Cagayan Fishing Development Co. Inc. vs. Sandiko (GR No.
for which such corporation was formed may permit and for this
L-43350, December 23, 1937)
FACTS:
Manuel Tabora is the registered owner of four parcels of land. To
guarantee the payment of two loans, he executed in favor of
PNB two mortgages over the four parcels of land. Later, a third
mortgage on the same lands was executed in favor of Severina
Buzon. Thereafter, on May, 1930, Tabora executed a public
document, by virtue of which the four parcels of land were sold
to the plaintiff company (Cagayan), said to be under process of
incorporation. Cagayan filed its article incorporation with the
Bureau of Commerce and Industry only on October, 1930. A
year later, the board of directors of Cagayan adopted a
resolution authorizing its president to sell the four parcels of
lands in question to Teodoro Sandiko. Through a deed of sale,
Cagayan sold, ceded and transferred to Sandiko all its right,
titles, and interest in and to the four parcels of land.
A promissory note was drawn by the Sandiko in favor of
Cagayan, payable after one year from the date thereof. Sandiko
failed to pay. Cagayan brought this action in the Court of First
Instance, which absolved Sandiko.
ISSUE:
Whether or not Cagayan has juridical capacity to enter into
contract with Tabora
HELD:
No. The transfer made by Tabora to Cagayan was affected on
May 31, 1930 and the actual incorporation of said company was
affected later on October 22, 1930. In other words, the transfer
was made almost five months before the incorporation of the
company. Unquestionably, a duly organized corporation has the
power to purchase and hold such real property as the purposes
purpose may enter into such contracts as may be necessary.
But before a corporation may be said to be lawfully organized,
many things have to be done. Among other things, the law
requires the filing of articles of incorporation. In this case,
Cagayan was not yet incorporated when it entered into
a contract of sale. Not being in legal existence then, it did not
possess juridical capacity to enter into the contract. Boiled
down to its naked reality, the contract was entered into not
between Tabora and a non-existent corporation, but between
the Manuel Tabora as owner of the four parcels of lands on the
one hand and the same Manuel Tabora, his wife and others, as
mere promoters of a corporations on the other
hand. These promoters could not have acted as agent for a
projected corporation since that which has no legal existence
could have no agent. A corporation, until organized, has no life
and therefore no faculties.
Additional Notes:
Corporations are creatures of the law, and can only come into
existence in the manner prescribed by law. As has already been
stated, general law authorizing the formation of corporations are
general offers to any persons who may bring themselves within
their provisions; and if conditions precedent are prescribed in
the statute, or certain acts are required to be done, they are
terms of the offer, and must be complied with substantially
before legal corporate existence can be acquired.
That a corporation should have a full and complete organization
and existence as an entity before it can enter into any kind of a
contract or transact any business, would seem to be self-
evident. A corporation, until organized, has no being, franchises
or faculties. Nor do those engaged in bringing it into being have
any power to bind it by contract, unless so authorized by the
1
charter there is not a corporation nor does it possess franchise
or faculties for it or others to exercise, until it acquires a
complete existence.

2
HALL v. PICCIO (1905)
Petitioner: C. Arnold Hall and Bradley P. Hall
Respondents: Edmundo S. Piccio, Judge of CFI Leyte, Fred
Brown, Emma Brown, Hipolita Capuciong, in his capacity as
Receiver of the Far Eastern Lumber And Commercial Co., Inc.,
Author: Plan
Topic: Corporate Contract Law; De Facto Corporation (Sec.
20); Elements
Doctrines: Elements for Existence of De Facto Corporation:
(1) Valid law under which incorporated;
(2) Attempt in good faith to incorporate; “colorable compliance;”
(3) Assumption of corporate powers; and
(4) Issuance of certificate of incorporation
Facts:
- 28 May 1947, the petitioners and private respondents
signed and acknowledged in Leyte, the Article of
Incorporation (AoI) 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 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.
- Immediately after the execution of said AoI, the
corporation proceeded to do business with the adoption
of by-laws and the election of its officers.
- 2 Dec 1947, the said AoI were filed in SEC for the
issuance of the corresponding certificate of incorporation.
- 22 Mar 1948, while pending, the respondents filed before
CFI Leyte 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 petitioners filed a motion to dismiss (MTD),
contesting the court's jurisdiction and the sufficiently of
the cause of action. Judge Piccio denied the MTD and
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.
- Petitioners offered to file a counter-bond for the discharge
of the receiver, but the judge refused to accept the offer
and to discharge the receiver. Hence, this petition.
- The petitioner contends that inasmuch as the Far Eastern
Lumber and Commercial Co., is a de facto corporation.
Hence, sec 20 (sec 19 dati) of the Corporation Code
applies, and therefore the court had no jurisdiction to take
cognizance of said case:
BP blg. 68. Sec. 20. De facto corporations. – The due
incorporation of any corporation claiming in good faith to
be a corporation under this Code, and its right to exercise
corporate powers, shall not be inquired into collaterally in
any private suit to which such corporation may be a party.
Such inquiry may be made by the Solicitor General in a
quo warranto proceeding.
Issue: W/N the CFI had jurisdiction in the said case and to
decree the dissolution of the company – Yes.
Held: YES.
- The SC held that the said provision is not applicable in
this case:
3
 - First, 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.
- 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."
- Second, the case was not a suit in which the
corporation is a party. It 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.

Disposition: Petition DISMISSED.

Other Notes: (Yung elements nakita ko lang sa internet. Wala

talaga siya sa case.)

4
CORPORATION BY ESTOPPEL DOCTRINE
SALVATIERRA V. GARLITOS (1958)
Petioner: Manuela T. Vda de Salvatierra
Respondent: Hon. Lorenzo Garlitos as Judge of CFI Leyte and
Segundino Refuerzo
Author: Daniela
Doctrine: While as a general rule, a person who deals with an
association in such a way to recognize its existence as a
corporate body is estopped from denying the same in an action
arising out of such transaction, yet this doctrine may not be held
to be applicable where fraud takes a part in the said transaction.
Facts:
 Manuela Salvatierra owns a parcel of land located in
Maghobas, Poblacion, Burauen, leyte.
 March 7, 1954 Salvatierra entered into a contract of lease
with Philippine Fibers Producers Co, Inc., allegedly a
corporation duly organized and existing under the
Philippine laws, domiciled in Burauen, Leyte and
represented by Segundino Refuerzo as president.
 It was stated in the contract that the period of lease will
be 10 years, the land will be planted with kenaf, ramie or
other crops suitable to the soil and that the lessee will
declare the income derived from the harvest and that the
lessor will be entitled to 30 % of the net income without
being responsible for the cost of production.
 Salvatierra filed a complaint with the CFI against
Refuerzo and Philippine Fibers. That the company
planted kenaf on the 3 hectares of land and they refused
to make an accounting and deliver her share, estimated
that the gross income was P4,500 and the deductible
expense was P1,000. The refusal of the company to do
their obligation creates a violation thereof and rescission
was but proper.
 Refuerzo failed to file an answer, declared in default and
the court accepted the evidence of Salvatierra. The court
rendered a judgement in favour of Salvatierra stating that
Refuerzo and company should render an accounting,
give Salvatierra her share and the contract was
rescinded. No appeal was made, it was perfected and
upon motion of Salvatierra the court issued a writ of
execution.
 Since there was no available property of the company to
be attached, the Sheriff attached 3 parcels of land of
Refuerzo.
 Refuerzo filed a motion stating that the decision was null
and void with respect to him being that there was no
allegation as to his personal liability and it should be
limited as to the liability of the company. It was granted
and the sheriff was ordered to return the property, as
there was no evidence that he is personally liable.
 Salvatierra petition for relief was denied. She instituted
the present petition to declare the ruling of the said judge
as null and void and that the judge acted with grave
abuse of discretion.
5
Issue: Whether or not Refeurzo can be held personally liable? corporation as provided by law, it cannot create agents or
confer authority on another to act in its behalf; thus, those
Ruling + Ratio: Yes.
who act or purport to act as its representatives or agents
 While as a general rule, a person who deals with an do so without authority and at their own risk. And as it is
association in such a way to recognize its existence as a an elementary principle of law that a person who acts as
corporate body is estopped from denying the same in an an agent without authority or without a principal is himself
action arising out of such transaction, yet this doctrine regarded as the principal, possessed of all the right and
may not be held to be applicable where fraud takes a part subject to all the liabilities of a principal, a person acting
in the said transaction. In the instant case, on plaintiff's or purporting to act on behalf of a corporation which has
charge that she was unaware of the fact that the no valid existence assumes such privileges and
defendant corporation had no juridical personality, its obligations and becomes personally liable for contracts
president gave no confirmation or denial of the same and entered into or for other acts performed as such agent
the circumstance surrounding the execution of the (Fay vs. Noble, 7 Cushing [Mass.] 188. Cited in II
contract lead to the inescapable conclusion that plaintiff Tolentino's Commercial Laws of the Philippines, Fifth Ed.,
was really made to believe that such corporation was p. 689-690).
duly organized in accordance with law.
Other Notes:
 A corporation when registered has a juridical personality
 Rule 38, Section 3, of the Rules of Court treats of 2
separate and distinct from its component members or
periods within which a petition for relief may be filed.
stockholders and officers, such that a corporation cannot
The petition must be filed within 60 days after the
be held liable for the personal indebtedness of a
petitioner learns of the judgment and not more than 6
stockholder even if he should be its president (Walter A.
months after the judgment or order was rendered,
Smith Co. vs. Ford, SC-G. R. No. 42420) and conversely,
both of which must be satisfied. In this case, Refuerzo
a stockholder cannot be held personally liable for any
filed it after 7 months and 23 days, it was clearly
financial obligation by the corporation in excess of his
made beyond the prescriptive period provided by the
unpaid subscription. But this rule is understood to refer
rules.
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— an unincorporated association has
no personality and would be incompetent to act and
appropriate for itself the power and attributes of a

6
GR. No. 117010 April 18, 1997
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
ENGR. CARLOS GARCIA y PINEDA, PATRICIO BOTERO y
VALES, LUISA MIRAPLES (at large), accused,
PATRICIO BOTERO y VALES, accused-appellant
Facts
The complainantsEdgardo Belen, Gloria Silaras, Alfredo
Estinoso, Jose Erwin Esclada, Elsa Delubio and Ariel Rivada
testified that on various dates in March 1992, they went to
Ricorn Philippine International Shipping Lines, Inc. an entity
which recruits workers for overseas employment. They applied
as seamen, cook, waiter, chambermaid or laundrywoman
overseas. Esclada applied to accused Botero. All the other
complainants coursed their application to accused Garcia who
represented himself as president of Ricorn. Complainants were
required to submit their NBI and police clearance, birth
certificate, passport, seaman’s book and Survival of Life at Sea
(SOLAS). As they did not have the last three (3) documents,
they were asked to pay five thousand pesos (P5,000.00) as
processing fee. They paid to Ricorn’s treasurer, Luisa
Miraples. They were issued receipts signed by Miraples. The
receipts were under Ricorn’s heading.
Garcia and Botero assured complainants of employment
after the May 11, 1992 election. Accused Botero, as the vice-
president of Ricorn, followed-up their passports, seaman’s book
and SOLAS. He told some applicants to wait for their papers
and informed the others that their papers were in order.
After the election, complainants went back to Ricorn to
check on their applications. They discovered that Ricorn had
abandoned its office at Jovan Building for non-payment of
rentals. Hoping against hope, they went back to the building
several times to recover their money. Their persistence was to
no avail for Garcia and Botero were nowhere to be found. They
then went to the Mandaluyong Police Station and filed their
complaints. They also checked with the Securities and
Exchange Commission (SEC) and discovered that Ricorn was
not yet incorporated. They also found that Ricorn was not
licensed by the Department of Labor and Employment (DOLE)
to engage in recruitment activities.
RTC: Garcia and Botero were held guilty for the crime of Illegal
Recruitment.
Issue: WON Garcia and Botero should be held liable for the
crime of Illegal Recruitment.
Ruling: YES.
Botero engaged in recruitment and placement activities in
that he, through Ricorn, promised the complainants employment
abroad. Under the Labor Code, recruitment and placement
refers to “any act of canvassing, enlisting, contracting,
transporting, utilizing, hiring or procuring workers, and includes
referrals, contract services, promising or advertising for
employment, locally or abroad whether for profit or not:
Provided, That any person or entity which in any manner, offers
or promises for a fee employment to two or more persons shall
be deemed engaged in recruitment, and placement.”
All the essential elements of the crime of illegal
recruitment in large scale are present in this case, to wit:
(1) the accused engages in the recruitment and placement of
workers, as defined under Article 13 (b) or in any prohibited
activities under Article 34 of the Labor Code;
(2) accused has not complied with the guidelines issued by the
Secretary of Labor and Employment, particularly with respect to
the securing of a license or an authority to recruit and deploy
workers, either locally or overseas; and
7
(3) accused commits the same against three (3) or more
persons, individually or as a group.
It is a fact that Ricorn had no license to recruit from
DOLE. In the office of Ricorn, a notice was posted informing job
applicants that its recruitment license is still being processed.
Yet, Ricorn already entertained applicants and collected fees for
processing their travel documents.
For engaging in recruitment of workers without obtaining
the necessary license from the POEA, Botero should suffer the
consequences of Ricorn’s illegal act for “(i)f the offender is a
corporation, partnership, association or entity, the penalty shall
be imposed upon the officer or officers of the corporation,
partnership, association or entity responsible for violation; . . .
The evidence shows that appellant Botero was one of the
incorporators of Ricorn. For reasons that cannot be discerned
from the records, Ricorn’s incorporation was not consummated.
Even then, appellant cannot avoid his liabilities to the public as
an incorporator of Ricorn. He and his co-accused Garcia held
themselves out to the public as officers of Ricorn. They received
money from applicants who availed of their services. They are
thus estopped from claiming that they are not liable as corporate
officials of Ricorn. Section 25 of the Corporation Code provides
that “(a)ll 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 the 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.

8
International Express Travel & Tours Services, Inc. v. CA
Petitioner: International Express Travel & Tours Services, Inc.
Respondent/s: CA, Henri Kahn, Philippine Football Federation
Topic: Two Levels: (i) with “Fraud”, and (ii) without “Fraud”
Doctrine: It is a settled principle in corporation law that any
person acting or purporting to act on behalf of a corporation
which has no valid existence assumes such privileges and
becomes personally liable for contract entered into or for other
acts performed as such agent.
Facts:
The petitioner and Federation entered into an agreement
wherein the former will be the travel agent of the latter.
Petitioner secured the airline tickets for the trips of the athletes
and officials of the Federation to the South East Asian Games in
Kuala Lumpur as well as various other trips to the People's
Republic of China and Brisbane. The total cost of the tickets
amounted to P449,654.83. The Federation made partial
payments in the total amount of P176,467.50. Petitioner wrote
the Federation, through the private respondent a demand letter
requesting for the unpaid balance. Henri Kahn issued a personal
check in the amount of P50,000 as partial payment for the
outstanding balance of the Federation. Thereafter, no further
payments were made despite repeated demands.
Petitioner sued Henri Kahn in his personal capacity and as
President of the Federation and impleaded the Federation as an
alternative defendant. Petitioner sought to hold Henri Kahn
liable for the unpaid balance for the tickets purchased by the
Federation on the ground that Henri Kahn allegedly guaranteed
the said obligation. Henri Kahn averred that the petitioner has
no cause of action against him either in his personal capacity or
in his official capacity as president of the Federation. He
maintained that he did not guarantee payment but merely acted
as an agent of the Federation which has a separate and distinct
juridical personality.
Issue: WON Henri Kahn is not personally liable for the unpaid
balance to petitioner.
Ruling: NO.
Henri Kahn is personally liable for the unpaid balance. It is a
basic postulate that before a corporation may acquire juridical
personality, the State must give its consent either in the form of
a special law or a general enabling act. We cannot agree with
the view of the appellate court and the private respondent that
the Philippine Football Federation came into existence upon the
passage of these laws. Nowhere can it be found in R.A. 3135 or
P.D. 604 any provision creating the Philippine Football
Federation. These laws merely recognized the existence of
national sports associations and provided the manner by which
these entities may acquire juridical personality.
The Court ruled that the Philippine Football Federation is not a
national sports association within the purview of the
aforementioned laws and does not have corporate existence of
its own. Thus being said, it follows that private respondent
Henry Kahn should be held liable for the unpaid obligations of
the unincorporated Philippine Football Federation.
It is a settled principle in corporation law that any person acting
or purporting to act on behalf of a corporation which has no valid
existence assumes such privileges and becomes personally
liable for contract entered into or for other acts performed as
such agent. As president of the Federation, Henri Kahn is
presumed to have known about the corporate existence or non-
existence of the Federation. We cannot subscribe to the position
taken by the appellate court that even assuming that the
Federation was defectively incorporated, the petitioner cannot
9
deny the corporate existence of the Federation because it had
contracted and dealt with the Federation in such a manner as to
recognize and in effect admit its existence. The doctrine of
corporation by estoppel is mistakenly applied by the respondent
court to the petitioner. The application of the doctrine applies to
a third party only when he tries to escape liability on a contract
from which he has benefited on the irrelevant ground of
defective incorporation.16 In the case at bar, the petitioner is not
trying to escape liability from the contract but rather is the one
claiming from the contract.

10
LIM TONG LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES,
INC.
Petitoner: Lim Tong Lim
Respondent: Philippine Fishing Gear Industries, Inc.
DOCTRINE: Clearly, under the law on estoppel, those
acting on behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable as
general partners.
FACTS:
- It was established that Lim Tong Lim requested Peter Yao
to engage in commercial fishing with him and one Antonio
Chua. The three agreed to purchase two fishing boats but
since they do not have the money they borrowed from
one Jesus Lim (brother of Lim Tong Lim). They again
borrowed money and they agreed to purchase fishing
nets and other fishing equipments. Now, Yao and Chua
represented themselves as acting in behalf of “Ocean
Quest Fishing Corporation” (OQFC) they contracted with
Philippine Fishing Gear Industries (PFGI) for the
purchase of fishing nets amounting to more than P500k.
They were however unable to pay PFGI and so they were
sued in their own names because apparently OQFC is a
non-existent corporation. Chua admitted liability and
asked for some time to pay. Yao waived his rights.
- Contention of the petitioner: Lim Tong Lim however
argued that he’s not liable because he was not aware
that Chua and Yao represented themselves as a
corporation; that the two acted without his knowledge and
consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD:
- Yes. From the factual findings of both lower courts, it is
clear that Chua, Yao and Lim had decided to engage in a
fishing business, which they started by buying boats
worth P3.35 million, financed by a loan secured from
Jesus Lim. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with
the proceeds of the sale of the boats, and to divide
equally among them the excess or loss. These boats, the
purchase and the repair of which were financed with
borrowed money, fell under the term “common fund”
under Article 1767. The contribution to such fund need
not be cash or fixed assets; it could be an intangible like
credit or industry. That the parties agreed that any loss or
profit from the sale and operation of the boats would be
divided equally among them also shows that they had
indeed formed a partnership.
- Lim Tong Lim cannot argue that the principle of
corporation by estoppels can only be imputed to Yao
and Chua. Unquestionably, Lim Tong Lim benefited
from the use of the nets found in his boats, the boat
which has earlier been proven to be an asset of the
partnership. Lim, Chua and Yao decided to form a
corporation. Although it was never legally formed for
unknown reasons, this fact alone does not preclude
the liabilities of the three as contracting parties in
representation of it. Clearly, under the law on
estoppel, those acting on behalf of a corporation and
those benefited by it, knowing it to be without valid
existence, are held liable as general partners.
11

Phil. Trust Co. vs Rivera
Petitioner: PHILIPPINE TRUST COMPANY
Respondent: MARCIANO RIVERA
DOCTRINE: It is established doctrine that subscription to the
capital of a corporation constitute a fund to which creditors have
a right to look for satisfaction of their claims and that the
assignee in insolvency can maintain an action upon any unpaid
stock subscription in order to realize assets for the payment of
its debts.
FACTS:
 The Cooperativa Naval Filipina was duly incorporated
under the laws of the Philippine.
 Mariano Rivera was one of the incorporators of the
company.
 The articles of incorporation were duly registered in the
Bureau of Commerce and Industry.
 In the course of time, the company became insolvent and
went into the hands of the Philippine Trust Company as
assignee in bankruptcy.
 Philippine Trust Company instituted an action to recover
one-half of the unpaid stock subscription of the
defendant.
 Defendant contends that a resolution was adopted to the
effect that the capital should be reduced by 50 per
centum and the subscribers is released from the
obligation to pay any unpaid balance of their subscription
in excess of 50 per centum of the same.
ISSUE: Whether or not the reduction of the capital by releasing
the subscribers from payment of their subscription is valid.
RULING: NO
It is established doctrine that subscription to the capital of a
corporation constitute a fund to which creditors have a right to
look for satisfaction of their claims and that the assignee in
insolvency can maintain an action upon any unpaid stock
subscription in order to realize assets for the payment of its
debts.
A corporation has no power to release an original subscriber to
its capital stock from the obligation of paying for his shares,
without a valuable consideration for such release; and as
against creditors a reduction of the capital stock can take place
only in the manner an under the conditions prescribed by the
statute or the charter or the articles of incorporation. Moreover,
strict compliance with the statutory regulations is necessary
In this case, the resolution releasing the shareholders from their
obligation to pay 50 per centum of their respective subscriptions
was an attempted withdrawal of so much capital from the fund
upon which the company's creditors were entitled ultimately to
rely and, having been effected without compliance with the
statutory requirements, was wholly ineffectual.
12
ONG YONG VS TIU
FACTS:
 Construction of Masagana Citimall which was owned by
First Landlink Asia Development Corporation (FLADC)
and in turn owned by respondents were threatened with
stoppage due to financial capabilities.
 Ongs and Tius entered into Pre-Subscription Agreement
where they agreed to have equal shareholdings of
1,000,000 shares at P100 par value each. Ong paid
P190M to settle the indebtedness of FLADC.
 Tius being the original owner, subscribe to an additional
549,800 shares in addition to their already existing
subscription of 450,200 shares. Additional shares were in
the following form: contribute to FLADC a 4-storey
building P20M (for 200K shares)and 2 parcels of land
P30M (for 300K shares) and P49.8M (for 49,800 shares).
Ong added P100M share in addition to the amount used
to settle the indebtedness
 Tius were given the right to nominate the Vice-President
and the Treasurer plus 5 directors while Ongs nominate
the President, the Secretary and 6 directors (including the
chairman) to the board of directors of FLADC and right to
manage and operate the mall.
 Tius then rescinded their agreement and filed it to the
SEC for confirmation which it later on approved.
 Ongs filed reconsideration that their P70M was not a
premium on capital stock but an advance loan
 SEC en banc affirmed it was a premium on capital stock
 While CA, on the other hand mentioned that Ongs and
the Tius were in pari delicto but, "for practical
considerations," that is, their inability to work together, it
was best to separate the two groups by rescinding the
Pre-Subscription Agreement, returning the original
investment of the Ongs and awarding practically
everything else to the Tius.
 Tius claim that they are not provided appropriate offices
and certain provisions in the agreement were breached.
ISSUE:
WON the Tius could legally rescind the Pre-Subscription
Agreement
RULING + RATIO:
NO. The court ruled that the subscription contract was between
Ong and FLADC.
The act of providing appropriate offices for David S. Tiu and
Cely Y. Tiu as Vice-President and Treasurer, respectively, had
no bearing on their obligations under the Pre-Subscription
Agreement since the obligation pertained to FLADC itself. The
initial objective was to raise the amount needed to settle the
indebtedness.
What the law requires is that the breach of contract should be so
"substantial or fundamental" as to defeat the primary objective
of the parties in making the agreement. Since the cash and
other contributions now sought to be returned already belong to
FLADC, an innocent third party, said remedy may no longer be
availed of under the law.
Considering therefore that the real contracting parties to the
subscription agreement were FLADC and the Ongs alone, a civil
case for rescission on the ground of breach of contract filed by
the Tius in their personal capacities will not prosper. Assuming it
had valid reasons to do so, only FLADC had the legal
personality to file suit rescinding the subscription agreement
with the Ongs inasmuch as it was the real party in interest
therein.
The Corporation Code, SEC rules and even the Rules of Court
provide for appropriate and adequate intra-corporate remedies,
13
other than rescission, in situations like this. Rescission is the fact that theparties refer to it as a purchase or some other
certainly not one of them, specially if the party asking for it has contract
no legal personality to do so and the requirements of the law
therefor have not been met. Trust fund doctrine are subscriptions to the capital stock of a
corporation constitute a fund to which the creditors have a right
Even assuming that Tius have the legal standing to sue, said to look for the satisfaction of their claims. It allows the
action will nevertheless still not prosper since rescission will distribution of corporate capital only in three instances: (1)
violate the Trust Fund Doctrine (see notes below) and the amendment of the Articles of Incorporation to reduce the
procedures for the valid distribution of assets and property authorized capital stock,24 (2) purchase of redeemable shares
under the Corporation Code. by the corporation, regardless of the existence of unrestricted
retained earnings,25 and (3) dissolution and eventual liquidation
Further, the court also ruled that a judicial order to decrease of the corporation.
capital stock without the assent of FLADC's directors and
stockholders is a violation of the "business judgment rule".
Such an act infringes on the law on reduction of capital stock.
Ordering the return and distribution of the Ongs' capital
contribution without dissolving the corporation or decreasing its
authorized capital stock is not only against the law but is also
prejudicial to corporate creditors who enjoy absolute priority of
payment over and above any individual stockholder thereof.
The Ongs' shortcomings were far from serious and certainly less
than substantial; they were in fact remediable and correctable
under the law. It would be totally against all rules of justice,
fairness and equity to deprive the Ongs of their interests on
petty and tenuous grounds.

DISPOSITION: MOTION FOR RECONSIDERATION

GRANTED

OTHER NOTES: Section 60 Title VII

Any contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed shall be deemed a
subscription within the meaning of this Title, notwithstanding

14
GSIS Family Bank-Thrift Bank V BPI Family Bank
Topic: Corporate Names; Deceptively Similar Corporate Names
Author: De Guia
Facts:
Petitioner was originally organized as Royal Savings Bank
which started its operation in 1971. In 1983 and 1984 GSIS
encountered liquidity problema hence it was placed under
receivership and later closed by Central Bank of the Philippines.
After 2 months it re opened under the name of Comsavings
Bank Inc. under the management of Commercial Bank of
Manila.
In 1987 GSIS acquired Comsavings from Commercial
Bank of Manila, hence its management is transferred to GSIS. It
sought SECs approval to change its name to “GSIS Family
Bank, a Thrift Bank”
BPI Family Bank was a product of the merger between
FBTC and the BPI. On June 27,1969 the Gotianum family
registered with SEC the corporate name “Family First Savings
Bank” which was amended to “Family Savings Bank”.
BPI Family Savings Banks was registered with the SEC as
a wholly-owned subsidiary of BPI it then registered with the
Bureau of Domestic Trade the business name “BPI Family
Bank” and acquired reputation and goodwill under the name.
It reached the respondents attention that the petitioner is
using or attempting to use the name Family Bank hence it
petitioned SEC-CRMD to disallow or prevent the regustration of
the name “GSIS Family Bank”.
ISSUE:
WON the use of GSIS Family Bank of the words “Family Bank”
is deceptively and confusingly similar to the name BPI Family
Bank?
RULING:
YES!
CA ruled that the approvals by the BSP and by the DTI
of petitioners application to use the name “GSIS Family Bank”
do not constitute authority for its valid and lawful use. SEC has
absolute jurisdiction, supervision and control over all the
corporations.
The SC uphold the ruling of CA.
Section 18 of the Corporation Code provides,
Section 18. Corporate name. - No corporate name may be
allowed by the Securities and Exchange Commission if the
proposed name is identical or deceptively or confusingly similar
to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or contrary
to existing laws. When a change in the corporate name is
approved, the Commission shall issue an amended certificate of
incorporation under the amended name.chanrobleslaw
to fall within the prohibition of the law on the right to the
exclusive use of a corporate name, two requisites must be
proven, namely:
(1) that the complainant corporation acquired a prior right
over the use of such corporate name; and
(2) the proposed name is either
(a) identical or
(b) deceptive or confusingly similar to that of any existing
corporation or to any other name already protected by
law; or
(c) patently deceptive, confusing or contrary to existing
law.35
15

These two requisites are present in this case.
In this case, respondent was incorporated in 1969 as Family
Savings Bank and in 1985 as BPI Family Bank. Petitioner, on
the other hand, was incorporated as GSIS Family - Thrift Bank
only in 2002,38 or at least seventeen (17) years after
respondent started using its name. Following the precedent in
the IRCP case, we rule that respondent has the prior right over
use of the corporate name.
The proposed name is (a) identical or (b) deceptive or
confusingly similar to that of any existing corporation or to any
other name already protected by law.
On the first point (a), the words "Family Bank" present in both
petitioner and respondent's corporate name satisfy the
requirement that there be identical names in the existing
corporate name and the proposed one. Respondent cannot
justify its claim under Section 3 of the Revised Guidelines in the
Approval of Corporate and Partnership Names,39 to
wit:cralawlawlibrary
3. The name shall not be identical, misleading or confusingly
similar to one already registered by another corporation or
partnership with the Commission or a sole proprietorship
registered with the Department of Trade and Industry.
If the proposed name is similar to the name of a registered firm,
the proposed name must contain at least one distinctive word
different from the name of the company already
registered.chanrobleslaw
Section 3 states that if there be identical, misleading or
confusingly similar name to one already registered by another
corporation or partnership with the SEC, the proposed name
must contain at least one distinctive word different from the
name of the company already registered. To show contrast with
respondent's corporate name, petitioner used the words "GSIS"
and "thrift." But these are not sufficiently distinct words that
differentiate petitioner's corporate name from respondent's.
While "GSIS" is merely an acronym of the proper name by
which petitioner is identified, the word "thrift" is simply a
classification of the type of bank that petitioner is. Even if the
classification of the bank as "thrift" is appended to petitioner's
proposed corporate name, it will not make the said corporate
name distinct from respondent's because the latter is likewise
engaged in the banking business.
On the second point (b), there is a deceptive and confusing
similarity between petitioner's proposed name and respondent's
corporate name, as found by the SEC. In determining the
existence of confusing similarity in corporate names, the test is
whether the similarity is such as to mislead a person using
ordinary care and discrimination. And even without such proof of
actual confusion between the two corporate names, it suffices
that confusion is probable or likely to occur.
Petitioner's corporate name is "GSIS Family Bank—A Thrift
Bank" and respondent's corporate name is "BPI Family Bank."
The only words that distinguish the two are "BPI," "GSIS," and
"Thrift." The first two words are merely the acronyms of the
proper names by which the two corporations identify
themselves; and the third word simply describes the
classification of the bank. The overriding consideration in
determining whether a person, using ordinary care and
discrimination, might be misled is the circumstance that both
petitioner and respondent are engaged in the same business of
banking. "The likelihood of confusion is accentuated in cases
where the goods or business of one corporation are the same or
substantially the same to that of another corporation."
Under the facts of this case, the word "family" cannot be
separated from the word "bank." In asserting their claims before
the SEC up to the Court of Appeals, both petitioner and
16
respondent refer to the phrase "Family Bank" in their
submissions. This coined phrase, neither being generic nor
descriptive, is merely suggestive and may properly be regarded
as arbitrary. Arbitrary marks are "words or phrases used as a
mark that appear to be random in the context of its use. They
are generally considered to be easily remembered because of
their arbitrariness. They are original and unexpected in relation
to the products they endorse, thus, becoming themselves
distinctive." Suggestive marks, on the other hand, "are marks
which merely suggest some quality or ingredient of goods. The
strength of the suggestive marks lies on how the public
perceives the word in relation to the product or service."

The enforcement of the protection accorded by Section 18 of the

Corporation Code to corporate names is lodged exclusively in
the SEC. The jurisdiction of the SEC is not merely confined to
the adjudicative functions provided in Section 5 of the SEC
Reorganization Act, as amended. By express mandate, the SEC
has absolute jurisdiction, supervision and control over all
corporations. It is the SEC's duty to prevent confusion in the use
of corporate names not only for the protection of the
corporations involved, but more so for the protection of the
public. It has authority to de-register at all times, and under all
circumstances corporate names which in its estimation are likely
to generate confusion.

The SEC correctly applied Section 18 of the Corporation Code.

The SEC, after finding merit in respondent's claims, can compel

petitioner to abide by its commitment "to change its corporate
name in the event that another person, firm or entity has
acquired a prior right to use of said name or one similar to it.

17
Bernasv.CA RULINGOFTHEWCS:A–evrsd

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APCLBIEWS: ISUE:

TheCoarptindlwusmvfhDecortapinby Whetrcsionldva(Dmb197)-NOgfuoclsdkhter'inva–YES

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18
Second,th19ApriluaksMgewdvbcinothfasuerdcSion8thMaCbywl,smeguprvdSEhinxtcofaylmsverpwithnCoad.Nsly,ecutfSEvpirAnoakhdMgestumpicoarfwhneltduy iorpsahefcngblytdjuorsi.Aaf,hecnlwyxtdgoprmsuhaewincftborpxaeinctshdmovfrbeg.Cniatwscrdylue19i8nAaStokhsMg,BerGupcnbmodithlveasuprintofc.Mmbhgd ueasirtofpcnlhdbykersamigctofpuvy.Thdnr-oelbugtaifmphrdynceoI,wtal17Dmbr9Speciodkhs'Mngulav efct;roixpnghBasGumctdzoingrelfBas'hcpubtkwnidvo.TesqAalSch'Mrtgn20pi198,ad7AlervnbigxcpthoafmleBrnsGudfa'htpbliconeydugrsam.ThxopnilfteBGdsubqacorn'hevimftybgadorcnesuhitbqmgaoned.AvcthsubjfraiWHERFOe,pmcondhtsfJA.BarCHilecgo,VuMmJsT.FrndIaciAohPulLmRG.Ns16357andfJvoecCi,rLbAlxY.PRGNos1638-9eahyrDE~Tdilcnt2Ap03auReso7ril4hfCtApbyRFMEID.

19