RED LINE TRANSPORTATION CO.
, petitioner-appellant, party in interest making the application, whether the Rural
vs.
RURAL TRANSIT CO., LTD., respondent-appellee.
G.R. No. 41570 September 6, 1934
This case is before us on a petition for review of an order
of the Public Service Commission entered December 21,
1932, granting to the Rural Transit Company, Ltd., a
certificate of public convenience to operate a
transportation service between Ilagan in the Province of
Isabela and Tuguegarao in the Province of Cagayan, and
additional trips in its existing express service between
Manila Tuguegarao.
On June 4, 1932, the Rural Transit Company, Ltd., a
Philippine corporation, filed with the Public Company
Service Commission an application in which it is stated in
substance that it is the holder of a certificate or public
convenience to operate a passenger bus service between
Manila and Tuguegarao; that it is the only operator of
direct service between said points and the present
authorized schedule of only one trip daily is not sufficient;
that it will be also to the public convenience to grant the
applicant a certificate for a new service between
Tuguegarao and Ilagan.
On July 22, 1932, the appellant, Red Line Transportation
Company, filed an opposition to the said application
alleging in substance that as to the service between
Tuguegarao and Ilagan, the oppositor already holds a
certificate of public convenience and is rendering
adequate and satisfactory service; that the granting of the
application of the Rural Transit Company, Ltd., would not
serve public convenience but would constitute a ruinous
competition for the oppositor over said route.
After testimony was taken, the commission, on December
21, 1932, approved the application of the Rural Transit
Company, Ltd., and ordered that the certificate of public
convenience applied for be "issued to the applicant Rural
Transit Company, Ltd.," with the condition, among others,
that "all the other terms and conditions of the various
certificates of public convenience of the herein applicant
and herein incorporated are made a part hereof."
On January 14, 1933, the oppositor Red Line
Transportation Company filed a motion for rehearing and
reconsideration in which it called the commission's
attention to the fact that there was pending in the Court of
First Instance of Manila case N. 42343, an application for
the voluntary dissolution of the corporation, Rural Transit
Company, Ltd. Said motion for reconsideration was set
down for hearing on March 24, 1933. On March 23, 1933,
the Rural Transit Company, Ltd., the applicant, filed a
motion for postponement. This motion was verified by M.
Olsen who swears "that he was the secretary of the Rural
Transit Company, Ltd., in the above entitled case." Upon
the hearing of the motion for reconsideration, the
commission admitted without objection the following
documents filed in said case No. 42343 in the Court of
First Instance of Manila for the dissolution of the Rural
Transit Company, Ltd. the petition for dissolution dated
July 6, 1932, the decision of the said Court of First
Instance of Manila, dated February 28, 1933, decreeing
the dissolution of the Rural Transit Company, Ltd.
At the trial of this case before the Public Service
Commission an issue was raised as to who was the real
Transit Company, Ltd., as appeared on the face of the
application, or the Bachrach Motor Company, Inc., using
name of the Rural Transit Company, Ltd., as a trade
name. The evidence given by the applicant's secretary,
Olsen, is certainly very dubious and confusing, as may be
seen from the following:
Q. Will you please answer the question whether it is the
Bachrach Motor Company operating under the trade name of
the Rural Transit Company, Limited, or whether it is the Rural
Transit Company, Limited in its own name this application was
filed?
A. The Bachrach Motor Company is the principal
stockholder.
Q. Please answer the question.
ESPELETA. Objecion porque la pregunta ya ha sido
contestada
JUEZ. Puede contestar.
A. I do not know what the legal construction or
relationship existing between the two.
JUDGE. I do not know what is in your mind by not telling the
real applicant in this case?
A. It is the Rural Transit Company, Ltd.
JUDGE. As an entity by itself and not by the Bachrach Motor
Company?
A. I do not know. I have not given that phase of the
matter much thought, as in previous occassion had not
necessitated.
JUDGE. In filing this application, you filed it for the operator on
that line? Is it not!
A. Yes, sir.
JUDGE. Who is that operator?
A. The Rural Transit Company, Ltd.
JUDGE. By itself, or as a commercial name of the Bachrach
Motor Company?
A. I cannot say.
ESPELETA. The Rural Transit Company, Ltd., is a corporation
duly established in accordance with the laws of the Philippine
Islands.
JUDGE. According to the records of this commission the
Bachrach Motor Company is the owner of the certificates and
the Rural Transit Company, Ltd., is operating without any
certificate.
JUDGE. If you filed this application for the Rural Transit
Company, Ltd., and afterwards it is found out that the Rural
Transit Company, Ltd., is not an operator, everything will be
turned down.
JUDGE. My question was, when you filed this application you
evidently made it for the operator?
A. Yes, sir.
JUDGE. Who was that operator you had in mind?
A. According to the status of the ownership of the
certificates of the former Rural Transit Company, the operator
was the operator authorized in case No. 23217 to whom all of
the assets of the former Rural Transit Company were sold.
JUDGE. Bachrach Motor Company?
A. All actions have been prosecuted in the name of the
Rural Transit Company, Ltd.
JUDGE. You mean the Bachrach Motor Company, Inc., doing
business under the name of the Rural Transit Company, Ltd.?
A. Yes, sir.
LOCKWOOD. I move that this case be dismissed, your Honor,
on the ground that this application was made in the name of
one party but the real owner is another party.
ESPELETA. We object to that petition.
JUDGE. I will have that in mind when I decide the case. If I
agree with you everything would be finished.
The Bachrach Motor Company, Inc., entered no
appearance and ostensibly took no part in the hearing of
the application of the Rural Transit Company, Ltd. It may
be a matter of some surprise that the commission did not
on its own motion order the amendment of the application
by substituting the Bachrach Motor Company, Inc., as the
applicant. However, the hearing proceeded on the
application as filed and the decision of December 2, 1932,
was rendered in favor of the Rural Transit Company, Ltd.,
and the certificate ordered to be issued in its name, in the
face of the evidence that the said corporation was not the
real party in interest. In its said decision, the commission
undertook to meet the objection by referring to its
resolution of November 26, 1932, entered in another case.
This resolution in case No. 23217 concludes as follows:
Premises considered we hereby authorize the
Bachrach Motor Co., Inc., to continue using the name
of "Rural Transit Co., Ltd.," as its trade name in all the
applications, motions or other petitions to be filed in
this commission in connection with said business and
that this authority is given retroactive effect as of the
date, of filing of the application in this case, to wit,
April 29, 1930.
We know of no law that empowers the Public Service
Commission or any court in this jurisdiction to authorize
one corporation to assume the name of another
corporation as a trade name. Both the Rural Transit
Company, Ltd., and the Bachrach Motor Co., Inc., are
Philippine corporations and the very law of their creation
and continued existence requires each to adopt and certify
a distinctive name. The incorporators "constitute a body
politic and corporate under the name stated in the
certificate." (Section 11, Act No. 1459, as amended.) A
corporation has the power "of succession by its corporate
name." (Section 13, ibid.) The name of a corporation is
therefore essential to its existence. It cannot change its
name except in the manner provided by the statute. By
that name alone is it authorized to transact business. The
law gives a corporation no express or implied authority to
assume another name that is unappropriated: still less that
of another corporation, which is expressly set apart for it
and protected by the law. If any corporation could assume
at pleasure as an unregistered trade name the name of
another corporation, this practice would result in confusion
and open the door to frauds and evasions and difficulties
of administration and supervision. The policy of the law
expressed in our corporation statute and the Code of
Commerce is clearly against such a practice. (Cf.
Scarsdale Pub. Co. Colonial Press vs. Carter, 116 New
York Supplement, 731; Svenska Nat. F. i. C. vs. Swedish
Nat. Assn., 205 Illinois [Appellate Courts], 428, 434.)
The order of the commission of November 26, 1932,
authorizing the Bachrach Motor Co., Incorporated, to
assume the name of the Rural Transit Co., Ltd. likewise in
corporated, as its trade name being void, and accepting
the order of December 21, 1932, at its face as granting a
certificate of public convenience to the applicant Rural
Transit Co., Ltd., the said order last mentioned is set aside
and vacated on the ground that the Rural Transit
Company, Ltd., is not the real party in interest and its
application was fictitious.
In view of the dissolution of the Rural Transit Company,
Ltd. by judicial decree of February 28, 1933, we do not
see how we can assess costs against said respondent,
Rural Transit Company, Ltd
UNIVERSAL MILLS CORPORATION, petitioner,
vs.
UNIVERSAL TEXTILE MILLS, INC., respondent.
G.R. No. L-28351 July 28, 1977
Appeal from the order of the Securities and Exchange
Commission in S.E.C. Case No. 1079, entitled In the
Matter of the Universal Textile Mills, Inc. vs. Universal
Mills Corporation, a petition to have appellant change its
corporate name on the ground that such name is
"confusingly and deceptively similar" to that of appellee,
which petition the Commission granted.
According to the order, "the Universal Textile Mills, Inc.
was organ on December 29, 1953, as a textile
manufacturing firm for which it was issued a certificate of
registration on January 8, 1954. The Universal Mills
Corporation, on the other hand, was registered in this
Commission on October 27, 1954, under its original name,
Universal Hosiery Mills Corporation, having as its primary
purpose the "manufacture and production of hosieries and
wearing apparel of all kinds." On May 24, 1963, it filed an
amendment to its articles of incorporation changing its
name to Universal Mills Corporation, its present name, for
which this Commission issued the certificate of approval
on June 10, 1963.
The immediate cause of this present complaint, however,
was the occurrence of a fire which gutted respondent's
spinning mills in Pasig, Rizal. Petitioner alleged that as a
result of this fire and because of the similarity of
respondent's name to that of herein complainant, the news
items appearing in the various metropolitan newspapers
carrying reports on the fire created uncertainty and
confusion among its bankers, friends, stockholders and
customers prompting petitioner to make announcements,
clarifying the real Identity of the corporation whose
property was burned. Petitioner presented documentary
and testimonial evidence in support of this allegation.
On the other hand, respondent's position is that the
names of the two corporations are not similar and
even if there be some similarity, it is not confusing or
deceptive; that the only reason that respondent
changed its name was because it expanded its
business to include the manufacture of fabrics of all
kinds; and that the word 'textile' in petitioner's name is
dominant and prominent enough to distinguish the
two. It further argues that petitioner failed to present
evidence of confusion or deception in the ordinary
course of business; that the only supposed confusion
proved by complainant arose out of an extraordinary
occurrence — a disastrous fire. (pp. 16-&17, Record.)
Upon these premises, the Commission held:
From the facts proved and the jurisprudence on the
matter, it appears necessary under the circumstances to
 enjoin the respondent Universal Mills Corporation from
further using its present corporate name. Judging from
what has already happened, confusion is not only
apparent, but possible. It does not matter that the
instance of confusion between the two corporate names
was occasioned only by a fire or an extraordinary
occurrence. It is precisely the duty of this Commission to
prevent such confusion at all times and under all
circumstances not only for the purpose of protecting the
corporations involved but more so for the protection of
the public.
In today's modern business life where people go by
tradenames and corporate images, the corporate name
becomes the more important. This Commission cannot
close its eyes to the fact that usually it is the sound of all
the other words composing the names of business
corporations that sticks to the mind of those who deal
with them. The word "textile" in Universal Textile Mills,
Inc.' can not possibly assure the exclusion of all other
entities with similar names from the mind of the public
especially so, if the business they are engaged in are
the same, like in the instant case.
This Commission further takes cognizance of the fact
that when respondent filed the amendment changing its
name to Universal Mills Corporation, it correspondingly
filed a written undertaking dated June 5, 1963 and
signed by its President, Mr. Mariano Cokiat, promising
to change its name in the event that there is another
person, firm or entity who has obtained a prior right to
the use of such name or one similar to it. That promise
is still binding upon the corporation and its responsible
officers. (pp. 17-18, Record.)
It is obvious that the matter at issue is within the
competence of the Securities and Exchange Commission
to resolve in the first instance in the exercise of the
jurisdiction it used to possess under Commonwealth Act
287 as amended by Republic Act 1055 to administer the
application and enforcement of all laws affecting domestic
corporations and associations, reserving to the courts only
conflicts of judicial nature, and, of course, the Supreme
Court's authority to review the Commissions actuations in
appropriate instances involving possible denial of due
process and grave abuse of discretion. Thus, in the case
at bar, there being no claim of denial of any constitutional
right, all that We are called upon to determine is whether
or not the order of the Commission enjoining petitioner to
its corporate name constitutes, in the light of the
circumstances found by the Commission, a grave abuse of
discretion.
We believe it is not. Indeed, it cannot be said that the
impugned order is arbitrary and capricious. Clearly, it has
rational basis. The corporate names in question are not
Identical, but they are indisputably so similar that even
under the test of "reasonable care and observation as the
public generally are capable of using and may be
expected to exercise" invoked by appellant, We are
apprehensive confusion will usually arise, considering that
under the second amendment of its articles of
incorporation on August 14, 1964, appellant included
among its primary purposes the "manufacturing, dyeing,
finishing and selling of fabrics of all kinds" in which
respondent had been engaged for more than a decade
ahead of petitioner. Factually, the Commission found
existence of such confusion, and there is evidence to
support its conclusion. Since respondent is not claiming
damages in this proceeding, it is, of course, immaterial
whether or not appellant has acted in good faith, but We
cannot perceive why of all names, it had to choose a
name already being used by another firm engaged in
practically the same business for more than a decade
enjoying well earned patronage and goodwill, when there
are so many other appropriate names it could possibly
adopt without arousing any suspicion as to its motive and,
more importantly, any degree of confusion in the mind of
the public which could mislead even its own customers,
existing or prospective. Premises considered, there is no
warrant for our interference.
As this is purely a case of injunction, and considering the
time that has elapsed since the facts complained of took
place, this decision should not be deemed as foreclosing
any further remedy which appellee may have for the
protection of its interests.
WHEREFORE, with the reservation already mentioned,
the appealed decision is affirmed. Costs against
petitioners.
LYCEUM OF THE PHILIPPINES, INC., vs. COURT OF
APPEALS, LYCEUM OF APARRI, LYCEUM OF
CABAGAN, LYCEUM OF CAMALANIUGAN, INC.,
LYCEUM OF LALLO, INC., LYCEUM OF TUAO, INC.,
BUHI LYCEUM, CENTRAL LYCEUM OF
CATANDUANES, LYCEUM OF SOUTHERN
PHILIPPINES, LYCEUM OF EASTERN MINDANAO,
INC. and WESTERN PANGASINAN LYCEUM, INC.,
G.R. No. 101897. March 5, 1993.
SYLLABUS
1. CORPORATION LAW; CORPORATE NAMES;
REGISTRATION OF PROPOSED NAME WHICH IS
IDENTICAL OR CONFUSINGLY SIMILAR TO THAT OF
ANY EXISTING CORPORATION, PROHIBITED;
CONFUSION AND DECEPTION EFFECTIVELY
PRECLUDED BY THE APPENDING OF GEOGRAPHIC
NAMES TO THE WORD "LYCEUM". — The Articles of
Incorporation of a corporation must, among other things,
set out the name of the corporation. Section 18 of the
Corporation Code establishes a restrictive rule insofar as
corporate names are concerned: "Section 18. Corporate
name. — No corporate name may be allowed by the
Securities an Exchange Commission if the proposed name
is identical or deceptively or confusingly similar to that of
any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or
contrary to existing laws. When a change in the corporate
name is approved, the Commission shall issue an
amended certificate of incorporation under the amended
name." The policy underlying the prohibition in Section 18
against the registration of a corporate name which is
"identical or deceptively or confusingly similar" to that of
any existing corporation or which is "patently deceptive" or
"patently confusing" or "contrary to existing laws," is the
avoidance of fraud upon the public which would have
occasion to deal with the entity concerned, the evasion of
legal obligations and duties, and the reduction of
difficulties of administration and supervision over
corporations. We do not consider that the corporate
names of private respondent institutions are "identical
with, or deceptively or confusingly similar" to that of the
petitioner institution. True enough, the corporate names of
private respondent entities all carry the word "Lyceum" but
confusion and deception are effectively precluded by the
appending of geographic names to the word "Lyceum."
Thus, we do not believe that the "Lyceum of Aparri" can
be mistaken by the general public for the Lyceum of the
Philippines, or that the "Lyceum of Camalaniugan" would
be confused with the Lyceum of the Philippines.
2. ID.; ID.; DOCTRINE OF SECONDARY MEANING; USE
OF WORD "LYCEUM," NOT ATTENDED WITH
EXCLUSIVITY. — It is claimed, however, by petitioner that
the word "Lyceum" has acquired a secondary meaning in
relation to petitioner with the result that word, although
originally a generic, has become appropriable by petitioner
to the exclusion of other institutions like private
respondents herein. The doctrine of secondary meaning
originated in the field of trademark law. Its application has,
however, been extended to corporate names sine the right
to use a corporate name to the exclusion of others is
based upon the same principle which underlies the right to
use a particular trademark or tradename. In Philippine Nut
Industry, Inc. v. Standard Brands, Inc., the doctrine of
secondary meaning was elaborated in the following terms:
" . . . a word or phrase originally incapable of exclusive
appropriation with reference to an article on the market,
because geographically or otherwise descriptive, might
nevertheless have been used so long and so exclusively
by one producer with reference to his article that, in that
trade and to that branch of the purchasing public, the word
or phrase has come to mean that the article was his
product." The question which arises, therefore, is whether
or not the use by petitioner of "Lyceum" in its corporate
name has been for such length of time and with such
exclusivity as to have become associated or identified with
the petitioner institution in the mind of the general public
(or at least that portion of the general public which has to
do with schools). The Court of Appeals recognized this
issue and answered it in the negative: "Under the doctrine
of secondary meaning, a word or phrase originally
incapable of exclusive appropriation with reference to an
article in the market, because geographical or otherwise
descriptive might nevertheless have been used so long
and so exclusively by one producer with reference to this
article that, in that trade and to that group of the
purchasing public, the word or phrase has come to mean
that the article was his produce (Ana Ang vs. Toribio
Teodoro, 74 Phil. 56). This circumstance has been
referred to as the distinctiveness into which the name or
phrase has evolved through the substantial and exclusive
use of the same for a considerable period of time. . . . No
evidence was ever presented in the hearing before the
Commission which sufficiently proved that the word
'Lyceum' has indeed acquired secondary meaning in favor
of the appellant. If there was any of this kind, the same
tend to prove only that the appellant had been using the
disputed word for a long period of time. . . . In other words,
while the appellant may have proved that it had been
using the word 'Lyceum' for a long period of time, this fact
alone did not amount to mean that the said word had
acquired secondary meaning in its favor because the
appellant failed to prove that it had been using the same
word all by itself to the exclusion of others. More so, there
was no evidence presented to prove that confusion will
surely arise if the same word were to be used by other
educational institutions. Consequently, the allegations of
the appellant in its first two assigned errors must
necessarily fail." We agree with the Court of Appeals. The
number alone of the private respondents in the case at bar
suggests strongly that petitioner's use of the word
"Lyceum" has not been attended with the exclusivity
essential for applicability of the doctrine of secondary
meaning. Petitioner's use of the word "Lyceum" was not
exclusive but was in truth shared with the Western
Pangasinan Lyceum and a little later with other private
respondent institutions which registered with the SEC
using "Lyceum" as part of their corporation names. There
may well be other schools using Lyceum or Liceo in their
names, but not registered with the SEC because they
have not adopted the corporate form of organization.
3. ID.; ID.; MUST BE EVALUATED IN THEIR ENTIRETY
TO DETERMINE WHETHER THEY ARE CONFUSINGLY
OR DECEPTIVELY SIMILAR TO ANOTHER
CORPORATE ENTITY'S NAME. — petitioner institution is
not entitled to a legally enforceable exclusive right to use
the word "Lyceum" in its corporate name and that other
institutions may use "Lyceum" as part of their corporate
names. To determine whether a given corporate name is
"identical" or "confusingly or deceptively similar" with
another entity's corporate name, it is not enough to
ascertain the presence of "Lyceum" or "Liceo" in both
names. One must evaluate corporate names in their
entirety and when the name of petitioner is juxtaposed
with the names of private respondents, they are not
reasonably regarded as "identical" or "confusingly or
deceptively similar" with each other.
DECISION
Petitioner is an educational institution duly registered with
the Securities and Exchange Commission ("SEC"). When
it first registered with the SEC on 21 September 1950, it
used the corporate name Lyceum of the Philippines, Inc.
and has used that name ever since.
On 24 February 1984, petitioner instituted proceedings
before the SEC to compel the private respondents, which
are also educational institutions, to delete the word
"Lyceum" from their corporate names and permanently to
enjoin them from using "Lyceum" as part of their
respective names.
Some of the private respondents actively participated in
the proceedings before the SEC. These are the following,
the dates of their original SEC registration being set out
below opposite their respective names:
Western Pangasinan Lyceum — 27 October 1950
Lyceum of Cabagan — 31 October 1962
Lyceum of Lallo, Inc. — 26 March 1972
Lyceum of Aparri — 28 March 1972
Lyceum of Tuao, Inc. — 28 March 1972
Lyceum of Camalaniugan — 28 March 1972
The following private respondents were declared in default
for failure to file an answer despite service of summons:
Buhi Lyceum;
Central Lyceum of Catanduanes;
Lyceum of Eastern Mindanao, Inc.; and
Lyceum of Southern Philippines
Petitioner's original complaint before the SEC had
included three (3) other entities:
1. The Lyceum of Malacanay;
2. The Lyceum of Marbel; and
3. The Lyceum of Araullo
The complaint was later withdrawn insofar as concerned
the Lyceum of Malacanay and the Lyceum of Marbel, for
failure to serve summons upon these two (2) entities. The
case against the Liceum of Araullo was dismissed when
that school motu proprio change its corporate name to
"Pamantasan ng Araullo."
The background of the case at bar needs some
recounting. Petitioner had sometime before commenced in
the SEC a proceeding (SEC-Case No. 1241) against the
Lyceum of Baguio, Inc. to require it to change its corporate
name and to adopt another name not "similar [to] or
identical" with that of petitioner. In an Order dated 20 April
1977, Associate Commissioner Julio Sulit held that the
corporate name of petitioner and that of the Lyceum of
Baguio, Inc. were substantially identical because of the
presence of a "dominant" word, i.e., "Lyceum," the name
of the geographical location of the campus being the only
word which distinguished one from the other corporate
name. The SEC also noted that petitioner had registered
as a corporation ahead of the Lyceum of Baguio, Inc. in
point of time, 1 and ordered the latter to change its name
to another name "not similar or identical [with]" the names
of previously registered entities.
The Lyceum of Baguio, Inc. assailed the Order of the SEC
before the Supreme Court in a case docketed as G.R. No.
L-46595. In a Minute Resolution dated 14 September
1977, the Court denied the Petition for Review for lack of
merit. Entry of judgment in that case was made on 21
October 1977.
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.
We will consider all the foregoing ascribed errors, though
not necessarily seriatim. We begin by noting that the
Resolution of the Court in G.R. No. L-46595 does not, of
course, constitute res adjudicata in respect of the case at
bar, since there is no identity of parties. Neither is stare
decisis pertinent, if only because the SEC En Banc itself
has re-examined Associate Commissioner Sulit's ruling in
the Lyceum of Baguio case. The Minute Resolution of the
Court in G.R. No. L-46595 was not a reasoned adoption of
the Sulit ruling.
The Articles of Incorporation of a corporation must, among
other things, set out the name of the corporation. 6
Section 18 of the Corporation Code establishes a
restrictive rule insofar as corporate names are concerned:
"SECTION 18. Corporate name. — No corporate name
may be allowed by the Securities an Exchange
Commission if the proposed name is identical or
deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law
or is patently deceptive, confusing or contrary to existing
laws. When a change in the corporate name is approved,
the Commission shall issue an amended certificate of
incorporation under the amended name." (Emphasis
supplied)
The policy underlying the prohibition in Section 18 against
the registration of a corporate name which is "identical or
deceptively or confusingly similar" to that of any existing
corporation or which is "patently deceptive" or "patently
confusing" or "contrary to existing laws," is the avoidance
of fraud upon the public which would have occasion to
deal with the entity concerned, the evasion of legal
obligations and duties, and the reduction of difficulties of
administration and supervision over corporations.
We do not consider that the corporate names of private
respondent institutions are "identical with, or deceptively or
confusingly similar" to that of the petitioner institution. True
enough, the corporate names of private respondent
entities all carry the word "Lyceum" but confusion and
deception are effectively precluded by the appending of
geographic names to the word "Lyceum." Thus, we do not
believe that the "Lyceum of Aparri" can be mistaken by the
general public for the Lyceum of the Philippines, or that
the "Lyceum of Camalaniugan" would be confused with
the Lyceum of the Philippines.
Etymologically, the word "Lyceum" is the Latin word for the
Greek lykeion which in turn referred to a locality on the
river Ilissius in ancient Athens "comprising an enclosure
dedicated to Apollo and adorned with fountains and
buildings erected by Pisistratus, Pericles and Lycurgus
frequented by the youth for exercise and by the
philosopher Aristotle and his followers for teaching." 8 In
time, the word "Lyceum" became associated with schools
and other institutions providing public lectures and
concerts and public discussions. Thus today, the word
"Lyceum" generally refers to a school or an institution of
learning. While the Latin word "lyceum" has been
incorporated into the English language, the word is also
found in Spanish (liceo) and in French (lycee). As the
Court of Appeals noted in its Decision, Roman Catholic
schools frequently use the term; e.g., "Liceo de Manila,"
"Liceo de Baleno" (in Baleno, Masbate), "Liceo de
Masbate," "Liceo de Albay." 9 "Lyceum" is in fact as
generic in character as the word "university." In the name
of the petitioner, "Lyceum" appears to be a substitute for
"university;" in other places, however, "Lyceum," or "Liceo"
or "Lycee" frequently denotes a secondary school or a
college. It may be (though this is a question of fact which
we need not resolve) that the use of the word "Lyceum"
may not yet be as widespread as the use of "university,"
but it is clear that a not inconsiderable number of
educational institutions have adopted "Lyceum" or "Liceo"
as part of their corporate names. Since "Lyceum" or
"Liceo" denotes a school or institution of learning, it is not
unnatural to use this word to designate an entity which is
organized and operating as an educational institution.
It is claimed, however, by petitioner that the word
"Lyceum" has acquired a secondary meaning in relation to
petitioner with the result that that word, although originally
a generic, has become appropriable by petitioner to the
exclusion of other institutions like private respondents
herein.
The doctrine of secondary meaning originated in the field
of trademark law. Its application has, however, been
extended to corporate names sine the right to use a
corporate name to the exclusion of others is based upon
the same principle which underlies the right to use a
particular trademark or tradename. In Philippine Nut
Industry, Inc. v. Standard Brands, Inc., the doctrine of
secondary meaning was elaborated in the following terms:
" . . . a word or phrase originally incapable of exclusive
appropriation with reference to an article on the market,
because geographically or otherwise descriptive, might
nevertheless have been used so long and so exclusively
by one producer with reference to his article that, in that
trade and to that branch of the purchasing public, the word
or phrase has come to mean that the article was his
product."
The question which arises, therefore, is whether or not the
use by petitioner of "Lyceum" in its corporate name has
been for such length of time and with such exclusivity as
to have become associated or identified with the petitioner
institution in the mind of the general public (or at least that
portion of the general public which has to do with schools).
The Court of Appeals recognized this issue and answered
it in the negative:
"Under the doctrine of secondary meaning, a word or
phrase originally incapable of exclusive appropriation with
reference to an article in the market, because
geographical or otherwise descriptive might nevertheless
have been used so long and so exclusively by one
producer with reference to this article that, in that trade
and to that group of the purchasing public, the word or
phrase has come to mean that the article was his produce
(Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This
circumstance has been referred to as the distinctiveness
into which the name or phrase has evolved through the
substantial and exclusive use of the same for a
considerable period of time. Consequently, the same
doctrine or principle cannot be made to apply where the
evidence did not prove that the business (of the plaintiff)
has continued for so long a time that it has become of
consequence and acquired a good will of considerable
value such that its articles and produce have acquired a
well-known reputation, and confusion will result by the use
of the disputed name (by the defendant) (Ang Si Heng vs.
Wellington Department Store, Inc., 92 Phil. 448).
With the foregoing as a yardstick, [we] believe the
appellant failed to satisfy the aforementioned requisites.
No evidence was ever presented in the hearing before the
Commission which sufficiently proved that the word
'Lyceum' has indeed acquired secondary meaning in favor
of the appellant. If there was any of this kind, the same
tend to prove only that the appellant had been using the
disputed word for a long period of time. Nevertheless, its
(appellant) exclusive use of the word (Lyceum) was never
established or proven as in fact the evidence tend to
convey that the cross-claimant was already using the word
'Lyceum' seventeen (17) years prior to the date the
appellant started using the same word in its corporate
name. Furthermore, educational institutions of the Roman
Catholic Church had been using the same or similar word
like 'Liceo de Manila,' 'Liceo de Baleno' (in Baleno,
Masbate), 'Liceo de Masbate,' 'Liceo de Albay' long before
appellant started using the word 'Lyceum'. The appellant
also failed to prove that the word 'Lyceum' has become so
identified with its educational institution that confusion will
surely arise in the minds of the public if the same word
were to be used by other educational institutions.
In other words, while the appellant may have proved that it
had been using the word 'Lyceum' for a long period of
time, this fact alone did not amount to mean that the said
word had acquired secondary meaning in its favor
because the appellant failed to prove that it had been
using the same word all by itself to the exclusion of others.
More so, there was no evidence presented to prove that
confusion will surely arise if the same word were to be
used by other educational institutions. Consequently, the
allegations of the appellant in its first two assigned errors
must necessarily fail." 13 (Underscoring partly in the
original and partly supplied)
We agree with the Court of Appeals. The number alone of
the private respondents in the case at bar suggests
strongly that petitioner's use of the word "Lyceum" has not
been attended with the exclusivity essential for
applicability of the doctrine of secondary meaning. It may
be noted also that at least one of the private respondents,
i.e., the Western Pangasinan Lyceum, Inc., used the term
"Lyceum" seventeen (17) years before the petitioner
registered its own corporate name with the SEC and
began using the word "Lyceum." It follows that if any
institution had acquired an exclusive right to the word
"Lyceum," that institution would have been the Western
Pangasinan Lyceum, Inc. rather than the petitioner
institution.
In this connection, petitioner argues that because the
Western Pangasinan Lyceum, Inc. failed to reconstruct its
records before the SEC in accordance with the provisions
of R.A. No. 62, which records had been destroyed during
World War II, Western Pangasinan Lyceum should be
deemed to have lost all rights it may have acquired by
virtue of its past registration. It might be noted that the
Western Pangasinan Lyceum, Inc. registered with the
SEC soon after petitioner had filed its own registration on
21 September 1950. Whether or not Western Pangasinan
Lyceum, Inc. must be deemed to have lost its rights under
its original 1933 registration, appears to us to be quite
secondary in importance; we refer to this earlier
registration simply to underscore the fact that petitioner's
use of the word "Lyceum" was neither the first use of that
term in the Philippines nor an exclusive use thereof.
Petitioner's use of the word "Lyceum" was not exclusive
but was in truth shared with the Western Pangasinan
Lyceum and a little later with other private respondent
institutions which registered with the SEC using "Lyceum"
as part of their corporation names. There may well be
other schools using Lyceum or Liceo in their names, but
not registered with the SEC because they have not
adopted the corporate form of organization.
We conclude and so hold that petitioner institution is not
entitled to a legally enforceable exclusive right to use the
word "Lyceum" in its corporate name and that other
institutions may use "Lyceum" as part of their corporate
names. To determine whether a given corporate name is
"identical" or "confusingly or 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.
PHILIPS EXPORT B.V., PHILIPS ELECTRICAL
LAMPS, INC. and PHILIPS INDUSTRIAL
DEVELOPMENT, INC., petitioners,
vs.
COURT OF APPEALS, SECURITIES & EXCHANGE
COMMISSION and STANDARD PHILIPS
CORPORATION, respondents.
G.R. No. 96161 February 21, 1992
Petitioners challenge the Decision of the Court of Appeals,
dated 31 July 1990, in CA-GR Sp. No. 20067, upholding
the Order of the Securities and Exchange Commission,
dated 2 January 1990, in SEC-AC No. 202, dismissing
petitioners' prayer for the cancellation or removal of the
word "PHILIPS" from private respondent's corporate
name.
Petitioner Philips Export B.V. (PEBV), a foreign
corporation organized under the laws of the Netherlands,
although not engaged in business here, is the registered
owner of the trademarks PHILIPS and PHILIPS SHIELD
EMBLEM under Certificates of Registration Nos. R-1641
and R-1674, respectively issued by the Philippine Patents
Office (presently known as the Bureau of Patents,
Trademarks and Technology Transfer). Petitioners Philips
Electrical Lamps, Inc. (Philips Electrical, for brevity) and
Philips Industrial Developments, Inc. (Philips Industrial, for
short), authorized users of the trademarks PHILIPS and
PHILIPS SHIELD EMBLEM, were incorporated on 29
August 1956 and 25 May 1956, respectively. All petitioner
corporations belong to the PHILIPS Group of Companies.
Respondent Standard Philips Corporation (Standard
Philips), on the other hand, was issued a Certificate of
Registration by respondent Commission on 19 May 1982.
On 24 September 1984, Petitioners filed a letter complaint
with the Securities & Exchange Commission (SEC) asking
for the cancellation of the word "PHILIPS" from Private
Respondent's corporate name in view of the prior
registration with the Bureau of Patents of the trademark
"PHILIPS" and the logo "PHILIPS SHIELD EMBLEM" in
the name of Petitioner, PEBV, and the previous
registration of Petitioners Philips Electrical and Philips
Industrial with the SEC.
As a result of Private Respondent's refusal to amend its
Articles of 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 are grossly different from
Petitioners' electrical products.
After conducting hearings with respect to the prayer for
Injunction; the SEC Hearing Officer, on 27 September
1985, ruled against the issuance of such Writ.
On 30 January 1987, the same Hearing Officer dismissed
the Petition for lack of merit. In so ruling, the latter
declared that inasmuch as the SEC found no sufficient
ground for the granting of injunctive relief on the basis of
the testimonial and documentary evidence presented, it
cannot order the removal or cancellation of the word
"PHILIPS" from Private Respondent's corporate name on
the basis of the same evidence adopted in toto during trial
on the merits. Besides, Section 18 of the Corporation
Code (infra) is applicable only when the corporate names
in question are identical. Here, there is no confusing
similarity between Petitioners' and Private Respondent's
corporate names as those of the Petitioners contain at
least two words different from that of the Respondent.
Petitioners' Motion for Reconsideration was likewise
denied on 17 June 1987.
On appeal, the SEC en banc affirmed the dismissal
declaring that the corporate names of Petitioners and
Private Respondent hardly breed confusion inasmuch as
each contains at least two different words and, therefore,
rules out any possibility of confusing one for the other.
On 30 January 1990, Petitioners sought an extension of
time to file a Petition for Review on Certiorari before this
Court, which Petition was later referred to the Court of
Appeals in a Resolution dated 12 February 1990.
In deciding to dismiss the petition on 31 July 1990, the
Court of
Appeals swept aside Petitioners' claim that following the
1
ruling in Converse Rubber Corporation v. Universal
Converse Rubber Products, Inc., et al, (G. R. No. L-27906,
January 8, 1987, 147 SCRA 154), the word PHILIPS
cannot be used as part of Private Respondent's corporate
name as the same constitutes a dominant part of
Petitioners' corporate names. In so holding, the Appellate
Court observed that the Converse case is not four-square
with the present case inasmuch as the contending parties
in Converse are engaged in a similar business, that is, the
manufacture of rubber shoes. Upholding the SEC, the
Appellate Court concluded that "private respondents'
products consisting of chain rollers, belts, bearings and
cutting saw are unrelated and non-competing with
petitioners' products i.e. electrical lamps such that
consumers would not in any probability mistake one as the
source or origin of the product of the other."
The Appellate Court denied Petitioners' Motion for
Reconsideration on 20 November 1990, hence, this
Petition which was given due course on 22 April 1991,
after which the parties were required to submit their
memoranda, the latest of which was received on 2 July
1991. In December 1991, the SEC was also required to
elevate its records for the perusal of this Court, the same
not having been apparently before respondent Court of
Appeals.
We find basis for petitioners' plea.
As early as Western Equipment and Supply Co. v. Reyes,
51 Phil. 115 (1927), the Court declared that a corporation's
right to use its corporate and trade name is a property
right, a right in rem, which it may assert and protect
against the world in the same manner as it may protect its
tangible property, real or personal, against trespass or
conversion. It is regarded, to a certain extent, as a
property right and one which cannot be impaired or
defeated by subsequent appropriation by another
corporation in the same field (Red Line Transportation Co.
vs. Rural Transit Co., September 8, 1934, 20 Phil 549).
A name is peculiarly important as necessary to the very
existence of a corporation (American Steel Foundries vs.
Robertson, 269 US 372, 70 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, 66 ALR 934;
Paulino vs. Portuguese Beneficial Association, 18 RI 165,
26 A 36).
A corporation acquires its name by choice and need not
select a name identical with or similar to one already
appropriated by a senior corporation while an individual's
name is thrust upon him (See Standard Oil Co. of New
Mexico, Inc. v. Standard Oil Co. of California, 56 F 2d 973,
977). A corporation can no more use a corporate name in
violation of the rights of others than an individual can use
his name legally acquired so as to mislead the public and
injure another (Armington vs. Palmer, 21 RI 109. 42 A
308).
Our own Corporation Code, in its Section 18, expressly
provides that:
No corporate name may be allowed by the Securities
and Exchange Commission if the proposed name
is identical or deceptively or confusingly similar to that
of any existing corporation or to any other name
already protected by law or is patently deceptive,
confusing or contrary to existing law. Where a change
in a corporate name is approved, the commission
shall issue an amended certificate of incorporation
under the amended name. (Emphasis supplied)
The statutory prohibition cannot be any clearer. To come
within its scope, two requisites must be proven, namely:
(1) that the complainant corporation acquired a prior right
over the use of such corporate name; and
(2) the proposed name is either:
(a) identical; or
(b) deceptively or confusingly similar to that of any
existing corporation or to any other name already
protected by law; or
(c) patently deceptive, confusing or contrary to existing
law.
The right to the exclusive use of a corporate name with
freedom from infringement by similarity is determined by
priority of adoption (1 Thompson, p. 80 citing Munn v.
Americana Co., 82 N. Eq. 63, 88 Atl. 30; San Francisco
Oyster House v. Mihich, 75 Wash. 274, 134 Pac. 921). In
this regard, there is no doubt with respect to Petitioners'
prior adoption of' the name ''PHILIPS" as part of its
corporate name. Petitioners Philips Electrical and Philips
Industrial were incorporated on 29 August 1956 and 25
May 1956, respectively, while Respondent Standard
Philips was issued a Certificate of Registration on 12 April
1982, twenty-six (26) years later (Rollo, p. 16). Petitioner
PEBV has also used the trademark "PHILIPS" on
electrical lamps of all types and their accessories since 30
September 1922, as evidenced by Certificate of
Registration No. 1651.
The second requisite no less exists in this case. In
determining the existence of confusing similarity in
corporate names, the test is whether the similarity is such
as to mislead a person, using ordinary care and
discrimination. In so doing, the Court must look to the
record as well as the names themselves (Ohio Nat. Life
Ins. Co. v. Ohio Life Ins. Co., 210 NE 2d 298). While the
corporate names of Petitioners and Private Respondent
are not identical, a reading of Petitioner's corporate
names, to wit: PHILIPS EXPORT B.V., PHILIPS
ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL
DEVELOPMENT, INC., inevitably leads one to conclude
that "PHILIPS" is, indeed, the dominant word in that all the
companies affiliated or associated with the principal
corporation, PEBV, are known in the Philippines and
abroad as the PHILIPS Group of Companies.
Respondents maintain, however, that Petitioners did not
present an iota of proof of actual confusion or deception of
the public much less a single purchaser of their product
who has been deceived or confused or showed any
likelihood of confusion. It is settled, however, that proof of
actual confusion need not be shown. It suffices that
confusion is probably or likely to occur (6 Fletcher [Perm
Ed], pp. 107-108, enumerating a long line of cases).
It may be that Private Respondent's products also consist
of chain rollers, belts, bearing and the like, while
petitioners deal principally with electrical products. It is
significant to note, however, that even the Director of
Patents had denied Private Respondent's application for
registration of the trademarks "Standard Philips & Device"
for chain, rollers, belts, bearings and cutting saw. That
office held that PEBV, "had shipped to its subsidiaries in
the Philippines equipment, machines and their parts which
fall under international class where "chains, rollers, belts,
bearings and cutting saw," the goods in connection with
which Respondent is seeking to register 'STANDARD
PHILIPS' . . . also belong" ( Inter Partes Case No. 2010,
June 17, 1988, SEC Rollo).
Furthermore, the records show that among Private
Respondent's primary purposes in its Articles of
Incorporation (Annex D, Petition p. 37, Rollo) are the
following:
To buy, sell, barter, trade, manufacture, import,
export, or otherwise acquire, dispose of, and deal in
and deal with any kind of goods, wares, and
merchandise such as but not limited to plastics,
carbon products, office stationery and supplies,
hardware parts, electrical wiring devices, electrical
component parts, and/or complement of industrial,
agricultural or commercial machineries, constructive
supplies, electrical supplies and other merchandise
which are or may become articles of commerce
except food, drugs and cosmetics and to carry on
such business as manufacturer, distributor, dealer,
indentor, factor, manufacturer's representative
capacity for domestic or foreign companies.
(emphasis ours)
For its part, Philips Electrical also includes, among its
primary purposes, the following:
To develop manufacture and deal in electrical
products, including electronic, mechanical and other
similar products . . . (p. 30, Record of SEC Case No.
2743)
Given Private Respondent's aforesaid underlined primary
purpose, nothing could prevent it from dealing in the same
line of business of electrical devices, products or supplies
which fall under its primary purposes. Besides, there is
showing that Private Respondent not only manufactured
and sold ballasts for fluorescent lamps with their corporate
name printed thereon but also advertised the same as,
among others, Standard Philips (TSN, before the SEC, pp.
14, 17, 25, 26, 37-42, June 14, 1985; pp. 16-19, July 25,
1985). As aptly pointed out by Petitioners, [p]rivate
respondent's choice of "PHILIPS" as part of its corporate
name [STANDARD PHILIPS CORPORATION] . . . tends
to show said respondent's intention to ride on the
popularity and established goodwill of said petitioner's
business throughout the world" (Rollo, p. 137). The
subsequent appropriator of the name or one confusingly
similar thereto usually seeks an unfair advantage, a free
ride of another's goodwill (American Gold Star Mothers,
Inc. v. National Gold Star Mothers, Inc., et al, 89 App DC
269, 191 F 2d 488).
In allowing Private Respondent the continued use of its
corporate name, the SEC maintains that the corporate
names of Petitioners PHILIPS ELECTRICAL LAMPS. INC.
and PHILIPS INDUSTRIAL DEVELOPMENT, INC. contain
at least two words different from that of the corporate
name of respondent STANDARD PHILIPS
CORPORATION, which words will readily identify Private
Respondent from Petitioners and vice-versa.
True, under the Guidelines in the Approval of Corporate
and Partnership Names formulated by the SEC, the
proposed name "should not be similar to one already used
by another corporation or partnership. If the proposed
name contains a word already used as part of the firm
name or style of a registered company; the proposed
name must contain two other words different from the
company already registered" (Emphasis ours). It is then
pointed out that Petitioners Philips Electrical and Philips
Industrial have two words different from that of Private
Respondent's name.
What is lost sight of, however, is that PHILIPS is a
trademark or trade name which was registered as far back
as 1922. Petitioners, therefore, have the exclusive right to
its use which must be free from any infringement by
similarity. A corporation has an exclusive right to the use
of its name, which may be protected by injunction upon a
principle similar to that upon which persons are protected
in the use of trademarks and tradenames (18 C.J.S. 574).
Such principle proceeds upon the theory that it is a fraud
on the corporation which has acquired a right to that name
and perhaps carried on its business thereunder, that
another should attempt to use the same name, or the
same name with a slight variation in such a way as to
induce persons to deal with it in the belief that they are
dealing with the corporation which has given a reputation
to the name (6 Fletcher [Perm Ed], pp. 39-
40, citing Borden Ice Cream Co. v. Borden's Condensed
Milk Co., 210 F 510). Notably, too, Private Respondent's
name actually contains only a single word, that is,
"STANDARD", different from that of Petitioners inasmuch
as the inclusion of the term "Corporation" or "Corp."
merely serves the Purpose of distinguishing the
corporation from partnerships and other business
organizations.
The fact that there are other companies engaged in other
lines of business using the word "PHILIPS" as part of their
corporate names is no defense and does not warrant the
use by Private Respondent of such word which constitutes
an essential feature of Petitioners' corporate name
previously adopted and registered and-having acquired
the status of a well-known mark in the Philippines and
internationally as well (Bureau of Patents Decision No. 88-
35 [TM], June 17, 1988, SEC Records).
In support of its application for the registration of its
Articles of Incorporation with the SEC, Private Respondent
had submitted an undertaking "manifesting its willingness
to change its corporate name in the event another person,
firm or entity has acquired a prior right to the use of the
said firm name or one deceptively or confusingly similar to
it." Private respondent must now be held to its
undertaking.
As a general rule, parties organizing a corporation
must choose a name at their peril; and the use of a
name similar to one adopted by another corporation,
whether a business or a nonbusiness or non-profit
organization if misleading and likely to injure it in the
exercise in its corporate functions, regardless of
intent, may be prevented by the corporation having
the prior right, by a suit for injunction against the new
corporation to prevent the use of the name (American
Gold Star Mothers, Inc. v. National Gold Star Mothers,
Inc., 89 App DC 269, 191 F 2d 488, 27 ALR 2d 948).
WHEREFORE, the Decision of the Court of Appeals dated
31 July 1990, and its Resolution dated 20 November
1990, are SET ASIDE and a new one entered ENJOINING
private respondent from using "PHILIPS" as a feature of
its corporate name, and ORDERING the Securities and
Exchange Commission to amend private respondent's
Articles of Incorporation by deleting the word PHILIPS
from the corporate name of private respondent.
No costs.
SO ORDERED.
ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO
HESUS, H.S.K. SA BANSANG PILIPINAS,
INC.,petitioner,
vs.
IGLESIA NG DIOS KAY CRISTO JESUS, HALIGI AT
SUHAY NG KATOTOHANAN, respondent.
G.R. No. 137592 December 12, 2001
This is a petition for review assailing the Decision dated
October 7, 19971 and the Resolution dated February 16,
19992 of the Court of Appeals in CA-G.R. SP No. 40933,
which affirmed the Decision of the Securities and
Exchange and Commission (SEC) in SEC-AC No. 539.3
Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at
Suhay ng Katotohanan (Church of God in Christ Jesus,
the Pillar and Ground of Truth),4 is a non-stock religious
society or corporation registered in 1936. Sometime in
1976, one Eliseo Soriano and several other members of
respondent corporation disassociated themselves from the
latter and succeeded in registering on March 30, 1977 a
new non-stock religious society or corporation,
named Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan
ng Katotohanan.
On July 16, 1979, respondent corporation filed with the
SEC a petition to compel the Iglesia ng Dios Kay Kristo
Hesus, Haligi at Saligan ng Katotohanan to change its
corporate name, which petition was docketed as SEC
Case No. 1774. On May 4, 1988, the SEC rendered
judgment in favor of respondent, ordering the Iglesia ng
Dios Kay Kristo Hesus, Haligi at Saligan ng
Katotohanan to change its corporate name to another
name that is not similar or identical to any name already
used by a corporation, partnership or association
registered with the Commission.5No appeal was taken
from said decision.
It appears that during the pendency of SEC Case No.
1774, Soriano, et al., caused the registration on April 25,
1980 of petitioner corporation, Ang Mga Kaanib sa Iglesia
ng Dios Kay Kristo Hesus, H.S.K, sa Bansang Pilipinas.
The acronym "H.S.K." stands for Haligi at Saligan ng
Katotohanan.6
On March 2, 1994, respondent corporation filed before the
SEC a petition, docketed as SEC Case No. 03-94-4704,
praying that petitioner be compelled to change its
corporate name and be barred from using the same or
similar name on the ground that the same causes
confusion among their members as well as the public.
Petitioner filed a motion to dismiss on the ground of lack of
cause of action. The motion to dismiss was denied.
Thereafter, for failure to file an answer, petitioner was
declared in default and respondent was allowed to present
its evidence ex parte.
On November 20, 1995, the SEC rendered a decision
ordering petitioner to change its corporate name. The
dispositive portion thereof reads:
PREMISES CONSIDERED, judgment is hereby
rendered in favor of the petitioner (respondent
herein).
Respondent Mga Kaanib sa Iglesia ng Dios Kay
Kristo Jesus (sic), H.S.K. sa Bansang Pilipinas
(petitioner herein) is hereby MANDATED to change
its corporate name to another not deceptively similar
or identical to the same already used by the
Petitioner, any corporation, association, and/or
partnership presently registered with the Commission.
Let a copy of this Decision be furnished the Records
Division and the Corporate and Legal Department
[CLD] of this Commission for their records, reference
and/or for whatever requisite action, if any, to be
undertaken at their end.
SO ORDERED.7
Petitioner appealed to the SEC En Banc, where its appeal
was docketed as SEC-AC No. 539. In a decision dated
March 4, 1996, the SEC En Banc affirmed the above
decision, upon a finding that petitioner's corporate name
was identical or confusingly or deceptively similar to that of
respondent's corporate name.8
Petitioner filed a petition for review with the Court of
Appeals. On October 7, 1997, the Court of Appeals
rendered the assailed decision affirming the decision of
the SEC En Banc. Petitioner's motion for reconsideration
was denied by the Court of Appeals on February 16, 1992.
Hence, the instant petition for review, raising the following
assignment of errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN
CONCLUDING THAT PETITIONER HAS NOT BEEN
DEPRIVED OF ITS RIGHT TO PROCEDURAL DUE
PROCESS, THE HONORABLE COURT OF APPEALS
DISREGARDED THE JURISPRUDENCE APPLICABLE
TO THE CASE AT BAR AND INSTEAD RELIED ON
TOTALLY INAPPLICABLE JURISPRUDENCE.
II
THE HONORABLE COURT OF APPEALS ERRED IN ITS
INTERPRETATION OF THE CIVIL CODE PROVISIONS
ON EXTINCTIVE PRESCRIPTION, THEREBY
RESULTING IN ITS FAILURE TO FIND THAT THE
RESPONDENT'S RIGHT OF ACTION TO INSTITUTE
THE SEC CASE HAS SINCE PRESCRIBED PRIOR TO
ITS INSTITUTION.
III
THE HONORABLE COURT OF APPEALS FAILED TO
CONSIDER AND PROPERLY APPLY THE EXCEPTIONS
ESTABLISHED BY JURISPRUDENCE IN THE
APPLICATION OF SECTION 18 OF THE
CORPORATION CODE TO THE INSTANT CASE.
IV
THE HONORABLE COURT OF APPEALS FAILED TO
PROPERLY APPRECIATE THE SCOPE OF THE
CONSTITUTIONAL GUARANTEE ON RELIGIOUS
FREEDOM, THEREBY FAILING TO APPLY THE SAME
TO PROTECT PETITIONER'S RIGHTS.9
Invoking the case of Legarda v. Court of Appeals,10
petitioner insists that the decision of the Court of Appeals
and the SEC should be set aside because the negligence
of its former counsel of record, Atty. Joaquin Garaygay, in
failing to file an answer after its motion to dismiss was
denied by the SEC, deprived them of their day in court.
The contention is without merit. As a general rule, the
negligence of counsel binds the client. This is based on
the rule that any act performed by a lawyer within the
scope of his general or implied authority is regarded as an
act of his client.11 An exception to the foregoing is where
the reckless or gross negligence of the counsel deprives
the client of due process of law. 12 Said exception,
however, does not obtain in the present case.
In Legarda v. Court of Appeals, the effort of the counsel in
defending his client's cause consisted in filing a motion for
extension of time to file answer before the trial court.
When his client was declared in default, the counsel did
nothing and allowed the judgment by default to become
final and executory. Upon the insistence of his client, the
counsel filed a petition to annul the judgment with the
Court of Appeals, which denied the petition, and again the
counsel allowed the denial to become final and executory.
This Court found the counsel grossly negligent and
consequently declared as null and void the decision
adverse to his client.
The factual antecedents of the case at bar are different.
Atty. Garaygay filed before the SEC a motion to dismiss
on the ground of lack of cause of action. When his client
was declared in default for failure to file an answer, Atty.
Garaygay moved for reconsideration and lifting of the
order of default.13 After judgment by default was rendered
against petitioner corporation, Atty. Garaygay filed a
motion for extension of time to appeal/motion for
reconsideration, and thereafter a motion to set aside the
decision.14
Evidently, Atty. Garaygay was only guilty of simple
negligence. Although he failed to file an answer that led to
the rendition of a judgment by default against petitioner,
his efforts were palpably real, albeit bereft of zeal.15
Likewise, the issue of prescription, which petitioner raised
for the first time on appeal to the Court of Appeals, is
untenable. Its failure to raise prescription before the SEC
can only be construed as a waiver of that defense.16 At any
rate, the SEC has the authority to de-register at all times
and under all circumstances corporate names which in its
estimation are likely to spawn confusion. It is the duty of
the SEC to prevent confusion in the use of corporate
names not only for the protection of the corporations
involved but more so for the protection of the public. 17
Section 18 of the Corporation Code provides:
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 is 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.
Corollary thereto, the pertinent portion of the SEC
Guidelines on Corporate Names states:
(d) If the proposed name contains a word similar to 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 name of the
company already registered;
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 nonprofit
organization, if misleading or likely to injure in the exercise
of its corporate functions, regardless of intent, may be
prevented by the corporation having a prior right, by a suit
for injunction against the new corporation to prevent the
use of the name.18
Petitioner claims that it complied with the aforecited SEC
guideline by adding not only two but eight words to their
registered name, to wit: "Ang Mga Kaanib" and "Sa
Bansang Pilipinas, Inc.," which, petitioner argues,
effectively distinguished it from respondent corporation.
The additional words "Ang Mga Kaanib" and "Sa Bansang
Pilipinas, Inc." in petitioner's name are, as correctly
observed by the SEC, merely descriptive of and also
referring to the members, or kaanib, of respondent who
are likewise residing in the Philippines. These words can
hardly serve as an effective differentiating medium
necessary to avoid confusion or difficulty in distinguishing
petitioner from respondent. This is especially so, since
both petitioner and respondent corporations are using the
same acronym — H.S.K.;19 not to mention the fact that
both are espousing religious beliefs and operating in the
same place. Parenthetically, it is well to mention that the
acronym H.S.K. used by petitioner stands for "Haligi at
Saligan ng Katotohanan."20
Then, too, the records reveal that in holding out their
corporate name to the public, petitioner highlights the
dominant words "IGLESIA NG DIOS KAY KRISTO
HESUS, HALIGI AT SALIGAN NG KATOTOHANAN,"
which is strikingly similar to respondent's corporate name,
thus making it even more evident that the additional words
"Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.", are
merely descriptive of and pertaining to the members of
respondent corporation.21
Significantly, the only difference between the corporate
names of petitioner and respondent are the
words SALIGAN and SUHAY. These words are
synonymous — both mean ground, foundation or support.
Hence, this case is on all fours with Universal Mills
Corporation v. Universal Textile Mills, Inc.,22 where the
Court ruled that the corporate names Universal Mills
Corporation and Universal Textile Mills, Inc., are
undisputably so similar that even under the test of
"reasonable care and observation" confusion may arise.
Furthermore, the wholesale appropriation by petitioner of
respondent's corporate name cannot find justification
under the generic word rule. We agree with the Court of
Appeals' conclusion that a contrary ruling would
encourage other corporations to adopt verbatim and
register an existing and protected corporate name, to the
detriment of the public.
The fact that there are other non-stock religious societies
or corporations using the names Church of the Living God,
Inc., Church of God Jesus Christ the Son of God the
Head, Church of God in Christ & By the Holy Spirit, and
other similar names, is of no consequence. It does not
authorize the use by petitioner of the essential and
distinguishing feature of respondent's registered and
protected corporate name.23
We need not belabor the fourth issue raised by petitioner.
Certainly, ordering petitioner to change its corporate name
is not a violation of its constitutionally guaranteed right to
religious freedom. In so doing, the SEC merely compelled
petitioner to abide by one of the SEC guidelines in the
approval of partnership and corporate names, namely its
undertaking to manifest 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.
WHEREFORE, in view of all the foregoing, the instant
petition for review is DENIED. The appealed decision of
the Court of Appeals is AFFIRMED in toto.
SO ORDERED.
ZUELLIG FREIGHT AND CARGO SYSTEMS, Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION AND
RONALDO V. SAN MIGUEL, Respondents.
G.R. No. 157900 July 22, 2013
DECISION
The mere change in the corporate name is not considered
under the law as the creation of a new corporation; hence,
the renamed corporation remains liable for the illegal
dismissal of its employee separated under that guise.
The Case
Petitioner employer appeals the decision promulgated on
November 6, 2001,1 whereby the Court of Appeals (CA)
dismissed its petition for certiorari and upheld the adverse
decision of the National Labor Relations Commission
(NLRC) finding respondent Ronaldo V. San Miguel to have
been illegally dismissed.
Antecedents
San Miguel brought a complaint for unfair labor practice,
illegal dismissal, non-payment of salaries and moral
damages against petitioner, formerly known as Zeta
Brokerage Corporation (Zeta).2 He alleged that he had
been a checker/customs representative of Zeta since
December 16, 1985; that in January 1994, he and other
employees of Zeta were informed that Zeta would cease
operations, and that all affected employees, including him,
would be separated; that by letter dated February 28,
1994, Zeta informed him of his termination effective March
31, 1994; that he reluctantly accepted his separation pay
subject to the standing offer to be hired to his former
position by petitioner; and that on April 15, 1994, he was
summarily terminated, without any valid cause and due
process.
San Miguel contended that the amendments of the articles
of incorporation of Zeta were for the purpose of changing
the corporate name, broadening the primary functions,
and increasing the capital stock; and that such
amendments could not mean that Zeta had been thereby
dissolved.3
On its part, petitioner countered that San Miguel’s
termination from Zeta had been for a cause authorized by
the Labor Code; that its non-acceptance of him had not
been by any means irregular or discriminatory; that its
predecessor-in-interest had complied with the
requirements for termination due to the cessation of
business operations; that it had no obligation to employ
San Miguel in the exercise of its valid management
prerogative; that all employees had been given sufficient
time to make their decision whether to accept its offer of
employment or not, but he had not responded to its offer
within the time set; that because of his failure to meet the
deadline, the offer had expired; that he had nonetheless
been hired on a temporary basis; and that when it decided
to hire another employee instead of San Miguel, such
decision was not arbitrary because of seniority
considerations.4
Decision of the Labor Arbiter
On November 15, 1999, Labor Arbiter Francisco A. Robles
rendered a decision holding that San Miguel had been
illegally dismissed,5 to wit:
Contrary to respondents’ claim that Zeta ceased
operations and closed its business, we believe that there
was merely a change of business name and primary
purpose and upgrading of stocks of the corporation.
Zuellig and Zeta are therefore legally the same person and
entity and this was admitted by Zuellig’s counsel in its
letter to the VAT Department of the Bureau of Internal
Revenue on 08 June 1994 (Reply, Annex "A"). As such,
the termination of complainant’s services allegedly due to
cessation of business operations of Zeta is deemed illegal.
Notwithstanding his receipt of separation benefits from
respondents, complainant is not estopped from
questioning the legality of his dismissal.6
xxxx
WHEREFORE, in view of the foregoing, complainant
is found to have been illegally dismissed. Respondent
Zuellig Freight and Cargo Systems, Inc. is hereby
ordered to pay complainant his backwages from April
1, 1994 up to November 15, 1999, in the amount of
THREE HUNDRED TWENTY FOUR THOUSAND
SIX HUNDRED FIFTEEN PESOS (₱324,615.00).
The same respondent is ordered to pay the
complainant Ronaldo San Miguel attorney’s fees
equivalent to ten percent (10%) of the total award.
All other claims are dismissed.
SO ORDERED.7
Decision of the NLRC
Petitioner appealed, but the NLRC issued a resolution on
April 4, 2001,8 affirming the decision of the Labor Arbiter.
The NLRC later on denied petitioner’s motion for
reconsideration via its resolution dated June 15, 2001.9
Decision of the CA
Petitioner then filed a petition for certiorari in the CA,
imputing to the NLRC grave abuse of discretion amounting
to lack or excess of jurisdiction, as follows:
1. In failing to consider the circumstances attendant to
the cessation of business of Zeta;
2. In failing to consider that San Miguel failed to meet
the deadline Zeta fixed for its employees to accept the
offer of petitioner for re-employment;
3. In failing to consider that San Miguel’s employment
with petitioner from April 1 to 15, 1994 could in no way
be interpreted as a continuation of employment with
Zeta;
4. In admitting in evidence the letter dated January 21,
1994 of petitioner’s counsel to the Bureau of Internal
Revenue; and
5. In awarding attorney’s fees to San Miguel based on
Article 2208 of the Civil Code and Article 111 of the
Labor Code.
On November 6, 2002, the CA promulgated its assailed
decision dismissing the petition for certiorari,10 viz:
A careful perusal of the records shows that the closure of
business operation was not validly made. Consider the
Certificate of Filing of the Amended Articles of
Incorporation which clearly shows that petitioner Zuellig is
actually the former Zeta as per amendment dated January
21, 1994. The same observation can be deduced with
respect to the Certificate of Filing of Amended By-Laws
dated May 10, 1994. As aptly pointed out by private
respondent San Miguel, the amendment of the articles of
incorporation merely changed its corporate name,
broadened its primary purpose and increased its
authorized capital stocks. The requirements contemplated
in Article 283 were not satisfied in this case. Good faith
was not established by mere registration with the
Securities and Exchange Commission (SEC) of the
Amended Articles of Incorporation and ByLaws. The
factual milleu of the case, considered in its totality, shows
that there was no closure to speak of. The termination of
services allegedly due to cessation of business operations
of Zeta was illegal. Notwithstanding private respondent
San Miguel’s receipt of separation benefits from petitioner
Zuellig, the former is not estopped from questioning the
legality of his dismissal.
Petitioner Zuellig’s allegation that the five employees who
refused to receive the termination letters were verbally
informed that they had until 6:00 p.m. of March 1, 1994 to
receive the termination letters and sign the employment
contracts, otherwise the former would be constrained to
withdraw its offer of employment and seek for
replacements in order to ensure the smooth operations of
the new company from its opening date, is of no moment
in view of the foregoing circumstances. There being no
valid closure of business operations, the dismissal of
private respondent San Miguel on alleged authorized
cause of cessation of business pursuant to Article 283 of
the Labor Code, was utterly illegal. Despite verbal notice
that the employees had until 6:00 p.m. of March 1, 1994 to
receive the termination letters and sign the employment
contracts, the dismissal was still illegal for the said
condition is null and void. In point of facts and law, private
respondent San Miguel remained an employee of
petitioner Zuellig. If at all, the alleged closure of business
operations merely operates to suspend employment
relation since it is not permanent in character.
Where there is no showing of a clear, valid, and legal
cause for the termination of employment, the law
considers the matter a case of illegal dismissal and the
burden is on the employer to prove that the termination
was for a valid or authorized cause.
Findings of facts of the NLRC, particularly when both the
NLRC and Labor Arbiter are in agreement, are deemed
binding and conclusive upon the Supreme Court.
As regards the second and last argument advanced by
petitioner Zuellig that private respondent San Miguel is not
entitled to attorney’s fees, this Court finds no reason to
disturb the ruling of the public respondent NLRC.
Petitioner Zuellig maintains that the factual backdraft (sic)
of this petition does not call for the application of Article
2208 of the Civil Code and Article 111 of the Labor Code
as private respondent’s wages were not withheld. On the
other hand, public respondent NLRC argues that
paragraphs 2 and 3, Article 2208 of the Civil Code and
paragraph (a), Article 111 of the Labor Code justify the
award of attorney’s fees. NLRC was saying to the effect
that by petitioner Zuellig’s act of illegally dismissing private
respondent San Miguel, the latter was compelled to litigate
and thus incurred expenses to protect his interest. In the
same passion, private respondent San Miguel contends
that petitioner Zuellig acted in gross and evident bad faith
in refusing to satisfy his plainly valid, just and demandable
claim.
After careful and judicious evaluation of the arguments
advanced to support the propriety or impropriety of the
award of attorney’s fees to private respondent San Miguel,
this Court finds the resolutions of public respondent NLRC
supported by laws and jurisprudence. It does not need
much imagination to see that by reason of petitioner
Zuellig’s feigned closure of business operations, private
respondent San Miguel incurred expenses to protect his
rights and interests. Therefore, the award of attorney’s
fees is in order.
WHEREFORE, in view of the foregoing, the resolutions
dated April 4, 2001 and June 15, 2001 of the National
Labor Relations Commission affirming the November 15,
1999 decision of the Labor
Arbiter in NLRC NCR 05-03639-94 (CA No. 022861-00)
are hereby AFFIRMED and the instant petition for
certiorari is hereby DENIED and ordered DISMISSED.
SO ORDERED.
Hence, petitioner appeals.
Issues
Petitioner asserts that the CA erred in holding that the
NLRC did not act with grave abuse of discretion in ruling
that the closure of the business operation of Zeta had not
been bona fide, thereby resulting in the illegal dismissal of
San Miguel; and in holding that the NLRC did not act with
grave abuse of discretion in ordering it to pay San Miguel
attorney’s fees.11
In his comment,12 San Miguel counters that the CA
correctly found no grave abuse of discretion on the part of
the NLRC because the ample evidence on record showed
that he had been illegally terminated; that such finding
accorded with applicable laws and jurisprudence; and that
he was entitled to back wages and attorney’s fees.
In its reply,13 petitioner reiterates that the cessation of
Zeta’s business, which resulted in the severance of San
Miguel from his employment, was valid; that the CA erred
in upholding the NLRC’s finding that San Miguel had been
illegally terminated; that his acknowledgment of the validity
of his separation from Zeta by signing a quitclaim and
waiver estopped him from claiming that it had
subsequently employed him; and that the award of
attorney’s fees had no basis in fact and in law.
Ruling
The petition for review on certiorari is denied for its lack of
merit.
First of all, the outcome reached by the CA that the NLRC
did not commit any grave abuse of discretion was borne
out by the records of the case. We cannot undo such
finding without petitioner making a clear demonstration to
the Court now that the CA gravely erred in passing upon
the petition for certiorari of petitioner.
Indeed, in a special civil action for certiorari brought
against a court or quasi-judicial body with jurisdiction over
a case, petitioner carries the burden of proving that the
court or quasi-judicial body committed not a merely
reversible error but a grave abuse of discretion amounting
to lack or excess of jurisdiction in issuing the impugned
order.14Showing mere abuse of discretion is not enough,
for it is necessary to demonstrate that the abuse of
discretion was grave. Grave abuse of discretion means
either that the judicial or quasi-judicial power was
exercised in an arbitrary or despotic manner by reason of
passion or personal hostility, or that the respondent judge,
tribunal or board evaded a positive duty, or virtually
refused to perform the duty enjoined or to act in
contemplation of law, such as when such judge, tribunal or
board exercising judicial or quasi-judicial powers acted in
a capricious or whimsical manner as to be equivalent to
lack of jurisdiction.15 Under the circumstances, the CA
committed no abuse of discretion, least of all grave,
because its justifications were supported by the records
and by the applicable laws and jurisprudence.
Secondly, it is worthy to point out that the Labor Arbiter,
the NLRC, and the CA were united in concluding that the
cessation of business by Zeta was not a bona fide closure
to be regarded as a valid ground for the termination of
employment of San Miguel within the ambit of Article 283
of the Labor Code. The provision pertinently reads:
Article 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.
The unanimous conclusions of the CA, the NLRC and the
Labor Arbiter, being in accord with law, were not tainted
with any abuse of discretion, least of all grave, on the part
of the NLRC. Verily, the amendments of the articles of
incorporation of Zeta to change the corporate name to
Zuellig Freight and Cargo Systems, Inc. did not produce
the dissolution of the former as a corporation. For sure,
the Corporation Code defined and delineated the different
modes of dissolving a corporation, and amendment of the
articles of incorporation was not one of such modes. The
effect of the change of name was not a change of the
corporate being, for, as well stated in Philippine First
Insurance Co., Inc. v. Hartigan:16 "The changing of the
name of a corporation is no more the creation of a
corporation than the changing of the name of a natural
person is begetting of a natural person. The act, in both
cases, would seem to be what the language which we use
to designate it imports – a change of name, and not a
change of being."
The consequences, legal and otherwise, of the change of
name were similarly dealt with in P.C. Javier & Sons, Inc.
v. Court of Appeals,17 with the Court holding thusly:
From the foregoing documents, it cannot be denied that
petitioner corporation was aware of First Summa Savings
and Mortgage Bank’s change of corporate name to PAIC
Savings and Mortgage Bank, Inc. Knowing fully well of
such change, petitioner corporation has no valid reason
not to pay because the IGLF loans were applied with and
obtained from First Summa Savings and Mortgage Bank.
First Summa Savings and Mortgage Bank and PAIC
Savings and Mortgage Bank, Inc., are one and the same
bank to which petitioner corporation is indebted. A change
in the corporate name does not make a new corporation,
whether effected by a special act or under a general law. It
has no effect on the identity of the corporation, or on its
property, rights, or liabilities. The corporation, upon to
change in its name, is in no sense a new corporation, nor
the successor of the original corporation. It is the same
corporation with a different name, and its character is in no
respect changed. (Bold underscoring supplied for
emphasis)
In short, Zeta and petitioner remained one and the same
corporation. The change of name did not give petitioner
the license to terminate employees of Zeta like San Miguel
without just or authorized cause. The situation was not
similar to that of an enterprise buying the business of
another company where the purchasing company had no
obligation to rehire terminated employees of the
latter.18 Petitioner, despite its new name, was the mere
continuation of Zeta's corporate being, and still held the
obligation to honor all of Zeta's obligations, one of which
was to respect San Miguel's security of tenure. The
dismissal of San Miguel from employment on the pretext
that petitioner, being a different corporation, had no
obligation to accept him as its employee, was illegal and
ineffectual.
And, lastly, the CA rightfully upheld the NLRC's affirmance
of the grant of attorney's fees to San Miguel. Thereby, the
NLRC did not commit any grave abuse of its discretion,
considering that San Miguel had been compelled to litigate
and to incur expenses to protect his rights and interest. In
Producers Bank of the Philippines v. Court of
Appeals,19the Court ruled that attorney's fees could be
awarded to a party whom an unjustified act of the other
party compelled to litigate or to incur expenses to protect
his interest. It was plain that petitioner's refusal to reinstate
San Miguel with backwages and other benefits to which he
had been legally entitled was unjustified, thereby entitling
him to recover attorney's fees.
WHEREFORE, the Court AFFIRMS the decision of the
Court of Appeals promulgated on November 6, 2002; and
ORDERS petitioner to pay the costs of suit.
SO ORDERED.
CLAVECILLIA RADIO SYSTEM, petitioner-appellant,
vs.
HON. AGUSTIN ANTILLON, as City Judge of the
Municipal Court of Cagayan de Oro City
and NEW CAGAYAN GROCERY, respondents-
appellees.
G.R. No. L-22238 February 18, 1967
This is an appeal from an order of the Court of First
Instance of Misamis Oriental dismissing the petition of the
Clavecilla Radio System to prohibit the City Judge of
Cagayan de Oro from taking cognizance of Civil Case No.
1048 for damages.
It appears that on June 22, 1963, the New Cagayan
Grocery filed a complaint against the Clavecilla Radio
System alleging, in effect, that on March 12, 1963, the
following message, addressed to the former, was filed at
the latter's Bacolod Branch Office for transmittal thru its
branch office at Cagayan de Oro:
NECAGRO CAGAYAN DE ORO (CLAVECILLA)
REURTEL WASHED NOT AVAILABLE REFINED
TWENTY FIFTY IF AGREEABLE SHALL SHIP LATER
REPLY POHANG
The Cagayan de Oro branch office having received the
said message omitted, in delivering the same to the
New Cagayan Grocery, the word "NOT" between the
words "WASHED" and "AVAILABLE," thus changing
entirely the contents and purport of the same and
causing the said addressee to suffer damages. After
service of summons, the Clavecilla Radio System filed a
motion to dismiss the complaint on the grounds that it
states no cause of action and that the venue is
improperly laid. The New Cagayan Grocery interposed
an opposition to which the Clavecilla Radio System filed
its rejoinder. Thereafter, the City Judge, on September
18, 1963, denied the motion to dismiss for lack of merit
and set the case for hearing. 1äwphï1.ñët
Hence, the Clavecilla Radio System filed a petition for
prohibition with preliminary injunction with the Court of
First Instance praying that the City Judge, Honorable
Agustin Antillon, be enjoined from further proceeding with
the case on the ground of improper venue. The
respondents filed a motion to dismiss the petition but this
was opposed by the petitioner. Later, the motion was
submitted for resolution on the pleadings.
In dismissing the case, the lower court held that the
Clavecilla Radio System may be sued either in Manila
where it has its principal office or in Cagayan de Oro City
where it may be served, as in fact it was served, with
summons through the Manager of its branch office in said
city. In other words, the court upheld the authority of the
city court to take cognizance of the case. 1äwphï1.ñët
In appealing, the Clavecilla Radio System contends that
the suit against it should be filed in Manila where it holds
its principal office.
It is clear that the case for damages filed with the city court
is based upon tort and not upon a written contract. Section
1 of Rule 4 of the New Rules of Court, governing venue of
actions in inferior courts, provides in its paragraph (b) (3)
that when "the action is not upon a written contract, then in
the municipality where the defendant or any of the
defendants resides or may be served with summons."
(Emphasis supplied)
Settled is the principle in corporation law that the
residence of a corporation is the place where its principal
office is established. Since it is not disputed that the
Clavecilla Radio System has its principal office in Manila, it
follows that the suit against it may properly be filed in the
City of Manila.
The appellee maintain, however, that with the filing of the
action in Cagayan de Oro City, venue was properly laid on
the principle that the appellant may also be served with
summons in that city where it maintains a branch office.
This Court has already held in the case of Cohen vs.
Benguet Commercial Co., Ltd., 34 Phil. 526; that the term
"may be served with summons" does not apply when the
defendant resides in the Philippines for, in such case, he
may be sued only in the municipality of his residence,
regardless of the place where he may be found and
served with summons. As any other corporation, the
Clavecilla Radio System maintains a residence which is
Manila in this case, and a person can have only one
residence at a time (See Alcantara vs. Secretary of the
Interior, 61 Phil. 459; Evangelists vs. Santos, 86 Phil.
387). The fact that it maintains branch offices in some
parts of the country does not mean that it can be sued in
any of these places. To allow an action to be instituted in
any place where a corporate entity has its branch offices
would create confusion and work untold inconvenience to
the corporation.
It is important to remember, as was stated by this Court
in Evangelista vs. Santos, et al., supra, that the laying of
the venue of an action is not left to plaintiff's caprice
because the matter is regulated by the Rules of Court.
Applying the provision of the Rules of Court, the venue in
this case was improperly laid.
The order appealed from is therefore reversed, but without
prejudice to the filing of the action in Which the venue
shall be laid properly. With costs against the respondents-
appellees.
HYATT ELEVATORS AND ESCALATORS
CORPORATION,
vs
GOLDSTAR ELEVATORS, PHILS., INC.,
G.R. No. 161026 October 24, 2005
DECISION
Well established in our jurisprudence is the rule that
the residence of 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.
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
v. JOHN L. MANNING, W.D. McDONALD, E.E.
SIMMONS and THE COURT OF TAX
APPEALS, Respondents.
[G.R. No. L-28398. August 6, 1975.]
SYNOPSIS
Under a trust agreement, Julius Reese who owned 24,700
shares of the 25,000 common shares of MANTRASCO,
and the three private respondents who owned the rest, at
100 shares each, deposited all their shares with the
Trustees. The trust agreement provided that upon Reese’s
death MANTRASCO shall purchase Reese’s shares. The
trust agreement was executed in view of Reese’s desire
that upon his death the Company would continue under
the management of respondents. Upon Reese’s death and
partial payment by the company of Reeses’s share, a new
certificate was issued in the name of MANTRASCO, and
the certificate indorsed to the Trustees. Subsequently, the
stockholders reverted the 24,700 shares in the Treasury to
the capital account of the company as stock dividends to
be distributed to the stockholders. When the entire
purchase price of Reese’s interest in the company was
paid in full by the latter, the trust agreement was
terminated, and the shares held in trust were delivered to
the company.
The Bureau of Internal Revenue concluded that the
distribution of the 24,700 shares of Reese as stock
dividends was in effect a distribution of the "assets or
property of the corporation." It therefore assessed
respondents for deficiency income taxes as well as for
fraud penalty and interest charges. The Court of Tax
Appeals absolved respondent from any liability for
receiving the questioned stock dividends on the ground
that their respective one-third interest in the Company
remained the same before and after the declaration of the
stock dividends and only the number of shares held by
each of them had changed.
On a petition for review, the Supreme Court held that the
newly acquired shares were not treasury shares; their
declaration as treasury stock dividends was a complete
nullity and that the assessment by the Commissioner of
fraud penalty and the imposition of interest charges
pursuant to the provision of the Tax Code were made in
accordance with law.
Judgment of the Court of Tax Appeals set aside.
SYLLABUS
1. PRIVATE CORPORATIONS; SHARES OF STOCKS;
TREASURY; SHARES. — Treasury shares are stocks
issued and fully paid for and re-acquired by the
corporation either by purchase, donation, forfeiture or
other means. They are therefore issued shares, but being
in the treasury they do not have the status of outstanding
shares. Consequently, although a treasury share, not
having been retired by the corporation re-acquiring it, may
be re-issued or sold again, such share, as long as it is
held by the corporation as a treasury share, participates
neither in dividends, because dividends cannot be
declared by the corporation to itself, nor in the meetings of
the corporations as voting stock, for otherwise equal
distribution of voting powers among stockholders will be
effectively lost and the directors will be able to perpetuate
their control of the corporation though it still represent a
paid — for interest in the property of the corporation.
2. ID.; ID.; ID.; DECLARATION OF QUESTIONED
SHARES AS TREASURY STOCK DIVIDENDS, A
NULLITY. — Where the manifest intention of the parties to
the trust agreement was, in sum and substance, to treat
the shares of a deceased stockholder as absolutely
outstanding shares of said stockholder’s estate until they
were fully paid. the declaration of said shares as treasury
stock dividend was a complete nullity and plainly violative
of public policy.
3. ID.; ID.; STOCK DIVIDEND PAYABLE ONLY FROM
RETAINED EARNINGS. — A stock dividend, being one
payable in capital stock, cannot be declared out of
outstanding corporate stock, but only from retained
earnings.
4. ID.; ID.; PURCHASE OF HOLDING RESULTING IN
DISTRIBUTION OF EARNINGS TAXABLE. — Where by
the use of a trust instrument as a convenient technical
device, respondents bestowed unto themselves the full
worth and value of a deceased stockholder’s corporate
holding acquired with the very earnings of the companies,
such package device which obviously is not designed to
carry out the usual stock dividend purpose of corporate
expansion reinvestment, e.g., the acquisition of additional
facilities and other capital budget items, but exclusively for
expanding the capital base of the surviving stockholders in
the company, cannot be allowed to deflect the latter’s
responsibilities toward our income tax laws. The
conclusion is ineluctable that whenever the company
parted with a portion of its earnings "to buy" the corporate
holdings of the deceased stockholders, it was in ultimate
effect and result making a distribution of such earnings to
the surviving stockholders. All these amounts are
consequently subject to income tax as being, in truth and
in fact, a flow of cash benefits to the surviving
stockholders.
5. ID.; ID.; ID.; COMMISSIONER ASSESSMENT BASED
ON THE TOTAL ACQUISITION COST OF THE ALLEGED
TREASURY STOCK DIVIDENDS, ERROR. — Where the
surviving stockholders, by resolution, partitioned among
themselves, as treasury stock dividends, the deceased
stockholder’s interest, and earnings of the corporation
over a period of years were used to gradually wipe out the
holdings therein of said deceased stockholder, the
earnings (which in effect have been distributed to the
surviving stockholders when they appropriated among
themselves the deceased stockholder’s interest), should
be taxed for each of the corresponding years when
payments were made to the deceased’s estate on account
of his shares. In other words, the Tax Commissioner may
not asses the surviving stockholders, for income tax
purposes, the total acquisition cost of the alleged treasury
stock dividends in one lump sum. However, with regard to
payment made with the corporation’s earnings before the
passage of the resolution declaring as stock dividends the
deceased stockholder’s interest (while indeed those
earnings were utilized in those years to gradually pay off
the value of the deceased stockholder’s holdings), the
surviving stockholders should be liable (in the absence of
evidence that prior to the passage of the stockholder’s
resolution the contributed of each of the surviving
stockholder rose corresponding), for income tax purposes,
to the extent of the aggregate amount paid by the
corporation (prior to such resolution) to buy off the
deceased stockholder’s shares. The reason is that it was
only by virtue of the authority contained in said resolution
that the surviving stockholders actually, albeit illegally,
appropriated and petitioned among themselves the
stockholders equity representing the deceased
stockholder’s interest.
6. TAXATION; INCOME TAX; ASSESSMENT OF FRAUD
PENALTY AND IMPOSITION OF INTEREST CHARGES
IN ACCORDANCE WITH LAW DESPITE NULLITY OF
RESOLUTION AUTHORIZING DISTRIBUTION OF
EARNINGS. — The fact that the resolution authorizing the
distribution of earnings is null and void is of no moment.
Under the National Internal Revenue Code, income tax is
assessed on income received from any property, activity
or service that produces income. The Tax Code stands as
an indifferent, neutral party on the matter of where the
income comes from. The action taken by the
Commissioner of assessing fraud penalty and imposing
interest charges pursuant to the provisions of the Tax
Code is in accordance with law.
DECISION
This is a petition for review of the decision of the Court of
Tax Appeals, in CTA case 1626, which set aside the
income tax assessments issued by the Commissioner of
Internal Revenue against John L. Manning, W.D.
McDonald and E.E. Simmons (hereinafter referred to as
the respondents), for alleged undeclared stock dividends
received in 1958 from the Manila Trading and Supply Co.
(hereinafter referred to as the MANTRASCO) valued at
P7,973,660.
In 1952 the MANTRASCO had an authorized capital stock
of P2,500,000 divided into 25,000 common shares; 24,700
of these were owned by Julius S. Reese, and the rest, at
100 shares each, by the three respondents.
On February 29, 1952, in view of Reese’s desire that upon
his death MANTRASCO and its two subsidiaries,
MANTRASCO (Guam), Inc. and the Port Motors, Inc.,
would continue under the management of the
respondents, a trust agreement on his and the
respondents’ interests in MANTRASCO was executed by
and among Reese (therein referred to as OWNER),
MANTRASCO (therein referred to as COMPANY), the law
firm of Ross, Selph, Carrascoso and Janda (therein
referred to as TRUSTEES), and the respondents (therein
referred to as MANAGERS).
The trust agreement pertinently provides as follows:
"1. Upon the execution of this agreement the OWNER
shall deposit with the TRUSTEES, duly endorsed and
ready for transfer Twenty-Four Thousand Seven Hundred
(24,700) shares of the capital stock of the COMPANY,
these shares being all shares of the capital stock of the
COMPANIES belonging to him . . .
"2. Upon the execution of this Agreement the MANAGERS
shall deposit with the TRUSTEES, duly endorsed and
ready for transfer, all shares of the capital stock of the
COMPANIES belonging to any of them.
"3. (a) The OWNER and the MANAGERS, and each of
them, agree that if any of them shall at any time during the
life of this trust acquire any additional shares of stock of
any of the COMPANIES, or of any successor company, or
any shares in substitution, exchange or replacement of the
shares subject to this agreement, they shall forthwith
endorse and deposit such shares with the TRUSTEES
hereunder and such additional or other shares shall
become subject to this agreement; shares deposited by
the OWNER and shares received by the TRUSTEES as
stock dividends on, or in substitution, exchange or
replacement of, such shares so deposited under this
agreement being MANAGERS’ SHARES.
"(b) All shares deposited under paragraphs 1, 2 and 3(a)
hereof shall, during the life of the OWNER, remain in the
name of and shall be voted by the respective parties
making the deposit ...
"4. (a) Upon the death of the OWNER and the receipt by
the TRUSTEES of the initial payment from the company
purchasing the OWNER’S SHARES, the TRUSTEES shall
cause the OWNER’S SHARES to be transferred into the
name of such company and such company shall
thereupon transfer such shares into the name of the
TRUSTEES and the TRUSTEES shall hold such shares
until payment for all such shares shall have been made by
the company as provided in this agreement.
x x x TRUSTEES shall receive an amount in excess of the
"(c) The TRUSTEES shall vote all stock standing in their
name or the name of their nominees at all meetings and
shall be in all respects entitled to all the rights as owners
of said shares, subject, however, to the provisions of this
agreement of trust.
"(d) Any and all dividends paid on said shares after the
death of the OWNER shall be subject to the provisions of
this agreement.
x x x x
"5. (b) It is expressly agreed and understood, however,
that the declaration of dividends and amount of earnings
transferred to surplus shall be subject to the approval of
the TRUSTEES and the TRUSTEES shall participate to
such extent in the affairs of the COMPANIES as they
deem necessary to insure the carrying out of this
agreement and the discharge of the obligations of the
COMPANIES and each of them and of the MANAGERS
hereunder.
"(c) The TRUSTEES shall designate one or more directors
of each of the COMPANIES as they shall consider
advisable and corresponding shares shall be transferred
to such directors to qualify them to act.
x x x wholly or partially liquidating or reducing the capital of any
"8. (a) Upon the death of the OWNER, the COMPANIES
or any one or more of them shall purchase the OWNER’S
SHARES; it being the intent that any of the COMPANIES
shall purchase all or a proportionate part of the OWNER’S
SHARES . . .
"(b) The purchase price of such shares shall be the book
value of such share computed in United States dollars . . .
x x x determine to be necessary to enable them to comply with
"(d) All dividends paid on stock that had been OWNER’S
SHARES, from the time of the transfer of such shares by
one or more of the COMPANIES to the TRUSTEES as
provided in Article 4 until payment in full for such
OWNER’S SHARES shall have been made by each of the
COMPANIES which shall have purchased the same, shall
be credited as payments on account of the purchase price
of such shares and shall be a prepayment on account of
the next due installment or installments of such purchase
price.
x x x On February 2, 1955, after MANTRASCO made a partial
"12. The TRUSTEES may from time to time increase or
decrease the unpaid balance of the purchase price of the
shares being purchased by any COMPANY or
COMPANIES should they in their exclusive discretion
determine that such increase or decrease would be
necessary to carry out the intention of the parties that the
Estate and heirs of the OWNER shall receive the fair value
of the shares deposited in Trust as such value existed at
the date of the death of the OWNER. . .
"13. Should the said COMPANIES or any of them be
unable or unwilling to comply with their obligations
hereunder when due, the TRUSTEES may terminate this
agreement and dispose of all the shares of stock
deposited hereunder, whether or not payment shall have
been made for part of such stock, applying the proceeds
of such sale or disposition to the unpaid balance of the
purchase price:
"(a) If, upon any such sale or disposition of the stock, the
unpaid balance of the purchase price agreed to be paid by
the COMPANIES for the OWNER’S SHARES such
excess, after deducting all expenses, charges and taxes,
shall be paid to the then MANAGERS.
x x x
"17. Until the delivery to him of the shares purchased by
him, no MANAGER, shall sell, assign, mortgage, pledge,
transfer or in anywise encumber or hypothecate such
shares or his interest in this agreement.
x x
"19. After the death of the OWNER and during the period
of this trust the COMPANIES shall pay no dividends
except as may be authorized by the TRUSTEES.
Dividends on MANAGER’S SHARES shall, so long as
they shall not be in default under this agreement, be paid
over by the TRUSTEES to the MANAGERS. Dividends on
OWNER’S SHARES shall be applied in liquidation of the
COMPANIES’ liabilities hereunder as provided in Article
8(d).
x x x
"26. The TRUSTEES may, after the death of the OWNER
and during the life of this trust, vote any and all shares
held in trust, at any general and special meeting of
stockholders for all purposes, including but not limited to
COMPANY or COMPANIES, authorizing the sale of any or
all assets, and election of directors . . .
x x x
"28. The COMPANIES and each of them undertake and
agree by proper corporate act to reduce their
capitalization, sell or encumber their assets, amend their
articles of incorporation, reorganize, liquidate, dissolve
and do all other things the TRUSTEES in their discretion
their obligations hereunder and the TRUSTEES are
hereby irrevocably authorized to vote all shares of the
COMPANIES and each of them at any general or special
meeting for the accomplishment of such purposes. . . ." cralaw
virtua1aw library
On October 19, 1954 Reese died. The projected transfer
of his shares in the name of MANTRASCO could not,
however, be immediately effected for lack of sufficient
funds to cover initial payment on the shares.
payment of Reese’s shares, the certificate for the 24,700
shares in Reese’s name was cancelled and a new
certificate was issued in the name of MANTRASCO. On
the same date, and in the meantime that Reese’s interest
had not been fully paid, the new certificate was endorsed
to the law firm of Ross, Selph, Carrascoso and Janda, as
trustees for and in behalf of MANTRASCO.
On December 22, 1958, at a special meeting of
MANTRASCO stockholders, the following resolution was
passed:
"RESOLVED, that the 24,700 shares in the Treasury be
reverted back to the capital account of the company as a
stock dividend to be distributed to shareholders of record
at the close of business on December 22, 1958, in
accordance with the action of the Board of Directors at its
meeting on December 19, 1958 which action is hereby
approved and confirmed." cralaw virtua1aw library
On November 25, 1963 the entire purchase price of
Reese’s interest in MANTRASCO was finally paid in full by
the latter, On May 4, 1964 the trust agreement was
terminated and the trustees delivered to MANTRASCO all
the shares which they were holding in trust.
Meanwhile, on September 14, 1962, an examination of
MANTRASCO’s books was ordered by the Bureau of
Internal Revenue. The examination disclosed that (a) as of
December 31, 1958 the 24,700 shares declared as
dividends had been proportionately distributed to the
respondents, representing a total book value or acquisition
cost of P7,973,660; (b) the respondents failed to declare
the said stock dividends as part of their taxable income for
the year 1958; and (c) from 1956 to 1961 the following
amounts were paid by MANTRASCO to Reese’s estate by
virtue of the trust agreement, to wit: chanrob1es virtual 1aw library
Amounts
Year Liabilities Paid
1956 P5,830,587.86 P 2,143,073.00
1957 5,317,137.86 513,450.00
1958 4,824,059.28 493,078.58
1959 4,319,420.14 504,639.14
1960 3,849,720.14 469,700.00
1961 3,811,387.69 38,332.45
On the basis of their examination, the BIR examiners
concluded that the distribution of Reese’s shares as stock
dividends was in effect a distribution of the "asset or
property of the corporation as may be gleaned from the
payment of cash for the redemption of said stock and
distributing the same as stock dividend." On April 14, 1965
the Commissioner of Internal Revenue issued notices of
assessment for deficiency income taxes to the
respondents for the year 1958, as follows:
J.L. Manning W.D. McDonald E.E. Simmons
Deficiency Income Tax P1,416,469.00 P1,442,719.00
P1,450,434.00
Add 50% surcharge* 723,234.50 721,359.507 25,217.00
1/2% monthly interest from
6-20-59 to 6-20-62 260,364.42 259,689.42 261,078.12
———— ———— ————
chanrob1es virtual 1aw library
TOTAL AMOUNT DUE & COLLECTIBLE P2,430,067.92
P2,423,767.92 2,436,729.12
The respondents unsuccessfully challenged the foregoing
assessments and, failing to secure a favorable
reconsideration, appealed to the Court of Tax Appeals.
On October 30, 1967 the CTA rendered judgment
absolving the respondents from any liability for receiving
the questioned stock dividends on the ground that their
respective one-third interest in MANTRASCO remained
the same before and after the declaration of stock
dividends and only the number of shares held by each of
them had changed.
Hence, the present recourse.
All the parties rely upon the same provisions of the Tax
Code and internal revenue regulations to bolster their
respective positions. These are:
A. National Internal Revenue Code
"SEC. 83. Distribution of dividends or assets by
corporations — (a) Definition of Dividends — The term
‘dividends’ when used in this Title means any distribution
made by a corporation to its shareholders out of its
earnings or profits accrued since March first, nineteen
hundred and thirteen, and payable to its shareholders,
whether in money or in other property.
"Where a corporation distributes all of its assets in
complete liquidation or dissolution the gain realized or loss
sustained by the stockholder, whether individual or
corporate, is a taxable income or deductible loss, as the
case may be.
"(b) Stock dividend. — A stock dividend representing the
transfer of surplus to capital account shall not be subject
to tax. However, if a corporation cancels or redeems stock
issued as a dividend at such time and in such manner as
to make the distribution and cancellation or redemption, in
whole or in part, essentially equivalent to the distribution of
a taxable dividend, the amount so distributed in
redemption or cancellation of the stock shall be
considered as taxable income to the extent that it
represents a distribution of earnings or profits
accumulated after March first, nineteen hundred and
thirteen."
B. B.I.R. Regulations
"SEC. 251. Dividends paid in property. — Dividends paid
in securities or other property (other than its own stock), in
which the earnings of the corporation have been invested,
are income to the recipients to the amount of the full
market value of such property when receivable by
individual stockholders . . .
"SEC. 252. Stock dividend. — A stock dividend which
represents the transfer of surplus to capital account is not
subject to income tax. However, a dividend in stock may
constitute taxable income to the recipients thereof
notwithstanding the fact that the officers or directors of the
corporation (as defined in section 84) choose to call such
distribution as a stock dividend. The distinction between a
stock dividend which does not, and one which does,
constitute income taxable to the shareholders is the
distinction between a stock dividend which works no
change in the corporate entity, the same interest in the
same corporation being represented after the distribution
by more shares of precisely the same character, and a
stock dividend where there either has been change of
corporate identity or a change in the nature of the shares
issued as dividends whereby the proportional interest of
the shareholder after the distribution is essentially different
from the former interest. A stock dividend constitutes
income if it gives the shareholder an interest different from
that which his former stockholdings represented. A stock
dividend does not constitute income if the new shares
confer no different rights or interests than did the old —
the new certificate plus the old representing the same
proportionate interest in the net assets of the corporation
as did the old."
The parties differ, however, on the taxability of the
"treasury" stock dividends received by the respondents.
The respondents anchor their argument on the same basis
as the Court of Tax Appeals; whereas the Commissioner
maintains that the full value (P7,973,660) of the shares
redeemed from Reese by MANTRASCO which were
subsequently distributed to the respondents as stock
dividends in 1958 should be taxed as income of the
respondents for that year, the said distribution being in
effect a distribution of cash. The respondents’ interests in
MANTRASCO, he further argues, were only .4% prior to
the declaration of the stock dividends in 1958, but rose to
33 1/3% each after the said declaration.
In submitting their respective contentions, it is the
assumption of both parties that the 24,700 shares
declared as stock dividends were treasury shares. We are
however convinced, after a careful study of the trust
agreement, that the said shares were not, on December
22, 1958 or at anytime before or after that date, treasury
shares. The reasons are quite plain.
Although authorities may differ on the exact legal and
accounting status of so-called "treasury shares," 1 they
are more or less in agreement that treasury shares are
stocks issued and fully paid for and re-acquired by the
corporation either by purchase, donation, forfeiture or
other means. 2 Treasury shares are therefore issued
shares, but being in the treasury they do not have the
status of outstanding shares. 3 Consequently, although a
treasury share, not having been retired by the corporation
re-acquiring it, may be re-issued or sold again, such
share, as long as it is held by the corporation as a treasury
share, participates neither in dividends, because dividends
cannot be declared by the corporation to itself, 4 nor in the
meetings of the corporation as voting stock, for otherwise
equal distribution of voting powers among stockholders
will be effectively lost and the directors will be able to
perpetuate their control of the corporation, 5 though it still
represents a paid-for interest in the property of the
corporation. 6 The foregoing essential features of a
treasury stock are lacking in the questioned shares. Thus,
(a) under paragraph 4(c) of the trust agreement, the
trustees were authorized to vote all stock standing in their
names at all meetings and to exercise all rights "as owners
of said shares" — this authority is reiterated in paragraphs
26 and 28 of the trust agreement;
(b) under paragraph 4(d), "Any and all dividends paid on
said shares after the death of the OWNER shall be subject
to the provisions of this agreement;"
(c) under paragraph 5(b), the amount of retained earnings
to be declared as dividends was made subject to the
approval of the trustees of the 24,700 shares;
(d) under paragraph 5(c), the choice of corporate directors
was delegated exclusively to the trustees who were also
given the authority to transfer qualifying shares to such
directors; and
(e) under paragraph 19, MANTRASCO and its two
subsidiaries were expressly prohibited from paying
"dividends except as may be authorized by the
TRUSTEES;" in the same paragraph mention was also
made of "dividends on OWNER’S SHARES" which shall
be applied to the liquidation of the liabilities of the three
companies for the price of Reese’s shares.
The manifest intention of the parties to the trust agreement
was, in sum and substance, to treat the 24,700 shares of
Reese as absolutely outstanding shares of Reese’s estate
until they were fully paid. Such being the true nature of the
24,700 shares, their declaration as treasury stock dividend
in 1958 was a complete nullity and plainly violative of
public policy. A stock dividend, being one payable in
capital stock, cannot be declared out of outstanding
corporate stock, but only from retained earnings: 7
Of pointed relevance is this useful discussion of the nature
of a stock dividend: 8
"‘A stock dividend always involves a transfer of surplus (or
profit) to capital stock.’ Graham and Katz, Accounting in
Law Practice, 2d ed. 1938, No. 70. As the court said in
United States v. Siegel, 8 Cir., 1931, 52 F 2d 63, 65, 78
ALR 672: ‘A stock dividend is a conversion of surplus or
undivided profits into capital stock, which is distributed to
stockholders in lieu of a cash dividend.’ Congress itself
has defined the term ‘dividend’ in No. 115(a) of the Act as
meaning any distribution made by a corporation to its
shareholders, whether in money or in other property, out
of its earnings or profits. In Eisner v. Macomber, 1920, 252
US 189, 40 S Ct 189, 64 L Ed 521, 9 ALR 1570, both the
prevailing and the dissenting opinions recognized that
within the meaning of the revenue acts the essence of a
stock dividend was the segregation out of surplus account
of a definite portion of the corporate earnings as part of
the permanent capital resources of the corporation by the
device of capitalizing the same, and the issuance to the
stockholders of additional shares of stock representing the
profits so capitalized."
cralaw virtua1aw library
The declaration by the respondents and Reese’s trustees
of MANTRASCO’s alleged treasury stock dividends in
favor of the former, brings, however, into clear focus the
ultimate purpose which the parties to the trust instrument
aimed to realize: to make the respondents the sole owners
of Reese’s interest in MANTRASCO by utilizing the
periodic earnings of that company and its subsidiaries to
directly subsidize their purchase of the said interests, and
by making it appear outwardly, through the formal
declaration of non-existent stock dividends in the treasury,
that they have not received any income from those firms
when, in fact, by that declaration they secured to
themselves the means to turn around as full owners of
Reese’s shares. In other words, the respondents, using
the trust instrument as a convenient technical device,
bestowed unto themselves the full worth and value of
Reese’s corporate holdings with the use of the very
earnings of the companies. Such package device,
obviously not designed to carry out the usual stock
dividend purpose of corporate expansion reinvestment,
e.g. the acquisition of additional facilities and other capital
budget items, but exclusively for expanding the capital
base of the respondents in MANTRASCO, cannot be
allowed to deflect the respondents’ responsibilities toward
our income tax laws. The conclusion is thus ineluctable
that whenever the companies involved herein parted with
a portion of their earnings "to buy" the corporate holdings
of Reese, they were in ultimate effect and result making a
distribution of such earnings to the respondents. All these
amounts are consequently subject to income tax as being,
in truth and in fact, a flow of cash benefits to the
respondents.
We are of the opinion, however, that the Commissioner
erred in assessing the respondents the total acquisition
cost (P7,973,660) of the alleged treasury stock dividends
in one lump sum. The record shows that the earnings of
MANTRASCO over a period of years were used to
gradually wipe out the holdings therein of Reese.
Consequently, those earnings, which we hold, under the
facts disclosed in the case at bar, as in effect having been
distributed to the respondents, should be taxed for each of
the corresponding years when payments were made to
Reese’s estate on account of his 24,700 shares. With
regard to payments made with MANTRASCO earnings in
1958 and the years before, while indeed those earnings
were utilized in those years to gradually pay off the value
of Reese’s holdings in MANTRASCO, there is no evidence
from which it can be inferred that prior to the passage of
the stockholders’ resolution of December 22, 1958 the
contributed equity of each of the respondents rose
correspondingly. It was only by virtue of the authority
contained in the said resolution that the respondents
actually, albeit illegally, appropriated and partitioned
among themselves the stockholders’ equity representing
Reese’s interests in MANTRASCO. As those payments
accrued in favor of the respondents in 1958 they are and
should be liable, for income tax purposes, to the extent of
the aggregate amount paid, from 1955 to 1958, by
MANTRASCO to buy off Reese’s shares.
The fact that the resolution authorizing the distribution of
the said earnings is null and void is of no moment. Under
the National Internal Revenue Code, income tax is
assessed on income received from any property, activity
or service that produces income. 9 The Tax Code stands
as an indifferent, neutral party on the matter of where the
income comes from. 10
Subject to the foregoing qualifications, we find the action
taken by the Commissioner in all other respects — that is,
the assessment of a fraud penalty and imposition of
interest charges pursuant to the provisions of the Tax
Code — to be in accordance with law.
ACCORDINGLY, the judgment of the Court of Tax
Appeals absolving the respondents from any deficiency
income tax liability is set aside, and this case is hereby
remanded to the Court of Tax Appeals for further
proceedings. More specifically, the Court of Tax Appeals
shall recompute the income tax liabilities of the
respondents in accordance with this decision and with the
Tax Code, and thereafter pronounce and enter judgment
accordingly. No costs.
CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-
appellant,
vs.
TEODORO SANDIKO, defendant-appellee.
G.R. No. L-43350 December 23, 1937
This is an appeal from a judgment of the Court of First
Instance of Manila absolving the defendant from the
plaintiff's complaint.
Manuel Tabora is the registered owner of four parcels of
land situated in the barrio of Linao, town of Aparri,
Province of Cagayan, as evidenced by transfer certificate
of title No. 217 of the land records of Cagayan, a copy of
which is in evidence as Exhibit 1. To guarantee the
payment of a loan in the sum of P8,000, Manuel Tabora,
on August 14, 1929, executed in favor of the Philippine
National Bank a first mortgage on the four parcels of land
above-mentioned. A second mortgage in favor of the
same bank was in April of 1930 executed by Tabora over
the same lands to guarantee the payment of another loan
amounting to P7,000. A third mortgage on the same lands
was executed on April 16, 1930 in favor of Severina Buzon
to whom Tabora was indebted in the sum of P2,9000.
These mortgages were registered and annotations thereof
appear at the back of transfer certificate of title No. 217.
On May 31, 1930, Tabora executed a public document
entitled "Escritura de Transpaso de Propiedad Inmueble"
(Exhibit A) by virtue of which the four parcels of land
owned by him was sold to the plaintiff company, said to
under process of incorporation, in consideration of one
peso (P1) subject to the mortgages in favor of the
Philippine National Bank and Severina Buzon and, to the
condition that the certificate of title to said lands shall not
be transferred to the name of the plaintiff company until
the latter has fully and completely paid Tabora's
indebtedness to the Philippine National Bank.
The plaintiff company filed its article incorporation with the
Bureau of Commerce and Industry on October 22, 1930
(Exhibit 2). A year later, on October 28, 1931, the board of
directors of said company adopted a resolution (Exhibit G)
authorizing its president, Jose Ventura, to sell the four
parcels of lands in question to Teodoro Sandiko for
P42,000. Exhibits B, C and D were thereafter made and
executed. Exhibit B is a deed of sale executed before a
notary public by the terms of which the plaintiff sold ceded
and transferred to the defendant all its right, titles, and
interest in and to the four parcels of land described in
transfer certificate in turn obligated himself to shoulder the
three mortgages hereinbefore referred to. Exhibit C is a
promisory note for P25,300. drawn by the defendant in
favor of the plaintiff, payable after one year from the date
thereof. Exhibit D is a deed of mortgage executed before a
notary public in accordance with which the four parcels of
land were given a security for the payment of the
promissory note, Exhibit C. All these three instrument
were dated February 15, 1932.
The defendant having failed to pay the sum stated in the
promissory note, plaintiff, on January 25, 1934, brought
this action in the Court of First Instance of Manila praying
that judgment be rendered against the defendant for the
sum of P25,300, with interest at legal rate from the date of
the filing of the complaint, and the costs of the suits. After
trial, the court below, on December 18, 1934, rendered
judgment absolving the defendant, with costs against the
plaintiff. Plaintiff presented a motion for new trial on
January 14, 1935, which motion was denied by the trial
court on January 19 of the same year. After due exception
and notice, plaintiff has appealed to this court and makes
an assignment of various errors.
In dismissing the complaint against the defendant, the
court below, reached the conclusion that Exhibit B is
invalid because of vice in consent and repugnancy to law.
While we do not agree with this conclusion, we have
however voted to affirm the judgment appealed from the
reasons which we shall presently state.
The transfer made by Tabora to the Cagayan fishing
Development Co., Inc., plaintiff herein, was affected on
May 31, 1930 (Exhibit A) and the actual incorporation of
said company was affected later on October 22, 1930
(Exhibit 2). In other words, the transfer was made almost
five months before the incorporation of the company.
Unquestionably, a duly organized corporation has the
power to purchase and hold such real property as the
purposes for which such corporation was formed may
permit and for this purpose may enter into such contracts
as may be necessary (sec. 13, pars. 5 and 9, and sec. 14,
Act No. 1459). But before a corporation may be said to be
lawfully organized, many things have to be done. Among
other things, the law requires the filing of articles of
incorporation (secs. 6 et seq., Act. No. 1459). Although
there is a presumption that all the requirements of law
have been complied with (sec. 334, par. 31 Code of Civil
Procedure), in the case before us it can not be denied that
the plaintiff was not yet incorporated when it entered into a
contract of sale, Exhibit A. The contract itself referred to
the plaintiff as "una sociedad en vias de incorporacion." It
was not even a de facto corporation at the time. Not being
in legal existence then, it did not possess juridical capacity
to enter into the contract.
Corporations are creatures of the law, and can only
come into existence in the manner prescribed by law.
As has already been stated, general law authorizing
the formation of corporations are general offers to any
persons who may bring themselves within their
provisions; and if conditions precedent are prescribed
in the statute, or certain acts are required to be done,
they are terms of the offer, and must be complied with
substantially before legal corporate existence can be
acquired. (14 C. J., sec. 111, p. 118.)
That a corporation should have a full and complete
organization and existence as an entity before it can
enter into any kind of a contract or transact any
business, would seem to be self evident. . . . A
corporation, until organized, has no being, franchises
or faculties. Nor do those engaged in bringing it into
being have any power to bind it by contract, unless so
authorized by the charter there is not a corporation
nor does it possess franchise or faculties for it or
others to exercise, until it acquires a complete
existence. (Gent vs. Manufacturers and Merchant's
Mutual Insurance Company, 107 Ill., 652, 658.)
Boiled down to its naked reality, the contract here (Exhibit
A) was entered into not between Manuel Tabora and a
non-existent corporation but between the Manuel Tabora
as owner of the four parcels of lands on the one hand and
the same Manuel Tabora, his wife and others, as mere
promoters of a corporations on the other hand. For
reasons that are self-evident, these promoters could not
have acted as agent for a projected corporation since that
which no legal existence could have no agent. A
corporation, until organized, has no life and therefore no
faculties. It is, as it were, a child in ventre sa mere. This is
not saying that under no circumstances may the acts of
promoters of a corporation be ratified by the corporation if
and when subsequently organized. There are, of course,
exceptions (Fletcher Cyc. of Corps., permanent edition,
1931, vol. I, secs. 207 et seq.), but under the peculiar facts
and circumstances of the present case we decline to
extend the doctrine of ratification which would result in the
commission of injustice or fraud to the candid and
unwary.(Massachusetts rule, Abbott vs. Hapgood, 150
Mass., 248; 22 N. E. 907, 908; 5 L. R. A., 586; 15 Am. St.
Rep., 193; citing English cases; Koppel vs. Massachusetts
Brick Co., 192 Mass., 223; 78 N. E., 128; Holyoke
Envelope Co., vs. U. S. Envelope Co., 182 Mass., 171; 65
N. E., 54.) It should be observed that Manuel Tabora was
the registered owner of the four parcels of land, which he
succeeded in mortgaging to the Philippine National Bank
so that he might have the necessary funds with which to
convert and develop them into fishery. He appeared to
have met with financial reverses. He formed a corporation
composed of himself, his wife, and a few others. From the
articles of incorporation, Exhibit 2, it appears that out of
the P48,700, amount of capital stock subscribed, P45,000
was subscribed by Manuel Tabora himself and P500 by
his wife, Rufina Q. de Tabora; and out of the P43,300,
amount paid on subscription, P42,100 is made to appear
as paid by Tabora and P200 by his wife. Both Tabora and
His wife were directors and the latter was treasurer as
well. In fact, to this day, the lands remain inscribed in
Tabora's name. The defendant always regarded Tabora
as the owner of the lands. He dealt with Tabora directly.
Jose Ventura, president of the plaintiff corporation,
intervened only to sign the contract, Exhibit B, in behalf of
the plaintiff. Even the Philippine National Bank, mortgagee
of the four parcels of land, always treated Tabora as the
owner of the same. (See Exhibits E and F.) Two civil suits
(Nos. 1931 and 38641) were brought against Tabora in
the Court of First Instance of Manila and in both cases a
writ of attachment against the four parcels of land was
issued. The Philippine National Bank threatened to
foreclose its mortgages. Tabora approached the
defendant Sandiko and succeeded in the making him sign
Exhibits B, C, and D and in making him, among other
things, assume the payment of Tabora's indebtedness to
the Philippine National Bank. The promisory note, Exhibit
C, was made payable to the plaintiff company so that it
may not attached by Tabora's creditors, two of whom had
obtained writs of attachment against the four parcels of
land.
If the plaintiff corporation could not and did not acquire the
four parcels of land here involved, it follows that it did not
possess any resultant right to dispose of them by sale to
the defendant, Teodoro Sandiko.
Some of the members of this court are also of the opinion
that the transfer from Manuel Tabora to the Cagayan
Fishing Development Company, Inc., which transfer is
evidenced by Exhibit A, was subject to a condition
precedent (condicion suspensiva), namely, the payment of
the mortgage debt of said Tabora to the Philippine
National Bank, and that this condition not having been
complied with by the Cagayan Fishing Development
Company, Inc., the transfer was ineffective. (Art. 1114,
Civil Code; Wise & Co. vs. Kelly and Lim, 37 Phil., 696;
Manresa, vol. 8, p. 141.) However, having arrived at the
conclusion that the transfer by Manuel Tabora to the
Cagayan Fishing Development Company, Inc. was null
because at the time it was affected the corporation was
non-existent, we deem it unnecessary to discuss this
point.
lawphil.net
The decision of the lower court is accordingly affirmed,
with costs against the appellant. So Ordered.
THE MUNICIPALITY OF MALABANG, LANAO DEL
SUR, and AMER MACAORAO
BALINDONG, petitioners,
vs.
PANGANDAPUN BENITO, HADJI NOPODIN
MACAPUNUNG, HADJI HASAN MACARAMPAD,
FREDERICK V. DUJERTE MONDACO ONTAL,
MARONSONG ANDOY, MACALABA INDAR
LAO. respondents.
G.R. No. L-28113 March 28, 1969
The petitioner Amer Macaorao Balindong is the mayor of
Malabang, Lanao del Sur, while the respondent
Pangandapun Bonito is the mayor, and the rest of the
respondents are the councilors, of the municipality of
Balabagan of the same province. Balabagan was formerly
a part of the municipality of Malabang, having been
created on March 15, 1960, by Executive Order 386 of the
then President Carlos P. Garcia, out of barrios and
sitios1 of the latter municipality.
The petitioners brought this action for prohibition to nullify
Executive Order 386 and to restrain the respondent
municipal officials from performing the functions of their
respective office relying on the ruling of this Court
in Pelaez v. Auditor General 2 and Municipality of San
Joaquin v. Siva. 3
In Pelaez this Court, through Mr. Justice (now Chief
Justice) Concepcion, ruled: (1) that section 23 of Republic
Act 2370 [Barrio Charter Act, approved January 1, 1960],
by vesting the power to create barrios in the provincial
board, is a "statutory denial of the presidential authority to
create a new barrio [and] implies a negation of
the bigger power to create municipalities," and (2) that
section 68 of the Administrative Code, insofar as it gives
the President the power to create municipalities, is
unconstitutional (a) because it constitutes an undue
delegation of legislative power and (b) because it offends
against section 10 (1) of article VII of the Constitution,
which limits the President's power over local governments
to mere supervision. As this Court summed up its
discussion: "In short, even if it did not entail an undue
delegation of legislative powers, as it certainly does, said
section 68, as part of the Revised Administrative Code,
approved on March 10, 1917, must be deemed repealed
by the subsequent adoption of the Constitution, in 1935,
which is utterly incompatible and inconsistent with said
statutory enactment."
On the other hand, the respondents, while admitting the
facts alleged in the petition, nevertheless argue that the
rule announced in Pelaez can have no application in this
case because unlike the municipalities involved in Pelaez,
the municipality of Balabagan is at least a de
facto corporation, having been organized under color of a
statute before this was declared unconstitutional, its
officers having been either elected or appointed, and the
municipality itself having discharged its corporate
functions for the past five years preceding the institution of
this action. It is contended that as a de facto corporation,
its existence cannot be collaterally attacked, although it
may be inquired into directly in an action for quo
warranto at the instance of the State and not of an
individual like the petitioner Balindong.
It is indeed true that, generally, an inquiry into the legal
existence of a municipality is reserved to the State in a
proceeding for quo warranto or other direct proceeding,
and that only in a few exceptions may a private person
exercise this function of government. 4 But the rule
disallowing collateral attacks applies only where the
municipal corporation is at least a de
facto corporations. 5 For where it is neither a corporation de
jure nor de facto, but a nullity, the rule is that its existence
may be, questioned collaterally or directly in any action or
proceeding by any one whose rights or interests ate
affected thereby, including the citizens of the territory
incorporated unless they are estopped by their conduct
from doing so. 6
And so the threshold question is whether the municipality
of Balabagan is a de facto corporation. As earlier stated,
the claim that it is rests on the fact that it was organized
before the promulgation of this Court's decision in Pelaez. 7
Accordingly, we address ourselves to the question
whether a statute can lend color of validity to an attempted
organization of a municipality despite the fact that such
statute is subsequently declared unconstitutional. lawphi 1.ñet
This has been a litigiously prolific question, sharply
dividing courts in the United States. Thus, some hold that
a de facto corporation cannot exist where the statute or
charter creating it is unconstitutional because there can be
no de facto corporation where there can be no de
jure one, 8 while others hold otherwise on the theory that a
statute is binding until it is condemned as
unconstitutional. 9
An early article in the Yale Law Journal offers the
following analysis:
It appears that the true basis for denying to the
corporation a de facto status lay in the absence of any
legislative act to give vitality to its creation. An
examination of the cases holding, some of them
unreservedly, that a de facto office or municipal
corporation can exist under color of an
unconstitutional statute will reveal that in no instance
did the invalid act give life to the corporation, but that
either in other valid acts or in the constitution itself the
office or the corporation was potentially created....
The principle that color of title under an
unconstitutional statute can exist only where there is
some other valid law under which the organization
may be effected, or at least an authority in potentia by
the state constitution, has its counterpart in the
negative propositions that there can be no color of
authority in an unconstitutional statute that plainly so
appears on its face or that attempts to authorize the
ousting of a de jure or de facto municipal corporation
upon the same territory; in the one case the fact
would imply the imputation of bad faith, in the other
the new organization must be regarded as a mere
usurper....
As a result of this analysis of the cases the following
principles may be deduced which seem to reconcile
the apparently conflicting decisions:
I. The color of authority requisite to the organization of
a de facto municipal corporation may be:
1. A valid law enacted by the legislature.
2. An unconstitutional law, valid on its face, which
has either (a) been upheld for a time by the courts or
(b) not yet been declared void; provided that a
warrant for its creation can be found in some other
valid law or in the recognition of its potential
existence by the general laws or constitution of the
state.
II. There can be no de facto municipal corporation
unless either directly or potentially, such a de jure
corporation is authorized by some legislative fiat.
III. There can be no color of authority in an
unconstitutional statute alone, the invalidity of which is
apparent on its face.
IV. There can be no de facto corporation created to take
the place of an existing de jure corporation, as such
organization would clearly be a usurper.10
In the cases where a de facto municipal corporation was
recognized as such despite the fact that the statute
creating it was later invalidated, the decisions could fairly
be made to rest on the consideration that there was some
other valid law giving corporate vitality to the organization.
Hence, in the case at bar, the mere fact that Balabagan
was organized at a time when the statute had not been
invalidated cannot conceivably make it a de
factocorporation, as, independently of the Administrative
Code provision in question, there is no other valid statute
to give color of authority to its creation. Indeed,
in Municipality of San Joaquin v. Siva, 11 this Court granted
a similar petition for prohibition and nullified an executive
order creating the municipality of Lawigan in Iloilo on the
basis of thePelaez ruling, despite the fact that the
municipality was created in 1961, before section 68 of the
Administrative Code, under which the President had
acted, was invalidated. 'Of course the issue of de
facto municipal corporation did not arise in that case.
In Norton v. Shelby Count, 12 Mr. Justice Field said: "An
unconstitutional act is not a law; it confers no rights; it
imposes no duties; it affords no protection; it creates no
office; it is, in legal contemplation, as inoperative as
though it had never been passed." Accordingly, he held
that bonds issued by a board of commissioners created
under an invalid statute were unenforceable.
Executive Order 386 "created no office." This is not to
say, however, that the acts done by the municipality of
Balabagan in the exercise of its corporate powers are a
nullity because the executive order "is, in legal
contemplation, as inoperative as though it had never been
passed." For the existence of Executive, Order 386 is "an
operative fact which cannot justly be ignored." As Chief
Justice Hughes explained in Chicot County Drainage
District v. Baxter State Bank: 13
The courts below have proceeded on the theory that
the Act of Congress, having been found to be
unconstitutional, was not a law; that it was inoperative,
conferring no rights and imposing no duties, and hence
affording no basis for the challenged decree. Norton v.
Shelby County, 118 U.S. 425, 442; Chicago, I. & L. Ry.
Co. v. Hackett, 228 U.S. 559, 566. It is quite clear,
however, that such broad statements as to the effect of
a determination of unconstitutionality must be taken with
qualifications. The actual existence of a statute, prior to
such a determination, is an operative fact and may have
consequences which cannot justly be ignored. The past
cannot always be erased by a new judicial declaration.
The effect of the subsequent ruling as to invalidity may
have to be considered in various aspects — with
respect to particular relations, individual and corporate,
and particular conduct, private and official. Questions of
rights claimed to have become vested, of status of prior
determinations deemed to have finality and acted upon
accordingly, of public policy in the light of the nature
both of the statute and of its previous application,
demand examination. These questions are among the
most difficult of those which have engaged the attention
 of courts, state and federal, and it is manifest from
numerous decisions that an all-inclusive statement of a
principle of absolute retroactive invalidity cannot be
justified.
There is then no basis for the respondents' apprehension
that the invalidation of the executive order creating
Balabagan would have the effect of unsettling many an act
done in reliance upon the validity of the creation of that
municipality. 14
ACCORDINGLY, the petition is granted, Executive Order
386 is declared void, and the respondents are hereby
permanently restrained from performing the duties and
functions of their respective offices. No pronouncement as
to costs.
C. ARNOLD HALL and BRADLEY P. HALL, petitioners,
vs.
EDMUNDO S. PICCIO, Judge of the Court of First
Instance of Leyte, FRED BROWN, EMMA BROWN,
HIPOLITA CAPUCIONG, in his capacity as receiver of
the Far Eastern Lumber
G.R. No. L-2598 June 29, 1950
This is petition to set aside all the proceedings had in civil
case No. 381 of the Court of First Instance of Leyte and to
enjoin the respondent judge from further acting upon the
same.
Facts: (1) on May 28, 1947, the petitioners C. Arnold Hall
and Bradley P. Hall, and the respondents Fred Brown,
Emma Brown, Hipolita D. Chapman and Ceferino S.
Abella, signed and acknowledged in Leyte, the article of
incorporation of the Far Eastern Lumber and Commercial
Co., Inc., organized to engage in a general lumber
business to carry on as general contractors, operators and
managers, etc. Attached to the article was an affidavit of
the treasurer stating that 23,428 shares of stock had been
subscribed and fully paid with certain properties
transferred to the corporation described in a list appended
thereto.
(2) Immediately after the execution of said articles of
incorporation, the corporation proceeded to do business
with the adoption of by-laws and the election of its officers.
(3) On December 2, 1947, the said articles of
incorporation were filed in the office of the Securities and
Exchange Commissioner, for the issuance of the
corresponding certificate of incorporation.
(4) On March 22, 1948, pending action on the articles of
incorporation by the aforesaid governmental office, the
respondents Fred Brown, Emma Brown, Hipolita D.
Chapman and Ceferino S. Abella filed before the Court of
First Instance of Leyte the civil case numbered 381,
entitled "Fred Brown et al. vs. Arnold C. Hall et al.",
alleging among other things that the Far Eastern Lumber
and Commercial Co. was an unregistered partnership; that
they wished to have it dissolved because of bitter
dissension among the members, mismanagement and
fraud by the managers and heavy financial losses.
(5) The defendants in the suit, namely, C. Arnold Hall and
Bradley P. Hall, filed a motion to dismiss, contesting the
court's jurisdiction and the sufficiently of the cause of
action.
(6) After hearing the parties, the Hon. Edmund S. Piccio
ordered the dissolution of the company; and at the request
of plaintiffs, appointed of the properties thereof, upon the
filing of a P20,000 bond.
(7) The defendants therein (petitioners herein) offered to
file a counter-bond for the discharge of the receiver, but
the respondent judge refused to accept the offer and to
discharge the receiver. Whereupon, the present special
civil action was instituted in this court. It is based upon two
main propositions, to wit:
(a) The court had no jurisdiction in civil case No. 381 to
decree the dissolution of the company, because it being
a de facto corporation, dissolution thereof may only be
ordered in a quo warranto proceeding instituted in
accordance with section 19 of the Corporation Law.
(b) Inasmuch as respondents Fred Brown and Emma
Brown had signed the article of incorporation but only a
partnership.
Discussion: The second proposition may at once be
dismissed. All the parties are informed that the Securities
and Exchange Commission has not, so far, issued the
corresponding certificate of incorporation. All of them
know, or sought to know, that the personality of a
corporation begins to exist only from the moment such
certificate is issued — not before (sec. 11, Corporation
Law). The complaining associates have not represented to
the others that they were incorporated any more than the
latter had made similar representations to them. And as
nobody was led to believe anything to his prejudice and
damage, the principle of estoppel does not apply.
Obviously this is not an instance requiring the enforcement
of contracts with the corporation through the rule of
estoppel.
The first proposition above stated is premised on the
theory that, inasmuch as the Far Eastern Lumber and
Commercial Co., is a de facto corporation, section 19 of
the Corporation Law applies, and therefore the court had
not jurisdiction to take cognizance of said civil case
number 381. Section 19 reads as follows:
. . . The due incorporation of any corporations
claiming in good faith to be a corporation under this
Act and its right to exercise corporate powers shall
not be inquired into collaterally in any private suit to
which the corporation may be a party, but such
inquiry may be had at the suit of the Insular
Government on information of the Attorney-General.
There are least two reasons why this section does not
govern the situation. Not having obtained the certificate of
incorporation, the Far Eastern Lumber and Commercial
Co. — even its stockholders — may not probably claim "in
good faith" to be a corporation.
Under our statue it is to be noted (Corporation Law,
sec. 11) that it is the issuance of a certificate of
incorporation by the Director of the Bureau of
Commerce and Industry which calls a corporation into
being. The immunity if collateral attack is granted to
corporations "claiming in good faith to be a
corporation under this act." Such a claim is
compatible with the existence of errors and
irregularities; but not with a total or substantial
disregard of the law. Unless there has been an
evident attempt to comply with the law the claim to be
a corporation "under this act" could not be made "in
good faith." (Fisher on the Philippine Law of Stock
Corporations, p. 75. See also Humphreys vs. Drew,
59 Fla., 295; 52 So., 362.)
Second, this is not a suit in which the corporation is a
party. This is a litigation between stockholders of the
alleged corporation, for the purpose of obtaining its
dissolution. Even the existence of a de jure corporation
may be terminated in a private suit for its dissolution
between stockholders, without the intervention of the
state.
There might be room for argument on the right of minority
stockholders to sue for dissolution;1 but that question does
not affect the court's jurisdiction, and is a matter for
decision by the judge, subject to review on appeal. Whkch
brings us to one principal reason why this petition may not
prosper, namely: the petitioners have their remedy by
appealing the order of dissolution at the proper time.
There is a secondary issue in connection with the
appointment of a receiver. But it must be admitted that
receivership is proper in proceedings for dissolution of a
company or corporation, and it was no error to reject the
counter-bond, the court having declared the dissolution.
As to the amount of the bond to be demanded of the
receiver, much depends upon the discretion of the trial
court, which in this instance we do not believe has been
clearly abused.
REYNALDO M. LOZANO, petitioner,
vs.
HON. ELIEZER R. DE LOS SANTOS, Presiding Judge,
RTC, Br. 58, Angeles City; and ANTONIO
ANDA, respondents.
G.R. No. 125221 June 19, 1997
This petition for certiorari seeks to annul and set aside the
decision of the Regional Trial Court, Branch 58, Angeles
City which ordered the Municipal Circuit Trial Court,
Mabalacat and Magalang, Pampanga to dismiss Civil
Case No. 1214 for lack of jurisdiction.
The facts are undisputed. On December 19, 1995,
petitioner Reynaldo M. Lozano filed Civil Case No. 1214
for damages against respondent Antonio Anda before the
Municipal Circuit Trial Court (MCTC), Mabalacat and
Magalang, Pampanga. Petitioner alleged that he was the
president of the Kapatirang Mabalacat-Angeles Jeepney
Drivers' Association, Inc. (KAMAJDA) while respondent
Anda was the president of the Samahang Angeles-
Mabalacat Jeepney Operators' and Drivers' Association,
Inc. (SAMAJODA); in August 1995, upon the request of
the Sangguniang Bayan of Mabalacat, Pampanga,
petitioner and private respondent agreed to consolidate
their respective associations and form the Unified
Mabalacat-Angeles Jeepney Operators' and Drivers
Association, Inc. (UMAJODA); petitioner and private
respondent also agreed to elect one set of officers who
shall be given the sole authority to collect the daily dues
from the members of the consolidated association;
elections were held on October 29, 1995 and both
petitioner and private respondent ran for president;
petitioner won; private respondent protested and, alleging
fraud, refused to recognize the results of the election;
private respondent also refused to abide by their
agreement and continued collecting the dues from the
members of his association despite several demands to
desist. Petitioner was thus constrained to file the complaint
to restrain private respondent from collecting the dues and
to order him to pay damages in the amount of P25,000.00
and attorney's fees of P500.00. 1
Private respondent moved to dismiss the complaint for
lack of jurisdiction, claiming that jurisdiction was lodged
with the Securities and Exchange Commission (SEC). The
MCTC denied the motion on February 9, 1996. It denied 2
reconsideration on March 8, 1996. 3
Private respondent filed a petition for certiorari before the
Regional Trial Court, Branch 58, Angeles City. The trial
4
court found the dispute to be intracorporate, hence,
subject to the jurisdiction of the SEC, and ordered the
MCTC to dismiss Civil Case No. 1214 accordingly. It 5
denied reconsideration on May 31, 1996. 6
Hence this petition. Petitioner claims that:
THE RESPONDENT JUDGE ACTED WITH GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION AND SERIOUS
ERROR OF LAW IN CONCLUDING THAT THE
SECURITIES AND EXCHANGE COMMISSION HAS
JURISDICTION OVER A CASE OF DAMAGES
BETWEEN HEADS/PRESIDENTS OF TWO (2)
ASSOCIATIONS WHO INTENDED TO
CONSOLIDATE/MERGE THEIR ASSOCIATIONS
BUT NOT YET [SIC] APPROVED AND
REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION. 7
The jurisdiction of the Securities and Exchange
Commission (SEC) is set forth in Section 5 of Presidential
Decree No. 902-A. Section 5 reads as follows:
 Sec. 5. . . . [T]he Securities and Exchange
Commission [has] 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 partners, amounting to fraud and
misrepresentation which may be detrimental to the
interest of the public and/or of the stockholders,
partners, members of associations or organizations
registered with the Commission.
(b) Controversies arising out of intracorporate 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.
(c) Controversies in the election or appointment of
directors, trustees, officers or managers of such
corporations, partnerships or associations.
(d) Petitions of corporations, partnerships or
associations to be declared in the state of suspension
of payments in cases where the corporation,
partnership or association possesses sufficient
property to cover all its debts but foresees the
impossibility of meeting them when they respectively
fall due or in cases where the corporation, partnership
or association has no sufficient assets to over its
liabilities, but is under the management of a
Rehabilitation Receiver or Management Committee
created pursuant to this Decree.
The grant of jurisdiction to the SEC must be viewed in
the light of its nature and function under the law. This
8
jurisdiction is determined by a concurrence of two
elements: (1) the status or relationship of the parties;
and (2) the nature of the question that is the subject of
their controversy. 9
The first element requires that the controversy must arise
out of intracorporate 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 in so far as it
concerns their individual franchises. The second element
10
requires that the dispute among the parties be intrinsically
connected with the regulation of the corporation,
partnership or association or deal with the internal affairs
of the corporation, partnership or association. After all,
11
the principal function of the SEC is the supervision and
control of corporations, partnership and associations with
the end in view that investments in these entities may be
encouraged and protected, and their entities may be
encouraged and protected, and their activities pursued for
the promotion of economic development. 12
There is no intracorporate nor partnership relation
between petitioner and private respondent. The
controversy between them arose out of their plan to
consolidate their respective jeepney drivers' and
operators' associations into a single common association.
This unified association was, however, still a proposal. It
had not been approved by the SEC, neither had its officers
and members submitted their articles of consolidation is
accordance with Sections 78 and 79 of the Corporation
Code. Consolidation becomes effective not upon mere
agreement of the members but only upon issuance of the
certificate of consolidation by the SEC. When the SEC,
13
upon processing and examining the articles of
consolidation, is satisfied that the consolidation of the
corporations is not inconsistent with the provisions of the
Corporation Code and existing laws, it issues a certificate
of consolidation which makes the reorganization
official. The new consolidated corporation comes into
14
existence and the constituent corporations dissolve and
cease to exist. 15
The KAMAJDA and SAMAJODA to which petitioner and
private respondent belong are duly registered with the
SEC, but these associations are two separate entities. The
dispute between petitioner and private respondent is not
within the KAMAJDA nor the SAMAJODA. It is between
members of separate and distinct associations. Petitioner
and private respondent have no intracorporate relation
much less do they have an intracorporate dispute. The
SEC therefore has no jurisdiction over the complaint.
The doctrine of corporation by estoppel advanced by
16
private respondent cannot override jurisdictional
requirements. Jurisdiction is fixed by law and is not subject
to the agreement of the parties. It cannot be acquired
17
through or waived, enlarged or diminished by, any act or
omission of the parties, neither can it be conferred by the
acquiescence of the court. 18
Corporation by estoppel is founded on principles of equity
and is designed to prevent injustice and unfairness. It
19
applies when persons assume to form a corporation and
exercise corporate functions and enter into business
relations with third person. Where there is no third person
involved and the conflict arises only among those
assuming the form of a corporation, who therefore know
that it has not been registered, there is no corporation by
estoppel. 20
IN VIEW WHEREOF, the petition is granted and the
decision dated April 18, 1996 and the order dated May 31,
1996 of the Regional Trial Court, Branch 58, Angeles City
are set aside. The Municipal Circuit Trial Court of
Mabalacat and Magalang, Pampanga is ordered to
proceed with dispatch in resolving Civil Case No. 1214. No
costs.
SO ORDERED.
MARIANO A. ALBERT, plaintiff-appellant,
vs.
UNIVERSITY PUBLISHING CO., INC., defendant-
appellee.
G.R. No. L-19118 January 30, 1965
No less than three times have the parties here appealed to
this Court.
In Albert vs. University Publishing Co., Inc., L-9300, April
18, 1958, we found plaintiff entitled to damages (for
breach of contract) but reduced the amount from
P23,000.00 to P15,000.00.
Then in Albert vs. University Publishing Co., Inc., L-15275,
October 24, 1960, we held that the judgment for
P15,000.00 which had become final and executory, should
be executed to its full amount, since in fixing it, payment
already made had been considered.
Now we are asked whether the judgment may be
executed against Jose M. Aruego, supposed President of
University Publishing Co., Inc., as the real defendant.
Fifteen years ago, on September 24, 1949, Mariano A.
Albert sued University Publishing Co., Inc. Plaintiff
alleged inter alia that defendant was a corporation duly
organized and existing under the laws of the Philippines;
that on July 19, 1948, defendant, through Jose M. Aruego,
its President, entered into a contract with plaintifif; that
defendant had thereby agreed to pay plaintiff P30,000.00
for the exclusive right to publish his revised Commentaries
on the Revised Penal Code and for his share in previous
sales of the book's first edition; that defendant had
undertaken to pay in eight quarterly installments of
P3,750.00 starting July 15, 1948; that per contract failure
to pay one installment would render the rest due; and that
defendant had failed to pay the second installment.
Defendant admitted plaintiff's allegation of defendant's
corporate existence; admitted the execution and terms of
the contract dated July 19, 1948; but alleged that it was
plaintiff who breached their contract by failing to deliver his
manuscript. Furthermore, defendant counterclaimed for
damages. 1äwphï1.ñët
Plaintiff died before trial and Justo R. Albert, his estate's
administrator, was substituted for him.
The Court of First Instance of Manila, after trial, rendered
decision on April 26, 1954, stating in the dispositive
portion —
IN VIEW OF ALL THE FOREGOING, the Court
renders judgment in favor of the plaintiff and against
the defendant the University Publishing Co., Inc.,
ordering the defendant to pay the administrator Justo
R. Albert, the sum of P23,000.00 with legal [rate] of
interest from the date of the filing of this complaint
until the whole amount shall have been fully paid. The
defendant shall also pay the costs. The counterclaim
of the defendant is hereby dismissed for lack of
evidence.
As aforesaid, we reduced the amount of damages to
P15,000.00, to be executed in full. Thereafter, on July 22,
1961, the court a quo ordered issuance of an execution
writ against University Publishing Co., Inc. Plaintiff,
however, on August 10, 1961, petitioned for a writ of
execution against Jose M. Aruego, as the real defendant,
stating, "plaintiff's counsel and the Sheriff of Manila
discovered that there is no such entity as University
Publishing Co., Inc." Plaintiff annexed to his petition a
certification from the securities and Exchange Commission
dated July 31, 1961, attesting: "The records of this
Commission do not show the registration of UNIVERSITY
PUBLISHING CO., INC., either as a corporation or
partnership." "University Publishing Co., Inc." countered by
filing, through counsel (Jose M. Aruego's own law firm), a
"manifestation" stating that "Jose M. Aruego is not a party
to this case," and that, therefore, plaintiff's petition should
be denied.
Parenthetically, it is not hard to decipher why "University
Publishing Co., Inc.," through counsel, would not want
Jose M. Aruego to be considered a party to the present
case: should a separate action be now instituted against
Jose M. Aruego, the plaintiff will have to reckon with the
statute of limitations.
The court a quo denied the petition by order of September
9, 1961, and from this, plaintiff has appealed.
The fact of non-registration of University Publishing Co.,
Inc. in the Securities and Exchange Commission has not
been disputed. Defendant would only raise the point that
"University Publishing Co., Inc.," and not Jose M. Aruego,
is the party defendant; thereby assuming that "University
Publishing Co., Inc." is an existing corporation with an
independent juridical personality. Precisely, however, on
account of the non-registration it cannot be considered a
corporation, not even a corporation de facto (Hall vs.
Piccio, 86 Phil. 603). It has therefore no personality
separate from Jose M. Aruego; it cannot be sued
independently.
The corporation-by-estoppel doctrine has not been
invoked. At any rate, the same is inapplicable here.
Aruego represented a non-existent entity and induced not
only the plaintiff but even the court to believe in such
representation. He signed the contract as "President" of
"University Publishing Co., Inc.," stating that this was "a
corporation duly organized and existing under the laws of
the Philippines," and obviously misled plaintiff (Mariano A.
Albert) into believing the same. One who has induced
another to act upon his wilful misrepresentation that a
corporation was duly organized and existing under the
law, cannot thereafter set up against his victim the
principle of corporation by estoppel (Salvatiera vs.
Garlitos, 56 O.G. 3069).
"University Publishing Co., Inc." purported to come to
court, answering the complaint and litigating upon the
merits. But as stated, "University Publishing Co., Inc." has
no independent personality; it is just a name. Jose M.
Aruego was, in reality, the one who answered and
litigated, through his own law firm as counsel. He was in
fact, if not, in name, the defendant.
Even with regard to corporations duly organized and
existing under the law, we have in many a case pierced
the veil of corporate fiction to administer the ends of
justice. * And in Salvatiera vs. Garlitos, supra, p. 3073, we
ruled: "A person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such
privileges and obligations and becomes personally
liable for contracts entered into or for other acts performed
as such agent." Had Jose M. Aruego been named as party
defendant instead of, or together with, "University
Publishing Co., Inc.," there would be no room for debate
as to his personal liability. Since he was not so named, the
matters of "day in court" and "due process" have arisen.
In this connection, it must be realized that parties to a suit
are "persons who have a right to control the proceedings,
to make defense, to adduce and cross-examine
witnesses, and to appeal from a decision" (67 C.J.S. 887)
— and Aruego was, in reality, the person who had and
exercised these rights. Clearly, then, Aruego had his day
in court as the real defendant; and due process of law has
been substantially observed.
By "due process of law" we mean " "a law which hears
before it condemns; which proceeds upon inquiry, and
renders judgment only after trial. ... ." (4 Wheaton, U.S.
518, 581.)"; or, as this Court has said, " "Due process of
law" contemplates notice and opportunity to be heard
before judgment is rendered, affecting one's person or
property" (Lopez vs. Director of Lands, 47 Phil. 23, 32)."
(Sicat vs. Reyes, L-11023, Dec. 14, 1956.) And it may not
be amiss to mention here also that the "due process"
clause of the Constitution is designed to secure justice as
a living reality; not to sacrifice it by paying undue homage
to formality. For substance must prevail over form. It may
now be trite, but none the less apt, to quote what long ago
we said in Alonso vs. Villamor, 16 Phil. 315, 321-322:
A litigation is not a game of technicalities in which
one, more deeply schooled and skilled in the subtle
art of movement and position, entraps and destroys
the other. It is, rather, a contest in which each
contending party fully and fairly lays before the court
the facts in issue and then, brushing side as wholly
trivial and indecisive all imperfections of form and
technicalities of procedure, asks that Justice be done
upon the merits. Lawsuits, unlike duels, are not to be
won by a rapier's thrust. Technicality, when it deserts
its proper office as an aid to justice and becomes its
great hindrance and chief enemy, deserves scant
consideration from courts. There should be no vested
rights in technicalities.
The evidence is patently clear that Jose M. Aruego, acting
as representative of a non-existent principal, was the real
party to the contract sued upon; that he was the one who
reaped the benefits resulting from it, so much so that
partial payments of the consideration were made by him;
that he violated its terms, thereby precipitating the suit in
question; and that in the litigation he was the real
defendant. Perforce, in line with the ends of justice,
responsibility under the judgment falls on him.
We need hardly state that should there be persons who
under the law are liable to Aruego for reimbursement or
contribution with respect to the payment he makes under
the judgment in question, he may, of course, proceed
against them through proper remedial measures.
PREMISES CONSIDERED, the order appealed from is
hereby set aside and the case remanded ordering the
lower court to hold supplementary proceedings for the
purpose of carrying the judgment into effect against
University Publishing Co., Inc. and/or Jose M. Aruego. So
ordered.
MANUELA T. VDA. DE SALVATIERRA, petitioner,
vs.
HON. LORENZO C. GARLITOS, in his capacity as
Judge of the Court of First Instance of Leyte, Branch
II, and SEGUNDINO REFUERZO, respondents.
G.R. No. L-11442 May 23, 1958
This is a petition for certiorari filed by Manuela T. Vda. de
Salvatierra seeking to nullify the order of the Court of First
Instance of Leyte in Civil Case No. 1912, dated March 21,
1956, relieving Segundino Refuerzo of liability for the
contract entered into between the former and the
Philippine Fibers Producers Co., Inc., of which Refuerzo is
the president. The facts of the case are as follows:
Manuela T. Vda. de Salvatierra appeared to be the owner
of a parcel of land located at Maghobas, Poblacion,
Burauen, Teyte. On March 7, 1954, said landholder
entered into a contract of lease with the Philippine Fibers
Producers Co., Inc., allegedly a corporation "duly
organized and existing under the laws of the Philippines,
domiciled at Burauen, Leyte, Philippines, and with
business address therein, represented in this instance by
Mr. Segundino Q. Refuerzo, the President". It was
provided in said contract, among other things, that the
lifetime of the lease would be for a period of 10 years; that
the land would be planted to kenaf, ramie or other crops
suitable to the soil; that the lessor would be entitled to 30
per cent of the net income accruing from the harvest of
any, crop without being responsible for the cost of
production thereof; and that after every harvest, the lessee
was bound to declare at the earliest possible time the
income derived therefrom and to deliver the corresponding
share due the lessor.
Apparently, the aforementioned obligations imposed on
the alleged corporation were not complied with because
on April 5, 1955, Alanuela T. Vda, de Salvatierra filed with
the Court of First Instance of Leyte a complaint against the
Philippine Fibers Producers Co., Inc., and Segundino Q.
Refuerzo, for accounting, rescission and damages (Civil
Case No. 1912). She averred that sometime in April, 1954,
defendants planted kenaf on 3 hectares of the leased
property which crop was, at the time of the
commencement of the action, already harvested,
processed and sold by defendants; that notwithstanding
that fact, defendants refused to render an accounting of
the income derived therefrom and to deliver the lessor's
share; that the estimated gross income was P4,500, and
the deductible expenses amounted to P1,000; that as
defendants' refusal to undertake such task was in violation
of the terms of the covenant entered into between the
plaintiff and defendant corporation, a rescission was but
proper.
As defendants apparently failed to file their answer to the
complaint, of which they were allegedly notified, the Court
declared them in default and proceeded to receive
plaintiff's evidence. On June 8, 1955, the lower Court
rendered judgment granting plaintiff's prayer, and required
defendants to render a complete accounting of the harvest
of the land subject of the proceeding within 15 days from
receipt of the decision and to deliver 30 per cent of the net
income realized from the last harvest to plaintiff, with legal
interest from the date defendants received payment for
said crop. It was further provide that upon defendants'
failure to abide by the said requirement, the gross income
would be fixed at P4,200 or a net income of P3,200 after
deducting the expenses for production, 30 per cent of
which or P960 was held to be due the plaintiff pursuant to
the aforementioned contract of lease, which was declared
rescinded.
No appeal therefrom having been perfected within the
reglementary period, the Court, upon motion of plaintiff,
issued a writ of execution, in virtue of which the Provincial
Sheriff of Leyte caused the attachment of 3 parcels of land
registered in the name of Segundino Refuerzo. No
property of the Philippine Fibers Producers Co., Inc., was
found available for attachment. On January 31, 1956,
defendant Segundino Refuerzo filed a motion claiming that
the decision rendered in said Civil Case No. 1912 was null
and void with respect to him, there being no allegation in
the complaint pointing to his personal liability and thus
prayed that an order be issued limiting such liability to
defendant corporation. Over plaintiff's opposition, the
Court a quo granted the same and ordered the Provincial
Sheriff of Leyte to release all properties belonging to the
movant that might have already been attached, after
finding that the evidence on record made no mention or
referred to any fact which might hold movant personally
liable therein. As plaintiff's petition for relief from said order
was denied, Manuela T. Vda. de Salvatierra instituted the
instant action asserting that the trial Judge in issuing the
order complained of, acted with grave abuse of discretion
and prayed that same be declared a nullity.
From the foregoing narration of facts, it is clear that the
order sought to be nullified was issued by tile respondent
Judge upon motion of defendant Refuerzo, obviously
pursuant to Rule 38 of the Rules of Court. Section 3 of
said Rule, however, in providing for the period within
which such a motion may be filed, prescribes that:
SEC. 3. WHEN PETITION FILED; CONTENTS AND
VERIFICATION. — A petition provided for in either of
the preceding sections of this rule must be verified,
filed within sixty days after the petitioner learns of the
judgment, order, or other proceeding to be set aside,
and not more than six months after such judgment or
order was entered, or such proceeding was taken;
and must be must be accompanied with affidavit
showing the fraud, accident, mistake, or excusable
negligence relied upon, and the facts constituting the
petitioner is good and substantial cause of action or
defense, as the case may be, which he may prove if
his petition be granted". (Rule 38)
The aforequoted provision treats of 2 periods, i.e., 60 days
after petitioner learns of the judgment, and not more than
6 months after the judgment or order was rendered, both
of which must be satisfied. As the decision in the case at
bar was under date of June 8, 1955, whereas the motion
filed by respondent Refuerzo was dated January 31, 1956,
or after the lapse of 7 months and 23 days, the filing of the
aforementioned motion was clearly made beyond the
prescriptive period provided for by the rules. The remedy
allowed by Rule 38 to a party adversely affected by a
decision or order is certainly an alert of grace or
benevolence intended to afford said litigant a penultimate
opportunity to protect his interest. Considering the nature
of such relief and the purpose behind it, the periods fixed
by said rule are non-extendible and never interrupted; nor
could it be subjected to any condition or contingency
because it is of itself devised to meet a condition or
contingency (Palomares vs. Jimenez,* G.R. No. L-4513,
January 31, 1952). On this score alone, therefore, the
petition for a writ of certiorari filed herein may be granted.
However, taking note of the question presented by the
motion for relief involved herein, We deem it wise to delve
in and pass upon the merit of the same.
Refuerzo, in praying for his exoneration from any liability
resulting from the non-fulfillment of the obligation imposed
on defendant Philippine Fibers Producers Co., Inc.,
interposed the defense that the complaint filed with the
lower court contained no allegation which would hold him
liable personally, for while it was stated therein that he
was a signatory to the lease contract, he did so in his
capacity as president of the corporation. And this
allegation was found by the Court a quo to be supported
by the records. Plaintiff on the other hand tried to refute
this averment by contending that her failure to specify
defendant's personal liability was due to the fact that all
the time she was under the impression that the Philippine
Fibers Producers Co., Inc., represented by Refuerzo was
a duly registered corporation as appearing in the contract,
but a subsequent inquiry from the Securities and
Exchange Commission yielded otherwise. While as a
general rule a person who has contracted or dealt with an
association in such a way as to recognize its existence as
a corporate body is estopped from denying the same in an
action arising out of such transaction or dealing, (Asia
Banking Corporation vs. Standard Products Co., 46 Phil.,
114; Compania Agricola de Ultramar vs. Reyes, 4 Phil., 1;
Ohta Development Co.; vs. Steamship Pompey, 49 Phil.,
117), yet this doctrine may not be held to be applicable
where fraud takes a part in the said transaction. In the
instant case, on plaintiff's charge that she was unaware of
the fact that the Philippine Fibers Producers Co., Inc., had
no juridical personality, defendant Refuerzo gave no
confirmation or denial and the circumstances surrounding
the execution of the contract lead to the inescapable
conclusion that plaintiff Manuela T. Vda. de Salvatierra
was really made to believe that such corporation was duly
organized in accordance with law.
There can be no question that a corporation with
registered has a juridical personality separate and distinct
from its component members or stockholders and officers
such that a corporation cannot be held liable for the
personal indebtedness of a stockholder even if he should
be its president (Walter A. Smith Co. vs. Ford, SC-G.R.
No. 42420) and conversely, a stockholder or member
cannot be held personally liable for any financial obligation
be, the corporation in excess of his unpaid subscription.
But this rule is understood to refer merely to registered
corporations and cannot be made applicable to the liability
of members of an unincorporated association. The reason
behind this doctrine is obvious-since an organization
which before the law is non-existent has no personality
and would be incompetent to act and appropriate for itself
the powers and attribute of a corporation as provided by
law; it cannot create agents or confer authority on another
to act in its behalf; thus, those who act or purport to act as
its representatives or agents do so without authority and at
their own risk. And as it is an elementary principle of law
that a person who acts as an agent without authority or
without a principal is himself regarded as the principal,
possessed of all the rights and subject to all the liabilities
of a principal, a person acting or purporting to act on
behalf of a corporation which has no valid existence
assumes such privileges and obligations and comes
personally liable for contracts entered into or for other acts
performed as such, agent (Fay vs. Noble, 7 Cushing
[Mass.] 188. Cited in II Tolentino's Commercial Laws of
the Philippines, Fifth Ed., P. 689-690). Considering that
defendant Refuerzo, as president of the unregistered
corporation Philippine Fibers Producers Co., Inc., was the
moving spirit behind the consummation of the lease
agreement by acting as its representative, his liability
cannot be limited or restricted that imposed upon
corporate shareholders. In acting on behalf of a
corporation which he knew to be unregistered, he
assumed the risk of reaping the consequential damages or
resultant rights, if any, arising out of such transaction.
Wherefore, the order of the lower Court of March 21,
1956, amending its previous decision on this matter and
ordering the Provincial Sheriff of Leyte to release any and
all properties of movant therein which might have been
attached in the execution of such judgment, is hereby set
aside and nullified as if it had never been issued. With
costs against respondent Segundino Refuerzo. It is so
ordered.
CHIANG KAI SHEK SCHOOL, petitioner,
vs.
COURT OF APPEALS and FAUSTINA FRANCO
OH, respondents.
G.R. No. L-58028 April 18, 1989
An unpleasant surprise awaited Fausta F. Oh when she
reported for work at the Chiang Kai Shek School in
Sorsogon on the first week of July, 1968. She was told she
had no assignment for the next semester. Oh was
shocked. She had been teaching in the school since 1932
for a continuous period of almost 33 years. And now, out
of the blue, and for no apparent or given reason, this
abrupt dismissal.
Oh sued. She demanded separation pay, social security
benefits, salary differentials, maternity benefits and moral
and exemplary damages. 1 The original defendant was the
Chiang Kai Shek School but when it filed a motion to
dismiss on the ground that it could not be sued, the
complaint was amended. 2 Certain officials of the school
were also impleaded to make them solidarily liable with
the school.
The Court of First Instance of Sorsogon dismissed the
complaint. 3 On appeal, its decision was set aside by the
respondent court, which held the school suable and liable
while absolving the other defendants. 4 The motion for
reconsideration having been denied, 5 the school then
came to this Court in this petition for review on certiorari.
The issues raised in the petition are:
1. Whether or not a school that has not been incorporated
may be sued by reason alone of its long continued
existence and recognition by the government,
2. Whether or not a complaint filed against persons
associated under a common name will justify a judgment
against the association itself and not its individual
members.
3. Whether or not the collection of tuition fees and book
rentals will make a school profit-making and not charitable.
4. Whether or not the Termination Pay Law then in force
was available to the private respondent who was
employed on a year-to-year basis.
5. Whether or not the awards made by the respondent
court were warranted.
We hold against the petitioner on the first question. It is
true that Rule 3, Section 1, of the Rules of Court clearly
provides that "only natural or juridical persons may be
parties in a civil action." It is also not denied that the
school has not been incorporated. However, this omission
should not prejudice the private respondent in the
assertion of her claims against the school.
As a school, the petitioner was governed by Act No. 2706
as amended by C.A. No. 180, which provided as follows:
Unless exempted for special reasons by the Secretary
of Public Instruction, any private school or college
recognized by the government shall be incorporated
under the provisions of Act No. 1459 known as the
Corporation Law, within 90 days after the date of
recognition, and shall file with the Secretary of Public
Instruction a copy of its incorporation papers and by-
laws.
Having been recognized by the government, it was under
obligation to incorporate under the Corporation Law within
90 days from such recognition. It appears that it had not
done so at the time the complaint was filed
notwithstanding that it had been in existence even earlier
than 1932. The petitioner cannot now invoke its own non-
compliance with the law to immunize it from the private
respondent's complaint.
There should also be no question that having contracted
with the private respondent every year for thirty two years
and thus represented itself as possessed of juridical
personality to do so, the petitioner is now estopped from
denying such personality to defeat her claim against it.
According to Article 1431 of the Civil Code, "through
estoppel an admission or representation is rendered
conclusive upon the person making it and cannot be
denied or disproved as against the person relying on it."
As the school itself may be sued in its own name, there is
no need to apply Rule 3, Section 15, under which the
persons joined in an association without any juridical
personality may be sued with such association. Besides, it
has been shown that the individual members of the board
of trustees are not liable, having been appointed only after
the private respondent's dismissal.
It is clear now that a charitable institution is covered by the
labor laws 7 although the question was still unsettled when
this case arose in 1968. At any rate, there was no law
even then exempting such institutions from the operation
of the labor laws (although they were exempted by the
Constitution from ad valorem taxes). Hence, even
assuming that the petitioner was a charitable institution as
it claims, the private respondent was nonetheless still
entitled to the protection of the Termination Pay Law,
which was then in force.
While it may be that the petitioner was engaged in
charitable works, it would not necessarily follow that those
in its employ were as generously motivated. Obviously,
most of them would not have the means for such
charity. The private respondent herself was only a humble
school teacher receiving a meager salary of Pl80. 00 per
month.
At that, it has not been established that the petitioner is a
charitable institution, considering especially that it charges
tuition fees and collects book rentals from its
students. 8 While this alone may not indicate that it is
profit-making, it does weaken its claim that it is a non-profit
entity.
The petitioner says the private respondent had not been
illegally dismissed because her teaching contract was on a
yearly basis and the school was not required to rehire her
in 1968. The argument is that her services were
terminable at the end of each year at the discretion of the
school. Significantly, no explanation was given by the
petitioner, and no advance notice either, of her relief after
teaching year in and year out for all of thirty-two years, the
private respondent was simply told she could not teach
any more.
The Court holds, after considering the particular
circumstance of Oh's employment, that she had become a
permanent employee of the school and entitled to security
of tenure at the time of her dismissal. Since no cause was
shown and established at an appropriate hearing, and the
notice then required by law had not been given, such
dismissal was invalid.
The private respondent's position is no different from that
of the rank-and-file employees involved in Gregorio
Araneta University Foundation v. NLRC, 9 of whom the Court
had the following to say:
Undoubtedly, the private respondents' positions as
deans and department heads of the petitioner
university are necessary in its usual business.
Moreover, all the private respondents have been
serving the university from 18 to 28 years. All of them
rose from the ranks starting as instructors until they
became deans and department heads of the
university. A person who has served the University for
28 years and who occupies a high administrative
position in addition to teaching duties could not
possibly be a temporary employee or a casual.
The applicable law is the Termination Pay Law, which
provided:
SECTION 1. In cases of employment, without a
definite period, in a commercial, industrial, or
agricultural establishment or enterprise, the employer
or the employee may terminate at any time the
employment with just cause; or without just cause in
the case of an employee by serving written notice on
the employer at least one month in advance, or in the
case of an employer, by serving such notice to the
employee at least one month in advance or one-half
month for every year of service of the employee,
whichever, is longer, a fraction of at least six months
being considered as one whole year.
The employer, upon whom no such notice was served
in case of termination of employment without just
cause may hold the employee liable for damages.
The employee, upon whom no such notice was
served in case of termination of employment without
just cause shall be entitled to compensation from the
date of termination of his employment in an I amount
equivalent to his salaries or wages correspond to the
required period of notice. ... .
The respondent court erred, however, in awarding her one
month pay instead of only one-half month salary for every
year of service. The law is quite clear on this matter.
Accordingly, the separation pay should be computed at
P90.00 times 32 months, for a total of P2,880.00.
Parenthetically, R.A. No. 4670, otherwise known as the
Magna Carta for Public School Teachers, confers security
of tenure on the teacher upon appointment as long as he
possesses the required qualification. 10 And under the
present policy of the Department of Education, Culture
and Sports, a teacher becomes permanent and
automatically acquires security of tenure upon completion
of three years in the service. 11
While admittedly not applicable to the case at bar, these I
rules nevertheless reflect the attitude of the government
on the protection of the worker's security of tenure, which
is now guaranteed by no less than the Constitution
itself. 12
We find that the private respondent was arbitrarily treated
by the petitioner, which has shown no cause for her
removal nor had it given her the notice required by the
Termination Pay Law. As the respondent court said, the
contention that she could not report one week before the
start of classes is a flimsy justification for replacing
her. 13 She had been in its employ for all of thirty-two
years. Her record was apparently unblemished. There is
no showing of any previous strained relations between her
and the petitioner. Oh had every reason to assume, as
she had done in previous years, that she would continue
teaching as usual.
It is easy to imagine the astonishment and hurt she felt
when she was flatly and without warning told she was
dismissed. There was not even the amenity of a formal
notice of her replacement, with perhaps a graceful
expression of thanks for her past services. She was simply
informed she was no longer in the teaching staff. To put it
bluntly, she was fired.
For the wrongful act of the petitioner, the private
respondent is entitled to moral damages. 14 As a
proximate result of her illegal dismissal, she suffered
mental anguish, serious anxiety, wounded feelings and
even besmirched reputation as an experienced teacher for
more than three decades. We also find that the
respondent court did not err in awarding her exemplary
damages because the petitioner acted in a wanton and
oppressive manner when it dismissed her. 15
The Court takes this opportunity to pay a sincere tribute to
the grade school teachers, who are always at the forefront
in the battle against illiteracy and ignorance. If only
because it is they who open the minds of their pupils to an
unexplored world awash with the magic of letters and
numbers, which is an extraordinary feat indeed, these
humble mentors deserve all our respect and appreciation.
WHEREFORE, the petition is DENIED. The appealed
decision is AFFIRMED except for the award of separation
pay, which is reduced to P2,880.00. All the other awards
are approved. Costs against the petitioner.
This decision is immediately executory.
SO ORDERED.
ASIA BANKING CORPORATION, plaintiff-appellee,
vs.
STANDARD PRODUCTS, CO., INC., defendant-
appellant.
G.R. No. 22106 September 11, 1924
This action is brought to recover the sum of P24,736.47,
the balance due on the following promissory note:
P37,757.22
MANILA, P. I., Nov. 28, 1921.
On demand, after date we promise to pay to the Asia
Banking Corporation, or order, the sum of thirty-seven
thousand seven hundred fifty-seven and 22/100 pesos at
their office in Manila, for value received, together with
interest at the rate of ten per cent per annum.
No. ________ Due __________
THE STANDARD PRODUCTS CO., INC.
By (Sgd.) GEORGE H. SEAVER
By President
The court below rendered judgment in favor of the plaintiff
for the sum demanded in the complaint, with interest on
the sum of P24,147.34 from November 1, 1923, at the rate
of 10 per cent per annum, and the costs. From this
judgment the defendant appeals to this court.
At the trial of the case the plaintiff failed to prove
affirmatively the corporate existence of the parties and the
appellant insists that under these circumstances the court
erred in finding that the parties were corporations with
juridical personality and assigns same as reversible error.
There is no merit whatever in the appellant's contention.
The general rule is that in the absence of fraud a person
who has contracted or otherwise dealt with an association
in such a way as to recognize and in effect admit its legal
existence as a corporate body is thereby estopped to deny
its corporate existence in any action leading out of or
involving such contract or dealing, unless its existence is
attacked for cause which have arisen since making the
contract or other dealing relied on as an estoppel and this
applies to foreign as well as to domestic corporations. (14
C. J., 227; Chinese Chamber of Commerce vs. Pua Te
Ching, 14 Phil., 222.)
The defendant having recognized the corporate existence
of the plaintiff by making a promissory note in its favor and
making partial payments on the same is therefore
estopped to deny said plaintiff's corporate existence. It is,
of course, also estopped from denying its own corporate
existence. Under these circumstances it was unnecessary
for the plaintiff to present other evidence of the corporate
existence of either of the parties. It may be noted that
there is no evidence showing circumstances taking the
case out of the rules stated.
The judgment appealed from is affirmed, with the costs
against the appellant. So ordered.
INTERNATIONAL EXPRESS TRAVEL & TOUR
SERVICES, INC., petitioner,
vs.
HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE
FOOTBALL FEDERATION, respondents.
G.R. No. 119002 October 19, 2000
DECISION
On June 30 1989, petitioner International Express Travel
and Tour Services, Inc., through its managing director,
wrote a letter to the Philippine Football Federation
(Federation), through its president private respondent
Henri Kahn, wherein the former offered its services as a
travel agency to the latter. The offer was accepted.
1
Petitioner secured the airline tickets for the trips of the
athletes and officials of the Federation to the South East
Asian Games in Kuala Lumpur as well as various other
trips to the People's Republic of China and Brisbane. The
total cost of the tickets amounted to P449,654.83. For the
tickets received, the Federation made two partial
payments, both in September of 1989, in the total amount
of P176,467.50. 2
On 4 October 1989, petitioner wrote the Federation,
through the private respondent a demand letter requesting
for the amount of P265,894.33. On 30 October 1989, the
3
Federation, through the Project Gintong Alay, paid the
amount of P31,603.00. 4
On 27 December 1989, Henri Kahn issued a personal
check in the amount of P50,000 as partial payment for the
outstanding balance of the Federation. Thereafter, no
5
further payments were made despite repeated demands.
This prompted petitioner to file a civil case before the
Regional Trial Court of Manila. Petitioner sued Henri Kahn
in his personal capacity and as President of the
Federation and impleaded the Federation as an alternative
defendant. Petitioner sought to hold Henri Kahn liable for
the unpaid balance for the tickets purchased by the
Federation on the ground that Henri Kahn allegedly
guaranteed the said obligation. 6
Henri Kahn filed his answer with counterclaim. While not
denying the allegation that the Federation owed the
amount P207,524.20, representing the unpaid balance for
the plane tickets, he averred that the petitioner has no
cause of action against him either in his personal capacity
or in his official capacity as president of the Federation. He
maintained that he did not guarantee payment but merely
acted as an agent of the Federation which has a separate
and distinct juridical personality. 7
On the other hand, the Federation failed to file its answer,
hence, was declared in default by the trial court.8
In due course, the trial court rendered judgment and ruled
in favor of the petitioner and declared Henri Kahn
personally liable for the unpaid obligation of the
Federation. In arriving at the said ruling, the trial court
rationalized:
Defendant Henri Kahn would have been correct in his
contentions had it been duly established that defendant
Federation is a corporation. The trouble, however, is that
neither the plaintiff nor the defendant Henri Kahn has
adduced any evidence proving the corporate existence of
the defendant Federation. In paragraph 2 of its complaint,
plaintiff asserted that "Defendant Philippine Football
Federation is a sports association xxx." This has not been
denied by defendant Henri Kahn in his Answer. Being the
President of defendant Federation, its corporate existence
is within the personal knowledge of defendant Henri Kahn.
He could have easily denied specifically the assertion of
the plaintiff that it is a mere sports association, if it were a
domestic corporation. But he did not.
xxx
A voluntary unincorporated association, like defendant
Federation has no power to enter into, or to ratify, a
contract. The contract entered into by its officers or agents
on behalf of such association is not binding on, or
enforceable against it. The officers or agents are
themselves personally liable.
xxx 9
The dispositive portion of the trial court's decision reads:
WHEREFORE, judgment is rendered ordering
defendant Henri Kahn to pay the plaintiff the principal
sum of P207,524.20, plus the interest thereon at the
legal rate computed from July 5, 1990, the date the
complaint was filed, until the principal obligation is
fully liquidated; and another sum of P15,000.00 for
attorney's fees.
The complaint of the plaintiff against the Philippine
Football Federation and the counterclaims of the
defendant Henri Kahn are hereby dismissed.
With the costs against defendant Henri Kahn. 10
Only Henri Kahn elevated the above decision to the Court
of Appeals. On 21 December 1994, the respondent court
rendered a decision reversing the trial court, the decretal
portion of said decision reads:
WHEREFORE, premises considered, the judgment
appealed from is hereby REVERSED and SET ASIDE
and another one is rendered dismissing the complaint
against defendant Henri S. Kahn.
In finding for Henri Kahn, the Court of Appeals recognized
the juridical existence of the Federation. It rationalized that
since petitioner failed to prove that Henri Kahn guaranteed
the obligation of the Federation, he should not be held
liable for the same as said entity has a separate and
distinct personality from its officers.
Petitioner filed a motion for reconsideration and as an
alternative prayer pleaded that the Federation be held
liable for the unpaid obligation. The same was denied by
the appellate court in its resolution of 8 February 1995,
where it stated that:
As to the alternative prayer for the Modification of the
Decision by expressly declaring in the dispositive portion
thereof the Philippine Football Federation (PFF) as liable
for the unpaid obligation, it should be remembered that the
trial court dismissed the complaint against the Philippine
Football Federation, and the plaintiff did not appeal from
this decision. Hence, the Philippine Football Federation is
not a party to this appeal and consequently, no judgment
may be pronounced by this Court against the PFF without
violating the due process clause, let alone the fact that the
judgment dismissing the complaint against it, had already
become final by virtue of the plaintiff's failure to appeal
therefrom. The alternative prayer is therefore similarly
DENIED.
Petitioner now seeks recourse to this Court and alleges
that the respondent court committed the following
assigned errors:13
A. THE HONORABLE COURT OF APPEALS ERRED
IN HOLDING THAT PETITIONER HAD DEALT WITH
THE PHILIPPINE FOOTBALL FEDERATION (PFF)
AS A CORPORATE ENTITY AND IN NOT HOLDING
THAT PRIVATE RESPONDENT HENRI KAHN WAS
THE ONE WHO REPRESENTED THE PFF AS
HAVING A CORPORATE PERSONALITY.
B. THE HONORABLE COURT OF APPEALS ERRED
IN NOT HOLDING PRIVATE RESPONDENT HENRI
KAHN PERSONALLY LIABLE FOR THE
OBLIGATION OF THE UNINCORPORATED PFF,
HAVING NEGOTIATED WITH PETITIONER AND
CONTRACTED THE OBLIGATION IN BEHALF OF
THE PFF, MADE A PARTIAL PAYMENT AND
ASSURED PETITIONER OF FULLY SETTLING THE
OBLIGATION.
C. ASSUMING ARGUENDO THAT PRIVATE
RESPONDENT KAHN IS NOT PERSONALLY
LIABLE, THE HONORABLE COURT OF APPEALS
ERRED IN NOT EXPRESSLY DECLARING IN ITS
DECISION THAT THE PFF IS SOLELY LIABLE FOR
THE OBLIGATION.
The resolution of the case at bar hinges on the
determination of the existence of the Philippine Football
Federation as a juridical person. In the assailed decision,
the appellate court recognized the existence of the
Federation. In support of this, the CA cited Republic Act
3135, otherwise known as the Revised Charter of the
Philippine Amateur Athletic Federation, and Presidential
Decree No. 604 as the laws from which said Federation
derives its existence.
As correctly observed by the appellate court, both R.A.
3135 and P.D. No. 604 recognized the juridical existence
of national sports associations. This may be gleaned from
the powers and functions granted to these associations.
Section 14 of R.A. 3135 provides:
SEC. 14. Functions, powers and duties of Associations. -
The National Sports' Association shall have the following
functions, powers and duties:
1. To adopt a constitution and by-laws for their
internal organization and government;
2. To raise funds by donations, benefits, and other
means for their purposes.
3. To purchase, sell, lease or otherwise encumber
property both real and personal, for the
accomplishment of their purpose;
4. To affiliate with international or regional sports'
Associations after due consultation with the executive
committee;
xxx
13. To perform such other acts as may be necessary
for the proper accomplishment of their purposes and
not inconsistent with this Act.
Section 8 of P.D. 604, grants similar functions to these
sports associations:
SEC. 8. Functions, Powers, and Duties of National Sports
Association. - The National sports associations shall have
the following functions, powers, and duties:
1. Adopt a Constitution and By-Laws for their internal
organization and government which shall be
submitted to the Department and any amendment
thereto shall take effect upon approval by the
Department: Provided, however, That no team,
school, club, organization, or entity shall be admitted
as a voting member of an association unless 60 per
cent of the athletes composing said team, school,
club, organization, or entity are Filipino citizens;
2. Raise funds by donations, benefits, and other
means for their purpose subject to the approval of the
Department;
3. Purchase, sell, lease, or otherwise encumber
property, both real and personal, for the
accomplishment of their purpose;
4. Conduct local, interport, and international
competitions, other than the Olympic and Asian
Games, for the promotion of their sport;
5. Affiliate with international or regional sports
associations after due consultation with the
Department;
xxx
13. Perform such other functions as may be provided
by law.
The above powers and functions granted to national
sports associations clearly indicate that these entities may
acquire a juridical personality. The power to purchase,
sell, lease and encumber property are acts which may
only be done by persons, whether natural or artificial, with
juridical capacity. However, while we agree with the
appellate court that national sports associations may be
accorded corporate status, such does not automatically
take place by the mere passage of these laws.
It is a basic postulate that before a corporation may
acquire juridical personality, the State must give its
consent either in the form of a special law or a general
enabling act. We cannot agree with the view of the
appellate court and the private respondent that the
Philippine Football Federation came into existence upon
the passage of these laws. Nowhere can it be found in
R.A. 3135 or P.D. 604 any provision creating the
Philippine Football Federation. These laws merely
recognized the existence of national sports associations
and provided the manner by which these entities may
acquire juridical personality. Section 11 of R.A. 3135
provides:
SEC. 11. National Sports' Association; organization and
recognition. - A National Association shall be organized for
each individual sports in the Philippines in the manner
hereinafter provided to constitute the Philippine Amateur
Athletic Federation. Applications for recognition as a
National Sports' Association shall be filed with the
executive committee together with, among others, a copy
of the constitution and by-laws and a list of the members
of the proposed association, and a filing fee of ten pesos.
The Executive Committee shall give the recognition
applied for if it is satisfied that said association will
promote the purposes of this Act and particularly section
three thereof. No application shall be held pending for
more than three months after the filing thereof without any
action having been taken thereon by the executive
committee. Should the application be rejected, the
reasons for such rejection shall be clearly stated in a
written communication to the applicant. Failure to specify
the reasons for the rejection shall not affect the application
which shall be considered as unacted upon: Provided,
however, That until the executive committee herein
provided shall have been formed, applications for
recognition shall be passed upon by the duly elected
members of the present executive committee of the
Philippine Amateur Athletic Federation. The said executive
committee shall be dissolved upon the organization of the
executive committee herein provided: Provided, further,
That the functioning executive committee is charged with
the responsibility of seeing to it that the National Sports'
Associations are formed and organized within six months
from and after the passage of this Act.
Section 7 of P.D. 604, similarly provides:
SEC. 7. National Sports Associations. - Application for
accreditation or recognition as a national sports
association for each individual sport in the Philippines
shall be filed with the Department together with, among
others, a copy of the Constitution and By-Laws and a list
of the members of the proposed association.
The Department shall give the recognition applied for if it
is satisfied that the national sports association to be
organized will promote the objectives of this Decree and
has substantially complied with the rules and regulations
of the Department: Provided, That the Department may
withdraw accreditation or recognition for violation of this
Decree and such rules and regulations formulated by it.
The Department shall supervise the national sports
association: Provided, That the latter shall have exclusive
technical control over the development and promotion of
the particular sport for which they are organized.
Clearly the above cited provisions require that before an
entity may be considered as a national sports association,
such entity must be recognized by the accrediting
organization, the Philippine Amateur Athletic Federation
under R.A. 3135, and the Department of Youth and Sports
Development under P.D. 604. This fact of recognition,
however, Henri Kahn failed to substantiate. In attempting
to prove the juridical existence of the Federation, Henri
Kahn attached to his motion for reconsideration before the
trial court a copy of the constitution and by-laws of the
Philippine Football Federation. Unfortunately, the same
does not prove that said Federation has indeed been
recognized and accredited by either the Philippine
Amateur Athletic Federation or the Department of Youth
and Sports Development. Accordingly, we rule that the
Philippine Football Federation is not a national sports
association within the purview of the aforementioned laws
and does not have corporate existence of its own.
Thus being said, it follows that private respondent Henry
Kahn should be held liable for the unpaid obligations of the
unincorporated Philippine Football Federation. It is a
settled principal in corporation law that any person acting
or purporting to act on behalf of a corporation which has
no valid existence assumes such privileges and becomes
personally liable for contract entered into or for other acts
performed as such agent. As president of the Federation,
14
Henri Kahn is presumed to have known about the
corporate existence or non-existence of the Federation.
We cannot subscribe to the position taken by the appellate
court that even assuming that the Federation was
defectively incorporated, the petitioner cannot deny the
corporate existence of the Federation because it had
contracted and dealt with the Federation in such a manner
as to recognize and in effect admit its existence. The
15
doctrine of corporation by estoppel is mistakenly applied
by the respondent court to the petitioner. The application
of the doctrine applies to a third party only when he tries to
escape liability on a contract from which he has benefited
on the irrelevant ground of defective incorporation. In the
16
case at bar, the petitioner is not trying to escape liability
from the contract but rather is the one claiming from the
contract.
WHEREFORE, the decision appealed from is REVERSED
and SET ASIDE. The decision of the Regional Trial Court
of Manila, Branch 35, in Civil Case No. 90-53595 is hereby
REINSTATED. SO ORDERED.
GEORG GROTJAHN GMBH & CO., petitioner,
vs.
HON. LUCIA VIOLAGO ISNANI, Presiding Judge,
Regional Trial Court, Makati, Br. 59; ROMANA R.
LANCHINEBRE; and TEOFILO A.
LANCHINEBRE, respondents.
G.R. No. 109272 August 10, 1994
Petitioner impugns the dismissal of its Complaint for a sum
of money by the respondent judge for lack of jurisdiction
and lack of capacity to sue.
The records show that petitioner is a multinational
company organized and existing under the laws of the
Federal Republic of Germany. On July 6, 1983, petitioner
filed an application, dated July 2, 1983, with the
1
Securities and Exchange Commission (SEC) for the
establishment of a regional or area headquarters in the
Philippines, pursuant to Presidential Decree No. 218. The
application was approved by the Board of Investments
(BOI) on September 6, 1983. Consequently, on
September 20, 1983, the SEC issued a Certificate of
Registration and License to petitioner.2
Private respondent Romana R. Lanchinebre was a sales
representative of petitioner from 1983 to mid-1992. On
March 12, 1992, she secured a loan of twenty-five
thousand pesos (P25,000.00) from petitioner. On March
26 and June 10, 1992, she made additional cash
advances in the sum of ten thousand pesos (P10,000.00).
Of the total amount, twelve thousand one hundred seventy
pesos and thirty-seven centavos (P12,170.37) remained
unpaid. Despite demand, private respondent Romana
failed to settle her obligation with petitioner.
On July 22, 1992, private respondent Romana
Lanchinebre filed with the Arbitration Branch of the
National Labor Relations Commission (NLRC) in Manila, a
Complaint for illegal suspension, dismissal and non-
payment of commissions against petitioner. On August 18,
1992, petitioner in turn filed against private respondent a
Complaint for damages amounting to one hundred twenty
thousand pesos (P120,000.00) also with the NLRC
Arbitration Branch (Manila). The two cases were
3
consolidated.
On September 2, 1992, petitioner filed another Complaint
for collection of sum of money against private respondents
spouses Romana and Teofilo Lanchinebre which was
docketed as Civil Case No. 92-2486 and raffled to the sala
of respondent judge. Instead of filing their Answer, private
respondents moved to dismiss the Complaint. This was
opposed by petitioner.
On December 21, 1992, respondent judge issued the first
impugned Order, granting the motion to dismiss. She
held, viz:
Jurisdiction over the subject matter or nature of the
action is conferred by law and not subject to the
whims and caprices of the parties.
Under Article 217 of the Labor Code of the
Philippines, 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, the following cases
involving all workers, whether agricultural or non-
agricultural:
(4) claims for actual, moral, exemplary and other
forms of damages arising from an employer-employee
relations.
xxx xxx xxx
(6) Except claims for employees compensation, social
security, medicare and maternity benefits, all other
claims arising from employer-employee relations,
including those of persons in domestic or household
service, involving an amount exceeding five thousand
pesos (P5,000.00) regardless of whether or not
accompanied with a claim for reinstatement.
In its complaint, the plaintiff (petitioner herein) seeks
to recover alleged cash advances made by defendant
(private respondent herein) Romana Lanchinebre
while the latter was in the employ of the former.
Obviously the said cash advances were made
pursuant to the employer-employee relationship
between the (petitioner) and the said (private
respondent) and as such, within the original and
exclusive jurisdiction of the National Labor Relations
Commission.
Again, it is not disputed that the Certificate of
Registration and License issued to the (petitioner) by
the Securities and Exchange Commission was merely
"for the establishment of a regional or area
headquarters in the Philippines, pursuant to
Presidential Decree No. 218 and its implementing
rules and regulations." It does not include a license to
do business in the Philippines. There is no allegation
in the complaint moreover that (petitioner) is suing
under an isolated transaction. It must be considered
that under Section 4, Rule 8 of the Revised Rules of
Court, facts showing the capacity of a party to sue or
be sued or the authority of a party to sue or be sued
in a representative capacity or the legal existence of
an organized association of persons that is made a
party must be averred. There is no averment in the
complaint regarding (petitioner's) capacity to sue or
be sued.
Finally, (petitioner's) claim being clearly incidental to
the occupation or exercise of (respondent) Romana
Lanchinebre's profession, (respondent) husband
should not be joined as party defendant. 4
On March 8, 1993, the respondent judge issued a minute
Order denying petitioner's Motion for Reconsideration.
Petitioner now raises the following assignments of errors:
I
THE TRIAL COURT GRAVELY ERRED IN HOLDING
THAT THE REGULAR COURTS HAVE NO
JURISDICTION OVER DISPUTES BETWEEN AN
EMPLOYER AND AN EMPLOYEE INVOLVING THE
APPLICATION PURELY OF THE GENERAL CIVIL LAW.
II
THE TRIAL COURT GRAVELY ERRED IN HOLDING
THAT PETITIONER HAS NO CAPACITY TO SUE AND
BE SUED IN THE PHILIPPINES DESPITE THE FACT
THAT PETITIONER IS DULY LICENSED BY THE
SECURITIES AND EXCHANGE COMMISSION TO SET
UP AND OPERATE A REGIONAL OR AREA
HEADQUARTERS IN THE COUNTRY AND THAT IT HAS
CONTINUOUSLY OPERATED AS SUCH FOR THE LAST
NINE (9) YEARS.
III
THE TRIAL COURT GRAVELY ERRED IN HOLDING
THAT THE ERRONEOUS INCLUSION OF THE
HUSBAND IN A COMPLAINT IS A FATAL DEFECT THAT
SHALL RESULT IN THE OUTRIGHT DISMISSAL OF
THE COMPLAINT.
IV
THE TRIAL COURT GRAVELY ERRED IN HOLDING
THAT THE HUSBAND IS NOT REQUIRED BY THE
RULES TO BE JOINED AS A DEFENDANT IN A
COMPLAINT AGAINST THE WIFE.
There is merit to the petition.
Firstly, the trial court should not have held itself without
jurisdiction over Civil Case No. 92-2486. It is true that the
loan and cash advances sought to be recovered by
petitioner were contracted by private respondent Romana
Lanchinebre while she was still in the employ of petitioner.
Nonetheless, it does not follow that Article 217 of the
Labor Code covers their relationship.
Not every dispute between an employer and employee
involves matters that only labor arbiters and the NLRC can
resolve in the exercise of their adjudicatory or quasi-
judicial powers. The jurisdiction of labor arbiters and the
NLRC under Article 217 of the Labor Code is limited to
disputes arising from an employer-employee relationship
which can only be resolved by reference to the Labor
Code, other labor statutes, or their collective bargaining
agreement. In this regard, we held in the earlier case
of Molave Motor Sales, Inc. vs. Laron, 129 SCRA 485
(1984), viz:
Before the enactment of BP Blg. 227 on June 1, 1982,
Labor Arbiters, under paragraph 5 of Article 217 of the
Labor Code had jurisdiction over "all other cases
arising from employer-employee relation, unless
expressly excluded by this Code." Even then, the
principal followed by this Court was that, although a
controversy is between an employer and an
employee, the Labor Arbiters have no jurisdiction if
the Labor Code is not involved. In Medina vs. Castro-
Bartolome, 116 SCRA 597, 604 in negating
jurisdiction of the Labor Arbiter, although the parties
were an employer and two employees, Mr. Justice
Abad Santos stated:
The pivotal question to Our mind is whether or not the
Labor Code has any relevance to the reliefs sought by
plaintiffs. For if the Labor Code has no relevance, any
discussion concerning the statutes amending it and
whether or not they have retroactive effect is
unnecessary.
xxx xxx xxx
And in Singapore Airlines Limited vs. Paño, 122
SCRA 671, 677, the following was said:
Stated differently, petitioner seeks protection under
the civil laws and claims no benefits under the Labor
Code. The primary relief sought is for liquidated
damages for breach of a contractual obligation. The
other items demanded are not labor benefits
demanded by workers generally taken cognizance of
in labor disputes, such as payment of wages,
overtime compensation or separation pay. The items
claimed are the natural consequences flowing from
breach of an obligation, intrinsically a civil dispute.
xxx xxx xxx
In San Miguel Corporation vs. NLRC, 161 SCRA 719
(1988), we crystallized the doctrines set forth in
the Medina, Singapore Airlines, and Molave Motors cases,
thus:
. . . The important principle that runs through these
three (3) cases is that where the claim to the principal
relief sought is to be resolved not by reference to the
Labor Code or other labor relations statute or a
collective bargaining agreement but by the general
civil law, the jurisdiction over the dispute belongs to
the regular courts of justice and not to the Labor
Arbiter and the NLRC. In such situations, resolutions
of the dispute requires expertise, not in labor
management relations nor in wage structures and
other terms and conditions of employment, but rather
in the application of the general civil law. Clearly, such
claims fall outside the area of competence or
expertise ordinarily ascribed to Labor Arbiters and the
NLRC and the rationale for granting jurisdiction over
such claims to these agencies disappears.
Civil Case No. 92-2486 is a simple collection of a sum of
money brought by petitioner, as creditor, against private
respondent Romana Lanchinebre, as debtor. The fact that
they were employer and employee at the time of the
transaction does not negate the civil jurisdiction of the trial
court. The case does not involve adjudication of a labor
dispute but recovery of a sum of money based on our civil
laws on obligation and contract.
Secondly, the trial court erred in holding that petitioner
does not have capacity to sue in the Philippines. It is clear
that petitioner is a foreign corporation doing business in
the Philippines. Petitioner is covered by the Omnibus
Investment Code of 1987. Said law defines "doing
business," as follows:
. . . shall include soliciting orders, purchases, service
contracts, opening offices, whether called "liaison"
offices or branches; appointing representatives or
distributors who are domiciled in the Philippines or
who in any calendar year stay in the Philippines for a
period or periods totalling one hundred eighty (180)
days or more; participating in the management,
supervision or control of any domestic business firm,
entity or corporation in the Philippines, and any other
act or acts that imply a continuity of commercial
dealings or arrangements and contemplate to that
extent the performance of acts or works, or the
exercise of some of the functions normally incident to,
and in progressive prosecution of, commercial gain or
of the purpose and object of the business
organization. 5
There is no general rule or governing principle as to what
constitutes "doing" or "engaging in" or "transacting"
business in the Philippines. Each case must be judged in
the light of its peculiar circumstances. In the case at
6
bench, petitioner does not engage in commercial dealings
or activities in the country because it is precluded from
doing so by P.D. No. 218, under which it was
established. Nonetheless, it has been continuously, since
7
1983, acting as a supervision, communications and
coordination center for its home office's affiliates in
Singapore, and in the process has named its local agent
and has employed Philippine nationals like private
respondent Romana Lanchinebre. From this uninterrupted
performance by petitioner of acts pursuant to its primary
purposes and functions as a regional/area headquarters
for its home office, it is clear that petitioner is doing
business in the country. Moreover, private respondents
are estopped from assailing the personality of petitioner.
So we held in Merrill Lynch Futures, Inc. vs. Court of
Appeals, 211 SCRA 824, 837 (1992):

The rule is that a party is estopped to challenge the

personality of a corporation after having
acknowledged the same by entering into a contract
with it. And the "doctrine of estoppel to deny corporate
existence applies to foreign as well as to domestic
corporations;" "one who has dealth with a corporation
of foreign origin as a corporate entity is estopped to
deny its corporate existence and capacity." The
principle "will be applied to prevent a person
contracting with a foreign corporation from later taking
advantage of its noncompliance with the statutes
chiefly in cases where such person has received the
benefits of the contract, . . . (Citations omitted.)

Finally, the trial court erred when it dismissed Civil Case

No. 92-2486 on what it found to be the misjoinder of
private respondent Teofilo Lanchinebre as party
defendant. It is a basic rule that "(m)isjoinder or parties is
not ground for dismissal of an action." Moreover, the
8

Order of the trial court is based on Section 4(h), Rule 3 of

the Revised Rules of Court, which provides:

A married woman may not . . . be sued alone without

joining her husband, except . . . if the litigation is
incidental to the profession, occupation or business in
which she is engaged,

Whether or not the subject loan was incurred by private

respondent as an incident to her profession, occupation or
business is a question of fact. In the absence of relevant
evidence, the issue cannot be resolved in a motion to
dismiss.

IN VIEW WHEREOF, the instant Petition is GRANTED.

The Orders, dated December 21, 1992 and March 8,
1993, in Civil Case No. 92-2486 are REVERSED AND
SET ASIDE. The RTC of Makati, Br. 59, is hereby ordered
to hear the reinstated case on its merits. No costs.
SO ORDERED.