Las resoluciones tomadas por los Consejos de Administración y Vigilancia serán

G.R. No. L-23893. October 29, 1968 FACTS:

Prior to 1959, Jose M. Villarama was an operator of a bus transportation, under the business name of Villa Rey Transit, pursuant to certificates of public convenience granted him by the Public Service Commission (PSC, for short) in Cases Nos. 44213 and 104651, which authorized him to operate a total of thirty-two (32) units on various routes or lines from Pangasinan to Manila, and vice-versa. On January 8, 1959, he sold the aforementioned two certificates of public convenience to the Pangasinan Transportation Company, Inc. (Pantranco), for P350,000.00 with the condition, among others, that the seller (Villarama) "shall not for a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer."

Barely three months thereafter, or on March 6, 1959, a corporation called Villa Rey Transit, Inc. was organized. In less than a month after its registration, it bought five certificates of public convenience, forty-nine buses, tools and equipment from one Valentin Fernando. Before the PSC could take final action on said application for approval of sale, however, the Sheriff of Manila, on July 7, 1959, levied on two of the five certificates of public convenience involved therein pursuant to a writ of execution issued by the Court of First Instance of Pangasinan in Civil Case No. 13798, in favor of Eusebio Ferrer, plaintiff, judgment creditor, against Valentin Fernando, defendant, judgment debtor. The Sheriff made and entered the levy in the records of the PSC. On July 16, 1959, a public sale was conducted by the Sheriff of the said two certificates of public convenience.

ISSUE:

Whether or not the doctrine of piercing the corporate veil is applicable.

RULING:

YES.

The doctrine that a corporation is a legal entity distinct and separate from the members and stockholders who compose it is recognized and respected in all cases which are within reason and the law. 29 When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals.

Upon the foregoing considerations, the Court so held that the preponderance of evidence have shown that the Villa Rey Transit, Inc. is an alter ego of Jose M.

Villarama, and that the restrictive clause in the contract entered into by the latter and Pantranco is also enforceable and binding against the said Corporation. For the rule is that a seller or promissor may not make use of a corporate entity as a means of evading the obligation of his covenant. Where the Corporation is substantially the alter ego of the covenantor to the restrictive agreement, it can be enjoined from competing with the covenantee.

98 | P a g e De Facto Corporation

C. ARNOLD HALL and BRADLEY P. HALL, petitioners, vs.

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., respondents.

G.R. No. L-2598. June 29, 1950 FACTS:

In 1947, the petitioners and the respondents signed and acknowledged in Leyte, the article of incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber business to carry on as general contractors, operators and managers, etc. Attached to the article was an affidavit of the treasurer stating that 23,428 shares of stock had been subscribed and fully paid with certain properties transferred to the corporation described in a list appended thereto.

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.

In 1947, the said articles of incorporation were filed in the office of the SEC for the issuance of the corresponding certificate of incorporation. Thereafter, pending action on the articles of incorporation by the SEC, the respondents filed before the Court of First Instance of Leyte a civil case, alleging 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 petitioners alleged that the court had no jurisdiction over the civil case 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.

ISSUES:

Whether or not the Far Eastern Lumber and Commercial Co., Inc. is a de facto corporation.

RULING:

NO.

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 not jurisdiction to take cognizance of said civil case.

There are least two reasons why this section does not govern the situation. (1) First, not having obtained the certificate of incorporation, the Far Eastern Lumber and Commercial Co. — even its stockholders — may not probably claim "in good faith" to be a corporation.

Under our statue it is to be noted that it is the issuance of a certificate of incorporation by the Director of the Bureau of Commerce and Industry (now SEC) 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. 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."

(2) 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.

99 | P a g e Corporation by Estoppel

INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES vs.

HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION G.R. No. 119002. October 19, 2000

FACTS:

Petitioner International Express Travel and Tour Services, Inc., through its managing director, wrote a letter to the Philippine Football Federation (Federation), through its president private respondent Henri Kahn, wherein the former offered its services as a travel agency to the latter, which was accepted. Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation which amounted to P449,654.83. For failure to pay the unpaid amount after demands, the petitioner filed a collection case against Henri Kahn in his personal capacity and as President of the Federation and impleaded the Federation as an alternative defendant.

Kahn denied liability and averred that it merely acted as the agent of the Federation and did not guaranty the payment of the purchased tickets. The trial court ruled against Kahn.

ISSUE:

Whether or not Kahn is personally liable.

RULING:

YES.

Kahn avers that he should not be made personally liable because it should be the Federation, as a corporation having juridical existence, which must be held liable.

He merely acted as an agent of the latter.

The Court was not persuaded. It ruled that under R.A. 3135, and the Department of Youth and Sports Development under P.D. 604, for a Federation to acquire juridical existence it is a requirement that the federation must be recognized by the accrediting organization, the Philippine Amateur Athletic Federation. And Kahn failed to prove that such requirement was complied with by the 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.1 As president of the Federation, Henri Kahn is presumed to have known about the corporate existence or non-existence of the Federation.

100 | P a g e LIM TONG LIM

vs.