27.
Marsman vs First Coconut (3) The object of the sale is limited to merchandise,
Facts: First Coconut purchased on installment one diesel generating
unit worth P21,000.00 from Madrid Trading, paying P4,000.00 as
downpayment. On January 26, 1967, Madrid Trading assigned all its
rights under the chattel mortgage to Marsman & Company, Inc. by
virtue of a Deed of Assignment. On March 28, 1967, the defendant
paid Marsman & Company, Inc. the sum of P2,000.00, leaving a
balance of P15,000.00. First Coconut failed to pay despite repeated
demands.
The CFI of Manila ruled in favour of Marsman. Upon appeal, the
decision was set aside by the Court of Appeals, as the sale violated
the Retail Trade Nationalization Law. Hence, this petition.
Issue: W/N the sale of industrial machinery for use by the industrial
plant does not constitute engaging in the retail business within the
contemplation of republic act no. 1180
Held: No, there was no violation of the Anti-Dummy Law and the
Retail Trade Nationalization Law.
The Court of Appeals held that petitioner violated the Retail Trade
Nationalization Law and the Anti-Dummy Law 5a in its decision. Its
ruling was based upon the following assumptions:
(1) The petitioner was illegaly engaged in the retail business;
and
(2) The sale of a generating unit to respondent constituted
retail business as defined by Republic Act No. 1180.
For a sale to be considered as retail, the following elements should
concur:
(1) The seller should be habitually engaged in selling;
(2) The sale must be direct to the general public; and
commodities or goods for consumption.
In this case, the first two elements are present. It is the presence of
the third element that must be determined. The last element refers
to the subject of the retailer's activities or what he is selling, i.e.,
consumption goods or consumer goods. Consumer goods may be
defined as "goods which are used or bought for use primarily for
personal, family or household purposes. Such goods are not
intended for resale or further use in the production of other
products."
In the case at bar, the article in controversy is a piece of industrial
machinery—a diesel generating unit. The said unit was purchased
by respondent to be used in its coconut central and as such may be
classified as "production or producer goods." Since the diesel
generating unit is not a consumer item, it necessarily does not come
within the ambit of retail business as defined by Republic Act No.
1180. Hence, herein petitioner Marsman & Company, Inc. may
engage in the business of selling producer goods. It necessarily
follows that petitioner cannot be guilty of violating the Anti-
Dummy Law or of using a dummy since it is not prohibited by the
Retail Trade Nationalization Law from selling the diesel generating
unit to herein respondent. From the foregoing, there can be no
basis in law for declaring the contract of sale as null and void.
28. GSIS v. BPI
FACTS:
 Respondent BPI Family Bank was a product of the merger
between the Family Bank and Trust Company (FBTC) and the Bank
of the Philippine Islands (BPI).
o Since its incorporation, the bank has been commonly known
as "Family Bank."
 Petitioner was originally organized as Royal Savings Bank. It
encountered liquidity problems and later temporarily closed by the
Central bank.
 (2) months after its closure, petitioner reopened and was
renamed Comsavings Bank, Inc. under the management of the
Commercial Bank of Manila.
 GSIS acquired petitioner from the Commercial Bank of
Manila.
o petitioner sought SEC, DTI and BSP’s approval to change its
corporate name to "GSIS Family Bank, a Thrift Bank." DTI and BSP
approved the application.
 It reached respondent’s attention that petitioner is using or
attempting to use the name "Family Bank." Thus, respondent
petitioned the SEC Company Registration and Monitoring
Department (SEC CRMD) to disallow the registration of the name
“GSIS Family Bank” or any other corporate name with the words
“Family bank” in it.
o Respondent claimed that it has exclusive ownership to the
name of “Family Bank” both locally and internationally. Also, that it
has acquired a reputation and goodwill under the name.
 Applying the rule of "priority in registration" based on the
legal maxim first in time, first in right, the SEC CRMD concluded that
BPI has the preferential right to the use of the name "Family Bank."
o Hence, petitioner appealed to the CA.
CA
 Dismissed the appeal.
 ruled that the approvals by the BSP and by the DTI of
petitioner’s application to use the name "GSIS Family Bank" do not
constitute authority for its lawful and valid use. It said that the SEC
has absolute jurisdiction, supervision and control over all
corporations.
 Also, respondent was entitled to the exclusive use of the
corporate name because of its prior adoption of the name "Family
Bank" since 1969.
Hence, this petition.
ISSUE: WON petitioner can use the corporate name “GSIS Family
Bank”.
HELD: NO
 Philips Export B.V. v. Court of Appeals, SC ruled that to fall
within the prohibition of the law on the right to the exclusive use of
a corporate name, two requisites must be proven:
o That the complainant corporation acquired a prior right
over the use of such corporate name; and
o The proposed name is either
 identical or
 deceptive or confusingly similar to that of any existing
corporation or to any other name already protected by law; or
 patently deceptive, confusing or contrary to existing law
 The case at bar, respondent was incorporated in 1969 as
Family Savings Bank and in 1985 as BPI Family Bank. Petitioner, on
the other hand, was incorporated as GSIS Family – Thrift Bank only
in 2002.
 The words "Family Bank" present in both petitioner and
respondent's corporate name satisfy the requirement that there be
identical names in the existing corporate name and the proposed
one.
 Petitioner cannot argue that the word "family" is a generic
or descriptive name, which cannot be appropriated exclusively by
respondent. "Family," as used in respondent's corporate name, is
not generic.
o This coined phrase, neither being generic nor descriptive, it
is arbitrary. Arbitrary marks are "words or phrases used as a mark
that appear to be random in the context of its use. They are
generally considered to be easily remembered because of their
arbitrariness. They are original and unexpected in relation to the
products they endorse, thus, becoming themselves distinctive."
29. INDIAN CHAMBER v. FILIPINO INDIAN CHAMBER
FACTS: Filipino-Indian Chamber of Commerce of the Philippines,
Inc. was originally registered with the SEC as Indian Chamber of
Commerce of Manila, Inc. On November 24, 1951. On October 7,
1959, it amended its corporate name into Indian Chamber of
Commerce of the Philippines, Inc., and further amended it into
Filipino-Indian Chamber of Commerce of the Philippines, Inc. The
defunct FICCPI's term of existence expired on November 24 ,2001.
SEC Case No. 05-008
On January 20, 2005, Mr. Mansukhani reserved the corporate
name "Filipino Indian Chamber of Commerce in the
Philippines, Inc." (FICCPI) with the Company Registration and
Monitoring Department (CRMD) of the SEC.
On April 1, 2005, Mr. Sitaldas, claiming to be a representative of the
defunct FICCPI, alleged that the corporate name has been used by
the defunct FICCPI since 1951, and that the reservation by another
person who is not its member or representative is illegal.ch
On May 27, 2005, the CRMD rendered a decision granting
Mansukhani's reservation, holding that he possesses the better
right over the corporate name. The CRMD ruled that the defunct
FICCPI has no legal personality to oppose the reservation of the
corporate name by Mansukhani. After the expiration of the defunct
FICCPFs corporate existence, without any act on its part to extend
its term, its right over the name ended.
Sitaldas appealed the decision of the CRMD to the SEC En Banc,
which denied the appeal. On September 27, 2006, the CA affirmed
the decision of the SEC En Banc.
On March 14, 2006, pending resolution by the CA, the SEC issued
the Certificate of Incorporation of respondent FICCPI, pursuant to its
ruling in SEC Case No. 05-008.
SEC Case No. 06-014
On December 8, 2005, Mr. Dayacanl, who allegedly represented the
defunct FICCPI, filed an application with the CRMD for the
reservation of the corporate name "Indian Chamber of Commerce
Phils., Inc." (ICCPI). On February 14, 2006, Mansukhani February
formally opposed the application. Mansukhani claimed the better
right over the corporate name "Filipino Chamber of Commerce in
the Philippines, Inc.
CRMD denied Mansukhani's opposition. It stated that the name
"Indian Chamber of Commerce Phils., Inc." is not deceptively or
confusingly similar to "Filipino Indian Chamber of Commerce in the
Philippines, Inc." and issued the Certificate of Incorporation of
petitioner ICCPI.
Mansukhani, appealed the CRMD's decision to the SEC En Banc and
the previous decision was reversed.
ISSUE: 1) Whether or not Mr. Mansukhani has the better right over
the corporate name "Filipino Indian Chamber of Commerce
in the Philippines, Inc." (FICCPI)
2) Whether or not there is similarity between the petitioner and the
respondent (sic) corporate name that would inevitably lead to
confusion.
RULING:
1. Yes. FICCPI was incorporated on March 14, 2006. On the other
hand, ICCPI was incorporated only on April 5, 2006, or a month after
FICCPI registered its corporate name. Thus, FICCPI, was
incorporated earlier and acquired a prior right over the use of the
corporate name.
It is settled that a corporation is ipso facto dissolved as soon as its
term of existence expires.
SEC Memorandum Circular No. 14-2000 likewise provides for the
use of corporate names of dissolved corporations:
14. The name of a dissolved firm shall not be allowed to be used by
other firms within three (3) years after the approval of the
dissolution of the corporation by the Commission, unless allowed by
the last stockholders representing at least majority of the
outstanding capital stock of the dissolved firm.
When the term of existence of the defunct FICCPI expired on
November 24, 2001, its corporate name cannot be used by other
corporations within three years from that date, until November 24,
2004.
FICCPI reserved the name "Filipino Indian Chamber of Commerce in
the Philippines, Inc." on January 20, 2005, beyond the three year
period. The SEC was then correct to allow FICCPI to use the reserved
corporate name.
2. Yes. In the Philip Exports v. C.A. case, the Court ruled that to fall
within the prohibition, two requisites must be proven: the proposed
name is (a) identical or (b) deceptively or confusingly similar to that
of any existing corporation or to any other name already protected
by law.
The petitioner cannot argue that the combination of words in
respondent's corporate name is merely descriptive and generic, and
consequently cannot be appropriated as a corporate name to the
exclusion of the others. Aside from the words "Filipino," "in the,"
and "Inc.," the corporate names of petitioner and respondent are
identical in all other respects.
The Court noted that to determine the existence of confusing
similarity in corporate names, the test is whether the similarity is
such as to mislead a person, using ordinary care and discrimination.
Proof of actual confusion need not be shown but it is sufficient that
confusion is probably or likely to occur.
30. CAGAYAN FISHING v. SANDIKO
Facts: Manuel Tabora is the registered owner of four parcels of land.
To guarantee the payment of two loans, Manuel Tabora, executed
in favor of PNB two mortgages over the four parcels of land
between August, 1929, and April 1930. Later, a third mortgage on
the same lands was executed also on April, 1930 in favor of Severina
Buzon to whom Tabora was indebted.
On May, 1930, Tabora executed a public document entitled
"Escritura de Transpaso de Propiedad Inmueble" by virtue of which
the four parcels of land owned by him was sold to the plaintiff
company, said to under process of incorporation. The plaintiff
company filed its article incorporation with the Bureau of
Commerce and Industry only on October, 1930.
A year later, the board of directors of said company adopted a
resolution authorizing its president to sell the four parcels of lands
in question to Teodoro Sandiko. A deed of sale was made where the
plaintiff sold, ceded, and transferred to the defendant all its right,
titles, and interest in and to the four parcels of land. A promissory
note was drawn by the defendant in favor of the plaintiff, payable
after one year from the date thereof. A deed of mortgage was also
executed where the four parcels of land were given a security for
the payment of the promissory note.
The defendant having failed to pay the sum stated in the promissory
note, plaintiff, brought an action in the Court of First Instance of
Manila praying that judgment be rendered against the defendant
for the sum stated in the promissory note. After trial, the court
rendered judgment absolving the defendant. Plaintiff presented a
motion for new trial, which motion was denied by the trial court.
Hence, this appeal.
Issue: Whether the deed of sale executed in favor of Teodoro
Sandiko was valid.
Held: No. The transfer made by Tabora to the Cagayan fishing
Development Co., Inc., plaintiff herein, was affected on May 31,
1930 and the actual incorporation of said company was affected
later on October 22, 1930. In other words, the transfer was made
almost five months before the incorporation of the company.
A duly organized corporation has the power to purchase and hold
such real property as the purposes for which such corporation was
formed may permit and for this purpose may enter into such
contracts as may be necessary. But before a corporation may be
said to be lawfully organized, many things have to be done. Among
other things, the law requires the filing of articles of incorporation.
In this case, it can not be denied that the plaintiff was not yet
incorporated when it entered into a contract of sale. Not being in
legal existence then, it did not possess juridical capacity to enter
into the contract.
In reality, the contract here was entered into not between Manuel
Tabora and a non-existent corporation but between the Manuel
Tabora as owner of the four parcels of lands on the one hand and
the same Manuel Tabora, his wife and others, as mere promoters of
a corporations on the other hand. These promoters could not have
acted as agent for a projected corporation since that which no legal
existence could have no agent. A corporation, until organized, has
no life and therefore no faculties.
This is not saying that under no circumstances may the acts of
promoters of a corporation be ratified by the corporation if and
when subsequently organized.
It should be observed that Manuel Tabora was the registered owner
of the four parcels of land, which he succeeded in mortgaging to the
Philippine National Bank so that he might have the necessary funds
with which to convert and develop them into fishery. He appeared
to have met with financial reverses. He formed a corporation
composed of himself, his wife, and a few others. From the articles of
incorporation, it appears that out of the P48,700 amount of capital
stock subscribed, P45,000 was subscribed by Manuel Tabora himself
and P500 by his wife, Rufina; and out of the P43,300, amount paid
on subscription, P42,100 is made to appear as paid by Tabora and
P200 by his wife. Both Tabora and his wife were directors and the
latter was treasurer as well. In fact, to this day, the lands remain
inscribed in Tabora's name. The defendant always regarded Tabora
as the owner of the lands. He dealt with Tabora directly. Jose
Ventura, president of the plaintiff corporation, intervened only to
sign the contract in behalf of the plaintiff. Even the Philippine
National Bank, mortgagee of the four parcels of land, always treated
Tabora as the owner of the same.

31. Marc II Marketing, Inc. vs. Alfredo Joson
Facts: Marc II Marketing is a domestic corporation primarily
engaged in the buying, marketing, selling, and distributing in retail
or wholesale of household appliances. It took over the business
operations of Mark Marketing, Inc. which was made non-
operational. Petitioner Lucila Joson is the President and majority
stockholder of Marc II, as well as the former president of the
defunct Marc Marketing, Inc.
Pending the incorporation of Marc II, respondent Alfredo Joson was
designated as the General Manager of Mark Marketing, Inc and was
among the corporate officers designated in the latter’s by-laws.
Marc II was subsequently incorporated and registered, and Alfredo
was appointed as one of its corporate officers as per an undated
Secretary’s Certificate by the board of directors.
Marc II decided to cease its operations on June 30, 1997, and this
was evidenced by an Affidavit of Non-Operation due to poor sales.
Alfredo was formally informed of the cessation of business
operation and was terminated.
Alfredo filed a Complaint for Reinstatement and Money Claim
against herein petitioners before the Labor Arbiter, averring that he
had been dismissed due to familial conflict. The Labor Arbiter
required the parties to submit their position papers. Petitioners,
however, filed a Motion to Dismiss on the ground of lack of
jurisdiction, citing that this was an intra-corporate controversy and
should be heard by SEC (RTC, as per recent developments.)
The Labor Arbiter denied the motion to dismiss and gave petitioners
five (5) days within which to file their position paper. Marc II and
Lucila failed to submit the same, and the Labor Arbiter rulled that
the dismissal of Alfredo was illegal.
The matter was appealed to NLRC, which overturned the Labor
Arbiter’s ruling. It found that the Secretary’s Certificate which
declared that Alfredo was a corporate officer with the designation
of General Manager was binding. Alfredo was found to be more
than just an ordinary employee, and that he could claim 30% of the
net profit of the corporation. This made his dismissal more than a
labor dispute. Alfredo’s motion for reconsideration was denied.
The Court of Appeals reversed the NLRC’s decision, holding that
Alfredo was a mere employee of the corporation, who was illegally
dismissed without valid cause and without due process. Hence this
petition.
Issues:
1. W/N the Court of Appeals erred and committed a grave
abuse of discretion in deciding that the NLRC has
jurisdiction in resolving an allegedly intra-corporate matter,
which should be cognizable by the SEC (RTC).
2. W/N the Management Contract executed between Alfredo
and petitioner Lucila has no binding effect on Marc II for
having had been executed before its corporation, and thus,
Lucila is liable for such solidarily.
Held:
1. No. According to Easycall Communications Phils., Inc. v. King, the
Supreme Court held that corporate officers are those officers of a
corporation who are given such character either by the Corporation
Code or by the corporation by-laws. Section 25 of the Corporation
Code clearly enumerates these officers: a) President; b) Secretary; c)
Treasurer; and (d) such other officers as may be provided by the by-
laws.

The fourth classification was expounded on in the case of Matling
Industrial and Commercial Corporation v. Coros, where it was held
that a position must be expressly mentioned in the by-laws of a
corporation in order for it to be considered as a corporate office.
The Board of Directors has the power to create appointive positions
other than those positions of corporate officers, but the persons
occupying these positions are not considered as corporate officers
within the meaning of Section 25 of the Corporation Code.
It is clear in Marc II’s by-laws that Alfredo’s position of General
Manager was not among those explicitly enumerated.
Thus, the Court of Appeals was correct in ruling that Alfredo was a
mere employee or subordinate official, and thus, subject to the
Labor Code. The controversy, consequently, becomes one of illegal
dismissal which is within the purview of the NLRC.
That Alfredo was also a director and a stockholder of Marc II does
not automatically make the case fall into the category of intra-
corporate controversy.
With respect
1. Yes, Lucila is solidarily liable, as the Management Contract
she entered into with Alfredo is marred with bad faith.
Section 19 of the Corporation Code expressly proves that a private
corporation commences to have corporate existence and juridical
personality and is deemed incorporated from the date that the SEC
issues a certificate of incorporation under its official seal.
There is no corporation to speak of prior to an entity’s
incorporation. No contract entered into before incorporation can
bind the corporation. It is clear that the Management Contract that
Lucila entered into on 16 January 1994, preceded the incorporation
of Marc II on 15 August 1994. Thus, it cannot have a binding and
legal effect on petitioner corporation. There was also no evidence
shown that Marc II adopted, ratified, or confirmed the Management
Corporation once it was incorporated.
Lucila is also solidarily liable in this matter. While corporate officers
are typically not personally liable for their official acts, once it is
shown that they have exceeded their authority or have acted in
patent bad faith, then they may be held liable for these said acts.
32. PIONEER INSURANCE v CA
Facts: In 1965, Jacob S. Lim was engaged in the airline business as
owner-operator of Southern Air Lines (SAL) a single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA)
and Lim entered into and executed a sales contract for the sale and
purchase of two (2) DC-3A Type aircrafts and one (1) set of
necessary spare parts for the total agreed price of US $109,000.00
to be paid in installments. One DC-3 Aircraft with Registry No. PIC-
718, arrived in Manila on June 7,1965 while the other aircraft,
arrived in Manila on July 18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation as
surety executed and issued its Surety Bond No. 6639 in favor of JDA,
in behalf of its principal, Lim, for the balance price of the aircrafts
and spare parts.
It appears that Border Machinery and Heavy Equipment Company,
Inc. (Bormaheco), Francisco and Modesto Cervantes (Cervanteses)
and Constancio Maglana contributed some funds used in the
purchase of the above aircrafts and spare parts. The funds were
supposed to be their contributions to a new corporation proposed
by Lim to expand his airline business.
But instead of using the money given to him to pay in full the
aircrafts, Lim, without the knowledge of Maglana et al, made an
agreement with Pioneer Insurance for the latter to insure the two
aircrafts which were brought in installment from Japan Domestic
Airlines (JDA) using said aircrafts as security. So when Lim defaulted
from paying JDA, the two aircrafts were foreclosed by Pioneer
Insurance.
It was established that no corporation was formally formed
between Lim and Maglana et al.
Issue: Whether or not Borhameco and the other contributors share
the loss as general partners?
Held: No. There was no de facto partnership. Ordinarily, when co-
investors agreed to do business through a corporation but failed to
incorporate, a de facto partnership would have been formed, and as
such, all must share in the losses and/or gains of the venture in
proportion to their contribution. But in this case, it was shown that
Lim did not have the intent to form a corporation with Maglana et
al. This can be inferred from acts of unilaterally taking out a surety
from Pioneer Insurance and not using the funds he got from
Maglana et al. The record shows that Lim was acting on his own and
not in behalf of his other would-be incorporators in transacting the
sale of the airplanes and spare parts.
33. Hall v Piccio
Facts:
 Arnold Hall, Bradley Hall, Fred Brown, Emma Brown,
Hipolita D. Chapman and Ceferino S. Abella, signed and
acknowledged, the article of incorporation of the Far
Eastern Lumber and Commercial Co., Inc. Also attached was
an affidavit of the treasurer stating that the shares of stock
had been subscribed and fully paid.
 The corporation proceeded with the adoption of by-laws
and the election of its officers and the articles of
incorporation were subsequently filed with the SEC.
 Pending action, Fred Brown, Emma Brown, Hipolita D.
Chapman and Ceferino S. Abella filed before CFI a civil case
alleging among other things that the Far Eastern Lumber
and Commercial Co. was an unregistered partnership and
they wished to have it dissolved because of dissension,
mismanagement, fraud and heavy financial losses.
 Arnold Hall and Bradley Hall then filed a motion to dismiss,
contesting the court's jurisdiction and the sufficiently of the
cause of action.
 CFI: Hon. Edmund S. Piccio ordered the dissolution of the
company; and appointed the properties thereof to Brown
et. al upon the filing of a P20,000 bond.
 The Halls offered to file a counter-bond for the discharge of
the receiver, but the judge refused to accept the offer and
to discharge the receiver.
 Thus, this petition.
Issues:
1. W/N the CFI had jurisdicton to decree the dissolution of the
company because being a de facto corporation, dissolution thereof
may only be ordered in a quo warranto proceeding instituted in
accordance with section 19 of the Corporation Law.
2. W/N a corporation exists
Ruling:
1. Yes. The first proposition is premised on the theory that Far
Eastern Lumber and Commercial Co., is a de facto corporation and
Section 19 of the Corporation Law applies. There are two reasons
why this section does not govern the situation. First, not having
obtained the certificate of incorporation, the Far Eastern Lumber
and Commercial Co., even its stockholders, may not probably claim
"in good faith" to be a corporation. Section 11 of the Corporation
Law provides that it is the issuance of a certificate of incorporation
by the Director of the Bureau of Commerce and Industry which calls
a corporation into being. Unless there has been an evident attempt
to comply with the law the claim to be a corporation "under this
act" could not be made "in good faith." Second, this is not a suit in
which the corporation is a party but a litigation between
stockholders for the purpose of obtaining its dissolution. Even the
existence of a de jure corporation may be terminated in a private
suit for its dissolution between stockholders, without the
intervention of the state.
2. No. All the parties are informed that the SEC has not yet issued
the corresponding certificate of incorporation. The personality of a
corporation begins to exist only from the moment such certificate is
issued, not before (sec. 11, Corporation Law). No one of the
associates have represented to the others that they were
incorporated any more than the latter had made similar
representations to them. And as nobody was led to believe anything
to his prejudice and damage, the principle of estoppel does not
apply. This is not an instance requiring the enforcement of contracts
with the corporation through the rule of estoppel.
34. Lim Tong Lim vs Philippine Fishing Gear Industries, Inc.
Facts. On behalf of "Ocean Quest Fishing Corporation," Antonio
Chua and Peter Yao entered into a Contract dated February 7, 1990,
for the purchase of fishing nets of various sizes from the Philippine
Fishing Gear Industries, Inc. They claimed that they were engaged in
a business venture with Petitioner Lim Tong Lim, who however was
not a signatory to the agreement. 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 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
and rendered its decision, ruling that Chua, Yao and Lim, as general
partners, were jointly liable to pay respondent. Lim appealed to the
CA which affirmed the RTC.
Issue. Whether or not Petitioner Lim Tong Lim is liable.
Held. Yes. Petitioner argues 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 provides: Corporation by
estoppel. - All persons who assume to act as a corporation knowing
it to be without authority to do so shall be liable as general 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 itself to be a
corporation, will be estopped from denying its corporate capacity in
a suit against it by a third person who relied in good faith on such
representation. It cannot allege lack of personality to be sued to
evade its responsibility for a contract it entered into and by virtue of
which it received advantages and benefits.
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.
Unquestionably, petitioner benefited from the use of the nets found
inside F/B Lourdes, the boat which has earlier been proven to be an
asset of the partnership. He in fact questions the attachment of the
nets, because the Writ has effectively stopped his use of the fishing
vessel.It is difficult to disagree with the RTC and the CA that Lim,
Chua and Yao decided to form a corporation. Although it was never
legally formed for unknown reasons, this fact alone does not
preclude the liabilities of the three as contracting parties in
representation of it. Clearly, under the law on estoppel, those acting
on behalf of a corporation and those benefited by it, knowing it to
be without valid existence, are held liable as general
partners.Technically, it is true that petitioner did not directly act on
behalf of the corporation. However, having reaped the benefits of
the contract entered into by 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.
35. INTERNATIONAL EXPRESS TRAVEL v. CA
FACTS: In 1989, International Express Travel & Tour Services, Inc.
(IETTI) and Philippine Football Federation (PFF), through Henri Kahn,
its president, entered into a contract of service. IETTI rendered its
travel services in favour for PFF in the South East Asian Games.
IETTI delivered the plane tickets to PFF, PFF in turn made a down
payment. However, PFF failed to complete the full payment despite
repeated demands from IETTI.
IETTI filed a collection suit against PFF and Kahn. Kahn averred that
he should not be impleaded as a co-defendant as he merely acted
as an agent of PFF being a corporation with separate and distinct
personality from him. He presented before the trial court the copy
of the constitution and by-laws of the Philippine Football
Federation.
ISSUE: WHETHER OR NOT PRESIDENT HENRI HAS FULLY
ESTABLISHED THE CORPORATE EXISTENCE OF PHILIPPINE FOOTBALL
FEDERATION?
RULING: NO. Before an entity may be considered as a national
sports association, such entity must be recognized by the
accrediting organization, the Philippine Amateur Athletic Federation
under R.A. 3135, and the Department of Youth and Sports
Development under P.D. 604. This fact of recognition, however,
Henri Kahn failed to substantiate.
The copy of the constitution and by-laws of the Philippine Football
Federation do not prove that said Federation has indeed been
recognized and accredited by either the Philippine Amateur Athletic
Federation or the Department of Youth and Sports Development.
Hence, 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.
Consequently, Henry Kahn should be held liable for the unpaid
obligations of the unincorporated Philippine Football Federation.
Under corporation law, any person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such
privileges and becomes personally liable for contract entered into or
for other acts performed as such agent.
The doctrine of estoppel applies to a third party only when he tries
to escape liability on a contract from which he has benefited on the
irrelevant ground of defective incorporation. In the case at bar, the
petitioner is not trying to escape liability from the contract but
rather is the one claiming from the contract.
36. PAZ VS. NEW INTERNATIONAL ENVIRONMENTAL
UNIVERSALITY, INC
Facts: Petitioner, as the officer-in-charge of an airport, entered into
a contract (MOA) with the President of Respondent to allow the
latter to lease, and use the aircraft space "exclusively for company
aircraft/helicopter." However, during the effectivity of the contract,
the relationship of Petitioner and Respondent turned sour which
subsequently resulted to the failure of Respondent to use the
leased premises. Respondent sued Petitioner interalia for breach of
contract but Petitioner contends that Respondent has no
personality to sue as it was the President of Respondent, in his
personal capacity, to whom he has a contract with.
RTC ruled that the contract was executed by the parties not only in
their personal capacities but also in representation of their
respective corporations or entities.
CA ruled that while there was no corporate entity at the time of the
execution of the contract, as the stipulated name of the company in
the contract was different from its amended corporation name
issued by the SEC, the President has signed the contract as
"President” of the amended corporation name. Petitioner is
then estopped from denying that he had contracted with
Respondent as a corporation, having recognized the latter as the
"Second Party" in the contract that "will use the hangar space
exclusively for company aircraft/helicopter." Moreover, the
Petitioner was likewise found to have issued checks to Respondent
which belied his claim of contracting with the President in the
latter's personal capacity.

Issue: Whether Respondent exists when the contract was

constituted

Held: YES. CA had correctly pointed out that, from the very
language itself of the MOA entered into by petitioner whereby he
obligated himself to allow the use of the hangar space
"for company aircraft/helicopter," petitioner cannot deny that he
contracted with respondent. Petitioner further acknowledged this
fact in his final letter dated July 23, 2002, where he reiterated and
strongly demanded the former to immediately vacate the hangar
space his "company is occupying/utilizing."

Section 21 of the Corporation Code explicitly provides that one who

assumes an obligation to an ostensible corporation, as such, cannot
resist performance thereof on the ground that there was in fact no
corporation. Clearly, petitioner is bound by his obligation under the
MOA not only on estoppel but by express provision of law. As aptly
raised by respondent in its Comment to the instant petition, it is
futile to insist that petitioner issued the receipts for rental
payments in respondent's name and not with Capt. Clarke's, whom
petitioner allegedly contracted in the latter's personal capacity, only
because it was upon the instruction of an employee. Indeed, it is
disputably presumed that a person takes ordinary care of his
concerns, and that all private transactions have been fair and
regular. Hence, it is assumed that petitioner, who is a pilot, knew
what he was doing with respect to his business with respondent.