This document contains summaries of two Philippine court cases related to business organizations and corporations. The first case discusses whether a corporation can change its name while retaining its original identity. The court ruled that a corporation can change its name if it follows the proper legal procedures. The second case examines whether a municipality created by an unconstitutional executive order qualifies as a de facto corporation. The court determined it did not, as there was no valid legislative authorization for its creation.
This document contains summaries of two Philippine court cases related to business organizations and corporations. The first case discusses whether a corporation can change its name while retaining its original identity. The court ruled that a corporation can change its name if it follows the proper legal procedures. The second case examines whether a municipality created by an unconstitutional executive order qualifies as a de facto corporation. The court determined it did not, as there was no valid legislative authorization for its creation.
This document contains summaries of two Philippine court cases related to business organizations and corporations. The first case discusses whether a corporation can change its name while retaining its original identity. The court ruled that a corporation can change its name if it follows the proper legal procedures. The second case examines whether a municipality created by an unconstitutional executive order qualifies as a de facto corporation. The court determined it did not, as there was no valid legislative authorization for its creation.
1. Philippine First Insurance Co., Inc. v. Maria Carmen Hartigan, et. al., 7 SCRA 252 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 Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 2
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.
2. Municipality of Malabang, Lanao del Sur, et. al. v. Pangandapun Benito, et. al., 27 SCRA 533 Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 3
FACTS: Petitioner Amer Macaorao Balindong is the mayor of Malabang, Lanao del Sur, while the respondent Pangandapun Bonito is the mayor, and the rest of the respondents are the councilors, of the municipality of Balabagan of the same province. Balabagan was formerly a part of the municipality of Malabang, having been created on March 15, 1960, by Executive Order 386 of the then President Carlos P. Garcia, out of barrios and sitios
of the latter municipality. The petitioners brought this action for prohibition to nullify Executive Order 386 and to restrain the respondent municipal officials from performing the functions of their respective office relying on the ruling of this Court in Pelaez v. Auditor General
and Municipality of San Joaquin v. Siva. Respondents argued that the rule announced in Pelaez can have no application in this case because unlike the municipalities involved in Pelaez, the municipality of Balabagan is at least a de facto corporation, having been organized under color of a statute before this was declared unconstitutional. It is contended that as a de facto corporation, its existence cannot be collaterally attacked, although it may be inquired into directly in an action for quo warranto at the instance of the State and not of an individual like the petitioner Balindong.
ISSUE: Whether the municipality of Balabagan is a de facto corporation.
RULING: NO. Executive Order 386 is declared void, and the respondents are hereby permanently restrained from performing the duties and functions of their respective offices. Result of the analysis of cases; the following principles may be deduced which seem to reconcile the apparently conflicting decisions: I. The color of authority requisite to the organization of a de facto municipal corporation may be: 1. A valid law enacted by the legislature. 2. An unconstitutional law, valid on its face, which has either (a) been upheld for a time by the courts or (b) not yet been declared void; provided that a warrant for its creation can be found in some other valid law or in the recognition of its potential existence by the general laws or constitution of the state. II. There can be no de facto municipal corporation unless either directly or potentially, such a de jure corporation is authorized by some legislative fiat. III. There can be no color of authority in an unconstitutional statute alone, the invalidity of which is apparent on its face. IV. There can be no de facto corporation created to take the place of an existing de jure corporation, as such organization would clearly be a usurper. Hence, in the case at bar, the mere fact that Balabagan was organized at a time when the statute had not been invalidated cannot conceivably make it a de facto corporation, as, independently of the Administrative Code provision in question, there is no other valid statute to give color of authority to its creation. Executive Order 386 "created no office."
3. Hall, et. all v. Piccio, et. al., 86 Phil. 603 FACTS: On 28 May 1947, C. Arnold Hall and Bradley P. Hall, and Fred Brown, Emma Brown, Hipolita D.Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the article of incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber business to carry on as general contractors, operators and managers, etc. Attached to the article was an affidavit of the treasurer stating that 23,428 shares of stock had been subscribed and fully paid with certain properties transferred tothe corporation described in a list appended thereto. Immediately after the execution of said articles of incorporation, the corporation proceeded to do business with the adoption of by-laws and the election of its officers. On 2 December 1947, the said articles of incorporation were filed in the office of the Securities and Exchange Commissioner, for the issuance of the corresponding certificate of incorporation. On 22 March 1948,pending action on the articles of incorporation by the aforesaid governmental office, Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed before the Court of First Instance of Leyte the civil case, alleging among other things that the Far Eastern Lumber and Commercial Co. was an unregistered partnership; that they wished to have it dissolved because of bitter dissension among the members, mismanagement and fraud by the managers and heavy financial losses. C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss, contesting the court's jurisdiction and the sufficiently of the cause of action. After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and at the request of Brown, et. al., appointed Pedro A. Capuciong as the receiver of the properties thereof, upon the filing of aP20,000 bond. Hall and Hall offered to file a counter-bond for the discharge of the receiver, but Judge Piccio refused to accept the offer and to discharge the receiver. Whereupon, Hall and Hall instituted the present special civil action with the Supreme Court.
ISSUE: Whether respondents Brown, et. al. may file an action to cause the dissolution of the Far Eastern Lumber and Commercial Co., without State intervention.
RULING: Section 11 of the Corporation Law provides that the personality of a corporation begins to exist only from the moment such certificate is issued and not prior. Not having obtained the certificate of incorporation, the Far Eastern Lumber and Commercial Co. even its stockholders may not probably claim "in good faith" to be a corporation. Under the statue it is to be noted that it is the issuance of a certificate of incorporation by the Director of the Bureau of Commerce and Industry which calls a corporation into being. In the case at bar, the Securities and Exchange Commissioner has not issued the corresponding certificate of incorporation. Section 19 does not apply in this case for two reasons: 1) The immunity if collateral attack is granted to corporations "claiming in good faith to be a corporation under this act." Such a claim is compatible with the existence of errors and irregularities; but not with a total or substantial disregard of the law. Unless there has been an evident attempt to comply with the law the claim to be a corporation "under this act" could not be made "in good faith." 2) This is not a suit in which the corporation is a party. This is a Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 5
litigation between stockholders of the alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure corporation may be terminated in a private suit for its dissolution between stockholders, without the intervention of the state.
4. Asia Banking Corporation v. Standard Products Co., 46 Phil. 145 FACTS: Standard Products, Co., Inc., was indebted to Asia Banking Corporation for the amount of P37,757.00. To secure its indebtedness, it executed a promissory note in favor of plaintiff. Upon demand for the balance due, the respondent failed to pay. Hence an action was brought by plaintiff to recover the sum of P24,736.47. The court rendered judgment in favor of the plaintiff for the sum demanded in the complaint, with interest on Hence, this appeal by the respondent. At the trial of the case the plaintiff failed to prove affirmatively the corporate existence of the parties and the appellant insists that under these circumstances the court erred in finding that the parties were corporations with juridical personality and assigns same as reversible error.
ISSUE: Whether or not respondent is estopped from denying the corporate existence of the plaintiff.
RULING: The general rule is that in the absence of fraud, a person who has contracted or otherwise dealt with an association in such a way as to recognize and in effect admit its legal existence as a corporate body is thereby estopped to den# its corporate existence in any action leading out of or insisting such contract or dealing, unless its existence is attacked for cause which has arisen since making the contract or other dealing relied on as an estoppel and this applies to foreign as well as to domestic corporations. The defendant having recognized the corporate existence of the plaintiff by making a promissory note in its favor and making partial payments on the same is therefore estopped to deny said plaintiffs corporate existence. It is, of course, also estopped from denying its own corporate existence. Under these circumstances it was unnecessary for the plaintiff to present other evidence of the corporate existence of either of the parties. It ma# be noted that there is no evidence showing circumstances taking the case out of the rules stated.
5. Salvatierra v. Garlitos, et. al., 103 Phil. 757 FACTS: In 1954, Manuela Vda. De Salvatierra entered into a lease contract with Philippine Fibers Producers Co., Inc. (PFPC). PFPC was represented by its president Segundino Refuerzo. It was agreed that Manuela shall lease her land to PFPC in exchange of rental payments plus shares from the sales of crops. However, PFPC failed to comply with its obligations and so in 1955, Manuela sued PFPC and she won. An order was issued by Judge Lorenzo Garlitos of CFI Leyte ordering the execution of the judgment against Refuerzos property (there being no property under PFPC). Refuerzo Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 6
moved for reconsideration on the ground that he should not be held personally liable because he merely signed the lease contract in his official capacity as president of PFPC. Garlitos granted Refuerzos motion. Manuela assailed the decision of the judge on the ground that she sued PFPC without impleading Refuerzo because she initially believed that PFPC was a legitimate corporation. However, during trial, she found out that PFPC was not actually registered with the Securities and Exchange Commission (SEC) hence Refuerzo should be personally liable.
ISSUE: Whether or not Manuela is correct.
HELD: Yes. It is true that as a general rule, the corporation has a personality separate and distinct from its incorporators and as such the incorporators cannot be held personally liable for the obligations of the corporation. However, this doctrine is not applicable to unincorporated associations. The reason behind this doctrine is obvious-since an organization which before the law is non-existent has no personality and would be incompetent to act and appropriate for itself the powers and attribute of a corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their own risk. In this case, Refuerzo was the moving spirit behind PFPC. As such, his liability cannot be limited or restricted that imposed upon would-be corporate shareholders. In acting on behalf of a corporation which he knew to be unregistered, he assumed the risk of reaping the consequential damages or resultant rights, if any, arising out of such transaction.
6. Albert v. University Publishing Co., Inc., G.R. No. L-19118, Jan. 30, 1965 FACTS: Mariano Albert entered into a contract with University Publishing Co., Inc. through Jose M. Aruego, its President, whereby University would pay plaintiff for the exclusive right to publish his revised Commentaries on the Revised Penal Code. The contract stipulated that failure to pay one installment would render the rest of the payments due. When University failed to pay the second installment, Albert sued for collection and won. However, upon execution, it was found that University was not registered with the SEC. Albert petitioned for a writ of execution against Jose M. Aruego as the real defendant. University opposed, on the ground that Aruego was not a party to the case.
ISSUE: Whether or not Aruego can be held personally liable to the plaintiff.
RULING: YES. The Supreme Court found that Aruego represented a non-existent entity and induced not only Albert but the court to believe in such representation. Aruego, acting as representative of such non-existent principal, was the real party to the contract sued upon, and thus assumed such privileges and obligations and became personally liable for the contract entered into or for other acts performed as such agent. One who has induced another to act upon his wilful misrepresentation that a corporation was duly organized Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 7
and existing under the law, cannot thereafter set up against his victim the principle of corporation by estoppel The Supreme Court likewise held that the doctrine of corporation by estoppel cannot be set up against Albert since it was Aruego who had induced him to act upon his (Aruego's) willful representation that University had been duly organized and was existing under the law.
7. Fleischer v. Botica Nolasco Co., 47 Phil. 583 FACTS: Botica Nolasco, Inc. is a corporation duly organized and existing under the laws of the Philippine Islands. The plaintiff, Henry Fleischer, filed a complaint against the Botica Nolasco, Inc., alleging that he became the owner of five shares of stock of said corporation, by purchase from their original owner, one Manuel Gonzalez; that the said shares were fully paid; and that the defendant refused to register said shares in his name in the books of the corporation in spite of repeated demands to that effect made by him upon said corporation, which refusal caused him damages amounting to P500. Plaintiff prayed for a judgment ordering the Botica Nolasco, Inc. to register in his name in the books of the corporation the five shares of stock recorded in said books in the name of Manuel Gonzalez, and to indemnify him in the sum of P500 as damages, and to pay the costs.
The cause was brought on for trial, and the judge, held that, in his opinion, article 12 of the bylaws of the corporation which gives it preferential right to buy its shares from retiring stockholders, is in conflict with Act No. 1459 (Corporation Law), especially with section 35 thereof; and rendered a judgment ordering the defendant corporation, through its board of directors, to register in the books of said corporation the said five shares of stock in the name of the plaintiff, Henry Fleischer, as the shareholder or owner thereof, instead of the original owner, Manuel Gonzalez, with costs against the defendant. The defendant appealed from said judgment.
ISSUE: Whether or not article 12 of the by-laws of the Botica Nolasco, Inc., is in conflict with the provisions of the Corporation Law (Act No. 1459).
RULING: Yes. As a general rule, the by-laws of a corporation are valid if they are reasonable and calculated to carry into effect the objects of the corporation, and are not contradictory to the general policy of the laws of the land.
Section 13, paragraph 7, of the Corporation Law, empowers a corporation to make by- laws, not inconsistent with any existing law, for the transferring of its stock. It follows from said provision, that a by-law adopted by a corporation relating to transfer of stock should be in harmony with the law on the subject of transfer of stock. The law on this Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 8
subject is found in section 35 of Act No. 1459. Said section specifically provides that the shares of stock "are personal property and may be transferred by delivery of the certificate indorsed by the owner, etc." Said section 35 defines the nature, character and transferability of shares of stock. Said section contemplates no restriction as to whom they may be transferred or sold. The holder of shares, as owner of personal property, is at liberty, under said section, to dispose of them in favor of whomsoever he pleases, without any other limitation in this respect, than the general provisions of law. Therefore, a stock corporation in adopting a by-law governing transfer of shares of stock should take into consideration the specific provisions of section 35 of Act No. 1459, and said by-law should be made to harmonize with said provisions. It should not be inconsistent therewith.
And moreover, the by-laws now in question cannot have any effect on the appellee. He had no knowledge of such by-law when the shares were assigned to him. He obtained them in good faith and for a valuable consideration. He was not a privy to the contract created by said by-law between the shareholder Manuel Gonzalez and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his rights as a purchaser. An unauthorized by-law forbidding a shareholder to sell his shares without first offering them to the corporation for a period of thirty days is not binding upon an assignee of the stock as a personal contract, although his assignor knew of the by-law and took part in its adoption.
8. Government of the Philippine Islands v. El Hogar Filipino, 50 Phil. 399 FACTS: The Philippine Commission enacted Act No. 1459, also known as the Corporation Law on 1906. El Hogar Filipino, organized under the laws of the Phiippines Islands, was the first corporation organized under Sec. 171-190 of Act No. 1459, devoted to the subject of building and loan associations. In the said law, the capial of the said corporation shall not exceed P3M, but Act No. 2092 amended that and, permitting capitalization in the amount of P10M. Soon thereafter the association took advantage of this enactment by amending its articles so as to provide that the capital should be in an amount not exceeding the then lawful limit. From the time of its first organization the number of shareholders has constantly increased, with the result that on 1925, the association had 5,826 shareholders holding 125,750 shares, with a total paid-up value of P8,703,602.25.
First cause of action. The first cause of action is based upon the alleged illegal holding by the respondent of the title to real property for a period in excess of five years after the property had been bought in by the respondent at one of its own foreclosure sales. The provision of law relevant to the matter is found in section 75 of Act of Congress of July 1, 1902 (repeated in subsection 5 of section 13 of the Corporation Law.)
it appears that in the year 1920 El Hogar Filipino was the holder of a recorded mortgage upon a tract of land in the municipality of San Clemente, Province of Tarlac, as security for a loan of P24,000 to the shareholders of El Hogar Filipino who were the owners of Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 9
said property. The borrowers having defaulted in their payments, El Hogar Filipino foreclosed the mortgage and purchased the land at the foreclosure sale for the net amount of the indebtedness, namely, the sum of P23,744.18. the deed conveying the property to El Hogar Filipino was sent to the register of deeds of the Province of Tarlac, with the request that the certificate of title then standing in the name of the former owners be cancelled and that a new certificate of title be issued in the name of El Hogar Filipino.
For months no reply was received by El Hogar Filipino, so it filed a complaint to the Chief of the General Land Registration Office; and on May 7, 1921, the certificate of title to the San Clemente land was received by El Hogar Filipino from the register of deeds of Tarlac.
Thereafter, the San Clemente land was to be sold to a certain Alcantara. Alcantara was given successive extensions of the time, the last of which expired April 30, 1926, within which to make the payment agreed upon; and upon his failure to do so El Hogar Filipino treated the contract with him as rescinded, and efforts were made at once to find another buyer. Finally the land was sold to Doa Felipa Alberto for P6,000 by a public instrument executed before a notary public.
ISSUE: Whether or not ther was illegal holding on the part of the respondent of the title to the real property.
Ruling 1: The Attorney-General points out that the respondent acquired title on December 22, 1920, when the deed was executed and delivered, by which the property was conveyed to it as purchaser at its foreclosure sale, and this title remained in it until July 30, 1926, when the property was finally sold to Felipa Alberto. The interval between these two conveyances is thus more than five years; and it is contended that the five year period did not begin to run against the respondent until May 7, 1921, when the register of deeds of Tarlac delivered the new certificate of title to the respondent pursuant to the deed by which the property was acquired. It has been held by this court that a purchaser of land registered under the Torrens system cannot acquire the status of an innocent purchaser for value unless his vendor is able to place in his hands an owner's duplicate showing the title of such land to be in the vendor.
It results that prior to May 7, 1921, El Hogar Filipino was not really in a position to pass an indefeasible title to any purchaser. The failure of the respondent to receive the certificate sooner was not due in any wise to its fault, but to unexplained delay on the part of the register of deeds. For this delay the respondent cannot be held accountable.
Second cause of action. The second cause of action is based upon a charge that the respondent is owning and holding a business lot, with the structure thereon, in the financial district of the City of Manila is excess of its reasonable requirements and in contravention of subsection 5 of section 13 of the corporation Law.
Whether or not the respondent is owning and holding a business lot in excess of its reasonable requirements.
Ruling 2: Under subsection 5 of section 13 of the Corporation Law, every corporation has the power to purchase, hold and lease such real property as the transaction of the lawful business of the corporation may reasonably and necessarily require. When this property was acquired in 1916, the business of El Hogar Filipino had developed to such an extent, and its prospects for the future were such as to justify its directors in acquiring a lot in the financial district of the City of Manila and in constructing thereon a suitable building as the site of its offices; and it cannot be fairly said that the area of the lot 1,413 square meters was in excess of its reasonable requirements. Inasmuch as the lot referred to was lawfully acquired by the respondent, it is entitled to the full beneficial use thereof. No legitimate principle can discovered which would deny to one owner the right to enjoy his (or its) property to the same extent that is conceded to any other owner; and an intention to discriminate between owners in this respect is not lightly to be imputed to the Legislature.
Third cause of action. Under the third cause of action the respondent is charged with engaging in activities foreign to the purposes for which the corporation was created and not reasonable necessary to its legitimate ends. The specifications under this cause of action relate to three different sorts of activities. The first consist of the administration of the offices in the El Hogar building not used by the respondent itself and the renting of such offices to the public.
Ruling 3a: The activities here criticized clearly fall within the legitimate powers of the respondent. This matter will therefore no longer detain us. If the respondent had the power to acquire the lot, construct the edifice and hold it beneficially, as there decided, the beneficial administration by it of such parts of the building as are let to others must necessarily be lawful.
The second specification has reference to the administration and management of properties belonging to delinquent shareholders of the association. The association has been accustomed (pursuant to clause 8 of its standard mortgage) to take over and manage the mortgaged property for the purpose of applying the income to the obligations of the debtor party.
Ruling 3b: We see no reason to doubt the validity of the clause giving the association the right to take over the property which constitutes the security for the delinquent debt and to manage it with a view to the satisfaction of the obligations due to the debtor than the immediate enforcement of the entire obligation, and the validity of the clause allowing this course to be taken appears to us to be not open to doubt. The second specification under this cause of action is therefore without merit, as was true of the first.
The third specification under this cause of action relates to certain activities which are described in the following paragraphs contained in the agreed statements of facts: Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 11
El Hogar Filipino has undertaken the management of some parcels of improved real estate situated in Manila not under mortgage to it, but owned by shareholders, and has held itself out by advertisement as prepared to do so. The number of properties so managed during the years 1921 to 1925, inclusive, was as follows: 1921 eight properties 1922 six properties 1923 ten properties 1924 fourteen properties 1925 fourteen properties. This service is limited to shareholders; but some of the persons whose properties are so managed for them became shareholders only to enable them to take advantage thereof.
Ruling 3c: The administration of property in the manner described is more befitting to the business of a real estate agent or trust company than to the business of a building and loan association. The circumstance that the owner of the property may have been required to subscribe to one or more shares of the association with a view to qualifying him to receive this service is of no significance. It is a general rule of law that corporations possess only such express powers. The management and administration of the property of the shareholders of the corporation is not expressly authorized by law, and we are unable to see that, upon any fair construction of the law, these activities are necessary to the exercise of any of the granted powers. The corporation, upon the point now under the criticism, has clearly extended itself beyond the legitimate range of its powers.
Fourth cause of action. It appears that among the by laws of the association there is an article (No. 10) which reads as follows: The board of directors of the association, by the vote of an absolute majority of its members, is empowered to cancel shares and to return to the owner thereof the balance resulting from the liquidation thereof whenever, by reason of their conduct, or for any other motive, the continuation as members of the owners of such shares is not desirable.
Ruling 4: This by-law is of course a patent nullity, since it is in direct conflict with the latter part of section 187 of the Corporation Law, which expressly declares that the board of directors shall not have the power to force the surrender and withdrawal of unmatured stock except in case of liquidation of the corporation or of forfeiture of the stock for delinquency. It is supposed, in the fourth cause of action, that the existence of this article among the by-laws of the association is a misdemeanor on the part of the respondent which justifies its dissolution.
Fifth cause of action. The failure of the corporation to hold annual meetings and the filling of vacancies in the directorate in the manner described constitute misdemeanours on the part of the respondent which justify the resumption of the franchise by the Government and dissolution of the corporation; and in this connection it is charge that the Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 12
board of directors of the respondent has become a permanent and self perpetuating body composed of wealthy men instead of wage earners and persons of moderate means.
Ruling 5: We are unable to see the slightest merit in the charge. No fault can be imputed to the corporation on account of the failure of the shareholders to attend the annual meetings; and their non-attendance at such meetings is doubtless to be interpreted in part as expressing their satisfaction of the way in which things have been conducted. The doctrine above stated finds expressions in article 66 of the by-laws of the respondent which declares in so many words that directors shall hold office "for the term of one year on until their successors shall have been elected and taken possession of their offices." It result that the practice of the directorate of filling vacancies by the action of the directors themselves is valid. Nor can any exception be taken to then personality of the individuals chosen by the directors to fill vacancies in the body. Certainly it is no fair criticism to say that they have chosen competent businessmen of financial responsibility instead of electing poor persons to so responsible a position. The possession of means does not disqualify a man for filling positions of responsibility in corporate affairs.
Sixth cause of action. Under the sixth cause of action it is alleged that the directors of El Hogar Filipino, instead of serving without pay, or receiving nominal pay or a fixed salary, as the complaint supposes would be proper, have been receiving large compensation, varying in amount from time to time, out of the profits of the respondent.
Ruling 6: The power to fixed the compensation they shall receive, if any, is left to the corporation, to be determined in its by-laws(Act No. 1459, sec. 21). Pursuant to this authority the compensation for the directors of El Hogar Filipino has been fixed in section 92 of its by-laws, as already stated. If a mistake has been made, or the rule adopted in the by-laws meeting to change the rule, the remedy, if any, seems to lie rather in publicity and competition, rather than in a court proceeding. The sixth cause of action is in our opinion without merit.
Seventh cause of action. It appears that the promoter and organizer of El Hogar Filipino was Mr. Antonio Melian, and in the early stages of the organization of the association the board of directors authorized the association to make a contract with him with regard to the services him therefor. As a seventh cause of action it is alleged in the complaint that this royalty of the founder is "unconscionable, excessive and out of all proportion to the services rendered, besides being contrary to and incompatible with the spirit and purpose of building and loan associations."
Ruling 7: It is our opinion that this contention is entirely without merit. The mere fact that the compensation paid under this contract is in excess of what, in the full light of history, may be considered appropriate is not a proper consideration for this court, and supplies no ground for interfering with its performance. In the case of El Hogar Filipino vs. Rafferty (37 Phil., 995), which was before this court nearly ten years ago, this court held that the El Hogar Filipino is contract with Mr. Melian did not affect the association's legal character. The inference is that the contract under consideration was Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 13
then considered binding, and it occurred to no one that it was invalid. It would be a radical step indeed for a court to attempt to substitute its judgment for the judgment of the contracting parties and to hold, as we are invited to hold under this cause of action, that the making of such a contract as this removes the respondent association from the pale of the law. The majority of the court is of the opinion that our traditional respect for the sanctity of the contract obligation should prevail over the radical and innovating tendencies which find acceptance with some and which, if given full rein, would go far to sink legitimate enterprise in the Islands into the pit of populism and bolshevism. The seventh count is not sustainable.
Eight cause of action. Under the fourth cause of action we had case where the alleged ground for the revocation of the respondent's charter was based upon the presence in the by-laws of article 10 that was found to be inconsistent with the express provisions of law. Article 70 of the by-laws in effect requires that persons elected to the board of directors must be holders of shares of the paid up value of P5,000 which shall be held as security may be put up in the behalf of any director by some other holder of shares in the amount stated. Article 76 of the by-laws declares that the directors waive their right as shareholders to receive loans from the association.
Ruling 8: Article 70 is objectionable in that, under the requirement for security, a poor member, or wage-earner, cannot serve as director. Article 76 is criticized on the ground that the provision requiring directors to renounce their right to loans unreasonably limits their rights and privileges as members. There is nothing of value in either of these suggestions. Section 21 of the Corporation Law expressly gives the power to the corporation to provide in its by-laws for the qualifications of directors; and the requirement of security from them for the proper discharge of the duties of their office, Article 76, prohibiting directors from making loans to themselves, is of course designed to prevent the possibility of the looting of the corporation by unscrupulous directors. A more discreet provision to insert in the by-laws of a building and loan association would be hard to imagine. Clearly, the eighth cause of action cannot be sustained.
Ninth cause of action. The specification under this head is in effect that the respondent has abused its franchise in issuing "special" shares. The issuance of these shares is alleged to be illegal and inconsistent with the plan and purposes of building and loan associations.
Ruling 9: Tt will be seen that there is express authority, even in the very letter of the law, for the emission of advance-payment or "special" shares, and the argument that these shares are invalid is seen to be baseless. In addition to this it is satisfactorily demonstrated in Severino vs. El Hogar Filipino, supra, that even assuming that the statute has not expressly authorized such shares, yet the association has implied authority to issue them. The complaint consequently fails also as regards the stated in the ninth cause of action.
Tenth cause of action. Under this head of the complaint it is alleged that the defendant is pursuing a policy of depreciating, at the rate of 10 per centum per annum, the value of the real properties acquired by it at its sales; and it is alleged that this rate is excessive.
Ruling 10: There is no positive provision of law prohibiting the association from writing off a reasonable amount for depreciation on its assets for the purpose of determining its real profits; and article 74 of its by-laws expressly authorizes the board of directors to determine each year the amount to be written down upon the expenses of installation and the property of the corporation. There can be no question that the power to adopt such a by-law is embraced within the power to make by-laws for the administration of the corporate affairs of the association and for the management of its business, as well as the care, control and disposition of its property (Act No. 1459, sec. 13 [7]). Certainly this court cannot undertake to control the discretion of the board of directors of the association about an administrative matter as to which they have legitimate power of action. The tenth cause of action is therefore not well founded.
Eleventh and twelfth causes of action. The same comment is appropriate with respect to the eleventh and twelfth causes of action, which are treated together in the briefs, and will be here combined. The specification in the eleventh cause of action is that the respondent maintains excessive reserve funds, and in the twelfth cause of action that the board of directors has settled upon the unlawful policy of paying a straight annual dividend of 10 per centum, regardless of losses suffered and profits made by the corporation and in contravention of the requirements of section 188 of the Corporation Law.
Ruling 11 and 12: We find no reason to doubt the right of the respondent to maintain these reserves. It is true that the corporation law does not expressly grant this power, but we think it is to be implied. It is a fact of common observation that all commercial enterprises encounter periods when earnings fall below the average, and the prudent manager makes provision for such contingencies. To regard all surplus as profit is to neglect one of the primary canons of good business practice. Building and loan associations, though among the most solid of financial institutions, are nevertheless subject to vicissitudes. Fluctuations in the dividend rate are highly detrimental to any fiscal institutions, while uniformity in the payments of dividends, continued over long periods, supplies the surest foundations of public confidence. Our conclusion is that the respondent has the power to maintain the reserves criticized in the eleventh and twelfth counts of the complaint; and at any rate, if it be supposed that the reserves referred to have become excessive, the remedy is in the hands of the Legislature.
Thirteenth and fourteenth causes of action. The specification under this head is, in effect, that the respondent association has made loans which, to the knowledge of the associations officers were intended to be used by the borrowers for other purposes than the building of homes. The specification under this head is that the loans made by the defendant for purposes other than building or acquiring homes have been extended in extremely large amounts and to wealthy persons and large companies.
Ruling 13 and 14: The law states no limit with respect to the size of the loans to be made by the association. That matter is confided to the discretion of the board of directors; and this court cannot arrogate to itself a control over the discretion of the chosen officials of the company. If it should be thought wise in the future to put a limit upon the amount of loans to be made to a single person or entity, resort should be had to the Legislature; it is not a matter amenable to judicial control. The fourteenth cause of action is therefore obviously without merit.
Fifteenth cause of action. The criticism here comes back to the supposed misdemeanor of the respondent in maintaining its reserve funds, a matter already discussed under the eleventh and twelfth causes of action. Under the fifteenth cause of action it is claimed that upon the expiration of the franchise of the association through the effluxion of time, or earlier liquidation of its business, the accumulated reserves and other properties will accrue to the founder, or his heirs, and the then directors of the corporation and to those persons who may at that time to be holders of the ordinary and special shares of the corporation.
Ruling 15: There is nothing of the by-laws which is, in our opinion, subject to criticism. The real point of criticism is that upon the final liquidation of the corporation years hence there may be in existence a reserve fund out of all proportion to the requirements that may then fall upon it in the liquidation of the company. It seems to us that this is matter that may be left to the prevision of the directors or to legislative action if it should be deemed expedient to require the gradual suppression of the reserve funds as the time for dissolution approaches.
Sixteenth cause of action. This part of the complaint assigns as cause of action that various loans now outstanding have been made by the respondent to corporations and partnerships, and that these entities have in some instances subscribed to shares in the respondent for the sole purpose of obtaining such loans. It is also admitted that some of these juridical entities became shareholders merely for the purpose of qualifying themselves to take loans from the association, and the same is said with respect to many natural persons who have taken shares in the association.
Ruling 16: The word "person" appears to be here used in its general sense, and there is nothing in the context to indicate that the expression is used in the restricted sense of both natural and artificial persons, as indicated in section 2 of the Administrative Code. At any rate the question whether these loans and the attendant subscriptions were properly made involves a consideration of the power of the subscribing corporations and partnerships to own the stock and take the loans; and it is not alleged in the complaint that they were without power in the premises. Of course the mere motive with which subscriptions are made, whether to qualify the stockholders to take a loan or for some other reason, is of no moment in determining whether the subscribers were competent to make the contracts. The result is that we find nothing in the allegations of the sixteenth cause of action, or in the facts developed in connection therewith, that would justify us in granting the relief.
Seventeenth cause of action. Under the seventeenth cause of action, it is charged that in disposing of real estates purchased by it in the collection of its loans, the defendant has no various occasions sold some of the said real estate on credit, transferring the title thereto to the purchaser; that the properties sold are then mortgaged to the defendant to secure the payment of the purchase price, said amount being considered as a loan, and carried as such in the books of the defendant, and that several such obligations are still outstanding.
Ruling 17: It seems to be supposed that, when the respondent sells property acquired at its own foreclosure sales and takes a mortgage to secure the deferred payments, the obligation of the purchaser is a true loan, and hence prohibited. But in requiring the respondent to sell real estate which it acquires in connection with the collection of its loans within five years after receiving title to the same, the law does not prescribe that the property must be sold for cash or that the purchaser shall be a shareholder in the corporation.
9. Stockholders of F. Guanzon & Sons, Inc. v. Register of Deeds of Manila, 6 SCRA 373 FACTS: On September 19, 1960, the five stockholders of the F. Guanzon and Sons, Inc. executed a certificate of liquidation of the assets of the corporation reciting, among other things, that by virtue of a resolution of the stockholders adopted on September 17, 1960, dissolving the corporation, they have distributed among themselves in proportion to their shareholdings, as liquidating dividends, the assets of said corporation, including real properties located in Manila.
The certificate of liquidation, when presented to the Register of Deeds of Manila, was denied registration on seven grounds, of which the following were disputed by the stockholders: 3. The number of parcels not certified to in the acknowledgment; 5. P430.50 Reg. fees need be paid; 6. P940.45 documentary stamps need be attached to the document; 7. The judgment of the Court approving the dissolution and directing the disposition of the assets of the corporation need be presented (Rules of Court, Rule 104, Sec. 3).
Deciding the consulta elevated by the stockholders, the Commissioner of Land Registration overruled ground No. 7 and sustained requirements Nos. 3, 5 and 6. The stockholders interposed the present appeal.
ISSUE: Whether or noDt the certificate of registration merely involves a distribution of the corporation's assets or should be considered a transfer or conveyance.
RULING: A corporation is a juridical person distinct from the members composing it. Properties registered in the name of the corporation are owned by it as an entity separate Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 17
and distinct from its members. While shares of stock constitute personal property they do not represent property of the corporation. The corporation has property of its own which consists chiefly of real estate. A share of stock only typifies an aliquot part of the corporation's property, or the right to share in its proceeds to that extent when distributed according to law and equity, but its holder is not the owner of any part of the capital of the corporation. Nor is he entitled to the possession of any definite portion of its property or assets. The stockholder is not a co-owner or tenant in common of the corporate property.
On the basis of the foregoing authorities, it is clear that the act of liquidation made by the stockholders of the F. Guanzon and Sons, Inc. of the latter's assets is not and cannot be considered a partition of community property, but rather a transfer or conveyance of the title of its assets to the individual stockholders. Indeed, since the purpose of the liquidation, as well as the distribution of the assets of the corporation, is to transfer their title from the corporation to the stockholders in proportion to their shareholdings, and this is in effect the purpose which they seek to obtain from the Register of Deeds of Manila, that transfer cannot be effected without the corresponding deed of conveyance from the corporation to the stockholders. It is, therefore, fair and logical to consider the certificate of liquidation as one in the nature of a transfer or conveyance.
10. Caram, et. al, v. Court of Appeals, et. al., 151 SCRA 373 FACTS: Herein petitioners question the ruling of the lower court in declaring them solidarily liable with their co-defendants in the lower court in the dispositive portion of the decision: 1. Defendants are hereby ordered to jointly and severally pay the plaintiff the amount of P50,000.00 for the preparation of the project study and his technical services that led to the organization of the defendant corporation, plus P10,000.00 attorneys fees. Petitioners claim that the order of the lower court had no support in fact and in law because they had no contract with the private respondent regarding the above- mentioned services. Petitioners claim that as mere subsequent investors in the corporation that was later created, they should not be held solidarily liable with the Filipinas Orient Airways, a separate juridical entity, and with Barreto and Garcia, their co-defendants in the lower court, who were the ones who requested the said services from the private respondent.
ISSUE: Whether or not petitioners are also and personally liable for the expenses?
RULING: No. Petitioners are not liable at all, jointly or jointly and severally. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 18
Petitioners, stockholders, were not really involved in the initial steps that finally led to the incorporation of the Filipinas Orient Airways. Barreto was the moving spirit and the main promoter during the initial stages of the organization of the airline. 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 responsible for its corporate acts as duly authorized by its officers and directors. 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. The petitioners did not contract such services. It was only the results of such services that Barreto and Garcia presented to them and which persuaded them to invest in the proposed airline. The most that can be said is that they benefitted 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.
11. Palay, Inc. v. Clave, 124 SCRA 640 FACTS: On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott, executed in favor of private respondent, Nazario Dumpit, a contract to sell a parcel of land of the Crestview Heights Subdivision in Antipolo, Rizal, owned by said corporation. The sale price was P23,000 with 9% interest per annum, payable with a downpayment of P4,660 and monthly installments of P246.42 until fully paid. Par. 6 of the contract provided for automatic extrajudicial rescission upon default in payment of any monthly installment after the lapse of 90 days from the expiration of the grace period of one month, without need of notice and with forfeiture of all installments paid. Respondent Dumpit paid the downpayment and several installments amounting to P13,722.50. The last payment was made on Dec. 5, 1967 for installments up to Sep. 1967. On May 10, 1973, almost 6 years later, private respondent wrote petitioner offering to update all his overdue accounts with interest, and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. He followed this up with another letter dated June 20, 1973 reiterating the same request. Replying petitioners informed respondent that his Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already been resold. Respondent questioned the validity of the rescission and filed a letter complaint with the National Housing Authority (NHA) for reconveyance with the alternative prayer for refund. NHA found the rescission void in the absence of either judicial or notarial demand and ordered Palay, Inc. and Alberto Onstott, in his capacity as President of the Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 19
corporation, jointly and severally, to refund immediately to Nazario Dumpit P13,722.50 with 12% interest from the filing of the complaint.
ISSUE: Whether the doctrine of piercing the veil of corporate fiction has application to the case at bar. And whether petitioner Onstott was properly made jointly and severally liable with petitioner corporation for refund to private respondent of the total amount the latter had paid to petitioner company.
RULING: No, the piercing of the veil of corporate fiction has no application to the case at bar. And Petitioner Onstott, the president of the corporation, cannot be made personally liable. It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. As a general rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice versa. However, the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice; or for purposes that could not have been intended by the law that created it; or to defeat public convenience, justify wrong, protect fraud, or defend crime; or to perpetuate fraud or confuse legitimate issues; or to circumvent the law or perpetuate deception; or as an alter ego, adjunct or business conduit for the sole benefit of the stockholders. We find no badges of fraud on petitioner`s part. They had literally relied, albeit mistakenly, on par. 6 of its contract with private respondent when it rescinded the contract to sell extrajudicially and had sold it to a third person. In this case, petitioner Onstott was made liable because he was then the President of the corporation and he a to (sic) be the controlling stockholder. No sufficient proof exists on record that said petitioner used the corporation to defraud private respondent. He cannot, therefore, be made personally liable just because he "appears to be the controlling stockholder". Mere ownership by a single stockholder or by another corporation is not of itself sufficient ground for disregarding the separate corporate personality.
(The Court ruled that the extrajudicial rescission was ineffective and inoperative against private respondent for lack of notice of resolution. Notice of cancellation to the buyer is indispensable. Extrajudicial rescission has legal effect where the other party does not oppose it. Where it is objected to, a judicial determination of the issue is still necessary. In other words, resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in Court. If the debtor impugns the declaration, it shall be subject to judicial determination. Thus, the corporation should refund.)
12. Laguna Transportation Company, Inc. v. Social Security System, 107 Phil. 833 FACTS: Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 20
Sometime in 1949, the Bian Transportation Co., a corporation duly registered with the SEC, sold part of the lines and equipment it operates to Gonzalo Mercado, Artemio Mercado, Florentino Mata and Dominador Vera Cruz. The said vendees formed an unregistered partnership under the name of Laguna Transportation Company, which continued to operate the lines and equipment bought from the Bian Transportation Co., in addition to new lines which it was able to secure from the Public Service Commission. The original partners and two new members organized a corporation known as the Laguna Transportation Company, Inc., registered under the SEC on June 20, 1956. The corporation continued the same transportation business of the unregistered partnership. Prior to November 11, 1957, plaintiff requested for exemption from coverage by the System on the ground that it started operation only on June 20, 1956, when it was registered with the SEC but on November 11, 1957, the Social Security System notified plaintiff that it was covered. The lower court ruled that petitioner was an employer engaged in business as common carrier which had been in operation for at least two years prior to the enactment of RA 1161, as amended by RA 1792 and by virtue thereof, it was subject to compulsory coverage under said law.
ISSUE: Whether or not petitioner, an employer which had been engaged in business as a common carrier for at least 2 years prior to the enactment of the Social Security Act, is subject to compulsory coverage thereunder?
RULING: Yes. The Petitioner corporation is subject to compulsory coverage under the SSS. Sec. 9 of the Social Security Act provides, Sec. 9. Compulsory Coverage Coverage in the System shall be compulsory upon all employees between the ages of sixteen and sixty years, inclusive, if they have been for at least six months in the service of an employer who is a member of the System. Provided, That the Commission may not compel any employer to become a member of the System unless he shall have been in operation for at least two years.... It is not disputed that the Laguna Transportation Company, an unregistered partnership composed of Gonzalo Mercado, Artemio Mercado, Florentina Mata, and Dominador Vera Cruz, commenced the operation of its business as a common carrier on April 1, 1949. These 4 original partners, with 2 others (Maura Mendoza and Sabina Borja) later converted the partnership into a corporate entity, by registering its articles of incorporation with the Securities and Exchange Commission on June 20, 1956. The firm name "Laguna Transportation Company" was not altered, except with the addition of the word "Inc." to indicate that petitioner was duly incorporated under existing laws. The corporation continued the same transportation business of the unregistered partnership, using the same lines and equipment. There was, in effect, only a change in the form of the organization of the entity engaged in the business of transportation of passengers. Hence, said entity as an employer engaged in business, was already in operation for at least 3 years prior to the enactment of the Social Security Act on June 18, 1954 and for at least two years prior to the passage of the amendatory act on June 21, 1957.
Petitioner argues that, since it was registered as a corporation with the Securities and Exchange Commission only on June 20, 1956, it must be considered to have been in operation only on said date. While it is true that a corporation once formed is conferred a juridical personality separate and district from the persons composing it, it is but a legal fiction introduced for purposes of convenience and to subserve the ends of justice. The concept cannot be extended to a point beyond its reasons and policy, and when invoked in support of an end subversive of this policy, will be disregarded by the courts. If any general rule can be laid down, in the present state of authority, it is that a corporation will be looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the motion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. To adopt petitioner's argument would defeat, rather than promote, the ends for which the Social Security Act was enacted. An employer could easily circumvent the statute by simply changing his form of organization every other year, and then claim exemption from contribution to the System as required, on the theory that, as a new entity, it has not been in operation for a period of at least 2 years. The door to fraudulent circumvention of the statute would, thereby, be opened. Moreover, petitioner admitted that as an employer engaged in the business of a common carrier, its operation commenced on April 1, 1949 while it was a partnership and continued by the corporation upon its formation on June 20, 1956. Unlike in the conveyance made by the Bian Transportation Company to the partners Gonzalo Mercado, Artemio Mercado, Florentino Mata, and Dominador Vera Cruz, no mention whatsoever is made either in the pleadings or in the stipulation of facts that the lines and equipment of the unregistered partnership had been sold and transferred to the corporation, petitioner herein. This omission, to our mind, clearly indicates that there was, in fact, no transfer of interest, but a mere change in the form of the organization of the employer engaged in the transportation business, i.e., from an unregistered partnership to that of a corporation. As a rule, courts will look to the substance and not to the form. Finally, the weight of authority supports the view that where a corporation was formed by, and consisted of members of a partnership whose business and property was conveyed and transferred to the corporation for the purpose of continuing its business, in payment for which corporate capital stock was issued, such corporation is presumed to have assumed partnership debts, and is prima facie liable therefor. The reason for the rule is that the members of the partnership may be said to have simply put on a new coat, or taken on a corporate cloak, and the corporation is a mere continuation of the partnership.
13. Marvel Building Corporation, et. al. v. David, 94 Phil. 376 FACTS: Marvel Building Corporation was incorporated in February 12, 1947 wherein its articles of incorporation contained a capital stock of P 2,000,000.00 of which majority of its stockholders are Maria B. Castro(President), Amado A. Yatco, Segundo Esguerra and Maximo Cristobal(Secretary-Treasurer) from the total of eleven(11) stockholders. During the existence of the corporation, it acquired assets including buildings, namely, Aguinaldo Building, Wise Building and Dewey Boulevard-Padre Faura Mansion. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 22
Towards the end of year 1948, internal revenue examiners discovered that from the 11 stock certificates, all of it were endorsed in the bank by the subscribers, except the one subscribed by Maria B. Castro. They also discovered that there were no business meeting held by the board of directors, no by-laws and that the corporation never had any reports of their transactions or affairs. As a result, Secretary of Finance recommended the collection of war profit taxes assessed against Maria B. Castro in the amount of P3,593,950.78 and seize the three(3) buildings named above. Plaintiff(Marvel Building Corporation) filed a complaint for the release of the seized property contending that said property are owned by the corporation and not solely by Maria Castro. The trial court ruled in favor of plantiff and enjoin Collector of Internal Revenue from selling the same. Collector of Internal Revenue appealed, and CA ruled that trial court failed to show that Maria B. Castro is not the true owner of all the stock certificates of the corporation, therefore confiscation of the property against the corporation is justified. Hence this petition arise.
ISSUE: Whether or not Maria B. Castro is the sole owner of all the stocks of Marvel Corporation and the other stockholders are mere dummies?
RULING: Yes. Maria B. Castro is the sole and exclusive owner of all the shares of stock of the Marvel Building Corporation and that the other partners are her dummies. Section 89, Rule 123 of the Rules of Court and section 42 of the Provisional law for the application of the Penal Code, applies in this case pursuant to circumstantial evidence as the basis of judgment. In general the evidence offered by the plaintiffs is testimonial and direct evidence, easy of fabrication; that offered by defendant, documentary and circumstantial, not only difficult of fabrication but in most cases found in the possession of plaintiffs. The circumstantial evidence is not only convincing; it is conclusive. The existence of endorsed certificates, discovered by the internal revenue agents between 1948 and 1949 in the possession of the Secretary-Treasurer, the fact that twenty-five certificates were signed by the president of the corporation, for no justifiable reason, the fact that two sets of certificates were issued, the undisputed fact that Maria B. Castro had made enormous profits and, therefore, had a motive to hide them to evade the payment of taxes, the fact that the other subscribers had no incomes of sufficient magnitude to justify their big subscriptions, the fact that the subscriptions were not receipted for and deposited by the treasurer in the name of the corporation but were kept by Maria B. Castro herself, the fact that the stockholders or the directors never appeared to have ever met to discuss the business of the corporation, the fact that Maria B. Castro advanced big sums of money to the corporation without any previous arrangement or accounting, and the fact that the books of accounts were kept as if they belonged to Maria B. Castro alone these facts are of patent and potent significance. This implied that Maria B. Castro would not have asked them to endorse their stock certificates, or be keeping these in her possession, if they were really the owners. They never would have consented that Maria B. Castro keep the funds without receipts or accounting, nor that she manages the business without their knowledge or concurrence, were they owners of the stocks in their own rights. Each and Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 23
every one of the facts all set forth above, in the same manner, is inconsistent with the claim that the stockholders, other than Maria B. Castro, own their shares in their own right. On the other hand, each and every one of them, and all of them, can point to no other conclusion than that Maria B. Castro was the sole and exclusive owner of the shares and that they were only her dummies.
14. Palacio, et. al, v. Fely Transportation Company, 5 SCRA 1011 FACTS: On December 24, 1952, at about 11:30 a.m., while the driver Alfonso (Alfredo) Carillo was driving AC-687 jeepney at Halcon Street, Quezon City, he accidentally run over a child Mario Palacio of the herein plaintiff Gregorio Palacio. Mario Palacio suffered injury and fracture thereby hospitalizing him at the Philippine Orthopedic Hospital from December 24, 1952, up to January 8, 1953, and continued to be treated for a period of five months thereafter. While Plaintiff's (Gregorio Palacio's) child was in the hospital and was under treatment for five months, he was forced to abandon his shop where he derives income of P10.00 a day for the support of his family and was forced to sell one air compressor (heavy duty) and one heavy duty electric drill, for a sacrifice sale of P150.00 which could easily sell at P350.00 in order to sustain the daily expenses of his family. Because of the failure to recover indemnity from the criminal case filed by the plaintiff against the driver, this prompted plaintiff to file a civil suit in the Court of First Instance against the defendant Fely Transportation company, for he incurred P300 for attorneys fees, P500 for actual damages, and P1200 for moral damages. The Court of First Instance found accused Alfredo Carillo y Damaso(driver) guilty beyond reasonable doubt of the crime charged, however, on the basis of these facts, the lower court held that the civil action filed is barred by the judgment in the criminal case and, that under Article 103 of the Revised Penal Code, the person subsidiarily liable to pay damages is Isabelo Calingasan, the employer, and not the defendant corporation.
ISSUE: Whether or not Fely Transportation Company is subsidiarily liable of the crime committed by its employee(driver).
RULING: Yes.
The Court ruled that Isabelo Calingasan(the President and General Manager) and defendant Fely Transportation may be regarded as one and the same person. It is evident that Isabelo Calingasan's main purpose in forming the corporation was to evade his subsidiary civil liability resulting from the conviction of his driver, Alfredo Carillo. This conclusion is borne out by the fact that the incorporators of the Fely Transportation are Isabelo Calingasan, his wife, his son, Dr. Calingasan, and his two daughters. It is believed that in a case where the defendant corporation should not be heard to say that it has a personality separate and distinct from its members when to allow it to do so would be to sanction the use of the fiction of corporate entity as a shield to further an end subversive of justice. Furthermore, the failure of the defendant corporation to prove that it has other Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 24
property than the jeep (AC-687) strengthens the conviction that its formation was for the purpose above indicated. Accordingly, defendants Fely Transportation and Isabelo Calingasan should be held subsidiarily liable for P500.00 which Alfredo Carillo was ordered to pay in the criminal case and which amount he could not pay on account of insolvency.
15. Tan Boon Bee & Co. v. Jarencio, 163 SCRA 205 FACTS: In 1972, Anchor Supply Co. (ASC), through Tan Boon Bee, entered into a contract of sale with Graphic Publishing Inc. (GPI) whereby ASC shall deliver paper products to GPI. GPI paid a down payment but defaulted in paying the rest despite demand from ASC. ASC sued GPI and ASC won. To satisfy the indebtedness, the trial court, presided by Judge Hilarion Jarencio, ordered that one of the printing machines of GPI be auctioned. But before the auction can be had, Philippine American Drug Company (PADCO) notified the sheriff that PADCO is the actual owner of said printing machine. Notwithstanding, the sheriff still went on with the auction sale where Tan Boon Bee was the highest bidder. Later, PADCO filed with the same court a motion to nullify the sale on execution. The trial court ruled in favor of PADCO and it nullified said auction sale. Tan Boon Bee assailed the order of the trial court. Tan Boon Bee averred that PADCO holds 50% of GPI; that the board of directors of PADCO and GPI is the same; that the veil of corporate fiction should be pierced based on the premises. PADCO on the other hand asserts ownership over the said printing machine; that it is merely leasing it to GPI.
ISSUE: Whether or not the veil of corporate fiction should be pierced.
HELD: Yes. PADCO, as its name suggests, is a drug company not engaged in the printing business. So it is dubious that it really owns the said printing machine regardless of PADCOs title over it. Further, the printing machine, as shown by evidence, has been in GPIs premises even before the date when PADCO alleged that it acquired ownership thereof. Premises considered, the veil of corporate fiction should be pierced; PADCO and GPI should be considered as one. When a corporation is merely an adjunct, business conduit or alter ego of another corporation the fiction of separate and distinct corporation entities should be disregarded.
16. McConnel, et. al. v. Court of Appeals, 1 SCRA 721 FACTS: Park Rite Co., Inc., a Philippine corporation, was originally organized on or about April 15, 1947, with a capital stock of 1,500 shares at P1.00 a share. The corporation leased from Rafael Perez Rosales y Samanillo a vacant lot on Juan Luna street (Manila) which it used for parking motor vehicles for a consideration. It turned out that in operating its parking business, the corporation occupied and used not only the Samanillo Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 25
lot it had leased but also an adjacent lot belonging to the respondents-appellees Padilla, without the owners' knowledge and consent. When the latter discovered the truth around October of 1947, they demanded payment for the use and occupation of the lot. The corporation (then controlled by petitioners Cirilo Parades and Ursula Tolentino, who had purchased and held 1,496 of its 1,500 shares) disclaimed liability, blaming the original incorporators, McConnel, Rodriguez and Cochrane. The lot owners filed a complaint for forcible entry in the Municipal Court of Manila which rendered judgment ordering the Park Rite Co., Inc. to pay P7,410.00 plus legal interest as damages from April 15, 1947 until return of the lot. Restitution not having been made until 31 January 1948, the entire judgment amounted to P11,732.50. Upon execution, the corporation was found without any assets other than P550.00 deposited in Court. After their application to the judgment credit, there remained a balance of P11,182.50 outstanding and unsatisfied. The judgment creditors then filed suit in the CFI of Manila against the corporation and its past and present stockholders, to recover from them, jointly and severally, the unsatisfied balance of the judgment, plus legal interest and costs. The CFI denied recovery; but on appeal, the CA reversed, finding that the corporation was a mere alter ego or business conduit of the principal stockholders that controlled it for their own benefit, and adjudged them responsible for the amounts demanded by the lot owners. Hence, this resort via certiorari.
ISSUE: Whether or not the individual stockholders can held liable for obligations contracted by the Corporation
RULING: The Court has answered the question in the affirmative wherever circumstances have shown that the corporate entity is being used as an alter ego or business conduit for the sole benefit of the stockholders, or else to defeat public convenience, justify wrong, protect fraud, or defend crime. The facts thus found cannot be varied by the Court, and conclusively show that the corporation is a mere instrumentality of the individual stockholder's, hence the latter must individually answer for the corporate obligations. While the mere ownership of all or nearly all of the capital stock of a corporation is a mere business conduit of the stockholder, that conclusion is amply justified where it is shown, as in the case before us, that the operations of the corporation were so merged with those of the stockholders as to be practically indistinguishable from them. To hold the latter liable for the corporation's obligations is not to ignore the corporation's separate entity, but merely to apply the established principle that such entity cannot be invoked or used for purposes that could not have been intended by the law that created that separate personality.
17. National Marketing Corporation v. Associated Financing Company, et. al., 19 SCRA 962 FACTS: On March 25, 1958, ASSOCIATED, a domestic corporation, through its President, appellee Francisco Sycip, entered into an agreement to exchange sugar with NAMARCO, represented by its then General Manager, Benjamin Estrella, whereby the former would deliver to the latter 22,516 bags of "Victorias" and/or "National" refined Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 26
sugar in exchange for 7,732.71 bags of "Busilak" and 17,285.08 piculs of "Pasumil" raw sugar belonging to NAMARCO, both agreeing to pay liquidated damages equivalent to 20% of the contractual value of the sugar should either party fail to comply with the terms and conditions stipulated. Pursuant thereto, on May 19,1958, NAMARCO delivered the exact quantity of the products as agreed . As ASSOCIATED failed to comply with its obligation to NAMARCO, the latter demanded in writing either the (a) immediate delivery thereof before January 20, or (b) payment of its equivalent cash value amounting to P372,639.80. On January 19, 1959, ASSOCIATED, through Sycip, offered to pay NAMARCO the value of 22,516 bags of refined sugar at the rate of P15.30 per bag, but the latter rejected the offer. Instead, NAMARCO demanded payment of the 7,732.71 bags of "Busilak" raw sugar amounting to P118,310.40. and of the 17,285.08 piculs of "Pasumil" raw sugar amounting to P285.203.82. As ASSOCIATED refused to deliver the raw sugar or pay for the refined sugar delivered to it, inspite of repeated demands, NAMARCO instituted the present action in the lower court to recover the payment of the raw sugar plus damages, attorney's fees, expenses of litigation and with legal interest thereon from the filing of the complaint until fully paid. The trial court rendered a judgment ordering ASSOCIATED to pay the NAMARCO the sum of P403,514.28, with legal interest thereon from the date of filing of the action until fully paid plus damages and attorneys fees but dismissing the complaint insofar as defendant Francisco Sycip was concerned, as well as the latter's counterclaim.
ISSUE: Whether or not Francisco Sycip may be held liable, jointly and severally with his co-defendant, for the sums of money adjudged in favor of NAMARCO
RULING: Yes. The Court made a conclusion that Sycip was guilty of fraud because through false representations he succeeded in inducing NAMARCO to enter into the aforesaid exchange agreement, with full knowledge, on his part, on the fact that ASSOCIATED whom he represented and over whose business and affairs he had absolute control, was in no position to comply with the obligation it had assumed. Consequently, he cannot now seek refuge behind the general principle that a corporation has a personality distinct and separate from that of its stockholders and that the latter are not personally liable for the corporate obligations. To the contrary, upon the proven facts, the Court is justified in "piercing the veil of corporate fiction" and in holding Sycip personally liable, jointly and severally with his co-defendant, for the sums of money adjudged in favor of appellant. It is settled in law in this and other jurisdictions that when the corporation is the mere alter ego of a person, the corporate fiction may be disregarded; the same being true when the corporation is controlled, and its affairs are so conducted as to make it merely an instrumentality, agency or conduit of another.
18. Claparols, et. al. v. Court of Industrial Relations, et. al., 65 SCRA 613 FACTS: Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 27
A complaint for unfair labor practice was filed by herein private respondent Allied Workers' Association, respondent Demetrio Garlitos and ten (10) respondent workers against herein petitioners on account of the dismissal of respondent workers from petitioner Claparols Steel and Nail Plant. On September 16, 1963, respondent Court rendered its decision finding "Mr. Claparols guilty of union busting and" of having "dismissed said complainants because of their union activities," and ordering respondents "(1) To cease and desist from committing unfair labor practices against their employees and laborers; (2) To reinstate said complainants to their former or equivalent jobs, as soon as possible, with back wages from the date of their dismissal up to their actual reinstatement". Counsel for herein respondent workers filed a motion for execution which was granted. On January 23, 1965, petitioners filed an opposition alleging that under the circumstances presently engulfing the company, petitioner Claparols could not personally reinstate respondent workers; that assuming the workers are entitled to back wages, the same should only be limited to three months pursuant to the court ruling in the case of Sta. Cecilia Sawmills vs. CIR; and that since Claparols Steel Corporation ceased to operate on December 7, 1962, re-employment of respondent workers cannot go beyond December 7, 1962. On the other had respondent workers, contended that Claparols Steel and Nail Plant and Claparols Steel and Nail Corporation are one and the same corporation controlled by petitioner Claparols, with the latter corporation succeeding the former.
ISSUE: Whether or not the amount of back wages recoverable by respondent workers from petitioners should be the amount accruing up to December 7, 1962 when the Claparols Steel Corporation ceased operations.
RULING: Yes. It is not disputed that Claparols Steel and Nail Plant, which ceased operation of June 30, 1957, was succeeded by the Claparols Steel Corporation effective the next day, July 1, 1957 up to December 7, 1962. It is very clear that the latter corporation was a continuation and successor of the first entity, and its emergence was skillfully timed to avoid the financial liability that already attached to its predecessor, the Claparols Steel and Nail Plant. Both predecessors and successor were owned and controlled by the petitioner Eduardo Claparols and there was no break in the succession and continuity of the same business. This "avoiding-the-liability" scheme is very patent, considering that 90% of the subscribed shares of stocks of the Claparols Steel Corporation (the second corporation) was owned by respondent (herein petitioner) Claparols himself, and all the assets of the dissolved Claparols Steel and Nail Plant were turned over to the emerging Claparols Steel Corporation. It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its employees. Furthermore, the Court cited Yutivo & Sons Hardware Company vs. Court of Tax Appeals where it held that when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association or persons, or, in the case of two corporations, will merge them into one.
19. Villa Rey Transit, inc. v. Eusebio E. Ferrer, et. al., 25 SCRA 849 FACTS:
Jose M. Villarama was an operator of Villa Rey Transit, pursuant to certificates of public convenience granted him by the Public Service Commission. He sold the 2 certificates to the Pangasinan Transportation Company, Inc. with the condition, among others, that the Villarama "shall not for a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer."
Three months after, a corporation called Villa Rey Transit, Inc. was organized which bought 5 certificates of public convenience, 49 buses, tools and equipment from Valentin Fernando. Before the PSC could take final action on said application for approval of sale, the Sheriff of Manila levied on 2 of the 5 certificates of public convenience, pursuant to a writ of execution in favor of Eusebio Ferrer, judgment creditor, against Valentin Fernando, judgment debtor, and were sold to Ferrer in a public sale. Ferrer sold the 2 certificates Pantranco.
Villa Rey Transit, Inc. filed a complaint for the annulment of the sheriff's sale of the aforesaid 2 certificates and the subsequent sale thereof to Pantranco, praying that all the orders of the PSC relative to the parties' dispute over the said certificates be annulled.
ISSUES:
1) Whether or not Villa Rey Transit, Inc. is an alter ego of Villarama, warranting the application of the doctrine of piercing the veil of corporate fiction.
2) Does the stipulation between Villarama and Pantranco, as contained in the deed of sale, that the former "shall not for a period of 10 years from the date of this sale, apply for any tpu service identical or competing with the buyer," bind the Corporation?
RULING:
1) Villarama supplied the organization expenses and the assets of Villa Rey Transit, Inc.; there was no actual payment by the original subscribers as appearing in the books; he made use of the money of the Corporation and deposited them to his private accounts; and the Corporation paid his personal accounts. He mingled the corporate funds with his own money. Gasoline purchases of the Corporation were made in his name. Such circumstances are strong persuasive evidence showing that Villarama has been too much involved in the affairs of the Corporation to altogether negative the claim that he was only a part-time general manager. They show beyond doubt that the Corporation is his alter ego.
The interference of Villarama in the complex affairs of the corporation, and particularly its finances, are much too inconsistent with the ends and purposes of the Corporation law, which, precisely, seeks to separate personal responsibilities from corporate undertakings. It is the very essence of incorporation that the acts and conduct of the corporation be carried out in its own corporate name because it has its own personality.
The doctrine that a corporation is a legal entity distinct and separate from the members and stockholders who compose it is recognized and respected in all cases which are within reason and the law. When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals.
2) The preponderance of evidence have shown that the Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the restrictive clause in the contract entered into with Pantranco is also enforceable and binding against the said Corporation. For the rule is that a seller or promisor may not make use of a corporate entity as a means of evading the obligation of his covenant. Where the Corporation is substantially the alter ego of the covenantor to the restrictive agreement, it can be enjoined from competing with the covenantee.
20. National Federation of Labor Unions v. Ople, 143 SCRA 125 FACTS: The National Federation of Labor Union (NAFLU) filed a request for conciliation before the Bureau of Labor Relations requesting for the intervention in its dispute with Lawmans management involving certain money claims, refusal to conclude a collective agreement after such has been negotiated and run-away shop undertaken by management in order to bust the union. Several conferences were conducted by the Bureau to settle the dispute amicably but to no avail. Management unilaterally declared a temporary shutdown alleging that it had suffered losses and that it had no more plant and building because they were allegedly repossessed by another corporation for failure to pay rentals. However, it appears that at night, machines were dismantled, hauled out and then installed at No. 43 Engineering Road, Araneta University compound, Malabon, Metro Manila and the name of Lawman was changed to LIBRA GARMENTS. Under that name, new applicants for employment were called even as the company continued to manufacture the same products but under the name of LIBRA GARMENTS. When this was discovered by the workers, LIBRA GARMENTS was changed to DOLPHIN GARMENTS. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 30
ISSUE: Whether or not the company used the shield of corporate fiction to achieve an illegal purpose, thus making the doctrine of piercing the veil of corporate fiction applicable RULING: It is clear from the records of this case that the company bargained in bad faith with the union when pending the negotiation of their collective agreement, the company declared a temporary cessation of its operations which in reality was an illegal lockout. It also maintained run-away shop when it started transferring its machine first to Libra and then to Dolphin Garments. Failure on the part of the company to comply with the requirements of notice and due process to the employees and the Labor Ministry one month before the intended 'closure' of the firm is clearly against the law. The evident bad faith, fraud and deceit committed by the company to the prejudice of both the union and the employees who have existing wage claims, leads (us) to affirm the union's position that the veil of corporate fiction should be pierced in order to safeguard the right to self-organization and certain vested rights which had accrued in favor of the union. It is very obvious from the above findings that the second corporation seeks the protective shield of a corporate fiction to achieve an illegal purpose. It is an established principle that when the veil of corporate fiction is made as a shield to perpetrate a fraud or to confuse legitimate issues (here, the relation of employer-employee), the same should be pierced.
21. Cease, et. al. v. Court of Appeals, 93 SCRA 483 FACTS: Forrest L. Cease together with 5 other Americans organized the Tiaong Milling and Plantation Company but eventually, all the other original incorporators were bought out by Cease together with his children. The charter of the company lapsed and the records were silent on whether there was liquidation. When Cease died, 2 of his children wanted an actual division while the 3 wanted reincorporation. The 3 children and another stockholder proceeded to incorporate themselves into the F.L. Cease Plantation Company and registered it with the SEC. The 2 children initiated a Special Proceeding for the settlement of the estate of Cease and filed a Civil Case against the 3 asking that the Tiaong Milling and Plantation Corporation be declared Identical to F.L. Cease and that its properties be divided among his children as his intestate heirs. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 31
On the eve of the expiry of the 3 period provided by the law for the liquidation of corporations, the board of liquidators of Tiaong Milling executed an assignment and conveyance of properties and trust agreement in favor of F.L. Cease Plantation Co. Inc. as trustee of the Tiaong Milling and Plantation Co ISSUE: 1) Whether or not Tiaong Milling can still maintain adverse title and ownership of the corporate assets, as a trustee, during liquidation
2) Whether or not the veil of corporate fiction be pierced when it is used to deny successional rights of heirs
RULING:
1) It is clear in Section 77 of Act No. 1459 (Corporation Law) that upon the expiration of the charter period, the corporation ceases to exist and is dissolved ipso facto except for purposes connected with the winding up and liquidation. The provision allows a three year, period from expiration of the charter within which the entity gradually settles and closes its affairs, disposes and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was established. At this terminal stage of its existence, Tiaong Milling may no longer persist to maintain adverse title and ownership of the corporate assets as against the prospective distributees when at this time it merely holds the property in trust, its assertion of ownership is not only a legal contradiction, but more so, to allow it to maintain adverse interest would certainly thwart the very purpose of liquidation and the final distribute loll of the assets to the proper parties.
2) Generally, a corporation is invested by law with a personality separate and distinct from that of the persons composing it as well as from that of any other legal entity to which it may be related. By virtue of this attribute, a corporation may not, generally, be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected, and vice versa. This separate and distinct personality is, however, merely a fiction created by law for convenience and to promote the ends of justice. For this reason, it may not be used or invoked for ends subversive of the policy and purpose behind its creation or which could not have been intended by law to which it owes its being. This is particularly true where the fiction is used to defeat public convenience, justify wrong, protect fraud, defend crime, perpetrate deception or otherwise circumvent the law. This is likewise true where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate entity. In any of these cases, the notion of corporate entity will be pierced or disregarded, and the corporation will be treated merely as an association of persons or, where Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 32
there are two corporations, they will be merged as one, the one being merely regarded as part or the instrumentality of the other. An indubitable deduction from the findings of the trial court cannot but lead to the conclusion that the business of the corporation is largely, if not wholly, the personal venture of Forrest L. Cease. There is not even a shadow of a showing that his children were subscribers or purchasers of the stocks they own. Their participation as nominal shareholders emanated solely from Forrest L. Cease's gratuitous dole out of his own shares to the benefit of his children and ultimately his family. For Tiaong Milling and Plantation Company shall have been able to extend its corporate existence beyond the period of its charter under the guise and cover of F. L, Cease Plantation Company, Inc. as Trustee which would be against the law, and as Trustee shall have been able to use the assets and properties for the benefit of the petitioners, to the great prejudice and defraudation of private respondents. Hence, it becomes necessary and imperative to pierce that corporate veil.
22. Delpher Trades Corp. v. IAC, 157 SCRA 349 FACTS: Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters of real estate which is the subject controversy in this case. As co-owners, they leased to Construction Components International Inc. the same property and providing that during the existence or after the term of this lease the lessor should he decide to sell the property leased shall first offer the same to the lessee and the letter has the priority to buy under similar conditions. However, lessee Construction Components International, Inc. assigned its rights and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity and consent of lessors. Subsquently, a deed of exchange was executed between lessors and Delpher Trades Corporation whereby the former conveyed to the latter the leased property together with another parcel of land for 2,500 shares of stock of defendant corporation with a total value of P1,500,000.00. On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of the parcel of land in its favor under conditions similar to those whereby Delpher acquired the property from lessors. Petitioner Delpher contend that there was actually no transfer of ownership of the subject parcel of land since the Pachecos remained in control of the property, and that there was no transfer of actual ownership interests over the land when the same was transferred to petitioner corporation in exchange for the latter's shares of stock. The transfer of ownership, if anything, was merely in form but not in substance. In reality, Delpher is a mere alter ego or conduit of the Pacheco co-owners; hence the corporation and the co-owners should be deemed to be the same, there being in substance and in effect an Identity of interest. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 33
Respondent Hydro argues that Delpher is a corporate entity separate and distinct from the Pachecos. It maintains that there was actual transfer of ownership interests over the leased property when the same was transferred to Delpher Trades Corporation in exchange for the latter's shares of stock. Court of First Instance ruled in favour of plaintiff, in turn decision was affirmed by IAC.
ISSUE: Whether or not, Delpher Trades Corp. is an alter ego or it is a corporate entity separate and distinct from the Pacheco co owners.
RULING: Delpher is an alter ego or business conduit. There was no attempt to state the true or current market value of the real estate. Land valued at P300.00 a square meter was turned over to the family's corporation for only P14.00 a square meter. It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos have control of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who also belong to the same family group. In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest their properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of their properties and at the same time save on inheritance taxes. The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted." The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco family merely changed their ownership from one form to another. The ownership remained in the same hands. Hence, the private respondent has no basis for its claim of a light of first refusal under the lease contract.
NOTA BENE: hahaha! After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing stock directly from the corporation or from individual owners thereof. In the case at bar, in exchange for their properties, the Pachecos acquired 2,500 original unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently, the Pachecos became stockholders of the corporation by subscription "The essence of the stock subscription is an agreement to take and pay for original unissued shares of a corporation, formed or to be formed." It is significant that the Pachecos took no par value shares in exchange for their properties. A no-par value share does not purport to represent any stated proportionate interest in the capital stock measured by value, but only an aliquot part of the whole number of such shares of the issuing corporation. The holder of no-par shares may see from the certificate itself that he is only an aliquot sharer in the assets of the corporation. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 34
But this character of proportionate interest is not hidden beneath a false appearance of a given sum in money, as in the case of par value shares. The capital stock of a corporation issuing only no-par value shares is not set forth by a stated amount of money, but instead is expressed to be divided into a stated number of shares, such as, 1,000 shares. This indicates that a shareholder of 100 such shares is an aliquot sharer in the assets of the corporation, no matter what value they may have, to the extent of 100/1,000 or 1/10. Thus, by removing the par value of shares, the attention of persons interested in the financial condition of a corporation is focused upon the value of assets and the amount of its debts.
23. Koppel Phils. Inc. v. Yatco, 77 Phil. 496 FACTS: Plaintiff is a corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal office in Manila, the capital stock of which is divided into 1,000 shares of P100 each. The Koppel Industrial Car and Equipment company, a corporation organized and existing under the laws of the State of Pennsylvania, United States of America, and not licensed to do business in the Philippines, owned nine hundred and 995 shares out of the total capital stock of the plaintiff. The remaining 5 shares only were and are owned one each by officers of the plaintiff corporation. That plaintiff, at all times material to this case, was and now is duly licensed to engage in business as a merchant and commercial broker in the Philippines; and was and is the holder of the corresponding merchant's and commercial broker's privilege tax receipts. Exhibited H of the evidence: It is clearly understood that the intent of this contract is that the broker shall perform only the functions of a broker as set forth above, and shall not take possession of any of the materials or equipment applying to said orders or perform any acts or duties outside the scope of a broker; and in no sense shall this contract be construed as granting to the broker the power to represent the principal as its agent or to make commitments on its behalf. The Court of First Instance held for the defendant and dismissed plaintiff's complaint with costs to it.
ISSUE: Whether or not Koppel Philippines is a domestic corporation distinct and separate from, and not a mere branch of Koppel Industrial Car and Equipment Co
RULING: Koppel Philippines is a mere branch, subsidiary or agency of the latter. A corporation will be looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. The corporate entity is disregarded where it is so organized and controlled, and its affairs are so conducted, as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. SC reasoned that, in so far as the sales involved herein are concerned, Koppel Philippines, Inc., and Koppel Industrial Car and Equipment company are to all intents Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 35
and purposes one and the same; or, to use another mode of expression, that, as regards those transactions, the former corporation is a mere branch, subsidiary or agency of the latter. This is conclusively borne out by the fact, among others, that the amount of the so- called "share in the profits" of Koppel (Philippines), Inc., was ultimately left to the sole, unbridled control of Koppel Industrial Car and Equipment Company. No group of businessmen could be expected to organize a mercantile corporation the ultimate end of which could only be profit if the amount of that profit were to be subjected to such a unilateral control of another corporation, unless indeed the former has previously been designed by the incorporators to serve as a mere subsidiary, branch or agency of the latter. Evidently, Koppel Industrial Car and Equipment Company made us of its ownership of the overwhelming majority 99.5% of the capital stock of the local corporation to control the operations of the latter to such an extent that it had the final say even as to how much should be allotted to said local entity in the so-called sharing in the profits. SC further ruled that, it cannot overlook the fact that in the practical working of corporate organizations of the class to which these two entities belong, the holder or holders of the controlling part of the capital stock of the corporation, particularly where the control is determined by the virtual ownership of the totality of the shares, dominate not only the selection of the Board of Directors but, more often than not, also the action of that Board. Philippine corporation could not possibly contravene with the American corporation in this case under Exhibit H. This fact necessarily leads to the inference that the corporation had at least a Vice-President, and presumably also a President, who were not resident in the Philippines but in America, where the parent corporation is domiciled. If Koppel (Philippines), Inc., had been intended to operate as a regular domestic corporation in the Philippines, where it was formed, the record and the evidence do not disclose any reason why all its officers should not reside and perform their functions in the Philippines.
24. Liddell & Co., Inc. v. Collector of Internal Revenue, 2 SCRA 632 FACTS: Liddell & Co. is a domestic corporation establish in the Philippines with an authorized capital of P100,000 divided into 1000 share at P100 each. Of this ACS, 196 shares valued at P19,600 were subscribed and paid by Frank Liddell while the other four shares were in the name of C.Kurz, E.J. Darras, A. Manzano and J. Serrano at one shares each. Its purpose was to engage in the business of importing and retailing Oldsmobile and Chevrolet passenger cars and GMC and Chevrolet trucks. Later on, Liddell Motors, Inc. was organized and registered with SEC with an authorized capital stock of P100,000 of which P20,000 was subscribed and paid for as follows: Irene Liddell wife of Frank Liddell 19,996 shares and Messrs. Marcial P. Lichauco, E. K. Bromwell, V. E. del Rosario and Esmenia Silva, 1 share each. Upon review of the transactions between Liddell & Co. and Liddell Motors, Inc. the Collector of Internal Revenue determined that the latter was but an alter ego of Liddell & Co. Wherefore, he concluded, that for sales tax purposes, those sales made by Liddell Motors, Inc. to the public were considered as the original sales of Liddell & Co. Accordingly, the Collector of Internal Revenue assessed against Liddell & Co. a sales tax deficiency, including surcharges, in the amount of P1,317,629.61. In the computation, the gross selling price of Liddell Motors, Inc. to the general public from January 1, 1949 to Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 36
September 15, 1950, was made the basis without deducting from the selling price, the taxes already paid by Liddell & Co. in its sales to the Liddell Motors Inc. The Court of Tax Appeals upheld the position taken by the Collector of Internal Revenue.
ISSUE: Whether or not Liddell & Co. Inc., and the Liddell Motors, Inc. are identical corporations, the latter being merely the alter ego of the former.
RULING: The two corporations are identical and the same. Liddell & Co. is wholly owned by Frank Liddell. As of the time of its organization, 98% of the capital stock belonged to Frank Liddell. The 20% paid-up subscription with which the company began its business was paid by him. The subsequent subscriptions to the capital stock were made by him and paid with his own money. As to Liddell Motors, Inc. SC found that that Frank Liddell also owned it. He supplied the original capital funds. Accordingly, the mere fact that Liddell & Co. and Liddell Motors, Inc. are corporations owned and controlled by Frank Liddell directly or indirectly is not by itself sufficient to justify the disregard of the separate corporate identity of one from the other. There is, however, in this instant case, a peculiar consequence of the organization and activities of Liddell Motors, Inc. The law in force at the time of incorporation on the sales tax on original sales of cars was progressive under the NIRC. This progressive rate would tempt the taxpayer to employ a way of reducing the price of the first sale. And Liddell Motors, Inc. was the medium created by Liddell & Co. to reduce the price and the tax liability.
NOTA BENE: In the case of Gregory v. Helvering, "the legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them by means which the law permits, cannot be doubted." But, as held in another case, "where a corporation is a dummy, is unreal or a sham and serves no business purpose and is intended only as a blind, the corporate form may be ignored for the law cannot countenance a form that is bald and a mischievous fiction."
25. YUTIVO v. Court of Tax Appeals, 1 SCRA 160 FACTS: YUTIVO, a domestic corporation incorporated in 1916 under Philippine laws, was engaged in the importation and sale of hardware supplies and equipment. After the first world war, it resumed its business and bought a number of cars and trucks from General Motors(GM), an American Corporation licensed to do business in the Philippines. On June 13, 1946, the Southern Motors Inc,(SM) was organized to engage in the business of selling cars, trucks and spare parts. One of the subscribers of stocks during its incorporation was Yu Khe Thai, Yu Khe Siong and Hu Kho Jin, who are sons of Yu Tiong Yee, one of Yutivos founders. After SMs incorporation and until the withdrawal of GM from the Philippines, the cars and trucks purchased by Yutivo from GM were sold by Yutivo to SM which the latter sold to the public. Yutivo was appointed importer for Visayas and Mindanao by the US manufacturer of cars and trucks sold by Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 37
GM. Yutivo paid the sales tax prescribed on the basis of selling price to SM. SM paid no sales tax on its sales to the public.
An assessment was made upon Yutivo for deficiency sales tax. The Collector of Internal Revenue, contends that the taxable sales were the retail sales by SM to the public and not the sales at wholesale made by Yutivo to the latter inasmuch as SM and Yutivo were one and the same corporation, the former being a subsidiary of the latter. The assessment was disputed by petitioner. After reinvestigation, a second assessment was made, sustaining the validity of the first assessment. Yutivo contested the second assessment, alleging that there is no valid ground to disregard the corporate personality of SM and to hold that it is an adjunct of petitioner.
ISSUE: Whether or not the corporate personality of SM could be disregarded.
RULING: Yes. A corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. However, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons, or, in the case of two corporations, merge them into one. When the corporation is a mere alter ego or business conduit of a person, it may be disregarded.
SC ruled that CTA was not justified in finding that SM was organized to defraud the Government. SM was organized in June 1946, from that date until June 30, 1947, GM was the importer of the cars and trucks sold to Yutivo, which in turn was sold to SM. GM, as importer was the one solely liable for sales taxes. Neither Yutivo nor SM was subject to the sales taxes. Yutivos liability arose only until July 1, 1947 when it became the importer. Hence, there was no tax to evade.
However, SC agreed with the respondent court that SM was actually owned and controlled by petitioner. Consideration of various circumstances indicate that Yutivo treated SM merely as its department or adjunct:
a. The founders of the corporation are closely related to each other by blood and affinity. b. The object and purpose of the business is the same; both are engaged in sale of vehicles, spare parts, hardware supplies and equipment. c. The accounting system maintained by Yutivo shows that it maintained high degree of control over SM accounts. d. Several correspondences have reference to Yutivo as the head office of SM. SM may even freely use forms or stationery of Yutivo. e. All cash collections of SMs branches are remitted directly to Yutivo. f. The controlling majority of the Board of Directors of Yutivo is also the controlling majority of SM. g. The principal officers of both corporations are identical. Both corporations have a common comptroller in the person of Simeon Sy, who is a brother-in-law of Yutivos president, Yu Khe Thai. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 38
h. Yutivo, financed principally the business of SM and actually extended all the credit to the latter not only in the form of starting capital but also in the form of credits extended for the cars and vehicles allegedly sold by Yutivo to SM.
26. La Campana Coffee Factory, Inc. v. Kaisahan ng mga Manggagawa sa La Campana, 93 Phil. 160 FACTS: Tan Tong, one of the herein petitioners, has since 1932 been engaged in the business of buying and selling gaugau under the trade name La Campana Gaugau Packing with an establishment in Binondo, Manila, which was later transferred to Espaa Extension, Quezon City. But on July 6, 1950, Tan Tong, with himself and members of his family corporation known as La Campana Factory Co., Inc., with its principal office located in the same place as that of La Campana Gaugau Packing.
The Kaisahan ng Manggagawa sa La Campana is a labor union formed by Tan Tongs employees which applied for registration under the Department of Labor as an independent entity. Pending its application, the Department gave the new organization legal standing by issuing it a permit as an affiliate to the Kalipunan Ng Mga Manggagawa.
On July 19, 1951, the respondent Kaisahan, which, as of that date, counted with 66 members workers all of them of both La Campana Gaugau Packing and La Campana Coffee Factory Co., Inc. presented a demand for higher wages and more privileges, the demand being addressed to La Campana Starch and Coffee Factory, by which name they sought to designate, so it appears, the La Campana Gaugau Packing and the La Campana Coffee Factory Co., Inc. As the demand was not granted and an attempt at settlement through the mediation of the Conciliation Service of the Department of Labor had given no result, the said Department certified the dispute to the Court of Industrial Relations. With the case already pending in the industrial court, the Secretary of Labor revoked the Kalipunan Ng Mga Kaisahang Manggagawa's permit as a labor union on the strength of information received that it was dominated by subversive elements, and, in consequence, on the 20th of the same month, also suspended the permit of its affiliate, the respondent Kaisahan.
Petitioner was allowed to intervene in the ongoing proceedings, being a party having an interest in the dispute. Petitioner contends that the industrial court has no jurisdiction to try the case as against La Campana Coffee Factory, Inc. because the latter has allegedly only 14 laborers and only of these are the members of respondent Kaisahan.
ISSUE: Whether the action be dismissed for being directed against two different entities with distinct personalities, La Campana Starch Factory and La Campana Coffee Factory, Inc.
This contention loses force when it is noted that, as found by the industrial court and this finding is conclusive upon La Campana Gaugau Packing and La Campana Coffee Factory Co. Inc., are operating under one single management, that is, as one business though with two trade names. True, the coffee factory is a corporation and, by legal fiction, an entity existing separate and apart from the persons composing it, that is, Tan Tong and his family. But it is settled that this fiction of law, which has been introduced as a matter of convenience and to subserve the ends of justice cannot be invoked to further an end subversive of that purpose.
Disregarding Corporate Entity- The doctrine that a corporation is a legal entity existing separate and apart from the person composing it is a legal theory introduced for purposes of convenience and to subserve the ends of justice. The concept cannot, therefore, be extended to a point beyond its reason and policy, and when invoked in support of an end subversive of this policy, will be disregarded by the courts. Thus, in an appropriate case and in furtherance of the ends of justice, a corporation and the individual or individuals owning all its stocks and assets will be treated as identical, the corporate entity being disregarded where used as a cloak or cover for fraud or illegality. In the present case, Tan Tong appears to be the owner of the gaugau factory. And the coffee factory, though an incorporated business, is in reality owned exclusively by Tan Tong and his family. As found by the Court of industrial Relations, the two factories have but one office, one management and one payroll, except after July 17, the day the case was certified to the Court of Industrial Relations, when the person who was discharging the office of cashier for both branches of the business began preparing separate payrolls for the two. And above all, it should not be overlooked that, as also found by the industrial court, the laborers of the gaugau factory and the coffee factory were interchangeable, that is, the laborers from the gaugau factory were sometimes transferred to the coffee factory and vice-versa. In view of all these, the attempt to make the two factories appears as two separate businesses, when in reality they are but one, is but a device to defeat the ends of the law (the Act governing capital and labor relations) and should not be permitted to prevail.
27. Cagayan Fishing Development Co., Inc. v. Teodoro Sandiko, 65 Phil. 223 FACTS: Manuel Tabora is the registered owner of four parcels of land. To guarantee the payment of two loans, Manuel Tabora, executed in favor of PNB two mortgages over the four parcels of land between August, 1929, and April 1930. Later, a third mortgage on the same lands was executed also on April, 1930 in favor of Severina Buzon to whom Tabora was indebted.
On May, 1930, Tabora executed a public document entitled "Escritura de Transpaso de Propiedad Inmueble" (Exhibit A) by virtue of which the four parcels of land owned by him was sold to the plaintiff company, said to under process of incorporation. The plaintiff company filed its article incorporation with the Bureau of Commerce and Industry only on October, 1930 (Exhibit 2).
A year later, the board of directors 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 all its right, titles, and interest in and to the four parcels of land. Exhibit C is a promissory note drawn by the defendant in favor of the plaintiff, payable after one year from the date thereof. 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, Exhibit C.
The defendant having failed to pay the sum stated in the promissory note, plaintiff, brought this action in the Court of First Instance of Manila praying that judgment be rendered against the defendant for the sum stated in the promissory note. After trial, the court rendered judgment absolving the defendant. Plaintiff presented a motion for new trial, which motion was denied by the trial court. After due exception and notice, plaintiff has appealed to this court and makes an assignment of various errors.
ISSUE: Whether Exhibit B, the deed of sale executed in favor of Teodoro Sandiko, was valid.
RULING: No, it was not. The transfer made by Tabora to the Cagayan fishing Development Co., Inc., plaintiff herein, was affected on May 31, 1930 (Exhibit A) and the actual incorporation of said company was affected later on October 22, 1930 (Exhibit 2). In other words, the transfer was made almost five months before the incorporation of the company. Unquestionably, a duly organized corporation has the power to purchase and hold such real property as the purposes for which such corporation was formed may permit and for this purpose may enter into such contracts as may be necessary. But before a corporation may be said to be lawfully organized, many things have to be done. Among other things, the law requires the filing of articles of incorporation.
In the case before us it cannot be denied that the plaintiff was not yet incorporated when it entered into a contract of sale, Exhibit A. Not being in legal existence then, it did not possess juridical capacity to enter into the contract.
Boiled down to its naked reality, the contract here (Exhibit A) 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. A corporation, until organized, has no life and therefore no faculties. This is not saying that under no circumstances may the acts of promoters of a corporation be ratified by the corporation if and when subsequently organized.
There are, of course, exceptions, but under the peculiar facts and circumstances of the present case we decline to extend the doctrine of ratification which would result in the commission of injustice or fraud to the candid and unwary.
28. Rizal Light & ice Co., Inc. v. Public Service Commission, et. al., 25 SCRA 285 FACTS: Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation with business address at Morong, Rizal. It was granted by the Commission a certificate of public convenience and necessity for the installation, operation and maintenance of an electric light, heat and power service in the municipality of Morong, Rizal. On September 10, 1962, Morong Electric, filed an application to be granted with a municipal franchise by respondent municipality to install, operate and maintain an electric heat, light and power service in said municipality. Petitioner opposed in writing, alleging among other things, that it is a holder of a certificate of public convenience to operate an electric light, heat and power service in the same municipality of Morong, Rizal, and that the approval of said application would not promote public convenience, but would only cause ruinous and wasteful competition. The petitioner filed a motion, dated January 4, 1963, asking for the dismissal of the application upon the ground that applicant Morong Electric had no legal personality when it filed its application on because its certificate of incorporation was issued by the Securities and Exchange Commission only later. This motion to dismiss was denied by the Commission in a formal order issued on the premise that applicant Morong Electric was a de facto corporation. The Commission approved the application of Morong Electric and ordered the issuance in its favor of the corresponding certificate of public convenience and necessity.
ISSUE: Whether not the municipal franchise granted to Morong Electric is null and void.
RULING: The municipal franchise is valid. Petitioner's contention that Morong Electric did not yet have a legal personality when a municipal franchise was granted to it is correct. The juridical personality and legal existence of Morong Electric began only on October 17, 1962 when its certificate of incorporation was issued by the SEC. Before that date, or pending the issuance of said certificate of incorporation, the incorporators cannot be considered as de facto corporation. But the 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. This view is sustained by eminent American authorities. Morong Electric was a de facto corporation at the time the franchise was granted and, as such, it was not incapacitated to enter into any contract or to apply for and accept a franchise. Not having been incapacitated, Morong Electric maintains that the franchise granted to it is valid and the approval or disapproval thereof can be properly determined by the Commission. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 42
The incorporation of Morong Electric 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. Thus, the Commission did not err in denying petitioner's motion to dismiss said application and in proceeding to hear the same.
29. Republic of the Philippines v. Acoje Mining Co., Inc., 7 SCRA 361 FACTS: On May 17, 1948, the Acoje Mining Company, Inc. wrote the Director of Posts requesting the opening of a post, telegraph and money order offices at its mining camp at Sta. Cruz, Zambales, to service its employees and their families that were living in said camp. Acting on the request, the Director of Posts wrote in reply stating that if aside from free quarters the company would provide for all essential equipment and assign a responsible employee to perform the duties of a postmaster without compensation from his office until such time as funds therefor may be available, he would agree to put up the offices requested.
On April 11, 1949, the Director of Posts again wrote a letter to the company stating among other things that "In cases where a post office will be opened under circumstances similar to the present, it is the policy of this office to have the company assume direct responsibility for whatever pecuniary loss may be suffered by the Bureau of Posts, thereby suggesting that a resolution be adopted by the board of directors of the company expressing conformity to the above condition relative to the responsibility to be assumed by it in the event a post office branch is opened as requested.
The post office branch was opened at the camp on October 13, 1949 with one postmaster. However, he suddenly disappeared. The company found out that the account of the postmaster had a shortage of P13 867. The several demands made upon the company for the payment of the shortage in line with the liability it has assumed having failed, the government commenced the present action on September 10, 1954 before the Court of First Instance of Manila. The company in its answer denied liability for said amount contending that the resolution of the board of directors is ultra vires.
ISSUE: Whether or not the resolution adopted was an ultra vires act.
RULING: No. It should be noted that the opening of a post office branch at the mining camp of appellant corporation was undertaken because of a request submitted by it to promote the convenience and benefit of its employees. The idea did not come from the government, and the Director of Posts was prevailed upon to agree to the request only after studying the necessity for its establishment and after imposing upon the company certain requirements. Thus, after the company had signified its willingness to comply with the requirement of the government that it furnish free quarters and all the essential Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 43
equipment that may be necessary for the operation of the office including the assignment of an employee who will perform the duties of a postmaster, the Director of Posts agreed to the opening of the post office stating that the company assume direct responsibility for whatever pecuniary loss may be suffered by the Bureau of Posts by reason of any act of dishonesty, carelessness or negligence on the part of the employee of the company who is assigned to take charge of the post office,"
On the basis of the foregoing facts, it is evident that the company cannot now be heard to complain that it is not liable for the irregularity committed by its employee upon the technical plea that the resolution approved by its board of directors is ultra vires. The least that can be said is that it cannot now go back on its plighted word on the ground of estoppel.
The claim that the resolution adopted by the board of directors of appellant company is an ultra vires act cannot also be entertained it appearing that the same covers a subject which concerns the benefit, convenience and welfare of its employees and their families. While as a rule an ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the powers conferred upon it by law, there are however certain corporate acts that may be performed outside of the scope of the powers expressly conferred if they are necessary to promote the interest or welfare of the corporation. Thus, it has been held that "although not expressly authorized to do so a corporation may become a surety where the particular transaction is reasonably necessary or proper to the conduct of its business," and here it is undisputed that the establishment of the local post office is a reasonable and proper adjunct to the conduct of the business of appellant company. Indeed, such post office is a vital improvement in the living condition of its employees and laborers who came to settle in its mining camp which is far removed from the postal facilities or means of communication accorded to people living in a city or municipality.
30. Carlos v. Mindoro Sugar Co., 57 Phil. 343 FACTS: The Mindoro Sugar Company is a corporation constituted in accordance with the laws of the country and registered on July 30, 1917. The Philippine Trust Company is another domestic corporation, registered on October 21, 1917. In its articles of incorporation, some of its purposes are expressed thus: "To acquire by purchase, subscription, or otherwise, and to invest in, hold, sell, or otherwise dispose of stocks, bonds, mortgages, and other securities, or any interest in either, or any obligations or evidences of indebtedness, of any other corporation or corporations, domestic or foreign.
On November 17, 1917, the board of directors of the Philippine Trust Company, adopted a resolution authorizing its president, among other things, to purchase at par bonds in the value of P3,000,000 that the Mindoro Sugar Company was about to issue, and to resell them, with or without the guarantee of said trust corporation, at a price not less than par, and to guarantee to the Philippine National Bank the payment of the indebtedness to said bank by the Mindoro Sugar Company up to P2,000,000.
In pursuance of this resolution, on December 21, 1917, the Mindoro Sugar Company executed in favor of the Philippine Trust Company the deed of trust transferring all of its property to it in consideration of the bonds it had issued to the value of P3,000,000. In consequence of this transaction, the bonds, with their coupons were placed on the market and sold by the Philippine Trust Company. The Philippine Trust Company paid the appellant, upon presentation of the coupons, the stipulated interest from the date of their maturity until the 1st of July, 1928, when it stopped payments; and thenceforth it alleged that it did not deem itself bound to pay such interest or to redeem the obligation because the guarantee given for the bonds was illegal and void.
ISSUE: Whether the Philippine Trust Company acquired the four bonds in question, and whether as such it bound itself legally and acted within its corporate powers in guaranteeing them.
RULING: This question was answered in the affirmative. It is not ultra vires for a corporation to enter into contracts of guaranty or suretyship where it does so in the legitimate furtherance of its purposes and business. And it is well settled that where a corporation acquires commercial paper or bonds in the legitimate transaction of its business it may sell them, and in furtherance of such a sale it may, in order to make them the more readily marketable, indorse or guarantee their payment.
"Whenever a corporation has the power to take and dispose of the securities of another corporation, of whatsoever kind, it may, for the purpose of giving them a marketable quality, guarantee their payment, even though the amount involved in the guaranty may subject the corporation to liabilities in excess of the limit of indebtedness which it is authorized to incur. A corporation which has power by its charter to issue its own bonds has power to guarantee the bonds of another corporation, which has been taken in payment of a debt due to it, and which it sells or transfers in payment of its own debt, the guaranty being given to enable it to dispose of the bond to better advantage. And so guaranties of payment of bonds taken by a loan and trust company in the ordinary course of its business, made in connection with their sale, are not ultra vires, and are binding."
When a contract is not on its face necessarily beyond the scope of the power of the corporation by which it was made, it will, in the absence of proof to the contrary, be presumed to be valid. Corporations are presumed to contract within their powers. The doctrine of ultra vires, when invoked for or against a corporation, should not be allowed to prevail where it would defeat the ends of justice or work a legal wrong. It has been intimated according to section 121 of the Corporation Law, the Philippine Trust Company, as a banking institution, could not guarantee the bonds to the value of P3,000,000 because this amount far exceeds its capital of P1,000,000 of which only one- half has been subscribed and paid.
This difficulty is easily obviated by bearing in mind that the banking operations are not Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 45
the primary aim of said corporation, which is engaged essentially in the trust business, and that the prohibition of the law is not applicable to the Philippine Trust Company, for the evidence shows that Mindoro Sugar Company transferred all its real property, with the improvements, to it, and the value of both, which surely could not be less than the value of the obligation guaranteed, became a part of its capital and assets; in other words, with the value of the real property transferred to it, the Philippine Trust Company had enough capital and assets to meet the amount of the bonds guaranteed with interest thereon.
31. Pirovano, et. al. v. de la Rama Steamship Co., 96 Phil. 335 FACTS: Plaintiffs herein are the minor children of the late Enrico Pirovano represented by their mother and judicial guardian Estefania R. Pirovano. They seek to enforce certain resolutions adopted by the Board of Directors and stockholders of the defendant company giving to said minor children of the proceeds of the insurance policies taken on the life of their deceased father Enrico Pirovano with the company as beneficiary. Defendant is a corporation duly organized in accordance with law with an authorized capital of P500,000, divided into 5,000 shares, with a par value of P100 each share. Enrico Pirovano became the president of the defendant company and under his management the company grew and progressed until it became a multi-million corporation by the time Pirovano was executed by the Japanese during the occupation.
In the meantime, Don Esteban de la Rama, who practically owned and controlled the stock of the defendant corporation, distributed his shareholding among his five daughters. One of the daughters was married to Enrico Pirovano. Meanwhile, a grant was made in favour of the Pirovano children which constitutes the proceeds of the insurance policies taken on his life by the defendant company. Out of the proceeds of these policies the sum of P400,000 be set aside for the minor children of the deceased, said sum of money to be convertible into 4,000 shares of the stock of the Company, at par, or 1,000 shares for each child. However, members of the family and Don Esteban did not realize that they would be actually giving to the Pirovano children more than what they intended to give. If the Pirovano children would be given shares of stock in lieu of the amount to be donated, the voting strength of the five daughters of Don Esteban in the company would be adversely affected in the sense that Mrs. Pirovano would have a voting power twice as much as that of her sisters.
The Board of Directors of the De la Rama company, as a consequence of the change of attitude of Don Esteban, adopted a resolution changing the form of the donation to the Pirovano children from a donation of 4,000 shares of stock as originally planned into a renunciation in favor of the children of all the company's "right, title, and interest as beneficiary in and to the proceeds of the abovementioned life insurance policies", subject to the express condition that said proceeds should be retained by the company as a loan.
On March 8, 1951, at a stockholders' meeting convened and majority of the stockholders' voted to revoke the resolution approving the donation to the Pirovano children.
ISSUES: 1. Whether or the donation has been perfected such that the corporation can no longer rescind it even if it wanted to. 2. Can defendant corporation give by way of donation the proceeds of said insurance policies to the minor children of the late Enrico Pirovano under the law or its articles of corporation, or is that donation an ultra vires act?
RULING: 1. Yes. The donation was a corporate act carried out by the corporation not only with the sanction of its Board of Directors but also of its stockholders. It is evident that the donation has reached the stage of perfection which is valid and binding upon the corporation and as such cannot be rescinded unless there is exists legal grounds for doing so. In this case, we see none. The two reasons given for the rescission of said donation in the resolution of the corporation adopted on March 8, 1951, to wit: that the corporation failed to comply with the conditions and that in the opinion of the Securities and Exchange Commission said donation is ultra vires, are not, in our opinion, valid and legal as to justify the rescission of a perfected donation. These reasons cannot be invoked by the corporation to rescind or set at naught the donation, and the only way by which this can be done is to show that the donee has been in default, or that the donation has not been validly executed, or is illegal or ultra vires, and such is not the case as we will see hereafter. We therefore declare that the resolution approved by the stockholders of the defendant corporation on March 8, 1951 did not and cannot have the effect of nullifying the donation in question.
2. We find that the corporation was given broad and almost unlimited powers to carry out the purposes for which it was organized among them, (1) "To invest and deal with the moneys of the company not immediately required, in such manner as from time to time may be determined" and, (2) "to aid in any other manner any person, association, or corporation of which any obligation or in which any interest is held by this corporation or in the affairs or prosperity of which this corporation has a lawful interest."
The world deal is broad enough to include any manner of disposition, and refers to moneys not immediately required by the corporation, and such disposition may be made in such manner as from time to time may be determined by the corporations. Under the second broad power, that is, to aid in any other manner any person in the affairs and prosperity of whom the corporation has a lawful interest, the record of this case is replete with instances which clearly show that the corporation knew well its scope and meaning so much so that, with the exception of the instant case, no one has lifted a finger to dispute their validity.
It may perhaps be argued that the donation given to the children of the late Enrico Pirovano is so large and disproportionate that it can hardly be considered a pension of gratuity that can be placed on a par with the instances above mentioned, but this argument overlooks one consideration: the gratuity here given was not merely motivated by pure liberality or act of generosity, but by a deep sense of recognition of the valuable services rendered by the late Enrico Pirovano which had immensely contributed to the Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 47
growth of the corporation to the extent that from its humble capitalization it blossomed into a multi-million corporation that it is today. Said donation was given not only because the company was so indebted to him that it saw fit and proper to make provisions for his children, but it did so out of a sense of gratitude. Another is that Enrico Pirovano was not only a high official of the company but was at the same time a member of the De la Rama family, and the recipients of the donation are the grandchildren of Don Esteban de la Rama. This we, may say, is the motivating root cause behind the grant of this bounty.
We do not see much difference between this definition of gratuity and a remunerative donation contemplated in the Civil Code. In essence they are the same. A distinction should be made between corporate acts or contracts which are illegal and those which are merely ultra vires. The former contemplates the doing of an act which is contrary to law, morals, or public policy or public duty, and are, like similar transactions between the individuals void. On the other hand, an ultra vires act is one outside the scope of the power conferred by the legislature, and although the term has been used indiscriminately, it is properly distinguishable from acts which are illegal, in excess or abuse of power, or executed in an unauthorized manner, or acts within corporate powers but outside the authority of particular officers or agents.
Since it is not contended that the donation under consideration is illegal we cannot but logically conclude, that said donation, even if ultra vires in the supposition we have adverted to, is not void, and if voidable its infirmity has been cured by ratification and subsequent acts of the defendant corporation. The defendant corporation, therefore, is now prevented or estopped from contesting the validity of the donation. To allow the corporation to undo what it has done would only be most unfair but would contravene the well-settled doctrine that the defense of ultra vires cannot be set up or availed of in completed transactions.
32. Harden, et. al. v. Benguet Consolidated Mining Co., 58 Phil. 141 FACTS: The Benguet Consolidated Mining Co. was organized in June 1903 as a sociedad anonima, in conformity with Spanish law. While the Balatoc Mining Co. was organized in December 1925, as a corporation, in conformity with the provisions of the Corporation law (Act 1459). Both entities were organized for the purpose of engaging in the mining of gold in the Philippine Islands, and their respective properties are located only a few miles apart in the subprovince of Benguet. The capital stock of the Balatoc Mining consists of 1M shares with the par value of P1.00 each. When the Balatoc Mining was first organized, the properties acquired by it were largely undeveloped, and the original stockholders were unable to supply the means needed to profitable operation. Thus, the Board of directors ordered a suspension of all work, effective July 31, 1926. That same year, there was a general meeting of the companys stockholders which appointed a committee for the purpose of interesting outside capital in the mine. The committee approached A.W. Beam, then president and general manager of Benguet Company, to secure the capital necessary to the development of the Balatoc property. A contract which was formally authorized by the management of both Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 48
companies, was executed on March 9, 1927. Under the contract: the Benguet Company was to proceed with the development and construct a milling plant for the Balatoc mine (100 tons of ore/1 day, extraction of at least 85% of the gold content); the Benguet Companies agreed to erect an appropriate power plant, with the aerial tramlines and other buildings needed to operate the mine. In return, it was agreed that the Benguet company should receive from Balatocs treasurer shares of a par value of P600,000, in payment for the first P600,000 advanced by Benguet company. By May 31, 1929, the Benguet Company had spent upon the development the sum of P1,417,952.15. In compensation, a certificate of 600,000 shares of stock of the Balatoc was issued to Benguet Company, in cash. Meanwhile, dividends of the Balatoc company have been enriching its stockholders and the value of the shares had increased in the market from a nominal valuation to more than P11/share. While Benguet company was pouring its million and a half into the Balatoc property, the arrangements made between the two companies appear to have been viewed by plaintiff, Harden, with complancecy, he being the owner of many thousands of the shares of the Balatoc company. But as soon as the success of the development had become apparent, he began this litigation to annul the certificate covering 600,000 shares of stock of Balatoc which had been issued to Benguet Mining, to secure to the Balatoc the restoration of a large sum of money alleged to have been unlawfully collected by Benguet, and for the annulment of the contract, in which he has been joined by 2 others of the 80 shareholders of the Balatoc company.
ISSUE: (1) Whether the plaintiffs can maintain an action based upon the violation of law supposedly committed by Benguet Company. (2) Whether, assuming the first question to be answered in the affirmative, the Benguet company, which was organized as a sociedad anonima, is a corporation within the meaning of the language used by Congress of US, and later by the Philippine legislature, prohibiting a mining corporation from becoming interested in another mining corporation. RULING:
History of the Laws enacted, affecting the issues: - Section 75, Philippine Bill: it shall be unlawful for any member of a corporation engaged in agriculture or mining and for any corporation organized for any purpose except irrigation to be in any wise interested in any other corporation engaged in agriculture or in mining. o Amended by Section 7, Act No. 3518: The inhibition contained in Section 75 against members of a corporation engaged in agriculture or mining from being interested in other corporations engaged in agriculture/mining was so modified as merely to prohibit any such member from holding more than 15% of the outstanding capital stock of another such corporation. The explicit prohibition against the holding by any corporation (except for irrigation) of an interest in any Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 49
other corporation engaged in agriculture/mining was so modified as to limit the restriction to corporations organized for the purpose engaging in agriculture or in mining. - Corporation Law or Act No. 1459 was the general law enacted authorizing the creation of corporations in the Philippines. The purpose of this law was to introduce the American corporation into the Philippines as the standard commercial entity and to make the sociedad anonima of the Spanish law obsolete. In making certain adjustments, there resulted a continued co-existence, for a time, of the two forms of commercial entities: American corporation and the Spanish sociedad anonima. - Section 75, Corporation law (Act 1459): the sociedad anonima is subject to the provisions of the Corporation law so far as such provisions may be applicable and giving to the sociedad anonimas previously created the option to continue business as such or to perform and organize under the provisions of the Corporation law. - Corporation Law (Act 1459): did not contain any appropriate clause directly penalizing the act of a corporation, member of a corporation, in acquiring an interest contrary to Section 13(5) of the law. - Section 1990(A), Corporation law inserted as a new section; which reads: o Penalties The violation of any of the provisions of this Act and its amendments not otherwise penalized therein, shall be punished by a fine of not more than 5K and by imprisonment for not more than 5 years, in the discretion of the court. If the violation is committed by a corporation, the same shall, upon such violation being proved, be dissolved by quo warranto proceedings instituted by the Atty-General or by any provincial fiscal by order of said Atty-Gen.
HELD: (1) No, plaintiffs have no right of action against the Benguet Company for the infraction of law supposed to have been committed. Section 1990(A) of the Corporation law or Act No. 1459 expressly states that the Atty-General, not the plaintiffs, has the power to initiate proceedings to dissolve a corporation which violated the prohibition against acquiring any interest in other agri/mining corporations. The situation involved is not unlike that which has frequently arisen in the US under provisions of the National Bank Act prohibiting banks organized under that law from holding real property. It has been uniformly held that a trust deed or mortgaged conveying property of this kind to a bank, by way of security, is valid until the transaction is assailed in a direct proceeding instituted by the Government against the bank, and the illegality of such tenure supplies no basis for an action by the former private owner, or his creditor, to annul the conveyance. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 50
The case of Compania Azucarera de Carolina vs. Registrar (the register of deeds refused to register 2 deeds in favour of Compania on the ground that the land thereby conveyed was in excess of the area permitted by law to the company), which arose under a provision of the Foraker Act, a law which is analogous to our Philippine Bill, states in reversing the ruling of the registrar: Thus, it may be seen that a corporation limited by the law or by its charter has, until the State acts every power and capacity that any other individual capable of acquiring lands, possesses. The corporation may exercise every act of ownership over such lands; it may sue in ejectment or unlawful detainer and it may demand specific performance. It has an absolute title against all the world except the State after a proper proceeding is begun in a court of lawThe Attorney General is the exclusive officer in whom is confided the right to initiate proceedings for escheat or attack the right of a corporation to hold land.
(2) Having shown that the plaintiffs have no right of actin, the discussion on the second issue is saved by the court. That important question should, in the opinion of the court, be left until it is raised in an action brought by the Government.
33. Ramirez v. Orientalist Co. & Fernandez, 38 Phil. 634 FACTS: The Orientalist Company is a corporation, duly organized under Philippine Laws, and in 1913 and 1914, was engaged in the business of maintaining and conducting a theatre in Manila for the exhibition of cinematographic films. Under the articles of incorporation, the company is authorized to manufacture, buy, or otherwise obtain all accessories necessary for conducting such a business. Plaintiff, J.F. Ramirez was, at the same time, a resident of Paris, France, and was engaged in the business of marketing films for a manufacturer/manufacturers, there engaged in the production/distribution of cinematographic material. He was represented in Manila by son, Jose Ramirez. In July 1913, certain directors of the Orientalist Company in Manila became apprised of the fact that plaintiff in Paris had control of the agencies for 2 different marks of films: clair Films and Milano Films; Jose Ramirez, agent of plaintiff, begun negotiations with said officials of the Orientalist Company for the purpose of placing the exclusive agency of these films in the hands of the Orientalist Co. Defendant, Ramon Fernandez, a director of the Orientalist Co and its treasurer, was chiefly active in this matter, being moved by the suggestions and representations of Vicente Ocampo, manager of Oriental Theater, to the effect that the securing of said films was necessary to the success of the corporation. Near the end of July, Jose Ramirez, as rep of his father, placed in Ramon Fernandez an offer dated July 4, 1913, stating in detail the terms upon which the plaintiff would undertake to supply from Paris the aforesaid films. The offer was declared to be good until the end of July. Accordingly on July 30, Ramon Fernandez had an informal conference with all the members of the companys board of directors, except one, and Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 51
with the approval of those whom he had communicated, addressed a letter to Jose Ramirez in Manila, accepting the offer, contained in the memorandum of July 4 th for the exclusive agency of the clair films. On August 5, he addressed another letter likewise accepting the offer of the exclusive agency for the Milano films. These letters were signed in the form in which there was a separate signature of R.J. Fernandez, as an individual, placed below to the left of the signature of the Orientalist Company, as signed by R.J. Fernandez, in the capacity of treasurer.
The Orientalist Company, By R.J. Fernandez, Treasurer, R.J. Fernandez
ISSUE: (1) Whether or not the Orientalist Corporation is liable upon the contracts contained in the two letters. (2) Whether R.J. Fernandez, in affixing his personal signature to the contract, is liable jointly with the Orientalists Company as a principal obligor, or whether his liability is that of a guarantor merely.
RULING: (1) Yes, respondent Corporation is liable. The parties to an action are required to submit their respective contentions to the court in their complaint and answer. These documents supply the materials which the court must use in order to discover the points of contention between the parties; and where the statute says that the execution of a document which supplies the foundation of an action is to be taken as admitted unless denied under oath, the failure of the defendant to make such denial must be taken to operate as a conclusive admission, so long as the pleadings remain that form.
Section 103, Code of Civil Procedure, reads: When an action is brought upon a written instrument and the complaint contains or has annexed a copy of such instrument, the genuineness and due execution of the instrument shall be deemed admitted, unless specifically denied under oath in the answer. Therefore, it was incumbent upon the corporation, if it desired to question the authority of Fernandez to bind it, to deny the due execution of said contracts under oath. No sworn answer denying the genuineness and due execution of the contracts or questioning the authority of Fernandez to bind the Orientalist Company was filed in this case; But, evidence (extracts from the minutes of the proceedings of the companys stockholders, showing that the authority to make the contracts had been withheld by the stockholders) was admitted without objection from plaintiff, tending to show that Fernandez had no such authority. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 52
Reason for the rule: - The public at large is bound to rely to a large extent upon outward appearances in dealing with corporations. - If a man is found acting for a corporation with the external indicia of authority, any person, not having notice of want of authority, may usually rely upon those appearances; and if it be found that the directors had permitted the agent to exercise that authority and thereby held him out as a person competent to bind the corporation, or had acquiesced in a contract and retained the benefit supposed to have been conferred by it, the corporation will be bound, notwithstanding the actual authority may never have been granted. The failure of defendant corporation to make any issue in its answer with regard to the authority of Ramon J. Fernandez to bind it, and particularly its failure to deny specifically under oath the genuineness and due execution of the contracts sued upon, have the effect of elimination the question of his authority from the case, considered as a matter of mere pleading. The statute (section 103) plainly says that if a written instrument, the foundation of the suit, is not denied upon oath, it shall be deemed to be admitted. It is familiar doctrine than an admission made in a pleading cannot be controverted by the party making such admission; and all proof submitted by him contrary thereto/inconsistent therewith should simply be ignored by the court, whether objection is interposed by the opposite party or not. We can see no reason why a constructive admission, created by the express words of the statute, should be considered to have less effect than any other admission.
* Even, for the sake of argument, that the liability had been put in issue by a specific answer under oath denying the authority of Fernandez to bind it, the defendant corporation would still be liable. The reasoning of the court: > It must be noted that Fernandez, as treasurer, had no independent authority to bind the company by signing its name to the letters in question. It is declared by signing its name to the letters in question. > It is declared in section 28 of the Corporation Law that corporate power shall be exercised, and all corporate business conducted by the Board of Directors; (this principle is recognized by the by-laws of the defendant corporation, in declaring that the power to make contracts shall be vested in the board of directors.) > It is also true that in the by-laws, the president shall have the power and it shall be his duty, to sign contracts. But this refers rather to the formality of reducing to proper form the contract which are authorized by the board and is not intended to confer an independent power to make contract binding on the corporation. > The fact that the power to make corporate contract is vested in the board does not signify that a formal vote of the board must always be taken before contractual liability can be fixed upon the corporation. The board can create liability, like an individual, by other means than by a formal expression of its will (i.e. knowledge and consent of president and board). > Based on the minutes of the stockholders meeting, the board was cognizant about the offer being accepted in the name of the Orientalist company; Fernandez Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 53
informed the board. Four directors were present and the letter accepting the offer was sent with their knowledge and consent. The actions of the stockholders amounted to a virtual, though indirect, approval of the contract. And thereafter, the board took steps necessary to utilize the films, recognizing the existence of the contract. Thus, the contracts were inferentially approved by the companys board of directors and that the company is bound.
(2) R.J. Fernandezs liability is that of a guarantor. The form in which the contract is signed raises a doubt as to what the real intention of the signature was. In looking to the evidence, the court is convinced that the real intention of the parties in putting Fernandezs signature was of guaranteeing of the contracts performance, not its approval. Article 1281, Civil Code, declares that if the words of a contract should appear contrary to the evident intention of the parties, the intention shall prevail. The General principle is that in case of ambiguity, parol evidence is admissible to show the intention of the contracting parties.
Notes: The functions of the stockholders of a corporation are of a limited nature. The theory of a corporation is that the stockholders may have all the profits but shall turn over the complete management of the enterprise to their representatives and agents, called directors. There is little for the stockholders to do beyond electing directors, making by- laws, and exercising certain other special powers defined by law. Contract between a corporation and third person must be made by the director and not by the stockholders. The corporation, in such matters, is represented by the former and not by the latter. Section 28, Corporation law: where a meeting of the stockholders is called for the purpose of passing on the proprietary of making a corporate contract, its resolutions are at most advisory and not in any wise binding on the board. It is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus hold him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, be estopped from denying his authority; and where it is said if the corporation permits this means the same as if the thing is permitted by the directing power of the corporation.
34. Salvador P. Lopez v. Hon. Vicente Ericta, 45 SCRA 539 FACTS: The Board of Regents of the University of the Philippines met on May 26, 1970, and President Lopez submitted to it the ad interim appointment of Dr. Blanco as the Dean of the College of Education. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 54
The minutes of that meeting disclose that "the Board voted to defer action on the matter in view of the objections cited by Regent Kalaw (Senator Eva Estrada Kalaw) based on the petition against the appointment, addressed to the Board, from a majority of the faculty and from a number of alumni" The "deferment for further study" having been approved, the matter was referred to the Committee on Personnel, which was thereupon reconstituted with the following composition: Regent Ambrosio F. Tangco, chairman; Regent Pio Pedrosa and Regent Liceria B. Soriano, members. The opinion was then expressed by the Chairman of the Board that in view of its decision to defer action, Dr. Blanco's appointment had lapsed, but (on the President's query) that there should be no objection to another ad interim appointment in favor of Dr. Blanco pending final action by the Board. Accordingly, on the same day, May 26, 1970, President Lopez extended another ad interim appointment to her, effective from May 26, 1970 to April 30, 1971, with the same conditions as the first, namely, "unless sooner terminated, and subject to the approval of the Board of Regents and to pertinent University regulations." The next meeting of the Board of Regents was held on July 9, 1970, and the minutes show that the Chairman having ruled that Dr. Blanco had not obtained the necessary number of votes(5-affirm; 3-against; and 4-abstain), the Board agreed to expunge the result of the voting, and, on motion of Regent Agbayani duly seconded, suspended action on the ad interim appointment of Dr. Blanco. The Chair stated that this decision of the Board would in effect render the case subject to further thinking and give the Board more time on the question of the deanship of the College of Education, and, since the Board had not taken action on the appointment of Dr. Blanco either adversely or favorably, her ad interim appointment as Dean effective May 26, 1970 terminated as of July 9, 1970. ." On August 18, 1970 Dr. Blanco wrote the President of the University, protesting the appointment of Oseas A. del Rosario as Officer-in-Charge of the College of Education. Neither communication having elicited any official reply, Dr. Blanco went to the Court of First Instance of Quezon City on a petition for certiorari and prohibition with preliminary injunction. The Court of First Instance ruled in favor of Dr. Blanco and declared her to be entitled to occupy the position as appointed by the President. The Court further declared the appointment of respondent OIC del Rosario as null and void therefore issued a permanent injunction commanding respondent Oseas A. del Rosario to desist from further exercising the functions and duties pertaining to the Office of the Dean of the College of Education. This gave rise to the appeal by certiorari initiated by the herein petitioners. ISSUE: Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 55
Whether or not the ad interim appointment of Dr. Consuelo S. Blanco is valid in contemplation of Act No. 1870 of the UP Charter and Article 78 of the Revised Code of the University. RULING: Not valid. It should be noted that both under the Charter (See. 10) and under the Revised Code of the University (Art. 78) the Dean of a college is elected by the Board of Regents on nomination by the President of the University. In other words the President's function is only to nominate, not to extend an appointment, even if only ad interim; and the power of the Board of Regents is not merely to confirm, but to elect or appoint. At any rate the ad interim appointment extended to Dr. Blanco on May 26, 1970, although made effective until April 30, 1971, was subject to the following condition: "unless sooner terminated and subject to the approval of the Board of Regents." The Board, as has been shown, not only did not elect Dr. Blanco in its meeting of July 9, 1970, but declared the appointment terminated as of that day. Additional Notes(Applied Provisions): The only provisions of the U.P. Charter (Act No. 1870) which may have a bearing on the question at issue read as follows: SEC. 7. A quorum of the Board of Regents shall consist a majority of all the members holding office at the time the meeting of the Board is called. All processes against the Board of Regents shall be served on the president or secretary thereof. SEC. 10. The body of instructors of each college shall constitute its faculty, and as presiding officer of each faculty, there shall be a dean elected from the members of such faculty by the Board of Regents on nomination by the President of the University. Article 78 of the Revised Code of the University provides: Art. 78. For each college or school, there shall be a Dean or Director who shall be elected by the Board of Regents from the members of the faculty of the University unit concerned, on nomination by the President of the University.
35. PNB v. CA, 83 SCRA 238 FACTS: Rita Tapnio, herein respondent, owes PNB an amount of P2,000.00. The amount is secured by her sugar crops about to be harvested including her export quota allocation worth 1,000 piculs. The said export quota was later dealt by Tapnio to a certain Jacobo Tuazon at P2.50 per picul or a total of P2,500. Since the subject of the deal is mortgaged Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 56
with PNB, the latter has to approve it. The branch manager of PNB recommended that the price should be at P2.80 per picul which was the prevailing minimum amount allowable. Tapnio and Tuazon agreed to the said amount. And so the bank manager recommended the agreement to the vice president of PNB. The vice president in turn recommended it to the board of directors of PNB. However, the Board of Directors wanted to raise the price to P3.00 per picul. This Tuazon does not want hence he backed out from the agreement. This resulted to Tapnio not being able to realize profit and at the same time rendered her unable to pay her P2,000.00 crop loan which would have been covered by her agreement with Tuazon. Eventually, Tapnio was sued by her other creditors, including herein respondent Philippine American General Insurance Co., Inc., therefore this prompted Tapnio to file a third party complaint against PNB where she alleged that her failure to pay her debts was because of PNBs negligence and unreasonableness in refusing to approve the lease between Tapnio and Tuazon.
ISSUE: Whether or not Tapnio is correct.
RULING: Yes. In this type of transaction, time is of the essence considering that Tapnios sugar quota for said year needs to be utilized ASAP otherwise her allotment may be assigned to someone else, and if she cant use it, she wont be able to export her crops. It is unreasonable for PNBs board of directors to disallow the agreement between Tapnio and Tuazon because of the mere difference of 0.20 in the agreed price rate. What makes it more unreasonable is the fact that the P2.80 was recommended both by the bank manager and PNBs VP yet it was disapproved by the board. Further, the P2.80 per picul rate is the minimum allowable rate pursuant to prevailing market trends that time. This unreasonable stand reflects PNBs lack of the reasonable degree of care and vigilance in attending to the matter. PNB is therefore negligent. A corporation is civilly liable in the same manner as natural persons for torts, because generally speaking, the rules governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial person. All of the authorities agree that a principal or master is liable for every tort which it expressly directs or authorizes, and this is just as true of a corporation as of a natural person, a corporation is liable, therefore, whenever a tortious act is committed by an officer or agent under express direction or authority from the stockholders or members acting as a body, or, generally, from the directors as the governing body.
36. Garcia v. Lim Chu Sing, 59 Phil. 562 FACTS: The debt which is the subject matter of the complaint was not really an indebtedness of the defendant but of Lim Cuan Sy, who had an account with the plaintiff bank in the form of "trust receipts" guaranteed by the defendant as surety and with chattel mortgage securities, being an owner of shares of stock of the plaintiff Mercantile Bank of China amounting to P10,000. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 57
As a surety, the defendant-appellant Lim Chu Sing executed and delivered to the Mercantile Bank of China promissory note for the sum of P19,605.17 with interest thereon at 6 per cent per annum, payable monthly as follows: P1,000 on July 1, 1930; P500 on August 1, 1930; and P500 on the first of every month thereafter until the amount of the promissory note together with the interest thereon is fully paid. However, he defaulted in the payment of several installments by reason of which the unpaid balance of P9,105.17 on the promissory note has ipso facto become due and demandable. Because of failure of Lim Cuan Sy to comply with his obligation, plaintiff bank, without the knowledge and consent of the defendant, foreclosed the chattel mortgage and privately sold the property covered thereby. Judgment is also rendered sentencing the defendant to pay the sum of P9,105.17 with interest thereon at the rate of six per cent per annum from September 1, 1932, until fully paid, plus the sum of P910.51, as attorney's fees, with the costs of this suit. This prompted defendant to file a motion praying for the inclusion of the principal debtor Lim Cuan Sy as party defendant so that he could avail himself of the benefit of the exhaustion of the property of said Lim Cuan Sy. Said motion was denied in open court by the presiding judge without the defendant-appellant having excepted to such order of denial. The proceeds of the sale of the mortgaged chattels together with other payments made were applied to the amount of the promissory note in question, leaving the balance which the plaintiff now seeks to collect.
ISSUES: 1. whether or not there is justification when the Court of First Instance denied the motion for inclusion of a party a defendant(Lim Cuan Sy), filed by the defendant- appellant. 2. Whether or not it is proper to compensate the defendant-appellant's indebtedness of P9,105.17, which is claimed in the complaint, with the sum of P10,000 representing the value of his shares of stock with the plaintiff entity, the Mercantile Bank of China. 3. Whether or not it is justified in sentencing the said defendant-appellant to pay the sum of P910.51 as attorney's fees in addition to interest at 6 per cent per annum on the amount sought in the complaint.
RULING:
(1) That failure to file an exception to a ruling rendered in open court denying a motion for the inclusion of a party as defendant deprives the petitioner, upon appeal of the right to raise the question whether such denial proper or improper; According to the provisions of section 141 of the Code of Civil Procedure, ". . . Rulings of the court upon minor matters, such as adjournments, postponements of trials, the extension of time for filing pleadings or motions, and other matters addressed to the discretion of the court in the performance of its duty, shall not be subject to exception. But exception may be taken to any other ruling, order, or judgment of the court made during the pendency of the action in the Court of First Instance." The herein defendant-appellant, not having excepted to the order of the Court of First Instance of Manila denying his motion for the inclusion of Lim Cuan Sy as party defendant, is estopped from raising such question upon appeal Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 58
(2) that the shares of a banking corporation do not constitute an indebtedness of the corporation to the stockholder and, therefore, the latter is not a creditor of the former for such shares; According to the weight of authority, a share of stock or the certificate thereof is not an indebtedness to the owner nor evidence of indebtedness and, therefore, it is not a credit. Stockholders, as such, are not creditors of the corporation . It is the prevailing doctrine of the American courts, repeatedly asserted in the broadest terms, that the capital stock of a corporation is a trust fund to be used more particularly for the security of creditors of the corporation, who presumably deal with it on the credit of its capital stock (3) that the indebtedness of a shareholder(defendant Lim Chu Sing) to a banking corporation cannot be compensated with the amount of his shares therein, there being no relation of creditor and debtor with respect to such shares, therefore , there is no sufficient ground to justify a compensation (4) that the percentage stipulated in a contract, for costs and attorney's fees for the collection of an indebtedness, includes judicial costs, therefore not usurious.
37. Bayla, et. al. v, Silang traffic Co., Inc., 73 Phil. 557 FACTS: Petitioners in instituted this action against the respondent Silang Traffic Co., Inc. to recover certain sums of money which they had paid severally to the corporation on account of shares of stock they agreed to take and pay for under certain specified terms and conditions. Petitioners' action for the recovery of the sums above mentioned is based on a resolution by the board of directors of the respondent corporation. The latter, however, countered that the resolution is not applicable to the petitioners Sofronio T. Bayla, Josefa Naval, and Paz Toledo because on the date thereof "their subscribed shares of stock had already automatically reverted to the defendant, and the installments paid by them had already been forfeited"; and that said resolution was revoked and cancelled by a subsequent resolution of the board of directors of the defendant corporation. The trial court absolved the defendant from the complaint and declared forfeited in favor of the defendant the shares of stock in question. It held that the resolution was null and void, saying that a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for shares; and any agreement to this effect is invalid."
ISSUES: a.) Whether or not the contract entered to was a subscription or a sale of stock
b.) Whether or not under the contract between the parties the failure of the purchaser to pay any of the quarterly instalments on the purchase price automatically gave rise to the forfeiture of the amounts already paid RULING: The contract in question is one of purchase and not subscription. Whether a particular contract is a subscription or a sale of stock is a matter of construction and depends upon its terms and the intention of the parties. In the Unson case just cited, this Court held that a subscription to stock in an existing corporation is, as between the Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 59
subscriber and the corporation, simply a contract of purchase and sale. It seems clear from the terms of the contracts in question that they are contracts of sale and not of subscription. The lower court erred in overlooking the distinction between subscription and purchase "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 stipulated price."
The contract provides for interest of the rate of six per centum per annum on deferred payments. It is also provides that if the purchaser fails to pay any of said instalments when due, the said shares are to revert to the seller and the payments already made are to be forfeited in favor of said seller. The provision regarding interest on deferred payments would not have been inserted if it had been the intention of the parties to provide for automatic forfeiture and cancelation of the contract. Moreover, the contract did not expressly provide that the failure of the purchaser to pay any installment would give rise to forfeiture and cancelation without the necessity of any demand from the seller; and under article 1100 of the Civil Code persons obliged to deliver or do something are not in default until the moment the creditor demands of them judicially or extrajudicially the fulfillment of their obligation, unless (1) the obligation or the law expressly provides that demand shall not be necessary in order that default may arise, (2) by reason of the nature and circumstances of the obligation it shall appear that the designation of the time at which that thing was to be delivered or the service rendered was the principal inducement to the creation of the obligation.
38. Datu Tagoranao Benito v. SEC, 123 SCRA 722 FACTS: On February 6, 1959, the Articles of Incorporation of respondent Jamiatul Philippine-Al Islamia, Inc. were filed with the Securities and Exchange Commission (SEC) and were subsequently approved. The corporation had an authorized capital stock of P200,000.00 divided into 20,000 shares at a par value of P10.00 each. Of the authorized capital stock, 8,058 shares worth P80,580.00 were subscribed and fully paid for. Herein petitioner Datu Tagoranao Benito subscribed to 460 shares worth P4,600.00. On October 28, 1975, the respondent corporation filed a certificate of increase of its capital stock from P200,000.00 to P1,000,000.00. It was shown in said certificate that P191,560.00 worth of shares were represented in the stockholders' meeting held on November 25, 1975 at which time the increase was approved. Thus, P110,980.00 worth of shares were subsequently issued by the corporation from the unissued portion of the authorized capital stock of P200,000.00. Of the increased capital stock of P1,000,000.00, P160,000.00 worth of shares were subscribed by Mrs. Fatima A. Ramos, Mrs. Tarhata A. Lucman and Mrs. Moki-in Alonto. Petitioner prayed that the additional issue of shares of previously authorized capital stock as well as the shares issued from the increase in capital stock of respondent corporation be cancelled; that the secretary of respondent corporation be ordered to register the 2,540 shares acquired by him (petitioner) and that the corporation be ordered to render an accounting of funds to the stockholders. After due proceedings, the SEC ruled that the issuance by the corporation of its unissued shares was validly made and was not subject to the pre-emptive rights of stockholders, including the Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 60
petitioner and that there is no sufficient legal basis to set aside the certificate issued by this Commission authorizing the increase in capital stock of respondent corporation.
ISSUE: Whether or not the issuance by the corporation of its unissued shares was validly made
RULING: No. The questioned issuance of the unsubscribed portion of the capital stock worth P110,980.00 is not invalid even if assuming that it was made without notice to the stockholders as claimed by petitioner. The power to issue shares of stocks in a corporation is lodged in the board of directors and no stockholders' meeting is necessary to consider it because additional issuance of shares of stocks does not need approval of the stockholders. The by-laws of the corporation itself states that 'the Board of Trustees shall, in accordance with law, provide for the issue and transfer of shares of stock of the Institute and shall prescribe the form of the certificate of stock of the Institute. Petitioner bewails the fact that in view of the lack of notice to him of such subsequent issuance, he was not able to exercise his right of pre-emption over the unissued shares. However, the general rule is that pre-emptive right is recognized only with respect to new issue of shares, and not with respect to additional issues of originally authorized shares. This is on the theory that when a corporation at its inception offers its first shares, it is presumed to have offered all of those which it is authorized to issue. An original subscriber is deemed to have taken his shares knowing that they form a definite proportionate part of the whole number of authorized shares. When the shares left unsubscribed are later re-offered, he cannot therefore claim a dilution of interest.
39. Palting v. San Jose Petroleum, Inc., G.R. L-14441, Dec. 17, 1986 FACTS: On September 7, 1956, SAN JOSE PETROLEUM filed with the Securities and Exchange Commission (SEC) a sworn registration statement, for the registration and licensing for sale in the Philippines Voting Trust Certificates representing 2,000,000 shares of its capital stock of a par value of $0.35 a share, at P1.00 per share. It was alleged that the entire proceeds of the sale of said securities will be devoted or used exclusively to finance the operations of San Jose Oil Company, Inc., a domestic mining corporation. It was the express condition of the sale that every purchaser of the securities shall not receive a stock certificate, but a registered or bearer-voting-trust certificate from the voting trustees named therein James L. Buckley and Austin G.E. Taylor, the first residing in Connecticut, U.S.A., and the second in New York City. While this application for registration was pending consideration by the Securities and Exchange Commission, SAN JOSE PETROLEUM filed an amended Statement for registration of the sale in the Philippines of its shares of capital stock, which was increased from 2,000,000 to 5,000,000, at a reduced offering price of from P1.00 to P0.70 per share. At this time the par value of the shares has also been reduced from $.35 to $.01 per share. Petitioner Pedro Palting ,allegedly prospective investors in the shares of SAN JOSE PETROLEUM, filed with the SEC an opposition to registration and licensing of the securities on the grounds that (1) the tie-up between the issuer, SAN JOSE PETROLEUM, a Panamanian Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 61
corporation and SAN JOSE OIL, a domestic corporation, violates the Constitution of the Philippines, the Corporation Law and the Petroleum Act of 1949; (2) the issuer has not been licensed to transact business in the Philippines; (3) the sale of the shares of the issuer is fraudulent, and works or tends to work a fraud upon Philippine purchasers; and (4) the issuer as an enterprise, as well as its business, is based upon unsound business principles.
ISSUES:
a.) Whether or not petitioner Palting, as a "prospective investor" in respondent's securities, has personality to file the present petition for review of the order of the Securities and Exchange Commission
b.) Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, a foreign corporation, and SAN JOSE OIL COMPANY, INC., a domestic mining corporation, is violative of the Constitution, the Laurel- Langley Agreement, the Petroleum Act of 1949, and the Corporation Law
c.) Whether or not the sale of respondent's securities is fraudulent, or would work or tend to work fraud to purchasers of such securities in the Philippines.
RULING: As construed by the administrative office entrusted with the enforcement of the Securities Act, any person (who may not be "aggrieved" or "interested" within the legal acceptation of the word) is allowed or permitted to file an opposition to the registration of securities for sale in the Philippines. And this is in consonance with the generally accepted principle that Blue Sky Laws are enacted to protect investors and prospective purchasers and to prevent fraud and preclude the sale of securities which are in fact worthless or worth substantially less than the asking price. It is for this purpose that herein petitioner duly filed his opposition giving grounds therefor. Respondent SAN JOSE PETROLEUM was required to reply to the opposition. Subsequently both the petition and the opposition were set for hearing during which the petitioner was allowed to actively participate and did so by cross-examining the respondent's witnesses and filing his memorandum in support of his opposition. He therefore to all intents and purposes became a party to the proceedings.
No. First, it is not owned or controlled directly by citizens of the United States, because it is owned and controlled by a corporation, the OIL INVESTMENTS, another foreign (Panamanian) corporation. Second, Neither can it be said that it is indirectly owned and controlled by American citizens through the OIL INVESTMENTS, for this latter corporation is in turn owned and controlled, not by citizens of the United States, but still by two foreign (Venezuelan) corporations, the PANTEPEC OIL COMPANY and PANCOASTAL PETROLEUM. Third, although it is claimed that these two last corporations are owned and controlled respectively by 12,373 and 9,979 stockholders Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 62
residing in the different American states, there is no showing in the certification furnished by respondent that the stockholders of PANCOASTAL or those of them holding the controlling stock, are citizens of the United States. Lastly, granting that these individual stockholders are American citizens, it is yet necessary to establish that he different states of which they are citizens, allow Filipino citizens or corporations or associations owned or controlled by Filipino citizens, to engage in the exploitation, etc. of the natural resources of these states. Respondent has presented no proof to this effect. All told, the respondent SAN JOSE PETROLEUM is not a business enterprise that is authorized to exercise the parity privileges under the Parity Ordinance, the Laurel-Langley Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is, consequently, illegal.
Yes. Admittedly, to assure continuity of the management and stability of SAN JOSE PETROLEUM, OIL INVESTMENTS, as holder of the only subscribed stock of the former corporation and acting "on behalf of all future holders of voting trust certificates," entered into a voting trust agreement with James L. Buckley and Austin E. Taylor, whereby said Trustees were given authority to vote the shares represented by the outstanding trust certificates. It was also therein provided that the said Agreement shall be binding upon the parties thereto, their successors, and upon all holders of voting trust certificates. And these are the voting trust certificates that are offered to investors as authorized by Security and Exchange Commissioner. It cannot be doubted that the sale of respondent's securities would, to say the least, work or tend to work fraud to Philippine investors.
40. Velasco v. Poizat, 37 Phil. 802 FACTS: The Philippine Chemical Product Company" (Ltd.) was originally organized with a capital of P50,000, divided into 500 shares. Defendant subscribed for 20 shares and paid the par value of 5 shares. Defendant, while serving as the treasurer and manager, called in and collected all subscriptions to the capital stock except the 15 shares subscribed by himself and another 15 shares owned by Jose R. Infante. During the meeting of the board of directors, 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. Infante had already paid 25 % of his subscription. The other proposition was to the effect that Poizat, who was absent, should be required to pay the amount of his subscription upon the 15 shares for which he was still indebted to the company. Poizat did not pay Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 63
ISSUES: 1) Whether or not a stockholder is liable for his entire subscription
2) Whether or not the enforcement of stock subscriptions can be judicially demanded
3) Whether or not the failure of the officers of the corporation to make a call pursuant to the requirements of sections 37 and 38 of the Corporation Law precluded the corporation to demand payment from the subscriber for his subscription RULING: 1) Poizat is liable upon this subscription. A stock subscription is a contract between the corporation on one side, and the subscriber on the other, and courts will enforce it for or against either. It is a rule that a subscription for shares of stock does not require an express promise to pay the amount subscribed, as the law implies a promise to pay on the part of the subscriber. 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.
2) The Corporation Law (Act No. 1459) provides 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 of the Corporation Law are applicable and must be followed. The other remedy is by action in court.
It is generally accepted doctrine that the statutory right to sell the subscriber's stock is merely a remedy in addition to that which proceeds by action in court; and it has been held that the ordinary legal remedy by action exists even though no express mention thereof is made in the statute. By virtue of the first subsection of section 36 of the Insolvency Law (Act No. 1956), 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. When insolvency supervenes upon a corporation and the court assumes jurisdiction to wind up, all unpaid stock subscriptions become payable on Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 64
demand, and are at once recoverable in an action instituted by the assignee or receiver appointed by the court. 3) 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. If the corporation must be treated still an active entity, and this action should be dismissed for irregularity in the making of the call, other steps could be taken by the board to cure the defect and another action could be brought; but where the company is being wound up, no such procedure would be practicable. The better doctrine is that when insolvency supervenes, all unpaid subscriptions become at once due and enforceable.
41. Lingayen Gulf Electric Power Co, Inc. v. Baltazar, 93 Phil. 404 FACTS: Lingayen Gulf Electric Power Company is a domestic corporation with an authorized capital stock of P300,000 divided into 3,000 shares with a par value of P100 per share. Defendant Baltazar subscribed for 600 shares, to which a balance of P18,500 remained unpaid for. On July 23, 1946, a majority of the stockholders adopted Resolution No.17 calling the balance of all unpaid subscribed capital stock payable in two installments, providing for a 12 % interest and a reversion of all unpaid subscribed stocks to the corporation. Resolution No. 17 was later made on April 17, 1948 setting aside the resolution made on June 23, 1946 on the ground that such was null and void, and because the plaintiff corporation was not in a financial position to absorb the unpaid balance of the subscribed capital stock. The directors also decided to call the unpaid subscription in 2 installments. Resolution No. 4 was further adopted on June 10, 1949 revaluing the stocks and assets of the company so as to attract outside investors to put in money for the rehabilitation of the company. The call of the Board of Directors was not published in a newspaper of general circulation as required by Section 40 of the Corporation Law. The legal counsel of the plaintiff corporation wrote a letter to the defendant, demanding the payment of the unpaid balance of his subscription, but was ignored by the latter. ISSUES: 1) Was the call under Resolution No. 17 (April 17, 1948) valid?
2) Was the defendant released from the obligation of the unpaid balance of his subscription by virtue of stockholders' resolution Nos. 17 and 4? RULING: 1) The law requires that notice of any call for the payment of unpaid subscription should be made not only personally but also by publication. This is clear from the provisions of section 40 of the Corporation Law, Act No. 1459, as amended. Section 40 is mandatory as regards publication, using the word "must". The reason for the mandatory provision is not only to assure notice to all subscribers, but also to assure equality and uniformity in the assessment on stockholders. The case of Velasco vs. Poizat is different in that the corporation involved was insolvent, in which case all unpaid stock subscriptions become payable on demand and are immediately recoverable in an action instituted by the assignee. But when the corporation is a solvent concern, the rule is: It is again insisted that plaintiffs cannot recover because the suit was not proceeded by a call or assessment against the defendant as a subscriber, and that until this is done no right of action accrues.
2) Going to the claim of defendant and appellant that Resolution No. 17 of 1946 released him from the obligation to pay for his unpaid subscription, the authorities generally agreed that in order to effect the release, there must be unanimous consent of the stockholders of the corporation:
Subject to certain exceptions, considered in subdivision (3) of this section, the general rule is that a valid and binding subscription for stock of a corporation cannot be cancelled so as to release the subscriber from liability thereon without the consent of all the stockholders or subscribers. Furthermore, a subscription cannot be cancelled by the company, even under a secret or collateral agreement for cancellation made with the subscriber at the time of the subscription, as against persons who subsequently subscribed or purchased without notice of such agreement.
The exception is, as stated, In particular circumstances, as where it is given pursuant to a bona fide compromise, or to set off a debt due from the corporation, a release, supported by consideration, will be effectual as against dissenting stockholders and subsequent and existing creditors. A release which might originally have been held invalid may be sustained after a considerable lapse of time.
In the present case, the release claimed by defendant and appellant does not fall under the exception above referred to, because it was not given pursuant to a bona fide compromise, or to set off a debt due from the corporation, and there was no consideration for it. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 66
The release attempted in Resolution No. 17 of 1946 was not valid for lack of a unanimous vote. It was found that at least seven stockholders were absent from the meeting when said resolution was approved. In conclusion we hold that under the Corporation Law, notice of call for payment for unpaid subscribed stock must be published, except when the corporation is insolvent, in which case, payment is immediately demandable. We also rule that release from such payment must be made by all the stockholders.
42. Baltazar v. Lingayen Gulf Electric Power Co, Inc., 14 SCRA 522 FACTS: Lingayen Gulf Electric Power Co., Inc was doing business in the Philippines with an authorized capital stock of P300.000.00 divided into 3,000 shares of voting stock at P100.00 par value. Plaintiffs Baltazar and Rose were among the incorporators, having subscribed to 600 and 400 shares. Of the 600 shares subscribed by Baltazar, he had fully paid 535 shares of stock, and the Corporation issued to him several fully paid up and non-assessable certificates of stock, corresponding to the 535 shares. After having made transfers to third persons and acquired new ones, Baltazar had to his credit, on the filing of the complaint 341 shares fully paid and non-assessable. He had also 65 shares for which no certificate was issued to him. Of the 400 shares of stock subscribed by Rose, he had 375 shares of fully paid stock, duly covered by certificates of stock issued to him. Respondents Ungson, Estrada, Fernandez and Yuson were small stockholders of the Corporation, all holding a total number of not more than 100 shares, with a par value of P10,000.00 fully paid-up shares of stock. Defendant Acena, was likewise an incorporator and stockholder, holding 600 shares of stock, for which certificate of stock were issued to him and was the largest individual stockholder. In 1955, defendants Ungson, Estrada, Fernandez and Yuzon, constituted the majority of the holdover 7-member Board of Directors of the Corporation; 2 of said defendants (Ungson group) were elected as members of the Board largely on the vote of Acena; while the other 2 (Baltazar group) were elected mainly on the vote of the plaintiffs and their group of stockholders. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 67
The Ungson group passed 3 resolutions: Resolution No. 2 declared all watered stocks issued to Acena, Baltazar, Rose and Jubenville, "of no value and cancelled from the books. Resolution No. 3 resolved that "... all unpaid subscriptions should bear interest annually, and any or all payments should be credited to pay interest first. Resolution No. 4 resolved that "any and all shares of stock issued as fully paid-up to stockholders whose subscription to a number of shares have been declared delinquent with the accrued interest on the unpaid are hereby incapacitated to utilize or avail of the voting power. ISSUES: 1) If a stockholder, in a stock corporation, subscribes to a certain number of shares of stock, and he pays only partially, for which he is issued certificates of stock, is he entitled to vote the latter, notwithstanding the fact that he has not paid the balance of his subscription, which has been called for payment or declared delinquent?
2) If a stockholder subscribes to a certain number of shares of stock and makes partial payment only and declared delinquent as to the rest, with interest, should previous payments on account of the capital, be first applied to interest, thus diminishing the voting power of the shares of stock already paid? In other words, if the entire subscribed shares of stock are not paid, will the paid shares of stock be deprived of the right to vote, until the entire subscribed shares of stock are fully paid, including interest?
RULING: 1) Section 37 of the Corporation Law, as amended by Act No. 3518, provides No certificate of stock shall be issued to a subscriber as fully paid up until the full par value thereof, or the full subscription in the case of no par stock, has been paid by him to the corporation. Subscribed shares not fully paid up may be voted provided no subscription is unpaid and delinquent. As may readily be seen, said Section 37 makes payment of the "par value" as prerequisite for the issuance of certificates of par value stocks, and makes payment of the "full subscription" as prerequisite for the issuance of certificates of no par value stocks. The present law requires as a condition before a shareholder can vote his shares, that his full subscription be paid in the case of no par value stock; and in case of stock corporation with par value, the stockholder can vote the shares fully paid by him only, irrespective of the unpaid delinquent shares. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 68
As well-observed by the trial court, a corporation may now, in the absence of provisions in their by-laws to the contrary, apply payment made by, subscribers- stockholders, either as: "(a) full payment for the corresponding number of shares of stock, the par value of each of which is covered by such payment; or (b) as payment pro-rata to each and all the entire number of shares subscribed for" (amended decision). In the cases at bar, the defendant-corporation had chosen to apply payments by its stockholders to definite shares of the capital stock of the corporation and had fully paid capital stock shares certificates for said payments; its call for payment of unpaid subscription and its declaration of delinquency for non-payment of said call affecting only the remaining number of shares of its capital stock for which no fully paid capital stock shares certificates have been issued, "and only these have been legally shorn of their voting rights by said declaration of delinquency". 2) In the present case, the defendant-corporation had applied the payments made by the stockholders to the full par value of the shares of stock subscribed by them, instead of the accepted interest, as shown by the capital stock shares certificate issued for the payments made, and the stockholders had accepted such certificates issued for such payments. This being the case, the said application of payments must be deemed to have been agreed upon by the Corporation and the stockholders, and the same cannot now be changed without the consent of the stockholders concerned. The Corporation Law and the by-laws of the defendant Corporation do not contain any provision, prohibiting the application of stockholders' payments to the full par value of a corporation's capital stock, ahead of the payment of accrued interest for unpaid subscriptions. It would, therefore, result that a corporation may, upon request of an interested stockholder, as his option, apply payment by them to the full par value of shares of capital leaving its collection later of the accrued interest on unpaid subscriptions, and that once such option has been exercised and the corresponding stock certificates have been issued, the corporation cannot, by a unilateral act, legally nullify and cancel the capital stock certificates so issued.
43. De Silva v. Aboitiz & Co., Inc., 44 Phil. 755 FACTS: Plaintiff subscribed for 650 shares of stock of Aboitiz corporation of the value of P500 each, of which he has paid only the total value of 200 shares, there remaining 450 shares unpaid, for which he was indebted to the corporation in the sum of P225,000, the value thereof. He was notified by the secretary of Aboitiz declaring the unpaid subscriptions to the capital stock have become due and payable at the office thereof through the treasurer, further stating that all such unpaid shares will accrue interest and Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 69
will be declared delinquent. It was advertised for sale at public auction, and sold, for the purpose of paying up the amount of the subscription and accrued interest, with the expenses of the advertisement and sale, unless said payment was made before. De Silva prayed for a judgment in his favour, contending that Aboitiz in prescribed another method of paying the subscription to the capital stock different from that provided in article 46 of its by-laws, in declaring the aforesaid 450 shares delinquent, and in directing the sale thereof, as advertised, the corporation had exceeded its executive authority, and as a consequence thereof he asked that a writ of injunction be issued against the said defendant, enjoining it from taking any further action of whatever nature in connection with the acts complained of and that it pay the costs of this suit; consequently a preliminary injunction having been issued against Aboitiz. ART. 46. The net profit resulting from the annual liquidation shall be distributed as follows: Ten per cent (10%) for the Board of Directors and in the manner prescribed in article twenty-six (26) of these by-laws; ten per cent (10%) for the general manager; ten per cent (10%) for the reserve fund, and seventy per cent (70%) for the shareholders in equal parts; Provided, however, That from this seventy per cent dividend the Board of Directors may deduct such amount as it may deem fit for the payment of the unpaid subscription to the capital stock and not pay any dividend to the holders of the said unpaid shares until they are fully paid;Provided, further, That when all the shares have been paid in full as provided in the preceding paragraph, the Board of Directors may also deduct such amount as it may deem fit for the creation of an emergency special fund, or extraordinary reserve fund when in its judgment the same may convenient for the development of the business of the corporation or for meeting any such contingencies as may arise from its operation, whenever the distributable dividend is found, after the foregoing deduction, to be not less than ten per cent (10%) of the paid up capital stock. No dividend shall be declared or paid, except when there remains a net profit after the payment of all the expenses incurred, or allowances made, by the corporation to carry out the operation of its business; so that no such dividend may be declared as may affect the capital of the corporation.
ISSUE: Whether or not, under the provision of article 46 of the by-laws of the defendant corporation, De Silva is still liable pursuant to the dividends as payment for unpaid subscriptions.
RULING: Yes, he is. In the instant case, the defendant corporation, through its board of directors, made use of its discretionary power, taking advantage of the first of the two remedies provided by the Corporation law: delinquency sale or specific performance On the other hand, the plaintiff has no right whatsoever under the provision of the above cited article 46 of the said by-laws to prevent the board of directors from following, for that purpose, any other method than that mentioned in the said article, for the very reason that the same does not give the stockholders any right in connection with the determination of the question whether or not there should be deducted from the 70 per cent of the profit distributable among the stockholders such amount as may be deemed fit for the payment of subscriptions due and unpaid. Therefore, it is evident that the defendant corporation has not violated, nor disregarded any right of the plaintiff Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 70
recognized by the said by-laws, nor exceeded its authority in the discharge of its executive functions, nor abused its discretion when it performed the acts mentioned in the complaint as grounds thereof, and, consequently, the facts therein alleged do not constitute a cause of action.
In the case of Velasco vs. Poizat (37 Phil., 802): The first and most special remedy given by the statute consists in permitting the corporation to put the unpaid stock for sale and dispose of it for the account of the delinquent subscriber. In this case the provisions of sections 38 to 48, inclusive, of the Corporation Law are applicable and must be followed. The other remedy is by action in court concerning which we find in section 49 the following provision: "Nothing in this Act 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."
44. The National Exchange Co., Inc. v. Dexter, 51 Phil. 601 FACTS: Defendant I. B. Dexter, signed a written subscription to the corporate stock of C. S. Salmon & Co. in the following form: I hereby subscribe for three hundred (300) shares of the capital stock of C. S. Salmon and Company, payable from the first dividends declared on any and all shares of said company owned by me at the time dividends are declared, until the full amount of this subscription has been paid. Upon this subscription the sum of P15,000 was paid, from a dividend declared at about that time by the company, supplemented by money supplied personally by the subscriber. Beyond this nothing has been paid on the shares and no further dividend has been declared by the corporation.There is a balance of P15,000 unpaid subscription. However, the trial court held that the stipulation was invalid.
ISSUE: Whether the stipulation contained in the subscription to the effect that the subscription is payable from the first dividends declared on the shares has the effect of relieving the subscriber from personal liability in an action to recover the value of the shares.
RULING: NO, it does not. The Court found the subscription contract as void, as it defrauded creditors who relied heavily on the capital stock of the corporation. The prohibition against the issuance of shares by corporations except for actual cash to the par value of the stock to its full equivalent in property is thus enshrined in both the organic and statutory law of the Philippine. Now, if it is unlawful to issue stock otherwise than as stated it is self-evident that a stipulation such as that now under consideration, in a stock subcription, is illegal, for this stipulation obligates the subcriber to pay nothing for the shares except as dividends may accrue upon the stock. In the contingency that dividends are not paid, there is no liability at all. This is a discrimination in favor of the particular subcriber, and hence the stipulation is unlawful. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 71
NOTA BENE: The general doctrine of corporation law is in conformity with this conclusion, as may be seen from the following proposition taken from the standard encyclopedia treatise, Corpus Juris: Nor has a corporation the power to receive a subscription upon such terms as will operate as a fraud upon the other subscribers or stockholders by subjecting the particular subcriber to lighter burdens, or by giving him greater rights and privileges, or as a fraud upon creditors of the corporation by withdrawing or decreasing the capital. It is well settled therefore, as a general rule, that an agreement between a corporation and a particular subscriber, by which the subscription is not to be payable, or is to be payable in part only, whether it is for the purpose of pretending that the stock is really greater than it is, or for the purpose of preventing the predominance of certain stockholders, or for any other purpose, is illegal and void as in fraud of other stockholders or creditors, or both, and cannot be either enforced by the subcriber or interposed as a defense in an action on the subcription. (14 C. J., p. 570.) SC added that the law in force in this jurisdiction makes no distinction, in respect to the liability of the subcriber, between shares subscribed before incorporation is effected and shares subscribed thereafter. All like are bound to pay full value in cash or its equivalent, and any attempt to discriminate in favor of one subscriber by relieving him of this liability wholly or in part is forbidden.
45. Lumanlan v. Cura, 59 Phil. 746 FACTS: The appellant Dizon & Co. is a corporation duly organized under Philippine laws with its central office in Manila. The plaintiff-appellee Bonifacio Lumanlan, subscribed for 300 shares of stock of said corporation at a par value of P50 or a total of P15,000. Julio Valenzuela, Pedro Santos and Francisco Escoto, creditors of this corporation, filed suit against it praying that a receiver be appointed, as it appeared that the corporation at that time had no assets except credits against those who had subscribed for shares of stock. The court named Tayag as receiver for the purpose of collecting, said subscriptions. As Bonifacio Lumanlan had only paid P1,500 of the P15,000, par value of the stock for which he subscribed, the receiver filed a suit against him in for the collection of P15,109, P13,500 of which was the amount he owed for unpaid stock and P1,609 for loans and advances by the corporation to Lumanlan. In that case Lumanlan was ordered to pay the corporation the above-mentioned sum of P15,109 with legal interest, and costs. Lumanlan appealed from this decision. Pending appeal, the company (the creditors, some of the directors and the majority of the stockholders )and petitioner entered into a compromise whereby subscribers for the capital stock who were in default should pay the creditors, and Lumanlan was designated to pay the debt of the corporation to one Valenzuela. He agreed to the obligation in exchange that he will dismiss his appeal since he would be Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 72
paying less than his unpaid subscription. Lumanlan withdrew his appeal and paid Valenzuela, thereby was subrogated in the place of the latter. The petitioning creditors having been paid the amounts owed to them by the corporation asked that the receiver be dismissed and the court granted this. Disregarding this agreement and notwithstanding the payment made by Lumanlan to Valenzuela, the corporation still sued him for the balance because the company still has unpaid creditors. Lumanlan used the compromise agreement as his defense.
ISSUE: Whether or not Lumanlan is still liable despite the compromise agreement. RULING: Yes. In the present case, it was found that there are other creditors of Dizon & Co. This being the case that corporation has a right to collect all unpaid stock subscriptions and any other amounts which may be due it, as the agreement cannot prejudice other creditors. It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which the 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. (Philippine Trust Co. vs. Rivera, 44 Phil., 469, 470.) The Corporation Law clearly recognizes that a stock subscription is a subsisting liability from the time the subscription is made, since it requires the subscriber to pay interest quarterly from that date unless he is relieved from such liability by the by-laws of the corporation. The subscriber is as much bound to pay the amount of the share subscribed by him as he would be to pay any other debt, and the right of the company to demand payment is no less incontestable. (Velasco vs. Poizat, 37 Phil., 802, 805.)
46. Fua Cun v. Summers, 44 Phil. 704 FACTS: Chua Soco subscribed to 500 shares of stock in China Banking Corp. at a par value of P100 per share. He paid for half of such subscription, in the amount of P25,000. A receipt for the said payment was issued stating that a new certificate of shares of stock shall be issued in the name of Chua once the balance of the subscription is paid, and surrender of the receipt. Chua thereafter executed a promissory note in favor of Fua Cun for the sum of P25,000, secured by a chattel mortgage on the shares of stock owned by Chua in the Bank. Chua endorsed the receipt to Fua Cun, which the latter brought to the Bank. The manager of the Bank was informed of the transaction between Chua and Fua, but Fua was told to await the action of the Board upon the matter. Thereafter, Chua incurred a P37,731 debt with the Bank due to dishonored acceptances of commercial paper. His interest in the 500 shares of stock was levied upon by the sheriff to satisfy such debt. Fua thus filed an action alleging that by he had a lien on 250 shares of stock due to the chattel mortgage thereon, which he said was owned by Chua Soco. He sought to have the receipt delivered to him and that he be awarded damages.
Whether Chua Soco, by paying of the subscription price of the 500 shares of stock in effect became the owner of 250 shares, and whether Fua has a lien on the said shares superior to that of the bank.
RULING: Chua Soco did NOT, by paying of the subscription price of the 500 shares of stock, in effect became the owner of 250 shares. The attachment on such 500 shares was due to the non-payment of drafts accepted by Chua and had no direct connection with the shares of stock in question. But, as against the rights of Fua, the Bank had no lien unless by virtue of the attachment. But, such attachment was levied AFTER the Bank had received notice of the assignment of Chua Socos interests to Fua. It follows that as against these rights the Bank holds no lien whatever. Thus, Chua Soco acquired the right to 250 shares of stock through the P25,000 payment, upon which Fua holds a lien superior to that of the Bank. The receipt evidencing the P25,000 payment must be surrendered to Fua.
47. Nava v. Peers Marketing Corp., 74 SCRA 65 FACTS: Teofilo Po subscribed to 80 shares of Peers Marketing Corp at P100 per share or a total par value of P800,000. No certificate of stock was issued to him or to any other subscriber/stockholder. 20 of these shares were sold to Nava, the Petitioner. In the deed of sale, Po represented himself as the absolute and registered owner of 20 shares of the Corporation. Nava thus sought from the officers of the corporation to register the sale in the corporate books, but it was denied as Po had not fully paid the amount of his subscription. It was found out that Po was delinquent in the payment of the balance due on the entire subscription, and that the corporation had a claim on the entire subscription, including the 20 shares sold to Nava. Thus, Nava filed a mandamus case against the corporation in the CFI of Negros Occidental to compel the officers (the Cusis) to register the 20 shares in Navas name in the corporations transfer book. The CFI dismissed the petition. Thus, Nava filed an appeal in the SC.
ISSUE: Whether the officers of Peers can be compelled by mandamus to enter in its stock and transfer book the sale made by Po to Nava.
RULING: No. the Court held that the transfer made by Po to Nava is not the alienation, sale or transfer of stock: that is supposed to be recorded in the stock and transfer book as contemplated by the law. As a rule, the shares which may be alienated are those which are covered by certificates of stock. Shares of stock may be transferred by delivery to the transferee of the certificate properly indorsed. The usual practice is for the stockholder to sign the form on the back of the stock certificate. The certificate may thereafter be transferred from one person to another. If the holder of the certificate desires to assume the legal rights of a shareholder to enable him to vote at corporate elections and to receive dividends, he fills up the blanks in the form by inserting his own name as transferee. Then, the certificate is delivered to the secretary of the corporation so that the transfer Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 74
may be entered in the corporate books. The certificate is then surrendered and a new one is issued to the transferee. But, this procedure cannot be followed in this case because the 20 shares are not covered by any certificate of stock in Pos name. And, in addition, the corporation has a claim on such shares due to Pos delinquency. Without the stock certificate, which is the evidence of ownership of corporate stock, the assignment is effective only between the parties to the transaction. The delivery of the stock certificate, which represents the shares to be alienated, is essential for the protection of both the corporation and its stockholders. Under the facts of this case, the corporation has no clear legal duty to register the 20 shares in Navas name. Hence, there is no cause of action for mandamus. As to Navas contention that a certificate of stock may be issued for the shares which have already been paid for although the entire subscription has not yet been fully paid, is not supported by law or jurisprudence.
48. Nielson & Co., Inc. v. Lepanto Consolidated Mining Co., 26 SCRA 540 FACTS: In its Motion for Reconsideration before the SC, Lepanto contended that the court erred in ordering Lepanto to issue and deliver to Nielson shares of stock together with fruits thereof. The court held in the disputed decision that Nielson is entitled to receive 10% of the stock dividends declared by Lepanto, or shares of stocks, worth P300T at the par value of PO.10 per share. The court ordered Lepanto to issue and deliver to Nielson those shares of stocks as well as all the fruits or dividends that accrued to said shares.
ISSUE: Whether the payment of stock dividends to Nielson as compensation for its services under the management contract is in violation of the provisions under the Corporation Code?
RULING: Yes. Under Section 16 of the Corporation Code, stock dividends cannot be issued to a person who is not a stockholder in payment of services rendered. And so, in the case at bar Nielson cannot be paid in shares of stock which form part of the stock dividends of Lepanto for services it rendered under the management contract. The court sustained the contention of Lepanto that the understanding between Lepanto and Nielson was simply to make the cash value of the stock dividends declared as the basis for determining the amount of compensation that should be paid to Nielson, in the proportion of 10% of the cash value of the stock dividends declared. The court modified a part of the disputed decision which declares that Nielson is entitled to shares of stock worth P300,000.00 based on the stock dividends declared on November 28, 1949 and on August 20, 1950, together with all the fruits accruing thereto. Instead, the court finally ruled that Nielson is entitled to payment by Lepanto of P300,000.00 in cash, which is equivalent to 10% of the money value of the stock dividends worth P3,000,000.00 which w ere declared on November 28, 1949 and on August 20, 1950, with interest thereon at the rate of 6% from February 6, 1958.
NOTE: The term "dividend" both in the technical sense and its ordinary acceptation, is that part or portion of the profits of the enterprise which the corporation, by its governing Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 75
agents, sets apart for ratable division among the holders of the capital stock. It means the fund actually set aside, and declared by the directors of the corporation as dividends, and duly ordered by the director.
49. Phil. Trust Co. v. Rivera, 44 Phil. 469 FACTS: Cooperativa Naval Filipina was duly incorporated under the laws of the Philippine Islands, with a capital of P100,000, divided into one thousand shares of a par value of P100 each. Among the incorporators of this company was numbered the defendant Mariano Rivera, who subscribed for 450 shares representing a value of P45,000, the remainder of the stock being taken by other persons. The articles of incorporation were duly registered in the Bureau of Commerce and Industry on October 30 of the same year. In the course of time the company became insolvent and went into the hands of the Philippine Trust Company, as assignee in bankruptcy; and by it this action was instituted to recover one-half of the stock subscription of the defendant, which admittedly has never been paid. not long after the Cooperativa Naval Filipina had been incorporated, a meeting of its stockholders occurred, at which a resolution was adopted to the effect that the capital should be reduced by 50 per centum and the subscribers released from the obligation to pay any unpaid balance of their subscription in excess of 50 per centum of the same. As a result of this resolution it seems to have been supposed that the subscription of the various shareholders had been cancelled to the extent stated; and fully paid certificate were issued to each shareholders for one-half of his subscription.
ISSUE: Whether the defendant La Cooperativa is still liable to pay the unpaid balance.
RULING: Yes. It is established doctrine that subscription to the capital of a corporation constitutes a find 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, without a valuable consideration for such release; and as against creditors a reduction of the capital stock can take place only in the manner an under the conditions prescribed by the statute or the charter or the articles of incorporation. Moreover, strict compliance with the statutory regulations is necessary.
In the case before us the resolution releasing the shareholders from their obligation to pay 50 per centum of their respective subscriptions was an attempted withdrawal of so much capital from the fund upon which the company's creditors were entitled ultimately to rely and, having been effected without compliance with the statutory requirements, was wholly ineffectual.
50. Uson v. Diosomito, 61 Phil. 535 Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 76
FACTS: Defendant Vicente Diosomito was the original owner of the seventy-five shares of stock, having a par value of P7,500, and that on February 3, 1931, he sold said shares to Emeterio Barcelon and delivered to the latter the corresponding certificates. But Barcelon did not present these certificates to the North Electric Corporation for registration until the 16th of September, 1932, when they were cancelled and a new certificate was issued in favor of Barcelon, who transferred the same of the defendant H.P.L. Jollye.
Meanwhile, Toribia Uson had filed a civil action for debt against Vicente Diosomito and that an attachment was duly issued and levied upon the property of the defendant Diosomito, including seventy-five shares of the North Electric Co., Inc., which stood in his name on the books of the company. Subsequently, Toribia Uson obtained judgment against the defendant Diosomito for the sum of P2,300 with interest and costs. To satisfy said judgment, the sheriff sold said shares at public auction. The plaintiff Toribia Uson was the highest bidder and said shares were adjudicated to her. In the present action, H.P.L. Jollye claims to be the owner of said 75 shares of the North Electric Co., Inc., and presents a certificate of stock issued to him by the company.
It will be seen, therefore, that the transfer of said shares by Vicente Diosomito, the judgment debtor to Barcelon was not registered and noted on the books of the corporation until some nine months after the attachment had been levied on said shares.
ISSUE: Whether a bona fide transfer of the shares of a corporation, not registered or noted on the books of the corporation, is valid as against a subsequent lawful attachment of said shares, regardless of whether the attaching creditor had actual notice of said transfer or not.
RULING: No. The transfer is not valid. The true meaning of the language is, and the obvious intention of the legislature in using it was, that all transfers of shares should be entered, as here required, on the books of the corporation. And it is equally clear to us that all transfers of shares not so entered are invalid as to attaching or execution creditors of the assignors, as well as to the corporation and to subsequent purchasers in good faith, and indeed, as to all persons interested, except the parties to such transfers. All transfers not so entered on the books of the corporation are absolutely void; not because they are without notice or fraudulent in law or fact, but because they are made so void by statute.
This court still adheres to the principle that its function is jus dicere non jus dare. To us the language of the legislature is plain to the effect that the right of the owner of the shares of stock of a Philippine corporation to transfer the same by delivery of the certificate is limited and restricted by the express provision that "no transfer, however, shall be valid, except as between the parties, until the transfer is entered and noted upon the books of the corporation." Therefore, the transfer of the 75 shares in the North Electric Company, Inc., made by the defendant Diosomito to the defendant Barcelon was Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 77
not valid as to the plaintiff-appellee, Toribia Uson on the date on which she obtained her attachment lien on said shares of stock which still stood in the name of Diosomito on the books of the corporation.
51. Escao v. Filipinas Mining Corp., 74 SCRA 711 FACTS: On March 8, 1937, the plaintiff-appellee obtained judgment against Silverio Salvosa whereby the latter was ordered to transfer and deliver to the former 116 active shares and an undetermined number of shares in escrow of the Filipinas Mining Corporation and to pay the sum of P500 as damages, with the proviso that the escrow shares shall be transferred and delivered to the plaintiff only after they shall have been released by the company. A writ of garnishment was served by the sheriff of Manila upon the Filipinas Mining Corporation to satisfy the said judgment; and Filipinas Mining Corporation advised the sheriff of Manila that according to its books the judgment debtor Silverio Salvosa was the registered owner of 1,000 active shares and about 21,339 unissued shares held in escrow by the said corporation. The sheriff sold the 1,000 active shares at public auction.
It appears that Silverio Salvosa sold to Jose P. Bengzon all his right, title, and interest in and to 18,580 shares of stock of the Filipinas Mining Corporation held in escrow which the said Salvosa was entitled to receive, and which Bengzon in turn subsequently sold and transferred to Standard Investment of the Philippines. Neither Salvosa's sale to Bengzon nor Bengzon's sale to the Standard Investment of the Philippines was notified to and recorded in the books of the Filipinas Mining Corporation more than three years after the escrow shares in question were attached by garnishment served on the Filipinas Mining Corporation as hereinbefore set forth.
On January 24, 1941, the defendant Filipinas Mining Corporation issued in favor of the defendant Standard Investment of the Philippines certificate of stock for the 18,580 shares formerly held in escrow by Silverio Salvosa and which had been adversely by the present plaintiff- appellee on the one hand and the Standard Investment of the Philippines on the other, the first by virtue of garnishment proceedings and the second by virtue of the sale made to it by Jose P. Bengzon as aforesaid.
ISSUE: Whether or not the issuance by the Filipinas Mining Corporation of the said 18,580 shares of its stock to the Standard Investment of the Philippines was valid as against the attaching judgment creditor of the original owner.
RULING: No. The transfer of duly issued shares of stock is not valid as against third parties and the corporation until it is noted upon the books of the corporation. The reasons for the registration are (1) to enable the corporation to know at all times who its actual stockholders are, because mutual rights and obligations exist between the corporation and its stockholders; (2) to afford to the corporation an opportunity to object Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 78
or refuse its consent to the transfer in case it has any claim against the stock sought to be transferred, or for any other valid reason; and (3) to avoid fictitious or fraudulent transfers.
Moreover, it seems illogical and unreasonable to hold that inactive or unissued shares still held by the corporation in escrow pending receipt of authorization from the Government to issue them, may be negotiated or transferred unrestrictedly and more freely than active or issued shares evidenced by certificates of stock.
We are, therefore, of the opinion and so hold that section 35 of the Corporation Law, which requires the registration of transfers of shares stock upon the books of the corporation as a condition precedent to their validity against the corporation and third parties, is also applicable to unissued shares held by the corporation in escrow.
52. Hager v. Bryan, 19 Phil. 139 FACTS: Petitioner, resident of Manila but temporarily residing in China, commenced a writ of mandamus against the defendant, resident and domiciled in Ceby, to compel him, as the secretary of the Visayan Electric Company (domestic corporation), to transfer upon the books of said company certain shares. Prior to Feb 5, 1910, petitioner was the sole owner of 100 shares of capital stock of the said Visayan Electric. On Feb 5, Petitioner entered into an agreement with Martin Levering wherein the latter would purchase petitioners interest in Visayan Electric. Such interest includes the 100 shares and 25 shares issued to Bryan-London & Co. and which were indorsed to petitioner. Bryan-London of which defendant is a member is trying to control Visayan Electric while Levering and petitioner is trying to prevent it. The shares of Visayan Electric are transferable only on the books of the company. Petitioner has repeatedly demanded respondent, as secretary, to transfer on the books of the company the aforesaid 25 shares to the name of A.R. Hager, petitioner.
ISSUE: Will the courts of the Philippines issue the writ of Mandamus for the purpose of compelling the secretary of a private corporation to transfer stock upon the books of the corporation?
RULING: No. Mandamus, being an extraordinary remedy will not issue when another adequate remedy exists under the ordinary procedure. The writ will not ordinarily issue of the plaintiff has other remedies. If the corporation improperly refuses to transfer the stock is it clearly liable for the damages in an action at law (Tobey vs. Hakes). The applicants have an adequate remedy, by special action on the case, to recover the value of the stock, if the bank have unduly refused to transfer it. There is no need of the extraordinary remedy by mandamus in so ordinary a case. It might as well be required in every case in which an ordinary action would lie (Shipley vs. Mechanics Bank). Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 79
A party entitled to stock in a private corporation has an action for damages against the corporation for the refusal of its officers to transfer the stock to him upon the companys books (Kimball vs. Union Water Company). Section 35, Act No. 1459 (Corporation Law) states that: No share of stock against which the corporation holds any unpaid claim, shall be transferable on the books of the corporation. To permit the writ of mandamus to issue for the purpose of compelling the officers of a corporation to transfer stock upon the books of the corporation, might, under certain circumstances, require such officers to transfer stock against which the corporation holds unpaid claims. These claims might easily arise between the time of the issuance of the writ and the service of the same upon such officers. It the court should issue the writ, it might require an officer to transfer stock under conditions where the law expressly prohibited such transfer. The writ of mandamus will never issue to compel a person to violate an express provision of the law. The act required to be performed must be one which the law specially enjoin as a duty resulting from an office, trust, or station or unlawfully excludes the plaintiff from the use and enjoyment of a right or office to which he is entitled and from which he is unlawfully precluded (Sec. 222, Act 190). No law especially requires the performance of the act of transferring the stock while there is a law expressly prohibiting its transfer, except under certain conditions (Sec 35, Act 1459).
53. Rivera v. Florendo, 144 SCRA 647 FACTS: Petitioner corporation, Fujiyama Hotel & Restaurant, Inc. was organized and registered under Philippine laws with a capital stock of P1M divided into 10,00 shares of P100.00 par value by petitioner Rivera and 4 other incorporators. Thereafter, Rivera increased his subscription from the original 1,250 to a total of 4899 shares. Subsequently, Isamu Akasako, a Japanese national and co-petitioner who is allegedly the real owner of the shares of stock in the name of petitioner Aquilino Rivera, sold 2550 shares of the same to private respondent Milagros Tsuchiya for a consideration of P440,000.00 with the assurance that Milagros Tsuchiya will be made the President and Lourdes Jureidini a director after the purchase. Aquilino Rivera who was in Japan also assured private respondents by overseas call that he will sign the stock certificates because Isamu Akasako is the real owner. However, after the sale was consummated and the consideration was paid with a receipt of payment therefor shown, Aquilino Rivera refused to make the indorsement unless he is also paid. It also appears that the other incorporators sold their shares to both respondent Jureidini and Tsuchiya such that both respondents became the owners of a total of 3300 shares or the majority out of 5,649 outstanding subscribed shares of the corporation, and there was no dispute as to the legality of the transfer of the stock certificates all of which bear the signatures of the president and the secretary as required by the Corporation Law with the proper indorsements of the respective owners appearing thereon. Private respondents attempted several times to register their stock certificates with the corporation but the latter refused to register the same. Thus, private respondents filed Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 80
a special civil action for mandamus and damages with preliminary mandatory injunction and/or receivership naming herein petitioners as respondents. Respondent judge issued a writ of preliminary mandatory injunction authorizing respondent Jureidini and Tsuchiya to manage the corporations hotel and restaurant, upon the filing of a P30,000 bond which was later increased to P120,000. Hence, this petition.
ISSUE: (1) Whether it is the regular court or the SEC that has jurisdiction over the present controversy. (2) Whether or not mandamus will lie.
RULING: (1) The regular court, not the SEC, has jurisdiction over the present controversy. Presidential Decree No. 902-A provides: Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving (a) ... (b) Controversies arising out of intra-corporate or partnership relations and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members, or associates, respectively and between such corporations, partnership or association and the State insofar as it concerns their individual franchise or right to exist as such entity. An intra-corporate controversy has been defined as one which arises between a stockholder and the corporation. There is no distinction, qualification, nor any exemption whatsoever. As the bone of contention in this case, is the refusal of petitioner Rivera to indorse the shares of stock in question and the refusal of the Corporation to register private respondents shares in its books, there is merit in the findings of the lower court that the present controversy is not an intracorporate controversy since private respondents are not yet stockholders. They are only seeking to be registered as stockholders because of an alleged sale of shares of stock to them. Therefore, as the petition is filed by outsiders not yet members of the corporation, jurisdiction properly belongs to the regular courts. (2) No. Mandamus will not lie where the shares of stock in question are not even indorsed by the registered owner Rivera who is specifically resisting the registration thereof in the books of the corporation. Under the above ruling, even the shares of stock which were purchased by private respondents from the other incorporators cannot also be the subject of mandamus on the strength of mere indorsement of the supposed owners of said shares in the absence of express instructions from them. The rights of the parties will have to be threshed out in an ordinary action. A mandatory injunction is granted only on a showing (a) that the invasion of the right is material and substantial; (b) the right of complainant is clear and unmistakable; and (c) there is an urgent and permanent necessity for Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 81
the writ to prevent serious damage. (Pelejo v. Court of Appeals, 117 SCRA 668, Oct. 18, 1982).
54. J. Santamaria v. Hongkong Shanghai Banking Corp., 89 Phil. 780 FACTS: Mrs. Josefa T. Santamaria bought 10,000 shares of the Batangas Minerals, Inc., through the offices of Woo, Uy-Tioco & Naftaly, a stock brokerage firm and pay therefore the sum of P8,041.20. The buyer received Stock Certificate No. 517 issued in the name of Woo, Uy-Tioco & Naftaly and indorsed in bank by this firm. On March 9, 1937, Mrs. Santamaria placed an order for the purchase of 10,000 shares of the Crown Mines, Inc. with R.J. Campos & Co., a brokerage firm, and delivered Certificate No. 517 to the latter as security therefor with the understanding that said certificate would be returned to her upon payment of the 10,000 Crown Mines, Inc. shares. According to certificate Exh. E, R. J. Campos & Co., Inc. bought for Mrs. Josefa Santamaria 10,000 shares of the Crown Mines, Inc. at .225 a share, or the total amount of P2,250. At the time of the delivery of a stock Certificate No. 517 to R.J. Campos & Co., Inc. this certificate was in the same condition as that when Mrs. Santamaria received from Woo, Uy-Tioco & Naftaly, with the sole difference that her name was later written in lead pencil on the upper right hand corner thereof. Two days later, on March 11, Mrs. Santamaria went to R.J. Campos & Co., Inc. to pay for her order of 10,000 Crown Mines shares and to get back Certificate No. 517. Cosculluela then informed her that R.J. Campos & Co., Inc. was no longer allowed to transact business due to a prohibition order from Securities and Exchange Commission. She was also informed that her Stock certificate was in the possession of the Hongkong and Shanghai Banking Corporation. Certificate No. 517 came into possession of the Hongkong and Shanghai Banking Corporation because R.J. Campos & Co., Inc. had opened an overdraft account with this bank and to this effect it had executed on April 16, 1936 a document of hypothecation, by the term of which R.J. Campos & Co., Inc. pledged to the said bank "all stocks, shares and securities which I/we may hereafter come into their possession of my/our account and whether originally deposited for safe custody only or for any other purpose whatever or which may hereinafter be deposited by me/us in lieu of or in addition to the Stocks Shares and Securities now deposited or for any other purposes whatsoever." On March 11, 1937, as shown by Exhibit G. Certificate No. 517, already indorsed by R.J. Campos Co. Inc. to the Hongkong & Shanghai Banking Corporation, was sent by the latter to the office of the Batangas Minerals, Inc. with the request that the same be cancelled and a new certificate be issued in the name of R.W. Taplin as trustee and nominee of the banking corporation. Robert W. Taplin was an officer of this institution in charge of the securities belonging to or claimed by the bank. As per this request the Batangas Minerals, Inc. on March 12, 1937, issued Certificate No. 715 in lieu of Certificate No. 517, in the name of Robert W. Taplin as trustee and nominee of the Hongkong & Shanghai Banking Corporation. In Civil Case No. 51224, R.J. Campos & Co., Inc. was declared insolvent, and the Hongkong & Shanghai Banking Corporation asked permission in the insolvency court to sell the R.J. Campos & Co., Inc., securities listed in its motion by virtue of the document Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 82
of hypothecation. In an order dated July 15, 1937, the insolvency court granted this motion. On June 3, 1938, to 10,000 shares of Batangas Minerals, Inc. represented by Certificate No. 715, were sold to the same bank by the Sheriff for P300 at the foreclosure sale authorized by said order.
ISSUE: (1) Whether or not plaintiff-appellee was negligent. RULING: (1) Yes. Plaintiff failed to take the necessary precautions upon delivering the certificate of stock to her broker and plaintiff therefore was chargeable with negligence in the transaction which resulted to her own prejudice, and as such, she is estopped from asserting title to it as against the defendant Bank. Certificate of stock No. 517 was made out in the name of Wo, Uy-Tioco & Naftaly, brokers, and was duly indorsed in bank by said brokers. This certificate of stock was delivered by plaintiff to R.J. Campos & Co., Inc. to comply with a requirement that she deposit something on account if she wanted to buy 10,000 shares of Crown Mines Inc. In making said deposit, plaintiff did not take any precaution to protect herself against the possible misuse of the shares represented by the certificate of stock. Plaintiff could have asked the corporation that had issued said certificate to cancel it and issue another in lieu thereof in her name to apprise the holder that she was the owner of said certificate. This she failed to do, and instead she delivered said certificate, as it was, to R.J. Campos & Co., Inc., thereby clothing the latter with apparent title to the shares represented by said certificate including apparent authority to negotiate it by delivering it to said company while it was indorsed in blank by the person or firm appearing on its face as the owner thereof. The defendant Bank had no knowledge of the circumstances under which the certificate of stock was delivered to R.J. Campos & Co., Inc., and had a perfect right to assume that R.J. Campos & Co., Inc. was lawfully in possession of the certificate in view of the fact that it was a street certificate, and was in such form as would entitle any possessor thereof to a transfer of the stock on the books of the corporation concerned. There is no question that, in this case, plaintiff made the negotiation of the certificate of stock to other parties possible and the confidence she placed in R.J. Campos & Co., Inc. made the wrong done possible. This was the proximate cause of the damage suffered by her. She is, therefore, estopped from claiming further title to or interest therein as against a bona fide pledge or transferee thereof, for it is a well-known rule that a bona fide pledgee or transferee of a stock from the apparent owner is not chargeable with knowledge of the limitations placed on Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 83
it by the real owner, or of any secret agreement relating to the use which might be made of the stock by the holder. The said certificate was delivered to the Bank in the ordinary course of business, together with many other securities, and at the time it was delivered, the Bank had no Knowledge that the shares represented by the certificate belonged to the plaintiff for, as already said, it was in the form of street certificate which was transferable by mere delivery. The rule is "where one of two innocent parties must suffer by reason of a wrongful or unauthorized act, the loss must fall on the one who first trusted the wrong doer and put in his hands the means of inflicting such loss". The Court has noticed that the defendant Bank was willing from the very beginning to compromise this case by delivering to the plaintiff certificate of stock No. 715 that was issued to said Bank by the issuer corporation in lieu of the original as alleged and prayed for in its amended answer to the complaint dated April 2, 1941. Considering that in the light of the law and precedents applicable in this case, the most that plaintiff could claim is the return to her of the said certificate of stock (Howson vs. Mechanics Sav. Bank, 183 Atl., p. 697), the Court, regardless of the conclusions arrived at as above stated, is inclined to grant the formal tender made by the defendant to the plaintiff of said certificate. Therefore, the court ordered defendant bank to deliver to the plaintiff certificate of stock no. 715.
55. A. de los Santos v. McGrath, 96 Phil. 577 FACTS: This action involves the title to 1,600,000 shares of stock of the Lepanto Consolidated Mining Co (Lepanto), a corporation duly organized and existing under the laws of the Philippines. Originally, one-half of said shares of stock were claimed by plaintiff, Apolinario de los Santos, and the other half, by his co-plaintiff Isabelo Astraquillo. During the pendency of this case, Apolinario has allegedly conveyed and assigned his interest in and to said half claimed by him to Isabelo. The shares of stock in question are covered by several stock certificates issued in favor of Vicente Madrigal, who is registered in the books of the Lepanto as owner of said stock certificates issued in favor of Vicente Madrigal, who is registered in the books of the Lepanto as owner of said stocks and whose endorsement in blank appears on the back of said certificates, all of which, except certificate No. 2279 marked Exhibit 2 covering 55,000 shares, are in plaintiffs possession. So was said Exhibit 2, up to sometime in 1945 or 1946 when said possession was lost under the conditions set forth in subsequent pages.
ISSUE: Whether the transfer effected by Juan Campos and Carl Hess in their favor is valid
RULING: No, the transfer is not valid. Section 35 of the Corporation Law reads: The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or the vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation, shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificates or certificates endorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate, and the number of shares transferred. No shares of stock against which the corporation holds any unpaid claim shall be transferable on the books of the corporation. Pursuant to this provision, a share of stock may be transferred by endorsement of the corresponding stock certificate, coupled with its delivery. However, the transfer shall not be valid, except as between the parties, until it is recorded in the books of the corporation. No such entry in the name of the plaintiffs herein having been made, it follows that the transfer allegedly effected by Campos and Hess in their favor is not valid, except as between themselves. It does not bind either Madrigal or the Mitsuis who are not parties to said alleged transaction. It is absolutely void and hence, as good as non-existent insofar as Madrigal and the Mitsuis are concerned. Certificates of stock are not negotiable instruments; consequently, a transferee under a forged assignment acquires no title which can be asserted against the true owner, unless his own negligence has been such as to create an estoppel against him. If the owner of the certificate has endorsed it in blank, and it is stolen from him, no title is acquired by an innocent purchaser for value. Neither the absence of blame on the part of the officers of the company in allowing an unauthorized transfer of stock, nor the good faith of the purchaser of stolen property, will avail as an answer to the demand of the true owner. The great principle that no one can be deprived of his property without his assent, except by processes of the law which requires that the property wrongfully transferred or stolen should be restored to its rightful owner. The doctrine that a bona fide purchaser of shares under a forged or unauthorized transfer acquires no title as against the true owner does not apply where the circumstances are such as to estop the latter from asserting his title. It is a case for the application of the maxim that where one of two innocent parties must suffer by reason of a wrongful or unauthorized act, the loss must fall on the one who first trusted the wrongdoer and put in his hands the means of inflicting such loss. Negligence which will work an estoppel of this kind must be: 1. proximate cause of the purchase or advancement of money by the holder of the property, and must enter into the transaction itself; 2. the negligence must be in or immediately connected with the transfer itself. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 85
3. it must appear that the true owner had conferred upon the person who has diverted the security the indicia of ownership, or an apparent title or authority to transfer the title. So the owner is not guilty of negligence in merely entrusting another with the possession of his certificate of stock, if he does not, by assignment or otherwise, clothe him with the apparent title. Nor is he deprived of his title or his remedy against the corporation because he entrusts a third person with the key of a box in which the certificate are kept, where the latter takes them from the box and by forging the owners name to a power of attorney procures their transfer on the corporate books. Nor is the mere endorsement of an assignment and power of attorney in blank on a certificate of stock, which is afterwards lost or stolen, such negligence as will estop the owner from asserting his title as against a bona fide purchaser from the finder or thief, or from holding the corporation liable for allowing a transfer on its books, where the loss or theft of the certificate was not due to any negligence on the part of the owner, although there is some dangerous and wholly unjustifiable dictum to the contrary. So it has been held that the fact that stock pledged to a bank is endorsed in blank by the owner does not estop him from asserting title thereto as against a bona fide purchaser for value who derives his title from one who stole the certificate from the pledge. And this has also been held to be true though the thief was an officer of the pledgee, since his act in wrongfully appropriating the certificate cannot be regarded as a misappropriation by the bank to whose custody the certificate was entrusted by the owner, even though the bank may be liable to the pledger A person is not guilty of negligence in leaving a certificate of stock endorsed in blank in a safe deposit box used by him and another jointly, so as to estop him from asserting his title after the certificate has been stolen by the other, and sold or pledged to a bona fide purchaser or pledgee. Nor is he negligent in putting a certificate so endorsed in a place to which an employee had access, where he has no reason to doubt the latters honesty. In the case at bar, neither Madrigal nor the Mitsuis had alienated shares of stock in question. It is not even claimed that either had, through negligence, given occasion for an improper or irregular disposition of the corresponding stock certificates.
56. Chua Guan v. Samahang Magsasaka, Inc., 62 Phil. 473 FACTS: Gonzalo Co Toco was the owner of 5,894 shares of the capital stock of Samahang Magsasaka Corporation with principal office in Cabanatuan, Nueva Ecija, represented by nine certificates having a par value of P5 per share; that on said date, Co Toco, mortgaged said 5,894 shares to Chua Chiu to guarantee the payment of a debt of 20,000. The said certificates of stock were delivered with the mortgage to the mortgagee, Chua Chiu. The said mortgage was duly registered in the register of deeds, and in the office of said corporation. Chua Chiu subsequently assigned all his right and interest in the said mortgage to the plaintiff (Chua Guan) and the assignment was registered in the register of deeds, and in the office of the said corporation. Since Co Toco was already in default, Chua Chiu foreclosed said mortgage and delivered the certificates of stock and copies of the Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 86
mortgage and assignment to the sheriff in order to sell the said shares at public auction. Chua Guan as the highest bidder acquired said shares. Chua Guan tendered the certificates of stock standing in the name of Co Toco to the proper officers of the corporation for cancellation and demanded that they issue new certificates in the name of the plaintiff. The said officers refused and still refuse to issue said new shares in the name of the plaintiff.
ISSUE: Whether or not the registration of a chattel mortgage of shares of stock of a corporation should be registered in the province in which the corporation has its principal office or place of business
RULING: The situs of shares of stock is at the domicile of the owner. The situs of shares of stock may be at the domicile of the owner and for others at the domicile of the corporation; and even elsewhere. It is a general rule that for purposes of execution, attachment and garnishment, it is not the domicile of the owner of a certificate but the domicile of the corporation which is decisive. The ownership of shares in a corporation as properly distinct from the certificates which are merely the evidence of such ownership, it seems to us a reasonable construction of section 4 of Act No. 1508 to hold that the property in the shares may be deemed to be situated in the province in which the corporation has its principal office or place of business. If this province is also the province of the owners domicile, a single registration is sufficient. If not, the chattel mortgage should be registered both at the owners domicile and in the province where the corporation has its principal office or place of business. In this sense the property mortgage is not the certificate but the participation and share of the owner in the assets of the corporation. The registration of the said chattel mortgage in the office of the corporation was not necessary and had no legal effect.
57. Financing Corporation of the Phils, v. Teodoro, 93 Phil. 404 FACTS: Lizares, etc., in their own behalf and in behalf of the other minority stockholders of the Financing Corporation of the Phils, filed a complaint against the said corporation and J. Amado Araneta, its president and general manager, claiming among other things alleged gross mismanagement and fraudulent conduct of the corporate affairs of the defendant corporation and asking that the corporation be dissolved; that J. Amado Araneta be declared personally accountable for the amounts of the unauthorized and fraudulent disbursements and disposition of assets made by him, and that he be required to account for said assets, and that pending trial and disposition of the case on its merits a receiver be appointed to take possession of the books, records and assets of the defendant corporation preparatory to its dissolution and liquidation and distribution of the assets. The trial court granted the petition for the appointment of a receiver and designated Mr. Alfredo Yulo as such receiver with a bond of P50,000.
ISSUE: Whether the minority stockholders can maintain an action for dissolution Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 87
RULING: It depends. As a general rule, minority stockholders of a corporation cannot sue and demand its dissolution. However, there are cases that hold that even minority stockholders may ask for dissolution under the theory that such minority members if unable to obtain redress and protection of their rights within the corporation must not and should not be left without redress and remedy. Dissolution should be brought by the Government through its legal officer in a quo warranto case, however, they might be exceptional cases wherein the intervention of the State, for one reason or another, cannot be obtained, as when the State is not interested because the complaint is strictly a matter between the stockholders and does not involve in any of the acts or omissions warranting quo warranto proceedings, in which minority stockholders are entitled to have such dissolution. When such action or private suit is brought by them, the trial court had jurisdiction and may or may not grant the prayer, depending upon the facts and circumstances attending it. The trial court's decision is of course subject to review by the appellate tribunal. Having such jurisdiction, the appointment of a receiver pendente lite is left to the sound discretion of the trial court.
58. Government v. Phil. Sugar Estate Co., 38 Phil. 15 FACTS: Defendant Philippine Sugar Estates, a corporation duly organized under the laws of the Philippine Islands had engaged in the business of buying and selling real estate. On May 31, 1913 defendant entered into a contract with the Tayabas Land Company for the purpose of engaging in the business of purchasing lands along the right of way of the Manila Railroad Company through the Province of Tayabas with a view to reselling the same to the Manila Railroad Company at a profit. The defendant admitted having entered into the contract with The Tayabas Land Company and alleged that the latter as an ordinary partnership and not a corporation. The contract was entered into between the defendant and The Tayabas Land Company by virtue of which the defendant delivered to the said The Tayabas Land Company P304,459.42 which the plaintiff contended amounted to a contribution by the defendant to the capital of The Tayabas Land Company but which the defendant contended amounted to a loan to said concern. The money received was devoted to the purchase of the real estate in the Province of Tayabas along the proposed right of way of the Manila Railroad Company in that province and that the purpose of these purchases was for resale to the Manila Railroad Company or any other person offering an acceptable price. The court rendered judgment ordering the defendant to abstain in the future from engaging in the business of buying and selling lands and to pay the costs of the action.
ISSUE: Whether or not the defendant engaged in the business of buying and selling land or was this transaction merely a loan to a partnership.
It is difficult to understand how this contract can be considered a loan. There was no date fixed for the return of the money and there was no fixed return to be made for the use of the money. The return was dependent solely upon the profits of the business. It is possible for the defendant to receive a return from the business even after all of the "capital" has been returned. The "capital" was to be returned as soon as the land was sold and apparently, from clause "decima," there were to be no profits until this "capital" was returned. The defendant was not to receive anything for the use of said sum until after the capital had been fully repaid, which is not consistent with the idea of a loan.
While it is true that the courts are given a wide discretion in ordering the dissolution of corporations for violations of its franchises, etc., yet nevertheless, when such abuses and violations constitute or threaten a substantial injury to the public or such as to amount to a violation of the fundamental conditions of the contract (charter) by which the franchises were granted and thus defeat the purpose of the grant, then the power of the courts should be exercised for the protection of the people.
59. Republic of the Phils. v. Security Credit & Acceptance Corp., G.R. No. 20583, Jan. 23, 1967 FACTS:
Defendant corporation had established 74 branches in principal cities and towns throughout the Philippines and managed to induce the public to open 59,463 savings deposit accounts that, in consequence of the foregoing deposits with the corporation, its original capital stock was increased, in less than one year. On May 18, 1962, the Municipal Court of Manila issued search warrant and that pursuant thereto, members of the intelligence division of the Central Bank and of the Manila Police Department searched the premises of the corporation and seized documents and records thereof relative to its business operations. Acting Deputy Governor issued a memorandum finding that the corporation performing banking functions, without requisite certificate of authority from the Monetary Board of the Central Bank. Upon said memorandum of the Superintendent of Banks, the Monetary Board also promulgated a resolution declaring that the corporation is performing banking operations, without having first complied with the provisions of Sections 2 and 6 of Republic Act No. 337. Accordingly, on December 6, 1962, the Solicitor General commenced this quo warranto proceedings for the dissolution of the corporation.
ISSUE: Whether or not Defendant Corporation is engaged in banking corporations
RULING: Yes. Although, admittedly, defendant corporation has not secured the requisite authority to engage in banking,defendants deny that its transactions partake of the nature of banking operations. It is conceded, however, that, in consequence of a propaganda campaign therefor, a total of 59,463 savings account deposits have been made by the public with the corporation and its 74 branches, with an aggregate deposit of P1,689,136.74, which has been lent out to such persons as the corporation deemed suitable therefor. It is clear that these transactions partake of the nature of banking. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 89
Moreover, it has been held that an investment company which loans out the money of its customers, collects the interest and charges a commission to both lender and borrower, is a bank. Any person engaged in the business carried on by banks of deposit, of discount, or of circulation is doing a banking business, although but one of these functions is exercised. Accordingly, defendant corporation has violated the law by engaging in banking without securing the administrative authority required in Republic Act No. 337.
60. Republic of the Phils. v. Bisaya Land Transportation Co., Inc., 81 SCRA 9 FACTS: The Bisaya Land Transportation Company is a corporation organized under the Corporation Law for the principal purpose of engaging in the business of land and water transportation, having its domicile and principal place of business in Cebu City. On March 21, 1959, the Republic of the Philippines, through the Solicitor General Edilberto Barot, filed a petition for quo warranto in the CFI of Manila for the dissolution of the Bisaya Land Transportation Company. The petition alleges that respondent corporation had violated and continues to violate the Corporation Law and other statutes of the Philippines by having committed acts amounting to a forfeiture of the present corporation's franchise, rights and private The acts allegedly committed by the corporation are embodied in nine causes of action which among others include the act of respondent corporation of falsely reconstituted its articles of incorporation in by adding new cattle ranch, agriculture, and general merchandise. Under date of April 17, 1959, respondents (except Miguel Cuenco) filed a motion to dismiss the petition for quo warranto on the grounds of lack of cause of action, prescription, and the failure of the Solicitor General to the court's permission as required in section 4 of Rule 66 of the Rules of Court. On October 20, 1966, the Solicitor General filed a motion for dismissal of the quo warranto proceedings, to which motion respondent Miguel Cuenco riled his opposition on. The court a quo issued a resolution granting petitioner's motion for the dismissal of the action for quo warranto, and dismissing respondent Miguel Cuenco's cross-claim.
ISSUE: Whether or not the Solicitor General is vested with absolute and unlimited power to discontinue the State's litigation and, accordingly, to have the quo warranto petition dismissed
RULING: As a rule, the attorney-general has power, both under the common law and by statute, to make any disposition of the state's litigation that the deems for its best interest; for instance, he may abandon, discontinue, dismiss, or compromise it. But he cannot enter into any agreement with respect to the conduct of litigation which will bind his successor in office, nor can he empower any other person to do so. The attorney-general may dismiss any suit or proceeding, prosecuted solely in the public interest, regardless of the relator's wishes. Where the attorney-general is empowered, either generally or specifically, to conduct a criminal prosecution, he may do any act which the prosecuting attorney might do in the premises; that is, he can do each and every thing essential to prosecute in accordance with the law of the land, and this includes appearing in Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 90
proceedings before the grand jury. Applying the above reasoning to our present case, the Court concludes that the attorney general by his motion to intervene and supersede the county attorney exercised his powers and duties under the constitution and appropriate statutes; this was as far as he could go as an executive officer and as an attorney and officer of this court. Since he is an officer of the judicial branch, under the separation of powers of the three branches of government, he was limited and restricted in his conduct before this court by the code of professional ethics to the same extent any other lawyer would be. If, therefore, the attorney-general considered the action unmeritorious, he not only had the authority but he also had a duty to move for dismissal.
61. Buenaflor v. Camarines Sur industry Corporation, G.R. Nos. 14991-14994, May 30, 1960 FACTS: Jaime Buenaflor has appealed the decision of the Public Service Commission which rejected his application to install and operate a 5-ton ice plant in Sabang, Camarines Sur even as it permitted Camarines Sur Industry Corporation to build in that barrio, a factory with the same output. Camarines Corporation also submitted two applications: one for authority to construct and manage a 5-ton ice plant, and another for a cold storage and refrigeration system, both in Sabang too. It likewise opposed to Buenaflors proposed ice business on the ground that it was the pioneer distributor of the commodity in that particular locality. Buenaflor presented a motion to dismiss the Camarines Corporation, challenging its personality, inasmuch as its corporate life had expired in November 1953, in accordance with its own articles of incorporation. Immediately thereafter, the corporators of Camarines Corporation executed and registered a new article of incorporation, and at the same time notarized a deed of conveyance assigning to the new corporation all the assets of the expired (old) corporation. The Public Service Commission approved the conveyance. The Camarines Corporation answered the motion to dismiss by alleging its recent incorporation plus its acquisition of the assets and certificates of the old Camarines Corporation with the Commissions approval as above described. (clever kaayo! Haha)
ISSUE: Whether the new Camarines Corporation can be regarded as a continuation of the old
RULING: No. Since 1953, the old Corporation had been illegally plying its business of selling ice in Sabang because under the Corporation Code, section 122, after November 1953, it could not lawfully continue the business for which it had been established. After November 1953, it could only continue to exist for three years for the purpose of prosecuting and defecting suits by or against it, and of enabling it gradually to settle and close its affairs, to dispose and convey its property and to divide its capital stock. It could not, without violating the law, continue to sell ice. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 91
When the old Camarines Corporation docketed its application, it had no juridical personality, it had ceased to exist as a corporation and could not sue nor apply for certificate, for it was incapable of receiving a grant. It was not even a corporation de facto. At most, it is the transferee of the properties of the old corporation (or more properly, the assets of the stockholders). On these grounds, we think it was error to grant preferential treatment to the new Camarines Corporation over Buenaflor who, besides being qualified, had applied for the privilege months in advance of the old Camarines Corporation, and of the incorporation of the new Camarines Corporation.
62. National Abaca & Other Fivers Corp. v. Pore, 2 SCRA 989 FACTS: National Abaca, already dissolved, commenced suit within the three-year extended period for liquidation. That suit was for recovery of money advanced to defendant for the purchase of hemp in behalf of the corporation. She failed to account for that money. Pore moved to dismiss, questioned the corporations capacity to sue, it having been abolished by EO 372. The lower court ordered plaintiff to include as co- party plaintiff, The Board of Liquidators, to which the corporations liquidation was entrusted by EO 372. Plaintiff failed to effect inclusion. The lower court dismissed the suit. Plaintiff moved to reconsider. Ground: excusable negligence, in that its counsel prepared the amended complaint, as directed, and instructed the boards incoming and outgoing correspondence clerk, Mrs. De Ocampo, to mail the original thereof to the court and a copy of the same to defendants counsel. She mailed a copy to the latter but failed to send the original to the court. This motion was rejected below. Plaintiff came to this Court on appeal. National Abaca objected upon the ground that pursuant to said executive order, it shall nevertheless be continued as a body corporate for a period of three (3) years from the effective date of said executive order which was November 30, 1950 for the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators, and that this case was begun on November 14, 1953, or before the expiration of the period aforementioned.
ISSUE: Whether an action, commenced within three (3) years after the abolition of plaintiff, as a corporation, may be continued by the same after the expiration of said period
RULING: No, it cannot be continued after the expiration of the period. It is a well-settled rule, in the absence of statutory provision to the contrary, pending actions by or against a corporation are abated upon expiration of the period allowed by law for the liquidation of its affairs. Where a statute continues the existence of a corporation for a certain period after its dissolution for the purpose of prosecuting and defending suits, the corporation becomes defunct upon the expiration of such period, at least in the absence of a provision to the Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 92
contrary, so that no action can afterwards be brought by or against it, and must be dismissed. Actions pending by or against the corporation when the period allowed by the statute expires ordinarily abate. Our Corporation Law contains no provision authorizing a corporation, after three (3) years from the expiration of its lifetime to continue in its corporate name. In fact, section 122 of the Corporation Code provides that the corporation shall be continued as a body corporate for three years after the time when it would have been dissolved for the purpose of prosecuting and defending suits by or against it, so that, thereafter, it shall no longer enjoy corporate existence for such purpose. It further authorizes the corporation at any time during said three years to convey all of its property to trustees for the benefit of members, stockholders, creditors and other interested parties, evidently for the purpose of enabling said trustees to prosecute and defend suits by or against the corporation begun before the expiration of said period (section 122, Corporation Code). It is to be noted that the time during which the corporation, through its own officers, may conduct the liquidation of its assets and sue and be sued as a corporation is limited to three years from the time the period of dissolution commences; but that there is no time limited within the trustees must complete a liquidation placed in their hands. It is provided only that the conveyance to the trustees must be made within the three-year period. It may be found impossible to complete the work of liquidation within the three- year period or to reduce disputed claims to judgment. The authorities are to the effect that suits by or against a corporation abate when it ceased to be an entity capable of suing or being sued; but trustees to whom the corporate assets have been conveyed pursuant to the authority of section 122 may be sued as such in all matters connected with the liquidation. By the terms of the statute the effect of the conveyance is to make the trustees the legal owners of the property conveyed, subject to the beneficial interest therein of creditors and stockholders.
63. Board of Liquidators v. Kalaw, 20 SCRA 987 FACTS: National Coconut Corporation (NACOCO) was chartered as a non-profit governmental organization by Commonwealth Act 518. NACOCOs charter was amended to grant that corporation the express power to buy, sell, barter, export, and in any other manner deal in coconut, copra, and desiccated coconut, as well as their by- products, and to act as agent broker or commission merchant of the producers, dealers or merchants. General Manager and board chairman was Maximo Kalaw; defendants Juan Bocar and Casimiro Garcia were members of the Board; defendant Leonor Moll became director only on December 1947. NACOCO embarked on copra trading activities. Unfortunately, NACOCO failed to fulfil the contracts due to fortuitous event. Four devastating typhoons visited the Philippines. When it became clear that the contracts would be unprofitable, Kalaw submitted them to the board for approval. Defendant Moll took her oath after the membership was completed. A meeting was then held, and Kalaw made a full disclosure of the situation, apprised the board of the impending heavy losses. No action was taken on the contracts. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 93
Neither did the board vote thereon at the meeting. Then, on January 11, 1948, President Roxas made a statement that the NACOCO head did his best to avert the losses, emphasized that government concerns faced the same risks that confronted private companies, that NACOCO was recouping its losses, and that Kalaw was to remain in his post. Not long thereafter, the board met again with Kalaw, Garcia, and Moll in attendance. They unanimously approved the contracts. NACOCO partially performed the contracts. Louis Dreyfus & Go (overseas) sued NACOCO. However, there was an out-of- court amicable settlement between the two when the Kalaw management was already out. NACOCO put up the defenses that: 1) contracts were void because Dreyfus did not have license to do business here, and 2) failure to deliver was due to force majeure. NACOCO seeks to recover the sum of P1, 343, 274. 52 from general manager and board chairman Kalaw, directors Bocar, Garcia, and Moll. The defendants posed the defense that suit was commenced in February 1949; that by EO 372, 1950, NACOCO was abolished and the Board of Liquidators was entrusted with the function of settling and closing its affairs; and that since the three-year period has elapsed, the Board of Liquidators may not now continue with, and prosecute, the present case (section 122, Corporation Code).
FIRST ISSUE: Whether the Board of Liquidators has lost its legal personality to continue with this suit.
RULING: Yes, the Board of Liquidators can continue with the suit. The proviso in Section 1 of EO 372, whereby the corporate existence of NACOCO was continued for a period of three years from the effectivity of the order for the purpose of prosecuting and defending the suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs, to dispose of and convey its property, is to be read not as an isolated provision but in conjunction with the whole. So reading it will be readily observed that no time limit has been tacked to the existence of the Board of Liquidators and its function of closing the affairs of the various government owned corporations, including NACOCO. By section 2 of the EO, while the boards of directors of the various corporations were abolished, their powers and functions and duties under existing laws were to be assumed and exercised by the Board of Liquidators. Nowhere in the EO was there any mention of the lifespan of the Board of Liquidators. The Board of Liquidators still exists as an office with officials and numerous employees continuing the job of liquidation and prosecution of several court actions. Further, by EO 372, the government, the sole stockholder, abolished NACOCO, and placed its assets in the hands of the Board of Liquidators. The Board of Liquidators thus became the trustee on behalf of the government. It was an express trust. The legal interest became vested in the trustee the Board of Liquidators. The beneficial interest remained with the sole stockholder the government. At no time had the government withdrawn the property, or the authority to continue the present suit, from the Board of Liquidators. If for this reason alone, we cannot stay the hand of the Board of Liquidators from prosecuting this case to its final conclusion. The provisions of section 122 of the Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 94
Corportion Code the third method of winding up corporate affairs find application. The Board of Liquidators has personality to proceed as party-plaintiff in this case. Three (3) methods by which a corporation may wind up its affairs: 1) section 119 of the Corporation Code: upon voluntary dissolution of a corporation, the court may direct such disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation 2) section 122, Corporation Code whereby a corporation whose corporate existence is terminated, shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was established 3) section 122, Corporation Code by virtue of which the corporation, within the three- year period is authorized and empowered to convey all of its property to trustees for the benefit of members, stockholders, creditors, and others interested.
SECOND ISSUE: Whether the case at bar is to be taken out of the general concept of the powers of a general manager, given the cited provision of the NACOCO by-laws requiring prior directorate approval of NACOCO contracts (in this instance, no prior directorate approval).
RULING: No. Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice, custom, and policy, the general manager may bind the company without formal authorization of the board of directors. Existence of such authority is established by proof of the course of business, the usage and practices of the company and by the knowledge which the board of directors has, or must be presumed to have, of acts and doings of its subordinates in and about the affairs of the corporation. Authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power was in fact exercised. Thus, when in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage its affairs, his authority to represent the corporation may be implied from the manner in which he has been permitted by the directors to manage its business. In this case, the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading activities for and in NACOCOs behalf without prior board approval. If the by-laws were to be literally followed, the board should give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and through acquiescence, practically laid aside the by-law requirement of prior approval. Thus, the Kalaw contracts are valid corporate acts.
64. China Banking Corp., v. Michelin & Cie., 58 Phil. 261 FACTS: Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 95
George OFarrel & Cie Inc. is a domestic corporation acting as agent and representative of the Michelin & Cie, a foreign corporation engaged in the sale and distribution of Michelin tires. Michelin decided to discontinue their business relations, and it was discovered that OFarrel failed to account for an amount representing the price of tires sold by the latter. Michelin claims the money was disposed by OFarrel for its own use and benefit and without the authority or consent of Michelin. Gaston OFarrel (the person) and Sanchez executed a mortgage on the house of OFarrel and shares owned by both to guarantee payment of the amount to the Michelin, but left a balance which the latter seeks to recover. The board of OFarrel filed a petition for its dissolution and sought the appointment of Gaston as receiver and liquidator, which was granted by TC. Michelin filed its claim against OFarrel Corp with a prayer that its claim be allowed as a preferred one against the latter. TC grants motion of Michelin. Nobody except Michelin and Gaston was notified of the order. China Bank intervened and moved that Michelins claim be allowed as an ordinary one under the Insolvency Law and sought the nullification of the TC orders.
ISSUE: Liquidation. (ISSUE NI? Hahahahaha! :P )
RULING: The appointment of a receiver by the court to wind up the affairs of the corporation upon petition of voluntary dissolution does not empower the court to hear and pass on the claims of the creditors of the corporation at first hand. In such cases, the receiver does not act as a receiver of an insolvent corporation. Since "liquidation" as applied to the settlement of the affairs of a corporation consists of adjusting the debts and claims, that is, of collecting all that is due the corporation, the settlement and adjustment of claims against it and the payment of its just debts, all claims must be presented for allowance to the receiver or trustees or other proper persons during the winding-up proceedings within the 3 years provided by the Corporation Law as the term for the corporate existence of the corporation, and if a claim is disputed so that the receiver cannot safely allow the same, it should be transferred to the proper court for trial and allowance, and the amount so allowed then presented to the receiver or trustee for payment. The rulings of the receiver on the validity of claims submitted are subject to review by the court appointing such receiver though no appeal is taken to the latter ruling, and during the winding-up proceedings after dissolution, no creditor will be permitted by legal process or otherwise to acquire priority, or to enforce his claim against the property held for distribution as against the rights of other creditors.
NOTE: Under the Corporation Code, it is the SEC which may appoint the receiver.
65. Sumera v. Valencia, 67 Phil. 721 FACTS: A corporation was organized under the style, "Devota de Nuestra Seora de la Correa", for the promotion of the filing industry or business for a period of twenty years in accordance with Philippine laws in the year 1920. Said corporation was already in operation when, on petition of various stockholders thereof, an investigation into its Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 96
financial condition was made by the provincial auditor in which it was discovered that Eugenio Valencia, manager of the corporation, had withdraw the amount of P600 from the remaining assets of the corporation. A petition was filed for the voluntary dissolution of the corporation and was granted by CFI. CFI ordered the liquidation of the properties and appointed D. Nicolas as assignee in charge of the liquidation in the year 1928. Nicolas demanded Valencia of the payment of P600 belonging to the corporation. Valencia did not have money and promised to pay on a later date. Upon being asked again to pay the aforesaid amount, Eugenio Valencia delivered to the assignee Nicolas, the sum of P200, leaving a balance of P400. Subsequently Nicolas was replaced by Tiburcio Sumera upon his resignation. Sumera, in his capacity as such assignee of the corp., filed a complaint against Valencia for the recovery of the sum of P400 with interest at the rate of 12 per cent per annum, and the sum of P100 as indemnity. Valencia however denied such obligation and alleged it was already paid in full. The case having been called for trial on October 12, 1936, defendant, with leave of court, inserted in his answer a new defense in which he alleged that the action brought by plaintiff against him has already prescribed.
ISSUE: Whether or not Section 77 of Act No. 1459 is applicable, does it preclude an action to wind up brought after the three years.
RULING: No. Section 77 of Act No. 1459 provides that "Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs to dispose of and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was established." And section 77 of the same Act provides, "At any time during said three years said corporation is authorized and empowered to convey all of its property to trustees for the benefit of members, stockholders, creditors, and others interested. From and after any such conveyance by the corporation of its property in trust for the benefit of its members, stockholders, creditors, and others in interest, all interest which the corporation had in the property terminates, the legal interest vests in the trustees, and the beneficial interest in the members, stockholders, creditors, or other persons in interest." If the corporation carries out the liquidation of its assets through its own officers and continues and defends the actions brought by or against it, its existence shall terminate at the end of three years from the time of dissolution; but if a receiver or assignee is appointed, as has been done in the present case, with or without a transfer of its properties within three years, the legal interest passes to the assignee, the beneficial interest remaining in the members, stockholders, creditors and other interested persons; and said assignee may bring an action, prosecute that which has already been commenced for the benefit of the corporation, or defend the latter against any other action already instituted or which may be instituted even outside of the period of three years fixed for the offices of the corporation. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 97
SC ruled that when a corporation is dissolved and the liquidation of its assets is placed in the hands of a receiver or assignee, the period of three years prescribed by section 77 of Act No. 1459 known as the Corporation Law is not applicable, and the assignee may institute all actions leading to the liquidation of the assets of the corporation even after the expiration of three years.
66. Republic of the Phils. v. Marsman Development Co., 44 SCRA 418 FACTS: Defendant corporation was a timber license holder with concessions in Camarines Norte. Investigations led to the discovery that certain taxes were due on it. BIR assessed Marsman 3 times for unpaid taxes. Atty. Moya, in behalf of the corporation, received the first 2 assessments. He requested for reinvestigations. As a result, corporation failed to pay within the prescribed period. Numerous BIR warnings were given. After 3 years of futile notifications, BIR sued the corporation.
ISSUE: Whether or not the present action is barred by prescription, in light of the fact that the corporation law allows corporations to continue only for 3 years after its dissolution, for the purpose of presenting or defending suits by or against it, and to settle its affairs.
RULING: NO. Although Marsman was extra-judicially dissolved, with the 3-year rule, nothing however bars an action for recovery of corporate debts against the liquidators. In fact, the 1st assessment was given before dissolution, while the 2nd and 3rd assessments were given just 6 months after dissolution (within the 3-year rule). Such facts definitely established that the Government was a creditor of the corporation for whom the liquidator was supposed to hold assets of the corporation.
NOTE: Code provides for a 3-year period for continuation of the corporate existence for purposes of liquidation, BUT there is nothing in the provision which bars an action for recovery of debts of the corporation against the liquidator himself, after the lapse of the 3-year period.
67. Tan Tiong Bio v. Commissioner of Internal Revenue, G.R, No. L-15778, April 23, 1962 FACTS: Central Syndicate is a corporation which sent a letter to the Collector of Internal Revenue advising the latter that it purchased from Dee Hong Lue the surplus properties which the said Dee Hong Lue had bought from the Foreign Liquidation Commission that it assumed Dee Hong Lue's obligation and would pay a portion of the sales tax on said surplus goods it was paying P43,750.00 in behalf of Dee Hong Lue as deposit to answer for the payment of said sales tax. Central Syndicate again wrote the Collector requesting a refund for the purchase price of goods obtained from Dee Hong Lue was adjusted and reduced. The CIR investigated the matter and the Collector decided that Central Syndicate was the importer and original seller of the surplus goods in question and, Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 98
therefore, the one liable to pay the sales tax. The Collector denied the request of the syndicate for the refund. Central Syndicate elevated the case to the Court of Tax Appeals. The Collector filed a motion requiring Central Syndicate to file a bond to guarantee the payment of the tax assessed against it to which motion was denied by the Court of Tax Appeals on the ground that cannot be legally done it appearing that the syndicate is already a non-existing entity due to the expiration of its corporate existence. In view of this development, the Collector filed a motion to dismiss the appeal on the ground of lack of personality on the part of Central Syndicate, which met an opposition on the part of the latter, but on January 25, 1955, the Court of Tax Appeals issued a resolution dismissing the appeal primarily on the ground that the Central Syndicate has no personality to maintain the action then pending before it. From this order the syndicate appealed to the Supreme Court w herein it intimated that the appeal should not be dismissed because it could be substituted by its successors-in-interest Tan Tiong Bio and others.
ISSUE: Whether the sales tax in question can be enforced against the corporations successors-in-interest who are the present petitioners since the Central Syndicate has already been dissolved because of the expiration of its corporate existence.
RULING: YES. The creditor of a dissolved corporation may follow its assets once they passed into the hands of the stockholders. The net profit of the corporation (from the sale of the surplus goods) was distributed among the stockholders when the corporation liquidated and distributed its assets immediately after the sale of the said surplus goods. Petitioners are therefore the beneficiaries of the defunct corporation and as such should be held liable to pay the taxes in question.
The dissolution of a corporation does not extinguish the debts due or owing to it because a creditor of a dissolved corporation may follow its assets, as in the nature of a trust fund, into the hands of its stockholders. With reference to the effect of dissolution upon taxes due from a corporation, "that the hands of the government cannot, of course, collect taxes from a defunct corporation, it loses thereby none of its rights to assess taxes which had been due from the corporation, and to collect them from persons, who by reason of transactions with the corporation, hold property against which the tax can be enforced and that the legal death of the corporation no more prevents such action than would the physical death of an individual prevent the government from assessing taxes against him and collecting them from his administrator, who holds the property which the decedent had formerly possessed
68. Reyes v. Blouse, 91 Phil. 305 FACTS: Minority stockholders of the Laguna Tayabas Bus Co. file an action to enjoin Blouse et. al. from executing its resolution approved by 99 % of stockholders to consolidate the properties and franchises of Laguna Tayabas with Batangas Transport. Blouse believes it is merely an exchange of properties and not a consolidation. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 99
ISSUE: Whether the real purpose of the resolution is merger or consolidation, and if so, whether it can be carried out under the old Corporation Law.
RULING: The questioned resolution charges the board of Laguna to consolidate properties and franchises thereof with that of Batangas Transport. Both corporations have passed similar resolutions to take steps to effect the consolidation. It is apparent that the purpose of the resolution is not to dissolve but to merely transfer its assets to a new corporation in exchange for its shares. This comes within the purview of the old corporation law, which provides that a corporation may sell, exchange, lease or otherwise dispose of all its property and assets when authorized by affirmative vote of 2/3 of stockholders. The words "or otherwise disposed of" is very broad and in a sense covers a merger or consolidation. However, the transaction in this case cannot be considered as a merger or consolidation because a merger implies the termination or cessation of the merged corporations and not merely a merger of assets and properties. The two companies will not lose their corporate existence but will continue to exist even after the consolidation. What is intended by the resolution is merely a consolidation of properties and assets, to be managed and operated by a new corporation, and not a merger of the corporations themselves.
69. The Edward J. Nell Co. v. Pacific Farms, Inc., 15 SCRA 415 FACTS: Edward Nell Co. secured a judgment representing the unpaid balance of the price of a pump sold to Insular Farms. Pacific Farms then purchased all or substantially all of shares of stock as well as real and personal property of Insular, selling the shares to certain individuals who reorganized Insular. The board reorganized Insular then sold its assets to be sold to Pacific for P10,000. The writ of execution was returned, stating that Insular had no property for levy. Nell Co sued Pacific Farms, on the ground as a result of the purchase of all or substantially all assets of Insular, Pacific became the alter ego of Insular Farms.
ISSUE: Whether a corporation who sells or otherwise transfers all of its assets to another corporation is liable for debts and liabilities of the transferor?
RULING: NO. Generally where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor, except: (1) where the purchaser expressly or impliedly agrees to assume such debts; (2) where the transaction amounts to a consolidation or merger of the corporations; (3) where the purchasing corporation is merely a continuation of the selling corporation; and (4)where the transaction is entered into fraudulently in order to escape liability for such debts. In the case at bar, there is neither proof nor allegation that appellee had made any Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 100
of the above exceptions. Hence, Pacific Farms cannot assume the debts and liabilities of Insular Farms.
70. Marshall-Wells Co. v. Henry W. Elser Co., 46 Phil. 71 FACTS: Marshall-Wells Company, an Oregon corporation, sued Henry W. Elser & Co., Inc., a domestic corporation, in the Court of First Instance of Manila, for the unpaid balance of a bill of goods sold by plaintiff to defendant and for which plaintiff holds accepted drafts. Defendant demurred to the complaint on the statutory ground that the plaintiff has not legal capacity to sue. In the demurrer, counsel stated that "The said complaint does not show that the plaintiff has complied with the laws of the Philippine Islands in that which is required of foreign corporations desiring to do business in the Philippine Islands, neither does it show that it was authorized to do business in the Philippine Islands." The demurrer was sustained by the trial judge. Inasmuch as the plaintiff could not allege compliance with the statute, the order was allowed to become final and an appeal was perfected.
ISSUE: Is the obtaining of the license prescribed in section 68, as amended, of the Corporation Law a condition precedent to the maintaining of any kind of action in the courts of the Philippine Islands by a foreign corporation?
RULING: Yes. The object of the statute was to subject the foreign corporation doing business in the Philippines to the jurisdiction of its courts. The object of the statute was not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile for the purpose of business without taking the steps necessary to render it amenable to suit in the local courts. The implication of the law is that it was never the purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order for business from the Philippines, from securing redress in the Philippine courts, and thus, in effect, to permit persons to avoid their contracts made with such foreign corporations. The effect of the statute preventing foreign corporations from doing business and from bringing actions in the local courts, except on compliance with elaborate requirements, must not be unduly extended or improperly applied. It should not be construed to extend beyond the plain meaning of its terms, considered in connection with its object, and in connection with the spirit of the entire law. The noncompliance of a foreign corporation with the statute may be pleaded as an affirmative defense. Thereafter, it must appear from the evidence, first, that the plaintiff is a foreign corporation, second, that it is doing business in the Philippines, and third, that it has not obtained the proper license as provided by the statute.
The literal terminology of Section 69 of the Corporation Law is as follows: No foreign corporation or corporation formed, organized, or existing under any laws other than those of the Philippine Islands shall be permitted to transact business in the Philippine Islands or maintain by itself or assignee any suit for the recovery of any debt, claim, or demand Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 101
whatever, unless it shall have the license prescribed in the section immediately preceding. Any officer, director, or agent of the corporation not having the license prescribed shall be punished by imprisonment for not less than six months nor more than two years or by a fine of not less than two hundred pesos nor more than one thousand pesos, or by both such imprisonment and fine, in the discretion of the court.
71. Atlantic Mutual Insurance Co. v. Cebu Stevedoring Co., Inc., G.R. no. 18961, August 31, 1966 FACTS: Appellants Atlantic Mutual Insurance Company and Continental Insurance Company are both foreign corporations existing under the laws of the United States. They sued the Cebu Stevedoring Co., Inc., a domestic corporation, for recovery of a sum of money on the following allegations: that defendant, a common carrier, undertook to carry a shipment of copra for deliver to Procter & Gamble Company, at Cebu City; that upon discharge, a portion of the copra was found damaged; that since the copra had been previously insured with plaintiffs they paid the shipper and/or consignee, upon proper claim and assessment of the damage; and that as subrogee to the shipper's and/or consignee's rights, plaintiffs demanded, without success, settlement from defendant by reason of its failure to comply with its obligation, as carrier, to deliver the copra in good order.
Defendant moved to dismiss on two grounds: (a) that plaintiffs had "no legal personality to appear before Philippine courts and with no capacity to sue;" and (b) that the complaint did not state a cause of action. Both grounds were based upon failure of the complaint to allege compliance with section 69 of the Corporation Law.
ISSUE: Whether or not plaintiffs had "legal personality to appear before Philippine courts and with capacity to sue.
RULING: No. The Law simply means that no foreign corporation shall be permitted to transact business in the Philippines, unless it shall have the license required by law, and, until it complies with this law, shall not be permitted to maintain any suit in the local courts. The object of the statute was to object of the statute was not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile for the purpose of business without taking the steps necessary to render it amenable to suit in the local courts. The implication of the law is that it was never the purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order for business from the Philippines, from securing redress in the Philippine Courts, and thus, in effect, to permit persons to avoid their contracts made with such foreign corporations. The effect of the statute preventing foreign corporations from doing business and from bringing actions in the local courts, except in compliance with elaborate requirements, must not be unduly extended or improperly applied. It should not Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 102
be construed to extend beyond the plain meaning of its terms, considered in connection with its object, and in connection with the spirit of the entire law."
To be sure, under the Rules of Court (Section 11, Rule 15) in force prior to the promulgation of the Revised Rules on January 1, 1964, it was not necessary to aver the capacity of a party to sue except to the extent required to show jurisdiction of the court. In our opinion, however, such rule does not apply in all situations and under all circumstances. The theory behind a similar rule in the United States is "that capacity ... of a party for purpose of suit is not in dispute in the great bulk of cases, and that pleading and proof can be simplified by a rule that an averment of such matter is not necessary, except to show jurisdiction." But where as in the present case, the law denies to a foreign corporation the right to maintain suit unless it has previously complied with a certain requirement, then such compliance, or the fact that the suing corporation is exempt therefrom, becomes a necessary averment in the complaint. These are matters peculiarly within the knowledge of appellants alone, and it would be unfair to impose upon appellee the burden of asserting and proving the contrary. It is enough that foreign corporations are allowed by law to seek redress in our courts under certain conditions: the interpretation of the law should not go so far as to include, in effect, an inference that those conditions have been met from the mere fact that the party suing is a foreign corporation.
72. General Garments Corp v. Director of Patents, 41 SCRA 50 FACTS: The General Garments Corporation, organized and existing under the laws of the Philippines, is the owner of the trademark "Puritan. Puritan Sportswear Corporation, organized and existing in and under the laws of the state of Pennsylvania, U.S.A., filed a petition with the Philippine Patent Office for the cancellation of the trademark "Puritan" registered in the name of General Garments Corporation, alleging ownership and prior use in the Philippines of the said trademark on the same kinds of goods, which use it had not abandoned; and alleging further that the registration thereof by General Garments Corporation had been obtained fraudulently and in violation of Section 17(c) of Republic Act No. 166, as amended, in relation to Section 4(d) thereof. On March 30, 1964 General Garments Corporation moved to dismiss the petition.
ISSUE: Whether or not Puritan Sportswear Corporation, which is a foreign corporation not licensed to do business and not doing business in the Philippines, has legal capacity to maintain a suit in the Philippine Patent Office for cancellation of a trademark registered therein.
RULING: Yes. Respondent is not suing in our courts "for the recovery of any debt, claim or demand," for which a license to transact business in the Philippines is required by Section 69 of the Corporation Law, subject only to the exception already noted. The purpose of such a suit is to protect its reputation, corporate name and goodwill which has been Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 103
established, through the natural development of its trade for a long period of years, in the doing of which it does not seek to enforce any legal or contract rights arising from, or growing out of any business which it has transacted in the Philippine Islands.
The right to the use of the corporate or trade name is a property right, a right in rem, which it may assert and protect in any of the courts of the world even in jurisdictions where it does not transact business just the same as it may protect its tangible property, real or personal against trespass or conversion.
A foreign corporation is allowed there under to sue "whether or not it has been licensed to do business in the Philippines" pursuant to the Corporation Law. In any event, respondent in the present case is not suing for infringement or unfair competition under Section 21- A, but for cancellation under Section 17, on one of the grounds enumerated in Section 4. And while a suit under Section 21-A requires that the mark or tradename alleged to have been infringed has been "registered or assigned" to the suing foreign corporation, a suit for cancellation of the registration of a mark or tradename under Section 17 has no such requirement. For such mark or tradename should not have been registered in the first place (and consequently may be cancelled if so registered) if it "consists of or comprises a mark or tradename which so resembles a mark or tradename ... previously used in the Philippines by another and not abandoned, as to be likely, when applied to or used in connection with goods, business or services of the applicant, to cause confusion or mistake or to deceive purchasers.
73. Le Chemise Lacoste, S.A. v. Fernandez, 129 SCRA 377 FACTS: Petitioner La Chemise Lacoste, S.A., a well known European manufacturer of clothings and sporting apparels sold in the international market and bearing the trademarks "LACOSTE" "CHEMISE LACOSTE", "CROCODILE DEVICE" and a composite mark consisting of the word "LACOSTE" and a representation of a crocodile/alligator. Petitioner is a foreign corporation organized and existing under the laws of France and not doing business in the Philippines. Its products have been marketed in the Philippines since 1964. In 1975, Hemandas & Co., a duly licensed domestic firm applied for and was issued Reg. No. SR-2225 (SR stands for Supplemental Register) for the trademark "CHEMISE LACOSTE & CROCODILE DEVICE" by the Philippine Patent Office for use on T-shirts, sportswear and other garment products of the company. Two years later, it applied for the registration of the same trademark under the Principal Register. The Patent Office eventually issued an order dated March 3, 1977 which states that: Considering that the mark was already registered in the Supplemental Register in favor of herein applicant, the Office has no other recourse but to allow the application, however, Reg. No. SR-2225 is now being contested in a Petition for Cancellation docketed as IPC No. 1046, still registrant is presumed to be the owner of the mark until after the registration is declared cancelled. Thereafter, Hemandas & Co. assigned to respondent Gobindram Hemandas all rights, title, and interest in the trademark "CHEMISE LACOSTE & DEVICE". Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 104
Petitioner filed its application for registration of the trademark Crocodile Device and Lacoste. The former was approved while the latter was opposed by Games and Garments. Petitioner filed a petition for cancellation of Reg. No. SR-2225.
ISSUE: (1) Whether Petitioner is doing business or not. (2) Whether or not petitioner has capacity to sue.
RULING: (1) Petitioner is not doing business. The present case involves a complaint for violation of Article 189 of RPC. The petitioner is a foreign corporation not doing business in the Philippines. The marketing of its products in the Philippines is done through an exclusive distributor, Rustan Commercial Corporation. The petitioner is a foreign corporation not doing business in the Philippines. The marketing of its products in the Philippines is done through an exclusive distributor, Rustan Commercial Corporation. The latter is an independent entity which buys and then markets not only products of the petitioner but also many other products bearing equally well-known and established trademarks and tradenames, in other words, Rustan is not a mere agent or conduit of the petitioner. Petitioner is not doing business in the Philippines. Rustan is actually a middleman acting and transacting business in its own name and or its own account and not in the name or for the account of the petitioner. Rule I, Sec. 1 (g) of said rules and regulations defines "doing business" as one" which includes, inter alia: (1) ... A foreign firm which does business through middlemen acting on their own names, such as indentors, commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines. (2) Appointing a representative or distributor who is domiciled in the Philippines, unless said representative or distributor has an independent status, i.e., it transacts business in its name and for its account, and not in the name or for the account of a principal Thus, where a foreign firm is represented by a person or local company which does not act in its name but in the name of the foreign firm the latter is doing business in the Philippines.
(2) Yes. Petitioner can sue. As early as 1927, this Court is of the view that a foreign corporation not doing business in the Philippines needs no license to sue before Philippine courts for infringement of trademark and unfair competition. A foreign corporation which has never done any business in the Philippines and which is unlicensed and unregistered to do business here, but is widely and favorably known in the Philippines through the use therein of its products bearing its corporate and tradename, has a legal right to maintain an action in the Philippines to restrain the residents and Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 105
inhabitants thereof from organizaing a corporation therein bearing the same name as the foreign corporation, when it appears that they have personal knowledge of the existence of such a foreign corporation, and it is apparent that the purpose of the proposed domestic corporation is to deal and trade in the same goods as those of the foreign corporation.
More important is the nature of the case which led to this petition. What preceded this petition for certiorari was a letter complaint filed before the NBI charging Hemandas with a criminal offense, i.e., violation of Article 189 of the Revised Penal Code. If prosecution follows after the completion of the preliminary investigation being conducted by the Special Prosecutor the information shall be in the name of the People of the Philippines and no longer the petitioner which is only an aggrieved party since a criminal offense is essentially an act against the State. It is the latter which is principally the injured party although there is a private right violated. Petitioner's capacity to sue would become, therefore, of not much significance in the main case. We cannot snow a possible violator of our criminal statutes to escape prosecution upon a far-fetched contention that the aggrieved party or victim of a crime has no standing to sue.
In upholding the right of the petitioner to maintain the present suit before our courts for unfair competition or infringement of trademarks of a foreign corporation, we are moreover recognizing our duties and the rights of foreign states under the Paris Convention for the Protection of Industrial Property to which the Philippines and France are parties. We are simply interpreting and enforcing a solemn international commitment of the Philippines embodied in a multilateral treaty to which we are a party and which we entered into because it is in our national interest to do so.
NOTE: The Paris Convention provides in part that: ARTICLE 1 (1) The countries to which the present Convention applies constitute themselves into a Union for the protection of industrial property. (2) The protection of industrial property is concerned with patents, utility models, industrial designs, trademarks service marks, trade names, and indications of source or appellations of origin, and the repression of unfair competition.
ARTICLE 2 (2) Nationals of each of the countries of the Union shall as regards the protection of industrial property, enjoy in all the other countries of the Union the advantages that their respective laws now grant, or may hereafter grant, to nationals, without prejudice to the rights specially provided by the present Convention. Consequently, they shall have the same protection as the latter, and the same legal remedy against any infringement of their rights, provided they observe the conditions and formalities imposed upon nationals.
(1) The countries of the Union undertake, either administratively if their legislation so permits, or at the request of an interested party, to refuse or to cancel the registration and to prohibit the use of a trademark which constitutes a reproduction, imitation or translation, liable to create confusion, of a mark considered by the competent authority of the country of registration or use to be well-known in that country as being already the mark of a person entitled to the benefits of the present Convention and used for Identical or similar goods. These provisions shall also apply when the essential part of the mark constitutes a reproduction of any such well-known mark or an imitation liable to create confusion therewith.
ARTICLE 8 A trade name shall be protected in all the countries of the Union without the obligation of filing or registration, whether or not it forms part of a trademark.
ARTICLE 10bis (1) The countries of the Union are bound to assure to persons entitled to the benefits of the Union effective protection against unfair competition.
ARTICLE 10ter (1) The countries of the Union undertake to assure to nationals of the other countries of the Union appropriate legal remedies to repress effectively all the acts referred to in Articles 9, 10 and l0bis. (2) They undertake, further, to provide measures to permit syndicates and associations which represent the industrialists, producers or traders concerned and the existence of which is not contrary to the laws of their countries, to take action in the Courts or before the administrative authorities, with a view to the repression of the acts referred to in Articles 9, 10 and 10bis, in so far as the law of the country in which protection is claimed allows such action by the syndicates and associations of that country.
ARTICLE 17 Every country party to this Convention undertakes to adopt, in accordance with its constitution, the measures necessary to ensure the application of this Convention. It is understood that at the time an instrument of ratification or accession is deposited on behalf of a country; such country will be in a position under its domestic law to give effect to the provisions of this Convention. (61 O.G. 8010)
74. Converse Rubber Products v. Universal Products, Inc., 147 SCRA 155 FACTS: Respondent Universal Rubber Products, Inc. filed an application with the Philippine Patent office for registration of the trademark Universal Converse and Device used on rubber shoes and rubber slippers. Petitioner Converse Rubber Corporation filed its opposition to the application for registration on grounds that (a) the trademark sought to be registered is confusingly similar to the word Converse which is part of petitioners corporate name Converse Rubber Corporation as to likely deceive Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 107
purchasers of products on which it is to be used to an extent that said products may be mistaken by the unwary public to be manufactured by the petitioner and (b) the registration of respondents trademark will cause great and irreparable injury to the business reputation and goodwill of petitioner in the Philippines and would cause damage to said petitioner within the meaning of section 8, RA 166, as amended. The Director of Patents dismissed the opposition of the petitioner and gave due course to respondents application. Hence, this petition for review.
ISSUE: (1) Whether or not the respondents partial appropriation of petitioners corporate name (Converse) is of such character that it is calculated to deceive or confuse the public to the injury of the petitioner to which the name belongs. (2) Whether or not petitioner, a foreign corporation not doing business in the Philippines, has a right to maintain an action.
RULING:
(1) A trade name is any individual name or surname, firm name, device or word used by manufacturers, industrialists, merchants and others to identify their businesses, vocations or occupations. As the trade name refers to the business and its good will, the trademark refers to the goods. The ownership of a trademark or tradename is a property right which the owner is entitled to protect since there is damage to him from confusion or reputation or goodwill in the mind of the public as well as from confusion of goods. The modern trend is to give emphasis to the unfairness of the acts and to classify and treat the issue as fraud. From a cursory appreciation of the petitioner's corporate name "CONVERSE RUBBER CORPORATION,' it is evident that the word "CONVERSE" is the dominant word which Identifies petitioner from other corporations engaged in similar business. Respondent, in the stipulation of facts, admitted petitioner's existence since 1946 as a duly organized foreign corporation engaged in the manufacture of rubber shoes. This admission necessarily betrays its knowledge of the reputation and business of petitioner even before it applied for registration of the trademark in question. Knowing, therefore, that the word "CONVERSE" belongs to and is being used by petitioner, and is in fact the dominant word in petitioner's corporate name, respondent has no right to appropriate the same for use on its products which are similar to those being produced by petitioner. A corporation is entitled to the cancellation of a mark that is confusingly similar to its corporate name. Appropriation by another of the dominant part of a corporate name is an infringement. Respondents witness had no idea why respondent chose Universal Converse as trademark and the record discloses no reasonable explanation for respondents use of the word Converse in its trademark. Such unexplained use by respondent of the dominant word of petitioners corporate name lends itself open to the suspicion of fraudulent motive to trade upon petitioners reputation. The testimony of petitioner's witness, who is a legitimate trader as well as the invoices evidencing sales of petitioner's products in the Philippines, give credence to Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 108
petitioner's claim that it has earned a business reputation and goodwill in this country. The sales invoices submitted by petitioner's lone witness show that it is the word "CONVERSE" that mainly Identifies petitioner's products, i.e. "CONVERSE CHUCK TAYLOR, "CONVERSE ALL STAR," ALL STAR CONVERSE CHUCK TAYLOR," or "CONVERSE SHOES CHUCK and TAYLOR." Thus, contrary to the determination of the respondent Director of Patents, the word "CONVERSE" has grown to be Identified with petitioner's products, and in this sense, has acquired a second meaning within the context of trademark and tradename laws. It is a corollary logical deduction that while Converse Rubber Corporation is not licensed to do business in the country and is not actually doing business here, it does not mean that its goods are not being sold here or that it has not earned a reputation or goodwill as regards its products. The similarity y in the general appearance of respondent's trademark and that of petitioner would evidently create a likelihood of confusion among the purchasing public. But even assuming, arguendo, that the trademark sought to be registered by respondent is distinctively dissimilar from those of the petitioner, the likelihood of confusion would still subsists, not on the purchaser's perception of the goods but on the origins thereof. By appropriating the word "CONVERSE," respondent's products are likely to be mistaken as having been produced by petitioner. "The risk of damage is not limited to a possible confusion of goods but also includes confusion of reputation if the public could reasonably assume that the goods of the parties originated from the same source.
(2) Yes. The Convention of the Union of Paris for the Protection of Industrial Property to which the Philippines became a party in 1966 provides that: Article 8: a trade name or corporate name shall be protected in all the countries of the Union without the obligation of filing or registration, whether or not it forms part of the trademark. The object of the Convention is to accord a national of a member nation extensive protection against infringement and other types of unfair competition. The mandate of the aforementioned Convention finds implementation in Sec. 37 of RA No. 166, otherwise known as the Trademark Law: Sec. 37. Rights of Foreign Registrants-Persons who are nationals of, domiciled or have a bona fide or effective business or commercial establishment in any foreign country, which is a party to an international convention or treaty relating to marks or tradenames on the repression of unfair competition to which the Philippines may be a party, shall be entitled to the benefits and subject to the provisions of this Act . . . ... Tradenames of persons described in the first paragraph of this section shall be protected without the obligation of filing or registration whether or not they form parts of marks.
75. Home Insurance Co. v. Eastern Shipping Lines, 123 SCRA 424 FACTS: On or about January 13, 1967, S. Kajita & Co., on behalf of Atlas Consolidated Mining & Development Corporation, shipped on board the SS "Eastern Jupiter' from Osaka, Japan, 2,361 coils of "Black Hot Rolled Copper Wire Rods." The said VESSEL is owned and operated by defendant Eastern Shipping Lines (CARRIER). The shipment Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 109
was covered by Bill of Lading No. O-MA-9, with arrival notice to Phelps Dodge Copper Products Corporation of the Philippines (CONSIGNEE) at Manila. The shipment was insured with plaintiff against all risks in the amount of P1,580,105.06 under its Insurance Policy No. AS-73633. The coils discharged from the VESSEL numbered 2,361, of which 53 were in bad order. What the CONSIGNEE ultimately received at its warehouse was the same number of 2,361 coils with 73 coils loose and partly cut, and 28 coils entangled, partly cut, and which had to be considered as scrap. Upon weighing at CONSIGNEE's warehouse, the 2,361 coils were found to weight 263,940.85 kilos as against its invoiced weight of 264,534.00 kilos or a net loss/shortage of 593.15 kilos, or 1,209,56 lbs. For the loss/damage suffered by the cargo, plaintiff paid the consignee under its insurance policy the amount of P3,260.44, by virtue of which plaintiff became subrogated to the rights and actions of the CONSIGNEE. Plaintiff made demands for payment against the CARRIER and the TRANSPORTATION COMPANY for reimbursement of the aforesaid amount but each refused to pay the same. ...
ISSUE: (1) Whether or not petitioner foreign corporation can sue. (2) Whether or not contracts entered into by petitioner foreign corporation at the time when it had not acquired license to do business, are null and void. RULING: (1) Yes. The petitioner foreign corporation introduced documentary evidence that it had the authority to engage in the insurance business at the time it filed the complaints. Respondents failed to specifically deny petitioners capacity to sue. When the complaints in these two consolidated cases were filed, the petitioner had already secured the necessary license to conduct its insurance business in the Philippines. It could already file suits. However, when the insurance contracts which formed the basis of these cases were executed, the petitioner had not yet secured the necessary licenses and authority. The objective of Section 68 and 69 of the Corporation law (Now, Sec. 133 of the Corporation Code) was to subject the foreign corporation to the jurisdiction of our courts. The Corporation law must be given a reasonable, not an unduly harsh, interpretation which does not hamper the development of trade relations and which fosters friendly commercial intercourse among countries. (2) No. There is no question that the contracts are enforceable (since the corporation code did not expressly mention that contracts made by a foreign corporation without license are void). The requirement of registration affects only the remedy. The primary purpose of our statute is to compel a foreign corporation desiring to do business within the state to submit itself to the jurisdiction of the courts of this state. The statute was not intended to exclude foreign corporations from the state. It does not, in terms, render invalid contracts made in this state by non-complying corporations. The contracts are enforceable upon compliance with the law. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 110
It is not necessary to declare the contracts null and void even as against the erring foreign corporation. The penal sanction for the violation and the denial of access to our courts and administrative bodies are sufficient from the viewpoint of legislative policy.
76. The Mentholatum Co. Inc. v. Mangaliman, 72 Phil. 525 FACTS: On October 1, 1935, the Mentholatum Co., Inc., and the Philippine-American Drug Co., Inc. instituted an action against Mangaliman and company for infringement of trade mark and unfair competition. The complaint stated, among other particulars, that the Mentholatum Co., Inc., is a Kansas corporation which manufactures Mentholatum," a medicament and salve adapted for the treatment of colds, nasal irritations, and other external ailments of the body; that the Philippine-American Drug co., Inc., is its exclusive distributing agent in the Philippines authorized by it to look after and protect its interests; that the Mentholatum Co., Inc., registered with the Bureau of Commerce and Industry the word, "Mentholatum," as trade mark for its products; that the Mangaliman brothers prepared a medicament and salve named "Mentholiman" which they sold to the public packed in a container of the same size, color and shape as "Mentholatum"; and that, as a consequence of these acts of the defendants, plaintiffs suffered damages from the dimunition of their sales and the loss of goodwill and reputation of their product in the market. Mentholatum Co., Inc., has not sold personally any of its products in the Philippines; that the Philippine-American Drug Co., Inc., like fifteen or twenty other local entities, was merely an importer of the products of the Mentholatum Co., Inc., and that the sales of the Philippine-American Drug Co., Inc., were its own and not for the account of the Mentholatum Co., Inc. Upon the other hand, the defendants contend that the Philippine-American Drug Co., Inc., is the exclusive distributing agent in the Philippines of the Mentholatum Co., Inc., in the sale and distribution of its product known as "Mentholatum"; that, because of this arrangement, the acts of the latter; and that the Mentholatum Co., Inc., being thus engaged in business in the Philippines, and not having acquired the license required by section 68 of the Corporation Law, neither it nor the Philippine-American Drug co., Inc., could prosecute the present action.
ISSUE: Whether or not the petitioners could prosecute the instant action without having secured the license required in section 69 of the (old) Corporation Law
RULING: The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization. However, whatever transactions the Philippine-American Drug Co., Inc., had executed in view of the law, the Mentholatum Co., Inc., did it itself. And, the Mentholatum Co., Inc., Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 111
being a foreign corporation doing business in the Philippines without the license required by section 68 of the Corporation Law, it may not prosecute this action for violation of trade mark and unfair competition. Neither may the Philippine-American Drug Co., Inc., maintain the action here for the reason that the distinguishing features of the agent being his representative character and derivative authority, it cannot now, to the advantage of its principal, claim an independent standing in court.
77. Far East International Import & Export Corp. v. Nankai Kogyo Co., Ltd., 6 SCRA 725
78. Facilities Management Corporation v. Leonardo de la Osa, 89 SCRA 131 FACTS: Leonardo dela Rosa sought his reinstatement with full backwages, as well as the recovery of his overtime compensation, swing shift and graveyard shift differentials. Petitioner alleged that he was employed by respondents as, painter, houseboy and cashier. He further averred that from December, 1965 to August, 1966, inclusive, he rendered overtime services daily and that this entire period was divided into swing and graveyard shifts to which he was assigned, but he was not paid both overtime and night shift premiums despite his repeated demands from respondents.
The petitioner, a foreign corporation domiciled outside the Philippines was ordered by CIR then to pay the unpaid overtime and premium pay. However, on certiorari, the petitioner contended that because it was domiciled outside and not doing business in Philippines, it could not be sued in the country.
ISSUE: Whether or not the Philippine court can acquire jurisdiction over a foreign company
RULING: Yes. Considering that petitioner paid the claims of private respondent, the case had become moot and academic. The fact of such payment amounts to an acknowledgement on the part of petitioner of the jurisdiction of the court over it.
Moreover, FMC had to appoint an agent, pursuant to Department of Labor Order, with authority to execute Employment Contracts and receive legal services and be bound by the processes of the Philippine Courts for as long as he remains an employee of FMC. According to the Rules of Court, service of summons upon foreign corporations may be made on its resident agent (Sec14, Rules of Court old)
Further, if a foreign corporation, not engaged in business in the Philippines, is not banned from seeking redress from courts in the Philippines, that same corporation cannot claim exemption from being sued in Philippine courts for acts done against a person or persons in the Philippines.
79. Pacific Vegetable Oil Corporation v. Singzon, G.R. No. 7917, April 29, 1955
80. Aetna Casualty & Surety Co. v. Pacific Star Line, 80 SCRA 635 FACTS: Defendant Pacific Star Line, a common carrier, was operating the vessel SS Ampal on a commercial run between United States and Philippine Ports including Manila, The Bradman Co. Inc., was the ship agent in the Philippines for the SS Ampal and/or Pacific Star Line while Manila Railroad Co. Inc. and Manila Port Service were the arrastre operators in the port of Manila and were authorized for the delivery of cargoes discharged into their custody on presentation of release papers from the Bureau of Customs and the steamship carrier and/or its agents. On December 2, 1961, the SS Ampal took on board at New York, N.Y., U.S.A., a consignment or cargo including 33 packages of Linen & Cotton Piece Goods for shipment to Manila for which defendant Pacific Star Line issued Bill of Lading No. 18 in the name of I. Shalom & Co., Inc., as shipper, consigned to the order of Judy Philippines, Inc., Manila. The SS Ampal arrived in Manila on February 10, 1962 and in due course, discharged her cargo into the custody of Manila Port Service and that due to the negligence of the defendants, the shipment sustained damages valued at US $2,300.00 representing pilferage and seawater damage. Due to this, on February 11, 1963, Smith Bell & Co. (Philippines), Inc. and Aetna Surety Casualty & Surety Co. Inc., as subrogee, filed a complaint against The Bradman Co. Inc., Manila Port Service and/or Manila Railroad Company, Inc. to recover the amount of US $2,300.00 representing the value of the stolen and damaged cargo plus litigation expenses and exemplary damages. In their answer, the defendants allege that the plaintiff, Aetna casualty & Surety Company, is a foreign corporation not duly licensed to do business in the Philippines and, therefore. without capacity to sue and be sued.
ISSUE: Whether or not Aetna Casualty & Surety Company has been doing business in the Philippines and hence be allowed to file an action
RULING: Section 68 of the Corporation Law provides that "No foreign corporation or corporation formed, organized, or existing under any laws other than those of the Philippines shall be permitted to transact business in the Philippines until after it shall have obtained a license for that purpose from the Securities and Exchange Commissioners xxx" And according to Section 69 of said Corporation Law "No foreign corporation or corporation formed, organized, or existing under any laws other than those of the Philippines shall be permitted to transact business in the Philippines or maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 113
it shall have the license prescribed in the section immediately preceding xxx." It is settled that if a foreign corporation is not engaged in business in the Philippines, it may not be denied the right to file an action in Philippine courts for isolated transactions. Citing Mentholatum Co., Inc. et al. vs. Mangaliman, et al., the court held that No general rule or governing principle can be laid down as to what constitutes 'doing' or 'engaging in' or 'transacting' business. Indeed, each case must be judged in the light of its peculiar environmental circumstances. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise. For which it was organized or whether it has substantially retired from it and turned it over to another. In the case at bar, Aetna Casualty & Surety Company is transacting business of insurance in the Philippines for which it must have a license. The contract of insurance was entered into in New York, U.S.A., and payment was made to the consignee in its New York branch. All the actions, except two cases filed by Smith, Bell & Co., Inc. against the Aetna Casualty & Surety Company, are claims against the shipper and the arrastre operators just like the case at bar. Consequently, since the appellant Aetna Casualty & Surety Company is not engaged in the business of insurance in the Philippines but is merely collecting a claim assigned to it by the consignee, it is not barred from filing the instant case although it has not secured a license to transact insurance business in the Philippines.
81. Top-Weld Mfg., Inc. v. ECED, S.A., 138 SCRA 120 FACTS: Petitioner Top-weld Manufacturing, Inc. is a Philippine corporation engaged in the business of manufacturing and selling welding supplies and equipment. It entered into separate contracts with two different foreign entities. One contract, entitled a "LICENSE AND TECHNICAL ASSISTANCE AGREEMENT" was entered into with IRTI, S.A., (IRTI), a corporation organized and existing under the laws of Switzerland. By virtue of this agreement, the petitioner was constituted a licensee of IRTI to manufacture welding products under certain specifications, with raw materials to be purchased by the former from suppliers designated by IRTI, for a period of three years. The other contract was a "DISTRIBUTOR AGREEMENT" entered into with ECED, S.A., (ECED), a company organized and existing under the laws of Panama. Under this agreement, the petitioner was designated as ECED's distributor in the Philippines of certain welding products and equipment. By its terms, the contract was to remain effective until terminated by either party upon giving six months or 180 days written notice to the other. Upon learning that the two foreign entities were negotiating with another group to replace the petitioner as their licensee and distributor, the latter instituted a civil case against herein respondents. Moreover, the petitioner sought the issuance of a writ of preliminary injunction to restrain the corporations from negotiating with third persons or from actually carrying out the transfer of its distributorship and franchising rights. It also asked the court to prohibit the defendants from terminating their contracts with the petitioner, and if said termination had already been accomplished, from putting into effect and carrying out the terms and the consequences of said termination until after good faith negotiations on existing contracts between them had been carried out and completed.
Whether or not respondent corporations can be considered as "doing business" in the Philippines and, therefore, subject to the provisions of R.A. No. 5455
RULING: There is no general rule or governing principle laid down as to what constitutes "doing" or engaging in" or "transacting" business in the Philippines. Each case must be judged in the light of its peculiar circumstances. The acts of these corporations should be distinguished from a single or isolated business transaction or occasional, incidental and casual transactions which do not come within the meaning of the law. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. In the case at bar, when the respondents entered into the disputed contracts with the petitioner, they were carrying out the purposes for which they were created, i.e. to manufacture and market welding products and equipment. The terms and conditions of the contracts as well as the respondents' conduct indicate that they established within our country a continuous business, and not merely one of a temporary character. Respondents' acts enabled them to enter into the mainstream of our economic life in competition with our local business interests. This necessarily brings them under the provisions of R.A. No. 5455. All told, the Court upholds the appellate court's finding that "IRTI AND ECED were doing business and engaging in economic activity in the Philippines, as a prerequisite to which they should have first secured a written certificate from the Board of Investments."
Notes:
As between the parties themselves, R.A. No. 5455 does not declare as void or invalid the contracts entered into without first securing a license or certificate to do business in the Philippines. Neither does it appear to intend to prevent the courts from enforcing contracts made in contravention of its licensing provisions. There is no denying, though, that an "illegal situation," as the appellate court has put it, was created when the parties voluntarily contracted without such license. The very purpose of the law was circumvented and evaded when the petitioner entered into said agreements despite the prohibition of R.A. No. 5455. The parties in this case being equally guilty of violating R.A, No. 5455, they are in pari delicto, in which case it follows as a consequence that petitioner is not entitled to the relief prayed for in this case.
82. Antam Consolidated v. CA, 143 SCRA 289 FACTS: Stokely filed a complaint against Banahaw, Tambunting, and Unicom for collection of sum of money. 1) Stokely is a corporation organized and existing under the laws of the state of Indiana, U.S.A., and one of its subdivisions "Capital City Product Company" (Capital City) has its office in Columbus, Ohio, U.S.A.; (2) that Stokely and Capital City were not engaged in business in the Philippines prior to the commencement of the suit; Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 115
(3) that Capital City and Coconut Oil Manufacturing (Phil.) Inc. (Comphil) entered into a contract wherein Comphil undertook to sell and deliver, and Capital City agreed to buy 500 long tons of crude coconut oil 4) but Comphil failed to deliver the coconut oil so that Capital City covered its coconut oil needs in the open market at a price substantially in excess of the contract and sustained a loss of US$103,600; that to settle Capital City's loss under the contract, the parties entered into a subsequent numerous contracts just for the Comphil to settle and recompense the damages, but to no avail 5) that after repeated demands from Comphil to pay the said amount, the latter still refuses to pay the same. 6) petitioners filed a motion to dismiss on the ground that Stokely, being a foreign corporation not licensed to do business in the Philippines has no personality to maintain the instant suit 7) petitioner averred that the test of whether one is doing business or not is whether there is continuity of transactions which are in pursuance of the normal business of the corporation
ISSUE: What constitutes doing business in the Philippines. Is the petitioner correct?
RULING: There is no general rule or governing principle laid down as to what constitutes 'doing' or 'engaging in' or 'transacting business in the Philippines. Each case must be judged in the Light of its peculiar circumstance. The acts of these corporations should be distinguished from a single or isolated business transaction or occasional, incidental and casual transactions which do not come within the meaning of the law. Where a single act or transaction , however, is not merely incidental or casual but indicates the foreign corporation's intention to do other business in the Philippines, said single act or transaction constitutes 'doing' or 'engaging in' or 'transacting' business in the Philippines. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it warning-organized or whether it has substantially was retired from it and turned it over to another. The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or workers or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization. In the case at bar, the transactions entered into by the respondent with the petitioners are not a series of commercial dealings which signify an intent on the part of the respondent to do business in the Philippines but constitute an isolated one which does not fall under the category of "doing business." The records show that the only reason why the respondent entered into the second and third transactions with the petitioners was because it wanted to recover the loss it sustained from the failure of the petitioners to deliver the crude coconut oil under the first transaction and in order to give the latter a chance to make good on their obligation. Instead of making an outright demand on the Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 116
petitioners, the respondent opted to try to push through with the transaction to recover the amount of US$103,600.00 it lost. in reality, there was only one agreement between the petitioners and the respondent and that was the delivery by the former of 500 long tons of crude coconut oil to the latter, who in turn, must pay the corresponding price for the same. The three seemingly different transactions were entered into by the parties only in an effort to fulfill the basic agreement and in no way indicate an intent on the part of the respondent to engage in a continuity of transactions with petitioners which will categorize it as a foreign corporation doing business in the Philippines. Further, Stokely, being a foreign corporation not doing business in the Philippines, does not need to obtain a license to do business in order to have the capacity to sue. As we have held in Eastboard Navigation Ltd. v. Juan Ysmael and Co: While plaintiff is a foreign corporation without license to transact business in the Philippines, it does not follow that it has no capacity to bring the present action. Such license is ' not necessary because it is not engaged in business in the Philippines.
83. Claude Neon Lights Federal, Inc. v. Phil. Advertising Corp., 57 Phil.607 FACTS: Phil Advertising Corp filed suit against the petitioner claiming P300k as damages for alleged breach of the agency contract existing between the two. At the same time, Phil Advertising filed in said court an application for writ of attachment duly verified in which it is stated that Claude Neon Lights is a foreign corporation having its principal place of business in Washington. However, the only statutory ground relied upon for the issuance of the writ of attachment is par 2 of section 424 of the Code of Civil Procedure which provides that plaintiff may have the property of the defendant attached in an action against a defendant not residing in the Phil islands. Claude Neon Lights is a corporation duly organized under the laws of the District of Columbia; it had complied with all the requirements of the Philippine laws and was duly licensed to do business in the Phil Islands on the date said writ of attachment was issued. It was actively engaged in doing business in the Phil Islands and had considerable property, which was in the possession and under the control and management of Phil Advertising Co., as the agent of the petitioner, on the date said attachment was levied. ISSUE: Whether Claude Neon Lights, a foreign corporation, shall, in a metaphorical sense, be deemed as not residing in the Philippine Islands in the sense in which that expression would apply to a natural person
RULING: Having regard to the reason for the statute which is the protection of the creditors of a non-resident, we are of the opinion that there is not the same reason for subjecting a duly licensed foreign corporation to the attachment of its property by a plaintiff under section 424 (2), Civil Procedure, as may exist in the case of a natural person not residing in the Philippines islands. The law does not require a nonresident citizen, as it does the corporation, to appoint a resident agent for service of process; nor to prove to the Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 117
satisfaction of the Government before the does business here, as the foreign corporation must prove, that he is solvent and in sound financial condition (section 125, Corporation Code). He pays no license fee nor is his business subject at any time to investigation by the Secretary of Finance and the Governor-General; nor is his right to continue to do business revocable by the Government. His books and papers are not liable to examination at any time by the Attorney-General, the Insular Auditor, the Insular Treasurer, or any other officer of the Government on the order of the Governor- General. He is not, like a foreign corporation bound by all laws, rules and regulations applicable to domestic corporations which are designed to protect creditors and the public. He can evade service of summons and other legal process, the foreign corporation never. Corporations are less mobile than individuals, especially of foreign corporations that are carrying on business by proper authority. They possess great capital which is seeking lucrative and more or less permanent investment in young and developing countries like our Philippines.
Section 71, however, provides that if the Secretary of Finance or the Secretary of Commerce and Communications and the Governor-General find a duly licensed foreign corporation to be insolvent or that is continuance in business will involve probable loss to its creditors, they may revoke its license and the Attorney-General shall take such proceedings as may be proper to protect creditors and the public. It contemplates that the proceedings instituted by the Attorney-General shall effect the protection of all creditors and the public equally. Par 2, section 424, old civil procedure, does not apply to a domestic corporation. Our laws and jurisprudence indicate a purpose to assimilate foreign corporations duly licensed to do business here to the status of domestic corporations. We think it would be entirely out of line with this policy should we make a discrimination against a foreign corporation subject its property to the harsh writ of seizure by attachment when it has complied not only with every requirement of law made especially of foreign corporations, but in addition with every requirement of law made of domestic corporation.
84. Phil. Products Co. v. Primateria Societe Anonyme Pour Le Commerce Exterieur (Phil), Inc., 15 SCRA 301 FACTS: Primateria is a foreign juridical entity and had its main office at Zurich, Switzerland. It was then engaged in transactions in international trade with agricultural products, particularly in oils, fats and oil-seeds and related products. Primateria entered into an agreement with plaintiff Phil Products, whereby the latter undertook to buy copra in the Phils for the account of Primateria Zurich, during a tentative experimental period of one month from date. The contract was renewed by mutual agreement of the parties. During such period, the plaintiff caused the shipment of copra to foreign countries pursuant to instructions from defendant Primateria. It is Phil Products theory that Primateria is a foreign corporation within the meaning of Sections 68 and 69 of the Corporation Law and since it transacted business in the Phils Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 118
without the necessary license, its agents are personally liable for contracts made in its behalf.
ISSUES: (1) Whether defendant Primateria may be considered a foreign corporation within the meaning of Sections 68 and 69 of the Corporation Law (amended by BP 68, Corporation CODE) (2) Whether it may be considered as having transacted business in the Philippines within the meaning of said sections (3) Whether its agents may be held personally liable on contracts made in the name of the entity with third persons in the Philippines RULING: No, Primateria was not duly proven to be a foreign corporation; nor that a societe anonyme (sociedad anomima) is a corporation; and that failing such proof, the societe cannot be deemed to fall within the prescription of Section 68 of the Corporation Law. Plainitiff alleges that the agents are liable to it under Art. 1897 of the New Civil Code, but there is no proof that the agents exceeded the limits of their authority. Foreign corporations doing business without a license can be sued for contracts made by him in the name of such corporation. Moreover, liability of the agent is necessarily premised on the inability to sue the principal or non-liability of such principal.
85. General Corporation of the Phil. v. Union Insurance Society of Canton, Ltd., 87 Phil. 313 FACTS: General Corporation of the Philippines and the Mayon Investment Co. are domestic corporations duly organized and existing by virtue of the laws of the Philippines, with principal offices in Manila. The Union Insurance Society of Canton, Ltd. is a foreign insurance corporation, duly authorized to do business in the Philippines, with head office in the City of Hongkong, China, and a branch office in Manila. The Firemans Fund Insurance Co. is a foreign insurance corporation duly organized and existing under the laws of the State of California, U. S. A. It has been duly registered with the Insurance Commissioner of the Bureau of Commerce as such insurance company since November 7, 1946, and authorized to do business in the Philippines since that date. The Union Insurance Society of Canton, Ltd. has been acting as settling agent of and settling insurance claims against the Firemans Fund Insurance Co. even before the last world war and continued as such at least up to November 7, 1946. Plaintiffs sued the Union Insurance Society of Canton, Ltd. and the Firemans Fund Insurance Co. for the payment of 12 marine insurance which were issued by the Firemans Fund Insurance Co. for merchandise shipped from the United States to the Philippines in 1945. As regards the issue of jurisdiction, summons corresponding to Firemans Fund Insurance Co. was served, on the Union Insurance Society of Canton, Ltd. then acting as appellants settling agent in this country. At that time, the appellant Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 119
Fireman Co. had not yet been registered and authorized to do business in the Philippines. Said registration and authority came a little less than two months later. The trial court in its decision held that service of summons for appellant Firemans Fund Insurance Co. on its settling agent Union Insurance Society of Canton, Ltd., was legal and gave the court jurisdiction over said appellant, the court ruling that the phrase "or agents within the Philippines" clearly embraced settling agents like the Union Insurance Society of Canton, Ltd (Section 14, Rule 7 of the Rules of Court).
ISSUES: (1) Whether or not Firemans Fund Insurance Co. was doing business in the Philippines; and (2) Whether or not that trial court acquired jurisdiction over it.
RULING: (1) Yes. It is a rule generally accepted that one single or isolated business transaction does not constitute "doing business" within the meaning of the law, and that transactions which are occasional, incidental and casual, not of a character to indicate a purpose to engage in business do not constitute the doing or engaging in business contemplated by law. In order that a foreign corporation may be regarded as doing business within a State, there must be continuity of conduct and intention to establish a continuous business, such as the appointment of a local agent, and not one of a temporary character. The Firemans Fund Insurance Co., to judge by the twelve marine insurance policies issued as already mentioned, policies covering different shipments, made payable in Manila, indorsed in blank, and in practice, collectible by the consignees in Manila or such other persons or entities who meet the terms by paying the amounts of the invoices, rendering it not only convenient but necessary for said Firemans Fund Insurance Co. to appoint and keep a settling agent in this jurisdiction, was certainly doing business in the Philippines. And these were not casual or isolated business transactions. According to the evidence, since before the war, the Firemans Fund Insurance Co. would appear to have engaged in this kind of business and had employed its co-defendant Union Insurance Society of Canton, Ltd. as its settling agent, although sometime in 1946, between July and August of that year, appellant had its own employee from its head office in America, one John L. Stewart, acting as its settling agent here. And, to conclusively prove continuity of the business and the intention of the appellant not only to establish but to continue such regular business in this jurisdiction, less than two months after service of summons, it applied for, obtained a license and was authorized to regularly do business in the Philippines. (2) SC in its conclusion hold that a foreign corporation actually doing business in this jurisdiction, with or without license or authority to do so, is amenable to process and the jurisdiction of local courts. If such foreign corporation has a license to do business, then summons to it will be served on the agent designated by it for the purpose, or otherwise in accordance with the provisions of the Corporation Law. Where such foreign corporation actually doing business here has not applied for license to do so and has not designated an Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 120
agent to receive summons, then service of summons on it will be made pursuant to the provisions of the Rules of Court, particularly Rule 7, section 14 thereof. SC added that where a foreign insurance corporation engages in regular marine insurance business here by issuing marine insurance policies abroad to cover foreign shipments to the Philippines, said policies being made payable here, and said insurance company appoints and keeps an agent here to receive and settle claims flowing from said policies, then said foreign corporation will be regarded as doing business here in contemplation of law.
86. Grey v. Insular Lumber Co., 67 Phil. 139 FACTS: Insular Lumber Company is a corporation organized and existing under the laws of the State of New York, licensed to engage in business in the Philippines, with offices in the City of Manila, in Fabrica, Occidental Negros, in New York and in Philadelphia. M. E Gray is the owner and possessor of 6, shares of the capital stock of the defendant corporation. The dispute arises when he asked the offices of insular lumber in Manila and in Fabrica to permit him to examine the books and records of the business of said defendant, but he was not allowed to do so. According to Insular Lumber, applying the law of New York, the rights of a stockholder to examine the books and records of a corporation organized under the laws of that State, have been, during the entire period material to this action, only those provided in section 77 of the Stock Corporation Law which substantially provides that only stockholder owning at least three percent of the capital stock has the right to examine the books and records of the corporation. M.E Gray, not being a stockholder owning at least three percent of the capital stock has not right to examine. M.E Gray, contends that under our Corporation code, under which insular lumber company was registered to do business in the Philippines, he is entitled, as stockholder, to inspect the record of the transactions of the defendant corporation (sec. 51, Act No. 1459), and this right, which is recognized in the common law, has not been altered by section 77 of the Stock Corporation Law of New. The lower court denied the petition for mandamus compelling the company to allow the petitioner to examine the books and records.
ISSUE: Whether M.E Gray is entitled, as stockholder of the Insular Lumber Company, to inspect and examine the books and records of the transactions of said company.
RULING: No. The decision of the CFI was affirmed denying the mandamus against the company and absolving it from the complaint. The stipulation of facts is binding upon both parties and cannot be altered by either of them.On the strength of that principle M.E Gray is bound to adhere to the agreement made by him with the Insular Lumber Co. in paragraph four of the stipulation of facts, to the effect that the rights of a stockholder, under the law of New York, to examine the books and records of a corporation organized under the laws of said State, and during the entire period material to this action, are only those provided in section 77 of the Stock Corporation Law of New York. Under this law, Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 121
plaintiff has the right to be furnished by the treasurer or other fiscal officer of the corporation with a statement of its affairs embracing a particular account of all its assets and liabilities.
The right under the common law cannot be granted by insular lumber in the present case, since the same can only be granted at the discretion of the court, under certain conditions, to wit: (a) That the stockholder of a corporation in New York has the right to inspect its books and records if it can be shown that he seeks information for an honest purpose (b) That said right to examine and inspect the books of the corporation must be exercised in good faith, for a specific and honest purpose, and not to gratify curiosity, or for speculative or vexatious purposes.
M.E Gray has made no effort to prove or even allege that the information he desired to obtain through the examination and inspection of defendants books was necessary to protect his interests as stockholder of the corporation, or that it was for a specific and honest purpose, and not to gratify curiosity, nor for speculative or vexatious purposes.
87. Santos v. Bishop of Nueva Caceres, 45 Phil. 895 FACTS: It appears from the record of this case that the appellant's husband, Engracio Orense, died, leaving an estate which, according to the inventory filed by the appellant, was worth the sum of P43,382.27 over and above all debts, expenses of last illness and the funeral, as well as expenses of administration. The deceased left a will, according to which six parcels of land were left to the Roman Catholic Church as trustee for various purposes.
The will was probated, and the appellant was appointed executrix. In the meantime, the appellant, as special administratrix of the estate, filed a motion reciting that the deceased, in his lifetime, had obtained a franchise to establish and operate an electric light plant and had signed a contract with the Pacific Commercial Company whereby the latter agreed to furnish him the machinery and that the said appellant was bound to continue to pay the debts in order to completely extinguish the obligation.
The appellant filed a motion in which she stated that she had been seeking buyers for the properties and that offers had not reached even half of the debts, and she therefore asked for authority to sell three more parcels of land, all of which pertained to the devise in favor of the Roman Catholic Church. This motion also contained the indorsement of Julian Ope, the parish priest of Guinobatan.
Upon argument by counsel for both parties, but without any testimony being offered or received, the court revoked the license to sell on the ground that the consent to the sale given by the parish priest at Guinobatan was of no legal effect and that the license, therefore, was improvidently granted. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 122
ISSUE: Whether the order of sale is void.
RULING: Yes. At the time of the granting of the licensed, a distribution of the estate of the deceased had been made, the order of distribution had become final and the title to the estate in remainder devised to the Roman Catholic Church had become vested. As far as the title to the property was concerned, the administration proceedings were then terminated and the court had lost its jurisdiction in respect thereto. There might still be a lien on the property for the debts of the deceased and legitimate expenses of administration, but it seems obvious that the court could have no jurisdiction to foreclose this lien and order the property sold unless some sort of notice was given the holder of the title. No notice, neither actual nor constructive, was given in the present case. It does not even appear that the order of sale was recorded in the office of the registry of deeds as required by subsection 7 of section 722 of the Code of Civil Procedure. The order of sale was therefore void for want of jurisdiction in the court and could be vacated at anytime before it had been acted upon and sale made and confirmed. The court could properly take judicial notice of the fact that the corporation sole, the Roman Catholic Archbishop of Nueva Caceres is the administrator of the temporalities of that church in the diocese within which the land in question is situated and that the parish priest have no control thereover.
88. Gana v. Roman Catholic Archbishop of Manila, 43 O.G. No. 8, 3225 (1947)
89. Roman Catholic Apostolic Administrator of Davao, Inc. v. Land Registration Com., 102 Phil. 596 FACTS: Mateo Rodis, a Filipino citizen and resident of Davao City, executed a deed of sale in favor of Roman Catholic Apostolic Administrator of Davao Inc., a corporation sole organized and existing in accordance with Philippine laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent. When the deed of sale was presented to Register of Deeds of Davao for registration, it required the Roman Catholic Inc, a corporation sole, to submit an affidavit declaring that 60% of the members thereof were Filipino citizens. The Register of Deeds referred the matter to the Land Registration Commissioner en consulta for resolution. The latter held that in view of the provisions of Section 1 and 5 of Article XIII of the Philippine Constitution, the vendee was not qualified to acquire private lands in the Philippines in the absence of proof that at least 60% of the capital, property, or assets of the Roman Catholic Apostolic Administrator of Davao, Inc., was actually owned or controlled by Filipino citizens, there being no question that the present incumbent of the corporation sole was a Canadian citizen. Further, that section 159 of the Corporation Law relied upon by the vendee was rendered operative by the aforementioned provisions of the Constitution with respect to real estate, unless the precise condition set therein that at least 60% of its capital is owned by Filipino citizens. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 123
Petitioner consistently maintained that a corporation sole, irrespective of the citizenship of its incumbent, is not prohibited or disqualified to acquire and hold real properties. The Corporation Law and Canon Law are explicit in their provisions that a corporation sole or ordinary is not the owner of the properties that he may acquire but merely the administrator thereof. The Canon Law also specified that church temporalities are owned by the Catholic Church as a moral person or by the diocese, the bishop only as administrator. Respondents averred that although the petitioner is not the owner of the land purchased, yet he has control over the same, with full power to administer, take possession, alienate, and many others which actually entail all rights of ownership over the properties.
ISSUE: (1) Who are considered qualified to acquire and hold agricultural lands in the Philippines? (2) What is the effect of this constitutional prohibition of the right of a religious corporation recognized by our Corporation Law and registered as a corporation sole, to possess, acquire, and register real estates in its name when the Head, Manager, Administrator, or actual incumbent is an alien? RULING: A corporation sole is a special form of corporation usually associated with the clergy. Conceived and introduced into the common law by sheer necessity, this legal creation was designed to facilitate the exercise of the functions of ownership carried on by the clerics for and on behalf of the church which was regarded as the property owner. A corporation sole consists of one person only, and his successors (who will always be one at a time), in some particular station, who are incorporated by law in order to give them some legal capacities and advantages, particularly that of perpetuity, which in their natural persons they could not have had. In this sense, the king is sole corporation; so is a bishop, or dens, distinct from their several chapters.
Section 154 of the Corporation Law on religious corporations govern, which provides: Sec154. For the administration of the temporalities of any religious denomination, society or church and the management of the estates and the properties thereof, it shall be lawful for the bishop, chief priest, or presiding either of any such religious denomination, society or church to become a corporation sole, unless inconsistent with the rules, regulations or discipline of his religious denomination, society or church or forbidden by competent authority thereof. Section 155 also provides us that: In order to become a corporation sole the bishop, chief priest, or presiding elder of any religious denomination, society or church must file with the Securities and Exchange Commission articles of incorporation setting forth the fact: (3) that as such bishop, chief priest, or presiding elder he is charged with the administration of the temporalities and the management of the estate and properties of his religious denomination, society, or church within its territorial jurisdiction, describing it. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 124
Section 157 of the Commonwealth Act No. 287 states that: From and after the filing with the SEC all estates, properties shall be held in trust by him as a corporation sole, for the use, purpose, behalf, and sole benefit of his religious denomination, society, or church, including hospitals, schools, colleges, orphan, asylums, parsonages, and cemeteries thereof. Hence, the bishops or archbishops as corporations sole are merely administrators of the church properties that come to their possession, in which they hold in trust for the church. Moreover, church properties acquired by the incumbent of a corporation sole pass, by operation of law, upon his death not his personal heirs but to his successors in office. Q: Whether the Universal Roman Catholic Apostolic Church in the Philippines, or better still, the corporation sole named the Roman Catholic Apostolic Administrator of Davao, Inc., is qualified to acquire private agricultural lands in the Philippines pursuant to the provisions of Article XII of the Constitution. A Corporation sole is organized and composed of a single individual, the head of any religious society or church, for the administration of the temporalities of such society or church. By temporalities is meant estate and properties not used exclusively for religious worship. The successor in office of such religious head or chief priest incorporated as a corporation sole shall become the corporation sole on ascension to office, and shall be permitted to transact business as such on filing with the SEC. Section113, B.P.68 of the Corporation Code states that any corporation sole may purchase and hold real estate and personal property for its church, charitable, benevolent, or educational purposes, and may receive bequests of gifts. Such corporation may mortgage or sell real property upon obtaining an order for that purpose from the Court of First Instance of the province where the property is located proof must be made to the satisfaction of the Court that notice of the application for leave to mortgage or sell has been given by publication or otherwise in such manner leave to mortgage or sell must be made by petition, duly verified by the bishop, chief priest, or presiding elder acting as corporation sole, and may be opposed by any member Provided in case where the rules, regulations, and discipline of the religious denomination, society or church regulate the methods of acquiring holding, selling and mortgaging real estate and personal property such shall control and the intervention of the Courts shall not be necessary. Hence, the power of a corporation sole to purchase real property is not restricted although the power to sell or mortgage sometimes depends upon the rules and regulations of the church concerned represented by said corporation sole. Can they register said real properties? As provided by law, lands held in trust for specific purposes may be subject of registration, and the capacity of a corporation sole to register lands belonging to it is acknowledged, and title thereto may be issued in its name. Every corporation sole then organized and registered had by express provision of law the necessary power and qualification to purchase in its name private lands located in the territory in which it exercised its functions or ministry and for which it was created, independently of the nationality of its incumbent unique and single member and head, the bishop of the diocese. Note that Roman Catholic Apostolic Church in the Philippines has no nationality and that the framers of the Constitution did not have in mind the religious corporations sole when they provided the 60% of the capital be owned by Filipinos. Concepcion, Culminas, Gamo, Jaugan, Malcampo, Porcina, Uy, Ybio Corporation Law, Case Digests 125
A duly registered corporation sole is an artificial being having the right of succession and the power, attributes, and properties expressly authorized by law or incident to its existence (Section 1, Corporation Law). 1. A corporation sole is organized by and composed of a single individual, the head of any religious society or church operating within the zone, are or jurisdiction covered by said corporation sole (Article 110, Corporation Code, BP68); 2. That a corporation sole is a non-stock corporation; 3. That the Ordinary (the corporation sole proper) does not own the temporalities which he merely administers; 4. That under the law the nationality of said Ordinary or of any administrator has absolutely no bearing on the nationality of the person desiring to acquire real property in the Philippines by purchase or other lawful means other than by hereditary succession, who according to the Constitution must be a Filipino 5. That section 113 of the Corporation Code expressly authorized the corporation sole to purchase and hold real estate for its church, charitable, benevolent or educational purposes, and to receive bequests or gifts for such purposes;