CORPOARATION LAW LECTURE (12/02/19)

RA 7798 AMENDING SEC 25 OF BP 232:

SECTION 1. Section 25, Chapter 3 of the Education Act of 1982 is hereby amended to read as follows:

"Sec. 25. Establishment of Schools. — All schools shall be established in accordance with law. The
establishment of new national schools and the conversion of existing schools from elementary to national
secondary schools or from secondary to national secondary or tertiary schools shall be by law: Provided,
that any private school proposed to be established must incorporate as either a non-stock or a stock
educational corporation in accordance with the provisions of the Corporation Code of the Philippines. This
requirement to incorporate may be waived in the case of family-administered pre-school institutions.

"Provided, That the minimum paid-up capital for stock educational institutions for those engaged in
elementary education shall not be less than One million pesos (P1,000,000.00); not less than Two million
five hundred thousand pesos (P2,500,000.00) for those offering both elementary and secondary
education; and not less than Five million pesos (P5,000,000.00) for those offering elementary, secondary
and tertiary and postgraduate courses, except existing educational institutions organized as stock
corporations which may retain their original capitalization.

"Existing educational institutions organized as stock corporations may automatically apply for renewal of
their corporate existence when the original period is about to expire.

"Provided, finally, that stock educational institutions may be allowed only in capital-intensive courses of
study as may be determined by the Department of Education, Culture and Sports, the Commission on
Higher Education, and the Department of Science and Technology, as the case may be.

"Any school that is established or organized as a stock corporation shall be ineligible for any form of
government subsidy, incentive or assistance, except those given to individual students and teachers in the
form of scholarships, student loans or other forms of subsidy as already mandated under existing laws.
Government assistance to non-stock schools for educational programs shall be used exclusively for that
purpose.

"Taxes shall not be due on donations to educational corporations."

Sec. 2. The Department of Education, Culture and Sports and the Commission on Higher Education, as the
case may be, are hereby authorized to formulate within sixty (60) days from the approval of this Act
implementing rules and guidelines governing the establishment and operation of stock educational
corporations that may be organized pursuant to this Act with particular emphasis on meeting the
objectives of quality education and academic excellence provided for by the provisions of Batas Pambansa
Blg. 232, otherwise known as the Education Act of 1982.

Sec. 3. All laws, rules and ordinances inconsistent with this Act are hereby repealed or modified
accordingly.

Sec. 4. This Act shall take effect fifteen (15) days after its publication in at least two (2) national
newspapers of general circulation.

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RCADI v. LRC and RD of Davao
G.R. No. L-8451, December 20,1957

Facts:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed a deed
of sale of a parcel of land located in the same city covered by Transfer Certificate No. 2263, in favor of the
Roman Catholic Apostolic Administrator of Davao Inc.,(RCADI) is corporation sole organized and existing
in accordance with Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent.
Registry of Deeds Davao (RD) required RCADI to submit affidavit declaring that 60% of its members were
Filipino Citizens. As the RD entertained some doubts as to the registerability of the deed of sale, the matter
was referred to the Land Registration Commissioner (LRC) en consulta for resolution. LRC hold that
pursuant to provisions of sections 1 and 5 of Article XII of the Philippine Constitution, RCADI is not qualified
to acquire land in the Philippines in the absence of proof that at leat 60% of the capital, properties or
assets of the RCADI is actually owned or controlled by Filipino citizens. LRC also denied the registration of
the Deed of Sale in the absence of proof of compliance with such requisite. RCADI’s Motion for
Reconsideration was denied. Aggrieved, the latter filed a petition for mandamus.

Issue:
Whether or not the Universal Roman Catholic Apostolic Church in the Philippines, or better still, the
corporation sole named the Roman Catholic Apostolic Administrator of Davao, Inc., is qualified to acquire
private agricultural lands in the Philippines pursuant to the provisions of Article XIII of the Constitution.

Ruling:
RCADI is qualified. While it is true and We have to concede that in the profession of their faith, the Roman
Pontiff is the supreme head; that in the religious matters, in the exercise of their belief, the Catholic
congregation of the faithful throughout the world seeks the guidance and direction of their Spiritual
Father in the Vatican, yet it cannot be said that there is a merger of personalities resultant therein. Neither
can it be said that the political and civil rights of the faithful, inherent or acquired under the laws of their
country, are affected by that relationship with the Pope. The fact that the Roman Catholic Church in
almost every country springs from that society that saw its beginning in Europe and the fact that the clergy
of this faith derive their authorities and receive orders from the Holy See do not give or bestow the
citizenship of the Pope upon these branches. Citizenship is a political right which cannot be acquired by a
sort of “radiation”. We have to realize that although there is a fraternity among all the catholic countries
and the dioceses therein all over the globe, the universality that the word “catholic” implies, merely
characterize their faith, a uniformity in the practice and the interpretation of their dogma and in the
exercise of their belief, but certainly they are separate and independent from one another in jurisdiction,
governed by different laws under which they are incorporated, and entirely independent on the others in
the management and ownership of their temporalities. To allow theory that the Roman Catholic Churches
all over the world follow the citizenship of their Supreme Head, the Pontifical Father, would lead to the
absurdity of finding the citizens of a country who embrace the Catholic faith and become members of that
religious society, likewise citizens of the Vatican or of Italy. And this is more so if We consider that the
Pope himself may be an Italian or national of any other country of the world. The same thing be said with
regard to the nationality or citizenship of the corporation sole created under the laws of the Philippines,
which is not altered by the change of citizenship of the incumbent bishops or head of said corporation
sole.

We must therefore, declare that although a branch of the Universal Roman Catholic Apostolic Church,
every Roman Catholic Church in different countries, if it exercises its mission and is lawfully incorporated

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in accordance with the laws of the country where it is located, is considered an entity or person with all
the rights and privileges granted to such artificial being under the laws of that country, separate and
distinct from the personality of the Roman Pontiff or the Holy See, without prejudice to its religious
relations with the latter which are governed by the Canon Law or their rules and regulations.

It has been shown before that: (1) the corporation sole, unlike the ordinary corporations which are formed
by no less than 5 incorporators, is composed of only one persons, usually the head or bishop of the
diocese, a unit which is not subject to expansion for the purpose of determining any percentage
whatsoever; (2) the corporation sole is only the administrator and not the owner of the temporalities
located in the territory comprised by said corporation sole; (3) such temporalities are administered for
and on behalf of the faithful residing in the diocese or territory of the corporation sole; and (4) the latter,
as such, has no nationality and the citizenship of the incumbent Ordinary has nothing to do with the
operation, management or administration of the corporation sole, nor effects the citizenship of the
faithful connected with their respective dioceses or corporation sole.

In view of these peculiarities of the corporation sole, it would seem obvious that when the specific
provision of the Constitution invoked by respondent Commissioner (section 1, Art. XIII), was under
consideration, the framers of the same did not have in mind or overlooked this particular form of
corporation. If this were so, as the facts and circumstances already indicated tend to prove it to be so,
then the inescapable conclusion would be that this requirement of at least 60 per cent of Filipino capital
was never intended to apply to corporations sole, and the existence or not a vested right becomes
unquestionably immaterial.

Republic v. Villanueva
G.R. No. L-55289 June 29, 1982

Facts:
Lots Nos. 568 and 569, located at Barrio Dampol, Plaridel, Bulacan, with an area of 313 square meters and
an assessed value of P1,350 were acquired by INC on January 9, 1953 from Andres Perez in exchange for
a lot with an area of 247 square meters owned by the said church. The said lots were already possessed
by Perez in 1933. They are not included in any military reservation. They are inside an area which was
certified as alienable or disposable by the Bureau of Forestry in 1927. The lots are planted to santol and
mango trees and banana plants. A chapel exists on the said land. The land had been declared for realty
tax purposes. Realty taxes had been paid therefor.

On September 13, 1977, INC filed with the CFI Bulacan an application for the registration of the two lots.
It alleged that it and its predecessors-in-interest had possessed the land for more than thirty years. The
trial court ordered the registration of the two lots.

Issue:
Whether or not the trial court erred in ordering the registration of two lots.

Ruling:
Section 11, Article XIV of the Constitution stated that "no private corporation or association may hold
alienable lands of the public domain except by lease not to exceed one thousand hectares in area". INC,
as a corporation sole or a juridical person, is disqualified to acquire or hold alienable lands of the public
domain, like the two lots in question, because of the constitutional prohibition already mentioned and
because the said church is not entitled to avail itself of the benefits of section 48(b) which applies only to

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Filipino citizens or natural persons. A corporation sole has no nationality (Roman Catholic Apostolic Adm.
of Davao, Inc. vs. Land Registration Commission, 102 Phil. 596. See Register of Deeds vs. Ung Siu Si Temple,
97 Phil. 58 and sec. 49 of the Public Land Law).

The contention in the comments of the INC that the two lots are private lands, following the rule laid
down in Susi vs. Razon and Director of Lands, 48 Phil. 424, is not correct. What was considered private
land in the Susi case was a parcel of land possessed by a Filipino citizen since time immemorial, as in Cariño
vs. Insular Government, 212 U.S. 449, 53 L. ed. 594, 41 Phil. 935 and 7 Phil. 132. The lots sought to be
registered in this case do not fall within that category. They are still public lands. A land registration
proceeding under section 48(b) "presupposes that the land is public" (Mindanao vs. Director of Lands, L-
19535, July 10, 1967, 20 SCRA 641, 644).

As held in Oh Cho vs. Director of Lands, 75 Phil. 890, "all lands that were not acquired from the
Government, either by purchase or by grant, belong to the public domain. An exception to the rule would
be any land that should have been in the possession of an occupant and of his predecessors-in-interest
since time immemorial, for such possession would justify the presumption that the land had never been
part of the public domain or that it had been a private property even before the Spanish conquest."

In Uy Un vs. Perez, 71 Phil. 508, it was noted that the right of an occupant of public agricultural land to
obtain a confirmation of his title under section 48(b) of the Public Land Law is a "derecho dominical
incoativo" and that before the issuance of the certificate of title the occupant is not in the juridical sense
the true owner of the land since it still pertains to the State.

The lower court's judgment is reversed and set aside. The application for registration of INC is dismissed
with costs against said applicant.

CIR vs. THE CLUB FILIPINO, INC. DE CEBU

GR No. L-12719 May 31, 1962

Facts:
The Club Filipino, is a civic corporation organized under the laws of the Philippines with an original
authorized capital stock of P22,000, which was subsequently increased to P200,000to operate and
maintain a golf course, tennis, gymnasiums, bowling alleys, billiard tables and pools, and all sorts of games
not prohibited by general laws and general ordinances, and develop and nurture sports of any kind and
any denomination for recreation and healthy training of its members and shareholders" (sec. 2, Escritura
de Incorporacion (Deed of Incorporation) del Club Filipino, Inc.). There is no provision either in the articles
or in the by-laws relative to dividends and their distribution, although it is covenanted that upon its
dissolution, the Club's remaining assets, after paying debts, shall be donated to a charitable Phil.
Institution in Cebu(Art. 27, Estatutos del (Statutes of the) Club).The Club owns and operates a club house,
a bowling alley, a golf course (on a lot leased from the government), and a bar-restaurant where it sells
wines and liquors, soft drinks, meals and short orders to its members and their guests. The bar-restaurant
was a necessary incident to the operation of the club and its golf-course. The club is operated mainly with
funds derived from membership fees and dues. Whatever profits it had, were used to defray its overhead
expenses and to improve its golf-course. In 1951, as a result of a capital surplus, arising from the re-
valuation of its real properties, the value or price of which increased, the Club declared stock dividends;
but no actual cash dividends were distributed to the stockholders. In 1952, a BIR agent discovered that
the Club has never paid percentage tax on the gross receipts of its bar and restaurant, although it secured
licenses. In a letter, the Collector assessed against and demanded from the Club P12,068.84 as fixed and

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percentage taxes, surcharge and compromise penalty. Also, the Collector denied the Club’s request to
cancel the assessment. On appeal, the CTA reversed the Collector and ruled that the Club is not liable for
the assessed tax liabilities of P12,068.84allegedly due from it as a keeper of bar and restaurant as it is a
non-stock corporation. Hence, the Collector filed the instant petition for review.

Issue:
1. Whether or not the Club is a stock corporation.
2. Whether or not the Club is liable for the payment of P12,068.84, as fixed and percentage taxes
and surcharges prescribed in sec.182, 183 and 191 of the Tax Code, in connection with the
operation of its bar and restaurant; and for P500 as compromise penalty.

Ruling:
1. NO. It is a non-stock corporation. The facts that the capital stock of the Club is divided into shares, does
not detract from the finding of the trial court that it is not engaged in the business of operator of bar and
restaurant. What is determinative of whether or not the Club is engaged in such business is its object or
purpose, as stated in its articles and by-laws. The actual purpose is not controlled by the corporate form
or by the commercial aspect of the business prosecuted, but maybe shown by extrinsic evidence, including
the by-laws and the method of operation. From the extrinsic evidence adduced, the CTA concluded that
the Club is not engaged in the business as a barkeeper and restaurateur. For a stock corporation to exist,
two requisites must be complied with:

 a capital stock divided into shares and

 an authority to distribute to the holders of such shares, dividends or allotments of the surplus
profits on the basis of the shares held (sec. 3, Act No. 1459).

Nowhere in its articles of incorporation or by-laws could be found an authority for the distribution of its
dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation,
within the contemplation of the corpo law.

2. NO. A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit,
nonstock organizations, unless the intent to the contrary is manifest and patent" (Collector v. BPOE Elks
Club, et al.), which is not the case here. Having found as a fact that the Club was organized to develop and
cultivate sports of all class and denomination, for the healthful recreation and entertainment of its
stockholders and members; that upon its dissolution, its remaining assets, after paying debts, shall be
donated to a charitable Phil. Institution in Cebu; that it is operated mainly with funds derived from
membership fees and dues; that the Club's bar and restaurant catered only to its members and their
guests; that there was in fact no cash dividend distribution to its stockholders and that whatever was
derived on retail from its bar and restaurant was used to defray its overall overhead expenses and to
improve its golf-course (cost-plus-expenses-basis), it stands to reason that the Club is not engaged in the
business of an operator of bar and restaurant.

The liability for fixed and percentage taxes, as provided by these sections, does not ipso facto attach by
mere reason of the operation of a bar and restaurant. For the liability to attach, the operator thereof must
be engaged in the business as a barkeeper and restaurateur. The plain and ordinary meaning of business
is restricted to activities or affairs where profit is the purpose or livelihood is the motive, and the term
business when used without qualification, should be construed in its plain and ordinary meaning,
restricted to activities for profit or livelihood (CIR v. Manila Lodge & CTA, 1959; CIR v. Sweeney, et al.,

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1959; Manila Polo Club v. B. L. Meer, 1960). The Club derived profit from the operation of its bar and
restaurant, but such fact does not necessarily convert it into a profit-making enterprise. The bar and
restaurant are necessary adjuncts of the Club to foster its purposes and the profits derived therefrom are
necessarily incidental to the primary object of developing and cultivating sports for the healthful
recreation and entertainment of the stockholders and members. That a Club makes some profit, does not
make it a profit-making Club. As has been remarked a club should always strive, whenever possible, to
have surplus (Jesus Sacred Heart College v. CIR, 1954; CIR v. Sinco Educational Corp., 1956).

[2.g] Classification of Corporation as to Relationship of Management and Control

- Holding Company
A corporation that limits its business to the ownership of stock in and the supervision of management of
other corporations. A holding company is organized specifically to hold the stock of other companies and
ordinarily owns such a dominant interest in the other company or companies that it can dictate policy.
Holding companies must comply with the federal antitrust laws that proscribe the secret and total
acquisition of the stock of one corporation by another, since this would lessen competition and create a
Monopoly.

- Affiliate Company
Corporations where one is the subsidiary of the other, both are subsidiaries of the same corporation, or
both are controlled by the same person. One corporation is the subsidiary of another if it is controlled by
the other. These are the basic and most common types of affiliated corporations. If two corporations are
affiliated with the same corporation, they are deemed to be affiliated. “Control” for the purpose of the
definition of “affiliate” is legal control: holding voting securities of the corporation that carry more than
50 percent of the votes that may be cast for the election of directors, where such votes are sufficient to
elect a majority of the board of directors.

For corporate law and taxes, when a company is under the same umbrella as another company, whether
as a member or subordinate, that company is deemed an affiliate. Two companies may fall under one
umbrella if an affiliate is less than 50 percent owned by the parent company. In this case, one company
will have control, or a third party may take control. Two corporations may be affiliated with one another
when a minority interest shareholding (this must fall under the 50 percent previously mentioned) is in
place or when the corporations are subsidiaries of each other.

- Parent and Subsidiary Company

A Parent Company is a company that controls or owns another company or companies through holding
majority of its voting stock. The company which is controlled by the parent company is called the
subsidiary company. Parent company has working control of the subsidiary company through stock
ownership. Having a majority of the voting stock enables the parent company to dictate the policies or
materially influence the management of its subsidiary.

A subsidiary corporation or company is one in which another, generally larger, corporation, known as the
parent corporation, owns all or at least a majority of the shares. As the owner of the subsidiary, the parent
corporation may control the activities of the subsidiary. This arrangement differs from a merger, in which
a corporation purchases another company and dissolves the purchased company's organizational
structure and identity.

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Manuel R. Dulay Enterprises vs. Court of Appeals
GR 91889 August 27 1993

Facts:
Manuel R. Dulay Enterprises, Inc., a domestic corporation with the following as members of its Board of
Directors: Manuel R. Dulay with 19,960 shares and designated as president, treasurer and general
manager; Atty. Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E. Dulay with 10
shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and designated as
secretary, owned a property covered by TCT 17880 4 and known as Dulay Apartment consisting of 16
apartment units on a 689 square meter lot, more or less, located at Seventh Street (now Buendia
Extension) and F.B. Harrison Street, Pasay City. The corporation through its president, Manuel Dulay,
obtained various loans for the construction of its hotel project, Dulay Continental Hotel (now Frederick
Hotel). It even had to borrow money from Virgilio Dulay to be able to continue the hotel project. As a
result of said loan, Virgilio Dulay occupied one of the unit apartments of the subject property since 1973
while at the same time managing the Dulay Apartment as his shareholdings in the corporation was
subsequently increased by his father.

On 23 December 1976, Manuel Dulay by virtue of Board Resolution 18 of the corporation sold the subject
property to spouses Maria Theresa and Castrense Veloso in the amount of P300,000.00 as evidenced by
the Deed of Absolute Sale. Thereafter, TCT 17880 was cancelled and TCT 23225 was issued to Maria
Theresa Veloso. Subsequently, Manuel Dulay and the spouses Veloso executed a Memorandum to the
Deed of Absolute Sale of 23 December 1976 dated 9 December 1977 giving Manuel Dulay within 2 years
or until 9 December 1979 to repurchase the subject property for P200,000.00 which was, however, not
annotated either in TCT 17880 or TCT 23225. On 24 December 1976, Maria Veloso, without the knowledge
of Manuel Dulay, mortgaged the subject property to Manuel A. Torres for a loan of P250,000.00 which
was duly annotated as Entry 68139 in TCT 23225. Upon the failure of Maria Veloso to pay Torres, the
subject property was sold on 5 April 1978 to Torres as the highest bidder in an extrajudicial foreclosure
sale as evidenced by the Certificate of Sheriff's Sale issued on 20 April 1978.

On 20 July 1978, Maria Veloso executed a Deed of Absolute Assignment of the Right to Redeem in favor
of Manuel Dulay assigning her right to repurchase the subject property from Torres as a result of the
extrajudicial sale. As neither Maria Veloso nor her assignee Manuel Dulay was able to redeem the subject
property within the one year statutory period for redemption, Torres filed an Affidavit of Consolidation of
Ownership with the Registry of Deeds of Pasay City and TCT 24799 was subsequently issued to Torres on
23 April 1979. On 1 October 1979, Torres filed a petition for the issuance of a writ of possession against
spouses Veloso and Manuel Dulay in LRC Case 1742-P. However, when Virgilio Dulay appeared in court to
intervene in said case alleging that Manuel Dulay was never authorized by the corporation to sell or
mortgage the subject property, the trial court ordered Torres to implead the corporation as an
indispensable party but the latter moved for the dismissal of his petition which was granted in an Order
dated 8 April 1980. On 20 June 1980, Torres and Edgardo Pabalan, real estate administrator of Torres,
filed an action against the corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay
Apartment Unit No. 8-A for the recovery of possession, sum of money and damages with preliminary
injunction in Civil Case 8198-P with the then Court of First Instance of Rizal. On 21 July 1980, the
corporation filed an action against spouses Veloso and Torres for the cancellation of the Certificate of
Sheriff's Sale and TCT 24799 in Civil Case 8278-P with the then Court of First Instance of Rizal.

On 29 January 1981, Pabalan and Torres filed an action against spouses Florentino and Elvira Manalastas,
a tenant of Dulay Apartment Unit No. 7-B, with the corporation as intervenor for ejectment in Civil Case

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38-81 with the Metropolitan Trial Court of Pasay City which rendered a decision on 25 April 1985, in favor
of Pabalan, et al., ordering the spouses Manalastas and all persons claiming possession under them to
vacate the premises; and to pay the rents in the sum of P500.00 a month from May 1979 until they shall
have vacated the premises with interest at the legal rate; and to pay attorney's fees in the sum of
P2,000.00 and P1,000.00 as other expenses of litigation and for them to pay the costs of the suit.

Thereafter or on 17 May 1985, the corporation and Virgilio Dulay filed an action against the presiding
judge of the Metropolitan Trial Court of Pasay City, Pabalan and Torres for the annulment of said decision
with the Regional Trial Court of Pasay in Civil Case 2880-P. Thereafter, the 3 cases were jointly tried and
the trial court rendered a decision in favor of Pabalan and Torres.

Not satisfied with said decision, the corporation, et al. appealed to the Court of Appeals which rendered
a decision on 23 October 1989, affirming the trial court decision. On 8 November 1989, the corporation,
et al. filed a Motion for Reconsideration which was denied on 26 January 1990. The corporation, et al.
filed the petition for review on certiorari. During the pendency of the petition, Torres died on 3 April 1991
as shown in his death certificate and named Torres Pabalan Realty & Development Corporation as his heir
in his holographic will dated 31 October 1986.

Issue:
Whether or not the sale of the subject property between spouses Veloso and Manuel Dulay has no binding
effect on the corporation as Board Resolution 18 which authorized the sale of the subject property was
resolved without the approval of all the members of the board of directors and said Board Resolution was
prepared by a person not designated by the corporation to be its secretary.

Ruling:
Section 101 of the Corporation Code of the Philippines provides that "When board meeting is unnecessary
or improperly held. Unless the by-laws provide otherwise, any action by the directors of a close
corporation without a meeting shall nevertheless be deemed valid if: (1) Before or after such action is
taken, written consent thereto is signed by all the directors; or (2) All the stockholders have actual or
implied knowledge of the action and make no prompt objection thereto in writing; or (3) The directors
are accustomed to take informal action with the express or implied acquiesce of all the stockholders; or
(4) All the directors have express or implied knowledge of the action in question and none of them makes
prompt objection thereto in writing. If a directors' meeting is held without proper call or notice, an action
taken therein within the corporate powers is deemed ratified by a director who failed to attend, unless
he promptly files his written objection with the secretary of the corporation after having knowledge
thereof."

Herein, the corporation is classified as a close corporation and consequently a board resolution
authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the
action of its president. At any rate, a corporate action taken at a board meeting without proper call or
notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his
written objection with the secretary of the corporation after having knowledge of the meeting which, in
this case, Virgilio Dulay failed to do.

The corporation's claim that the sale of the subject property by its president, Manuel Dulay, to spouses
Veloso is null and void as the alleged Board Resolution 18 was passed without the knowledge and consent
of the other members of the board of directors cannot be sustained. Virgilio E. Dulay's protestations of
complete innocence to the effect that he never participated nor was even aware of any meeting or

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resolution authorizing the mortgage or sale of the subject premises is difficult to believe. On the contrary,
he is very much privy to the transactions involved. To begin with, he is an incorporator and one of the
board of directors designated at the time of the organization of Manuel R. Dulay Enterprises, Inc. In
ordinary parlance, the said entity is loosely referred to as a "family corporation." The nomenclature, if
imprecise, however, fairly reflects the cohesiveness of a group and the parochial instincts of the individual
members of such an aggrupation of which Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its
incorporators being close relatives namely, 3 children and their father whose name identifies their
corporation. Besides, the fact that Virgilio Dulay on 24 June 1975 executed an affidavit that he was a
signatory witness to the execution of the post-dated Deed of Absolute Sale of the subject property in favor
of Torres indicates that he was aware of the transaction executed between his father and Torres and had,
therefore, adequate knowledge about the sale of the subject property to Torres. Consequently, the
corporation is liable for the act of Manuel Dulay and the sale of the subject property to Torres by Manuel
Dulay is valid and binding.

FINANCING CORP vs. TEODORO

G.R. No. L-4900 August 31, 1953

Facts:
Lopez Vda. de Lizares, Encarnacion Lizares Vda. de Panlilio and Efigenia Vda. de Paredes, in their own
behalf and in behalf of the other minority stockholders of the Financing Corporation of the Philippines,
filed a complaint against the said corporation and J. Amado Araneta, its president and general manager,
claiming among other things alleged gross mismanagement and fraudulent conduct of the corporate
affairs of the defendant corporation by J. Amado Araneta, and asking that the corporation be dissolved;
that J. Amado Araneta be declared personally accountable for the amounts of the unauthorized and
fraudulent disbursements and disposition of assets made by him, and that he be required to account for
said assets, and that pending trial and disposition of the case on its merits a receiver be appointed to take
possession of the books, records and assets of the defendant corporation preparatory to its dissolution
and liquidation and distribution of the assets. Over the strong objection of the defendants, the trial court
presided by respondent Judge Jose Teodoro, granted the petition for the appointment of a receiver and
designated Mr. Alfredo Yulo as such receiver with a bond of P50,000. Failing to secure a reconsideration
of the order appointing a receiver, the defendants in said case, Financing Corporation of the Philippines
and J. Amado Araneta, as petitioners, have filed the present petition for certiorari with preliminary
injunction to revoke and set aside the order. Acting upon that part of the petition asking for a writ of
preliminary injunction, a majority of the court granted the same upon the filing of a bond by the
petitioners in the sum of P50,000.

The main contention of the petitioners in opposing the appointment of a receiver in this case is that said
appointment is merely an auxiliary remedy; that the principal remedy sought by the respondents in the
action in Negros Occidental was the dissolution of the Financing Corporation of the Philippines; that
according to the law a suit for the dissolution of a corporation can be brought and maintained only by the
State through its legal counsel, and that respondents, much less the minority stockholders of said
corporation, have no right or personality to maintain the action for dissolution, and that inasmuch as said
action cannot be maintained legally by the respondents, then the auxiliary remedy for the appointment
of a receiver has no basis.

Issue:
Whether or not minority stockholders can sue and demand for the corporation’s dissolution.

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Ruling:
True it is that the general rule is that the minority stockholders of a corporation cannot sue and demand
its dissolution. However, there are cases that hold that even minority stockholders may ask for dissolution,
this, under the theory that such minority members, if unable to obtain redress and protection of their
rights within the corporation, must not and should not be left without redress and remedy. This was what
probably prompted this Court to state in the case of Hall, et al. vs. Judge Piccio, that even the existence of
a de jure corporation may be terminated in a private suit for its dissolution by the stockholders without
the intervention of the State. It was therein further held that although there might be some room for
argument on the right of minority stockholders to ask for dissolution, -that question does not affect the
court's jurisdiction over the case, and that the remedy by the party dissatisfied was to appeal from the
decision of the trial court. We repeat that although as a rule, minority stockholders of a corporation may
not ask for its dissolution in a private suit, and that such action should be brought by the Government
through its legal officer in a quo warranto case, at their instance and request, there might be exceptional
cases wherein the intervention of the State, for one reason or another, cannot be obtained, as when the
State is not interested because the complaint is strictly a matter between the stockholders and does not
involve, in the opinion of the legal officer of the Government, any of the acts or omissions warranting quo
warranto proceedings, in which minority stockholders are entitled to have such dissolution. When such
action or private suit is brought by them, the trial court had jurisdiction and may or may not grant the
prayer, depending upon the facts and circumstances attending it. The trial court's decision is of course
subject to review by the appellate tribunal. Having such jurisdiction, the appointment of a receiver
pendente lite is left to the sound discretion of the trial court. As was said in the case of Angeles vs. Santos,
the action having been properly brought and the trial court having entertained the same, it was within
the power of said court upon proper showing to appoint a receiver pendente lite for the corporation; that
although the appointment of a receiver upon application of the minority stockholders is a power to be
exercised with great caution, nevertheless, it should be exercised necessary in order not to entirely ignore
and disregard the rights of said minority stockholders, especially when said minority stockholders are
unable to obtain redress and protection of their rights within the corporation itself.

In conclusion, we hold that the trial court through respondent Judge Teodoro had jurisdiction and properly
entertained the original case; that he also had jurisdiction to appoint a receiver pendente lite, and
considering the allegations made in connection with the petition for the appointment of a receiver, he
neither exceeded his jurisdiction nor abused his discretion in appointing a receiver. The petition for
certiorari is hereby denied, with costs. The writ of preliminary injunction heretofore issued is hereby
ordered dissolved.

B. FORMATIONS OF CORPORATIONS

[1.a] Promoters – Revised Securities Act Section 2 (r):

“’Promoter’ includes (1) any person who, acting alone or in conjunction with one or more other
persons, directly or indirectly, takes initiative in founding and organizing the business or enterprise of an
issuer; or (2) any person who, in connection with the founding and organizing of the business of an issuer,
directly or indirectly, receives in consideration of services or property or both services or property ten
(10%) per centum or more of any class of securities of the issuer or ten (10%) per centum or more of the
proceeds from the sale of any class of such securities. However, a person who receives such securities or
proceeds either solely as underwriting commissions or solely as consideration of property shall not be
deemed a promoter within the meaning of this paragraph if such person does not otherwise take part in
founding and organizing the enterprise. “

10
CAGAYAN FISHING DEVELOPMENT vs. SANDIKO
G.R. No. 43350 December 23, 1937

Facts:
Manuel Tabora is the registered owner of four parcels of land and he wanted to build a Fishery. He loaned
from PNB P8,000 and to guarantee the payment of the loan, he mortgaged the said parcels of land. Three
subsequent mortgages were executed in favor of the same bank and to Severina Buzon, whom Tabora is
indebted to. Tabora sold the four parcels of land to the plaintiff company, said to be under process of
incorporation, in consideration of one peso (P1) subject to the mortgages in favor of PNB and Severina
Buzon and, to the condition that the certificate of title to said lands shall not be transferred to the name
of the plaintiff company until the latter has fully and completely paid Tabora’s indebtedness to PNB.

The articles of incorporation were filed and the company sold the parcels of land to Sandiko on the
reciprocal obligation that Sandiko will shoulder the three mortgages. A deed of sale executed before a
notary public by the terms of which the plaintiff sold, ceded and transferred to the defendant all its rights,
titles and interest in and to the four parcels of land. He executed a promissory note that he shall pay
25,300 after a year with interest and on the promissory notes, the parcels were mortgage as security.

A promissory note for P25,300 was drawn by the defendant in favor of the plaintiff, payable after one year
from the date thereof. Further, a deed of mortgage executed before a notary public in accordance with
which the four parcels of land were given as security for the payment of the said promissory note. All
these three instruments were dated February 15, 1932.

Sandiko failed to pay, thus the action for payment. The lower court held that deed of sale was invalid. The
corporation filed a motion for reconsideration.

Issue:
1.Whether or not Cagayan Fishing Dev’t. has juridical capacity to enter into the contract.

2. Can promoters of a corporation act as agents of a corporation?

Ruling:

1. The transfer made by Tabora to the Cagayan Fishing Development Co., Inc., plaintiff herein, was
effected on May 31, 1930 and the actual incorporation of said company was effected later on October 22,
1930. In other words, the transfer was made almost five months before the incorporation of the company.

A duly organized corporation has the power to purchase and hold such real property as the purposes for
which such corporation was formed may permit and for this purpose may enter into such contracts as
may be necessary. But before a corporation may be said to be lawfully organized, many things have to be
done. Among other things, the law requires the filing of articles of incorporation. Although there is a
presumption that all the requirements of law have been complied with, in the case before us it can not
be denied that the plaintiff was not yet incorporated when it entered into the contract of sale.

The contract itself referred to the plaintiff as “una sociedad en vias de incorporacion.” It was not even a
de facto corporation at the time. Not being in legal existence then, it did not possess juridical capacity to
enter into the contract.

11
“Corporations are creatures of the law, and can only come into existence in the manner prescribed by
law. As has already been stated, general laws authorizing the formation of corporations are general offers
to any persons who may bring themselves within their provisions; and if conditions precedent are
prescribed in the statute, or certain acts are required to be done, they are terms of the offer, and must
be complied with substantially before legal corporate existence can be acquired.”

“That a corporation should have a full and complete organization and existence as an entity before it can
enter into any kind of a contract or transact any business, would seem to be self-evident. . . . A corporation,
until organized, has no being, franchises or faculties. Nor do those engaged in bringing it into being have
any power to bind it by contract, unless so authorized by the charter. Until organized as authorized by the
charter there is not a corporation, nor does it possess franchises or faculties for it or others to exercise,
until it acquires a complete existence.”

2. The contract here was entered into not only between Manuel Tabora and a non-existent corporation
but between Manuel Tabora as owner of four parcels of land on the one hand and the same Manuel
Tabora, his wife and others, as mere promoters of a corporation on the other hand. For reasons that are
self-evident, these promoters could not have acted as agents for a projected corporation since that which
had no legal existence could have no agent. A corporation, until organized, has no life and therefore no
faculties. It is, as it were, a child in ventre sa mere. This is not saying that under no circumstances may the
acts of promoters of a corporation be ratified by the corporation if and when subsequently organized.
There are, of course, exceptions, but under the peculiar facts and circumstances of the present case we
decline to extend the doctrine of ratification which would result in the commission of injustice or fraud to
the candid and unwary.

The transfer by Manuel Tabora to the Cagayan Fishing Development Company, Inc. was null because at
the time it was effected the corporation was non-existent, we deem it unnecessary to discuss this point.

RIZAL LIGHT & ICE CO. vs. THE MUNICIPALITY OF MORONG

G.R. No. L-20993 September 28, 1968

Facts:
The bulk of petitioner's arguments assailing the personality of Morong Electric dwells on the proposition
that since a franchise is a contract, 23 at least two competent parties are necessary to the execution
thereof, and parties are not competent except when they are in being. Hence, it is contended that until a
corporation has come into being, in this jurisdiction, by the issuance of a certificate of incorporation by
the Securities and Exchange Commission (SEC) it cannot enter into any contract as a corporation. The
certificate of incorporation of the Morong Electric was issued by the SEC on October 17,1962, so only from
that date, not before, did it acquire juridical personality and legal existence. Petitioner concludes that the
franchise granted to Morong Electric on May 6, 1962 when it was not yet in esse is null and void and
cannot be the subject of the Commission's consideration.

On the other hand, Morong Electric argues, and to which argument the Commission agrees, that it was a
de facto corporation at the time the franchise was granted and, as such, it was not incapacitated to enter
into any contract or to apply for and accept a franchise. Not having been incapacitated, Morong Electric
maintains that the franchise granted to it is valid and the approval or disapproval thereof can be properly
determined by the Commission.

12
Issue:
Whether or not the lack of corporate existence on the part of Morong rendered the franchise invalid.

Ruling:
No. The incorporation of (Morong) and its acceptance of the franchise as shown by this action in
prosecuting the application filed with the Commission for approval of said franchise, not only perfected a
contract between the municipality and Morong but also cured the deficiency pointed out by the petition.
The fact that Morong did not have a corporate existence on the day the franchise was granted does not
render the franchise invalid, as Morong later obtained its certificate of incorporation and accepted the
franchise.

CARAM JR. vs. CA

G.R. No. L-48627 June 30, 1987

Doctrine: A bona fide corporation is liable for its corporate acts as duly authorized by its officers and
directors.

Facts: Respondent Alberto Arellano was contracted by Barretto and Garcia to do a project study and other
technical services in forming a corporation, which was later on named Filipinas Orient Airways. The project
study was presented by Barretto and Garcia to the Carams. After seeing the project study, the Carams
were convinced to invest and become stockholders of the said company. The case involves the collection
of the unpaid compensation for Arellano’s services. The CA decided that the Carams were jointly and
severally liable to Arellano stating that:
“It was on the basis of this study that defendant corporation was actually organized and rendered
operational. Defendants Garcia and Caram, and Barretto became members of the Board and/or officers
of defendant corporation. Thus, not only the defendant corporation but all the other defendants who
were involved in the preparatory stagesof the incorporation, who caused the preparation and/or
benefited from the project study and the technical services of plaintiff must be liable”.
Hence this petition.

Issue:
Whether or not the petitioners should be held liable.

Ruling:
NO. The petitioners were not involved in the initial stages of the organization of the airline. They were
merely among the financiers whose interest was to be invited and who were in fact persuaded, on the
strength of the project study, to invest in the proposed airline. There was no showing that the Airline was
a fictitious corporation and did not have a separate juridical personality to justify making the petitioners,
as principal stockholders thereof, responsible for its obligations. As a bona fide corporation, the Airline
should alone be liable for its corporate acts as duly authorized by its officers and directors. Granting that
the petitioners benefited from the services rendered, such is no justification to hold them personally liable
therefor. Otherwise, all the other stockholders of the corporation, including those who came in late, and
regardless of the amount of their shareholdings, would be equally and personally liable also with the
petitioner for the claims of the private respondent.

Petitioners cannot be held personally liable for the compensation claimed by the private
respondent for the services performed by him in the organization of the corporation. To repeat, the
petitioners did not contract such services. It was only the results of such services that Barretto and Garcia

13
presented to them and which persuaded them to invest in the proposed airline. The most that can be said
is that they benefited from such services, but that surely is no justification to hold them personally liable
there for. A promoter could not have acted as agent for a corporation that had no legal existence. A
corporation, until organized, has no life therefore no faculties. The corporation had no juridical personality
to enter into a contract.

Trillana vs Quezon College

G. R. No. L-5003 June 27, 1953

Facts:
Damasa Crisostomo 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, Damasa
Crisostomo 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:
Whether or not the condition entered into by both parties are valid.

Ruling:
No. It is not necessary for us to discuss at length appellant's various assignments of error relating to the
propriety of the ground relied upon by the trial court, since, as pointed out in the brief for the
administrator and appellee, there are other decisive considerations which, though not touched by the
lower court, amply sustained the appealed order.

It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc. was written on a
general form indicating that an applicant will enclose an amount as initial payment and will pay the
balance in accordance with law and the rules or regulations of the College. On the other hand, in the
letter actually sent by Damasa Crisostomo, the latter (who requested that her subscription for 200 shares
be entered) not only did not enclose any initial payment but stated that "babayaran kong lahat pagkatapos
na ako ay makapagpahuli ng isda." There is nothing in the record to show that the Quezon College, Inc.
accepted the term of payment suggested by Damasa Crisostomo, or that if there was an acceptance the
same came to her knowledge during her lifetime. As the application of Damasa Crisostomo is obviously
at variance with the terms evidenced in the form letter issued by the Quezon College, Inc., there was
absolute necessity on the part of the College to express its agreement to Damasa's offer in order to bind
the latter. Conversely, said acceptance was essential, because it would be unfair to immediately obligate
the Quezon College, Inc. under Damasa's promise to pay the price of the subscription after she had caused
fish to be caught. In other words, the relation between Damasa Crisostomo and the Quezon College, Inc.
had only thus reached the preliminary stage whereby the latter offered its stock for subscription on the
terms stated in the form letter, and Damasa applied for subscription fixing her own plan of payment,-a
relation, in the absence as in the present case of acceptance by the Quezon College, Inc. of the counter
offer of Damasa Crisostomo, that had not ripened into an enforceable contract.

Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more
imperative, in view of the proposal of Damasa Crisostomo to pay the value of the subscription after she
had harvested fish, a condition obviously dependent upon her sole will and, therefore, facultative in

14
nature, rendering the obligation void, under article 1115 of the old Civil Code which provides as follows:
"If the fulfillment of the condition should depend upon the exclusive will of the debtor, the conditional
obligation shall be void. If it should depend upon chance, or upon the will of a third person, the obligation
shall produce all its effects in accordance with the provisions of this code." It cannot be argued that the
condition solely is void, because it would have served to create the obligation to pay, unlike a case,
exemplified by Osmeña vs. Rama (14 Phil., 99), wherein only the potestative condition was held void
because it referred merely to the fulfillment of an already existing indebtedness.

In the case of Taylor vs. Uy Tieng Piao et al. (43 Phil., 873, 879), this Court already held that "a condition,
facultative as to the debtor, is obnoxious to the first sentence contained in article 1115 and renders the
whole obligation void."

Bayla vs. Silang Traffic

73 Phil 557 May 1, 1942

Facts:
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 absolved the corporation and forfeited the petitioners’ shares and payments to the corporation.
The Court of Appeals affirmed the decision but allowed the petitioners 30 days to pay the arrears in their
subscription. From this decision, petitioner and respondent appealed to the Supreme Court.

Issue:
Were 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?

Ruling:
No. The Court held that for their stocks to be forfeited to the corporation, a demand must first be given by the
corporation for the payments due on or before July 31. It did not automatically revert to the corporation. Under
Article 1100 of the Civil Code, persons obliged to deliver or do something are not in default until the moment
the creditor demands of them judicially or extra-judicially the fulfillment of their obligation. The current situation
does not fall under 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. As such, the Court reversed the
decision of the Court of Appeals and ordered Silang Traffic Co. to refund the petitioners’ money.

15
Velasco vs Poizat
GR No. 11528 March 15, 1918

Doctrine: 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.
When insolvency supervenes, all unpaid subscriptions become at once due and enforceable.
Corollary Rule: 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.

Facts:
The corporation has a capital of P50,000, divided into 500 shares. The defendant subscribed for 20 shares
of the stock of the company, and paid in upon his subscription the sum of P500, the par value of 5 shares.
In short, defendant subscribed to 20 shares but only paid for 5 shares. In July 13, 1914, a meeting of the
board of directors of the company was held at which a majority of the stock was represented. Upon this
occasion two resolutions, important to be here noted, were adopted. The first was a proposal that the
directors, or shareholders, of the company should make good by new subscriptions, in proportion to their
respective holdings, 15 shares which had been surrendered by another shareholder, Infante. It was agreed
that Infante was to be released from the obligation of his subscription. The other proposition was to the
effect that the defendant 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.

Board made a call for payment through a resolution. Defendant refused to pay. Corporation became
insolvent. Assignee in insolvency who is the plaintiff sued the defendant to recover the amount subscribed
upon the remaining shares.

The principal contention of the defendant is that the call made by the board of directors of the company
on July 13, 1914, was not made pursuant to the requirements of sections 37 and 38 of the Corporation
Law (Act No. 1459), i.e. the call was invalid for lack of publication.
Court of First Instance rendered judgment in favor of the defendant, and the complaint was dismissed.
From this action the plaintiff has appealed.

Issues:
Whether or not defendant is liable to the unpaid subscription

Ruling:
YES. Corporation Law clearly recognizes that a stock subscription is a subsisting liability from the time the
subscription is made, since it requires the subscriber to pay interest quarterly from that date unless he is
relieved from such liability by the by-laws of the corporation. The subscriber is 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.
It evidently cannot be permitted that a subscriber should escape from his lawful obligation by reason of
the failure of the officers of the corporation to perform their duty in making a call.
When insolvency supervenes upon a corporation and the court assumes jurisdiction to wind it 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.
The Board call became immaterial when insolvency supervenes; all unpaid subscriptions become at once
due and enforceable.

16
From what has been said it is manifest that the defendant is liable for P1,500, the amount of his
subscription upon the unpaid shares. Under section 36 of 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.

PHILIPPINE NATIONAL BANK v. BITULOK SAWMILL

GR No. L-24177-85, 1968-06-29

DECISION

In the face of a statutory norm, which, as interpreted in a uniform line of decisions by this Court, speaks
unequivocally and is free from doubt, the lower court with full recognition that the case for the plaintiff
creditor, Philippine National Bank, "is meritorious strictly from the legal standpoint" 1 but apparently
unable to "close its eyes to the equity of the case" 2 dismissed nine (9) cases filed by it, seeking "to recover
from the defendant lumber producers [Bitulok Sawmill, Inc.; Dingalan Lumber Co., Inc., Sierra Madre
Lumber Co., Inc.; Nasipit Lumber Co., Inc.; Woodworks, Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay
Millar Lumber Co., Inc.; Insular Lumber Co., Inc.; Anakan Lumber Co., Inc.; and Cantilan Lumber Co., Inc.]
the balance of their stock subscriptions to the Philippine Lumber Distributing Agency, Inc." 3 In essence
then, the crucial question posed by this appeal from such a decision of the lower court is adherence to
the rule of law. Otherwise stated, would non-compliance with a plain statutory command, considering the
persuasiveness of the plea that defendants-appellees would "not have subscribed to [the] capital stock"
of the Philippine Lumber Distributing Agency "were it not for the assurance of the [then] President of the
Republic of the Philippines that the Government would back [it] up by investing P9.00 for every peso" 4
subscribed, a condition which was not fulfilled, such commitment not having been complied with, be
justified? The answer must be in the negative.

It cannot be otherwise even if an element of unfairness and injustice could be predicated, as the lower
court, in a rather sympathetic mood, did find in the plaintiff bank, as creditor, compelling defendant
lumber producers under the above circumstances to pay the balance of their subscriptions. For a plain
and statutory command, if applicable, must be respected. The rule of law cannot be satisfied with anything
less. The appeal must be sustained.

In these various suits decided jointly, the Philippine National Bank, as creditor, and therefore the real
party in interest, was allowed by the lower court to substitute the receiver of the Philippine Lumber
Distributing Agency in these respective actions for the recovery from defendant lumber producers the
balance of their stock subscriptions. The amount sought to be collected from defendants-appellees Bitulok
Sawmill, Inc., Dingalan Lumber Co., Inc., and Sierra Madre Lumber Co., Inc., is P5,000.00, defendants-
appellees having made a partial payment of P15,000.00 of their total subscription worth P20,000.00; from
defendant-appellee Nasipit Lumber Co., Inc., the sum of P10,000.00, defendant-appellee having made a
partial payment of P10,000.00 of its total subscription worth P20,000.00; from defendant-appellee
Woodworks, Inc., the sum of P10,886.00, defendant-appellee having made a partial payment of P9,114.00
of its total subscription worth P20,000.00; from defendant-appellee Gonzalo Puyat the sum of P10,000.00,
defendant-appellee having made a partial payment of P10,000.00 of his total subscription worth
P20,000.00; from defendant-appellee Tomas Morato the sum of P10,000.00, defendant-appellee having
made a partial payment of P10,000.00 of his total subscription worth P20,000.00; from defendant-
appellee Findlay Millar Lumber Co., Inc., the sum of P10,000.00, defendant-appellee having made a partial
payment of P10,000.00 of its total subscription worth P20,000.00; from defendant-appellee Insular
Lumber Co., Inc., the sum of P5,000.00, defendant-appellee having made a partial payment of P15,000.00

17
of its total subscription worth P20,000.00; from defendant-appellee Anakan Lumber Co., Inc., the sum of
P15,000.00, defendant-appellee having made a partial payment of P5,000.00 of its total subscription
worth P20,000.00; and from defendant-appellee Cantilan Lumber Co., Inc., the sum of P7,500.00,
defendant-appellee having made a partial payment of P2,500.00 of its total subscription worth
P10,000.00, plus interest at the legal rate from the filing of the suits and the costs of the suits in all the
nine (9) cases.

The Philippine Lumber Distributing Agency, Inc., according to the lower court, "was organized sometime
in the early part of 1947 upon the initiative and insistence of the late President Manuel Roxas of the
Republic of the Philippines who for the purpose, had called several conferences between him and the
subscribers and organizers of the Philippine Lumber Distributing Agency, Inc." 5 The purpose was
praiseworthy, to insure a steady supply of lumber, which could be sold at reasonable prices to enable the
war sufferers to rehabilitate their devastated homes. The decision continues: "He convinced the lumber
producers to form a lumber cooperative and to pool their sources together in order to wrest, particularly,
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 the late President Roxas made it clear that such a cooperative agency
would not be successful without a substantial working capital which the lumber producers could not
entirely shoulder, and as an inducement he 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,...." 6

This was the assurance relied upon according to the decision, which stated that the amount thus
contributed by such lumber producers was not enough for the operation of its business especially having
in mind the primary purpose of putting an end to alien domination in the retail trade of lumber products.
Nor was there any appropriation by the legislature of the counterpart fund to be put up by the
Government, namely, P9.00 for every peso invested by defendant lumber producers. Accordingly, "the
late President Roxas instructed the Hon. Emilio Abello, then Executive Secretary and Chairman of the
Board of Directors of the Philippine National Bank, 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, which was approved by said Board
of Directors of the Philippine National Bank 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." 7 The Philippine Government did not invest the P9.00 for every peso coming from defendant
lumber producers. The loan extended to the Philippine Lumber Distributing Agency by the Philippine
National Bank was not paid. Hence, these suits.

For the lower court, the above facts sufficed for their dismissal. To its mind "it is grossly unfair and unjust
for the plaintiff bank now to compel the lumber producers to pay the balance of their subscriptions ....
Indeed, when the late President Roxas made representations to the plaintiff bank, thru the Hon. Emilio
Abello, who was then the Executive Secretary and Chairman of its Board of Directors, to grant said
overdraft to the agency, it was the only way by which President Roxas could make good his commitment
that the Government would invest in said agency to the extent already mentioned because, according to
said late President Roxas, the legislature had not appropriated any amount for such counterpart.
Consequently, viewing from all considerations of equity in the case, the Court finds that plaintiff bank
should not collect any more from the defendants the balance of their subscriptions to the capital stock of
the Philippine Lumber Distributing Agency, Inc." 8

18
Even with the case for defendant lumber producers being put forth in its strongest possible light in the
appealed decision, the plaintiff creditor, the Philippine National Bank, should have been the prevailing
party. On the law as it stands, the judgment reached by the lower court cannot be sustained. The appeal,
as earlier made clear, possesses merit.

In Philippine Trust Co. v. Rivera, 9 citing the leading case of Velasco v. Poizat, 10 this Court held: "It is
established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors
have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an
action upon any unpaid stock subscription in order to realize assets for the payment of its 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...." The Poizat doctrine found acceptance in later cases. 11 One of the latest cases, Lingayen
Gulf Electric Power v. Baltazar, 12 Speaks to this effect: "In the case of Velasco v. Poizat, 13 the corporation
involved was insolvent, in which case all unpaid stock subscriptions become payable on demand and are
immediately recoverable in an action instituted by the assignee."

It would be unwarranted to ascribe to the late President Roxas 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.

The emphatic and categorical language of an American decision cited by the late Justice Laurel, in People
v. Vera, 14 comes to mind: "By the twentieth article of the declaration of rights in the constitution of this
commonwealth, it is declared that the power of suspending the laws, or the execution of the laws, ought
never to be exercised but by the legislature, or by authority derived from it, to be exercised in such
particular cases only as the legislature shall expressly provide for...." Nor could it be otherwise considering
that the Constitution specifically enjoins the President to see to it that all laws be faithfully executed. 15
There may be a discretion as to what a particular legal provision requires; there can be none whatsoever
as to the enforcement and application thereof once its meaning has been ascertained. What it decrees
must be followed; what it commands must be obeyed. It must be respected, the wishes of the President,
to the contrary notwithstanding, even if impelled by the most worthy of motives and the most persuasive
equitable considerations. To repeat, such is not the case here. For 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.

Such is not the law. Unfortunately, the lower court was of a different mind. That is not to pay homage to
the rule of law. Its decision then, one it is to be repeated influenced by what it considered to be the "equity
of the case", is not legally impeccable.

WHEREFORE, the decision of the lower court is reversed and the cases remanded to the lower court for
judgment according to law, with full consideration of the legal defenses raised by defendants-appellees,
Bitulok Sawmill, Inc.; Dingalan Lumber Co., Inc.; Sierra Madre Lumber Co., Inc.; Nasipit Lumber Co., Inc.;

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Woodworks, Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay Millar Lumber Co., Inc.; Anakan Lumber Co.,
Inc.; and Cantilan Lumber Co., Inc. No pronouncement as to costs.

THE GOVERNMENT OF THE PHILIPPINE ISLANDS vs. MANILA RAILROAD

G.R. No. 30646, January 30, 1929

DECISION

This is a petition in the Supreme Court for the extraordinary legal writ of mandamus presented by the
Government of the Philippine Islands, praying that the writ be issued to compel the Manila Railroad
Company and Jose Paez, as its manager, to provide and equip the telegraph poles of said company
between the municipality of Paniqui, Province of Tarlac, and the municipality of San Fernando, Province
of La Union, with crosspieces for six telegraph wires belonging to the Government, which, it is alleged, are
necessary for public service between said municipalities.
The only question raised by the petition is whether the defendant company is required to provide and
equip its telegraph poles with crosspieces sufficient to carry six telegraph wires of the Government, or
whether it is only required to furnish poles with crosspieces sufficient to carry
four wires only.

It is admitted that the present poles and crosspieces between said municipalities are sufficient to carry
four telegraph wires and that they do now carry four telegraph wires, by virtue of an agreement between
the respondents and the Bureau of Posts of the Philippine Government. It is admitted that the poles and
crosspieces now existing between said municipalities are not sufficient to carry six telegraph wires.

The petitioner relies upon the provisions of section 84 of Act No. 1459. Act No. 1459 is the general
Corporation Law and was adopted by the United States Philippine Commission on March 1, 1906. (Vol. 5,
Pub. Laws, pp. 224-268.) Section 84 of said Act provides:

"The railroad corporation shall establish along the whole length of the road a telegraph line for the use of
the railroad. The posts of this line may be used for Government wires and shall be 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. The establishment, protection, and maintenance of the
wires and stations necessary for the public service shall be at the cost of the Government." (Vol. 5, P. L.,
p. 247.)

The plaintiff contends that under said section 84 the defendant company is required to erect and maintain
posts for its telegraph wires, of sufficient length and strength, and equipped with sufficient crosspieces to
carry the number of wires which the Government may consider necessary for the public service, and that
six wires are now necessary for the public service.

The respondents answered by a general and special defense. In their special defense they contend that
section 84 of Act No. 1459 has been repealed by section 1, paragraph 8 of Act No. 1510 of the United
States Philippine Commission (vol. 5, P. L., pp. 350-358), and that under the provisions of said Act No.
1510 the Government is entitled to place on the poles of the company1 four wires only. Act No. 1510 is
the charter of the Manila Railroad Company. It was adopted by the United States Philippine Commission
on July 7, 1906. Section 1, paragraph 8, of said Act No. 1510 provides:

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"8. The grantee (the Manila Railroad Company) shall have the right to construct and operate telegraph,
telephone, and electrical transmission lines over said railways for the use of the railways and their
business, and also, with the approval of the Secretary of War, for public service and commercial purposes,
but these latter privileges shall be subject to the following provisions:

"In the construction of telegraph or telephone lines along the right of way the grantee (the Manila Railroad
Company) shall erect and maintain poles with sufficient space thereon to permit the Philippine
Government, at the expense of said Government, to place, operate, and maintain four wires for telegraph,
telephone, and electrical transmission for any Government purpose between the termini of the lines of
railways main or branch; and the Philippine Government reserves to itself the right to construct, maintain,
and operate telegraph, telephone, or electrical transmission lines over the right of way of said railways
for commercial, military, or governmental purposes, without unreasonably interfering with the
construction, maintenance, and operation by the grantee of its railways, telegraph, telephone, and
electrical transmission lines."

To answer the question above stated, it becomes necessary to determine whether section 84 of Act No.
1459 is applicable to the Manila Railroad Company, or whether the Manila Railroad Company is governed
by section 1, paragraph 8, of Act No. 1510. As has been said, Act No. 1459 is a general law applicable to
corporations generally, while Act No. 1510 is the charter of the Manila Railroad Company and constitutes
a contract between it and the Government.

Inasmuch as Act No. 1510 is the charter of the Manila Railroad Company and constitutes a contract
between it and the Government, it would seem that 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 will be seen that there is no indication that the Government intended to impose
upon said company any other conditions or 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, one of the respondents, and being a special charter of said company, its adoption had the effect
of superseding the provisions of the general Corporation Law which are applicable to railroads in general.
The special charter (Act No. 1510) had the effect of superseding the general Corporation Law upon all
matters covered by said special charter. Said Act, inasmuch as it contained a special provision relating to
the erection of telegraph and telephone poles, and the number of wires which the Government might
place thereon, superseded the general law upon that question.

Act No. 1510 is a special charter of the respondent company. It constitutes a contract between the
respondent company and the state; and the state and the grantee of a charter are equally bound by its
provisions. For the state to impose an obligation or a duty upon the respondent company, which is not
expressly provided for in the charter (Act .No. 1510), would amount to a violation of said contract between
the state and the respondent company. The provisions of Act No. 1459 relating to the number of wires
which the Government may place upon the poles of the company are different and more onerous than
the provisions of the charter upon the same question. Therefore, to allow the plaintiff to require of the
respondent company a compliance with said section 84 of Act No. 1459, would be to require of the
respondent company the performance of an obligation which is not imposed upon it by its charter. The
charter of a corporation is a contract between three parties: (a) It is a contract between the state and the

21
corporation to which the charter is granted; (b) it is a contract between the stockholders and the state
and (c) it is also a contract between the corporation and its stock holders. (Cook on Corporations, vol. 2,
sec. 494 and cases cited.)

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 negative. 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.

The petitioner, in view of all the foregoing facts and the law applicable thereto, has not shown itself
entitled to the remedy prayed for. The prayer of the petition must, therefore, be denied. And without any
finding as to costs, it is so ordered.

RURAL BANK OF SALINAS vs. CA

G.R. No. 96674 June 26, 1992

DECISION

The basic controversy in this case is whether or not the respondent court erred in sustaining the Securities
and Exchange Commission when it compelled by Mandamus the Rural Bank of Salinas to register in its
stock and transfer book the transfer of 473 shares of stock to private respondents. Petitioners maintain
that the Petition for Mandamus should have been denied upon the following grounds.

(1) Mandamus cannot be a remedy cognizable by the Securities and Exchange Commission when the
purpose is to register certificates of stock in the names of claimants who are not yet stockholders of a
corporation:

(2) There exist valid reasons for refusing to register the transfer of the subject of stock, namely:

(a) a pending controversy over the ownership of the certificates of stock with the Regional Trial Court;

(b) claims that the Deeds of Assignment covering the subject certificates of stock were fictitious and
antedated; and

(c) claims on a resultant possible deprivation of inheritance share in relation with a conflicting claim
over the subject certificates of stock.

The facts are not disputed.

On June 10, 1979, Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special
Power of Attorney in favor of his wife, private respondent Melania Guerrero, giving and granting the latter
full power and authority 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.

On February 27, 1980, and pursuant to said Special Power of Attorney, private respondent Melania
Guerrero, as Attorney-in-Fact, executed a Deed of Assignment for 472 shares out of the 473 shares, in

22
favor of private respondents Luz Andico (457 shares), Wilhelmina Rosales (10 shares) and Francisco
Guerrero, Jr. (5 shares).

Almost four months later, or two (2) days before the death of Clemente Guerrero on June 24, 1980, private
respondent Melania Guerrero, pursuant to the same Special Power of Attorney, executed a Deed of
Assignment for the remaining one (1) share of stock in favor of private respondent Francisco Guerrero, Sr.

Subsequently, private respondent Melania Guerrero presented to petitioner Rural Bank of Salinas the two
(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
G. Guerrero, and the issuance of new stock certificates covering the transferred shares of stocks in the
name of the new owners thereof. However, petitioner Bank denied the request of respondent Melania
Guerrero.

On December 5, 1980, private respondent Melania Guerrero filed with the Securities and Exchange
Commission" (SEC) an action for mandamus against petitioners Rural Bank of Salinas, its President and
Corporate Secretary. The case was docketed as SEC Case No. 1979.

Petitioners filed their Answer with counterclaim on December 19, 1980 alleging the upon the death of
Clemente G. Guerrero, 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 G.
Guerrero.

On January 29, 1981, a motion for intervention was filed by Maripol Guerrero, a legally adopted daughter
of the late Clemente G. Guerrero and private respondent Melania Guerrero, who stated therein that on
November 26, 1980 (almost two weeks before the filing of the petition for Mandamus) a Petition for the
administration of the estate of the late Clemente G. Guerrero had been filed with the Regional Trial Court,
Pasig, Branch XI, docketed as Special Proceedings No. 9400. Maripol Guerrero further claimed that the
Deeds of Assignment for the subject shares of stock are fictitious and antedated; that said conveyances
are donations since the considerations therefor are below the book value of the shares, the
assignees/private respondents being close relatives of private respondent Melania Guerrero; and that the
transfer of the shares in question to assignees/private respondents, other than private respondent
Melania Guerrero, would deprive her (Maripol Guerrero) of her rightful share in the inheritance. The SEC
hearing officer denied the Motion for Intervention for lack of merit. On appeal, the SEC En Banc affirmed
the decision of the hearing officer.

Intervenor Guerrero filed a complaint before the then Court of First Instance of Rizal, Quezon City Branch,
against private respondents for the annulment of the Deeds of Assignment, docketed as Civil Case No. Q-
32050. Petitioners, on the other hand, filed a Motion to Dismiss and/or to Suspend Hearing of SEC Case
No. 1979 until after the question of whether the subject Deeds of Assignment are fictitious, void or
simulated is resolved in Civil Case No. Q-32050. The SEC Hearing Officer denied said motion.

On December 10, 1984, the SEC Hearing Officer rendered a Decision granting the writ of Mandamus
prayed for by the private respondents and directing petitioners to cancel stock certificates nos. 26, 49 and
65 of the Bank, all in the name of Clemente G. Guerrero, and to issue new certificates in the names of
private respondents, except Melania Guerrero. The dispositive, portion of the decision reads:

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WHEREFORE, judgment is hereby rendered in favor of the petitioners and against the respondents,
directing the latter, particularly the corporate secretary of respondent Rural Bank of Salinas, Inc., to
register in the latter's Stock and Transfer Book the transfer of 473 shares of stock of respondent Bank and
to cancel Stock Certificates Nos. 26, 45 and 65 and issue new Stock Certificates covering the transferred
shares in favor of petitioners, as follows:

1. Luz Andico 457 shares

2. Wilhelmina Rosales 10 shares

3. Francisco Guerrero, Jr. 5 shares

4. Francisco Guerrero, Sr. 1 share

and to pay to the above-named petitioners, the dividends for said shares corresponding to the years 1981,
1982, 1983 and 1984 without interest.

No pronouncement as to costs.

SO ORDERED. (p. 88, Rollo)

On appeal, the SEC En Banc affirmed the decision of the Hearing Officer. Petitioner filed a petition for
review with the Court of Appeals but said Court likewise affirmed the decision of the SEC.

We rule in favor of the respondents.

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.

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 . . .

In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court interpreted Sec. 63 in his wise:

Said Section (Sec. 35 of Act 1459 [now Sec. 63 of the Corporation Code]) contemplates no restriction as
to whom the stocks may be transferred. It does not suggest that any discrimination may be created by
the corporation in favor of, or against a certain purchaser. The owner of shares, as owner of personal

24
property, is at liberty, under said section to dispose them in favor of whomever he pleases, without
limitation in this respect, than the general provisions of law. . . .

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.

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. . . . (Tomson on Corporation Sec. 4137, cited in Fleisher vs. Nolasco, Supra).

The right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing from
his ownership of the stocks. Thus:

Whenever a corporation refuses to transfer and register stock in cases like the present, mandamus will lie
to compel the officers of the corporation to transfer said stock in the books of the corporation" (26, Cyc.
347, Hyer vs. Bryan, 19 Phil. 138; Fleisher vs. Botica Nolasco, 47 Phil. 583, 594).

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. (Fletcher, Sec. 5528, page 434).

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. (See. 5518, 12 Fletcher 394)

For the petitioner Rural Bank of Salinas to refuse registration of the transferred shares in its stock and
transfer book, which duty is ministerial on its part, is to render nugatory and ineffectual the spirit and
intent of Section 63 of the Corporation Code. Thus, respondent Court of Appeals did not err in upholding
the Decision of respondent SEC affirming the Decision of its Hearing Officer directing the registration of
the 473 shares in the stock and transfer book in the names of private respondents. At all events, the
registration is without prejudice to the proceedings in court to determine the validity of the Deeds of
Assignment of the shares of stock in question.
WHEREFORE, the petition is DISMISSED for lack of merit. SO ORDERED.

Red Line Transportation Co. vs. Rural Transit Co.

GR No. 41570 | Sept. 6, 1934

Facts:
This is a petition for review of an order of the Public Service Commission granting to the Rural Transit
Company, Ltd., a certificate of public convenience to operate a transportation service between Ilagan in
the Province of Isabela and Tuguegarao in the Province of Cagayan, and additional trips in its existing
express service between Manila Tuguegarao.

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On June 4, 1932, Rural Transit filed an application for certification of a new service between Tuguegarao
and Ilagan with the Public Company Service Commission (PSC), since the present service is not sufficient.
Rural Transit further stated that it is a holder of a certificate of public convenience to operate a passenger
bus service between Manila and Tuguegarao. Red Line opposed said application, arguing that they already
hold a certificate of public convenience for Tuguegarao and Ilagan, and is rendering adequate service.
They also argued that granting Rural Transit’s application would constitute a ruinous competition over
said route.

On Dec. 21, 1932, Public Service Commission approved Rural Transit’s application, with the condition that
"all the other terms and conditions of the various certificates of public convenience of the herein applicant
and herein incorporated are made a part hereof." A motion for rehearing and reconsideration was filed
by Red Line since Rural Transit has a pending application before the Court of First Instance for voluntary
dissolution of the corporation.

A motion for postponement was filed by Rural Transit as verified by M. Olsen who swears "that he was
the secretary of the Rural Transit Company, Ltd. During the hearing before the Public Service Commission,
the petition for dissolution and the CFI’s decision decreeing the dissolution of Rural Transit were admitted
without objection. At the trial of this case before the Public Service Commission an issue was raised as to
who was the real party in interest making the application, whether the Rural Transit Company, Ltd., as
appeared on the face of the application, or the Bachrach Motor Company, Inc., using name of the Rural.
Transit Company, Ltd., as a trade name. However, PSC granted Rural Transit’s application for certificate
of public convenience and ordered that a certificate be issued on its name.

PSC relied on a Resolution in case No. 23217, authorizing Bachrach Motor to continue using Rural Transit’s
name as its tradename in all its applications and petitions to be filed before the PSC. Said resolution was
given a retroactive effect as of the date of filing of the application or April 30, 1930

Issue:
Can the Public Service Commission authorize a corporation to assume the name of another corporation
as a trade name?

Ruling:
NO. The Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine corporations and
the very law of their creation and continued existence requires each to adopt and certify a distinctive
name. The incorporators "constitute a body politic and corporate under the name stated in the
certificate." A corporation has the power "of succession by its corporate name." It is essential to its
existence and cannot change its name except in the manner provided by the statute. By that name alone
is 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.

In this case, the order of the commission authorizing the Bachrach Motor Co., Incorporated, to assume
the name of the Rural Transit Co., Ltd. likewise incorporated, as its trade name being void. Accepting the
order of December 21, 1932, at its face as granting a certificate of public convenience to the applicant

26
Rural Transit Co., Ltd., the said order last mentioned is set aside and vacated on the ground that the Rural
Transit Company, Ltd., is not the real party in interest and its application was fictitious

Philippine Insurance vs. Hartigan

G.R. No. L-26370, 31 July 1970 (74 SCRA 252)

Facts:
Plaintiff was originally organized as an insurance corporation under the name of ‘The Yek Tong Lin Fire
and Marine Insurance Co., Ltd.,’ in 1953. But on 26 May 1961, its Articles of Incorporation were amended
changing the name of the corporation to ‘Philippine First Insurance, Co., Inc.’.

The case arose when plaintiff, 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,
defendants signed an indemnity agreement in favor of plaintiff in case damages or loses arises thereof.

Defendant Hartigan failed to pay, hence, the complaint for collection of sum of money with interest and
other fees. Defendants deny the allegations, claiming, among others that there is no privity of contract
between them and plaintiff since the plaintiff 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.

Decision of the CFI: The Court of First Instance of Manila dismissed the action against plaintiff PFIC, based
on the following grounds, among others:

The change of name of the Yek Tong Lin Fire & Marine Insurance Co. 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 chance is valid, Yek Tong is deemed as continuing as a body corporate for three
(3) years for the purpose of prosecuting and defending suits, hence, Yek Tong should be the proper party
in interest. Its Motion for Reconsideration having been denied, the plaintiff filed this present case.

Issue:
Whether or not a Philippine Corporation may change its name and still retain its original personality and
individuality?

Ruling:
YES. Under section 18 of the Corporation Code, the law authorizes corporations to amend their charter,
its procedure and restrictions for such amendments. There is restriction on the term of their existence
and the increase or decrease of the capital stock but there is no prohibition against the change of name.

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.” Since an individual has the right to
change his name under certain conditions, there is no compelling reason why a corporation may not enjoy
the same right.

27
Further, the Court held that a change of corporate name is not against public policy. As such, what is held
to be contrary to public policy is the use by one corporation of the name of another corporation as its
trade name.

Likewise, it was ruled that change of name does not result in a corporation’s dissolution. In settled
jurisprudence, the Court held that 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.

From the foregoing, the Court believes that the lower court erred in holding that plaintiff is not the right
party in interest to sue defendants-appellees. As correctly pointed out by appellant, the approval by the
stockholders of the amendment of its articles of incorporation changing the name “The Yek Tong Lin Fire
& Marine Insurance Co., Ltd.” to “Philippine First Insurance Co., Inc.” on March 8, 1961, did not
automatically change the name of said corporation on that date. Hence, the lower court likewise erred in
dismissing appellant’s complaint.

WHEREFORE, judgment of the lower court is reversed, and this case is remanded to the trial court for
further proceedings consistent herewith with costs against appellees.

Universal Mills Corporation vs. Universal Textile Mills

78 SCRA 62 (1977)

Facts:
This is an appeal from the order of the Securities and Exchange Commission granting a petition by the
respondent to have the petitioner’s corporate name be changed as it is “confusingly and deceptively
similar” to that of the former.

On January 8, 1954, respondent Universal Textile Mills was issued a certificate of Corporation as a textile
manufacturing firm. On the other hand, petitioner, which deals in the production of hosieries and
apparels, acquired its current name by amending its articles of incorporation, changing its name from
Universal Hosiery mills Corporation to Universal Mills corporation.

Issue:
Whether or not portioner’s trade name is confusingly similar with that of respondents.

Held:
Yes. The corporate names in question are not identical, but they are indisputably so similar that even
under the test of reasonable care and observation as the public generally are capable of using and may
be expected to exercise” invoked by appellant. We are apprehensive confusion will usually arise,
considering that x x x appellant included among its primary purposes the manufacturing, dyeing, finishing
and selling of fabrics of all kinds” which respondent had been engaged for more than a decade ahead of
petitioner.

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