Case Discussion:
bang Moral Turpitude yang incorporator na yan, kung tama ba
Q: Was it issued a certificate of incorporation?
A: Yes
In this particular case, there was a failure to file the by-laws.
Before the Corporation code was revised, you have an option
whether or not you will file your by-laws together with your
articles of incorporation. You can submit it together. Pwede
din namang i-file yung by-laws 30-days after the issuance of
certificate of incorporation.
Meron talagang instances na makakalimotan magsubmit ng
by-laws, so ang ginagawa is naiisuehan ka ng certificate of
incorporation pero wala ka palang by-laws. By-laws are the
internal rules of governance between the stockholders and
the directors of a corporation. So that is a possibility.
But if you try to look at the provisions of the Revised
Corporation Code, there's no more option to submit it after the
certificate of incorporation.
So what then are the instances that could help stablish or put
into existence a de facto corporation?
Some of the instances according to Villanueva:
1. Defects in the Incorporation papers
- I disagree. Because if there are defects in the incorporation,
you cannot be issued with a certificate of incorporation. In the
first place, pag defective yan hindi ka talaga ma-iisuehan ng
certificate. You cannot be a de facto corporation.
2. Corporate name—the name of the corporation closely
resembles that of a preexisting corporation that it will
tend to deceive the public.
- This is one of the ground na magiging de facto. But, to my
mind, hindi ka naman i-a-uphold kung meron kang name na
kapareha. You will have to clear the name first na wala kang
kapareha. That's why may procedure na RESERVATION. If
meron kang kaparehang pangalan, you have to change it.
3. Ineligibility of the incorporators.
4. Defect in the execution of incorporation papers.
Now in my mind, the eligibility of incorporators has more
bearing in giving life to de facto corporation. Why? In the
incorporation papers, the SEC will not inqure as to meron
yung birth certificates, dates, etc.
There will be instances na-issuehan ka ng certificate of
incorporation na hindi naman talaga eligible ang inilagay
mong incorporator. That could be a reason for an entity to be
a de facto corporation.
CORPORATION BY ESTOPPEL DOCTRINE
There's really no corporation, it's just that, to avoid prejudice
to 3rd persons you are given the powers and liabilities of a
corporation.
SEC. 20. Corporation by estoppel. — All persons who
assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result
thereof: Provided, however, That when any such ostensible
corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall not
be allowed to use its lack of corporate personality as a
defense. Anyone who assumes an obligation to an ostensible
corporation as such cannot resist performance thereof on the
ground that there was in fact no corporation.
ASIA BANKING CORPORATION V. STANDARD
PRODUCTS, CO., INC.
[September 11, 1924]
FACTS: STANDARD PRODUCTS, through its President
obtained a loan from ASIA BANKING as evidenced by a
promissory note. This action is brought to recover the sum,
the balance due on the said promissory note.
The court below rendered judgment in favor of the ASIA
BANKING for the sum demanded in the complaint From this
judgment the STANDARD PRODUCTS appealed because at
the trial of the case, ASIA BANKING failed to prove
affirmatively the corporate existence of the parties and the
STANDARD PRODUCTS insists that under these
circumstances, the court erred in finding that the parties were
corporations with juridical personality.
ISSUE: Is STANDARD PRODUCTS estopped from denying
ASIA BANKING‘s and its own corporate existence?
HOLDING: Yes 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.
The STANDARD PRODUCTS having recognized the
corporate existence of the ASIA BANKING by making a
promissory note in its favor and making partial payments on
the same is therefore estopped to deny said ASIA BANKING'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.
PAZ V. NEW INTERNATIONAL ENVIRONMENTAL
UNIVERSALITY, INC.
[April 20, 2015]
FACTS: PAZ, officer-in-charge of the Aircraft Hangar at the
Davao International Airport entered into a Memorandum of
Agreement [MOA] with CAPTAIN CLARKE,
INTERNATIONAL ENVIRONMENTAL UNIVERSITY‘s
President, whereby PAZ shall allow INTERNATIONAL to use
the aircraft hangar space at the said Airport "exclusively for
company aircraft/helicopter."
PAZ complained in a letter addressed to MR. CLARKE,
INTERNATIONAL ENVIRONMENTAL UNIVERSALITY, Inc.
…" that the hangar space was being used "for trucks and
equipment, vehicles maintenance and fabrication," instead of
for "company helicopter/aircraft" only, and thereby threatened
to cancel the MOA if the "welding, grinding, and fabrication
jobs" were not stopped immediately.
PAZ sent another letter to "MR. CLARKE, INTERNATIONAL
ENVIRONMENTAL UNIVERSALITY, Inc. …" reiterating that
the hangar space "must be for aircraft use only," and that he
will terminate the MOA due to the safety of the aircrafts parked
nearby. He further offered a vacant space along the airport
road that was available and suitable for Capt. Clarke's
operations.
PAZ sent a third letter, this time, addressed to "MR. CLARKE,
CEO, NEW INTERNATIONAL ENVIRONMENTAL
UNIVERSITY, Inc. …" demanding that the latter vacate the
premises due to the damage caused by an Isuzu van driven
by its employee to the left wing of an aircraft parked inside the
hangar space, which Capt. Clarke had supposedly promised
to buy, but did not.
PAZ sent a final letter addressed to "MR. CLARKE, Chairman,
CEO, NEW INTERNATIONAL ENVIRONMENTAL
UNIVERSITY, INC. x x x," strongly demanding the latter to
immediately vacate the hangar space. He further informed
CAPT. CLARKE that the company will "apply for immediate
electrical disconnection with the Davao Light and Power
Company (DLPC)[,] so as to compel [the latter] to desist from
continuing with [the] works" thereon. NEW INTERNATIONAL
ENVIRONMENTAL UNIVERSALITY, INC. filed a complaint
against PAZ for breach of contract. PAZ alleged that NEW
INTERNATIONAL had no cause of action against PAZ as the
MOA was executed between PAZ and CAPT. CLARKE in the
latter's personal capacity.
RTC: NEW INTERNATIONAL was issued a Certificate of
Incorporation on SEPTEMBER 3, 2001 as NEW
INTERNATIONAL ENVIRONMENTAL UNIVERSALITY, INC.
but, subsequently, when it amended its Articles of
Incorporation on November 14, 2001 and July 11, 2002, the
SEC Extension Office in Davao City erroneously used the
name NEW INTERNATIONAL ENVIRONMENTAL
UNIVERSITY, INC. The name ―NEW INTERNATIONAL
ENVIRONMENTAL UNIVERSITY, INC. ― was used by NEW
INTERNATIONAL when it filed its amended complaint on
September 11, 2002 and the petition for indirect contempt
against PAZ on October 24, 2003 believing that it was allowed
to do so, as it was only on April 11, 2005 when the SEC
directed it to revert to its correct name.
That the MOA, which was "made and executed by and
between PAZ, Officer-In-Charge of Aircraft Hangar at Davao
International Airport, [a]nd CAPT. CLARKE[,] President of
INTERNATIONAL ENVIRONMENTAL UNIVERSITY was
executed by the parties not only in their personal capacities
but also in representation of their respective corporations or
entities.
CA: While there was no corporate entity at the time of the
execution of the MOA on March 1, 2000 when CAPT.
CLARKE signed as "President of International Environmental
University," PAZ is nonetheless estopped from denying that
he had contracted with NEW INTERNATIONAL as a
corporation, having recognized the latter as the "Second
Party" in the MOA that "will use the hangar space exclusively
for company aircraft/helicopter." PAZ was likewise found to
have issued checks to NEW INTERNATIONAL from May 3,
2000 to October 13, 2000, which belied his claim of
contracting with CAPT. CLARKE in the latter's personal
capacity.
ISSUE: Does NEW INTERNATIONAL lack legal capacity?
HOLDING: No. PAZ is estopped from claiming that NEW
INTERNATIONAL lacks legal capacity. CAPT. CLARKE acted
merely as NEW INTERNATIONAL‘S agent.
CAPT. CLARKE, AN AGENT: Whether CAPT. CLARKE
should have been impleaded as an indispensable party was
correctly resolved by the CA which held that the former was
merely an agent of respondent.
While Capt. Clarke's name and signature appeared on the
MOA, his participation was, nonetheless, limited to being a
representative of respondent. As a mere representative, Capt.
Clarke acquired no rights whatsoever, nor did he incur any
liabilities, arising from the contract between petitioner and
respondent. Therefore, he was not an indispensable party to
the case at bar.
PAZ, ESTOPPED FROM DENYING THE CORPORATE
EXISTENCE OF NEW INTERNATIONAL
From the very language itself of the MOA entered into by PAZ
whereby he obligated himself to allow the use of the hangar
space "for company aircraft/helicopter," PAZ cannot deny that
he contracted with NEW INTERNATIONAL. PAZ further
acknowledged this fact in his final letter, where he reiterated
and strongly demanded the former to immediately vacate the
hangar space his "company is occupying/utilizing." One who
assumes an obligation to an ostensible corporation, as such,
cannot resist performance thereof on the ground that there
was in fact no corporation.
[Section 21 of the Corporation Code] Clearly, PAZ is bound
by his obligation under the MOA not only on estoppel but by
express provision of law. As aptly raised by NEW
INTERNATIONAL, it is futile to insist that PAZ issued the
receipts for rental payments in NEW INTERNATIONAL's
name and not with CAPT. CLARKE's, whom PAZ allegedly
contracted in the CAPT. CLARKE's personal capacity, only
because it was upon the instruction of an employee. Indeed,
it is disputably presumed that a person takes ordinary care of
his concerns, and that all private transactions have been fair
and regular. Hence, it is assumed that PAZ, who is a pilot,
knew what he was doing with respect to his business with
NEW INTERNATIONAL.
CAPITAL STRUCTURES
"Capital structure" is the mixture of your capital.
Broadly termed, this is your capital in the broad sense
huh.Kase ang meaning ng capital in your broad sense:
everything that finances your assets.
Pag-gagawa ka ng corporation, lahat ng nag-fi-finance ng
assets mo yun yung capital in the broad sense. It could either
be debt—―debt financing.
So kung capital ka, it could be financed by its investment
(shares). Kung uutang ka, yun, it could be debt financing,
either by bank.
What is Debt Financing?
Debt financing occurs when a firm raises money for working
capital or capital expenditures by selling debt instruments to
individuals and/or institutional investors. In return for lending
the money, the individuals or institutions become creditors
and receive a promise that the principal and interest on the
debt will be repaid.
What Is Equity Financing?
Equity financing is the process of raising capital through the
sale of shares. Companies raise money because they might
have a short-term need to pay bills or they might have a long-
term goal and require funds to invest in their growth. By selling
shares, they sell ownership in their company in return for
cash, like stock financing.
Thin capitalization— is the ratio of liability in capital in
capitalization. We do not have Thin Capitalization in the
Philippines.
THE PRESIDENT OF PDIC V. REYES
[June 21, 2005]
FACTS: Pacific Banking Corporation [PaBC] was placed
under receivership on the ground of insolvency.
Subsequently, it was placed under liquidation. The Central
Bank of the Philippines, through the OSG, filed a petition for
assistance in the liquidation of PaBC.
LIQUIDATING COURT
JOO ET AL. [SINGAPOREANS] filed their claim before the
liquidating court. Citing Investment Incentives Act, they
claimed to be preferred creditors and prayed for the return of
their equity investment in the amount of US$2,531,632.18
with interest until the closure of the PaBC. The LIQUIDATION
COURT issued an order that [t]he claimants who are foreign
investors should already be paid. The doubt should be
resolved in favor of claimants since it is of judicial notice that
government adopted the policy to entice foreign investors to
help boost the economy.
Claimants who are foreign investors should be treated with
liberality such that they should be categorized among
preferred creditors. The LIQUIDATOR OF PABC is ordered to
pay the SINGAPOREANS their total investment of
US$2,531,632.18 as preferred creditors. Dividends and/or
interest that accrued in favor of claimants is hereby deferred
pending study by the Liquidator.
The LIQUIDATION COURT‘S order became final and
executory. LIQUIDATING COURT, Through Reyes, issued an
Order directing the President of the Land Bank of the
Philippines (LBP) to release the garnished amount of
US$2,531,632.18 or its peso equivalent computed to be paid
to the Singaporeans. LIQUIDATING COURT, Judge Reyes
ordered the payment of accrued legal interest on the
Singaporeans equity investment of US$2,531,632.18 at the
rate of 12% per annum computed from the date the outward
remittance and the investment were actually made, until its full
payment, at the exchange rate prevailing at the time of
payment.
CONTENTIONS:
LIQUIDATOR:
[1] interprets the affirmation by the CA Order of Judge Reyes
as amounting to an unlawful grant of undeclared dividends.
[2] that the only fruits that can arise from an equity investment
are dividends declared from unrestricted retained earnings by
the Board of Directors in accordance with the Corporation
Code. Absent a declaration in this case, the interest awarded
has no legal basis.
[3] that no actual damages can arise from the closure of the
bank. The ruling in Eastern Shipping Lines, Inc. v. Court of
 Appeals is not applicable because that case clearly refers to
an award of interest in the concept of actual and
compensatory damages in case of breach of an obligation.
[4] The failure of PaBC to return the Singaporeans equity
investment because of its closure is not a breach of an
obligation the closure being akin to a force majeure. If indeed
PaBC is liable to the Singaporeans for actual and
compensatory damages, accrual thereof should be reckoned
from the date of demand pursuant to Article 1169 of the Civil
Code. Instead of running from 15 October 1981 when the
Singaporeans bought their shares in PaBC, the 6% interest
rate should be reckoned from 26 June 1992, the date the
Singaporeans filed their claim in the liquidation court.
[5] That there is already an overpayment of accrued dividends
or interests. The liquidation courts Order awarded an interest
of 12% per annum to be computed from 15 October 1981 (the
date of actual remittance of the investment) until full payment.
CA: modified the decision and awarded an interest of 6% per
annum from 15 October 1981 up to PaBCs closure, as well as
an interest of 12% per annum from 11 October 1992, when
the 11 September 1992 Order became final and executory,
until 17 April 1998, when the equity investment of
US$2,531,632.18 was fully paid.
ISSUE:
[1] Whether the SINGAPOREANS equity investment with
closed PaBC is entitled to payment of interest.
[2] Whether Eastern Shipping Lines, inc. v. CA guidelines are
applicable [in fixing the rates of interest and/or dividends that
allegedly accrued on the equity investment of the
singaporeans on PaBC]
HOLDING: ORIGINAL REMITTANCE OF THE
SINGAPOREANS WAS IN THE NOT IN A NATURE OF A
LOAN OR FORBEARANCE OF MONEY, GOODS, OR
CREDIT. IT IS AN INVESTMENT.
The LIQUIDATION COURT awarded interest not as a form of
accrued dividends or return of investment, but as actual and
compensatory damages. Categorically, the order states: The
December 16, 1993 CA ruled that the remittance of earnings
of this type of foreign investment is guaranteed. Legal
interests are earnings and they are provided for by law arising
from the withholding of funds due to a party. They are not
computed on the amount of earnings of a business.
When the trial court, in its Order of 11 September 1992,
declared the Singaporeans to have the status of preferred
creditors, it did so only for the purpose of giving them priority
in the order of payment upon the liquidation of the PaBC.
Relying only on the Investment Incentive Act, the trial court
did not decide whether the Singaporeans investment was a
loan or equity. Since the Singaporeans were declared
preferred creditors for a limited purpose, it does not follow that
the court likewise implied that the original remittance of the
Singaporeans was in the nature of a loan or forbearance of
money, goods, or credit.
CA: The equity investment of US$2,531,632.18 was not a
loan or forbearance of money; hence, Central Bank Circular
No. 416, prescribing 12% interest per annum on loans or
forbearance of money, goods, or credit is inapplicable. It
applied Article 2209 of the Civil Code, which provides for the
legal interest of 6% per annum in the absence of a stipulation
to the contrary. Thus, the CA modified the Order of 12 May
1998 and reduced the rate of interest on the investment of
US$2,531,632.18 from 12% to 6% to run from 15 October
1981 when the outward remittance and equity investment was
actually made up to the closure of PaBC.
Also, following Eastern Shipping Lines, Inc. v. Court of
Appeals it upheld the grant of 12% interest on the
monetary award of US$2,531,632.18 to run from the date of
the finality of the 11 September 1992 Order until its
satisfaction. It is undisputed that the amount of
US$2,531,632.58 remitted by the Singaporeans represented
the 154,462 PaBC common shares previously issued to, and
owned by, Mandarin Development Corporation bought by the
Singaporeans at the price of US$16.39 per share. The
investment was approved by the Central Bank under
Monetary Board Resolution No. 323 and constituted about
11% of the total subscribed capital stock of PaBC. Clearly, the
amount remitted to PaBC by the Singaporeans was an
investment.
An investment is an expenditure to acquire property or other
assets in order to produce revenue. It is the placing of capital
or laying out of money in a way intended to secure income or
profit from its employment. To invest is to purchase securities
of a more or less permanent nature, or to place money or
property in business ventures or real estate, or otherwise lay
it out, so that it may produce a revenue or income. Thus,
unlike a deposit of money or a loan that earns interest, the
investment of the Singaporeans cannot be assured of a
dividend or an interest on the amount invested. For, interests
or dividends are granted only after profits or gains are
generated.
RESULTANTLY, GUIDILENES IN EASTERN SHIPPING
CASE IN RELATION TO INTEREST IS NOT APPLICABLE.
We therefore agree with the Court of Appeals in holding that
the amount of US$2,531,632.18 remitted by the
Singaporeans to PaBC was not a loan or forbearance of
money in favor of PaBC. Hence the guidelines in Eastern
Shipping Lines does not come into play. Neither can we apply
Central Bank Circular No. 416, which imposes the rate of 12%
per annum on loans and forbearance of money. Nor can
guidelines be invoked because, as correctly pointed out by the
Liquidator, the closure of the PaBC did not constitute a breach
of obligation.
Article 2209 of the Civil Code, which was relied upon by the
Court of Appeals, does not find application either. That Article,
which provides for 6% interest per annum, governs when
there is a delay in the payment of a sum of money. Such is
not the case here. Thus, the Court of Appeals award of 6%
interest on the Singaporeans equity investment as actual or
compensatory damages from the date of its remittance until
the closure of PaBC has no leg to stand on and must,
therefore, be deleted.