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Heirs of Gamboa v. Teves, et al., G.R. No.

176579, 09 October 2012

Movants Philippine Stock Exchanges (PSE) President, Manuel V. Pangilinan, Napoleon L.
Nazareno, and the Securities and Exchange Commission (SEC) contend that the term capital in
Section 11, Article XII of the Constitution has long been settled and defined to refer to the total
outstanding shares of stock, whether voting or non-voting. In fact, movants claim that the SEC, which
is the administrative agency tasked to enforce the 60-40 ownership requirement in favor of Filipino
citizens in the Constitution and various statutes, has consistently adopted this particular definition in
its numerous opinions. Movants point out that with the 28 June 2011 Decision, the Court in effect
introduced a new definition or midstream redefinition of the term capital in Section 11, Article XII
of the Constitution.

Whether the term capital includes both voting and non-voting shares.


The Constitution expressly declares as State policy the development of an economy effectively
controlled by Filipinos. Consistent with such State policy, the Constitution explicitly reserves the
ownership and operation of public utilities to Philippine nationals, who are defined in the Foreign
Investments Act of 1991 as Filipino citizens, or corporations or associations at least 60 percent of
whose capital with voting rights belongs to Filipinos. The FIAs implementing rules explain that [f]or
stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is
not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled
with appropriate voting rights is essential. In effect, the FIA clarifies, reiterates and confirms the
interpretation that the term capital in Section 11, Article XII of the 1987 Constitution refers to shares
with voting rights, as well as with full beneficial ownership. This is precisely because the right to
vote in the election of directors, coupled with full beneficial ownership of stocks, translates to effective
control of a corporation.

Cagayan Fishing Development Co., Inc., vs. Sandiko, [G.R. No. L-43350 December 23, 1937]
Post under case digests, Commercial Law at Thursday, February 23, 2012 Posted by Schizophrenic Mind
Facts: Manuel Tabora is the registered owner of four parcels of land. To guarantee the payment of
two loans, Manuel Tabora, executed in favor of PNB two mortgages over the four parcels of land
between August, 1929, and April 1930. Later, a third mortgage on the same lands was executed also
on April, 1930 in favor of Severina Buzon to whom Tabora was indebted.

On May, 1930, Tabora executed a public document entitled "Escritura de Transpaso de Propiedad
Inmueble" (Exhibit A) by virtue of which the four parcels of land owned by him was sold to the plaintiff
company, said to under process of incorporation. The plaintiff company filed its article incorporation
with the Bureau of Commerce and Industry only on October, 1930 (Exhibit 2).

A year later, the board of directors of said company adopted a resolution authorizing its president to
sell the four parcels of lands in question to Teodoro Sandiko. Exhibits B, C and D were thereafter
made and executed. Exhibit B is a deed of sale where the plaintiff sold ceded and transferred to the
defendant all its right, titles, and interest in and to the four parcels of land. Exhibit C is a promissory
note drawn by the defendant in favor of the plaintiff, payable after one year from the date
thereof. Exhibit D is a deed of mortgage executed where the four parcels of land were given a security
for the payment of the promissory note, Exhibit C.

The defendant having failed to pay the sum stated in the promissory note, plaintiff, brought this action
in the Court of First Instance of Manila praying that judgment be rendered against the defendant for
the sum stated in the promissory note. After trial, the court rendered judgment absolving the
defendant. Plaintiff presented a motion for new trial, which motion was denied by the trial court. After
due exception and notice, plaintiff has appealed to this court and makes an assignment of various

Issue: Whether Exhibit B, the deed of sale executed in favor of Teodoro Sandiko, was valid.

Held: No, it was not.

The transfer made by Tabora to the Cagayan fishing Development Co., Inc., plaintiff herein, was
affected on May 31, 1930 (Exhibit A) and the actual incorporation of said company was affected later
on October 22, 1930 (Exhibit 2). In other words, the transfer was made almost five months before the
incorporation of the company.

Unquestionably, a duly organized corporation has the power to purchase and hold such real property
as the purposes for which such corporation was formed may permit and for this purpose may enter
into such contracts as may be necessary. But before a corporation may be said to be lawfully
organized, many things have to be done. Among other things, the law requires the filing of articles of

In the case before us it can not be denied that the plaintiff was not yet incorporated when it entered
into a contract of sale, Exhibit A. Not being in legal existence then, it did not possess juridical capacity
to enter into the contract.

Boiled down to its naked reality, the contract here (Exhibit A) was entered into not between Manuel
Tabora and a non-existent corporation but between the Manuel Tabora as owner of the four parcels
of lands on the one hand and the same Manuel Tabora, his wife and others, as mere promoters of a
corporations on the other hand.

For reasons that are self-evident, these promoters could not have acted as agent for a projected
corporation since that which no legal existence could have no agent. A corporation, until organized,
has no life and therefore no faculties.

This is not saying that under no circumstances may the acts of promoters of a corporation be ratified
by the corporation if and when subsequently organized.

There are, of course, exceptions, but under the peculiar facts and circumstances of the present case
we decline to extend the doctrine of ratification which would result in the commission of injustice or
fraud to the candid and unwary.
Malabang vs BenitoFACTS:Municipality of Balabagan was once part of the Municipality
of Malabang before it was created into a separate municipality thruan executive order. The
Municipality Malabang filed a suit against the Municipality of Balabagan for having been created
under an invalid EO 386 andto restrain the respondent municipal officials from performing
thefunctions of their respective offices.Petitioner relied on the ruling of the Pelaez case that Sec. 68
of the Administrative Code is unconstitutional (a) because itconstitutes an undue delegation of
legislative power and (b)because it offends against Section 10 (1) of Article VII of theConstitution,
which limits the President's power over localgovernments to mere supervision.Section 68 of the
Revised Administrative Code, approved onMarch 10, 1917, must be deemed repealed by
the subsequentadoption of the Constitution, in 1935, which is utterlyincompatible and inconsistent
with said statutory enactment. The Respondents on the other hand argue that the Mun.
of Balabagan is at least a de facto corporation for having beenorganized under color of a statute
before this was declaredunconstitutional, its officers having been either elected orappointed, and
the municipality itself having discharged itscorporate functions for the past five years preceding
theinstitution of this action. It is contended that as a de factocorporation, its existence cannot be
collaterally attacked,although it may be inquired into directly in an action for quowarranto at the
instance of the State and not of an individual likethe petitioner Balindong.

The method of challenging the existence of a municipalcorporation is reserved to the State in a

proceeding for quowarranto or other direct proceeding. But the rule disallowingcollateral attacks
applies only where the municipal corporation isat least a de facto corporation. For where it is neither
acorporation de jure nor de facto, but a nullity, the rule is that itsexistence may be questioned
collaterally or directly in any actionor proceeding by any one whose rights or interests are
affectedthereby, including the citizens of the territory incorporated unlessthey are estopped by their
conduct from doing so.ISSUE:W/O the municipality of Balabagan is a de facto
corporation.RULING:No, because there is no other valid statute to give color of authority to its
creation when EO 386 was subsequently declaredas unconstitutional. The color of authority
requisite to the organization of a de factomunicipal corporation may be:1. A valid law enacted by the
legislature.2. An unconstitutional law, valid on its face, which has either (a)been upheld for a time
by the courts or (b) not yet been declaredvoid; provided that a warrant for its creation can be found
insome other valid law or in the recognition of its potentialexistence by the general laws or
constitution of the state.In the case at bar, there is no other law that could give color of authority to
the validity of the existence of the municpality of Balabagan when EO 386 was later on invalidated.
Hence, suchmunicipality is not a de factor corporation




G.R. No. L-2598 / June 29, 1950

On May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents
Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and
acknowledged in Leyte, the articles of incorporation of the Far Eastern Lumber and
Commercial Co., Inc., organized to engage in a general lumber business to carry on as
general contractors, operators and managers, etc. Attached to the articles was an affidavit
of the treasurer stating that 23,428 shares of stock had been subscribed and fully paid
with certain properties transferred to the corporation described in a list appended
Immediately after the execution of said articles of incorporation, the corporation
proceeded to do business with the adoption of by-laws and the election of its officers. On
December 2, 1947, the said articles of incorporation were filed in the office of the
Securities and Exchange Commission for the issuance of the corresponding certificate of
On March 22, 1948, pending action on the articles of incorporation by the
SEC, respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella
filed a suit against petitioners before the Court of First Instance of Leyte alleging among
other things that the Far Eastern Lumber and Commercial Co. was an unregistered
partnership; that they wished to have it dissolved because of bitter dissension among the
members, mismanagement and fraud by the managers and heavy financial losses.
The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to
dismiss, contesting the courts jurisdiction and the sufficiency of the cause of action.
After hearing the parties, the Hon. Edmundo S. Piccio ordered the dissolution of the
company; and at the request of plaintiffs, appointed the respondent Pedro A. Capuciong as
receiver of the properties thereof, upon the filing of a P20,000 bond.
The defendants therein (petitioners herein) offered to file a counter-bond for the
discharge of the receiver, but the respondent judge refused to accept the offer and to
discharge the receiver.
Hence, this petition.

Whether or not the trial court has jurisdiction over the case?

No. The court had no jurisdiction in civil case No. 381 to decree the dissolution of the
company, because it being a de facto corporation, dissolution thereof may only be ordered
in a quo warranto proceeding instituted in accordance with section 19 of the Corporation
Under our statute it is to be noted that it is the issuance of a certificate of incorporation by
the Director of the Bureau of Commerce and Industry which calls a corporation into being.
The immunity of collateral attack is granted to corporations claiming in good faith to be a
corporation under this act.
Further, this is not a suit in which the corporation is a party. This is a litigation between
stockholders of the alleged corporation, for the purpose of obtaining its dissolution. Even
the existence of a de jure corporation may be terminated in a private suit for its
dissolution between stockholders, without the intervention of the state.
WHEREFORE, the petition is dismissed.
Reynaldo Lozano vs Eliezer De Los
Reynaldo Lozano was the president of KAMAJDA (Kapatirang Mabalacat-Angeles
Jeepney Drivers Association, Inc.). Antonio Anda was the president of SAMAJODA
(Samahang Angeles-Mabalacat Jeepney Operators and Drivers Association, Inc.). In
1995, the two agreed to consolidate the two corporations, thus, UMAJODA (Unified
Mabalacat-Angeles Jeepney Operators and Drivers Association, Inc.). In the same year,
elections for the officers of UMAJODA were held. Lozano and Anda both ran for
president. Lozano won but Anda alleged fraud and the elections and thereafter he
refused to participate with UMAJODA. Anda continued to collect fees from members of
SAMAJODA and refused to recognize Lozano as president of UMAJODA. Lozano then
filed a complaint for damages against Anda with the MCTC of Mabalacat (and
Magalang), Pampanga. Anda moved for the dismissal of the case for lack of jurisdiction.
The MCTC judge denied Andas motion. On certiorari, Judge Eliezer De Los Santos of
RTC Angeles City reversed and ordered the dismissal of the case on the ground that
what is involved is an intra-corporate dispute which should be under the jurisdiction of
the Securities and Exchange Commission (SEC).
ISSUE: Whether or not the RTC Judge is correct.
HELD: No. The regular courts have jurisdiction over the case. The case between
Lozano and Anda is not an intra-corporate dispute. UMAJODA is not yet incorporated.
It is yet to submit its articles of incorporation to the SEC. It is not even a dispute between
KAMAJDA or SAMAJODA. The controversy between Lozano and Anda does not arise
from intra-corporate relations but rather from a mere conflict from their plan to merge
the two associations.

Albert vs University Publishing

G.R. No. L-19118 13 Scra 84

January 30, 1965

By: Karen P. Lustica

Facts: In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we found plaintiff entitled to
damages (for breach of contract) but reduced the amount from P23, 000.00 to P15, 000.00.
Then in Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, we held that the judgment for
P15,000.00 which had become final and executory, should be executed to its full amount, since in fixing it,
payment already made had been considered.

15 years ago, Mariano Albert entered into a contract with University Publishing Co., Inc. through Jose M.
Aruego, its President, whereby University would pay plaintiff for the exclusive right to publish his revised
Commentaries on the Revised Penal Code. The contract stipulated that failure to pay one installment would
render the rest of the payments due. When University failed to pay the second installment, Albert sued for
collection and won.

However, upon execution, it was found that the records of this Commission do not show the registration of
UNIVERSITY PUBLISHING CO., INC., either as a corporation or partnership. Albert petitioned for a writ of
execution against Jose M. Aruego as the real defendant. University opposed, on the ground that Aruego was
not a party to the case.

Issue: WON the non-registration of University Publishing Co., Inc. in the SEC is an existing corporation with
an independent juridical personality.

Held: No.

Ratio: On account of the non-registration it cannot be considered a corporation, not even a corporation de
facto (Hall vs. Piccio, 86 Phil. 603). It has therefore no personality separate from Jose M. Aruego; it cannot be
sued independently.

In the case at bar, Aruego represented a non-existent entity and induced not only Albert but the court to
believe in such representation. He signed the contract as President of University Publishing Co., Inc.,
stating that this was a corporation duly organized and existing under the laws of the Philippines.
A person acting or purporting to act on behalf of a corporation which has no valid existence assumes such
privileges and obligations and becomes personally liable for contracts entered into or for other acts performed
as such agent.

Aruego, acting as representative of such non-existent principal, was the real party to the contract sued upon,
and thus assumed such privileges and obligations and became personally liable for the contract entered into or
for other acts performed as such agent.

The Supreme Court likewise held that the doctrine of corporation by estoppel cannot be set up against Albert
since it was Aruego who had induced him to act upon his (Aruegos) willful representation that University had
been duly organized and was existing under the law.

Manuela Vda. De Salvatierra vs

Lorenzo Garlitos
In 1954, Manuela Vda. De Salvatierra entered into a lease contract with Philippine Fibers
Producers Co., Inc. (PFPC). PFPC was represented by its president Segundino
Refuerzo. It was agreed that Manuela shall lease her land to PFPC in exchange of rental
payments plus shares from the sales of crops. However, PFPC failed to comply with its
obligations and so in 1955, Manuela sued PFPC and she won. An order was issued by
Judge Lorenzo Garlitos of CFI Leyte ordering the execution of the judgment against
Refuerzos property (there being no property under PFPC). Refuerzo moved for
reconsideration on the ground that he should not be held personally liable because he
merely signed the lease contract in his official capacity as president of PFPC. Garlitos
granted Refuerzos motion.
Manuela assailed the decision of the judge on the ground that she sued PFPC without
impleading Refuerzo because she initially believed that PFPC was a legitimate
corporation. However, during trial, she found out that PFPC was not actually registered
with the Securities and Exchange Commission (SEC) hence Refuerzo should be
personally liable.
ISSUE: Whether or not Manuela is correct.
HELD: Yes. It is true that as a general rule, the corporation has a personality separate
and distinct from its incorporators and as such the incorporators cannot be held
personally liable for the obligations of the corporation. However, this doctrine is not
applicable to unincorporated associations. The reason behind this doctrine is obvious-
since an organization which before the law is non-existent has no personality and would
be incompetent to act and appropriate for itself the powers and attribute of a corporation
as provided by law; it cannot create agents or confer authority on another to act in its
behalf; thus, those who act or purport to act as its representatives or agents do so
without authority and at their own risk. In this case, Refuerzo was the moving spirit
behind PFPC. As such, his liability cannot be limited or restricted that imposed upon
[would-be] corporate shareholders. In acting on behalf of a corporation which he knew
to be unregistered, he assumed the risk of reaping the consequential damages or
resultant rights, if any, arising out of such transaction.

FAUSTINA FRANCO OH, respondents.


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G.R. No. L-58028 [April 18, 1989]


Fausta F. Oh had been teaching in the Chiang Kai Shek School since 1932 for
a continuous period of almost 33 years. She was told she had no assignment for the
next semester. For no apparent or given reason, she was dismissed from her work.
As a result, she sued and demanded separation pay, social security benefits,
salary differentials, maternity benefits and moral and exemplary damages. The
original defendant was the Chiang Kai Shek School but when it filed a motion to
dismiss on the ground that it could not be sued, the complaint was amended. Certain
officials of the school were also impleaded to make them solidarily liable with the

The Court of First Instance of Sorsogon dismissed the complaint. On appeal,

its decision was set aside by the respondent court, which held the school suable and
liable while absolving the other defendants. The motion for reconsideration having
been denied, the school then came to this Court in this petition for review
on certiorari.


Whether or not a school that has not been incorporated may be sued by
reason alone of its long continued existence and recognition by the government


As a school, the petitioner was governed by Act No. 2706 as amendedby C.A.
No. 180, which provided as follows: Unless exempted for special reasons by the
Secretary of Public Instruction, any private school or college recognized by the
government shall be incorporated under the provisions of Act No. 1459 known as the
Corporation Law, within 90 days after the date of recognition, and shall file with the
Secretary of Public Instruction a copy of its incorporation papers and by-
laws.Having been recognized by the government, it was under obligation to
incorporate under the Corporation Law within 90 days from such recognition.
It appears that it had not done so at the time the complaint was filed notwithstanding
that it had been in existence even earlier than 1932. The petitioner cannot now
invoke its own non-compliance with the law to immunize it from the private
respondents complaint. There should also be no question that having contracted
with the private respondent every year for thirty two years and thus represented itself
as possessed of juridical personality to do so, the petitioner is now estopped from
denying such personality to defeat her claim against it. According to Article 1431 of
the Civil Code, through estoppel an admission or representation is rendered
conclusive upon the person making it and cannot be denied or disproved as against
the person relying on it. As the school itself may be sued in its own name, there is
no need to apply Rule 3, Section 15, under which the persons joined in an association
without any juridical personality may be sued with such association. Besides, it has
been shown that the individual members of the board of trustees are not liable,
having been appointed only after the private respondents dismissal.
International Express Travel And Tour Services Inc. vs Court of Appeals
343 SCRA 674 [GR No. 119002 October 19, 2000]

Facts: On June 30, 1989, petitioner International Express Travel and Tours Services Inc., through its managing
director, wrote a letter to the Philippine Football Federation through its President Henri Kahn, wherein the
former offered its services as a travel agency to the latter. The offer was accepted. Petitioner secured the airline
tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in Kuala
Lumpur as well as various other trips to the Peoples Republic of China and Brisbane. The total cost of the
tickets amounted to Php449,654.83. For the tickets received, the Federation made two partial payments, both
in September of 1989 in the total amount of Php176,467.50. On October 4, 1989, petitioner wrote the Federation,
through the private respondent a demand letter requesting for the amount of Php265,844.33. On October 30,
1989, the Federation, through the project gintong alay, paid the amount of Php31,603. On December 27, 1989,
Henri Kahn issued a personal check in the amount of Php50,000 as partial payment for the outstanding balance
of the Federation. Thereafter, no further payments were made despite repeated demands. Hence, this petition.

Issue: Whether or not private respondent can be made personally liable for the liabilities of the Philippines
Football Federation.

Held: Yes. A voluntary unincorporated association, like defendant Federation has no power to enter into, or to
ratify a contract. The contract entered into by its officers or agents on behalf of such association is binding or,
as enforceable against it. The officers or agents are themselves personally liable.

In attempting to prove the juridical existence of the Federation, Henri Kahn attached to his motion for
reconsideration before the trial court a copy of the constitution and by-laws of the Philippine Football
Federation. Unfortunately, the same does not prove that said Federation has indeed been recognized and
accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports
Development. Accordingly, we rule that the Philippine Football Federation is not a national sports association
within the purview of the aforementioned laws and does not have corporate existence of its own.

Thus being said, it follows that private respondent Henri Kahn should be liable for the unpaid obligations of the
unincorporated Philippine Football Federation. It is a settled principle in corporation law that any person acting
or purporting to act on behalf of the corporation which has no valid existence assumed such privileges and
becomes personally liable for contract entered into or for other acts performed as such agent.