Articles of Incorporation

Corporate Name

G.R. No. 41570 September 6, 1934

RED LINE TRANSPORTATION CO., petitioner-appellant,

vs.
RURAL TRANSIT CO., LTD., respondent-appellee.

L. D. Lockwood for appellant.

Ohnick and Opisso for appellee.

BUTTE, J.:

This case is before us on a petition for review of an order of the Public Service Commission entered December
21, 1932, granting to the Rural Transit Company, Ltd., a certificate of public convenience to operate a
transportation service between Ilagan in the Province of Isabela and Tuguegarao in the Province of Cagayan,
and additional trips in its existing express service between Manila Tuguegarao.

On June 4, 1932, the Rural Transit Company, Ltd., a Philippine corporation, filed with the Public Company
Service Commission an application in which it is stated in substance that it is the holder of a certificate or
public convenience to operate a passenger bus service between Manila and Tuguegarao; that it is the only
operator of direct service between said points and the present authorized schedule of only one trip daily is not
sufficient; that it will be also to the public convenience to grant the applicant a certificate for a new service
between Tuguegarao and Ilagan.

On July 22, 1932, the appellant, Red Line Transportation Company, filed an opposition to the said application
alleging in substance that as to the service between Tuguegarao and Ilagan, the oppositor already holds a
certificate of public convenience and is rendering adequate and satisfactory service; that the granting of the
application of the Rural Transit Company, Ltd., would not serve public convenience but would constitute a
ruinous competition for the oppositor over said route.

After testimony was taken, the commission, on December 21, 1932, approved the application of the Rural
Transit Company, Ltd., and ordered that the certificate of public convenience applied for be "issued to the
applicant Rural Transit Company, Ltd.," with the condition, among others, that "all the other terms and
conditions of the various certificates of public convenience of the herein applicant and herein incorporated are
made a part hereof."

On January 14, 1933, the oppositor Red Line Transportation Company filed a motion for rehearing and
reconsideration in which it called the commission's attention to the fact that there was pending in the Court of
First Instance of Manila case N. 42343, an application for the voluntary dissolution of the corporation, Rural
Transit Company, Ltd. Said motion for reconsideration was set down for hearing on March 24, 1933. On March
23, 1933, the Rural Transit Company, Ltd., the applicant, filed a motion for postponement. This motion was
verified by M. Olsen who swears "that he was the secretary of the Rural Transit Company, Ltd., in the above
entitled case." Upon the hearing of the motion for reconsideration, the commission admitted without objection
the following documents filed in said case No. 42343 in the Court of First Instance of Manila for the dissolution
of the Rural Transit Company, Ltd. the petition for dissolution dated July 6, 1932, the decision of the said
Court of First Instance of Manila, dated February 28, 1933, decreeing the dissolution of the Rural Transit
Company, Ltd.

At the trial of this case before the Public Service Commission an issue was raised as to who was the real party
in interest making the application, whether the Rural Transit Company, Ltd., as appeared on the face of the
application, or the Bachrach Motor Company, Inc., using name of the Rural Transit Company, Ltd., as a trade
name. The evidence given by the applicant's secretary, Olsen, is certainly very dubious and confusing, as may
be seen from the following:

Q. Will you please answer the question whether it is the Bachrach Motor Company operating under the
trade name of the Rural Transit Company, Limited, or whether it is the Rural Transit Company, Limited in its
own name this application was filed?

A. The Bachrach Motor Company is the principal stockholder.

Q. Please answer the question.

ESPELETA. Objecion porque la pregunta ya ha sido contestada.

JUEZ. Puede contestar.

A. I do not know what the legal construction or relationship existing between the two.

JUDGE. I do not know what is in your mind by not telling the real applicant in this case?

A. It is the Rural Transit Company, Ltd.

JUDGE. As an entity by itself and not by the Bachrach Motor Company?

A. I do not know. I have not given that phase of the matter much thought, as in previous occassion
had not necessitated.

JUDGE. In filing this application, you filed it for the operator on that line? Is it not!

A. Yes, sir.

JUDGE. Who is that operator?

A. The Rural Transit Company, Ltd.

JUDGE. By itself, or as a commercial name of the Bachrach Motor Company?

A. I cannot say.

ESPELETA. The Rural Transit Company, Ltd., is a corporation duly established in accordance with the laws of
the Philippine Islands.

JUDGE. According to the records of this commission the Bachrach Motor Company is the owner of the
certificates and the Rural Transit Company, Ltd., is operating without any certificate.

JUDGE. If you filed this application for the Rural Transit Company, Ltd., and afterwards it is found out that the
Rural Transit Company, Ltd., is not an operator, everything will be turned down.

JUDGE. My question was, when you filed this application you evidently made it for the operator?

A. Yes, sir.

JUDGE. Who was that operator you had in mind?

A. According to the status of the ownership of the certificates of the former Rural Transit Company,
the operator was the operator authorized in case No. 23217 to whom all of the assets of the former Rural
Transit Company were sold.

JUDGE. Bachrach Motor Company?

A. All actions have been prosecuted in the name of the Rural Transit Company, Ltd.

JUDGE. You mean the Bachrach Motor Company, Inc., doing business under the name of the Rural Transit
Company, Ltd.?

A. Yes, sir.

LOCKWOOD. I move that this case be dismissed, your Honor, on the ground that this application was made in
the name of one party but the real owner is another party.

ESPELETA. We object to that petition.

JUDGE. I will have that in mind when I decide the case. If I agree with you everything would be finished.

The Bachrach Motor Company, Inc., entered no appearance and ostensibly took no part in the hearing of the
application of the Rural Transit Company, Ltd. It may be a matter of some surprise that the commission did
not on its own motion order the amendment of the application by substituting the Bachrach Motor Company,
Inc., as the applicant. However, the hearing proceeded on the application as filed and the decision of
December 2, 1932, was rendered in favor of the Rural Transit Company, Ltd., and the certificate ordered to be
issued in its name, in the face of the evidence that the said corporation was not the real party in interest. In
its said decision, the commission undertook to meet the objection by referring to its resolution of November
26, 1932, entered in another case. This resolution in case No. 23217 concludes as follows:

Premises considered we hereby authorize the Bachrach Motor Co., Inc., to continue using the name of "Rural
Transit Co., Ltd.," as its trade name in all the applications, motions or other petitions to be filed in this
commission in connection with said business and that this authority is given retroactive effect as of the date,
of filing of the application in this case, to wit, April 29, 1930.

We know of no law that empowers the Public Service Commission or any court in this jurisdiction to authorize
one corporation to assume the name of another corporation as a trade name. Both the Rural Transit Company,
Ltd., and the Bachrach Motor Co., Inc., are Philippine corporations and the very law of their creation and
continued existence requires each to adopt and certify a distinctive name. The incorporators "constitute a body
politic and corporate under the name stated in the certificate." (Section 11, Act No. 1459, as amended.) A
corporation has the power "of succession by its corporate name." (Section 13, ibid.) The name of a
corporation is therefore essential to its existence. It cannot change its name except in the manner provided by
the statute. By that name alone is it authorized to transact business.

The law gives a corporation no express or implied authority to assume another name that is unappropriated:
still less that of another corporation, which is expressly set apart for it and protected by the law. If any
corporation could assume at pleasure as an unregistered trade name the name of another corporation, this
practice would result in confusion and open the door to frauds and evasions and difficulties of administration
and supervision. The policy of the law expressed in our corporation statute and the Code of Commerce is
clearly against such a practice. (Cf. Scarsdale Pub. Co. Colonial Press vs. Carter, 116 New York Supplement,
731; Svenska Nat. F. i. C. vs. Swedish Nat. Assn., 205 Illinois [Appellate Courts], 428, 434.)

The order of the commission of November 26, 1932, authorizing the Bachrach Motor Co., Incorporated, to
assume the name of the Rural Transit Co., Ltd. likewise in corporated, as its trade name being void, and
accepting the order of December 21, 1932, at its face as granting a certificate of public convenience to the
applicant Rural Transit Co., Ltd., the said order last mentioned is set aside and vacated on the ground that the
Rural Transit Company, Ltd., is not the real party in interest and its application was fictitious.

In view of the dissolution of the Rural Transit Company, Ltd. by judicial decree of February 28, 1933, we do
not see how we can assess costs against said respondent, Rural Transit Company, Ltd.

THIRD DIVISION

G.R. No. 117890 September 18, 1997

PISON-ARCEO AGRICULTURAL and DEVELOPMENT CORPORATION, petitioner,

vs.

NATIONAL LABOR RELATIONS COMMISSION and NATIONAL FEDERATION OF SUGAR WORKERS-FOOD and
GENERAL TRADE (NFSW-FGT)/JESUS PASCO, MARTIN BONARES, EVANGELINE PASCO, TERESITA NAVA,
FELIXBERTO NAVA, JOHNNY GARRIDO, EDUARDO NUEZ and DELMA NUEZ, respondents.

DECISION

PANGANIBAN, J.:

In the proceedings before the labor arbiter, only the unregistered trade name of the employer-corporation and
its administrator/manager were impleaded and subsequently held liable for illegal dismissal, backwages and
separation pay. On appeal, however, the National Labor Relations Commission motu proprio included the
corporate name of the employer as jointly and severally liable for the workers claims. Because of such
inclusion, the corporation now raises of due process and jurisdiction before this Court.

The Case

Assailed in this petition for certiorari under Rule 65 of the Rules of Court is the Decision 1 of Public Respondent
National Labor Relations Commission 2 in NLRC Case No. V-0334-92 3 promulgated on September 27, 1993
and its Resolution 4 promulgated on September 12, 1994 denying reconsideration. Affirming the decision 5
dated September 2, 1992 of Executive Labor Arbiter Oscar S. Uy, the impugned NLRC Decision disposed thus:
6

WHEREFORE, judgment is hereby rendered affirming the decision of Executive Labor Arbiter Oscar S. Uy,
dated September 2, 1992, subject to the amendments and modification stated above and ordering the
respondent-appellant, Jose Edmundo Pison and the respondent Pison-Arceo Agricultural and Development
Corporation to pay jointly and severally the claims for backwages and separation pay of the complainant-
appellees in the above-entitled case, except the claims of Danny Felix and Helen Felix, in the amount specified
below:

Name Backwages Separation Pay Total

1. Jesus Pasco P14,729.00 P12,818.06 P27,547.06

2. Evangeline Pasco 14,729.00 12,874.81 27,603.81

3. Martin Bonares 14,729.00 9,035.06 23,764.06

4. Mariolita Bonares 14,729.00 8,455.00 23,184.00

5. Felixberto Nava 14,729.00 13,505.31 28,234.31

6. Teresita Nava 14,729.00 3,417.31 18,146.31

7. Johnny Garrido 8,489.00 4,463.94 12,952.94

8. Eduardo Nuez 8,489.00 11,399.44 19,888.44

9. Delma Nuez 8,489.00 9,507.94 17,996.94

In addition, the respondent-appellant and the respondent corporation are ordered to pay attorneys fees
equivalent to ten (10%) percent of the total award.

The dispositive portion of the assailed Resolution, on the other hand, reads: 7

WHEREFORE, the decision in question is hereby modified in the sense that the monetary award of Mariolita
Bonares be [sic] deleted. Except for such modification, the rest of the decision stands.

Arguing that the National Labor Relations Commission did not have jurisdiction over it because it was not a
party before the labor arbiter, petitioner elevated this matter before this Court via a petition for certiorari
under Rule 65.

Acting on petitioners prayer 8, this Court (First Division) issued on January 18, 1995 a temporary restraining
order enjoining the respondents from executing the assailed Decision and Resolution.

The Facts

As gathered from the complaint 9 and other submissions of the parties filed with Executive Labor Arbiter Oscar
S. Uy, the facts of the case are as follows:

Together with Complainants Danny and Helen Felix, private respondents Jesus Pasco, Evangeline Pasco,
Martin Bonares, Teresita Nava, Felixberto Nava, Johnny Garrido, Eduardo Nuez and Delma Nuez, all
represented by Private Respondent National Federation of Sugar Workers-Food and General Trade (NSFW-
FGT) filed on June 13, 1988 a complaint for illegal dismissal, reinstatement, payment of backwages and
attorneys fees against Hacienda Lanutan/Jose Edmundo Pison. Complainants alleged that they were
previously employed as regular sugar farm workers of Hacienda Lanutan in Talisay, Negros Occidental. On the
other hand, Jose Edmundo Pison claimed that he was merely the administrator of Hacienda Lanutan which
was owned by Pison-Arceo Agricultural and Development Corporation.

As earlier stated, the executive labor arbiter rendered on September 2, 1992 a decision in favor of the
workers-complainants, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering respondent Jose Edmundo
Pison/Hda. Lanutan, Talisay, Negros Occidental, to PAY the following complainants their backwages (one year)
plus separation pay in the following amounts, to wit:

BACKWAGES SEPARATION PAY TOTAL

1. J. Pasco P14,729.00 P12,818.06 P27,547.06

2. E. Pasco 14,729.00 12,784.81 27,603.81

3. Bonares 14,729.00 8,404.56 23,133.56

4. F. Nava 14,729.00 13,505.31 28,234.31

5. T. Nava 14,729.00 3,427.31 18,146.31

6. J. Garrido 8,489.00 4,463.94 12,952.94

7. E. Nuez 8,489.00 11,399.44 19,888.44

8. D. Nuez 8,489.00 9,507.94 17,996.94

plus ten percent (10%) of the total award as attorneys fees in the amount of P17,550.34 or in the total
amount of ONE HUNDRED NINETY THREE THOUSAND FIFTY THREE AND 71/100 (P193,053.71), all these
amounts to be deposited with this Office within ten (10) days from receipt of this decision. The claim of
complainants Danny and Helen Felix are hereby DENIED for lack of merit.

In affirming the decision of the executive labor arbiter, public respondent ordered respondent-appellant, Jose
Edmundo Pison and the respondent Pison-Arceo Agricultural and Development Corporation to pay jointly and
severally the claims for backwages and separation pay of private respondents. The motion for reconsideration
dated October 14, 1993 was apparently filed by Jose Edmundo Pison for and on his own behalf only. However,
Pison did not elevate his case before this Court. The sole petitioner now before us is Pison-Arceo Agricultural
and Development Corporation, the owner of Hacienda Lanutan.

The Issue

Petitioner submits only one issue for our resolution: 10

Public Respondent NLRC acted without or in excess of jurisdiction or with grave abuse of discretion when it
included motu proprio petitioner corporation as a party respondent and ordered said corporation liable to pay
jointly and severally, with Jose Edmundo Pison the claims of private respondents.

In essence, petitioner alleges deprivation of due process.

The Courts Ruling

The petition lacks merit.

Petitioner contends that it was never served any summons; hence, public respondent did not acquire
jurisdiction over it. It argues that from the time the complaint was filed before the Regional Arbitration Branch
No. VI up to the time the said case was appealed by Jose Edmundo Pison to the NLRC, Cebu, petitioner
Corporation was never impleaded as one of the parties . . . . It was only in the public respondents assailed
Decision of September 27, 1993 that petitioner Corporation was wrongly included as party respondent
without its knowledge. Copies of the assailed Decision and Resolution were not sent to petitioner but only to
Jose Edmundo Pison, on the theory that the two were one and the same. Petitioner avers that Jose Edmundo
Pison, is only a minority stockholder of Hacienda Lanutan, which in turn is one of the of business of
petitioner. 11 Petitioner further argues that it did not voluntarily appear before said tribunal and that it was
not given (any) opportunity to be heard,12 thus, the assailed Decision and Resolution in this case are void
for having been issued without jurisdiction. 13

In its memorandum, petitioner adds that Eden vs. Ministry of Labor and Employment, 14 cited by public
respondent, does not apply to this case. In Eden, petitioners were duly served with notices of hearings, while
in the instant case, the petitioner was never summoned nor was served with notice of hearings as a
respondent in the case. 15

At the outset, we must stress that in quasi-judicial proceedings, procedural rules governing service of
summons are not strictly construed. Substantial compliance thereof is sufficient. 16 Also, in labor cases,
punctilious adherence to stringent technical rules may be relaxed in the interest of the working man; it should
not defeat the complete and equitable resolution of the rights and obligations of the parties. This Court is ever
mindful of the underlying spirit and intention of the Labor Code to ascertain the facts of each case speedily
and objectively without regard to technical rules of law and procedure, all in the interest of due process. 17
Furthermore, the Labor Code itself, as amended by RA 6715, 18 provides for the specific power of the
Commission to correct, amend, or waive any error, defect or irregularity whether in the substance or in the
form of the proceedings before it 19 under Article 218 (c) as follows:

(c) To conduct investigation for the determination of a question, matter or controversy within its jurisdiction,
proceed to hear and determine the disputes in the absence of any party thereto who has been summoned or
served with notice to appear, conduct its proceedings or any part thereof in public or in private, adjourn its
hearings to any time and place, refer technical matters or accounts to an expert and to accept his report as
evidence after hearing of the parties upon due notice, direct parties to be joined in or excluded from the
proceedings, correct, amend, or waive any error, defect or irregularity whether in substance or in form, give all
such directions as it may deem necessary or expedient in the determination of the dispute before it, and
dismiss any matter or refrain from further hearing or from determining the dispute or part thereof, where it is
trivial or where further proceedings by the Commission are not necessary or desirable; . . . (Emphasis
supplied.)

In this case, there are legal and factual reasons to hold petitioner jointly and severally liable with Jose
Edmundo Pison.

Jurisdiction Acquired Over Petitioner

Consistent with the foregoing principles applicable to labor cases, we find that jurisdiction was acquired over
the petitioner. There is no dispute that Hacienda Lanutan, which was owned SOLELY by petitioner, was
impleaded and was heard. If at all, the non-inclusion of the corporate name of petitioner in the case before
the executive labor arbiter was a mere procedural error which did not at all affect the jurisdiction of the labor
tribunals. 20 Petitioner was adequately represented in the proceedings conducted at the regional arbitration
branch by no less than Hacienda Lanutans administrator, Jose Edmundo Pison, who verified and signed
his/Hacienda Lanutans position paper and other pleadings submitted before the labor arbiter. It can thus be
said that petitioner, acting through its corporate officer Jose Edmundo Pison, traversed private respondents
complaint and controverted their claims. Further rebutted by petitioner are the following findings of public
respondent: 21

It should further be noted that two responsible employees of the said corporation, namely, Teresita Dangcasil,
the secretary of the administrator/manager, and Fernando Gallego, the hacienda overseer, had submitted their
affidavits, both dated July 20, 1988, as part of the evidence for the respondent, and that, as shown by the
records, the lawyer who appeared as the legal counsel of the respondent-appellant, specifically, Atty. Jose Ma.
Torres, of the Torres and Valencia Law Office in Bacolod City, (Rollo, p. 17) was also the legal counsel of the
said corporation. (Rollo, p. 23)

Also, it is undisputed that summons and all notices of hearing were duly served upon Jose Edmundo Pison.
Since Pison is the administrator and representative of petitioner in its property (Hacienda Lanutan) and
recognized as such by the workers therein, we deem the service of summons upon him as sufficient and
substantial compliance with the requirements for service of summons and other notices in respect of petitioner
corporation. Insofar as the complainants are concerned, Jose Edmundo Pison was their employer and/or their
employers representative. In view of the peculiar circumstances of this case, we rule that Jose Pisons
knowledge of the labor case and effort to resist can be deemed knowledge and action of the corporation.
Indeed, to apply the normal precepts on corporate fiction and the technical rules on service of summons would
be to overturn the bias of the Constitution and the laws in favor of labor.

Hence, it is fair to state that petitioner, through its administrator and manager, Jose Edmundo Pison, was duly
notified of the labor case against it and was actually afforded an opportunity to be heard. That it refused to
take advantage of such opportunity and opted to hide behind its corporate veil will not shield it from the
encompassing application of labor laws. As we held in Bautista vs. Secretary of Labor and Employment: 22

Moreover, since the proceeding was not judicial but merely administrative, the rigid requirements of
procedural laws were not strictly enforceable. It is settled that

While the administrative tribunals exercising quasi-judicial powers are free from the rigidity of certain
procedural requirements they are bound by law and practice to observe the fundamental and essential
requirements of due process in justiciable cases presented before them. However, the standard of due process
that must be met in administrative tribunals allows a certain latitude as long as the element of fairness is not
ignored. (fn: Adamson & Adamson, Inc. vs. Amores, 152 SCRA 237).

xxx xxx xxx

It is of course also sound and settled rule that administrative agencies performing quasi-judicial functions are
unfettered by the rigid technicalities of procedure observed in the courts of law, and this is so that disputes
brought before such bodies may be resolved in the most expeditious and inexpensive manner possible. (fn:
Rizal Workers Union vs. Ferrer-Calleja, 186 SCRA 431).

Given all these circumstances, we feel that the lack of summons upon the petitioners is not sufficient
justification for annulling the acts of the public respondents.

Contrary to petitioners contention, the principles laid down in Eden are to relevant to this case. In that case, a
religious organization, SCAFI, 23 denied responsibility for the monetary claims of several employees, as these
were filed against SCAPS 24 and its officer in charge the employees believed that SCAPS was their
employer. In rejecting such defense, this Court ruled: 25

With regard to the contention that SCAPS and SCAFI are two different entities, this lacks merit. The change
from SCAPS to SCAFI was a mere modification, if not rectification of the caption as to respondent in the MOLE
case, when it was pointed out in the complainants position paper that SCAPS belongs to or is integral with
SCAFI as gleaned from the brochure, Annex A of said position paper, which is already part of the records of
the case and incorporated in the Comment by way of reference. The brochure stated that SCAPS is the
implementing and service arm of SCAFI, with Bishop Gaviola as National Director of SCAPS and Board
Chairman of SCAFI, both their address: 2655 F.B. Harrison, St., Pasay City. Thus, the real party in interest is
SCAFI, more so because it has the juridical personality that can sue and be sued. The change in caption from
SCAPS to SCAFI however does not absolve SCAPS from liability, for SCAFI includes SCAPS, SCAPS the arm,
SCAFI, the organism to which the arm is an integral part of the rise and fall of SCAPS, and vice-versa. Thus,
SCAFI has never been a stranger to the case. Jurisprudence is to the effect that:

An action may be entertained, notwithstanding the failure to include an indispensable party where it appears
that the naming of the party would be a formality. (Baguio vs. Rodriguez, L-11078, May 27, 1959)

Comparable to Eden, Hacienda Lanutan is an arm of petitioner, the organism of which it is an integral part.
Ineluctably, the real party in interest in this case is petitioner, not Hacienda Lanutan which is merely its non-
juridical arm. In dealing with private respondents, petitioner represented itself to be Hacienda Lanutan.
Hacienda Lanutan is roughly equivalent to its trade name or even nickname or alias. The names may have
been different, but the IDENTITY of the petitioner is not in dispute. Thus, it may be sued under the same by
which it made itself known to the workers.
Liability of Jose Edmundo Pison

Jose Edmundo Pison did not appeal from the Decision of public respondent. It thus follows that he is bound by
the said judgment. A party who has not appealed an adverse decision cannot obtain from the appellate court
any affirmative relief other than those granted, if there is any, in the decision of the lower court or
administrative body. 26

WHEREFORE, premises considered, the petition is hereby DISMISSED, for its failure to show grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of the National Labor Relations Commission.
The assailed Decision and Resolution are AFFIRMED. The temporary restraining order issued on January 19,
1995 is hereby LIFTED. Cost against petitioner.

SO ORDERED.

G.R. No. 96161 February 21, 1992

PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC.,
petitioners,
vs.
COURT OF APPEALS, SECURITIES & EXCHANGE COMMISSION and STANDARD PHILIPS CORPORATION,
respondents.

Emeterio V. Soliven & Associates for petitioners.

Narciso A. Manantan for private respondent.

MELENCIO-HERRERA, J.:

Petitioners challenge the Decision of the Court of Appeals, dated 31 July 1990, in CA-GR Sp. No. 20067,
upholding the Order of the Securities and Exchange Commission, dated 2 January 1990, in SEC-AC No. 202,
dismissing petitioners' prayer for the cancellation or removal of the word "PHILIPS" from private respondent's
corporate name.

Petitioner Philips Export B.V. (PEBV), a foreign corporation organized under the laws of the Netherlands,
although not engaged in business here, is the registered owner of the trademarks PHILIPS and PHILIPS
SHIELD EMBLEM under Certificates of Registration Nos. R-1641 and R-1674, respectively issued by the
Philippine Patents Office (presently known as the Bureau of Patents, Trademarks and Technology Transfer).
Petitioners Philips Electrical Lamps, Inc. (Philips Electrical, for brevity) and Philips Industrial Developments,
Inc. (Philips Industrial, for short), authorized users of the trademarks PHILIPS and PHILIPS SHIELD EMBLEM,
were incorporated on 29 August 1956 and 25 May 1956, respectively. All petitioner corporations belong to the
PHILIPS Group of Companies.

Respondent Standard Philips Corporation (Standard Philips), on the other hand, was issued a Certificate of
Registration by respondent Commission on 19 May 1982.

On 24 September 1984, Petitioners filed a letter complaint with the Securities & Exchange Commission (SEC)
asking for the cancellation of the word "PHILIPS" from Private Respondent's corporate name in view of the
prior registration with the Bureau of Patents of the trademark "PHILIPS" and the logo "PHILIPS SHIELD
EMBLEM" in the name of Petitioner, PEBV, and the previous registration of Petitioners Philips Electrical and
Philips Industrial with the SEC.
As a result of Private Respondent's refusal to amend its Articles of
on 6 February 1985, a Petition (SEC Case No. 2743) praying
Injunction, alleging, among others, that Private Respondent's
infringement and clear violation of Petitioners' exclusive right to
engage in the same business.
Incorporation, Petitioners filed with the SEC,
for the issuance of a Writ of Preliminary
use of the word PHILIPS amounts to an
use the same considering that both parties

In its Answer, dated 7 March 1985, Private Respondent countered that Petitioner PEBV has no legal capacity to
sue; that its use of its corporate name is not at all similar to Petitioners' trademark PHILIPS when considered
in its entirety; and that its products consisting of chain rollers, belts, bearings and cutting saw are grossly
different from Petitioners' electrical products.

After conducting hearings with respect to the prayer for Injunction; the SEC Hearing Officer, on 27 September
1985, ruled against the issuance of such Writ.

On 30 January 1987, the same Hearing Officer dismissed the Petition for lack of merit. In so ruling, the latter
declared that inasmuch as the SEC found no sufficient ground for the granting of injunctive relief on the basis
of the testimonial and documentary evidence presented, it cannot order the removal or cancellation of the
word "PHILIPS" from Private Respondent's corporate name on the basis of the same evidence adopted in toto
during trial on the merits. Besides, Section 18 of the Corporation Code (infra) is applicable only when the
corporate names in question are identical. Here, there is no confusing similarity between Petitioners' and
Private Respondent's corporate names as those of the Petitioners contain at least two words different from
that of the Respondent. Petitioners' Motion for Reconsideration was likewise denied on 17 June 1987.

On appeal, the SEC en banc affirmed the dismissal declaring that the corporate names of Petitioners and
Private Respondent hardly breed confusion inasmuch as each contains at least two different words and,
therefore, rules out any possibility of confusing one for the other.

On 30 January 1990, Petitioners sought an extension of time to file a Petition for Review on Certiorari before
this Court, which Petition was later referred to the Court of Appeals in a Resolution dated 12 February 1990.

In deciding to dismiss the petition on 31 July 1990, the Court of Appeals 1 swept aside Petitioners' claim that
following the ruling in Converse Rubber Corporation v. Universal Converse Rubber Products, Inc., et al, (G. R.
No. L-27906, January 8, 1987, 147 SCRA 154), the word PHILIPS cannot be used as part of Private
Respondent's corporate name as the same constitutes a dominant part of Petitioners' corporate names. In so
holding, the Appellate Court observed that the Converse case is not four-square with the present case
inasmuch as the contending parties in Converse are engaged in a similar business, that is, the manufacture of
rubber shoes. Upholding the SEC, the Appellate Court concluded that "private respondents' products consisting
of chain rollers, belts, bearings and cutting saw are unrelated and non-competing with petitioners' products
i.e. electrical lamps such that consumers would not in any probability mistake one as the source or origin of
the product of the other."

The Appellate Court denied Petitioners' Motion for Reconsideration on 20 November 1990, hence, this Petition
which was given due course on 22 April 1991, after which the parties were required to submit their
memoranda, the latest of which was received on 2 July 1991. In December 1991, the SEC was also required to
elevate its records for the perusal of this Court, the same not having been apparently before respondent Court
of Appeals.

We find basis for petitioners' plea.

As early as Western Equipment and Supply Co. v. Reyes, 51 Phil. 115 (1927), the Court declared that a
corporation's right to use its corporate and trade name is a property right, a right in rem, which it may assert
and protect against the world in the same manner as it may protect its tangible property, real or personal,
against trespass or conversion. It is regarded, to a certain extent, as a property right and one which cannot be
impaired or defeated by subsequent appropriation by another corporation in the same field (Red Line
Transportation Co. vs. Rural Transit Co., September 8, 1934, 20 Phil 549).

A name is peculiarly important as necessary to the very existence of a corporation (American Steel Foundries
vs. Robertson, 269 US 372, 70 Led 317, 46 S Ct 160; Lauman vs. Lebanon Valley R. Co., 30 Pa 42; First
National Bank vs. Huntington Distilling Co. 40 W Va 530, 23 SE 792). Its name is one of its attributes, an
element of its existence, and essential to its identity (6 Fletcher [Perm Ed], pp. 3-4). The general rule as to
corporations is that each corporation must have a name by which it is to sue and be sued and do all legal acts.
The name of a corporation in this respect designates the corporation in the same manner as the name of an
individual designates the person (Cincinnati Cooperage Co. vs. Bate. 96 Ky 356, 26 SW 538; Newport
Mechanics Mfg. Co. vs. Starbird. 10 NH 123); and the right to use its corporate name is as much a part of the
corporate franchise as any other privilege granted (Federal Secur. Co. vs. Federal Secur. Corp., 129 Or 375,
276 P 1100, 66 ALR 934; Paulino vs. Portuguese Beneficial Association, 18 RI 165, 26 A 36).

A corporation acquires its name by choice and need not select a name identical with or similar to one already
appropriated by a senior corporation while an individual's name is thrust upon him (See Standard Oil Co. of
New Mexico, Inc. v. Standard Oil Co. of California, 56 F 2d 973, 977). A corporation can no more use a
corporate name in violation of the rights of others than an individual can use his name legally acquired so as
to mislead the public and injure another (Armington vs. Palmer, 21 RI 109. 42 A 308).

Our own Corporation Code, in its Section 18, expressly provides that:

No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is
identical or deceptively or confusingly similar to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or contrary to existing law. Where a change in a corporate
name is approved, the commission shall issue an amended certificate of incorporation under the amended
name. (Emphasis supplied)

The statutory prohibition cannot be any clearer. To come within its scope, two requisites must be proven,
namely:

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

(2) the proposed name is either:

(a) identical; or

(b) deceptively or confusingly similar

to that of any existing corporation or to any other name already protected by law; or

(c) patently deceptive, confusing or contrary to existing law.

The right to the exclusive use of a corporate name with freedom from infringement by similarity is determined
by priority of adoption (1 Thompson, p. 80 citing Munn v. Americana Co., 82 N. Eq. 63, 88 Atl. 30; San
Francisco Oyster House v. Mihich, 75 Wash. 274, 134 Pac. 921). In this regard, there is no doubt with respect
to Petitioners' prior adoption of' the name ''PHILIPS" as part of its corporate name. Petitioners Philips Electrical
and Philips Industrial were incorporated on 29 August 1956 and 25 May 1956, respectively, while Respondent
Standard Philips was issued a Certificate of Registration on 12 April 1982, twenty-six (26) years later (Rollo, p.
16). Petitioner PEBV has also used the trademark "PHILIPS" on electrical lamps of all types and their
accessories since 30 September 1922, as evidenced by Certificate of Registration No. 1651.

The second requisite no less exists in this case. In determining the existence of confusing similarity in
corporate names, the test is whether the similarity is such as to mislead a person, using ordinary care and
discrimination. In so doing, the Court must look to the record as well as the names themselves (Ohio Nat. Life
Ins. Co. v. Ohio Life Ins. Co., 210 NE 2d 298). While the corporate names of Petitioners and Private
Respondent are not identical, a reading of Petitioner's corporate names, to wit: PHILIPS EXPORT B.V., PHILIPS
ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC., inevitably leads one to conclude
that "PHILIPS" is, indeed, the dominant word in that all the companies affiliated or associated with the
principal corporation, PEBV, are known in the Philippines and abroad as the PHILIPS Group of Companies.

Respondents maintain, however, that Petitioners did not present an iota of proof of actual confusion or
deception of the public much less a single purchaser of their product who has been deceived or confused or
showed any likelihood of confusion. It is settled, however, that proof of actual confusion need not be shown. It
suffices that confusion is probably or likely to occur (6 Fletcher [Perm Ed], pp. 107-108, enumerating a long
line of cases).

It may be that Private Respondent's products also consist of chain rollers, belts, bearing and the like, while
petitioners deal principally with electrical products. It is significant to note, however, that even the Director of
Patents had denied Private Respondent's application for registration of the trademarks "Standard Philips &
Device" for chain, rollers, belts, bearings and cutting saw. That office held that PEBV, "had shipped to its
subsidiaries in the Philippines equipment, machines and their parts which fall under international class where
"chains, rollers, belts, bearings and cutting saw," the goods in connection with which Respondent is seeking to
register 'STANDARD PHILIPS' . . . also belong" ( Inter Partes Case No. 2010, June 17, 1988, SEC Rollo).

Furthermore, the records show that among Private Respondent's primary purposes in its Articles of
Incorporation (Annex D, Petition p. 37, Rollo) are the following:

To buy, sell, barter, trade, manufacture, import, export, or otherwise acquire, dispose of, and deal in and deal
with any kind of goods, wares, and merchandise such as but not limited to plastics, carbon products, office
stationery and supplies, hardware parts, electrical wiring devices, electrical component parts, and/or
complement of industrial, agricultural or commercial machineries, constructive supplies, electrical supplies and
other merchandise which are or may become articles of commerce except food, drugs and cosmetics and to
carry on such business as manufacturer, distributor, dealer, indentor, factor, manufacturer's representative
capacity for domestic or foreign companies. (emphasis ours)

For its part, Philips Electrical also includes, among its primary purposes, the following:

To develop manufacture and deal in electrical products, including electronic, mechanical and other similar
products . . . (p. 30, Record of SEC Case No. 2743)

Given Private Respondent's aforesaid underlined primary purpose, nothing could prevent it from dealing in the
same line of business of electrical devices, products or supplies which fall under its primary purposes. Besides,
there is showing that Private Respondent not only manufactured and sold ballasts for fluorescent lamps with
their corporate name printed thereon but also advertised the same as, among others, Standard Philips (TSN,
before the SEC, pp. 14, 17, 25, 26, 37-42, June 14, 1985; pp. 16-19, July 25, 1985). As aptly pointed out by
Petitioners, [p]rivate respondent's choice of "PHILIPS" as part of its corporate name [STANDARD PHILIPS
CORPORATION] . . . tends to show said respondent's intention to ride on the popularity and established
goodwill of said petitioner's business throughout the world" (Rollo, p. 137). The subsequent appropriator of
the name or one confusingly similar thereto usually seeks an unfair advantage, a free ride of another's
goodwill (American Gold Star Mothers, Inc. v. National Gold Star Mothers, Inc., et al, 89 App DC 269, 191 F 2d
488).

In allowing Private Respondent the continued use of its corporate name, the SEC maintains that the corporate
names of Petitioners PHILIPS ELECTRICAL LAMPS. INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC.
contain at least two words different from that of the corporate name of respondent STANDARD PHILIPS
CORPORATION, which words will readily identify Private Respondent from Petitioners and vice-versa.
True, under the Guidelines in the Approval of Corporate and Partnership Names formulated by the SEC, the
proposed name "should not be similar to one already used by another corporation or partnership. If the
proposed name contains a word already used as part of the firm name or style of a registered company; the
proposed name must contain two other words different from the company already registered" (Emphasis
ours). It is then pointed out that Petitioners Philips Electrical and Philips Industrial have two words different
from that of Private Respondent's name.

What is lost sight of, however, is that PHILIPS is a trademark or trade name which was registered as far back
as 1922. Petitioners, therefore, have the exclusive right to its use which must be free from any infringement
by similarity. A corporation has an exclusive right to the use of its name, which may be protected by injunction
upon a principle similar to that upon which persons are protected in the use of trademarks and tradenames
(18 C.J.S. 574). Such principle proceeds upon the theory that it is a fraud on the corporation which has
acquired a right to that name and perhaps carried on its business thereunder, that another should attempt to
use the same name, or the same name with a slight variation in such a way as to induce persons to deal with
it in the belief that they are dealing with the corporation which has given a reputation to the name (6 Fletcher
[Perm Ed], pp. 39-40, citing Borden Ice Cream Co. v. Borden's Condensed Milk Co., 210 F 510). Notably, too,
Private Respondent's name actually contains only a single word, that is, "STANDARD", different from that of
Petitioners inasmuch as the inclusion of the term "Corporation" or "Corp." merely serves the Purpose of
distinguishing the corporation from partnerships and other business organizations.

The fact that there are other companies engaged in other lines of business using the word "PHILIPS" as part
of their corporate names is no defense and does not warrant the use by Private Respondent of such word
which constitutes an essential feature of Petitioners' corporate name previously adopted and registered and-
having acquired the status of a well-known mark in the Philippines and internationally as well (Bureau of
Patents Decision No. 88-35 [TM], June 17, 1988, SEC Records).

In support of its application for the registration of its Articles of Incorporation with the SEC, Private
Respondent had submitted an undertaking "manifesting its willingness to change its corporate name in the
event another person, firm or entity has acquired a prior right to the use of the said firm name or one
deceptively or confusingly similar to it." Private respondent must now be held to its undertaking.

As a general rule, parties organizing a corporation must choose a name at their peril; and the use of a name
similar to one adopted by another corporation, whether a business or a nonbusiness or non-profit organization
if misleading and likely to injure it in the exercise in its corporate functions, regardless of intent, may be
prevented by the corporation having the prior right, by a suit for injunction against the new corporation to
prevent the use of the name (American Gold Star Mothers, Inc. v. National Gold Star Mothers, Inc., 89 App DC
269, 191 F 2d 488, 27 ALR 2d 948).

WHEREFORE, the Decision of the Court of Appeals dated 31 July 1990, and its Resolution dated 20 November
1990, are SET ASIDE and a new one entered ENJOINING private respondent from using "PHILIPS" as a
feature of its corporate name, and ORDERING the Securities and Exchange Commission to amend private
respondent's Articles of Incorporation by deleting the word PHILIPS from the corporate name of private
respondent.

No costs.

SO ORDERED.

G.R. No. 101897. March 5, 1993.

LYCEUM OF THE PHILIPPINES, INC., petitioner, vs. COURT OF APPEALS, LYCEUM OF APARRI, LYCEUM OF
CABAGAN, LYCEUM OF CAMALANIUGAN, INC., LYCEUM OF LALLO, INC., LYCEUM OF TUAO, INC., BUHI
LYCEUM, CENTRAL LYCEUM OF CATANDUANES, LYCEUM OF SOUTHERN PHILIPPINES, LYCEUM OF EASTERN
MINDANAO, INC. and WESTERN PANGASINAN LYCEUM, INC., respondents.
Quisumbing, Torres & Evangelista Law Offices and Ambrosio Padilla for petitioner.

Antonio M. Nuyles and Purungan, Chato, Chato, Tarriela & Tan Law Offices for respondents.

Froilan Siobal for Western Pangasinan Lyceum.

SYLLABUS

1. CORPORATION LAW; CORPORATE NAMES; REGISTRATION OF PROPOSED NAME WHICH IS

IDENTICAL OR CONFUSINGLY SIMILAR TO THAT OF ANY EXISTING CORPORATION, PROHIBITED;
CONFUSION AND DECEPTION EFFECTIVELY PRECLUDED BY THE APPENDING OF GEOGRAPHIC NAMES TO
THE WORD "LYCEUM". The Articles of Incorporation of a corporation must, among other things, set out the
name of the corporation. Section 18 of the Corporation Code establishes a restrictive rule insofar as corporate
names are concerned: "Section 18. Corporate name. No corporate name may be allowed by the Securities
an Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that of any
existing corporation or to any other name already protected by law or is patently deceptive, confusing or
contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an
amended certificate of incorporation under the amended name." The policy underlying the prohibition in
Section 18 against the registration of a corporate name which is "identical or deceptively or confusingly
similar" to that of any existing corporation or which is "patently deceptive" or "patently confusing" or "contrary
to existing laws," is the avoidance of fraud upon the public which would have occasion to deal with the entity
concerned, the evasion of legal obligations and duties, and the reduction of difficulties of administration and
supervision over corporations. We do not consider that the corporate names of private respondent institutions
are "identical with, or deceptively or confusingly similar" to that of the petitioner institution. True enough, the
corporate names of private respondent entities all carry the word "Lyceum" but confusion and deception are
effectively precluded by the appending of geographic names to the word "Lyceum." Thus, we do not believe
that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the Philippines, or that
the "Lyceum of Camalaniugan" would be confused with the Lyceum of the Philippines.

2. ID.; ID.; DOCTRINE OF SECONDARY MEANING; USE OF WORD "LYCEUM," NOT ATTENDED WITH
EXCLUSIVITY. It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary
meaning in relation to petitioner with the result that word, although originally a generic, has become
appropriable by petitioner to the exclusion of other institutions like private respondents herein. The doctrine of
secondary meaning originated in the field of trademark law. Its application has, however, been extended to
corporate names sine the right to use a corporate name to the exclusion of others is based upon the same
principle which underlies the right to use a particular trademark or tradename. In Philippine Nut Industry, Inc.
v. Standard Brands, Inc., the doctrine of secondary meaning was elaborated in the following terms: " . . . a
word or phrase originally incapable of exclusive appropriation with reference to an article on the market,
because geographically or otherwise descriptive, might nevertheless have been used so long and so exclusively
by one producer with reference to his article that, in that trade and to that branch of the purchasing public,
the word or phrase has come to mean that the article was his product." The question which arises, therefore,
is whether or not the use by petitioner of "Lyceum" in its corporate name has been for such length of time and
with such exclusivity as to have become associated or identified with the petitioner institution in the mind of
the general public (or at least that portion of the general public which has to do with schools). The Court of
Appeals recognized this issue and answered it in the negative: "Under the doctrine of secondary meaning, a
word or phrase originally incapable of exclusive appropriation with reference to an article in the market,
because geographical or otherwise descriptive might nevertheless have been used so long and so exclusively
by one producer with reference to this article that, in that trade and to that group of the purchasing public, the
word or phrase has come to mean that the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56).
This circumstance has been referred to as the distinctiveness into which the name or phrase has evolved
through the substantial and exclusive use of the same for a considerable period of time. . . . No evidence was
ever presented in the hearing before the Commission which sufficiently proved that the word 'Lyceum' has
indeed acquired secondary meaning in favor of the appellant. If there was any of this kind, the same tend to
prove only that the appellant had been using the disputed word for a long period of time. . . . In other words,
while the appellant may have proved that it had been using the word 'Lyceum' for a long period of time, this
fact alone did not amount to mean that the said word had acquired secondary meaning in its favor because
the appellant failed to prove that it had been using the same word all by itself to the exclusion of others. More
so, there was no evidence presented to prove that confusion will surely arise if the same word were to be used
by other educational institutions. Consequently, the allegations of the appellant in its first two assigned errors
must necessarily fail." We agree with the Court of Appeals. The number alone of the private respondents in
the case at bar suggests strongly that petitioner's use of the word "Lyceum" has not been attended with the
exclusivity essential for applicability of the doctrine of secondary meaning. Petitioner's use of the word
"Lyceum" was not exclusive but was in truth shared with the Western Pangasinan Lyceum and a little later
with other private respondent institutions which registered with the SEC using "Lyceum" as part of their
corporation names. There may well be other schools using Lyceum or Liceo in their names, but not registered
with the SEC because they have not adopted the corporate form of organization.

3. ID.; ID.; MUST BE EVALUATED IN THEIR ENTIRETY TO DETERMINE WHETHER THEY ARE
CONFUSINGLY OR DECEPTIVELY SIMILAR TO ANOTHER CORPORATE ENTITY'S NAME. petitioner institution
is not entitled to a legally enforceable exclusive right to use the word "Lyceum" in its corporate name and that
other institutions may use "Lyceum" as part of their corporate names. To determine whether a given corporate
name is "identical" or "confusingly or deceptively similar" with another entity's corporate name, it is not
enough to ascertain the presence of "Lyceum" or "Liceo" in both names. One must evaluate corporate names
in their entirety and when the name of petitioner is juxtaposed with the names of private respondents, they
are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other.

DECISION

FELICIANO, J p:

Petitioner is an educational institution duly registered with the Securities and Exchange Commission ("SEC").
When it first registered with the SEC on 21 September 1950, it used the corporate name Lyceum of the
Philippines, Inc. and has used that name ever since.

On 24 February 1984, petitioner instituted proceedings before the SEC to compel the private respondents,
which are also educational institutions, to delete the word "Lyceum" from their corporate names and
permanently to enjoin them from using "Lyceum" as part of their respective names.

Some of the private respondents actively participated in the proceedings before the SEC. These are the
following, the dates of their original SEC registration being set out below opposite their respective names:

Western Pangasinan Lyceum 27 October 1950

Lyceum of Cabagan 31 October 1962

Lyceum of Lallo, Inc. 26 March 1972

Lyceum of Aparri 28 March 1972

Lyceum of Tuao, Inc. 28 March 1972

Lyceum of Camalaniugan 28 March 1972

The following private respondents were declared in default for failure to file an answer despite service of
summons:

Buhi Lyceum;
Central Lyceum of Catanduanes;

Lyceum of Eastern Mindanao, Inc.; and

Lyceum of Southern Philippines

Petitioner's original complaint before the SEC had included three (3) other entities:

1. The Lyceum of Malacanay;

2. The Lyceum of Marbel; and

3. The Lyceum of Araullo

The complaint was later withdrawn insofar as concerned the Lyceum of Malacanay and the Lyceum of Marbel,
for failure to serve summons upon these two (2) entities. The case against the Liceum of Araullo was
dismissed when that school motu proprio change its corporate name to "Pamantasan ng Araullo."

The background of the case at bar needs some recounting. Petitioner had sometime before commenced in the
SEC a proceeding (SEC-Case No. 1241) against the Lyceum of Baguio, Inc. to require it to change its corporate
name and to adopt another name not "similar [to] or identical" with that of petitioner. In an Order dated 20
April 1977, Associate Commissioner Julio Sulit held that the corporate name of petitioner and that of the
Lyceum of Baguio, Inc. were substantially identical because of the presence of a "dominant" word, i.e.,
"Lyceum," the name of the geographical location of the campus being the only word which distinguished one
from the other corporate name. The SEC also noted that petitioner had registered as a corporation ahead of
the Lyceum of Baguio, Inc. in point of time, 1 and ordered the latter to change its name to another name "not
similar or identical [with]" the names of previously registered entities.

The Lyceum of Baguio, Inc. assailed the Order of the SEC before the Supreme Court in a case docketed as
G.R. No. L-46595. In a Minute Resolution dated 14 September 1977, the Court denied the Petition for Review
for lack of merit. Entry of judgment in that case was made on 21 October 1977. 2

Armed with the Resolution of this Court in G.R. No. L-46595, petitioner then wrote all the educational
institutions it could find using the word "Lyceum" as part of their corporate name, and advised them to
discontinue such use of "Lyceum." When, with the passage of time, it became clear that this recourse had
failed, petitioner instituted before the SEC SEC-Case No. 2579 to enforce what petitioner claims as its
proprietary right to the word "Lyceum." The SEC hearing officer rendered a decision sustaining petitioner's
claim to an exclusive right to use the word "Lyceum." The hearing officer relied upon the SEC ruling in the
Lyceum of Baguio, Inc. case (SEC-Case No. 1241) and held that the word "Lyceum" was capable of
appropriation and that petitioner had acquired an enforceable exclusive right to the use of that word.

On appeal, however, by private respondents to the SEC En Banc, the decision of the hearing officer was
reversed and set aside. The SEC En Banc did not consider the word "Lyceum" to have become so identified
with petitioner as to render use thereof by other institutions as productive of confusion about the identity of
the schools concerned in the mind of the general public. Unlike its hearing officer, the SEC En Banc held that
the attaching of geographical names to the word "Lyceum" served sufficiently to distinguish the schools from
one another, especially in view of the fact that the campuses of petitioner and those of the private
respondents were physically quite remote from each other. 3

Petitioner then went on appeal to the Court of Appeals. In its Decision dated 28 June 1991, however, the
Court of Appeals affirmed the questioned Orders of the SEC En Banc. 4 Petitioner filed a motion for
reconsideration, without success.
Before this Court, petitioner asserts that the Court of Appeals committed the following errors:

1. The Court of Appeals erred in holding that the Resolution of the Supreme Court in G.R. No. L-46595 did
not constitute stare decisis as to apply to this case and in not holding that said Resolution bound subsequent
determinations on the right to exclusive use of the word Lyceum.

2. The Court of Appeals erred in holding that respondent Western Pangasinan Lyceum, Inc. was
incorporated earlier than petitioner.

3. The Court of Appeals erred in holding that the word Lyceum has not acquired a secondary meaning in
favor of petitioner.

4. The Court of Appeals erred in holding that Lyceum as a generic word cannot be appropriated by the
petitioner to the exclusion of others. 5

We will consider all the foregoing ascribed errors, though not necessarily seriatim. We begin by noting that the
Resolution of the Court in G.R. No. L-46595 does not, of course, constitute res adjudicata in respect of the
case at bar, since there is no identity of parties. Neither is stare decisis pertinent, if only because the SEC En
Banc itself has re-examined Associate Commissioner Sulit's ruling in the Lyceum of Baguio case. The Minute
Resolution of the Court in G.R. No. L-46595 was not a reasoned adoption of the Sulit ruling.

The Articles of Incorporation of a corporation must, among other things, set out the name of the corporation.
6 Section 18 of the Corporation Code establishes a restrictive rule insofar as corporate names are concerned:

"SECTION 18. Corporate name. No corporate name may be allowed by the Securities an Exchange
Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to
existing laws. When a change in the corporate name is approved, the Commission shall issue an amended
certificate of incorporation under the amended name." (Emphasis supplied)

The policy underlying the prohibition in Section 18 against the registration of a corporate name which is
"identical or deceptively or confusingly similar" to that of any existing corporation or which is "patently
deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon the public
which would have occasion to deal with the entity concerned, the evasion of legal obligations and duties, and
the reduction of difficulties of administration and supervision over corporations. 7

We do not consider that the corporate names of private respondent institutions are "identical with, or
deceptively or confusingly similar" to that of the petitioner institution. True enough, the corporate names of
private respondent entities all carry the word "Lyceum" but confusion and deception are effectively precluded
by the appending of geographic names to the word "Lyceum." Thus, we do not believe that the "Lyceum of
Aparri" can be mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum of
Camalaniugan" would be confused with the Lyceum of the Philippines.

Etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in turn referred to a locality
on the river Ilissius in ancient Athens "comprising an enclosure dedicated to Apollo and adorned with fountains
and buildings erected by Pisistratus, Pericles and Lycurgus frequented by the youth for exercise and by the
philosopher Aristotle and his followers for teaching." 8 In time, the word "Lyceum" became associated with
schools and other institutions providing public lectures and concerts and public discussions. Thus today, the
word "Lyceum" generally refers to a school or an institution of learning. While the Latin word "lyceum" has
been incorporated into the English language, the word is also found in Spanish (liceo) and in French (lycee).
As the Court of Appeals noted in its Decision, Roman Catholic schools frequently use the term; e.g., "Liceo de
Manila," "Liceo de Baleno" (in Baleno, Masbate), "Liceo de Masbate," "Liceo de Albay." 9 "Lyceum" is in fact as
generic in character as the word "university." In the name of the petitioner, "Lyceum" appears to be a
substitute for "university;" in other places, however, "Lyceum," or "Liceo" or "Lycee" frequently denotes a
secondary school or a college. It may be (though this is a question of fact which we need not resolve) that the
use of the word "Lyceum" may not yet be as widespread as the use of "university," but it is clear that a not
inconsiderable number of educational institutions have adopted "Lyceum" or "Liceo" as part of their corporate
names. Since "Lyceum" or "Liceo" denotes a school or institution of learning, it is not unnatural to use this
word to designate an entity which is organized and operating as an educational institution.

It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary meaning in relation to
petitioner with the result that that word, although originally a generic, has become appropriable by petitioner
to the exclusion of other institutions like private respondents herein.

The doctrine of secondary meaning originated in the field of trademark law. Its application has, however, been
extended to corporate names sine the right to use a corporate name to the exclusion of others is based upon
the same principle which underlies the right to use a particular trademark or tradename. 10 In Philippine Nut
Industry, Inc. v. Standard Brands, Inc., 11 the doctrine of secondary meaning was elaborated in the following
terms:

" . . . a word or phrase originally incapable of exclusive appropriation with reference to an article on the
market, because geographically or otherwise descriptive, might nevertheless have been used so long and so
exclusively by one producer with reference to his article that, in that trade and to that branch of the
purchasing public, the word or phrase has come to mean that the article was his product." 12

The question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its corporate name
has been for such length of time and with such exclusivity as to have become associated or identified with the
petitioner institution in the mind of the general public (or at least that /portion of the general public which has
to do with schools). The Court of Appeals recognized this issue and answered it in the negative:

"Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive appropriation
with reference to an article in the market, because geographical or otherwise descriptive might nevertheless
have been used so long and so exclusively by one producer with reference to this article that, in that trade and
to that group of the purchasing public, the word or phrase has come to mean that the article was his produce
(Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This circumstance has been referred to as the distinctiveness into
which the name or phrase has evolved through the substantial and exclusive use of the same for a
considerable period of time. Consequently, the same doctrine or principle cannot be made to apply where the
evidence did not prove that the business (of the plaintiff) has continued for so long a time that it has become
of consequence and acquired a good will of considerable value such that its articles and produce have
acquired a well-known reputation, and confusion will result by the use of the disputed name (by the
defendant) (Ang Si Heng vs. Wellington Department Store, Inc., 92 Phil. 448).

With the foregoing as a yardstick, [we] believe the appellant failed to satisfy the aforementioned requisites. No
evidence was ever presented in the hearing before the Commission which sufficiently proved that the word
'Lyceum' has indeed acquired secondary meaning in favor of the appellant. If there was any of this kind, the
same tend to prove only that the appellant had been using the disputed word for a long period of time.
Nevertheless, its (appellant) exclusive use of the word (Lyceum) was never established or proven as in fact the
evidence tend to convey that the cross-claimant was already using the word 'Lyceum' seventeen (17) years
prior to the date the appellant started using the same word in its corporate name. Furthermore, educational
institutions of the Roman Catholic Church had been using the same or similar word like 'Liceo de Manila,' 'Liceo
de Baleno' (in Baleno, Masbate), 'Liceo de Masbate,' 'Liceo de Albay' long before appellant started using the
word 'Lyceum'. The appellant also failed to prove that the word 'Lyceum' has become so identified with its
educational institution that confusion will surely arise in the minds of the public if the same word were to be
used by other educational institutions.

In other words, while the appellant may have proved that it had been using the word 'Lyceum' for a long
period of time, this fact alone did not amount to mean that the said word had acquired secondary meaning in
its favor because the appellant failed to prove that it had been using the same word all by itself to the
exclusion of others. More so, there was no evidence presented to prove that confusion will surely arise if the
same word were to be used by other educational institutions. Consequently, the allegations of the appellant in
its first two assigned errors must necessarily fail." 13 (Underscoring partly in the original and partly supplied)

We agree with the Court of Appeals. The number alone of the private respondents in the case at bar suggests
strongly that petitioner's use of the word "Lyceum" has not been attended with the exclusivity essential for
applicability of the doctrine of secondary meaning. It may be noted also that at least one of the private
respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term "Lyceum" seventeen (17) years before
the petitioner registered its own corporate name with the SEC and began using the word "Lyceum." It follows
that if any institution had acquired an exclusive right to the word "Lyceum," that institution would have been
the Western Pangasinan Lyceum, Inc. rather than the petitioner institution.

In this connection, petitioner argues that because the Western Pangasinan Lyceum, Inc. failed to reconstruct
its records before the SEC in accordance with the provisions of R.A. No. 62, which records had been destroyed
during World War II, Western Pangasinan Lyceum should be deemed to have lost all rights it may have
acquired by virtue of its past registration. It might be noted that the Western Pangasinan Lyceum, Inc.
registered with the SEC soon after petitioner had filed its own registration on 21 September 1950. Whether or
not Western Pangasinan Lyceum, Inc. must be deemed to have lost its rights under its original 1933
registration, appears to us to be quite secondary in importance; we refer to this earlier registration simply to
underscore the fact that petitioner's use of the word "Lyceum" was neither the first use of that term in the
Philippines nor an exclusive use thereof. Petitioner's use of the word "Lyceum" was not exclusive but was in
truth shared with the Western Pangasinan Lyceum and a little later with other private respondent institutions
which registered with the SEC using "Lyceum" as part of their corporation names. There may well be other
schools using Lyceum or Liceo in their names, but not registered with the SEC because they have not adopted
the corporate form of organization.

We conclude and so hold that petitioner institution is not entitled to a legally enforceable exclusive right to use
the word "Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of their
corporate names. To determine whether a given corporate name is "identical" or "confusingly or d eceptively
similar" with another entity's corporate name, it is not enough to ascertain the presence of "Lyceum" or
"Liceo" in both names. One must evaluate corporate names in their entirety and when the name of petitioner
is juxtaposed with the names of private respondents, they are not reasonably regarded as "identical" or
"confusingly or deceptively similar" with each other.

WHEREFORE, the petitioner having failed to show any reversible error on the part of the public respondent
Court of Appeals, the Petition for Review is DENIED for lack of merit, and the Decision of the Court of Appeals
dated 28 June 1991 is hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.

PURPOSE CLAUSE

G.R. No. 9321 September 24, 1914

NORBERTO ASUNCION, ET AL., petitioners-appellants,

vs.
MANUEL DE YRIARTE, respondent-appellee.

Modesto Reyes for appellants.

Attorney-General Villamor for appellee.

MORELAND, J.:
This is an action to obtain a writ of mandamus to compel the chief of the division of archives of the Executive
Bureau to file a certain articles of incorporation.

The chief of the division of archives, the respondent, refused to file the articles of incorporation, hereinafter
referred to, upon the ground that the object of the corporation, as stated in the articles, was not lawful and
that, in pursuance of section 6 of Act No. 1459, they were not registerable.

The proposed incorporators began an action in the Court of First Instance of the city of Manila to compel the
chief of the division of archives to receive and register said articles of incorporation and to do any and all acts
necessary for the complete incorporation of the persons named in the articles. The court below found in favor
of the defendant and refused to order the registration of the articles mentioned, maintaining ad holding that
the defendant, under the Corporation Law, had authority to determine both the sufficiency of the form of the
articles and the legality of the object of the proposed corporation. This appeal is taken from that judgment.

The first question that arises is whether or not the chief of the division of archives has authority, under the
Corporation for registration, to decide not only as to the sufficiency of the form of the articles, but also as to
the lawfulness of the purpose of the proposed corporation.

It is strongly urged on the part of the appellants that the duties of the defendant are purely ministerial and
that he has no authority to pass upon the lawfulness of the object for which the incorporators propose to
organize. No authorities are cited to support this proposition and we are of the opinion that it is not sound.

Section 6 of the Corporation Law reads in part as follows:

Five or more persons, not exceeding fifteen, a majority of whom are residents of the Philippine Islands, may
form a private corporation for any lawful purpose by filing with the division of archives, patents, copyrights,
and trademarks if the Executive Bureau articles of incorporation duly executed and acknowledged before a
notary public.

Simply because the duties of an official happens to be ministerial, it does not necessarily follow that he may
not, in the administration of his office, determine questions of law. We are of the opinion that it is the duty of
the division of archives, when articles of incorporation are presented for registration, to determine whether the
objects of the corporation as expressed in the articles are lawful. We do not believe that, simply because
articles of incorporation presented foe registration are perfect in form, the division of archives must accept and
register them and issue the corresponding certificate of incorporation no matter what the purpose of the
corporation may be as expressed in the articles. We do not believe it was intended that the division of archives
should issue a certificate of incorporation to, and thereby put the seal of approval of the Government upon, a
corporation which was organized for base of immoral purposes. That such corporation might later, if it sought
to carry out such purposes, be dissolved, or its officials imprisoned or itself heavily fined furnished no reason
why it should have been created in the first instance. It seems to us to be not only the right but the duty of
the divisions of archives to determine the lawfulness of the objects and purposes of the corporation before it
issues a certificate of incorporation.

It having determined that the division of archives, through its officials, has authority to determine not only the
sufficiency as to form of the articles of incorporation offered for registration, but also the lawfulness of the
purposes of leads us to the determination of the question whether or not the chief of the division of archives,
who is the representative thereof and clothed by it with authority to deal subject to mandamus in the
performance of his duties.

We are of the opinion that he may be mandamused if he act in violation of law or if he refuses, unduly, to
comply with the law. While we have held that defendant has power to pass upon the lawfulness of the
purposes of the proposed corporation and that he may, in the fulfillment of his duties, determine the question
of law whether or not those purposes are lawful and embraced within that class concerning which the law
permits corporations to be formed, that does not necessarily mean, as we have already intimated, that his
duties are not ministerial.

On the contrary, there is no incompatibility in holding, as we do hold, that his duties are ministerial and that
he has no authority to exercise discretion in receiving and registering articles of incorporation. He may exercise
judgment that is, the judicial function in the determination of the question of law referred to, but he may
not use discretion. The question whether or not the objects of a proposed corporation are lawful is one that
can be decided one way only. If he err in the determination of that question and refuse to file articles which
should be filed under the law, the decision is subject to review and correction and, upon proper showing, he
will be ordered to file the articles. This is the same kind of determination which a court makes when it decides
a case upon the merits, the court makes when it decides a case upon the merits. When a case is presented to
a court upon the merits, the court can decide only one way and be right.

As a matter of law, there is only one way and be right. As a matter of law, there is only one course to pursue.
In a case where the court or other official has discretion in the resolution of a question, then, within certain
limitations, he may decide the question either way and still be right. Discretion, it may be said generally, is a
faculty conferred upon a court or other official by which he may decide a question either way and still be right.
The power conferred upon the division of archives with respect to the registration of articles of incorporation is
not of that character. It is of the same character as the determination of a lawsuit by a court upon the merits.
It can be decided only one way correctly.

If, therefore, the defendant erred in determining the question presented when the articles were offered for
registration, then that error will be corrected by this court in this action and he will be compelled to register
the articles as offered. If, however, he did not commit an error, but decided that question correctly, then, of
course, his action will be affirmed to the extent that we will deny the relief prayed for.

The next question leads us to the determination of whether or not the purposes of the corporation as stated in
the articles of incorporation are lawful within the meaning of the Corporation Law.

The purpose of the incorporation as stated in the articles is: "That the object of the corporation is (a) to
organize and regulate the management, disposition, administration and control which the barrio of Pulo or San
Miguel or its inhabitants or residents have over the common property of said residents or inhabitants or
property belonging to the whole barrio as such; and (b) to use the natural products of the said property for
institutions, foundations, and charitable works of common utility and advantage to the barrio or its
inhabitants."

The municipality of Pasig as recognized by law contains within its limits several barrios or small settlements,
like Pulo or San Miguel, which have no local government of their own but are governed by the municipality of
Pasig through its municipal president and council. The president and members of the municipal council are
elected by a general vote of the municipality, the qualified electors of all the barrios having the right to
participate.

The municipality of Pasig is a municipal corporation organized by law. It has the control of all property of the
municipality. The various barrios of the municipality have no right to own or hold property, they not being
recognized as legal entities by any law. The residents of the barrios participate in the advantages which accrue
to the municipality from public property and receive all the benefits incident to residence in a municipality
organized by law. If there is any public property situated in the barrio of Pulo or San Miguel not belonging to
the general government or the province, it belongs to the municipality of Pasig and the sole authority to
manage and administer the same resides in that municipality. Until the present laws upon the subject are
charged no other entity can be the owner of such property or control or administer it.

The object of the proposed corporation, as appears from the articles offered for registration, is to make of the
barrio of Pulo or San Miguel a corporation which will become the owner of and have the right to control and
administer any property belonging to the municipality of Pasig found within the limits of that barrio. This
clearly cannot be permitted. Otherwise municipalities as now established by law could be deprived of the
property which they now own and administer. Each barrio of the municipality would become under the scheme
proposed, a separate corporation, would take over the ownership, administration, and control of that portion
of the municipal territory within its limits. This would disrupt, in a sense, the municipalities of the Islands by
dividing them into a series of smaller municipalities entirely independent of the original municipality.

What the law does not permit cannot be obtained by indirection. The object of the proposed corporation is
clearly repugnant to the provisions of the Municipal Code and the governments of municipalities as they have
been organized thereunder. (Act No. 82, Philippine Commission.)

The judgment appealed from is affirmed, with costs against appellants.

[G.R. No. 156819. December 11, 2003]

ALICIA E. GALA, GUIA G. DOMINGO and RITA G. BENSON, petitioners, vs. ELLICE AGRO-INDUSTRIAL
CORPORATION, MARGO MANAGEMENT AND DEVELOPMENT CORPORATION, RAUL E. GALA, VITALIANO N.
AGUIRRE II, ADNAN V. ALONTO, ELIAS N. CRESENCIO, MOISES S. MANIEGO, RODOLFO B. REYNO, RENATO
S. GONZALES, VICENTE C. NOLAN, NESTOR N. BATICULON, respondents.
DECISION
YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the Rules of Court, seeking the reversal of the decision dated
November 8, 2002[1] and the resolution dated December 27, 2002[2] of the Court of Appeals in CA-G.R. SP
No. 71979.

On March 28, 1979, the spouses Manuel and Alicia Gala, their children Guia Domingo, Ofelia Gala, Raul Gala,
and Rita Benson, and their encargados Virgilio Galeon and Julian Jader formed and organized the Ellice Agro-
Industrial Corporation.[3] The total subscribed capital stock of the corporation was apportioned as follows:

Name Number of Shares Amount

Manuel R. Gala 11, 700 1,170,000.00
Alicia E. Gala 23,200 2,320,000.00
Guia G. Domingo 16 1,600.00
Ofelia E. Gala 40 4,000.00
Raul E. Gala 40 4,000.00
Rita G. Benson 2 200.00
Virgilio Galeon 1 100.00
Julian Jader 1 100.00
TOTAL 35,000 P3,500,000.00[4]

As payment for their subscriptions, the Gala spouses transferred several parcels of land located in the
provinces of Quezon and Laguna to Ellice. [5]

In 1982, Manuel Gala, Alicia Gala and Ofelia Gala subscribed to an additional 3,299 shares, 10,652.5 shares
and 286.5 shares, respectively. [6]

On June 28, 1982, Manuel Gala and Alicia Gala acquired an additional 550 shares and 281 shares, respectively.
[7]

Subsequently, on September 16, 1982, Guia Domingo, Ofelia Gala, Raul Gala, Virgilio Galeon and Julian Jader
incorporated the Margo Management and Development Corporation (Margo). [8] The total subscribed capital
stock of Margo was apportioned as follows:

Name Number of Shares Amount

Raul E. Gala 6,640 66,400.00

Ofelia E. Gala 6,640 66,400.00

Guia G. Domingo 6,640 66,400.00

Virgilio Galeon 40 40.00

Julian Jader 40 40.00

TOTAL 20,000 P200,000.00[9]

On November 10, 1982, Manuel Gala sold 13,314 of his shares in Ellice to Margo. [10]

Alicia Gala transferred 1,000 of her shares in Ellice to a certain Victor de Villa on March 2, 1983. That same
day, de Villa transferred said shares to Margo. [11] A few months later, on August 28, 1983, Alicia Gala
transferred 854.3 of her shares to Ofelia Gala, 500 to Guia Domingo and 500 to Raul Gala. [12]

Years later, on February 8, 1988, Manuel Gala transferred all of his remaining holdings in Ellice, amounting to
2,164 shares, to Raul Gala. [13]

On July 20, 1988, Alicia Gala transferred 10,000 of her shares to Margo. [14]

Thus, as of the date on which this case was commenced, the stockholdings in Ellice were allocated as follows:

Name Number of Shares Amount

Margo 24,312.5 2,431,250.00

Alicia Gala 21,480.2 2,148,020.00

Raul Gala 2,704.5 270,450.00

Ofelia Gala 980.8 98,080.00

Gina Domingo 516 51,600.00

Rita Benson 2 200.00

Virgilio Galeon 1 100.00

Julian Jader 1 100.00

Adnan Alonto 1 100.00

Elias Cresencio 1 100.00

TOTAL 50,000 P5,000,000.00

On June 23, 1990, a special stockholders meeting of Margo was held, where a new board of directors was
elected. [15] That same day, the newly-elected board elected a new set of officers. Raul Gala was elected as
chairman, president and general manager. During the meeting, the board approved several actions, including
the commencement of proceedings to annul certain dispositions of Margos property made by Alicia Gala. The
board also resolved to change the name of the corporation to MRG Management and Development
Corporation. [16]

Similarly, a special stockholders meeting of Ellice was held on August 24, 1990 to elect a new board of
directors. In the ensuing organizational meeting later that day, a new set of corporate officers was elected.
Likewise, Raul Gala was elected as chairman, president and general manager.

On March 27, 1990, respondents filed against petitioners with the Securities and Exchange Commission (SEC)
a petition for the appointment of a management committee or receiver, accounting and restitution by the
directors and officers, and the dissolution of Ellice Agro-Industrial Corporation for alleged mismanagement,
diversion of funds, financial losses and the dissipation of assets, docketed as SEC Case No. 3747. [17] The
petition was amended to delete the prayer for the appointment of a management committee or receiver and
for the dissolution of Ellice. Additionally, respondents prayed that they be allowed to inspect the corporate
books and documents of Ellice. [18]

In turn, petitioners initiated a complaint against the respondents on June 26, 1991, docketed as SEC Case No.
4027, praying for, among others, the nullification of the elections of directors and officers of both Margo
Management and Development Corporation and Ellice Industrial Corporation; the nullification of all board
resolutions issued by Margo from June 23, 1990 up to the present and all board resolutions issued by Ellice
from August 24, 1990 up to the present; and the return of all titles to real property in the name of Margo and
Ellice, as well as all corporate papers and records of both Margo and Ellice which are in the possession and
control of the respondents. [19]

The two cases were consolidated in an Order dated November 23, 1993. [20]

Meanwhile, during the pendency of the SEC cases, the shares of stock of Alicia and Ofelia Gala in Ellice were
levied and sold at public auction to satisfy a judgment rendered against them by he Regional Trial Court of
Makati, Branch 66, in Civil Case No. 42560, entitled Regines Condominium v. Ofelia (Gala) Panes and Alicia
Gala. [21]

On November 3, 1998, the SEC rendered a Joint Decision in SEC Cases Nos. 3747 and 4027, the dispositive
portion of which states:

WHEREFORE, premises considered, judgment is hereby rendered, as follows:

1. Dismissing the petition in SEC Case No. 3747,

2. Issuing the following orders in SEC Case No. 4027;

(a) Enjoining herein respondents to perform corporate acts of both Ellice and Margo, as directors and officers
thereof.

(b) Nullifying the election of the new sets of Board of Directors and Officers of Ellice and Margo from June 23,
1990 to the present, and that of Ellice from August 24, 1990 to the present.

(c) Ordering the respondent Raul Gala to return all the titles of real properties in the names of Ellice and
Margo which were unlawfully taken and held by him.

(d) Directing the respondents to return to herein petitioners all corporate papers, records of both Ellice and
Margo which are in their possession and control.

SO ORDERED. [22]
Respondents appealed to the SEC En Banc, which, on July 4, 2002, rendered its Decision, the decretal portion
of which reads:

WHEREFORE, the Decision of the Hearing Officer dated November 3, 1998 is hereby REVERSED and SET
ASIDE and a new one hereby rendered granting the appeal, upholding the Amended Petition in SEC Case No.
3747, and dismissing the Petition with Prayer for Issuance of Preliminary Restraining Order and granting the
Compulsory Counterclaim in SEC Case No. 4027.

Accordingly, appellees Alicia Gala and Guia G. Domingo are ordered as follows:

(1) jointly and solidarily pay ELLICE and/or MARGO the amount of P700,000.00 representing the consideration
for the unauthorized sale of a parcel of land to Lucky Homes and Development Corporation (Exhs. N and
CCC);

(2) jointly and severally pay ELLICE and MARGO the proceeds of sales of agricultural products averaging
P120,000.00 per month from February 17, 1988;

(3) jointly and severally indemnify the appellants P90,000.00 as attorneys fees;

(4) jointly and solidarily pay the costs of suit;

(5) turn over to the individual appellants the corporate records of ELLICE and MARGO in their possession; and

(6) desist and refrain from interfering with the management of ELLICE and MARGO.

SO ORDERED. [23]

Petitioners filed a petition for review with the Court of Appeals which dismissed the petition for review and
affirmed the decision of the SEC En Banc. [24]

Hence, this petition, raising the following issues:

WHETHER OR NOT THE LOWER COURT ERRED IN NOT DECLARING AS ILLEGAL AND CONTRARY TO PUBLIC
POLICY THE PURPOSES AND MANNER IN WHICH RESPONDENT CORPORATIONS WERE ORGANIZED WHICH
WERE, E.G. TO (1) PREVENT THE GALA ESTATE FROM BEING BROUGHT UNDER THE COVERAGE (SIC) OF
THE COMPREHENSIVE AGRARIAN REFORM PROGRAM (CARP) AND (2) PURPORTEDLY FOR ESTATE
PLANNING.

II

WHETHER OR NOT THE LOWER COURT ERRED (1) IN SUSPICIOUSLY RESOLVING THE CASE WITHIN TWO
(2) DAYS FROM RECEIPT OF RESPONDENTS COMMENT; AND (2) IN NOT MAKING A DETERMINATION OF
THE ISSUES OF FACTS AND INSTEAD RITUALLY CITING THE FACTUAL FINDINGS OF THE COMMISSION A
QUO WITHOUT DISCUSSION AND ANALYSIS;

III

WHETHER OR NOT THE LOWER COURT ERRED IN RULING THAT THE ORGANIZATION OF RESPONDENT
CORPORATIONS WAS NOT ILLEGAL FOR DEPRIVING PETITIONER RITA G. BENSON OF HER LEGITIME.

IV
WHETHER OR NOT THE LOWER COURT ERRED IN NOT PIERCING THE VEILS OF CORPORATE FICTION OF
RESPONDENTS CORPORATIONS ELLICE AND MARGO. [25]

In essence, petitioners want this Court to disregard the separate juridical personalities of Ellice and Margo for
the purpose of treating all property purportedly owned by said corporations as property solely owned by the
Gala spouses.

The petitioners first contention in support of this theory is that the purposes for which Ellice and Margo were
organized should be declared as illegal and contrary to public policy. They claim that the respondents never
pursued exemption from land reform coverage in good faith and instead merely used the corporations as tools
to circumvent land reform laws and to avoid estate taxes. Specifically, they point out that respondents have
not shown that the transfers of the land in favor of Ellice were executed in compliance with the requirements
of Section 13 of R.A. 3844.[26] Furthermore, they alleged that respondent corporations were run without any
of the conventional corporate formalities. [27]

At the outset, the Court holds that petitioners contentions impugning the legality of the purposes for which
Ellice and Margo were organized, amount to collateral attacks which are prohibited in this jurisdiction. [28]

The best proof of the purpose of a corporation is its articles of incorporation and by-laws. The articles of
incorporation must state the primary and secondary purposes of the corporation, while the by-laws outline the
administrative organization of the corporation, which, in turn, is supposed to insure or facilitate the
accomplishment of said purpose. [29]

In the case at bar, a perusal of the Articles of Incorporation of Ellice and Margo shows no sign of the allegedly
illegal purposes that petitioners are complaining of. It is well to note that, if a corporations purpose, as stated
in the Articles of Incorporation, is lawful, then the SEC has no authority to inquire whether the corporation has
purposes other than those stated, and mandamus will lie to compel it to issue the certificate of incorporation.
[30]

Assuming there was even a grain of truth to the petitioners claims regarding the legality of what are alleged to
be the corporations true purposes, we are still precluded from granting them relief. We cannot address here
their concerns regarding circumvention of land reform laws, for the doctrine of primary jurisdiction precludes a
court from arrogating unto itself the authority to resolve a controversy the jurisdiction over which is initially
lodged with an administrative body of special competence.[31] Since primary jurisdiction over any violation of
Section 13 of Republic Act No. 3844 that may have been committed is vested in the Department of Agrarian
Reform Adjudication Board (DARAB),[32] then it is with said administrative agency that the petitioners must
first plead their case. With regard to their claim that Ellice and Margo were meant to be used as mere tools for
the avoidance of estate taxes, suffice it say that the legal right of a taxpayer to reduce the amount of what
otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted.
[33]

The petitioners allegation that Ellice and Margo were run without any of the typical corporate formalities, even
if true, would not merit the grant of any of the relief set forth in their prayer. We cannot disregard the
corporate entities of Ellice and Margo on this ground. At most, such allegations, if proven to be true, should be
addressed in an administrative case before the SEC. [34]

Thus, even if Ellice and Margo were organized for the purpose of exempting the properties of the Gala spouses
from the coverage of land reform legislation and avoiding estate taxes, we cannot disregard their separate
juridical personalities.

Next, petitioners make much of the fact that the Court of Appeals promulgated its assailed Decision a mere
two days from the time the respondents filed their Comment. They alleged that the appellate court could not
have made a deliberate study of the factual questions in the case, considering the sheer volume of evidence
available. [35] In support of this allegation, they point out that the Court of Appeals merely adopted the
factual findings of the SEC En Banc verbatim, without deliberation and analysis. [36]

In People v. Mercado, [37] we ruled that the speed with which a lower court disposes of a case cannot thus be
attributed to the injudicious performance of its function. Indeed, magistrates are not supposed to study a case
only after all the pertinent pleadings have been filed. It is a mark of diligence and devotion to duty that jurists
study a case long before the deadline set for the promulgation of their decision has arrived. The two-day
period between the filing of petitioners Comment and the promulgation of the decision was sufficient time to
consider their arguments and to incorporate these in the decision. As long as the lower court does not sacrifice
the orderly administration of justice in favor of a speedy but reckless disposition of a case, it cannot be taken
to task for rendering its decision with due dispatch. The Court of Appeals in this intra-corporate controversy
committed no reversible error and, consequently, its decision should be affirmed. [38] Verily, if such swift
disposition of a case is considered a non-issue in cases where the life or liberty of a person is at stake, then
we see no reason why the same principle cannot apply when only private rights are involved.

Furthermore, well-settled is the rule that the factual findings of the Court of Appeals are conclusive on the
parties and are not reviewable by the Supreme Court. They carry even more weight when the Court of Appeals
affirms the factual findings of a lower fact-finding body.[39] Likewise, the findings of fact of administrative
bodies, such as the SEC, will not be interfered with by the courts in the absence of grave abuse of discretion
on the part of said agencies, or unless the aforementioned findings are not supported by substantial evidence.
[40]

However, in the interest of equity, this Court has reviewed the factual findings of the SEC En Banc, which were
affirmed in toto by the Court of Appeals, and has found no cogent reason to disturb the same. Indeed, we are
convinced that the arguments raised by the petitioners are nothing but unwarranted conclusions of law.
Specifically, they insist that the Gala spouses never meant to part with the ownership of the shares which are
in the names of their children and encargados, and that all transfers of property to these individuals are
supposedly void for being absolutely simulated for lack of consideration.[41] However, as correctly held by the
SEC En Banc, the transfers were only relatively simulated, inasmuch as the evident intention of the Gala
spouses was to donate portions of their property to their children and encargados. [42]

In an attempt to bolster their theory that the organization of the respondent corporations was illegal, the
petitioners aver that the legitime pertaining to petitioners Rita G. Benson and Guia G. Domingo from the estate
of their father had been subject to unwarranted reductions as a result thereof. In sum, they claim that
stockholdings in Ellice which the late Manuel Gala had assigned to them were insufficient to cover their
legitimes, since Benson was only given two shares while Domingo received only sixteen shares out of a total
number of 35,000 issued shares. [43]

Moreover, the reliefs sought by petitioners should have been raised in a proceeding for settlement of estate,
rather than in the present intra-corporate controversy. If they are genuinely interested in securing that part of
their late fathers property which has been reserved for them in their capacity as compulsory heirs, then they
should simply exercise their actio ad supplendam legitimam, or their right of completion of legitime.[44] Such
relief must be sought during the distribution and partition stage of a case for the settlement of the estate of
Manuel Gala, filed before a court which has taken jurisdiction over the settlement of said estate. [45]

Finally, the petitioners pray that the veil of corporate fiction that shroud both Ellice and Margo be pierced,
consistent with their earlier allegation that both corporations were formed for purposes contrary to law and
public policy. In sum, they submit that the respondent corporations are mere business conduits of the
deceased Manuel Gala and thus may be disregarded to prevent injustice, the distortion or hiding of the truth
or the letting in of a just defense. [46]

However, to warrant resort to the extraordinary remedy of piercing the veil of corporate fiction, there must be
proof that the corporation is being used as a cloak or cover for fraud or illegality, or to work injustice, [47] and
the petitioners have failed to prove that Ellice and Margo were being used thus. They have not presented any
evidence to show how the separate juridical entities of Ellice and Margo were used by the respondents to
commit fraudulent, illegal or unjust acts. Hence, this contention, too, must fail.

On June 5, 2003, the petitioners filed a Reply, where, aside from reiterating the contentions raised in their
Petition, they averred that there is no proof that either capital gains taxes or documentary stamp taxes were
paid in the series of transfers of Ellice and Margo shares. Thus, they invoke Sections 176 and 201 of the
National Internal Revenue Code, which would bar the presentation or admission into evidence of any
document that purports to transfer any benefit derived from certificates of stock if the requisite documentary
stamps have not been affixed thereto and cancelled.

Curiously, the petitioners never raised this issue before the SEC Hearing Officer, the SEC En Banc or the Court
of Appeals. Thus, we are precluded from passing upon the same for, as a rule, no question will be entertained
on appeal unless it has been raised in the court below, for points of law, theories, issues and arguments not
brought to the attention of the lower court need not be, and ordinarily will not be, considered by a reviewing
court, as they cannot be raised for the first time at that late stage. Basic considerations of due process impel
this rule.[48] Furthermore, even if these allegations were proven to be true, such facts would not render the
underlying transactions void, for these instruments would not be the sole means, much less the best means,
by which the existence of these transactions could be proved. For this purpose, the books and records of a
corporation, which include the stock and transfer book, are generally admissible in evidence in favor of or
against the corporation and its members. They can be used to prove corporate acts, a corporations financial
status and other matters, including ones status as a stockholder. Most importantly, these books and records
are, ordinarily, the best evidence of corporate acts and proceedings.[49] Thus, reference to these should have
been made before the SEC Hearing Officer, for this Court will not entertain this belated questioning of the
evidence now.

It is always sad to see families torn apart by money matters and property disputes. The concept of a close
corporation organized for the purpose of running a family business or managing family property has formed
the backbone of Philippine commerce and industry. Through this device, Filipino families have been able to
turn their humble, hard-earned life savings into going concerns capable of providing them and their families
with a modicum of material comfort and financial security as a reward for years of hard work. A family
corporation should serve as a rallying point for family unity and prosperity, not as a flashpoint for familial
strife. It is hoped that people reacquaint themselves with the concepts of mutual aid and security that are the
original driving forces behind the formation of family corporations and use these tenets in order to facilitate
more civil, if not more amicable, settlements of family corporate disputes.

WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated November 8, 2002 and the
Resolution dated December 27, 2002, both of the Court of Appeals, are AFFIRMED. Costs against petitioners.

SO ORDERED.

PRINCIPAL PLACE OF BUSINESS

HYATT ELEVATORS AND ESCALATORS CORPORATION,

Petitioner,
- versus -
LG OTIS ELEVATOR COMPANY,
Respondent.
G.R. No. 169835

Promulgated:

July 3, 2007
x------------------------------------------------------------------------------------x
DECISION

GARCIA, J.:

This petition for review under Rule 45 of the Rules of Court seeks to nullify and set aside the Decision[1] dated
December 22, 2003 of the Court of Appeals (CA) in CA-G.R. SP No. 74320 and its Resolution[2] of September
27, 2005, denying petitioners motion for reconsideration

Petitioner Hyatt Elevators and Escalators Corporation (Hyatt) is a domestic corporation primarily engaged in
the business of selling, installing and maintaining/servicing elevators, escalators and parking equipment, with
address at the 6th Floor, Dao I Condominium, Salved St., Legaspi Village, Makati, as stated in its Articles of
Incorporation. When this case started, Hyatt listed its office address as located at Hyatt Centre, Ortigas
Avenue, Mandaluyong City. Respondent LG Otis Elevator Company (LG Otis), on the other hand, evolved as a
result of a joint venture agreement between LG Electronics, Inc., of South Korea and Otis Elevator Company of
Connecticut, U.S.A.

The facts, as established by the appellate court, are as follows:

It appears that private respondent [herein petitioner] Hyatt Elevators & Escalators Company (HYATT) was the
Philippine distributor until 1997 of elevators and escalators of Lucky Goldstar International Corporation (LUCKY
GOLDSTAR) and Goldstar Industrial Systems, Co. Ltd. (GOLDSTAR INDUSTRIAL).

Herein petitioner [now herein respondent] LG OTIS Elevator Company (LG OTIS) alleges that it is a joint
venture established on November 22, 1999 by LG Electronics Inc. (LG ELECTRONICS), which is based in
Korea, and Otis Elevator Company (OTIS), which is based in the United States of America. Otis subsequently
transferred its rights and obligations under the LG Otis joint venture to Sirius (Korea) Limited, which is based
in London, England.

LG Otis purchased the business of LG Industrial Systems Co. Ltd. (LGISC), a Korean corporation which, at the
time of said purchase, was the principal stockholder of LG Industrial Systems Philippines, Inc. (LGISP), a
domestic corporation established in 1998. On March 28, 2000, LGISP changed its name to Goldstar Elevators
Philippines, Inc. (GOLDSTAR).

Records show that [in the Regional Trial Court of Mandaluyong City] Hyatt filed a complaint for unfair trade
practices and damages against LGISC and LG International Corporation. It was alleged in the complaint that
defendant LGISC was formerly known as Goldstar Industrial Systems Co., Ltd. (Goldstar Industrial) and co-
defendant LG International Corporation was formerly known as Lucky Goldstar Industrial Corporation (Lucky
Goldstar). Hyatt claimed that after establishing a Philippine market for defendants elevators and escalators
pursuant to a distributorship agreement executed in 1988, the defendants unfairly committed trade practices
intended to establish their own company, ease out Hyatt and cripple its business operations as the exclusive
distributor of LG elevators, escalators and parking equipment in the Philippines.

An amended complaint was subsequently filed by Hyatt impleading herein petitioner LG Otis. It was alleged
that LG Otis was formerly LGISC and Goldstar Industrial. The amended complaint also impleaded Goldstar
Elevators . which was allegedly formerly known as LG Industrial Systems Philippines, Inc. (LGISP).

LGISC and LG Industrial Corporation opposed the amended complaint on the ground that LG Otis should not
be substituted to LGISC as the two are separate and distinct corporations, retaining separate organizations,
assets and liabilities. Despite such opposition, the amended complaint was admitted by the trial court.

Petitioner LG Otis [and Goldstar Elevators] then filed a motion to dismiss the amended complaint on the
grounds that venue was improperly laid, and that the amended complaint fails to state a cause of action. [3]
(Emphasis and words in brackets supplied.)

On May 27, 2002, in Civil Case No. MC-99-600, the Regional Trial Court (RTC) of Mandaluyong City, Branch
213,[4] issued an order[5] denying the motion to dismiss separately interposed by respondent LG Otis and
Goldstar Elevators, as defendants a quo.

In another order[6] dated October 1, 2002, the Mandaluyong RTC denied Goldstar Elevators and respondent
LG Otis separate motions for reconsideration.

Therefrom, both Goldstar Elevators and respondent LG Otis went to the CA via separate petitions for certiorari
under Rule 65 of the Rules of Court, Goldstar Elevators recourse docketed as CA-G.R. SP No. 74319 and that
of respondent LG Otis, as CA-G.R. SP No. 74320.[7] CA-G.R. SP No. 74319 was raffled to the 6th Division of
the appellate court, while CA-G.R. SP No. 74320 went to its Special Fourth Division

In its Decision dated June 26, 2003, in CA-G.R. SP No. 74319, as reiterated in a Resolution of November 27,
2003, the CA set aside the May 27, 2002 and October 1, 2002 Orders of the RTC of Mandaluyong City. The
decretal portion of the CA Decision reads:

WHEREFORE, in view of the foregoing, the assailed Orders dated May 27, 2002 and October 1, 2002 of the
RTC, Branch 213, Mandaluyong City in Civil Case No. 99-600, are hereby SET ASIDE. The said case is hereby
ordered DISMISSED on the ground of improper venue. (Emphasis added.)
Hyatt would subsequently appeal the CAs decision and resolution in CA-G.R. SP No. 74319 to this Court, but
failed to secure a favorable disposition. For by Decision[8] dated October 24, 2005, in G.R. No. 161026,
entitled Hyatt Elevators and Escalators Corporation v. Goldstar Elevators, Phil., Inc., the Court affirmed the
said assailed CA decision and ruling.

As in CA-G.R. SP No. 74319, the appellate court, in CA-G.R. SP No. 74320, also ruled against herein petitioner
HYATT, as respondent therein, and for LG Otis, albeit for reasons in addition to the issue of improper venue.
The fallo of the CAs Decision[9] dated December 22, 2003 in CA-G.R. SP No. 74320 which, together with its
Resolution[10] of September 27, 2005 denying reconsideration thereof, is subject of this recourse, reads, as
follows:

WHEREFORE, based on the foregoing premises, the instant petition is hereby GRANTED. Consequently, the
assailed May 27, 2002 and October 1, 2002 Orders of the Regional Trial Court of Mandaluyong City in Civil
Case No. MC-99-600 are REVERSED and SET ASIDE.

SO ORDERED.

In this recourse, petitioner urges the reversal of the assailed CA decision and resolution, raising the following
issues:

1. WHETHER OR NOT THE [CA], IN REVERSING THE DECISION OF THE REGIONAL TRIAL COURT,
ERRED AS A MATTER OF LAW AND JURISPRUDENCE, AS WELL AS COMMITTED GRAVE ABUSE OF
DISCRETION, IN HOLDING THAT IN THE LIGHT OF THE PECULIAR FACTS OF THIS CASE, VENUE WAS
IMPROPER;

2. WHETHER OR NOT THE [CA], IN REVERSING THE DECISION OF THE [RTC], ERRED AS A
MATTER OF LAW AND JURISPRUDENCE, AS WELL AS COMMITTED GRAVE ABUSE OF DISCRETION, IN
HOLDING THAT IN THE LIGHT OF THE PECULIAR FACTS OF THIS CASE, RESPONDENT COULD NOT BE SUED
IN THE PHILIPPINES AS A SUCCESSOR-IN-INTEREST OF LG INDUSTRIAL SYSTEMS CO. SIMPLY BECAUSE IT
IS NOT DOING BUSINESS IN THE PHILIPPINES.[11] (Words in brackets added.)

We DENY.
As may be noted, G.R. No. 161026 and this case involve virtually the same parties and sprang from one and
the same Civil Case No. MC-99-600, a suit for unfair trade practices instituted by petitioner Hyatt against
respondent LG Otis and Goldstar Elevators and eventually disposed of by the Mandaluyong RTC. In fine, G.R.
No. 161026 and this case are cast against the same factual and legal settings, save perhaps for the fact that
respondent in the former case is a domestic corporation, while the instant case has as respondent a foreign
corporation. And as contextually abundantly made clear in G.R. No. 161026, petitioner Hyatt could not
successfully initiate a civil suit, like Civil Case No. MC-99-600, in Mandaluyong City, its place of business, as
stated in its Articles of Incorporation, being in Makati City. As explained by the Court in its Decision in G.R. No.
161026:

x x x Admittedly, the latters principal place of business is Makati, as indicated in its Articles of Incorporation.
Since the principal place of business of a corporation determines its residence or domicile, then the place
indicated in petitioners [Hyatts] articles of incorporation becomes controlling in determining the venue for this
case.

Petitioner [Hyatt] argues that the Rules of Court do not provide that when the plaintiff is a corporation, the
complaint should be filed in the location of its principal office as indicated in its articles of incorporation.
Jurisprudence has, however, settled that the place where the principal office of a corporation is located, as
stated in the articles, indeed establishes its residence. This ruling is important in determining the venue of an
action by or against a corporation, as in the present case.

Without merit is the argument of petitioner [Hyatt] that the locality stated in its Articles of Incorporation does
not conclusively indicate that its principal office is still in the same place. We agree with the appellate court in
its observation that the requirement to state in the articles the place where the principal office of the
corporation is to be located is not a meaningless requirement. That proviso would be rendered nugatory if
corporations were to be allowed to simply disregard what is expressly stated in their Articles of Incorporation.

Inconclusive are the bare allegations of petitioner [Hyatt] that it had closed its Makati office and relocated to
Mandaluyong City, and that respondent [Goldstar Elevators] was well aware of those circumstances. Assuming
arguendo that they transacted business with each other in the Mandaluyong office of petitioner [Hyatt], the
fact remains that, in law, the latters residence was still the place indicated in its Articles of Incorporation.
Further unacceptable is its faulty reasoning that the ground for the CAs dismissal of its Complaint was its
failure to amend its Articles of Incorporation so as to reflect its actual and present principal office. The
appellate court was clear enough in its ruling that the Complaint was dismissed because the venue had been
improperly laid, not because of the failure of petitioner to amend the latters Articles of Incorporation.[12]
(Words in brackets and emphasis added.)

In the light of the foregoing considerations, the challenged dismissal of Civil Case No. MC-99-600, as ordered
in the assailed judgment of the CA, on the ground of improper venue, is correct. The Court will even go
further and apply its Decision in G.R. No. 161026 as the law of the case with respect to Hyatt on the issue of
venue. Whatever is once irrevocably established as the controlling legal rule or decision between the same
parties in the same case continues to be the law of the case so long as the facts on which such decision was
predicated continue to be the facts of the case before the court.[13] With the view we take of this case, the
factual milieu upon which the Decision in G.R. No. 161026 was based has remained unchanged to justify the
application of the salutary law of the case principle.

Given the above perspective, the second issue of whether or not foreign-based respondent LG Otis, as alleged
successor-in-interest of a domestic corporation, could be sued in the country need not detain the Court
further. For, the matter of suability would, in final reckoning, really have no bearing on the dismissal of a suit
on the ground of improper venue. And besides, the second issue raised would require the Court to delve into
certain unresolved factual questions and assumptions. Needless to stress, such exercise is beyond the purview
of the Courts power of review on certiorari.
WHEREFORE, the petition is DENIED. The appealed Decision and Resolution of the CA in CA-G.R. SP No.
74320 are AFFIRMED, and Civil Case No. MC-99-600 is DISMISSED without prejudice.

G.R. No. L-56763 December 15, 1982

JOHN SY and UNIVERSAL PARTS SUPPLY CORPORATION, petitioners,

vs.
TYSON ENTERPRISES, INC., JUDGE GREGORIO G. PINEDA of the Court of First Instance of Rizal, Pasig Branch
XXI and COURT OF APPEALS, respondents.

Abraham D. Cana for petitioners.

Alberto A. Domingo for private respondent.

AQUINO, J:

This is a case about the venue of a collection suit. On August 29, 1979, Tyson Enterprises, Inc. filed against
John Sy and Universal Parts Supply Corporation in the Court of First Instance of Rizal, Pasig Branch XXI, a
complaint for the collection of P288,534.58 plus interest, attorney's fees and litigation expenses (Civil Case No.
34302).

It is alleged in the complaint that John Sy, doing business under the trade name, Universal Parts Supply, is a
resident of Fuentebella Subdivision, Bacolod City and that his co-defendant, Universal Parts Supply
Corporation, allegedly controlled by Sy, is doing business in Bacolod City.

Curiously enough, there is no allegation in the complaint as to the office or place of business of plaintiff Tyson
Enterprises, Inc., a firm actually doing business at 1024 Magdalena, now G. Masangkay Street, Binondo,
Manila (p. 59, Rollo).

What is alleged is the postal address or residence of Dominador Ti, the president and general manager of
plaintiff firm, which is at 26 Xavier Street, Greenhills Subdivision, San Juan, Rizal. The evident purpose of
alleging that address and not mentioning the place of business of plaintiff firm was to justify the filing of the
suit in Pasig, Rizal instead of in Manila.

Defendant Sy and Universal Parts Supply Corporation first filed a motion for extension of time to file their
answer and later a motion for a bill of particulars. The latter motion was denied. Then, they filed a motion to
dismiss on the ground of improper venue.

They invoked the provision of section 2(b), Rule 4 of the Rules of Court that personal actions "may be
commenced and tried where the defendant or any of the defendants resides or may be found, or where the
plaintiffs or any of the plaintiffs resides, at the election of the plaintiff."

To strengthen that ground, they also cited the stipulation in the sales invoice that "the parties expressly
submit to the jurisdiction of the Courts of the City of Manila for any legal action arising out of" the transaction
which stipulation is quoted in paragraph 4 of plaintiff's complaint.

The plaintiff opposed the motion to dismiss on the ground that the defendants had waived the objection based
on improper venue because they had previously filed a motion for a bill of particulars which was not granted.
The trial court denied the motion to dismiss on the ground that by filing a motion for a bill of particulars the
defendants waived their objection to the venue. That denial order was assailed in a petition for certiorari and
prohibition in the Court of Appeals which issued on July 29, 1980 a restraining order, enjoining respondent
judge from acting on the case. He disregarded the restraining order (p. 133, Rollo).
The Appellate Court in its decision of October 6, 1980 dismissed the petition. It ruled that the parties did not
intend Manila as the exclusive venue of the actions arising under their transactions and that since the action
was filed in Pasig, which is near Manila, no useful purpose would be served by dismissing the same and
ordering that it be filed in Manila (Sy vs. Pineda, CA-G.R. No. SP-10775). That decision was appealed to this
Court.

There is no question that the venue was improperly laid in this case. The place of business of plaintiff Tyson
Enterprises, Inc., which for purposes of venue is considered as its residence (18 C.J.S 583; Clavecilla Radio
system vs. Antillon, L-22238, February 18, 1967, 19 SCRA 379), because a corporation has a personality
separate and distinct from that of its officers and stockholders.

Consequently, the collection suit should have been filed in Manila, the residence of plaintiff corporation and the
place designated in its sales invoice, or it could have been filed also in Bacolod City, the residence of
defendant Sy.

We hold that the trial court and the Court of Appeals erred in ruling that the defendants, now the petitioners,
waived their objection to the improper venue. As the trial court proceeded in defiance of the Rules of Court in
not dismissing the case, prohibition lies to restrain it from acting in the case (Enriquez vs. Macadaeg, 84 Phil.
674).

Section 4, Rule 4 of the Rules of Court provides that, "when improper venue is not objected to in a motion to
dismiss it is deemed waived" and it can no longer be pleaded as an affirmative defense in the answer (Sec. 5,
Rule 16).

In this case, the petitioners, before filing their answer, filed a motion to dismiss based on improper venue.
That motion was seasonably filed (Republic vs. Court of First Instance of Manila, L-30839, November 28, 1975,
68 SCRA 231, 239). The fact that they filed a motion for a bill of particulars before they filed their motion to
dismiss did not constitute a waiver of their objection to the venue.

It should be noted that the provision of Section 377 of the Code of Civil Procedure that "the failure of a
defendant to object to the venue of the action at the time of entering his appearance in the action shall be
deemed a waiver on his part of all objection to the place or tribunal in which the action is brought" is not
found in the Rules of Court.

And the provision of section 4, Rule 5 of the 1940 Rules of Court that "when improper venue is not objected to
prior to the trial, it is deemed waived" is not reproduced in the present Rules of Court.

To repeat, what section 4 of Rule 4 of the present Rules of court provides is that the objection to improper
venue should be raised in a motion to dismiss seasonably filed and, if not so raised, then the said objection is
waived. Section 4 does not provide that the objection based on improper venue should be interposed by
means of a special appearance or before any pleading is filed.

The rules on venue, like the other procedural rules, are designed to insure a just and orderly administration of
justice or the impartial and evenhanded determination of every action and proceeding. Obviously, this
objective will not be attained if the plaintiff is given unrestricted freedom to choose the court where he may
file his complaint or petition.

The choice of venue should not be left to the plaintiff's whim or caprice. He may be impelled by some ulterior
motivation in choosing to file a case in a particular court even if not allowed by the rules on venue.

As perspicaciously observed by Justice Moreland, the purpose of procedure is not to restrict the court's
jurisdiction over the subject matter but to give it effective facility "in righteous action", "to facilitate and
promote the administration of justice" or to insure "just judgments" by means of a fair hearing. If that
objective is not achieved, then "the administration of justice becomes incomplete and unsatisfactory and lays
itself open to grave criticism." (Manila Railroad Co. vs. Attorney General, 20 Phil. 523, 530.)

The case of Marquez Lim Cay vs. Del Rosario, 55 Phil. 962, does not sustain the trial court's order of denial
because in that case the defendants, before filing a motion to dismiss on the ground of improper venue,
interposed a demurrer on the ground that the complaint does not state a cause of action. Then, they filed a
motion for the dissolution of an attachment, posted a bond for its dissolution and later filed a motion for the
assessment of the damages caused by the attachment. All those acts constituted a submission to the trial
court's jurisdiction and a waiver of the objection based on improper venue under section 377 of the Code of
Civil Procedure.

The instant case is similar to Evangelista vs. Santos, 86 Phil. 387, where the plaintiffs sued the defendant in
the Court of First Instance of Rizal on the assumption that he was a resident of Pasay City because he had a
house there. Upon receipt of the summons, the defendant filed a motion to dismiss based on improper venue.
He alleged under oath that he was a resident of Iloilo City.

This Court sustained the dismissal of the complaint on the ground of improper venue, because the defendant
was really a resident of Iloilo City. His Pasay City residence was used by his children who were studying in
Manila. Same holding in Casilan vs. Tomassi, 90 Phil. 765; Corre vs. Corre, 100 Phil. 321; Calo vs. Bislig
Industries, Inc., L-19703, January 30, 1967, 19 SCRA 173; Adamos vs. J. M. Tuason, Co., Inc.,. L-21957,
October 14, 1968, 25 SCRA 529.

Where one Cesar Ramirez, a resident of Quezon City, sued in the Court of First Instance of Manila Manuel F.
Portillo, a resident of Caloocan City, for the recovery of a sum of money, the trial court erred in not granting
Portillo's motion to dismiss the complaint on the ground of improper venue This Court issued the writ of
prohibition to restrain the trial court from proceeding in the case (Portillo vs. Judge Reyes and Ramirez, 113
Phil. 288).

WHEREFORE, the decision of the Court of Appeals and the order of respondent judge denying the motion to
dismiss are reversed and set aside. The writ of prohibition is granted. Civil Case No. 34302 should be
considered dismissed without prejudice to refiling - it in the Court of First Instance of Manila or Bacolod City at
the election of plaintiff which should be allowed to withdraw the documentary evidence submitted in that case.
All the proceedings in said case, including the decision, are also set aside. Costs against Tyson Enterprises,
Inc.

SOORDERED.

G.R. No. 104175 June 25, 1993

YOUNG AUTO SUPPLY CO. AND NEMESIO GARCIA, petitioners,

vs. THE HONORABLE COURT OF APPEALS (THIRTEENTH DIVISION) AND GEORGE CHIONG ROXAS,
respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioners.
Antonio Nuyles for private respondent.

QUIASON, J.:

Petitioners seek to set aside the decision of respondent Court of Appeals in CA-G.R. SP No. 25237, which
reversed the Order dated February 8, 1991 issued by the Regional Trial Court, Branch 11, Cebu City in Civil
Case No. CEB 6967. The order of the trial court denied the motion to dismiss filed by respondent George C.
Roxas of the complaint for collection filed by petitioners.
It appears that sometime on October 28, 1987, Young Auto Supply Co. Inc. (YASCO) represented by Nemesio
Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their shares of stock in Consolidated Marketing
& Development Corporation (CMDC) to Roxas. The purchase price was P8,000,000.00 payable as follows: a
downpayment of P4,000,000.00 and the balance of P4,000,000.00 in four post dated checks of P1,000,000.00
each.

Immediately after the execution of the agreement, Roxas took full control of the four markets of CMDC.
However, the vendors held on to the stock certificates of CMDC as security pending full payment of the
balance of the purchase price.

The first check of P4,000,000.00, representing the down-payment, was honored by the drawee bank but the
four other checks representing the balance of P4,000,000.00 were dishonored. In the meantime, Roxas sold
one of the markets to a third party. Out of the proceeds of the sale, YASCO received P600,000.00, leaving a
balance of P3,400,000.00 (Rollo, p. 176).

Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds of the sale of the
CMDC shares to Nemesio Garcia.

On June 10, 1988, petitioners filed a complaint against Roxas in the Regional Trial Court, Branch 11, Cebu
City, praying that Roxas be ordered to pay petitioners the sum of P3,400,00.00 or that full control of the three
markets be turned over to YASCO and Garcia. The complaint also prayed for the forfeiture of the partial
payment of P4,600,000.00 and the payment of attorney's fees and costs (Rollo, p. 290).

Roxas filed two motions for extension of time to submit his answer. But despite said motion, he failed to do so
causing petitioners to file a motion to have him declared in default. Roxas then filed, through a new counsel, a
third motion for extension of time to submit a responsive pleading.

On August 19, 1988, the trial court declared Roxas in default. The order of default was, however, lifted upon
motion of Roxas.

On August 22, 1988, Roxas filed a motion to dismiss on the grounds that:

1. The complaint did not state a cause of action due to non-joinder of indispensable parties;

2. The claim or demand set forth in the complaint had been waived, abandoned or otherwise
extinguished; and

3. The venue was improperly laid (Rollo, p. 299).

After a hearing, wherein testimonial and documentary evidence were presented by both parties, the trial court
in an Order dated February 8, 1991 denied Roxas' motion to dismiss. After receiving said order, Roxas filed
another motion for extension of time to submit his answer. He also filed a motion for reconsideration, which
the trial court denied in its Order dated April 10, 1991 for being pro-forma (Rollo, p. 17). Roxas was again
declared in default, on the ground that his motion for reconsideration did not toll the running of the period to
file his answer.

On May 3, 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not accompanied with
the required affidavit or merit. But without waiting for the resolution of the motion, he filed a petition for
certiorari with the Court of Appeals.

The Court of Appeals sustained the findings of the trial court with regard to the first two grounds raised in the
motion to dismiss but ordered the dismissal of the complaint on the ground of improper venue (Rollo, p. 49).

A subsequent motion for reconsideration by petitioner was to no avail.

Petitioners now come before us, alleging that the Court of Appeals
erred in:

1. holding the venue should be in Pasay City, and not in Cebu City (where both petitioners/plaintiffs are
residents;

2. not finding that Roxas is estopped from questioning the choice of venue (Rollo, p. 19).

The petition is meritorious.

In holding that the venue was improperly laid in Cebu City, the Court of Appeals relied on the address of
YASCO, as appearing in the Deed of Sale dated October 28, 1987, which is "No. 1708 Dominga Street, Pasay
City." This was the same address written in YASCO's letters and several commercial documents in the
possession of Roxas (Decision, p. 12; Rollo, p. 48).

In the case of Garcia, the Court of Appeals said that he gave Pasay City as his address in three letters which
he sent to Roxas' brothers and sisters (Decision, p. 12; Rollo, p. 47). The appellate court held that Roxas was
led by petitioners to believe that their residence is in Pasay City and that he had relied upon those
representations (Decision, p. 12, Rollo, p. 47).

The Court of Appeals erred in holding that the venue was improperly laid in Cebu City.

In the Regional Trial Courts, all personal actions are commenced and tried in the province or city where the
defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs
resides, at the election of the plaintiff [Sec. 2(b) Rule 4, Revised Rules of Court].

There are two plaintiffs in the case at bench: a natural person and a domestic corporation. Both plaintiffs aver
in their complaint that they are residents of Cebu City, thus:

1.1. Plaintiff Young Auto Supply Co., Inc., ("YASCO") is a domestic corporation duly organized and existing
under Philippine laws with principal place of business at M. J. Cuenco Avenue, Cebu City. It also has a branch
office at 1708 Dominga Street, Pasay City, Metro Manila.

Plaintiff Nemesio Garcia is of legal age, married, Filipino citizen and with business address at Young Auto
Supply Co., Inc., M. J. Cuenco Avenue, Cebu City. . . . (Complaint, p. 1; Rollo, p. 81).

The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:

THIRD That the place where the principal office of the corporation is to be established or located is at Cebu
City, Philippines (as amended on December 20, 1980 and further amended on December 20, 1984) (Rollo, p.
273).

A corporation has no residence in the same sense in which this term is applied to a natural person. But for
practical purposes, a corporation is in a metaphysical sense a resident of the place where its principal office is
located as stated in the articles of incorporation (Cohen v. Benguet Commercial Co., Ltd., 34 Phil. 256 [1916]
Clavecilla Radio System v. Antillon, 19 SCRA 379 [1967]). The Corporation Code precisely requires each
corporation to specify in its articles of incorporation the "place where the principal office of the corporation is
to be located which must be within the Philippines" (Sec. 14 [3]). The purpose of this requirement is to fix the
residence of a corporation in a definite place, instead of allowing it to be ambulatory.

In Clavencilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court explained why actions cannot be filed
against a corporation in any place where the corporation maintains its branch offices. The Court ruled that to
allow an action to be instituted in any place where the corporation has branch offices, would create confusion
and work untold inconvenience to said entity. By the same token, a corporation cannot be allowed to file
personal actions in a place other than its principal place of business unless such a place is also the residence
of a co-plaintiff or a defendant.

If it was Roxas who sued YASCO in Pasay City and the latter questioned the venue on the ground that its
principal place of business was in Cebu City, Roxas could argue that YASCO was in estoppel because it misled
Roxas to believe that Pasay City was its principal place of business. But this is not the case before us.

With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its principal place of
business is located, it becomes unnecessary to decide whether Garcia is also a resident of Cebu City and
whether Roxas was in estoppel from questioning the choice of Cebu City as the venue.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals appealed from is SET ASIDE and
the Order dated February 8, 1991 of the Regional Trial Court is REINSTATED.

SO ORDERED.

CORPORATE TERM

[G.R. No. L-7231. March 28, 1956.]

BENGUET CONSOLIDATED MINING CO., Petitioner, vs. MARIANO PINEDA, in his capacity as Securities and
Exchange Commissioner, Respondent. CONSOLIDATED MINES, INC., Intervenor.

DECISION

REYES, J. B. L., J.:

Appeal under Rule 43 from a decision of the Securities and Exchange Commissioner, denying the right of a
sociedad anonima to extend its corporate existence by amendment of its original articles of association, or
alternatively, to reform and continue existing under the Corporation Law (Act 1459) beyond the original
period.

The Petitioner, the Benguet Consolidated Mining Co. (hereafter termed Benguet for short), was organized on
June 24,1903, as a sociedad anonima regulated by Articles 151 et seq., of the Spanish Code of Commerce of
1886, then in force in the Philippines. The articles of association expressly provided that it was organized for a
term of fifty (50) years. In 1906, the governing Philippine Commission enacted Act 1459, commonly known as
the Corporation Law, establishing in the islands the American type of juridical entities known as corporation, to
take effect on April 1, 1906. Of its enactment, this Court said in its decision in Harden vs. Benguet
Consolidated Mining Co., 58 Phil., 141, at pp. 145-146, and 147:chanroblesvirtuallawlibrary

When the Philippine Islands passed to the sovereignty of the United States, the attention of the Philippine
Commission was early drawn to the fact there is no entity in Spanish law exactly corresponding to the motion
of the corporation in English and American law; chan roblesvirtualawlibraryand in the Philippine Bill, approved
July 1, 1906, the Congress of the United States inserted certain provisions, under the head of Franchises,
which were intended to control the lawmaking power in the Philippine Islands in the matter of granting of
franchises, privileges and concessions. These provisions are found in sections 74 and 75 of the Act. The
provisions of section 74 have been superseded by section 28 of the Act of Congress of August 29, 1916, but in
section 75 there is a provision referring to mining corporations, which still remains the law, as amended. This
provision, in its original form, reads as follows:chanroblesvirtuallawlibrary cralaw it shall be unlawful for any
member of a corporation engaged in agriculture or mining and for any corporation organized for any purpose
except irrigation to be in any wise interested in any other corporation engaged in agriculture or in mining.
Under the guidance of this and certain other provisions thus enacted by Congress, the Philippine Commission
entered upon the enactment of a general law authorizing the creation of corporations in the Philippine Islands.
This rather elaborate piece of legislation is embodied in what is called our Corporation Law (Act No. 1459 of
the Philippine Commission). The evident purpose of the commission was to introduce the American corporation
into the Philippine Islands as the standard commercial entity and to hasten the day when the sociedad
anonima of the Spanish law would be obsolete. That statute is a sort of codification of American corporate
law.

As it was the intention of our lawmakers to stimulate the introduction of the American corporation into the
Philippine law in the place of the sociedad anonima, it was necessary to make certain adjustment resulting
from the continued co-existence, for a time, of the two forms of commercial entities. Accordingly, in section 75
of the Corporation Law, a provision is found making the sociedad anonima subject to the provisions of the
Corporation Law so far as such provisions may be applicable and giving to the sociedades anonimas
previously created in the Islands the option to continue business as such or to reform and organize under the
provisions of the Corporation Law. Again, in section 191 of the Corporation Law, the Code of Commerce is
repealed in so far as it relates to sociedades anonimas. The purpose of the commission in repealing this part of
the Code of Commerce was to compel commercial entities thereafter organized to incorporate under the
Corporation Law, unless they should prefer to adopt some form or other of the partnership. To this provision
was added another to the effect that existing sociedades anonimas, which elected to continue their business
as such, instead of reforming and reorganizing under the Corporation Law, should continue to be governed by
the laws that were in force prior to the passage of this Act in relation to their organization and method of
transacting business and to the rights of members thereof as between themselves, but their relations to the
public and public officials shall be governed by the provisions of this Act.

Specifically, the two sections of Act No. 1459 referring to sociedades anonimas then already existing, provide
as follows:chanroblesvirtuallawlibrary

SEC. 75. Any corporation or a sociedad anonima formed, organized, and existing under the laws of the
Philippines on the date of the passage of this Act, shall be subject to the provisions hereof so far as such
provisions may be applicable and shall be entitled at its option either to continue business as such corporation
or to reform and organize under and by virtue of the provisions of this Act, transferring all corporate interests
to the new corporation which, if a stock corporation, is authorized to issue its shares of stock at par to the
stockholders or members of the old corporation according to their interests.

SEC. 191. The Code of Commerce, in so far as it relates to corporation or sociedades anonimas, and all other
Acts or parts of Acts in conflict or inconsistent with this Act, are hereby repealed with the exception of Act
Numbered fifty-two, entitled An Act providing for examinations of banking institutions in the Philippines, and
for reports by their officers, as amended, and Act Numbered Six hundred sixty-seven, entitled An Act
prescribing the method of applying to governments of municipalities, except the city of Manila and of provinces
for franchises to contract and operate street railway, electric light and power and telephone lines, the
conditions upon which the same may be granted, certain powers of the grantee of said franchises, and of
grantees of similar franchises under special Act of the Commission, and for other purposes. Provided,
however, That nothing in this Act contained shall be deemed to repeal the existing law relating to those
classes of associations which are termed sociedades colectivas, and sociedades de cuentas en participacion, as
to which association the existing law shall be deemed to be still in force; chan roblesvirtualawlibraryAnd
provided, further, That existing corporations or sociedades anonimas, lawfully organized as such, which elect
to continue their business as such sociedades anonimas instead of reforming and reorganizing under and by
virtue of the provisions of this Act, shall continue to be governed by the laws that were in force prior to the
passage of this Act in relation to their organization and method of transacting business and to the rights of
members thereof as between themselves, but their relations to the public and public officials shall be governed
by the provisions of this Act.
As the expiration of its original 50 year term of existence approached, the Board of Directors of Benguet
adopted in 1946 a resolution to extend its life for another 50 years from July 3, 1946 and submitted it for
registration to the Respondent Securities and Exchange Commissioner. Upon advice of the Secretary of Justice
(Op. No. 45, Ser. 1917) that such extension was contrary to law, the registration was denied. The matter was
dropped, allegedly because the stockholders of Benguet did not approve of the Directors action.

Some six years later in 1953, the shareholders of Benguet adopted a resolution empowering the Director to
effectuate the extension of the Companys business life for not less than 20 and not more than 50 years, and
this by either (1) an amendment to the Articles of Association or Charter of this Company or (2) by reforming
and reorganizing the Company as a Philippine Corporation, or (3) by both or (4) by any other means.
Accordingly, the Board of Directors on May 27, 1953, adopted a resolution to the following effect

Be It

Resolved, that the Company be reformed, reorganized and organized under the provisions of section 75 and
other provisions of the Philippine Corporation Law as a Philippine corporation with a corporate life and
corporate powers as set forth in the Articles of Incorporation attached hereto as Schedule I and made a part
hereof by this reference; chan roblesvirtualawlibraryand

Be It

FURTHER RESOLVED, that any five or more of the following shareholders of the Company be and they hereby
are authorized as instructed to act for and in behalf of the share holders of the Company and of the Company
as Incorporators in the reformation, reorganization and organization of the Company under and in accordance
with the provisions aforesaid of said Philippine Corporation Law, and in such capacity, they are hereby
authorized and instructed to execute the aforesaid Articles of Incorporation attached to these Minutes as
Schedule I hereof, with such amendments, deletion and additions thereto as any five or more of those so
acting shall deem necessary, proper, advisable or convenient to effect prompt registration of said Articles
under Philippine Law; chan roblesvirtualawlibraryand five or more of said Incorporators are hereby further
authorized and directed to do all things necessary, proper, advisable or convenient to effect such registration.

In pursuance of such resolution, Benguet submitted in June, 1953, to the Securities and Exchange
Commissioner, for alternative registration, two documents:chanroblesvirtuallawlibrary (1) Certification as to
the Modification of (the articles of association of) the Benguet Consolidated Mining Company, extending the
term of its existence to another fifty years from June 15, 1953; chan roblesvirtualawlibraryand (2) articles of
incorporation, covering its reformation or reorganization as a corporation in accordance with section 75 of the
Philippine Corporation Law.

Relying mainly upon the adverse opinion of the Secretary of Justice (Op. No. 180, s. 1953), the Securities and
Exchange Commissioner denied the registration and ruled:chanroblesvirtuallawlibrary

(1) That the Benguet, as sociedad anonima, had no right to extend the original term of corporate existence
stated in its Articles of Association, by subsequent amendment thereof adopted after enactment of the
Corporation Law (Act No. 1459); chan roblesvirtualawlibraryand

(2) That Benguet, by its conduct, had chosen to continue as sociedad anonima, under section 75 of Act No.
1459, and could no longer exercise the option to reform into a corporation, specially since it would indirectly
produce the effect of extending its life.

This ruling is the subject of the present appeal.

Petitioner Benguet contends:chanroblesvirtuallawlibrary

(1) That the proviso of section 18 of the Corporation Law to the effect
that the life of said corporation shall not be extended by amendment beyond the time fixed in the original
articles.

does not apply to sociedades anonimas already in existence at the passage of the law, like Petitioner herein;

(2) That to apply the said restriction imposed by section 18 of the Corporation Law to sociedades anonimas
already functioning when the said law was enacted would be in violation of constitutional inhibitions;

(3) That even assuming that said restriction was applicable to it, Benguet could still exercise the option of
reforming and reorganizing under section 75 of the Corporation Law, thereby prolonging its corporate
existence, since the law is silent as to the time when such option may be exercised or availed of.

The first issue arises because the Code of Commerce of 1886 under which Benguet was organized, contains no
prohibition (to extend the period of corporate existence), equivalent to that set forth in section 18 of the
Corporation Law. Neither does it expressly authorize the extension. But the text of Article 223,
reading:chanroblesvirtuallawlibrary

ART. 223. After the termination of the period for which commercial associations are constituted, it shall not
be understood as extended by the implied or presumed will of the members; chan roblesvirtualawlibraryand if
the members desire to continue in association, they shall draw up new articles, subject to all the formalities
prescribed for their creation as provided in Article 119. (Code of Commerce.)

would seem to imply that the period of existence of the sociedad anonimas (or of any other commercial
association for that matter) may be extended if the partners or members so agree before the expiration of the
original period.

While the Code of Commerce, in so far as sociedades anonimas are concerned, was repealed by Act No 1459,
Benguet claims that article 223 is still operative in its favor under the last proviso of section 191 of the
Corporation law (ante, p. 4 to the effect that existing sociedades anonimas would continue to be governed by
the law in force before Act 1459,

in relation to their organization and method of transacting business and to the rights of members among
themselves, but their relations to the public and public officials shall be governed by the provisions of this Act.

Benguet contends that the period of corporate life relates to its organization and the rights of its members
inter se, and not to its relations to the public or public officials.

We find this contention untenable.

The term of existence of association (partnership or sociedad anonima) is coterminous with their possession of
an independent legal personality, distinct from that of their component members. When the period expires,
the sociedad anonima loses the power to deal and enter into further legal relations with other persons; chan
roblesvirtualawlibraryit is no longer possible for it to acquire new rights or incur new obligations, have only as
may be required by the process of liquidating and winding up its affairs. By the same token, its officers and
agents can no longer represent it after the expiration of the life term prescribed, save for settling its business.
Necessarily, therefore, third persons or strangers have an interest in knowing the duration of the juridical
personality of the sociedad anonima, since the latter cannot be dealt with after that period; chan
roblesvirtualawlibrarywherefore its prolongation or cessation is a matter directly involving the companys
relations to the public at large.

On the importance of the term of existence set in the articles of association of commercial companies under
the Spanish Code of Commerce, D. Lorenzo Benito y Endar, professor of mercantile law in the Universidad
Central de Madrid, has this to say:chanroblesvirtuallawlibrary
La duracion de la Sociedad. La necesidad de consignar este requisito en el contrato social tiene un valor
analogo al que dijimos tenia el mismo al tratar de las compaias colectivas, aun cuando respecto de las
anonimas no haya de tenerse en cuenta para nada lo que dijimos entonces acerca de la trascendencia que ello
tiene para los socios; chan roblesvirtualawlibraryporque no existiendo en las anonimas la serie de
responsibilidades de caracter personal que afectan a los socios colectivos, es claro que la duracion de la
sociedad importa conocerla a los socios y los terceros, porque ella marca al limite natural del desenvolvimiento
de la empresa constituida y el comienzo de la liquidacion de la sociedad. (3 Benito, Derecho Mercantil, 292-
293.)

Interesa, pues, la fijacion de la vida de la compaia, desenvolviendose con normalidad y regularidad, tanto a
los asociados como a los terceros. A aquellos, porque su libertad economica, en cierto modo limitada por la
existencia del contrato de compaia, se recobra despues de realizada, mas o menos cumplidamente, la
finalidad comun perseguida; chan roblesvirtualawlibraryy a los terceros, porque les advierte el momento en
que, extinguida la compaia, no cabe y a la creacion con ella de nuevas relaciones juridicas, de que nazcan
reciprocamente derechos y obligaciones, sino solo la liquidacion de los negocios hasta entonces convenidos,
sin otra excepcion que la que luego mas adelante habremos de sealar. (3 Benito, Derecho Mercantil, p.
245.)

The State and its officers also have an obvious interest in the term of life of associations, since the conferment
of juridical capacity upon them during such period is a privilege that is derived from statute. It is obvious that
no agreement between associates can result in giving rise to a new and distinct personality, possessing
independent rights and obligations, unless the law itself shall decree such result. And the State is naturally
interested that this privilege be enjoyed only under the conditions and not beyond the period that it sees fit to
grant; chan roblesvirtualawlibraryand, particularly, that it be not abused in fraud and to the detriment of other
parties; chan roblesvirtualawlibraryand for this reason it has been ruled that the limitation (of corporate
existence) to a definite period is an exercise of control in the interest of the public (Smith vs. Eastwood Wire
Manufacturing Co., 43 Atl. 568).

We cannot assent to the thesis of Benguet that its period of corporate existence has relation to its
organization. The latter term is defined in Websters International Dictionary as:chanroblesvirtuallawlibrary

The executive structure of a business; chan roblesvirtualawlibrarythe personnel of management, with its
several duties and places in administration; chan roblesvirtualawlibrarythe various persons who conduct a
business, considered as a unit.

The legal definitions of the term organization are concordant with that given
above:chanroblesvirtuallawlibrary

Organize or organization, as used in reference to corporations, has a well-understood meaning, which is the
election of officers, providing for the subscription and payment of the capital stock, the adoption of by-laws,
and such other steps as are necessary to endow the legal entity with the capacity to transact the legitimate
business for which it was created. Waltson vs. Oliver, 30 P. 172, 173, 49 Kan. 107, 33 Am. St. Rep. 355; chan
roblesvirtualawlibraryTopeka Bridge Co. vs. Cummings, 3 Kan. 55, 77; chan roblesvirtualawlibraryHunt vs.
Kansas & M. Bridge Co., 11 Kan. 412, 439; chan roblesvirtualawlibraryAspen Water & Light Co., vs. City of
Aspen, 37 P. 728, 730, 6 Colo. App. 12; chan roblesvirtualawlibraryNemaha Coal & Mining Co., vs. Settle 38 P.
483, 484, 54 Kan. 424.

Under a statute providing that, until articles of incorporation should be recorded, the corporation should
transact no business except its own organization, it is held that the term organization means simply the
process of forming and arranging into suitable disposition the parties who are to act together in, and defining
the objects of, the compound body, and that this process, even when complete in all its parts, does not confer
a franchise either valid or defective, but, on the contrary, it is only the act of the individuals, and something
else must be done to secure the corporate franchise. Abbott vs. Omaha Smelting & Refining Co. 4 Neb. 416,
421. (30 Words and Phrases, p. 282.)

It is apparent from the foregoing definitions that the term organization relates merely to the systematization
and orderly arrangement of the internal and managerial affairs and organs of the Petitioner Benguet, and has
nothing to do with the prorogation of its corporate life.

From the double fact that the duration of its corporate life (and juridical personality) has evident connection
with the Petitioners relations to the public, and that it bears none to the Petitioners organization and method
of transacting business, we derive the conclusion that the prohibition contained in section 18 of the
Corporation Law (Act No. 1459) against extension of corporate life by amendment of the original articles was
designed and intended to apply to compaias anonimas that, like Petitioner Benguet, were already existing
at the passage of said law. This conclusion is reinforced by the avowed policy of the law to hasten the day
when compaias anonimas would be extinct, and replace them with the American type of corporation (Harden
vs. Benguet Consolidated Mining Co., supra), for the indefinite prorogation of the corporation life of sociedades
anonimas would maintain the unnecessary duality of organizational types instead of reducing them to a single
one; chan roblesvirtualawlibraryand what is more, it would confer upon these sociedades anonimas, whose
obsolescence was sought, the advantageous privilege of perpetual existence that the new corporation could
not possess.

Of course, the retroactive application of the limitations on the terms of corporate existence could not be made
in violation of constitutional inhibitions specially those securing equal protection of the laws and prohibiting
impairment of the obligation of contracts. It needs no argument to show that if Act No. 1459 allowed existing
compaias anonimas to be governed by the old law in respect to their organization, methods of transacting
business and the rights of the members among themselves, it was precisely in deference to the vested rights
already acquired by the entity and its members at the time the Corporation Law was enacted. But we do not
agree with Petitioner Benguet (and here lies the second issue in this appeal) that the possibility to extend its
corporate life under the Code of Commerce constituted a right already vested when Act No. 1459 was
adopted. At that time, Benguets existence was well within the 50 years period set in its articles of association;
chan roblesvirtualawlibraryand its members had not entered into any agreement that such period should be
extended. It is safe to say that none of the members of Benguet anticipated in 1906 any need to reach an
agreement to increase the term of its corporate life, barely three years after it had started. The prorogation
was purely speculative; chan roblesvirtualawlibrarya mere possibility that could not be taken for granted. It
was as yet conditional, depending upon the ultimate decision of the members and directors. They might agree
to extend Benguets existence beyond the original 50 years; chan roblesvirtualawlibraryor again they might
not. It must be remembered that in 1906, the success of Benguet in its mining ventures was by no means so
certain as to warrant continuation of its operations beyond the 50 years set in its articles. The records of this
Court show that Benguet ran into financial difficulties in the early part of its existence, to the extent that, as
late as 1913, ten years after it was found, 301,100 shares of its capital stock (with a par value of $1 per share)
were being offered for sale at 25 centavos per share in order to raise the sum of P75,000 that was needed to
rehabilitate the company (Hanlon vs. Hausermann and Beam, 40 Phil., 796). Certainly the prolongation of the
corporate existence of Benguet in 1906 was merely a possibility in futuro, a contingency that did not fulfill the
requirements of a vested right entitled to constitutional protection, defined by this Court in Balboa vs. Farrales,
51 Phil., 498, 502, as follows:chanroblesvirtuallawlibrary

Vested right is some right or interest in the property which has become fixed and established, and is no
longer open to doubt or controversy,

A vested right is defined to be an immediate fixed right of present or future enjoyment, and rights are
vested in contradistinction to being expectant or contingent (Pearsall vs. Great Northern R. Co., 161 U. S.
646, 40 L. Ed. 838).

In Corpus Juris Secundum we find:chanroblesvirtuallawlibrary

Rights are vested when the right to enjoyment, present or prospective, has become the property of some
particular person or persons as a present interest. The right must be absolute, complete, and unconditional,
independent of a contingency, and a mere expectancy of future benefit, or a contingent interest in property
founded on anticipated continuance of existing laws, does not constitute a vested right. So, inchoate rights
which have not been acted on are not vested. (16 C.J. S. 214-215.)

Since there was no agreement as yet to extend the period of Benguets corporate existence (beyond the
original 50 years) when the Corporation Law was adopted in 1906, neither Benguet nor its members had any
actual or vested right to such extension at that time. Therefore, when the Corporation Law, by section 18,
forbade extensions of corporate life, neither Benguet nor its members were deprived of any actual or fixed
right constitutionally protected.

To hold, as Petitioner Benguet asks, that the legislative power could not deprive Benguet or its members of
the possibility to enter at some indefinite future time into an agreement to extend Benguets corporate life,
solely because such agreements were authorized by the Code of Commerce, would be tantamount to saying
that the said Code was irrepealable on that point. It is a well settled rule that no person has a vested interest
in any rule of law entitling him to insist that it shall remain unchanged for his benefit. (New York C. R. Co. vs.
White, 61 L. Ed (U.S.) 667; chan roblesvirtualawlibraryMondou vs. New York N. H. & H. R. Co., 56 L. Ed. 327;
chan roblesvirtualawlibraryRainey vs. U. S., 58 L. Ed. 617; chan roblesvirtualawlibraryLilly Co. vs. Saunders,
125 ALR. 1308; chan roblesvirtualawlibraryShea vs. Olson, 111 ALR. 998).

There can be no vested right in the continued existence of a statute or rule of the common law which
precludes its change or repeal, nor in any omission to legislate on a particular matter or subject. Any right
conferred by statute may be taken away by statute before it has become vested, but after a right has vested,
repeal of the statute or ordinance which created the right does not and cannot affect much right. (16 C.J. S.
222-223.)

It is a general rule of constitutional law that a person has no vested right in statutory privileges and
exemptions (Brearly School vs. Ward, 201 NY. 358, 40 LRA NS. 1215; chan roblesvirtualawlibraryalso, Cooley,
Constitutional Limitations, 7th ed., p. 546).

It is not amiss to recall here that after Act No. 1459 the Legislature found it advisable to impress further
restrictions upon the power of corporations to deal in public lands, or to hold real estate beyond a maximum
area; chan roblesvirtualawlibraryand to prohibit any corporation from endeavouring to control or hold more
than 15 per cent of the voting stock of an agricultural or mining corporation (Act No. 3518). These prohibitions
are so closely integrated with our public policy that Commonwealth Act No. 219 sought to extend such
restrictions to associations of all kinds. It would be subversive of that policy to enable Benguet to prolong its
peculiar status of sociedad anonimas, and enable it to cast doubt and uncertainty on whether it is, or not,
subject to those restrictions on corporate power, as it once endeavoured to do in the previous case of Harden
vs. Benguet Mining Corp. 58 Phil., 149.

Stress has been laid upon the fact that the Compaia Maritima (like Benguet, a sociedad anonima established
before the enactment of the Corporation Law) has been twice permitted to extend its corporate existence by
amendment of its articles of association, without objection from the officers of the defunct Bureau of
Commerce and Industry, then in charge of the enforcement of the Corporation Laws, although the exact
question was never raised then. Be that as it may, it is a well established rule in this jurisdiction that the
government is never estopped by mistake or error on the part of its agents (Pineda vs. Court of First Instance
of Tayabas, 52 Phil., 803, 807), and that estopped cannot give validity to an act that is prohibited by law or is
against public policy (Eugenio vs. Perdido, (97 Phil., 41, May 19, 1955; chan roblesvirtualawlibrary19 Am. Jur.
802); chan roblesvirtualawlibraryso that the Respondent, Securities and Exchange Commissioner, was not
bound by the rulings of his predecessor if they be inconsistent with law. Much less could erroneous decisions
of executive officers bind this Court and induce it to sanction an unwarranted interpretation or application of
legal principles.
We now turn to the third and last issue of this appeal, concerning the exercise of the option granted by section
75 of the Corporation Law to every sociedad anonima formed, organized and existing under the laws of the
Philippines on the date of the passage of this Act to either continue business as such sociedad anonima or to
reform and organize under the provisions of the Corporation Law. Petitioner-Appellant Benguet contends that
as the law does not determine the period within which such option may be exercised, Benguet may exercise it
at any time during its corporate existence; chan roblesvirtualawlibraryand that in fact on June 22, 1953, it
chose to reform itself into a corporation for a period of 50 years from that date, filing the corresponding
papers and by-laws with the Respondent Commissioner of Securities and Exchange registration; chan
roblesvirtualawlibrarybut the latter refused to accept them as belatedly made.

The Petitioners argument proceeds from the unexpressed assumption that Benguet, as sociedad anonima, had
not exercised the option given by section 75 of the Corporation Law until 1953. This we find to be incorrect.
Under that section, by continuing to do business as sociedad anonima, Benguet in fact rejected the alternative
to reform as a corporation under Act No. 1459. It will be noted from the text of section 75 (quoted earlier in
this opinion) that no special act or manifestation is required by the law from the existing sociedades anonimas
that prefer to remain and continue as such. It is when they choose to reform and organize under the
Corporation Law that they must, in the words of the section, transfer all corporate interests to the new
corporation. Hence if they do not so transfer, the sociedades anonimas affected are to be understood to have
elected the alternative to continue business as such corporation (sociedad anonima) 2

The election of Benguet to remain a sociedad anonima after the enactment of the Corporation Law is
evidence, not only by its failure, from 1906 to 1953, to adopt the alternative to transfer its corporate interests
to a new corporation, as required by section 75; chan roblesvirtualawlibraryit also appears from positive acts.
Thus around 1933, Benguet claimed and defended in court its acquisition of shares of the capital stock of the
Balatoc Mining Company, on the ground that as a sociedad anonima it (Benguet) was not a corporation within
the purview of the laws prohibiting a mining corporation from becoming interested in another mining
corporation (Harden vs. Benguet Mining Corp., 58 Phil., p. 149). Even in the present proceedings, Benguet has
urged its right to amend its original articles of association as sociedad anonima and extend its life as such
under the provisions of the Spanish Code of Commerce. Such appeals to privileges as sociedad anonima
under the Code of 1886 necessarily imply that Benguet has rejected the alternative of reforming under the
Corporation Law. As Respondent Commissioners order, now under appeal, has stated

A sociedad anonima could not claim the benefit of both, but must have to choose one and discard the other.
If it elected to become a corporation it could not continue as a sociedad anonima; chan
roblesvirtualawlibraryand if it choose to remain as a sociedad anonima, it could not become a corporation.

Having thus made its choice, Benguet may not now go back and seek to change its position and adopt the
reformation that it had formerly repudiated. The election of one of several alternatives is irrevocable once
made (as now expressly recognized in article 940 of the new Civil Code of the
Philippines):chanroblesvirtuallawlibrary such rule is inherent in the nature of the choice, its purpose being to
clarify and render definite the rights of the one exercising the option, so that other persons may act in
consequence. While successive choices may be provided there is nothing in section 75 of the Corporation Law
to show or hint that a sociedad anonima may make more than one choice thereunder, since only one option is
provided for.

While no express period of time is fixed by the law within which sociedades anonimas may elect under section
75 of Act No. 1459 either to reform or to retain their status quo, there are powerful reasons to conclude that
the legislature intended such choice to be made within a reasonable time from the effectivity of the Act. To
enable a sociedad anonima to choose reformation when its stipulated period of existence is nearly ended,
would be to allow it to enjoy a term of existence far longer than that granted to corporations organized under
the Corporation Law; chan roblesvirtualawlibraryin Benguets case, 50 years as sociedad anonima, and another
50 years as an American type of corporation under Act 1459; chan roblesvirtualawlibrarya result incompatible
with the avowed purpose of the Act to hasten the disappearance of the sociedades anonimas. Moreover, such
belated election, if permitted, would enable sociedades anonimas to reap the full advantage of both types of
organization. Finally, it would permit sociedades anonimas to prolong their corporate existence indirectly by
belated reformation into corporations under Act No. 1459, when they could not do so directly by amending
their articles of association.

Much stress is laid upon allegedly improper motives on the part of the intervenor, Consolidated Mines, Inc., in
supporting the orders appealed from, on the ground that intervenor seeks to terminate Benguets operating
contract and appropriate the profits that are the result of Benguets efforts in developing the mines of the
intervenor. Suffice it to say that whatever such motives should be, they are wholly irrelevant to the issues in
this appeal, that exclusively concern the legal soundness of the order of the Respondent Securities and
Exchange Commissioner rejecting the claims of the Benguet Consolidated Mining Company to extend its
corporate life.

Neither are we impressed by the prophesies of economic chaos that would allegedly ensure with the cessation
of Benguets activities. If its mining properties are really susceptible of profitable operation, inexorable
economic laws will ensure their exploitation; chan roblesvirtualawlibraryif, on the other hand, they can no
longer be worked at a profit, then catastrophe becomes inevitable, whether or not Petitioner Benguet retains
corporate existence.

Sustaining the opinions of the Respondent Securities and Exchange Commissioner and of the Secretary of
Justice, we rule that:chanroblesvirtuallawlibrary

(1) The prohibition contained in section 18 of Act No. 1459, against extending the period of corporate
existence by amendment of the original articles, was intended to apply, and does apply, to sociedades
anonimas already formed, organized and existing at the time of the effectivity of the Corporation Law (Act No.
1459) in 1906;

(2) The statutory prohibition is valid and impairs no vested rights or constitutional inhibition where no
agreement to extend the original period of corporate life was perfected before the enactment of the
Corporation Law;

(3) A sociedad anonima, existing before the Corporation Law, that continues to do business as such for a
reasonable time after its enactments, is deemed to have made its election and may not subsequently claim to
reform into a corporation under section 75 of Act No. 1459.

In view of the foregoing, the order appealed from is affirmed. Costs against Petitioner-Appellant Benguet
Consolidated Mining Company.

Padilla, Montemayor, Reyes, A. Labrador, Concepcion and Endencia, JJ., concur.

Separate Opinions

PARAS, C.J., dissenting:chanroblesvirtuallawlibrary

The Petitioner, Benguet Consolidated Mining Company, was organized as a sociedad anonima on June 24,
1903, under the provisions of the Code of Commerce, and its term as fixed in the articles of association was
fifty years. It has been a leading enterprise, long and widely reputed to have pioneered in and boosted the
mining industry, distributed profits among its shareholders, and given employment to thousands. To be more
approximately exact, the Petitioner has kept on its payrolls over four thousand Filipino employees who have
about twenty thousand dependents. The taxes and other dues paid by it to the Government have been in
enormous amounts. It has always been subject to such supervision and control of Government officials as are
prescribed by law.
When, therefore, the Petitioner on June 3, 1953, presented all necessary documents to the Respondent, the
Securities and Exchange Commissioner, with a view to the extension of its term as a sociedad anonima for a
period of fifty years from June 15, 1953; chan roblesvirtualawlibrarywhen on June 22, 1953, it filed with said
Respondent the necessary articles of incorporation and other documents, with a view to reforming itself as a
corporation under the Corporation Law for a period of fifty years from June 22, 1953, followed by the filing on
July 22, 1953, of the corresponding by-laws; chan roblesvirtualawlibraryand when on October 27, 1953, the
Respondent issued an order denying the registration of the instruments as well for extension as for
reformation, Petitioners corporate life was being snapped out with such lightning abruptness as undoubtedly
to spell damage and prejudice not so much to its shareholders as to its beneficiaries thousands of
employees and their dependents and even to the Government which stands to lose a good source of
revenue.

The Petitioner contends (1) that the Respondent had the ministerial duty of registering the documents
presented either for extension of Petitioners term as a sociedad anonima or for its reformation under the
Corporation Law, in the absence (as in this case) of any pretense that said documents are formally defective
or that Petitioners purposes are unlawful; chan roblesvirtualawlibraryand (2) that as the Petitioner had
organized as a sociedad anonima under the Code of Commerce, it has acquired a vested right which cannot
subsequently be affected or taken away by the Corporation Law enacted on April 1, 1906. I would not dwell
upon these contentions, because I hold that, even under the provisions of the Corporation Law, the Petitioner
may either extend its life as a sociedad anonima or reform as a corporation.

Section 75 of the Corporation Law provides:chanroblesvirtuallawlibrary

Any corporation or sociedad anonima formed, organized and existing under the laws of the Philippine Islands
and lawfully transacting business in the Philippine Islands on the date of the passage of this Act, shall be
subject to the provisions hereof so far as such provisions may be applicable and shall be entitled at its option
either to continue business as such corporation or to reform and organize under, and by virtue of the
provisions of this Act, transferring all corporate interests to the new corporation which, if a stock corporation,
is authorized to issue its shares of stock at par to the stockholders or members of the old corporation
according to their interests.

Upon the other hand, section 191 reads as follows:chanroblesvirtuallawlibrary

The Code of Commerce, in so far as it relates to corporations or sociedades anonimas, and all other or parts
of Acts in conflict or inconsistent with this Act, are hereby repealed cralaw And provided, further, That existing
corporations or sociedades anonimas lawfully organized as such, which elect to continue their business as such
sociedades anonimas instead of reforming and reorganizing under and by virtue of the provisions of this Act,
shall continue to be governed by the laws that were in force prior to the passage of this Act in relation to their
organization and method of transacting business and to the rights of members thereof as between themselves,
but their relations to the public and public officials shall be governed by the provisions of this Act.

It is noteworthy that section 75 has not limited the optional continuance of a sociedad anonima to its
unexpired term, and section 191 expressly allows a sociedad anonima which has elected to continue its
business as such to be governed by the laws in force prior to the enactment of the Corporation Law in relation
to its organization and method of transacting business and to the rights of members as between themselves.
It is admitted that the Code of Commerce, while containing no express provision allowing it, does not prohibit
a sociedad anonima from extending its term; chan roblesvirtualawlibraryand commentators Gay de Montella
(Tratado Practico de Sociedad Marcantiles Compaias Anonimas, Tomo II, p. 285) and Cesar Vivante
(Tratado de Derecho Mercantil, pp. 254, 258) have observed that a sociedad anonima may prolong its
corporate duration by amendment of its articles of association before the expiration of the term.

When a business or commercial association is organized, the members are naturally interested in knowing not
only their rights and obligations but also the duration of their legal relations. While organization in a strict
sense may refer to formalities like election of officers, adoption of by-laws, and subscription and payment of
capital stock, it cannot be spoken of or conceived in a wider sense without necessarily involving the
specification of the term of the entity formed. Extension of corporation life is thus essentially an incident of
organization and, in any event, a matter directly affecting or in relation to the rights of the shareholders as
between themselves, within the contemplation of section 191, and should accordingly be governed by the
Code of Commerce. As pointed out by the Supreme Court of Wyoming in the case of Drew vs. Beckwith, (114
P. 2d. 98), extension merely involves an additional privilege to carry out the business of enterprise
undertaken by the corporation, and is but an enlargement of the enterprise undertaken by the corporation.
It is true that the duration of a sociedad anonima is of some concern to the public and public officials who
ought to know the time when it will cease to exist and its business will be wound up. Notice to the world is
however served by the registration of Petitioners articles of association as a sociedad anonima or articles of
incorporation as a reformed corporation with the Securities and Exchange Commission.

When section 191 mentions relations to the public and public officials as being governed by the provisions of
the Corporation Law, the idea is obviously more to enable the Government to enforce its powers of
supervision, inspection and investigation, than to restrict the freedom of the corporate entity as to
organizational or substantive rights of members as between themselves. In one of the public hearings
conducted by the Philippine Commission before the enactment of the Corporation Law, Commissioner Ide
pertinently expressed, Of course, whether they (sociedades) come under the new law or not they would be
subject to inspection, regulations, and examination for the purpose of protecting the community. The
Attorney General in turn held that sociedades anonimas, although governed by the Code of Commerce, are
subject to the examination provided in section 54 of the Corporation Law (5 Op. Atty. Gen. 442). In this
connection, the Petitioner has admittedly subjected itself to the provisions of the Corporation Law.

In Harden vs. Benguet Consolidated Mining Co., 58 Phil., 141, it was remarked:chanroblesvirtuallawlibrary
The purpose of the commission in repealing this part of the Code of Commerce was to compel commercial
entities thereafter organized to incorporate under the Corporation Law, unless they should prefer to adopt
some form or other of the partnership. This Court already indicated that the commercial entities compelled to
incorporate under the Corporation Law were those organized after its enactment.

Section 6, subsection 4, of the Corporation Law provides that the term for which corporations shall exist shall
not exceed fifty years; chan roblesvirtualawlibrarysection 18 provides that the life of a corporation shall not be
extended by amendment beyond the time fixed in the original articles; chan roblesvirtualawlibraryand section
11 provides that upon the issuance by the Securities and Exchange Commissioner of the certificate of
incorporation, the persons organizing the corporation shall constitute a body politic and corporate for the term
specified in the articles of incorporation, not exceeding fifty years. The corporations contemplated are those
defined in section 22 corporations organized under the Corporation Law. They cannot be sociedades
anonimas formed under the Code of Commerce and licensed to continue as such in virtue of sections 75 and
191. Otherwise the words or sociedad anonima would have been added to the term corporation in section
18, as was done in sections 75 and 191. A similar observation was made in Harden vs. Benguet Consolidated
Mining Co., supra:chanroblesvirtuallawlibrary But when the word corporation is used in the sense of sociedad
anonima and close discrimination is necessary, it should be associated with the Spanish expression sociedad
anonima either in parenthesis or connected by the word or. This latter device was adopted in sections 75 and
191 of the Corporation Law.

The citation from 3 Benito, Derecho Mercantil, p. 245, invoked in the majority decision, to the effect that the
duration of a sociedad anonima is of interest both to its members and to third persons, is clearly an authority
for our conclusions that the extension of Petitioners term is in relation to the rights of members thereof as
between themselves. Section 191 does not say that a sociedad anonima shall be governed by the provisions
of the Corporation Law when the matter involved affects not only the rights of members thereof as between
themselves but also the public and public officials.

We are also of the opinion that alternatively, under section 75, the Petitioner may elect to reform and organize
under the Corporation Law, transferring all its corporate interests to the new corporation. Contrary to the
ruling of the Respondent, we are convinced that, as no period was fixed within which it should exercise the
option either of continuing as a sociedad anonima or reforming and organizing under the Corporation Law, the
Petitioner was entitled to have its articles of incorporation and by-laws presented respectively on June 22 and
July 22, 1953, registered by the Respondent. Section 75 did not take away Petitioners right to exhaust its
term as a sociedad anonima, already vested before the enactment of the Corporation Law, but merely granted
it the choice to organize as a regular corporation, instead of extending its life as a sociedad anonima. The only
limitation imposed is that prescribed in section 191, namely, that if a sociedad anonima elects to continue its
business as such, it shall be governed by the prior law in relation to its organization and method of transacting
business and to the rights of its members as between themselves, and by the provisions of the Corporation
Law as to its relations to the public and public officials. If the intention were to fix a period for reformation, the
law would have expressly so provided, in the same way that section 19 fixes two years during which a
corporation should formally organize and commence the transaction of its business, otherwise its corporate
powers would cease; chan roblesvirtualawlibrarysection 77 fixes three years from the dissolution of a
corporation within which it may clear and settle its affairs; chan roblesvirtualawlibraryand section 78 fixes the
same period of three years within which a corporation may convey its properties to a trustee for the benefit of
its stockholders and other interested persons.

It is not correct to argue that the Petitioner is not entitled to elect to continue as a sociedad anonima and at
the same time reform and organize as a regular corporation, because when it continued as a sociedad
anonima after the passage of the Corporation Law and during its full term of fifty years, it merely exercised a
right it theretofore had; chan roblesvirtualawlibraryand the Petitioner can be said properly to have availed
itself of the other option only when in June 1953 it filed the necessary papers of incorporation under the
Corporation Law. It is likewise not accurate to contend that, as the Respondent ruled, the Petitioner could
reform as and be a regular corporation at most only for the remainder of its term as a sociedad anonima.
Section 75, in allowing a sociedad anonima to reform and organize under the Corporation Law, also authorizes
the transfer of its corporate interests to the new corporation. This new corporation should have the
advantage of the prescribed maximum duration, regardless of the original term of the old or substituted entity.
There is no basis for the criticism that, if the Petitioner were allowed to exhaust its full term as a sociedad
anonima, and afterwards to reform as a regular corporation for another fifty years, it would have a span of life
twice as long as that granted to corporations organized under the Corporation Law. The simple reason is that
the Petitioner was already a corporate entity before the enactment of the Corporation Law, with a fixed
duration under its original articles of association. It was clearly not in parity with any corporation organized
under and coming into existence after the effectivity of the Corporation Law which has no choice on the
matter and can therefore have only the prerogative granted by said law, no more no less.

The Respondent has suggested that the Petitioner, if desirous of continuing its business, may organize a new
corporation a suggestion which need not be made because no one would probably think of denying it that
right. But we cannot see any cogent reason or practical purpose for the suggestion. In the first place, the filing
of Petitioners articles of incorporation and by-laws in July, 1953, in effect amounted to the formation of a new
corporation. To require more is to give greater importance to form than to substance. In the second place, the
public and public officials may not as a matter of fact be adversely affected by allowing the Petitioner to
reform, instead of requiring it technically to form a new corporation. It will acquire no greater rights or
obligations by simple reformation than by newly organizing another corporation. Conversely, the public and
public officials will acquire no greater benefit or control by requiring the Petitioner to form a new corporation,
than by allowing it to reform. And as already stated, whatever interest the public and public officials may have
in determining the duration of a sociedad anonima or any corporation for that matter, is amply protected by
registration in the Securities and Exchange Commission.

The Respondent and the intervenor, Consolidated Mines, Inc., have tried to show that the Petitioner holds or
owns interests in eight mining companies, in violation of section 13, subsection 5 of the Corporation Law, in
that it has operating contracts with the intervenor and seven other mining companies, besides owning the
majority shares in Balatoc Mining Co. This matter has not merited any attention or favorable comment in the
majority decision, and rightly of course. Even so, we may observe that the alleged violation was not the
subject of any finding by the Respondent, nor relied upon in his order of denial; chan
roblesvirtualawlibrarythat the Petitioner has denied the charge; chan roblesvirtualawlibrarythat the holding by
the Petitioner of shares of stock in Balatoc Mining Co., if really illegal, may look into only in a quo warranto
proceeding instituted by the Government; chan roblesvirtualawlibrarythat at any rate the Petitioner has always
been ready and willing to dispose of said shares and, in a proper proceeding, it should be given reasonable
time to do so, as this Court gave the Philippine Sugar Estates a period of six months after final decision within
which to liquidate, dissolve and separate absolutely in every respect and in all of its relations, complained of
in the petition, with the Tayabas Land Company (Government vs. Philippine Sugar Estates Co., 38 Phil., 15).

With special reference to the intervenor, it may be of some moment to know the antecedents and nature of
business relations existing between it and the Petitioner, at least to demonstrate the righteousness of the
position of one or the other even from a factual point of view. The following excerpts from Petitioners Reply
to a portion of Intervenors Brief are in point:chanroblesvirtuallawlibrary

What has happened in our case is that prior to the execution of the Operating Agreement of July 9, 1934, the
stockholders, directors, and officers of the intervenor, Consolidated Mines, Inc., did not want to risk one
centavo of their own funds for the development of their chrome ore mining claims in Zambales province, and
proposed to the Petitioner herein, Benguet Consolidated Mining Company, to explore, develop and operate
their mining claims, Benguet to furnish all the funds that might be necessary, and to explore, develop, mine
and concentrate and market all the pay are found on or within paid claims or properties, the intervenor,
Consolidated Mines, Inc., and the Petitioner, Benguet Consolidated Mining Company, after the latter had
reimbursed itself for all its advances, to divide half and half the excess of receipts over disbursements.
Benguet agreed to it, and advanced approximately three million pesos, one-half thereof before the war, and
the other half after the war (the intervenors properties having been destroyed during the war). Paragraph XII
of the intervenors complaint in the civil action instituted by it against Benguet in the Court of First Instance of
Manila, No. 18938, and to which counsel for the intervenor refer in page 5 of their brief, makes mention of the
large sums of money that Benguet advanced, as follows:chanroblesvirtuallawlibrary

Initial advances amounting to approximately P1,500,000 made by Defendant during the first phases of said
Operating Agreement which had been fully reimbursed to it before the war, end of the amounts likewise
advanced by it (Benguet) for rehabilitation amounting to close P1,500,000.00.

While Benguet risked and poured approximately three million pesos (P3,000,000) into the venture, and while
Benguet was looking for, and establishing, a market for intervenors chrome ore, the intervenor, Consolidated
Mines, Inc., considered the said Operating Agreement of July 9, 1934, as valid. Now that Benguets efforts
have been crowned with success, and Benguet has established a market for intervenors chrome ore, the
intervenor claims that its said operating Agreement of July 9, 1934, with the Petitioner, Benguet, is contrary to
law because Benguet has become interested in intervenors chrome ore mining claims (although the
agreement expressly states that Benguet has no interest therein), and objects to the registration of the
documents which Benguet filed with the Respondent Securities and Exchange Commissioner, extending its life
as a sociedad anonima, and reforming itself s a corporation, in accordance with the provisions of section 75 of
the Corporation Law.

Under the foregoing facts, the intervenor, Consolidated Mines, Inc., cannot be heard to complain against
Benguet. No court can give now a helping hand to the intervenor, which claims that Benguet no longer lives,
and wants to keep for itself all the products of Benguets efforts after the latter risked into the venture
approximately three million pesos (P3,000,000).

The foregoing considerations may not constitute a legal justification for ruling that the Petitioner should be
allowed either to extend its life as a sociedad anonima or to reform and organize under the provisions of the
Corporation Law, but they may aid in resolving in Petitioners favor and doubt as to the clarity or definiteness
of sections 75 and 191 of the Corporation Law regarding its right to exercise either option in the manner
claimed by it.
The same result may be arrived at if, in addition, we bear in mind the possible economic harm that may be
brought about by the affirmance of the order complained of. This aspect is adequately touched in Petitioners
brief, as follows:chanroblesvirtuallawlibrary

1. A loss of employment in the Baguio district by about 4,000 Filipino and a loss of direct living from the
Benguet operation supplied to 20,000, that is, the 4,000 employed and their dependents.

(a) This would be calamity to the district of the highest order which could very well produce a snow balling
depression which could react all over the Philippine Islands.

2. Losses of direct and indirect taxes to the Philippine Government in an extremely large yearly amount.

3. No one would be able to continue the Benguet and Balatoc mines in operation should a liquidation of
Benguet take place because the net profits after labor and material costs and taxes in the last two years or
more from the gold mining operations have not warranted their continued operation as independent units. The
profits in 1953 certainly do not warrant it. It is merely a case of taking gold out of the ground in order to pay
for labor, materials and taxes with very little return to the stockholders and on the huge investment made in
the reconstruction since 1946.

(a) The relief provided by the elimination of the 17 per cent Excise Tax, the 7 per cent Compensating Tax
and the lowering of the Extraction Tax, when counter-balanced against consistently increasing costs from
month to month up to this very month, is now nothing but an offsetting item against constantly increasing
costs.

For whatever persuasive effect it may have, we cannot help calling attention to the fact that there are only
about nine sociedades anonimas in the country, foremost among them being Compaia Maritima, which have
existed for years and along with the Petitioner figured prominently in our economic development. Compaia
Maritima, in particular, has been twice allowed to extend its life by amendment of its articles of incorporation.
It may be argued that if there was an official mistake in acceding to the extension of the term of Compaia
Maritima, the same should not warrant the commission of another mistake. But it will go to show that sections
75 and 191 of the Corporation Law are, on the points herein involved, of doubtful construction; chan
roblesvirtualawlibraryand it is for this reason that we had to advert hereinabove to the somewhat unequitable
position of the intervenor and to the possible adverse effect on Philippine economy of the abrupt termination
of Petitioners corporate existence.

By and large, it is my considered opinion that the Respondents order of denial dated October 27, 1953, should
be reversed and the Respondent ordered to register at least the documents presented by the Petitioner,
reforming and organizing itself as a corporation under the provisions of the Corporation Law. This would be in
line with the policy of doing away with sociedad anonimas, at the same time saving the goose that lays the
golden egg.

Jugo and Bautista Angelo, JJ., concur.

G.R. No. L-23606 July 29, 1968

ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC., petitioner,

vs.
SECURITIES & EXCHANGE COMMISSION, respondent.

Gamboa and Gamboa for petitioner.

Office of the Solicitor General for respondent.

SANCHEZ, J.:
To the question May a corporation extend its life by amendment of its articles of incorporation effected
during the three-year statutory period for liquidation when its original term of existence had already expired?
the answer of the Securities and Exchange Commissioner was in the negative. Offshoot is this appeal.

That problem emerged out of the following controlling facts:

Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc. (hereinafter referred to simply as
Alhambra) was duly incorporated under Philippine laws on January 15, 1912. By its corporate articles it was to
exist for fifty (50) years from incorporation. Its term of existence expired on January 15, 1962. On that date, it
ceased transacting business, entered into a state of liquidation.

Thereafter, a new corporation. Alhambra Industries, Inc. was formed to carry on the business of
Alhambra.

On May 1, 1962, Alhambra's stockholders, by resolution named Angel S. Gamboa trustee to take charge of its
liquidation.

On June 20, 1963 within Alhambra's three-year statutory period for liquidation - Republic Act 3531 was
enacted into law. It amended Section 18 of the Corporation Law; it empowered domestic private corporations
to extend their corporate life beyond the period fixed by the articles of incorporation for a term not to exceed
fifty years in any one instance. Previous to Republic Act 3531, the maximum non-extendible term of such
corporations was fifty years.

On July 15, 1963, at a special meeting, Alhambra's board of directors resolved to amend paragraph "Fourth" of
its articles of incorporation to extend its corporate life for an additional fifty years, or a total of 100 years from
its incorporation.

On August 26, 1963, Alhambra's stockholders, representing more than two-thirds of its subscribed capital
stock, voted to approve the foregoing resolution. The "Fourth" paragraph of Alhambra's articles of
incorporation was thus altered to read:

FOURTH. That the term for which said corporation is to exist is fifty (50) years from and after the date of
incorporation, and for an additional period of fifty (50) years thereafter.

On October 28, 1963, Alhambra's articles of incorporation as so amended certified correct by its president and
secretary and a majority of its board of directors, were filed with respondent Securities and Exchange
Commission (SEC).

On November 18, 1963, SEC, however, returned said amended articles of incorporation to Alhambra's counsel
with the ruling that Republic Act 3531 "which took effect only on June 20, 1963, cannot be availed of by the
said corporation, for the reason that its term of existence had already expired when the said law took effect in
short, said law has no retroactive effect."

On December 3, 1963, Alhambra's counsel sought reconsideration of SEC's ruling aforesaid, refiled the
amended articles of incorporation.

On September 8, 1964, SEC, after a conference hearing, issued an order denying the reconsideration sought.

Alhambra now invokes the jurisdiction of this Court to overturn the conclusion below.1

1. Alhambra relies on Republic Act 3531, which amended Section 18 of the Corporation Law. Well it is to take
note of the old and the new statutes as they are framed. Section 18, prior to and after its modification by
Republic Act 3531, covers the subject of amendment of the articles of incorporation of private corporations. A
provision thereof which remains unaltered is that a corporation may amend its articles of incorporation "by a
majority vote of its board of directors or trustees and ... by the vote or written assent of the stockholders
representing at least two-thirds of the subscribed capital stock ... "

But prior to amendment by Republic Act 3531, an explicit prohibition existed in Section 18, thus:

... Provided, however, That the life of said corporation shall not be extended by said amendment beyond the
time fixed in the original articles: ...

This was displaced by Republic Act 3531 which enfranchises all private corporations to extend their corporate
existence. Thus incorporated into the structure of Section 18 are the following:

... Provided, however, That should the amendment consist in extending the corporate life, the extension shall
not exceed fifty years in any one instance: Provided, further, That the original articles, and amended articles
together shall contain all provisions required by law to be set out in the articles of incorporation: ...

As we look in retrospect at the facts, we find these: From July 15 to October 28, 1963, when Alhambra made
its attempt to extend its corporate existence, its original term of fifty years had already expired (January 15,
1962); it was in the midst of the three-year grace period statutorily fixed in Section 77 of the Corporation Law,
thus: .

SEC. 77. Every corporation whose charter expires by its own limitation or is annulled by forfeiture or
otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall
nevertheless be continued as a body corporate for three years after the time when it would have been so
dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to
settle and close its affairs, to dispose of and convey its property and to divide its capital stock, but not for the
purpose of continuing the business for which it was established.2

Plain from the language of the provision is its meaning: continuance of a "dissolved" corporation as a body
corporate for three years has for its purpose the final closure of its affairs, and no other; the corporation is
specifically enjoined from "continuing the business for which it was established". The liquidation of the
corporation's affairs set forth in Section 77 became necessary precisely because its life had ended. For this
reason alone, the corporate existence and juridical personality of that corporation to do business may no
longer be extended.

Worth bearing in mind, at this juncture, is the basic development of corporation law.

The common law rule, at the beginning, was rigid and inflexible in that upon its dissolution, a corporation
became legally dead for all purposes. Statutory authorizations had to be provided for its continuance after
dissolution "for limited and specified purposes incident to complete liquidation of its affairs".3 Thus, the
moment a corporation's right to exist as an "artificial person" ceases, its corporate powers are terminated "just
as the powers of a natural person to take part in mundane affairs cease to exist upon his death".4 There is
nothing left but to conduct, as it were, the settlement of the estate of a deceased juridical person.

2. Republic Act 3531, amending Section 18 of the Corporation Law, is silent, it is true, as to when such act of
extension may be made. But even with a superficial knowledge of corporate principles, it does not take much
effort to reach a correct conclusion. For, implicit in Section 77 heretofore quoted is that the privilege given to
prolong corporate life under the amendment must be exercised before the expiry of the term fixed in the
articles of incorporation.

Silence of the law on the matter is not hard to understand. Specificity is not really necessary. The authority to
prolong corporate life was inserted by Republic Act 3531 into a section of the law that deals with the power of
a corporation to amend its articles of incorporation. (For, the manner of prolongation is through an
amendment of the articles.) And it should be clearly evident that under Section 77 no corporation in a state of
liquidation can act in any way, much less amend its articles, "for the purpose of continuing the business for
which it was established".

All these dilute Alhambra's position that it could revivify its corporate life simply because when it attempted to
do so, Alhambra was still in the process of liquidation. It is surely impermissible for us to stretch the law
that merely empowers a corporation to act in liquidation to inject therein the power to extend its corporate
existence.

3. Not that we are alone in this view. Fletcher has written: "Since the privilege of extension is purely statutory,
all of the statutory conditions precedent must be complied with in order that the extension may be
effectuated. And, generally these conditions must be complied with, and the steps necessary to effect the
extension must be taken, during the life of the corporation, and before the expiration of the term of existence
as original fixed by its charter or the general law, since, as a rule, the corporation is ipso facto dissolved as
soon as that time expires. So where the extension is by amendment of the articles of incorporation, the
amendment must be adopted before that time. And, similarly, the filing and recording of a certificate of
extension after that time cannot relate back to the date of the passage of a resolution by the stockholders in
favor of the extension so as to save the life of the corporation. The contrary is true, however, and the doctrine
of relation will apply, where the delay is due to the neglect of the officer with whom the certificate is required
to be filed, or to a wrongful refusal on his part to receive it. And statutes in some states specifically provide
that a renewal may be had within a specified time before or after the time fixed for the termination of the
corporate existence".5

The logic of this position is well expressed in a foursquare case decided by the Court of Appeals of Kentucky.6
There, pronouncement was made as follows:

... But section 561 (section 2147) provides that, when any corporation expires by the terms of its articles of
incorporation, it may be thereafter continued to act for the purpose of closing up its business, but for no other
purpose. The corporate life of the Home Building Association expired on May 3, 1905. After that date, by the
mandate of the statute, it could continue to act for the purpose of closing up its business, but for no other
purpose. The proposed amendment was not made until January 16, 1908, or nearly three years after the
corporation expired by the terms of the articles of incorporation. When the corporate life of the corporation
was ended, there was nothing to extend. Here it was proposed nearly three years after the corporate life of
the association had expired to revivify the dead body, and to make that relate back some two years and eight
months. In other words, the association for two years and eight months had only existed for the purpose of
winding up its business, and, after this length of time, it was proposed to revivify it and make it a live
corporation for the two years and eight months daring which it had not been such.

The law gives a certain length of time for the filing of records in this court, and provides that the time may be
extended by the court, but under this provision it has uniformly been held that when the time was expired,
there is nothing to extend, and that the appeal must be dismissed... So, when the articles of a corporation
have expired, it is too late to adopt an amendment extending the life of a corporation; for, the corporation
having expired, this is in effect to create a new corporation ..."7

True it is, that the Alabama Supreme Court has stated in one case.8 that a corporation empowered by statute
to renew its corporate existence may do so even after the expiration of its corporate life, provided renewal is
taken advantage of within the extended statutory period for purposes of liquidation. That ruling, however, is
inherently weak as persuasive authority for the situation at bar for at least two reasons: First. That case was a
suit for mandamus to compel a former corporate officer to turn over books and records that came into his
possession and control by virtue of his office. It was there held that such officer was obliged to surrender his
books and records even if the corporation had already expired. The holding on the continued existence of the
corporation was a mere dictum. Second. Alabama's law is different. Corporations in that state were authorized
not only to extend but also to renew their corporate existence.That very case defined the word "renew" as
follows; "To make new again; to restore to freshness; to make new spiritually; to regenerate; to begin again;
to recommence; to resume; to restore to existence, to revive; to re-establish; to recreate; to replace; to grant
or obtain an extension of Webster's New International Dict.; 34 Cyc. 1330; Carter v. Brooklyn Life Ins. Co.,
110 N.Y. 15, 21, 22, 17 N.E. 396; 54 C.J. 379. Sec".9

On this point, we again draw from Fletcher: "There is a broad distinction between the extension of a charter
and the grant of a new one. To renew a charter is to revive a charter which has expired, or, in other words,
"to give a new existence to one which has been forfeited, or which has lost its vitality by lapse of time". To
"extend" a charter is "to increase the time for the existence of one which would otherwise reach its limit at an
earlier period".10 Nowhere in our statute Section 18, Corporation Law, as amended by Republic Act 3531
do we find the word "renew" in reference to the authority given to corporations to protract their lives. Our law
limits itself to extension of corporate existence. And, as so understood, extension may be made only before
the term provided in the corporate charter expires.

Alhambra draws attention to another case11 which declares that until the end of the extended period for
liquidation, a dissolved corporation "does not become an extinguished entity". But this statement was
obviously lifted out of context. That case dissected the question whether or not suits can be commenced by or
against a corporation within its liquidation period. Which was answered in the affirmative. For, the corporation
still exists for the settlement of its affairs.

People, ex rel. vs. Green,12 also invoked by Alhambra, is as unavailing. There, although the corporation
amended its articles to extend its existence at a time when it had no legal authority yet, it adopted the
amended articles later on when it had the power to extend its life and during its original term when it could
amend its articles.

The foregoing notwithstanding, Alhambra falls back on the contention that its case is arguably within the
purview of the law. It says that before cessation of its corporate life, it could not have extended the same, for
the simple reason that Republic Act 3531 had not then become law. It must be remembered that Republic Act
3531 took effect on June 20, 1963, while the original term of Alhambra's existence expired before that date
on January 15, 1962. The mischief that flows from this theory is at once apparent. It would certainly open the
gates for all defunct corporations whose charters have expired even long before Republic Act 3531 came
into being to resuscitate their corporate existence.

4. Alhambra brings into argument Republic Act 1932, which amends Section 196 of the Insurance Act, now
reading as follows: 1wph1.t

SEC. 196. Any provision of law to the contrary notwithstanding, every domestic life insurance corporation,
formed for a limited period under the provisions of its articles of incorporation, may extend its corporate
existence for a period not exceeding fifty years in any one instance by amendment to its articles of
incorporation on or before the expiration of the term so fixed in said articles ...

To be observed is that the foregoing statute unlike Republic Act 3531 expressly authorizes domestic
insurance corporations to extend their corporate existence "on or before the expiration of the term" fixed in
their articles of incorporation. Republic Act 1932 was approved on June 22, 1957, long before the passage of
Republic Act 3531 in 1963. Congress, Alhambra points out, must have been aware of Republic Act 1932 when
it passed Republic Act 3531. Since the phrase "on or before", etc., was omitted in Republic Act 3531, which
contains no similar limitation, it follows, according to Alhambra, that it is not necessary to extend corporate
existence on or before the expiration of its original term.

That Republic Act 3531 stands mute as to when extention of corporate existence may be made, assumes no
relevance. We have already said, in the face of a familiar precept, that a defunct corporation is bereft of any
legal faculty not otherwise expressly sanctioned by law.

Illuminating here is the explanatory note of H.B. 1774, later Republic Act 3531 now in dispute. Its first
paragraph states that "Republic Act No. 1932 allows the automatic extension of the corporate existence of
domestic life insurance corporations upon amendment of their articles of incorporation on or before the
expiration of the terms fixed by said articles". The succeeding lines are decisive: "This is a good law, a sane
and sound one. There appears to be no valid reason why it should not be made to apply to other private
corporations.13

The situation here presented is not one where the law under consideration is ambiguous, where courts have to
put in harness extrinsic aids such as a look at another statute to disentangle doubts. It is an elementary rule in
legal hermeneutics that where the terms of the law are clear, no statutory construction may be permitted.
Upon the basic conceptual scheme under which corporations operate, and with Section 77 of the Corporation
Law particularly in mind, we find no vagueness in Section 18, as amended by Republic Act 3531. As we view it,
by directing attention to Republic Act 1932, Alhambra would seek to create obscurity in the law; and, with
that, ask of us a ruling that such obscurity be explained. This, we dare say, cannot be done.

The pari materia rule of statutory construction, in fact, commands that statutes must be harmonized with each
other.14 So harmonizing, the conclusion is clear that Section 18 of the Corporation Law, as amended by
Republic Act 3531 in reference to extensions of corporate existence, is to be read in the same light as Republic
Act 1932. Which means that domestic corporations in general, as with domestic insurance companies, can
extend corporate existence only on or before the expiration of the term fixed in their charters.

5. Alhambra pleads for munificence in interpretation, one which brushes technicalities aside. Bases for this
posture are that Republic Act 3531 is a remedial statute, and that extension of corporate life is beneficial to
the economy.

Alhambra's stance does not induce assent. Expansive construction is possible only when there is something to
expand. At the time of the passage of Republic Act 3531, Alhambra's corporate life had already expired. It had
overstepped the limits of its limited existence. No life there is to prolong.

Besides, a new corporation Alhambra Industries, Inc., with but slight change in stockholdings15 has
already been established. Its purpose is to carry on, and it actually does carry on,16 the business of the
dissolved entity. The beneficial-effects argument is off the mark.

The way the whole case shapes up then, the only possible drawbacks of Alhambra might be that, instead of
the new corporation (Alhambra Industries, Inc.) being written off, the old one (Alhambra Cigar & Cigarette
Manufacturing Company, Inc.) has to be wound up; and that the old corporate name cannot be retained fully
in its exact form.17 What is important though is that the word Alhambra, the name that counts [it has
goodwill], remains.

FOR THE REASONS GIVEN, the ruling of the Securities and Exchange Commission of November 18, 1963, and
its order of September 8, 1964, both here under review, are hereby affirmed.

Costs against petitioner Alhambra Cigar & Cigarette Manufacturing Company, Inc. So ordered.

MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION,

Petitioners,

- versus -

MIGUEL LIM, in his personal capacity as Stockholder of Ruby Industrial Corporation and representing the
MINORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION and the MANAGEMENT COMMITTEE OF
RUBY INDUSTRIAL CORPORATION,
Respondents.

G.R. No. 165887

x- - - - - - - - - - - - - - - - - - - - - - - - - -x

CHINA BANKING CORPORATION,

Petitioner,

- versus -

MIGUEL LIM, in his personal capacity as a stockholder of Ruby Industrial Corporation and representing the
MINORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION,
Respondents.

G.R. No. 165929

Present:

CARPIO MORALES, J.,

Chairperson,
BRION,
BERSAMIN,
ABAD,* and
VILLARAMA, JR., JJ.

Promulgated:

June 6, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

VILLARAMA, JR., J.:

This case is brought to us on appeal for the fourth time, involving the same parties and interests litigating on
issues arising from rehabilitation proceedings initiated by Ruby Industrial Corporation wayback in 1983.
Following is the factual backdrop of the present controversy, as culled from the records and facts set forth in
the ponencia of Chief Justice Reynato S. Puno in Ruby Industrial Corporation v. Court of Appeals.[1]
The Antecedents
Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing. Reeling from
severe liquidity problems beginning in 1980, RUBY filed on December 13, 1983 a petition for suspension of
payments with the Securities and Exchange Commission (SEC) docketed as SEC Case No. 2556. On December
20, 1983, the SEC issued an order declaring RUBY under suspension of payments and enjoining the disposition
of its properties pending hearing of the petition, except insofar as necessary in its ordinary operations, and
making payments outside of the necessary or legitimate expenses of its business.
On August 10, 1984, the SEC Hearing Panel created the management committee (MANCOM) for RUBY,
composed of representatives from Allied Leasing and Finance Corporation (ALFC), Philippine Bank of
Communications (PBCOM), China Banking Corporation (China Bank), Pilipinas Shell Petroleum Corporation
(Pilipinas Shell), and RUBY represented by Mr. Yu Kim Giang. The MANCOM was tasked to perform the
following functions: (1) undertake the management of RUBY; (2) take custody and control over all existing
assets and liabilities of RUBY; (3) evaluate RUBYs existing assets and liabilities, earnings and operations; (4)
determine the best way to salvage and protect the interest of its investors and creditors; and (5) study, review
and evaluate the proposed rehabilitation plan for RUBY.
Subsequently, two (2) rehabilitation plans were submitted to the SEC: the BENHAR/RUBY Rehabilitation Plan
of the majority stockholders led by Yu Kim Giang, and the Alternative Plan of the minority stockholders
represented by Miguel Lim (Lim).
Under the BENHAR/RUBY Plan, Benhar International, Inc. (BENHAR) -- a domestic corporation engaged in the
importation and sale of vehicle spare parts which is wholly owned by the Yu family and headed by Henry Yu,
who is also a director and majority stockholder of RUBY -- shall lend its P60 million credit line in China Bank to
RUBY, payable within ten (10) years. Moreover, BENHAR shall purchase the credits of RUBYs creditors and
mortgage RUBYs properties to obtain credit facilities for RUBY. Upon approval of the rehabilitation plan,
BENHAR shall control and manage RUBYs operations. For its service, BENHAR shall receive a management fee
equivalent to 7.5% of RUBYs net sales.
The BENHAR/RUBY Plan was opposed by 40% of the stockholders, including Lim, a minority shareholder of
RUBY. ALFC, the biggest unsecured creditor of RUBY and chairman of the management committee, also
objected to the plan as it would transfer RUBYs assets beyond the reach and to the prejudice of its unsecured
creditors.
On the other hand, the Alternative Plan of RUBYs minority stockholders proposed to: (1) pay all RUBYs
creditors without securing any bank loan; (2) run and operate RUBY without charging management fees; (3)
buy-out the majority shares or sell their shares to the majority stockholders; (4) rehabilitate RUBYs two plants;
and (5) secure a loan at 25% interest, as against the 28% interest charged in the loan under the
BENHAR/RUBY Plan.
Both plans were endorsed by the SEC to the MANCOM for evaluation.
On October 28, 1988, the SEC Hearing Panel approved the BENHAR/RUBY Plan. The minority stockholders thru
Lim appealed to the SEC En Banc which, in its November 15, 1988 Order, enjoined the implementation of the
BENHAR/RUBY Plan. On December 20, 1988 after the expiration of the temporary restraining order (TRO), the
SEC En Banc granted the writ of preliminary injunction against the enforcement of the BENHAR/RUBY Plan.
BENHAR, Henry Yu, RUBY and Yu Kim Giang questioned the issuance of the writ in their petition filed in the
Court of Appeals (CA), docketed as CA-G.R. SP No. 16798. The CA denied their appeal.[2] Upon elevation to
this Court (G.R. No. L-88311), we issued a minute resolution dated February 28, 1990 denying the petition and
upholding the injunction against the implementation of the BENHAR/RUBY Plan.
Meanwhile, BENHAR paid off Far East Bank & Trust Company (FEBTC), one of RUBYs secured creditors. By
May 30, 1988, FEBTC had already executed a deed of assignment of credit and mortgage rights in favor of
BENHAR. BENHAR likewise paid the other secured creditors who, in turn, assigned their rights in favor of
BENHAR. These acts were done by BENHAR despite the SECs TRO and injunction and even before the SEC
Hearing Panel approved the BENHAR/RUBY Plan on October 28, 1988.
ALFC and Miguel Lim moved to nullify the deeds of assignment executed in favor of BENHAR and cite the
parties thereto in contempt for willful violation of the December 20, 1983 SEC order enjoining RUBY from
disposing its properties and making payments pending the hearing of its petition for suspension of payments.
They also charged that in paying off FEBTCs credits, FEBTC was given undue preference over the other
creditors of RUBY. Acting on the motions, the SEC Hearing Panel nullified the deeds of assignment executed by
RUBYs creditors in favor of BENHAR and declared the parties thereto guilty of indirect contempt. BENHAR and
RUBY appealed to the SEC En Banc which denied their appeal. BENHAR and RUBY joined by Henry Yu and Yu
Kim Giang appealed to the CA (CA-G.R. SP No. 18310). By Decision[3] dated August 29, 1990, the CA affirmed
the SEC ruling nullifying the deeds of assignment. The CA also declared its decision final and executory as to
RUBY and Yu Kim Giang for their failure to file their pleadings within the reglementary period. By Resolution
dated August 26, 1991 in G.R. No. 96675,[4] this Court affirmed the CAs decision.
Earlier, on May 29, 1990, after the SEC En Banc enjoined the implementation of BENHAR/RUBY Plan, RUBY
filed with the SEC En Banc an ex parte petition to create a new management committee and to approve its
revised rehabilitation plan (Revised BENHAR/RUBY Plan). Under the revised plan, BENHAR shall receive
P34.068 million of the P60.437 Million credit facility to be extended to RUBY, as reimbursement for BENHARs
payment to some of RUBYs creditors. The SEC En Banc directed RUBY to submit its revised rehabilitation plan
to its creditors for comment and approval while the petition for the creation of a new management committee
was remanded for further proceedings to the SEC Hearing Panel. The Alternative Plan of RUBYs minority
stockholders was also forwarded to the hearing panel for evaluation.
On April 26, 1991, over ninety percent (90%) of RUBYs creditors objected to the Revised BENHAR/RUBY Plan
and the creation of a new management committee. Instead, they endorsed the minority stockholders
Alternative Plan. At the hearing of the petition for the creation of a new management committee, three (3)
members of the original management committee (Lim, ALFC and Pilipinas Shell) opposed the Revised
BENHAR/RUBY Plan on grounds that: (1) it would legitimize the entry of BENHAR, a total stranger, to RUBY as
BENHAR would become the biggest creditor of RUBY; (2) it would put RUBYs assets beyond the reach of the
unsecured creditors and the minority stockholders; and (3) it was not approved by RUBYs stockholders in a
meeting called for the purpose.
Notwithstanding the objections of 90% of RUBYs creditors and three members of the MANCOM, the SEC
Hearing Panel approved on September 18, 1991 the Revised BENHAR/RUBY Plan and dissolved the existing
management committee. It also created a new management committee and appointed BENHAR as one of its
members. In addition to the powers originally conferred to the management committee under Presidential
Decree (P.D.) No. 902-A, the new management committee was tasked to oversee the implementation by the
Board of Directors of the revised rehabilitation plan for RUBY.
The original management committee (MANCOM), Lim and ALFC appealed to the SEC En Banc which affirmed
the approval of the Revised BENHAR/RUBY Plan and the creation of a new management committee on July 30,
1993. To ensure that the management of RUBY will not be controlled by any group, the SEC appointed SEC
lawyers Ruben C. Ladia and Teresita R. Siao as additional members of the new management committee.
Further, it declared that BENHARs membership in the new management committee is subject to the condition
that BENHAR will extend its credit facilities to RUBY without using the latters assets as security or collateral.
Lim, ALFC and MANCOM moved for reconsideration while RUBY and BENHAR asked the SEC to reconsider the
portion of its Order prohibiting BENHAR from utilizing RUBYs assets as collateral. On October 15, 1993, the
SEC denied the motion of Lim, ALFC and the original management committee but granted RUBY and BENHARs
motion and allowed BENHAR to use RUBYs assets as collateral for loans, subject to the approval of the
majority of all the members of the new management committee. Lim, ALFC and MANCOM appealed to the CA
(CA-G.R. SP Nos. 32404, 32469 & 32483) which by Decision[5] dated March 31, 1995 set aside the SECs
approval of the Revised BENHAR/RUBY Plan and remanded the case to the SEC for further proceedings. The
CA ruled that the revised plan circumvented its earlier decision (CA-G.R. SP No. 18310) nullifying the deeds of
assignment executed by RUBYs creditors in favor of BENHAR. Since under the revised plan, BENHAR was to
receive P34.068 Million of the P60.437 Million credit facility to be extended to RUBY, as settlement for its
advance payment to RUBYs seven (7) secured creditors, such payments made by BENHAR under the void
Deeds of Assignment, in effect were recognized as payable to BENHAR under the revised plan. The motion for
reconsideration filed by BENHAR and RUBY was likewise denied by the CA.[6]
Undaunted, RUBY and BENHAR filed a petition for review in this Court (G.R. Nos. 124185-87 entitled Ruby
Industrial Corporation v. Court of Appeals) alleging that the CA gravely abused its discretion in substituting its
judgment for that of the SEC, and in allowing Lim, ALFC and MANCOM to file separate petitions prepared by
lawyers representing themselves as belonging to different firms. By Decision[7] dated January 20, 1998, we
sustained the CAs ruling that the Revised BENHAR/RUBY Plan contained provisions which circumvented its final
decision in CA-G.R. SP No. 18310, nullifying the deeds of assignment of credits and mortgages executed by
RUBYs creditors in favor of BENHAR, as well as this Courts Resolution in G.R. No. 96675, affirming the said
CAs decision. We thus held:
Specifically, the Revised BENHAR/RUBY Plan considered as valid the advance payments made by BENHAR in
favor of some of RUBYs creditors. The nullity of BENHARs unauthorized dealings with RUBYs creditors is
settled. The deeds of assignment between BENHAR and RUBYs creditors had been categorically declared void
by the SEC Hearing Panel in two (2) orders issued on January 12, 1989 and March 15, 1989. x x x
xxxx
These orders were upheld by the SEC en banc and the Court of Appeals. In CA-G.R. SP No. 18310, the Court
of Appeals ruled as follows:
xxxxxxxxx
1) x x x when the Deed of Assignment was executed on May 30, 1988 by and between Ruby Industrial Corp.,
Benhar International, Inc., and FEBTC, the Rehabilitation Plan proposed by petitioner Ruby Industrial Corp. for
Benhar International, Inc. to assume all petitioners obligation has not been approved by the SEC. The
Rehabilitation Plan was not approved until October 28, 1988. There was a willful and blatant violation of the
SEC order dated December 20, 1983 on the part of petitioner Ruby Industrial Corp., represented by Yu Kim
Giang, by Benhar International, Inc., represented by Henry Yu and by FEBTC.
2) The magnitude and coverage of the transactions involved were such that Yu Kim Giang and the other
signatories cannot feign ignorance or pretend lack of knowledge thereto in view of the fact that they were all
signatories to the transaction and privy to all the negotiations leading to the questioned transactions. In
executing the Deeds of Assignment, the petitioners totally disregarded the mandate contained in the SEC
order not to dispose the properties of Ruby Industrial Corp. in any manner whatsoever pending the approval
of the Rehabilitation Plan and rendered illusory the SEC efforts to rehabilitate the petitioner corporation to the
best interests of all the creditors.
3) The assignments were made without prior approval of the Management Committee created by the SEC in
an Order dated August 10, 1984. Under Sec. 6, par. d, sub. par. (2) of P.D. 902-A as amended by P.D. 1799,
the Management Committee, rehabilitation receiver, board or body shall have the power to take custody and
control over all existing assets of such entities under management notwithstanding any provision of law,
articles of incorporation or by-law to the contrary. The SEC therefore has the power and authority, through a
Management Committee composed of petitioners creditors or through itself directly, to declare all assignment
of assets of the petitioner Corporation declared under suspension of payments, null and void, and to conserve
the same in order to effect a fair, equitable and meaningful rehabilitation of the insolvent corporation.
4) x x x. The acts for which petitioners were held in indirect contempt by the SEC arose from the failure or
willful refusal by petitioners to obey the lawful order of the SEC not to dispose of any of its properties in any
manner whatsoever without authority or approval of the SEC. The execution of the Deeds of Assignment tend
to defeat or obstruct the administration of justice. Such acts are offenses against the SEC because they are
calculated to embarrass, hinder and obstruct the tribunal in the administration of justice or lessen its authority.
xxx
Even the SEC en banc, in its July 30, 1993 Order affirming the approval of the Revised BENHAR/RUBY Plan,
has acknowledged the invalidity of the subject deeds of assignment. However, to justify its approval of the
plan and the appointment of BENHAR to the new management committee, it gave the lame excuse that
BENHAR became RUBYs creditor for having paid RUBYs debts. x x x
xxxx
For its part, the Court of Appeals noted that the approved Revised BENHAR/RUBY Plan gave undue preference
to BENHAR. The records, indeed, show that BENHARs offer to lend its credit facility in favor of RUBY is
conditioned upon the payment of the amount it advanced to RUBYs creditors, x x x
xxxx
In fact, BENHAR shall receive P34.068 Million out of the P60.437 Million credit facility to be extended to RUBY
for the latters rehabilitation.
Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate
the corporation to its former position of successful operation and solvency. When a distressed company is
placed under rehabilitation, the appointment of a management committee follows to avoid collusion between
the previous management and creditors it might favor, to the prejudice of the other creditors. All assets of a
corporation under rehabilitation receivership are held in trust for the equal benefit of all creditors to preclude
one from obtaining an advantage or preference over another by the expediency of attachment, execution or
otherwise. As between the creditors, the key phrase is equality in equity. Once the corporation threatened by
bankruptcy is taken over by a receiver, all the creditors ought to stand on equal footing. Not any one of them
should be paid ahead of the others. This is precisely the reason for suspending all pending claims against the
corporation under receivership.[8] (Additional emphasis supplied.)
Aside from the undue preference that would have been given to BENHAR under the Revised BENHAR/RUBY
Plan, we also found RUBYs dealing with BENHAR highly irregular and its proposed financing scheme more
costly and ultimately prejudicial to RUBY. Thus:
Parenthetically, BENHAR is a domestic corporation engaged in importing and selling vehicle spare parts with an
authorized capital stock of thirty million pesos. Yet, it offered to lend its credit facility in the amount of sixty to
eighty million pesos to RUBY. It is to be noted that BENHAR is not a lending or financing corporation and
lending its credit facilities, worth more than double its authorized capitalization, is not one of the powers
granted to it under its Articles of Incorporation. Significantly, Henry Yu, a director and a majority stockholder
of RUBY is, at the same time, a stockholder of BENHAR, a corporation owned and controlled by his family.
These circumstances render the deals between BENHAR and RUBY highly irregular.
xxxx
Moreover, when RUBY initiated its petition for suspension of payments with the SEC, BENHAR was not listed as
one of RUBYs creditors. BENHAR is a total stranger to RUBY. If at all, BENHAR only served as a conduit of
RUBY. As aptly stated in the challenged Court of Appeals decision:
Benhars role in the Revised Benhar/Ruby Plan, as envisioned by the majority stockholders, is to contract the
loan for Ruby and, serving the role of a financier, relend the same to Ruby. Benhar is merely extending its
credit line facility with China Bank, under which the bank agrees to advance funds to the company should the
need arise. This is unlikely a loan in which the entire amount is made available to the borrower so that it can
be used and programmed for the benefit of the companys financial and operational needs. Thus, it is actually
China Bank which will be the source of the funds to be relent to Ruby. Benhar will not shell out a single
centavo of its own funds. It is the assets of Ruby which will be mortgaged in favor of Benhar. Benhars
participation will only make the rehabilitation plan more costly and, because of the mortgage of its (Rubys)
assets to a new creditor, will create a situation which is worse than the present. x x x
We need not say more.[9] (Additional emphasis supplied.)
After the finality of the above decision, the SEC set the case for further proceedings.[10] On March 14, 2000,
Bank of the Philippine Islands (BPI), one of RUBYs secured creditors, filed a Motion to Vacate Suspension
Order[11] on grounds that there is no existing management committee and that no decision has been
rendered in the case for more than 16 years already, which is beyond the period mandated by Sec. 3-8 of the
Rules of Procedure on Corporate Recovery. RUBY filed its opposition,[12] asserting that the MANCOM never
relinquished its status as the duly appointed management committee as it resisted the orders of the second
and third management committees subsequently created, which have been nullified by the CA and later this
Court. As to the applicability of the cited rule under the Rules on Corporate Recovery, RUBY pointed out that
this case was filed long before the effectivity of said rules. It also pointed out that the undue delay in the
approval of the rehabilitation plan being due to the numerous appeals taken by the minority stockholders and
MANCOM to the CA and this Court, from the SEC approval of the BENHAR/RUBY Plan. Since there have already
been steps taken to finally settle RUBYs obligations with its creditors, it was contended that the application of
the mandatory period under the cited provision would cause prejudice and injustice to RUBY.
It appears that even earlier during the pendency of the appeals in the CA, BENHAR and RUBY have performed
other acts in pursuance of the BENHAR/RUBY Plan approved by the SEC.
On September 1, 1996, Lim received a Notice of Stockholders Meeting scheduled on September 3, 1996 signed
by a certain Mr. Edgardo M. Magtalas, the Designated Secretary of RUBY and stating the matters to be taken
up in said meeting, which include the extension of RUBYs corporate term for another twenty-five (25) years
and election of Directors.[13] At the scheduled stockholders meeting of September 3, 1996, Lim together with
other minority stockholders, appeared in order to put on record their objections on the validity of holding
thereof and the matters to be taken therein. Specifically, they questioned the percentage of stockholders
present in the meeting which the majority claimed stood at 74.75% of the outstanding capital stock of RUBY.
The aforesaid stockholders meeting was the subject of the Motion to Cite For Contempt[14] and Supplement
to Motion to Cite For Contempt[15] filed by Lim before the CA where their petitions for review (CA-G.R. Nos.
32404, 32469 and 32483) were then pending. Lim argued that the majority stockholders claimed to have
increased their shares to 74.75% by subscribing to the unissued shares of the authorized capital stock (ACS).
Lim pointed out that such move of the majority was in implementation of the BENHAR/RUBY Plan which calls
for capital infusion of P11.814 Million representing the unissued and unsubscribed portion of the present ACS
of P23.7 Million, and the Revised BENHAR/RUBY Plan which proposed an additional subscription of P30 Million.
Since the implementation of both majority plans have been enjoined by the SEC and CA, the calling of the
special stockholders meeting by the majority stockholders clearly violated the said injunction orders. This
circumstance certainly affects the determination of quorum, the voting requirements for corporate term
extension, as well as the election of Directors pursuant to the July 30, 1993 Order and October 15, 1993
Resolution of the SEC enjoining not only the implementation of the revised plan but also the doing of any act
that may render the appeal from the approval of the said plan moot and academic.
The aforementioned capital infusion was taken up by RUBYs board of directors in a special meeting[16] held
on October 2, 1991 following the issuance by the SEC of its Order dated September 18, 1991[17] approving
the Revised BENHAR/RUBY Plan and creating a new management committee to oversee its implementation.
During the said meeting, the board asserted its authority and resolved to take over the management of RUBYs
funds, properties and records and to demand an accounting from the MANCOM which was ordered dissolved
by the SEC. The board thus resolved that:
The corporation be authorized to issue out of the unissued portion of the authorized capital stocks of the
corporation in the form of common stocks 11.8134.00 [Million] after comparing this with the audited financial
statement prepared by SGV as of December 31, 1982, to be subscribed and paid in full by the present
stockholders in proportion to their present stockholding in the corporation on staggered basis starting October
28, December 27 then February 28 and April 28 as the last installment date at 25% for each period. It was
also moved and seconded that should any of the stockholders fail to exercise their rights to buy the number of
shares they are qualified to buy by making the first installment payment of 25% on or before October 13,
1991, then the other stockholders may buy the same and that only when none of the present stockholders are
interested in the shares may there be a resort to selling them by public auction.[18]
As reflected in the Minutes of the special board meeting, a representative of the absent directors (Tan Chai,
Tomas Lim, Miguel Lim and Yok Lim) came to submit their letter addressed to the Chairman suggesting that
said meeting be deferred until the September 18, 1991 SEC Order becomes final and executory. The directors
present nevertheless proceeded with the meeting upon their belief that neither appeal nor motion for
reconsideration can stay the SEC order.[19]
The resolution to extend RUBYs corporate term, which was to expire on January 2, 1997, was approved during
the September 3, 1996 stockholders meeting, as recommended by the board of directors composed of Henry
Yu (Chairman), James Yu, David Yukimteng, Harry L. Yu, Yu Kim Giang, Mary L. Yu and Vivian L. Yu. The
board certified that said resolution was approved by stockholders representing two-thirds (2/3) of RUBYs
outstanding capital stock.[20] Per Certification[21] dated August 31, 1995 issued by Yu Kim Giang as
Executive Vice-President of RUBY, the majority stockholders own 74.75% of RUBYs outstanding capital stock
as of October 27, 1991. The Amended Articles of Incorporation was filed with the SEC on September 24,
1996.[22]
On March 17, 2000, Lim filed a Motion[23] informing the SEC of acts being performed by BENHAR and RUBY
through directors who were illegally elected, despite the pendency of the appeal before this Court questioning
the SEC approval of the BENHAR/RUBY Plan and creation of a new management committee, and after this
Court had denied their motion for reconsideration of the January 20, 1998 decision in G.R. Nos. 124185-87.
Lim reiterated that before the matter of extension of corporate life can be passed upon by the stockholders, it
is necessary to determine the percentage ownership of the outstanding shares of the corporation. The
majority stockholders claimed that they have increased their shareholdings from 59.828% to 74.75% as a
result of the illegal and invalid stockholders meeting on September 3, 1996. The additional subscription of
shares cannot be done as it implements the BENHAR/RUBY Plan against which an existing injunction is still
effective based on the SEC Order dated January 6, 1989, and which was struck down under the final decision
of this Court in G.R. Nos. 124185-87. Hence, the implementation of the new percentage stockholdings of the
majority stockholders and the calling of stockholders meeting and the subsequent resolution approving the
extension of corporate life of RUBY for another twenty-five (25) years, were all done in violation of the
decisions of the CA and this Court, and without compliance with the legal requirements under the Corporation
Code. There being no valid extension of corporate term, RUBYs corporate life had legally ceased.
Consequently, Lim moved that the SEC: (1) declare as null and void the infusion of additional capital made by
the majority stockholders and restore the capital structure of RUBY to its original structure prior to the time
injunction was issued; and (2) declare as null and void the resolution of the majority stockholders extending
the corporate life of RUBY for another twenty-five (25) years.
The MANCOM concurred with Lim and made a similar manifestation/comment[24] regarding the irregular and
invalid capital infusion and extension of RUBYs corporate term approved by stockholders representing only
60% of RUBYs outstanding capital stock. It further stated that the foregoing acts were perpetrated by the
majority stockholders without even consulting the MANCOM, which technically stepped into the shoes of
RUBYs board of directors. Since RUBY was still under a state of suspension of payment at the time the special
stockholders meeting was called, all corporate acts should have been made in consultation and close
coordination with the MANCOM.
Lim likewise filed an Opposition[25] to BPIs Motion to Vacate Suspension Order, asserting that the
management committee originally created by the SEC continues to control the corporate affairs and properties
of RUBY. He also contended that the SEC Rules of Procedure on Corporate Recovery cannot apply in this case
which was filed long before the effectivity of said rules.
On the other hand, RUBY filed its Opposition[26] to the Motion filed by Lim denying the allegation of Lim that
RUBYs corporate existence had ceased. RUBY claimed that due notice were given to all stockholders of the
October 2, 1991 special meeting in which the infusion of additional capital was discussed. It further contended
that the CA decision setting aside the SEC orders approving the Revised BENHAR/RUBY Plan, which was
subsequently affirmed by this Court on January 20, 1998, did not nullify the resolution of RUBYs board of
directors to issue the previously unissued shares. The amendment of its articles of incorporation on the
extension of RUBYs corporate term was duly submitted with and approved by the SEC as per the Certification
dated September 24, 1996.
The MANCOM also filed its Opposition[27] to BPIs Motion to Vacate Suspension Order, stating that it has
continuously performed its primary function of preserving the assets of RUBY and undertaken the
management of RUBYs day-to-day affairs. It expressed belief that between chaotic foreclosure proceedings
and collection suits that would be triggered by the vacation of the suspension order and an orderly settlement
of creditors claims before the SEC, the latter path is the more prudent and logical course of action. On April
28, 2000, it submitted to the court copies of the minutes of meetings held from January 18, 1999 to December
1, 1999 in pursuance of its mandate to preserve the assets and administer the business affairs of RUBY.[28]
On August 23, 2000, China Bank filed a Manifestation[29] echoing the contentions of BPI that as there is no
existing management committee and no rehabilitation plan approved even after the 240-day period, warrants
the application of Sec. 4-9 of the SEC Rules of Procedure on Corporate Recovery such that the petition is
deemed ipso facto denied and dismissed. China Bank lamented that the length of time that has lapsed, as well
as the parties actuations, completely betrays a genuine attempt to rehabilitate RUBYs moribund operations all
to the dismay, damage and prejudice of RUBYs creditors. It stressed that the proceedings cannot be prolonged
nor used as a ploy to defer indefinitely the payment of long overdue obligations of RUBY to its creditors. With
the case having been ipso facto dismissed, there is no need of further action from the parties or an order from
the SEC. Consequently, RUBYs creditors may now take whatever legal action they may deem appropriate to
protect their rights including, but not limited to extrajudicial foreclosure.
On September 11, 2000, the SEC granted Lims request for the issuance of subpoena duces tecum/ad
testificandum to Ms. Jocelyn Sta. Ana of BPI for the latter to testify and bring all documents and records
pertaining to RUBY.[30] Earlier, Lim moved for a hearing to verify the information that China Bank and BPI
had separately executed deeds of assignment in favor of Greener Investment Corporation, a company owned
by Yu Kim Giang, one of RUBYs majority stockholders.[31] Said hearing, however, did not push through in
view of RUBYs proposal for a compromise agreement.[32] Lim submitted his comments on the Proposed
Compromise Agreement, but there was no response from RUBY and the majority stockholders.[33] The
minority stockholders likewise served a copy of the revised Compromise Agreement to the majority
stockholders.[34] Lim moved that the case be assigned to a new Panel of Hearing Officers and the majority
stockholders be made to declare in a hearing whether they accept the counterproposals of the minority in their
draft Amicable Settlement in order that the case can proceed immediately to liquidation.[35]
On January 25, 2001, the MANCOM filed with the SEC its Resolution unanimously adopted on January 19,
2001 affirming that: (1) MANCOM was never informed nor advised of the supposed capital infusion by the
majority stockholders in October 1991 and it never actually received any such additional subscription nor
signed any document attesting to or authorizing the said increase of RUBYs capital stock or the extension of its
corporate life; (2) MANCOM continuously recognizes the 60%-40% ratio of shareholding profile between the
majority and minority stockholders, with the majority having 59.828% while the minority holds 40.172%
shareholding; (3) as there was no valid increase in the shareholding of the majority and consequently no valid
extension of corporate term, the liquidation of RUBY is thus in order; (4) to date, the majority stockholders or
Yu Kim Giang have not complied with the December 22, 1989 SEC order for them to turn over the cash
including bank deposits, all other financial records and documents of RUBY including transfer certificates of
title over its real properties, and render an accounting of all the money received by RUBY; and (5) pursuant to
this Courts ruling in G.R. No. 96675 dated August 26, 1991, the previous deeds of assignment made in favor
of BENHAR by Florence Damon, Philippine Bank of Communications, Philippine Commercial International Bank,
Philippine Trust Company, PCI Leasing and Finance, Inc. and FEBTC, having been earlier declared void by the
SEC Hearing Panel, and the CA decision in CA-G.R. SP No. 18310 affirmed by this Court have no legal effect
and are deemed void.[36]
On the other hand, Lim filed a Supplement (to Manifestation and Motion dated January 18, 2001)[37]
reiterating his pending motion filed on March 15, 2000 for the SEC to implement this Courts January 20, 1998
Decision in G.R. Nos. 124185-87 which states in part that [t]he SEC therefore has the power and authority,
directly to declare all assignment of assets of the petitioner Corporation declared under suspension of
payments, null and void, and to conserve the same in order to effect a fair, equitable and meaningful
rehabilitation of the insolvent corporation. Lim contended that the SEC retains jurisdiction over pending
suspension of payment/rehabilitation cases filed as of June 30, 2000 until these are finally disposed, pursuant
to Sec. 5.2 of the Securities Regulation Code (Republic Act [R.A.] No. 8799). Considering that the Management
Committee is intact, the majority stockholders cannot act in an illegal manner with regard to RUBYs assets. He
thus concluded that the continued disobedience of the majority stockholders to the orders and decisions of the
SEC and CA, as affirmed by this Court, have certainly rendered any additional assignments, such as the Deeds
of Assignment executed by BPI and China Bank with BENHAR, Henry Yu or conduits of the majority
stockholders, null and void.
The MANCOM manifested that it is adopting in toto the Manifestation and Motion dated January 18, 2001 filed
by Lim. It also moved for the SEC to conduct further proceedings as directed by this Court. Considering that
there is no chance at all for the proposed rehabilitation of RUBY in light of strict implementation by
government authorities of environmental laws particularly on pollution control, and MANCOMs assent to effect
a liquidation, the MANCOM asserted that a hearing should focus on the eventual liquidation of RUBY. It added
that a dismissal under the circumstances would be tantamount to a perceived shirking by the SEC of its
mandate to afford all creditors ample opportunity to recover on their respective financial exposure with
RUBY.[38]
On May 15, 2001, the MANCOM submitted copies of minutes of meetings held from April 13, 2000 to
December 29, 2000.[39]
On September 20, 2001, the SEC issued an Order directing the Management Committee to submit a detailed
report not mere minutes of meetings -- on the status of the rehabilitation process and financial condition of
RUBY, which should contain a statement on the feasibility of the rehabilitation plan.[40] The MANCOM
complied with the said order on February 15, 2002.[41] The majority stockholders and RUBY moved to dismiss
the petition and strike from the records the Compliance/Report. MANCOM filed its omnibus opposition to the
said motions. There was further exchange of pleadings by the parties on the matter of whether the SEC should
already dismiss the petition of RUBY as prayed for by the majority stockholders and RUBY, or proceed with
supervised liquidation of RUBY as proposed by the MANCOM and minority stockholders.
The SECs Ruling
On September 18, 2002, the SEC issued its Order[42] denying the petition for suspension of payments, as
follows:
WHEREFORE, in view of the foregoing, the Commission hereby resolves to terminate the proceedings and
DENY the instant petition.
Accordingly, pursuant to Sec. 5-5 of the SECs Rules of Procedure on Corporate Recovery, which provides:
Discharge of the Management Committee -- The Management Committee shall be discharged and dissolved
under the following circumstances:
a. Whenever the Commission, on motion or motu prop[r]io, has determined that the necessity for the
Management Committee no longer exists;
b. Upon the appointment of a liquidator under these Rules;
c. By agreement of the parties;
d. Upon termination of the proceedings.
Upon its discharge and dissolution, the Management Committee shall submit its final report and render an
accounting of its management within such reasonable time as the Commission may allow.
the Management Committee is hereby DISSOLVED. It is likewise ordered to:
(1) Make an inventory of the assets, funds and properties of the petitioner;
(2) Turn-over the aforementioned assets, funds and properties to the proper party(ies);
(3) Render an accounting of its management; and
(4) Submit its Final Report to the Commission.
The MANCOM is ordered to comply with the foregoing within a non-extendible period of thirty (30) days from
receipt of this Order. Relative to any compensation owing to the MANCOM, it is left to the determination of the
parties concerned.
No pronouncement as to costs.
SO ORDERED.[43]
The SEC declared that since its order declaring RUBY under a state of suspension of payments was issued on
December 20, 1983, the 180-day period provided in Sec. 4-9 of the Rules of Procedure on Corporate Recovery
had long lapsed. Being a remedial rule, said provision can be applied retroactively in this case. The SEC also
overruled the objections raised by the minority stockholders regarding the questionable issuance of shares of
stock by the majority stockholders and extension of RUBYs corporate term, citing the presumption of regularity
in the act of a government entity which obtains upon the SECs approval of RUBYs amendment of articles of
incorporation. It pointed out that Lim raised the issue only in the year 2000. Moreover, the SEC found that
notwithstanding his allegations of fraud, Lim never proved the illegality of the additional infusion of the
capitalization by RUBY so as to warrant a finding that there was indeed an unlawful act.[44]
Lim, in his personal capacity and in representation of the minority stockholders of RUBY, filed a petition for
review with prayer for a temporary restraining order and/or writ of preliminary injunction before the CA (CA-
G.R. SP No. 73195) assailing the SEC order dismissing the petition and dissolving the MANCOM.
Ruling of the CA
On May 26, 2004, the CA rendered its Decision,[45] the dispositive portion of which states:
WHEREFORE, the Questioned Order dated 18 September 2002 issued by the Securities and Exchange
Commission in SEC Case No. 2556 entitled In the Matter of the Petition for Suspension of Payments, Ruby
Industrial Corporation, Petitioner, is hereby SET ASIDE, and consequently:
(1) the infusion of additional capital made by the majority stockholders be declared null and void and restoring
the capital structure of Ruby to its original structure prior to the time the injunction was issued, that is,
majority stockholders 59.828% and the minority stockholders 40.172% of the authorized capital stock of Ruby
Industrial Corporation.
(2) the resolution of the majority stockholders, who represents only 59.828% of the outstanding capital stock
of Ruby, extending the corporate life of Ruby for another twenty-five (25) years which was made during the
supposed stockholders meeting held on 03 September 1996 be declared null and void;
(3) implementing the invalidation of any and all illegal assignments of credit/purchase of credits and the
cancellation of mortgages connected therewith made by the creditors of Ruby Industrial Corporation during
the effectivity of the suspension of payments order including that of China Bank and BPI and to deliver to
MANCOM or the Liquidator all the original of the Deeds of Assignments and the registered titles thereto and
any other documents related thereto; and order their unwinding and requiring the majority stockholders to
account for all illegal assignments (amounts, dates, interests, etc. and present the original documents
supporting the same); and
(4) ordering the Securities and Exchange Commission to supervise the liquidation of Ruby Industrial
Corporation after the foregoing steps shall have been undertaken.
SO ORDERED.[46]
According to the CA, the SEC erred in not finding that the October 2, 1991 meeting held by RUBYs board of
directors was illegal because the MANCOM was neither involved nor consulted in the resolution approving the
issuance of additional shares of RUBY.
The CA further noted that the October 2, 1991 board meeting was conducted on the basis of the September
18, 1991 order of the SEC Hearing Panel approving the Revised BENHAR/RUBY Plan, which plan was set aside
under this Courts January 20, 1998 Decision in G.R. Nos. 124185-87. The CA pointed out that records
confirmed the proposed infusion of additional capital for RUBYs rehabilitation, approved during said meeting,
as implementing the Revised BENHAR/RUBY Plan. Necessarily then, such capital infusion is covered by the
final injunction against the implementation of the revised plan. It must be recalled that this Court affirmed the
CAs ruling that the revised plan not only recognized the void deeds of assignments entered into with some of
RUBYs creditors in violation of the CAs decision in CA-G.R. SP No. 18310, but also maintained a financing
scheme which will just make the rehabilitation plan more costly and create a worse situation for RUBY.
On the supposed delay of the minority stockholders in raising the issue of the validity of the infusion of
additional capital effected by the board of directors, the CA held that laches is inapplicable in this case. It
noted that Lim sought relief while the case is still pending before the SEC. If ever there was delay, the same is
not fatal to the cause of the minority stockholders.
The CA likewise faulted the SEC in relying on the presumption of regularity on the matter of the extension of
RUBYs corporate term through the filing of amended articles of incorporation. In doing so, the CA totally
disregarded the evidence which rebutted said presumption, as demonstrated by Lim: (1) it was the board of
directors and not the stockholders which conducted the meeting without the approval of the MANCOM; (2)
there was no written waivers of the minority stockholders pre-emptive rights and thus it was irregular to
merely notify them of the board of directors meeting and ask them to exercise their option; (3) there was an
existing permanent injunction against any additional capital infusion on the BENHAR/RUBY Plan, while the CA
and this Court both rejected the Revised BENHAR/RUBY Plan; (4) there was no General Information Sheet
reports made to the SEC on the alleged capital infusion, as per certification by the SEC; (5) the Certification
stating the present percentage of majority shareholding, dated December 21, 1993 and signed by Yu Kim
Giang -- which was not sworn to before a Notary Public -- was supposedly filed in 1996 with the SEC but it
does not bear a stamped date of receipt, and was only attached in a 2000 motion long after the October 1991
board meeting; (6) said Certification was contradicted by the SEC list of all stockholders of RUBY, in which the
majority remained at 59.828% and the minority shareholding at 40.172% as of October 27, 1991; (7) certain
receipts for the amount of P1.7 million was presented by the majority stockholders only in the year 2000, long
after Lim questioned the inclusion of extension of corporate term in the Notice of Meeting when Lim filed
before the CA a motion to cite for contempt (CA-G.R. Nos. 32404, 32469 and 32483); and (8) this Courts
decisions in the cases elevated to it had recognized the 40% stockholding of the minority. Upon the foregoing
grounds, the CA said that the SEC should have invalidated the resolution extending the corporate term of
RUBY for another twenty-five (25) years.
With the expiration of the RUBYs corporate term, the CA ruled that it was error for the SEC in not commencing
liquidation proceedings. As to the dismissal of RUBYs petition for suspension of payments, the CA held that the
SEC erred when it retroactively applied Sec. 4-9 of the Rules of Procedure on Corporate Recovery. Such
retroactive application of procedural rules admits of exceptions, as when it would impair vested rights or cause
injustice. In this case, the CA emphasized that the two decisions of this Court still have to be implemented by
the SEC, but to date the SEC has failed to unwound the illegal assignments and order the assignees to
surrender the Deeds of Assignment to the MANCOM.
On the issue of violation of the rule against forum shopping, the CA held that this is not applicable because the
parties in CA-G.R. SP No. 73169 (filed by MANCOM) and CA-G.R. SP No. 73195 (filed by Lim) are not the same
and they do not have the same interest. This issue was in fact already resolved in G.R. Nos. 124185-87
wherein this Court, citing Ramos, Sr. v. Court of Appeals[47] declared that private respondents Lim, the
unsecured creditors (ALFC) and MANCOM cannot be considered to have engaged in forum shopping in filing
separate petitions with the CA as each have distinct rights to protect.
The CA also found that the belated submission of the special power of attorney executed by the other minority
stockholders representing 40.172% of RUBYs ownership has no bearing to the continuation of the petition filed
with the appellate court. Moreover, since the petition is in the nature of a derivative suit, Lim clearly can file
the same not only in representation of the minority stockholders but also in behalf of the corporation itself
which is the real party in interest. Thus, notwithstanding that Lims ownership in RUBY comprises only 1.4% of
the outstanding capital stock, as claimed by the majority stockholders, his petition may not be dismissed on
this ground.
The Consolidated Petitions
From the Decision of the CA, China Bank and the Majority Stockholder joined by RUBY, filed separate petitions
before this Court.
In G.R. No. 165887, petitioners Majority Stockholders and RUBY raised the following grounds for the reversal
of the assailed decision and the reinstatement of the SECs September 18, 2002 Order:
First Reason
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT ACTED CONTRARY TO LAW AND PRECEDENTS WHEN
IT GAVE DUE COURSE TO, AND, THEREAFTER, SUSTAINED, A FORMALLY AND SUBSTANTIALLY DEFECTIVE
PETITION FOR REVIEW.
Second Reason
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT ACTED IN A MANNER AT WAR WITH ORDERLY
PROCEDURE AND APPLICABLE JURISPRUDENCE WHEN IT REVERSED THE ORDER OF DISMISSAL OF THE
SECURITIES AND EXCHANGE COMMISSION AND SUBSTITUTED ITS JUDGMENT FOR THAT OF THE LATTER
IN THE DETERMINATION OF ISSUES WELL WITHIN THE EXPERTISE OF THE COMMISSION.
Third Reason
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT ACTED IN GRAVE ABUSE OF ITS DISCRETION AND,
IN FACT, IN EXCESS OR LACK OF JURISDICTION -- WHEN IT SUSTAINED COLLATERAL ATTACKS OF FINAL
ADJUDICATIONS OF THE SECURITIES AND EXCHANGE COMMISSION.[48]
On the other hand, petitioner China Bank in G.R. No. 165929 puts forth the argument that the principle of
stare decisis cannot be given effect in this case considering the prevailing factual circumstances, as to do so
would result in manifest injustice. It contends that the reason for the declaration of nullity of the Deed of
Assignment pronounced more than a decade ago, has become legally inefficacious by its obsolescence. The
creditors of RUBY have the right to recover their credit. But when the CA ordered the nullification of China
Banks Deed of Assignment in favor of Greener Investment Corporation, it practically dashed its last hope for
ever recovering its credit.
China Bank is of the view that the CA overstretched the import of this Courts January 20, 1998 decision in G.R.
Nos. 124185-87 when the SEC was ordered to conduct further proceedings, as to include the unwinding of the
alleged illegal assignment of credits. The rehabilitation of RUBY, if it still may be capable of, is not made
dependent on the unwinding by the SEC of the illegal assignments, as the same concerns only the issue of
who shall now become the creditors of RUBY, and does not alter the fact that RUBY has hefty loan obligations
and it has not enough cash flow to pay for the same.
Deploring the principal parties penchant for prolonged litigation resulting considerably in irreversible losses to
RUBY, China Bank maintains that from the report submitted by the MANCOM to the SEC, it can be clearly seen
that no attempt at rehabilitation whatsoever had been pursued. Given the current situation, China Bank prays
that the CA Decision be reversed and its Deed of Assignment in favor of Greener Investment Corporation be
recognized and given full legal effect.
In fine, main issues to be resolved are: (1) whether private respondents MANCOM and Lim engaged in forum
shopping when they filed separate petitions before the CA assailing the September 18, 2002 SEC Order; (2)
whether the defects in the certification of non-forum shopping submitted by Lim warrant the dismissal of his
petition before the CA; (3) whether the CA was correct in reversing the SECs order dismissing the petition for
suspension of payment.
Our Ruling
The petitions have no merit.
On the charge of forum shopping, we have already ruled on the matter in G.R. Nos. 124185-87. Thus:
We hold that private respondents are not guilty of forum-shopping. In Ramos, Sr. v. Court of Appeals, we
ruled:
The private respondents can be considered to have engaged in forum shopping if all of them, acting as one
group, filed identical special civil actions in the Court of Appeals and in this Court. There must be identity of
parties or interests represented, rights asserted and relief sought in different tribunals. In the case at bar, two
groups of private respondents appear to have acted independently of each other when they sought relief from
the appellate court. Both groups sought relief from the same tribunal.
It would not matter even if there are several divisions in the Court of Appeals. The adverse party can always
ask for the consolidation of the two cases. x x x
In the case at bar, private respondents represent different groups with different interests the minority
stockholders group, represented by private respondent Lim; the unsecured creditors group, Allied Leasing &
Finance Corporation; and the old management group. Each group has distinct rights to protect. In line with
our ruling in Ramos, the cases filed by private respondents should be consolidated. In fact, BENHAR and RUBY
did just that in their urgent motions filed on December 1, 1993 and December 6, 1993, respectively, they
prayed for the consolidation of the cases before the Court of Appeals.[49]
In the present case, no consolidation of CA-G.R. SP Nos. 73169 (filed by MANCOM) which was earlier assigned
to the Thirteenth Division and CA-G.R. SP No. 73195 (filed by Lim) decided by the Second Division, took place.
In their Comment filed before CA-G.R. SP No. 73169, the Majority Stockholders and RUBY (private
respondents therein) prayed for the dismissal of said case arguing that MANCOM, of which Lim is a member,
circumvented the proscription against forum shopping. The CAs Thirteenth Division, however, disagreed with
private respondents and granted the motion to withdraw petition filed by MANCOM which manifested that the
Second Division in CA-G.R. SP No. 73195 by Decision dated May 26, 2004 had granted the reliefs similar to
those prayed for in their petition, said decision being binding on MANCOM which was also impleaded in said
case (CA-G.R. SP No. 73195). The Thirteenth Division also cited our pronouncement in G.R. Nos. 124185-87 to
the effect that there was no violation on the rule on forum shopping because MANCOM and Lim or the
minority shareholders of RUBY represent different interests.[50]
As to the alleged defects in the certificate of non-forum shopping submitted by Lim, we find no error
committed by the CA in holding that the belated submission of a special power of attorney executed in Lims
favor by the minority stockholders has no bearing to the continuation of the case as supported by ample
jurisprudence. To appreciate the liberal stance adopted by the CA, one must take into account the previous
history of the petitions for review before the CA involving the SEC September 18, 2002 Order. It was actually
the third time that Lim and/or MANCOM have challenged certain acts perpetrated by the majority stockholders
which are prejudicial to RUBY, such as the execution of deeds of assignment during the effectivity of the
suspension order in pursuit of two rehabilitation plans submitted by them together with BENHAR. The
assignment of RUBYs credits to BENHAR gave the secured creditors undue advantage over RUBYs prime
properties and put these assets beyond the reach of the unsecured creditors. Each time they go to court, Lim
and MANCOM essentially advance the interest of the corporation itself. They have consistently taken the
position that RUBYs assets should be preserved for the equal benefit of all its creditors, and vigorously resisted
any attempt of the controlling stockholders to favor any or some of its creditors by entering into questionable
deals or financing schemes under two BENHAR/RUBY Plans. Viewed in this light, the CA was therefore correct
in recognizing Lims right to institute a stockholders action in which the real party in interest is the corporation
itself.
A derivative action is a suit by a shareholder to enforce a corporate cause of action.[51] It is a remedy
designed by equity and has been the principal defense of the minority shareholders against abuses by the
majority.[52] For this purpose, it is enough that a member or a minority of stockholders file a derivative suit
for and in behalf of a corporation.[53] An individual stockholder is permitted to institute a derivative suit on
behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever
officials of the corporation refuse to sue or are the ones to be sued or hold the control of the corporation. In
such actions, the suing stockholder is regarded as the nominal party, with the corporation as the party in
interest.[54]
Now, on the third and substantive issue concerning the SECs dismissal of RUBYs petition for suspension of
payment.
The SEC based its action on Sec. 4-9 of the Rules of Procedure on Corporate Recovery,[55] which provides:
SEC. 4-9. Period of Suspension Order. The suspension order shall be effective for a period of sixty (60) days
from the date of its issuance. The order shall be automatically vacated upon the lapse of the sixty-day period
unless extended by the Commission. Upon motion, the Commission may grant an extension thereof for a
period of not more than sixty (60) days in each application if the Commission is satisfied that the debtor and
its officers have been acting in good faith and with due diligence, and that the debtor would likely be able to
make a viable rehabilitation plan. After the lapse of one hundred and eighty (180) days from the issuance of
the suspension order, no extension of the said order shall be granted by the Commission if opposed in writing
by a majority of any class of creditors. The Commission may grant an extension beyond one hundred eighty
(180) days only if it appears by convincing evidence that there is a good chance for the successful
rehabilitation of the debtor and the opposition thereto by the creditor appears manifestly unreasonable.
In any event, the petition is deemed ipso facto denied and dismissed if no Rehabilitation Plan was approved by
the Commission upon the lapse of the order or the last extension thereof. In such case, the debtor shall come
under the dissolution and liquidation proceedings of Rule V of these Rules. (Emphasis supplied.)
According to the SEC, even if the 180 days maximum period of suspension order is counted from the finality of
this Courts decision in G.R. Nos. 124185-87 in December 1998, still this case had gone beyond the period
mandated in the Rules for a corporation under suspension of payment to have a rehabilitation plan approved
by the Commission.
While it is true that the Rules of Procedure on Corporate Recovery authorizes the dismissal of a petition for
suspension of payment where there is no rehabilitation plan approved within the maximum period of the
suspension order, it must be recalled that there was in fact not one, but two rehabilitation plans
(BENHAR/RUBY Plan and Revised BENHAR/RUBY Plan) submitted by the majority stockholders which were
approved by the SEC. The implementation of the first plan was enjoined when it was seriously challenged in
the courts by the minority stockholders through Lim. The second revised plan superseded the first plan, but
eventually nullified by the CA and the CA decision declaring it void was affirmed by this Court in G.R. Nos.
124185-87. Given this factual milieu, the automatic application of the lifting of the suspension order as
interpreted by the SEC in its September 18, 2002 Order would be unfair and highly prejudicial to the financially
distressed corporation.
Moreover, records reveal that the delay in the proceedings after the case was set for hearing following this
Courts final judgment in G.R. Nos. 124185-87, was not due to any fault or neglect on the part of MANCOM or
the minority stockholders. The idea propounded by the petitioners majority stockholders that this case is about
a minority in a corporation holding hostage the majority indefinitely by simple assertion that the formers rights
have been transgressed by the latter is, downright misleading.
First, the SEC did not even mention in its September 18, 2002 Order that when this Court remanded to it the
case for further proceedings, there remained only the Alternative Plan of RUBYs minority stockholders which
had earlier been forwarded to the SEC Hearing Panel. With the CA Decision setting aside the SEC approval of
the Revised BENHAR/RUBY Plan, as affirmed by this Court, it behooves on the SEC to recognize the fact that
the Alternative Plan was endorsed by 90% of the RUBYs creditors who had objected to the Revised
BENHAR/RUBY Plan. Yet, not a single step was taken by the SEC to address those findings and conclusions
made by the CA and this Court on the highly disadvantageous and onerous provisions of the Revised
BENHAR/RUBY Plan.
Moreover, the SEC failed to act on motions filed by Lim and MANCOM to implement this Courts January 20,
1998 Decision in G.R. Nos. 124185-87, by declaring all deeds of assignment with BENHAR and/or the conduits
of Henry Yu of no force and legal effect, which of course necessitates the surrender by the concerned creditors
of those void deeds of assignment. Petitioner China Bank dismisses it as unnecessary and immaterial to the
continued inability of RUBY to settle its long overdue debts. However, the CA said that the foregoing acts
should have been done by the SEC for proper documentation and orderly settlement after proper accounting
of the assignment transactions. The appellate court then concluded that dismissal of the petition under Sec. 4-
9 of the Rules of Procedure on Corporate Recovery would impair the vested rights of the minority stockholders
under this Courts decision invalidating the aforesaid deeds of assignment, thus:
We agree with the observations of the petition that if the illegal assignments not having been unwound and
the mortgages not canceled, the majority, their alter ego, and/or cohorts will claim to be secured creditors and
freely collect extra-judicially the obligations covered by the illegal assignments. Ruby has very little money
compared to the P200 Million probable liability to the illegal assignees as unilaterally stated by Ruby without
audit (previously merely totaled to P34 Million in 1998 as stated in the revised rehabilitation plan). Foreclosure
of the mortgages by the illegal assignees will follow; Ruby will lose all its prime properties; there will be no
assets left for unsecured creditors; and there will be no residual P600 Million assets to divide.[56]
Evidently, the minority stockholders and MANCOM had already foreseen the impossibility of implementing a
viable rehabilitation plan if the illegal assignments made by its creditors with BENHAR and the majority
stockholders, and subsequently, with conduits of RUBY or Henry Yu, are not properly unwound and those
directors responsible for the void transactions not required to make a full accounting. Contrary to petitioner
China Banks insinuation that the minority stockholders merely want to prolong the litigation to the great
prejudice and damage to RUBYs creditors, MANCOM and Lim had determined and moved for SEC-supervised
liquidation proceedings as the more prudent course of action for an orderly and equitable settlement of RUBYs
liabilities.
Records likewise revealed that the SEC chose to keep silent and failed to assist the MANCOM and minority
stockholders in their efforts to demand compliance from the majority stockholders or Yu Kim Giang (who
headed the first MANCOM) with the December 22, 1989 Order directing them to turn over the cash, financial
records and documents of RUBY, including certificates of title over RUBYs real properties, and render an
accounting of all moneys received and payments made by RUBY. On January 18, 2002, the MANCOM even
filed a Motion[57] to require Yu Kim Giang to render report/accounting of RUBY from 1983 to the 1st quarter
of 1990, stating that despite a commitment from Mr. Giang, he has seemingly delayed his compliance, hence
frustrating the desire of MANCOM to submit a comprehensive and complete report for the whole period of
1983 up to the present. To underscore the importance of making the said records available for scrutiny of the
SEC and MANCOM, Lim manifested before the SEC that--
Indeed, the majority is actually unwilling (and not merely unable) to submit such records because these will
show, among others:
(1) The majority to minority ratio in the corporate ownership is 59.828% :40.172%;
(2) The actual amounts of the bank loans paid off by Benhar International[,] Inc. and/or Henry Yu would be
very low;
(3) The illegal payment of the bank loans and illegal assignments of the mortgages to Benhar/Henry Yu are
contrary to the Honorable Commissions Order of 20 December 1983 for suspension of payments;
(4) The earnings of the corporation from 1983 to 1989 amounted to millions and cannot be accounted for by
the majority and the first Mancom;
(5) The money may have been spent to pay off some of the loans to the bank but Benhar and Henry Yu
fraudulently claim credit therefor.[58]
It must be noted that MANCOM had rejected the two rehabilitation plans proposed by BENHAR and the
majority stockholders. In shifting the blame to the MANCOM and minority stockholders for the delay in the
approval of a viable rehabilitation plan, the SEC apparently overlooked that from the time the SEC approved
the Revised BENHAR/RUBY Plan and dissolved the MANCOM, the majority stockholders has denied MANCOM
access to corporate papers, documents evidencing the amounts actually paid to creditor banks/assignors,
financial statements and titles over RUBYs real properties.
Although the SEC granted MANCOM and Lims request for a hearing and direct a representative from BPI to
bring all documents relative to the assignment of RUBYs credit, said hearing did not materialize after the
majority stockholders proposed a compromise agreement with the minority stockholders. But as it turned out,
this development only caused further delay because the majority stockholders were unwilling to turn over
documents, funds and properties in their possession, and would neither make a full accounting or disclosure of
RUBYs transactions, especially the actual amounts paid and rates of interest on the loan assignments. In this
state of things, the MANCOM and minority stockholders resolved that the more reasonable and practical option
is to move for a SEC-supervised liquidation proceedings.
The other ground invoked by Lim and MANCOM for the propriety of liquidation is the expiration of RUBYs
corporate term. The SEC, however, held that the filing of the amendment of articles of incorporation by RUBY
in 1996 complied with all the legal requisites and hence the presumption of regularity stands. Records show
that the validity of the infusion of additional capital which resulted in the alleged increase in the shareholdings
of petitioners majority stockholders in October 1991 was questioned by MANCOM and Lim even before the
majority stockholders filed their motion to dismiss in the year 2000.
A stock corporation is expressly granted the power to issue or sell stocks.[59] The power to issue shares of
stock in a corporation is lodged in the board of directors and no stockholders meeting is required to consider it
because additional issuances of shares of stock does not need approval of the stockholders.[60] What is only
required is the board resolution approving the additional issuance of shares. The corporation shall also file the
necessary application with the SEC to exempt these from the registration requirements under the Revised
Securities Act (now the Securities Regulation Code).
The new management committee created pursuant to SEC Order dated September 18, 1991 apparently had
no participation in the October 2, 1991 board resolution approving the issuance of additional shares. The move
was part of the boards assertion of control over the management in RUBY following the approval of the
Revised BENHAR/RUBY Plan. The minority stockholders registered their objection during the said meeting by
asking the board to defer action as the SEC September 18, 1991 Order was still on appeal with the SEC En
Banc. When the SEC En Banc denied their appeal and motion for reconsideration under its July 30, 1993 and
October 15, 1993 orders, Lim, MANCOM and ALFC filed petitions for review with the CA which set aside the
said orders. As already mentioned, this Court affirmed the CA ruling in G.R. Nos. 124185-87.
Contrary to the assertion of petitioners majority stockholders, our decision in G.R. Nos. 124185-87 nullified the
deeds of assignment not solely on the ground of violation of the injunction orders issued by the SEC and CA.
As earlier mentioned, we affirmed the CAs finding that the re-lending scheme under the Revised
BENHAR/RUBY Plan will not only make rehabilitation more costly for RUBY, but also worsen its financial
condition because of the mortgage of its assets to a new creditor. To better illumine this point, we quote from
the CA decision in CA-G.R. SP Nos. 32404, 32469 and 32483 comparing the provisions of the rehabilitation
proposals submitted by the majority stockholders (Revised BENHAR/RUBY Plan) and the minority stockholders
(Alternative Plan):
there is no need for Benhar to act as financier, as Ruby itself can very well secure such credit accommodation
using its assets as collateral. Verily, Benhars pretext at magnanimity is deception of the highest order
considering that: (1) as embodied in the heading Sources and Uses of Funds in the Revised Benhar/Ruby Plan,
the P80-Million loan/credit facility to be extended by Benhar will be used to pay P60.437-Million loans of Ruby.
Of the P60.437-Million, P34.068-Million will be paid to Benhar as payment for the amounts it paid in
consideration of the nullified assignments; (2) The Deed of Assignment of Credit Facility will be executed by
Benhar in favor of Ruby only upon payment of Ruby of such amount already advanced by Benhar, i.e. the
P34.068-Million credit assigned to Benhar by the seven (7) secured creditors.
The Revised Benhar/Ruby Plan, in fact, gives Benhar undue preference on the matter of repayment. Under the
said plan, the creditors of Ruby will be paid in accordance with the following schedules:
Secured Creditors
China Banking Corp.
BPI
Philippine Orient
P17.022M
To be paid in cash with 12% interest p.a.
Unsecured Creditors Allied Leasing
Filcor Finance
P 9.347M
To be paid in cash interest-f[r]ee
Benhar
For having paid
Ruby obligations
to 7 creditors

P34.068M

To be paid in cash
with interest charge
Trade/Other
Creditors
P2.871M
(p.a. for 3 years)
Totalling P8.614M to be paid in 3- year installment, interest-free
(Rollo, CA-G.R. SP No. 32404, p. 727)
Needless to state, the foregoing payment schedules as embodied in the said plan which gives Benhar undue
advantage over the other creditors goes against the very essence of rehabilitation, which requires that no
creditor should be preferred over the other. Indeed, a comparison of the salient features of the Revised
Benhar/Ruby Plan and the Alternative Plan will readily show just how stacked in favor of Benhar are the
provisions of the former plan:
Benhar/Ruby Plan
Alternative Plan
1. Benhar plays a major role. It will be paid P34.068M out of P60.437 M total amount due to creditors but not
explained as to how arrived at.
1. The original creditors are the ones recognized. The amount payable is lower because interests are not
capitalized.
2. Benhar will not assign the credit facility of P80M unless the P34.068M above stated is paid.
2. Direct credit of P80M loan and will be borrowed from the bank(s) like Allied, UCPB, Metrobank or Equitable
Bank or even China Bank.
3. The main assets are to be mortgaged to the creditor- assignor of Benhar and if the illegal assignments are
recognized, then Benhar shall have to be recognized as mortgagee even when it is a disqualified creditor
and/or mortgagee.
3. Mortgaged to bank(s) directly.
4. Start up cost P16,880 and based on 1988 figures and projections.
4. Plant B = P25,640
Year IV estimated P40. M
Plant A = 22.40
Year V estimated P30. M
5. Rehabilitation only of Plant B.
5. Rehabilitation of both plants.
6. Recognition of Benhar re-lender/financier.
6. None
7. Because of the SEC Order he got an MC seat and and the Pilipinas Shell representative of trade creditors
was retained.
7. Pilipinas Shell representative be retained.
8. Credit facility is being assigned or re-lent by Benhar.
8. Credit facility directly to Ruby.
9. Authorized Benhar to mortgage assets of Ruby itself. Only remaining unencumbered asset is one (1) real
property. Two (2) prime properties already encumbered to Assignor of Benhar.
9. None going to the minority but to actual lenders.
10. Capacity of only one (1) plant stated at 72% (overrated)
10. Capacity of two (2) plants progressive to 75% or 80% with purchase of new machines.
11. Projection figures based on May, 1990 forex exchange rate. Cost of importation and other local supplier
currently cannot be met.
11. Minority RP can be updated at current foreign exchange rate.
12. Market and economic slow down not taken into consideration.
12. Taken into consideration so will upgrade to meet competition.
13. Discriminatory to creditors Benhar-capitalized with undisclosed rates of interest.
13. Not discriminatory.

14. Original Figures of illegally assigned loans from FEBTC, PCIB, PTC which totaled to P11,419,036.87 but
now entered as P21,378,002.71. The interest is undisclosed and may have been capitalized. Figures for the
other four (4) secured lenders not available individually. Total of seven (7) secured lenders given as P34.068
M.
14. Original figures will be used original figures plans 12% interest only.
15. Interest is 28% with Benhar as conduit.
15. Interest is 25% payable to the bank. This is still subject to current market rates to be negotiated by the
minority.
16. Call on unissued shares for P11.814 M and if minority will take up their pre-emptive rights and dilute
minority shareholdings.
15. Additional subscription of P16M within 6 months by the minority stockholders.
x x x x[61]
Prior to the September 18, 1991 Order approving the Revised BENHAR/RUBY Plan and dissolving the
MANCOM, majority of RUBYs creditors (90%) have already withdrawn their support to the revised plan and
manifested that they were only lately informed about another plan submitted by the minority stockholders.
Hence, these creditors wrote individual letters to the SEC Hearing Panel expressing their agreement with and
endorsement of the Alternative Plan of the minority stockholders.[62]
The Revised BENHAR/RUBY Plan had proposed the calling for subscription of unissued shares through a Board
Resolution from the P11.814 million of the P23.7 million ACS in order to allow the long overdue program of the
REHAB Program. RUBY will offer for subscription 118,140 shares of stocks at par value of P100 each to all
stockholders on record, payable within 15 days, or within a reasonable period from SEC approval of the
revised plan.[63] This was implemented by the October 2, 1991 meeting of the Board of Directors led by Yu
Kim Giang. The minority directors claimed they were not notified of said board meeting. At any rate, the CA
decision nullifying the Revised BENHAR/RUBY Plan was affirmed by this Court on January 20, 1998. Hence, the
legitimate concerns of the minority stockholders and MANCOM who objected to the capital infusion which
resulted in the dilution of their shareholdings, the expiration of RUBYs corporate term and the pending
incidents on the void deeds of assignment of credit all these should have been duly considered and acted upon
by the SEC when the case was remanded to it for further proceedings. With the final rejection of the courts of
the Revised BENHAR/RUBY Plan, it was grave error for the SEC not to act decisively on the motions filed by
the minority stockholders who have maintained that the issuance of additional shares did not help improve the
situation of RUBY except to stifle the opposition coming from the MANCOM and minority stockholders by
diluting the latters shareholdings. Worse, the SEC ignored the evidence adduced by the minority stockholders
indicating that the correct amount of subscription of additional shares was not paid by the majority
stockholders and that SEC official records still reflect the 60%-40% percentage of ownership of RUBY.
The SEC remained indifferent to the reliefs sought by the minority stockholders, saying that the issue of the
validity of the additional capital infusion was belatedly raised. Even assuming the October 2, 1991 board
meeting indeed took place, the SEC did nothing to ascertain whether indeed, as the minority claimed: (1) the
minority stockholders were not given notice as required and reasonable time to exercise their pre-emptive
rights; and (2) the capital infusion was not for the purpose of rehabilitation but a mere ploy to divest the
minority stockholders of their 40.172% shareholding and reduce it to a mere 25.25%.
The foregoing matters, along with the persistent refusal of the majority stockholders, led by Yu Kim Giang, to
give a full accounting of their transactions involving RUBYs credits and properties, were extensively argued by
the minority stockholders in their opposition to the motions to dismiss/vacate suspension order filed by the
majority stockholders and BPI, as follows:
Their receipts only show supposed payment by the majority of a total of P1,759,150.00 out of the correct
amount of P7,068,079.92.00 (sic) (59.828% of P11.814 million required capital infusion under the MRP and
RRP) which should have been the amount paid by them under the RRP which requires full payment. Thus,
they sought to attain a 74.75% equity from a 59.828% original equity by playing more tricks and stating that,
under the general rule, they are supposedly allowed to pay-up only 25% of their subscription. Unfortunately
for them, in a rehabilitation supervised by the SEC and with an existing Mancom, the general rule does not
apply. What is stated in the rehabilitation plan must be strictly followed provided the rehabilitation plan has
been finally approved.
It must be remembered that in October 2 to 17, 1991, the amounts owed by Ruby to the banks who illegally
assigned their loans/credit was stated at P34 Million. Operations needed another P20 Million plus. A capital
infusion of P1,759,150.00 was so miniscule and clearly not for rehabilitation but was intended to deprive the
minority of its blocking position and property rights since distribution after liquidation is based on the
percentage of stockholdings. It is not only unfair, inequitable and not meaningful it is clearly dishonest.
xxxx
Assuming arguendo that the Board of Directors could act independently and this did not violate any injunction,
if the capital infusion was actually made, the Board of Directors had the duty to report this to the Mancom
because they would then fall under existing assets and would be part of the evaluation of the proposed RRP,
necessary for management and in the overall plan of rehabilitation. Nothing of this kind happened and the
belated proof cannot correct this situation.
xxxx
It is not true that there is benevolence on the part of the majority when they maneuvered the illegal
assignments and paid the banks. The loan obligations remain as accounts payable of Ruby and have even
been bloated to gigantic proportions and yet the SEC does not even ask them to account how much these
obligations are now and the majority should have reported these to the Mancom, but the majority has not.
These anomalous situations have been made to continue long enough and, we pray, should be addressed by
the Honorable Commission.
xxxx
The SEC must understand that, being head of the first Mancom, YU KIM GIANG had the same obligation to
render a report to the SEC as the present Mancom now. To single out the present Mancom to do this when a
complete report cannot be made without these starting records is discriminatory, unfair and violates the rules
of accountancy. For example, where is the report on the illegal assignments and mortgages complete with
details? Where did the rentals for the period from 1983 to 1989 go? This amounted to millions. There are no
reports on these. By not requiring the first Mancom to Report, the SEC is preventing the complete picture on
the liabilities and finances of Ruby from being seen and is sheltering Ruby and the majority.[64] (Additional
emphasis supplied.)
Pre-emptive right under Sec. 39 of the Corporation Code refers to the right of a stockholder of a stock
corporation to subscribe to all issues or disposition of shares of any class, in proportion to their respective
shareholdings. The right may be restricted or denied under the articles of incorporation, and subject to certain
exceptions and limitations. The stockholder must be given a reasonable time within which to exercise their
preemptive rights. Upon the expiration of said period, any stockholder who has not exercised such right will be
deemed to have waived it.[65]
The validity of issuance of additional shares may be questioned if done in breach of trust by the controlling
stockholders. Thus, even if the pre-emptive right does not exist, either because the issue comes within the
exceptions in Section 39 or because it is denied or limited in the articles of incorporation, an issue of shares
may still be objectionable if the directors acted in breach of trust and their primary purpose is to perpetuate or
shift control of the corporation, or to freeze out the minority interest.[66] In this case, the following relevant
observations should have signaled greater circumspection on the part of the SEC -- upon the third and last
remand to it pursuant to our January 20, 1998 decision -- to demand transparency and accountability from the
majority stockholders, in view of the illegal assignments and objectionable features of the Revised
BENHAR/RUBY Plan, as found by the CA and as affirmed by this Court:
There can be no gainsaying the well-established rule in corporate practice and procedure that the will of the
majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws
not proscribed by law. It is, however, equally true that other stockholders are afforded the right to intervene
especially during critical periods in the life of a corporation like reorganization, or in this case, suspension of
payments, more so, when the majority seek to impose their will and through fraudulent means, attempt to
siphon off Rubys valuable assets to the great prejudice of Ruby itself, as well as the minority stockholders and
the unsecured creditors.
Certainly, the minority stockholders and the unsecured creditors are given some measure of protection by the
law from the abuses and impositions of the majority, more so in this case, considering the give-away signs of
private respondents perfidy strewn all over the factual landscape. Indeed, equity cannot deprive the minority
of a remedy against the abuses of the majority, and the present action has been instituted precisely for the
purpose of protecting the true and legitimate interests of Ruby against the Majority Stockholders. On this
score, the Supreme Court, has ruled that:
Generally speaking, the voice of the majority of the stockholders is the law of the corporation, but there are
exceptions to this rule. There must necessarily be a limit upon the power of the majority. Without such a limit
the will of the majority will be absolute and irresistible and might easily degenerate into absolute tyranny. x x
x[67] (Additional emphasis supplied.)
Lamentably, the SEC refused to heed the plea of the minority stockholders and MANCOM for the SEC to order
RUBY to commence liquidation proceedings, which is allowed under Sec. 4-9 of the Rules on Corporate
Recovery. Under the circumstances, liquidation was the only hope of the minority stockholders for effecting an
orderly and equitable settlement of RUBYs obligations, and compelling the majority stockholders to account for
all funds, properties and documents in their possession, and make full disclosure on the nullified credit
assignments. Oblivious to these pending incidents so crucial to the protection of the interest of the majority of
creditors and minority shareholders, the SEC simply stated that in the interim, RUBYs corporate term was
validly extended, as if such extension would provide the solution to RUBYs myriad problems.
Extension of corporate term requires the vote of 2/3 of the outstanding capital stock in a stockholders meeting
called for the purpose.[68] The actual percentage of shareholdings in RUBY as of September 3, 1996 -- when
the majority stockholders allegedly ratified the board resolution approving the extension of RUBYs corporate
life to another 25 years was seriously disputed by the minority stockholders, and we find the evidence of
compliance with the notice and quorum requirements submitted by the majority stockholders insufficient and
doubtful. Consequently, the SEC had no basis for its ruling denying the motion of the minority stockholders to
declare as without force and effect the extension of RUBYs corporate existence.
Liquidation, or the settlement of the affairs of the corporation, consists of adjusting the debts and claims, that
is, of collecting all that is due the corporation, the settlement and adjustment of claims against it and the
payment of its just debts.[69] It involves the winding up of the affairs of the corporation, which means the
collection of all assets, the payment of all its creditors, and the distribution of the remaining assets, if any,
among the stockholders thereof in accordance with their contracts, or if there be no special contract, on the
basis of their respective interests.[70]
Section 122 of the Corporation Code, which is applicable to the present case, provides:
SEC. 122. Corporate liquidation. -- Every corporation whose charter expires by its own limitation or is annulled
by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner,
shall nevertheless be continued as a body corporate for three (3) years after the time when it would have
been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle
and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose
of continuing the business for which it was established.
At any time during said three (3) years, said corporation is authorized and empowered to convey all of its
property to trustees for the benefit of stockholders, members, creditors, and other persons in interest. From
and after any such conveyance by the corporation of its property in trust for the benefit of its stockholders,
members, creditors and others in interest, all interests which the corporation had in the property terminates,
the legal interest vests in the trustees, and the beneficial interest in the stockholders, members, creditors or
other persons in interest.
Upon winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member
who is unknown or cannot be found shall be escheated to the city or municipality where such assets are
located.
Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any
of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities.
Since the corporate life of RUBY as stated in its articles of incorporation expired, without a valid extension
having been effected, it was deemed dissolved by such expiration without need of further action on the part of
the corporation or the State.[71] With greater reason then should liquidation ensue considering that the last
paragraph of Sec. 4-9 of the Rules of Procedure on Corporate Recovery mandates the SEC to order the
dissolution and liquidation proceedings under Rule VI. Sec. 6-1, Rule VI likewise authorizes the SEC on motion
or motu proprio, or upon recommendation of the management committee, to order dissolution of the debtor
corporation and the liquidation of its remaining assets, appointing a Liquidator for the purpose, if the
continuance in business of the debtor is no longer feasible or profitable or no longer works to the best interest
of the stockholders, parties-litigants, creditors, or the general public.
It cannot be denied that with the current divisiveness, distrust and antagonism between the majority and
minority stockholders, the long agony and extreme prejudice caused by numerous litigations to the creditors,
and the bleak prospects for business recovery in the light of problems with the local government which are
implementing more restrictions and anti-pollution measures that practically banned the operation of RUBYs
glass plant liquidation becomes the only viable course for RUBY to stave off any further losses and dissipation
of its assets. Liquidation would also ensure an orderly and equitable settlement of all creditors of RUBY, both
secured and unsecured.
The SECs utter disregard of the rights of the minority in applying the provisions of the Rules of Procedure on
Corporate Recovery is inconsistent with the policy of liberal construction of the said rules to assist the parties
in obtaining a just, expeditious and inexpensive settlement of cases.[72] Petitioners majority stockholders,
however, assert that the findings and conclusions of the SEC on the matter of the dismissal of RUBYs petition
are binding and conclusive upon the CA and this Court. They contend that reviewing courts are not supposed
to substitute their judgment for those made by administrative bodies specifically clothed with authority to pass
upon matters over which they have acquired expertise.[73] Given our foregoing findings clearly showing that
the SEC acted arbitrarily and committed patent errors and grave abuse of discretion, this case falls under the
exception to the general rule.
As we held in Ruby Industrial Corporation v. Court of Appeals:
The settled doctrine is that factual findings of an administrative agency are accorded respect and, at times,
finality for they have acquired the expertise inasmuch as their jurisdiction is confined to specific matters.
Nonetheless, these doctrines do not apply when the board or official has gone beyond his statutory authority,
exercised unconstitutional powers or clearly acted arbitrarily and without regard to his duty or with grave
abuse of discretion. In Leongson vs. Court of Appeals, we held: once the actuation of the administrative
official or administrative board or agency is tainted by a failure to abide by the command of the law, then it is
incumbent on the courts of justice to set matters right, with this Tribunal having the last say on the
matter.[74]
Petitioners majority stockholders further insist that the minority stockholders were mistaken when they
contended that the rehabilitation of RUBY is dependent on the unwinding by the SEC of the illegal assignments
and mortgages. They assert that aside from the fact that the SEC had nothing to unwind because the alleged
illegal assignments and mortgages were already declared null and void, the said assignments and mortgages
will not affect the rehabilitation of Ruby; the same affecting only the issue of how, as to who will be its
creditors.
Such contention is untenable and contrary to our previous ruling in G.R. Nos. 124185-87. With the nullification
of the deeds of assignments of credit executed by some of Rubys secured creditors in favor of BENHAR, it
logically follows that the assignors or the original bank creditors remain as the creditors on record of RUBY.
We have noted that BENHAR, which is controlled by the family of Henry Yu who is also a director and
stockholder of RUBY, was not listed as one of RUBYs creditors at the time RUBY filed the petition for
suspension of payment. Petitioners majority stockholders insinuation that RUBYs credits may have been
assigned to third parties, if not referring to BENHAR or its conduits, implies two things: either the assignments
declared void by this Courts January 20, 1998 decision continues to be recognized by the majority
stockholders, in violation of the said decision, or other third parties in connivance with BENHAR and/or the
controlling stockholders had subsequently entered the picture, without approval of the SEC and while the SEC
December 20, 1983 Order enjoining the disposition of RUBYs properties was in force.
The majority stockholders eagerness to have the suspension order lifted or vacated by the SEC without any
order for its liquidation evinces a total disregard of the mandate of Sec. 4-9 of the Rules of Procedure on
Corporate Recovery, and their obvious lack of any intent to render an accounting of all funds, properties and
details of the unlawful assignment transactions to the prejudice of RUBY, minority stockholders and the
majority of RUBYs creditors. The majority stockholders and BENHARs conduits must not be allowed to evade
the duty to make such full disclosure and account any money due to RUBY to enable the latter to effect a fair,
orderly and equitable settlement of all its obligations, as well as distribution of any remaining assets after
paying all its debtors.
In fine, no error was committed by the CA when it set aside the September 18, 2002 Order of the SEC and
declared the nullity of the acts of majority stockholders in implementing capital infusion through issuance of
additional shares in October 1991, the board resolution approving the extension of RUBYs corporate term for
another 25 years, and any illegal assignment of credit executed by RUBYs creditors in favor of third parties
and/or conduits of the controlling stockholders. The CA likewise correctly ordered the delivery of all documents
relative to the said assignment of credits to the MANCOM or the Liquidator, the unwinding of these void deeds
of assignment, and their full accounting by the majority stockholders.
The petitioners majority stockholders and China Bank cannot be permitted to raise any issue again regarding
the validity of any assignment of credit made during the effectivity of the suspension order and before the
finality of the September 18, 2002 Order lifting the same. While China Bank is not precluded from questioning
the validity of the December 20, 1983 suspension order on the basis of res judicata, it is, however, barred
from doing so by the principle of law of the case. We have held that when the validity of an interlocutory order
has already been passed upon on appeal, the Decision of the Court on appeal becomes the law of the case
between the same parties. Law of the case has been defined as the opinion delivered on a former appeal.
More specifically, it means that whatever is once irrevocably established as the controlling legal rule of decision
between the same parties in the same case continues to be the law of the case, whether correct on general
principles or not, so long as the facts on which such decision was predicated continue to be the facts of the
case before the court.[75]
The unwinding process of all such illegal assignment of RUBYs credits is critical and necessary, in keeping with
good faith and as a matter of fairness and justice to all parties affected, particularly the unsecured creditors
who stands to suffer most if left with nothing of the assets of RUBY, and the minority stockholders who waged
legal battles to defend the interest of RUBY and protect the rights of the minority from the abuses of the
controlling stockholders. As correctly stated by the CA:
Liquidation is imperative because the unsecured creditor must negotiate the amount of the imputable interest
rate on its long unpaid credit, the decision on which assets are to be sold to liquidate the illegally assigned
credits must be made, the other secured credits and the trade credits must be determined, and most
importantly, the restoration of the 40.172% minority percentage of ownership must be done.[76]
However, we do not agree that it is the SEC which has the authority to supervise RUBYs liquidation.
In the case of Union Bank of the Philippines v. Concepcion,[77] the Court is presented with the issue of
whether the SEC had jurisdiction to proceed with insolvency proceedings after it was shown that the debtor
corporation can no longer be rehabilitated. We held that although jurisdiction over a petition to declare a
corporation in a state of insolvency strictly lies with regular courts, the SEC possessed ample power under P.D.
No. 902-A, as amended, to declare a corporation insolvent as an incident of and in continuation of its already
acquired jurisdiction over the petition to be declared in a state of suspension of payments in the two instances
provided in Sec. 5 (d)[78] thereof.
Subsequently, in Consuelo Metal Corporation v. Planters Development Bank[79] the Court was again
confronted with the same issue. The original petition filed by the debtor corporation was for suspension of
payment, rehabilitation and appointment of a rehabilitation receiver or management committee. Finding the
petition sufficient in form and substance, the SEC issued an order suspending immediately all actions for
claims against the petitioner pending before any court, tribunal or body until further orders from the court. It
also created a management committee to undertake petitioners rehabilitation. Four years later, upon the
management committees recommendation, the SEC issued an omnibus order directing the dissolution and
liquidation of the petitioner, and that the proceedings on and implementation of the order of liquidation be
commenced at the Regional Trial Court to which the case was transferred. However, the trial court refused to
act on the motion filed by the petitioner who requested for the issuance of a TRO against the extrajudicial
foreclosure initiated by one of its creditors. The trial court ruled that since the SEC had already terminated and
decided on the merits the petition for suspension of payment, the trial court no longer had legal basis to act
on petitioners motion. It likewise denied the motion for reconsideration stating that petition for suspension of
payment could not be converted into a petition for dissolution and liquidation because they covered different
subject matters and were governed by different rules. Petitioners remedy thus was to file a new petition for
dissolution and liquidation either with the SEC or the trial court.
When the case was elevated to the CA, the petition was dismissed affirming that under Sec. 121 of the
Corporation Code, the SEC had jurisdiction to hear the petition for dissolution and liquidation. On motion for
reconsideration, the CA remanded the case to the SEC for proceedings under Sec. 121 of the Corporation
Code. The CA denied the motion for reconsideration filed by the respondent creditor, who then filed a petition
for review with this Court.
We ruled that the SEC observed the correct procedure under the present law, in cases where it merely
retained jurisdiction over pending cases for suspension of payments/rehabilitation, thus:
Republic Act No. 8799 (RA 8799) transferred to the appropriate regional trial courts the SECs jurisdiction
defined under Section 5(d) of Presidential Decree No. 902-A. Section 5.2 of RA 8799 provides:
The Commissions jurisdiction over all cases enumerated under Sec. 5 of Presidential Decree No. 902-A is
hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, That
the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall
exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving
intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the
enactment of this Code. The Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. (Emphasis supplied)
The SEC assumed jurisdiction over CMCs petition for suspension of payment and issued a suspension order on
2 April 1996 after it found CMCs petition to be sufficient in form and substance. While CMCs petition was still
pending with the SEC as of 30 June 2000, it was finally disposed of on 29 November 2000 when the SEC
issued its Omnibus Order directing the dissolution of CMC and the transfer of the liquidation proceedings
before the appropriate trial court. The SEC finally disposed of CMCs petition for suspension of payment when it
determined that CMC could no longer be successfully rehabilitated.
However, the SECs jurisdiction does not extend to the liquidation of a corporation. While the SEC has
jurisdiction to order the dissolution of a corporation, jurisdiction over the liquidation of the corporation now
pertains to the appropriate regional trial courts. This is the reason why the SEC, in its 29 November 2000
Omnibus Order, directed that the proceedings on and implementation of the order of liquidation be
commenced at the Regional Trial Court to which this case shall be transferred. This is the correct procedure
because the liquidation of a corporation requires the settlement of claims for and against the corporation,
which clearly falls under the jurisdiction of the regular courts. The trial court is in the best position to convene
all the creditors of the corporation, ascertain their claims, and determine their preferences.[80] (Additional
emphasis supplied.)
In view of the foregoing, the SEC should now be directed to transfer this case to the proper RTC which shall
supervise the liquidation proceedings under Sec. 122 of the Corporation Code. Under Sec. 6 (d) of P.D. 902-A,
the SEC is empowered, on the basis of the findings and recommendations of the management committee or
rehabilitation receiver, or on its own findings, to determine that the continuance in business of a debtor
corporation under suspension of payment or rehabilitation would not be feasible or profitable nor work to the
best interest of the stockholders, parties-litigants, creditors, or the general public, order the dissolution of such
corporation and its remaining assets liquidated accordingly. As mentioned earlier, the procedure is governed
by Rule VI of the SEC Rules of Procedure on Corporate Recovery.
However, R.A. No. 10142[81] otherwise known as the Financial Rehabilitation and Insolvency Act (FRIA) of
2010, now provides for court proceedings in the rehabilitation or liquidation of debtors, both juridical and
natural persons, in a manner that will ensure or maintain certainty and predictability in commercial affairs,
preserve and maximize the value of the assets of these debtors, recognize creditor rights and respect priority
of claims, and ensure equitable treatment of creditors who are similarly situated. Considering that this case
was still pending when the new law took effect last year, the RTC to which this case will be transferred shall
be guided by Sec. 146 of said law, which states:
SEC. 146. Application to Pending Insolvency, Suspension of Payments and Rehabilitation Cases. This Act shall
govern all petitions filed after it has taken effect. All further proceedings in insolvency, suspension of payments
and rehabilitation cases then pending, except to the extent that in opinion of the court their application would
not be feasible or would work injustice, in which event the procedures set forth in prior laws and regulations
shall apply.

WHEREFORE, the petitions for review on certiorari are DENIED. The Decision dated May 26, 2004 and
Resolution dated November 4, 2004 of the Court of Appeals in CA-G.R. SP No. 73195 are hereby AFFIRMED
with MODIFICATION in that the Securities and Exchange Commission is hereby ordered to TRANSFER SEC
Case No. 2556 to the appropriate Regional Trial Court which is hereby DIRECTED to supervise the liquidation
of Ruby Industrial Corporation under the provisions of R.A. No. 10142.
With costs against the petitioners.
SO ORDERED.

COMMENCEMENT OF CORPORATE EXISTENCE

ARC II MARKETING, INC. and LUCILA V. JOSON,

Petitioners,

- versus -

ALFREDO M. JOSON,
Respondent.

G.R. No. 171993

Present:

CARPIO, J.,
Chairperson,
BRION,
PEREZ,
SERENO, and
REYES, JJ.

Promulgated:

December 12, 2011

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

PEREZ, J.:
In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, herein petitioners Marc II
Marketing, Inc. and Lucila V. Joson assailed the Decision[1] dated 20 June 2005 of the Court of Appeals in CA-
G.R. SP No. 76624 for reversing and setting aside the Resolution[2] of the National Labor Relations
Commission (NLRC) dated 15 October 2002, thereby affirming the Labor Arbiters Decision[3] dated 1 October
2001 finding herein respondent Alfredo M. Josons dismissal from employment as illegal. In the questioned
Decision, the Court of Appeals upheld the Labor Arbiters jurisdiction over the case on the basis that
respondent was not an officer but a mere employee of petitioner Marc II Marketing, Inc., thus, totally
disregarding the latters allegation of intra-corporate controversy. Nonetheless, the Court of Appeals remanded
the case to the NLRC for further proceedings to determine the proper amount of monetary awards that should
be given to respondent.

Assailed as well is the Court of Appeals Resolution[4] dated 7 March 2006 denying their Motion for
Reconsideration.

Petitioner Marc II Marketing, Inc. (petitioner corporation) is a corporation duly organized and existing under
and by virtue of the laws of the Philippines. It is primarily engaged in buying, marketing, selling and
distributing in retail or wholesale for export or import household appliances and products and other items.[5]
It took over the business operations of Marc Marketing, Inc. which was made non-operational following its
incorporation and registration with the Securities and Exchange Commission (SEC). Petitioner Lucila V. Joson
(Lucila) is the President and majority stockholder of petitioner corporation. She was also the former President
and majority stockholder of the defunct Marc Marketing, Inc.

Respondent Alfredo M. Joson (Alfredo), on the other hand, was the General Manager, incorporator, director
and stockholder of petitioner corporation.

The controversy of this case arose from the following factual milieu:
Before petitioner corporation was officially incorporated,[6] respondent has already been engaged by
petitioner Lucila, in her capacity as President of Marc Marketing, Inc., to work as the General Manager of
petitioner corporation. It was formalized through the execution of a Management Contract[7] dated 16
January 1994 under the letterhead of Marc Marketing, Inc.[8] as petitioner corporation is yet to be
incorporated at the time of its execution. It was explicitly provided therein that respondent shall be entitled to
30% of its net income for his work as General Manager. Respondent will also be granted 30% of its net profit
to compensate for the possible loss of opportunity to work overseas.[9]

Pending incorporation of petitioner corporation, respondent was designated as the General Manager of Marc
Marketing, Inc., which was then in the process of winding up its business. For occupying the said position,
respondent was among its corporate officers by the express provision of Section 1, Article IV[10] of its by-
laws.[11]

On 15 August 1994, petitioner corporation was officially incorporated and registered with the SEC. Accordingly,
Marc Marketing, Inc. was made non-operational. Respondent continued to discharge his duties as General
Manager but this time under petitioner corporation.

Pursuant to Section 1, Article IV[12] of petitioner corporations by-laws,[13] its corporate officers are as
follows: Chairman, President, one or more Vice-President(s), Treasurer and Secretary. Its Board of Directors,
however, may, from time to time, appoint such other officers as it may determine to be necessary or proper.

Per an undated Secretarys Certificate,[14] petitioner corporations Board of Directors conducted a meeting on
29 August 1994 where respondent was appointed as one of its corporate officers with the designation or title
of General Manager to function as a managing director with other duties and responsibilities that the Board of
Directors may provide and authorized.[15]
Nevertheless, on 30 June 1997, petitioner corporation decided to stop and cease its operations, as evidenced
by an Affidavit of Non-Operation[16] dated 31 August 1998, due to poor sales collection aggravated by the
inefficient management of its affairs. On the same date, it formally informed respondent of the cessation of its
business operation. Concomitantly, respondent was apprised of the termination of his services as General
Manager since his services as such would no longer be necessary for the winding up of its affairs.[17]

Feeling aggrieved, respondent filed a Complaint for Reinstatement and Money Claim against petitioners before
the Labor Arbiter which was docketed as NLRC NCR Case No. 00-03-04102-99.

In his complaint, respondent averred that petitioner Lucila dismissed him from his employment with petitioner
corporation due to the feeling of hatred she harbored towards his family. The same was rooted in the filing by
petitioner Lucilas estranged husband, who happened to be respondents brother, of a Petition for Declaration
of Nullity of their Marriage.[18]

For the parties failure to settle the case amicably, the Labor Arbiter required them to submit their respective
position papers. Respondent complied but petitioners opted to file a Motion to Dismiss grounded on the Labor
Arbiters lack of jurisdiction as the case involved an intra-corporate controversy, which jurisdiction belongs to
the SEC [now with the Regional Trial Court (RTC)].[19] Petitioners similarly raised therein the ground of
prescription of respondents monetary claim.

On 5 September 2000, the Labor Arbiter issued an Order[20] deferring the resolution of petitioners Motion to
Dismiss until the final determination of the case. The Labor Arbiter also reiterated his directive for petitioners
to submit position paper. Still, petitioners did not comply. Insisting that the Labor Arbiter has no jurisdiction
over the case, they instead filed an Urgent Motion to Resolve the Motion to Dismiss and the Motion to Suspend
Filing of Position Paper.

In an Order[21] dated 15 February 2001, the Labor Arbiter denied both motions and declared final the Order
dated 5 September 2000. The Labor Arbiter then gave petitioners a period of five days from receipt thereof
within which to file position paper, otherwise, their Motion to Dismiss will be treated as their position paper
and the case will be considered submitted for decision.

Petitioners, through counsel, moved for extension of time to submit position paper. Despite the requested
extension, petitioners still failed to submit the same. Accordingly, the case was submitted for resolution.

On 1 October 2001, the Labor Arbiter rendered his Decision in favor of respondent. Its decretal portion reads
as follows:

WHEREFORE, premises considered, judgment is hereby rendered declaring [respondents] dismissal from
employment illegal. Accordingly, [petitioners] are hereby ordered:

1. To reinstate [respondent] to his former or equivalent position without loss of seniority rights, benefits,
and privileges;
2. Jointly and severally liable to pay [respondents] unpaid wages in the amount of P450,000.00 per month
from [26 March 1996] up to time of dismissal in the total amount of P6,300,000.00;
3. Jointly and severally liable to pay [respondents] full backwages in the amount of P450,000.00 per month
from date of dismissal until actual reinstatement which at the time of promulgation amounted to
P21,600,000.00;
4. Jointly and severally liable to pay moral damages in the amount of P100,000.00 and attorneys fees in
the amount of 5% of the total monetary award.[22] [Emphasis supplied.]
In the aforesaid Decision, the Labor Arbiter initially resolved petitioners Motion to Dismiss by finding the
ground of lack of jurisdiction to be without merit. The Labor Arbiter elucidated that petitioners failed to adduce
evidence to prove that the present case involved an intra-corporate controversy. Also, respondents money
claim did not arise from his being a director or stockholder of petitioner corporation but from his position as
being its General Manager. The Labor Arbiter likewise held that respondent was not a corporate officer under
petitioner corporations by-laws. As such, respondents complaint clearly arose from an employer-employee
relationship, thus, subject to the Labor Arbiters jurisdiction.

The Labor Arbiter then declared respondents dismissal from employment as illegal. Respondent, being a
regular employee of petitioner corporation, may only be dismissed for a valid cause and upon proper
compliance with the requirements of due process. The records, though, revealed that petitioners failed to
present any evidence to justify respondents dismissal.

Aggrieved, petitioners appealed the aforesaid Labor Arbiters Decision to the NLRC.

In its Resolution dated 15 October 2002, the NLRC ruled in favor of petitioners by giving credence to the
Secretarys Certificate, which evidenced petitioner corporations Board of Directors meeting in which a
resolution was approved appointing respondent as its corporate officer with designation as General Manager.
Therefrom, the NLRC reversed and set aside the Labor Arbiters Decision dated 1 October 2001 and dismissed
respondents Complaint for want of jurisdiction.[23]

The NLRC enunciated that the validity of respondents appointment and termination from the position of
General Manager was made subject to the approval of petitioner corporations Board of Directors. Had
respondent been an ordinary employee, such board action would not have been required. As such, it is clear
that respondent was a corporate officer whose dismissal involved a purely intra-corporate controversy. The
NLRC went further by stating that respondents claim for 30% of the net profit of the corporation can only
emanate from his right of ownership therein as stockholder, director and/or corporate officer. Dividends or
profits are paid only to stockholders or directors of a corporation and not to any ordinary employee in the
absence of any profit sharing scheme. In addition, the question of remuneration of a person who is not a mere
employee but a stockholder and officer of a corporation is not a simple labor problem. Such matter comes
within the ambit of corporate affairs and management and is an intra-corporate controversy in contemplation
of the Corporation Code.[24]

When respondents Motion for Reconsideration was denied in another Resolution[25] dated 23 January 2003,
he filed a Petition for Certiorari with the Court of Appeals ascribing grave abuse of discretion on the part of the
NLRC.

On 20 June 2005, the Court of Appeals rendered its now assailed Decision declaring that the Labor Arbiter has
jurisdiction over the present controversy. It upheld the finding of the Labor Arbiter that respondent was a
mere employee of petitioner corporation, who has been illegally dismissed from employment without valid
cause and without due process. Nevertheless, it ordered the records of the case remanded to the NLRC for the
determination of the appropriate amount of monetary awards to be given to respondent. The Court of
Appeals, thus, decreed:

WHEREFORE, the petition is by us PARTIALLY GRANTED. The Labor Arbiter is DECLARED to have jurisdiction
over the controversy. The records are REMANDED to the NLRC for further proceedings to determine the
appropriate amount of monetary awards to be adjudged in favor of [respondent]. Costs against the
[petitioners] in solidum.[26]

Petitioners moved for its reconsideration but to no avail.[27]

Petitioners are now before this Court with the following assignment of errors:

THE COURT OF APPEALS ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN DECIDING THAT THE
NLRC HAS THE JURISDICTION IN RESOLVING A PURELY INTRA-CORPORATE MATTER WHICH IS
COGNIZABLE BY THE SECURITIES AND EXCHANGE COMMISSION/REGIONAL TRIAL COURT.
ASSUMING, GRATIS ARGUENDO, THAT THE NLRC HAS JURISDICTION OVER THE CASE, STILL THE COURT
OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP
BETWEEN [RESPONDENT] ALFREDO M. JOSON AND MARC II MARKETING, INC. [PETITIONER
CORPORATION].

ASSUMING GRATIS ARGUENDO THAT THE NLRC HAS JURISDICTION OVER THE CASE, THE COURT OF
APPEALS ERRED IN NOT RULING THAT THE LABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION IN
AWARDING MULTI-MILLION PESOS IN COMPENSATION AND BACKWAGES BASED ON THE PURPORTED
GROSS INCOME OF [PETITIONER CORPORATION].

THE COURT OF APPEALS SERIOUSLY ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN NOT
MAKING ANY FINDINGS AND RULING THAT [PETITIONER LUCILA] SHOULD NOT BE HELD SOLIDARILY
LIABLE IN THE ABSENCE OF EVIDENCE OF MALICE AND BAD FAITH ON HER PART.[28]

Petitioners fault the Court of Appeals for having sustained the Labor Arbiters finding that respondent was not a
corporate officer under petitioner corporations by-laws. They insist that there is no need to amend the
corporate by-laws to specify who its corporate officers are. The resolution issued by petitioner corporations
Board of Directors appointing respondent as General Manager, coupled with his assumption of the said
position, positively made him its corporate officer. More so, respondents position, being a creation of petitioner
corporations Board of Directors pursuant to its by-laws, is a corporate office sanctioned by the Corporation
Code and the doctrines previously laid down by this Court. Thus, respondents removal as petitioner
corporations General Manager involved a purely intra-corporate controversy over which the RTC has
jurisdiction.

Petitioners further contend that respondents claim for 30% of the net profit of petitioner corporation was
anchored on the purported Management Contract dated 16 January 1994. It should be noted, however, that
said Management Contract was executed at the time petitioner corporation was still nonexistent and had no
juridical personality yet. Such being the case, respondent cannot invoke any legal right therefrom as it has no
legal and binding effect on petitioner corporation. Moreover, it is clear from the Articles of Incorporation of
petitioner corporation that respondent was its director and stockholder. Indubitably, respondents claim for his
share in the profit of petitioner corporation was based on his capacity as such and not by virtue of any
employer-employee relationship.

Petitioners further avow that even if the present case does not pose an intra-corporate controversy, still, the
Labor Arbiters multi-million peso awards in favor of respondent were erroneous. The same was merely based
on the latters self-serving computations without any supporting documents.

Finally, petitioners maintain that petitioner Lucila cannot be held solidarily liable with petitioner corporation.
There was neither allegation nor iota of evidence presented to show that she acted with malice and bad faith
in her dealings with respondent. Moreover, the Labor Arbiter, in his Decision, simply concluded that petitioner
Lucila was jointly and severally liable with petitioner corporation without making any findings thereon. It was,
therefore, an error for the Court of Appeals to hold petitioner Lucila solidarily liable with petitioner corporation.

From the foregoing arguments, the initial question is which between the Labor Arbiter or the RTC, has
jurisdiction over respondents dismissal as General Manager of petitioner corporation. Its resolution necessarily
entails the determination of whether respondent as General Manager of petitioner corporation is a corporate
officer or a mere employee of the latter.

While Article 217(a)2[29] of the Labor Code, as amended, provides that it is the Labor Arbiter who has the
original and exclusive jurisdiction over cases involving termination or dismissal of workers when the person
dismissed or terminated is a corporate officer, the case automatically falls within the province of the RTC. The
dismissal of a corporate officer is always regarded as a corporate act and/or an intra-corporate
controversy.[30]
Under Section 5[31] of Presidential Decree No. 902-A, intra-corporate controversies are those controversies
arising out of intra-corporate or partnership relations, between and among stockholders, members or
associates; between any or all of them and the corporation, partnership or association of which they are
stockholders, members or associates, respectively; and between such corporation, partnership or association
and the State insofar as it concerns their individual franchise or right to exist as such entity. It also includes
controversies in the election or appointments of directors, trustees, officers or managers of such corporations,
partnerships or associations.[32]

Accordingly, in determining whether the SEC (now the RTC) has jurisdiction over the controversy, the status or
relationship of the parties and the nature of the question that is the subject of their controversy must be taken
into consideration.[33]

In Easycall Communications Phils., Inc. v. King, this Court held that in the context of Presidential Decree No.
902-A, corporate officers are those officers of a corporation who are given that character either by the
Corporation Code or by the corporations by-laws. Section 25[34] of the Corporation Code specifically
enumerated who are these corporate officers, to wit: (1) president; (2) secretary; (3) treasurer; and (4) such
other officers as may be provided for in the by-laws.[35]

The aforesaid Section 25 of the Corporation Code, particularly the phrase such other officers as may be
provided for in the by-laws, has been clarified and elaborated in this Courts recent pronouncement in Matling
Industrial and Commercial Corporation v. Coros, where it held, thus:

Conformably with Section 25, a position must be expressly mentioned in the [b]y-[l]aws in order to be
considered as a corporate office. Thus, the creation of an office pursuant to or under a [b]y-[l]aw enabling
provision is not enough to make a position a corporate office. [In] Guerrea v. Lezama [citation omitted] the
first ruling on the matter, held that the only officers of a corporation were those given that character either by
the Corporation Code or by the [b]y-[l]aws; the rest of the corporate officers could be considered only as
employees or subordinate officials. Thus, it was held in Easycall Communications Phils., Inc. v. King [citation
omitted]:

An "office" is created by the charter of the corporation and the officer is elected by the directors or
stockholders. On the other hand, an employee occupies no office and generally is employed not by the action
of the directors or stockholders but by the managing officer of the corporation who also determines the
compensation to be paid to such employee.

xxxx

This interpretation is the correct application of Section 25 of the Corporation Code, which plainly states that
the corporate officers are the President, Secretary, Treasurer and such other officers as may be provided for in
the [b]y-[l]aws. Accordingly, the corporate officers in the context of PD No. 902-A are exclusively those who
are given that character either by the Corporation Code or by the corporations [b]y[l]aws.

A different interpretation can easily leave the way open for the Board of Directors to circumvent the
constitutionally guaranteed security of tenure of the employee by the expedient inclusion in the [b]y-[l]aws of
an enabling clause on the creation of just any corporate officer position.
It is relevant to state in this connection that the SEC, the primary agency administering the Corporation Code,
adopted a similar interpretation of Section 25 of the Corporation Code in its Opinion dated November 25, 1993
[citation omitted], to wit:

Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the corporate
officers enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no power to
create other Offices without amending first the corporate [b]y-laws. However, the Board may create
appointive positions other than the positions of corporate Officers, but the persons occupying such positions
are not considered as corporate officers within the meaning of Section 25 of the Corporation Code and are not
empowered to exercise the functions of the corporate Officers, except those functions lawfully delegated to
them. Their functions and duties are to be determined by the Board of Directors/Trustees.[36] [Emphasis
supplied.]

A careful perusal of petitioner corporations by-laws, particularly paragraph 1, Section 1, Article IV,[37] would
explicitly reveal that its corporate officers are composed only of: (1) Chairman; (2) President; (3) one or more
Vice-President; (4) Treasurer; and (5) Secretary.[38] The position of General Manager was not among those
enumerated.

Paragraph 2, Section 1, Article IV of petitioner corporations by-laws, empowered its Board of Directors to
appoint such other officers as it may determine necessary or proper.[39] It is by virtue of this enabling
provision that petitioner corporations Board of Directors allegedly approved a resolution to make the position
of General Manager a corporate office, and, thereafter, appointed respondent thereto making him one of its
corporate officers. All of these acts were done without first amending its by-laws so as to include the General
Manager in its roster of corporate officers.

With the given circumstances and in conformity with Matling Industrial and Commercial Corporation v. Coros,
this Court rules that respondent was not a corporate officer of petitioner corporation because his position as
General Manager was not specifically mentioned in the roster of corporate officers in its corporate by-laws.
The enabling clause in petitioner corporations by-laws empowering its Board of Directors to create additional
officers, i.e., General Manager, and the alleged subsequent passage of a board resolution to that effect cannot
make such position a corporate office. Matling clearly enunciated that the board of directors has no power to
create other corporate offices without first amending the corporate by-laws so as to include therein the newly
created corporate office. Though the board of directors may create appointive positions other than the
positions of corporate officers, the persons occupying such positions cannot be viewed as corporate officers
under Section 25 of the Corporation Code.[40] In view thereof, this Court holds that unless and until petitioner
corporations by-laws is amended for the inclusion of General Manager in the list of its corporate officers, such
position cannot be considered as a corporate office within the realm of Section 25 of the Corporation Code.

This Court considers that the interpretation of Section 25 of the Corporation Code laid down in Matling
safeguards the constitutionally enshrined right of every employee to security of tenure. To allow the creation
of a corporate officer position by a simple inclusion in the corporate by-laws of an enabling clause empowering
the board of directors to do so can result in the circumvention of that constitutionally well-protected right.[41]

It is also of no moment that respondent, being petitioner corporations General Manager, was given the
functions of a managing director by its Board of Directors. As held in Matling, the only officers of a corporation
are those given that character either by the Corporation Code or by the corporate by-laws. It follows then that
the corporate officers enumerated in the by-laws are the exclusive officers of the corporation while the rest
could only be regarded as mere employees or subordinate officials.[42] Respondent, in this case, though
occupying a high ranking and vital position in petitioner corporation but which position was not specifically
enumerated or mentioned in the latters by-laws, can only be regarded as its employee or subordinate official.
Noticeably, respondents compensation as petitioner corporations General Manager was set, fixed and
determined not by the latters Board of Directors but simply by its President, petitioner Lucila. The same was
not subject to the approval of petitioner corporations Board of Directors. This is an indication that respondent
was an employee and not a corporate officer.
To prove that respondent was petitioner corporations corporate officer, petitioners presented before the NLRC
an undated Secretarys Certificate showing that corporations Board of Directors approved a resolution making
respondents position of General Manager a corporate office. The submission, however, of the said undated
Secretarys Certificate will not change the fact that respondent was an employee. The certification does not
amount to an amendment of the by-laws which is needed to make the position of General Manager a
corporate office.

Moreover, as has been aptly observed by the Court of Appeals, the board resolution mentioned in that
undated Secretarys Certificate and the latter itself were obvious fabrications, a mere afterthought. Here we
quote with conformity the Court of Appeals findings on this matter stated in this wise:

The board resolution is an obvious fabrication. Firstly, if it had been in existence since [29 August 1994], why
did not [herein petitioners] attach it to their [M]otion to [D]ismiss filed on [26 August 1999], when it could
have been the best evidence that [herein respondent] was a corporate officer? Secondly, why did they report
the [respondent] instead as [herein petitioner corporations] employee to the Social Security System [(SSS)] on
[11 October 1994] or a later date than their [29 August 1994] board resolution? Thirdly, why is there no
indication that the [respondent], the person concerned himself, and the [SEC] were furnished with copies of
said board resolution? And, lastly, why is the corporate [S]ecretarys [C]ertificate not notarized in keeping with
the customary procedure? That is why we called it manipulative evidence as it was a shameless sham meant
to be thrown in as a wild card to muddle up the [D]ecision of the Labor Arbiter to the end that it be
overturned as the latter had firmly pointed out that [respondent] is not a corporate officer under [petitioner
corporations by-laws]. Regrettably, the [NLRC] swallowed the bait hook-line-and sinker. It failed to see
through its nature as a belatedly manufactured evidence. And even on the assumption that it were an
authentic board resolution, it did not make [respondent] a corporate officer as the board did not first and
properly create the position of a [G]eneral [M]anager by amending its by-laws.

(2) The scope of the term officer in the phrase and such other officers as may be provided for in the by-laws[]
(Sec. 25, par. 1), would naturally depend much on the provisions of the by-laws of the corporation. (SEC
Opinion, [4 December 1991.]) If the by-laws enumerate the officers to be elected by the board, the provision
is conclusive, and the board is without power to create new offices without amending the by-laws. (SEC
Opinion, [19 October 1971.])

(3) If, for example, the general manager of a corporation is not listed as an officer, he is to be classified as an
employee although he has always been considered as one of the principal officers of a corporation [citing De
Leon, H. S., The Corporation Code of the Philippines Annotated, 1993 Ed., p. 215.][43] [Emphasis supplied.]

That respondent was also a director and a stockholder of petitioner corporation will not automatically make the
case fall within the ambit of intra-corporate controversy and be subjected to RTCs jurisdiction. To reiterate,
not all conflicts between the stockholders and the corporation are classified as intra-corporate. Other factors
such as the status or relationship of the parties and the nature of the question that is the subject of the
controversy[44] must be considered in determining whether the dispute involves corporate matters so as to
regard them as intra-corporate controversies.[45] As previously discussed, respondent was not a corporate
officer of petitioner corporation but a mere employee thereof so there was no intra-corporate relationship
between them. With regard to the subject of the controversy or issue involved herein, i.e., respondents
dismissal as petitioner corporations General Manager, the same did not present or relate to an intra-corporate
dispute. To note, there was no evidence submitted to show that respondents removal as petitioner
corporations General Manager carried with it his removal as its director and stockholder. Also, petitioners
allegation that respondents claim of 30% share of petitioner corporations net profit was by reason of his being
its director and stockholder was without basis, thus, self-serving. Such an allegation was tantamount to a mere
speculation for petitioners failure to substantiate the same.
In addition, it was not shown by petitioners that the position of General Manager was offered to respondent
on account of his being petitioner corporations director and stockholder. Also, in contrast to NLRCs findings,
neither petitioner corporations by-laws nor the Management Contract stated that respondents appointment
and termination from the position of General Manager was subject to the approval of petitioner corporations
Board of Directors. If, indeed, respondent was a corporate officer whose termination was subject to the
approval of its Board of Directors, why is it that his termination was effected only by petitioner Lucila,
President of petitioner corporation? The records are bereft of any evidence to show that respondents dismissal
was done with the conformity of petitioner corporations Board of Directors or that the latter had a hand on
respondents dismissal. No board resolution whatsoever was ever presented to that effect.

With all the foregoing, this Court is fully convinced that, indeed, respondent, though occupying the General
Manager position, was not a corporate officer of petitioner corporation rather he was merely its employee
occupying a high-ranking position.

Accordingly, respondents dismissal as petitioner corporations General Manager did not amount to an intra-
corporate controversy. Jurisdiction therefor properly belongs with the Labor Arbiter and not with the RTC.

Having established that respondent was not petitioner corporations corporate officer but merely its employee,
and that, consequently, jurisdiction belongs to the Labor Arbiter, this Court will now determine if respondents
dismissal from employment is illegal.

It was not disputed that respondent worked as petitioner corporations General Manager from its incorporation
on 15 August 1994 until he was dismissed on 30 June 1997. The cause of his dismissal was petitioner
corporations cessation of business operations due to poor sales collection aggravated by the inefficient
management of its affairs.

In termination cases, the burden of proving just and valid cause for dismissing an employee from his
employment rests upon the employer. The latter's failure to discharge that burden would necessarily result in a
finding that the dismissal is unjustified.[46]

Under Article 283 of the Labor Code, as amended, one of the authorized causes in terminating the
employment of an employee is the closing or cessation of operation of the establishment or undertaking.
Article 283 of the Labor Code, as amended, reads, thus:

ART. 283. Closure of establishment and reduction of personnel. The employer may also terminate the
employment of any employee due to the installation of labor saving-devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is
for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and
the Department of Labor and Employment at least one (1) month before the intended date thereof. x x x In
case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or
undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to
one (1) month pay or to at least one-half (1/2) month pay for every year of service, whichever is higher. A
fraction of at least six (6) months shall be considered one (1) whole year. [Emphasis supplied.]

From the afore-quoted provision, the closure or cessation of operations of establishment or undertaking may
either be due to serious business losses or financial reverses or otherwise. If the closure or cessation was due
to serious business losses or financial reverses, it is incumbent upon the employer to sufficiently and
convincingly prove the same. If it is otherwise, the employer can lawfully close shop anytime as long as it was
bona fide in character and not impelled by a motive to defeat or circumvent the tenurial rights of employees
and as long as the terminated employees were paid in the amount corresponding to their length of
service.[47]

Accordingly, under Article 283 of the Labor Code, as amended, there are three requisites for a valid cessation
of business operations: (a) service of a written notice to the employees and to the Department of Labor and
Employment (DOLE) at least one month before the intended date thereof; (b) the cessation of business must
be bona fide in character; and (c) payment to the employees of termination pay amounting to one month pay
or at least one-half month pay for every year of service, whichever is higher.

In this case, it is obvious that petitioner corporations cessation of business operations was not due to serious
business losses. Mere poor sales collection, coupled with mismanagement of its affairs does not amount to
serious business losses. Nonetheless, petitioner corporation can still validly cease or close its business
operations because such right is legally allowed, so long as it was not done for the purpose of circumventing
the provisions on termination of employment embodied in the Labor Code.[48] As has been stressed by this
Court in Industrial Timber Corporation v. Ababon, thus:
Just as no law forces anyone to go into business, no law can compel anybody to continue the same. It would
be stretching the intent and spirit of the law if a court interferes with management's prerogative to close or
cease its business operations just because the business is not suffering from any loss or because of the desire
to provide the workers continued employment.[49]

A careful perusal of the records revealed that, indeed, petitioner corporation has stopped and ceased business
operations beginning 30 June 1997. This was evidenced by a notarized Affidavit of Non-Operation dated 31
August 1998. There was also no showing that the cessation of its business operations was done in bad faith or
to circumvent the Labor Code. Nevertheless, in doing so, petitioner corporation failed to comply with the one-
month prior written notice rule. The records disclosed that respondent, being petitioner corporations
employee, and the DOLE were not given a written notice at least one month before petitioner corporation
ceased its business operations. Moreover, the records clearly show that respondents dismissal was effected on
the same date that petitioner corporation decided to stop and cease its operation. Similarly, respondent was
not paid separation pay upon termination of his employment.

As respondents dismissal was not due to serious business losses, respondent is entitled to payment of
separation pay equivalent to one month pay or at least one-half month pay for every year of service,
whichever is higher. The rationale for this was laid down in Reahs Corporation v. National Labor Relations
Commission,[50] thus:

The grant of separation pay, as an incidence of termination of employment under Article 283, is a statutory
obligation on the part of the employer and a demandable right on the part of the employee, except only where
the closure or cessation of operations was due to serious business losses or financial reverses and there is
sufficient proof of this fact or condition. In the absence of such proof of serious business losses or financial
reverses, the employer closing his business is obligated to pay his employees and workers their separation
pay.

The rule, therefore, is that in all cases of business closure or cessation of operation or undertaking of the
employer, the affected employee is entitled to separation pay. This is consistent with the state policy of
treating labor as a primary social economic force, affording full protection to its rights as well as its welfare.
The exception is when the closure of business or cessation of operations is due to serious business losses or
financial reverses duly proved, in which case, the right of affected employees to separation pay is lost for
obvious reasons.[51] [Emphasis supplied.]

As previously discussed, respondents dismissal was due to an authorized cause, however, petitioner
corporation failed to observe procedural due process in effecting such dismissal. In Culili v. Eastern
Telecommunications Philippines, Inc.,[52] this Court made the following pronouncements, thus:

x x x there are two aspects which characterize the concept of due process under the Labor Code: one is
substantive whether the termination of employment was based on the provision of the Labor Code or in
accordance with the prevailing jurisprudence; the other is procedural the manner in which the dismissal was
effected.

Section 2(d), Rule I, Book VI of the Rules Implementing the Labor Code provides:
(d) In all cases of termination of employment, the following standards of due process shall be substantially
observed:

xxxx

For termination of employment as defined in Article 283 of the Labor Code, the requirement of due process
shall be deemed complied with upon service of a written notice to the employee and the appropriate Regional
Office of the Department of Labor and Employment at least thirty days before effectivity of the termination,
specifying the ground or grounds for termination.

In Mayon Hotel & Restaurant v. Adana, [citation omitted] we observed:

The requirement of law mandating the giving of notices was intended not only to enable the employees to
look for another employment and therefore ease the impact of the loss of their jobs and the corresponding
income, but more importantly, to give the Department of Labor and Employment (DOLE) the opportunity to
ascertain the verity of the alleged authorized cause of termination.[53] [Emphasis supplied].

The records of this case disclosed that there was absolutely no written notice given by petitioner corporation
to the respondent and to the DOLE prior to the cessation of its business operations. This is evident from the
fact that petitioner corporation effected respondents dismissal on the same date that it decided to stop and
cease its business operations. The necessary consequence of such failure to comply with the one-month prior
written notice rule, which constitutes a violation of an employees right to statutory due process, is the
payment of indemnity in the form of nominal damages.[54] In Culili v. Eastern Telecommunications
Philippines, Inc., this Court further held:
In Serrano v. National Labor Relations Commission [citation omitted], we noted that a job is more than the
salary that it carries. There is a psychological effect or a stigma in immediately finding ones self laid off from
work. This is exactly why our labor laws have provided for mandating procedural due process clauses. Our
laws, while recognizing the right of employers to terminate employees it cannot sustain, also recognize the
employees right to be properly informed of the impending severance of his ties with the company he is
working for. x x x.

x x x Over the years, this Court has had the opportunity to reexamine the sanctions imposed upon employers
who fail to comply with the procedural due process requirements in terminating its employees. In Agabon v.
National Labor Relations Commission [citation omitted], this Court reverted back to the doctrine in Wenphil
Corporation v. National Labor Relations Commission [citation omitted] and held that where the dismissal is due
to a just or authorized cause, but without observance of the due process requirements, the dismissal may be
upheld but the employer must pay an indemnity to the employee. The sanctions to be imposed however, must
be stiffer than those imposed in Wenphil to achieve a result fair to both the employers and the employees.

In Jaka Food Processing Corporation v. Pacot [citation omitted], this Court, taking a cue from Agabon, held
that since there is a clear-cut distinction between a dismissal due to a just cause and a dismissal due to an
authorized cause, the legal implications for employers who fail to comply with the notice requirements must
also be treated differently:

Accordingly, it is wise to hold that: (1) if the dismissal is based on a just cause under Article 282 but the
employer failed to comply with the notice requirement, the sanction to be imposed upon him should be
tempered because the dismissal process was, in effect, initiated by an act imputable to the employee; and (2)
if the dismissal is based on an authorized cause under Article 283 but the employer failed to comply with the
notice requirement, the sanction should be stiffer because the dismissal process was initiated by the
employer's exercise of his management prerogative.[55] [Emphasis supplied.]
Thus, in addition to separation pay, respondent is also entitled to an award of nominal damages. In conformity
with this Courts ruling in Culili v. Eastern Telecommunications Philippines, Inc. and Shimizu Phils. Contractors,
Inc. v. Callanta, both citing Jaka Food Processing Corporation v. Pacot,[56] this Court fixed the amount of
nominal damages to P50,000.00.

With respect to petitioners contention that the Management Contract executed between respondent and
petitioner Lucila has no binding effect on petitioner corporation for having been executed way before its
incorporation, this Court finds the same meritorious.

Section 19 of the Corporation Code expressly provides:

Sec. 19. Commencement of corporate existence. - A private corporation formed or organized under this Code
commences to have corporate existence and juridical personality and is deemed incorporated from the date
the Securities and Exchange Commission issues a certificate of incorporation under its official seal; and
thereupon the incorporators, stockholders/members and their successors shall constitute a body politic and
corporate under the name stated in the articles of incorporation for the period of time mentioned therein,
unless said period is extended or the corporation is sooner dissolved in accordance with law. [Emphasis
supplied.]

Logically, there is no corporation to speak of prior to an entitys incorporation. And no contract entered into
before incorporation can bind the corporation.

As can be gleaned from the records, the Management Contract dated 16 January 1994 was executed between
respondent and petitioner Lucila months before petitioner corporations incorporation on 15 August 1994.
Similarly, it was done when petitioner Lucila was still the President of Marc Marketing, Inc. Undeniably, it
cannot have any binding and legal effect on petitioner corporation. Also, there was no evidence presented to
prove that petitioner corporation adopted, ratified or confirmed the Management Contract. It is for the same
reason that petitioner corporation cannot be considered estopped from questioning its binding effect now that
respondent was invoking the same against it. In no way, then, can it be enforced against petitioner
corporation, much less, its provisions fixing respondents compensation as General Manager to 30% of
petitioner corporations net profit. Consequently, such percentage cannot be the basis for the computation of
respondents separation pay. This finding, however, will not affect the undisputed fact that respondent was,
indeed, the General Manager of petitioner corporation from its incorporation up to the time of his dismissal.
Accordingly, this Court finds it necessary to still remand the present case to the Labor Arbiter to conduct
further proceedings for the sole purpose of determining the compensation that respondent was actually
receiving during the period that he was the General Manager of petitioner corporation, this, for the proper
computation of his separation pay.
As regards petitioner Lucilas solidary liability, this Court affirms the same.

As a rule, corporation has a personality separate and distinct from its officers, stockholders and members such
that corporate officers are not personally liable for their official acts unless it is shown that they have exceeded
their authority. However, this corporate veil can be pierced when the notion of the legal entity is used as a
means to perpetrate fraud, an illegal act, as a vehicle for the evasion of an existing obligation, and to confuse
legitimate issues. Under the Labor Code, for instance, when a corporation violates a provision declared to be
penal in nature, the penalty shall be imposed upon the guilty officer or officers of the corporation.[57]

Based on the prevailing circumstances in this case, petitioner Lucila, being the President of petitioner
corporation, acted in bad faith and with malice in effecting respondents dismissal from employment. Although
petitioner corporation has a valid cause for dismissing respondent due to cessation of business operations,
however, the latters dismissal therefrom was done abruptly by its President, petitioner Lucila. Respondent was
not given the required one-month prior written notice that petitioner corporation will already cease its business
operations. As can be gleaned from the records, respondent was dismissed outright by petitioner Lucila on the
same day that petitioner corporation decided to stop and cease its business operations. Worse, respondent
was not given separation pay considering that petitioner corporations cessation of business was not due to
business losses or financial reverses.
WHEREFORE, premises considered, the Decision and Resolution dated 20 June 2005 and 7 March 2006,
respectively, of the Court of Appeals in CA-G.R. SP No. 76624 are hereby AFFIRMED with the MODIFICATION
finding respondents dismissal from employment legal but without proper observance of due process.
Accordingly, petitioner corporation, jointly and solidarily liable with petitioner Lucila, is hereby ordered to pay
respondent the following; (1) separation pay equivalent to one month pay or at least one-half month pay for
every year of service, whichever is higher, to be computed from the commencement of employment until
termination; and (2) nominal damages in the amount of P50,000.00.

This Court, however, finds it proper to still remand the records to the Labor Arbiter to conduct further
proceedings for the sole purpose of determining the compensation that respondent was actually receiving
during the period that he was the General Manager of petitioner corporation for the proper computation of his
separation pay.

Costs against petitioners.

SO ORDERED.

INCORPORATORS

NAUTICA CANNING G.R. No. 164588

CORPORATION, FIRST
DOMINION PRIME HOLDINGS,
INC. and FERNANDO R.
ARGUELLES, JR.,
Petitioners, Present:
Davide, Jr., C.J. (Chairman),
- versus - Quisumbing,
Ynares-Santiago,
Carpio, and
Azcuna, JJ.
ROBERTO C. YUMUL,
Respondent. Promulgated:
October 19, 2005
x ---------------------------------------------------------------------------------------- x

DECISION

YNARES-SANTIAGO, J.:

Petitioners assail the September 26, 2001 Decision[1] of the Court of Appeals in CA-G.R. SP No. 61919,
affirming in toto the Decision of the Securities and Exchange Commission (SEC) En Banc in SEC Case No. 10-
96-5455, as well as the July 16, 2004 Resolution[2] denying the motion for reconsideration.

The facts of the case show that Nautica Canning Corporation (Nautica) was organized and incorporated on
May 11, 1994 with an authorized capital stock of P40,000,000 divided into 400,000 shares with a par value of
P100.00 per share. It had a subscribed capital stock of P10,000,000 with paid-in subscriptions from its
incorporators as follows:[3]

Name No. of Shares Amount Subscribed Amount Paid

ALVIN Y. DEE 89,991 P8,999,100 P4,499,100

JONATHAN Y. DEE 2 200 200
JOANNA D. LAUREL 2 200 200
DARLENE EDSA MARIE
GONZALES 2 200 200
JENNIFER Y. DEE 2 200 200
ROBERTO C. YUMUL 1 100 100
JERRY ANGPING 10,000 1,000,000 500,000
-------------- -------------------- -------------------
100,000 P10,000,000 P5,000,000
On December 19, 1994, respondent Roberto C. Yumul was appointed Chief Operating Officer/General Manager
of Nautica with a monthly compensation of P85,000 and an additional compensation equal to 5% of the
companys operating profit for the calendar year.[4] On the same date, First Dominion Prime Holdings, Inc.,
Nauticas parent company, through its Chairman Alvin Y. Dee, granted Yumul an Option to Purchase[5] up to
15% of the total stocks it subscribed from Nautica.
On June 22, 1995, a Deed of Trust and Assignment[6] was executed between First Dominion Prime Holdings,
Inc. and Yumul whereby the former assigned 14,999 of its subscribed shares in Nautica to the latter. The deed
stated that the 14,999 shares were acquired and paid for in the name of the ASSIGNOR only for convenience,
but actually executed in behalf of and in trust for the ASSIGNEE.

In March 1996, Nautica declared a P35,000,000 cash dividend, P8,250,000 of which was paid to Yumul
representing his 15% share.

After Yumuls resignation from Nautica on August 5, 1996, he wrote a letter[7] to Dee requesting the latter to
formalize his offer to buy Yumuls 15% share in Nautica on or before August 20, 1996; and demanding the
issuance of the corresponding certificate of shares in his name should Dee refuse to buy the same. Dee,
through Atty. Fernando R. Arguelles, Jr., Nauticas corporate secretary, denied the request claiming that Yumul
was not a stockholder of Nautica.

On September 6, 1996[8] and September 9, 1996,[9] Yumul requested that the Deed of Trust and Assignment
be recorded in the Stock and Transfer Book of Nautica, and that he, as a stockholder, be allowed to inspect its
books and records.

Yumuls requests were denied allegedly because he neither exercised the option to purchase the shares nor
paid for the acquisition price of the 14,999 shares. Atty. Arguelles maintained that the cash dividend received
by Yumul is held by him only in trust for First Dominion Prime Holdings, Inc.

Thus, Yumul filed on October 3, 1996, before the SEC a petition for mandamus with damages, with prayer that
the Deed of Trust and Assignment be recorded in the Stock and Transfer Book of Nautica and that the
certificate of stocks corresponding thereto be issued in his name.[10]

On October 12, 2000, the SEC En Banc rendered the Decision,[11] the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the petitioner and against the respondents, as follows:

1. Declaring petitioner as a stockholder of respondent Nautica;

2. Declaring petitioner as beneficial owner of 14,999 shares of Nautica under the Deed of Trust
and Assignment dated June 22, 1995

3. Declaring petitioner to be entitled to the right of inspection of the books of the corporation
pursuant to the pertinent provisions of the Corporation Code; and

4. Directing the Corporate Secretary of Nautica to recognize and register the Deed of Trust and
Assignment dated June 22, 1995.
SO ORDERED.[12]

On appeal, the Court of Appeals affirmed the decision of the SEC En Banc. Petitioners motion for
reconsideration was denied in a Resolution dated July 16, 2004.

Hence, this petition.

At the outset, we note that petitioners recourse to this Court via a combined petition under Rule 65 and an
appeal under Rule 45 of the Rules of Court is irregular. A petition for review under Rule 45 is the proper
remedy of a party aggrieved by a decision of the Court of Appeals, which is not identical to a petition for
certiorari under Rule 65. Under Rule 45, decisions, final orders or resolutions of the Court of Appeals is
appealed by filing a petition for review, which is a continuation of the appellate process over the original
case.[13] On the other hand, the writ of certiorari under Rule 65 is filed when petitioner has no plain, speedy
and adequate remedy in the ordinary course of law against its perceived grievance. A remedy is considered
plain, speedy and adequate if it will promptly relieve the petitioner from the injurious effects of the judgment
and the acts of the lower court or agency.

In this case, petitioners speedy, available and adequate remedy is appeal via Rule 45, and not certiorari under
Rule 65. Notwithstanding petitioners procedural lapse, we shall treat the petition as one filed under Rule 45.

The petition is partly meritorious.

Petitioners contend that Yumul was not a stockholder of Nautica; that he was just a nominal owner of one
share as the beneficial ownership belonged to Dee who paid for said share when Nautica was incorporated.
They presented China Banking Corporation Check No. A2620636 and Citibank Check No. B82642 as proof of
payment by Dee; a letter by Dee dated July 15, 1994 requesting the corporate secretary of Nautica to issue a
certificate of stock in Yumuls name but in trust for Dee; and Stock Certificate No. 6 with annotation ITF Alvin
Y. Dee which means that respondent held said stock In Trust For Alvin Y. Dee.

We are not persuaded.

Indeed, it is possible for a business to be wholly owned by one individual. The validity of its incorporation is
not affected when such individual gives nominal ownership of only one share of stock to each of the other four
incorporators. This is not necessarily illegal.[14] But, this is valid only between or among the incorporators
privy to the agreement. It does bind the corporation which, at the time the agreement is made, was non-
existent. Thus, incorporators continue to be stockholders of a corporation unless, subsequent to the
incorporation, they have validly transferred their subscriptions to the real parties in interest. As between the
corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only
to its books for the purpose of determining who its shareholders are.[15]

In the case at bar, the SEC and the Court of Appeals correctly found Yumul to be a stockholder of Nautica, of
one share of stock recorded in Yumuls name, although allegedly held in trust for Dee. Nauticas Articles of
Incorporation and By-laws, as well as the General Information Sheet filed with the SEC indicated that Yumul
was an incorporator and subscriber of one share.[16] Even granting that there was an agreement between
Yumul and Dee whereby the former is holding the share in trust for Dee, the same is binding only as between
them. From the corporations vantage point, Yumul is its stockholder with one share, considering that there is
no showing that Yumul transferred his subscription to Dee, the alleged real owner of the share, after Nauticas
incorporation.

We held in Ponce v. Alsons Cement Corp.[17] that:

... [A] transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-existent
as far as the corporation is concerned. As between the corporation on one hand, and its shareholders and
third persons on the other, the corporation looks only to its books for the purpose of determining who its
shareholders are. It is only when the transfer has been recorded in the stock and transfer book that a
corporation may rightfully regard the transferee as one of its stockholders. From this time, the consequent
obligation on the part of the corporation to recognize such rights as it is mandated by law to recognize arises.

Hence, without such recording, the transferee may not be regarded by the corporation as one among its
stockholders and the corporation may legally refuse the issuance of stock certificates[.]

Moreover, the contents of the articles of incorporation bind the corporation and its stockholders. Its contents
cannot be disregarded considering that it was the basic document which legally triggered the creation of the
corporation.[18]
The Court of Appeals, in affirming the factual findings of SEC, held that:

The evidence submitted by petitioners to establish trust is palpably incompetent, consisting mainly of the self-
serving allegations by the petitioners and the China Banking Corporation checks issued as payment for the
shares of stock of Nautica. Dee did not testify on the supposed trust relationship between him and Yumul.
While Atty. Arguelles testified, his testimony is barren of probative value since he had no first-hand knowledge
of the relationship in question. The isolated fact that Dee might have paid for the share in the name of Yumul
did not by itself make the latter a man of straw. Such act of payment is so nebulous and equivocal that it can
not yield the meaning which the petitioners would want to squeeze from it without the clarificatory testimony
of Dee.[19]
We see no cogent reason to set aside the factual findings of the SEC, as upheld by the Court of Appeals.
Findings of fact of quasi-judicial agencies, like the SEC, are generally accorded respect and even finality by the
Supreme Court, if supported by substantial evidence, in recognition of their expertise on the specific matters
under their consideration,[20] moreso if the same has been upheld by the appellate court, as in this case.

Besides, other than petitioners self-serving assertion that the beneficial ownership belongs to Dee, they failed
to show that the subscription was transferred to Dee after Nauticas incorporation. The conduct of the parties
also constitute sufficient proof of Yumuls status as a stockholder. On April 4, 1995, Yumul was elected during
the regular annual stockholders meeting as a Director of Nauticas Board of Directors.[21] Thereafter, he was
elected as president of Nautica.[22] Thus, Nautica and its stockholders knowingly held respondent out to the
public as an officer and a stockholder of the corporation.

Section 23 of Batas Pambansa (BP) Blg. 68 or The Corporation Code of the Philippines requires that every
director must own at least one share of the capital stock of the corporation of which he is a director. Before
one may be elected president of the corporation, he must be a director.[23] Since Yumul was elected as
Nauticas Director and as President thereof, it follows that he must have owned at least one share of the
corporations capital stock.

Thus, from the point of view of the corporation, Yumul was the owner of one share of stock. As such, the SEC
correctly ruled that he has the right to inspect the books and records of Nautica,[24] pursuant to Section 74 of
BP Blg. 68 which states that the records of all business transactions of the corporation and the minutes of any
meetings shall be open to inspection by any director, trustee, stockholder or member of the corporation at
reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said records or
minutes, at his expense.
As to whether or not Yumul is the beneficial owner of the 14,999 shares of stocks of Nautica, petitioners allege
that Yumul was given the option to purchase shares of stocks in Nautica under the Option to Purchase dated
December 19, 1994. However, he failed to exercise the option, thus there was no cause or consideration for
the Deed of Trust and Assignment, which makes it void for being simulated or fictitious.[25]

Anent this issue, the SEC did not make a categorical finding on whether Yumul exercised his option and also
on the validity of the Deed of Trust and Assignment. Instead, it held that:
... Although unsubstantiated, the apparent objective of the respondents allegation was to refute petitioners
claim over the shares covered by the Deed of Trust and Assignment. This must therefore be deemed as
nothing but a ploy to deprive petitioner of his right over the shares in question, which to us should not be
countenanced.[26]

Neither did the Court of Appeals rule on the issue as it only held that:

Petitioners also contend that the Deed is a simulated contract.

Simulation is the declaration of a fictitious will, deliberately made by agreement of the parties, in order to
produce, for the purposes of deception, the appearances of a judicial act which does not exist or is different
with that which was really executed. The characteristic of simulation is that the apparent contract is not really
desired or intended to produce legal effect or in any way alter the juridical situation of the parties.

The requisites for simulation are: (a) an outward declaration of will different from the will of the parties; (b)
the false appearance must have been intended by mutual agreement; and (c) the purpose is to deceive third
persons. These requisites have not been proven in this case.[27]

Thus, other than defining and enumerating the requisites of a simulated contract or deed, the Court of Appeals
did not make a determination whether the SEC has the jurisdiction to resolve the issue and whether the
questioned deed was fictitious or simulated.

In Intestate Estate of Alexander T. Ty v. Court of Appeals,[28] we held that:

The question raised in the complaints is whether or not there was indeed a sale in the absence of cause or
consideration. The proper forum for such a dispute is a regular trial court. The Court agrees with the ruling of
the Court of Appeals that no special corporate skill is necessary in resolving the issue of the validity of the
transfer of shares from one stockholder to another of the same corporation. Both actions, although involving
different property, sought to declare the nullity of the transfers of said property to the decedent on the ground
that they were not supported by any cause or consideration, and thus, are considered void ab initio for being
absolutely simulated or fictitious. The determination whether a contract is simulated or not is an issue that
could be resolved by applying pertinent provisions of the Civil Code, particularly those relative to obligations
and contracts. Disputes concerning the application of the Civil Code are properly cognizable by courts of
general jurisdiction. No special skill is necessary that would require the technical expertise of the SEC.
(Emphasis supplied)

Thus, when the controversy involves matters purely civil in character, it is beyond the ambit of the limited
jurisdiction of the SEC. As held in Viray v. Court of Appeals,[29] the better policy in determining which body
has jurisdiction over a case would be to consider not only the status or relationship of the parties, but also the
nature of the question that is the subject of their controversy. This, however, is now moot and academic due
to the passage of Republic Act No. 8799 or The Securities Regulation Code which took effect on August 8,
2000. The Act transferred from the SEC to the regional trial court jurisdiction over cases involving intra-
corporate disputes. Thus, whether or not the issue is intra-corporate, it is now the regional trial court and no
longer the SEC that takes cognizance of the controversy.
Considering that the issue of the validity of the Deed of Trust and Assignment is civil in nature, thus, under the
competence of the regular courts, and the failure of the SEC and the Court of Appeals to make a determinative
finding as to its validity, we are constrained to refrain from ruling on whether or not Yumul can compel the
corporate secretary to register said deed. It is only after an appropriate case is filed and decision rendered
thereon by the proper forum can the issue be resolved.
WHEREFORE, the petition is PARTIALLY GRANTED. The September 26, 2001 Decision of the Court of Appeals
in CA-G.R. SP No. 61919, is AFFIRMED insofar as it declares respondent Roberto C. Yumul as a subscriber and
stockholder of one share of stock of Nautica Canning Corporation. The Decision is REVERSED and SET ASIDE
insofar as it affirms the validity of the Deed of Trust and Assignment and orders its registration in the Stock
and Transfer Book of Nautica Canning Corporation.
SO ORDERED