita Gruenberg, corporate treasurer of Motorich, for the transfer to the former a
parcel of land upon a P100,000 earnest money, balance to be payable within March 2, 1989. Upon
payment of the earnest money, and on March 1, 1989, San Juan allegedly asked to be submitted a
computation of the balance due to Motorich. The latter, despite repeated demands, refused to execute the
Deed of Assignment of the land. San Juan discovered that Motorich entered into a Deed of Absolute Sale of
the land to ACL Development Corporation. Hence, San Juan filed a complaint with the RTC.
On the other hand, Motorich contends that since Nenita Gruenberg was only the treasurer of said
corporation, and that its president, Reynaldo Gruenberg, did not sign the agreement entered into by San
Juan and Motorich, the treasurers signature was inadequate to bind Motorich to the agreement.
Furthermore, Nenita contended that since San Juan was not able to pay within the stipulated period, no
deed of assignment could be made. The deed was agreed to be executed only after receipt of the cash
payment, and since according to Nenita, no cash payment was made on the due date, no deed could have
been executed.
RTC dismissed the case holding that Nenita Gruenberg was not authorized by Motorich to enter into said
contract with San Juan, and that a majority vote of the BoD was necessary to sell assets of the corporation
in accordance with Sec. 40 of the Corporation Code. CA affirmed this decision. Hence, this petition with
SC.
Issues:
(1) Whether or not there was a valid contract existing between San Juan and Motorich.
(2) Whether or not the veil of corporate fiction could be pierced.
Held:
(1) No. The contract entered into between Nenita and San Juan cannot bind Motorich, because the latter
never authorized nor ratified such sale. A corporation is a juridical person separate and distinct from its
stockholders or members. Accordingly, the property of the corporation is not the property of its
stockholders and may not be sold by them without express authorization from the corporations BoD. This
is in accordance with Sec. 23 of the Corporation Code.
Indubitably, a corporation can only act through its BoD or, when authorized either by its by laws or by its
board resolution, through its officers or agents in the normal course of business. The general principles of
agency govern the relation between the corporation and its officers or agents, subject to the AoI, by laws,
or relevant provisions of law. A corporate officer or agent may represent and bind the corporation in
transactions with 3rd persons to the extent that the authority to do so has been conferred upon him, and
this includes powers which have been intentionally conferred, and also such powers as, in the usual course
of the particular business, are incidental to, or may be implied from, the powers intentionally conferred,
powers added by custom and usage, as usually pertaining to the particular officer or agent, and such
apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it
has conferred. Furthermore, persons dealing with an assumed agent, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the principal liable, to ascertain not only
the fact of agency but also the nature and extent of authority, and in case either is controverted, the
burden of proof is upon them to establish it. Unless duly authorized, a treasurer, whose powers are
limited, cannot bind the corporation in a sale of its assets.

In the case at bar, San Juan had the responsibility of ascertaining the extent of Nenitas authority to
represent the corporation. Selling is obviously foreign to a corporate treasurers function. Neither was real
estate sale shown to be a normal business activity of Motorich. The primary purpose of said corporation is
marketing, distribution, import and export relating to a general merchandising business. Unmistakably, its
treasurer is not cloaked with actual or apparent authority to buy or sell real property, an activity which falls
way beyond the scope of her general authority.
Acts of corporate officers within the scope of their authority are binding on the corporation. But when
these officers exceed their authority, their actions cannot bind the corporation, unless it has ratified such
acts or is estopped from disclaiming them.
(2) No. San Juan argues that the veil of corporate fiction should be pierced because the spouses Reynaldo
and Nenita Gruenberg own 99.96% of the subscribed capital stock, they needed no authorization from the
BoD to enter into the said contract.
The veil can only be disregarded when it is utilized as a shield to commit fraud, illegality or inequity, defeat
public convenience, confuse legitimate issues, or serve as a mere alter ego or business conduit of a person
or an instrumentality, agency or adjunct of another corporation. Hence, the question of piercing the veil
becomes a matter of proof. In the case at bar, SC found no reason to pierce the veil. San Juan failed to
establish that said corporation was formed for the purpose of shielding any fraudulent act of its officers
and stockholders.
5. PIONEER INSURANCE VS CA AND BORDER MACHINERY (1989)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator
of Southern Air Lines (SAL) a single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and executed a sales
contract for the sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary spare parts
for the total agreed price of US $109,000.00 to be paid in installments. One DC-3 Aircraft with Registry No.
PIC-718, arrived in Manila on June 7, 1965 while the other aircraft, arrived in Manila on July 18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (petitioner in G.R. No. 84197) as surety
executed and issued its Surety Bond No. 6639 in favor of JDA, in behalf of its principal, Lim, for the balance
price of the aircrafts and spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and
Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions) contributed
some funds used in the purchase of the above aircrafts and spare parts. The funds were supposed to be
their contributions to a new corporation proposed by Lim to expand his airline business. They executed two
(2) separate indemnity agreements in favor of Pioneer, one signed by Maglana and the other jointly signed
by Lim for SAL, Bormaheco and the Cervanteses. The indemnity agreements stipulated that the
indemnitors principally agree and bind themselves jointly and severally to indemnify and hold and save
harmless Pioneer from and against any/all damages, losses, costs, damages, taxes, penalties, charges and
expenses of whatever kind and nature which Pioneer may incur in consequence of having become surety
upon the bond/note and to pay, reimburse and make good to Pioneer, its successors and assigns, all sums
and amounts of money which it or its representatives should or may pay or cause to be paid or become
liable to pay on them of whatever kind and nature.
On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as
deed of chattel mortgage as security for the latter's suretyship in favor of the former. It was stipulated
therein that Lim transfer and convey to the surety the two aircrafts. The deed was duly registered with the
Office of the Register of Deeds of the City of Manila and with the Civil Aeronautics Administration pursuant
to the Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act No. 776), respectively.
However, Lim defaulted on his subsequent installment payments prompting JDA to request payments from
the surety. Pioneer paid a total sum of P298,626.12.

Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff
of Davao City. The Cervanteses and Maglana, however, filed a third party claim alleging that they are coowners of the aircrafts.
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary
attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana. In their Answers,
Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not privies
to the contracts signed by Lim and, by way of counterclaim, sought for damages for being exposed to
litigation and for recovery of the sums of money they advanced to Lim for the purchase of the aircrafts in
question.
After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's
complaint against all other defendants. The appellate court modified the trial court's decision in that the
plaintiffs complaint against all the defendants was dismissed. In all other respects the trial court's decision
was affirmed.
ISSUES:
1 Whether or not Pioneer Insurance & Surety Corporation is a real party in interest and has a cause of
action against defendants (Maglana, et al.)?
2 Whether or not a de facto partnership was created and that Maglana, et al. must share in the loss
as general partners?
RULING:
1 No. Pioneer Insurance & Surety Corporation, having foreclosed the chattel mortgage on the planes
and spare parts, no longer has any further action against the defendants as indemnitors to recover
any unpaid balance of the price. The indemnity agreement was ipso jure extinguished upon the
foreclosure of the chattel mortgage. Pioneer's election of the remedy of foreclosure precludes any
further action to recover any unpaid balance of the price.
SAL or Lim, having failed to pay the second to the eight and last installments to JDA and Pioneer as surety
having made of the payments to JDA, the alternative remedies open to Pioneer were as provided in Article
1484 of the New Civil Code, known as the Recto Law.
Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial foreclosure and
the instant suit. Such being the case, as provided by the aforementioned provisions, Pioneer shall have no
further action against the purchaser to recover any unpaid balance and any agreement to the contrary is
void.
The operation of the foregoing provision cannot be escaped from through the contention that Pioneer is not
the vendor but JDA. The reason is that Pioneer is actually exercising the rights of JDA as vendor, having
subrogated it in such rights. Nor may the application of the provision be validly opposed on the ground that
these defendants and defendant Maglana are not the vendee but indemnitors.
Moreover, the restructuring of the obligations of SAL or Lim, thru the change of their maturity dates
discharged these defendants from any liability as alleged indemnitors. The change of the maturity dates of
the obligations of Lim, or SAL extinguish the original obligations thru novations thus discharging the
indemnitors.
2

No. There was no de facto partnership. Ordinarily, when co-investors agreed to do business through
a corporation but failed to incorporate, a de facto partnership would have been formed, and as
such, all must share in the losses and/or gains of the venture in proportion to their contribution.
However, in the present case, it was shown that Lim did not have the intent to form a corporation with
Maglana et al. This can be inferred from acts of unilaterally taking out a surety from Pioneer Insurance and
not using the funds he got from Maglana, et al. The record shows that Lim was acting on his own and not in
behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts, and that

Lim in connivance with the plaintiff, signed and executed the alleged chattel mortgage and surety bond
agreement in his personal capacity as the alleged proprietor of the SAL.
6. KILOSBAYAN VS GUINGONA (1994)
Pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as amended by B.P. Blg. 42) which grants
it the authority to hold and conduct "charity sweepstakes races, lotteries and other similar activities," the
PCSO decided to establish an on- line lottery system for the purpose of increasing its revenue base and
diversifying its sources of funds.
After learning that the PCSO was interested in operating an on-line lottery system, the Berjaya Group
Berhad, "a multinational company and one of the ten largest public companies in Malaysia," long "engaged
in, among others, successful lottery operations in Asia, running both Lotto and Digit games, "became
interested to offer its services and resources to PCSO."
As an initial step, Berjaya Group Berhad organized with some Filipino investors a Philippine corporation
known as the Philippine Gaming Management Corporation (PGMC), which "was intended to be the medium
through which the technical and management services required for the project would be offered and
delivered to PCSO.
PCSO formally issued a Request for Proposal (RFP) for the Lease Contract of an on-line lottery system for
the PCSO. Considering the citizenship requirement, the PGMC claims that the Berjaya Group "undertook to
reduce its equity stakes in PGMC to 40%," by selling 35% out of the original 75% foreign stockholdings to
local investors. The Office of the President announced that it had given the respondent PGMC the go-signal
to operate the country's on-line lottery system and that the corresponding implementing contract would be
submitted than for final clearance and approval by the Chief Executive." An agreement denominated as
"Contract of Lease" was finally executed by respondent PCSO and respondent PGMC.
Kilosbayan claims that:
a) Under Section 1 of the Charter of the PCSO, the PCSO is prohibited from holding and conducting
lotteries "in collaboration, association or joint venture with any person, association, company or
entity";
b) Under Act No. 3846 and established jurisprudence, a Congressional franchise is required before
any person may be allowed to establish and operate said telecommunications system;
c) Under Section 11, Article XII of the Constitution, a less than 60% Filipino-owned and/or controlled
corporation, like the PGMC, is disqualified from operating a public service, like the said
telecommunications system; and
d) Respondent PGMC is not authorized by its charter and under the Foreign Investment Act (R.A. No.
7042) to install, establish and operate the on-line lotto and telecommunications systems.
ISSUE:
Does the challenged Contract of Lease violate or contravene the exception in Section 1 of R.A. No. 1169, as
amended by B.P. Blg. 42, which prohibits the PCSO from holding and conducting lotteries "in collaboration,
association or joint venture with" another?
HELD:
The challenged Contract of Lease violates the exception provided for in paragraph B, Section 1 of R.A. No.
1169, as amended by B.P. Blg. 42, and is invalid for being contrary to law. This conclusion renders
unnecessary further discussion on the other issues raised by the petitioners.
The exception explicitly made in paragraph B, Section 1 of its charter, the PCSO cannot share its franchise
with another by way of collaboration, association or joint venture. Neither can it assign, transfer, or lease
such franchise. It has been said that "the rights and privileges conferred under a franchise may, without
doubt, be assigned or transferred when the grant is to the grantee and assigns, or is authorized by statute.
On the other hand, the right of transfer or assignment may be restricted by statute or the constitution, or
be made subject to the approval of the grantor or a governmental agency, such as a public utilities
commission, exception that an existing right of assignment cannot be impaired by subsequent legislation."
It may also be pointed out that the franchise granted to the PCSO to hold and conduct lotteries allows it to
hold and conduct a species of gambling. It is settled that "a statute which authorizes the carrying on of a
gambling activity or business should be strictly construed and every reasonable doubt so resolved as to
limit the powers and rights claimed under its authority."

The so-called Contract of Lease is not what it purports to be. Its denomination as such is a crafty device,
carefully conceived, to provide a built-in defense in the event that the agreement is questioned as violative
of the exception in Section 1 (B) of the PCSO's charter. The acuity or skill of its draftsmen to accomplish
that purpose easily manifests itself in the Contract of Lease. It is outstanding for its careful and meticulous
drafting designed to give an immediate impression that it is a contract of lease. Yet, woven therein are
provisions which negate its title and betray the true intention of the parties to be in or to have a joint
venture for a period of eight years in the operation and maintenance of the on-line lottery system.
A careful analysis and evaluation of the provisions of the contract and a consideration of the
contemporaneous acts of the PCSO and PGMC indubitably disclose that the contract is not in reality a
contract of lease under which the PGMC is merely an independent contractor for a piece of work, but one
where the statutorily proscribed collaboration or association, in the least, or joint venture, at the most,
exists between the contracting parties. Collaboration is defined as the acts of working together in a joint
project. Association means the act of a number of persons in uniting together for some special purpose or
business. Joint venture is defined as an association of persons or companies jointly undertaking some
commercial enterprise; generally all contribute assets and share risks. It requires a community of interest
in the performance of the subject matter, a right to direct and govern the policy in connection therewith,
and duty, which may be altered by agreement to share both in profit and
losses.
Consistent with the above observations on the RFP, the PCSO has only its franchise to offer, while the
PGMC represents and warrants that it has access to all managerial and technical expertise to promptly and
effectively carry out the terms of the contract. And, for a period of eight years, the PGMC is under
obligation to keep all the Facilities in safe condition and if necessary, upgrade, replace, and improve them
from time to time as new technology develops to make the on-line lottery system more cost-effective and
competitive;bear the salaries and related costs of skilled and qualified personnel for administrative and
technical operations; comply with procedural and coordinating rules issued by the PCSO; and to train
PCSO and other local personnel and to effect the transfer of technology and other expertise, such that at
the end of the term of the contract, the PCSO will be able to effectively take over the Facilities and
efficiently operate the on-line lottery system. The latter simply means that, indeed, the managers,
technicians or employees who shall operate the on-line lottery system are not managers, technicians or
employees of the PCSO, but of the PGMC and that it is only after the expiration of the contract that the
PCSO will operate the system. After eight years, the PCSO would automatically become the owner of the
Facilities without any other further consideration.
7. MEAD VS MCCULLOUGH (1911)
Plaintiff Mead, defendant McCullough, Hilbert, Green, and Hartigan instituted the corporation The
Philippine Engineering and Construction Company. It was engaged in the general engineering and
construction work, primarily in the construction of warehouses and wharf for the US and attempted to rise
the sunken Spanish Fleet.
The five of them are directors and stockholders of the company with general ordinary powers. Plaintiff was
appointed as a general manager, he held such position until he took another job as an engineer in another
company located in China. According to the court plaintiffs acceptance of such job effectively abandoned
and vacated his position as a director in the company because they were inconsistent with each other,
making him merely a stockholder.
After Mead left for China the contracts secured by Mead were taken over by McCullough. However clients
of the company refused to transact with the old company unless McCullough shall agree to form a new
association. The remaining four directors and stockholders (McCullough included) held a meeting to
determine the next course of action to be taken. As a result the company sold corporate property to
McCullough in an attempt to save the company form further incurring losses and he formed another
company which is now called the Manila Salvage Company. However the latter company failed and
McCullough incurred losses.
Plaintiff comes before the court questioning the propriety of the course of action undertaken by the
directors. Primarily he questioned the power of the stockholders to transfer corporate property to one of
the members of the corporation considering that his consent was not obtained to allow such transfer.
ISSUES:

Whether a majority of the stockholders, who were at the same time a majority of the directors of
this corporation, have the power under the law and its articles of agreement, to sell or transfer to
one of its members the assets of said corporation?

Whether an officer or a director may purchase corporate property

Whether McCullough purchased the property in good faith

RULING:
1

Yes. Under their statutes of incorporation , Article XI of which states: "In all the questions with
reference to the administration of the affairs of the sociedad, it shall be necessary to secure the
unanimous vote of the board of directors, and at least three of said board must be provides that all
of the stock, except that which was divided among the organizers should remain in the treasury
subject to the disposition of the board of directors.
Article XIII reads: "In all the meetings of the stockholders, a majority vote of the stockholders present shall
be necessary to determine any question discussed."
During the time of transfer there were only 4 directors and 5 stockholders, the decision to transfer the
property was unanimous, as it was consented by the remaining 4 directors of the company. Under the
articles of incorporation, the stockholders and directors had general ordinary powers. Administration was in
the hands of the directors. There is nothing in said articles which expressly prohibits the sale or transfer of
the corporate property to one of the stockholders of said corporation.
Article X of the articles of incorporation above referred to provides that the board of directors shall elect
the officers of the corporation and "have under its charge the administration of the said corporation."
Articles XI reads: "In all the questions with reference to the administration of the affairs of the corporation,
it shall be necessary to secure the unanimous vote of the board of directors, and at least three of said
board must be present in order to constitute a legal meeting." It will be noted that article X statute a legal
meeting." It will be noted that Article X placed the administration of the affairs of the corporation in the
hands of the board of directors. If Article XI had been omitted, it is clear that under the rules which govern
business of that character, and in view of the fact that before the plaintiff left this country and abandoned
his office as director, there were only five directors in the corporation, then three would have been
sufficient to constitute a quorum and could perform all the duties and exercise all the powers conferred
upon the board under this article. It would not have been necessary to obtain the consent of all three of
such members which constituted the quorum in order that a solution affecting the administration of the
corporation should be binding, as two votes a majority of the quorum would have been sufficient for
this purpose. (Buell vs. Buckingham & Co., 16 Iowa, 284; 2 Kent. Com., 293; Cahill vs. Kalamazoo Mutual
Insurance Company, 2 Doug. (Mich.), 124; Sargent vs. Webster, 13 Met., 497; In re Insurance Company, 22
Wend., 591; Ex parte Wilcox, 7 Cow., 402; id., 527, note a.)
It might appear on first examination that the organizers of this corporation when they asserted the first
part of Article XI intended that no resolution affecting the administration of the affairs should be binding
upon the corporation unless the unanimous consent of the entire board was first obtained; but the reading
of the last part of this same article shows clearly that the said organizers had no such intention, for they
said: "At least three of said board must be present in order to constitute a legal meeting." Now, if three
constitute a legal meeting, three were sufficient to transact business, three constituted the quorum, and,
under the above-cited authorities, two of the three would be sufficient to pass binding resolutions relating
to the administration of the corporation.
If the clause "have under in charge and administer the affairs of the corporation" refers to the ordinary
business transactions of the corporation and does not include the power to sell the corporate property and
to dissolve the corporation when it becomes insolvent a change we admit organic and fundamental
then the majority of the stockholders in whom the ultimate and controlling power lies must surely have the
power to do so.
McCullough as the president need not participate in the voting only in instances to break a tied decision. In
this case the corporation was sufficiently represented by a quorum of three who were the directors and at
the same time stockholders of the corporation. We therefore conclude that the sale or transfer made by
the quorum of the board of directors a majority of the stockholders is valid and binding upon the

majority-the plaintiff. This conclusion is not in violation of the articles of incorporation of the Philippine
Engineering and Construction Company
2

Yes. While a corporation remains solvent, we can see no reason why a director or officer, by the
authority of a majority of the stockholders or board of managers, may not deal with the corporation,
loan it money or buy property from it, in like manner as a stranger. So long as a purely private
corporation remains solvent, its directors are agents or trustees for the stockholders. They owe no
duties or obligations to others.

But the moment such a corporation becomes insolvent, its directors are trustees of all the creditors,
whether they are members of the corporation or not, and must manage its property and assets with strict
regard to their interest; and if they are themselves creditors while the insolvent corporation is under their
management, they will not be permitted to secure to themselves by purchasing the corporate property or
otherwise any personal advantage over the other creditors.
Nevertheless, a director or officer may in good faith and for an adequate consideration purchase from a
majority of the directors or stockholders the property even of an insolvent corporation, and a sale thus
made to him is valid and binding upon the minority.
The sale or transfer of the corporate property in the case at bar was made by three directors who were at
the same time a majority of stockholders. If a majority of the stockholders have a clear and a better right
to sell the corporate property than a majority of the directors, then it can be said that a majority of the
stockholders made this sale or transfer to the defendant McCullough.
3

Yes. The corporation had been going from bad to worse. The work of trying to raise the sunken
Spanish fleet had been for several months abandoned. The corporation under the management of
the plaintiff had entirely failed in this undertaking. It had broken its contract with the naval
authorities and the $10,000 Mexican currency deposited had been confiscated. It had no money. It
was considerably in debt. It was a losing concern and a financial failure. To continue its operation
meant more losses. Success was impossible. The corporation was civilly dead and had passed into
the limbo of utter insolvency. The majority of the stockholders or directors sold the assets of this
corporation, thereby relieving themselves and the plaintiff of all responsibility. This was only the
wise and sensible thing for them to do. They acted in perfectly good faith and for the best interests
of all the stockholders.

8. BENGUET CONSOLIDATED MINING VS PINEDA (1956)

Benguet Consolidated Mining Co. (hereafter termed Benguet for short), was organized on June 24,1903,
as a sociedad anonima regulated by Articles 151 et seq., of the Spanish Code of Commerce of 1886, then
in force in the Philippines. The articles of association expressly provided that it was organized for a term of
fifty (50) years. In 1906, the governing Philippine Commission enacted Act 1459, commonly known as the
Corporation Law, establishing in the islands the American type of juridical entities known as corporation, to
take effect on April 1, 1906.
As the expiration of its original 50 year term of existence approached, the Board of Directors of Benguet
adopted in 1946 a resolution to extend its life for another 50 years from July 3, 1946 and submitted it for
registration to the Respondent Securities and Exchange Commissioner. Upon advice of the Secretary of
Justice (Op. No. 45, Ser. 1917) that such extension was contrary to law, the registration was denied. The
matter was dropped, allegedly because the stockholders of Benguet did not approve of the Directors
action.
Some six years later in 1953, the shareholders of Benguet adopted a resolution empowering the Director
to effectuate the extension of the Companys business life for not less than 20 and not more than 50
years.
In pursuance of such resolution, Benguet submitted in June, 1953, to the Securities and Exchange
Commissioner, for alternative registration, two documents: (1) Certification as to the Modification of (the
articles of association of) the Benguet Consolidated Mining Company, extending the term of its existence
to another fifty years from June 15, 1953; and (2) articles of incorporation, covering its reformation or
reorganization as a corporation in accordance with section 75 of the Philippine Corporation Law.

Relying mainly upon the adverse opinion of the Secretary of Justice (Op. No. 180, s. 1953), the Securities
and Exchange Commissioner denied the registration and ruled:
(1) That the Benguet, as sociedad anonima, had no right to extend the original term of corporate
existence stated in its Articles of Association, by subsequent amendment thereof adopted after
enactment of the Corporation Law (Act No. 1459);
(2) That Benguet, by its conduct, had chosen to continue as sociedad anonima, under section 75 of
Act No. 1459, and could no longer exercise the option to reform into a corporation, especially since
it would indirectly produce the effect of extending its life.
ISSUE:
1 Whether or not the life of a sociedades anonimas already in existence at the passage of the law can
be extended by amendment beyond the time fixed in the original articles
2

Whether or not said restriction imposed by section 18 of the Corporation Law to sociedades
anonimas already functioning when the said law was enacted would be in violation of constitutional
inhibitions;

Whether or not Benguet could still exercise the option of reforming and reorganizing under section
75 of the Corporation Law, thereby prolonging its corporate existence, since the law is silent as to
the time when such option may be exercised or availed of.

RULING:
1 The term of existence of association (partnership or sociedad anonima) is coterminous with their
possession of an independent legal personality, distinct from that of their component members.
When the period expires, the sociedad anonima loses the power to deal and enter into further legal
relations with other persons; chan roblesvirtualawlibraryit is no longer possible for it to acquire new rights
or incur new obligations, have only as may be required by the process of liquidating and winding up its
affairs. By the same token, its officers and agents can no longer represent it after the expiration of the life
term prescribed, save for settling its business. Necessarily, therefore, third persons or strangers have an
interest in knowing the duration of the juridical personality of the sociedad anonima, since the latter
cannot be dealt with after that period; chan roblesvirtualawlibrarywherefore its prolongation or cessation is
a matter directly involving the companys relations to the public at large.
2

Since there was no agreement as yet to extend the period of Benguets corporate existence
(beyond the original 50 years) when the Corporation Law was adopted in 1906, neither Benguet nor
its members had any actual or vested right to such extension at that time. Therefore, when the
Corporation Law, by section 18, forbade extensions of corporate life, neither Benguet nor its
members were deprived of any actual or fixed right constitutionally protected. Further, it is a
general rule of constitutional law that a person has no vested right in statutory privileges and
exemptions.

Under Section 75 of the Corporation law 1953, by continuing to do business as sociedad anonima,
Benguet in fact rejected the alternative to reform as a corporation under Act No. 1459. It will be
noted from the text of section 75 that no special act or manifestation is required by the law from the
existing sociedades anonimas that prefer to remain and continue as such. It is when they choose to
reform and organize under the Corporation Law that they must, in the words of the section, transfer
all corporate interests to the new corporation. Hence if they do not so transfer, the sociedades
anonimas affected are to be understood to have elected the alternative to continue business as
such corporation.

A sociedad anonima could not claim the benefit of both, but must have to choose one and discard the
other. If it elected to become a corporation it could not continue as a sociedad anonimaand if it choose to
remain as a sociedad anonima, it could not become a corporation.

Furthermore, the court held that a sociedad anonima, existing before the Corporation Law, that continues
to do business as such for a reasonable time after its enactments, is deemed to have made its election and
may not subsequently claim to reform into a corporation under section 75 of Act No. 1459.
UBERDIGEST:
Benguet Consolidated Mining Company was organized in 1903 under the Spanish Code of Commerce of
1886 as a sociedad anonima. It was agreed by the incorporators that Benguet Mining was to exist for 50
years.
In 1906, Act 1459 (Corporation Law) was enacted which superseded the Code of Commerce of 1886. Act
1459 essentially introduced the American concept of a corporation. The purpose of the law, among others,
is to eradicate the Spanish Code and make sociedades anonimas obsolete.
In 1953, the board of directors of Benguet Mining submitted to the Securities and Exchange Commission
an application for them to be allowed to extend the life span of Benguet Mining. Then Commissioner
Mariano Pineda denied the application as it ruled that the extension requested is contrary to Section 18 of
the Corporation Law of 1906 which provides that the life of a corporation shall not be extended by
amendment beyond the time fixed in their original articles.
Benguet Mining contends that they have a vested right under the Code of Commerce of 1886 because
they were organized under said law; that under said law, Benguet Mining is allowed to extend its life by
simply amending its articles of incorporation; that the prohibition in Section 18 of the Corporation Code of
1906 does not apply to sociedades anonimas already existing prior to the Laws enactment; that even
assuming that the prohibition applies to Benguet Mining, it should be allowed to be reorganized as a
corporation under the said Corporation Law.
ISSUE: Whether or not Benguet Mining is correct.
HELD: No. Benguet Mining has no vested right to extend its life. It is a well settled rule that no person has
a vested interest in any rule of law entitling him to insist that it shall remain unchanged for his benefit. Had
Benguet Mining agreed to extend its life prior to the passage of the Corporation Code of 1906 such right
would have vested. But when the law was passed in 1906, Benguet Mining was already deprived of such
right.
To allow Benguet Mining to extend its life will be inimical to the purpose of the law which sought to render
obsolete sociedades anonimas. If this is allowed, Benguet Mining will unfairly do something which new
corporations organized under the new Corporation Law cant do that is, exist beyond 50 years. Plus, it
would have reaped the benefits of being a sociedad anonima and later on of being a corporation. Further,
under the Corporation Code of 1906, existing sociedades anonimas during the enactment of the law must
choose whether to continue as such or be organized as a corporation under the new law. Once a sociedad
anonima chooses one of these, it is already proscribed from choosing the other. Evidently, Benguet Mining
chose to exist as a sociedad anonima hence it can no longer elect to become a corporation when its life is
near its end.
PHILIPPINE PRODUCTS COMPANY v. PRIMATERIA SOCIETE ANONYME POUR LE COMMERCE
EXTERIEUR: PRIMATERIA (PHILIPPINES)
FACTS:

Primateria Societe Anonyme Pour Le Commerce Exterieur (Primateria Zurich), a foreign juridical
entity, was engaged in "Transactions in international trade with agricultural products, particularly in
oils, fats and oil-seeds and related products."

On October 24, 1951, Primateria Zurich, through defendant Alexander B. Baylin, entered into an
agreement with plaintiff Philippine Products Company, whereby the latter undertook to buy copra in

the Philippines for the account of Primateria Zurich, during "a tentative experimental period of one
month from date."

The contract was renewed by mutual agreement. During such period, plaintiff caused the shipment
of copra to foreign countries, pursuant to instructions from defendant Primateria Zurich, through
Primateria (Phil.) Inc. (Primateria Philippines) acting by defendant Alexander G. Baylin and Jose M.
Crame, officers of said corporation.

As a result, the total amount due to the plaintiff was P33,009.71. This is an action to recover from
defendants, the sum of P33,009.71 with interest and attorney's fees of P8,000.00.

Manila Court of First Instance: It was proven that the amount due from defendant Primateria Zurich,
on account of the various shipments of copra, was P31,009.71, because it had paid P2,000.00 of the
original claim of plaintiff. There is no dispute about accounting.

And there is no question that Alexander G. Baylin and Primateria Philippines acted as the duly
authorized agents of Primateria Zurich in the Philippines. As far as the record discloses, Baylin acted
indiscriminately in these transactions in the dual capacities of agent of the Zurich firm and
executive vice-president of Primateria Philippines, which also acted as agent of Primateria Zurich. It
is likewise undisputed that Primateria Zurich had no license to transact business in the Philippines.

For failure to file an answer within the reglementary period, defendant Primateria Zurich was
declared in default.

The lower court ruled in favor Philippine Products Company holding defendant Primateria Zurich
liable to the plaintiff for the sums of P31,009.71, with legal interest from the date of the filing of the
complaint, and P2,000.00 as and for attorney's fees but it absolved Baylin, Crame, and Primateria
Philippines.

Plaintiff appealed as it insists that Baylin et. al should be liable as agents because under Section 68
and 69 of the Corporation Law, the agents of foreign corporations not licensed to transact in the
Philippines shall be personally liable for contracts made in their (foreign corporations) behalf.
Plaintiff also alleges that the appellees as agents of Primateria Zurich are liable to it under Art. 1897
of the New Civil Code.

ISSUES:
1. Whether defendant Primateria Zurich may be considered a foreign corporation within the meaning of
Sections 68 and 69 of the Corporation Law
2. Whether or not the agents may be held personally liable on contracts made in the name of the entity
with third persons in the Philippines
RULING:
1.
NO. Primateria Zurich was not duly proven to be a foreign corporation; nor that a societe anonyme
("sociedad anomima") is a corporation; and that failing such proof, the societe cannot be deemed to fall
within the prescription of Section 68 of the Corporation Law. And as a sociedad anonima, Primateria Zurich
is not a corporation under our Corporation Law. As such, Sections 68 and 69 cannot be invoked in order to
make the alleged agents of Primateria Zurich be liable.
Section 68 of the Corporation Law states: "No foreign corporation or corporation formed, organized,
or existing under any laws other than those of the Philippines shall be permitted to transact business in
the Philippines, until after it shall have obtained a license for that purpose from the Securities and
Exchange Commission .. ." And under Section 69, "any officer or agent of the corporation or any person
transacting business for any foreign corporation not having the license prescribed shall be punished by
imprisonment for etc. ... ."
2.
NO. At any rate, the plaintiff could never recover from both the principal (Primateria Zurich) and its
agents. It has been given judgment against the principal for the whole amount. It asked for such judgment,
and did not appeal from it. It clearly stated that its appeal concerned the other three defendants.

There is no proof that, as agents, they exceeded the limits of their authority. In fact, the principal
Primateria Zurich who should be the one to raise the point, never raised it, denied its liability on the
ground of excess of authority.
At any rate, article 1897 does not hold that in cases of excess of authority, both the agent and the
principal are liable to the other contracting party.
Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts,
unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient
notice of his powers.
This view of the cause dispenses with the necessity of deciding the other two issues, namely:
whether the agent of a foreign corporation doing business, but not licensed here is personally liable for
contracts made by him in the name of such corporation. 1 Although, the solution should not be difficult,
since we already held that such foreign corporation may be sued here (General Corporation vs. Union Ins.,
87 Phil. 509). And obviously, liability of the agent is necessarily premised on the inability to sue the
principal or non-liability of such principal. In the absence of express legislation, of course.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the appealed judgment is affirmed, with costs against
appellant.
10. BOURNS VS DM CARMAN (1906)
Lo-Chim-Lim had a certain lumber yard in Calle Lemery of the city of Manila, and that he was the manager
of the same, having ordered the plaintiff to do some work for him at his sawmill in the city of Manila; and
that Vicente Palanca was his partner, and had an interest in the said business as well as in the profits and
losses thereof . . .," and that Go-Tuaco received part of the earnings of the lumber yard in the management
of which he was interested.
Lo-Chim-Lim, Vicente Palanca, Go-Tuaco had a lumber yard in Calle Lemmery of the city of Manila in the
year 1904, and participated in the profits and losses of business and that Lo-Chim-Lim was managing
partner of the said lumber yard." In other words, coparticipants with the said Lo-Chim-Lim in the business
in question.
The plaintiff in this action seeks to recover the sum of $437.50, United Stated currency, balance due on a
contract for the sawing of lumber for the lumber yard of Lo-Chim-Lim. the contract relating to the said work
was entered into by the said Lo-Chim-Lim, acting as in his own name with the plaintiff, and it appears that
the said Lo-Chim-Lim personally agreed to pay for the work himself. The plaintiff, however, has brought
this action against Lo-Chim-Lim and his codefendants jointly, alleging that, at the time the contract was
made, they were the joint proprietors and operators of the said lumber yard engaged in the purchase and
sale of lumber under the name and style of Lo-Chim-Lim. Apparently the plaintiff tries to show by the
words above italicized that the other defendants were the partners of Lo-Chim-Lim in the said lumber-yard
business.lawphil.net
The court below dismissed the action as to the defendants D. M. Carman and Fulgencio Tan-Tongco on the
ground that they were not the partners of Lo-Chim-Lim, and rendered judgment against the other
defendants for the amount claimed in the complaint with the costs of proceedings. Vicente Palanca and GoTauco only excepted to the said judgment, moved for a new trial, and have brought the case to this court
by bill of exceptions.
ISSUE:
What is the real legal nature of the participation which the appellants had in Lo-Chim-Lim's lumber yard,
and consequently their liability toward the plaintiff, in connection with the transaction which gave rise to
the present suit?

RULING:
The alleged partnership between Lo-Chim-Lim and the appellants was formed by verbal agreement only. At
least there is no evidence tending to show that the said agreement was reduced to writing, or that it was
ever recorded in a public instrument.
The partnership is considered to be partnership of cuentas en participacion. The partnership had no
corporate name. The partnership was engaged in business under the name and style of Lo-Chim-Lim only,
which according to the evidence was the name of one of the defendants. On the other hand, and this is
very important, it does not appear that there was any mutual agreement, between the parties, and if there
were any, it has not been shown what the agreement was. As far as the evidence shows it seems that the
business was conducted by Lo-Chim-Lim in his own name, although he gave to the appellants a share was
has been shown with certainty. The contracts made with the plaintiff were made by Lo-Chim-Lim
individually in his own name, and there is no evidence that the partnership over contracted in any other
form.
We see nothing, according to the evidence, but a simple business conducted by Lo-Chim-Lim exclusively,
in his own name, the names of other persons interested in the profits and losses of the business nowhere
appearing. A partnership constituted in such a manner, the existence of which was only known to those
who had an interest in the same, being no mutual agreements between the partners and without a
corporate name indicating to the public in some way that there were other people besides the one who
ostensibly managed and conducted the business, is exactly the accidental partnership of cuentas en
participacion defined in article 239 of the Code of Commerce.
Those who contract with the person under whose name the business of such partnership of cuentas en
participacionis conducted, shall have only a right of action against such person and not against the other
persons interested, and the latter, on the other hand, shall have no right of action against the third person
who contracted with the manager unless such manager formally transfers his right to them. (Art 242 of the
code Of Commerce.) It follows, therefore that the plaintiff has no right to demand from the appellants the
payment of the amount claimed in the complaint, as Lo-Chim-Lim was the only one who contracted with
him. the action of the plaintiff lacks, therefore, a legal foundation and should be accordingly dismissed.