IA11. National Coal Co. vs.
CIR
Doctrine: What distinguishes a public corporation from a private corporation owned by the
government is not ownership of the controlling interest. The mere fact that the Government happens
to be the majority stockholder does not make it a public corporation, especially when its charter
provides that it is subject to all provisions of the Corporation Law.
Facts: The plaintiff corporation was created by Act no. 2705, for the purpose of developing the coal
industry in the Philippine Islands, in harmony with the general plan of the Government to encourage
the development of the natural resources of the country, and to provide facilities therefore. By said
Act, the company was granted the general powers of a corporation By the same law (Act No. 2705)
the Government of the Philippine Islands is made the majority stockholder, evidently, in order to
insure proper governmental supervision and control.
The plaintiff contends that it was liable only to pay the internal revenue and other fees and taxes
provided for under section 15 of Act No. 2719; while the defendant contends, under the facts of
record, that the plaintiff if obliged to pay the internal revenue duty provided for in section 1496 of the
Administrative Code.
Issue: W/N Whether the Petitioner Corporation is a Public Corporation and is subject to tax
exemption under Act. No. 2719
Ruling: No.The Petitioner is a private corporation. The mere fact that the Government happens to the
majority stockholder does not make it a public corporation. Act No. 2705, as amended by Act No.
2822, makes it subject to all of the provisions of the Corporation Law, insofar as they are not
inconsistent with said Act (No. 2705). No provisions of Act No. 2705 are found to be inconsistent with
the provisions of the Corporation Law. As a private corporation, it has no greater rights, powers or
privileges than any other corporation which might be organized for the same purpose under the
Corporation Law, and certainly it was not the intention of the Legislature to give it a preference or
right or privilege over other legitimate private corporations in the mining of coal.
Under Act. 2719, all coal-bearing lands of public domain shall not be disposed of in any manner
except as provided in the act, and that Secretary of Agriculture and Natural Resources will incharge
of leasing, and that internal revenue duty and tax must be paid upon coal bearing lands owned by any
person or corporation.
The plaintiff is found to be neither a lessee nor an owner of coal-bearing lands, and is, therefore, not
subject to any other provisions of Act No. 2719. It has been demonstrated that the plaintiff has
produced coal in the Philippine Islands and is not a lessee or owner of the land from which the coal
was produced, the Court held that it is subject to pay the internal revenue tax under the provisions of
section 1496 of the Administrative Code.
IA12. Philippine Society for the Prevention of Animal Cruelty vs. COA
Doctrine: To determine whether a corporation is public or private is found in the totality of the relation
of the corporation to the State. If the corporation is created by the state as the latter’s own agency or
instrumentality to help in carrying out its governmental functions, then it is considered
public;otherwise it is private. A quasi-public corporation is a private corporation the services they
render is to and for the public. If it performs public services as a private corporation then it is a quasi-
public corporation.
Facts: The plaintiff was created in 1905 when there was neither a Corporation law nor SEC. Its
functions enforce laws that relate to animal cruelty and promote animal welfare. During their creation,
PSPAC had the power to apprehend violators of animal welfare laws and share the ½ of the fines
collected and keep the other half. This power was amended and removed by Commonwealth Act No.
148 in 1936. Thereafter, then President Quezon saw that CA No. 148 deprives PSPAC to arrest
persons in violation of the law, hence, he issued EO No. 63 in the same year, assigning public
officials vested with the power to arrest in support of the mission of PSPAC.
In 2003, COA recognized that PSPAC is a public corporation and is under their jurisdiction to conduct
audit surveys. COA further explains that the petitioner exercises sovereign powers for the public good
and welfare. The petitioner refused and contended that they are a private corporation that is not
within the jurisdiction of neither SEC nor COA.Respondents insisted in conducting the audit survey
which prompted the petitioners to initiate this case.
Issue: W/N PSPAC is a public corporation?
Ruling: No.
PSPAC is and will always be a private corporation. The court agrees with the petitioner and finds the
‘charter test” the most accurate. The test to determine whether a corporation is government owned or
controlled, or private in nature is simple, Is it created by its own charter for the exercise of a public
function. Petitioner is correct in asserting that the 1935 and 1987 Constitution supports this charter
test and that this cannot apply to PSPAC.
The petitioner was created in 1905 and the charter test was first introduced in 1935. Settled is the rule
that laws in general have no retroactive effect, unless the contrary is provided. All statutes are to be
construed as having only a prospective operation, unless the purpose and intention of the legislature
to give them a retrospective effect is expressly declared or is necessarily implied from the language
used. In case of doubt, the doubt must be resolved against the retrospective effect.
Second, a reading of the petitioner's charter shows that it is not subject to control or supervision by
any agency of the State, unlike GOCCs. No government representative sits on the board of trustees
of the petitioner.Third. The employees of the petitioner are registered and covered by the SSS at the
latter’s initiative, and not through the GSIS, which should be the case if the employees are considered
government employees. This is another indication of the petitioner's nature as a private entity.
The fact that a certain juridical entity is impressed with public interest does not, by that circumstance
alone, make the entity a public corporation, inasmuch as a corporation may be private although its
charter contains provisions of a public character, incorporated solely for the public good. This class
of corporations may be considered quasi-public corporations, which are private corporations that
render public service or supply public wants. While purposely organized for the gain or benefit of its
members, they are required by law to discharge functions for the public benefit.
The true criterion, therefore, to determine whether a corporation is public or private is found in the
totality of the relation of the corporation to the State. If the corporation is created by the State as the
latter’s own agency or instrumentality to help it in carrying out its governmental functions, then that
corporation is considered public; otherwise, it is private.
IA13 Davao Water District v CSC
Facts
Local water Districts (petitioners) argue that they are private corporations without original charter and
hence, they are outside the jurisdiction of respondents CSC (re: employment) and COA (re: audit).
They relied on the Metro Iloilo case which declared petitioners as quasi-public corporations created
by virtue of PD 198, a general legislation which cannot be considered as the charter itself creating the
water districts.
(Presidential Decree No. 198 authorizes the different local legislative bodies to form and create their
respective water districts through a resolution they will pass subject to the guidelines, rules and
regulations therein laid down. The decree further created and formed the "Local Water Utilities
Administration" (LWUA), a national agency attached to the National Economic and Development
Authority (NEDA), and granted with regulatory power necessary to optimize public service from water
utilities operations.)
Again, they are contending that they are private corporations which are only regarded as quasi-public
or semi-public because they serve public interest and convenience and that since PD 198 is a
general legislation. Hence, outside the jurisdiction of respondents CSC and COA.
Issue
Are the Local Water Districts formed and created pursuant to PD 198 are GOCC’s with original
charter falling under the Civil Service Law and/or covered by the visitorial power of COA?
Ruling
Yes. The Local Water Districts are GOCCs with original charter. (GOCCs created under special law
and not the Corporation Code of the Philippines). They are not private corporations. Hence, they are
subject to the jurisdiction of CSC and COA.
In Baguio Water District v Trajano, the Court already ruled that a water district is a corporation
created pursuant to a special law and as such its officers and employees are covered by the Civil
Service Law.
In Hagonoy, the Court explained that PD 198 was amended replacing the previous Section 25 which
exempts them from the provisions of the Civil Service Law, and it was replaced with:
Section 25. Authorization. — The district may exercise all the powers which are expressly granted by
this Title or which are necessarily implied from or incidental to the powers and purposes herein
stated. For the purpose of carrying out the objectives of this Act, a district is hereby granted the
power of eminent domain, the exercise thereof shall, however, be subject to review by the
Administration
They are not considered as private corporations as they claim because PD 198, a special law, is the
very law which gives a water distinct juridical personality. PD 198 was also amended which gave the
local water districts the power of eminent domain. The power to appoint members belongs to the local
government unit.
Note:
In the book of Villanueva, it was stated that ‘a truly public corporation has a juridical entity, but it
exists primarily for the government of a portion of a state, and thereby exercising state powers: police
power, taxing power, and the power of eminent domain.’ (p. 68)
IA14. Register of Deeds v. Ung Siu Si Temple G.R. No. L-6776
Doctrine: The purpose of the sixty per centum requirement is obviously to ensure that corporations or
associations allowed to acquire agricultural land or to exploit natural resources shall be controlled by
Filipinos, and the spirit of the Constitution demands that in the absence of capital stock, the
controlling membership should be composed of Filipino citizens.
Facts: The registry of deeds of the province of Rizal refused to accept for record a deed of donation
executed by by Jesus Dy, a Filipino citizen, conveying a parcel of land in favor of an unregistered
religious organization, the herein respondent. The religious organization operates through three
trustees who are all of Chinese nationality. The refusal of the registry was brought to the Court of First
Instance of Manila which confirmed that the registration should be refused. Hence this appeal by
respondent citing Act. No. 271 of the old Philippine Commission and arguing that the refusal of the
Registry violates the freedom of religion clause of our Constitution.
Issue: Should the registry of deed of donation executed in favor of respondent whose founder,
trustees and administrators are Chinese citizens be registered.
Ruling: No. The Court ruled that in view of the absolute terms of Section 5 Article XIII of the
Constitution, the provisions of Act No. 271 of the old Philippine Commission has been repealed since
the Constitution has been enacted. In providing that, "Save in cases of hereditary succession, no
private agricultural land shall be transferred or assigned except to individuals, corporations or
associations qualified to acquire or hold lands of the public domain in the Philippines", the
Constitution makes no exception in favor of religious associations. Neither is there any such saving
found in sections 1 and 2 of Article XIII, restricting the acquisition of public agricultural lands and other
natural resources to "corporations or associations at least sixty per centum of the capital of which is
owned by such citizens" (of the Philippines). The Court reiterated that the fact that the appellant
religious organization has no capital stock does not suffice to escape the Constitutional inhibition,
since it is admitted that its members are of foreign nationality.
IA15. People v. Quasha
Doctrine: Section 11, Art XII of the Constitution (Section 8, Article XIV of the 1935 Constitution)
No franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the
laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall
such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the common good so requires.
The State shall encourage equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any public utility enterprise shall be limited
to their proportionate share in its capital, and all the executive and managing officers of such
corporation or association must be citizens of the Philippines
Facts:
William H. Quasha (defendant/appellant) prepared and registered the articles of incorporation of
Pacific Airways Corporation.
In the said article, it was stated that the primary purpose of the corporation was to carry on the
business of a common carrier by air, land or water. It was also stated there that the amount of capital
subscribed was Php 200,000 belonging to the six subscribers, among which was Arsenio Baylon, the
only Filipino among the lot while the rest were Americans. Baylon's subscription was for 1,145
preferred shares, of the total value of P114,500, and for 6,500 common shares, of the total par value
of P6,500. Hence, apparently, Baylon actually subscribed to 60.005 per cent of the subscribed capital
stock of the corporation.
However, it was later on admitted that the money paid on his subscription did not belong to Baylon
but to the American subscribers to the corporate stock and that the former was only made as a
trustee for the American incorporators.
Issue: Whether or not the Constitution prohibits the formation of public utility corporation with alien
capital/major percentage of ownership/capital belonging to foreigners/foreign investor/s.
Ruling: No. Supreme Court decided that in view of Section 8, Article XIV of the (1935) Constitution,
merely the formation of public utility corporation does not require that the 60 percent of capital should
belong to Filipino investor/s.
Hence, since there’s no violation of the Constitutional provision, the defendant appellant can no
longer be held criminally liable for the said act of concealing the truth about the ownership of the
corporation.
According to the Supreme Court, with respect to the required proportion of the Filipino Capital, what
the constitutional provision prohibits is the granting of a franchise or other form of authorization for the
operation of a public utility to a corporation already in existence but without the requisite proportion of
Filipino capital. The context of the word “franchise” as use in the constitutional provision is not the
"primary franchise" that invests a body of men with corporate existence but the "secondary franchise"
or the privilege to operate as a public utility after the corporation has already come into being.
IA16 Filipinas Compania v. Christern
Doctrine: In times of war, the nationality of a private corporation is determined by the character or the
citizenship of its controlling shareholders. The Court considered the juridical entity an enemy based
on the fact that the ―majority of the stockholders of the respondent corporation were German
subjects. It ruled that the control test was applicable only in war time. It refused the sole application of
the place of incorporation test during wartime to determine the nationality of an enemy corporation.
Facts: The respondent corporation, Christern Huenefeld and Co., Inc., after payment of
corresponding premium, obtained from the petitioner, Filipinas Cia de Seguros fire policy covering
merchandise contained in a building. During the Japanese military occupation, the building and
insured merchandise were burned. In due time, the respondent submitted to the petitioner its claim
under the policy. The petitioner refused to pay the claim alleging that the policy had ceased to be in
force when the United States declared war against Germany, the respondent corporation (though
organized under and by virtue of the laws of Philippines) being controlled by German subjects and the
petitioner being a company under American jurisdiction when said policy was issued on October 1,
1941. However, due to the order of the Director of Bureau of Financing, Philippine Executive
Commission, the petitioner paid to the respondent the sum. On appeal, the CA ruled in favour of the
Christern in view of Eng and American decided cases, it rejected the theory that nationality of private
corporation is determine by the character or citizenship of its controlling stockholders, so it made
Filipinas pay the corresponding insurance claim. Hence, this petition for certiorari.
ISSUE: WON the control test (war time test) shall be used to determine the nationality of the
corporation.
RULING: YES. There is no question that majority of the stockholders of the respondent corporation
were German subjects. This being so, we have to rule that said respondent became an enemy
corporation upon the outbreak of the war between the United States and Germany. The English and
American cases relied upon by the Court of Appeals have lost their force in view of the latest decision
of the Supreme Court of the United States in Clark vs. Uebersee Finanz Korporation, decided on
December 8, 1947, in which the controls test has been adopted. In "Enemy Corporation" by Martin
Domke, a paper presented to the Second International Conference of the Legal Profession held at the
Hague (Netherlands) in August. 1948 the following enlightening passages appear:
“Since World War I, the determination of the enemy nationality of corporations has been discussed in
many countries, belligerent and neutral. A corporation was subject to enemy legislation when it was
controlled by enemies, namely managed under the influence of individuals or corporations
themselves considered as enemies. It was known that German and other enemy interests were
cloaked by domestic corporation structure. It was not only by legal ownership of shares that a
material influence could be exercised on the management of the corporation but also by long term
loans and other factual situations. For that reason, legislation on enemy property enacted in various
countries during World War II adopted statutory provisions to the control test and determined, to
various degrees, the incidents of control. Court decisions were rendered on the basis of such newly
enacted statutory provisions in determining enemy character of domestic corporations. The power of
seizure and vesting was extended to all property of any foreign country or national so that no innocent
appearing device could become a Trojan horse."
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except
a public enemy may be insured." It stands to reason that an insurance policy ceases to be allowable
as soon as an insured becomes a public enemy.
IA17-A. Narra Nickel Mining vs. Redmont Consolidated (2014)
Facts:
Redmont Consolidated Mines, Inc. (Redmont) filed before the Panel of Arbitrators (POA) of the DENR
separate petitions for denial of McArthur Mining, Inc. (McArthur), Tesoro and Mining and
Development, Inc. (Tesoro), and Narra Nickel Mining and Development Corporation (Narra)
applications Mineral Production Sharing Agreement (MPSA) on the ground that they are not “qualified
persons” and thus disqualified from engaging in mining activities through MPSAs reserved only for
Filipino citizens
McArthur Mining, Inc., is composed, among others, by Madridejos Mining Corporation (Filipino)
owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of
10,000 shares; MBMI also owns 3,331 out of 10,000 shares of Madridejos Mining Corporatio
Tesoro and Mining and Development, Inc., is composed, among others, by Sara Marie Mining, Inc.
(Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out
of 10,000 shares; MBMI also owns 3,331 out of 10,000 shares of Sara Marie Mining, Inc.;
Narra Nickel Mining and Development Corporation, is composed, among others, by Patricia Louise
Mining & Development Corporation (Filipino) owning 5,997 out of 10,000 shares, and MBMI
Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,396 out of 10,000
shares of Patricia Louise Mining & Development Corporation;
Issue:
(1) Is the Grandfather Rule applicable?
(2) Whether McArthur, Tesoro and Narra are Filipino nationals.
Ruling:
(1) YES. The instant case presents a situation which exhibits a scheme employed by stockholders to
circumvent the law, creating a cloud of doubt in the Court’s mind. To determine, therefore, the actual
participation, direct or indirect, of MBMI, the grandfather rule must be used.
The Strict Rule or the Grandfather Rule pertains to the portion in Paragraph 7 of the 1967 SEC Rules
which states, “but if the percentage of Filipino ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such percentage shall be counted as of Philippine
nationality.” Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing
Corporation and the Investee Corporation must be traced (i.e., “grandfathered”) to determine the total
percentage of Filipino ownership.
(2) NO. Petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian
corporation, owns 60% or more of their equity interests. Such conclusion is derived from
grandfathering petitioners’ corporate owners. xxx Noticeably, the ownership of the “layered”
corporations boils down to xxx group wherein MBMI has joint venture agreements with practically
exercising majority control over the corporations mentioned. In effect, whether looking at the capital
structure or the underlying relationships between and among the corporations, petitioners are NOT
Filipino nationals and must be considered foreign since 60% or more of their capital stocks or equity
interests are owned by MBMI.
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second
part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in
cases where the joint venture corporation with Filipino and foreign stockholders with less than 60%
Filipino stockholdings [or 59%] invests in other joint venture corporation which is either 60-40%
Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipino- foreign equity
ownership is not in doubt, the Grandfather Rule will not apply.
IA17-B. Narra Nickel Mining vs. Redmont Consolidated (2015)
Doctrine: "Grandfather rule" to determine the nationality:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by
Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality.
Facts: Redmont is a domestic corporation interested in the mining and exploration of some areas in
Palawan. Upon learning that those areas were covered by Mineral Production Sharing Agreement
(MPSA) applications of other three (allegedly Filipino) corporations – Narra, Tesoro, and MacArthur, it
filed a petition before the Panel of Arbitrators of DENR seeking to deny their permits on the ground
that these corporations are in reality foreign-owned. MBMI, a 100% Canadian corporation, owns 40%
of the shares of PLMC (which owns 5,997 shares of Narra), 40% of the shares of MMC (which owns
5,997 shares of McArthur) and 40% of the shares of SLMC (which, in turn, owns 5,997 shares of
Tesoro).
Aside from the MPSA, the three corporations also applied for Financial or Technical Assistance
Agreements (FTAA) with the Office of the President. In their answer, they countered that (1) the
liberal Control Test must be used in determining the nationality of a corporation as based on Sec 3 of
the Foreign Investment Act – which as they claimed admits of corporate layering schemes, and that
(2) the nationality question is no longer material because of their subsequent application for FTAA.
Issue: W/N the Grandfather Rule must be applied in this case
Ruling: Yes. It is the intention of the framers of the Constitution to apply the Grandfather Rule in
cases where corporate layering is present.
Under the SEC Rule1 and DOJ Opinion2 , the Grandfather Rule must be applied when the 60-40
Filipino-foreign equity ownership is in doubt. Doubt is present in the Filipino equity ownership of
Narra, Tesoro, and MacArthur since their common investor, the 100% Canadian-owned corporation –
MBMI, funded them.
Under the Grandfather Rule, it is not enough that the corporation does have the required 60% Filipino
stockholdings at face value. To determine the percentage of the ultimate Filipino ownership, it must
first be traced to the level of the investing corporation and added to the shares directly owned in the
investee corporation. Applying this rule, it turns out that the Canadian corporation owns more than
60% of the equity interests of Narra, Tesoro and MacArthur. Hence, the latter are disqualified to
participate in the exploration, development and utilization of the Philippine’s natural resources.
IA18. Roman Catholic Administrator vs. LRC
Doctrine: A corporation sole is a special form of corporation usually associated with clergy designed
to facilitate the exercise of the functions of ownership of the church which was regarded as the
property owner . It consists of one person only, and his successors, in some particular, who are
incorporated by law in order to give them some legal advantages particularly that of perpetuity which
in their natural persons they could not have. Through this legal fiction, church properties acquired by
the incumbent of a corporation sole pass, by operation of law, upon his death not to his personal heirs
but to his successor in office. A corporation sole, therefore, is created not only to administer the
temporalities of the church or religious society where he belongs, but also to hold and transmit the
same to his successor in said office.
(RCC 107) Classes of Religious Corporations. – Religious corporations may be incorporated by one
or more persons.
CORPORATION SOLE:
1. composed of only one persons, usually the head or bishop of the diocese, a unit which is not
subject to expansion for the purpose of determining any percentage whatsoever
2. only the administrator and not the owner of the temporalities located in the territory comprised
by said corporation sole and such temporalities are administered for and on behalf of the
faithful residing in the diocese or territory of the corporation sole
3. has no nationality and the citizenship of the incumbent and ordinary has nothing to do with
the operation, management or administration of the corporation sole, nor affects the
citizenship of the faithful connected with their respective dioceses or corporation sole.
Facts: A resident of Davao City, executed a deed of sale of a parcel of agricultural land located in the
same city in favor of the Roman Catholic Administrator of Davao, a “corporation sole” organized and
existing in accordance with Philippine laws. The incumbent administrator is Msgr. Clovis Thibault, a
Canadian citizen. When the deed was presented to the Register of Deeds for registration, it required
the petitioner to submit an affidavit stating that the ownership of the corporation is 60% Filipino
citizens as required under the Constitution. Petitioner stated that it was a corporation sole (meaning
only one incorporator) and that the totality of the Catholic population in Davao would become the
owner of the property.
The corporation sole is a mere contrivance to enable a church to acquire, own and manage
properties belonging to the church. It is only a means to an end. The constitutional provision could not
have been meant to apply to the means through which and by which property may be owned or
acquired, but to the ultimate owner of the property. Hence, the citizenship of the priest forming the
corporation sole should be no impediment if the parish or diocese which owns the property is qualified
to own and possess the property.
IA19 Republic v. Villanueva, G.R. No. L-55289 June 29, 1982

The Register of Deeds doubted this and submitted the case for consultation in the Land Registration Doctrines
Commission (LRC). LRC ruled that, in view of the provisions of Section 1 and 5 of Article XIII of the
● A corporation sole or a juridical person, is disqualified to acquire or hold alienable lands of the
Philippine Constitution, the vendee was not qualified to acquire private lands in the Philippines in the
public domain…because of the constitutional prohibition that "no private corporation or
absence of proof that at least 60 per centum of the capital, property, or assets of the petitioner was
association may hold alienable lands of the public domain except by lease not to exceed one
actually owned or controlled by Filipino citizens, there being no question that the present incumbent
thousand hectares in area".
of the corporation sole was a Canadian citizen. It was also the opinion of the LRC that section 159 of
● A corporation sole (an "unhappy freak of English law") has no nationality.
the Corporation Law relied upon by the vendee was rendered operative by the aforementioned
provisions of the Constitution with respect to real estate, unless the precise condition set therein that
Facts
at least 60 percent of its capital is owned by Filipino citizens be present, and, therefore, ordered the
Registered Deeds of Davao to deny registration of the deed of sale in the absence of proof of
● Two parcels of land were acquired by the Iglesia Ni Cristo (INC), a corporation sole, from
compliance with such condition.
Andres in exchange for a land owned by the church. These lands were certified as alienable
or disposable by the Bureau of Forestry.I
Issue: Whether or not the petitioner, being a corporation sole, can lawfully acquire and register lands
● When INC tried to file an application for registration of the said land, alleging that its
in the Philippines.
predecessors-in-interest has possessed the land since time immemorial (before Spanish
occupation). INC was contending that the lands were private lands.
Ruling: Yes, the petitioner can lawfully acquire land and register the same in the Philippines. In
● The Republic of the Philippines opposed the application, contending that as a private
accordance with the section 159 of the Corporation Law of 1906, the temporalities of the Church or of
corporation, INC is disqualified to hold alienable lands of public domain. As to the contention
a parish or diocese are allowed to be registered in the name of the corporation sole for purposes of
of possessing the land since time immemorial, INC has not proven that it is open, continuous,
administration and in trust for the real owners. It can, therefore, be noticed that the power of a
exclusive and notorious.
corporation sole to purchase real property, like the power exercised in the case at bar.
Issue
The mere fact that the Corporation Law authorizes the corporation sole to acquire and hold real
estate or other property does not make the latter the real owner thereof, as his tenure of Church ● Is INC, as a corporate sole, disqualified to acquire alienable lands of public domain?
property is merely for the purposes of administration. As stated above, the bishop is only the legal
(technical) owner or trustee, the parish or diocese being the beneficial owner, or cestui que trust. Ruling

It will be noticed that Section 1 of Article XIII of the Constitution provides, among other things, that "all
agricultural lands of the public domain and their disposition shall be limited to citizens of Philippines or
to corporations at least 60 per centum of the capital of which is owned by such citizens, SUBJECT
TO ANY EXISTING RIGHT AT THE TIME OF THE INAUGURATION OF THE GOVERNMENT
ESTABLISHED UNDER THIS CONSTITUTION."
Yes. INC is disqualified to acquire or hold alienable lands of public domain.
A corporation sole or a juridical person, is disqualified to acquire or hold alienable lands of the public
domain…because of the constitutional prohibition that "no private corporation or association may
hold alienable lands of the public domain except by lease not to exceed one thousand hectares in
area".
In this case, INC is a corporation sole. The two lots in question were not proven to belong to its
predecessors-in-interest since time immemorial and so it is deemed to be alienable lands of public
domain. Hence, INC is disqualified to acquire or hold the subject two parcels of land.
IA20. CIR v. CLUB FILIPINO DE CEBU G.R. No. L-12719
Doctrine: For a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital
stock divided into shares and (2) an authority to distribute to the holders of such shares,
dividends or allotments of the surplus profits on the basis of the shares held
Facts: Club Filipino is a civic corporation organized under the laws of the Philippines. The club owns
and operates a club house, bowling alley, a golf course, and a bar restaurant where it sells wines and
liquors, soft drinks etc. to its members and guests. The club is operated mainly with funds derived
from membership fees and dues. Whatever profits it had, were used to defray its overhead expenses
and to improve its golf-course. Until, an agent of BIR discovered that the Club has never paid
percentage tax on the gross receipts of its bar and restaurant although it secured licenses. A letter
was sent by BIR and demanded tax payment from the Club. The request by the Club of the
cancellation of assessment was denied by CIR hence this petition for review.
Issue: Whether or not the Club is a stock corporation.
Ruling: No. The fact that the capital stock of the respondent Club is divided into shares, does not
detract from the finding of the trial court that it is not engaged in the business of operator of bar and
restaurant. What is determinative of whether or not the Club is engaged in such business is its object
or purpose, as stated in its articles and by-laws. It is a familiar rule that the actual purpose is not
controlled by the corporate form or by the commercial aspect of the business prosecuted, but may be
shown by extrinsic evidence, including the by-laws and the method of operation.
In the case at bar, while the respondent Club's, capital stock is divided into shares, nowhere in its
articles of incorporation or by-laws could be found an authority for the distribution of its dividends or
surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation, within the
contemplation of the corporation law.
IA21. Dulay Enterprises v. CA
Doctrine: According to Section 101 of the Corporation Code (Section 100 of the Revised Corp.
Code):
"Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide
otherwise, any action by the directors of a close corporation without a meeting shall nevertheless be
deemed valid if:
"1. Before or after such action is taken, written consent thereto is signed by all the directors; or
"2. All the stockholders have actual or implied knowledge of the action and make no prompt objection
thereto in writing; or
"3. The directors are accustomed to take informal action with the express or implied acquiesce of all
the stockholders; or
"4. All the directors have express or implied knowledge of the action in question and none of them
makes prompt objection thereto in writing. "If a directors' meeting is held without proper call or notice,
an action taken therein within the corporate powers is deemed ratified by a director who failed to
attend, unless he promptly files his written objection with the secretary of the corporation after having
knowledge thereof."
Regarding “piercing the veil of corporate entity”:
“Although a corporation is an entity which has a personality distinct and separate from its individual
stockholders or members, the veil of corporate fiction may be pierced when it is used to defeat public
convenience, justify wrong, protect fraud or defend crime. The privilege of being treated as an entity
distinct and separate from its stockholders or members is therefore confined to its legitimate uses and
is subject to certain limitations to prevent the commission of fraud or other illegal or unfair act. When
the corporation is used merely as an alter ego or business conduit of a person, the law will regard the
corporation as the act of that person. The Supreme Court had repeatedly disregarded the separate
personality of the corporation where the corporate entity was used to annul a valid contract executed
by one of its members.”
Facts: Petitioner Manuel R. Dulay Enterprises, Inc., a domestic corporation, owned a property
covered by TCT No. 17880 4 and known as Dulay Apartment consisting of sixteen (16) apartment
units on a six hundred eighty-nine (689) square meter lot.
Petitioner corporation through its president, Manuel Dulay, obtained various loans for the construction
of its hotel project, Dulay Continental Hotel (now Frederick Hotel).
In order to pay the loan, On December 23, 1976, Manuel Dulay by virtue of Board Resolution No 18
of petitioner corporation sold the subject property to private respondents spouses Maria Theresa and
Castrense Veloso in the amount of P300,000.00 as evidenced by the Deed of Absolute Sale.
On December 24, 1976, private respondent Maria Veloso, without the knowledge of Manuel Dulay,
mortgaged the subject property to private respondent Manuel A. Torres for a loan of P250,000.00.
Upon the failure of private respondent Maria Veloso to pay private respondent Torres, the subject
property was sold on April 5, 1978 to private respondent Torres as the highest bidder in an
extrajudicial foreclosure sale as evidenced by the Certificate of Sheriff's Sale issued on April 20,
1978.
On October 1, 1979, private respondent Torres filed a petition for the issuance of a writ of possession
against private respondents spouses Veloso and Manuel Dulay. However, when petitioner Virgilio
Dulay appeared in court to intervene in said case alleging that Manuel Dulay was never authorized by
the petitioner corporation to sell or mortgage the subject property.
Issue: Whether or not the sale of the property by the corporate President Mr. Manuel Dulay is valid
and binding on the corporation itself.
Ruling: Yes. Supreme Court denied the petition and the decision of Court of Appeals was affirmed.
According to Section 101 of the Corporation Code (Section 100 of the Revised Corp. Code):
"Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide
otherwise, any action by the directors of a close corporation without a meeting shall nevertheless be
deemed valid if:
"1. Before or after such action is taken, written consent thereto is signed by all the directors; or
"2. All the stockholders have actual or implied knowledge of the action and make no prompt objection
thereto in writing; or
"3. The directors are accustomed to take informal action with the express or implied acquiesce of all
the stockholders; or
"4. All the directors have express or implied knowledge of the action in question and none of them
makes prompt objection thereto in writing. "If a directors' meeting is held without proper call or notice,
an action taken therein within the corporate powers is deemed ratified by a director who failed to
attend, unless he promptly files his written objection with the secretary of the corporation after having
knowledge thereof."
Since the corporation is classified as close corporation, a board resolution authorizing the sale or
mortgage of the subject property is not necessary to bind the corporation for the action of its
president. At any rate, a corporate action taken at a board meeting without proper call or notice in a
close corporation is deemed ratified by the absent director unless the latter promptly files his written
objection with the secretary of the corporation after having knowledge of the meeting which, in this
case, petitioner Virgilio Dulay failed to do.
In relation to this, the Supreme Court affirmed the explanations of the lower court that Mr. Dulay
cannot claimed that he was without knowledge of the transaction since it is indeed a close corporation
and that the entity, in ordinary parlance, can be called family corporation and is characterized by its
cohesiveness. Hence, being one of the few incorporators forming the corporation and a director
during the transaction, the claim of ignorance or innocence was very much unlikely.
IA22.Financing Corporation of the Phils, v. Teodoro
FACTS: Asuncion Lopez Vda. de Lizares, Encarnacion Lizares Vda. de Panlilio and Efigenia Vda. de
Paredes, in their own behalf and in behalf of the other minority stockholders of the Financing
Corporation of the Philippines, filed a complaint against the said corporation and J. Amado Araneta,
its president and general manager, claiming among other things alleged gross mismanagement and
fraudulent conduct of the corporate affairs of the defendant corporation by J. Amado Araneta, and
asking that the corporation be dissolved;
Over the strong objection of the defendants, the trial court presided by respondent Judge Jose
Teodoro, granted the petition for the appointment of a receiver and designated Mr. Alfredo Yulo as
such receiver with a bond of P50,000. Hence, petitioners filed a petition for certiorari with the main
contention in opposing the appointment of a receiver in this case is that said appointment is merely
an auxiliary remedy; that the principal remedy sought by the respondents in the action in Negros
Occidental was the dissolution of the Financing Corporation of the Philippines; that according to the
law a suit for the dissolution of a corporation can be brought and maintained only by the State through
its legal counsel, and that respondents, much less the minority stockholders of said corporation, have
no right or personality to maintain the action for dissolution, and that inasmuch as said action cannot
be maintained legally by the respondents, then the auxiliary remedy for the appointment of a receiver
has no basis.
ISSUE: W/N the minority stockholders may file a complaint against the dissolution of the corporation
RULING: YES. As the general rule, the minority stockholders of a corporation cannot sue and
demand its dissolution.
However, there are cases that hold that even minority stockholders may ask for dissolution, this,
under the theory that such minority members, if unable to obtain redress and protection of their rights
within the corporation, must not and should not be left without redress and remedy. This was what The articles of incorporation were filed, and the company sold the parcels of land to Sandiko on the
probably prompted this Court to state in the case of Hall, et al. vs. Judge Piccio,* G.R. No. L-2598 (47 reciprocal obligation that Sandiko will shoulder the three mortgages. A deed of sale executed before a
Off. Gaz. No. 12 Supp., p. 200) that even the existence of a de jure corporation may be terminated in notary public by the terms of which the plaintiff sold, ceded and transferred to the defendant all its
a private suit for its dissolution by the stockholders without the intervention of the State. It was therein rights, titles and interest in and to the four parcels of land.
further held that although there might be some room for argument on the right of minority
stockholders to ask for dissolution,-that question does not affect the court's jurisdiction over the case,
The contract was entered into not between Manuel Tabora and a non-existent corporation but
and that the remedy by the party dissatisfied was to appeal from the decision of the trial court.
between the Manuel Tabora as owner of the four parcels of lands on the one hand and the same
Manuel Tabora, his wife and others, as mere promoters of a corporations on the other hand.
We repeat that although as a rule, minority stockholders of a corporation may not ask for its
dissolution in a private suit, and that such action should be brought by the Government through its
legal officer in a quo warranto case, at their instance and request, there might be exceptional cases Issue:
wherein the intervention of the State, for one reason or another, cannot be obtained, as when the
State is not interested because the complaint is strictly a matter between the stockholders and does
not involve, in the opinion of the legal officer of the Government, any of the acts or omissions 1.Whether Cagayan Fishing Dev’t. has juridical capacity to enter into the contract.
warranting quo warranto proceedings, in which minority stockholders are entitled to have such
dissolution. When such action or private suit is brought by them, the trial court had jurisdiction and 2. Can promoters of a corporation act as agents of a corporation?
may or may not grant the prayer, depending upon the facts and circumstances attending it. The trial
court's decision is of course subject to review by the appellate tribunal. Having such jurisdiction, the
appointment of a receiver pendente lite is left to the sound discretion of the trial court. Ruling:
1. No. The transfer made by Tabora to the Cagayan Fishing Development Co., Inc., plaintiff herein,
IB1. Cagayan Fishing Development Co. Inc. v Sandiko was effected on May 31, 1930 and the actual incorporation of said company was effected later on
October 22, 1930. In other words, the transfer was made almost five months before the incorporation
Doctrine: A corporation, until organized, has no life and therefore no faculties. It is, as it were, a
of the company.
child in ventre sa mere. This is not saying that under no circumstances may the acts of promoters of a
corporation be ratified by the corporation if and when subsequently organized.
A duly organized corporation has the power to purchase and hold such real property as the purposes
Facts: for which such corporation was formed may permit and for this purpose may enter into such contracts
as may be necessary. But before a corporation may be said to be lawfully organized, many things
have to be done. Among other things, the law requires the filing of articles of incorporation. Although
Manuel Tabora is the registered owner of four parcels of land and he wanted to build a Fishery. He
there is a presumption that all the requirements of law have been complied with, in the case before us
loaned from PNB P8,000 and to guarantee the payment of the loan, he mortgaged the said parcels of
it can not be denied that the plaintiff was not yet incorporated when it entered into the contract of sale.
land. Three subsequent mortgages were executed in favor of the same bank and to Severina Buzon,
whom Tabora is indebted to.
The contract itself referred to the plaintiff as “una sociedad en vias de incorporacion.” It was not even
a de facto corporation at the time. Not being in legal existence then, it did not possess juridical
Tabora sold the four parcels of land to the plaintiff company, said to be under process of
capacity to enter into the contract.
incorporation, in consideration of one peso (P1.00) subject to the mortgages in favor of PNB and
Severina Buzon and, to the condition that the certificate of title to said lands shall not be transferred to
the name of the plaintiff company until the latter has fully and completely paid Tabora’s indebtedness “Corporations are creatures of the law, and can only come into existence in the manner prescribed by
to PNB. law. As has already been stated, general laws authorizing the formation of corporations are general
offers to any persons who may bring themselves within their provisions; and if conditions precedent
are prescribed in the statute, or certain acts are required to be done, they are terms of the offer, and
must be complied with substantially before legal corporate existence can be acquired.”
“That a corporation should have a full and complete organization and existence as an entity before it
can enter into any kind of a contract or transact any business, would seem to be self evident. . . . A
corporation, until organized, has no being, franchises or faculties. Nor do those engaged in bringing it
into being have any power to bind it by contract, unless so authorized by the charter. Until organized
as authorized by the charter there is not a corporation, nor does it possess franchises or faculties for
it or others to exercise, until it acquires a complete existence.”
2. The contract here was entered into not only between Manuel Tabora and a non-existent
corporation but between Manuel Tabora as owner of four parcels of land on the one hand and the
same Manuel Tabora, his wife and others, as mere promoters of a corporation on the other hand. For
reasons that are self-evident, these promoters could not have acted as agents for a projected
corporation since that which had no legal existence could have no agent. A corporation, until
organized, has no life and therefore no faculties. It is, as it were, a child in ventre sa mere. This is not
saying that under no circumstances may the acts of promoters of a corporation be ratified by the
corporation if and when subsequently organized. There are, of course, exceptions , but under the
peculiar facts and circumstances of the present case we decline to extend the doctrine of ratification
which would result in the commission of injustice or fraud to the candid and unwary.
The transfer by Manuel Tabora to the Cagayan Fishing Development Company, Inc. was null
because at the time it was effected the corporation was non-existent, we deem it unnecessary to
discuss this point.
IB2: Rizal Light & Ice Co. v. Municipality
FACTS: Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation with business address at
Morong, Rizal. On August 15, 1949, it was granted by the Commission a certificate of public
convenience and necessity for the installation, operation and maintenance of an electric light, heat
and power service in the municipality of Morong, Rizal. In an order dated December 19, 1956, the
Commission required the petitioner to appear before it on February 18, 1957 to show cause why it
should not be penalized for violation of the conditions of its certificate of public convenience and the
regulations of the Commission, and for failure to comply with the directives to raise its service voltage
and maintain them within the limits and to acquire and install a kilowatt meter. For failure of the
petitioner to appear at the hearing on February 18, 1957, the Commission ordered the cancellation
and revocation of petitioner's certificate of public convenience and necessity and the forfeiture of its
franchise. Petitioner moved for reconsideration of said order on the ground that its manager, Juan D.
Francisco, was not aware of said hearing. Respondent municipality opposed the motion, alleging that
petitioner has not rendered efficient and satisfactory service and has not complied with the
requirements of the Commission for the improvement of its service. Finding that the failure of the
petitioner to appear at the hearing set for February 18, 1957 — the sole basis of the revocation of
petitioner's certificate — was really due to the illness of its manager, Juan D. Francisco, the
Commission set aside its order of revocation. Respondent municipality moved for reconsideration of
this order of reinstatement of the certificate, but the motion was denied. In a petition dated June 25,
1958, filed in the same case, respondent municipality formally asked the Commission to revoke
petitioner's certificate of public convenience and to forfeit its franchise on the ground, among other
things, that it failed to comply with the conditions of said certificate and franchise. In its decision,
dated August 20, 1962, the Commission, on the basis of the inspection reports of its aforenamed
engineers, found that the petitioner had failed to comply with the directives contained in its letters
dated May 21, 1954 and September 4, 1954, and had violated the conditions of its certificate of public
convenience as well as the rules and regulations of the Commission. Thus its certificate of public
convenience was cancelled. On September 18, 1962, petitioner moved for reconsideration of the
decision, alleging that before its electric plant was burned on July 29, 1962, its service was greatly
improved and that it had still existing investment which the Commission should protect. But eight days
before said motion for reconsideration was filed, or on September 10, 1962, Morong Electric, having
been granted a municipal franchise on May 6, 1962 by respondent municipality to install, operate and
maintain an electric heat, light and power service in said municipality — approved by the Provincial
Board of Rizal on August 31, 1962 — filed with the Commission an application for a certificate of
public convenience and necessity for said service. Petitioner opposed in writing the application of
Morong Electric, alleging among other things, that it is a holder of a certificate of public convenience
to operate an electric light, heat and power service in the same municipality of Morong, Rizal, and
that the approval of said application would not promote public convenience, but would only cause
ruinous and wasteful competition.
The Commission, in its decision dated March 13, 1963, found that there was an absence of electric
service in the municipality of Morong and that applicant Morong Electric, a Filipino-owned corporation
duly organized and existing under the laws of the Philippines, has the financial capacity to maintain
said service. As far as the Commission was concerned the certificate of the petitioner was already
declared revoked and cancelled, the Commission approved the application of Morong Electric and
ordered the issuance in its favor of the corresponding certificate of public convenience and necessity.
Petitioner then filed with the SC a petition for review.
ISSUE: Whether Morong Electric should have been granted a certificate of public convenience.
HELD: YES. Before a certificate to operate a public service may be granted, three requisites must be
complied with, namely: (1) the applicant must be a citizen of the Philippines or of the United States, or
a corporation orco-partnership, association or joint-stock company constituted and organized under
the laws of the Philippines, 60% at least of the stock or paid up capital of which belongs entirely to the
citizens of the Philippines or the United States; (2) the applicant must be financially capable of
undertaking the proposed service and meeting the responsibilities incident to its operation; and (3)
the applicant must prove that the operation of the public service proposed and the authorization to do
business will promote the public interest in a proper and suitable manner. Petitioner's contention that
Morong Electric did not yet have a legal personality on May 6, 1962 when a municipal franchise was
granted to it is correct. The juridical personality and legal existence of Morong Electric began only on
October 17, 1962 when its certificate of incorporation, was issued by the SEC. Before that date, or
pending the issuance of said certificate of incorporation, the incorporators cannot be considered as
de facto corporation. But the fact that Morong Electric had no corporate existence on the day the
franchise was granted in its name does not render the franchise invalid, because later Morong
Electric obtained its certificate of incorporation and then accepted the franchise in accordance with
the terms and conditions thereof. The incorporation of Morong Electric on October 17, 1962 and its
acceptance of the franchise as shown by its action in prosecuting the application filed with the
Commission for the approval of said franchise, not only perfected a contract between the respondent
municipality and Morong Electric but also cured the deficiency pointed out by the petitioner in the
application of Morong Electric. Thus, the Commission did not err in denying petitioner's motion to
dismiss said application and in proceeding to hear the same. The efficacy of the franchise, however,
arose only upon its approval by the Commission. The conclusion herein reached regarding the
validity of the franchise granted to Morong Electric is not incompatible with the holding of this Court in
Cagayan Fishing Development Co., Inc. vs. Teodoro Sandiko upon which the petitioner leans heavily
in support of its position. In said case this Court held that a corporation should have a full and
complete organization and existence as an entity before it can enter into any kind of a contract or
transact any business. It should be pointed out, however, that this Court did not say in that case that
the rule is absolute or that under no circumstances may the acts of promoters of a corporation be
ratified or accepted by the corporation if and when subsequently organized. Of course, there are
exceptions. It will be noted that American courts generally hold that a contract made by the promoters
of a corporation on its behalf may be adopted, accepted or ratified by the corporation when
organized.
IB3: FERMIN CARAM, JR. and ROSE DE CARAM v. CA and ALBERTO V.ARELLANO
Topic: Corporate Entity, Disregarding the corporate entity.
Facts: 1.The services of Barretto was requested to initiate the incorporation of Filipinas Orient
Airways (FOA).
2.Barretto was referred to as the “moving spirit” of said corporation because it was through his effort
that it was created. Before FOA’s creation though, Barretto contracted with a third party, Alberto
Arellano, for the latter to prepare a project study for the feasibility of creating a corporation like FOA.
3.The project study was then presented to the would-be incorporators and investors. 4.On the basis
of said project study, Fermin Caram, Jr. and Rosa Caram agreed to be incorporators of FOA. Later
however, Arellano filed a collection suit against FOA, Barretto, and the Carams.5.Arellano claims that
he was not paid for his work on the project study.6.Lower Court: Orders the Carams to jointly and
severally pay Arellano P50,000.00 for the preparation of the project study and his technical services
that led to the organization of the defendant corporation, plus P10,000.00 attorney’s fees-It was upon
the request of Barretto and Garcia that Arellano handled the preparation of the project study which
project study was presented to Caram so the latter was convinced to invest in the proposed airlines. -
The project study was revised for purposes of presentation to financiers and the banks. It was on the
basis of this study that defendant corporation was actually organized and rendered operational. -
Garcia and Caram, and Barretto became members of the Board and/or officers of defendant
corporation-All the other defendants who were involved in the preparatory stages of the incorporation
must be liable7.The petitioners claim that this order has no support in fact and law because they had
no contract whatsoever with the private respondent regarding the above-mentioned services.8.Their
position is that as mere subsequent investors in the corporation that was later created, they should
not be held solidarily liable with FOA, a separate juridical entity, and with Barretto and Garcia (their
co-defendants in the lower court) who were the ones who requested the said services from Arellano.
Issue: Whether or not petitioners themselves are also personally liable for such expenses and, if so,
to what extent? NO. The petitioners did not contract the services of Arellano. It was only the results of
such services that Barretto and Garcia presented to them and which persuaded them to invest in the
proposed airline.
Ruling: GRANTED. Petitioners are not liable.
Held: The petitioners were not really involved in the initial steps that finally led to the incorporation of
FAO, which were being directed by Barretto as the main promoter. It was he who was putting
all the pieces together. The airline was eventually organized on the basis of the
project study with the petitioners as major stockholders and, together with Barretto and
Garcia, as principal officers. The petitioners were merely among the financiers whose interest was
to be invited and who were in fact persuaded, on the strength of the project study, to invest in the
proposed airline. There was no showing that FAO was a fictitious corporation and did not have a
separate juridical personality, to justify making the petitioners, as principal stockholders
thereof, responsible for its obligations. As a bona fide corporation, FAO should alone be liable for its
corporate acts as duly authorized by its officers and directors. The petition is rather hazy and seems
to be flawed by an ambiguous ambivalence. Itis unnecessary to examine at this time the rules on
solidary obligations, which the parties-needlessly, as it turns out have belabored unto death.
 IB4. Trillana vs. Quezon College
Doctrine: Rights of Unpaid Shares: Holders of subscribed shares which are not fully paid but which
are not delinquent shall have all the rights of a stockholder. Such rights commence from the time his
subscription is accepted by the corporation, from the time such offer is accepted by the subscriber.
Facts: Damasa Crisostomo sent a letter to the Board of Trustees of the Quezon College for offering
his subscription to the capital stock of the latter. Some months after, Damasa Crisostomo died. As no
payment appears to have been made on the subscription mentioned in the said letter, the herein
claimant 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. This claim was opposed by the administrator of the estate (Trillana). The
CFI of Bulacan, after hearing, issued an order dismissing the claim of the Quezon College, Inc. on the
ground that the subscription in question was neither registered in nor authorized by the Securities and
Exchange Commission.
Issue: Whether or not the claimant may collect the value of unpaid subscription from the testate of
Damasa
Ruling: NO. There is nothing in the record to show that the Quezon College, Inc. accepted the term
of payment suggested by Damasa Crisostomo, or that if there was any acceptance the same came to
her knowledge during her lifetime.
As the application of Damasa Crisostomo is obviously at variance with the terms evidenced in the
form letter issued by the Quezon College, Inc., there was absolute necessity on the part of the
College to express its agreement to Damasa's offer in order to bind the latter. Conversely, said
acceptance was essential, because it would be unfair to immediately obligate the Quezon College,
Inc. under Damasa's promise to pay the price of the subscription after she had caused fish to be
caught. In other words, the relation between Damasa Crisostomo and the Quezon College, Inc.
had 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 relation, in the absence as in the present case of acceptance by the Quezon College,
Inc. of the counter offer of Damasa Crisostomo, that had not ripened into an enforceable contract.
IB5. Bayla v. Silang Traffic Co.
Doctrine: (Definition of “outstanding capital stock”) (Section 173 of the RCC)
Facts:
Petitioners instituted this action to recover certain sums of money which they had paid severally to the
corporation on account of shares of stock they individually agreed to take and pay for under certain
specified terms and conditions.Purchase price of 15 shares of capital stocks to be paid as follows, to
wit: 5% upon the execution of the contract, with interest on deferred payments at the rate of 6% per
annum until paid.
The subscribers agreed that if he fails to pay when due or fail to abide by the conditions, then the said
shares are to revert to the seller and the payments already made are to be forfeited in favor of said
seller, and the latter may then take possession, without resorting to court proceedings. (in question)
The respondent corporation set up the following defenses: (1) That the above-quoted 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"; and (2) that said resolution of August 1, 1937,
was revoked and canceled by a subsequent resolution of the board of directors of the defendant
corporation dated August 22, 1937.
The trial court held that "a corporation has no legal capacity to release an original subscriber to its
capital stock from the obligation to pay for his shares; and any agreement to this effect is invalid."
and absolved the defendant.
Issue:
1. Can the petitioners recover the forfeited shares of stock?
2. May the failure of the purchaser to pay any of the quarterly installments on the purchase price
automatically give rise to the forfeiture of the amounts already paid and the reversion of the
shares to the corporation
Ruling:
1. Yes. It seems clear from the terms of the contracts in question that they are contracts of sale
and not of subscription. "A subscription, properly speaking, is the mutual agreement of
the subscribers to take and pay for the stock of a corporation, while a purchase is an
independent agreement between the individual and the corporation to buy shares of
stock from it at stipulated price."
 2. No. The Court held that for their stocks to be forfeited to the corporation, a demand
must first be given by the corporation for the payments due on or before July 31. It
did not automatically revert to the corporation. Under Article 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 extra-judicially the fulfillment of their obligation. The current
situation does not fall under any of the exceptions. The contract itself did not expressly
provide that the failure of the purchaser to pay any installment would give rise to
forfeiture and cancellation without the necessity of any demand from the seller. In fact, it
states that there would be a 6% interest on deferred payments which shows that there
was no intention of automatic forfeiture and cancellation of contract. As such, the Court
reversed the decision of the Court of Appeals and ordered Silang Traffic Co. to refund the
petitioners’ money
IB6. Phil. Trust vs. Rivera
Doctrine
A subscription to the capital of a corporation constitutes 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 debts.
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 an under the conditions prescribed by
the statute or the charter or the articles of incorporation. Moreover, strict compliance with the
statutory regulations is necessary.
Facts
● Phil Trust Company is the assignee of the insolvent company La Cooperativa Naval Filipina.
One of the incorporators of the said company is Marciano Rivera who subscribed 450 shares
representing a value of P45,000. However, Mariano only paid P22,500 or half of the value of
his subscription to the capital stocks. According to him, he only paid half the value of such
pursuant to a resolution of the stockholders reducing the capital by 50 %, releasing those
who paid half the value of the subscription to the capital stocks from full payment.
● Phil Trust Company bank filed an action for the recovery of the other half of P45,000 against
Marciano. . It does not appear that the formalities prescribed in section 17 of the Corporation
Law (Act No. 1459), as amended, relative to the reduction of capital stock in corporations
were observed, and in particular it does not appear that any certificate was at any time filed in
the Bureau of Commerce and Industry, showing such reduction.
● The trial judge, therefore, held that the resolution of the board was without effect and that
Marciano was still liable for the unpaid balance of his subscription.
Issue
● Is the resolution of the board effective for Marciano to be held liable for the unpaid balance of
his subscription?
Ruling:
No. The resolution of the board was without effect and that Marciano was still liable for the unpaid
balance of his subscription.
It is established doctrine that subscription to the capital of a corporation constitutes 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
debts.
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 an under the conditions prescribed by
the statute or the charter or the articles of incorporation. Moreover, strict compliance with the
statutory regulations is necessary
In this case, the Phil Trust Bank, the assignee in insolvency can maintain an action against Marciano
for half of the unpaid stock subscription in order to realize the assets of La Cooperativa Naval Filipina
for the payment of its debts.
In relation to the Trust Fund Doctrine:
The capital stocks of a corporation, as well as all its other property and assets, are generally regarded
in equity as a trust fund for the payment of corporate debts, the creditors of the corporation have the
right to priority payment over any shareholder thereof. (Philippine Corporate Law, Villanueva, pp. 729-
730)
 IB7. Velasco v. Poizat G.R. No. L-11528
Doctrine: A corporation has no legal capacity to release a subscriber to its capital stock from the
obligation to pay for his shares; and any agreement to this effect is invalid.
Facts: Petitioner, as the assignee of the Philippine Chemical Product Company, seeks to recover
from the defendant the sum of P1,500 representing the balance of the latter of the subscription he
made to the corporate stock of the company. The defendant subscribed for 20 shares of the stock
company and upon his subscription paid a sum of P500 which is the par value of the 5 shares.
Respondent, a stockholder, for some time acted as the company’s treasurer and manager. While
serving in such capacity, he called in and 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.
Meanwhile, in the board of directors meeting, the board adopted two resolutions. The first resolution
was a proposal that the directors/shareholders should make good by new subscription, in proportion
to their respective holdings, 15 shares which had been surrendered in Infante. It was agreed that
Infante would be released from the obligation of his subscription and that what he had already paid
should not be refunded. Accordingly, the directors, present in the said meeting, subscribed P1,200
toward taking up Infante’s share, leaving a deficiency of P300 to be recovered by voluntary
subscription from stockholders who are not present in the meeting. The second proposition was that,
respondent, who is absent in the meeting, be required to pay the amount of his subscription upon the
15 shares for which he was still indebted to the company and in case he refuse the management
would be authorized to undertake judicial proceedings against him. Upon learning, respondent sent a
letter to petitioner and explained that some member of the board told him that he was to be relieved
from his subscription upon the terms conceded to Infante and he also prefers to lose the whole of the
25% he had already paid rather than to continue investing more money in what he consider to be a
ruinous proposition. Soon after, the corporation soon went into involuntary insolvency with petitioner
named as assignee. Now, petitioner is seeking to recover from respondent the sum of P1,500.
Respondent argued that the call made by the board of directors of the company was not made in
pursuant to the requirements of Sections 37 and 38 of the Corporation Law and in particular, the
action was instituted before the expiration of the 30 days specified in Section 38. The Court of First
Instance rendered a decision in favor of respondent. Hence this appeal to the Court.
Issue: Is respondent liable for the balance of his subscription?
Ruling: YES. Respondent is liable upon his subscription. The Court explained, 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. Section 36 of the Corporation Law clearly recognizes that a stock
subscription is a 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 a much bound to pay the amount of the share subscriber by
him as he would be to pay any other debt, and the right of the company to demand payment is no
less incontestable.
The provisions of the Corporation Law (Act No. 1459) give recognition to two remedies for the
enforcement of stock subscriptions. The first and most special remedy given by the statute
consists in 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 provisions of sections 38 to 48, inclusive, of the
Corporation Law are applicable and must be followed. The other remedy is by action in court,
concerning which we find in section 49 the following provision:
"Nothing in this Act shall prevent the directors from collecting, by action in any court of proper
jurisdiction, the amount due on any unpaid subscription, together with accrued interest and costs and
expenses incurred."
It is generally accepted doctrine that 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.
….in this case that a matured stock subscription is unpaid, none of the provisions contained in
sections 38 to 48, inclusive, of Act No. 1459 can be permitted to obstruct or impede the action to
recover thereon.
IB8-PNB vs. Bitulok Sawmill, Inc.
Doctrine: "It is established doctrine that 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 debts… 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” (Philippine Trust Co. v. Rivera)
Facts: Philippine National Bank (“PNB”), the petitioner, was the bank instructed by President Roxas
to grant the Philippine Lumber Distributing Agency, Inc. an overdraft amounting to Php350,000. The
Philippine Lumber Distributing Agency, Inc. was organized upon the initiative of President Roxas in
order to compete and eventually eliminate alien middlemen in the distribution of lumber. In order to do
that, he entreated that the respondents lumber producers should form a cooperative agency to pool
their resources. Also, the late President, in order to convince the respondents, promised and agreed
to finance the agency by making the Government invest Php9.00 by way of counterpart for every
peso that the members would invest therein. Hence, the respondents made capital subscriptions to
the form the agency.
However, the Philippine Government did not invest the P9.00 for every peso coming from defendant
lumber producers. The loan extended to the Philippine Lumber Distributing Agency by the PNB was
not paid. PNB then compelled the respondents to pay the balance of their subscriptions.
Issue: Whether or not the creditor petitioner can compel the respondents to pay the balance of their
subscriptions in order to collect from the corporation the payment of the loan
Ruling: Yes. Supreme Court answered in the affirmative.
The Supreme Court in deciding this case applied the previous jurisprudence, in particular, Philippine
Trust Co. v. Rivera, which in turn applied the Poizat doctrine (from Velasco v. Poizat):
"It is established doctrine that 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
debts. . . 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 . . ."
IB9-Government vs. Manila Railroad
Doctrine: The charter of a corporation is a contract between three parties: (a) Between the state and
the corporation, (b) between the stockholders and the state, and (c) between the corporation and the
stockholders. The state cannot require the performance of a duty on the part of a corporation or
entity, contrary to the provisions of the charter of said corporation or entity.
Facts: This is a petition in the Supreme Court for the extraordinary legal writ of mandamus presented
by the Government of the Philippine Islands, praying that the writ be issued to compel the Manila
Railroad Company and Jose Paez, as its manager, to provide and equip the telegraph poles of said
company between the municipality of Paniqui, Province of Tarlac, and the municipality of San
Fernando, Province of 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 are sufficient to
carry four telegraph wires and that they do now carry four telegraph wires, by virtue of an agreement
between the respondents and the Bureau of Posts of the Philippine Government. It is admitted that
the poles and crosspieces now existing between said municipalities are not sufficient to carry six
telegraph wires. The plaintiff contends that under said section 84 the defendant company 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. The respondents
answered by a general and special defense. In their special defense they contend that section 84 of
Act No. 1459 has been repealed by section 1, paragraph 8 of Act No. 1510 of the United States
Philippine Commission, and that under the provisions of said Act No. 1510 the Government i~ entitled
to place on the poles of the company four wires only
Issue: 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.
Ruling: No. 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.
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, one of the respondents, 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
provisions of Act No. 1459 relating to the number of wires which the Government may place upon the
poles of the company are different and more onerous than the provisions of the charter upon the
same question.
The provisions of Act No. 1459 relating to the number of wires which the Government may place
upon the poles of the company are different and more onerous than the provisions of the charter
upon the same question. Therefore, to allow the plaintiff to require of the respondent company a
compliance with said section 84 of Act No. 1459, would be to require of the respondent company the
performance of an obligation which is not imposed upon it by its charter. 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 contract between the stockholders and the state and (c) it is also a
contract between the corporation and its stockholders.
IB10. RURAL BANK OF SALINAS V.CA
DOCTRINE: A corporation, either by its Board, 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, and its provisions
are always subject to the charter of the corporation.”
FACTS: Clemente Guerrero was the owner of 473 shares of stock in Rural Bank; he executed a
Special Power of Attorney in favor of his wife, Melania Guerrero and through this Authorization, the
wife was able to transfer ownership of the stocks to the private respondents through executing a
Deed of Assignment. When the private respondents sought to have the transfer registered in Rural
Bank’s stock and transfer book and the shares registered in their names, the Rural Bank denied the
requests for registration and transfer of the shares of stock in the names of the assignees prompting
Melania Guerrero to file a suit for mandamus with the Securities and Exchange Commission (SEC).
ISSUES: W/N the SEC can, by mandamus, order Rural Bank to register in its stock and transfer book
the transfer of the 473 shares of stock to the private respondents/assignees
HELD: YES, Sec. 63 of the Corporation Code provides that " x x x shares of stock so issued are
personal property and may be transferred by delivery of the Certificate/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 x x x" The Court here held that there is no limitation as to stock transfers imposed
under the said section. The owner of shares, as owner of personal property, is at liberty under the
said section to dispose them in favor of whomever he pleases, without limitation in this respect, other
than the general provisions of the law. The only limitation is when the corporation holds any unpaid
claim against the shares intended to be transferred However, this limitation is absent in the present
case. The Court here held that the right of a transferee/assignee to have stocks transferred in his
name is an inherent right flowing from his ownership of the stocks.
A corporation, either by its Board, 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, and its provisions are always
subject to the charter of the corporation." The corporation, in 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. A corporation's
obligation to register transfers of stocks is ministerial, otherwise, to allow a corporation to refuse the
registration of the transferred shares in its stock and transfer books is to render nugatory and
ineffectual the spirit and intent of Sec. 63 of the Corporation Code
IB11-Red Line Transit vs. Rural Transit
Doctrine: No corporate name shall be allowed by the Commission if it is not distinguishable from that
already reserved or registered for the use of another corporation, or if such name is already protected
by law, or when its use is contrary to existing law, rules and regulations.
Facts:
Rural Transit filed an application for certification of a new service between Tuguegarao and Ilagan
with the Public Company Service Commission (PSC), since the present service is not sufficient. Rural
Transit further stated that it is a holder of a certificate of public convenience to operate a passenger
bus service between Manila and Tuguegarao. Red Line opposed said application, arguing that they
already hold a certificate of public convenience for Tuguegarao and Ilagan, and is rendering adequate
service. They also argued that granting Rural Transit’s application would constitute a ruinous
competition over said route. Public Service Commission then approved Rural Transit’s application,
with the condition that "all the other terms and conditions of the various certificates of public
convenience of the herein applicant and herein incorporated are made a part hereof."
A motion for rehearing and reconsideration was filed by Red Line since Rural Transit has a pending
application before the Court of First Instance for voluntary dissolution of the corporation. A motion for
postponement was filed by Rural Transit as verified by M. Olsen who swears "that he was the
secretary of the Rural Transit Company, Ltd. During the hearing before the Public Service
Commission, the petition for dissolution and the CFI’s decision decreeing the dissolution of Rural
Transit were admitted without objection. At the trial of this case before the Public Service Commission
an issue was raised as to who was the real party in interest making the application, whether the Rural
Transit Company, Ltd., as appeared on the face of the application, or the Bachrach Motor Company,
Inc., using name of the Rural Transit Company, Ltd., as a trade name. However, PSC granted Rural
Transit’s application for certificate of public convenience and ordered that a certificate be issued on its
name. PSC relied on a Resolution in case No. 23217, authorizing Bachrach Motor to continue using
Rural Transit’s name as its tradename in all its applications and petitions to be filed before the PSC.
Said resolution was given a retroactive effect as of the date of filing of the application on April 30,
1930.
Issue: Can the Public Service Commission authorize a corporation to assume the name of another
corporation as a trade name?
Ruling: NO. The Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine
corporations and the very law of their creation and continued existence requires each to adopt and
certify a distinctive name. The incorporators "constitute a body politic and corporate under the name
stated in the certificate." A corporation has the power "of succession by its corporate name." It is
essential to its existence and cannot change its name except in the manner provided by the statute.
By that name alone is authorized to transact business.
The law gives a corporation no express or implied authority to assume another name that is
unappropriated: still less that of another corporation, which is expressly set apart for it and protected
by the law. If any corporation could assume at pleasure as an unregistered trade name the name of
another corporation, this practice would result in confusion and open the door to frauds and evasions
and difficulties of administration and supervision.
In this case, the order of the commission authorizing the Bachrach Motor Co., Incorporated, to
assume the name of the Rural Transit Co., Ltd. likewise incorporated, as its trade name being void.
Accepting the order of December 21, 1932, at its face as granting a certificate of public convenience
to the applicant Rural Transit Co., Ltd., the said order last mentioned is set aside and vacated on the
ground that the Rural Transit Company, Ltd., is not the real party in interest and its application was
fictitious.
IB12 - Philippine Insurance vs. Hartigan
Facts: According to the complaint, the petitioner was originally organized as an insurance corporation
under the name of 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' The complaint alleges that
the petitioner doing business under the name of 'The Yek Tong Lin Fire and Marine Insurance Co.,
Lt.' signed as co-maker together with respondent Maria Carmen Hartigan, CGH, a promissory note for
P5,000.00 in favor of the China Banking Corporation. Respondent signed an indemnity agreement in
favor of the petitioner. Respondent failed to pay on the promissory note. Hence petitioner filed a
complaint for indemnity against respondent. By way of special defense, respondents claim that there
is no privity of contract between the plaintiff and the respondents and consequently, the plaintiff has
no cause of action against them, considering that the complaint does not allege that the plaintiff and
the 'Yek Tong Lin Fire and Marine Insurance Co., Ltd.' are one and the same or that the plaintiff has
acquired the rights of the latter.
Issue: Whether or not a Philippine corporation may change its name and still retains its original
personality and individuality as such?
Ruling:
Yes, It can be gleaned at once that Section 18 of the Corporate Code does not only authorize
corporations to amend their charter; it also lays down the procedure for such amendment; and, what
is more relevant to the present discussion, it contains provisos restricting the power to amend when it
comes to the term of their existence and the increase or decrease of the capital stock. There is no
prohibition therein 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.
No doubt, "(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." 1
Since an individual has the right to change his name under certain conditions, there is no compelling
reason why a corporation may not enjoy the same right. There is nothing sacrosanct in a name when
it comes to artificial beings. The sentimental considerations which individuals attach to their names
are not present in corporations and partnerships. Of course, as in the case of an individual, 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.
Therefore, 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.
IB13-Universal Mills vs. Universal Textile
Doctrine: 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, apprehensive confusion will usually arise.
Facts: According to the order, "the Universal Textile Mills, Inc. was organized on December 29, 1953,
as a textile manufacturing firm for which it was issued a certificate of registration on January 8, 1954.
The Universal Mills Corporation, on the other hand, was registered in this Commission 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, for which this Commission issued the certificate of approval.
Universal Textile Mills’ spinning mills got burned, Petitioner alleged that as a result of this fire and
because of the similarity of respondent's name to that of herein complainant, 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. Petitioner
presented documentary and testimonial evidence in support of this allegation.
Issue: Whether or not the two corporate names are similar?
Held: Yes. 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, 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. Factually, the Commission found existence of such confusion, and there is evidence to
support its conclusion We cannot perceive why of all names, it had to choose a name already being
used by another firm engaged in practically the same business for more than a decade enjoying well
earned patronage and goodwill, when there are so many other appropriate names it could possibly
adopt without arousing any suspicion as to its motive and, more importantly, any degree of confusion
in the mind of the public which could mislead even its own customers, existing or prospective.
Premises considered, there is no warrant for our interference.
Appealed decision is affirmed, cost against the petitioners.
IB14-Uy Siuliong vs. Director
Doctrine: Statements of primary purpose is to protect shareholders so they will know the main path
of the business of the corporation and they may file derivative suits if the corporation deviates from
the primary purpose.
Facts: Petitioners had been associated together as partners, under the style and firm name of
"Siuliong y Cia. The petitioners herein, desired to dissolve said partnership and to form a corporation
composed of the same persons as incorporators, to be known as "Siulong y Compañia, Incorporada;"
The purpose of said corporation, "Siuliong y Cia., Inc.," is (a) to acquire the business of the
partnership theretofore known as Siuliong & Co., and (b) to continue said business with some of its
objects or purposes. The Director of Commerce and Industry contends (a) that the proposed articles
of incorporation presented for file and registry permitted the petitioners to engage in a business which
had for its end more than one purpose; (b) that it permitted the petitioners to engage in the banking
business, and (c) to deal in real estate, in violation of the Act of Congress of July 1, 1902. The
petitioners insisted that he had expressly renounced in open court their right to engage in banking
business under their articles of incorporation, even though said articles might be interpreted in a way
to authorize them to so to do. That renouncement on the part of the petitioners eliminates from the
purposes of said proposed corporation (of "Siuliong y Cia., Inc.") any right to engage in the banking
business as such, or in the purchase and sale of real estate.
Issue: Whether or not "Siuliong y Cia., Inc.," is permitted to engage in a business with more than one
purpose.
Ruling: YES.
The Court held that a corporation may be organized under the laws of the Philippine Islands for
mercantile purposes, and to engage in such incidental business as may be necessary and advisable
to give effect to, and aid in, the successful operation and conduct of the principal business.
All of the power and authority included in the articles of incorporation of "Siuliong y Cia., Inc.," are
only incidental to the principal purpose of said proposed incorporation, to wit: "mercantile business."
The purchase and sale, importation and exportation of the products of the country, as well as of
foreign countries, might make it necessary to purchase and discount promissory notes, bills of
exchange, bonds, negotiable instruments, stock, and interest in other mercantile and industrial
associations. It might also become important and advisable for the successful operation of the
corporation to act as agent for insurance companies as well as to buy, sell and equip boats and to
buy and sell other establishments, and industrial and mercantile businesses.
The proposed articles of incorporation contains nothing which violates in the slightest degree any of
the provisions of the laws of the Philippine Islands, and the petitioners are, therefore, entitled to have
such articles of incorporation filed and registered as prayed for by them and to have issued to them a
certificate under the seal of the office of the respondent, setting forth that such articles of
incorporation have been duly filed in his office.
IB15-Clavecilla vs. Antillon
Doctrine: Sec 13 (c) RCC: The place where the principal office of the corporation is to be located,
which must be within the Philippines;
Facts: New Cagayan Grocery, private respondent, filed a complaint against the Clavecilla Radio
System alleging that the petitioner failed to deliver the full meaning of the message by missing the
word “not”. The letter was filed at the Bacolod Branch Office of the petitioner for transmittal through its
branch office at Cagayan de Oro.
Clavecilla Radio System contends that the suit against it should be filed in Manila where it holds its
principal office and not in their Cagayan de Oro Branch Office.
Issue: W/N a branch office may be served summons from the courts.
Ruling: 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, governing venue of actions in inferior courts,
provides in its paragraph (b) (3) that 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 principal 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.
The private respondent maintains, however, that with the filing of the action in Cagayan de Oro City,
venue was properly laid on the principle that the appellant may also be served with summons in that
city where it maintains a branch office. This Court has already held in the case of Cohen vs. Benguet
Commercial Co., Ltd., 34 Phil. 526; that 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.
IB16. Alhambra Cigar & Cigarette v. SEC, 25 SCRA 269 (1968)
Doctrine:
The moment a corporation's right to exist as an "artificial person" ceases, its corporate
powers are terminated "just as the powers of a natural person to take part in mundane affairs cease
to exist upon his death". There is nothing left but to conduct, as it were, the settlement of the estate of
a deceased juridical person.
Facts
● Alahambra was duly incorporated under the Philippine Laws on January 15, 1912. Its
corporate articles state that it was to exist for 50 years from incorporation. It expired on
January 15, 1962 and from that day on, it ceased transacting business and entered into a
state of liquidation (the three-year statutory period for liquidation)
● The next year after the expiration, Republic Act 3531 was enacted into law, amending
Section 18 of the Corporation Law (old) where it empowered domestic private corporations to
extend their corporate life for a term not to exceed 50 years in any one instance.
● Because of this, Alahambra’s Board of Directors resolved to amend their articles of
incorporation to extend its corporate life for another 50 years.
● SEC, however, returned the amended articles contending that Alahambra cannot avail the
benefit of the law for its term has expired.
Issue
May a corporation extend its life by amendment of its articles of incorporation effected during the
three-year statutory period for liquidation when its original term of existence had already expired?
Ruling
No. A corporation cannot extend its life by amending its articles of incorporation during the three-year
statutory period for liquidation when its original term of existence had already expired.
Section 77 of the Corporation Law (old Corporation Law) states that, 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 moment a corporation's right to exist as an "artificial person" ceases, its corporate powers are
terminated "just as the powers of a natural person to take part in mundane affairs cease to exist upon
his death". There is nothing left but to conduct, as it were, the settlement of the estate of a deceased
juridical person.
In this case, as can be gleaned from the aforementioned section, the purpose for a dissolved
corporation, like Alahambra, as a body corporate to continue for three years after expiration is for the
final closure of its affairs and no other. From that point, Alhambra cannot continue its business. The
period is only for liquidation purposes.
Republic Act 3531, amending Section 18 of the Corporation Law, is silent as to when such act of
extension may be made. However, the Court ruled that it can be implied from Section 77 that 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.
IB17. Benguet Consolidated v. Pineda(1956)
Doctrine: The term of existence of association (partnership or sociedad anónima) is coterminous with
their possession of an independent legal personality, distinct from that of their component members.
When the period expires, the sociedad anónima loses the power to deal and enter into further legal
relations with other persons; it is no longer possible for it to acquire new rights or incur new
obligations, have only as may be required by the process of liquidating and winding up its affairs.
Facts: Benguet Consolidated Mining Co. was organized on June 24, 1903 as a Sociedad Anonima
regulated by Articles 151 of the Spanish Code of Commerce of 1886. Their articles of association
expressly provided that it was organized for a term of 50 years. In 1906, the governing Philippine
Commission enacted Act. 1459, commonly known as the Corporation Law, establishing the American
type of juridical entities in the Philippines called “corporations”.
When the expiration of the 50-year term of existence approached, the Board of Directors
adopted in 1946 a resolution to extend its life for another 50 years and submitted it for registration to
the herein respondent Securities and Exchange Commissioner. However, upon advice of the
Secretary of Justice that such extension was contrary to law, respondent denied the registration.
In 1953, the shareholders of Benguet adopted a resolution empowering the Director to
effectuate the extension of the Company’s business life for not less that 20 years and not more than
50 years and this either by an amendment to the Articles of Association or Charter of this Company or
(2) by reforming and reorganizing the Company as a Philippine Corporation, or (3) by both or (4) by
any other means.” Benguet submitted in June 1953, to the Securities and Exchange Commissioner
for alternative registration 2 documents, (1) the Certification as to the Modification of the Benguet
Consolidated Mining Company, extending the term of its existence to another fifty years from June
15, 1953; and (2) articles of incorporation, covering its reformation or reorganization as a corporation
in accordance with section 75 of the Philippine Corporation Law. The SEC denied the registration.
Issues: Can Benguet Consolidated Mining still reform and reorganize as a corporation?
Ruling: 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 sociedades anonimas. 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 sociedad anonima and later on of being a
corporation. Further, under the Corporation Code of 1906, existing sociedades anonimas 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 sociedad anonima chooses one of these, it is already proscribed from
choosing the other. Evidently, Benguet Mining chose to exist as a sociedad anonima hence it can no
longer elect to become a corporation when its life is near its end.
IB18-Asuncion vs. De Yriarte
Doctrine: Section 16(b) of the Revised Corporation Code provides:
“SEC. 16. Grounds When Articles of Incorporation or Amendment May be Disapproved.– The
Commission may disapprove the articles of incorporation or any amendment thereto if the same is not
compliant with the requirements of this Code: Provided, That the Commission shall give the
incorporators, directors, trustees, or officers a reasonable time from receipt of the disapproval within
which to modify the objectionable portions of the articles or amendment. The following are grounds
for such disapproval:
(b)The purpose or purposes of the corporation are patently unconstitutional, illegal, immoral or
contrary to government rules and regulations;
xxx”
Facts: Petitioners (Norberto Asuncion, et al.,) were the proposed incorporators which submitted their
articles of incorporation to the division of archives, through the respondent, Mr. Manuel De Yriarte
(“Yriarte”) for registration. However, the respondent, upon reviewing the article, judged that the object
of the corporation was unlawful and so refused to register it.
Petitioners then filed for an action to obtain a writ of mandamus to compel the chief of the division of
archives of the Executive Bureau to file their articles of incorporation.
Issue: Whether or not the chief of the division of archives has authority, under the Corporation Law,
on being presented with articles of incorporation for registration, to decide not only as to the
sufficiency of the form of the articles, but also as to the lawfulness of the purposes of the proposed
corporation
Whether or not the purposes of the corporation as stated in the articles of incorporation submitted by
the petitioners are lawful within the meaning of the Corporation Law.
Ruling: 1. Yes. Supreme Court affirmed the decision and the explanation of the lower court.
Supreme Court explained that even though the duties of the respondent are ministerial, it
does not preclude him, in the administration of his office, to determine question of law. Therefore,
he does not only have the authority to determine the sufficiency as to the form of the articles of
incorporation but also to determine the lawfulness of the purposes of the corporation as stated in
the articles.
2. Yes. Supreme Court found that the object as stated in the articles of incorporation submitted
by the petitioners for registration are unlawful.
The object of the proposed corporation, as appears from the articles offered for registration, is
to make 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. However, the municipality of Pasig is already a corporation organized by
law and as such the properties of the barrios included in its municipality are under the
management and administration of the municipality of Pasig. The corporation by the petitioners
cannot be permitted to exist. Otherwise, municipalities as now established by law could be
derived 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.
IB19-Loyola Grand Villas vs. CA
Doctrine: Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under
Section 6(I) of PD 902-A, the SEC is empowered to "suspend or revoke, after proper notice and
hearing, the franchise or certificate of registration of a corporation" on the ground inter alia of "failure
to file by-laws within the required period."
Facts: LGVHAI was organized as the association of homeowners and residents of the Loyola Grand
Villas. It was registered with the Home Financing Corporation, the predecessor of herein respondent
HIGC, as the sole homeowners' organization in the said subdivision. For unknown reasons, however,
LGVHAI did not file its corporate by-laws. Sometime in 1988, the officers of the LGVHAI tried to
register its by-laws. They failed to do so. To the officers consternation, they discover that there were
two other organizations within the subdivision — the North Association and the South Association.
They also discovered that these associations had five (5) registered homeowners each who were
also the incorporators, directors and officers thereof. None of the members of the LGVHAI was listed
as member of the North Association while three (3) members of LGVHAI were listed as members of
the South Association. In July, 1989, when Soliven inquired about the status of LGVHAI, Atty.
Joaquin A. Bautista, the head of the legal department of the HIGC, informed him that LGVHAI had
been automatically dissolved for two reasons. First, it did not submit its by-laws within the period
required by the Corporation Code and, second, there was non-user of corporate charter because
HIGC had not received any report on the association's activities. Apparently, this information resulted
in the registration of the South Association with the HIGC. These developments prompted the officers
of the LGVHAI to lodge a complaint with the HIGC. They questioned the revocation of LGVHAI's
certificate of registration without due notice and hearing and concomitantly prayed for the cancellation
of the certificates of registration of the North and South Associations by reason of the earlier issuance
of a certificate of registration in favor of LGVHAI.
Issue: Whether or not LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of
the Corporation Code resulted in the automatic dissolution of LGVHAI.
Ruling: No.
As correctly postulated by the petitioner, interpretation of this provision of law begins with the
determination of the meaning and import of the word "must" in this section Ordinarily, the word "must"
connotes an imperative act or operates to impose a duty which may be enforced. However, the word
“must" in a statute, like "shall," is not always imperative. It may be consistent with an exercise of
discretion. Section 46 aforequoted reveals the legislative intent to attach a directory, and not
mandatory, meaning for the word "must" in the first sentence thereof. Note should be taken of the
second paragraph of the law which allows the filing of the by-laws even prior to incorporation. This
provision in the same section of the Code rules out mandatory compliance with the requirement of
filing the by-laws "within one (1) month after receipt of official notice of the issuance of its certificate of
incorporation by the Securities and Exchange Commission."
Even under the foregoing express grant of power and authority, there can be no automatic corporate
dissolution simply because the incorporators failed to abide by the required filing of by-laws embodied
in Section 46 of the Corporation Code. There is no outright "demise" of corporate existence. Proper
notice and hearing are cardinal components of due process in any democratic institution, agency or
society. In other words, the incorporators must be given the chance to explain their neglect or
omission and remedy the same.
Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under Section 6(I)
of PD 902-A, the SEC is empowered to "suspend or revoke, after proper notice and hearing, the
franchise or certificate of registration of a corporation" on the ground inter alia of "failure to file by-laws
within the required period." It is clear from this provision that there must first of all be a hearing to
determine the existence of the ground, and secondly, assuming such finding, the penalty is not
necessarily revocation but may be only suspension of the charter. In fact, under the rules and
regulations of the SEC, failure to file the by-laws on time may be penalized merely with the imposition
of an administrative fine without affecting the corporate existence of the erring firm.
IB20. PMI College vs NLRC
DOCTRINE: . Since 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.
FACTS: Petitioner hired private respondent as contractual instructor with an agreement that the latter
shall be paid a rate on hourly basis. Private respondent and other instructors were compensated for
services rendered during the first three periods of the abovementioned contract but for reasons
unknown to them, they stopped receiving payment for the succeeding rendition Of services.
Repeated demands on petitioner to release the salaries remained unheeded. Private respondent filed
a complaint before the National Capital Region Arbitration Branch seeking payment of the salaries he
earned while conducting on-the-job training courses, conducted outside the school premises.
Attempts at amicable settlement having failed the parties were required to submit their respective
position papers. Later in the proceedings, petitioner manifested that Mr. Tomas G. Cloma, Jr., a
member of the petitioner’s Board of Trustees wrote a letter to the Chairman of the Board cllarifying
the case of private respondent and stating therein, inter alia, that under petitioner’s by-laws only the
Chairman is authorized to sign any contract and that private respondent, in any event, failed to submit
documents on the alleged shipyard and plant visits in Cavite Naval Base.
Issue: W/N the contract between petitioner and private respondent is invalid because it is stipulated
in petitioner’s By-laws that it should be the Chairman of the Board who is the signatory
Held: No. Neither can we concede that such contract would be invalid just because the signatory
thereon was not the Chairman of the Board which allegedly violated petitioner’s by-laws. Since 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.” No proof appears
on record that private respondent ever knew anything about the Provisions of said by-laws. In fact,
petitioner itself merely asserts the same without even bothering to attach a copy or excerpt thereof to
show that there is such a provision. How can it now expect the Labor Arbiter and the NLRC to believe
it? That this allegation has never been denied by private respondent does not necessarily signify
admission of its existence because technicalities of law and procedure and the rules obtaining in the
courts of law do not strictly apply to proceedings of this nature.
IB21-Peña vs. CA
Doctrine: For the adoption of bylaws by the corporation, the affirmative vote of the stockholders
representing at least a majority of the outstanding capital stock, or of at least a majority of the
members in case of nonstock corporations, shall be necessary. The bylaws shall be signed by the
stockholders or members voting for them and shall be kept in the principal office of the corporation,
subject to the inspection of the stockholders or members during office hours. A copy thereof, duly
certified by a majority of the directors or trustees and countersigned by the secretary of the
corporation, shall be filed with the Commission and attached to the original articles of incorporation.
Facts:
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 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 the 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 steps 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.
IC1. Santos vs NLRC
Doctrines: “A corporation is a juridical entity with legal personality separate and distinct from
those acting for and in its behalf and, in general, from the people comprising it. The rule is that
obligations incurred by the corporation, acting through its directors, officers and employees,
are its sole liabilities. Nevertheless, being a mere fiction of law, peculiar situations or valid
grounds can exist to warrant, albeit done sparingly, the disregard of its independent being and
the lifting of the corporate veil. As a rule, this situation might arise when a corporation is used
to evade a just and due obligation or to justify a wrong, to shield or perpetrate fraud, to carry
out similar other unjustifiable aims or intentions, or as a subterfuge to commit injustice and so
circumvent the law. “
Facts: Melvin D. Millena, on 1 October 1985,was hired to be the project accountant for Mana Mining
and Development Corporation's (MMDC) mining operations in Gatbo, Bacon, Sorsogon. On 12
August 1986, Millena sent to Mr. Gil Abaño, the MMDC corporate treasurer, a memorandum
calling the latter's attention to the failure of the company to comply with the withholding tax
requirements of, and to make the corresponding monthly remittances to, the Bureau of
Internal Revenue (BIR) on account of delayed payments of accrued salaries to the company's
laborers and employees. In a letter, Abaño advised Millena that it was the board's decision that it
stop production (operation) in Sorsogon due to the upcoming rainy seasons and the deterioration of
the peace and order in the said area; that the corporation will undertake only necessary maintenance
and repair work and will keep overhead down to the minimum manageable level; and that the
corporation will not need a project accountant until the corporation resumes full-scale
operations. Millena expressed "shock" over the termination of his employment. He complained
that he would not have resigned from the Sycip, Gores & Velayo accounting firm, where he was
already a senior staff auditor, had it not been for the assurance of a "continuous job" by MMDC's Eng.
Rodillano E. Velasquez. Millena requested that he be reimbursed the "advances'' he had made for the
company and be paid his "accrued salaries/claims." The claim was not heeded. In October 1986,
Millena filed with the NLRC Regional Arbitration in Legazpi City, a complaint for illegal
dismissal, unpaid salaries, 13th month pay, overtime pay, separation pay and incentive leave pay
against MMDC and its two top officials, namely, Benjamin A Santos (the President) and
Rodillano A. Velasquez (the executive vice-president). In his complaint-affidavit (position paper),
submitted on 27 October 1986, Millena alleged, among other things, that his dismissal was
merely an offshoot of his letter of 12 August 1986 to Abaño about the company's inability to
pay its workers and to remit withholding taxes to the BIR.
Issue: Whether Santos should be made solidarily liable with MMDC.
Ruling: A corporation is a judicial entity with legal personality separated and distinct from
those acting for and on its behalf and, in general, from the people comprising it. The rule is
that obligations incurred by the corporation, acting through its directors, officers and employees, are
its sole liabilities. Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can
exist to warrant, albeit done sparingly, the disregard of its independent being and the lifting of the
corporate veil. As a rule, this situation might arise if a corporation is used to evade a just and
due obligation or to justify a wrong, to shield or perpetrate fraud, to carry out similar other unjustifiable
aims or intentions, or as a subterfuge to commit injustice and so circumvent the law. Without
necessarily piercing the veil of corporate fiction, personal civil liability can also be said to lawfully
attach to a corporate director, trustee or officer; to wit: When (1) He assents (a) to a patently unlawful
act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (b) for conflict
of interest, resulting in damages to the corporation, its stockholders or other persons; (2) He consents
to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto; (3) He agrees to hold himself personally and
solidarily liable with the corporation; or (4) He is made, by a specific provision of law, to personally
answer for his corporate action.
The case of Santos is one of these exceptional instances. It is not even shown that Santos has had a
direct hand in the dismissal of Millena enough to attribute to Santos a patently unlawful act while
acting for the corporation. Neither can Article 289 of the Labor Code be applied since this
specifically refers only to the imposition of penalties under the Code. It is undisputed that the
termination of Millena's employment has, instead, been due, collectively, to the need for a further
mitigation of losses, the onset of the rainy season, the insurgency problem, in Sorsogon and
the lack of funds to further support the mining operation in Gatbo. It is basic that a corporation is
invested by law with a personally separate and distinct from those of the persons composing it as well
as from that of any other legal entity to which it may be related. Mere ownership by a single
stockholder or by another corporation of nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personally. Similar to the case of Sunio vs.
National Labor Relations Commission, Santos should not have been made personally
answerable for the payment of Millena's back salaries
IC2-Stockholders of F. Guanzon vs. Registry of Deeds
Facts: On September 19, 1960, the five stockholders of F. Guanzon and Sons, Inc. executed a
certificate of liquidation of the assets of the corporation.
The certificate stated that the corporation had been dissolved by a resolution of the stockholders
adopted on September 17, 1960, and that they had distributed the assets of the corporation, including
real properties in Manila, among themselves as liquidating dividends.
When the certificate of liquidation was presented to the Register of Deeds of Manila for registration, it
was denied registration on several grounds, including the failure to state the number of parcels in the
acknowledgment, the need for registration fees and documentary stamps, and the absence of a
judgment of the Court approving the dissolution and asset disposition.
Petitioners contended that the Certificate of Liquidation is merely a distribution of the assets of the
dissolved corporation. Since it was not a conveyance, the Certificate of Liquidation need not contain
a statement of the number of parcel of land involved in the distribution in the acknowledgment
appearing therein.Consequently, the amount of documentary stamps due should only be P0.30
and not P940.45, and also that no registration fee should be paid.The Commissioner of Land
Registration contended, however, that the certificate of liquidation in question, though it involves a
distribution of the corporation's assets, actually represents a transfer of said assets from the
corporation to the stockholders. Hence, in substance, it is a transfer or conveyance
Issue: Whether the certificate of liquidation should be considered a conveyance or transfer of assets
or merely a distribution of the corporation's assets among its stockholders.
Ruling: The court ruled in favor of the Register of Deeds and affirmed the denial of registration of the
certificate of liquidation. They held that the certificate of liquidation, while it involves the distribution of
the corporation's assets, should be considered a transfer or conveyance of assets from the
corporation to the individual stockholders. The court reasoned that a corporation is a separate legal
entity distinct from its members, and properties registered in the name of the corporation are owned
by the corporation itself. Therefore, the act of liquidation and distribution constituted a transfer of title
from the corporation to the stockholders in proportion to their shareholdings, making it a transfer or
conveyance in nature. Consequently, the court upheld the requirements imposed by the Register of
Deeds for registration, including the need for registration fees, documentary stamps, and a court
judgment approving the dissolution and asset disposition.
Therefore, the certificate of liquidation was considered a transfer of assets, and the denial of its
registration was affirmed by the court.
IC3-Manila Gas vs. CIR
Facts: The plaintiff is a corporation that operates a gas plant in the City of Manila and furnishes gas
service by virtue of a franchise granted to it by the Philippine Government. Associated with the
plaintiff are the Islands Gas and Electric Company domiciled in New York, United States, and the
General Finance Company domiciled in Zurich, Switzerland. Both are foreign corporations.
For 3 years dividends and interest on bonds were paid by the plaintiff to the abovementioned foreign
corporations in the capacity of stockholders upon which withholding income taxes were paid to the
defendant. Plaintiff sought to recover the paid withholding income taxes because to impose the tax in
the dividents would be to impose a tax on the plaintiff, in violation of the terms of its franchise, and
would, moreover, be oppressive and inequitable.
Issue: Whether or not dividends of a domestic corporation paid to foreign corporations as
stockholders, are subject to the payment of the income tax.
Ruling: Yes. A corporation has a personality distinct from that of its stockholders, enabling the taxing
power to reach the latter when they receive dividends from the corporation. Dividends of a domestic
corporation which are paid and delivered in cash to foreign corporations as stockholders are subject
to the payment of the income tax, the exemption clause in the charter of the corporation
notwithstanding.
IC4-Magsaysay-Labrador vs. CA
Facts: Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late
Senator Genaro Magsaysay filed a case against Artemio Panganiban, Subic Land Corporation
(SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales. She
alleged that together with her husband, they acquired a land called "Pequena Island" which later on
she found out that at the back of the TCT, it was noted that the land was executed in favor of SUBIC
which was recorded in the Register of Deeds. What Magsaysay wanted was for the annulment of the
Deed of Mortgage executed by SUBIC in favor of FILMANBANK (dated 28 April 1977 in the amount
of P 2,700,000.00), and cancellation of TCT 22431 by the Register of Deeds, and for the latter to
issue a new title in her favor.
The sisters of the late senator, filed a motion for intervention on the ground that their brother
conveyed to them 1/2 of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees
of around 41 % of the total outstanding shares of such stocks of SUBIC, they have a substantial and
legal interest in the subject matter of litigation and that they have a legal interest in the success of the
suit with respect to SUBIC.
The lower court ruled that petitioners have no legal interest whatsoever in the matter in litigation and
their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to
intervene because SUBIC has a personality separate and distinct from its stockholders.Court of
Appeals found no factual or legal justification to disturb the findings of the lower court.
Issue: Whether the Magsaysay sister, allegedly stockholders of SUBIC, are interested parties in a
case where corporate properties are in dispute.
Ruling: No. Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the Magsaysay
sisters have no legal interest in the subject matter in litigation so as to entitle them to intervene in the
proceedings. To be permitted to intervene in a pending action, the party must have a legal interest in
the matter in litigation, or in the success of either of the parties or an interest against both, or he must
be so situated as to be adversely affected by a distribution or other disposition of the property in the
custody of the court or an officer thereof . Here, the interest, if it exists at all, of the Magsaysay sisters
is indirect, contingent, remote, conjectural, consequential and collateral. At the very least, their
interest is purely inchoate, or in sheer expectancy of a right in the management of the corporation and
to share in the profits thereof and in the properties and assets thereof on dissolution, after payment of
the corporate debts and obligations. While a share of stock represents a proportionate or aliquot
interest in the property of the corporation, it does not vest the owner thereof with any legal right or title
to any of the property, his interest in the corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate property, which is owned by the
corporation as a distinct legal person.
IC5. Good Earth v CA
Doctrines
● A corporation has a personality distinct and separate from its individual stockholders or
members. Being an officer or stockholder of a corporation does not make one's property also
of the corporation, and vice-versa, for they are separate entities.
● Shareowners are in no legal sense the owners of corporate property (or credits) which is
owned by the corporation as a distinct legal person.
● As a consequence of the separate juridical personality of a corporation, the corporate debt or
credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit that of
the corporation.
Facts
● There was a lease contract between Good Earth Emporium (GEE) and Roces Reyes Reality
Inc. (RRRI). The former defaulted in the payment of the lease, prompting the latter to file an
ejectment case against the corporation and Lim. The lower court ruled in favor of RRRI and
issued a writ of execution. GEE moved for the quashing of the said writ. It was alleged that
the judgment debt was satisfied already when the payment was made to the Roces brothers.
Issue: Is there a full satisfaction of the judgment debt in favor of the respondent corporation which
would justify the quashing of the Writ of Execution?
Ruling
No. It has not been shown that there was a full satisfaction of the judgment debt. Hence, the
writ of execution shall not be quashed.
A corporation has a personality distinct and separate from its individual stockholders or
members. Being an officer or stockholder of a corporation does not make one's property also of the
corporation, and vice-versa, for they are separate entities. Shareowners are in no legal sense the
owners of corporate property (or credits) which is owned by the corporation as a distinct legal person.
As a consequence of the separate juridical personality of a corporation, the corporate debt or credit is
not the debt or credit of the stockholder, nor is the stockholder's debt or credit that of the corporation.
In this case, the payment was made to the Roces brothers who were no longer officers of the
corporation. The fact that the payment was made to them in their name raises the presumption that
such was indeed due to them and not to the corporation. It is for GEE and Lim Ka Ping to prove that
the payments made were for the satisfaction of their judgment debt, which, however, they did not
prove sufficiently.
IC6. Tayko v. Capistrano | 1928
Doctrine:
A de facto judge is one who exercises the duty of a judicial office under color of an
appointment or election thereto. He differs, on the one hand, from a mere usurper who undertakes to
act officially without any color of right, and on the other hand, from a judge de jure, who is in all
respects legally appointed and qualified and who term of office has not expired.
Facts:
The petitioners in this case filed for a writ of prohibition enjoining the respondent judge
(Capistrano) from taking cognizance of certain civil and criminal election cases in which they are the
parties. They allege that the respondent judge is already disqualified from acting as a judge of the
Court of First instance of Oriental Negros on the grounds that he already reached 65 years of age
citing the provisions of Section 148 of the Administrative Code, they further allege that in view of the
many election protests and criminal cases for violation of the election law, the Honorable Sixto de la
Costa was duly designated and acted as auxiliary judge of the province of the Province of Oriental
Negros and that there was an understanding between Capistrano and de la Costa that the latter
would hear and take cognizance of all election protests and criminal actions then pending, or to be
filed arising from last general election and Capistrano would try and hear the ordinary cases pending
in the said court however, notwithstanding the agreement, Capistrano tried and is still trying to take
cognizance of the election protests and criminal actions; that Capistrano declared in open court that
he will try the criminal cases for the reason that the auxiliary judge refused to try the same on the
ground that the preliminary investigations were held him when the truth and in fact, the said auxiliary
judge did not make the statement and was still willing to try all the election protests and criminal
cases for violation of election law; that Capistrano, took great interest and active part in the filing of
criminal charges against the petitioners herein to an unjustifiable extent of appointing a deputy fiscal
when the provincial fiscal refused to file the criminal charges against the petitioners for lack of
sufficient evidence; that Capistrano is neither a judge de jure nor de facto but he still continues to hold
the office of the judge of the Court of First Instance and pretends to be a qualified one. Respondent
demurred on several grounds.
Issue: Whether or not Capistrano can be considered as a de facto judge?
Ruling: Yes. The Court defined, a de facto judge is one who exercises the duties of a judicial office
under color of an appointment or election thereto. He differs, on the one hand, from a mere usurper
who undertakes to act officially without any color of right, and on the others hand, from a judge de
jure who is in all respects legally appointed and qualified and whose term of office has not expired.
His term of office may have expired, but his successor has not been appointed, and as good faith is
presumed, he must be regarded as holding over in good faith. The contention of counsel for the
petitioners that the auxiliary judge present in the district must be considered the regular judge seems
obviously erroneous. According to the Court, the rightful authority of a judge, in the full exercise of his
public judicial functions, cannot be questioned by any merely private suitor, nor by any other,
excepting in the form especially provided by law. A judge de facto assumes the exercise of a part of
the prerogative of sovereignty, and the legality of that assumption is open to the attack of the
sovereign power alone. Accordingly, it is a well-established principle, dating from the earliest period
and repeatedly confirmed by an unbroken current of decisions, that the official acts of a de facto
judge are just as valid for all purposes as those of a de jure judge, so far as the public or third
persons who are interested therein are concerned.
IC7-Fernandez vs. Cuerva
Doctrine:
There are two views as to when a statute is declared unconstitutional
Orthodox view: An unconstitutional act, whether legislative or executive, is not a law, confers no rights
imposes no duties, and affords no protection. This is reflected under Article 7 of the Civil Code.
Operative Fact doctrine: "The actual existence of a statute prior to such a determination [of
constitutionality], is an operative fact and may have consequences which cannot always be erased by
a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be
considered in various aspects, — with respect to particular regulations, individual and corporate, and
particular conduct, private and official.” (Chicot Country Drainage Dist. vs. Baxter States Bank (1940)
308 US 371)
Regarding de facto corporation: Following the ―orthodox view that an ―unconstitutional act,
whether legislative or executive, is not a law, confers no right, imposes no dues, and affords no
protection, the enabling statute being unconstitutional would absolutely be void, and no corporation
organized under it can achieve the status of being a de-facto corporation. Therefore, the prevailing
view is that an unconstitutional enabling law has the same effect as though there is no law under
which to organize, and even if the associates organize in good faith in reliance upon it, the resulting
association cannot claim to be a de facto corporation.
Facts:
Plaintiff Federico Fernandez was employed as salesman by defendant P. Cuerva & Co. from March,
1949 to October, 1959. After his separation from the service, plaintiff filed a claim, on July 26, 1960,
before Regional Office No. 4 of the Department of Labor, 1 docketed as L. S. Case No. 2940, to
recover unpaid salaries and commissions, and separation pay. While this case was ongoing, he filed
a similar complaint in Court of First Instance of Manila.
Thereafter, defendant filed a motion to dismiss the complaint upon the grounds that the actions had
prescribed and that the court had no jurisdiction over the case.
The plaintiff then moved to reconsider, advancing as his main argument the fact that his having filed a
similar claim with Regional Office No. 4 of the Department of Labor had suspended the running of the
prescriptive period insofar as his claim for refund of unauthorized deductions and withheld
commissions was concerned — which were the subject matters of the first and second causes of
action that were dismissed by the court. The defendant filed an opposition to the motion for
reconsideration.
The court denied plaintiff's motion for reconsideration.
Issue: Whether or not the action to recover by the plaintiff has already prescribed.
Ruling: No. The Supreme Court decided in favor of the plaintiff.
Under Section 17 of RA 602 (Minimum Wage Law) "any action . . . to enforce any cause of action
under this Act may be commenced within three years after the cause of action accrued, and every
such action shall be forever barred unless commenced within three years after the cause of action
accrued."
Even though not a judicial demand in the strict sense which would suspend the running of the
prescription as alleged by the defendant, the Court judged that the filing by the plaintiff of his claim
before the regional office of the Department of Labor had the attributes of a judicial demand. It was
because under the provisions of Section 25 of Reorganization Plan No. 20-A each regional office of
the Department of Labor was invested with jurisdiction, similar to that of a court, to receive,
determine, and adjudicate money claims arising out of employer-employee relations as specified in
said section
The purpose of the law on prescription and the statute of limitations is to protect the person who is
diligent and vigilant in asserting his right, and conversely to punish the person who sleeps on his
right. Indeed, it cannot be said that in the case before Us the plaintiff had slept on his right, because
shortly after he was separated from the service by the defendant, he filed his claim before the agency
of the government that was at the time clothed with exclusive authority to pass upon his claim.
Though, Section 25 of Reorganization Plan No. 20-A was declared unconstitutional after the plaintiff
has filed his claim, it should not prejudice the plaintiff under the operative fact doctrine. Thus, the
running time of the prescription has been interrupted with the filing of the complaint before the
regional office and that the plaintiff’s action to enforce his claim was not yet barred by the statute of
limitations.
IC8-Hall vs. Piccio
DOCTRINE: To decree the dissolution of the company, because it being a de facto
corporation, dissolution thereof may only be ordered is a quo warranto proceeding instituted
in accordance with section 19 of the Corporation Law. Further, It is to be noted that it is the
issuance of a certificate of incorporation by the Director of the Bureau of Commerce and
Industry which calls a corporation into being. The immunity of collateral attack is granted to
corporations ‘claiming in good faith to be a corporation under this act.’
FACTS: 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 article 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. Attached to the article was an affidavit of the treasurer stating that 23,428
shares of stock had been subscribed and fully paid with certain properties transferred to the
corporation described in a list appended thereto.
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. The said articles of
incorporation were filed in the office of the Securities and Exchange Commissioner, for the
issuance of the corresponding certificate of incorporation. Pending action on the articles of
incorporation by the aforesaid governmental office, the respondents, filed before the Court of
First Instance of Leyte the civil case numbered 381, entitled "Fred Brown et al. vs. Arnold C.
Hall et al.", alleging among other things that the Far Eastern Lumber and Commercial Co. was
an unregistered partnership; that they wished to have it dissolved because of bitter
dissension among the members, mismanagement and fraud by the managers and heavy
financial losses.
The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to
dismiss, contesting the court's jurisdiction and the sufficiency of the cause of action.
ISSUE: Whether the court has jurisdiction on the case to decree the dissolution of the
company, because it being a de facto corporation?
RULING: No. The court had no jurisdiction in civil case No. 381 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 instituted in accordance with section 19 of the Corporation Law.
Inasmuch as respondents Fred Brown and Emma Brown had signed the article of
incorporation but only a partnership. It is to be noted that it is the issuance of a certificate of
incorporation by the Director of the Bureau of Commerce and Industry which calls a
corporation into being. The immunity of collateral attack is granted to corporations ‘claiming
in good faith to be a corporation under this act.’ The complaining associates have not
represented to the others that they were incorporated any more than the latter had made
similar representations to them. And as nobody was led to believe anything to his prejudice
and damage, the principle of estoppel does not apply. Obviously this is not an instance
requiring the enforcement of contracts with the corporation through the rule of estoppel.
Further, this is not a suit in which the corporation is a party. This is a litigation between Ruling: No. We can not assent to the thesis of Benguet that its period of corporate existence has
stockholders of the alleged corporation, for the purpose of obtaining its dissolution. Even the relation to its "organization.
existence of a de jure corporation may be terminated in a private suit for its dissolution
between stockholders, without the intervention of the state. Organize or 'organization,' as used in reference to corporations, has a well-understood
meaning, which is the election of officers, providing for the subscription and payment of the capital
stock, the adoption of by-laws, and such other steps as are necessary to endow the legal entity with
the capacity to transact the legitimate business for which it was created. It means simply the process
IC9. Benguet Consolidated v. Pineda(1956) of forming and arranging into suitable disposition the parties who are to act together in, and defining
the objects of, the compound body, and that this process, even when complete in all its parts, does
Doctrine: Organize or 'organization,' as used in reference to corporations, has a well-understood not confer a franchise either valid or defective, but, on the contrary, it is only the act of the individuals,
meaning, which is the election of officers, providing for the subscription and payment of the capital and something else must be done to secure the corporate franchise.
stock, the adoption of by-laws, and such other steps as are necessary to endow the legal entity with
the capacity to transact the legitimate business for which it was created. It means simply the process It is apparent from the foregoing definitions that the term “organization” relates merely to the
of forming and arranging into suitable disposition the parties who are to act together in, and defining systematization and orderly arrangement of the internal and managerial affairs and organs of the
the objects of, the compound body, and that this process, even when complete in all its parts, does Petitioner Benguet, and has nothing to do with the prorogation of its corporate life.
not confer a franchise either valid or defective, but, on the contrary, it is only the act of the individuals,
and something else must be done to secure the corporate franchise.
IC10-Asia Banking vs. Standard Products
Facts: Benguet Consolidated Mining Co. was organized on June 24, 1903 as a Sociedad Anonima
regulated by Articles 151 of the Spanish Code of Commerce of 1886. Their articles of association
DOCTRINE
expressly provided that it was organized for a term of 50 years. In 1906, Act. 1459, commonly known
as the Corporation Law, was enacted which superseded the Code of Commerce of 1886 and
Corporation by Estoppel – All persons who assume to act as a corporation knowing it to be without
establishing the American type of juridical entities in the Philippines called “corporations”. The
authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or
purpose of the law, among others is to eradicate the Spanish Code and make Sociedad Anominas
arising as a result thereof: Provided however, that when any such ostensible corporation is sued on
Obsolete
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
In 1953, the shareholders of Benguet adopted a resolution empowering the Director to
an ostensible corporation as such cannot resist performance thereof on the ground that there was in
effectuate the extension of the Company’s business life for not less that 20 years and not more than
fact no corporation.
50 years and this either by an amendment to the Articles of Association or Charter of this Company or
(2) by reforming and reorganizing the Company as a Philippine Corporation, or (3) by both or (4) by
FACTS
any other means.” Benguet submitted in June 1953, to the Securities and Exchange Commissioner
for alternative registration 2 documents, (1) the Certification as to the Modification of the Benguet
Standard Products, Inc. (note the inclusion of “Inc. as an indication of a corporation) issued a
Consolidated Mining Company, extending the term of its existence to another fifty years from June
promissory note amounting to P24, 736.47 to Asia Banking Corporation. Asian Banking filed a case to
15, 1953; and (2) articles of incorporation, covering its reformation or reorganization as a corporation
recover the said amount plus 10%interest. The lower court ruled in favor of Asia Banking Corp. But,
in accordance with section 75 of the Philippine Corporation Law.
Standard Products, Inc. contended that Asia Banking Corp failed to prove affirmatively the corporate
existence of the parties. Appellant also assigned this as a reversible error.
The SEC denied the registration as it ruled that the extension request is contrary to Sec. 18 of
the Corporation Law of 1906 which provides that the life of a corporation shall not be extended by
ISSUE
amendment beyond the fixed time in their original articles. Petitioner now contends that the proviso of
Section 18 of the Corporation law does not apply to sociedades anonimas already in existence at the
passage of the law. The period of corporate life relates to its organization and the rights of its Whether or not the failure of Asia Banking Corp to prove corporate existence of both parties is fatal to
members inter se, and not to its relations to the public or public officials. its suit to recover?

Issues: Whether or not corporate life relate to its organization. RULING

No. The defendant having recognized the corporate existence of the plaintiff by making a promissory
note in its favor and making partial payments on the same is therefore estopped to deny said
plaintiff's corporate existence.
There is no merit whatever in the appellant's contention. The general rule is that in the absence of
fraud, a person who has contracted or 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 an action leading out of or involving such contract or dealing, unless the existence is
attacked for causes 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 defendant having recognized the or the corporate existence of the plaintiff by making a
promissory note in its favor and making payments on the same, and the defendant having held itself
out as a corporate and being therefore estopped from denying its own corporate existence it is
necessary for the plaintiff to present other evidence of the corporate existence of either of the parties.
IC11. Vda. De Salvatierra vs Garlitos
Doctrine: GREEN
Facts:
Manuela T. Vda. de Salvatierra is the owner of a parcel of land located at Maghobas, Poblacion,
Burauen, Leyte. On March 7, 1954, Salvatierra entered into a contract of lease with the Philippine
Fibers Producers Co., Inc., allegedly a corporation "duly organized and existing under the laws of the
Philippines, with business address in Burauen, Leyte, and represented by Mr. Segundino Q.
Refuerzo, the President". The contract provided that the lifetime of the lease would 10 years, that the
land will be planted with kenaf, ramie or other crops suitable to the soil; that the lessor would be
entitled to 30% of the net income from the harvest of any, crop without being responsible for the cost
of production thereof; and that after every harvest, the lessee was bound to declare at the earliest
possible time the income derived and to deliver the corresponding share due the lessor.
However, the obligations imposed were not complied with by the alleged corporation.
Salvatierra filed for accounting, rescission and damages. She claimed that the defendant corporation
planted the land with kenaf but it refused to render an accounting of the income it derived and to
deliver the lessor's share (estimated gross income was P4,500 and the deductible expenses
amounted to P1,000).
The court granted plaintiff's prayer and required defendants to render a complete accounting
of the harvest of the land and to deliver 30% of the net income realized from the last harvest. If the
defendant’s fail to abide by this rule, the gross income would be fixed at P4,200 or a net income of
P3,200 after deducting the expenses for production, 30% of which or P960 was due the plaintiff
pursuant to the contract of lease, which was declared rescinded.
The court then a issued a writ of execution causing the attachment of 3 parcels of land
registered in the name of Segundino Refuerzo as there was no available property of the Philippine
Fibers Producers Co., Inc., for attachment. Refuerzo claimed that the decision was null and void with
respect to him, there being no allegation in the complaint pointing to his personal liability and that the
liability be limited to the defendant corporation. The court then ordered the release of all properties
belonging to Refuerzo.
Issue: Whether or not Refuerzo should be held liable to Salvatierra?
Ruling: YES, Refuerzo should be held liable to Salvatierra. Refuerzo, as president of the
unregistered corporation Philippine Fibers Producers Co., Inc., was the moving spirit behind the
consummation of the lease agreement by acting as its representative. His liability cannot be limited or
restricted that imposed upon corporate shareholders. In acting on behalf of a corporation which he
knew to be unregistered, he assumed the risk of reaping the consequential damages or resultant
rights, if any, arising out of such a transaction.
Refuerzo’s defense is premised on the fact that the complaint contained no allegation which holds
him personally liable, for while he was a signatory to the contract, he did so in his capacity as
president of the corporation. Salvatierra, on the other hand, contends that her failure to specify
Refuerzo’s personal liability was because she was under the impression that the Philippine Fibers
Producers Co., Inc., represented by Refuerzo was a duly registered corporation as appearing in the
contract, but a subsequent inquiry from the Securities and Exchange Commission yielded otherwise.
While as a general rule a person who has contracted or dealt with an association in such a way as to
recognize its existence as a corporate body is estopped from denying the same in an action arising
out of such transaction or dealing, yet this doctrine may not be held to be applicable where fraud
takes a part in the said transaction. In the instant case, on plaintiff's charge that she was unaware of
the fact that the Philippine Fibers Producers Co., Inc., had no juridical personality, defendant
Refuerzo gave no confirmation or denial and the circumstances surrounding the execution of the
contract lead to the inescapable conclusion that plaintiff Manuela T. Vda. de Salvatierra was really
made to believe that such a corporation was duly organized in accordance with law.
A registered corporation has a juridical personality separate and distinct from its component members
such that a corporation cannot be held liable for the personal indebtedness of a stockholder even if
he should be its president and conversely, a stockholder or member cannot be held personally liable
for any financial obligation of the corporation in excess of his unpaid subscription. But this rule is
understood to refer merely to registered corporations and cannot be made applicable to the
liability of members of an unincorporated association. The reason behind this doctrine is obvious
- since an organization which before the law is non-existent has no personality and would be
incompetent to act and appropriate for itself the powers and attribute of a corporation as provided by
law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or
purport to act as its representatives or agents do so without authority and at their own risk. And as it
is an elementary principle of law that a person who acts as an agent without authority or without a
principal is himself regarded as the principal, possessed of all the rights and subject to all the
liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no
valid existence assumes such privileges and obligations and comes personally liable for contracts
entered into or for other acts performed as such, agent.
IC12-Albert v. University Publishing
Facts:
● On September 24, 1949, Mariano A. Albert sued University Publishing Co., Inc.
● Albert alleged that University Publishing Co., Inc. was a corporation duly organized and
existing under the laws of the Philippines.
● Albert claimed that on July 19, 1948, University Publishing Co., Inc., through Jose M. Aruego,
its President, entered into a contract with him.
● The contract involved the exclusive right to publish Albert's revised Commentaries on the
Revised Penal Code and his share in previous sales of the book's first edition.
● The contract stipulated that University Publishing Co., Inc. would pay Albert P30,000.00 in
eight quarterly installments of P3,750.00 starting July 15, 1948.
● Failure to pay one installment would render the rest due.
● University Publishing Co., Inc. failed to pay the second installment.
Issue: Whether the judgment in favor of Mariano A. Albert for damages could be executed
against Jose M. Aruego, who was the supposed President of University Publishing Co., Inc. since
the corporation is non-existent?
Ruling:
● The court found that University Publishing Co., Inc. was not registered with the Securities and
Exchange Commission, and therefore, it had no separate legal existence as a corporation.
● Because University Publishing Co., Inc. did not legally exist, it could not be sued
independently, and the judgment could not be executed against it.
● The court mentioned that the "corporation by estoppel" doctrine had not been invoked and
stated that, in any case, it was inapplicable to this situation.
● Aruego represented a non-existent entity and induced others, including the plaintiff and the
court, to believe in such representation. He signed the contract as "President" of "University
Publishing Co., Inc.," stating that this was "a corporation duly organized and existing under
the laws of the Philippines," and obviously misled the plaintiff into believing the same.
● "University Publishing Co., Inc." purported to come to court, answering the complaint and
litigating upon the merits. However, since it had no independent legal personality due to its
non-registration, it was merely a name. Jose M. Aruego was, in reality, the one who
answered and litigated, through his own law firm as counsel. He was, in fact, if not in name,
the defendant.
● Even with regard to corporations duly organized and existing under the law, the court
mentioned that it had, in many cases, pierced the veil of corporate fiction to administer the
ends of justice.
IC13-Lim vs. Philippine Fishing Gear
Doctrine: Under the law on estoppel, those acting on behalf of a corporation and those benefited by
it, knowing it to be without valid existence, are held liable as general partners.
Facts:
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a
Contract for the purchase of fishing nets and floats from the Philippine Fishing Gear Industries, Inc.
(herein respondent). They claimed that they were engaged in a business venture with Petitioner Lim
Tong Lim, who however was not a signatory to the agreement but owned the boat in which some of
the nets were subsequently found; The buyers, however, failed to pay for the fishing nets and the
floats; hence, private respondents filed a collection suit against Chua, Yao and Petitioner Lim. The
suit was brought against the three in their capacities as general partners, on the allegation that
"Ocean Quest Fishing Corporation" was a nonexistent corporation as shown by a Certification from
the SEC.
The trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to the
Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay
respondent. The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on
the testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the
three. The trial court noted that the Compromise Agreement was silent as to the nature of their
obligations, but that joint liability could be presumed from the equal distribution of the profit and loss
indicated in said agreement; On appeal, the CA affirmed the RTC.
Petitioner claimed that since his name did not appear on any of the contracts and since he never
directly transacted with the respondent corporation, therefore, he cannot be held liable.
Issue: Is petitioner solidarily liable in the said transaction of an ostensible corporation?
Ruling: YES. Unquestionably, petitioner benefited from the use of the nets found inside the boat
which petitioner allegedly owned but has earlier been proven to be an asset of the partnership. He in
fact questions the attachment of the nets, because the Writ has effectively stopped his use of the
fishing vessel. It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to
form a corporation. Although it was never legally formed for unknown reasons, this fact alone does
not preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the
law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be
without valid existence, are held liable as general partners. Technically, it is true that petitioner did not
directly act on behalf of the corporation. However, having reaped the benefits of the contract entered
into by persons with whom he previously had an existing relationship, he is deemed to be part of said
association and is covered by the scope of the doctrine of corporation by estoppel.
Note: The court also took note that a third party who, knowing an association to be unincorporated,
nonetheless treated it as a corporation and received benefits from it, may be barred from denying its
corporate existence in a suit brought against the alleged corporation. In such a case, all those who
benefited from the transaction made by the ostensible corporation, despite knowledge of its legal
defects, may be held liable for contracts they impliedly assented to or took advantage of.
IC14-Umali vs. CA
Doctrine: Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore
exist, the legal fiction that a corporation is an entity with a juridical personality separate and distinct
from its members or stockholders may be disregarded. In such cases, the corporation will be
considered as a mere association of persons. The members or stockholders of the corporation will be
considered as the corporation, that is, liability will attach directly to the officers and stockholders. The
doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues or where a
corporation is the mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.
Facts: Santiago Rivera is the nephew of plaintiff Mauricia Castillo. The Castillo family are the owners
of a parcel of land located in Lucena City which was given as security for a loan from the DBP. For
their failure to pay the amortization, foreclosure of the said property was about to be initiated. Rivera
was made aware of this issue and proposed to convert the property into a subdivision to increase the
value. The Idea was accepted by the Castillo family and to carry out the project, a MOA was executed
by and between Slobec Realty and Development, Inc., represented by its President Santiago Rivera
and the Castillo family. Rivera, armed with the agreement, Santiago approached Mr. Modesto
Cervantes, President of defendant Bormaheco, and proposed to purchase from Bormaheco 2
tractors. Subsequently, a Sales Agreement was executed.
The aforesaid surety bond was in turn secured by an Agreement of Counter-Guaranty with Real
Estate Mortgage executed by Rivera as president of Slobec and Castillo family, as mortgagors and
Insurance Corporation of the Philippines (ICP) as mortgagee. ICP required the Castillos to mortgage
to them the 4 parcels of land. Meanwhile, for violation of the terms and conditions of the Counter-
Guaranty Agreement, the properties of the Castillos were foreclosed by ICP and sold to Phil.
Machinery Parts Manufacturing Co. (PM Parts). PM parts now sent letters to the Castillos to evacuate
the property, which the latter refused.
The petitioner said that the agreements made by Slobec and Bormaheco were all fraudulent and
simulated and should, therefore, be declared null and void seek to pierce the veil of corporate entities
of Bormaheco, ICP and PM Parts, alleging that these corporations employed fraud in causing the
foreclosure and subsequent sale of the real properties belonging to petitioners.
Issue: Whether or not the doctrine invoked by petitioners in granting the relief sought that piercing the
veil of a corporate entity is the proper remedy in order that the foreclosure proceeding may be
declared a nullity?
Ruling: No. Piercing the veil of a corporate entity is not the proper remedy in order that the
foreclosure proceeding may be declared a nullity under the circumstances obtained in the legal case
at bar.
The legal corporate entity is disregarded only if it is sought to hold the officers and stockholders
directly liable for a corporate debt or obligation. In the instant case, petitioners do not seek to impose
a claim against the individual members of the three corporations involved; on the contrary, it is these
corporations which desire to enforce an alleged right against petitioners. Assuming that petitioners
were indeed defrauded by private respondents in the foreclosure of the mortgaged properties, this
fact alone is not, under the circumstances, sufficient to justify the piercing of the corporate fiction,
since petitioners do not intend to hold the officers and/or members of respondent corporations
personally liable therefor. Petitioners are merely seeking the declaration of the nullity of the
foreclosure sale, which relief may be obtained without having to disregard the aforesaid corporate
fiction attaching to respondent corporations. Another is that petitioners failed to establish by clear and
convincing evidence that private respondents were purposely formed and operated, and thereafter
transacted with petitioners, with the sole intention of defrauding the latter.
The mere fact, therefore, that the businesses of two or more corporations are interrelated is not a
justification for disregarding their separate personalities, absent sufficient showing that the corporate
entity was purposely used as a shield to defraud creditors and third persons of their rights.
(PERO BINALIK SA CASTILLO UNG TCT AND NULL AND VOID UNG MGA CONTRACT)
IC15- Koppel v Yatco
Facts
● Koppel Industrial Car and Equipment Company, a foreign corporation, sells railway materials
thro’ Koppel Philippines, an alleged distinct corporation. Now the CIR demanded from Koppel
Ph merchant sales tax for being a branch/ subsidiary of Koppel Industrial Car and Equipment
Company who is a foreign corporation not licensed to do business in the Philippines and the
shareholder of the majority of stocks of Koppel Philippines.
● Koppel Ph paid under protest, alleging that the sales were really made by Koppel Industrial
Car and Equipment Company, another distinct corporation. According to the CIR, Koppel Ph
is organized as a Philippine corporation for the purpose of evading the payment by its parent
foreign corporation of merchants' sales tax on the transactions involved in this case and
others of similar nature.
Issue
W/N Koppel Ph is a mere subsidiary of Koppel Industrial Car and Equipment Company as to be liable
for the merchant sales tax?
Ruling
Yes. Koppel Ph is a mere subsidiary of Koppel Industrial Car and Equipment Company as to
be liable for the merchant sales tax.
Hanter vs. Baker Motor Vehicle Co. states that the legal fiction of distinct corporate existence
will be disregarded in a case where a corporation is so organized and controlled and its affairs are so
conducted, as to make it merely an instrumentality or adjunct of another corporation
Abney vs. Belmond Country Club Properties states that Where it appears that two business
enterprises are owned, conducted and controlled by the same parties, both law and equity will, when
necessary to protect the rights of third persons, disregard the legal fiction that two corporations are
distinct entities, and treat them as identical.'
The act of one corporation crediting or debiting the other for certain items, expenses or even
merchandise sold or disposed of, is perfectly compatible with the idea of the domestic entity being or
acting as a mere branch, agency or subsidiary of the parent organization.
In this case, the court gleaned that Koppel Ph is a subsidiary/agency of Koppel Industrial Car
and Equipment Company. First, the majority shareholder of the former is the latter who holds 99.5%
of the capital stock, depicting it has control over Koppel Ph. Second, Koppel Ph charged the parent
corporation no more than actual cost — without profit whatsoever — for merchandise allegedly of its
own to complete deficiencies of shipments made by said parent corporation. Third, Koppel Ph is
charged by Koppel Industrial Car and Equipment Company with the cost of the latter’s cable
quotations. Lastly, the Koppel Industrial Car and Equipment Company was "fully empowered to
instruct (the banks) with regard to the disposition of the drafts and documents". This are all indicative
of Koppel Ph as a subsidiary of Koppel Industrial Car and Equipment Company.
Rationale:
To allow the taxpayer now to deny this tax liability on the ground that the sales were made through
another and distinct corporation, as alleged broker, when we have seen that this latter corporation is
virtually owned by the former, or that they are practically one and the same, is to sanction a
circumvention of our laws, and permit a tax evasion of no mean proportions and the consequent
commission of a grave injustice to the Government. Not only this; it would allow the taxpayer to do by
indirection what the tax laws prohibited to be done directly.
IC16. Tantongco v. Kaisahan ng mga Mangagaga| 1959
Doctrine: The death of an owner and manager of a corporation, against which cases are pending in
the Court of Industrial relations, does not deprive the latter of its jurisdiction over the same. The party
in those cases being the corporation and not the owner or manager personally, the claims of the
laborers therein, which are merely incidental to their demands for reinstatement for having been
unjustly dismissed, and for better working conditions, are not the claims contemplated by law to be
submitted before the administrator of the estate of a deceased person.
Facts: La Campana Starch Factory and La Campana Coffee Factory, two separate entities, have the
same management lead by Ramon Tantongco. This case started when representatives of Kaisahan
ng mga Manggagawa sa La Campana, a labor union with members from La Campana Starch
Company and La Campana Coffee Factory, approached the management of La Campana to demand
higher wages and benefits. The management failed and refused to grant the demands, so the
Department of Labor intervened, however, the department failed to settle the controversy hence it
certified the issue to the Court of Industrial Relations. The company filed a motion to dismiss the case
on the theory that the laborers presenting the demands are the ones working in the coffee factory and
claiming that there were only 14 employees presenting the demands hence the CIR has no
jurisdiction over the case. This was done in light of the requirement that at least 31 employees should
present the demands. The motion to dismiss was denied by the CIR, and according to them the labor
union was the one that presented the demands not just the workers in the coffee factory. The SC
affirmed the order of the CIR citing that although the two entities are separate, there is only one
management, and the entire member of the labor union should be counted and not simply those of
the coffee factory.
Upon the return of the case to the CIR, they proceeded with the hearings and in the
meantime the incidental cases involving the same parties came up and were filed to the CIR. These
incidental cases were heard jointly. Ramon Tantongco later on died. The administrator of the estate
of Ramon Tantongco, who is the petitioner in this case, Ricardo Tantongco, was ordered included as
respondent in the cases pending before the CIR. The CIR rendered a decision to the incidental cases
and ordered the reinstatement of the dismissed employees with payment of backwages. Ricardo
Tantongco failed to comply with the said order and so, he was cited to appear and to adduce
evidence on his behalf to show why he should not be punished for indirect contempt. Petitioner
contends that after he ceased to be the administrator of the estate of Ramon Tantongco, he may not
now be compelled to comply with the order of the court.
Issue: Whether or not La Campana ceased to exist upon the death of Ramon Tantongco hence the
Doctrine of piercing the veil of corporate existence applies in this case.
Ruling: The Court ruled in the negative. The petitioner contends that in the previous case in G.R.
No. L-5677, the Court pierced the veil of corporate existence and held that the La Campana Starch
and Coffee Factory and its owner, Ramon Tantongco, were one; so that with the death of Ramon, the
La Campana entities ceased to exist, resulting in the loss of jurisdiction of the CIR to enforce its order
against said entities. However, the Court explained that the reason they applied the so-called
"piercing the veil of corporate existence" in G. R. No. L-5677 was to avoid the technicality therein
advanced in order to defeat the jurisdiction of the CIR. The Court found there that although there
were ostensibly two separate entities, they were managed by the same person or persons and the
workers in both were used interchangeable so that in order to determine whether or not the CIR had
jurisdiction, the number of workers in both entities, not only in one, was to be considered. In the
present case, the Court ruled that despite the obvious fact that La Campana was run by the same
people, they still are two different companies with separate personalities from Ramon Tantongco. La
Campana was owned not only by Ramon Tantongco but others as well including Ricardo Tantongco.
Lastly, the Court ruled that petitioner is under estoppel and cannot claim that La Campana and
Ramon are one and the same since he has represented La Campana as separate entities in
numerous dealings.
IC17-Robledo vs. NLRC
Doctrine: The doctrine of piercing the veil of corporate entity is used whenever a court finds that the
corporate fiction is being used to defeat public convenience, justify wrong, protect fraud, or defend
crime, or to confuse legitimate issues, or that a corporation is the mere alter ego or business conduit
of a person or where the corporation is so organized and controlled and its affairs are so conducted
as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.
Facts:
Petitioners were former employees of Bacani Security and Protective Agency (“BSPA”) which was a
single proprietorship owned, managed and operated by the late Felipe Bacani.
On December 31, 1989, Felipe Bacani retired the business name and BSPA ceased to operate
effective on that day and on January 15, 1990, Felipe Bacani died.
Earlier, on October 26, 1989, respondent Bacani Security and Allied Services Co., Inc. (“BASEC”)
had been organized and registered as a corporation. The incorporators were: Alicia Bacani, Lydia
Bacani, Amado P. Eleda, Victoria B. Aurigue, and Felipe Bacani. Except for Felipe Bacani who owned
20,000 shares, all of the incorporators owned 25,250 shares each.
The primary purpose of the corporation was to "engage in the business of providing security" to
persons and entities. This was the same line of business that BSPA was engaged in. Most of the
petitioners, after losing their jobs in BSPA, were employed in BASEC.
On July 5, 1990, some of the petitioners filed a complaint with the Department of Labor and
Employment, National Capital Region, for underpayment of wages and nonpayment of overtime pay,
legal holiday pay, separation pay and/or retirement/resignation benefits, and for the return of their
cash bond which they posted with BSPA. Made respondents were BSPA and BASEC.
Labor Arbiter: Decided in favor of the petitioners
NLRC: Set aside the decision of the Labor Arbiter. Dismissed the case for lack of jurisdiction.
According to NLRC, it should have been filed with the RTC.
Issues:
1. Whether or not the piercing of the veil of the corporate entity should be applied to BASEC in
order to hold it liable for BSPA’s obligations.
2. Whether or not BASEC is liable for the BSPA’s or Felipe Bacani’s obligations.
Ruling:
No. The Court decided in favor of the defendants. The doctrine of the piercing of the veil of the
corporate entity was not applicable in this case contrary to what the petitioners alleged.
According to the SC, it was not applicable in this case where the purpose is not to hold the individual
stockholders liable for the obligations of the corporation but, on the contrary, to hold the corporation
liable for the obligations of a stockholder or stockholders. Piercing the veil of corporate entity means
looking through the corporate form to the individual stockholders composing it. Here there is no
reason to pierce the veil of corporate entity because there is no question that petitioners' claims,
assuming them to be valid, are the personal liability of the late Felipe Bacani. It is immaterial that he
was also a stockholder of BASEC.
No. BASEC is not liable for the personal obligations of Felipe Bacani.
According to the SC, it was not applicable in this case where the purpose is not to hold the individual
stockholders liable for the obligations of the corporation but, on the contrary, to hold the corporation
liable for the obligations of a stockholder or stockholders. Piercing the veil of corporate entity means
looking through the corporate form to the individual stockholders composing it. Here there is no
reason to pierce the veil of corporate entity because there is no question that petitioners' claims,
assuming them to be valid, are the personal liability of the late Felipe Bacani. It is immaterial that he
was also a stockholder of BASEC.
There are several reasons why BASEC is not liable for the personal obligations of Felipe Bacani. For
one, BASEC came into existence before BSPA was retired as a business concern. BASEC was
incorporated on October 26, 1989 and its license to operate was released on May 28, 1990, while
BSPA ceased to operate on December 31, 1989. Before, BSPA was retired, BASEC was already
existing. It is, therefore, not true that BASEC is a mere continuity of BSPA.
Second, Felipe Bacani was only one of the five (5) incorporators of BASEC. He owned the least
number of shares in BASEC, which included among its incorporators persons who are not members
of his family. That his wife Lydia and daughter Alicia were also incorporators of the same company is
not sufficient to warrant the conclusion that they hold their shares in his behalf.
Third, there is no evidence to show that the assets of BSPA were transferred to BASEC. If BASEC
was a mere continuation of BSPA, all or at least a substantial part of the latter's assets should have
found their way to BASEC.
 IC18-Gregorio Araneta, Inc. vs. Tuason
Doctrine: The principle invoked by the defendant is resorted to by the courts as a measure or
protection against deceit and not to open the door to deceit. "The courts," it has been said, "will not
ignore the corporate entity in order to further the perpetration of a fraud."
Facts: Paz Tuason de Paterno is the registered owner of the aforesaid land, which was subdivided
into city lots. Most of these lots were occupied by lessees who had contracts of lease which were to
expire on December 31,1952, and carried a stipulation to the effect that in the event the owner and
lessor should decide to sell the property the lessees were to be given priority over other buyers if they
should desire to buy their leaseholds, all things being equal. Smaller lots were occupied by tenants
without formal contract. In 1940 and 1941 Paz Tuason obtained from Jose Vidal several loans
totalling P90,098 and constituted a first mortgage on the aforesaid property to secure the debt.
Further, she obtained additional loans of P30,000 and P20,000 upon the same security. On each of
the last-mentioned occasions the previous contract of mortgage was renewed and the amounts
received were consolidated.
The contract provided that subject to the preferred right of the lessees and that of Jose Vidal as
mortgagee, Paz Tuason would sell to Gregorio Araneta, Inc. and the latter would buy for the said
amount of P400,000 the entire estate under these terms. In furtherance of this promise to buy and
sell, letters were sent the lessees giving them until August 31, 1943, an option to buy the lots they
occupied at the price and terms stated in said letters. Most of the tenants who held contracts of lease
took advantage of the opportunity thus extended and after making the stipulated payments were
giving their deeds of conveyance. These sales, as far as the record would show, have been
respected by the seller. Paz Tuason and Gregorio Araneta, Inc. executed with regard to these lots an
absolute deed of sale, the terms of which, except in two respects, were similar to those of the sale to
the lessees.
The instant action was the offshoot, begun by Gregorio Araneta, Inc. to compel Paz Tuason to
deliver to the plaintiff a clear title to the lots described in Exhibit A free from all liens and
encumbrances, and a deed of cancellation of the mortgage to Vidal. The principal bone of contention
between Gregorio Araneta, Inc., and Paz Tuason was the validity of the deed of sale of Exhibit A on
which the suit was predicated. The lower court's judgment was that this contract was invalid. The
defendant would have the court ignore this distinction and apply to this case the other well-known
principle which is thus stated that the courts, at law and in equity, will disregard the fiction of
corporate entity apart from the members of the corporation when it is attempted to be used as a
means of accomplishing a fraud or an illegal act.
ISSUE: Whether the corporate entity was used to circumvent the law or perpetrate deception.
RULING: It will at once be noted that this principle does not fit in with the facts of the case at bar.
Gregorio Araneta, Inc. had long been organized and engaged in real estate business. The corporate
entity was not used to circumvent the law or perpetrate deception. There is no denying that Gregorio
Araneta, Inc. entered into the contract for itself and for its benefit as a corporation. The contract and
the roles of the parties who participated therein were exactly as they purported to be and were fully
revealed to the seller. There is no pretense, nor is there reason to suppose, that if Paz Tuason had
known Jose Araneta to Gregorio Araneta, Inc's president, which she knew, she would not have gone
ahead with the deal. From her point of view and from the point of view of public interest, it would have
made no difference, except for the brokerage fee, whether Gregorio Araneta, Inc. or Jose Araneta
was the purchaser. Under these circumstances the result of the suggested disregard of a technicality
would be, not to stop the commission of deceit by the purchaser but to pave the way for the evasion
of a legitimate and binding commitment by the seller.
The principle invoked by the defendant is resorted to by the courts as a measure or protection against
deceit and not to open the door to deceit. "The courts," it has been said, "will not ignore the corporate
entity in order to further the perpetration of a fraud."
The corporate theory aside, and granting for the nonce that Jose Araneta and Gregorio Araneta, Inc.
were identical and that the acts of one where the acts of the other, the relation between the defendant
and Jose Araneta did not fall within the purview of article 1459 of the Spanish Civil Code.
IC19-Palacio vs. Fely Transportation Co.
Doctrine: Here it was found that an incorporator‘s main purpose in forming the corporation was to
evade his subsidiary civil liability resulting from the conviction of his driver, the corporation was made
liable for such subsidiary liability by denial of the plea that it had a separate juridical personality and
could not be held liable for the personal liabilities of its stockholder. The Court took into consideration
as part of the attempt to do fraud that the only property of the corporation was the jeep owned by the
main stockholder involved in the accident.
Facts: Defendant Fely Transporation Company hired Alfredo Carillo as driver of one of their jeep
units. One December 24, 1952, Carillo while driving, run over Mario Palacio, minor son of herein
plaintiff Gregorio Palacio. Mario Suffered injuries which hospitalized him for 2 weeks. As Gregorio is a
welder by occupation and owner of a small welding shop, he was forced to abandon his shop where
he derives income to support his family. During Mario’s treatment, he was forced to sell one air
compressor and one heavy duty electric drill to meet their financial needs.
As a result of Carillo’s negligent driving, plaintiff instituted an action against his employer, Fely
Transportation Company for recovery of actual damages, moral damages and attorney’s fee. Fely
Transportation filed a motion to dismiss on the grounds that there is no cause of action against the
company and that the cause of action is barred by prior judgment. But the Court deferred the
determination of the grounds alleged in the motion to dismiss until the trial of the case.
The defendant then alleges that the complaint stated no cause of action against the defendant and
that the sale and transfer of the jeep by Isabelo Calingasan to the Fely Transportation was made long
after the driver Alfredo Carillo of said jeep has been convicted and had served his sentence
Issue: WON Isabelo Calingasan, as president and manager of defendant company may be held
liable for the damages sustained by the plaintiff?
Ruling: YES. Isabelo Calingasan and defendant Fely Transportation may be regarded as one and
the same person. It is evident that Isabelo Calingasan's main purpose in forming the corporation was
to evade his subsidiary civil liability resulting from the conviction of his driver, Alfredo Carillo. This
conclusion is borne out by the fact that the incorporators of the Fely Transportation are Isabelo
Calingasan, his wife, his son, Dr. Calingasan, and his two daughters. We believe that this is one case
where the defendant corporation should not be heard to say that it has a personality separate and
distinct from its members when to allow it to do so would be to sanction the use of the fiction of
corporate entity as a shield to further an end subversive of justice. Furthermore, the failure of the
defendant corporation to prove that it has other property than the jeep (AC-687) strengthens the
conviction that its formation was for the purpose above indicated. And while it is true that Isabelo
Calingasan is not a party in this case, yet, as held in the case of Alonso vs. Villamor, 16 Phil. 315, this
Court can even substitute him in place of the defendant corporation as to the real party in interest.
This is so in order to avoid multiplicity of suits and thereby save the parties unnecessary expenses
and delay.
IC20-Palay, Inc. vs. Clave
DOCTRINE
SEPARATE AND DISTINCT PERSONALITY; PIERCING OF CORPORATE FICTION. — It is basic
that a corporation is invested by law with a personality separate and distinct from those of the
persons composing it as well as from that of any other legal entity to which it may be. As a general
rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of the
legal entities to which it may be connected and vice versa. However, the veil of corporate fiction may
be pierced when it is used as a shield to further an end subversive of justice or for purposes that
could not have been intended by the law that created it or to defeat public convenience, justify wrong,
protect fraud, or defend crime or to perpetuate fraud or confuse legitimate issues or to circumvent the
law or perpetuate deception; or as an alter ego, adjunct or business conduit for the sole benefit of the
stockholders.
FACTS
Palay Inc and its President Onstott executed a Contract to Sell a Parcel of Land in favor of
respondent Dumpit. Par 6 thereof provides for the automatic extrajudicial rescission upon default of
payment of the monthly installments. Dumpit defaulted. 6 years later, he wrote Palay that he was
planning to update all his overdue accounts, but the latter informed him that the contract was
rescinded and that the land was already sold to a third party. Dumpit filed a complaint, questioning
the validity of the rescission. The NHA and the Office of the President ruled that such was void for
lack of judicial or notarial demand. Ordered Palay and Onstott to refund Dumpit P13,722.50 with12%
interest. On appeal to the office of the President: Presidential Executive Assistant affirmed the NHA
Resolution. SC issued a TRO enjoining the enforcement of the resolution. Later on SC dismissed the
petition. However, upon Palay’s motion, the SC reconsidered and gave due course to the petition.
ISSUE:
1. Whether the doctrine of piercing the veil of corporate fiction has application to the case.
2. Whether petitioner On Stott can be held solidarity liable with petitioner Corporation for the refund of
the installment payments made by respondent Dump it.
RULING
The doctrine of piercing the veil of corporate fiction has no application to the case. Consequently,
petitioner Onstott cannot be held solidarity liable with petitioner Corporation for the refund of the
installment payments made by respondent Dumpit.
A corporation is invested by law with a personality separate and distinct from those of the persons
composing it. As a general rule, a corporation may not be made to answer for acts or liabilities of its
stockholders or those of the legal entities to which it may be connected and vice versa.
However, the veil of corporate fiction may be pierced when: it is used as a shield to further an end
subversive of justice; or for purposes that could not have been intended by the law that created it; or
to defeat public convenience, justify wrong, protect fraud, or defend crime; or to perpetrate fraud or
con fuse legitimate issues; or to circumvent the law or perpetuate deception; or as an alter ego,
adjunct or business conduit for the sole benefit of the stockholders. In this case however, there are no
badges of fraud on the part of the petitioners. They had literally relied, although mistakenly, on
paragraph 6 of the contract with respondent when they rescinded the contract to sell extra judicially.
Although On Stott appears to be the controlling stockholder, there being no fraud, he cannot be made
personally liable.
IC21-Pabalan vs. NLRC
Doctrine: Officers of a corporation are not liable for their official acts unless they exceeded their
authority.
Facts:
Eighty-four (84) workers of the Philippine Inter-Fashion, Inc. (PIF) filed a complaint against the latter
for illegal transfer simultaneous with illegal dismissal without justifiable cause and in violation of the
provision of the Labor Code on security of tenure as well as the provisions of Batas Pambansa Blg.
130. Complainants demanded reinstatement with full backwages, living allowance, 13th month pay
and other benefits under existing laws and/or separation pay. PIF, through its General Manager, was
notified about the complaint and summons for the hearing. With leave of the labor arbiter,
complainants filed their supplemental position paper impleading the petitioners of this case as officers
of the PIF in the complaint for their illegal transfer to a new firm.
The labor arbiter ruled in favor of the workers stating that PIF and its officers Mr. Jaime Pabalan and
Mr. Eduardo Lagdameo to jointly and severally reinstate and pay the workers their back wages and
other benefits prayed for. NLRC affirmed the appealed decision. Hence, this petition for review.
Issue:
Whether the petitioners as officers of the corporation PIF be held jointly and severally liable for PIF’s
liability in this case
Ruling:
NO. The settled rule is that the corporation is vested by law with a personality separate and distinct
from the persons composing it, including its officers as well as from that of any other legal entity to
which it may be related. Thus, a company manager acting in good faith within the scope of his
authority in terminating the services of certain employees cannot be held personally liable for
damages. Mere ownership by a single stockholder or by another corporation of all or nearly all capital
stocks of the corporation is not by itself sufficient ground for disregarding the separate corporate
personality.
As a general rule, officers of a corporation are not personally liable for their official acts unless it is
shown that they have exceeded their authority. However, the legal fiction that a corporation has a
personality separate and distinct from stockholders and members may be disregarded where the
incorporators and directors belong to a single family, the corporation and its members can be
considered as one in order to avoid its being used as an instrument to commit injustice or to further
an end subversive of justice.
In this particular case complainants did not allege or show that petitioners, as officers of the
corporation deliberately and maliciously designed to evade the financial obligation of the
corporation to its employees, or used the transfer of the employees as a means to perpetrate
an illegal act or as a vehicle for the evasion of existing obligations, the circumvention of
statutes, or to confuse the legitimate issues. Hence petitioners cannot be held jointly and
severally liable with the PIF corporation under the questioned decision and resolution of the
public respondent.
WHEREFORE, the petition is GRANTED and the questioned resolution of the public
respondent dated June 30, 1989 is hereby modified by relieving petitioners of any liability as
officers of the PIF and holding that the liability shall be solely that of Philippine Inter-Fashion,
Inc.
IC22-Del Rosario vs. NLRC
Facts:
● In POEA Case No. 85-06-0394, a complaint for money claims was filed by a private
respondent against Philsa Construction and Trading Co., Inc. (the recruiter) and Arieb
Enterprises (the foreign employer) for salary differentials and vacation leave benefits.
● The Philippine Overseas Employment Administration (POEA) initially dismissed the complaint
for lack of merit in February 1986.
● The National Labor Relations Commission (NLRC) later reversed the POEA's decision in
April 1987 and ordered both the recruiter and foreign employer to pay the private respondent
the required amounts.
● The case was elevated to the Supreme Court but was dismissed in August 1987.
● A writ of execution was issued by the POEA, but it couldn't be enforced as Philsa was no
longer operating and lacked the financial capacity to satisfy the judgment.
● Private respondent moved for an alias writ of execution against the officers of Philsa,
including the petitioner Francisco V. del Rosario, who was the president and general
manager of the corporation.
● The POEA issued a resolution on February 12, 1988, directing an alias writ of execution
against the petitioner's properties and the cash and/or surety bond of the bonding company
for the full satisfaction of the judgment.
● The petitioner appealed this decision to the NLRC, which, on September 23, 1988, dismissed
the appeal. The petitioner's motion for reconsideration was also denied on October 21, 1988.
● The petitioner filed a petition with the Supreme Court, alleging grave abuse of discretion on
the part of the NLRC.
Issue: The central issue in this case is whether the corporate personality of Philsa Construction
and Trading Co., Inc. should be disregarded, making its officers, including the petitioner,
personally liable for the payment of the judgment awarded to the private respondent. This hinges
on the allegation of fraud or wrongdoing on the part of the corporation.
Ruling: The Supreme Court ruled in favor of the petitioner and found that the NLRC had
committed grave abuse of discretion. The Court held that the NLRC's decision to affirm the
 issuance of an alias writ of execution against the petitioner, based on the theory that the
corporate personality of Philsa should be disregarded due to fraud, was unfounded. The Court
emphasized that to disregard the separate juridical personality of a corporation, the
wrongdoing must be clearly and convincingly established and cannot be presumed.
The Court pointed out several reasons for its ruling:
● There was no clear evidence of fraud on the part of Philsa, as its license had expired before
the judgment was even rendered in favor of the private respondent.
● The creation of Philsa International Placement and Services Corp., a corporation with
substantial identity in its incorporators, did not imply fraud, as it was established several
years before the private respondent filed the complaint.
● The circumstances of this case did not match those in previous cases where the corporate
veil was pierced due to fraud, such as cases where a new corporation was created to replace
an existing one with the intention of evading liabilities.
● The Court also emphasized that judgments against recruiters should initially be enforced
against the cash and surety bonds filed with the POEA, as provided in the POEA Rules and
Regulations. Only when these bonds prove insufficient should execution be sought against
the personal assets of officers.
IC23-Villa Ray Transit vs. Ferrer
Doctrine: When the fiction [of a corporation] is urged as a means of perpetrating a fraud or an illegal
act or as a vehicle for the evasion of an existing obligation, the veil with which the law covers and
isolates the corporation from the members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals.
Facts: Jose Villarama was an operator of a bus transportation pursuant to two certificates of public
convenience granted him by the Public Service Commission (PSC). Later, he sold the certificates to
the Pangasinan Transportation Company, Inc. (Pantranco) with the condition that the seller
(Villarama) "shall not for a period of 10 years, apply for any TPU service identical or competing with
the buyer." Barely three months thereafter, a corporation called Villa Rey Transit, Inc. (the
Corporation) was organized; Natividad Villarama (wife of Jose Villarama) was one of the
incorporators, along with the brother and sister-in-law of Jose Villarama.
In less than a month after its registration with the SEC, the Corporation bought five certificates of
public convenience and 49 buses from one Valentin Fernando. Later, the Sheriff of Manila levied on 2
of the 5 certificates, in favor of Eusebio Ferrer, judgment creditor, against Fernando, judgment debtor.
A public sale was conducted. Ferrer was the highest bidder. Ferrer sold the two certificates to
Pantranco. The Corporation filed a complaint against Ferrer, Pantranco and the PSC for the
annulment of the sheriff's sale. Pantranco, on its part, filed a third-party complaint against Villarama,
alleging that Villarama and/or the Corporation was disqualified from operating the two certificates in
question by virtue of the previous agreement (non-compete for 10 years).
Issue: Whether the stipulation between Villarama and Pantranco binds Villa Rey Transit, Inc
Ruling: YES. The restrictive clause in the contract entered into by the Villarama and Pantranco is
also enforceable and binding against the said Corporation. The rule is that a seller or promisor may
not make use of a corporate entity as a means of evading the obligation of his covenant. The
evidence has disclosed that Villarama, albeit was not an incorporator or stockholder of the
Corporation, his wife, however, was an incorporator and was elected treasurer of the Corporation.
The evidence further shows that the initial cash capitalization of the corporation was mostly financed
by Villarama; he supplied the organization expenses and the assets of the Corporation, such as
trucks and equipment; there was no actual payment by the original subscribers of the amounts of
P95,000.00 and P100,000.00 as appearing in the books; Villarama made use of the money of the
Corporation and deposited them to his private accounts; and the Corporation paid his personal
accounts. The foregoing circumstances are strong persuasive evidence showing that Villarama has
been too much involved in the affairs of the Corporation to altogether negate the claim that he was
only a part-time general manager. They show beyond doubt that the Corporation is his alter ego.
The doctrine that a corporation is a legal entity distinct and separate from the members and
stockholders who compose it is recognized and respected in all cases which are within reason and
the law. When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle
for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection
of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers
and isolates the corporation from the members or stockholders who compose it will be lifted to allow
for its consideration merely as an aggregation of individuals.
IC24-Arnold vs. Willits and Patterson, Ltd.,
Doctrine:
Facts:
Issue:
Ruling:
IC25-La Campana Coffee vs. Kaisahan
Doctrine:
Facts:
Issue:

Ruling:

IC26-Yutivo Sons Hardware vs. CTA

Doctrine:

Facts:

Issue:

Ruling:

IC27-Liddell & Co. vs. Collector

Doctrine:

Facts:

Issue:

Ruling:

IC28-Ramirez Telephone vs. Bank of America

Doctrine:

Facts:

Issue:

Ruling: