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CORPO – CHAPTER 4

RED LINE TRANSPORTATION CO. VS. RURAL TRANSIT CO. (60 Phil. 549; Sept. 6, 1934) – A
certificate of public convenience was issued in the name of Rural Transit Co. by the Public
Service Commission despite opposition of herein petitioner-appellant Red Line Transportation
Co.. It appears that ―Red Line Transit Co.‖ is being used as a trade name of Bahrach Motors
Co.

ISSUE: Who is the real party in interest, Rural Transit Co. which appears in the face of the
application? Or Bahrach Motors, Inc. using the name of the former as a trade name?

HELD: Bahrach Motors, Inc.. There is no law that empowers PSC or any court in this
jurisdiction to authorize one corporation to assume the name of another corporation as a
trade name. Both Rural Transit and Bahrach 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 state in the
certificate (Sec. 11, Act. No. 1459). A corporation has the power of succession in its corporate
name (Sec. 13). The name of a corporation is therefore essential to its existence. It cannot
change its name except in the manner provided by law. By that name alone it is authorized to
transact business.

The law gives a corporation on express or implied authority to assume another name that is
unappropriated; still less that of another corporation, which is expressly set apart from it and
protected by law. If any corporation should assume at pleasure as a unregistered trade name,
the name of another corporation, this practice would result in confusion of administration and
supervision. The policy of the law as expressed in our corporation statute and the Code of
Commerce is clearly against such a practice.

UNIVERSAL MILLS CORP. VS. UNIVERSAL TEXTILE MILLS INC. (78 SCRA 62; July 28, 1977) –
In 1953, Universal Textile Mills, Inc. (UTMI) was organized. In 1954, Universal Hosiery Mills
Corporation (UHMC) was also organized. Both are actually distinct corporations but they
engage in the same business (fabrics). In 1963, UHMC petitioned to change its name to
Universal Mills Corporation (UMC). The Securities and Exchange Commission (SEC) granted the
petition. Subsequently, a warehouse owned by UMC was gutted by fire. News about the fire
spread and investors of UTMI thought that it was UTMI’s warehouse that was destroyed. UTMI
had to make clarifications that it was UMC’s warehouse that got burned. Eventually, UTMI
petitioned that UMC should be enjoined from using its name because of the confusion it
brought. The SEC granted UTMI’s petition. UMC however assailed the order of the SEC as it
averred that their tradename is not deceptive; that UTMI’s tradename is qualified by the
word ―Textile‖, hence, there can be no confusion,

ISSUE: WON the SEC is correct?

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HELD: Yes. There is definitely confusion as it was evident from the facts where the investors
of UTMI mistakenly believed that it was UTMI’s warehouse that was destroyed. Although the
corporate names are not really identical, they are indisputably so similar that it can cause, as
it already did, confusion. The SEC did not act in abuse of its discretion when it order UMC to
drop its name because there was a factual evidence presented as to the confusion. Further,
when UMC filed its petition for change of corporate name, it made an undertaking that it
shall change its name in the event that there is another person, firm or entity who has
obtained a prior right to the use of such name or one similar to it. That promise is still binding
upon the corporation and its responsible officers.

LYCEUM OF THE PHILIPPINES VS. COURT OF APPEALS (219 SCRA 610; March 5, 1993) -
Lyceum of the Philippines Inc. previously obtained from the SEC a favourable decision on the
exclusive use of ―Lyceum‖ against Lyceum of Baguio, Inc.. such decision assailed by the
latter before the SC which was denied for lack of merit. Armed with the Resolution of the
Supreme Court, the Lyceum of the Philippines then wrote all the educational institutions it
could find using the word "Lyceum" as part of their corporate name, and advised them to
discontinue such use of "Lyceum." Unheaded, Lyceum of the Philippines instituted before the
SEC an action to enforce what Lyceum of the Philippines claims as its proprietary right to the
word "Lyceum." The SEC rendered a decision sustaining petitioner's claim to an exclusive right
to use the word "Lyceum." The hearing officer relied upon the SEC ruling in the Lyceum of
Baguio, Inc. case.

On appeal, however, by Lyceum Of Aparri, Lyceum Of Cabagan, Lyceum Of Camalaniugan,


Inc., Lyceum Of Lallo, Inc., Lyceum Of Tuao, Inc., Buhi Lyceum, Central Lyceum Of
Catanduanes, Lyceum Of Southern Philippines, Lyceum Of Eastern Mindanao, Inc. and Western
Pangasinan Lyceum, Inc.,, which are also educational institutions, to the SEC En Banc, the
decision of the hearing officer was reversed and set aside. The SEC En Banc did not consider
the word "Lyceum" to have become so identified with Lyceum of the Philippines as to render
use thereof by other institutions as productive of confusion about the identity of the schools
concerned in the mind of the general public. Unlike its hearing officer, the SEC En Banc held
that the attaching of geographical names to the word "Lyceum" served sufficiently to
distinguish the schools from one another, especially in view of the fact that the campuses of
Lyceum of the Philippines and those of the other Lyceums were physically quite remote from
each other. On appeal, the CA affirmed the deicison of the CA en banc, and denied
reconsideration.

ISSUE: WON private respondents can be directed to delete the word ―lyceum‖ from their
corporate names?

HELD: No. The policy underlying the prohibition in Section 18 against the registration of a
corporate name which is "identical or deceptively or confusingly similar" to that of any
existing corporation or which is "patently deceptive" or "patently confusing" or "contrary to
existing laws," is the avoidance of fraud upon the public which would have occasion to deal

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with the entity concerned, the evasion of legal obligations and duties, and the reduction of
difficulties of administration and supervision over corporations.
Herein, the Court does not consider that the corporate names of the academic institutions are
"identical with, or deceptively or confusingly similar" to that of Lyceum of the Philippines
Inc.. True enough, the corporate names of the other schools (defendant institutions) entities
all carry the word "Lyceum" but confusion and deception are effectively precluded by the
appending of geographic names to the word "Lyceum." Thus, the "Lyceum of Aparri" cannot be
mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum of
Camalaniugan" would be confused with the Lyceum of the Philippines. Further,
etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in turn
referred to a locality on the river Ilissius in ancient Athens "comprising an enclosure dedicated
to Apollo and adorned with fountains and buildings erected by Pisistratus, Pericles and
Lycurgus frequented by the youth for exercise and by the philosopher Aristotle and his
followers for teaching."

In time, the word "Lyceum" became associated with schools and other institutions providing
public lectures and concerts and public discussions. Thus today, the word "Lyceum" generally
refers to a school or an institution of learning. Since "Lyceum" or "Liceo" denotes a school or
institution of learning, it is not unnatural to use this word to designate an entity which is
organized and operating as an educational institution. To determine whether a given
corporate name is "identical" or "confusingly or deceptively similar" with another entity's
corporate name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in both
names. One must evaluate corporate names in their entirety and when the name of Lyceum of
the Philippines is juxtaposed with the names of private respondents, they are not reasonably
regarded as "identical" or "confusingly or deceptively similar" with each other.

ISSUE2: WON the word ―Lyceum has acquired a secondary meaning although originally
generic?

HELD: No. The Court of Appeals recognized this issue and answered it in the negative: "Under
the doctrine of secondary meaning, a word or phrase originally incapable of exclusive
appropriation with reference to an article in the market, because geographical or otherwise
descriptive might nevertheless have been used so long and so exclusively by one producer
with reference to this article that, in that trade and to that group of the purchasing public,
the word or phrase has come to mean that the article was his produce (Ana Ang vs. Toribio
Teodoro, 74 Phil. 56). This circumstance has been referred to as the distinctiveness into
which the name or phrase has evolved through the substantial and exclusive use of the same
for a considerable period of time. . . . No evidence was ever presented in the hearing before
the Commission which sufficiently proved that the word 'Lyceum' has indeed acquired
secondary meaning in favor of the appellant. If there was any of this kind, the same tend to
prove only that the appellant had been using the disputed word for a long period of time.

The number alone of the private respondents in the present case suggests strongly that the

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Lyceum of the Philippines' use of the word "Lyceum" has not been attended with the
exclusivity essential for applicability of the doctrine of secondary meaning. It may be noted
also that at least one of the private respondents, i.e., the Western Pangasinan Lyceum, Inc.,
used the term "Lyceum" 17 years before Lyceum of the Philippines registered its own
corporate name with the SEC and began using the word "Lyceum." It follows that if any
institution had acquired an exclusive right to the word "Lyceum," that institution would have
been the Western Pangasinan Lyceum, Inc. rather than Lyceum of the Philippines. Hence,
Lyceum of the Philippines is not entitled to a legally enforceable exclusive right to use the
word "Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of
their corporate names.

PHILIPS EXPORT B.V. et. al. VS. COURT OF APPEALS (206 SCRA 457; Feb. 21, 1992) –
Petitioner is the registered owner of the trademark PHILIPS and PHILIPS SHIELD EMBLEM
issued by the Philippine Patent Office. Philips Electric Lamp Inc. and Philips Industrial
Development Inc., also petitioners, are the authorized users of such trademark.
Petitioner filed a case with SEC praying for a writ of injunction to prohibit herein respondent
Standard Philips Corporation from using the word ―PHILIPS‖ in its corporate name, which was
denied. On appeal, the CA affirmed the SEC.

ISSUE: WON Standard Philips should be directed to delete the word PHILIPS from its corporate
name?

HELD: Yes. As early as Western Equipment and Supply Co. v. Reyes, 51 Phil. 115 (1927), the
Court declared that a corporation's right to use its corporate and trade name is a property
right, a right in rem, which it may assert and protect against the world in the same manner as
it may protect its tangible property, real or personal, against trespass or conversion. It is
regarded, to a certain extent, as a property right and one which cannot be impaired or
defeated by subsequent appropriation by another corporation in the same field (Red Line
Transportation Co. vs. Rural Transit Co., September 8, 1934, 20 Phil 549).

A name is peculiarly important as necessary to the very existence of a corporation (American


Steel Foundries vs. Robertson, 269 US 372, 70 L ed 317, 46 S Ct 160; Lauman vs. Lebanon
Valley R. Co., 30 Pa 42; First National Bank vs. Huntington Distilling Co. 40 W Va 530, 23 SE
792). Its name is one of its attributes, an element of its existence, and essential to its
identity (6 Fletcher [Perm Ed], pp. 3-4). The general rule as to corporations is that each
corporation must have a name by which it is to sue and be sued and do all legal acts. The
name of a corporation in this respect designates the corporation in the same manner as the
name of an individual designates the person (Cincinnati Cooperage Co. vs. Bate. 96 Ky 356, 26
SW 538; Newport Mechanics Mfg. Co. vs. Starbird. 10 NH 123); and the right to use its
corporate name is as much a part of the corporate franchise as any other privilege granted
(Federal Secur. Co. vs. Federal Secur. Corp., 129 Or 375, 276 P 1100, 66 ALR 934; Paulino vs.
Portuguese Beneficial Association, 18 RI 165, 26 A 36).

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A corporation acquires its name by choice and need not select a name identical with or
similar to one already appropriated by a senior corporation while an individual's name is
thrust upon him (See Standard Oil Co. of New Mexico, Inc. v. Standard Oil Co. of California,
56 F 2d 973, 977). A corporation can no more use a corporate name in violation of the rights
of others than an individual can use his name legally acquired so as to mislead the public and
injure another (Armington vs. Palmer, 21 RI 109. 42 A 308).
The statutory prohibition (under Sec. 18 of the Corporation Code) cannot be any clearer. To
come within its scope, two requisites must be proven, namely:

(1) that the complainant corporation acquired a prior right over the use of such corporate
name; and
(2) the proposed name is either:
(a) identical; or
(b) deceptively or confusingly similar to that of any existing corporation or to
any other name already protected by law; or
(c) patently deceptive, confusing or contrary to
existing law.

The right to the exclusive use of a corporate name with freedom from infringement by
similarity is determined by priority of adoption (1 Thompson, p. 80 citing Munn v. Americana
Co., 82 N. Eq. 63, 88 Atl. 30; San Francisco Oyster House v. Mihich, 75 Wash. 274, 134 Pac.
921). In this regard, there is no doubt with respect to Petitioners' prior adoption of' the name
''PHILIPS" as part of its corporate name. Petitioners Philips Electrical and Philips Industrial
were incorporated on 29 August 1956 and 25 May 1956, respectively, while Respondent
Standard Philips was issued a Certificate of Registration on 12 April 1982, twenty-six (26)
years later. Petitioner PEBV has also used the trademark "PHILIPS" on electrical lamps of all
types and their accessories since 30 September 1922.

The second requisite no less exists in this case. In determining the existence of confusing
similarity in corporate names, the test is whether the similarity is such as to mislead a
person, using ordinary care and discrimination. In so doing, the Court must look to the record
as well as the names themselves (Ohio Nat. Life Ins. Co. v. Ohio Life Ins. Co., 210 NE 2d 298).
While the corporate names of Petitioners and Private Respondent are not identical, a reading
of Petitioner's corporate names, to wit: PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS,
INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC., inevitably leads one to conclude that
"PHILIPS" is, indeed, the dominant word in that all the companies affiliated or associated with
the principal corporation, PEBV, are known in the Philippines and abroad as the PHILIPS Group
of Companies.

Respondent’s argue that there were no evidence presented that there was actual confusion.
It is settled, however, that proof of actual confusion need not be shown. It suffices that
confusion is probably or likely to occur (6 Fletcher [Perm Ed], pp. 107-108, enumerating a
long line of cases).

Moreover, Given Private Respondent's underlined primary purpose in its AOI, nothing could
prevent it from dealing in the same line of business of electrical devices, products or supplies

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which fall under its primary purposes. Besides, there is showing that Private Respondent not
only manufactured and sold ballasts for fluorescent lamps with their corporate name printed
thereon but also advertised the same as, among others, Standard Philips (TSN, before the
SEC, pp. 14, 17, 25, 26, 37-42, June 14, 1985; pp. 16-19, July 25, 1985). As aptly pointed out
by Petitioners, [p]rivate respondent's choice of "PHILIPS" as part of its corporate name
[STANDARD PHILIPS CORPORATION] . . . tends to show said respondent's intention to ride on
the popularity and established goodwill of said petitioner's business throughout the world"
(Rollo, p. 137). The subsequent appropriator of the name or one confusingly similar thereto
usually seeks an unfair advantage, a free ride of another's goodwill (American Gold Star
Mothers, Inc. v. National Gold Star Mothers, Inc., et al, 89 App DC 269, 191 F 2d 488).

In allowing Private Respondent the continued use of its corporate name, the SEC maintains
that the corporate names of Petitioners PHILIPS ELECTRICAL LAMPS. INC. and PHILIPS
INDUSTRIAL DEVELOPMENT, INC. contain at least two words different from that of the
corporate name of respondent STANDARD PHILIPS CORPORATION, which words will readily
identify Private Respondent from Petitioners and vice-versa.

True, under the Guidelines in the Approval of Corporate and Partnership Names formulated by
the SEC, the proposed name "should not be similar to one already used by another corporation
or partnership. If the proposed name contains a word already used as part of the firm name or
style of a registered company; the proposed name must contain two other words different
from the company already registered" (Emphasis ours). It is then pointed out that Petitioners
Philips Electrical and Philips Industrial have two words different from that of Private
Respondent's name.

What is lost sight of, however, is that PHILIPS is a trademark or trade name which was
registered as far back as 1922. Petitioners, therefore, have the exclusive right to its use
which must be free from any infringement by similarity. A corporation has an exclusive right
to the use of its name, which may be protected by injunction upon a principle similar to that
upon which persons are protected in the use of trademarks and tradenames (18 C.J.S. 574).
Such principle proceeds upon the theory that it is a fraud on the corporation which has
acquired a right to that name and perhaps carried on its business thereunder, that another
should attempt to use the same name, or the same name with a slight variation in such a way
as to induce persons to deal with it in the belief that they are dealing with the corporation
which has given a reputation to the name (6 Fletcher [Perm Ed], pp. 39-40, citing Borden Ice
Cream Co. v. Borden's Condensed Milk Co., 210 F 510). Notably, too, Private Respondent's
name actually contains only a single word, that is, "STANDARD", different from that of
Petitioners inasmuch as the inclusion of the term "Corporation" or "Corp." merely serves the
Purpose of distinguishing the corporation from partnerships and other business organizations.

The fact that there are other companies engaged in other lines of business using the word
"PHILIPS" as part of their corporate names is no defense and does not warrant the use by
Private Respondent of such word which constitutes an essential feature of Petitioners'

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corporate name previously adopted and registered and-having acquired the status of a well-
known mark in the Philippines and internationally as well (Bureau of Patents Decision No. 88-
35 [TM], June 17, 1988, SEC Records).

CLAVECILLA RADIO SYSTEM VS. ANTILLON (19 SCRA 379; Feb. 18, 1967) – The New Cagayan
Grocery filed a complaint against CRS for some irregularities in the transmission of a message
which changed the context and purport causing damages. The complaint was filed in the City
Court of Cagayan de Oro.

ISSUE: WON the action will prosper?


HELD: No. The action was based on tort and not upon a written contract and as such, under
the Rules of Court, it should be filed in the municipality where the defendant or any of the
defendants resides or may be served with summons.

Settled is the principle in corporation law that the residence of a corporation is the place
where the principal office is established. Since it is not disputed that CRS has its principal
office in Manila, it follows that the suit against it may properly be filed in the City of Manila.
The fact that CRS maintains branch office in some parts of the country does not mean that it
can be sued in any of these places. To allow such would create confusion and work untold
inconveniences to the corporation.

JOHN GOKONGWEI, JR., vs.
SECURITIES AND EXCHANGE COMMISSION (GR No. L-52129;
April 21, 1980) - Petitioner, stockholder of San Miguel Corp. filed a petition with the SEC for
the declaration of nullity of the by-laws etc. against the majority members of the BOD and
San Miguel. The amended by-laws provided for the disqualification of competitors from
nomination and election in the Board of Directors of SMC. This was denied by the SEC.

ISSUE: Is the disqualification valid?

HELD: Yes. The Court held that a corporation has authority prescribed, by law, the
qualifications of directors. It has the inherent power to adopt by- laws for its internal
government, and to regulate the conduct and prescribe the rights and duties of its members
towards itself and among themselves in reference to the management of its affairs. A
corporation, under the Corporation law, may prescribe in its by-laws the qualifications, duties
and compensation of directors, officers, and employees. Any person who buys stock in a
corporation does so with the knowledge that its affairs are dominated by a majority of the
stockholders and he impliedly contracts that the will of the majority shall govern in all
matters within the limits of the acts of incorporation and lawfully enacted by-laws and not
forbidden by law. Any corporation may amend its by-laws by the owners of the majority of
the subscribed stock. It cannot thus be said that petitioners has the vested right, as a stock
holder, to be elected director, in the face of the fact that the law at the time such
stockholder's right was acquired contained the prescription that the corporate charter and the
by-laws shall be subject to amendment, alteration and modification. A Director stands in a
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fiduciary relation to the corporation and its shareholders, which is characterized as a trust
relationship. An amendment to the corporate by-laws which renders a stockholder ineligible
to be director, if he be also director in a corporation whose business is in competition with
that of the other corporation, has been sustained as valid. This is based upon the principle
that where the director is employed in the service of a rival company, he cannot serve both,
but must betray one or the other. The amendment in this case serves to advance the benefit
of the corporation and is good. Corporate officers are also not permitted to use their position
of trust and confidence to further their private needs, and the act done in furtherance of
private needs is deemed to be for the benefit of the corporation. This is called the doctrine
of corporate opportunity.

COMMISSIONER OF INTERNAL REVENUE VS. MANNING (66 SCRA 14; Aug. 6, 1975) – Julius
Reese owned 24,700 of the 25,000 authorized capital stock of Manta Trading and Supply Co.,
the rest are owned by herein respondents. Upon Reese’ death, his shares was held in trust by
the law firm Ross, Carrascoso and Janda for the private respondent, who were to continue
management of the corporation. These shares considered by the respondents as treasury
shares, prior to full payment, were declared as stock dividends. Such declaration was
assessed by the BIR as distribution of assets subject to income tax.

ISSUE: WON the subject shares are treasury shares?

HELD: NO. Treasury shares are stocks issued and fully paid for and reacquired by the
corporation either by purchase, donation, forfeiture or other means and do not have the
status of outstanding shares. They may be re-issued or sold again and while held by the
company participates neither in dividends, because dividends cannot be declared by the
corporation to itself, nor in meeting of the corporation as voting stock for otherwise equal
distribution of voting powers among stockholders will be effectively lost and the directors wil
be able to perpetuate their control of the corporation, though it still represent a paid for
interest in the property of the corporation. These features of a treasury stock are lacking in
the questioned shares.

In this case, and under the terms of the trust agreement, the shares of stock of Reese
participated in dividends which the trustee received and the said shares were voted upon by
the trustee in all corporate meetings. They were not, therefore, treasury shares. The 24,700
shares were outstanding shares of Reese’s estate until they were fully paid. Such being the
case, their declaration as treasury stock dividend was a complete nullity.

CAGAYAN FISHING DEVELOPMENT CO. VS. SANDIKO (65 Phil. 233; Dec. 23, 1937) – On May
31, 1930, Manuel Tabora executed a Deed of Sale where he sold four parcels of land in favor
of herein petitioner Cagayan Fishing Development Co., said to be under the process of
incorporation. Plaintiff company filed its AOI with the Bureau of Commerce and Industry on
Oct. 22, 1930. A year later, before the issuance of the certificate of incorporation, the BD of
the company adopted a resolution to sell the four parcels of land to Teodoro Sandiko for

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P42,000.

ISSUE: WON the subsequent sale to Sandiko is valid?

HELD: No. A duly organized corporation has the power to purchase and hold real property as
the purpose for which such corporation was formed may permit and for this purpose may
enter into such contract as may be necessary. But before a corporation may be said to be
lawfully organized many thing have to be done. Among which, the law requires the filing of
the AOI. It cannot be denied that the plaintiff was not incorporated when it entered into the
contract of sale. It was not even a de facto corporation at that time. Not being in legal
existence then, it did not possess juridical personality to enter into the contract.
Corporations are creatures of the law, and can only come into existence in the manner
prescribed by the law. That a corporation should have a full and complete organization and
existence as an entity before it can enter into a contract or transact any business, would
seem to be self-evident. A corporation, until organized, has no being, franchises or faculties.
Nor do those engaged in bringing it into being have any power to bind it by contract, unless so
authorized by the charter, there is no corporation, nor does it possess franchise or faculties
for it to exercise, until it acquires complete existence. If the company could not and did not
acquire the four parcels of and here involved, it follows that it did not have the resultant
right to dispose the same to the defendant.

THE MUNICIPALITY OF MALABANG, LANAO DEL SUR vs.
PANGANDAPUN BENITO (GR No. L-
28113; March 28, 1969) - The Municipality of Balabagan was created from the barrios and
sitios of the Municipality of Malabang by virtue of EO No 386 issued by President Garcia by
virtue of Sec. 68 of the Revised Administrative Code. Following the decision of the Court in
Pelaez vs. Auditor General, which declared Sec. 68 unconstitutional and that the President
had no power to create a municipality, herein petitioners sought to nullify EO 386 and to
restrain the respondents, who are officers of Balabagan, to vacate said their office and desist
from performing their functions. Respondents argue that it is at least a de facto corporation
and the ruling in Pelaez is not applicable to it, having been organized under color of a statute
before it was declared unconstitutional, its officers having been either elected or appointed,
and the municipality itself having discharged corporate functions for the past five years. That
as a de facto corporation, its existence cannot be collaterally attacked.

ISSUE: WON the Municipality of Balabagan is a de facto corporation?

HELD: No. In cases where a de facto municipal corporation was recognized as such despite
the fact that the statute creating it was later invalidated, the decision could be fairly made
to rest on the consideration that there was some other valid law giving validity to the
organization. Hence, in the case at bar, the mere fact that Balabagan was organized at the
time when the statute had not been invalidated cannot conceivably make it a de facto
corporation, as independently of the Administrative Code provision in question, there is no
other valid statute to give color of authority for its creation. An unconstitutional act is not a
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law; it confers no rights; it imposes no duties; it affords no protection; it creates no office; it
is, in legal contemplation, as inoperative as though it had never been passed.

HALL VS. PICCIO (86 Phil 603 June 29, 1950) – Petitioner, together with private respondents
signed and acknowledged the AOI of Far East Lumber and Commercial Co., Inc., after the
execution of which the corporation proceeded to do business by adopting its by-laws and
election of its officers. Subsequently, pending action on the AOI, the respondents filed with
the CFI alleging the corporation to be an unregistered partnership and praying for its
dissolution, which was granted. Herein petitioner claims that the corporation is a de facto
corporation, that its dissolution may be ordered only in a quo warranto proceedings instituted
by the State.

ISSUE: WON it is a de facto corporation?


HELD: No. First, not having obtained a certificate of incorporation, the company, even its
stockholders, may not probably claim ―in good faith‖ to be a corporation. Such claim is
compatible with the existence of errors and irregularities, but not with a total or substantial
disregard of the law. Unless there has been an evident attempt to comply with the law the
claim to be a corporation ―under this Act‖ (Sec. 19) could not be made in good faith.

Second, this is not a suit where the corporation is a party. This is a litigation between a
stockholder of the alleged corporation, for the purpose of obtaining its dissolution. Even the
existence of a de jure corporation may be terminated in a private suit for its dissolution
between stockholders, without the intervention of the State.

LOZANO VS. DE LOS SANTOS (274 SCRA 452; June 19, 1977) – Petitioner Reynaldo Lozano
and respondent Antontio Anda agreed to consolidate their respective Jeepney Associations, to
which they are presidents. They conducted an election for one set of officers of the
consolidated association, where petitioner was the winner. Respondent, however, refused to
abide by the agreement which prompted petitioner to institute an action for damages in the
trial court which was denied for being intra-corporate, and was held to be within the
jurisdiction of the SEC.

ISSUE: WON there is corporation by estoppel placing the case within SEC jurisdiction?

HELD: None. The unified association was still a proposal and had not been approved by the
SEC, neither had its officers and members submitted their AOI. Their respective associations
are distinct and separate entities, petitioner and private respondent does not have an intra-
corporate relation much less do they have an intra-corporate dispute. The SEC has no
jurisdiction over the complaint. The doctrine of corporation by estoppel advance by privte
respondent cannot override jurisdictional requirements. Jurisdiction is fixed by law and is not
subject to the agreement of the parties. Corporation by estoppel is founded on principle of
equity and is designated to prevent injustice and unfairness. It applies when persons assume
to form a corporation and exercise corporate functions and enter into business relations with
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third persons. Where there is no third person involved and the conflict arises only among
those assuming to form a corporation, who therefore know that it has not been registered,
there is no corporation by estoppel.

ALBERT VS. UNIVERSITY PUBLISHING CO., INC. (13 SCRA 84; Jan. 30, 1965) – Jose Aruego,
president of defendant University Publishing Co, Inc. entered into a contract with plaintiff for
the publishing of the latter’s revised commentaries on the Revised Penal Code, which the
defendant failed to pay the second instalment due. The CFI of Manila rendered judgment in
favor of plaintiff, such judgment reduced by the Supreme Court to P15,000. The CFI issued a
writ of execution against Aruego, as the real defendant, stating the discovery that there is no
such entity as University Publishing Co., Inc.

ISSUE: WON the writ of execution may be effected upon Aruego?

HELD: Yes. On account of non-registration, University cannot be considered a corporation,


not even a corporation de facto. It has therefore, no personality separate from Aruego it
cannot be sued independently. The doctrine of corporation by estoppel is inapplicable.
Aruego represented a non-existent entity and induced not only the plaintiff but even the
court of belief of such representation. He signed the contract as ―President‖ of University
and obviously misled plaintiff in to believing that University is a ―corporation duly organized
and existing under the laws of the Philippines‖. One who has induced another to act upon his
wilful misrepresentation that a corporation was duly organized and existing under the law,
cannot, thereafter, set up against his victim the principle of corporation by estoppel.

SALVATIERRA VS. GARLITOS, ET AL. (103 Phil. 757; May 23, 1958) – Petitioner Manuel T.
Vda de Salvatierra, owner of a parcel of land, entered into a contract of lease with Philippine
Fibers Processing Co., Inc., allegedly a corporation. For failure to comply with the obligations
under the lease, petitioner filed a complaint in the CFI where the company was declared in
default and decision was rendered in favor of petitioner. Defendant Refuerzo filed a motion
claiming that he should not be made personally liable in the decision which was granted by
the Court. Hence, this petition.

ISSUE: WON Refuerzon can be made personally liable?

HELD: Yes. While as a general rule, a person who has contracted or dealt with an association
in such a way as to recognize its existence as a corporate body is estopped from denying the
same in an action arising out of such transaction or dealing, yet this doctrine may not be held
applicable where fraud takes part in the said transaction. In the instant case, on plaintiff’s
charge that she was unaware of the fact that the company had no juridical personality,
defendant Refuerzo gave no confirmation or denial and the circumstances surrounding the
execution of the contract led to the inescapable conclusion that plaintiff Salvatierra was
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really made to believe that such corporation was duly organized in accordance with law.

The rule on the separate personality of a corporation is understood to refer merely to


registered corporations and cannot be made applicable to the liability of members of an
unincorporated association. The reason behind this doctrine is obvious – since an organization
which before the law is non-existent has no personality and would be incompetent to act on
its behalf; thus, those who act or purport to act as its representatives or agent do so without
authority and at their own risk. And, as is it elementary principle of law that a person who
acts as an agent without authority or without principal is himself regarded as the principal, a
person acting or purporting to act on behalf of a corporation which has no valid existence
assumes such privileges and obligations and becomes personally liable for contracts entered
into or for other acts performed as such agents.

In acting on behalf of a corporation which he knew to be unregistered, the president of the


unregistered corporation Refuerzo, assumed the risk of reaping the con the consequential
damages of resultant right, if any, arising out of such transaction.

CHANG KAI SHEK SCHOOL VS. CA (172 SCRA 389; April 18, 1989) – Private respondent
Faustina Oh has been teaching in the herein petitioner School since 1932 for a continuous
period of 33 years until that day that she was told that she had no assignment for the next
semester. She filed a suit before the CFI against the school and later on amended her
complaint to include certain officials. The CFI of Sorsogon dismissed the complaint. On
appeal, the CA reversed the decision and held herein petitioner school liable but absolved the
other defendants.

ISSUE: WON the School can be held liable?

HELD: Yes. Even though the school failed to incorporate as mandated by law, it cannot now
invoke such non-compliance with the law to immunize it from the private respondent’s
complaint. There should also be no question that having contracted with the private
respondent every year for 32 years and thus represented itself possessed of juridical
personality to defeat her claim against it. According to Art. 1431 of the Civil Code: ―through
estoppel an admission or representation is rendered conclusive upon the person making it and
it cannot be denied as against the person relying on it. As the school itself may be sued in its
own name, there is no need to apply Rule 3, Sec. 15, under which the persons joined in an
association without any juridical personality may be sued with such an association. Besides, it
has been shown that the individual members of the board of trustees are not liable, having
been appointed only after the private respondent’s dismissal.

ASIA BANKING CORP. VS. STANDARD PRODUCTS CO. INC. (46 Phil. 144; Sept. 11, 1924) –
This action was brought to recover the balance due of a promissory note executed by herein
appellant. The court rendered judgment in favor of the plaintiff. At the trial of the case the
plaintiff failed to prove affirmatively the corporate existence of the parties and the appellant
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insists that under these circumstances the court erred in finding that the parties were
corporations with juridical personality and assigns same as reversible error.

ISSUE: WON parties herein are corporations with juridical personality?

HELD: Yes. There is no merit whatever in the appellant's contention. The general rule is that
in the absence of fraud a person who has contracted or otherwise dealt with an association in
such a way as to recognize and in effect admit its legal existence as a corporate body is
thereby estopped to deny its corporate existence in any action leading out of or involving
such contract or dealing, unless its existence is attacked for cause which have arisen since
making the contract or other dealing relied on as an estoppel and this applies to foreign as
well as to domestic corporations. (14 C. J., 227; Chinese Chamber of Commerce vs. Pua Te
Ching, 14 Phil., 222.) The defendant having recognized the corporate existence of the
plaintiff by making a promissory note in its favor and making partial payments on the same is
therefore estopped to deny said plaintiff's corporate existence. It is, of course, also estopped
from denying its own corporate existence. Under these circumstances it was unnecessary for
the plaintiff to present other evidence of the corporate existence of either of the parties. It
may be noted that there is no evidence showing circumstances taking the case out of the
rules stated.

INTERNATIONAL EXPRESS TRAVEL & TOURS SERVICES, INC. VS. CA


(343 SCRA 674; Oct. 19, 2000) – Petitioner International Express Travel & Tours Services,
Inc. entered into an agreement with the Philippine Football Federation through its president
Henry Kahn, herein private respondent, where the former supplied tickets for the trips of the
athletes to the Southeast Asian Games and other various trips. The Federation failed to pay a
balance of P265,894.33 which led petitioner to file a civil case in the RTC of Manila which
decided in its favor and holding Henry Kahn personally liable. On appeal, the CA reversed the
decision of the RTC absolving Kahn from personal liability holding that the Federation had a
separate and distinct personality.
ISSUE: WON Henry Kahn can be made personally liable?

HELD: Yes. While we agree with the appellate court that associations may be accorded
corporate status, such does not automatically take place by the mere passage of RA 3135
otherwise known as the Revised Charter of the Philippine Amateur Athletic Federation and PD
604. It is a basic postulate that before a corporation may acquire juridical personality, the
State must give its consent either in the form of a special law or a general enabling act.
Nowhere can it be found in RA 3135 and PD 604 any provision creating the Philippine Football
Federation. These laws merely recognized the existence of national sports associations and
provided for the manner by which these entities may acquire juridical personality.

The recognition of Philippine Amateur Athletic Federation required under RA 3135 and the
Department of Youth and Sports Development under 604, extended to the PFF was not
substantiated by Kahn. Accordingly, the PFF is not a national sports association within the

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purview of the aforementioned laws and does not have corporate existence of its own.

This being said, it follows that private respondent Kahn should be held liable for the unpaid
obligations of the unincorporated PFF. It is a settled principle in corporation law that any
person acting or purporting to act on behalf of a corporation which has no valid existence
assumes such privileges and obligations and becomes personally liable for contracts entered
into or for other acts performed as such agents.

We cannot subscribe to the position taken by the appellate court that even assuming that the
PFF was defectively incorporated, the petitioner cannot deny the corporate existence of the
PFF because it had contracted and dealt with the PFF in such a manner as to recognize and in
effect admits its existence. The doctrine of corporation by estoppel is mistakenly applied by
the respondent court to the petitioner. The application of the doctrine applies to a third
party only when he tries to escape liability on a contract from which he has benefited on the
irrelevant ground of defective incorporation. In the case at bar, the petitioner is not trying to
escape liability from the contract but rather is the one claiming from the contract.

GEORG GROTJAHN GMBH & CO. VS. ISNANI (235 SCRA 216; Aug. 10, 1994) – Petitioner is a
German company who was granted a license to establish a regional or area headquarters in
the Philippines. Private respondent Romana Lanchinebre was a sales representative of
petitioner who made advances totalling P35,000 which were left unpaid. Petitioner filed a
complaint for the collection of a sum of money which was dismissed by the judge holding,
among others, that the license of petitioner does not include the license to do business in the
Philippines.

ISSUE: WON petitioner has capacity to sue?

HELD: Yes. Private respondent is estopped from assailing the personality of petitioner. ―The
rule is that the party is estopped to challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it. And the doctrine of estoppel to
deny corporate existence applies to foreign as well as domestic corporation; one who has
dealt with a corporation of foreign origin as a corporate entity is estopped to deny its
corporate existence and capacity. The principle will be applied to prevent a person
contracting with a foreign corporation from later taking advantage f its non-compliance with
the statutes chiefly in case where such person has received the benefits of the contract.
(Merill Lynch Futures, Inc. vs. CA).

In the case of Merill Lynch Futures, the SC held that a foreign corporation doing business in
the Philippines may sue in Philippine courts although not authorized to do business here
against the Philippine citizen who had contracted with and been benefited by said
corporation. Citing and applying the doctrine laid down in Asia Banking Corp. vs. Standard
Prodcuts Co., Inc.

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