Albert v. University Publishing Co.

Facts:
 Mariano Albert (Albert) sued University Publishing Co. (University) alleging, among others, that
defendant was a corporation duly organized and existing under Philippine laws
 University, through Aruego, its president, entered into a contract with plaintiff
o University greed to pay Albert P30,000 for the exclusive right to publish his revised
Commentaries on the Revised Penal Code and for his share in previous sales of the book’s first
edition
o University promised to pay in 8 quarterly installments of P3,750, and that upon failure to pay
one installment would render the rest due
 University failed to pay the second installment
 University admitted Albert’s allegation of the existence of the former’s corporate existence and also the
execution and terms of the contract. BUT, University alleged that it was Albert who breached their
contract by failing to deliver his manuscript
 Albert died before trial. He was substituted by his estate administrator—Justo Albert
 CFI ruled in favor of Albert. The court ordered a writ of execution against University
 Albert, however, petitioned for a writ of execution against Aruego, as the real defendant, stating that
there was no such entity as University Publishing Co
o Albert annexed to his petition a certification from the SEC attesting to such fact
 University countered that Aruego is not a party to the case, and hence such petition should be denied

Issue: Whether Aruego is the real defendant in the case—Yes

Held:
 The fact of non-registration of University has not been disputed
o On this account, University cannot be considered a corporation, not eve a corporation de facto
o It has therefore no personality separate from Aruego—it cannot be sued independently
 The corporation by estoppel doctrine has not been invoked—such is also inapplicable in the case
at bar
o Aruego represented a non-existent entity and induced not only the plaintiff but even the court to
believe in such representation
o He signed the contract as “President” stating that University was a corporation duly organized
and existing under the laws of the Philippines and this misled Albert
o One who has induced another to act upon his willful misrepresentation that a corporation
was duly organized and existing under the law, cannot thereafter set up against his
victim the principle of corporation by estoppel
 In the case at bar…
o University cannot purport to come to court and to allege that it was the one who answered the
complaint and litigated upon the merits
 University had no separate personality--- it was just a name
 Aruego was, in reality, the one who answered and litigated, through his own law firm as
counsel
 The court has in many cases pierced the veil of corporate fiction to administer the ends of
justice
o Salvatiera: “A person acting or purporting to act on behalf of a corporation which has no
valid existence assumes such privileges and obligation and becomes personally liable
for contracts entered into or for other acts performed as such agent.”

Paz v. New International Environmental Universality

Facts:
 Petitioner, the officer in charge of the Aircraft Hangar at the Davao International Airport, Davao
International Airport entered into a MOA with Captain Allan Clarke (Capt. Clarke), president of
International Environmental University
o The MOA involved lease on aircraft hangar space at the said airport for 4 years (with 6 months
prior notice in termination) for the use of such space “exclusively for company
aircraft/helicopters”
  Petitioner sent several letters of complaint to Capt. Clarke asking it to abide by the MOA to use the
hangar for company aircrafts and helicopters and stop using it for parking vehicles and as a site for
fabrication works
o The final letter was sent as a consequence of an incident involving an Isuzu truck was driven by
an employee of the respondent and bumped the left wing of an aircraft
o Petitioner now thus demands for the respondent to immediately vacate the hangar
 Respondent filed a complaint for breach of a contract before the RTC claiming that
o Petitioner had disconnected its electric and telephone lines
o Security guards prevented them from entering the premises
o Petitioners violated the terms of the MOA (6 months prior notice)
 Petitioners allege, on the other hand, that respondent had no cause of action against him as MOA was
executed between him and Captain Clarke in the latter’s personal capacity
 RTC ruled in favor of respondent
o Liable for indirect contempt (refusal to follow TRO) and breach of contract for illegally
terminating the MOA before the expiration of the term thereof
o On the challenge of judicial personality, RTC quoted the order of the SEC: (feel ko ito yung
relevant)
 Respondent was issued a Certificate of Incorporation as New International Universality,
but that, subsequently, when it amended its AOI the SEC Extension Office in Davao
erroneously used the name New International Environmental UNIVERSITY, Inc.
 The latter name was used by respondent when it filed its amended complaint and
the petition for indirect contempt believing that it was allowed to do so, as it was
only after the filing of the complaints that the SEC directed it to revert to its
correct name
 CA affirmed the RTC
o CA ruled that while there no corporate entity at the time of the execution of the MOA, petitioner
is nonetheless estopped from sating that he had contracted with respondent as a corporation,
having recognized the latter as the Second Party to the MOA that will use the hangar space
exclusively for company aircraft/helicopter
o Petitioner was also found to have issued checks to respondent which belied his claim of
contracting with Capt. Clarke in the latter’s personal capacity

Issues: Whether Capt. Clarke is an indispensible party to the case—No; Whether respondent lacked legal
capacity and personality in the suit—No

Held:
 Capt. Clarke was merely an agent of respondent
o His participation was limited to being a representative of respondent; as a mere representative,
Capt. Clarke acquired no rights whatsoever, nor did he incur any liabilities, arising from the
contract between petitioner and respondent
o Therefore, he was not an indispensible party to the case
 CA also correctly pointed out that from the very language itself of the MOA entered into by the
petitioner, whereby he obligated himself to allow the use of the hangar space for company
aircraft/helicopter, petitioner cannot deny that he contracted with respondent
o In petitioner’s final letter to respondent, he reiterated and strongly demanded the respondent to
immediately vacate the hangar space “his company is occupying/utilizing”
 Sec. 21 of the Corporation Code:
o One who assumes an obligation to an ostensible corporation, as such, cannot resist
performance thereon on the ground that there was in fact no corporation
o In the case at bar…
 Petitioner is bound by his obligation under the MOA not only on estoppel, but by express
provision of law
 It is futile to insist that petitioner issued receipts for rental payments in respondent’s
name and not with Capt. Clarke’s, whom petitioner allegedly contracted in the latter’s
personal capacity, only because it was upon the instruction of an employee
People v. Garcia
Facts:
 In 1993, Carlos Garcia, Patricio Botero and Luisa Miraples were accused of illegal recruitment
 It was alleged that they represented themselves as the incorporators and officers of Ricorn Philippine
International Shipping Lines, Inc.
o That they represented Ricorn is a recruitment agency for seamen
o That they represented Garcia as the president, Botero as vice president, and Miraples as the
treasurer
 It was later discovered that Ricorn was never registered with the SEC and that it was never authorized
to recruit by the POEA
 Thereafter, Botero and Garcia were convicted. Botero appealed
o Botero avers that he was not an incorporator, but he was a mere employee of Ricorn in charge
of following up on their documents

Issue: Whether or not Botero is a mere employee of Ricorn—No

Held:
 It was proven by evidence that he was introduced to applicant’s as the vice president of Ricorn
o When he was receiving applicants he was receiving them behind a desk which has a nameplate
representing his name and his position as VP of Ricorn
 Relevant Issue: In light of Ricorn not being incorporated, how will this affect his liability in the crime of
illegal recruitment?
o Under the law, if the offender is a corporation, partnership, association or entity, the
penalty shall be imposed upon the officer or officers of the corporation, partnership, or
entity responsible for such violation
o In the case at bar…
 Even if Ricorn was not incorporated, Botero and his cohorts are estopped from
denying liability as corporate officers of Ricorn
 Sec. 25 of the Corporation Code: all persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as a GENERAL
PARTNERS for all the debts, liabilities and damages incurred or arising as a result
thereof: Provided, however, that when any such ostensible corporation is sued on
any transaction entered by it as a corporation or any tort committed by it as such,
it shall not be allowed to used as a defense its lack of corporate personality

International Express Travel and Tour Services v. CA

Facts:
 International Express Travel and Tour Services, Inc. (IETTI) offered to the Philippine Football
Federation (PFF) its travel services for the South East Asian Games. PFF, through Henri Kahn, its
president, agreed. IETTI then delivered plane tickets to PFF, PFF in turn made a down payment
 However, PFF was not able to complete the full payment in subsequent installments despite repeated
demands from IETTI
 IETTI then sued PFF and Kahn was impleaded as a co-defendant
 Kahn averred that he should not be impleaded because he merely acted as an agent of PFF,
which he averred is a corporation with separate and distinct personality from him
 The trial court ruled against Kahn and held him personally liable for the said obligation
o It ruled that Kahn failed to prove that PFF is a corporation
 The CA reversed the decision
o The CA took judicial notice of the existence of PFF as a national sports association and as
such, PFF is empowered to enter into contracts through its agents
o PFF is therefore liable for the contract entered into by its agent Kahn
o The CA further ruled that IETTI is in estoppel; that it cannot now deny the corporate existence of
PFF in such a manner as to recognize and in effect admit its existence

Issue: Whether PFF is a corporation—NO

Held:
 PFF, upon its creation, is not automatically considered a national sports association
o It must first be recognized and accredited by the Philippine Amateur Athletic Federation and the
Department of Youth and Sports Development
o This fact was never proved by Kahn
 Therefore, PFF is considered as an unincorporated sports association
o Under the law, any person acting or purporting to act on behalf of a corporation which has no
valid existence assumes such privileges and becomes personally liable for the contract entered
into or for other acts performed as such agent
o Kahn is therefore personally liable for the contract entered into by PFF with IETTI
 There is also no merit on finding IETTI is in estoppel
o The application of the doctrine of corporation by estoppel applies to a third party only when he
tries to escape liability on a contract from which he has benefited on the irrelevant ground of
defective incorporation
o In the case at bar, IETTI is not trying to escape liability from the contract but rather is the one
claiming from the contract

Pioneer Insurance v CA
Facts:
 Jacob Lim was the owner of Southern Air Lines, a single proprietorship
 1965—Lim convinced Constancio Maglana, Modesto Cervantes, Francisco Cervantes, and Border
Machinery and Heavy Equipment Company (BORMACHECO) to contribute funds to buy two aircrafts
which would form part of a corporation which will be the expansion of Southern Air Lines
 Magalana et al then contributed money to Lim
 But instead of using the money given to him to pay in full the aircrafts, Lim, without knowledge of
Magalana et al, made an agreement with Pioneer Insurance for the latter to insure the 2 aircrafts which
were bought in installment from Japan Domestic Airlines (JDA) using said aircrafts as security
 Lim defaulted from paying JDA, hence the 2 aircrafts were foreclosed by Pioneer Insurance
 During the proceedings in court, it was established that no corporation was formally formed between
Lim and Magalana et al

Issue: Whether Magalana et al must share in the loss as general partners—No

Held:
 There was no de facto partnership
o Ordinarily, when co-investors agreed to do business through a corporation but failed to
incorporate, a de facto partnership would have been formed, and as such, all must share in the
losses and/or gains of the venture in proportion to their contribution
o HOWEVER in the case at bar…
 It was shown that Lim did not have the intent to form a corporation with Magalana et al
 This was shown from the acts of unilaterally taking out a surety from Pioneer
Insurance and not using the funds he got from Magalana et al
 The records show that Lim was acting on his own and not in behalf of his other
would-be incorporators in transacting the sale of the airplanes and spare parts

Lim Tong Lim v. Philippine Fishing Gear

Facts:
 On behalf of “Ocean Quest Fishing Corporation”, Chua and Yao entered into a Contract for the
purchase of fishing nets from Philippine Fishing Gear Inc.
o They claimed that they were in a business venture with Lim, who however was NOT a signatory
to the agreement
o The total price of the nets amounted to P532K and floats were worth P68K
 The buyers failed to pay for the fishing nets and the floats. Hence, respondent filed a collection suit
against Chua, Yao and Lim with a prayer for writ of preliminary attachment
 o The suit was brought against the three in their capacities as GENERAL PARTNERS , on the
allegation that Ocean Quest was a non-existent corporation as shown by a certification from the
SEC
 The court issued a writ of preliminary attachment, which the sheriff enforced by attaching the fish nets
 Lim filed an answer with counterclaim and crossclaim and moved for the lifting of the writ of attachment
 Court maintained the writ and ordered that the nets be sold in a public auction
o Philippine Fishing Gear won the bidding
o Court then declared Philippine Fishing Gear was entitled to the writ of attachment and that
Chua, Yao and Lim, as general partners, were jointly liable to pay respondent
 The trial court ruled that a partnership among Lim, Chua and Yao existed based on the following:
o Testimonies of the witnesses
o The Compromise Agreement
 This stated, among others, that Lim and the others agreed to sell 4 vessels for P5.75M
with the profits (if ever) to be shared by them and if there is a deficiency the same will be
shared by them
 CA affirmed the RTC

Issue: Whether the petitioner may be held liable for the fishing nets and floats purchased from respondent—
Yes; Whether by their acts, Lim, Chua and Yao could be deemed to have entered in a partnership—Yes

Held:
 Art. 1767—By the contract of partnership, two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits among
themselves
o In the case at bar…
 Lim requested Yao, who was engaged in commercial fishing, to join him while Chua was
already Yao’s partner
 Lim, Chua and Yao verbally agreed to acquire 2 fishing boats
 They borrowed P3.25M from Jesus Lim, Petitioner Lim’s brother, to finance the venture
 They bought boats evidenced by a Deed of Sale in favor of Petitioner Lim only to serve
as a security for the loan extended by Jesus Lim
 Because of unavailability of funds, Jesus Lim again extended a loan of P1M secured by
a check, because of which, Yao and Chua entrusted the ownership papers of the other 2
boars to Petitioner Lim
 In pursuance of their business agreement, Yao and Chua bought nets from respondent,
in behalf of “Ocean Quest Fishing Corporation” their purported business name
 From the factual milieu, it is shown that Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats financed by a loan from Jesus Lim
 In the Compromise Agreement, the partners expressed their intention to pay with the proceeds (if ever)
to be shared by them
 These boats fell under the term “common fund” under Art. 1767
o The contribution to such fund need not be cash or fixed assets; it could be intangible like credit
or industry
o That the parties agreed that any loss or profit from the sale and operation of the boats would be
divided equally among them also shows that they had indeed formed a partnership
 It is also clear that the partnership extended to the nets and the floats which were obviously acquired in
furtherance of their business
 RELEVANT ISSUE: Petitioner argues that under the doctrine of estoppel, liability can be
imputed only to Chua and Yao, and not to Lim
o Sec. 21 Corporation by estoppel—All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general parts for all debts,
liabilities and damages incurred or arising as a result thereof: Provided however, That
when any such ostensible corporation is sued on any transaction entered by it as a
corporation or any tort committed by it as such, it shall not be allowed to use as defense
its lack of corporate responsibility
 o One who assumes an obligation to an ostensible corporation as such, cannot resist
performance thereof on the ground that there was in fact no corporation
 Therefore, even if an ostensible corporate entity is proven to be legally non-existent, a party may be
estopped from denying its corporate existence
o PURPOSE: an unincorporated association as no personality and would be incompetent to act
and appropriate for itself the power and attributes of a corporation as provided by law; it cannot
create agents or confer authority on another to act in its behalf
 Thus, those who act in behalf of the corporation do so without authority and at their own
risk
 A person who acts as agent without authority or a principal is himself regarded as the
principal—he acts at his own risk and is thus liable
 The doctrine of estoppel may apply to the: alleged corporation and to a third party
o Alleged corporation:
 An unincorporated association, which associated itself to be a corporation, will be
estopped from denying its corporate capacity in a suit against it by a third person who
relied in good faith on such representation
 It cannot allege lack of personality to be sued to evade its responsibility for a contract it
entered into and by virtue of which it received advantages and benefits
o To a third part (relevant to the case at bar)
 A third party who, knowing an association to be unincorporated, nonetheless treated it
as a corporation and received benefits from it, may be barred from denying its corporate
personality in a suit brought against the alleged corporation
 In such case, all those who benefited from the transaction made by the ostensible
corporation, despite knowledge of its legal defects, may be held liable for
contracts they impliedly assumed to or took advantage of
 In the case at bar…
o Petitioner benefited from the use of the nets found inside the boat which was earlier proven to
be an asset of the partnership
o The fact that he contested the attachment issued by the lower courts meant that such writ
effectively stopped his use of the fishing vessel

Philippine Trust Company v Rivera

Facts:
 This action was instituted by Phil. Trust Company as assignee in insolvency of La Coopertiva Naval
Filipina, against Marciano Rivera, for the purpose of receiving a balance of P22.5K alleged to be due
upon defendant’s subscription to the capital stock of said insolvent corporation
 1918—La Cooperativa was duly incorporated with a capital of P100k
o 1,000 shares with P100 par value each
 Among the incorporators of this company was the defendant Mariano Rivera, who subscribed 450
shares representing a value of P45K
 The company became insolvent and went into the hands of Phil. Trust as assignee in bankruptcy
o And because of this, an action was instituted to recover ½ of the stock subscription of the
defendant, which admittedly he has never paid
 Rivera’s contention:
o Not long after Cooperativa had been incorporated, a meeting of stockholders occurred, at which
a resolution was adopted
o The resolution effected that the capital should be reduced by 50% and the subscribers released
from the obligation to pay any unpaid balance of their subscription in excess of 50% of the same
o As a result of this, the subscription of various shareholders had been cancelled to the extent
stated and fully paid certificates were issued to each stockholders for ½ of his subscription

Issue: Whether respondent is liable for the deficiency in the subscription—Yes

Held:
  It does not appear that the formalities prescribed in Sec. 17 of the Corporation Law relative to the
reduction of capital stock in corporations were observed; and it does not appear that any certificate was
at any time filed in the Bureau of Commerce and Industry, showing such reduction
 Subscription to the capital of a corporation constitute a fund to which the creditors have a right
to look for satisfaction of their claims and that the assignee in insolvency can maintain an
action upon any unpaid stock subscription in order to realize assets for the payment of its debts
o A corporation has no power to release an original subscriber to its capital stock from the
obligation of paying fir his shares, without a valuable consideration for such release
o A reduction of the capital stock can take place only in the manner and under the
conditions prescribed by the statute or the charter or the articles of incorporation
 In the case at bar…
o The resolution releasing the shareholders from their obligation to pay 50% of their respective
subscription was an attempted withdrawal of so much capital from the fund upon which the
company’s creditors were entitled ultimately to rely and, having been effected without
compliance with the statutory requirements, was wholly ineffectual

Garcia v Li Chu Sing

Facts:
 Defendant executed and delivered to the Mercantile Bank of China a promissory note for the sum of
P19K with interest of 6% payable monthly
o One of the conditions in said PN is that in case of defendant’s default in the payment of any of
the monthly installments, the entire amount of the unpaid balance becomes due (acceleration
clause)
 Defendant defaulted in the payment of several installments by reason of which the unpaid balance on
the PN became due and demandable
 The debt in this complain was not an indebtedness of the defendant but of one Lim Cuan Sy who had
an account with the plaintiff bank in the form of trust receipts guaranteed by the defendant as surety
and with chattel mortgage securities
 The plaintiff bank, without the knowledge and consent of the defendant, foreclosed the chattel
mortgage and privately sold the property covered thereby
 The defendant is the owner of shares of stock of the plaintiff Mercantile Bank of China amounting to
P10K. The plaintiff bank is now under liquidation
 Defendant filed a motion praying for the inclusion of the principal debtor Lim Cuan Sy as party
defendant so that he could avail himself of the benefit of the exhaustion of the property of said Lim
Cuan Sy. This was denied by the court
 The proceeds of the sale of the mortgaged chattels with other payments were applied to the amount of
the PN

Issue: Whether it is proper to compensate defendant’s indebtedness with the sum of P10K representing the
value of his shares of stock with the plaintiff bank Mercantile—No

Held:
 A share of stock of the certificate thereof is not an indebtedness to the owner nor evidence of
indebtedness and, therefore it is not a credit
 Stockholders, as such, are NOT creditors of the corporation
 The capital stock is a trust fund to be used more particularly for the security of creditors of the
corporation, who presumably deal with it on the credit of its capital stock
 In the case at bar…
o Lim Chu Sing, not being a creditor of the Mercantile Bank of China, although the latter is a
creditor of the former, there is no sufficient ground to justify a compensation
Bowman Environmental Development Corporation v. CA and Fajilan
Facts:
 Respondent Fajilan offered in writing to resign as President and Member of the BOD of Bowman
Environmental Devt. Corporation (BEDECO) and to sell to the company all his shares, rights, and
interests therein for P300K plus the transfer to him of the company’s Isuzu pick-up truck which he had
been using
 Fajilan’s resignation as president was accepted and new officers were elected. Fajilan’s offer to sell his
shares back to corporation was approved, the Board promising him to pay for them on a staggered
basis
o A PN was signed by BEDECO’s new president, Pangilinan, to pay him P30K over a six-month
period
 BEDECO paid only P50K on two occasions and defaulted in paying the palance of P200K
 Fajilan filed a complaint in the RTC for the collection of that balance from BEDECO
 The trial court dismissed the complaint for lack of jurisdiction
o It ruled that the controversy arose out of intracorprate relations, hence, the SEC has original and
exclusive jurisdiction to hear and decide it
 The CA set aside the order of dismissal and directed the court to take cognizance of the case
o The appellate court characterized the case as a suit for collection of a sum of money as Fajilan
was merely suing on the balance of the PN

Issue: Whether the SEC has original and exclusive jurisdiction over the case at bar—Yes; Whether Fajilan is
entitled for the remaining balance of the PN—No

Held:
 Sec. 5(b) of PD 902-A grants the SEC original and exclusive jurisdiction to hear and decide
cases involving –
o (b) Controversies arising out of intra-corporate or partnership relations, between and
among stockholders members , or associates; between any or all of them and the
corporation, partnership or association of which they are stockholders, members or
associates respectively
 The case at bar involves an intra-corporate controversy because the parties are a stockholder and the
corporation
o The perfection of the agreement to sell Fajilan’s participation and interests in BEDECO and the
execution of the PN for the payment of the price of the sale DID NOT remove the dispute from
the coverage of Sec. 5(b) of PD 902
o All the signatories of the document were stockholders of the corporation at the time of signing
the same
o It was an intra-corporate transaction, hence this suit is an intra-corporate controversy
o Fajila’s offer to resign as president and director as soon as his shares and interests are sold
and fully paid implied that he would remain a stockholder until his shares and interests were
fully paid for, for one cannot be a director or president of a corporation unless he is also a
stockholder thereof
 The fact that he was replaced as president did not necessarily mean that he
ceased to be a stockholder considering how the corporation failed to complete
payment of the consideration for the purchase of his shares and interests in the
goodwill of the business
 There was no actual transfer of his shares to the corporation. In the books of the
corporation he is still a stockholder
 RELEVANT DISCUSSION:
o Therefore, the SEC alone which shall determine whether such payment will not constitute a
distribution of corporate assets to a stockholder in preference over creditors of the corporation
o The SEC has exclusive supervision, control and regulatory to investigate whether the
corporation has unrestricted retained earnings to cover the payment for the shares, and
whether the purchase is for a legitimate corporate purpose
 Sec. 41 Power to Acquire own shares-- A stock corporation shall have the power
to purchase or acquire its own shares for a legitimate corporate purpose or
 purposes, including but not limited to the following cases: Provided, That the
corporation has unrestricted retained earnings in its books to cover the shares to
be purchased or acquired;
 To eliminate fractional shares arising out of stock dividends
 To collect or compromise an indebtedness to the corporation, arising out
of unpaid subscription, in a delinquency sale, and to purchase delinquent
shares sold during said sale
 To pay dissenting or withdrawing stockholders entitled to payment for their
shares under the provisions of this Code
 Sec 12. Corporate Liquidation… x x x Except by decrease of capital stock and as
otherwise allowed by this Code, no corporation shall distribute any of its assets or
property except upon lawful dissolution and after payment of all its debt and
liabilities
o The requirement of unrestricted retained earning to cover the shares is based on the
TRUST FUND DOCTRINE
 The capital stock, property and other assets of a corporation are regarded as
equity in trust for the payment of corporate creditors
 Creditors of a corporation are preferred over the stockholders without first paying
corporate assets
 There can be no distribution of assets among the stockholders without first
paying corporate creditors
 Any disposition of corporate funds to the prejudice of creditors is null and void
 Creditors of a corporation have the right to assume that so long as there are
outstanding debts and liabilities, the BOD will not use the assets of the
corporation to purchase its own stock

Ong Yong v. Tiu

Facts:
 1994—the construction of the Masagana Citimall in Pasay City was threatened with stoppage, where its
owner, the First Landlink Asia Development Corporation (FLADC), owned by the Tius, became heavily
indebted to the Philippine National Bank (PNB) for P190M
 To save the 2 lots where the mall was being built from foreclosure, the Tius invited Ong Yong , Juanita
Ong, Wilson Ong, Anna Ong, William Ong and Julia Ong Alonzo (the Ongs), to invest in FLADC
 Pre-Subscription Agreement:
o Ongs and Tius agreed to maintain equal shareholdings in FLADC
o Ongs would subscribe to 1,000,000 shares
o Ongs would nominate President, Secretary plus 6 directors and given the right to manage the
mall
o Tius would subscribe to an additional 549,800 shares in addition to their already existing
subscription of 450,200 shares
o The Tius would nominate the VP and Treasure plus 5 directors
o The Tius would also contribute to FLADC a 4-storey building worth P200M (for 200k shares)
and 2 parcels of land for P30M( for 300k shares) and P49.8M (for 49.8K shares)
 Thereafter, the Ongs paid P190M to settle the mortgage indebtedness of FLADC to PNB (P100M in
cash for their subscription to 1M shares)
 Tius rescinded the Pre-Subscription Agreement. They filed a case at the SEC seeking confirmation of
their rescission of the Pre-Subscription Agreement
 The SEC confirmed the rescission of the Tius
 Ongs filed an MR claiming that the P70M they paid was not a premium on capital stock but an advance
loan
 SEC en banc affirmed that it was a premium on capital stock
 CA ruled that the Ongs and Tius were in pari delicto (which technically would not entitle them to
rescission), but for practical considerations,” that is, their inability to work together, it was best to
separate the two groups by rescinding the Pre-Subscription Agreement, returning the original
investment of the Ongs and awarding practically everything else to the Tius
Issue: Whether specific performance is the proper remedy instead of rescission—Yes

Held:
 The facts did no justify the rescission of the contract
o Providing appropriate offices for David and Cely Tiu as VP and Treasurer has no bearing on
their obligations under the Pre-Subscription Agreement since the obligation pertained to FLADC
itself
o The failure of the Ongs to credit shares of stock in favor of the Tius for their property
contributions also pertained to the corporation and not to the Ongs
 The principal objective of both parties in entering into the Pre-Subscription Agreement in 1994 was to
raise the P190M
 The law requires that the breach of contract should be so substantial or fundamental as to
defeat the primary objective of the parties in making the agreement
 RELEVANT DISCUSSION
o Since the cash and other contributions now sought to be returned already belong to the FLADC,
an innocent third party, rescission may no longer be availed of under the law
o Any contract for the acquisition of unissued stock in an existing corporation or a
corporation still to be formed shall be deemed a subscription within the meaning of this
Title, notwithstanding the fact that the parties refer to it as a purchase or some other
contract
o The Corporation Code allows the distribution of corporate capital only in 3 instances:
 Amendment of the AOI to reduce the authorized capital stock
 Purchase of redeemable shares by the corporation, regardless of the existence of
unrestricted retained earnings
 Dissolution and eventual liquidation of the corporation
o In the case at bar, none of the circumstances were present to warrant the distribution of
corporate assets
 Rescission would have the effect of returning of those given by the parties in a
transaction
 Rescission is NOT ONE OF THE CIRCUMSTANCES MENTIONED
o Ongs shortcomings were far from serious and certainly less than substantial
 They were in fact remediable and correctable under the law
 It would be against the rules of justice, fairness and equity to deprive the Ongs of their
interests on petty and tenuous grounds

GSIS Family Bank v. BPI Family

Facts:
 Petitioner was originally organized as Royal Savings Bank and started operations in 1971
o Petitioner encountered liquidity problems and was placed under receivership
o It was temporarily closed by the Central Bank. 2 months after its closure, petitioner reopened
and was renamed Comsavings Bank, Inc. under the management of the Commercial Bank of
Manila
o GSIS acquired petitioner from Commercial Bank of Manila. Thus petitioner’s management and
control was thus transferred to GSIS
o To improve the bank’s marketability to the public, especially to the members of the GSIS,
petitioner sought the SEC’s approval to change its corporate name to “GSIS Family Bank, a
Thrift Bank”
o Petitioner likewise applied to the DTI and the BSP for authority to use “GSIS Family Bank, a
Thrift Bank” as its business name. DTI and BSP approved the applications. Thus petitioner
operates under the corporate name “GSIS Family Bank—a Thrift Bank”
 Respondent BPI was a a product of the merger between the Family Bank and Trust Company (FBTC)
and the BPI
o The Gotianum family registered with the SEC the corporate name “Family First Savings Bank”
which amended to “Family Savings Bank” and then later to “Family Bank and Trust Company”
o Since its incorporation, the bank has been commonly known as “Family Bank.” Family Bank
merged with BPI, and the latter acquired all the rights, privileges, properties and interests of
 Family Bank including the right to use names, such as “Family First Savings Bank”, “Family
Bank”, and “Family Bank and Trust Company”
o BPI Family Savings Bank was registered with the SEC as a wholly-owned subsidiary of BPI. BPI
then registered with the Bureau of Domestic Trade the trade or business name of “BPI Family
Bank” and acquired a reputation and goodwill under the name
 BPI learned that petitioner is using or attempting to use the name “Family Bank” thus the former
petitioned the SEC Company Registration and Monitoring Department (SEC CRMD) to disallow or
prevent the registration of the name “GSIS Family Bank” or any other corporate name with the words
“Family Bank” in it
o Respondent also alleged that through the years, it has acquired a reputation and goodwill under
the name, not only with clients here and abroad, but also with correspondent and competitor
banks, and the public in general
 SEC CRMD ruled in favor of BPI saying that the latter acquired the right to use of the name of the
absorbed corporation. Thus BPI Family Bank has a prior right to the use of the name
o Family Bank in the banking industry had a long and extensive nationwide use
o Family Bank was registered with the IPO as its trade name
o Applying the rule “priority in registration” the SEC CRMD concluded that BPI has the preferential
right to the use of the name “Family Bank:
o GSIS and Comsavings Bank were then fully aware of the existence and use of the name Family
Bank by FBTC prior to the latter’s merger with BPI
o It also held that there exists a confusing similarity between the corporate names BPI Family
Bank and GSIS Family Bank. Although not identical, the corporate names are indisputably
similar, especially so since both corporations are engaged in the banking business
 CA ruled that the approvals of the BSP and DTI of petitioner’s application to use the name “GSIS
Family Bank” do not constitute authority for its lawful and valid use
o It said that the SEC has absolute jurisdiction, supervision and control over all corporations
o The CA held that respondent was entitled to the exclusive use of the corporate name because
of its prior adoption of the name Family Bank since 1969

Issue: Whether the approval of DTI and BSP regarding petitioner’s use of the name “Family Bank” is
authoritative—No

Held:
 Sec. 18 Corporate Name—No corporate name may be allowed by the SEC if the proposed name
is identical or deceptively or confusingly similar to that of any existing corporation or to any
other name already protected by law or is patently deceptive, confusing or contrary to existing
laws. When a change in the corporate name is approved, the Commission shall issue an
amended certificate of incorporation under the amended name
 Philips Export B.V.: Court ruled that to fall within the prohibition of the law on the right to
exclusive use of a corporate name, two requisites must be proven:
o The complainant corporation acquired a PRIOR RIGHT over the use of such corporate
name
o The proposed name is either:
 Identical; or
 Deceptive or confusingly similar to that of any existing corporation or to any other
name already protected by law; or
 Patently deceptive, confusing or contrary to existing to law
 The two requisites are present in this case
o First requisite: respondent was incorporated in 1969 as Family Savings Bank and in 1985 as
BPI Family Bank. GSIS on the other hand, was incorporated as GSIS Family Bank—Thrift Bank
only in 2002 or at least 17 years after respondent started using its name
o Second Requisite:
 The words “Family Bank” present in both petitioner and respondent’s name satisfy the
requirement that there be in identical names in the existing corporate name and the
proposed one
  The petitioner’s use of the words “GSIS” and “thrift” are not sufficient to differentiate
petitioner’s corporate name from respondents
 GSIS is merely an acronym of petitioner
 “thrift” is a classification of the type of bank that petitioner is
o still confusing because both parties are engaged in the banking business
 There is also deceptive and confusing similarity between petitioner’s proposed name
and respondent’s corporate name as found by the SEC
 TEST: whether the similarity is such as to mislead a person using ordinary
care and discrimination
o Even without such actual proof of confusion, it suffices that confusion is
probable or likely to occur
 In the case at bar…
 Respondent alleged that upon seeing Comsavings Bank branch with the signage
“GSIS Family Bank” displayed at the premises, some of the respondents officers
and their clients began asking questions
o Whether GSIS had acquired Family Bank
o Whether there is a joint agreement between BPI and GSIS regarding
Family Bank
o Whether there is an agreement among Comsavings Bank, GSIS, BPI and
Family Bank regarding BPI Family Bank and GSIS Family Bank
 Findings of fact of quasi-judicial agencies like the SEC are generally accorded respect and even
finality by this Court if supported by substantial evidence in recognition of their expertise on the
specific matters under their consideration, more so it the same has been upheld by the
appellate court
 Petitioner’s argument that the opinion of the BSP and the certificate of registration granted to it by the
DTI constitute authority for it to use “GSIS Family Bank” as corporate name is also untenable
o The enforcement of the protection accorded by Sec. 18 of the Corporation Code to
corporate names is lodged exclusively in the SEC
o The jurisdiction of the SEC is not merely confined to the adjudicative functions provided
in Sec. 5 of the SEC Reorganization Act
o By express mandate, the SEC has absolute jurisdiction, supervision and control over all
corporations
o It is the SEC’s duty to prevent confusion in the use of corporate names not only for the
protection of the corporations involved, but more so for the protection of the public
o It has authority to de-register at all times and under all circumstances corporate names
whit in its estimation are likely to generate confusion
 In the case at bar…
o The SEC correctly applied Sec. 18 of the Corp Code and Sec. 15 of SEC Memo Circular No 14-
2000
 Registrant corporation or partnerships shall submit a letter undertaking to change
their corporate or partnership name in case another person or firm has acquired a
prior right to the use of the said firm name or the same is deceptively or
confusingly similar to one already registered unless this undertaking is already
included as one of the provisions of the AOI or partnership of the registrant
o The SEC, after finding merit in respondent’s claims, can compel petitioner to abide by its
commitment to change its corporate name in the event that another person, firm, or entity has
acquired a prior right to use of said name or one similar to it
 NOTES:
o “Family” as used in respondent’s name is NOT generic
 Generic Marks: commonly used as the name or description of a kind of goods
 Descriptive Marks: convey the characteristics, functions, qualities or ingredients
of a product to one who has never seen it or does not know if it exists
o The word “family” cannot be separated from the word “bank”
 In asserting their claims before the SEC up to the CA, both petitioner and respondent
refer to the phrase “Family Bank” in their submissions – such is regarded as an Arbitrary
Mark
  Arbitrary Mark: words or phrases used as a make that appear to be random in the
context of its use; they are generally considered to be easily remembered because
of their arbitrariness
o In the case at bar…
 There can be no expected relation between the word family and the banking business.
Rather the words suggest that respondent’s bank is where family savings should be
deposited