CORPORATE CONTRACT LAW_CASES:

(1) Delpher Trades Corp. VS IAC

[DELPHER TRADES CORPORATION, and DELPHIN PACHECO, vs.INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES, INC.,
G.R. No. L-69259 January 26, 1988]

The petitioners question the decision of the Intermediate Appellate Court which sustained the private
respondent's contention that the deed of exchange whereby Delfin Pacheco and Pelagia Pacheco
conveyed a parcel of land to Delpher Trades Corporation in exchange for 2,500 shares of stock was
actually a deed of sale which violated a right of first refusal under a lease contract.

Briefly, the facts of the case are summarized as follows:

In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169
square meters of real estate Identified as Lot. No. 1095, Malinta Estate, in the
Municipality of Polo (now Valenzuela), Province of Bulacan (now Metro Manila) which is
covered by Transfer Certificate of Title No. T-4240 of the Bulacan land registry.

On April 3, 1974, the said co-owners leased to Construction Components International

Inc. the same property and providing that during the existence or after the term of this
lease the lessor should he decide to sell the property leased shall first offer the same to
the lessee and the letter has the priority to buy under similar conditions (Exhibits A to A-
5)

On August 3, 1974, lessee Construction Components International, Inc. assigned its

rights and obligations under the contract of lease in favor of Hydro Pipes Philippines,
Inc. with the signed conformity and consent of lessors Delfin Pacheco and Pelagia
Pacheco (Exhs. B to B-6 inclusive)

The contract of lease, as well as the assignment of lease were annotated at he back of
the title, as per stipulation of the parties (Exhs. A to D-3 inclusive)

On January 3, 1976, a deed of exchange was executed between lessors Delfin and
Pelagia Pacheco and defendant Delpher Trades Corporation whereby the former
conveyed to the latter the leased property (TCT No.T-4240) together with another
parcel of land also located in Malinta Estate, Valenzuela, Metro Manila (TCT No. 4273)
for 2,500 shares of stock of defendant corporation with a total value of P1,500,000.00
(Exhs. C to C-5, inclusive) (pp. 44-45, Rollo)

On the ground that it was not given the first option to buy the leased property pursuant to the proviso
in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for
reconveyance of Lot. No. 1095 in its favor under conditions similar to those whereby Delpher Trades
Corporation acquired the property from Pelagia Pacheco and Delphin Pacheco.

After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff. The dispositive portion of
the decision reads:

ACCORDINGLY, the judgment is hereby rendered declaring the valid existence of the
plaintiffs preferential right to acquire the subject property (right of first refusal) and
ordering the defendants and all persons deriving rights therefrom to convey the said
property to plaintiff who may offer to acquire the same at the rate of P14.00 per square
meter, more or less, for Lot 1095 whose area is 27,169 square meters only. Without
pronouncement as to attorney's fees and costs. (Appendix I; Rec., pp. 246- 247).
(Appellant's Brief, pp. 1-2; p. 134, Rollo)
The lower court's decision was affirmed on appeal by the Intermediate Appellate Court.

The defendants-appellants, now the petitioners, filed a petition for certiorari to review the appellate
court's decision.

We initially denied the petition but upon motion for reconsideration, we set aside the resolution
denying the petition and gave it due course.

The petitioners allege that:

The denial of the petition will work great injustice to the petitioners, in that:

1. Respondent Hydro Pipes Philippines, Inc, ("private respondent") will acquire from
petitioners a parcel of industrial land consisting of 27,169 square meters or 2.7 hectares
(located right after the Valenzuela, Bulacan exit of the toll expressway) for only P14/sq.
meter, or a total of P380,366, although the prevailing value thereof is approximately
P300/sq. meter or P8.1 Million;

2. Private respondent is allowed to exercise its right of first refusal even if there is no
"sale" or transfer of actual ownership interests by petitioners to third parties; and

3. Assuming arguendo that there has been a transfer of actual ownership interests,
private respondent will acquire the land not under "similar conditions" by which it was
transferred to petitioner Delpher Trades Corporation, as provided in the same
contractual provision invoked by private respondent. (pp. 251-252, Rollo)

The resolution of the case hinges on whether or not the "Deed of Exchange" of the properties executed
by the Pachecos on the one hand and the Delpher Trades Corporation on the other was meant to be a
contract of sale which, in effect, prejudiced the private respondent's right of first refusal over the leased
property included in the "deed of exchange."

Eduardo Neria, a certified public accountant and son-in-law of the late Pelagia Pacheco testified that
Delpher Trades Corporation is a family corporation; that the corporation was organized by the children
of the two spouses (spouses Pelagia Pacheco and Benjamin Hernandez and spouses Delfin Pacheco and
Pilar Angeles) who owned in common the parcel of land leased to Hydro Pipes Philippines in order to
perpetuate their control over the property through the corporation and to avoid taxes; that in order to
accomplish this end, two pieces of real estate, including Lot No. 1095 which had been leased to Hydro
Pipes Philippines, were transferred to the corporation; that the leased property was transferred to the
corporation by virtue of a deed of exchange of property; that in exchange for these properties, Pelagia
and Delfin acquired 2,500 unissued no par value shares of stock which are equivalent to a 55% majority
in the corporation because the other owners only owned 2,000 shares; and that at the time of
incorporation, he knew all about the contract of lease of Lot. No. 1095 to Hydro Pipes Philippines. In the
petitioners' motion for reconsideration, they refer to this scheme as "estate planning." (p. 252, Rollo)

Under this factual backdrop, the petitioners contend that there was actually no transfer of ownership of
the subject parcel of land since the Pachecos remained in control of the property. Thus, the petitioners
allege: "Considering that the beneficial ownership and control of petitioner corporation remained in the
hands of the original co-owners, there was no transfer of actual ownership interests over the l and when
the same was transferred to petitioner corporation in exchange for the latter's shares of stock. The
transfer of ownership, if anything, was merely in form but not in substance. In reality, petitioner
corporation is a mere alter ego or conduit of the Pacheco co-owners; hence the corporation and the co-
owners should be deemed to be the same, there being in substance and in effect an Identity of
interest." (p. 254, Rollo)

The petitioners maintain that the Pachecos did not sell the property. They argue that there was no sale
and that they exchanged the land for shares of stocks in their own corporation. "Hence, such transfer is
not within the letter, or even spirit of the contract. There is a sale when ownership is transferred for a
price certain in money or its equivalent (Art. 1468, Civil Code) while there is a barter or exchange when
one thing is given in consideration of another thing (Art. 1638, Civil Code)." (pp. 254-255, Rollo)

On the other hand, the private respondent argues that Delpher Trades Corporation is a corporate entity
separate and distinct from the Pachecos. Thus, it contends that it cannot be said that Delpher Trades
Corporation is the Pacheco's same alter ego or conduit; that petitioner Delfin Pacheco, having treated
Delpher Trades Corporation as such a separate and distinct corporate entity, is not a party who may
allege that this separate corporate existence should be disregarded. It maintains that there was actual
transfer of ownership interests over the leased property when the same was transferred to Delpher
Trades Corporation in exchange for the latter's shares of stock.

We rule for the petitioners.

After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing stock

directly from the corporation or from individual owners thereof (Salmon, Dexter & Co. v. Unson, 47 Phil,
649, citing Bole v. Fulton [1912], 233 Pa., 609). In the case at bar, in exchange for their properties, the
Pachecos acquired 2,500 original unissued no par value shares of stocks of the Delpher Trades
Corporation. Consequently, the Pachecos became stockholders of the corporation by subscription "The
essence of the stock subscription is an agreement to take and pay for original unissued shares of a
corporation, formed or to be formed." (Rohrlich 243, cited in Agbayani, Commentaries and
Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 430) It is significant
that the Pachecos took no par value shares in exchange for their properties.

A no-par value share does not purport to represent any stated proportionate interest in
the capital stock measured by value, but only an aliquot part of the whole number of
such shares of the issuing corporation. The holder of no-par shares may see from the
certificate itself that he is only an aliquot sharer in the assets of the corporation. But this
character of proportionate interest is not hidden beneath a false appearance of a given
sum in money, as in the case of par value shares. The capital stock of a corporation
issuing only no-par value shares is not set forth by a stated amount of money, but
instead is expressed to be divided into a stated number of shares, such as, 1,000 shares.
This indicates that a shareholder of 100 such shares is an aliquot sharer in the assets of
the corporation, no matter what value they may have, to the extent of 100/1,000 or
1/10. Thus, by removing the par value of shares, the attention of persons interested in
the financial condition of a corporation is focused upon the value of assets and the
amount of its debts. (Agbayani, Commentaries and Jurisprudence on the Commercial
Laws of the Philippines, Vol. III, 1980 Edition, p. 107).

Moreover, there was no attempt to state the true or current market value of the real estate. Land
valued at P300.00 a square meter was turned over to the family's corporation for only P14.00 a square
meter.

It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos have
control of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who also
belong to the same family group.

In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was
to invest their properties and change the nature of their ownership from unincorporated to
incorporated form by organizing Delpher Trades Corporation to take control of their properties and at
the same time save on inheritance taxes.

As explained by Eduardo Neria:

xxx xxx xxx

ATTY. LINSANGAN:
Q Mr. Neria, from the point of view of taxation, is there any benefit to
the spouses Hernandez and Pacheco in connection with their execution
of a deed of exchange on the properties for no par value shares of the
defendant corporation?

A Yes, sir.

COURT:

Q What do you mean by "point of view"?

A To take advantage for both spouses and corporation in entering in the

deed of exchange.

ATTY. LINSANGAN:

Q (What do you mean by "point of view"?) What are these benefits to

the spouses of this deed of exchange?

A Continuous control of the property, tax exemption benefits, and other

inherent benefits in a corporation.

Q What are these advantages to the said spouses from the point of view
of taxation in entering in the deed of exchange?

A Having fulfilled the conditions in the income tax law, providing for tax
free exchange of property, they were able to execute the deed of
exchange free from income tax and acquire a corporation.

Q What provision in the income tax law are you referring to?

A I refer to Section 35 of the National Internal Revenue Code under par.

C-sub-par. (2) Exceptions regarding the provision which I quote: "No
gain or loss shall also be recognized if a person exchanges his property
for stock in a corporation of which as a result of such exchange said
person alone or together with others not exceeding four persons gains
control of said corporation."

Q Did you explain to the spouses this benefit at the time you executed
the deed of exchange?

A Yes, sir

Q You also, testified during the last hearing that the decision to have no
par value share in the defendant corporation was for the purpose of
flexibility. Can you explain flexibility in connection with the ownership of
the property in question?

A There is flexibility in using no par value shares as the value is

determined by the board of directors in increasing capitalization. The
board can fix the value of the shares equivalent to the capital
requirements of the corporation.

Q Now also from the point of taxation, is there any flexibility in the
holding by the corporation of the property in question?

A Yes, since a corporation does not die it can continue to hold on to the
property indefinitely for a period of at least 50 years. On the other
 hand, if the property is held by the spouse the property will be tied up
in succession proceedings and the consequential payments of estate
and inheritance taxes when an owner dies.

Q Now what advantage is this continuity in relation to ownership by a

particular person of certain properties in respect to taxation?

A The property is not subjected to taxes on succession as the

corporation does not die.

Q So the benefit you are talking about are inheritance taxes?

A Yes, sir. (pp. 3-5, tsn., December 15, 1981)

The records do not point to anything wrong or objectionable about this "estate planning" scheme
resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise
could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted."
(Liddell & Co., Inc. v. The collector of Internal Revenue, 2 SCRA 632 citing Gregory v. Helvering, 293 U.S.
465, 7 L. ed. 596).

The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be
considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a
third party. The Pacheco family merely changed their ownership from one form to another. The
ownership remained in the same hands. Hence, the private respondent has no basis for its claim of a
light of first refusal under the lease contract.

WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and resolution of the
then Intermediate Appellate Court are REVERSED and SET ASIDE. The amended complaint in Civil Case
No. 885-V-79 of the then Court of First Instance of Bulacan is DISMISSED. No costs.

SO ORDERED.

(2) Cagayan Fishing Development Co. VS Sandiko

[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 exe cuted 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 herei nbefore
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 herei n, 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; ci ting 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.

(3) Hall VS Piccio

[C. ARNOLD HALL and BRADLEY P. HALL, petitioners, vs.EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN,
EMMA BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber and Commercial Co., Inc.,respondents .
G.R. No. L-2598 June 29, 1950]

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 th is
instance we do not believe has been clearly abused.

Judgment: The petition will, therefore, be dismissed, with costs. The preliminary injunction heretofore
issued will be dissolved.

(4) Lozano VS Delos Santos

[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. 2 It denied reconsideration on March 8, 1996. 3

Private respondent filed a petition for certiorari before the Regional Trial Court, Branch 58, Angeles
City. 4 The trial 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. 5 It 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. 8 This 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. 10 The second element 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. 11 After all, 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. 13 When the SEC, 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. 14 The new consolidated corporation comes into 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 16 advanced by private respondent cannot override

jurisdictional requirements. Jurisdiction is fixed by law and is not subject to the agreement of the
parties. 17 It cannot be acquired 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. 19 It 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.

(5) Seventh Day Adventist Conference Church of Southern Phils., Inc. et. al. VS Northeasthern
Mindanao Mission of Seventh Day Adventists, Inc.

SEVENTH DAY ADVENTIST CONFERENCE CHURCH OF SOUTHERN PHILIPPINES, INC., and/or represented by MANASSEH C. ARRANGUEZ,
BRIGIDO P. GULAY, FRANCISCO M. LUCENARA, DIONICES O. TIPGOS, LORESTO C. MURILLON, ISRAEL C. NINAL, GEORGE G. SOMOSOT, JESSIE
T. ORBISO, LORETO PAEL and JOEL BACUBAS, petitioners, vs. NORTHEASTERN MINDANAO MISSION OF SEVENTH DAY ADVENTIST, INC.,
and/or represented by JOSUE A. LAYON, WENDELL M. SERRANO, FLORANTE P. TY and JETHRO CALAHAT and/or SEVENTH DAY ADVENTIST
CHURCH [OF] NORTHEASTERN MINDANAO MISSION,* Respondents. G.R. No. 150416 July 21, 2006

DECISION
This petition for review on certiorari assails the Court of Appeals (CA) decision 1 and resolution2 in CA-
G.R. CV No. 41966 affirming, with modification, the decision of the Regional Trial Court (RTC) of
Bayugan, Agusan del Sur, Branch 7 in Civil Case No. 63.

This case involves a 1,069 sq. m. lot covered by Transfer Certificate of Title (TCT) No. 4468 in Bayugan,
Agusan del Sur originally owned by Felix Cosio and his wife, Felisa Cuysona.

On April 21, 1959, the spouses Cosio donated the land to the South Phili ppine Union Mission of Seventh
Day Adventist Church of Bayugan Esperanza, Agusan (SPUM-SDA Bayugan).3 Part of the deed of
donation read:

KNOW ALL MEN BY THESE PRESENTS:

That we Felix Cosio[,] 49 years of age[,] and Felisa Cuysona[,] 40 years of age, [h]usband and wife, both
are citizen[s] of the Philippines, and resident[s] with post office address in the Barrio of Bayugan,
Municipality of Esperanza, Province of Agusan, Philippines, do hereby grant, convey and forever quit
claim by way of Donation or gift unto the South Philippine [Union] Mission of Seventh Day Adventist
Church of Bayugan, Esperanza, Agusan, all the rights, title, interest, claim and demand both at law and
as well in possession as in expectancy of in and to all the place of land and portion situated in the Barrio
of Bayugan, Municipality of Esperanza, Province of Agusan, Philippines, more particularly and bounded
as follows, to wit:

1. a parcel of land for Church Site purposes only.

2. situated [in Barrio Bayugan, Esperanza].

3. Area: 30 meters wide and 30 meters length or 900 square meters.

4. Lot No. 822-Pls-225. Homestead Application No. V-36704, Title No. P-285.

5. Bounded Areas

North by National High Way; East by Bricio Gerona; South by Serapio Abijaron and West by Feliz Cosio
xxx. 4

The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh Day Adventist
Church, on behalf of the donee.

Twenty-one years later, however, on February 28, 1980, the same parcel of land was sold by the spouses
Cosio to the Seventh Day Adventist Church of Northeastern Mindanao Mission (SDA -NEMM).5 TCT No.
4468 was thereafter issued in the name of SDA-NEMM.6

Claiming to be the alleged donee’s successors-in-interest, petitioners asserted ownership over the
property. This was opposed by respondents who argued that at the time of the donation, SPUM-SDA
Bayugan could not legally be a donee

because, not having been incorporated yet, it had no juridical personality. Neither were petitioners
members of the local church then, hence, the donation could not have been made particularly to them.

On September 28, 1987, petitioners filed a case, docketed as Civil Case No. 63 (a suit for cancellati on of
title, quieting of ownership and possession, declaratory relief and reconveyance with prayer for
preliminary injunction and damages), in the RTC of Bayugan, Agusan del Sur. After trial, the trial court
rendered a decision7 on November 20, 1992 upholding the sale in favor of respondents.

On appeal, the CA affirmed the RTC decision but deleted the award of moral damages and attorney’s
fees.8Petitioners’ motion for reconsideration was likewise denied. Thus, this petition.
The issue in this petition is simple: should SDA-NEMM’s ownership of the lot covered by TCT No. 4468
be upheld?9We answer in the affirmative.

The controversy between petitioners and respondents involves two supposed transfers of the lot
previously owned by the spouses Cosio: (1) a donation to petitioners’ alleged predecessors-in-interest in
1959 and (2) a sale to respondents in 1980.

Donation is undeniably one of the modes of acquiring ownership of real property. Likewise, ownership
of a property may be transferred by tradition as a consequence of a sale.

Petitioners contend that the appellate court should not have ruled on the validity of the donation since
it was not among the issues raised on appeal. This is not correct because an appeal generally opens the
entire case for review.

We agree with the appellate court that the alleged donation to petitioners was void.

Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor
of another personwho accepts it. The donation could not have been made in favor of an entity yet
inexistent at the time it was made. Nor could it have been accepted as there was yet no one to accept it.

The deed of donation was not in favor of any informal group of SDA members but a supposed SPUM-
SDA Bayugan (the local church) which, at the time, had neither juridical personality nor capacity to
accept such gift.

Declaring themselves a de facto corporation, petitioners allege that they should benefit from the
donation.

But there are stringent requirements before one can qualify as a de facto corporation:

(a) the existence of a valid law under which it may be incorporated;

(b) an attempt in good faith to incorporate; and

(c) assumption of corporate powers.10

While there existed the old Corporation Law (Act 1459), 11 a law under which SPUM-SDA Bayugan could
have been organized, there is no proof that there was an attempt to incorporate at that time.

The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for
the existence of a de facto corporation.12 We have held that an organization not registered with the
Securities and Exchange Commission (SEC) cannot be considered a corporation in any concept, not even
as a corporation de facto.13 Petitioners themselves admitted that at the time of the donation, they were
not registered with the SEC, nor did they even attempt to organize 14 to comply with legal requirements.

Corporate existence begins only from the moment a certificate of incorporation is issued. No such
certificate was ever issued to petitioners or their supposed predecessor-in-interest at the time of the
donation. Petitioners obviously could not have claimed succession to an entity that never came to exist.
Neither could the principle of separate juridical personality apply since there was never any
corporation15 to speak of. And, as already stated, some of the representatives of petitioner Seventh Day
Adventist Conference Church of Southern Philippines, Inc. were not e ven members of the local church
then, thus, they could not even claim that the donation was particularly for them. 16

"The de facto doctrine thus effects a compromise between two conflicting public interest[s]—the one
opposed to an unauthorized assumption of corporate privileges; the other in favor of doing justice to
the parties and of establishing a general assurance of security in business dealing with corporation s."17

Generally, the doctrine exists to protect the public dealing with supposed corporate entities, not to
favor the defective or non-existent corporation. 18
In view of the foregoing, petitioners’ arguments anchored on their supposed de facto status hold no
water. We are convinced that there was no donation to petitioners or their supposed predecessor-in-
interest.

On the other hand, there is sufficient basis to affirm the title of SDA-NEMM. The factual findings of the
trial court in this regard were not convincingly disputed. This Court is not a trier of facts. Only questions
of law are the proper subject of a petition for review on certiorari. 19

Sustaining the validity of respondents’ title as well as their right of ownership over the property, the trial
court stated:

[W]hen Felix Cosio was shown the Absolute Deed of Sale during the hearing xxx he acknowledged that
the same was his xxx but that it was not his intention to sell the controverted property because he had
previously donated the same lot to the South Philippine Union Mission of SDA Church of Bayugan-
Esperanza. Cosio avouched that had it been his intendment to sell, he would not have disposed of it for
a mere P2,000.00 in two installments but for P50,000.00 or P60,000.00. According to him, the P2,000.00
was not a consideration of the sale but only a form of help extended.

A thorough analysis and perusal, nonetheless, of the Deed of Absolute Sale disclosed that it has the
essential requisites of contracts pursuant to xxx Article 1318 of the Civil Code, except that the
consideration of P2,000.00 is somewhat insufficient for a [1,069-square meter] land. Would then this
inadequacy of the consideration render the contract invalid?

Article 1355 of the Civil Code provides:

Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless
there has been fraud, mistake or undue influence.

No evidence [of fraud, mistake or undue influence] was adduced by [petitioners].

xxx

Well-entrenched is the rule that a Certificate of Title is generally a conclusive evidence of [ownership]
of the land. There is that strong and solid presumption that titles were legally issued and that they are
valid. It is irrevocable and indefeasible and the duty of the Court is to see to it that the title is maintained
and respected unless challenged in a direct proceeding. xxx The title shall be received as evidence in all
the Courts and shall be conclusive as to all matters contained therein.

[This action was instituted almost seven years after the certificate of title in respondents’ name was
issued in 1980.] 20

According to Art. 1477 of the Civil Code, the ownership of the thing sold shall be transferred to the
vendee upon the actual or constructive delivery thereof. On this, the noted author Arturo Tolentino had
this to say:

The execution of [a] public instrument xxx transfers the ownership from the vendor to the vendee who
may thereafter exercise the rights of an owner over the same 21

Here, transfer of ownership from the spouses Cosio to SDA-NEMM was made upon constructive delivery
of the property on February 28, 1980 when the sale was made through a public instrument. 22 TCT No.
4468 was thereafter issued and it remains in the name of SDA-NEMM.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioners.

SO ORDERED.
 (6) Lim Tong Lim VS Philippine Fishing Gear Industries, Inc.

[LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent. G.R. No. 136448 November 3, 1999]

A partnership may be deemed to exist among parties who agree to borrow money to pursue a business
and to divide the profits or losses that may arise therefrom, even if it is shown that they have not
contributed any capital of their own to a "common fund." Their contribution may be in the form of
credit or industry, not necessarily cash or fixed assets. Being partner, they are all liable for debts
incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of an
unincorporated association or ostensible corporation may lie in a person who may not have directly
transacted on its behalf, but reaped benefits from that contract.

The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision
of the Court of Appeals in CA-GR CV
41477, 1 which disposed as follows:

WHEREFORE, [there being] no reversible error in the appealed decision, the same is
hereby affirmed. 2

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA,
reads as follows:

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on
September 20, 1990;

2. That defendants are jointly liable to plaintiff for the following amounts, subject to the
modifications as hereinafter made by reason of the special and unique facts and
circumstances and the proceedings that transpired during the trial of this case;

a. P532,045.00 representing [the] unpaid purchase price of the fishing

nets covered by the Agreement plus P68,000.00 representing the
unpaid price of the floats not covered by said Agreement;

b. 12% interest per annum counted from date of plaintiff's invoices and
computed on their respective amounts as follows:

i. Accrued interest of P73,221.00 on Invoice No. 14407

for P385,377.80 dated February 9, 1990;

ii. Accrued interest for P27,904.02 on Invoice No. 14413

for P146,868.00 dated February 13, 1990;

iii. Accrued interest of P12,920.00 on Invoice No. 14426

for P68,000.00 dated February 19, 1990;

c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing

P500.00 per appearance in court;
 d. P65,000.00 representing P5,000.00 monthly rental for storage
charges on the nets counted from September 20, 1990 (date of
attachment) to September 12, 1991 (date of auction sale);

e. Cost of suit.

With respect to the joint liability of defendants for the principal obligation or for
the unpaid price of nets and floats in the amount of P532,045.00 and
P68,000.00, respectively, or for the total amount P600,045.00, this Court noted
that these items were attached to guarantee any judgment that may be
rendered in favor of the plaintiff but, upon agreement of the parties, and, to
avoid further deterioration of the nets during the pendency of this case, it was
ordered sold at public auction for not less than P900,000.00 for which the
plaintiff was the sole and winning bidder. The proceeds of the sale paid for by
plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced
the attached property as a guaranty for any judgment that plaintiff may be able
to secure in this case with the ownership and possession of the nets and floats
awarded and delivered by the sheriff to plaintiff as the highest bidder in the
public auction sale. It has also been noted that ownership of the nets [was]
retained by the plaintiff until full payment [was] made as stipulated in the
invoices; hence, in effect, the plaintiff attached its own properties. It [was] for
this reason also that this Court earlier ordered the attachment bond filed by
plaintiff to guaranty damages to defendants to be cancelled and for the
P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor of
defendants.

From the foregoing, it would appear therefore that whatever judgment the
plaintiff may be entitled to in this case will have to be satisfied from the amount
of P900,000.00 as this amount replaced the attached nets and floats.
Considering, however, that the total judgment obligation as computed above
would amount to only P840,216.92, it would be inequitable, unfair and unjust to
award the excess to the defendants who are not entitled to damages and who
did not put up a single centavo to raise the amount of P900,000.00 aside from
the fact that they are not the owners of the nets and floats. For this reason, the
defendants are hereby relieved from any and all liabilities arising from the
monetary judgment obligation enumerated above and for plaintiff to retain
possession and ownership of the nets and floats and for the reimbursement of
the P900,000.00 deposited by it with the Clerk of Court.

SO ORDERED. 3

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract
dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear
Industries, Inc. (herein respondent). They claimed that they were engaged in a business venture with
Petitioner Lim Tong Lim, who however was not a signatory to the agreeme nt. The total price of the nets
amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to the
Corporation. 4

The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents filed a
collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities as ge neral partners, on the
allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission. 5 On September 20, 1990, the lower court
issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on
board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a
reasonable time within which to pay. He also turned over to respondent some of the nets which were in
his possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to cross-
examine witnesses and to present evidence on his behalf, because of his failure to appear in subsequent
hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and
moved for the lifting of the Writ of Attachment. 6 The trial court maintained the Writ, and upon motion
of private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear
Industries won the bidding and deposited with the said court the sales proceeds of P900,000. 7

On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear
Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were
jointly liable to pay respondent. 8

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of
the witnesses presented and (2) on a Compromise Agreement executed by the three 9 in Civil Case No.
1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a
declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a decl aration of
ownership of fishing boats; (d) an injunction and (e) damages. 10 The Compromise Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4)
vessels sold in the amount of P5,750,000.00 including the fishing net.
This P5,750,000.00 shall be applied as full payment for P3,250,000.00 in
favor of JL Holdings Corporation and/or Lim Tong Lim;

b) If the four (4) vessel[s] and the fishing net will be sold at a higher
price than P5,750,000.00 whatever will be the excess will be divided
into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;

c) If the proceeds of the sale the vessels will be less than P5,750,000.00
whatever the deficiency shall be shouldered and paid to JL Holding
Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao. 11

The trial court noted that the Compromise Agreement was silent as to the nature of their obligations,
but that joint liability could be presumed from the equal distribution of the profit and loss. 21

Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.

Ruling of the Court of Appeals

In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing
business and may thus be held liable as a such for the fishing nets and floats purchased by and for the
use of the partnership. The appellate court ruled:

The evidence establishes that all the defendants including herein appellant Lim Tong Lim
undertook a partnership for a specific undertaking, that is for commercial fishing . . . .
Oviously, the ultimate undertaking of the defendants was to divide the profits among
themselves which is what a partnership essentially is . . . . By a contract of partnership,
two or more persons bind themselves to contribute money, property or industry to a
common fund with the intention of dividing the profits among themselves (Article 1767,
New Civil Code). 13

Hence, petitioner brought this recourse before this Court. 14

The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following
grounds:
 I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT
THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A
PARTNERSHIP AGREEMENT EXISTED AMONG THEM.

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN
QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE
FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO
PETITIONER LIM AS WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF
PETITIONER LIM'S GOODS.

In determining whether petitioner may be held liable for the fishing nets and floats from respondent,
the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to have
entered into a partnership.

This Court's Ruling

The Petition is devoid of merit.

First and Second Issues:

Existence of a Partnership

and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner
controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He
asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he disclaims
any direct participation in the purchase of the nets, alleging that the negotiations were conducted by
Chua and Yao only, and that he has not even met the representatives of the respondent company.
Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease
" dated February 1, 1990, showed that he had merely leased to the two the main asset of the purported
partnership — the fishing boat F/B Lourdes. The lease was for six months, with a monthly rental of
P37,500 plus 25 percent of the gross catch of the boat.

We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly
showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil
Code which provides:

Art. 1767 — By the contract of partnership, two or more persons bind themse lves to
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.

Specifically, both lower courts ruled that a partnership among the three existed based on the following
factual findings: 15

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial
fishing to join him, while Antonio Chua was already Yao's partner;

(2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to acquire
two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim,
to finance the venture.
 (4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of
Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as
security for the loan extended by Jesus Lim;

(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing, dry
docking and other expenses for the boats would be shouldered by Chua and Yao;

(6) That because of the "unavailability of funds," Jesus Lim again extended a loan to the
partnership in the amount of P1 million secured by a check, because of which, Yao and
Chua entrusted the ownership papers of two other boats, Chua's FB Lady Anne
Mel and Yao's FB Tracy to Lim Tong Lim.

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought
nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing
Corporation," their purported business name.

(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72
by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of
commercial documents; (b) reformation of contracts; (c) declaration of ownership of
fishing boats; (4) injunction; and (e) damages.

(9) That the case was amicably settled through a Compromise Agreement executed
between the parties-litigants the terms of which are already enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage
in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured
from Jesus Lim who was petitioner's brother. In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally
among them the excess or loss. These boats, the purchase and the repair of which were financed with
borrowed money, fell under the term "common fund" under Article 1767. The contribution to such fund
need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed
that any loss or profit from the sale and operation of the boats would be divided equally among them
also shows that they had indeed formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that
of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously
acquired in furtherance of their business. It would have been inconceivable for Lim to involve himself so
much in buying the boat but not in the acquisition of the aforesaid equipment, without which the
business could not have proceeded.

Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership
engaged in the fishing business. They purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and operations thereof would be divided
among them.

We stress that under Rule 45, a petition for review like the present case should involve only questions of
law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court, absent any
cogent proof that the present action is embraced by one of the exceptions to the rule. 16 In assailing the
factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a petition for
review under Rule 45.

Compromise Agreement

Not the Sole Basis of Partnership

Petitioner argues that the appellate court's sole basis for assuming the existence of a partnership was
the Compromise Agreement. He also claims that the settlement was entered into only to end the
dispute among them, but not to adjudicate their preexisting rights and obligations. His arguments are
baseless. The Agreement was but an embodiment of the relationship extant among the parties prior to
its execution.

A proper adjudication of claimants' rights mandates that courts must review and thoroughly appraise all
relevant facts. Both lower courts have done so and have found, correctly, a preexisting partnership
among the parties. In implying that the lower courts have decided on the basis of one piece of
document alone, petitioner fails to appreciate that the CA and the RTC delved into the history of the
document and explored all the possible consequential combinations in harmony with law, logic and
fairness. Verily, the two lower courts' factual findings mentioned above nullified petitioner's argument
that the existence of a partnership was based only on the Compromise Agreement.

Petitioner Was a Partner,

Not a Lessor

We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and
Yao, not a partner in the fishing venture. His argument allegedly finds support in the Contract of Lease
and the registration papers showing that he was the owner of the boats, including F/B Lourdes where
the nets were found.

His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of
his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the
three of them. No lessor would do what petitioner did. Indeed, his consent to the sale proved that there
was a preexisting partnership among all three.

Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in
which debts were undertaken in order to finance the acquisition and the upgrading of the vessels which
would be used in their fishing business. The sale of the boats, as well as the division among the three of
the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though
registered in his name, was not his own property but an asset of the partnership. It is not uncommon to
register the properties acquired from a loan in the name of the person the lender trusts, who in this case
is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim.

We stress that it is unreasonable — indeed, it is absurd — for petitioner to sell his property to pay a
debt he did not incur, if the relationship among the three of them was merely that of lessor-lessee,
instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to
Chua and Yao, and not to him. Again, we disagree.

Sec. 21 of the Corporation Code of the Philippines provides:

Sec. 21. Corporation by estoppel. — All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued on any transaction e ntered
by it as a corporation or on any tort committed by it as such, it shall not be allowed to
use as a defense its lack of corporate personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist

performance thereof on the ground that there was in fact no corporation.

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be
estopped from denying its corporate existence. "The reason behind this doctrine is obvious — an
unincorporated association has no personality and would be incompetent to act and appropriate for
itself the power and attributes 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 right 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
becomes personally liable for contracts entered into or for other acts performed as such agent. 17

The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the
first instance, an unincorporated association, which represented itself to be a corporation, will be
estopped from denying its corporate capacity in a suit against it by a third person who relied in good
faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility for
a contract it entered into and by virtue of which it received advantages and benefits.

On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated
it as a corporation and received benefits from it, may be barred from denying its corporate existence in
a suit brought against the alleged corporation. In such case, all those who benefited from the
transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held
liable for contracts they impliedly assented to or took advantage of.

There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the
nets it sold. The only question here is whether petitioner should be held jointly 18 liable with Chua and
Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the ostensible
corporation should be held liable. Since his name does not appear on any of the contracts and since he
never directly transacted with the respondent corporation, ergo, he cannot be held liable.

Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which
has earlier been proven to be an asset of the partnership. He in fact questions the attachment of the
nets, because the Writ has effectively stopped his use of the fishing vessel.

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation.
Although it was never legally formed for unknown reasons, this fact alone does not preclude the
liabilities of the three as contracting parties in representation of it. Clearly, unde r the law on estoppel,
those acting on behalf of a corporation and those benefited by it, knowing it to be without valid
existence, are held liable as general partners.

Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having
reaped the benefits of the contract entered into by persons with whom he previously had an existing
relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of
corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor: 19

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 aside 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.

Third Issue:

Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree
with the Court of Appeals that this issue is now moot and academic. As previously discussed, F/B
Lourdes was an asset of the partnership and that it was placed in the name of petitioner, only to assure
payment of the debt he and his partners owed. The nets and the floats were specifically manufactured
and tailor-made according to their own design, and were bought and used in the fishing venture they
agreed upon. Hence, the issuance of the Writ to assure the payment of the price stipulated in the
invoices is proper. Besides, by specific agreement, ownership of the nets remained with Respondent
Philippine Fishing Gear, until full payment thereof.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.

SO ORDERED.

(7) Macasaet et. al. VS Francisco R. Co

[ALLEN A. MACASAET, NICOLAS V. QUIJANO, JR., ISAIAS ALBANO, LILY REYES, JANET BAY, JESUS R. GALANG, AND RANDY
HAGOS, Petitioners, vs. FRANCISCO R. CO, JR., Respondent. G.R. No. 156759 June 5, 2013]

DECISION

To warrant the substituted service of the summons and copy of the complaint, the serving officer must
first attempt to effect the same upon the defendant in person. Only after the attempt at personal
service has become futile or impossible within a reasonable time may the officer resort to substituted
service.

The Case

Petitioners – defendants in a suit for libel brought by respondent – appeal the decision promulgated on
March 8, 20021 and the resolution promulgated on January 13, 2003, 2 whereby the Court of Appeals
(CA) respectively dismissed their petition for certiorari, prohibition and mandamus and denied their
motion for reconsideration. Thereby, the CA upheld the order the Regional Trial Court (RTC), Branch 51,
in Manila had issued on March 12, 2001 denying their motion to dismiss because the substituted service
of the summons and copies of the complaint on each of them had been valid and effective. 3

Antecedents

On July 3, 2000, respondent, a retired police officer assigned at the Western Police District in Manila,
sued Abante Tonite, a daily tabloid of general circulation; its Publisher Allen A. Macasaet; its Managing
Director Nicolas V. Quijano; its Circulation Manager Isaias Albano; its Editors Janet Bay, Jesus R. Galang
and Randy Hagos; and its Columnist/Reporter Lily Reyes (petitioners), claiming damages because of an
allegedly libelous article petitioners published in the June 6, 2000 issue of Abante Tonite. The suit,
docketed as Civil Case No. 00-97907, was raffled to Branch 51 of the RTC, which in due course issued
summons to be served on each defendant, including Abante Tonite, at their business address at Monica
Publishing Corporation, 301-305 3rd Floor, BF Condominium Building, Solana Street corner A. Soriano
Street, Intramuros, Manila.4

In the morning of September 18, 2000, RTC Sheriff Raul Medina proceeded to the stated address to
effect the personal service of the summons on the defendants. But his efforts to personally serve each
defendant in the address were futile because the defendants were then out of the office and
unavailable. He returned in the afternoon of that day to make a second attempt at serving the
summons, but he was informed that petitioners were still out of the office. He decided to resort to
substituted service of the summons, and explained why in his sheriff’s return dated September 22,
2005,5 to wit:

SHERIFF’S RETURN

This is to certify that on September 18, 2000, I caused the service of summons together with copies of
complaint and its annexes attached thereto, upon the following:
 1. Defendant Allen A. Macasaet, President/Publisher of defendant AbanteTonite, at Monica
Publishing Corporation, Rooms 301-305 3rd Floor, BF Condominium Building, Solana corner A.
Soriano Streets, Intramuros, Manila, thru his secretary Lu-Ann Quijano, a person of sufficient
age and discretion working therein, who signed to acknowledge receipt thereof. That effort (sic)
to serve the said summons personally upon said defendant were made, but the same were
ineffectual and unavailing on the ground that per information of Ms. Quijano said defendant is
always out and not available, thus, substituted service was applied;

2. Defendant Nicolas V. Quijano, at the same address, thru his wife Lu-Ann Quijano, who signed
to acknowledge receipt thereof. That effort (sic) to serve the said summons personally upon said
defendant were made, but the same were ineffectual and unavailing on the ground that per
information of (sic) his wife said defendant is always out and not available, thus, substituted
service was applied;

3. Defendants Isaias Albano, Janet Bay, Jesus R. Galang, Randy Hagos and Lily Reyes, at the same
address, thru Rene Esleta, Editorial Assistant of defendant AbanteTonite, a person of sufficient
age and discretion working therein who signed to acknowledge receipt thereof. That effort (sic)
to serve the said summons personally upon said defendants were made, but the same were
ineffectual and unavailing on the ground that per information of (sic) Mr. Esleta said defendants
is (sic) always roving outside and gathering news, thus, substituted service was applied.

Original copy of summons is therefore, respectfully returned duly served.

Manila, September 22, 2000.

On October 3, 2000, petitioners moved for the dismissal of the complaint through counsel’s special
appearance in their behalf, alleging lack of jurisdiction over their persons because of the invalid and
ineffectual substituted service of summons. They contended that the sheriff had made no prior attempt
to serve the summons personally on each of them in accordance with Section 6 and Section 7, Rule 14 of
the Rules of Court. They further moved to drop Abante Tonite as a defendant by virtue of its being
neither a natural nor a juridical person that could be impleaded as a party in a civil action.

At the hearing of petitioners’ motion to dismiss, Medina testified that he had gone to the office address
of petitioners in the morning of September 18, 2000 to personally serve the summons on each
defendant; that petitioners were out of the office at the time; that he had returned in the afternoon of
the same day to again attempt to serve on each defendant personally but his attempt had still proved
futile because all of petitioners were still out of the office; that some competent persons working in
petitioners’ office had informed him that Macasaet and Quijano were always out and unavailable, and
that Albano, Bay, Galang, Hagos and Reyes were always out roving to gather news; and that he had then
resorted to substituted service upon realizing the impossibility of his finding petitioners in person within
a reasonable time.

On March 12, 2001, the RTC denied the motion to dismiss, and directed petitioners to file their answers
to the complaint within the remaining period allowed by the Rules of Court, 6 relevantly stating:

Records show that the summonses were served upon Allen A. Macasaet, President/Publisher of
defendant AbanteTonite, through LuAnn Quijano; upon defendants Isaias Albano, Janet Bay, Jesus R.
Galang, Randy Hagos and Lily Reyes, through Rene Esleta, Editorial Assistant of defendant Abante Tonite
(p. 12, records). It is apparent in the Sheriff’s Return that on several occasions, efforts to served (sic) the
summons personally upon all the defendants were ineffectual as they were always out and unavailable,
so the Sheriff served the summons by substituted service.

Considering that summonses cannot be served within a reasonable time to the persons of all the
defendants, hence substituted service of summonses was validly applied. Secretary of the President who
is duly authorized to receive such document, the wife of the defendant and the Editorial Assistant of the
defendant, were considered competent persons with sufficient discretion to realize the importance of
the legal papers served upon them and to relay the same to the defendants named therein (Sec. 7, Rule
14, 1997 Rules of Civil Procedure).
WHEREFORE, in view of the foregoing, the Motion to Dismiss is hereby DENIED for lack of merit..

Accordingly, defendants are directed to file their Answers to the complaint within the period still open
to them, pursuant to the rules.

SO ORDERED.

Petitioners filed a motion for reconsideration, asserting that the sheriff had immediately resorted to
substituted service of the summons upon being informed that they were not around to personally
receive the summons, and that Abante Tonite, being neither a natural nor a juridical person, could not
be made a party in the action.

On June 29, 2001, the RTC denied petitioners’ motion for reconsideration.7 It stated in respect of the
service of summons, as follows:

The allegations of the defendants that the Sheriff immediately resorted to substituted service of
summons upon them when he was informed that they were not around to personally receive the same
is untenable. During the hearing of the herein motion, Sheriff Raul Medina of this Branch of the Court
testified that on September 18, 2000 in the morning, he went to the office address of the defendants to
personally serve summons upon them but they were out. So he went back to serve said summons upon
the defendants in the afternoon of the same day, but then again he was informed that the defendants
were out and unavailable, and that they were always out because they were roving around to gather
news. Because of that information and because of the nature of the work of the defendants that they
are always on field, so the sheriff resorted to substituted service of summons. There was substantial
compliance with the rules, considering the difficulty to serve the summons personally to them because
of the nature of their job which compels them to be always out and unavailable. Additional matters
regarding the service of summons upon defendants were sufficiently discussed in the Order of this Court
dated March 12, 2001.

Regarding the impleading of Abante Tonite as defendant, the RTC held, viz:

"Abante Tonite" is a daily tabloid of general circulation. People all over the country could buy a copy of
"Abante Tonite" and read it, hence, it is for public consumption. The persons who organized said
publication obviously derived profit from it. The information written on the said newspaper will affect
the person, natural as well as juridical, who was stated or implicated in the news. All of these facts imply
that "Abante Tonite" falls within the provision of Art. 44 (2 or 3), New Civil Code. Assuming arguendo
that "Abante Tonite" is not registered with the Securities and Exchange Commission, it is deemed a
corporation by estoppels considering that it possesses attributes of a juridical person, otherwise it
cannot be held liable for damages and injuries it may inflict to other persons.

Undaunted, petitioners brought a petition for certiorari, prohibition, mandamusin the CA to nullify the
orders of the RTC dated March 12, 2001 and June 29, 2001.

Ruling of the CA

On March 8, 2002, the CA promulgated its questioned decision, 8 dismissing the petition for certiorari,
prohibition, mandamus, to wit:

We find petitioners’ argument without merit. The rule is that certiorari will prosper only if there is a
showing of grave abuse of discretion or an act without or in excess of jurisdiction committed by the
respondent Judge. A judicious reading of the questioned orders of respondent Judge would show that
the same were not issued in a capricious or whimsical exercise of judgment. There are factual bases and
legal justification for the assailed orders. From the Return, the sheriff certified that "effort to serve the
summons personally xxx were made, but the same were ineffectual and unavailing xxx.

and upholding the trial court’s finding that there was a substantial compliance with the rules that
allowed the substituted service.
Furthermore, the CA ruled:

Anent the issue raised by petitioners that "Abante Tonite is neither a natural or juridical person who
may be a party in a civil case," and therefore the case against it must be dismissed and/or dropped, is
untenable.

The respondent Judge, in denying petitioners’ motion for reconsideration, held that:

xxxx

Abante Tonite’s newspapers are circulated nationwide, showing ostensibly its being a corporate entity,
thus the doctrine of corporation by estoppel may appropriately apply.

An unincorporated association, which represents itself to be a corporation, will be estopped from

denying its corporate capacity in a suit against it by a third person who relies in good f aith on such
representation.

There being no grave abuse of discretion committed by the respondent Judge in the exercise of his
jurisdiction, the relief of prohibition is also unavailable.

WHEREFORE, the instant petition is DENIED. The assailed Orders of respondent Judge are AFFIRMED.

SO ORDERED.9

On January 13, 2003, the CA denied petitioners’ motion for reconsideration. 10

Issues

Petitioners hereby submit that:

1. THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN HOLDING THAT THE TRIAL COURT
ACQUIRED JURISDICTION OVER HEREIN PETITIONERS.

2. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR BY SUSTAINING THE INCLUSION OF

ABANTE TONITE AS PARTY IN THE INSTANT CASE.11

Ruling

The petition for review lacks merit.

Jurisdiction over the person, or jurisdiction in personam –the power of the court to render a personal
judgment or to subject the parties in a particular action to the judgment and other rulings rendered in
the action – is an element of due process that is essential in all actions, civil as well as criminal, except in
actions in rem or quasi in rem. Jurisdiction over the defendantin an action in rem or quasi in rem is not
required, and the court acquires jurisdiction over an actionas long as it acquires jurisdiction over the
resthat is thesubject matter of the action. The purpose of summons in such action is not the acquisition
of jurisdiction over the defendant but mainly to satisfy the constitutional requirement of due process. 12

The distinctions that need to be perceived between an action in personam, on the one hand, and an
action inrem or quasi in rem, on the other hand, are aptly delineated in Domagas v. Jensen, 13 thusly:

The settled rule is that the aim and object of an action determine its character. Whether a proceeding is
in rem, or in personam, or quasi in rem for that matter, is determined by its nature and purpose, and by
these only. A proceeding in personam is a proceeding to enforce personal rights and obligations brought
against the person and is based on the jurisdiction of the person, although it may involve his right to, or
the exercise of ownership of, specific property, or seek to compel him to control or dispose of it in
accordance with the mandate of the court. The purpose of a proceeding in personam is to impose,
through the judgment of a court, some responsibility or liability directly upon the person of the
defendant. Of this character are suits to compel a defendant to specifically perform some act or actions
to fasten a pecuniary liability on him. An action in personam is said to be one which has for its object a
judgment against the person, as distinguished from a judgment against the property to determine its
state. It has been held that an action in personam is a proceeding to enforce personal rights or
obligations; such action is brought against the person. As far as suits for injunctive relief are concerned,
it is well-settled that it is an injunctive act in personam. In Combs v. Combs, the appellate court held that
proceedings to enforce personal rights and obligations and in which personal judgments are rendered
adjusting the rights and obligations between the affected parties is in personam. Actions for recovery of
real property are in personam.

On the other hand, a proceeding quasi in rem is one brought against persons seeking to subject the
property of such persons to the discharge of the claims assailed. In an action quasi in rem, an individual
is named as defendant and the purpose of the proceeding is to subject his interests therein to the
obligation or loan burdening the property. Actions quasi in rem deal with the status, ownership or
liability of a particular property but which are intended to operate on these questions only as between
the particular parties to the proceedings and not to ascertain or cut off the rights or interests of all
possible claimants. The judgments therein are binding only upon the parties who joined in the action.

As a rule, Philippine courts cannot try any case against a defendant who does not reside and is not found
in the Philippines because of the impossibility of acquiring jurisdiction over hi s person unless he
voluntarily appears in court; but when the case is an action in rem or quasi in rem enumerated in
Section 15, Rule 14 of the Rules of Court, Philippine courts have jurisdiction to hear and decide the case
because they have jurisdiction over the res, and jurisdiction over the person of the non-resident
defendant is not essential. In the latter instance, extraterritorial service of summons can be made upon
the defendant, and such extraterritorial service of summons is not for the purpose of vesting the court
with jurisdiction, but for the purpose of complying with the requirements of fair play or due process, so
that the defendant will be informed of the pendency of the action against him and the possibility that
property in the Philippines belonging to him or in which he has an interest may be subjected to a
judgment in favor of the plaintiff, and he can thereby take steps to protect his interest if he is so
minded. On the other hand, when the defendant in an action in personam does not resi de and is not
found in the Philippines, our courts cannot try the case against him because of the impossibility of
acquiring jurisdiction over his person unless he voluntarily appears in court. 14

As the initiating party, the plaintiff in a civil action voluntarily submits himself to the jurisdiction of the
court by the act of filing the initiatory pleading. As to the defendant, the court acquires jurisdiction over
his person either by the proper service of the summons, or by a voluntary appearance in the action. 15

Upon the filing of the complaint and the payment of the requisite legal fees, the clerk of court forthwith
issues the corresponding summons to the defendant.16 The summons is directed to the defendant and
signed by the clerk of court under seal. It contains the name of the court and the names of the parties to
the action; a direction that the defendant answers within the time fixed by the Rules of Court; and a
notice that unless the defendant so answers, the plaintiff will take judgment by default and may be
granted the relief applied for. 17 To be attached to the original copy of the summons and all copies
thereof is a copy of the complaint (and its attachments, if any) and the order, if any, for the
appointment of a guardian ad litem. 18

The significance of the proper service of the summons on the defendant in an action in personam
cannot be overemphasized. The service of the summons fulfills two fundamental objectives, namely: (a)
to vest in the court jurisdiction over the person of the defendant; and (b) to afford to the defendant the
opportunity to be heard on the claim brought against him. 19 As to the former, when jurisdiction in
personam is not acquired in a civil action through the proper service of the summons or upon a valid
waiver of such proper service, the ensuing trial and judgment are void. 20 If the defendant knowingly
does an act inconsistent with the right to object to the lack of personal jurisdiction as to him, like
voluntarily appearing in the action, he is deemed to have submitted himself to the jurisdiction of the
court.21 As to the latter, the essence of due process lies in the reasonable opportunity to be heard and
to submit any evidence the defendant may have in support of his defense. With the proper service of
the summons being intended to afford to him the opportunity to be heard on the claim against him, he
may also waive the process. 21 In other words, compliance with the rules regarding the service of the
summons is as much an issue of due process as it is of jurisdiction. 23

Under the Rules of Court, the service of the summons should firstly be effected on the defendant
himself whenever practicable. Such personal service consists either in handing a copy of the summons
to the defendant in person, or, if the defendant refuses to receive and sign for it, in tendering it to
him.24 The rule on personal service is to be rigidly enforced in order to ensure the realization of the two
fundamental objectives earlier mentioned. If, for justifiable reasons, the defendant cannot be served in
person within a reasonable time, the service of the summons may then be effected either (a) by leaving
a copy of the summons at his residence with some person of suitable age and discretion then residing
therein, or (b) by leaving the copy at his office or regular place of business with some competent person
in charge thereof.25 The latter mode of service is known as substituted service because the service of the
summons on the defendant is made through his substitute.

It is no longer debatable that the statutory requirements of substituted service must be followed strictly,
faithfully and fully, and any substituted service other than that authorized by statute is co nsidered
ineffective.26 This is because substituted service, being in derogation of the usual method of service, is
extraordinary in character and may be used only as prescribed and in the circumstances authorized by
statute.27 Only when the defendant cannot be served personally within a reasonable time may
substituted service be resorted to. Hence, the impossibility of prompt personal service should be shown
by stating the efforts made to find the defendant himself and the fact that such efforts failed, which
statement should be found in the proof of service or sheriff’s return.28 Nonetheless, the requisite
showing of the impossibility of prompt personal service as basis for resorting to substituted service may
be waived by the defendant either expressly or impliedly. 29

There is no question that Sheriff Medina twice attempted to serve the summons upon each of
petitioners in person at their office address, the first in the morning of September 18, 2000 and the
second in the afternoon of the same date. Each attempt failed because Macasaet and Quijano were
"always out and not available" and the other petitioners were "always roving outside and gathering
news." After Medina learned from those present in the office address on his second attempt that there
was no likelihood of any of petitioners going to the office during the business hours of that or any other
day, he concluded that further attempts to serve them in person within a reasonable time would be
futile. The circumstances fully warranted his conclusion. He was not expected or required as the serving
officer to effect personal service by all means and at all times, considering that he was expressly
authorized to resort to substituted service should he be unable to effect the personal service within a
reasonable time. In that regard, what was a reasonable time was dependent on the circumstances
obtaining. While we are strict in insisting on personal service on the defendant, we do not cling to such
strictness should the circumstances already justify substituted service instead. It is the spirit of the
procedural rules, not their letter, that governs.30

In reality, petitioners’ insistence on personal service by the serving officer was demonstrably
superfluous. They had actually received the summonses served through their substitutes, as borne out
by their filing of several pleadings in the RTC, including an answer with compulsory counterclaim ad
cautelam and a pre-trial brief ad cautelam. They had also availed themselves of the modes of discovery
available under the Rules of Court. Such acts evinced their voluntary appearance in the action.

Nor can we sustain petitioners’ contention that Abante Tonite could not be sued as a defendant due to
its not being either a natural or a juridical person. In rejecting their contention, the CA categorized
Abante Tonite as a corporation by estoppel as the result of its having represented itself to the reading
public as a corporation despite its not being incorporated. Thereby, the CA concluded that the RTC did
not gravely abuse its discretion in holding that the non-incorporation of Abante Tonite with the
Securities and Exchange Commission was of no consequence, for, otherwise, whoever of the public who
would suffer any damage from the publication of articles in the pages of its tabloids would be left
without recourse. We cannot disagree with the CA, considering that the editorial box of the daily tabloid
disclosed that basis, nothing in the box indicated that Monica Publishing Corporation had owned Abante
Tonite.
WHEREFORE, the Court AFFIRMS the decision promulgated on March 8, 2002; and ORDERS petitioners
to pay the costs of suit.

SO ORDERED.

(8) Paz VS New International Environment University, Inc

[PRISCILO B. PAZ,*Petitioner, v. NEW INTERNATIONAL ENVIRONMENTAL UNIVERSALITY, INC., Respondent. G.R. No. 203993, April 20, 2015]

DECIS ION

Assailed in this petition for review on certiorari1 are the Decision2 dated January 31, 2012 and the
Resolution3 dated October 2, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 00903-MIN, which
affirmed the Decision4 dated May 19, 2006 of the Regional Trial Court of Davao City, Branch 33 (RTC) in
Civil Case No. 29,292-2002, declaring petitioner Captain Priscilo B. Paz (petitioner) liable for breach of
contract.

The Facts

On March 1, 2000, petitioner, as the officer-in-charge of the Aircraft Hangar at the Davao International
Airport, Davao City, entered into a Memorandum of Agreement 5 (MOA) with Captain Allan J. Clarke
(Capt. Clarke), President of International Environmental University, whereby for a period of four (4)
years, unless pre-terminated by both parties with six (6) months advance notice, the former shall allow
the latter to use the aircraft hangar space at the said Airport "exclusively for company
aircraft/helicopter."6 Said hangar space was previously leased to Liberty Aviation Corporation, which
assigned the same to petitioner.7

On August 19, 2000, petitioner complained in a letter 8 addressed to "MR. ALLAN J. CLARKE, International
Environmental Universality, Inc. x x x" that the hangar space was being used "for trucks and equipment,
vehicles maintenance and fabrication," instead of for "company helicopter/aircraft" only, and thereby
threatened to cancel the MOA if the "welding, grinding, and fabrication jobs" were not stopped
immediately.9

On January 16, 2001, petitioner sent another letter10 to "MR. ALLAN J. CLARKE, International
Environmental Universality, Inc. x x x," reiterating that the hangar space "must be for aircraft use only,"
and that he will terminate the MOA due to the safety of the aircrafts parked nearby. He further offered
a vacant space along the airport road that was available and suitable for Capt. Clarke's operations. 11

On July 19, 2002, petitioner sent a third letter, 12 this time, addressed to "MR. ALLAN JOSEPH CLARKE,
CEO, New International Environmental University, Inc. x x x," demanding that the latter vacate the
premises due to the damage caused by an Isuzu van driven by its employee to the left wing of an aircraft
parked inside the hangar space, which Capt. Clarke had supposedly promised to buy, bu t did not.13

On July 23, 2002, petitioner sent a final letter 14 addressed to "MR. ALLAN J. CLARKE, Chairman, CEO,
New International Environmental University, Inc. x x x," strongly demanding the latter to immediately
vacate the hangar space. He further informed Capt. Clarke that the company will "apply for immediate
electrical disconnection with the Davao Light and Power Company (DLPC)[,] so as to compel [the latter]
to desist from continuing with [the] works" thereon. 15

On September 4, 2002, respondent New International Environmental Universality, Inc.16 (respondent)

filed a complaint17 against petitioner for breach of contract before the RTC, docketed as Civil Case No.
29, 292-2002,18 claiming that: (a) petitioner had disconnected its electric and telephone lines; (b) upon
petitioner's instruction, security guards prevented its employees from entering the leased premises by
blocking the hangar space with barbed wire; and (c) petitioner violated the terms of the MOA when he
took over the hangar space without giving respondent the requisite six (6)-month advance notice of
termination.19

In his defense, petitioner alleged, among others, that: (a) respondent had no cause of action against him
as the MOA was executed between him and Capt. Clarke in the latter's personal capacity; (b) there was
no need to wait for the expiration of the MOA because Capt. Clarke performed highly risky works in the
leased premises that endangered other aircrafts within the vicinity; and (c) the six (6)-month advance
notice of termination was already given in the letters he sent to Capt. Clarke. 20

On March 25, 2003, the RTC issued a Writ of Preliminary Injunction21 ordering petitioner to: (a)
immediately remove all his aircrafts parked within the leased premises; (b) allow entry of respondent by
removing the steel gate installed thereat; and (c) desist and refrain from committing further acts of
dispossession and/or interference in respondent's occupation of the hangar space.

For failure of petitioner to comply with the foregoing wri t, respondent filed on October 24, 2003 a
petition for indirect contempt22 before the RTC, docketed as Civil Case No. 30,030-2003, which was tried
jointly with Civil Case No. 29, 292-2002.23

The RTC Ruling

After due trial, the RTC rendered a Decision24 dated May 19, 2006 finding petioner: (a) guilty of indirect
contempt for contumaciously disregarding its Order25 dated March 6, 2003, by not allowing respondent
to possess occupy the leased premises pending final decision in the main case; and ( b) liable for breach
of contract for illegally terminating the MOA even before the expiration of the term thereof. 26 He was,
thus, ordered to pay a fine of P5,000.00, and to pay respondent nominal damages of P100,000.00 and
attorney's fees of P50,000.00 with legal interest, and costs of suit. 27

On the challenge to respondent's juridical personality, the RTC quoted the Order 28 dated April 11, 2005
of the SEC explaining that respondent was issued a Certificate of Incorporation on September 3, 2001
as New International Environmental Universality, Inc. but that, subsequently, when it amended its
Articles of Incorporation on November 14, 2001 and July 11, 2002, the SEC Extension Office in Davao
City erroneously used the name New International Environmental University, Inc.29 The latter name was
used by respondent when it filed its amended complaint on September 11, 2002 and the petition for
indirect contempt against petitioner on October 24, 2003 believing that it was allowed to do so, as it
was only on April 11, 2005 when the SEC directed it to revert to its correct name. 30

The RTC further declared that the MOA, which was "made and executed by and between CAPT.
[PRISCILO] B. PAZ, Officer-In-Charge of Aircraft Hangar at Davao International Airport, Davao City,
Philippines, hereinafter called as FIRST PARTY [a]nd CAPT. ALLAN J. CLARKE[,] President of
INTERNATIONAL ENVIRONMENTAL UNIVERSITY with office address at LIBERTY AVIATION HANGAR,
Davao International Airport, Davao City, Philippines, hereinafter called as SECOND PARTY," 31 was
executed by the parties not only in their personal capacities but also in representation of their
respective corporations or entities. 32

On the issue of the violation of the terms of the MOA, the RTC found respondent to have
been effectively evicted from the leased premises between July and August of 2002, or long before the
expiration of the term thereof in 2004, when petitioner: (a) placed a gate/fence that prevented ingress
to and egress from the leased premises; (b) parked a plane inside and outside the leased premises; (c)
disconnected the electrical and telephone connections of respondent; and ( d) locked respondent's
employees out.33 Despite the service of the injunctive writ upon petitioner, respondent was not allowed
to possess and occupy the leased premises, as in fact, the trial court even had to order on March 8, 2004
the inventory of the items locked inside the bodega of said premises that was kept off-limits to
respondent. Hence, petitioner was declared guilty of indirect contempt. 34

Aggrieved, petitioner elevated his case on appeal before the CA, arguing that the trial court should have
dismissed outright the cases against him for failure of respondent to satisfy the essential requisites of
being a party to an action, i.e., legal personality, legal capacity to sue or be sued, and real interest in the
subject matter of the action. 35
 The CA Ruling

Finding that the errors ascribed by petitioner to the trial court only touched the civil action for breach of
contract, the appellate court resolved the appeal against him in a Decision 36 dated January 31, 2012,
and affirmed the RTC's finding of petitioner's liability for breach of contract. 37

The CA ruled that, while there was no corporate entity at the time of the execution of the MOA on
March 1, 2000 when Capt. Clarke signed as "President of International Environmental University,"
petitioner is nonetheless estopped from denying that he had contracted with respondent as a
corporation, having recognized the latter as the "Second Party" in the MOA that "will use the hangar
space exclusively for company aircraft/helicopter."38 Petitioner was likewise found to have issued checks
to respondent from May 3, 2000 to October 13, 2000, which belied his claim of contracting with Capt.
Clarke in the latter's personal capacity. 39

Petitioner moved for the reconsideration 40 of the foregoing Decision, raising as an additional issue the
death41 of Capt. Clarke which allegedly warranted the dismissal of the case.42 However, the motion was
denied in a Resolution43 dated October 2, 2012 where the CA held that Capt. Clarke was merely an agent
of respondent, who is the real party in the case. Thus, Capt. Clarke's death extinguished only the agency
between him and respondent, not the appeal against petitioner. 44

Undaunted, petitioner is now before the Court via the instant petition, 45 claiming that: (a) the CA erred
in not settling his appeal for both the breach of contract and indirect contempt cases in a single
proceeding and, consequently, the review of said cases before the Court should be consolidated, 46 and
(b) the CA should have dismissed the cases against him for (1) lack of jurisdiction of the trial court in
view of the failure to implead Capt. Clarke as an indispensable party;47 (2) lack of legal capacity and
personality on the part of respondent; 48 and (3) lack of factual and legal bases for the assailed RTC
Decision.49

The Court's Ruling

The petition lacks merit.

First, on the matter of the consolidation50 of the instant case with G.R. No. 202826 entitled "Priscilo B.
Paz v. New International Environmental University,'' the petition for review of the portion of the RTC
Decision finding petitioner guilty of indirect contempt,51 the Court had earlier denied said motion in a
Resolution52 dated July 24, 2013 on the ground that G.R. No. 202826 had already been denied 53 with
finality.54 Thus, any further elucidation on the issue would be a mere superfluity.

Second, whether or not Capt. Clarke should have been impleaded as an indispensable party was
correctly resolved by the CA which held that the former was merely an agent of respondent. 55 While
Capt. Clarke's name and signature appeared on the MOA, his participation was, nonetheless, limited to
being a representative of respondent. As a mere representative, Capt. Clarke acquired no rights
whatsoever, nor did he incur any liabilities, arising from the contract between petitioner and
respondent. Therefore, he was not an indispensable party to the case at bar. 56

It should be emphasized, as it has been time and again, that this Court is not a trier of facts, and is thus
not duty-bound to analyze again and weigh the evidence introduced in and considered by the
tribunals.57When supported by substantial evidence, the findings of fact by the CA are conclusive and
binding on the parties and are not reviewable by this Court, unless the case falls under any of the
exceptions,58 none of which was established herein.

The CA had correctly pointed out that, from the very language itself of the MOA entered into by
petitioner whereby he obligated himself to allow the use of the hangar space
"for company aircraft/helicopter," petitioner cannot deny that he contracted with
respondent.59 Petitioner further acknowledged this fact in his final letter dated July 23, 2002, where he
reiterated and strongly demanded the former to immediately vacate the hangar space his "company is
occupying/utilizing."60

Section 2161 of the Corporation Code 62 explicitly provides that one who assumes an obligation to an
ostensible corporation, as such, cannot resist performance thereof on the ground that there was in fact
no corporation. Clearly, petitioner is bound by his obligation under the MOA not only on estoppel but by
express provision of law. As aptly raised by respondent in its Comment 63 to the instant petition, it is
futile to insist that petitioner issued the receipts for rental payments in respondent's name and not with
Capt. Clarke's, whom petitioner allegedly contracted in the latter's personal capacity, only because it
was upon the instruction of an employee.64 Indeed, it is disputably presumed that a person takes
ordinary care of his concerns, 65 and that all private transactions have been fair and regular.66 Hence, it is
assumed that petitioner, who is a pilot, knew what he was doing with respect to his business with
respondent.

Petitioner's pleadings, however, abound with clear indications of a business relationship gone sour. In
his third letter dated July 19, 2002, petitioner lamented the fact that Capt. Clarke's alleged promise to
buy an aircraft had not materialized. 67 He likewise insinuated that Capt. Clarke's real motive in staying in
the leased premises was the acquisition of petitioner's right to possess and use the hangar space. 68 Be
that as it may, it is settled that courts have no power to relieve parties from obligations they voluntarily
assumed, simply because their contracts turn out to be disastrous deals or unwise investments. 69

The lower courts, therefore, did not err in finding petitioner liable for breach of contract for effecti vely
evicting respondent from the leased premises even before the expiration of the term of the lease. The
Court reiterates with approval the ratiocination of the RTC that, if it were true that respondent was
violating the terms and conditions of the lease, "[petitioner] should have gone to court to make the
[former] refrain from its 'illegal' activities or seek rescission of the [MOA], rather than taking the law into
his own hands."70

WHEREFORE, the petition is DENIED. The Decision dated January 31, 2012 and the Resolution dated
October 2, 2012 of the Court of Appeals in CA-G.R. CV No. 00903-MIN are hereby AFFIRMED.

SO ORDERED.

ARTICLES OF INCORPORATION – CORPORATE NAME_CASES:

(1) Red Line Transportation VS Rural Transit

[RED LINE TRANSPORTATION CO., petitioner-appellant, 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
party in interest making the application, whether the Rural Transit Company, Ltd., as appeared on the
face of the application, or the Bachrach Motor Company, Inc., using name of the Rural Transit Company,
Ltd., as a trade name. The evidence given by the applicant's secretary, Olsen, is certainly very dubious
and confusing, as may be seen from the following:

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

A. The Bachrach Motor Company is the principal stockholder.

Q. Please answer the question.

ESPELETA. Objecion porque la pregunta ya ha sido contestada.

JUEZ. Puede contestar.

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

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

A. It is the Rural Transit Company, Ltd.

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

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

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

A. Yes, sir.

JUDGE. Who is that operator?

A. The Rural Transit Company, Ltd.

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

A. I cannot say.
 ESPELETA. The Rural Transit Company, Ltd., is a corporation duly established in accordance with
the laws of the Philippine Islands.

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

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

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

A. Yes, sir.

JUDGE. Who was that operator you had in mind?

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

JUDGE. Bachrach Motor Company?

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

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

A. Yes, sir.

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

ESPELETA. We object to that petition.

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

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

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

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

Malcolm, Villa-Real, Imperial and Goddard, JJ., concur.

(2) Pison – Arceo Agricultural and Dev. Corp. VS NLRC

[PISON-ARCEO AGRICULTURAL and DEVELOPMENT CORPORATION, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and
NATIONAL FEDERATION OF SUGAR WORKERS-FOOD and GENERAL TRADE (NFSW-FGT)/JESUS PASCO, MARTIN BONARES, EVANGELINE
PASCO, TERESITA NAVA, FELIXBERTO NAVA, JOHNNY GARRIDO, EDUARDO NUÑEZ and DELM A NUÑEZ, respondents. G.R. No. 117890
September 18, 1997]

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

The Case

Assailed in this petition for certiorari under Rule 65 of the Rules of Court is the Decision 1 of Public
Respondent National Labor Relations Commission2 in NLRC Case No. V-0334-923 promulgated on
September 27, 1993 and its Resolution 4 promulgated on September 12, 1994 denying reconsideration.
Affirming the decision 5dated September 2, 1992 of Executive Labor Arbiter Oscar S. Uy, the impugned
NLRC Decision disposed thus:6

WHEREFORE, judgment is hereby rendered affirming the decision of Executive Labor

Arbiter Oscar S. Uy, dated September 2, 1992, subject to the amendments and
modification stated above and ordering the respondent-appellant, Jose Edmundo Pison
and the respondent Pison-Arceo Agricultural and Development Corporation to pay
jointly and severally the claims for backwages and separation pay of the complainant-
appellees in the above-entitled case, except the claims of Danny Felix and Helen Felix, in
the amount specified below:
 Name Backwages Separation Pay Total

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

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

Pasco

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

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

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

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

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

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

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

In addition, the respondent-appellant and the respondent corporation are ordered to

pay attorney's fees equivalent to ten (10%) percent of the total award.

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

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

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

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

The Facts

As gathered from the complaint9 and other submissions of the parties filed with Executive Labor Arbiter
Oscar S. Uy, the facts of the case are as follows:

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

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

WHEREFORE, premises considered, judgment is hereby rendered ordering respondent

Jose Edmundo Pison/Hda. Lanutan, Talisay, Negros Occidental, to PAY the following
 complainants their backwages (one year) plus separation pay in the following amounts,
to wit:

BACKWAGES SEPARATION PAY TOTAL

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

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

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

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

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

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

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

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

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

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

The Issue

Petitioner submits only one issue for our resolution: 10

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

In essence, petitioner alleges deprivation of due process.

The Court's Ruling

The petition lacks merit.

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

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

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

(c) To conduct investigation for the determination of a question, matter or controversy

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

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

Jurisdiction Acquired
Over Petitioner

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

It should further be noted that two responsible employees of the said corporation,
namely, Teresita Dangcasil, the secretary of the administrator/manager, and Fernando
Gallego, the hacienda overseer, had submitted their affidavits, both dated July 20, 1988,
as part of the evidence for the respondent, and that, as shown by the records, the
lawyer who appeared as the legal counsel of the respondent-appellant, specifically, Atty.
Jose Ma. Torres, of the Torres and Valencia Law Office in Bacolod City, ( Rollo, p. 17) was
also the legal counsel of the said corporation. (Rollo, p. 23)
Also, it is undisputed that summons and all notices of hearing were duly served upon Jose Edmundo
Pison. Since Pison is the administrator and representative of petitioner in its property (Hacienda
Lanutan) and recognized as such by the workers therein, we deem the service of summons upon him as
sufficient and substantial compliance with the requirements for service of summons and other notices in
respect of petitioner corporation. Insofar as the complainants are concerned, Jose Edmundo Pison was
their employer and/or their employer's representative. In view of the peculiar circumstances of this
case, we rule that Jose Pison's knowledge of the labor case and effort to resist can be deemed
knowledge and action of the corporation. Indeed, to apply the normal precepts on corporate fiction and
the technical rules on service of summons would be to overturn the bias of the Constitution and the
laws in favor of labor.

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

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

While the administrative tribunals exercising quasi-judicial powers are

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

xxx xxx xxx

It is of course also sound and settled rule that administrative agencies

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

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

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

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

An action may be entertained, notwithstanding the failure to include an

indispensable party where it appears that the naming of the party
would be a formality. (Baguio vs. Rodriguez, L-11078, May 27, 1959)

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

Liability of Jose Edmundo Pison

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

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

SO ORDERED.

(3) Philips Export B.V.VS CA

[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 PHI LIPS 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 Appeals1 swept aside Petitioners' claim
that following the ruling in Converse Rubber Corporation v. Universal Converse Rubber Products, Inc., et
al, (G. R. No. L-27906, January 8, 1987, 147 SCRA 154), the word PHILIPS cannot be used as part of
Private Respondent's corporate name as the same constitutes a dominant part of Petitioners' corporate
names. In so holding, the Appellate Court observed that the Converse case is not four-square with the
present case inasmuch as the contending parties in Converse are engaged in a similar business, that is,
the manufacture of rubber shoes. Upholding the SEC, the Appellate Court concluded that "private
respondents' products consisting of chain rollers, belts, bearings and cutting saw are unrelated and non-
competing with petitioners' products i.e. electrical lamps such that consumers would not in any
probability mistake one as the source or origin of the product of the other."

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

We find basis for petitioners' plea.

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

A name is peculiarly important as necessary to the very existence of a corporation (American Steel
Foundries vs. Robertson, 269 US 372, 70 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 thi s 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.

(4) Lyceum of the Philippines VS CA

[LYCEUM OF THE PHILIPPINES, INC., petitioner, vs. COURT OF APPEALS, LYCEUM OF APARRI, LYCEUM OF CABAGAN, LYCEUM OF
CAMALANIUGAN, INC., LYCEUM OF LALLO, INC., LYCEUM OF TUAO, INC., BUHI LYCEUM, CENTRAL LYCEUM OF CATANDUANES, LYCEUM OF
SOUTHERN PHILIPPINES, LYCEUM OF EASTERN MINDANAO, INC. and WESTERN PANGASINAN LYCEUM, INC., respondents. 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 usin g
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 si milar" 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.

DECIS ION

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

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

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

Western Pangasinan Lyceum — 27 October 1950

Lyceum of Cabagan — 31 October 1962

Lyceum of Lallo, Inc. — 26 March 1972

Lyceum of Aparri — 28 March 1972

Lyceum of Tuao, Inc. — 28 March 1972

Lyceum of Camalaniugan — 28 March 1972

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

Buhi Lyceum;

Central Lyceum of Catanduanes;

Lyceum of Eastern Mindanao, Inc.; and

Lyceum of Southern Philippines

Petitioner's original complaint before the SEC had included three (3) other entities:
1. The Lyceum of Malacanay;

2. The Lyceum of Marbel; and

3. The Lyceum of Araullo

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

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

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

Armed with the Resolution of this Court in G.R. No. L-46595, petitioner then wrote all the educational
institutions it could find using the word "Lyceum" as part of their corporate name, and advised them to
discontinue such use of "Lyceum." When, with the passage of time, it became clear that this recourse
had failed, petitioner instituted before the SEC SEC-Case No. 2579 to enforce what petitioner claims as
its proprietary right to the word "Lyceum." The SEC hearing officer rendered a decision sustaining
petitioner's claim to an exclusive right to use the word "Lyceum." The hearing officer relied upon the SEC
ruling in the Lyceum of Baguio, Inc. case (SEC-Case No. 1241) and held that the word "Lyceum" was
capable of appropriation and that petitioner had acquired an enforceable exclusive ri ght 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 "Lyce um" served sufficiently to
distinguish the schools from one another, especially in view of the fact that the campuses of petitioner
and those of the private respondents were physically quite remote from each other. 3

Petitioner then went on appeal to the Court of Appeals. In its Decision dated 28 June 1991, however, the
Court of Appeals affirmed the questioned Orders of the SEC En Banc. 4 Petitioner filed a motion for
reconsideration, without success.

Before this Court, petitioner asserts that the Court of Appeals committed the following errors:

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

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

3. The Court of Appeals erred in holding that the word Lyceum has not acquired a secondary meaning in
favor of petitioner.
4. The Court of Appeals erred in holding that Lyceum as a generic word cannot be appropriated by the
petitioner to the exclusion of others. 5

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

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

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

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

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

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

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

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

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

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

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

With the foregoing as a yardstick, [we] believe the appellant failed to satisfy the aforementioned
requisites. No evidence was ever presented in the hearing before the Commission which sufficiently
proved that the word 'Lyceum' has indeed acquired secondary meaning in favor of the appellant. If there
was any of this kind, the same tend to prove only that the appellant had been using the dis puted 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), 'Li ceo 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.

ARTICLES OF INCORPORATION – PURPOSE CLAUSE_CASES:

(1) Asuncion VS De Yriarte

[NORBERTO ASUNCION, ET AL., petitioners-appellants, vs. MANUEL DE YRIARTE, respondent-appellee. MORELAND, J.: G.R. No. 9321
September 24, 1914]

This is an action to obtain a writ of mandamus to compel the chief of the division of achieves of the
Executive Bureau to file a certain articles of incorporation.

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

The proposed incorporators began an action in the Court of First Instance of the city of Manila to compel
the chief of the division of archives to receive and register said articles of incorporation and to do any
and all acts necessary for the complete incorporation of the persons named in the articles. The court
below found in favor of the defendant and refused to order the regi stration of the articles mentioned,
maintaining ad holding that the defendant, under the Corporation Law, had authority to determine both
the sufficiency of the form of the articles and the legality of the object of the proposed corporation. This
appeal is taken from that judgment.
The first question that arises is whether or not the chief of the division of archives has authority, under
the Corporation for registration, to decide not only as to the sufficiency of the form of the articles, but
also as to the lawfulness of the purpose of the proposed corporation.

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

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

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

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

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

We are of the opinion that he may be mandamused if he act in violation of law or if he refuses, unduly,
to comply with the law. While we have held that defendant has power to pass upon the lawfulness of
the purposes of the proposed corporation and that he may, in the fulfillment of his duties, determine
the question of law whether or not those purposes are lawful and embraced within that class
concerning which the law permits corporations to be formed, that does not necessarily mean, as we
have already intimated, that his duties are not ministerial. On the contrary, there is no incompatibility in
holding, as we do hold, that his duties are ministerial and that he has no authority to exercise discretion
in receiving and registering articles of incorporation. He may exercise judgment — that is, the judicial
function — in the determination of the question of law referred to, but he may not use discretion. The
question whether or not the objects of a proposed corporation are lawful is one that can be decided one
way only. If he err in the determination of that question and refuse to file articles which should be filed
under the law, the decision is subject to review and correction and, upon proper showing, he will be
ordered to file the articles. This is the same kind of determination which a court makes when it decides a
case upon the merits, the court makes when it decides a case upon the merits. When a case is presented
to a court upon the merits, the court can decide only one way and be right. As a matter of law, there is
only one way and be right. As a matter of law, there is only one course to pursue. In a case where the
court or other official has discretion in the resolution of a question, then, within certain limitations, he
may decide the question either way and still be right. Discretion, it may be said generally, is a faculty
conferred upon a court or other official by which he may decide a question either way and still be right.
The power conferred upon the division of archives with respect to the registration of articles of
incorporation is not of that character. It is of the same character as the determination of a lawsuit by a
court upon the merits. It can be decided only one way correctly.

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

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

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

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

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

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

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

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

(2) Gala, et. al. VS Ellice Agro-Industrial Corp., et. al

[ALICIA E. GALA, GUIA G. DOMINGO and RITA G. BENSON, petitioners, vs. ELLICE AGRO-INDUSTRIAL CORPORATION, MARGO
MANAGEMENT AND DEVELOPMENT CORPORATION, RAUL E. GALA, VITALIANO N. AGUIRRE II, ADNAN V. ALONTO, ELIAS N. CRESENCIO,
MOISES S. MANIEGO, RODOLFO B. REYNO, RENATO S. GONZALES, VICENTE C. NOLAN, NESTOR N. BATICULON,respondents . G.R. No.
156819 December 11, 2003]

DECISION

This is a petition for review under Rule 45 of the Rules of Court, seeking the reversal of the decision
dated November 8, 20021 and the resolution dated December 27, 20022 of the Court of Appeals in CA-
G.R. SP No. 71979.

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

Name Number of Shares Amount

Manuel R. Gala 11, 700 1,170,000.00

Alicia E. Gala 23,200 2,320,000.00

Guia G. Domingo 16 1,600.00

Ofelia E. Gala 40 4,000.00

Raul E. Gala 40 4,000.00

Rita G. Benson 2 200.00

Virgilio Galeon 1 100.00

Julian Jader 1 100.00

TOTAL 35,000 P3,500,000.004

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

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

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

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

Name Number of Shares Amount

Raul E. Gala 6,640 66,400.00
Ofelia E. Gala 6,640 66,400.00
Guia G. Domingo 6,640 66,400.00
Virgilio Galeon 40 40.00
Julian Jader 40 40.00
TOTAL 20,000 P200,000.009
On November 10, 1982, Manuel Gala sold 13,314 of his shares in Ellice to Margo. 10

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

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

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

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

Name Number of Shares Amount

Margo 24,312.5 2,431,250.00
Alicia Gala 21,480.2 2,148,020.00
Raul Gala 2,704.5 270,450.00
Ofelia Gala 980.8 98,080.00
Gina Domingo 516 51,600.00
Rita Benson 2 200.00
Virgilio Galeon 1 100.00
Julian Jader 1 100.00
Adnan Alonto 1 100.00
Elias Cresencio 1 100.00
TOTAL 50,000 P5,000,000.00

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

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

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

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

The two cases were consolidated in an Order dated November 23, 1993. 20
Meanwhile, during the pendency of the SEC cases, the shares of stock of Alicia and Ofelia Gala in Ellice
were levied and sold at public auction to satisfy a judgment rendered against them by he Regional Trial
Court of Makati, Branch 66, in Civil Case No. 42560, entitled "Regines Condominium v. Ofelia (Gala)
Panes and Alicia Gala." 21

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

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

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

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

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

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

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

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

SO ORDERED. 22

Respondents appealed to the SEC En Banc, which, on July 4, 2002, rendered its Decision, the decretal
portion of which reads:

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

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

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

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

(3) jointly and severally indemnify the appellants P90,000.00 as attorney’s fees;

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

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

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

SO ORDERED. 23

Petitioners filed a petition for review with the Court of Appeals which dismissed the petition for review
and affirmed the decision of the SEC En Banc. 24
Hence, this petition, raising the following issues:

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

II

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

III

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

IV

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

It is always sad to see families torn apart by money matters and property disputes.1âwphi1 The concept
of a close corporation organized for the purpose of running a family busi ness or managing family
property has formed the backbone of Philippine commerce and industry. Through this device, Filipino
families have been able to turn their humble, hard-earned life savings into going concerns capable of
providing them and their families with a modicum of material comfort and financial security as a reward
for years of hard work. A family corporation should serve as a rallying point for family unity and
prosperity, not as a flashpoint for familial strife. It is hoped that people reacquaint themselves with the
concepts of mutual aid and security that are the original driving forces behind the formation of family
corporations and use these tenets in order to facilitate more civil, if not more amicable, settlements of
family corporate disputes.
WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated November 8, 2002 and
the Resolution dated December 27, 2002, both of the Court of Appeals, are AFFIRMED. Costs against
petitioners.

SO ORDERED.

ARTICLES OF INCORPORATION – PRINCIPAL PLACE OF BUSINESS_CASES:

(1) Hyatt Elevators and Escalators, Corp. VS Goldstar Elevators, Phils. Inc.

[HYATT ELEVATORS AND ESCALATORS CORPORATION, Petitioner, vs. GOLDSTAR ELEVATORS, PHILS., INC.,* Respondent. 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 Review1 on Certiorari, under Rule 45 of the Rules of Court, assailing the June
26, 2003 Decision2 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 petitioner’s 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 latter’s 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
₱120,000,000.00 as actual damages, representing loss of earnings and business opportunities,
₱20,000,000.00 as damages for its reputation and goodwill, ₱1,000,000.00 as and by way of exemplary
damages, and ₱500,000.00 as and by way of attorney’s 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 HYATT’s 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 l ed to the alleged unfair
trade practices subject of the case; and (b) HYATT’s 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 Hyatt’s 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 court’s 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
plaintiff’s 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 Goldstar’s 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 respondent’s 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 latter’s 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 Court’s 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 latter’s 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 petitioner’s 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 appe llate
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 latter’s residence was still the place indicated in its Articles
of Incorporation. Further unacceptable is its faulty reasoning that the ground for the CA’s dismissal of its
Complaint was its failure to amend its Articles of Incorporation so as to reflect its actu al 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
latter’s 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 plaintiff’s caprice; the matter is regulated by the Rules of Court. 21 Allowing
petitioner’s 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 plaintiff’s whim or caprice. He may be impelled by some
ulterior motivation in choosing to file a case in a particular court even if not allowed by the rules on
venue."24

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

SO ORDERED.

(2) Sy VS Tyson Enterprises, Inc.

[JOHN SY and UNIVERSAL PARTS SUPPLY CORPORATION, petitioners, vs. TYSON ENTERPRISES, INC., JUDGE GREGORIO G. PINEDA of the
Court of First Instance of Rizal, Pasig Branch XXI and COURT OF APPEALS, respondents. G.R. No. L-56763 December 15, 1982]

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

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

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

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

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

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

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

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

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

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

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

Section 4, Rule 4 of the Rules of Court provides that, "when improper venue is n ot objected to in a
motion to dismiss it is deemed waived" and it can no longer be pleaded as an affirmative defense in the
answer (Sec. 5, Rule 16).

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

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

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

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

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

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

As perspicaciously observed by Justice Moreland, the purpose of procedure is not to restrict the court's
jurisdiction over the subject matter but to give it effective facility "in righteous action", "to facilitate and
promote the administration of justice" or to insure "just judgments" by means of a fair hearing. If that
objective is not achieved, then "the administration of justice becomes incomplete and unsatisfactory
and lays itself open to grave criticism." (Manila Railroad Co. vs. Attorney General, 20 Phil. 523, 530.)
The case of Marquez Lim Cay vs. Del Rosario, 55 Phil. 962, does not sustain the trial court's order of
denial because in that case the defendants, before filing a motion to dismiss on the ground of improper
venue, interposed a demurrer on the ground that the complaint does not state a cause of action. Then,
they filed a motion for the dissolution of an attachment, posted a bond for its dissolution and later filed
a motion for the assessment of the damages caused by the attachment. All those acts constituted a
submission to the trial court's jurisdiction and a waiver of the objection based on improper venue under
section 377 of the Code of Civil Procedure.

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

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

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

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

SOORDERED.

(3) Young Auto Supply Co. VS CA

[YOUNG AUTO SUPPLY CO. AND NEMESIO GARCIA, petitioners, vs. THE HONORABLE COURT OF APPEALS (THIRTEENTH DIVISION) AND
GEORGE CHIONG ROXAS, respondents. G.R. No. 104175 June 25, 1993]

Petitioners seek to set aside the decision of respondent Court of Appeals in CA-G.R. SP No. 25237, which
reversed the Order dated February 8, 1991 issued by the Regional Trial Court, Branch 11, Cebu City in
Civil Case No. CEB 6967. The order of the trial court denied the motion to dismiss filed by respondent
George C. Roxas of the complaint for collection filed by petitioners.

It appears that sometime on October 28, 1987, Young Auto Supply Co. Inc. (YASCO) represented by
Nemesio Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their shares of stock in
Consolidated Marketing & Development Corporation (CMDC) to Roxas. The purchase price was
P8,000,000.00 payable as follows: a downpayment of P4,000,000.00 and the balance of P4,000,000.00 in
four post dated checks of P1,000,000.00 each.

Immediately after the execution of the agreement, Roxas took full control of the four markets of CMDC.
However, the vendors held on to the stock certificates of CMDC as security pending full payment of the
balance of the purchase price.
The first check of P4,000,000.00, representing the down-payment, was honored by the drawee bank but
the four other checks representing the balance of P4,000,000.00 were dishonored. In the meantime,
Roxas sold one of the markets to a third party. Out of the proceeds of the sale, YASCO received
P600,000.00, leaving a balance of P3,400,000.00 (Rollo, p. 176).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The petition is meritorious.

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

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

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

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

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

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

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

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

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

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

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

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

With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its principal
place of business is located, it becomes unnecessary to decide whether Garcia is also a resident of Cebu
City and whether Roxas was in estoppel from questioning the choice of Cebu City as the venue.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals appealed from is SET ASIDE
and the Order dated February 8, 1991 of the Regional Trial Court is REINSTATED.

SO ORDERED.