I.

Who May Form Corporation

Sec. 10, RCC

1. Any number of natural persons not less than five (5) but not
more than fifteen (15),
2. all of legal age and a majority of whom are residents of the
Philippines,
3. may form a private corporation for any lawful purpose or
purposes.
4. Each of the incorporators of s stock corporation must own or be
a subscriber to at least one (1) share of the capital stock of the
corporation.

COMPONENTS OF A CORPORATION

1. Promoter

- A person who undertakes to form a corporation and to produce for it

the rights, instrumentalities and capacity by which it is to carry out the
purposes as set forth it the charter of corporation.

2. Corporators

- They compose a corporation, stockholder or shareholder in a stock

corporation and members in a nonstock corporation.

3. Incorporators

- Incorporators are shareholders or members mentioned in the articles

of incorporation as originally composing the corporation and who are
signatories of it.

- There is no minimum number of incorporators but they must not be

more than 15 in number. (Sec 10 of the RCC)

- The Articles of Incorporation cannot be amended to change the names

of the incorporators.

4. Board of Directors and Officers

4.1. Powers of Board of Directors or Trustees (Sec. 23; Gamboa v.
Victoriano, 90 SCRA 40 [1979]).

- (a) Two Theories on Source of Power of Board of Directors

(Angeles v. Santos, 64 Phil. 697 [1937]).

- (b) Board Must Act As Body (Sec. 25; The Board of Liquidators v.
Heirs of Maximo M. Kalaw, 20 SCRA 987 [1967]; Ramirez v. Orientalist
Co. and Fernandez, 38 Phil. 634 [1918]; Acuña v. Batac Producers
Cooperative Marketing Association, 20 SCRA 526 [1967]).

The general rule is that a corporation, through its broad of

directors, should act in the manner and within the formalities, if any,
prescribed by its charter or by the general law. Thus, directors must
act as a body in a meeting called pursuant to the law or the
corporation's by-laws, otherwise, any action taken therein may be
questioned by any objecting director or shareholder. Be that as it may,
jurisprudence tells us that an action of the board of directors during a
meeting, which was illegal for lack of notice, may be ratified either
expressly, by the action of the directors in subsequent legal meeting,
or impliedly, by the corporation's subsequent course of conduct. Lopez
Realty v. Fontecha, 247 SCRA 183, 192 (1995).

5. Subscriber

- A person who has agreed to take and pay for original and unissued
shares of a corporation formed and to be formed.

6. Underwriter

- A person who guarantees on a firm commitment and/or declared best

effort basis the distribution and sale of securities of any kind by other
companies.

WHO MAY BE ALLOWED TO FORM A CORPORATION? (Section 10 of the

RCC)

1. Natural Person;
2. Juridical Person (partnership, corporations, associations)

WHO ARE NOT ALLOWED TO FORM A CORPORATION?

 1. Natural persons who are licensed to practice a profession, and
partnerships or associations organized for the purpose of practicing a
profession, shall not be allowed to organize a corporation, unless
provided under special laws.

QUALIFICATIONS OF NATURAL PERSONS (INCORPORATORS)

1. Must be of legal age

2. Must own or be a subscriber to at least one (1) share of capital

stock.

MAY A CORPORATION COMPOSED OF ALIENS BE INCORPORATED?

General Rule: Yes, provided the majority of them are residents of the
Philippines.

Exception: It is a nationalized corporation or a corporation subject to the

requirements of the Constitution or the Foreign Investments Act on the
foreign equity participation.

II. Steps in Formation of Corporation

Q: What are the steps in the creation of a corporation?

1. Promotion
2. Incorporation (Sec10)
3. Formal organization and commencement of business operations
(Section 22)

(1) PROMOTION

Q: Who is a promoter?

A: Is a person who brings about or cause to bring about the formation and
organization of a corporation by:
1. bringing together the incorporators or the persons interested in the
enterprise,
 2. procuring subscriptions or capital for the corporation and
3. setting in motion the machinery which leads to the incorporation of the
corporation itself.

(Rizal Light v Municipality of Morong, Rizal)

General Rule:

Corporation should have a full and complete organization and

existence as an entity before it can enter into a contract or transact
business. The corporation acquires its juridical entity only upon the issuance
of the Certificate of Incorporation.

Exception:

The acts of promoters of a corporation may be ratified or accepted by

the corporation if and when subsequently organized. A contract made by
the promoters of a corporation on its behalf may be adopted,
accepted, or ratified by the corporation when organized. Provided, the
contract is one such as the corporation itself can make. A corporation cannot
assume obligations

Q: What is the liability of a promoter?

A: All promoter(s) have joint personal liability for a corporation that was
never formed. He remains liable on contracts even after incorporation even
though the corporation adopts the contract.

• Liability Rules for Promoter’s Contracts

[Cagayan Fishing Dev. Co. v. Sandiko, G.R. No. L-43350 (1937)]

The contract here was entered into not between Manuel Tabora and a
non-existent corporation but between 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 corporation 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.

[Rizal Light & Ice Co. v. Public Service Commission, G.R. No. L20993
(1968)]

On the issue whether or not the franchise granted to Moring Electric

was rendered invalid by the fact that it had no corporate existence on the
day the franchise was granted under its name, the Supreme Court held that:
, fact that Morong Electric had no corporate existence on the day the
franchise was granted in its name does not render the franchise invalid,
because later Morong Electric obtained its certificate of incorporation and
then accepted the franchise in accordance with the terms and conditions
thereof.

The incorporation of Morong Electric on October 17, 1962 and its

acceptance of the franchise as shown by its action in prosecuting the
application filed with the Commission for the approval of said franchise, not
only perfected a contract between the respondent municipality and Morong
Electric but also cured the deficiency pointed out by the Petitioner in the
application of Morong EIectric.

Q: Are promoters agents of a corporation?

A: No. Promoters are not agents of the corporation before it comes into
existence. Upon incorporation, the practice is for the BOD to pass a
resolution ratifying the contracts entered into by the incorporators with the
promoter. Then, they become agents of the corporation.

Q: What are the kinds of underwriting agreement?

1. English – the underwriter sells what the corporation cannot sell

 2. Firm Commitment – the underwriter purchases outright the securities
and then resells the same.
3. Best Efforts – the underwriter merely sells for commission.

(2) SUBSCRIPTION CONTRACT

Q: What is a subscription contract?

A: It is a contract for the acquisition of unissued stock in an existing

corporation or a corporation still to be formed. It is considered as such
notwithstanding the fact that the parties refer to it as purchase or some
other contract. (Sec. 60)

Q: What are the kinds of subscription contracts?

GR:
1. Pre‐incorporation subscription – entered into before the incorporation
and irrevocable for a period of six (6) months from the date of
subscription unless all other subscribers consent or if the corporation
failed to materialize. It cannot also be revoked after filing the Articles
of Incorporation with the SEC (Sec. 61)

XPN: When creditors will be prejudiced thereby.

2. Post‐incorporation subscription – entered into after incorporation.

(3) PRE‐INCORPORATION SUBSCRIPTION AGREEMENTS (Sec. 59 and

60)

Q: Who are required to pay their subscription in full?

1. Non‐resident foreign subscribers upon incorporation must pay in full

their subscriptions unless their unpaid subscriptions are guaranteed by
a surety bond or by an assumption by a resident stockholder through
an affidavit of liability.
 2. In case of no‐par value shares, they are deemed fully paid and non‐
assessable.

Q: Is a stockholder entitled to the shares of stock subscribed

although not fully paid?

A: Yes. As long as the shares are not considered delinquent, they are
entitled to all rights granted to it whether or not the subscribed capital
stocks are fully paid.

DRAFTING OF ARTICLES OF INCORPORATION

Articles of Incorporation represent the highest form of contractual
arrangement in the Corporation Law, defining as it does the charter of the
corporation and its juridical capacity to contract and enter into various
commercial relations.

SEC Procedures for Incorporation

a. Authentication of Articles of Incorporation
b. Filing of Articles of Incorporation
c. Accompaniment of Registration of Foreign Investment
d. Examination by the SEC

Section 13, RCC- Contents of the Articles of Incorporation

All corporations shall file with the Commission articles of
incorporation in any of the official languages, duly signed and acknowledged
or authenticated, in such form and manner as may be allowed by the
Commission, containing substantially by the following matters, except as
otherwise prescribed by the RCC or by special law:

a. The name of the corporation;

b. The specific purpose or purposes for which the corporation is being
formed. Where a corporation has more than one stated purpose, the
articles of incorporation shall indicate the primary purpose and the
secondary purpose or purposes. Provided that a non-stock corporation
may not include a purpose which would change or contradict its nature
as such;
 c. The place where the principal office of the corporation is to be located,
which must be within the Philippines;
d. The term for which the corporation is to exist, if the corporation has
not elected perpetual existence;
e. The names, nationalities, and residence addresses of the
incorporators;
f. The number of directors, which shall not be more than fifteen (15) or
the number of trustees which may be more than fifteen (15);
g. The names, nationalities, and residence addresses of persons who
shall act as directors or trustees until the first regular directors or
trustees are duly elected and qualified in accordance with this Code.
h. If it be a stock corporation, the amount of its authorized capital stock,
number of shares into which is divided, the par value of each, names,
nationalities, and residence addresses of the original subscribers,
amount subscribed and paid by each on the subscription, and a
statement that some or all of the shares are without par value, if
applicable;
i. If it be a non-stock corporation, the amount of its capital, the name,
nationalities, and residence addresses of the contributors, and amount
contributed by each; and
j. Such other matters consistent with law and which the incorporators
may deem necessary and convenient.
NOTE: Any arbitration agreement may be provided in the articles of
incorporation pursuant to Section 181 of the RCC.
The articles of incorporation and applications for amendments thereto may
be filed with the Commission in the form of an electronic document, in
accordance with the Commission’s rules and regulations on electronic filing.

Section 14, RCC- Form of Articles of Incorporation

NUMBER AND QUALIFICATIONS OF INCORPORATORS

Section 10, RCC- Number and Qualifications of Incorporators

Any person, partnership, association or corporation, singly or
jointly with others but not more than fifteen (15) in number, may
organize a corporation for any lawful purpose or purposes
Provided that natural person who are licensed to practice a
profession, and partnership or associations organized for the purpose
 of practicing a profession, shall not be allowed to organize as a
corporation unless otherwise provided under special laws.
Incorporators who are natural persons must be of legal age.
Each incorporator of a stock corporation must own or be a subscriber
to at least one (1) share of the capital stock.
A corporation with a single stockholder is considered a One
Person Corporation as described in Title XIII, Chapter III of the
Revised Corporation Code.

CORPORATE NAME

Section 17, RCC- Corporate Name

No corporate name shall be allowed by the Commission if it is not
distinguishable from that already reserved or registered for the use of
another corporation, or if such name is already protected by law, or when its
use is contrary to existing law, rules and regulations.
A name is not distinguishable even it contains one or more of the
following:
1. The word “corporation”, “company”, “incorporated”, “limited liability”,
or an abbreviation of one of such words; and
2. Punctuations, articles, conjunctions, contractions, prepositions,
abbreviations, different tenses, spacing, or number of the same word
or phrase.
**The Commission upon determination that the corporate name is:
1. Not distinguishable from a name already reserved or registered for the
use of another corporation;
2. Already protected by law; or,
3. Contrary to law, rules and regulations.
may summarily order the corporation to immediately cease and desist from
using such name and require the corporation to register a new one.
**The Commission shall also cause the removal of all visible signages,
marks, advertisements, labels, prints and other effects bearing such
corporate name.
**Upon the approval of the new corporate name, the Commission shall issue
a certificate of incorporation under the amended name.
**If the corporation fails to comply with the Commission’s order, the
Commission may hold the corporation and its responsible directors or
officers in contempt and/or hold them administratively, civilly and/or
criminally liable under this Code and other applicable laws and/or revoke the
registration of the corporation.

Section 18, RCC- Registration, Incorporation and Commencement of

Corporate Existence
A person or group of persons desiring to incorporate shall submit the
intended corporate name to the Commission for verification.
If the Commission finds that the name is distinguishable from a name
already reserved or registered from a name already reserved or registered
for the use of another corporation, not protected by law and is not contrary
to law, rules and regulation, the name shall be reserved in favor of the
incorporators. The incorporators shall then submit their articles of
incorporation and bylaws to the Commission.
If the Commission finds that the submitted documents and information
are fully compliant with the requirements of this Code, other relevant laws,
rules and regulations, the Commission shall issue the certificate of
incorporation.
A private corporation organized under this Code commences its
corporate existence and juridical personality from the date the Commission
issues the certificate of incorporation under its official seal thereupon the
incorporators, stockholders/members and their successors shall constitute a
body corporate under the name stated in the articles of incorporation for the
period of time mentioned therein, unless said period is extended or the
corporation is sooner dissolved in accordance with law.

NOTE: The name of the corporation that has been dissolved or whose
registration has been revoked shall not be used by another corporation
within five (5) years from the approval of dissolution or five years from the
date of revocation, unless it has been allowed at the time of the dissolution
or revocation by the shareholders or members who represent a majority of
the outstanding capital stock or membership of the dissolved corporation as
the case may be.

Pison-Arceo Agri. Dev. Corp. v. NLRC, G.R. No. 117890 (1997)

Facts:

Private respondents represented by NSFWFGT filed a complaint for

illegal dismissal against Hacienda Lanutan/Jose Edmundo Pison.
 Complainants alleged that they were previously employed as regular
sugar farm workers.

Jose Edmundo Pison claimed that he was merely the administrator of

Hacienda Lanutan which was owned by Pison Arceo Agricultural and
Development Corporation.

The executive labor arbiter rendered a decision in favor of the workers’

complainants.

In affirming the decision of the executive labor arbiter, public

respondent ordered respondent appellant, Jose Edmundo Pison and the
respondent PisonArceo Agricultural and Development Corporation to pay
jointly and severally the claims for back wages and separation pay of private
respondents.

Issue:

Whether NLRC erred when it included motu proprio the Corporation as

a party and ordered said corporation liable to pay jointly and severally with
Jose Edmundo Pison.

Ruling:

Jurisdiction was acquired over the petitioner.

There is no dispute that Hacienda Lanutan, which was owned

SOLELY by the petitioner, was impleaded and was heard. If at all, the non-
inclusion of the corporate name of petitioner in the case before the executive
labor arbiter was a mere procedural error which did not at all affect the
jurisdiction of the labor tribunals. Petitioner was adequately represented in
the proceedings conducted at the regional arbitration branch by no less than
Hacienda Lanutans administrator, Jose Edmundo Pison, who verified and
signed his/Hacienda Lanutans position paper and other pleadings submitted
before the labor arbiter.

Also, it is undisputed that summons and all notices of hearing were

duly served upon Jose Edmundo Pison. Since Pison is the administrator and
representative of petitioner in its property and recognized as such by the
workers therein, we deem the service of summons upon him as sufficient
and substantial compliance with the requirements for service of summons
and other notices in respect of Petitioner Corporation. Insofar as the
complainants are concerned, Jose Edmundo Pison was their employer and/or
their employer’s representative.
 Jose Pison’s knowledge of the labor case and effort to resist it can be
deemed knowledge and action of the corporation. To apply the normal
precepts on corporate fiction and the technical rules on service of summons
would be to overturn the bias of the Constitution and the laws in favor of
labor. The real party in interest in this case is the petitioner, not Hacienda
Lanutan which is merely its non-juridical arm. In dealing with private
respondents, the petitioner represented itself to be Hacienda Lanutan.
Hacienda Lanutan is roughly equivalent to its trade name or even nickname
or alias. The names may have been different, but the IDENTITY of the
petitioner is not in dispute. Thus, it may be sued under the name by which it
made itself known to the workers.

[SEC Mem Circ. No. 13, s.2019 (Amended)

Philips Export B.V. v. CA, G.R. No. 96161 (1992)]

Facts:

Petitioner Philips Export B.V. (PEBV), aforeign corporation organized

under the laws of the Netherlands, although not engaged in business here, is
the registered owner of the trademarks PHILIPS and PHILIPS SHIELD
EMBLEM .

Respondent Standard Philips Corporation (Standard Philips), on the

other hand, was issued a Certificate of Registration by respondent
Commission on 19 May 1982.

Petitioners filed a letter- complaint with the Securities & Exchange

Commission (SEC) asking for the cancellation of the word “PHILIPS” from
Private Respondent’s corporate name.

As a result of Private Respondent’s refusal to amend its Articles of

Incorporation, Petitioners filed with the SEC. Alleging, among others, that
Private Respondent’s use of the word PHILIPS amounts to an infringement
and clear violation of Petitioners’ exclusive right to use the same considering
that both parties engage in the same business.

Private Respondent countered that Petitioner PEBV has no legal

capacity to sue; that its use of its corporate name is not at all similar to
Petitioners’ trademark PHILIPS when considered in its entirety; and that its
products consisting of chain rollers, belts, bearings and cutting saw are
grossly different from Petitioners’ electrical products.

Issue:

Whether petitioner may sue private respondent.

Ruling:

YES.

The Court declared that a corporation’s right to use its corporate and
trade name is a property right, a right in rem, which it may assert and
protect against the world in the same manner as it may protect its tangible
property, real or personal, against trespass or conversion. It is regarded, to
a certain extent, as a property right and one which cannot be impaired or
defeated by subsequent appropriation by another corporation in the same
field.

A name is peculiarly important as necessary to the very existence of a

corporation. Its name is one of its attributes, an element of its existence,
and essential to its identity.

A corporation acquires its name by choice and need not select a name
identical with or similar to one already appropriated by a senior corporation
while an individual’s name is thrust upon him. A corporation can no more
use a corporate name in violation of the rights of others than an individual
can use his name legally acquired so as to mislead the public and injure
another

Our own Corporation Code, in its Section 18, expressly provides that:

No corporate name may be allowed by the Securities and Exchange

Commission if the proposed name is identical or deceptively or confusingly
similar to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or contrary to existing
law.Where a change in a corporate name is approved, the commission shall
issue an amended certificate of incorporation under the amended name.

The statutory prohibition cannot be any clearer. To come within its

scope, two requisites must be proven, namely:

(1) that the complainant corporation acquired a prior right over the use of
such corporate name; and

(2) the proposed name is either:

(a) identical; or

(b) deceptively or confusingly similar to that of any existing corporation or to

any other name already protected by law; or

(c) patently deceptive, confusing or contrary to existing law.

 In this regard, there is no doubt with respect to Petitioners’ prior
adoption of’ the name ”PHILIPS” as part of its corporate name. Petitioners
Philips Electrical and Philips Industrial were incorporated on 29 August 1956
and 25 May 1956, respectively, while Respondent Standard Philips was
issued a Certificate of Registration on 12 April 1982, twenty-six (26) years
later (Rollo, p. 16). Petitioner PEBV has also used the trademark “PHILIPS”
on electrical lamps of all types and their accessories since 30 September
1922.

The second requisite no less exists in this case. In determining the

existence of confusing similarity in corporate names, the test is whether the
similarity is such as to mislead a person, using ordinary care and
discrimination. In doing so, the Court must look to the record as well as the
names themselves. While the corporate names of Petitioners and Private
Respondent are not identical, a reading of Petitioner’s corporate names, to
wit: PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS
INDUSTRIAL DEVELOPMENT, INC., inevitably leads one to conclude that
“PHILIPS'' is, indeed, the dominant word in that all the companies affiliated
or associated with the principal corporation, PEBV, are known in the
Philippines and abroad as the PHILIPS Group of Companies.

What is lost sight of, however, is that PHILIPS is a trademark or trade

name which was registered as far back as 1922. Petitioners, therefore, have
the exclusive right to its use which must be free from any infringement by
similarity. A corporation has an exclusive right to the use of its name, which
may be protected by injunction upon a principle similar to that upon which
persons are protected in the use of trademarks and trade names (18 C.J.S.
574). Such principle proceeds upon the theory that it is a fraud on the
corporation which has acquired a right to that name and perhaps carried on
its business thereunder, that another should attempt to use the same name,
or the same name with a slight variation in such a way as to induce persons
to deal with it in the belief that they are dealing with the corporation which
has given a reputation to the name.

GSIS Family Bank v. BPI Family Bank, G.R. NO. 175278 (2015)

Facts:
Petitioner was originally organized as Royal Savings Bank and started
operations in 1971. Beginning 1983 and 1984, petitioner encountered
liquidity problems. On July 9, 1984, it was placed under receivership and
later temporarily closed by the Central Bank of the Philippines. Two (2)
months after its closure, petitioner reopened and was renamed Comsavings
Bank, Inc. under the management of the Commercial Bank of Manila.
 In 1987, the Government Service Insurance System (GSIS) acquired
the petitioner from the Commercial Bank of Manila. Petitioner’s management
and control was thus transferred to GSIS. To improve its marketability to the
public, especially to the members of the GSIS, petitioner sought Securities
and Exchange Commission (SEC) approval to change its corporate name to
“GSIS Family Bank, a Thrift Bank.” Petitioner likewise applied with the
Department of Trade and Industry (DTI) and Bangko Sentral ng Pilipinas
(BSP) for authority to use “GSIS Family Bank, a Thrift Bank” as its business
name. The DTI and the BSP approved the applications. Thus, petitioner
operates under the corporate name “GSIS Family Bank — a Thrift Bank,”
pursuant to the DTI Certificate of Registration No. 741375 and the Monetary
Board Circular approval.

Respondent, BPI Family Bank was a product of the merger between

the Family Bank and Trust Company (FBTC) and the Bank of the Philippine
Islands (BPI). On June 27, 1969, the Gotianum family registered with the
SEC the corporate name “Family First Savings Bank,” which was amended to
“Family Savings Bank,” and then later to “Family Bank and Trust Company.”
Since its incorporation, the bank has been commonly known as “Family
Bank.” In 1985, Family Bank merged with BPI, and the latter acquired all the
rights, privileges, properties, and interests of Family Bank, including the
right to use names, such as “Family First Savings Bank,” “Family Bank,” and
“Family Bank and Trust Company.” BPI Family Savings Bank was registered
with the SEC as a wholly-owned subsidiary of BPI. BPI Family Savings Bank
then registered with the Bureau of Domestic Trade the trade or business
name “BPI Family Bank,” and acquired a reputation and goodwill under the
name.

Issue:

Whether the GSIS Family Bank, a Thrift Bank is registrable.

Ruling:

NO. In Philips Export B.V. v. Court of Appeals, this Court ruled that to
fall within the prohibition of the law on the right to the exclusive use of a
corporate name, two requisites must be proven, namely:

(1) that the complainant corporation acquired a prior right over the use of
such corporate name; and

(2) the proposed name is either

(a) identical or
(b) deceptive or confusingly similar to that of any existing corporation or to
any other name already protected by law; or

(c) patently deceptive, confusing or contrary to existing law

These two requisites are present in this case. In this case, respondent
was incorporated in 1969 as Family Savings Bank and in 1985 as BPI Family
Bank. Petitioner, on the other hand, was incorporated as GSIS Family —
Thrift Bank only in 2002, or at least seventeen (17) years after respondent
started using its name. Following the precedent in the IRCP case, we rule
that the respondent has the prior right over the use of the corporate name.

The second requisite in the Philips Export case likewise obtains on two
points: the proposed name is (a) identical or (b) deceptive or confusingly
similar to that of any existing corporation or to any other name already
protected by law.

On the second point (b), there is a deceptive and confusing similarity

between petitioner’s proposed name and respondent’s corporate name, as
found by the SEC. In determining the existence of confusing similarity in
corporate names, the test is whether the similarity is such as to mislead a
person using ordinary care and discrimination. And even without such proof
of actual confusion between the two corporate names, it suffices that
confusion is probable or likely to occur.

Petitioner’s corporate name is “GSIS Family Bank — A Thrift Bank” and

respondent’s corporate name is “BPI Family Bank.” The only words that
distinguish the two are “BPI,” “GSIS,” and “Thrift.” The first two words are
merely the acronyms of the proper names by which the two corporations
identify themselves; and the third word simply describes the classification of
the bank. The overriding consideration in determining whether a person,
using ordinary care and discrimination, might be misled is the circumstance
that both petitioner and respondent are engaged in the same business of
banking. “The likelihood of confusion is accentuated in cases where the
goods or business of one corporation are the same or substantially the same
to that of another corporation.”

Respondent alleged that upon seeing a Comsavings Bank branch with

the signage “GSIS Family Bank” displayed at its premises, some of the
respondent’s officers and their clients began asking questions. These include
whether GSIS has acquired Family Bank; whether there is a joint
arrangement between GSIS and Family Bank; whether there is a joint
arrangement between BPI and GSIS regarding Family Bank; whether
Comsavings Bank has acquired Family Bank; and whether there is there an
arrangement among Comsavings Bank, GSIS, BPI, and Family Bank
regarding BPI Family Bank and GSIS Family Bank. The SEC made a finding
that “[i]t is not a remote possibility that the public may entertain the idea
that a relationship or arrangement indeed exists between BPI and GSIS due
to the use of the term ‘Family Bank’ in their corporate names.”

Findings of fact of quasi-judicial agencies, like the SEC, are generally

accorded respect and even finality by this Court, if supported by substantial
evidence, in recognition of their expertise on the specific matters under their
consideration, more so if the same has been upheld by the appellate court,
as in this case.

Petitioner cannot argue that the word “family” is a generic or

descriptive name, which cannot be appropriated exclusively by respondent.
“Family,” as used in respondent’s corporate name, is not generic. Generic
marks are commonly used as the name or description of a kind of goods,
such as “Lite” for beer or “Chocolate Fudge” for chocolate soda drink.
Descriptive marks, on the other hand, convey the characteristics, function,
qualities or ingredients of a product to one who has never seen it or does not
know it exists, such as “Arthriticare” for arthritis medication.

Under the facts of this case, the word “family” cannot be separated
from the word “bank.” In asserting their claims before the SEC up to the
Court of Appeals, both petitioner and respondent refer to the phrase “Family
Bank '' in their submissions. This coined phrase, neither being generic nor
descriptive, is merely suggestive and may properly be regarded as arbitrary.
Arbitrary marks are “words or phrases used as a mark that appear to be
random in the context of its use. They are generally considered to be easily
remembered because of their arbitrariness. They are original and
unexpected in relation to the products they endorse, thus, becoming
themselves distinctive.” Suggestive marks, on the other hand, are marks
which merely suggest some quality or ingredient of goods. . . . The strength
of the suggestive marks lies on how the public perceives the word in relation
to the product or service.”

The word “family” is defined as “a group consisting of parents and

children living together in a household” or “a group of people related to one
another by blood or marriage.” Bank, on the other hand, is defined as “a
financial establishment that invests money deposited by customers, pays it
out when requested, makes loans at interest, and exchanges currency.” By
definition, there can be no expected relation between the word “family” and
the banking business of the respondent. Rather, the words suggest that the
respondent's bank is where family savings should be deposited. Moreover,
as in the Ang case, the phrase “family bank” cannot be used to define an
object.
 • Purpose Clause – Section 13(b), 41, 87, RCC; See also Section 44,
RCC
*PURPOSE CLAUSE
a) Confers as well as limits the powers which a corporation may exercise.

CORPORATE POWERS:

1. Expressly granted by law and the Articles of Incorporation.

2. Incidental to conferred powers.
3. Reasonably necessary to accomplish its purposes and incidental to its
existence.

b) Secondary purpose need not be related to the main purpose.

Three reasons for requiring a purpose clause in the AOI:

1. So that a prospective SH contemplating an investment shall know

within what lines of business his money is to be risked;
2. So that management may know within what lines of business it is
authorized to act;
3. So that anyone who deals with the corporation may ascertain w/n a
contract or transaction is within the general authority of management

A corporation can have as many purposes as it may wish to include

in its AOI, subject to the ff conditions:

1. The Articles of Incorporation must specify which is the primary

purpose and which are the
secondary purposes (need not be related)
2. For corporations governed by special laws or covered by special
provisions in the Code: can have only ONE purpose peculiar to them
and no other (ex.educational corporations cannot engage in export and
import)
3. Purposes must be lawful

NOTE:

-NEDA has the power to refuse or deny the application for

registration of any corporation if not consistent with the declared national
economic policies
- A corporation cannot be formed for the purpose of practicing a profession

- Non-stock corporations

Section 88. Purposes. - Non-stock corporations may be formed or

organized for charitable, religious, educational, professional, cultural,
fraternal, literary, scientific, social, civic service, or similar purposes, like
trade, industry, agricultural and like chambers, or any combination thereof,
subject to the special provisions of this Title governing particular classes of
non- stock corporations. (n)

GR: Investment in activities not within its primary purpose is allowed

provided that:

a) Approved by majority of Board

b) Ratified by 2/3 of outstanding capital stock

EXP: where reasonably necessary to accomplish primary purposes, SHs

approval not necessary.

Interpretation of PURPOSE CLAUSES

GR: Construed as including incidental powers reasonably necessary to the

proper exercise of the powers enumerated in the AOI.

-Detailed specification of powers enumerated, by implication, excludes all

other powers or rights.

EXP: Incidental or subordinate powers and rights necessary to an exercise

of powers expressly given.

• Gala v. Ellice Agro-Industrial Corp., G.R. No. 156819 (2003)

FACTS: The Ellice Agro-Industrial Corporation was founded and established
on March 28, 1979, by the spouses Manuel and Alicia Gala, their children
Guia Domingo, Ofelia Gala, Raul Gala, and Rita Benson, and their
encargados, Virgilio Galeon and Julian Jader.

As payment for their subscriptions, the Gala spouses transferred several

parcels of land located in the provinces of Quezon and Laguna to Ellice.
ISSUE: Whether or not the purposes for which Ellice and Margo were
organized should be declared as illegal and contrary to public policy?

RULING: The Court holds that petitioners’ contentions impugning the

legality of the purposes for which Ellice and Margo were organized, amount
to collateral attacks which are prohibited in this jurisdiction.

The best proof of the purpose of a corporation is its articles of incorporation

and by-laws. The articles of incorporation must state the primary and
secondary purposes of the corporation, while the by-laws outline the
administrative organization of the corporation, which, in turn, is supposed to
insure or facilitate the accomplishment of said purpose.

In the case at bar, a perusal of the Articles of Incorporation of Ellice and

Margo shows no sign of the allegedly illegal purposes that petitioners are
complaining of.

If a corporation’s purpose, as stated in the Articles of Incorporation, is

lawful, then the SEC has no authority to inquire whether the corporation has
purposes other than those stated, and mandamus will lie to compel it to
issue the certificate of incorporation.
Thus, even if Ellice and Margo were organized for the purpose of exempting
the properties of the Gala spouses from the coverage of land reform
legislation and avoiding estate taxes, we cannot disregard their separate
juridical personalities.

Capitalization – Section 12 RCC

-Minimum Capital Stock Not Required of Stock Corporations except as
otherwise specifically provided for by special law.

Corporate Term – Section 11

-New corporations have a perpetual term of existence unless they elect a
specific term. Existing corporations automatically carry the perpetual term
unless they choose to retain their specific term.

• NHA v. CA, G.R. No. 148830 (2005)

-Article 605 of the Civil Code states:
ART. 605. Usufruct cannot be constituted in favor of a town, corporation, or
association for more than fifty years. If it has been constituted, and before
the expiration of such period the town is abandoned, or the corporation or
association is dissolved, the usufruct shall be extinguished by reason
thereof.
The law clearly limits any usufruct constituted in favor of a corporation or
association to 50 years. A usufruct is meant only as a lifetime grant.
Unlike a natural person, a corporation or association’s lifetime may be
extended. indefinitely. The usufruct would then be perpetual.

Proclamation No. 1670 was issued 19 September 1977, or 28 years ago.

Hence, under Article 605, the usufruct in favor of MSBF has 22 years left.

• Principal Place of Business – Section 50

Place and Time of Meetings of Stockholders or Members -
Stockholders’ or members’ meetings, whether regular or special, shall be
held in the principal office of the corporation as set forth in the articles of
incorporation, or, if not practicable, in the city or municipality where the
principal office of the corporation is located xxx

• Hyatt Elevators and Escalators v. Goldstar Elevators, G.R. No.

161026 (2005)
FACTS: Hyatt filed a case for unfair trade practices and damages against LG
industrial systems Co. Ltd, and LG International Corporation alleging that it
was appointed as the exclusive distributor of LG elevators and escalators in
the Philippines under Distributorship Agreement. LG filed a motion to dismiss
alleging that lack of jurisdiction over the persons of defendant, improper
venue and failure to state a cause of action. Goldstar filed a Motion to
dismiss the complaint alleging that venue was improperly laid as neither the
Hyatt, LG or Goldstar itself resided in Mandaluyong city where the case was
originally filed.

ISSUE: Whether or not the “residence” of the corporation is the same one
as stated in the Articles of Incorporation.
RULING: Yes, although the Rules of Court do not provide that when the
plaintiff is a corporation, the complaint should be filed in the location of its
principal office as indicated in its articles of incorporation. Jurisprudence has,
however, settled that the place where the principal office of a corporation is
located, as stated in the articles, indeed establishes its residence. This ruling
is important in determining the venue of an action by or against a
corporation, as in the present case.

(TAYABAN)

• Subscription and Paid-up Requirements (Section 13, RCC)

General Rule: Stock corporations shall not be required to have minimum

capital stock, except as otherwise specifically provided by special law.

• Lanuza v CA, G.R. No. 131394 (2005)

• Classification of Shares –Sections 6-9

The classification of shares, their corresponding rights, privileges, restriction,

and their stated par value, if any, must be indicated in the articles of
incorporation.
1. Common and preferred shares. Common shares are those that do not
have preference. It has voting rights which cannot be deprived of. Preferred
shares are those that are given preference in the distribution of dividends
and in the distribution of corporate assets in case of liquidation.
Kinds of Preferred Shares
(a) Preferred as to assets which means that upon dissolution of the
corporation and its liquidation, these shares must be paid first out of the
assets of the corporation.
(b) Preferred as to dividends which means that dividends must first be
distributed to these shares before other shares are given dividends. There is
no guaranty, however, that the share will receive any dividends since
dividends can only be paid out of the surplus profits of the corporation. Such
preferred shares as to dividends may further be subdivided into:
 (i) Cumulative preferred shares. If the stipulated dividend on preferred
shares is not paid on any given year, it shall be added to the dividends which
shall be due the following year, and holders of said preferred shares shall be
entitled to be paid at the accumulated dividends together with those due for
that year, before dividends shall be paid to holders of common shares.
(ii) Non-cumulative preferred shares. If dividends are not declared in a
given year, the right to that dividend is extinguished.
(iii) Participating preferred shares. After payment of the preferred
dividend, the holder of such stocks shall share equally with the common
stockholders in any further dividends that maybe declared.
(iv) Non-participating preferred shares. After receiving the dividend,
holder of such shares shall not share in the dividends distributed to holders
of common shares.
2. Voting and Non-Voting Shares
Voting shares are those entitled to vote in all meetings of the stockholders.
Non- Voting shares are those which are deprived of voting rights such as
preferred or redeemable shares.
Instances when "Non-Voting" Shares are entitled to vote
General Rule: The vote necessary to approve a particular corporate act as
provided in the Revised Corporation Code shall be deemed to refer only to
stocks with voting rights. However, where the articles of incorporation
provide for non-voting shares, holders of such shares shall nevertheless be
entitled to vote in the following cases:
a.Amendment of the articles of incorporation;
b.Adoption and amendment of by-laws;
c. Sale, lease, exchange, mortgage, pledge or other disposition of all
or substantially all of the assets of the corporation;
d.Incurring, creating, or increasing bonded indebtedness;
e.Increase or decrease of capital stock;
f.Merger or consolidation of the corporation with another.
g. Investment of corporate funds in another corporation or business
other than the principal purpose of the corporation;
h. Dissolution of the corporation.
3. Par value and no par value.
Par value shares are those with fixed value stated in the articles of
incorporation and in the certificate of stock. No par value shares are those
without fixed value.
Limitations on Issuance of No-Par Value Shares.
a. Banks, trust, insurance and preneed companies, public utilities,
building and loan associations and other corporations authorized to obtain or
access funds of the public, whether publicly listed or not shall not be
permitted to issue no-par value shares.
b.Preferred shares cannot be issued as no-par value shares.
c. No-par value shares must be issued for a consideration of at least
five (P5.00) pesos per share.
d. The entire consideration received by the corporation for its no-par
value shares shall be treated as capital and shall not be available for
distribution as dividends.
e.The articles of incorporation must state the fact that the corporation
has issued no par value shares.
f. Once issued, no-par value shares are deemed fully paid and non-
assessable and the holder of such shares shall not be liable to the
corporation or to its creditors in respect thereto.
4. Founders' shares are those classified as such in the articles of
incorporation and given certain rights and privileges not enjoyed by the
owners of other stocks, provided that where the exclusive right to vote and
be voted for in the election of directors is granted, it must be for a limited
period not to exceed five (5) years from the date of incorporation: Provided,
That such exclusive right shall not be allowed if its exercise will violate
Commonwealth Act No. 108, otherwise known as the "Anti-Dummy Law";
Republic Act No. 7042, otherwise known as the "Foreign Investments Act
of1991"; and other pertinent laws. (Section 7)
5. Redeemable shares are those so provided in the articles of
incorporation that may be purchased or taken up by the corporation upon
the expiration of a fixed period, regardless of the existence of unrestricted
retained earnings in the books of the corporation and upon such other terms
and conditions as may be stated in the articles of incorporation which must
also be stated in the certificates of stock representing said shares.
Kinds of Redeemable Shares
(a) Compulsory redeemable shares which the issuing corporation must
redeem after a stated period or when demanded by the holder.
(b) Optional redeemable shares which are those that the issuing corporation
may or may not redeem after the stated period.
In either case, redeemable shares may be issued by the corporation when
expressly so provided in the articles of incorporation and the certificate of
stock representing the shares.
LIMITATION BY THE STATE OF REDEMPTION OF SHARES.
The Constitutional guaranty of non-impairment of obligations of contracts is
limited by the exercise of the police power of the state, the reason being
that public welfare is superior to private rights. Thus, redemption of shares
may be restricted by the exercise of police power.

6. Treasury shares are shares of stock which have been issued and fully
paid for but subsequently reacquired by the issuing corporation by purchase,
redemption, donation or through some other lawful means. Such shares may
again be disposed of for a reasonable price fixed by the board of directors.

RIGHT TO VOTE AND RECEIVE DIVIDENDS. Treasury shares are not entitled
to votes and no dividends could be declared thereon as corporations cannot
declare dividends to itself.

• By-Laws – Sections 45-47

Section 45. ADOPTION OF BY-LAWS. The by-laws may be adopted and filed
prior to incorporation; in such case, such by-laws shall be approved and
signed by all the incorporators and submitted to the Commission, together
with the articles of incorporation.
On the other hand, if the code of by-laws is adopted by the corporation after
incorporation, the following must be followed:
1. It must be approved by the affirmative vote of the stockholders
representing at least a majority of the outstanding capital stock, or of
at least a majority of the members in the case of non-stock
corporation;
2. A copy of the by-laws must be signed by the stockholders or
members voting for them, duly certified by a majority of the directors
or trustees and countersigned by the secretary of the corporation;
3. It should be filed with the Securities and Exchange Commission.
EFFECTIVITY. The by-laws shall be effective only upon the issuance by the
Securities and Exchange Commission of a certification that the by-laws are
not inconsistent with this Code.

WHEN CERTIFICATION OF APPROPRIATE GOVERNMENT AGENCY IS

NECESSARY. The Securities and Exchange Commission shall not accept for
filing the by-laws or any amendment thereto of any bank, banking
institution, building and loan association, trust company, insurance
company, public utility, educational institution or other special corporations
governed by special laws, unless accompanied by a certificate of the
appropriate government agency to the effect that such by-laws or
amendments are in accordance with law.
REQUISITES OF VALID BY-LAWS:
1. Must not be contrary to law, morals, public order or public policy.
2. Must not impair the obligations of contracts or rights.
3.Must be general and uniform in their operation and effect.
4. Must be reasonable and not arbitrary or oppressive.
5. Must be consistent with the charter or articles of incorporation.
CONTENTS OF THE BY-LAWS
1. The time, place and manner of calling and conducting regular or special
meetings of the directors or trustees;
2. The time and manner of calling and conducting regular or special
meetings of the stockholders or members;
3. The required quorum in meeting of stockholders or members and the
manner of voting therein;
4. The modes by which a stockholder, member, director, or trustee may
attend meetings and cast their votes;
5. The form for proxies of stockholders and members and the manner of
voting them;
6. The qualifications, duties and responsibilities of directors or trustees, the
guidelines for setting the compensation of directors or trustees and officers,
and the maximum number of other board representations that an
independent director or trustee may have which shall, in no case, be more
than the number prescribed by the Commission;
7. The time for holding the annual election of directors/trustees and the
mode or manner of giving notice thereof.
8. The manner of election or appointment and the term of office of all
officers other than directors or trustees;
9. The penalties for violation of the by-laws;
10. In the case of stock corporations, the manner of issuing stock
certificates; and
11. Such other matters as may be necessary for the proper or convenient
transaction of its corporate business and affairs.

BINDING EFFECT OF BY-LAWS. By-laws merely operate as internal rules

among the stockholders and therefore, they cannot affect or prejudice third
persons who deal with the corporation unless they have knowledge of the
same."

AMENDMENT/REPEAL OF BY-LAWS AND DELEGATION OF POWER TO AMEND

BY-LAWS.
(a) The by-laws may be amended or repealed or new by-laws may be
adopted by:
(1) a majority vote of the board of directors or trustees and
(2) vote of the owners of at least a majority of the outstanding capital
stock, or at least a majority of the members of a non-stock corporation.
(b) The power to amend or repeal the by-laws or adopt a new by-laws may
be delegated to the board of directors or trustees by the owners of two-
thirds (2/3) of the outstanding capital stock or two- thirds (2/3) of the
members in a non-stock corporation.
(c) The delegated power to amend or repeal the by-laws or adopt new by-
laws shall be considered as revoked whenever stockholders owning or
representing a majority of the outstanding capital stock or majority of the
members shall vote at a regular or special meeting."

EFFECTIVITY. The amended or new bylaws shall only be effective upon the
issuance by the Commission of a certification that the same is in accordance
with this Code and other relevant laws.
• Corporate Officers – Section 24
A corporation shall elect the following corporate officers:

(a) a president, who must be a director;

(b) a treasurer, who must be a resident;

(c) a secretary, who must be a citizen and resident of the Philippines; and

(d) such other officers as may be provided in the bylaws.

Note: If the corporation is vested with public interest, they shall compliance
officer,

The same person may hold two (2) or more positions concurrently, except
that no one shall act as president and secretary or as president and
treasurer at the same time, unless otherwise allowed in this Code.

The officers shall manage the corporation and perform such duties as may
be provided in the bylaws and/or as resolved by the board of directors.

c. Examination of articles; approval or rejection by SEC

d. Issuance of certificate of incorporation / Commencement of Corporate

Existence (Section 18, RCC)

A private corporation organized under this Code shall commence its

corporate existence and juridical personality from the date the
Commission issues the Certificate of Incorporation under its official
seal.

3. Grounds for Disapproval (Section 16, RCC) (AIPCO)

a.) The articles of incorporation (AI) or any amendments thereto is not

substantially in accordance with the form prescribed therein;
b.) The Purpose or purpose of the corporation are patently unconstitutional,
illegal, immoral or contrary to government rules and regulations;
c.) The Certification concerning the amount of the capital stock subscribed
and/or paid is false; and
d.) The required percentage of Filipino Ownership of the capital stick under
existing laws or the Constitution has not been complied with.