VALLEY GOLF & COUNTRY CLUB, INC., Petitioner, vs. ROSA O. VDA.

DE CARAM,
Respondent.

G.R. No. 158805 | April 16, 2009

FACTS:

Petitioner is a duly constituted non-stock, non-profit corporation which operates a golf course. The
members and their guests are entitled to play golf on the said course and avail of the facilities and
privilege. The shareholders are likewise assessed monthly membership dues.

Cong. Fermin Z. Caram, Jr., respondent’s husband, subscribed and paid in full 1 Golf Share of
the petitioner and was subsequently issued with a stock certificate which indicated a par value of
P9,000.00. It was alleged by the petitioner that Caram stopped paying his monthly dues and that
it has sent 5 letters to Caram concerning his delinquent account. The Golf Share was
subsequently sold at public auction for P25,000.00 after the BOD had authorized the sale and the
Notice of Auction Sale was published in the Philippine Daily Inquirer

Caram thereafter died and hiis wife initiated intestate proceedings before the RTC of
IloIlo. Unaware of the pending controversy over the Golf Share, the Caram family and
the RTC included the Golf Share as part of Caram’s estate. The RTC approved a project of
partition of Caram’s estate and the Golf Share was adjudicated to the wife, who paid the
corresponding estate tax due, including that on the golf Share.

It was only through a letter that the heirs of Caram learned of the sale of the Golf Share following
their inquiry with Valley Golf about the Golf Share. After a series of correspondence,
the Caram heirs were subsequently informed in a letter that they were entitled to the refund of
P11,066.52 out of the proceeds of the sale of the Golf Share, which amount had been in the
custody of the petitioner.

Caram’s wife filed an action for reconveyance of the Golf Share with damages before the SEC
against Valley Golf. The SEC Hearing Officer rendered a decision in favor of the wife, ordering
Valley Golf to convey ownership of the Golf Share, or in the alternative. to issue one fully paid
share of stock of Valley Golf of the same class as the Golf Share to the wife. Damages
totaling P90,000.00 were also awarded to the wife.

The SEC hearing officer ruled that under Section 67, paragraph 2 of the Corporation Code, a
share stock could only be deemed delinquent and sold in an extrajudicial sale at public auction
only upon the failure of the stockholder to pay the unpaid subscription or balance for the share.
However, the section could not have applied in Caram’s case since he had fully paid for the Golf
Share and he had been assessed not for the share itself but for his delinquent club dues.
Proceeding from the foregoing premises, the SEC hearing officer concluded that the auction sale
had no basis in law and was thus a nullity. The SEC en banc and the Court of Appeals affirmed
the hearing officer’s decision, and so the petitioner appealed before SC.

ISSUE:

WON a non-stock corporation seize and dispose of the membership share of a fully-paid
member on account of its unpaid debts to the corporation when it is authorized to do so
under the corporate by-laws but not by the Articles of Incorporation?

RULING:

The Supreme Court ruled that there is a specific provision under Title XI on Non-Stock
Corporations of the Corporation Code dealing with the termination of membership in a non-stock
corporation such as Valley Golf.

Section 91 of the Corporation Code provides:

SEC. 91. Termination of membership.—Membership shall be terminated in the manner

and for the causes provided in the articles of incorporation or the by-laws. Termination of
membership shall have the effect of extinguishing all rights of a member in the corporation
or in its property, unless otherwise provided in the articles of incorporation or the by-laws.
(Emphasis supplied)

A share can only be deemed delinquent and sold at public auction only upon the failure of the
stockholder to pay the unpaid subscription. Delinquency in monthly club dues was merely an
ordinary debt enforceable by judicial action in a civil case. A provision creating a lien upon shares
of stock for unpaid debts, liabilities, or assessments of stockholders to the corporation, should be
embodied in the Articles of Incorporation, and not merely in the by-laws. Moreover, the by-laws
of petitioner should have provided formal notice and hearing procedure before a member’s
share may be seized and sold.

The procedure for stock corporation’s recourse on unpaid subscription is not applicable
in member’s shares in a non-stock corporation.

SC proceeded to declare the sale as invalid. SC found that Valley Golf acted in bad faith when it
sent the final notice to Caram under the pretense they believed him to be still alive, when in fact
they had very well known that he had already died. The Court stated:
 Whatever the reason Caram was unable to respond to the earlier notices, the fact remains
that at the time of the final notice, Valley Golf knew that Caram, having died and gone,
would not be able to settle the obligation himself, yet they persisted in sending him notice
to provide a color of regularity to the resulting sale.

That reason alone, evocative as it is of the absence of substantial justice in the sale of the Golf
Share, is sufficient to nullify the sale and sustain the rulings of the SEC and the Court of Appeals.

Moreover, the utter and appalling bad faith exhibited by Valley Golf in sending out the final notice
to Caram on the deliberate pretense that he was still alive could bring into operation Articles 19,
20 and 21 under the Chapter on Human Relations of the Civil Code. These provisions enunciate
a general obligation under law for every person to act fairly and in good faith towards one another.
Non-stock corporations and its officers are not exempt from that obligation.

CIR vs. THE CLUB FILIPINO, INC. DE CEBU

GR No. L-12719 | May 31, 1962 | Paredes, J.

FACTS: The Club Filipino, is a civic corporation organized under the laws of the Philippines with
an original authorized capital stock of P22,000, which was subsequently increased to P200,000
to operate and maintain a golf course, tennis, gymnasiums, bowling alleys, billiard tables and
pools, and all sorts of games not prohibited by general laws and general ordinances, and
develop and nurture sports of any kind and any denomination for recreation and healthy
training of its members and shareholders" (sec. 2, Escritura de Incorporacion (Deed of
Incorporation) del Club Filipino, Inc.). There is no provision either in the articles or in the by-laws
relative to dividends and their distribution, although it is covenanted that upon its dissolution, the
Club's remaining assets, after paying debts, shall be donated to a charitable Phil. Institution in
Cebu (Art. 27, Estatutos del (Statutes of the) Club).

The Club 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, although it secured licenses. In a letter, the Collector assessed against
and demanded from the Club P12,068.841 as fixed and percentage taxes, surcharge and
compromise penalty. Also, the Collector denied the Club’s request to cancel the assessment.

On appeal, the CTA reversed the Collector and ruled that the Club is not liable for the assessed
tax liabilities of P12,068.84 allegedly due from it as a keeper of bar and restaurant as it is a non-
stock corporation. Hence, the Collector filed the instant petition for review.

ISSUE: WON the Club is a stock corporation

HELD: NO. It is a non-stock corporation.

The facts that the capital stock of the 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. 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. From the extrinsic evidence
adduced, the CTA concluded that the Club is not engaged in the business as a barkeeper and
restaurateur.

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

1. a capital stock divided into shares and

2. an authority to distribute to the holders of such shares, dividends or allotments of the

surplus profits on the basis of the shares held (sec. 3, Act No. 1459).

Nowhere in its articles of incorporation or by-laws 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 corpo law. 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 (Jesus Sacred Heart College v.
CIR, 1954; CIR v. Sinco Educational Corp., 1956).

McArthur v. Times Printing Co. case brief summary

51 N.W. 216 (1892)

1P9, 599.07 as percentage tax on its gross receipts (tax years 1946-1951), P2,399.77 surcharge, P70 fixed tax (tax years 1946-1952, and P500
compromise penalty.
CASE SYNOPSIS

Defendant appealed a Hennepin County District Court (Minnesota) denial of its request for a new
trial on plaintiff's claims for damages for breach of an employment contract.

CASE FACTS
Plaintiff alleged that defendant contracted with him for a period of one year and that defendant
discharged him in violation of its contract. Defendant argued that plaintiff's employment was from
week to week and that he was discharged with good cause. Trial court found for plaintiff, as the
evidence showed that a promoter had made the contract on behalf of defendant while defendant
was contemplating organization of corporation. Evidence further showed that after organization,
defendant's board never took any formal action with regards to the contract, but that all of its
stockholders, directors, and officers knew of the contract and they retained plaintiff without
implementing any new contracts. The defendant appealed the decision.

DISCUSSION
The court affirmed judgment, holding that while defendant was not bound by the contract made
by its promoter before its organization, after its organization, it made the contract on its own by
acquiescing in plaintiff's employment by retaining him without other contracts.

CONCLUSION
Denial of defendant's request for a new trial on plaintiff's claims of breach of employment contract
affirmed. Court held while defendant was not bound by contracts made by promoters before
organization of corporation; after organization, it made the contract its own by acquiescing in
plaintiff's employment and retaining him without other contracts.

G.R. No. L-43350 December 23, 1937

CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-appellant,

vs.
TEODORO SANDIKO, defendant-appellee.

Arsenio P. Dizon for appellant.

Sumulong, Lavides and Sumulong for appellee.

LAUREL, J.:

FACTS: Manuel Tabora is the registered owner of four parcels of land. The four parcels were
mortgaged for loans and indebtedness. However, Tabora executed a public document (Exhibit A)
by virtue of which the four parcels of land owned by him was sold to the plaintiff company, which
at that time is still under the process of incorporation.
 A year later, the BOD of said company adopted a resolution authorizing its president to
sell the four parcels of lands in question to Teodoro Sandiko. Exhibits B, C and D were thereafter
made and executed. Exhibit B is a deed of sale where the plaintiff sold, ceded and transferred to
the defendant the four parcels of land. Exhibit C is a promissory note drawn by the defendant in
favor of the plaintiff. Exhibit D is a deed of mortgage executed where the four parcels of land were
given a security for the payment of the promissory note. Defendant failed to pay thus plaintiff filed
a collection of sum of money in the Court of First Instance in Manila. The latter rendered judgment
absolving the defendant. Plaintiff has appealed to this court and makes an assignment of various
errors.

ISSUE: WON the sale made by the plaintiff corporation is valid.

HELD: The contract here was entered into not between Manuel Tabora and a non-existent
corporation but between the Manuel Tabora as owner of the four parcels of lands on the one hand
and the same Manuel Tabora, his wife and others, as mere promoters of a corporations on the
other hand. For reasons that are self-evident, these promoters could not have acted as agent for
a projected corporation since that which no legal existence could have no agent. This is not saying
that under no circumstances may the acts of promoters of a corporation be ratified by the
corporation if and when subsequently organized, however, under the peculiar facts and
circumstances of the present the court declined to extend the doctrine of ratification which would
result in the commission of injustice or fraud to the candid and unwary. A corporation, until
organized, has no life and therefore no faculties. Cagayan Fishing Dev’t Corp could not and did
not acquire the four parcels of land sold by Tabora, it also follows that it did not possess any
resultant right to dispose of them by sale to the defendant, Teodoro Sandiko. The corporation had
no juridical personality to enter into a contract.

Corporations are creatures of the law, and can only come into existence in the manner
prescribed by law. It 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.

FERMIN CARAM, JR. and ROSE DE CARAM v. CA and ALBERTO V. ARELLANO

151 SCRA 372 (June 30, 1987)

CRUZ, J.

Topic: Corporate Entity, Disregarding the corporate entity

Facts:

1. The services of Barretto was requested to initiate the incorporation of Filipinas Orient
Airways (FOA).

2. Barretto was referred to as the “moving spirit” of said corporation because it was through
his effort that it was created. Before FOA’s creation though, Barretto contracted with a
 third party, Alberto Arellano, for the latter to prepare a project study for the feasibility of
creating a corporation like FOA.

3. The project study was then presented to the would-be incorporators and investors.

4. On the basis of said project study, Fermin Caram, Jr. and Rosa Caram agreed to be
incorporators of FOA. Later however, Arellano filed a collection suit against FOA, Barretto,
and the Carams.

5. Arellano claims that he was not paid for his work on the project study.

6. Lower Court: Orders the Carams to jointly and severally pay Arellano P50,000.00 for the
preparation of the project study and his technical services that led to the organization of
the defendant corporation, plus P10,000.00 attorney’s fees

- It was upon the request of Barretto and Garcia that Arellano handled the preparation
of the project study which project study was presented to Caram so the latter was
convinced to invest in the proposed airlines.

- The project study was revised for purposes of presentation to financiers and the banks.
It was on the basis of this study that defendant corporation was actually organized and
rendered operational.

- Garcia and Caram, and Barretto became members of the Board and/or officers of
defendant corporation

- All the other defendants who were involved in the preparatory stages of the
incorporation must be liable

7. The petitioners claim that this order has no support in fact and law because they had no
contract whatsoever with the private respondent regarding the above-mentioned services.

8. Their position is that as mere subsequent investors in the corporation that was later
created, they should not be held solidarily liable with FOA, a separate juridical entity, and
with Barretto and Garcia (their co-defendants in the lower court) who were the ones who
requested the said services from Arellano.

Issue: Whether or not petitioners themselves are also personally liable for such expenses
and, if so, to what extent? NO. The petitioners did not contract the services of Arellano. It was
only the results of such services that Barretto and Garcia presented to them and which persuaded
them to invest in the proposed airline.

Ruling: GRANTED. Petitioners are not liable.

Held: The petitioners were not really involved in the initial steps that finally led to the incorporation
of FAO, which were being directed by Barretto as the main promoter. It was he who was putting
all the pieces together. The airline was eventually organized on the basis of the project study with
the petitioners as major stockholders and, together with Barretto and Garcia, as principal officers.
The petitioners were merely among the financiers whose interest was to be invited and who were
in fact persuaded, on the strength of the project study, to invest in the proposed airline.

There was no showing that FAO was a fictitious corporation and did not have a separate juridical
personality, to justify making the petitioners, as principal stockholders thereof, responsible for its
obligations. As a bona fide corporation, FAO should alone be liable for its corporate acts as duly
authorized by its officers and directors.

The petition is rather hazy and seems to be flawed by an ambiguous ambivalence. It is

unnecessary to examine at this time the rules on solidary obligations, which the parties-
needlessly, as it turns out have belabored unto death.

Philippine Trust Co. vs. Rivera

G.R. No. L-19761; January 29, 1923

FACTS:

Cooperative Naval Filipinas was incorporated under the Philippine laws. Mariano Rivera
was one of the incorporators. The AOI were registered in the Bureau of Commerce and Industry.
In the course of time, the corporation became insolvent and went into the hands of Phil. Trust Co.,
as assignee in bankruptcy. The latter instituted an action to recover unpaid stock subscription of
defendant. Defendant insists the resolution that has been made on the reduction of the capital,
the reason why he did not fully pay the entire subscription.

ISSUE: WON the reduction of the corporate capital by releasing the subscribers from payment of
their subscription is valid and proper.

HELD: It is established doctrine that subscription to the capital of a corporation constitute a find
to which creditors have a right to look for satisfaction of their claims and that the assignee in
insolvency can maintain an action upon any unpaid stock subscription in order to realize assets
for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802.) A corporation has no power to
release an original subscriber to its capital stock from the obligation of paying for his shares,
without a valuable consideration for such release; and as against creditors a reduction of the
capital stock can take place only in the manner an under the conditions prescribed by the statute
or the charter or the articles of incorporation. Moreover, strict compliance with the statutory
regulations is necessary
 In the case at bar, therefore held that the resolution relied upon the defendant was without
effect and that the defendant was still liable for the unpaid balance of his subscription.

Marcus vs. RH Macy

74 N.E. 2d 228; 1947

FACTS: The Board of Directors gave notice to SH that among the matters to be acted upon in its
annual meeting would be a proposal to amend certificate of incorporation to add to the rights of
preferred stockholders, voting rights equal to those of common stockholders. Marcus objected
and demanded payment for the common stock owned by her.

ISSUE: WON Marcus can exercise her appraisal right.

HELD: The Court held that Marcus may invoke her appraisal right. The aggregate number of
shares having voting rights equal to those of common shares was substantially increased and
thereby the voting power of each common share outstanding prior to the meeting was altered or
limited by the resulting pro rata diminution of its potential worth as a factor in the management of
the corporate affairs. Considering that she held diminished voting power; that she notified the
corporation of her objection; that her shares were voted against the amendment—these were
sufficient to qualify her to invoke her statutory appraisal right.

Iglesia Evangelica Metodista En Las Islas Filipinas vs. Bishop Lazaro

G.R. No. 184088; July 6, 2010

FACTS; IEMELIF is a corporation sole. It was registered and by-laws were created which
empowered the election of officers to manage the affairs of the organization. Although, the
petitioner remained a corporation sole on paper, it had always acted like a corporation aggregate.
The Consistory, IEMELIF’s BOD, together with the general membership change the
organizational structure from corporation sole to corporation aggregate, which was approved by
SEC. However, the corporate papers remained unaltered as a corporation sole.

About 28 years later, the issue reemerge. The SEC answered, this time, is that the
conversion was not properly carried out and documented and that it needed to amend its AOI for
that purpose. Acting on the advice, the Consistory resolved to convert but petitioner Rev. Nestor
Pineda in IEMELIF’s name did not support the conversion. Petitioners claim that a complete shift
from IEMELIF’s status as a corporation sole to a corporation aggregate required, not just an
amendment of the IEMELIF’s articles of incorporation, but a complete dissolution of the existing
corporation sole followed by a re-incorporation.

ISSUE: WON a corporation sole may be converted into a corporation aggregate by mere
amendment of its articles of incorporation.

HELD: A corporation may change its character as a corporation sole into a corporation aggregate
by mere amendment of its articles of incorporation without first going through the process of
dissolution.

True, the Corporation Code provides no specific mechanism for amending the articles of
incorporation of a corporation sole. However, Section 109 of the Corporation Code allows the
application to religious corporations of the general provisions governing non-stock corporations.

For non-stock corporations, the power to amend its articles of incorporation lies in its
members. The code requires two-thirds of their votes for the approval of such an amendment. So
how will this requirement apply to a corporation sole that has technically but one member (the
head of the religious organization) who holds in his hands its broad corporate powers over the
properties, rights, and interests of his religious organization?

Although a non-stock corporation has a personality that is distinct from those of its
members who established it, its articles of incorporation cannot be amended solely through the
action of its board of trustees. The amendment needs the concurrence of at least two-thirds of
its membership. If such approval mechanism is made to operate in a corporation sole, its one
member in whom all the powers of the corporation technically belongs, needs to get the
concurrence of two-thirds of its membership. The one member, here the General Superintendent,
is but a trustee, according to Section 110 of the Corporation Code, of its membership.

There is no point to dissolving the corporation sole of one member to enable the
corporation aggregate to emerge from it. Whether it is a non-stock corporation or a corporation
sole, the corporate being remains distinct from its members, whatever be their number. The
increase in the number of its corporate membership does not change the complexion of its
corporate responsibility to third parties. The one member, with the concurrence of two-thirds of
the membership of the organization for whom he acts as trustee, can self-will the amendment. He
can, with membership concurrence, increase the technical number of the members of the
corporation from “sole” or one to the greater number authorized by its amended articles.

Armco Steel Corp. vs. SEC

G.R. No. L-54580; December 29, 1987

FACTS: ARMCO Steel Corp. is a corporation organized in Ohio, USA, hereinafter called ARMCO-
OHIO. ARMCO Marsteel-Alloy Corporation was incorporated in the Philippines under its original
name Marsteel Alloy Company, Inc. but its name was changed to ARMCO-Marsteel Alloy
Corporation hereinafter called ARMCO-Marsteel, by amendment of its Articles of Incorporation
after the ARMCO-Ohio purchased 40% of its capital stock. Both said corporations are engaged
in the manufacture of steel products.

On the other hand, ARMCO Steel Corporation was incorporated in the Philippines,
hereinafter called ARMCO-Philippines. A pertinent portion of its articles of incorporation provides
as among its purposes: "to contract, fabricate ... manufacture ... regarding pipelines, steel frames
... ."

ARMCO-Ohio and ARMCO-Marsteel then filed a petition in the SEC to compel ARMCO-
Philippines to change its corporate name on the ground that it is very similar, if not exactly the
same as the name of one of the petitioners. SEC granted the petition. Respondent amended its
articles of incorporation by changing its name to "ARMCO structures, Inc." which was filed with
and approved by the SEC. Petitioners filed a comment alleging that the change of name of said
respondent was not done in good faith and is not in accordance with the order of the Commission
which was to take out ARMCO and substitute another word in lieu thereof in its corporate name
by amending the articles of incorporation.

ISSUE: WON ARMCO-Philippines had substantially complied in good faith with said order and
said compliance had achieved the purpose of the order, by changing its corporate name with the
approval of SEC.

HELD: NO. The said amendment in the corporate name of petitioner is not in substantial
compliance with the order. To repeat, the order was for the removal of the word "ARMCO" from
the corporate name of the petitioner which it failed to do. And even if this change of corporate
name was erroneously accepted and approved in the SEC it cannot thereby legalize nor change
what is clearly unauthorized if not contemptuous act of petitioner in securing the registration of a
new corporate name against the very previous order of the SEC. Certainly the said previous order
is not rendered functus oficio thereby. Had petitioner revealed at the time of the registration of its
amended corporate name that there was the said order, the registration of the amended corporate
name could not have been accepted and approved by the persons in-charge of the registration.
The actuations in this respect of petitioner are far from regular much less in good faith.

Noted in fact, ARMCO STEEL-PHILIPPINES has not only an identical name but also a
similar line of business. People who are buying and using products bearing the trademark "Armco"
might be led to believe that such products are manufactured by the respondent, when in fact, they
might actually be produced by the petitioners. Thus, the goodwill that should grow and inure to
the benefit of petitioners could be impaired and prejudiced by the continued use of the same term
by the respondent.
P.C. Javier & Sons vs. CA

G.R. No. 129552; June 29, 2005

FACTS: Petitioner applied with First Summa Bank for a loan accommodation under the Industrial
Guarantee Loan Fund (IGLF). The corporation through Pablo Javier was advised that its loan
application was approved and that the same shall be forwarded to the Central Bank for
processing. The Central Bank released the loan. To secure the loan, Javier executed chattel
mortgage in favor of the bank. In the meantime, the bank changed its named to PAIC Savings
and Mortgage Bank Inc. Thereafter, the corporation failed to pay; this prompted the bank to move
for the extrajudicial foreclosure of the mortgages. Petitioner filed an action to restrain the
extrajudicial foreclosure on the ground that First Summa Bank and PAIC Bank are separate
entities.

ISSUE: WON the debtor should be formally notified of the corporate creditor’s change of
name.

HELD: NO. There is no such requirement under the law or any regulation ordering a bank
that changes its corporate name to formally notify all its debtors. This Court cannot impose on a
bank that changes its corporate name to notify a debtor of such change absent any law, circular
or regulation requiring it. Such act would be judicial legislation. The formal notification is,
therefore, discretionary on the bank. Unless there is a law, regulation or circular from the SEC or
BSP requiring the formal notification of all debtors of banks of any change in corporate name,
such notification remains to be a mere internal policy that banks may or may not adopt.

A change in the corporate name does not make a new corporation, whether effected by a
special act or under a general law. It has no effect on the identity of the corporation, or on its
property, rights, or liabilities. The corporation, upon such change in its name, is in no sense a new
corporation, nor the successor of the original corporation. It is the same corporation with a
different name, and its character is in no respect changed.

INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES, petitioner, v. COURT

OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and REFRACTORIES
CORPORATION OF THE PHILIPPINES, respondents.

Facts: Respondent Refractories Corporation of the Philippines (Refractories Corp) is a

corporation duly organized on 1976 engaged in the business of manufacturing, producing, selling,
exporting and otherwise dealing in any and all refractory bricks, its by-products and derivatives.

Petitioner Industrial Refractories Corporation (Industrial Refractories) on the other hand, was
incorporated in 1979 originally under the name Synclaire Manufacturing Corporation. Its amended
Articles of Incorporation changed its corporate name. It is engaged in the business of manufacture
of all kinds of ceramics and other products.
Both companies are local suppliers of monolithic gunning mix. When respondent Refractories
Corp discovered that petitioner was using such corporate name, they filed before the Securities
and Exchange Commission a petition to compel petitioner to change its corporate name on the
ground that it is confusingly similar with that of petitioners such that the public may be confused
or deceived into believing that they are one and the same corporation.

On appeal, petitioner Industrial Refractories contend that there is no confusing similarity between
their corporate names, hence, the said complaint must be denied.

ISSUE: Whether or not there is a need for petitioner Industrial Refractories to change its
corporate name on the ground of confusing similarity with that of the respondent’s?

COURT RULING: Petitioner must change its corporate name. Confusing and deceptive
similarity of corporate names is prohibited under Section 18 of the Corporation Code. The policy
behind the prohibition is to avoid fraud upon the public that will have the occasion to deal with the
entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of
administration and supervision over the corporation. Pursuant to the said law, the Revised
Guidelines in the Approval of Corporate and Partnership Names specifically requires that: (1)
corporate name shall not be identical, misleading or confusingly similar to one already registered
by another corporation with the Commission, and (2) if the proposed name is similar to the name
of a registered firm, the proposed name must contain at least one distinctive word different from
the name of the company already registered.

Further, as held in Philips Export B.V. v. Court of Appeals, to fall within the prohibition of
the law, two requisites must be proven, to wit: (1) that the complainant corporation acquired a
prior right over the use of such corporate name, and (2) the proposed name is either identical,
deceptively or confusingly similar to that of any existing corporation or to any other name protected
by law, or patently deceptive, confusing or contrary to existing law.

Moreover, as to the first requisite or the Priority of Adoption rule, the Court says that the
right to the exclusive use of a corporate name with the freedom from infringement by similarity is
determined by priority of adoption. In this case, respondent Refractories Corp was incorporated
in 1976 while petitioner Industrial Refractories, incorporated in 1979, only started using its name
when it amended its Articles of Incorporation in1985. Hence, being the prior registrant,
Refractories Corp has acquired the right to use ‘Refractories’ as part of its corporate name.

Lastly, with respect to the second requisite, the Court stressed the fact that petitioner’s
corporate name is “Industrial Refractories Corporation of the Philippines”, while respondent is
“Refractories Corporation of the Philippines”. Obviously, both names contain the words:
‘refractories’, ‘corporation’ and ‘Philippines’. The only word that distinguishes the former from the
latter is the word ‘Industrial’, which merely identifies a corporation’s general field of activities or
organization

ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO HESUS, H.S.K. SA BANSANG
PILIPINAS, INC
vs.
IGLESIA NG DIOS KAY CRISTO JESUS, HALIGI AT SUHAY NG KATOTOHANAN

G.R. No. 137592 December 12, 2001

FACTS: Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan, is a non-
stock religious society or corporation registered in 1936. Sometime in 1976, one Eliseo Soriano
and several other members of Respondent Corporation disassociated themselves from the latter
and succeeded in registering on March 30, 1977 a new non-stock religious society or corporation,
named Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan.

On July 16, 1979, Respondent Corporation filed with the SEC a petition to compel
the petitioner to change its corporate name. On May 4, 1988, the SEC rendered judgment in favor
of respondent, ordering the petitioner to change its corporate name to another name that is not
similar or identical to any name already used by a corporation, partnership or association
registered with the Commission.

No appeal was taken from said decision. It appears that during the pendency of SEC
Case, Soriano, et al., caused the registration on April 25, 1980 of Petitioner Corporation, Ang Mga
Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K, sa Bansang Pilipinas.

On March 2, 1994, respondent corporation filed before the SEC a petition, praying that
petitioner be compelled to change its corporate name and be barred from using the same or
similar name on the ground that the same causes confusion among their members as well as the
public. The SEC rendered a decision ordering petitioner to change its corporate name. Petitioner
then filed a petition for review with the CA.

On October 7, 1997, the CA rendered the assailed decision affirming the decision of the
SEC. Petitioner's motion for reconsideration was denied by the CA. Hence, this petition for review.

ISSUE: Whether or not petitioner’s corporate name is deceptively or confusingly similar to that of
petitioner.

RULING: Petitioner claims that it complied with the aforecited SEC guideline by adding not only
two but eight words to their registered name, to wit: "Ang Mga Kaanib" and "Sa Bansang Pilipinas,
Inc.," which, petitioner argues, effectively distinguished it from respondent corporation.

The additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc." in petitioner's name are,
as correctly observed by the SEC, merely descriptive of and also referring to the members, or
kaanib, of respondent who are likewise residing in the Philippines. These words can hardly serve
as an effective differentiating medium necessary to avoid confusion or difficulty in distinguishing
petitioner from respondent. This is especially so, since both petitioner and respondent
corporations are using the same acronym — H.S.K.; not to mention the fact that both are
espousing religious beliefs and operating in the same place. Parenthetically, it is well to mention
that the acronym H.S.K. used by petitioner stands for "Haligi at Saligan ng Katotohanan."
Then, too, the records reveal that in holding out their corporate name to the public, petitioner
highlights the dominant words "IGLESIA NG DIOS KAY KRISTO HESUS, HALIGI AT SALIGAN
NG KATOTOHANAN," which is strikingly similar to respondent's corporate name, thus making it
even more evident that the additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.",
are merely descriptive of and pertaining to the members of respondent corporation.

Significantly, the only difference between the corporate names of petitioner and respondent are
the words SALIGAN and SUHAY. These words are synonymous — both mean ground, foundation
or support. Hence, this case is on all fours with Universal Mills Corporation v. Universal Textile
Mills, Inc., where the Court ruled that the corporate names Universal Mills Corporation and
Universal Textile Mills, Inc., are undisputably so similar that even under the test of "reasonable
care and observation" confusion may arise. 

GSIS Family Bank - Thrift Bank vs. BPI Family Bank

G.R. No. 175278, Sept. 23, 2015

FACTS:

1. Royal Savings Bank encountered liquidity problems so in 1984 it was placed under
receivership & was closed. 2 mos. after it reopened & was renamed Commsavings Bank
Inc.

2. 1987- GSIS acquired petitioner, hence, it management & control was transferred to
GSIS

3. DTI & BSP - approved the application to change its corporate name now to “GSIS,
Family Bank, a Thrift Bank”.

 So petitioner operated under such business name pursuant to the DTI certificate
of registration & Montary Board Circular approval.

4. Respondent BPI Family Bank now assails this change in petitioner’s corporate name.

 BPI Family Bank was a product of merger b/w Family Bank & Trust Company
(FBTC) and the Bank of the Philippine Islands (BPI).

 1969 - the corporate name “Family First Savings Bank” was registered w/
SEC

 Since its incorporation, it has been commonly known as “Family Bank”.

 1985 - BPI acquired all the rights, properties, interest of Family Bank WHICH
INCLUDED the right to use the names such as “Family First Savings Bank”,
“Family Bank” & “Family Bank and Trust Company”
  Hence, BPI Family Savings Bank was registered w/ SEC as a wholly-owned
subsidiary of BPI.

 BPI Family Savings Bank then registered with the Bureau of Domestic Trade the
trade or business name “BPI Family Bank” and acquired a reputation and goodwill
under the name.

5. SEC proceedings: [Respondent filed a petitioner w/ 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

 Claimed exclusive ownership to the name “Family Bank” since it acquired the
name since its purchase & merger way back 1985

 Thru the years, it has been known as “BPI Family Bank” or “Family Bank” both
locally and internationally. As such, it has acquired a reputation and goodwill
under the name, not only with clients here and abroad, but also with
correspondent and competitor banks, and the public in general.

6. SEC ruling: BPI Family Bank has a PRIOR/ preferential RIGHT to the use of the name
Family Bank in the banking industry

 arising from its long & extensive nationwide use

 coupled w/ registration w/ the Intellectual Property Office (IPO) of the name

“Family Bank" as its trade name

 applied the rule of “priority in registration” based on the legal maxim first in time,
first in right

 there is confusing similarity b/w the corporate names although not identical, are
indisputably similar, as to cause confusion in the public mind, even with the
exercise of reasonable care and observation, especially so since both
corporations are engaged in the banking business.

 So it ordered GSIS Family Bank to refrain from using the word “Family” as part of
its name & make goods its commitment to change its name by deleting / dropping
the word w/n 30 days from actual receipt.

7. SEC En Bank affirmed SEC CRMD

8. CA: Affirmed. Further ruled that proof actual confusion need not be shown. It is enough
that confusion is probably or likely to occur.
ISSUES: Should GSIS Family Bank change its corporate name? YES. Sec. 18 of the Corp Code.
- 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.

RATIO: To fall w/n the prohibition of the law on the right to exclusive use of a corporate name, 2
requisites must be proven: [w/c are present in this case]

1. That the complainant corporation acquired a prior right over the use of such corporate
name; and

2. The proposed name is either

a. identical; or

b. deceptive or confusingly similar to that of any existing corporation or to any other

name already protected by law; or

c. patently deceptive, confusing or contrary to existing law.

1st requisite of a PRIOR RIGHT/Priority of adoption rule.

 Here, respondent was incorporated in 1969 as Family Savings Bank then in 1985 as BPI
Family Bank.

 While petitioner was incorporated as GSIS Family-Thrift Bank only in 2002 / 17 yrs after
respondent started using its name.

2nd requisite, the proposed name is

(a) identical; or

(b) deceptive or confusingly similar to that of any existing corporation or to any other name
already protected by law.

As to letter (a): The words “Family Bank” are both in their corporate names, hence, identical.

 Respondent can’t claim under Sec. 3 of the Revised Guidelines in the Approval of
Corporate and Partnership Names wherein it states that if there be identical, misleading
or confusingly similar name to one already registered by another corporation or
partnership with the SEC, the proposed name must contain at least one distinctive
word different from the name of the company already registered.
 o To show contrast w/ respondent’s corporate name, petitioner used the words GSIS
& thrift. BUT these are not sufficiently distinct from that of respondent’s corporate
name

o GSIS = is merely an acronym of the proper name by which petitioner is identified

o Thrift = classification of the type of bank that petitioner is AND still not distinct since
both of them are engaged in the banking business.

As to letter (b): There is deceptive & confusing similarity b/w the 2 as found by SEC.

 Test is whether the similarity is such as to mislead a person using ordinary care and
discrimination. And even without such proof of actual confusion between the two
corporate names, it suffices that confusion is probable or likely to occur.

 HERE, the only words that distinguish the 2 are the “BPI” “GSIS” & “Thrift”.

o The first 2 are merely acronyms of the proper names by w/c the two corp identify
themselves

o While thrift only describes the classification of the bank.

 The overriding consideration in determining whether a person, using ordinary care &
discrimination might be misled is the circumstance that both of them are engaged in
banking business.

 Respondent even alleged that when its clients saw the signage of petitioner “GSIS Family
Bank”, their clients began asking questions such as whether GSIS acquired Family Bank,
whether there is a joint agreement b/w GSIS & Family Bank. Hence, it is not a remote
possibility that the public may entertain the idea that a relationship or arrangement indeed
exists between BPI and GSIS due to the use of the term “Family Bank” in their corporate
names.

Petitioner can’t argue that the word “family” is a generic/descriptive name w/c can’t be
appropriated by respondent but SC disagreed. Family as used in respondent’s corporate name is
NOT generic.

 Generic marks - commonly used as the name or description of a kind of goods, such as
“Lite” for beer or “Chocolate Fudge” for chocolate soda drink.

 Descriptive marks - convey the characteristics, function, qualities or ingredients of a

product to one who has never seen it or does not know it exists, such as “Arthriticare” for
arthritis medication.
  Here, the word family can’t be separated from the word bank. Both parties refer to the
phrase “Family Bank”. This phrase is neither generic nor descriptive” but is merely
suggestive & may properly regarded as arbitrary.

 Arbitrary marks - words or phrases used as a mark that appear to be random in the
context of its use. Easy to remember due to their arbitrariness. They are original &
unexpected in relation to the products they endorse, thus, becoming themselves
distinctive.

 Suggestive marks - are marks, which merely suggest some quality or ingredient of
goods. The strength of this lies on how the public perceives the word in relation to the
product or service.

 Family - a group consisting of parents and children living together in a household / group
of people related to one another by blood or marriage

 Bank - a financial establishment that invests money deposited by customers, pays it out
when requested, makes loans at interest, and exchanges currency

o Hence, by definition, there can be no expected relation between the word

“family” and the banking business of respondent. Rather, the words suggest
that respondent bank is where family savings should be deposited. And “family
bank” can’t be used to define an object.

As to petitioner’s argument that the opinion of BSP + DTI certificate of registration constitute
authority for it to use “GSIS Family Bank” as corporate name = untenable ; it is lodged w/ the
SEC.

 The enforcement of the protection accorded by Section 18 of the Corporation Code to

corporate names is lodged exclusively in the SEC. SEC has absolute jurisdiction,
supervision and control over all corporations

 SEC has the duty to prevent confusion in the use of corporate names not only for the
protection of the corporations involved, but also of the public.

 It has authority to de-register at all time corporate names which are likely to generate
confusion

 In implementing Sec. 18 of Corp. Code, the guideline was issued wherein registrant
coloration must submit a letter undertaking 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

SC also ruled that: Judicial notice may also be taken of the action of the IP in approving
respondent’s registration of the trademark “BPI Family Bank” & its logo on 2008. Because the
certificate of registration of a mark shall be prima facie evidence of the validity of the
registration, the registrant’s ownership of the mark, and of the registrant’s exclusive right
to use the same in connection with the goods or services and those that are related thereto
specified in the certificate

Young Auto Supply vs. CA

G.R. No. 104175; June 25, 1993

FACTS:

YASCO sold all their shares of stock in CMDC to George Roxas. The latter was able to
make a 50% downpayment of the purchase price in cash while the other half were made in post-
dated checks. Subsequently, the post-dated checks were dishonoured which prompted YASCO
to file an action for collection of sum of money in RTC of Cebu. Roxas failed to answer hence he
was declared in default. Without waiting for the resolution of the motion for lifting the order of
default, he filed a petition for certiorari in CA on the ground of improper venue.

ISSUE:

WON the venue was improperly laid.

HELD:

A corporation has no residence in the same sense in which this term is applied to a natural
person. But for practical purposes, a corporation is in a metaphysical sense a resident of the place
where its principal office is located as stated in the articles of incorporation. The Corporation Code
precisely requires each corporation to specify in its articles of incorporation the "place where the
principal office of the corporation is to be located which must be within the Philippines." The
purpose of this requirement is to fix the residence of a corporation in a definite place, instead of
allowing it to be ambulatory.

Actions cannot be filed against a corporation in any place where the corporation maintains
its branch offices. The Court ruled that to allow an action to be instituted in any place where the
corporation has branch offices, would create confusion and work untold inconvenience to said
entity. By the same token, a corporation cannot be allowed to file personal actions in a place other
than its principal place of business unless such a place is also the residence of a co-plaintiff or a
defendant.
 With the finding that the residence of YASCO for purposes of venue is in Cebu City, where
its principal place of business is located, it becomes unnecessary to decide whether Garcia is
also a resident of Cebu City and whether Roxas was in estoppel from questioning the choice of
Cebu City as the venue. The decision of the Court of Appeals was set aside.

Gamboa vs. Teves

G.R. No. 176579; June 28, 2011

This is a petition to nullify the sale of shares of stock of Philippine Telecommunications

Investment Corporation (PTIC) by the government of the Republic of the Philippines, acting
through the Inter-Agency Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc.
(MPAH), an affiliate of First Pacific Company Limited (First Pacific), a Hong Kong-based
investment management and holding company and a shareholder of the Philippine Long Distance
Telephone Company (PLDT).

The petitioner questioned the sale on the ground that it also involved an indirect sale of
12 million shares (or about 6.3 percent of the outstanding common shares) of PLDT owned by
PTIC to First Pacific. With this sale, 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%. This, according to the petitioner, violates 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%, thus:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines, at least sixty per centum of whose capital is owned
by such citizens; x x x

ISSUE:

Does the term “capital” in Section 11, Article XII of the Constitution refer to the total
common shares only, or to the total outstanding capital stock (combined total of common and
non-voting preferred shares) of PLDT, a public utility?

HELD:

[The Court partly granted the petition and held that the term “capital” in Section 11, Article
XII of the Constitution refers only to shares of stock entitled to vote in the election of directors of
a public utility, i.e., to the total common shares in PLDT.]
 Considering that common shares have voting rights which translate to control, as opposed
to preferred shares which usually have no voting rights, the term “capital” in Section 11, Article
XII of the Constitution refers only to common shares. However, if the preferred shares also have
the right to vote in the election of directors, then the term “capital” shall include such preferred
shares because the right to participate in the control or management of the corporation is
exercised through the right to vote in the election of directors. In short, the term “capital” in Section
11, Article XII of the Constitution refers only to shares of stock that can vote in the election of
directors.

To construe broadly the term “capital” as the total outstanding capital stock, including both
common and non-voting preferred shares, grossly contravenes the intent and letter of the
Constitution that the “State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos.” A broad definition unjustifiably disregards who owns
the all-important voting stock, which necessarily equates to control of the public utility.

JOSE M. ROY III v. CHAIRPERSON TERESITA HERBOSA, GR No. 207246, 2016-11-22

Facts:

On June 28, 2011, the Court issued the Gamboa Decision,... that the term "capital" in Section 11,
Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of
directors, and thus in the present case only to common shares, and not to the total outstanding
capital stock (common and non-voting preferred shares).

The Gamboa Decision attained finality on October 18, 2012, and Entry of Judgment was
thereafter issued on December 11, 2012

On May 20, 2013, the SEC, through respondent Chairperson Teresita J. Herbosa, issued SEC-
MC No. 8

Section 2. All covered corporations shall, at all times, observe the constitutional or statutory
ownership requirement. For purposes of determining compliance therewith, the required
percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding
shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding
shares of stock, whether or not entitled to vote in the election of directors.

On June 10, 2013, petitioner Roy, as a lawyer and taxpayer, filed the Petition,[15] assailing the
validity of SEC-MC No. 8 for not conforming to the letter and spirit of the Gamboa Decision and
Resolution and for having been issued by the SEC with grave abuse of discretion.

Issues:

whether the SEC gravely abused its discretion in issuing SEC-MC No. 8 in light of the Gamboa
Decision and Gamboa Resolution

Ruling:
SEC did not commit grave abuse of discretion amounting to lack or excess of jurisdiction when it
issued SEC-MC No. 8. To the contrary, the Court finds SEC-MC No. 8 to have been issued in
fealty to the Gamboa Decision and Resolution.

Gamboa Decision: "capital" in Section II, Article XII of the I987 Constitution refers only to shares
of stock entitled to vote in the election of directors, and thus in the present case only to common
shares, and not to the total outstanding capital stock (common and non-voting preferred shares).

the Gamboa Resolution

Foreign Investments Act of 1991 ("FIA")

Gamboa Resolution put to rest the Court's interpretation of the term "capital"

Full beneficial ownership of stocks, coupled with appropriate voting rights is essential... reiterates
and confirms the interpretation that the term "capital" in Section 11, Article XII of the 1987
Constitution refers to shares with voting rights, as well as with full beneficial ownership.

Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test or the controlling interest
requirement. In fact, Section 2 goes beyond requiring a 60-40 ratio in favor of Filipino nationals in
the voting stocks; it moreover requires the 60-40 percentage ownership in the total number of
outstanding shares of stock, whether voting or not. The SEC formulated SEC-MC No. 8 to adhere
to the Court's unambiguous pronouncement that "[f]ull beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights is required."[79] Clearly,
SEC-MC No. 8 cannot be said to have been issued with grave abuse of discretion

While SEC-MC No. 8 does not expressly mention the Beneficial Ownership Test or full beneficial
ownership of stocks requirement in the FIA, this will not, as it does not, render it invalid meaning,
it does not follow that the SEC will not apply this test in determining whether the shares claimed
to be owned by Philippine nationals are Filipino, i.e., are held by them by mere title or in full
beneficial ownership. To be sure, the SEC takes its guiding lights also from

JOSE M. ROY III v. CHAIRPERSON TERESITA HERBOSA,THE SECURITIES AND

EXCHANGE COMMISSION, AND PHILIPPINE LONG DISTANCE TELEPHONE COMPANY

G.R. No. 207246, April 18, 2017 EN BANC (CAGUIOA)

DOCTRINE: Section 11, Article XII of the Constitution, which provides: "No franchise, certificate,
or any other form of authorization for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations organized under the laws of the
Philippines at least sixty per centum of whose capital is owned by such citizens.”
FACTS: Petitioner Jose M. Roy III sought the reversal and setting aside of the Decision dated
November 22, 2016, which denied his petition, and declared that the Securities and Exchange
Commission (SEC) did not commit grave abuse of discretion in issuing Memorandum Circular No.
8, Series of 2013 (SEC-MC No. 8) as the same was in compliance with, and in fealty to, the
decision of the Court in Gamboa v. Finance Secretary Teves and the resolution denying the
Motion for Reconsideration therein. The grounds raised by movant are: He has the requisite
standing because this case is one of transcendental importance; The Court has the constitutional
duty to exercise judicial review over any grave abuse of discretion by any instrumentality of
government; (3) He did not rely on an obiter dictum; and The Court should have treated the
petition as the appropriate device to explain the Gamboa Decision.

The heart of the controversy is the interpretation of Section 11, Article XII of the Constitution,
which provides: "No franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per centum of whose capital is owned
by such citizens xxx."

ISSUE: Should the Motion for Reconsideration be granted?

RULING: No. The Court ruled that petitioners (movant and petitioners-in-intervention) failed to
sufficiently allege and establish the existence of a case or controversy and locus standi on their
part to warrant the Court's exercise of judicial review; the rule on the hierarchy of courts was
violated; and petitioners failed to implead indispensable parties such as the Philippine Stock
Exchange, Inc. and Shareholders' Association of the Philippines, Inc. Other than PLDT, the
petitions failed to join or implead other public utility corporations subject to the same restriction
imposed by Section 11, Article XII of the Constitution. They should be afforded due notice and
opportunity to be heard, lest they be deprived of their property without due process.

The Court disposed of the issue on whether the SEC gravely abused its discretion in ruling that
respondent PLDT is compliant with the limitation on foreign ownership under the Constitution and
other relevant laws as without merit. The Court reasoned that what the Constitution requires is
"[f]ull [and legal] beneficial ownership of 60 percent of the outstanding capital stock, coupled with
60 percent of the voting rights xxx must rest in the hands of Filipino nationals xxx."And, precisely
that is what SEC-MC No. 8 provides, viz.: "xxx For purposes of determining compliance [with the
constitutional or statutory ownership], the required percentage of Filipino ownership shall be
applied to BOTH (a) the total number of outstanding shares of stock entitled to vote in the election
of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to
vote xxx."

In construing "full beneficial ownership, the Implementing Rules and Regulations of the Foreign
Investments Act of 1991 (FIA-IRR) provides: For stocks to be deemed owned and held by
Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required
Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is
essential. It bears repeating here that the Court in the Gamboa Decision adopted the foregoing
definition of the term "capital" in Section 11, Article XII of the 1987 Constitution in express
recognition of the sensitive and vital position of public utilities both in the national economy and
for national security, so that the evident purpose of the citizenship requirement is to prevent aliens
from assuming control of public utilities, which may be inimical to the national interest.

So long as Filipinos have controlling interest of a public utility corporation, their decision to declare
more dividends for a particular stock over other kinds of stock is their sole prerogative - an act of
ownership that would presumably be for the benefit of the public utility corporation itself. Thus, as
explained in the Decision:

In this regard, it would be apropos to state that since Filipinos own at least 60% of the outstanding
shares of stock entitled to vote directors, which is what the Constitution precisely requires, then
the Filipino stockholders control the corporation, i.e., they dictate corporate actions and
decisions, and they have all the rights of ownership including, but not limited to, offering certain
preferred shares that may have greater economic interest to foreign investors as the need for
capital for corporate pursuits (such as expansion), may be good for the corporation that they own.
Surely, these "true owners" will not allow any dilution of their ownership and control if such move
will not be beneficial to them.

WHEREFORE, the subject Motion for Reconsideration is hereby DENIED WITH FINALITY. No
further pleadings or motions shall be entertained in this case. Let entry of final judgment be issued
immediately.

Narra Nickel Mining vs Redmont

Case Digest GR 185590, Apr 21 2014

Facts: Redmont is a domestic corporation interested in the mining and exploration of some areas
in Palawan. Upon learning that those areas were covered by MPSA applications of other three
(allegedly Filipino) corporations – Narra, Tesoro, and MacArthur, it filed a petition before the Panel
of Arbitrators of DENR seeking to deny their permits on the ground that these corporations are in
reality foreign-owned. MBMI, a 100% Canadian corporation, owns 40% of the shares of PLMC
(which owns 5,997 shares of Narra), 40% of the shares of MMC (which owns 5,997 shares of
McArthur) and 40% of the shares of SLMC (which, in turn, owns 5,997 shares of Tesoro).
Aside from the MPSA, the three corporations also applied for FTAA with the Office of the
President. In their answer, they countered that (1) the liberal Control Test must be used in
determining the nationality of a corporation as based on Sec 3 of the Foreign Investment Act –
which as they claimed admits of corporate layering schemes, and that (2) the nationality question
is no longer material because of their subsequent application for FTAA.

Issue 1: W/N the Grandfather Rule must be applied in this case

Yes. It is the intention of the framers of the Constitution to apply the Grandfather Rule in
cases where corporate layering is present.

First, as a rule in statutory construction, when there is conflict between the Constitution
and a statute, the Constitution will prevail. In this instance, specifically pertaining to the provisions
under Art. XII of the Constitution on National Economy and Patrimony, Sec. 3 of the FIA will have
no place of application. Corporate layering is admittedly allowed by the FIA, but if it is used to
circumvent the Constitution and other pertinent laws, then it becomes illegal.

Second, under the SEC Rule1 and DOJ Opinion2 , the Grandfather Rule must be applied
when the 60-40 Filipino-foreign equity ownership is in doubt. Doubt is present in the Filipino
equity ownership of Narra, Tesoro, and MacArthur since their common investor, the 100%
Canadian-owned corporation – MBMI, funded them.

Under the Grandfather Rule, it is not enough that the corporation does have the required
60% Filipino stockholdings at face value. To determine the percentage of the ultimate Filipino
ownership, it must first be traced to the level of the investing corporation and added to the shares
directly owned in the investee corporation. Applying this rule, it turns out that the Canadian
corporation owns more than 60% of the equity interests of Narra, Tesoro and MacArthur. Hence,
the latter are disqualified to participate in the exploration, development and utilization of the
Philippine’s natural resources.

Narra Nickel Mining vs Redmont

G.R. No. 195580, January 28, 2015

Facts: 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

Held: 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

Roman Catholic Apostolic Administrator of Davao, Inc. v. The Land Registration

Commission and the Register of Deeds of Davao City, G.R. No. L-8451, December 20,1957

Facts:

On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed
a deed of sale of a parcel of land located in the same city covered by Transfer Certificate No.
2263, in favor of the Roman Catholic Apostolic Administrator of Davao Inc.,(RCADI) is corporation
sole organized and existing in accordance with Philippine Laws, with Msgr. Clovis Thibault, a
Canadian citizen, as actual incumbent. Registry of Deeds Davao (RD) required RCADI to submit
affidavit declaring that 60% of its members were Filipino Citizens.

As the RD entertained some doubts as to the registerability of the deed of sale, the matter
was referred to the Land Registration Commissioner (LRC) en consulta for resolution. LRC hold
that pursuant to provisions of sections 1 and 5 of Article XII of the Philippine Constitution, RCADI
is not qualified to acquire land in the Philippines in the absence of proof that at leat 60% of the
capital, properties or assets of the RCADI is actually owned or controlled by Filipino citizens. LRC
also denied the registration of the Deed of Sale in the absence of proof of compliance with such
requisite. RCADI’s Motion for Reconsideration was denied. Aggrieved, the latter filed a petition
for mandamus.

Issue:

Whether or not the Universal Roman Catholic Apostolic Church in the Philippines, or better still,
the corporation sole named the Roman Catholic Apostolic Administrator of Davao, Inc., is qualified
to acquire private agricultural lands in the Philippines pursuant to the provisions of Article XIII of
the Constitution.

Ruling:

RCADI is qualified.

While it is true and We have to concede that in the profession of their faith, the Roman
Pontiff is the supreme head; that in the religious matters, in the exercise of their belief, the Catholic
congregation of the faithful throughout the world seeks the guidance and direction of their Spiritual
Father in the Vatican, yet it cannot be said that there is a merger of personalities resultant therein.
Neither can it be said that the political and civil rights of the faithful, inherent or acquired under
the laws of their country, are affected by that relationship with the Pope.

The fact that the Roman Catholic Church in almost every country springs from that society
that saw its beginning in Europe and the fact that the clergy of this faith derive their authorities
and receive orders from the Holy See do not give or bestow the citizenship of the Pope upon
these branches. Citizenship is a political right which cannot be acquired by a sort of “radiation”.
We have to realize that although there is a fraternity among all the catholic countries and the
dioceses therein all over the globe, the universality that the word “catholic” implies, merely
characterize their faith, a uniformity in the practice and the interpretation of their dogma and in
the exercise of their belief, but certainly they are separate and independent from one another in
jurisdiction, governed by different laws under which they are incorporated, and entirely
independent on the others in the management and ownership of their temporalities.

To allow theory that the Roman Catholic Churches all over the world follow the citizenship
of their Supreme Head, the Pontifical Father, would lead to the absurdity of finding the citizens of
a country who embrace the Catholic faith and become members of that religious society, likewise
citizens of the Vatican or of Italy. And this is more so if We consider that the Pope himself may be
an Italian or national of any other country of the world. The same thing be said with regard to the
nationality or citizenship of the corporation sole created under the laws of the Philippines, which
is not altered by the change of citizenship of the incumbent bishops or head of said corporation
sole.

We must therefore, declare that although a branch of the Universal Roman Catholic Apostolic
Church, every Roman Catholic Church in different countries, if it exercises its mission and is
lawfully incorporated in accordance with the laws of the country where it is located, is considered
an entity or person with all the rights and privileges granted to such artificial being under the laws
of that country, separate and distinct from the personality of the Roman Pontiff or the Holy See,
without prejudice to its religious relations with the latter which are governed by the Canon Law or
their rules and regulations.

It has been shown before that: (1) the corporation sole, unlike the ordinary corporations which are
formed by no less than 5 incorporators, is composed of only one persons, usually the head or
bishop of the diocese, a unit which is not subject to expansion for the purpose of determining any
percentage whatsoever; (2) the corporation sole is only the administrator and not the owner of
the temporalities located in the territory comprised by said corporation sole; (3) such temporalities
are administered for and on behalf of the faithful residing in the diocese or territory of the
corporation sole; and (4) the latter, as such, has no nationality and the citizenship of the incumbent
Ordinary has nothing to do with the operation, management or administration of the corporation
sole, nor effects the citizenship of the faithful connected with their respective dioceses or
corporation sole.

In view of these peculiarities of the corporation sole, it would seem obvious that when the specific
provision of the Constitution invoked by respondent Commissioner (section 1, Art. XIII), was under
consideration, the framers of the same did not have in mind or overlooked this particular form of
corporation. If this were so, as the facts and circumstances already indicated tend to prove it to
be so, then the inescapable conclusion would be that this requirement of at least 60 per cent of
Filipino capital was never intended to apply to corporations sole, and the existence or not a vested
right becomes unquestionably immaterial.

Pioneer Insurance vs. CA

G.R. No. 84197; July 28, 1989

FACTS:

Jacob S. Lim is an owner-operator of Southern Airlines (SAL), a single proprietorship.

Japan Domestic Airlines (JDA) and Lim entered into a sales contract. Pioneer Insurance and
Surety Corp. as surety executed its surety bond in favor of JDA on behalf of its principal Lim.
Border Machinery and Heacy Equipment Co, Inc., Francisco and Modesto Cervantes, and
Constancio Maglana contributed funds for the transaction based on the misrepresentation of Lim
that they will form a new corporation to expand his business.

Lim as SAL executed in favor of Pioneer a deed of chattel mortgage as security.

Restructuring of obligation to change the maturity was done twice without the knowledge of the
other defendants. Upon default on the payments, Pioneer paid for him and filed a petition for the
foreclosure of chattel mortgage as security. Maglana, Bormaheco and the Cervantes’s filed cross-
claims against Lim alleging that they were not privies to the contracts signed by Lim and, by way
of counterclaim, sought for damages for being exposed to litigation and for recovery of the sums
of money they advanced to Lim for the purchase of the aircrafts in question. After trial on the
merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's
complaint against all other defendants.

ISSUE:

WON failure of the respondents to incorporate automatically resulted to de facto

partnership.

HELD:

NO. Partnership inter se does not necessarily exist, for ordinarily persons cannot be made
to assume the relation of partners as between themselves, when their purpose is that no
partnership shall exist and it should be implied only when necessary to do justice between the
parties; thus, one who takes no part except to subscribe for stock in a proposed corporation which
is never legally formed does not become a partner with other subscribers who engage in business
under the name of the pretended corporation, so as to be liable as such in an action for settlement
of the alleged partnership and contribution.

The petitioner, in his answer, denied having received any amount from respondents
Bormaheco, the Cervantes’s and Maglana. It is therefore clear that the petitioner never had the
intention to form a corporation with the respondents despite his representations to them. Applying
therefore the principles of law, no de facto partnership was created among the parties which would
entitle the petitioner to a reimbursement of the supposed losses of the proposed corporation.

Municipality of Malabang vs. Benito

G.R. No. L-28113; March 28, 1969

FACTS:

Petitioner Balindong is the municipal mayor of Malabang, Lanao del Sur while respondents
are Mayor Benito and councilors of Municipality of Balabagan of the same province. Balabagan
(formerly part of Malabang) was created by Executive Order 386 of the then President Carlos P.
Garcia, out of barrios and sitios of the Malabang.

Citing Pelaez ruling that Republic Act 2370 (Barrio Charter Act), vested power to create
barrios in the provincial board, and Section 68 of the Administrative Code, insofar as it gives the
President the power to create municipalities, is unconstitutional. Petitioner sought to nullify E.O.
386 and restrain respondents from performing their official functions. Respondents argued that
Pelaez ruling did not apply because unlike the municipalities involved therein, the municipality
of Balabagan is at least a de facto corporation, having been organized under color of a statute
before this was declared unconstitutional (by Pelaez ruling), 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.

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.

Hall vs. Piccio

G.R. No. L-2598; June 29, 1950

FACTS: Petitioners Arnold Hall, Bradley Hall and private respondents Fred Brown, Emma Brown,
Hipolita Chapman and Ceferino Abella signed and acknowledged the AOI of the Far Eastern
Lumber and Commercial Co., Inc. organized to engage in a general lumber business to carry on
as general contractors, operators and managers.

Immediately after the execution of the articles of incorporation, the corporation proceeded to do
business with the adoption of by-laws and the election of its officers. Then, the articles of
incorporation were filed in SEC for the issuance of the corresponding certificate of incorporation.

Pending action on the AOI, private respondents filed a civil case against the Halls alleging
among other things that Far Eastern Lumber and Commercial Co, was an unregistered
partnership and that they wished to have it dissolved because of bitter dissension among the
members, mismanagement and fraud by the managers and heavy financial losses. The
petitioners filed a Motion to Dismiss contesting the court’s jurisdiction and the sufficiency of the
cause of action but Judge Piccio ordered the dissolution of the company and appointed a receiver.

ISSUE: WON the court had jurisdiction to decree the dissolution of the company because it being
a de facto corporation, dissolution may only be ordered in a quo warranto proceeding in
accordance with Section 19.

HELD: YES. The court had jurisdiction but Section 19 does not apply. It held that there was no
‘de facto’ corporation on the ground that the corporation cannot claim to be in ‘good faith’ to be a
corporation when it has not yet obtained its certificate of incorporation.

The immunity of collateral attack is granted to corporations “claiming in good faith to be

corporation under this act.” Such a claim is compatible with the existence of errors and
irregularities but not with a total or substantial disregard of the law. Unless there has been an
evident attempt to comply with the law, the claim to be a corporation “under this act” could not be
made “in good faith.”

Moreover, this is not a suit in which the corporation is a party. This is 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.

Cagayan Fishing vs. Sandiko

G.R. No. L-43350; December 23, 1937

FACTS:

Manuel Tabora is the registered owner of four parcels of land. The four parcels were
mortgaged for loans and indebtedness. However, Tabora executed a public document (Exhibit A)
by virtue of which the four parcels of land owned by him was sold to the plaintiff company, which
at that time is still under the process of incorporation.

A year later, the BOD of said company adopted a resolution authorizing its president to
sell the four parcels of lands in question to Teodoro Sandiko. Exhibits B, C and D were thereafter
made and executed. Exhibit B is a deed of sale where the plaintiff sold, ceded and transferred to
the defendant the four parcels of land. Exhibit C is a promissory note drawn by the defendant in
favor of the plaintiff. Exhibit D is a deed of mortgage executed where the four parcels of land were
given a security for the payment of the promissory note. Defendant failed to pay thus plaintiff filed
a collection of sum of money in the Court of First Instance in Manila. The latter rendered judgment
absolving the defendant. Plaintiff has appealed to this court and makes an assignment of various
errors.

ISSUE: WON the sale made by the plaintiff corporation is valid.

HELD NO. The transfer was made almost five months before the incorporation of the company.
Although, 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. However 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 a contract of sale. 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. It 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.

Harill vs. Davis

168 F. 187; 1909

FACTS: The constitutive documents were filed with the clerk of the Court of Appeals but not with
the clerk of court in the judicial district where the business was located. Arkansas law requires
filing in both offices.

ISSUE: Was there ‘colorable’ compliance enough to give the supposed corporation at least the
status of a ‘de facto’ corporation?

HELD: NO. Neither the hope, the belief, nor the statement by parties that they are incorporated,
nor the signing of the articles of incorporation which are not filed, where filing is requisite to create
the corporation, nor the use of the pretended franchise of the nonexistent corporation, will
constitute such a corporation de facto as will exempt those who actively and knowingly uses name
to incur legal obligations from their individual liability to pay them. There could be no incorporation
or color of it under the law until the articles were filed (requisites for valid incorporation).

Chiang Kai Shek School vs. CA

G.R. No. L-58028; April 18, 1989

FACTS: Fausta F. Oh reported for work at the Chiang Kai Shek School in Sorsogon on the first
week of July, 1968. She was told she had no assignment for the next semester. Oh was shocked
for she had been teaching in the school since1932 for a continuous period of almost 33 years.
And now, for no apparent or given reason, this abrupt dismissal. She demanded separation pay,
social security benefits, salary differentials, maternity benefits and moral and exemplary
damages.

The original defendant was the Chiang Kai Shek School but when it filed a motion to
dismiss on the ground that it could not be sued, the complaint was amended. Certain officials of
the school were also impleaded to make them solidarily liable with the school. Court of First
Instance of Sorsogon dismissed the complaint. On appeal, its decision was set aside by the
respondent court, which held the school suable and liable while absolving the other defendants.

ISSUE WON a school that has not been incorporated may be sued by reason alone of its long
continued existence and recognition by the government.

HELD: YES. Having been recognized by the government, it was under obligation to incorporate
under the Corporation Law within 90 days from such recognition. It appears that it had not done
so at the time the complaint was filed notwithstanding that it had been in existence even earlier
than 1932. The petitioner cannot now invoke its own non-compliance with the law to immunize it
from the private respondent's complaint.

There should also be no question that having contracted with the private respondent every
year for thirty two years and thus represented itself as possessed of juridical personality to do so,
the petitioner is now estopped from denying such personality to defeat her claim against it.
According to Article 1431 of the Civil Code, "through estoppel an admission or representation is
rendered conclusive upon the person making it and cannot be denied or disproved as against the
person relying on it."

Lim Tong Lim vs. Phil. Fishing Gear Industries

G.R. No. 136448; November 3, 1999

FACTS: Chua and Yao entered into a contract for the purchase of fishing nets on behalf of Ocean
Quest Fishing Corp. from Phil Fishing Gear Industries. Chua and Yao claimed that they were
engaged in a business with Lim Tong Lim but who was not a signatory to the agreement. They
failed to pay thus PFGI filed collection suit against the three: Chua, Yao and Lim as general
partners because Ocean Quest is a non-existing corporation as shown by a certificate from SEC.
Lim filed for the lift of the Writ of Attachment but RTC maintained the writ and ordered the sale of
the nets. RTC maintains that there is partnership because of the Compromise Agreement entered
by them, although silent as to the nature of their obligations but presumes that there is equal
distribution of the profit and loss. CA affirmed.

ISSUE: WON Lim may be regarded as a partner when the sole basis is the Compromise
Agreement and not considering the fact that he has not signed any transaction nor met any of the
representatives of the Phil. Fishing Gears.

HELD: YES. There is partnership. It is clear in the factual findings that they have decided to
engage in a fishing business where they bought boats from the loan they got from J. Lim, who is
Lim’s brother. The partnership extended not only to the boats but also to the nets and the floats.

In their Compromise Agreement, they subsequently revealed their intention to pay the loan
with the proceeds of the sale of the boats, and to divide equally among them the excess of loss.
These boats, the purchase and the repair of which were financed with borrowed money, fell under
the term “common fund” under Article 1767. The contribution to such fund need not be case of
fixed assets; it could be an intangible like credit or industry. That the parties agreed that any loss
or profits from the sale and operation of the boats would be divided early among them also shows
that they had indeed formed a partnership.

Technically, it is true that petitioner did not directly act on behalf of the corporation.
However, having reaped the benefits of the contract entered into by person with whom he
previously had an existing relationship, he is deemed to be part of said association and is covered
by the scope of the doctrine of corporation by estoppel.

International Express Travel vs. CA

G.R. No. 119002; October 19, 2000

FACTS: Express Travel wrote a letter to the Phil. Football Federation thru the president Henry
Kahn offering its services to the latter and Kahn accepted this. The federation consisting of
athletes and officials, went to the South East Asian Games in Malaysia and other trips to other
countries. Federation incurred expenses and made two partial payments. Kahn issued a personal
check as a partial payment then failed to pay thereafter. Express Travel sued Henry Kahn in his
personal capacity and as president and impleaded the federation as an alternative defendant.
Henry Kahn allege that there is no cause of action against him in his personal capacity or official
capacity and that he did not guarantee the payment and merely acted as an agent. RTC ruled
that Henry Kahn is personally liable and that there is no proof that the federation has a corporate
existence. CA reversed on the ground that Federation has juridical existence.

ISSUE: WON Federation has a juridical existence.

HELD: NO. The basis of CA that RA 3135 Revised Charter of the Phil. Amateur Athletic
Federation and PD 604 that recognizes the juridical existence of National Sports Association is
not correct. Mere passage of these laws DOES NOT AUTOMATICALLY vest the associations a
CORPORATE STATUS. The State must give its consent: in the form of a special law of a general
enabling act. These laws merely recognized the existence of national sports associations.

Henry Kahn shall be held liable for the unpaid obligations of the unincorporated
Federation. It is a settled rule that any person acting or purporting to act on behalf of a corporation
which has no valid existence assumes such privileges and obligations and becomes personally
liable for contracts entered into or for other acts performed as such agent.

Petitioner cannot be held estopped because the doctrine of corporation by estoppel is

mistakenly applied by the respondent court to the petitioner. The application of the doctrine
applies to a third party only when he tries to escape liability on a contract from which he has
benefited on the irrelevant ground of defective corporation. Petitioner is not trying to escape
liability but is the one claiming from the contract.

Paz v. New International Environmental Universality, Inc., G . R. No . 203993,April20,2015

DOCTRINE/S: Section 21 of the Corporation Code explicitly provides that 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. (Doctrine of Estoppel)

FACTS: ● Priscillo Paz, entered into a MOA with Captain Allan J. Clarke, president of International
Environmental University , for the use of the aircraft hangar space at the said airport exclusively
for “company aircraft/helicopter” for a period of four years, unless pre-terminated with 6-months
notice.

● By letters to “MR ALLAN J. CLARK, International Environmental Universality Inc. , Paz

threatened to cancel the contract since the company was using it to park trucks and equipments
instead of aircraft. More letters were sent demanding compliance with the MOA, to no avail.
● Paz then caused disconnection of electric and telephone lines of respondent’s premises; and
ordered security guards to prevent respondent’s employees from entering the premises - without
giving respondent the 6- month notice as required under the MOA ● Respondent then filed an
action for breach of contract against Paz, alleging that his acts violated the terms of the MOA

● In his answer, Paz alleged that the company had no cause of action since he dealt with Mr.
Allan J. Clark in his personal capacity; there was no need to wait for the expiration of the contract
since the company was performing high risk works in the leased premises and the six-month
notice was given thru his letters given to Mr. Allan J. Clarke.

● RTC rendered judgment in favour of the corporation

● CA dismissed Priscillo’s appeal, ruling that, while there was no corporate entity at the time of
the execution of the MOA on March 1, 2000 when Capt. Clarke signed as “President of
International Environmental University,” petitioner is nonetheless estopped from denying thahe
had contracted with respondent as a corporation, having recognized the latter as the “Second
Party” in the MOA that “will use the hangar space exclusively for company aircraft/ helicopter.”

● Paz elevated his case to the SC, contending that case should be dismissed for failure to implead
Allan J. Clarke, and lack of legal capacity of the corporation.

ISSUE/S: (1) WON Capt. Clarke should have been impleaded in the case as an
indispensable party?

(2) WON there was breach of contract on the part of petitioner?

HELD: (1) NO. Capt. Clarke was not an indispensable party because he was merely an agent of
respondent company. While Capt. Clarke’s name and signature appeared on the MOA, his
participation was, nonetheless, 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. Therefore, he was not an indispensable
party to the case at bar.

CA had correctly pointed out that, from the very language itself of the MOA entered into
by 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.

Petitioner further acknowledged this fact in his final demand letter where he reiterated
and strongly demanded the respondent to immediately vacate the hangar space his "company is
occupying/utilizing” Section 21 of the Corporation Code explicitly provides that 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. Clearly, petitioner is bound by his obligation under
the MOA not only on estoppel but by express provision of law. Courts have no power to relieve
parties from obligations they voluntarily assumed, simply because their contracts turn out to be
disastrous deals or unwise investments.
 (2) YES. Petitioner is liable for breach of contract for effectively evicting respondent from
the leased premises even before the expiration of the term of the lease.1 If it were true that
respondent was violating the terms and conditions of the lease, "[petitioner] should have gone to
court to make the [former] refrain from its 'illegal' activities or seek rescission of the [MOA], rather
than taking the law into his own hands."