1

G.R. No. L-30646

January 30, 1929

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, petitioner,

vs.
THE MANILA RAILROAD COMPANY and JOSE PAEZ as Manager of said Company, respondents.
JOHNSON, J.:
This is a petition in the Supreme Court of the extraordinary legal writ of mandamus presented by the Government of the
Philippine Islands, praying that the writ be issued to compel the Manila Railroad Company and Jose Paez, as its manager,
to provide and equip the telegraph poles of said company between the municipality of Paniqui, Province of Tarlac, and
the Municipality of San Fernando, Province of La Union, with crosspieces for six telegraph wires belonging to the
Government, which, it is alleged, are necessary for public service between said municipalities.
The only question raised by the petition is whether the dependant company is required to provide and equip its
telegraph poles with crosspieces to carry six telegraph wires of the Government, or whether it is only required to furnish
poles with crosspieces sufficient to carry four wires only.
It is admitted that the present poles and crosspieces between said municipalities are sufficient to carry four telegraph
wires and that they do now carry four telegraph wires, by virtue of an agreement between the respondents and the
Bureau of the Posts of the Philippine Government. It is admitted that the poles and not sufficient to carry six telegraph
wires.
The petitioner relies upon the provisions of section 84 of act No. 1459. Act No. 1459 is the General Corporation Law and
was adopted by the United States Philippine Commission on March 1, 1906. (Vol. 5, Pub. Laws, pp. 224-268.) Section 84
of the said Act provides:
The railroad corporation shall establish along the whole length of the road a telegraph line for the use of the
railroad. The posts of this line may be used for Government wires and shall be of sufficient length and strength
and equipped with sufficient crosspiece to carry the number of wires which the Government may consider
necessary for the public service. The establishment, protection, and maintenance of the wires and stations
necessary for the public service shall be at the cost of the Government. (Vol. 5, P. L., p. 247.)
The plaintiff contends that under said section 84 the defendant company is required to erect and maintain posts for its
telegraph wires, of sufficient length and strength, and equipped with sufficient crosspieces to carry the number of wires
which the Government may consider necessary for the public service, and that six wires are now necessary for the public
service.
The respondents answered by a general and special defense. In their special defense they contend that section 84 of Act
No. 1459 has been repealed by section 1, paragraph 8 of Act No. 1510 of the United States Philippine Commission (vol.
5, P. L., pp. 350-358), and that under the provisions of said Act No. 1510 the Government is entitled to place on the poles
of the company four wires only. Act No. 1510 is the charter of the Manila Railroad Company. It was adopted by the United
States Philippine Commission on July 7, 1906. Section 1, paragraph 8, of said Act No. 1510 provides:
8. The grantee (the Manila Railroad Company) shall have the right to construct and operate telegraph,
telephone, and electrical transmission lines over said railways for the use of the railways and their business, and
also, with the approval of the Secretary of War, for public service and commercial purposes but these latter
privileges shall be subject to the following provisions:
In the construction of telegraph or telephone lines along the right of way the grantee (the Manila Railroad
Company) shall erect and maintain poles with sufficient space thereon to permit the Philippine Government, at
the expense of said Government, to place, operate, and maintain four wires for telegraph, telephone, and
electrical transmission for any Government purposes between the termini of the lines of railways main or branch;
and the Philippine Government reserves to itself the right to construct, maintain, and operate telegraph,
telephone, or electrical transmission lines over the right of way of said railways for commercial military, or
government purposes, without unreasonably interfering with the construction, maintenance, and operation by
the grantee of its railways, telegraph, telephone, and electrical transmission lines.

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To answer the question above stated, it becomes necessary to determine whether section 84 of Act No. 1459 is
applicable to the Manila Railroad Company, or whether the manila Railroad Company is governed by section 1,
paragraph 8, of Act No. 1510. As has been said, Act No. 1459 is a general law applicable to corporations generally, while
Act No. 1510 is the charter of the Manila Railroad Company and constitute a contract between it and the Government.
Inasmuch as Act No. 1510 is the charter of Manila Railroad Company and constitute a contract between it and the
Governmemnt, it would seem that the company is governd by its contract and not by the provisions of any general law
upon questions covered by said contract. From a reading of the said charter or contract it would be seen that there is no
indication that the Government intended to impose upon said company any other conditions as obligations not expressly
found in said charter or contract. If that is true, then certainly the Government cannot impose upon said company any
conditions or obligations found in any general law, which does not expressly modify said contract.
Section 84 of the Corporation Law (Act No. 1459) was intended to apply to all railways in the Philippine Islands which did
not have a special charter contract. Act No. 1510 applies only to the Manila Railroad Company, one of the respondents,
and being a special charter of said company, its adoption had the effect of superseding the provisions of the general
Corporation Law which are applicable to railraods in general. The special charter (Act No. 1510) had the effect of
superseding the general Corporation Law upon all matters covered by said special charter. Said Act, inasmuch as it
contained a special provision relating to the erection of telegraph and telephone poles, and the number of wires which
the Government might place thereon, superseded the general law upon that question.
Act No. 1510 is a special charter of the respondent company. It constitutes a contract between the respondent company
and the state; and the state and the grantee of a charter are equally bound by its provisions. For the state to impose an
obligation or a duty upon the respondent company, which is not expressly provided for in the charter (Act No. 1510),
would amount to a violation of said contract between the state and the respondent company. The provisions of Act No.
1459 relating to the number of wires which the Government may place upon the poles of the company are different and
more enerous than the provisions of the charter upon the same question. Therefore, to allow the plaintiff to require of
the respondent company a compliance with said section 84 of Act No. 1459, would be to require of the respondent
company and the performance of an obligation which is not imposed upon it by its charter. The charter of a corporation
is a contract between three parties: (a) it is a contract between the state and the corporation to which the charter is
granted; (b) it is a contact between the stockholders and the state and (c) it is also a contract between the corporation
and its stockholders. (Cook on Corporations, vol. 2, sec. 494 and cases cited.)
The question is not whether Act No. 1510 repealed Act No. 1459; but whether, after the adoption of Act No. 1510, the
respondents are obliged to comply with the special provision above mentioned, contained in Act No. 1459. We must
answer that question in the native. Both laws are still in force, unless otherwise repealed. Act No. 1510 is applicable to
respondents upon the question before us, while Act No. 1459 is not applicable.
The petitioner, in view of all the foregoing facts and the law applicable thereto, has not shown itself entitled to the
remedy prayed for. The prayer of the petition must, therefore, be denied. And without any finding as to costs, it is so
ordered.
Street, Malcolm, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.

G.R. No. 164588 October 19, 2005

NAUTICA CANNING CORPORATION, FIRST DOMINION PRIME HOLDINGS, INC. and FERNANDO R. ARGUELLES,
JR., Petitioners
vs.
ROBERTO C. YUMUL, Respondent.
YNARES-SANTIAGO, J.:
Petitioners assail the September 26, 2001 Decision 1 of the Court of Appeals in CA-G.R. SP No. 61919, affirmingin toto the
Decision of the Securities and Exchange Commission (SEC) En Banc in SEC Case No. 10-96-5455, as well as the July 16,
2004 Resolution2 denying the motion for reconsideration.
The facts of the case show that Nautica Canning Corporation (Nautica) was organized and incorporated on May 11, 1994
with an authorized capital stock of P40,000,000 divided into 400,000 shares with a par value of P100.00 per share. It had
a subscribed capital stock of P10,000,000 with paid-in subscriptions from its incorporators as follows: 3
Name No. of Shares Amount Subscribed Amount Paid
ALVIN Y. DEE 89,991 P8,999,100 P4,499,100 JONATHAN Y. DEE 2 200 200
EDSA MARIE

JOANNA D. LAUREL 2 200 200 DARLENE

GONZALES 2 200 200 JENNIFER Y. DEE 2 200 200 ROBERTO C. YUMUL 1 100 100
500,000

JERRY ANGPING 10,000 1,000,000

-------------- -------------------- ------------------100,000 P10,000,000 P5,000,000

On December 19, 1994, respondent Roberto C. Yumul was appointed Chief Operating Officer/General Manager of Nautica
with a monthly compensation of P85,000 and an additional compensation equal to 5% of the companys operating profit
for the calendar year.4 On the same date, First Dominion Prime Holdings, Inc., Nauticas parent company, through its
Chairman Alvin Y. Dee, granted Yumul an Option to Purchase5 up to 15% of the total stocks it subscribed from Nautica.
On June 22, 1995, a Deed of Trust and Assignment 6 was executed between First Dominion Prime Holdings, Inc. and Yumul
whereby the former assigned 14,999 of its subscribed shares in Nautica to the latter. The deed stated that the 14,999

4
"shares were acquired and paid for in the name of the ASSIGNOR only for convenience, but actually executed in behalf
of and in trust for the ASSIGNEE."
In March 1996, Nautica declared a P35,000,000 cash dividend, P8,250,000 of which was paid to Yumul representing his
15% share.
After Yumuls resignation from Nautica on August 5, 1996, he wrote a letter 7 to Dee requesting the latter to formalize his
offer to buy Yumuls 15% share in Nautica on or before August 20, 1996; and demanding the issuance of the
corresponding certificate of shares in his name should Dee refuse to buy the same. Dee, through Atty. Fernando R.
Arguelles, Jr., Nauticas corporate secretary, denied the request claiming that Yumul was not a stockholder of Nautica.
On September 6, 19968 and September 9, 1996,9 Yumul requested that the Deed of Trust and Assignment be recorded in
the Stock and Transfer Book of Nautica, and that he, as a stockholder, be allowed to inspect its books and records.
Yumuls requests were denied allegedly because he neither exercised the option to purchase the shares nor paid for the
acquisition price of the 14,999 shares. Atty. Arguelles maintained that the cash dividend received by Yumul is held by
him only in trust for First Dominion Prime Holdings, Inc.
Thus, Yumul filed on October 3, 1996, before the SEC a petition for mandamus with damages, with prayer that the Deed
of Trust and Assignment be recorded in the Stock and Transfer Book of Nautica and that the certificate of stocks
corresponding thereto be issued in his name.10
On October 12, 2000, the SEC En Banc rendered the Decision,11 the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the petitioner and against the respondents, as follows:
1. Declaring petitioner as a stockholder of respondent Nautica;
2. Declaring petitioner as beneficial owner of 14,999 shares of Nautica under the Deed of Trust and Assignment dated
June 22, 1995
3. Declaring petitioner to be entitled to the right of inspection of the books of the corporation pursuant to the pertinent
provisions of the Corporation Code; and
4. Directing the Corporate Secretary of Nautica to recognize and register the Deed of Trust and Assignment dated June
22, 1995.
SO ORDERED.12
On appeal, the Court of Appeals affirmed the decision of the SEC En Banc. Petitioners motion for reconsideration was
denied in a Resolution dated July 16, 2004.
Hence, this petition.
At the outset, we note that petitioners recourse to this Court via a "combined" petition under Rule 65 and an appeal
under Rule 45 of the Rules of Court is irregular. A petition for review under Rule 45 is the proper remedy of a party
aggrieved by a decision of the Court of Appeals, which is not identical to a petition for certiorari under Rule 65. Under
Rule 45, decisions, final orders or resolutions of the Court of Appeals is appealed by filing a petition for review, which is a
continuation of the appellate process over the original case. 13 On the other hand, the writ of certiorari under Rule 65 is
filed when petitioner has no plain, speedy and adequate remedy in the ordinary course of law against its perceived
grievance. A remedy is considered "plain, speedy and adequate" if it will promptly relieve the petitioner from the
injurious effects of the judgment and the acts of the lower court or agency.
In this case, petitioners speedy, available and adequate remedy is appeal via Rule 45, and not certiorari under Rule 65.
Notwithstanding petitioners procedural lapse, we shall treat the petition as one filed under Rule 45.

5
The petition is partly meritorious.
Petitioners contend that Yumul was not a stockholder of Nautica; that he was just a nominal owner of one share as the
beneficial ownership belonged to Dee who paid for said share when Nautica was incorporated. They presented China
Banking Corporation Check No. A2620636 and Citibank Check No. B82642 as proof of payment by Dee; a letter by Dee
dated July 15, 1994 requesting the corporate secretary of Nautica to issue a certificate of stock in Yumuls name but in
trust for Dee; and Stock Certificate No. 6 with annotation "ITF Alvin Y. Dee" which means that respondent held said stock
"In Trust For Alvin Y. Dee".
We are not persuaded.
Indeed, it is possible for a business to be wholly owned by one individual. The validity of its incorporation is not affected
when such individual gives nominal ownership of only one share of stock to each of the other four incorporators. This is
not necessarily illegal.14 But, this is valid only between or among the incorporators privy to the agreement. It does bind
the corporation which, at the time the agreement is made, was non-existent. Thus, incorporators continue to be
stockholders of a corporation unless, subsequent to the incorporation, they have validly transferred their subscriptions to
the real parties in interest. As between the corporation on the one hand, and its shareholders and third persons on the
other, the corporation looks only to its books for the purpose of determining who its shareholders are. 15
In the case at bar, the SEC and the Court of Appeals correctly found Yumul to be a stockholder of Nautica, of one share of
stock recorded in Yumuls name, although allegedly held in trust for Dee. Nauticas Articles of Incorporation and By-laws,
as well as the General Information Sheet filed with the SEC indicated that Yumul was an incorporator and subscriber of
one share.16 Even granting that there was an agreement between Yumul and Dee whereby the former is holding the
share in trust for Dee, the same is binding only as between them. From the corporations vantage point, Yumul is its
stockholder with one share, considering that there is no showing that Yumul transferred his subscription to Dee, the
alleged real owner of the share, after Nauticas incorporation.
We held in Ponce v. Alsons Cement Corp.17 that:
... [A] transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-existent as far as
the corporation is concerned. As between the corporation on one hand, and its shareholders and third persons on the
other, the corporation looks only to its books for the purpose of determining who its shareholders are. It is only when the
transfer has been recorded in the stock and transfer book that a corporation may rightfully regard the transferee as one
of its stockholders. From this time, the consequent obligation on the part of the corporation to recognize such rights as it
is mandated by law to recognize arises.
Hence, without such recording, the transferee may not be regarded by the corporation as one among its stockholders
and the corporation may legally refuse the issuance of stock certificates[.]
Moreover, the contents of the articles of incorporation bind the corporation and its stockholders. Its contents cannot be
disregarded considering that it was the basic document which legally triggered the creation of the corporation. 18
The Court of Appeals, in affirming the factual findings of SEC, held that:
The evidence submitted by petitioners to establish trust is palpably incompetent, consisting mainly of the self-serving
allegations by the petitioners and the China Banking Corporation checks issued as payment for the shares of stock of
Nautica. Dee did not testify on the supposed trust relationship between him and Yumul. While Atty. Arguelles testified,
his testimony is barren of probative value since he had no first-hand knowledge of the relationship in question. The
isolated fact that Dee might have paid for the share in the name of Yumul did not by itself make the latter a man of
straw. Such act of payment is so nebulous and equivocal that it can not yield the meaning which the petitioners would
want to squeeze from it without the clarificatory testimony of Dee. 19
We see no cogent reason to set aside the factual findings of the SEC, as upheld by the Court of Appeals. Findings of fact
of quasi-judicial agencies, like the SEC, are generally accorded respect and even finality by the Supreme Court, if
supported by substantial evidence, in recognition of their expertise on the specific matters under their
consideration,20 moreso if the same has been upheld by the appellate court, as in this case.

6
Besides, other than petitioners self-serving assertion that the beneficial ownership belongs to Dee, they failed to show
that the subscription was transferred to Dee after Nauticas incorporation. The conduct of the parties also constitute
sufficient proof of Yumuls status as a stockholder. On April 4, 1995, Yumul was elected during the regular annual
stockholders meeting as a Director of Nauticas Board of Directors. 21 Thereafter, he was elected as president of
Nautica.22 Thus, Nautica and its stockholders knowingly held respondent out to the public as an officer and a stockholder
of the corporation.
Section 23 of Batas Pambansa (BP) Blg. 68 or The Corporation Code of the Philippines requires that every director must
own at least one share of the capital stock of the corporation of which he is a director. Before one may be elected
president of the corporation, he must be a director. 23 Since Yumul was elected as Nauticas Director and as President
thereof, it follows that he must have owned at least one share of the corporations capital stock.
Thus, from the point of view of the corporation, Yumul was the owner of one share of stock. As such, the SEC correctly
ruled that he has the right to inspect the books and records of Nautica, 24 pursuant to Section 74 of BP Blg. 68 which
states that the records of all business transactions of the corporation and the minutes of any meetings shall be open to
inspection by any director, trustee, stockholder or member of the corporation at reasonable hours on business days and
he may demand, in writing, for a copy of excerpts from said records or minutes, at his expense.
As to whether or not Yumul is the beneficial owner of the 14,999 shares of stocks of Nautica, petitioners allege that
Yumul was given the option to purchase shares of stocks in Nautica under the Option to Purchase dated December 19,
1994. However, he failed to exercise the option, thus there was no cause or consideration for the Deed of Trust and
Assignment, which makes it void for being simulated or fictitious. 25
Anent this issue, the SEC did not make a categorical finding on whether Yumul exercised his option and also on the
validity of the Deed of Trust and Assignment. Instead, it held that:
... Although unsubstantiated, the apparent objective of the respondents allegation was to refute petitioners claim over
the shares covered by the Deed of Trust and Assignment. This must therefore be deemed as nothing but a ploy to
deprive petitioner of his right over the shares in question, which to us should not be countenanced. 26
Neither did the Court of Appeals rule on the issue as it only held that:
Petitioners also contend that the Deed is a simulated contract.
Simulation is "the declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for
the purposes of deception, the appearances of a judicial act which does not exist or is different with that which was
really executed." The characteristic of simulation is that the apparent contract is not really desired or intended to
produce legal effect or in any way alter the juridical situation of the parties.
The requisites for simulation are: (a) an outward declaration of will different from the will of the parties; (b) the false
appearance must have been intended by mutual agreement; and (c) the purpose is to deceive third persons. These
requisites have not been proven in this case.27
Thus, other than defining and enumerating the requisites of a simulated contract or deed, the Court of Appeals did not
make a determination whether the SEC has the jurisdiction to resolve the issue and whether the questioned deed was
fictitious or simulated.
In Intestate Estate of Alexander T. Ty v. Court of Appeals,28 we held that:
The question raised in the complaints is whether or not there was indeed a sale in the absence of cause or
consideration. The proper forum for such a dispute is a regular trial court. The Court agrees with the ruling of the Court
of Appeals that no special corporate skill is necessary in resolving the issue of the validity of the transfer of shares from
one stockholder to another of the same corporation. Both actions, although involving different property, sought to
declare the nullity of the transfers of said property to the decedent on the ground that they were not supported by any
cause or consideration, and thus, are considered void ab initio for being absolutely simulated or fictitious. The
determination whether a contract is simulated or not is an issue that could be resolved by applying
pertinent provisions of the Civil Code, particularly those relative to obligations and contracts. Disputes

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

G.R. No. 41570

September 6, 1934

RED LINE TRANSPORTATION CO., petitioner-appellant,

vs.
RURAL TRANSIT CO., LTD., respondent-appellee.
L. D. Lockwood for appellant. Ohnick and Opisso for appellee.
BUTTE, J.:
This case is before us on a petition for review of an order of the Public Service Commission entered December 21, 1932,
granting to the Rural Transit Company, Ltd., a certificate of public convenience to operate a transportation service
between Ilagan in the Province of Isabela and Tuguegarao in the Province of Cagayan, and additional trips in its existing
express service between Manila Tuguegarao.
On June 4, 1932, the Rural Transit Company, Ltd., a Philippine corporation, filed with the Public Company Service
Commission an application in which it is stated in substance that it is the holder of a certificate or public convenience to
operate a passenger bus service between Manila and Tuguegarao; that it is the only operator of direct service between
said points and the present authorized schedule of only one trip daily is not sufficient; that it will be also to the public
convenience to grant the applicant a certificate for a new service between Tuguegarao and Ilagan.
On July 22, 1932, the appellant, Red Line Transportation Company, filed an opposition to the said application alleging in
substance that as to the service between Tuguegarao and Ilagan, the oppositor already holds a certificate of public
convenience and is rendering adequate and satisfactory service; that the granting of the application of the Rural Transit
Company, Ltd., would not serve public convenience but would constitute a ruinous competition for the oppositor over
said route.
After testimony was taken, the commission, on December 21, 1932, approved the application of the Rural Transit
Company, Ltd., and ordered that the certificate of public convenience applied for be "issued to the applicant Rural Transit
Company, Ltd.," with the condition, among others, that "all the other terms and conditions of the various certificates of
public convenience of the herein applicant and herein incorporated are made a part hereof."
On January 14, 1933, the oppositor Red Line Transportation Company filed a motion for rehearing and reconsideration in
which it called the commission's attention to the fact that there was pending in the Court of First Instance of Manila case
N. 42343, an application for the voluntary dissolution of the corporation, Rural Transit Company, Ltd. Said motion for
reconsideration was set down for hearing on March 24, 1933. On March 23, 1933, the Rural Transit Company, Ltd., the
applicant, filed a motion for postponement. This motion was verified by M. Olsen who swears "that he was the secretary
of the Rural Transit Company, Ltd., in the above entitled case." Upon the hearing of the motion for reconsideration, the
commission admitted without objection the following documents filed in said case No. 42343 in the Court of First
Instance of Manila for the dissolution of the Rural Transit Company, Ltd. the petition for dissolution dated July 6, 1932,
the decision of the said Court of First Instance of Manila, dated February 28, 1933, decreeing the dissolution of the Rural
Transit Company, Ltd.
At the trial of this case before the Public Service Commission an issue was raised as to who was the real party in interest
making the application, whether the Rural Transit Company, Ltd., as appeared on the face of the application, or the
Bachrach Motor Company, Inc., using name of the Rural Transit Company, Ltd., as a trade name. The evidence given by
the applicant's secretary, Olsen, is certainly very dubious and confusing, as may be seen from the following:
Q.
Will you please answer the question whether it is the Bachrach Motor Company operating under the
trade name of the Rural Transit Company, Limited, or whether it is the Rural Transit Company, Limited in its own
name this application was filed?
A.

The Bachrach Motor Company is the principal stockholder.

9
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.?

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A.

Yes, sir.

LOCKWOOD. I move that this case be dismissed, your Honor, on the ground that this application was made in
the name of one party but the real owner is another party.
ESPELETA. We object to that petition.
JUDGE. I will have that in mind when I decide the case. If I agree with you everything would be finished.
The Bachrach Motor Company, Inc., entered no appearance and ostensibly took no part in the hearing of the application
of the Rural Transit Company, Ltd. It may be a matter of some surprise that the commission did not on its own motion
order the amendment of the application by substituting the Bachrach Motor Company, Inc., as the applicant. However,
the hearing proceeded on the application as filed and the decision of December 2, 1932, was rendered in favor of the
Rural Transit Company, Ltd., and the certificate ordered to be issued in its name, in the face of the evidence that the said
corporation was not the real party in interest. In its said decision, the commission undertook to meet the objection by
referring to its resolution of November 26, 1932, entered in another case. This resolution in case No. 23217 concludes as
follows:
Premises considered we hereby authorize the Bachrach Motor Co., Inc., to continue using the name of "Rural
Transit Co., Ltd.," as its trade name in all the applications, motions or other petitions to be filed in this
commission in connection with said business and that this authority is given retroactive effect as of the date, of
filing of the application in this case, to wit, April 29, 1930.
We know of no law that empowers the Public Service Commission or any court in this jurisdiction to authorize one
corporation to assume the name of another corporation as a trade name. Both the Rural Transit Company, Ltd., and the
Bachrach Motor Co., Inc., are Philippine corporations and the very law of their creation and continued existence requires
each to adopt and certify a distinctive name. The incorporators "constitute a body politic and corporate under the name
stated in the certificate." (Section 11, Act No. 1459, as amended.) A corporation has the power "of succession by its
corporate name." (Section 13, ibid.) The name of a corporation is therefore essential to its existence. It cannot change its
name except in the manner provided by the statute. By that name alone is it authorized to transact business. The law
gives a corporation no express or implied authority to assume another name that is unappropriated: still less that of
another corporation, which is expressly set apart for it and protected by the law. If any corporation could assume at
pleasure as an unregistered trade name the name of another corporation, this practice would result in confusion and
open the door to frauds and evasions and difficulties of administration and supervision. The policy of the law expressed
in our corporation statute and the Code of Commerce is clearly against such a practice. (Cf. Scarsdale Pub. Co. Colonial
Press vs. Carter, 116 New York Supplement, 731; Svenska Nat. F. i. C. vs. Swedish Nat. Assn., 205 Illinois [Appellate
Courts], 428, 434.)
The order of the commission of November 26, 1932, authorizing the Bachrach Motor Co., Incorporated, to assume the
name of the Rural Transit Co., Ltd. likewise in corporated, as its trade name being void, and accepting the order of
December 21, 1932, at its face as granting a certificate of public convenience to the applicant Rural Transit Co., Ltd., the
said order last mentioned is set aside and vacated on the ground that the Rural Transit Company, Ltd., is not the real
party in interest and its application was fictitious.
In view of the dissolution of the Rural Transit Company, Ltd. by judicial decree of February 28, 1933, we do not see how
we can assess costs against said respondent, Rural Transit Company, Ltd.
Malcolm, Villa-Real, Imperial and Goddard, JJ., concur.

11

G.R. No. L-28351 July 28, 1977

UNIVERSAL MILLS CORPORATION, petitioner,
vs.
UNIVERSAL TEXTILE MILLS, INC., respondent.
Emigdio G. Tanjuatco for petitioner. Picazo, Santayana, Reyes, Tayao & Alfonso for respondent.
BARREDO, J.:
Appeal from the order of the Securities and Exchange Commission in S.E.C. Case No. 1079, entitled In the Matter of
the Universal Textile Mills, Inc. vs. Universal Mills Corporation, a petition to have appellant change its corporate name on
the ground that such name is "confusingly and deceptively similar" to that of appellee, which petition the Commission
granted.
According to the order, "the Universal Textile Mills, Inc. was organ on December 29, 1953, as a textile manufacturing firm
for which it was issued a certificate of registration on January 8, 1954. The Universal Mills Corporation, on the other
hand, was registered in this Commission on October 27, 1954, under its original name, Universal Hosiery Mills
Corporation, having as its primary purpose the "manufacture and production of hosieries and wearing apparel of all
kinds." On May 24, 1963, it filed an amendment to its articles of incorporation changing its name to Universal Mills
Corporation, its present name, for which this Commission issued the certificate of approval on June 10, 1963.
The immediate cause of this present complaint, however, was the occurrence of a fire which gutted respondent's
spinning mills in Pasig, Rizal. Petitioner alleged that as a result of this fire and because of the similarity of respondent's
name to that of herein complainant, the news items appearing in the various metropolitan newspapers carrying reports
on the fire created uncertainty and confusion among its bankers, friends, stockholders and customers prompting

12
petitioner to make announcements, clarifying the real Identity of the corporation whose property was burned. Petitioner
presented documentary and testimonial evidence in support of this allegation.
On the other hand, respondent's position is that the names of the two corporations are not similar and
even if there be some similarity, it is not confusing or deceptive; that the only reason that respondent
changed its name was because it expanded its business to include the manufacture of fabrics of all
kinds; and that the word 'textile' in petitioner's name is dominant and prominent enough to distinguish
the two. It further argues that petitioner failed to present evidence of confusion or deception in the
ordinary course of business; that the only supposed confusion proved by complainant arose out of an
extraordinary occurrence a disastrous fire. (pp. 16-&17, Record.)
Upon these premises, the Commission held:
From the facts proved and the jurisprudence on the matter, it appears necessary under the
circumstances to enjoin the respondent Universal Mills Corporation from further using its present
corporate name. Judging from what has already happened, confusion is not only apparent, but possible.
It does not matter that the instance of confusion between the two corporate names was occasioned only
by a fire or an extraordinary occurrence. It is precisely the duty of this Commission to prevent such
confusion at all times and under all circumstances not only for the purpose of protecting the corporations
involved but more so for the protection of the public.
In today's modern business life where people go by tradenames and corporate images, the corporate
name becomes the more important. This Commission cannot close its eyes to the fact that usually it is
the sound of all the other words composing the names of business corporations that sticks to the mind of
those who deal with them. The word "textile" in Universal Textile Mills, Inc.' can not possibly assure the
exclusion of all other entities with similar names from the mind of the public especially so, if the business
they are engaged in are the same, like in the instant case.
This Commission further takes cognizance of the fact that when respondent filed the amendment
changing its name to Universal Mills Corporation, it correspondingly filed a written undertaking dated
June 5, 1963 and signed by its President, Mr. Mariano Cokiat, promising to change its name in the event
that there is another person, firm or entity who has obtained a prior right to the use of such name or one
similar to it. That promise is still binding upon the corporation and its responsible officers. (pp. 17-18,
Record.)
It is obvious that the matter at issue is within the competence of the Securities and Exchange Commission to resolve in
the first instance in the exercise of the jurisdiction it used to possess under Commonwealth Act 287 as amended by
Republic Act 1055 to administer the application and enforcement of all laws affecting domestic corporations and
associations, reserving to the courts only conflicts of judicial nature, and, of course, the Supreme Court's authority to
review the Commissions actuations in appropriate instances involving possible denial of due process and grave abuse of
discretion. Thus, in the case at bar, there being no claim of denial of any constitutional right, all that We are called upon
to determine is whether or not the order of the Commission enjoining petitioner to its corporate name constitutes, in the
light of the circumstances found by the Commission, a grave abuse of discretion.
We believe it is not. Indeed, it cannot be said that the impugned order is arbitrary and capricious. Clearly, it has rational
basis. The corporate names in question are not Identical, but they are indisputably so similar that even under the test of
"reasonable care and observation as the public generally are capable of using and may be expected to exercise" invoked
by appellant, We are apprehensive confusion will usually arise, considering that under the second amendment of its
articles of incorporation on August 14, 1964, appellant included among its primary purposes the "manufacturing, dyeing,
finishing and selling of fabrics of all kinds" in which respondent had been engaged for more than a decade ahead of
petitioner. Factually, the Commission found existence of such confusion, and there is evidence to support its conclusion.
Since respondent is not claiming damages in this proceeding, it is, of course, immaterial whether or not appellant has
acted in good faith, but We cannot perceive why of all names, it had to choose a name already being used by another
firm engaged in practically the same business for more than a decade enjoying well earned patronage and goodwill,
when there are so many other appropriate names it could possibly adopt without arousing any suspicion as to its motive
and, more importantly, any degree of confusion in the mind of the public which could mislead even its own customers,
existing or prospective. Premises considered, there is no warrant for our interference.

13
As this is purely a case of injunction, and considering the time that has elapsed since the facts complained of took place,
this decision should not be deemed as foreclosing any further remedy which appellee may have for the protection of its
interests.
WHEREFORE, with the reservation already mentioned, the appealed decision is affirmed. Costs against petitioners.
Fernando (Chairman), Antonio, Aquino, Concepcion Jr. and Santos, JJ., concur.

G.R. No. L-26370 July 31, 1970

PHILIPPINE FIRST INSURANCE COMPANY, INC., plaintiff-appellant,
vs.
MARIA CARMEN HARTIGAN, CGH, and O. ENGKEE, defendants-appellees.
Bausa, Ampil & Suarez for plaintiff-appellant.

Nicasio E. Martin for defendants-appellees.

14
BARREDO, J.:
Appeal from the decision dated 6 October 1962 of the Court of First Instance of Manila dismissing the action in its Civil
Case No. 48925 brought by the herein plaintiff-appellant Philippine First Insurance Co., Inc. to the Court of Appeals
which could, upon finding that the said appeal raises purely questions of law, declared itself without jurisdiction to
entertain the same and, in its resolution dated 15 July 1966, certified the records thereof to this Court for proper
determination.
The antecedent facts are set forth in the pertinent portions of the resolution of the Court of Appeals referred to as
follows:
According to the complaint, plaintiff was originally organized as an insurance corporation under the name of 'The Yek
Tong Lin Fire and Marine Insurance Co., Ltd.' The articles of incorporation originally presented before the Security and
Exchange Commissioner and acknowledged before Notary Public Mr. E. D. Ignacio on June 1, 1953 state that the name
of the corporation was 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' On May 26, 1961 the articles of
incorporation were amended pursuant to a certificate of the Board of Directors dated March 8, 1961 changing the
name of the corporation to 'Philippine First Insurance Co., Inc.'.
The complaint alleges that the plaintiff Philippine First Insurance Co., Inc., doing business under the name of 'The Yek
Tong Lin Fire and Marine Insurance Co., Lt.' signed as co-maker together with defendant Maria Carmen Hartigan, CGH,
a promissory note for P5,000.00 in favor of the China Banking Corporation payable within 30 days after the date of
the promissory note with the usual banking interest; that the plaintiff agreed to act as such co-maker of the
promissory note upon the application of the defendant Maria Carmen Hartigan, CGH, who together with Antonio F.
Chua and Chang Ka Fu, signed an indemnity agreement in favor of the plaintiff, undertaking jointly and severally, to
pay the plaintiff damages, losses or expenses of whatever kind or nature, including attorney's fees and legal costs,
which the plaintiff may sustain as a result of the execution by the plaintiff and co-maker of Maria Carmen Hartigan,
CGH, of the promissory note above-referred to; that as a result of the execution of the promissory note by the plaintiff
and Maria Carmen Hartigan, CGH, the China Banking Corporation delivered to the defendant Maria Carmen Hartigan,
CGH, the sum of P5,000.00 which said defendant failed to pay in full, such that on August 31, 1961 the same was.
renewed and as of November 27, 1961 there was due on account of the promissory note the sum of P4,559.50
including interest. The complaint ends with a prayer for judgment against the defendants, jointly and severally, for
the sum of P4,559.50 with interest at the rate of 12% per annum from November 23, 1961 plus P911.90 by way of
attorney's fees and costs.
Although O. Engkee was made as party defendant in the caption of the complaint, his name is not mentioned in the
body of said complaint. However, his name Appears in the Annex A attached to the complaint which is the counter
indemnity agreement supposed to have been signed according to the complaint by Maria Carmen Hartigan, CGH,
Antonio F. Chua and Chang Ka Fu.
In their answer the defendants deny the allegation that the plaintiff formerly conducted business under the name and
style of 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' They admit the execution of the indemnity agreement
but they claim that they signed said agreement in favor of the Yek Tong Lin Fire and Marine Insurance Co., Ltd.' and
not in favor of the plaintiff. They likewise admit that they failed to pay the promissory note when it fell due but they
allege that since their obligation with the China Banking Corporation based on the promissory note still subsists, the
surety who co-signed the promissory note is not entitled to collect the value thereof from the defendants otherwise
they will be liable for double amount of their obligation, there being no allegation that the surety has paid the
obligation to the creditor.
By way of special defense, defendants claim that there is no privity of contract between the plaintiff and the
defendants and consequently, the plaintiff has no cause of action against them, considering that the complaint does
not allege that the plaintiff and the 'Yek Tong Lin Fire and Marine Insurance Co., Ltd.' are one and the same or that the
plaintiff has acquired the rights of the latter. The parties after the admission of Exhibit A which is the amended
articles of incorporation and Exhibit 1 which is a demand letter dated August 16, 1962 signed by the manager of the
loans and discount department of the China Banking Corporation showing that the promissory note up to said date in
the sum of P4,500.00 was still unpaid, submitted the case for decision based on the pleadings.
Under date of 6 October 1962, the Court of First Instance of Manila rendered the decision appealed. It dismissed the
action with costs against the plaintiff Philippine First Insurance Co., Inc., reasoning as follows:

15
... With these undisputed facts in mind, the parties correctly concluded that the issues for resolution by this Court are
as follows:
(a) Whether or not the plaintiff is the real party in interest that may validly sue on the indemnity agreement signed by
the defendants and the Yek Tong Lin Fire & Marine Insurance Co., Ltd. (Annex A to plaintiff's complaint ); and
(b) Whether or not a suit for indemnity or reimbursement may under said indemnity agreement prosper without
plaintiff having yet paid the amount due under said promissory note.
In the first place, the change of name of the Yek Tong Lin Fire & Marine Insurance Co., Ltd. to the Philippines First
Insurance Co., Inc. is of dubious validity. Such change of name in effect dissolved the original corporation by a process
of dissolution not authorized by our corporation law (see Secs. 62 and 67, inclusive, of our Corporation Law). Moreover,
said change of name, amounting to a dissolution of the Yek Tong Lin Fire & Marine Insurance Co., Ltd., does not appear
to have been effected with the written note or assent of stockholders representing at least two-thirds of the subscribed
capital stock of the corporation, a voting proportion required not only for the dissolution of a corporation but also for
any amendment of its articles of incorporation (Secs. 18 and 62, Corporation Law). Furthermore, such change of
corporate name appears to be against public policy and may be effected only by express authority of law (Red Line
Transportation Co. v. Rural Transit Co., Ltd., 60 Phil. 549, 555; Cincinnati Cooperage Co., Ltd. vs. Vate, 26 SW 538, 539;
Pilsen Brewing Co. vs. Wallace, 125 NE 714), but there is nothing in our corporation law authorizing the change of
corporate name in this jurisdiction.
In the second place, assuming that the change of name of the Yek Tong Lin Fire & Marine Insurance Co. Ltd., to
Philippines pine First Insurance Co., Inc., as accomplished on March 8, 1961, is valid, that would mean that the original
corporation, the Yek Tong Lin Fire & Marine Insurance Co., Ltd., became dissolved and of no further existence since
March 8, 1961, so that on May 15, 1961, the date the indemnity agreement, Annex A, was executed, said original
corporation bad no more power to enter into any agreement with the defendants, and the agreement entered into by it
was ineffective for lack of capacity of said dissolved corporation to enter into said agreement. At any rate, even if we
hold that said change of name is valid, the fact remains that there is no evidence showing that the new entity, the
Philippine First Insurance Co., Inc. has with the consent of the original parties, assumed the obligations or was
assigned the rights of action in the original corporation, the Yek Tong Lin Fire & Marine Insurance Co., Ltd. In other
words, there is no evidence of conventional subrogation of the Plaintiffs in the rights of the Yek Tong Lin Fire & Marine
Insurance Co., Ltd. under said indemnity agreement (Arts. 1300, 1301, New Civil Code). without such subrogation
assignment of rights, the herein plaintiff has no cause of action against the defendants, and is, therefore, not the right
party in interest as plaintiff.
Last, but not least, assuming that the said change of name was legal and operated to dissolve the original corporation,
the dissolved corporation, must pursuant to Sec. 77 of our corporation law, be deemed as continuing as a body
corporate for three (3) years from March 8, 1961 for the purpose of prosecuting and defending suits. It is, therefore,
the Yek Tong Lin Fire & Marine Insurance Co., Ltd. that is the proper party to sue the defendants under said indemnity
agreement up to March 8, 1964.
Having arrived at the foregoing conclusions, this Court need not squarely pass upon issue (b) formulated above.
WHEREFORE, plaintiff's action is hereby dismissed, with costs against the plaintiff.
In due time, the Philippine First Insurance Company, Inc. moved for reconsideration of the decision aforesaid, but said
motion was denied on December 3, 1962 in an order worded thus:
The motion for reconsideration, dated November 8, 1962, raises no new issue that we failed to consider in rendering
our decision of October 6, 1962. However, it gives us an opportunity to amplify our decision as regards the question
of change of name of a corporation in this jurisdiction.
We find nothing in our Corporation Law authorizing a change of name of a corporation organized pursuant to its
provisions. Sec. 18 of the Corporation Law authorizes, in our opinion, amendment to the Articles of Incorporation of a
corporation only as to matters other than its corporate name. Once a corporation is organized in this jurisdiction by
the execution and registration of its Articles of Incorporation, it shall continue to exist under its corporate name for
the lifetime of its corporate existence fixed in its Articles of Incorporation, unless sooner legally dissolved (Sec. 11,
Corp. Law). Significantly, change of name is not one of the methods of dissolution of corporations expressly

16
authorized by our Corporation Law. Also significant is the fact that the power to change its corporate name is not one
of the general powers conferred on corporations in this jurisdiction (Sec. 13, Corp. Law). The enumeration of
corporate powers made in our Corporation Law implies the exclusion of all others (Thomas v. West Jersey R. Co., 101
U.S. 71, 25 L. ed. 950). It is obvious, in this connection, that change of name is not one of the powers necessary to
the exercise of the powers conferred on corporations by said Sec. 13 (see Sec. 14, Corp. Law).
To rule that Sec. 18 of our Corporation Law authorizes the change of name of a corporation by amendment of its
Articles of Incorporation is to indulge in judicial legislation. We have examined the cases cited in Volume 13 of
American Jurisprudence in support of the proposition that the general power to alter or amend the charter of a
corporation necessarily includes the power to alter the name of a corporation, and find no justification for said
conclusion arrived at by the editors of American Jurisprudence. On the contrary, the annotations in favor of plaintiff's
view appear to have been based on decisions in cases where the statute itself expressly authorizes change of
corporate name by amendment of its Articles of Incorporation. The correct rule in harmony with the provisions of our
Corporation Law is well expressed in an English case as follows:
After a company has been completely register without defect or omission, so as to be incorporated by the name set
forth in the deed of settlement, such incorporated company has not the power to change its name ... Although the
King by his prerogative might incorporate by a new name, and the newly named corporation might retain former
rights, and sometimes its former name also, ... it never appears to be such an act as the corporation could do by
itself, but required the same power as created the corporation. (Reg. v. Registrar of Joint Stock Cos 10 Q.B. 839, 59
E.C.L. 839).
The contrary view appears to represent the minority doctrine, judging from the annotations on decided cases on the
matter.
The movant invokes as persuasive precedent the action of the Securities Commissioner in tacitly approving the
Amended, Articles of Incorporation on May 26, 1961. We regret that we cannot in good conscience lend approval to
this action of the Securities and Exchange Commissioner. We find no justification, legal, moral, or practical, for
adhering to the view taken by the Securities and Exchange Commissioner that the name of a corporation in the
Philippines may be changed by mere amendment of its Articles of Incorporation as to its corporate name. A change
of corporate name would serve no useful purpose, but on the contrary would most probably cause confusion. Only a
dubious purpose could inspire a change of a corporate. name which, unlike a natural person's name, was chosen by
the incorporators themselves; and our Courts should not lend their assistance to the accomplishment of dubious
purposes.
WHEREFORE, we hereby deny plaintiff's motion for reconsideration, dated November 8, 1962, for lack of merit.
In this appeal appellant contends that
I
THE TRIAL COURT ERRED IN HOLDING THAT IN THIS JURISDICTION, THERE IS NOTHING IN OUR
CORPORATION LAW AUTHORIZING THE CHANGE OF CORPORATE NAME;
II
THE TRIAL COURT ERRED IN DECLARING THAT A CHANGE OF CORPORATE NAME APPEARS TO BE AGAINST
PUBLIC POLICY;
III
THE TRIAL COURT ERRED IN HOLDING THAT A CHANGE OF CORPORATE NAME HAS THE LEGAL EFFECT OF
DISSOLVING THE ORIGINAL CORPORATION:
IV

17
THE TRIAL COURT ERRED IN HOLDING THAT THE CHANGE OF NAME OF THE YEK TONG LIN FIRE & MARINE
INSURANCE CO., LTD. IS OF DUBIOUS VALIDITY;
V
THE TRIAL COURT ERRED IN HOLDING THAT THE APPELLANT HEREIN IS NOT THE RIGHT PARTY INTEREST
TO SUE DEFENDANTS-APPELLEES;
IV
THE TRIAL COURT FINALLY ERRED IN DISMISSING THE COMPLAINT.
Appellant's Position is correct; all the above assignments of error are well taken. The whole case, however, revolves
around only one question. May a Philippine corporation change its name and still retain its original personality and
individuality as such?
The answer is not difficult to find. True, under Section 6 of the Corporation Law, the first thing required to be stated in
the Articles of Incorporation of any corn corporation is its name, but it is only one among many matters equally if not
more important, that must be stated therein. Thus, it is also required, for example, to state the number and names of
and residences of the incorporators and the residence or location of the principal office of the corporation, its term of
existence, the amount of its capital stock and the number of shares into which it is divided, etc., etc.
On the other hand, Section 18 explicitly permits the articles of incorporation to be amended thus:
Sec. 18. Any corporation may for legitimate corporate purpose or purposes, amend its articles of
incorporation by a majority vote of its board of directors or trustees and the vote or written assent of
two-thirds of its members, if it be a nonstock corporation or, if it be a stock corporation, by the vote or
written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the
corporation Provided, however, That if such amendment to the articles of incorporation should consist in
extending the corporate existence or in any change in the rights of holders of shares of any class, or
would authorize shares with preferences in any respect superior to those of outstanding shares of any
class, or would restrict the rights of any stockholder, then any stockholder who did not vote for such
corporate action may, within forty days after the date upon which such action was authorized, object
thereto in writing and demand Payment for his shares. If, after such a demand by a stockholder, the
corporation and the stockholder cannot agree upon the value of his share or shares at the time such
corporate action was authorized, such values all be ascertained by three disinterested persons, one of
whom shall be named by the stockholder, another by the corporation, and the third by the two thus
chosen. The findings of the appraisers shall be final, and if their award is not paid by the corporation
within thirty days after it is made, it may be recovered in an action by the stockholder against the
corporation. Upon payment by the corporation to the stockholder of the agreed or awarded price of his
share or shares, the stockholder shall forthwith transfer and assign the share or shares held by him as
directed by the corporation: Provided, however, That their own shares of stock purchased or otherwise
acquired by banks, trust companies, and insurance companies, should be disposed of within six months
after acquiring title thereto.
Unless and until such amendment to the articles of incorporation shall have been abandoned or the
action rescinded, the stockholder making such demand in writing shall cease to be a stockholder and
shall have no rights with respect to such shares, except the right to receive payment therefor as
aforesaid.
A stockholder shall not be entitled to payment for his shares under the provisions of this section unless
the value of the corporate assets which would remain after such payment would be at least equal to the
aggregate amount of its debts and liabilities and the aggregate par value and/or issued value of the
remaining subscribed capital stock.
A copy of the articles of incorporation as amended, duly certified to be correct by the president and the
secretary of the corporation and a majority of the board of directors or trustees, shall be filed with the

18
Securities and Exchange Commissioner, who shall attach the same to the original articles of
incorporation, on file in his office. From the time of filing such copy of the amended articles of
incorporation, the corporation shall have the same powers and it and the members and stockholders
thereof shall thereafter be subject to the same liabilities as if such amendment had been embraced in
the original articles of incorporation: Provided, however, That should the amendment consist in
extending the corporate life, the extension shall not exceed 50 years in any one instance. Provided,
further, That the original articles and amended articles together shall contain all provisions required by
law to be set out in the articles of incorporation: And provided, further, That nothing in this section shall
be construed to authorize any corporation to increase or diminish its capital stock or so as to effect any
rights or actions which accrued to others between the time of filing the original articles of incorporation
and the filing of the amended articles.
The Securities and, Exchange Commissioner shall be entitled to collect and receive the sum of ten pesos for filing said
copy of the amended articles of incorporation. Provided, however, That when the amendment consists in extending the
term of corporate existence, the Securities and Exchange Commissioner shall be entitled to collect and receive for the
filing of its amended articles of incorporation the same fees collectible under existing law for the filing of articles of
incorporation. The Securities & Exchange Commissioner shall not hereafter file any amendment to the articles of
incorporation of any bank, banking institution, or building and loan association unless accompanied by a certificate of
the Monetary Board (of the Central Bank) to the effect that such amendment is in accordance with law. (As further
amended by Act No. 3610, Sec. 2 and Sec. 9. R.A. No. 337 and R.A. No. 3531.)
It can be gleaned at once that this section does not only authorize corporations to amend their charter; it also lays down
the procedure for such amendment; and, what is more relevant to the present discussion, it contains provisos restricting
the power to amend when it comes to the term of their existence and the increase or decrease of the capital stock.
There is no prohibition therein against the change of name. The inference is clear that such a change is allowed, for if
the legislature had intended to enjoin corporations from changing names, it would have expressly stated so in this
section or in any other provision of the law.
No doubt, "(the) name (of a corporation) is peculiarly important as necessary to the very existence of a corporation. The
general rule as to corporations is that each corporation shall have a name by which it is to sue and be sued and do all
legal acts. The name of a corporation in this respect designates the corporation in the same manner as the name of an
individual designates the person." 1 Since an individual has the right to change his name under certain conditions, there
is no compelling reason why a corporation may not enjoy the same right. There is nothing sacrosanct in a name when it
comes to artificial beings. The sentimental considerations which individuals attach to their names are not present in
corporations and partnerships. Of course, as in the case of an individual, such change may not be made exclusively. by
the corporation's own act. It has to follow the procedure prescribed by law for the purpose; and this is what is important
and indispensably prescribed strict adherence to such procedure.
Local well known corporation law commentators are unanimous in the view that a corporation may change its name by
merely amending its charter in the manner prescribed by law. 2 American authorities which have persuasive force here in
this regard because our corporation law is of American origin, the same being a sort of codification of American
corporate law, 3 are of the same opinion.
A general power to alter or amend the charter of a corporation necessarily includes the power to alter
the name of the corporation. Ft. Pitt Bldg., etc., Assoc. v. Model Plan Bldg., etc., Assoc., 159 Pa. St. 308,
28 Atl. 215; In re Fidelity Mut. Aid Assoc., 12 W.N.C. (Pa.) 271; Excelsior Oil Co., 3 Pa. Co. Ct. 184;
Wetherill Steel Casting Co., 5 Pa. Co. Ct. 337.
xxx xxx xxx
Under the General Laws of Rhode Island, c 176, sec. 7, relating to an increase of the capital stock of a
corporation, it is provided that 'such agreement may be amended in any other particular, excepting as
provided in the following section', which relates to a decrease of the capital stock This section has been
held to authorize a change in the name of a corporation. Armington v. Palmer, 21 R.I. 109, 42 Atl. 308,
43, L.R.A. 95, 79 Am. St. Rep. 786. (Vol. 19, American and English Annotated Cases, p. 1239.)
Fletcher, a standard authority on American an corporation law also says:

19
Statutes are to be found in the various jurisdictions dealing with the matter of change in corporate
names. Such statutes have been subjected to judicial construction and have, in the main, been upheld as
constitutional. In direct terms or by necessary implication, they authorize corporations new names and
prescribe the mode of procedure for that purpose. The same steps must be taken under some statutes to
effect a change in a corporate name, as when any other amendment of the corporate charter is
sought .... When the general law thus deals with the subject, a corporation can change its name only in
the manner provided. (6 Fletcher, Cyclopedia of the Law of Private Corporations, 1968 Revised Volume,
pp. 212-213.) (Emphasis supplied)
The learned trial judge held that the above-quoted proposition are not supported by the weight of authority because
they are based on decisions in cases where the statutes expressly authorize change of corporate name by amendment
of the articles of incorporation. We have carefully examined these authorities and We are satisfied of their relevance.
Even Lord Denman who has been quoted by His Honor from In Reg. v. Registrar of Joint Stock Cos. 10, Q.B., 59 E.C.L.
maintains merely that the change of its name never appears to be such an act as the corporation could do for itself, but
required ;the same Power as created a corporation." What seems to have been overlooked, therefore, is that the
procedure prescribes by Section 18 of our Corporation Law for the amendment of corporate charters is practically
identical with that for the incorporation itself of a corporation.
In the appealed order of dismissal, the trial court, made the observation that, according to this Court in Red Line
Transportation Co. v. Rural Transit Co., Ltd., 60 Phil, 549, 555, change of name of a corporation is against public policy.
We must clarify that such is not the import of Our said decision. What this Court held in that case is simply that:
We know of no law that empowers the Public Service Commission or any court in this jurisdiction to
authorize one corporation to assume the name of another corporation as a trade name. Both the Rural
Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine corporations and the very law of
their creation and continued existence requires each to adopt and certify a distinctive name. The
incorporators 'constitute a body politic and corporate under the name stated in the certificate.' (Section
11, Act No. 1459, as amended.) A corporation has the power 'of succession by its corporate
name.' (Section 13, ibid.) The name of a corporation is therefore essential to its existence. It cannot
change its name except in the manner provided by the statute. By that name alone is it authorized to
transact business. The law gives a corporation no express or implied authority to assume another name
that is unappropriated; still less that of another corporation, which is expressly set apart for it and
protected by the law. If any corporation could assume at pleasure as an unregistered trade name the
name of another corporation, this practice would result in confusion and open the door to frauds and
evasions and difficulties of administration and supervision. The policy of the law as expressed our
corporation statute and the Code of Commerce is clearly against such a practice. (Cf. Scarsdale Pub. Co.
Colonial Press vs. Carter, 116 New York Supplement, 731; Svenska Nat. F. i. C. vs. Swedish Nat. Assn.,
205 Illinois [Appellate Courts], 428, 434.)
In other words, what We have held to be contrary to public policy is the use by one corporation of the name of another
corporation as its trade name. We are certain no one will disagree that such an act can only "result in confusion and
open the door to frauds and evasions and difficulties of administration and supervision." Surely, the Red Line case was
not one of change of name.
Neither can We share the posture of His Honor that the change of name of a corporation results in its dissolution. There
is unanimity of authorities to the contrary.
An authorized change in the name of a corporation has no more effect upon its identity as a corporation
than a change of name of a natural person has upon his identity. It does not affect the rights of the
corporation or lessen or add to its obligations. After a corporation has effected a change in its name it
should sue and be sued in its new name .... (13 Am. Jur. 276-277, citing cases.)
A mere change in the name of a corporation, either by the legislature or by the corporators or
stockholders under legislative authority, does not, generally speaking, affect the identity of the
corporation, nor in any way affect the rights, privileges, or obligations previously acquired or incurred by
it. Indeed, it has been said that a change of name by a corporation has no more effect upon the identity
of the corporation than a change of name by a natural person has upon the identity of such person. The
corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the

20
original one, but remains and continues to be the original corporation. It is the same corporation with a
different name, and its character is in no respect changed. ... (6 Fletcher, Cyclopedia of the Law of
Private Corporations, 224-225, citing cases.)
The change in the name of a corporation has no more effect upon its identity as a corporation than a
change of name of a natural person has upon his identity. It does not affect the rights of the corporation,
or lessen or add to its obligations.
England. Doe v. Norton, 11 M. & W. 913, 7 Jur. 751, 12 L. J. Exch. 418.
United States. Metropolitan Nat. Bank v. Claggett, 141 U.S. 520, 12 S. Ct. 60, 35 U.S. (L. ed.) 841.
Alabama. Lomb v. Pioneer Sav., etc., Co., 106 Ala. 591, 17 So. 670; North Birmingham Lumber Co. v.
Sims, 157 Ala. 595, 48 So. 84.
Connecticut. Trinity Church v. Hall, 22 Com. 125.
Illinois. Mt. Palatine Academy v. Kleinschnitz 28 III, 133; St. Louis etc. R. Co. v. Miller, 43 Ill.
199;Reading v. Wedder, 66 III. 80.
Indiana. Rosenthal v. Madison etc., Plank Road Co., 10 Ind. 358.
Kentucky. Cahill v. Bigger, 8 B. Mon. 211; Wilhite v. Convent of Good Shepherd, 177 Ky. 251, 78 S. W.
138.
Maryland. Phinney v. Sheppard & Enoch Pratt Hospital, 88 Md. 633, 42 Atl. 58, writ of error dismissed,
177 U.S. 170, 20 S. Ct. 573, 44 U.S. (L. ed.) 720.
Missouri. Dean v. La Motte Lead Co., 59 Mo. 523.
Nebraska. Carlon v. City Sav. Bank, 82 Neb. 582, 188 N. W. 334. New York First Soc of M.E. Church v.
Brownell, 5 Hun 464.
Pennsylvania. Com. v. Pittsburgh, 41 Pa. St. 278.
South Carolina. South Carolina Mut Ins. Co. v. Price 67 S.C. 207, 45 S.E. 173.
Virginia. Wilson v. Chesapeake etc., R. Co., 21 Gratt 654; Wright-Caesar Tobacco Co. v. Hoen,105 Va.
327, 54 S.E. 309.
Washington. King v. Ilwaco R. etc., Co., 1 Wash. 127. 23 Pac. 924.
Wisconsin. Racine Country Bank v. Ayers, 12 Wis. 512.
The fact that the corporation by its old name makes a format transfer of its property to the corporation
by its new name does not of itself show that the change in name has affected a change in the identity of
the corporation. Palfrey v. Association for Relief, etc., 110 La. 452, 34 So. 600. The fact that a corporation
organized as a state bank afterwards becomes a national bank by complying with the provisions of the
National Banking Act, and changes its name accordingly, has no effect on its right to sue upon
obligations or liabilities incurred to it by its former name. Michigan Ins. Bank v. Eldred 143 U.S. 293, 12 S.
Ct. 450, 36 U.S. (L. ed.) 162.
A deed of land to a church by a particular name has been held not to be affected by the fact that the
church afterwards took a different name. Cahill v. Bigger, 8 B. Mon (ky) 211.

21
A change in the name of a corporation is not a divestiture of title or such a change as requires a regular
transfer of title to property, whether real or personal, from the corporation under one name to the same
corporation under another name. McCloskey v. Doherty, 97 Ky. 300, 30 S. W. 649. (19 American and
English Annotated Cases 1242-1243.)
As was very aptly said in Pacific Bank v. De Ro 37 Cal. 538, "The changing of the name of a corporation
is no more the creation of a corporation than the changing of the name of a natural person is the
begetting of a natural person. The act, in both cases, would seem to be what the language which we use
to designate it imports a change of name, and not a change of being.
Having arrived at the above conclusion, We have agree with appellant's pose that the lower court also erred in holding
that it is not the right party in interest to sue defendants-appellees. 4 As correctly pointed out by appellant, the approval
by the stockholders of the amendment of its articles of incorporation changing the name "The Yek Tong Lin Fire & Marine
Insurance Co., Ltd." to "Philippine First Insurance Co., Inc." on March 8, 1961, did not automatically change the name of
said corporation on that date. To be effective, Section 18 of the Corporation Law, earlier quoted, requires that "a copy of
the articles of incorporation as amended, duly certified to be correct by the president and the secretary of the
corporation and a majority of the board of directors or trustees, shall be filed with the Securities & Exchange
Commissioner", and it is only from the time of such filing, that "the corporation shall have the same powers and it and
the members and stockholders thereof shall thereafter be subject to the same liabilities as if such amendment had been
embraced in the original articles of incorporation." It goes without saying then that appellant rightly acted in its old
name when on May 15, 1961, it entered into the indemnity agreement, Annex A, with the defendant-appellees; for only
after the filing of the amended articles of incorporation with the Securities & Exchange Commission on May 26, 1961, did
appellant legally acquire its new name; and it was perfectly right for it to file the present case In that new name on
December 6, 1961. Such is, but the logical effect of the change of name of the corporation upon its actions.
Actions brought by a corporation after it has changed its name should be brought under the new name
although for the enforcement of rights existing at the time the change was made. Lomb v. Pioneer Sav.,
etc., Co., 106 Ala. 591, 17 So. 670: Newlan v. Lombard University, 62 III. 195; Thomas v. Visitor of
Frederick County School, 7 Gill & J (Md.) 388; Delaware, etc., R. Co. v. Trick, 23 N. J. L.
321; Northumberland Country Bank v. Eyer, 60 Pa. St. 436; Wilson v. Chesapeake etc., R. Co., 21 Gratt
(Va.) 654.
The change in the name of the corporation does not affect its right to bring an action on a note given to
the corporation under its former name. Cumberland College v. Ish, 22. Cal. 641; Northwestern College v.
Schwagler, 37 Ia. 577. (19 American and English Annotated Cases 1243.)
In consequence, We hold that the lower court erred in dismissing appellant's complaint. We take this opportunity,
however, to express the Court's feeling that it is apparent that appellee's position is more technical than otherwise.
Nowhere in the record is it seriously pretended that the indebtedness sued upon has already been paid. If appellees
entertained any fear that they might again be made liable to Yek Tong Lin Fire & Marine Insurance Co. Ltd., or to
someone else in its behalf, a cursory examination of the records of the Securities & Exchange Commission would have
sufficed to clear up the fact that Yek Tong Lin had just changed its name but it had not ceased to be their creditor.
Everyone should realize that when the time of the courts is utilized for cases which do not involve substantial questions
and the claim of one of the parties, therein is based on pure technicality that can at most delay only the ultimate
outcome necessarily adverse to such party because it has no real cause on the merits, grave injustice is committed to
numberless litigants whose meritorious cases cannot be given all the needed time by the courts. We address this appeal
once more to all members of the bar, in particular, since it is their bounden duty to the profession and to our country and
people at large to help ease as fast as possible the clogged dockets of the courts. Let us not wait until the people resort
to other means to secure speedy, just and inexpensive determination of their cases.
WHEREFORE, judgment of the lower court is reversed, and this case is remanded to the trial court for further
proceedings consistent herewith With costs against appellees.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee and Villamor, JJ., concur.

22

G.R. No. 129552

June 29, 2005

P.C. JAVIER & SONS, INC., SPS. PABLO C. JAVIER, SR. and ROSALINA F. JAVIER, petitioners,
vs.
HON. COURT OF APPEALS, PAIC SAVINGS & MORTGAGE BANK, INC., SHERIFFS GRACE BELVIS, SOFRONIO
VILLARIN, PIO MARTINEZ and NICANOR BLANCO, respondents.
CHICO-NAZARIO, J.:
Before Us is an appeal by certiorari under Rule 45 of the Rules of Court which seeks to set aside the decision 1 of the
Court of Appeals dated 31 January 1997 which affirmed in toto the decision of Branch 62 of the Regional Trial Court (RTC)
of Makati City, dismissing the complaint for Annulment of Mortgage and Foreclosure with Preliminary Injunction,
Prohibition and Damages filed by petitioners, and its Resolution 2 dated 20 June 1997 denying petitioners motion for
reconsideration.
A complaint3 for Annulment of Mortgage and Foreclosure with Preliminary Injunction, Prohibition and Damages was filed
by petitioners P.C. Javier & Sons, Inc. and spouses Pablo C. Javier, Sr. and Rosalina F. Javier against PAIC Savings &
Mortgage Bank, Inc., Grace S. Belvis, Acting Ex Officio Regional Sheriff of Pasig, Metro Manila and Sofronio M. Villarin,
Deputy Sheriff-in-Charge, before Branch 62 of the RTC of Makati City, on 07 May 1984. The case was docketed as Civil
Case No. 7184.
On 10 May 1984, a Supplemental Complaint 4 was filed to include additional defendants, namely: Pio Martinez, Acting
Ex Officio Regional Sheriff of Antipolo, Rizal, and Nicanor D. Blanco, Deputy Sheriff-in-Charge.
The facts that gave rise to the aforesaid complaint, as found by Branch 62 of the RTC of Makati City, and adopted by the
respondent court, are as follows:
In February, 1981, Plaintiff P.C. Javier and Sons Services, Inc., Plaintiff Corporation, for short, applied with First Summa
Savings and Mortgage Bank, later on renamed as PAIC Savings and Mortgage Bank, Defendant Bank, for short, for a loan
accommodation under the Industrial Guarantee Loan Fund (IGLF) for P1.5 Million. On March 21, 1981, Plaintiff

23
Corporation through Plaintiff Pablo C. Javier, Plaintiff Javier for short, was advised that its loan application was approved
and that the same shall be forwarded to the Central Bank (CB) for processing and release (Exhibit A also Exhibit 8).
The CB released the loan to Defendant Bank in two (2) tranches of P750,000 each. The first tranche was released to the
Plaintiff Corporation on May 18, 1981 in the amount of P750,000.00 and the second tranche was released to Plaintiff
Corporation on November 21, 1981 in the amount of P750,000.00. From the second tranche release, the amount
of P250,000.00 was deducted and deposited in the name of Plaintiff Corporation under a time deposit.
Plaintiffs claim that the loan releases were delayed; that the amount of P250,000.00 was deducted from the IGLF loan
of P1.5 Million and placed under time deposit; that Plaintiffs were never allowed to withdraw the proceeds of the time
deposit because Defendant Bank intended this time deposit as automatic payments on the accrued principal and
interest due on the loan. Defendant Bank, however, claims that only the final proceeds of the loan in the amount
of P750,000.00 was delayed the same having been released to Plaintiff Corporation only on November 20, 1981, but this
was because of the shortfall in the collateral cover of Plaintiffs loan; that this second tranche of the loan was precisely
released after a firm commitment was made by Plaintiff Corporation to cover the collateral deficiency through the
opening of a time deposit using a portion of the loan proceeds in the amount ofP250,000.00 for the purpose; that in
compliance with their commitment to submit additional security and open time deposit, Plaintiff Javier in fact opened a
time deposit for P250,000.00 and on February 15, 1983, executed a chattel mortgage over some machineries in favor of
Defendant Bank; that thereafter, Plaintiff Corporation defaulted in the payment of its IGLF loan with Defendant Bank
hence Defendant Bank sent a demand letter dated November 22, 1983, reminding Plaintiff Javier to make payments
because their accounts have been long overdue; that on May 2, 1984, Defendant Bank sent another demand letter to
Plaintiff spouses informing them that since they have defaulted in paying their obligation, their mortgage will now be
foreclosed; that when Plaintiffs still failed to pay, Defendant Bank initiated extrajudicial foreclosure of the real estate
mortgage executed by Plaintiff spouses and accordingly the auction sale of the property covered by TCT No. 473216 was
scheduled by the ExOfficio Sheriff on May 9, 1984. 5
The instant complaint was filed to forestall the extrajudicial foreclosure sale of a piece of land covered by Transfer
Certificate of Title (TCT) No. 473216 6 mortgaged by petitioner corporation in favor of First Summa Savings and Mortgage
Bank which bank was later renamed as PAIC Savings and Mortgage Bank, Inc. 7 It likewise asked for the nullification of the
Real Estate Mortgages it entered into with First Summa Savings and Mortgage Bank. The supplemental complaint added
several defendants who scheduled for public auction other real estate properties contained in the same real estate
mortgages and covered by TCTs No. N-5510, No. 426872, No. 506346 and Original Certificate of Title No. 10146. 8
Several extrajudicial foreclosures of the mortgaged properties were scheduled but were temporarily restrained by the
RTC notwithstanding the denial9 of petitioners prayer for a writ of preliminary injunction. In an Order 10 dated 10
December 1990, the RTC ordered respondents-sheriffs to maintain the status quo and to desist from further proceeding
with the extrajudicial foreclosure of the mortgaged properties.
Among the issues raised by petitioners at the RTC are whether or not First Summa Savings and Mortgage Bank and PAIC
Savings and Mortgage Bank, Inc. are one and the same entity, and whether or not their obligation is already due and
demandable at the time respondent bank commenced to extrajudicially foreclose petitioners properties in April 1984.
The RTC declared that First Summa Savings and Mortgage Bank and PAIC Savings and Mortgage Bank, Inc. are one and
the same entity and that petitioner corporation is liable to respondent bank for the unpaid balance of its Industrial
Guarantee Loan Fund (IGLF) loans. The RTC further ruled that respondent bank was justified in extrajudicially foreclosing
the real estate mortgages executed by petitioner corporation in its favor because the loans were already due and
demandable when it commenced foreclosure proceedings in April 1984.
In its decision dated 06 July 1993, the RTC disposed of the case as follows:
Premises considered, judgment is hereby rendered dismissing the Complaint against Defendant Bank and ordering
Plaintiffs to pay Defendant Bank jointly and severally, the following:
1. The principal amount of P700,453.45 under P.N. No. 713 plus all the accrued interests, liquidated damages
and other fees due thereon from March 18, 1983 until fully paid as provided in said PN;
2. The principal amount of P749,879.38 under P.N. No. 841 plus all the accrued interests, liquidated damages
and other fees due thereon from September 1, 1982 until fully paid as provided in such PN;
3. The amount of P40,000.00 as actual damages;
4. The amount of P30,000.00 as exemplary damages;

24
5. The amount of P50,000.00 as attorneys fees; plus
6. Cost of suit.11
Petitioners filed a Motion for Reconsideration12 which was opposed13 by respondent bank. The motion was denied in an
Order dated 11 May 1994.
Petitioners appealed the decision to the Court of Appeals. The latter affirmed in toto the decision of the lower court. It
also denied petitioners motion for reconsideration.
Hence, this appeal by certiorari.
Petitioners assigned the following as errors:
a. PUBLIC RESPONDENT COURT GRAVELY ERRED WHEN IT SUSTAINED THE DISMISSAL OF PETITIONERS COMPLAINT AND
IN AFFIRMING THE RIGHT OF THE RESPONDENT BANK TO COLLECT THE IGLF LOANS IN LIEU OF FIRST SUMMA SAVINGS
AND MORTGAGE BANK WHICH ORIGINALLY GRANTED SAID LOANS.
COROLLARY TO THE ABOVE ARGUMENT, THE PUBLIC RESPONDENT COURT ALSO GRAVELY ERRED WHEN IT RULED THAT
THE PETITIONERS CANNOT WITHHOLD THEIR PAYMENT TO THE RESPONDENT BANK NOTWITHSTANDING THE ADMITTED
INABILITY OF THE RESPONDENT BANK TO FURNISH THE PETITIONERS THE SAID REQUESTED DOCUMENTS.
b. PUBLIC RESPONDENT COURT GRAVELY ERRED WHEN IT SUSTAINED THE COLLECTION OF THE ENTIRE PROCEEDS OF
THE IGLF LOANS OF P1,500,000.00 DESPITE THE FACT THAT THE P250,000.00 OF THIS LOAN WAS WITHHELD BY THE
FIRST SUMMA SAVINGS AND MORTGAGE BANK TO BECOME PART OF THE COLLATERALS TO THE SAID P1,500,000.00
LOAN.
c. PUBLIC RESPONDENT COURT GRAVELY ERRED WHEN IT SUSTAINED THE DAMAGES AWARDED TO THE RESPONDENT
BANK DESPITE THE ABSENCE OF MALICE OR BAD FAITH ON THE PART OF THE PETITIONERS IN FILING THIS CASE AGAINST
THE RESPONDENT BANK.
On the first assigned error, petitioners argue that they are legally justified to withhold their amortized payments to the
respondent bank until such time they would have been properly notified of the change in the corporate name of First
Summa Savings and Mortgage Bank. They claim that they have never received any formal notice of the alleged change
of corporate name of First Summa Savings and Mortgage Bank to PAIC Savings & Mortgage Bank, Inc. They further claim
that the only and first time they received formal evidence of a change in the corporate name of First Summa Savings
and Mortgage Bank surfaced when respondent bank presented its witness, Michael Caguioa, on 03 April 1990, where he
presented the Securities and Exchange Commission (SEC) Certificate of Filing of the Amended Articles of Incorporation of
First Summa Savings and Mortgage Bank,14 the Central Bank (CB) Certificate of Authority15 to change the name of First
Summa Savings and Mortgage Bank to PAIC Savings and Mortgage Bank, Inc., and the CB Circular Letter 16 dated 27 June
1983.
Their argument does not hold water. Their defense that they should first be formally notified of the change of corporate
name of First Summa Savings and Mortgage Bank to PAIC Savings and Mortgage Bank, Inc., before they will continue
paying their loan obligations to respondent bank presupposes that there exists a requirement under a law or regulation
ordering a bank that changes its corporate name to formally notify all its debtors. After going over the Corporation Code
and Banking Laws, as well as the regulations and circulars of both the SEC and the Bangko Sentral ng Pilipinas (BSP), we
find that there is no such requirement. This being the case, this Court cannot impose on a bank that changes its
corporate name to notify a debtor of such change absent any law, circular or regulation requiring it. Such act would be
judicial legislation. The formal notification is, therefore, discretionary on the bank. Unless there is a law, regulation or
circular from the SEC or BSP requiring the formal notification of all debtors of banks of any change in corporate name,
such notification remains to be a mere internal policy that banks may or may not adopt.
In the case at bar, though there was no evidence showing that petitioners were furnished copies of official documents
showing the First Summa Savings and Mortgage Banks change of corporate name to PAIC Savings and Mortgage Bank,
Inc., evidence abound that they had notice or knowledge thereof. Several documents establish this fact. First,
letter17 dated 16 July 1983 signed by Raymundo V. Blanco, Accountant of petitioner corporation, addressed to PAIC
Savings and Mortgage Bank, Inc. Part of said letter reads: "In connection with your inquiry as to the utilization of funds
we obtained from the former First Summa Savings and Mortgage Bank, . . ." Second, Board Resolution 18 of petitioner
corporation signed by Pablo C. Javier, Sr. on 24 August 1983 authorizing him to execute a Chattel Mortgage over certain
machinery in favor of PAIC Savings and Mortgage Bank, Inc. Third, Secretarys Certificate 19 signed by Fortunato E.
Gabriel, Corporate Secretary of petitioner corporation, on 01 September 1983, certifying that a board resolution was
passed authorizing Mr. Pablo C. Javier, Sr. to execute a chattel mortgage on the corporations equipment that will serve
as collateral to cover the IGLF loan with PAIC Savings and Mortgage Bank, Inc. Fourth, undated letter 20 signed by Pablo C.

25
Javier, Sr. and addressed to PAIC Savings and Mortgage Bank, Inc., authorizing Mr. Victor F. Javier, General Manager of
petitioner corporation, to secure from PAIC Savings and Mortgage Bank, Inc. certain documents for his signature.
From the foregoing documents, it cannot be denied that petitioner corporation was aware of First Summa Savings and
Mortgage Banks change of corporate name to PAIC Savings and Mortgage Bank, Inc. Knowing fully well of such change,
petitioner corporation has no valid reason not to pay because the IGLF loans were applied with and obtained from First
Summa Savings and Mortgage Bank. First Summa Savings and Mortgage Bank and PAIC Savings and Mortgage Bank,
Inc., are one and the same bank to which petitioner corporation is indebted. A change in the corporate name does not
make a new corporation, whether effected by a special act or under a general law. It has no effect on the identity of the
corporation, or on its property, rights, or liabilities. 21 The corporation, upon such change in its name, is in no sense a new
corporation, nor the successor of the original corporation. It is the same corporation with a different name, and its
character is in no respect changed.22
Anent the second assigned error, this Court rules that respondent court did not err when it sustained the collection of the
entire proceeds of the IGLF loans amounting to P1,500,000.00 despite the withholding of P250,000.00 to become part of
the collaterals to the said P1,500,000.00 IGLF loan.
Petitioners contend that the collaterals they submitted were more than sufficient to cover the P1,500,000.00 IGLF loan.
Such contention is untenable. Petitioner corporation was required to place P250,000.00 in a time deposit with
respondent bank for the simple reason that the collateral it put up was insufficient to cover the IGLF loans it has
received. It admitted the shortfall of its collateral when it authorized petitioner Pablo C. Javier, Sr., via a board
resolution,23 to execute a chattel mortgage over certain machinery in favor of PAIC Savings and Mortgage Bank, Inc.
which was certified by its corporate secretary. 24 If the collateral it put up was sufficient, why then did it execute another
chattel mortgage?
In his order dated 07 September 1984, Hon. Rafael T. Mendoza found that the loanable value of the lands, buildings,
machinery and equipment amounted only to P934,000.00. The order reads in part:
The terms and conditions of the IGLF loan extended to plaintiff corporation are governed by the loan and security
documents evidencing said loan. Although the loan agreement was approved by the defendant bank, the same has to be
processed and be finally approved by the Central Bank of the Philippines, in pursuance to the IGLF program, of which the
defendant bank is an accredited participant. The defendant had to await Central Banks advise (sic) regarding the final
approval of the loan before the release of the proceeds thereof. The proceeds of the loan was released to the plaintiff on
6 April and November 20, 1981, and the final proceeds was released only on November 20, 1981, on account of short fall
in the collateral covered by the lands and buildings as well as the machineries and equipment then subject of the
existing mortgages in favor of the defendant bank, having only a loanable value of P934,000.00, and only after a firm
commitment made by plaintiff corporation to the defendant bank to correct the collateral deficiency thru the execution
of a chattel mortgage on additional machineries, equipment and tools and thru the opening of a time deposit with PAIC
Bank using a portion of the loan proceeds in the amount of P250,000.00 to answer for its obligation to the defendant
bank under the IGLF loan was the final proceeds of the loan released in favor of the plaintiffs. The delay in the release of
the final proceeds of the IGLF loan was due to the aforestated collateral deficiency. 25
As declared by the respondent court, the finding in said order was not disputed in the appeal before it. It said that what
was contained in petitioners brief was that "their loans were overcollateralized, and fail to specify why or in what
manner it was so."26 Having failed to raise this issue before the respondent court, petitioners thus cannot raise this issue
before this Court. Moreover, since the issue of whether or not the collateral put up by petitioners is sufficient is factual,
the same is not proper for this Courts consideration. The basic rule is that factual questions are beyond the province of
the Supreme Court in a petition for review.27
Petitioners maintain that to collect the P250,000.00 from them would be a clear case of unjust enrichment because they
have not availed or used said amount for the same was unlawfully withheld from them.
We do not agree. The fundamental doctrine of unjust enrichment is the transfer of value without just cause or
consideration. The elements of this doctrine are: enrichment on the part of the defendant; impoverishment on the part
of the plaintiff; and lack of cause. The main objective is to prevent one to enrich himself at the expense of another. 28 It is
commonly accepted that this doctrine simply means that a person shall not be allowed to profit or enrich himself
inequitably at another's expense. 29 In the instant case, there is no unjust enrichment to speak of. The amount of
P225,905.79 was applied as payment for petitioner corporations loan which was taken from the P250,000.00, together
with its accrued interest, that was placed in time deposit with First Summa Savings and Mortgage Bank. The use of said
amount as payment was approved by petitioner Pablo C. Javier, Sr. on 17 March 1983. 30 As further found by the RTC in its
decision, the balance of the time deposit was withdrawn by petitioners. 31
Petitioner corporation faults respondent bank, then known as First Summa Savings and Mortgage Bank, for requiring it to
put up as additional collateral the amount of P250,000.00 inasmuch as the CB never required it to do so. It added that
respondent bank took advantage of its urgent and immediate need at the time for the proceeds of the IGLF loans that it

26
had no choice but to comply with respondent banks requirement to put in time deposits the said amount as additional
collateral.
We agree with respondent court that the questioning of the propriety of the placing of the P250,000.00 in time
deposits32 with respondent bank as additional collateral was belatedly made. As above-discussed, the requirement to
give additional collateral was warranted because the collateral petitioner corporation put up failed to cover its IGLF
loans. If petitioner corporation was really bent on questioning the reasonableness of putting up the aforementioned
amount as additional collateral, it should have done immediately after it made the time deposits on 26 November 1981.
This, it did not do. It questioned the placing of the time deposits only on 08 February 1984 33 or long after defendant bank
had already demanded full payment of the loans, then amounting to P2,045,401.79 as of 22 November 1983. It is too
late in the day for petitioner corporation to question the placing of the P250,000.00 in time deposits after it failed to pay
its loan obligations as scheduled, making them due and demandable, and after a demand for full payment has been
made. We will not allow petitioner corporation to have ones cake and eat it too.
As regards the payments made by petitioner corporation, respondent court has this to say:
The trial court held, based on plaintiffs own exhibits, that plaintiff[s] made the following payments:
On Promissory Note No. 713:
Date
(Per PN Schedule)

Actual
Payment

Date

of Amount

July 6, 1981

August 3, 1981

P 28,125.00

October 6, 1981

October 28, 1981

28,836.13

January 6, 1982

January 22, 1982

29,227.38

March 17, 1983

225,905.79

TOTAL

P 312,094.30

And on Promissory Note No. 841:

Date
(Per PN Schedule)

Actual
Payment

Date

of

February 20, 1982

April 13, 1982

P 28,569.30

May 20, 1982

July 7, 1982

29,254.31

August 20, 1982

August 31, 1982

36,795.44

TOTAL

P 94,619.05

Amount

Plaintiff-appellant[s] does not dispute the finding, which is obvious from the foregoing summary, that plaintiff[s] stopped
payments on March 17, 1983 on Promissory Note No. 713, and on August 31, 1982 on Promissory Note No. 841.
By simply looking at the amortization schedule attached to the two promissory notes, it is clear that plaintiff[s] already
defaulted on its loan obligations when the defendant Bank gave notice of the foreclosure proceedings on April 28, 1984.
On amortization payments alone, plaintiff[s] should have paid a total of P459,339 as of April 6, 1984 on Promissory
[Note] No. 713, and a total of P328,173.00 as of February 20, 1984 on Promissory Note [No.] 841. No extended
computation is necessary to demonstrate that, even without imputing the liquidated damages equivalent to 2% a month
on the delayed payments (see second paragraph of the promissory notes), the plaintiffs were grossly deficient in
amortization payments, and already in default when the foreclosure proceedings were commenced. Further, we note
that under the terms of the promissory note, "failure to pay an installment when due shall entitle the bank or its assign
to declare all the obligations as immediately due and payable" (second paragraph). 34

27
As to the third assigned error, petitioners argue that there being no malice or bad faith on their part when they filed the
instant case, no damages should have been awarded to respondent bank.
We cannot sustain such argument. The presence of malice or bad faith is very evident in the case before us. By the
documents it executed, petitioner corporation was well aware that First Summa Savings and Mortgage Bank changed its
corporate name to PAIC Savings and Mortgage Bank, Inc. Despite knowledge that First Summa Savings and Mortgage
Bank and PAIC Savings and Mortgage Bank, Inc., are one and the same entity, it pretended otherwise. It used this
purported ignorance as an excuse to renege on its obligation to pay its loans after they became due and after demands
for payment were made, claiming that it never obtained the loans from respondent bank.
No good faith was shown by petitioner corporation. If it were in good faith in complying with its loan obligations since it
believed that respondent bank had no right to the payment, it should have made a valid consignation in court. This, it
did not do. If petitioner corporation were at a loss as to who should receive the payment, it could have easily taken steps
and inquired from the SEC, CB of the Philippines or from the bank itself from which it received the loans and to where it
made previous payments. Further, the fact that it was respondent bank that was demanding payment for loans already
due and demandable and not First Summa Savings and Mortgage Bank is sufficient to make petitioner corporation
wonder why this is so. It never took any initiative to clear the matter. Instead, it paid no attention to the valid demands
of respondent bank.
The awarding of actual and compensatory damages, as well as attorneys fees, is justified under the circumstances. We
quote with approval the reasons given by the RTC for the grant of the same:
Considering that Defendant Bank had been prevented at least four (4) times from foreclosing the mortgages (i.e.,
Temporary Restraining Orders of May 9 and 19 and October 22, 1984 and status quo order of December 10, 1990
enjoining the extrajudicial foreclosure sales of May 9 and 16 and October 23, 1984 and December 20, 1990,
respectively), it is proper that Defendant Bank be reimbursed its actual expenses. The amount of P40,000.00 is
reasonable reimbursement for the publication and other expenses incurred in the four (4) extrajudicial foreclosures
which were enjoined by the Court. Considering the wanton and reckless filing of this clearly unfounded and baseless
legal action and the fact that Defendant Bank had to defend itself against such suit, attorneys fees in the amount of
P50,000.00 should be paid by the Plaintiffs to the Defendant Bank. Defendant Bank failed to adduce indubitable proof on
the moral and exemplary damages that it seeks. Nevertheless, since such proof is not absolutely necessary and
primarily as an example for the public good to deter others from filing a similar clearly unfounded legal action,
Defendant Bank should be entitled to an award of exemplary damages. 35
This Court finds that petitioners failed to comply with what is incumbent upon them to pay their loans when they
became due. The lame excuse they belatedly advanced for their non-payment cannot and should not prevent
respondent bank from exercising its right to foreclose the real estate mortgages executed in its favor.
WHEREFORE, premises considered, the Court of Appeals decision dated 31 January 1997 and its resolution dated 20
June 1997 are hereby AFFIRMED in toto. Costs against petitioners.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

28
G.R. No. L-15429 December 1, 1919
UY SIULIONG, MARIANO LIMJAP, GACU UNG JIENG, EDILBERTO CALIXTO and UY CHO YEE, petitioners,
vs.
THE DIRECTOR OF COMMERCE AND INDUSTRY, respondent.
Kincaid and Perkins for petitioners. Attorney-General Paredes for respondent.
JOHNSON, J.:
The purpose of this action is to obtain the writ of mandamus to require the respondent to file and register, upon the
payment of the lawful fee, articles of incorporation, and to issue to the petitioners as the incorporators of a certain
corporation to be known as "Siuliong y Compaia, Inc.," a certificate under the seal of the office of said respondent,
certifying that the articles of incorporation have been duly filed and registered in his office in accordance with the law.
To the petition the respondent demurred and the cause was finally submitted upon the petition and demurrer.
The important facts necessary for the solution of the question presented, which are found in the petition, may be stated
as follows:
1. That prior to the presentation of the petition the petitioners had been associated together as partners, which
partnership was known as "mercantil regular colectiva, under the style and firm name of "Siuliong y Cia.;"
2. That the petitioners herein, who had theretofore been members of said partnership of "Siuliong y Cia.," desired to
dissolve said partnership and to form a corporation composed of the same persons as incorporators, to be known as
"Siulong y Compaia, Incorporada;"
3. That the purpose of said corporation, "Siuliong y Cia., Inc.," is (a) to acquire the business of the partnership
theretofore known as Siuliong & Co., and (b) to continue said business with some of its objects or purposes;
4. That an examination of the articles of incorporation of the said "Siuliong y Compaia, Incorporada" (Exhibit A) shows
that it is to be organized for the following purposes:
(a) The purchase and sale, importation and exportation, of the products of the country as well as of foreign countries;
(b) To discount promissory notes, bills of exchange, and other negotiable instruments;
(c) The purchase and sale of bills of exchange, bonds, stocks, or "participaciones de sociedades mercantiles e
industriales [joint account of mercantile and industrial associations]," and of all classes of mercantile documents;
"comisiones [commissions];" "consignaciones [consignments];"
(d) To act as agents for life, marine and fire insurance companies; lawphi1.net
(e) To purchase and sell boats of all classes "y fletamento de los mismos [and charterage of same];" and
(f) To purchase and sell industrial and mercantile establishments.
While the articles of incorporation of "Siuliong y Cia., Inc." states that its purpose is to acquire and continue the business,
with some of its objects or purposes, of Siuliong & Co., it will be found upon an examination of the purposes enumerated
in the proposed articles of incorporation of "Siuliong y Cia., Inc.," that some of the purposes of the original partnership of
"Siuliong y Cia." have been omitted. For example, the articles of partnership of "Siuliong y Cia." gave said company the
authority to purchase and sell all classes "de fincas rusticas y urbanas [of rural and city real estate]" as well as the right
to act as agents for the establishment of any other business which it might esteem convenient for the interests of "la
compaia [the company]." (Exhibit C).

29
The respondent in his argument in support of the demurrer contends (a) that the proposed articles of incorporation
presented for file and registry permitted the petitioners to engage in a business which had for its end more than one
purpose; (b) that it permitted the petitioners to engage in the banking business, and (c) to deal in real estate, in violation
of the Act of Congress of July 1, 1902.
The petitioners, in reply to said argument of the respondent, while insisting that said proposed articles of incorporation
do not permit it to enter into the banking business nor to engage in the purchase and sale of real estate in violation of
said Act of Congress, expressly renounced in open court their right to engage in such business under their articles of
incorporation, even though said articles might be interpreted in a way to authorize them to so to do. That renouncement
on the part of the petitioners eliminates from the purposes of said proposed corporation (of "Siuliong y Cia., Inc.") any
right to engage in the banking business as such, or in the purchase and sale of real estate.
We come now to the consideration of the principal question raised by the respondent, to wit: that the proposed articles
of incorporation of "Siuliong y Cia., Inc.," permits it to engage in a business with more than one purpose.
If upon an examination of the articles of incorporation we find that its purpose is to engage in a business with butone
principal purpose, then that contention of the respondent will have been answered and it will be unnecessary to discuss
at length the question whether or not a corporation organized for commercial purposes in the Philippine Islands can be
organized for more than one purpose.
The attorney for the respondent, at the time of the argument, admitted in open court that corporations in the Philippine
Islands might be organized for both the "importation and exportation" of merchandise and that there might be no
relation between the kind of merchandise imported with the class of merchandise exported.
Referring again to be proposed articles of incorporation, a copy of which is united with the original petition and marked
Exhibit A, it will be seen that the only purpose of said corporation are those enumerated in subparagraphs (a), (b), (c),
(d), (e) and ( f ) of paragraph 4 above. While said articles of incorporation are somewhat loosely drawn, it is clear from a
reading of the same that the principal purpose of said corporation is to engage in amercantile business, with the power
to do and perform the particular acts enumerated in said subparagraphs above referred to.
Without discussing or deciding at this time whether a corporation organized under the laws of the Philippine Islands may
be organized for more than one purpose, we are of the opinion and so decide that a corporation may be organized under
the laws of the Philippine Islands for mercantile purposes, and to engage in such incidental business as may be
necessary and advisable to give effect to, and aid in, the successful operation and conduct of the principal
business.1awphi1.net
In the present case we are fully persuaded that all of the power and authority included in the articles of incorporation of
"Siuliong y Cia., Inc.," enumerated above in paragraph 4 (Exhibit A) are only incidental to the principal purpose of said
proposed incorporation, to wit: "mercantile business." The purchase and sale, importation and exportation of the
products of the country, as well as of foreign countries, might make it necessary to purchase and discount promissory
notes, bills of exchange, bonds, negotiable instruments, stock, and interest in other mercantile and industrial
associations. It might also become important and advisable for the successful operation of the corporation to act as
agent for insurance companies as well as to buy, sell and equip boats and to buy and sell other establishments, and
industrial and mercantile businesses.
While we have arrived at the conclusion that the proposed articles of incorporation do not authorize the petitioners to
engage in a business with more than one purpose, we do not mean to be understood as having decided that
corporations under the laws of the Philippine Islands may not engage in a business with more than one purpose. Such an
interpretation might work a great injustice to corporations organized under the Philippine laws. Such an interpretation
would give foreign corporations, which are permitted to be registered under the laws here and which may be organized
for more than one purpose, a great advantage over domestic corporations. We do not believe that it was the intention of
the legislature to give foreign corporations such an advantage over domestic corporations.
Considering the particular purposes and objects of the proposed articles of incorporation which are specially enumerated
above, we are of the opinion that it contains nothing which violates in the slightest degree any of the provisions of the
laws of the Philippine Islands, and the petitioners are, therefore, entitled to have such articles of
incorporation filed and registered as prayed for by them and to have issued to them a certificate under the seal of the

30
office of the respondent, setting forth that such articles of incorporation have been duly filed in his office. (Sec. 11, Act
No. 1459.)
Therefore, the petition prayed for is hereby granted, and without any finding as to costs, it is so ordered.
Arellano, C.J., Torres and Avancea, JJ., concur.

G.R. No. 156819

December 11, 2003

ALICIA E. GALA, GUIA G. DOMINGO and RITA G. BENSON, petitioners,

vs.
ELLICE AGRO-INDUSTRIAL CORPORATION, MARGO MANAGEMENT AND DEVELOPMENT CORPORATION, RAUL
E. GALA, VITALIANO N. AGUIRRE II, ADNAN V. ALONTO, ELIAS N. CRESENCIO, MOISES S. MANIEGO, RODOLFO
B. REYNO, RENATO S. GONZALES, VICENTE C. NOLAN, NESTOR N. BATICULON,respondents.
YNARES-SANTIAGO, J.:
This is a petition for review under Rule 45 of the Rules of Court, seeking the reversal of the decision dated November 8,
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

31
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

32

Raul Gala

2,704.5

270,450.00

Ofelia Gala

980.8

98,080.00

Gina Domingo

516

51,600.00

Rita Benson

200.00

Virgilio Galeon

100.00

Julian Jader

100.00

Adnan Alonto

100.00

Elias Cresencio

100.00

TOTAL

50,000

P5,000,000.00

On June 23, 1990, a special stockholders meeting of Margo was held, where a new board of directors was
elected. 15 That same day, the newly-elected board elected a new set of officers. Raul Gala was elected as chairman,
president and general manager. During the meeting, the board approved several actions, including the commencement
of proceedings to annul certain dispositions of Margos property made by Alicia Gala. The board also resolved to change
the name of the corporation to MRG Management and Development Corporation. 16
Similarly, a special stockholders meeting of Ellice was held on August 24, 1990 to elect a new board of directors. In the
ensuing organizational meeting later that day, a new set of corporate officers was elected. Likewise, Raul Gala was
elected as chairman, president and general manager.
On March 27, 1990, respondents filed against petitioners with the Securities and Exchange Commission (SEC) a petition
for the appointment of a management committee or receiver, accounting and restitution by the directors and officers,
and the dissolution of Ellice Agro-Industrial Corporation for alleged mismanagement, diversion of funds, financial losses
and the dissipation of assets, docketed as SEC Case No. 3747. 17 The petition was amended to delete the prayer for the
appointment of a management committee or receiver and for the dissolution of Ellice. Additionally, respondents prayed
that they be allowed to inspect the corporate books and documents of Ellice. 18
In turn, petitioners initiated a complaint against the respondents on June 26, 1991, docketed as SEC Case No. 4027,
praying for, among others, the nullification of the elections of directors and officers of both Margo Management and
Development Corporation and Ellice Industrial Corporation; the nullification of all board resolutions issued by Margo from
June 23, 1990 up to the present and all board resolutions issued by Ellice from August 24, 1990 up to the present; and
the return of all titles to real property in the name of Margo and Ellice, as well as all corporate papers and records of both
Margo and Ellice which are in the possession and control of the respondents. 19
The two cases were consolidated in an Order dated November 23, 1993.

20

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

33
On November 3, 1998, the SEC rendered a Joint Decision in SEC Cases Nos. 3747 and 4027, the dispositive portion of
which states:
WHEREFORE, premises considered, judgment is hereby rendered, as follows:
1. Dismissing the petition in SEC Case No. 3747,
2. Issuing the following orders in SEC Case No. 4027;
(a) Enjoining herein respondents to perform corporate acts of both Ellice and Margo, as directors and officers thereof.
(b) Nullifying the election of the new sets of Board of Directors and Officers of Ellice and Margo from June 23, 1990 to the
present, and that of Ellice from August 24, 1990 to the present.
(c) Ordering the respondent Raul Gala to return all the titles of real properties in the names of Ellice and Margo which
were unlawfully taken and held by him.
(d) Directing the respondents to return to herein petitioners all corporate papers, records of both Ellice and Margo which
are in their possession and control.
SO ORDERED.

22

Respondents appealed to the SEC En Banc, which, on July 4, 2002, rendered its Decision, the decretal portion of which
reads:
WHEREFORE, the Decision of the Hearing Officer dated November 3, 1998 is hereby REVERSED and SET ASIDE and a
new one hereby rendered granting the appeal, upholding the Amended Petition in SEC Case No. 3747, and dismissing
the Petition with Prayer for Issuance of Preliminary Restraining Order and granting the Compulsory Counterclaim in SEC
Case No. 4027.
Accordingly, appellees Alicia Gala and Guia G. Domingo are ordered as follows:
(1) jointly and solidarily pay ELLICE and/or MARGO the amount of P700,000.00 representing the consideration for the
unauthorized sale of a parcel of land to Lucky Homes and Development Corporation (Exhs. "N" and "CCC");
(2) jointly and severally pay ELLICE and MARGO the proceeds of sales of agricultural products averaging P120,000.00 per
month from February 17, 1988;
(3) jointly and severally indemnify the appellants P90,000.00 as attorneys fees;
(4) jointly and solidarily pay the costs of suit;
(5) turn over to the individual appellants the corporate records of ELLICE and MARGO in their possession; and
(6) desist and refrain from interfering with the management of ELLICE and MARGO.
SO ORDERED.

23

Petitioners filed a petition for review with the Court of Appeals which dismissed the petition for review and affirmed the
decision of the SEC En Banc. 24
Hence, this petition, raising the following issues:
I
WHETHER OR NOT THE LOWER COURT ERRED IN NOT DECLARING AS ILLEGAL AND CONTRARY TO PUBLIC POLICY THE
PURPOSES AND MANNER IN WHICH RESPONDENT CORPORATIONS WERE ORGANIZED WHICH WERE, E.G. TO (1)
"PREVENT THE GALA ESTATE FROM BEING BROUGHT UNDER THE COVERAGE (SIC)" OF THE COMPREHENSIVE AGRARIAN
REFORM PROGRAM (CARP) AND (2) PURPORTEDLY FOR "ESTATE PLANNING."

34
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 NOTMAKING A DETERMINATION OF THE ISSUES OF FACTS AND
INSTEAD RITUALLY CITING THE FACTUAL FINDINGS OF THE COMMISSION A QUO WITHOUT DISCUSSION AND ANALYSIS;
III
WHETHER OR NOT THE LOWER COURT ERRED IN RULING THAT THE ORGANIZATION OF RESPONDENT CORPORATIONS
WAS NOT ILLEGAL FOR DEPRIVING PETITIONER RITA G. BENSON OF HER LEGITIME.
IV
WHETHER OR NOT THE LOWER COURT ERRED IN NOT PIERCING THE VEILS OF CORPORATE FICTION OF RESPONDENTS
CORPORATIONS ELLICE AND MARGO. 25
In essence, petitioners want this Court to disregard the separate juridical personalities of Ellice and Margo for the
purpose of treating all property purportedly owned by said corporations as property solely owned by the Gala spouses.
The petitioners first contention in support of this theory is that the purposes for which Ellice and Margo were organized
should be declared as illegal and contrary to public policy. They claim that the respondents never pursued exemption
from land reform coverage in good faith and instead merely used the corporations as tools to circumvent land reform
laws and to avoid estate taxes. Specifically, they point out that respondents have not shown that the transfers of the
land in favor of Ellice were executed in compliance with the requirements of Section 13 of R.A. 3844. 26 Furthermore, they
alleged that respondent corporations were run without any of the conventional corporate formalities. 27
At the outset, the Court holds that petitioners contentions impugning the legality of the purposes for which Ellice and
Margo were organized, amount to collateral attacks which are prohibited in this jurisdiction. 28
The best proof of the purpose of a corporation is its articles of incorporation and by-laws. The articles of incorporation
must state the primary and secondary purposes of the corporation, while the by-laws outline the administrative
organization of the corporation, which, in turn, is supposed to insure or facilitate the accomplishment of said purpose. 29
In the case at bar, a perusal of the Articles of Incorporation of Ellice and Margo shows no sign of the allegedly illegal
purposes that petitioners are complaining of. It is well to note that, if a corporations purpose, as stated in the Articles of
Incorporation, is lawful, then the SEC has no authority to inquire whether the corporation has purposes other than those
stated, and mandamus will lie to compel it to issue the certificate of incorporation. 30
Assuming there was even a grain of truth to the petitioners claims regarding the legality of what are alleged to be the
corporations true purposes, we are still precluded from granting them relief. We cannot address here their concerns
regarding circumvention of land reform laws, for the doctrine of primary jurisdiction precludes a court from arrogating
unto itself the authority to resolve a controversy the jurisdiction over which is initially lodged with an administrative body
of special competence.31 Since primary jurisdiction over any violation of Section 13 of Republic Act No. 3844 that may
have been committed is vested in the Department of Agrarian Reform Adjudication Board (DARAB), 32 then it is with said
administrative agency that the petitioners must first plead their case. With regard to their claim that Ellice and Margo
were meant to be used as mere tools for the avoidance of estate taxes, suffice it say that the legal right of a taxpayer to
reduce the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits,
cannot be doubted. 33
The petitioners allegation that Ellice and Margo were run without any of the typical corporate formalities, even if true,
would not merit the grant of any of the relief set forth in their prayer. We cannot disregard the corporate entities of Ellice
and Margo on this ground. At most, such allegations, if proven to be true, should be addressed in an administrative case
before the SEC. 34
Thus, even if Ellice and Margo were organized for the purpose of exempting the properties of the Gala spouses from the
coverage of land reform legislation and avoiding estate taxes, we cannot disregard their separate juridical personalities.
Next, petitioners make much of the fact that the Court of Appeals promulgated its assailed Decision a mere two days
from the time the respondents filed their Comment. They alleged that the appellate court could not have made a
deliberate study of the factual questions in the case, considering the sheer volume of evidence available. 35 In support of
this allegation, they point out that the Court of Appeals merely adopted the factual findings of the SEC En Banc
verbatim, without deliberation and analysis. 36

35
In People v. Mercado, 37 we ruled that the speed with which a lower court disposes of a case cannot thus be attributed to
the injudicious performance of its function. Indeed, magistrates are not supposed to study a case only after all the
pertinent pleadings have been filed. It is a mark of diligence and devotion to duty that jurists study a case long before
the deadline set for the promulgation of their decision has arrived. The two-day period between the filing of petitioners
Comment and the promulgation of the decision was sufficient time to consider their arguments and to incorporate these
in the decision. As long as the lower court does not sacrifice the orderly administration of justice in favor of a speedy but
reckless disposition of a case, it cannot be taken to task for rendering its decision with due dispatch. The Court of
Appeals in this intra-corporate controversy committed no reversible error and, consequently, its decision should be
affirmed. 38 Verily, if such swift disposition of a case is considered a non-issue in cases where the life or liberty of a
person is at stake, then we see no reason why the same principle cannot apply when only private rights are involved.
Furthermore, well-settled is the rule that the factual findings of the Court of Appeals are conclusive on the parties and
are not reviewable by the Supreme Court. They carry even more weight when the Court of Appeals affirms the factual
findings of a lower fact-finding body. 39 Likewise, the findings of fact of administrative bodies, such as the SEC, will not be
interfered with by the courts in the absence of grave abuse of discretion on the part of said agencies, or unless the
aforementioned findings are not supported by substantial evidence. 40
However, in the interest of equity, this Court has reviewed the factual findings of the SEC En Banc, which were
affirmed in toto by the Court of Appeals, and has found no cogent reason to disturb the same. Indeed, we are convinced
that the arguments raised by the petitioners are nothing but unwarranted conclusions of law. Specifically, they insist that
the Gala spouses never meant to part with the ownership of the shares which are in the names of their children
and encargados, and that all transfers of property to these individuals are supposedly void for being absolutely
simulated for lack of consideration.41 However, as correctly held by the SEC En Banc, the transfers were only relatively
simulated, inasmuch as the evident intention of the Gala spouses was to donate portions of their property to their
children and encargados. 42
In an attempt to bolster their theory that the organization of the respondent corporations was illegal, the petitioners aver
that the legitime pertaining to petitioners Rita G. Benson and Guia G. Domingo from the estate of their father had been
subject to unwarranted reductions as a result thereof. In sum, they claim that stockholdings in Ellice which the late
Manuel Gala had assigned to them were insufficient to cover their legitimes, since Benson was only given two shares
while Domingo received only sixteen shares out of a total number of 35,000 issued shares. 43
Moreover, the reliefs sought by petitioners should have been raised in a proceeding for settlement of estate, rather than
in the present intra-corporate controversy. If they are genuinely interested in securing that part of their late fathers
property which has been reserved for them in their capacity as compulsory heirs, then they should simply exercise
their actio ad supplendam legitimam, or their right of completion of legitime. 44 Such relief must be sought during the
distribution and partition stage of a case for the settlement of the estate of Manuel Gala, filed before a court which has
taken jurisdiction over the settlement of said estate. 45
Finally, the petitioners pray that the veil of corporate fiction that shroud both Ellice and Margo be pierced, consistent
with their earlier allegation that both corporations were formed for purposes contrary to law and public policy. In sum,
they submit that the respondent corporations are mere business conduits of the deceased Manuel Gala and thus may be
disregarded to prevent injustice, the distortion or hiding of the truth or the "letting in" of a just defense. 46
However, to warrant resort to the extraordinary remedy of piercing the veil of corporate fiction, there must be proof that
the corporation is being used as a cloak or cover for fraud or illegality, or to work injustice, 47 and the petitioners have
failed to prove that Ellice and Margo were being used thus. They have not presented any evidence to show how the
separate juridical entities of Ellice and Margo were used by the respondents to commit fraudulent, illegal or unjust acts.
Hence, this contention, too, must fail.
On June 5, 2003, the petitioners filed a Reply, where, aside from reiterating the contentions raised in their Petition, they
averred that there is no proof that either capital gains taxes or documentary stamp taxes were paid in the series of
transfers of Ellice and Margo shares. Thus, they invoke Sections 176 and 201 of the National Internal Revenue Code,
which would bar the presentation or admission into evidence of any document that purports to transfer any benefit
derived from certificates of stock if the requisite documentary stamps have not been affixed thereto and cancelled.
Curiously, the petitioners never raised this issue before the SEC Hearing Officer, the SEC En Banc or the Court of
Appeals. Thus, we are precluded from passing upon the same for, as a rule, no question will be entertained on appeal
unless it has been raised in the court below, for points of law, theories, issues and arguments not brought to the
attention of the lower court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot be
raised for the first time at that late stage. Basic considerations of due process impel this rule. 48Furthermore, 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,

36
a corporations financial status and other matters, including ones status as a stockholder. Most importantly, these books
and records are, ordinarily, the best evidence of corporate acts and proceedings. 49 Thus, reference to these should have
been made before the SEC Hearing Officer, for this Court will not entertain this belated questioning of the evidence now.
It is always sad to see families torn apart by money matters and property disputes. 1wphi1 The concept of a close
corporation organized for the purpose of running a family business or managing family property has formed the
backbone of Philippine commerce and industry. Through this device, Filipino families have been able to turn their
humble, hard-earned life savings into going concerns capable of providing them and their families with a modicum of
material comfort and financial security as a reward for years of hard work. A family corporation should serve as a rallying
point for family unity and prosperity, not as a flashpoint for familial strife. It is hoped that people reacquaint themselves
with the concepts of mutual aid and security that are the original driving forces behind the formation of family
corporations and use these tenets in order to facilitate more civil, if not more amicable, settlements of family corporate
disputes.
WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated November 8, 2002 and the Resolution
dated December 27, 2002, both of the Court of Appeals, are AFFIRMED. Costs against petitioners.
SO ORDERED.
Davide, Jr., C.J., Panganiban, Carpio, and Azcuna, JJ., concur.

G.R. No. L-23606

July 29, 1968

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

vs.
SECURITIES & EXCHANGE COMMISSION, respondent.
Gamboa and Gamboa for petitioner. Office of the Solicitor General for respondent.
SANCHEZ, J.:
To the question May a corporation extend its life by amendment of its articles of incorporation effected during the
three-year statutory period for liquidation when its original term of existence had already expired? the answer of the
Securities and Exchange Commissioner was in the negative. Offshoot is this appeal.
That problem emerged out of the following controlling facts:
Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc. (hereinafter referred to simply asAlhambra) was
duly incorporated under Philippine laws on January 15, 1912. By its corporate articles it was to exist for fifty (50) years
from incorporation. Its term of existence expired on January 15, 1962. On that date, it ceased transacting business,
entered into a state of liquidation.
Thereafter, a new corporation. Alhambra Industries, Inc. was formed to carry on the business of Alhambra.
On May 1, 1962, Alhambra's stockholders, by resolution named Angel S. Gamboa trustee to take charge of its liquidation.
On June 20, 1963 within Alhambra's three-year statutory period for liquidation - Republic Act 3531 was enacted into
law. It amended Section 18 of the Corporation Law; it empowered domestic private corporations to extend their
corporate life beyond the period fixed by the articles of incorporation for a term not to exceed fifty years in any one
instance. Previous to Republic Act 3531, the maximum non-extendible term of such corporations was fifty years.

37
On July 15, 1963, at a special meeting, Alhambra's board of directors resolved to amend paragraph "Fourth" of its
articles of incorporation to extend its corporate life for an additional fifty years, or a total of 100 years from its
incorporation.
On August 26, 1963, Alhambra's stockholders, representing more than two-thirds of its subscribed capital stock, voted to
approve the foregoing resolution. The "Fourth" paragraph of Alhambra's articles of incorporation was thus altered to
read:
FOURTH. That the term for which said corporation is to exist is fifty (50) years from and after the date of
incorporation, and for an additional period of fifty (50) years thereafter.
On October 28, 1963, Alhambra's articles of incorporation as so amended certified correct by its president and secretary
and a majority of its board of directors, were filed with respondent Securities and Exchange Commission (SEC).
On November 18, 1963, SEC, however, returned said amended articles of incorporation to Alhambra's counsel with the
ruling that Republic Act 3531 "which took effect only on June 20, 1963, cannot be availed of by the said corporation, for
the reason that its term of existence had already expired when the said law took effect in short, said law has no
retroactive effect."
On December 3, 1963, Alhambra's counsel sought reconsideration of SEC's ruling aforesaid, refiled the amended articles
of incorporation.
On September 8, 1964, SEC, after a conference hearing, issued an order denying the reconsideration sought.
Alhambra now invokes the jurisdiction of this Court to overturn the conclusion below. 1
1. Alhambra relies on Republic Act 3531, which amended Section 18 of the Corporation Law. Well it is to take note of the
old and the new statutes as they are framed. Section 18, prior to and after its modification by Republic Act 3531, covers
the subject of amendment of the articles of incorporation of private corporations. A provision thereof which remains
unaltered is that a corporation may amend its articles of incorporation "by a majority vote of its board of directors or
trustees and ... by the vote or written assent of the stockholders representing at least two-thirds of the subscribed
capital stock ... "
But prior to amendment by Republic Act 3531, an explicit prohibition existed in Section 18, thus:
... Provided, however, That the life of said corporation shall not be extended by said amendment beyond the
time fixed in the original articles: ...
This was displaced by Republic Act 3531 which enfranchises all private corporations to extend their corporate existence.
Thus incorporated into the structure of Section 18 are the following:
... Provided, however, That should the amendment consist in extending the corporate life, the extension shall not
exceed fifty years in any one instance: Provided, further, That the original articles, and amended articles
together shall contain all provisions required by law to be set out in the articles of incorporation: ...
As we look in retrospect at the facts, we find these: From July 15 to October 28, 1963, when Alhambra made its attempt
to extend its corporate existence, its original term of fifty years had already expired (January 15, 1962); it was in the
midst of the three-year grace period statutorily fixed in Section 77 of the Corporation Law, thus: .
SEC. 77. Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise,
or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be
continued as a body corporate for three years after the time when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its
affairs, to dispose of and convey its property and to divide its capital stock, but not for the purpose of continuing
the business for which it was established. 2

38
Plain from the language of the provision is its meaning: continuance of a "dissolved" corporation as a body corporate for
three years has for its purpose the final closure of its affairs, and no other; the corporation is specifically enjoined from
"continuing the business for which it was established". The liquidation of the corporation's affairs set forth in Section 77
became necessary precisely because its life had ended. For this reason alone, the corporate existence and juridical
personality of that corporation to do business may no longer be extended.
Worth bearing in mind, at this juncture, is the basic development of corporation law.
The common law rule, at the beginning, was rigid and inflexible in that upon its dissolution, a corporation became legally
dead for all purposes. Statutory authorizations had to be provided for its continuance after dissolution "for limited and
specified purposes incident to complete liquidation of its affairs". 3 Thus, the moment a corporation's right to exist as an
"artificial person" ceases, its corporate powers are terminated "just as the powers of a natural person to take part in
mundane affairs cease to exist upon his death". 4 There is nothing left but to conduct, as it were, the settlement of the
estate of a deceased juridical person.
2. Republic Act 3531, amending Section 18 of the Corporation Law, is silent, it is true, as to when such act of extension
may be made. But even with a superficial knowledge of corporate principles, it does not take much effort to reach a
correct conclusion. For, implicit in Section 77 heretofore quoted is that the privilege given to prolong corporate life under
the amendment must be exercised before the expiry of the term fixed in the articles of incorporation.
Silence of the law on the matter is not hard to understand. Specificity is not really necessary. The authority to prolong
corporate life was inserted by Republic Act 3531 into a section of the law that deals with the power of a corporation
to amend its articles of incorporation. (For, the manner of prolongation is through an amendment of the articles.) And it
should be clearly evident that under Section 77 no corporation in a state of liquidation can act in any way, much
less amend its articles, "for the purpose of continuing the business for which it was established".
All these dilute Alhambra's position that it could revivify its corporate life simply because when it attempted to do so,
Alhambra was still in the process of liquidation. It is surely impermissible for us to stretch the law that merely
empowers a corporation to act in liquidation to inject therein the power to extend its corporate existence.
3. Not that we are alone in this view. Fletcher has written: "Since the privilege of extension is purely statutory, all of the
statutory conditions precedent must be complied with in order that the extension may be effectuated. And, generally
these conditions must be complied with, and the steps necessary to effect the extension must be taken, during the life of
the corporation, and before the expiration of the term of existence as original fixed by its charter or the general law,
since, as a rule, the corporation is ipso facto dissolved as soon as that time expires. So where the extension is by
amendment of the articles of incorporation, the amendment must be adopted before that time. And, similarly, the filing
and recording of a certificate of extension after that time cannot relate back to the date of the passage of a resolution by
the stockholders in favor of the extension so as to save the life of the corporation. The contrary is true, however, and the
doctrine of relation will apply, where the delay is due to the neglect of the officer with whom the certificate is required to
be filed, or to a wrongful refusal on his part to receive it. And statutes in some states specifically provide that a renewal
may be had within a specified time before or after the time fixed for the termination of the corporate existence". 5
The logic of this position is well expressed in a foursquare case decided by the Court of Appeals of Kentucky. 6There,
pronouncement was made as follows:
... But section 561 (section 2147) provides that, when any corporation expires by the terms of its articles of
incorporation, it may be thereafter continued to act for the purpose of closing up its business, but for no other
purpose. The corporate life of the Home Building Association expired on May 3, 1905. After that date, by the
mandate of the statute, it could continue to act for the purpose of closing up its business, but for no other
purpose. The proposed amendment was not made until January 16, 1908, or nearly three years after the
corporation expired by the terms of the articles of incorporation. When the corporate life of the corporation was
ended, there was nothing to extend. Here it was proposed nearly three years after the corporate life of the
association had expired to revivify the dead body, and to make that relate back some two years and eight
months. In other words, the association for two years and eight months had only existed for the purpose of
winding up its business, and, after this length of time, it was proposed to revivify it and make it a live corporation
for the two years and eight months daring which it had not been such.

39
The law gives a certain length of time for the filing of records in this court, and provides that the time may be
extended by the court, but under this provision it has uniformly been held that when the time was expired, there
is nothing to extend, and that the appeal must be dismissed... So, when the articles of a corporation have
expired, it is too late to adopt an amendment extending the life of a corporation; for, the corporation having
expired, this is in effect to create a new corporation ..."7
True it is, that the Alabama Supreme Court has stated in one case. 8 that a corporation empowered by statute torenew its
corporate existence may do so even after the expiration of its corporate life, provided renewal is taken advantage of
within the extended statutory period for purposes of liquidation. That ruling, however, is inherently weak as persuasive
authority for the situation at bar for at least two reasons: First. That case was a suit for mandamus to compel a former
corporate officer to turn over books and records that came into his possession and control by virtue of his office. It was
there held that such officer was obliged to surrender his books and records even if the corporation had already expired.
The holding on the continued existence of the corporation was a mere dictum. Second. Alabama's law is different.
Corporations in that state were authorized not only to extend but also to renew their corporate existence.That very
case defined the word "renew" as follows; "To make new again; to restore to freshness; to make new spiritually; to
regenerate; to begin again; to recommence; to resume; to restore to existence, to revive; to re-establish; to recreate; to
replace; to grant or obtain an extension of Webster's New International Dict.; 34 Cyc. 1330; Carter v. Brooklyn Life Ins.
Co., 110 N.Y. 15, 21, 22, 17 N.E. 396; 54 C.J. 379. Sec". 9
On this point, we again draw from Fletcher: "There is a broad distinction between the extension of a charter and the
grant of a new one. To renew a charter is to revive a charter which has expired, or, in other words, "to give a new
existence to one which has been forfeited, or which has lost its vitality by lapse of time". To "extend" a charter is "to
increase the time for the existence of one which would otherwise reach its limit at an earlier period". 10Nowhere in our
statute Section 18, Corporation Law, as amended by Republic Act 3531 do we find the word "renew" in reference to
the authority given to corporations to protract their lives. Our law limits itself to extensionof corporate existence. And, as
so understood, extension may be made only before the term provided in the corporate charter expires.
Alhambra draws attention to another case 11 which declares that until the end of the extended period for liquidation, a
dissolved corporation "does not become an extinguished entity". But this statement was obviously lifted out of context.
That case dissected the question whether or not suits can be commenced by or against a corporation within its
liquidation period. Which was answered in the affirmative. For, the corporation still exists for the settlement of its affairs.
People, ex rel. vs. Green,12 also invoked by Alhambra, is as unavailing. There, although the corporation amended its
articles to extend its existence at a time when it had no legal authority yet, it adopted the amended articles later on
when it had the power to extend its life and during its original term when it could amend its articles.
The foregoing notwithstanding, Alhambra falls back on the contention that its case is arguably within the purview of the
law. It says that before cessation of its corporate life, it could not have extended the same, for the simple reason that
Republic Act 3531 had not then become law. It must be remembered that Republic Act 3531 took effect on June 20,
1963, while the original term of Alhambra's existence expired before that date on January 15, 1962. The mischief that
flows from this theory is at once apparent. It would certainly open the gates for all defunct corporations whose
charters have expired even long before Republic Act 3531 came into being to resuscitate their corporate existence.
4. Alhambra brings into argument Republic Act 1932, which amends Section 196 of the Insurance Act, now reading as
follows: 1wph1.t
SEC. 196. Any provision of law to the contrary notwithstanding, every domestic life insurance corporation,
formed for a limited period under the provisions of its articles of incorporation, may extend its corporate
existence for a period not exceeding fifty years in any one instance by amendment to its articles of incorporation
on or before the expiration of the term so fixed in said articles ...
To be observed is that the foregoing statute unlike Republic Act 3531 expressly authorizes domestic insurance
corporations to extend their corporate existence "on or before the expiration of the term" fixed in their articles of
incorporation. Republic Act 1932 was approved on June 22, 1957, long before the passage of Republic Act 3531 in 1963.
Congress, Alhambra points out, must have been aware of Republic Act 1932 when it passed Republic Act 3531. Since the
phrase "on or before", etc., was omitted in Republic Act 3531, which contains no similar limitation, it follows, according
to Alhambra, that it is not necessary to extend corporate existence on or before the expiration of its original term.

40
That Republic Act 3531 stands mute as to when extention of corporate existence may be made, assumes no relevance.
We have already said, in the face of a familiar precept, that a defunct corporation is bereft of any legal faculty not
otherwise expressly sanctioned by law.
Illuminating here is the explanatory note of H.B. 1774, later Republic Act 3531 now in dispute. Its first paragraph
states that "Republic Act No. 1932 allows the automatic extension of the corporate existence of domestic life insurance
corporations upon amendment of their articles of incorporation on or before the expiration of the terms fixed by said
articles". The succeeding lines are decisive: "This is a good law, a sane and sound one. There appears to be no valid
reason why it should not be made to apply to other private corporations.13
The situation here presented is not one where the law under consideration is ambiguous, where courts have to put in
harness extrinsic aids such as a look at another statute to disentangle doubts. It is an elementary rule in legal
hermeneutics that where the terms of the law are clear, no statutory construction may be permitted. Upon the basic
conceptual scheme under which corporations operate, and with Section 77 of the Corporation Law particularly in mind,
we find no vagueness in Section 18, as amended by Republic Act 3531. As we view it, by directing attention to Republic
Act 1932, Alhambra would seek to create obscurity in the law; and, with that, ask of us a ruling that such obscurity be
explained. This, we dare say, cannot be done.
The pari materia rule of statutory construction, in fact, commands that statutes must be harmonized with each
other.14 So harmonizing, the conclusion is clear that Section 18 of the Corporation Law, as amended by Republic Act 3531
in reference to extensions of corporate existence, is to be read in the same light as Republic Act 1932. Which means that
domestic corporations in general, as with domestic insurance companies, can extend corporate existence only on or
before the expiration of the term fixed in their charters.
5. Alhambra pleads for munificence in interpretation, one which brushes technicalities aside. Bases for this posture are
that Republic Act 3531 is a remedial statute, and that extension of corporate life is beneficial to the economy.
Alhambra's stance does not induce assent. Expansive construction is possible only when there is something to expand.
At the time of the passage of Republic Act 3531, Alhambra's corporate life had already expired. It had overstepped the
limits of its limited existence. No life there is to prolong.
Besides, a new corporation Alhambra Industries, Inc., with but slight change in stockholdings 15 has already been
established. Its purpose is to carry on, and it actually does carry on, 16 the business of the dissolved entity. The beneficialeffects argument is off the mark.
The way the whole case shapes up then, the only possible drawbacks of Alhambra might be that, instead of the new
corporation (Alhambra Industries, Inc.) being written off, the old one (Alhambra Cigar & Cigarette Manufacturing
Company, Inc.) has to be wound up; and that the old corporate name cannot be retained fully in its exact form. 17 What is
important though is that the word Alhambra, the name that counts [it has goodwill], remains.
FOR THE REASONS GIVEN, the ruling of the Securities and Exchange Commission of November 18, 1963, and its order of
September 8, 1964, both here under review, are hereby affirmed.
Costs against petitioner Alhambra Cigar & Cigarette Manufacturing Company, Inc. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Angeles and Fernando, JJ., concur.

41

G.R. No. 148830. April 13, 2005

NATIONAL HOUSING AUTHORITY, Petitioners,
vs.
COURT OF APPEALS, BULACAN GARDEN CORPORATION and MANILA SEEDLING BANK FOUNDATION,
INC., Respondents.
CARPIO, J.:
This is a petition for review1 seeking to set aside the Decision 2 dated 30 March 2001 of the Court of Appeals ("appellate
court") in CA-G.R. CV No. 48382, as well as its Resolution dated 25 June 2001 denying the motion for reconsideration.
The appellate court reversed the Decision3 of Branch 87 of the Regional Trial Court of Quezon City ("trial court") dated 8
March 1994 in Civil Case No. Q-53464. The trial court dismissed the complaint for injunction filed by Bulacan Garden
Corporation ("BGC") against the National Housing Authority ("NHA"). BGC wanted to enjoin the NHA from demolishing
BGCs facilities on a lot leased from Manila Seedling Bank Foundation, Inc. ("MSBF"). MSBF allegedly has usufructuary
rights over the lot leased to BGC.
Antecedent Facts
On 24 October 1968, Proclamation No. 481 issued by then President Ferdinand Marcos set aside a 120-hectare portion of
land in Quezon City owned by the NHA4 as reserved property for the site of the National Government Center ("NGC"). On
19 September 1977, President Marcos issued Proclamation No. 1670, which removed a seven-hectare portion from the
coverage of the NGC. Proclamation No. 1670 gave MSBF usufructuary rights over this segregated portion, as follows:
Pursuant to the powers vested in me by the Constitution and the laws of the Philippines, I, FERDINAND E. MARCOS,
President of the Republic of the Philippines, do hereby exclude from the operation of Proclamation No. 481, dated
October 24, 1968, which established the National Government Center Site, certain parcels of land embraced therein and
reserving the same for the Manila Seedling Bank Foundation, Inc., for use in its operation and projects, subject to
private rights if any there be, and to future survey, under the administration of the Foundation.
This parcel of land, which shall embrace 7 hectares, shall be determined by the future survey based on the
technical descriptions found in Proclamation No. 481, and most particularly on the original survey of the area, dated July
1910 to June 1911, and on the subdivision survey dated April 19-25, 1968. (Emphasis added)
MSBF occupied the area granted by Proclamation No. 1670. Over the years, MSBFs occupancy exceeded the sevenhectare area subject to its usufructuary rights. By 1987, MSBF occupied approximately 16 hectares. By then the land
occupied by MSBF was bounded by Epifanio de los Santos Avenue ("EDSA") to the west, Agham Road to the east, Quezon
Avenue to the south and a creek to the north.
On 18 August 1987, MSBF leased a portion of the area it occupied to BGC and other stallholders. BGC leased the portion
facing EDSA, which occupies 4,590 square meters of the 16-hectare area.
On 11 November 1987, President Corazon Aquino issued Memorandum Order No. 127 ("MO 127") which revoked the
reserved status of "the 50 hectares, more or less, remaining out of the 120 hectares of the NHA property reserved as site

42
of the National Government Center." MO 127 also authorized the NHA to commercialize the area and to sell it to the
public.
On 15 August 1988, acting on the power granted under MO 127, the NHA gave BGC ten days to vacate its occupied area.
Any structure left behind after the expiration of the ten-day period will be demolished by NHA.
BGC then filed a complaint for injunction on 21 April 1988 before the trial court. On 26 May 1988, BGC amended its
complaint to include MSBF as its co-plaintiff.
The Trial Courts Ruling
The trial court agreed with BGC and MSBF that Proclamation No. 1670 gave MSBF the right to conduct the survey, which
would establish the seven-hectare area covered by MSBFs usufructuary rights. However, the trial court held that MSBF
failed to act seasonably on this right to conduct the survey. The trial court ruled that the previous surveys conducted by
MSBF covered 16 hectares, and were thus inappropriate to determine the seven-hectare area. The trial court concluded
that to allow MSBF to determine the seven-hectare area now would be grossly unfair to the grantor of the usufruct.
On 8 March 1994, the trial court dismissed BGCs complaint for injunction. Thus:
Premises considered, the complaint praying to enjoin the National Housing Authority from carrying out the demolition of
the plaintiffs structure, improvements and facilities in the premises in question is hereby DISMISSED, but the suggestion
for the Court to rule that Memorandum Order 127 has repealed Proclamation No. 1670 is DENIED. No costs.
SO ORDERED.5
The NHA demolished BGCs facilities soon thereafter.
The Appellate Courts Ruling
Not content with the trial courts ruling, BGC appealed the trial courts Decision to the appellate court. Initially, the
appellate court agreed with the trial court that Proclamation No. 1670 granted MSBF the right to determine the location
of the seven-hectare area covered by its usufructuary rights. However, the appellate court ruled that MSBF did in fact
assert this right by conducting two surveys and erecting its main structures in the area of its choice.
On 30 March 2001, the appellate court reversed the trial courts ruling. Thus:
WHEREFORE, premises considered, the Decision dated March 8, 1994 of the Regional Trial Court of Quezon City, Branch
87, is hereby REVERSED and SET ASIDE. The National Housing Authority is enjoined from demolishing the structures,
facilities and improvements of the plaintiff-appellant Bulacan Garden Corporation at its leased premises located in
Quezon City which premises were covered by Proclamation No. 1670, during the existence of the contract of lease it
(Bulacan Garden) had entered with the plaintiff-appellant Manila Seedling Bank Foundation, Inc.
No costs.
SO ORDERED.6
The NHA filed a motion for reconsideration, which was denied by the appellate court on 25 June 2001.
Hence, this petition.
The Issues
The following issues are considered by this Court for resolution:
WHETHER THE PETITION IS NOW MOOT BECAUSE OF THE DEMOLITION OF THE STRUCTURES OF BGC; and

43
WHETHER THE PREMISES LEASED BY BGC FROM MSBF IS WITHIN THE SEVEN-HECTARE AREA THAT PROCLAMATION NO.
1670 GRANTED TO MSBF BY WAY OF USUFRUCT.
The Ruling of the Court
We remand this petition to the trial court for a joint survey to determine finally the metes and bounds of the sevenhectare area subject to MSBFs usufructuary rights.
Whether the Petition is Moot because of the
Demolition of BGCs Facilities
BGC claims that the issue is now moot due to NHAs demolition of BGCs facilities after the trial court dismissed BGCs
complaint for injunction. BGC argues that there is nothing more to enjoin and that there are no longer any rights left for
adjudication.
We disagree.
BGC may have lost interest in this case due to the demolition of its premises, but its co-plaintif, MSBF, has not. The
issue for resolution has a direct effect on MSBFs usufructuary rights. There is yet the central question of the exact
location of the seven-hectare area granted by Proclamation No. 1670 to MSBF. This issue is squarely raised in this
petition. There is a need to settle this issue to forestall future disputes and to put this 20-year litigation to rest.
On the Location of the Seven-Hectare Area Granted by
Proclamation No. 1670 to MSBF as Usufructuary
Rule 45 of the 1997 Rules of Civil Procedure limits the jurisdiction of this Court to the review of errors of law. 7Absent any
of the established grounds for exception, 8 this Court will not disturb findings of fact of lower courts. Though the matter
raised in this petition is factual, it deserves resolution because the findings of the trial court and the appellate court
conflict on several points.
The entire area bounded by Agham Road to the east, EDSA to the west, Quezon Avenue to the south and by a creek to
the north measures approximately 16 hectares. Proclamation No. 1670 gave MSBF a usufruct over only a seven-hectare
area. The BGCs leased portion is located along EDSA.
A usufruct may be constituted for a specified term and under such conditions as the parties may deem convenient
subject to the legal provisions on usufruct. 9 A usufructuary may lease the object held in usufruct. 10 Thus, the NHA may
not evict BGC if the 4,590 square meter portion MSBF leased to BGC is within the seven-hectare area held in usufruct by
MSBF. The owner of the property must respect the lease entered into by the usufructuary so long as the usufruct
exists.11 However, the NHA has the right to evict BGC if BGC occupied a portion outside of the seven-hectare area
covered by MSBFs usufructuary rights.
MSBFs survey shows that BGCs stall is within the seven-hectare area. On the other hand, NHAs survey shows
otherwise. The entire controversy revolves on the question of whose land survey should prevail.
MSBFs survey plots the location of the seven-hectare portion by starting its measurement from Quezon Avenue going
northward along EDSA up until the creek, which serves as the northern boundary of the land in question. Mr. Ben Malto
("Malto"), surveyor for MSBF, based his survey method on the fact that MSBFs main facilities are located within this
area.
On the other hand, NHAs survey determines the seven-hectare portion by starting its measurement from Quezon
Avenue going towards Agham Road. Mr. Rogelio Inobaya ("Inobaya"), surveyor for NHA, based his survey method on the
fact that he saw MSBFs gate fronting Agham Road.
BGC presented the testimony of Mr. Lucito M. Bertol ("Bertol"), General Manager of MSBF. Bertol presented a
map,12 which detailed the area presently occupied by MSBF. The map had a yellow-shaded portion, which was supposed

44
to indicate the seven-hectare area. It was clear from both the map and Bertols testimony that MSBF knew that it had
occupied an area in excess of the seven-hectare area granted by Proclamation No. 1670. 13Upon cross-examination,
Bertol admitted that he personally did not know the exact boundaries of the seven-hectare area. 14 Bertol also admitted
that MSBF prepared the map without consulting NHA, the owner of the property. 15
BGC also presented the testimony of Malto, a registered forester and the Assistant Vice-President of Planning, Research
and Marketing of MSBF. Malto testified that he conducted the land survey, which was used to construct the map
presented by Bertol.16 Bertol clarified that he authorized two surveys, one in 1984 when he first joined MSBF, and the
other in 1986.17 In both instances, Mr. Malto testified that he was asked to survey a total of 16 hectares, not just seven
hectares. Malto testified that he conducted the second survey in 1986 on the instruction of MSBFs general manager.
According to Malto, it was only in the second survey that he was told to determine the seven-hectare portion. Malto
further clarified that he based the technical descriptions of both surveys on a previously existing survey of the property. 18
The NHA presented the testimony of Inobaya, a geodetic engineer employed by the NHA. Inobaya testified that as part of
the NHAs Survey Division, his duties included conducting surveys of properties administered by the NHA. 19 Inobaya
conducted his survey in May 1988 to determine whether BGC was occupying an area outside the seven-hectare area
MSBF held in usufruct.20 Inobaya surveyed the area occupied by MSBF following the same technical descriptions used by
Malto. Inobaya also came to the same conclusion that the area occupied by MSBF, as indicated by the boundaries in the
technical descriptions, covered a total of 16 hectares. He further testified that the seven-hectare portion in the map
presented by BGC,21 which was constructed by Malto, does not tally with the boundaries BGC and MSBF indicated in their
complaint.
Article 565 of the Civil Code states:
ART. 565. The rights and obligations of the usufructuary shall be those provided in the title constituting the usufruct; in
default of such title, or in case it is deficient, the provisions contained in the two following Chapters shall be observed.
In the present case, Proclamation No. 1670 is the title constituting the usufruct. Proclamation No. 1670 categorically
states that the seven-hectare area shall be determined "by future survey under the administration of the Foundation
subject to private rights if there be any." The appellate court and the trial court agree that MSBF has the latitude to
determine the location of its seven-hectare usufruct portion within the 16-hectare area. The appellate court and the trial
court disagree, however, whether MSBF seasonably exercised this right.
It is clear that MSBF conducted at least two surveys. Although both surveys covered a total of 16 hectares, the second
survey specifically indicated a seven-hectare area shaded in yellow. MSBF made the first survey in 1984 and the second
in 1986, way before the present controversy started. MSBF conducted the two surveys before the lease to BGC. The trial
court ruled that MSBF did not act seasonably in exercising its right to conduct the survey. Confronted with evidence that
MSBF did in fact conduct two surveys, the trial court dismissed the two surveys as self-serving. This is clearly an error on
the part of the trial court. Proclamation No. 1670 authorized MSBF to determine the location of the seven-hectare area.
This authority, coupled with the fact that Proclamation No. 1670 did not state the location of the seven-hectare area,
leaves no room for doubt that Proclamation No. 1670 left it to MSBF to choose the location of the seven-hectare area
under its usufruct.
More evidence supports MSBFs stand on the location of the seven-hectare area. The main structures of MSBF are found
in the area indicated by MSBFs survey. These structures are the main office, the three green houses, the warehouse and
the composting area. On the other hand, the NHAs delineation of the seven-hectare area would cover only the four
hardening bays and the display area. It is easy to distinguish between these two groups of structures. The first group
covers buildings and facilities that MSBF needs for its operations. MSBF built these structures before the present
controversy started. The second group covers facilities less essential to MSBFs existence. This distinction is decisive as
to which survey should prevail. It is clear that the MSBF intended to use the yellow-shaded area primarily because it
erected its main structures there.
Inobaya testified that his main consideration in using Agham Road as the starting point for his survey was the presence
of a gate there. The location of the gate is not a sufficient basis to determine the starting point. MSBFs right as a
usufructuary as granted by Proclamation No. 1670 should rest on something more substantial than where MSBF chose to
place a gate.

45
To prefer the NHAs survey to MSBFs survey will strip MSBF of most of its main facilities. Only the main building of MSBF
will remain with MSBF since the main building is near the corner of EDSA and Quezon Avenue. The rest of MSBFs main
facilities will be outside the seven-hectare area.
On the other hand, this Court cannot countenance MSBFs act of exceeding the seven-hectare portion granted to it by
Proclamation No. 1670. A usufruct is not simply about rights and privileges. A usufructuary has the duty to protect the
owners interests. One such duty is found in Article 601 of the Civil Code which states:
ART. 601. The usufructuary shall be obliged to notify the owner of any act of a third person, of which he may have
knowledge, that may be prejudicial to the rights of ownership, and he shall be liable should he not do so, for damages,
as if they had been caused through his own fault.
A usufruct gives a right to enjoy the property of another with the obligation of preserving its form and substance, unless
the title constituting it or the law otherwise provides. 22 This controversy would not have arisen had MSBF respected the
limit of the beneficial use given to it. MSBFs encroachment of its benefactors property gave birth to the confusion that
attended this case. To put this matter entirely to rest, it is not enough to remind the NHA to respect MSBFs choice of the
location of its seven-hectare area. MSBF, for its part, must vacate the area that is not part of its usufruct. MSBFs rights
begin and end within the seven-hectare portion of its usufruct. This Court agrees with the trial court that MSBF has
abused the privilege given it under Proclamation No. 1670. The direct corollary of enforcing MSBFs rights within the
seven-hectare area is the negation of any of MSBFs acts beyond it.
The seven-hectare portion of MSBF is no longer easily determinable considering the varied structures erected within and
surrounding the area. Both parties advance different reasons why their own surveys should be preferred. At this point,
the determination of the seven-hectare portion cannot be made to rely on a choice between the NHAs and MSBFs
survey. There is a need for a new survey, one conducted jointly by the NHA and MSBF, to remove all doubts on the exact
location of the seven-hectare area and thus avoid future controversies. This new survey should consider existing
structures of MSBF. It should as much as possible include all of the facilities of MSBF within the seven-hectare portion
without sacrificing contiguity.
A final point. Article 605 of the Civil Code states:
ART. 605. Usufruct cannot be constituted in favor of a town, corporation, or association for more than fifty
years. If it has been constituted, and before the expiration of such period the town is abandoned, or the corporation or
association is dissolved, the usufruct shall be extinguished by reason thereof. (Emphasis added)
The law clearly limits any usufruct constituted in favor of a corporation or association to 50 years. A usufruct is meant
only as a lifetime grant. Unlike a natural person, a corporation or associations lifetime may be extended indefinitely. The
usufruct would then be perpetual. This is especially invidious in cases where the usufruct given to a corporation or
association covers public land. Proclamation No. 1670 was issued 19 September 1977, or 28 years ago. Hence, under
Article 605, the usufruct in favor of MSBF has 22 years left.
MO 127 released approximately 50 hectares of the NHA property as reserved site for the National Government Center.
However, MO 127 does not affect MSBFs seven-hectare area since under Proclamation No. 1670, MSBFs seven-hectare
area was already "exclude[d] from the operation of Proclamation No. 481, dated October 24, 1968, which established the
National Government Center Site."
WHEREFORE, the Decision of the Court of Appeals dated 30 March 2001 and its Resolution dated 25 June 2001 in CAG.R. CV No. 48382 are SET ASIDE. This case is REMANDED to Branch 87 of the Regional Trial Court of Quezon City, which
shall order a joint survey by the National Housing Authority and Manila Seedling Bank Foundation, Inc. to determine the
metes and bounds of the seven-hectare portion of Manila Seedling Bank Foundation, Inc. under Proclamation No. 1670.
The seven-hectare portion shall be contiguous and shall include as much as possible all existing major improvements of
Manila Seedling Bank Foundation, Inc. The parties shall submit the joint survey to the Regional Trial Court for its approval
within sixty days from the date ordering the joint survey.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.

46
G.R. No. 169835

July 3, 2007

HYATT ELEVATORS AND ESCALATORS CORPORATION, Petitioner,

vs.
LG OTIS ELEVATOR COMPANY, Respondent.
GARCIA, J.:
This petition for review under Rule 45 of the Rules of Court seeks to nullify and set aside the Decision 1 dated December
22, 2003 of the Court of Appeals (CA) in CA-G.R. SP No. 74320 and its Resolution 2 of September 27, 2005, denying
petitioners motion for reconsideration
Petitioner Hyatt Elevators and Escalators Corporation (Hyatt) is a domestic corporation primarily engaged in the business
of selling, installing and maintaining/servicing elevators, escalators and parking equipment, with address at the 6th
Floor, Dao I Condominium, Salved St., Legaspi Village, Makati, as stated in its Articles of Incorporation. When this case
started, Hyatt listed its office address as located at Hyatt Centre, Ortigas Avenue, Mandaluyong City. Respondent LG Otis
Elevator Company (LG Otis), on the other hand, evolved as a result of a joint venture agreement between LG Electronics,
Inc., of South Korea and Otis Elevator Company of Connecticut, U.S.A.
The facts, as established by the appellate court, are as follows:
It appears that private respondent [herein petitioner] Hyatt Elevators & Escalators Company (HYATT) was the Philippine
distributor until 1997 of elevators and escalators of Lucky Goldstar International Corporation (LUCKY GOLDSTAR) and
Goldstar Industrial Systems, Co. Ltd. (GOLDSTAR INDUSTRIAL).
Herein petitioner [now herein respondent] LG OTIS Elevator Company (LG OTIS) alleges that it is a joint venture
established on November 22, 1999 by LG Electronics Inc. (LG ELECTRONICS), which is based in Korea, and Otis Elevator
Company (OTIS), which is based in the United States of America. Otis subsequently transferred its rights and obligations
under the LG Otis joint venture to Sirius (Korea) Limited, which is based in London, England.
LG Otis purchased the business of LG Industrial Systems Co. Ltd. (LGISC), a Korean corporation which, at the time of said
purchase, was the principal stockholder of LG Industrial Systems Philippines, Inc. (LGISP), a domestic corporation
established in 1998. On March 28, 2000, LGISP changed its name to Goldstar Elevators Philippines, Inc. (GOLDSTAR).
Records show that [in the Regional Trial Court of Mandaluyong City] Hyatt filed a complaint for unfair trade practices
and damages against LGISC and LG International Corporation. It was alleged in the complaint that defendant LGISC was
formerly known as Goldstar Industrial Systems Co., Ltd. (Goldstar Industrial) and co-defendant LG International
Corporation was formerly known as Lucky Goldstar Industrial Corporation (Lucky Goldstar). Hyatt claimed that after
establishing a Philippine market for defendants elevators and escalators pursuant to a distributorship agreement
executed in 1988, the defendants unfairly committed trade practices intended to establish their own company, ease out
Hyatt and cripple its business operations as the exclusive distributor of LG elevators, escalators and parking equipment
in the Philippines.
An amended complaint was subsequently filed by Hyatt impleading herein petitioner LG Otis. It was alleged that LG Otis
was formerly LGISC and Goldstar Industrial. The amended complaint also impleaded Goldstar Elevators . which was
allegedly formerly known as LG Industrial Systems Philippines, Inc. (LGISP).
LGISC and LG Industrial Corporation opposed the amended complaint on the ground that LG Otis should not be
substituted to LGISC as the two are separate and distinct corporations, retaining separate organizations, assets and
liabilities. Despite such opposition, the amended complaint was admitted by the trial court.
Petitioner LG Otis [and Goldstar Elevators] then filed a motion to dismiss the amended complaint on the grounds that
venue was improperly laid, and that the amended complaint fails to state a cause of action. 3 (Emphasis and words in
brackets supplied.)

47
On May 27, 2002, in Civil Case No. MC-99-600, the Regional Trial Court (RTC) of Mandaluyong City, Branch 213, 4 issued
an order5 denying the motion to dismiss separately interposed by respondent LG Otis and Goldstar Elevators, as
defendants a quo.
In another order6 dated October 1, 2002, the Mandaluyong RTC denied Goldstar Elevators and respondent LG Otis
separate motions for reconsideration.
Therefrom, both Goldstar Elevators and respondent LG Otis went to the CA via separate petitions for certiorari under
Rule 65 of the Rules of Court, Goldstar Elevators recourse docketed as CA-G.R. SP No. 74319 and that of respondent LG
Otis, as CA-G.R. SP No. 74320. 7 CA-G.R. SP No. 74319 was raffled to the 6th Division of the appellate court, while CA-G.R.
SP No. 74320 went to its Special Fourth Division
In its Decision dated June 26, 2003, in CA-G.R. SP No. 74319, as reiterated in a Resolution of November 27, 2003, the CA
set aside the May 27, 2002 and October 1, 2002 Orders of the RTC of Mandaluyong City. The decretal portion of the CA
Decision reads:
WHEREFORE, in view of the foregoing, the assailed Orders dated May 27, 2002 and October 1, 2002 of the RTC, Branch
213, Mandaluyong City in Civil Case No. 99-600, are hereby SET ASIDE. The said case is hereby ordered DISMISSED on
the ground of improper venue. (Emphasis added.)
Hyatt would subsequently appeal the CAs decision and resolution in CA-G.R. SP No. 74319 to this Court, but failed to
secure a favorable disposition. For by Decision 8 dated October 24, 2005, in G.R. No. 161026, entitled "Hyatt Elevators
and Escalators Corporation v. Goldstar Elevators, Phil., Inc.," the Court affirmed the said assailed CA decision and ruling.
As in CA-G.R. SP No. 74319, the appellate court, in CA-G.R. SP No. 74320, also ruled against herein petitioner HYATT, as
respondent therein, and for LG Otis, albeit for reasons in addition to the issue of improper venue. The fallo of the CAs
Decision9 dated December 22, 2003 in CA-G.R. SP No. 74320 which, together with its Resolution 10 of September 27, 2005
denying reconsideration thereof, is subject of this recourse, reads, as follows:
WHEREFORE, based on the foregoing premises, the instant petition is hereby GRANTED. Consequently, the assailed May
27, 2002 and October 1, 2002 Orders of the Regional Trial Court of Mandaluyong City in Civil Case No. MC-99-600 are
REVERSED and SET ASIDE.
SO ORDERED.
In this recourse, petitioner urges the reversal of the assailed CA decision and resolution, raising the following issues:
1. WHETHER OR NOT THE [CA], IN REVERSING THE DECISION OF THE REGIONAL TRIAL COURT, ERRED AS A
MATTER OF LAW AND JURISPRUDENCE, AS WELL AS COMMITTED GRAVE ABUSE OF DISCRETION, IN HOLDING
THAT IN THE LIGHT OF THE PECULIAR FACTS OF THIS CASE, VENUE WAS IMPROPER;
2. WHETHER OR NOT THE [CA], IN REVERSING THE DECISION OF THE [RTC], ERRED AS A MATTER OF LAW AND
JURISPRUDENCE, AS WELL AS COMMITTED GRAVE ABUSE OF DISCRETION, IN HOLDING THAT IN THE LIGHT OF
THE PECULIAR FACTS OF THIS CASE, RESPONDENT COULD NOT BE SUED IN THE PHILIPPINES AS A SUCCESSORIN-INTEREST OF LG INDUSTRIAL SYSTEMS CO. SIMPLY BECAUSE IT IS NOT DOING BUSINESS IN THE
PHILIPPINES.11 (Words in brackets added.)
We DENY.
As may be noted, G.R. No. 161026 and this case involve virtually the same parties and sprang from one and the same
Civil Case No. MC-99-600, a suit for unfair trade practices instituted by petitioner Hyatt against respondent LG Otis and
Goldstar Elevators and eventually disposed of by the Mandaluyong RTC. In fine, G.R. No. 161026 and this case are cast
against the same factual and legal settings, save perhaps for the fact that respondent in the former case is a domestic
corporation, while the instant case has as respondent a foreign corporation. And as contextually abundantly made clear
in G.R. No. 161026, petitioner Hyatt could not successfully initiate a civil suit, like Civil Case No. MC-99-600, in
Mandaluyong City, its place of business, as stated in its Articles of Incorporation, being in Makati City. As explained by
the Court in its Decision in G.R. No. 161026:

48
x x x Admittedly, the latters principal place of business is Makati, as indicated in its Articles of Incorporation. Since the
principal place of business of a corporation determines its residence or domicile, then the place indicated in petitioners
[Hyatts] articles of incorporation becomes controlling in determining the venue for this case.
Petitioner [Hyatt] argues that the Rules of Court do not provide that when the plaintiff is a corporation, the complaint
should be filed in the location of its principal office as indicated in its articles of incorporation. Jurisprudence has,
however, settled that the place where the principal office of a corporation is located, as stated in the articles, indeed
establishes its residence. This ruling is important in determining the venue of an action by or against a corporation, as in
the present case.
Without merit is the argument of petitioner [Hyatt] that the locality stated in its Articles of Incorporation does not
conclusively indicate that its principal office is still in the same place. We agree with the appellate court in its
observation that the requirement to state in the articles the place where the principal office of the corporation is to be
located "is not a meaningless requirement. That proviso would be rendered nugatory if corporations were to be allowed
to simply disregard what is expressly stated in their Articles of Incorporation."
Inconclusive are the bare allegations of petitioner [Hyatt] that it had closed its Makati office and relocated to
Mandaluyong City, and that respondent [Goldstar Elevators] was well aware of those circumstances. Assuming arguendo
that they transacted business with each other in the Mandaluyong office of petitioner [Hyatt], the fact remains that, in
law, the latters residence was still the place indicated in its Articles of Incorporation. Further unacceptable is its faulty
reasoning that the ground for the CAs dismissal of its Complaint was its failure to amend its Articles of Incorporation so
as to reflect its actual and present principal office. The appellate court was clear enough in its ruling that the Complaint
was dismissed because the venue had been improperly laid, not because of the failure of petitioner to amend the latters
Articles of Incorporation.12 (Words in brackets and emphasis added.)1avvphi1
In the light of the foregoing considerations, the challenged dismissal of Civil Case No. MC-99-600, as ordered in the
assailed judgment of the CA, on the ground of improper venue, is correct. The Court will even go further and apply its
Decision in G.R. No. 161026 as the law of the case with respect to Hyatt on the issue of venue. Whatever is once
irrevocably established as the controlling legal rule or decision between the same parties in the same case continues to
be the law of the case so long as the facts on which such decision was predicated continue to be the facts of the case
before the court.13 With the view we take of this case, the factual milieu upon which the Decision in G.R. No. 161026 was
based has remained unchanged to justify the application of the salutary law of the case principle.
Given the above perspective, the second issue of whether or not foreign-based respondent LG Otis, as alleged successorin-interest of a domestic corporation, could be sued in the country need not detain the Court further. For, the matter of
suability would, in final reckoning, really have no bearing on the dismissal of a suit on the ground of improper venue. And
besides, the second issue raised would require the Court to delve into certain unresolved factual questions and
assumptions. Needless to stress, such exercise is beyond the purview of the Courts power of review on certiorari.
WHEREFORE, the petition is DENIED. The appealed Decision and Resolution of the CA in CA-G.R. SP No. 74320 are
AFFIRMED, and Civil Case No. MC-99-600 is DISMISSED without prejudice.
Costs against the petitioner.
SO ORDERED.

49

G.R. No. 131394

March 28, 2005

JESUS V. LANUZA, MAGADYA REYES, BAYANI REYES and ARIEL REYES, Petitioner,
vs.
COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, DOLORES ONRUBIA, ELENITA NOLASCO,
JUAN O. NOLASCO III, ESTATE OF FAUSTINA M. ONRUBIA, PHILIPPINE MERCHANT MARINE SCHOOL,
INC., Respondents.
TINGA, J.:
Presented in the case at bar is the apparently straight-forward but complicated question: What should be the basis of
quorum for a stockholders meetingthe outstanding capital stock as indicated in the articles of incorporation or that
contained in the companys stock and transfer book?
Petitioners seek to nullify the Court of Appeals Decision in CAG.R. SP No. 414731 promulgated on 18 August 1997,
affirming the SEC Order dated 20 June 1996, and the Resolution2 of the Court of Appeals dated 31 October 1997 which
denied petitioners motion for reconsideration.
The antecedents are not disputed.
In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven hundred (700) founders
shares and seventy-six (76) common shares as its initial capital stock subscription reflected in the articles of
incorporation. However, private respondents and their predecessors who were in control of PMMSI registered the
companys stock and transfer book for the first time in 1978, recording thirty-three (33) common shares as the only
issued and outstanding shares of PMMSI. Sometime in 1979, a special stockholders meeting was called and held on the
basis of what was considered as a quorum of twenty-seven (27) common shares, representing more than two-thirds (2/3)
of the common shares issued and outstanding.
In 1982, the heirs of one of the original incorporators, Juan Acayan, filed a petition with the Securities and Exchange
Commission (SEC) for the registration of their property rights over one hundred (120) founders shares and twelve (12)

50
common shares owned by their father. The SEC hearing officer held that the heirs of Acayan were entitled to the claimed
shares and called for a special stockholders meeting to elect a new set of officers. 3The SEC En Banc affirmed the
decision. As a result, the shares of Acayan were recorded in the stock and transfer book.
On 06 May 1992, a special stockholders meeting was held to elect a new set of directors. Private respondents thereafter
filed a petition with the SEC questioning the validity of the 06 May 1992 stockholders meeting, alleging that the quorum
for the said meeting should not be based on the 165 issued and outstanding shares as per the stock and transfer book,
but on the initial subscribed capital stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of
Incorporation. The petition was dismissed. 4 Appeal was made to the SEC En Banc, which granted said appeal, holding
that the shares of the deceased incorporators should be duly represented by their respective administrators or heirs
concerned. The SEC directed the parties to call for a stockholders meeting on the basis of the stockholdings reflected in
the articles of incorporation for the purpose of electing a new set of officers for the corporation. 5
Petitioners, who are PMMSI stockholders, filed a petition for review with the Court of Appeals. 6 Rebecca Acayan, Jayne O.
Abuid, Willie O. Abuid and Renato Cervantes, stockholders and directors of PMMSI, earlier filed another petition for
review of the same SEC En Bancs orders. The petitions were thereafter consolidated. 7 The consolidated petitions
essentially raised the following issues, viz: (a) whether the basis the outstanding capital stock and accordingly also for
determining the quorum at stockholders meetings it should be the 1978 stock and transfer book or if it should be the
1952 articles of incorporation; and (b) whether the Court of Appeals "gravely erred in applying the Espejo Decision to the
benefit of respondents."8 The "Espejo Decision" is the decision of the SEC en banc in SEC Case No. 2289 which ordered
the recording of the shares of Jose Acayan in the stock and transfer book.
The Court of Appeals held that for purposes of transacting business, the quorum should be based on the outstanding
capital stock as found in the articles of incorporation. 9 As to the second issue, the Court of Appeals held that the ruling in
the Acayan case would ipso facto benefit the private respondents, since to require a separate judicial declaration to
recognize the shares of the original incorporators would entail unnecessary delay and expense. Besides, the Court of
Appeals added, the incorporators have already proved their stockholdings through the provisions of the articles of
incorporation.10
In the instant petition, petitioners claim that the 1992 stockholders meeting was valid and legal. They submit that
reliance on the 1952 articles of incorporation for determining the quorum negates the existence and validity of the stock
and transfer book which private respondents themselves prepared. In addition, they posit that private respondents
cannot avail of the benefits secured by the heirs of Acayan, as private respondents must show and prove entitlement to
the founders and common shares in a separate and independent action/proceeding.
In private respondents Memorandum11 dated 08 March 2000, they point out that the instant petition raises the same
facts and issues as those raised in G.R. No. 131315 12, which was denied by the First Division of this Court on 18 January
1999 for failure to show that the Court of Appeals committed any reversible error. They add that as a logical
consequence, the instant petition should be dismissed on the ground of res judicata. Furthermore, private respondents
claim that in view of the applicability of the rule on res judicata, petitioners counsel should be cited for contempt for
violating the rule against forum-shopping.13
For their part, petitioners claim that the principle of res judicata does not apply to the instant case. They argue that the
instant petition is separate and distinct from G.R. No. 131315, there being no identity of parties, and more importantly,
the parties in the two petitions have their own distinct rights and interests in relation to the subject matter in litigation.
For the same reasons, they claim that counsel for petitioners cannot be found guilty of forum-shopping. 14
In their Manifestation and Motion15 dated 22 September 2004, private respondents moved for the dismissal of the instant
petition in view of the dismissal of G.R. No. 131315. Attached to the said manifestation is a copy of the Entry of
Judgment16 issued by the First Division dated 01 December 1999.
The petition must be denied, not on res judicata, but on the ground that like the petition in G.R. No. 131315 it fails to
impute reversible error to the challenged Court of Appeals Decision.
Res judicata does not apply in
the case at bar.
Res judicata means a matter adjudged, a thing judicially acted upon or decided; a thing or matter settled by
judgment.17 The doctrine of res judicata provides that a final judgment, on the merits rendered by a court of competent
jurisdiction is conclusive as to the rights of the parties and their privies and constitutes an absolute bar to subsequent
actions involving the same claim, demand, or cause of action. 18 The elements of res judicata are (a) identity of parties or
at least such as representing the same interest in both actions; (b) identity of rights asserted and relief prayed for, the
relief being founded on the same facts; and (c) the identity in the two (2) particulars is such that any judgment which

51
may be rendered in the other action will, regardless of which party is successful, amount to res judicata in the action
under consideration.19
There is no dispute as to the identity of subject matter since the crucial point in both cases is the propriety of including
the still unproven shares of respondents for purposes of determining the quorum. Petitioners, however, deny that there
is identity of parties and causes of actions between the two petitions.
The test often used in determining whether causes of action are identical is to ascertain whether the same facts or
evidence would support and establish the former and present causes of action. 20 More significantly, there is identity of
causes of action when the judgment sought will be inconsistent with the prior judgment. 21 In both petitions, petitioners
assert that the Court of Appeals Decision effectively negates the existence and validity of the stock and transfer book,
as well as automatically grants private respondents shares of stocks which they do not own, or the ownership of which
remains to be unproved. Petitioners in the two petitions rely on the entries in the stock and transfer book as the proper
basis for computing the quorum, and consequently determine the degree of control one has over the company.
Essentially, the affirmance of the SEC Order had the effect of diminishing their control and interests in the company, as it
allowed the participation of the individual private respondents in the election of officers of the corporation.
Absolute identity of parties is not a condition sine qua non for res judicata to applya shared identity of interest is
sufficient to invoke the coverage of the principle.22 However, there is no identity of parties between the two cases. The
parties in the two petitions have their own rights and interests in relation to the subject matter in litigation. As stated by
petitioners in their Reply to Respondents Memorandum,23 there are no two separate actions filed, but rather, two
separate petitions for review on certiorari filed by two distinct parties with the Court and represented by their own
counsels, arising from an adverse consolidated decision promulgated by the Court of Appeals in one action or
proceeding.24 As such, res judicata is not present in the instant case.
Likewise, there is no basis for declaring petitioners or their counsel guilty of violating the rules against forum-shopping.
In the Verification/Certification25 portion of the petition, petitioners clearly stated that there was then a pending motion
for reconsideration of the 18 August 1997 Decision of the Court of Appeals in the consolidated cases (CA-G.R. SP No.
41473 and CA-G.R. SP No. 41403) filed by the Abuids, as well as a motion for clarification. Moreover, the records indicate
that petitioners filed their Manifestation26 dated 20 January 1998, informing the Court of their receipt of the petition in
G.R. No. 131315 in compliance with their duty to inform the Court of the pendency of another similar petition. The Court
finds that petitioners substantially complied with the rules against forum-shopping.
The Decision of the Court of
Appeals must be upheld.
The petition in this case involves the same facts and substantially the same issues and arguments as those in G.R. No.
131315 which the First Division has long denied with finality. The First Division found the petition before it inadequate in
failing to raise any reversible error on the part of the Court of Appeals. We reach a similar conclusion as regards the
present petition.
The crucial issue in this case is whether it is the companys stock and transfer book, or its 1952 Articles of Incorporation,
which determines stockholders shareholdings, and provides the basis for computing the quorum.
We agree with the Court of Appeals.
The articles of incorporation has been described as one that defines the charter of the corporation and the contractual
relationships between the State and the corporation, the stockholders and the State, and between the corporation and
its stockholders.27 When PMMSI was incorporated, the prevailing law was Act No. 1459, otherwise known as "The
Corporation Law." Section 6 thereof states:
Sec. 6. Five or more persons, not exceeding fifteen, a majority of whom are residents of the Philippines, may
form a private corporation for any lawful purpose or purposes by filing with the Securities and Exchange
Commission articles of incorporation duly executed and acknowledged before a notary public, setting forth:
....
(7) If it be a stock corporation, the amount of its capital stock, in lawful money of the Philippines, and the
number of shares into which it is divided, and if such stock be in whole or in part without par value then such
fact shall be stated; Provided, however, That as to stock without par value the articles of incorporation need only
state the number of shares into which said capital stock is divided.

52
(8) If it be a stock corporation, the amount of capital stock or number of shares of no-par stock actually
subscribed, the amount or number of shares of no-par stock subscribed by each and the sum paid by each on his
subscription. . . .28
A review of PMMSIs articles of incorporation 29 shows that the corporation complied with the requirements laid down by
Act No. 1459. It provides in part:
7. That the capital stock of the said corporation is NINETY THOUSAND PESOS (P90,000.00) divided into two
classes, namely:
FOUNDERS STOCK - 1,000 shares at P20 par value- P 20,000.00
COMMON STOCK- 700 shares at P 100 par value P 70,000.00
TOTAL ---------------------1,700 shares----------------------------P 90,000.00
....
8. That the amount of the entire capital stock which has been actually subscribed is TWENTY ONE THOUSAND
SIX HUNDRED PESOS (P21,600.00) and the following persons have subscribed for the number of shares and
amount of capital stock set out after their respective names:

SUBSCRIBER

SUBSCRIBED

AMOUNT
SUBSCRIBED

No. of Shares

Par Value

Crispulo J. Onrubia

120 Founders

P 2,400.00

Juan H. Acayan

120 "

2, 400.00

Martin P. Sagarbarria

100 "

2, 000.00

Mauricio G. Gallaga

50 "

1, 000.00

Luis Renteria

50 "

1, 000.00

Faustina M. de Onrubia

140 "

2, 800.00

Mrs. Ramon Araneta

40 "

800.00

53

Carlos M. Onrubia

SUBSCRIBER

80 "

1,600.00

700

P 14,000.00

SUBSCRIBED

AMOUNT
SUBSCRIBED

No. of Shares
Par Value

Crispulo J. Onrubia

12 Common

P 1,200.00

Juan H. Acayan

12 "

1,200.00

Martin P. Sagarbarria

8"

800.00

Mauricio G. Gallaga

8"

800.00

Luis Renteria

8"

800.00

Faustina M. de Onrubia

12 "

1,200.00

Mrs. Ramon Araneta

8"

800.00

Carlos M. Onrubia

8"

76

800.00

P7,600.0030

54
There is no gainsaying that the contents of the articles of incorporation are binding, not only on the corporation, but also
on its shareholders. In the instant case, the articles of incorporation indicate that at the time of incorporation, the
incorporators were bona fide stockholders of seven hundred (700) founders shares and seventy-six (76) common
shares. Hence, at that time, the corporation had 776 issued and outstanding shares.
On the other hand, a stock and transfer book is the book which records the names and addresses of all stockholders
arranged alphabetically, the installments paid and unpaid on all stock for which subscription has been made, and the
date of payment thereof; a statement of every alienation, sale or transfer of stock made, the date thereof and by and to
whom made; and such other entries as may be prescribed by law. 31 A stock and transfer book is necessary as a measure
of precaution, expediency and convenience since it provides the only certain and accurate method of establishing the
various corporate acts and transactions and of showing the ownership of stock and like matters. 32 However, a stock and
transfer book, like other corporate books and records, is not in any sense a public record, and thus is not exclusive
evidence of the matters and things which ordinarily are or should be written therein. 33 In fact, it is generally held that the
records and minutes of a corporation are not conclusive even against the corporation but are prima facie evidence
only,34 and may be impeached or even contradicted by other competent evidence. 35 Thus, parol evidence may be
admitted to supply omissions in the records or explain ambiguities, or to contradict such records. 36
In 1980, Batas Pambansa Blg. 68, otherwise known as "The Corporation Code of the Philippines" supplanted Act No.
1459. BP Blg. 68 provides:
Sec. 24. Election of directors or trustees.At all elections of directors or trustees, there must be present, either
in person or by representative authorized to act by written proxy, the owners of a majority of the outstanding
capital stock, or if there be no capital stock, a majority of the members entitled to vote. . . .
Sec. 52. Quorum in meetings.- Unless otherwise provided for in this Code or in the by-laws, a quorum shall
consist of the stockholders representing a majority of the outstanding capital stock or majority of the members
in the case of non-stock corporation.
Outstanding capital stock, on the other hand, is defined by the Code as:
Sec. 137. Outstanding capital stock defined. The term "outstanding capital stock" as used in this code, means
the total shares of stock issued to subscribers or stockholders whether or not fully or partially paid (as long as
there is binding subscription agreement) except treasury shares.
Thus, quorum is based on the totality of the shares which have been subscribed and issued, whether it be founders
shares or common shares.37 In the instant case, two figures are being pitted against each other those contained in the
articles of incorporation, and those listed in the stock and transfer book.
To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and transfer book, and
completely disregarding the issued and outstanding shares as indicated in the articles of incorporation would work
injustice to the owners and/or successors in interest of the said shares. This case is one instance where resort to
documents other than the stock and transfer books is necessary. The stock and transfer book of PMMSI cannot be used
as the sole basis for determining the quorum as it does not reflect the totality of shares which have been subscribed,
more so when the articles of incorporation show a significantly larger amount of shares issued and outstanding as
compared to that listed in the stock and transfer book. As aptly stated by the SEC in itsOrder dated 15 July 1996:38
It is to be explained, that if at the onset of incorporation a corporation has 771 shares subscribed, the Stock and
Transfer Book should likewise reflect 771 shares. Any sale, disposition or even reacquisition of the company of its
own shares, in which it becomes treasury shares, would not affect the total number of shares in the Stock and
Transfer Book. All that will change are the entries as to the owners of the shares but not as to the amount of
shares already subscribed.
This is precisely the reason why the Stock and Transfer Book was not given probative value. Did the shares,
which were not recorded in the Stock and Transfer Book, but were recorded in the Articles of Iincorporation just
vanish into thin air? . . . .39
As shown above, at the time the corporation was set-up, there were already seven hundred seventy-six (776) issued and
outstanding shares as reflected in the articles of incorporation. No proof was adduced as to any transaction effected on
these shares from the time PMMSI was incorporated up to the time the instant petition was filed, except for the thirtythree (33) shares which were recorded in the stock and transfer book in 1978, and the additional one hundred thirty-two
(132) in 1982. But obviously, the shares so ordered recorded in the stock and transfer book are among the shares
reflected in the articles of incorporation as the shares subscribed to by the incorporators named therein.

55
One who is actually a stockholder cannot be denied his right to vote by the corporation merely because the corporate
officers failed to keep its records accurately.40 A corporations records are not the only evidence of the ownership of stock
in a corporation.41 In an American case,42 persons claiming shareholders status in a professional corporation were listed
as stockholders in the amendment to the articles of incorporation. On that basis, they were in all respects treated as
shareholders. In fact, the acts and conduct of the parties may even constitute sufficient evidence of ones status as a
shareholder or member.43 In the instant case, no less than the articles of incorporation declare the incorporators to have
in their name the founders and several common shares. Thus, to disregard the contents of the articles of incorporation
would be to pretend that the basic document which legally triggered the creation of the corporation does not exist and
accordingly to allow great injustice to be caused to the incorporators and their heirs.
Petitioners argue that the Court of Appeals "gravely erred in applying the Espejo decision to the benefit of respondents."
The Court believes that the more precise statement of the issue is whether in its assailed Decision, the Court of Appeals
can declare private respondents as the heirs of the incorporators, and consequently register the founders shares in their
name. However, this issue as recast is not actually determinative of the present controversy as explained below.
Petitioners claim that the Decision of the Court of Appeals unilaterally divested them of their shares in PMMSI as
recorded in the stock and transfer book and instantly created inexistent shares in favor of private respondents. We do
not agree.
The assailed Decision merely declared that a separate judicial declaration to recognize the shares of the original
incorporators would entail unnecessary delay and expense on the part of the litigants, considering that the incorporators
had already proved ownership of such shares as shown in the articles of incorporation. 44 There was no declaration of who
the individual owners of these shares were on the date of the promulgation of the Decision. As properly stated by the SEC
in its Order dated 20 June 1996, to which the appellate courts Decisionshould be related, "if at all, the ownership of
these shares should only be subjected to the proper judicial (probate) or extrajudicial proceedings in order to determine
the respective shares of the legal heirs of the deceased incorporators." 45
WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against petitioners.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

G.R. No. 9321

September 24, 1914

NORBERTO ASUNCION, ET AL., petitioners-appellants,

vs.
MANUEL DE YRIARTE, respondent-appellee.
Modesto Reyes for appellants. Attorney-General Villamor for appellee.
MORELAND, J.:
This is an action to obtain a writ of mandamus to compel the chief of the division of achieves of the Executive Bureau to
file a certain articles of incorporation.

56
The chief of the division of archives, the respondent, refused to file the articles of incorporation, hereinafter referred to,
upon the ground that the object of the corporation, as stated in the articles, was not lawful and that, in pursuance of
section 6 of Act No. 1459, they were not registerable.
The proposed incorporators began an action in the Court of First Instance of the city of Manila to compel the chief of the
division of archives to receive and register said articles of incorporation and to do any and all acts necessary for the
complete incorporation of the persons named in the articles. The court below found in favor of the defendant and
refused to order the registration of the articles mentioned, maintaining ad holding that the defendant, under the
Corporation Law, had authority to determine both the sufficiency of the form of the articles and the legality of the object
of the proposed corporation. This appeal is taken from that judgment.
The first question that arises is whether or not the chief of the division of archives has authority, under the Corporation
for registration, to decide not only as to the sufficiency of the form of the articles, but also as to the lawfulness of the
purpose of the proposed corporation.
It is strongly urged on the part of the appellants that the duties of the defendant are purely ministerial and that he has
no authority to pass upon the lawfulness of the object for which the incorporators propose to organize. No authorities are
cited to support this proposition and we are of the opinion that it is not sound.
Section 6 of the Corporation Law reads in part as follows:
Five or more persons, not exceeding fifteen, a majority of whom are residents of the Philippine Islands, may form
a private corporation for any lawful purpose by filing with the division of archives, patents, copyrights, and
trademarks if the Executive Bureau articles of incorporation duly executed and acknowledged before a notary
public, . . . .
Simply because the duties of an official happens to be ministerial, it does not necessarily follow that he may not, in the
administration of his office, determine questions of law. We are of the opinion that it is the duty of the division of
archives, when articles of incorporation are presented for registration, to determine whether the objects of the
corporation as expressed in the articles are lawful. We do not believe that, simply because articles of incorporation
presented foe registration are perfect in form, the division of archives must accept and register them and issue the
corresponding certificate of incorporation no matter what the purpose of the corporation may be as expressed in the
articles. We do not believe it was intended that the division of archives should issue a certificate of incorporation to, and
thereby put the seal of approval of the Government upon, a corporation which was organized for base of immoral
purposes. That such corporation might later, if it sought to carry out such purposes, be dissolved, or its officials
imprisoned or itself heavily fined furnished no reason why it should have been created in the first instance. It seems to
us to be not only the right but the duty of the divisions of archives to determine the lawfulness of the objects and
purposes of the corporation before it issues a certificate of incorporation.
It having determined that the division of archives, through its officials, has authority to determine not only the
sufficiency as to form of the articles of incorporation offered for registration, but also the lawfulness of the purposes of
leads us to the determination of the question whether or not the chief of the division of archives, who is the
representative thereof and clothed by it with authority to deal subject to mandamus in the performance of his duties.
We are of the opinion that he may be mandamused if he act in violation of law or if he refuses, unduly, to comply with
the law. While we have held that defendant has power to pass upon the lawfulness of the purposes of the proposed
corporation and that he may, in the fulfillment of his duties, determine the question of law whether or not those
purposes are lawful and embraced within that class concerning which the law permits corporations to be formed, that
does not necessarily mean, as we have already intimated, that his duties are not ministerial. On the contrary, there is no
incompatibility in holding, as we do hold, that his duties are ministerial and that he has no authority to exercise
discretion in receiving and registering articles of incorporation. He may exercise judgment that is, the judicial function
in the determination of the question of law referred to, but he may not use discretion. The question whether or not the
objects of a proposed corporation are lawful is one that can be decided one way only. If he err in the determination of
that question and refuse to file articles which should be filed under the law, the decision is subject to review and
correction and, upon proper showing, he will be ordered to file the articles. This is the same kind of determination which
a court makes when it decides a case upon the merits, the court makes when it decides a case upon the merits. When a
case is presented to a court upon the merits, the court can decide only one way and be right. As a matter of law, there is
only one way and be right. As a matter of law, there is only one course to pursue. In a case where the court or other

57
official has discretion in the resolution of a question, then, within certain limitations, he may decide the question either
way and still be right. Discretion, it may be said generally, is a faculty conferred upon a court or other official by which
he may decide a question either way and still be right. The power conferred upon the division of archives with respect to
the registration of articles of incorporation is not of that character. It is of the same character as the determination of a
lawsuit by a court upon the merits. It can be decided only one way correctly.
If, therefore, the defendant erred in determining the question presented when the articles were offered for registration,
then that error will be corrected by this court in this action and he will be compelled to register the articles as offered. If,
however, he did not commit an error, but decided that question correctly, then, of course, his action will be affirmed to
the extent that we will deny the relief prayed for.
The next question leads us to the determination of whether or not the purposes of the corporation as stated in the
articles of incorporation are lawful within the meaning of the Corporation Law.
The purpose of the incorporation as stated in the articles is: "That the object of the corporation is ( a) to organize and
regulate the management, disposition, administration and control which the barrio of Pulo or San Miguel or its
inhabitants or residents have over the common property of said residents or inhabitants or property belonging to the
whole barrio as such; and (b) to use the natural products of the said property for institutions, foundations, and charitable
works of common utility and advantage to the barrio or its inhabitants."
The municipality of Pasig as recognized by law contains within its limits several barrios or small settlements, like Pulo or
San Miguel, which have no local government of their own but are governed by the municipality of Pasig through its
municipal president and council. The president and members of the municipal council are elected by a general vote of
the municipality, the qualified electors of all the barrios having the right to participate.
The municipality of Pasig is a municipal corporation organized by law. It has the control of all property of the municipality.
The various barrios of the municipality have no right to own or hold property, they not being recognized as legal entities
by any law. The residents of the barrios participate in the advantages which accrue to the municipality from public
property and receive all the benefits incident to residence in a municipality organized by law. If there is any public
property situated in the barrio of Pulo or San Miguel not belonging to the general government or the province, it belongs
to the municipality of Pasig and the sole authority to manage and administer the same resides in that municipality. Until
the present laws upon the subject are charged no other entity can be the owner of such property or control or administer
it.
The object of the proposed corporation, as appears from the articles offered for registration, is to make of the barrio of
Pulo or San Miguel a corporation which will become the owner of and have the right to control and administer any
property belonging to the municipality of Pasig found within the limits of that barrio. This clearly cannot be permitted.
Otherwise municipalities as now established by law could be deprived of the property which they now own and
administer. Each barrio of the municipality would become under the scheme proposed, a separate corporation, would
take over the ownership, administration, and control of that portion of the municipal territory within its limits. This would
disrupt, in a sense, the municipalities of the Islands by dividing them into a series of smaller municipalities entirely
independent of the original municipality.
What the law does not permit cannot be obtained by indirection. The object of the proposed corporation is clearly
repugnant to the provisions of the Municipal Code and the governments of municipalities as they have been organized
thereunder. (Act No. 82, Philippine Commission.)
The judgment appealed from is affirmed, with costs against appellants.
Arellano, C.J., Torres, Johnson, Carson and Araullo, JJ., concur.