Doctrine:
The power of the SEC to regulate proxies remains in place in instances when
stockholders vote on matters other than the election of directors. The test is whether the
controversy relates to such election. All matters affecting the manner and conduct of the
election of directors are properly cognizable by the regular courts. Otherwise, these
matters may be brought before the SEC for resolution based on the regulatory powers it
exercises over corporations, partnerships and associations.

​Facts:
Omico Corporation is a company listed and traded in the Philippine Stock Exchange.
Astra Securities Corporation is one of Omico's stockholders. Omico scheduled its annual
stockholders' meeting and set the deadline for submission of proxies. Astra objected to
the validation of proxies issued in favor of Tommy Kin Hing Tia, representing a significant
percentage of Omico's outstanding capital stock. Astra argued that the proxy issuers did
not obtain the required express written authorization from their clients, violating SRC Rule
20 (11) (b) (xviii) of the Securities Regulation Code (SRC). Astra also objected to the
inclusion of proxies issued in favor of Tia and/or Martin Buncio, as it exceeded the limit
set by SRC Rule 20 (2) (B) (ii) (b). Despite Astra's objections, Omico's Board of Inspectors
declared the proxies issued in favor of Tia as valid. Astra filed a complaint before the
SEC, seeking the invalidation of the proxies and the issuance of a cease and desist order
(CDO) to halt the stockholders' meeting. The SEC issued the CDO, but it failed to be
served on the scheduled meeting date. Astra filed a complaint for indirect contempt
against Omico before the SEC. Omico filed a petition for certiorari and prohibition before
the Court of Appeals (CA), challenging the SEC's jurisdiction. The CA declared the CDO
null and void, ruling that the controversy was an intra-corporate dispute and should be
resolved by the regular courts. The SEC filed a petition for certiorari before the Supreme
Court (SC), arguing that it has jurisdiction over controversies arising from the validation
of proxies. Astra also filed a petition for review on certiorari, seeking the reversal of the
CA's decision. The SC consolidated the two petitions.

​Issue:
Whether the Securities and Exchange Commission (SEC) has jurisdiction over
controversies arising from the validation of proxies for the election of directors.

Ruling:
The SEC does not have jurisdiction over controversies arising from the validation of
proxies for the election of directors. Such controversies should be resolved by the regular
courts, which have the original and exclusive jurisdiction over election contests or
controversies in the election of corporate directors. The SC cited Section 5(c) of Presidential
Decree No. 902-A, in relation to the SRC, which specifically limits the jurisdiction of regular trial
courts to controversies in the election or appointment of directors, trustees, officers, or managers
of corporations, partnerships, or association. Under Section 5(c) of Presidential Decree No. 902-
A, in relation to the SRC, the jurisdiction of the regular trial courts with respect to election related
controversies is specifically confined to "controversies in the election or appointment of directors,
trustees, officers or managers of corporations, partnerships, or associations." Evidently, the
jurisdiction of the regular courts over so-called election contests or controversies under Section 5
(c) does not extend to every potential subject that may be voted on by shareholders, but only to
the election of directors or trustees, in which stockholders are authorized to participate under
Section 24 of the Corporation Code.
This qualification allows for a useful distinction that gives due effect to the statutory right
of the SEC to regulate proxy solicitation, and the statutory jurisdiction of regular courts
over election contests or controversies. The power of the SEC to investigate violations of
its rules on proxy solicitation is unquestioned when proxies are obtained to vote on
matters unrelated to the cases enumerated under Section 5 of Presidential Decree No.
902-A. However, when proxies are solicited in relation to the election of corporate
directors, the resulting controversy, even if it ostensibly raised the violation of the SEC
rules on proxy solicitation, should be properly seen as an election controversy within the
original and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in
relation to Section 5 (c) of Presidential Decree No. 902-A.

The SC found no merit either in the proposal of Astra regarding the "two (2) viable, non-
exclusive and successive legal remedies to question the validity of proxies." It suggests

that the power to pass upon the validity of proxies to determine the existence of a quorum
prior to the conduct of the stockholders’ meeting should lie with the SEC; but, after the
stockholders’ meeting, questions regarding the use of invalid proxies in the election of
directors should be cognizable by the regular courts, since there was already an election
to speak of.

FACTS:
Mariam Kairuz filed an ejectment case before the MCTC against Tumagan, Halil and
Padilla. Mariam alleged that she had been in actual and physical possession of the
property in Benguet when Tumagan, Halil and Padilla took possession of the property
by means of force, threat, intimidation, strategy, stealth, and with the aid of armed men.
In the answers of petitioners, they averred that Mariam could not bring the action for
forcible entry because the property was already sold by her husband to Bali Irisan
Resources, Inc. (BIRI), through a Memorandum of Agreement (MOA). Tumagan is the
branch manager of BIRI while Halil and Padilla were geodetic engineers hired by BIRI to
survey the property. The petitioners alleged that Mariam is a shareholder of BIRI and
also succeeded her husband’s seat in the Board of Directors after her husband died.
Thus, the petitioners alleged that the issue involves management of corporate property
to which MCTC has no jurisdiction.

ISSUE:
Whether or not the issue involves an intra-corporate controversy.
​
RULING:
Yes, the issue involves an intra-corporate controversy. The Court considers two
elements in determining the existence of an intra-corporate controversy, namely:
a. the status or relationship of the parties; and
b. the nature of the question that is the subject of their controversy.
In order that the RTC can take cognizance of a case, the controversy must pertain to
any of the following relationships:
a. between the corporation, partnership, or association and the public;
b. between the corporation, partnership, or association and its stockholders,
partners, members, or officers;
c. between the corporation, partnership, or association and the State as far as its
franchise, permit, or license to operate is concerned; and
d. among the stockholders, partners, or associates themselves.
However, not every conflict between a corporation and its stockholders involves
corporate matters. Here, the parties involved in the controversy is between a
corporation and one of its shareholders. Further, the true nature of the controversy is
not one for forcible entry, but with regard to the shareholder, Mariam, who is seeking
relief from the court to contest the management’s decision due to her alleged default on
the provisions of the MOA. The true controversy is with regard to the management of,
and access to, the corporate property subject of the MOA. Therefore, the MCTC never
acquired jurisdiction over the ejectment case, as it should have been brought before the
RTC for involving intra-corporate controversy.

FACTS:
Respondent RCBC Securities, Inc. is a corporation duly organized and existing
under the laws of the Philippines. It is primarily engaged in the brokerage business,
specifically for the purpose of buying and selling any and all kinds of shares, bonds,
debentures, securities, products, commodities, gold bullion, monetary exchange, and
any and all other kinds of properties in the Philippines or in any foreign country
Stephen Y. Ku opened an account with RCBC Securities on June 5, 2007 for the purchase
and sale of securities. On February 22, 2013, Ku filed with the RTC of Makati a Complaint
for Sum of Money and Specific Performance with Damages against respondent. Pertinent
portions of his allegations read as follows:
Stephen Y. Ku discovered that M.G. Valbuena's name was fraudulently added to an
agreement after he signed it. He became aware of this discrepancy when he requested
his account information. Throughout his trading transactions with RCBC Securities, MGV
presented herself as a sales Director, leading Ku to believe she was authorized to act on
behalf of RCBC Securities. Subsequently, Ku learned of mismanagement in his account,
leading to his realization that MGV had engaged in unauthorized transactions. After an
audit, Ku found 467 unauthorized transactions, including multiple buying and selling
transactions on the same day over four years.
Ku sought reimbursement for his losses resulting from unauthorized trades, as well as
treble damages, exemplary damages, and attorney's fees. His case, filed as Civil Case No.
13-171, was initially assigned to Branch 63 of the RTC of Makati. However, Branch 63
ruled that the case involved securities trading and should be heard by a Special
Commercial Court. The case was then transferred to Branch 149. Branch 149 denied
RCBC Securities' motion to dismiss, stating that Ku's payment of insufficient docket fees
did not warrant dismissal. Instead, Ku was ordered to pay the deficiency assessment
within 30 days. The Court of Appeals later reversed and dismissed Ku's complaint, citing
lack of jurisdiction by Branch 63.

ISSUE:
WON the complaint partakes the nature of an intra corporate controversy.
​
RULLING:
The court ruled affirmatively, stating that the dispute was not an intra-corporate one
but rather an ordinary civil action. Since Ku was not directly affiliated with RCBC
Securities and the matters in question did not involve corporate rights or regulations,
Branch 63 was deemed appropriate for the case. Despite Branch 63's procedural error in
ordering the case's re-raffle, it did not affect the court's jurisdiction. Moreover, Branch
149, where the case was subsequently re-raffled, retained jurisdiction over ordinary civil
cases. Therefore, both branches had valid jurisdiction over the matter.
also, the court did not agree with the Court of Appeals' ruling that Ku intended to
evade paying the correct fees or mislead the docket clerk. Ku initially paid fees based on
the clerk's assessment and promptly paid additional fees when ordered by Branch 149.
Moreover, Ku consistently indicated the number of shares sought for recovery in both
the body and prayer of the complaint, showing no deliberate intent to defraud the
court. Therefore, the court concluded that there was no deliberate attempt to evade
payment of docket fees.

Facts:
In view of the resignation of Camilo Quiason, the position of corporate secretary of Meralco
became vacant.
The board of directors of Meralco designated Jose Vitug to act as corporate secretary for the annual
meeting. However, when the proxy validation began, the proceedings were presided over by
respondent Anthony Rosete, assistant corporate secretary and in-house chief legal counsel of
Meralco.
GSIS, a major shareholder in Meralco, was distressed over the proxy validation proceedings and
the resulting certification of proxies in favor of the Meralco Management. The proceedings were
presided over by Meralco’s assistant corporate secretary and chief legal counsel instead of the
person duly designated by Meralco’s Board of Directors.
GSIS filed a complaint seeking the declaration of certain proxies as invalid. GSIS filed a
Notice with the RTC manifesting the dismissal of the complaint. On the same day, GSIS filed an
Urgent Petition with the Securities and Exchange Commission (SEC) seeking to restrain Rosete
from “recognizing, counting and tabulating, directly or indirectly, notionally or actually or in
whatever way, form, manner or means, or otherwise honoring the shares covered by” the proxies
in favor of any officer representing MERALCO Management" and to annul and declare invalid
said proxies.
SEC issued a Show Cause Order and the petitioners filed a petition for certiorari with prohibition
with the Court of Appeals. The CA dismissed the complaint for lack of jurisdiction by the SEC.

Issue:
Whether or not the validation of the proxy is within the jurisdiction of SEC as opposed to intra-
corporate controversies within the RTC’s jurisdiction

Held:
NO. The court ruled that jurisdiction is conferred by no other source but law. Both sides have
relied upon provisions of Rep. Act No. 8799, otherwise known as the Securities Regulation Code
(SRC), its implementing rules (Amended Implementing Rules or AIRR-SRC), and other related
rules to support their competing contentions that either the SEC or the trial courts has exclusive
original jurisdiction over the dispute.
Moreover, the distinction between "proxy solicitation" and "proxy validation" holds significance,
with the right of a stockholder to vote by proxy primarily established by the Corporation Code, but
further regulated by the SRC, particularly through Section 20, which dictates the procedure of
proxy solicitation.

The investigatory power of the SEC established by Section 53.1 is central to its regulatory
authority, most crucial to the public interest especially as it may pertain to corporations with
publicly traded shares. For that reason, we are not keen on pursuing private respondents’
insistence that the GSIS complaint be viewed as rooted in an intra-corporate controversy solely
within the jurisdiction of the trial courts to decide. It is possible that an intra-corporate controversy
may animate a disgruntled shareholder to complain to the SEC a corporation’s violations of SEC
rules and regulations, but that motive alone should not be sufficient to deprive the SEC of its
investigatory and regulatory powers, especially so since such powers are exercisable on a motu
proprio basis.
Section 6 which originally conferred on the SEC “original and exclusive jurisdiction to hear and
decide cases” involving “controversies in the election or appointments of directors, trustees,
officers or managers of such corporations, partnerships or associations.” Thus, such power of the
SEC then was incidental or ancillary to the “exercise of such jurisdiction. The cases referred to in
Section 5 were transferred from the jurisdiction of the SEC to the regular courts with the passage
of the SRC, specifically Section 5.2. Thus, the SEC’s power to pass upon the validity of proxies
in relation to election controversies has effectively been withdrawn, tied as it is to its abrogated
jurisdictional powers. Based on the foregoing, it is evident that the linchpin in deciding the
question is whether or not the cause of action of GSIS before the SEC is intimately tied to an
election controversy, as defined under Section 5(c) of Presidential Decree No. 902-A.
Under the circumstances, we do not see it feasible for GSIS to posit that its challenge to the
solicitation or validation of proxies bore no relation at all to the scheduled election of the board of
directors of Meralco during the annual meeting. GSIS very well knew that the controversy falls
within the contemplation of an election controversy properly within the jurisdiction of the regular
courts. Otherwise, it would have never filed its original petition with the RTC of Pasay. GSIS may
have withdrawn its petition with the RTC on a new assessment made in good faith that the
controversy falls within the jurisdiction of the SEC, yet the reality is that the reassessment is
precisely wrong as a matter of law.

FACTS:
● Petitioners, Vitaliano Aguirre and Fidel Aguirre were included in the list of Directors and
Subscribers of the Articles of Incorporation of FQB+7 Inc.
● Vitaliano filed, in his individual capacity and on behalf of FQB+7, Inc., a Complaint for
intra-corporate dispute, injunction, inspection of corporate books and records, and
damages, against respondents Nathaniel D. Bocobo, Priscila D. Bocobo, and Antonio De
Villa.
● As far as Vitialiano’s knowledge, there were no changes in the list of directors and
subscribers in the AOI, except for the death of Francisco Q. Bocobo and Alfredo Torres.
● Vitaliano then found out that a General Information Sheet of FQB+7 in the Securities and
Exchange Commission records was filed by Francisco Q. Bocobo’s heirs, Nathaniel and
Priscila, as FQB+7’s president and secretary/treasurer. It stated FQB+7’s directors and
subscribers wherein Vitaliano was no longer included. It was indicated in the GIS that the
stockholders of FQB+7’s held their annual meeting.
● The substantive changes found in the GIS, the composition of directors and subscribers
of FQB+7, prompted Vitaliano to write to the “real” Board of Directors, the directors
reflected in the Articles of Incorporation, represented by Fidel N. Aguirre. Vitaliano
questioned the validity and truthfulness of the alleged stockholders meeting that was
held. He asked the “real” Board to rectify what he perceived as erroneous entries in the
GIS, and to allow him to inspect the corporate books and records. However, Vitialiano’s
requests were ignored.
● Nathaniel as FQB+7’s president appointed Antonio as the corporation’s attorney-in-fact,
with power of administration over the corporation’s farm. Antonio attempted to take over
the farm, but was allegedly prevented by Fidel and his men.
● The Complaint asked for an injunction against them and for the nullification of all their
previous actions as purported directors, including the GIS they had filed with the SEC.
The Complaint also sought damages for the plaintiffs and a declaration of Vitaliano’s
right to inspect the corporate records.
○ RTC: The respondents failed, despite notice, to attend the hearing on Vitaliano’s
application for preliminary injunction. The trial court then granted the application
based only on Vitaliano’s testimonial and documentary evidence, consisting of
the corporation’s articles of incorporation, by-laws, the GIS, demand letter on the
“real” Board of Directors, and police blotter of the incident between Fidel’s and
Antonio’s groups.
○ CA: The appellate court ruled that the trial court committed a grave abuse of
discretion when it issued the writ of preliminary injunction to remove the

respondents from their positions in the Board of Directors based only on
Vitaliano’s self-serving and empty assertions. Such assertions cannot outweigh
the entries in the GIS, which were documented facts on record, which stated that
respondents were stockholders and were duly elected corporate directors and
officers of FQB+7, Inc.
○ The CA postulated that Section 122 of the Corporation Code allows a dissolved
corporation to continue as a body corporate for the limited purpose of liquidating
the corporate assets and distributing them to its creditors, stockholders, and
others in interest. It does not allow the dissolved corporation to continue its
business.
○ That being the state of the law, the CA determined that Vitaliano’s Complaint,
being geared towards the continuation of FQB+7, Inc.’s business, should be
dismissed because the corporation has lost its juridical personality. Moreover, the
CA held that the trial court does not have jurisdiction to entertain an
intra-corporate dispute when the corporation was already dissolved.

ISSUE: Whether or not the RTC has jurisdiction over an intra-corporate dispute involving a
dissolved corporation.

​RULING:
● The Supreme Court ruled that Intra-corporate disputes remain even when the corporation
was dissolved. As long as the nature of the controversy was intra-corporate, the
designated RTCs have the authority to exercise jurisdiction over such cases.
● To be considered as an intra-corporate dispute, the case:
a. Must arise out of intra-corporate or partnership relations, and
b. The nature of the question subject of the controversy must be such that it is
intrinsically connected with the regulation of the corporation or the enforcement
of the parties’ rights and obligations under the Corporation Code and the internal
regulatory rules of the corporation.
So long as these two criteria were satisfied, the dispute was intra-corporate and the RTC,
acting as a special commercial court, has jurisdiction over it.
● As to the dissolution of the corporation, it simply prohibited the corporation from
continuing its business. However, despite such dissolution, the parties involved in the
litigation were still corporate actors. The dissolution does not automatically convert the
parties into total strangers or change their intra-corporate relationships. Neither does it
change or terminate existing causes of action, which arose because of the corporate ties
between the parties. Thus, a cause of action involving an intra-corporate controversy
remains and must be filed as an intra-corporate dispute despite the subsequent
dissolution of the corporation

Doctrine:
An investment contract, is a security under R.A. No. 8799, must be registered with the SEC
before its sale or offer for sale to the public.
​
Facts:
Power Homes Unlimited Corporation (Power Homes) is a domestic corporation duly registered
with the SEC, having the purpose to engage in the transaction of promoting, acquiring,
managing, leasing, obtaining options on, development, and improvement of real estate
properties for subdivision, and in the purchase, sale and exchange of subdivision properties
through network marketing scheme. Noel Manero, the private respondent, requested SEC to
investigate Power Homes, as he claims that Power Homes is engaged in the selling of
inexistent properties and has been doing so without any broker’s license, based on a seminar
he attended that was conducted by Power Homes. In addition, a certain Romulo Munsayac,
also inquired to SEC regarding the legitimacy of the “network marketing” scheme of Power
Homes. Thus, to address the issue, SEC conducted a conference with the incorporators.
Complying with the investigation, Power Homes submitted their marketing modules and
accreditation certificates from Crown Asia, FilEstate Network, and Pioneer Realty Corporation.
Subsequently, SEC visited Power Homes’ business premises to gather documents such as
certificates of accreditation to several real estate companies, list of members with websites,
sample of member mail box, and lists of Business Center Owners who are qualified to acquire
real estate properties and materials on computer tutorials. Upon investigation, SEC found that
Power Homes was engaged in the sale or offer for sale of investment contracts, which are
considered securities under Section 3.1 (b) of R.A. No. 8799, but failed to register them in
violation of Section 8.1 of the same Act. This prompted the issue of a Cease and Desist Order
to which was appealed to the CA by Power Homes. However, the CA only affirmed the decision
of the SEC. Hence, the petition at bar.

Issue:
Whether the business of Power Homes involves an investment contract that is considered a
security and thus, must be registered prior to sale or offer for sale or distribution to the public
pursuant to the provisions of R.A. No. 8799.
​
Ruling:
YES. The Court ruled that the business of Power Homes involves an investment contract. An
investment contract is defined as a contract or scheme whereby a person invests his money in a
common enterprise and is led to expect profits primarily from the efforts of others as defined in
the R.A. No. 8799. Applied in the case is the Howey Test, which is the test established to
determine whether a transaction falls within the scope of an investment contract. It requires that
a person: (1) makes an investment of money, (2) in a common enterprise, (3) with the
expectation of profits, and (4) to be derived primarily from the efforts of others. From the
foregoing, the business operation of Power Homes constitutes an investment contract that is a
security. Thus, it must be registered with the SEC before its sale or offer for sale to the public.
As Power Homes failed to register the same, its offering to the public was rightfully enjoined by
SEC and the Cease and Desist Order was proper even without a finding of fraud. It must be
noted that an investment contract that is a security under R.A. 8799 must be registered with the
SEC in order for SEC to protect the investing public from fraudulent securities. The strict
regulation of securities is founded on the premise that the capital markets depend on the
investing public’s level of confidence in the system.

​FACTS:
​Prosperity.com, Inc. (PCI) sold computer software and hosted websites without
providing internet service. PCI devised a scheme wherein a buyer of its services gets
incentives and commissions by sponsoring and referring down-line buyers to PCI. This
second tier of buyers could in turn build up their own down-lines. PCI patterned its
scheme from that of Golconda Ventures, Inc. a company that stopped operations
after the SEC issued a cease and desist order against it. Golconda Ventures filed a
complaint against PCI with SEC alleging that PCI had taken over Golconda’s
operations. The SEC ruled that PCI’s scheme constitutes an investment contract, and
following the Securities and Regulation Code, it should have been registered with the
SEC. Instead of asking the SEC to lift its cease and desist order, PCI filed a petition for
certiorari against the SEC with the CA, which held that, following the Howey Test, PCI’s
scheme is not an investment contract that needs SEC registration. Hence, this petition.

ISSUE:
W/N PCI’s scheme constitutes an investment contract that requires SEC
registration.

RULING:
​No. The Securities Regulation Code treats investment contracts as “securities” that
have to be registered with the SEC before they can be distributed and sold. An
investment contract is a contract, transaction, or scheme where a person invests his
money in a common enterprise and is led to expect profits primarily from the efforts of
others. Following the Howey Test, for an investment contract to exist, the following
elements must concur:
1) a contract, transaction, or scheme;
2) an investment of money;
3) investment is made in a common enterprise;
4) expectation of profits; and
5) profits arising primarily from the efforts of others.
Here, PCI’s clients do not make investments. They buy a product of some value to them
- internet website, and the buyers of the website do not invest money in PCI that could
be used to run a business that would generate profits for the investors. PCI is engaged
in network marketing, a scheme adopted by companies for getting people to buy their
products where the buyer can become a down-line seller, who earns commissions from
purchases made by new buyers whom he refers to the person who sold the product to
him. The commissions, interest in real estate, and insurance coverage are incentives to
down-line sellers to bring in other customers, which can hardly be regarded as profits
from investment of money under the Howey Test. Therefore, PCI’s scheme does not
constitute an investment contract that requires SEC registration.

 DOCTRINE: IN SUMMARY: it appears that if a corporation by estoppel exist and enters into a contract and transact business with a third party, the latter has three possible remedies: (1) He may file a suit against the ostensible corporation to recover from the corporate properties; (2) He may file the case directly against the associates personally liable who held out the association as a corporation; and (3) Against both the ostensible corporation and persons forming it, jointly and severally. The last two remedies may not, however, be availed of if the third party by his conduct is estopped from denying the existence of the association as a corporation and as such, recovery should be limited only against the corporate assets.

FACTS:
​Petitioner is a German company who was granted a license to establish a regional or area headquarters in the Philippines. Private respondent Romana Lanchinebre was a sales representative of petitioner who made advances totalling P35,000 which were left unpaid. Petitioner filed a complaint for the collection of a sum of money which was dismissed by the judge holding, among others, that the license of petitioner does not include the license to do business in the Philippines.

ISSUE:
​Whether petitioner has capacity to sue.

HELD:
YES. Private respondent is estopped from assailing the personality of petitioner. “The rule is that the party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it. And the doctrine of estoppel to deny corporate existence applies to foreign as well as domestic corporation; one who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and capacity. The principle will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its non-compliance with the statutes chiefly in case where such person has received the benefits of the contract” (Merill Lynch Futures, Inc. vs. CA). In the case of Merill Lynch Futures, the SC held that a foreign corporation doing business in the Philippines may sue in Philippine courts although not authorized to do business here against the Philippine citizen who had contracted with and been benefited by said corporation. Citing and applying the doctrine laid down in Asia Banking Corp. vs. Standard Products Co., Inc. IN SUMMARY: it appears that if a corporation by estoppel exist and enters into a contract and transact business with a third party, the latter has three possible remedies: (1) He may file a suit against the ostensible corporation to recover from the corporate properties; (2) He may file the case directly against the associates personally liable who held out the association as a corporation; and (3) Against both the ostensible corporation and persons forming it, jointly and severally. The last two remedies may not, however, be availed of if the third party by his conduct is estopped from denying the existence of the association as a corporation and as such, recovery should be limited only against the corporate assets. 

DOCTRINE: Private respondent Kahn should be held liable for the unpaid obligations of the unincorporated PFF. It is a settled principle 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 obligations and becomes personally liable for contracts entered into or for other acts performed as such agents. The doctrine of corporation by estoppel is mistakenly applied by the respondent court to the petitioner. The application of the doctrine applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective 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.

FACTS:
Petitioner International Express Travel & Tours Services, Inc. entered into an agreement with the Philippine Football Federation through its president Henry Kahn, herein private respondent, where the former supplied tickets for the trips of the athletes to the Southeast Asian Games and other various trips. The Federation failed to pay a balance of P265,894.33 which led petitioner to file a civil case in the RTC of Manila which decided in its favor and holding Henry Kahn personally liable. On appeal, the CA reversed the decision of the RTC absolving Kahn from personal liability holding that the Federation had a separate and distinct personality.

ISSUE:
​Whether Henry Kahn can be made personally liable.

HELD:
YES. While we agree with the appellate court that associations may be accorded corporate status, such does not automatically take place by the mere passage of RA 3135 otherwise known as the Revised Charter of the Philippine Amateur Athletic Federation and PD 604. 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. Nowhere can it be found in RA 3135 and PD 604 any provision creating the Philippine Football Federation. These laws merely recognized the existence of national sports associations and provided for the manner by which these entities may acquire juridical personality. The recognition of Philippine Amateur Athletic Federation required under RA 3135 and the Department of Youth and Sports Development under PD 604, extended to the PFF was not substantiated by Kahn. Accordingly, the PFF is not a national sports association within the purview of the aforementioned laws and does not have corporate existence of its own. This being said, it follows that private respondent Kahn should be held liable for the unpaid obligations of the unincorporated PFF. It is a settled principle 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 obligations and becomes personally liable for contracts entered into or for other acts performed as such agents. We cannot subscribe to the position taken by the appellate court that even assuming that the PFF was defectively incorporated, the petitioner cannot deny the corporate existence of the PFF because it had contracted and dealt with the PFF in such a manner as to recognize and in effect admits its existence. The doctrine of corporation by estoppel is mistakenly applied by the respondent court to the petitioner. The application of the doctrine applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective 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. 

​ DOCTRINE: The general rule is that in the absence of fraud a person who has contracted or otherwise dealt with an association in such a way as to recognize and in effect admit its legal existence as a corporate body is thereby estopped to deny its corporate existence in any action leading out of or involving such contract or dealing, unless its existence is attacked for cause which have arisen since making the contract or other dealing relied on as an estoppel and this applies to foreign as well as to domestic corporations.

FACTS:
This action was brought to recover the balance due of a promissory note executed by the appellant. The court rendered judgment in favor of the plaintiff. At the trial of the case the plaintiff failed to prove affirmatively the corporate existence of the parties and the appellant insists that under these circumstances the court erred in finding that the parties were corporations with juridical personality and assigns same as reversible error.

ISSUE:
Whether the parties are corporations with juridical personality.

HELD:
​YES. There is no merit whatever in the appellant's contention. The general rule is that in the absence of fraud a person who has contracted or otherwise dealt with an association in such a way as to recognize and in effect admit its legal existence as a corporate body is thereby estopped to deny its corporate existence in any action leading out of or involving such contract or dealing, unless its existence is attacked for cause which have arisen since making the contract or other dealing relied on as an estoppel and this applies to foreign as well as to domestic corporations. The defendant having recognized the corporate existence of the plaintiff by making a promissory note in its favor and making partial payments on the same is therefore estopped to deny said plaintiff's corporate existence. It is, of course, also estopped from denying its own corporate existence. Under these circumstances it was unnecessary for the plaintiff to present other evidence of the corporate existence of either of the parties. It may be noted that there is no evidence showing circumstances taking the case out of the rules stated.

​ DOCTRINE: There should also be no question that having contracted with the private respondent every year for 32 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.”

Facts:
Fausta F. Oh had been teaching in the Chiang Kai Shek School since 1932 for a continuous period of almost 33 years. She was told she had no assignment for the next semester. For no apparent or given reason, she was dismissed from her work. As a result, she sued and demanded separation pay, social security benefits, salary differentials, maternity benefits and moral and exemplary damages. The original defendant was the Chiang Kai Shek School but when it filed a motion to dismiss on the ground that it could not be sued, the complaint was amended. Certain officials of the school were also impleaded to make them solidarily liable with the school. 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 the SC via a petition for review on certiorari.

Issue:
Whether a school that has not been incorporated may be sued by reason alone of its long continued existence and recognition by the government

Held:
​Yes. 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. But 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. Besides, it has been shown that the individual members of the board of trustees are not liable, having been appointed only after the private respondent’s dismissal.

 Doctrine: 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. FACTS: Manuela T. Vda. de Salvatierra appeared to be the owner of a parcel of land located at Maghobas, Poblacion, Burauen, Leyte, He entered into a contract of lease with the Philippine Fibers Producers Co., Inc. on March 7, 1954. The company was represented by Mr. Segundino Q. Refuerzo as the President. It was provided in said contract that the lease would be for 10 years, the land would be planted with other crops and the lessor would be entitled to 30 per cent of the net income accruing from the harvest of any crop without being responsible for the cost of production thereof; After every harvest, the lessee was bound to declare at the earliest possible time the income derived therefrom and to deliver the corresponding share due the lessor. Apparently, the agreement was not complied because defendants refused to render an accounting of the income derived therefrom and to deliver the lessor's share; that the estimated gross income was P4,500, and the deductible expenses amounted to P1,000, 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 (Civil Case No. 1912). The defendants failed to file their answer to the complaint. On June 8, 1955, the lower Court rendered judgment granting plaintiff's prayer, and required defendants to render a complete accounting of the harvest of the land subject of the proceeding within 15 days from receipt of the decision and to deliver 30 per cent of the net income realized from the last harvest to plaintiff, with legal interest from the date defendants received payment for said crop. No appeal therefrom having been perfected within the reglementary period, the Court, upon motion of plaintiff, issued a writ of execution. 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 in said Civil Case No. 1912 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.

ISSUE:
​Whether Refuerzo can be made personally liable.

HELD:
YES. 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 applicable where fraud takes part in the said transaction. In the instant case, on plaintiff’s charge that she was unaware of the fact that the company had no juridical personality, defendant Refuerzo gave no confirmation or denial and the circumstances surrounding the execution of the contract led to the inescapable conclusion that plaintiff Salvatierra was really made to believe that such corporation was duly organized in accordance with law. As a general rule, a corporation when 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 in indebtedness of a stockholder even if he should be its president and conversely, a stockholder cannot be held personally liable for any financial obligation by the corporation in excess of his unpaid subscription. 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 - 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. 

​ DOCTRINE: “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.”

FACTS:
Mariano Albert entered into a contract with University Publishing Co., Inc. through Jose M. Aruego, its President, whereby University would pay plaintiff for the exclusive right to publish his revised Commentaries on the Revised Penal Code. The contract stipulated that failure to pay one installment would render the rest of the payments due. When University failed to pay the second installment, Albert sued for collection and won. However, upon execution, it was found that the records of the Commission do not show the registration of UNIVERSITY PUBLISHING CO., INC., either as a corporation or partnership. Albert petitioned for a writ of execution against Jose M. Aruego as the real defendant. University opposed, on the ground that Aruego was not a party to the case.

Issue:
​Whether the non-registration of University Publishing Co., Inc. in the SEC can be deemed an existing corporation with an independent juridical personality.

Held:
No. On account of the non-registration it cannot be considered a corporation, not even a corporation de facto (Hall vs. Piccio, 86 Phil. 603). It has therefore no personality separate from Jose M. Aruego; it cannot be sued independently. In the case at bar, Aruego represented a non-existent entity and induced not only Albert but the court to believe in such representation. He signed the contract as “President” of “University Publishing Co., Inc.,” stating that this was “a corporation duly organized and existing under the laws of the Philippines”. “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.” Aruego, acting as representative of such non-existent principal, was the real party to the contract sued upon, and thus assumed such privileges and obligations and became personally liable for the contract entered into or for other acts performed as such agent. The Supreme Court likewise held that the doctrine of corporation by estoppel cannot be set up against Albert since it was Aruego who had induced him to act upon his (Aruego’s) willful representation that University had been duly organized and was existing under the law. The order appealed from is hereby set aside.

​DOCTRINE: Corporation by estoppel is founded on principle of equity and is designated to prevent injustice and unfairness. It applies when persons assume to form a corporation and exercise corporate functions and enter into business relations with third persons. Where there is no third person involved and the conflict arises only among those assuming to form a corporation, who therefore know that it has not been registered, there is no corporation by estoppel.

FACTS:
Petitioner Reynaldo Lozano and respondent Antontio Anda agreed to consolidate their respective Jeepney Associations, to which they are presidents. They conducted an election for one set of officers of the consolidated association, where petitioner was the winner. Respondent, however, refused to abide by the agreement which prompted petitioner to institute an action for damages in the trial court which was denied for being. intra corporate, and was held to be within the jurisdiction of the SEC.

ISSUE:
Whether there is a corporation by estoppel placing the case within SEC jurisdiction,

HELD:
​NONE. The unified association was still a proposal and had not been approved by the SEC, neither had its officers and members submitted their AOI. Their respective associations are distinct and separate entities, petitioner and private respondent does not have an intra- corporate relation much less do they have an intra-corporate dispute. The SEC has no jurisdiction over the complaint. The doctrine of corporation by estoppel advance by private respondent cannot override jurisdictional requirements. Jurisdiction is fixed by law and is not subject to the agreement of the parties. Corporation by estoppel is founded on principle of equity and is designated to prevent injustice and unfairness. It applies when persons assume to form a corporation and exercise corporate functions and enter into business relations with third persons. Where there is no third person involved and the conflict arises only among those assuming to form a corporation, who therefore know that it has not been registered, there is no corporation by estoppel.

​Doctrine: The immunity from collateral attack is granted to corporations "claiming in good faith to be a corporation under this act. 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."

FACTS:
May 28, 1947, petitioners C. Arnold Hall and Bradley P. Hall, and respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the article of incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber business to carry on as general contractors, operators and managers. Attached to the article was an affidavit of the treasurer stating that 23,428 shares of stock had been subscribed and fully paid with certain properties transferred to the corporation. The said articles of incorporation was filed in the office of SEC. Pending action of the articles of incorporation by SEC, the respondents filed a civil case against the petitioners alleging that Far Eastern Lumber and Commercial Co was an unregistered partnership and that they wished it dissolved because of bitter dissension among the members, mismanagement and fraud by the managers and heavy financial losses. The court (thru Judge Piccio) ordered the dissolution of the company. Hall offered to file a counter bond for the discharge of the receiver but the judge refused to accept the offer and discharge the receiver. Herein petitioner claims that the corporation is a de facto corporation, that its dissolution may be ordered only in a quo warranto proceedings instituted by the State

ISSUE:
Whether it is a de facto corporation. 
HELD:
NO. Section 20 {Now Sec 19} of the Corporation Law does not apply in this 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. (Under our statue it is to be noted (Corporation Law, sec. 11 – Now Sec 18) that it is the issuance of a certificate of incorporation by the Director of the Bureau of Commerce and Industry which calls a corporation into being. The immunity from collateral attack is granted to corporations "claiming in good faith to be a corporation under this act." Such a claim is compatible with the existence of errors and irregularities; but not with a total or substantial disregard of the law. Unless there has been an evident attempt to comply with the law the claim to be a corporation "under this act" could not be made "in good faith." Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders of the alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure corporation may be terminated in a private suit for its dissolution between stockholders, without the intervention of the state. 

 Doctrine: A corporation organized under a statute subsequently declared invalid cannot acquire the status of a ‘de facto’ corporation unless there is some other statute under which the supposed corporation may be validly organized.

FACTS:
​Petitioner Amer Macaorao Balindong is the mayor of Malabang, Lanao del Sur. Respondent Pangandapun 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 on March 15, 1960, by Executive Order 386 of the then Pres. Carlos P. Garcia, out of barrios and sitios of the latter municipality. SC – The petitioners brought this action for prohibition to nullify Executive Order 386 and to restrain the respondent municipal officials from performing the functions of their office. The petitioners based their arguments on the SC’s ruling in Pelaez v. Auditor General and Municipality of San Joaquin v. Siva. In Pelaez case SC ruled: that section 23 of Republic Act 2370 [Barrio Charter Act, approved January 1, 1960], by vesting the power to create barrios in the provincial board, is a “statutory denial of the presidential authority to create a new barrio and implies a negation of the bigger power to create municipalities,” and 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 President’s power over local governments to mere supervision. As SC summed up its discussion: “In short, even if it did not entail an undue delegation of legislative powers, as it certainly does, said section 68, as part of the Revised Administrative Code, approved on March 10, 1917, must be deemed repealed by the subsequent adoption of the Constitution, in 1935, which is utterly incompatible and inconsistent with said statutory enactment.” The respondents contend that the rule announced in Pelaez has no application in this case because unlike the municipalities involved in Pelaez, the municipality of Balabagan is at least a de facto corporation, having been organized under color of a statute before this was declared unconstitutional, its officers having been either elected or appointed, and the municipality itself having discharged its corporate functions for the past five years preceding the institution of this action. It is contended that as a de facto corporation, its existence cannot be collaterally attacked, although it may be inquired into directly in an action for quo warranto at the instance of the State and not of an individual like the petitioner Balindong.

ISSUE:
Whether the municipality of Balabagan is a de facto corporation.

RULING:
NO. A corporation organized under a statute subsequently declared invalid cannot acquire the status of a ‘de facto’ corporation unless there is some other statute under which the supposed corporation may be validly organized. The following principles were deduced by the SC: 1. The color of authority requisite to the organization of a de facto municipal corporation may be: (a) A valid law enacted by the legislature (b) An unconstitutional law, valid on its face, which has either - been upheld for a time by the courts or - 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. 2. There can be no de facto municipal corporation unless either directly or potentially, such a de jure corporation is authorized by some legislative fiat. 3. There can be no color of authority in an unconstitutional statute alone, the invalidity of which is apparent on its face. 4. 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.

​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 offices

​ Doctrine: Not being in legal existence then, it did not possess juridical capacity to enter into the contract. “Corporations are creatures of the law, and can only come into existence in the manner prescribed by law. A corporation, until organized, has no being, franchises or faculties. Nor do those engaged in bringing it into being have any power to bind it by contract, unless so authorized by the charter. Until organized as authorized by the charter there is not a corporation, nor does it possess franchises or faculties for it or others to exercise, until it acquires a complete existence.”

FACTS:
Manuel Tabora is the registered owner of four parcels of land and he wanted to build a Fishery. He loaned from PNB P8,000 and to guarantee the payment of the loan, he mortgaged the said parcels of land. Three subsequent mortgages were executed in favor of the same bank and to Severina Buzon, whom Tabora is indebted to. Tabora sold the four parcels of land to the plaintiff company, said to be under process of incorporation, in consideration of one peso (P1) subject to the mortgages in favor of PNB and Severina Buzon and, to the condition that the certificate of title to said lands shall not be transferred to the name of the plaintiff company until the latter has fully and completely paid Tabora’s indebtedness to PNB. The articles of incorporation were filed and the company sold the parcels of land to Sandiko on the reciprocal obligation that Sandiko will shoulder the three mortgages. A deed of sale executed before a notary public by the terms of which the plaintiff sold, ceded and transferred to the defendant all its rights, titles and interest in and to the four parcels of land. He executed a promissory note that he shall pay 25,300 after a year with interest and on the promissory notes, the parcels were mortgage as security. A promissory note for P25,300 was drawn by the defendant in favor of the plaintiff, payable after one year from the date thereof. Further, a deed of mortgage executed before a notary public in accordance with which the four parcels of land were given as security for the payment of the said promissory note. All these three instruments were dated February 15, 1932. Sandiko failed to pay, thus the action for payment. The lower court held that deed of sale was invalid. The corporation filed a motion for reconsideration.

ISSUE:
​Whether Cagayan Fishing Dev’t. had the juridical capacity to enter into the contract.

RULING:
No. The transfer made by Tabora to the Cagayan Fishing Development Co., Inc., plaintiff herein, was effected on May 31, 1930 and the actual incorporation of said company was effected later on October 22, 1930. In other words, the transfer was made almost five months before the incorporation of the company. A duly organized corporation has the power to purchase and hold such real property as the purposes for which such corporation was formed may permit and for this purpose may enter into such contracts as may be necessary. But before a corporation may be said to be lawfully organized, many things have to be done. Among other things, the law requires the filing of articles of incorporation. Although there is a presumption that all the requirements of law have been complied with, in the case before us it can not be denied that the plaintiff was not yet incorporated when it entered into the contract of sale. The contract itself referred to the plaintiff as “una sociedad en vias de incorporacion.” It was not even a de facto corporation at the time. Not being in legal existence then, it did not possess juridical capacity to enter into the contract. “Corporations are creatures of the law, and can only come into existence in the manner prescribed by law. As has already been stated, general laws authorizing the formation of corporations are general offers to any persons who may bring themselves within their provisions; and if conditions precedent are prescribed in the statute, or certain acts are required to be done, they are terms of the offer, and must be complied with substantially before legal corporate existence can be acquired.” “That a corporation should have a full and complete organization and existence as an entity before it can enter into any kind of a contract or transact any business, would seem to be self evident. . . . A corporation, until organized, has no being, franchises or faculties. Nor do those engaged in bringing it into being have any power to bind it by contract, unless so authorized by the charter. Until organized as authorized by the charter there is not a corporation, nor does it possess franchises or faculties for it or others to exercise, until it acquires a complete existence.” 

​FACTS:
Plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano, and the Limited co-partnership Gonzaga and Company, had been and are sugar planters adhered to the defendant-appellee’s sugar central mill under identical milling contracts. Originally executed in 1919, said contracts were stipulated to be in force for 30 years starting with the 1920-21 crop, and provided that the resulting product should be divided in the ratio of 45% for the mill and 55% for the planters. Sometime in 1936, it was proposed to execute amended milling contracts, increasing the planters’ share to 60% of the manufactured sugar and resulting molasses, besides other concessions, but extending the operation of the milling contract from the original 30 years to 45 years. The Board of Directors of the appellee Bacolod-Murcia Milling Co., Inc., adopted a resolution granting further concessions to the planters over and above those contained in the printed Amended Milling Contract. The appellants initiated the present action, contending that three Negros sugar centrals with a total annual production exceeding one-third of the production of all the sugar central mills in the province, had already granted increased participation (of 62.5%) to their planters, and that under the resolution the appellee had become obligated to grant similar concessions to the plaintiffs. The appellee Bacolod-Murcia Milling Co., inc., resisted the claim, and defended by urging that the stipulations contained in the resolution were made without consideration; that the resolution in question was, therefore, null and void ab initio, being in effect a donation that was ultra vires and beyond the powers of the corporate directors to adopt.

ISSUE:
Whether the resolutions passed by the bard are valid and binding.

HELD:
​YES. There can be no doubt that the directors of the appellee company had authority to modify the proposed terms of the Amended Milling Contract for the purpose of making its terms more acceptable to the other contracting parties. As the resolution in question was passed in good faith by the board of directors, it is valid and binding, and whether or not it will cause losses or decrease the profits of the central, the court has no authority to review them. “They hold such office charged with the duty to act for the corporation according to their best judgment, and in so doing they cannot be controlled in the reasonable exercise and performance of such duty. Whether the business of a corporation should be operated at a loss during depression, or close down at a smaller loss, is a purely business and economic problem to be determined by the directors of the corporation and not by the court. It is a well-known rule of law that questions of policy or of management are left solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment of the board of directors; the board is the business manager of the corporation, and so long as it acts in good faith its orders are not reviewable by the courts. (Fletcher on Corporations, Vol. 2, p. 390).” And it appearing undisputed in this appeal that sugar centrals of La Carlota, Hawaiian Philippines, San Carlos and Binalbagan (which produce over one- third of the entire annual sugar production in Occidental Negros) have granted progressively increasing participations to their adhered planter at an average rate of 62.333% - for the 1951-52 crop year; 64.2% - for 1952-53; 64.3% for 1953- 54; 64.5% for 1954-55; and 63.5% for 1955-56, the appellee Bacolod- Murcia Milling Company is, under the terms of its Resolution of August 20, 1936, duty bound to grant similar increases to plaintiffs appellants herein  

​Doctrine: It is apparent that it is the intention of the framers of the Constitution to apply the grandfather rule in cases where corporate layering is present. In ending, the "control test" is still the prevailing mode of determining whether or not a corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the exploration, development and utilization of the natural resources of the Philippines. When in the mind of the Court there is doubt, based on the attendant facts and circumstances of the case, in the 60-40 Filipino-equity ownership in the corporation, then it may apply the "grandfather rule."

FACTS:
Redmont Consolidated Mines, Inc. (Redmont) filed before the Panel of Arbitrators (POA) of the DENR separate petitions for denial of McArthur Mining, Inc. (McArthur), Tesoro and Mining and Development, Inc. (Tesoro), and Narra Nickel Mining and Development Corporation (Narra) applications Mineral Production Sharing Agreement (MPSA) on the ground that they are not “qualified juridical persons” and thus disqualified from engaging in mining activities through MPSAs reserved only for Filipino citizens. McArthur Mining, Inc., is composed, among others, by Madridejos Mining Corporation (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,331 out of 10,000 shares of Madridejos Mining Corporation. Tesoro and Mining and Development, Inc., is composed, among others, by Sara Marie Mining, Inc. (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,331 out of 10,000 shares of Sara Marie Mining, Inc. Narra Nickel Mining and Development Corporation is composed, among others, by Patricia Louise Mining & Development Corporation (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,396 out of 10,000 shares of Patricia Louise Mining & Development Corporation.

ISSUE:
The main issue in this case is centered on the issue of petitioners’ nationality, whether Filipino or foreign. In their previous petitions, they had been adamant in insisting that they were Filipino corporations, until they submitted their Manifestation and Submission dated October 19, 2012 where they stated the alleged change of corporate ownership to reflect their Filipino ownership. Thus, there is a need to determine the nationality of petitioner corporations.

HELD:
NO. It is apparent that it is the intention of the framers of the Constitution to apply the grandfather rule in cases where corporate layering is present. After a scrutiny of the evidence extant on record, the Court finds that this case calls for the application of the grandfather rule since, as ruled by the POA and affirmed by the OP, doubt prevails and persists in the corporate ownership of petitioners. Also, as found by the CA, doubt is present in the 60-40 Filipino equity ownership of petitioners Narra, McArthur and Tesoro, since their common investor, the 100% Canadian corporation– MBMI, funded them. However, petitioners also claim that there is "doubt" only when the stockholdings of Filipinos are less than 60%.43 The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60% fails to convince this Court. DOJ Opinion No. 20, which petitioners quoted in their petition, only made an example of an instance where "doubt" as to the ownership of the corporation exists. It would be ludicrous to limit the application of the said word only to the instances where the stockholdings of non-Filipino stockholders are more than 40% of the total stockholdings in a corporation. The corporations interested in circumventing our laws would clearly strive to have "60% Filipino Ownership" at face value. It would be senseless for these applying corporations to state in their respective articles of incorporation that they have less than 60% Filipino stockholders since the applications will be denied instantly. Thus, various corporate schemes and layerings are utilized to circumvent the application of the Constitution. Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders to circumvent the law, creating a cloud of doubt in the Court’s mind. To determine, therefore, the actual participation, direct or indirect, of MBMI, the grandfather rule must be used. Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their equity interests. Such conclusion is derived from grandfathering petitioners’ corporate owners, namely: MMI, SMMI and PLMDC. Going further and adding to the picture, MBMI’s Summary of Significant Accounting Policies statement– –regarding the "joint venture" agreements that it entered into with the "Olympic" and "Alpha" groups––involves SMMI, Tesoro, PLMDC and Narra. Noticeably, the ownership of the "layered" corporations boils down to MBMI, Olympic or corporations under the "Alpha" group wherein MBMI has joint venture agreements with, practically exercising majority control over the corporations mentioned. In effect, whether looking at the capital structure or the underlying relationships between and among the corporations, petitioners are NOT Filipino nationals and must be considered foreign since 60% or more of their capital stocks or equity interests are owned by MBMI. In ending, the "control test" is still the prevailing mode of determining whether or not a corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the exploration, development and utilization of the natural resources of the Philippines. When in the mind of the Court there is doubt, based on the attendant facts and circumstances of the case, in the 60-40 Filipino-equity ownership in the corporation, then it may apply the "grandfather rule." WHEREFORE, premises considered, the instant petition is DENIED.

​Doctrine: The 60-40 ownership requirement in favor of Filipino citizens in the Constitution to engage in certain economic activities applies not only to voting control of the corporation, but also to the beneficial ownership of the corporation.

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

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

Held:
​ No. In the 2011 decision, the Court finds no wrong in the construction of the term ‘capital’ which refers to the ‘shares with voting rights, as well as with full beneficial ownership’ (Art. 12, sec. 10) which implies that the right to vote in the election of directors, coupled with benefits, is tantamount to an effective control. The 60-40 ownership requirement in favor of Filipino citizens in the Constitution to engage in certain economic activities applies not only to voting control of the corporation, but also to the beneficial ownership of the corporation. Thus, in our 28 June 2011 Decision we stated: Mere legal title is insufficient to meet the 60 percent Filipino owned "capital" required in the Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is "considered as non-Philippine national[s]." (Emphasis supplied) Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine whether a corporation is a "Philippine national." Therefore, the Court’s interpretation of the term ‘capital’ was not erroneous. Thus, the motion for reconsideration is denied. 

 Doctrine: Where the manifest intention of the parties to the trust agreement was, in sum and substance, to treat the shares of a deceased stockholder as absolutely outstanding shares of said stockholder’s estate until they were fully paid. the declaration of said shares as treasury stock dividend was a complete nullity and plainly violative of public policy.

FACTS:
​Manila Trading and Supply Co. (MANTRASCO) had an authorized capital stock of P2.5 million divided into 25,000 common shares: 24,700 were owned by Reese and the rest at 100 shares each by the Respondents. Reese entered into a trust agreement whereby it is stated that upon Reese’s death, the company would purchase back all of its shares. Reese died. Upon Reese’s death and partial payment by the company of Reeses’s share, a new certificate was issued in the name of MANTRASCO, and the certificate indorsed to the Trustees. Subsequently, the stockholders reverted the 24,700 shares in the Treasury to the capital account of the company as stock dividends to be distributed to the stockholders. When the entire purchase price of Reese’s interest in the company was paid in full by the latter, the trust agreement was terminated, and the shares held in trust were delivered to the company. The BIR ordered an examination of MANTRASCO’s books and discovered that the 24,700 shares declared as dividends were not disclosed by respondents as part of their taxable income for the year 1958. Such declaration was assessed by the BIR as distribution of assets subject to income tax. Hence, the CIR issued notices of assessment for deficiency income taxes to respondents. Respondents protested but the CIR denied. Respondents appealed to the CTA. The CTA ruled in their favor. Hence, this petition by the CIR

ISSUE:
​ Whether the subject shares are treasury shares

HELD:
NO. In submitting their respective contentions, it is the assumption of both parties that the 24,700 shares declared as stock dividends were treasury shares. The Court are however is convinced, that after a careful study of the trust agreement, that the said shares were not, on December 22, 1958 or at anytime before or after that date, treasury shares. The reasons are quite plain. The Supreme Court held that the newly acquired shares were not treasury shares; their declaration as treasury stock dividends was a complete nullity and that the assessment by the Commissioner of fraud penalty and the imposition of interest charges pursuant to the provision of the Tax Code were made in accordance with law. Treasury shares are stocks issued and fully paid for and re-acquired by the corporation either by purchase, donation, forfeiture or other means. They are therefore issued shares, but being in the treasury they do not have the status of outstanding shares. Consequently, although a treasury share, not having been retired by the corporation re-acquiring it, may be re-issued or sold again, such share, as long as it is held by the corporation as a treasury share, participates neither in dividends, because dividends cannot be declared by the corporation to itself, nor in the meetings of the corporations as voting stock, for otherwise equal distribution of voting powers among stockholders will be effectively lost and the directors will be able to perpetuate their control of the corporation though it still represent a paid — for interest in the property of the corporation. These features of a treasury stock are lacking in the questioned shares. In this case, and under the terms of the trust agreement, the shares of stock of Reese participated in dividends which the trustee received and the said shares were voted upon by the trustee in all corporate meetings. They were not, therefore, treasury shares. The 24,700 shares were outstanding shares of Reese’s estate until they were fully paid. Such being the case, their declaration as treasury stock dividend was a complete nullity. Where the manifest intention of the parties to the trust agreement was, in sum and substance, to treat the shares of a deceased stockholder as absolutely outstanding shares of said stockholder’s estate until they were fully paid. the declaration of said shares as treasury stock dividend was a complete nullity and plainly violative of public policy.

FACTS:
​New Cagayan Grocery filed a complaint against the Clavecilla Radio System alleging, in effect, that on March 12, 1963, the following message, addressed to the former, was filed at the latter's Bacolod Branch Office for transmittal thru its branch office at Cagayan de Oro: NECAGRO CAGAYAN DE ORO (CLAVECILLA) REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF AGREEABLE SHALL SHIP LATER REPLY POHANG The Cagayan de Oro branch office having received the said message omitted, in delivering the same to the New Cagayan Grocery, the word "NOT" between the words "WASHED" and "AVAILABLE," thus changing entirely the contents and purport of the same and causing the said addressee to suffer damages. After service of summons, the Clavecilla Radio System filed a motion to dismiss the complaint on the grounds that it states no cause of action and that the venue is improperly laid. Thereafter, the City Judge, on September 18, 1963, denied the motion to dismiss for lack of merit and set the case for hearing. Hence, the Clavecilla Radio System filed a petition for prohibition with preliminary injunction with the Court of First Instance praying that the City Judge of Cagayan de Oro, Honorable Agustin Antillon, be enjoined from further proceeding with the case on the ground of improper venue. In dismissing the case, the lower court held that the Clavecilla Radio System may be sued either in Manila where it has its principal office or in Cagayan de Oro City where it may be served, as in fact it was served, with summons through the Manager of its branch office in said city. In other words, the court upheld the authority of the city court to take cognizance of the case. In appealing, the Clavecilla Radio System contends that the suit against it should be filed in Manila where it holds its principal office.

​ISSUE: Whether the venue is proper

HELD:
(NO) Settled is the principle in corporation law that the residence of a corporation is the place where its principal office is established. Since it is not disputed that the Clavecilla Radio System has its principal office in Manila, it follows that the suit against it may properly be filed in the City of Manila. The appellee maintain, however, that with the filing of the action in Cagayan de Oro City, venue was properly laid on the principle that the appellant may also be served with summons in that city where it maintains a branch office. This Court has already held in the case of Cohen vs. Benguet Commercial Co., Ltd., 34 Phil. 526; that the term "may be served with summons" does not apply when the defendant resides in the Philippines for, in such case, he may be sued only in the municipality of his residence, regardless of the place where he may be found and served with summons. As any other corporation, the Clavecilla Radio System maintains a residence which is Manila in this case, and a person can have only one residence at a time. The fact that it maintains branch offices in some parts of the country does not mean that it can be sued in any of these places. To allow an action to be instituted in any place where a corporate entity has its branch offices would create confusion and work untold inconvenience to the corporation. It is important to remember, as was stated by this Court in Evangelista vs. Santos, et al., supra, that the laying of the venue of an action is not left to plaintiff's caprice because the matter is regulated by the Rules of Court. Applying the provision of the Rules of Court, the venue in this case was improperly laid.

​FACTS:
Petitioner is the registered owner of the trademark PHILIPS and PHILIPS SHIELD EMBLEM issued by the Philippine Patent Office. Philips Electric Lamp Inc. and Philips Industrial Development Inc., also petitioners, are the authorized users of such trademark. Petitioner filed a case with SEC praying for a writ of injunction to prohibit herein respondent Standard Philips Corporation from using the word “PHILIPS” in its corporate name, which was denied. On appeal, the CA affirmed the SEC.

ISSUE:
Whether Standard Philips should be directed to delete the word PHILIPS from its corporate name.

HELD:
​YES. As early as Western Equipment and Supply Co. v. Reyes, 51 Phil. 115 (1927), the Court declared that a corporation's right to use its corporate and trade name is a property right, a right in rem, which it may assert and protect against the world in the same manner as it may protect its tangible property, real or personal, against trespass or conversion. It is regarded, to a certain extent, as a property right and one which cannot be impaired or defeated by subsequent appropriation by another corporation in the same field (Red Line Transportation Co. vs. Rural Transit Co., September 8, 1934, 20 Phil 549).

​  The fact that there are other companies engaged in other lines of business using the word "PHILIPS" as part of their corporate names is no defense and does not warrant the use by Private Respondent of such word which constitutes an essential feature of Petitioners' corporate name previously adopted and registered and-having acquired the status of a well-known mark in the Philippines and internationally as well (Bureau of Patents Decision No. 88-35 [TM], June 17, 1988, SEC Records). 

​FACTS:
Lyceum of the Philippines Inc. previously obtained from the SEC a favorable decision on the exclusive use of “Lyceum” against Lyceum of Baguio, Inc. such decision assailed by the latter before the SC which was denied for lack of merit. Armed with the Resolution of the Supreme Court, the Lyceum of the Philippines 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." Unheeded, Lyceum of the Philippines instituted before the SEC an action to enforce what Lyceum of the Philippines claims as its proprietary right to the word "Lyceum." The SEC 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. On appeal, however, by Lyceum Of Aparri, Lyceum Of Cabagan, Lyceum Of Camalaniugan, Inc., Lyceum Of Lallo, Inc., Lyceum Of Tuao, Inc., Buhi Lyceum, Central Lyceum Of Catanduanes, Lyceum Of Southern Philippines, Lyceum Of Eastern Mindanao, Inc. and Western Pangasinan Lyceum, Inc.,, which are also educational institutions, 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 Lyceum of the Philippines 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. Unlike its hearing officer, the SEC en banc held that the attaching of geographical names to the word "Lyceum" served sufficiently to distinguish the schools from one another, especially in view of the fact that the campuses of Lyceum of the Philippines and those of the other Lyceums were physically quite remote from each other. On appeal, the Court of Appeals affirmed the decision of the Court of Appeals en banc and denied reconsideration.

ISSUE No. 1:
Whether the private respondents can be directed to delete the word “lyceum” from their corporate names.

HELD:
​NO. The policy underlying the prohibition in Section 18 against the registration of a corporate name which is "identical or deceptively or confusingly similar" to that of any existing corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing 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 Herein, the Court does not consider that the corporate names of the academic institutions are "identical with, or deceptively or confusingly similar" to that of Lyceum of the Philippines Inc. True enough, the corporate names of the other schools (defendant institutions) entities all carry the word "Lyceum" but confusion and deception are effectively precluded by the appending of geographic names to the word "Lyceum." Thus, the "Lyceum of Aparri" cannot be mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the Philippines. Further, 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. Since "Lyceum" or "Liceo" denotes a school or institution of learning, it is not unnatural to use this word to designate an entity which is organized and operating as an educational institution. 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 Lyceum of the Philippines is juxtaposed with the names of private respondents, they are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other.

ISSUE No. 2:
Whether the word “Lyceum” has acquired a secondary meaning although originally generic

HELD: NO. The Court of Appeals recognized this issue and answered it in the negative: "Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive appropriation with reference to an article in the market, because geographical or otherwise descriptive might nevertheless have been used so long and so exclusively by one producer with reference to this article that, in that trade and to that group of the purchasing public, the word or phrase has come to mean that the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This circumstance has been referred to as the distinctiveness into which the name or phrase has evolved through the substantial and exclusive use of the same for a considerable period of time No evidence was ever presented in the hearing before the Commission which sufficiently proved that the word 'Lyceum' has indeed acquired secondary meaning in favor of the appellant. If there was any of this kind, the same tend to prove only that the appellant had been using the disputed word for a long period of time. The number alone of the private respondents in the present case suggests strongly that the Lyceum of the Philippines' use of the word "Lyceum" has not been attended with the exclusivity essential for applicability of the doctrine of secondary meaning. It may be noted also that at least one of the private respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term "Lyceum" 17 years before Lyceum of the Philippines registered its own corporate name with the SEC and began using the word "Lyceum." It follows that if any institution had acquired an exclusive right to the word "Lyceum," that institution would have been the Western Pangasinan Lyceum, Inc. rather than Lyceum of the Philippines. Hence, Lyceum of the Philippines 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.