Case Digest on PHILTRUST V RIVERA PhilTrust, the assignee in bankruptcy of La Cooperativa Naval Filipina, is suing Cooperativa Naval stockholder

for unpaid balance of his capital stock subscription. Stockholder claims that he has been released from the obligation to pay more than 50% of his subscription by virtue of a resolution adopted by the Cooperativa Naval stockholders after its incorporation reducing the capital stock by 50%. The effect of this resolution was that fully paid certificates were issued to each stockholder for of his subscription. (watered down stocks) SC held that the said resolution is without effect for being: 1. An attempted withdrawal of so much capital from the fund which the companys creditors were entitled ultimately to rely, and 2. For having been effected without compliance with the statutory requirements of 17 of the Corporation Law regarding reduction of capital stock, and 3. For failure to file a certificate with the Bureau of Commerce and Industry, showing such reduction. Thus, stockholder is still liable for the unpaid balance of his subscription. Ratio: Subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. A corporation has no power to release an original subscriber to its capital stock from the obligation of paying for his shares, w/o a valuable consideration for such release; and as against creditors a reduction of the capital stock can take place only in the manner and under the conditions prescribed by the statute or the charter or the AOI. Moreoever, strict compliance with statutory regulations is necessary. Note: that for reasons 2 and 3, Campos says that 17 has been replaced by 38, and now, even if all the requirements are complied with, if creditors are prejudiced by such reduction, it is most unlikely that the SEC will approve it. IGLESIA EVANGELICA METODISTA EN LAS ISLAS FILIPINAS Petitioners, BISHOP NATHANAEL LAZARO, Respondents. facts The present dispute resolves the issue of whether or not a corporation may change its character as a corporation sole into a corporation aggregate by mere amendment of its articles of incorporation without first going through the process of dissolution. Apparently, although the IEMELIF remained a corporation sole on paper (with all corporate powers theoretically lodged in the hands of one member, the General Superintendent), it had always acted like a corporation aggregate. The Consistory exercised IEMELIFs decision-making powers without ever being challenged. Subsequently, during its 1973 General Conference, the general membership voted to put things right by changing IEMELIFs organizational structure from a corporation sole to a corporation aggregate. On May 7, 1973 the Securities and Exchange Commission (SEC) approved the vote. For some reasons, however, the corporate papers of the IEMELIF remained unaltered as a corporation sole. Only in 2001, about 28 years later, did the issue reemerge. In answer to a query from the IEMELIF, the SEC replied on April 3, 2001 that, although the SEC Commissioner did not in 1948 object to the conversion of the IEMELIF into a corporation aggregate, that conversion was not properly carried out and documented. The SEC said that the IEMELIF needed to amend its articles of incorporation for that purpose.1 Acting on this advice, the Consistory resolved to convert the IEMELIF to a corporation aggregate. Respondent Bishop Nathanael Lazaro, its General Superintendent, instructed all their congregations to take up the matter with their respective members for resolution. Subsequently, the general membership approved the conversion, prompting the IEMELIF to file amended articles of incorporation with the SEC. Bishop Lazaro filed an affidavit-certification in support of the conversion.2 Petitioners Reverend Nestor Pineda, et al., which belonged to a faction that did not support the conversion, filed a civil case for "Enforcement of Property Rights of Corporation Sole, Declaration of Nullity of Amended Articles of Incorporation from Corporation Sole to Corporation Aggregate with Application for Preliminary Injunction and/or Temporary Restraining Order" in IEMELIFs name against respondent members of its Consistory before the Regional Trial Court (RTC) of Manila.3 Petitioners claim that a complete shift from IEMELIFs status as a corporation sole to a corporation aggregate required, not just an amendment of the IEMELIFs articles of incorporation, but a complete dissolution of the existing corporation sole followed by a re-incorporation. The Issue Presented

The only issue presented in this case is whether or not the CA erred in affirming the RTC ruling that a corporation sole may be converted into a corporation aggregate by mere amendment of its articles of incorporation. The Courts Ruling For non-stock corporations, the power to amend its articles of incorporation lies in its members. The code requires two-thirds of their votes for the approval of such an amendment. So how will this requirement apply to a corporation sole that has technically but one member (the head of the religious organization) who holds in his hands its broad corporate powers over the properties, rights, and interests of his religious organization? Although a non-stock corporation has a personality that is distinct from those of its members who established it, its articles of incorporation cannot be amended solely through the action of its board of trustees. The amendment needs the concurrence of at least two-thirds of its membership. If such approval mechanism is made to operate in a corporation sole, its one member in whom all the powers of the corporation technically belongs, needs to get the concurrence of two-thirds of its membership. The one member, here the General Superintendent, is but a trustee, according to Section 110 of the Corporation Code, of its membership.1avvphi1 There is no point to dissolving the corporation sole of one member to enable the corporation aggregate to emerge from it. Whether it is a non-stock corporation or a corporation sole, the corporate being remains distinct from its members, whatever be their number. The increase in the number of its corporate membership does not change the complexion of its corporate responsibility to third parties. The one member, with the concurrence of two-thirds of the membership of the organization for whom he acts as trustee, can self-will the amendment. He can, with membership concurrence, increase the technical number of the members of the corporation from "sole" or one to the greater number authorized by its amended articles. The amendment of the articles of incorporation, as correctly put by the CA, requires merely that a) the amendment is not contrary to any provision or requirement under the Corporation Code, and that b) it is for a legitimate purpose. Section 17 of the Corporation Code 10 provides that amendment shall be disapproved if, among others, the prescribed form of the articles of incorporation or amendment to it is not observed, or if the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary to government rules and regulations, or if the required percentage of ownership is not complied with. These impediments do not appear in the case of IEMELIF. Besides, as the CA noted, the IEMELIF worked out the amendment of its articles of incorporation upon the initiative and advice of the SEC. The latters interpretation and application of the Corporation Code is entitled to respect and recognition, barring any divergence from applicable laws. Considering its experience and specialized capabilities in the area of corporation law, the SECs prior action on the IEMELIF issue should be accorded great weight. WHEREFORE, the Court DENIES the petition and AFFIRMS the October 31, 2007 decision and August 1, 2008 resolution of the Court of Appeals in CA-G.R. SP 92640. SO ORDERED. To convert a corporation sole to a corporation aggregate is to increase corporate membership from one to two or more, and to transfer the duties of administering and managing the affairs, properties and temporalities of the religious entity, from one to several trustees. Wilson P. Gamboa vs. Finance Secretary Margarito Teves, et al., G.R. No. 176579, June 28, 2011 THE FACTS This is a petition to nullify the sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the Philippines, acting through the Inter-Agency Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific), a Hong Kong-based investment management and holding company and a shareholder of the Philippine Long Distance Telephone Company (PLDT). The petitioner questioned the sale on the ground that it also involved an indirect sale of 12 million shares (or about 6.3 percent of the outstanding common shares) of PLDT owned by PTIC to First Pacific. With the this sale, First Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the total common shareholdings of foreigners

I.

in PLDT to about 81.47%. This, according to the petitioner, violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than 40%, thus: Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. (Emphasis supplied) II. THE ISSUE Does the term capital in Section 11, Article XII of the Constitution refer to the total common shares only, or to the total outstanding capital stock (combined total of common and nonvoting preferred shares) of PLDT, a public utility? III. THE RULING [The Court partly granted the petition and held that the term capital in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors of a public utility, i.e., to the total common shares in PLDT.] Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no voting rights, the term capital in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term capital shall include such preferred shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the election of directors. In short, the term capital in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors. To construe broadly the term capital as the total outstanding capital stock, including both common and non-voting preferred shares, grossly contravenes the intent and letter of the Constitution that the State shall develop a self-reliant and independent national economy effectively controlled by Filipinos. A broad definition unjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of the public utility. Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDTs Articles of Incorporation expressly state that the holders of Serial Preferred Stock shall not be entitled to vote at any meeting of the stockholders for the election of directors or for any other purpose or otherwise participate in any action taken by the corporation or its stockholders, or to receive notice of any meeting of stockholders. On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDTs Articles of Incorporation state that each holder of Common Capital Stock shall have one vote in respect of each share of such stock held by him on all matters voted upon by the stockholders, and the holders of Common Capital Stock shall have the exclusive right to vote for the election of directors and for all other purposes. It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT. In fact, based on PLDTs 2010 General Information Sheet (GIS), which is a document required to be submitted annually to the Securities and Exchange Commission, foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common shares. In other words, foreigners hold 64.27% of the total number of PLDTs

common shares, while Filipinos hold only 35.73%. Since holding a majority of the common shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in Section 11, Article XII of the Constitution. As shown in PLDTs 2010 GIS, as submitted to the SEC, the par value of PLDT common shares is P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares. Worse, preferred shares constitute 77.85% of the authorized capital stock of PLDT while common shares constitute only 22.15%. This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with the common shares, blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility. In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that [n]o franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to x x x corporations x x x organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens x x x. To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDTs common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn; (5) preferred shares have twice the par value of common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution. [Thus, the Respondent Chairperson of the Securities and Exchange Commission was DIRECTED by the Court to apply the foregoing definition of the term capital in determining the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law.] Young Auto Supply vs. Court of Appeals [GR 104175, 25 June 1993] Facts: On 28 October 1987, Young Auto Supply Co. Inc. (YASCO) represented by Nemesio Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their shares of stock in Consolidated Marketing & Development Corporation (CMDC) to George C. Roxas. The purchase price was P8,000,000.00 payable as follows: a down payment of P4,000,000.00 and the balance of P4,000,000.00 in four postdated checks of P1,000,000.00 each. Immediately after the execution of the agreement, Roxas took full control of the four markets of CMDC. However, the vendors held on to the stock certificates of CMDC as security pending full payment of the balance of the purchase price. The first check of P4,000,000.00, representing the down payment, was honored by the drawee bank but the four other checks representing the balance of P4,000,000.00 were dishonored. In the meantime, Roxas sold one of the markets to a third party. Out of the proceeds of the sale, YASCO received P600,000.00, leaving a balance of P3,400,000.00. Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds of the sale of the CMDC shares to Nemesio Garcia. On 10 June 1988, YASCO and Garcia filed a complaint against Roxas in the Regional Trial Court, Branch 11, Cebu City, praying that Roxas be ordered to pay them the sum of P3,400,000.00 or that full control of the three markets be turned over to YASCO and Garcia. The complaint also prayed for the forfeiture of the partial payment of P4,600,000.00 and the payment of attorney's fees and costs. Failing to submit his answer, and on 19 August 1988, the trial court declared Roxas in default. The order of default was, however, lifted upon motion of Roxas. On 22 August 1988, Roxas filed a motion to dismiss. After a hearing, wherein testimonial and documentary evidence were presented by both parties, the trial court in an

Order dated 8 February 1991 denied Roxas' motion to dismiss. After receiving said order, Roxas filed another motion for extension of time to submit his answer. He also filed a motion for reconsideration, which the trial court denied in its Order dated 10 April 1991 for being pro-forma. Roxas was again declared in default, on the ground that his motion for reconsideration did not toll the running of the period to file his answer. On 3 May 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not accompanied with the required affidavit of merit. But without waiting for the resolution of the motion, he filed a petition for certiorari with the Court of Appeals. The Court of Appeals dismissal of the complaint on the ground of improper venue. A subsequent motion for reconsideration by YASCO was to no avail. YASCO and Garcia filed the petition. Issue: Whether the venue for the case against YASCO and Garcia in Cebu City was improperly laid. Held: A corporation has no residence in the same sense in which this term is applied to a natural person. But for practical purposes, a corporation is in a metaphysical sense a resident of the place where its principaloffice is located as stated in the articles of incorporation. The Corporation Code precisely requires each corporation to specify in its articles of incorporation the "place where the principal office of the corporation is to be located which must be within the Philippines." The purpose of this requirement is to fix the residence of a corporation in a definite place, instead of allowing it to be ambulatory. Actions cannot be filed against a corporation in any place where the corporation maintains its branch offices. The Court ruled that to allow an action to be instituted in any place where the corporation has branch offices, would create confusion and work untold inconvenience to said entity. By the same token, a corporation cannot be allowed to file personal actions in a place other than its principal place of business unless such a place is also the residence of a co plaintiff or a defendant. With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its principal place of business is located, it becomes unnecessary to decide whether Garcia is also a resident of Cebu City and whether Roxas was in estoppel from questioning the choice of Cebu City as the venue. The decision of the Court of Appelas was set aside. PHILIPS EXPORT VS. COURT OF APPEALS- Corporate Trade Name A corporations right to use its corporate and trade name is a property right, a right in rem, which it may assert and protect against the whole world. FACTS: Philips Export B.V. (PEBV) filed with the SEC for the cancellation of the word Philips the corporate name of Standard Philips Corporation in view of its prior registration with the Bureau of Patents and the SEC. However, Standard Philips refused to amend its Articles of Incorporation so PEBV filed with the SEC a petition for the issuance of a Writ of Preliminary Injunction, however this was denied ruling that it can only be done when the corporate names are identical and they have at least 2 words different. This was affirmed by the SEC en banc and the Court of Appeals thus the case at bar. ISSUE: Whether or not Standard Philips can be enjoined from using Philips in its corporate name RULING: YES A corporations right to use its corporate and trade name is a property right, a right in rem, which it may assert and protect against the whole world. According to Sec. 18 of the Corporation Code, no corporate name may be allowed if the proposed name is identical or deceptively confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing law. For the prohibition to apply, 2 requisites must be present: (1) the complainant corporation must have acquired a prior right over the use of such corporate name and (2) the proposed name is either identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or patently deceptive, confusing or contrary to existing law.

With regard to the 1st requisite, PEBV adopted the name Philips part of its name 26 years before Standard Philips. As regards the 2nd, the test for the existence of confusing similarity is whether the similarity is such as to mislead a person using ordinary care and discrimination. Standard Philips only contains one word, Standard, different from that of PEBV. The 2 companies products are also the same, or cover the same line of products. Although PEBV primarily deals with electrical products, it has also shipped to its subsidiaries machines and parts which fall under the classification of chains, rollers, belts, bearings and cutting saw, the goods which Standard Philips also produce. Also, among Standard Philips primary purposes are to buy, sell trade x x x electrical wiring devices, electrical component, electrical supplies. Given these, there is nothing to prevent Standard Philips from dealing in the same line of business of electrical devices. The use of Philips by Standard Philips tends to show its intention to ride on the popularity and established goodwill of PEBV. Lyceum of the Philippines vs. Court of Appeals [GR 101897, 5 March 1993] Facts: Lyceum of the Philippines Inc. had sometime before commenced in the SEC a proceeding (SECCase No. 1241) against the Lyceum of Baguio, Inc. to require it to change its corporate name and to adopt another name not "similar [to] or identical" with that of petitioner. In an Order dated 20 April 1977, Associate Commissioner Julio Sulit held that the corporate name of petitioner and that of the Lyceum of Baguio, Inc. were substantially identical because of the presence of a "dominant" word, i.e., "Lyceum," the name of the geographical location of the campus being the only word which distinguished one from the other corporate name. The SEC also noted that Lyceum of the Philippines Inc. had registered as a corporation ahead of the Lyceum of Baguio, Inc. in point of time, and ordered the latter to change its name to another name "not similar or identical [with]" the names of previously registered entities. The Lyceum of Baguio, Inc. assailed the Order of the SEC before the Supreme Court (GR L-46595). In a Minute Resolution dated 14 September 1977, the Court denied the Petition for Review for lack of merit. Entry of judgment in that case was made on 21 October 1977. Armed with the Resolution of the Supreme Court, the Lyceum of the Philippines then wrote all the educational institutions it could find using the word "Lyceum" as part of their corporate name, and advised them to discontinue such use of "Lyceum." When, with the passage of time, it became clear that this recourse had failed, and on 24 February 1984, Lyceum of the Philippines instituted before the SEC SEC-Case 2579 to enforce what Lyceum of the Philippines claims as its proprietary right to the word "Lyceum." The SEC hearing officer rendered a decision sustaining petitioner's claim to an exclusive right to use the word "Lyceum." The hearing officer relied upon the SEC ruling in the Lyceum of Baguio, Inc. case (SEC-Case 1241) and held that the word "Lyceum" was capable of appropriation and that petitioner had acquired an enforceable exclusive right to the use of that word. On appeal, however, by Lyceum Of Aparri, Lyceum Of Cabagan, Lyceum Of Camalaniugan, Inc., Lyceum Of Lallo, Inc., Lyceum Of Tuao, Inc., Buhi Lyceum, Central Lyceum Of Catanduanes, Lyceum Of Southern Philippines, Lyceum Of Eastern Mindanao, Inc. and Western Pangasinan Lyceum, Inc.,, which are also educational institutions, to the SEC En Banc, the decision of the hearing officer was reversed and set aside. The SEC En Banc did not consider the word "Lyceum" to have become so identified with Lyceum of the Philippines as to render use thereof by other institutions as productive of confusion about the identity of the schools concerned in the mind of the general public. Unlike its hearing officer, the SEC En Banc held that the attaching of geographical names to the word "Lyceum" served sufficiently to distinguish the schools from one another, especially in view of the fact that the campuses of Lyceum of the Philippines and those of the other Lyceums were physically quite remote from each other. Lyceum of the Philippines then went on appeal to the Court of Appeals. In its Decision dated 28 June 1991, however, the Court of Appeals affirmed the questioned Orders of the SEC En Banc. Lyceum of the Philippines filed a motion for reconsideration, without success. Lyceum of the Philippines filed the petition or review. Issue [1]: Whether the names of the contending Lyceum schools are confusingly similar. Held [1]: The Articles of Incorporation of a corporation must, among other things, set out the name of the

corporation. Section 18 of the Corporation Code establishes a restrictive rule insofar as corporate names are concerned. It provides that "No corporate name may be allowed by the Securities an Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the amended name." The policy underlying the prohibition in Section 18 against the registration of a corporate name which is "identical or deceptively or confusingly similar" to that of any existing corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon the public which would have occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision over corporations. Herein, the Court does not consider that the corporate names of the academic institutions are "identical with, or deceptively or confusingly similar" to that of Lyceum of the Philippines Inc.. True enough, the corporate names of the other schools (defendant institutions) entities all carry the word "Lyceum" but confusion and deception are effectively precluded by the appending of geographic names to the word "Lyceum." Thus, the "Lyceum of Aparri" cannot be mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the Philippines. Further, etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in turn referred to a locality on the river Ilissius in ancient Athens "comprising an enclosure dedicated to Apollo and adorned with fountains and buildings erected by Pisistratus, Pericles and Lycurgus frequented by the youth for exercise and by the philosopher Aristotle and his followers for teaching." In time, the word "Lyceum" became associated with schools and other institutions providing public lectures and concerts and public discussions. Thus today, the word "Lyceum" generally refers to a school or an institution of learning. Since "Lyceum" or "Liceo" denotes a school or institution of learning, it is not unnatural to use this word to designate an entity which is organized and operating as an educational institution. To determine whether a given corporate name is "identical" or "confusingly or deceptively similar" with another entity's corporate name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in both names. One must evaluate corporate names in their entirety and when the name of Lyceum of the Philippines is juxtaposed with the names of private respondents, they are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other. Issue [2]: Whether the use by the Lyceum of the Philippines of "Lyceum" in its corporate name has been for such length of time and with such exclusivity as to have become associated or identified with the petitioner institution in the mind of the general public (or at least that portion of the general public which has to do with schools). Held [2]: The number alone of the private respondents in the present case suggests strongly that the Lyceum of the Philippines' use of the word "Lyceum" has not been attended with the exclusivity essential for applicability of the doctrine of secondary meaning. It may be noted also that at least one of the private respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term "Lyceum" 17 years before Lyceum of the Philippines registered its own corporate name with the SEC and began using the word "Lyceum." It follows that if any institution had acquired an exclusive right to the word "Lyceum," that institution would have been the Western Pangasinan Lyceum, Inc. rather than Lyceum of the Philippines. Hence, Lyceum of the Philippines is not entitled to a legally enforceable exclusive right to use the word "Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of their corporate names. PC Javier &Sons Inc. v. Court of Appeals G.R. No. 129552. June 29, 2005 Facts: PC Javier & Sons applied with First Summa Bank for a loan accommodation under the Industrial Guarantee Loan Fund (IGLF). The corporation through Pablo Javier was advised that its loan application was approved and that the same shall be forwarded to the Central Bank for processing. The CB released the loan.

To secure the loan, Javier executed CM over some machinery in favor of the bank. In the meantime, the bank changed its name to PAIC Savings and Mortgage Bank Inc. Thereafter, the corporation failed to pay; this prompted the Bank to move for the extrajudicial foreclosure of the mortgages. PC Javier filed an action to restrain the extrajudicial foreclosure on the ground that it First Summa and PAIC Bank are separate entities. Issue: Whether the debtor should be formally notified of the corporate creditors change of name Held: NO. There is no such requirement under the law or any regulation ordering a bank that changes its corporate name to formally notify all its debtors. This being the case, the court cannot impose on the bank that changes its corporate name to notify its debtors of such change absent any law, circular or regulation requiring it. Formal notification is therefore discretionary on the bank. G.R. No. 84197 July 28, 1989 PIONEER Lessons Applicable: Defective attempt to form a corp. does NOT result in at least a partnership absent intent to form one(Corp. Law) FACTS:

1965: Jacob S. Lim is an owner-operator of Southern Airlines (SAL), a single proprietorship May 17 1965: Japan Domestic Airlines (JDA) and Lim entered into a sales contract regarding: o 2 DC-#A type aircrafts o 1 set of necessary spare parts o Total: $ 190,000 in installments May 22 1965: Pioneer Insurance and Surety Corp. as surety executed its surety bond in favor of JDA on behalf of its principal Lim Border Machinery and Heacy Equipment Co, Inc. Francisco and Modesto Cervantes and Constancio Maglana contributed funds for the transaction based on the misrepresentation of Lim that they will form a new corp.. to expand his business Jun 10 1965: Lim as SAL executed in favor of Pioneer a deed of chattel mortgage as security o Restructuring of obligation to change the maturity was done 2x w/o the knowledge of other defendants made the surety of JDA prescribed so not entitled to reimbursement o Upon default on the 2/8 payments, Pioneer paid for him and filed a petition for the foreclosure of chattel mortgage as security CA affirmed Trial of Merits: Only Lim is liable to pay

ISSUE: W/N failure of respondents to incorporate = de facto partnership. HELD: NO. CA affirmed. Partnership inter se does NOT necessarily exist, for ordinarily CANNOT be made to assume the relation of partners as bet. themselves, when their purpose is that no partnership shall exists Should be implied only when necessary to do justice bet. the parties (i.e. only pretend to make others liable) Lim never intended to form a corp. CHIANG KAI SHEK SCHOOL, vs. COURT OF APPEALS FACTS:

Fausta F. Oh reported for work at the Chiang Kai Shek School in Sorsogon on the first week of July, 1968. She was told she had no assignment for the next semester. Oh was shocked. She had been teaching in the school since 1932 for a continuous period of almost 33 years. And now, out of the blue, and for no apparent or given reason, this abrupt dismissal. She demanded separation pay, social security benefits, salary differentials, maternity benefits and moral and exemplary damages. The original defendant was the Chiang Kai Shek School but when it filed a motion to dismiss on the ground that it could not be sued, the complaint was amended. Certain officials of the school were also impleaded to make them solidarily liable with the school. Court of First Instance of Sorsogon dismissed the complaint. On appeal, its decision was set aside by the respondent court, which held the school suable and liable while absolving the other defendants ISSUE: Whether or not a school that has not been incorporated may be sued by reason alone of its long continued existence and recognition by the government. HELD: We hold against the petitioner on the first question. It is true that Rule 3, Section 1, of the Rules of Court clearly provides that "only natural or juridical persons may be parties in a civil action." It is also not denied that the school has not been incorporated. However, this omission should not prejudice the private respondent in the assertion of her claims against the school. As a school, the petitioner was governed by Act No. 2706 as amended by C.A. No. 180, which provided as follows: Unless exempted for special reasons by the Secretary of Public Instruction, any private school or college recognized by the government shall be incorporated under the provisions of Act No. 1459 known as the Corporation Law, within 90 days after the date of recognition, and shall file with the Secretary of Public Instruction a copy of its incorporation papers and by-laws. Having been recognized by the government, it was under obligation to incorporate under the Corporation Law within 90 days from such recognition. It appears that it had not done so at the time the complaint was filed notwithstanding that it had been in existence even earlier than 1932. The petitioner cannot now invoke its own non-compliance with the law to immunize it from the private respondent's complaint. There should also be no question that having contracted with the private respondent every year for thirty two years and thus represented itself as possessed of juridical personality to do so, the petitioner is now estopped from denying such personality to defeat her claim against it. According to Article 1431 of the Civil Code, "through estoppel an admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying on it." As the school itself may be sued in its own name, there is no need to apply Rule 3, Section 15, under which the persons joined in an association without any juridical personality may be sued with such association. Besides, it has been shown that the individual members of the board of trustees are not liable, having been appointed only after the private respondent's dismissal. Lim vs. Philippine Fishing Gear Industries Inc. [GR 136448, 3 November 1999] Facts: On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated 7 February 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (PFGI). They claimed that they were engaged in a business venture with Lim Tong Lim, who however was not a signatory to the agreement. The total price of the nets amounted to P532,045. 400 pieces of floats worth P68,000 were also sold to the Corporation. The buyers, however, failed to pay for the fishing nets and the floats; hence, PFGI filed a collection suit against Chua, Yao and Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their capacities as general partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as shown by a Certification from the Securities and Exchange Commission. On 20 September 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.

Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to pay. He also turned over to PFGI some of the nets which were in his possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to cross-examine witnesses and to present evidence on his behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment. The trial court maintained the Writ, and upon motion of PFGI, ordered the sale of the fishing nets at a public auction. PFGI won the bidding and deposited with the said court the sales proceeds of P900,000. On 18 November 1992, the trial court rendered its Decision, ruling that PFGI was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay PFGI. The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the three in Civil Case 1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages. Lim appealed to the Court of Appeals (CA) which, affirmed the RTC. Lim filed the Petition for Review on Certiorari. Lim argues, among others, that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not to him. Issue: Whether Lim should be held jointly liable with Chua and Yao. Held: Chua, Yao and Lim had decided to engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was Lim Tong Lims brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the term "common fund" under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed formed a partnership. The partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It would have been inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment, without which the business could not have proceeded. The sale of the boats, as well as the division among the three of the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the name of the person the lender trusts, who in this case is Lim Tong Lim himself. After all, he is the brother of the creditor, Jesus Lim. It is unreasonable indeed, it is absurd for petitioner to sell his property to pay a debt he did not incur, if the relationship among the three of them was merely that of lessor-lessee, instead of partners. As to Lim's argument that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not to him; Section 21 of the Corporation Code of the Philippines provides that "All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality. One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation." Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from denying its corporate existence. "The reason behind this doctrine is obvious an unincorporated association has no personality and would be incompetent to act and appropriate for itself the power and attributes 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. And as it is an elementary principle of law that a person who acts as an agent without authority or without a principal is himself regarded as the principal, possessed of all the right and subject to all

the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent." The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages and benefits. On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of. There is no dispute that PFGI is entitled to be paid for the nets it sold. The only question here is whether Lim should be held jointly liable with Chua and Yao. Lim contests such liability, insisting that only those who dealt in the name of the ostensible corporation should be held liable. Although technically it is true that Lim did not directly act on behalf of the corporation; however, having reaped the benefits of the contract entered into by persons with whom he previously had an existing relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by estoppel. International Express Travel & Tour Services, Inc. v. CA, Kahn & Philippine Football Federation [343 SCRA 674 (Oct.19, 2000)] Creation of Separate Corporate Personality Liability of Person Acting for Unincorporated EntityDoctrine of Estoppel Facts: IETTSI wrote a letter to the Federation through its president, Kahn, offering its services as a travel agency. This was accepted by the Federation. IETTSI secured airline tickets for the trips of the athletes & officials of the Federation to the South East Asian Games in Kula Lumpur as well as other trips to China & Brisbane. A demand letter was sent to the Federation re: payment of the tickets. After 3 partial payments, Kahn issued a personal check as partial payment for the Federations balance. No further payments were made, causing IETTSI to file a civil case before the RTC against Kahn in his personal capacity on the ground that he allegedly guaranteed the said obligation & as President of the Federation, impleading the Federation as an alternative defendant. Kahn filed a counterclaim against IETTSI averring that it had no cause of action against him either in his personal nor official capacity as he did not guarantee the payment but merely acted as an agent of the Federation w/c has a separate & distinct juridical personality. The Federation, in failing to file its answer, was declared in default. The RTC found Kahn personally liable since a voluntary unincorporated association, like the Federation, doesnt have the power to enter nor ratify a contract. The contract thus entered into by its officers or agents on its behalf is not binding on the association nor enforceable against it but against the officers or agents in their personal capacity. On appeal to the CA, decision was reversed saying that IETTSI failed to prove that Kahn guaranteed the obligation, hence this petition. Issues: (1) WON the Federation has a separate juridical personality. (2) WON Kahn can be held personally liable for the unpaid obligations of the Federation Held: CA decision reversed & set aside. RTC decision reinstated. RA 3135 & PD 604 recognized the juridical existence of national sports associations. The power to purchase, sell, lease & encumber property are acts w/c may only be done by persons, whether natural or artificial, with juridical capacity and these have been granted to national sports associations, clearly indicating their juridical personality. However, such does not automatically take place by mere passage of the laws. Before a corp may acquire juridical personality, the State must give its consent either in the form of a special law or a general enabling act. Nowhere can it be found in RA 3135 & PD 604 any provision creating the Philippine Football Federation. These laws merely recognized the existence of national sports associations & provided the manner by which they may acquire juridical personality.

The statutory provisions require that before an entity may be considered as a national sports association, such must be recognized by the accrediting organization, the Philippine Amateur Athletic Federation under RA 3135 & the Department of Youth & Sports Development under PD 604. In attempting to prove juridical existence of the Federation, Kahn attached a copy of the constitution & by-laws of the Federation this doesnt prove the said Federation has been recognized & accredited. Any person acting or purporting to act on behalf of a corp w/c has no valid existence assumes such privileges & obligations & becomes personally liable for contracts entered into or for such other acts performed as such agent. Hence, Kahn should be liable for the unpaid obligations of the unincorporated Federation. He is presumed to have known of the corp existence or nonexistence of the Federation. Doctrine of Corporation by Estoppel applies to third persons only when he tries to escape liability on a contract from w/c he has benefited on the irrelevant ground of Defective Corporation. Here, IETTSI is not trying to escape liability from the contract but rather is the 1 claiming from it. China Banking Corporation vs. Court of Appeals [GR 117604, 26 March 1997] Facts: On 21 August 1974, Galicano Calapatia, Jr., a stockholder of Valley Golf & Country Club, Inc. (VGCCI), pledged his Stock Certificate 1219 to China Banking Corporation (CBC). On 16 September 1974, CBC wrote VGCCI requesting that the pledge agreement be recorded in its books. In a letter dated 27 September 1974, VGCCI replied that the deed of pledge executed by Calapatia in CBC's favor was duly noted in its corporate books. On 3 August 1983, Calapatia obtained a loan of P20,000.00 from CBC, payment of which was secured by the pledge agreement still existing between Calapatia and CBC. Due to Calapatia's failure to pay his obligation, CBC, on 12 April 1985, filed a petition for extrajudicial foreclosure before Notary Public Antonio T. de Vera of Manila, requesting the latter to conduct a public auction sale of the pledged stock. On 14 May 1985, CBC informed VGCCI of the foreclosure proceedings and requested that the pledged stock be transferred to its name and the same be recorded in the corporate books. However, on 15 July 1985, VGCCI wrote CBC expressing its inability to accede to CBC's request in view of Calapatia's unsettled accounts with the club. Despite the foregoing, Notary Public de Vera held a public auction on 17 September 1985 and CBC emerged as the highest bidder at P20,000.00 for the pledged stock. Consequently, CBC was issued the corresponding certificate of sale. On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of his overdue account in the amount of P18, 783.24. Said notice was followed by a demand letter dated 12 December 1985 for the same amount and another notice dated 22 November 1986 for P23,483.24. On 4 December 1986, VGCCI caused to be published in the newspaper Daily Express a notice of auction sale of a number of its stock certificates, to be held on 10 December 1986 at 10:00 a.m. Included therein was Calapatia's own share of stock (Stock Certificate 1219). Through a letter dated 15 December 1986, VGCCI informed Calapatia of the termination of his membership due to the sale of his share of stock in the 10 December 1986 auction. On 5 May 1989, CBC advised VGCCI that it is the new owner of Calapatia's Stock Certificate 1219 by virtue of being the highest bidder in the 17 September 1985 auction and requested that a new certificate of stock be issued in its name. On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's stock was sold at the public auction held on 10 December 1986 for P25,000.00. On 9 March 1990, CBC protested the sale by VGCCI of the subject share of stock and thereafter filed a case with the Regional Trial Court of Makati for the nullification of the 10 December 1986 auction and for the issuance of a new stock certificate in its name. On 18 June 1990, the Regional Trial Court of Makati dismissed the complaint for lack of jurisdiction over the subject matter on the theory that it involves an intra-corporate dispute and on 27 August 1990 denied CBC's motion for reconsideration. On 20 September 1990, CBC filed a complaint with the Securities and Exchange Commission (SEC) for the nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate issued pursuant thereto; for the issuance of a new certificate in petitioner's name; and for damages, attorney's fees and costs of litigation. On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of VGCCI, stating in the main that considering that the said share is delinquent, VGCCI had valid reason not to transfer the share in the name of CBC in the books of VGCCI until liquidation of delinquency. Consequently, the case was dismissed. On 14 April 1992, Hearing Officer Perea denied CBC's motion for reconsideration. CBC appealed to the SEC en banc and on 4 June 1993, the Commission issued an order reversing the decision of its hearing officer; holding that CBC has a prior right over the

pledged share and because of pledgor's failure to pay the principal debt upon maturity, CBC can proceed with the foreclosure of the pledged share; declaring that the auction sale conducted by VGCCI on 10 December 1986 is declared NULL and VOID; and ordering VGCCI to issue another membership certificate in the name of CBC. VGCCI sought reconsideration of the order. However, the SEC denied the same in its resolution dated 7 December 1993. The sudden turn of events sent VGCCI to seek redress from the Court of Appeals. On 15 August 1994, the Court of Appeals rendered its decision nullifying and setting aside the orders of the SEC and its hearing officer on ground of lack of jurisdiction over the subject matter and, consequently, dismissed CBC's original complaint. The Court of Appeals declared that the controversy between CBC and VGCCI is not intra-corporate; nullifying the SEC orders and dismissing CBCs complaint. CBC moved for reconsideration but the same was denied by the Court of Appeals in its resolution dated 5 October 1994. CBC filed the petition for review on certiorari. Issue: Whether CBC is bound by VGCCI's by-laws. Held: In order to be bound, the third party must have acquired knowledge of the pertinent by-laws at the time the transaction or agreement between said third party and the shareholder was entered into. Herein, at the time the pledge agreement was executed. VGCCI could have easily informed CBC of its by-laws when it sent notice formally recognizing CBC as pledgee of one of its shares registered in Calapatia's name. CBC's belated notice of said by-laws at the time of foreclosure will not suffice. By-laws signifies the rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it. In other words, by-laws are the relatively permanent and continuing rules of action adopted by the corporation for its own government and that of the individuals composing it and having the direction, management and control of its affairs, in whole or in part, in the management and control of its affairs and activities. The purpose of a by-law is to regulate the conduct and define the duties of the members towards the corporation and among themselves. They are self-imposed and, although adopted pursuant to statutory authority, have no status as public law. Therefore, it is the generally accepted rule that third persons are not bound by by-laws, except when they have knowledge of the provisions either actually or constructively. For the exception to the general accepted rule that third persons are not bound by by-laws to be applicable and binding upon the pledgee, knowledge of the provisions of the VGCCI By-laws must be acquired at the time the pledge agreement was contracted. Knowledge of said provisions, either actual or constructive, at the time of foreclosure will not affect pledgee's right over the pledged share. Article 2087 of the Civil Code provides that it is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists maybe alienated for the payment to the creditor. Further, VGCCI's contention that CBC is duty-bound to know its bylaws because of Article 2099 of the Civil Code which stipulates that the creditor must take care of the thing pledged with the diligence of a good father of a family, fails to convince. CBC was never informed of Calapatia's unpaid accounts and the restrictive provisions in VGCCI's by-laws. Furthermore, Section 63 of the Corporation Code which provides that "no shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation" cannot be utilized by VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from unpaid subscription, and not to any indebtedness which a subscriber or stockholder may owe the corporation arising from any other transaction." Herein, the subscription for the share in question has been fully paid as evidenced by the issuance of Membership Certificate 1219. What Calapatia owed the corporation were merely the monthly dues. Hence, Section 63 does not apply. Republic Planters Bank vs. Agana, Sr. [March 3, 1997] Rights of Holders of Perferred Shares Legality of Interest Bearing Shares 1. Private respondent Robes Francisco Realty & Devt Corp. secured a loan from petitioner in the amount of P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were issued to private respondent corporation. In other words, instead of giving the legal tender totaling to the full amount of the loan which is P120,000.00, petitioner lent such amount partially in the form of stock certificates numbered 3204 and 3205, each for 400 shares with a par value of

P10.00 per share, or for P4,000 each, for a total of P8,000.00. Said stock certificates were in the name of private respondent Adalia Robes and Carlos Robes, who, however, subsequently endorsed his shares in favor of Adalia Robes. Said certificates of stock bear the following terms and conditions: 1. The right to receive a quarterly dividend of 1%, cumulative and participating. 2. That such preferred shares may be redeemed, by the system of drawing lots, at any time after 2 years from the date of issue at the option of the Corporation. Private respondents proceeded against petitioner and filed a complaint anchored on private respondents alleged rights to collect dividends under the preferred shares in question and to have petitioner redeem the same under the terms and conditions of the stock certificates. The trial court ordered the petitioner to pay private respondents the face value of the stock certificates as redemption price, plus 1% quarterly interest. Hence this petition. Issue: W/N respondents have the right to collect dividends and whether they can compel petitioner to redeem the preferred shares. Held: 1. A preferred share of stock is one which entitles the holder thereof to certain preferences over the holders of common stock. The preferences are designed to induce persons to subscribe for shares of a corporation. Preferred shares take a multiplicity of forms. The most common forms may be classified into two: (1) preferred shares as to assets; and (2) preferred as to dividends. The former is a share which gives the holder thereof the preference in the distribution of the assets of the corporation in case of liquidation; the latter is a share the holder of which is entitled to receive dividends on said share to the extent agreed upon before any dividends at all are paid to the holders of common stock. There is no guarantee, however, that the share will receive any dividends. 2. Preferences granted to preferred stockholders do not give them a lien upon the property of the corporation nor make them creditors of the corporation, the right of the former being always subordinate to the latter. Shareholders, both common and preferred are considered risk takers who invest capital in the business arid who can look only to what is left after corporate debts and liabilities are fully paid. 3. Redeemable shares are shares usually preferred, which by their terms are redeemable at a fixed date, or at the option of either issuing corporation, or the stockholder, or both at certain redemption price; redemption may not be made where the corporation is insolvent or if such redemption will cause insolvency or inability of the corporation to meet its debts as they mature. 4. While the stock certificates in the case at bar does allow redemption, the option to do so was clearly vested in the petitioner bank. The redemption is therefore optional. 5. The redemption of said shares cannot be allowed. The Central Bank made a finding that said petitioner has been suffering from chronic reserve deficiency, and that such finding resulted in the directive prohibiting the petitioner bank from redeeming any preferred share, on the ground that said redemption would reduce the assets of the Bank to the prejudice of its depositors and creditors. Redemption of preferred shares was prohibited for a just and valid reason. 6. Interest bearing stocks, on which the corporation agrees absolutely to pay interest before dividends are paid to common stockholders, is legal only when construed as requiring payment of interest as dividends from net earnings or surplus only. Republic of the Philippines vs. Cocofed [GRs 147062-64, 14 December 2001] . Facts: Immediately after the 1986 EDSA Revolution, then President Corazon C. Aquino issued Executive Orders 1, 5 2 6 and 14. On the explicit premise that vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad, the Presidential Commission on Good Government (PCGG) was created by Executive Order 1 to assist the President in the recovery of the ill-gotten wealth thus accumulated whether located in the Philippines or abroad. Executive Order 2 stated that the illgotten assets and properties are in the form of bank accounts, deposits, trust accounts, shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in various countries of the world. Executive Order 14, on the other hand, empowered the PCGG, with the assistance of the Office of the Solicitor General and other government agencies, inter alia, to file and prosecute all cases

investigated by it under EOs 1 and 2. Pursuant to these laws, the PCGG issued and implemented numerous sequestrations, freeze orders and provisional takeovers of allegedly ill-gotten companies, assets and properties, real or personal. Among the properties sequestered by the Commission were shares of stock in the United Coconut Planters Bank (UCPB) registered in the names of the alleged one million coconut farmers, the so-called Coconut Industry Investment Fund companies (CIIF companies) and Eduardo Cojuangco Jr. In connection with the sequestration of the said UCPB shares, the PCGG, on 31 July 1987, instituted an action for reconveyance, reversion, accounting, restitution and damages (Case 0033) in the Sandiganbayan. On 15 November 1990, upon Motion of COCOFED, the Sandiganbayan issued a Resolution lifting the sequestration of the subject UCPB shares on the ground that COCOFED and the so-called CIIF companies had not been impleaded by the PCGG as parties-defendants in its 31 July 1987 Complaint for reconveyance, reversion, accounting, restitution and damages. The Sandiganbayan ruled that the Writ of Sequestration issued by the Commission was automatically lifted for PCGGs failure to commence the corresponding judicial action within the six-month period ending on 2 August 1987 provided under Section 26, Article XVIII of the 1987 Constitution. The anti-graft court noted that though these entities were listed in an annex appended to the Complaint, they had not been named as parties-respondents. The Sandiganbayan Resolution was challenged by the PCGG in a Petition for Certiorari (GR 96073) in the Supreme Court. Meanwhile, upon motion of Cojuangco, the anti-graft court ordered the holding of elections for the Board of Directors of UCPB. However, the PCGG applied for and was granted by this Court a Restraining Order enjoining the holding of the election. Subsequently, the Court lifted the Restraining Order and ordered the UCPB to proceed with the election of its board of directors. Furthermore, it allowed the sequestered shares to be voted by their registered owners. The victory of the registered shareholders was fleeting because the Court, acting on the solicitor generals Motion for Clarification/Manifestation, issued a Resolution on 16 February 1993, declaring that the right of COCOFED, et. al. to vote stock in their names at the meetings of the UCPB cannot be conceded at this time. That right still has to be established by them before the Sandiganbayan. Until that is done, they cannot be deemed legitimate owners of UCPB stock and cannot be accorded the right to vote them. On 23 January 1995, the Court rendered its final Decision in GR 96073, nullifying and setting aside the 15 November 1990 Resolution of the Sandiganbayan which lifted the sequestration of the subject UCPB shares. A month thereafter, the PCGG pursuant to an Order of the Sandiganbayan subdivided Case 0033 into eight Complaints (Cases 0033-A to 0033-H). Six years later, on 13 February 2001, the Board of Directors of UCPB received from the ACCRA Law Office a letter written on behalf of the COCOFED and the alleged nameless one million coconut farmers, demanding the holding of a stockholders meeting for the purpose of, among others, electing the board of directors. In response, the board approved a Resolution calling for a stockholders meeting on 6 March 2001 at 3 p.m. On 23 February 2001, COCOFED, et al. and Ballares, et al. filed the Class Action Omnibus Motion in Sandiganbayan Civil Cases 0033-A, 0033-B and 0033-F, asking the Sandiganbayan to enjoin the PCGG from voting the UCPB shares of stock registered in the respective names of the more than one million coconut farmers; and to enjoin the PCGG from voting the SMC shares registered in the names of the 14 CIIF holding companies including those registered in the name of the PCGG. On 28 February 2001, the Sandiganbayan, after hearing the parties on oral argument, issued the Order, authorizing COCOFED, et. al. and Ballares, et. al. as well as Cojuangco, as are all other registered stockholders of the United Coconut Planters Bank, until further orders from the Court, to exercise their rights to vote their shares of stock and themselves to be voted upon in the United Coconut Planters Bank (UCPB) at the scheduled Stockholders Meeting on 6 March 2001 or on any subsequent continuation or resetting thereof, and to perform such acts as will normally follow in the exercise of these rights as registered stockholders. The Republic of the Philippines represented by the PCGG filed the petition for certiorari. Issue: Whether the PCGG can vote the sequestered UCPB shares. Held: The registered owner of the shares of a corporation exercises the right and the privilege of voting. This principle applies even to shares that are sequestered by the government, over which the PCGG as a mere conservator cannot, as a general rule, exercise acts of dominion. On the other

hand, it is authorized to vote these sequestered shares registered in the names of private persons and acquired with allegedly ill-gotten wealth, if it is able to satisfy the two-tiered test devised by the Court in Cojuangco v. Calpo and PCGG v. Cojuangco Jr. Two clear public character exceptions under which the government is granted the authority to vote the shares exist (1) Where government shares are taken over by private persons or entities who/which registered them in their own names, and (2) Where the capitalization or shares that were acquired with public funds somehow landed in private hands. The exceptions are based on the common-sense principle that legal fiction must yield to truth; that public property registered in the names of non-owners is affected with trust relations; and that the prima facie beneficial owner should be given the privilege of enjoying the rights flowing from the prima facie fact of ownership. In short, when sequestered shares registered in the names of private individuals or entities are alleged to have been acquired with ill-gotten wealth, then the two-tiered test is applied. However, when the sequestered shares in the name of private individuals or entities are shown, prima facie, to have been (1) originally government shares, or (2) purchased with public funds or those affected with public interest, then the two-tiered test does not apply. Rather, the public character exceptions in Baseco v. PCGG and Cojuangco Jr. v. Roxas prevail; that is, the government shall vote the shares. Herein, the money used to purchase the sequestered UCPB shares came from the Coconut Consumer Stabilization Fund (CCSF), otherwise known as the coconut levy funds. The sequestered UCPB shares are confirmed to have been acquired with coco levies, not with alleged ill-gotten wealth. As the coconut levy funds are not only affected with public interest, but are in fact prima facie public funds, the Court believes that the government should be allowed to vote the questioned shares, because they belong to it as the prima facie beneficial and true owner. The Sandiganbayan committed grave abuse of discretion in grossly contradicting and effectively reversing existing jurisprudence, and in depriving the government of its right to vote the sequestered UCPB shares which are prima facie public in character.