SECTION 13
Ongs. The CA moreover found the Tius guilty of
ONG YONG, et. al. v. DAVID TIU, et. al.
Facts: In 1994, the construction of the Masagana Citimall
in Pasay City was threatened with stoppage and
incompletion when its owner, the First Landlink Asia
Development Corporation (FLADC), which was owned
by the Tius, encountered dire financial difficulties. It was
heavily indebted to the PNB for P190M. To stave off
foreclosure of the mortgage, the Tius invited Ong Yong,
Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T.
Ong and Julia Ong Alonzo (the Ongs), to invest in
FLADC. Under the Pre-Subscription Agreement they
entered into, the Ongs and the Tius agreed to maintain
equal shareholdings in FLADC: the Ongs were to subscribe
to 1,000,000 shares at a par value of P100.00 each while
the Tius were to subscribe to an additional 549,800 shares
at P100.00 each in addition to their already existing
subscription of 450,200 shares.
Tius were entitled to nominate the Vice-President and the
Treasurer plus 5 directors while the Ongs were entitled to
nominate the President, the Secretary and 6 directors of
FLADC. The Ongs were given the right to manage &
operate the mall.
The business harmony between the Ongs and the Tius in
FLADC, however, was shortlived because the Tius, on
February 23, 1996, rescinded the Pre-Subscription
Agreement and accused the Ongs of (1) refusing to credit to
them the FLADC shares covering their real property
contributions; (2) preventing David S. Tiu and Cely Y. Tiu
from assuming the positions as Vice-President and
Treasurer; and (3) refusing to give them the office spaces.
In their defense, the Ongs said that David S. Tiu and Cely
Y. Tiu had in fact assumed the positions of Vice-President
and Treasurer of FLADC but that it was they who refused
to comply with the corporate duties assigned to them.
The controversy finally came to a head when this case was
commenced by the Tius on Feb 1996 at the SEC, seeking
confirmation of their rescission of the Pre-Subscription
Agreement. SEC issued a decision on May 1997
confirming the rescission.
On motion of both parties, the above decision was partially
reconsidered but only insofar as the Ongs' P70 million was
declared not as a premium on capital stock but an advance
(loan) by the Ongs to FLADC and that the imposition of
interest on it was correct.
Both parties appealed to the SEC en banc which rendered a
decision on September 11, 1998, affirming the May 19,
1997 decision of the Hearing Officer. The SEC en banc
confirmed the rescission of the Pre-Subscription Agreement
but reverted to classifying the P70 million paid by the Ongs
as premium on capital and not as a loan or advance to
FLADC, hence, not entitled to earn interest.
*Note: An interesting sidelight of the CA decision was
its description of the rescission made by the Tius as the
"height of ingratitude" and as "pulling a fast one" on the
withholding FLADC funds from the Ongs and diverting
corporate income to their own MATTERCO account.
These were findings later on affirmed in our own (SC)
February 1, 2002 Decision which is the subject of the
instant motion for reconsideration.
But there was also a strange aspect of the CA
decision. The CA concluded that both the Ongs and the
Tius were in pari delicto (which would not have legally
entitled them to rescission) but, "for practical
considerations," that is, their inability to work together, it
was best to separate the two groups by rescinding the Pre-
Subscription Agreement, returning the original investment
of the Ongs and awarding practically everything else to the
Tius.
Issue:
WON the Tius could legally rescind the Pre-Subscription
Agreement
Ruling:
NO. FLADC was originally incorporated with an
authorized capital stock of 500,000 shares with the Tius
owning 450,200 shares representing the paid-up capital.
When the Tius invited the Ongs to invest in FLADC as
stockholders, an increase of the authorized capital stock
became necessary to give each group equal (50-50)
shareholdings as agreed upon in the Pre-Subscription
Agreement. The authorized capital stock was thus increased
from 500,000 shares to 2,000,000 shares with a par value of
P100 each, with the Ongs subscribing to 1,000,000 shares
and the Tius to 549,800 more shares in addition to their
450,200 shares to complete 1,000,000 shares. Thus, the
subject matter of the contract was the 1,000,000 unissued
shares of FLADC stock allocated to the Ongs. Since these
were unissued shares, the parties' Pre-Subscription
Agreement was in fact a subscription contract as defined
under Section 60, Title VII of the Corporation Code: Any
contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed shall be
deemed a subscription within the meaning of this Title,
notwithstanding the fact that the parties refer to it as a
purchase or some other contract.
A subscription contract necessarily involves the corporation
as one of the contracting parties since the subject matter of
the transaction is property owned by the corporation – its
shares of stock. Thus, the subscription contract
(denominated by the parties as a Pre-Subscription
Agreement) whereby the Ongs invested P100 million for
1,000,000 shares of stock was, from the viewpoint of the
law, one between the Ongs and FLADC, not between the
Ongs and the Tius. Otherwise stated, the Tius did not
contract in their personal capacities with the Ongs since
they were not selling any of their own shares to them. It
was FLADC that did.
Considering therefore that the real contracting parties to the The distribution of corporate assets and property cannot be
subscription agreement were FLADC and the Ongs alone, a made to depend on the whims and caprices of the
civil case for rescission on the ground of breach of contract stockholders, officers or directors of the corporation, or
filed by the Tius in their personal capacities will not even, for that matter, on the earnest desire of the court a
prosper. Assuming it had valid reasons to do so, only quo "to prevent further squabbles and future litigations"
FLADC (and certainly not the Tius) had the legal unless the indispensable conditions and procedures for the
personality to file suit rescinding the subscription protection of corporate creditors are followed. Otherwise,
agreement with the Ongs inasmuch as it was the real party the "corporate peace" laudably hoped for by the court will
in interest therein. Article 1311 of the Civil Code provides remain nothing but a dream because this time, it will be the
that "contracts take effect only between the parties, their creditors' turn to engage in "squabbles and litigations"
assigns and heirs…" Therefore, a party who has not taken should the court order an unlawful distribution in blatant
part in the transaction cannot sue or be sued for disregard of the Trust Fund Doctrine.
performance or for cancellation thereof, unless he shows
In the instant case, the rescission of the Pre-Subscription
that he has a real interest affected thereby.
Agreement will effectively result in the unauthorized
However, although the Tius were adversely affected by the distribution of the capital assets and property of the
Ongs' unwillingness to let them assume their positions, corporation, thereby violating the Trust Fund Doctrine and
rescission due to breach of contract is definitely the wrong the Corporation Code, since rescission of a subscription
remedy for their personal grievances. The Corporation agreement is not one of the instances when distribution of
Code, SEC rules and even the Rules of Court provide for capital assets and property of the corporation is allowed.
appropriate and adequate intra-corporate remedies, other
than rescission, in situations like this. Rescission is
certainly not one of them, specially if the party asking for it
has no legal personality to do so and the requirements of
the law therefor have not been met. A contrary doctrine
will tread on extremely dangerous ground because it will
allow just any stockholder, for just about any real or
imagined offense, to demand rescission of his subscription
and call for the distribution of some part of the corporate
assets to him without complying with the requirements of
the Corporation Code.
Hence, the Tius, in their personal capacities, cannot seek
the ultimate and extraordinary remedy of rescission of the
subject agreement based on a less than substantial breach of
subscription contract. Not only are they not parties to the
subscription contract between the Ongs and FLADC; they
also have other available and effective remedies under the
law.
The Trust Fund Doctrine, first enunciated by this Court in
the 1923 case of Philippine Trust Co. vs. Rivera, provides
that subscriptions to the capital stock of a corporation
constitute a fund to which the creditors have a right to look
for the satisfaction of their claims. This doctrine is the
underlying principle in the procedure for the distribution of
capital assets, embodied in the Corporation Code, which
allows the distribution of corporate capital only in three
instances: (1) amendment of the Articles of Incorporation
to reduce the authorized capital stock, (2) purchase of
redeemable shares by the corporation, regardless of the
existence of unrestricted retained earnings, and (3)
dissolution and eventual liquidation of the corporation.
Furthermore, the doctrine is articulated in Section 41 on the
power of a corporation to acquire its own shares and in
Section 122 on the prohibition against the distribution of
corporate assets and property unless the stringent
requirements therefor are complied with.
SECTION 14
MSCI-NACUSIP Local Chapter, petitioner, vs.
NATIONAL WAGES AND PRODUCTIVITY
COMMISSION and MONOMER SUGAR CENTRAL,
INC., respondents.
Asturias Sugar Central, Inc. (ASCI, for brevity), executed a
Memorandum of Agreement with Monomer Trading
Industries, Inc. (MTII, for brevity), whereby MTII shall
acquire the assets of ASCI by way of a Deed of
Assignment provided that an entirely new organization in
place of MTII shall be organized, which new corporation
shall be the assignee of the assets of ASCI.
By virtue of this Agreement, a new corporation was
organized and incorporated under the corporate name
Monomer Sugar Central, Inc. or MSCI, the private
respondent herein. Afterwards, MSCI applied for
exemption from the coverage of Wage Order No. RO VI-01
(Payment of Cost of Living Allowance) issued by the
Board on the ground that it is a distressed employer.
However, before a corporation may avail of the said
exemption, the Guidelines of the said wage order states that
the corporation should accumulate losses for the last 2 full
accounting periods and interim period which have impaired
by at least 25 % the paid-up capital at the end of the last
full accounting. To comply with this, MSCI submitted its
audited financial statements and income tax returns for the
period beginning February 15, 1990 and ending August 31,
1990, including the quarterly financial statements and
income tax returns for the two quarters ending November
30, 1990 and February 28, 1991. The reports showed that
MSCI indeed accumulated losses within the 25% of the
alleged paid-up capital of 5 million.
The petitioner MSCI-NACUSIP Local Chapter (Union, for
brevity), in opposition, maintained that the financial
statements submitted by MSCI do not reflect the true and
valid financial status of the company, and that the paid-up
capital would have been higher than P5 million and thus
impairment would have been lower than 25%. This is
because the Board believes that the value of the assets of
ASCI, party to the Memorandum of Agreement, transferred
to MSCI should be taken into consideration in computing
the paid-up capital of MSCI to reflect its true financial
structure. Moreover, the loans or advances extended by
MTII, the other party to the Agreement, to MSCI should
allegedly be treated as additional investments to MSCI and
must therefore be included in computing respondent's paid-
up capital.
Board denied MSCI's application for exemption based on
the finding that the applicant's losses of P3,400,738.00 for
the period February 15, 1990 to August 31, 1990 constitute
an impairment of only 5.25% of its paid-up capital of
P64,688,528.00, cannot be said to be sufficient to meet the
required 25% in order to qualify for the exemption, as
provided in the Guidelines.
A motion for reconsideration was filed by MSCI. The
Commission reversed and set aside the foregoing orders of
the Board, and granted MSCI's application for exemption
from Wage Order No. RO VI-01. The Commission said
that the paid up
ISSUE: Whether or not the correct paid-up capital of MSCI
for the pertinent period covered by the application for
exemption is P5 million?
HELD: YES. By express provision of Section 13, paid-up
capital is that portion of the authorized capital stock which
has been both subscribed and paid. To illustrate, where the
authorized capital stock of a corporation is worth P1
million and the total subscription amounts to P250,000.00,
at least 25% of this amount, namely, P62,500.00 must be
paid up per Section 13. The latter, P62,500.00, is the paid-
up capital or what should more accurately be termed as
"paid-up capital stock."
In the case under consideration, MSCI was organized and
incorporated with an authorized capital stock of P60
million, P20 million of which was subscribed. Of the P20
million subscribed capital stock, P5 million was paid-up.
This fact is only too glaring for the Board to have been
misled into believing that MSCI's paid-up capital stock was
P64 million plus and not P5 million.
The submission of the Board that the value of the assets of
Asturias Sugar Central, Inc. transferred to MSCI, as well as
the loans or advances made by MTII to MSCI should have
been taken into consideration in computing the paid-up
capital of MSCI is unmeritorious. Not all funds or assets
received by the corporation can be considered paid-up
capital, for this term has a technical signification in
Corporation Law. Such must form part of the authorized
capital stock of the corporation, subscribed and then
actually paid up.
Furthermore, the Commission aptly observed that the loans
and advances of MTII to respondent MSCI cannot be
treated as investments, unless the corresponding shares of
stocks are issued. But as it turned out, such loans and
advances were in fact treated as liabilities of MSCI to MTII
as shown in its 1990 audited financial statements. The
treatment by the Board of these loans as part of MSCI's
capital stock without satisfying certain mandatory
requirements is proscribed under Section 38 of the
Corporation Code which provides that no corporation shall
increase or decrease its capital stock or incur, create or
increase any bonded indebtedness unless approved by a
majority vote of the board of directors and, at a
stockholders' meeting duly called for the purpose, two-
thirds (2/3) of the outstanding capital stock shall favor the
increase or diminution of the capital stock, or the incurring,
creating or increasing of any bonded indebtedness.

The above requirements, which are condition precedents

before the capital stock of a corporation may be increased,
were unquestionably not observed in this case. Henceforth,
the paid-up capital stock of MSCI for the period covered by
the application for exemption still stood at P5 million. The
losses, therefore, amounting to P3,400,738.00 for the
period February 15, 1990 to August 31, 1990 impaired
MSCI's paid-up capital of P5 million by as much as 68%.
Likewise, the losses incurred by MSCI for the interim
period from September 1, 1990 to November 30, 1990, as
found by the Commission, per MSCI's quarterly income
statements, amounting to P13,554,337.33 impaired the
company's paid-up capital of P5 million by a whopping
271.08%, more than enough to qualify MSCI as a
distressed employer.

IN TAGALOG (CAPSLOCK PARA INTENSE)

Sa kasong ito, gustong mag avail ng company ng

exemptions from paying Cost of Living allowance
(COSLA). Pero bago raw gawin ito, kailangan daw
munang ipakita ng companya na nagkaroon sila ng
losses na aabot sa 25% ng paid up capital nung
kompanya.

Nagkaroon ng away sa alin ba talaga ang totoong paid

up capital. Sinabi ng kumpanya na 5 million lang yung
paid up capital nila, pero sabi ng Union, sa hangarin
nitong mabigyan parin ng COSLA, 64+Million daw
yung paid up capital kasi nga may naging merger sa iba
pang kumpanya.

Sabi ng SC, tama na 5 million ang paid up capital kasi

hindi alam ng Union kung ano nga ba talaga ang paid
up capital. Ginawang magkapareho ng Union ang paid
up capital stock sa capital stock na hindi dapat. Ang
paid up capital ay ang 25% ng subscribed capital stock.
SECTION 15
GAMBOA v. TEVES
FACTS: This is an original petition for prohibition,
injunction, declaratory relief and declaration of nullity of
the sale of shares of stock of Philippine
Telecommunications Investment Corporation (PTIC) by the
government of the Republic of the Philippines to Metro
Pacific Assets Holdings, Inc. (MPAH), an affiliate of First
Pacific Company Limited (First Pacific)
On 28 November 1928, Act No. 3436 was enacted which
granted PLDT a franchise and the right to engage in
telecommunications business. In 1969, General Telephone
and Electronics Corporation (GTE), an American company
and a major PLDT stockholder, sold 26 percent of the
outstanding common shares of PLDT to PTIC. In 1977,
Prime Holdings, Inc. (PHI) was incorporated by several
persons. Subsequently, PHI became the owner of 111,415
shares of stock of PTIC by virtue of three Deeds of
Assignment executed by PTIC stockholders Ramon
Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415
shares of stock of PTIC held by PHI were sequestered by
the Presidential Commission on Good Government
(PCGG). The 111,415 PTIC shares, which represent about
46.125 percent of the outstanding capital stock of PTIC,
were later declared by this Court to be owned by the
Republic of the Philippines.
In 1999, First Pacific, acquired the remaining 54 percent of
the outstanding capital stock of PTIC. On 20 November
2006, the Inter-Agency Privatization Council (IPC) of the
Philippine Government announced that it would sell the
111,415 PTIC shares, or 46.125 percent of the outstanding
capital stock of PTIC, through a public bidding to be
conducted on 4 December 2006. Subsequently, the public
bidding was reset to 8 December 2006, and only two
bidders, Parallax Venture Fund XXVII (Parallax) and Pan-
Asia Presidio Capital, submitted their bids. Parallax won
with a bid of P25.6 billion or US$510 million.
Thereafter, First Pacific announced that it would exercise
its right of first refusal as a PTIC stockholder and buy the
111,415 PTIC shares by matching the bid price of Parallax.
However, First Pacific failed to do so by the 1 February
2007 deadline set by IPC and instead, yielded its right to
PTIC itself which was then given by IPC until 2 March
2007 to buy the PTIC shares. On 14 February 2007, First
Pacific, through its subsidiary, MPAH, entered into a
Conditional Sale and Purchase Agreement of the 111,415
PTIC shares, or 46.125 percent of the outstanding capital
stock of PTIC, with the Philippine Government. The sale
was completed on 28 February 2007.
Since PTIC is a stockholder of PLDT, the sale by the
Philippine Government of 46.125 percent of PTIC shares is
actually an indirect sale of 12 million shares or about 6.3
percent of the outstanding common shares of PLDT. With
the sale, First Pacific’s common shareholdings in PLDT
increased from 30.7 percent to 37 percent, thereby
increasing the common shareholdings of foreigners in
PLDT to about 81.47 percent. This violates Section 11,
Article XII of the 1987 Philippine Constitution which limits
foreign ownership of the capital of a public utility to not
more than 40 percent.
ISSUE: whether or not the term “capital” in Section 11,
Article XII of the Constitution refers to the total common
shares only or to the total outstanding capital stock
(combined total of common and non-voting preferred
shares) of PLDT, a public utility.
HELD: The term “capital” in Section 11, Article XII of the
Constitution refers only to shares of stock entitled to vote in
the election of directors, and thus in the present case only to
common shares, and not to the total outstanding capital
stock comprising both common and non-voting preferred
shares.
Any citizen or juridical entity desiring to operate a public
utility must therefore meet the minimum nationality
requirement prescribed in Section 11, Article XII of the
Constitution. Hence, for a corporation to be granted
authority to operate a public utility, at least 60 percent of its
“capital” must be owned by Filipino citizens.
It is undisputed that PLDT’s non-voting preferred shares
are held mostly by Filipino citizens. This arose from
Presidential Decree No. 217, issued on 16 June 1973 by
then President Ferdinand Marcos, requiring every applicant
of a PLDT telephone line to subscribe to non-voting
preferred shares to pay for the investment cost of installing
the telephone line.
The approximate foreign ownership of common capital
stock of PLDT already amounts to at least 63.54% of the
total outstanding common stock, which means that
foreigners exercise significant control over PLDT, patently
violating the 40 percent foreign equity limitation in public
utilities prescribed by the Constitution.
POWERS of the SEC
The SEC is vested with the “power and function” to
“suspend or revoke, after proper notice and hearing, the
franchise or certificate of registration of corporations,
partnerships or associations, upon any of the grounds
provided by law.” The SEC is mandated under Section
5(d) of the same Code with the “power and function” to
“investigate the activities of persons to ensure
compliance” with the laws and regulations that SEC
administers or enforces. The GIS that all corporations are
required to submit to SEC annually should put the SEC on
guard against violations of the nationality requirement
prescribed in the Constitution and existing laws. This Court
can compel the SEC, in a petition for declaratory relief that
is treated as a petition for mandamus as in the present case,
to hear and decide a possible violation of Section 11,
Article XII of the Constitution in view of the ownership
structure of PLDT’s voting shares.

The Court PARTLY GRANTS the petition and rule that

the term “capital” in Section 11, Article XII of the 1987
Constitution refers only to shares of stock entitled to vote in
the election of directors, and thus in the present case only to
common shares, and not to the total outstanding capital
stock (common and non-voting preferred shares).
Chairperson of the Securities and Exchange Commission is
DIRECTED to apply this definition of the term “capital”
in determining the extent of allowable foreign ownership in
respondent Philippine Long Distance Telephone Company,
and if there is a violation of Section 11, Article XII of the
Constitution, to impose the appropriate sanctions under the
law.
HEIRS OF GAMBOA v. TEVES duty is only to faithfully apply and interpret the
Constitution.
*** Resolution of the Motion for Reconsideration filed
from the previous case (Gamboa v. Teves) ***

FACTS: The Office of the Solicitor General (OSG)

initially filed a motion for reconsideration on behalf of the
SEC assailing the June 28 2011 Decision. However, it
subsequently filed a Consolidated Comment on behalf of
the State, declaring expressly that it agrees with the Court's
definition of the term "capital" in Section 11, Article XII of
the Constitution. During the Oral Arguments, the OSG
reiterated its position consistent with the Court's June 28
2011 Decision.

ISSUE: Whether or not the motion for reconsideration filed

from the Court’s June 28, 2011 decision is granted.

HELD: DENIED. The Constitution expressly declares as

State policy the development of an economy “effectively
controlled” by Filipinos. Consistent with such State policy,
the Constitution explicitly reserves the ownership and
operation of public utilities to Philippine nationals, who are
defined in the Foreign Investments Act of 1991 (FIA) as
Filipino citizens, or corporations or associations at least 60
percent of whose capital with voting rights belongs to
Filipinos.

The FIA’s implementing rules explain that “for stocks to be

deemed owned and held by Philippine citizens or
Philippine nationals, mere legal title is not enough to meet
the required Filipino equity. Full beneficial ownership of
the stocks, coupled with appropriate voting rights is
essential.” In effect, the FIA clarifies, reiterates and
confirms the interpretation that the term “capital” in
Section 11, Article XII of the 1987 Constitution refers to
shares with voting rights, as well as with full beneficial
ownership. This is precisely because the right to vote in the
election of directors, coupled with full beneficial ownership
of stocks, translates to effective control of a corporation.

Any other construction of the term “capital” in Section 11,

Article XII of the Constitution contravenes the letter and
intent of the Constitution. Any other meaning of the term
“capital” openly invites alien domination of economic
activities reserved exclusively to Philippine nationals.
Therefore, respondents’ interpretation will ultimately result
in handing over effective control of our national economy
to foreigners in patent violation of the Constitution, making
Filipinos second-class citizens in their own country.

The 1935, 1973 and 1987 Constitutions have the same 60

percent Filipino ownership and control requirement for
public utilities. Any deviation from this requirement
necessitates an amendment to the Constitution. This Court
has no power to amend the Constitution for its power and
SECTION 17
SAMAHAN NG OPTOMETRISTS VS ACEBEDO
INTERNATIONAL CORP
270 SCRA 298 (March 21, 1997) GR No. 117097

Facts:
Respondent, Acebedo Int’l Corp (AIC), is a corporation
engaged in employing optometrists in optical shops and
eyewear stores to which they own. Herein petitioner,
Samahan ng Optometrists sa Pilipinas (SOP), contends that
such practice, is an indirect violation of the rule against
corporations exercising professions reserved only to natural
persons under Republic Act (R.A.) No. 1998, popularly
known as the old Optometry Law. Samahan ng
Optometrists sa Pilipinas (SOP) contended that Acebedo
Int’l Corp (AIC) is a juridical entity not qualified to
practice optometry. Respondent AIC filed its answer,
arguing it is not the corporation, but the optometrists
employed by it, who would be practicing optometry. The
trial court rendered a decision favoring the petitioner SOP
declaring that respondent AIC is engaged in the practice of
optometry. The trial court further stated that even though a
corporation has a personality separate and distinct from that
of its personnel, the veil of corporate fiction cannot be used
for the purpose of some illegal activity. The veil of
corporate fiction can be pierced, as in this case, and the acts
of the personnel of the corporation will be considered as
those of the corporation. The CA reversed the trial court’s
decision by declaring that AIC maintains that it is not
practicing optometry nor is it operating an optical clinic,
according to its amended Articles of Incorporation.

Issue:
WON private respondent Acebedo Int’l Corp violated the
Optometry Law (RA NO. 1998) when it employs
Optometrists to engage in the practice of Optometry.

Held:
NO.
The fact that private respondent hires optometrists who
practice their profession in the course of their employment
in private respondent's optical shops, does not translate into
a practice of optometry by private respondent itself. Private
respondent is a corporation created and organized for the
purpose of conducting the business of selling optical lenses
or eyeglasses, among others, as provided for by its
amended articles of incorporation. There is no law that
prohibits the hiring by corporations of optometrists as a
practice by the corporation itself of the profession of
optometry which therefore translates that their articles of
incorporation is legal and valid.
SECTION 20 terminated in a private suit for its dissolution between
stockholders, without the intervention of the state.
HALL vs PICCIO
86 Phil 603 (June 29, 1950) GR No. L-2598
Facts:
On May 1947, the petitioners C. Arnold Hall and Bradley
P. Hall, and the respondents Fred Brown, Emma Brown,
Hipolita D. Chapman and Ceferino S. Abella, signed and
acknowledged in Leyte, the articles of incorporation of the
Far Eastern Lumber and Commercial Co., Inc., organized
to engage in a general lumber business to carry on as
general contractors, operators and managers, etc.
Immediately after the execution of said articles of
incorporation, the corporation proceeded to do business
with the adoption of by-laws and the election of its officers.
On December 1947, the said articles of incorporation were
filed in the office of the SEC, for the issuance of the
corresponding certificate of incorporation.
Pending action on the articles of incorporation, the
respondents filed before the Court of First Instance of
Leyte a civil case alleging among other things that the Far
Eastern Lumber and Commercial Co. was an unregistered
partnership and they wished to have it dissolved. After
hearing the parties, the Hon. Edmund S. Piccio ordered the
dissolution of the company and at the request of plaintiffs,
appointed of the properties thereof, upon the filing of a
bond.
The petitioners offered to file a counter-bond for the
discharge of the receiver, but the respondent judge refused
to accept the offer and to discharge the receiver. Hence this
special civil action alleging among other things that the
court had no jurisdiction to decree the dissolution of the
company, because it being a de facto corporation,
dissolution thereof may only be ordered in a quo
warranto proceeding and inasmuch as respondents Fred
Brown and Emma Brown had signed the article of
incorporation, they are estopped.
Issue:
WON Far Eastern Lumber and Commercial Co., Inc is a de
facto corporation and therefore the court had no jurisdiction
to take cognizance of said civil case.
Held:
NO. There are least two reasons why sections 19 and 20 of
the Coporation code do not govern the situation. Firstly, not
having obtained the certificate of incorporation, the Far
Eastern Lumber and Commercial Co. even its stockholders
may not probably claim "in good faith" to be a corporation.
It is to be noted that it is the issuance of a certificate of
incorporation which calls a corporation into being.
Secondly, this is not a suit in which the corporation is a
party. This is litigation between stockholders of the alleged
corporation, for the purpose of obtaining its dissolution.
Even the existence of a de jure corporation may be
SECTION 21 no personality separate from Jose M. Aruego; it cannot be
sued independently.
MARIANO A. ALBERT, plaintiff-appellant, vs.
UNIVERSITY PUBLISHING CO., INC., defendant- The corporation-by-estoppel doctrine has not been invoked.
appellee At any rate, the same is inapplicable here. Aruego
represented a non-existent entity and induced not only the
Facts:
plaintiff but even the court to believe in such
No less than three times have the parties here appealed to representation. He signed the contract as "President" of
this Court. Fifteen years ago, , Mariano A. Albert sued "University Publishing Co., Inc.," stating that this was "a
University Publishing Co., Inc. Plaintiff alleged inter corporation duly organized and existing under the laws of
alia that defendant was a corporation duly organized and the Philippines," and obviously misled plaintiff (Mariano
existing under the laws of the Philippines, 1948, defendant, A. Albert) into believing the same. One who has induced
through Jose M. Aruego, its President, entered into a another to act upon his wilful misrepresentation that a
contract with plaintifif; that defendant had thereby agreed corporation was duly organized and existing under the law,
to pay plaintiff P30,000.00 for the exclusive right to cannot thereafter set up against his victim the principle of
publish his revised Commentaries on the Revised Penal corporation by estoppel 
Code and for his share in previous sales of the book's first
"A person acting or purporting to act on behalf of a
edition; that defendant had undertaken to pay in eight
corporation which has no valid existence assumes such
quarterly installments; that per contract failure to pay one
privileges and obligations and becomes personally
installment would render the rest due; and that defendant
liable for contracts entered into or for other acts performed
had failed to pay the second installment.
as such agent." 
Plaintiff died before the trial, his estate's administrator, was
The evidence is patently clear that Jose M. Aruego, acting
substituted for him.
as representative of a non-existent principal, was the real
Court of First Instance of Manila renders judgment in favor party to the contract sued upon; that he was the one who
of the plaintiff and against the defendant the University reaped the benefits resulting from it, so much so that partial
Publishing Co., on July 22, 1961, the court a quo ordered payments of the consideration were made by him; that he
issuance of an execution writ against University Publishing violated its terms, thereby precipitating the suit in question;
Co., Inc. Plaintiff, however, on August 10, 1961, petitioned and that in the litigation he was the real defendant.
for a writ of execution against Jose M. Aruego, as the real
defendant, stating, "plaintiff's counsel and the Sheriff of
Manila discovered that there is no such entity as University
Publishing Co., Inc." Plaintiff annexed to his petition a
certification from the securities and Exchange Commission
dated July 31, 1961, attesting: "The records of this
Commission do not show the registration of UNIVERSITY
PUBLISHING CO., INC., either as a corporation or
partnership." "
University Publishing Co., Inc." countered by filing,
through counsel (Jose M. Aruego's own law firm), a
"manifestation" stating that "Jose M. Aruego is not a party
to this case," and that, therefore, plaintiff's petition should
be denied.
ISSUE:
WON Jose Aruego is the real party in interest
HELD:
The fact of non-registration of University Publishing Co.,
Inc. in the Securities and Exchange Commission has not
been disputed. Defendant would only raise the point that
"University Publishing Co., Inc.," and not Jose M. Aruego,
is the party defendant; thereby assuming that "University
Publishing Co., Inc." is an existing corporation with an
independent juridical personality. Precisely, however, on
account of the non-registration it cannot be considered a
corporation, not even a corporation de factoIt has therefore
[G.R. No. 125221.  June 19, 1997]
REYNALDO M. LOZANO, petitioner, vs. HON.
ELIEZER R. DE LOS SANTOS, Presiding Judge,
RTC, Br. 58, Angeles City; and ANTONIO
ANDA,respondents.

FACTS:
Reynaldo Lozano was the president of KAMAJDA
(Kapatirang Mabalacat-Angeles Jeepney Drivers’
Association, Inc.). Antonio Anda was the president of
SAMAJODA (Samahang Angeles-Mabalacat Jeepney
Operators’ and Drivers’ Association, Inc.). In 1995, the two
agreed to consolidate the two corporations, thus,
UMAJODA (Unified Mabalacat-Angeles Jeepney
Operators’ and Drivers Association, Inc.). In the same year,
elections for the officers of UMAJODA were held. Lozano
and Anda both ran for president. Lozano won but Anda
alleged fraud and the elections and thereafter he refused to
participate with UMAJODA. Anda continued to collect
fees from members of SAMAJODA and refused to
recognize Lozano as president of UMAJODA. Lozano then
filed a  complaint for damages against Anda with the
MCTC of Mabalacat (and Magalang), Pampanga. Anda
moved for the dismissal of the case for lack of jurisdiction.
The MCTC judge denied Anda’s motion. On certiorari,
Judge Eliezer De Los Santos of RTC Angeles City reversed
and ordered the dismissal of the case on the ground that
what is involved is an intra-corporate dispute which should
be under the jurisdiction of the Securities and Exchange
Commission (SEC).

ISSUE: 
Whether the Securities and Exchange Commission (SEC)
has jurisdiction over a case of damages between
heads/presidents of two (2) associations who intended to
consolidate/merge their associations but not yet [sic]
approved and registered with the SEC
HELD: 
No. The regular courts have jurisdiction over the case. The
case between Lozano and Anda is not an intra-corporate
dispute. UMAJODA is not yet incorporated. It is yet to
submit its articles of incorporation to the SEC. It is not
even a dispute between KAMAJDA or SAMAJODA. The
controversy between Lozano and Anda does not arise from
intra-corporate relations but rather from a mere conflict
from their plan to merge the two associations.
The doctrine of corporation by estoppel advanced by
private respondent cannot override jurisdictional
requirements.  Jurisdiction is fixed by law and is not
subject to the agreement of the parties. It cannot be
acquired through or waived, enlarged or diminished by, any
act or omission of the parties, neither can it be conferred by
the acquiescence of the court.
INTERNATIONAL EXPRESS TRAVEL & TOURS vs. escape liability from the contract but rather is the one
CA claiming from the contract.

FACTS:
In 1989, International Express Travel & Tour Services, Inc.
(IETTI), offered to the Philippine Football Federation
(PFF) its travel services for the South East Asian Games.
PFF, through Henri Kahn, its president, agreed. IETTI then
delivered the plane tickets to PFF, PFF in turn made a
down payment. However, PFF was not able to complete the
full payment in subsequent installments despite repeated
demands from IETTI. IETTI then sued PFF and Kahn was
impleaded as a co-defendant.
Kahn averred that he should not be impleaded because he
merely acted as an agent of PFF which he averred is a
corporation with separate and distinct personality from him.
The trial court ruled against Kahn and held him personally
liable for the said obligation (PFF was declared in default
for failing to file an answer). The trial court ruled that Kahn
failed to prove that PFF is a corporation.
The Court of Appeals however reversed the decision of the
trial court. The Court of Appeals took judicial notice of the
existence of PFF as a national sports association; that as
such, PFF is empowered to enter into contracts through its
agents; that PFF is therefore liable for the contract entered
into by its agent Kahn. The CA further ruled that IETTI is
in estoppel; that it cannot now deny the corporate existence
of PFF because it had contracted and dealt with PFF in
such a manner as to recognize and in effect admit its
existence.
ISSUE:
Whether or not the Court of Appeals properly applied the
doctrine of corporation by estoppel
HELD:
No. PFF, upon its creation, is not automatically considered
a national sports association. It must first be recognized and
accredited by the Philippine Amateur Athletic Federation
and the Department of Youth and Sports Development.
This fact was never substantiated by Kahn. As such, PFF is
considered as an unincorporated sports association. And
under the law, any person acting or purporting to act on
behalf of a corporation which has no valid existence
assumes such privileges and becomes personally liable for
contract entered into or for other acts performed as such
agent. Kahn is therefore personally liable for the contract
entered into by PFF with IETTI.
There is also no merit on the finding of the CA that IETTI
is in estoppel. The application of the doctrine of
corporation by estoppel applies to a third party only when
he tries to escape liability on a contract from which he has
benefited on the irrelevant ground of defective
incorporation. In the case at bar, IETTI is not trying to
MACASAET vs. CO out and not available" and the other petitioners were
"always roving outside and gathering news."
Facts:
Co was a retired police officer assigned at the
Western Police District in Manila, that sued Abante Tonite, On the issue regarding corporation by estoppel, the
a daily tabloid of general circulation (petitioners), claiming SC held that the CA categorized Abante Tonite as a
damages because of an allegedly libelous article petitioners corporation by estoppel as the result of its having
published in the issue of Abante Tonite. represented itself to the reading public as a corporation
RTC Sheriff proceeded to the stated address to despite its not being incorporated. Thereby, the CA
effect the personal service of the summons on the concluded that the RTC did not gravely abuse its discretion
defendants. But his efforts to personally serve each in holding that the non-incorporation of Abante Tonite with
defendant in the address were futile because the defendants the Securities and Exchange Commission was of no
were then out of the office and unavailable. He returned in consequence, for, otherwise, whoever of the public who
the afternoon of that day to make a second attempt at would suffer any damage from the publication of articles in
serving the summons, but he was informed that petitioners the pages of its tabloids would be left without recourse. We
were still out of the office. He decided to resort to cannot disagree with the CA, considering that the editorial
substituted service of the summons. box of the daily tabloid disclosed that basis, nothing in the
box indicated that Monica Publishing Corporation had
The petitioners moved to drop Abante Tonite as a owned Abante Tonite.
defendant by virtue of its being neither a natural nor a
juridical person that could be impleaded as a party in a civil
action.
The RTC denied the motion to dismiss and held that it is
deemed a corporation by estoppels considering that it
possesses attributes of a juridical person, otherwise it
cannot be held liable for damages and injuries it may inflict
to other persons.
On appeal to the CA, the appellate court held that Abante
Tonite’s newspapers are circulated nationwide, showing
ostensibly its being a corporate entity, thus the doctrine of
corporation by estoppel may appropriately apply.
An unincorporated association, which represents itself to be
a corporation, will be estopped from denying its corporate
capacity in a suit against it by a third person who relies in
good faith on such representation.

Issue:
WON Substituted Service of Summons was proper
WON Abante Tonite is a corporation by estoppel

Held:
Substituted Service of Summons was proper in this
case because to warrant the substituted service of the
summons and copy of the complaint, the serving officer
must first attempt to effect the same upon the defendant in
person. Only after the attempt at personal service has
become futile or impossible within a reasonable time may
the officer resort to substituted service. In the case at bar,
the Sheriff attempted twice to serve the summons upon
each of petitioners in person at their office address, the first
in the morning and the second in the afternoon of the same
day. Each attempt failed because petitioners were "always
PEOPLE v. GARCIA the essential elements of the crime of illegal recruitment in
large scale are present in this case.
It is a fact that Ricorn had no license to recruit from DOLE.
FACTS: Patricio Botero together with Carlos P. Garcia
and Luisa Miraples were charged with the crime of illegal For engaging in recruitment of workers without obtaining
recruitment in large scale. That they conspired together, the necessary license from the POEA, Botero should suffer
representing themselves to have authority, license and/or the consequences of Ricorn's illegal act. The evidence
permit to contract, enlist and recruit workers for overseas shows that appellant Botero was one of the incorporators of
employment, and promised job placement/employment Ricorn.  
abroad to 16 individuals without first securing the required
For reasons that cannot be discerned from the records,
license or authority from the DOLE.
Ricorn's incorporation was not consummated. Even then,
Six out of the sixteen complainants testified as prosecution appellant cannot avoid his liabilities to the public as an
witnesses stating that they went to Ricorn Philippine incorporator of Ricorn.  He and his co-accused Garcia held
International Shipping Lines, Inc. (Ricorn), an entity which themselves out to the public as officers of Ricorn.  They
recruits workers for overseas employment. One of the received money from applicants who availed of their
witnesses applied to accused Botero. All the other services.  They are thus estopped from claiming that they
complainants coursed their application to accused Garcia are not liable as corporate officials of Ricorn.  
who represented himself as president of Ricorn. They paid
Section 25 of the Corporation Code provides that "(a)ll
to Ricorn's treasurer, Luisa Miraples. They were issued
persons who assume to act as a corporation knowing it to
receipts signed by Miraples.  The receipts were under
be without authority to do so shall be liable as general
Ricorn's heading.
partners for all the debts, liabilities and damages incurred
Garcia and Botero assured complainants of employment. or arising as a result thereof: Provided, however, That when
Later, complainants went back to Ricorn to check on their any such ostensible corporation is sued on any transaction
applications.  They discovered that Ricorn had abandoned entered by it as a corporation or on any tort committed by it
its office for non-payment of rentals. Despite going back to as such, it shall not be allowed to use as a defense its lack
the building several times to recover their money, their of corporate personality."
persistence was to no avail for Garcia and Botero were
nowhere to be found. They then went to the Mandaluyong
Police Station and filed their complaints. Upon checking
SEC, they discovered that Ricorn was not yet
incorporated.  They also found that Ricorn was not licensed
by DOLE to engage in recruitment activities.
After trial, accused Garcia and Botero were convicted.
Only accused Botero filed a Notice of Appeal. Botero
predicates his appeal on the alleged insufficiency of
evidence to support his conviction. He insisted he was a
mere applicant of Ricorn and not a conspirator of the other
accused who defrauded the complainants.  He claims that
even as a Ricorn employee, he merely performed minimal
activities.

HELD: SC sustained appellant's conviction.

These submissions are at war with the evidence on
record.  Garcia introduced him to the complainants as the
vice-president of Ricorn.  He used a table with a nameplate
confirming he was the vice-president of Ricorn. He
procured the passports, seaman's books and SOLAS for the
applicants.  It was from him that the complainants inquired
about the status of their applications. He also admitted he
gave money to accused Garcia for Ricorn's incorporation.
Beyond any reasonable doubt, appellant Botero engaged in
recruitment and placement activities in that he, through
Ricorn, promised the complainants employment abroad. All