Mendiola vs Court of Appeals (497 SCRA 346)

Facts: Petitioner Mendiola (ATM) entered into a Side Agreement with Pacfor (USA) who will set up a
representative office in the Philippines. They named said office as Pacfor Phils in which petitioner is the
president. In the agreement, petitioner’s base salary and the company’s overhead expenditures shall be
borne by the representative office and shall be funded by Pacfor/ATMbeing equally owned on 50-50
equity by ATM and Pacfor-USA. The Side Agreement was later amended through a Revised Operating
and Profit Sharing Agreement where petitioner’s salary was increased. However, both agreements show
that the operational expenses will be borne by the representative office and funded by all parties “as
equal partners,” while the profits and commissions will be shared among them.

Years later, petitioner wrote Pacfor’s VP for Asia seeking confirmation of his 50% equity of Pacfor Phils to
which Pacfor’s President replied that petitioner is not a part-owner, his office being just a representative
office, a “theoretical company” with the purpose of dividing the income in the ratio of 50-50. He even
stressed that the petitioner knew of this arrangement from beginning, having been the one to propose to
them the setting up of a representative office, instead of branch office, to save on taxes.

Issue: Whether or not a partnership or co-ownership exists between the parties.

Held: Petitioner is an employee of Pacfor and no partnership or co-ownership exists between the parties.
In a partnership, the members become co-owners of what is contributed to the firm capital and of all
property that may be acquired thereby and through the efforts of the members. The property or stock of
the partnership forms a community of goods, a common fund, in which each party has a proprietary
interest. In fact, the New Civil Code regards a partner as a co-owner of specific partnership property.
Each partner possesses a joint interest in the whole of partnership property. If the relation does not have
this feature, it is not one of partnership. This essential element, the community of interest, or co-
ownership of, or joint interest in partnership property is absent in the relations between petitioner and
private respondent Pacfor. Petitioner is not a part-owner of Pacfor Phils. Pacfor's President established
this fact when he said that Pacfor Phils. is simply a "theoretical company" for the purpose of dividing the
income 50-50. He stressed that petitioner knew of this arrangement from the very start, having been the
one to propose to private respondent Pacfor the setting up of a representative office, and "not a branch
office" in the Philippines to save on taxes. Thus, the parties in this case, merely shared profits. This alone
does not make a partnership. Besides, a corporation cannot become a member of a partnership in the
absence of express authorization by statute or charter. This doctrine is based on the following
considerations: (1)that the mutual agency between the partners, whereby the corporation would be bound
by the acts of persons who are not its duly appointed and authorized agents and officers, would be
inconsistent with the policy of the law that the corporation shall manage its own affairs separately and
exclusively; and, (2) that such an arrangement would improperly allow corporate property to become
subject to risks not contemplated by the stockholders when they originally invested in the corporation. No
such authorization has been proved in the case at bar.

JM Tuason & Co., Inc. vs Bolanos (95 Phil 106)

 
Facts:Plaintiff’s complaint against defendant was to recover possession of a registered land. In the
complaint, the plaintiff is represented by its Managing Partner, Gregorio Araneta, Inc., another
corporation. After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without
any right to the land in question and ordering him to restore possession thereof to plaintiff and to pay the
latter a monthly rent. Defendant appealed directly to the Supreme Court and contended, among others,
that Gregorio Araneta, Inc. cannot act as managing partner for plaintiff on the theory that it is illegal for
two corporations to enter into a partnership

Issue: Whether or not a corporation may enter into a joint venture with another corporation.

Ruling: It is true that the complaint states that the plaintiff is "represented herein by its ManagingPartner
Gregorio Araneta, Inc.", another corporation, but there is nothing against one corporation being
represented by another person, natural or juridical, in a suit in court. The contention that Gregorio
Araneta, Inc. cannot act as managing partner for plaintiff on the theory that it is illegal for two corporations
to enter into a partnership is without merit, for the true rule is that "though a corporation has no power to
enter into a partnership, it may nevertheless enter into a joint venture with another where the nature of
that venture is in line with the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs.
Weston, 80 A. L. R., 1043, citing 2.Fletcher Cyc. of Corp., 1082.). There is nothing in the record to
indicate that the venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its managing
partner" is not in line with the corporate business of either of them.

Aurbach vs. Sanitary Wares Manufacturing Corporation (189 SCRA 130)

Facts: Saniwares, a domestic corporation entered into an agreement with American Standard Inc., a
foreign group and some Filipino investors, in order to expand their business internationally. The parties
agreed that the business operations in the Philippines shall be carried on by an incorporated enterprise
and will be named “Sanitary Wares Manufacturing Corporation.” Unfortunately, there came a deterioration
of relations between the Filipino group of investors led by Lagdameo and American group of investors
regarding the export operations of the company. Thereafter, the annual stockholder’s meeting was held
with its primary agenda is to elect the members of the board of directors. In the election of their board
members, they agreed that 3 of the 9 directors shall be designated by ASI while the other 6 shall be
designated by the Filipino stockholders. Dispute ensued when ASI invoked their right to cumulative voting
and nominated another candidate. This incident led the 2 groups to file before the SEC in determining
who the duly elected directors of Saniwares were. ASI group claimed they have the right to vote their
additional equity under the Sec. 24 of the Corporation Code and further contend that the actual intention
of the parties was to form a corporation and not a joint venture. The Lagdameo group argued otherwise
and contends that they intended to enter into a joint venture.

Issue: Whether or not the parties entered into joint Venture agreement

Held: Yes. The legal concept of a joint venture is of common law origin. It has no precise legal definition
but it has been generally understood to mean an organization formed for some temporary purpose. It is in
fact hardly distinguishable from the partnership, since their elements are similar community of interest in
the business, sharing of profits and losses, and a mutual right of control. The main distinction cited by
most opinions in common law jurisdictions is that the partnership contemplates a general business with
some degree of continuity, while the joint venture is formed for the execution of a single transaction, and
is thus of a temporary nature. This observation is not entirely accurate in this jurisdiction, since under the
Civil Code, a partnership may be particular or universal, and a particular partnership may have for its
object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a
joint venture is a form of partnership and should thus be governed by the law of partnerships. The
Supreme Court has however recognized a distinction between these two business forms, and has held
that although a corporation cannot enter into a partnership contract, it may however engage in a joint
venture with others.
 LBC Express vs. CA (236 SCRA 602)

Facts: Adolfo Carloto, President- Manager of Rural Bank of Labason was instructed to go to Central Bank
Main’s office in Manila for the rediscounting obligations of the Rural Bank of Labason. He purchased a
round-trip plane ticket to Manila and asked his sister to send him the rediscounting papers he needed and
a pocket money worth 1,000 pesos thru LBC office at Dipolog City. Unfortunately, the documents arrived
but he did not received the pocket money he expected. He made follow-ups regarding the money and
even went to the LBC office at Dipolog City. However, the money returned to him only after few days and
he wasn’t able to go to Manila for the time to settle the rediscounting obligations and consequently a
penalty of 32,000 pesos was charged for the delay of settling the rediscounting obligations. According to
Carloto he suffered embarrasment and humiliatio of what happened he filed a suit against LBC for moral
damages and the reimbursement of 32,000 pesos. Later, Rural Bank of Labason impleaded in the
complaint as co-plaintiff and claim for the same relief. LBC, on the other hand, contend that LBC, as a
corporation and artificial being can’t recover moral damages.

Issue: Whether or not Rural Bank of Labason Inc. should be awarded moral damages.

Held: No. Moral damages are granted in recompense for physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury.  A corporation, being an artificial person and having existence only in legal contemplation, has no
feelings, no emotions, no senses; therefore, it cannot experience physical suffering and mental
anguish.  Mental suffering can be experienced only by one having a nervous system and it flows from real
ills, sorrows, and griefs of life — all of which cannot be suffered by respondent bank as an artificial
person.

Filipinas Broadcasting vs. Ago Medical Center (GR No. 141954, January 17, 2005)

Facts: Rima & Alegre were host of FBNI radio program “Expose”. Respondent Ago was the owner of the
Medical & Educational center, subject of the radio program “Expose” AMEC claimed that the broadcasts
were defamatory and owner Ago and school AMEC claimed for damages.

Issue: Whether or not AMEC is entitled to moral damages.

Ruling: Yes. A juridical person is generally not entitled to moral damages because, unlike a natural
person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety,
mental anguish or moral shock. Nevertheless, AMEC’s claim, or moral damages fall under item 7 of Art –
2219 of the NCC.

This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other
form of defamation. Art 2219 (7) does not qualify whether the plaintiff is a natural or juridical person.
Therefore, a juridical person such as a corporation can validly complain for libel or any other form of
defamation and claim for moral damages. Moreover, where the broadcast is libelous per se, the law
implied damages. In such a case, evidence of an honest mistake or the want of character or reputation of
the party libeled goes only in mitigation of damages. In this case, the broadcasts are libelous per se.

Collector vs. Club Filipino de Cebu (5 SCRA 312)

Facts: The Club Filipino, is a civic organization organized under the Philippine laws it owns and operates
a club house, a bowling alley, a golf course (on a lot leased from the government), and a bar-restaurant
where it sells wines and liquors, soft drinks, meals and short orders to its members and their guests.
The bar-restaurant was a necessary incident to the operation of the club and its golf-course. The club is
operated mainly with funds derived from membership fees and dues. Whatever profits it had, were used
to defray its overhead expenses and to improve its golf-course. In 1951. as a result of a capital surplus,
arising from the re-valuation of its real properties, the value or price of which increased, the Club declared
stock dividends; but no actual cash dividends were distributed to the stockholders. In 1952, a BIR agent
discovered that the Club has never paid percentage tax on the gross receipts of its bar and restaurant.
CIR assessed against and demanded from the Club taxes allegedly due.

Issue: Whether or not Club Filipino is a stock corporation

Ruling: No. The Club was organized to develop and cultivate sports of all class and denomination for the
healthful recreation and entertainment of its stockholders and members.  There was in fact, no cash
dividend distribution to its stockholders and whatever was derived on retail from its bar and restaurants
used were to defray its overhead expenses and to improve its golf course.

For a stock corporation to exist, 2 requisites must be complied with:

(1) A capital stock divided into shares

(2) An authority to distribute to the holders of such shares, dividends or allotments of the surplus
profits on the basis of shares held.

In the case at bar, nowhere in the AOI or by-laws of Club Filipino could be found an authority for the
distribution of its dividends or surplus profits.Strictly speaking, it cannot, therefore, be considered a stock
corporation, within the contemplation of the corporation law.

The fact that the capital stock of the respondent Club is divided into shares, does not detract from the
finding of the trial court that it is not engaged in the business of operator of bar and restaurant. What is
determinative of whether or not the Club is engaged in such business is its object or purpose, as stated in
its articles and by-laws. It is a familiar rule that the actual purpose is not controlled by the corporate form
or by the commercial aspect of the business prosecuted, but may be shown by extrinsic evidence,
including the by-laws and the method of operation.

It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does
not necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary adjuncts
of the Club to foster its purposes and the profits derived therefrom are necessarily incidental to the
primary object of developing and cultivating sports for the healthful recreation and entertainment of the
stockholders and members. That a Club makes some profit, does not make it a profit-making Club. As
has been remarked a club should always strive, whenever possible, to have surplus.

PNOC-EDC vs. NLRC (201 SCRA 487)

Facts: Danilo Mercado was an employee of Philippine National Oil Company- Energy Development
Corporation or PNOC-EDC. He was dismissed on the ground of serious acts of dishonesty and violation
of rules and regulations. Mercado filed a complaint of illegal dismissal against PNOC- EDC before the
NLRC. It ruled in favor of Mercado. PNOC-EDC questioned the jurisdiction of NLRC on the ground that
matters of employment affecting PNOC-EDC, a government-owned and controlled corporation are within
the jurisdiction of CSC.

Issue: Whether or not NLRC has jurisdicition

Ruling: Yes. Under the present state of the law, the test in determining whether a government-owned or
controlled corporation is subject to the Civil Service Law are the manner of its creation, such that
government corporations created by special charter are subject to its provisions while those incorporated
under the General Corporation Law are not within its coverage."

PNOC has its special charter, but its subsidiary, PNOC-EDC, having been incorporated under the
General Corporation Law was held to be a GOCC whose employees are subject to the provisions of the
Labor Code.

Hacienda Luisita, Incorporated vs PARC (GR No. 171101, July 5, 2011)

Facts: Tarlac Development Corporation or TADECO owned by Jose Cojuangco Sr., bought the 6,000
hectares land of Haciend Luisita in Tarlac and the sugar mill within the hacienda from the original owner
TABACALERA. Prior to the transfer of ownership, the Philippine government, thru GSIS assisted and
extended loans to TADECO for the payment of the land. One of the conditions on the loan agreement
between them was the lots comprising the hacienda shall be distributed and sold to its tenants ten years
after.

Marcos administration filed an expropriation suit against TADECO to surrender the Hacienda to the then
Ministry of Agrarian Reform so that the land can be distributed to the farmers at cost. Tadec, on the other
hand alleged that Hacienda Luisita does not have tenants, besides which sugar lands––of which the
hacienda consisted––are not covered by existing agrarian reform legislations.  The RTC rendered
judgment ordering TADECO to surrender Hacienda Luisita to the MAR.

In 1988, RA 6657 or the CARP law was passed. It is a program aimed at redistributing public and private
agricultural lands to farmers and farm workers who are landless. One of the lands covered by this law is
the Hacienda Luisita. In 1988, the OSG moved to dismiss the government’s case against TADECO. The
CA dismissed it, but the dismissal was subject to the condition that TADECO shall obtain the approval of
farm worker beneficiaries to the SDP Stock Distribution Plan and to ensure its implementation Section 31
of the CARP Law which allows either land transfer or stock transfer as two alternative modes in
distributing land ownership to the FWBs. Since the stock distribution scheme is the preferred option of
TADECO, it organized a spin-off corporation, the Hacienda Luisita Inc. (HLI), as vehicle to facilitate stock
acquisition by the farmers. Then the Presidential Agrarian Reform Council (PARC), led by then DAR
Secretary Miriam Santiago, approved the SDP of TADECO/HLI.

From 1989 to 2005, the HLI claimed to have extended those benefits to the farm workers. This was
contested by two groups representing the interests of the farmers – the HLI Supervisory Group and the
AMBALA. They claimed that they haven’t actually received those benefits in full, that HLI violated the
terms, and that their lives haven’t really improved contrary to the promise and rationale of the SDOA. The
DAR created a Special Task Force to attend to the issues and to review the terms of the SDOA. On its
resolution PARC) revoked HLI Stock Distribution Plan (SDP) and placed the subject land in HL under
compulsory coverage of the CARP of the government. HLI assails the jurisdiction of the PARC to recall
the SDOA. It argues that the parties to the SDOA should now look to the Corporation Code, instead of to
RA 6657, in determining their rights, obligations and remedies. The Code, it adds, should be the
applicable law on the disposition of the agricultural land of HLI.

Issue: WHETHER OR NOT PARC HAVE JURISDICTION, POWER AND/OR AUTHORITY TO NULLIFY,
RECALL, REVOKE OR RESCIND THE SDOA

Ruling: Yes. It should abundantly be made clear that HLI was precisely created in order to comply with
RA 6657, which the OSG aptly described as the "mother law" of the SDOA and the SDP . It is, thus,
paradoxical for HLI to shield itself from the coverage of CARP by invoking exclusive applicability of the
Corporation Code under the guise of being a corporate entity.

Without in any way minimizing the relevance of the Corporation Code since the FWBs of HLI are also
stockholders, its applicability is limited as the rights of the parties arising from the SDP should not be
made to supplant or circumvent the agrarian reform program.

Without doubt, the Corporation Code is the general law providing for the formation, organization and
regulation of private corporations. On the other hand, RA 6657 is the special law on agrarian reform. As
between a general and special law, the latter shall prevail—generalia specialibus non derogant. Besides,
the present impasse between HLI and the private respondents is not an intra-corporate dispute which
necessitates the application of the Corporation Code. What private respondents questioned before the
DAR is the proper implementation of the SDP and HLI’s compliance with RA 6657. Evidently, RA 6657
should be the applicable law to the instant case.

Tuna Processing, Inc. vs. Phil. Kingford Inc. (GR No. 185582, February 29, 2012)

Facts: Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine Letters Patent, and an Indonesian

Patent, entered into a Memorandum of Agreement  with 5 Philippine tuna processors including
Respondent Philippine Kingford, Inc. The MOA provides for the enforcing of the abovementioned patents,
granting licenses under the same, and collecting royalties, and for the establishment of herein Tuna
Processors, Inc. (TPI). Due to a series of events, the tuna processors, including KINGFORD, withdrew
from Petitioner TPI and correspondingly reneged on their obligations. Petitioner TPI submitted the dispute
for arbitration before the Internationa lCentre for Dispute Resolution in the State of California, United
States and won the case against Respondent KINGFORD. To enforce the award, Petitioner TPI filed a
Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before the RTC
of Makati City. Respondent KINGFORD filed a Motion to Dismiss on the ground that Petitioner TPI lacked
legal capacity to sue in the Philippines. Petitioner TPI is a corporation established in the State of
California and not licensed to do business in the Philippines. PTI counters, however, that it is entitled to
seek for the recognition and enforcement of the subject foreign arbitral award in accordance with Republic
Act No. 9285 (Alternative Dispute Resolution Act of 2004), the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards drafted during the United Nations Conference on International
Commercial Arbitration in 1958 (New York Convention), and the UNCITRAL Model Law on International
Commercial Arbitration (Model Law), as none of these specifically requires that the party seeking for the
enforcement should have legal capacity to sue. 

Issue: Whether or not Corporation Code or Alternative Dispute Resolution Act of 2004 should apply.

Ruling: Alternative Dispute Resolution Act of 2004 should apply. In the recent case of  Hacienda Luisita,
Incorporated v. Presidential Agrarian Reform Council, this Court held:

Without doubt, the Corporation Code is the general law providing for the formation, organization
and regulation of private corporations. On the other hand, RA 6657 is the special law on agrarian
reform. As between a general and special law, the latter shall prevailgeneralia specialibus non
derogant.

 Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply in this case as
the Act, as its title - An Act to Institutionalize the Use of an Alternative Dispute Resolution System in the
Philippines and to Establish the Office for Alternative Dispute Resolution, and for Other Purposes -  would
suggest, is a law especially enacted to actively promote party autonomy in the resolution of disputes or
the freedom of the party to make their own arrangements to resolve their disputes. It specifically provides
exclusive grounds available to the party opposing an application for recognition and enforcement of the
arbitral award.

Litonjua, Jr. vs. Eternit Corporation (490 SCRA 204)

 
Facts: The Eternit Corporation manufactures roofing materials and pipe products. 90% of the shares of
stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a corporation registered under the
laws of Belgium. Glanville was the General Manager and President of EC, while Delsaux was the
Regional Director for Asia of ESAC. In 1986, because of the political situation in the Philippines the
management of ESAC wanted to stop its operations and to dispose the land in Mandaluyong City. They
engaged the services of realtor/broker Lauro G. Marquez. Marquez thereafter offered the land to Eduardo
B. Litonjua, Jr. The Litonjua brothers deposited US$1,000,000.00 with the Security Bank & Trust
Company, and drafted an Escrow Agreement to expedite the sale. Meanwhile, with the assumption of
Corazon C. Aquino as President, the political situation improved. Marquez received a letter from Delsaux
that the ESAC Regional Office decided not to proceed with the sale. When informed of this, the Litonjuas,
filed a complaint for specific performance and payment for damages on account of the aborted sale. Both
the trial court and appellate court rendered judgment in favor of defendants and dismissed the
complaint. The lower court declared that since the authority of the agents/realtors was not in writing, the
sale is void and not merely unenforceable.

EC maintain that Glanville, Delsaux and Marquez had no authority from the stockholders of EC and its
Board of Directors to offer the properties for sale to the petitioners. Petitioners assert that there was no
need for a written authority from the Board of Directors of EC for Marquez to validly act as broker. As
broker, Marquez was not an ordinary agent because his only job as a broker was to look for a buyer and
to bring together the parties to the transaction. He was not authorized to sell the properties; hence,
petitioners argue, Article 1874 of the New Civil Code does not apply.

Issue: Whether or not Marquez needed a writtent authority from Eternit Corporation for the sale can be
perfected

Ruling:

Yes.  A corporation is a juridical person separate and distinct from its members or stockholders and is not
affected by the personal rights, obligations and transactions of the latter. It may act only through its board
of directors or, when authorized either by its by-laws or by its board resolution, through its officers or
agents in the normal course of business. The general principles of agency govern the relation
between the corporation and its officers or agents, subject to the articles of incorporation, by-
laws, or relevant provisions of law.

The property of a corporation, however, is not the property of the stockholders or members, and as such,
may not be sold without express authority from the board of directors. Physical acts, like the offering of
the properties of the corporation for sale, or the acceptance of a counter-offer of prospective buyers of
such properties and the execution of the deed of sale covering such property, can be performed by the
corporation only by officers or agents duly authorized for the purpose by corporate by-laws or by specific
acts of the board of directors. Absent such valid delegation/authorization, the rule is that the declarations
of an individual director relating to the affairs of the corporation, but not in the course of, or   connected
with, the performance of authorized duties of such director, are not binding on the corporation.
While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will
have to be with the board of directors through its officers and agents as authorized by a board resolution
or by its by-laws. An unauthorized act of an officer of the corporation is not binding on it unless the latter
ratifies the same expressly or impliedly by its board of directors. Any sale of real property of a corporation
by a person purporting to be an agent thereof but without written authority from the corporation is null and
void. The declarations of the agent alone are generally insufficient to establish the fact or extent of his/her
authority.

 
By the contract of agency, a person binds himself to render some service or to do something in
representation on behalf of another, with the consent or authority of the latter.  Consent of both principal
and agent is necessary to create an agency. The principal must intend that the agent shall act for him; the
agent must intend to accept the authority and act on it, and the intention of the parties must find
expression either in words or conduct between them. An agency may be expressed or implied from the
act of the principal, from his silence or lack of action, or his failure to repudiate the agency knowing that
another person is acting on his behalf without authority. Acceptance by the agent may be expressed, or
implied from his acts which carry out the agency, or from his silence or inaction according to the
circumstances. Agency may be oral unless the law requires a specific form. However, to create or convey
real rights over immovable property, a special power of attorney is necessary. Thus, when a sale of a
piece of land or any portion thereof is through an agent, the authority of the latter shall be in writing,
otherwise, the sale shall be void.

Phil. National Construction Corporation vs Pabion (GR No. 131715, December 8, 1999)

Facts: Ernesto Pabion and Louella Ramiro, claiming to be stockholders of the PNCC, filed with the SEC a
verified petition, therein alleging that since 1982 or for a period of twelve (12) years, there has been no
stockholders meeting of the PNCC to elect the corporations board of directors, thus enabling the
incumbent directors to hold on to their position beyond their 1-year term, in violation of PNCCs By-Laws
and the Corporation Code.Pabion and Ramiro, therefore, prayed the SEC to issue an order ordering the
officers of PNCC or, in the alternative, authorizing petitioners, to call and hold a meeting of the
stockholders for the purpose of electing new directors

PNCC claimed that SEC has no jurisdiction over the petition because PNCC is a government-owned
corporation whose organizational and functional management, administration, and supervision are
governed by Administrative Order (AO) No. 59, issued by then President Corazon Aquino on February 16,
1988. PNCC asserts that its board of directors does not hold office by virtue of a stockholders election but
by appointment of the President of the Philippines,  such petition  can be regard as an interference with
the Presidents power of control and appointment over government-owned and/or controlled corporations
(GOCCs). PNCC added that under Executive Order No. 399, series of 1951, a GOCC is not required to
hold a general meeting of stockholders but, instead, the general manager thereof is merely required to
submit an annual report to the President of the Philippines.

Issue: WHETHER OR NOT THE SEC HAS JURISDICTION TO ORDER PNCC TO HOLD A
STOCKHOLDERS MEETING FOR THE PURPOSE OF ELECTING THE MEMBERS OF ITS BOARD OF
DIRECTORS

Ruling: Yes. We concede that SEC has no jurisdiction over corporations of the first type -- GOCCs with
original charter or created by special law -- primarily because they are governed by their charters. But
even this concession is not absolute, since the Corporation Code may apply suppletorily, either by
operation of law or through express provisions in the charter.
On the other hand, we have no doubt that over GOCCs established or organized under the Corporation
Code, SEC can exercise jurisdiction. These GOCCs are regarded as private corporations despite
common misconceptions. That the government may own the controlling shares in the corporation does
not diminish the fact that the latter owes its existence to the Corporation Code. More pointedly, Section
143 of the Corporation Code gives SEC the authority and power to implement its provisions, specifically
for the purpose of regulating the entities created pursuant to such provisions. These entities include
corporations in which the controlling shares are owned by the government or its agencies.

The Securities and Exchange Commission (SEC) has jurisdiction over corporations organized
pursuant to the Corporation Code, even if the majority or controlling shares are owned by the
government. Hence, it can competently order the holding of a shareholders meeting for the purpose of
electing the corporate board of directors. While the SEC may not have authority over government
corporations with original charters or those created by special law, it does have jurisdiction over acquired
asset corporations as defined in AO 59. Specifically, the Philippine National Construction Company
(PNCC) may be ordered by SEC to hold a shareholders meeting to elect its board of directors in
accordance with its Articles of Incorporation and By-Laws as well as with the Corporation Code. The
chairman and the members of the PNCC Board of Directors hold office by virtue of their election by the
shareholders, not by their appointment thereto by the President of the Republic.

Republic vs. Paranaque (GR No. 191109, July 18, 2012)

Facts: The Public Estates Authority (PEA) is a government corporation created by virtue of P.D. No. 1084
to provide a coordinated, economical and efficient reclamation of lands, and the administration and
operation of lands belonging to, managed and/or operated by, the government with the object of
maximizing their utilization and hastening their development consistent with public interest. 

 By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of Manila
Bay,including those located in Parañaque City. Parañaque City Treasurer issued Warrants of Levy on
PRA’s reclaimed properties based on the assessment for delinquent real property for tax years 2001 and
2002. PRA, on the other hand, argued that It is not a GOCC under the Administrative Code, nor is it a
GOCC under Section 16, Article XII of the 1987 Constitution because it is not required to meet the test of
economic viability.

It claimed that it is a government instrumentality vested with corporate powers and performing an
essential public service. Although it has a capital stock divided into shares, it may not be classified as a
stock corporation because it lacks the second requisite of a stock corporation: to distribute dividends and
allotment of surplus and profits to its stockholders. It may not be classified as a non-stock corporation
because it has no members and it is not organized forcharitable, religious, educational, professional,
cultural, recreational, fraternal, literary, scientific, social,civil service, or similar purposes, like trade,
industry, agriculture and like chambers as provided in Section88 of the Corporation Code.

It was not created to compete in the market place as there was no competing reclamation company
operated by the private sector. Also, while PRA is vested with corporate powers under P.D. No. 1084,
such circumstance does not make it a corporation but merely an incorporated instrumentality and that the
mere fact that an incorporated instrumentality of the National Government holds title to real property does
not make said instrumentality a GOCC.

The City of Parañaque argued that since its creation PRA consistently represented itself to be a GOCC
on its very own charter. Has entered into several thousands of contracts where itrepresented itself to be a
GOCC. It argues that PRA is a stock corporation with an authorized capital stock divided into 3 million no
par value shares, out of which 2 million shares have been subscribed and fully paid up. Section 193 of the
LGCof 1991 has withdrawn tax exemption privileges granted to or presently enjoyed by all persons,
whether natural or juridical, including GOCCs.

Issue: Whether or not petitioner is an incorporated instrumentality of the national government and is,
therefore, exempt from payment of real property tax

Ruling: Yes.

Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a GOCC as
follows:

SEC. 2. General Terms Defined. – x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature,
and owned by the Government directly or through its instrumentalities either wholly, or, where applicable
as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x
x.

On the other hand, Section 2(10) of the Introductory Provisions of the Administrative Code defines a
government "instrumentality" as follows:

SEC. 2. General Terms Defined. –– x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy, usually through a
charter. x x x

From the above definitions, it is clear that a GOCC must be "organized as a stock or non-stock
corporation" while an instrumentality is vested by law with corporate powers. Likewise, when the law
makes a government instrumentality operationally autonomous, the instrumentality remains part of the
National Government machinery although not integrated with the department framework.

When the law vests in a government instrumentality corporate powers, the instrumentality does
not necessarily become a corporation. Unless the government instrumentality is organized as a stock
or non-stock corporation, it remains a government instrumentality exercising not only governmental but
also corporate powers.

Many government instrumentalities are vested with corporate powers but they do not become
stock or non-stock corporations, which is a necessary condition before an agency or
instrumentality is deemed a GOCC. Examples are the Mactan International Airport Authority, the
Philippine Ports Authority, the University of the Philippines, and Bangko Sentral ng Pilipinas. All these
government instrumentalities exercise corporate powers but they are not organized as stock or non-stock
corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code.
These government instrumentalities are sometimes loosely called government corporate entities. They
are not, however, GOCCs in the strict sense as understood under the Administrative Code, which is the
governing law defining the legal relationship and status of government entities.

Manila International Airport Authority vs. CA (GR No. 155650, July 20, 2006)
Facts: The Manila International Airport Authority (MIAA) operates the Ninoy AquinoInternational Airport
(NAIA) Complex in Parañaque City. 
As such operator, it administers the land, improvements andequipment within the NAIA Complex. In
March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061 to the
effect that the Local Government Code of 1991 (LGC) withdrew the exemption from real estate tax
granted to MIAA under Section 21of its Charter. 

Thus, MIAA paid some of the real estate tax already due. In June 2001, it received Final Notices of Real
Estate Tax Delinquency from the City of Parañaque for the taxable years 1992 to 2001. The City
Treasurer subsequently issued notices of levy and warrants of levy on the airport lands and buildings. At
the instance of MIAA, the OGCC issued Opinion No. 147 clarifying Opinion No. 061,pointing out that Sec.
206 of the LGC requires persons exempt from real estate tax to showproof of exemption. According to the
OGCC, Sec. 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax. MIAA, thus,
filed a petition with the Court of Appeals seeking to restrain the City of Parañaque from imposing real
estate tax on, levying against,and auctioning for public sale the airport lands and buildings, but this was
dismissed for having been filed out of time.Hence, MIAA filed this petition for review, pointing out that it is
exempt from real estate tax under Sec. 21 of its charter and Sec. 234 of the LGC. It invokes the principle
thatthe government cannot tax itself as a justification for exemption, since the airport lands and buildings,
being devoted to public use and public service, are owned by the Republic of the Philippines.

On the other hand, the City of Parañaque invokes Sec. 193 of the LGC, which expressly withdrew
the tax exemption privileges of government-owned and controlledcorporations (GOCC) upon the
effectivity of the LGC. It asserts that an international airport is not among the exceptions mentioned in
thes aid law.

Issue: Whether or not r MIAA is GOCC

Ruling: No.  MIAA is not a government-owned or controlled corporation but an instrumentality of the
National Government and thus exempt from local taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and thus exempt from real estate tax.

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested
with corporate powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a
government "instrumentality" as follows:

SEC. 2. General Terms Defined. –– x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy, usually through a
charter. x x x (Emphasis supplied)

When the law vests in a government instrumentality corporate powers, the instrumentality does not
become a corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also corporate
powers. Thus, MIAA exercises the governmental powers of eminent domain, police authority and the
levying of fees and charges. At the same time, MIAA exercises "all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive
Order."
Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with the
department framework. The MIAA Charter expressly states that transforming MIAA into a "separate and
autonomous body" will make its operation more "financially viable."

Many government instrumentalities are vested with corporate powers but they do not become stock or
non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed a
government-owned or controlled corporation. Examples are the Mactan International Airport Authority, the
Philippine Ports Authority, the University of the Philippines and Bangko Sentral ng Pilipinas. All these
government instrumentalities exercise corporate powers but they are not organized as stock or non-stock
corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code.
These government instrumentalities are sometimes loosely called government corporate entities.
However, they are not government-owned or controlled corporations in the strict sense as understood
under the Administrative Code, which is the governing law defining the legal relationship and status of
government entities.

3. Public vs. Private

National Coal Corp. vs. CIR (146 SCRA 583)

Facts: The National Coal Corporation was created on the 10th day of March 1917, by Act No. 2705, for
the purpose of developing the coal industry in the Philippine Islands , in harmony with the general plan of
the government to encourage the development of natural resources of the country, and to provide
facilities therefore. By the said act, the company was granted the general powers of a corporation and
such other powers as may be necessary to enable it to prosecute the business of developing coal
deposits in the Philippine Islands of mining, extracting, transporting, and selling the coal contained in said
deposits. By the same law, the government of the Philippine Islands is made the majority stockholder,
evidently in order to ensure proper government supervision and control and thus to place the government
in a position to render all possible encouragement, assistance, and help in the prosecution and
furtherance of the company’s business. On May 14, 1917, two months after the passage of Act no. 2705,
creating the national coal company, the Philippine legislature passed Act 2719, “to provide for the leasing
and development of coal lands in the Philippine islands.” On October 18, 1917, upon petition of the
national coal company, the governor-general, by proclamation no. 39, withdrew from settlement, entry,
sale or other deposition, all coal-bearing public lands within the province of Zamboanga, Department of
Mindanao and Sulu, and the island of Polillo, Province of Tayabas. Almost immediately after the issuance
of said proclamation the national coal company took possession of the coal lands within the said
reservation with an area of about 400 hectares, without any further formality, contract of lease. Of the
30,000 shares of stock issued by the company, the government of the Philippine islands is the owner of
29,809 shares, that is, of 99 1/3 per centum of the whole capital stock.

Issue: Whether or not plaintiff is a private corporation.

Held: Yes. The plaintiff is a private corporation. The mere fact that the government happens to the
majority stockholder does not make it a public corporation. Act 2705, as amended by Act 2822, makes it
subject to all the provisions of the corporation law, in so far as they are not inconsistent with said act. No
provisions of Act 2705 are found to be inconsistent with the provisions of the corporation law. As a private
corporation, it has no greater rights, powers or privileges than any other corporation which might be
organized for the same purpose under the corporation law, and certainly it was not the intention of the
legislature to give it a preference or right or privilege over other legitimate private corporations in the
mining of coal. While it is true that said proclamation no. 39 withdrew from settlement entry, sale or other
disposition of coal-bearing public lands within the province of Zamboanga, and the islands of Polillo, it
made no provision for the occupation and operation by the plaintiff, to the exclusion of other persons or
corporations who might under proper permission, enter upon to operate the coal mines.

Red Line Transport vs. Rural Transit

Facts: Rural Transit Company filed an application for a certificate of public convenience with the Public
Company Service Commission for a new transportation service between Tuguegarao and Ilagan.
However, the application was opposed by Red Line Transportation and contends that they already holds
certificate of public convenience and is rendering adequate and satisfactory service on the same route.

During the trial before the PSC, an issue was raised as to who is the real party in interest, the certificate
of public convenience was issued in the name of Bachrach Motor Company and it is using only Rural
Transit Company as its trade name.

Issue: Whether Rural Transit Company is the real party in interest.

Ruling: No. Both Rural and Transit Company and Bachrach Motor Company are Philippine corporations
and the very law of their creation and continued existence requires each to adopt and certify a distinctive
name. The incorporators “constitute a body politic and corporate under the name stated in the certificate.”
“A corporation has the power of succession by its corporate name”

The name of a corporation is therefore essential to its existence. 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 no express or implied authority to assume another name that is unappropriated: still less that
of another corporation, which expressly set apart for it and protected by law.

Universal Mills vs. Universal Textile Mills

Facts:Universal Textile Mills filed a complaint against Universal Mills to change its corporate name on the
ground that it is confusingly and deceptively similar to the former corporate name. The issue arose when
news spread about a fire broke in the spinning mills of Universal Mills in Pasig, Rizal which brought
confusion to the customers and entities who knows Universal Textile Mills and cause the latter to make
announcements, clarifying the real identity of the corporation whose properties was burned.

Universal Mills, on the other hand, alleged that word “textile” in petitioner’s corporate name is dominant
and prominent to distinguish the two. SEC ordered Universal Mills to change its corporate name.

Issue: Whether or not SEC exercised grave abuse of discretion in ordering Universal Mills to change its
name.

Ruling: No. The corporate names are not identical but they are indisputably so similar that even under the
test of reasonable care and observation as the public generally are capable of using and may be
expected to exercise.

Considering under the second amendment of its articles of incorporation, Universal Mills included among
its primary purposes the “manufacturing, dyeing, finishing and selling fabric of all kinds” in which Universal
Textile Mills had been engaged for more than a decade ahead.

Lyceum of the Philippines vs. CA

Facts:Lyceum of the Philippines previously filed a case against Lyceum Baguio to change its corporate
name on the ground it is similar to the former corporate name, the SEC ruled in favor of Lyceum of the
Philippines and in appeal the SC in its resolution affirmed the decision of SEC. Armed with the resolution
the Lyceum of the Philippines filed an action before SEC to enjoin several education institutions to delete
the word “Lyceum” from their corporate names. 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 confusion about the identity of the schools concerned in the mind of the general public.

Lyceum of the Philippines, on the other hand, claimed that the word “Lyceum” has acquired a secondary
meaning.

Issue 1: Whether the corporate name of the academic institutions are not “identical with, or deceptively or
confusingly similar” to that of Lyceum of the Philippines Inc.,

Issue 2: Whether or not Lyceum of the Philippines has acquired a secondary meaning to the word
“Lyceum”

Ruling 1: 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 law is the avoidance of fraud upon the
public which would have occasion to deal with the entity concerned, the evasion of legal obligations and
duties, and the reduction of difficulties of administration and supervision over corporations.

Herein, the corporate name of the academic institutions are not “identical with, or deceptively or
confusingly similar” to that of Lyceum of the Philippines Inc., True enough, the corporate names of the
other schools entities carry the word “Lyceum” but confusion and deception are effectively precluded by
the appending of geographic names to the word “Lyceum”

Ruling 2: No. Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive
appropriation with reference to an article in the market, because geographical or otherwise descriptive
might nevertheless have been used so long and so exclusively by one producer with reference to this
article 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. This circumstance has been referred to as the distinctiveness into which
the name or phrase has evolved through the substantial and exclusive use of the same for a considerable
period of time. Consequently, the same doctrine of principle cannot be made to apply where the evidence
did not prove that the business has continued for so long a time that it has become of consequence and
acquired a good will of considerable value such that its articles and produce have acquired a well-known
reputation, and confusion will result by the use of the disputed name.

Here, Lyceum of the Philippines may have proved that it had been using the word “Lyceum” for a long
period of time but it failed to prove that it had been using the same word all by itself to the exclusion of
others.

Philips Export B.V. vs. CA

Facts: Philips Export B.V filed a complaint with SEC for the cancellation of the word “PHILIPS” from the
corporate name of Standard Philips Corporation in view of the prior registration with Bureau of Patents of
the trademark “PHILIPS” and the logo “PHILIPS SHIELD EMBLEM.” However, Standard Philips refused
to amend its Articles of Incorporation. Philip export filed then a petition of writ of preliminary injunction with
SEC alleging, among others, its exclusive right to use the word “PHILIPS” considering that both
corporations are engaged in the same business. However it was denied by SEC en banc and ruled that
there is no similarity with their businesses and the products of Standard Philips consists of chain rollers,
belts, bearings and cutting saw are grossly different from Philips Export electrical products such that
consumers would not in any probability mistake one as the source of the product of the other.

Issue: Whether the PEBV acquired exclusive rights to the word “Philips”

Ruling:

Yes. 2 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.

Here, Philips Export had acquired prior right over the word “PHILIPS” as part of its corporate name since
its registration in 1956 while Standard Philips had been issued a certificate of registration only on April
1982 or 26 years later.

The second requisite, the SC ruled that, 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. Here, while their corporate names are not identical it inevitably leads one to conclude that
“Philips is, indeed, the dominant word in that all the companies affiliated or associated with the principal
corporation in addition PEBV, are known in the Philippines and abroad as the PHILIPS Group of
Companies.

Clavecilla Radio System vs. Hon. Antillon

Facts: The New Cagayan Grocery filed a complaint for damages against Clavecilla Radio System in its
branch office at Cagayan de Oro. According to New Cagayan Grocery, the letter addressed to them was
transmitted thru Cagayan de Oro Branch office and after having received the message omitted in
delivering the same to the New Cagayan Grocery, the word “NOT” between the words “WASHED” and
“AVAILABLE,” thus changing entirely the contents.

Clavecilla Radio System filed a motion to dismiss on the ground of improper venue and contends that the
suit against it should be filed in Manila where it holds its principal office.

Issue: Whether or not the venue is improperly laid

Ruling: Yes. 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 its principal office is established. Since it is not disputed that the Clavecilla
Radio System has its principal office in Manila, it follows that the suit against it may properly be filed in the
City of Manila.

Art. 225, Family Code. The family home may be constituted by a verified petition to the Court of First
Instance by the owner of the property, and by approval thereof by the court.

CIR vs Manning
FACTS: Under a trust agreement, Julius Reese who owned 24,700 shares of the 25,000 common shares
of MANTRASCO, and the three private respondents who owned the rest, at 100 shares each, deposited
all their shares with the Trustees. The trust agreement provided that upon Reese’s death MANTRASCO
shall purchase Reese’s shares. The trust agreement was executed in view of Reese’s desire that upon
his death the Company would continue under the management of respondents. Upon Reese’s death and
partial payment by the company of Reese’s share, a new certificate was issued in the name of
MANTRASCO, and the certificate indorsed to the Trustees. Subsequently, the stockholders reverted the
24,700 shares in the Treasury to the capital account of the company as stock dividends to be distributed
to the stockholders. When the entire purchase price of Reese’s interest in the company was paid in full by
the latter, the trust agreement was terminated, and the shares held in trust were delivered to the
company.

The Bureau of Internal Revenue concluded that the distribution of the 24,700 shares of Reese as stock
dividends was in effect a distribution of the "assets or property of the corporation." It therefore assessed
respondents for deficiency income taxes as well as for fraud penalty and interest charges. The Court of
Tax Appeals absolved respondent from any liability for receiving the questioned stock dividends on the
ground that their respective one-third interest in the Company remained the same before and after the
declaration of the stock dividends and only the number of shares held by each of them had changed.

ISSUE: Whether or not the shares are treasury shares.

Ruling: No. Although authorities may differ on the exact legal and accounting status of so-called "treasury
shares," they are more or less in agreement that 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, but being in the treasury they do not have the status of outstanding shares.
Consequently, although a treasury share, not having been retired by the corporation re-acquiring it, may
be re-issued or sold again, such share, 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 in
the meetings of the corporation as voting stock, for otherwise equal distribution of voting powers among
stockholders will be effectively lost and the directors will be able to perpetuate their control of the
corporation, though it still represents a paid-for interest in the property of the corporation. The foregoing
essential features of a treasury stock are lacking in the questioned shares.

Gamboa v. Teves etal.,

Facts: The issue started when petitioner Gamboa questioned the indirect sale of shares involving almost
12 million shares of the Philippine Long Distance Telephone Company (PLDT) owned by PTIC to First
Pacific. Thus, First Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37 percent,
thereby increasing the total common shareholdings of foreigners in PLDT to about 81.47%. The petitioner
contends that it violates the Constitutional provision on filipinazation of public utility, stated in Section 11,
Article XII of the 1987 Philippine Constitution, which limits foreign ownership of the capital of a public
utility to not more than 40%. Then, in 2011, the court ruled the case in favor of the petitioner, hence this
new case, resolving the motion for reconsideration for the 2011 decision filed by the respondents.

Issue: Whether or not the Court made an erroneous interpretation of the term ‘capital’ in its 2011
decision?

Ruling: The Court said that the Constitution is clear in expressing its State policy of developing an
economy ‘effectively controlled’ by Filipinos. Asserting the ideals that our Constitution’s Preamble want to
achieve, that is – to conserve and develop our patrimony , hence, the State should fortify a Filipino-
controlled economy. In the 2011 decision, the Court finds no wrong in the construction of the term ‘capital’
which refers to the ‘shares with voting rights, as well as with full beneficial ownership’ (Art. 12, sec. 10)
which implies that the right to vote in the election of directors, coupled with benefits, is tantamount to an
effective control. Therefore, the Court’s interpretation of the term ‘capital’ was not erroneous. Thus, the
motion for reconsideration is denied.

Narra Nickel Mining vs Redmont

Narra and its co-petitioner corporations – Tesoro and MacArthur, filed a motion before the SC to
reconsider its April 21, 2014 Decision which upheld the denial of their MPSA applications. The SC
affirmed the CA ruling that there is a doubt to their nationality, and that in applying the Grandfather Rule,
the finding is that MBMI, a 100% Canadian-owned corporation, effectively owns 60% of the common
stocks of petitioners by owning equity interests of the petitioners’ other majority corporate shareholders.
Narra, Tesoro and MacArthur argued that the application of the Grandfather Rule to determine their
nationality is erroneous and allegedly without basis in the Constitution, the FIA, the Philippine Mining Act,
and the Rules issued by the SEC. These laws and rules supposedly espouse the application of the
Control Test in verifying the Philippine nationality of corporate entities for purposes of determining
compliance with Sec. 2, Art. XII of the Constitution that only corporations or associations at least 60% of
whose capital is owned by such Filipino citizens may enjoy certain rights and privileges, like the
exploration and development of natural resources.

Issue: W/N the application by the SC of the grandfather resulted to the abandonment of the control test"

Ruling: No. The ‘control test’ can be applied jointly with the Grandfather Rule to determine the observance
of foreign ownership restriction in nationalized economic activities. The Control Test and the Grandfather
Rule are not incompatible ownership-determinant methods that can only be applied alternative to each
other. Rather, these methods can, if appropriate, be used cumulatively in the determination of the
ownership and control of corporations engaged in fully or partly nationalized activities, as the mining
operation involved in this case or the operation of public utilities. The Grandfather Rule, standing alone,
should not be used to determine the Filipino ownership and control in a corporation, as it could result in
an otherwise foreign corporation rendered qualified to perform nationalized or partly nationalized
activities. Hence, it is only when the Control Test is first complied with that the Grandfather Rule may be
applied. Put in another manner, if the subject corporation’s Filipino equity falls below the threshold 60%,
the corporation is immediately considered foreign-owned, in which case, the need to resort to the
Grandfather Rule disappears. In this case, using the ‘control test’, Narra, Tesoro and MacArthur appear to
have satisfied the 60-40 equity requirement. But the nationality of these corporations and the foreign-
owned common investor that funds them was in doubt, hence, the need to apply the Grandfather Rule

Cagayan Fishing vs. Sandiko (65 Phil 233)

FACTS:

Manuel Tabora is the registered owner of four parcels of land  and he wanted to build a Fishery.
He loaned from PNB P8,000 and to guarantee the payment of the loan, he mortgaged the said parcels of
land. Three subsequent mortgages were executed in favor of the same bank and to Severina Buzon,
whom Tabora is indebted to.

Tabora sold the four parcels of land to the plaintiff company, said to be under process of incorporation, in
consideration of one peso (P1) subject to the mortgages in favor of PNB and Severina Buzon and, to the
condition that the certificate of title to said lands shall not be transferred to the name of the plaintiff
company until the latter has fully and completely paid Tabora’s indebtedness to PNB. The articles of
incorporation were filed and the company sold the parcels of land to Sandiko on the reciprocal obligation
that Sandiko will shoulder the three mortgages. A deed of sale executed before a notary public by the
terms of which the plaintiff sold, ceded and transferred to the defendant all its rights, titles and interest in
and to the four parcels of land. He executed a promissory note that he shall be 25,300 after a year with
interest and on the promissory notes, the parcels were mortgage as security. A promissory note for
P25,300 was drawn by the defendant in favor of the plaintiff, payable after one year from the date thereof.
Further, a deed of mortgage executed before a notary public in accordance with which the four parcels of
land were given as security for the payment of the said promissory note. All these three instruments were
dated February 15, 1932.

Sandiko failed to pay, thus the action for payment. The lower court held that deed of sale was invalid.

The corporation filed a motion for reconsideration.

Issue: Whether  Cagayan Fishing Dev’t. has juridical capacity to enter into the contract.

The transfer made by Tabora to the Cagayan Fishing Development Co., Inc., plaintiff herein, was effected
on May 31, 1930 and the actual incorporation of said company was effected later on October 22, 1930. In
other words, the transfer was made almost five months before the incorporation of the company.

A duly organized corporation has the power to purchase and hold such real property as the purposes for
which such corporation was formed may permit and for this purpose may enter into such contracts as
may be necessary. But before a corporation may be said to be lawfully organized, many things have to be
done. Among other things, the law requires the filing of articles of incorporation. Although there is a
presumption that all the requirements of law have been complied with, in the case before us it can not be
denied that the plaintiff was not yet incorporated when it entered into the contract of sale.

The contract itself referred to the plaintiff as “una sociedad en vias de incorporacion.” It was not even a de
facto corporation at the time. Not being in legal existence then, it did not possess juridical capacity to
enter into the contract.

“Corporations are creatures of the law, and can only come into existence in the manner prescribed by
law. As has already been stated, general laws authorizing the formation of corporations are general offers
to any persons who may bring themselves within their provisions; and if conditions precedent are
prescribed in the statute, or certain acts are required to be done, they are terms of the offer, and must be
complied with substantially before legal corporate existence can be acquired.”

“That a corporation should have a full and complete organization and existence as an entity before it can
enter into any kind of a contract or transact any business, would seem to be self evident. . . . A
corporation, until organized, has no being, franchises or faculties. Nor do those engaged in bringing it into
being have any power to bind it by contract, unless so authorized by the charter. Until organized as
authorized by the charter there is not a corporation, nor does it possess franchises or faculties for it or
others to exercise, until it acquires a complete existence.”

Municipality of Malabang vs. Benito (27 SCRA 452)

Municipality of Balabagan was once part of the Municipality of Malabang

before it was created into a separate municipality thru an executive order.
The Municipality Malabang filed a suit against the Municipality of
Balabagan for having been created under an invalid EO 386 and to restrain
the respondent municipal officials from performing the functions of their
respective offices.
Petitioner relied on the ruling of the Pelaez case that Sec. 68 of the
Administrative Code is unconstitutional (a) because it constitutes an undue
delegation of legislative power and (b) because it offends against Section
10 (1) of Article VII of the Constitution, which limits the President's power
over local governments to mere supervision.
Section 68 of the Revised Administrative Code, approved on March 10,
1917, must be deemed repealed by the subsequent adoption of the
Constitution, in 1935, which is utterly incompatible and inconsistent with
said statutory enactment.
The Respondents on the other hand argue that the Mun. of Balabagan is at
least a de facto corporation for having been organized under color of a
statute before this was declared unconstitutional, its officers having been
either elected or appointed, and the municipality itself having discharged its
corporate functions for the past five years preceding the institution of this
action. It is contended that as a de facto corporation, its existence cannot
be collaterally attacked, although it may be inquired into directly in an
action for quo warranto at the instance of the State and not of an individual
like the petitioner Balindong.
The method of challenging the existence of a municipal corporation is
reserved to the State in a proceeding for quo warranto or other direct
proceeding. But the rule disallowing collateral attacks applies only where
the municipal corporation is at least a de facto corporation. For where it is
neither a corporation de jure nor de facto, but a nullity, the rule is that its
Municipality of Balabagan was once part of the Municipality of Malabang
before it was created into a separate municipality thru an executive order.
The Municipality Malabang filed a suit against the Municipality of
Balabagan for having been created under an invalid EO 386 and to restrain
the respondent municipal officials from performing the functions of their
respective offices.
Petitioner relied on the ruling of the Pelaez case that Sec. 68 of the
Administrative Code is unconstitutional (a) because it constitutes an undue
delegation of legislative power and (b) because it offends against Section
10 (1) of Article VII of the Constitution, which limits the President's power
over local governments to mere supervision.
Section 68 of the Revised Administrative Code, approved on March 10,
1917, must be deemed repealed by the subsequent adoption of the
Constitution, in 1935, which is utterly incompatible and inconsistent with
said statutory enactment.
The Respondents on the other hand argue that the Mun. of Balabagan is at
least a de facto corporation for having been organized under color of a
statute before this was declared unconstitutional, its officers having been
either elected or appointed, and the municipality itself having discharged its
corporate functions for the past five years preceding the institution of this
action. It is contended that as a de facto corporation, its existence cannot
be collaterally attacked, although it may be inquired into directly in an
action for quo warranto at the instance of the State and not of an individual
like the petitioner Balindong.
The method of challenging the existence of a municipal corporation is
reserved to the State in a proceeding for quo warranto or other direct
proceeding. But the rule disallowing collateral attacks applies only where
the municipal corporation is at least a de facto corporation. For where it is
neither a corporation de jure nor de facto, but a nullity, the rule is that its
Municipality of Balabagan was once part of the Municipality of Malabang
before it was created into a separate municipality thru an executive order.
The Municipality Malabang filed a suit against the Municipality of
Balabagan for having been created under an invalid EO 386 and to restrain
the respondent municipal officials from performing the functions of their
respective offices.
Petitioner relied on the ruling of the Pelaez case that Sec. 68 of the
Administrative Code is unconstitutional (a) because it constitutes an undue
delegation of legislative power and (b) because it offends against Section
10 (1) of Article VII of the Constitution, which limits the President's power
over local governments to mere supervision.
Section 68 of the Revised Administrative Code, approved on March 10,
1917, must be deemed repealed by the subsequent adoption of the
Constitution, in 1935, which is utterly incompatible and inconsistent with
said statutory enactment.
The Respondents on the other hand argue that the Mun. of Balabagan is at
least a de facto corporation for having been organized under color of a
statute before this was declared unconstitutional, its officers having been
either elected or appointed, and the municipality itself having discharged its
corporate functions for the past five years preceding the institution of this
action. It is contended that as a de facto corporation, its existence cannot
be collaterally attacked, although it may be inquired into directly in an
action for quo warranto at the instance of the State and not of an individual
like the petitioner Balindong.
The method of challenging the existence of a municipal corporation is
reserved to the State in a proceeding for quo warranto or other direct
proceeding. But the rule disallowing collateral attacks applies only where
the municipal corporation is at least a de facto corporation. For where it is
neither a corporation de jure nor de facto, but a nullity, the rule is that its
Municipality of Balabagan was once part of the Municipality of Malabang
before it was created into a separate municipality thru an executive order.
The Municipality Malabang filed a suit against the Municipality of
Balabagan for having been created under an invalid EO 386 and to restrain
the respondent municipal officials from performing the functions of their
respective offices.
Petitioner relied on the ruling of the Pelaez case that Sec. 68 of the
Administrative Code is unconstitutional (a) because it constitutes an undue
delegation of legislative power and (b) because it offends against Section
10 (1) of Article VII of the Constitution, which limits the President's power
over local governments to mere supervision.
Section 68 of the Revised Administrative Code, approved on March 10,
1917, must be deemed repealed by the subsequent adoption of the
Constitution, in 1935, which is utterly incompatible and inconsistent with
said statutory enactment.
The Respondents on the other hand argue that the Mun. of Balabagan is at
least a de facto corporation for having been organized under color of a
statute before this was declared unconstitutional, its officers having been
either elected or appointed, and the municipality itself having discharged its
corporate functions for the past five years preceding the institution of this
action. It is contended that as a de facto corporation, its existence cannot
be collaterally attacked, although it may be inquired into directly in an
action for quo warranto at the instance of the State and not of an individual
like the petitioner Balindong.
The method of challenging the existence of a municipal corporation is
reserved to the State in a proceeding for quo warranto or other direct
proceeding. But the rule disallowing collateral attacks applies only where
the municipal corporation is at least a de facto corporation. For where it is
neither a corporation de jure nor de facto, but a nullity, the rule is that its
Municipality of Balabagan was once part of the Municipality of Malabang
before it was created into a separate municipality thru an executive order.
The Municipality Malabang filed a suit against the Municipality of
Balabagan for having been created under an invalid EO 386 and to restrain
the respondent municipal officials from performing the functions of their
respective offices.
Petitioner relied on the ruling of the Pelaez case that Sec. 68 of the
Administrative Code is unconstitutional (a) because it constitutes an undue
delegation of legislative power and (b) because it offends against Section
10 (1) of Article VII of the Constitution, which limits the President's power
over local governments to mere supervision.
Section 68 of the Revised Administrative Code, approved on March 10,
1917, must be deemed repealed by the subsequent adoption of the
Constitution, in 1935, which is utterly incompatible and inconsistent with
said statutory enactment.
The Respondents on the other hand argue that the Mun. of Balabagan is at
least a de facto corporation for having been organized under color of a
statute before this was declared unconstitutional, its officers having been
either elected or appointed, and the municipality itself having discharged its
corporate functions for the past five years preceding the institution of this
action. It is contended that as a de facto corporation, its existence cannot
be collaterally attacked, although it may be inquired into directly in an
action for quo warranto at the instance of the State and not of an individual
like the petitioner Balindong.
The method of challenging the existence of a municipal corporation is
reserved to the State in a proceeding for quo warranto or other direct
proceeding. But the rule disallowing collateral attacks applies only where
the municipal corporation is at least a de facto corporation. For where it is
neither a corporation de jure nor de facto, but a nullity, the rule is that its
Municipality of Balabagan was once part of the Municipality of Malabang
before it was created into a separate municipality thru an executive order.
The Municipality Malabang filed a suit against the Municipality of
Balabagan for having been created under an invalid EO 386 and to restrain
the respondent municipal officials from performing the functions of their
respective offices.
Petitioner relied on the ruling of the Pelaez case that Sec. 68 of the
Administrative Code is unconstitutional (a) because it constitutes an undue
delegation of legislative power and (b) because it offends against Section
10 (1) of Article VII of the Constitution, which limits the President's power
over local governments to mere supervision.
Section 68 of the Revised Administrative Code, approved on March 10,
1917, must be deemed repealed by the subsequent adoption of the
Constitution, in 1935, which is utterly incompatible and inconsistent with
said statutory enactment.
The Respondents on the other hand argue that the Mun. of Balabagan is at
least a de facto corporation for having been organized under color of a
statute before this was declared unconstitutional, its officers having been
either elected or appointed, and the municipality itself having discharged its
corporate functions for the past five years preceding the institution of this
action. It is contended that as a de facto corporation, its existence cannot
be collaterally attacked, although it may be inquired into directly in an
action for quo warranto at the instance of the State and not of an individual
like the petitioner Balindong.
The method of challenging the existence of a municipal corporation is
reserved to the State in a proceeding for quo warranto or other direct
proceeding. But the rule disallowing collateral attacks applies only where
the municipal corporation is at least a de facto corporation. For where it is
neither a corporation de jure nor de facto, but a nullity, the rule is that its
Municipality of Balabagan was once part of the Municipality of Malabang
before it was created into a separate municipality thru an executive order.
The Municipality Malabang filed a suit against the Municipality of
Balabagan for having been created under an invalid EO 386 and to restrain
the respondent municipal officials from performing the functions of their
respective offices.
Petitioner relied on the ruling of the Pelaez case that Sec. 68 of the
Administrative Code is unconstitutional (a) because it constitutes an undue
delegation of legislative power and (b) because it offends against Section
10 (1) of Article VII of the Constitution, which limits the President's power
over local governments to mere supervision.
Section 68 of the Revised Administrative Code, approved on March 10,
1917, must be deemed repealed by the subsequent adoption of the
Constitution, in 1935, which is utterly incompatible and inconsistent with
said statutory enactment.
The Respondents on the other hand argue that the Mun. of Balabagan is at
least a de facto corporation for having been organized under color of a
statute before this was declared unconstitutional, its officers having been
either elected or appointed, and the municipality itself having discharged its
corporate functions for the past five years preceding the institution of this
action. It is contended that as a de facto corporation, its existence cannot
be collaterally attacked, although it may be inquired into directly in an
action for quo warranto at the instance of the State and not of an individual
like the petitioner Balindong.
The method of challenging the existence of a municipal corporation is
reserved to the State in a proceeding for quo warranto or other direct
proceeding. But the rule disallowing collateral attacks applies only where
the municipal corporation is at least a de facto corporation. For where it is
neither a corporation de jure nor de facto, but a nullity, the rule is that its
Facts: Municipality of Balabagan was once part of the Municipality of Malabang before it was created into
a separate municipality thru an executive order. The Municipality Malabang filed a suit against the
Municipality of Balabagan for having been created under an invalid EO 386 and to restrain the respondent
municipal officials from performing the functions of their respective offices. Petitioner relied on the ruling
of the Pelaez case that Sec. 68 of the Administrative Code is unconstitutional (a) because it constitutes
an undue delegation of legislative power and (b) because it offends against Section 10 (1) of Article VII of
the Constitution, which limits the President's power over local governments to mere supervision. Section
68 of the Revised Administrative Code, approved on March 10, 1917, must be deemed repealed by the
subsequent adoption of the Constitution, in 1935, which is utterly incompatible and inconsistent with said
statutory enactment. The Respondents on the other hand argue that the Mun. of Balabagan is at least a
de facto corporation for having been organized under color of a statute before this was declared
unconstitutional, its officers having been either elected or appointed, and the municipality itself having
discharged its corporate functions for the past five years preceding the institution of this action. It is
contended that as a de facto corporation, its existence cannot be collaterally attacked, although it may be
inquired into directly in an action for quo warranto at the instance of the State and not of an individual like
the petitioner Balindong.

The method of challenging the existence of a municipal corporation is reserved to the State in a
proceeding for quo warranto or other direct proceeding. But the rule disallowing collateral attacks applies
only where the municipal corporation is at least a de facto corporation. For where it is neither a
corporation de jure nor de facto, but a nullity, the rule is that its existence may be questioned collaterally
or directly in any action or proceeding by any one whose rights or interests are affected thereby, including
the citizens of the territory incorporated unless they are estopped by their conduct from doing so

Issue: WON a corporation organized under a statute subsequently declared void acquires status as ‘de
facto’ corporation.
 
Held: No. A corporation organized under a statute subsequently declared invalid cannot acquire the
status of a ‘de facto’ corporation unless there is some other statute under which the supposed corporation
may be validly organized. Hence, in the case at bar, the mere fact that the municipality was organized
before the statute had been invalidated cannot conceivably make it a ‘de facto’ corporation since there is
no other valid statute to give color of authority to its creation.
Municipality of Balabagan was once part of the Municipality of Malabang
before it was created into a separate municipality thru an executive order.
The Municipality Malabang filed a suit against the Municipality of
Balabagan for having been created under an invalid EO 386 and to restrain
the respondent municipal officials from performing the functions of their
respective offices.
Petitioner relied on the ruling of the Pelaez case that Sec. 68 of the
Administrative Code is unconstitutional (a) because it constitutes an undue
delegation of legislative power and (b) because it offends against Section
10 (1) of Article VII of the Constitution, which limits the President's power
over local governments to mere supervision.
Section 68 of the Revised Administrative Code, approved on March 10,
1917, must be deemed repealed by the subsequent adoption of the
Constitution, in 1935, which is utterly incompatible and inconsistent with
said statutory enactment.
The Respondents on the other hand argue that the Mun. of Balabagan is at
least a de facto corporation for having been organized under color of a
statute before this was declared unconstitutional, its officers having been
either elected or appointed, and the municipality itself having discharged its
corporate functions for the past five years preceding the institution of this
action. It is contended that as a de facto corporation, its existence cannot
be collaterally attacked, although it may be inquired into directly in an
action for quo warranto at the instance of the State and not of an individual
like the petitioner Balindong.
The method of challenging the existence of a municipal corporation is
reserved to the State in a proceeding for quo warranto or other direct
proceeding. But the rule disallowing collateral attacks applies only where
the municipal corporation is at least a de facto corporation. For where it is
neither a corporation de jure nor de facto, but a nullity, the rule is that its

Hall vs. Piccio (86 Phil 603)

FACTS:

On May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents Fred Brown,
Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the
articles of incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized to engage in a
general lumber business to carry on as general contractors, operators and managers, etc. Attached to the
articles was an affidavit of the treasurer stating that 23,428 shares of stock had been subscribed and fully
paid with certain properties transferred to the corporation described in a list appended thereto.
Immediately after the execution of said articles of incorporation, the corporation proceeded to do business
with the adoption of by-laws and the election of its officers. On December 2, 1947, the said articles of
incorporation were filed in the office of the Securities and Exchange Commission  for the issuance of the
corresponding certificate of incorporation.

On March 22, 1948, pending action on the articles of incorporation by the SEC,  respondents Fred Brown,
Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed a suit against petitioners before the Court
of First Instance of Leyte alleging among other things that the Far Eastern Lumber and Commercial Co.
was an unregistered partnership; that they wished to have it dissolved because of bitter dissension
among the members, mismanagement and fraud by the managers and heavy financial losses.

The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss,
contesting the court’s jurisdiction and the sufficiency of the cause of action.

After hearing the parties, the Hon. Edmundo S. Piccio ordered the dissolution of the company; and at the
request of plaintiffs, appointed the respondent Pedro A. Capuciong as receiver of the properties thereof,
upon the filing of a P20,000 bond.

The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the receiver,
but the respondent judge refused to accept the offer and to discharge the receiver.

Hence, this petition.

ISSUE:

Whether or not the trial court has jurisdiction over the case?

HELD:

No. The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company, because
it being a de facto corporation, dissolution thereof may only be ordered in a quo warranto proceeding
instituted in accordance with section 19 of the Corporation Law.

Under our statute it is to be noted that it is the issuance of a certificate of incorporation by the Director of
the Bureau of Commerce and Industry which calls a corporation into being. The immunity of collateral
attack is granted to corporations ‘claiming in good faith to be a corporation under this act.’

Further, this is not a suit in which the corporation is a party. This is a litigation between stockholders of the
alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a de
jure corporation may be terminated in a private suit for its dissolution between stockholders, without the
intervention of the state.

WHEREFORE, the petition is dismissed.

Lozano vs. Delos Santos (274 SCRA 452)

Corporation by estoppel doctrine is founded on principles of equity and is designed 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 the form of a corporation, who therefore know that it has not
been registered, there is no corporation by estoppel.
 Albert vs. University Publishing (13 SCRA 84)

Mariano Albert entered into a contract with University Publishing Co., Inc. through Jose M. Aruego, its
President, whereby University would pay plaintiff for the exclusive right to publish his revised
Commentaries on the Revised Penal Code.  The contract stipulated that failure to pay one installment
would render the rest of the payments due.  When University failed to pay the second installment, Albert
sued for collection and won.  However, upon execution, it was found that University was not registered
with the SEC. Albert petitioned for a writ of execution against Jose M. Aruego as the real defendant.
University opposed, on the ground that Aruego was not a party to the case.
 
     WON the non-registration of University Publishing Co., Inc. in the SEC is an existing
corporation with an independent juridical personality.
       The Supreme Court found that Aruego represented a non-existent entity and induced not only Albert
but the court to believe in such representation.  Aruego, acting as representative of such non-existent
principal, was the real party to the contract sued upon, and thus assumed such privileges and obligations
and became personally liable for the contract entered into or for other acts performed as such agent.
 
       The Supreme Court likewise held that the doctrine of corporation by estoppel cannot be set
up against Albert since it was Aruego who had induced him to act upon his (Aruego's) willful
representation that University had been duly organized and was existing under the law.

Salvattierra vs. Garlitos (103 Phil 757)

Salvatierra leased his land to the corporation.  He filed a suit for accounting, rescission and
damages against the corporation and its president for his share of the produce.  Judgment against both
was obtained.  President complains for being held personally liable.
 
He is liable.  An agent who acts for a non-existent principal is himself the principal.  In acting on
behalf of a corporation which he knew to be unregistered, he assumed the risk arising from the
transaction.