TOPIC CORPORATE NAME that is unappropriated: still less that of another

corporation, which is expressly set apart for it and protected

RED LINE TRANSPORT VS. RURAL TRANSIT (60 by the law. If any corporation could assume at pleasure
PHIL 549) as an unregistered trade name the name of another
FACTS corporation, this practice would result in confusion and
open the door to frauds and evasions and difficulties of
Rural Transit filed with the Public Service Commission an administration and supervision. The policy of the law
application for a certificate of public convenience for a expressed in our corporation statute and the Code of
new transportation service between Tuguegarao and Commerce is clearly against such a practice.
Ilagan.
TOPIC CORPORATE NAME

Red Line Transportation Company, filed an opposition to UNIVERSAL MILLS VS. UNIVERSAL TEXTILE
the said application alleging in substance that as to the MILLS (78 SCRA 62)
service between Tuguegarao and Ilagan, the oppositor
already holds a certificate of public convenience and is FACTS
rendering adequate and satisfactory service; that the granting Universal Textile Mills was registered with the SEC in
of the application of the Rural Transit Company, Ltd., January 1954. Universal Mills acquired juridical personality
would not serve public convenience but would constitute a in October 1964.
ruinous competition for the oppositor over said route
Universal Textile Mills alleged that because of the similarity
This was approved by the commission. of their corporate names, the news item carrying reports
about a fire which gutted Universal Mills’ properties created
uncertainty and confusion among Universal Textile Mills’
The certificate of public convenience applied for by Rural stockholders and customers.
Transit was issued by the Public Service Commission in the
name of Bachrach Motors. It appears that Rural Transit is Universal Mills maintained that their corporate names are
being used by Bachrach Motors as its trade name. not similar and even if there be some similarity, it is not
confusing or deceptive; and that the word “textile” in
At the trial of this case before the Public Service plaintiff’s name is dominant and prominent enough to
distinguish the two.
Commission an issue was raised as to who was the real party
in interest making the application, whether the Rural Transit
The SEC ordered the Universal Mills Corp. to change its
Company, Ltd., as appeared on the face of the application,
corporate name on the ground that it is “confusingly and
or the Bachrach Motor Company, Inc., using name of the
deceptively similar” to that of plaintiff
Rural Transit Company, Ltd., as a trade name.

ISSUES
ISSUES
Whether the corporate names are identical
Whether Rural Transit Company, Ltd. is the real party in
interest in this case? HELD

The corporate names are not identical but they are

HED indisputably similar even under the test of reasonable care
and observation. We cannot perceive why of all names, it
No. in the face of the evidence that the said corporation was had to choose a name already being used by another firm
not the real party in interest. engaged in practically the same business for more than a
decade and enjoying well-earned patronage and goodwill,
There is no law that empowers the Public Service when there are so many other appropriate names it could
Commission (or any court) to authorize one corporation possibly adopt without arousing any suspicion as to its
to assume the name of another corporation as a trade motive, and more importantly, any degree of confusion in
name. Both Rural Transit and Bachrach Motors are the mind of the public which could mislead even its own
Philippine corporations and the very law of their creation customers, existing or prospective.
and continued existence requires each to adopt and certify a
distinctive name.
TOPIC CORPORATE NAME

The name of a corporation is therefore essential to its LYCEUM OF THE PHILIPPINES VS. CA (219 SCRA
existence. It cannot change its name except in the manner 610)
provided by the statute. By that name alone is it authorized FACTS
to transact business. The law gives a corporation no
express or implied authority to assume another name

1
Petitioner Lyceum of the Phils. is an educational corporation Respondent Standard Philips Corporation (Standard
registered with the SEC since 1950. Philips), on the other hand, was issued a Certificate of
Registration by respondent Commission on 19 May 1982.
It instituted proceedings before the SEC to compel private
respondents Western Pangasinan Lyceum, Lyceum of Petitioners filed a letter complaint with the Securities &
Cabagan, et al. to delete the word “Lyceum” from their Exchange Commission (SEC) asking for the cancellation of
corporate names. the word “PHILIPS” from Private Respondent’s corporate
name.
The SEC en banc ruled that the attaching of geographical
names to the word “Lyceum” served sufficiently to As a result of Private Respondent’s refusal to amend its
distinguish the schools from one another. CA affirmed the Articles of Incorporation, Petitioners filed with the SEC.
decision of the SEC en banc. Alleging, among others, that Private Respondent’s use of the
word PHILIPS amounts to an infringement and clear
ISSUES violation of Petitioners’ exclusive right to use the same
considering that both parties engage in the same business.
Whether private respondents should be directed to delete the
word “Lyceum” from their corporate names Private Respondent countered that Petitioner PEBV has no
legal capacity to sue; that its use of its corporate name is not
HELD at all similar to Petitioners’ trademark PHILIPS when
considered in its entirety; and that its products consisting of
No. We do not consider that the corporate names of private chain rollers, belts, bearings and cutting saw are grossly
respondents are “identical with, or deceptively similar” to different from Petitioners’ electrical products.
that of petitioner. True enough, confusion and deception are
effectively precluded by appending geographical locations
to the word “Lyceum.” ISSUES

The “doctrine of secondary meaning” provides that a word Whether or not Standard Philips can be enjoined from using
or phrase originally incapable of exclusive appropriation Philips in its corporate name
might nevertheless have been used so long and so
exclusively by one producer with reference to his article
that, in that trade and to that branch of the purchasing HELD
public, the word or phrase has become to mean that the
article was his product. Such doctrine finds no application in A corporation’s right to use its corporate and trade name is a
the case at bar. No evidence was presented that the word property right, a right in rem, which it may assert and
“Lyceum” has indeed acquired secondary meaning in favor protect against the whole world. According to Sec. 18 of the
of petitioner. If there was any, the same only proves that Corporation Code, no corporate name may be allowed if the
petitioner used the disputed word for a long time. proposed name is identical or deceptively confusingly
Nevertheless, its exclusive use of the word was never similar to that of any existing corporation or to any other
established. name already protected by law or is patently deceptive,
confusing or contrary to existing law.

For the prohibition to apply, 2 requisites must be present:

(1) the complainant corporation must have acquired a prior

right over the use of such corporate name and

(2) the proposed name is either identical or deceptively or

confusingly similar to that of any existing corporation or to
TOPIC CORPORATE NAME any other name already protected by law or patently
PHILIPPS EXPORT B.V. VS. CA (206 SCRA 457) deceptive, confusing or contrary to existing law.

FACTS With regard to the 1st requisite, PEBV adopted the name
“Philips” part of its name 26 years before Standard Philips.
Petitioner Philips Export B.V. (PEBV), aforeign corporation As regards the 2nd, the test for the existence of confusing
organized under the laws of the Netherlands, although not similarity is whether the similarity is such as to mislead a
engaged in business here, is the registered owner of the person using ordinary care and discrimination. Standard
trademarks PHILIPS and PHILIPS SHIELD EMBLEM . Philips only contains one word, “Standard”, different from
that of PEBV. The 2 companies’ products are also the same,
or cover the same line of products. Although PEBV

2
primarily deals with electrical products, it has also shipped corporate name to the exclusion of the others. The CA
to its subsidiaries machines and parts which fall under the affirmed such ruling, stating that by simply
classification of “chains, rollers, belts, bearings and cutting looking at the corporate names of ICCPI and FICCPI, one
saw”, the goods which Standard Philips also produce. Also, may readily notice the striking similarity
among Standard Philips’ primary purposes are to buy, sell between the two. An ordinary person using ordinary care
trade x x x electrical wiring devices, electrical component, and discrimination may be led to believe
that the corporate names of ICCPI and FICCPI refer to one
electrical supplies. Given these, there is nothing to prevent
and the same corporation
Standard Philips from dealing in the same line of business of
electrical devices. The use of “Philips” by Standard Philips
tends to show its intention to ride on the popularity and ISSUES
established goodwill of PEBV.
Whether there is similarity between the petitioner’s and the
respondent’s corporate names that
would inevitably lead to confusion
TOPIC CORPORATE NAME
HELD
INDIAN CHAMBER OF COMMERCE PHILS., INC.
VS FILIPINO INDIAN CHAMBER OF COMMERCE Yes. The CA affirmed the decision of the SEC En Banc
IN THE PHILIPPINES, INC. (GR NO. 184008, 3 because by simply looking at the corporate names of ICCPI
AUGUST 2016) and FICCPI, one may readily notice the striking similarity
between the two. Thus, an ordinary person using ordinary
FACTS care and discrimination may be led to confusion that the two
names refer to as one corporation.
Filipino-Indian Chamber of Commerce of the Philippines, Section 18 of the Corporation Code expressly prohibits the
Inc. (defunct FICCPI) was originally use of a corporate name which is identical or deceptively or
registered with the Securities and Exchange Commission confusingly similar to that of any existing corporation:
(SEC) as Indian Chamber of Commerce of No corporate name may be allowed by the Securities and
Manila, Inc. On November 24, 2001, FICCPI’s corporate
Exchange Commission if the proposed name is identical or
existence expired for it didn’t apply for the
deceptively or confusingly similar to that of any existing
extension of its term.
corporation or to any other name already protected by law or
On January 20, 2005, Mr. Naresh Mansukhani is patently deceptive, confusing or contrary to existing law.
(Mansukhani) reserved the corporate name "Filipino When a change in the corporate name is approved, the
Indian Chamber of Commerce in the Philippines, Inc" Commission shall issue an amended certificate of
(FICCPI) for the period from January 20, 2005 incorporation under the amended name.
to April 20, 2005, with the Company Registration and
Monitoring Department (CRMD) of the SEC. TOPIC PURPOSE CLAUSE

GALA VS ELLICE AGRO-INDUSTRIAL

Ram Sitaldas (Sitaldas), who claimed to be the
CORPORATION (GR NO. 156819, 11 DECEMBER
representative of the defunct FICCPI, opposed to this
and argued that such unauthorized reservation was illegal. 2003)
According to the CRMD, the expiration of the defunct FACTS
FICCPI’s corporate existence signified the end
of its right over the said name and thus, the same may be Ellice Agro-Industrial Corporation was formed by spouses
appropriated by another. Both the SEC and Manuel and Alicia Gala, their children Guia Domingo,
CA ruled in favor of Mansukhani. Ofelia Gala, Raul Gala, and Rita Benson, and their
A year after the reservation of the name, FICCPI was issued encargados Virgilio Galeon and Julian Jader. The spouses
a Certificate of Incorporation. In 2005, transferred several parcels of land as payment of their
Mr. Pracash Dayacanl, who represented the defunct FICCPI, subscriptions. Subsequently, Guia Domingo, Ofelia Gala,
applied for the reservation of the Raul Gala, Virgilio Galeon and Julian Jader incorporated the
corporate name "Indian Chamber of Commerce Phils., Inc." Margo Management and Development Corporation. Manuel
(ICCPI) with the CRMD. Mansukhani filed Galathen transferred his shares in Ellice to Margo and Raul
an opposition to this, which the CRMD denied. It stated that Gala. Alicia transferred her shares to de Villa,
the name "Indian Chamber of Commerce Ofelia, Raul and Margo. de Villa later on transferred his
Phils., Inc." was not deceptively or confusingly similar to shares to Margo.
"Filipino Indian Chamber of Commerce in
the Philippines, Inc." On the same date, the CRMD A special stockholders meeting of Margo was held where
approved and issued a Certificate of Incorporation Raul Gala was elected as chairman. During the meeting, the
to ICCPI. board approved several actions, including the
Upon appeal, the SEC En Banc ruled otherwise. The commencement of proceedings to annul certain dispositions
committee found the existence of a similarity of Margos’ property made by Alicia Gala. The board also
between the names that could lead to confusion. It also ruled resolved to change the name of the corporation to MRG
that FICCPI enjoys prior right to use its Management and Development Corporation. Similarly, a
special stockholders meeting of Ellice was held to elect a
3
new board of directors where Raul Gala, likewise, was the jurisdiction over which is initially lodged with an
elected as chairman. administrative body of special competence.31 Since primary
jurisdiction over any violation of Section 13 of Republic Act
Respondents filed against petitioners with the SEC a petition No. 3844 that may have been committed is vested in the
for the appointment of a management committee or receiver, Department of Agrarian Reform Adjudication Board
accounting and restitution by the directors and officers, and (DARAB),32 then it is with said administrative agency that
the dissolution of Ellice Agro-Industrial Corporation for
the petitioners must first plead their case. With regard to
alleged mismanagement, diversion of funds, financial losses
their claim that Ellice and Margo were meant to be used as
and the dissipation of assets. Whereas, petitioners initiated a
complaint against the respondents praying for, among mere tools for the avoidance of estate taxes, suffice it say
others, the nullification of the elections of directors and that the legal right of a taxpayer to reduce the amount of
officers of both Margo Management and Development what otherwise could be his taxes or altogether avoid them,
Corporation and Ellice Industrial Corporation and the return by means which the law permits, cannot be doubted
of all titles to real property in the name of Margo and Ellice,
as well
as all corporate papers and records of both Margo and Ellice
which are in the possession and control of the respondents.

ISSUE

Whether the purposes for which Ellice and Margo were

organized should be declared as illegal and contrary to TOPIC PRINCIPAL OFFICE ADDRESS
public policy.
CLAVECILLA RADIO SYSTEMS VS. ANTILLON (19
SCRA 379)

HELD FACTS

In essence, petitioners want this Court to disregard the The New Cagayan Grocery filed a complaint against
separate juridical personalities of Ellice and Margo for the Clavecilla Radio System after the latter omitted a word (the
purpose of treating all property purportedly owned by said word "NOT" between the words "WASHED" and
corporations as property solely owned by the Gala spouses. "AVAILABLE") when it transmitted a message to the
branch office of the former. The omission of the word
No, At the outset, the Court holds that petitioners’ changed entirely the context of the message causing the
contentions impugning the legality of the purposes for addressee to suffer damages. A complaint for damages was
which Ellice and Margo were organized, amount to filed by New Cagayan before the City Court of Cagayan de
collateral attacks which are prohibited in this jurisdiction. Oro. Clavecilla Radio System filed a motion to dismiss on
the ground of improper venue.
The best proof of the purpose of a corporation is its articles
of incorporation and by-laws. The articles of incorporation
must state the primary and secondary purposes of the Hence, the Clavecilla Radio System filed a petition for
corporation, while the by-laws outline the administrative prohibition with preliminary injunction with the Court of
organization of the corporation, which, in turn, is supposed First Instance praying that the City Judge, Honorable
to insure or facilitate the accomplishment of said purpose. 29 Agustin Antillon, be enjoined from further proceeding with
the case on the ground of improper venue. The respondents
filed a motion to dismiss the petition but this was opposed
In the case at bar, a perusal of the Articles of Incorporation by the petitioner. Later, the motion was submitted for
of Ellice and Margo shows no sign of the allegedly illegal resolution on the pleadings.
purposes that petitioners are complaining of. It is well to
note that, if a corporation’s purpose, as stated in the Articles
of Incorporation, is lawful, then the SEC has no authority to In dismissing the case, the lower court held that the
inquire whether the corporation has purposes other than Clavecilla Radio System may be sued either in Manila
those stated, and mandamus will lie to compel it to issue the where it has its principal office or in Cagayan de Oro City
certificate of incorporation. 30 where it may be served, as in fact it was served, with
summons through the Manager of its branch office in said
city. In other words, the court upheld the authority of the
Assuming there was even a grain of truth to the petitioners’ city court to take cognizance of the case.
claims regarding the legality of what are alleged to be the
corporations’ true purposes, we are still precluded from
In appealing, the Clavecilla Radio System contends that the
granting them relief. We cannot address here their concerns
suit against it should be filed in Manila where it holds its
regarding circumvention of land reform laws, for the
principal office.
doctrine of primary jurisdiction precludes a court from
arrogating unto itself the authority to resolve a controversy

4
 the Board of Directors of Aramaywan had its first Board
ISSUES Meeting. In the said meeting, the Salido faction claimed that
San Juan delivered only P932,209.16 in cash during the
Whether the case should be dismissed for improper venue incorporation process of the corporation.
HELD The Salido faction claimed that the rest of the P2,500,000.00
remained undelivered as it remained under San Juan's name.
Settled is the principle in corporation law that the
Thus, the Salido faction claimed that San Juan was in breach
residence of a corporation is the place where its principal
of his undertaking to advance the payment of Aramaywan's
office is established. Since it is not disputed that the
capital stock
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.

Yes. The Rules of Court provides that when the action is not ISSUES
upon a written contract, the same must be filed in the
municipality where the defendant or any of the defendant The Petition asserts that, as held by the RTC, San Juan's
resides or may be served with summons. shares were validly reduced and in tum converted into
treasury shares.
In corporation law, the residence of a corporation is the
place where its principal office is located. HELD

Here, Clavecilla Radio System has its principal office in No, Batas Pambansa Blg. 68, or the Corporation Code, the
Manila. Thus, the suit should have been filed in Manila. The law applicable at the time the events in this case occurred,
fact that Clavecilla maintains branch offices in some parts of clearly sets out the parameters when a corporation may
the country does not mean that it can be sued in any of these reacquire its shares and convert them into treasury shares.
places. To allow an action to be instituted in any place According to Section 9 of the Corporation Code, "[t]reasury
where a corporate entity has its branch office would create shares are shares of stock which have been issued and fully
confusion and work untold inconveniences to the paid for, but subsequently reacquired by the issuing
corporation. corporation by purchase, redemption, donation or through
some other lawful means."23 Apart from reacquiring the
shares through some lawful means, the Corporation Code is
also explicit that while a corporation has the power to
TOPIC CAPITALIZATION purchase or acquire its own shares, the corporation must
have unrestricted retained earnings in its books to cover the
SALIDO VS. ARAMAYWAN METALS shares to be purchased or acquired. 24 In addition, in cases
DEVELOPMENT CORPORATION, ET. AL., where the reason for reacquiring the shares is because of the
unpaid subscription, the Corporation Code is likewise
(GR NO. 233857, 18 MARCH 2021)
explicit that the corporation must purchase the same during
FACTS a delinquency sale.25

This case is an intra-corporate dispute involving two All the foregoing requirements were not met in the reduction
different factions within Aramaywan, a corporation duly of San Juan's shares.
organized under the laws of the Philippines.
At the outset, the records are bereft of any showing that
Sometime in April 2005, Cerlito San Juan (San Juan),
Aramaywan had unrestricted retained earnings in its books
Ernesto Mangune (Mangune), and Agapito Salido, Jr. at the time the reduction of shares was made. During that
(Salido), along with four other individuals (collectively, time, Aramaywan had just been existing for a few months,
Salido faction), agreed to form two mining corporations, and had not in fact been able to perform mining activities
namely Aramaywan and Narra Mining Corporation (Narra yet. It is thus both highly doubtful and unsupported by the
Mining) record that Aramaywan had unrestricted retained earnings to
be able to purchase its own shares.
They entered into an Agreement to Incorporate
(Agreement), wherein it was stipulated that San Juan would
In this case, there was no showing that, at the time the
advance the paid-up subscription for Aramaywan amounting reduction of San Juan's shares was made, Aramaywan had
to P2,500,000.00 and would assure the payment of the unrestricted retained earnings in its books. Neither was it
subscription of the capital stock of Narra Mining.4 In shown that it did not have creditors or that they were already
exchange, San Juan would own 55% of the stocks of paid before the agreement to release San Juan was made.
Aramaywan and 35% of the stocks of Narra Mining.
Moreover, it must be emphasized that San Juan's
In line with the said Agreement, San Juan then advanced the
subscriptions have already been fully paid by him, and as
P2,500,000.00 paid-up subscription of Aramaywan. 7 This is
such, Aramaywan cannot validly reduce his shares without
evidenced by a Standard Chartered Bank Certificate giving a corresponding return of his investment. As earlier
5
stated, San Juan contributed P2,500,000.00 evidenced by a barred by the Statute of Limitations; the obligation set forth
Standard Chartered Bank certificate in San Juan's name in the complaint had been paid, waived, abandoned or
which indicates that he holds that money in trust for otherwise extinguished; and that there was novation,
Aramaywan. compensation, confusion or remission of debt which
extinguished the obligation.

the [RTC] is convinced that [petitioners] may be held liable

TOPIC CAPITALIZATION up to the extent of their unpaid subscription for the payment
of [CAIR's] outstanding obligation to [SBMA]
ENANO-BOTE, ET.AL. VS ALVAREZ (G.R. NO.
223572, 10 NOVEMBER 2022)
ISSUES
FACTS
Whether the CA committed an error of law in applying the
Plaintiff-appellee Subic Bay Metropolitan Authority (SBMA
trust fund doctrine to make petitioners personally and
for brevity) entered into a Lease Agreement with
solidarily liable with CAIR for the unpaid rentals claimed by
defendant/third-party plaintiff Centennial Air, Inc.
SBMA against CAIR because of their supposedly unpaid
Under the pertinent provisions of the lease, the parties subscriptions in CAIR's capital stock.
agreed that the monthly rental for the use and occupation of
the subject property
HELD
In addition to the payment of rental, [CAIR] was also
required to remit a monthly amount for the use of the The trust fund doctrine, first enunciated in the American
facilities in relation to its operations. Concomitantly, in case case of Wood v. Dummer, was adopted in our jurisdiction in
of default in the fulfillment of these obligations, an Philippine Trust Co. v. Rivera, where this Court declared
additional rent charged against [CAIR] equivalent to twenty- that:
four percent (24%) of any overdue amount was imposed.
It is established doctrine that subscriptions to the capital of a
For the duration of the lease, [CAIR] became delinquent and
corporation constitute a fund to which creditors have a right
was constantly remiss in the payment of its obligations.
to look for satisfaction of their claims and that the assignee
Demand to pay has been made and in attempt to settle the
in insolvency can maintain an action upon any unpaid stock
account there is proposed payment scheme for its overdue
subscription in order to realize assets for the payment of its
debts.
debts. (Velasco vs. Poizat, 37 Phil., 802) ..
Due to the continuous refusal of [CAIR] to settle its debts,
[SBMA] was compelled to file a Complaint against the
We clarify that the trust fund doctrine is not limited to
former and its stockholders asking for the payment of its
reaching the stockholder's unpaid subscriptions. The scope
outstanding obligation.
of the doctrine when the corporation is insolvent
On September 3, 2004, [Enano-Bote, et al.] filed their encompasses not only the capital stock, but also other
Answer denying any liability to [SBMA]. [They] argued that property and assets generally regarded in equity as a trust
they were no longer stockholders of the corporation at the fund for the payment of corporate debts. All assets and
time the Lease Agreement was executed between [CAIR] property belonging to the corporation held in trust for the
and [SBMA] benefit of creditors that were distributed or in the possession
of the stockholders, regardless of full payment of their
Allegedly, on December 1, 1998, they entered into a Deed subscriptions, may be reached by the creditor in satisfaction
of Assignment of Subscription Rights ([DASR)] for brevity) of its claim.
with third-party defendant-appellee Jose Ch. Alvarez
(Alvarez for brevity), whereby they assigned, transferred, Also, under the trust fund doctrine, a corporation has no
and conveyed their aggregate subscription of [400,000] legal capacity to release an original subscriber to its capital
shares, representing [100%] of the outstanding capital stock stock from the obligation of paying for his shares, in whole
of [CAIR] in favor of Alvarez. In effect, only [Jennifer] and or in part, without a valuable consideration, or fraudulently,
[Virgilio] remained as nominal stockholders of the to the prejudice of creditors. The creditor is allowed to
corporation while the rest of them were totally divested of maintain an action upon any unpaid subscriptions and
their corporate shares. Since they ceased to be stockholders thereby steps into the shoes of the corporation for the
of the corporation, they were no longer parties to the Lease satisfaction of its debt. To make out a prima facie case in
Agreement, thus they cannot be held liable for any breach a suit against stockholders of an insolvent corporation to
thereof. compel them to contribute to the payment of its debts by
making good unpaid balances upon their subscriptions,
On September 27, 2004, [Lozada] filed his Answer with
it is only necessary to establish that the stockholders
Counterclaim alleging that: [SBMA] has no cause of action
have not in good faith paid the par value of the stocks of
against [Enano-Bote, et al.] because its cause of action was
the corporation.
6
 paid in full by the latter, the trust agreement was terminated,
and the shares held in trust were delivered to the company.
Regarding petitioners' assignment of their subscription
rights to Alvarez through the DASR, the CA stated that for The Bureau of Internal Revenue concluded that the
this to become a viable defense, it was incumbent upon distribution of the 24,700 shares of Reese as stock dividends
petitioners to show that a valid transfer/assignment of was in effect a distribution of the "assets or property of the
shares, binding against third persons, took place under corporation."
Section 63 of the Corporation Code, which
provides:clubjuris It therefore assessed respondents for deficiency income
taxes as well as for fraud penalty and interest charges. The
SECTION 63. Certificate of stock and Transfer of Shares. - Court of Tax Appeals absolved respondent from any
The capital stock of stock corporation shall be divided into liability for receiving the questioned stock dividends on the
shares for which certificates signed by the president or vice- ground that their respective one-third interest in the
president, countersigned by the secretary or assistant Company remained the same before and after the
secretary, and sealed with the seal of the corporation shall be declaration of the stock dividends and only the number of
issued in accordance with the by-laws. Shares of stock so
shares held by each of them had changed.
issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the ISSUES
owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall Whether the 24,700 shares are treasury shares
be valid, except as between the parties, until the transfer is
recorded in the books of the corporation so as to show the HELD
names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the NO. Treasury shares are stocks issued and fully paid for and
number of shares transferred. reacquired by the corporation either by purchase, donation,
forfeiture or other means. Treasury shares are therefore
No shares of stock against which the corporation holds any issued shares but being in the treasury they do not have the
unpaid claim shall be transferable in the books of the status of outstanding shares.
corporation Consequently, a share as long as it is held by the corporation
as a treasury share, participates neither in dividends because
dividends cannot be declared by the corporation to itself, nor
TOPIC TREASURY SHARES in meetings of the corporation as voting stock, for otherwise
equal distribution of voting powers among stockholders will
COMMISSIONER VS. MANNING (66 SCRA 14) be effective lost and the directors will be able to perpetuate
FACTS their control of the corporation, though it still represents a
paid for interest in the property of the corporation. In this
This is a petition for review of the decision of the Court of case and under the terms of the trust agreement, the shares
Tax Appeals, in CTA case 1626, which set aside the income of stock of Reese participated in dividends which the
tax assessments issued by the Commissioner of Internal trustees received and the said shares were voted upon by the
Revenue against John L. Manning, W.D. McDonald and trustees in all corporate meetings. They were not, therefore,
E.E. Simmons (hereinafter referred to as the respondents), treasury shares.
for alleged undeclared stock dividends received in 1958
from the Manila Trading and Supply Co. (hereinafter
referred to as the MANTRASCO) valued at P7,973,660. TOPIC CAPITAL REQUIREMENTS
Under a trust agreement, Julius Reese who owned 24,700 HEIRS OF GAMBOA VS. TEVES (GR NO. 176579,
shares of the 25,000 common shares of MANTRASCO, and OCTOBER 9, 2012)
the three private respondents who owned the rest, at 100
shares each, deposited all their shares with the Trustees. FACTS

The trust agreement provided that upon Reese’s death On 28 February 2007, petitioner filed the instant petition for
MANTRASCO shall purchase Reese’s shares. The trust prohibition, injunction, declaratory relief, and declaration of
agreement was executed in view of Reese’s desire that upon nullity of sale of the 111,415 PTIC shares. Petitioner claims,
his death the Company would continue under the among others, that the sale
of the 111,415 PTIC shares would result in an increase in
management of respondents.
First Pacific's common shareholdings in PLDT from 30.7
Upon Reese’s death and partial payment by the company of percent to 37 percent, and this, combined with Japanese
Reeses’s share, a new certificate was issued in the name of NTT DoCoMo's common shareholdings in PLDT, would
MANTRASCO, and the certificate indorsed to the Trustees. result to a total foreign common shareholdings in PLDT of
51.56 percent which is over the 40 percent constitutional
Subsequently, the stockholders reverted the 24,700 shares in
limit.
the Treasury to the capital account of the company as stock
dividends to be distributed to the stockholders. When the
entire purchase price of Reese’s interest in the company was
7
Petitioner asserts: If and when the sale is completed, First Geo-Sciences Bureau (MGB), Region IV-B, Office of the
Pacific's equity in PLDT will go up from 30.7 percent to DENR. Subsequently, SMMI was issued an MPSA. The
37.0 percent of its common – or voting- stockholdings, x x MPSA and EP were then transferred to Madridejos
x. Hence, the consummation of the sale will put the two Mining Corporation (MMC) and, on November 6, 2006,
largest foreign investors in PLDT - First Pacific and Japan's assigned to petitioner McArthur.
NTT DoCoMo, which is the world's largest wireless
telecommunications firm, owning 51.56 percent of PLDT Petitioner Narra acquired its MPSA from Alpha Resources
common equity. x x x With the completion of the sale, data and Development Corporation and Patricia Louise Mining &
culled from the official website of the New York Stock Development Corporation (PLMDC) which previously filed
Exchange (www.nyse.com) showed that those foreign an application for an MPSA with the MGB, Region IV-B,
entities, which own at least five percent of common equity, DENR on January 6, 1992. Subsequently, PLMDC
will collectively own 81.47 percent of PLDT's common conveyed, transferred and/or assigned its rights and interests
equity over the MPSA application in favor of Narra.

ISSUES On January 2, 2007, Redmont filed before the Panel of

Arbitrators (POA) of the DENR three (3) separate petitions
Whether the sale of common shares to foreigners in excess for the denial of petitioners’ applications for MPSA. In the
of 40 percent of the entire subscribed common capital stock petitions, Redmont alleged that at least 60% of the capital
violates the constitutional limit on foreign ownership of a stock of McArthur, Tesoro and Narra
public utility. are owned and controlled by MBMI Resources, Inc.
(MBMI), a 100% Canadian corporation. Redmont reasoned
HELD that since MBMI is a considerable stockholder of
petitioners, it was the driving force behind petitioners’ filing
YES. The term "capital" in Section 11, Article XII of the of the MPSAs over the areas covered by applications since it
Constitution refers only to shares of stock that can vote in knows that it can only participate in mining activities
the election of directors. Mere legal title is insufficient to through corporations which are deemed Filipino citizens.
meet the 60 percent Filipino-owned "capital" required in the
Constitution. Full beneficial ownership of 60 Redmont argued that given that petitioners’ capital stocks
percent of the outstanding capital stock, coupled with 60 were mostly owned by MBMI, they were likewise
percent of the voting rights, is required. The legal and disqualified from engaging in mining activities through
beneficial ownership of 60 percent of the outstanding capital MPSAs, which are reserved only for Filipino citizens.
stock must rest in the hands of Filipino nationals
in accordance with the constitutional mandate. Otherwise, ISSUES
the corporation is "considered as non-Philippine
national[s]." Whether or not the petitioner corporations are Filipino and
can validly be issued MPSA and  EP.
Filipinos hold less than 60 percent of the voting stock, and
earn less than 60 percent of the dividends, of PLDT. This HELD
directly contravenes the express command in Section 11,
Article XII of the Constitution that "[n]o franchise, No. The SEC Rules provide for the manner of calculating
certificate, or any other form of authorization for the the Filipino interest in a corporation for purposes, among
operation of a public utility shall be granted except to x x x others, of determining compliance with nationality
corporations x x x organized under requirements (the ‘Investee Corporation’). Such manner of
the laws of the Philippines, at least sixty per centum of computation is necessary since the shares in the Investee
whose capital is owned by such citizens. Corporation may be owned both by individual stockholders
(‘Investing Individuals’) and by corporations and
partnerships (‘Investing Corporation’). The said rules thus
TOPIC CAPITAL REQUIREMENTS provide for the determination of nationality depending on
the ownership of the Investee Corporation and, in certain
NARRA MINING VS. REDMONT MINING (21 APRIL
instances, the Investing Corporation.
2014; 28 JANUARY 2015)  
Sometime in December 2006, respondent Redmont Under the SEC Rules, there are two cases in determining the
Consolidated Mines Corp. (Redmont), a domestic nationality of the Investee Corporation. The first case is the
corporation organized and existing under Philippine laws, ‘liberal rule’, later coined by the SEC as the Control Test in
took interest in mining and exploring certain areas of the its 30 May 1990 Opinion, and pertains to the portion in said
province of Palawan. After inquiring with the DENR, it Paragraph 7 of the 1967 SEC Rules which states, ‘(s)hares
learned that the areas where it wanted to undertake belonging to corporations or partnerships at least 60% of the
exploration and mining activities where already covered by capital of which is owned by Filipino citizens shall be
Mineral Production Sharing Agreement (MPSA) considered as of Philippine nationality.’ Under the liberal
applications of petitioners Narra, Tesoro and McArthur. Control Test, there is no need to further trace the ownership
of the 60% (or more) Filipino stockholdings of the Investing
Petitioner McArthur, through its predecessor-in-interest Sara Corporation since a corporation which is at least 60%
Marie Mining, Inc. (SMMI), filed an application for an Filipino-owned is considered as Filipino.
MPSA and Exploration Permit (EP) with the Mines and  

8
The second case is the Strict Rule or the Grandfather Rule was not Inc. when it entered the contract of sale. Not
Proper and pertains to the portion in said Paragraph 7 of the being in legal existence then, it did not process during
1967 SEC Rules which states, “but if the percentage of juridical personality to enter into the contract.
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 TOPIC COMMENCEMENT OF CORPORATE
combined totals in the Investing Corporation and the EXISTENCE
Investee Corporation must be traced (i.e., “grandfathered”)
MISSIONARY SISTERS OF OUR LADY OF FATIMA
to determine the total percentage of Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares VS ALZONA ET. AL. (GR NO. 224307, 6 AUGUST
must first be traced to the level of the Investing Corporation 2018)
and added to the shares directly owned in the Investee
FACTS
Corporation.
  The Missionary Sisters of Our Lady of Fatima, known as the
In other words, based on the said SEC Rule and DOJ Peach Sisters of Laguna, is a religious and
Opinion, the Grandfather Rule or the second part of the SEC charitable group established under the patronage of the
Rule applies only when the 60-40 Filipino-foreign equity Roman Catholic Bishop of San. Its primary
ownership is in doubt (i.e., in cases where the joint venture mission is to take care of the abandoned and neglected
corporation with Filipino and foreign stockholders with less elderly persons. The petitioner came into
than 60% Filipino stockholdings [or 59%] invests in other being as a corporation by virtue of a Certificate issued by
joint venture corporation which is either 60-40% Filipino- the SEC on August 31, 2001. Mother
alien or the 59% less Filipino). Stated differently, where the Concepcion is the petitioner's Superior General. The
60-40 Filipino- foreign equity ownership is not in doubt, the respondents, on the other hand, are the legal
Grandfather Rule will not apply.. heirs of the late Purificacion Y. Alzona.

Purificacion, is the registered owner of parcels of land

located in Calamba City, Laguna. In 1996,
TOPIC COMMENCEMENT OF CORPORATE Purificacion, impelled by her unmaterialized desire to be
EXISTENCE nun, decided to devote the rest of her life in
helping others. In the same year, she then became a
CAGAYAN FISHING VS. SANDIKO (65 PHIL 233) benefactor of the petitioner by giving support to
the community and its works. In 1997, during a doctor's
FACTS appointment, Purificacion then accompanied
by Mother Concepcion, discovered that she has been
Manuel is a registered owner of 4 parcels of land in suffering from lung cancer. Considering the
Aparri, Cagayan. restrictions in her movement, Purificacion requested Mother
Concepcion to take care of her in her
On May 31, 1930 he entered into a deed of sale of the
house, to which the latter agreed.
said parcels with Cagayan Fishing Dev’t Co. who was
at that time in the process of incorporation, subject to In October 1999, Purificacion called Mother Concepcion
the mortgage in favor of PNB and Severina Banzon and handed her a handwritten letter dated
and on the condition that the title to said lands shall not October 1999. Therein, Purificacion stated that she is
be transferred to the name of plaintiff company until donating her house and lot at Calamba, Laguna,
the latter shall have fully and completely paid Tabora’s to the petitioner through Mother Concepcion. Purificacion,
indebtedness to PNB. instructed her nephew to give a share of
the harvest to Mother Concepcion, and informed her niece
Cagayan finally was issued COI by Bureau of that she had given her house to Mother
Commerce and Industry on Oct. 22, 1930. A year after, Concepcion.
it sold the 4 parcels to Teodoro Sandiko.
Sometime in August 2001, at the request of Purificacion,
Issue: Is subsequent sale to sandiko valid? Mother Concepcion went to see Atty. Arcillas
in Los Baños, Laguna. During their meeting, Atty. Arcillas
Held: No.
asked Mother Concepcion whether their
The sale made was effected when the company was group is registered with the SEC, to which the latter replied
not yet incorporated. Unquestionably, a duly organized in the negative. Acting on the advice given
corporation has the power to purchase and hold such by Atty. Arcillas, Mother Concepcion went to SEC and filed
the corresponding registration application
property and may enter into contract. But before it can
on August 28, 2001
be lawfully organized it has to file AOI.

Although there is a presumption that all the On August 29, 2001, Purificacion executed a Deed of
requirements of the law have been complied with in Donation Inter Vivos in favor of the petitioner,
conveying to her the properties. The Deed was notarized by
the case before us it cannot be denied that the plaintiff
Atty. Arcillas and witnessed by
9
Purificacion's nephews Francisco and Diosdado Alzona, and third persons.The doctrine of corporation by estoppel
grandnephew, Atty. Fernando M. Alonzo. applies for as long as there is no fraud The doctrine of
The donation was accepted on even date by Mother corporation by estoppel rests on the idea that if the Court
Concepcion for and in behalf of the petitioner. were to disregard the existence of an entity which entered
Thereafter, Mother Concepcion filed an application before into a transaction with a third party, unjust enrichment
the BIR that the petitioner be exempted would result as some form of benefit have already accrued
from donor's tax as a religious organization. The application
on the part of one of the parties. Thus, in that instance, the
was granted by the BIR. Subsequently,
Court affords upon the unorganized entity corporate fiction
the Deed, together with the owner's duplicate copies, and the
exemption letter from the BIR was and juridical personality for the sole purpose of upholding
presented for registration. The Register of Deeds, however, the contract or transaction.
denied the registration on account of the
Affidavit of Adverse Claim dated September 26, 2001 filed
by the brother of Purificacion, respondent In this case, while the underlying contract which is sought to
Amando. be enforced is that of a donation, and thus rooted on
liberality, it cannot be said that Purificacion, as the donor
On October 30, 2001, Purificacion died without any issue,
failed to acquire any benefit therefrom so as to prevent the
and survived only by her brother of full
application of the doctrine of corporation by estoppel. To
blood, Amando, who nonetheless died during the pendency
of this case and is now represented and recall, the subject properties were given by Purificacion, as a
substituted by his legal heirs, joined as herein respondents. token of appreciation for the services rendered to her during
On April 9, 2002, Amando filed a Complaint before the her illness.[46] In fine, the subject deed partakes of the
RTC, seeking to annul the Deed executed nature of a remuneratory or compensatory donation, having
between Purificacion and the petitioner, on the ground that been made “for the purpose of rewarding the donee for past
at the time the donation was made, the services, which services do not amount to a demandable
latter was not registered with the SEC and therefore has no debt.”
juridical personality and cannot legally
accept the donation.
RTC dismissed the petition. CA modified, declaring the
donation void. TOPIC DE FACTO CORPORATIONS

MUNICIPALITY OF MALABANG VS. BENITO

ISSUES
Was the donation valid given that the time the donation was
made, the Missionary was not yet registered with the SEC?
Facts:
HELD
Petitioner Amer Macario is the Mayor of Malabang Lanao
del Sur while the respondents Benito is the mayor and
Yes, the donation was valid and has complied with all the councilors of Balabagan, Lanao del Sur (created by EO 386
requisites of a valid donation. by Pres. Carlos P Garcia)

The petitioners brought this action for prohibition to nullify

EO 386 (Creation of Municipality of Balabagan) and
In spite of the fact that the Missionary was not yet registered
restrain respondents from performing their functions.
with the SEC when the properties were donated, the
donation would still be valid because Purificacion, applying His move was based in the SC decision on Pelaez where the
the doctrine of corporation by estoppel, was aware that the court said that the president cannot validly create a local
Missionary was not yet incorporated and registered with the government unit as its power is limited to mere supervision.
SEC. Purificacion dealt with the petitioner as if it were a
corporation. This is evident from the fact that Purificacion Respondents on the other hand state that their Municipality
executed two (2) documents conveying her properties in of Balabagan is atleast a de facto corporation having been
favor of the petitioner – first, on October 11, 1999 via organized under color of statute before it was declared
handwritten letter, and second, on August 29, 2001 through unconstitutional which cannot be collaterally or directly
a Deed; the latter having been executed the day after the attacked by a private person but only by the state in a quo
petitioner filed its application for registration with the SEC. warranto proceeding- as they were existing 5 years prior to
She is estopped to deny the Missionary’s legal existence in the institution of action.
any action involving the transfer of her property by way of ISSUE: W/N Municipality of Balabagan is a de facto
donation. She has assumed an obligation in favor of a non- corporation?
existent corporation, having transacted with the latter as if it
was duly incorporated. The doctrine of corporation by - Can a statute lend color of validity to an attempted
estoppel is founded on principles of equity and is designed organization of a municipality despite the fact that
to prevent injustice and unfairness. It applies when a non- such statute is subsequently declared
existent corporation enters into contracts or dealings with unconstitutional?

10
 corporation dissolution may be ordered only in a quo
warranto proceedings instituted in accordance with Section
RULING: No. 19 of the Corporation Law.

In cases where a de facto miscible corporation was

recognized as such despite the fact that the statute creating it
was later in validated, the decision could fairly be made to Likewise, since, Fred Brown and Emma Brown have signed
rest on the consideration that there was some other valid law the AOI they are estopped from claiming that it is not a
giving corporate vitality to the corporation. corporation but only a partnership.

Hence, in the case at bar the mere fact that Balabagan was ISSUE: W/N FELC is a De Facto corporation whose
organized at the time when the statute had not been existence can be attacked only through a quo warranto
invalidated cannot conceivably make it a de facto proceeding
corporation, as independently of the administrative code
provision in question there is no other valid statute to give HELD: Sec. 19 on de facto does not apply.
color of authority to its creation. There are at least TWO REASONS why this section does
If there is some other valid law giving corporate vitality to not govern the situation:
the organization. 1. Not having the certificate of incorporation FELC
and its stockholders may not probably claim in
In the case at bar, there is no other valid law to give color of good faith to be a corporation.
authority to the creation of the Mun. of Balabagan. a. It is the issuance of certificate of
incorporation which calls the corporation
An unconstitutional act, such as E.O. 386 is not a law, it into being. Unless there has been an
confers no rights; it imposes no duties; it affords no evident attempt to comply with the law the
protection; it creates no office; it is in legal contemplation, claim to be a corporation under this act
as inoperative as though it had never been passed. could not be made in good faith
b. Good faith claim is compatible with
Accordingly, the petition is granted. E.O, is declared void, existence of errors and irregularities but
and the respondents are permanently restrained from not with a total or substantial disregard of
performing their duties and functions of their respective the law.
offices.

2. Not a suit where the corporation is a party

a. This is a litigation between a stockholder
TOPIC DE FACTO CORPORATIONS of the alleged corporation for the purpose
HALL VS. PICCIO (86 PHIL 603) of obtaining it’s the solution even the
existence of a de jure corporation may be
Facts: terminated in a private suit for its
dissolution between stockholders, without
intervention of the state.
On May 1947, petitioner Hall along with respondents signed
and acknowledged AOI of Far East Lumber and This petition may not prosper because the petitioners have
Commercial Co. (FELC), immediately after such execution the remedy by appealing the order of dissolution at the
they proceeded to do business with adoption of by-laws and proper time.
election of officers. In December 1947, AOI was filed with
SEC.
The second issue may be dismissed. All the parties are
informed that the SEC has not so far issued the
In March 1948, while the AOI was pending a civil case was corresponding COI all of them know or ought to know that
filed by Fred Brown et.al, vs. Arnold Hall et.al., alleging the personality of the corporation begins to exist only from
FELC was unregistered partnership and they wish to have it the moment such articles is issued.
dissolved because of bitter dissension, mismanagement,
feud, and heavy financial losses. - As nobody was led to believe anything to his
prejudice and damage, the principle of estoppel
does not apply.

CFI: Granted dissolution

The defendants appeal the CFI decision on the ground that it

has no jurisdiction over the case because being a de facto TOPIC CORPORATION BY ESTOPPEL
11
LOZANO VS. DELOS SANTOS (274 SCRA 452)
ISSUES
FACTS
Whether the writ of execution may be effected upon
Petitioner Reynaldo Lozano and respondent Antontio Anda Aruego.
agreed to consolidate their respective Jeepney Associations,
to which they are presidents. They conducted an election for
one set of officers of the HELD
consolidated association, where petitioner was the winner.
Respondent, however, refused to abide by the agreement YES. On account of non-registration, University cannot be
which prompted petitioner to institute an action for damages considered a corporation, not even a corporation de facto. It
in the trial court which was denied for being. intra- has therefore,
corporate, and was held to be within the jurisdiction of the no personality separates from Aruego it cannot be sued
SEC. independently.
The Court ruled that the doctrine of corporation by estoppel
ISSUES was not
applicable. Although the rule is that a person acting or
Whether there is corporation by estoppel placing the case purporting to act
within SEC jurisdiction, on behalf of a corporation which has no valid existence
assumes such
HELD privileges and obligations and becomes personally liable for
contracts
No, The unified association was still a proposal and had not entered into or for other acts performed as such agent, in this
been approved by the SEC, neither had its officers and case, Aruego
members submitted their AOI. Their respective associations was not named as a defendant. Since he was not named, he
are distinct and separate entities, petitioner and private could not be
respondent does not have an intracorporate served and be made liable for the claim because to do so
relation much less do they have an intra-corporate dispute. would violate
his right to due process. He was not given the chance to
The SEC has no jurisdiction over the complaint. defend himself
The doctrine of corporation by estoppel advance by private and be heard during trial.
respondent cannot override jurisdictional requirements. Aruego represented a non-existent entity and induced not
Jurisdiction is fixed by law and is not subject to the only the plaintiff
agreement of the parties. Corporation by estoppel is founded but even the court of belief of such representation. He
on principle of equity and is designated to prevent injustice signed the contract
and unfairness. It applies when persons assume to form a as “President” of University and obviously misled plaintiff
corporation and exercise corporate functions and enter into in to believing
business relations with third persons. Where there is no third that University is a “corporation duly organized and existing
person involved and the conflict arises only among those under the laws
assuming to form a corporation, who therefore know that it of the Philippines”. One who has induced another to act
has not been registered, there is no corporation by estoppel. upon his willful
misrepresentation that a corporation was duly organized and
existing
TOPIC CORPORATION BY ESTOPPEL
under the law, cannot, thereafter, set up against his victim
ALBERT VS. UNIVERSITY PUBLISHING (13 SCRA the principle of
84) corporation by estoppel.
The order was reversed and set aside and was remanded
FACTS lower court to
hold supplementary proceedings for the purpose of carrying
Jose Aruego, president of defendant University Publishing the judgment
Co, Inc. entered into a contract with plaintiff for the into effect against University Publishing Co., Inc. and/or
publishing of the latter’s revised commentaries on the Jose M. Aruego.
Revised Penal Code, which the defendant failed to pay the
second instalment due. The CFI of Manila rendered
judgment in favor of plaintiff, such judgment reduced by the
Supreme Court to P15,000.
A writ of execution was issued against the company,
TOPIC CORPORATION BY ESTOPPEL
however the
petitioner petitioned for a writ of execution against Jose M. SALVATTIERRA VS. GARLITOS (103 PHIL 757)
Aruego, as the real defendant stating, plaintiff's counsel and
the Sheriff of Manila discovered that there is no such entity FACTS
as University Publishing Co., Inc.
and no such entity is registered with the SEC. Manuela T. Vda. de Salvatierra appeared to be the owner of
a

12
parcel of land located at Maghobas, Poblacion, Burauen, pointing to his personal liability and thus prayed that an
Leyte, He order be issued
limiting such liability to Defendant Corporation.
entered into a contract of lease with the Philippine Fibers
Producers Co.,
Inc. on March 7, 1954. The company was represented by ISSUES
Mr. Segundino
Q. Refuerzo as the President. It was provided in said Whether Refuerzo can be made personally liable.
contract that the lease
would be for 10 years, the land would be planted to kenaf,
ramie or other HELD
crops and the lessor would be entitled to 30 per cent of the YES. While as a general rule, a person who has contracted
net income or dealt
accruing from the harvest of any crop without being with an association in such a way as to recognize its
responsible for the existence as a
cost of production thereof; After every harvest, the lessee corporate body is estopped from denying the same in an
was bound to action arising out
declare at the earliest possible time the income derived of such transaction or dealing, yet this doctrine may not be
therefrom and to held applicable
deliver the corresponding share due the lessor. where fraud takes part in the said transaction. In the instant
Apparently, the agreement was not complied because case, on
defendants refused plaintiff’s charge that she was unaware of the fact that the
to render an accounting of the income derived therefrom and company had
to deliver no juridical personality, defendant Refuerzo gave no
the lessor's share; that the estimated gross income was confirmation or denial
P4,500, and the and the circumstances surrounding the execution of the
deductible expenses amounted to P1,000, Alanuela T. Vda, contract led to the
de Salvatierra inescapable conclusion that plaintiff Salvatierra was really
filed with the Court of First Instance of Leyte a complaint made to believe
against the that such corporation was duly organized in accordance with
Philippine Fibers Producers Co., Inc. and Segundino Q. law.
Refuerzo for The rule on the separate personality of a corporation is
accounting, rescission and damages (Civil Case No. 1912). understood to refer
The defendants merely to registered corporations and cannot be made
failed to file their answer to the complaint. On June 8, 1955, applicable to the
the lower liability of members of an unincorporated association. The
Court rendered judgment granting plaintiff's prayer, and reason behind
required this doctrine is obvious – since an organization which before
defendants to render a complete accounting of the harvest of the law is nonexistent
the land has no personality and would be incompetent to act on its
subject of the proceeding within 15 days from receipt of the behalf;
decision and thus, those who act or purport to act as its representatives or
to deliver 30 per cent of the net income realized from the agent do so
last harvest to without authority and at their own risk. And, as is it
plaintiff, with legal interest from the date defendants elementary principle of
received payment for law that a person who acts as an agent without authority or
said crop without
No appeal therefrom having been perfected within the principal is himself regarded as the principal, a person
reglementary acting or purporting
period, the Court, upon motion of plaintiff, issued a writ of to act on behalf of a corporation which has no valid
execution. The existence assumes
Provincial Sheriff of Leyte caused the attachment of 3 such privileges and obligations and becomes personally
parcels of land liable for
registered in the name of Segundino Refuerzo. No property contracts entered into or for other acts performed as such
of the agents.
Philippine Fibers Producers Co., Inc., was found available In acting on behalf of a corporation which he knew to be
for attachment. unregistered, the
On January 31, 1956, defendant Segundino Refuerzo filed a president of the unregistered corporation Refuerzo, assumed
motion the risk of
claiming that the decision rendered in said Civil Case No. reaping the con the consequential damages of resultant right,
1912 was null if any,
and void with respect to him, there being no allegation in the arising out of such transaction.
complaint

13
TOPIC CORPORATION BY ESTOPPEL ISSUE: WON parties herein are corporations with juridical
personality
CHIANG KAI SHIEK VS. CA (172 SCRA 389)
HELD: YES.
FACTS
Defendant having recognize the corporate existence of the
FACTS: plaintiff by making a promissory note in its favor and
Faustina Oh teacher of CKS school filed a case against the making partial payments on the same is therefore estopped
school for illegal dismissal asking for separation pay, from denying said plaintiff’s corporate existence. It is of
security benefits, salary differentials etc. course, also estopped, from denying its own corporate
The school then filed a Motion to dismiss on the ground that existence. Under the circumstances it was unnecessary for
it could not be sued (as it was not yet incorporated and the the plaintiff to present other evidence of the corporate
rules provide that suits can only lie against natural and existence of the either of the parties.
juridical persons)

CFI: Dismissed the complaint TOPIC CORPORATION BY ESTOPPEL

CA: Reversed the same rendering the school suable. INTERNATIONAL EXPRESS TRAVEL VS. CA (343
Filed review on certiorari SCRA 674)

ISSUE: FACTS: International express travel and Tours wrote a letter

to the Philippine football Association of her in it services as
1. WON a school for reason of long existence and travel agency which the latter accepted.
recognition by government alone can be sued
2. WON a complaint filed against persons associated Services were then rendered in favor of the Federation and
under a common name will justify a judgment payments were made in partiality twice from the Federation
against the association itself and not its individual and once from personal account of Henry Khan -the
members. president.
SC:
After having demanded and failed to collect they filed a
On the first: IT can be sued. civil case before the RTC impleading Henry in his personal
capacity and as president, with the federation as an
Having been recognized by the government it was under
altearnative defendant.
obligation to incorporate under the corporation law. The
petitioner cannot now in book its own non-compliance with Henri filed answer with counterclaim stating that he was not
the law to immunize it from the private respondents personally liable and denying the obligation.
complain. There should also be no question that having
contracted with the private responded every year for 32 RTC: In favor of travel and tours and made Henrui
years and thus represented itself as having juridical personally lible.
personality to do so, the petitioner is now estopped from
denying such personality to defeat her claim against it.
CA: reversed and dismissed personal case againt Henri.
Second: as the school itself can be sued there is no need to
join the members of BOT. ISSUE: Existence of Federation as juridical person.

HELD:
TOPIC CORPORATION BY ESTOPPEL Although we agree that national sports Associations may be
accorded corporate status, such does not automatically take
ASIA BANKING CORP. VS. STANDARD PRODUCTS
place by the mere passage of these laws.
(46 PHIL 144)
This basic postulate that before a corporation may acquire
FACTS:
juridical personality the state must give its consent either in
This action was brought to recover the sum of 24,k+ due on the form of a special law or general enabling act. We cannot
the promissory note by Standard Products Co. Inc. agree that the Philippine football Federation came into
existence upon passage of these laws; RA 3135 AND PD
CFI: Rendered in favor of plaintiff for demanded sum with 604 these MERELY RECOGNIZE existence of national
interest. sports Associations.
At trial, plaintiff failed to prove affirmatively the corporate We rule that Philippine football federation is not a national
existence of the parties and appellant insists that under these sports association because it was not recognized by the
circumstances court erred in finding that parties were accrediting organization as Henry failed to prove such
corporations with juridical personalities.

14
recognition in merely attaching a copy of the constitution be limited to only against the corporate
and bylaws of the federation. assets.

Henry should be held liable for the unpaid obligations of the

unincorporated Federation. The better view seems to be that only those who actively
participated in holding out the association as a corporation
The doctrine of corporation by Estoppel is mistakenly should be held personally liable Viber two of them express
applied by the respondent court to the petitioner. The provision of section 20- all persons who assume to act as a
doctrine applies to a third-party only when he tries to escape corporation knowing it to be without authority to do so shall
liability on the contract from which he has benefited on the be liable as general partners.
irrelevant ground of defective incorporation. Here, the
petitioner is not trying to escape liability from the contract TOPIC CORPORATION BY ESTOPPEL
but rather is the one claiming from the contract.
PIONEER INSURANCE AND SURETY
TOPIC CORPORATION BY ESTOPPEL CORPORATION VS CA (GR NO 84197, 298 JULY
1989)
GREORG GROTJAHN VS. ISNANI (235 SCRA 216)
FACTS
Petitioner is a multinational company organized under
Germany. It filed an application with the SEC for the In 1965, Jacob S. Lim was engaged in the airline business as
establishment of regional or area headquarters in PH, which owner-operator of Southern Air Lines
was granted. (BOI and SEC) (SAL) a single proprietorship.
Then, Japan Domestic Airlines (JDA) and Lim in Tokyo,
Respondent Romana was sales rep of petitioner. She secured Japan entered into and executed a sales
a loan and cash advanced from the same. However, a contract for the sale and purchase of 2 aircrafts and 1 set of
portion thereore remained unpaid. necessary spare parts for the total agreed
price of US $109,000.00 to be paid in installments. The 2
Petitioner filed for collection of sum of money; which aircrafts arrived in Manila. Pioneer
respondent moved to dismiss on the ground that the SEC Insurance and Surety Corporation as surety executed and
registration was from RAHQ does not include license to do issued its surety bond in favor of JDA, in
business in the Philippines, which was granted. behalf of its principal, Lim, for the balance price of the
aircrafts and spare parts.
SC: WON petitioner has capacity to sue. It appears that Border Machinery and Heavy Equipment
Company, Inc. (Bormaheco), Francisco and
HELD: from the uninterrupted performance of acts were so Modesto Cervantes (Cervanteses) and Constancio Maglana
want to its primary purpose it is clear that the petitioner is contributed some funds used in the
doing business in the country. Moreover, private respondent purchase of the above aircrafts and spare parts. The funds
is estopped from a sailing the personality of petitioner. were supposed to be their contributions
to a new corporation proposed by Lim to expand his airline
business. They executed 2 separate
indemnity agreements in favor of Pioneer, one signed by
A foreign corporation doing business in the Philippines may
Maglana and the other jointly signed by Lim
sue in Philippine courts although not authorized to do for SAL, Bormaheco and the Cervanteses. The indemnity
business here against Philippine citizen who had contracted agreements stipulated that the indemnitors
with and had been benefited by the said corporation. principally agree and bind themselves jointly and severally
in favor of Pioneer.
Thereafter, Lim doing business under the name and style of
Three remedies of a corporation by estoppel when it SAL executed in favor of Pioneer as deed
contracts business with third parties: of chattel mortgage as security for the latter's suretyship in
favor of the former. It was stipulated
therein that Lim transfer and convey to the surety the two
aircrafts. Lim defaulted on his subsequent
1. We file a suit against the ostensible corporation to installment payments prompting JDA to request payments
recover from the corporate properties from the surety. Pioneer paid a total sum
2. He may file the case directly against the associates of P298,626.12.
personally who held out the association as
association as a corporation Pioneer filed a petition for the extrajudicial foreclosure of
3. Against both the ostensible corporation and persons the chattel mortgage before the Sheriff of
forming it jointly and severally. Davao City. The Cervanteses and Maglana, however, filed a
a. The last two remedies may not however third party claim alleging that they are coowners
be availed of if the third-party by his of the aircrafts, Then, Pioneer filed an action for judicial
conduct is estopped from denying the foreclosure with an application for a
existence of the association as a writ of preliminary attachment against Lim and respondents,
corporation and as such recovery should the Cervanteses, Bormaheco and
Maglana.
15
In their Answers, Maglana, Bormaheco and the Cervanteses to be liable as such in an action for settlement of the alleged
filed cross-claims against Lim alleging partnership and contribution (Ward v. Brigham, 127 Mass.
that they were not privies to the contracts signed by Lim 24). A partnership relation between certain stockholders and
and, by way of counterclaim, sought for other stockholders, who were also directors, will not be
damages for being exposed to litigation and for recovery of implied in the absence of an agreement, so as to make the
the sums of money they advanced to Lim former liable to contribute for payment of debts illegally
for the purchase of the aircrafts in question.
contracted by the latter (Heald v. Owen, 44 N.W. 210, 79
After trial on the merits, a decision was rendered holding
Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics
Lim liable to pay Pioneer but dismissed
Pioneer's complaint against all other defendants. supplied).
The appellate court modified the trial court's decision in that Applying therefore the principles of law earlier cited to the
the plaintiffs complaint against all the facts of the case, necessarily, no de facto
defendants was dismissed. In all other respects the trial partnership was created among the parties which would
court's decision was affirmed. Hence the entitle the petitioner to a reimbursement of
petition which was consolidated by the Court. the supposed losses of the proposed corporation. The record
shows that the petitioner was acting on
his own and not in behalf of his other would-be
ISSUES
incorporators in transacting the sale of the airplanes
Whether a de facto Corporation exists. and spare parts.

HELD

While it has been held that as between themselves the rights

TOPIC CORPORATION BY ESTOPPEL
of the stockholders in a defectively incorporated association
should be governed by the supposed charter and the laws of LIM TONG VS PHILIPPINE FISHING GEAR
the state relating thereto and not by the rules governing INDUSTRIES (GR NO. 136448, 3 NOVEMBER 1999)
partners (Cannon v. Brush Electric Co., 54 A. 121, 96 Md.
446, 94 Am. S.R. 584), it is ordinarily held that persons who FACTS
attempt, but fail, to form a corporation and who carry on Lim Tong Lim requested Peter Yao to engage in commercial
business under the corporate name occupy the position of fishing with him and one Antonio Chua.
partners inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. The three agreed to purchase two fishing boats but since
615, Ann. Cas. 1913A 1065). Thus, where persons associate they do not have the money they borrowed
themselves together under articles to purchase property to from one Jesus Lim (brother of Lim Tong Lim). Antonio
carry on a business, and their organization is so defective as Chua and Peter Yao, on behalf of "Ocean Quest
to come short of creating a corporation within the statute, Fishing Corporation," entered into a Contract with
they become in legal effect partners inter se, and their rights Philippine Fishing Gear Industries, Inc. for the
as members of the company to the property acquired by the purchase of fishing nets of various sizes. Chua and Yao
company will be recognized (Smith v. Schoodoc Pond claimed that they were engaged in a business
Packing Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29 venture with Lim Tong Lim, who was not a signatory to the
contract.
Mich. 369). So, where certain persons associated themselves
The buyers failed to pay for items; and the private
as a corporation for the development of land for irrigation
respondent filed a collection suit against them,
purposes, and each conveyed land to the corporation, and including Lim Tong Lim, with a prayer for a writ of
two of them contracted to pay a third the difference in the preliminary attachment. The suit was filed against
proportionate value of the land conveyed by him, and no them in their capacities as general partners, on the allegation
stock was ever issued in the corporation, it was treated as a that Ocean Quest Fishing Corporation
trustee for the associates in an action between them for an was a nonexistent. The lower court issued a Writ of
accounting, and its capital stock was treated as partnership Preliminary Attachment, by attaching the fishing
assets, sold, and the proceeds distributed among them in nets on board F/B Lourdes which was then docked at the
proportion to the value of the property contributed by each Fisheries Port, Navotas, Metro Manila. Chua,
(Shorb v. Beaudry, 56 Cal. 446). However, such a relation instead of answering the Complaint, filed a Manifestation
does not necessarily exist, for ordinarily persons cannot be admitting his liability and requesting a
made to assume the relation of partners, as between reasonable time to pay and turned over to some of the nets
in his possession. Yao filed an Answer.
themselves, when their purpose is that no partnership shall
Lim Tong Lim, filed an Answer with Counterclaim and
exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442,
Crossclaim and moved for the lifting of the
116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied Writ of Attachment. The trial court maintained the Writ and
only when necessary to do justice between the parties; thus, ordered the sale of the fishing nets.
one who takes no part except to subscribe for stock in a Philippine Fishing Gear Industries won the bidding and
proposed corporation which is never legally formed does deposited with the said court the sales
not become a partner with other subscribers who engage in proceeds of P900,000.
business under the name of the pretended corporation, so as
16
On November 18, 1992, the trial court rules that Philippine estopped from denying its corporate existence. "The reason
Fishing was entitled to the Writ of behind this doctrine is obvious — an
Attachment and that Chua, Yao and Lim, as general unincorporated association has no personality and would be
partners, were jointly liable to pay respondent. incompetent to act and appropriate for
The trial court ruled that a partnership among Lim, Chua itself the power and attributes of a corporation as provided
and Yao existed based: (1) on the by law; it cannot create agents or confer
testimonies of the witnesses presented; (2) on a Compromise authority on another to act in its behalf; thus, those who act
Agreement executed by the three in or purport to act as its representatives
Civil Case No. 1492-MN which Chua and Yao had brought or agents do so without authority and at their own risk. And
against Lim in the RTC of Malabon, Branch as it is an elementary principle of law
72; and 3) That the parties plaintiffs & Lim Tong Lim agree that a person who acts as an agent without authority or
to have the four (4) vessels sold in the without a principal is himself regarded as the
amount of P5,750,000.00 including the fishing net. This principal, possessed of all the right and subject to all the
P5,750,000.00 shall be applied as full liabilities of a principal, a person acting or
payment for P3,250,000.00 in favor of JL Holdings purporting to act on behalf of a corporation which has no
Corporation and/or Lim Tong Lim. valid existence assumes such privileges and
The trial court noted that the Compromise Agreement was obligations and becomes personally liable for contracts
silent as to the nature of theirobligations, entered into or for other acts performed as
but that joint liability could be presumed from the equal such agent."
distribution of the profit and loss. The doctrine of corporation by estoppel may apply to the
Lim appealed to the Court of Appeals (CA) which, as alleged corporation and to a third party. In
already stated, affirmed the RTC. The ruling of the first instance, an unincorporated association, which
the Court of Appeals, in affirming the trial court, the CA represented itself to be a corporation, will be
held that a partnerhip existed among may be estopped from denying its corporate capacity in a suit
held liable as a such for the fishing nets and floats purchased against it by a third person who relied in good
by and for the use of the partnership. faith on such representation. It cannot allege lack of
The appellate court ruled: The evidence establishes that the personality to be sued to evade its responsibility
defendants including Lim Tong Lim for a contract it entered into and by virtue of which it
undertook a partnership for commercial fishing x x x. received advantages and benefits.
Obviously, the ultimate undertaking of the
defendants was to divide the profits among themselves
which is what a partnership essentially is x x
x. By a contract of partnership, two or more persons bind
themselves to contribute money, property TOPIC CORPORATION BY ESTOPPEL
or industry to a common fund with the intention of dividing
the profits among themselves. MACASAET VS. FRANCISCO (GR NO. 156759, 5
JUNE 2013)
ISSUES FACTS
Whether petitioner should be held liable along with Chua Respondent sued pertitioners, including Abante Tonite,
and Yao. claiming damages because of an allegedly
libelous article petitioner published said tabloid. RTC issued
summons to be served on each
HELD petitioners, including Abante Tonite, at their business
address. RTC Sheriff Medina proceeded to the
Yes, Section 21 of the Corporation Code of the Philippines address to effect the personal service of the summons. But
provides: his efforts to personally serve each were
futile because the petitioners were out of the office and
"SECTION 21. Corporation by estoppel. — All persons who
unavailable. He returned in the afternoon on
assume to act as a corporation
the same day to make a second attempt at serving the
knowing it to be without authority to do so shall be liable as
summons, but he was informed that petitioners
general partners for all debts,
were still out of the office. He decided to resort to
liabilities and damages incurred or arising as a result
thereof: Provided however, That when substituted service of the summons.
any such ostensible corporation is sued on any transaction Petitioners moved for dismissal of the complaint alleging
entered by it as a corporation or lack of jurisdiction over their persons
on any tort committed by it as such, it shall not be allowed because of the invalid and ineffectual substituted service of
to use as a defense its lack of summons asserting that sheriff made no
corporate personality. prior attempt to serve the summons personally, and that
"One who assumes an obligation to an ostensible Abante Tonite, being neither a natural nor
corporation as such, cannot resist performance a juridical person, could not be made a party in the action.
thereof on the ground that there was in fact no corporation." RTC denied the motion to dismiss.
Thus, even if the ostensible corporate entity is proven to be
legally nonexistent, a party may be
17
Considering that summonses cannot be served within a
reasonable time to the persons of all the
defendants, hence substituted service of summonses was
validly applied. More importantly, "Abante
Tonite" is a daily tabloid of general circulation. The
information written on the said newspaper will
affect the person, natural as well as juridical, who was stated
or implicated in the news. All of these
facts imply that "Abante Tonite" falls within the provision
of the New Civil Code on juridical persons.
Assuming arguendo that "Abante Tonite" is not registered
with the SEC, it is deemed a corporation
by estoppel considering that it possesses attributes of a
juridical person, otherwise it cannot be held
liable for damages and injuries it may inflict to other
persons. CA affirmed RTC’s decision.

ISSUES

Whether Abante Tonite can be considered as a corporation

by estoppel.

HELD

Yes, Nor can we sustain petitioners’ contention that Abante

Tonite could not be sued as a defendant due
to its not being either a natural or a juridical person. In
rejecting their contention, the CA categorized
Abante Tonite as a corporation by estoppel as the result of
its having represented itself to the reading
public as a corporation despite its not being incorporated.
Thereby, the CA concluded that the RTC
did not gravely abuse its discretion in holding that the non-
incorporation of Abante Tonite with the
Securities and Exchange Commission was of no
consequence, for, otherwise, whoever of the public
who would suffer any damage from the publication of
articles in the pages of its tabloids would be
left without recourse. We cannot disagree with the CA,
considering that the editorial box of the daily
tabloid disclosed that basis, nothing in the box indicated that
Monica Publishing Corporation had
owned Abante Tonite.

18