Cagayan Fishing Development Co., Inc. v.
Sandiko
Tabora is the registered owner of parcels of land. To guarantee his
loans, he executed three mortgages on the lands. Then, in
consideration of P1, subject to the existing mortgages, Tabora sold the
lands to Cagayan Fishing Development which at the time was still
unincorporated. It submitted its articles of incorporation after about five
months.
Then, Cagayan Fishing, through its president, sold the lands to
Sandiko, who obligated himself to shoulder the mortgages. Defendant
failed to pay plaintiff. In dismissing plaintiffs complaint, the lower court
held that the sale by Cagayan Fishing to Sandiko was invalid.
ISSUE: WON the transfer by Tabora to Cagayan Fishing was valid.
HELD: No. a corporation until organized has no being. The corporation
was not yet incorporated during the transfer hence it did not have
juridical capacity to enter into the contract. Tabora, as mere promoter
of a corporation, could not have acted as an agent for the projected
corporation which did not yet have any legal existence and hence
could not yet have an agent.
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
Rizal Light is a corporation. While cases were pending against it for
alleged violation of the certificate of public convenience granted to it,
Morong Electric filed an application to operate the same service that
Rizal Light provides. Rizal Light opposed the application, alleging
among others that Morong Electric did not have legal capacity when it
filed its application since its certificate of incorporation was only issued
by SEC only a month after.
ISSUE: WON franchise only be the franchise granted to Morong
Electric was valid.
HELD: Yes. The fact that Morong Electric did not yet have legal
personality when it entered into contract does not render the franchise
invalid because later that defect was cured. Franchise only became
effective after the approval of the Public Service Commission. Morong
Electric was already incorporated then.
Caram, Jr. vs. Court of Appeals
The lower court held petitioners liable solidarily with a corporation for
the services rendered which led to the formation of that corporation.
Petitioners contend that they were mere subsequent investors.
ISSUE: WON as subsequent investors, petitioners did take part in the
formation of the corporation.
HELD: No. the petitioners were only financiers whose interest wee to
be invited and was in fact persuaded to invest. There was also no
showing that the corporation did not then have a separate juridical
personality so as to make its principal stockholders liable.
Hall vs. Piccio
Petitioners and defendants signed and acknowledged their articles of
incorporation. Pending issuance of their certificate of incorporation,
respondents filed for the dissolution of their alleged unregistered
partnership. Hall contested and claimed that the court had no
jurisdiction over the dissolution of the company, arguing that since it
was a de facto corporation, the dissolution thereof could only be
ordered in a separate proceeding hence the court does not have
jurisdiction.
ISSUE: WON the court has jurisdiction over the proceeding.
HELD: Yes. Since the certificate of incorporation had not been issued
by SEC, de facto doctrine did not apply. The incorporators could not
claim good faith being fully aware of this.
Vda. de Salvatierra vs. Hon. Garlitos etc, and Refuerzo
Salvatierra entered into a contract of lease with Philippine fibers,
allegedly a corporation, through its president Refuerzo. For failure to
comply with the conditions of the lease, Salvatierra filed for accounting,
rescission and damages. Judgment was rendered against Philippine
Fibers. Since no property was found under its name, a writ of
execution was issued against the properties of Refuerzo.
Refuerzo contested claiming that there was no question in the
complaint pointing to his personal liability. Salvatierra answered that it
was because it was only after a subsequent inquiry that she learned
that Philippine Fibers was not really a corporation.
ISSUE: WON Refuerzo may be held personally liable.
HELD: Yes. An agent without authority or without a principal is
regarded as a principal. In acting on behalf of a corporation which he
knew to be unregistered, he assumed the risk of damages which may
arise from the transaction.
Asia Banking Corporation vs. Standard Products Co.
Plaintiff failed to prove affirmatively the corporate existence of the
parties. Appellant insists on this ground that court erred in finding that
plaintiff is a corporation with juridical personality.
ISSUE: WON being a corporation of plaintiff may be questioned.
HELD: No. Appellant, in the absence of fraud, recognized plaintiff as a
corporation, evidenced by the promissory notes. Appellant is therefore
estopped from denying its existence.
Albert vs. University Publishing Co., Inc.
In a previous decision, the court held University liable for damages to
Albert. Then Albert filed a petition to have the writ of execution issued
against Aruego as the real party defendant, the person who
represented himself to be the president of University Publishing. Albert
said that upon inquiry, SEC said that University was not a registered
corporation. University said that it is the real defendant and not
Aruego.
ISSUE: WON Aruego may be held liable.
HELD: Yes. One who has induced another to act on behalf of his willful
misrepresentation that a corporation was duly organized cannot
therefore setup against his victim the principle of corporation by
estoppel.
Paz vs. New International Environmental Universality, Inc.
Paz entered into a MOA with Clarke, president of New Environmental
Universality. For violation of the conditions, Paz demanded that the
company vacate the leased premises. The lower court held Paz liable
to the company for breach of contract. Paz contended that the
transaction was only between him and Clarke.
ISSUE: WON the transaction was between Paz and Clarke.
HELD: No. Clarke was merely a representative and Paz recognized
this. Therefore, he is bound by the MOA.
Pioneer Insurance & Surety Corporation vs. Court of Appeals
Lim entered into and executed a sales contract with JDA. Pioneer was
a surety for Lim the balance with JDA. It appears that Bormaheco,
Cervantes and Maglana contributed funds in the purchase of the
aircrafts. The funds were supposed to be their contributions to a new
corporation proposed by Lim. They executed indemnity agreements in
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favor of Pioneer whereby they assumed all the liabilities of Pioneer
arising from its being surety of Lim.
Lim, doing business under his name, executed a chattel mortgage for
Pioneer over the subject aircrafts. Lim defaulted in payment prompting
JDA to secure payment from Pioneer. In turn, Pioneer filed an action
for extrajudicial foreclosure with write of preliminary attachment against
Lim, Cervantes, Bormaheco and Maglana.
Maglana, Bormaheco and Cervantes alleged that they were not parties
to the contract signed by Lim.
Lim contends that although they failed to incorporate a de facto
partnership was formed among them and thus they must share losses
and gains.
ISSUE: WON they formed a de facto partnership.
HELD: No. Partnership cannot be implied where there was no intention
to form a partnership. This must only be implied when necessary to do
justice between the parties. Petitioner was acting on his own and not
on behalf of would-be incorporators.
Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc.
On behalf of Quest Fishing Corp., Chua and Yao entered into a
contract for purchase of fishing nets with Philippine Fishing Gear. They
claimed that they were engaged in a business venture with Lim Tong
Lim who was not a signatory to the contract. The buyers however
failed to pay thus an action was filed against them and Lim. The suit
was brought against the three as general partners after SEC certified
that Quest Fishing was not registered. One of the contentions of Lim is
that under the doctrine of corporation by estoppel, only Chua and Yao
were liable.
ISSUE: WON Lim is also liable.
HELD: Yes. A third party, knowing an association to be
unincorporated, nonetheless treated it as a corporation, and received
benefits from it, may be barred from denying its corporate existence.
Petitioner benefited from the use of the nets. He questioned the writ of
attachment on the boat for it stopped him from using it. Having reaped
benefits, he is estopped from denying it.
Ong Yong vs. Tiu
The construction of Masagana Citimall was threatened with
incompletion when its owner FLADC, owned by the Tius, had a
financial crisis. To save it from foreclosure by its creditor PNB, the Tius
invited Ong Yong and the Ongs to invest. Through their investment,
they were able to prevent foreclosure. They entered into a pre-
subscription agreement. But because of an alleged violation of the pre-
subscription agreement, the Tius sought its rescission. The CA ordered
the liquidation of FLADC.
ISSUE: WON the pre-subscription agreement may be rescinded.
HELD: No. the subject matter of the contracts was the P1M unissued
shares of FLADC allocated to the Ongs. Since the contract was
between FLADC, FLADC is the real party. Rescission will violate the
trust fund doctrine for it will result in unauthorized distribution of capital
assets.
GSIS Family Bank-Thrift Bank (formerly Comsavings Bank, Inc.)
vs. BPI Family Bank
GSIS acquired Comsavings Bank from Commercial Bank of Manila. To
improve its marketability to the public, especially to the members of the
GSIS, Comsavings Bank sought SEC approval to change its corporate
name to GSIS Family Bank, a Thrift Bank. The application was
approved. BPI Family Bank petitioned SEC Company Registration and
Monitoring Department to disallow or prevent the registration of the
name GSIS Family Bank or any other corporate name with the words
Family Bank in it. BPI claimed exclusive ownership to the name
Family Bank. It also claimed that through the years, it has been
known as BPI Family Bank or simply Family Bank both locally and
internationally. As such, it has acquired a reputation and goodwill
under the name, not only with clients here and abroad, but also with
correspondent and competitor banks, and the public in general.
SEC held that there exists a confusing similarity between the corporate
names BPI Family Bank and GSIS Family Bank. It explained that
altough not identical, the corporate names are indisputable similar, as
to cause confusion in the public mind, even with the exercise of
reasonable care and observation, especially so since both corporations
are engaged in the same busines.
ISSUE: WON GSIS may continue to use Family Bank.
HELD: No. The Corporation Code provides that no corporate name
may be allowed by SEC if the proposed name is identical or
deceptively or confusingly similar to that of any existing corporation.
The words Family Bank present in both petitioner and respondents
corporate name satisfy the requirement that there be identical names
in the existing corporate name and the proposed one. The words
GSIS and thrift are not sufficiently distinct words that differentiate
petitioners corporate name from BPIs. it is the SECs duty to prevent
confusion in the use of corporate names not only for the protection of
corporations involved, but more so for the protection of the public. It
has authority to de-register it at all times, and under all circumstances
corporate names which in its estimation are likely to generate
confusion.
Gokongwei, Jr. vs. Securities and Exchange Commission
Gokongwei, as stockholder of San Miguel, filed with the SEC a petition
for declaration of nullity of amended by-laws against the majority of the
members of the Board of Directors and San Miguel Corporation. One
of the contentions of Gokongwei is that prior to the questioned
amendment, he had all the qualifications to be a director of the
corporation, and that in amending the by-laws, respondents purposely
provided for petitioners disqualification and deprived him of his vested
rights. There was a portion in the amended by-laws which states that in
determining whether or not a person is engaged in competitive
business, the Board may consider such factors such as business and
family relationship. Respondents contend that the amendments were
valid and legal because the power to amend, modify, repeal or adopt
new by-laws delegated to the Board was never revoked, withdrawn or
otherwise nullified by the stockholders. They also added that the
corporation should not be precluded from adopting protective
measures to minimize or eliminate situations where its directors might
be tempted to put their personal interests over that of the corporation.
ISSUE: WON the provisions of the amended by-laws of San Miguel
Corporation, disqualifying a competitor from nomination or election to
the Board of Directors are valid and reasonable.
HELD: Yes. Every corporation has the inherent power to adopt by-laws
for its internal government, and to regulate the conduct and prescribe
the rights and duties of its members towards itself and among
themselves in reference to the management of its affairs. Any person
who buys stock in a corporation does so with the knowledge that its
affairs are dominated by a majority of the stockholders and that he
impliedly contracts that the will of the majority shall govern in all
matters within the limits of the act of incorporation and lawfully enacted
by-laws and not forbidden by law. It cannot therefore be justly said that
the contract, express or implied, between the corporation and the
stockholders is infringed by any act of the former which is authorized
by a majority.
The doctrine of corporate opportunity is a recognition by the courts
that the fiduciary standards could not be upheld where the fiduciary
was acting for two entities with competing interests. This doctrine rests
fundamentally on the unfairness, in particular circumstances, of an
officer or director taking advantage of an opportunity for his own
personal profit when the interest of the corporation justly calls for
protection.
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A member of the Board of Directors of the SMC has access to
sensitive and highly confidential information. It is obviously to prevent
the creation of an opportunity for an officer or director of SMC, who is
also the officer or owner of a competing corporation, from taking
advantage of the information which he acquires as director to promote
his individual or corporate interests to the prejudice of the corporation
and its stockholders, that the questioned amendment of the by-laws
was made.
Pea vs. Court of Appeals
PAMBUSCO > DBP (foreclosed) > Pea (highest bidder)
PAMBUSCO (3/5 directors) > Enriquez (right of redemption)
Enriquez > Yap (sold)
Pea alleged that the assignment of the right of redemption was ultra
vires act of the board.
meeting lies with the Corporate Secretary and not with the oversight
committee.
ISSUE: WON the meeting called by the oversight committee was valid.
HELD: No. The Corporation Code provides that a special meeting of
the stockholders or members of a corporation for the purpose of
removal of directors or trustees or any of them must be called by the
secretary on order of the president or on the written demand of the
stockholders representing or holding at least a majority of the
outstanding capital stock. The MSC by-laws provide that only the
President and the board are authorized. In this case, it was the
oversight committee who called for the special meeting. Nowhere in
the by-laws does it say that it is authorized to do so, thus it cannot
have legal effect. The general rule is that a corporation, through its
board of directors, should act in the manner and within the formalities,
if any, prescribed in its charter or by the general law. Thus, directors
must act as a body in a meeting called pursuant to the law or the
corporations by-laws, otherwise, any action taken therein may be
questioned by the objecting director or shareholder.

ISSUE: WON the board resolution with assigned the right of

redemption to Enriquez was valid.

HELD: No. By-laws form the fundamental law of a corporation. In this

case, the by-laws required at least 4 directors and only 3 convened
here.

China Banking Corporation vs. Court of Appeals

Calapatia, a stockholder of Valley Golf and Country Club, pledged his

stock Certificate to China Banking Corporation. He requested Valley
Golf to record the pledge agreement in the books. Due to his failure to
pay his obligation, CBC filed a petition for extrajudicial foreclosure.
CBC informed Valley Golf of the foreclosure and requested that the
pledged stock be transferred to CBCs name but Valley Golf refused
due to Calapatias unsettled accounts with the club. Despite the
foregoing, a public holder was held with CBC as the highest bidder.

Due to Calapatias failure to pay Valley Golf, Valley Golf held an

auction which included Calapatias stock. Valley Golf then informed
Calapatia of the termination of his membership. CBC advised Valley
Golf that it is the new owner of Calapatias stock but it was advised that
the stock has already been sold due to delinquency. CBC protested
the sale by Valley Golf and thus filed a case with the RTC requesting
for the nullification of the sale and issuance of a new stock in its name.

Valley Golf claims that according to its by-laws, after a member shall
have been posted as delinquent, the Board may order her/his/its share
sold to satisfy the claims of the club. It contends that its corporate by-
laws should prevail. It likewise contends that CBC is bound by its by-
laws.

ISSUE: WON CBC is bound by Valley Golfs by-laws.

HELD: No. In order to be bound, the third party must have acquired
knowledge of the pertinent by-laws at the time of the transaction or
agreement between the third party and the shareholder. In this case,
Valley Golf could have easily informed CBC of its by-laws when it sent
notice formally recognizing petitioner as pledgee of one of its shares
registered in Calapatias name.

Bernas vs. Cinco

Makati Sports Club is a domestic corporation. Bernas was among the

members of the Board of Directors. Alarmed with the rumored
anomalies in handling the corporate funds, the MSC Oversight
committee compost of past presidents of the club, demanded from the
Bernas Group to resign from their positions. As prayed for by the
stockholders representing at least 100 shares, the oversight committee
called for a special stockholders meeting for the purpose of removing
the sitting officers and electing new ones. The Bernas Group were then
removed from office. They now argue that the authority to call a