3E 2012-2013 Cases for Corpo: 1. Municipality of Malabang v. Benito 27 SCRA 533 2.

. International Express Travel & Tour Sevices, Inc. v. CA 343 SCRA 674 3. Pantranco Employees Association (PEA-PTGWO) v. NLRC 581 SCRA 598 4. Lim Tong Lim v. Philippine Fishing Gear Industries, Inc. 317 SCRA 728 5. Yutivo Sons Hardware Co. v. CA 1 SCRA 160 6. Lidell & Co., Inc. v. CIR 2 SCRA 632 7. Young Auto Supply Co. v. CA 223 SCRA 670 8. Chiang Kai Shek School v. CA 172 SCRA 389 9. Lyceum of the Philippines, Inc. v. CA 219 SCRA 610 10. Philips Export B.V. v. CA 206 SCRA 457 11. Jardine Davies, Inc. v. JRB Realty, Inc. 463 SCRA 555 12. Salafranca v. Philamlife (Pamplona) Village Homeowners Assoc., Inc. 300 SCRA 469 13. Loyola Grand Villas Homeowners (South) Association, Inc. v. CA 276 SCRA 681 14. Armco Steel Corporation of the Phils. v. SEC 156 SCRA 822 15. Government of the Phil. Island v. Avila 46 Phil 146 16. Vda. de Salvatierra v. Hon. Garlitos and Refuerzo 103 Phil 757 17. Koppel (Phil), Inc. v. Yatco 77 Phil 496 18. National Bank v. De Poli and Wise & Co. 44 Phil 763 19. Philippine Trust Co. v. Rivera 44 Phil 469 20. Fleischer v. Botica Nolasco Co. 47 Phil 583 21. La Campana Coffee Factory, Inc. v. Kaisahan ng mga Manggagawa sa La Campana (KKM) 93 Phil 160 22. People v. Bayona 61 Phil 181 23. Government of Philippine Island v. El Hogar Filipino 50 Phil 399 24. National Exchange Co. v. Dexter 51 Phil 601 25. Lingayen Gulf Electric Power Company, Inc. v. Baltazar 93 Phil 404 26. Lumanlan v. Cura 59 Phil 746 27. De Silva v. Aboitiz & Co. 44 Phil 755

Petitioners brought this action for prohibition to nullify Executive Order 386 and to restrain the respondent municipal officials from performing the functions of their respective office relying on the ruling of this Court in Pelaez v. Auditor General and Municipality of San Joaquin v. Siva. PELAEZ RULING: That section 68 of the Administrative Code, insofar as it gives the President the power to create municipalities, is unconstitutional (a) because it constitutes an undue delegation of legislative power and (b) because it offends against section 10 (1) of article VII of the Constitution, which limits the Presidents power over local governments to mere supervision CONTENTION OF RESPONDENT: The municipality of Balabagan is at least a de facto corporation, having been organized under color of a statute before this was declared unconstitutional. That as a de facto corporation, its existence cannot be collaterally attacked, although it may be inquired into directly in an action for quo warranto at the instance of the State and not of an individual like the petitioner Balindong.

Issue: Whether the municipality of Balabagan is a de facto corporation Whether a statute can lend color of validity to an attempted organization of a municipality despite the fact that such statute is subsequently declared unconstitutional.

1.MUNICIPALITY OF MALABANG vs. BONITO G.R. No. L-28113 EN BANC Facts: Petitioner Balindong is the mayor of Malabang, Lanao del Sur. Respondent Bonito is the mayor, and the rest of the respondents are the councilors, of the municipality of Balabagan of the same province. Balabagan was formerly a part of the municipality of Malabang, having been created by Executive Order 386 of the then President C.P. Garcia March 28, 1969

Held: No. I. The color of authority requisite to the organization of a de facto municipal corporation may be: 1. A valid law enacted by the legislature. 2. An unconstitutional law, valid on its face, which has either (a) been upheld for a time by the courts or (b) not yet been declared void; provided that a warrant for its creation can be found in some other valid law or in the recognition of its potential existence by the general laws or constitution of the state. II. There can be no de facto municipal corporation unless either directly or potentially,

such a de jure corporation is authorized by some legislative fiat. III. There can be no color of authority in an unconstitutional statute alone, the invalidity of which is apparent on its face. IV. There can be no de facto corporation created to take the place of an existing de jure corporation, as such organization would clearly be a usurper. In the cases where a de facto municipal corporation was recognized as such despite the fact that the statute creating it was later invalidated, the decisions could fairly be made to rest on the consideration that there was some other valid law giving corporate vitality to the organization. Hence, in the case at bar, the mere fact that Balabagan was organized at a time when the statute had not been invalidated cannot conceivably make it a de facto corporation, as, independently of the Administrative Code provision in question, there is no other valid statute to give color of authority to its creation. Executive Order 386 created no office ACCORDINGLY, the petition is granted, Executive Order 386 is declared void, and the respondents are hereby permanently restrained from performing the duties and functions of their respective office. October 19, 2000

On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter requesting for the amount of P265,894.33. Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the outstanding balance of the Federation. Thereafter, no further payments were made despite repeated demands. This prompted petitioner to file a civil case before the RTC of Manila. Petitioner sued Henri Kahn in his personal capacity and as President of the Federation and impleaded the Federation as an alternative defendant. Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by the Federation on the ground that Henri Kahn allegedly guaranteed the said obligation. Henri Kahn averred that the petitioner has no cause of action against him either in his personal capacity or in his official capacity as president of the Federation. He maintained that he did not guarantee payment but merely acted as an agent of the Federation which has a separate and distinct juridical personality. In due course, the trial court rendered judgment and ruled in favor of the petitioner and declared Henri Kahn personally liable for the unpaid obligation of the Federation: Defendant Henri Kahn would have been correct in his contentions had it been duly established that defendant Federation is a corporation. The trouble, however, is that neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving the corporate existence of the defendant Federation. A voluntary unincorporated association, like defendant Federation has no power to enter into, or to ratify, a contract. The contract entered into by its officers or agents on behalf of such association is not binding on, or enforceable against it. The officers or agents are themselves personally liable. In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of the Federation. It rationalized that since petitioner failed to prove that Henri Kahn guaranteed the obligation of the Federation, he should not be held liable for the same as said entity has a separate and distinct personality from its officers.

2. G.R. No. 119002

INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION, respondents. KAPUNAN, J.: FACTS: On June 30 1989, petitioner International Express Travel and Tour Services, Inc. wrote a letter to the Philippine Football Federation (Federation), through its president private respondent Henri Kahn, wherein the former offered its services as a travel agency to the latter. The offer was accepted and petitioner secured the airline tickets for the trips of the athletes and officials of the Federation.

ISSUE: Whether or not Philippine Football Federation is a juridical person. HELD: As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical existence of national sports associations. This may be gleaned from the powers and functions granted to these associations. The powers and functions granted to national sports associations clearly indicate that these entities may acquire a juridical personality. The power to purchase, sell, lease and encumber property are acts which may only be done by persons, whether natural or artificial, with juridical capacity. However, while we agree with the appellate court that national sports associations may be accorded corporate status, such does not automatically take place by the mere passage of these laws. It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form of a special law or a general enabling act. Clearly the above cited provisions require that before an entity may be considered as a national sports association, such entity must be recognized by the accrediting organization. This fact of recognition, however, Henri Kahn failed to substantiate. In attempting to prove the juridical existence of the Federation, Henri Kahn attached to his motion for reconsideration before the trial court a copy of the constitution and by-laws of the Philippine Football Federation. Unfortunately, the same does not prove that said Federation has indeed been recognized and accredited. Accordingly, we rule that the Philippine Football Federation is not a national sports association within the purview of the aforementioned laws and does not have corporate existence of its own. Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football Federation. It is a settled principal in corporation law that any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or for other acts performed as such agent. As president of the Federation, Henri Kahn is presumed to have known about the corporate existence or non-existence of the Federation.
4. THIRD DIVISION

LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent. DECISION PANGANIBAN, J.:
The Facts

[G.R. No. 136448. November 3, 1999]

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. Nets and Four hundred pieces of floats were also sold to the Corporation. The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their capacities as general partners, on the allegation that Ocean Quest Fishing Corporation was a nonexistent corporation as shown by a Certification from the Securities and Exchange Commission. The lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila. Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to pay. He also turned over to respondent some of the nets which were in his possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to cross-examine witnesses and to present evidence on his behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Cross claim and moved for the lifting of the Writ of Attachment. The trial court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds. The trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent. The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the three The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability could be

presumed from the equal distribution of the profit and loss. The CA affirmed the decision of the trial court.
This Courts Ruling

The Petition is devoid of merit. Issue: Whether Lim should be held jointly liable with Chua and Yao. Chua, Yao and Lim had decided to engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was Lim Tong Lim's brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the term "common fund" under Article 1767.The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed formed a partnership. The partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It would have been inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment, without which the business could not have proceeded. The sale of the boats, as well as the division among the three of the balance remaining after the payment of their loans, proves beyond cavil that F/Lourdes, though registered in his name, was not his own property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the name of the person the lender trusts, who in this case is Lim Tong Lim himself. After all, he is the brother of the creditor, Jesus Lim. It is unreasonable indeed; it is absurd for petitioner to sell his property to pay a debt he did not incur, if the relationship among the three of them was merely that of lessor-lessee, instead of partners. As to Lim's argument that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not to him; Section 21 of the Corporation Code of the Philippines provides that "All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided however, That when any such

ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality. 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." Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from denying its corporate existence. "The reason behind this doctrine is obvious an unincorporated association has no personality and would be incompetent to act and appropriate for itself the power and attributes of a corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent without authority or without a principal is himself regarded as the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent." The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an unincorporated association, which represented it to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages and benefits. On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of. There is no dispute that PFGI is entitled to be paid for the nets its old. The only question here is whether Lim should be held jointly liable with Chua and Yao. Lim contests such liability, insisting that only those who dealt in the name of the ostensible corporation should be held liable. Although technically it is true that Lim did not directly act on behalf of the corporation; however, having reaped the benefits of the contract entered into by persons 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. WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED. 6. LIDDELL & CO., INC., petitioner-appellant,
vs. THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee. BENGZON, C.J.: Facts: Liddell & Co, of which Frank Liddell owned 98% of the stocks, was engaged in importing and retailing cars and trucks. Later Liddell Motors Inc. was organized to do retailing for Liddell & Co. Franks wife owned almost all of that corporations stocks. Since then, Liddell & Co paid sales tax on the basis of its sales to Liddell Motors. But the CIR considered the sales by Liddell Motors to the public as the basis for the original sales tax. Issue: WON Liddell & Co. Inc., and the Liddell Motors, Inc. are (practically) identical corporations, the latter being merely .the alter ego of the former. Held: Yes, they are. While it was made to appear that it was Irene Liddell, the wife, who owned Liddell Motors, it was also shown in evidence that it was Frank Liddell who supplied the original capital funds. Besides, there was no evidence that Irene Liddell has the money to start Liddell Motors, her income from the United States not enough to cover even the payment for its subscription. There was also the fact that her supposed income from Liddell Motors found its way to her husbands account. In other words, while the mere fact that Liddell & Co. and Liddell Motors, Inc. are corporations owned and controlled by Frank Liddell directly or indirectly is not by itself sufficient to justify the disregard of the separate corporate identity of one from the other, there are other circumstances which would warrant the opposite. In the present case, Liddel Motors was the medium created by Liddel & Co to reduce its tax liability. Under the law in force at the time of its incorporation the sales tax on original sales of cars (sections 184, 185 and 186 of the National Internal Revenue Code), was progressive, i.e. 10% of the selling price of the car if it did not exceed P5000, and 15% of the price if more than P5000 but not more than P7000, etc. This progressive rate of the sales tax naturally would tempt the taxpayer to employ a way of reducing the price of the first sale. And Liddell Motors, Inc. was the medium created by Liddell & Co. to reduce the price and the tax liability. Let us illustrate: a car with engine motor No. 212381 was sold by Liddell & Co. Inc. to Liddell Motors, Inc. on January 17, 1948 for P4,546,000.00 including tax; the price of the car was P4,133,000.23, the tax paid being P413.22, at 10%. And when this car was later sold (on the same day) by Liddell Motors, Inc. to P.V. Luistro for P5500, no more sales tax was paid.11 In this price of P5500 was included the P413.32 representing taxes paid by Liddell & Co. Inc. in the sale to Liddell Motors, Inc. Deducting P413.32 representing taxes paid by Liddell & Co., Inc. the price of P5500, the balance of P5,087.68 would have been the net selling price of Liddell & Co., Inc. to the general public (had Liddell Motors, Inc. not participated and intervened in the sale), and 15% sales tax would have been due. In this transaction, P349.68 in the form of taxes was evaded. All the other transactions (numerous) examined in this light will inevitably reveal that the Government coffers had been deprived of a sizeable amount of taxes. A taxpayer has the legal right to decrease, by means which the law permits, the amount of what otherwise would be his taxes or altogether

avoid them; but a dummy corporation serving no business purposes other than as a blind, will be disregarded. A taxpayer may gain advantage of doing business thru a corporation if he pleases, but the revenue officers in the proper cases may disregard the separate corporate entity where it serves but as a shield for tax evasion and treat the person who actually may take the benefits of the transaction as the person accordingly taxable. Mere ownership by a single stockholder or by another corporation of all or nearly all capital stocks of the corporation is not by itself a sufficient ground for disregarding the separate corporate personality. Substantial ownership in the capital stock of a corporation entitling the shareholder a significant vote in the corporate affairs allows them no standing or claims pertaining to corporate affairs. Where a corporation is a dummy and serves no business purpose and is intended only as a blind, the corporate fiction may be ignored. Substantial ownership in the capital stock of a corporation entitling the SH to a significant vote in corporate affairs allows then no standing or claims pertaining to corporate affairs. Mere ownership by a single SH or by another corporation of all or nearly all capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality.

7. YOUNG AUTO SUPPLY CO. AND NEMESIO GARCIA, petitioners, vs. THE HONORABLE COURT OF APPEALS (THIRTEENTH DIVISION) AND GEORGE CHIONG ROXAS, respondents.

FACTS Young Auto Supply Co. Inc. (YASCO) represented by Nemesio Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their shares of stock in Consolidated Marketing & Development Corporation (CMDC) to Roxas. The purchase price was P8,000,000.00 payable as follows: a down payment of P4,000,000.00 and the balance of P4,000,000.00 in four postdated checks of P1,000,000.00 each. Immediately after the execution of the agreement, Roxas took full control of the four markets of CMDC. However, the vendors held on to the stock certificates of CMDC as security pending full payment of the balance of the purchase price. The first check of P4,000,000.00, representing the down payment, was honored by the drawee bank but the four other checks representing the balance of P4,000,000.00 were dishonored. In the meantime, Roxas sold one of the markets to a third party. Out of the proceeds of the sale, YASCO received P600,000.00, leaving a balance of P3,400,000.00. Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds of the sale of the CMDC shares to Nemesio Garcia. Petitioners filed a complaint against Roxas in the Regional Trial Court, Branch 11, Cebu City, praying that Roxas be ordered to pay petitioners the sum of P3,400,000.00 or that full control of the three markets be turned over to YASCO and Garcia. The complaint also prayed for the forfeiture of the partial payment of P4,600,000.00 and the payment of attorney's fees and

costs. Roxas filed a Motion for the dismissal of the case for Improper Venue ISSUE: Whether or not the case was filed in the wrong Venue HELD: NO, 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. In the case at bar Plaintiff Young Auto Supply Co., Inc. ("YASCO") is a domestic corporation duly organized and existing under Philippine laws with principal place of business at M.J. Cuenco Avenue, Cebu City the residence of YASCO for purposes of venue is in Cebu City, where its principal place of business is located

could not be sued, the complaint was amended. Certain officials of the school were also impleaded to make them solidarily liable with the school. The 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. The motion for reconsideration having been denied, the school then came to this Court in this petition for review on certiorari. Issue: Whether or not a school that has not been incorporated may be sued by reason alone of its long continued existence and recognition by the government Held: We hold against the petitioner on the first question. It is true that Rule 3, Section 1, of the Rules of Court clearly provides that "only natural or juridical persons may be parties in a civil action." It is also not denied that the school has not been incorporated. However, this omission should not prejudice the private respondent in the assertion of her claims against the school. As a school, the petitioner was governed by Act No. 2706 as amended by C.A. No. 180, which provided as follows: Unless exempted for special reasons by the Secretary of Public Instruction, any private school or college recognized by the government shall be incorporated under the provisions of Act No. 1459 known as the Corporation Law, within 90 days after the date of recognition, and shall file with the Secretary of Public Instruction a copy of its incorporation papers and by-laws. 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 noncompliance 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." As the school itself may be sued in its own name, there is no need to apply Rule 3, Section 15, under which the persons joined in an association without any juridical personality may be sued with such association.

9. LYCEUM VS. CA LYCEUM OF THE PHILIPPINES, INC. VS. CA G.R. No. 101897. March 5, 1993. FELICIANO, J p: FACTS: Petitioner is an educational institution duly registered with the Securities and Exchange Commission ("SEC"). When it first registered with the SEC, it used the corporate name Lyceum of the Philippines, Inc. and has used that name ever since. Petitioner instituted proceedings before the SEC to compel the private respondents, which are also educational institutions, to delete the word "Lyceum" from their corporate names and permanently to enjoin them from using "Lyceum" as part of their respective names. The background of the case at bar needs some recounting. Petitioner

8. G.R. No. L-58028 April 18, 1989 CHIANG KAI SHEK SCHOOL, petitioner, vs. COURT OF APPEALS and FAUSTINA FRANCO OH, respondents Facts: An unpleasant surprise awaited Fausta F. Oh when she 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. She had been teaching in the school since 1932 for a continuous period of almost 33 years. And now, out of the blue, and for no apparent or given reason, this abrupt dismissal. Oh sued. 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

had sometime before commenced in the SEC a proceeding (SEC-Case No. 1241) against the Lyceum of Baguio, Inc. to require it to change its corporate name and to adopt another name not "similar [to] or identical" with that of petitioner. In an Order, Associate Commissioner Julio Sulit held that the corporate name of petitioner and that of the Lyceum of Baguio, Inc. were substantially identical because of the presence of a "dominant" word, i.e., "Lyceum," the name of the geographical location of the campus being the only word which distinguished one from the other corporate name. The SEC also noted that petitioner had registered as a corporation ahead of the Lyceum of Baguio, Inc. in point of time, and ordered the latter to change its name to another name "not similar or identical [with]" the names of previously registered entities. Armed with the Resolution of this Court, petitioner then wrote all the educational institutions it could find using the word "Lyceum" as part of their corporate name, and advised them to discontinue such use of "Lyceum." When, with the passage of time, it became clear that this recourse had failed, petitioner instituted before the SEC to enforce what petitioner claims as its proprietary right to the word "Lyceum." The SEC hearing officer rendered a decision sustaining petitioner's claim to an exclusive right to use the word "Lyceum." The hearing officer relied upon the SEC ruling in the Lyceum of Baguio, Inc. case and held that the word "Lyceum" was capable of appropriation and that petitioner had acquired an enforceable exclusive right to the use of that word. On appeal, however, by private respondents to the SEC En Banc, the decision of the hearing officer was reversed and set aside. The SEC En Banc did not consider the word "Lyceum" to have become so identified with petitioner as to render use thereof by other institutions as productive of confusion about the identity of the schools concerned in the mind of the general public. ISSUE: Whether or not the use by petitioner of "Lyceum" in its corporate name has been for such length of time and with such exclusivity as to have become associated or identified with the petitioner institution in the mind of the general public (or at least that portion of the general public which has to do with schools). RULING: NO. The Articles of Incorporation of a corporation must, among other things, set out the name of the corporation. 6 Section 18 of the Corporation Code establishes a restrictive rule insofar as corporate names are concerned: "SECTION 18. Corporate name. No corporate name may be allowed by the Securities an Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the amended name." (Emphasis supplied) The policy underlying the prohibition in Section 18 against the registration of a corporate name which is "identical or deceptively or confusingly similar" to that of any existing corporation or which is

"patently deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon the public which would have occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision over corporations. We do not consider that the corporate names of private respondent institutions are "identical with, or deceptively or confusingly similar" to that of the petitioner institution. True enough, the corporate names of private respondent entities all carry the word "Lyceum" but confusion and deception are effectively precluded by the appending of geographic names to the word "Lyceum." Etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in turn referred to a locality on the river Ilissius in ancient Athens "comprising an enclosure dedicated to Apollo and adorned with fountains and buildings erected by Pisistratus, Pericles and Lycurgus frequented by the youth for exercise and by the philosopher Aristotle and his followers for teaching." In time, the word "Lyceum" became associated with schools and other institutions providing public lectures and concerts and public discussions. Thus today, the word "Lyceum" generally refers to a school or an institution of learning. While the Latin word "lyceum" has been incorporated into the English language, the word is also found in Spanish (liceo) and in French (lycee). While the appellant may have proved that it had been using the word 'Lyceum' for a long period of time, this fact alone did not amount to mean that the said word had acquired secondary meaning in its favor because the appellant failed to prove that it had been using the same word all by itself to the exclusion of others. More so, there was no evidence presented to prove that confusion will surely arise if the same word were to be used by other educational institutions. Consequently, the allegations of the appellant in its first two assigned errors must necessarily fail." We conclude and so hold that petitioner institution is not entitled to a legally enforceable exclusive right to use the word "Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of their corporate names. To determine whether a given corporate name is "identical" or "confusingly or deceptively similar" with another entity's corporate name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in both names. One must evaluate corporate names in their entirety and when the name of petitioner is juxtaposed with the names of private respondents, they are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other.

10. PHILIPS EXPORT VS. COURT OF APPEALS-

Corporate Trade Name A corporations right to use its corporate and trade name is a property right, a right in rem, which it may assert and protect against the whole world. FACTS:

Philips Export B.V. (PEBV) filed with the SEC for the cancellation of the word Philips the corporate name of Standard Philips Corporation in view of its prior registration with the Bureau of Patents and the SEC. However, Standard Philips refused to amend its Articles of Incorporation so PEBV filed with the SEC a petition for the issuance of a Writ of Preliminary Injunction, however this was denied ruling that it can only be done when the corporate names are identical and they have at least 2 words different. This was affirmed by the SEC en banc and the Court of Appeals thus the case at bar. ISSUE: Whether or not Standard Philips can be enjoined from using Philips in its corporate name RULING: YES A corporations right to use its corporate and trade name is a property right, a right in rem, which it may assert and protect against the whole world. According to Sec. 18 of the Corporation Code, no corporate name may be allowed if the proposed name is identical or deceptively 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 law. For the prohibition to apply, 2 requisites must be present: (1) the complainant corporation must have acquired a prior right over the use of such corporate name and (2) the proposed name is either identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or patently deceptive, confusing or contrary to existing law. With regard to the 1st requisite, PEBV adopted the name Philips part of its name 26 years before Standard Philips. As regards the 2nd, the test for the existence of confusing similarity is whether the similarity is such as to mislead a person using ordinary care and discrimination. Standard Philips only contains one word, Standard, different from that of PEBV. The 2 companies products are also the same, or cover the same line of products. Although PEBV primarily deals with electrical products, it has also shipped to its subsidiaries machines and parts which fall under the classification of chains, rollers, belts, bearings and cutting saw, the goods which Standard Philips also produce. Also, among Standard Philips primary purposes are to buy, sell trade x x x electrical wiring devices, electrical component, electrical supplies. Given these, there is nothing to prevent Standard Philips from dealing in the same line of business of electrical devices. The use of Philips by Standard Philips tends to

show its intention to ride on the popularity and established goodwill of PEBV. 12. ENRIQUE SALAFRANCA vs. PHILAMLIFE VILLAGE, HOMEOWNERS ASSOCIATION G.R. No. 121791. December 23, 1998 ROMERO, J. FACTS: Petitioner Enrique Salafranca worked as hired as an administrative officer by respondent Philamlife Village first for six months, then later, extended for successive appointments. . In 1987, private respondent decided to amend its bylaws. It was provided in the amended by-laws that the administrative officer shall see at the pleasure of the Board of Directors. In view of this development, petitioner was told that his term of office shall be coterminus with the Board of Directors which appointed him to his position. Nevertheless, petitioner continued to work until his services was terminated in December 1992. He filed a complaint for illegal dismissal, claiming that he had been unlawfully dismissed from service. The Labor Arbiter decided in favor of petitioner, holding that the amendment would not be applicable to the case of the complainant who became a regular employee long before the amendment took place, and that "the Amendment should be applied prospectively and not retroactively. On appeal by the private respondent, the NLRC reversed the decision of the Labor Arbiter, viewing the dismissal of the petitioner as a valid act by the private respondent. ISSUE: Whether the amendment in the by-laws will make the dismissal of the petitioner valid? HELD: "Admittedly, the right to amend the by-laws lies solely in the discretion of the employer, this being in the exercise of management prerogative or business judgment. However this right, extensive as it may be, cannot impair the obligation of existing contracts or rights. Prescinding from these premises, private respondents insistence that it can legally dismiss petitioner on the ground that his tenure has expired is untenable. To

reiterate, petitioner, being a regular employee, is entitled to security of tenure; hence, his services may only be terminated for causes provided by law. A contrary interpretation would not find justification in the laws or the Constitution. If we were to rule otherwise, it would enable an employer to remove any employee from his employment by the simple expediency of amending its by-laws and providing that his/her position shall cease to exist upon the occurrence of a specified event. If private respondent wanted to make the petitioners position co-terminus with that of the Board of Directors, then the amendment must be effective after petitioners stay with the private respondent, not during his term. Obviously, the measure taken by the private respondent in amending its by-laws is nothing but a devious, but crude, attempt to circumvent petitioners right to security of tenure as a regular employee guaranteed under the Labor Code."

subdivision Loyola Grand Villas Homeowners (North) Association Incorporated (the North Association for brevity) and Loyola Grand Villas Homeowners (South) Association Incorporated (the South Association). In July, 1989, when Soliven inquired about the status of LGVHAI, Atty. Joaquin A. Bautista, the head of the legal department of the HIGC, informed him that LGVHAI had been automatically dissolved for two reasons. First, it did not submit its by-laws within the period required by the Corporation Code and, second, there was non-user of corporate charter because HIGC had not received any report on the associations activities. Apparently, this information resulted in the registration of the South Association with the HIGC. The officers of the LGVHAI lodged a complaint with the HIGC questioning the revocation of LGVHAIs certificate of registration without due notice and hearing and concomitantly prayed for the cancellation of the certificates of registration of the North and South Associations by reason of the earlier issuance of a certificate of registration in favor of LGVHAI. On 1993, after due notice and hearing, private respondents obtained a favorable ruling from HIGC recognizing the Loyola Grand Villas Homeowners Association, Inc., as the duly registered and existing homeowners association for Loyola Grand Villas homeowners, and declaring the Certificates of Registration of North Association, Inc. and South Association, Inc. as hereby revoked or cancelled. The South Association appealed to the Appeals Board of the HIGC, which was dismissed for lack of merit. Petitioner appealed to the CA, who affirmed the Resolution of the HIGC Appeals Board. ISSUE: WON the failure of a corporation to file its by-laws within one month from the date of its incorporation, as mandated by Section 46 of the Corporation Code, result in its automatic dissolution HELD:

LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC., petitioner, vs. HON. COURT OF APPEALS, HOME INSURANCE AND GUARANTY CORPORATION, EMDEN ENCARNACION and HORATIO AYCARDO, respondents.
13

G.R. No. 117188. August 7, 1997 FACTS: Loyola Grand Villas Homeowners Association (LGVHAI) was organized on February 8, 1983 as the association of homeowners and residents of the Loyola Grand Villas owned and developed by Solid Homes, Inc. It was registered with the Home Financing Corporation, the predecessor of herein respondent Home Insurance and Guaranty Corporation (HIGC), as the sole homeowners organization in the said subdivision under Certificate of Registration No. 04-197. It was organized by the developer of the subdivision and its first president was Victorio V. Soliven, himself the owner of the developer. For unknown reasons, however, LGVHAI did not file its corporate by-laws. Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They failed to do so. They discovered that there were two other organizations within the

Failure of a corporation to file its by-laws within one month does not automatically result in its dissolution. Although the Corporation Code requires the filing of bylaws, it does not expressly provide for the consequences of the non-filing of the same within the period provided for in Section 46. However, such omission has been rectified by Presidential Decree No. 902-A, the pertinent provisions on the jurisdiction of the SEC of which state: SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers: xxx xxx xxx xxx

must first of all be a hearing to determine the existence of the ground, and secondly, assuming such finding, the penalty is not necessarily revocation but may be only suspension of the charter. In fact, under the rules and regulations of the SEC, failure to file the by-laws on time may be penalized merely with the imposition of an administrative fine without affecting the corporate existence of the erring firm. It should be stressed in this connection that substantial compliance with conditions subsequent will suffice to perfect corporate personality. Organization and commencement of transaction of corporate business are but conditions subsequent and not prerequisites for acquisition of corporate personality. The adoption and filing of by-laws is also a condition subsequent. Under Section 19 of the Corporation Code, a corporation commences its corporate existence and juridical personality and is deemed incorporated from the date the Securities and Exchange Commission issues certificate of incorporation under its official seal. This may be done even before the filing of the by-laws, which under Section 46 of the Corporation Code, must be adopted within one month after receipt of official notice of the issuance of its certificate of incorporation.

(l) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law, including the following: xxx xxx xxx period; xxx xxx xxx xxx xxx

5. Failure to file by-laws within the required

Even under the foregoing express grant of power and authority, there can be no automatic corporate dissolution simply because the incorporators failed to abide by the required filing of by-laws embodied in Section 46 of the Corporation Code. There is no outright demise of corporate existence. Proper notice and hearing are cardinal components of due process in any democratic institution, agency or society. In other words, the incorporators must be given the chance to explain their neglect or omission and remedy the same. The Court cited the case of Chung Ka Bio v. Intermediate Appellate Court: Under Section 6(I) of PD 902-A, the SEC is empowered to suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of a corporation on the ground inter alia of failure to file by-laws within the required period. It is clear from this provision that there

ADDITION: Petitioner relies heavily on the wordings of Sec 46, since Section 46 uses the word must with respect to the filing of by-laws, noncompliance therewith would result in selfextinction either due to non-occurrence of a suspensive condition or the occurrence of a resolutory condition under the hypothesis that (by) the issuance of the certificate of registration alone the corporate personality is deemed already formed. Interpretation of this provision of law begins with the determination of the meaning and import of the word must in this section. Ordinarily, the word must connotes an imperative act or operates to impose a duty which may be enforced. It is synonymous with ought which connotes compulsion or mandatoriness. However, the word must in a statute, like shall, is not always imperative. It may be consistent with an exercise of

discretion. In this jurisdiction, the tendency has been to interpret shall as the context or a reasonable construction of the statute in which it is used demands or requires. This is equally true as regards the word must. Thus, if the language of a statute considered as a whole and with due regard to its nature and object reveals that the legislature intended to use the words shall and must to be directory, they should be given that meaning. 14. GR. 54580 ARMCO STEEL CORPORATION (Phil) vs SEC, ARMCO STEEL CORP. (OHIO, USA) and ARMCO MARSTEEL ALLOY CORP. FACTS: On 7/1/65, ARMCO Steel Corporation, a corporation organized in Ohio (ARMCO-OHIO) obtained from Phil. Patent Office, Cert. of Registration for its trademark consisting of the word ARMCO and a triangular device for ferrous metals and ferrous metal castings and forgings. Later, respondent ARMCO-OHIO filed an Affidavit of Use for said trademark and the same was issued in favor of it. ARMCO Marsteel-Alloy Corp. was incorporated on 7/11/72 under its name Marsteel Alloy Company, Inc. However, its name was changed to ARMCO-Marsteel Alloy Corp (hereinafter called ARMCO-Marsteel), by amendment of its Articles of Incorporation upon purchase of 40% of its capital stock. Both corporations are engaged in the manufacture of steel products. On the other hand, ARMCO Steel Corp. was incorporated in the Philippines called ARMCO-Phil on 4/25/73. 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 respondents in this case. On 2/14/75, SEC issued an order granting the petition ordering ARMCO Steel Corporation (Phil) to take out the name ARMCO by amending its Articles of Incorporation. A series of MRs were filed and appeals made regarding the order but still, the latter remained final and unheeded. Later, petitioner ARMCO-Philippines amended its Articles of Incorporation by changing its name to ARMCO Structures, Inc. filed with and approved by the SEC. Nevertheless, SEC ordered petitioner ARMCOPhil (now ARMCO Structures), its directors and officers to comply with the 2/14 SEC order within 10days from notice thereof.

A manifestation and motion was filed by petitioner ARMCO Structures informing SEC that it had already changed its corporate name with the approval of SEC to ARMCO Structures, Inc. in substantial compliance w/ the SEC order or as an alternative, praying to determine the confusing similarity between the names of petitioner and that of respondents. Respondents ARMCO-OHIO and ARMCOMarsteel alleged that the change of corporate name was not done in good faith and not in accordance with the order. Subsequently, the respondents filed a motion to cite petitioner ARMCO Structures for contempt in disobeying the order. SEC found that ARMCO Structures did not make the proper disclosure of the circumstances when it amended its Articles of Incorporation and ordered ARMCO Structures to comply with the SEC Order. SEC En Banc dismissed the appeal by ARMCO Structures. ISSUE: W/N there was substantial compliance of the SEC Order and that the latter is functus officio. HELD: No. The SEC Order was clear that the word ARMCO must be taken out must be substituted for another word for it. According to SEC, the amendment of the incorporation was made without the proper authorities of the SEC. The Court found that the said amendment in the corporate name of petitioner was not in substantial compliance with the SEC Order. The SEC could not legalize nor change what is clearly unauthorized, if not contemptuous. Had the petitioner revealed the SEC Order, the registration of the amended corporate name could not have been accepted. Certainly, the said Order of 2/14/75 is not rendered functus oficio. The actuations in this respect of petitioner are far from regular much less in good faith. The names of both parties are not only similar but identical. Having a certificate of registration of the trademark in its favor, respondent ARMCO-OHIO is entitled to protection in the use thereof in the Philippines. The respondents have the right to the exclusive use and enjoyment of said term. Petition DISMISSED.

15. THE GOVERNMENT OF THE PHILIPPINE ISLANDS vs. Martin AVILA, ET AL. G.R. No. L-11955; July 29, 1918 en banc Facts: On October 6, 1913 a cadastral proceeding was instituted by the Director of Lands, praying for a judicial declaration of the ownership of

655 lots of land situated in the municipality of Cavite, Province of Cavite, in accordance with the provisions of the Cadastral Act, No. 2259, and the amendments thereof. The lots in question were claimed by is claimed by the Archicofradia del Santisimo y Animas del Purgatorio, and also by the Roman Catholic Archbishop of Manila and by Cofradia de Jesus Nazareno . It appears to have been agreed upon by the parties that the Cofradia de Jesus Nazareno has been in possession of lot No. 751-A for more than a hundred years since it was donated to the Cofradia by Mario Gonzalez, according to a document executed in 1762. It has also been agreed upon by the attorneys for both parties that lots Nos. 584, 637, and 762 were donated to the said Cofradia, according to the evidence presented to substantiate this fact (p. 19), and that lot No. 389 has been in the possession of the Archicofradia del Santisimo y Animas del Purgatorio for more than 50 years from the time that such lot had been acquired by donation from one of its members. It is therefore undisputed that the said Cofradia and Archicofradia are in possession as owners of the said lots of land, thus limiting the question for the decision of this Court as to whether the inscription of the said lots in the registry of property should be made in the name of the said Cofradias or in that of Roman Catholic Archbishop of Manila. Neither of two associations named above is incorporated in accordance with the provisions of the law in force regarding corporations, although it appears proved in the records that the Cofradia de Jesus Nazareno is composed of members belonging to the Catholic religion and that the actual rector of the said Cofradia is the Catholic parish priest of the town of San Roque, Cavite. It is a fact agreed upon by the parties that the Archicofradia del Santisimo y Animas del Purgatorio is also a Catholic priest, and whose funds as well as the products of its property are destined to cover the expenses incurred in the celebration of the Holy Week and to preserve the building of the Roman Catholic Church. Issue: Whether the Confradia had the right to have its name inscribed in the titles of the said lots as one with a juridical personality. Held: Yes. It is true that the Cofradia organized under the old laws of the former regime is not incorporated in accordance with Act No. 1459, known as the Corporation Law, enacted subsequently to the said Land Registration Act No. 496, has not declared that the corporations and associations created and established in accordance with the olds laws of the former regime, to which class of corporations the said Cofradia belongs, can not be recognized nor can exist. This Cofradia was organized under the provisions of Law 25, Title IV, of the compilation of the laws of the Indies and of the Real Cedula of October 15, 1805. Its by-laws were approved by the Royal Order of February 25, 1895, upon a previous information by the Council of the Indies. From that time the said Cofradia has had a legal existence and has been performing its functions as a Catholic association duly organized with a right to possess and administer property, applying the products of its property to the purposes provided for in its by-laws, and, in enjoying the attributes and privileges corresponding to an entity

created by law, it is undisputed that, as owner of the said five lots of land, it has a right to inscribe in its name, as a juridical entity, the titles to the said property which it possesses. Without the reasons above stated the present Corporation Law could have retroactive effect, for, while the said law recognizes the associations constituted under the prior legislation, it has not declared in any of its provisions that the said Cofradia became non-existent since said Corporation Law became operative. Aside from this, it is undisputed that the Catholic Archbishop of Manila, as head and representative of the Catholic Church, has and enjoys the right of intervention and supervision over the existence and modus operandi of such Catholic associations and Cofradias as that of Jesus Nazareno, the actual rector of which is the parish priest of the town which is the legal residence of the Cofradia, but said supervision or intervention does not imply concentration or assumption of the right to ownership which the Cofradia de Jesus Nazareno enjoys over the real property which it possesses, nor can such intervention deprive the members of the Archicofradia del Santisimo y Animas del Purgatorio of the ownership of the five lots which they possess in common and under the title of an association, although such association is neither legally constituted nor incorporated in accordance with the law in force regarding corporations. 16. Vda. de Salvatierra vs. Hon. Garlitos

G.R. No. L-11442 FELIX, J.:

May 23, 1958

FACTS: Alanuela T. Vda, de Salvatierra filed with the Court of First Instance of Leyte a complaint against the Philippine Fibers Producers Co., Inc., and Segundino Q. Refuerzo, for accounting, rescission and damages averring that 1. defendants planted kenaf on 3 hectares of the leased property which crop was, at the time of the commencement of the action, already harvested, processed and sold by defendants; 2. that notwithstanding that fact, defendants refused to render an accounting of the income derived therefrom and to deliver the lessor's share; 3. that the estimated gross income was P4,500, and the deductible expenses amounted to P1,000; 4. that as defendants' refusal to undertake such task was in violation of the terms of the covenant entered into between the plaintiff and defendant corporation, a rescission was but proper.

As defendants apparently failed to file their answer to the complaint, of which they were allegedly notified, the Court declared them in default and proceeded to receive plaintiff's evidence. The lower court rendered a decision on favor of the

plaintiff. No appeal therefrom having been perfected within the reglementary period, the Court, upon motion of plaintiff, issued a writ of execution, in virtue of which the Provincial Sheriff of Leyte caused the attachment of 3 parcels of land registered in the name of Segundino Refuerzo. No property of the Philippine Fibers Producers Co., Inc., was found available for attachment. On January 31, 1956, defendant Segundino Refuerzo filed a motion claiming that the decision rendered was null and void with respect to him, there being no allegation in the complaint pointing to his personal liability and thus prayed that an order be issued limiting such liability to defendant corporation.

Plaintiff contended that that her failure to specify defendant's personal liability was due to the fact that all the time she was under the impression that the Philippine Fibers Producers Co., Inc., represented by Refuerzo was a duly registered corporation as appearing in the contract, but a subsequent inquiry from the Securities and Exchange Commission yielded otherwise. While as a general rule a person who has contracted or dealt with an association in such a way as to recognize its existence as a corporate body is estopped from denying the same in an action arising out of such transaction or dealing, yet this doctrine may not be held to be applicable where fraud takes a part in the said transaction. In the instant case, on plaintiff's charge that she was unaware of the fact that the Philippine Fibers Producers Co., Inc., had no juridical personality, defendant Refuerzo gave no confirmation or denial and the circumstances surrounding the execution of the contract lead to the inescapable conclusion that plaintiff Manuela T. Vda. de Salvatierra was really made to believe that such corporation was duly organized in accordance with law.

But this rule is understood to refer merely to registered corporations and cannot be made applicable to the liability of members of an unincorporated association. The reason behind this doctrine is obvious-since an organization which before the law is non-existent has no personality and would be incompetent to act and appropriate for itself the powers and attribute of a corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent without authority or without a principal is himself regarded as the principal, possessed of all the rights and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and comes personally liable for contracts entered into or for other acts performed as such agent. Considering that defendant Refuerzo, as president of the unregistered corporation Philippine Fibers Producers Co., Inc., was the moving spirit behind the consummation of the lease agreement by acting as its representative, his liability cannot be limited or restricted that imposed upon corporate shareholders. In acting on behalf of a corporation, which he knew to be unregistered, he assumed the risk of reaping the consequential damages or resultant rights, if any, arising out of such transaction.

ISSUE: Whether or not Refuerzo may be held personally liable for the liabilities of the unregistered corporation for which Refuerzo was the President.

18.) [G.R. No. 19026. April 3, 1923.] PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. UMBERTO DE POLI and WISE & CO., defendants-appellants. AVANCEA, J p:

RULING: There can be no question that a corporation with registered has a juridical personality separate and distinct from its component members or stockholders and officers such that a corporation cannot be held liable for the personal indebtedness of a stockholder even if he should be its president and conversely, a stockholder or member cannot be held personally liable for any financial obligation be, the corporation in excess of his unpaid subscription.

Facts: In a document dated October 22, 1920, Umberto de Poli mortgaged the properties therein described to the Philippine National Bank as security for a loan, credit or overdraft not exceeding P650,000. Later, in another document dated November 15, 1920, Umberto de Poli and the Philippine National Bank agreed to release some of the properties from the mortgage and replace them with other properties which were described in the latter document. Umberto de Poli having violated the conditions of the mortgage, Philippine National Bank, filed a complaint against Umberto de Poli, Henry Hunter Bayne and J. G. Lawrence, the latter two being the

persons who were holding the goods and the keys of the warehouses where they were kept, and who refused to deliver them. On the next day, December 8, 1920, Umberto de Poli was adjudged insolvent. Later the Chartered Bank of India & Australia, the American Foreign Banking Corporation and Wise & Co. intervened in the case, claiming to be creditors of the insolvent. After the commencement of this action and the adjudication of insolvency of the defendant Umberto de Poli, certiorari proceedings were instituted in this court against the Honorable Judge of CFI of Manila. They alleged that the trial court lost its jurisdiction over the case, the same having been absorbed by the insolvency proceeding. This court, in a decision published March 15, 1921, denied the application for a writ of certiorari, declaring that the Court of First Instance continued to have jurisdiction over the case notwithstanding the insolvency proceeding. In the course of the proceedings in this case, the plaintiff Bank, making use of the right granted it by rule 33 of Act No. 2938 and the contract of October 22, 1920, sold some of the mortgaged property. After trial, the court below rendered judgment declaring the plaintiff to be entitled to recover the mortgaged goods and holding the sale made by the plaintiff of some of the goods valid. Isssue: Whether or not the sale made by PNB of the mortgaged goods valid Held: As has been stated above, the appellee sold to third persons, without the intervention of the assignee in insolvency, some of the mortgaged goods, and appellants contend that this sale was illegal and void. In the document of mortgage the creditor was expressly authorized, in case of a violation of any of the conditions of the contract, to sell the mortgaged goods or part thereof at private sale without previous notice or advertisement of any kind, for the purpose of applying the proceeds of the sale on the payment of the debt. This stipulation is perfectly valid. Article 1255 of the Civil Code authorizes the contracting parties to make the stipulations, clauses and conditions they may deem fit, provided the same are not contrary to law, morals or public order. Moreover, Act No. 2938, creating the appellee Bank, in its section 33, grants the latter express authority to sell the mortgaged goods under those conditions. The constitutionality of this Act is challenged in so far as it is grants this power to the appellee, but the fact that the parties themselves may stipulate to this effect is in itself alone a sufficient refutation of the argument advanced against its constitutionality. Therefore the sale made by the appellee of some of the goods mortgaged is perfectly valid, not only because the same is authorized by the parties, but also because it is in accordance with law. Appellants also claim that the mortgage on the properties described in the document of November 15, 1920, constitutes an unlawful preference. The mortgage evidenced by the second document was but a partial substitute of the mortgage contained in the first. It was stipulated in the second document that some of the properties covered by the first document should be released in order that they might be used by Umberto de Poli in his business, and in lieu thereof other properties should be mortgaged, which were described in the second document. It clearly appears that the second mortgage was merely a partial substitution for the first. For this reason, although this second mortgage was made on November 15, 1920, that is, within thirty days prior to the adjudication of the insolvency of Umberto de Poli, which took place on December 8th of that same year, it does not constitute an unlawful

preference. A mere exchange of securities of equal value may be made at any time without the same being held to constitute an unlawful preference. A fair exchange of values may be made at any time, even if one of the parties to the transaction be insolvent. There in nothing in the Bankrupt Act, either in its language or subject, which prevents an insolvent from dealing with his property, selling it or exchanging it for other property, at any time before proceedings in bankruptcy are taken by or against him, provided such dealing be conducted without any purpose to defraud or delay his creditors or give preference to anyone, and does not impair the value of his estate. An insolvent is not bound in the misfortune of his insolvency to abandon all dealing with his property; his creditors can only complain if he waste his estate or give preference in its disposition to one over another. Equal value means substantially, not mathematically, equal. If what makes a substitution fraudulent is the intention to defraud the creditors or to give preference to some of them to the prejudice of the others, it cannot be supposed, in reason, that in the case the substitution was made with such an intention simply on account of this small differences, which, on the other hand, is ordinarily the case with goods previously deposited in large lots.

19. PHILIPPINE TRUST COMPANY, as assignee in insolvency of "La Cooperativa Naval Filipina," plaintiff-appellee, vs. MARCIANO RIVERA, defendant-appellant. Araneta and Zaragoza for appellant. Ross and Lawrence for appellee. STREET, J.: This action was instituted on November 21, 1921, in the Court of First Instance of Manila, by the Philippine Trust Company, as assignee in insolvency of La Cooperativa Naval Filipina, against Marciano Rivera, for the purpose of recovering a balance of P22,500, alleged to be due upon defendant's subscription to the capital stock of said insolvent corporation. The trial judge having given judgment in favor of the plaintiff for the amount sued for, the defendant appealed. It appears in evidence that in 1918 the Cooperativa Naval Filipina was duly incorporated under the laws of the Philippine Islands, with a capital of P100,000, divided into one thousand shares of a par value of P100 each. Among the incorporators of this company was numbered the defendant Mariano Rivera, who subscribed for 450 shares representing a value of P45,000, the remainder of the stock being taken by other persons. The articles of incorporation were duly registered in the Bureau of Commerce and Industry on October 30 of the same year. In the course of time the company became insolvent and went into the hands of the Philippine Trust Company, as assignee in bankruptcy; and by it this action was instituted to recover one-half of the stock subscription of the defendant, which admittedly has never been paid.

The reason given for the failure of the defendant to pay the entire subscription is, that not long after the Cooperativa Naval Filipina had been incorporated, a meeting of its stockholders occurred, at which a resolution was adopted to the effect that the capital should be reduced by 50 per centum and the subscribers released from the obligation to pay any unpaid balance of their subscription in excess of 50 per centum of the same. As a result of this resolution it seems to have been supposed that the subscription of the various shareholders had been cancelled to the extent stated; and fully paid certificate were issued to each shareholders for one-half of his subscription. It does not appear that the formalities prescribed in section 17 of the Corporation Law (Act No. 1459), as amended, relative to the reduction of capital stock in corporations were observed, and in particular it does not appear that any certificate was at any time filed in the Bureau of Commerce and Industry, showing such reduction. His Honor, the trial judge, 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. In this we think his Honor was clearly right. 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 (14 C. J., 498, 620). In the case before us the resolution releasing the shareholders from their obligation to pay 50 per centum of their respective subscriptions was an attempted withdrawal of so much capital from the fund upon which the company's creditors were entitled ultimately to rely and, having been effected without compliance with the statutory requirements, was wholly ineffectual. The judgment will be affirmed with cost, and it is so ordered.

thereof, together with other credits, in consideration of a large sum of money owed by Gonzalez to Fleischer. Dr. Eduardo Miciano, who was the secretary-treasurer of said corporation, offered to buy from Henry Fleischer, on behalf of the corporation, said shares of stock, at their par value of P100 a share, for P500. Under article 12 of the by-laws of Botica Nolasco, Inc., said corporation had the preferential right to buy from Gonzalez said shares but plaintiff refused to sell them to the defendant. Fleischer requested Dr. Miciano to register said shares in his name but the latter refused to do so, saying that it would be in contravention of the by-laws of the corporation. Article 12 of the said by-laws create in favor of Botica Nolasco, Inc. a preferential right to buy, under the same conditions, the share or shares of stock of a retiring shareholder. Fleischer filed an action in the Court of First Instance of the Province of Oriental Negros against the board of directors of the Botica Nolasco, Inc. praying that said board of directors be ordered to register in the books of the corporation five shares of its stock in his name and to pay P500 for damages. ISSUE: Whether or not article 12 of the by-laws of Botica Nolasco, Inc., is in conflict with the provisions of the Corporation Law (Act No. 1459) and may not be adopted by the corporation. HELD: Yes. The by-law in question was adopted under the power conferred upon the corporation by section 13, paragraph 7but in adopting said by-law the corporation has transcended the limits fixed by section 35 of Act No. 1459. Section 13, paragraph 7 of the Corporation Code empowers a corporation to make by-laws, not inconsistent with any existing law, for the transferring of its stock. It follows from said provision, that a by-law adopted by a corporation relating to transfer of stock should be in harmony with the law on the subject of transfer of stock. Section 35 of Act No. 1459 specifically provides that the shares of stock "are personal property and may be transferred by delivery of the certificate indorsed by the owner, etc." Said section contemplates no restriction as to whom they may be transferred or sold. It does not suggest that any discrimination may be created by the corporation in favor or against a certain purchaser. The holder of shares, as owner of personal property, is at liberty to dispose of them in favor of whomsoever he pleases, without any other limitation in this respect, than the general provisions of law. Therefore, a stock corporation in adopting a by-law governing transfer of shares of stock should take into consideration the specific provisions of section 35 of Act No.

20. HENRY FLEISCHER, plaintiff-appellee,

vs. BOTICA NOLASCO CO., INC., defendant-appellant. G.R. No. L-23241 March 14, 1925

FACTS: Manuel Gonzalez was the original owner of the five shares of stock in question, Nos. 16, 17, 18, 19 and 20 of the Botica Nolasco, Inc. On March 11, 1923, he assigned and delivered said five shares to the plaintiff, Henry Fleischer, by accomplishing the form of endorsement provided on the back

1459, and said by-law should be made to harmonize with said provisions. It should not be inconsistent therewith. As a general rule, the by-laws of a corporation are valid if they are reasonable and calculated to carry into effect the objects of the corporation, and are not contradictory to the general policy of the laws of the land. It is equally well settled that by-laws of a corporation must be reasonable and for a corporate purpose, and always within the charter limits. They must always be strictly subordinate to the constitution and the general laws of the land. They must not infringe the policy of the state, nor be hostile to public welfare. The only restraint imposed by the Corporation Law upon transfer of shares is found in section 35 of Act No. 1459, quoted above, as follows: "No transfer, however, shall be valid, except as between the parties, until the transfer is entered and noted upon the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate, and the number of shares transferred." This restriction is necessary in order that the officers of the corporation may know who are the stockholders, which is essential in conducting elections of officers, in calling meeting of stockholders, and for other purposes. But any restriction of the nature of that imposed in the by-law now in question, is ultra vires, violative of the property rights of shareholders, and in restraint of trade. And moreover, the by-laws now in question cannot have any effect on the appellee. He had no knowledge of such by-law when the shares were assigned to him. He obtained them in good faith and for a valuable consideration. He was not a privy to the contract created by said by-law between the shareholder Manuel Gonzalez and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his rights as a purchaser. Whenever a corporation refuses to transfer and register stock in cases like the present, mandamus will lie to compel the officers of the corporation to transfer said stock upon the books of the corporation.
23. THE GOVERNMENT OF THE PHILIPPINE ISLANDS (on

building and loan association under the laws of the Philippine Islands, and that, since its organization, the corporation has been doing business in the Philippine Islands, with its principal office in the City of Manila. On March 1, 1906, the Philippine Commission enacted what is known as the Corporation Law (Act No. 1459) effective upon April 1 of the same year. Section 171 to 190, inclusive, of this Act are devoted to the subject of building and loan associations. The respondent, El Hogar Filipino, was apparently the first corporation organized in the Philippine Islands under the said law. Under the law as it then stood, the capital of the Association was not permitted to exceed P3,000,000 which was later increased to ten million. Soon thereafter the association took advantage of this enactment by amending its articles so as to provide that the capital should be in an amount not exceeding the then lawful limit. ISSUE/s: 1) WON a provision in the by-laws allowing the BOD, by vote of absolute majority, to cancel shares is valid 2) WON a provision in the by-laws fixing the salary of directors is valid 3) WON a provision requiring persons elected to the Board of Directors to own at least P 5,000 shares is valid HELD: 1) No. It appears that among the bylaws of the association there is an article (No. 10) which reads as follows: The board of directors of the association, by the vote of an absolute majority of its members, is empowered to cancel shares and to return to the owner thereof the balance resulting from the liquidation thereof whenever, by reason of their conduct, or for any other motive, the continuation as members of the owners of such shares is not desirable.This by-law is of course a patent nullity, since it is in direct conflict with the latter part of section 187 of the Corporation Law, which expressly declares that the board of directors shall not have the power to force the surrender and withdrawal of unmatured stock except in case of liquidation of the corporation or of forfeiture of the stock for delinquency. It is agreed that this provision of the by-laws has never been enforced, and in fact no attempt has ever been made by the board of directors to make use of the power therein conferred. In November, 1923, the Acting Insular Treasurer addressed a letter to El Hogar Filipino, calling attention to article 10 of its by-laws and expressing the view that said article was invalid. It was therefore suggested that the article in question should be eliminated from the by-laws. At the next meeting of the board of directors the matter was called to their attention and it was resolved to recommend to the shareholders that in their next annual meeting the article in question be abrogated. It appears, however, that no annual meeting of the shareholders called since that date has been attended by a sufficient number of shareholders to constitute a quorum, with the result that the provision referred to has not been eliminated from the by-laws, and it still stands among the by-laws of the association, notwithstanding its patent conflict with the law.

relation of the Attorney-General), plaintiff, vs. EL HOGAR FILIPINO, defendant. G.R. No. L-26649 July 13, 1927 STREET, J.:

FACTS: The Philippine Government instituted a quo warranto proceeding for the purpose of depriving El Hogar Filipino, a building and loan association, of its corporate franchise, excluding it from all corporate rights and privileges, and effecting a final dissolution of said corporation. The complaint alleged that the defendant was organized in the year 1911 as a

It is supposed that the existence of this article among the by-laws of the association is a misdemeanor on the part of the respondent which justifies its dissolution. In this view we are unable to concur. The obnoxious by-law, as it stands, is a mere nullity, and could not be enforced even if the directors were to attempt to do so. There is no provision of law making it a misdemeanor to incorporate an invalid provision in the bylaws of a corporation; and if there were such, the hazards incident to corporate effort would certainly be largely increased. 2) Yes. It is alleged that the directors of El Hogar Filipino, instead of serving without pay, or receiving nominal pay or a fixed salary, as the complaint supposes would be proper, have been receiving large compensation, varying in amount from time to time, out of the profits of the respondent. In so far as this court is concerned the question here before us is not one concerning the propriety and wisdom of the measure of compensation adopted by the respondent but rather the question of the validity of the measure. Upon this point there can, it seems to us, be no difference of intelligent opinion. The Corporation Law does not undertake to prescribe the rate of compensation for the directors of corporations. The power to fixed the compensation they shall receive, if any, is left to the corporation, to be determined in its by-laws (Act No. 1459, sec. 21). Pursuant to this authority the compensation for the directors of El Hogar Filipino has been fixed in section 92 of its by-laws, as already stated. The justice and property of this provision was a proper matter for the shareholders when the by-laws were framed; and the circumstance that, with the growth of the corporation, the amount paid as compensation to the directors has increased beyond what would probably be necessary to secure adequate service from them is matter that cannot be corrected in this action; nor can it properly be made a basis for depriving the respondent of its franchise, or even for enjoining it from compliance with the provisions of its own by-laws. If a mistake has been made, or the rule adopted in the by-laws meeting to change the rule. The remedy, if any, seems to lie rather in publicity and competition, rather than in a court proceeding. 3) Yes. Article 70 of the by-laws requires that persons elected to the board of directors must be holders of shares of the paid up value of P5,000 which shall be held as security may be put up in the behalf of any director by some other holder of shares in the amount stated. Article 76 of the by-laws declares that the directors waive their right as shareholders to receive loans from the association. It is asserted that article 70 is objectionable in that, under the requirement for security, a poor member, or wage-earner, cannot serve as director, irrespective of other qualifications and that as a matter of fact only men of means actually sit on the board. Article 76 is criticized on the ground that the provision requiring directors to renounce their right to loans unreasonably limits their rights and privileges as members. There is nothing of value in either of these suggestions. Section 21 of the Corporation Law expressly gives the power

to the corporation to provide in its by-laws for the qualifications of directors; and the requirement of security from them for the proper discharge of the duties of their office, in the manner prescribed in article 70, is highly prudent and in conformity with good practice. Article 76, prohibiting directors from making loans to themselves, is of course designed to prevent the possibility of the looting of the corporation by unscrupulous directors. A more discreet provision to insert in the by-laws of a building and loan association would be hard to imagine. Clearly, the eighth cause of action cannot be sustained.
24. National Exchange v Dexter

Facts: Respondent subscribed to the corporate stock of CS Salmon & Co. amounting to P30,000, which was to be paid from the first dividends to be declared on the shares of the said company. The payments will be taken from the dividends Dexter will be receiving on his shares, until the full price or value of such shares have been fully paid. An initial amount of P15,000 was paid from the dividends of Dexters shares as declared by the company. However, no other dividend was thereafter declared by the company, and thus, no other payment was made for the subscription. The National Exchange became the assignee of CS Salmon, who instituted an action in the CFI to recover the remaining amount from Dexter. The CFI ruled in favor of National Exchange, thus, Dexter appealed to the SC. Issue: Whether the stipulation contained in the subscription to the effect that the subscription is payable from the first dividends declared on the shares has the effect of relieving the subscriber from personal liability in an action to recover the value of the shares, and if such stipulation is valid. Held: The said stipulation is unlawful. It obligates the subscriber to pay nothing for the shares except dividends as may accrue upon the stock. In the contingency that the dividends are not paid, there is no liability at all, and as such creates a discrimination in favor of a particular subscriber. Dexter must pay for the amount claimed with interest. The law prohibits the issuance of shares by corporations except for actual cash to the par value of the stock or its full equivalent in property actually received by it at a fair valuation equal to the par value of the stock or bonds so issued.
25. G.R. No. L-4824

June 30, 1953 LINGAYEN GULF ELECTRIC POWER COMPANY, INC., plaintiffappellant, vs.IRINEO BALTAZAR, defendant-appellee. x---------------------------------------------------------x G.R. No. L-6244 June 30, 1953 LINGAYEN GULF ELECTRIC POWER COMPANY, INC., plaintiffappellee, vs.IRINEO BALTAZAR, defendant and appellant. MONTEMAYOR, J.: FACTS: The plaintiff, Lingayen Gulf Electric Power Company is a domestic

corporation with an authorized capital stock of P300,000 divided into 3,000 shares with a par value of P100 per share. The defendant, Irineo Baltazar appears to have subscribed for 600 shares on account of which he had paid upon the organization of the corporation the sum of P15,000. After incorporation, the defendant made further payments on account of his subscription, leaving a balance of P18,500 unpaid for, which amount, the plaintiff now claims in this action. On July 23, 1946, a majority of the stockholders of the corporation, among them the herein defendant, held a meeting and adopted stockholders' resolution No. 17. By said resolution, it was agreed upon by the stockholders present to call the balance of all unpaid subscribed capital stock as of July 23, 1946, the first 50 per cent payable within 60 days beginning August 1, 1946, and the remaining 50 per cent payable within 60 days beginning October 1, 1946. The resolution also provided, that all unpaid subscription after the due dates of both calls would be subject to 12 per cent interest per annum. Lastly, the resolution provided, that after the expiration of 60 days' grace which would be on December 1, 1946, for the first call, and on February 1, 1947, for the second call, all subscribed stocks remaining unpaid would revert to the corporation. On September 22, 1946, the plaintiff corporation wrote a letter to the defendant reminding him that the first 50 per cent of his unpaid subscription would be due on October 1, 1946. The plaintiff requested the defendant to "kindly advise the company thru the undersigned your decision regarding this matter." The defendant answered on September 25, 1946, asking the corporation that he be allowed to pay his unpaid subscription by February 1, 1947. In his answer, the defendant also agreed that if he could not pay the balance of his subscription by February 1, 1947, his unpaid subscription would be reverted to the corporation. On December 19, 1947, the defendant wrote another letter to the members of the Board of Directors of the plaintiff corporation, offering to withdraw completely from the corporation by selling out to the corporation all his shares of stock in the total amount of P23,000. Apparently this offer of the defendant was left unacted upon by the plaintiff. On April 17, 1948, the Board of Directors of the plaintiff corporation held a meeting, and in the course of the said meeting they adopted Resolution No. 17. This resolution in effect set aside the stockholders resolution approved on June 23, 1946, on the ground that said stockholders' resolution was null and void, and because the plaintiff corporation was not in a financial position to absorb the unpaid balance of the subscribed capital stock. At the said meeting the directors also decided to call 50 per cent of the unpaid subscription within 30 days from April 17, 1948, the call payable within 60 days from receipt of notice from the Secretary-Treasurer. This resolution also authorized legal counsel of the company to take all the necessary legal steps for the collection of the payment of the call.

On June 10, 1949, the stockholders of the corporation held another meeting in which the stockholders were all present, either in person or by proxy. At such meeting, the stockholders adopted resolution No. 4, whereby it was agreed to revalue the stocks and assets of the company so as to attract outside investors to put in money for the rehabilitation of the company. The president was authorized to make all arrangement for such appraisal and the Secretary to call a meeting upon completion of the reassessment. It was admitted by the defendant that he received notice from the Secretary-Treasurer of the company, demanding payment of the unpaid balance of his subscription. It was agreed by the parties that the call of the Board of Directors was not published in a newspaper of general circulation as required by section 40 of the Corporation Law. On September 28, 1949, the legal counsel of the plaintiff corporation wrote a letter to the defendant, demanding the payment of the unpaid balance of his subscription amounting to P18,500. Copy of this letter was sent by registered mail to the defendant on September 29,1949. The defendant ignored the said demand. Hence this action. In an exhaustive and well prepared decision, Judge M. Mejia of the lower court found that the call for payment embodied in resolution No. 17 of July 23, 1946 was null and void for lack of publication; consequently, he dismissed the complaint as premature. He further held said resolution null and void in so far as it tried to relieve the defendant from liability on his unpaid subscription, on the ground that the resolution was not approved by all the stockholders of the corporation. He also dismissed the defendant's counterclaim for compensation as president of the corporation. ISSUES: 1. Was the call valid? 2. Was the defendant released from the obligation of the unpaid balance of his subscription by virtue of stockholders' resolution Nos. 17 and 4? 3. Is the defendant entitled to compensation as president of the plaintiff corporation? HELD: 1. We agree with the lower court that the law requires that notice of any call for the payment of unpaid subscription should be made not only personally but also by publication. This is clear from the provisions of section 40 of the Corporation Law, Act No. 1459, as amended, which reads as follows: SEC. 40. Notice of call for unpaid subscriptions must be either personally served upon each stockholder or deposited in the post office, postage prepaid, addressed to him at his place of residence, if

known, and if not known, addressed to the place where the principal office of the corporation is situated. The notice must also be published once a week for four successive weeks in some newspaper of general circulation devoted to the publication of general news published at the place where the principal office of the corporation is established or located, and posted in some prominent place at the works of the corporation if any such there be. If there be no newspaper published at the place where the principal office of the corporation is established or located, then such notice may be published in any newspaper of general news in the Philippines. It will be noted that section 40 is mandatory as regards publication, using the word "must". As correctly stated by the trial court, the reason for the mandatory provision is not only to assure notice to all subscribers, but also to assure equality and uniformity in the assessment on stockholders. 2. Going to the claim of defendant and appellant that Resolution No. 17 of 1946 released him from the obligation to pay for his unpaid subscription, the authorities are generally agreed that in order to effect the release, there must be unanimous consent of the stockholders of the corporation. We quote some authorities: Subject to certain exceptions, considered in subdivision (3) of this section, the general rule is that a valid and binding subscription for stock of a corporation cannot be cancelled so as to release the subscriber from liability thereon without the consent of all the stockholders or subscribers. Furthermore, a subscription cannot be cancelled by the company, even under a secret or collateral agreement for cancellation made with the subscriber at the time of the subscription, as against persons who subsequently subscribed or purchased without notice of such agreement. (3) Exceptions. In particular circumstances, as where it is given pursuant to a bona fide compromise, or to set off a debt due from the corporation, a release, supported by consideration, will be effectual as against dissenting stockholders and subsequent and existing creditors. A release which might originally have been held invalid may be sustained after a considerable lapse of time. In the present case, the release claimed by defendant and appellant does not fall under the exception above referred to, because it was not given pursuant to a bona fide compromise, or to set off a debt due from the corporation, and there was no consideration for it. 3. As regards the compensation of President claimed by defendant and appellant, it is clear that he is not entitled to the same. The bylaws of the company are silent as to the salary of the President. And, while resolutions of the incorporators and stockholders provide salaries for the general manager, secretary-treasurer and other employees, there was no provision for the salary of the President. On

the other hand, other resolutions provide for per diems to be paid to the President and the directors of each meeting attended, P10 for the President and P8 for each director, which were later increased to P25 and P15, respectively. This leads to the conclusions that the President and the board of directors were expected to serve without salary, and that the per diems paid to them were sufficient compensation for their services. Furthermore, for defendant's several years of service as President and up to the filing of the action against him, he never filed a claim for salary. He thought of claiming it only when this suit was brought against him. In conclusion we hold that under the Corporation Law, notice of call for payment for unpaid subscribed stock must be published, except when the corporation is insolvent, in which case, payment is immediately demandable. We also rule that release from such payment must be made by all the stockholders. In view of the foregoing and finding no reversible error in the decision appealed, the same is hereby affirmed. No pronouncement as to costs.

26. LUMANLAN VS. CURA G.R. No. L-39861 March 21, 1934 GODDARD, J.:. FACTS: Dizon & Co., Inc., is a corporation duly organized under the laws of the Philippine Islands with its central office in the City of Manila. The plaintiffappellee Bonifacio Lumanlan, subscribed for 300 shares of stock of said corporation at a par value of P50 or a total of P15,000. Julio Valenzuela, Pedro Santos and Francisco Escoto, creditors of this corporation, filed suit against it in the Court of First Instance of Manila, praying that a receiver be appointed, as it appeared that the corporation at that time had no assets except credits against those who had subscribed for shares of stock. The court named Tayag as receiver for the purpose of collecting, said subscriptions. As Bonifacio Lumanlan failed to pay the full amount of stock, the receiver, filed a suit against him in the Court of First Instance of Manila for collection. In that case Lumanlan was sentenced to pay the corporation the above-mentioned sum of P15,109 with legal interest thereon. Lumanlan appealed from this decision. The creditors, some of the directors and the majority of the stockholders held several meetings in which it was agreed in substance that subscribers for the capital stock who were in default should pay the creditors; Lumanlan was designated to pay the debt of the corporation to Julio Valenzuela, one of the petitioners as payment for the loan received from the corporation. Notwithstanding the payment made by Lumanlan to Valenzuela, the corporation, asked for the execution of the sentence and by virtue of an order of execution the provincial sheriff levied upon two parcels of land belonging to Lumanlan. Lumanlan brought this case to collect from Dizon & Co., Inc., and to prevent the sheriff from selling the two parcels of land.

ISSUE: Whether or not the corporation has a right to collect all unpaid stock subscriptions and any other amounts which may be due it. RULING: YES. It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which the creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. The Corporation Law clearly recognizes that a stock subscription is a subsisting liability from the time the subscription is made, since it requires the subscriber to pay interest quarterly from that date unless he is relieved from such liability by the bylaws of the corporation. The subscriber is as much bound to pay the amount of the share subscribed by him as he would be to pay any other debt, and the right of the company to demand payment is no less incontestable. The judgment of the trial court is modified in accordance with the above and Dizon & Co., Inc., is ordered to credit Bonifacio Lumanlan with the sum of P13,840 against the judgment for P15,109,; to issue to Bonifacio Lumanlan 300 shares of its capital stock upon payment by him of the sum of P1,269 with interest thereon at 6 per cent per annum. The preliminary injunction issued in this case is hereby dissolved for the purpose of enabling Dizon & Co., Inc., to ask for a new order of execution in case No. 37492, Court of First Instance of Manila, for the sum of P1,269 with interest thereon as stated above.

capitals stock and not pay any dividend to the holders until said shares were paid in full. Thus, when C made a call and declared the unpaid subscribed stocks of complainant to be delinquent, C violated the right of the SH as stated in the B-Ls. HELD: The said provision may be resorted to in the discretion of the BOD. Said B-L provision does not give the shareholder the right If the BOD does not wish to make, or does not make, use of said authority, it has 2 other remedies for accomplishing the same purpose. As stated in Velasco v. Poizat: sale of delinquent shares or court action. BOD elected to avail of the remedy of sale of the delinquent shares.

27. De Silva v. ABOITIZ & COMPANY (1923)

1)

De Silva subscribed for 650 shares of stock (P500/share) of ABOITIZ. He paid only for 200 shares, so that 450 remained unpaid for which he was indebted to the sum of P225,000 . April 1922- he was notified of the call for payment for unpaid subscribed stocks and that it will be declared delinquent and sold if not paid. The call was also published. De Silva filed a complaint arguing that the C exceeded its executive authority and asked for an injunction based on the ground: The B-Ls provide that Provided however, That from this 70% of the profit obtained the BOD may deduct such amount as it may deem fit for the payment of the unpaid subscriptions to the

2)

3)

4) 5)