RED LINE TRANSPORTATION CO. VS. RURAL TRANSIT CO.

On June 4, 1932, Rural Transit filed an application for certification of a new service between Tuguegarao
and Ilagan with the Public Company Service Commission (PSC), since the present service is not sufficient

Rural Transit further stated that it is a holder of a certificate of public convenience to operate a
passenger bus service between Manila and Tuguegarao

Red Line opposed said application, arguing that they already hold a certificate of public
convenience for Tuguegarao and Ilagan, and is rendering adequate service. They also argued that
granting Rural Transits application would constitute a ruinous competition over said route

At the trial of this case before the Public Service Commission an issue was raised as to who was the real
party in interest making the application, whether the Rural Transit Company, Ltd., as appeared on the
face of the application, or the Bachrach Motor Company, Inc., using name of the Rural Transit Company,
Ltd., as a trade name

However, PSC granted Rural Transits application for certificate of public convenience and ordered
that a certificate be issued on its name

PSC relied on a Resolution in case No. 23217, authorizing Bachrach Motor to continue using Rural
Transits name as its tradename in all its applications and petitions to be filed before the PSC. Said
resolution was given a retroactive effect as of the date of filing of the application or April 30, 1930

Issue: Can the Public Service Commission authorize a corporation to assume the name of another
corporation as a trade name?

HELD: There is no law that empowers PSC or any court in this jurisdiction to authorize one corporation
to assume the name of another corporation as a trade name. Both Rural Transit and Bahrach are
Philippine corporations and the very law of their creation and continued existence requires each to
adopt and certify a distinctive name.

It cannot change its name except in the manner provided by law. By that name alone it is authorized to
transact business.

The law gives a corporation on express or implied authority to assume another name that is
unappropriated; still less that of another corporation, which is expressly set apart from it and protected
by law. If any corporation should assume at pleasure as a unregistered trade name, the name of another
corporation, this practice would result in confusion of administration and supervision. The policy of the
law as expressed in our corporation statute and the Code of Commerce is clearly against such a practice.

UNIVERSAL MILLS CORP. VS. UNIVERSAL TEXTILE MILLS INC.

Universal Textile Mills, Inc. (UTMI) was organized. In 1954, Universal Hosiery Mills Corporation (UHMC)
was also organized. Both are actually distinct corporations but they engage in the same business
(fabrics). In 1963, UHMC petitioned to change its name to Universal Mills Corporation (UMC). The
Securities and Exchange Commission (SEC) granted the petition.

Subsequently, a warehouse owned by UMC was gutted by fire. News about the fire spread and investors
of UTMI thought that it was UTMIs warehouse that was destroyed. UTMI had to make clarifications that
it was UMCs warehouse that got burned. Eventually, UTMI petitioned that UMC should be enjoined
from using its name because of the confusion it brought. The SEC granted UTMIs petition. UMC
however assailed the order of the SEC as it averred that their tradename is not deceptive; that UTMIs
tradename is qualified by the word Textile, hence, there can be no confusion,

ISSUE: WON the SEC is correct?

HELD: Yes. There is definitely confusion as it was evident from the facts where the investors of UTMI
mistakenly believed that it was UTMIs warehouse that was destroyed. Although the corporate names
are not really identical, they are indisputably so similar that it can cause, as it already did, confusion. The
SEC did not act in abuse of its discretion when it order UMC to drop its name because there was a
factual evidence presented as to the confusion. Further, when UMC filed its petition for change of
corporate name, it made an undertaking that it shall change its name in the event that there is another
person, firm or entity who has obtained a prior right to the use of such name or one similar to it. That
promise is still binding upon the corporation and its responsible officers

LYCEUM OF THE PHILIPPINES VS. COURT OF APPEALS

(219 SCRA 610; March 5, 1993) - Lyceum of the Philippines Inc. previously obtained from the SEC a
favourable decision on the exclusive use of Lyceum against Lyceum of Baguio, Inc.. such decision
assailed by the latter before the SC which was denied for lack of merit.

Lyceum of the Philippines instituted before the SEC an action to enforce what Lyceum of the Philippines
claims as its proprietary right to the word "Lyceum." The SEC rendered a decision sustaining petitioner's
claim to an exclusive right to use the word "Lyceum." The hearing officer relied upon the SEC ruling in
the Lyceum of Baguio, Inc. case.

On appeal, however, by Lyceum Of Aparri, Lyceum Of Cabagan, Lyceum Of Camalaniugan, Inc., Lyceum
Of Lallo, Inc., Lyceum Of Tuao, Inc., Buhi Lyceum, Central Lyceum Of Catanduanes, Lyceum Of Southern
Philippines, Lyceum Of Eastern Mindanao, Inc. and Western Pangasinan Lyceum, Inc.,, which are also
educational institutions, to the SEC En Banc, the decision of the hearing officer was reversed and set
aside. The SEC En Banc did not consider the word "Lyceum" to have become so identified with Lyceum
of the Philippines as to render use thereof by other institutions as productive of confusion. That the
attaching of geographical names to the word "Lyceum" served sufficiently to distinguish the schools
from one another, especially in view of the fact that the campuses of Lyceum of the Philippines and
those of the other Lyceums were physically quite remote from each other.
On appeal, the CA affirmed the deicison of the CA en banc, and denied reconsideration.

ISSUE: WON private respondents can be directed to delete the word lyceum from their corporate
names?

HELD: No. 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.

True enough, the corporate names of the other schools (defendant institutions) entities all carry the
word "Lyceum" but confusion and deception are effectively precluded by the appending of geographic
names to the word "Lyceum." Thus, the "Lyceum of Aparri" cannot be mistaken by the general public for
the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be confused with the
Lyceum of the Philippines.

ISSUE2: WON the word Lyceum has acquired a secondary meaning although originally generic?

HELD: No. The Court of Appeals recognized this issue and answered it in the negative: "Under the
doctrine of secondary meaning, a word or phrase originally incapable of exclusive appropriation with
reference to an article in the market, but because geographical or otherwise descriptive terms and
name or phrase has evolved through the substantial and exclusive use of the same for a considerable
period of time that, in that trade and to that group of the purchasing public, the word or phrase has
come to mean that the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56).

The number alone of the private respondents in the present case suggests strongly that the Lyceum of
the Philippines' use of the word "Lyceum" has not been attended with the exclusivity essential for
applicability of the doctrine of secondary meaning. And that if any institution had acquired an exclusive
right to the word "Lyceum," that institution would have been the Western Pangasinan Lyceum, Inc.
rather than Lyceum of the Philippines the former being in esitence 17 years before the latter.

PHILIPS EXPORT B.V. et. al. VS. COURT OF APPEALS (206 SCRA 457; Feb. 21, 1992)

Petitioner is the registered owner of the trademark PHILIPS and PHILIPS SHIELD EMBLEM issued by the
Philippine Patent Office. Philips Electric Lamp Inc. and Philips Industrial Development Inc., also
petitioners, are the authorized users of such trademark. Petitioner filed a case with SEC praying for a
writ of injunction to prohibit herein respondent Standard Philips Corporation from using the word
PHILIPS in its corporate name, which was denied. On appeal, the CA affirmed the SEC.
ISSUE: WON Standard Philips should be directed to delete the word PHILIPS from its corporate name?

HELD: Yes. As early as Western Equipment and Supply Co. v. Reyes, 51 Phil. 115 (1927), the Court
declared that a corporation's right to use its corporate and trade name is a property right, a right in
rem, which it may assert and protect against the world in the same manner as it may protect its
tangible property, real or personal, against trespass or conversion. It is regarded, to a certain extent,
as a property right and one which cannot be impaired or defeated by subsequent appropriation by
another corporation in the same field (Red Line Transportation Co. vs. Rural Transit Co., September 8,
1934, 20 Phil 549).

The statutory prohibition (under Sec. 18 of the Corporation Code) cannot be any clearer. To come within
its scope, 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) deceptively 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.

In the first requisite, The right to the exclusive use of a corporate name with freedom from
infringement by similarity is determined by priority of adoption. Corollary, A corporation has an
exclusive right to the use of its name, which may be protected by injunction upon a principle similar to
that upon which persons are protected in the use of trademarks and tradenames.

The second requisite no less exists in this case. 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.

Respondents argue that there were no evidence presented that there was actual confusion. It is settled,
however, that proof of actual confusion need not be shown. It suffices that confusion is probably or
likely to occur (6 Fletcher [Perm Ed], pp. 107-108, enumerating a long line of cases). The [p]rivate
respondent's choice of "PHILIPS" as part of its corporate name [STANDARD PHILIPS CORPORATION] in
this case. . . tends to show said respondent's intention to ride on the popularity and established goodwill
of said petitioner's business throughout the world" (Rollo, p. 137). In allowing Private Respondent the
continued use of its corporate name, the SEC maintains that the corporate names of Petitioners PHILIPS
ELECTRICAL LAMPS. INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC. contain at least two words
different from that of the corporate name of respondent STANDARD PHILIPS CORPORATION, which
words will readily identify Private Respondent from Petitioners and vice-versa.
Under the Guideline formulated by the SEC, If the proposed name contains a word already used as part
of the firm name or style of a registered company; the proposed name must contain two other words
different from the company already registered" (Emphasis ours). It is then pointed out that Petitioners
Philips Electrical and Philips Industrial have two words different from that of Private Respondent's name.
In the case at bar, Private Respondent's name actually contains only a single word, that is, "STANDARD"

CLAVECILLA RADIO SYSTEM VS. ANTILLON

(19 SCRA 379; Feb. 18, 1967) The New Cagayan Grocery filed a complaint against CRS for some
irregularities in the transmission of a message which changed the context and purport causing damages.
The complaint was filed in the City Court of Cagayan de Oro.

ISSUE: WON the action will prosper?

HELD: No. The action was based on tort and not upon a written contract and as such, under the Rules of
Court, it should be filed in the municipality where the defendant or any of the defendants resides or
may be served with summons.

Settled is the principle in corporation law that the residence of a corporation is the place where the
principal office is established. Since it is not disputed that CRS has its principal office in Manila, it
follows that the suit against it may properly be filed in the City of Manila.

The fact that CRS maintains branch office in some parts of the country does not mean that it can be sued
in any of these places. To allow such would create confusion and work untold inconveniences to the
corporation.

COMMISSIONER OF INTERNAL REVENUE VS. MANNING (66 SCRA 14; Aug. 6, 1975)

Julius Reese owned 24,700 of the 25,000 authorized capital stock of Manta Trading and Supply Co., the
rest are owned by herein respondents. Upon Reese death, his shares was held in trust by the law firm
Ross, Carrascoso and Janda for the private respondent, who were to continue management of the
corporation. These shares considered by the respondents as treasury shares, prior to full payment, were
declared as stock dividends. Such declaration was assessed by the BIR as distribution of assets subject to
income tax.

ISSUE: WON the subject shares are treasury shares?

HELD:

Treasury shares are stocks issued and fully paid for and re-acquired by the corporation either by
purchase, donation, forfeiture or other means. Treasury shares are therefore issued shares, and may be
re-issued or sold again, such share, however, as long as it is held by the corporation as a treasury share,
participates neither in dividends, because dividends cannot be declared by the corporation to itself, nor
as voting stock, otherwise the equal distribution of voting powers among stockholders will be effectively
lost and the directors will be able to perpetuate their control of the corporation.

In this case, such essential features of a treasury share are lacking in the former shares of Reese. The
manifest intention of the parties to the trust agreement was, in sum and substance, to treat the 24,700
shares of Reese as absolutely outstanding shares of Reese's estate until they were fully paid. Such being
the true nature of the 24,700 shares, their declaration as treasury stock dividend in complete nullity and
plainly violative of public policy. A stock dividend, being one payable in capital stock, cannot be declared
out of outstanding corporate stock, but only from retained earnings.

CAPITAL REQUIREMENTS:

Gamboa v. Teves etal., GR No. 176579, October 9, 2012 (Read full txt)

FACTS

Movants Philippine Stock Exchanges (PSE) President, Manuel V. Pangilinan, Napoleon L. Nazareno, and
the Securities and Exchange Commission (SEC) contend that the term capital in Section 11, Article XII
of the Constitution has long been settled and defined to refer to the total outstanding shares of stock,
whether voting or non-voting. In fact, movants claim that the SEC, which is the administrative agency
tasked to enforce the 60-40 ownership requirement in favor of Filipino citizens in the Constitution and
various statutes, has consistently adopted this particular definition in its numerous opinions. Movants
point out that with the 28 June 2011 Decision, the Court in effect introduced a new definition or
midstream redefinition of the term capital in Section 11, Article XII of the Constitution.

ISSUE

Whether the term capital includes both voting and non-voting shares.

RULING

NO.

The Constitution expressly declares as State policy the development of an economy effectively
controlled by Filipinos. Consistent with such State policy, the Constitution explicitly reserves the
ownership and operation of public utilities to Philippine nationals, who are defined in the Foreign
Investments Act of 1991 as Filipino citizens, or corporations or associations at least 60 percent of whose
capital with voting rights belongs to Filipinos. The FIAs implementing rules explain that [f]or stocks to
be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough
to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate
voting rights is essential. In effect, the FIA clarifies, reiterates and confirms the interpretation that the
term capital in Section 11, Article XII of the 1987 Constitution refers to shares with voting rights, as
well as with full beneficial ownership. This is precisely because the right to vote in the election of
directors, coupled with full beneficial ownership of stocks, translates to effective control of a
corporation.

Commencement of Corporate existence:

Cagayan Fishing vs Sandiko

CAGAYAN FISHING DEVELOPMENT CO. VS. SANDIKO (65 Phil. 233; Dec. 23, 1937) On May 31, 1930,
Manuel Tabora executed a Deed of Sale where he sold four parcels of land in favor of herein petitioner
Cagayan Fishing Development Co., said to be under the process of incorporation. Plaintiff company filed
its AOI with the Bureau of Commerce and Industry on Oct. 22, 1930. A year later, before the issuance of
the certificate of incorporation, the BD of the company adopted a resolution to sell the four parcels of
land to Teodoro Sandiko for P42,000.

ISSUE: WON the subsequent sale to Sandiko is valid?

HELD: No. A duly organized corporation has the power to purchase and hold real property as the
purpose for which such corporation was formed may permit and for this purpose may enter into such
contract as may be necessary. But before a corporation may be said to be lawfully organized many thing
have to be done. Among which, the law requires the filing of the AOI.

It cannot be denied that the plaintiff was not incorporated when it entered into the contract of sale. It
was not even a de facto corporation at that time. Not being in legal existence then, it did not possess
juridical personality to enter into the contract.

Corporations are creatures of the law, and can only come into existence in the manner prescribed by the
law. That a corporation should have a full and complete organization and existence as an entity before it
can enter into 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 charter, there is no corporation, nr does it
possess franchise or faculties for it to exercise, until it acquires complete existence.

If the company could not and did not acquire the four parcels of and here involved, it follows that it did
not have the resultant right to dispose the same to the defendant.
De facto Corporations:

Municipality of malabang vs Benito

FACTS: The Municipality of Balabagan was created from the barrios and sitios of the Municipality of
Malabang by virtue of EO No 386 issued by President Garcia by virtue of Sec. 68 of the Revised
Administrative Code. Following the decision of the Court in Pelaez vs. Auditor General, which declared
Sec. 68 unconstitutional and that the President had no power to create a municipality, herein
petitioners sought to nullify EO 386 and to restrain the respondents, who are officers of Balabagan, to
vacate said their office and desist from performing their functions.

Respondents argue that it is at least a de facto corporation and the ruling in Pelaez is not applicable to it,
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 corporate
functions for the past five years. That as a de facto corporation, its existence cannot be collaterally
attacked.

ISSUE: WON the Municipality of Balabagan is a de facto corporation?

HELD: No. In cases where a de facto municipal corporation was recognized as such despite the fact that
the statute creating it was later invalidated, the decision could be fairly made to rest on the
consideration that there was some other valid law giving validity to the organization. Hence, in the case
at bar, the mere fact that Balabagan was organized at the 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 for 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.

Hall vs Piccio

Petitioner, together with private respondents signed and acknowledged the AOI of Far East Lumber and
Commercial Co., Inc., after the execution of which the corporation proceeded to do business by
adopting its by-laws and election of its officers. Subsequently, pending action on the AOI, the
respondents filed with the CFI alleging the corporation to be an unregistered partnership and praying for
its dissolution, which was granted.

Herein petitioner claims that the corporation is a de facto corporation, that its dissolution may be
ordered only in a quo warranto proceedings instituted by the State.

ISSUE: WON it is a de facto corporation?

HELD: No. First, not having obtained a certificate of incorporation, the company, even its stockholders,
may not probably claim in good faith to be a corporation.

Such claim is compatible with the existence of errors and irregularities, but not with a total or
substantial disregard of the law. UNnless there has been an evident attempt to comply with the law the
claim to be a corporation under this Act (Sec. 19) could not be made in good faith.

Second, this is not a suit where the corporation is a party. This is a litigation between a stockholder of
the alleged corporation, for the purpose of obtaining its dissolution. the existence of a de facto corp and
even a de jure corporation may be terminated in a private suit for its dissolution between stockholders,
without the intervention of the State.

Corporation by Estoppel:

Lozano vs Delos Santos

Petitioner Reynaldo Lozano and respondent Antontio Anda agreed to consolidate their respective
Jeepney Associations, to which they are presidents. They conducted an election for one set of officers of
the consolidated association, where petitioner was the winner. Respondent, however, refused to abide
by the agreement which prompted petitioner to institute an action for damages in the trial court which
was denied for being intra-corporate, and was held to be within the jurisdiction of the SEC.

ISSUE: WON there is corporation by estoppel placing the case within SEC jurisdiction?

HELD: None. The unified association was still a proposal and had not been approved by the SEC, neither
had its officers and members submitted their AOI. Their respective associations are distinct and separate
entities, petitioner and private respondent does not have an intra-corporate relation much less do they
have an intra-corporate dispute. The SEC has no jurisdiction over the complaint.

The doctrine of corporation by estoppel advance by privte respondent cannot override jurisdictional
requirements. Jurisdiction is fixed by law and is not subject to the agreement of the parties.

Corporation by estoppel is founded on principle of equity and is designated to prevent injustice and
unfairness. It applies when persons assume to form a corporation and exercise corporate functions and
enter into business relations with third persons. Where there is no third person involved and the
conflict arises only among those assuming to form a corporation, who therefore know that it has not
been registered, there is no corporation by estoppel.

Albert vs University Publishing

Jose Aruego, president of defendant University Publishing Co, Inc. entered into a contract with plaintiff
for the publishing of the latters revised commentaries on the Revised Penal Code, which the defendant
failed to pay the second installment due. The CFI of Manila rendered judgment in favor of plaintiff, such
judgment reduced by the Supreme Court to P15,000.

The CFI issued a writ of execution against Aruego, as the real defendant, stating the discovery that there
is no such entity as University Publishing Co., Inc.

ISSUE: WON the writ of execution may be effected upon Aruego?

HELD: Yes. On account of non-registration, University cannot be considered a corporation, not even a
corporation de facto. It has therefore, no personality separate from Aruego it cannot be sued
independently.

The doctrine of corporation by estoppel is inapplicable. Aruego represented a non-existent entity and
induced not only the plaintiff but even the court of belief of such representation. He signed the contract
as President of University and obviously misled plaintiff in to believing that University is a
corporation duly organized and existing under the laws of the Philippines. One who has induced
another to act upon his wilful 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.

SALVATIERRA VS. GARLITOS, ET AL.

Petitioner Manuel T. Vda de Salvatierra, owner of a parcel of land, entered into a contract of lease with
Philippine Fibers Processing Co., Inc., allegedly a corporation. For failure to comply with the obligations
under the lease, petitioner filed a complaint in the CFI where the company was declared in default and
decision was rendered in favor of petitioner. Defendant Refuerzo filed a motion claiming that he should
not be made personally liable in the decision which was granted by the Court. Hence, this petition.

ISSUE: WON Refuerzon can be made personally liable?

HELD: Yes. 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 applicable where fraud
takes part in the said transaction. In the instant case, on plaintiffs charge that she was unaware of the
fact that the company had no juridical personality, defendant Refuerzo gave no confirmation or denial
and the circumstances surrounding the execution of the contract led to the inescapable conclusion that
plaintiff Salvatierra was really made to believe that such corporation was duly organized in accordance
with law.

The rule on the separate personality of a corporation 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 on its behalf; thus, those who act or
purport to act as its representatives or agent do so without authority and at their own risk. And, as is it
elementary principle of law that a person who acts as an agent without authority or without principal
is himself regarded as the 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 agents.

In acting on behalf of a corporation which he knew to be unregistered, the president of the unregistered
corporation Refuerzo, assumed the risk of reaping the con the consequential damages of resultant right,
if any, arising out of such transaction.

CHANG KAI SHEK SCHOOL VS. CA (172 SCRA 389; April 18, 1989)

Private respondent Faustina Oh has been teaching in the herein petitioner School since 1932 for a
continuous period of 33 years until that day that she was told that she had no assignment for the next
semester. She filed a suit before the CFI against the school and later on amended her complaint to
include certain officials. The CFI of Sorsogon dismissed the complaint. On appeal, the CA reversed the
decision and held herein petitioner school liable but absolved the other defendants.

ISSUE: WON the School can be held liable?

HELD: Yes. Even though the school failed to incorporate as mandated by law, it cannot now invoke such
non-compliance with the law to immunize it from the private respondents complaint. There should also
be no question that having contracted with the private respondent every year for 32 years and thus
represented itself possessed of juridical personality to defeat her claim against it. According to Art. 1431
of the Civil Code: through estoppel an admission or representation is rendered conclusive upon the
person making it and it cannot be denied as against the person relying on it.

As the school itself may be sued in its own name, there is no need to apply Rule 3, Sec. 15 ,under which
the persons joined in an association without any juridical personality may be sued with such an
association. Besides, it has been shown that the individual members of the board of trustees are not
liable, having been appointed only after the private respondents dismissal.

ASIA BANKING CORP., plaintiff-appelle VS. STANDARD PRODUCTS CO., INC., defendant-appellant (46
Phil. 144; Sept. 11, 1924) This action was brought to recover the balance due of a promissory note
executed by herein appellant. The court rendered judgment in favor of the plaintiff.

At the trial of the case the plaintiff failed to prove affirmatively the corporate existence of the parties
and the appellant insists that under these circumstances the court erred in finding that the parties were
corporations with juridical personality and assigns same as reversible error.
ISSUE: WON parties herein are corporations with juridical personality?

HELD: Yes. 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. (14 C. J., 227; Chinese
Chamber of Commerce vs. Pua Te Ching, 14 Phil., 222.)

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. (SEARCH FULL TEXT)

INTERNATIONAL EXPRESS TRAVEL & TOURS SERVICES, INC. VS. CA (343 SCRA 674; Oct. 19, 2000)
Petitioner International Express Travel & Tours Services, Inc. entered into an agreement with the
Philippine Football Federation through its president Henry Kahn, herein private respondent, where the
former supplied tickets for the trips of the athletes to the Southeast Asian Games and other various
trips. The Federation failed to pay a balance of P265,894.33 which led petitioner to file a civil case in the
RTC of Manila which decided in its favor and holding Henry Kahn personally liable. On appeal, the CA
reversed the decision of the RTC absolving Kahn from personal liability holding that the Federation had a
separate and distinct personality.

ISSUE: WON Henry Kahn can be made personally liable?

HELD: Yes. While we agree with the appellate court that associations may be accorded corporate status,
such does not automatically take place by the mere passage of RA 3135 otherwise known as the Revised
Charter of the Philippine Amateur Athletic Federation and PD 604. 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. Nowhere can it be found in RA 3135 and PD 604 any provision
creating the Philippine Football Federation. These laws merely recognized the existence of national
sports associations and provided for the manner by which these entities may acquire juridical
personality.

The recognition of Philippine Amateur Athletic Federation required under RA 3135 and the Department
of Youth and Sports Development under 604, extended to the PFF was not substantiated by Kahn.
Accordingly, the PFF is not a national sports association within the purview of the aforementioned laws
and does not have corporate existence of its own.
This being said, it follows that private respondent Kahn should be held liable for the unpaid obligations
of the unincorporated PFF. 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 OBLIGATIONS AND BECOMES PERSONALLY LIABLE FOR CONTRACTS ENTERED
INTO OR FOR OTHER ACTS PERFORMED AS SUCH AGENTS.

We cannot subscribe to the position taken by the appellate court that even assuming that the PFF was
defectively incorporated, the petitioner cannot deny the corporate existence of the PFF because it had
contracted and dealt with the PFF in such a manner as to recognize and in effect admits 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. 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.

GEORG GROTJAHN GMBH & CO. VS. ISNANI (235 SCRA 216; Aug. 10, 1994)

Petitioner is a German company who was granted a license to establish a regional or area headquarters
in the Philippines. Private respondent Romana Lanchinebre was a sales representative of petitioner who
made advances totalling P35,000 which were left unpaid. Petitioner filed a complaint for the collection
of a sum of money which was dismissed by the judge holding, among others, that the license of
petitioner does not include the license to do business in the Philippines.

ISSUE: WON petitioner has capacity to sue?

HELD: Yes. Private respondent is estopped from assailing the personality of petitioner. The rule is that
the party is estopped to challenge the personality of a corporation after having acknowledged the same
by entering into a contract with it. And THE DOCTRINE OF ESTOPPEL TO DENY CORPORATE EXISTENCE
APPLIES TO FOREIGN AS WELL AS DOMESTIC CORPORATION; one who has dealt with a corporation of
foreign origin as a corporate entity is estopped to deny its corporate existence and capacity. The
principle will be applied TO PREVENT A PERSON CONTRACTING WITH A FOREIGN CORPORATION FROM
LATER TAKING ADVANTAGE F ITS NON-COMPLIANCE WITH THE STATUTES CHIEFLY IN CASE WHERE
SUCH PERSON HAS RECEIVED THE BENEFITS OF THE CONTRACT (Merill Lynch Futures, Inc. vs. CA).

In the case of Merill Lynch Futures, the SC held that a foreign corporation doing business in the
Philippines may sue in Philippine courts although not authorized to do business here against the
Philippine citizen who had contracted with and been benefited by said corporation. Citing and applying
the doctrine laid down in Asia Banking Corp. vs. Standard Prodcuts Co., Inc.
Corporate Entity Theory:

SULO NG BAYAN, INC., plaintiff-appellant VS. GREGORIO ARANETA, INC. ET AL., defendant-appelle (72
SCRA 347; Aug. 17, 1976)

Plaintiff-appellant Sulo ng Bayan, Inc. instituted a reinvindicatory action for the recovery of 28,000
square meters of land for and in behalf of it members, who were themselves and their predecessors-in-
interest pioneered in the clearing of the land and cultivated the same since the Spanish Regime and
have been in continuous possession of the same. The action was dismissed on the ground that there is
no cause of action. On appeal, the CA certified the case to the SC for the legal issues involved.

ISSUED: WON Sulo ng Bayan, Inc. may institute the action for recovery of property of it individual
members?

HELD: No. It is a doctrine well-established and obtains both at law and in equity that a CORPORATION IS
A DISTINCT LEGAL ENTITY TO BE CONSIDERED AS SEPARATE AND APART FROM THE INDIVIDUAL
STOCKHOLDERS OR MEMBERS who compose it, and is NOT AFFECTED BY THE PERSONAL RIGHTS,
OBLIGATIONS AND TRANSACTIONS OF ITS STOCKHOLDERS OR MEMBERS. The property of a corporation
is its property and not that of the stockholders, as owners, although they have equities in it. Properties
registered in the name of the corporation are owned by it as an entity separate and distinct from its
members. Conversely, a CORPORATION ORDINARILY HAS NO INTEREST IN THE INDIVIDUAL PROPERTY
OF IT STOCKHOLDERS UNLESS TRANSFERRED TO THE CORPORATION, EVEN IN THE CASE OF A ONE-
MAN CORPORATION.

ABSENT ANY SHOWING OF INTEREST, THEREFORE, A CORPORATION, LIKE PLAINTIFF-APPELLANT

HEREIN, HAS NO PERSONALITY TO BRING AN ACTION FOR AND IN BEHALF OF ITS STOCKHOLDERS OR
MEMBERS for the purpose of recovering property which belongs to said stockholders or members in
their personal capacities.

It is fundamental that there cannot be a cause of action without an antecedent primary legal right
conferred by law upon a person. Evidently, there can be NO WRONG WITHOUT A CORRESPONDING
RIGHT, AND NO BREACH OF DUTY BY ONE PERSON WITHOUT A CORRESPONDING RIGHT BELONGING
TO SOME OTHER PERSON.

CARAM V CA

A certain Barretto initiated the incorporation of a company called Filipinas Orient Airways (FOA).
Barretto was referred to as the moving spirit of said corporation because it was through his effort that
it was created. Before FOAs creation though, Barretto contracted with a third party, Alberto Arellano,
for the latter to prepare a project study for the feasibility of creating a corporation like FOA. The project
study was then presented to the would-be incorporators and investors. On the basis of said project
study, Fermin Caram, Jr. and Rosa Caram agreed to be incorporators of FOA. Later however, Arellano
filed a collection suit against FOA, Barretto, and the Carams. Arellano claims that he was not paid for his
work on the project study.

ISSUE: Whether or not the Carams are personally and solidarily liable considering that the project study
was contracted before FOA became a corporation.

HELD: No. Petitioners were not involved in the initial stages of the organization of the airline, which
were being directed by Baretto, respondent, as the main promoter. It was he who was putting all the
pieces together, so to speak. The petitioners were merely among the financiers whose interest was to
be invited and who were in fact persuaded, on the strength of the project study, to invest in the
proposed airline.

Significantly, there was no showing that the Filipinas Orient Airways was a fictitious corporation and did
not have a separate juridical personality, to justify making the petitioner, as principal stockholder
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 directors and officers.

The most that can be said is that they benefited from the services, but that surely is no justification t
hold them personally liable therefor. Otherwise, all other stockholders of the corporation, including
those who came in later, and regardless of the amount of their stockholdings would be equally and
personally liable also with the petitioners for the claims of the private respondents.

Petitioners are not liable under the challenged decision

RUSTAN PULP AND PAPER MILLS, INC. VS. IAC (214 SCRA 665; Oct. 19, 1992)

Petitioner Rustan entered into a conract of sale with respondent Lluch which was later on stopped by
Rustan through a letter. Lluch sent a letter to clarify whether the letter sent by Rustan was for the
stoppage of delivery or termination of the contract of sale. Unanswered, respondent Lluch resumed
devliveries and later on filed a complaint for contractual breach which was dimissed. On appeal, the CA
modified the decision of the trial court directing petitioner including Tantoco, president and general
manager, and Vergara, resident manager, to pay private respondents.

ISSUE: WON individual petitioners may be held liable?

HELD: No. The president and manager of a corporation, who entered into and signed a contract in his
official capacity, cannot be made liable thereunder in his individual capacity in the absence of
stipulation to that effect due to the personality of a corporation being separate and distinct from the
person composing it. And because of this precept, Vergaras supposed non-participation in the contract
of sale although he signed the letter terminating it is completely immaterial.
CRUZ VS. DALISAY (152 SCRA 482; July 31, 1987)

Adelio Cruz charged Quiterio Dalisay, Senior Deputy Sheriff of Manila, with malfeasance in office,
corrupt practices and serious irregularities when the respondent sheriff attached and/or levied the
money belonging to complainant Cruz when he was not himself the judgment debtor in the final
judgment of NLRC sought to be enforced but rather the company known as Qualitrans Limousine
Service, Inc., a duly registered corporation.

ISSUE: WON the charge against the respondent should be upheld for attaching personal property of the
corporate president?

HELD: Yes. The respondents action in enforcing judgment against complaint who is not the judgment
debtor in the case calls for disciplinary action. Considering the ministerial duty in enforcing writs of
execution, what is incumbent upon him is to ensure that only that portion of a decision ordered or
decreed in the dispositive part should be the subject of execution. No more, no less. That the title of the
case specifically names complaint as one of the respondent is of no moment as execution must conform
to that directed in the dispositive portion and not in the title of the case. The tenor of the NLRC
judgment and the implementing writ are clear enough. It directed Qualitrans to reinstate the discharged
employee and pay the full backwages. Respondent, however, chose to pierce the veil of corporate
entity usurping a power belonging to the court and assumed improvidently that since the complainant
is the owner/president, they are one and the same. It is well-settled doctrine, both in law and in equity
that as a legal entity, a corporation has a personality distinct and separate from its individual
stockholders or members. The mere fact that one is president of a corporation does not render the
property he owns or possesses the property of the corporation, since the president, as individual, and
the corporation are separate entities.

PALAY INC. VS. CLAVE (124 SCRA 638; Sept. 21, 1983) Petitioner Palay, Inc. through its president
Albert Onstott, executed in favor of respondent Naario Dumpit a Contract to Sell a parcel of land which
provided for automatic rescission upon default in payment of any monthly amortization without need of
notice and forfeiture of all instalments paid. Respondent failed to pay some instalments and later
offered to update all his overdue account but was informed that the contract has already been
rescinded.

Respondent filed with the NHA a complaint questioning the validity of the rescission which decided in its
favor holding Palay, Inc. and Alberto Onstott, in his capacity as president, jointly and severally liable.

ISSUE: WON the corporate president is liable to refund the amount state in the NHA ruling?
HELD: No. 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 its
contract with private respondent when it rescinded the contract to sell extrajudicially and had sold it to
another person.

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 of all or
nearly all of the capital stock of a corporation is not, of itself, sufficient ground for disregarding the
separate corporate personality.

PAULINO SORIANO, NENITA C. ESPERANZA and JANDRO G. MACADANGDANG, petitioners,

vs. HON. COURT OF APPEALS (Former Sixth Division) and GERVACIO CU, respondents

(GR No. L-49834; June 22, 1989)

FACTS: Petitioners were held solidarily liable by the appellate court in their personally capacity to the
private respondent for non-payment of tobacco under an agreement between them embodied in a
receipt which states as follows:

GREETINGS:

WE, the President, Manager, Treasurer and Director Representative of Bacarra (I.N.) Facoma,
Inc., do hereby execute this document:

That we received from Mr. Gervacio Cu, a truck load of Virginia tobacco consisting of ONE HUNDRED
SIXTY (160) bales of fifty (50) kilos each bale (sic) the said Virginia tobacco consists of different grades or
class from E to A (sic) the said tobaccos are to be shipped to the redrying plants through the Bacarra
Facoma under Guia number 236.

Conditions of the deal between Mr. Cu and the Association. Upon payment of the said tobacco by the
Philippine Virginia Tobacco Administration then Mr. Cu, will collect the corresponding payments as
graded by the redrying plant as further stipulated that the check representing the payment shall only be
cashed in the presence of Mr. Cu, or his authorized representative. (Sic)
This instrument is executed for the protection, guidance and information of the parties concerned.

Done this 10th day of August 1964 at Bacarra, Ilocos Norte.

(Sgd.) Paulino Soriano

PAULINO SORIANO

President

(Sgd.) Nenita C. Esperanza

NENITA C. ESPERANZA

Sec. Treasurer

by:

(Sgd.) Erlinda V. Acosta BIENVENIDO E. ACOSTA Director, Official Representative

(Sgd.) A. Macadangdang

A.G. MACADANGDANG

Manager

ISSUE: WON petitioners are liable?

HELD: No. We cannot accept the conclusion that the official designations of petitioners were written on
the document merely as meaningless and hollow decorations or as mere descripto personae without
any relevance to the liability of the corporation these officers obviously represented. Indeed, taking in
conjunction with the other obtaining circumstances, the receipt discloses the capacity by which the
petitioners entered into the deal with private respondent.

The subject receipt itself states tht the conditions contained therein were between the private
respondent and the Association. The lower court held that the Association referred only to the
signatories. We disagree. It is quite plain and we are convinced that the Association is none other than
the Bacarra (I.N.) Facoma, Inc. which is a farmers cooperative marketing association. Not only that , we
cannot find any cogent reason why the petitioners used the word Association when they could have
more easily and conveniently placed the undersigned or words to the same effect in its stead.

In light of the foregoing, it is clear that the liability of the petitioners under the document subject of the
instant case is not personal but corporate, and therefore attached to the Bacarra (I.N.) Facoma, Inc.
which being a corporation, has a personality distinct and separate from that of the petitioners who are
only its officers. It is the general rule that the protective mantle of a corporations separate and
distinct personality could only be pierced and liability attached directly to its officers and/or member-
stockholders, when the same is used for fraudulent, unfair or illegal purpose.

Piercing the veil of corporate fiction:

General Concept:

PALACIO VS. FELY TRANSPORTATION COMPANY (5 SCRA 1011; Aug. 31, 1962)

Alfredo Carillo, a driver of herein respondent corporation, ran over the child of herein petitioner Mario
Palacio, and was found guilty of the criminal case filed against him. Isabelo Calingasan, the employer,
was held subsidiarily liable and not the defendant corporation. Plaintiffs now contend that the
defendant corporation should be made subsidiarily liable for damages in the criminal case because the
sale to it of the jeep in question, after the conviction of Carillo was merely an attempt on the part of
Calingasan, its president and general manager, to evade his subsidiary civil liability.

ISSUE: WON the corporation can be held liable for the subsidiary civil liability of Isabelo Calingasan?

HELD: Yes. It is evident that Calingasans main purpose in forming the corporation was to evade his
subsidiary civil liability resulting from the conviction of his driver. This conclusion is borned out by the
fact that the incorporators of the Fely Transportation are Isabelo Calingasan, his wife, his son, Dr.
Calingasan, and his two daughters. We believe that this one case where the defendant corporation
should not be heard to say that it has a personality separate and distinct from its members when to
allow it to do so would be to sanction the use of the fiction of corporate entity as a shield to further
an end of subversive of justice. Furthermore, the failure of the defendant corporation to prove that it
has other property other than the jeep strengthens the conviction that its formation was for the
purpose above indicated.

MARVEL BUILDING CORPORATION, et al. VS. DAVID (94 Phil. 376; Feb. 24, 1954)

Plaintiffs, as stockholders of Marvel Building Corporation sought to enjoin the defendant Collector of
Internal Revenue from selling at a public auction properties which were said to be registered in the
name of said corporation. Said properties were seized and distrained by defendant to collect war profits
taxes against Maria Castro who the former claims to be the sole owner of the said corporation. Maria
Castro owns P250,000 of the P1,025,000 capital of the corporation, of the rest of the incorporators were
her half-brothers, half-sister and a brother-in-law.

ISSUE: WON Maria Castro is the sole owner of the Corporation?

HELD: Yes. Circumstantial pieces of evidence presented were: (1) Endorsement in blank of the
certificates of stock issued in the name of the incorporators and the possession thereof by Maria Castro;
(2) The other incorporators did not have incomes in such amount, during the time of the organization of
the corporation or immediately thereto, as to enable them to pay in full their supposed subscriptions;
and (3) It should have been the supposed subscribers who should have come to court to assert that they
actually paid for their subscriptions and are not mere dummies.

The circumstantial evidence is not only convincing, it is conclusive. In addition to the above, the fact that
the stockholders or directors never appeared to hae ever met to discuss the business of the corporation
and the fact that Maria Castro advanced big sums of money to the corporation without any previous
arrangements or account, and the fact that the books of accounts were kept as if they belonged to
Maria Castro alone these facts are of patent and potent significance.

In our opinion, the facts and circumstances duly set forth, all of which have been proved to our
satisfaction, prove conclusively and beyond reasonable doubt that Maria Castro is the sole and exclusive
owner of all the shares of stock of the corporation and that the other partners are her dummies.

YUTIVO & SONS CO. VS. CTA (1 SCRA 160; Jan. 28, 1961)

Herein petitioner Yutivo purchased its cars and trucks from General Motors Overseas Corporation (GM),
the latter paying the sales tax once on original sales, Yutivo no longer paid sales tax on its sales to the
public. Later no, GM withdrew from the Philippines and appointed Yutivo as importer. Yutivo in turn
exclusively sold to Southern Motors, Inc. (SM), a corporation where the incorporators are sons fo the
founders of Yutivo. Under this arrangement, Yutivo paid the sales tax on original sale, while SM did not
subject to sales tax its sales to the public.

The Collector of Internal Revenue assessed Yutivo for deficiency sales taxes which the CTA affirmed.

ISSUE: WON Yutivo is liable for the deficiency taxes?

HELD: No. It is elementary rule and fundamental principle of corporation law that a corporation is an
entity separate and distinct from its stockholders and from other corporations to which it may be
connected. However, when the notion of legal entity is used to defeat public convenience, justify wrong,
protect fraud or defend crime, the law will regard the corporation as an association of persons, or in
case of two corporations merge them into one. Another rule is that, when the corporation is a mere
alter-ego or business conduit of a person, it may disregarded.

The sales tax liability of Yutivo did not arise until it became the importer and simply continued its
practice of selling to SM. The decision, therefore, of the Tax Court that SM was organized purposely as a
tax evasion device runs counter to the fact that there was no tax to evade.

We are, however, inclined to agree with the court below that SM was actually owned and controlled by
petitioner as to make it a mere subsidiary or branch of the latter created for the purpose of selling the
vehicles at retail and maintaining stores for spare parts as well as service repair shops. It is not disputed
that the petitioner, which is engaged principally in hardware supplies and equipment, is completely
controlled by the Yutivo, Young and Yu family. The founders of the corporation are closely related to
each other either by blood or affinity and most of its stockholders are members of the Yu (Yutivo or
Young) family.

According to the AOI, the amount of P62,500 was actually advanced by Yutivo. The additional
subscriptions to SM were paid by Yutivo. The shareholders in SM are mere nominal stockholders holding
the share for and in behalf of Yutivo, so even conceding that the original subscribers were bona fide
stockholders, Yutivo was at all tie in control of the stock of SM and that the latter was a mere subsidiary
of the former.

SM is under the management control of Yutivo by virtue of the management contract entered into
between the two parties. In fact, the controlling majority of the BOD of Yutivo is also the controlling
majority of the Board of SM. At the same time, the principal officers of both corporations are identical.
In addition, both corporations have a common comptroller. There is therefore no doubt that by virtue of
such control, the business, financial and management policies of both corporations would be directed
towards common ends. Likewise, cash or funds of SM, including those of its branches which are directly
remitted to Yutivo, and subject to withdrawal only by Yutivo, SMs being under Yutivos control, the
formers operations and existence became dependent upon the latter.

SM, being but a mere instrumentality or adjunct of Yutivo, the CTA correctly disregarded the technical
defense of separate corporate entity to arrive at the true tax liability of Yutivo.

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs. NORTON and HARRISON COMPANY, respondent.

(GR No. L-17618; 11 SCRA 714; Aug 31, 1964)

FACTS: Herein respondent entered into an agreement with Jackbilt where the former was made the sole
and exclusive distributor of concrete blocks manufactured by Jackbilt and accordingly every order of a
customer of Norton was transmitted to Jackbilt which delivered the merchandise directly to the
customer. Payment of the goods, however, is made to Norton, which in turn pays Jackbilt the amount
charged the customer less a certain amount, as its compensation or profit.

During the existence of the agreement, Norton acquired by purchase all the outstanding stocks of
Jackbilt. Due to this, the Commissioner of Internal Revenue, assess respondent Norton for deficiency
taxes making the basis of sales tax the sales of Norton to the public, which is the higher price compare
to the sale of Jackbilt to Norton. The CTA decided in favor of Norton.

ISSE: WON the two corporations may be merged into a single corporation?

HELD: Yes. It has been settled that the ownership of all the stocks of a corporation by another
corporation does not necessarily breed an identity of corporate interest between the two companies
and be considered as a sufficient ground for disregarding distinct personalities. However, in the case at
bar, we find sufficient grounds to support the theory that the separate identities of the two companies
should be disregarded.

The circumstances presented by the facts of the case, yields to the conclusion that Jackbiltis merely an
adjunct, business conduit or alter-ego of Norton and that the fiction of corporate entities, separate and
distinct from each other should be disregarded.

LA CAMPANA COFFEE FACTORY, INC. VS. KAISAHAN NG MGA MANGGAGAWA SA LA CAMPANA (KKM)
(93 Phil. 160; May 25, 1953)

Tan Tong, one of herein petitioners, is engaged in the buying and selling of guagua under the trade
name La Campana Guagua Packing. Later on, Tong and his family organized a family corporation known
as La Campana Coffee Factory Co, Inc. with its principal office located at the same place as that of La
Campana Guagua Packing.

Tan Tongs employees later on formed a union (herein respondent) through which they demanded
(from both companies) higher salaries and more privileges. As the demand was not granted and an
attempt at a settlement through mediation had given no result, the Department of Labor certified the
dispute to the Court of Industrial Relations (CIR). Petitioners filled a motion

to dismiss which was denied. Hence, this present petition for certiorari.

ISSUE: WON the corporate entity of La Campana Coffee Factory, Inc. may be disregarded?

HELD: Yes. La Campana Guagua Packing and La Campana Coffee Factory, Inc. are operating under on
single management, that is, as one business though with two trade names. True, the coffee factory is a
corporation and, by legal fiction, an entity existing separate and apart from the person composing it,
that Tan Tong and his family. But it is settled that this fiction of law, which has been introduced as a
matter of convenience and to subserve the ends of justice cannot be invoked as to further and end
subversive of that purpose.

In the present case, Tan Tong appears to be the owner of the guagua factory. And the factory, though an
incorporated business, is in reality owned exclusively by Tan Tong and his family. As found by the CIR,
one payroll, except after July 17, the day the case was certified to the CIR, when the person who was
discharging the office of cashier for both branches of the business began preparing separate payrolls for
the two. And above all, it should not be overlooked that, as also found by the industrial court, the
laborers of the guagua factory and the coffee factory were interchangeable. In view of all these, the
attempt to make the two factories appear as two separate businesses, when in reality they are but one,
is but a device to defeat the ends of the law and should not be permitted to prevail.
Change in Corporate Name:

PHILIPPINE FIRST INSURANCE CO., plaintiff-appellantvs.

MARIA CARMEN HARTIGAN, CGH and O. ENGKEE, defendants-appellees (GR No. L-26370; 74 SCRA 252;
July 31, 1970)

FACTS:

Plaintiff changed its name from to The Yek Tong Lin Fire and Marine Insurance Co., Ltd (Yek Tong).

The complaint alleges that under its old name, PFIC signed as co-maker together with Hartigan, a
promissory note for P5,000 in favor of China Banking Corporation (Chinabank). Plaintiff agreed to act as
such upon application of the defendant, who together with Antonio Chua and Chang Ka Fu, signed an
indemnity agreement in favor of the plaintiff.

Defendants admitted the execution of the indemnity agreement but argued that it was made in favor of
Yek Tong and not PFIC. They claim that there was no privity of contract between plaintiff and
defendants and consequently, the plaintiff has no cause of action against them considering that the
plaintiff does not allege that PFIC and Yek Tong are one and the same or that the plaintiff has acquired
the rights of the latter.

CFI of Manila dismissed the complaint.

ISSUE: WON the trial court correctly dismissed the case?

HELD: No. Sec. 18 (Now Sec. 16) of the Corporation Law (Act No. 1459) explicitly permits the articles of
incorporation to be amended. The law does not only authorize corporations to amend their charter; it
also lays down the procedure for such amendment; and, while it contains provisos restricting the power
to amend when it comes to the term of their existence and the increase or decrease of the capital stock,
there is no prohibition therein against the change of name.

The name of the corporation designates the corporation in the same manner as the name of an
individual designates the person. And since an individual has the right to change his name under certain
conditions, there is no compelling reason why a corporation may not enjoy the same right. However, as
in the case of an individual, such change may not be made exclusively by the corporations own act. It
has to follow the procedure prescribed by law for the purpose, and this is what is important and
indispensably prescribed strict adherence to such procedure.
RED LINE TRANSPORT VS. RURAL TRANSIT CO.

what was held as contrary to public policy is the USE by one corporation of the name of another
corporation as its trade name. We are certain no one will disagree that such an act can only result in
confusion and open the door to frauds and evasions and difficulties of administration and supervision.
Surely, the Red Line case was not one of change of name.

The change of name of a corporation DOES NOT result in its dissolution. There is unanimity in
authorities: An authorized change in the name of a corporation has no more effect upon its identity as
a corporation than change of name of natural person has upon his identity. It does not affect the rights
of the corporation or lessen or add to its obligations. After a corporation has effected a change in its
name it should sue and be sued in its new name (13 Am. Jur. 276-277)

A mere change in the name of a corporation, either by the legislature or by the corporators or
stockholders under legislative authority, does not, generally speaking, affect the identity of the
corporation, nor in any way affect the rights, privileges, or obligations previously acquired or incurred by
it. Indeed, it has been said that a change of name by a corporation has no more effect upon the identity
of the corporation than a change of name by a natural person has upon the identity of such person. The
corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the
original one, but remains and continues to be the original corporation. It is the same corporation with a
different name, and its character is in no respect changed. ...

Alhambra Cigar vs SEC

FACTS: ACCMC was incorporated on Jan. 15, 1912 for a period of 50 years which expired on Jan. 15,
1962.

On July 15, 1963, during the period within which it is to liquidate, the board of directors resolved to
amend its articles of incorporation extending its corporate life for another 50 years which was approved
by the stockholders but denied by the SEC.

ISSUE: WON the extension of corporate term should be allowed?

HELD: No. The privilege of extension is purely statutory. All the statutory conditions precedent must be
complied with in order that the extension may be effectuated. And, generally, these conditions must be
complied with, and the steps necessary to effectuate an extension must be taken, during the life of the
corporation, and before the expiration of the term of existence as originally fixed by its charter or the
general law, since, as a rule, the corporation is ipso facto dissolved as soon as the time expires. So where
the extension is by amendment of the articles of incorporation, the amendment must be adopted
before that time.
The logic of this position is well-expressed in a four square case decided by the CA of Kentucky:

But section 561 (section 2147) provides that, when any corporation expires by the terms of its articles
of incorporation, it may be thereafter continued to act for the purpose of closing up its business, but for
no other purpose. The corporate life of the Home Building Association expired on May 3, 1905. After
that date, by the mandate of the statute, it could continue to act for the purpose of closing up its
business, but for no other purpose. The proposed amendment was not made until January 16, 1908, or
nearly three years after the corporation expired by the terms of the articles of incorporation. When the
corporate life of the corporation was ended, there was nothing to extend. Here it was proposed nearly
three years after the corporate life of the association had expired to revivify the dead body, and to make
that relate back some two years and eight months. In other words, the association for two years and
eight months had only existed for the purpose of winding up its business, and, after this length of time,
it was proposed to revivify it and make it a live corporation for the two years and eight months daring
which it had not been such.

The law gives a certain length of time for the filing of records in this court, and provides that the time
may be extended by the court, but under this provision it has uniformly been held that when the time
was expired, there is nothing to extend, and that the appeal must be dismissed... So, when the articles
of a corporation have expired, it is too late to adopt an amendment extending the life of a corporation;
for, the corporation having expired, this is in effect to create a new corporation ..."

BOARD OF DIRECTORS/TRUSTEES AND OFFICERS

VALIDITY AND BINDING EFFECTS OF ACTIONS OF CORPORATE OFFICERS OR DIRECTORS

YAO KA SIN TRADING VS. CA (209 SCRA 763; June 15, 1992)

Constacio B. Malagna, President and Chairman of the Board of private respondent Prime White Cement
Corporation (PWCC), sent an undated letter offer (Exhibit A) to Mr. Yao for the delivery of cement,
which was accepted by the latter by delivering a check for P243,000.

ISSUE: WON the letter-offer sent by Malagna binds the corporation?

HELD: NO.

A corporate officer or agent may represent and bind the corporation in transactions with third
person to the extent that authority has been conferred upon him, and this includes powers which have
been (1) intentionally conferred, and (2) also such powers as, in the usual course of business, are
incidental thereto, or may be implied therefrom, (3) powers added by custom and usage, as usually
pertaining to the particular officer or agent, and (4) such apparent powers as the corporation has caused
persons dealing with the officer or agent to believe that it has conferred.

In the present case, while Mr. Maglana was an officer, the by-laws do not in any way confer upon the
president the authority to enter into contracts for the corporation independently of the BOD. That
power is expressly lodged in the latter.

Although there is authority "that if the president is given general control and supervision over
the affairs of the corporation, it will be presumed that he has authority to make contract and do acts
within the course of its ordinary business," We find such inapplicable in this case. We note that the
private corporation has a general manager who, under its By-Laws has, inter alia, the following powers:
"(a) to have the active and direct management of the business and operation of the corporation,
conducting the same accordingly to the order, directives or resolutions of the Board of Directors or of
the president." It goes without saying then that Mr. Maglana did not have a direct and active and in the
management of the business and operations of the corporation.

Further evidence shows that no contract can be signed by the president without first being
approved by the Board of Directors; such approval may only be given after the contract passes through,
at least, the comptroller, who is the NIDC representative, and the legal counsel.

LOPEZ REALTY, INC. VS. FOTENCHA (147 SCRA 183; Aug. 11, 1995)

Petitioner corporation approved two resolutions providing for the gratuity pay of its employees. Except
for Asuncion Lopez-Gonzales, who was then abroad, the remaining member of the board convened a
special meeting and passed a resolution adopting the above-mentioned resolutions. Private respondents
requested for the full payment of the gratuity pay which was granted.

At that time, however, petitioner Asuncion was still abroad, and allegedly sent a cablegram objecting to
certain matters taken up by the board in her absence.

Petitioner Corporation approved , the first two installments of the gratuity pay of private respondents.
Also, petitioner corporation had prepared the cash vouchers and checks for the their installment. For
some reason, said voucher was cancelled by petitioner Asuncion.

A complaint was filed before the labor arbiter who decided in favor of private respondents.

ISSUE: WON the gratuity pay should be paid?

HELD: Yes. The general rules is that 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 any objecting
director or shareholder.

However, an action of the board of directors during a meeting, which was illegal for lack of notice,
may be ratified either (1) expressly, by the action of the directors in subsequent legal meeting, or (2)
impliedly, by the corporations subsequent conduct.

In the case at bench, it was established that petitioner corporation did not issue any resolution revoking
nor nullifying the board resolution granting gratuity pay to private respondents. Instead, they paid the
gratuity pay, particularly, the first two installments thereof.

Despite lack of notice to Asuncion, we can glean from the records that she was aware of the
corporations obligations under the said resolution. More importantly she acquiesced thereto by affixing
her signature on two cash vouchers. The conduct of petitioners had estopped them from assailing the
validity of the said board resolutions.

PUA CASIM & CO. VS. NEUMARK AND CO. (46 Phil. 242; Oct. 2, 1924)

W. Neumark, president of defendant corporation borrowed P15000 from plaintiff which was
delivered by means of a check in favor of defendant and deposited in BPI and the amount of it credited
to the corporations current account.

ISSUE: WON the corporation is responsible for the money borrowed by its president?

HELD:

Yes. W. Neumark is the principal stockholder, president and general business manager of the defendant
corporation. On behalf of the corporation, he solicited a loan and was given a check, which was
endorsed by him in his capacity as president and deposited to the corporations account. It may be true
that a large part of the amount so deposited was diverted by Neumark to his own use, but that does not
alter that the money was borrowed for the corporation and was placed in its possession.

It is conceded that Neumark was not expressly authorized by the board of directors to borrow the
money in question and the general rule is that a business manager or other officer of a corporation, has
no implied power to borrow money on its behalf. But much depends upon the circumstances of each
particular case and the rule state is subject to important exceptions. Thus, where a general business
manager of a corporation is clothed with apparent authority to borrow money and the amount
borrowed does not exceed the ordinary requirements of the business, it has often been held that the
authority is implied and that the corporation is bound.

In the present case it was evident that the corporation was in need of funds and that the amount
borrowed was not disproportionate to such needs nor to the volume of the business. As president and
general manager of the corporation, Neumark appeared to be almost the whole corporation and was
clothed with apparent authority to do everything necessary for the conduct of its business. In these
circumstances it is to be held that he is clothed with implied authority to borrow the herein questioned
money.

YU CHUCK VS. KONG LI

Defendant is a corporation engaged in the manufacture of Chinese newspaper. In its by-laws it provided
that the president has the authority to sign all contracts and instruments of writing. No provision is
made in favor of a general manager.

At some time Chen was appointed as general manager and entered into a contract with herein
respondents. The contract was however rescinded by the newly appointed genral manager, Tan Tiong.
Such rescission did not state any reason for the discharge of the plaintiffs

The present action was brought by plaintiffs on the ground that their contract was a term of 3 years, and
since they were discharged without just cause, they allege that they were entitled for the payment of
the remaining term, and for damages.

The defendant presented as defense that Chen was not given the authority to enter and sign contracts
in behalf of the corporation

Lower court rendered judgment in favor of plaintiffs.

ISSUE: WON Chen had the power to bind the corporation under a contract of that character?

HELD:

No. The general rule is that the power to bind a corporation by contract lies with its board of
directors or trustees, but this power may either be expressly or impliedly be delegated to other officers
or agents of the corporation, and it is well settled that except where the authority of employing
servants and agents is expressly vested in the BOD/T, an officer or agent who has general control and
management of the corporations business, or a specific part thereof, may bind the corporation as are
usual and necessary in the conduct of such business. But the contracts of employment must be
reasonable.

Chen, as general manager of Kong Li Po, had implied authority to bind the defendant corporation by a
reasonable and usual contract of employment with the plaintiffs, but we do not think that contract here
in question can be so considered. Not only is the term of employment usually long, but the conditions
are otherwise so onerous to the defendant that the possibility of the corporation being thrown into
insolvency thereby is expressly contemplated in the same contract.
TRINIDAD J. FRANCISCO VS. GSIS (7 SCRA 557; MARCH 30, 1963)

Trinidad Francisco, in consideration of loan extended by GSIS, mortgaged her property in QC. For being
in arrears in her installments, GSIS extrajudicially foreclosed the mortgage.

Plaintiffs father, Atty. Vicente Francisco sent a letter to Rodolfo Andal, general manager of GSIS,
offering to redeem the property which was replied to by Andal through a telegram saying GSIS BOARD
APPROVED YOUR REQUEST RE REDEMTPION OF FORECLOSED PROPERTY OF YOUR DAUGHTER

For a span of 4 months, Petitioner remitted checks to Andal. However, later on, according to the
defendant GSIS, the remittances made by Atty. Francisco were allegedly not sufficient to pay off her
daughters arrears, the one year redemption period has expired, said defendant consolidated title to the
property in its name. hence the present suit.

Lower court ruled in favor of petitioner.

ISSUE: WON the telegram sent by the Andal binds the corporation?

HELD: Yes. The terms of the offer were clear and over the signature of the genral manager Andal. Also
There was nothing in the telegram that hinted at any anomaly, or gave grounds to suspect its veracity,
and the plaintiff, therefore, cannot be blamed for relying upon it. In this case, there is no denying that
the telegram was within Andals apparent authority. With respect to his defense that, he did not sign it,
but that it was sent by the board secretary in his name and without his knowledge. If this were to be
true, how was appellee able to know about it?

It is well-settled principle that, If a private corporation intentionally or negligently clothes its officers or
agents with apparent power to perform acts for it, the corporation will be estopped to deny that such
apparent authority is real, as to innocent third persons dealing in good faith with such officers or agents.
Hence, even if it were the board secretary who sent the telegram, the corporation could not evade the
binding effect produced by the telegram.

The error in the wording cannot be taken seriously because while the legram was date 20 February
1959, Atty Francsico was informed only on 1960. Also, all the while GSIS pocketed the various
remittances, and kept silent as to the true facts as it now alleges. This silence, taken together with the
unconditional acceptance of three other subsequent remittances from plaintiff constitutes in itself a
binding ratification of the original agreement.

THE BOARD OF LIQUIDATORS VS. KALAW (20 SCRA 987; Aug. 10, 1965) ()
The National Coconut Corporation (NACOCO) was charetered as a non-profit organization by
Commonelath Act 518, for the preservation and development of the coconut industry in the Philippines

Kalaw was the general board and chairman while the defendants were the directors of NACOCO. Kalaw
in such capacity executed contracts for the delivery of copra. However due to natural disasters the
disputed contracts were not fulfilled.

When it was clear that the contracts would become unprofitable, kalaw submitted them to the board
for approval. No action was taken on the contracts and neither was it voted upon. Kalaw remained in his
post and later on the contracts were approved by the Board.

Loius Dreyfus, One of the buyers sued Kalaw along with the directors fo the undelivered Copra. And
charged Kalaw with negligence under the civil code and defendant board members including Kalaw for
bad faith and breach of trust for having approved the contracts

The lower court dismissed the complaint. Hence the present petition to this court of herein plaintiff.

ISSUE: WON the contracts executed by Kalaw binds the corporation?

HELD: Yes. A rule that has gained acceptance through the years is that a corporate officer entrusted
with the general management and control of its business, has implied authority to make any contract
or do any other act which is necessary or appropriate to the conduct of the ordinary business of the
corporation. As such officer, he may, without any special authority from the BOD perform all acts of
an ordinary nature, which by usage or necessity are incident to his office, and may bind the
corporation by contracts in matters arising in the usual course of business.

Long before the disputed contracts came into being, Kalaw contracted by himself alone as general
manager for forward sales of corpra (which is a necessity in the business) which were profitable. So
pleased was NACOCO;s BOD that it voted to grant Kalaw special bonus in recognition of the signal
achievement rendered by him. These previous contacts, it should be stressed, were signed by Kalaw
without prior authority from the board.

It has been held that, Where similar acts have been approved by the directors as a matter of general
practice, custom, and policy, the general manager may bind the company without formal
authorization of the BOD. In varying language, existence of such authority is established, by proof of the
course of business, the usages and practices of the company and by the knowledge which the BOD has,
or must be presumed to have, of acts and doings of its subordinates in and about the affairs of the
corporation. In the case at bench, the by-laws dictates that, the board should give its stamp of prior
approval on all corporate contracts. However, the Board itself, by its acts and through acquiescence,
practically laid aside the by-law requirement of prior approval.

BUENASEDA VS. BOWEN & CO., INC. (110 Phil. 464; Dec. 29, 1969)
As a consequence of P200,000 worth of ECA allocated to the Bowen & Co., Inc., it required a letter of
credit in the amount of P100,000 with the PNB. As the corporation did not have at the time the
necessary funds to put up the required cash marginal deposit of P60,000, its president Geoffrey Bowen,
obligating the corporation and himself in his personal capacity, offered to pay Fracisco Buenaseda 37
% of the profits to be realized from the sale of the ECA procurement materials, should he be able to
obtain and produce the amount necessary to cover the cash marginal deposit which Buenaseda was
able to do.

The corporation refused to pay, Buenaseda filed an action in the CFI to recover the same.

ISSUE: WON the agreement was binding?

HELD: Yes. It is not here pretended that the BOD of the defendant corporation had no knowledge of the
agreement between Bowen and plaintiff. Indeed, at the time the said Agreement was made, the BOD of
the corporation was composed of Bowen himself, his wife, Buenaseda and two others, with Bowen and
his wife controlling the majority of the stocks of the corporation. The Board did not repudiate the
agreement but on the contrary, acquiesced in and took advantage of the benefits afforded by said
agreement. Such acts are equivalent to an implied ratification of the agreement by the BOD and bound
the corporation even without formal resolution passed and recorded.

It is agreed by the respondents, defendants below, that the profits of the corporation form part of its
assets and payment of a certain percentage of the profits requires a declaration of dividends and/or
resolution of the BOD. The agreement is untenable. Although the plaintiff is a stockholder of the
corporation he does not, however, claim a share of the profits as such stockholder, but under the
agreement between him and the president of the corporation which has been impliedly ratified by the
BOD.

REMOVAL AND FILLING UP OF VACANCIES

VALLE VERDE COUNTRY CLUB VS AFRICA

FACTS:

February 27, 1996: Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal
(Makalintal), Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto
Sunico, and Ray Gamboa were elected as BOD during the Annual Stockholders Meeting
of petitioner Valle Verde Country Club, Inc. (VVCC) 1997 - 2001: Requisite quorum could not be
obtained so they continued in a hold-over capacity
 September 1, 1998: Dinglasan resigned, BOD still constituting a quorom elected Eric Roxas
(Roxas)

November 10, 1998: Makalintal resigned

on March 6, 2001: Jose Ramirez (Ramirez) was elected by the remaining BOD

Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and Ramirez as
members of the VVCC Board with the Securities and Exchange Commission (SEC) and the
Regional Trial Court (RTC) as contrary to:

Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations controlled and held by
the board of directors or trustees to be elected from among the holders of stocks, or
where there is no stock, from among the members of the corporation, who shall hold
office for 1 year until their successors are elected and qualified.

Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the
board of directors or trustees other than by removal by the stockholders or members
or by expiration of term, may be filled by the vote of at least a majority of the
remaining directors or trustees, if still constituting a quorum; otherwise, said
vacancies must be filled by the stockholders in a regular or special meeting called for
that purpose. A director or trustee so elected to fill a vacancy shall be elected only for
the unexpired term of his predecessor in office. xxx.

Makalintal's term should have expired after 1996 there being

no unexpired term. The vacancy should have been filled by the stockholders in a regular
or special meeting called for that purpose

RTC: Favored Africa - Ramirez as Makalintal's replacement = null and void

SEC: Roxas as Vice hold-pver director of Dinglasan = null and void

VVCC appealed in SC for certiorari being partially contrary to law and jurisprudence

ISSUE:

1. WON the appointment of Roxas and Ramirez made by the remaining members of the Board, still
constituting a quorum, were valid?

HELD:

First and foremost there was no unexpired term

 term time during which the officer may claim to hold the office as a matter of right

fixed by statute and it does not change simply because the office may have become
vacant, nor because the incumbent holds over in office beyond the end of the term due
to the fact that a successor has not been elected and has failed to qualify.

tenure

time during which the incumbent actually holds office.

Section 23 of the Corporation Code: term of BOD only 1 year - fixed and has expired (1 yr after
1996) and under section 29 the authority granted to the BOD to fill the vacancy is only limited to
the unexpired portion of the term. As there was no unexpired portion, the exercise of such
power on the part of the Bod was a nullity. Further, even if there was an unexpired portion, this
is not one of the cases wherein a BOD may fill the vacancy. In case of vacancy by expiration of
the term, it should be filled up by the stockholders or members in a regular or special meeting
called for that purpose.

underlying policy of the Corporation Code is that the business and affairs of a corporation must
be governed by a board of directors whose members have stood for election, and who have
actually been elected by the stockholders, on an annual basis. Only in that way can the directors'
continued accountability to shareholders, and the legitimacy of their decisions that bind the
corporation's stockholders, be assured. The shareholder vote is critical to the theory that
legitimizes the exercise of power by the directors or officers over properties that they do not
own.

CENTRAL COOPERATIVE EXCHANGE (CCE) VS. TIBE, JR. (33 SCRA 593; June 30, 1970)

This is a complaint filed by herein petitioner CCE for the refund of certain amounts received by
respondent when he served as member of the board of directors of CCE, which were said to be per
diems and transportation expenses, representation expenses and cummutable discretionary funds. All
these sums were disbursed with the approval of general manager, treasurer and auditor of CCE.

ISSUE: WON the BOD had the power to appropriate funds for the expenses claimed by respondent?

HELD: No. The by-laws expressly reserved unto the stockholders the power to determine the
compensation of the members of the BOD, and the stockholders did restrict such compensation to (1)
actual transportation expenses plus (2) per diems of P30 and (3) actual expenses while waiting.

Even without the express prohibition, the directors are not entitled to compensation for The law is
well-settled that directors of corporations presumptively serve without compensation and in the
absence of an express agreement or a resolution thereto, no claim can be asserted therefor. Thus it
has been held that there can be no recovery of compensation, unless expressly provided for, when
director serves as president or vice-president, as secretary or treasurer or cashier, as member of an
executive committee, as chairman of a building committee, or similar offices.

Thus, the directors, in assigning themselves additional duties, acted within their power, but, by voting
for themselves compensation for such additional duties, they acted in excess of their authority, as
express in the by-laws.

WESTERN INSTITUTE OF TECHNOLOGY VS SALAS

FACTS: In a special board meeting, a resolution was passed providing for compensation of officers. A few
years later, petitioners Homero Villasis, Prestod Villasis, Reginald Villasis and Dimas Enriquez filed an
affidavit-complaint for falsification of public documents (for submission of an income reflecting the
resolution as passed on 1985, when in fact it was passed in 1986) and estafa (for the disbursement of
funds by effecting payment to the aforesaid salaries) against herein respondents who were members of
the Board of Trustees who were also officers of the corporation. The trial court acquitted respondents in
both charges without civil liability. The motion for reconsideration on the civil aspect being denied,
petitioners filed this petition.

ISSUE: WON the resolution granting compensation to OFFICERS of the corporation is valid?

HELD: Yes. The proscription under Sec. 30, is against granting compensation to directors/trustees of a
corporation is not a sweeping rule. Worthy of note is the clear phraseology of Sec 30 which states
[T]he directors shall not receive any compensation, as such directors, IN VIEW THEREOF, IT delimits the
scope of the prohibition to compensation given to them for services performed purely in their
capacity as directors or trustees.

THUS members of the board may receive compensation, in addition to reasonable per diems,
when they render services to the corporation in a capacity other than as directors/trustees. In the case
at bench, the Resolution granted monthly compensation to private respondents not in their capacity as
members of the board, but rather as officers of the corporation, more particularly as Chairman, Vice-
Chairman, Treasurer and Secretary of WIT.

Clearly Sec. 30 is not violated. Consequently, the last sentence limiting the compensation to 10% of the
net income before income tax does not likewise find application in this case since the compensation is
being given to private respondents in their capacity as officers of WIT and not as board members.
GOVERNMENT VS. EL HOGAR FILIPINO (50 Phil. 399; July 14, 1927)

The members of the board of El Hogar Filipino receives 5% of the net profit as shown in the balance
sheet and is distributed in proportion to their attendance to meetings of the board. A complaint was
filed against them, and the sixth cause of action alleged that the directors, instead of serving without
pay, or receiving nominal pay or a fixed salary - as the complainant supposes would be proper have
been receiving large compensation in varying amounts.

ISSUE: WON the courts may declared the by-law provision null and void?

HELD:

No. The Corporation Law does not undertake to prescribe the rate of compensation for the directors of
corporations. The power to fix the compensation they shall receive, if any, is left to the corporation, to
be determined in its by-laws (Act No. 1459, sec. 21). Pursuant to this authority the compensation for the
directors of El Hogar Filipino has been fixed in section 92 of its by-laws, as already stated. The justice and
propriety of this provision was a proper matter for the shareholders when the by-laws were framed; and
the circumstance that, with the growth of the corporation, the amount paid as compensation to the
directors has increased beyond what would probably be necessary to secure adequate service from
them is matter that cannot be corrected in this action; nor can it properly be made a basis for depriving
the respondent of its franchise, or even for enjoining it from compliance with the provisions of its own
by-laws. If a mistake has been made, or the rule adopted in the by-laws has been found to work harmful
results, the remedy is in the hands of the stockholders who have the power at any lawful meeting to
change the rule. The remedy, if any, seems to lie rather in publicity and competition, rather than in a
court proceeding. The sixth cause of action is in our opinion without merit.

LIABILITY OF CORPORATE OFFICERS

TRAMAT MERCANTILE, INC. VS. CA (238 SCRA 14; Nov. 7, 1994)

Melchor dela Cuesta, doing business under the name Farmers Machineries, sold a tractor to Tramat
Mercantile, Inc. In payment, David Ong, Tramats president and manager issued a check for P33,500.
Tramat sold the tractor, together with an attached lawn mower fabricated by it, to NAWASA. David Ong
put a stop payment on the check when NAWASA refused to pay on the account that aside from the
defects on the lawn mower, the engine (sold by dela Costa) was a reconditioned unit.

De la Costa filed an action for recovery of money which was granted by the court.

ISSUE: WON Ong should be held jointly and severally liable?

HELD: No. It was an error to hold David Ong jointly and severally liable with TRAMAT to de la Cuesta
under the questioned transaction. Ong had there so acted, not in his personal capacity, but as an officer
of a corporation, TRAMAT, with a distinct and separate personality. As such, it should only be the
corporation, not the person acting for and on its behalf, that properly could be made liable thereon.

Personal liability of a corporate director, trustee or officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only when

1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith, or gross negligence in
directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its
stockholders or other persons;

2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith
file with the corporate secretary his written objection thereto;

3. He agrees to hold himself personally and solidarily liable with the corporation;

4. He is made, by a specific provision of law, to personally answer for his corporate action.

In the case at bench, there is no indication that petitioner David Ong could be held personally
accountable under any of the abovementioned cases.

RICARDO A. LLAMADO, petitioner,

vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents

(GR No. 99032; 270 SCRA 423; March 26, 1997)

FACTS: Private complainant Leon Gaw delivered to the accused Ricardo Llamado and Jacinto Pascual the
amount of P180,000 which is to be repaid in 6 months with 12% interest. As security, the accused issued
and signed a postdated check which was later on stopped and dishonored for being drawn against
insufficient funds. Gaw filed a complaint for violation of BP Blg. 22. Pascual remained at large and the
trial on the merits against Llamado was conducted. The trial court convicted Llamado.

ISSUE: WON petitioner, treasurer of Pan Asia Finance Corporation could be held civilly and criminally
liable?

HELD: Yes. Petitioner denies knowledge of the issuance of the check without sufficient funds and
involvement in the transaction with private complainant. However, knowledge involves a state of mind
difficult to establish. Thus, the statute itself creates a prima facie presumption, i.e., that the drawer
had knowledge of the insufficiency of his funds in or credit with the bank at the time of the issuance
and on the check's presentment for payment. Petitioner failed to rebut the presumption by paying the
amount of the check within five (5) banking days from notice of the dishonor. His claim that he signed
the check in blank which allegedly is common business practice, is hardly a defense. If as he claims, he
signed the check in blank, he made himself prone to being charged with violation of BP 22. It became
incumbent upon him to prove his defenses. As Treasurer of the corporation who signed the check in his
capacity as an officer of the corporation, lack of involvement in the negotiation for the transaction is not
a defense.

Petitioner's argument that he should not be held personally liable for the amount of the check because
it was a check of the Pan Asia Finance Corporation and he signed the same in his capacity as Treasurer of
the corporation, is also untenable. The third paragraph of Section 1 of BP Blg. 22 states:

Where the check is drawn by a corporation, company or entity, the person or persons who actually
signed the check in behalf of such drawer shall be liable under this Act

ELENA F. UICHICO, SAMUEL FLORO, VICTORIA F. BASILIO, petitioners,

vs.

NATIONAL LABOR RELATIONS COMMISSION, LUZVIMINDA SANTOS, SHIRLEY PORRAS, CARMEN

ELIZARDE, ET. AL., respondents

(GR No. 121434; 273 SCRA 35; June 2, 1997)

FACTS: Private respondents were employees of Crispa, Inc. who were dismissed due to alleged
retrenchment. They filed an illegal dismissal complaint with the NLRC against Crispa, Inc., Valeriano
Floro (major stockholder, incorporation and director of Crispa) and petitioners, who were high ranking
officials and directors of Crispa. The Lbor Arbiter dismissed the complaint but ordered petitioners, Floro
and Crispa to pay separation pay.

ISSUE: WON petitioners can be held liable?

HELD: Yes. A corporation is a juridical entity with legal personality separate and distinct from those
acting for and in its behalf and, in general, from the people comprising it. The general rule is that
obligations incurred by the corporation, acting through its directors, officers and employees, are its sole
liabilities. There are times, however, when solidary liabilities may be incurred but only when
exceptional circumstances warrant such as in the following cases:

1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or
assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in
directing the corporate affairs; (c) are guilty of conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons;

2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge
thereof, did not forthwith file with the corporate secretary his written objection thereto;
3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally
and solidarily liable with the corporation; or

4. When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action.i

In labor cases, particularly, corporate directors and officers are solidarily liable with the corporation
for the termination of employment of corporate employees done with malice or in bad faith. In this
case, it is undisputed that petitioners have a direct hand in the illegal dismissal of respondent
employees. They were the ones, who as high-ranking officers and directors of Crispa, Inc., signed the
Board Resolution retrenching the private respondents on the feigned ground of serious business
losses that had no basis apart from an unsigned and unaudited Profit and Loss Statement which, to
repeat, had no evidentiary value whatsoever. This is indicative of bad faith on the part of petitioners for
which they can be held jointly and severally liable with Crispa, Inc. for all the money claims of the
illegally terminated respondent employees in this case.

THREE-FOLD DUTY OF DIRECTORS

ALFREDO MONTELIBANO, ET AL., plaintiffs-appellants,

vs. BACOLOD-MURCIA MILLING CO., INC., defendant-appellee.

(GR No. L-15092; 5 SCRA 36; May 18, 1962)

FACTS: Appellants have been sugar planter adhered to defendant-appellees sugar central mill under
identical milling contracts with a 55% share of the resulting product. There was a proposal to increase
the planters share to 60% which was adopted by defendant in an Amended Milling Contract and
consequently a Board Resolution.

In 1953, the appellants initiated the present action, contending that three Negros sugar centrals (La
Carlota, Binalbagan-Isabela and San Carlos), with a total annual production exceeding one-third of the
production of all the sugar central mills in the province, had already granted increased participation (of
62.5%) to their planters, and that under paragraph 9 of the resolution of August 20, 1936, heretofore
quoted, the appellee had become obligated to grant similar concessions to the plaintiffs (appellants
herein). The appellee Bacolod-Murcia Milling Co., inc., resisted the claim, and defended by urging that
the stipulations contained in the resolution were made without consideration; that the resolution in
question was, therefore, null and void ab initio, being in effect a donation that was ultra vires and
beyond the powers of the corporate directors to adopt. The trial court decided in favor of defendant,
thus the present appeal.

ISSUE: WON the resolutions passed by the board are valid and binding?
HELD: Yes. There can be no doubt that the directors of the appellee company had authority to modify
the proposed terms of the Amended Milling Contract for the purpose of making its terms more
acceptable to the other contracting parties.

As the resolution in question was passed in good faith by the board of directors, it is valid and binding,
and whether or not it will cause losses or decrease the profits of the central, the court has no authority
to review them.

It is a well-known rule of law that questions of policy or of management are left solely to the honest
decision of officers and directors of a corporation, and the court is without authority to substitute its
judgment of the board of directors; the board is the business manager of the corporation, and so long as
it acts in good faith its orders are not reviewable by the courts. (Fletcher on Corporations, Vol. 2, p.
390).

And it appearing undisputed in this appeal that sugar centrals of La Carlota, Hawaiian Philippines, San
Carlos and Binalbagan (which produce over one-third of the entire annual sugar production in
Occidental Negros) have granted progressively increasing participations to their adhered planter at an
average rate of 62.333% for the 1951-52 crop year; 64.2% for 1952-53; 64.3% for 1953-54; 64.5% for
1954-55; and 63.5% for 1955-56,

the appellee Bacolod-Murcia Milling Company is, under the terms of its Resolution of August 20, 1936,
duty bound to grant similar increases to plaintiffs-appellants herein.

STRONG VS. REPIDE (41 Phil. 947; May 3, 1909)

the Governor of the Philippine Islands, on behalf of the government, made an offer of purchase for the
total sum of $6,043,219.47 in gold for all the friar lands, though owned by different owners.

While this state of things existed, and before the final offer had been made by the Governor, the
defendant, although still holding out for a higher price for the lands, took steps to purchase the 800
shares of stock in his own company from Mrs. Strong, which he knew were in the possession of F. Stuart
Jones, as her agent. The defendant employed Krauffman and the latter employed Mr. Sloan, a broker, to
purchase the stock for him. Mr. Sloan, the husband, did not know who wanted to buy the shares nor did
Jones when he was spoken to. Jones would not have sold at the price he did had he known it was the
defendant who was purchasing, because, as he said, it would show increased value, as the defendant
would not be likely to purchase ore stock unless the price was going up.

ISSUE: WON it was the duty of the defendant to disclose to the agent of the plaintiff the facts bearing
upon or which might affect the value of the stock?

HELD: Yes. A director upon whose action the value of the shares depends cannot avail of his knowledge
of what his own action will be to acquire shares from those whom he intentionally keeps in ignorance of
his expected action and the resulting value of the shares.
Even though a director may not be under the obligation of a fiduciary nature to disclose to a shareholder
his knowledge affecting the value of the shares, that duty may exist in special cases, and did exist upon
the facts in this case.

In this case, the facts clearly indicate that a director of a corporation owning friar lands in the Philippine
Islands, and who controlled the action of the corporation, had so concealed his exclusive knowledge of
the impending sale to the government from a shareholder from whom he purchased, through an agent,
shares in the corporation, that the concealment was in violation of his duty as a director to disclose such
knowledge, and amounted to deceit sufficient to avoid the sale; and, under such circumstances, it was
immaterial whether the shareholder's agent did or did not have power to sell the stock.

In addition to his ownership of almost three-fourths of the shares of the stock of the company, the
defendant was one of the five directors of the company, and was elected by the board the agent and
administrator general of such company, "with exclusive intervention in the management" of its general
business.

Concealing his identity when procuring the purchase of stock, by his agent, was in itself stock evidence
of fraud on the part of the defendant. The concealment was not a mere inadvertent omission but was a
studied and intentional omission, to be characterized as part of the deceitful machination to obtain the
purchase without giving information whatever as to the state and probable result of the negotiations, to
the vendor of the stock, and to, in that way, obtain the same at a lower price.

SELF-DEALING DIRECTORS

PRIME WHITE CEMENT CORPORATION, petitioner,

vs. IAC and ALEJANDRO TE, respondents

(GR No. L-68555; 220 SCRA 103; March 19, 1993)

FACTS: Respondent Alejandro Te, a director of petitioner corporation, was awarded a dealership
agreement whereby Te would be the exclusive dealer and/or distributor of the corporation in the entire
Mindanao. As a consequence, Te entered into different contracts for selling white cement. Laer on,
defendant corporation decided to impose certain conditions upon the dealership agreement.

Several demands to comply with the agreement were made by Te to the corporation but was refused
and Te was constrained to cancel the contracts he entered into.

Defendant corporation entered into an exclusive dealership agreement with Napoleon Co for the
marketing of white cement in Mindanao. Hence, this suit.

ISSUE: WON the dealership agreement entered into by Te with his own corporation is valid and binding?
HELD: No. In the instant case respondent Te was not an ordinary stockholder; he was a member of the
Board of Directors and Auditor of the corporation as well. He was what is often referred to as a "self-
dealing" director.

A director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his
corporation. In case his interests conflict with those of the corporation, he cannot sacrifice the latter to
his own advantage and benefit. As corporate managers, directors are committed to seek the maximum
amount of profits for the corporation. This trust relationship "is not a matter of statutory or technical
law. It springs from the fact that directors have the control and guidance of corporate affairs and
property and hence of the property interests of the stockholders.

Granting arguendo that the "dealership agreement" involved here would be valid and enforceable if
entered into with a person other than a director or officer of the corporation, the fact that the other
party to the contract was a Director and Auditor of the petitioner corporation changes the whole
situation. First of all, We believe that the contract was neither fair nor reasonable. The "dealership
agreement" entered into in July, 1969, was to sell and supply to respondent Te 20,000 bags of white
cement per month, for five years starting September, 1970, at the fixed price of P9.70 per bag.
Respondent Te is a businessman himself and must have known, or at least must be presumed to know,
that at that time, prices of commodities in general, and white cement in particular, were not stable and
were expected to rise. At the time of the contract, petitioner corporation had not even commenced the
manufacture of white cement, the reason why delivery was not to begin until 14 months later. He must
have known that within that period of six years, there would be a considerable rise in the price of white
cement. In fact, respondent Te's own Memorandum shows that in September, 1970, the price per bag
was P14.50, and by the middle of 1975, it was already P37.50 per bag. Despite this, no provision was
made in the "dealership agreement" to allow for an increase in price mutually acceptable to the parties.
Instead, the price was pegged at P9.70 per bag for the whole five years of the contract. Fairness on his
part as a director of the corporation from whom he was to buy the cement, would require such a
provision. In fact, this unfairness in the contract is also a basis which renders a contract entered into by
the President, without authority from the Board of Directors, void or voidable, although it may have
been in the ordinary course of business. We believe that the fixed price of P9.70 per bag for a period of
five years was not fair and reasonable. Respondent Te, himself, when he subsequently entered into
contracts to resell the cement to his "new dealers" Henry Wee and Gaudencio Galang stipulated as
follows:

The price of white cement shall be mutually determined by us But in no case shall the same be less than
P14.00 per bag (94 lbs)