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G. As to relationship of management and control A holding company is a company or firm that owns other companies' outstanding stock. The term usually refers to a company that does not produce goods or services itself; rather, its purpose is to own shares of other companies. Holding companies allow the reduction of risk for the owners and can allow the ownership and control of a number of different companies. Affiliate' A type of inter-company relationship in which one of the companies owns less than a majority of the other company's stock, or a type of inter-company relationship in which at least two different companies are subsidiaries of a larger company. A subsidiary, subsidiary company, daughter company, or sister company is a company that is completely or partly owned by another corporation that owns more than half of the subsidiary's stock, and which normally acting as a holding corporation which at [3][4] least partly or (when as) a parent corporation, wholly controls the activities and policies of the daughter corporation. The subsidiary can be a company, corporation, or limited liability company. In some cases it is a government or state-owned enterprise. The controlling [5] entity is called its parent company, parent, or holding company. H. Close Corp TITLE XII CLOSE CORPORATIONS Section 96. Definition and applicability of Title. - A close corporation, within the meaning of this Code, is one whose articles of incorporation provide that: (1) All the corporations issued stock of all classes, exclusive of treasury shares, shall be hel d of record by not more than a specified number of persons, not exceeding twenty (20); (2) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the meaning of this Code. Any corporation may be incorporated as a close corporation, except mining or oil companies, stock exchanges, banks, insurance companies, public utilities, educational institutions and corporations declared to be vested with public interest in accordance with the provisions of this Code. The provisions of this Title shall primarily govern close corporations: Provided, That the provisions of other Titles of this Code shall apply suppletorily except insofar as this Title otherwise provides. Section 97. Articles of incorporation. The articles of incorporation of a close corporation may provide: 1. For a classification of shares or rights and the qualifications for owning or holding the same and restrictions on their transfers as may be stated therein, subject to the provisions of the following section; 2. For a classification of directors into one or more classes, each of whom may be voted for and elected solely by a particular class of stock; and 3. For a greater quorum or voting requirements in meetings of stockholders or directors than those provided in this Code. The articles of incorporation of a close corporation may provide that the business of the corporation shall be managed by the stockholders of the corporation rather than by a board of directors. So long as this provision continues in effect: 1. No meeting of stockholders need be called to elect directors; 2. Unless the context clearly requires otherwise, the stockholders of the corporation shall be deemed to be directors for the purpose of applying the provisions of this Code; and 3. The stockholders of the corporation shall be subject to all liabilities of directors. The articles of incorporation may likewise provide that all officers or employees or that specified officers or employees shall be elected or appointed by the stockholders, instead of by the board of directors. Section 102. Pre-emptive right in close corporations. The pre-emptive right of stockholders in close corporations shall extend to all stock to be issued, including reissuance of treasury shares, whether for money, property or personal services, or in payment of corporate debts, unless the articles of incorporation provide otherwise. Section 103. Amendment of articles of incorporation. Any amendment to the articles of incorporation which seeks to delete or remove any provision required by this Title to be contained in the articles of incorporation or to reduce a quorum or voting requirement stated in said articles of incorporation shall not be valid or effective unless approved by the affirmative vote of at least two-thirds (2/3) of the
[1] [2]

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outstanding capital stock, whether with or without voting rights, or of such greater proportion of shares as may be specifically provided in the articles of incorporation for amending, deleting or removing any of the aforesaid provisions, at a meeting duly called for the purpose. Section 98. Validity of restrictions on transfer of shares. Restrictions on the right to transfer shares must appear in the articles of incorporation and in the by-laws as well as in the certificate of stock; otherwise, the same shall not be binding on any purchaser thereof in good faith. Said restrictions shall not be more onerous than granting the existing stockholders or the corporation the option to purchase the shares of the transferring stockholder with such reasonable terms, conditions or period stated therein. If upon the expiration of said period, the existing stockholders or the corporation fails to exercise the option to purchase, the transferring stockholder may sell his shares to any third person. Section 99. Effects of issuance or transfer of stock in breach of qualifying conditions. 1. If stock of a close corporation is issued or transferred to any person who is not entitled under any provision of the articles of incorporation to be a holder of record of its stock, and if the certificate for such stock conspicuously shows the qualifications of the persons entitled to be holders of record thereof, such person is conclusively presumed to have notice of the fact of his ineligibility to be a stockholder. 2. If the articles of incorporation of a close corporation states the number of persons, not exceeding twenty (20), who are entitled to be holders of record of its stock, and if the certificate for such stock conspicuously states such number, and if the issuance or transfer of stock to any person would cause the stock to be held by more than such number of persons, the person to whom such stock is issued or transferred is conclusively presumed to have notice of this fact. 3. If a stock certificate of any close corporation conspicuously shows a restriction on transfer of stock of the corporation, the transferee of the stock is conclusively presumed to have notice of the fact that he has acquired stock in violation of the restriction, if such acquisition violates the restriction. 4. Whenever any person to whom stock of a close corporation has been issued or transferred has, or is conclusively presumed under this section to have, notice either (a) that he is a person not eligible to be a holder of stock of the corporation, or (b) that transfer of stock to him would cause the stock of the corporation to be held by more than the number of persons permitted by its articles of incorporation to hold stock of the corporation, or (c) that the transfer of stock is in violation of a restriction on transfer of stock, the corporation may, at its option, refuse to register the transfer of stock in the name of the transferee. 5. The provisions of subsection (4) shall not be applicable if the transfer of stock, though contrary to subsections (1), (2) or (3), has been consented to by all the stockholders of the close corporation, or if the close corporation has amended its articles of incorporation in accordance with this Title. 6. The term transfer, as used in this section, is not limited to a transfer for value. 7. The provisions of this section shall not impair any right which the transferee may have to rescind the transfer or to recover under any applicable warranty, express or implied. Section 100. Agreements by stockholders. 1. Agreements by and among stockholders executed before the formation and organization of a close corporation, signed by all stockholders, shall survive the incorporation of such corporation and shall continue to be valid and binding between and among such stockholders, if such be their intent, to the extent that such agreements are not inconsistent with the articles of incorporation, irrespective of where the provisions of such agreements are contained, except those required by this Title to be embodied in said articles of incorporation. 2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide that in exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as determined in accordance with a procedure agreed upon by them. 3. No provision in any written agreement signed by the stockholders, relating to any phase of the corporate affairs, shall be invalidated as between the parties on the ground that its effect is to make them partners among themselves. 4. A written agreement among some or all of the stockholders in a close corporation shall not be invalidated on the ground that it so relates to the conduct of the business and affairs of the corporation as to restrict or interfere with the discretion or powers of the board of directors: Provided, That such agreement shall impose on the stockholders who are parties thereto the liabilities for managerial acts imposed by this Code on directors. 5. To the extent that the stockholders are actively engaged in the management or operation of the business and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to each other and among themselves. Said stockholders shall be personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance. Section 101. When board meeting is unnecessary or improperly held. - Unless the by-laws provide otherwise, any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if: 1. Before or after such action is taken, written consent thereto is signed by all the directors; or

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2. All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing; or 3. The directors are accustomed to take informal action with the express or implied acquiescence of all the stockholders; or 4. All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing. If a directors meeting is held without proper call or notice, an action tak en therein within the corporate powers is deemed ratified by a director who failed to attend, unless he promptly files his written objection with the secretary of the corporation after having knowledge thereof. Section 104. Deadlocks. Notwithstanding any contrary provision in the articles of incorporation or by-laws or agreement of stockholders of a close corporation, if the directors or stockholders are so divided respecting the management of the corpora tions business and affairs that the votes required for any corporate action cannot be obtained, with the consequence that the business and affairs of the corporation can no longer be conducted to the advantage of the stockholders generally, the Securities and Exchange Commission, upon written petition by any stockholder, shall have the power to arbitrate the dispute. In the exercise of such power, the Commission shall have authority to make such order as it deems appropriate, including an order: (1) cancelling or altering any provision contained in the articles of incorporation, by-laws, or any stockholders agreement; (2) cancelling, altering or enjoining any resolution or act of the corporation or its board of directors, stockholders, or officers; (3) directing or prohibiting any act of the corporation or its board of directors, stockholders, officers, or other persons party to the action; (4) requiring the purchase at their fair value of shares of any stockholder, either by the corporation regardless of the availability of unrestricted retained earnings in its books, or by the other stockholders; (5) appointing a provisional director; (6) dissolving the corporation; or (7) granting such other relief as the circumstances may warrant. A provisional director shall be an impartial person who is neither a stockholder nor a creditor of the corporation or of any subsidiary or affiliate of the corporation, and whose further qualifications, if any, may be determined by the Commission. A provisional director is not a receiver of the corporation and does not have the title and powers of a custodian or receiver. A provisional director shall have all the rights and powers of a duly elected director of the corporation, including the right to notice of and to vote at meetings of directors, until such time as he shall be removed by order of the Commission or by all the stockholders. His compensation shall be determined by agreement between him and the corporation subject to approval of the Commission, which may fix his compensation in the absence of agreement or in the event of disagreement between the provisional director and the corporation. Section 105. Withdrawal of stockholder or dissolution of corporation. In addition and without prejudice to other rights and remedies available to a stockholder under this Title, any stockholder of a close corporation may, for any reason, compel the said corporation to purchase his shares at their fair value, which shall not be less than their par or issued value, when the corporation has sufficient assets in its books to cover its debts and liabilities exclusive of capital stock: Provided, That any stockholder of a close corporation may, by written petition to the Securities and Exchange Commission, compel the dissolution of such corporation whenever any of acts of the directors, officers or those in control of the corporation is illegal, or fraudulent, or dishonest, or oppressive or unfairly prejudicial to the corporation or any stockholder, or whenever corporate assets are being misapplied or wasted. Organizing the corp (r) Promoter includes (1) any person who, acting alone or in conjunction with one or more other persons, directly or indirectly, takes initiative in founding and organizing the business or enterprise of an issuer; or (2) any person who, in connection with the founding and organizing of the business of an issuer, directly or indirectly, receives in consideration of services or property or both services or property ten (10%) per centum more of any class of securities of the issuer or ten (10%) per centum or more of the proceeds from the sale of any class of such securities. However, a person who receives such securities or proceeds either solely underwriting commissions or solely as consideration of property shall not be deemed a promoter within the meaning of this paragraph if such person does not otherwise take part in founding and organizing the enterprise. (2a) TITLE VII STOCKS AND STOCKHOLDERS Section 60. Subscription contract. 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. (n) Section 61. Pre-incorporation subscription. A subscription for shares of stock of a corporation still to be formed shall be irrevocable for a period of at least six (6) months from the date of subscription, unless all of the other subscribers consent to the revocation, or unless the incorporation of said corporation fails to materialize within said period or within a longer period as may be stipulated in the contract of subscription: Provided, That no pre-incorporation subscription may be revoked after the submission of the articles of incorporation to the Securities and Exchange Commission. (n) Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-43350 December 23, 1937

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CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-appellant, vs. TEODORO SANDIKO, defendant-appellee. Arsenio P. Dizon for appellant. Sumulong, Lavides and Sumulong for appellee. LAUREL, J.: This is an appeal from a judgment of the Court of First Instance of Manila absolving the defendant from the plaintiff's complaint. Manuel Tabora is the registered owner of four parcels of land situated in the barrio of Linao, town of Aparri, Province of Cagayan, as evidenced by transfer certificate of title No. 217 of the land records of Cagayan, a copy of which is in evidence as Exhibit 1. To guarantee the payment of a loan in the sum of P8,000, Manuel Tabora, on August 14, 1929, executed in favor of the Philippine National Bank a first mortgage on the four parcels of land above-mentioned. A second mortgage in favor of the same bank was in April of 1930 executed by Tabora over the same lands to guarantee the payment of another loan amounting to P7,000. A third mortgage on the same lands was executed on April 16, 1930 in favor of Severina Buzon to whom Tabora was indebted in the sum of P2,9000. These mortgages were registered and annotations thereof appear at the back of transfer certificate of title No. 217. On May 31, 1930, Tabora executed a public document entitled "Escritura de Transpaso de Propiedad Inmueble" (Exhibit A) by virtue of which the four parcels of land owned by him was sold to the plaintiff company, 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. The plaintiff company filed its article incorporation with the Bureau of Commerce and Industry on October 22, 1930 (Exhibit 2). A year later, on October 28, 1931, the board of directors of said company adopted a resolution (Exhibit G) authorizing its president, Jose Ventura, to sell the four parcels of lands in question to Teodoro Sandiko for P42,000. Exhibits B, C and D were thereafter made and executed. Exhibit B is a deed of sale executed before a notary public by the terms of which the plaintiff sold ceded and transferred to the defendant all its right, titles, and interest in and to the four parcels of land described in transfer certificate in turn obligated himself to shoulder the three mortgages hereinbefore referred to. Exhibit C is a promisory note for P25,300. drawn by the defendant in favor of the plaintiff, payable after one year from the date thereof. Exhibit D is a deed of mortgage executed before a notary public in accordance with which the four parcels of land were given a security for the payment of the promissory note, Exhibit C. All these three instrument were dated February 15, 1932. The defendant having failed to pay the sum stated in the promissory note, plaintiff, on January 25, 1934, brought this action in the Court of First Instance of Manila praying that judgment be rendered against the defendant for the sum of P25,300, with interest at legal rate from the date of the filing of the complaint, and the costs of the suits. After trial, the court below, on December 18, 1934, rendered judgment absolving the defendant, with costs against the plaintiff. Plaintiff presented a motion for new trial on January 14, 1935, which motion was denied by the trial court on January 19 of the same year. After due exception and notice, plaintiff has appealed to this court and makes an assignment of various errors. In dismissing the complaint against the defendant, the court below, reached the conclusion that Exhibit B is invalid because of vice in consent and repugnancy to law. While we do not agree with this conclusion, we have however voted to affirm the judgment appealed from the reasons which we shall presently state. The transfer made by Tabora to the Cagayan fishing Development Co., Inc., plaintiff herein, was affected on May 31, 1930 (Exhibit A) and the actual incorporation of said company was affected later on October 22, 1930 (Exhibit 2). 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 (sec. 13, pars. 5 and 9, and sec. 14, Act No. 1459). 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 (secs. 6 et seq., Act. No. 1459). Although there is a presumption that all the requirements of law have been complied with (sec. 334, par. 31 Code of Civil Procedure), in the case before us it can not be denied that the plaintiff was not yet incorporated when it entered into a contract of sale, Exhibit A. The contract itself referred to the plaintiff as "una sociedad en vias de incorporacion." It was not even a de facto corporation at the time. Not being in legal existence then, it did not possess juridical capacity to enter into the contract. Corporations are creatures of the law, and can only come into existence in the manner prescribed by law. As has already been stated, general law authorizing the formation of corporations are general offers to any persons who may bring themselves within their provisions; and if conditions precedent are prescribed in the statute, or certain acts are required to be done, they are terms of the offer, and must be complied with substantially before legal corporate existence can be acquired. (14 C. J., sec. 111, p. 118.) 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. (Gent vs. Manufacturers and Merchant's Mutual Insurance Company, 107 Ill., 652, 658.) Boiled down to its naked reality, the contract here (Exhibit A) 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

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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 (Fletcher Cyc. of Corps., permanent edition, 1931, vol. I, secs. 207 et seq.), 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.(Massachusetts rule, Abbott vs. Hapgood, 150 Mass., 248; 22 N. E. 907, 908; 5 L. R. A., 586; 15 Am. St. Rep., 193; citing English cases; Koppel vs. Massachusetts Brick Co., 192 Mass., 223; 78 N. E., 128; Holyoke Envelope Co., vs. U. S. Envelope Co., 182 Mass., 171; 65 N. E., 54.) 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, Exhibit 2, 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, Exhibit B, in behalf of the plaintiff. Even the Philippine National Bank, mortgagee of the four parcels of land, always treated Tabora as the owner of the same. (See Exhibits E and F.) Two civil suits (Nos. 1931 and 38641) were brought against Tabora in the Court of First Instance of Manila and in both cases a writ of attachment against the four parcels of land was issued. The Philippine National Bank threatened to foreclose its mortgages. Tabora approached the defendant Sandiko and succeeded in the making him sign Exhibits B, C, and D and in making him, among other things, assume the payment of Tabora's indebtedness to the Philippine National Bank. The promisory note, Exhibit C, was made payable to the plaintiff company so that it may not attached by Tabora's creditors, two of whom had obtained writs of attachment against the four parcels of land. If the plaintiff corporation 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 the defendant, Teodoro Sandiko. Some of the members of this court are also of the opinion that the transfer from Manuel Tabora to the Cagayan Fishing Development Company, Inc., which transfer is evidenced by Exhibit A, was subject to a condition precedent (condicion suspensiva), namely, the payment of the mortgage debt of said Tabora to the Philippine National Bank, and that this condition not having been complied with by the Cagayan Fishing Development Company, Inc., the transfer was ineffective. (Art. 1114, Civil Code; Wise & Co. vs. Kelly and Lim, 37 Phil., 696; Manresa, vol. 8, p. 141.) However, 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, we deem it unnecessary to discuss this point.lawphil.net The decision of the lower court is accordingly affirmed, with costs against the appellant. So Ordered. Villa-Real, Abad Santos, Imperial, Diaz and Concepcion, JJ., concur. Cagayan Fishing Development Co., Inc., vs. Sandiko, [G.R. No. L-43350 December 23, 1937] Post under case digests, Commercial Law at Thursday, February 23, 2012 Posted by Schizophrenic Mind Facts: Manuel Tabora is the registered owner of four parcels of land. To guarantee the payment of two loans, Manuel Tabora, executed in favor of PNB two mortgages over the four parcels of land between August, 1929, and April 1930. Later, a third mortgage on the same lands was executed also on April, 1930 in favor of Severina Buzon to whom Tabora was indebted. On May, 1930, Tabora executed a public document entitled "Escritura de Transpaso de Propiedad Inmueble" (Exhibit A) by virtue of which the four parcels of land owned by him was sold to theplaintiff company, said to under process of incorporation. Theplaintiff company filed its article incorporation with the Bureau of Commerce and Industry only on October, 1930 (Exhibit 2). A year later, the board of directors of said company adopted a resolution authorizing its president to sell the four parcels of lands in question to Teodoro Sandiko. Exhibits B, C and D were thereafter made and executed. Exhibit B is a deed of sale where the plaintiffsold ceded and transferred to the defendant all its right, titles, and interest in and to the four parcels of land. Exhibit C is a promissory note drawn by the defendant in favor of the plaintiff, payable after one year from the date thereof. Exhibit D is a deed of mortgage executed where the four parcels of land were given a security for the payment of the promissory note, Exhibit C. The defendant having failed to pay the sum stated in the promissory note, plaintiff, brought this action in the Court of First Instance of Manila praying that judgment be rendered against the defendant for the sum stated in the promissory note. After trial, the court rendered judgment absolving the defendant. Plaintiff presented a motion for new trial, which motion was denied by the trial court. After due exception and notice, plaintiff has appealed to this court and makes an assignment of various errors. Issue: Whether Exhibit B, the deed of sale executed in favor of Teodoro Sandiko, was valid. Held: No, it was not. The transfer made by Tabora to the Cagayan fishing Development Co., Inc., plaintiff herein, was affected on May 31, 1930 (Exhibit A) and the actual incorporation of said company was affected later on October 22, 1930 (Exhibit 2). 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. In the case before us it can not be denied that the plaintiff was not yet incorporated when it entered into a contract of sale, Exhibit A. Not being in legal existence then, it did not possess juridical capacity to enter into the contract.

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Boiled down to its naked reality, the contract here (Exhibit A) 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. 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. RIZAL LIGHT & ICE vs. THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC SERVICE COMMISSION September 28, 1968 / Zaldivar, J. Facts: (Note: this decision is a consolidation of 2 cases) Rizal Light & Ice Co. was granted by the Commission a certificate of public convenience and necessity for the installation, operation and maintenance of an electric light, heat and power service in the municipality of Morong, Rizal Commission required the petitioner to appear before it to show cause why it should not be penalized for violation of the conditions of its certificate of public convenience and the regulations of the Commission, and for failure to comply with the directives to raise its service voltage and maintain them within the limits prescribed in the Revised Order No. 1 of the Commission, and to acquire and install a kilowattmeter to indicate the load in kilowatts at any particular time of the generating unit The motion was set for hearing and Mr. Pedro S. Talavera, Chief, Industrial Division of the Commission, was authorized to conduct the hearing for the reception of the evidence of the parties For failure of the petitioner to appear at the hearing, Commission ordered the cancellation and revocation of petitioner's certificate of public convenience and necessity and the forfeiture of its franchise Petitioner moved for reconsideration of said order on the ground that its manager was not aware of said hearing Finding that the failure of the petitioner to appear at the hearing the sole basis of the revocation of petitioner's certificate was really due to the illness of its manager, the Commission set aside its order of revocation municipality formally asked the Commission to revoke petitioner's certificate of public convenience and to forfeit its franchise on the ground, among other things, that it failed to comply with the conditions of said certificate and franchise inspections had been made of petitioner's electric plant and installations When the case was called for hearing, petitioner failed to appear again so municipality was then allowed to present its documentary evidence, and thereafter the case was submitted for decision on the basis of the inspection reports, Commission found that the petitioner had failed to comply with the directives and had violated the conditions of its certificate of public convenience as well as the rules and regulations of the Commission ordered the cancellation and revocation of petitioner's certificate of public convenience and the forfeiture of its franchise petitioner moved for reconsideration of the decision but before said motion for reconsideration was filed, Morong Electric filed with the Commission an application for a certificate of public convenience and necessity for said service Petitioner opposed the application of Morong Electric

Issues: (only those relevant to our topic) (1) WON 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 is not allowed by law to hear the same -petitioner contends that while Mr. Pedro S. Talavera, who conducted the hearings of the case below, is a division chief, he is not a lawyer. As such, under Section 32 of Commonwealth Act No. 146, as amended, the Commission should not have delegated to him the authority to conduct the hearings for the reception of evidence of the parties (2) WON the cancellation of petitioner's certificate of public convenience was unwarranted because no sufficient evidence was adduced against the petitioner and that petitioner was not able to present evidence in its defense -petitioner contends that the evidence consisting of inspection reports upon which the Commission based its decision is insufficient and untrustworthy in that (1) the authors of said reports had not been put to test by way of cross-examination; (2) the reports constitute only one side of the picture as petitioner was not able to present evidence in its defense; (3) judicial notice was not taken of the testimony of Mr. Harry B. Bernardino, former mayor of respondent municipality, to the effect that the petitioner had improved its service before its electric power plant was burned which testimony contradicts the inspection reports; and (4) the Commission acted both as prosecutor and judge passing judgment over the very same evidence presented by it as prosecutor a situation "not conducive to the arrival at just and equitable decisions" Held: 1. YES BUT... Indeed, Mr. Talavera is not a lawyer. Under the second paragraph of Section 32 of Commonwealth Act No. 146, as amended, the Commission can only authorize a division chief to hear and investigate a case filed before it if he is a lawyer. However, the petitioner is raising this question for the first time in this appeal. The record discloses that petitioner never made any objection to the authority of Mr. Talavera to hear the case and to receive the evidence of the parties. On the contrary, petitioner had appeared and submitted evidence at the hearings conducted by Mr. Talavera, particularly the hearings relative to the motion for reconsideration of the order cancelling and revoking its certificate. Through counsel, petitioner had entered into agreements with Mr. Talavera, as hearing officer, and the counsel for respondent municipality, regarding procedure in order to abbreviate the proceedings. It is only after the decision in the case turned out to be adverse to it that petitioner questioned the proceedings held before Mr. Talavera. Objection to the delegation of authority to hear a case filed before the Commission and to receive the evidence in connection therewith is a procedural, not a jurisdictional point, and is waived by failure to interpose timely the objection and the case had been decided by the Commission. Since petitioner has never raised any objection to the authority of Mr. Talavera before the

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Commission, it should be deemed to have waived such procedural defect, and consonant with the precedents on the matter, petitioner's claim that the Commission acted without or in excess of jurisdiction in so authorizing Mr. Talavera should be dismissed. 2. NO. Settled is the rule that in reviewing the decision of the Public Service Commission this 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 this Court is to determine whether or not there is evidence before the Commission upon which its decision might reasonably be based. This Court will not substitute its discretion for that of the Commission on questions of fact and will not interfere in the latter's decision unless it clearly appears that there is no evidence to support it. Inasmuch as the only function of this Court in reviewing the decision of the Commission is to determine whether there is sufficient evidence before the Commission upon which its decision can reasonably be based, as it is not required to examine the proof de novo, the evidence that should be made the basis of this Court's determination should be only those presented in this case before the Commission. The Commission based its decision on the inspection reports submitted by its engineers who conducted the inspection of petitioner's electric service upon orders of the Commission. Said inspection reports specify in detail the deficiencies incurred, and violations committed, by the petitioner resulting in the inadequacy of its service. SC considers that said reports are sufficient to serve reasonably as bases of the decision in question. It should be emphasized, in this connection that said reports, are not mere documentary proofs presented for the consideration of the Commission, but are the results of the Commission's own observations and investigations which it can rightfully take into consideration, particularly in this case where the petitioner had not presented any evidence in its defense, and speaking of petitioner's failure to present evidence, as well as its failure to cross-examine the authors of the inspection reports, petitioner should not complain because it had waived not only its right to cross-examine but also its right to present evidence.

EN BANC G.R. No. L-20993 September 28, 1968

RIZAL LIGHT & ICE CO., INC., petitioner, vs. THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC SERVICE COMMISSION, respondents. ---------------------------G.R. No. L-21221 September 28, 1968

RIZAL LIGHT & ICE CO., INC., petitioner, vs. THE PUBLIC SERVICE COMMISSION and MORONG ELECTRIC CO., INC., respondents. Amado A. Amador, Jr. for petitioner. Atilano C. Bautista and Pompeyo F. Olivas for respondents.

ZALDIVAR, J.: These two cases, being interrelated, are decided together. Case G.R. No. L-20993 is a petition of the Rizal Light & Ice Co., Inc. to review and set aside the orders of respondent Public Service 1 Commission, dated August 20, 1962, and February 15, 1963, in PSC Case No. 39716, cancelling and revoking the certificate of public convenience and necessity and forfeiting the franchise of said petitioner. In the same petition, the petitioner prayed for the issuance of a writ of preliminary injunction ex parte suspending the effectivity of said orders and/or enjoining respondents Commission and/or Municipality of Morong, Rizal, from enforcing in any way the cancellation and revocation of petitioner's franchise and certificate of public convenience during the pendency of this appeal. By resolution of March 12, 1963, this Court denied the petition for injunction, for lack of merit. Case G. R. L-21221 is likewise a petition of the Rizal Light & Ice Co., Inc. to review and set aside the decision of the Commission dated March 13, 1963 in PSC Case No. 62-5143 granting a certificate of public convenience and necessity to respondent Morong Electric Co., 2 Inc. to operate an electric light, heat and power service in the municipality of Morong, Rizal. In the petition Rizal Light & Ice Co., Inc. also prayed for the issuance of a writ of preliminary injunction ex parte suspending the effectivity of said decision. Per resolution of this Court, dated May 6, 1963, said petition for injunction was denied. The facts, as they appear in the records of both cases, are as follows: Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation with business address at Morong, Rizal. On August 15, 1949, it was granted by the Commission a certificate of public convenience and necessity for the installation, operation and maintenance of an electric light, heat and power service in the municipality of Morong, Rizal. In an order dated December 19, 1956, the Commission required the petitioner to appear before it on February 18, 1957 to show cause why it should not be penalized for violation of the conditions of its certificate of public convenience and the regulations of the Commission, and for failure to comply with the directives to raise its service voltage and maintain them within the limits prescribed in the

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Revised Order No. 1 of the Commission, and to acquire and install a kilowattmeter to indcate the load in kilowatts at any particular time of 3 the generating unit. For failure of the petitioner to appear at the hearing on February 18, 1957, the Commission ordered the cancellation and revocation of petitioner's certificate of public convenience and necessity and the forfeiture of its franchise. Petitioner moved for reconsideration of said order on the ground that its manager, Juan D. Francisco, was not aware of said hearing. Respondent municipality opposed the motion alleging that petitioner has not rendered efficient and satisfactory service and has not complied with the requirements of the Commission for the improvement of its service. The motion was set for hearing and Mr. Pedro S. Talavera, Chief, Industrial Division of the Commission, 4 was authorized to conduct the hearing for the reception of the evidence of the parties. Finding that the failure of the petitioner to appear at the hearing set for February 18, 1957 the sole basis of the revocation of petitioner's certificate was really due to the illness of its manager, Juan D. Francisco, the Commission set aside its order of revocation. Respondent municipality moved for reconsideration of this order of reinstatement of the certificate, but the motion was denied. In a petition dated June 25, 1958, filed in the same case, respondent municipality formally asked the Commission to revoke petitioner's certificate of public convenience and to forfeit its franchise on the ground, among other things, that it failed to comply with the conditions of said certificate and franchise. Said petition was set for hearing jointly with the order to show cause. The hearings had been postponed several times. Meanwhile, inspections had been made of petitioner's electric plant and installations by the engineers of the Commission, as follows: April 15, 1958 by Engineer Antonio M. Alli; September 18, 1959, July 12-13, 1960, and June 21-24, 1961, by Engineer Meliton S. Martinez. The inspection on June 21-24, 1961 was made upon the request of the petitioner who manifested during the hearing on December 15, 1960 that improvements have been made on its service since the inspection on July 12-13, 1960, and that, on the basis of the inspection report to be submitted, it would agree to the submission of the case for decision without further hearing. When the case was called for hearing on July 5, 1961, petitioner failed to appear. Respondent municipality was then allowed to present its documentary evidence, and thereafter the case was submitted for decision. On July 7, 1961, petitioner filed a motion to reopen the case upon the ground that it had not been furnished with a copy of the report of the June 21-24, 1961 inspection for it to reply as previously agreed. In an order dated August 25, 1961, petitioner was granted a period of ten (10) days within which to submit its written reply to said inspection report, on condition that should it fail to do so within the said period the case would be considered submitted for decision. Petitioner failed to file the reply. In consonance with the order of August 25, 1961, therefore, the Commission proceeded to decide the case. On July 29, 1962 petitioner's electric plant was burned. In its decision, dated August 20, 1962, the Commission, on the basis of the inspection reports of its aforenamed engineers, found that the petitioner had failed to comply with the directives contained in its letters dated May 21, 1954 and September 4, 1954, and had violated the conditions of its certificate of public convenience as well as the rules and regulations of the Commission. The Commission concluded that the petitioner "cannot render the efficient, adequate and satisfactory electric service required by its certificate and that it is against public interest to allow it to continue its operation." Accordingly, it ordered the cancellation and revocation of petitioner's certificate of public convenience and the forfeiture of its franchise. On September 18, 1962, petitioner moved for reconsideration of the decision, alleging that before its electric plant was burned on July 29, 1962, its service was greatly improved and that it had still existing investment which the Commission should protect. But eight days before said motion for reconsideration was filed, or on September 10, 1962, Morong Electric, having been granted a municipal franchise on May 6, 1962 by respondent municipality to install, operate and maintain an electric heat, light and power service in said municipality approved by the Provincial Board of Rizal on August 31, 1962 filed with the Commission an application for a certificate of public convenience and necessity for said service. Said application was entitled "Morong Electric Co., Inc., Applicant", and docketed as Case No. 62-5143. Petitioner opposed in writing the application of Morong Electric, alleging among other things, 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 said application would not promote public convenience, but would only cause ruinous and wasteful competition. Although the opposition is dated October 6, 1962, it was actually received by the Commission on November 8, 1962, or twenty four days after the order of general default was issued in open court when the application was first called for hearing on October 15, 1962. On November 12, 1962, however, the petitioner filed a motion to lift said order of default. But before said motion could be resolved, petitioner filed another motion, dated January 4, 1963, this time asking for the dismissal of the application upon the ground that applicant Morong Electric had no legal personality when it filed its application on September 10, 1962, because its certificate of incorporation was issued by the Securities and Exchange Commission only on October 17, 1962. This motion to dismiss was denied by the Commission in a formal order issued on January 17, 1963 on the premise that applicant Morong Electric was a de facto corporation. Consequently, the case was heard on the merits and both parties presented their respective evidence. On the basis of the evidence adduced, the Commission, in its decision dated March 13, 1963, found that there was an absence of electric service in the municipality of Morong and that applicant Morong Electric, a Filipinoowned corporation duly organized and existing under the laws of the Philippines, has the financial capacity to maintain said service. These circumstances, considered together with the denial of the motion for reconsideration filed by petitioner in Case No. 39715 on February, 15, 1963, such that as far as the Commission was concerned the certificate of the petitioner was already declared revoked and cancelled, the Commission approved the application of Morong Electric and ordered the issuance in its favor of the corresponding certificate of public convenience and necessity.1awphl.nt On March 8, 1963, petitioner filed with this Court a petition to review the decision in Case No. 39715 (now G. R. No. L-20993). Then on April 26, 1963, petitioner also filed a petition to review the decision in Case No. 62-5143 (now G. R. No. L-21221).

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In questioning the decision of the Commission in Case No. 39715, petitioner contends: (1) that 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 is not allowed by law to hear the same; (2) that the cancellation of petitioner's certificate of public convenience was unwarranted because no sufficient evidence was adduced against the petitioner and that petitioner was not able to present evidence in its defense; (3) that the Commission failed to give protection to petitioner's investment; and (4) that the Commission erred in imposing the extreme penalty of revocation of the certificate. In questioning the decision in Case No. 62-5143, petitioner contends: (1) that the Commission erred in denying petitioner's motion to dismiss and proceeding with the hearing of the application of the Morong Electric; (2) that 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) that the Commission erred when it made findings of facts that are not supported by the evidence adduced by the parties at the trial; and (4) that the Commission erred when it did not give to petitioner protection to its investment a reiteration of the third assignment of error in the other case.1awphl.nt We shall now discuss the appeals in these two cases separately. G.R. No. L-20993 1. Under the first assignment of error, petitioner contends that while Mr. Pedro S. Talavera, who conducted the hearings of the case below, is a division chief, he is not a lawyer. As such, under Section 32 of Commonwealth Act No. 146, as amended, the Commission should not have delegated to him the authority to conduct the hearings for the reception of evidence of the parties. We find that, really, Mr. Talavera is not a lawyer. Under the second paragraph of Section 32 of Commonwealth Act No. 146, as 6 amended, the Commission can only authorize a division chief to hear and investigate a case filed before it if he is a lawyer. However, the petitioner is raising this question for the first time in this appeal. The record discloses that petitioner never made any objection to the authority of Mr. Talavera to hear the case and to receive the evidence of the parties. On the contrary, we find that petitioner had appeared and submitted evidence at the hearings conducted by Mr. Talavera, particularly the hearings relative to the motion for reconsideration of the order of February 18, 1957 cancelling and revoking its certificate. We also find that, through counsel, petitioner had entered into agreements with Mr. Talavera, as hearing officer, and the counsel for respondent municipality, regarding procedure in order to abbreviate 7 the proceedings. It is only after the decision in the case turned out to be adverse to it that petitioner questioned the proceedings held before Mr. Talavera. This Court in several cases has ruled that objection to the delegation of authority to hear a case filed before the Commission and to receive the evidence in connection therewith is a procedural, not a jurisdictional point, and is waived by failure to interpose timely the 8 objection and the case had been decided by the Commission. Since petitioner has never raised any objection to the authority of Mr. Talavera before the Commission, it should be deemed to have waived such procedural defect, and consonant with the precedents on the matter, petitioner's claim that the Commission acted without or in excess of jurisdiction in so authorizing Mr. Talavera should be 9 dismissed. 2. Anent the second assigned error, the gist of petitioner's contention is that the evidence consisting of inspection reports upon which the Commission based its decision is insufficient and untrustworthy in that (1) the authors of said reports had not been put to test by way of cross-examination; (2) the reports constitute only one side of the picture as petitioner was not able to present evidence in its defense; (3) judicial notice was not taken of the testimony of Mr. Harry B. Bernardino, former mayor of respondent municipality, in PSC Case No. 625143 (the other case, G. R. No. L-21221) to the effect that the petitioner had improved its service before its electric power plant was burned on July 29, 1962 which testimony contradicts the inspection reports; and (4) the Commission acted both as prosecutor and judge passing judgment over the very same evidence presented by it as prosecutor a situation "not conducive to the arrival at just and equitable decisions." Settled is the rule that in reviewing the decision of the Public Service Commission this 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 this Court is to determine whether or not there is evidence before the Commission upon which its decision might reasonably be based. This Court will not substitute its discretion for that of the Commission on questions of fact and will not interfere in the latter's decision unless it clearly 10 appears that there is no evidence to support it. Inasmuch as the only function of this Court in reviewing the decision of the Commission is to determine whether there is sufficient evidence before the Commission upon which its decision can reasonably be based, as it is not required to examine the proof de novo, the evidence that should be made the basis of this Court's determination should be only those presented in this case before the Commission. What then was the evidence presented before the Commission and made the basis of its decision subject of the present appeal? As stated earlier, the Commission based its decision on the inspection reports submitted by its 11 engineers who conducted the inspection of petitioner's electric service upon orders of the Commission. Said inspection reports specify in detail the deficiencies incurred, and violations committed, by the petitioner resulting in the inadequacy of its service. We consider that said reports are sufficient to serve reasonably as bases of the decision in question. It should be emphasized, in this connection that said reports, are not mere documentary proofs presented for the consideration of the Commission, but are the results of the Commission's own 12 observations and investigations which it can rightfully take into consideration, particularly in this case where the petitioner had not presented any evidence in its defense, and speaking of petitioner's failure to present evidence, as well as its failure to cross-examine the authors of the inspection reports, petitioner should not complain because it had waived not only its right to cross-examine but also its right to present evidence. Quoted hereunder are the pertinent portions of the transcripts of the proceedings where the petitioner, through counsel, manifested in clear language said waiver and its decision to abide by the last inspection report of Engineer Martinez: Proceedings of December 15, 1960 COMMISSION:
5

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It appears at the last hearing of this case on September 23, 1960, that an engineer of this Commission has been ordered to make an inspection of all electric services in the province of Rizal and on that date the engineer of this Commission is still undertaking that inspection and it appears that the said engineer had actually made that inspection on July 12 and 13, 1960. The engineer has submitted his report on November 18, 1960 which is attached to the records of this case. ATTY. LUQUE (Councel for Petitioner): ... (W)e respectfully state that while the report is, as I see it attached to the records, clear and very thorough, it was made sometime July of this year and I understand from the respondent that there is some improvement since this report was made ... we respectfully request that an up-to-date inspection be made ... . An inspector of this Commission can be sent to the plant and considering that the engineer of this Commission, Engineer Meliton Martinez, is very acquainted to the points involved we pray that his report will be used by us for the reason that he is a technical man and he knows well as he has done a good job and I think our proposition would expedite the matter. We sincerely believe that the inspection report will be the best evidence to decide this matter. xxx ATTY. LUQUE: ... This is a very important matter and to show the good faith of respondent in this case we will not even cross-examine the engineer when he makes a new report. We will agree to the findings and, your honor please, considering as we have manifested before that Engineer Martinez is an experienced engineer of this Commission and the points reported by Engineer Martinez on the situation of the plant now will prevent the necessity of having a hearing, of us bringing new evidence and complainant bringing new evidence. ... . xxx COMMISSION (to Atty. Luque): Q Does the Commission understand from the counsel for applicant that if the motion is granted he will submit this order to show cause for decision without any further hearing and the decision will be based on the report of the engineer of this Commission? A We respectfully reply in this manner that we be allowed or be given an opportunity just to read the report and 99%, we will agree that the report will be the basis of that decision. We just want to find out the contents of the report, however, we request that we be furnished with a copy of the report before the hearing so that we will just make a manifestation that we will agree. COMMISSION (to Atty. Luque): Q In order to prevent the delay of the disposition of this case the Commission will allow counsel for the applicant to submit his written reply to the report that the engineer of this Commission. Will he submit this case without further hearing upon the receipt of that written reply? A Yes, your honor. xxx xxx xxx xxx

Proceedings of August 25, 1961 ATTY. LUQUE (Counsel for petitioner): In order to avoid any delay in the consideration of this case we are respectfully move (sic) that instead of our witnesses testifying under oath that we will submit a written reply under oath together with the memorandum within fifteen (15) days and we will furnish a copy and upon our submission of said written reply under oath and memorandum we consider this case submitted. This suggestion is to abbreviate the necessity of presenting witnesses here which may prolong the resolution of this case. ATTY. OLIVAS (Counsel for respondent municipality): I object on the ground that there is no resolution by this Commission on the action to reopen the case and second this case has been closed. ATTY. LUQUE: With regard to the testimony on the ground for opposition we respectfully submit to this Commission our motion to submit a written reply together with a memorandum. Also as stated to expedite the case and to avoid further hearing we will just submit our written reply. According to our records we are furnished with a copy of the report of July 17, 1961. We submit your honor. xxx COMMISSION: xxx xxx

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To give applicant a chance to have a day in court the Commission grants the request of applicant that it be given 10 days within which to submit a written reply on the report of the engineer of the Commission who inspected the electric service, in the municipality of Morong, Rizal, and after the submission of the said written reply within 10 days from today this case will be considered submitted for decision. The above-quoted manifestation of counsel for the petitioner, specifically the statement referring to the inspection report of Engineer Martinez as the "best evidence to decide this matter," can serve as an argument against petitioner's claim that the Commision should have taken into consideration the testimony of Mr. Bernardino. But the primary reasons why the Commission could not have taken judicial cognizance of said testimony are: first, it is not a proper subject of judicial notice, as it is not a "known" fact that is, well established and 13 authoritatively settled, without qualification and contention; second, it was given in a subsequent and distinct case after the petitioner's 14 motion for reconsideration was heard by the Commission en banc and submitted for decision, and third, it was not brought to the 15 attention of the Commission in this case through an appropriate pleading. Regarding the contention of petitioner that the Commission had acted both as prosecutor and judge, it should be considered that there are two matters that had to be decided in this case, namely, the order to show cause dated December 19, 1956, and the petition or complaint by respondent municipality dated June 25, 1958. Both matters were heard jointly, and the record shows that respondent municipality had been allowed to present its evidence to substantiate its complaint. It can not be said, therefore, that in this case the Commission had acted as prosecutor and judge. But even assuming, for the sake of argument, that there was a commingling of the prosecuting and investigating functions, this exercise of dual function is authorized by Section 17(a) of Commonwealth Act No. 146, as amended, under which the Commission has power "to investigate, upon its own initiative or upon complaint in writing, any matter concerning any public service as regards matters under its jurisdiction; to, require any public service to furnish safe, adequate, and proper service as the public interest may require and warrant; to enforce compliance with any standard, rule, regulation, order or other requirement of this Act or of the Commission ... ." Thus, in the case of Collector of Internal Revenue vs. Estate of F. P. Buan, L-11438, July 31, 1958, this Court held that the power of the Commission to cancel and revoke a certificate of public convenience and necessity may be exercised by it even without a formal charge filed by any interested party, with the only limitation that the holder of the certificate should be given his day in court. It may not be amiss to add that when prosecuting and investigating duties are delegated by statute to an administrative body, as in the case of the Public Service Commission, said body may take steps it believes appropriate for the proper exercise of said duties, particularly in the manner of informing itself whether there is probable violation of the law and/or its rules and regulations. It may initiate an investigation, file a complaint, and then try the charge as preferred. So long as the respondent is given a day in court, there can be no denial of due process, and objections to said procedure cannot be sustained. 3. In its third assignment of error, petitioner invokes the "protection-of-investment rule" enunciated by this Court in Batangas 16 Transportation Co. vs. Orlanes in this wise: The Government having taken over the control and supervision of all public utilities, so long as an operator under a prior license complies with the terms and conditions of his license and reasonable rules and regulations for its operation and meets the reasonable demands of the public, it is the duty of the Commission to protect rather than to destroy his investment by the granting of the second license to another person for the same thing over the same route of travel. The granting of such a license does not serve its convenience or promote the interests of the public. The above-quoted rule, however, is not absolute, for nobody has exclusive right to secure a franchise or a certificate of public 17 convenience. Where, as 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 had violated the important conditions of its certificate as well as the directives and the rules and regulations of the Commission, the rule cannot apply. To apply that rule unqualifiedly is to encourage violation or disregard of the terms and conditions of the certificate and the Commission's directives and regulations, and would close the door to other applicants who could establish, operate and provide adequate, efficient and satisfactory service for the benefit and convenience of the inhabitants. It should be emphasized that the paramount consideration should always be the public interest and public convenience. The duty of the Commission to protect investment of a public utility operator refers only to operators of good standing those who comply with the laws, rules and regulations and not to operators who are unconcerned with 18 the public interest and whose investments have failed or deteriorated because of their own fault. 4. The last assignment of error assails the propriety of the penalty imposed by the Commission on the petitioner that is, the revocation of the certificate and the forfeiture of the franchise. Petitioner contends that the imposition of a fine would have been sufficient, as had been done by the Commission in cases of a similar nature. It should be observed that Section 16(n) of Commonwealth Act No. 146, as amended, confers upon the Commission ample power and discretion to order the cancellation and revocation of any certificate of public convenience issued to an operator who has violated, or has willfully and contumaciously refused to comply with, any order, rule or regulation of the Commission or any provision of law. What matters is that there is evidence to support the action of the Commission. In the instant case, as shown by the evidence, the contumacious refusal of the petitioner since 1954 to comply with the directives, rules and regulations of the Commission, its violation of the conditions of its certificate and its 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. A grant of a certificate of public convenience confers no property rights but is a mere license or privilege, and such privilege is forfeited when the grantee fails to comply with his commitments behind which lies the paramount interest of the public, for public necessity cannot be made to wait, nor sacrificed for private convenience. (Collector of Internal Revenue v. Estate of F. P. Buan, et al., L-11438 and Santiago Sambrano, et al. v. PSC, et al., L-11439 & L-11542-46, July 31, 1958)

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(T)he Public Service Commission, ... has the power to specify and define the terms and conditions upon which the public utility shall be operated, and to make reasonable rules and regulations for its operation and the compensation which the utility shall receive for its services to the public, and for any failure to comply with such rules and regulations or the violation of any of the terms and conditions for which the license was granted, the Commission has ample power to enforce the provisions of the license or even to revoke it, for any failure or neglect to comply with any of its terms and provisions. (Batangas Trans. Co. v. Orlanes, 52 Phil. 455, 460; emphasis supplied) Presumably, the petitioner has in mind Section 21 of Commonwealth Act No. 146, as amended, which provides that a public utility operator violating or failing to comply with the terms and conditions of any certificate, or any orders, decisions or regulations of the Commission, shall be subject to a fine and that the Commission is authorized and empowered to impose such fine, after due notice and hearing. It should be noted, however, that the last sentence of said section states that the remedy provided therein "shall not be a bar to, or affect any other remedy provided in this Act but shall be cumulative and additional to such remedy or remedies." In other words, the imposition of a fine may only be one of the remedies which the Commission may resort to, in its discretion. But that remedy is not exclusive of, or has preference over, the other remedies. And this Court will not substitute its discretion for that of the Commission, as long as there is evidence to support the exercise of that discretion by the Commission. G. R. No. L-21221 Coming now to the other case, let it be stated at the outset that before any certificate may be granted, authorizing the operation of a public service, three requisites must be complied with, namely: (1) the applicant must be a citizen of the Philippines or of the United States, or a corporation or co-partnership, association or joint-stock company constituted and organized under the laws of the Philippines, sixty 19 per centum at least of the stock or paid-up capital of which belongs entirely to citizens of the Philippines or of the United States; (2) the 20 applicant must be financially capable of undertaking the proposed service and meeting the responsibilities incident to its operation; and (3) the applicant must prove that the operation of the public service proposed and the authorization to do business will promote the public 21 interest in a proper and suitable manner. As stated earlier, in the decision appealed from, the Commission found that Morong Electric is a corporation duly organized and existing under the laws of the Philippines, the stockholders of which are Filipino citizens, that it is financially capable of operating an electric light, heat and power service, and that at the time the decision was rendered there was absence of electric service in Morong, Rizal. While 22 the petitioner does not dispute the need of an electric service in Morong, Rizal, it claims, in effect, that Morong Electric should not have been granted the certificate of public convenience and necessity because (1) it did not have a corporate personality at the time it was granted a franchise and when it applied for said certificate; (2) it is not financially capable of undertaking an electric service, and (3) petitioner was rendering efficient service before its electric plant was burned, and therefore, being a prior operator its investment should be protected and no new party should be granted a franchise and certificate of public convenience and necessity to operate an electric service in the same locality. 1. The bulk of petitioner's arguments assailing the personality of Morong Electric dwells on the proposition that since a franchise is a 23 contract, at least two competent parties are necessary to the execution thereof, and parties are not competent except when they are in being. Hence, it is contended that until a corporation has come into being, in this jurisdiction, by the issuance of a certificate of incorporation by the Securities and Exchange Commission (SEC) it cannot enter into any contract as a corporation. The certificate of incorporation of the Morong Electric was issued by the SEC on October 17, 1962, so only from that date, not before, did it acquire juridical personality and legal existence. Petitioner concludes that the franchise granted to Morong Electric on May 6, 1962 when it was not yet in esse is null and void and cannot be the subject of the Commission's consideration. On the other hand, Morong Electric argues, and to which argument the Commission agrees, that it was a de factocorporation 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. Not having been incapacitated, Morong Electric maintains that the franchise granted to it is valid and the approval or disapproval thereof can be properly determined by the Commission. Petitioner's contention that Morong Electric did not yet have a legal personality on May 6, 1962 when a municipal franchise was granted to it is correct. The juridical personality and legal existence of Morong Electric began only on October 17, 1962 when its certificate 24 of incorporation was issued by the SEC. Before that date, or pending the issuance of said certificate of incorporation, the incorporators 25 cannot be considered as de factocorporation. But the fact that Morong Electric had no corporate existence on the day the franchise was granted in its name does not render the franchise invalid, because later Morong Electric obtained its certificate of incorporation and then accepted the franchise in accordance with the terms and conditions thereof. This view is sustained by eminent American authorities. Thus, McQuiuin says: The fact that a company is not completely incorporated at the time the grant is made to it by a municipality to use the streets does not, in most jurisdictions, affect the validity of the grant. But such grant cannot take effect until the corporation is organized. And in Illinois it has been decided that the ordinance granting the franchise may be presented before the corporation grantee is fully organized, where the organization is completed before the passage and acceptance. (McQuillin, Municipal Corporations, 3rd Ed., Vol. 12, Chap. 34, Sec. 34.21) Fletcher says: While a franchise cannot take effect until the grantee corporation is organized, the franchise may, nevertheless, be applied for before the company is fully organized. A grant of a street franchise is valid although the corporation is not created until afterwards. (Fletcher, Cyclopedia Corp. Permanent Edition, Rev. Vol. 6-A, Sec. 2881) And Thompson gives the reason for the rule:

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(I)n the matter of the secondary franchise the authorities are numerous in support of the proposition that an ordinance granting a privilege to a corporation is not void because the beneficiary of the ordinance is not fully organized at the time of the introduction of the ordinance. It is enough that organization is complete prior to the passage and acceptance of the ordinance. The reason is that a privilege of this character is a mere license to the corporation until it accepts the grant and complies with its 26 terms and conditions. (Thompson on Corporations, Vol. 4, 3rd Ed., Sec. 2929) The incorporation of Morong Electric on October 17, 1962 and its acceptance of the franchise as shown by its action in prosecuting the application filed with the Commission for the approval of said franchise, not only perfected a contract between the respondent municipality and Morong Electric but also cured the deficiency pointed out by the petitioner in the application of Morong EIectric. Thus, the Commission did not err in denying petitioner's motion to dismiss said application and in proceeding to hear the same. The efficacy of the franchise, however, arose only upon its approval by the Commission on March 13, 1963. The reason is that Under Act No. 667, as amended by Act No. 1022, a municipal council has the power to grant electric franchises, subject to the approval of the provincial board and the President. However, under Section 16(b) of Commonwealth Act No. 146, as amended, the Public Service Commission is empowered "to approve, subject to constitutional limitations any franchise or privilege granted under the provisions of Act No. 667, as amended by Act No. 1022, 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. (Almendras vs. Ramos, 90 Phil. 231) . The conclusion herein reached regarding the validity of the franchise granted to Morong Electric is not incompatible with the holding 27 of this Court in Cagayan Fishing Development Co., Inc. vs. Teodoro Sandiko upon which the petitioner leans heavily in support of its position. In said case this Court held 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. It should be pointed out, however, that this Court did not say in that case that the rule is absolute or that under no circumstances may the acts of promoters of a corporation be ratified or accepted by the corporation if and when subsequently organized. Of course, there are exceptions. It will be noted that American courts generally hold that a contract made by the promoters of a corporation on its behalf may be adopted, accepted or ratified by the corporation when 28 organized. 2. The validity of the franchise and the corporate personality of Morong Electric to accept the same having been shown, the next question to be resolved is whether said company has the financial qualification to operate an electric light, heat and power service. Petitioner challenges the financial capability of Morong Electric, by pointing out the inconsistencies in the testimony of Mr. Jose P. Ingal, president of said company, regarding its assets and the amount of its initial investment for the electric plant. In this connection it should be stated that on the basis of the evidence presented on the matter, 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, in a number of cases, this Court has said it will not disturb unless patently unsupported by evidence. An examination of the record of this case readily shows that the testimony of Mr. Ingal and the documents he presented to establish the financial capability of Morong Electric provide reasonable grounds for the above finding of the Commission. It is now a very well-settled rule in this jurisdiction that the findings and conclusions of fact made by the Public Service Commission, after weighing the evidence adduced by the parties in a public service case, will not be disturbed by the Supreme Court unless those findings and conclusions appear not to be reasonably supported by evidence. (La Mallorca and Pampanga Bus Co. vs. Mercado, L-19120, November 29, 1965) For purposes of appeal, what is decisive is that said testimonial evidence provides reasonable support for the Public Service Commission's findings of financial capacity on the part of applicants, rendering such findings beyond our power to disturb. (Del Pilar Transit vs. Silva, L-21547, July 15, 1966) It may be worthwhile to mention in this connection that per inspection report dated January 20, 1964 of Mr. Meliton Martinez of the Commission, who inspected the electric service of Morong on January 15-16, 1964, Morong Electric "is serving electric service to the entire area covered by its approved plan and has constructed its line in accordance with the plans and specifications approved by the Commission." By reason thereof, it was recommended that the requests of Morong Electric (1) for the withdrawal of its deposit in the amount of P1,000.00 with the Treasurer of the Philippines, and (2) for the approval of Resolution No. 160 of the Municipal Council of Morong, Rizal, exempting the operator from making the additional P9,000.00 deposit mentioned in its petition, dated September 16, 1963, be granted. This report removes any doubt as to the financial capability of Morong Electric to operate and maintain an electric light, heat and power service. 3. With the financial qualification of Morong Electric beyond doubt, the remaining question to be resolved is whether, or not, the findings of fact of the Commission regarding petitioner's service are supported by evidence. It is the contention of the petitioner that the Commission made some findings of fact prejudicial to its position but which do not find support from the evidence presented in this case. Specifically, petitioner refers to the statements or findings that its service had "turned from bad to worse," that it miserably failed to comply with the oft-repeated promises to bring about the needed improvement, that its equipment is unserviceable, and that it has no longer any plant site and, therefore, has discredited itself. Petitioner further states that such statements are not only devoid of evidentiary support but contrary to the testimony of its witness, Mr. Harry Bernardino, who testified that petitioner was rendering efficient and satisfactory service before its electric plant was burned on July 29, 1962. On the face of the decision appealed from, it is obvious that the Commission in describing the kind of service petitioner was rendering before its certificate was ordered revoked and cancelled, took judicial notice of the records of the previous case (PSC Case No. 39715) where the quality of petitioner's service had been squarely put in issue. It will be noted that the findings of the Commission were made notwithstanding the fact that the aforementioned testimony of Mr. Bernardino had been emphasized and pointed out in petitioner's
29

14
Memorandum to the Commission. The implication is simple: that as between the testimony of Mr. Bernardino and the inspection reports of the engineers of the Commission, which served as the basis of the revocation order, the Commission gave credence to the latter. Naturally, whatever conclusion or finding of fact that the Commission arrived at regarding the quality of petitioner's service are not borne 31 out by the evidence presented in this case but by evidence in the previous case. In this connection, we repeat, the conclusion, arrived at by the Commission after weighing the conflicting evidence in the two related cases, is a conclusion of fact which this Court will not disturb. And it has been held time and again that where the Commission has reached a conclusion of fact after weighing the conflicting evidence, that conclusion must be respected, and the Supreme Court will not interfere unless it clearly appears that there is no evidence to support the decision of the Commission. (La Mallorca and Pampanga Bus Co., Inc. vs. Mercado, L-19120, November 29, 1965 citing Pangasinan Trans. Co., Inc. vs. Dela Cruz, 96 Phil. 278) For that matter, petitioner's pretension that it has a prior right to the operation of an electric service in Morong, Rizal, is not tenable; and its plea for protection of its investment, as in the previous case, cannot be entertained. WHEREFORE, the two decisions of the Public Service Commission, appealed from, should be, as they are hereby affirmed, with costs in the two cases against petitioner Rizal Light & Ice Co., Inc. It is so ordered. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Fernando, JJ., concur. FIRST DIVISION G.R. No. L-48627 June 30, 1987 FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, petitioners vs. THE HONORABLE COURT OF APPEALS and ALBERTO V. ARELLANO, respondents.
30

CRUZ, J.: We gave limited due course to this petition on the question of the solidary liability of the petitioners with their co-defendants in the lower court 1 because of the challenge to the following paragraph in the dispositive portion of the decision of the respondent court: * 1. Defendants are hereby ordered to jointly and severally pay the plaintiff the amount of P50,000.00 for the preparation of the project study and his technical services that led to the organization of the defendant corporation, plus 2 P10,000.00 attorney's fees; The petitioners claim that this order has no support in fact and law because they had no contract whatsoever with the private respondent regarding the above-mentioned services. Their position is that as mere subsequent investors in the corporation that was later created, they should not be held solidarily liable with the Filipinas Orient Airways, a separate juridical entity, and with Barretto and Garcia, their co3 defendants in the lower court, ** who were the ones who requested the said services from the private respondent. We are not concerned here with the petitioners' co-defendants, who have not appealed the decision of the respondent court and may, for this reason, be presumed to have accepted the same. For purposes of resolving this case before us, it is not necessary to determine whether it is the promoters of the proposed corporation, or the corporation itself after its organization, that shall be responsible for the expenses incurred in connection with such organization. The only question we have to decide now is whether or not the petitioners themselves are also and personallyliable for such expenses and, if so, to what extent. The reasons for the said order are given by the respondent court in its decision in this wise: As to the 4th assigned error we hold that as to the remuneration due the plaintiff for the preparation of the project study and the pre-organizational services in the amount of P50,000.00, not only the defendant corporation but the other defendants including defendants Caram should be jointly and severally liable for this amount. As we above related it was upon the request of defendants Barretto and Garcia that plaintiff handled the preparation of the project study which project study was presented to defendant Caram so the latter was convinced to invest in the proposed airlines. The project study was revised for purposes of presentation to financiers and the banks. It was on the basis of this study that defendant corporation was actually organized and rendered operational. Defendants Garcia and Caram, and Barretto became members of the Board and/or officers of defendant corporation. Thus, not only the defendant corporation but all the other defendants who were involved in the preparatory stages of the incorporation, who caused 4 the preparation and/or benefited from the project study and the technical services of plaintiff must be liable. It would appear from the above justification that the petitioners were not really involved in the initial steps that finally led to the incorporation of the Filipinas Orient Airways. 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. The study could have been presented to other prospective investors. At any rate, the airline was eventually organized on the basis of the project study with the petitioners as major stockholders and, together with Barretto and Garcia, as principal officers.

15
The following portion of the decision in question is also worth considering: ... Since defendant Barretto was the moving spirit in the pre-organization work of defendant corporation based on his experience and expertise, hence he was logically compensated in the amount of P200,000.00 shares of stock not as industrial partner but more for his technical services that brought to fruition the defendant corporation. By the same token, We find no reason why the plaintiff should not be similarly compensated not only for having actively participated in the preparation of the project study for several months and its subsequent revision but also in his having been involved in the pre-organization of the defendant corporation, in the preparation of the franchise, in inviting the interest of the financiers and in the training and screening of personnel. We agree that for these special services of the 5 plaintiff the amount of P50,000.00 as compensation is reasonable. The above finding bolsters the conclusion that the petitioners were not involved in the initial stages of the organization of the airline, which were being directed by Barretto as the main promoter. It was he who was putting all the pieces together, so to speak. The petitioners were merely among the financiers whose interest was to be invited and who were in fact persuaded, on the strength of the project study, to invest in the proposed airline. Significantly, there was no showing that the Filipinas Orient Airways was a fictitious corporation and did not have a separate juridical personality, to justify making the petitioners, as principal stockholders thereof, 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. In the light of these circumstances, we hold that the petitioners cannot be held personally liable for the compensation claimed by the private respondent for the services performed by him in the organization of the corporation. To repeat, the petitioners did not contract such services. It was only the results of such services that Barretto and Garcia presented to them and which persuaded them to invest in the proposed airline. The most that can be said is that they benefited from such services, but that surely is no justification to hold them personally liable therefor. Otherwise, all the other stockholders of the corporation, including those who came in later, and regardless of the amount of their share holdings, would be equally and personally liable also with the petitioners for the claims of the private respondent. The petition is rather hazy and seems to be flawed by an ambiguous ambivalence. Our impression is that it is opposed to the imposition of solidary responsibility upon the Carams but seems to be willing, in a vague, unexpressed offer of compromise, to accept joint liability. While it is true that it does here and there disclaim total liability, the thrust of the petition seems to be against the imposition of solidary liability only rather than against any liability at all, which is what it should have categorically argued. Categorically, 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. So holding, we find it unnecessary to examine at this time the rules on solidary obligations, which the parties-needlessly, as it turns out have belabored unto death. WHEREFORE, the petition is granted. The petitioners are declared not liable under the challenged decision, which is hereby modified accordingly. It is so ordered. Yap (Chairman), Narvasa, Melencio-Herrera, Feliciano and Sarmiento, JJ., concur. Gancayco, J., took no part. Business Organization Corporation Law Separate and Distinct Personality A certain Barretto initiated the incorporation of a company called Filipinas Orient Airways (FOA). Barretto was referred to as the moving spirit of said corporation because it was through his effort that it was created. Before FOAs creation though, Barretto con tracted with a third party, Alberto Arellano, for the latter to prepare a project study for the feasibility of creating a corporation like FOA. The project study was then presented to the would-be incorporators and investors. On the basis of said project study, Fermin Caram, Jr. and Rosa Caram agreed to be incorporators of FOA. Later however, Arellano filed a collection suit against FOA, Barretto, and the Carams. Arellano claims that he was not paid for his work on the project study. ISSUE: Whether or not the Carams are personally and solidarily liable considering that the project study was contracted before FOA became a corporation. HELD: No. The Carams cannot be solidarily liable with FOA. The FOA is now a bona fide corporation. As such, FOA alone should be liable for its corporate acts as duly authorized by its officers and directors. This includes acts which ultimately led to its incorporation i.e., the project study made by Arellano. FOA has a separate and distinct personality from its incorporators. It is not justified to make the Carams, as principal stockholders, to be responsible for FOAs obligations. Section 60. Subscription contract. 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. (n) Section 72. Rights of unpaid shares. Holders of subscribed shares not fully paid which are not delinquent shall have all the rights of a stockholder. (n)

EN BANC G.R. No. L-5003 June 27, 1953

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NAZARIO TRILLANA, administrator-appellee, vs. QUEZON COLLEGE, INC., claimant-appellant. Singson, Barnes, Yap and Blanco for appellant. Delgado, Flores & Macapagal for appellee. PARAS, J.: Damasa Crisostomo sent the following letter to the Board of Trustees of the Quezon College: June 1, 1948

The BOARD OF TRUSTEES Quezon College Manila Gentlemen: Please enter my subscription to dalawang daan (200) shares of your capital stock with a par value of P100 each. Enclosed you will find (Babayaran kong lahat pagkatapos na ako ay makapag-pahuli ng isda) pesos as my initial payment and the balance payable in accordance with law and the rules and regulations of the Quezon College. I hereby agree to shoulder the expenses connected with said shares of stock. I further submit myself to all lawful demands, decisions or directives of the Board of Trustees of the Quezon College and all its duly constituted officers or authorities (ang nasa itaas ay binasa at ipinaliwanag sa akin sa wikang tagalog na aking nalalaman). Very respectfully, (Sgd.) DAMASA CRISOSTOMO Signature of subscriber Nilagdaan sa aming harapan: JOSE CRISOSTOMO EDUARDO CRISOSTOMO Damasa Crisostomo died on October 26, 1948. As no payment appears to have been made on the subscription mentioned in the foregoing letter, the Quezon College, Inc. presented a claim before the Court of First Instance of Bulacan in her testate proceeding, for the collection of the sum of P20,000, representing the value of the subscription to the capital stock of the Quezon College, Inc. This claim was opposed by the administrator of the estate, and the Court of First Instance of Bulacan, after hearing issued an order dismissing the claim of the Quezon College, Inc. on the ground that the subscription in question was neither registered in nor authorized by the Securities and Exchange Commission. From this order the Quezon College, Inc. has appealed. It is not necessary for us to discuss at length appellant's various assignments of error relating to the propriety of the ground relief upon by the trial court, since, as pointed out in the brief for the administrator and appellee, there are other decisive considerations which, though not touched by the lower court, amply sustained the appealed order. It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc. was written on a general form indicating that an applicant will enclose an amount as initial payment and will pay the balance in accordance with law and the regulations of the College. On the other hand, in the letter actually sent by Damasa Crisostomo, the latter (who requested that her subscription for 200 shares be entered) not only did not enclose any initial payment but stated that "babayaran kong lahat pagkatapos na ako ay makapagpahuli ng isda." There is nothing in the record to show that the Quezon College, Inc. accepted the term of payment suggested by Damasa Crisostomo, or that if there was any acceptance the same came to her knowledge during her lifetime. As the application of Damasa Crisostomo is obviously at variance with the terms evidenced in the form letter issued by the Quezon College, Inc., there was absolute necessity on the part of the College to express its agreement to Damasa's offer in order to bind the latter. Conversely, said acceptance was essential, because it would be unfair to immediately obligate the Quezon College, Inc. under Damasa's promise to pay the price of the subscription after she had caused fish to be caught. In other words, the relation between Damasa Crisostomo and the Quezon College, Inc. had only thus reached the preliminary stage whereby the latter offered its stock for subscription on the terms stated in the form letter, and Damasa applied for subscription fixing her own plan of payment, a relation, in the absence as in the present case of acceptance by the Quezon College, Inc. of the counter offer of Damasa Crisostomo, that had not ripened into an enforceable contract. Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more imperative, in view of the proposal of Damasa Crisostomo to pay the value of the subscription after she has harvested fish, a condition obviously dependent upon her sole will and, therefore, facultative in nature, rendering the obligation void, under article 1115 of the old Civil Code which provides as follows: "If the fulfillment of the condition should depend upon the exclusive will of the debtor, the conditional obligation shall be void. If it should depend upon chance, or upon the will of a third person, the obligation shall produce all its effects in accordance with the provisions of this code." It cannot be argued that the condition solely is void, because it would have served to create the obligation to pay, unlike a case, exemplified

17
by Osmea vs. Rama (14 Phil., 99), wherein only the potestative condition was held void because it referred merely to the fulfillment of an already existing indebtedness. In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this Court already held that "a condition, facultative as to the debtor, is obnoxious to the first sentence contained in article 1115 and renders the whole obligation void." Wherefore, the appealed order is affirmed, and it is so ordered with costs against appellant. Tuason, Padilla and Reyes, JJ., concur in the result. Trillana v Quezon College Facts: Crisostomo desired to be a subscriber of shares of stock of the Quezon College. She sent a letter to its Board of trustees subscribing to 200 shares of stock, in which she also said that payment for half of the value of the said shares was enclosed in the said letter, with the remaining amount to be paid after she is able to harvest fish. But, no such payment was therein enclosed. When Crisostomo died, the College filed its claim in the intestate proceedings of the estate of the deceased, wherein they sought payment for the 200 shares of stock. The administrator of her estate opposed such claim. The CFI dismissed such claim because it said that the subscription was neither registered nor authorized by the SEC. Issue: Whether Quezon College has an unpaid claim against the state of Crisostomo for the value of the 200 shares of stock. Held: No. The letter sent by Crisostomo is actually a mere offer to subscribe to the 200 shares of stock, stating therein her own manner of payment for such shares. Such manner or terms of payment needed the approval or acceptance of the Board of Trustees before it could have taken effect. Since there is no evidence that the Board accepted such offer, then the contract was not consummated. There was imperative need for the College to expressly accept the proposal, because the payment of such subscription was dependent on a condition, dependent solely upon her will. Without the Colleges acceptance, Crisostomo never became a shareholder, and thu s, never became indebted to the said College.

EN BANC G.R. Nos. L-48195 and 48196 May 1, 1942

SOFRONIO T. BAYLA, ET AL., petitioners, vs. SILANG TRAFFIC CO., INC., respondent. SILANG TRAFFIC CO., petitioner, vs. SOFRONIO BAYLA, ET AL., respondents. E. A. Beltran for petitioners. Conrado V. Sanchez, Melchor C. Benitez, and Enrique M. Fernando for respondent. OZAETA, J.: Petitioners in G.R. No. 48195 instituted this action in the Court of First Instance of Cavite against the respondent Silang Traffic Co., Inc. (cross-petitioner in G.R. No. 48196), to recover certain sums of money which they had paid severally to the corporation on account of shares of stock they individually agreed to take and pay for under certain specified terms and conditions, of which the following referring to the petitioner Josefa Naval, is typical: AGREEMENT FOR INSTALLMENT SALE OF SHARES IN THE "SILANG TRAFFIC COMPANY, INC.," Silang, Cavite, P. I.

THIS AGREEMENT, made and entered into between Mrs. Josefa Naval, of legal age, married and resident of the Municipality of Silang, Province of Cavite, Philippine Islands, party of the First Part, hereinafter called the subscriber, and the "Silang Traffic Company, Inc.," a corporation duly organized and existing by virtue of and under the laws of the Philippine Islands, with its principal office in the Municipality of Silang, Province of Cavite, Philippine Islands, party of the Second Part, hereinafter called the seller, WITNESSETH: That the subscriber promises to pay personally or by his duly authorized agent to the seller at the Municipality of Silang, Province of Cavite, Philippine Islands, the sum of one thousand five hundred pesos (P1,500), Philippine currency, as purchase price of FIFTEEN (15) shares of capital stock, said purchase price to be paid as follows, to wit: five (5%) per cent upon the execution of the contract, the receipt whereof is hereby acknowledged and confessed, and the remainder in installments of five per cent, payable within the first month of each and every quarter thereafter, commencing on the 1st day of July, 1935, with interest on deferred payments at the rate of SIX (6%) per cent per annum until paid. That the said subscriber further agrees that if he fails to pay any of said installment when due, or to perform any of the aforesaid conditions, or if said shares shall be attached or levied upon by creditors of the said subscriber, then the said shares are to revert to the seller and the payments already made are to be forfeited in favor of said seller, and the latter may then take possession, without resorting to court proceedings.

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The said seller upon receiving full payment, at the time and manner hereinbefore specified, agrees to execute and deliver to said subscriber, or to his heirs and assigns, the certificate of title of said shares, free and clear of all encumbrances. In testimony whereof, the parties have hereunto set their hands in the Municipality of Silang, Province of Cavite, Philippine Islands, this 30th day of March, 1935. (Sgd.) JOSEFA NAVAL SILANG TRAFFIC COMPANY, INC. Subscriber By (Sgd.) LINO GOMEZ President. (Exhibit 1. Notarial acknowledgment omitted.) The agreements signed by the other petitioners were of the same date (March 30, 1935) and in identical terms as the foregoing except as to the number of shares and the corresponding purchase price. The petitioners agreed to purchase the following number of shares and, up to April 30, 1937, had paid the following sums on account thereof: Sofronio T. Bayla....... Venancio Toledo........ Josefa Naval.............. Paz Toledo................ 8 shares 8 shares 15 shares 15 shares P360 375 675 675

Petitioners' action for the recovery of the sums above mentioned is based on a resolution by the board of directors of the respondent corporation on August 1, 1937, of the following tenor: A mocion sel Sr. Marcos Caparas y secundado por el Sr. Alejandro Bayla, que para el bien de la corporacion y la pronta terminacion del asunto civil No. 3125 titulado "Vicente F. Villanueva et al. vs. Lino Gomez et al.," en el Juzgado de Primera Instancia de Cavite, donde se gasto y se gastara no poca cantidad de la Corporacion, se resolvio y se aprobo por la Junta Directiva los siguientes: (a) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 de marzo, 1935, art. 11, sec. 162, sobre las cobranzas que se haran por el Secretario Tesorero de la Corporacion a los accionistas que habian tomado o suscrito nuevas acciones y que se permitia a estos pagar 20% del valor de las acciones suscritas en un ao, con interes de 6% y el pago o jornal que se hara por trimestre. (b) Se dejara sin efecto, en vista de que aun no esta pagado todo el valor de las 123 acciones, tomadas de las acciones no expedidas (unissued stock) de la Corporacion y que fueron suscritas por los siguienes: Lino Gomez..................... Venancio Toledo............. Melchor P. Benitez........ Isaias Videa................. Esteban Velasco............ Numeriano S. Aldaba.... Inocencio Cruz................. Josefa Naval .................. Sofronio Bayla................. Dionisio Dungca............. 10 Acciones 8 Acciones 17 Acciones 14 Acciones 10 Acciones 15 Acciones 8 Acciones 15 Acciones 8 Acciones 3 Acciones

y devolver a las personas arriba descritas toda la cantidad que estas habian pagado por las 123 acciones. (c) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 marzo, 1935, art. V. sec. 165, sobre el cambio o trueque de las 31 acciones del Treasury Stock, contra las 32 acciones del Sr. Numeriano Aldaba, en la corporacion Northern Luzon

19
Transportation Co. y que se devuelva al Sr. Numeriano Aldaba las 32 acciones mencionadas despues que el haya devuelto el certificado de las 31 acciones de la Silang Traffic Co., Inc. (d) Permitir al Tesorero de la Corporacion para que devuelva a las personas arriba indicadas, las cantidades pagadas por las 123 acciones. (Exhibit A-1.) The respondent corporation set up the following defenses: (1) That the above-quoted resolution is not applicable to the petitioners Sofronio T. Bayla, Josefa Naval, and Paz Toledo because on the date thereof "their subscribed shares of stock had already automatically reverted to the defendant, and the installments paid by them had already been forfeited"; and (2) that said resolution of August 1, 1937, was revoked and cancelled by a subsequent resolution of the board of directors of the defendant corporation dated August 22, 1937. The trial court absolved the defendant from the complaint and declared canceled (forfeited) in favor of the defendant the shares of stock in question. It held that the resolution of August 1, 1937, was null and void, citingVelasco vs. Poizat (37 Phil., 802), wherein this Court held that "a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for shares; and any agreement to this effect is invalid" Plaintiffs below appealed to the Court of Appeals, which modified of the trial court as follows: That part of the judgment dismissing plaintiff's complaint is affirmed, but that part thereof declaring their subscription canceled is reversed. Defendant is directed to grant plaintiffs 30 days after final judgment within which to pay the arrears on their subscription. Without pronouncement as to costs. Both parties appealed to this Court by petition and cross-petition for certiorari. Petitioners insist that they have the right to recover the amounts involved under the resolution of August 1, 1937, while the respondent and cross-petitioner on its part contends that said amounts have been automatically forfeited and the shares of stock have reverted to the corporation under the agreement hereinabove quoted. The parties litigant, the trial court, and the Court of Appeals have interpreted or considered the said agreement as a contract of subscription to the capital stock of the respondent corporation. It should be noted, however, that said agreement is entitled "Agreement for Installment Sale of Shares in the Silang Traffic Company, Inc.,"; that while the purchaser is designated as "subscriber," the corporation is described as "seller"; that the agreement was entered into on March 30, 1935, long after the incorporation and organization of the corporation, which took place in 1927; and that the price of the stock was payable in quarterly installments spread over a period of five years. It also appears that in civil case No. 3125 of the Court of First Instance of Cavite mentioned in the resolution of August 1, 1937, the right of the corporation to sell the shares of stock to the person named in said resolution (including herein petitioners) was impugned by the plaintiffs in said case, who claimed a preferred right to buy said shares. Whether a particular contract is a subscription or a sale of stock is a matter of construction and depends upon its terms and the intention of the parties (4 Fletcher, Cyclopedia of Corporation [permanent edition], 29, cited in Salmon, Dexter & Co. vs. Unson (47 Phil. 649, 652). In the Unson case just cited, this Court held that a subscription to stock in an existing corporation is, as between the subscriber and the corporation, simply a contract of purchase and sale. It seems clear from the terms of the contracts in question that they are contracts of sale and not of subscription. The lower courts erred in overlooking the distinction between subscription and purchase "A subscription, properly speaking, is the mutual agreement of the subscribers to take and pay for the stock of a corporation, while a purchase is an independent agreement between the individual and the corporation to buy shares of stock from it at stipulated price." (18 C. J. S., 760.) In some particulars the rules governing subscriptions and sales of shares are different. For instance, the provisions of our Corporation Law regarding calls for unpaid subscription and assessment of stock (sections 37-50) do not apply to a purchase of stock. Likewise the rule that corporation has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for his shares, is inapplicable to a contract of purchase of shares. The next question to determine is whether under the contract between the parties the failure of the purchaser to pay any of the quarterly installments on the purchase price automatically gave rise to the forfeiture of the amounts already paid and the reversion of the shares to the corporation. The contract provides for interest of the rate of six per centum per annum on deferred payments. It is also provides that if the purchaser fails to pay any of said installments when due, the said shares are to revert to the seller and the payments already made are to be forfeited in favor of said seller. The respondent corporation contends that when the petitioners failed to pay the installment which fell due on or before July 31, 1937, forfeiture automatically took place, that is to say, without the necessity of any demand from the corporation, and that therefore the resolution of August 1, 1937, authorizing the refund of the installments already paid was inapplicable to the petitioners, who had already lost any and all rights under said contract. The contention is, we think, untenable. The provision regarding interest on deferred payments would not have been inserted if it had been the intention of the parties to provide for automatic forfeiture and cancelation of the contract. Moreover, the contract did not expressly provide that the failure of the purchaser to pay any installment would give rise to forfeiture and cancelation without the necessity of any demand from the seller; and under article 1100 of the Civil Code persons obliged to deliver or do something are not in default until the moment the creditor demands of them judicially or extrajudicially the fulfillment of their obligation, unless (1) the obligation or the law expressly provides that demand shall not be necessary in order that default may arise, (2) by reason of the nature and circumstances of the obligation it shall appear that the designation of the time at which that thing was to be delivered or the service rendered was the principal inducement to the creation of the obligation. Is the resolution of August 1, 1937, valid? The contract in question being one of purchase and not subscription as we have heretofore pointed out, we see no legal impediment to its rescission by agreement of the parties. According to the resolution of August 1, 1937, the recission was made for the good of the corporation and in order to terminate the then pending civil case involving the validity of the sale of the shares in question among others. To that rescission the herein petitioners apparently agreed, as shown by their demand for the refund of the amounts they had paid as provided in said resolution. It appears from the record that said civil case was subsequently dismissed, and that the purchasers of shares of stock, other than the herein petitioners, who were mentioned in said resolution were able to benefit by said resolution. It would be an unjust discrimination to deny the same benefit to the herein petitioners.

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We may add that there is no intimation in this case that the corporation was insolvent, or that the right of any creditor of the same was in any way prejudiced by the rescission. The attempted revocation of said rescission by the resolution of August 22, 1937, was invalid, it not having been agreed to by the petitioners. Wherefore, the judgment of the court of appeals is hereby reversed and another judgment will be entered against the defendant Silang Traffic Co., Inc., ordering it to pay to the plaintiffs Sofronio T. Bayla, Venancio Toledo, Josefa Naval, and Paz Toledo, the sums of P360, P375, P675, and P675, respectively, with legal interest on each of said sums from May 28, 1938, the date of the filing of the complaint, until the date of payment, and with costs in the three instances. So ordered. Yulo, C.J., Moran, Paras and Bocobo, JJ., concur. Bayla v Silang Traffic Facts: 8 Years after the Silang Traffic Co. was organized, it entered into an agreement for the sale on installment of its shares of stock with various individuals, including the petitioners. After the latter had paid several installments for the purchase price of said shares of stock, the petitioners defaulted in the payment of the subsequent installments. Thus, the Board of directors passed a resolution authorizing for the refund of the amounts paid and the reversion of the shares of stock to the corporation. Despite the said Board resolution, the amounts paid by petitioners were not returned to them. Thus, they instituted an action in the CFI to recover the sums of money paid. The respondent corporation contends that the resolution does not apply to petitioners as at the time the resolution was passed, the shares had already automatically been reverted back to the corporation, and that the resolution was no longer effective as it was cancelled by a subsequent resolution passed by the Board. The CFI declared that the shares of stock had already been forfeited and absolved the respondent from the complaint. Issues: Whether the contract herein involved is a subscription, and whether failure to pay any installment of the purchase price of the shares of stock would result in its automatic forfeiture in favor of the corporation. Held: The contract herein involved is one of sale and not of subscription as it is an independent agreement between the individual purchaser and corporation to buy the shares of stock at a stipulated price. It does not involve a mutual agreement of the subscribers to take and pay for the stock of the corporation. Whether a particular contract is a purchase or a subscription of shares of stock is a matter of construction and depends upon its terms and the intention of the parties. It has been held that a subscription to stock in an existing corporation is, as between the subscriber and the corporation, simply a contract of purchase and sale. As to forfeiture, the contract did not expressly provide that the failure of the purchaser to pay any installment would give rise to the forfeiture and cancellation without the necessity of any demand from the seller. However, being a contract of sale, it may be rescinded by mutual agreement of the parties. In the subsequent Board resolution, it was stated that the contracts were rescinded for the good of the corporation and in order to terminate a pending civil case involving the validity of such sales of the shares. To such rescission, petitioners apparently agreed, as shown by their demand for the refund of the amount they had already paid to the corporation. Section 61. Pre-incorporation subscription. A subscription for shares of stock of a corporation still to be formed shall be irrevocable for a period of at least six (6) months from the date of subscription, unless all of the other subscribers consent to the revocation, or unless the incorporation of said corporation fails to materialize within said period or within a longer period as may be stipulated in the contract of subscription: Provided, That no pre-incorporation subscription may be revoked after the submission of the articles of incorporation to the Securities and Exchange Commission. (n)

EN BANC G.R. No. L-11528 March 15, 1918

MIGUEL VELASCO, assignee of The Philippine Chemical Product Co. (Ltd.), plaintiff-appellant, vs. JEAN M. POIZAT, defendant-appellee. Vicente Rodriguez for appellant. A. J. Burke for appellee. STREET, J.: From the amended complaint filed in this cause upon February 5, 1915, it appears that the plaintiff, as assignee in insolvency of "The Philippine Chemical Product Company" (Ltd.) is seeking to recover of the defendant, Jean M. Poizat, the sum of P1,500, upon a subscription made by him to the corporate stock of said company. It appears that the corporation in question was originally organized by several residents of the city of Manila, where the company had its principal place of business, with a capital of P50,000, divided into 500 shares. The defendant subscribed for 20 shares of the stock of the company, an paid in upon his subscription the sum of P500, the par value of 5 shares . The action was brought to recover the amount subscribed upon the remaining shares. It appears that the defendant was a stock holder in the company from the inception of the enterprise, and for sometime acted as its treasurer and manager. While serving in this capacity he called in and collected all subscriptions to the capital stock of the company, except the aforesaid 15 shares subscribed by himself and another 15 shares owned by Jose R. Infante. Upon July 13, 1914, a meeting of the board of directors of the company was held at which a majority of the stock was presented. Up[on this occasion two resolutions, important to be here noted, were adopted. The first was a proposal that the directors, or shareholders, of the company should make good by new subscriptions, in proportion to their respective holdings, 15 shares which had been surrendered by Infante. It seems that this shareholder had already paid 25 per cent of his subscription upon 20 shares, leaving 15 shares unpaid for, and an

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understanding had been reached by him and the management by which he was to be released from the obligation of his subscription, it being understood that what he had already paid should not be refunded. Accordingly the directors present at this meeting subscribed P1,200 toward taking up his shares, leaving a deficiency of P300 to be recovered by voluntary subscriptions from stockholders not present at the meeting. The other proposition was o the effect that Juan [Jean] M. Poizat, who was absent, should be required to pay the amount of his subscription upon the 15 shares for which he was still indebted to the company. The resolution further provided that, in case he should refuse to make such payment, the management of the corporation should be authorized to undertake judicial proceedings against him. When notification of this resolution reached Poizat through the mail it evoked from him a manifestation of surprise and pain, which found expression in a letter written by him in reply, dated July 27, 1914, and addressed to Velasco, as treasurer and administrator. In this letter Poizat states that he had been given to understand by some member of the board of directors that he was to be relieved from his subscription upon the terms conceded to Infante; and he added: My desire to be relieved from the payment of the remaining 75 per cent arises from the poor opinion which I entertain of the business and the faint hope of ever recovering any money invested. In consequence, I prefer to lose the whole of the 25 per cent I have already paid rather than to continue investing more money in what I consider to be ruinous proposition. Within a short while the unfavorable opinion entertained by Poizat as to the prospect of the company was found to be fully justified, as the company soon went into voluntary insolvency, Velasco being named as the assignee. He qualified at once by giving bond, and was duly inducted into the office of assignee upon November 25, 1914, by virtue of a formal transfer executed by the clerk in pursuance of section 32 of Act No. 1956. The answer of the defendant consisted of a general denial and a so-called special defense, consisting of a concatenation of statements more appropriate for a demurrer than as material for a special defense. The principal contention is that the call made by the board of directors of the company on July 13, 1914 , was not made pursuant to the requirements of sections 37 and 38 of the Corporation Law (Act No. 1459), and in particular that the action was instituted before the expiration of the 30 days specified in section 38. At the hearing of the Court of First Instance, judgment was rendered in favor of the defendant, and the complaint was dismissed. From this action the plaintiff has appealed. We think that Poizat is liable upon this subscription. A stock subscription is a contract between the corporation on one side, and the subscriber on the other, and courts will enforce it for or against either. It is a rule, accepted by the Supreme Court of the United States, that a subscription for shares of stock does not require an express promise to pay the amount subscribed, as the law implies a promise to pay on the part of the subscriber. (7 Ruling Case Law, sec. 191.) Section 36 of the Corporation Law clearly recognizes that a stock subscription is subsisting liability from the time the subscription is made, since it requires the subscriber to pay interest quarterly from that date unless he is relieved from such liability by the by-laws of the corporation. The subscriber is as much bound to pay the amount of the share subscribed by him as he would be to pay any other debt, and the right of the company to demand payment is no less incontestable. The provisions of the Corporation Law (Act No. 1459) given recognition of two remedies for the enforcement of stock subscriptions. The first and most special remedy given by the statute consists in permitting the corporation to put up the unpaid stock for sale and dispose of it for the account of the delinquent subscriber. In this case the provisions of section 38 to 48, inclusive , of the Corporation Law are applicable and must be followed. The other remedy is by action in court, concerning which we find in section 49 the following provision: Nothing in this Act shall prevent the directors from collecting, by action in any court of proper jurisdiction, the amount due on any unpaid subscription, together with accrued interest and costs and expenses incurred. It is generally accepted doctrine that the statutory right to sell the subscriber's stock is merely a remedy in addition to that which proceeds by action in court; and it has been held that the ordinary legal remedy by action exists even though no express mention thereof is made in the statute. (Instone vs. Frankfort Bridge Co., 2 Bibb [Ky.], 576; 5 Am. Dec., 638.) No attempt is made in the Corporation Law to define the precise conditions under which an action may be maintained upon a stock subscription, as such conditions should be determined with reference to the rules governing contract liability in general; and where it appears as in this case that a matured stock subscription is unpaid, none of the provisions contained in section 38 to 48, inclusive, of Act No. 1459 can be permitted to obstruct or impede the action to recover thereon. By virtue of the first subsection of section 36 of the Insolvency Law (Act No. 1956) the assignee of the insolvent corporation succeeds to all the corporate rights of action vested in the corporation prior to its insolvency; and the assignee therefore has the same freedom with respect to suing upon the stock subscription as the directors themselves would have had under section 49 above cited. But there is another reason why the present plaintiff must prevail in this case, even supposing that the failure of the directors to comply with the requirements of the provisions of sections 38 to 48, inclusive, of Act No. 1459 might have been an obstacle to a recovery by the corporation itself. That reason is this: When insolvency supervenes upon a corporation and the court assumes jurisdiction to wind up, all unpaid stock subscriptions become payable on demand, and are at once recoverable in an action instituted by the assignee or receiver appointed by the court. This rule apparently had origin in a recognition of the principle that a court of equity, having jurisdiction of the insolvency proceedings, could, if necessary, make the call itself, in its capacity as successor to the powers exercised by the board of directors of the defunct company. Later a further rule gained recognition to the effect that the receiver or assignee, in an action instituted by proper authority, could himself proceed to collect the subscription without the necessity of any prior call whatever. This conclusion is well supported by reference to the following authorities: . . . a court of equity may enforce payment of the stock subscriptions, although there have been no calls for them by the company. (Hatch vs. Dana, 101 U. S., 205.)

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It is again insisted that the plaintiffs cannot recover because the suit was not preceded by a call or assessment against no right of action accrues. In a suit by a solvent going corporation to collect a subscription, and in certain suits provided by the statute this would be true; but it is now quite well settled that when the corporation becomes insolvent, with proceedings instituted by creditors to wind up and distribute its assets, no call or assessment is necessary before the institution of suits to collect unpaid balances on subscription. (Ross-Meehan Shoe F. Co. vs. Southern Malleable Iron Co., 72 Fed., 957, 960;see also Henry vs. Vermillion etc. R. R. Co., 17 Ohio, 187, and Thompson on Corporations 2d ed., vol. 3, sec. 2697.) It evidently cannot be permitted that a subscriber should escape from his lawful obligation by reason of the failure of the officers of the corporation to perform their duty in making a call; and when the original model of making the call becomes impracticable, the obligation must be treated as due upon demand. If the corporation must be treated still an active entity, and this action should be dismissed for irregularity in the making of the call, other steps could be taken by the board to cure the defect and another action could be brought; but where the company is being wound up, no such procedure would be practicable. The better doctrine is that when insolvency supervenes all unpaid subscriptions become at once due and enforceable. The printed bill of exceptions in this cause does not contain the original complaint, nor does it state who was plaintiff therein or the date when the action was instituted. It may, however, be gathered from the papers transmitted to this court that the action was originally instituted in the name of the Philippine Chemical Product Co. (Ltd.), prior to its insolvency, and that later the assignee was substituted as plaintiff and then filed the amended complaint, with the permission of the court. Now, if we concede that no right of action existed when the original complaint was filed, a right of action certainly existed when the assignee filed his amended complaint; and as the bill of exceptions fails to show that any exception was taken to the action of the court in allowing the amended complaint to be filed, no objection would be here entertained on the ground that the action was prematurely brought. The circumstance that the board of directors in their meeting of July 13, 1914, resolved to release Infante from his obligation upon a subscription for 15 shares is no wise prejudicial to the right of the corporation or its assignee to recover from Poizat upon a subscription made by him. In releasing Infante the board transcended its powers, and he no doubt still remained liable on such of his shares as were not taken up and paid for by other persons. The general doctrine is that the corporation has no legal capacity to release an original subscriber to its capital stock from the obligation of paying for his shares, in whole or in part, . . . (10 Cyc., 450.) The suggestion contained in Poizat's letter of July 27, 1914, to the effect that he understood that he was to be relieved upon the same terms as Infante is, for the same reason, of no merit as matter of defense, even if an agreement to that effect had been duly proved. From what has been said it is manifest that the defendant is liable for P1,500, the amount of his subscription upon the unpaid shares. Under section 36 of the Corporation Law he is also liable for interest at the lawful rate from the date of his subscription, unless relieved from this liability by the by-laws of the company. These by-laws have not been introduced in evidence and there is no proof showing the exact date upon which the subscription was made, though it is alleged in the original complaint that the company was organized upon March 23, 1914. This allegation is not admitted in the agreed statement of facts. The defendant, however, inferentially admits in his letter of July 27, 1914, that his subscription had been made prior to July 13, 1914. It resulted that in our opinion he should be held liable for interest from that date. The judgment of the lower court is therefore reversed, and judgment will be rendered in favor of the plaintiff and against the defendant for the sum of one thousand five hundred pesos (P1,500), with interest from July 13, 1014, and costs of both instances. So ordered. Arellano, C.J., Torres, Johnson, Carson, Araullo, Malcolm, Avancea and Fisher, JJ., concur. Velasco v Poizat Facts: The Phil. Chemical Product Co. passed a resolution in a board meeting, wherein they released Infante, a stockholder, from his obligation of paying his unpaid subscription in the amount of P1,500. Conditioned upon his surrendering his certificates of shares of stock. In the same resolution, Poizat was required to pay the amount of his subscription valued at P1,500, and if he should refuse to make payment, judicial proceedings against him may be undertaken by the corporation through its management. The company thereafter underwent voluntary insolvency proceedings. Velasco, the assignee of the company, sought to recover the amount owed by Poizat, but the latter denied any liability to pay the amount. Poizat contended the invalidity of making the call, and he asserted that he was given the same rights as that given to Infante. The CFI dismissed the complaint filed by Velasco against Pozat. Thus, Velasco appealed to the SC. Issue: Whether Poizat is liable upon his subscription. Held: Yes. A stock subscription is a contract between the corporation and the subscriber, and the courts will enforce it either for or against the other. The law recognizes that a stock subscription is a subsisting liability from the time the subscription is made, since it requires the subscriber to pay interest quarterly from the date of the subscription, unless he is relieved from such liability in the By-laws of the corporation. The subscriber is as much bound to pay for his subscription as he would any other debt. The law also provides 2 remedies to enforce stock subscriptions. The first consists in permitting the corporation to put up the unpaid stock for sale and dispose of it for the account of the delinquent subscriber. The other remedy is for the directors to file an action in court. An assignee of an insolvent corporation, by stepping into the shoes of the same, succeeds to all the corporate rights of action vested in the corporation prior to its

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insolvency, and the assignee therefore has the same freedom with respect to suing upon a stock subscription as the directors themselves would have. Also, when insolvency supervenes upon a corporation and the court assumes jurisdiction to wind it up, all unpaid stock subscriptions become payable on demand and are at once recoverable in an action instituted by the assignee or receiver appointed by the court. A subscriber cannot be permitted to escape his lawful obligation by reason of the failure of the officers of the corporation to perform their duty in making a call; and when the original mode of making the call becomes impracticable, the obligation must be deemed as being due upon demand.

EN BANC G.R. Nos. L-24177-85 June 29, 1968

PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. BITULOK SAWMILL, INC., DINGALAN LUMBER CO., INC., SIERRA MADRE LUMBER CO., INC., NASIPIT LUMBER CO., INC., WOODWORKS, INC., GONZALO PUYAT, TOMAS B. MORATO, FINDLAY MILLAR LUMBER CO., INC., ET AL., INSULAR LUMBER CO., ANAKAN LUMBER CO., AND CANTILAN LUMBER CO., INC., defendants-appellees. Tomas Besa, Simplicio N. Angeles and Jose B. Galang for plaintiff-appellee. Bausa, Ampil and Suarez for defendant-appellant Woodworks, Inc. Pacifico de Ocampo for defendant-appellant Anakan Lumber Co. Ross, Selph, Salcedo, Del Rosario, Bito and Misa for defendant-appellant Insular Lumber Co. Garin, Boquiren and Tamesis for defendant-appellant Nasipit Lumber Co., Inc. Feria, Manglapus and Associates for defendant-appellant Gonzalo Puyat. Sycip, Salazar and Associates for defendant-appellant Cantilan Lumber Co., Inc. Ozaeta, Gibbs and Ozaeta for defendant-appellant Findlay Millar Lumber Co., Inc. Dominador Alafriz for defendant-appellant Bitulok Sawmill, Inc. De la Costa and De la Costa for defendant-appellant Tomas B. Morato. FERNANDO, J.: In the face of a statutory norm, which, as interpreted in a uniform line of decisions by this Court, speaks unequivocally and is free from doubt, the lower court with full recognition that the case for the plaintiff creditor, Philippine National Bank, "is meritorious strictly from the 1 2 legal standpoint" but apparently unable to "close its eyes to the equity of the case" dismissed nine (9) cases filed by it, seeking "to recover from the defendant lumber producers [Bitulok Sawmill, Inc.; Dingalan Lumber Co., Inc., Sierra Madre Lumber Co., Inc.; Nasipit Lumber Co., Inc.; Woodworks, Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay Millar Lumber Co., Inc.; Insular Lumber Co., Inc.; Anakan Lumber Co., Inc.; and Cantilan Lumber Co., Inc.] the balance of their stock subscriptions to the Philippine Lumber Distributing Agency, 3 Inc." In essence then, the crucial question posed by this appeal from such a decision of the lower court is adherence to the rule of law. Otherwise stated, would non-compliance with a plain statutory command, considering the persuasiveness of the plea that defendantsappellees would "not have subscribed to [the] capital stock" of the Philippine Lumber Distributing Agency "were it not for the assurance of the [then] President of the Republic of the Philippines that the Government would back [it] up by investing P9.00 for every 4 peso" subscribed, a condition which was not fulfilled, such commitment not having been complied with, be justified? The answer must be in the negative. It cannot be otherwise even if an element of unfairness and injustice could be predicated, as the lower court, in a rather sympathetic mood, did find in the plaintiff bank, as creditor, compelling defendant lumber producers under the above circumstances to pay the balance of their subscriptions. For a plain and statutory command, if applicable, must be respected. The rule of law cannot be satisfied with anything less. The appeal must be sustained. In these various suits decided jointly, the Philippine National Bank, as creditor, and therefore the real party in interest, was allowed by the lower court to substitute the receiver of the Philippine Lumber Distributing Agency in these respective actions for the recovery from defendant lumber producers the balance of their stock subscriptions. The amount sought to be collected from defendants-appellees Bitulok Sawmill, Inc., Dingalan Lumber Co., Inc., and Sierra Madre Lumber Co., Inc., is P5,000.00, defendants-appellees having made a partial payment of P15,000.00 of their total subscription worth P20,000.00; from defendant-appellee Nasipit Lumber Co., Inc., the sum of P10,000.00, defendant-appellee having made a partial payment of P10,000.00 of its total subscription worth P20,000.00; from defendantappellee Woodworks, Inc., the sum of P10,886.00, defendant-appellee having made a partial payment of P9,114.00 of its total subscription worth P20,000.00; from defendant-appellee Gonzalo Puyat the sum of P10,000.00, defendant-appellee having made a partial payment of P10,000.00 of his total subscription worth P20,000.00; from defendant-appellee Tomas Morato the sum of P10,000.00, defendant-appellee having made a partial payment of P10,000.00 of his total subscription worth P20,000.00; from defendant-appellee Findlay Millar Lumber Co., Inc., the sum of P10,000.00, defendant-appellee having made a partial payment of P10,000.00 of its total subscription worth P20,000.00; from defendant-appellee Insular Lumber Co., Inc., the sum of P5,000.00, defendant-appellee having made a partial payment of P15,000.00 of its total subscription worth P20,000.00; from defendant-appellee Anakan Lumber Co., Inc., the sum of P15,000.00, defendant-appellee having made a partial payment of P5,000.00 of its total subscription worth P20,000.00; and from defendant-appellee Cantilan Lumber Co., Inc., the sum of P7,500.00, defendant-appellee having made a partial payment of P2,500.00 of its total subscription worth P10,000.00, plus interest at the legal rate from the filing of the suits and the costs of the suits in all the nine (9) cases. The Philippine Lumber Distributing Agency, Inc., according to the lower court, "was organized sometime in the early part of 1947 upon the initiative and insistence of the late President Manuel Roxas of the Republic of the Philippines who for the purpose, had called several 5 conferences between him and the subscribers and organizers of the Philippine Lumber Distributing Agency, Inc." The purpose was

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praiseworthy, to insure a steady supply of lumber, which could be sold at reasonable prices to enable the war sufferers to rehabilitate their devastated homes. The decision continues: "He convinced the lumber producers to form a lumber cooperative and to pool their sources together in order to wrest, particularly, the retail trade from aliens who were acting as middlemen in the distribution of lumber. At the beginning, the lumber producers were reluctant to organize the cooperative agency as they believed that it would not be easy to eliminate from the retail trade the alien middlemen who had been in this business from time immemorial, but because the late President Roxas made it clear that such a cooperative agency would not be successful without a substantial working capital which the lumber producers could not entirely shoulder, and as an inducement he promised and agreed to finance the agency by making the Government invest P9.00 6 by way of counterpart for every peso that the members would invest therein,...." This was the assurance relied upon according to the decision, which stated that the amount thus contributed by such lumber producers was not enough for the operation of its business especially having in mind the primary purpose of putting an end to alien domination in the retail trade of lumber products. Nor was there any appropriation by the legislature of the counterpart fund to be put up by the Government, namely, P9.00 for every peso invested by defendant lumber producers. Accordingly, "the late President Roxas instructed the Hon. Emilio Abello, then Executive Secretary and Chairman of the Board of Directors of the Philippine National Bank, for the latter to grant said agency an overdraft in the original sum of P250,000.00 which was later increased to P350,000.00, which was approved by said Board of Directors of the Philippine National Bank on July 28, 1947, payable on or before April 30, 1958, with interest at the rate of 6% per annum, 7 and secured by the chattel mortgages on the stock of lumber of said agency." The Philippine Government did not invest the P9.00 for every peso coming from defendant lumber producers. The loan extended to the Philippine Lumber Distributing Agency by the Philippine National Bank was not paid. Hence, these suits. For the lower court, the above facts sufficed for their dismissal. To its mind "it is grossly unfair and unjust for the plaintiff bank now to compel the lumber producers to pay the balance of their subscriptions .... Indeed, when the late President Roxas made representations to the plaintiff bank, thru the Hon. Emilio Abello, who was then the Executive Secretary and Chairman of its Board of Directors, to grant said overdraft to the agency, it was the only way by which President Roxas could make good his commitment that the Government would invest in said agency to the extent already mentioned because, according to said late President Roxas, the legislature had not appropriated any amount for such counterpart. Consequently, viewing from all considerations of equity in the case, the Court finds that plaintiff bank should not collect any more from the defendants the balance of their subscriptions to the capital stock of the Philippine Lumber Distributing 8 Agency, Inc." Even with the case for defendant lumber producers being put forth in its strongest possible light in the appealed decision, the plaintiff creditor, the Philippine National Bank, should have been the prevailing party. On the law as it stands, the judgment reached by the lower court cannot be sustained. The appeal, as earlier made clear, possesses merit. In Philippine Trust Co. v. Rivera, citing the leading case of Velasco v. Poizat, this Court held: "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 debt.... 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 11 statutory regulations is necessary...." The Poizat doctrine found acceptance in later cases. One of the latest cases, Lingayen Gulf Electric 12 13 Power v. Baltazar, Speaks to this effect: "In the case of Velasco v. Poizat, the corporation involved was insolvent, in which case all unpaid stock subscriptions become payable on demand and are immediately recoverable in an action instituted by the assignee." It would be unwarranted to ascribe to the late President Roxas the view that the payment of the stock subscriptions, as thus required by law, could be condoned in the event that the counterpart fund to be invested by the Government would not be available. Even if such were the case, however, and such a promise were in fact made, to further the laudable purpose to which the proposed corporation would be devoted and the possibility that the lumber producers would lose money in the process, still the plain and specific wording of the applicable legal provision as interpreted by this Court must be controlling. It is a well-settled principle that with all the vast powers lodged in the Executive, he is still devoid of the prerogative of suspending the operation of any statute or any of its terms. The emphatic and categorical language of an American decision cited by the late Justice Laurel, in People v. Vera, comes to mind: "By the twentieth article of the declaration of rights in the constitution of this commonwealth, it is declared that the power of suspending the laws, or the execution of the laws, ought never to be exercised but by the legislature, or by authority derived from it, to be exercised in such particular cases only as the legislature shall expressly provide for...." Nor could it be otherwise considering that the Constitution specifically 15 enjoins the President to see to it that all laws be faithfully executed. There may be a discretion as to what a particular legal provision requires; there can be none whatsoever as to the enforcement and application thereof once its meaning has been ascertained. What it decrees must be followed; what it commands must be obeyed. It must be respected, the wishes of the President, to the contrary notwithstanding, even if impelled by the most worthy of motives and the most persuasive equitable considerations. To repeat, such is not the case here. For at no time did President Roxas ever give defendant lumber producers to understand that the failure of the Government for any reason to put up the counterpart fund could terminate their statutory liability. Such is not the law. Unfortunately, the lower court was of a different mind. That is not to pay homage to the rule of law. Its decision then, one it is to be repeated influenced by what it considered to be the "equity of the case", is not legally impeccable. WHEREFORE, the decision of the lower court is reversed and the cases remanded to the lower court for judgment according to law, with full consideration of the legal defenses raised by defendants-appellees, Bitulok Sawmill, Inc.; Dingalan Lumber Co., Inc.; Sierra Madre Lumber Co., Inc.; Nasipit Lumber Co., Inc.; Woodworks, Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay Millar Lumber Co., Inc.; Anakan Lumber Co., Inc.; and Cantilan Lumber Co., Inc. No pronouncement as to costs. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez and Angeles, JJ., concur. Castro, J., took no part.
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PNB v Bitulok Sawmill Facts: The Philippine Lumber was organized in 1947, whose purpose was to insure the steady supply of lumber, which could be sold at reasonable prices. Such cooperative, upon the insistence of Pres. Roxas, needed capital, thus the various lumber producers invested in stock subscriptions therein. As part of the inducement, Pres. Roxas promised the producers a P9.00 investment by the Government for every peso invested by the producers, but no legislative appropriation was made for it. Pres. Roxas asked PNB to grant Philippine Lumber an overdraft originally in the amount of P250,000, later increased to P350,000, secured by a mortgage on the stock of the lumber of Philippine Lumber. The Government however failed to invest the P9.00 per P1.00 subscription as promised thus, suits were filed by the lumber producers. In the various suits, PNB was allowed by the courts to substitute the receiver, Philippine Lumber, in the said actions as creditor, in recovery from the defendant lumber producers the balance of their stock subscriptions. The lower court ruled that it would be unfair to allow the bank to compel the lumber producers to pay the balance of their subscriptions, thus it dismissed the actions. Issue: Can an assignee in insolvency maintain an action upon any unpaid stock subscription in order to realize assets for the payment of debts? Held: Yes. 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. The case was remanded to the lower courts for further proceedings.

EN BANC G.R. No. L-30646 January 30, 1929

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, petitioner, vs. THE MANILA RAILROAD COMPANY and JOSE PAEZ as Manager of said Company, respondents. Attorney-General Jaranilla for petitioner. Jose Abreu for respondents. JOHNSON, J.: This is a petition in the Supreme Court of the extraordinary legal writ of mandamus presented by the Government of the Philippine Islands, praying that the writ be issued to compel the Manila Railroad Company and Jose Paez, as its manager, to provide and equip the telegraph poles of said company between the municipality of Paniqui, Province of Tarlac, and the Municipality of San Fernando, Province of La Union, with crosspieces for six telegraph wires belonging to the Government, which, it is alleged, are necessary for public service between said municipalities. The only question raised by the petition is whether the dependant company is required to provide and equip its telegraph poles with crosspieces to carry six telegraph wires of the Government, or whether it is only required to furnish poles with crosspieces sufficient to carry four wires only. It is admitted that the present poles and crosspieces between said municipalities are sufficient to carry four telegraph wires and that they do now carry four telegraph wires, by virtue of an agreement between the respondents and the Bureau of the Posts of the Philippine Government. It is admitted that the poles and not sufficient to carry six telegraph wires. The petitioner relies upon the provisions of section 84 of act No. 1459. Act No. 1459 is the General Corporation Law and was adopted by the United States Philippine Commission on March 1, 1906. (Vol. 5, Pub. Laws, pp. 224-268.) Section 84 of the said Act provides: The railroad corporation shall establish along the whole length of the road a telegraph line for the use of the railroad. The posts of this line may be used for Government wires and shall be of sufficient length and strength and equipped with sufficient crosspiece to carry the number of wires which the Government may consider necessary for the public service. The establishment, protection, and maintenance of the wires and stations necessary for the public service shall be at the cost of the Government. (Vol. 5, P. L., p. 247.) The plaintiff contends that under said section 84 the defendant company is required to erect and maintain posts for its telegraph wires, of sufficient length and strength, and equipped with sufficient crosspieces to carry the number of wires which the Government may consider necessary for the public service, and that six wires are now necessary for the public service. The respondents answered by a general and special defense. In their special defense they contend that section 84 of Act No. 1459 has been repealed by section 1, paragraph 8 of Act No. 1510 of the United States Philippine Commission (vol. 5, P. L., pp. 350-358), and that under the provisions of said Act No. 1510 the Government is entitled to place on the poles of the company four wires only. Act No. 1510 is the charter of the Manila Railroad Company. It was adopted by the United States Philippine Commission on July 7, 1906. Section 1, paragraph 8, of said Act No. 1510 provides:

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8. The grantee (the Manila Railroad Company) shall have the right to construct and operate telegraph, telephone, and electrical transmission lines over said railways for the use of the railways and their business, and also, with the approval of the Secretary of War, for public service and commercial purposes but these latter privileges shall be subject to the following provisions: In the construction of telegraph or telephone lines along the right of way the grantee (the Manila Railroad Company) shall erect and maintain poles with sufficient space thereon to permit the Philippine Government, at the expense of said Government, to place, operate, and maintain four wires for telegraph, telephone, and electrical transmission for any Government purposes between the termini of the lines of railways main or branch; and the Philippine Government reserves to itself the right to construct, maintain, and operate telegraph, telephone, or electrical transmission lines over the right of way of said railways for commercial military, or government purposes, without unreasonably interfering with the construction, maintenance, and operation by the grantee of its railways, telegraph, telephone, and electrical transmission lines. To answer the question above stated, it becomes necessary to determine whether section 84 of Act No. 1459 is applicable to the Manila Railroad Company, or whether the manila Railroad Company is governed by section 1, paragraph 8, of Act No. 1510. As has been said, Act No. 1459 is a general law applicable to corporations generally, while Act No. 1510 is the charter of the Manila Railroad Company and constitute a contract between it and the Government. Inasmuch as Act No. 1510 is the charter of Manila Railroad Company and constitute a contract between it and the Governmemnt, it would seem that the company is governd by its contract and not by the provisions of any general law upon questions covered by said contract. From a reading of the said charter or contract it would be seen that there is no indication that the Government intended to impose upon said company any other conditions as obligations not expressly found in said charter or contract. If that is true, then certainly the Government cannot impose upon said company any conditions or obligations found in any general law, which does not expressly modify said contract. Section 84 of the Corporation Law (Act No. 1459) was intended to apply to all railways in the Philippine Islands which did not have a special charter contract. Act No. 1510 applies only to the Manila Railroad Company, one of the respondents, and being a special charter of said company, its adoption had the effect of superseding the provisions of the general Corporation Law which are applicable to railraods in general. The special charter (Act No. 1510) had the effect of superseding the general Corporation Law upon all matters covered by said special charter. Said Act, inasmuch as it contained a special provision relating to the erection of telegraph and telephone poles, and the number of wires which the Government might place thereon, superseded the general law upon that question. Act No. 1510 is a special charter of the respondent company. It constitutes a contract between the respondent company and the state; and the state and the grantee of a charter are equally bound by its provisions. For the state to impose an obligation or a duty upon the respondent company, which is not expressly provided for in the charter (Act No. 1510), would amount to a violation of said contract between the state and the respondent company. The provisions of Act No. 1459 relating to the number of wires which the Government may place upon the poles of the company are different and more enerous than the provisions of the charter upon the same question. Therefore, to allow the plaintiff to require of the respondent company a compliance with said section 84 of Act No. 1459, would be to require of the respondent company and the performance of an obligation which is not imposed upon it by its charter. The charter of a corporation is a contract between three parties: (a) it is a contract between the state and the corporation to which the charter is granted; (b) it is a contact between the stockholders and the state and (c) it is also a contract between the corporation and its stockholders. (Cook on Corporations, vol. 2, sec. 494 and cases cited.) The question is not whether Act No. 1510 repealed Act No. 1459; but whether, after the adoption of Act No. 1510, the respondents are obliged to comply with the special provision above mentioned, contained in Act No. 1459. We must answer that question in the native. Both laws are still in force, unless otherwise repealed. Act No. 1510 is applicable to respondents upon the question before us, while Act No. 1459 is not applicable. The petitioner, in view of all the foregoing facts and the law applicable thereto, has not shown itself entitled to the remedy prayed for. The prayer of the petition must, therefore, be denied. And without any finding as to costs, it is so ordered. Street, Malcolm, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur. Rural Bank of Salinas v CA Facts: Guerrero, the President of the Rural bank of Salinas, executed an SPA in favor of his wife Melania, authorizing the latter to sell or dispose or mortgage 473 shares of stock of the Bank, registered in the name of Guerrero. Pursuant to this, the shares were assigned by Melania to Anico, Rosales and Guerrero Jr. 2 days before Guerrero died, Melania executed another assignment for the remaining 1 share of stock to Guerrero Sr. the 2 deeds of assignment were presented to the Bank to obtain new certificates of shares of stock in the name of the assignees. This was denied by the Bank. Melania thereafter filed with the SEC an action for mandamus to compel the Bank to accept the deeds of assignment and issue new certificates for the assignees. The writ of Mandamus was granted by the SEC hearing officer, and was affirmed by the SEC en banc. A petition for review was filed by the Bank with the CA, but the latter affirmed the previous decisions of the SEC. Issue: Whether the Bank could validly deny the registration of the assignment and deny the issuance of new certificates of stock. Held: No. Section 63 of the corporation code provides that Shares of stock so issued are personal property and may be transferred by delivery of the certificate/s by the owner or by his attorney-in-fact or other person legally authorized to make the transfer.

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No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation. The only limitation in the said section is when the corporation holds any unpaid claim against the shares intended to be transferred, which is absent in the instant case. A corporation, either by its board, by-laws, or the acts of its officers cannot create restrictions in stock transfers. The right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing from his ownership of the stocks. And, whenever a corporation refuses to transfer and register stock, mandamus will lie to compel the officers of the corporation to transfer said stocks in the books of the corporation. This obligation of the corporation is ministerial.