AUTHOR: Arthur Archie Tiu 001 Excellent Quality Apparel, Inc. v. Win MultipleRich Builders, Inc.

, -case involves a claim for a sum of money which arose from February 10, 2009, G.R. No. 175048 a construction dispute. TOPIC: Sole Proprietorship - wouldve continued if there was deed of assignment PONTENTE: TINGA, J. FACTS 1. On 26 March 1996, petitioner Excellent Quality Apparel, Inc. (petitioner) then represented by Max L.F. Ying, VicePresident for Productions, and Alfiero R. Orden, Treasurer, entered into a contract with Multi-Rich Builders (Multi-Rich) represented by Wilson G. Chua (Chua), its President and General Manager, for the construction of a garment factory 2. The construction of the factory building was completed on 27 November 1996. 3. Respondent Win Multi-Rich Builders, Inc. (Win) was incorporated with the (SEC) on 20 February 1997 with Chua as its President and General Manager. On 26 January 2004, Win filed a complaint for a sum of money against petitioner and Mr. Ying amounting to P8,634,448.20. It also prayed for the issuance of a writ of attachment claiming that Mr. Ying was about to abscond and that petitioner was about to close. 4. Petitioner filed an Omnibus Motion claiming that it was neither about to close. It also denied owing anything to Win, as it had already paid all its obligations to it. Lastly, it questioned the jurisdiction of the trial court from taking cognizance of the case. Petitioner pointed to the presence of the Arbitration Clause and it asserted that the case should be referred to the Construction Industry Arbitration Commission (CIAC) pursuant to Executive Order (E.O.) No. 1008. 5. on 10 February 2004, the counsel of Win moved that its name in the case be changed from Win Multi-Rich Builders, Inc. to Multi-Rich Builders, Inc. It was only then that petitioner apparently became aware of the variance in the name of the plaintiff. In the Reply[15] filed by petitioner, it moved to dismiss the case since Win was not the contractor and neither a party to the contract, thus it cannot institute the case. 6. Win admitted that it was only incorporated on 20 February 1997 while the construction contract was executed on 26 March 1996. Likewise, it admitted that at the time of execution of the contract, Multi-Rich was a registered sole proprietorship and was issued a business permit by the Office of the Mayor of Manila. 7. the RTC denied the motion and stated that the issues can be answered in a full-blown trial. Upon its denial, petitioner filed its Answer and prayed for the dismissal of the case. 8. Petitioner filed a Motion for Reconsideration [29] which was subsequently denied in a resolution. ISSUE: does Win have a legal personality to institute the present case;

HELD: No

RATIO: - Win admitted that the contract was executed between Multi-Rich and petitioner. It further admitted that Multi-Rich was a sole proprietorship with a business permit issued by the Office of the Mayor of Manila. A sole proprietorship is the oldest, simplest, and most prevalent form of business enterprise.It is an unorganized business owned by one person. The sole proprietor is personally liable for all the debts and obligations of the business. - The original petition was instituted by Win, which is a SEC-registered corporation. It filed a collection of sum of money suit which involved a construction contract entered into by petitioner and Multi-Rich, a sole proprietorship. The counsel of Win wanted to change the name of the plaintiff in the suit to Multi-Rich. The change cannot be countenanced. The plaintiff in the collection suit is a corporation. The name cannot be changed to that of a sole proprietorship. Again, a sole proprietorship is not vested with juridical personality to file or defend an action. - In order for a corporation to be able to file suit and claim the receivables of its predecessor in business, in this case a sole proprietorship, it must show proof that the corporation had acquired the assets and liabilities of the sole proprietorship. Win could have easily presented or attached any document e.g., deed of assignment which will show whether the assets, liabilities and receivables of Multi-Rich were acquired by Win. Having been given the opportunity to rebut the allegations made by petitioner, Win failed to use that opportunity. Thus, we cannot presume that Multi-Rich is the predecessor-in-business of Win and hold that the latter has standing to institute the collection suit.

CASE LAW/ DOCTRINE: 1. A suit may only be instituted by the real party in interest. Section 2, Rule 3 of the Rules of Court defines parties in interest in this manner: A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be prosecuted or defended in the name of the real party in interest.

002 Pioneer Insurance & Surety Corporation vs. Court of Appeals July 28, 1989 G.R. 84197 and G.R. 84157 TOPIC: Defect in forming a Corporation PONENTE: GUTIERREZ, JR.

AUTHOR: Chedelle Florido *Agreements have the force of law between the parties. (Herrera vs. Petrophil Corp., 146 SCRA 385) *The fact that there was a misunderstanding does not convert the partnership into a sham organization. (Monasque vs. CA, 139 SCRA 533)

FACTS 1. Jacob S. Lim owned (single proprietorship) Southern Air Lines (SAL). 2. On May 17, 1965, Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract for the sale and purchase of 2 DC-3A Type aircrafts and 1 set of necessary spare parts for the total agreed price of US $109,000.00 to be paid in installments. Both aircrafts came in June and July 1965. 3. On May 22, 1965, Pioneer Insurance and Surety Corporation as surety executed and issued its Surety Bond No. 6639 in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts and spare parts. 4. It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana contributed some funds used in the purchase of the above aircrafts and spare parts. The funds were supposed to be their contributions to a new corporation proposed by Lim to expand his airline business. 5. They executed 2 separate indemnity agreements in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses (stipulated that the indemnitors principally agree and bind themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against any/all damages, losses, costs, damages, taxes, penalties, charges and expenses of whatever kind and nature which Pioneer may incur in consequence of having become surety upon the bond/note and to pay, reimburse and make good to Pioneer, its successors and assigns, all sums and amounts of money which it or its representatives should or may pay or cause to be paid or become liable to pay on them of whatever kind and nature). 6. On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer a deed of chattel mortgage as security for the suretyship (stipulated therein that Lim transfer and convey to the surety the two aircrafts). The deed was duly registered with the Office of the Register of Deeds of the City of Manila and with the Civil Aeronautics Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law. 7. Lim defaulted on his subsequent installment payments. JDA requested payments from the surety. Pioneer paid a total sum of P298,626.12. 8. On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana. 9. In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not privies to the contracts signed by Lim and, by way of counterclaim, sought for damages for being exposed to litigation and for recovery of the sums of money they advanced to Lim for the purchase of the aircrafts in question. CFI - decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's complaint against all other defendants. CA - modified the trial court's decision in that the plaintiffs complaint against all the defendants was dismi ssed. In all other respects the trial court's decision was affirmed. ISSUE: #1 WON a de facto partnership was formed by the parties (Lim, Cervanteses, Bormaheco and Maglana). #2 WON persons who attempt, but fail, to form a corporation creates a partnership inter se. HELD: : #1 NO. #2 YES.

RATIO: #1 The record shows that the petitioner was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts. Hence, no de facto partnership was created among the parties which would entitle the petitioner to a reimbursement of the supposed losses of the proposed corporation. #2 While it has been held that as between themselves the rights of the stockholders in a defectively incorporated association should be governed by the supposed charter and the laws of the state relating thereto and not by the rules governing partners, it is ordinarily held that persons who attempt, but fail, to form a corporation and who carry on business under the corporate name occupy the position of partners inter se. Thus, where persons associate themselves together under articles to purchase property to carry on a business, and their organization is so defective as to come short of creating a corporation within the statute, they become in legal effect partners inter se, and their rights as members of the company to the property acquired by the company will be recognized.

** However, such a relation does not necessarily exist, for ordinarily persons cannot be made to assume the relation of partners, as between themselves, when their purpose is that no partnership shall exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied only when necessary to do justice between the parties; thus, one who takes no part except to subscribe for stock in a proposed corporation which is never legally formed does not become a partner with other subscribers who engage in business under the name of the pretended corporation, so as to be liable as such in an action for settlement of the alleged partnership and contribution (Ward v. Brigham, 127 Mass. 24). CASE LAW/ DOCTRINE: *Agreements have the force of law between the parties. (Herrera vs. Petrophil Corp., 146 SCRA 385) *The fact that there was a misunderstanding does not convert the partnership into a sham organization. (Monasque vs. CA, 139 SCRA 533) * A partnership relation between certain stockholders and other stockholders, who were also directors, will not be implied in the absence of an agreement, so as to make the former liable to contribute for payment of debts illegally contracted by the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics supplied).

003 Lim Tong Lim v. Philippine Fishing Gear Industries, Inc. (November 3, 1999, G.R. No. 136448) TOPIC: Corporation by Estoppel PONENTE: Panganiban, J.

AUTHOR: De Silva, Denison Note: Corporation by Estoppel: Those who act or purport to act as the representatives or agents of an ostensible (sham) entity who is prove to be legally inexistent do so without authority and at their own risk.

FACTS: 1. Antonio Chua and Peter Yao entered into a Contract for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total price of the nets amounted to P532, 045. 2. The buyers, failed to pay for the fishing nets and the floats; hence, private respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. 3. The suit was brought against the three in their capacities as general partners, on the allegation that Ocean Quest Fishin g Corporation was a nonexistent corporation as shown by a Certification from the Securities and Exchange Commission. 4. 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. 5. Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to pay, while 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. 6. 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 private respondent, ordered the sale of the fishing nets at a public auction. Respondent won the public bidding. The trial court ruled that the three were liable jointly. 7. The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability could be presumed from the equal distribution of the profit and loss. 8. Lim appealed to the Court of Appeals (CA) which affirmed the decision of the RTC. ( CA found that they undertook a partnership) 9. Petitioner Lim appealed to the Supreme Court ISSUE: 1. Whether or not Petitioner Lim Tong Lim, Chua and Yao could be deemed to have entered into a partnership? 2. Whether Chua and Yao are the only parties liable by reason of the doctrine of corporation by estoppel? HELD: 1. Yes, the facts as found by the two lower courts clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code. 2. No, 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. RATIO: 1. Facts of the existence of a partnership: Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while Antonio Chua was already Yaos partner. Lim, Chua, and Yao verbally agreed to acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million. They bought the boats from CMF Fishing Corporation. 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. 2. Corporation by Estoppel Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not to him. The Court held that under Section 21 of the Corporation Code, 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. Sec. 21. Corporation by estoppel. - 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. 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. Petitioner Lim 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. Petition DENIED. CASE LAW/ DOCTRINE: 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. DISSENTING/CONCURRING OPINION: Vitug, J.(Concurring) The association formed by Chua, Yao and Lim, should be, as it has been deemed, a de facto partnership with all the consequent obligations for the purpose of enforcing the rights of third persons. The liability of general partners (in a general partnership as so opposed to a limited partnership) is laid down in Article 1816 which posits that all partners shall be liable pro rata beyond the partnership assets for all the contracts which may have been entered into in its name, under its signature, and by a person authorized to act for the partnership. - consistently with the rules on the nature of civil liability in delicts and quasi-delicts.

004 KILOSBAYAN V GUINGONA May 5, 1994, G.R. No. 113375 TOPIC: Joint Venture PONENTE: DAVIDE, JR., J.

AUTHOR: Gelene Guevara *Joint venture is defined as an association of persons or companies jointly undertaking some commercial enterprise; generally all contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement to share both in profit and losses.

FACTS 1. In 1993, the Philippine Charity Sweepstakes Office decided to put up an on-line lottery system which will establish a national network system that will in turn expand PCSOs source of income. 2. A bidding was conducted where Philippine Gaming Management Corporation (PGMC) won. A contract of lease was awarded in favor of PGMC. 3. Kilosbayan opposed the said agreement between PCSO and PGMC as it alleged that: (a) PGMC does not meet the nationality requirement because it is 75% foreign owned (owned by a Malaysian firm Berjaya Group Berhad); (b) PCSO, under Section 1 of its charter (RA 1169), is prohibited from hol ding and conducting lotteries in collaboration, association or joint venture with any person, association, company or entity; (c) the network system sought to be built by PGMC for PCSO is a telecommunications network. Under the law (Act No. 3846), a franchise is needed to be granted by the Congress before any person may be allowed to set up such; and, (d) PGMCs articles of incorporation, as well as the Foreign Investments Act (R.A. No. 7042) does not allow it to install, establish and operate the on-line lotto and telecommunications systems. 4. PGMC and PCSO, through Teofisto Guingona, Jr. and Renato Corona, Executive Secretary and Asst. Executive Secretary respectively, alleged that PGMC is not a collaborator but merely a contractor for a piece of work, i.e., the building of the network; that PGMC is a mere lessor of the network it will build as evidenced by the nature of the contract agreed upon, i.e., Contract of Lease. ISSUE: Whether or not the contract of lease is legal and valid. HELD: The Court held that the challenged contract is not a contract of lease but a joint venture between PCSO and PGMC. It is illegal and invalid for being contrary to law as it violates the exception provided for in paragraph B, Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42 which prohibits the PCSO from holding and conducting lotteries in collaboration, association or joint venture with any person, association, company or entity, whether domestic or foreign. RATIO: The so-called Contract of Lease is not, therefore, what it purports to be. Its denomination as such is a crafty device, carefully conceived, to provide a built-in defense in the event that the agreement is questioned as violative of the exception in Section 1 (B) of the PCSO's charter. The acuity or skill of its draftsmen to accomplish that purpose easily manifests itself in the Contract of Lease. It is outstanding for its careful and meticulous drafting designed to give an immediate impression that it is a contract of lease. Yet, woven therein are provisions which negate its title and betray the true intention of the parties to be in or to have a joint venture for a period of eight years in the operation and maintenance of the on-line lottery system. Consistent with the above observations on the RFP, the PCSO has only its franchise to offer, while the PGMC represents and warrants that it has access to all managerial and technical expertise to promptly and effectively carry out the terms of the contract. And, for a period of eight years, the PGMC is under obligation to keep all the Facilities in safe condition and if necessary, upgrade, replace, and improve them from time to time as new technology develops to make the on-line lottery system more cost-effective and competitive; exclusively bear all costs and expenses relating to the printing, manpower, salaries and wages, advertising and promotion, maintenance, expansion and replacement, security and insurance, and all other related expenses needed to operate the on-line lottery system; undertake a positive advertising and promotions campaign for both institutional and product lines without engaging in negative advertising against other lessors; bear the salaries and related costs of skilled and qualified personnel for administrative and technical operations; comply with procedural and coordinating rules issued by the PCSO; and to train PCSO and other local personnel and to effect the transfer of technology and other expertise, such that at the end of the term of the contract, the PCSO will be able to effectively take over the Facilities and efficiently operate the on-line lottery system. The latter simply means that, indeed, the managers, technicians or employees who shall operate the on-line lottery system are not managers, technicians or employees of the PCSO, but of the PGMC and that it is only after the expiration of the contract that the PCSO will operate

the system. After eight years, the PCSO would automatically become the owner of the Facilities without any other further consideration. For these reasons, too, the PGMC has the initial prerogative to prepare the detailed plan of all games and the marketing thereof, and determine the number of players, value of winnings, and the logistics required to introduce the games, including the Master Games Plan. Of course, the PCSO has the reserved authority to disapprove them. 68 And, while the PCSO has the sole responsibility over the appointment of dealers and retailers throughout the country, the PGMC may, nevertheless, recommend for appointment dealers and retailers which shall be acted upon by the PCSO within fortyeight hours and collect and retain, for its own account, a security deposit from dealers and retailers in respect of equipment supplied by it. This joint venture is further established by the following: (a) Rent is defined in the lease contract as the amount to be paid to the PGMC as compensation for the fulfillment of its obligations under the contract, including, but not limited to the lease of the Facilities. However, this rent is not actually a fixed amount. Although it is stated to be 4.9% of gross receipts from ticket sales, payable net of taxes required by law to be withheld, it may be drastically reduced or, in extreme cases, nothing may be due or demandable at all because the PGMC binds itself to "bear all risks if the revenue from the ticket sales, on an annualized basis, are insufficient to pay the entire prize money." This risk-bearing provision is unusual in a lessor-lessee relationship, but inherent in a joint venture. (b) In the event of pre-termination of the contract by the PCSO, or its suspension of operation of the on-line lottery system in breach of the contract and through no fault of the PGMC, the PCSO binds itself "to promptly, and in any event not later than sixty (60) days, reimburse the Lessor the amount of its total investment cost associated with the On-Line Lottery System, including but not limited to the cost of the Facilities, and further compensate the LESSOR for loss of expected net profit after tax, computed over the unexpired term of the lease." If the contract were indeed one of lease, the payment of the expected profits or rentals for the unexpired portion of the term of the contract would be enough. (c) The PGMC cannot "directly or indirectly undertake any activity or business in competition with or adverse to the OnLine Lottery System of PCSO unless it obtains the latter's prior written consent." If the PGMC is engaged in the business of leasing equipment and technology for an on-line lottery system, we fail to see any acceptable reason why it should allow a restriction on the pursuit of such business. (d) The PGMC shall provide the PCSO the audited Annual Report sent to its stockholders, and within two years from the effectivity of the contract, cause itself to be listed in the local stock exchange and offer at least 25% of its equity to the public. If the PGMC is merely a lessor, this imposition is unreasonable and whimsical, and could only be tied up to the fact that the PGMC will actually operate and manage the system; hence, increasing public participation in the corporation would enhance public interest. (e) The PGMC shall put up an Escrow Deposit of P300,000,000.00 pursuant to the requirements of the RFP, which it may, at its option, maintain as its initial performance bond required to ensure its faithful compliance with the terms of the contract. (f) The PCSO shall designate the necessary personnel to monitor and audit the daily performance of the on-line lottery system; and promulgate procedural and coordinating rules governing all activities relating to the on-line lottery system. The first further confirms that it is the PGMC which will operate the system and the PCSO may, for the protection of its interest, monitor and audit the daily performance of the system. The second admits the coordinating and cooperative powers and functions of the parties. (g) The PCSO may validly terminate the contract if the PGMC becomes insolvent or bankrupt or is unable to pay its debts, or if it stops or suspends or threatens to stop or suspend payment of all or a material part of its debts.

005 Union Glass v. SEC and Carolina Holifea November 28, 1983 G.R. No. L-64013 TOPIC: Jurisdiction of the SEC PONENTE: Escolin, J.

AUTHOR: Myk Bercasio NOTES: Carolina Hofilea was a stockholder of Pioneer Glass and the complainant in the case lodged before the SEC. The Pioneer Glass was engaged in silica mines operation, glass and glassware manufacturing.

FACTS 1. In 1967, Pioneer Glass obtained various loan accommodations from Development Bank of the Philippines (DBP) and other local and foreign sources which DBP guaranteed. 2. As securities Pioneer Glass mortgaged and/or assigned its real and personal assets to DBP. Some of its corporate officers also made loans over their personal assets for the company. 3. The proceeds of the loans were used in the construction of a glass plant in Rosario, Cavite and the operation of 7 silica mining claims owned by the corporation. 4. The accumulated unpaid interests on various loans amounted to P5.4 million in January 1975 which increased by another P2.2 million in 1976. 5. DBP was able to control the outstanding shares of common stocks of Pioneer Glass earning them 3 regular seats in the corporations board of directors. 6. March 1978 - Pioneer Glass could no longer meet its financial obligations with DBP. 7. It entered into a dacion en pago agreement with DBP, whereby all its mortgaged assets, including the glass plant in Cavite, were relinquished to DBP to satisfy Pioneer Glass obligation amounting to P59 million. 8. DBP sold the glass plant to Union Glass. 9. On 1 April 1981, Carolina Hofilea filed a complaint before the respondent Securities and Exchange Commission (SEC) against the DBP, Union Glass and Pioneer Glass for the alleged illegality of the dacion en pago on the following grounds: [1] unilateral and unsupported undervaluation of the assets of Pioneer Glass covered by the agreement; [2] self-dealing of DBP for acting both as stockholder/director and secured creditor of Pioneer Glass; and [3] wrongful inclusion by DBP in its statement of account of P26M as due from Pioneer Glass when the same had already been converted into equity. 10. There are 5 causes of action but Union Glass is concerned only with the first cause of action as transferee and possessor of the glass plant. 11. Pioneer Glass moved for the dismissal of the case on the ground that SEC had no jurisdiction. 12. Reyes, the hearing officer, granted the motion to dismiss the case. 13. However, upon the motion for reconsideration of Hofilea he reversed his earlier decision. 14. Hence this petition. ISSUE: Whether or not the Securities and Exchange Commission has jurisdiction over the case. HELD: No. The joinder of Union Glass in the cause of action asserted against it brought it outside the jurisdiction of the SEC because it has no intra-corporate relation with either the complainant or the DBP. RATIO: 1.) Administrative agencies are tribunals of limited jurisdiction and must act only upon the power granted to them by their enabling statutes. 2.) The jurisdiction of the SEC (Section 5) must be viewed in the light of the nature and function of SEC (Section 3). 3.) Taken together, the law specifies that the jurisdiction of the SEC are on matters connected with the regulation of corporations, partnerships, and associations and those dealing with the internal affairs of these entities. 4.) The controversies that should be brought before it must pertain to any of the following relationships: a) between the corporation, partnership or association and the public; b) between the corporation, partnership or association and its stockholders, partners, members, or officers; c) between the corporation, partnership or association and the state in so far as its franchise, permit or license to operate is concerned; and d) among the stockholders, partners or associates themselves. 5.) Even though the Rules of Court applies suppletorily to proceedings before the SEC (which allows the joinder of cause of action) it is still subject to the rules regarding jurisdiction, venue, and joinder of parties. 6.) Union Glass has no intra-corporate relation with Hofilea which places the suit under the jurisdiction of the Regional Trial Court and not with the SEC. It cannot be joined as party-defendant in the case. 7.) WHAT SHOULD HAVE BEEN DONE ACCORDING TO THE SC: Hofileas should have filed the

complaint against petitioner for cancellation of the sale of the glass plant before the Regional Trial Courts. However, this would only be decided upon resolution of the SEC Case No. 2035 for the issue of the validity of the dacion en pago because it is the logical antecedent of the issue against Union Glass. CASE LAW/ DOCTRINE: The principal function of the SEC is the supervision and control over corporations, partnerships and associations with the end in view that investment in these entities may be encouraged and protected, and their activities pursued for the promotion of economic development. P.D. No. 902-A: Section 3. absolute jurisdiction, supervision, and control over all corporations, partnerships or associations, who are grantees of primary franchise and/or license or permit issued by the government to operate in the Philippines ... Section 5: In addition to the regulatory and adjudicative function of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and devices, it shall have original and exclusive jurisdiction to hear and decide cases involving: a) Devices and schemes employed by or any acts, of the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or the stockholders, partners, members of associations or organizations registered with the Commission b) Controversies arising out of intra-corporate or partnership relations, between 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 corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity; c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations. DISSENTING/CONCURRING OPINION: Aquino, J. 1) The petitioners are guilty of laches and non-exhaustion of the remedy of appeal with the Securities and Exchange Commission en banc. 2) The joinder of Union Glass does not divest the SEC of jurisdiction over the case because as its transfer the defenses of Union Glass are tied up with the defenses of the DBP in the intra-corporate dispute. Hofileas cause of action should not be split. 3) It would not be judicious and expedient to require Hofilea to sue the DBP and Union Glass in the Regional Trial Court. 4) The SEC is more competent than the said court to decide the intra-corporate dispute.

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AUTHOR: Jelena 006 ABEJO v. DE LA CRUZ May 19, 1987, No. L-63558 Intra-corporate disputes are under the SECs jurisdiction. TOPIC: Jurisdiction of the SEC PONENTE: TEEHANKEE, C.J. FACTS (2 consolidated cases) 1. Pocket Bell Philippines, Inc. (Pocket Bell) a tone and voice paging corporation. 2. Petitioner spouses Jose Abejo and Aurora Abejo (Abejos) are its principal stockholders. 3. Telectronic Systems, Inc. (Telectronics) purchased their 133,000 minority shareholdings for P5 million and 63,000 shares registered in the name of Virginia Braga which were covered by five stock certificates endorsed in blank by her for P1,674,450.00. 4. Spouses Agapito Braga and Virginia Braga (Bargas) were the majority stockholders, but with the said purchases, Telectronics would become the majority stockholder, holding 56% of the outstanding stock and voting power of Pocket Bell. 5. With the said purchases, Telectronics requested the corporate secretary of the corporation, Norberto Braga (son of the Bargas), to register and transfer to its name, and those of its nominees the total 196,000 Pocket Bell shares in the corporation's transfer book, cancel the surrendered certificates of stock and issue the corresponding new certificates of stock. 6. Braga refused to do so asserting and claiming pre-emptive rights over the 133,000 Abejo shares and that Virginia Braga never transferred her 63,000 shares to Telectronics but had lost the five stock certificates representing those shares. 7. The parties filed independent actions with different jurisdictions. 8. The Bragas assert that the regular civil court has original and exclusive jurisdiction as against the Securities and Exchange Commission, while the Abejos claim the contrary. (see RATIO for the actions filed**). ISSUE: Who, between the CFI (now RTC) and the SEC, has original and exclusive jurisdiction over the dispute? HELD: The SEC. Disputes involving controversies between and among stockholders fall within the original and exclusive jurisdiction of the SEC under Section 5 of PD 902-A. The dispute at bar is and intracorporate dispute that has arisen between and among the principal stockholders of Pocket Bell Corporation. Filing of action for rescission and annulment of sale of stocks before the RTC will in no way deprive the SEC of its primary and exclusive jurisdiction to grant or not the writ of mandamus ordering the registration of shares so transferred. Stockholders need not be a registered one before SEC can take cognizance of a suit seeking to enforce his right as stockholders. RATIO: 1. The SEC has jurisdiction over the matter as supported by the applicable provisions of P.D. No. 902-A which reorganized the SEC with additional powers including a more active public participation in the affairs of private corporations and enterprises through which desirable activities may be pursued for the promotion of economic development. 2. Nowhere does the law empower any CFI to interfere with the orders of the Commission and consequently any ruling by the trial court on the issue of ownership of the shares of stock is not binding on the Commission for want of jurisdiction. 3. A petition for mandamus in the SEC to compel the corporate secretary to register the transfers and issue new certificates in favor of Telectronics and its nominees was properly resorted to under Rule XXI, Section 1 of the SEC's New Rules of Procedure, which provides for the filing of such petitions with the SEC. Section 3 of said Rules further authorizes the SEC to issue orders expediting the proceedings and to grant a preliminary injunction for the preservation of the rights of the parties pending such proceedings. 4. The dispute falls within the general classification of cases within the SEC's original and exclusive jurisdiction to hear and decide, under Section 5 of the said law. 5. Insofar as the Bragas and their corporate secretary's refusal on behalf of the corporation Pocket Bell to record the transfer of the 56% majority shares to Telectronics may be deemed a device or scheme amounting to fraud and misrepresentation employed by them to keep themselves in control of the corporation to the detriment of Telectronics (as buyer and substantial investor in the corporate stock) and the Abejos (as substantial stockholderssellers), the case falls under paragraph (a). 6. The dispute is likewise an intra-corporate controversy between and among the majority and minority stockholders

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as to the transfer and disposition of the controlling shares of the corporation, failing under paragraph (b). 7. An intra-corporate controversy is one, which arises between a stockholder and the corporation. There is no distinction, qualification, nor any exemption whatsoever. 8. The provision is broad and covers all kinds of controversies between stockholders and corporations. The issue of whether or not a corporation is bound to replace a stockholder's lost certificate of stock is a matter purely between a stockholder and the corporation. It is a typical intra-corporate dispute. ** ACTIONS FILED: A. ABEJOS' ACTIONS IN SEC 1. The Abejos and Telectronics and the latter's nominees, as new majority shareholders, filed SEC Cases against the Bragas on December 17, 1982 and February 14, 1983. 2. In the first case, they prayed for mandamus from the SEC ordering Norberto Braga, to register in their names the transfer and sale of the 196,000 Pocket Bell shares. 3. In the other case, they prayed for injunction and a temporary restraining order to enjoin the Bragas from disbursing or disposing funds and assets of Pocket Bell and from performing functions of corporate officers. 4. Norberto Braga (Pocket Bell corporate secretary), filed a Motion to Dismiss the mandamus case contending that the SEC has no jurisdiction over the nature of the action since it does not involve an intracorporate controversy between stockholders, as Telectronics is not a stockholder of record of Pocket Bell. 5. SEC denied the motion. The corporate secretary filed a Motion for Reconsideration, which was granted. 6. The Bragas filed their Motion to Dismiss the injunction case. 7. The SEC three-man committee (created upon Abejos ex parte motion) issued an order reconsidering the dismissal of the mandamus petition and directed Norberto Braga to file his answer to the petitioner therein. B. BRAGAS' ACTION IN SEC 8. The Bragas filed a petition for certiorari, prohibition and mandamus with the SEC claiming that there was lack of jurisdiction. 9. The SEC en banc issued an order dismissing the Bragas' petition for lack of merit and at the same time ordering the SEC Hearing Committee to continue with the hearings, ruling that the "issue is not the ownership of shares but rather the nonperformance by the Corporate Secretary of the ministerial duty of recording transfers of shares of stock of the corporation of which he is secretary." 10. Bargas motion for reconsideration was denied. C. BRAGAS' ACTION IN CFI (NOW RTC) 11. The Bragas filed a complaint against the Abejos and Telectronics in the CFI of Pasig for: (a) rescission and annulment of the sale of the shares of stock in Pocket Bell made by the Abejos in favor of Telectronics (ground: it violated the Bragas' alleged pre-emptive right over the Abejos' shareholdings and an alleged perfected contract with the Abejos to sell those shares in their favor), (1st cause of action); plus damages for bad faith; and (b) declaration of nullity of any transfer, assignment or endorsement of Virginia Bragas' stock certificates for 63,000 shares in Pocket Bell to Telectronics for want of consent and consideration, alleging that said stock certificates, which were intended as security for a loan application and were thus endorsed by her in blank, had been lost (2nd cause of action). 12. The Abejos filed a Motion to Dismiss the complaint (ground: the SEC has original and exclusive jurisdiction and that the Bragas' suit is such a controversy as the issues involved therein are the stockholders" alleged pre-emptive rights, the validity of the transfer and endorsement of certificates of stock, the election of corporate officers and the management and control of the corporation's operations. (Granted). 13. The Bragas filed a motion for reconsideration. The Abejos opposed. 14. Respondent Judge de la Cruz issued an order rescinding the order and reviving the temporary restraining order restraining Telectronics' agents or representatives from assuming control Pocket Bell and discharging their functions. 15. The Abejos filed a motion for reconsideration, which was denied. D. ABEJOS' PETITION AT BAR 16. The Abejos, allege that the acts of respondent Judge in refusing to dismiss the complaint despite clear lack of jurisdiction over the action and in refusing to reconsider his erroneous position were performed without jurisdiction and with grave abuse of discretion (and to cancel the motions he already granted). E. BRAGAS' PETITION AT BAR 17.The Bragas, alleging in turn that the SEC has no jurisdiction over the cases.

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CASE LAW/ DOCTRINE: The SEC by express mandate has "absolute jurisdiction, supervision and control over all corporations" and is called upon to enforce the provisions of the Corporation Code, among which is the stock purchaser's right to secure the corresponding certificate in his name under the provisions of Section 63 of the Code. Needless to say, any problem encountered in securing the certificates of stock representing the investment made by the buyer must be expeditiously dealt with through administrative mandamus proceedings with the SEC, rather than through the usual tedious regular court procedure. Furthermore, as stated in the SEC order of April 13, 1983, notice given to the corporation of the sale of the shares and presentation of the certificates for transfer is, equivalent to registration: "Whether the refusal of the (corporation) to effect the same is invalid or not is still subject to the outcome of the hearing on the merits of the case. As the SEC maintains, "There is no requirement that a stockholder of a corporation must be a registered one in order that, the Securities and Exchange Commission may take cognizance of a suit seeking to enforce his rights as such stockholder."

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007 SEC v CA & CUALOPING SECURITIES AUTHOR: Dolina, Leon Chad Anthony Dolina CORPORATION AND FIDELITY STOCK Note: The petition before this Court relates to the exercise by the SEC of its powers in a case involving a stockbroker TRANSFERS, INC July 21, 1995, G.R. Nos. 106425 & 106431-32 (CUALOPING) and a stock transfer agency (FIDELITY). TOPIC: Jurisdiction of the SEC PONENTE: Vitug, J. FACTS: 1. Cualoping Securities Corporation (CUALOPING for brevity) is a stockbroker, Fidelity Stock Transfer, Inc. (FIDELITY for brevity), on the other hand, is the stock transfer agent of Philex Mining Corporation (PHILEX for brevity). 2. On or about the first half of 1988, certificates of stock of PHILEX representing one million four hundred [thousand] (1,400,000) shares were stolen from the premises of FIDELITY. These stock certificates consisting of stock dividends of certain PHILEX shareholders had been returned to FIDELITY for lack of forwarding addresses of the shareholders concerned. 3. Later, the stolen stock certificates ended in the hands of a certain Agustin Lopez, a messenger of New World Security Inc., an entirely different stock brokerage firm. In the first half of 1989, Agustin Lopez brought the stolen stock certificates to CUALOPING for trading and sale with the stock exchange. When the said stocks were brought to CUALOPING, all of the said stock certificates bore the "apparent" indorsement (signature) in blank of the owners (the stockholders to whom the stocks were issued by PHILEX) thereof. At the side of these indorsements (signatures), the words "Signature Verified" apparently of FIDELITY were stamped on each and every certificate. Further, on the words "Signature Verified" showed the usual initials of the officers of FIDELITY. 4. Upon receipt of the said certificates from Agustin Lopez, CUALOPING stamped each and every certificate with the words "Indorsement Guaranteed," and thereafter traded the same with the stock exchange. After the stock exchange awarded and confirmed the sale of the stocks represented by said certificates to different buyers, the same were delivered to FIDELITY for the cancellation of the stocks certificates and for issuance of new certificates in the name of the new buyers. Agustin Lopez on the other hand was paid by CUALOPING with several checks for Four Hundred Thousand (P400,000.00) Pesos for the value of the stocks. 5. After acquiring knowledge of the pilferage, FIDELITY conducted an investigation with assistance of the National Bureau of Investigation (NBI) and found that two of its employees were involved and signed the certificates. After two (2) months from receipt of said stock certificates, FIDELITY rejected the issuance of new certificates in favor of the buyers for reasons that the signatures of the owners of the certificates were allegedly forged and thus the cancellation and new issuance thereof cannot be effected. 6. FIDELITY sought an opinion on the matter from SEC. On 26 October 1988, the Brokers and Exchange Department ("BED") of the SEC disposed of the matter in this manner: WHEREFORE, Fidelity Stock Transfers, Inc., is hereby ordered to replace all the subject shares and to cause the transfer thereof in the names of the buyers within ten days from actual receipt hereof. Cualoping Securities, INC., for having violated Section 29 a(3) of the Revised Securities Act is hereby ordered to pay a fine of P50,000.00 within five (5) days from actual receipt hereof. 7. From the above resolution, as well as that which denied a motion for reconsideration, both CUALOPING and FIDELITY appealed to the Commission En Banc. On 14 December 1989, the Commission rendered its decision and concluded: WHEREFORE, premises considered, the Commission en banc finding both Cualoping Securities Corporation and Fidelity Stock Transfers, Inc. equally negligent in the performance of their duties hereby orders them to (1) jointly replace the subject shares and for Fidelity to cause the transfer thereof in the names of the buyers and (2) to pay a fine of P50,000,00 each for hav[ing] violated Section 29 (a) of the Revised Securities Act. 48. RTC ordered Jardine Davies and others to pay JRB Reaty Inc. 9. CA reversed the SEC and set aside SEC's order "without prejudice to the right of persons injured to file the proper action for damages."

ISSUE: Whether or not the SEC can exercise original and exclusive jurisdiction over the case? HELD: No. The stockholders who have been deprived of their certificates of stock or the persons to whom the forged certificates have ultimately been transferred by the supposed indorsee thereof are yet to initiate, if minded, an appropriate adversarial action. Neither have they been made parties to the proceedings.

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RATIO: 1. The Court held that a justiciable controversy such as would occasion an exercise of SEC's exclusive jurisdiction would require an assertion of a right by a proper party against another who, in turn, contests it. 2. In the case at bench, the proper parties that can bring the controversy and can cause an exercise by the SEC of its original and exclusive jurisdiction would be all or any of those who are adversely affected by the transfer of the pilfered certificates of stock. Any peremptory judgment by the SEC, without such proceedings having first been initiated, would be precipitate. The Court held that there was nothing erroneous in the decision of the Court of Appeals, albeit not for the reason given by it, to set aside the SEC's adjudication "without prejudice" to the right of persons injured to file the necessary proceedings for appropriate relief. 3. The other issue, i.e., the question on the legal propriety of the imposition by the SEC of a P50,000 fine on each of FIDELITY and CUALOPING, is an entirely different matter. This time, it is the regulatory power of the SEC which is involved. 4. To this end, The Court concluded that both FIDELITY and CUALOPING have been guilty of negligence in the conduct of their affairs involving the questioned certificates of stock. To constitute, however, a violation of the Revised Securities Act that can warrant an imposition of a fine under Section 29(3), in relation to Section 46 of the Act, fraud or deceit, not mere negligence, on the part of the offender must be established. Php 50,00 fine imposed by SEC on FIDELITY and CUALOPING is set aside. CASE LAW/ DOCTRINE: The Securities and Exchange Commission ("SEC") has both regulatory and adjudicative functions. Under its regulatory responsibilities, the SEC may pass upon applications for, or may suspend or revoke (after due notice and hearing), certificates of registration of corporations, partnerships and associations (excluding cooperatives, homeowners' associations, and labor unions); compel legal and regulatory compliances; conduct inspections; and impose fines or other penalties for violations of the Revised Securities Act, as well as implementing rules and directives of the SEC, such as may be warranted. Relative to its adjudicative authority, the SEC has original and exclusive jurisdiction to hear and decide controversies and cases involving a. Intra-corporate and partnership relations between or among the corporation, officers and stockholders and partners, including their elections or appointments; b. State and corporate affairs in relation to the legal existence of corporations, partnerships and associations or to their franchises; and c. Investors and corporate affairs, particularly in respect of devices and schemes, such as fraudulent practices, employed by directors, officers, business associates, and/or other stockholders, partners, or members of registered firms; as well as d. Petitions for suspension of payments filed by corporations, partnerships or associations possessing sufficient property to cover all their debts but which foresee the impossibility of meeting them when they respectively fall due, or possessing insufficient assets to cover their liabilities and said entities are upon petition or motu proprio, placed under the management of a Rehabilitation Receiver or Management Committee. DISSENTING/CONCURRING OPINION:

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008 MAGALAD v. PREMIERE FINANCING May 22, 1992 G.R. No. 87135 TOPIC: Jurisdiction of the SEC PONTENTE: PARAS, J. FACTS

AUTHOR: Rhona Burce Jurisdiction of the SEC in cases of fraud and misrepresentation committed by the Board of Directors, business associates, its officers or partners

1. Premiere is a financing company engaged in soliciting and accepting money market placements or deposits. 2. On September 12, 1983 Premiere induced and misled Magalad into making a money market placement of P50,000.00 at 22% interest per annum for which it issued a receipt. 3. Premier likewise issued two (2) post-dated checks in the total sum of P51,079.00 and assigned to Magalad its receivable from a certain David Saman for the same amount. 4. Note: Premieres permit to issue commercial papers was already expired at that time. 5. When the said checks were presented for payment on their due dates, the drawee bank dishonored the checks for lack of sufficient funds to cover the amount. 6. Premiere, for no valid reason, failed and refused to honor the demands of Magalad for payment. 7. On January 10, 1984, Magalad filed a complaint for damages with prayer for writ of preliminary attachment with the RTC. The lower court rendered a default judgment against Premiere. 8. Premiere then filed a motion for reconsideration alleging that the SEC has exclusive jurisdiction over a corporation under a state of suspension of payments. RTC denied the said motion. 9. On appeal by Premiere, the CA certified the case to the SC as it contains purely questions of law. Contention of Magalad: The legal suit, which she has brought against Premiere, is an ordinary action for damages with the preliminary attachment cognizable solely by the RTC. Premiere, on the other hand, espouses the original and exclusive jurisdiction of the Securities and Exchange Commission. ISSUE: Whether or not the RTC has jurisdiction to try the case? HELD: No. The Securities and Exchange Commission has jurisdiction because Magalads complaint alleges that Premiere resorted to devices or schemes amounting fraud and misrepresentation. Sec. 5(a) of PD 902-A provides that in addition to the regulatory and adjudicative functions, SEC shall have original and exclusive jurisdiction over cases involving (a) Devises or schemes employed by the BOD, business associates, officers/partners amounting to fraud and misrepresentation which may be detrimental to the public RATIO: 1. In this case, the recitals of the complaint sufficiently allege that Premiere Corporation has resorted to devices or schemes amounting to fraud and misrepresentation detrimental to the interest of the public. It cannot but be conceded, therefore, that the SEC may exercise its adjudicative powers pursuant to Sec. 5(a) of Pres. Decree No. 902-A. Presidential Decree No. 902-A, Section 3, provides: Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations, partnerships or associations, who are the grantees of primary franchises and/or a license or permit issued by the government to operate in the Philippines; and in the exercise of its authority, it shall have the power to enlist the aid and support of and to deputize any and all enforcement agencies of the government, civil or military as well as any private institution, corporation, firm, association or person. (As amended by Presidential Decree No. 1758).

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Sec. 3 of Pres. Decree No. 902-A should also be read in conjunction with Sec. 5 of the same law, providing: 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 the existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving: a) Devises or schemes employed by or any acts of the Board of Directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the public and/or to the stockholders, partners, members of associations or organizations registered with the Commission. 2. The fact that Premiere's authority to engage in financing already expired will not have the effect of divesting the SEC of its original and exclusive jurisdiction. 3. The Court stated that SEC can take cognizance of controversies pertaining to the following relationships between corporation, partnership or association and (a) the public, (b) its stockholders, partners, members or officers, (c) the State so far as its franchise, permit or license to operate is concerned; and (d) among the stockholders, partners or associates themselves. 4. The Court also held that SEC has jurisdiction because the said agency had already appointed a Rehabilitation Receiver for Premiere. Under PD 902-A Sec 6c, upon appointment of a rehabilitation receiver all actions for claims against corporations under receivership pending before any court shall be suspended By doing so, SEC has exercised its original and exclusive jurisdiction to hear and decide cases involving: a) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation, partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities but is under the management of a Rehabilitation Receiver or Management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree.

CASE LAW/ DOCTRINE: The Securities and Exchange Commission (SEC) shall have original and exclusive jurisdiction to hear and decide cases involving devises or schemes employed by or any acts of the Board of Directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the public.

**Note: PD 902-A : SEC Reorganization Act

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009 The Collector of Internal Revenue vs. Club Filipino May 31, 1962/ GR No. L-12719 TOPIC: Stock vs. Non-Stock Corporation PONTENTE: Regalado, J.

AUTHOR: Bea For a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital stock divided into shares and (2) an authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of the shares held (Sec. 3, Act No. 1459).

FACTS 1. This is a petition to review the decision of the Court of Tax Appeals, reversing the decision of the Collector of Internal Revenue, assessing against and demanding from the "Club Filipino, Inc. de Cebu", the sum of P12,068.84 as fixed and percentage taxes, surcharge allegedly due from it as a keeper of bar and restaurant. 2. As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," is a civic corporation organized under the laws of the Philippines with an original authorized capital stock of P22,000.00, which was subsequently increased to P200,000.00. 3. Neither in the articles or by-laws is there a provision relative to dividends and their distribution, although it is covenanted that upon its dissolution, the Club's remaining assets, after paying debts, shall be donated to a charitable Philippine Institution in Cebu. 4. The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and short orders to its members and their guests. The barrestaurant was a necessary incident to the operation of the club and its golf-course. The club is operated mainly with funds derived from membership fees and dues. 5. In 1952, a BIR agent discovered that the Club has never paid percentage tax on the gross receipts of its bar and restaurant. 6. In a letter dated December 22, 1852, the Collector of Internal Revenue assessed against and demanded from the Club: As percentage tax on its gross receipts during the tax years 1946 to 1955: P9,599.07 Surcharge therein: 2,399.77 As fixed tax for the years 1946 to 1952: 70.00 Compromise penalty: 500.00 7. The Club wrote the Collector, requesting for the cancellation of the assessment. The request having been denied, the Club filed the instant petition for review. ISSUE: W/N the appellee club is a stock corporation W/N the appellee club is liable to pay for the fixed and percentage taxes and for the penalties HELD: In both issues, the answer is NO. The club is a non-stock corporation. The club is also not liable to pay taxes and penalties. RATIO: The facts that the capital stock of the respondent Club is divided into shares, does not detract from the finding of the trial court that it is not engaged in the business of operator of bar and restaurant. What is determinative of whether or not the Club is engaged in such business is its object or purpose, as stated in its articles and by-laws. It is a familiar rule that the actual purpose is not controlled by the corporate form or by the commercial aspect of the business prosecuted, but may be shown by extrinsic evidence, including the by-laws and the method of operation. From the extrinsic evidence adduced, the Tax Court concluded that the Club is not engaged in the business as a barkeeper and restaurateur. Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital stock divided into shares and (2) an authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of the shares held (sec. 3, Act No. 1459). In the case at bar, nowhere in its articles of incorporation or by-laws could be found an authority for the distribution of its dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation, within the contemplation of the corporation law. A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit, nonstock organizations, unless the intent to the contrary is manifest and patent" which is not the case in the present appeal. Having arrived at the conclusion that respondent Club is not engaged in the business as an operator of a bar and restaurant, and therefore, not liable for fixed and percentage taxes, it follows that it is not liable for any penalty, much less of a compromise penalty.

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CASE LAW/ DOCTRINE: For a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital stock divided into shares and (2) an authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of the shares held (Sec. 3, Act No. 1459). DISSENTING/CONCURRING OPINION: N/A

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AUTHOR: Mercado, Christoher Dann C. 010 NATIONAL DEVELOPMENT COMPANY AND NEW AGRIX, INC., Petitioners, vs. PHILIPPINE VETERANS BANK, THE EX-OFFICIO SHERIFF and The Congress may create government-owned or controlled corporations (GOCCS) or government instrumentalities GODOFREDO QUILING, in his capacity as Deputy pursuant to SEC. 16, ART. XII, 1987 CONSTITUTION. Sheriff of Calamba, Laguna, Respondents. TOPIC: Classification of Private Corporation: other matters PONENTE:MEDIALDEA, J. FACTS 1. PD 1717 was issued by Marcos stating that all mortgages and other liens presently attaching to any of the assets of the dissolved corporations are hereby extinguished." 2. Agrix Marketing, Inc. (AGRIX) had executed in favor of private respondent Philippine Veterans Bank a real estate mortgage dated July 7, 1978, over three (3) parcels of land situated in Los Baos, Laguna. During the existence of the mortgage, AGRIX went bankrupt. It was for the expressed purpose of salvaging this and the other Agrix companies that the PD was issued by Pres Marcos. 3. Phil Veterans then filed a claim for the payment of its credit but the new Agrix Corp filed a petition for the cancellation of the mortgage pursuant to the PD. Another case was filed regarding the extrajudicial foreclosure of the property. 4. The RTC then rendered a decision rendering the PD unconstitutional for the following reasons: 1) residential exercise of legislative power was a violation of the principle of separation of powers; 2) the pthe law impaired the obligation of contracts; and (3) the decree violated the equal protection clause. 5. NDC states that PVB is estopped from questioning the validity of the PD since its constitutionality was raised in a previous case but was not resolved.

ISSUE: 1.) Whether or not the PD was constitutional? 2.) Whether or not the principle of estoppel is applicable? HELD: 1.) It was unconstitutional. A legislative act based on the police power requires the concurrence of a lawful subject and a lawful method. In more familiar words, a) the interests of the public generally, as distinguished from those of a particular class, should justify the interference of the state; and b) the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. 2.) No. Estoppel is not applicable since at the time of the enactment of the decree, Marcos was the ruler of the land. To rule now that the private respondent is estopped for having abided with the decree instead of boldly assailing it is to close our eyes to a cynical fact of life during RATIO: 1.) Applying these criteria to the case at bar, the Court finds first of all that the interests of the public are not sufficiently involved to warrant the interference of the government with the private contracts of AGRIX. The decree speaks vaguely of the "public, particularly the small investors," who would be prejudiced if the corporation were not to be assisted. However, the record does not state how many there are of such investors, and who they are, and why they are being preferred to the private respondent and other creditors of AGRIX with vested property rights. The public interest supposedly involved is not identified or explained. It has not been shown that by the creation of the New Agrix, Inc. and the extinction of the property rights of the creditors of AGRIX, the interests of the public as a whole, as distinguished from those of a particular class, would be promoted or protected. The indispensable link to the welfare of the greater number has not been established. On the contrary, it would appear that the decree was issued only to favor a special group of investors who, for reasons not given, have been preferred to the legitimate creditors of AGRIX.

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Assuming there is a valid public interest involved, the Court still finds that the means employed to rehabilitate AGRIX fall far short of the requirement that they shall not be unduly oppressive. The oppressiveness is patent on the face of the decree. The right to property in all mortgages, liens, interests, penalties and charges owing to the creditors of AGRIX is arbitrarily destroyed. No consideration is paid for the extinction of the mortgage rights. The accrued interests and other charges are simply rejected by the decree. The right to property is dissolved by legislative fiat without regard to the private interest violated and, worse, in favor of another private interest. 2.) The Court does not agree that the principle of estoppel is applicable. It is not denied that the private respondent did file a claim with the AGRIX Claims Committee pursuant to this decree. It must be noted, however, that this was done in 1980, when President Marcos was the absolute ruler of this country and his decrees were the absolute law. Any judicial challenge to them would have been futile, not to say foolhardy. The private respondent, no less than the rest of the nation, was aware of that reality and knew it had no choice under the circumstances but to conform.: nad ON TOP OF ALL THIS, New Agrix, Inc. was CREATED BY SPECIAL DECREE notwithstanding the provision of Article XIV, Section 4 of the 1973 Constitution(NOW, SEC. 16, ART. XII, 1987 CONSTITUTION), then in force, that: SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the formation, organization, or regulation of private corporations, unless such corporations are owned or controlled by the Government or any subdivision or instrumentality thereof. 4 The new corporation is NEITHER OWNED NOR CONTROL BY THE GOVERNMENT. The National Development Corporation was merely required to extend a loan of not more than P10,000,000.00 to New Agrix, Inc. Pending payment thereof, NDC would undertake the management of the corporation, but with the obligation of making periodic reports to the Agrix board of directors. After payment of the loan, the said board can then appoint its own management. The stocks of the new corporation are to be issued to the old investors and stockholders of AGRIX upon proof of their claims against the abolished corporation. They shall then be the owners of the new corporation. New Agrix, Inc. is entirely private and so SHOULD HAVE BEEN ORGANIZED UNDER THE CORPORATION LAW IN ACCORDANCE WITH THE ABOVECITED CONSTITUTIONAL PROVISION. CASE LAW/ DOCTRINE: The Congress may create government-owned or controlled corporations (GOCCS) or government instrumentalities pursuant to SEC. 16, ART. XII, 1987 CONSTITUTION: Section 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.

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011 Pioneer Insurance v. CA, 175 SCRA 668 (July 28, 1989, G.R. No. 84197 and G.R. 84157) TOPIC: Classification of Private Corporation (Other Matters) PONTENTE: GUTIERREZ, JR., J.

AUTHOR: SUPRA case. Relate the case on STOCK vs. NON-STOCK The TABLE for the difference in the ratio is NOT seen in the case. STOCK NON-STOCK Corporations which have All other private capital stock divided into corporations (3) shares and are authorized to distribute One where no part of its to the holders of shares income is distributable as dividends or allotments of dividends to its members, the surplus profits on the trustees or officers. (87) basis of the shares (3)

FACTS 1. In 1965, Jacob S. Lim was the owner-operator of Southern Air Lines (SAL) a single proprietorship. 2. On May 17, 1965, Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract. 3. It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana contributed some funds used in the purchase of aircrafts and spare parts. The funds were supposed to be their contributions to a new corporation proposed by Lim to expand his airline business. 4. They executed two (2) separate indemnity agreements in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. 5. The indemnity agreements stipulated that the indemnitors principally agree and bind themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against any/all damages. 6. Lim defaulted on his subsequent installment payments. JDA requested payments from the surety. Pioneer paid a total sum of P298,626.12. 7. On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana. 8. In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not privies to the contracts signed by Lim and, by way of counterclaim, sought for damages for being exposed to litigation and for recovery of the sums of money they advanced to Lim for the purchase of the aircrafts in question. 9. CFI - decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's complaint against all other defendants. 10. CA - modified the trial court's decision in that the plaintiffs complaint against all the defendants was dismissed. In all other respects the trial court's decision was affirmed. ISSUE: 1. WON the Corporation being formed by the defendants can be classified as a stock or non-stock corporation HELD: Yes, non-stock

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RATIO: B.P 68 Sec. 3. Classes of corporations. - Corporations formed or organized under this Code may be stock or nonstock corporations. Corporations which have capital stock divided into shares and are authorized to distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of the shares held are stock corporations. All other corporations are non-stock corporations. Sec. 87. Definition. - For the purposes of this Code, a non-stock corporation is one where no part of its income is distributable as dividends to its members, trustees, or officers

Following the definition of a non-stock corporation, it can be construed that the parties herein, invested to the business but never stated any desire to distribute its income. To wit: that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to expand his airline business. Lim was to procure two DC-3's from Japan and secure the necessary certificates of public convenience and necessity as well as the required permits for the operation thereof. Maglana sometime in May 1965, gave Cervantes his share of P75,000.00 for delivery to Lim which Cervantes did and Lim acknowledged receipt thereof. Cervantes, likewise, delivered his share of the undertaking. Lim in an undertaking sometime on or about August 9,1965, promised to incorporate his airline in accordance with their agreement and proceeded to acquire the planes on his own account. The following are classification under STOCK and NON-STOCK: STOCK Purpose Primarily to make profits for its shareholders May be formed or organized for charitable, religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes like trade, industry, agricultural and like chambers, or any combination thereof. (88) NON-STOCK

Distribution of Profits

Profit is distributed to shareholders

Whatever incidental profit made is not distributed among its members but is used for furtherance of its purpose. AOI or by-laws may provide for the distribution of its assets among its members upon its dissolution. Before then, no profit may be made by members. Members Each member, regardless of class, is entitled to one (1) vote UNLESS such right to vote has been limited, broadened, or denied in the AOI or by-laws. (Sec. 89)

Composition Scope of right to vote

Stockholders Each stockholder votes according to the proportion of his shares in the corporation. No shares may be deprived of voting rights except those classified and issued as "preferred" or "redeemable" shares, and as otherwise provided by the Code. (Sec. 6)

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Voting by proxy

Stockholders and members may vote in person or by proxy in all meetings of stockholders or members. (Sec. 58) May be denied by the AOI or the by-laws. (Sec. 89) May be authorized by the by-laws, with the approval of and under the conditions prescribed by the SEC. (Sec. 89)

Unless otherwise provided in the articles of incorporation or the bylaws, a member may vote by proxy in accordance with the provisions of this Code. (Sec. 89)

Voting by mail

Voting by mail or other similar means by members of non-stock corporations may be authorized by the by-laws of non-stock corporations with the approval of, and under such conditions which may be prescribed by, the Securities and Exchange Commission. (Sec. 89) Members of the corporation

Who exercises Corporate Board of Directors or Trustees Powers 23 Governing Board Board of Directors or Trustees, consisting of 5-15 directors / trustees.

Board of Trustees, which may consist of more than 15 trustees unless otherwise provided by the AOI or by-laws. (Sec, 92) Board classified in such a way that the term of office of 1/3 of their number shall expire every year. Subsequent elections of trustees comprising 1/3 of the board shall be held annually, and trustees so elected shall have a term of 3 years. (Sec. 92)

Term of trustees

directors

or Directors / trustees shall hold office for 1 year and until their successors are elected and qualified (Sec. 23).

Election of officers

Officers are elected by the Board of Directors (Sec. 25), except in close corporations where the stockholders themselves may elect the officers. (Sec. 97) Any place within the Philippines, if provided for by the by-laws (Sec. 93)

Officers may directly elected by the members UNLESS the AOI or bylaws provide otherwise. (Sec. 92)

Place of meetings

Generally, the meetings must be held at the principal office of the corporation, if practicable. If not, then anyplace in the city or municipality where the principal office of the corporation is located. (Sec. 51) Generally non-transferable since membership and all rights arising therefrom are personal. However,

Transferability of interest Transferable. or membership

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the AOI or by-laws can provide otherwise. (Sec. 90) Distribution of assets in case of dissolution See Sec. 94.

CASE LAW/ DOCTRINE:

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012 LYCEUM OF THE PHILIPPINES v. CA, March 5, 1994, G.R. No. 101897 TOPIC: Corporate Name PONENTE: Feliciano, J.

AUTHOR: JANNA ***Lyceum of the Philippines wanted to bar all other educational institutions from using the word Lyceum in their names.***

FACTS 1. Sept. 21, 1950 - Petitioner , an educational institution, registered with Securities and Exchange Commission (SEC) under the corporate name Lyceum of the Philippines, Inc. and has used the name ever since. 2. Sometime in the 70s, Petitioner filed a case against Lyceum of Baguio. 3. April 20, 1977 Decision in SEC-Case No. 1241 rendered in favor of Petitioner. Lyceum of Baguio, Inc. (LBI) ordered to change its corporate name, and to adopt a name not similar or identical to petitioner. 4. Julio Sulit, Associate Commissioner, held: Corporate name = substantially identical due to "dominant" word, "Lyceum," and the geographical name is the only distinguishing word + Petitioner registered ahead of LBI 5. LBI filed petition for review with SC = denied for lack of merit. Entry of judgment: Oct. 21, 1977. 6. Armed with SC Resolution in G.R. No. L-46595, petitioner wrote all educational institutions it could find with "Lyceum" as part of their corporate name, and advised them to discontinue such use. 7. Feb. 24, 1984 Petitioner filed before SEC to compel private respondents to delete the word "Lyceum" from their corporate names and permanently to enjoin them from using "Lyceum" as part of their respective names. 8. Some private respondents who actively participated in the proceedings before SEC are the following, including their SEC registration dates: (1) Western Pangasinan Lyceum 27 October 1950; (2) Lyceum of Cabagan 31 October 1962; Lyceum of Lallo, Inc. 26 March 1972; (3) Lyceum of Aparri 28 March 1972; (4) Lyceum of Tuao, Inc. 28 March 1972; (5) Lyceum of Camalaniugan 28 March 1972 Those declared in default: (1) Buhi Lyceum; (2) Central Lyceum of Catanduanes; (3) Lyceum of Eastern Mindanao, Inc.; and (4) Lyceum of Southern Philippines Withdrawn for failure to serve summons: (1) The Lyceum of Malacanay; (2) The Lyceum of Marbel Dismissed: (1) The Lyceum of Araullo changed name to Pamantasan ng Araullo 9. The SEC hearing officer relied on earlier SEC ruling LBIs case, and decided in favor of petitioner. Held that: (1) Word "Lyceum" was capable of appropriation; and (2) petitioner acquired an enforceable exclusive right to the use of that word. 10. On appeal to the SEC En Banc: REVERSED and SET ASIDE. Held that: word "Lyceum" had not become so identified with petitioner as to render use thereof by other institutions as productive of confusion about the identity of the schools in the mind of the general public. Attaching of geographical names = held sufficient to distinguish one from another + they are far from petitioner. 11. June 28, 1991: CA affirmed the questioned Orders of the SEC En Banc + held Western Pangasinan Lyceum incorporated earlier than petitioner. Motion for reconsideration, failed. ISSUE: Whether or not petitioner institution is entitled to legally enforceable exclusive right to use the word Lyceum in its corporate name. HELD: NO, other institutions may use "Lyceum" as part of their corporate names. SC does not consider corporate names of private respondents as "identical with, or deceptively or confusingly similar" to that of the petitioner institution.

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RATIO: 1. 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.

2. Corporate names of private respondent entities all carry the word "Lyceum" but confusion and deception are effectively precluded by the appending of geographic names to the word "Lyceum." SC does not believe that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the Philippines, etc. 3. 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. 4. While the appellant may have proved that it had been using the word 'Lyceum' for a long period of time, this fact alone did not amount to acquiring secondary meaning in its favor. Appellant failed to prove that it had been using the same word all by itself to the exclusion of others. 5. The number alone of the private respondents in the case at bar suggests strongly that petitioner's use of the word "Lyceum" has not been attended with the exclusivity essential for applicability of the doctrine of secondary meaning. 6. There was no evidence presented to prove that confusion will surely arise if the same word were to be used by other educational institutions.

CASE LAW/ DOCTRINE: 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 petitioner is juxtaposed with the names of private respondents, they are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other. "SECTION 18. Corporate name. 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." Doctrine of Secondary Meaning " . . . a word or phrase originally incapable of exclusive appropriation with reference to an article on the market, because geographically or otherwise descriptive, might nevertheless have been used so long and so exclusively by one producer with reference to his article that, in that trade and to that branch of the purchasing public, the word or phrase has come to mean that the article was his product." Originated in the field of trademark law, application has extended to corporate names sine the right to use a corporate name to the exclusion of others is based upon the same principle which underlies the right to use a particular trademark or tradename.

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013 Municipality of Malabang v. Benito 1969-03-28, GR No. L-28113 TOPIC: Formation under apparently Valid Statute PONENTE: Castro, J Balindog Mayor of Malabang Benito Mayor of Balabagan

AUTHOR: twinkle A municipality organized at a time when the statute creating it was still valid and was invalidated later is not a de facto corporation

FACTS 1. The Municipality of Balabagan, Lanao del Sur (formerly a part of Malabang) was created on March 15, 1960 by EO 386 by Pres. Garcia 2. In 1965, Pelaez case invalidated EO 386 rendering it unconstitutional because it gives the President the power to create municipalities because it constitutes an undue delegation of legislative power and is violative of Section 10 (1) of Article VII of the Constitution, which limits the President's power over local governments to mere supervision. 3. The Municipality of Malabang brought this action for prohibition to nullify Executive Order 386 and to restrain the respondent municipal officials from performing the functions of their respective offices, relying on the ruling of this Court in Pelaez v. Auditor General. 4. Respondents contends that the Pelaez case cannot apply because the municipality of Balabagan is at least a de facto corporation, having been organized under color of a statute before it was declared unconstitutional, its officers having been either elected or appointed, and the municipality itself having discharged its corporate functions for the past five years preceding the institution of this action and 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 MAIN ISSUE: WON the municipality of Balabagan is a de facto corporation HELD: NO. Though it was created before Sec 68 of the Administrative Code was invalidated, it is still not a de facto corporation, for an unconstitutional act is not a law and it vests no rights. Sub issue: whether a statute can lend color of validity to an attempted organization of a municipality despite the fact that such statute is subsequently declared unconstitutional. Held: No. There can be no color of authority in an unconstitutional statute alone, the invalidity of which is apparent on its face. RATIO: As a result of this analysis of the 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 place of an existing de jure corporation, as such organization would clearly be a usurper." 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. An unconstitutional act is not a law; it confers no rights; it imposes no duties; it affords no protection; it creates no office; it is, in legal contemplation, as inoperative as though it had never been passed.

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Executive Order 386 "created no office." This is not to say, however, that the acts done by the municipality of Balabagan in the exercise of its corporate powers are a nullity because the executive order "is, in legal contemplation, as inoperative as though it had never been passed." For the existence of Executive Order 386 is "an operative fact which cannot justly be ignored." There is then no basis for the respondents' apprehension that the invalidation of the executive order creating Balabagan would have the effect of unsettling many an act done in reliance upon the validity of the creation of that municipality. CORPO related ratio: Generally, an inquiry into the legal existence of a municipality is reserved to the State in a proceeding for quo warranto or other direct proceeding, and that only in a few exceptions may a private person exercise this function of government. But the rule disallowing collateral attacks applies only where the municipal corporation is at least a de facto corporation. For where it is neither a corporation de jure nor de facto, but a nullity, the rule is that its existence may be questioned collaterally or directly in any action or proceeding by anyone whose rights or interests are affected thereby, including the citizens of the territory incorporated unless they are estopped by their conduct from doing so. CASE LAW/ DOCTRINE: A municipality organized at a time when the statute creating it was still valid and was invalidated later is not a de facto corporation.

CONCURRING OPINION: Today we decide that such a doctrine extends to a Presidential act held void not only on the ground of unconstitutional infirmity but also because in excess of the statutory power conferred. That to me is the more significant aspect of this decision. Once we accept the basic doctrine that each department as a coordinate agency of government is entitled to the respect of the other two, it would seem to follow that at the very least, there is a presumption of the validity of the act performed by it, unless subsequently declared void in accordance with legally accepted principles. The rule of law cannot be satisfied with anything less.

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AUTHOR: N. Manalo 014 Bergeron v. Hobbs (96 Wis 641 (1897)) TOPIC: Colorable Compliance with the legal Requirement in Good Faith PONTENTE: Newman J., FACTS 1. The members of the defendant corporation (Bayfield Agricultural Association) recorded their association's articles of incorporation and certificate of election of officers in the office of the county register of deeds but removed those documents from that office after their recordation. 2. The defendants, under the name of Bayfield Agricultural Association, employed several persons to perform labor in improving their grounds and in erecting fences and buildings. ** Certain laborers performed work for the association and received time checks representing their wages. 3. Time checks given by the defendants to such laborers, for such labor, were assigned to the plaintiff. 4. The plaintiff brings this action to recover their amount, alleging that the defendants were a copartnership. 5. The defendants alleged that they were members of a corporation, and denied that they were copartners, or liable as such. ISSUE: If the recording was not sufficient for that purpose, are the defendants liable to the plaintiff only as a de facto corporation? HELD: NO. The mere recording of the certificate of organization, without intention to leave the papers with him and they being in fact withdrawn after being recorded, is not a "filing" thereof within the meaning of sec. 1460, R. S. The filing of said papers is a condition precedent to the vesting of corporate powers, and acting as the corporation under color of right, so as to relieve them from individual liability. General rule: Where an attempt to organize a corporation fails by omission of some substantial step or proceeding required by the statute, its members or stockholders are liable as partners for its acts and contracts Exception: If they are considered as a de facto a corporation, and their right to be a corporation cannot be inquired into in a collateral action, but only in a direct action for that purpose by the state. RATIO: The infirmity of the defendants' contention is in the assumption that they are de facto a corporation. In order to secure this immunity from inquiry into its right to be a corporation in a collateral action, its action, as a corporation, must be under a color, at least, of right. It is immaterial that they have carried on business under the supposed authority to act as a body corporate, in entire good faith. If they had not color of legal right, they have obtained no immunity from individual liability for the debts of the supposed corporation. Until the articles of incorporation are filed in the office of the register of deeds of the county, there is no color of legal right to act as a corporation. The filing of such paper is a condition precedent to the right to so act. So long as an act, required as a condition precedent, remains undone, no immunity from individual liability is secured.

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CASE LAW/ DOCTRINE: The mere recording of the certificate of organization, without intention to leave the papers with him and they being in fact withdrawn after being recorded, is not a "filing" thereof within the meaning of sec. 1460, R. S. The filing of said papers is a condition precedent to the vesting of corporate powers, and acting as the corporation under color of right, so as to relieve them from individual liability. General rule: Where an attempt to organize a corporation fails by omission of some substantial step or proceeding required by the statute, its members or stockholders are liable as partners for its acts and contracts Exception: If they are considered as a de facto a corporation, and their right to be a corporation cannot be inquired into in a collateral action, but only in a direct action for that purpose by the state. DISSENTING OPINION: Marshall J., The judgment of the circuit court, holding the defendants liable as partners, was wrong, and that it should be reversed, and the cause remanded for a new trial. The agricultural association with whom plaintiff contracted was a de facto corporation. Every element necessary to make it such appears clearly by the record. There was a law under which it might have existed. The association prepared their constitution, and adopted it in the form of ordinary articles of organization, under the general incorporating act, and by mistake they filed it for record, and it was recorded and returned, instead of filing it to be left in the office, as the law requires. They supposed that they had corporate existence by reason of the recording of their articles of organization. They assumed to act as a corporation, and exercised corporate powers for a considerable length of time, and, for aught that appears, in the utmost good faith. Certainly, the existence of the law, the making and recording of articles of organization in an honest attempt to become a corporation, and the honest assumption and exercise of corporate powers, prima facie, establishes good faith. Plaintiff supposed that the corporation was a corporate body till long after his contract relations with the association ceased. Now to allow him to come in and say that the corporation did not exist which all supposed had legal existence; that, though the officers of the association and plaintiff contracted for a corporate liability on the part of the former, it shall be held, nevertheless, that the members of such association are bound as partners, in direct violation of the well-settled law that such an association, under the circumstances, was a de facto corporate body; and that, as between the parties, the relations are the same in all respects as though the corporation had a de jure existence, and contrary to the settled doctrine, as I believe, of this and most other courts,--is what the judgment in this case does.

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Author: Sarah Calica 015 Harril v. Davis, 168 F 187 (1909) Note: No color nor incorporation until the necessary articles are 02 March 1909, 168 F 187 Topic: Colorable Compliance with the Legal filed. Requirements in Good Faith Ponente: Sanborn Facts: From 12 June 1902 until 12 December 1902, defendants actively engaged in purchasing lumber, material and labor of plaintiff and in constructing cotton gin under the name The Coweta Gin Company and in conducting the business of buying, selling, and ginning cotton for profit under the name "The Coweta Cotton & Milling Company". They incurred than $4,700 of the indebtedness. On 22 December 1902, they made their first real attempt to incorporate, and for the first time took on the color or appearance of a corporation. They filed articles of incorporation in the clerk of CA. But they failed to file any duplicate of them with the clerk of the judicial district in which their place of business was located. (Note: filing of the duplicate of the articles of incorporation is necessary requirement by the statutes in order to constitute them a legal corporation; Arkansas Law requires filing in the clerk of CA AND clerk of court in the judicial district) Issues: (1) Whether or not colorable compliance was enough to give the corporation the status of a de facto corporation (2) Whether or not defendants are individually liable for the $4,700 debt on the ground that the Coweta Cotton & Milling Company was a corporation de facto (3) Whether or not plaintiff is estopped from denying the existence of defendants corporation Held: (1) No, because defendant failed to comply with the statutes of Arkansas law (2) Yes. (3) No, because plaintiff was in good faith. Ratio: (1) Neither the hope, the belief, nor the statement by parties that they are incorporated, nor the signing of the articles of incorporation which are not filed, where filing is requisite to create the corporation, nor the use of the pretended franchise of the nonexistent corporation, will constitute such a corporation de facto as will exempt those who actively and knowingly use s name to incur legal obligations from their individual liability to pay them. There could be no incorporation or color of it under the law until the articles were filed. The filing of articles of incorporation with the clerk of the Court of Appeals was a sine qua non of any color of a legal corporation. Without that there was not, and there could not be, an apparent corporation or the color of a corporation. (2) General Rule: Parties who associate themselves together and actively engage in business for profit under any name are liable as partners for the debts they incur under that name. Exception: Associates may escape individual liability for such debts by a compliance with incorporation laws or by a real attempt to comply with them which gives the color of a legal corporation, and by the user of the franchise of such a corporation in the honest belief that it is duly incorporated. Parties who actively engage in business for profit under the name and pretense of a corporation which they know neither exists nor has any color of existence may not escape individual liability because strangers are led by their pretense to contract with their pretended entity as a corporation. Hence, defendants cannot escape individual liability for the $4,700 on the ground that the Coweta Cotton & Milling Company was a corporation de facto when that portion of the plaintiff's claim was incurred, because it then had no color of incorporation, and they knew it and yet actively used its name to incur the obligation. (3) The fact that the plaintiff dealt with and treated the Coweta Cotton & Milling Company as a corporation did not estop it from denying that it was such before the defendants filed their articles of incorporation, because it was not a corporation de facto before that time and because the indispensable elements of an estoppel in pais, ignorance of the truth and absence of equal means of knowledge of it by the party who claims the estoppel, and action by the latter induced by the misrepresentation of the party against whom the estoppel is invoked, do not exist in the case at bar.

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AUTHOR: De Guzman, Bien 016 Hall v. Piccio (June 29,1950, 86 Phil 603 (1950) Lumber Business not registered SEC cannot claim good TOPIC: Colorable Compliance with the Legal faith to be a corporation Requirements in Good Faith PONENTE: Bengzon, J; FACTS 1. On May 28, 1947, the petitioners Arnold and Bradley Hall, and the respondents Fred and 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 to the corporation described in a list appended thereto. 2. 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. 3. On December 2, 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. 4. On March 22, 1948, pending action on the articles of incorporation by the aforesaid governmental office, the respondents filed before the CFI 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. The defendants (now petitioners) in the suit, namely. Arnold and Bradley. Hall, filed a motion to dismiss, contesting the court's jurisdiction and the sufficiently of the cause of action. 5. After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and at the request of plaintiffs, appointed of the properties thereof, upon the filing of a P20,000 bond. 6. The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the receiver, but the respondent judge refused to accept the offer and to discharge the receiver. 7. Whereupon, the present special civil action was instituted in this court ISSUES: (a.) The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company, because it being a de facto corporation, dissolution thereof may only be ordered in a quo warranto proceeding instituted in accordance with section 19 of the Corporation Law. (b) Inasmuch as respondents Fred Brown and Emma Brown had signed the article of incorporation thereby they are estopped. HELD: (a) Yes, the Court has jurisdiction since The Securities and Exchange Commission has not issued the corresponding certificate of incorporation. The personality of a corporation begins to exist only from the moment such certificate is issued not before. (b) No, All the parties are informed that the Securities and Exchange Commission has not, so far, issued the corresponding certificate of incorporation.

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RATIO: (a) The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern Lumber and Commercial Co., is a de facto corporation, section 19 of the Corporation Law applies, and therefore the court had not jurisdiction to take cognizance of said civil case number 381. There are least two reasons why this section does not govern the situation. 1. 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 our statue it is to be noted (Corporation Law, sec. 11) 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. 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. Second, this is not a suit in which the corporation is a party. This is a 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. (b) All of them know, or sought to know, that the personality of a corporation begins to exist only from the moment such certificate is issued not before (sec. 11, Corporation Law). The complaining associates have not represented to the others that they were incorporated any more than the latter had made similar representations to them. And as nobody was led to believe anything to his prejudice and damage, the principle of estoppel does not apply. Obviously this is not an instance requiring the enforcement of contracts with the corporation through the rule of estoppel CASE LAW/ DOCTRINE: The Securities and Exchange Commission has not issued the corresponding certificate of incorporation. The personality of a corporation begins to exist only from the moment such certificate is issued not before. 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.

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017 EMPIRE MFG. V. STUART 1 July 1881, 9 N.W. 527 TOPIC: Corporation by Estoppel PONENTE: Marston, C.J. *U.S. case, State of Michigan

AUTHOR: Danna Laura Zerrudo Liability on paper issued in a corporate name. Dissolution of a company that wasnt regularly incorporated, but supposed itself to be so, WILL NOT prevent creditors from looking to the old organization for payment.

FACTS 1. Plaintiff is being sued upon a promissory note (PN) it issued under its corporate name. 2. At the time the PN was issued, the company, by mistake, was not properly organized under Michigan law. 3. Upon ascertaining this, the corporation was dissolved and a new one was formed under a different name. 4. The holder brought an action against the corporation to recover on the note. 5. Plaintiffs defense: Since the old corporation wasnt properly organized when the PN was issued, and the corporation had been dissolved, it cannot be held liable for the PN. Trial Court: In favor of holder Upon Appeal: still in favor of holder ISSUE: W/N the dissolution of the old corporation deprived the holder of its right to look to the corporation for payment HELD: No, the corporation cannot evade its responsibility by setting up, as defense, ITS OWN MISTAKE (siya na nga yung nagkamali so di pwedeng yung sarili niyang mistake pa yung gamitin niya as defense :p) RATIO: 1. The dissolution would not deprive the creditors of still following and looking to the old organization for payment. 2. The old corporation could have been legally organized under laws existing at the time of its formation. - The business for which it was organized, manufacturing, was authorized by law. - The corporation attempted to organize in good faith. 3. Therefore, the corporation cannot rely on its own mistake to avoid responsibility on the PN. CASE LAW/ DOCTRINE: Dissolution of a company not regularly incorporated, but supposing itself to be so, does not prevent creditors from looking to the old organization for payment. Note #1: Michigan law allows three years after dissolution, for certain purposes, in winding up the affairs. Note #2: The sufficiency of the (handwritten) endorsements in the PN was questioned. Execution of the note was not denied but it was still insisted that this did not dispense with the proof of the endorsements thereon. Proof was presented and the only question relates to their sufficiency. Evidence: witness of plaintiff who had correspondence with the endorser through letters. Held: Evidence was competent. The testimony of one who swears that he knows anothers handwriting either from having seen him make his signature, or from business correspondence apparently signed by him, is competent in proving the latters indorsement.

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018 THE LOWELL-WOODWARD HARDWARE AUTHOR: Ernesto C. Palomique III COMPANY v. G. R. WOODS et al., Partners as THE SUPERIOR LEASING COMPANY (ED. SEMKE, Corporation sued a partnership on a promissory Appellant). note. The latter as defense alleged that the plaintiff 104 Kan. 729; 180 P. 734; 1919 was not a corporation. TOPIC: Corporation by estoppel PONENTE: Mason, J. FACTS 1. Lowell-Woodward Hardware Company (Plaintiff), describing itself as a Colorado corporation, brought an action against several persons alleged to constitute a partnership, upon a promissory note. 2. On appeal, one of the defendants, Ed. Semke; denied the plaintiffs corporate existence, or him being a member of the partnership described. 3. A witness for the plaintiff testified that it was a corporation. He said that the plaintiff was running a hardware store and that he inferred it was a corporation from its name and its mode of doing business. 4. Apparently, the defendant in this case issued a promissory note in favor of the payee indicated as The Lowell Woodward Hardware Company. ISSUE: Whether the defendant can deny the existence of the corporation in order to escape his liability from the promissory note. HELD: No. One who enters into a contract with a party described therein as a corporation is precluded, in an action brought thereon by such party under the same designation, from denying its corporate existence. RATIO: 1. In accordance with modern views of good practice and to promote substantial justice, the court ruled that one who has signed a promissory note running to a payee described by a name appropriate to a corporation, although not employing that term, cannot, in an action brought against him thereon by such payee, in which it alleges itself to be a corporation, be heard to question the plaintiff's corporate existence, unless upon a showing that his obligation to make payment would be thereby affected. 2. The payee was styled in the note, "The Lowell-Woodward Hardware Company," a title which prima facie imports a corporation.

3. There is some difference of opinion as to whether one contracting with an organization styling itself a "company," there being nothing further in the language used to indicate its character, the term "corporation" not being employed, can be heard to deny its corporate capacity when sued by it upon the contract. 4. The defendant, having given his promise to pay the sum indicated to the payee named, should not be permitted to escape or delay performance by raising an issue as to the character of the organization to which he is indebted, unless his substantial rights might be thereby affected, which would only be under exceptional conditions.

5. It is thoroughly settled that in such a situation the defendant cannot attack the regularity of the plaintiff's organization, or take any advantage of the fact that it has no legal standing as a corporation. No good reason is apparent why, having explicitly promised to make payment to the concern by which he is sued, he should be permitted to question its de facto, any more than its de jure, character--to inject into the case an issue having no bearing on his obligation to make payment.

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AUTHOR: Keith Meridores 019 ASIA BANKING CORP v. STANDARD PRODUCTS September 11, 1924, G.R. No. 22106 Be mindful of the words Inc. and Corp, as they TOPIC: Corporation by Estoppel indicate the type of organization. PONTENTE: OSTRAND, J. FACTS 1. On Nov. 28, 1921, Standard Products, Inc. (note the inclusion of Inc. as an indication of a corporation) issued a promissory note amounting to P24, 736.47 to Asia Banking Corporation. 2. Asian Banking filed a case to recover the said amount plus 10% interest. 3. The lower court, on Nov. 1, 1923 ruled in favor of Asia Banking Corp. (No mention where appeal was brought, presumably to SC) 4. But, Standard Products, Inc. (appellant) contended that Asia Banking Corp (plaintiff) failed to prove affirmatively the corporate existence of the parties. Appellant also assigned this as a reversible error. ISSUE: Whether or not the failure of Asia Banking Corp to prove corporate existence of both parties is fatal to its suit to recover? HELD: No. 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 plaintiff's corporate existence. RATIO: 1. There is no merit whatever in the appellant's contention. 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 deny its corporate existence in any action leading out of or involving such contract or dealing, unless its existence is attacked for cause which have arisen since making the contract or other dealing relied on as an estoppel and this applies to foreign as well as to domestic corporations. 2. 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 plaintiff's 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 may be noted that there is no evidence showing circumstances taking the case out of the rules stated.

CASE LAW/ DOCTRINE: Absent any fraud, any person who recognized and in effect admitted its legal existence as a corporate body is estopped to deny its corporate existence, unless its existence is attacked since making the contract or dealings.

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020 CRANSON vs. INTERNATIONAL BUSINESS AUTHOR: Marvin C. De Leon MACHINES CORPORATION IBM, having dealt with the defectively organized 234 Md. 477 (1964) company as if it were properly organized and 200 A.2d 33 having relied on its credit instead of Cransons, is TOPIC: Corporation by estoppel estopped from asserting that it was not incorporated. PONTENTE: HORNEY, J. It cannot sue Cranson personally. Real Estate Service Bureau was neither a de jure nor a de facto corporation FACTS 1. On April 1961, Real Estate Service Bureau was incorporated. 2. Albion C. Cranson, Jr was elected president and all transactions conducted by him for the corporation, were made as an officer of the corporation. At no time did he assume any personal obligation or pledge his individual credit. 3. Due to an oversight on the part of the attorney, of which Cranson was not aware, the certificate of incorporation, which had been signed and acknowledged prior to May 1, 1961, was not filed until November 24, 1961. 4. Between May 17 and November 8, the Bureau purchased eight typewriters from I.B.M., on account of which partial payments were made, leaving a balance due of $4,333.40. 5. On the theory that the Real Estate Service Bureau was neither a de jure nor a de facto corporation and that Albion C. Cranson, Jr., was a partner in the business conducted by the Bureau and as such was personally liable for its debts, the International Business Machines Corporation brought this action against Cranson for the balance due on electric typewriters purchased by the Bureau. 6. In due course, Cranson filed a general issue plea and an affidavit in opposition to summary judgment in which he asserted in effect that the Bureau was a de facto corporation and that he was not personally liable for its debts. ISSUE: Whether an officer of a defectively incorporated association may be subjected to personal liability under the circumstances of this case HELD: No. IBM, having dealt with the defectively organized company as if it were properly organized and having relied on its credit instead of Cransons, is estopped from asserting that it was not incorporated. It cannot sue Cranson personally. RATIO: 1. Traditionally, two doctrines have been used by the courts to clothe an officer of a defectively incorporated association with the corporate attribute of limited liability. The first, often referred to as the doctrine of de facto corporations, has been applied in those cases where there are elements showing: (1) the existence of law authorizing incorporation: (2) an effort in good faith to incorporate under the existing law; and (3) actual user or exercise of corporate powers. The second, the doctrine of estoppel to deny the corporate existence, is generally employed where the person seeking to hold the officer personally liable has contracted or otherwise dealt with the association in such a manner as to recognize and in effect admit its existence as a corporate body. 2. In cases similar to the one at bar, involving a failure to file articles of incorporation, the courts of other jurisdictions have held that where one has recognized the corporate existence of an association, he is estopped to assert the contrary with respect to a claim arising out of such dealings. The estoppel theory is applied only to the facts of each particular case and may be invoked even where there is no corporation de facto. Accordingly, even though one or more of the requisites of a de facto corporation are absent, we think that this factor does not preclude the application of the estoppel doctrine in a proper case, such as the one at bar. 3. I.B.M. having dealt with the Bureau as if it were a corporation and relied on its credit rather than that of Cranson, is estopped to assert that the Bureau was not incorporated at the time the typewriters were purchased. For this reason, we hold that Cranson was not liable for the balance due on account of the typewriters. CASE LAW/ DOCTRINE: The doctrine of estoppel cannot be invoked unless a corporation has at least a de facto existence is now overruled. Even though one or more of the requisites of a de facto corporation are absent, this factor does not preclude the application of the estoppel doctrine in a proper case.

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The de facto doctrine differs from the estoppel doctrine in that where all the requisites of a de facto corporation are present, then the defectively organized corporation will have the status of a de jure corporation in all cases brought by and against it, except only as to the State in a direct proceeding. On the other hand, if any of the requisites are absent, then the estoppel doctrine can apply only if under the circumstances of the particular case then before the court, either the defendant association is estopped from defending on the ground of lack of capacity to be sued, or the defendant third party had dealt with the plaintiff as a corporation and is deemed to have admitted its existence.

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AUTHOR: Pat 021 Salvatierra v. Garlitos May 23, 1958, G.R. No. L-11442 TOPIC: Corporation by Estoppel PONENTE: Felix, J. FACTS: 1. Manuela T. Vda. de Salvatierra appeared to be the owner of a parcel of land located at Burauen, Leyte. 2. Manuela entered into a contract of lease with Philippine Fibers Producers Co, Inc. (PFPC), allegedly a corporation duly organized and existing under the laws of the Philippines, domiciled at Burauen, Leyte, and represented by Mr. Segundino Q. Refuerzo, the President. 3. The contract indicated: - a period of 10 years for the lifetime of the lease - kenaf, ramie or other crops suitable to the soil would be planted - lessor would be entitled to 30% of net income accruing from the harvest of any, crop without being responsible for the cost of production - every harvest, the lessee was bound to declare at the earliest possible time the income derived therefrom - to deliver the corresponding share due the lessor 4. The alleged corporation, PFPC, did not comply with said obligations 5. Alanuela T. Vda. de Salvatierra filed with the CFI a complaint against PFPC and Segundino, for accounting, rescission and damages. 6. Alanuela averred that: - Defendants planted kenaf on 3 has. of the leased property which was, at the time of the commencement of the action, already harvested, processed and sold by defendants - Defendants refused to render an accounting of the income derived therefrom and to deliver lessors share - That the estimated gross income was P4,500, and deductible expenses of P1,000 - Defendants refusal to do so was a violation of the contract, therefore, a rescission was proper 7. Defendants failed to file their answer to the complaint so the Court declared them in default 8. Lower court granted plaintiffs prayer and required defendants to render a complete accounting of the harvest of the land w/in 15 days from receipt of the decision and to deliver 30% of the net income realized from the last harvest to plaintiff, with legal interest - It was further provided that upon defendants failure to abide by the said requirement, the gross income would be fixed at P4,200 or a net income of P3,200 after deducting the expenses for production, 30% of which of P960 was held to be due pursuant to the contract of lease, which was declared rescinded. 9. The court issued a writ of execution and caused the attachment of 3 parcels of land registered under Segundino 10. No property PFPC was found available for attachment 11. Segundino filed a motion claiming that the decision rendered in Civil Case no. 1912 was null and void, there being no allegation in the complaint pointing to his personal liability, and thus prayed that an order be issued limiting such liability to PFPC 12. Upon Segundinos motion, the lower court amended its decision and granted Segundinos motion. It ordered the release of all properties of Segundino that were attached. 13. Manuela assailed the decision of lower court on the ground that she sued PFPC without impleading Segundino because she initially believed the PFPC was a legitimate corporation but later found out that said corporation was not registered in the SEC. ISSUE: 3. Whether or not the lower courts amended judgment of releasing Segundinos properties from attachment is correct. 4. Whether or not Segundino can be held personally liable. HELD: 3. No, the Supreme Court set aside and nullified the amended judgment of the lower court. 4. Yes, because Segundino, as president of the unregistered corporation PFPC was the moving spirit behind the consummation of the lease agreement by acting as its representative, his liability cannot be limited.

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RATIO: 3. While as a general rule a person who has contracted or dealt with an association in such a way as to recognize its existence as a corporate body is estopped from denying the same in an action arising out of such transaction or dealing, yet this doctrine may not be held to be applicable where fraud takes a part in the said transaction. In the instant case, on plaintiff's charge that she was unaware of the fact that PFPC had no juridical personality, defendant Segundino gave no confirmation or denial and the circumstances surrounding the execution of the contract lead to the inescapable conclusion that plaintiff Manuela T. Vda. de Salvatierra was really made to believe that such corporation was duly organized in accordance with law.

4. In acting on behalf of a corporation which he knew to be unregistered, he assumed the risk of reaping the consequential damages. A person who acts as an agent without authority or without a principal is himself regarded as the principal, possessed of all the rights 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 comes personally liable for contracts entered into or for other acts performed as such, agent. CASE LAW/ DOCTRINE: There can be no question that a corporation with registered has a juridical personality separate and distinct from its component members or stockholders and officers such that a corporation cannot be held liable for the personal indebtedness of a stockholder even if he should be its president and conversely, a stockholder or member cannot be held personally liable for any financial obligation be, the corporation in excess of his unpaid subscription. But this rule is understood to refer merely to registered corporations and cannot be made applicable to the liability of members of an unincorporated association. 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.

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AUTHOR: Yayie Lanting 022 ALBERT v. UNIVERSITY PUBLISHING CO., Corporation-by-estoppel: was not invoked and not INC. January 30, 1965 G.R No. L-19118 applicable to the case TOPIC: Corporation-by-Estoppel PONENTE: Bengzon, J.P., J FACTS 1. July 19, 1948: Defendant University Publishing Co., Inc., through Jose M. Aruego, its President, entered into a contract with Mariano Albert to pay the latter P30, 000 for the exclusive right to publish Alberts revised Commentaries on the Revised Penal Code; that defendant had undertaken to pay in 8 quarterly installments of P3, 750.00 starting July 15, 1948; that per contract failure to pay one installment would render the rest due. 2. Defendant had failed to pay the second installment 3. September 24, 1949: Mariano A. Albert sued University Publishing Co., Inc. Plaintiff alleged that defendant was a corporation duly organized and existing under the laws of the Philippines 4. Then in Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, the Court held that the judgment for P15,000.00 which had become final and executor. 5. July 22, 1961: the Court ordered issuance of an execution writ against University Publishing Co., Inc. 6. August 10, 1961: Albert petitioned for a writ of execution against Jose M. Aruego, as the real defendant, stating that there is no such entity as University Publishing Co., Inc. Plaintiff annexed to his petition a certification from the SEC attesting: "The records of this Commission do not show the registration of UNIVERSITY PUBLISHING CO., INC., either as a corporation or partnership." 7. The court denied the petition by order of September 9, 1961. Plaintiff appealed. ISSUE: 1. Whether or not the corporation-by-estoppel may be invoked? 2. Whether or not Jose Aruego may be held liable? HELD: 1. No. Corporation-by-estoppel was not invoked and even it was, it will not be applicable to the case. 2.Yes. University Publishing Co., Inc. has no independent personality; it is just a name. Jose M. Aruego was, in reality, the one who answered and litigated, through his own law firm as counsel. He was in fact, if not, in name, the defendant. RATIO: 1. Aruego represented a non-existent entity and induced not only the plaintiff but even the court to believe in such representation. He signed the contract as "President" of "University Publishing Co., Inc.," stating that this was "a corporation duly organized and existing under the laws of the Philippines," and obviously misled plaintiff into believing the same. 2.The evidence is patently clear that Jose M. Aruego, acting as representative of a non-existent principal, was the real party to the contract sued upon; that he was the one who reaped the benefits resulting from it, so much so that partial payments of the consideration were made by him; that he violated its terms, thereby precipitating the suit in question; and that in the litigation he was the real defendant. Perforce, in line with the ends of justice, responsibility under the judgment falls on him. 3.Case is remanded ordering the lower court to hold supplementary proceedings for the purpose of carrying the judgment into effect against University Publishing Co., Inc. and/or Jose M. Aruego.

CASE LAW/ DOCTRINE: One who has induced another to act upon his willful misrepresentation that a corporation was duly organized and existing under the law, cannot thereafter set up against his victim the principle of corporation by estoppel (Salvatiera vs. Garlitos, 56 O.G. 3069).

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023 LIM TONG LIM v PHILIPPINE FISHING GEAR INDUSTRIES, INC. (PFGI) November 3, 1999 GR # 136448 TOPIC: Corporation by Estoppel PONTENTE: Panganiban, J.

AUTHOR: Jade Ocean Quest Fishing Corporation was a fishing ventured entered into by Antonio Chua, Peter Yao and Lim Tong Lim. It was established that what they had was a general partnership where they are to be held jointly liable for all debts, liabilities, and damages incurred

FACTS On 7 February 1990, Antonio Chua and Peter Yao, on behalf of the Ocean Quest Fishing Corporation, entered into a contract for the purchase of fishing nets worth P532,045.00 and 400 pieces of floats worth P68,000.00 from the Philippine Fishing Gear Industries, Inc. They claimed that they were engaged in a business venture with Lim Tong Lim though he was not a signatory on the agreement. The buyers failed to pay for the nets and the floats so PFGI filed a collection suit against Chua, Yao and Lim with a prayer for a Writ of Preliminary Attachment. The suit was filed against the three for they were general partners even if Ocean Quest Fishing Corporation was a non-existent 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. The sheriff enforced the order by attaching the nets on board F/B Lourdes which was docked at the Fisheries Port in Navotas. Chua filed a manifestation admitting his liability and requesting for a reasonable time for payment. He also turned-over the nets which are still in his possession. Yao filed an answer but failed to appear in subsequent hearings, therefore deemed to have waived his rights to cross-examine and to present evidences. Lim Tong Lim filed an answer with a counter-claim and cross-claim and moved for the lifting of the Writ of Attachment. The trialcourt maintained the Writ and ordered the public auction of the fishing nets which was won by PFGI. On 18 November 1992, the trial court ruled that PFGI was entitled to the Writ of Attachment and that Chua, Yao and Lim were jointly liable to pay PFGI as general partners. Lim appealed to the Court of Appeals which held that he was a partner of Chua and Yao as manifested by evidencethat the 3 entered into a fishing business as partners and agreed to divide the profit among them. Lim brought the issue to the Supreme Court and insisted that he cannot be held jointly liable with Chua and Yao. ISSUE: Whether or not Lim Tong Lim is jointly liable with Chua and Yao HELD: The petition was dismissed. Lim Tong Lim is jointly liable with Chua and Yao. RATIO: It was already established by the lower courts that Chua, Yao and Lim are partners. Lim requested Chua and Yao, who were already partners in a fishing business to join him and borrowed money from Jesus Lim, petitioners brother, to finance their venture and that they had a verbal agreement to acquire 2 fishing boats. They had a Compromise Agreement stating their intention to pay their loan with the proceeds of the sales of the boats and to divide equally among them the excess or the loss. Their partnership is extended to the purchase of the nets and the floats which are both essential to fishing and acquired to aid them in their business. While Lim claims that his name did not appear on any of the contracts with PFGI and that he did not transact with PFGI Directly, he benefited from the use of the nets found inside F/B Lourdes. He even stopped the attachment of the nets because it effectively stopped his use of the fishing boat. Although their corporation was not legally formed due to unknown reasons, this does not preclude the liabilities of Chua, Yao and Lim as contracting parties. According to the doctrine of corporation by estoppel, Lim is jointly liable with Chua and Yao because he also benefited from the fishing they have entered. CASE LAW/ DOCTRINE: Sec 21 of the Corporation Code CORPORATION BY ESTOPPEL 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

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DISSENTING/CONCURRING OPINION: Separate Opinion Vitug, J The association formed by Chua, Yao and Lim should be a de facto partnership. Article 1816 of the New Civil Code provides that all partners shall be liable pro rata beyond the partnership assets for all the contracts which may have been entered into in its name, under its signature, and by a person authorized to act for the partnership.

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024 FLEISCHER v. BOTICA NOLASCO, INC., March 14, 1925; G.R. No. L-23241 TOPIC: Internal Organization: By- Laws Ponente: Justice Johnson

AUTHOR: Krystelle Section 13, paragraph 7of Act No. 1459 empowers a corporation to make by-laws, not inconsistent with any existing law, for the transferring of its stock. The only restraint by the Corporation Law upon transfer of shares is found in section 35 of Act No. 1459.

FACTS 1. This action was commenced in the Court of First Instance of the Province of Oriental Negros on the 14th day of August, 1923, against the board of directors of the Botica Nolasco, Inc., a corporation duly organized and existing under the laws of the Philippine Islands. 2. A certain Manuel Gonzalez was the original owner of the five shares of stock in question, Nos. 16, 17, 18, 19 and 20 of the Botica Nolasco, Inc. 3. On March 11, 1923, he assigned and delivered said five shares to the plaintiff, Henry Fleischer, by accomplishing the form of endorsement provided on the back thereof, together with other credits, in consideration of a large sum of money owed by Gonzalez to Fleischer. 4. On March 13, 1923, Dr. Eduardo Miciano, who was the secretary-treasurer of said corporation, offered to buy from Henry Fleischer, on behalf of the corporation, said shares of stock, at their par value of P100 a share, for P500. 5. By virtue of article 12 of the by-laws of Botica Nolasco, Inc., said corporation had the preferential right to buy from Manuel Gonzalez said shares; that the plaintiff refused to sell them to the defendant; that the plaintiff requested Doctor Miciano to register said shares in his name; that Doctor Miciano refused to do so, saying that it would be in contravention of the by-laws of the corporation. 6. It also appears from the record that on the 13th day of March, 1923, two days after the assignment of the shares to the plaintiff, Manuel Gonzales made a written statement to the Botica Nolasco, Inc., requesting that the five shares of stock sold by him to Henry Fleischer be noted transferred to Fleischer's name. 7. He also acknowledged in said written statement the preferential right of the corporation to buy said five shares. On June 14, 1923, Gonzalez wrote a letter to the Botica Nolasco, withdrawing and cancelling his written statement of March 13, 1923, to which letter the Botica Nolasco on June 15, 1923, replied, declaring that his written statement was in conformity with the by-laws of the corporation; that his letter of June 14th was of no effect, and that the shares in question had been registered in the name of the Botica Nolasco, Inc. 8. The plaintiff filed an action against Botica Nolasco, Inc. 9. The plaintiff prayed that said board of directors be ordered to register in the books of the corporation five shares of its stock in the name of Henry Fleischer, the plaintiff, and to pay him the sum of P500 for damages sustained by him resulting from the refusal of said body to register the shares of stock in question. 10. The defendant filed a demurrer on the ground that the facts alleged in the complaint did not constitute sufficient cause of action, and that the action was not brought against the proper party, which was the Botica Nolasco, Inc. The demurrer was sustained, and the plaintiff was granted five days to amend his complaint. 11. On November 15, 1923, the plaintiff filed an amended 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. 12. 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 defendant again filed a demurrer on the ground that the amended complaint did not state facts sufficient to constitute a cause of action, and that said amended complaint was ambiguous, unintelligible, uncertain, which demurrer was overruled by the court. 13. The defendant answered the amended complaint denying generally and specifically each and every one of the material allegations thereof, and, as a special defense, alleged that the defendant, pursuant to article 12 of its bylaws, had preferential right to buy from the plaintiff said shares at the par value of P100 a share, plus P90 as dividends corresponding to the year 1922, and that said offer was refused by the plaintiff. The defendant prayed for a judgment absolving it from all liability under the complaint and directing the plaintiff to deliver to the defendant the five shares of stock in question, and to pay damages in the sum of P500, and the costs. 14. RTC ruled in favour of the plaintiff. It ruled that article 12 of the by-laws of the corporation which gives it

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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. 15. The defendant appealed from said judgment, hence, this preent action. 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). HELD: YES. The by-law in question was adopted under the power conferred upon the corporation by section 13, paragraph 7 of Act No. 1459 but in adopting said by-law the corporation has transcended the limits fixed by law in the same section, and has not taken into consideration the provisions of section 35 of Act No. 1459. RATIO: Section 13, paragraph 7, above-quoted, 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 subject is found in section 35 of Act No. 1459 above quoted. 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. Under said section they are personal property and may be transferred as therein provided. Said section contemplates no restriction as to whom they may be transferred or sold. It does not suggest that any discrimination may be created by the corporation in favor or against a certain purchaser. 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. 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. On the other hand, it is equally well settled that by-laws of a corporation must be reasonable and for a corporate purpose, and always within the charter limits. They must always be strictly subordinate to the constitution and the general laws of the land. They must not infringe the policy of the state, nor be hostile to public welfare. They must not disturb vested rights or impair the obligation of a contract, take away or abridge the substantial rights of stockholder or member, affect rights of property or create obligations unknown to the law. The power of a corporation to enact by-laws restraining the sale and transfer of shares, should not only be in harmony with the law or charter of the corporation, but such power should be expressly granted in said law or charter. The only restraint imposed by the Corporation Law upon transfer of shares is found in section 35 of Act No. 1459, quoted above, as follows: "No transfer, however, shall be valid, except as between the parties, until the transfer is entered and noted upon the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate, and the number of shares transferred." This restriction is necessary in order that the officers of the corporation may know who are the stockholders, which is essential in conducting elections of officers, in calling meeting of stockholders, and for other purposes. but any restriction of the nature of that imposed in the by-law now in question, is ultra vires, violative of the property rights of shareholders, and in restraint of trade. 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. When no restriction is placed by public law on the transfer of corporate stock, a purchaser is not affected by any contractual restriction of which he had no notice The assignment of shares of stock in a corporation by one who has assented to an unauthorized by-law has only the effect of a contract by, and enforceable against, the assignor; the assignee is not bound by such by-law by virtue of the assignment alone. A by-law of a corporation which provides that transfers of stock shall not be valid unless approved by the board of directors, while it may be enforced as a reasonable regulation for the protection of the corporation against

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worthless stockholders, cannot be made available to defeat the rights of third persons.

CASE LAW/ DOCTRINE: 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. On the other hand, it is equally well settled that by-laws of a corporation must be reasonable and for a corporate purpose, and always within the charter limits. They must always be strictly subordinate to the constitution and the general laws of the land. They must not infringe the policy of the state, nor be hostile to public welfare. They must not disturb vested rights or impair the obligation of a contract, take away or abridge the substantial rights of stockholder or member, affect rights of property or create obligations unknown to the law. DISSENTING/CONCURRING OPINION: N/A

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AUTHOR: Revy Medrick dR. Neri 025 THE GOVERNMENT OF THE PHILIPPINE ISLANDS (on relation of the Attorney-General), plaintiff, vs. EL HOGAR FILIPINO, defendant. G.R. No. L-26649 - July 13, 1927 TOPIC: Internal Organization: By-Laws PONENTE: Street, J. FACTS: 1. A quo warranty proceeding instituted originally by the Government of the Philippine Islands on the relation of the Attorney-General against the building and loan association known as El Hogar Filipino, for the purpose of depriving it of its corporate franchise, excluding it from all corporate rights and privileges, effecting a final dissolution of said corporation. 2. On March 1, 1906, the Philippine Commission enacted Corporation Law or Act No. 1459 and section 171 to 190 are devoted to the building and loan associations. 3. The respondent, El Hogar Filipino, was the first corporation organized in the Philippines under the said provisions. 4. Under the law then, the capital of an association was not permitted to exceed 3M but then amended to 10M. 5. The by-laws of the corporation states a provision that: the BOD, by vote of absolute majority of its members, is empowered to cancel shares and return to the owner thereof the balance resulting from the liquidation thereof, whenever, by reason of their conduct of any other motive, the continuation as members of the owners of such shares is not desirable. 6. There is also a provision in the by-laws that the directors shall elect from among the shareholder members to fill the vacancies that may occur in the BOD until the election at the general meeting. 7. Third cause of action is the fact that directors of El Hogar have been receiving large compensation because the by-laws provide 5% of the net profit shown by the annual balance sheet to be distributed to the directors in proportion to their attendance at the meetings of the board. 8. Fourth cause of action: procedure to adopt when one is elected as a BOD =P5000 pay-up of shares as security- only the rich can be BOD and the waiver to receive loans from the corporation. 9. The Government questioned the validity because it conflicts with the Corporation Law. ISSUE: Whether or not El Hogar may be dissolved on such grounds HELD: No. RATIO: 1. The by-law (1st) is a mere nullity and could not be enforced if the directors attempt to do so. 2. In the second cause of action, unless the law or the charter of the corporation expressly provides that an office shall become at the expiration of the term of office for which the officer was elected, the general rule is to allow the officer to hold over until his successor is duly qualified. MERE FAILURE OF ACORPO TO ELECT OFFICERS DOES NOT TERMINATE THE TERM OF EXISTINGOFFICERS AND DISSOLVE THE CORPORATION.

3. On the third cause of action as to the compensation of the BOD= the question must be of the validity of the measure and not the propriety and wisdom of the measure adopted. The power to fix the compensation they shall receive, if any, is left to the corporation to be determined by the by-laws. The remedy is in the hands of the stockholders. 4. On the fourth cause of action: The Corporation Law expressly gives the power to the corporation to provide in its

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by-laws for the qualifications of directors and the requirement of security from them for the proper discharge of the duties of their office.

CASE LAW/ DOCTRINE: The circumstances that one of the provisions contained in the by-laws of a building and loan association is invalid as conflicting with the express provision of statute is not a misdemeanor on the part of the corporation for which the association can be penalized by the forfeiture of its character.

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026 STOCKERHOLDER OF T.GUANZON V. REGISTER OF DEEDS October 30, 1962, G.R. No. L-18216 TOPIC: The Theory of Corporate Entity PONENTE: BAUTISTA ANGELO, J. FACTS

AUTHOR: Gelene Guevara

1. 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. 2. The certificate of liquidation was denied by the Register of Deeds because of the following grounds: (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; and, (7) the judgment of the Court approving the dissolution and directing the disposition of the assets of the corporation need be presented. 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. ISSUE: Whether or not the certificate of liquidation merely involves a distribution of the corporation's assets or should be considered a transfer or conveyance. Petitioners Argument: certificate of liquidation is not a conveyance or transfer but merely a distribution of the assets of the corporation which has ceased to exist for having been dissolved. This is apparent in the minutes for dissolution attached to the document. Not being a conveyance the certificate need not contain a statement of the number of parcel of land involved in the distribution in the acknowledgment appearing therein. Hence the amount of documentary stamps to be affixed thereon should only be P0.30 and not P940.45, as required by the register of deeds. Neither is it correct to require appellants to pay the amount of P430.50 as registration fee. Commissioner of Land Registrations Argument: it agreed with the view expressed by the register of deed to the effect that the certificate of liquidation in question, though it involves a distribution of the corporation's assets, represents a transfer of said assets from the corporation to the stockholders. Hence, in substance it is a transfer or conveyance. HELD: The Court held that the act of liquidation made by the stockholders of the F. Guanzon and Sons, Inc. of the latter's assets is a transfer or conveyance of the title of its assets to the individual stockholders RATIO: Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute personal property, they do not represent property of the corporation. 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 act of liquidation made by the stockholders of the corporation of the latters ass ets 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. Since the purpose of the liquidation, as well as the distribution of the assets, is to transfer their title from the corporation to the stockholders in proportion to their shareholdings, 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.

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027 Caram v. CA., June 30, 1987, G.R. No. L-48627 TOPIC: The Corporate Entity, Theories. PONTENTE: CRUZ, J.

AUTHOR: Arthur Archie Tiu -Corporation Law; Contracts; Liability of stockholders; Petitioners cannot be held personally liable for the compensation claimed by private respondent for services performed by him in the organization of the corporation since petitioners did not contract such services. -A bona fide corporation should alone be liable for its corporate acts duly authorized by its officers and directors Note: Guys, walang ibang facts nakalagay kaya medyo magulo basahin

FACTS 1. question of the solidary liability of the petitioners with their co-defendants 2. CA: 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 attorney's fees 3. petitioners claim that this order has no support in fact and law because they had no contract whatsoever with the private respondent regarding the above-mentioned services 4. Petitioners claim they are mere private investors in the corporation and that they should not be held solidarily liable with the company as they are a separate enity and that Co-defendants Barretto and Garcia are the ones who requested the services of respondent.

ISSUE: whether or not the petitioners themselves are also and personally liable for such expenses and, if so, to what extent HELD: No, petitioners cannot be held personally liable for compensation claimed by respondent.

RATIO: - Petitioners were not really involved in the initial steps that finally led to the incorporation of the Filipinas Orient Airways. Elsewhere in the decision, Barretto was described as "the moving spirit." - 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. - there was no showing that the Filipinas Orient Airways was a fictitious corporation and did not have a separate juridical personality, to justify making the petitioners, as principal stockholders thereof, responsible for its obligations. As a bona fide corporation, the Filipinas Orient Airways should alone be liable for its corporate acts as duly authorized by its officers and directors.

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AUTHOR: Chedelle Florido 028 PALAY, INC. and ALBERT ONSTOTT, vs. JACOBO C. CLAVE, SUPREME COURT September 21, 1983, G.R. No. L-56076 TOPIC: The Theory of Corporate Entity PONENTE: Melencio-Herrera FACTS 1. 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 (Lot No. 8, Block IV) of the Crestview Heights Subdivision in Antipolo, Rizal (The sale price was P23,300.00 with 9% interest per annum, payable with a downpayment of P4,660.00 and monthly installments of P246.42 until fully paid). 2. Paragraph 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. 3. Dumpit paid the downpayment and several installments amounting to P13,722.50. The last payment was made on December 5, 1967 for installments up to September 1967. 4. On May 10, 1973, or 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 Lourdes Dizon. He followed this up with another letter dated June 20, 1973 reiterating the same request. 5. In their reply, 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. 6. Questioning the validity of the rescission of the contract, respondent filed a letter complaint with the National Housing Authority (NHA) for reconveyance with an altenative prayer for refund. NHA - finding the rescission void in the absence of either judicial or notarial demand, ordered Palay, Inc. and Alberto Onstott in his capacity as President of the corporation, jointly and severally, to refund immediately to Nazario Dumpit the amount of P13,722.50 with 12% interest from the filing of the complaint on November 8, 1974 (MOR was denied on Oct. 23, 1979). OFFICE OF THE PRESIDENT (appeal) Presidential Executive Assistant, on May 2, 1980, affirmed the Resolution of the NHA. Reconsideration sought by petitioners was denied for lack of merit. ISSUE: WON Onstott is liable for the refund of the installment payments made by respondent Nazario M. Dumpit. WON Whether the doctrine of piercing the veil of corporate fiction has application to the case at bar. HELD: NO. RATIO: 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 petitioners' part. They had literally relied, albeit mistakenly, on paragraph 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 was a 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.

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CASE LAW/ DOCTRINE: *Mere ownership by a single stockholder or by another corporation is not of itself sufficient ground for disregarding the separate corporate personality.

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029 Jardine Davies, Inc. v. JRB Realty, Inc. (July 15, 2005, G.R. No. 151438) TOPIC: The Theory of Corporate Entity PONENTE: Callejo, Sr., J.

AUTHOR: De Silva, Denison Note: Aircon entered into a contract with respondent. Aircon was a subsidiary of petitioner Jardine Davies Inc. Petitioner does not exercise complete control over Aircon; nowhere can it be gathered that the petitioner manages the business affairs of Aircon.

FACTS: 1. Respondent JRB Realty, Inc. built a nine-storey building named Blanco Center on Salcedo Village. An air conditioning system was needed for the Blanco Law Firm housed at the second floor of the building. 2. The respondents Jose R. Blanco accepted the contract of Mr. A.G. Morrison, President of Aircon and Refrigeration Industries, Inc. (Aircon), for two (2) sets of air conditioning equipment worth P99, 586.00. 3. The two sets of air conditioning equipments could not deliver the desired cooling temperature. The respondent conceded that Fedders Air Conditioning USAs technology for rotary compressors for big capacity conditioners like those installed at the Blanco Center had not yet been perfected. The parties thereby agreed to replace the units with reciprocating/semihermetic compressors instead. 4. Aircon stated that it would be replacing the units currently installed with new ones at the earliest possible time. However, it could not specify a date when it will deliver. 5. TempControl Systems, Inc. (a subsidiary of Aircon until 1987) undertook the maintenance of the units, inclusive of parts and services. 6. The respondent then learned that Maxim Industrial and Merchandising Corporation (Maxim) was the new and exclusive licensee of Fedders Air Conditioning USA in the Philippines for the manufacture, distribution, sale, installation and maintenance of Fedders air conditioners. 7. Respondent requested that Maxim honor the obligation of Aircon, but the latter refused. This prompted respondent to institute an action for specific performance with damages against Aircon & Refrigeration Industries, Inc., Fedders Air Conditioning USA, Inc., Maxim Industrial & Merchandising Corporation and petitioner Jardine Davies, Inc. The latter (Jardine Davies Inc.) was impleaded as defendant, considering that Aircon was a subsidiary of the petitioner. 8. RTC ordered Jardine Davies and others to pay JRB Reaty Inc. 9. CA (by appeal of Jardine Davies) affirmed RTC. ISSUE: Whether or not the petitioner is not a party to a contract and therefore, not liable. HELD: Yes, it is an elementary and fundamental principle of corporation law that a corporation is an artificial being invested by law with a personality separate and distinct from its stockholders and from other corporations to which it may be connected. While a corporation is allowed to exist solely for a lawful purpose, the law will regard it as an association of persons or in case of two corporations, merge them into one, when this corporate legal entity is used as a cloak for fraud or illegality. RATIO: 1. The Court held that while it is true that Aircon is a subsidiary of the petitioner, it does not necessarily follow that Aircons corporate legal existence can just be disregarded. In Velarde v. Lopez, Inc., the Court categorically held that a subsidiary has an independent and separate juridical personality, distinct from that of its parent company; hence, any claim or suit against the latter does not bind the former, and vice versa. 2. The records bear out that Aircon is a subsidiary of the petitioner only because the latter acquired Aircons majority of capital stock. It, however, does not exercise complete control over Aircon; nowhere can it be gathered that the petitioner manages the business affairs of Aircon. Indeed, no management agreement exists between the petitioner and Aircon, and the latter is an entirely different entity from the petitioner. 3. Articles of Incorporation of Jardine Davies, Inc. - primarily a financial and trading company. 4. Articles of incorporation of Aircon - a manufacturing firm. 5. The existence of interlocking directors, corporate officers and shareholders, which the respondent court considered, is not enough justification to pierce the veil of corporate fiction, in the absence of fraud or other public policy considerations. 6. But even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only when such fiction is used to defeat public convenience, justify wrong, protect fraud or defend

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crime. 7. To warrant resort to this extraordinary remedy, there must be proof that the corporation is being used as a cloak or cover for fraud or illegality, or to work injustice. Any piercing of the corporate veil has to be done with caution. The wrongdoing must be clearly and convincingly established. It cannot just be presumed. 8. In the instant case, there is no evidence that Aircon was formed or utilized with the intention of defrauding its creditors or evading its contracts and obligations. There was nothing fraudulent in the acts of Aircon in this case. 9. The Court sustained the petitioners separateness from that of Aircon in this case. It bears stressing that the petitioner was never a party to the contract. Privity of contracts takes effect only between parties, their successorsin-interest, heirs and assigns. The petitioner, which has a separate and distinct legal personality from that of Aircon, cannot, therefore, be held liable. 10. Petition GRANTED. CASE LAW/ DOCTRINE: The doctrine of piercing the veil of corporate fiction which applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. The rationale behind piercing a corporations identity is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities. DISSENTING/CONCURRING OPINION:

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AUTHOR: 030 MAGSAYSAY-LABRADOR v. CA G.R. No. 58168 December 19, 1989 Rosa Cecilia K. Alfafara TOPIC: Theory of Corporate Entity PONENTE: FERNAN, C.J. FACTS 1. On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late Sen. Magsaysay, filed a complaint (C.F.I. of Olongapo) against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales. She prayed for the annulment of the Deed of Assignment in favor of SUBIC and the Deed of Mortgage in favor of FILMANBANK; and for the cancellation of TCT No. 22431 and to issue a new title in her favor. 2. She alleges: (a) in 1958, she and her husband acquired thru conjugal funds, a parcel of land (Pequena Island), covered by TCT No. 3258; (b) after her husbands death, she discovered the registration of a Deed of Assignment (6/25/76) purportedly executed by the late Senator in favor of SUBIC, as a result of which TCT No. 3258 was cancelled and TCT No. 22431 issued in the name of SUBIC and a Deed of Mortgage (9/28/77) in the amount of P2.7M was executed by SUBIC in favor of FILMANBANK; and (c) that the following documents were void since it was made without her consent (Conjugal property) and Sen. Magsaysay did not execute the purported Deed of Assignment, it was made by mistake, violence and intimidation. 3. On March 7, 1979, petitioners, sisters of the late Sen., filed a motion for intervention in said case on the ground that their brother conveyed to them 1/2 of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of around 41 % of the total outstanding shares of stocks of SUBIC, they have a substantial and legal interest with the pending suit. 4. Pet. alleges: their ownership of 41.66% of the capital stock of SUBIC entitles them to a significant vote in the corporate affairs and they are affected by the suit for it concerns the only tangible asset of the corporation. 4. TC: Denied the motion for intervention. (Petitioners have no legal interest whatsoever in the matter in litigation and their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a personality separate and distinct from its stockholders.) 5. CA: Affirmed TCs ruling. (Motion for Reconsideration also denied.) ISSUE: Whether or not the petitioners (sisters of the late senator) can intervene in the pending suit where corporate properties are in dispute. HELD: No, the petitioners have no legal interest in the subject matter in litigation so as to entitle them to intervene in the proceedings. RATIO: 1. As clearly stated in Section 2 of Rule 12 of the Rules of Court, to be permitted to intervene in a pending action, the party must have a legal interest in the matter in litigation, or in the success of either of the parties or an interest against both, or he must be so situated as to be adversely affected by a distribution or other disposition of the property in the custody of the court or an officer thereof. 2. In the case, petitioners interest, if it exists at all, is indirect, contingent, remote, conjectural, consequential and collateral. 3. While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person. 4. The petitioners cannot claim the right to intervene on the strength of the transfer of shares allegedly executed by the late Senator. The corporation did not keep books and records. No transfer was ever recorded, much less effected as to prejudice third parties. The transfer must be registered in the books of the corporation to affect third persons. The law on corporations is explicit. Section 63 of the Corporation Code provides: "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 or certificates and the number of shares transferred." CASE LAW/ DOCTRINE: Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person.

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031 Alberto S. Sunio and Ilocos Commercial AUTHOR: Myk Bercasio Corporation v. National Labor Relations Commission, EM Ramos & Company, Inc, EMRACO Nemesio Valenton, Santos Del Rosario, Vicente Tapucol, Cabugao Ice Plant, Inc. CIPI Andres Solis, Crescencio Soller, Cecilio Labuni, Sotero Rizal Development and Finance Corporation RDFC L. Tumang, in his capacity as Asst. Regional Director Ilocos Commercial Corporation ICC for Arbitration, Regional Office No. 1, Ministry of Sunio is the President and General Manager of ICC Labor & Employment, and Ambrosio B. Sison, in his capacity as Acting Regional Sheriff, Regional Office No. 1, Ministry of Labor & Employment January 31, 1984 G.R. No. L-57767 TOPIC: The Theory of Corporate Entity: Application of Theory: Interlocking Directors and Same Shareholders PONENTE: Melencio-Herrera, J. FACTS 1. EMRACO and CIPI are sister corporations who sold an ice plant to RDFC on 30 July 1973. 2. RDFC constituted a mortgage in favor of EMRACO and CIPI to secure payment of the balance of the purchase price. 3. EMRACO and CIPI terminated the services of all their employees and gave them their separation pays. Meanwhile, RDFC hired other employees and operated the plant. 4. 28 November 1973, RDFC sold the ice plant to ICC who hired their employees. 5. The sale was subject to the mortgage in favor of EMRACO and CIPI. 6. When both RDFC and ICC failed to pay the balance of the purchase price EMRACO and CIPI instituted extrajudicial foreclosure proceedings. 7. The properties were sold at a public auction on 30 August 1974. The highest bidders were EMRACO and CIPI. 8. A Writ of Possession from the CFI of Ilocos Sur was issued in their favor. 9. EMRACO and CIPI sold the ice plant to Nilo Villanueva on 30 August 1974. This sale was subject to the right of redemption of RDFC. 10. Villanueva re-hired the private respondents who were the former employees of EMRACO and CIPI. 11. On August 27, 1975, RDFC redeemed the ice plant. 12. EMRACO and CIPI were unable to turn over possession to RDFC because Villanueva to. 13. RDFC filed a complaint for recovery of possession against EMRACO and CIPI with the CFI of Ilocos Sur. 14. Nilo Villanueva intervened 15. The court ordered Writ of Preliminary Mandatory Injunction placing RDFC in possession of the ice plant. 16. EMPRACO and CIPI and Villanueva appealed to the Court of Appeals; the CA upheld the Order of the CFI. 17. A Petition for certiorari was brought up to the Supreme Court but it was denied for lack of merit on January 6, 1978. 18. On 1 February 1978, RDFC and petitioners finally obtain possession of the ice plant by virtue of the Mandatory Injunction worded in this manner: particularly Nilo C. Villanueva and his agents representatives, or any person found in the premises to vacate and surrender the property in litigation. 19. RDFC did not re-employ private respondents. 20. Private respondents filed complaints against petitioners for illegal dismissal with the Regional Office, Ministry of Labor & Employment, San Fernando, La Union. 21. The Asst. Regional Director ordered CIPI, ICC, and Sunio to reinstate private respondents to their former positions without loss of seniority privileges and to pay their back wages. 22. Petitioners appealed to the NLRC which affirmed the decision of the Asst. Regional Director. 23. Sunio and ICC deny having an employer-employee relationship on the grounds that they do not have an existing contract and that they are the employees of Villanueva who re-hired them when he took over the operations of the ice plant from CIPI. They also aver that there is no succession of rights and obligations between Villanueva and ICC and Sunio because the transfer of possession was actually a consequence of the exercise of the right of redemption of RDFC. 24. The NLRC contend that the sale of a business of a going concern does not terminate employer-employee relationship when the successor continues its business operations in an unchanged manner. 25. The respondents contended that Sunio was impleaded in the case being the owner of one-half (1/2) interest of said corporation and for his alleged arbitrary dismissal of private respondents.

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ISSUE: 1) Whether or not Sunio can be made jointly and severally responsible with ICC and CIPI for the payment of the back wages of respondents. 2) Whether or not the private respondents can recover from the petitioners their back wages. HELD: 1) No, because a corporation is invested by law with its own personality. 2) No, because there was no succession of employment rights and obligations took place between EMRACO-CIPINilo Villanueva. RATIO: A. CORPORATION LAW RELATED 1) Sunio was impleaded in the complaint in his capacity as General Manager of ICC and for being owner of interest of the corporation. a) But there appears to be no evidence on record that he acted in bad faith in terminating the respondents, the SC concluded that he was acting within the scope of his authority and his decision was a corporate act. b) Having majority interest in the company cannot be the basis for impleading Sunio because a corporation is invested by law with a personality that is separate and distinct from the people who actually own it. Ownership by one person or majority of the capital stock is not a sufficient ground for disregarding the separate corporate personality. B. LABOR LAW RELATED 1) There was no succession of employment rights between the owners. a) The petitioners reacquired the property by virtue of their exercise of their right of redemption and a Mandatory Injunction in their favor which ordered Villanueva and any other person found in the premises to vacate. b) The respondents employment was terminated by EMRACO-CIPI and they were given separation pay. c) When the respondents were rehired by Villanueva because of a resolutory condition their claim against him also ceased. 2) Right to security of tenure fails. a) Their employment tenure should not reckon from 1967 since they were terminated in 1973 and were only rehired in 1974 by Nilo Villanueva. b) There can be no tenurial security to speak of because from 1974 to 1978 ICC fought against Villanueva to recover possession of the plant. CASE LAW/ DOCTRINES: A corporation is invested by law with 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. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality.

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AUTHOR: Jelena 032 LAGUIO v. NLRC October 4, 1996 G.R. No.108936 Treating two corporations as one to claim for ones liability TOPIC: Application of Theory, Interlocking Directors and to its employees-- not applicable in this case. Same Shareholders PONENTE: FRANCISCO, J. FACTS 1. Private respondent April Toy, Inc. (April) is a domestic corporation incorporated on January 6, 1989, for the purpose of "manufacturing, importing, exporting, buying, selling, sub-contracting or otherwise dealing in, at wholesale and retail," stuffed toys, with principal place of business at Paraaque, Manila. 2. On December 20, 1989, or after almost a year of operation, April posted a memorandum within its premises and circulated a copy of the same among its employees informing them of its dire financial condition. 3. To avert further business reverses, April decided to shorten its corporate term "up to February 28, 1990," submitted a notice of dissolution to the Securities and Exchange Commission and published the same in a newspaper of general circulation. 4. April also notified its employees, the Department of Labor and Employment, the Social Security System, the Board of Investments, the Bureau of Internal Revenue, and the Municipality of Paraaque of its dissolution. 5. In view of April's cessation of operations, petitioners who initially composed of seventy-seven employees below filed a complaint for "illegal shutdown/retrenchment/dismissal and unfair labor practice." 6. On June 21, 1990, petitioners amended their complaint to implead private respondent Well World Toys, Inc. (Well World), a corporation also engaged in the manufacture of stuffed toys for export with principal office located at Las Pias, Manila. 7. In their complaint, petitioners basically alleged that they were original probationary employees of Well World but were later laid off in 1989 "for starting to organize themselves into a union". a. While under the employ of April, Alyansang Likha ng mga Anak ng Bayan (ALAB), won as the exclusive bargaining agent for the workers. b. Petitioners submitted a Collective Bargaining Agreement proposal which April rejected in view of its cessation of operation. c. The closure, petitioners declared, is April's clever ploy to "defeat their right to self organization". d. Petitioners further alleged that the original incorporators and principal officers of April were likewise the original incorporators of Well World, thus both corporations should be treated as one corporation liable for their claims. e. Petitioners also insist that the two corporations "are being managed by Mr. Jean Li Wang" and that their articles of incorporation, general information sheets and certificates of increase of capital stock were notarized by the same Notary Public. f. Additionally, petitioners aver that when some of them transferred from Well World to April they were not given their separation pay, a factor which presumably proves that April is a mere conduit of Well World. g. Petitioners likewise assert that their transfer from one corporation to another was made at the time that they were on the process of organizing a union. h. Finally, petitioners allege that April and Well World were engaged in the same line of business, with the latter also supplying the former raw materials and machineries. 8. Labor Arbiter found as valid the closure of April, and treated April and Well World as two distinct corporations, and although the 77 complainants were ruled to be the employees of April, Well World was ordered to give financial assistance to its former forty-nine probationary employees who were found to have been laid off in 1989 due to business losses. 9. April was ordered to pay its separated employees separation pay and, together with Well World, assessed for attorney's fees. 10. Petitioners appealed before the NLRC but was denied. ISSUE: Are the two corporations liable as one? HELD: NO. The circumstances, as petitioners claim, make theirs case akin to the case of La Campana Coffee Factory Inc. v. Kaisahan ng mga Manggagawa sa La Campana (KKM), 93 Phil. 160, where the Court considered two corporations, i.e., La Campana Coffee Factory, Inc. and La Campana Gaugau Packing, as one and the same. This is not applicable in the case at bar.

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RATIO: 1. What clearly appears therefrom is that the two corporations have two different set of officers managing their respective affairs in two separate offices. 2. Mere substantial identity of the incorporators of the two corporations does not necessarily imply fraud, nor warrant the piercing of the veil of corporate fiction. 3. In the absence of clear and convincing evidence that April and Well World's corporate personalities were used to perpetuate fraud, or circumvent the law said corporations were rightly treated as distinct and separate from each other. 4. Further, petitioners' emphatic reliance with the case of La Campana is misplaced. In La Campana, unlike in this case, the two corporations, i.e., La Campana Coffee Factory, Inc. and La Campana Gaugau Packing, were not only owned by the same person, but moreover have a single management, business office and a single payroll for both businesses. Indeed, the workers of La Campana Gaugau Packing "were interchangeable, that is, the laborers from gaugau factory were sometimes transferred to the coffee factory and vice-versa." 5. DISMISSED.

CASE LAW/ DOCTRINE: The fiction that a corporation was a distinct and separate personality shall not be used as a subterfuge to commit injustice and circumvent the law does not apply in the present case. There is no conclusive evidence to convince us that respondent April Toy, Inc. was established and later on closed to defeat the rights of the workers of Well-World Toy, Inc. which would otherwise support the charge of unfair labor practice. Hence, we find that the two (2) corporations are separate and distinct entities.

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33. GOOD EARTH EMPORIUM INC., and LIM KA AUTHOR: Dolina, Leon Chad Anthony Dolina PING vs. CA and ROCES-REYES REALTY INC. February 27, 1991, G.R. No. 82797 TOPIC: The Theory of Corporate Entity: Application to its Corporate Officers PONENTE: Paras, J. FACTS: 1. A Lease Contract, dated October 16, 1981, was entered into by and between ROCES-REYES REALTY, INC., as lessor, and GOOD EARTH EMPORIUM, INC., as lessee, for a term of three years beginning November 1, 1981 and ending October 31, 1984 at a monthly rental of P65,000.00. The building which was the subject of the contract of lease is a fivestorey building located at the corner of Rizal Avenue and Bustos Street in Sta. Cruz, Manila. 2. The lessee had defaulted in the payment of rentals, as a consequence of which, private respondent ROCES-REYES REALTY, INC filed on October 14, 1984, an ejectment case (Unlawful Detainer) against herein petitioners 3. MTC ruled in favor of respondent and ordered petitioners to vacate premises and pay the rentals. 4. RTC of Manila finding that the amount of P1 million evidenced by Exhibit "I" and another P1 million evidenced by the pacto de retro sale instrument (Exhibit "2") were in full satisfaction of the judgment obligation, reversed the decision of the Municipal Trial Court. 5. CA reversed decision of RTC and reinstated MTC ruling.

ISSUE: Whether or not the payment to the Roces brothers by petitioners can be considered as payment to respondent corporation? HELD: No. The payment to the Roces brothers were in their individual capacities and not as officers of respondent corporation RATIO: 1. The Court held that the fact that at the time payment was made to the two Roces brothers, GEE was also indebted to respondent corporation for a larger amount, is not supportive of the Regional Trial Court's conclusions that the payment was in favor of the latter, especially in the case at bar where the amount was not receipted for by respondent corporation and there is absolutely no indication in the receipt from which it can be reasonably inferred, that said payment was in satisfaction of the judgment debt. Likewise, no such inference can be made from the execution of the pacto de retro sale which was not made in favor of respondent corporation but in favor of the two Roces brothers in their individual capacities without any reference to the judgment obligation in favor of respondent corporation. 2. Article 1240 of the Civil Code of the Philippines provides that: Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. 3. In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc. or to its successor in interest nor is there positive evidence that the payment was made to a person authorized to receive it. No such proof was submitted but merely inferred by the Regional Trial Court from Marcos Roces having signed the Lease Contract as President which was witnessed by Jesus Marcos Roces. The latter, however, was no longer President or even an officer of Roces-Reyes Realty, Inc. at the time he received the money and signed the sale with pacto de retro. 4. On the other hand, Jesus Marcos Roces testified that the amount of P1 million evidenced by the receipt is the payment for a loan extended by him and Marcos Roces in favor of Lim Ka Ping. The assertion is home by the receipt itself whereby they acknowledged payment of the loan in their names and in no other capacity. CASE LAW/ DOCTRINE: A corporation has a personality distinct and separate from its individual stockholders or members. Being an officer or stockholder of a corporation does not make one's property also of the corporation, and viceversa, for they are separate entities. As a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit that of the corporation. DISSENTING/CONCURRING OPINION:

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034 INESTATE ESTATE OF ALEXANDER T. TY v. CA April 19, 2001 G.R. No. 114672 TOPIC: Corporate Officers PONTENTE: MELO J. FACTS

AUTHOR: Rhona Burce It is the regional trial court and no longer the SEC that takes cognizance of intra-corporate controversies.

1. Petitioner Sylvia S. Ty was married to Alexander T. Ty, son of private respondent Alejandro B. Ty, on January 11, 1981. Alexander died of leukemia on May 19, 1988 and was survived by his wife, petitioner Silvia, and only child, Krizia Katrina. In the settlement of his estate, petitioner was appointed administratrix of her late husbands intestate estate. 2. On November 4, 1992, petitioner filed a motion for leave to sell or mortgage estate property in order to generate funds for the payment of deficiency estate taxes in the sum of P4,714,560.00. 3. Private respondent Alejandro Ty then filed two complaints in the RTC for the recovery of the above-mentioned property, (1) praying for the declaration of nullity of the deed of absolute sale of the shares of stock executed by private respondent in favor of the deceased Alexander, and (2) praying for the recovery of the pieces of property that were placed in the name of deceased Alexander. 4. Alejandro alleged that they were acquired through his money, without any cause or consideration from deceased Alexander. 5. Motions to dismiss were filed by petitioner. Both motions alleged lack of jurisdiction for the trial court, claiming that the cases involved intra-corporate disputes cognizable by the Securities and Exchange Commission (SEC). 6. The motions to dismiss were denied. Petitioner then filed petitions for certiorari in the Courts of Appeals, which were also dismissed for lack of merit. 7. Petitioner raises the issue of jurisdiction of the trial court. She alleges that an intra-corporate dispute is involved. Hence, under Section 5(b) of Presidential Decree 902-A, the SEC has jurisdiction over the case. ISSUE: 1. Whether or not the SEC has jurisdiction over the case? Sub-issue 2. Whether or not an express trust was created by private respondent when he transferred the property to his son? HELD: 1. No. The relationship of private respondent when he sold his shares of stock to his son was one of vendor and vendee, nothing else. The question raised in the complaints is whether or not there was indeed a sale in the absence of cause or consideration. The proper forum for such a dispute is a regular trial court. 2. No. There was only an implied trust. RATIO: 1st issue 1. It should also be noted that under the newly enacted Securities Regulation Code (Republic Act No. 8799), this issue is now moot and academic because whether or not the issue is intra-corporate, it is the regional trial court and no longer the SEC that takes cognizance of the controversy. Under Section 5.2 of Republic Act No. 8799, original and exclusive jurisdiction to hear and decide cases involving intra-corporate controversies have been transferred to courts of general jurisdiction or the appropriate regional trial court. 2. Jurisdiction over the subject matter is conferred by law, The nature of an action, as well as which court or body has jurisdiction over it, is determined based on the allegations contained in the complaint of the plaintiff. 3. Petitioner argues that the present case involves a suit between two stockholders of the same corporation, which is within the exclusive competence of the SEC by reason of Section 5(b) of Presidential Decree 902-A. However, it does not necessarily follow that when both parties of a dispute are stockholders of a corporation, the dispute is automatically considered intra-corporate in nature and jurisdiction consequently falls within the SEC. 4. Presidential Decree 902-A did not confer upon the SEC absolute jurisdiction and control over all matters affecting corporations, regardless of the nature of the transaction, which gave rise to such disputes.

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5. The better policy in determining which body has jurisdiction over this case would be to consider, not merely the status of the parties involved, but likewise the nature of the question that is the subject of the controversy. When the nature of the controversy involves matters that are purely civil in character, it is beyond the ambit of the limited jurisdiction of the SEC. 2nd issue 6. Petitioner is in error when she contends that private respondent created an express trust when he transferred the property to his son. 7. [e]xpress trust are those that are created by the direct and positive acts of the parties, by some writing or deed or will or by words evidencing an intention to create a trust. On the other hand, implied trusts are those, which without being expressed, are deducible from the nature of the transaction by operation of law as matters of equity, independently of the particular intention of the parties. Thus, if the intention to establish a trust is clear, the trust is express; if the intent to establish a trust is to be taken from circumstances or other matters indicative of such intent, then the trust is implied. 8. Private respondent contends that the pieces of property were transferred in the name of the deceased Alexander for the purpose of taking care of the property for him and his siblings. Such transfer having been effected without cause of consideration, a resulting trust was created. 9. A resulting trust arises in favor of one who pays the purchase money of an estate and places the title in the name of another, because of the presumption that he who pays for a thing intends a beneficial interest therein for himself. The trust is said to result in law from the acts of the parties. Such a trust is implied in fact. 10. If a trust was then created, it was an implied, not an express trust, which may be proven by oral evidence, and it matters not whether property is real or personal. CASE LAW/ DOCTRINE: Under Section 5.2 of Republic Act No. 8799, original and exclusive jurisdiction to hear and decide cases involving intracorporate controversies have been transferred to courts of general jurisdiction or the appropriate regional trial court.

Note: The statue of limitations cannot apply in this case. Resulting trusts generally do not prescribe, except when the trustee repudiates the trust. Further, an action to reconvey will not prescribe so long as the property stands in the name of the trustee. To allow prescription would be to permit a trustee to acquire title against his principal and the true owner.

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035 Land Bank of the Philippines vs. The Court of Appeals, Eco Management Corporation, and Emmanuel C. Onate September 04, 2001, G.R. No. 127181 TOPIC: Dealings between Corporation and Stockholder PONTENTE: Quisimbing, J.

AUTHOR: Bea A corporation, upon coming into existence, is invested by law with a personality separate and distinct from those persons composing it as well as from any other legal entity to which it may be related. By this attribute, a stockholder may not, generally, be made to answer for acts or liabilities of the said corporation, 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.

FACTS: 1. On various dates in 1980, appellant Land Bank of the Philippines (LBP) extended a series of credit accommodations to appellee ECO, using the trust funds of the Philippine Virginia Tobacco Administration (PVTA) in the aggregate amount of P26,109,000.00. The proceeds of the credit accommodations were received on behalf of ECO by appellee Oate. 2. On the respective maturity dates of the loans, ECO failed to pay the same. Oral and written demands were made, but ECO was unable to pay. ECO claims that the company was in financial difficulty for it was unable to collect its investments with companies which were affected by the financial crisis brought about by the Dewey Dee scandal. (The Dewey Dee Scandal involves well, Dewey Dee!!! He is a Chinoy and he acquired Security Bank. He, together with two other Chinoys, acquired a huge amount under the Redwood Bank. By January 1981, Dee vanished and he amassed some gambling debts amounting to deveral million of dollars. It was estimated he left behind debts to the tune of P635 million) 3. On October 20, 1981, ECO proposed and submitted to LBP a Plan of Payment whereby the former would set up a financing company which would absorb the loan obligations. It was proposed that LBP would participate in the scheme through the conversion of P9,000,000.00 which was part of the total loan, into equity. 4. On the other hand, ECO submitted to LBP a Revised Plan of Payment deleting the latters (LBP) participation in the proposed financing company. The Trust Committee deliberated on the Revised Plan of Payment and resolved to reject it. LBP then sent a letter to the PVTA for the latters comments. The letter stated that if LBP did not hear from PVTA within five (5) days from the latters receipt of the letter, such silence would be construed to be an approval of LBPs intention to file suit against ECO and its corporate officers. PVTA did not respond to the letter. 5. On June 28, 1982, Landbank filed a complaint for Collection of Sum of Money against ECO and Emmanuel C. Oate before the Regional Trial Court of Manila. After trial on the merits, a judgment was rendered in favor of LBP; however, appellee Oate was absolved from personal liability for insufficiency of evidence. Dissatisfied, both parties filed their respective Motions for Reconsideration. LBP claimed that there was an error in computation in the amounts to be paid. LBP also questioned the dismissal of the case with regard to Oate. On the other hand, ECO questioned its being held liable for the amount of the loan. Upon order of the court, both parties submitted Supplemental Motions for Reconsideration and their respective Oppositions to each others Motions. 6. TRIAL COURT: Eco Management will pay Land Bank the sum of 26, 109, 000.00; CA: Affirmed the trial courts decision. ISSUE: W/N the corporate veil of ECO Management Corporation should be pierced; W/N Emmanuel C. Oate should be held jointly and severally liable with ECO Management Corporation for the loans incurred from Land Bank. HELD: NO, Corporate veil should not be pierced; NO, Emmanuel Onate should not be held liable for the loans incurred from Land Bank.

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RATIO: The burden is on petitioner to prove that the corporation and its stockholders are, in fact, using the personality of the corporation as a means to perpetrate fraud and/or escape a liability and responsibility demanded by law. In order to disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. In the absence of any malice or bad faith, a stockholder or an officer of a corporation cannot be made personally liable for corporate liabilities. The mere fact that Oate owned the majority of the shares of ECO is not a ground to conclude that Oate and ECO is one and the same. Mere ownership by a single stockholder of all or nearly all of the capital stock of a corporation is not by itself sufficient reason for disregarding the fiction of separate corporate personalities. Neither is the fact that the name ECO represents the first three letters of Oates name sufficient reason to pierce the veil. Even if it did, it does not mean that the said corporation is merely a dummy of Oate. A corporation may assume any name provided it is lawful. There is nothing illegal in a corporation acquiring the name or as in this case, the initials of one of its shareholders. That respondent corporation in this case was being used as a mere alter ego of Oate to obtain the loans had not been shown. Bad faith or fraud on the part of ECO and Oate was not also shown. As the Court of Appeals observed, if shareholders of ECO meant to defraud petitioner, then they could have just easily absconded instead of going out of their way to propose Plans of Payment. Likewise, Oate volunteered to pay a portion of the corporations debt. This offer demonstrated good faith on his part to ease the debt of the corporation of which he was a part. It is understandable that a shareholder would want to help his corporation and in the process, assure that his stakes in the said corporation are secured. In this case, it was established that the P1 Million did not come solely from Oate. It was taken from a trust account which was owned by Oate and other investors. It was likewise proved that the P1 Million was a loan granted by Oate and his co-depositors to alleviate the plight of ECO. This circumstance should not be construed as an admission that he was really the debtor and not ECO. CASE LAW/ DOCTRINE: A corporation, upon coming into existence, is invested by law with a personality separate and distinct from those persons composing it as well as from any other legal entity to which it may be related. By this attribute, a stockholder may not, generally, be made to answer for acts or liabilities of the said corporation, 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 to 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 when the fiction is used to defeat public convenience, justify wrong, protect fraud, defend crime, confuse legitimate legal or judicial issues, 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 all these cases, the notion of corporate entity will be pierced or disregarded with reference to the particular transaction involved. DISSENTING/CONCURRING OPINION: N/A

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036 TRADERS ROYAL BANK, petitioner, AUTHOR: Mercado, Christopher Dann C. vs. the excuse of piercing the veil of corporate entity, as COURT OF APPEALS, FILRITERS GUARANTY this merely an equitable remedy, and may be ASSURANCE CORPORATION and CENTRAL BANK of the PHILIPPINES, respondents. awarded only in cases when the corporate fiction is TOPIC: piercing the veil of corporate entity: obligations used to defeat public convenience, justify wrong, PONTENTE:TORRES, J. protect fraud or defend crime or where a corporation is a mere alter ego or business conduit of a person. 1 FACTS 1) Filriters Guaranty Assurance Corporation (Filriters) executed a "Detached Assignment" whereby Filriters, as registered owner sold and transferred to Philippine Underwriters Finance Corporation (Philfinance) all its rights and title to Central Bank Certificates of Indebtedness (CBCI). 2) Petit entered into a Repurchase Agreement with PhilFinance where for and in consideration of the sum of PESOS: FIVE HUNDRED THOUSAND (P500,000.00), PhilFinance sold and transferred and delivered to petitioner the aforesaid CBCI. 3) Pursuant to the aforesaid Repurchase Agreement, Philfinance agreed to repurchase CBCI. 4) PhilFinance, however, failed to repurchase the CBCI on the agreed date of maturity when the checks it issued in favor of petitioner were dishonored for insufficient funds; 5) Thus, owing to the default of PhilFinance, it executed a Detached Assignment in favor of the Petitioner to enable the latter to have its title completed and registered in the books of the respondent. And by means of said Detachment, Philfinance transferred and assigned all, its rights and title in the said CBCI (Annex "C") to petitioner. 6) Petitioner presented the CBCI together with the two (2) aforementioned Detached Assignments to the Securities Servicing Department of the respondent, and requested the latter to effect the transfer of the CBCI on its books and to issue a new certificate in the name of petitioner as absolute owner thereof; 7) However, Respondent failed and refused to register the transfer as requested, and continues to do so, due to the following reasons: a).The detached assignment is patently void and inoperative because the assignment is without the knowledge and consent of directors of Filriters, and not duly authorized in writing by the Board, as requiring by Article V, Section 3 of CB Circular No. 769; and b.) the assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not the corporate act of Filriters and such null and void; 8) Thus, the petitioner filed this case before the Court. 9) The petitioner argues that Philfinance owns 90% of Filriters equity and the two corporations have identical corporate officers, thus demanding the application of the doctrine or piercing the veil of corporate fiction, as to give validity to the transfer of the CBCI from registered owner to petitioner TRB. 14 This renders the payment by TRB to Philfinance of CBCI, as actual payment to Filriters. ISSUE: Whether or not the corporate veil of the private respondent-corporation should be pierced because it was used to defraud the petitioners HELD: No. Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this merely an equitable remedy, and may be awarded only in cases when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime or where a corporation is a mere alter ego or business conduit of a person.

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RATIO: Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguished one corporation from a seemingly separate one, were it not for the existing corporate fiction. But to do this, the court must be sure that the corporate fiction was misused, to such an extent that injustice, fraud, or crime was committed upon another, disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent third persons dealing with the corporate entity which the law aims to protect by this doctrine. The corporate separateness between Filriters and Philfinance remains, despite the petitioners insistence on the contrary. For one, other than the allegation that Filriters is 90% owned by Philfinance, and the identity of one shall be maintained as to the other, there is nothing else which could lead the court under circumstance to disregard their corporate personalities. Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity with a juridical personality separate from its stockholders and from other corporations may be disregarded, 19 in the absence of such grounds, the general rule must upheld. The fact that Filfinance owns majority shares in Filriters is not by itself a ground to disregard the independent corporate status of Filriters. In Liddel & Co., Inc. vs. Collector of Internal Revenue, 20 the mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities. In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it acquired the subject certificate of indebtedness from Philfinance. On its face the subject certificates states that it is registered in the name of Filriters. This should have put the petitioner on notice, and prompted it to inquire from Filriters as to Philfinance's title over the same or its authority to assign the certificate. As it is, there is no showing to the effect that petitioner had any dealings whatsoever with Filriters, nor did it make inquiries as to the ownership of the certificate. CASE LAW/ DOCTRINE: Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguished one corporation from a seemingly separate one, were it not for the existing corporate fiction. But to do this, the court must be sure that the corporate fiction was misused, to such an extent that injustice, fraud, or crime was committed upon another, disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent third persons dealing with the corporate entity which the law aims to protect by this doctrine.

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AUTHOR: Dexter 037 CKH Industrial and Dev. Corp. v. CA This case talks about compensation as means of May 7, 1997 G.R. No. 111890. TOPIC: The Corporate Entity extinguishing an obligation. (Application of Theory: (d) Obligations) PONTENTE: TORRES, JR., J. FACTS 1. Petitioner CKH is the owner of two parcels of land located in Karuhatan, Valenzuela. 2. CKH is a corporation established under Philippine law by the late Cheng Kim Heng (Cheng), an immigrant of Chinese descent. Upon Cheng's demise, control over the petitioner corporation was transferred to Rubi Saw, also of Chinese descent, and Cheng's second wife. 3. Before coming to the Philippines, Cheng Kim Heng was married to Hung Yuk Wah (Wah), who lived in Hongkong together with their children, Chong Tak Kei, (Kei), Chong Tak Choi (Choi), and Chong Tak Yam (Yam). After Cheng immigrated to the Philippines in 1976, and married Rubi Saw in 1977, he brought his first wife, Heng, and their children to this country, and established himself and his Chinese family as naturalized Filipino citizens. Cheng died in 1984. 4. On May 8, 1988, Rubi Saw and Lourdes Chong, the wife of Cheng's son, Kei, met at the 1266 Soler St., Sta. Cruz, Manila, the residence of Cheng's friend, Uy Chi Kim, and executed a Deed of Absolute Sale, whereby Rubi Saw, representing CKH, agreed to sell the subject properties to Century-Well, a corporation owned in part by Lourdes Chong, Kei and Choi. 5. Rubi Saw signed on behalf of CKH, while Lourdes Chong signed for Century Well. The document was notarized the day after the parties signed the same, i. e., March 9, 1988. 6. Claiming that the consideration for the sale of the subject properties was not paid by the private respondent-vendee despite several demands to do so, Petitioners CKH and Rubi Saw filed the instant complaint on May 23, 1988, with the Regional Trial Court of Valenzuela, against Century-Well, Lourdes Chong, Chong Tak Kei and Uy Chi Kim. Petitioners prayed for the annulment/rescission of the Deed of Absolute Sale, and in the meantime, for the issuance of a writ of preliminary injunction restraining the Register of Deeds of Valenzuela from registering the Certificates of Title over the subject properties in the name of the private respondent Century-Well. TC- Finding that the annulment of the Deed of Absolute Sale was merited, as there was no payment of the stipulated consideration for the sale of the real properties involved to Rubi Saw. The Deed of Sale itself, which is the best evidence of the agreement between the parties, did not provide for payment by off-setting a portion of the purchase price with the outstanding obligation of Cheng Kim Heng to his sons Chong Tak Choi and Chong Tak Kei. On the contrary, it provided for payment in cash, in the amount of P800,000.00. The evidence presented, however, did not disclose that payment of the said amount had ever been made by the private respondent. CA- Court of Appeals reversed the findings and pronouncements of the trial court. That the execution of the Deed of Absolute Sale was in settlement of a dispute between Rubi Saw and the first family of Cheng Kim Heng, which arose upon Cheng's death. There was indeed payment of the purchase price, partially in cash for P100,000.00 and partially by compensation by off-setting the debt of Cheng Kim Heng to his sons Choi and Kei for P500,000.00 and P200,000.00 respectively, against the remainder of the stipulated price. Such mode of payment is recognized under Article 1249 of the Civil Code. ISSUE: WON there was a valid compensation of the obligations of Cheng Kim Heng to his sons with the purchase price of the sale HELD: NO. Compensation may take place by operation of law (legal compensation), when two persons, in their own right, are creditors and debtors of each other. Compensation may also be voluntary or conventional, that is, when the parties, who are mutually creditors and debtors agree to compensate their respective obligations, even though not all the requisites for legal compensation are present.

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RATIO: Article 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. Article 1231 of the Civil Code, an obligation may be extinguished: (1) by payment or performance; (2) by the loss of the thing due, (3) by the condonation or remission of the debt; (4) by the confusion or merger of the rights of creditor and debtor, (5) by compensation; or (6) by novation. Other causes of extinguishment of obligations include annulment, rescission, fulfillment of a resolutory condition and prescription. In the instant case, there can be no valid compensation of the purchase price with the obligations of Cheng Kim Heng reflected in the promissory notes, for the reason that CKH and Century-Well the principal contracting parties, are not mutually bound as creditors and debtors in their own name. A close scrutiny of the promissory notes does not indicate the late Cheng, as then president of CKH, acknowledging any indebtedness to CenturyWell. As worded, the promissory notes reveal CKHs indebtedness to Chong Tak Choi and Chong Tak Kei. In fact, there is no indication at all, that such indebtedness was contracted by Cheng from Choi and Kei as stockholders of Century-Well. Choi and Kei, in turn, are not parties to the Deed of Absolute Sale. They are merely stockholders of Century-Well, and as such, are not bound principally, not even in a representative capacity, in the contract of sale. Thus, their interest in the promissory notes cannot be off-set against the obligations between CKH and Century-Well arising out of the deed of absolute sale, absent any allegation, much less, even a scintilla of substantiation, that Choi and Keis interest in Century-Well are so considerable as to merit a declaration of unity of their civil personalities. Under present law, corporations, such as Century-Well, have personalities separate and distinct from their stockholders, except only when the law sees it fit to pierce the veil of corporate identity, particularly when the corporate fiction is shown to be used to defeat public convenience, justify wrong, protect fraud or defend crime, or where a corporation the mere alter ego or business conduit of a person. CASE LAW/ DOCTRINE: The obligations of a stockholder in one corporation cannot be offset from the obligation of the stockholder in a second corporation, since the corporation has a separate juridical personality. The so-called parol evidence rule forbids any addition to or contradiction of the terms of a written instrument by testimony or other evidence purporting to show that, at or before the execution of the parties written agreement, other or different terms were agreed upon by the parties, varying the purport of the written contract. When an agreement has been reduced to writing, the parties cannot be permitted to adduce evidence to prove alleged practices which to all purposes would alter the terms of the written agreement. Whatever is not found in the writing is understood to have been waived and abandoned. DISSENTING/CONCURRING OPINION:

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038 US v. MILWAUKEE REFRIGERATOR TRANSIT CO. December 28, 1905, 142 F. 247 TOPIC: Piercing the corporate veil PONENTE: Sanborn FACTS

AUTHOR: JANNA Brothers create a transit co. to circumvent law and help its brewery business. General rule: corporation = legal entity, but iw/illegal operation = association of persons.

1. The brewing company, owned and controlled by Pabst brothers is a Wisconsin corporation operating a large brewery, selling and shipping beer into all states and territories, and to foreign countries. 2. Pabst Brewery habitually received, from many railroads and common carriers which transported its products, rebates and concessions. 3. Upon passage of the Elkins act, the brewing company was no longer able to directly secure rebates. 4. Pertinent provisions of the Elkins Act are as follows: Corporation carriers are made liable to the same extent as were their agents under the earlier statutes, but subject to fine only, not imprisonment. It is made unlawful and punishable for any person or corporation to offer, grant, or give, or to solicit, accept, or receive, or offer so to do, any rebate, concession, or discrimination in respect of transportation in interstate or foreign commerce by common carriers within the former statutes, whereby any such property shall, by any device whatever, be carried at less than the published tariff rate. The published rate is made conclusive, and any departure there from punishable. 5. Oct. 7, 1903, the transit company was organized to operate refrigerator cars on defendants' and other lines, allegedly as a dummy company to evade the statute and cover the receiving of rebates, etc. which is about 1/8th or 1/10th of the published rates. Rebates are paid and accepted under the guise of commissions. 6. On creation of the transit company, the Pabsts as controlling officers, contracted with themselves as executive officers of the transit company, to give the latter the exclusive control of the shipment of all freight of the brewing company moving in interstate and foreign commerce. 7. On such shipments, brewing company pays to the carriers the full tarriff rate, and the carriers pay the transit co. for use of its refrigerator cars, plus an additional 1/8 or 1/10 of sums paid them by the brewing company. 8. In every instance, the property is transported by defendant carriers at 1/8th or 1/10th less than the published tariff rates, amounting to thousands of dollars. 9. Plaintiff filed a bill in equity for an injunction to prevent the payment of alleged rebates on freight, brought under Elkins Act Feb. 19, 1903. 10. Defendants made demurrers and a motion to strike out allegations of illegality and claimed that repayments were made and accepted as compensation for its services.

ISSUE: (1) Whether the payments are intended rebates, against the law; (2) Whether the defendant corporations were so united in interest, control, and management as to make them substantially the same. HELD: ; YES, because the bill states several facts showing unlawful purpose such as prior habitual violations of former laws, the creation of a dummy corporation, and the fact that the transit company solicits no freight. YES, the transit company and the brewery company, are owned and controlled by the Pabsts brothers, and these serve the same united interest, control, and management.

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RATIO: 1. Of its 1,500 shares, 1,340 were issued to the two Pabsts, 35 shares to Fred Pabst's wife, and the balance to dummy directors, to give color to the claim that its stock was not owned by the brewing company. 2. The transit company has entire control of all the shipping business of the brewery, comprising almost the entire business of the transit company, which it does not solicit; the only possible consideration moving from it to the carrier being its refraining to divert the business. 3. The bill shows the creation, by the controlling interests of the brewing company, of a dummy corporation, with dummy directors, and scienter of its character by the carriers, with intent to evade the law. 4. That the transit company is controlled by the managing agents of the brewing company is entirely clear. But is it controlled by the shipper corporation? The solution of this question depends on whether the brewing corporation, in a case like this, is an association of individuals, rather than a legal entity apart from those who own and control it. 5. No doubt the general rule that a corporation is a legal entity, an institution, artificial, intangible, existing only by legal contemplation, and separate and apart from its constituents, is firmly imbedded in the common law of this country. However, 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. A corporation, as expressive of legal rights and powers, is no more fictitious or intangible than a man's right to his own home or his own liberty. 6. It clearly appears that the shipper practically controls the transit company, showing a sufficient identity of interest among the shareholders of both in the repayments to make them rebates, if paid and received with unlawful intent. 7. It is said that the procurement of the shipments through the contract is the mere soliciting of them for the carriers, for which they are lawfully authorized to pay a part of the rate, in order to get the business; 8. As alleged, the transit company is a mere separate name for the brewing company, being in fact the same collection of persons and interests.

CASE LAW/ DOCTRINE: 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. A corporation, as expressive of legal rights and powers, is no more fictitious or intangible than a man's right to his own home or his own liberty.

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