# 101

PHILIPPINE TRUST COMPANY, vs .MARCIANO RIVERA

G.R. No. L-19761 January 29, 1923

Facts: Cooperativa Naval Filipina was duly incorporated with a capital of P100,000, divided into 100 shares at a par
value of P100 each. Among its incorporators was Marciano Rivera, who subscribed for 450 shares, representing a
value of P45,000. The company however became insolvent. Philippine Trust became its assignee in bankruptcy.
PhilTrust sought to recover ½ of the stock subscription of Rivera, which admittedly, has never been paid. Rivera
contends that he never paid because the stockholders of Naval issued a resolution shortly after the company’s
incorporation, stating that the capital shall be reduced by 50%. As a result, Rivera contends that the subscribers were
released from the obligation to pay any unpaid balance of their subscription in excess of 50% of their subscriptions.
Rivera further contends that the subscriptions of the subscribers were 50% cancelled, and certificates of shares of
stock were issued for the said remaining 50% of the subscriptions.

Issue: Whether such reduction of the capital stock is valid.

Held: No. SC held that the said resolution is without effect for being:
1. An attempted withdrawal of so much capital from the fund which the company’s creditors were entitled
ultimately to rely, and
2. For having been effected without compliance with the statutory requirements of § 17 of the Corporation Law
regarding reduction of capital stock, and
3. For failure to file a certificate with the Bureau of Commerce and Industry, showing such reduction.

Thus, stockholder is still liable for the unpaid balance of his subscription.

Ratio: Subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for
satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock
subscription in order to realize assets for the payment of its debts. A corporation has no power to release an
original subscriber to its capital stock from the obligation of paying for his shares, w/o 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 AOI. Moreoever, strict
compliance with statutory regulations is necessary.

Note: that for reasons 2 and 3, Campos says that § 17 has been replaced by § 38, and now, even if all the
requirements are complied with, if creditors are prejudiced by such reduction, it is most unlikely that the SEC will
approve it.
 Red Line Transport vs. Rural Transit

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.
• 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 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
CASE DIGEST: 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 petioner’s trade name is confusingly similar with that of respondent’s.

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
G.R. No. L-48195 and 48196-bayla v silang traffic

SOFRONIO BAYLA ET AL.petitioned against the respondent SILANG TRAFFIC

Company INc. to recover certain sums of money which they had paid severally to the
Corporation on account of shares of stock they individually agreed to take and pay
under certain specified terms and conditions of which the following referring to the
petitioner JOSEFA NAVAL.

The subscriber promised to pay personally or by authorized agents to the seller on

Silang Cavite. A sum of one thousand five hundred pesos ( 1, 500) at the purchase of
fifteen (15) shares of stock and purchase price paid as follows to with five per cent (5%)
upon contract execution, a receipt will be acknowledged and confessed. The remaining
instalment of five per cent shall be payable within the first month of each payment at the
rate of six (6%) per cent per annum until paid.

The parties agreed to forfeit in the favour of the seller in case of default court
proceedings. Upon receiving full payment, the obligor shall deliver and execute to the
subscriber or his heirs and assigns the certificate of title of said shares free and clear of
all encumbrances.

The respondent defense stated that;

1- That the above-quoted resolution is not applicable to the petitioners Sofronio T. Bayla
, Josefa Naval and Paz Toledo because on the date thereof they subscribed shares of
stock had already automatically reverted to the defendant, and the instalments paid by
them had already been forfeited.

2.- The said resolution of August 1 1937 was revoked and cancelled by a subsequent
resolution of the board of directors of the defendant corporation dated August 22, 1937

The trial court absolved the defendant from the claims or complaint and forfeited the
shares of stock in favor of the defendant, The resolution of August 1 voided.

The CA has interpreted the agreement as a contract of subscription. However the terms
in the said contract designated the purchaser as a subscriber and the corporation as a
seller. It is clear that from these terms the contracts are of sale and not of subscription
which lower courts failed to notice the distinction between the two,

ISSUES:
 1. Whether or not the failure to pay any of the quarterly installments on the
purchase price of the share of stock would result in its automatic forfeiture in favor of the
corporation.
2- Whether or not the subsequent BOD resolution is valid,

RULING-

1- The failure of payment of the subscriber did not result in automatic forfeiture because
the contract did not expressly provide that the failure of the purchaser to pay any
installment would give rise to forfeiture without the necessity of any demand from the
seller. This is under Article 1169 of the NCC which states that “ However, the demand
by the creditor shall not be necessary so that delay may exist:
1- When the obligation or to the law expressly so declares; or
2- When from nature and the circumstances of the obligation it appears that the
designation of the time when the thin is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract.

(2) The attempted revocation of said rescission by the resolution of August 22, 1937
was invalid because it not having been agreed to by the petitioners. A subscription,
properly speaking is the mutual agreement of the subscribers to take and pay for the
stock of a corporation, while a purchase is an independent agreement between the
individual and the corporation to buy shares of stock from it at s stipulated price.

REFLECTION:
It is important to always state all conditions and stipulations in a contract. THIS
TRUE FOR BOTH PARTIES the obligor and the creditor.

As what had been stated in this case it was due to the lack of demand in the
contract which led to the ruling out of the forfeiture in favor of the corporation despite the
failure of the subscriber to pay the quarterly instalment. Otherwise, it would have been a
default, specifically mora solvendi. Moreover, concurred agreement of recession
between the BOD and favourable to both parties' interests. Hence any latter
interventions of the revocation could not suffice the former.
G.R. No. L-48627 June 30, 1987
FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, petitioners
vs.
THE HONORABLE COURT OF APPEALS and ALBERTO V.
ARELLANO, respondents.

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(Walang binigay na first names sa case, damn you Justice
Cruz!) 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 stages
of 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/s:
WON the CA was correct in holding the Carams liable?

Held:
The Court held that the Carams were not liable.

The petitioners were not involved in the initial stages of the

organization of the airline, which were being directed by Barretto as
the main promoter. It was he who was putting all the pieces together,
so to speak. The petitioners were merely among the financiers whose
interest was to be invited and who were in fact persuaded, on the
strength of the project study, to invest in the proposed airline.

Significantly, there was no showing that the Filipinas Orient Airways

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
Filipinas Orient Airways should alone be liable for its corporate acts
as duly authorized by its officers and directors.

In the light of these circumstances, we hold that the 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 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 therefor. Otherwise, all the other stockholders
of the corporation, including those who came in later, and regardless
of the amount of their share holdings, would be equally and
personally liable also with the petitioners for the claims of the private
respondent.

Dispositive Portion:
WHEREFORE, the petition is granted. The petitioners are declared
not liable under the challenged decision, which is hereby modified
accordingly. It is so ordered.
 63. Rizal Light & Ice Co., Ic v. Municipality of Morong
GR No. L-20993 & L-21221 | 23 September 1968 | Zaldivar, J.
Apolinario | Topic: Persons Involved in Incorporation––Promoters
Case Summary: Rizal Light & Ice Co. is a domestic corporation granted by the PSC a CPCN for the installation, operation,
and maintenance of an electric light, heat, and power service in the Municipality of Morong, Rizal. Mun. of Morong filed a
petition with PSC formally asking the latter to revoke Petitioner’s CPCN and to forfeit its franchise on the grounds that it
failed to comply with the conditions of the certificate and franchise. Upon various inspections conducted and hearings
held, PSC found that Petitioner had failed to comply with the directives contained in its letters and had violated the
conditions of its CPCN as well as the rules and regulations of PSC. Accordingly, it ordered the cancellation and revocation
of Petitioner’s CPCN and the forfeiture of its franchise. Eight days before Petitioner’s MR was filed, Morong Electric,
having been granted a municipal franchise on May 6, 1962 by Mun. of Morong to install, operate, and maintain an electric
heat, light, and power service in Morong, filed with the PSC an application for a CPCN. Petitioner filed an MTD on the
ground that Morong Electric had no legal personality when it filed its application on Sept. 10, because its certificate of
incorporation was issued by SEC only Oct. 17, 1962. PSC denied the MTD on the premise that Morong Electric was a de
facto corporation. Later, PSC approved the application of Morong Electric and issued a CPCN in its favor.

SC held that Petitioner’s contention that Morong Electric did not yet have a legal personality at the time it was granted a
franchise is correct. Morong Electric’s juridical personality and legal existence began only on Oct. 17, 1962 when its
certificate of incorporation was issued by SEC. Prior to that date, the incorporators CANNOT be considered as de facto
corporation. BUT the fact that Morong Electric had no corporate existence on the said date did not render the franchise
invalid because Morong Electric later obtained its certificate of incorporation and then accepted the franchise in
accordance with the terms and conditions thereof. The incorporation of Morong Electric and its acceptance of the
franchise not only perfected a contract between the Mun. of Morong and Morong Electric, but also cured the deficiency
in the application of Morong Electric. SC noted that the ruling in the case at bar is not incompatible with the holding in
Cagayan Fishing Development Co. Inc v. Teodoro Sandiko, where SC held that a corporation should have a full
and complete organization and existence as an entity before it can enter into any kind of a contract or transact
any business. However, the rule is not absolute. The acts of promoters of a corporation, in some instances, may be
ratified or accepted by the corporation if and when subsequently organized. There are exceptions. SC noted that
American courts generally hold that a contract made by the promoters of a corporation on its behalf may be
adopted, accepted, or ratified by the corporation when organized.
Respondents: GR L-20993 – Municipality of Morong, Rizal and Public Service Commission; GR L-21221 – Public Service
Commission and Morong Electric, Inc. [same petitioner in both cases]

Facts:
1. These two cases, being, interrelated, are decided together.
2. Rizal Light & Ice Co. is a domestic corporation granted by the PSC a CPCN for the installation, operation,
and maintenance of an electric light, heat, and power service in the Municipality of Morong, Rizal.
3. Dec. 19, 1956 – PSC required Petitioner to appear before it to show cause why it should not be penalized
for (1) violation of the conditions of is CPCN and the regulations of PSC, and (2) for failure to comply with
the directives to raise its service voltage and maintain them within the limits prescribed in Revised Order
No. 1 of PSC and to acquire an install a kilowatt meter to indicate the load in kilowatts at any particular
time of the generating unit.
a. Petitioner failed to appear at the hearing so PSC ordered the cancellation and revocation of
Petitioner’s CPCN and the forfeiture of its franchise.
b. Petitioner moved for reconsideration on the ground that its manager was not aware of the said
hearing. The Municipality of Morong opposed this motion, alleging that Petitioner has not rendered
efficient and satisfactory service and has not complied with the requirements of PSC to improve
its service.
c. The MR was set for hearing. PSC found that Petitioner’s failure to appear, the sole basis of the
revocation of CPCN, was really due to the illness of its manager.
d. PSC set aside the order of revocation. Municipality filed an MR, which PSC denied.
4. [CASE 1] Municipality of Morong filed a petition with PSC formally asking the latter to revoke
Petitioner’s CPCN and to forfeit its franchise on the grounds that it failed to comply with the
conditions of the certificate and franchise.
a. Many inspections were conducted on Petitioner’s electric plant and installations (April 15, 1958;
Sept. 18, 1959; July 12-13, 1960; June 21-24, 1961)
 b. The inspection on June 1961 was made upon Petitioner’s request, who also manifested during
the hearing that improvements have been made on its service since the inspection on July 1960,
and that on the basis of the inspection report to be submitted [report based on the June 1961
inspection], it would agree to the submission of the case for decisions without further hearing.
c. Case was called for hearing on July 1961 where Petitioner failed to appear. The Municipality was
then allowed to present its documentary evidence and thereafter the case was submitted for
decision.
i. Petitioner wanted to reopen the case because it was not allegedly furnished with a copy
of the June 1961 inspection report. PSC granted it 10 days to reply. Petitioner failed to file
the reply so PSC proceeded to decide the case.
5. PSC found that Petitioner had failed to comply with the directives contained in its letters and had
violated the conditions of its CPCN as well as the rules and regulations of PSC.
a. It held that Petitioner cannot render efficient, adequate, and satisfactory electric service required
by its CPCN, and that it is against public interest to allow it to continue its operation.
b. Accordingly, PSC ordered the cancellation and revocation of Petitioner’s CPCN and the
forfeiture of its franchise.
6. [CASE 2] Sept. 10, 1962 or eight days before Petitioner’s MR was filed, Morong Electric, having been
granted a municipal franchise on May 6, 1962 by Mun. of Morong to install, operate, and maintain
an electric heat, light, and power service in Morong, filed with the PSC an application for a CPCN.
a. Petitioner opposed the application alleging that it is still a holder of a CPCN to operate an electric
light, heat, and power in Morong and that the approval of the application would only cause ruinous
and wasteful competition.
b. This opposition, though dated Oct. 6, was received by PSC on Nov. 12, 1962 or 24 days after
order of general default was issued in open court when the application was first called for a
hearing.
c. Petitioner then filed a motion to lift the said order of default.
i. Before the motion could be resolved, Petitioner filed another motion asking of the
dismissal of the application upon the ground that Morong Electric had no legal
personality when it filed its application on Sept. 10, because its certificate of
incorporation was issued by SEC only Oct. 17, 1962.
d. PSC denied the MTD on the premise that Morong Electric was a de facto corporation.
7. The case was heard [case 2] and PSC found that there was an absence of electric service in Morong
and that Morong Electric, a Filipino-owned corporation duly organized and existing under PH laws, has
the financial capacity to maintain said service.
a. These circumstances, considered together with the denial of Petitioner’s MR in Case 1, such that
as far as the PSC is concerned, Petitioner’s CPCN was already revoked and cancelled.
b. PSC approved the application of Morong Electric and issued a CPCN in its favor.
8. For GR L-20993, Petitioner wants to set aside the orders of PSC cancelling and revoking its CPCN and
forfeiting its franchise.
a. For GR L-21221, Petitioners wants to review and set aside PSC’s granting of CPCN to Morong
Electric to operate an electric light, heat, and power services in the Municipality of Morong.

Issue/s and Holding:

[topic is in the second case, the first case is about public utilities]

W/N the application of Morong Electric should not have been approved because it did not have a
corporate personality at the time it was granted a franchise and when it applied for the CPCN? – NO.
● Before any CPC may be granted, 3 requisites must be complied with:
(1) Applicant must be a PH citizen or a corporation or co-partnership, association, or joint-stock
company, constituted and organized under the laws of the Philippines, 60% at least of the stock
or paid-up capital of which belongs entirely to Filipino citizens.
(2) Applicant must be financially capable; and
(3) Applicant must prove that the operation of the public service proposed and the authorization to
do business will promote public interest in a proper and suitable manner.
 ● Petitioner: since a franchise is a contract, at least 2 competent parties are necessary to the execution
thereof, and parties are not competent except they are in being. Hence, until a corporation has come into
being, in this jurisdiction, by the issuance of a certificate of incorporation by SEC, it CANNOT enter into
any contract as a corporation.
○ When the franchise was granted to Morong Electric on May 6, 1962, it was not yet in esse. Hence,
the said franchise is null and void, and cannot be the subject of PSC’s consideration. [See fact
6.c.i]
● Morong Electric: It was a corporation de facto1 at the time the franchise was granted. Hence, it was not
incapacitated to enter into any contract or to apply for and accept a franchise.

● Supreme Court: Petitioner’s contention that Morong Electric did not yet have a legal personality at the
time it was granted a franchise is correct.
○ Morong Electric’s juridical personality and legal existence began only on Oct. 17, 1962 when its
certificate of incorporation was issued by SEC. Prior to that date, the incorporators CANNOT be
considered as de facto corporation.
○ BUT the fact that Morong Electric had no corporate existence on the said date did not render the
franchise invalid because Morong Electric later obtained its certificate of incorporation and then
accepted the franchise in accordance with the terms and conditions thereof.
○ Many American authorities support this view:
■ McQuillin: That a company is not completely incorporated at the time the grant is made
to it by a municipality to use the streets does not, in most jurisdictions, affect the validity
of the grant. But such grant cannot take effect until the corporation is organized. xxx
ordinance granting the franchise may be presented before the corporation grantee is fully
organized, where the organization is completed before the passage and acceptance."
■ Thompson: The reason is that a privilege of this character is a mere license to the
corporation until it accepts the grant and complies with its terms and conditions.
● The incorporation of Morong Electric and its acceptance of the franchise as shown by its action in
prosecuting the application filed with PSC, not only perfected a contract between the Mun. of Morong
and Morong Electric, but also cured the deficiency pointed out by Petitioner in the application of Morong
Electric.
○ The efficacy of the franchise arose only upon its approval by the PSC on March 14, 1963 because
Sec. 16(b) of CA No. 146 provides that the PSC is empowered to approve any franchise or
privilege granted by a political subdivision of the Philippines.
● SC noted that the ruling in the case at bar is not incompatible with the holding in Cagayan Fishing
Development Co. Inc v. Teodoro Sandiko, where SC held that a corporation should have a full and
complete organization and existence as an entity before it can enter into any kind of a contract or
transact any business.
○ In the said case, SC did NOT say that the rule is absolute or that under no circumstances may
the acts of promoters of a corporation be ratified or accepted by the corporation if and when
subsequently organized.
○ [DOCTRINE] There are exceptions. SC noted that American courts generally hold that a contract
made by the promoters of a corporation on its behalf may be adopted, accepted, or ratified by the
corporation when organized.

On Morong Electric’s financial capability

● SC held that in determining the same, PSC made a factual determination that the court has said, in a
number of cases, it will not disturb unless patently unsupported by evidence.

Ruling: PSC decisions are AFFIRMED.

1
Corporation de facto – (1) a valid law under which the corporation is organized; (2) an attempt in good faith to incorporate; and (3) an
assumption of corporate powers.
GR L-20993
1. Petitioner cannot question the authority of the division chief who conducted the hearings in Case 1 for the first time
on appeal. The requirement under Sec. 32 that the PSC can only authorize a division chief to hear and investigate
a case if he is a lawyer is a mere procedural rule and not a jurisdictional point. Hence, while the division chief in this
case is indeed not a lawyer, Petitioner cannot raise the same as a defense as it did not made its timely objection.
2. Petitioner contended that PSC based its decision on insufficient and untrustworthy evidence. SC held that in
reviewing the decision of PSC, it is not required to examine the proof de novo and determine for itself whether or
not the preponderance of evidence really justifies the decision. It will not substitute its discretion for that of the PSC
on questions of fact and will not interfere in the latter’s decision unless it clearly appears that there is no evidence
to support it.
3. The protection of investment rule [rule that when there is a prior operator, a second one should not be granted a
CPC to operate the same service] is not absolute for nobody has exclusive right to secure a franchise or a CPC.
Where it has been shown that the Petitioner had failed to render adequate, sufficient and satisfactory service and
had violated the important conditions of its certificate as well as the directives of PSC, the rule cannot apply.
Philippine National Bank (PNB) vs. Bitulok Sawmill, Inc.
G.R. No. L-24177-85, June 29, 1968
Fernando, J.

Facts:
The Philippine Lumber Distributing Agency, Inc. was organized in 1947 upon the initiative
and insistence of the late President Manuel Roxas. He convinced the lumber producers
to form a lumber cooperative and to pool their resources together in order to wrest,
particularly, the retail trade from aliens who were acting as middlemen in the distribution
of lumber. In order to induce them, the late President promised the lumber producers that
the Government would finance the agency by investing P9.00 by way of counterpart for
every peso that the members would invest therein.

However, the amount contributed by the lumber producers was not enough for the
operation of the agency. Moreover, no appropriation was made by the Legislature of the
counterpart fund promised by the Government. Thus, President Roxas instructed
Executive Secretary Emilio Abello, who was also the Chairman of the Board of Directors
of the PNB to grant the agency an overdraft in the original sum of P250,000.00 which was
later increased to P350,000.00, payable on or before April 30, 1958, with interest at the
rate of six percent (6%) per annum, and secured by chattel mortgages on the stock of
lumber of the agency. The loan extended by the PNB was not paid.

Issue:
Whether or not PNB can compel the lumber producers to pay the balance of their
subscriptions.

Held:
Yes. The PNB can compel the lumber producers to pay the balance of their subscriptions.

The Court held in Philippine Trist Co. vs. Rivera, citing Velasco vs. Poizat, that “[i]t 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. xxx 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.”

It would be unwarranted to ascribe to the late President 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. It is 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 of any of its terms.

Page 1 of 1
VELASCO VS. POIZAT

G.R. No. L-11528

FACTS: The plaintiff, as assignee in insolvency of "The Philippine Chemical Product Company" (Ltd.)
is seeking to recover of the defendant, Jean M. Poizat, the sum of P1,500, upon a subscription made
by him to the corporate stock of said company. It appears that the corporation in question was originally
organized by several residents of the city of Manila, where the company had its principal place of
business, with a capital of P50,000, divided into 500 shares. The defendant subscribed for 20 shares
of the stock of the company, an paid in upon his subscription the sum of P500, the par value of 5
shares . The action was brought to recover the amount subscribed upon the remaining shares. It
appears that the defendant was a stock holder in the company from the inception of the enterprise,
and for sometime acted as its treasurer and manager. While serving in this capacity he called in and
collected all subscriptions to the capital stock of the company, except the aforesaid 15 shares
subscribed by himself and another 15 shares owned by Jose R. Infante.

A meeting of the board of directors of the company was held at which a majority of the stock was
presented. Upon this occasion two resolutions were adopted. The first was a proposal that the
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 Infante. It seems that this
shareholder had already paid 25 per cent of his subscription upon 20 shares, leaving 15 shares unpaid
for, and an understanding had been reached by him and the management by which he was to be
released from the obligation of his subscription, it being understood that what he had already paid
should not be refunded. Accordingly the directors present at this meeting subscribed P1,200 toward
taking up his shares, leaving a deficiency of P300 to be recovered by voluntary subscriptions from
stockholders not present at the meeting. The other proposition was o the effect that Juan [Jean] M.
Poizat, who was absent, should be required to pay the amount of his subscription upon the 15 shares
for which he was still indebted to the company. The resolution further provided that, in case he should
refuse to make such payment, the management of the corporation should be authorized to undertake
judicial proceedings against him. When notification of this resolution reached Poizat through the mail
it evoked from him a manifestation of surprise and pain, which found expression in a letter written by
him in reply, dated July 27, 1914, and addressed to Velasco, as treasurer and administrator. In this
letter Poizat states that he had been given to understand by some member of the board of directors
that he was to be relieved from his subscription upon the terms conceded to Infante. The company
soon went into voluntary insolvency, Velasco being named as the assignee. At the hearing of the Court
of First Instance, judgment was rendered in favor of the defendant, and the complaint was dismissed.
From this action the plaintiff has appealed.

ISSUE: WON Poizat is liable upon this subscription?

HELD: Poizat is liable upon his subscription. Section 36 of the Corporation Law clearly recognizes that
a stock subscription is subsisting liability from the time the subscription is made, since it requires the
subscriber to pay interest quarterly from that date unless he is relieved from such liability by the by-
laws of the corporation. The subscriber is as much bound to pay the amount of the share subscribed
by him as he would be to pay any other debt, and the right of the company to demand payment is no
less incontestable. The provisions of the Corporation Law (Act No. 1459) given recognition of two
remedies for the enforcement of stock subscriptions. The first and most special remedy given by the
statute consists in permitting the corporation to put up the unpaid stock for sale and dispose of it for
the account of the delinquent subscriber. In this case the provisions of section 38 to 48, inclusive, of
the Corporation Law are applicable and must be followed. Nothing in this Act shall prevent the directors
from collecting, by action in any court of proper jurisdiction, the amount due on any unpaid
subscription, together with accrued interest and costs and expenses incurred. The assignee of the
insolvent corporation succeeds to all the corporate rights of action vested in the corporation prior to its
insolvency; and the assignee therefore has the same freedom with respect to suing upon the stock
subscription as the directors themselves would have had under section 49 above cited. There is
another reason why the present plaintiff must prevail in this case. That reason is this: When insolvency
supervenes upon a corporation and the court assumes jurisdiction to wind up, all unpaid stock
subscriptions become payable on demand, and are at once recoverable in an action instituted by the
assignee or receiver appointed by the court. It is now quite well settled that when the corporation
becomes insolvent, with proceedings instituted by creditors to wind up and distribute its assets, no call
or assessment is necessary before the institution of suits to collect unpaid balances on subscription. 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; and when the original
model of making the call becomes impracticable, the obligation must be treated as due upon demand.
The better doctrine is that when insolvency supervenes all unpaid subscriptions become at once due
and enforceable.

The circumstance that the board of directors in their meeting of July 13, 1914, resolved to release
Infante from his obligation upon a subscription for 15 shares is no wise prejudicial to the right of the
corporation or its assignee to recover from Poizat upon a subscription made by him. In releasing
Infante the board transcended its powers, and he no doubt still remained liable on such of his shares
as were not taken up and paid for by other persons.The general doctrine is that 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.The suggestion contained in Poizat's letter of July 27, 1914, to the effect
that he understood that he was to be relieved upon the same terms as Infante is, for the same reason,
of no merit as matter of defense, even if an agreement to that effect had been duly proved.
G.R. No. L-43350 December 23, 1937

CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-appellant,

vs.
TEODORO SANDIKO, defendant-appellee.

Arsenio P. Dizon for appellant.

Sumulong, Lavides and Sumulong for appellee.

LAUREL, J.:

FACTS:
Manuel Tabora is the registered owner of four parcels of land. The four parcels were
mortgaged for loans and indebtedness. However, Tabora executed a public document (Exhibit
A) by virtue of which the four parcels of land owned by him was sold to the plaintiff company,
which at that time is still under the process of incorporation.
A year later, the BOD of said company adopted a resolution authorizing its president to
sell the four parcels of lands in question to Teodoro Sandiko. Exhibits B, C and D were
thereafter made and executed. Exhibit B is a deed of sale where the plaintiff sold, ceded and
transferred to the defendant the four parcels of land. Exhibit C is a promissory note drawn by
the defendant in favor of the plaintiff. Exhibit D is a deed of mortgage executed where the four
parcels of land were given a security for the payment of the promissory note. Defendant failed to
pay thus plaintiff filed a collection of sum of money in the Court of First Instance in Manila. The
latter rendered judgment absolving the defendant. Plaintiff has appealed to this court and makes
an assignment of various errors.

ISSUE:
WON the sale made by the plaintiff corporation is valid.

HELD:
The contract here was entered into not between Manuel Tabora and a non-existent
corporation but between the Manuel Tabora as owner of the four parcels of lands on the one
hand and the same Manuel Tabora, his wife and others, as mere promoters of a corporations on
the other hand. For reasons that are self-evident, these promoters could not have acted as
agent for a projected corporation since that which no legal existence could have no agent. 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, however, under the peculiar facts and
circumstances of the present the court declined to extend the doctrine of ratification which would
result in the commission of injustice or fraud to the candid and unwary. A corporation, until
organized, has no life and therefore no faculties. Cagayan Fishing Dev’t Corp could not and did
not acquire the four parcels of land sold by Tabora, it also follows that it did not possess any
resultant right to dispose of them by sale to the defendant, Teodoro Sandiko. The corporation
had no juridical personality to enter into a contract.
Corporations are creatures of the law, and can only come into existence in the manner
prescribed by law. It 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.
 120 DARLUCIO
TRILLANA v. QUEZON COLLEGE

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. In view of proposal of Damasa to pay value of subscription after he has harvested
fish is a condition obviously dependent upon her sole will and therefore void. Art. 1182.
When the fulfillment of the condition depends upon the sole will of the debtor, the
conditional obligation shall be void.
VELASCO VS. POIZAT

G.R. No. L-11528

FACTS: The plaintiff, as assignee in insolvency of "The Philippine Chemical Product Company" (Ltd.)
is seeking to recover of the defendant, Jean M. Poizat, the sum of P1,500, upon a subscription made
by him to the corporate stock of said company. It appears that the corporation in question was originally
organized by several residents of the city of Manila, where the company had its principal place of
business, with a capital of P50,000, divided into 500 shares. The defendant subscribed for 20 shares
of the stock of the company, an paid in upon his subscription the sum of P500, the par value of 5
shares . The action was brought to recover the amount subscribed upon the remaining shares. It
appears that the defendant was a stock holder in the company from the inception of the enterprise,
and for sometime acted as its treasurer and manager. While serving in this capacity he called in and
collected all subscriptions to the capital stock of the company, except the aforesaid 15 shares
subscribed by himself and another 15 shares owned by Jose R. Infante.

A meeting of the board of directors of the company was held at which a majority of the stock was
presented. Upon this occasion two resolutions were adopted. The first was a proposal that the
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 Infante. It seems that this
shareholder had already paid 25 per cent of his subscription upon 20 shares, leaving 15 shares unpaid
for, and an understanding had been reached by him and the management by which he was to be
released from the obligation of his subscription, it being understood that what he had already paid
should not be refunded. Accordingly the directors present at this meeting subscribed P1,200 toward
taking up his shares, leaving a deficiency of P300 to be recovered by voluntary subscriptions from
stockholders not present at the meeting. The other proposition was o the effect that Juan [Jean] M.
Poizat, who was absent, should be required to pay the amount of his subscription upon the 15 shares
for which he was still indebted to the company. The resolution further provided that, in case he should
refuse to make such payment, the management of the corporation should be authorized to undertake
judicial proceedings against him. When notification of this resolution reached Poizat through the mail
it evoked from him a manifestation of surprise and pain, which found expression in a letter written by
him in reply, dated July 27, 1914, and addressed to Velasco, as treasurer and administrator. In this
letter Poizat states that he had been given to understand by some member of the board of directors
that he was to be relieved from his subscription upon the terms conceded to Infante. The company
soon went into voluntary insolvency, Velasco being named as the assignee. At the hearing of the Court
of First Instance, judgment was rendered in favor of the defendant, and the complaint was dismissed.
From this action the plaintiff has appealed.

ISSUE: WON Poizat is liable upon this subscription?

HELD: Poizat is liable upon his subscription. Section 36 of the Corporation Law clearly recognizes that
a stock subscription is subsisting liability from the time the subscription is made, since it requires the
subscriber to pay interest quarterly from that date unless he is relieved from such liability by the by-
laws of the corporation. The subscriber is as much bound to pay the amount of the share subscribed
by him as he would be to pay any other debt, and the right of the company to demand payment is no
less incontestable. The provisions of the Corporation Law (Act No. 1459) given recognition of two
remedies for the enforcement of stock subscriptions. The first and most special remedy given by the
statute consists in permitting the corporation to put up the unpaid stock for sale and dispose of it for
the account of the delinquent subscriber. In this case the provisions of section 38 to 48, inclusive, of
the Corporation Law are applicable and must be followed. Nothing in this Act shall prevent the directors
from collecting, by action in any court of proper jurisdiction, the amount due on any unpaid
subscription, together with accrued interest and costs and expenses incurred. The assignee of the
insolvent corporation succeeds to all the corporate rights of action vested in the corporation prior to its
insolvency; and the assignee therefore has the same freedom with respect to suing upon the stock
subscription as the directors themselves would have had under section 49 above cited. There is
another reason why the present plaintiff must prevail in this case. That reason is this: When insolvency
supervenes upon a corporation and the court assumes jurisdiction to wind up, all unpaid stock
subscriptions become payable on demand, and are at once recoverable in an action instituted by the
assignee or receiver appointed by the court. It is now quite well settled that when the corporation
becomes insolvent, with proceedings instituted by creditors to wind up and distribute its assets, no call
or assessment is necessary before the institution of suits to collect unpaid balances on subscription. 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; and when the original
model of making the call becomes impracticable, the obligation must be treated as due upon demand.
The better doctrine is that when insolvency supervenes all unpaid subscriptions become at once due
and enforceable.

The circumstance that the board of directors in their meeting of July 13, 1914, resolved to release
Infante from his obligation upon a subscription for 15 shares is no wise prejudicial to the right of the
corporation or its assignee to recover from Poizat upon a subscription made by him. In releasing
Infante the board transcended its powers, and he no doubt still remained liable on such of his shares
as were not taken up and paid for by other persons.The general doctrine is that 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.The suggestion contained in Poizat's letter of July 27, 1914, to the effect
that he understood that he was to be relieved upon the same terms as Infante is, for the same reason,
of no merit as matter of defense, even if an agreement to that effect had been duly proved.
 PHILIPPINE FIRST INSURANCE COMPANY, INC.
vs.
MARIA CARMEN HARTIGAN, CGH, and O. ENGKEE
G.R. No. L-26370
(July 31, 1970)

FACTS:
On June 1, 1953, plaintiff was originally named as 'The Yek Tong Lin Fire and Marine
Insurance Co., Ltd’ an insurance corp. duly presented with the Security and Exchange
Commissioner and before a Notary Public as provided in their articles of incorporation. Later
amended its articles of incorporation and changed its name on May 26, 1961 as ‘Philippine First
Insurance Co., Inc.’ pursuant to a certificate of the Board of Directors.
The complaint alleges that: Philippine First Insurance Co., Inc., doing business under the
name of 'The Yek Tong Lin Fire and Marine Insurance Co., Lt.' signed as co-maker together
with defendant Maria Carmen Hartigan, CGH, to which a promissory note was made in favour
of China Banking. Said defendant failed to pay in full despite renewal of such note. The
complaint ends with a prayer for judgment against the defendants, jointly and severally, for the
sum of P4,559.50 with interest at the rate of 12% per annum from November 23, 1961 plus
P911.90 by way of attorney's fees and costs.
Defendants admitted the execution of the indemnity agreement but they claim that they
signed said agreement in favor of the Yek Tong Lin Fire and Marine Insurance Co., Ltd.' and not
in favor of the plaintiff Philippine Insurance. They likewise admit that they failed to pay the
promissory note when it fell due but they allege that since their obligation with the China
Banking Corporation based on the promissory note still subsists, the surety who co-signed the
promissory note is not entitled to collect the value thereof from the defendants otherwise they
will be liable for double amount of their obligation, there being no allegation that the surety has
paid the obligation to the creditor. In their special defense, defendants claim that there is no
privity of contract between the plaintiff and the defendants and consequently, the plaintiff has
no cause of action against them, considering that the complaint does not allege that the plaintiff
and the 'Yek Tong Lin Fire and Marine Insurance Co., Ltd.' are one and the same or that the
plaintiff has acquired the rights of the latter.

ISSUE: May a Philippine corporation change its name and still retain its original personality and
individuality as such?

RULING: YES. As can be gleaned under Sections 6 and 18 of the Corporation Law, the name of
a corporation is peculiarly important as necessary to the very existence of a corporation. The
general rule as to corporations is that each corporation shall have a name by which it is to sue
and be sued and do all legal acts. The name of a corporation in this respect designates the
corporation in the same manner as the name of an individual designates the person." Since an
individual has the right to change his name under certain conditions, there is no compelling
reason why a corporation may not enjoy the same right. There is nothing sacrosanct in a name
when it comes to artificial beings. The sentimental considerations which individuals attach to
their names are not present in corporations and partnerships. Of course, as in the case of an
individual, such change may not be made exclusively. by the corporation's own act. It has to
follow the procedure prescribed by law for the purpose; and this is what is important and
indispensably prescribed — strict adherence to such procedure.
A general power to alter or amend the charter of a corporation necessarily includes the
power to alter the name of the corporation. Hence, a mere change in the name of a
corporation, either by the legislature or by the corporators or stockholders under legislative
authority, does not, generally speaking, affect the identity of the corporation, nor in any way
affect the rights, privileges, or obligations previously acquired or incurred by it. Indeed, it has
been said that a change of name by a corporation has no more effect upon the identity of the
corporation than a change of name by a natural person has upon the identity of such person.
The corporation, upon such change in its name, is in no sense a new corporation, nor the
successor of the original one, but remains and continues to be the original corporation. It is the
same corporation with a different name, and its character is in no respect changed. ... (6
Fletcher, Cyclopedia of the Law of Private Corporations, 224-225, citing cases.)
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. To be effective, Section 18 of
the Corporation Law, earlier quoted, requires that "a copy of the articles of incorporation as
amended, duly certified to be correct by the president and the secretary of the corporation and
a majority of the board of directors or trustees, shall be filed with the Securities & Exchange
Commissioner", and it is only from the time of such filing, that "the corporation shall have the
same powers and it and the members and stockholders thereof shall thereafter be subject to
the same liabilities as if such amendment had been embraced in the original articles of
incorporation." It goes without saying then that appellant rightly acted in its old name when on
May 15, 1961, it entered into the indemnity agreement, Annex A, with the defendant-appellees;
for only after the filing of the amended articles of incorporation with the Securities & Exchange
Commission on May 26, 1961, did appellant legally acquire its new name; and it was perfectly
right for it to file the present case In that new name on December 6, 1961. Such is, but the
logical effect of the change of name of the corporation upon its actions.
Therefore, actions brought by a corporation after it has changed its name should be
brought under the new name although for the enforcement of rights existing at the time the
change was made. The change in the name of the corporation does not affect its right to bring
an action on a note given to the corporation under its former name.