Red Line Transportation Co. vs. Rural Transit Co.

GR No. 41570 | Sept. 6, 1934

Facts:

 This is a petition for review of an order of the Public Service Commission 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, Rural Transit filed an application for certification of a new service between Tuguegarao and Ilagan with the
Public Company Service Commission (PSC), since the present service is not sufficient

 Rural Transit further stated that it is a holder of a certificate of public convenience to operate a passenger bus service
between Manila and Tuguegarao

 Red Line opposed said application, arguing that they already hold a certificate of public convenience for Tuguegarao and
Ilagan, and is rendering adequate service. They also argued that granting Rural Transit’s application would constitute a
ruinous competition over said route

 On Dec. 21, 1932, Public Service Commission approved Rural Transit’s application, with the condition 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."

 A motion for rehearing and reconsideration was filed by Red Line since Rural Transit has a pending application before the
Court of First Instance for voluntary dissolution of the corporation

 A motion for postponement was filed by Rural Transit as verified by M. Olsen who swears "that he was the secretary of the
Rural Transit Company, Ltd

 During the hearing before the Public Service Commission, the petition for dissolution and the CFI’s decision decreeing the
dissolution of Rural Transit were admitted without objection

 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

 However, PSC granted Rural Transit’s application for certificate of public convenience and ordered that a certificate be issued
on its name

 PSC relied on a Resolution in case No. 23217, authorizing Bachrach Motor to continue using Rural Transit’s name as its
tradename in all its applications and petitions to be filed before the PSC. Said resolution was given a retroactive effect as of
the date of filing of the application or April 30, 1930

Issue: Can the Public Service Commission authorize a corporation to assume the name of another corporation as a trade name?

Ruling: NO

 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."
 A corporation has the power "of succession by its corporate name." It is essential to its existence and 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.

In this case, the order of the commission authorizing the Bachrach Motor Co., Incorporated, to assume the name of the Rural
Transit Co., Ltd. likewise incorporated, as its trade name being void. 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.

Pison-Arceo Agricultural and

Development Corporation vs
National Labor Relations
Commission
In 1988, a labor case for illegal dismissal was filed against Jose Edmundo Pison and
Hacienda Lanutan. The labor arbiter issued a favorable for the dismissed workers. Pison
appealed and the National Labor Relations Commission (NLRC) affirmed the labor arbiter.
However, in the NLRC ruling, it ordered Pison-Arceo Agricultural and Development
Corporation (PADC) as solidarily liable together with Pison and the Hacienda, PADC being
the owner of the Hacienda and in which Pison is a majority stockholder. PADC assails the
order of the NLRC on due process grounds as it averred that it was not issued summons
hence it was not able to defend itself in court and therefore the judgment against it is void.
ISSUE: Whether or not the contention of PADC is correct.
HELD: No. The Supreme Court emphasized that in labor cases and other administrative
cases, the Rule of Civil Procedure are not strictly applied especially so in the interest of
laborers. So long as there is a substantial compliance, a party can be placed under the
jurisdiction of the labor court. In the case at bar, there is substantial compliance when
summons was served to Jose Edmundo Pison who was also the administrator of the
Hacienda. PADC is therefore adequately represented by Pison in the proceedings in the labor
tribunal. If at all, the non-inclusion of the corporate name of PADC 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.
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 NUÑEZ and DELMA NUÑEZ, 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 Nuñez 8,489.00 11,399.44 19,888.44
9. Delma Nuñez 8,489.00 9,507.94 17,996.94
In addition, the respondent-appellant and the respondent corporation are ordered to pay
attorney’s 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 petitioner’s 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 Nuñez and Delma Nuñez, 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 attorney’s
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. Nuñez 8,489.00 11,399.44 19,888.44
8. D. Nuñez 8,489.00 9,507.94 17,996.94
plus ten percent (10%) of the total award as attorney’s 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 Court’s 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 respondent’s 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 Lanutan’s administrator, Jose Edmundo Pison, who verified and
signed his/Hacienda Lanutan’s 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
employer’s representative. In view of the peculiar circumstances of this case, we rule that
Jose Pison’s 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 petitioner’s 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 complainant’s
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.

PHILIPS EXPORT VS. COURT

OF APPEALS- Corporate Trade
Name

FACTS:
Philips Export B.V. (PEBV) filed with the SEC for the cancellation of the word “Philips” the corporate
name of Standard Philips Corporation in view of its prior registration with the Bureau of Patents and
the SEC. However, Standard Philips refused to amend its Articles of Incorporation so PEBV filed
with the SEC a petition for the issuance of a Writ of Preliminary Injunction, however this was denied
ruling that it can only be done when the corporate names are identical and they have at least 2
words different. This was affirmed by the SEC en banc and the Court of Appeals thus the case at
bar.
ISSUE:
Whether or not Standard Philips can be enjoined from using Philips in its corporate name

RULING: YES
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 whole world. According to Sec. 18 of the Corporation Code, no
corporate name may be allowed if the proposed name is identical or deceptively 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.

For the prohibition to apply, 2 requisites must be present:

(1) the complainant corporation must have acquired a prior right over the use of such corporate
name and
(2) the proposed name is either identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or patently deceptive, confusing or
contrary to existing law.

With regard to the 1st requisite, PEBV adopted the name “Philips” part of its name 26 years before
Standard Philips. As regards the 2nd, the test for the existence of confusing similarity is whether the
similarity is such as to mislead a person using ordinary care and discrimination. Standard Philips
only contains one word, “Standard”, different from that of PEBV. The 2 companies’ products are also
the same, or cover the same line of products. Although PEBV primarily deals with electrical
products, it has also shipped to its subsidiaries machines and parts which fall under the classification
of “chains, rollers, belts, bearings and cutting saw”, the goods which Standard Philips also produce.
Also, among Standard Philips’ primary purposes are to buy, sell trade x x x electrical wiring devices,
electrical component, electrical supplies. Given these, there is nothing to prevent Standard Philips
from dealing in the same line of business of electrical devices. The use of “Philips” by Standard
Philips tends to show its intention to ride on the popularity and established goodwill of PEBV.

DIVISION

[ GR NO. 96161, Feb 21, 1992 ]

PHILIPS EXPORT B.V. v. CA +

DECISION
G. R. NO. 96161

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 Patent Office (presently known as the
Bureau of Patents, Trademarks and Technology Transfer). Petitioners
Philips Electrical Lamps, Inc. (Philips Electrical, for brevity) and Philips
Industrial Development, 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
Incorporation, Petitioners filed with the SEC, on 6 February 1985, a
Petition (SEC Case No. 2743), praying for the issuance of a Writ of
Preliminary Injunction, alleging, among others, that Private Respondent's
use of the word PHILIPS amounts to an infringement and clear violation of
Petitioners exclusive right to use the same considering that both parties
engage in the same business.
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 aregrossly 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 respondent's 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 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 6,
1934, 60 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 L ed
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, 63 ALR 934; Pauline vs. Portuguese Beneficial
Association, 18 RI 165, 26 A 36).
A corporation requires 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
existinglaw. Where a change in the 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 Pao. 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 19 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 chains, 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 x x x 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." (underscoring 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 x x x." (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] x x x 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 on 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. 30-40, 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 nonprofit organization
if misleading and likely to injure it in the exercise of 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.

LYCEUM OF THE PHILIPPINES

vs. CA- Doctrine of Secondary
Meaning
Doctrine of secondary meaning can be extended to corporation name but must comply with the
requirement that it has been used so long and so exclusively by one and that the said name has
come to mean that it is referred to as that corporation.

FACTS:
Petitioner is an educational institution duly registered with the SEC since Sept 1950. Before the case
at bar, Petitioner commenced a proceeding against Lyceum of Baguio with the SEC to require it to
change its corporate name and adopt a new one not similar or identical to the Petitioner. SEC
granted noting that there was substantial because of the dominant word “Lyceum”. CA and SC
affirmed. Petitioner filed similar complaint against other schools and obtain a favorable decision from
the hearing officer. On appeal, SEC En banc reversed the decision and held that the word Lyceum
have not become so identified with the petitioner and that the use thereof will cause confusion to the
general public.
ISSUE:
1. Whether or not the corporate names of the private respondents are identical with or deceptively
similar to that of the petitioner.

2. Whether or not the use by the 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 (Doctrine of Secondary meaning).

RULING: NO to both.
True enough, the corporate names of the parties carry the word “Lyceum” but confusion and
deception are precluded by the appending of geographic names. Lyceum generally refers to a
school or an institution of learning and it is natural to use this word to designate an entity which is
organized and operating as an educational institution.

Doctrine of Secondary meaning is a word of phrase originally incapable of exclusive appropriation,

might nevertheless have been used so long and so exclusively by one producer with reference to his
article that, in trade and to that branch of the purchasing public, the word or phrase has come to
mean that the article was his product.

Lyceum of the Philippines has not gained exclusive use of “Lyceum” by long passage of time. The
number alone of the private respondents suggests strongly that the use of Lyceum has not been
attended with the exclusivity essential for the applicability of the doctrine. It may be noted that one of
the respondents – Western Pangasinan Lyceum used such term 17 years before the petitioner
registered with the SEC. Moreover, there may be other schools using the name but not registered
with the SEC because they have not adopted the corporate form of organization.

DIVISION

[ GR No. 101897, Mar 05, 1993 ]

LYCEUM OF PHILIPPINES v. CA +

DECISION
G.R. No. 101897

FELICIANO, J.:
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 Lyceum 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 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 laws. When a change in the corporate
name is approved, the Commission shall issue an amended certificate of
incorporation under the amended name." (Underscoring 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 since 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:
"x x x 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 own
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.

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.
NORBERTO ASUNCION, ET AL. vs. MANUEL
DE YRIARTE

FACTS: The proposed incorporators began an action in the CFI 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 and 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 chief of the division of archives, the respondent, refused to file the articles of
incorporation, 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.
Hence, this action to obtain a writ of mandamus.

ISSUE: Whether or not the chief of the division of archives has authority, under the
Corporation Law, on being presented with articles of incorporation for registration, to
decide not only as to the sufficiency of the form of the articles, but also as to the
lawfulness of the purposes of the proposed corporation.

HELD: YES.
CORPORATION LAW; POWERS AND DUTIES OF CHIEF OF DIVISION OF
ARCHIVES, EXECUTIVE BUREAU. — The chief of the division of archives, for and on
behalf of the division, has authority under the Corporation Law (Act No. 1459) to
determine the sufficiency of the form of articles of incorporation offered for registration
with the division.
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 of the Executive Bureau
articles of incorporation duly executed and acknowledged before a notary public, . . .”
Simply because the duties of an official happen 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 for 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. The chief of the division of archives, on behalf of the division,
has also the power and duty to determine from the articles of incorporation presented
for registration the lawfulness of the purposes of the proposed corporation and whether
or not those purposes bring the proposed corporation within the purview of the law
authorizing corporations for given purposes.
MANDAMUS TO COMPEL HIM TO PERFORM DUTIES. — The duties of the chief of
the division of archives, so far as relates to the registration of articles of incorporation,
are purely ministerial and not discretional; and mandamus will lie to compel him to
perform his duties under the Corporation Law if, in violation of law, he refuse to perform
them
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, that decision is subject to
review and correction and, upon proper showing, he will be ordered to file the articles.
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.

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 achieves 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.

 FIRST DIVISION

[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 GuiaDomingo, Ofelia Gala, Raul Gala, and Rita Benson, and
their encargados VirgilioGaleon 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, 1990to
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:
I
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 QUOWITHOUT 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 Elliceand 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.
Davide, Jr., C.J., Panganiban, Carpio, and Azcuna, JJ., concur.
HYATT ELEVATORS AND ESCALATORS CORPORATION vs.
GOLDSTAR ELEVATORS, PHILS., INC.
G.R. No. 161026; October 24, 2005

Ponente: Panganiban, J.,

FACTS:

Petitioner and Respondent are both engaged in the business of

importing, installing and maintaining elevators and escalators. Hyatt
filed an unfair competition case against LG and Goldstar alleging
that it was appointed as the sole distributor of LG elevators and
escalators.

Goldstar moved to dismiss the case alleging that venue was

improperly laid as neither the Hyatt, LG or Goldstar itself resided in
Mandaluyong city where the case was originally filed. The RTC
denied the motion. The CA dismissed the case and held that Makati
was the principal place of business of both respondent and
petitioner, as stated in the latter’s Articles of Incorporation, that
place was controlling for purposes of determining the proper venue.

ISSUE:

Whether or not the “residence” of the corporation is the same one

as stated in the AOI.

HELD:

Yes. Although 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.

THIRD DIVISION

HYATT ELEVATORS AND G.R. No. 161026

ESCALATORS CORPORATION,
Petitioner, Present:
Panganiban, J.,
Chairman,
Sandoval-Gutierrez,
- versus - Corona,
Carpio Morales, and
Garcia, JJ
GOLDSTAR ELEVATORS, Promulgated:
PHILS., INC.,*
Respondent. October 24, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, J.:
 W
ell established in our jurisprudence is the rule that
the residenceof a corporation is the place where its principal
office is located, as stated in its Articles of Incorporation.

The Case

Before us is a Petition for Review[1] on Certiorari, under Rule 45 of the

Rules of Court, assailing the June 26, 2003 Decision[2] and the November 27,
2003 Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 74319.
The decretal portion of the Decision reads as follows:

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.[4]

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts

The relevant facts of the case are summarized by the CA in this wise:
 Petitioner [herein Respondent] Goldstar Elevator Philippines,
Inc. (GOLDSTAR for brevity) is a domestic corporation primarily
engaged in the business of marketing, distributing, selling, importing,
installing, and maintaining elevators and escalators, with address at
6th Floor, Jacinta II Building, 64 EDSA, Guadalupe, Makati City.

On the other hand, private respondent [herein petitioner] Hyatt

Elevators and Escalators Company (HYATT for brevity) is a domestic
corporation similarly engaged in the business of selling, installing and
maintaining/servicing elevators, escalators and parking equipment,
with address at the 6th Floor, Dao I Condominium, Salcedo St.,
Legaspi Village, Makati, as stated in its Articles of Incorporation.

On February 23, 1999, HYATT filed a Complaint for unfair trade

practices and damages under Articles 19, 20 and 21 of the Civil Code
of the Philippines against LG Industrial Systems Co. Ltd. (LGISC) and
LG International Corporation (LGIC), alleging among others, that: in
1988, it was appointed by LGIC and LGISC as the exclusive
distributor of LG elevators and escalators in the Philippines under a
Distributorship Agreement; x x x LGISC, in the latter part of 1996,
made a proposal to change the exclusive distributorship agency to
that of a joint venture partnership; while it looked forward to a healthy
and fruitful negotiation for a joint venture, however, the various
meetings it had with LGISC and LGIC, through the latters
representatives, were conducted in utmost bad faith and with
malevolent intentions; in the middle of the negotiations, in order to put
pressures upon it, LGISC and LGIC terminated the Exclusive
Distributorship Agreement; x x x [A]s a consequence, [HYATT]
suffered P120,000,000.00 as actual damages, representing loss of
earnings and business opportunities, P20,000,000.00 as damages for
its reputation and goodwill, P1,000,000.00 as and by way of
exemplary damages, and P500,000.00 as and by way of attorneys
fees.

On March 17, 1999, LGISC and LGIC filed a Motion to Dismiss

raising the following grounds: (1) lack of jurisdiction over the persons
of defendants, summons not having been served on its resident
agent; (2) improper venue; and (3) failure to state a cause of action.
The [trial] court denied the said motion in an Order dated January 7,
2000.

On March 6, 2000, LGISC and LGIC filed an Answer with

Compulsory Counterclaim ex abundante cautela. Thereafter, they
filed a Motion for Reconsideration and to Expunge Complaint which
was denied.

On December 4, 2000, HYATT filed a motion for leave of court

to amend the complaint, alleging that subsequent to the filing of the
complaint, it learned that LGISC transferred all its organization, assets
and goodwill, as a consequence of a joint venture agreement with Otis
Elevator Company of the USA, to LG Otis Elevator Company (LG
OTIS, for brevity). Thus, LGISC was to be substituted or changed to
LG OTIS, its successor-in-interest. Likewise, the motion averred that
x x x GOLDSTAR was being utilized by LG OTIS and LGIC in
perpetrating their unlawful and unjustified acts against HYATT.
Consequently, in order to afford complete relief, GOLDSTAR was to
be additionally impleaded as a party-defendant. Hence, in the
Amended Complaint, HYATT impleaded x x x GOLDSTAR as a party-
defendant, and all references to LGISC were correspondingly
replaced with LG OTIS.

On December 18, 2000, LG OTIS (LGISC) and LGIC filed their

opposition to HYATTs motion to amend the complaint. It argued that:
(1) the inclusion of GOLDSTAR as party-defendant would lead to a
change in the theory of the case since the latter took no part in the
negotiations which led to the alleged unfair trade practices subject of
the case; and (b) HYATTs move to amend the complaint at that time
was dilatory, considering that HYATT was aware of the existence of
GOLDSTAR for almost two years before it sought its inclusion as
party-defendant.

On January 8, 2001, the [trial] court admitted the Amended

Complaint. LG OTIS (LGISC) and LGIC filed a motion for
reconsideration thereto but was similarly rebuffed on October 4, 2001.

On April 12, 2002, x x x GOLDSTAR filed a Motion to Dismiss

the amended complaint, raising the following grounds: (1) the venue
was improperly laid, as neither HYATT nor defendants reside in
Mandaluyong City, where the original case was filed; and (2) failure to
state a cause of action against [respondent], since the amended
complaint fails to allege with certainty what specific ultimate acts x x x
Goldstar performed in violation of x x x Hyatts rights. In the Order
dated May 27, 2002, which is the main subject of the present petition,
the [trial] court denied the motion to dismiss, ratiocinating as follows:
 Upon perusal of the factual and legal arguments raised by the
movants-defendants, the court finds that these are
substantially the same issues posed by the then defendant LG
Industrial System Co. particularly the matter dealing [with] the
issues of improper venue, failure to state cause of action as
well as this courts lack of jurisdiction. Under the
circumstances obtaining, the court resolves to rule that the
complaint sufficiently states a cause of action and that the
venue is properly laid. It is significant to note that in the
amended complaint, the same allegations are adopted as in
the original complaint with respect to the Goldstar Philippines
to enable this court to adjudicate a complete determination or
settlement of the claim subject of the action it appearing
preliminarily as sufficiently alleged in the plaintiffs pleading
that said Goldstar Elevator Philippines Inc., is being managed
and operated by the same Korean officers of defendants LG-
OTIS Elevator Company and LG International Corporation.

On June 11, 2002, [Respondent] GOLDSTAR filed a motion for

reconsideration thereto. On June 18, 2002, without waiving the
grounds it raised in its motion to dismiss, [it] also filed an Answer Ad
Cautelam. On October 1, 2002, [its] motion for reconsideration was
denied.

From the aforesaid Order denying x x x Goldstars motion for

reconsideration, it filed the x x x petition for certiorari [before the CA]
alleging grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the [trial] court in issuing the assailed Orders
dated May 27, 2002 and October 1, 2002.[5]

Ruling of the Court of Appeals

The CA ruled that the trial court had committed palpable error
amounting to grave abuse of discretion when the latter denied respondents
Motion to Dismiss. The appellate court held that the venue was clearly
improper, because none of the litigants resided in Mandaluyong City, where
the case was filed.

According to the appellate court, since Makati was the principal place
of business of both respondent and petitioner, as stated in the latters Articles
of Incorporation, that place was controlling for purposes of determining the
proper venue. The fact that petitioner had abandoned its principal office in
Makati years prior to the filing of the original case did not affect the venue
where personal actions could be commenced and tried.

Hence, this Petition.[6]

The Issue

In its Memorandum, petitioner submits this sole issue for our

consideration:
 Whether or not the Court of Appeals, in reversing the ruling 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[.][7]

This Courts Ruling

The Petition has no merit.

Sole Issue:
Venue

The resolution of this case rests upon a proper understanding of

Section 2 of Rule 4 of the 1997 Revised Rules of Court:

Sec. 2. Venue of personal actions. All other actions may be

commenced and tried where the plaintiff or any of the principal plaintiff
resides, or where the defendant or any of the principal defendant
resides, or in the case of a non-resident defendant where he may be
found, at the election of the plaintiff.

Since both parties to this case are corporations, there is a need to clarify
the meaning of residence. The law recognizes two types of persons: (1)
natural and (2) juridical. Corporations come under the latter in accordance
with Article 44(3) of the Civil Code.[8]

Residence is the permanent home -- the place to which, whenever

absent for business or pleasure, one intends to return.[9] Residence is vital
when dealing with venue.[10] A corporation, however, has no residence in the
same sense in which this term is applied to a natural person. This is precisely
the reason why the Court in Young Auto Supply Company v. Court of
Appeals[11] ruled that 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.[12] Even before this ruling, it has already been
established that the residence of a corporation is the place where its principal
office is established.[13]

This Court has also definitively ruled that for purposes of venue, the
term residence is synonymous with domicile.[14] Correspondingly, the Civil
Code provides:

Art. 51. When the law creating or recognizing them, or any other
provision does not fix the domicile of juridical persons, the same shall
be understood to be the place where their legal representation is
established or where they exercise their principal functions.[15]
 It now becomes apparent that the residence or domicile of a juridical
person is fixed by the law creating or recognizing it. Under Section 14(3) of
the Corporation Code, the place where the principal office of the
corporation is to be located is one of the required contents of the articles of
incorporation, which shall be filed with the Securities and Exchange
Commission (SEC).

In the present case, there is no question as to the residence of

respondent. What needs to be examined is that of petitioner.
Admittedly,[16] 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 articles of incorporation becomes controlling in determining the
venue for this case.

Petitioner 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.[17]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.[18] This ruling is important in determining the venue of an action
by or against a corporation,[19] as in the present case.

Without merit is the argument of petitioner 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.[20]

Inconclusive are the bare allegations of petitioner that it had closed its
Makati office and relocated to Mandaluyong City, and that respondent was
well aware of those circumstances. Assuming arguendo that they transacted
business with each other in the Mandaluyong office of petitioner, 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.

Indeed, it is a legal truism that the rules on the venue of personal

actions are fixed for the convenience of the plaintiffs and their witnesses.
Equally settled, however, is the principle that choosing the venue of an
action is not left to a plaintiffs caprice; the matter is regulated by the Rules
of Court.[21] Allowing petitioners arguments may lead precisely to what this
Court was trying to avoid in Young Auto Supply Company v. CA:[22] the creation
of confusion and untold inconveniences to party litigants. Thus enunciated
the CA:

x x x. To insist that the proper venue is the actual principal office

and not that stated in its Articles of Incorporation would indeed create
confusion and work untold inconvenience. Enterprising litigants may,
out of some ulterior motives, easily circumvent the rules on venue by
the simple expedient of closing old offices and opening new ones in
another place that they may find well to suit their needs.[23]

We find it necessary to remind party litigants, especially corporations,

as follows:

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 plaintiffs 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.[24]
 WHEREFORE, the Petition is hereby DENIED, and the assailed
Decision and Resolution AFFIRMED. Costs against petitioner.

SO ORDERED.

ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division

W E C O N C U R:

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Associate Justice

CONCHITA CARPIO MORALES CANCIO C. GARCIA

Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.
 ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairmans Attestation, it is hereby certified that the conclusions in the above
Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Courts Division.

HILARIO G. DAVIDE, JR.

Chief Justice

John Sy vs Tyson Enterprises, Inc.

.

In 1979, Tyson Enterprises, Inc. filed a collection suit against Universal Parts Supply
Corporation and its president John Sy. The suit was filed in Pasig, Rizal. John Sy filed a
motion to file for a bill of particulars which was denied. Subsequently, Sy filed a motion to
dismiss on the ground of improper venue. Sy alleged that Tyson Enterprises should have filed
the case either in Bacolod City (business address of Universal Parts) or in Manila (business
address of Tyson Enterprises). Sy alleged that it is improper for Tyson Enterprises to file the
case in Pasig even if it is the residence of Tyson’s president and general manager, Dominador
Ti.
The trial court as well as the Court of Appeals denied Sy’s motion on the ground that he
waived the defense of improper venue when he filed his motion to file for a bill of particulars;
that the prior motion placed Sy under the jurisdiction of the trial court.
ISSUE: Whether or not a plaintiff-corporation may file a civil case not in its business address
nor the business address/residence of the defendant but in the place of residence of its
incorporators/officers.
HELD: No. A corporation has a separate and distinct personality from its incorporators. Its
place of business is its residence and not the residence of its president or any other officer.
Hence, venue is improperly laid in this case. The trial court of Pasig has no jurisdiction.
Anent the issue that there was a waiver, as a rule, the defense of improper venue is waived
if it is not alleged in a motion to dismiss. In the case at bar, Sy was able to file his motion to
dismiss in a timely manner. It is of no moment that there was a prior motion for a bill of
particulars that was filed. There is nothing in the rule that states that no other motion should
have been filed prior to filing a motion to dismiss before a motion to dismiss grounded on
improper venue may be allowed.

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.

Young Auto Supply vs CA Case Digest

Young Auto Supply vs. Court of Appeals
[GR 104175, 25 June 1993]

Facts: On 28 October 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 George C. Roxas. The purchase price was P8,000,000.00
payable as follows: a down payment of P4,000,000.00 and the balance of P4,000,000.00 in four
postdated 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.

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 10 June 1988, YASCO and Garcia filed a complaint
against Roxas in the Regional Trial Court, Branch 11, Cebu City, praying that Roxas be ordered to
pay them the sum of P3,400,000.00 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. Failing to submit his answer, and on 19 August 1988, the
trial court declared Roxas in default. The order of default was, however, lifted upon motion of Roxas.
On 22 August 1988, Roxas filed a motion to dismiss. After a hearing, wherein testimonial and
documentary evidence were presented by both parties, the trial court in an Order dated 8 February
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 10 April 1991 for being pro-forma. 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 3 May 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not
accompanied with the required affidavit of 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 dismissal of the
complaint on the ground of improper venue. A subsequent motion for reconsideration by YASCO was
to no avail. YASCO and Garcia filed the petition.

Issue: Whether the venue for the case against YASCO and Garcia in Cebu City was improperly laid.

Held: 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. 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." The purpose
of this requirement is to fix the residence of a corporation in a definite place, instead of allowing it to
be ambulatory. 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. 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. The decision of the Court of Appeals was set aside.

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

Benguet Consolidated Mining Co.

vs Mariano Pineda
Benguet Consolidated Mining Company was organized in 1903 under the Spanish Code of
Commerce of 1886 as a sociedad anonima. It was agreed by the incorporators that Benguet
Mining was to exist for 50 years.
In 1906, Act 1459 (Corporation Law) was enacted which superseded the Code of Commerce
of 1886. Act 1459 essentially introduced the American concept of a corporation. The purpose
of the law, among others, is to eradicate the Spanish Code and make sociedades anonimas
obsolete.
In 1953, the board of directors of Benguet Mining submitted to the Securities and Exchange
Commission an application for them to be allowed to extend the life span of Benguet Mining.
Then Commissioner Mariano Pineda denied the application as it ruled that the extension
requested is contrary to Section 18 of the Corporation Law of 1906 which provides that the
life of a corporation shall not be extended by amendment beyond the time fixed in their original
articles.
Benguet Mining contends that they have a vested right under the Code of Commerce of 1886
because they were organized under said law; that under said law, Benguet Mining is allowed
to extend its life by simply amending its articles of incorporation; that the prohibition in Section
18 of the Corporation Code of 1906 does not apply to sociedades anonimas already existing
prior to the Law’s enactment; that even assuming that the prohibition applies to Benguet
Mining, it should be allowed to be reorganized as a corporation under the said Corporation
Law.
ISSUE: Whether or not Benguet Mining is correct.
HELD: No. Benguet Mining has no vested right to extend its life. 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. Had Benguet Mining agreed to extend its life prior to the passage
of the Corporation Code of 1906 such right would have vested. But when the law was passed
in 1906, Benguet Mining was already deprived of such right.
To allow Benguet Mining to extend its life will be inimical to the purpose of the law which
sought to render obsolete sociedades anonimas. If this is allowed, Benguet Mining will unfairly
do something which new corporations organized under the new Corporation Law can’t do –
that is, exist beyond 50 years. Plus, it would have reaped the benefits of being a sociedad
anonima and later on of being a corporation. Further, under the Corporation Code of 1906,
existing sociedades anonimas during the enactment of the law must choose whether to
continue as such or be organized as a corporation under the new law. Once a sociedad
anonima chooses one of these, it is already proscribed from choosing the other. Evidently,
Benguet Mining chose to exist as a sociedad anonima hence it can no longer elect to become
a corporation when its life is near its end.

SECOND DIVISION
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:
“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; and 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: . . . 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:
“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; 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.”
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 Company’s 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; and
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; and 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: (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; and (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:
(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); and
(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:
(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:
“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; and 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; it 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;
wherefore its prolongation or cessation is a matter directly involving the company’s 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:
“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 compañias 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; porque 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 compañia, 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 compañia, se recobra
despues de realizada, mas o menos cumplidamente, la finalidad comun perseguida; y a los
terceros, porque les advierte el momento en que, extinguida la compañia, 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 señalar”. (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; and,
particularly, that it be not abused in fraud and to the detriment of other parties; and 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 Webster’s International Dictionary as:
“The executive structure of a business; the personnel of management, with its several duties
and places in administration; the various persons who conduct a business, considered as a
unit.”
The legal definitions of the term “organization” are concordant with that given above:
“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; Topeka Bridge Co. vs.
Cummings, 3 Kan. 55, 77; Hunt vs. Kansas & M. Bridge Co., 11 Kan. 412, 439; Aspen Water
& Light Co., vs. City of Aspen, 37 P. 728, 730, 6 Colo. App. 12; Nemaha 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 petitioner’s relations to the public, and that it bears none to the
petitioner’s 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 “compañias 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 compañias 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; and 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 compañias 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, Benguet’s existence was well within
the 50 years period set in its articles of association; and 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; a 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 Benguet’s existence beyond the original 50 years; or 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:
“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:
“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 Benguet’s 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 Benguet’s 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; Mondou vs. New York N. H. & H. R. Co., 56 L. Ed. 327; Rainey vs. U. S.,
58 L. Ed. 617; Lilly Co. vs. Saunders, 125 ALR. 1308; Shea 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; also, 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; and 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 Compañia 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 can not give validity to an act that is prohibited
by law or is against public policy (Eugenio vs. Perdido, (97 Phil., 41, May 19, 1955; 19 Am.
Jur. 802); so 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; and 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; but
the latter refused to accept them as belatedly made.
The petitioner’s 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; it 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 Commissioner’s 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; and 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): 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; in Benguet’s case, 50 years as sociedad anonima, and another 50 years
as an American type of corporation under Act 1459; a 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 Benguet’s operating contract and appropriate the profits that
are the result of Benguet’s 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 Benguet’s activities. If its mining properties are really susceptible of
profitable operation, inexorable economic laws will ensure their exploitation; if, 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:
(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.

Alhambra Cigar & Cigarette

Manufacturing Company, Inc. vs
Securities and Exchange
Commission
On January 15, 1912, Alhambra Cigar & Cigarette Manufacturing Company, Inc. was
incorporated. Its lifespan was for 50 years so on January 15, 1962, it expired. Thereafter, its
Board authorized its liquidation. Under the prevailing law, Alhambra has 3 years to liquidate.
In 1963, while Alhambra was liquidating, Republic Act 3531 was enacted. 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.
Alhambra now amended its articles of incorporation to extend its lifespan for another 50 years.
The Securities and Exchange Commission (SEC) denied the amended articles of
incorporation.
ISSUE: Whether or not a corporation under liquidation may still amend its articles of
incorporation to extend its lifespan.
HELD: No. Alhambra cannot avail of the new law because it has already expired at the time
of its passage. When a corporation is liquidating pursuant to the statutory period of three
years to liquidate, it is only allowed to continue for the purpose of final closure of its business
and no other purposes. In fact, within that period, the corporation is enjoined from “continuing
the business for which it was established”. Hence, Alhambra’s board cannot validly amend
its articles of incorporation to extend its lifespan.

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.

DECISION
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:
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 extension 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, Petitioner, v. MIGUEL LIM et al., Respondents.

VILLARAMA, JR., J.:

FACTS:
Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing.Reeling
from severe liquidity problems beginning in 1980, RUBY filed onDecember 13, 1983a 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.

OnAugust 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).

Both plans were endorsed by the SEC to the MANCOM for evaluation.

OnApril 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, 1991the 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.

ISSUE: Whether the minoritys pre-emptive rights were violated

HELD: Yes.

COMMERCIAL LAW: Corporation Law, Pre-emptive right

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.

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. 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 thegive-
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" (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.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
RUBY's 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 RUBY's
corporate existence.

DENIED.

THIRD DIVISION
MAJORITY STOCKHOLDERS OF RUBY G.R. No. 165887
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.

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

CHINA BANKING CORPORATION, G.R. No. 165929

Petitioner,
Present:

CARPIO MORALES, J.,

- versus - Chairperson,
BRION,
 BERSAMIN,
ABAD, and
MIGUEL LIM, in his personal capacity VILLARAMA, JR., JJ.
as a stockholder of Ruby Industrial
Corporation and representing the
MINORITY STOCKHOLDERS OF RUBY Promulgated:
INDUSTRIAL CORPORATION,
Respondents. 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 Bancan 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
[24]
manifestation/comment 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, 1991meeting
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 Recoveryauthorizes 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 1stquarter 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 P17.022M To be paid in cash with

12% interest p.a.
China Banking Corp.

BPI

Philippine Orient

Unsecured Creditors Allied P 9.347M To be paid in cash

Leasing interest-f[r]ee

Filcor Finance

Benhar

For having paid P34.068M To be paid in cash

Ruby obligations with interest charge

to 7 creditors

Trade/Other P2.871M Totalling P8.614M to

be paid in 3- year
Creditors (p.a. for 3 years)
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 1. The original creditors

be paid P34.068M out are the ones
of P60.437 M total amount recognized. The
due to creditors but not amount payable is
explained as to how arrived lower because
at. interests are not
capitalized.

2. Benhar will not assign the credit 2. Direct credit of P80M

facility of P80M unless loan and willbe
the P34.068M above stated is borrowed from the
paid. bank(s) like Allied,
UCPB, Metrobank or
Equitable Bank or
even China Bank.

3. The main assets are to 3. Mortgaged

bemortgaged to the to bank(s) directly.
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 creditorand/or
mortgagee.

4. Start up cost P16,880 and based 4. Plant B = P25,640

on 1988 figures and
projections. 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- 6. None
lender/financier.

7. Because of the SEC Order he got 7. Pilipinas Shell

an MC seat and and the representative be
Pilipinas Shell representative retained.
of trade creditors was
retained.

8. Credit facility is being assigned or 8. Credit facility directly to

re-lent by Benhar. Ruby.

9. Authorized Benhar to mortgage 9. None going to the

assets of Ruby itself. Only minority but to actual
remaining unencumbered lenders.
asset is one (1) real
property.Two (2) prime
properties already
encumbered to Assignor of
Benhar.

10. Capacity of only one (1) plant 10. Capacity of two (2)
stated at 72% (overrated) plants progressive to
75% or 80% with
purchase of new
machines.

11. Projection figures based on 11. Minority RP can be

May, 1990 forex exchange updated at current
rate. Cost of importation and foreign exchange rate.
other local supplier currently
cannot be met.

12. Market and economic slow 12. Taken into

down not taken into consideration so will
consideration. upgrade to meet
competition.
 13. Discriminatory to creditors 13. Not discriminatory.
Benhar-capitalized with
undisclosed rates of interest.

14. Original Figures of illegally 14. Original figures will be

assigned loans from FEBTC, usedoriginal figures
PCIB, PTC which totaled plans 12% interest
to P11,419,036.87 but now only.
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.

15. Interest is 28% with Benhar as 15. Interest is 25% payable

conduit. to the bank. This is
still subject to current
market rates to be
negotiated by the
minority.

16. Call on unissued shares 15. Additional subscription

for P11.814 M and if minority of P16M within 6
will take up their pre-emptive months by the
rights and dilute minority minority stockholders.
shareholdings.

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
itsassets. 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 anyassignment 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
theRegional 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 2000Omnibus
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.

MARTIN S. VILLARAMA, JR.

Associate Justice

WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice
Chairperson

ARTURO D. BRION LUCAS P. BERSAMIN

Associate Justice Associate Justice

ROBERTO A. ABAD
Associate Justice
 ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONCHITA CARPIO MORALES

Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the 1987 Constitution and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

RENATO C. CORONA
Chief Justice


Designated additional member per Special Order No. 997 dated June 6, 2011.
[1]
G.R. Nos. 124185-87, January 20, 1998, 284 SCRA 445.
[2]
CA rollo, pp. 95-111. Decision dated April 27, 1989, penned by Associate Justice Cecilio L. Pe and concurred in
by Associate Justices Vicente V. Mendoza (now a retired Member of this Court) and Pedro A. Ramirez.
[3]
Id. at 117-124. Penned by Associate Justice Jose C. Campos, Jr. and concurred in by Associate Justices Oscar M.
Herrera and Artemon D. Luna.
[4]
Id. at 125.
[5]
Id. at 243-267. Penned by Associate Justice Consuelo Ynares-Santiago (now a retired Member of this Court) and
concurred in by Associate Justices Antonio M. Martinez and Ruben T. Reyes.
[6]
Id. at 269-287.
[7]
Supra note 1.
[8]
Id. at 455-460.
[9]
Id. at 461-462.
[10]
SEC records (Vol. 10), p. 3488.
[11]
Id. at 3533-3535.
[12]
Id. at 3545-3549.
[13]
CA rollo, p. 345.
[14]
Id. at 337-344.
[15]
Id. at 346-355.
[16]
Rollo (G.R. No. 165929), pp. 1340-1345.
[17]
CA rollo, pp. 127-136.
[18]
Rollo (G.R. No. 165929), pp. 1342-1343.
[19]
Id. at 1342.
[20]
SEC records (Vol. 11), pp. 3586-3587.
[21]
Id. at 3585.
[22]
Id. at 3589-3598.
[23]
Id. at 3550-3575.
[24]
Id. at 3622-3625.
[25]
Id. at 3576-3580.
[26]
Id. at 3611-3618.
[27]
Id. at 3626-3629.
[28]
Id. at 3640-3665.
[29]
Id. at 3687-3695.
[30]
Id. at 3701-3702, 3706.
[31]
Id. at 3697-3700.
[32]
Id. at 3829-3834.
[33]
Id. at 3838-3842.
[34]
Id. at 3745-3763.
[35]
Supra note 33.
[36]
Id. at 3843-3848.
[37]
Id. at 3849-3868.
[38]
Id. at 3870-3871.
[39]
Id. at 3872-3919.
[40]
Id. at 3927.
[41]
SEC records (Vol. 12), pp. 4308-4318.
[42]
Rollo (G.R. No. 165929), pp. 83-89.
[43]
Id. at 88-89.
[44]
Id. at 87-88.
[45]
Id. at 38-67.
[46]
Id. at 65-66.
[47]
G.R. Nos. 80908 & 80909, May 24, 1989, 173 SCRA 550, cited in Ruby Industrial Corporation v. Court of
Appeals, supra note 1, at 462-463.
[48]
Rollo (G.R. No. 165887), p. 11.
[49]
Supra note 1, at 462-463.
[50]
Rollo (G.R. No. 165887), pp. 719-721.
[51]
Chua v. Court of Appeals, G.R. No. 150793, November 19, 2004, 443 SCRA 259, 267.
[52]
Western Institute of Technology, Inc. v. Salas, G.R. No. 113032, August 21, 1997, 278 SCRA 216, 225.
[53]
R.N. Symaco Trading Corporation v. Santos, G.R. No. 142474, August 18, 2005, 467 SCRA 312, 329.
[54]
Jose Campos, Jr. & Maria Clara L. Campos, THE CORPORATION CODE: COMMENTS, NOTES AND
SELECTED CASES, Vol. I (1990 ed.), p. 820, citing Gamboa v. Victoriano, No. L-40620, May 5, 1979, 90
SCRA 40, 47.
[55]
Approved on December 21, 1999.
[56]
Rollo (G.R. No. 165887), p. 61.
[57]
SEC records (Vol. 12), pp. 4079-4080.
[58]
Id. at 4288-4289.
[59]
CORPORATION CODE, Sec. 36, par. 6.
[60]
Dee v. Securities and Exchange Commission, G.R. Nos. 60502 and 63922, July 16, 1991, 199 SCRA
238, 252.
[61]
CA rollo, pp. 263-266.
[62]
SEC records (Vol. 9), pp. 2955-2965, 2842-2850, 2976-2985, 3058-3065.
[63]
SEC records (Vol. 7), p. 2156.
[64]
SEC records (Vol. 13), pp. 4403, 4408 and 4443.
[65]
Jose Campos, Jr. & Maria Clara L. Campos, THE CORPORATION CODE: COMMENTS, NOTES AND
SELECTED CASES, Vol. II (1990 ed.), p. 58.
[66]
Id. at 62-63.
[67]
CA rollo, p. 266.
[68]
CORPORATION CODE, Sec. 37.
[69]
China Banking Corporation and Kahn v. M. Michelin & Cie, 58 Phil. 261, 268 (1933).
[70]
Supra note 65, at 415.
[71]
See Villanueva, PHILIPPINE CORPORATE LAW (2010 ed.), p. 841, citing Sec. 11, Corporation
Code; Philippine National Bank v. CFI of Rizal, Pasig, Br. XXI, G.R. No. 63201, May 27, 1992, 209 SCRA 294.
[72]
Sec. 1-2, Rules of Procedure on Corporate Recovery.
[73]
Rollo (G.R. No. 165887), p. 744.
[74]
Supra note 1, at 455, citing Alejandro v. Court of Appeals, G.R. Nos. 84572-73, November 27, 1990, 191 SCRA
700, 709-710; Pajo, etc., et al. v. Ago and Ortiz, etc., 108 Phil. 905, 915-916 (1960) and No. L-32255, January
30, 1973, 49 SCRA 212, 220.
[75]
Union Bank of the Philippines v. ASB Development Corporation, G.R. No. 172895, July 30, 2008, 560 SCRA 578,
600, citing People v. Pinuila, et al., 103 Phil. 992, 999 (1958).
[76]
Rollo (G.R. No. 165887), p. 62.
[77]
G.R. No. 160727, June 26, 2007, 525 SCRA 672, 682-683.
[78]
SEC. 5. In addition to the regulatory and adjudicative functions of the [SEC] over corporations under existing
laws decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:

xxxx
d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments
in cases where [it] possesses sufficient property to cover all its debts but foresees the impossibility of
meeting them when they respectively fall due or in cases where [it] has no sufficient assets to cover its
liabilities, but is under the management of a Rehabilitation Receiver or Management Committee created
pursuant to this Decree.
[79]
G.R. No. 152580, June 26, 2008, 555 SCRA 465.
[80]
Id. at 473-474.
[81]
Lapsed into law on July 18, 2010 without the signature of the President, in accordance with Article VI, Section 27
(1) of the Constitution.

SECOND DIVISION
 MARC II MARKETING, INC. and LUCILA G.R. No. 171993
V. JOSON,
Present:
Petitioners,
CARPIO, J.,
Chairperson,
BRION,
PEREZ,
SERENO, and
- versus - REYES, JJ.

Promulgated:

ALFREDO M. JOSON, December 12, 2011

Respondent.

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 Certiorariwith 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:

I.
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.
 II.

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].

III.

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].

IV.

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 inMatling 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 1994until 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 fidein character; and (c) payment to the
employees of termination payamounting 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.

JOSE PORTUGAL PEREZ

Associate Justice

WE CONCUR:
 ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION MARIA LOURDES P. A. SERENO

Associate Justice Associate Justice

BIENVENIDO L. REYES
Associate Justice
 ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons
Attestation, I certify that the conclusions in the above Decision had been reached
in consultation before the case was assigned to the writer of the opinion of the
Courts Division.
 RENATO C. CORONA
Chief Justice

[1]
Penned by Associate Justice Salvador J. Valdez, Jr. with Associate Justices Mariano C. Del Castillo (now a member
of this Court) and Magdangal M. De Leon, concurring. Rollo, pp. 34-52.
[2]
Penned by Commissioner Victoriano R. Calaycay with Presiding Commissioner Raul T. Aquino and Commissioner
Angelita A. Gacutan, concurring. Id. at 124-133.
[3]
Penned by Labor Arbiter Pablo C. Espiritu, Jr. Id. at 81-88.
[4]
Penned by Associate Justice Magdangal M. De Leon with Associate Justices Edgardo P. Cruz and Mariano C. Del
Castillo (now a Member of this Court), concurring. Id. at 54-55.
[5]
Articles of Incorporation of Marc II Marketing, Inc. Id. at 59.
[6]
As evidenced by its Certificate of Incorporation bearing S.E.C. Reg. No. AS094-007318. Id.at 58.
[7]
Id. at 56-57.
[8]
It was incorporated on 24 July 1984 as evidenced by its Certificate of Incorporation bearing S.E.C. Reg. No.
121722. CA rollo, p. 228.
[9]
Per Management Contract dated 16 January 1994. Rollo, pp. 56-57.
[10]
CA rollo, p. 239.
[11]
Id. at 235-242.
[12]
Id. at 183.
[13]
Id. at 177-190.
[14]
Per Secretarys Certificate. Rollo, p. 69.
[15]
Id.
[16]
Id. at 70.
[17]
NLRC Resolution dated 15 October 2002. CA rollo, p. 20.
[18]
Court of Appeals Decision dated 20 June 2005. Rollo, p. 39.
[19]
This is pursuant to Section 5.2 of Republic Act No. 8799, known as Securities Regulation Code, which was signed
into law on 19 July 2000. It expressly provides that: The Commissions jurisdiction over all cases enumerated
under section 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 the 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 payment/rehabilitation cases filed as of 30
June 2000 until finally disposed. [Emphasis supplied.]
[20]
Penned by Labor Arbiter Pablo C. Espiritu, Jr. CA rollo, pp. 191-192.
[21]
Id. at 193-194.
[22]
Labor Arbiters Decision dated 1 October 2001. Rollo, pp. 87-88.
[23]
Id. at 132.
[24]
NLRC Resolution dated 15 October 2002. CA rollo, pp. 23-24.
[25]
Penned by Presiding Commissioner Victoriano R. Calaycay with Presiding Commissioner Raul T. Aquino and
Commissioner Angelita A. Gacutan, concurring. Id. at 27-28.
[26]
Rollo, pp. 51-52.
[27]
Per Court of Appeals Resolution dated 7 March 2006. Id. at 54-55.
[28]
Petition for Review. Id. at 10-11.
[29]
Article 217. Jurisdiction of the Labor Arbiters and the Commission. (a) Except as otherwise provided under this
Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty
(30) calendar days after the submission of the case by the parties for decision without extension, even in the
absence of stenographic notes, the following cases involving all workers, whether agricultural or non-
agricultural:
1. x x x.
2. Termination disputes; [Emphasis supplied.]
[30]
Easycall Communications Phils., Inc. v. King, 514 Phil. 296, 302 (2005).
[31]
Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations registered with it as expressly granted under
existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:
(a) Devices or schemes employed by or any acts, of the board of directors, business associates, its
officers or partnership, amounting to fraud and misrepresentation which may be detrimental to the
interest of the public and/or of the stockholder, partners, members of associations or organizations
registered with the Commission;
(b) 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; and
(c) Controversies in the election or appointments of directors, trustees, officers or managers of such
corporations, partnerships or associations.
[32]
Matling Industrial and Commercial Corporation v. Coros, G.R. No. 157802, 13 October 2010, 633 SCRA 12, 21-
22.
[33]
Nacpil v. International Broadcasting Corporation, 429 Phil. 410, 416 (2002); Union Motors Corporation v. The
National Labor Relations Commission, 373 Phil. 310, 319 (1999).
[34]
Sec. 25. Corporate officers, quorum. - Immediately after their election, the directors of a corporation must
formally organize by the election of a president, who shall be a director, a treasurer who may or may not be
a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may
be provided for in the by-laws. Any two (2) or more positions may be held concurrently by the same person,
except that no one shall act as president and secretary or as president and treasurer at the same time.
The directors or trustees and officers to be elected shall perform the duties enjoined on them by law
and the by-laws of the corporation. Unless the articles of incorporation or the by-laws provide for a greater
majority, a majority of the number of directors or trustees as fixed in the articles of incorporation shall
constitute a quorum for the transaction of corporate business, and every decision of at least a majority of the
directors or trustees present at a meeting at which there is a quorum shall be valid as a corporate act, except
for the election of officers which shall require the vote of a majority of all the members of the board.
Directors or trustees cannot attend or vote by proxy at board meetings.
[35]
Easycall Communications Phils., Inc. v. King, supra note 30 at 302.
[36]
Matling Industrial and Commercial Corporation v. Coros, supra note 32 at 26-27.
[37]
ARTICLE IV
OFFICERS

Section 1. Election/Appointment Immediately after their election, the Board of Directors shall formally organize by
electing the Chairman, the President, one or more Vice-President, the Treasurer, and the Secretary, at said
meeting.
The Board may, from time to time, appoint such other officers as it may determine to be necessary or proper.
Any two (2) or more positions may be held concurrently by the same person, except that no one shall act as President
and Treasurer or Secretary at the same time.
[38]
CA rollo, pp. 183-186.
[39]
Id.
[40]
Matling Industrial and Commercial Corporation v. Coros, supra note 32 at 27.
[41]
Id. at 27.
[42]
Id.
[43]
Rollo, pp. 48-49.
[44]
Nacpil v. International Broadcasting Corporation, supra note 33 at 416; Union Motors Corporation v. The
National Labor Relations Commission, supra note 33 at 319.
[45]
Real v. Sangu Philippines, Inc. and/or Kiichi Abe, G.R. No. 168757, 19 January 2011.
[46]
Eastern Overseas Employment Center, Inc. v. Bea, 512 Phil. 749, 759 (2005).
[47]
Industrial Timber Corporation v. Ababon, 515 Phil. 805, 819 (2006).
[48]
Id. at 818.
[49]
Id. at 819. See also Alabang Country Club, Inc. v. National Labor Relations Commission, 503 Phil. 937, 952-953
(2005).
[50]
G.R. No. 117473, 15 April 1997, 271 SCRA 247.
[51]
Id. at 254.
[52]
G.R. No. 165381, 9 February 2011.
[53]
Id.
[54]
Shimizu Phils. Contractors, Inc. v. Callanta, G.R. No. 165923, 29 September 2010, 631 SCRA 529, 542-543.
[55]
Culili v. Eastern Telecommunications Philippines, Inc., supra note 53.
[56]
494 Phil. 114, 122-123 (2005).
[57]
Reahs Corporation v. National Labor Relations Commission, supra note 51 at 255.
 FIRST DIVISION

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

[7]
letter 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.

CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:
 HILARIO G. DAVIDE, JR.
Chief Justice

LEONARDO A. QUISUMBING ANTONIO T. CARPIO

Associate Justice Associate Justice

ADOLFO S. AZCUNA
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
HILARIO G. DAVIDE, JR.
Chief Justice

[1]
Rollo, pp. 9-29. Penned by Associate Justice Salvador J. Valdez, Jr. and concurred in by Associate Justices
Wenceslao I. Agnir, Jr. and Mariano C. Del Castillo.
[2]
Id. at 30-31.
[3]
CA Rollo, pp. 80-81.
[4]
Id. at 249.
[5]
Id. at 272-275.
[6]
Id. at 127-128.
[7]
Id. at 239.
[8]
Id. at 126.
[9]
Id. at 129.
[10]
Id. at 59-73.
[11]
Id. at 53-58.
[12]
Id. at 57.
[13]
Mercado v. Court of Appeals, G.R. No. 150241, November 4, 2004, 441 SCRA 463, 469.
[14]
Villaneuva, Philippine Corporate Law, 1998, pp. 166-167.
[15]
Ponce v. Alsons Cement Corporation, 442 Phil. 98, 109-110 (2002).
[16]
CA Rollo, p. 56.
[17]
Supra.
[18]
Lanuza v. Court of Appeals, G.R. No. 131394, March 28, 2005.
[19]
Rollo, p. 25.
[20]
Quiambao v. Court of Appeals, G.R. No. 128305, March 28, 2005.
[21]
CA Rollo, p. 254.
[22]
Rollo, p. 15.
[23]
Section 25, BP Blg. 68.
[24]
CA Rollo, p. 56.
[25]
Id. at 138.
[26]
Id. at 57.
[27]
Rollo, p. 27.
[28]
G.R. Nos. 112872 & 114672, April 19, 2001, 356 SCRA 661, 667-668.
[29]
G.R. No. 92481, November 9, 1990, 191 SCRA 308, 323.