THE CORPORATION CODE OF THE PHILIPPINES

TITLE I - GENERAL PROVISIONS DEFINITIONS AND CLASSIFICATIONS

Section 1. Title of the Code. - This Code shall be known as "The Corporation Code of
the Philippines." (n)

Section 2. Corporation defined. - A corporation is an artificial being created by operation

of law, having the right of succession and the powers, attributes and properties
expressly authorized by law or incident to its existence.

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC vs. HON.
COURT OF APPEALS, BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF
CALOOCAN CITY

G.R. No. 103576 August 22, 1996

Facts:

Petitioner Chua Pac, the president and general manager of Acme Shoe executed for
and in behalf of the company, a chattel mortgage in favor respondent Bank.

The mortgage stood by way of security for petitioner's corporate loan of P3,000,000.00.
In due time, the loan was paid by petitioner corporation.

Subsequently, it obtained from respondent additional financial accommodations totaling

P2,700,000.00. These borrowings were on due date also fully paid.

The bank yet again extended to petitioner corporation a loan of P1,000,000.00 covered
by four promissory notes for P250,000.00 each.

Due to financial constraints, the loan was not settled at maturity.

Respondent applied for an extra judicial foreclosure of the chattel mortgage, prompting
Petitioner Corporation to forthwith file an action for injunction.

Ultimately, the court dismissed the complaint and ordered the foreclosure of the chattel
mortgage.

Issue:

Whether or not the plaintiff is entitled to moral damages as a result of the unlawful action
taken by respondent bank against it?

Ruling:
In LBC Express, Inc. vs. Court of Appeals, the court have said: Moral damages are
granted in recompense for physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury. A corporation, being an artificial person and having existence only in legal
contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience
physical suffering and mental anguish. Mental suffering can be experienced only by one
having a nervous system and it flows from real ills, sorrows, and griefs of life all of
which cannot be suffered by respondent bank as an artificial person.

While Chua Pac is included in the case, the complaint, however, clearly states that he
has merely been so named as a party in representation of Petitioner Corporation.
LBC Express, Inc. vs. Court of Appeals, G.R. No. 108670, 236 SCRA 602 ,
September 21, 1994

Facts:

Private respondent Adolfo Carloto, incumbent President-Manager of private respondent

Rural Bank of Labason, alleged that on November 12, 1984, he was in Cebu City
transacting business with the Central Bank Regional Office. He was instructed to
proceed to Manila on or before November 21, 1984 to follow-up the Rural Bank's plan of
payment of rediscounting obligations with Central Bank's main office in Manila. 2 He
then purchased a round trip plane ticket to Manila. He also phoned his sister Elsie
Carloto-Concha to send him ONE THOUSAND PESOS (P1,000.00) for his pocket
money in going to Manila and some rediscounting papers thru petitioner's LBC Office at
Dipolog City.

On November 16, 1984, Mrs. Concha thru her clerk, Adelina Antigo consigned thru LBC
Dipolog Branch the pertinent documents and the sum of ONE THOUSAND PESOS
(P1,000.00) to respondent Carloto at No. 2 Greyhound Subdivision, Kinasangan, Pardo,
Cebu City. This was evidenced by LBC Air Cargo, Inc., Cashpack Delivery Receipt No.
34805.

On November 17, 1984, the documents arrived without the cashpack. Respondent
Carloto made personal follow-ups on that same day, and also on November 19 and 20,
1984 at LBC's office in Cebu but petitioner failed to deliver to him the cashpack.

Consequently, respondent Carloto said he was compelled to go to Dipolog City on

November 24, 1984 to claim the money at LBC's office. His effort was once more in
vain. On November 27, 1984, he went back to Cebu City at LBC's office. He was,
however, advised that the money has been returned to LBC's office in Dipolog City upon
shipper's request. Again, he demanded for the ONE THOUSAND PESOS (P1,000.00)
and refund of FORTY-NINE PESOS (P49.00) LBC revenue charges. He received the
money only on December 15, 1984 less the revenue charges.
Respondent Carloto claimed that because of the delay in the transmittal of the
cashpack, he failed to submit the rediscounting documents to Central Bank on time. As
a consequence, his rural bank was made to pay the Central Bank THIRTY-TWO
THOUSAND PESOS (P32,000.00) as penalty interest. He allegedly suffered
embarrassment and humiliation.

Petitioner LBC, on the other hand, alleged that the cashpack was forwarded via PAL to
LBC Cebu City branch on November 22, 1984. 5 On the same day, it was delivered at
respondent Carloto's residence at No. 2 Greyhound Subdivision, Kinasangan, Pardo,
Cebu City. However, he was not around to receive it. The delivery man served instead a
claim notice to insure he would personally receive the money. This was annotated on
Cashpack Delivery Receipt No. 342805. Notwithstanding the said notice, respondent
Carloto did not claim the cashpack at LBC Cebu. On November 23, 1984, it was
returned to the shipper, Elsie Carloto-Concha at Dipolog City.

Claiming that petitioner LBC wantonly and recklessly disregarded its obligation,
respondent Carloto instituted an action for Damages Arising from Non-performance of
Obligation docketed as Civil Case No. 3679 before the Regional Trial Court of Dipolog
City on January 4, 1985. On June 25, 1988, an amended complaint was filed where
respondent rural bank joined as one of the plaintiffs and prayed for the reimbursement
of THIRTY-TWO THOUSAND PESOS (P32,000.00).

Issue:

Whether or not respondent Rural Bank of Labason Inc., being an artificial person should
be awarded moral damages.

Ruling:

The respondent court erred in awarding moral damages to the Rural Bank of Labason,
Inc., an artificial person.

Moral damages are granted in recompense for physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. A corporation, being an artificial person and having
existence only in legal contemplation, has no feelings, no emotions, no senses;
therefore, it cannot experience physical suffering and mental anguish. Mental suffering
can be experienced only by one having a nervous system and it flows from real ills,
sorrows, and griefs of life all of which cannot be suffered by respondent bank as an
artificial person.

We can neither sustain the award of moral damages in favor of the private respondents.
The right to recover moral damages is based on equity. Moral damages are recoverable
only if the case falls under Article 2219 of the Civil Code in relation to Article 21. Part of
conventional wisdom is that he who comes to court to demand equity, must come with
clean hands.
In the case at bench, respondent Carloto is not without fault. He was fully aware that his
rural bank's obligation would mature on November 21, 1984 and his bank has set aside
cash for these bills payable. He was all set to go to Manila to settle this obligation. He
has received the documents necessary for the approval of their rediscounting
application with the Central Bank. He has also received the plane ticket to go to Manila.
Nevertheless, he did not immediately proceed to Manila but instead tarried for days
allegedly claiming his ONE THOUSAND PESOS (P1,000.00) pocket money. Due to his
delayed trip, he failed to submit the rediscounting papers to the Central Bank on time
and his bank was penalized THIRTY-TWO THOUSAND PESOS (P32,000.00) for failure
to pay its obligation on its due date. The undue importance given by respondent Carloto
to his ONE THOUSAND PESOS (P1,000.00) pocket money is inexplicable for it was not
indispensable for him to follow up his bank's rediscounting application with Central
Bank. According to said respondent, he needed the money to "invite people for a snack
or dinner." The attitude of said respondent speaks ill of his ways of business dealings
and cannot be countenanced by this Court. Verily, it will be revolting to our sense of
ethics to use it as basis for awarding damages in favor of private respondent Carloto
and the Rural Bank of Labason, Inc.

We also hold that respondents failed to show that petitioner LBC's late delivery of the
cashpack was motivated by personal malice or bad faith, whether intentional or thru
gross negligence. In fact, it was proved during the trial that the cashpack was consigned
on November 16, 1984, a Friday. It was sent to Cebu on November 19, 1984, the next
business day. Considering this circumstance, petitioner cannot be charged with gross
neglect of duty. Bad faith under the law can not be presumed; it must be established by
clearer and convincing evidence. Again, the unbroken jurisprudence is that in breach of
contract cases where the defendant is not shown to have acted fraudulently or in bad
faith, liability for damages is limited to the natural and probable consequences of the
branch of the obligation which the parties had foreseen or could reasonable have
foreseen. The damages, however, will not include liability for moral damages.

Prescinding from these premises, the award of exemplary damages made by the
respondent court would have no legal leg to support itself. Under Article 2232 of the Civil
Code, in a contractual or quasi-contractual relationship, exemplary damages may be
awarded only if the defendant had acted in "a wanton, fraudulent, reckless, oppressive,
or malevolent manner." The established facts of not so warrant the characterization of
the action of petitioner LBC.
MAMBULAO LUMBER COMPANY,plaintiff-appellant, vs.PHILIPPINE NATIONAL
BANK and ANACLETOHERALDO Deputy Provincial Sheriff of Camarines Norte,
defendants-appellees.

G.R. No. L-22973,January 30, 1968

Facts:

On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 (approved for a
loan of P100,000 only) with the Naga Branch of defendant PNB. To secure payment, the
plaintiff mortgaged a parcel of land, together with the buildings and improvements
existing thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao),
province of Camarines Norte. The PNB released from the approved loan the sum of
P27,500, and another release of P15,500.The plaintiff failed to pay the amortization on
the amounts released to and received by it. It was found that the plaintiff had already
stopped operation about the end of 1957 or early part of 1958.The unpaid obligation of
the plaintiff as of September 22, 1961, amounted to P57,646.59, excluding attorney's
fees. A foreclosure sale of the parcel of land, together with the buildings and
improvements thereon was, held on November 21, 1961, and the said property was sold
to the PNB for the sum of P56,908.00, subject to the right of the plaintiff to redeem the
same within a period of one year. The plaintiff sent a letter reiterating its request that the
foreclosure sale of the mortgaged chattels be discontinued on the grounds that the
mortgaged indebtedness had been fully paid and that it could not be legally effected at a
place other than the City of Manila. The trial court sentenced the Mambulao Lumber
Company to pay to the defendant PNB the sum of P3,582.52 with interest thereon at the
rate of 6% per annum. The plaintiff on appeal advanced that its total indebtedness to the
PNB as of November 21, 1961, was only P56,485.87 and not P58,213.51 as concluded
by the court a quo; hence, the proceeds of the foreclosure sale of its real property alone
in the amount of P56,908.00 on that date, added to the sum of P738.59 it remitted to the
PNB thereafter was more than sufficient to liquidate its obligation, thereby rendering the
subsequent foreclosure sale of its chattels unlawful; That for the acts of the PNB in
proceeding with the sale of the chattels, in utter disregard of plaintiff's vigorous
opposition thereto, and in taking possession thereof after the sale thru force,
intimidation, coercion, and by detaining its "man-in-charge" of said properties, the PNB
is liable to plaintiff for damages and attorney's fees.

Issue:

Whether or not PNB may be held liable to plaintiff Corporation for damages and
attorneys fees.

Held:

Herein appellant's claim for moral damages, seems to have no legal or factual basis.
Obviously, an artificial person like herein appellant corporation cannot experience
physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral
shock or social humiliation which are basis of moral damages. A corporation may have a
good reputation which, if besmirched, may also be aground for the award of moral
damages. The same cannot be considered under the facts of this case, however, not
only because it is admitted that herein appellant had already ceased in its business
operation at the time of the foreclosure sale of the chattels, but also for the reason that
whatever adverse effects of the foreclosure sale of the chattels could have upon its
reputation or business standing would undoubtedly be the same whether the sale was
conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place
agreed upon by the parties in the mortgage contract.

But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines
Norte in proceeding with the sale in utter disregard of the agreement to have the
chattels sold in Manila as provided for in the mortgage contract, to which their attentions
were timely called by herein appellant, and in disposing of the chattels in gross for the
miserable amount of P4,200.00, herein appellant should be awarded exemplary
damages in the sum of P10,000.00. The circumstances of the case also warrant the
award of P3,000.00 as attorney's fees for herein appellant.
Section 3. Classes of corporations. - Corporations formed or organized under this Code
may be stock or non-stock corporations. Corporations which have capital stock divided
into shares and are authorized to distribute to the holders of such shares dividends or
allotments of the surplus profits on the basis of the shares held are stock corporations.
All other corporations are non-stock corporations. (3a)

COLLECTOR OF INTERNAL REVENUE vs. CLUB FILIPINO, INC. DE CEBU

G.R. No. L-12719 [5 SCRA 321] May 31, 1962

Facts:

Club Filipino, Inc. de Cebu is a civic corporation with an original authorized capital stock
of P22,000.00, which was subsequently increased to P200,000.00, among others, to it
provide, operate, and maintain x x x all sorts of games not prohibited under general
laws and general ordinances; and develop and cultivate sports of every kind and any
denomination for recreation and healthy training of its members and shareholders.

The Club owns and operates a club house, a bowling alley, a golf course, and a bar-
restaurant for its members and their guests, which was a necessary incident to the
operation of the club. The club is operated mainly with funds derived from membership
fees and dues.

As a result of a capital surplus, arising from the increased value due to the revaluation of
its real properties, the Club declared stock dividends; but no actual cash dividends were
distributed to the stockholders.

A BIR agent discovered that the Club has never paid percentage tax on the gross
receipts of its bar and restaurant. The Collector of Internal Revenue assessed against
and demanded from the Club the unpaid percentage tax on the gross receipts plus
surcharges. The Club requested for the cancellation of the assessment. The request
having been denied, the Club filed the instant petition for review.

Issue:

Whether or not Club Filipino is a stock corporation.

Ruling:

NO. It is a non-stock corporation.

The fact that the capital stock of the respondent Club is divided into shares does not
detract from the finding of the trial court that it is not engaged in the business of operator
of bar and restaurant. What is determinative of whether or not the Club is engaged in
such business is its object or purpose, as stated in its articles and by-laws. It is a familiar
rule that the actual purpose is not controlled by the corporate form or by the commercial
aspect of the business prosecuted, but may be shown by extrinsic evidence, including
the by-laws and the method of operation. From the extrinsic evidence adduced, the Tax
Court concluded that the Club is not engaged in the business as a barkeeper and
restaurateur.

Moreover, for a stock corporation to exist, two requisites must be complied with, to wit:
(1) a capital stock divided into shares and (2) an authority to distribute to the holders of
such shares, dividends or allotments of the surplus profits on the basis of the shares
held (sec. 3, Act No. 1459). In the case at bar, nowhere in its articles of incorporation or
by-laws could be found an authority for the distribution of its dividends or surplus profits.
Strictly speaking, it cannot, therefore, be considered a stock corporation, within the
contemplation of the corporation law.
PNOC-Energy Development
Corporation vs National Labor
Relations Commission
Facts:

In June 1985, Danilo Mercado was dismissed by PNOC-Energy Development

Corporation (PNOC-EDC) due to serious acts of dishonesty allegedly committed by
Mercado. Mercado then filed a complaint for illegal dismissal against PNOC-EDC.
PNOC-EDC filed a motion to dismiss on the ground that the Labor arbiter and/or the
National Labor Relations Commission (NLRC) has no jurisdiction over PNOC-EDC
because it is a subsidiary of the Philippine National Oil Company (PNOC), a government
owned or controlled corporation, and as a subsidiary, it is also a GOCC and as such, the
proper forum for Mercados suit is the Civil Service Commission.

Issue:

Whether or not PNOC-EDC is correct.

Ruling:

No. The issue in this case has been decided already in the case of PNOC-EDC vs
Leogardo. It is true that PNOC is a GOCC and that PNOC-EDC, being a subsidiary of
PNOC, is likewise a GOCC. It is also true that under the 1973 Constitution, all GOCCs
are under the jurisdiction of the CSC. However, the 1987 Constitution change all this as
it now provides:

The Civil Service embraces all branches, subdivisions, instrumentalities and agencies of
the Government, including government-owned or controlled corporations with original
charters. (Article IX-B, Section 2 [1]) [emphasis supplied]
Hence, the above provision sets the rule that the mere fact that a corporation is a GOCC
does not automatically place it under the CSC. Under this provision, the test in
determining whether a GOCC is subject to the Civil Service Law is the manner of its
creation such that government corporations created by special charter are subject to its
provisions while those incorporated under the general Corporation Law are not within its
coverage.

In the case at bar, PNOC-EDC, even though it is a GOCC, was incorporated under the
general Corporation Law it does not have its own charter, hence, it is under the
jurisdiction of the MOLE.

Even though the facts of this case occurred while the 1973 Constitution was still in force,
the provisions of the 1987 Constitution regarding the legal matters [procedural aspect]
are applicable because it is the law in force at the time of the decision.

Section 4. Corporations created by special laws or charters. - Corporations created by special laws or
charters shall be governed primarily by the provisions of the special law or charter creating them or
applicable to them, supplemented by the provisions of this Code, insofar as they are applicable. (n)

National Coal Company vs Collector of Internal Revenue

46 Phil 583 [GR No. L-22619 December 2, 1924]

Facts:

The plaintiff corporation was created on the 10th day of March 1917, by Act No. 2705, for the purpose of
developing the coal industry in the Philippine Islands , in harmony with the general plan of the
government to encourage the development of natural resources of the country, and to provide facilities
therefore. By the said act, the company was granted the general powers of a corporation and such other
powers as may be necessary to enable it to prosecute the business of developing coal deposits in the
Philippine Islands of mining, extracting, transporting, and selling the coal contained in said deposits. By
the same law, the government of the Philippine Islands is made the majority stockholder, evidently in
order to ensure proper government supervision and control and thus to place the government in a
position to render all possible encouragement, assistance, and help in the prosecution and furtherance of
the companys business. On May 14, 1917, two months after the passage of Act no. 2705, creating the
national coal company, the Philippine legislature passed Act 2719, to provide for the leasing and
development of coal lands in the Philippine islands. On October 18, 1917, upon petition of the national
coal company, the governor-general, by proclamation no. 39, withdrew from settlement, entry, sale or
other deposition, all coal-bearing public lands within the province of Zamboanga, Department of
Mindanao and Sulu, and the island of Polillo, Province of Tayabas. Almost immediately after the issuance
of said proclamation the national coal company took possession of the coal lands within the said
reservation with an area of about 400 hectares, without any further formality, contract of lease. Of the
30,000 shares of stock issued by the company, the government of the Philippine islands is the owner of
29,809 shares, that is, of 99 1/3 per centum of the whole capital stock.

Issue:

Whether or not plaintiff is a private corporation.

Held:

Yes. The plaintiff is a private corporation. The mere fact that the government happens to the majority
stockholder does not make it a public corporation. Act 2705, as amended by Act 2822, makes it subject to
all the provisions of the corporation law, in so far as they are not inconsistent with said act. No provisions
of Act 2705 are found to be inconsistent with the provisions of the corporation law. As a private
corporation, it has no greater rights, powers or privileges than any other corporation which might be
organized for the same purpose under the corporation law, and certainly it was not the intention of the
legislature to give it a preference or right or privilege over other legitimate private corporations in the
mining of coal. While it is true that said proclamation no. 39 withdrew from settlement entry, sale or
other disposition of coal-bearing public lands within the province of Zamboanga, and the islands of Polillo,
it made no provision for the occupation and operation by the plaintiff, to the exclusion of other persons or
corporations who might under proper permission, enter upon to operate the coal mines.
Boy Scouts of the Philippines vs. Commission on Audit

G.R. No. 177131, June 7, 2011

Facts:

The Commission on Audit issued COA Resolution No. 99-011 in which the said resolution state that the
BSP was created as a public corporation under Commonwealth Act No. 111, as amended by Presidential
Decree No. 460 and Republic Act No. 7278; that in Boy Scouts of the Philippines vs. National Labor
Relations Commission, the Supreme Court ruled that the BSP, as constituted under its charter, was a
government-controlled corporation within the meaning of Article IX (B)(2)(1) of the Constitution; and
that the BSP is appropriately regarded as a government instrumentality under the 1987 Administrative
Code.

The BSP sought reconsideration of the COA Resolution in a letter signed by the BSP National President
Jejomar Binay. He claimed that RA 7278 eliminated the substantial government participation in the
National Executive Board by removing: (i) the President of the Philippines and executive secretaries, with
the exception of the Secretary of Education, as members thereof; and (ii) the appointment and
confirmation power of the President of the Philippines, as Chief Scout, over the members of the said
Board.

The BSP further claimed that the 1987 Administrative Code itself, of which the BSP s. NLRC relied on for
some terms, defines government-owned and controlled corporations as agencies organized as stock or
non-stock corporations which the BSP, under its present charter, is not.

And finally, they claim that the Government, like in other GOCCs, does not have funds invested in the BSP.
The BSP is not an entity administering special funds. The BSP is neither a unit of the Government; a
department which refers to an executive department as created by law; nor a bureau which refers to any
principal subdivision or unit of any department.

Issue:

Whether the BSP falls under the COAs audit jurisdiction.

Ruling:

After considering the legislative history of the amended charter and the applicable laws and the
arguments of both parties, the Court found that the BSP is a public corporation and its funds are subject
to the COAs audit jurisdiction.

The BSP Charter created the BSP as a public corporation to serve the following public interest or
purpose: xxx to promote through organization and cooperation with other agencies, the ability of boys to
do useful things for themselves and others, to train them in scout craft, and to inculcate in them
patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues,
and moral values, using the method which are in common use by boy scouts.

The purpose of the BSP as stated in its amended charter shows that it was created in order to implement
a State policy declared in Article II, Section 13 of the Constitution. Evidently, the BSP, which was created
by a special law to serve a public purpose in pursuit of a constitutional mandate, comes within the class of
public corporations defined by paragraph 2, Article 44 of the Civil Code and governed by the law which
creates it, pursuant to Article 45 of the same Code.

The Constitution emphatically prohibits the creation of private corporations except by a general law
applicable to all citizens. The purpose of this constitutional provision is to ban private corporations
created by special charters, which historically gave certain individuals, families or groups special privileges
denied to other citizens.

The BSP is a public corporation or a government agency or instrumentality with juridical personality,
which does not fall within the constitutional prohibition in Article XII, Section 16, notwithstanding the
amendments to its charter. Not all corporations, which are not government owned or controlled, are ipso
facto to be considered private corporations as there exist another distinct class of corporations or
chartered institutions which are otherwise known as public corporations. These corporations are
treated by law as agencies or instrumentalities of the government which are not subject to the test of
ownership or control and economic viability but to different criteria relating to their public
purposes/interests or constitutional policies and objectives and their administrative relationship to the
government or any of its Departments or Offices.

Since BSP, under its amended charter, continues to be a public corporation or a government
instrumentality, the Court concludes that it is subject to the exercise by the COA of its audit jurisdiction in
the manner consistent with the provisions of the BSP Charter.

Section 5. Corporators and incorporators, stockholders and members. - Corporators are those who
compose a corporation, whether as stockholders or as members. Incorporators are those stockholders or
members mentioned in the articles of incorporation as originally forming and composing the corporation
and who are signatories thereof.

Corporators in a stock corporation are called stockholders or shareholders. Corporators in a non-stock

corporation are called members. (4a)

MANUELA T. VDA. DE SALVATIERRA, petitioner, vs.HON. LORENZO C. GARLITOS, in his

capacity as Judge of the Court of First Instance of Leyte, Branch II, and SEGUNDINO
REFUERZO, respondents.

103 Phil 757, GR No L-11442, May 23, 1958

Facts:

Manuela T. Vda. de Salvatierra is the owner of a parcel of land located at Maghobas, Poblacion, Burauen,
Teyte. On March 7, 1954, Salvatierra entered into a contract of lease with the Philippine Fibers Producers
Co., Inc., allegedly a corporation "duly organized and existing under the laws of the Philippines, with
business address in Burauen, Leyte, and represented by Mr. Segundino Q. Refuerzo, the President". The
contract provided that the lifetime of the lease would 10 years, that the land will be planted with kenaf,
ramie or other crops suitable to the soil; that the lessor would be entitled to 30% of the net income from
the harvest of any, crop without being responsible for the cost of production thereof; and that after every
harvest, the lessee was bound to declare at the earliest possible time the income derived and to deliver
the corresponding share due the lessor.

However, the obligations imposed were not complied with by the alleged corporation. Salvatierra filed for
accounting, rescission and damages. She claimed that the defendant corporation planted the land with
kenaf but it refused to render an accounting of the income it derived and to deliver the lessor's share
(estimated gross income was P4,500 and the deductible expenses amounted to P1,000).

The court granted plaintiff's prayer and required defendants to render a complete accounting of the
harvest of the land and to deliver 30% of the net income realized from the last harvest. If the defendants
fail to abide by this rule, the gross income would be fixed at P4,200 or a net income of P3,200 after
deducting the expenses for production, 30% of which or P960 was due the plaintiff pursuant to the
contract of lease, which was declared rescinded.

The court then issued a issued a writ of execution causing the attachment of 3 parcels of land registered
in the name of Segundino Refuerzo as there was no available property of the Philippine Fibers Producers
Co., Inc., for attachment. Refuerzo claimed that the decision was null and void with respect to him, there
being no allegation in the complaint pointing to his personal liability and that the liability be limited to the
defendant corporation. The court then ordered the release of all properties belonging to Refuerzo.

Issue:

Whether or not Refuerzo should be held liable to Salvatierra?

Ruling:

Refuerzo is liable to Salvatierra.

Refuerzo, as president of the unregistered corporation Philippine Fibers Producers Co., Inc., was the
moving spirit behind the consummation of the lease agreement by acting as its representative. His liability
cannot be limited or restricted that imposed upon corporate shareholders. In acting on behalf of a
corporation which he knew to be unregistered, he assumed the risk of reaping the consequential
damages or resultant rights, if any, arising out of such transaction.

Refuerzos defense is premised on the fact that the complaint contained no allegation which holds him
personally liable, for while he was a signatory to the contract, he did so in his capacity as president of the
corporation. Salvatierra, on the other hand, contends that her failure to specify Refuerzos personal
liability was because she was under the impression that the Philippine Fibers Producers Co., Inc.,
represented by Refuerzo was a duly registered corporation as appearing in the contract, but a subsequent
inquiry from the Securities and Exchange Commission yielded otherwise.

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

A registered corporation has a juridical personality separate and distinct from its component members
such that a corporation cannot be held liable for the personal indebtedness of a stockholder even if he
should be its president and conversely, a stockholder or member cannot be held personally liable for any
financial obligation of 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 - since an organization which
before the law is non-existent has no personality and would be incompetent to act and appropriate for
itself the powers and attribute of a corporation as provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those who act or purport to act as its representatives or
agents do so without authority and at their own risk. And as it is an elementary principle of law that a
person who acts as an agent without authority or without a principal is himself regarded as the principal,
possessed of all the rights and subject to all the liabilities of a principal, a person acting or purporting to
act on behalf of a corporation which has no valid existence assumes such privileges and obligations and
comes personally liable for contracts entered into or for other acts performed as such, agent.

Lanuza vs. BF Corporation, 737 SCRA 275, October 1, 2014.

Facts:

BF Corporation entered into a contract with Shangri-la for the construction for the latter of a mall and
multi-level parking structure along EDSA. Shangri-la defaulted in the payment of the construction of the
said structure. Under the contract between the parties, whenever a dispute should arise between them,
the matter should be submitted to arbitration. BF initiated arbitration proceedings between BF and
Shangri-la. The directors of Shangri-la were included in the arbitration proceedings. The Arbitral Tribunal
rendered a decision finding that BF failed to prove the existence of circumstances that render the
directors of Shangri-la solidarily liable.

Issue:

Was the decision correct?

Ruling:
The decision is correct. Shangri-las directors are not are not liable for the contractual obligations of
Shangri-la to BF Corporation. A stockholder, director, or representative does not became a party to a
contract just because a corporation executed a contract through that stockholder, director or
representative. Hence, a corporations representatives are generally not bound by the terms of the
contract executed by the corporation. They are not personally liable for obligations and liabilities incurred
on or in behalf of the corporation.

Section 6. Classification of shares.- The shares of stock of stock corporations may be

divided into classes or series of shares, or both, any of which classes or series of shares
may have such rights, privileges or restrictions as may be stated in the articles of
incorporation: Provided, That no share may be deprived of voting rights except those
classified and issued as "preferred" or "redeemable" shares, unless otherwise provided
in this Code: Provided, further, That there shall always be a class or series of shares
which have complete voting rights. Any or all of the shares or series of shares may have
a par value or have no par value as may be provided for in the articles of incorporation:
Provided, however, That banks, trust companies, insurance companies, public utilities,
and building and loan associations shall not be permitted to issue no-par value shares of
stock.
Preferred shares of stock issued by any corporation may be given preference in the
distribution of the assets of the corporation in case of liquidation and in the distribution
of dividends, or such other preferences as may be stated in the articles of incorporation
which are not violative of the provisions of this Code: Provided, That preferred shares of
stock may be issued only with a stated par value. The board of directors, where
authorized in the articles of incorporation, may fix the terms and conditions of preferred
shares of stock or any series thereof: Provided, That such terms and conditions shall be
effective upon the filing of a certificate thereof with the Securities and Exchange
Commission.

Shares of capital stock issued without par value shall be deemed fully paid and non-
assessable and the holder of such shares shall not be liable to the corporation or to its
creditors in respect thereto: Provided; That shares without par value may not be issued
for a consideration less than the value of five (P5.00) pesos per share: Provided, further,
That the entire consideration received by the corporation for its no-par value shares
shall be treated as capital and shall not be available for distribution as dividends.

A corporation may, furthermore, classify its shares for the purpose of insuring
compliance with constitutional or legal requirements.

Except as otherwise provided in the articles of incorporation and stated in the certificate
of stock, each share shall be equal in all respects to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed
by this Code, the holders of such shares shall nevertheless be entitled to vote on the
following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or

substantially all of the corporate property;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation

or other corporations;

7. Investment of corporate funds in another corporation or business in

accordance with this Code; and

8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to
approve a particular corporate act as provided in this Code shall be deemed to refer
only to stocks with voting rights. (5a)

COMMISSIONER OF INTERNAL REVENUE vs. MANNING

G.R. No. L-28398 |Aug 6, 1975

Facts:
Reese, the majority stockholder of Mantrasco, executed a trust agreement between him,
Mantrasco, Ross, Selph, carrascoso & Janda law firm and the minority stockholders,
Manning, McDonald and Simmons. Said agreement was entered into because of
Reeses desire that Mantrasco and Mantrasocs 2 subsidiaries, Mantrasco Guam and
Port Motors, to continue under the management of Manning, McDonald and Simmons
upon his [Reese] death. When Reese died, Mantrasco paid Reeses estate the value of
his shares. When said purchase price has been fully paid, the 24,700 shares, which
were declared as dividends, were proportionately distributed to Manning, McDonald and
Simmons. Because of this, the BIR issued assessments on Manning, McDonald and
Simmons for deficiency income tax for 1958. Manning et al, opposed this assessment
but the BIR still found them liable. Manning et al. appealed to the CTA, which absolved
them from any liability.

Held:
The manifest intention of the parties to the trust agreement was, in sum and substance,
to treat the 24,700 shares of Reese as absolutely outstanding shares of Reese's estate
until they were fully paid. Such being the true nature of the 24,700 shares, their
declaration as treasury stock dividend in 1958 was a complete nullity and plainly
violative of public policy. A stock dividend, being one payable in capital stock, cannot be
declared out of outstanding corporate stock, but only from retained earnings.
A stock dividend always involves a transfer of surplus (or profit) to capital stock. A stock
dividend is a conversion of surplus or undivided profits into capital stock, which is
distributed to stockholders in lieu of a cash dividend.

Facts:

1952 - Mantrasco had an authorized capital stock of P2.5M divided into 25,000
common shares. 24,700 of these shares are owned by Julius Reese while the
rest, at 100 each, are owned by Manning, McDonald & Simmons.

February 29, 1958 - a trust agreement was executed between Reese,

Mantrasco, Ross, Selph, carrascoso & Janda law firm, Manning, McDonald and
Simmons. Said agreement was entered into because of Reeses desire that
Mantrasco and Mantrasocs 2 subsidiaries, Mantrasco Guam and Port Motors, to
continue under the management of Manning, McDonald and Simmons upon his
[Reese] death.

October 19, 1954 - Reese died. However, the projected transfer of his shares in
the name of Mantrasco could not be immediately effected for lack of sufficient
funds to cover the initial payment on the shares.
 February 2, 1955 - after Mantrasco made a partial payment of Reese's shares,
the certificate for the 24,700 shares in Reese's name was cancelled and a new
certificate was issued in the name of Mantrasco. Also, new certificate was
endorsed to the law firm of Ross, Selph, Carrascoso and Janda, as trustees for
and in behalf of Mantrasco.

December 22, 1958 - a resolution was passed during a special meeting of

Mantrasco stockholders.

November 25, 1963 - entire purchase price of Reese's interest in Mantrasco was
finally paid in full by Mantrasco.

May 4, 1964 - trust agreement was terminated and the trustees delivered to
Mantrasco all the shares which they were holding in trust.

September 14, 1962 - BIR ordered an examination of Mantrascos books. This

examination disclosed that:

1. as of December 31, 1958 the 24,700 shares declared as dividends had been
proportionately distributed to Manning, McDonald & Simmons, representing a
total book value or acquisition cost of P7,973,660

2. Manning, McDonald & Simmons failed to declare the said stock dividends as
part of their taxable income for the year 1958

Thus, BIR examiners concluded that the distribution of Reese's shares as

stock dividends was in effect a distribution of the "asset or property of the
corporation as may be gleaned from the payment of cash for the
redemption of said stock and distributing the same as stock dividend."

April 14, 1965 - Commissioner of Internal Revenue issued notices of assessment

for deficiency income taxes to Manning, McDonald & Simmons for the year
1958.

Manning, McDonald & Simmons opposed said assessments. BIR still held them
liable for these assessments.

Manning, McDonald & Simmons appealed to the CTA.

CTA: absolved Manning, McDonald & Simmons from any liability on the
ground that their respective 1/3 interest in Mantrasco remained the same
before and after the declaration of stock dividends and only the number of
shares held by each of them changed.

Issues:
 1. WON the shares are treasury shares [NO]

2. WON Manning, McDonald & Simmons should pay for deficiency income taxes
[YES]

Ratio:

1. Treasury shares are stocks issued and fully paid for and re-acquired by the
corporation either by purchase, donation, forfeiture or other means.
Treasury shares 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 corporation 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 represents a paid-for
interest in the property of the corporation.

In this case, such essential features of a treasury share are lacking in

the former shares of Reese.

The manifest intention of the parties to the trust agreement was, in sum
and substance, to treat the 24,700 shares of Reese as absolutely
outstanding shares of Reese's estate until they were fully paid. Such
being the true nature of the 24,700 shares, their declaration as treasury
stock dividend in 1958 was a complete nullity and plainly violative of
public policy. A stock dividend, being one payable in capital stock,
cannot be declared out of outstanding corporate stock, but only from
retained earnings.

Nature of a stock dividend

A stock dividend always involves a transfer of surplus (or profit) to capital

stock.

A stock dividend is a conversion of surplus or undivided profits into capital

stock, which is distributed to stockholders in lieu of a cash dividend.

2. The ultimate purpose which the parties to the trust agreement aimed to realize
is to make Manning, McDonalds & Simmons the sole owners of Reeses
interest in Mantrasco by utilizing the periodic earnings of Mantrasco and
its subsidiaries to directly subsidize their purchase of said interests and by
making it appear that they have not received any income from those firms
when, in fact, by the formal declaration of non-existent stock dividends in the
treasury they secured to themselves the means to turn around as full owners of
Reeses shares.

Manning, McDonald & Simmons, using the trust instrument as a convenient

technical device, bestowed unto themselves the full worth and value of
Reese's corporate holdings with the use of the very earnings of the
companies.

Such package device, obviously not designed to carry out the usual stock
dividend purpose of corporate expansion reinvestment but exclusively for
expanding the capital base of Manning, McDonald & Simmons in Mantrasco,
cannot be allowed to deflect their responsibilities toward our income tax laws.

All these amounts are subject to income tax as being a flow of cash
benefits to Manning, McDonald & Simmons.
STOCKHOLDERS OF F. GUANZON AND SONS INC V. REGISTER OF DEEDS OF MANILA, 6 SCRA 373
(1962)

Facts:

The stockholders of F. Guanzon & Sons Inc, executed a certificate of liquidation of the assets of
the corporation, dissolving the corporation and distributing among themselves in proportion to their
shareholdings, the assets of said corporation, including real properties in Manila.

1. When the certificate of liquidation was presented to respondent Register of Deeds, it was
denied on the ground that the court had not granted the dissolution of the corporation

2. Petitioners contend that the certificate of liquidation is not a conveyance or transfer but merely
a distribution of the assets of the corporation which has ceased to exist for having been
dissolved.

3. On the other hand, the respondent maintained that the certificate of liquidation
represents a transfer of said assets from the corporation to the stockholders.

Issue:

Whether or not the certificate in question involves a distribution of the assets of the corporation.

Ruling:

No. The act of liquidation made by the stockholders of the corporation its assets is not and cannot be
considered a partition of community property, but rather a transfer or conveyance of the title of its
assets to the individual stockholders. Indeed, sincethe purpose of the liquidation, as well as the
distribution of assets of the corporation, is to transfer their title from the corporation to the stockholders
in proportion to their shareholdings, the transfer cannot be effected without the corresponding deed of
conveyance from the corporation to the stockholders. It is therefore, fair and logical to consider the
certificate of liquidation as one in the nature of a transfer or conveyance.

Section 7. Founders' shares. - Founders' shares classified as such in the articles of incorporation may be
given certain rights and privileges not enjoyed by the owners of other stocks, provided that where the
exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited
period not to exceed five (5) years subject to the approval of the Securities and Exchange Commission.
The five-year period shall commence from the date of the aforesaid approval by the Securities and
Exchange Commission. (n)

Section 8. Redeemable shares. - Redeemable shares may be issued by the corporation

when expressly so provided in the articles of incorporation. They may be purchased or
taken up by the corporation upon the expiration of a fixed period, regardless of the
existence of unrestricted retained earnings in the books of the corporation, and upon
such other terms and conditions as may be stated in the articles of incorporation, which
terms and conditions must also be stated in the certificate of stock representing said
shares. (n)

Section 9. Treasury shares. - Treasury shares are shares of stock which have been issued
and fully paid for, but subsequently reacquired by the issuing corporation by purchase,
redemption, donation or through some other lawful means. Such shares may again be
disposed of for a reasonable price fixed by the board of directors. (n)

Republic Planters Bank vs. Agana

[GR 51765, 3 March 1997]

Facts:
On 18 September 1961, the Robes-Francisco Realty & Development Corporation (RFRDC) secured a loan
from the Republic Planters Bank in the amount of P120,000.00. As part of the proceeds of the loan,
preferred shares of stocks were issued to RFRDC through its officers then, Adalia F. Robes and one Carlos
F. Robes. In other words, instead of giving the legal tender totaling to the full amount of the loan, which is
P120,000.00, the Bank lent such amount partially in the form of money and partially in the form of stock
certificates numbered 3204 and 3205, each for 400 shares with a par value of P10.00 per share, or for
P4,000.00 each, for a total of P8,000.00. Said stock certificates were in the name of Adalia F. Robes and
Carlos F. Robes, who subsequently, however, endorsed his shares in favor of Adalia F. Robes.

Said certificates of stock bear the following terms and conditions: "The Preferred Stock shall have the
following rights, preferences, qualifications and limitations, to wit: 1. Of the right to receive a quarterly
dividend of 1%, cumulative and participating. xxx 2. That such preferred shares may be redeemed, by the
system of drawing lots, at any time after 2 years from the date of issue at the option of the Corporation."
On 31 January 1979, RFRDC and Robes proceeded against the Bank and filed a complaint anchored on
their alleged rights to collect dividends under the preferred shares in question and to have the bank
redeem the same under the terms and conditions of the stock certificates. The bank filed a Motion to
Dismiss 3 private respondents' Complaint on the following grounds: (1) that the trial court had no
jurisdiction over the subject-matter of the action; (2) that the action was unenforceable under substantive
law; and (3) that the action was barred by the statute of limitations and/or laches. The bank's Motion to
Dismiss was denied by the trial court in an order dated 16 March 1979. The bank then filed its Answer on
2 May 1979. Thereafter, the trial court gave the parties 10 days from 30 July 1979 to submit their
respective memoranda after the submission of which the case would be deemed submitted for
resolution. On 7 September 1979, the trial court rendered the decision in favor of RFRDC and Robes;
ordering the bank to pay RFRDC and Robes the face value of the stock certificates as redemption price,
plus 1% quarterly interest thereon until full payment. The bank filed the petition for certiorari with the
Supreme Court, essentially on pure questions of law.

Issue:

1. Whether the bank can be compelled to redeem the preferred shares issued to RFRDC and Robes.

2. Whether RFRDC and Robes are entitled to the payment of certain rate of interest on the stocks as a
matter of right without necessity of a prior declaration of dividend.

Held:

1. While the stock certificate does allow redemption, the option to do so was clearly vested in the bank.
The redemption therefore is clearly the type known as "optional". Thus, except as otherwise provided in
the stock certificate, the redemption rests entirely with the corporation and the stockholder is without
right to either compel or refuse the redemption of its stock. Furthermore, the terms and conditions set
forth therein use the word "may". It is a settled doctrine in statutory construction that the word "may"
denotes discretion, and cannot be construed as having a mandatory effect. The redemption of said shares
cannot be allowed. The Central Bank made a finding that the Bank has been suffering from chronic
reserve deficiency, and that such finding resulted in a directive, issued on 31 January 1973 by then Gov. G.
S. Licaros of the Central Bank, to the President and Acting Chairman of the Board of the bank prohibiting
the latter from redeeming any preferred share, on the ground that said redemption would reduce the
assets of the Bank to the prejudice of its depositors and creditors. Redemption of preferred shares was
prohibited for a just and valid reason. The directive issued by the Central Bank Governor was obviously
meant to preserve the status quo, and to prevent the financial ruin of a banking institution that would
have resulted in adverse repercussions, not only to its depositors and creditors, but also to the banking
industry as a whole. The directive, in limiting the exercise of a right granted by law to a corporate entity,
may thus be considered as an exercise of police power.

2. Both Section 16 of the Corporation Law and Section 43 of the present Corporation Code prohibit the
issuance of any stock dividend without the approval of stockholders, representing not less than two-thirds
(2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. These
provisions underscore the fact that payment of dividends to a stockholder is not a matter of right but a
matter of consensus. Furthermore, "interest bearing stocks", on which the corporation agrees absolutely
to pay interest before dividends are paid to common stockholders, is legal only when construed as
requiring payment of interest as dividends from net earnings or surplus only. In compelling the bank to
redeem the shares and to pay the corresponding dividends, the Trial committed grave abuse of discretion
amounting to lack or excess of jurisdiction in ignoring both the terms and conditions specified in the stock
certificate, as well as the clear mandate of the law.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE COURT OF APPEALS, COURT OF TAX
APPEALS and A. SORIANO CORP., respondents.

G.R. No. 108576 January 20, 1999

Facts:

Don Andres Soriano (American), founder of A. Soriano Corp. (ASC) had a total shareholdings of 185,154
shares. Broken down, the shares comprise of 50,495 shares which were of original issue when the
corporation was founded and 134,659 shares as stock dividend declarations. So in 1964 when Soriano
died, half of the shares he held went to his wife as her conjugal share (wifes legitime) and the other
half (92,577 shares, which is further broken down to 25,247.5 original issue shares and 82,752.5 stock
dividend shares) went to the estate. For sometime after his death, his estate still continued to receive
stock dividends from ASC until it grew to at least 108,000 shares.

In 1968, ASC through its Board issued a resolution for the redemption of shares from Sorianos estate
purportedly for the planned Filipinization of ASC. Eventually, 108,000 shares were redeemed from the
Soriano Estate. In 1973, a tax audit was conducted. Eventually, the Commissioner of Internal Revenue
(CIR) issued an assessment against ASC for deficiency withholding tax-at-source. The CIR explained that
when the redemption was made, the estate profited (because ASC would have to pay the estate to
redeem), and so ASC would have withheld tax payments from the Soriano Estate yet it remitted no such
withheld tax to the government.

ASC averred that it is not duty bound to withhold tax from the estate because it redeemed the said shares
for purposes of Filipinization of ASC and also to reduce its remittance abroad.
Issue:

Whether or not ASCs arguments are tenable.

Ruling:

No. The reason behind the redemption is not material. The proceeds from a redemption is taxable and
ASC is duty bound to withhold the tax at source. The Soriano Estate definitely profited from the
redemption and such profit is taxable, and again, ASC had the duty to withhold the tax. There was a total
of 108,000 shares redeemed from the estate. 25,247.5 of that was original issue from the capital of ASC.
The rest (82,752.5) of the shares are deemed to have been from stock dividend shares. Sale of stock
dividends is taxable. It is also to be noted that in the absence of evidence to the contrary, the Tax Code
presumes that every distribution of corporate property, in whole or in part, is made out of corporate
profits such as stock dividends.

It cannot be argued that all the 108,000 shares were distributed from the capital of ASC and that the
latter is merely redeeming them as such. The capital cannot be distributed in the form of redemption of
stock dividends without violating the trust fund doctrine wherein the capital stock, property and other
assets of the corporation are regarded as equity in trust for the payment of the corporate creditors. Once
capital, it is always capital. That doctrine was intended for the protection of corporate creditors.
Section 10. Number and qualifications of incorporators. - Any number of natural persons
not less than five (5) but not more than fifteen (15), all of legal age and a majority of
whom are residents of the Philippines, may form a private corporation for any lawful
purpose or purposes. Each of the incorporators of s stock corporation must own or be a
subscriber to at least one (1) share of the capital stock of the corporation. (6a)

Section 11. Corporate term. - A corporation shall exist for a period not exceeding fifty
(50) years from the date of incorporation unless sooner dissolved or unless said period
is extended. The corporate term as originally stated in the articles of incorporation may
be extended for periods not exceeding fifty (50) years in any single instance by an
amendment of the articles of incorporation, in accordance with this Code; Provided,
That no extension can be made earlier than five (5) years prior to the original or
subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as
may be determined by the Securities and Exchange Commission. (6)
Section 12. Minimum capital stock required of stock corporations. - Stock corporations
incorporated under this Code shall not be required to have any minimum authorized
capital stock except as otherwise specifically provided for by special law, and subject to
the provisions of the following section.

Section 13. Amount of capital stock to be subscribed and paid for the purposes of
incorporation. - At least twenty-five percent (25%) of the authorized capital stock as
stated in the articles of incorporation must be subscribed at the time of incorporation,
and at least twenty-five (25%) per cent of the total subscription must be paid upon
subscription, the balance to be payable on a date or dates fixed in the contract of
subscription without need of call, or in the absence of a fixed date or dates, upon call for
payment by the board of directors: Provided, however, That in no case shall the paid-up
capital be less than five Thousand (P5,000.00) pesos. (n)

Section 14. Contents of the articles of incorporation. - All corporations organized under
this code shall file with the Securities and Exchange Commission articles of
incorporation in any of the official languages duly signed and acknowledged by all of the
incorporators, containing substantially the following matters, except as otherwise
prescribed by this Code or by special law:

1. The name of the corporation;

2. The specific purpose or purposes for which the corporation is being

incorporated. Where a corporation has more than one stated purpose,
the articles of incorporation shall state which is the primary purpose and
which is/are the secondary purpose or purposes: Provided, That a non-
stock corporation may not include a purpose which would change or
contradict its nature as such;

3. The place where the principal office of the corporation is to be located,

which must be within the Philippines;

4. The term for which the corporation is to exist;

5. The names, nationalities and residences of the incorporators;

6. The number of directors or trustees, which shall not be less than five
(5) nor more than fifteen (15);

7. The names, nationalities and residences of persons who shall act as

directors or trustees until the first regular directors or trustees are duly
elected and qualified in accordance with this Code;

8. If it be a stock corporation, the amount of its authorized capital stock

in lawful money of the Philippines, the number of shares into which it is
 divided, and in case the share are par value shares, the par value of each,
the names, nationalities and residences of the original subscribers, and
the amount subscribed and paid by each on his subscription, and if some
or all of the shares are without par value, such fact must be stated;

9. If it be a non-stock corporation, the amount of its capital, the names,

nationalities and residences of the contributors and the amount
contributed by each; and

10. Such other matters as are not inconsistent with law and which the
incorporators may deem necessary and convenient.

The Securities and Exchange Commission shall not accept the articles of incorporation of
any stock corporation unless accompanied by a sworn statement of the Treasurer
elected by the subscribers showing that at least twenty-five (25%) percent of the
authorized capital stock of the corporation has been subscribed, and at least twenty-five
(25%) of the total subscription has been fully paid to him in actual cash and/or in
property the fair valuation of which is equal to at least twenty-five (25%) percent of the
said subscription, such paid-up capital being not less than five thousand (P5,000.00)
pesos.

Section 15. Forms of Articles of Incorporation. - Unless otherwise prescribed by special

law, articles of incorporation of all domestic corporations shall comply substantially with
the following form:

ARTICLES OF INCORPORATION OF

__________________________

(Name of Corporation)

KNOW ALL MEN BY THESE PRESENTS:

The undersigned incorporators, all of legal age and a majority of whom are residents of
the Philippines, have this day voluntarily agreed to form a (stock) (non-stock)
corporation under the laws of the Republic of the Philippines;

AND WE HEREBY CERTIFY:

FIRST: That the name of said corporation shall be "_____________________, INC. or

CORPORATION";

SECOND: That the purpose or purposes for which such corporation is incorporated are:
(If there is more than one purpose, indicate primary and secondary purposes);
THIRD: That the principal office of the corporation is located in the City/Municipality of
________________________, Province of _______________________, Philippines;

FOURTH: That the term for which said corporation is to exist is _____________ years
from and after the date of issuance of the certificate of incorporation;

FIFTH: That the names, nationalities and residences of the incorporators of the
corporation are as follows:

NAME NATIONALITY RESIDENCE

___________________ ___________________ ___________________

___________________ ___________________ ___________________

___________________ ___________________ ___________________

___________________ ___________________ ___________________

___________________ ___________________ ___________________

SIXTH: That the number of directors or trustees of the corporation shall be _______;
and the names, nationalities and residences of the first directors or trustees of the
corporation are as follows:

NAME NATIONALITY RESIDENCE

___________________ ___________________ ___________________

___________________ ___________________ ___________________

___________________ ___________________ ___________________

___________________ ___________________ ___________________

___________________ ___________________ ___________________

SEVENTH: That the authorized capital stock of the corporation is

______________________ (P___________) PESOS in lawful money of the Philippines,
divided into __________ shares with the par value of ____________________
(P_____________) Pesos per share.

(In case all the share are without par value):

That the capital stock of the corporation is ______________ shares without par value.
(In case some shares have par value and some are without par value): That the capital
stock of said corporation consists of _____________ shares of which ______________
shares are of the par value of _________________ (P____________) PESOS each, and
of which _________________ shares are without par value.

EIGHTH: That at least twenty five (25%) per cent of the authorized capital stock above
stated has been subscribed as follows:

Name of Subscriber Nationality No of Shares Amount

Subscribed Subscribed

_________________ __________ ____________ ____________

_________________ __________ ____________ ____________

_________________ __________ ____________ ____________

_________________ __________ ____________ ____________

_________________ __________ ____________ ____________

NINTH: That the above-named subscribers have paid at least twenty-five (25%) percent
of the total subscription as follows:

Name of Subscriber Amount Subscribed Total Paid-In

_________________ ___________________ _______________

_________________ ___________________ _______________

_________________ ___________________ _______________

_________________ ___________________ _______________

_________________ ___________________ _______________

(Modify Nos. 8 and 9 if shares are with no par value. In case the corporation is non-
stock, Nos. 7, 8 and 9 of the above articles may be modified accordingly, and it is
sufficient if the articles state the amount of capital or money contributed or donated by
specified persons, stating the names, nationalities and residences of the contributors or
donors and the respective amount given by each.)

TENTH: That _____________________ has been elected by the subscribers as Treasurer

of the Corporation to act as such until his successor is duly elected and qualified in
accordance with the by-laws, and that as such Treasurer, he has been authorized to
receive for and in the name and for the benefit of the corporation, all subscription (or
fees) or contributions or donations paid or given by the subscribers or members.
ELEVENTH: (Corporations which will engage in any business or activity reserved for
Filipino citizens shall provide the following):

"No transfer of stock or interest which shall reduce the ownership of Filipino citizens to
less than the required percentage of the capital stock as provided by existing laws shall
be allowed or permitted to be recorded in the proper books of the corporation and this
restriction shall be indicated in all stock certificates issued by the corporation."

IN WITNESS WHEREOF, we have hereunto signed these Articles of Incorporation, this

__________ day of ________________, 19 ______ in the City/Municipality of
____________________, Province of ________________________, Republic of the
Philippines.

_______________________ _______________________

_______________________ _______________________

________________________________

(Names and signatures of the incorporators)

SIGNED IN THE PRESENCE OF:

_______________________ _______________________

(Notarial Acknowledgment)

TREASURER'S AFFIDAVIT

REPUBLIC OF THE PHILIPPINES )

CITY/MUNICIPALITY OF ) S.S.

PROVINCE OF )

I, ____________________, being duly sworn, depose and say:

That I have been elected by the subscribers of the corporation as Treasurer thereof, to
act as such until my successor has been duly elected and qualified in accordance with
the by-laws of the corporation, and that as such Treasurer, I hereby certify under oath
that at least 25% of the authorized capital stock of the corporation has been subscribed
and at least 25% of the total subscription has been paid, and received by me, in cash or
property, in the amount of not less than P5,000.00, in accordance with the Corporation
Code.

____________________
(Signature of Treasurer)

SUBSCRIBED AND SWORN to before me, a Notary Public, for and in the City/Municipality
of ___________________ Province of _____________________, this _______ day of
___________, 19 _____; by __________________ with Res. Cert. No. ___________
issued at _______________________ on ____________, 19 ______

NOTARY PUBLIC

My commission expires on

_________, 19 _____

Doc. No. _________;

Page No. _________;

Book No. ________;

Series of 19____ (7a)

Red Line Transportation Co. vs. Rural Transit Co.

GR No. 41570 | Sept. 6, 1934

Facts:

This is a petition for review of an order of the Public Service Commission granting to the Rural Transit
Company, Ltd., a certificate of public convenience to operate a transportation service between Ilagan in
the Province of Isabela and Tuguegarao in the Province of Cagayan, and additional trips in its existing
express service between Manila Tuguegarao.

On June 4, 1932, Rural Transit filed an application for certification of a new service between Tuguegarao
and Ilagan with the Public Company Service Commission (PSC), since the present service is not sufficient

Rural Transit further stated that it is a holder of a certificate of public convenience to operate a passenger
bus service between Manila and Tuguegarao

Red Line opposed said application, arguing that they already hold a certificate of public convenience for
Tuguegarao and Ilagan, and is rendering adequate service. They also argued that granting Rural Transits
application would constitute a ruinous competition over said route

On Dec. 21, 1932, Public Service Commission approved Rural Transits application, with the condition that
"all the other terms and conditions of the various certificates of public convenience of the herein
applicant and herein incorporated are made a part hereof."
A motion for rehearing and reconsideration was filed by Red Line since Rural Transit has a pending
application before the Court of First Instance for voluntary dissolution of the corporation

A motion for postponement was filed by Rural Transit as verified by M. Olsen who swears "that he was the
secretary of the Rural Transit Company, Ltd

During the hearing before the Public Service Commission, the petition for dissolution and the CFIs
decision decreeing the dissolution of Rural Transit were admitted without objection

At the trial of this case before the Public Service Commission an issue was raised as to who was the real
party in interest making the application, whether the Rural Transit Company, Ltd., as appeared on the face
of the application, or the Bachrach Motor Company, Inc., using name of the Rural Transit Company, Ltd.,
as a trade name

However, PSC granted Rural Transits application for certificate of public convenience and ordered that a
certificate be issued on its name

PSC relied on a Resolution in case No. 23217, authorizing Bachrach Motor to continue using Rural Transits
name as its tradename in all its applications and petitions to be filed before the PSC. Said resolution was
given a retroactive effect as of the date of filing of the application or April 30, 1930

Issue:

Can the Public Service Commission authorize a corporation to assume the name of another corporation as
a trade name?

Ruling: NO

he Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine corporations and the very
law of their creation and continued existence requires each to adopt and certify a distinctive name

The incorporators "constitute a body politic and corporate under the name stated in the certificate."

A corporation has the power "of succession by its corporate name." It is essential to its existence and
cannot change its name except in the manner provided by the statute. By that name alone is it authorized
to transact business.

The law gives a corporation no express or implied authority to assume another name that is
unappropriated: still less that of another corporation, which is expressly set apart for it and protected by
the law. If any corporation could assume at pleasure as an unregistered trade name the name of another
corporation, this practice would result in confusion and open the door to frauds and evasions and
difficulties of administration and supervision.

In this case, the order of the commission authorizing the Bachrach Motor Co., Incorporated, to assume
the name of the Rural Transit Co., Ltd. likewise incorporated, as its trade name being void. Accepting the
order of December 21, 1932, at its face as granting a certificate of public convenience to the applicant
Rural Transit Co., Ltd., the said order last mentioned is set aside and vacated on the ground that the Rural
Transit Company, Ltd., is not the real party in interest and its application was fictitious.

UNIVERSAL MILLS CORPORATION, petitioner, vs. UNIVERSAL TEXTILE MILLS, INC., respondent.

G.R. No. L-28351 July 28, 1977

Facts:

In 1953, Universal Textile Mills, Inc. (UTMI) was organized. In 1954, Universal Hosiery Mills Corporation
(UHMC) was also organized. Both are actually distinct corporations but they engage in the same business
(fabrics). In 1963, UHMC petitioned to change its name to Universal Mills Corporation (UMC). The
Securities and Exchange Commission (SEC) granted the petition.

Subsequently, a warehouse owned by UMC was gutted by fire. News about the fire spread and investors
of UTMI thought that it was UTMIs warehouse that was destroyed. UTMI had to make clarifications that it
was UMCs warehouse that got burned. Eventually, UTMI petitioned that UMC should be enjoined from
using its name because of the confusion it brought. The SEC granted UTMIs petition. UMC however
assailed the order of the SEC as it averred that their tradename is not deceptive; that UTMIs tradename is
qualified by the word Textile, hence, there can be no confusion.

Issue:

Whether or not the decision of the SEC is correct.

Held:

Yes. There is definitely confusion as it was evident from the facts where the investors of UTMI mistakenly
believed that it was UTMIs warehouse that was destroyed. Although the corporate names are not really
identical, they are indisputably so similar that it can cause, as it already did, confusion. The SEC did not act
in abuse of its discretion when it order UMC to drop its name because there was a factual evidence
presented as to the confusion. Further, when UMC filed its petition for change of corporate name, it made
an undertaking that it shall change its name in the event that there is another person, firm or entity who
has obtained a prior right to the use of such name or one similar to it. That promise is still binding upon
the corporation and its responsible officers.

PHILIPS EXPORT VS. COURT OF APPEALS

206 SCRA 457, February 21, 1992

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

Facts:

Philips Export B.V. (PEBV) filed with the SEC for the cancellation of the word Philips the corporate name
of Standard Philips Corporation in view of its prior registration with the Bureau of Patents and the SEC.
However, Standard Philips refused to amend its Articles of Incorporation so PEBV filed with the SEC a
petition for the issuance of a Writ of Preliminary Injunction, however this was denied ruling that it can
only be done when the corporate names are identical and they have at least 2 words different. This was
affirmed by the SEC en banc and the Court of Appeals thus the case at bar.

Issue:

Whether or not Standard Philips can be enjoined from using Philips in its corporate name

Ruling: YES

A corporations right to use its corporate and trade name is a property right, a right in rem, which it may
assert and protect against the whole world. According to Sec. 18 of the Corporation Code, no corporate
name may be allowed if the proposed name is identical or deceptively confusingly similar to that of any
existing corporation or to any other name already protected by law or is patently deceptive, confusing or
contrary to existing law.
For the prohibition to apply, 2 requisites must be present:

(1) the complainant corporation must have acquired a prior right over the use of such corporate name
and

(2) the proposed name is either identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or patently deceptive, confusing or contrary to
existing law.

With regard to the 1st requisite, PEBV adopted the name Philips part of its name 26 years before
Standard Philips. As regards the 2nd, the test for the existence of confusing similarity is whether the
similarity is such as to mislead a person using ordinary care and discrimination. Standard Philips only
contains one word, Standard, different from that of PEBV. The 2 companies products are also the same,
or cover the same line of products. Although PEBV primarily deals with electrical products, it has also
shipped to its subsidiaries machines and parts which fall under the classification of chains, rollers, belts,
bearings and cutting saw, the goods which Standard Philips also produce. Also, among Standard Philips
primary purposes are to buy, sell trade x x x electrical wiring devices, electrical component, electrical
supplies. Given these, there is nothing to prevent Standard Philips from dealing in the same line of
business of electrical devices. The use of Philips by Standard Philips tends to show its intention to ride
on the popularity and established goodwill of PEBV.

LYCEUM OF THE PHILS. V. CA

219 SCRA 610

Facts:

Petitioner had sometime commenced before in the SEC a complaint against Lyceum of Baguio, to require
it to change its corporate name and to adopt another name not similar or identical with that of petitioner.
SEC decided in favor of petitioner. Lyceum of Baguio filed petition for certiorari but was denied for lack of
merit.

Armed with the resolution of the Court, petitioner instituted before the SEC to compel private
respondents, which are also educational institutions, to delete word Lyceum from their corporate
names and permanently to enjoin them from using such as part of their respective names.

Hearing officer sustained the claim of petitioner and held that the word Lyceum was capable of
appropriation and that petitioner had acquired an enforceable right to the use of that word.

In an appeal, the decision was reversed by the SEC En Banc. They held that the word Lyceum to have
become identified with petitioner as to render use thereof of other institutions as productive of
consfusion about the identity of the schools concerned in the mind of the general public.

Petitioner went to appeal with the CA but the latter just affirmed the decision of the SEC En Banc.
Issues:

1. WON the corporate names of the parties are identical with or deceptively similar to that of the
petitioner. NO

2. WON the use by the Lyceum of the Philippines of the word Lyceum in its corporate name has been for
such length of time and with such exclusivity as to have become associated or identified with the
petitioner institution in the mind of the general public. (Doctrine of Secondary meaning). NO

Ruling:

1. The corporate names of the parties carry the word Lyceum but confusion and deception are
precluded by the appending of geographic names. Lyceum generally refers to a school or an institution of
learning and it is natural to use this word to designate an entity which is organized and operating as an
educational institution.

Thus, we do not believe that the "Lyceum of Aparri" can 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.

2. Doctrine of Secondary meaning is a word of phrase originally incapable of exclusive appropriation,

might nevertheless have been used so long and so exclusively by one producer with reference to his
article that, in trade and to that branch of the purchasing public, the word or phrase has come to mean
that the article was his product.

Lyceum of the Philippines has not gained exclusive use of Lyceum by long passage of time. The number
alone of the private respondents suggests strongly that the use of Lyceum has not been attended with the
exclusivity essential for the applicability of the doctrine. It may be noted that one of the respondents
Western Pangasinan Lyceum used such term 17 years before the petitioner registered with the SEC.
Moreover, there may be other schools using the name but not registered with the SEC because they have
not adopted the corporate form of organization.

DOCTRINE:

Doctrine of secondary meaning can be extended to corporation name but must comply with the
requirement that it has been used so long and so exclusively by one and that the said name has come to
mean that it is referred to as that corporation.

Western Pangasinan Lyceum 27 October 1950

Lyceum of Cabagan 31 October 1962

Lyceum of Lallo, Inc. 26 March 1972

Lyceum of Aparri 28 March 1972

Lyceum of Tuao, Inc. 28 March 1972

Lyceum of Camalaniugan 28 March 1972

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."

Lyceum" is in fact as generic in character as the word "university." In the name of the petitioner, "Lyceum"
appears to be a substitute for "university;" in other places, however, "Lyceum," or "Liceo" or "Lycee"
frequently denotes a secondary school or a college.