E.
CLASSIFICATION OF CORPORATIONS
Sawadjaan v. CA, 459 SCRA 516
Pioneer Surety v, CA, 175 SCRA 668
Shipside Inc. v. CA, 352 SCRA 2001
Baluyot v. Holganza 325, SCRA 248
CLASSIFICATION OF CORPORATIONS
As to Corporation Code:
a. STOCK CORPORATION‐ one which have capital stock divided into shares and are
authorized to distribute to the holders of such shares dividends or allotments or the surplus
profits on the basis of the shares held. ( Sec 3 )
b. NON‐ STOCK CORPORATION‐ is one which do not issue shares and are created not for
profit but for public good and welfare and where no part of its income is distributable as
dividends to its members, trustees, or officers. (Sec 87)
As to the number of persons who compose them:
a. Corporation aggregate‐ corporation consisting of more than one member or corporator;
b. Corporation Sole‐ religious corporation which consists of one member or corporator only and
his successor.
As to whether they are for religious purpose or not:
a. Ecclesiastical corporation‐ one organized for religious purpose
b. Lay corporation‐ one organized for a purpose other than for religion.
As to whether they are for charitable purpose or not:
a. Eleemosynary‐ one established for religious purposes
b. Civil‐ one established for business or profit
As to state or country under or by whose laws they have been created:
a. Domestic‐ one incorporated under the laws of the Philippines
b. Foreign‐ one formed, organized, or existing under any laws other than those of the Philippines
and whose laws allow Filipino citizens and corporations to do business in its own country or
state. (Sec 123)
As to their legal right to corporate existence:
a. De jure‐ one existing both in fact and in law
b. De facto‐ one existing in fact but not in law
As to whether they are open to the public or not:
a. Close‐ one which is limited to selected persons or members of the family. (Sec 96‐ 105)
b. Open‐ one which is open to any person who may which to become a stockholder or member
thereto
As to their relation to another corporation
a. Parent or Holding‐ one which is related to another corporation that it has the power either,
directly or indirectly to, elect the majority of the director of such other corporation
b. Subsidiary‐ one which is so related to another corporation that the majority of its directors can
be elected either, directly or indirectly, by such other corporation
As to whether they are corporations in a true sense or only in a limited sense:
a. True‐ one which exists by statutory authority
b. Quasi‐ one which exist without formal legislative grant.
i. Corporation by prescription‐ one which has exercised corporate powers for an
indefinite period without interference on the part of the sovereign power and which
by fiction of law, is given the status of a corporation;
ii. Corporation by estoppel‐ one which in reality is not a corporation, either de jure
or de facto, because it is so defectively formed, but is considered a corporations in
relation to those only who, by reason of theirs acts or admissions, are precluded
from asserting that it is not a corporation.
As to whether they are for public (government) or private purpose:
a. Public‐ one formed or organized for the government or a portion of the State
b. one formed for some provate purpose, benefit or end
Sawadjaan v. CA, 459 SCRA 516
The records show that petitioner Sappari K. Sawadjaan was among the first employees of the
Philippine Amanah Bank (PAB) when it was created by virtue of Presidential Decree No. 264 on
02 August 1973. He rose through the ranks, working his way up from his initial designation as
security guard, to settling clerk, bookkeeper, credit investigator, project analyst, appraiser/
inspector, and eventually, loans analyst.
In February 1988, while still designated as appraiser/investigator, Sawadjaan was assigned to
inspect the properties offered as collaterals by Compressed Air Machineries and Equipment
Corporation (CAMEC) for a credit line of Five Million Pesos (P5,000,000.00). The properties
consisted of two parcels of land covered by Transfer Certificates of Title (TCTs) No. N-130671
and No. C-52576. On the basis of his Inspection and Appraisal Report,[4] the PAB granted the
loan application. When the loan matured on 17 May 1989, CAMEC requested an extension of 180
days, but was granted only 120 days to repay the loan.[5]
In the meantime, Sawadjaan was promoted to Loans Analyst I on 01 July 1989.[6]
In January 1990, Congress passed Republic Act 6848 creating the AIIBP and repealing P.D. No.
264 (which created the PAB). All assets, liabilities and capital accounts of the PAB were
transferred to the AIIBP,[7] and the existing personnel of the PAB were to continue to discharge
their functions unless discharged.[8] In the ensuing reorganization, Sawadjaan was among the
personnel retained by the AIIBP.
When CAMEC failed to pay despite the given extension, the bank, now referred to as the AIIBP,
discovered that TCT No. N-130671 was spurious, the property described therein non-existent, and
that the property covered by TCT No. C-52576 had a prior existing mortgage in favor of one Divina
Pablico.
On 08 June 1993, the Board of Directors of the AIIBP created an Investigating Committee to look
into the CAMEC transaction, which had cost the bank Six Million Pesos (P6,000,000.00) in losses.
The subsequent events, as found and decided upon by the Court of Appeals,[10] are as follows:
WHEREFORE, above premises considered, the instant Petition is DISMISSED, and the assailed
Resolutions of the Civil Service Commission are hereby AFFIRMED.
Still disheartened, Sawadjaan filed the present petition for certiorari under Rule 65 of the Rules of
Court challenging the above Decision and Resolution of the Court of Appeals on the ground that
the court a quo erred: i) in ignoring the facts and evidences that the alleged Islamic Bank has no
valid by-laws; ii) in ignoring the facts and evidences that the Islamic Bank lost its juridical
personality as a corporation on 16 April 1990; iii) in ignoring the facts and evidences that the
alleged Islamic Bank and its alleged Board of Directors have no jurisdiction to act in the manner
they did in the absence of a valid by-laws; iv) in not correcting the acts of the Civil Service
Commission who erroneously rendered the assailed Resolutions No. 94-4483 and No. 95-2754
as a result of fraud, falsification and/or misrepresentations committed by Farouk A. Carpizo and
his group, including Roberto F. de Ocampo; v) in affirming an unconscionably harsh and/or
excessive penalty; and vi) in failing to consider newly discovered evidence and reverse its decision
accordingly.
Petitioners efforts are unavailing, and we deny his petition for its procedural and substantive flaws.
The general rule is that the remedy to obtain reversal or modification of the judgment on the merits
is appeal. This is true even if the error, or one of the errors, ascribed to the court rendering the
judgment is its lack of jurisdiction over the subject matter, or the exercise of power in excess
thereof, or grave abuse of discretion in the findings of fact or of law set out in the decision.[36]
The records show that petitioners counsel received the Resolution of the Court of Appeals denying
his motion for reconsideration on 27 December 1999. The fifteen day reglamentary period to
appeal under Rule 45 of the Rules of Court therefore lapsed on 11 January 2000. On 23 February
2000, over a month after receipt of the resolution denying his motion for reconsideration, the
petitioner filed his petition for certiorari under Rule 65.
It is settled that a special civil action for certiorari will not lie as a substitute for the lost remedy of
appeal,[37] and though there are instances[38] where the extraordinary remedy of certiorari may
be resorted to despite the availability of an appeal,[39] we find no special reasons for making out
an exception in this case.
RULING:
Nowhere in petitioners voluminous pleadings is there a showing that the court a quo committed
grave abuse of discretion amounting to lack or excess of jurisdiction reversible by a petition for
certiorari. Petitioner already raised the question of AIIBPs corporate existence and lack of
jurisdiction in his Motion for New Trial/Motion for Reconsideration of 27 May 1997 and was denied
by the Court of Appeals. Despite the volume of pleadings he has submitted thus far, he has added
nothing substantial to his arguments.
The AIIBP was created by Rep. Act No. 6848. It has a main office where it conducts
business, has shareholders, corporate officers, a board of directors, assets, and personnel.
It is, in fact, here represented by the Office of the Government Corporate Counsel, the
principal law office of government-owned corporations, one of which is respondent
bank.[42] At the very least, by its failure to submit its by-laws on time, the AIIBP may be
considered a de facto corporation whose right to exercise corporate powers may not be
inquired into collaterally in any private suit to which such corporations may be a party.
Moreover, a corporation which has failed to file its by-laws within the prescribed period does not
ipso facto lose its powers as such. The SEC Rules on Suspension/Revocation of the Certificate
of Registration of Corporations,[45] details the procedures and remedies that may be availed of
before an order of revocation can be issued. There is no showing that such a procedure has been
initiated in this case.
In any case, petitioners argument is irrelevant because this case is not a corporate controversy,
but a labor dispute; and it is an employers basic right to freely select or discharge its employees,
if only as a measure of self-protection against acts inimical to its interest.[46] Regardless of
whether AIIBP is a corporation, a partnership, a sole proprietorship, or a sari-sari store, it is an
undisputed fact that AIIBP is the petitioners employer. AIIBP chose to retain his services during
its reorganization, controlled the means and methods by which his work was to be performed, paid
his wages, and, eventually, terminated his services.
From the foregoing, we find that the CSC and the court a quo committed no grave abuse of
discretion when they sustained Sawadjaans dismissal from service. Grave abuse of discretion
implies such capricious and whimsical exercise of judgment as equivalent to lack of jurisdiction,
or, in other words, where the power is exercised in an arbitrary or despotic manner by reason of
passion or personal hostility, and it must be so patent and gross as to amount to an evasion of
positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of
law.[50] The records show that the respondents did none of these; they acted in accordance with
the law.
Pioneer Surety v, CA, 175 SCRA 668
175 SCRA 668 –Business Organization – Corporation Law – When De Facto Partnership Does
Not Exist
Jacob Lim was the owner of Southern Air Lines, a single proprietorship. In 1965, Lim convinced
Constancio Maglana, Modesto Cervantes, Francisco Cervantes, and Border Machinery and
Heavy Equipment Company (BORMAHECO) to contribute funds and to buy two aircrafts which
would form part a corporation which will be the expansion of Southern Air Lines. Maglana et al
then contributed and delivered money to Lim.
But instead of using the money given to him to pay in full the aircrafts, Lim, without the knowledge
of Maglana et al, made an agreement with Pioneer Insurance for the latter to insure the two
aircrafts which were brought in installment from Japan Domestic Airlines (JDA) using said aircrafts
as security. So when Lim defaulted from paying JDA, the two aircrafts were foreclosed by Pioneer
Insurance.
It was established that no corporation was formally formed between Lim and Maglana et al.
ISSUE: Whether or not Maglana et al must share in the loss as general partners.
HELD: 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. But in this 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.
Shipside Inc. v. CA, 352 SCRA 2001
GOCC - Government Owned and Controlled Corporations
On October 29, 1958, Original Certificate of Title No. 0-381 was issued in favor of Rafael
Galvez, over four parcels of land - Lot 1 with 6,571 square meters; Lot 2, with 16,777 square
meters; Lot 3 with 1,583 square meters; and Lot 4, with 508 square meters. On April 11, 1960,
Lots No. 1 and 4 were conveyed by Rafael Galvez in favor of Filipina Mamaril, Cleopatra Llana,
Regina Bustos, and Erlinda Balatbat in a deed of sale which was inscribed as Entry No. 9115 OCT
No.0-381 on August 10, 1960. August 16, 1960, Mamaril, et al. sold Lots No. 1 and 4 to Lepanto
Consolidated Mining Company.
On February 1, 1963, unknown to Lepanto Consolidated Mining Company, the Court of First
Instance of La Union, Second Judicial District, issued an order declaring OCT No. 0-381 of the
Registry of Deeds for the Province of La Union issued in the name of Rafael Galvez, null and void,
and ordered the cancellation thereof.
On October 28, 1963, Lepanto Consolidated Mining Company sold to herein petitioner Lots No. 1
and 4. In the meantime, Rafael Galvez filed his motion for reconsideration against the order issued
by the trial court declaring OCT No. 0-381 null and void. The motion was denied. The Court of
Appeals ruled in favor of the Republic of the Philippines.
Thereafter, the Court of Appeals issued an Entry of Judgment, certifying that its decision dated
August 14, 1973 became final and executory on October 23, 1973. Twenty four long years,
thereafter, on January 14, 1999, the Office of the Solicitor General received a letter dated January
11, 1999 from Mr. Victor G. Floresca, Vice-President, John Hay Poro Point Development
Corporation, stating that the aforementioned orders and decision of the trial court in L.R.C. No. N-
361 have not been executed by the Register of Deeds, San Fernando, La Union despite receipt
of the writ of execution. On April 21, 1999, the Office of the Solicitor General filed a complaint for
revival of judgment and cancellation of titles before the Regional Trial Court of the First Judicial
Region (Branch 26, San Fernando, La Union)
Issues:
(1) Whether an authorization from petitioner’s Board of Directors is still required in order for
its resident manager to institute or commence a legal action for and in behalf of the corporation;
(2) Whether the instant petition should be allowed; and
(3) Whether the republic of the Philippines can maintain action for revival of judgment
therein.
Held:
(1) Yes. The court of Appeals dismissed the petition for certiorari on the ground that
Lorenzo Balbin, the resident manager for petitioner, who was the signatory in the verification and
certification on non-forum shopping, failed to show proof that he was authorized by petitioner’s
board of directors to file such a petition.
A corporation, such as petitioner, has no power except those expressly conferred on it by the
Corporation Code and those that are implied or incidental to its existence. In turn, a corporation
exercises said powers through its board of directors and /or its duly authorized officers and agents.
Thus, it has been observed that the power of a corporation to sue and be sued in any court is
lodged with the board of directors that exercises its corporate powers. In turn, physical acts of the
corporation, like the signing of documents, can be performed only by natural persons duly
authorized for the purpose by the corporate by-laws or by a specific act of the board of directors
to file said petition.
On October 21, 1999, when Balbin filed the petition, there was no proof attached thereto that
Balbin was authorized to sign the verification and non-forum shopping certification therein. As a
consequence, the petition was dismissed by the Court of Appeals. However, subsequent to such
dismissal, petitioner filed a motion for reconsideration, attaching to said motion a certificate issued
by its board secretary stating that on October 11, 1999, or ten days prior to the filing of the petition,
Balbin had been authorized by petitioner’s board of directors to file said petition.
Verification is simply intended to secure an assurance that the allegations in the pleading are true
and correct and not the product of the imagination or a matter of speculation, and that the pleading
is filed in good faith. The court may order the correction of the pleading if verification is lacking or
act on the pleading although it is not verified, if the attending circumstances are such that strict
compliance with the rules may be dispensed with in order that the ends of justice may thereby be
served.
On the other hand, the lack of certification against forum shopping is generally incurable by the
submission thereof after filing of the petition. Section 5, Rule 45 of the 1997 Rules of Civil
Procedure provides that the failure of the petitioner to submit the required documents that should
accompany the petition, including the certification against forum shopping, shall be sufficient
ground for the dismissal thereof. The same rule applies to certifications against forum shopping
signed by a person on behalf of a corporation which are unaccompanied by proof that said
signatory is authorized to file a petition on behalf of the corporation.
(2) Yes. In the instant case, the merits of the petitioner’s case should be considered special
circumstances or compelling reasons that justify tempering the requirement in regard to the
certificate of non-forum shopping. With more reason should the instant petition be allowed since
the petitioner did submit a certification on non-forum shopping, failing only to show proof that the
signatory was authorized to do so. That petitioner subsequently submitted a secretary’s certificate
attesting that Balbin was authorized to file an action.
It must also be kept in mind that while the requirement of the certificate of non-forum shopping is
mandatory, nonetheless the requirements should not be interpreted literally and thus defeat the
objective of preventing the undesirable practice of forum- shopping. Lastly, technical rules of
procedure should be used to promote, not frustrate justice. While the swift unclogging of court
dockets is a laudable objective, the granting of substantial justice is an even more urgent ideal.
(3) No. The action instituted by the Solicitor General in the trial court is one for revival of
judgment which is governed by Article 1144 (3) of the Civil Code and Section 6, Rule 39 of the
1997 Rules on Civil Procedure. Article1144 (3) provides that an action upon a judgement “must
be brought within 10 years from the time the right of action accrues.” On the other hand, Section
6, Rule 39 provides that a final and executor judgment or order may be executed on motion within
five (5) years from the date of its entry, but that after the lapse of such time, and before it is barred
by the statute of limitations, a judgement may be enforced by action. Taking those two provisions
into consideration, it is plain that an action for revival of judgment must be brought within ten years
from the time said judgment becomes final.
From the records of the case, it is clear that the judgment sought to be revived became final on
October 23, 1973. On the other hand, the action for revival of judgment was instituted only in 1999,
or more than 25 uyears after the judgment had become final. Hence, the action is abarred by
extinctive prescription considering that such an action can be instituted only within ten (10) years
from the time the cause of action accrues.
The Solicitor-general’s contention that the state’s cause of action in the cancellation of the land
title issued to petitioner’s predecessor-in-interest is imprescriptible because it is included in Camp
Wallace, which belong to the government, is misleading. While it is true that the prescription does
not run against the State, the same may not be invoked by the government in this case since it is
no longer interested in the subject matter. While Camp Wallace may have belonged to the
Government at the time Rafael Galvez’s title was ordered cancelled in Land Registration Case no
N-361, the same no longer holds true today.
With the transfer of Camp Wallace to the BCDA, the government no longer has a right or interest
to protect. Consequently, the republic is not a real party in interest and it may not institute the
instant action. Nor may it raise the defense of imprescriptibility the same being applicable only in
cases where the government is a party in interest. Under section 2 of Rule 3 of the 1997 Rules of
Civil procedure, “every action must be prosecuted or defined in the name of the real party in
interest.” And to qualify a person to be a real party in interest whose name in action must be
prosecuted, he must appear to be the present real owner of the right sought to be enforced
(Pioneer Insurance v. CA, 175 SCRA 668 [1989]). A real party in interest is the party who stands
to be benefitted or injured by the judgment in the suit, or the party entitled to the avails of the suit.
And by real interest is meant a present substantial interest, as distinguished from a mere
expectancy, or a future, contingent, subordinate or consequential interest (Ibonilla v. Province of
Cebu, 210 SCRA 526 [1992]). Being the owner of the areas covered by Camp Wallace, it is the
Bases Conversion and Development Authority, not the Government, which stands to be benefited
if the land covered by TCT No. T5710 issued in the name of petitioner is cancelled.
Baluyot v. Holganza 325, SCRA 248
FRANCISCA S. BALUYOT vs.
PAUL E. HOLGANZA and the OFFICE OF THE OMBUDSMAN (VISAYAS) represented by its
Deputy Ombudsman for the Visayas ARTURO C. MOJICA, Director VIRGINIA PALANCA-
SANTIAGO, and Graft Investigation Officer I ANNA MARIE P. MILITANTE
G.R. No. 136374.February 9, 2000
FACTS:
During a spot audit in 1977, the auditors from the Philippine National Red Cross (PNRC)
headquarters discovered a case shortage in the funds of its Bohol chapter. The chapter
administrator, petitioner Baluyot, was held accountable and thereafter, respondent Holganza as
member of the board Bohol chapter, filed a complaint with the Ofc. of the Ombudsman for
malversation. Upon recommendation of respondent Militante, an administratiave docket of
dishonesty was also opened against Baluyot. Baluyot raised the defense that the Ombudsman
had no jurisdiction as he had authority only over government owned or controlled corporations
which the PNRC was not. She gives as evidence of its private character 1) it does not receive
budgetary support from the government and all money given to it by the latter and its
instrumentalities become private funds of the organization. 2) funds for the payment of
personnel’s salaries and other emoluments come from yearly fund campaigns, private
contributions and rentals from its properties. 3) it is not audited by COA. PNRC, petitioner claims
falls under the International Federation of Red Cross, Swiss-based organization.
ISSUE: Whether or not PNRC is a government owned or controlled corporation.
RULING: YES.
PNRC is a government owned and controlled corporation, with an original charter under RA
No. 95, as amended. The test to determine whether a corporation is government owned or
controlled or private in nature is simple. Is it created by its own charter for the exercise of a public
function, or by incorporation under the general corporation law? Those with special charters are
government corporations subject to its provisions, and its employees are under the jurisdiction of
the Civil Service Commission, and are compulsory members of the GSIS.
The PNRC was not “impliedly converted to a private corporation” simply because its charter was
amended to vest in it the authority to secure loans, be exempted from payment of all duties, taxes,
fees and other charges of all kinds on all importations and purchases for its exclusive use, on
donations for its disaster relief work and other services and in its benefits and fund raising drives.”
Clearly then, public respondent has jurisdiction over the matter.
F. CORPORATE CONTRACT LAW
*Advantage and Disadvantage of Corporate Form
(a)Four Basic Advantageous characteristics of corporate organization
1. Strong legal personality – Remo, Jr. v. IAC, 172 SCRA 405
2. Centralized management – Section 23, Corporation Code -
Firme v. Bukal Enterprises, 414 SCRA 190
3. Limited liablity to investors and officers
San Juan Structural Steels v. CA, 296 SCRA 631
CBTC v. CA 356 SCRa 671
4. Free Transferability of ownership for investors
Remo Jr. v. IAC, 172 SCRA 405
PNB v. Rittrato Group, 362 SCRA 216
1. Strong legal personality
Remo, Jr. v. IAC, 172 SCRA 405 / JOSE REMO, JR., petitioner, vs. THE HON. INTERMEDIATE
APPELLATE COURT and E.B. MARCHA TRANSPORT COMPANY, INC., represented by
APIFANIO B. MARCHA, respondents.
Doctrine: A corporation is an entity separate and distinct from its stockholders. While not in fact
and in reality a person, the law treats a corporation as though it were a person by process of fiction
or by regarding it as an artificial person distinct and separate from its individual stockholders. 1
However, the corporate fiction or the notion of legal entity may be disregarded when it "is used to
defeat public convenience, justify wrong, protect fraud, or defend crime" in which instances "the
law will regard the corporation as an association of persons, or in case of two corporations, will
merge them into one." The corporate fiction may also be disregarded when it is the "mere alter
ego or business conduit of a person." There are many occasions when this Court pierced the
corporate veil because of its use to protect fraud and to justify wrong.
Facts:
The Board of Directors of Akron Corporation composed of petitioner Remo, Feliciano Coprada, et
al. adopted a resolution authorizing the purchase of 13 trucks for use in its business. Feliciano
Coprada as President and Chairman of Akron, purchased 13 trucks from respondent E.B. Marcha
Transport with a downpayment of P50,000 and a security by way of promissory note executed by
Coprada in favor of Akron. Akron paid rentals a day but sometime after lapsed in payment.
Coprada wrote respondent asking for grace period and eventually returned the 10 trucks.
Respondent filed a complaint for the recovery of the sum or 13 trucks against Akron and its
officers/directors. The trial court and later the IAC found for respondent. Petitioner contends that
he should not be held personally liable for the corporation’s liabilities.
Issue: Whether or not petitioner may be held personally liable for the corporation’s liabilities.
Ruling: NO.
The environmental facts of this case show that there is no cogent basis to pierce the corporate
veil of Akron and hold petitioner personally liable for its obligation to private respondent. While it
is true that petitioner was still a member of the board of directors of Akron and that he participated
in the adoption of a resolution authorizing the purchase of 13 trucks for the use in the brokerage
business of Akron to be paid out of a loan to be secured from a lending institution, it does not
appear that said resolution was intended to defraud anyone and more particularly private
respondent. It was Coprada, President and Chairman of Akron, who negotiated with said
respondent for the purchase of 13 cargo trucks. It was Coprada who signed a promissory note to
guarantee the payment of the unpaid balance of the purchase price out of the proceeds of a loan
he supposedly sought from the DBP. The word “WE’ in the said promissory note must refer to the
corporation which Coprada represented in the execution of the note and not its stockholders or
directors. Petitioner did not sign the said promissory note so he cannot be personally bound
thereby.
2. Centralized management – Section 23, Corporation Code
Section 23. The board of directors or trustees. – Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or where there is no stock, from among
the members of the corporation, who shall hold office for one (1) year until their successors are
elected and qualified. (28a)
Every director must own at least one (1) share of the capital stock of the corporation of which he
is a director, which share shall stand in his name on the books of the corporation. Any director
who ceases to be the owner of at least one (1) share of the capital stock of the corporation of
which he is a director shall thereby cease to be a director. Trustees of non-stock corporations
must be members thereof. A majority of the directors or trustees of all corporations organized
under this Code must be residents of the Philippines.
Firme v. Bukal Enterprises, 414 SCRA 190
Facts: Spouses Constante and Azucena Firme are the registered owners of a parcel of land
located on Dahlia Avenue, Fairview Park, Quezon City. Renato de Castro, the vice president of
Bukal Enterprises and Development Corporation authorized his friend, Teodoro Aviles, a broker,
to negotiate with the Spouses Firme for the purchase of the Property. On 28 March 1995, Bukal
Enterprises filed a complaint for specific performance and damages with the trial court, alleging
that the Spouses Firme reneged on their agreement to sell the Property. The complaint asked the
trial court to order the Spouses Firme to execute the deed of sale and to deliver the title to the
Property to Bukal Enterprises upon payment of the agreed purchase price. On 7 August 1998, the
trial court rendered judgment against Bukal Enterprises, dismissing the case and ordering Bukal
Enterprises to pay the Spouses Constante and Azucena Firme (1) the sum of P335,964.90 as and
by way of actual and compensatory damages; (2) the sum of P500,000.00 as and by way of moral
damages; (3) the sum of P100,000.00 as and by way of attorney’s fees; and (4) the costs of the
suit.
The trial court held there was no perfected contract of sale as Bukal Enterprises failed to establish
that the Spouses Firme gave their consent to the sale of the Property; and that Aviles had no valid
authority to bind Bukal Enterprises in the sale transaction. Bukal Enterprises appealed to the Court
of Appeals, which reversed and set aside the decision of the trial court. The appellate court ordered
the Spouses Firme to execute the Deed of Absolute Sale transferring the ownership of the subject
property to Bukal Enterprises immediately upon receipt of the purchase price of P3,224,000.00
and to perform all such acts necessary and proper to effect the transfer of the property covered
by TCT 264243 to Bulak Enterprises; and directed Bukal Enterprises to deliver the payment of the
purchase price of the property within 60 days from the finality of the judgment. The Court of
Appeals held that the lack of a board resolution authorizing Aviles to act on behalf of Bukal
Enterprises in the purchase of the Property was cured by ratification; inasmuch as Bukal
Enterprises ratified the purchase when it filed the complaint for the enforcement of the sale. The
spouses Firme filed the petition for review on certiorari before the Supreme Court.
Issue: Whether there was a perfected contract between the Spouses Firme and Bukal Enterprises,
the latter allegedly being represented by Aviles.
Held: There was no consent on the part of the Spouses Firme. Consent is an essential element
for the existence of a contract, and where it is wanting, the contract is non-existent. The essence
of consent is the conformity of the parties on the terms of the contract, the acceptance by one of
the offer made by the other. The Spouses Firme flatly rejected the offer of Aviles to buy the
Property on behalf of Bukal Enterprises. There was therefore no concurrence of the offer and the
acceptance on the subject matter, consideration and terms of payment as would result in a
perfected contract of sale. Further, there was no approval from the Board of Directors of Bukal
Enterprises as would finalize any transaction with the Spouses Firme. Aviles did not have the
proper authority to negotiate for Bukal Enterprises. Aviles testified that his friend, De Castro, had
asked him to negotiate with the Spouses Firme to buy the Property. De Castro, as Bukal
Enterprises’ vice president, testified that he authorized Aviles to buy the Property. However, there
is no Board Resolution authorizing Aviles to negotiate and purchase the Property on behalf of
Bukal Enterprises. It is the board of directors or trustees which exercises almost all the
corporate powers in a corporation. Under Sections 23 and 36 of the Corporation Code, the
power to purchase real property is vested in the board of directors or trustees. While a
corporation may appoint agents to negotiate for the purchase of real property needed by
the corporation, the final say will have to be with the board, whose approval will finalize the
transaction. A corporation can only exercise its powers and transact its business through
its board of directors and through its officers and agents when authorized by a board
resolution or its by-laws. Aviles, who negotiated the purchase of the Property, is neither an
officer of Bukal Enterprises nor a member of the Board of Directors of Bukal Enterprises. There is
no Board Resolution authorizing Aviles to negotiate and purchase the Property for Bukal
Enterprises. There is also no evidence to prove that Bukal Enterprises approved whatever
transaction Aviles made with the Spouses Firme. In fact, the president of Bukal Enterprises did
not sign any of the deeds of sale presented to the Spouses Firme. Even De Castro admitted that
he had never met the Spouses Firme. Considering all these circumstances, it is highly improbable
for Aviles to finalize any contract of sale with the Spouses Firme. Furthermore, the Court notes
that in the Complaint filed by Bukal Enterprises with the trial court, Aviles signed the verification
and certification of non-forum shopping. The verification and certification of non-forum shopping
was not accompanied by proof that Bukal Enterprises authorized Aviles to file the complaint on
behalf of Bukal Enterprises. The power of a corporation to sue and be sued is exercised by the
board of directors. “The physical acts of the corporation, like the signing of documents, can be
performed only by natural persons duly authorized for the purpose by corporate by-laws or by a
specific act of the board of directors.” The purpose of verification is to secure an assurance that
the allegations in the pleading are true and correct and that it is filed in good faith. True, this
requirement is procedural and not jurisdictional. However, the trial court should have ordered the
correction of the complaint since Aviles was neither an officer of Bukal Enterprises nor authorized
by its Board of Directors to act on behalf of Bukal Enterprises.
3. Limited liablity to investors and officers
San Juan Structural Steels v. CA, 296 SCRA 631
Facts: Plaintiff-appellant San Juan structural and steel fabricators Inc.’s amended complaint
alleged that on February 14, 1989, plaintiff-appellant entered into an agreement with defendant-
appellee Motorich Sales Corporation for the transfer to it of a parcel of land identified as lot 30,
Block 1 of the Acropolis Greens Subdivision located in the district of Murphy, Quezon City, Metro
Manila containing an area of 414 sqm, covered by TCT no. 362909;
that as stipulated in the agreement of February 14, 1i989, plaintiff-appellant paid the down
payment in the sum of P100,000, the balance to be paid on or before March 2, 19889;
that on March 1, 1989,Mr. Andres T. Co, president of Plaintiff-appellant corporation, wrote a letter
to defendant-appellee Motorich Sales Corporation requesting a computation for the balance to be
paid; that said letter was coursed through the defendant-appellee’s broker. Linda Aduca who wrote
the computation of the balance;
that on March 2, 1989, plaintiff-appellant was ready with the amount corresponding to the balance,
covered by Metrobank cashier’s check no. 004223 payable to defendant-appellee Motorich Sales
Corporation;
that plaintiff-appellant and defendant-appellee were supposed to meet in the plaintiff-appellant’s
office but defendant-appellee’s treasurer, Nenita Lee Gruenbeg did not appear;
that defendant-appelle despite repeated demands and in utter disregard of its commitments had
refused to execute the transfer of rights/deed of assignment which is necessary to transfer the
certificate of title; that defendant ACL development corporation is impleaded as a necessary party
since TCT no. 362909 is still in the name of said defendant;
while defendant VNM Realty and Development Corporation is likewise impleaded as a necessary
party in view of the fact that it is the transferor of the right in favor of defendant-appellee Motorich
Sales Corporation;
that on April 6, 1989 defendant ACL Development Corporation and Motorich Sales Corporation
entered into a deed of absolute sale whereby the former transferred to the latter the subject
property;
that by reason of said transfer; the registry of deeds of Quezon City issued a new title in the name
of Motorich Sales Corporation, represented by defendant-appellee Nenita Lee Gruenbeg and
Reynaldo L. Gruenbeg, under TCT no. 3751; that as a result of defendants-appellees Nenita and
Motorich’s bad faith in refusing to execute a formal transfer of rights/deed of assignment, plaintiff-
appellant suffered moral and nominal damages which may be assessed against defendant-
appellees in the sum of P500,000;
that as a result of an unjustified and unwarranted failure to execute the required transfer or formal
deed of sale in favor of plaintiff-appellant, defendant-appellees should be assessed exemplary
damages in the sum of P100,000;
that by reason of the said bad faith in refusing to execute a transfer in favor of plaintiff-appellant
the latter lost opportunity to construct a residential building in the sum of P100,000 and that as a
consequence of such bad faith, it has been constrained to obtain the services of counsel at an
agreed fee of P100,000 plus appearance fee of for every appearance in court hearings.
CA affirmed RTC for dismissing
San Juan argues that the veil of corporate fiction of Motorich should be pierced because it is a
close corporation.

Since "Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg owned all or almost all or
99.866% to be accurate, of the subscribed capital stock" of Motorich, San Juan argues that
Gruenberg needed no authorization from the board to enter into the subject contract.
being solely owned by the Spouses Gruenberg, the company can treated as a close corporation
which can be bound by the acts of its principal stockholder who needs no specific authority
Issues: Whether or not the corporation’s treasurer act can bind the corporation.
Whether or not the doctrine of piercing the veil of corporate entity is applicable.
Held: No. Such contract cannot bind Motorich, because it never authorized or 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 the corporation is not the property
of its stockholders or members and may not be sold by the stockholders or members without
express authorization from the corporation’s board of directors.
Section 23 of BP 68 provides the Board of Directors or Trustees – Unless otherwise provided in
this code, the corporate powers of all corporations formed under this code shall be exercised, all
business conducted, and all property of such corporations controlled and held by the board of
directors or trustees to be elected from among the stockholders of stocks, or where there is no
stock, from among the members of the corporations, who shall hold office for 1 year and until their
successors are elected and qualified.
As a general rule, the 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 as is estopped from disclaiming them.
Because Motorich had never given a written authorization to respondent Gruenbeg to sell its
parcel of land, we hold that the February 14, 1989 agreement entered into by the latter with
petitioner is void under Article 1874 of the Civil Code. Being inexistent and void from the beginning,
said contract cannot be ratified.
The statutorily granted privilege of a corporate veil may be used only for legitimate purposes. On
equitable consideration, the veil can 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.
We stress that the corporate fiction should be set aside when it becomes a shield against liability
for fraud, or an illegal act on inequity committed on third person. The question of piercing the veil
of corporate fiction is essentially, then a matter of proof. In the present case, however, the court
finds no reason to pierce the corporate veil of respondent Motorich. Petitioner utterly failed to
establish the said corporation was formed, or that it is operated for the purpose of shielding any
alleged fraudulent or illegal activities of its officers or stockholders; or that the said veil was used
to conceal fraud, illegality or inequity at the expense of third persons like petitioner.
CBTC v. CA 356 SCRA 671 / THE CONSOLIDATED BANK AND TRUST CORPORATION
(SOLIDBANK), petitioner, vs. THE COURT OF APPEALS, CONTINENTAL CEMENT
CORPORATION, GREGORY T. LIM and SPOUSE, respondents.
FACTS
On July 13, 1982, respondents Continental Cement Corporation (hereinafter, respondent
Corporation) and Gregory T. Lim (hereinafter, respondent Lim) obtained from petitioner
Consolidated Bank and Trust Corporation Letter of Credit No. DOM-23277 in the amount of
P1,068,150.00 On the same date, respondent Corporation paid a marginal deposit of P320,445.00
to petitioner. The letter of credit was used to purchase around five hundred thousand liters of
bunker fuel oil from Petrophil Corporation, which the latter delivered directly to respondent
Corporation in its Bulacan plant. In relation to the same transaction, a trust receipt for the amount
of P1,001,520.93 was executed by respondent Corporation, with respondent Lim as signatory.
Claiming that respondents failed to turn over the goods covered by the trust receipt or the proceeds
thereof, petitioner filed a complaint for sum of money with application for preliminary attachment[3]
before the Regional Trial Court of Manila. In answer to the complaint, respondents averred that
the transaction between them was a simple loan and not a trust receipt transaction, and that the
amount claimed by petitioner did not take into account payments already made by them.
Respondent Lim also denied any personal liability in the subject transactions. In a Supplemental
Answer, respondents prayed for reimbursement of alleged overpayment to petitioner of the
amount of P490,228.90.
ISSUE: Whether or not the defendants are personally liable under the transaction sued for in this
case.
RULING
Finally, we are not convinced that respondent Gregory T. Lim and his spouse should be personally
liable under the subject trust receipt. Petitioners argument that respondent Corporation and
respondent Lim and his spouse are one and the same cannot be sustained. The transactions sued
upon were clearly entered into by respondent Lim in his capacity as Executive Vice President of
respondent Corporation. We stress the hornbook law that corporate personality is a shield against
personal liability of its officers. Thus, we agree that respondents Gregory T. Lim and his spouse
cannot be made personally liable since respondent Lim entered into and signed the contract
clearly in his official capacity as Executive Vice President. The personality of the corporation is
separate and distinct from the persons composing it.[16]
WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED.
4. Free Transferability of ownership for investors - A one-to-one act of selling an ownership
interest without having to acquire permission from other parties.
Remo Jr. v. IAC, 172 SCRA 405
RULING: As to the amendment of the articles of incorporation of Akron thereby changing its name
to Akron Transport International, Inc., petitioner alleges that the change of corporate name was in
order to include trucking and container yard operations in its customs brokerage of which private
respondent was duly informed in a letter.[19] Indeed, the new corporation confirmed and assumed
the obligation of the old corporation. There is no indication of an attempt on the part of Akron to
evade payment of its obligation to private respondent.
There is the fact that petitioner sold his shares in Akron to Coprada during the pendency of the
case. Since petitioner has no personal obligation to private respondent, it is his inherent right as
a stockholder to dispose of his shares of stock anytime he so desires.
PNB v. Ritratto Group, 362 SCRA 216
Lessons Applicable: Dealings with Corp. and Stockholders (Corporate Law)
FACTS:
May 29, 1996: PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, organized
and doing business in Hong Kong, extended a letter of credit in favor of the Ritratto Group, Inc.
(Ritartto) in the amount of US$300K secured by real estate mortgages constituted over 4 parcels
of land in Makati City
September 1996: increased successively to US$1,140,000.00
November 1996: to US$1,290,000.00
February 1997: US$1,425,000.00
April 1998: decreased to US$1,421,316.18
Ritratto Group, Inc. made repayments of the loan incurred by remitting those amounts to their loan
account with PNB-IFL in Hong Kong.
April 30, 1998: outstanding amounted to US$1,497,274.70
PNB-IFL, through its attorney-in-fact PNB, notified them of the foreclosure of all the real estate
mortgages and that the properties subjected
May 25, 1999: Ritratto Group, Inc filed a complaint for injunction with prayer for the issuance of a
writ of preliminary injunction and/or temporary restraining order before the RTC. -granted 72-hour
TRO
RTC and CA: dismissed motion to dismiss
PNB-IFL, is a wholly owned subsidiary of defendant Philippine National Bank, the suit against the
defendant PNB is a suit against PNB-IFL
Rittratto: entire credit facility is void as it contains stipulations in violation of the principle of
mutuality of contracts
ISSUE: W/N PNB is an alter ego of PNB-IFL
HELD: NO. Petition is granted
PNB is an agent with limited authority and specific duties under a special power of attorney
incorporated in the real estate mortgage.
PBN is not privy to the loan contracts entered into by PNB-IFL.
Mere fact that a corporation owns all of the stocks of another corporation, taken alone is not
sufficient to justify their being treated as one entity.
If used to perform legitimate functions, a subsidiary's separate existence may be respected, and
the liability of the parent corporation as well as the subsidiary will be confined to those arising in
their respective business.
General rule the stock ownership alone by one corporation of the stock of another does not thereby
render the dominant corporation liable for the torts of the subsidiary unless the separate corporate
existence of the subsidiary is a mere sham, or unless the control of the subsidiary is such that it
is but an instrumentality or adjunct of the dominant corporation.
Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is now
showing of the indicative factors that the former corporation is a mere instrumentality of the latter
are present. Neither is there a demonstration that any of the evils sought to be prevented by the
doctrine of piercing the corporate veil exist. Inescapably, therefore, the doctrine of piercing the
corporate veil based on the alter ego or instrumentality doctrine finds no application in the case at
bar.
(b) Disadvantages
1. Abuse of corporate management
2. Abuse of limited liability feature
3. High cost of maintenance
4. Double taxation
* Dividends received by individuals from domestic corporations are subject to final 10% income
tax earned on or after 1 January 1998 (Sec. 24(B)(2), 1997 NIRC.
* Inter-corporate dividends between domestic corporations are subject to final 10% income tax
earned on or after 1 January 1998 (Sec. 24(B)(2), 1997 NIRC
* Inter-corporate dividends between domestic corporations, however, are not subject to any
income tax (Sec. 27(D) (4), 1997 NIRC
* There is reimposition of the 10% "improperly accumulated earnings tax" for holding companies
(Sec. 29, 1997 NIRC)
FRANCHISE
A franchise is a special privilege conferred by governmental authority, and which does not belong
to citizens of the country generally as a matter of common right. ... Its meaning depends more or
less upon the connection in which the word is employed and the property and corporation to which
it is applied. It may have different significations.
For practical purposes, franchises, so far as relating to corporations, are divisible into (1) corporate
or general franchises; and (2) special or secondary franchises. The former is the franchise to exist
as a corporation, while the latter are certain rights and privileges conferred upon existing
corporations,
What are the two kinds of franchise?
1. Corporate or primary/general franchise – grant given to exist as a corporation;
-the right to exist as such, is vested "in the individuals who compose the corporation
and not in the corporation itself" (14 C.J. pp. 160, 161; Adams v. Railroad, supra; 2 Fletcher's
Cyclopedia Corp. Secs. 1153, 1158; 3 Thompson on Corporations 2d Ed.] Secs. 2863, 2864), and
cannot be conveyed in the absence of a legislative authority so to do
2. Special or secondary franchise – certain rights and privileges conferred upon existing as a
corporation (e.g. right to use the streets of a municipality to lay pipes of tracks, erect poles, or
string wires)
-vested in the corporation and may ordinarily be conveyed or mortgaged under a
general power granted to a corporation to dispose of its property (Adams v. Railroad, supra; 14A
C.J. 542, 557; 3 Thompson on Corp. [2nd Ed.] Sec. 2909), except such special or secondary
franchises as are charged with a public use
Steps in the Creation of a Corporation
a. Promotion
b. Incorporation (Sec10)
Sec. 10. Number and qualifications of incorporators. - Any number of natural persons not less than
five (5) but not more than fifteen (15), all of legal age and a majority of whom are residents of the
Philippines, may form a private corporation for any lawful purpose or purposes. Each of the
incorporators of s stock corporation must own or be a subscriber to at least one (1) share of the
capital stock of the corporation.
c. Formal organization and commencement of business operations ( Sec22)
Sec. 22. Effects on non-use of corporate charter and continuous inoperation of a corporation.- If
a corporation does not formally organize and commence the transaction of its business or the
construction of its works within two (2) years from the date of its incorporation, its corporate powers
cease and the corporation shall be deemed dissolved. However, if a corporation has commenced
the transaction of its business but subsequently becomes continuously inoperative for a period of
at least five (5) years, the same shall be a ground for the suspension or revocation of its corporate
franchise or certificate of incorporation.
This provision shall not apply if the failure to organize, commence the transaction of its businesses
or the construction of its works, or to continuously operate is due to causes beyond the control of
the corporation as may be determined by the Securities and Exchange Commission.
 - Incorporation contracts
- Who are promoters?
PROMOTER
Promoters are persons who, acting alone or with others, take initiative in founding and organizing
the business or enterprise of the issuer and receives consideration therefor (RA 8799, The
Securities Regulation Code).
LIABILITY OF PROMOTER
General rule: The promoter binds himself PERSONALLY & assumes the responsibility of looking
to the proposed corporation for reimbursement.
Exceptions:
(1) Express or implied agreement to the contrary
(2) Novation, not merely adoption or ratification of the contract
Are promoters agents of a corporation?
No. Promoters are not agents of the corporation before it comes into existence.
Upon incorporation, the practice is for the BOD to pass a resolution ratifying the contracts entered
into by the incorporators with the promoter. Then, they become agents of the corporation.
INCORPORATION CONTRACTS
Sec. 60. Subscription contract. - Any contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed shall be deemed a subscription within the meaning
of this Title, notwithstanding the fact that the parties refer to it as a purchase or some other
contract. (n)
Kinds of subscription contracts
1. GR: Pre‐incorporation subscription – entered into before the incorporation and irrevocable for
a period of six (6) months from the date of subscription unless all other subscribers consent or if
the corporation failed to materialize. It cannot also be revoked after filing the Articles of
Incorporation with the SEC (Sec. 61)
XPN: When creditors will be prejudiced thereby.
2. Post‐incorporation subscription – entered into after incorporation.
G. ARTICLES OF INCORPORATION
a. Procedure and Documentary Requirements (Sec. 14 and 15)
Sec. 14. Contents of the articles of incorporation. - All corporations organized under this code shall
file with the Securities and Exchange Commission articles of incorporation in any of the official
languages duly signed and acknowledged by all of the incorporators, containing substantially the
following matters, except as otherwise prescribed by this Code or by special law:
1. The name of the corporation;
2. The specific purpose or purposes for which the corporation is being incorporated. Where a
corporation has more than one stated purpose, the articles of incorporation shall state which is
the primary purpose and which is/are he secondary purpose or purposes: Provided, That a non-
stock corporation may not include a purpose which would change or contradict its nature as such;
3. The place where the principal office of the corporation is to be located, which must be within
the Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the incorporators;
6. The number of directors or trustees, which shall not be less than five (5) nor more than fifteen
(15);
7. The names, nationalities and residences of persons who shall act as directors or trustees until
the first regular directors or trustees are duly elected and qualified in accordance with this Code;
8. If it be a stock corporation, the amount of its authorized capital stock in lawful money of the
Philippines, the number of shares into which it is divided, and in case the share are par value
shares, the par value of each, the names, nationalities and residences of the original subscribers,
and the amount subscribed and paid by each on his subscription, and if some or all of the shares
are without par value, such fact must be stated;
9. If it be a non-stock corporation, the amount of its capital, the names, nationalities and residences
of the contributors and the amount contributed by each; and
10. Such other matters as are not inconsistent with law and which the incorporators may deem
necessary and convenient.
The Securities and Exchange Commission shall not accept the articles of incorporation of any
stock corporation unless accompanied by a sworn statement of the Treasurer elected by the
subscribers showing that at least twenty-five (25%) percent of the authorized capital stock of the
corporation has been subscribed, and at least twenty-five (25%) of the total subscription has been
fully paid to him in actual cash and/or in property the fair valuation of which is equal to at least
twenty-five (25%) percent of the said subscription, such paid-up capital being not less than five
thousand (P5,000.00) pesos.
Sec. 15. Forms of Articles of Incorporation. - Unless otherwise prescribed by special law, articles
of incorporation of all domestic corporations shall comply substantially with the following form:
(refer to your codal :P)
a.1. As to number and residency of incorporators. (Sec. 10)
Sec. 10. Number and qualifications of incorporators. - Any number of natural persons not less than
five (5) but not more than fifteen (15), all of legal age and a majority of whom are residents of the
Philippines, may form a private corporation for any lawful purpose or purposes. Each of the
incorporators of s stock corporation must own or be a subscriber to at least one (1) share of the
capital stock of the corporation.
a.2. Corporate Name (Secs. 18, 14(1) and 42)
1. Red Line Trans. v. Rural Transit, 60 Phil 549
2. Republic Planters Bank v. CA, 216 SCRA 738 (1992)
3. P.C. Javier & Sons, Inc. v. CA 462 SCRA 36
Sec. 18. Corporate name. - No corporate name may be allowed by the Securities and Exchange
Commission if the proposed name is identical or deceptively or confusingly similar to that of any
existing corporation or to any other name already protected by law or is patently deceptive,
confusing or contrary to existing laws. When a change in the corporate name is approved, the
Commission shall issue an amended certificate of incorporation under the amended name.
Sec. 42. Power to invest corporate funds in another corporation or business or for any other
purpose. - Subject to the provisions of this Code, a private corporation may invest its funds in any
other corporation or business or for any purpose other than the primary purpose for which it was
organized when approved by a majority of the board of directors or trustees and ratified by the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or by at least
two thirds (2/3) of the members in the case of non-stock corporations, at a stockholder's or
member's meeting duly called for the purpose. Written notice of the proposed investment and the
time and place of the meeting shall be addressed to each stockholder or member at his place of
residence as shown on the books of the corporation and deposited to the addressee in the post
office with postage prepaid, or served personally: Provided, That any dissenting stockholder shall
have appraisal right as provided in this Code: Provided, however, That where the investment by
the corporation is reasonably necessary to accomplish its primary purpose as stated in the articles
of incorporation, the approval of the stockholders or members shall not be necessary. (17 1/2a)
Corporate Name
(a) Must not be identical or deceptively or confusingly similar to that of any existing corporation
or to any other name already protected by law
(b) Not patently deceptive, confusing or contrary to existing laws
Required by law to include the word “Corporation” or “Inc.”
(Campos, 1990) Change of corporate name requires the amendment of the
AOI: majority vote of the board and the vote or written assent of stockholders holding 2/3 of the
outstanding capital stock (Sec. 16).
Amendment of a corporation’s AOI changing its corporate name does not extinguish the
personality of the original corporation. It is the same corporation with a different name, and its
character is not changed. Consequently, the “new” corporation is still liable for the debts and
obligations of the “old” corporation. (Republic Planters Bank v. CA, 1992)
Red Line Trans. v. Rural Transit, 60 Phil 549
GR No. 41570 | Sept. 6, 1934
Facts:
· This is a petition for review of an order of the Public Service Commission granting to the
Rural Transit Company, Ltd., a certificate of public convenience to operate a transportation service
between Ilagan in the Province of Isabela and Tuguegarao in the Province of Cagayan, and
additional trips in its existing express service between Manila Tuguegarao.
· On June 4, 1932, Rural Transit filed an application for certification of a new service between
Tuguegarao and Ilagan with the Public Company Service Commission (PSC), since the present
service is not sufficient
· Rural Transit further stated that it is a holder of a certificate of public convenience to operate
a passenger bus service between Manila and Tuguegarao
· Red Line opposed said application, arguing that they already hold a certificate of public
convenience for Tuguegarao and Ilagan, and is rendering adequate service. They also argued
that granting Rural Transit’s application would constitute a ruinous competition over said route
· On Dec. 21, 1932, Public Service Commission approved Rural Transit’s application, with
the condition that "all the other terms and conditions of the various certificates of public
convenience of the herein applicant and herein incorporated are made a part hereof."
· A motion for rehearing and reconsideration was filed by Red Line since Rural Transit has a
pending application before the Court of First Instance for voluntary dissolution of the corporation
· A motion for postponement was filed by Rural Transit as verified by M. Olsen who swears
"that he was the secretary of the Rural Transit Company, Ltd
· During the hearing before the Public Service Commission, the petition for dissolution and
the CFI’s decision decreeing the dissolution of Rural Transit were admitted without objection
· At the trial of this case before the Public Service Commission an issue was raised as to who
was the real party in interest making the application, whether the Rural Transit Company, Ltd., as
appeared on the face of the application, or the Bachrach Motor Company, Inc., using name of the
Rural Transit Company, Ltd., as a trade name
· However, PSC granted Rural Transit’s application for certificate of public convenience and
ordered that a certificate be issued on its name
· PSC relied on a Resolution in case No. 23217, authorizing Bachrach Motor to continue
using Rural Transit’s name as its tradename in all its applications and petitions to be filed before
the PSC. Said resolution was given a retroactive effect as of the date of filing of the application or
April 30, 1930
Issue: Can the Public Service Commission authorize a corporation to assume the name of another
corporation as a trade name?
Ruling: NO
· The Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine
corporations and the very law of their creation and continued existence requires each to adopt
and certify a distinctive name
· The incorporators "constitute a body politic and corporate under the name stated in the
certificate."
· A corporation has the power "of succession by its corporate name." It is essential to its
existence and cannot change its name except in the manner provided by the statute. By that name
alone is it authorized to transact business.
· The law gives a corporation no express or implied authority to assume another name that
is unappropriated: still less that of another corporation, which is expressly set apart for it and
protected by the law. If any corporation could assume at pleasure as an unregistered trade name
the name of another corporation, this practice would result in confusion and open the door to
frauds and evasions and difficulties of administration and supervision.
In this case, the order of the commission authorizing the Bachrach Motor Co., Incorporated, to
assume the name of the Rural Transit Co., Ltd. likewise incorporated, as its trade name being
void. Accepting the order of December 21, 1932, at its face as granting a certificate of public
convenience to the applicant Rural Transit Co., Ltd., the said order last mentioned is set aside and
vacated on the ground that the Rural Transit Company, Ltd., is not the real party in interest and
its application was fictitious.
Republic Planters Bank v. CA, 216 SCRA 738 (1992)
FACTS:
Shozo Yamaguchi (President/Chief Operating Officer) and Fermin Canlas (Treasurer) by virtue of
Board Resolution of Worldwide Garment Manufacturing, Inc were authorized to apply for credit
facilities with the Republic Planters Bank in the forms of export advances and letters of credit/trust
receipts accommodations.
9 promissory notes with Worldwide Garment Manufacturing, Inc. was apparently rubber stamped
above the signatures of Yamaguchi and Canlas were issued to Republic Planters Bank
December 20, 1982: Worldwide Garment Manufacturing, Inc. changed its corporate name to Pinch
Manufacturing Corporation
February 5, 1982: Republic Planters filed a complaint for the recovery of sums of money
Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-trial
conference despite due notice
Fermin Canlas denied having issued the promissory notes as an officer of Pinch Manufacturing
Corporation and when he issued said promissory notes in behalf of Worldwide Garment
Manufacturing, Inc., it was in blank (typewritten entries not appearing when he signed)
ISSUE: W/N Fermin Canlas is solidarily liable with the other defendants, namely Pinch
Manufacturing Corporation and Shozo Yamaguchi on the 9 promissory notes because they are
negotiable and ruled by the Negotiable Instruments Law
HELD: CA absolving Fermin Canlas is REVERSED and SET ASIDE. Judgement is hereby
rendered declaring private respondent Fermin Canlas jointly and severally liable on all 9
promissory notes with the following sums and at 16% interest per annum
Under the Negotiable lnstruments Law, persons who write their names on the face of promissory
notes are makers and are liable as such.
Fermin Canlas
-one of the co-makers of the promissory notes
-cannot escape liability arising therefrom
-made clearer and certain, without reason for ambiguity, by the presence of the phrase "joint and
several" as describing the unconditional promise to pay to the order of Republic Planters Bank
-Severally and jointly or solidarily liable

-"I promise to pay" is signed by 2 or more persons
-"I" ,We" , or "Either of us" promise to, pay, when signed by two or more persons
-"and (in) his personal capacity" below the signatures of the makers - immaterial and will not affect
to the liability of Fermin Canlas as a joint and several debtor of the notes.
-With or without it, he is primarily liable as a co-maker of each of the notes and his liability is that
of a solidary debtor
-A change in the corporate name does not make a new corporation, and whether effected by
special act or under a general law, has no affect on the identity of the corporation, or on its
property, rights, or liabilities
The corporation continues, as before, responsible in its new name for all debts or other liabilities
which it had previously contracted or incurred.
GR: officers or directors under the old corporate name bear no personal liability for acts done or
contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such officers
acted in their capacity as agent of the old corporation and the change of name meant only the
continuation of the old juridical entity, the corporation bearing the same name is still bound by the
acts of its agents if authorized by the Board.
P.C. Javier & Sons, Inc. v. CA 462 SCRA 36
FACTS
In February, 1981, Plaintiff P.C. Javier and Sons Services, Inc., Plaintiff Corporation, for short,
applied with First Summa Savings and Mortgage Bank, later on renamed as PAIC Savings and
Mortgage Bank, Defendant Bank, for short, for a loan accommodation under the Industrial
Guarantee Loan Fund (IGLF) for P1.5 Million. On March 21, 1981, Plaintiff Corporation through
Plaintiff Pablo C. Javier, Plaintiff Javier for short, was advised that its loan application was
approved and that the same shall be forwarded to the Central Bank (CB) for processing and
release (Exhibit A also Exhibit 8).
The CB released the loan to Defendant Bank in two (2) tranches of P750,000 each. The first
tranche was released to the Plaintiff Corporation on May 18, 1981 in the amount of P750,000.00
and the second tranche was released to Plaintiff Corporation on November 21, 1981 in the amount
of P750,000.00. From the second tranche release, the amount of P250,000.00 was deducted and
deposited in the name of Plaintiff Corporation under a time deposit.
Plaintiffs claim that the loan releases were delayed; that the amount of P250,000.00 was deducted
from the IGLF loan of P1.5 Million and placed under time deposit; that Plaintiffs were never allowed
to withdraw the proceeds of the time deposit because Defendant Bank intended this time deposit
as automatic payments on the accrued principal and interest due on the loan. Defendant Bank,
however, claims that only the final proceeds of the loan in the amount of P750,000.00 was delayed
the same having been released to Plaintiff Corporation only on November 20, 1981, but this was
because of the shortfall in the collateral cover of Plaintiffs loan; that this second tranche of the
loan was precisely released after a firm commitment was made by Plaintiff Corporation to cover
the collateral deficiency through the opening of a time deposit using a portion of the loan proceeds
in the amount of P250,000.00 for the purpose; that in compliance with their commitment to submit
additional security and open time deposit, Plaintiff Javier in fact opened a time deposit for
P250,000.00 and on February 15, 1983, executed a chattel mortgage over some machineries in
favor of Defendant Bank; that thereafter, Plaintiff Corporation defaulted in the payment of its IGLF
loan with Defendant Bank hence Defendant Bank sent a demand letter dated November 22, 1983,
reminding Plaintiff Javier to make payments because their accounts have been long overdue; that
on May 2, 1984, Defendant Bank sent another demand letter to Plaintiff spouses informing them
that since they have defaulted in paying their obligation, their mortgage will now be foreclosed;
that when Plaintiffs still failed to pay, Defendant Bank initiated extrajudicial foreclosure of the real
estate mortgage executed by Plaintiff spouses and accordingly the auction sale of the property
covered by TCT No. 473216 was scheduled by the ExOfficio Sheriff on May 9, 1984.
ISSUE: Whether or not First Summa Savings and Mortgage Bank and PAIC Savings and
Mortgage Bank, Inc. are one and the same entity.
RULING: NO
On the first assigned error, petitioners argue that they are legally justified to withhold their
amortized payments to the respondent bank until such time they would have been properly notified
of the change in the corporate name of First Summa Savings and Mortgage Bank. They claim that
they have never received any formal notice of the alleged change of corporate name of First
Summa Savings and Mortgage Bank to PAIC Savings & Mortgage Bank, Inc. They further claim
that the only and first time they received formal evidence of a change in the corporate name of
First Summa Savings and Mortgage Bank surfaced when respondent bank presented its witness,
Michael Caguioa, on 03 April 1990, where he presented the Securities and Exchange Commission
(SEC) Certificate of Filing of the Amended Articles of Incorporation of First Summa Savings and
Mortgage Bank,[14] the Central Bank (CB) Certificate of Authority[15] to change the name of First
Summa Savings and Mortgage Bank to PAIC Savings and Mortgage Bank, Inc., and the CB
Circular Letter[16] dated 27 June 1983.
Their argument does not hold water. Their defense that they should first be formally notified of the
change of corporate name of First Summa Savings and Mortgage Bank to PAIC Savings and
Mortgage Bank, Inc., before they will continue paying their loan obligations to respondent bank
presupposes that there exists a requirement under a law or regulation ordering a bank that
changes its corporate name to formally notify all its debtors. After going over the Corporation Code
and Banking Laws, as well as the regulations and circulars of both the SEC and the Bangko
Sentral ng Pilipinas (BSP), we find that there is no such requirement. This being the case, this
Court cannot impose on a bank that changes its corporate name to notify a debtor of such change
absent any law, circular or regulation requiring it. Such act would be judicial legislation. The formal
notification is, therefore, discretionary on the bank. Unless there is a law, regulation or circular
from the SEC or BSP requiring the formal notification of all debtors of banks of any change in
corporate name, such notification remains to be a mere internal policy that banks may or may not
adopt.
From the foregoing documents, it cannot be denied that petitioner corporation was aware of First
Summa Savings and Mortgage Banks change of corporate name to PAIC Savings and Mortgage
Bank, Inc. Knowing fully well of such change, petitioner corporation has no valid reason not to pay
because the IGLF loans were applied with and obtained from First Summa Savings and Mortgage
Bank. First Summa Savings and Mortgage Bank and PAIC Savings and Mortgage Bank, Inc., are
one and the same bank to which petitioner corporation is indebted. A change in the corporate
name does not make a new corporation, whether effected by a special act or under a general law.
It has no effect on the identity of the corporation, or on its property, rights, or liabilities.[21] The
corporation, upon such change in its name, is in no sense a new corporation, nor the successor
of the original corporation. It is the same corporation with a different name, and its character is in
no respect changed.
a.3. Purpose Clause (Secs. 14(2) and 42)
1. Uy Siuliong v. Director of Commerce and Industry, 40 Phil. 541 [1919]
2. Gala v. Ellice Agro-Industrial Corp. 418 SCRA 431 (2003)
Sec. 14. (2). The specific purpose or purposes for which the corporation is being incorporated.
Where a corporation has more than one stated purpose, the articles of incorporation shall state
which is the primary purpose and which is/are he secondary purpose or purposes: Provided, That
a non-stock corporation may not include a purpose which would change or contradict its nature
as such;
Sec. 42. Power to invest corporate funds in another corporation or business or for any other
purpose. - Subject to the provisions of this Code, a private corporation may invest its funds in any
other corporation or business or for any purpose other than the primary purpose for which it was
organized when approved by a majority of the board of directors or trustees and ratified by the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or by at least
two thirds (2/3) of the members in the case of non-stock corporations, at a stockholder's or
member's meeting duly called for the purpose. Written notice of the proposed investment and the
time and place of the meeting shall be addressed to each stockholder or member at his place of
residence as shown on the books of the corporation and deposited to the addressee in the post
office with postage prepaid, or served personally: Provided, That any dissenting stockholder shall
have appraisal right as provided in this Code: Provided, however, That where the investment by
the corporation is reasonably necessary to accomplish its primary purpose as stated in the articles
of incorporation, the approval of the stockholders or members shall not be necessary.
Purpose Clause
(a) Must indicate the PRIMARY and SECONDARY purposes if there is more than one purpose,
which should not contradict or change the nature of the corporation (Sec.
14(2))
(b) Must not be patently unconstitutional, illegal, immoral, and contrary to government rules and
regulations (Sec. 17 (2)).
(c) Must not be for the purpose of practicing a profession (People v. United Medical Service, 200
N.E. 157, cited in Campos)
Uy Siuliong v. Director of Commerce and Industry, 40 Phil. 541 [1919]
Facts:
The purpose of this action is to obtain the writ of mandamus to require the respondent to file and
register, upon the payment of the lawful fee, articles of incorporation, and to issue to the petitioners
as the incorporators of a certain corporation to be known as "Siuliong y Compañia, Inc.," a
certificate under the seal of the office of said respondent, certifying that the articles of incorporation
have been duly filed and registered in his office in accordance with the law.
To the petition the respondent demurred and the cause was finally submitted upon the petition
and demurrer.
Petitioners had been associated together as partners, under the style and firm name of "Siuliong
y Cia. The petitioners herein, desired to dissolve said partnership and to form a corporation
composed of the same persons as incorporators, to be known as "Siulong y Compañia,
Incorporada;" The purpose of said corporation, "Siuliong y Cia., Inc.," is (a) to acquire the business
of the partnership theretofore known as Siuliong & Co., and (b) to continue said business with
some of its objects or purposes.
The Director of Commerce and Industry contends (a) that the proposed articles of incorporation
presented for file and registry permitted the petitioners to engage in a business which had for its
end more than one purpose; (b) that it permitted the petitioners to engage in the banking business,
and (c) to deal in real estate, in violation of the Act of Congress of July 1, 1902.
The petitioners insisted that he had expressly renounced in open court their right to engage in
banking business under their articles of incorporation, even though said articles might be
interpreted in a way to authorize them to so to do. That renouncement on the part of the petitioners
eliminates from the purposes of said proposed corporation (of "Siuliong y Cia., Inc.") any right to
engage in the banking business as such, or in the purchase and sale of real estate.
Issue: Whether or not "Siuliong y Cia., Inc.," is permitted to engage in a business with more than
one purpose.
Ruling: Yes
We are of the opinion and so decide that a corporation may be organized under the laws of the
Philippine Islands for mercantile purposes, and to engage in such incidental business as may be
necessary and advisable to give effect to, and aid in, the successful operation and conduct of the
principal business.
In the present case we are fully persuaded that all of the power and authority included in the
articles of incorporation of "Siuliong y Cia., Inc.," are only incidental to the principal purpose of
said proposed incorporation, to wit: "mercantile business."
The purchase and sale, importation and exportation of the products of the country, as well as of
foreign countries, might make it necessary to purchase and discount promissory notes, bills of
exchange, bonds, negotiable instruments, stock, and interest in other mercantile and industrial
associations. It might also become important and advisable for the successful operation of the
corporation to act as agent for insurance companies as well as to buy, sell and equip boats and
to buy and sell other establishments, and industrial and mercantile businesses.
The proposed articles of incorporation contains nothing which violates in the slightest degree any
of the provisions of the laws of the Philippine Islands, and the petitioners are, therefore, entitled
to have such articles of incorporation filed and registered as prayed for by them and to have issued
to them a certificate under the seal of the office of the respondent, setting forth that such articles
of incorporation have been duly filed in his office.
Gala v. Ellice Agro-Industrial Corp. 418 SCRA 431 (2003)
FACTS:
Ellice Agro-Industrial Corporation was formed by spouses Manuel and Alicia Gala, their
children Guia Domingo, Ofelia Gala, Raul Gala, and Rita Benson, and their encargados Virgilio
Galeon and Julian Jader. The spouses transferred several parcels of land as payment of their
subscriptions. Subsequently, Guia Domingo, Ofelia Gala, Raul Gala, Virgilio Galeon and Julian
Jader incorporated the Margo Management and Development Corporation. Manuel Galathen
transferred his shares in Ellice to Margo and Raul Gala. Alicia transferred her shares to de Villa,
Ofelia, Raul and Margo. de Villa later on transferred his shares to Margo.
A special stockholders meeting of Margo was held where Raul Gala was elected as
chairman. During the meeting, the board approved several actions, including the commencement
of proceedings to annul certain dispositions of Margos’ property made by Alicia Gala. The board
also resolved to change the name of the corporation to MRG Management and Development
Corporation. Similarly, a special stockholders meeting of Ellice was held to elect a new board of
directors where Raul Gala, likewise, was elected as chairman.
Respondents filed against petitioners with the SEC a petition for the appointment of a
management committee or receiver, accounting and restitution by the directors and officers, and
the dissolution of Ellice Agro-Industrial Corporation for alleged mismanagement, diversion of
funds, financial losses and the dissipation of assets. Whereas, petitioners initiated a complaint
against the respondents praying for, among others, the nullification of the elections of directors
and officers of both Margo Management and Development Corporation and Ellice Industrial
Corporation and the return of all titles to real property in the name of Margo and Ellice, as well as
all corporate papers and records of both Margo and Ellice which are in the possession and control
of the respondents.
ISSUE: WON SEC has authority to inquire on the matters.
HELD:
No. If a corporation’s purpose, as stated in the Articles of Incorporation, is lawful, then
the SEC has no authority to inquire whether the corporation has purposes other than those stated.
The best proof of the purpose of a corporation is its articles of incorporation and by-laws. The
articles of incorporation must state the primary and secondary purposes of the corporation, while
the by-laws outline the administrative organization of the corporation, which, in turn, is supposed
to insure or facilitate the accomplishment of said purpose. In the case at bar, a perusal of the
Articles of Incorporation of Ellice and Margo shows no sign of the allegedly illegal purposes that
petitioners are complaining of. It is well to note that, if a corporation’s purpose, as stated in the
Articles of Incorporation, is lawful, then the SEC has no authority to inquire whether the corporation
has purposes other than those stated, and mandamus will lie to compel it to issue the certificate
of incorporation.
a.4. Corporate Term (Sec. 11) See also Sec. 605 of the Civil Code
Sec. 11. Corporate term. - A corporation shall exist for a period not exceeding fifty (50) years from
the date of incorporation unless sooner dissolved or unless said period is extended. The corporate
term as originally stated in the articles of incorporation may be extended for periods not exceeding
fifty (50) years in any single instance by an amendment of the articles of incorporation, in
accordance with this Code; Provided, That no extension can be made earlier than five (5) years
prior to the original or subsequent expiry date(s) unless there are justifiable reasons for an earlier
extension as may be determined by the Securities and Exchange Commission.
Civil Code / Art. 605. Usufruct cannot be constituted in favor of a town, corporation, or association
for more than fifty years. If it has been constituted, and before the expiration of such period the
town is abandoned, or the corporation or association is dissolved, the usufruct shall be
extinguished by reason thereof.
a.5. Principal place of business (Sec. 51)
1. Hyatt Elevators & Escalators Corp. v. Goldstar Elevators, Phils. 473 SCRA 705 (2005)
Sec. 51. Place and time of meetings of stockholders or members. - Stockholders' or members'
meetings, whether regular or special, shall be held in the city or municipality where the principal
office of the corporation is located, and if practicable in the principal office of the corporation:
Provided, That Metro Manila shall, for purposes of this section, be considered a city or
municipality.
Notice of meetings shall be in writing, and the time and place thereof stated therein.
All proceedings had and any business transacted at any meeting of the stockholders or members,
if within the powers or authority of the corporation, shall be valid even if the meeting be improperly
held or called, provided all the stockholders or members of the corporation are present or duly
represented at the meeting.
Hyatt Elevators & Escalators Corp. v. Goldstar Elevators, Phils. 473 SCRA 705 (2005)
DOCTRINE: It is a well-established rule that the residence of a corporation is the place where its
principal office is located, as stated in its Articles of Incorporation.
FACTS:
1. Both parties are engaged in the same business of selling installing and maintaining/servicing
elevators and escalators. On February 23, 1999, HYATT filed a complaint for unfair trade practices
and damages unther Articles 19, 20 and 21 of the Civil Code of the Philippines against LG
industrial Systems Co. Ltd (LGISC) and LG International Corporation (LGIC), alleging that in 1988,
HYATT was appointed by LGISC and LGIC as the exclusive distributor of LG elevators in the
Philippines under a “Distributorship Agreement.” In the latter part of 1996, LGISC made a proposal
to change the Distributorship Agreement to that of the joint venture, however HYATT allege that
the representatives of LGISC and LGIC conducted the meeting in bad faith in order to put
pressures upon them and eventually terminated the Exclusive Distributorship Agreement.
2. LGISC and LGIC filed a Motion to Dismiss on the following grounds: (1) lack of jurisdiction over
the persons of defendants, summons not having been served on its resident agent; (2) improper
venue; and (3) failure to state a cause of action.
3. HYATT then filed a motion for leave of court to amend the complaint when it learned that LGISC
was to be substituted to LG Otis because of the latter succeeding the former. THe motion also
averred that Goldstar was being utilized by LG OTIS and LGIC in perpetrating their unlawful and
unjustified acts against HYATT. Goldstar was additionally impleaded as a party-defendant.
4. Goldstar filed a Motion to Dismiss the amended complaint, raising the following grounds: (1)
the venue was improperly laid, as neither HYATT nor defendants reside in Mandaluyong City,
where the original case was filed, and (2) failure to state a cause of action agains (respondent),
since the amended complaint fails to allege with certainty what specific ultimate acts GOLDSTAR
performed in violation of HYATT’s rights.
5. Trial court dismiss the motion. Goldstar filed a MR but the same was dismissed. CA reversed
RTC and declared that the venue was clearly improper, because none of the litigants “resided” in
Mandaluyong City, where the case was filed.
ISSUE: Whether or not the “residence” of the corporation is the same one as stated in the AOI.
HELD:
Yes. Although the Rules of Court do not provide that when the plaintiff is a corporation, the
complaint should be filed in the location of its principal office as indicated in its articles of
incorporation, jurisprudence has, however, settled that the place where the principal office of a
corporation is located, as stated in the articles, indeed establishes its residence. This ruling is
important in determining the venue of an action by or against a corporation, as in the present case.
ISSUE: WoN the venue (Mandaluyong) was improper— YES.
RULING: Petition DENIED.
RATIO:
1. Sec 2 Rule 4 of the 1997 Revised Rules of Court states tgat “Venue of personal actions – all
other actions may be commenced and tried where the plaintiff resides, or where the defendant or
any of the principal defendant resides, or in the case of a non-resident defendant where he may
be found, at the election of the plaintiff.”
2. But since both parties to this case are corporations, there is a need to clarify the meaning of
“residence.” The law recognize two types of persons: (1) Natural and (2) juridical. Corporations
fall under juridical. A corporation, however, has no residence in the same sense in which this term
is applied to a natural person.
3. In the case Young Auto Supply Company v Court of Appelas, the court ruled that “for practical
purposes, a corporation is in a metaphysical sense a resident of the place where its principal office
is located as stated in the articles of incorporation.” But even before this ruling, it has been already
established that the residence of a corporation is the place where its principal office is established.
4. The court held that in the purpose of venue, “residence” is the same with “domicile.”
Correspondingly the Civil Code provides: “Art 51. When the law creating or recognizing them, or
any other provision does not fix the domicile of juridical persons, the same shall be understood to
be the place where their legal representation is established or where they exercise their principal
functions.” AND Under Section 14(3) of the Corporation Code, the place where the principal office
of the corporation is to be located is one of the required contents of the articles of incorporation,
which shall be filed with the Securities and Exchange Commission (SEC).
5. In the present case, there is no question as to the residence of respondent. What needs to be
examined is that of petitioner. Admittedly, the latter’s principal place of business is Makati, as
indicated in its Articles of Incorporation. Since the principal place of business of a corporation
determines its residence or domicile, then the place indicated in petitioner’s articles of
incorporation becomes controlling in determining the venue for this case.
6. HYATT argues that the Rules of Court did not provide that when the plaintiff is a corporation,
the complaint should be filed in the location of its principal office as indicated in its articles of
incorporation. This is however settled by jurisprudence.
7. The choice of venue should not be left to the plaintiff’s whim or caprice. He may be impelled
by some ulterior motivation in choosing to file a case in a particular court even if not allowed by
the rules on venue.
a.6 Minimum Capitalization (Sec. 12)
Why is maximum capitalization indicated?
Sec. 12. Minimum capital stock required of stock corporations. - Stock corporations incorporated
under this Code shall not be required to have any minimum authorized capital stock except as
otherwise specifically provided for by special law, and subject to the provisions of the following
section.
What are the capital stock requirements?
GR: There is no minimum authorized capital stock as long as the paid‐up capital is not less than
P5,000.00
XPN: As provided by special law (e.g. Banks)
Is it required that each subscriber pay 25% of each subscribed share?
No. It is only required that at least 25% of the subscribed capital must be paid.
SUBSCRIPTION REQUIREMENT
The amount of capital stock to be subscribed and paid for the purposes of incorporation (Sec. 13):
(1) At the time of incorporation, at least 25% of the authorized capital stock stated in the AOI
should be subscribed;
(2) At least 25% of the said 25% above, must be paid upon subscription;
(3) The balance to be payable on
(a) Dates fixed in the subscription contract or
(b) Upon call by the BOD in the absence of fixed dates
(4) The paid-up capital can in no case be lower than P5,000.00
a.7. Subscription and Paid-Up Capital (Sec. 13)
Lanuza v. Court of Appeals, 454 SCRA 2005
Sec. 13. Amount of capital stock to be subscribed and paid for the purposes of incorporation. - At
least twenty-five percent (25%) of the authorized capital stock as stated in the articles of
incorporation must be subscribed at the time of incorporation, and at least twenty-five (25%) per
cent of the total subscription must be paid upon subscription, the balance to be payable on a
date or dates fixed in the contract of subscription without need of call, or in the absence of a
fixed date or dates, upon call for payment by the board of directors: Provided, however, That in
no case shall the paid-up capital be less than five Thousand (P5,000.00) pesos.
Lanuza v. Court of Appeals, 454 SCRA 2005
Facts:
· Petitioners seek to nullify the Court of Appeals’ Decision in CA–G.R. SP No. 414731
promulgated on 18 August 1997, affirming the SEC Order dated 20 June 1996, and the
Resolution2 of the Court of Appeals dated 31 October 1997 which denied petitioners’ motion for
reconsideration.
· In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven
hundred (700) founders’ shares and seventy-six (76) common shares as its initial capital stock
subscription reflected in the articles of incorporation
· Onrubia et. al, who were in control of PMMSI registered the company’s stock and transfer
book for the first time in 1978, recording thirty-three (33) common shares as the only issued and
outstanding shares of PMMSI.
· In 1979, a special stockholders’ meeting was called and held on the basis of what was
considered as a quorum of twenty-seven (27) common shares, representing more than two-thirds
(2/3) of the common shares issued and outstanding.
· In 1982, Juan Acayan, one of the heirs of the incorporators filed a petition for the registration
of their property rights was filed before the SEC over 120 founders’ shares and 12 common shares
owned by their father
· SEC Hearing Officer: heirs of Acayan were entitled to the claimed shares and called for a
special stockholders’ meeting to elect a new set of officers.
· SEC en banc: affirmed the decision
· As a result, the shares of Acayan were recorded in the stock and transfer book.
· On May 6, 1992, a special stockholders’ meeting was held to elect a new set of directors
· Onrubia et al filed a petition with SEC questioning the validity of said meeting alleging that
the quorum for the said meeting should not be based on the 165 issued and outstanding shares
as per the stock and transfer book, but on the initial subscribed capital stock of seven hundred
seventy-six (776) shares, as reflected in the 1952 Articles of Incorporation
· Petition was dismissed
· SC en banc: shares of the deceased incorporators should be duly represented by their
respective administrators or heirs concerned. Called for a stockholders meeting on the basis of
the stockholdings reflected in the articles of incorporation for the purpose of electing a new set of
officers for the corporation
· Lanuza, Acayan et al, who are PMMSI stockholders, filed a petition for review with the CA,
raising the following issues:
1. whether the basis the outstanding capital stock and accordingly also for determining the
quorum at stockholders’ meetings it should be the 1978 stock and transfer book or if it should be
the 1952 articles of incorporation
(They contended that the basis is the stock and transfer book, not articles of incorporation in
computing the quorum)
2. whether the Espejo decision (decision of SEC en banc ordering the recording of the shares
of Jose Acayan in the stock and transfer book) is applicable to the benefit of Onrubia et al
· CA decision:
1. For purposes of transacting business, the quorum should be based on the outstanding
capital stock as found in the articles of incorporation
2. To require a separate judicial declaration to recognize the shares of the original incorporators
would entail unnecessary delay and expense. Besides. the incorporators have already proved
their stockholdings through the provisions of the articles of incorporation.
· Appeal was made by Lanuza et al before the SC
· Lanuza et al’ contention:
1992 stockholders’ meeting was valid and legal
Reliance on the 1952 articles of incorporation for determining the quorum negates the existence
and validity of the stock and transfer book Onrubia et al prepared
Onrubia et al must show and prove entitlement to the founders and common shares in a separate
and independent action/proceeding in order to avail of the benefits secured by the heirs of Acayan
· Onrubia et al’s contention, based on the Memorandum: petition should be dismissed on the
ground of res judicata
· Another appeal was made
· Lanuza et al’s contention: instant petition is separate and distinct from G.R. No. 131315,
there being no identity of parties, and more importantly, the parties in the two petitions have their
own distinct rights and interests in relation to the subject matter in litigation
· Onrubia et al’s manifestation and motion: moved for the dismissal of the case
Issue: What should be the basis of quorum for a stockholders’ meeting—the outstanding capital
stock as indicated in the articles of incorporation or that contained in the company’s stock and
transfer book?
Ruling:
Articles of Incorporation
- Defines the charter of the corporation and the contractual relationships between the State
and the corporation, the stockholders and the State, and between the corporation and its
stockholders.
- Contents are binding, not only on the corporation, but also on its shareholders.
Stock and transfer book
- Book which records the names and addresses of all stockholders arranged alphabetically,
the installments paid and unpaid on all stock for which subscription has been made, and the date
of payment thereof; a statement of every alienation, sale or transfer of stock made, the date thereof
and by and to whom made; and such other entries as may be prescribed by law
- Necessary as a measure of precaution, expediency and convenience since it provides the
only certain and accurate method of establishing the various corporate acts and transactions and
of showing the ownership of stock and like matters
- Not public record, and thus is not exclusive evidence of the matters and things which ordinarily
are or should be written therein
· In this case, the articles of incorporation indicate that at the time of incorporation, the
incorporators were bona fide stockholders of 700 founders’ shares and 76 common shares.
Hence, at that time, the corporation had 776 issued and outstanding shares.
· According to Sec. 52 of the Corp Code, “a quorum shall consist of the stockholders
representing a majority of the outstanding capital stock.” As such, quorum is based on the totality
of the shares which have been subscribed and issued, whether it be founders’ shares or common
shares
· To base the computation of quorum solely on the obviously deficient, if not inaccurate stock
and transfer book, and completely disregarding the issued and outstanding shares as indicated in
the articles of incorporation would work injustice to the owners and/or successors in interest of the
said shares.
· The stock and transfer book of PMMSI cannot be used as the sole basis for determining
the quorum as it does not reflect the totality of shares which have been subscribed, more so when
the articles of incorporation show a significantly larger amount of shares issued and outstanding
as compared to that listed in the stock and transfer book.
· One who is actually a stockholder cannot be denied his right to vote by the corporation
merely because the corporate officers failed to keep its records accurately. A corporation’s records
are not the only evidence of the ownership of stock in a corporation.
· It is no less than the articles of incorporation that declare the incorporators to have in their
name the founders and several common shares. Thus, to disregard the contents of the articles of
incorporation would be to pretend that the basic document which legally triggered the creation of
the corporation does not exist and accordingly to allow great injustice to be caused to the
incorporators and their heirs
WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against
petitioners.
a.8. Steps and Documents Required in SEC
REGISTRATION OF ARTICLES OF INCORPORATION
Documents to be filed with SEC (Asked in 2002):
[BAT-LaNG]
(1) Articles of Incorporation
(2) Treasurer’s Affidavit certifying that 25% of the total authorized capital stock has been
subscribed and at least 25% of such has been fully paid in cash or property.
(3) Bank certificate covering the paid-up capital.(Note: Current SEC rules no longer require this if
payment for shares is made in cash)
(4) Letter authority authorizing the SEC to examine the bank deposit and other corporate books
and records to determine the existence of paid-up capital.
(5) Undertaking to change the corporate Name in case there is another person or entity with same
or similar name that was previously registered.
(6) Certificate of authority from proper Government agency whenever appropriate like BSP for
banks and Insurance Commission for insurance corporations. (Sundiang and Aquino)
ISSUANCE OF CERTIFICATE OF INCORPORATION BY SEC
Effect: Commencement of corporate existence and juridical personality (Sec. 19)
Revocation of certificate of incorporation: If incorporators are found guilty of fraud in procuring the
same after due notice and hearing (Sec. 6(i), PD 902-A)
b. Grounds for Disapproval
Sec. 17. Grounds when articles of incorporation or amendment may be rejected or disapproved.
- The Securities and Exchange Commission may reject the articles of incorporation or disapprove
any amendment thereto if the same is not in compliance with the requirements of this Code:
Provided, That the Commission shall give the incorporators a reasonable time within which to
correct or modify the objectionable portions of the articles or amendment. The following are
grounds for such rejection or disapproval:
1. That the articles of incorporation or any amendment thereto is not substantially in accordance
with the form prescribed herein;
2. That the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral,
or contrary to government rules and regulations;
3. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or paid if
false;
4. That the percentage of ownership of the capital stock to be owned by citizens of the Philippines
has not been complied with as required by existing laws or the Constitution.
No articles of incorporation or amendment to articles of incorporation of banks, banking and quasi-
banking institutions, building and loan associations, trust companies and other financial
intermediaries, insurance companies, public utilities, educational institutions, and other
corporations governed by special laws shall be accepted or approved by the Commission unless
accompanied by a favorable recommendation of the appropriate government agency to the effect
that such articles or amendment is in accordance with law.
Note: The above grounds are not exclusive. The grounds according to P.D. No. 902‐A are:
1. Fraud in procuring its certificate of incorporation;
2. Serious misrepresentation as to what the corporation can do or its doing to the great prejudice
of, or damage to, the general public;
3. Refusal to comply with, or defiance or a lawful order of the SEC restraining the commission of
acts which would amount to a grave violation of its franchise;
4. Continuous inoperation for a period of at least five (5) years after commencing the transaction
of its business (Sec. 22);
5. Failure to file the by‐laws within the required period;
6. Failure to file required reports.’
Is there an automatic rejection of the AOI or any amendment thereto?
No, the SEC shall give the incorporators a reasonable time within which to correct or modify the
objectionable portions of the AOI or amendment.(Sec. 17[1])
c. Amendments to the Article (Sec. 16)
Sec. 16. Amendment of Articles of Incorporation. - Unless otherwise prescribed by this Code or
by special law, and for legitimate purposes, any provision or matter stated in the articles of
incorporation may be amended by a majority vote of the board of directors or trustees and the
vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding
capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with
the provisions of this Code, or the vote or written assent of at least two-thirds (2/3) of the members
if it be a non-stock corporation.
The original and amended articles together shall contain all provisions required by law to be set
out in the articles of incorporation. Such articles, as amended shall be indicated by underscoring
the change or changes made, and a copy thereof duly certified under oath by the corporate
secretary and a majority of the directors or trustees stating the fact that said amendment or
amendments have been duly approved by the required vote of the stockholders or members, shall
be submitted to the Securities and Exchange Commission.
The amendments shall take effect upon their approval by the Securities and Exchange
Commission or from the date of filing with the said Commission if not acted upon within six (6)
months from the date of filing for a cause not attributable to the corporation.
Q: What are the limitations in the amendment of AOI?
A:
1. The amendment must be for legitimate purposes and must not be contrary to other provisions
of the Corporation Code and Special laws;
2. Approved by majority of BOD/BOT;
3. Vote or written assent of stockholders representing 2/3 of the outstanding capital stock or 2/3
of members;
4. The original and amended articles together shall contain all provisions required by law to be
set out in the articles of incorporation. Such articles, as amended, shall be indicated by
underscoring the change/s made;
5. Certification under oath by corporate secretary and a majority of the BOD/BOT stating the fact
that said amendment/s have been duly approved by the required vote of the stockholders
or members, shall be submitted to the SEC;
6. Must be approved by SEC. (Sec. 16);
7. Must be accompanied by a favorable recommendation of the appropriate government agency
in cases of:
a. Banks
b. Banking and quasi‐banking institutions
c. Building and loan associations
d. Trust companies and other financial intermediaries
e. Insurance companies
f. Public utilities
g. Educational institutions
h. Other corporations governed by special laws. (Sec. 17 [2])

Q: When does amendment of AOI take effect?

A: Upon approval by the SEC. That is upon issuance of amended certificate of incorporation.

Is it necessary that the approval of SEC be express?

A: No, implied approval of SEC is also allowed. Thus amendment may also take effect from the
date of filing with SEC if not acted upon within 6 months from the date of filing for a cause not
attributable to the corporation.

Q: What are the provisions of AOI that cannot be amended?

A: Those matters referring to accomplished facts, except to correct mistakes.
1. Names of incorporators
2. Names of original subscribers to the capital stock of the corporation and their subscribed and
paid up capital
3. Names of the original directors
4. Treasurer elected by the original subscribers
5. Members who contributed to the initial capital of the non‐stock corporation
6. Witnesses to and acknowledgement with AOI

d. Commencement of Corporate Existence (Sec,. 19)

Sec. 19. Commencement of corporate existence. - A private corporation formed or organized

under this Code commences to have corporate existence and juridical personality and is deemed
incorporated from the date the Securities and Exchange Commission issues a certificate of
incorporation under its official seal; and thereupon the incorporators, stockholders/members and
their successors shall constitute a body politic and corporate under the name stated in the articles
of incorporation for the period of time mentioned therein, unless said period is extended or the
corporation is sooner dissolved in accordance with law.