SUBSCRIPTION CONTRACTS College, there was absolute necessity on the part of the
College to express its agreement to Damasa's offer in order
G.R. No. L-5003 June 27, 1953
NAZARIO TRILLANA, administrator-appellee, vs.QUEZON COLLEGE,
INC., claimant-appellant.
 DamasaCrisostomo subscribed 200 shares of capital stock
with a par value of P100 each through a letter sent to the
Board of Trustees of the Quezon College, enclosed with the
letter are a sum of money as her initial payment and her
assurance of full payment after she harvested fish. On
October 26, 1948, DamasaCrisostomo passed away. As no
payment appears to have been made on the subscription
mentioned in the foregoing letter, the Quezon College, Inc.
presented a claim before the CFI of Bulacan in her testate
proceeding, for the collection of the sum of P20,000,
representing the value of the subscription to the capital
stock of the Quezon College, Inc. which was then opposed
by the administrator of the estate.
ISSUE: WON the subscription herein is valid, entitling Quezon
College to collect the aforesaid 20k.
HELD: NO.
 There is nothing in the record to show that the Quezon
College, Inc. accepted the term of payment suggested by
Damasa, or that if there was any acceptance the same came
to her knowledge during her lifetime.
 As the application of Damasa is obviously at variance with
the terms evidenced in the form letter issued by the Quezon
to bind the latter.
 Said acceptance was essential, because it would be unfair to
immediately obligate the Quezon Collegeunder Damasa's
promise to pay the price of the subscription after she has
harvested fish. The said condition is obviously dependent
upon Damasa’s sole will
 The relation between Damasaand the Quezon Collegehad
only thus reached the preliminary stage whereby the latter
offered its stock for subscription on the terms stated in the
form letter, and Damasa applied for subscription fixing her
own plan of payment.A relationthat had not ripened into an
enforceable contract due to the absence of acceptance by
the Quezon Collegeof the counter offer of Damasa.
 Indeed, the need for express acceptance on the part of the
Quezon College, Inc. becomes the more imperative, in view
of the proposal of DamasaCrisostomo to pay the value of
the subscription after she has harvested fish, a condition
obviously dependent upon her sole will and, therefore,
facultative in nature, rendering the obligation void, under
article 1115 of the old Civil Code (Art. 1151, NCC)
 It cannot be argued that the condition solely is void,
because it would have served to create the obligation to
pay.
o NOTE: Only thepotestative condition is void in cases
where it refers merely to the fulfillment of an
already existing indebtedness.
 NOTE: The letter: Please enter my subscription to
dalawangdaan (200) shares of your capital stock with a par
 value of P100 each. Enclosed you will find
(Babayarankonglahatpagkataposnaako ay makapag-
pahulingisda) pesos as my initial payment and the balance
payable in accordance with law and the rules and
regulations of the Quezon College. I hereby agree to
shoulder the expenses connected with said shares of stock. I
further submit myself to all lawful demands, decisions or
directives of the Board of Trustees of the Quezon College
and all its duly constituted officers or authorities
(angnasaitaas ay binasa at ipinaliwanagsa akin
sawikangtagalognaakingnalalaman).(Sgd. by DAMASA
CRISOSTOMO)
PURCHASE AGREEMENTS
G.R. Nos. L-48195 and 48196 May 1, 1942
SOFRONIO T. BAYLA, ET AL., petitioners, vs. SILANG TRAFFIC CO.,
INC., respondent.
 Petitioners purchased the following:
Sofronio T. Bayla.......8 shares (P360)
Venancio Toledo........8 shares (P375)
Josefa Naval..............15 shares (P675)
 Purchase price to be paid 5% upon the execution of the
contract and the remainder in installments of 5%, payable
within the 1st month of each and every quarter startingJuly
1, 1935, w/ interest on deferred payments at 6%/annum
until paid
 They also agreed to forfeit in favor of seller in case of
default w/o court proceedings
 BOD resolution Aug 1, 1937: rescinded the agreement
 Petitoners filed an action in the CFI against Silang Traffic Co.
Inc to recover certain sum of money w/c they had paid
severally to the corp. on account of shares of stock they
individually agreed to take and pay for under certain
conditions
 Defenses:
o That the resolution is not applicable to the
petitioners Sofronio T. Bayla, Josefa Naval, and Paz
Toledo because on the date thereof "their
subscribed shares of stock had already
automatically reverted to the defendant, and the
installments paid by them had already been
forfeited"
o that said resolution of August 1, 1937, was revoked
and cancelled by a subsequent resolution
 RTC: absolved defendant. BOD resolution cancelled
ISSUES:
1. W/N the subsequent BOD resolution is valid
2. W/N under the contract between the parties the failure of
the purchaser to pay any of the quarterly installments on
the purchase price automatically gave rise to the forfeiture
of the amounts already paid and the reversion of the shares
to the corporation
HELD: Silang Traffic to pay petitioners
1. NO
 Noted agreement is entitled "Agreement for Installment
Sale of Shares in the Silang Traffic Company, Inc.,"; that
while the purchaser is designated as "subscriber," the
corporation is described as "seller"
 Whether a particular contract is a subscription or a sale of
stock is a matter of construction and depends upon its
terms and the intention of the parties
 Subscription - mutual agreement of the subscribers to take
and pay for the stock of a corporation
 Purchase - independent agreement bet. the individual and
the corp. to buy shares of stock from it at stipulated price
 Rules governing subscriptions and sales of shares are
different
 Corporation Law regarding calls for unpaid subscription and
assessment of stock (sections 37-50) do not apply to a
purchase of stock
 Corporation has no legal capacity to release an original
subscriber to its capital stock from the obligation to pay for
his shares, is inapplicable to a contract of purchase of
shares.
 The contract in question being one of purchase and not
subscription as we have heretofore pointed out, we see no
legal impediment to its rescission by agreement of the
parties
 there is no intimation in this case that the corporation was
insolvent, or that the right of any creditor of the same was
in any way prejudiced by the rescission.
G.R. No. L-11528
 The attempted revocation of said rescission by the
resolution of August 22, 1937, was invalid, it not having
been agreed to by the petitioners.
2. NO
 The provision regarding interest on deferred payments
would not have been inserted if it had been the intention of
the parties to provide for automatic forfeiture and
cancelation of the contract
 Contract did not expressly provide that the failure of the
purchaser to pay any installment would give rise to
forfeiture and cancelation without the necessity of any
demand from the seller
 Art. 1100 of the Civil Code: persons obliged to deliver or do
something are not in default until the moment the creditor
demands of them judicially or extrajudicially the fulfillment
of their obligation, unless:
o (1) the obligation or the law expressly provides that
demand shall not be necessary in order that default
may arise
o (2) by reason of the nature and circumstances of
the obligation it shall appear that the designation of
the time at which that thing was to be delivered or
the service rendered was the principal inducement
to the creation of the obligation. (**READ FULL
TEXT)
RELEASE FROM SUBSCRIPTION OBLIGATION
March 15, 1918
MIGUEL VELASCO, assignee of The Philippine Chemical Product Co.
(Ltd.), plaintiff-appellant, vs.JEAN M. POIZAT, defendant-appellee.
 The corporation in question was originally organized by
several residents of the city of Manila, with a capital of
P50,000, divided into 500 shares. Poizat subscribed for 20
shares of the stock of the company, and paid upon his
subscription the sum of P500, the par value of 5 shares. The
action was brought to recover the amount subscribed upon
the remaining shares.
 It appears that Poizat was a stockholder in the company
from the inception of the enterprise, and for sometime
acted as its treasurer and manager. While serving in this
capacity, he collected all subscriptions to the capital stock of
the company, except the 15 shares subscribed by himself
and another 15 shares owned by Jose Infante.
 On July 13, 1914, a meeting of the BOD of the company was
held at which a majority of the stock was presented. Upon
this occasion two resolutions were adopted. The first was a
proposal that the company should make good by new
subscriptions, in proportion to the shareholders’ respective
holdings. 15 shares had been surrendered by Infante.
 It seems that Infante had already paid 25% of his
subscription upon 20 shares, leaving 15 shares unpaid for,
and an understanding had been reached by him and the
management by which he was to be released from the
obligation of his subscription, it being understood that what
he had already paid should not be refunded.
 Accordingly the directors present at this meeting subscribed
P1,200 toward taking up his shares, leaving a deficiency of
P300 to be recovered by voluntary subscriptions from
stockholders not present at the meeting.
 The other proposition was to the effect that Poizat, who
was absent, should be required to pay the amount of his
subscription upon the 15 shares for which he was still
indebted to the company. The resolution further provided
that, in case he should refuse to make such payment, the
management of the corporation should be authorized to
undertake judicial proceedings against him.
 In reply, Poizat wrote a letter, stating that some member of
the BODtold him that he was to be relieved from his
subscription upon the terms conceded to Infante.
 The company soon went into voluntary insolvency, Miguel
Velasco being named as the assignee.Velasco then sought
to recover from Poizat the remaining P1,500,the amount of
his subscription upon the unpaid shares.
 CFI: in favor of Poizat
ISSUE: WON Poizat is liable upon the aforesaid subscription.
HELD: YES.
 The suggestion contained in Poizat's letter of July 27, 1914,
to the effect that he understood that he was to be relieved
upon the same terms as Infante is of no merit as matter of
defense, even if an agreement to that effect had been duly
proved. The corporation has no legal capacity to release an
original subscriber to its capital stock from the obligation
of paying for his shares, in whole or in part.
 NOTE: (!!!) The circumstance that the board of directors in
their meeting of July 13, 1914, resolved to release
 Infantefrom his obligation upon a subscription for 15
shares is no wise prejudicial to the right of the corporation
or its assignee to recover from Poizat upon a subscription
made by him. In releasing Infante the board transcended
its powers, and he no doubt still remained liable on such
of his shares as were not taken up and paid for by other
persons.
 NOTE: Under the Corporation Law, he is also liable for
interest at the lawful rate from the date of his subscription,
unless relieved from this liability by the by-laws of the
company. These by-laws have not been introduced in
evidence and there is no proof showing the exact date upon
which the subscription was made, though it is alleged in the
original complaint that the company was organized upon
March 23, 1914.
 A subscription for shares of stock does not require an
express promise to pay the amount subscribed, as the law
implies a promise to pay on the part of the subscriber.
 A stock subscription is subsisting liability from the time the
subscription is made, since it requires the subscriber to pay
interest quarterly from that date unless he is relieved from
such liability by the by-laws of the corporation. The
subscriber is as much bound to pay the amount of the share
subscribed by him as he would be to pay any other debt,
and the right of the company to demand payment is no less
incontestable.
 Two remedies for the enforcement of stock subscriptions:
1. Permitting the corporation to put up the unpaid
stock for sale and dispose of it for the account of
the delinquent subscriber. In this case the
procedure laid down in the Corporation Law are
applicable and must be followed;
2. By action in court. Directors may collect, by action
in any court of proper jurisdiction, the amount due
on any unpaid subscription, together with accrued
interest and costs and expenses incurred.
 The statutory right to sell the subscriber's stock is merely a
remedy in addition to that which proceeds by action in
court; and it has been held that the ordinary legal remedy
by action exists even though no express mention thereof is
made in the statute.
 Conditions under which an action may be maintained upon
a stock subscription should be determined with reference to
the rules governing contract liability in general
 NOTE: By virtue of the first subsection of section 36 of the
Insolvency Law, the assignee of the insolvent corporation
succeeds to all the corporate rights of action vested in the
corporation prior to its insolvency; and the assignee
therefore has the same freedom with respect to suing upon
the stock subscription as the directors themselves would
have had.
 When insolvency supervenes upon a corporation and the
court assumes jurisdiction to wind up, all unpaid stock
subscriptions become payable on demand, and are at once
recoverable in an action instituted by the assignee or
receiver appointed by the court.
 A court of equity, having jurisdiction of the insolvency
proceedings, could, if necessary, make the call itself, in its
capacity as successor to the powers exercised by the BOD of
the defunct company. Further, the receiver or assignee, in
 an action instituted by proper authority, could himself
proceed to collect the subscription without the necessity of
any prior call whatever.
 NOTE: When the corporation becomes insolvent, with
proceedings instituted by creditors to wind up and
distribute its assets, no call or assessment is necessary
before the institution of suits to collect unpaid balances on
subscription.
 When the original model of making the call becomes
impracticable, the obligation must be treated as due upon
demand. If the corporation must be treated still an active
entity, and this action should be dismissed for irregularity in
the making of the call, other steps could be taken by the
board to cure the defect and another action could be
brought; but where the company is being wound up, no
such procedure would be practicable. The better doctrine is
that when insolvency supervenes, all unpaid subscriptions
become at once due and enforceable.
 NOTE: A stock subscription is a contract between the
corporation on one side, and the subscriber on the other,
and courts will enforce it for or against either.
G.R. Nos. L-24177-85 June 29, 1968
PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs.BITULOK
SAWMILL, INC., ET. AL., defendants-appellees.
 The Philippine Lumber Distributing Agency was organized
sometime in 1947 upon the initiative of President Manuel
Roxas. The purpose was to insure a steady supply of lumber,
which could be sold at reasonable prices to enable the war
sufferers to rehabilitate their devastated homes.
 It appears that Roxas convinced defendant lumber
producers herein to form a lumber cooperative and to pool
their sources together in order to wrest the retail trade
from aliens who were acting as middlemen in the
distribution of lumber.
 At the beginning, the lumber producers were reluctant to
organize the cooperative agency as they believed that it
would not be easy to eliminate from the retail trade the
alien middlemen who had been in this business from time
immemorial, but because Roxas promised and agreed to
finance the agency by making the Government invest P9.00
by way of counterpart for every peso that the members
would invest therein, the producers gave in. (The amount
thus contributed by such lumber producers was not enough
for the operation of its business.)
 There wasn’t, however, any appropriation by the legislature
of the counterpart fund to be put up by the Government.
Accordingly, Roxas instructed Emilio Abello, then Executive
Secretary and Chairman of the BOD of PNB, for the latter to
grant said agency an overdraft in the original sum of
P250,000.00 which was later increased to P350,000.00.
 Such was approved by PNB’s BOD on July 28, 1947, payable
on or before April 30, 1958, with interest at the rate of 6%
per annum, and secured by the chattel mortgages on the
stock of lumber of said agency.
 The Philippine Government, however, did not fulfill its 9.00
for every peso promise. The loan extended to the PLDA by
the PNB was likewise not paid.
  PNB, as creditor, was allowed by the lower court to
substitute the receiver of Philippine Lumber in 9 actions for
the recovery from defendant lumber producers the balance
of their stock subscriptions. (Total amount to be collected:
P5000.00)
 Nonetheless, the lower court dismissed the said cases,
finding it grossly unfair and unjust to compel the lumber
producers to pay the balance of their subscriptions.
ISSUE: WON the lower court is correct in ruling against PNB in the
case at bar.
HELD: NO.
 Subscriptions to the capital of a corporation constitute a
fund to which creditors have a right to look for satisfaction
of their claims and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription in
order to realize assets for the payment of its debt. A
corporation has no power to release an original subscriber
to its capital stock from the obligation of paying for his
shares, without a valuable consideration for such release;
and as against creditors a reduction of the capital stock can
take place only in the manner and under the conditions
prescribed by the statute or the charter or the articles of
incorporation. Moreover, strict compliance with the
statutory regulations is necessary. (POIZAT DOCTRINE)
 It would be unwarranted to ascribe toRoxas the view that
the payment of the stock subscriptions, as thus required by
law, could be condoned in the event that the counterpart
fund to be invested by the Government would not be
available. Even if such were the case, however, and such a
promise were in fact made, to further the laudable purpose
to which the proposed corporation would be devoted and
the possibility that the lumber producers would lose money
in the process, still the plain and specific wording of the
applicable legal provision as interpreted by this Court must
be controlling. It is a well-settled principle that with all the
vast powers lodged in the Executive, he is still devoid of the
prerogative of suspending the operation of any statute or
any of its terms.
 Further, at no time did President Roxas ever give
defendant lumber producers to understand that the failure
of the Government for any reason to put up the
counterpart fund could terminate their statutory liability.
FORMALITIES IN ORGANIZING: GENERALLY
G.R. No. L-30646 January 30, 1929
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, petitioner, vs.THE
MANILA RAILROAD COMPANY and JOSE PAEZ as Manager of said
Company, respondents.
 This case revolves around the Philippine Government’s
petition for the issuance of a writ of mandamus in order to
compel the Manila Railroad Company to provide and equip
the telegraph poles of Manila Railroad between the
municipality of Paniqui, Tarlac, and San Fernando, La Union,
with crosspieces for six telegraph wires belonging to the
Government, which, it is alleged, are necessary for public
service between said municipalities.
  It is admitted that the present poles and crosspieces
between said municipalities carry four telegraph wires, by
virtue of an agreement between the respondents and the
Bureau of Posts of the Philippine Government. It is likewise
admitted that the poles are not sufficient to carry six
telegraph wires.
 The Philippine Government contends that under the then
General Corporation Law (Act No. 1459),Manila Railroad is
required to erect and maintain posts for its telegraph wires,
of sufficient length and strength, and equipped with
sufficient crosspieces to carry the number of wires which
the Government may consider necessary for the public
service, and that six wires are now necessary for the public
service.
 Manila Railroad, on the other hand, contended that its
charter, which entitles the Government to place on the
poles of the company four wires only, should apply.
ISSUE: Which is applicable to Manila Railroad as between the two
statutes invoked?
HELD: Manila Railroad’s charter
 In as much as the charter of Manila Railroad constitute a
contract between it and the Government, the company is
governed by its contract and not by the provisions of any
general law upon questions covered by said contract. From
a reading of the said charter or contract it would be seen
that there is no indication that the Government intended to
impose upon said company any other conditions as
obligations not expressly found in said charter or contract. If
that is true, then certainly the Government cannot impose
upon said company any conditions or obligations found in
any general law, which does not expressly modify said
contract.
 Section 84 of the Corporation Law (Act No. 1459) was
intended to apply to all railways in the Philippine Islands
which did not have a special charter contract. Act No. 1510
applies only to the Manila Railroad Company, and being a
special charter of said company, its adoption had the effect
of superseding the provisions of the General Corporation
Law which are applicable to railroads in general.
 The special charter (Act No. 1510) had the effect of
superseding the general Corporation Law upon all matters
covered by said special charter. Said Act, inasmuch as it
contained a special provision relating to the erection of
telegraph and telephone poles, and the number of wires
which the Government might place thereon, superseded
the general law upon that question.
 Act No. 1510 is a special charter of the respondent
company. It constitutes a contract between the respondent
company and the state; and the state and the grantee of a
charter are equally bound by its provisions. For the state to
impose an obligation or a duty upon the respondent
company, which is not expressly provided for in the charter
(Act No. 1510), would amount to a violation of said contract
between the state and the respondent company.
 The charter of a corporation is a contract between three
parties: (a) it is a contract between the state and the
corporation to which the charter is granted; (b) it is a
contact between the stockholders and the state and (c) it is
 also a contract between the corporation and its
stockholders.
 The question is not whether Act No. 1510 repealed Act No.
1459; but whether, after the adoption of Act No. 1510, the
respondents are obliged to comply with the special
provision above mentioned, contained in Act No. 1459. We
must answer that question in the native. Both laws are still
in force, unless otherwise repealed. Act No. 1510 is
applicable to respondents upon the question before us,
while Act No. 1459 is not applicable.
G.R. No. 96674 June 26, 1992
RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA
TRIAS and FRANCISCO TRIAS, petitioners, vs. COURT OF APPEALS.
Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc.,
executed a Special Power of Attorney in favor of his wife, Melania to
sell or otherwise dispose of and/or mortgage 473 shares of stock of
the Bank registered in his name (represented by the Bank's stock
certificates nos. 26, 49 and 65), to execute the proper documents
therefor, and to receive and sign receipts for the dispositions.
Melania, as Attorney-in-Fact, executed a Deed of Assignment for
472 shares out of the 473 shares, in favor of private respondents
Luz Andico (457 shares), Wilhelmina Rosales (10 shares) and
Francisco Guerrero, Jr. (5 shares). Melania Guerrero presented to
Rural Bank of Salinas the 2 Deeds of Assignment for registration
with a request for the transfer in the Bank's stock and transfer book
of the 473 shares of stock so assigned, the cancellation of stock
certificates in the name of Clemente, and the issuance of new stock
certificates in the name of the new owners thereof., Rural Bank
denied such request. Melania filed with the SEC an action for
mandamus against Rural Bank of Salinas, its President and
Corporate Secretary.
The Bank in their Answer with counterclaim alleged that upon the
death of Clemente, his 473 shares of stock became the property of
his estate, and his property and that of his widow should first be
settled and liquidated in accordance with law before any
distribution can be effected so that petitioners may not be a party
to any scheme to evade payment of estate or inheritance tax and in
order to avoid liability to any third persons or creditors of the late
Clemente.
Maripol Guerrero filed a motion for intervention (legally adopted
daughter of the late Clemente and Melanie) stating that a Petition
for the administration of the estate of Clemente had been filed but
her motion was denied. She then filed before the CFI of Rizal,
against Melanie for the annulment of the Deeds of Assignment for
being fictitious, void or simulated.
ISSUES:
1. WON SEC has the power to adjudicate the case. -Yes
2. WON corporatonsmay by its board, its by-laws, or the act of its
officers create restrictions in stock transfers.No.
3. WON the Bank being a corporation may refuse to transfer and
register stocks. No.
HELD:
1. Section 5 (b) of P.D. No. 902-A grants to the SEC the original and
exclusive jurisdiction to hear and decide cases involving
intracorporate controversies. An intracorporate controversy has
been defined as one which arises between a stockholder and the
corporation. There is no distinction, qualification, nor any exception
whatsoever (Rivera vs. Florendo, 144 SCRA 643 [1986]). The case at
bar involves shares of stock, their registration, cancellation and
issuances thereof by petitioner Rural Bank of Salinas. It is therefore
within the power of respondent SEC to adjudicate.
2. A corporation, either by its board, its by-laws, or the act of its
officers, cannot create restrictions in stock transfers, because:. .
Restrictions in the traffic of stock must have their source in
legislative enactment, as the corporation itself cannot create such
impediment. By-laws are intended merely for the protection of the
corporation, and prescribe regulation, not restriction; they are
always subject to the charter of the corporation. The corporation, in
the absence of such power, cannot ordinarily inquire into or pass
upon the legality of the transactions by which its stock passes from
one person to another, nor can it question the consideration upon
which a sale is based.
The only limitation imposed by Section 63 of the Corporation Code
is when the corporation holds any unpaid claim against the shares
intended to be transferred, which is absent here.
3. The right of a transferee/assignee to have stocks transferred to
his name is an inherent right flowing from his ownership of the
stocks. Respondent SEC correctly ruled in favor of the registering of
the shares of stock in question in private respondent's names. Such
ruling finds support under Section 63 of the Corporation Code, to
wit:
Sec. 63. . . . Shares of stock so issued are personal property and may
be transferred by delivery of the certificate or certificates indorsed
by the owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall be
valid, except as between the parties, until the transfer is recorded in
the books of the corporation . . .
The corporation's obligation to register is ministerial.
In transferring stock, the secretary of a corporation acts in purely
ministerial capacity, and does not try to decide the question of
ownership.
The duty of the corporation to transfer is a ministerial one and if it
refuses to make such transaction without good cause, it may be
compelled to do so by mandamus.
FORMALITIES IN ORGANIZING: AOI (AS TO CORPORATE NAME)
G.R. No. 41570 September 6, 1934
RED LINE TRANSPORTATION CO., petitioner-appellant, vs.RURAL
TRANSIT CO., LTD., respondent-appellee.
 On June 4, 1932, Rural Transit Company, filed with the
Public Company Service Commission an application in which
it is stated in substance:
o that it is the holder of a certificate of public
convenience to operate a passenger bus service
between Manila and Tuguegarao;
 o that it is the only operator of direct service between
said points and the present authorized schedule of
only one trip daily is not sufficient;
o that it will be also to the public convenience to
grant the applicant a certificate for a new service
between Tuguegarao and Ilagan.
 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.
 The Commission, nonetheless, approved the application of
Rural Transit.
 A motion for rehearing and reconsideration was filed by Red
Line since Rural Transit has a pending application before the
CFI Manila for voluntary dissolution of the corporation.
 Rural Transit filed a motion for postponement. This motion
was verified by M. Olsen who swears "that he was the
secretary of the Rural Transit Company, Ltd., in the above
entitled case."
 During the hearing before the Public Service Commission,
the petition for dissolution and the CFI Manila’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.
 The Public Service Commission eventually ruled in favor of
Rural Transit, and ordered for a certificate of public
convenience be issued in its name
o NOTE: This was done even in the face of the
evidence that the said corporation was not the real
party in interest.
 PSC relied on an order it issued on November 26, 1932,
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?
HELD:
 There are no law that empowers any court to authorize one
corporation to assume the name of another corporation as
a trade name. Both Rural Transit and Bachrach Motor 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." (Section 11, Act
No. 1459, as amended.)
 A corporation has the power "of succession by its corporate
name." (Section 13, ibid.)The name of a corporation is
therefore essential to its existence. It 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.
 The November 26 order of PSC being void, theDecember 21
order thus should have to be set aside and vacated on the
ground that the Rural Transit is not the real party in interest
and its application was fictitious.
G.R. No. L-26370 July 31, 1970
PHILIPPINE FIRST INSURANCE COMPANY, INC., plaintiff-appellant,
vs. MARIA CARMEN HARTIGAN, CGH, and O. ENGKEE, defendants-
appellees.
PFIC was originally organized as an insurance corporation under the
name of ‘The Yek Tong Lin Fire and Marine Insurance Co., Ltd.’
Subsequently, however, its AOI were amended changing the name
of the corporation to ‘Philippine First Insurance’.
The case arose when PFIC, acting in the name of Yek Tong, signed as
co-maker together with defendants, a promissory note in favor of
China Banking Corporation. Subsequently, as form of security,
Hartingan et al signed an indemnity agreement in favor of PFIC in
case damages or loses arises thereof. Defendant Hartigan failed to
pay, hence, a complaint for collection of sum of money was
instituted.
Defendants deny the allegations, claiming, among others that there
is no privity of contract between them and PFIC since PFIC did not
conduct its business under the name of Yek Tong Insurance, hence
not entitled to the indemnification agreement which is named in
favor of Yek Tong.
The CFI ruled in favor of Hartigan et al based on the following
grounds, among others:
The change of name of the Yek Tong Insurance to PFIC is of dubious
validity, because such change in effect dissolved the original
corporation by a process of dissolution not authorized by the
Corporation Law;
Assuming the change is valid, Yek Tong is considered dissolved,
hence, at the time the indemnity agreement was signed, it has no
capacity to enter into such agreement anymore;
Assuming further that the change is valid, Yek Tong should be the
proper party in interest.
ISSUE: May a Philippine corporation change its name and still retain
its original personality and individuality as such?
HELD: YES
 Amending a corporation’s charter is allowed. In the same
manner, there is no prohibition against the change of name.
The inference is clear that such a change is allowed, for if
 the legislature had intended to enjoin corporations from
changing names, it would have expressly stated so in this
section or in any other provision of the law.
 "The name of a corporation is peculiarly important as
necessary to the very existence of a corporation. The
general rule as to corporations is that each corporation shall
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."
 There is nothing sacrosanct in a name when it comes to
artificial beings. Of course, such change may not be made
exclusively by the corporation's own act. It has to follow
the procedure prescribed by law for the purpose; and this
is what is important and indispensably prescribed — strict
adherence to such procedure.
 A corporation may change its name by merely amending
its charter in the manner prescribed by law.
 A general power to alter or amend the charter of a
corporation necessarily includes the power to alter the
name of the corporation.
 What the SChave held to be contrary to public policy in Red
Line Transportation Co. v. Rural Transit is the use by one
corporation of the name of another corporation as its trade
name. Such an act can only "result in confusion and open
the door to frauds and evasions and difficulties of
administration and supervision." Surely, the Red Line case
was not one of change of name.
 Change of name of a corporation does not result in its
dissolution. An authorized change in the name of a
corporation has no more effect upon its identity as a
corporation than a change of name of a natural person has
upon his identity. It does not affect the rights of the
corporation or lessen or add to its obligations.
 After a corporation has effected a change in its name it
should sue and be sued in its new name.
 A mere change in the name of a corporation, either by the
legislature or by the corporators or stockholders under
legislative authority, does not, generally speaking, affect the
identity of the corporation, nor in any way affect the rights,
privileges, or obligations previously acquired or incurred by
it.
 The corporation, upon such change in its name, is in no
sense a new corporation, nor the successor of the original
one, but remains and continues to be the original
corporation.
 A change of name does not equate to a change of being.
 The approval by the stockholders of the amendment of its
articles of incorporation changing the name fromYek Tong
to PFIC on March 8, 1961, did not automatically change the
name of said corporation on that date.
 To be effective, "a copy of the articles of incorporation as
amended, duly certified to be correct by the president and
the secretary of the corporation and a majority of the board
of directors or trustees, shall be filed with SEC and it is only
from the time of such filing, that "the corporation shall have
the same powers and same liabilities as if such amendment
had been embraced in the original AOI
 Appellant rightly acted in its old name when on May 15,
1961, it entered into the indemnity agreementwith the
 defendant-appellees; for only after the filing of the
amended articles of incorporation with the Securities &
Exchange Commission on May 26, 1961, did appellant
legally acquire its new name; and it was perfectly right for it
to file the present case In that new name on December 6,
1961.
 Actions brought by a corporation after it has changed its
name should be brought under the new name although for
the enforcement of rights existing at the time the change
was made.
 The change in the name of the corporation does not affect
its right to bring an action on a note given to the
corporation under its former name.
 SC feels however that it is apparent that appellee's position
is more technical than otherwise. There is no showing that
the indebtedness sued upon has already been paid. If
appellees entertained any fear that they might again be
made liable to Yek Tong Lin, or to someone else in its
behalf, a cursory examination of the records of SEC would
have sufficed to clear up the fact that Yek Tong Lin had just
changed its name but it had not ceased to be their creditor.
G.R. No. L-28351 July 28, 1977
UNIVERSAL MILLS CORPORATION, petitioner, vs. UNIVERSAL
TEXTILE MILLS, INC., respondent.
 Universal Textile Mills was organized on December 29,
1953, as a textile manufacturing firm.
 The Universal Mills Corporation, on the other hand, was
registered on October 27, 1954, under its original name,
Universal Hosiery Mills Corporation, having, as its primary
purpose, the "manufacture and production of hosieries and
wearing apparel of all kinds." On May 24, 1963, it filed an
amendment to its articles of incorporation changing its
name to Universal Mills Corporation, its present name.
 The immediate cause of this present complaint, however,
was the occurrence of a fire which gutted UMC’s spinning
mills in Pasig, Rizal. UTM alleged that as a result of this fire
and because of the similarity of UMC's name to its name,
the news items appearing in the various metropolitan
newspapers carrying reports on the fire created uncertainty
and confusion among its bankers, friends, stockholders and
customers prompting petitioner to make announcements,
clarifying the real Identity of the corporation whose
property was burned.
 On the other hand, UMC's position is that the names of the
two corporations are not similar and even if there be some
similarity, it is not confusing or deceptive; that the only
reason it changed its name was because it expanded its
business to include the manufacture of fabrics of all kinds;
and that the word 'textile' in UTM's name is dominant and
prominent enough to distinguish the two. It further argues
that UTM failed to present evidence of confusion or
deception in the ordinary course of business; that the only
supposed confusion proved by complainant arose out of an
extraordinary occurrence — a disastrous fire.
 The SECeventually enjoined UMC from further using its
present corporate name, ruling that confusion is not only
apparent, but possible. It does not matter that the instance
of confusion between the two corporate names was
 occasioned only by a fire or an extraordinary occurrence.
The word "textile" in UMT cannot possibly assure the
exclusion of all other entities with similar names from the
mind of the public especially so, if the business they are
engaged in are the same, like in the instant case.
 SEC further took cognizance of the fact that when UMC filed
the amendment changing its name, it correspondingly filed
a written undertaking promising to 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.
ISSUE: WON the order of the Commission enjoining petitioner to its
corporate name constitutes grave abuse of discretion.
HELD: NO.
The corporate names in question are not Identical, but they are
indisputably so similar that even under the test of "reasonable care
and observation as the public generally are capable of using and
may be expected to exercise" invoked by appellant, We are
apprehensive confusion will usually arise, considering that under
the second amendment of its articles of incorporation on August 14,
1964, appellant included among its primary purposes the
"manufacturing, dyeing, finishing and selling of fabrics of all kinds"
in which respondent had been engaged for more than a decade
ahead of petitioner.
FORMALITIES IN ORGANIZING: AOI (AS TO PURPOSE)
G.R. No. L-15429 December 1, 1919
UY SIULIONG, MARIANO LIMJAP, GACU UNG JIENG, EDILBERTO
CALIXTO and UY CHO YEE, petitioners, vs.THE DIRECTOR OF
COMMERCE AND INDUSTRY, respondent.
 Petitioners herein had been associated together as partners
in a partnership under the style and firm name of "Siuliong y
Cia." They then 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."
 They manifested that the purpose of said corporationis (a)
to acquire the business of the partnershipSiuliong& Co., and
(b) to continue said business with some of its objects or
purposes. A further enumeration of various specific
purposes was however reflected in its proposed AOI.
 Respondent Director of Commerce and Industry then
refused to register the petitioners’ AOI.This prompted the
petitionersto file a petition for the issuance of a writ of
mandamus to require the said respondent to file and
register the AOI of "Siuliong y Compañia, Inc.,".
 The respondent, on his part, contends inter alia that the
proposed AOI permitted the petitioners to engage in a
business which had for its end more than one purpose.
ISSUES:
1. WON Siulong y Compañia, Inc. does have more than one
purpose.
2. WON a corporation organized for commercial purposes in
the Philippine Islands, such as Siuliong y Compañia, Inc., can
be organized for more than one purpose.
 WON Siulong y Compañia, Inc. does have more than one
purpose.
HELD:
1. YES. It is clear from a reading of the corporation’s AOI that
the principal purpose of said corporation is to engage in a
mercantile business, with the power to do and perform
particular acts. All of the power and authority enumerated
in the subject AOI enumerated are only incidental to the
principal purpose of said proposed incorporation, to wit:
"mercantile business."
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.
2. NO. While the proposed AOI do not authorize the
petitioners to engage in a business with more than one
purpose, we do not mean to be understood as having
decided that corporations under the laws of the Philippine
Islands may not engage in a business with more than one
purpose. Such an interpretation would give foreign
corporations, which are permitted to be registered under
the laws here and which may be organized for more than
one purpose, a great advantage over domestic
corporations. We do not believe that it was the intention of
the legislature to give foreign corporations such an
advantage over domestic corporations.
NOTE: Petitioners areentitled to have such articles of incorporation
filed and registered. The petition prayed for is granted.
NOTE: Corporations in the Philippine Islands might be organized for
both the "importation and exportation" of merchandise and that
there might be no relation between the kind of merchandise
imported with the class of merchandise exported.
FORMALITIES IN ORGANIZING: AOI (AS TO PRINCIPAL OFFICE)
G.R. No. L-22238 February 18, 1967
CLAVECILLIA RADIO SYSTEM, petitioner-appellant, vs.HON.
AGUSTIN ANTILLONand NEW CAGAYAN GROCERY, respondents.
It appears that on June 22, 1963, New Cagayan Grocery filed a
complaint in the Municipal Court of Cagayan De Oro against the
Clavecilla Radio System alleging that on March 12, 1963, the latter
omitted a word in a message filed at the latter's Bacolod Branch
Office for transmittal to New Cagayan Grocery. New Cagayan
Grocery alleged that the word omitted was very much relevant to
the extent that the contents and purport of the message was
changed entirely, thereby causing damage to the addressee.
Clavecilla Radio System then filed a motion to dismiss the complaint
on the grounds that it states no cause of action and that the venue
is improperly laid. The City Judge eventually denied said motion to
dismiss for lack of merit. This prompted CRS to file a petition for
prohibition with the CFI Misamis Oriental praying that the City
Judge, Agustin Antillon, be enjoined from further proceeding with
the case on the ground of improper venue.
The lower court upheld the authority of the city court to take
cognizance of the case, ruling that the Clavecilla Radio System may
be sued either in Manila where it has its principal office or in
Cagayan de Oro City where it may be served, with summons
through the Manager of its branch office in said city.
In appealing, the Clavecilla Radio System contends that the suit
against it should be filed in Manila where it holds its principal office.
ISSUE: WON the venue in the present case was properly laid.
HELD: NO
It is clear that the case for damages filed with the city court is based
upon tort and not upon a written contract. Section 1 of Rule 4 of the
New Rules of Court, when "the action is not upon a written
contract, then 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 its principal office is established.
Since it is not disputed that the Clavecilla Radio System has its
principal office in Manila, it follows that the suit against it may
properly be filed in the City of Manila.
RE: argument that there is a principle that the appellant may also be
served with summons in that city where it maintains a branch
office:
 The term "may be served with summons" does not apply
when the defendant resides in the Philippines for, in such
case, he may be sued only in the municipality of his
residence, regardless of the place where he may be found
and served with summons. As any other corporation, the
Clavecilla Radio System maintains a residence which is
Manila in this case, and a person can have only one
residence at a time. The fact that it maintains branch offices
in some parts of the country does not mean that it can be
sued in any of these places.
To allow an action to be instituted in any place where a corporate
entity has its branch offices would create confusion and work untold
inconvenience to the corporation.
The order appealed from is therefore reversed, but without
prejudice to the filing of the action in Which the venue shall be laid
properly.
FORMALITIES IN ORGANIZING: AOI (AS TO CORPORATE TERM)
G.R. No.L-23606 July 29, 1968
ALHAMBRA CIGAR & CIGARETTE MANUFACTURING CO, petitioner,
vs.SECURITIES & EXCHANGE COMMISSION, respondent.
Alhambra was duly incorporated under Philippine laws on January
15, 1912. By its corporate articles it was to exist for fifty (50) years
from incorporation. Its term of existence expired on January 15,
1962. On that date, it ceased transacting business, entered into a
state of liquidation.Thereafter, a new corporation. — Alhambra
Industries, Inc. — was formed to carry on the business of Alhambra.
On May 1, 1962, Alhambra's stockholders, by resolution named
Angel S. Gamboa trustee to take charge of its liquidation.
On June 20, 1963 — within Alhambra's three-year statutory period
for liquidation - Republic Act 3531 was enacted into law. It amended
Section 18 of the Corporation Law; it empowered domestic private
corporations to extend their corporate life beyond the period fixed
by the articles of incorporation for a term not to exceed fifty years
in any one instance. Previous to Republic Act 3531, the maximum
non-extendible term of such corporations was fifty years.
On July 15, 1963, Alhambra's BOD resolved to amend its AOI to
extend its corporate life for an additional fifty years, or a total of
100 years from its incorporation.
On October 28, 1963, Alhambra's amended AOI were filed with
SEC.On November 18, 1963, SEC, however, returned said amended
AOI to Alhambra's counsel with the ruling that Republic Act 3531
"which took effect only on June 20, 1963, cannot be availed of by
the said corporation, for the reason that its term of existence had
already expired when the said law took effect. In short, said law has
no retroactive effect."
ISSUE: May a corporation extend its life by amendment of its AOI
effected during the three-year statutory period for liquidation when
its original term of existence had already expired?
HELD: NO.
The privilege given to prolong corporate life under the amendment
must be exercised before the expiry of the term fixed in the articles
of incorporation.
Continuance of a "dissolved" corporation as a body corporate for
three years has for its purpose the final closure of its affairs, and no
other; the corporation is specifically enjoined from "continuing the
business for which it was established".
o NOTE: (Then SEC. 77 of Corpo Law) Every corporation
whose charter expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate existence for
other purposes is terminated in any other manner, shall
nevertheless be continued as a body corporate for three
years after the time when it would have been so dissolved,
for the purpose of prosecuting and defending suits by or
against it and of enabling it gradually to settle and close its
affairs, to dispose of and convey its property and to divide
its capital stock, but not for the purpose of continuing the
business for which it was established.
The manner of prolongation is through an amendment of the AOI.
No no corporation in a state of liquidation can act in any way, much
less amend its articles, "for the purpose of continuing the business
for which it was established".
NOTE: As a rule, the corporation is ipso facto dissolved as soon as
that time expires. So where the extension is by amendment of the
articles of incorporation, the amendment must be adopted before
that time. The contrary is true, however, and the doctrine of
relation will apply, where the delay is due to the neglect of the
officer with whom the certificate is required to be filed, or to a
wrongful refusal on his part to receive it.
NOTE: (Renew vs. Extend) RENEW: "to give a new existence to one
which has been forfeited, or which has lost its vitality by lapse of
time"; EXTEND: "to increase the time for the existence of one which
would otherwise reach its limit at an earlier period".
o Nowhere in our statute do we find the word "renew" in
reference to the authority given to corporations to protract
their lives. Our law limits itself to extension of corporate
existence. And, as so understood, extension may be made
only before the term provided in the corporate charter
expires.
NOTE: Alhambra likewise says that before cessation of its corporate
life, it could not have extended the same, for the simple reason that
Republic Act 3531 had not then become law then. Republic Act
3531 took effect on June 20, 1963, while the original term of
Alhambra's existence expired before that date — on January 15,
1962. To give credence to such contention would certainly open the
gates for all defunct corporations — whose charters have expired
even long before Republic Act 3531 came into being — to
resuscitate their corporate existence.
NOTE: Domestic corporations in general, as with domestic insurance
companies, can extend corporate existence only on or before the
expiration of the term fixed in their charters.
NOTE: From July 15 to October 28, 1963, when Alhambra made its
attempt to extend its corporate existence, its original term of fifty
years had already expired (January 15, 1962); it was in the midst of
the three-year grace period statutorily fixed in the Corporation Law.
NOTE: A new corporation — Alhambra Industries, Inc., with but
slight change in stockholdings — has already been established. Its
purpose is to carry on, and it actually does carry on the business of
the dissolved entity. The way only possible drawbacks of Alhambra
might be that, instead of the new corporation (Alhambra Industries,
Inc.) being written off, the old one (Alhambra Cigar & Cigarette
Manufacturing Company, Inc.) has to be wound up; and that the old
corporate name cannot be retained fully in its exact form.
BENGUET CONSOLIDATED vs. PINEDA
Benguet Consolidated Mining Company was organized in 1903
under the Spanish Code of Commerce of 1886 as a sociedad
anonima. It was agreed by the incorporators that Benguet Mining
was to exist for 50 years.
In 1906, Act 1459 (Corporation Law) was enacted which superseded
the Code of Commerce of 1886. Act 1459 essentially introduced the
American concept of a corporation. The purpose of the law, among
others, is to eradicate the Spanish Code and make
sociedadesanonimas obsolete.
In 1953, the board of directors of Benguet Mining submitted to the
Securities and Exchange Commission an application for them to be
allowed to extend the life span of Benguet Mining. Then
Commissioner Mariano Pineda denied the application as it ruled
that the extension requested is contrary to Section 18 of the
Corporation Law of 1906 which provides that the life of a
corporation shall not be extended by amendment beyond the time
fixed in their original articles.
Benguet Mining contends that they have a vested right under the
Code of Commerce of 1886 because they were organized under said
law; that under said law, Benguet Mining is allowed to extend its life
by simply amending its articles of incorporation; that the prohibition
in Section 18 of the Corporation Code of 1906 does not apply to
sociedadesanonimas already existing prior to the Law’s enactment;
that even assuming that the prohibition applies to Benguet Mining,
it should be allowed to be reorganized as a corporation under the
said Corporation Law.
ISSUE: Whether or not Benguet Mining is correct.
HELD: No.Benguet Mining has no vested right to extend its life. It is
a well settled rule that no person has a vested interest in any rule of
law entitling him to insist that it shall remain unchanged for his
benefit. Had Benguet Mining agreed to extend its life prior to the
passage of the Corporation Code of 1906 such right would have
vested. But when the law was passed in 1906, Benguet Mining was
already deprived of such right.
To allow Benguet Mining to extend its life will be inimical to the
purpose of the law which sought to render obsolete
sociedadesanonimas. If this is allowed, Benguet Mining will unfairly
do something which new corporations organized under the new
Corporation Law can’t do – that is, exist beyond 50 years. Plus, it
would have reaped the benefits of being a sociedadanonima and
later on of being a corporation. Further, under the Corporation
Code of 1906, existing sociedadesanonimas during the enactment of
the law must choose whether to continue as such or be organized
as a corporation under the new law. Once a sociedadanonima
chooses one of these, it is already proscribed from choosing the
other. Evidently, Benguet Mining chose to exist as a
sociedadanonima hence it can no longer elect to become a
corporation when its life is near its end.
FORMALITIES IN ORGANIZING: AOI (GROUNDS FOR DISPROVAL)
G.R. No. 9321 September 24, 1914
NORBERTO ASUNCION, ET AL., petitioners-appellants, vs. MANUEL
DE YRIARTE, respondent-appellee.
 The chief of the division of archivesof the Executive Bureau,
the respondent, refused to file the articles of incorporation,
hereinafter referred to, upon the ground that the object of
the corporation, as stated in the articles, was not lawful and
that, in pursuance of section 6 of Act No. 1459, they were
not registerable.
 The proposed incorporators began an action to compel the
chief of the division of archives to receive and register said
articles of incorporation and to do any and all acts
necessary for the complete incorporation of the persons
named in the articles.
 The court below found in favor of the defendant and
refused to order the registration of the articles mentioned,
maintaining and holding that the defendant, under the
Corporation Law, had authority to determine both the
sufficiency of the form of the articles and the legality of the
object of the proposed corporation.
ISSUES:
1. WON the chief of the division of archives has authority,
under the Corporation for registration, to decide not only as
to the sufficiency of the form of the articles, but also as to
the lawfulness of the purpose of the proposed corporation.
It is strongly urged on the part of the appellants that the
 duties of the defendant are purely ministerial and that he
has no authority to pass upon the lawfulness of the object
for which the incorporators propose to organize. (NO)
2. WON the chief of the division of archives, who is the
representative thereof and clothed by it with authority to
deal subject to mandamus in the performance of his duties.
HELD:
1. Five or more persons, not exceeding fifteen, a majority of
whom are residents of the Philippine Islands, may form a
private corporation for any lawful purpose by filing with the
division of archives, patents, copyrights, and trademarks if
the Executive Bureau articles of incorporation duly executed
and acknowledged before a notary public.
Simply because the duties of an official happens to be ministerial, it
does not necessarily follow that he may not, in the administration of
his office, determine questions of law. We are of the opinion that it
is the duty of the division of archives, when articles of incorporation
are presented for registration, to determine whether the objects of
the corporation as expressed in the articles are lawful. We do not
believe that, simply because articles of incorporation presented foe
registration are perfect in form, the division of archives must accept
and register them and issue the corresponding certificate of
incorporation no matter what the purpose of the corporation may
be as expressed in the articles. We do not believe it was intended
that the division of archives should issue a certificate of
incorporation to, and thereby put the seal of approval of the
Government upon, a corporation which was organized for base of
immoral purposes. That such corporation might later, if it sought to
carry out such purposes, be dissolved, or its officials imprisoned or
itself heavily fined furnished no reason why it should have been
created in the first instance. It seems to us to be not only the right
but the duty of the divisions of archives to determine the lawfulness
of the objects and purposes of the corporation before it issues a
certificate of incorporation.
The division of archives, through its officials, has authority to
determine not only the sufficiency as to form of the articles of
incorporation offered for registration, but also the lawfulness of the
purposes of it.
2. He may be mandamused if he act in violation of law or if he
refuses, unduly, to comply with the law. While we have held
that defendant has power to pass upon the lawfulness of
the purposes of the proposed corporation and that he may,
in the fulfillment of his duties, determine the question of
law whether or not those purposes are lawful and
embraced within that class concerning which the law
permits corporations to be formed, that does not
necessarily mean, as we have already intimated, that his
duties are not ministerial. On the contrary, there is no
incompatibility in holding, as we do hold, that his duties are
ministerial and that he has no authority to exercise
discretion in receiving and registering articles of
incorporation. He may exercise judgment — that is, the
judicial function — in the determination of the question of
law referred to, but he may not use discretion.
The question whether or not the objects of a proposed corporation
are lawful is one that can be decided one way only. If he err in the
determination of that question and refuse to file articles which
should be filed under the law, the decision is subject to review and
correction and, upon proper showing, he will be ordered to file the
articles. This is the same kind of determination which a court makes
when it decides a case upon the merits, the court makes when it
decides a case upon the merits. When a case is presented to a court
upon the merits, the court can decide only one way and be right. As
a matter of law, there is only one way and be right. As a matter of
law, there is only one course to pursue. In a case where the court or
other official has discretion in the resolution of a question, then,
within certain limitations, he may decide the question either way
and still be right. Discretion, it may be said generally, is a faculty
conferred upon a court or other official by which he may decide a
question either way and still be right. The power conferred upon
the division of archives with respect to the registration of articles of
incorporation is not of that character. It is of the same character as
the determination of a lawsuit by a court upon the merits. It can be
decided only one way correctly.
If, therefore, the defendant erred in determining the question
presented when the articles were offered for registration, then that
error will be corrected by this court in this action and he will be
compelled to register the articles as offered. If, however, he did not
commit an error, but decided that question correctly, then, of
course, his action will be affirmed to the extent that we will deny
the relief prayed for.
The next question leads us to the determination of whether or not
the purposes of the corporation as stated in the articles of
incorporation are lawful within the meaning of the Corporation Law.
The purpose of the incorporation as stated in the articles is: "That
the object of the corporation is (a) to organize and regulate the
management, disposition, administration and control which the
barrio of Pulo or San Miguel or its inhabitants or residents have over
the common property of said residents or inhabitants or property
belonging to the whole barrio as such; and (b) to use the natural
products of the said property for institutions, foundations, and
charitable works of common utility and advantage to the barrio or
its inhabitants."
The municipality of Pasig as recognized by law contains within its
limits several barrios or small settlements, like Pulo or San Miguel,
which have no local government of their own but are governed by
the municipality of Pasig through its municipal president and
council. The president and members of the municipal council are
elected by a general vote of the municipality, the qualified electors
of all the barrios having the right to participate.
The municipality of Pasig is a municipal corporation organized by
law. It has the control of all property of the municipality. The
various barrios of the municipality have no right to own or hold
property, they not being recognized as legal entities by any law. The
residents of the barrios participate in the advantages which accrue
to the municipality from public property and receive all the benefits
incident to residence in a municipality organized by law. If there is
any public property situated in the barrio of Pulo or San Miguel not
belonging to the general government or the province, it belongs to
the municipality of Pasig and the sole authority to manage and
administer the same resides in that municipality. Until the present
laws upon the subject are charged no other entity can be the owner
of such property or control or administer it.
The object of the proposed corporation, as appears from the articles
offered for registration, is to make of the barrio of Pulo or San
Miguel a corporation which will become the owner of and have the
right to control and administer any property belonging to the
municipality of Pasig found within the limits of that barrio. This
clearly cannot be permitted. Otherwise municipalities as now
established by law could be deprived of the property which they
now own and administer. Each barrio of the municipality would
become under the scheme proposed, a separate corporation, would
take over the ownership, administration, and control of that portion
of the municipal territory within its limits. This would disrupt, in a
sense, the municipalities of the Islands by dividing them into a series
of smaller municipalities entirely independent of the original
municipality.
What the law does not permit cannot be obtained by indirection.
The object of the proposed corporation is clearly repugnant to the
provisions of the Municipal Code and the governments of
municipalities as they have been organized thereunder. (Act No. 82,
Philippine Commission.)
FORMALITIES IN ORGANIZING: BY LAWS
LOYOLA GRAND VILLAS vs. CA
In 1983, the Loyola Grand Villas Association, Inc. (LGVAI) was
incorporated by the homeowners of the Loyola Grand Villas (LGV), a
subdivision. The Securities and Exchange Commission (SEC) issued a
certificate of incorporation under its official seal to LGVAI in the
same year. LGVAI was likewise recognized by the Home Insurance
and Guaranty Corporation (HIGC), a government-owned-and-
controlled corporation whose mandate is to oversee associations
like LGVAI.
Later, LGVAI later found out that there are two homeowners
associations within LGV, namely: Loyola Grand Villas Homeowners
(South) Association, Inc. (LGVAI-South) and Loyola Grand Villas
Homeowners (North) Association, Inc. (LGVAI-North). The two
associations asserted that they have to be formed because LGVAI is
inactive. When LGVAI inquired about its status with HIGC, HIGC
advised that LGVAI was already terminated; that it was
automatically dissolved when it failed to submit it By-Laws after it
was issued a certificate of incorporation by the SEC.
ISSUE: Whether or not a corporation’s failure to submit its by-laws
results to its automatic dissolution.
HELD: No. A private corporation like LGVAI commences to have
corporate existence and juridical personality from the date the
Securities and Exchange Commission (SEC) issues a certificate of
incorporation under its official seal. The submission of its by-laws is
a condition subsequent but although it is merely such, it is a MUST
that it be submitted by the corporation. Failure to submit however
does not warrant automatic dissolution because such a
consequence was never the intention of the law. The failure is
merely a ground for dissolution which may be raised in a quo
warranto proceeding. It is also worthwhile to note that failure to
submit can’t result to automatic dissolution because there are some
instances when a corporation does not require by-laws.
PMI COLLEGES vs. NLRC
In 1991, PMI Colleges hired the services of Alejandro Galvan for the
latter to teach in said institution. However, for unknown reasons,
PMI defaulted from paying the remunerations due to Galvan.
Galvan made demands but were ignored by PMI. Eventually, Galvan
filed a labor case against PMI. Galvan got a favorable judgment from
the Labor Arbiter; this was affirmed by the National Labor Relations
Commission. On appeal, PMI reiterated, among others, that the
employment of Galvan is void because it did not comply with its by-
laws. Apparently, the by-laws require that an employment contract
must be signed by the Chairman of the Board of PMI. PMI asserts
that Galvan’s employment contract was not signed by the Chairman
of the Board.
ISSUE: Whether or not Galvan’s employment contract is void.
HELD: No. PMI Colleges never even presented a copy of the by-laws
to prove the existence of such provision. But even if it did, the
employment contract cannot be rendered invalid just because it
does not bear the signature of the Chairman of the Board of PMI.
By-Laws operate merely as internal rules among the stockholders,
they cannot affect or prejudice third persons who deal with the
corporation, unless they have knowledge of the same. In this case,
PMI was not able to prove that Galvan knew of said provision in the
by-laws when he was employed by PMI.
PENA vs. CA
PAMPANGA BUS CO., INC. (PAMBUSCO) is the owner of the three
lots in dispute. PAMBUSCO mortgaged the lots to the Development
Bank of the Philippines (DBP), which were later on foreclosed.
Rosita Peña was awarded the lots in a foreclosure sale for being the
highest bidder. The certificate of sale was later issued to her and
registered in her name.
Subsequently, the Board of Directors of PAMBUSCO, through three
out of its five directors, issued a resolution to assign its right of
redemption over the lots in favor of any interested party. The right
of redemption was later on assigned to Marcelino Enriquez, who
redeemed the property.
Enriquez then sold the lots to spouses Rising T. Yap and Catalina
Lugue-Yap.
Meanwhile, a case involving the validity of the sale to the spouses
Yap was pending, and despite the protestations of Peña as to
validity of the PAMBUSCO's assignment of the right of redemption,
the lots were somehow registered in the name of spouses Yap.
Despite the registration of the lots to spouses Yap, Peña retained
possession of the property.
Main Case:
Spouses Yap sought to recover the possession of the lots from Peña.
The latter countered that she is now the legitimate owner of the
subject lands for having purchased the same in a foreclosure
proceeding instituted by the DBP against PAMBUSCO and no valid
redemption having been effected within the period provided by law.
The defense was that since the deed of assignment executed by
PAMBUSCO in favor of Enriquez was void ab initio for being an ultra
vires act of its board of directors and for being without any valuable
consideration, it could not have had any legal effect.
(It should be noted that the by-laws of PAMBUSCO provide that four
out of five directors must be present in a special meeting of the
board to constitute a quorum, and that the corporation has already
ceased to operate.) CFI ruled in favor of Petitioner Peña, but the
same was overturned by the CA.
Issue: W/N there Peña is entitled to the lots.
Ruling: Yes.
The by-laws of a corporation are its own private laws which
substantially have the same effect as the laws of the corporation.
They are in effect, written, into the charter. In this sense they
become part of the fundamental law of the corporation with which
the corporation and its directors and officers must comply.
Apparently, only three (3) out of five (5) members of the board of
directors of respondent PAMBUSCO convened by virtue of a prior
notice of a special meeting. There was no quorum to validly transact
business since it is required under its by-laws that at least four (4)
members must be present to constitute a quorum in a special
meeting of the board of directors.
Under Section 25 of the Corporation Code of the Philippines, the
articles of incorporation or by-laws of the corporation may fix a
greater number than the majority of the number of board members
to constitute the quorum necessary for the valid transaction of
business. Any number less than the number provided in the articles
or by-laws therein cannot constitute a quorum and any act therein
would not bind the corporation; all that the attending directors
could do is to adjourn.
Moreover, the records show that respondent PAMBUSCO ceased to
operate for about 25 years prior to the board meeting. Being a
dormant corporation for several years, it was highly irregular, for a
group of three (3) individuals representing themselves to be the
directors of respondent PAMBUSCO to pass a resolution disposing
of the only remaining asset of the corporation in favor of a former
corporate officer.
As a matter of fact, the three (3) alleged directors who attended the
special meeting on November 19, 1974 were not listed as directors
of respondent PAMBUSCO in the latest general information sheet.
Similarly, the latest list of stockholders of respondent PAMBUSCO
on file with the SEC does not show that the said alleged directors
were among the stockholders of respondent PAMBUSCO, in
contravention of the rule requiring a director to own one (1) share
in their to qualify as director of a corporation.
Further, under the Corporation Law, the sale or disposition of any
and/or substantially all properties of the corporation requires, in
addition to a proper board resolution, the affirmative votes of the
stockholders holding at least two-thirds (2/3) of the voting power in
the corporation in a meeting duly called for that purpose. This was
not complied with in the case at bar.
At the time of the passage of the questioned resolution, respondent
PAMBUSCO was insolvent and its only remaining asset was its right
of redemption over the subject properties. Since the disposition of
said redemption right of respondent PAMBUSCO by virtue of the
questioned resolution was not approved by the required number of
stockholders, the said resolution, as well as the subsequent
assignment and sale, were null and void.
Lastly, for lack of consideration, the assignment should be
construed as a donation. Under Article 725 of the Civil Code, in
order to be valid, such a donation must be made in a public
document and the acceptance must be made in the same or in a
separate instrument. In the latter case, the donor shall be notified
of the acceptance in an authentic form and such step must be noted
in both instruments. Since assignment to Enriquez shows that there
was no acceptance of the donation in the same and in a separate
document, the said deed of assignment is thus void ab initio.