SUBSCRIPTION CONTRACTS College to express its agreement to Damasa's offer in order
to bind the latter.
G.R. No. L-5003 June 27, 1953
NAZARIO TRILLANA, administrator-appellee, vs.QUEZON COLLEGE,
INC., claimant-appellant.
DamasaCrisostomo subscribed 200 shares of capital stock with a par
value of P100 each through a letter sent to the Board of Trustees of
the Quezon College, enclosed with the letter are a sum of money as
her initial payment and her assurance of full payment after she
harvested fish. On October 26, 1948, DamasaCrisostomo passed
away. As no payment appears to have been made on the
subscription mentioned in the foregoing letter, the Quezon College,
Inc. presented a claim before the CFI of Bulacan in her testate
proceeding, for the collection of the sum of P20,000, representing
the value of the subscription to the capital stock of the Quezon
College, Inc. which was then opposed by the administrator of the
estate.
ISSUE: WON the subscription herein is valid, entitling Quezon
College to collect the aforesaid 20k.
HELD: NO.
 There is nothing in the record to show that the Quezon
College, Inc. accepted the term of payment suggested by
Damasa, or that if there was any acceptance the same came
to her knowledge during her lifetime.
 As the application of Damasa is obviously at variance with
the terms evidenced in the form letter issued by the Quezon
College, there was absolute necessity on the part of the
 Said acceptance was essential, because it would be unfair to
immediately obligate the Quezon Collegeunder Damasa's
promise to pay the price of the subscription after she has
harvested fish. The said condition is obviously dependent
upon Damasa’s sole will
 The relation between Damasaand the Quezon Collegehad
only thus reached the preliminary stage whereby the latter
offered its stock for subscription on the terms stated in the
form letter, and Damasa applied for subscription fixing her
own plan of payment.A relationthat had not ripened into an
enforceable contract due to the absence of acceptance by
the Quezon Collegeof the counter offer of Damasa.
 Indeed, the need for express acceptance on the part of the
Quezon College, Inc. becomes the more imperative, in view
of the proposal of DamasaCrisostomo to pay the value of
the subscription after she has harvested fish, a condition
obviously dependent upon her sole will and, therefore,
facultative in nature, rendering the obligation void, under
article 1115 of the old Civil Code (Art. 1151, NCC)
 It cannot be argued that the condition solely is void,
because it would have served to create the obligation to
pay.
o NOTE: Only thepotestative condition is void in cases
where it refers merely to the fulfillment of an
already existing indebtedness.
 NOTE: The letter: Please enter my subscription to
dalawangdaan (200) shares of your capital stock with a par
value of P100 each. Enclosed you will find
 (Babayarankonglahatpagkataposnaako ay makapag-
pahulingisda) pesos as my initial payment and the balance
payable in accordance with law and the rules and
regulations of the Quezon College. I hereby agree to
shoulder the expenses connected with said shares of stock. I
further submit myself to all lawful demands, decisions or
directives of the Board of Trustees of the Quezon College
and all its duly constituted officers or authorities
(angnasaitaas ay binasa at ipinaliwanagsa akin
sawikangtagalognaakingnalalaman).(Sgd. by DAMASA
CRISOSTOMO)
PURCHASE AGREEMENTS
G.R. Nos. L-48195 and 48196 May 1, 1942
SOFRONIO T. BAYLA, ET AL., petitioners, vs. SILANG TRAFFIC CO.,
INC., respondent.
Sofronio Bayla, along with the other petitioners in this case,
individually purchased shares of stock of Silang Traffic Co. Each of
the petitioners had different specified terms and conditions of
payment. Similar among them is that 5% is to be paid upon the
execution of the contract, and the remainder in installments of 5%
quarterly due within the first month of the quarter. Deferred
payments will incur 6% interest per annum until paid, and failure to
pay any of said installments when they are due will revert the
shares back to the seller and the payments already made are to be
forfeited in favor of the company, without resort to court
proceedings.
Petitioners have already paid sums of money for the shares of stock
they wanted to purchase. However, they failed to pay the
installment which fell due on or before July 31, 1937. On August 1,
1937, the board of directors of Silang Traffic Co. released a
resolution stating a rescission was to be made for the good of the
corporation and in order to terminate the then pending civil case
involving the validity of the sale of the shares in question. Those
who would agree can refund the installments already paid. The
petitioners agreed to the rescission and demanded for the refund of
the amounts they had paid. Silang Traffic Co. refused to refund the
petitioners’ money stating that because of their failure to pay the
installment due on or before July 31, the clause stating that their
shares would revert back to the corporation and their payments
forfeited had taken effect, and that there was nothing to refund.
Moreover, a later resolution on August 22 already cancelled the
resolution of August 1.
The trial court and CA ruled in favor of the corporation. It appears
that they considered the agreement between the petitioners and
Silang Traffic as a contract of subscription to the capital stock of the
corporation.
ISSUES:
1. What was the nature of the agreement between the
petitioners and Silang Traffic?
2. WON the petitioners’ shares of stock automatically forfeited
in favor of Silang Traffic Corporation upon their failure to
pay the installment due on or before July 31
HELD:
 1. IT IS A PURCHASE AGREEMENT.
It should be noted that the agreement is entitled "Agreement for
Installment Sale of Shares in the Silang Traffic Company,"; that while
the purchaser is designated as "subscriber," the corporation is
described as "seller"; that the agreement was entered into on
March 30, 1935, long after the incorporation and organization of
the corporation, which took place in 1927; and that the price of the
stock was payable in quarterly installments spread over a period of
five years.
A subscription to stock in an existing corporation is, as between the
subscriber and the corporation, simply a contract of purchase and
sale.
NOTE: (SUBSCRIPTION vs PURCHASE) Subscription 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."
o The provisions of our Corporation Law regarding calls for
unpaid subscription and assessment of stock do not apply
to a purchase of stock. Likewise the rule that corporation
has no legal capacity to release an original subscriber to its
capital stock from the obligation to pay for his shares, is
inapplicable to a contract of purchase of shares.
2. NO. 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 the 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.
RELEASE FROM SUBSCRIPTION OBLIGATION
G.R. No. L-11528 March 15, 1918
MIGUEL VELASCO, assignee of The Philippine Chemical Product Co.
(Ltd.), plaintiff-appellant, vs.JEAN M. POIZAT, defendant-appellee.
 The corporation in question was originally organized by
several residents of the city of Manila, with a capital of
P50,000, divided into 500 shares. Poizat subscribed for 20
shares of the stock of the company, and paid upon his
subscription the sum of P500, the par value of 5 shares. The
action was brought to recover the amount subscribed upon
the remaining shares.
 It appears that Poizat was a stockholder in the company
from the inception of the enterprise, and for sometime
acted as its treasurer and manager. While serving in this
capacity, he collected all subscriptions to the capital stock of
 the company, except the 15 shares subscribed by himself
and another 15 shares owned by Jose Infante.
 On July 13, 1914, a meeting of the BOD of the company was
held at which a majority of the stock was presented. Upon
this occasion two resolutions were adopted. The first was a
proposal that the company should make good by new
subscriptions, in proportion to the shareholders’ respective
holdings. 15 shares had been surrendered by Infante.
 It seems that Infante had already paid 25% of his
subscription upon 20 shares, leaving 15 shares unpaid for,
and an understanding had been reached by him and the
management by which he was to be released from the
obligation of his subscription, it being understood that what
he had already paid should not be refunded.
 Accordingly the directors present at this meeting subscribed
P1,200 toward taking up his shares, leaving a deficiency of
P300 to be recovered by voluntary subscriptions from
stockholders not present at the meeting.
 The other proposition was to the effect that Poizat, who
was absent, should be required to pay the amount of his
subscription upon the 15 shares for which he was still
indebted to the company. The resolution further provided
that, in case he should refuse to make such payment, the
management of the corporation should be authorized to
undertake judicial proceedings against him.
 In reply, Poizat wrote a letter, stating that some member of
the BODtold him that he was to be relieved from his
subscription upon the terms conceded to Infante.
 The company soon went into voluntary insolvency, Miguel
Velasco being named as the assignee.Velasco then sought
to recover from Poizat the remaining P1,500,the amount of
his subscription upon the unpaid shares.
 CFI: in favor of Poizat
ISSUE: WON Poizat is liable upon the aforesaid subscription.
HELD: YES.
 The suggestion contained in Poizat's letter of July 27, 1914,
to the effect that he understood that he was to be relieved
upon the same terms as Infante is of no merit as matter of
defense, even if an agreement to that effect had been duly
proved. The corporation has no legal capacity to release an
original subscriber to its capital stock from the obligation
of paying for his shares, in whole or in part.
 NOTE: (!!!) The circumstance that the board of directors in
their meeting of July 13, 1914, resolved to release
Infantefrom his obligation upon a subscription for 15
shares is no wise prejudicial to the right of the corporation
or its assignee to recover from Poizat upon a subscription
made by him. In releasing Infante the board transcended
its powers, and he no doubt still remained liable on such
of his shares as were not taken up and paid for by other
persons.
 NOTE: Under the Corporation Law, he is also liable for
interest at the lawful rate from the date of his subscription,
unless relieved from this liability by the by-laws of the
company. These by-laws have not been introduced in
evidence and there is no proof showing the exact date upon
which the subscription was made, though it is alleged in the
 original complaint that the company was organized upon
March 23, 1914.
 A subscription for shares of stock does not require an
express promise to pay the amount subscribed, as the law
implies a promise to pay on the part of the subscriber.
 A stock subscription is subsisting liability from the time the
subscription is made, since it requires the subscriber to pay
interest quarterly from that date unless he is relieved from
such liability by the by-laws of the corporation. The
subscriber is as much bound to pay the amount of the share
subscribed by him as he would be to pay any other debt,
and the right of the company to demand payment is no less
incontestable.
 Two remedies for the enforcement of stock subscriptions:
1. Permitting the corporation to put up the unpaid
stock for sale and dispose of it for the account of
the delinquent subscriber. In this case the
procedure laid down in the Corporation Law are
applicable and must be followed;
2. By action in court. Directors may collect, by action
in any court of proper jurisdiction, the amount due
on any unpaid subscription, together with accrued
interest and costs and expenses incurred.
 The statutory right to sell the subscriber's stock is merely a
remedy in addition to that which proceeds by action in
court; and it has been held that the ordinary legal remedy
by action exists even though no express mention thereof is
made in the statute.
 Conditions under which an action may be maintained upon
a stock subscription should be determined with reference to
the rules governing contract liability in general
 NOTE: By virtue of the first subsection of section 36 of the
Insolvency Law, the assignee of the insolvent corporation
succeeds to all the corporate rights of action vested in the
corporation prior to its insolvency; and the assignee
therefore has the same freedom with respect to suing upon
the stock subscription as the directors themselves would
have had.
 When insolvency supervenes upon a corporation and the
court assumes jurisdiction to wind up, all unpaid stock
subscriptions become payable on demand, and are at once
recoverable in an action instituted by the assignee or
receiver appointed by the court.
 A court of equity, having jurisdiction of the insolvency
proceedings, could, if necessary, make the call itself, in its
capacity as successor to the powers exercised by the BOD of
the defunct company. Further, the receiver or assignee, in
an action instituted by proper authority, could himself
proceed to collect the subscription without the necessity of
any prior call whatever.
 NOTE: When the corporation becomes insolvent, with
proceedings instituted by creditors to wind up and
distribute its assets, no call or assessment is necessary
before the institution of suits to collect unpaid balances on
subscription.
 When the original model of making the call becomes
impracticable, the obligation must be treated as due upon
demand. If the corporation must be treated still an active
 entity, and this action should be dismissed for irregularity in
the making of the call, other steps could be taken by the
board to cure the defect and another action could be
brought; but where the company is being wound up, no
such procedure would be practicable. The better doctrine is
that when insolvency supervenes, all unpaid subscriptions
become at once due and enforceable.
 NOTE: A stock subscription is a contract between the
corporation on one side, and the subscriber on the other,
and courts will enforce it for or against either.
G.R. Nos. L-24177-85 June 29, 1968
PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs.BITULOK
SAWMILL, INC., ET. AL., defendants-appellees.
 The Philippine Lumber Distributing Agency was organized
sometime in 1947 upon the initiative of President Manuel
Roxas. The purpose was to insure a steady supply of lumber,
which could be sold at reasonable prices to enable the war
sufferers to rehabilitate their devastated homes.
 It appears that Roxas convinced defendant lumber
producers herein to form a lumber cooperative and to pool
their sources together in order to wrest the retail trade
from aliens who were acting as middlemen in the
distribution of lumber.
 At the beginning, the lumber producers were reluctant to
organize the cooperative agency as they believed that it
would not be easy to eliminate from the retail trade the
alien middlemen who had been in this business from time
immemorial, but because Roxas promised and agreed to
finance the agency by making the Government invest P9.00
by way of counterpart for every peso that the members
would invest therein, the producers gave in. (The amount
thus contributed by such lumber producers was not enough
for the operation of its business.)
 There wasn’t, however, any appropriation by the legislature
of the counterpart fund to be put up by the Government.
Accordingly, Roxas instructed Emilio Abello, then Executive
Secretary and Chairman of the BOD of PNB, for the latter to
grant said agency an overdraft in the original sum of
P250,000.00 which was later increased to P350,000.00.
 Such was approved by PNB’s BOD on July 28, 1947, payable
on or before April 30, 1958, with interest at the rate of 6%
per annum, and secured by the chattel mortgages on the
stock of lumber of said agency.
 The Philippine Government, however, did not fulfill its 9.00
for every peso promise. The loan extended to the PLDA by
the PNB was likewise not paid.
 PNB, as creditor, was allowed by the lower court to
substitute the receiver of Philippine Lumber in 9 actions for
the recovery from defendant lumber producers the balance
of their stock subscriptions. (Total amount to be collected:
P5000.00)
 Nonetheless, the lower court dismissed the said cases,
finding it grossly unfair and unjust to compel the lumber
producers to pay the balance of their subscriptions.
ISSUE: WON the lower court is correct in ruling against PNB in the
case at bar.
HELD: NO.
 Subscriptions to the capital of a corporation constitute a
fund to which creditors have a right to look for satisfaction
of their claims and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription in
order to realize assets for the payment of its debt. A
corporation has no power to release an original subscriber
to its capital stock from the obligation of paying for his
shares, without a valuable consideration for such release;
and as against creditors a reduction of the capital stock can
take place only in the manner and under the conditions
prescribed by the statute or the charter or the articles of
incorporation. Moreover, strict compliance with the
statutory regulations is necessary. (POIZAT DOCTRINE)
 It would be unwarranted to ascribe toRoxas the view that
the payment of the stock subscriptions, as thus required by
law, could be condoned in the event that the counterpart
fund to be invested by the Government would not be
available. Even if such were the case, however, and such a
promise were in fact made, to further the laudable purpose
to which the proposed corporation would be devoted and
the possibility that the lumber producers would lose money
in the process, still the plain and specific wording of the
applicable legal provision as interpreted by this Court must
be controlling. It is a well-settled principle that with all the
vast powers lodged in the Executive, he is still devoid of the
prerogative of suspending the operation of any statute or
any of its terms.
 Further, at no time did President Roxas ever give
defendant lumber producers to understand that the failure
of the Government for any reason to put up the
counterpart fund could terminate their statutory liability.
FORMALITIES IN ORGANIZING: GENERALLY
G.R. No. L-30646 January 30, 1929
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, petitioner, vs.THE
MANILA RAILROAD COMPANY and JOSE PAEZ as Manager of said
Company, respondents.
 This case revolves around the Philippine Government’s
petition for the issuance of a writ of mandamus in order to
compel the Manila Railroad Company to provide and equip
the telegraph poles of Manila Railroad between the
municipality of Paniqui, Tarlac, and San Fernando, La Union,
with crosspieces for six telegraph wires belonging to the
Government, which, it is alleged, are necessary for public
service between said municipalities.
 It is admitted that the present poles and crosspieces
between said municipalities carry four telegraph wires, by
virtue of an agreement between the respondents and the
Bureau of Posts of the Philippine Government. It is likewise
admitted that the poles are not sufficient to carry six
telegraph wires.
 The Philippine Government contends that under the then
General Corporation Law (Act No. 1459),Manila Railroad is
required to erect and maintain posts for its telegraph wires,
of sufficient length and strength, and equipped with
 sufficient crosspieces to carry the number of wires which
the Government may consider necessary for the public
service, and that six wires are now necessary for the public
service.
 Manila Railroad, on the other hand, contended that its
charter, which entitles the Government to place on the
poles of the company four wires only, should apply.
ISSUE: Which is applicable to Manila Railroad as between the two
statutes invoked?
HELD: Manila Railroad’s charter
 In as much as the charter of Manila Railroad constitute a
contract between it and the Government, the company is
governed by its contract and not by the provisions of any
general law upon questions covered by said contract. From
a reading of the said charter or contract it would be seen
that there is no indication that the Government intended to
impose upon said company any other conditions as
obligations not expressly found in said charter or contract. If
that is true, then certainly the Government cannot impose
upon said company any conditions or obligations found in
any general law, which does not expressly modify said
contract.
 Section 84 of the Corporation Law (Act No. 1459) was
intended to apply to all railways in the Philippine Islands
which did not have a special charter contract. Act No. 1510
applies only to the Manila Railroad Company, and being a
special charter of said company, its adoption had the effect
of superseding the provisions of the General Corporation
Law which are applicable to railroads in general.
 The special charter (Act No. 1510) had the effect of
superseding the general Corporation Law upon all matters
covered by said special charter. Said Act, inasmuch as it
contained a special provision relating to the erection of
telegraph and telephone poles, and the number of wires
which the Government might place thereon, superseded
the general law upon that question.
 Act No. 1510 is a special charter of the respondent
company. It constitutes a contract between the respondent
company and the state; and the state and the grantee of a
charter are equally bound by its provisions. For the state to
impose an obligation or a duty upon the respondent
company, which is not expressly provided for in the charter
(Act No. 1510), would amount to a violation of said contract
between the state and the respondent company.
 The charter of a corporation is a contract between three
parties: (a) it is a contract between the state and the
corporation to which the charter is granted; (b) it is a
contact between the stockholders and the state and (c) it is
also a contract between the corporation and its
stockholders.
 The question is not whether Act No. 1510 repealed Act No.
1459; but whether, after the adoption of Act No. 1510, the
respondents are obliged to comply with the special
provision above mentioned, contained in Act No. 1459. We
must answer that question in the native. Both laws are still
in force, unless otherwise repealed. Act No. 1510 is
 applicable to respondents upon the question before us,
while Act No. 1459 is not applicable.
G.R. No. 96674 June 26, 1992
RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA
TRIAS and FRANCISCO TRIAS, petitioners, vs. COURT OF APPEALS.
Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc.,
executed a Special Power of Attorney in favor of his wife, Melania to
sell or otherwise dispose of and/or mortgage 473 shares of stock of
the Bank registered in his name (represented by the Bank's stock
certificates nos. 26, 49 and 65), to execute the proper documents
therefor, and to receive and sign receipts for the dispositions.
Melania, as Attorney-in-Fact, executed a Deed of Assignment for
472 shares out of the 473 shares, in favor of private respondents
Luz Andico (457 shares), Wilhelmina Rosales (10 shares) and
Francisco Guerrero, Jr. (5 shares). Melania Guerrero presented to
Rural Bank of Salinas the 2 Deeds of Assignment for registration
with a request for the transfer in the Bank's stock and transfer book
of the 473 shares of stock so assigned, the cancellation of stock
certificates in the name of Clemente, and the issuance of new stock
certificates in the name of the new owners thereof., Rural Bank
denied such request. Melania filed with the SEC an action for
mandamus against Rural Bank of Salinas, its President and
Corporate Secretary.
The Bank in their Answer with counterclaim alleged that upon the
death of Clemente, his 473 shares of stock became the property of
his estate, and his property and that of his widow should first be
settled and liquidated in accordance with law before any
distribution can be effected so that petitioners may not be a party
to any scheme to evade payment of estate or inheritance tax and in
order to avoid liability to any third persons or creditors of the late
Clemente.
Maripol Guerrero filed a motion for intervention (legally adopted
daughter of the late Clemente and Melanie) stating that a Petition
for the administration of the estate of Clemente had been filed but
her motion was denied. She then filed before the CFI of Rizal,
against Melanie for the annulment of the Deeds of Assignment for
being fictitious, void or simulated.
ISSUES:
1. WON SEC has the power to adjudicate the case. -Yes
2. WON corporatonsmay by its board, its by-laws, or the act of its
officers create restrictions in stock transfers.No.
3. WON the Bank being a corporation may refuse to transfer and
register stocks. No.
HELD:
1. Section 5 (b) of P.D. No. 902-A grants to the SEC the original and
exclusive jurisdiction to hear and decide cases involving
intracorporate controversies. An intracorporate controversy has
been defined as one which arises between a stockholder and the
corporation. There is no distinction, qualification, nor any exception
whatsoever (Rivera vs. Florendo, 144 SCRA 643 [1986]). The case at
bar involves shares of stock, their registration, cancellation and
issuances thereof by petitioner Rural Bank of Salinas. It is therefore
within the power of respondent SEC to adjudicate.
2. A corporation, either by its board, its by-laws, or the act of its
officers, cannot create restrictions in stock transfers, because:. .
Restrictions in the traffic of stock must have their source in
legislative enactment, as the corporation itself cannot create such
impediment. By-laws are intended merely for the protection of the
corporation, and prescribe regulation, not restriction; they are
always subject to the charter of the corporation. The corporation, in
the absence of such power, cannot ordinarily inquire into or pass
upon the legality of the transactions by which its stock passes from
one person to another, nor can it question the consideration upon
which a sale is based.
The only limitation imposed by Section 63 of the Corporation Code
is when the corporation holds any unpaid claim against the shares
intended to be transferred, which is absent here.
3. The right of a transferee/assignee to have stocks transferred to
his name is an inherent right flowing from his ownership of the
stocks. Respondent SEC correctly ruled in favor of the registering of
the shares of stock in question in private respondent's names. Such
ruling finds support under Section 63 of the Corporation Code, to
wit:
Sec. 63. . . . Shares of stock so issued are personal property and may
be transferred by delivery of the certificate or certificates indorsed
by the owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall be
valid, except as between the parties, until the transfer is recorded in
the books of the corporation . . .
The corporation's obligation to register is ministerial.
In transferring stock, the secretary of a corporation acts in purely
ministerial capacity, and does not try to decide the question of
ownership.
The duty of the corporation to transfer is a ministerial one and if it
refuses to make such transaction without good cause, it may be
compelled to do so by mandamus.
FORMALITIES IN ORGANIZING: AOI (AS TO CORPORATE NAME)
G.R. No. 41570 September 6, 1934
RED LINE TRANSPORTATION CO., petitioner-appellant, vs.RURAL
TRANSIT CO., LTD., respondent-appellee.
 On June 4, 1932, Rural Transit Company, filed with the
Public Company Service Commission an application in which
it is stated in substance:
o that it is the holder of a certificate of public
convenience to operate a passenger bus service
between Manila and Tuguegarao;
o that it is the only operator of direct service between
said points and the present authorized schedule of
only one trip daily is not sufficient;
o that it will be also to the public convenience to
grant the applicant a certificate for a new service
between Tuguegarao and Ilagan.
 Red Line opposed said application, arguing that they already
hold a certificate of public convenience for Tuguegarao and
Ilagan, and is rendering adequate service. They also argued
that granting Rural Transit’s application would constitute a
ruinous competition over said route.
 The Commission, nonetheless, approved the application of
Rural Transit.
 A motion for rehearing and reconsideration was filed by Red
Line since Rural Transit has a pending application before the
CFI Manila for voluntary dissolution of the corporation.
 Rural Transit filed a motion for postponement. This motion
was verified by M. Olsen who swears "that he was the
secretary of the Rural Transit Company, Ltd., in the above
entitled case."
 During the hearing before the Public Service Commission,
the petition for dissolution and the CFI Manila’s decision
decreeing the dissolution of Rural Transit were admitted
without objection.
 At the trial of this case before the Public Service
Commission an issue was raised as to who was the real
party in interest making the application, whether the Rural
Transit Company, Ltd., as appeared on the face of the
application, or the Bachrach Motor Company, Inc., using
name of the Rural Transit Company, Ltd., as a trade name.
 The Public Service Commission eventually ruled in favor of
Rural Transit, and ordered for a certificate of public
convenience be issued in its name
o NOTE: This was done even in the face of the
evidence that the said corporation was not the real
party in interest.
 PSC relied on an order it issued on November 26, 1932,
authorizing Bachrach Motor to continue using Rural
Transit’s name as its tradename in all its applications and
petitions to be filed before the PSC. Said resolution was
given a retroactive effect as of the date of filing of the
application or April 30, 1930.
ISSUE: Can the Public Service Commission authorize a
corporation to assume the name of another corporation as a
trade name?
HELD:
 There are no law that empowers any court to authorize one
corporation to assume the name of another corporation as
a trade name. Both Rural Transit and Bachrach Motor are
Philippine corporations and the very law of their creation
and continued existence requires each to adopt and certify
a distinctive name.
 The incorporators "constitute a body politic and corporate
under the name stated in the certificate." (Section 11, Act
No. 1459, as amended.)
 A corporation has the power "of succession by its corporate
name." (Section 13, ibid.)The name of a corporation is
therefore essential to its existence. It cannot change its
name except in the manner provided by the statute. By that
name alone is it authorized to transact business.
 The law gives a corporation no express or implied authority
to assume another name that is unappropriated: still less
that of another corporation, which is expressly set apart for
it and protected by the law.
  If any corporation could assume at pleasure as an
unregistered trade name the name of another corporation,
this practice would result in confusion and open the door to
frauds and evasions and difficulties of administration and
supervision.
 The November 26 order of PSC being void, theDecember 21
order thus should have to be set aside and vacated on the
ground that the Rural Transit is not the real party in interest
and its application was fictitious.
G.R. No. L-26370 July 31, 1970
PHILIPPINE FIRST INSURANCE COMPANY, INC., plaintiff-appellant,
vs. MARIA CARMEN HARTIGAN, CGH, and O. ENGKEE, defendants-
appellees.
PFIC was originally organized as an insurance corporation under the
name of ‘The Yek Tong Lin Fire and Marine Insurance Co., Ltd.’
Subsequently, however, its AOI were amended changing the name
of the corporation to ‘Philippine First Insurance’.
The case arose when PFIC, acting in the name of Yek Tong, signed as
co-maker together with defendants, a promissory note in favor of
China Banking Corporation. Subsequently, as form of security,
Hartingan et al signed an indemnity agreement in favor of PFIC in
case damages or loses arises thereof. Defendant Hartigan failed to
pay, hence, a complaint for collection of sum of money was
instituted.
Defendants deny the allegations, claiming, among others that there
is no privity of contract between them and PFIC since PFIC did not
conduct its business under the name of Yek Tong Insurance, hence
not entitled to the indemnification agreement which is named in
favor of Yek Tong.
The CFI ruled in favor of Hartigan et al based on the following
grounds, among others:
The change of name of the Yek Tong Insurance to PFIC is of dubious
validity, because such change in effect dissolved the original
corporation by a process of dissolution not authorized by the
Corporation Law;
Assuming the change is valid, Yek Tong is considered dissolved,
hence, at the time the indemnity agreement was signed, it has no
capacity to enter into such agreement anymore;
Assuming further that the change is valid, Yek Tong should be the
proper party in interest.
ISSUE: May a Philippine corporation change its name and still retain
its original personality and individuality as such?
HELD: YES
 Amending a corporation’s charter is allowed. In the same
manner, there is no prohibition against the change of name.
The inference is clear that such a change is allowed, for if
the legislature had intended to enjoin corporations from
changing names, it would have expressly stated so in this
section or in any other provision of the law.
 "The name of a corporation is peculiarly important as
necessary to the very existence of a corporation. The
general rule as to corporations is that each corporation shall
 have a name by which it is to sue and be sued and do all
legal acts. The name of a corporation in this respect
designates the corporation in the same manner as the name
of an individual designates the person."
 There is nothing sacrosanct in a name when it comes to
artificial beings. Of course, such change may not be made
exclusively by the corporation's own act. It has to follow
the procedure prescribed by law for the purpose; and this
is what is important and indispensably prescribed — strict
adherence to such procedure.
 A corporation may change its name by merely amending
its charter in the manner prescribed by law.
 A general power to alter or amend the charter of a
corporation necessarily includes the power to alter the
name of the corporation.
 What the SChave held to be contrary to public policy in Red
Line Transportation Co. v. Rural Transit is the use by one
corporation of the name of another corporation as its trade
name. Such an act can only "result in confusion and open
the door to frauds and evasions and difficulties of
administration and supervision." Surely, the Red Line case
was not one of change of name.
 Change of name of a corporation does not result in its
dissolution. An authorized change in the name of a
corporation has no more effect upon its identity as a
corporation than a change of name of a natural person has
upon his identity. It does not affect the rights of the
corporation or lessen or add to its obligations.
 After a corporation has effected a change in its name it
should sue and be sued in its new name.
 A mere change in the name of a corporation, either by the
legislature or by the corporators or stockholders under
legislative authority, does not, generally speaking, affect the
identity of the corporation, nor in any way affect the rights,
privileges, or obligations previously acquired or incurred by
it.
 The corporation, upon such change in its name, is in no
sense a new corporation, nor the successor of the original
one, but remains and continues to be the original
corporation.
 A change of name does not equate to a change of being.
 The approval by the stockholders of the amendment of its
articles of incorporation changing the name fromYek Tong
to PFIC on March 8, 1961, did not automatically change the
name of said corporation on that date.
 To be effective, "a copy of the articles of incorporation as
amended, duly certified to be correct by the president and
the secretary of the corporation and a majority of the board
of directors or trustees, shall be filed with SEC and it is only
from the time of such filing, that "the corporation shall have
the same powers and same liabilities as if such amendment
had been embraced in the original AOI
 Appellant rightly acted in its old name when on May 15,
1961, it entered into the indemnity agreementwith the
defendant-appellees; for only after the filing of the
amended articles of incorporation with the Securities &
Exchange Commission on May 26, 1961, did appellant
legally acquire its new name; and it was perfectly right for it
to file the present case In that new name on December 6,
1961.
  Actions brought by a corporation after it has changed its
name should be brought under the new name although for
the enforcement of rights existing at the time the change
was made.
 The change in the name of the corporation does not affect
its right to bring an action on a note given to the
corporation under its former name.
 SC feels however that it is apparent that appellee's position
is more technical than otherwise. There is no showing that
the indebtedness sued upon has already been paid. If
appellees entertained any fear that they might again be
made liable to Yek Tong Lin, or to someone else in its
behalf, a cursory examination of the records of SEC would
have sufficed to clear up the fact that Yek Tong Lin had just
changed its name but it had not ceased to be their creditor.
G.R. No. L-28351 July 28, 1977
UNIVERSAL MILLS CORPORATION, petitioner, vs. UNIVERSAL
TEXTILE MILLS, INC., respondent.
 Universal Textile Mills was organized on December 29,
1953, as a textile manufacturing firm.
 The Universal Mills Corporation, on the other hand, was
registered on October 27, 1954, under its original name,
Universal Hosiery Mills Corporation, having, as its primary
purpose, the "manufacture and production of hosieries and
wearing apparel of all kinds." On May 24, 1963, it filed an
amendment to its articles of incorporation changing its
name to Universal Mills Corporation, its present name.
 The immediate cause of this present complaint, however,
was the occurrence of a fire which gutted UMC’s spinning
mills in Pasig, Rizal. UTM alleged that as a result of this fire
and because of the similarity of UMC's name to its name,
the news items appearing in the various metropolitan
newspapers carrying reports on the fire created uncertainty
and confusion among its bankers, friends, stockholders and
customers prompting petitioner to make announcements,
clarifying the real Identity of the corporation whose
property was burned.
 On the other hand, UMC's position is that the names of the
two corporations are not similar and even if there be some
similarity, it is not confusing or deceptive; that the only
reason it changed its name was because it expanded its
business to include the manufacture of fabrics of all kinds;
and that the word 'textile' in UTM's name is dominant and
prominent enough to distinguish the two. It further argues
that UTM failed to present evidence of confusion or
deception in the ordinary course of business; that the only
supposed confusion proved by complainant arose out of an
extraordinary occurrence — a disastrous fire.
 The SECeventually enjoined UMC from further using its
present corporate name, ruling that confusion is not only
apparent, but possible. It does not matter that the instance
of confusion between the two corporate names was
occasioned only by a fire or an extraordinary occurrence.
The word "textile" in UMT cannot possibly assure the
exclusion of all other entities with similar names from the
mind of the public especially so, if the business they are
engaged in are the same, like in the instant case.
  SEC further took cognizance of the fact that when UMC filed
the amendment changing its name, it correspondingly filed
a written undertaking promising to change its name in the
event that there is another person, firm or entity who has
obtained a prior right to the use of such name or one similar
to it. That promise is still binding upon the corporation and
its responsible officers.
ISSUE: WON the order of the Commission enjoining petitioner to its
corporate name constitutes grave abuse of discretion.
HELD: NO.
The corporate names in question are not Identical, but they are
indisputably so similar that even under the test of "reasonable care
and observation as the public generally are capable of using and
may be expected to exercise" invoked by appellant, We are
apprehensive confusion will usually arise, considering that under
the second amendment of its articles of incorporation on August 14,
1964, appellant included among its primary purposes the
"manufacturing, dyeing, finishing and selling of fabrics of all kinds"
in which respondent had been engaged for more than a decade
ahead of petitioner.
FORMALITIES IN ORGANIZING: AOI (AS TO PURPOSE)
G.R. No. L-15429 December 1, 1919
UY SIULIONG, MARIANO LIMJAP, GACU UNG JIENG, EDILBERTO
CALIXTO and UY CHO YEE, petitioners, vs.THE DIRECTOR OF
COMMERCE AND INDUSTRY, respondent.
 Petitioners herein had been associated together as partners
in a partnership under the style and firm name of "Siuliong y
Cia." They then desired to dissolve said partnership and to
form a corporation composed of the same persons as
incorporators, to be known as "Siulong y Compañia,
Incorporada."
 They manifested that the purpose of said corporationis (a)
to acquire the business of the partnershipSiuliong& Co., and
(b) to continue said business with some of its objects or
purposes. A further enumeration of various specific
purposes was however reflected in its proposed AOI.
 Respondent Director of Commerce and Industry then
refused to register the petitioners’ AOI.This prompted the
petitionersto file a petition for the issuance of a writ of
mandamus to require the said respondent to file and
register the AOI of "Siuliong y Compañia, Inc.,".
 The respondent, on his part, contends inter alia that the
proposed AOI permitted the petitioners to engage in a
business which had for its end more than one purpose.
ISSUES:
1. WON Siulong y Compañia, Inc. does have more than one
purpose.
2. WON a corporation organized for commercial purposes in
the Philippine Islands, such as Siuliong y Compañia, Inc., can
be organized for more than one purpose.
WON Siulong y Compañia, Inc. does have more than one
purpose.
HELD:
 1. YES. It is clear from a reading of the corporation’s AOI that
the principal purpose of said corporation is to engage in a
mercantile business, with the power to do and perform
particular acts. All of the power and authority enumerated
in the subject AOI enumerated are only incidental to the
principal purpose of said proposed incorporation, to wit:
"mercantile business."
A corporation may be organized under the laws of the Philippine
Islands for mercantile purposes, and to engage in such incidental
business as may be necessary and advisable to give effect to, and
aid in, the successful operation and conduct of the principal
business.
2. NO. While the proposed AOI do not authorize the
petitioners to engage in a business with more than one
purpose, we do not mean to be understood as having
decided that corporations under the laws of the Philippine
Islands may not engage in a business with more than one
purpose. Such an interpretation would give foreign
corporations, which are permitted to be registered under
the laws here and which may be organized for more than
one purpose, a great advantage over domestic
corporations. We do not believe that it was the intention of
the legislature to give foreign corporations such an
advantage over domestic corporations.
NOTE: Petitioners areentitled to have such articles of incorporation
filed and registered. The petition prayed for is granted.
NOTE: Corporations in the Philippine Islands might be organized for
both the "importation and exportation" of merchandise and that
there might be no relation between the kind of merchandise
imported with the class of merchandise exported.
FORMALITIES IN ORGANIZING: AOI (AS TO PRINCIPAL OFFICE)
G.R. No. L-22238 February 18, 1967
CLAVECILLIA RADIO SYSTEM, petitioner-appellant, vs.HON.
AGUSTIN ANTILLONand NEW CAGAYAN GROCERY, respondents.
It appears that on June 22, 1963, New Cagayan Grocery filed a
complaint in the Municipal Court of Cagayan De Oro against the
Clavecilla Radio System alleging that on March 12, 1963, the latter
omitted a word in a message filed at the latter's Bacolod Branch
Office for transmittal to New Cagayan Grocery. New Cagayan
Grocery alleged that the word omitted was very much relevant to
the extent that the contents and purport of the message was
changed entirely, thereby causing damage to the addressee.
Clavecilla Radio System then filed a motion to dismiss the complaint
on the grounds that it states no cause of action and that the venue
is improperly laid. The City Judge eventually denied said motion to
dismiss for lack of merit. This prompted CRS to file a petition for
prohibition with the CFI Misamis Oriental praying that the City
Judge, Agustin Antillon, be enjoined from further proceeding with
the case on the ground of improper venue.
The lower court upheld the authority of the city court to take
cognizance of the case, ruling that the Clavecilla Radio System may
be sued either in Manila where it has its principal office or in
Cagayan de Oro City where it may be served, with summons
through the Manager of its branch office in said city.
In appealing, the Clavecilla Radio System contends that the suit
against it should be filed in Manila where it holds its principal office.
ISSUE: WON the venue in the present case was properly laid.
HELD: NO
It is clear that the case for damages filed with the city court is based
upon tort and not upon a written contract. Section 1 of Rule 4 of the
New Rules of Court, when "the action is not upon a written
contract, then in the municipality where the defendant or any of the
defendants resides or may be served with summons."
Settled is the principle in corporation law that the residence of a
corporation is the place where its principal office is established.
Since it is not disputed that the Clavecilla Radio System has its
principal office in Manila, it follows that the suit against it may
properly be filed in the City of Manila.
RE: argument that there is a principle that the appellant may also be
served with summons in that city where it maintains a branch
office:
 The term "may be served with summons" does not apply
when the defendant resides in the Philippines for, in such
case, he may be sued only in the municipality of his
residence, regardless of the place where he may be found
and served with summons. As any other corporation, the
Clavecilla Radio System maintains a residence which is
Manila in this case, and a person can have only one
residence at a time. The fact that it maintains branch offices
in some parts of the country does not mean that it can be
sued in any of these places.
To allow an action to be instituted in any place where a corporate
entity has its branch offices would create confusion and work untold
inconvenience to the corporation.
The order appealed from is therefore reversed, but without
prejudice to the filing of the action in Which the venue shall be laid
properly.
FORMALITIES IN ORGANIZING: AOI (AS TO CORPORATE TERM)
G.R. No.L-23606 July 29, 1968
ALHAMBRA CIGAR & CIGARETTE MANUFACTURING CO, petitioner,
vs.SECURITIES & EXCHANGE COMMISSION, respondent.
Alhambra was duly incorporated under Philippine laws on January
15, 1912. By its corporate articles it was to exist for fifty (50) years
from incorporation. Its term of existence expired on January 15,
1962. On that date, it ceased transacting business, entered into a
state of liquidation.Thereafter, a new corporation. — Alhambra
Industries, Inc. — was formed to carry on the business of Alhambra.
On May 1, 1962, Alhambra's stockholders, by resolution named
Angel S. Gamboa trustee to take charge of its liquidation.
On June 20, 1963 — within Alhambra's three-year statutory period
for liquidation - Republic Act 3531 was enacted into law. It amended
Section 18 of the Corporation Law; it empowered domestic private
corporations to extend their corporate life beyond the period fixed
by the articles of incorporation for a term not to exceed fifty years
in any one instance. Previous to Republic Act 3531, the maximum
non-extendible term of such corporations was fifty years.
On July 15, 1963, Alhambra's BOD resolved to amend its AOI to
extend its corporate life for an additional fifty years, or a total of
100 years from its incorporation.
On October 28, 1963, Alhambra's amended AOI were filed with
SEC.On November 18, 1963, SEC, however, returned said amended
AOI to Alhambra's counsel with the ruling that Republic Act 3531
"which took effect only on June 20, 1963, cannot be availed of by
the said corporation, for the reason that its term of existence had
already expired when the said law took effect. In short, said law has
no retroactive effect."
ISSUE: May a corporation extend its life by amendment of its AOI
effected during the three-year statutory period for liquidation when
its original term of existence had already expired?
HELD: NO.
The privilege given to prolong corporate life under the amendment
must be exercised before the expiry of the term fixed in the articles
of incorporation.
Continuance of a "dissolved" corporation as a body corporate for
three years has for its purpose the final closure of its affairs, and no
other; the corporation is specifically enjoined from "continuing the
business for which it was established".
o NOTE: (Then SEC. 77 of Corpo Law) Every corporation
whose charter expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate existence for
other purposes is terminated in any other manner, shall
nevertheless be continued as a body corporate for three
years after the time when it would have been so dissolved,
for the purpose of prosecuting and defending suits by or
against it and of enabling it gradually to settle and close its
affairs, to dispose of and convey its property and to divide
its capital stock, but not for the purpose of continuing the
business for which it was established.
The manner of prolongation is through an amendment of the AOI.
No no corporation in a state of liquidation can act in any way, much
less amend its articles, "for the purpose of continuing the business
for which it was established".
NOTE: As a rule, the corporation is ipso facto dissolved as soon as
that time expires. So where the extension is by amendment of the
articles of incorporation, the amendment must be adopted before
that time. The contrary is true, however, and the doctrine of
relation will apply, where the delay is due to the neglect of the
officer with whom the certificate is required to be filed, or to a
wrongful refusal on his part to receive it.
NOTE: (Renew vs. Extend) RENEW: "to give a new existence to one
which has been forfeited, or which has lost its vitality by lapse of
time"; EXTEND: "to increase the time for the existence of one which
would otherwise reach its limit at an earlier period".
 o Nowhere in our statute do we find the word "renew" in
reference to the authority given to corporations to protract
their lives. Our law limits itself to extension of corporate
existence. And, as so understood, extension may be made
only before the term provided in the corporate charter
expires.
NOTE: Alhambra likewise says that before cessation of its corporate
life, it could not have extended the same, for the simple reason that
Republic Act 3531 had not then become law then. Republic Act
3531 took effect on June 20, 1963, while the original term of
Alhambra's existence expired before that date — on January 15,
1962. To give credence to such contention would certainly open the
gates for all defunct corporations — whose charters have expired
even long before Republic Act 3531 came into being — to
resuscitate their corporate existence.
NOTE: Domestic corporations in general, as with domestic insurance
companies, can extend corporate existence only on or before the
expiration of the term fixed in their charters.
NOTE: From July 15 to October 28, 1963, when Alhambra made its
attempt to extend its corporate existence, its original term of fifty
years had already expired (January 15, 1962); it was in the midst of
the three-year grace period statutorily fixed in the Corporation Law.
NOTE: A new corporation — Alhambra Industries, Inc., with but
slight change in stockholdings — has already been established. Its
purpose is to carry on, and it actually does carry on the business of
the dissolved entity. The way only possible drawbacks of Alhambra
might be that, instead of the new corporation (Alhambra Industries,
Inc.) being written off, the old one (Alhambra Cigar & Cigarette
Manufacturing Company, Inc.) has to be wound up; and that the old
corporate name cannot be retained fully in its exact form.
BENGUET CONSOLIDATED vs. PINEDA
Benguet Consolidated Mining Company was organized in 1903
under the Spanish Code of Commerce of 1886 as a sociedad
anonima. It was agreed by the incorporators that Benguet Mining
was to exist for 50 years.
In 1906, Act 1459 (Corporation Law) was enacted which superseded
the Code of Commerce of 1886. Act 1459 essentially introduced the
American concept of a corporation. The purpose of the law, among
others, is to eradicate the Spanish Code and make
sociedadesanonimas obsolete.
In 1953, the board of directors of Benguet Mining submitted to the
Securities and Exchange Commission an application for them to be
allowed to extend the life span of Benguet Mining. Then
Commissioner Mariano Pineda denied the application as it ruled
that the extension requested is contrary to Section 18 of the
Corporation Law of 1906 which provides that the life of a
corporation shall not be extended by amendment beyond the time
fixed in their original articles.
Benguet Mining contends that they have a vested right under the
Code of Commerce of 1886 because they were organized under said
law; that under said law, Benguet Mining is allowed to extend its life
by simply amending its articles of incorporation; that the prohibition
in Section 18 of the Corporation Code of 1906 does not apply to
sociedadesanonimas already existing prior to the Law’s enactment;
that even assuming that the prohibition applies to Benguet Mining,
it should be allowed to be reorganized as a corporation under the
said Corporation Law.
ISSUE: Whether or not Benguet Mining is correct.
HELD: No.Benguet Mining has no vested right to extend its life. It is
a well settled rule that no person has a vested interest in any rule of
law entitling him to insist that it shall remain unchanged for his
benefit. Had Benguet Mining agreed to extend its life prior to the
passage of the Corporation Code of 1906 such right would have
vested. But when the law was passed in 1906, Benguet Mining was
already deprived of such right.
To allow Benguet Mining to extend its life will be inimical to the
purpose of the law which sought to render obsolete
sociedadesanonimas. If this is allowed, Benguet Mining will unfairly
do something which new corporations organized under the new
Corporation Law can’t do – that is, exist beyond 50 years. Plus, it
would have reaped the benefits of being a sociedadanonima and
later on of being a corporation. Further, under the Corporation
Code of 1906, existing sociedadesanonimas during the enactment of
the law must choose whether to continue as such or be organized
as a corporation under the new law. Once a sociedadanonima
chooses one of these, it is already proscribed from choosing the
other. Evidently, Benguet Mining chose to exist as a
sociedadanonima hence it can no longer elect to become a
corporation when its life is near its end.
FORMALITIES IN ORGANIZING: AOI (GROUNDS FOR DISPROVAL)
G.R. No. 9321 September 24, 1914
NORBERTO ASUNCION, ET AL., petitioners-appellants, vs. MANUEL
DE YRIARTE, respondent-appellee.
 The chief of the division of archives of the Executive Bureau
(YRIATE) refused to file the articles of incorporation,
hereinafter referred to, upon the ground that the object of
the corporation, as stated in the articles, was not lawful and
that, in pursuance of section 6 of Act No. 1459, they were
not registerable.
 The proposed incorporators the sought from the court a
writ of mandamus to compel Yriate to receive and register
said articles of incorporation and to do any and all acts
necessary for the complete incorporation of the persons
named in the articles. According to them, the duties of the
Yriate are purely ministerial and that he has no authority to
pass upon the lawfulness of the object for which the
incorporators propose to organize.
 When the case reached the SC, the latter ruled that while
Yriate’s duty is ministerial in nature (ie, compellable by
mandamus), it does not necessarily follow that he may not,
in the administration of his office, determine questions of
law. It is the duty of the division of archives, when articles
of incorporation are presented for registration, to
determine whether the objects of the corporation as
expressed in the articles are lawful. The division of archives,
through its officials, has authority to determine not only the
sufficiency as to form of the articles of incorporation
offered for registration, but also the lawfulness of the
purposes of it.)
ISSUE: WON the purposes of the corporation as stated in the articles
of incorporation are lawful within the meaning of the Corporation
Law.
HELD: NO.
The object of the proposed corporation, as appears from the articles
offered for registration, is to make of the barrio of Pulo or San
Miguel, barrios in the municipality of Pasig, a corporation which will
become the owner of and have the right to control and administer
any property belonging to the municipality of Pasig found within the
limits of that barrio. This cannot be permitted. Otherwise
municipalities as now established by law could be deprived of the
property which they now own and administer. Each barrio of the
municipality would become under the scheme proposed, a separate
corporation, would take over the ownership, administration, and
control of that portion of the municipal territory within its limits.
This would disrupt, in a sense, the municipalities of the Islands by
dividing them into a series of smaller municipalities entirely
independent of the original municipality. The various barrios of the
municipality have no right to own or hold property, they not being
recognized as legal entities by any law.
NOTE: The purpose of the incorporation as stated in the articles is:
"That the object of the corporation is (a) to organize and regulate
the management, disposition, administration and control which the
barrio of Pulo or San Miguel or its inhabitants or residents have over
the common property of said residents or inhabitants or property
belonging to the whole barrio as such; and (b) to use the natural
products of the said property for institutions, foundations, and
charitable works of common utility and advantage to the barrio or
its inhabitants."
NOTE: The question whether or not the objects of a proposed
corporation are lawful is one that can be decided one way only. If
he err in the determination of that question and refuse to file
articles which should be filed under the law, the decision is subject
to review and correction and, upon proper showing, he will be
ordered to file the articles.
FORMALITIES IN ORGANIZING: BY LAWS
LOYOLA GRAND VILLAS vs. CA
In 1983, the Loyola Grand Villas Association, Inc. (LGVAI) was
incorporated by the homeowners of the Loyola Grand Villas (LGV), a
subdivision. The Securities and Exchange Commission (SEC) issued a
certificate of incorporation under its official seal to LGVAI in the
same year. LGVAI was likewise recognized by the Home Insurance
and Guaranty Corporation (HIGC), a government-owned-and-
controlled corporation whose mandate is to oversee associations
like LGVAI.
Later, LGVAI later found out that there are two homeowners
associations within LGV, namely: Loyola Grand Villas Homeowners
(South) Association, Inc. (LGVAI-South) and Loyola Grand Villas
Homeowners (North) Association, Inc. (LGVAI-North). The two
associations asserted that they have to be formed because LGVAI is
inactive. When LGVAI inquired about its status with HIGC, HIGC
advised that LGVAI was already terminated; that it was
automatically dissolved when it failed to submit it By-Laws after it
was issued a certificate of incorporation by the SEC.
ISSUE: Whether or not a corporation’s failure to submit its by-laws
results to its automatic dissolution.
HELD: No. A private corporation like LGVAI commences to have
corporate existence and juridical personality from the date the SEC
issues a certificate of incorporation under its official seal. The
submission of its by-laws is a condition subsequent but although it is
merely such, it is a MUST that it be submitted by the corporation.
Failure to submit however does not warrant automatic dissolution
because such a consequence was never the intention of the law.
The failure is merely a ground for dissolution which may be raised in
a quo warranto proceeding. It is also worthwhile to note that failure
to submit can’t result to automatic dissolution because there are
some instances when a corporation does not require by-laws.
PMI COLLEGES vs. NLRC
In 1991, PMI Colleges hired the services of Alejandro Galvan for the
latter to teach in said institution. However, for unknown reasons,
PMI defaulted from paying the remunerations due to Galvan.
Galvan made demands but were ignored by PMI. Eventually, Galvan
filed a labor case against PMI. Galvan got a favorable judgment from
the Labor Arbiter; this was affirmed by the National Labor Relations
Commission. On appeal, PMI reiterated, among others, that the
employment of Galvan is void because it did not comply with its by-
laws. Apparently, the by-laws require that an employment contract
must be signed by the Chairman of the Board of PMI. PMI asserts
that Galvan’s employment contract was not signed by the Chairman
of the Board.
ISSUE: Whether or not Galvan’s employment contract is void.
HELD: No. PMI Colleges never even presented a copy of the by-laws
to prove the existence of such provision. But even if it did, the
employment contract cannot be rendered invalid just because it
does not bear the signature of the Chairman of the Board of PMI.
By-Laws operate merely as internal rules among the stockholders,
they cannot affect or prejudice third persons who deal with the
corporation, unless they have knowledge of the same. In this case,
PMI was not able to prove that Galvan knew of said provision in the
by-laws when he was employed by PMI.
PENA vs. CA
PAMPANGA BUS CO., INC. (PAMBUSCO) is the owner of the three
lots in dispute. PAMBUSCO mortgaged the lots to the Development
Bank of the Philippines (DBP), which were later on foreclosed.
Rosita Peña was awarded the lots in a foreclosure sale for being the
highest bidder. The certificate of sale was later issued to her and
registered in her name.
Subsequently, the Board of Directors of PAMBUSCO, through three
out of its five directors, issued a resolution to assign its right of
redemption over the lots in favor of any interested party. The right
of redemption was later on assigned to Marcelino Enriquez, who
redeemed the property.
Enriquez then sold the lots to spouses Rising T. Yap and Catalina
Lugue-Yap.
Meanwhile, a case involving the validity of the sale to the spouses
Yap was pending, and despite the protestations of Peña as to
validity of the PAMBUSCO's assignment of the right of redemption,
the lots were somehow registered in the name of spouses Yap.
Despite the registration of the lots to spouses Yap, Peña retained
possession of the property.
Main Case:
Spouses Yap sought to recover the possession of the lots from Peña.
The latter countered that she is now the legitimate owner of the
subject lands for having purchased the same in a foreclosure
proceeding instituted by the DBP against PAMBUSCO and no valid
redemption having been effected within the period provided by law.
The defense was that since the deed of assignment executed by
PAMBUSCO in favor of Enriquez was void ab initio for being an ultra
vires act of its board of directors and for being without any valuable
consideration, it could not have had any legal effect.
(It should be noted that the by-laws of PAMBUSCO provide that four
out of five directors must be present in a special meeting of the
board to constitute a quorum, and that the corporation has already
ceased to operate.) CFI ruled in favor of Petitioner Peña, but the
same was overturned by the CA.
Issue: W/N there Peña is entitled to the lots.
Ruling: Yes.
The by-laws of a corporation are its own private laws which
substantially have the same effect as the laws of the corporation.
They are in effect, written, into the charter. In this sense they
become part of the fundamental law of the corporation with which
the corporation and its directors and officers must comply.
Apparently, only three (3) out of five (5) members of the board of
directors of respondent PAMBUSCO convened by virtue of a prior
notice of a special meeting. There was no quorum to validly transact
business since it is required under its by-laws that at least four (4)
members must be present to constitute a quorum in a special
meeting of the board of directors.
Under Section 25 of the Corporation Code of the Philippines, the
articles of incorporation or by-laws of the corporation may fix a
greater number than the majority of the number of board members
to constitute the quorum necessary for the valid transaction of
business. Any number less than the number provided in the articles
or by-laws therein cannot constitute a quorum and any act therein
would not bind the corporation; all that the attending directors
could do is to adjourn.
Moreover, the records show that respondent PAMBUSCO ceased to
operate for about 25 years prior to the board meeting. Being a
dormant corporation for several years, it was highly irregular, for a
group of three (3) individuals representing themselves to be the
directors of respondent PAMBUSCO to pass a resolution disposing
of the only remaining asset of the corporation in favor of a former
corporate officer.
As a matter of fact, the three (3) alleged directors who attended the
special meeting on November 19, 1974 were not listed as directors
of respondent PAMBUSCO in the latest general information sheet.
Similarly, the latest list of stockholders of respondent PAMBUSCO
on file with the SEC does not show that the said alleged directors
were among the stockholders of respondent PAMBUSCO, in
contravention of the rule requiring a director to own one (1) share
in their to qualify as director of a corporation.
Further, under the Corporation Law, the sale or disposition of any
and/or substantially all properties of the corporation requires, in
addition to a proper board resolution, the affirmative votes of the
stockholders holding at least two-thirds (2/3) of the voting power in
the corporation in a meeting duly called for that purpose. This was
not complied with in the case at bar.
At the time of the passage of the questioned resolution, respondent
PAMBUSCO was insolvent and its only remaining asset was its right
of redemption over the subject properties. Since the disposition of
said redemption right of respondent PAMBUSCO by virtue of the
questioned resolution was not approved by the required number of
stockholders, the said resolution, as well as the subsequent
assignment and sale, were null and void.
Lastly, for lack of consideration, the assignment should be
construed as a donation. Under Article 725 of the Civil Code, in
order to be valid, such a donation must be made in a public
document and the acceptance must be made in the same or in a
separate instrument. In the latter case, the donor shall be notified
of the acceptance in an authentic form and such step must be noted
in both instruments. Since assignment to Enriquez shows that there
was no acceptance of the donation in the same and in a separate
document, the said deed of assignment is thus void ab initio.
SEPARATE JURIDICAL PERSONALITY
G.R. No. 101699 March 13, 1996
BENJAMIN A. SANTOS, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION, HON. LABOR ARBITER FRUCTUOSO T.
AURELLANO and MELVIN D. MILLENA, respondents.
 Millena was hired to be the project accountant for MMDC's
mining operations. (Gatbo operations)
 On 12 August 1986, he sent to 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 the BIR on account of delayed
payments of accrued salaries to the company's laborers and
employees.
 Subsequently, he was informed via letter that his services
were no longer needed by the company, stating mainly .,
the rainy season, deteriorating peace and order situation
and little paperwork as reasons.
o (It is therefore the board's decision that it would be
useless for us to continue operations, especially if
we will always be in the "hole," so to speak. Our
first funds receipts will be used to pay all our debts.
Until we resume full-scale operations, we will not
need a project accountant as there will be very little
paper work at the site, which can be easily handled
at Makati.)
 When Millen’s claim for reimbursement for the "advances"
he had made for the company, as well as his accrued
salaries/claims, was not heeded; he filed with the NLRC a
complaint for illegal dismissal against MMDC, Benjamin A.
Santos (MMDC’s President), and Rodillano A. Velasquez (the
executive vice-president).
  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.
 LA, finding no valid cause for the termination of Millena’s
employment, held the three liable to Millena. NLRC
affirmed.
 In holding Santos personally liable for MIllena's claim, the
NLRC cited Article 289 14 of the Labor Code and the ruling
in A.C. Ransom Labor Union-CCLU vs. NLRC 15 to the effect
that "(t)he responsible officer of an employer corporation
(could) be held personally, not to say even criminally, liable
for non-payment of backwages," and that of Gudez vs. NLRC
16 which amplified that "where the employer corporation
(was) no longer existing and unable to satisfy the judgment
in favor of the employee, the officer should be liable for
acting on behalf of the corporation.
 Santos, on the other hand, mainly argues that public
respondents have gravely abused their discretion "in finding
petitioner solidarily liable with MMDC even (in) the absence
of bad faith and malice on his part."
ISSUE: WON Santos should be held solidarily liable to MIllena.
HELD: NO.
 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.
 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. It is
undisputed that the termination of petitioner'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.
 NOTE: Under the Minimum Wage Law, the responsible
officer of an employer corporation could be held personally
liable for nonpayment of backwages for "(i)f the policy of
the law were otherwise, the corporation employer (would)
have devious ways for evading payment of back wages." In
the absence of a clear identification of the officer directly
responsible for failure to pay the backwages, the Court
considered the President of the corporation as such officer.
 NOTE: Mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of
a corporation is not of itself sufficient ground for
disregarding the separate corporate personality. (SUNIO
DOCTRINE)
 NOTE: Being a mere fiction of law, peculiar situations or
valid grounds can exist to warrant, albeit done sparingly,
the disregard of the Corporation’s independent being and
the lifting of the corporate veil. As a rule, this situation
might arise when a corporation is used:
1. to evade a just and due obligation or to justify a wrong,
2. to shield or perpetrate fraud,
3. to carry out similar other unjustifable aims or intentions, or
4. as a subterfuge to commit injustice.
NOTE: Instances when, 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 (c)
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 petitioner is way off
these exceptional instances.)
 NOTE: Santos, likewise, posited that he should not have
been adjudged personally liable, the NLRC not having validly
acquired jurisdiction over his person whether by personal
service of summons or by substituted service under Rule 19
of the Rules of Court.
o Petitioner's contention is unacceptable. The fact
that a counsel for Santos had active participation in
the proceedings, should disprove the supposed
want of service of legal process. Although as a rule,
modes of service of summons are strictly followed
in order that the court may acquire jurisdiction over
the person of a defendant, such procedural modes,
however, are liberally construed in quasi-judicial
proceedings, substantial compliance with the same
being considered adequate.Moreover, jurisdiction
over the person of the defendant in civil cases is
acquired not only by service of summons but also
by voluntary appearance in court and submission to
its authority.
G.R. No. L-18216 October 30, 1962
STOCKHOLDERS OF F. GUANZON AND SONS, INC., petitioners-
appellants, vs. REGISTER OF DEEDS OF MANILA, respondent-
appellee.
The five stockholders of the F. Guanzon and Sons, Inc. executed a
certificate of liquidation of the assets of the corporation reciting,
among other things, that by virtue of a resolution of the
stockholders dissolving the corporation, they have distributed
among themselves in proportion to their shareholdings, as
liquidating dividends, the assets of said corporation, including real
properties located in Manila.
The certificate of liquidation, when presented to the Register of
Deeds of Manila, was denied registration on seven grounds, of
which the following were disputed by the stockholders:
3. The number of parcels not certified to in the
acknowledgment;
5. P430.50 Reg. fees need be paid;
6. P940.45 documentary stamps need be attached to the
document;
7. The judgment of the Court approving the dissolution and
directing the disposition of the assets of the corporation need be
presented (Rules of Court, Rule 104, Sec. 3).
Deciding the consulta elevated by the stockholders, the
Commissioner of Land Registration overruled ground No. 7 and
sustained requirements Nos. 3, 5 and 6.
The stockholders interposed the present appeal.
As correctly stated by the Commissioner of Land Registration, the
propriety or impropriety of the three grounds on which the denial
of the registration of the certificate of liquidation was predicated
hinges on whether or not that certificate merely involves a
distribution of the corporation's assets or should be considered a
transfer or conveyance.
Appellants contend that the certificate of liquidation is not a
conveyance or transfer but merely a distribution of the assets of the
corporation which has ceased to exist for having been dissolved.
This is apparent in the minutes for dissolution attached to the
document. Not being a conveyance the certificate need not contain
a statement of the number of parcel of land involved in the
distribution in the acknowledgment appearing therein. Hence the
amount of documentary stamps to be affixed thereon should only
be P0.30 and not P940.45, as required by the register of deeds.
Neither is it correct to require appellants to pay the amount of
P430.50 as registration fee.
The Commissioner of Land Registration, however, entertained a
different opinion. He concurred in the view expressed by the
register of deed to the effect that the certificate of liquidation in
question, though it involves a distribution of the corporation's
assets, in the last analysis represents a transfer of said assets from
the corporation to the stockholders. Hence, in substance it is a
transfer or conveyance.
We agree with the opinion of these two officials. A corporation is a
juridical person distinct from the members composing it. Properties
registered in the name of the corporation are owned by it as an
entity separate and distinct from its members. While shares of stock
constitute personal property they do not represent property of the
corporation. The corporation has property of its own which consists
chiefly of real estate. A share of stock only typifies an aliquot part of
the corporation's property, or the right to share in its proceeds to
that extent when distributed according to law and equity, but its
holder is not the owner of any part of the capital of the corporation.
Nor is he entitled to the possession of any definite portion of its
property or assets. The stockholder is not a co-owner or tenant in
common of the corporate property.
On the basis of the foregoing authorities, it is clear that the act of
liquidation made by the stockholders of the F. Guanzon and Sons,
Inc. of the latter's assets is not considered a partition of community
property, but rather a transfer or conveyance of the title of its
assets to the individual stockholders. Indeed, since the purpose of
the liquidation, as well as the distribution of the assets of the
corporation, is to transfer their title from the corporation to the
stockholders in proportion to their shareholdings, — and this is in
effect the purpose which they seek to obtain from the Register of
Deeds of Manila, — that transfer cannot be effected without the
corresponding deed of conveyance from the corporation to the
stockholders. It is, therefore, fair and logical to consider the
certificate of liquidation as one in the nature of a transfer or
conveyance.
G.R. No. L-42780 January 17, 1936
MANILA GAS CORPORATION, plaintiff-appellant, vs. THE
COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
Manila Gas is a corporation organized under the laws of the
Philippine Islands. It operates a gas plant in Manila. Associated with
it are the Islands Gas and Electric Company domiciled in New York,
US, and the General Finance Company domiciled in Zurich,
Switzerland. Neither of these two corporations is resident in the
Philippines.
Manila Gas then brought an action against the CIR for the recovery
of P56,757.37, which the former was required by the latter to
deduct and withhold from the various sums paid it to the aforesaid
foreign corporations as dividends and interest on bonds and other
indebtedness and which the plaintiff paid under protest. (NOTE:
for the years 1930, 1931, and 1932 // TC dismissed the complaint)
The corporation mainly contends that the dividends paid by it to its
stockholders, Islands Gas and General Finance, were not subject to
tax because to impose a tax thereon would be to do so on the
Manila Gas, in violation of the terms of its franchise and would,
moreover, be oppressive and inequitable.
ISSUE: WON the dividends paid by Manila Gas in the case at bar
were subject to income tax.
HELD: 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. It must be considered
as settled in this jurisdiction that dividends of a domestic
corporation, which are paid and delivered in cash to foreign
corporations as stockholders, are subject to the payment in the
income tax, the exemption clause in the charter of the corporation
notwithstanding.
NOTE: The taxing power of a state does not extend beyond its
territorial limits, but within such it may tax persons, property,
income, or business. If an interest in property is taxed, the situs of
either the property or interest must be found within the state. If an
income is taxed, the recipient thereof must have a domicile within
the state or the property or business out of which the income issues
must be situated within the state so that the income may be said to
have a situs therein. Personal property may be separated from its
owner, and he may be taxed on its account at the place where the
property is although it is not the place of his own domicile and even
though he is not a citizen or resident of the state which imposes the
tax. But debts owing by corporations are obligations of the debtors,
and only possess value in the hands of the creditors.
Manila Gas operates its business entirely within the Philippines. Its
earnings, therefore come from local sources. The place of payment
even if conceded to be outside of the country cannot alter the fact
that the income was derived from the Philippines.
The Collector of Internal Revenue was justified in withholding
income taxes on interest on bonds and other indebtedness paid to
non-resident corporations because this income was received from
sources within the Philippine Islands as authorized by the Income
Tax Law.
NOTE: FRANCHISE ALLEGEDLY VIOLATED: Manila Gas shall annually
pay Manila and the municipalities in Rizal in which gas is sold, 2.5%
of the gross receipts within said city and municipalities during the
preceding year. Said payment shall be in lieu of all taxes, except
taxes on the real estate, buildings, plant, machinery, and other
personal property belonging to Manila Gas.
G.R. No. 58168 December 19, 1989
CONCEPCION MAGSAYSAY-LABRADOR, et. Al., petitioners, vs. THE
COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY,
Special Administratrix of the Estate of the late Genaro F.
Magsaysay, respondents.
On 9 February 1979, Adelaida Rodriguez-Magsaysay, widow and
special administratix of the estate of the late Senator Genaro
Magsaysay, brought an action against Artemio Panganiban, Subic
Land Corporation, FILMANBANK and the RD of Zambales, for the
annulment of the Deed of Assignment executed by the late Senator
in favor of SUBIC (as a result of which TCT 3258 was cancelled and
TCT 22431 issued in the name of SUBIC), 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 subsequently 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 trial court denied the motion for intervention, and 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.
CA affirmed. The appellate court further stated that whatever
claims the Magsaysay sisters have against the late Senator or
against SUBIC for that matter can be ventilated in a separate
proceeding.
Issue: Whether the Magsaysay sister, allegedly stockholders of
SUBIC, are considered as interested parties in a case where
corporate properties are in dispute.
HELD: NO.
Pursuant to Section 2, Rule 12, ROC, 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 .
The interest of the Magsaysay sisters 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.
 NOTE: The interest which entitles a person to intervene in a
suit between other parties must be in the matter in
litigation and of such direct and immediate character that
the intervenor will either gain or lose by the direct legal
operation and effect of the judgment.
 NOTE: The petitioners, likewise, cannot claim the right to
intervene on the strength of the transfer of shares allegedly
executed by the late Senator. The corporation did not keep
books and records. Perforce, no transfer was ever recorded,
much less effected as to prejudice third parties. The transfer
must be registered in the books of the corporation to affect
third persons. The law on corporations is explicit. "No
transfer, however, shall be valid, except as between the
parties, until the transfer is recorded in the books of the
corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares
transferred."
G.R. No. 82797 February 27, 1991
GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners, vs.
HONORABLE COURT OF APPEALS and ROCES-REYES REALTY INC.,
respondents.
A Lease Contract was entered into between ROCES-REYES REALTY,
as lessor, and GOOD EARTH EMPORIUM (GEE), as lessee, for a term
of three years beginning November 1, 1981 and ending October 31,
1984 at a monthly rental of P65,000.00.
The lessee had defaulted in the payment of rentals, thus ROCES filed
an ejectment case (Unlawful Detainer) against GEE. The MTC
eventually ruled in favor of ROCES. A writ of execution was issued
by the MTC. The RTC, however, reversed the MTC decision. It
declared the judgment debt as having been fully paid. It found that
the amount of P1 million evidenced by a receipt (Exhibit "I") and
another P1 million evidenced by a pacto de retro sale instrument
were in full satisfaction of the judgment obligation. CA reinstated
the MTC decision.
ISSUE: WON there was full satisfaction of the judgment debt in
favor of ROCES which would justify the quashing of the Writ of
Execution.
HELD: NO. (GEE FAILED TO PROVE PAYMENT)
 There is no indication in the subject receipt that it was in
payment of the judgment obligation. Likewise, there is no
indication in the pacto de retro sale which was drawn in
favor of Jesus Marcos Roces and Marcos V. Roces, and not
ROCES Corporation, that the obligation embodied therein
had something to do with GEE’s judgment obligation with
ROCES.
 The supposed payments were not made to ROCES or to its
successor-in-interest, nor is there any evidence that the
payment was made to a person authorized to receive it.
o RTC merely inferred the same from Marcos Roces
having signed the Lease Contract as President. The
latter, however, was no longer President or even an
officer of ROCES at the time he received the money
and signed the sale with pacto de retro.
o Marcos Roces, in fact, denied being in possession of
authority to receive payment for ROCES nor does
the receipt show that he signed in the same
capacity as he did in the Lease Contract at a time
when he was President for ROCES.
o On the other hand, Jesus Marcos Roces testified
that the amount of P1 million evidenced by the
subject receipt is the payment for a loan extended
by him and Marcos Roces in favor of Lim Ka Ping.
The receipt itself shows that they acknowledged
payment of the loan in their names and in no other
capacity.
 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.
 The fact that at the time payment was made to the two
Roces brothers, GEE was also indebted to respondent
corporation for a larger amount, is not supportive of the
RTC's conclusions that the payment was in favor of the
latter, especially in the case at bar where the amount was
not receipted for by ROCES Corporation and there is
absolutely no indication in the receipt presented from
which it can be reasonably inferred, that said payment was
in satisfaction of the judgment debt. Likewise, no such
inference can be made from the execution of the pacto de
retro sale which was not made in favor of ROCES
Corporation but in favor of the two Roces brothers in their
individual capacities.
 NOTE: Article 1240, NCC: Payment shall be made to the
person in whose favor the obligation has been constituted,
or his successor in interest, or any person authorized to
receive it.
 NOTE: The totality of the amount covered by the evidence
presented in the sum of P2 million, far exceeds petitioners'
judgment obligation to ROCES by P440,000.00, which
militates against the claim of petitioner that the aforesaid
amount (P2M) was in full payment of the judgment
 obligation. Their explanation that the excess is interest and the last general election, while the former would hear the ordinary
advance rentals for an extension of the lease contract is cases pending. Nonetheless, Judge Capistrano still tried election
belied by the absence of any interest awarded in the case protests and criminal actions in said court.
and of any agreement as to the extension of the lease.
Further, Judge Capistrano, in spite of the fact that he was holding
 NOTE: When the existence of a debt is fully established by
and now pretending to hold the office of CFI judge, took great
the evidence, the burden of proving that it has been
interest and active part in the filing of criminal charges against the
extinguished by payment devolves upon the debtor who
petitioners herein to the extent of appointing deputy fiscals when
offers such a defense.
the provincial fiscal refused to file criminal charges against them for
DE FACTO: RATIONALE BEHIND THE DOCTRINE violation of the election law for lack of sufficient evidence to sustain
the same.
G.R. No. L-30188 October 2, 1928
Lastly, petitioners allege that Capistrano is neither a judge de jure
FELIPE TAYKO, EDUARDO BUENO, BAUTISTA TAYKO, BERNARDO nor de facto, but that, notwithstanding this fact, he continues to
SOLDE and VICENTE ELUM, petitioners, vs. NICOLAS CAPISTRANO, hold the office of judge and pretends to be duly qualified to hold
ALFREDO B. CACNIO, and JUAN GADIANI, respondents. such office.
This is a petition for prohibition to enjoin Judge Nicolas Capistrano ISSUE: WON Capistrano could still continue public office.
from taking cognizance of certain election casese where the
petitioners herein are parties. The petitioners allege that Judge HELD: YES.
Capistrano was appointed judge of the CFI Negros Oriental. He was
In view of Section 148 of the Admin Code, it is evident that Judge
to hold office until he should reach the age of 65 years. Now that he
Capistrano is no longer a judge de jure. Nonetheless, he is still a
has reached that age, he is disqualified from acting as a judge of the
judge de facto.
CFI under the provisions of section 148 of the Administrative Code.
A de facto judge is one who exercises the duties of a judicial office
The petitioners further allege that in view of the many election
under color of an appointment or election thereto. He differs, on
protests and criminal cases for violation of the election law filed in
the one hand, from a mere usurper who undertakes to act officially
the Negros Oriental CFI arising from the last election of June 5,
without any color of right, and on the other hand, from a judge de
1928, Judge Sixto de la Costa was duly designated as auxiliary judge
jure who is in all respects legally appointed and qualified and whose
of Negros Oriental. There was an understanding between Judge
term of office has not expired.
Capistrano and Judge de la Costa that the latter would take
cognizance of all election protests and criminal actions arising from
There is a general rule that an incumbent of an office will hold over
after the conclusion of his term until the election and qualification
of a successor. When a judge in good faith remains in office after his
title has ended, he is a de facto officer.
Judge Capistrano’s 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 the petitioners that the auxiliary judge present in the district
must be considered the regular judge is erroneous.
 NOTE: 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 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.
The principle is one founded in policy and convenience, for
the right of no one claiming a title or interest under or
through the proceedings of an officer having an apparent
authority to act would be safe, if it were necessary in
every case to examine the legality of the title of such
officer up to its original source, and the title or interest of
such person were held to be invalidated by some
accidental defect or flaw in the appointment, election or
qualification of such officer, or in the rights of those from
whom his appointment or election emanated; nor could
the supremacy of the laws be maintained, or their
execution enforced, if the acts of the judge having a
colorable, but not a legal title, were to be deemed invalid.”
 NOTE: The acts of a justice de facto cannot be called in
question in any suit to which he is not a party. The official
acts of a de facto justice cannot b attacked collaterally. The
title of a de facto officer cannot be indirectly questioned in
a proceeding to obtain a writ of prohibition to prevent him
from doing an official act, nor in a suit to enjoin the
collection of a judgment rendered by him. Having at least
colorable right to the office, his title can be determined only
in a quo warranto proceeding or information in the nature
of a quo warranto at suit of the sovereign.
 NOTE: (1st allegation)A writ of prohibition to a judge of an
interior court will only lie in cases where he acts without or
in excess of his jurisdiction. A mere "understanding" as to
the distribution of cases for trial did not deprive the
respondent judge of the jurisdiction conferred upon him by
law.
 NOTE: (2nd allegation) The determination of the question as
to whether the fiscal has failed to discharge his duty in the
prosecution of a crime necessarily lie within the sound
discretion of the presiding judge, and there is no allegation
in the petition that such discretion was abused in the
present instance. In appointing an acting fiscal, the
respondent judge was well within his jurisdiction.
DE FACTO: REQUISITES
G.R. No. L-2598 June 29, 1950
C. ARNOLD HALL and BRADLEY P. HALL, petitioners, vs. EDMUNDO
S. PICCIO, Judge of the Court of First Instance of Leyte, FRED
BROWN, respondents.
On 28 May 1947, C. Arnold Hall and Bradley P. Hall, and 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.
On 2 December 1947, 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. On 22
March 1948, pending action on the articles of incorporation by the
aforesaid governmental office, the respondents filed an action to
cause the dissolution of the Far Eastern Lumber, alleging among
other things that the corporation 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.
Judge Edmund Piccio eventually ordered the dissolution of the
company; and appointed Pedro A. Capuciong as the receiver of the
properties thereof. Hall and Hall offered to file a counter-bond for
the discharge of the receiver, but Judge Piccio refused to accept the
offer and to discharge the receiver.
Hall and Hall now allege mainly that the court had no jurisdiction to
decree the dissolution of the company, because it being a de facto
corporation, dissolution thereof may only be ordered in a quo
warranto proceeding instituted in accordance with the Corporation
Law (Sec. 20).
ISSUE: WON the respondents may file an action to cause the
dissolution of the Far Eastern Lumber, without State intervention.
HELD: YES
The SEC has not issued the corresponding certificate of
incorporation. The personality of a corporation begins to exist only
from the moment such certificate is issued — not before. Not
having obtained the certificate of incorporation, Far Eastern Lumber
— even its stockholders — may not probably claim "in good faith"
to be a corporation. Under the Corporation Law, 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 if collateral attack is granted
to corporations "claiming in good faith to be a corporation under
this act." Such a claim is compatible with the existence of errors and
irregularities; but not with a total or substantial disregard of the
law. Unless there has been an evident attempt to comply with the
law the claim to be a corporation "under this act" could not be
made "in good faith."
This is not a suit in which the corporation is a party. This is a
litigation between stockholders of the alleged corporation, for the
purpose of obtaining its dissolution. Even the existence of a de jure
corporation may be terminated in a private suit for its dissolution
between stockholders, without the intervention of the state.
BENGUET CONSOLIDATED vs. PINEDA
Benguet Consolidated Mining Company was organized in 1903
under the Spanish Code of Commerce of 1886 as a sociedad
anonima. It was agreed by the incorporators that Benguet Mining
was to exist for 50 years.
In 1906, Act 1459 (Corporation Law) was enacted which superseded
the Code of Commerce of 1886. Act 1459 essentially introduced the
American concept of a corporation. The purpose of the law, among
others, is to eradicate the Spanish Code and make sociedades
anonimas obsolete.
In 1953, the board of directors of Benguet Mining submitted to the
Securities and Exchange Commission an application for them to be
allowed to extend the life span of Benguet Mining. Then
Commissioner Mariano Pineda denied the application as it ruled
that the extension requested is contrary to Section 18 of the
Corporation Law of 1906 which provides that the life of a
corporation shall not be extended by amendment beyond the time
fixed in their original articles.
Benguet Mining contends that they have a vested right under the
Code of Commerce of 1886 because they were organized under said
law; that under said law, Benguet Mining is allowed to extend its life
by simply amending its articles of incorporation; that the prohibition
in Section 18 of the Corporation Code of 1906 does not apply to
sociedades anonimas already existing prior to the Law’s enactment;
that even assuming that the prohibition applies to Benguet Mining,
it should be allowed to be reorganized as a corporation under the
said Corporation Law.
ISSUE: Whether or not Benguet Mining is correct.
HELD: No. Benguet Mining has no vested right to extend its life. It is
a well settled rule that no person has a vested interest in any rule of
law entitling him to insist that it shall remain unchanged for his
benefit. Had Benguet Mining agreed to extend its life prior to the
passage of the Corporation Code of 1906 such right would have
vested. But when the law was passed in 1906, Benguet Mining was
already deprived of such right.
To allow Benguet Mining to extend its life will be inimical to the
purpose of the law which sought to render obsolete 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.