1. McConnel v. CA same floor and in the same room.
same floor and in the same room. This is further shown by the fact that the funds of the corporation were kept
G.R. No. L-10510, March 17, 1961
Author: Lubag
Petitioners: M. MC CONNEL, W. P. COCHRANE, RICARDO RODRIGUEZ, ET AL.
Respondents: THE COURT OF APPEALS and DOMINGA DE LOS REYES, assisted by her husband,
SABINO PADILLA
Doctrine: Wherever circumstances have shown that the corporate entity is being used as an alter ego or
business conduit for the sole benefit of the stockholders, or else to defeat public convenience, justify wrong,
protect fraud, or defend crime.
Facts: Park Rite Co., Inc., a Philippine corporation. The corporation leased from Rafael Perez Rosales y
Samanillo a vacant lot on Juan Luna street which it used for parking motor vehicles for a consideration.
It turned out that in operating its parking business, the corporation occupied and used not only the Samanillo lot
it had leased but also an adjacent lot belonging to the respondents-appellees Padilla, without the owners'
knowledge and consent. When the latter discovered the truth, they demanded payment for the use and
occupation of the lot.
The corporation (then controlled by petitioners Cirilo Parades and Ursula Tolentino, who had purchased and
held 1,496 of its 1,500 shares) disclaimed liability, blaming the original incorporators, McConnel, Rodriguez
and Cochrane. Whereupon, the lot owners filed against it a complaint for forcible entry in the Municipal Court
of Manila on 7 October 1947 (Civil Case No. 4031).
Trail court decision: Ordering the Park Rite Co., Inc. to pay. Upon execution, the corporation was found
without any assets. After their application to the judgment credit, there remained a balance of P11,182.50
outstanding and unsatisfied.
The judgment creditors then filed suit against the corporation and its past and present stockholders, to recover
from them, jointly and severally, the unsatisfied balance of the judgment, plus legal interest and costs.
The Court of First Instance denied recovery;
Court of Appeals reversed, finding that the corporation was a mere alter ego or business conduit of the principal
stockholders that controlled it for their own benefit, and adjudged them responsible for the amounts demanded
by the lot owners
Issue: Whether the individual stockholders maybe held liable for obligations contracted by the corporation. –
Yes.
Ruling: This Court has already answered the question in the affirmative wherever circumstances have shown
that the corporate entity is being used as an alter ego or business conduit for the sole benefit of the stockholders,
or else to defeat public convenience, justify wrong, protect fraud, or defend crime.
There is no question that a wrong has been committed by the so-called Park Rite Co., Inc., upon the plaintiffs
when it occupied the lot of the latter without its prior knowledge and consent and without paying the reasonable
rentals for the occupation of said lot. There is also no doubt in our mind that the corporation was a mere alter
ego or business conduit of the defendants Cirilo Paredes and Ursula Tolentino, and before them — the
defendants M. McConnel, W. P. Cochrane, and Ricardo Rodriguez. The evidence clearly shows that these
persons completely dominated and controlled the corporation and that the functions of the corporation were
solely for their benefits.
The original incorporators were M. McConnel, W. P. Cochrane, Ricardo Rodriguez, Benedicto M. Dario and
Aurea Ordrecio with a capital stock of P1,500.00 divided into 1,500 shares at P1.00 a share. McConnel and
Cochrane each owned 500 shares, Ricardo Rodriguez 408 shares, and Dario and Ordrecio 1 share each. It is
obvious that the shares of the last two named persons were merely qualifying shares. On 1947, the defendants
Cirilo Paredes and Ursula Tolentino purchased 1,496 shares of the said corporation and the remaining four
shares were acquired by Bienvenido J. Claudio, Quintin C. Paredes, Segundo Tarictican, and Paulino Marquez
at one share each. It is obvious that the last four shares bought by these four persons were merely qualifying
shares and that to all intents and purposes the spouses Cirilo Paredes and Ursula Tolentino composed the so-
called Park Rite Co., Inc. That the corporation was a mere extension of their personality is shown by the fact
that the office of Cirilo Paredes and that of Park Rite Co., Inc. were located in the same building, in the
by Cirilo Paredes in his own name. The corporation itself had no visible assets, as correctly found by the trial
court, except perhaps the toll house, the wire fence around the lot and the signs thereon. It was for this reason
that the judgment against it could not be fully satisfied.
The facts thus found can not be varied by us, and conclusively show that the corporation is a mere
instrumentality of the individual stockholder's, hence the latter must individually answer for the corporate
obligations. While the mere ownership of all or nearly all of the capital stock of a corporation is a mere business
conduit of the stockholder, that conclusion is amply justified where it is shown, as in the case before us, that the
operations of the corporation were so merged with those of the stockholders as to be practically
indistinguishable from them. To hold the latter liable for the corporation's obligations is not to ignore the
corporation's separate entity, but merely to apply the established principle that such entity can not be invoked or
used for purposes that could not have been intended by the law that created that separate personality.
Finding no error in the judgment appealed from, the same is hereby affirmed, with costs against petitioners-
appellants Cirilo Paredes and Ursula Tolentino.
_____________________________________________________________________________
2. Jacinto v. CA
G.R. No. 80043, June 6, 1991.|
By Bryce King
Romeo G. Carlos for petitioner.
Jorge, Perez & Associates for private respondents.
Doctrine
Section 5 of Rule 10 of the Rules of Court "when evidence is presented by one party, with the express or
implied consent of the adverse party, as to issues not alleged in the pleadings, judgment may be rendered validly
as regards those issues, which shall be considered as if they have been raised in the pleadings. There is implied
consent to the evidence thus presented when the adverse party fails to object thereto."
Facts:
This is an appeal by certiorari to partially set aside the Decision of the Court of Appeals in C.A.-G.R. CV No.
08153 promulgated on 19 August 1987, which affirmed in toto the decision of the Regional Trial Court of
Manila, Branch 11, in Civil Case No. 133164 entitled "Metropolitan Bank and Trust Co. vs. Inland Industries
Inc. and Roberto Jacinto," the dispositive portion of which reads:
"WHEREFORE, judgment is hereby rendered ordering defendants to pay, jointly and
severally, the plaintiff, the principal obligation of P382,015.80 (Annex J-1 to J-3 of
Stipulation), with interest charges thereon at the rate of 16% per annum from January
1, 1979 up to the time the said amount is fully paid, plus the sum of P20,000.00 as
attorney's fees. Said defendants are further ordered to pay in solidum the costs of this
suit.”
Petitioner, faults Court of Appeals for piercing the fiction of corporate identity of the defendant corporation
Inland Industries, Inc. even if there is no allegation in the complaint regarding the same, nor is there anything in
the prayer demanding the piercing of the corporate veil of the corporation Inland Industries, Inc.
Issue
W/O petitioner can faults the courts for piercing the veil of corporate fiction despite the absence of any
allegation in the complaint questioning the separate identity and existence of Inland Industries, Inc. NO
 Ruling||| 
While on the face of the complaint there is no specific allegation that the corporation is a mere alter ego of
petitioner, subsequent developments, from the stipulation of facts up to the presentation of evidence and the
examination of witnesses, unequivocably show that respondent Metropolitan Bank and Trust Company sought
to prove that petitioner and the corporation are one or that he is the corporation.
No serious objection was heard from petitioner. Pursuant to Section 5 of Rule 10 of the Rules of Court "when
evidence is presented by one party, with the express or implied consent of the adverse party, as to issues not
alleged in the pleadings, judgment may be rendered validly as regards those issues, which shall be considered as
if they have been raised in the pleadings. There is implied consent to the evidence thus presented when the
adverse party fails to object thereto."|||
__________________________________________________________________________________
3. PACIFIC REHOUSE CORPORATION vs COURT OF APPEALS and EXPORT AND INDUSTRY
BANK, INC G.R. No. 199687 March 24, 2014
Digest Author : HORARIO
Petitioner/s : PACIFIC REHOUSE CORPORATION
Respondent/s : COURT OF APPEALS and EXPORT AND INDUSTRY
"It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be connected. But, this separate and distinct
personality of a corporation is merely a fiction created by law for convenience and to promote justice. So,
when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect
fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of the
corporation may be disregarded or the veil of corporate fiction pierced. This is true likewise when the
corporation is merely an adjunct, a business conduit or an alter ego of another corporation."
"Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a
mere instrumentality or adjunct of the other, the fiction of the corporate entity of the "instrumentality" may
be disregarded. The control necessary to invoke the rule is not majority or even complete stock control but
such domination of finances, policies and practices that the controlled corporation has, so to speak, no
separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that
the control must be shown to have been exercised at the time the acts complained of took place. Moreover,
the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is
made."
The Court has laid down a three-pronged control test to establish when the alter ego doctrine should be
operative:
(1) Control, not mere majority or complete stock control, but complete domination, not only of finances
but of policy and business practice in respect to the transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of
plaintiff’s legal right; and
(3) The aforesaid control and breach of duty must [have] proximately caused the injury or unjust loss
complained of.
The absence of any one of these elements prevents ‘piercing the corporate veil’ in applying the
‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality and not form, with how the
corporation operated and the individual defendant’s relationship to that operation. Hence, all three
elements should concur for the alter ego doctrine to be applicable.
The elements to allow the application of piercing must be properly pleaded and proved during during
the hearing on the merits, and cannot be merely raised for the first time in the motion for the issuance of
an alias writ of execution.
FACTS : (based on the first digest c/o Kuya Dan)
· Pacific Rehouse Corporation won a case against EIB Securities for the unauthorized sale of 32.18M DMCI
shares owned by Pacfic Rehouse Corporation.
· When the Writ of Execution was unsatisfied, Pacific Rehaouse Corporation moved for the issuance of an alias
writ of execution to hold Export and Industry Bank, Inc. liable for the judgment obligation as E- Securities is “a
wholly-owned controlled and dominated subsidiary of Export and Industry Bank, Inc., and is[,] thus[,] a mere
alter ego and business conduit of the latter.
o 499,995 of 500,000 shares of E-Securities are owned by Export Bank.
· Export Bank was granted filed a petition for certiorari with Writ of Preliminary Injunction before the CA. The
injuction was granted.
RULING OF THE LOWER COURTS:
· RTC – In favor of Pacific Rehouse. E-Securities is a mere alter-ego of the parent corporation which justifies
the piercing of corporate fiction.
· CA – Reversed. the alter ego theory cannot be sustained because ownership of a subsidiary by the parent
company is not enough justification to pierce the veil of corporate fiction. There must be proof, apart from mere
ownership, that Export Bank exploited or misused the corporate fiction of E-Securities. The existence of
interlocking incorporators, directors and officers between the two corporations is not a conclusive indication
that they are one and the same.
CONTENTIONS OF PACIFIC REHOUSE:
· That because of the ownership (499,995/500,000) there is no need for finding of fault before the piercing
doctrine can be applied.
ISSUE: Whether majority ownership or interlocking directorship is sufficient ground to pierce the veil of
corporate entity. – NO.
RULING + RATIO:
Furthermore, ownership by Export Bank of a great majority or all of stocks of E-Securities and the existence of
interlocking directorates may serve as badges of control, but ownership of another corporation, per se, without
proof of actuality of the other conditions are insufficient to establish an alter ego relationship or connection
between the two corporations, which will justify the setting aside of the cover of corporate fiction. The Court
has declared that “mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
personality.” The
Court has likewise ruled that the “existence of interlocking directors, corporate officers and shareholders is not
enough justification to pierce the veil of corporate fiction in the absence of fraud or other public policy
considerations.”
While the courts have been granted the colossal authority to wield the sword which pierces through the veil of
corporate fiction, concomitant to the exercise of this power, is the responsibility to uphold the doctrine of
separate entity, when rightly so; as it has for so long encouraged businessmen to enter into economic endeavors
fraught with risks and where only a few dared to venture. Hence, any application of the doctrine of piercing the
corporate veil should be done with caution. A court should be mindful of the milieu where it is to be applied. It
must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was
committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly
established; it cannot be
presumed. Otherwise, an injustice that was never unintended may result from an erroneous application.
Others: Alter Ego Doctrine
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be connected. But, this separate and distinct
personality of a corporation is merely a fiction created by law for convenience and to promote justice. So, when
the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or
defend crime, or is used as a device to defeat the labor laws, this separate personality of the corporation may be
disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is merely an
adjunct, a business conduit or an alter ego of another corporation.
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate entity of the “instrumentality” may be
disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such
domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind,
will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must
be shown to have been exercised at the time the acts complained of took place. Moreover, the control and
breach of duty must proximately cause the injury or unjust loss for which the complaint is made.

While the courts have been granted the colossal authority to wield the sword which pierces through the veil of
corporate fiction, concomitant to the exercise of this power, is the responsibility to uphold the doctrine of
separate entity, when rightly so; as it has for so long encouraged businessmen to enter into economic endeavors
fraught with risks and where only a few dared to venture.
Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court
should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was
misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its
rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an
injustice that was never unintended may result from an erroneous application.
.
____________________________________________________________________________________
4. CAGAYAN FISHING DEVELOPMENT CO., INC. vs. TEODORO SANDIKO
G.R. No. L-43350 December 23, 1937
Digest Author : Gutierrez
Petitioner/s : CAGAYAN FISHING DEVELOPMENT CO., INC
Respondent/s : TEODORO SANDIKO
DOCTRINE: This is not saying that under no circumstances may the acts of promoters of a corporation be
ratified by the corporation if and when subsequently organized. There are, of course, exceptions but under the
peculiar facts and circumstances of the present case we decline to extend the doctrine of ratification which
would result in the commission of injustice or fraud to the candid and unwary.
FACTS :
 Manuel Tabora is the registered owner of four parcels of land in Cagayan.
 To guarantee the payment of a loan, Tabora executed in favor of the Philippine National Bank a first
mortgage on the four parcels of land.
 A second mortgage in favor of the same bank was also executed thereafter. Subsequently, a third
mortgage on the same lands was made in favor of Severina Buzon to whom Tabora was indebted.
 On May 31, 1930, Tabora executed a public document entitled "Escritura de Transpaso de Propiedad
Inmueble" by virtue of which the four parcels of land owned by him was sold to Cagayan Fishing Dev’t
Co., said to under process of incorporation, in consideration of one peso (P1) subject to the mortgages in
favor of the Philippine National Bank 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 the Philippine National Bank.
 Cagayan Fishing Dev’t Co. filed its article incorporation on October 22, 1930. A year later, on October
28, 1931, the board of directors of said company adopted a resolution authorizing its president, Jose
Ventura, to sell the four parcels of lands in question to Teodoro Sandiko were thereafter made and
executed.
 Cagayan Fishing sold, ceded and transferred to Sandiko all its right, titles, and interest in and to the four
parcels of land and Sandiko in turn obligated himself to shoulder the three mortgages.
 Sandiko having failed to pay the promissory note when it became due, Cagayan Fishing filed an action
against Sandiko.
 RULING OF THE LOWER COURTS:
 RTC dismissed the complaint declaring that sale between Cagayan Fishing and Sandiko is invalid because
of vice in consent and repugnancy to law.
ISSUE: Whether the sale between Tabora and Cagayan fishing is valid - NO
RULING + RATIO:
Conclusion. (ex: The issue is an issue.)
The transfer made by Tabora to the Cagayan fishing Development Co., Inc., plaintiff herein, was affected on
May 31, 1930 and the actual incorporation of said company was affected later on October 22, 1930. In other
words, the transfer was made almost five months before the incorporation of the company. Unquestionably, 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. 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.
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 there is not a corporation nor does it possess franchise
or faculties for it or others to exercise, until it acquires a complete existence.
Boiled down to its naked reality, the contract here was entered into not between Manuel Tabora and a
non-existent corporation but between the Manuel Tabora as owner of the four parcels of lands on the one
hand and the same Manuel Tabora, his wife and others, as mere promoters of a corporations on the other
hand. For reasons that are self-evident, these promoters could not have acted as agent for a projected
corporation since that which no legal existence could have no agent. A corporation, until organized, has
no life and therefore no faculties. It is, as it were, a child in ventre sa mere. This is not saying that under
no circumstances may the acts of promoters of a corporation be ratified by the corporation if and when
subsequently organized. There are, of course, exceptions but under the peculiar facts and circumstances
of the present case we decline to extend the doctrine of ratification which would result in the commission
of injustice or fraud to the candid and unwary.
It should be observed that Manuel Tabora was the registered owner of the four parcels of land, which he
succeeded in mortgaging to the Philippine National Bank so that he might have the necessary funds with which
to convert and develop them into fishery. He appeared to have met with financial reverses. He formed a
corporation composed of himself, his wife, and a few others. From the articles of incorporation, it appears that
out of the P48,700, amount of capital stock subscribed, P45,000 was subscribed by Manuel Tabora himself and
P500 by his wife, Rufina Q. de Tabora; and out of the P43,300, amount paid on subscription, P42,100 is made
to appear as paid by Tabora and P200 by his wife. Both Tabora and His wife were directors and the latter was
treasurer as well. In fact, to this day, the lands remain inscribed in Tabora's name. The defendant always
regarded Tabora as the owner of the lands.
He dealt with Tabora directly. Jose Ventura, president of the plaintiff corporation, intervened only to sign the
contract, in behalf of the corporation. Even the Philippine National Bank, mortgagee of the four parcels of land,
always treated Tabora as the owner of the same.
If the Cagayan Fishing could not and did not acquire the four parcels of land here involved, it follows that it did
not possess any resultant right to dispose of them by sale to Teodoro Sandiko.
Having arrived at the conclusion that the transfer by Manuel Tabora to the Cagayan Fishing Development
Company, Inc. was null because at the time it was affected the corporation was non-existent, the Court
AFFIRMED the decision of the RTC.
5. Rizal Light and Ice, Co. Inc vs. Municipality of Morong, Rizal and Pulic Service Commission
G.R. No. L-20993 | September 28, 1968
Rizal Light and Ice Co., Inc v. The Public Service Commission and Morong Electric Co., Inc
G.R. No. L-21221 | September 28, 1968
Author: Fabula
Ponente: J. Zaldivar
Doctrine (Relevant):
 1. The fact that a company is not completely incorporated at the time the grant is made to it by a
municipality does not, in most jurisdiction, affect the validity of the grant. But the grant cannot
take effect until the corporation is organized.
Name of the parties:
Petitioner: Rizal Lght and Ice, Co., Inc for both petitions
Respondent: Municipality of Morong, Rizal for G.R. No. L-20993; Morong Electric Co., Inc for G.R. No. L-
21221; Public Service Commission for both petitions
Facts:
- Rizal Light and Ice Co., Inc is a domestic corporation which was granted a Certificate of Public Convenience
and Necessity for the installation, operation and maintenance of an electric light, heat and power service by
the Public Service Commission on August 15, 1949.
- On December 19, 1956, the Commission required Rizal Light to appear before it on February 18, 1957 to
show cause why it should not be penalized for the violation of the conditions of its certificate, and the
regulations of the Commission.
- Rizal Light failed to appear, and the Commission ordered the cancellation and revocation of its certificate
and the necessity to forfeit its franchise.
- However, Rizal Light moved for the Commission to reconsider its decision because its manager, Juan D.
Francisco was not aware of the hearing. The motion was granted and the Commision set aside the revocation
of the Certificate, despite the opposition of the Municipality of Morong, Rizal.
- Morong formally filed a petition asking the Commission to revoke the petitioner’s certificate of public
convenience and to forfeit its franchise on the ground that it failed to comply with the conditions of said
certificate and franchise. While this was filed, a series of inspections were made by the Commission’s
engineers in the electric plant and installations of Rizal Light.
- Rizal Light, again, failed to appear in the hearing for the motion of Morong. Morong submitted its evidence,
and the case was submitted for decision.
- Rizal Light moved for the case to be reopened on the ground that it was not given a copy of the report of the
inspection. The Commission granted the motion, on the condition that should it fail to reply to the said report
within 10 days, the case will be decided. It failed, and the Commission proceeded to decide the case.
- On July 29, 1962, the electric plant was burned.
- On August 20, 1962, the Commission found that Rizal Light failed to comply with the directives contained in
the letters. It ordered the cancellation and revocation of petitioner’s certificate of public convenience and the
forfeiture of its franchise.
- Eight days before Rizal Light’s MR was filed, Morong Electric was granted a municipal franchise on May 6,
1962 by Morong, Rizal to install, operate and maintan an electric heat, light and power service in the said
municipality. Morong Electric then filed with the Commission an application for a certificate of public
convenience and necessity for the said service.
- Rizal Light opposed the application of Morong Electric, alleging that it is a holder of a certificate of public
convenience to operate an electric light, heat and power service in the same municipality of Morong, Rizal,
and that the approval of the said application would not promote public convenience but would only cause
ruinous and wasteful competition.
- On January 4, 1963, Rizal Light filed another motion to dismiss the application of Morong Electric on
the ground that it has no legal personality when it filed its application with the Commission on
September 10, 1962, because it Certificate of Incorporation was only issued by SEC on October 17,
1962.
- The Commission denied the motion on the ground that Morong Electric was a de facto corporation.
- The Commission approved the application of Morong Electric on February 15, 1963, finding that there was
an absence of electric service in the municipality of Morong and that it has the financial capacity to maintain
the service.
- Rizal Light filed the Petition to Review to the Supreme Court for the Cancellation and Revocation of its
Certificate and Franchise (G.R. No. L-20993), and for the Grant of the Certificate of Public Necessity to the
Morong Electric (G.R. No. L-2122).
Contentions of the RIZAL LIGHT:
G.R. No. L-20993
1. The Commission acted without or in excess of its jurisdiction when it delegated the hearing of the case
and the reception of evidence to Mr. Pedro S. Talavera who was not allowed by law to hear the same.
2. The cancellation of petitioner’s certificate of public convenience was unwarranted because no sufficient
evidence was adduced against Rizal Light and that it was not able to present evidence in its defense
3. The Commission failed to give protection to the petitioner’s investment
4. The Commission erred in imposing the extreme penalty of revocation of certificate
G.R. No. L-21221
1. The Commission erred in denying its motion to dismiss and the proceeding with the hearing of the
application of the Morong Electric
2. The Commission erred in granting Morong Electric a certificate of public convenience and necessity since it
is not financially capable to render the service
3. The Commission erred when it made findings of facts that are not supported by the evidence adduced by the
parties at the trial.
4. The Commission erred when it did not give to the petitioner protection to its investment a reiteration of the
third assignment of error in other case.
Contention of the MORONG ELECTRIC (FOR THE MAIN ISSUE):
1. It was a de facto corporation at the time the franchise was granted and as such, it was not incapacitated to
enter into any contract or to apply for and accept a franchise.
Type of Case Filed: Petition For Review
Ruling of Lower Courts: N/A (The Case was filed in the Public Service Commission – see facts for the
grounds and decision)
MAIN ISSUE (only the relevant issue for the subject. See the Ruling for the decision on Rizal Light’s
Contentions):
Whether the grant of certificate of public convenience to Morong Electric is invalid because it was only a de
facto corporation when it filed for such. - NO
HOLDING: Decisions of the Public Services Commission AFFIRMED.
Ruling:
MAIN ISSUE: Whether the Certificate of Public Convenience is invalid
Rizal Light: Morong Electric did not have a corporate personality at the time it was granted a franchise and
when it applied for the certificate
a. Pending the issuance of the Certificate of Incorporation, the incorporators cannot be considered as de
facto corporation. However, it does not render the franchise invalid because later on, it had obtained
its certificate of incorporation and then accepted the franchise in accordance with the terms and
conditions thereof.
b. The incorporation of Morong Electric on October 17, 1962 and its acceptance of the franchise not
only perfected a contract between the municipality of Morong ,Rizal and the Morong Electric but
also cured the deficiency pointed out by Rizal Light in its application.
 c. The efficacy of the franchise however, arose only upon its approval by the Commission on March
13, 1963. Under Section 16 (b) of the Commonwealth Act No. 146, the Commission is empowered
to ‘approve, subject to constitutional limitation any franchise or privilege granted under the
provisions by any political subdivision of the Philippines when, in the judgment of the Commission,
such franchise or privilege will properly conserve the public interests, and the Commission shall in
-so approving impose such conditions as to construction, equipment, maintenance, service, or
operation as the public interests and convenience may reasonably require, and to issue certificates of
public convenience and necessity when such is required or provided by any law or franchise.' Thus,
the efficacy of a municipal electric franchise arises, therefore, only after the approval of the Public
Service Commission.
OTHER ISSUES:
A. G.R. No. L-20993
1. Mr. Talavera is not a lawyer. The Commission can only authorize a division chief to hear and
investigate a case filed before it if he is a lawyer. However, Rizal Light only raised in for the first
time in the appeal. It never raised an objection to the authority of Mr. Talavera to hear the case and
to receive the evidence of the parties. It is only after the decision in the case turned out to be adverse
to it that Riza Light questioned the proceedings held before Mr. Talavera. Objections to authority is
waived by failure to interpose timely objection and the case had been decided by the Commission.
2. Court is not required to examine the proof de novo and determine for itself whether or not the
preponderance of evidence really justifies the decision. The only function of the Court is to
determine WON there is evidence before the Commission upon which its decision might reasonably
be based. The Commission based its decision on the inspection reports submitted by its engineers
who conducted the inspection of Rizal Light’s electric service upon its orders. The Court considers
that said reports are sufficient to serve as bases of the decision.
3. Nobody has an exclusive right to secure a franchise or a certificate of public convenience. In the
present case, it has been shown by ample evidence that the petitioner, despite ample time and
opportunity given to it by the Commission, had failed to render adequate, sufficient and satisfactory
service and has violated important conditions of its certificate as well as the directives and the rules
and regulations of the Commission.
4. The contumacious refusal of Rizal Light since 1954 to comply with the directives, rules and
regulations of the Commission, its violation of the conditions of the certificate, and the incapability
to comply with its commitment as shown by its inadequate service were the circumstances that
warranted the action of the Commission in not merely imposing a fine but in revoking altogether
petitioner’s certificate. To allow petitioner to continue its operation would be to sacrifice public
interest and convenience in favor of private interest.
B. G.R. No. L-21221
1. The Commission has found the Morong Electric to be “financially qualified to install, maintain and
operate the proposed electric light, heat and power service. This is essentially a factual determination
which the Court will not disturb unless patently unsupported by evidence.
2. The Court will not disturb the findings of the Commission which was based on the report of its
engineers.
____________________________________________________________________
6. Caram Jr., vs CA
G.R. No. L-48627 June 30, 1987
Author: Dayao, Abby
Name of the parties:
Petitioner: Fermin Caram, Jr. and Rosa O. De Caram
Respondent: CA & Alberto Arellano
Ponente: Cruz
Doctrine:
Investors who were not the “moving spirit” behind the organization of the corporation, but
who were merely convinced to invest in the proposed corporate venture on the basis of the
feasibility study undertaken, are not liable personally with the corporation for the cost of the
feasibility study.
Since there was no representation that the corporation was fictitious, there was no
justification to hold the stockholders thereof personally liable.
Facts:
- The lower court has established the following facts:
- Herein defendant, Alberto Arellano, upon the request of Barretto and Garcia, handled the
preparation of the project study for the incorporation of the Filipinas Orient Airways (FOA). Such
study was presented to petitioner Caram, Jr., which led Caram to invest in the proposed airlines.
- Later, FOA was organized and rendered operational. Garcia, Barretto and Caram became members
of the Board of FOA.
- Defendant Arellano, however, was not paid for his services worth Php 50,000 so he filed a
collection suit against FOA.
- The lower court rendered the assailed decision holding not only FOA but also all the other defendants who
were involved in the preparatory stages of the incorporation, including herein petitioner Caram liable.
Issue:
Whether or not the petitioners Carams are also and personally liable? - NO
Ruling:
- Petitioners Caram were not really involved in the initial steps that finally led to the incorporation of the FOA.
Elsewhere in the decision, Barretto was described as "the moving spirit." The finding of the respondent court
is that the project study was undertaken by the private respondent at the request of Barretto and Garcia who,
upon its completion, presented it to the petitioners to induce them to invest in the proposed airline.
Petitioners Caram were not involved in the initial stages of the organization of the airline, which were being
directed by Barretto as the main promoter. Petitioners Caram were merely among the financiers who invested
in the proposed airline.
- There was no showing that FOA was a fictitious corporation and did not have a separate juridical personality,
to justify making the petitioners responsible for its obligations. As a bona fide corporation, the Filipinas
Orient Airways should alone be liable for its corporate acts as duly authorized by its officers and directors.
- Petitioners hence cannot be held personally liable for the compensation claimed by Alberto Arellano for the
services performed by him in the organization of the corporation. The most that can be said is that petitioners
Caram benefited from Arellano’s services, but that surely is no justification to hold them personally liable
therefor.
- The Court holds that the petitioners are not liable at all, jointly or jointly and severally, under the first
paragraph of the dispositive portion of the challenged decision.
_______________________________________________________________________
7. Hall vs. Piccio
No. L-2598. June 29, 1950
Digest Author : Daguinod
Petitioner/s : ARNOLD HALL and BRADLEY P. HALL
Respondent/s : EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN,
EMMA BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber and
Commercial Co., Inc.,
DOCTRINE: Persons acting as corporation may not claim rights of "de facto" corporation if they have
not obtained certificate of incorporation.
FACTS
- Petitioners, C. Arnold Hall and Bradley P. Hall, and the respondents Fred Brown, Emma Brown,
 Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the articles 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, etc.
- Attached to the articles 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 .
- Immediately after the execution of said articles of incorporation, the corporation proceeded to do
business with the adoption of by-laws and the election of its officers.
- The said articles of incorporation were filed in the office of the Securities and Exchange
Commissioner, for the issuance of the corresponding certificate of incorporation.
- Pending action on the articles of incorporation by the aforesaid governmental office, the respondents
Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed before the Court of
First Instance of Leyte the civil case numbered 381, entitled "Fred Brown et al. vs. Arnold C. Hall et
al.",
- Respondents alleged among other things that the Far Eastern Lumber and Commercial Co. was an
unregistered partnership; that they wished to have it dissolved because of bitter dissension among
the members, mismanagement and fraud by the managers and heavy financial losses.
- The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss,
contesting the court's jurisdiction and the sufficiency of the cause of action
Ruling of CFI: the Hon. Edmundo S. Piccio ordered the dissolution of the company; and at the request of
plaintiffs, appointed the respondent Pedro A. Capuciong as receiver of the properties thereof, upon the
filing of a P20,000 bond.
- The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the
receiver, but the respondent judge refused to accept the offer and to discharge the receiver.
Whereupon the present special civil action was instituted in this court. It is based upon two main
propositions, to wit:
(a)  The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company,
because it being a de facto corporation, dissolution thereof may only be ordered in a quo warranto
proceeding instituted in accordance with section 19 of the Corporation Law.
(b)  Inasmuch as respondents Fred Brown and Emma Brown had signed the articles of incorporation, they are
estopped from claiming that it is not a corporation but only a partnership.
ISSUE:
Whether the court has jurisdiction in to decree the dissolution of the company? – YES
Whether the respondents are estopped from claiming that it is a partnership? - NO
RULING + RATIO:
The Court has jurisdiction, Section 19 of the Corporation Law does not apply
All the parties are informed that the Securities and Exchange Commission has not, so far, issued the
corresponding certificate of incorporation. All of them know, or ought to know, that the personality of a
corporation begins to exist only from the moment such certificate is issued, not before (sec. 11,
Corporation Law).
The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern Lumber and
Commercial Co., is a de facto corporation, section 19 of the Corporation Law applies, and therefore the court
had no jurisdiction to take cognizance of said civil case number 381.
Section 19 reads in part as follows:
"* * * The due incorporation of any corporations claiming in good faith to be a corporation under this Act and
its right to exercise corporate powers shall not be inquired into collaterally in any private suit to which the
corporation may be a party, but such inquiry may be had at the suit of the Insular Government on information of
the Attorney-General."
There are at least two reasons why this section does not govern the situation. 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 statute it is to be noted (Corporation Law, sec. 11) 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 of 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.'" (Fisher on the Philippine Law of Stock
Corporations, p. 75. See also Humphreys vs. Drew, 59 Fla., 295; 52 So., 362.)
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.
There might be room for argument on the right of minority stockholders to sue for dissolution; but that question
does not affect the court's jurisdiction, and is a matter for decision by the judge, subject to review on appeal.
Which brings us to one principal reason why this petition may not prosper, namely: the petitioners have their
remedy by appealing the order of dissolution at the proper time.
There is a secondary issue in connection with the appointment of a receiver. But it must be admitted that
receivership is proper in proceedings for dissolution of a company or corporation, and it was no error to reject
the counter-bond, the court having decreed the dissolution. As to the amount of the bond to be demanded of the
receiver, much depends upon the discretion of the trial court, which in this instance we do not believe has been
clearly abused
The complaining associates have not represented to the others that they were incorporated any more than the
latter had made similar representations to them. And as nobody was led to believe anything to his prejudice and
damage, the principle of estoppel does not apply. Obviously this is not an instance requiring the
enforcement of contracts with the corporation through the rule of estoppel.
Dispositive Portion: The petition will, therefore, be dismissed, with costs. The preliminary injunction
heretofore issued will be dissolved.
_______________________________________________________________________
8. Salvatierra v. Garlitos
G.R. No. L-11442, May 23, 1958
Author: Cornelio
Petitioner: MANUELA T. VDA. DE SALVATIERRA
Private Respondent (s): HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First
Instance of Leyte, Branch II, and SEGUNDINO REFUERZO
DOCTRINE: A corporation with registered has a juridical personality separate and distinct from its
component members or stockholders and officers such that a corporation cannot be held liable for the
personal indebtedness of a stockholder even if he should be its president and conversely, a stockholder or
member cannot be held personally liable for any financial obligation be, the corporation in excess of his
unpaid subscription. 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.
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.
FACTS:
 Manuela T. Vda. de Salvatierra, owner of a parcel of land, 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, domiciled at Burauen, Leyte, Philippines, and with business address therein,
represented in this instance by Mr. Segundino Q. Refuerzo, the President".
  It was provided in said contract, among other things, that the lifetime of the lease would be for a
period of 10 years; that the land would be planted to kenaf, ramie or other crops suitable to the soil;
that 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; and that 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.
 The aforementioned obligations imposed on the alleged corporation were not complied with because
Alanuela T. Vda, de Salvatierra filed with the CFI of Leyte a complaint against the Philippine Fibers
Producers Co., Inc., and Segundino Q. Refuerzo, for accounting, rescission and damages
 She averred that sometime in April, 1954, defendants planted kenaf on 3 hectares of the leased
property which crop was, at the time of the commencement of the action, already harvested,
processed and sold by defendants; that notwithstanding that fact, 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; that as defendants' refusal to
undertake such task was in violation of the terms of the covenant entered into between the plaintiff
and defendant corporation, a rescission was but proper.
Ruling of the Lower Courts:
 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. It was further provide
that upon defendants' failure to abide by the said requirement, the gross income would be fixed at
P4,200 or a net income of P3,200 after deducting the expenses for production, 30 per cent of which
or P960 was held to be due the plaintiff pursuant to the aforementioned contract of lease, which was
declared rescinded.
ISSUE: Whether Refuerzo, as an agent of an unicorporated association, is liable for the breach of obligation -
YES
RULING: Refuerzo, in praying for his exoneration from any liability resulting from the non-fulfillment of the
obligation imposed on defendant Philippine Fibers Producers Co., Inc., interposed the defense that the
complaint filed with the lower court contained no allegation which would hold him liable personally, for while
it was stated therein that he was a signatory to the lease contract, he did so in his capacity as president of the
corporation. And this allegation was found by the Court a quo to be supported by the records. Plaintiff on the
other hand tried to refute this averment by contending that her failure to specify defendant's personal liability
was due to the fact that all the time she was under the impression that the Philippine Fibers Producers Co., Inc.,
represented by Refuerzo was a duly registered corporation as appearing in the contract, but a subsequent inquiry
from the Securities and Exchange Commission yielded otherwise. While as a general rule a person who has
contracted or dealt with an association in such a way as to recognize its existence as a corporate body is
estopped from denying the same in an action arising out of such transaction or dealing, yet this doctrine may not
be held to be applicable where fraud takes a part in the said transaction. In the instant case, on plaintiff's charge
that she was unaware of the fact that the Philippine Fibers Producers Co., Inc., had no juridical personality,
defendant Refuerzo gave no confirmation or denial and the circumstances surrounding the execution of the
contract lead to the inescapable conclusion that plaintiff Manuela T. Vda. de Salvatierra was really made to
believe that such corporation was duly organized in accordance with law.
There can be no question that a corporation with registered has a juridical personality separate and distinct from
its component members or stockholders and officers such that a corporation cannot be held liable for the
personal indebtedness of a stockholder even if he should be its president and conversely, a stockholder or
member cannot be held personally liable for any financial obligation be, the corporation in excess of his unpaid
subscription. But this rule is understood to refer merely to registered corporations and cannot be made
applicable to the liability of members of an unincorporated association. The reason behind this doctrine is
obvious-since an organization which before the law is non-existent has no personality and would be
incompetent to act and appropriate for itself the powers and attribute of a corporation as provided by law; it
cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk. And as it is an elementary principle of
law that a person who acts as an agent without authority or without a principal is himself regarded as the
principal, possessed of all the rights and subject to all the liabilities of a principal, a person acting or purporting
to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and
comes personally liable for contracts entered into or for other acts performed as such, agent. Considering that
defendant Refuerzo, as president of the unregistered corporation Philippine Fibers Producers Co., Inc.,
was the moving spirit behind the consummation of the lease agreement by acting as its representative, his
liability cannot be limited or restricted that imposed upon corporate shareholders. In acting on behalf of
a corporation which he knew to be unregistered, he assumed the risk of reaping the consequential
damages or resultant rights, if any, arising out of such transaction.
9. Albert vs. University Publishing, 13 SCRA
G.R. No. L-19118 January 30, 1965
Chua
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."
Name of the parties:
Plaintiff-Appellant: MARIANO A. ALBERT
Defendant-Appellee: UNIVERSITY PUBLISHING CO., INC
Facts:
1. No less than three times have the parties here appealed to this Court:
In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958 - plaintiff is entitled to damages
(for breach of contract) but reduced the amount from P23,000.00 to P15,000.00.
Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, the judgment for P15,000.00
which had become final and executory, should be executed to its full amount, since in fixing it, payment
already made had been considered.
2. Fifteen years ago, on September 24, 1949, Mariano A. Albert sued University Publishing Co., Inc.
Plaintiff alleged inter alia that defendant was a corporation duly organized and existing under the laws of
the Philippines.
3. On July 19, 1948, defendant, through Jose M. Aruego, its President, entered into a contract with
plaintifif; that defendant had thereby agreed to pay plaintiff P30,000.00 for the exclusive right to publish
his revised Commentaries on the Revised Penal Code and for his share in previous sales of the book's
first edition; that defendant had undertaken to pay in eight quarterly installments of P3,750.00 starting
July 15, 1948; that per contract failure to pay one installment would render the rest due; and that
defendant had failed to pay the second installment.
Contention of Universoty Publishing Co.
1. There is no such entity as University Publishing Co., Inc
2. That "University Publishing Co., Inc.," and not Jose M. Aruego, is the party defendant; thereby assuming
that "University Publishing Co., Inc." is an existing corporation with an independent juridical personality.
Ruling of the Lower Court:
CFI: In favor of Mariano Albert and against the University Publishing Co., Inc.,
Issue:
Whether or not, Jose M. Aruego is liable due to the fact that Universal Publishing Co., Inc is not a duly
registered company- Yes
Ruling:

a. Basis of the Ruling+Ratio:
Aruego represented a non-existent entity and induced not only Mariano, but even 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," and
obviously misled Mariano A. Albert into believing the same
"University Publishing Co., Inc." purported to come to court, answering the complaint and litigating
upon the merits. But as stated, "University Publishing Co., Inc." has no independent personality; it is just
a name. Jose M. Aruego was, in reality, the one who answered and litigated, through his own law firm as
counsel. He was in fact, if not, in name, the defendant.
Even with regard to corporations duly organized and existing under the law, we have in many a case
pierced the veil of corporate fiction to administer the ends of justice. "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." Had Jose
M. Aruego been named as party defendant instead of, or together with, "University Publishing Co., Inc.,"
there would be no room for debate as to his personal liability. Since he was not so named, the matters of
"day in court" and "due process" have arisen.
By "due process of law" we mean " "a law which hears before it condemns; which proceeds upon
inquiry, and renders judgment only after trial. "Due process of law" contemplates notice and opportunity
to be heard before judgment is rendered, affecting one's person or property". And it may not be amiss to
mention here also that the "due process" clause of the Constitution is designed to secure justice as a
living reality; not to sacrifice it by paying undue homage to formality. For substance must prevail over
form.
b. A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle
art of movement and position, entraps and destroys the other. It is, rather, a contest in which each
contending party fully and fairly lays before the court the facts in issue and then, brushing side as wholly
trivial and indecisive all imperfections of form and technicalities of procedure, asks that Justice be done
upon the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality, when it
deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves
scant consideration from courts. There should be no vested rights in technicalities.
The evidence is patently clear that Jose M. Aruego, acting as representative of a non-existent principal,
was the real party to the contract sued upon; that he was the one who reaped the benefits resulting from
it, so much so that partial payments of the consideration were made by him; that he violated its terms,
thereby precipitating the suit in question; and that in the litigation he was the real defendant. Perforce, in
line with the ends of justice, responsibility under the judgment falls on him.
Disposition: PREMISES CONSIDERED, the order appealed from is hereby set aside and the case
remanded ordering the lower court to hold supplementary proceedings for the purpose of carrying the
judgment into effect against University Publishing Co., Inc. and/or Jose M. Aruego.
______________________________________________________________________________
10. Asia Banking Corporation v. Standard Products Co., Inc.
G.R. No. 22106 (1924)
Author: Princess Cariño
Plaintiff-Appellee: Asia Banking Corporation
Defendant-Appellant: Standard Products Co., Inc.
Doctrine:
In the absence of fraud, a person who has contracted or 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
an action leading out of or involving such contract or dealing, unless the existence is attacked for causes which
have arisen since making the contract or other dealing relied on as an estoppel.
OSTRAND, J.:
FACTS:
 Standard Products executed a promissory note (PN) in favor of Asia Banking Corporation (P37,757.22,
with 10% interest per annum)
 Action for recovery of sum for the balance due on the PN.
 CFI ruled in favor of Asia Banking.
 At the trial of the case the Asia Banking failed to prove affirmatively the corporate existence of the parties
and Standard Products (borrower) insists that the judgment rendered against it was wrong. (1 page lang
yung case so kahit i-full text niyo haha)
ISSUE: Whether Standard Products is estopped in denying that Asia Banking is a corporate entity. – YES.
RULING:
 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 causes 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.
 In this case, Standard Products, 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.
The judgment appealed from is AFFIRMED, with the costs against the appellant. So ordered.
______________________________________________________________________
11. PAZ vs. NEW INTERNATIONAL ENVIRONMENTAL
G.R. No. 203993. April 20, 2015.
Digest Author: Bulacan
Petitioner:PRISCILO B. PAZ
Respondent: NEW INTERNATIONAL ENVIRONMENTAL UNIVERSALITY, INC.
DOCTRINE: Section 21 of the Corporation Code explicitly provides that one who assumes an obligation to an
ostensible corporation, as such, cannot resist performance thereof on the ground that there was in fact no
corporation.
FACTS:
 Paz, as the OIC of the Aircraft Hangar at the Davao International Airport, entered into a Memorandum of
Agreement with Captain Allan J. Clarke, President of International Environmental University.
 MOA indicates that for a period of 4 years, unless pre-terminated by both parties with six (6) months
advance notice, the former shall allow the latter to use the aircraft hangar space at the said Airport
“exclusively for company aircraft/helicopter.”
 Petitioner complained in a letter addressed to “MR. ALLAN J. CLARKE, International Environmental
Universality, Inc. x x x” that the hangar space was being used “for trucks and equipment, vehicles
 maintenance and fabrication,” instead of for “company helicopter/aircraft” only, and thereby threatened
to cancel the MOA if the “welding, grinding, and fabrication jobs” were not stopped immediately.
 Subsequent letters were sent, the third one demanding respondent to vacant due to damage caused to a n
aircraft parked inside the hangar space, which Capt. Clarke had supposedly promised to buy, but did not.
 It’s final letter strongly demanded the latter to immediately vacate and that the company will “apply for
immediate electrical disconnection with the Davao Light and Power Company so as to compel them to
desist from continuing with works thereon.
 Respondent was evicted. It then filed a complaint against petitioner for breach of contract.
RESPONDENT’S CONTENTION:
Petitioner violated the terms of the MOA when he took over the hangar space without giving respondent the
requisite six (6)-month advance notice of termination.19
PETITIONER’S CONTENTION:
a) respondent had no cause of action against him as the MOA was executed between him and Capt. Clarke
in the latter’s personal capacity;
b) there was no need to wait for the expiration of the MOA because Capt. Clarke performed highly risky
works in the leased premises that endangered other aircrafts within the vicinity
c) the six (6)-month advance notice of termination was already given in the letters he sent to Capt. Clarke.
 RTC issued a Writ of Preliminary Injunction ordering petitioner to give back the possession and
occupation of the hangar to respondent.--Petitioner did not comply.
RTC RULING:
Finding petitioner:
(a) guilty of indirect contempt for contumaciously disregarding its Order
(b) liable for breach of contract for illegally terminating the MOA even before the expiration of the term
thereof.
(c) On the challenge to respondent’s juridical personality,
the RTC quoted the Order of the SEC explaining that respondent was issued a Certificate of Incorporation on
2001 as New International Environmental Universality, Inc. When it amended its Articles of Incorporation SEC
erroneously used the name New International Environmental University, Inc. The latter name was used by
respondent when it filed its amended complaint on 2002. It was only on April 11, 2005 when the SEC directed
it to revert to its correct name.
d.) MOA was executed by the parties not only in their personal capacities but also in representation of their
respective corporations or entities.
CA RULING: Affirmed.
While there was no corporate entity at the time of the execution of the MOA on March 1, 2000 when Capt.
Clarke signed as “President of International Environmental University,” petitioner is nonetheless estopped from
denying that he had contracted with respondent as a corporation, having recognized the latter as the “Second
Party” in the MOA.
Petitioner was likewise found to have issued checks to respondent which belied his claim of contracting with
Capt. Clarke in the latter’s personal capacity.
Petitioner in the instant petition claimed that there’s a lack of legal capacity and personality on the part of
respondent
ISSUE: Whether petitioner is estopped in asserting that it executed the MOA with Capt.Clarke in his personal
capacity--YES
 
RULING + RATIO:
Whether Capt. Clarke should have been impleaded as an indispensable party was correctly resolved by the CA
which held that the former was merely an agent of respondent.
While Capt. Clarke’s name and signature appeared on the MOA, his participation was, nonetheless, limited to
being a representative of respondent. As a mere representative, Capt. Clarke acquired no rights whatsoever, nor
did he incur any liabilities, arising from the contract between petitioner and respondent. Therefore, he was not
an indispensable party to the case at bar.
From the very language itself of the MOA entered into by petitioner whereby he obligated himself to allow the
use of the hangar space “for company aircraft/helicopter,” petitioner cannot deny that he contracted with
respondent.
Petitioner further acknowledged this fact in his final letter where he reiterated and strongly demanded the
former to immediately vacate the hangar space his “company is occupying/utilizing.”
Section 21 of the Corporation Code explicitly provides that one who assumes an obligation to an ostensible
corporation, as such, cannot resist performance thereof on the ground that there was in fact no corporation.
Clearly, petitioner is bound by his obligation under the MOA not only on estoppel but by express provision of
law. As aptly raised by respondent in its Comment to the instant petition, it is futile to insist that petitioner
issued the receipts for rental payments in respondent’s name and not with Capt. Clarke’s, whom petitioner
allegedly contracted in the latter’s personal capacity, only because it was upon the instruction of an employee.
Indeed, it is disputably presumed that a person takes ordinary care of his concerns, and that all private
transactions have been fair and regular. Hence, it is assumed that petitioner, who is a pilot, knew what he was
doing with respect to his business with respondent.
The lower courts, therefore, did not err in finding petitioner liable for breach of contract for effectively evicting
respondent from the leased premises even before the expiration of the term of the lease.
Petitioner should have gone to court to make the respondent refrain from its ‘illegal’ activities or seek rescission
of the MOA rather than taking the law into his own hands.
DISPOSITION: DENIED
______________________________________________________________
12. PEOPLE v. GARCIA
G.R. No. 117010, APRIL 18, 1997
Digest Author : BERNAL
Petitioner/s : People of the Philippines
Respondent/s : Carlos Garcia, Patricio Botero and Luisa Miraples
Doctrine: Section 25 of the Corporation Code provides that "(a)ll persons who assume to act as a
corporation knowing it to be without authority to do so shall be liable as general partners for all the
debts, liabilities and damages incurred or arising as a result thereof: Provided, however, That when any
such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality."
FACTS :
 In 1993, Carlos Garcia, Patricio Botero, and Luisa Miraples were accused of illegal recruitment. It was
alleged that they represented themselves as the incorporators and officers of Ricorn Philippine
International Shipping Lines, Inc.; that Ricorn is a recruitment agency for seamen; that Garcia is the
president, Botero is the vice-president, and Miraples (now at large) is the treasurer.
 Garcia and Botero assured complainants of employment after the May 11, 1992 election. Accused Botero,
as the vice-president of Ricorn, followed-up their passports, seaman's book and SOLAS. He told some
applicants to wait for their papers and informed the others that their papers were in order.
 After the election, complainants went back to Ricorn to check on their applications. They discovered that
Ricorn had abandoned its office at Jovan Building for non-payment of rentals. Hoping against hope, they
went back to the building several times to recover their money. Their persistence was to no avail for
Garcia and Botero were nowhere to be found. They then went to the Mandaluyong Police Station and filed
their complaints.
 It was later discovered that Ricorn was never registered with the Securities and Exchange Commission
(SEC) and that it was never authorized to recruit by the Philippine Overseas Employment Agency
(POEA).
 They were charged with the crime of illegal recruitment in large scale
RULING OF THE LOWER COURTS:
 RTC – Convicted both Garcia and Botero (Life Imprisonment thus automatic appeal)
CONTENTIONS OF RESPONDENT:
 Botero averred that he was not an incorporator; that he was merely an employee of Ricorn in charge of
following up on their documents.
ISSUE: W/N Botero was just a mere employee of Ricorn. - NO
RULING + RATIO:
We reject appellant Botero's pretense that he is also a victim rather than a culprit in this case. He insist he was a
mere applicant of Ricorn and not a conspirator of the other accused who defrauded the complainants. He claims
that even as a Ricorn employee, he merely performed "minimal activities" like following-up applicants'
passports, seaman's book and SOLAS, and conducting simple interviews. He denies he had a hand in the
selection of workers to be employed abroad.  These submissions are at war with the evidence on record. His co-
accused Garcia introduced him to the complainants as the vice-president of Ricorn. He used a table with a
nameplate confirming he was the vice-president of Ricorn.  He procured the passports, seaman's books and
SOLAS for the applicants. It was from him that the complainants inquired about the status of their
applications.  He also admitted he gave money to accused Garcia for Ricorn's incorporation.
Beyond any reasonable doubt, appellant Botero engaged in recruitment and placement activities in that he,
through Ricorn, promised the complainants employment abroad. Under the Labor Code, recruitment and
placement refers to "any act of canvassing, enlisting, contracting, transporting, utilizing, hiring or procuring
workers, and includes referrals, contract services, promising or advertising for employment, locally or abroad
whether for profit or not: Provided, That any person or entity which in any manner, offers or promises for a fee
employment to two or more persons shall be deemed engaged in recruitment, and placement."  on, or enforceable against it. The officers or agents are themselves personally liable.
It is a fact that Ricorn had no license to recruit from DOLE. In the office of Ricorn, a notice was posted
informing job applicants that its recruitment license is still being processed. Yet, Ricorn already entertained
applicants and collected fees for processing their travel documents.  o Even assuming that the Federation was defectively incorporated, petitioner cannot deny the corporate
For engaging in recruitment of workers without obtaining the necessary license from the POEA, Boteros should
suffer the consequences of Ricorn's illegal act for "(i)f the offender is a corporation, partnership, association or
entity, the penalty shall be imposed upon the officer or officers of the corporation, partnership, association or
entity responsible for violation; . . . "  The evidence shows that appellant Botero was one of the incorporators of
Ricorn. For reasons that cannot be discerned from the records, Ricorn's incorporation was not consummated.
Even then, appellant cannot avoid his liabilities to the public as an incorporator of Ricorn. He and his co-
accused Garcia held themselves out to the public as officers of Ricorn. They received money from applicants
who availed of their services. They are thus estopped from claiming that they are not liable as corporate
officials of Ricorn.  Section 25 of the Corporation Code provides that "(a)ll persons who assume to act as
a corporation knowing it to be without authority to do so shall be liable as general partners for all the
debts, liabilities and damages incurred or arising as a result thereof: Provided, however, That when any
such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality.
_____________________________________________________________
13. INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES INC v. CA
G.R. No. 119002, 343 SCRA 674, 19 October 2000
Ponente: Kapunan
Digest Author: Joy Santos (revised by Camille Barredo)
Petitioner: International Express Travel & Tour Services Inc.
Respondents: Hon. Court of Appeals, Henri Kahn, Philippine Football Federation
DOCTRINE: One who deals with an unincorporated association is not estopped to deny its corporate
existence when his purpose is not to avoid liability, but precisely to enforce the contract against the action
for the purported corporation.
FACTS:
 Petitioner International Express Travel & Tour Services Inc. wrote a letter to respondent Philippine
Football Federation to offer its services as a travel agency to the latter for the South East Asian Games in
Malaysia as well as other trips in China and Brisbane.
 The offer was accepted and respondent Federation made payments for the airline tickets received
 The remaining balance, however, was left unpaid.
 Petitioner sued respondent Henri Kahn in his personal capacity and as president of the Federation; the
Federation was impleaded as an alternative defendant.
 Petitioner sought to hold Kahn liable for the unpaid balance for the tickets purchased by the Federation on
the ground that Henri Kahn allegedly guaranteed the said obligation.
CONTENTION OF RESPONDENT HENRI KAHN:
 Petitioner has no cause of action as against him as he did not guarantee payment but merely acted as an
agent of the Federation which has a separate and distinct juridical personality.
RULING OF THE LOWER COURTS:
 RTC – ruled in favor of petitioner and declared respondent Kahn personally liable for the unpaid obligation
of the Federation
o Respondent Kahn would have been correct in his contention had it been duly established that the
Federation is a corporation. The trouble, however, is that neither the petitioner nor Kahn has adduced
any evidence proving the corporate existence of the Federation. 
o Being the President of respondent Federation, its corporate existence is within the personal knowledge
of Kahn. He could have easily denied specifically the assertion of the petitioner that it is a mere sports
association, if it were a domestic corporation. But he did not.
o A voluntary unincorporated association like the Federation has no power to enter into, or to ratify, a
contract. The contract entered into by its officers or agents on behalf of such association is not binding
 CA – reversed and set aside the RTC ruling as it recognized the juridical existence of the Federation.
o Since petitioner failed to prove that Kahn guaranteed the obligation of the Federation, he should not be
held liable for the same as said entity has a separate and distinct personality from its officers.
existence of the Federation because it had contracted and dealt with the Federation in such a manner as
to recognize and in effect admit its existence.
ISSUE: Whether petitioner cannot deny the corporate existence of the Philippine Football Federation because it
had contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence.
– NO.
RULING + RATIO:
The Court cannot subscribe to the position taken by the CA that even assuming that the Federation was
defectively incorporated, petitioner cannot deny the corporate existence of the Federation because it had
contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence. The
doctrine of corporation by estoppel is mistakenly applied by 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, petitioner is not trying to
escape liability from the contract but rather is the one claiming from the contract. CA decision is reversed and
set aside. RTC decision is reinstated.
Note: SC ruled that Philippine Football Federation has no juridical personality. Before an entity may be
considered as a national sports association, such entity must be recognized by the accrediting organization, the
Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth and Sports
Development under P.D. 604. In this case, respondent Kahn failed to substantiate this fact of recognition. Also,
nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the Philippine Football Federation.
Because the Philippine Football Federation is not a national sports association within the purview of the
aforementioned laws and does not have corporate existence of its own, it follows that respondent Kahn should
be held liable for the unpaid obligations of the unincorporated Philippine Football Federation. It is a settled
principal in corporation law that any person acting or purporting to act on behalf of a corporation which has
no valid existence assumes such privileges and becomes personally liable for contract entered into or for other
acts performed as such agent. As president of the Federation, Kahn is presumed to have known about the
corporate existence or non-existence of the Federation.  Sheriff of Davao City.
________________________________________________________________________________
[G.R. No. 84197. July 28, 1989.]
14. PIONEER INSURANCE & SURETY CORPORATION, petitioner, vs. THE HON. COURT OF
APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO),
CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents.
[G.R. No. 84157. July 28, 1989.]
JACOB S. LIM, petitioner, vs. COURT OF APPEALS, PIONEER INSURANCE AND SURETY
CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT CO., INC., FRANCISCO and
MODESTO CERVANTES and CONSTANCIO MAGLANA, respondents.
Digest Author: Agorilla
Ponente: Gutierrez, Jr.
Doctrine:
Where persons associate themselves together under articles to purchase property to carry on a
business, and their organization is so defective as to come short of creating a corporation within the
statute, they become in legal effect partners inter se, and their rights as members of the company to the
property acquired by the company will be recognized.
However, such a relation does not necessarily exist, for ordinarily persons cannot be made to
assume the relation of partners, as between themselves, when their purpose is that no partnership shall exist
Facts: (Instead of using respondent and petitioner use the name please :))
 In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-
operator of Southern Air Lines (SAL) a single proprietorship.
 On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and executed
a sales contract for the sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary
spare parts for the total agreed price of US $109,000.00 to be paid in installments.
 One DC-3 Aircraft arrived in Manila on June 7, 1965 while the other aircraft, arrived in Manila on July
18, 1965.
 On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197) as
surety of Lim, executed and issued a Surety Bond in favor of JDA, in behalf of its principal, Lim, for
the balance price of the aircrafts and spare parts.
 It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and
Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions) contributed
some funds used in the purchase of the above aircrafts and spare parts.
 The funds were supposed to be their contributions to a new corporation proposed by Lim to expand his
airline business.
 They executed two (2) separate indemnity agreements in favor of Pioneer, one signed by Maglana and
the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses.
 The indemnity agreements stipulated that the indemnitors principally agree and bind themselves jointly
and severally to indemnify Pioneer from any damages, losses, costs, taxes, penalties, charges and
expenses of whatever kind and nature which Pioneer may incur in consequence of having become
surety upon the bond and to pay Pioneer, its successors and assigns, all sums and amounts of money
which it or its representatives should pay or become liable to pay on them of whatever kind and nature.
 On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as
deed of chattel mortgage as security for the latter's suretyship in favor of the former.
 It was stipulated therein that Lim transfer and convey to the surety the two aircrafts.
 The deed (Exhibit D) was duly registered with the Office of the Register of Deeds of the City of Manila
and with the Civil Aeronautics Administration pursuant to the Chattel Mortgage Law and the Civil
Aeronautics Law.
 Lim defaulted on his subsequent installment payments prompting JDA to request payments from the
surety.
 Pioneer paid a total sum of P298,626.12.
 Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the
 The Cervanteses and Maglana, however, filed a third party claim alleging that they are co-owners of the
aircrafts.
 On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of
preliminary attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana.
 In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that
they were not privies to the contracts signed by Lim.
Ruling of Lower Courts: Denied/Granted - brief basis
 The trial court rendered a decision holding Lim liable to pay Pioneer but dismissed Pioneer’s complaint
against the Cervanteses, Bormaheco and Maglana.
 the CA modified the trial court's decision in that the Pioneer’s complaint against Cervanteses,
Bormaheco, Maglana, and Lim was dismissed.
 However, the CA held that defendant Lim should be held liable to pay his co-defendants' cross-claims in
the total amount of P184,878.74 as correctly found by the trial court, with the interest from the filing of
the cross-claims until the amount is fully paid. Defendant Lim should pay one-half of the said amount to
Bormaheco and the Cervanteses and the other one-half to defendant Maglana. It is established in the
records that defendant Lim had duly received the amount of P151,000.00 from defendants Bormaheco and
Maglana representing the latter's participation in the ownership of the subject airplanes and spare parts. In
addition, the cross-party plaintiffs incurred additional expenses, hence, the total sum of P184,878.74.
Issue: The issue related to Corp. Law is the one raised in G.R. No. 84157:
Whether or not as a result of the failure of respondents Bormaheco, Spouses Cervantes, Constancio Maglana
and Lim to incorporate, a de facto partnership among them was created, hence, all must share in the losses
and/or gains of the venture in proportion to their contribution. NO.
Ruling:
Petitioner Jacob S. Lim poses the following questions:
"1. What legal rules govern the relationship among co-investors whose
agreement was to do business through the corporate vehicle but who failed to
incorporate the entity in which they had chosen to invest? How are the losses to be
treated in situations where their contributions to the intended 'corporation' were
invested not through the corporate form? This Petition presents these fundamental
questions which we believe were resolved erroneously by the Court of Appeals
('CA')."
These questions are premised on the Pioneer's theory that as a result of the failure of
respondents Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner Lim to incorporate, a de
facto partnership among them was created, and that as a consequence of such relationship all must share in
the losses and/or gains of the venture in proportion to their contribution. Lim, therefore, questions the
CA's findings ordering him to reimburse certain amounts given by the respondents to the petitioner as
their contributions to the intended corporation.
The Court first state the principles.
"While it has been held that as between themselves the rights of the
stockholders in a defectively incorporated association should be governed by the
supposed charter and the laws of the state relating thereto and not by the rules
governing partners, it is ordinarily held that persons who attempt, but fail, to form a
corporation and who carry on business under the corporate name occupy a position
of partners inter se. Thus, where persons associate themselves together under
articles to purchase property to carry on a business, and their organization is
so defective as to come short of creating a corporation within the statute, they
become in legal effect partners inter se, and their rights as members of the
 company to the property acquired by the company will be recognized. So,
where certain persons associated themselves as a corporation for the development
of land for irrigation purposes, and each conveyed land to the corporation, and two
of them contracted to pay a third the difference in the proportionate value of the
land conveyed by him, and no stock was ever issued in the corporation, it was
treated as a trustee for the associates in an action between them for an accounting,
and its capital stock was treated as partnership assets, sold, and the proceeds
distributed among them in proportion to the value of the property contributed by
each. However, such a relation does not necessarily exist, for ordinarily persons
cannot be made to assume the relation of partners, as between themselves, when
their purpose is that no partnership shall exist, and it should be implied only when
necessary to do justice between the parties; thus, one who takes no part except to
subscribe for stock in a proposed corporation which is never legally formed does
not become a partner with other subscribers who engage in business under the
name of the pretended corporation, so as to be liable as such in an action for
settlement of the alleged partnership and contribution. A partnership relation
between certain stockholders and other stockholders, who were also directors,
will not be implied in the absence of an agreement, so as to make the former
liable to contribute for payment of debts illegally contracted by the latter.
In this case, it is to be noted that Lim was declared non-suited for his failure to appear during the
pre-trial despite notification. In his answer, Lim denied having received any amount from respondents
Bormaheco, the Cervanteses and Maglana. The trial court and the appellate court, however, found that Lim
received the amount of P151,000.00 representing the participation of Bormaheco and Atty. Constancio B.
Maglana in the ownership of the subject airplanes and spare parts. The record shows that defendant Maglana
gave P75,000.00 to Lim thru the Cervanteses.
It is therefore clear that Lim never had the intention to form a corporation with the respondents
despite his representations to them. This gives credence to the cross-claims of the respondents to the effect that
they were induced and lured by Lim to make contributions to a proposed corporation which was never formed
because Lim reneged on their agreement.
Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto
partnership was created among the parties which would entitle the Pioneer to a reimbursement of the supposed
losses of the proposed corporation. The record shows that the Lim was acting on his own and not in behalf of
his other would-be incorporators in transacting the sale of the airplanes and spare parts.
The petitions are dismissed.
______________________________________________________________________________
15. LIM TONG LIM vs PHILIPPINE FISHING GEAR INDUSTRIES, INC.
G.R. No. 136448. November 3, 1999
Digest Author : Agbon
Petitioner/s : LIM TONG LIM
Respondent/s : PHILIPPINE FISHING GEAR INDUSTRIES, INC.
DOCTRINE: Under the law on estoppel, those acting on behalf of an ostensible corporation and those
benefited by it, knowing it to be without a valid existence, are held liable as general partners.
APPLICABLE LAWS: Section 21 of the Corporation Code of the Philippines, Article 1767 of the Civil Code  FACTS :
FACTS :
Lim Tong Lim requested Peter Yao and Antonio Chua to engage in commercial fishing with him.
The three agreed to purchase two fishing boats but since they do not have the money they borrowed from Lim
Tong Lim’s brother. Subsequently, they again borrowed money for the purchase of fishing nets and other
fishing equipments. Yao and Chua represented themselves as acting in behalf of “Ocean Quest Fishing
Corporation” (OQFC) and they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of
fishing nets amounting to more than P500k. However, they were unable to pay PFGI and hence were sued in
their own names as Ocean Quest Fishing Corporation is a non-existent corporation. Chua admitted his liability
while Lim Tong Lim refused such liability alleging that Chua and Yao acted without his knowledge and consent
in representing themselves as a corporation.
RULING OF THE LOWER COURTS:
 RTC – rendered its Decision, ruling that Chua, Yao and Lim, as general partners, were jointly liable
to pay respondent
 CA – CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be
held liable as a such for the fishing nets and floats purchased by and for the use of the partnership
CONTENTIONS OF PETITIONER: Petitioner controverts the CA finding that a partnership existed between
him, Peter Yao and Antonio Chua. He disclaims any direct participation in the purchase of the nets, alleging
that the negotiations were conducted by Chua and Yao only, and that he has not even met the representatives of
the respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the
"Contract of Lease" dated February 1, 1990, showed that he had merely leased to the two the main asset of the
purported partnership -- the fishing boat F/B Lourdes
ISSUE: Whether Lim Tong Lim is liable as a partner? Whether corporation by estoppel can apply to Lim?
RULING + RATIO:
Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided
to engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim. In their Compromise Agreement, they subsequently revealed their intention to pay the
loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These
boats, the purchase and the repair of which were financed with borrowed money, fell under the term “common
fund” under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an
intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of
the boats would be divided equally among them also shows that they had indeed formed a partnership.
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be imputed to
Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets found in his boat s, the boat
which has earlier been proven to be an asset of the partnership. Lim, Chua and Yao decided to form a
corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude the
liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel, those
acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence,  are held
liable as general partners.
CONCLUSION: Petition is DENIED.
16. Philippine Trust Co. vs. Rivera
No. 19761. January 29, 1923
Digest Author : Suarez
Petitioner/s : PHILIPPINE TRUST COMPANY
Respondent/s : MARCIANO RIVERA
Doctrine 1  : DIMINUTION OF CAPITAL.—A corporation has no power to release an original subscriber
to its capital stock from the obligation of paying for his shares, without a valuable consideration. for such
release; and as against creditors a reduction of the capital stock can take place only in the manner and
under the conditions prescribed by law.
 This is a insolvency case of La Cooperativa Naval Filipina institute (La Cooperativa)by PHILIPPINE
TRUST COMPANY (Philtrust) against MARCIANO RIVERA (Rivera )
 La Cooperativa was incorporated with a capital of P100,000 (1,000 shares of P100 par value). Rivera, who
was among the incorporators, subscribed 450 shares for the value of 45,000.
 Rivera failed to pay the remaining subscription for the following reason : that not long after the
Cooperativa Naval Filipina had been incorporated, a meeting of its stockholders occurred, at which a
resolution was adopted to the effect that the capital should be reduced by 50 per centum and the
 subscribers released from the obligation to pay any unpaid balance of their subscription in excess of 50
per centum of the same.
 However, the formalities required by the law for the reduction of capital stock was not complied with. The
formality required was : no certificate was filed before the Bureau of Commerce and Industry showing the
reduction.
 Lower Court ruled that the resolution did not take effect and that Rivera remained liable.
ISSUE: Whether RIVERA can held liable. – YES.
RULING + RATIO:
It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors
have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action
upon any unpaid stock subscription in order to realize assets for the payment of its debts. (Velasco vs. Poizat,
37 Phil., 802.) A corporation has no power to release an original subscriber to its capital stock from the
obligation of paying for his shares, without a valuable consideration for such release; and as against creditors a
reduction of the capital stock can take place only in the manner and under the conditions prescribed by the
statute or the charter or the articles of incorporation. Moreover, strict compliance with the statutory regulations
is necessary (14 C. J., 498, 620).
In the case before us the resolution releasing the shareholders from their obligation to pay 50 per centum of
their respective subscriptions was an attempted withdrawal of so much capital from the fund upon which the
company's creditors were entitled ultimately to rely and, having been effected without compliance with the
statutory requirements, was wholly ineffectual.
_____________________________________________________
17. Halley v Printwell
G.R. No. 157549. May 30, 2011
Digest Author: Santos
Petitioner: Donina Halley
Respondents: Printwell Inc
DOCTRINE: The trust fund doctrine is not limited to reaching the stockholders unpaid subscriptions. The
scope of the doctrine when the corporation is insolvent encompasses not only the capital stock, but also other
property and assets generally regarded in equity as a trust fund for the payment of corporate debts. All assets
and property belonging to the corporation held in trust for the benefit of creditors that were distributed or in the
possession of the stockholders, regardless of full payment of their subscriptions, may be reached by the creditor
in satisfaction of its claim.
FACTS:
 Petitioner was an incorporator and original director of Business Media Philippines, Inc. (BMPI).  is it exclusive evidence, considering that parole evidence may also establish the fact of payment.
 BMPI commissioned Printwell for the printing of the magazine Philippines, Inc. that BMPI published and
sold. For that purpose, Printwell extended 30-day credit accommodations to BMPI.
 Printwell sued BMPI for unpaid balance and implead the original stockholders and incorporators.
Contention of Petitioner:
 
 They have already paid their subscriptions in full
 BMPI had a separate personality from those of its stockholders
Contention of Respondent:
 Petitioner has unpaid subscription to BMPI which can be collected as payment for the unpaid balance.
 RTC and CA ruled in favour of Printwell.
 
 
ISSUE: Whether Printwell can collect the unpaid subscription from petitioner under the Trust Fund doctrine. -
YES
RULING:
 
Trust Fund Doctrine
Trust Fund Doctrine - corporate debtors might look to the unpaid subscriptions for the satisfaction of unpaid
corporate debts.
 
It is an established doctrine that subscription to the capital stock of a corporation
constitute a fund to which creditors have a right to look up to for satisfaction of their
claims, and that the assignee in insolvency can maintain an action upon any unpaid stock
subscription in order to realize assets for the payment of its debts (PNB vs. Bitulok
Sawmill, 23 SCRA 1366).
  
The trust fund doctrine is not limited to reaching the stockholders unpaid subscriptions. The scope of the
doctrine when the corporation is insolvent encompasses not only the capital stock, but also other property and
assets generally regarded in equity as a trust fund for the payment of corporate debts. All assets and property
belonging to the corporation held in trust for the benefit of creditors that were distributed or in the possession of
the stockholders, regardless of full payment of their subscriptions, may be reached by the creditor in satisfaction
of its claim.
 
The creditor is allowed to maintain an action upon any unpaid subscriptions and thereby steps into the shoes of
the corporation for the satisfaction of its debt. To make out a prima facie case in a suit against stockholders of
an insolvent corporation to compel them to contribute to the payment of its debts by making good unpaid
balances upon their subscriptions, it is only necessary to establish that the stockholders have not in good faith
paid the par value of the stocks of the corporation.
Thus, to escape liability, the debtor/stockholder bears the burden of showing with legal certainty that the
obligation has been discharged by payment. However, in this case, the petitioner failed to discharge her burden.
Although a receipt is the best evidence of the fact of payment, it is not conclusive, but merely presumptive; nor
 
The petitioners OR No. 227,presented to prove the payment of the balance of her subscription, indicated that her
supposed payment had been made by means of a check. Thus, to discharge the burden to prove payment of her
subscription, she had to adduce evidence satisfactorily proving that her payment by check was regarded as
payment under the law.
Because a check is not money and only substitutes for money, the delivery of a check does not operate as
payment and does not discharge the obligation under a judgment. To establish their defense, the respondents
therefore had to present proof, not only that they delivered the checks to the petitioner, but also that the
checks were encashed. The respondents failed to do so. Had the checks been actually encashed, the
respondents could have easily produced the cancelled checks as evidence to prove the same. Instead, they
merely averred that they believed in good faith that the checks were encashed because they were not
notified of the dishonor of the checks and three years had already lapsed since they issued the checks.
 
Further, the income tax return (ITR) and statement of assets and liabilities of BMPI, presented had no bearing
on the issue of payment of the subscription because they did not by themselves prove payment. ITRs establish a
tax payers liability for taxes or a taxpayers claim for refund. In the same manner, the deposit slips and entries in
the passbook issued in the name of BMPI were hardly relevant due to their not reflecting the alleged payments.
 
 
Lastly, although the articles of incorporation may possibly reflect only the pre-incorporation status of a
corporation, the lower courts reliance on that document to determine whether the original subscribersalready
fully paid their subscriptions or not was neither unwarranted nor erroneous. As earlier explained, the burden of
establishing the fact of full payment belonged not to Printwell even if it was the plaintiff, but to the stockholders
like the petitioner who, as the defendants, averredfull payment of their subscriptions as a defense. Their failure
to substantiate their averment of full payment, as well as their failure to counter the reliance on the recitals
found in the articles of incorporation simply meant their failure or inability to satisfactorily prove their defense
of full payment of the subscriptions.
 
 
ACCORDINGLY, we deny the petition for review on certiorari;and affirm with modification the decision
promulgated on August 14, 2002by ordering the petitioner to pay to Printwell, Inc. the sum of P262,500.00,
plus interest of 12% per annum to be computed from February 8, 1990 until full payment.
18. Case Title: YONG v TIU
GR Number and Date: G.R. No. 144476. April 8, 2003
Author: Santiago Arnel A.
Ponente: CORONA
Doctrine:
1. RESCISSION OF SUBSCRIPTION AGREEMENT - A subscription contract necessarily
involves the corporation as one of the contracting parties since the subject matter of the
transaction is property owned by the corporation its shares of stock.
a. the subscription contract (denominated by the parties as a Pre-Subscription
Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of stock
was, from the viewpoint of the law, one between the Ongs and FLADC, not between
the Ongs and the Tius. Otherwise stated, the Tius did not contract in their personal
capacities with the Ongs since they were not selling any of their own shares to
them. It was FLADC that did.
Name of the parties: (and their respective role in the case):
Petitioner: ONG et al.
Respondent: Tiu et al
Facts:
- First Landlink Asia Development Corporation (FLADC), which was owned by the Tius, encountered dire
financial difficulties. Due to that, the construction of the Masagana Citimall in Pasay City was threatened
with stoppage and incompletion when its owner.
- The company is heavily indebted to PNB with two lots are mortgaged.
- To stave off foreclosure of the mortgage on the two lots where the mall was being built, the Tius invited Ong
Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to
invest in FLADC.
- Under the Pre-Subscription Agreement they entered into,:
- the Ongs and the Tius agreed to maintain equal shareholdings in FLADC: the Ongs were to
subscribe to 1,000,000 shares at a par value of P100.00 each
- the Tius were to subscribe to an additional 549,800 shares at P100.00 each in addition to their
already existing subscription of 450,200 shares.
- they agreed that the Tius were entitled to nominate the Vice-President and the Treasurer plus five
directors while the Ongs were entitled to nominate the President, the Secretary and six directors
(including the chairman) to the board of directors of FLADC. Moreover, the Ongs were given the
right to manage and operate the mall.
- The business harmony between the Ongs and the Tius in FLADC, however, was shortlived because the Tius,
on February 23, 1996, rescinded the Pre-Subscription Agreement. The Tius accused the Ongs of the
following:
- (1) refusing to credit to them the FLADC shares covering their real property contributions;
- (2) preventing David S. Tiu and Cely Y. Tiu from assuming the positions of and performing their
duties as Vice-President and Treasurer, respectively, and
- (3) refusing to give them the office spaces agreed upon.
- DEFENSES OF ONGs:
- The Ongs said that David S. Tiu and Cely Y. Tiu had in fact assumed the positions of Vice-President
and Treasurer of FLADC but that it was they who refused to comply with the corporate duties
assigned to them.
- It was the contention of the Ongs that they wanted the Tius to sign the checks of the corporation and
undertake their management duties but that the Tius shied away from helping them manage the
corporation.
Ruling of Lower Courts:
- SEC - upheld the rescission.
- SEC enbanc - affirmed the rescission.
- CA - affirmed with modifications
- SC - affrimed the decision of CA (FIRST CASE)
- Tius then filed a motion for execution of judgment.
- A motion of reconsideration was filed by Ongs.
Contentions of the PETITIONER/PLAINTIFF (ONGS):
- The Ongs also allege that, in view of the findings of the Court that both parties were guilty of violating the
Pre-Subscription Agreement, neither of them could resort to rescission under the principle of pari delicto.
Issue:
- Whether the Tius could legally rescind the Pre-Subscription Agreement. - YES.
Ruling:
Nature of the contract is a Subscription Contract as defined in Sec. 60, Tittle VII of the Corporation
Code.
“ Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be
formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that the parties
refer to it as a purchase or some other contract (Italics supplied).”
- A subscription contract necessarily involves the corporation as one of the contracting parties since the subject
matter of the transaction is property owned by the corporation its shares of stock.
- The Tius did not contract in their personal capacities with the Ongs since they were not selling any of their
own shares to them. It was FLADC that did.
- Considering therefore that the real contracting parties to the subscription agreement were FLADC and the
Ongs alone, a civil case for rescission on the ground of breach of contract filed by the Tius in their personal
capacities will not prosper. Assuming it had valid reasons to do so, only FLADC (and certainly not the Tius)
 had the legal personality to file suit rescinding the subscription agreement with the Ongs inasmuch as it was
the real party in interest therein. Article 1311 of the Civil Code provides that contracts take effect only
between the parties, their assigns and heirs Therefore, a party who has not taken part in the transaction cannot
sue or be sued for performance or for cancellation thereof, unless he shows that he has a real interest affected
thereby

RESCISSION IS NOT THE PROPER REMEDY

- Although the Tius were adversely affected by the Ongs unwillingness to let them assume their positions,
rescission due to breach of contract is definitely the wrong remedy for their personal grievances. The
Corporation Code, SEC rules and even the Rules of Court provide for appropriate and adequate intra-
corporate remedies, other than rescission, in situations like this. Rescission is certainly not one of them,
specially if the party asking for it has no legal personality to do so and the requirements of the law therefor
have not been met. A contrary doctrine will tread on extremely dangerous ground because it will allow just
any stockholder, for just about any real or imagined offense, to demand rescission of his subscription and call
for the distribution of some part of the corporate assets to him without complying with the requirements of
the Corporation Code. Hence, the Tius, in their personal capacities, cannot seek the ultimate and
extraordinary remedy of rescission of the subject agreement based on a less than substantial breach of
subscription contract. Not only are they not parties to the subscription contract between the Ongs and
FLADC; they also have other available and effective remedies under the law.

- WHEREFORE, the motion for reconsideration, dated March 15, 2002, of petitioners Ong Yong, Juanita Tan
Ong, Wilson Ong, Anna Ong, William Ong, Willie Ong and Julie Ong Alonzo and the motion for partial
reconsideration, dated March 15, 2002, of petitioner Willie Ong are hereby GRANTED. The Petition for
Confirmation of the Rescission of the Pre-Subscription Agreement docketed as SEC Case No. 02-96-5269 is
hereby DISMISSED for lack of merit. The unilateral rescission by the Tius of the subject Pre-Subscription
Agreement, dated August 15, 1994, is hereby declared as null and void.