Phil. Trust Co. v.

Rivera
44 Phil. 469 (1923)

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.

It is established doctrine that subscription to the capital of a corporation constitute a find to

which creditors have a right to look for satisfaction of their claims and that the assignee in
insolvency can maintain an action upon any unpaid stock subscription in order to realize assets
for the payment of its debts. A corporation has no power to release an original subscriber to its
capital stock from the obligation of paying for his shares, without a valuable consideration for
such release; and as against creditors a reduction of the capital stock can take place only in the
manner an under the conditions prescribed by the statute or the charter or the articles of
incorporation. Moreover, strict compliance with the statutory regulations is necessary.

Marcus v. RH Macy
74 N.E. 2d 228 (1947)

The Court concluded that such an alteration or limitation in the voting power of the common
shares held by the appellant — when considered with the facts that she gave to the respondent
formal written notice of her objection to the proposed amendment to the corporation's charter
with a demand for payment for her stock, and thereafter caused her shares to be voted against
that amendment at the annual meeting of October 30, 1945 — was sufficient to qualify her to
invoke the statutory procedure upon which the present proceeding is based. By Sec 36(e) of the
Stock Corporation Law, the respondent was given the right to alter the "privileges or voting
powers of any shares previously authorized, or the restrictions or qualifications thereof.
However, the statutory right was burdened with conditions set forth in Sec 38; (9) If the
certificate x x x (d) abolishes any voting right of the holders of shares of any class or limits their
voting rights, except as the same may be limited by the voting rights given to new shares of any
class authorized by the certificate any holder of any such shares not in favor of such action may
at any time prior to the vote authorizing such action x x x object to such action and demand
payment for his stock, and thereupon such stockholder or the corporation shall have the right,
subject to the conditions and provisions of section twenty-one, to have such stock appraised and
paid for as provided in said section. Such objection and demand must be in writing and filed with
the corporation.

Iglesia Evangelica v. Bishop Lazaro

(G.R. 184088, July 6, 2010)

A corporation may change its character as a corporation sole into a corporation aggregate by
mere amendment of its articles of incorporation without first going through the process of
dissolution. True, the Corporation Code provides no specific mechanism for amending the
articles of incorporation of a corporation sole. However, Section 109 of the Corporation Code
allows the application to religious corporations of the general provisions governing non-stock
corporations. For non-stock corporations, the power to amend its articles of incorporation lies in
its members. The code requires two-thirds of their votes for the approval of such an amendment.
So how will this requirement apply to a corporation sole that has technically but one member
(the head of the religious organization) who holds in his hands its broad corporate powers over
the properties, rights, and interests of his religious organization? Although a non-stock
corporation has a personality that is distinct from those of its members who established it, its
articles of incorporation cannot be amended solely through the action of its board of trustees. The
amendment needs the concurrence of at least two-thirds of its membership. If such approval
mechanism is made to operate in a corporation sole, its one member in whom all the powers of
the corporation technically belongs, needs to get the concurrence of two-thirds of its
membership. The one member, here the General Superintendent, is but a trustee, according to
Section 110 of the Corporation Code, of its membership. There is no point to dissolving the
corporation sole of one member to enable the corporation aggregate to emerge from it. Whether
it is a non-stock corporation or a corporation sole, the corporate being remains distinct from its
members, whatever be their number. The increase in the number of its corporate membership
does not change the complexion of its corporate responsibility to third parties. The one member,
with the concurrence of two-thirds of the membership of the organization for whom he acts as
trustee, can self-will the amendment. He can, with membership concurrence, increase the
technical number of the members of the corporation from sole or one to the greater number
authorized by its amended articles.

Pioneer Insurance v. CA
(GR 84157) 175 SCRA 668 (1989)

Municipality of Malabang v. Benito

(1969) 27 SCRA 533

The petition is granted, Executive Order 386 is declared void, and the respondents are hereby
permanently restrained from performing the duties and functions of their respective offices. No
pronouncement as to costs.

As a result of the analysis of similar cases the following principles may be deduced which seem
to reconcile the apparently conflicting decisions:

I. The color of authority requisite to the organization of a de facto municipal

corporation may be:
1. A valid law enacted by the legislature.
2. An unconstitutional law, valid on its face, which has either (a) been
upheld for a time by the courts or (b) not yet been declared void; provided
that a warrant for its creation can be found in some other valid law or in
 the recognition of its potential existence by the general laws or constitution
of the state.
II. There can be no de facto municipal corporation unless either directly or
potentially, such a de jure corporation is authorized by some legislative fiat.
III. There can be no color of authority in an unconstitutional statute alone, the
invalidity of which is apparent on its face.
IV. There can be no de facto corporation created to take the place of an existing
de jure corporation, as such organization would clearly be a usurper.
In the cases where a de facto municipal corporation was recognized as such despite the
fact that the statute creating it was later invalidated, the decisions could fairly be made to rest on
the consideration that there was some other valid law giving corporate vitality to the
organization. Hence, in the case at bar, the mere fact that Balabagan was organized at a time
when the statute had not been invalidated cannot conceivably make it a de facto corporation, as,
independently of the Administrative Code provision in question, there is no other valid statute to
give color of authority to its creation.

Hall v. Piccio
(1950) 86 Phil. 603

The personality of a corporation begins to exist only from the moment such certificate is issued
— not before (sec. 11, Corporation Law). 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. 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. 2 reasons why Sec 19 does not govern the
situation: a. Under our statue 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 if 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 b.
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.

Cagayan Fishing. v. Sandiko

GR L-43350 (12/23/1937)
The transfer was made almost five months before the incorporation of the company. Although, 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. However before a corporation may be said to be lawfully
organized, many things have to be done. Among other things, the law requires the filing of
articles of incorporation. Although there is a presumption that all the requirements of law have
been complied with, in the case before us it cannot be denied that the plaintiff was not yet
incorporated when it entered into a contract of sale. It was not even a de facto corporation at the
time. Not being in legal existence then, it did not possess juridical capacity to enter into the
contract. Corporations are creatures of the law, and can only come into existence in the manner
prescribed by law. It 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.

Harill v. Davis (1909) 168 F. 187

Chiang Kai Shek School v. CA

(1989) 172 SCRA 389

Petition is DENIED. The appealed decision is AFFIRMED except for the award of separation
pay, which is reduced to P2,880.00.

Having been recognized by the government, it was under obligation to incorporate under
the Corporation Law within 90 days from such recognition. It appears that it had not done
so at the time the complaint was filed notwithstanding that it had been in existence even
earlier than 1932. The petitioner cannot now invoke its own non-compliance with the law
to immunize it from the private respondent's complaint.

There should also be no question that having contracted with the private respondent every year
for thirty two years and thus represented itself as possessed of juridical personality to do so, the
petitioner is now estopped from denying such personality to defeat her claim against it.
According to Article 1431 of the Civil Code, "through estoppel an admission or representation is
rendered conclusive upon the person making it and cannot be denied or disproved as against the
person relying on it."
As the school itself may be sued in its own name, there is no need to apply Rule 3, Section 15,
under which the persons joined in an association without any juridical personality may be sued
with such association. Besides, it has been shown that the individual members of the board of
trustees are not liable, having been appointed only after the private respondent's dismissal.

Lim Tong Lim v. Phil. Fishing Gear

(1999) 317 SCRA 728
The facts as found by the two lower courts clearly showed that there existed a partnership among
Chua, Yao and him, pursuant to Article 1767 of the Civil Code. It is clear that the partnership
extended not only to the purchase of the boat, but also to that of the nets and the floats. The
fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of
their business. It would have been inconceivable for Lim to involve himself so much in buying
the boat but not in the acquisition of the aforesaid equipment, without which the business could
not have proceeded. Partnership v. Lease We are not convinced by petitioner’s argument that he
was merely the lessor of the boats to Chua and Yao, not a partner in the fishing venture. His
argument allegedly finds support in the Contract of Lease and the registration papers showing
that he was the owner of the boats, including F/B Lourdes where the nets were found. His
allegation defies logic. In effect, he would like this Court to believe that he consented to the sale
of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided
among the three of them. No lessor would do what petitioner did. Indeed, his consent to the sale
proved that there was a preexisting partnership among all three. Partnership v. Corporation by
Estoppel "SECTION 21. Corporation by estoppel. — All persons who assume to act as a
corporation knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof: Provided however, That
when any such ostensible corporation is sued on any transaction entered by it as a corporation or
on any tort committed by it as such, it shall not be allowed to use as a defense its lack of
corporate personality. "One who assumes an obligation to an ostensible corporation as such,
cannot resist performance thereof on the ground that there was in fact no corporation.” Petitioner
argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua
and Yao, and not to him. Again, we disagree. The doctrine of corporation by estoppel may apply
to the alleged corporation and to a third party. In the first instance, an unincorporated association,
which represented itself to be a corporation, will be estopped from denying its corporate capacity
in a suit against it by a third person who relied in good faith on such representation. It cannot
allege lack of personality to be sued to evade its responsibility for a contract it entered into and
by virtue of which it received advantages and benefits. On the other hand, a third party who,
knowing an association to be unincorporated, nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate existence in a suit brought against the
alleged corporation. The only question here is whether petitioner should be held jointly liable
with Chua and Yao. Petitioner contests such liability, insisting that only those who dealt in the
name of the ostensible corporation should be held liable. Since his name does not appear on any
of the contracts and since he never directly transacted with the respondent corporation, ergo, he
cannot be held liable. Unquestionably, petitioner benefited from the use of the nets found inside
F/B Lourdes, the boat which has earlier been proven to be an asset of the partnership. He in fact
questions the attachment of the nets, because the Writ has effectively stopped his use of the
fishing vessel.

Int’l Express Travel v. CA

(2000) 343 SCRA 674

The basis of CA that RA 3135 Revised Charter of the Phil. Amateur Athletic Federation and PD
604 that recognizes the juridical existence of National Sports Association is not correct. Mere
passage of these laws DOES NOT AUTOMATICALLY vest the associations a CORPORATE
STATUS. The State must give its consent: in the form of a special law of a general enabling act.
These laws merely recognized the existence of national sports associations. Henry Kahn shall be
held liable for the unpaid obligations of the unincorporated Federation. It is a settled rule that any
person acting or purporting to act on behalf of a corporation which has no valid existence
assumes such privileges and obligations and becomes personally liable for contracts entered into
or for other acts performed as such agent. Petitioner cannot be held estopped because the
doctrine of corporation by estoppel is mistakenly applied by the respondent court to the
petitioner. The application of the doctrine applies to a third party only when he tries to escape
liability on a contract from which he has benefited on the irrelevant ground of Defective
Corporation. Petitioner is not trying to escape liability but is the one claiming from the contract.

Paz v. New Int'l Environmental Universality, Inc. (April 20, 2015)

Loyola Grand Villas v. CA

(1997) 276 SCRA 681

The Court of Appeals held that under the Corporation Code, a private corporation commences to
have corporate existence and juridical personality from the date the Securities and Exchange
Commission (SEC) issues a certificate of incorporation under its official seal. The requirement
for the filing of by-laws under Section 46 of the Corporation Code within one month from
official notice of the issuance of the certificate of incorporation presupposes that it is already
incorporated, although it may file its by-laws with its articles of incorporation.

Gokongwei Jr. v. SEC, et al.

89 SCRA 336 (1979)

1. AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF DIRECTORS

EXPRESSLY CONFERRED BY LAW In this jurisdiction, under section 21 of the Corporation
Law, a corporation may prescribe in its by-laws "the qualifications, duties and compensation of
directors, officers and employees ... " This must necessarily refer to a qualification in addition to
that specified by section 30 of the Corporation Law, which provides that "every director must
own in his right at least one share of the capital stock of the stock corporation of which he is a
director ... " In Government v. El Hogar, 14 the Court sustained the validity of a provision in the
corporate bylaw requiring that persons elected to the Board of Directors must be holders of
shares of the paid up value of P5,000.00, which shall be held as security for their action, on the
ground that section 21 of the Corporation Law expressly gives the power to the corporation to
provide in its by-laws for the qualifications of directors and is "highly prudent and in conformity
with good practice. “ 2. NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED
DIRECTOR Pursuant to section 18 of the Corporation Law, any corporation may amend its
articles of incorporation by a vote or written assent of the stockholders representing at least two-
thirds of the subscribed capital stock of the corporation If the amendment changes, diminishes or
restricts the rights of the existing shareholders then the disenting minority has only one right,
viz.: "to object thereto in writing and demand payment for his share." Under section 22 of the
same law, the owners of the majority of the subscribed capital stock may amend or repeal any
by-law or adopt new by-laws. It cannot be said, therefore, that petitioner has a vested right to be
elected director, in the face of the fact that the law at the time such right as stockholder was
acquired contained the prescription that the corporate charter and the by-law shall be subject to
amendment, alteration and modification It being settled that the corporation has the power to
provide for the qualifications of its directors, the next question that must be considered is
whether the disqualification of a competitor from being elected to the Board of Directors is a
reasonable exercise of corporate authority. 3. A DIRECTOR STANDS IN A FIDUCIARY
RELATION TO THE CORPORATION AND ITS SHAREHOLDERS Although in the strict and
technical sense, directors of a private corporation are not regarded as trustees, there cannot be
any doubt that their character is that of a fiduciary insofar as the corporation and the stockholders
as a body are concerned. As agents entrusted with the management of the corporation for the
collective benefit of the stockholders, "they occupy a fiduciary relation, and in this sense the
relation is one of trust." 18 "The ordinary trust relationship of directors of a corporation and
stockholders", according to Ashaman v. Miller, 19 "is not a matter of statutory or technical law.
It springs from the fact that directors have the control and guidance of corporate affairs and
property and hence of the property interests of the stockholders. Equity recognizes that
stockholders are the proprietors of the corporate interests and are ultimately the only
beneficiaries thereof 4. AN AMENDMENT TO THE CORPORATION BY-LAW WHICH
RENDERS A STOCKHOLDER INELIGIBLE TO BE DIRECTOR, IF HE BE ALSO
DIRECTOR IN A CORPORATION WHOSE BUSINESS IS IN COMPETITION WITH THAT
OF THE OTHER CORPORATION, HAS BEEN SUSTAINED AS VALID It is a settled state
law in the United States, according to Fletcher, that corporations have the power to make by-
laws declaring a person employed in the service of a rival company to be ineligible for the
corporation's Board of Directors. An amendment which renders ineligible, or if elected, subjects
to removal, a director if he be also a director in a corporation whose business is in competition
with or is antagonistic to the other corporation is valid.” This is based upon the principle that
where the director is so employed in the service of a rival company, he cannot serve both, but
must betray one or the other. Such an amendment "advances the benefit of the corporation and is
good." An exception exists in New Jersey, where the Supreme Court held that the Corporation
Law in New Jersey prescribed the only qualification, and therefore the corporation was not
empowered to add additional qualifications. This is the exact opposite of the situation in the
Philippines because as stated heretofore, section 21 of the Corporation Law expressly provides
that a corporation may make by-laws for the qualifications of directors. Thus, it has been held
that an officer of a corporation cannot engage in a business in direct competition with that of the
corporation where he is a director by utilizing information he has received as such officer, under
"the established law that a director or officer of a corporation may not enter into a competing
enterprise which cripples or injures the business of the corporation of which he is an officer or
director.

Grace Christian HS v. CA
(GR 108905; Oct. 23, 1997)

A by-law provision granting to a stockholder a permanent representation in the Board of

Directors is contrary to the Corporation Code requiring all members of the Board to be elected
by the stockholders or members. Even when the members of the association may have formally
adopted the provision, their action would be of no avail because no provision of the by-laws can
be adopted if it is contrary to law. Hence, the school cannot claim a vested right to sit in the
board on the basis of "practice." Practice, no matter how long continued, cannot give rise to any
vested right if it is contrary to law. Even less tenable is the school's claim that its right is
"coterminous with the existence of the association."

Salafranca v. Philamlife Homeowners Asso. 300 SCRA 469

Fleischer v. Botica Nolasco

(1925) 47 Phil. 583

In view of all the foregoing, we are of the opinion, and so hold, that the decision of the lower
court is in accordance with law and should be and is hereby affirmed, with costs.

The only restraint imposed by the Corporation Law upon transfer of shares is found in section 35
of Act No. 1459, quoted above, as follows: "No transfer, however, shall be valid, except as
between the parties, until the transfer is entered and noted upon the books of the corporation so
as to show the names of the parties to the transaction, the date of the transfer, the number of the
certificate, and the number of shares transferred." This restriction is necessary in order that the
officers of the corporation may know who are the stockholders, which is essential in conducting
elections of officers, in calling meeting of stockholders, and for other purposes. but any
restriction of the nature of that imposed in the by-law now in question, is ultra vires, violative of
the property rights of shareholders, and in restraint of trade.

And moreover, the by-laws now in question cannot have any effect on the appellee. He had no
knowledge of such by-law when the shares were assigned to him. He obtained them in good faith
and for a valuable consideration. He was not a privy to the contract created by said by-law
between the shareholder Manuel Gonzalez and the Botica Nolasco, Inc. Said by-law cannot
operate to defeat his rights as a purchaser.

PMI Colleges v. NLRC

277 SCRA 462 (1997)

Neither the Court can concede that such contract would be invalid just because the signatory
thereon was not the Chairman of the Board which allegedly violated petitioner’s by-laws. Since
by-laws operate merely as internal rules among the stockholders, they cannot affect or prejudice
third persons who deal with the corporation, unless they have knowledge of the same." No proof
appears on record that private respondent ever knew anything about the provisions of said by-
laws.

Sawadjaan v. CA
459 SCRA 516 (2005)

The AIIBP was created by Rep. Act No. 6848. It has a main office where it conducts business,
has shareholders, corporate officers, a board of directors, assets, and personnel. It is, in fact, here
represented by the Office of the Government Corporate Counsel, “the principal law office of
government-owned corporations, one of which is respondent bank.” At the very least, by its
failure to submit its by-laws on time, the AIIBP may be considered a de facto corporation whose
right to exercise corporate powers may not be inquired into collaterally in any private suit to
which such corporations may be a party.

Moreover, a corporation which has failed to file its by-laws within the prescribed period does not
ipso facto lose its powers as such. The SEC Rules on Suspension/Revocation of the Certificate of
Registration of Corporations, details the procedures and remedies that may be availed of before
an order of revocation can be issued. There is no showing that such a procedure has been
initiated in this case.

SMC v. Mandaue Packing Products 467 SCRA 107 (2005)

Long v. Basa
G.R. 134963 - 64 (Sept. 27, 2001)

In the first place, the By-laws of the CHURCH, which the members have expressly adhered to,
does not require the Board of Directors to give prior notice to the erring or dissident members in
cases of expulsion. This is evident from the procedure for expulsion prescribed in Article VII
(paragraph 4) of the By-laws, which reads:
"4. If it is brought to the notice of the Board of Directors that any member has failed to
observe any regulations and By-laws of the Institution (CHURCH) or the conduct of any
member has been dishonorable or improper or otherwise injurious to the character and interest
of the Institution, the Board of Directors may b(y) resolution without assigning any reason
therefor expel such member from such Institution and he shall then forfeit his interest, rights and
privileges in the Institution." (Emphasis ours)

From the above-quoted By-law provision, the only requirements before a member can be
expelled or removed from the membership of the CHURCH are: (a) the Board of Directors has
been notified that a member has failed to observe any regulations and By-laws of the CHURCH,
or the conduct of any member has been dishonorable or improper or otherwise injurious to the
character and interest of the CHURCH, and (b) a resolution is passed by the Board expelling the
member concerned, without assigning any reason therefor.

It is thus clear that a member who commits any of the causes for expulsion enumerated in
paragraph 4 of Article VII may be expelled by the Board of Directors, through a resolution,
without giving that erring member any notice prior to his expulsion. The resolution need not
even state the reason for such action.

The CHURCH By-law provision on expulsion, as phrased, may sound unusual and objectionable
to petitioners as there is no requirement of prior notice to be given to an erring member before he
can be expelled. But that is how peculiar the nature of a Religious Corporation is vis-à-vis an
ordinary corporation organized for profit. It must be stressed that the basis of the relationship
between a religious corporation and its members is the latter’s absolute adherence to a common
religious or spiritual belief. Once this basis ceases, membership in the religious corporation must
also cease. Thus, generally, there is no room for dissension in a religious corporation. And
where, as here, any member of a religious corporation is expelled from the membership for
espousing doctrines and teachings contrary to that of his church, the established doctrine in this
jurisdiction is that such action from the church authorities is conclusive upon the civil courts.