G.R. No.
L-16236             June 30, 1965 having subscribed to 600 and 400 shares of the
IRINEO S. BALTAZAR, plaintiff-appellee,  P40.000.00, respectively. It is alleged that it has
vs.
LINGAYEN GULF ELECTRIC POWER, CO., INC.,
DOMINADOR C. UNGSON, BRIGIDO G. ESTRADA,
MANUEL L. FERNANDEZ, BENEDICTO C. YUSON
and BERNARDO ACENA, defendants-appellants.
-----------------------------
G.R. No. L-16237             June 30, 1965
MARVIN O. ROSE, plaintiff-appellee,  also 65 shares with par value of P6,500.00, for which
vs.
LINGAYEN GULF ELECTRIC CO., INC.,
DOMINADOR, C. UNGSON, BRIGIDO G.
ESTRADA, MANTEL L. FERNANDEZ, BENEDICTO
C. YUSON and BERNARDO C. ACENA, defendants-
appellants.
-----------------------------
G.R. No. L-16238             June 30, 1965.
IRINEO S. BALTAZAR and MARVIN O.
ROSE, plaintiffs-appellees,  him and as such, was the largest individual
vs.
BERNARDO ACENA, defendant-appellant.
Primicias and Del Castillo for plaintiffs-appellees.
Manuel L. Fernandez and Brigido G. Estrada for and
in their own behalf as defendants-appellants.
PAREDES, J.:
In Civil Case G.R. No. L-16236 (CFI No. 13211),
Irineo S. Baltazar, filed the complaint against
Lingayen Gulf Electric Power Co., Inc., Dominador C.
Ungson, Brigido G. Estrada, Manuel L. Fernandez,
Benedicto C. Yuson and Bernardo Acena.
In Civil Case G.R. No. L-16237 (CFI No. 13212),
Marvin O. Rose filed the complaint against the same
defendants.
In Civil Case G.R. No. L-16238 (CFI No. 13340),
Baltazar and Rose filed their complaint against
Bernardo Acena alone.
The Lingayen Gulf Electric Power Co., Inc.,
hereinafter referred to as Corporation, was doing
business in the Philippines, with principal offices at
Lingayen, Pangasinan, and with an authorized capital
stock of P300.000.00 divided into 3,000 shares of
voting stock at P100.00 par value, per share. Plaintiffs
Baltazar and Rose were among the incorporators,
capital stock, or a total par value of P60,000.00 and
always been the practice and procedure of the
Corporation to issue certificates of stock to its
individual subscribers for unpaid shares of stock. Of
the 600 shares of capital stock subscribed by
Baltazar, he had fully paid 535 shares of stock, and
the Corporation issued to him several fully paid up
and non-assessable certificates of stock,
corresponding to the 535 shares. After having made
transfers to third persons and acquired new ones,
Baltazar had to his credit, on the filing of the complaint
341 shares fully paid and non-assessable. He had
no certificate was issued to him. Of the 400 shares of
stock subscribed by Rose, he had 375 shares of fully
paid stock, duly covered by certificates of stock issued
to him.
The respondents Ungson, Estrada, Fernandez and
Yuson were small stockholders of the Corporation, all
holding a total number of fully paid-up shares of stock,
of not more than 100 shares, with a par value of
P10,000.00 and the defendant Acena, was likewise
an incorporator and stockholder, holding 600 shares
of stock, for which certificate of stock were issued to
stockholder thereof.
Defendants Ungson, Estrada, Fernandez and Yuzon,
constituted the majority of the holdover seven-
member Board of Directors of the Corporation, in
1955, two (2) of said defendants having been elected
as members of the Board in the annual stockholders'
meeting held in May 1954, largely on the vote of their
co-defendant Acena, while the other two (2) were
elected mainly on the vote of the plaintiffs and their
group of stockholders.
Let the first group be called the Ungson groupand the
second, the Baltazar group.
The date of the annual stockholders' meeting of the
Corporation had been fixed, under its by-laws, on the
first Tuesday of February of every year, but for one
reason or another, the meeting was to be held on May
1, 1955, principally for the purpose of electing new
officers and Board of Directors for the calendar year
1955.
In connection with said meeting since January 1,
1955, there was a realignment effected, and the fight
for control of the management and property of the
corporation was close and keen.
The total number of fully paid-up shares held by
stockholders of one group, was almost equal the
number of fully paid-up shares held by the other
group.
The Ungson group (specially defendant Acena), which
had been in complete control of the management and
property of the Corporation since January 1, 1955, in
order to continue retaining such control, over the
objection oil three majority members of the Board, in
the regular meeting of the Board of Directors, held on
January 30, 1955, passed three (3) resolutions (Exhs.
A, B, C).
Resolution No. 2 (Exh. A), declared all
watered stocks issued to Acena, Baltazar,
Rose and Jubenville, "of no value and
consequently cancelled from the books of the
Corporation.
Resolution No. 3 (Exh. B) resolved that "... all
unpaid subscriptions should bear interest
annually from the year of subscription on the
basis of quarterly payment, and any or all
payments already made on said unpaid
subscriptions should be credited to pay
interest first, then the capital debt after all
interest is fully paid.
All shares of stock issued to and in favor of
any stockholder or stockholders of the
Lingayen Gulf Electric Power Co., Inc., on
account of payments on unpaid subscriptions
without the interest thereon — accrued and
collectible having been fully paid from the date
of subscription as required by the Corporation
Law, shall be declared of no value and
cancelled from its books, and if the payments
already made exceeded the interest accrued
and collectible by virtue of the provision of law
and the previous resolution of its board of
directors, the excess should be applied to the
payment of the unpaid subscription. For this
purpose, the accountant of the corporation is
directed to make and report the proper
computation of the interest.
Resolution No. 4 (Exh. C) resolved that "any
and all shares of stock of the Lingayen Gulf
Electric Power Co., Inc., issued as fully paid-
up to stockholders whose subscription to a
number of shares have been declared
delinquent with the accrued interest on the
unpaid thereof per Resolution No. 42, S.
1954, of the Board of Directors which has
been duly published in the "Manila Chronicle,"
are hereby incapacitated to utilize or avail of
the voting power until such delinquency with
the accrued interest is fully paid up as
indicated in Resolution No. 3, S. 1955.
On the authority of these resolutions, the Ungson
group was threatening and procuring to expel and
oust the plaintiffs and their companion stockholders,
for the ultimate purpose of depriving them of their right
to vote in the said annual stockholders' meeting
scheduled for May 1, 1955.
In their complaint, Baltazar and Rose prayed that a
writ of preliminary injunction be issued against the
defendants, enjoining them to desist and refrain from
carrying out the objects and purposes of the three
resolutions aforestated, and commanding them to
allow plaintiffs and companions to vote in the
stockholders' meeting, on May 1, 1955, their fully paid
up shares of stocks, as evidenced by stock
certificates issued to them and outstanding on the
stock book of the defendant Corporation, on or before
January 30, 1955, to declare said three resolutions
illegal and invalid, and to pay plaintiffs the sum of
P10,000.00 each, as damages. On April 29, 1955, the
trial court, after due hearing, issued Preliminary
Injunction, as prayed for.
The defendants, in their answers, allege that during
the years that plaintiffs and their allies were in control
of the Corporation, no serious effort was attempted to
retrieve it from its financial collapse, caused by
accumulated indebtedness and by poor and inefficient
management, resulting in losses of big sums of
money from vicious manipulation of funds, nepotism,
unconscionable grant of big salaries and allowances,
illegal payments, unaccounted funds of Caltex
business and sales department store, etc.; that during
the time the management was in the hands of
plaintiffs (Rose, as manager); attempts were made to
release themselves from liability of their unpaid
subscriptions; that the three resolutions were merely
functional instruments to bolster the faith in the assets
of the defendant Corporation and did not deprive the
plaintiffs of their property without due process of law;
that the issuance of a writ of injunction for the purpose
of arresting the holding of the election of the Board,
was beyond the jurisdiction of the court. They set up
counterclaims.
They prayed that the resolutions be declared legal
and valid, thus invalidating the "watered stocks" of
plaintiffs, if not paid, and disqualifying the delinquent
subscribers, among whom were the plaintiffs, from
voting totally or partially, their subscriptions;
to order plaintiffs to pay the defendant
Corporation first, the interest due and payable
quarterly at 6% per annum from January 11, 1946 to
December 31, 1954, on their liability under their
delinquent subscriptions, out of the installment made
therein;
to pay defendant entity damages under the
counterclaims and expenses for the enforcement of
the collection; and that after complete payment of the
interests and the balance of their unpaid
subscriptions, the defendant Corporation should issue
the shares of stock to plaintiffs for their full
subscription. Plaintiffs filed their answer to
defendants' counterclaims, with counterclaims against
defendants.
On August 8, 1955, the lower court issued an order
dismissing plaintiffs' counterclaims against Acena,
Ungson and Fernandez "without prejudice to filing the
proper separate actions therefor by the parties."
Consequently, and as heretofore mentioned, Baltazar
and Rose filed Case No. 13340 (supra).
The following tentative amicable settlement, dated
September 13, 1958, formulated and entered into
by some of the parties and their respective attorneys,
before presiding Judge Jesus P. Morfe, in the three
cases, was submitted:
1. As to the so-called water stocks P30,000.00
each of the holders of said stock, namely,
Irineo Baltazar, Marvin Rose, and Bernardo
Acena, will return to the corporation P3,500
each of said stocks, thereby retaining P6,500
worth of stocks to be considered as valid for
each under this compromise;
2. With respect to Dr. Bernardo Acena, of the
certificates of stock allegedly representing, his
profit, he will return to the corporation P3,500
of said share of stock and retain P7,500 worth
thereof ;
3. With respect to the interest on unpaid
balance of subscription it is agreed that the
subscribers with unpaid subscription be given
the opportunity to pay in two installments, the
first installment to cover one-half of the unpaid
balance to be paid in three months, and the
second installment will be for the remaining
unpaid half payable in another three months,
from the time of the approval of this
agreements, with the understanding that those
who comply with this arrangement will not pay
interest on the balance of their subscription,
for the date of incorporation up to the grant of
franchise on February 24, 1948, which shall
be deemed as condoned, and from 1948 they
will pay only as interest 3% compounded
annually, it being understood that failure of
any subscriber to pay any of the installment
here provided will subject the stockholders
concerned to the provision of the corporation
law of the payment of 6% interest
compounded quarterly.
4. All claims and counterclaims other than
those covered by the preceding paragraph of
stipulation will be deemed dismissed without
prejudice, in all these three cases;
5. All the resolutions of the Board and the
stockholders involved in these instant cases
will be deemed modified in accordance with
this agreement.
On February 20, 1959, the lower court rendered a
decision, approving the agreement and requiring the
parties to comply with the same, and dissolved the
writ of preliminary injunction, with costs. The pertinent
portions of the decision are:
In view of the agreement of the parties
transcribed above, this Court is called upon to
decide whether or not any of the agreements
of the parties as above transcribed is contrary
to law or public policy.
First, as regards pars. 1 and 2, of said
agreement, the legal capacity of the parties to
sue and be sued carries with it the power to
enter into an amicable settlement of pending
litigations and to expressly or impliedly make
admissions of facts; and they could, therefore,
agree and recognize as fully paid for and valid
the shares of stocks mentioned in said
paragraphs of their agreement, which
agreement must be held valid and binding
among the parties, and even as against their
persons who have no proof that said
agreement was entered into in fraud of
creditors.
The next question for decision is whether or
not a corporation may validly condone interest
on unpaid subscriptions to its capital stock.
The fact that our Corporation Law authorizes
provisions in the by-laws of a corporation
different from that set out in Sec. 37 of said
law, shows that the provision of said law is to
interest of unpaid stock subscriptions is
merely directory, so that a corporation may fix
a different interest rate, or condone the
payment of interest altogether if such
condonation would, as in the instant cases,
serve as inducement for early payment of
stock subscriptions.
 The condonation and reduction of interest
agreed upon in par. 3 of the aforequoted
agreement is, therefore, valid in the absence
of proof that said agreement was entered into
in fraud of creditors.
In connection with par. 5 of the aforequoted
agreement, in relation to par. 3 thereof, this,
Court is of the opinion, and so holds, that the
periods of time allowed for making payments
under par. 3 of said agreement, must be
counted from date of receipt of a copy of this
decision by counsel of the parties, this
decision constituting the final approval of said
agreement, and as to stockholders who are
not parties to these cases, from date of notice
of the said time extension. The extension of
time to pay, as granted in par. 3 of the
repealing previous declaration of delinquency
of the corresponding shares of stock, and all
subscribed shares of stock, except those
ordered to be returned as provided in pars. 1
and 2 of said agreement, will therefore be
entitled to vote until once again declared
delinquent after the expiration of the periods
of time set out in par. 3 of said agreement.
Defendants on March 14, 1959 filed a motion for
reconsideration, alleging that the decision was partly
against the spirit and intention of the parties to the
agreement and portions of the decision, carried
"prejudicial eventualities," and asking that the same
be amended in the sense that "the payment of
obligations of delinquent incorporators has been
reduced by the agreement as stated in paragraphs 3
and 5" of said agreement; that delinquent stocks
cannot be voted until fully paid in accordance with the
agreement and that if the plaintiffs in the above
entitled cases could not pay in full their obligations
within the periods stated in the agreement, the
resolutions of delinquency would automatically stand.
On March 18, 1959, plaintiffs, in cases Nos. 13211
and 13212, filed a petition for immediate
execution and for preliminary injunction
and/or mandamus, praying that a writ be issued,
ordering the defendants, as controlling majority of
hold-over board of directors, to hold immediately the
long delayed stockholders' meeting, and to allow the
plaintiffs and all the stockholders, with still unpaid
subscriptions, to vote all their stocks and
subscriptions at said stockholders' meeting, as
directed in the decision.
On March 25, 1959, the Court issued an amending
decision, pertinent portions of which are hereunder
reproduced —  motion for reconsideration and the motion for
... . After hearing the parties in extensive oral
argument, this Court agrees with the
defendants that par. 5 of the compromise
agreement of the parties, dated September
13, 1958, contemplates a modification and not
a repeal of the resolutions of the Board of
Directors and of the Stockholders referred to
in said agreement. The question is, therefore,
to what extent has said resolutions been
modified? Considering that the primary
intention of each of said resolutions was to
effect an early collection of unpaid balance of
stock subscriptions and interest thereon, and
the moving consideration for a compromise
settlement of the instant cases is likewise the
early collection of the obligations of
stockholders of the defendant corporation, the
extension of time to pay, as granted in par. 3
of said agreement, was clearly intended to
cover not only the accrued interest but also
the unpaid stock subscription of the
stockholders, for to hold otherwise would be to
defeat the primary purpose of early collection
of said obligations. Considering the same
paramount intention of said resolution, and of
the aforesaid compromise agreement, it
likewise follows that the extension of time to
pay and the reduction of interest embodied in
the said agreement must apply to all
stockholders similarly situated.
Regarding the right to vote, this Court likewise
agrees with the defends its that the facts
considered during the negotiations for
settlement effected by the parties in the
Chambers of the presiding judge do not
warrant repeal of the declaration of
delinquency and complete restoration of
voting rights until full payment of the unpaid
stock subscriptions and interest within the
time and to the extent mentioned in par. 3 of
the aforesaid compromise agreement. To rule
otherwise would be to encourage non-
payment of the balance of stock subscriptions
and thus defeat the paramount intention of the
compromise agreement. Stated differently,
this Court now holds that the extension of time
to pay, as granted in par. 3 of the aforesaid
compromise agreement, has the effect of
lifting the previous declaration of delinquency
effective as of full payment of the balance of
said stock subscriptions and interest within the
periods of time mentioned in par. 3 of said
compromise agreement.
In view of the uncertainty brought about by the
execution aforementioned, it would be unjust
to count the periods of time mentioned in the
 aforesaid compromise agreement from the
date of receipt of the original decision of this
Court in these cases. The extension of time to
pay should, therefore, be counted from receipt
by counsel for the parties of a copy of this
amending decision, and from receipt by the
other stockholders of notice of said extension
of time; and the injunction in the instant case
should be deemed in force for the duration of
said extension of time to pay.
WHEREFORE, the decision of this Court
rendered in these cases on February 20, 1959
is hereby modified in the manner set out
above, maintaining said decision in all other
respects.
On April 4, 1959 , plaintiffs filed a motion for
reconsideration and/or new trial, praying that the
amending decision dated March 25, 1959, be
reconsidered and/or further clarified. On July 16,
1959, the trial court reversed its amending decision in
an order, the relevant parts thereof follow:
WHEREFORE, by way of amendment to both
the original and amending decisions of this
Court in the instant case, this Court hereby
expressly rules that all shares of the capital
stock of the defendant corporation covered by
fully paid capital stock shares certificates are
entitled to vote in all meetings of the
stockholders of this corporation, and
Resolutions Nos. 2, 3 and 4 (Exhs. C, C-1
and C-2) of defendant's corporation's Board of
Directors are hereby nullified insofar as they
are inconsistent the this ruling.
The extensions of time to pay, referred to in
par. 3 of the settlement agreement of the
parties, will start to run from the date of receipt
by counsel for the parties of a copy of this
Order, and from receipt by the other
stockholders of notice of said extension of
time.
The injunction granted in the instant case is
hereby dissolved, and the injunction bond filed
by the plaintiffs is hereby cancelled and
released.
Defendants on August 14, 1959 perfected their appeal
against the above ruling, on purely questions of law.
Plaintiffs-appellees did not file any brief, manifesting
that they were relying on their arguments contained in
their motion for reconsideration, dated April 4, 1959
filed with the trial court. (pp. 213 to 218, rec. on
appeal) and on the reasons set forth in the trial court's
order, dated July 16, 1959, third decision (pp. 219 to
230 R.A.).
Pending decision, the parties were required to show
cause why the cases should not be dismissed for
having become moot or academic, in view of the fact
that the appellees, taking advantage of the decision of
the trial court, "had paid all other delinquencies and
interest thereon," but the appellants manifested that
these cases should be decided on the issues raised,
to determine, once and for all, the voting rights of the
other delinquent subscribers, in the election of the
company's Board of Directors which had been
suspended since May 1, 1955, because of the
litigation.
The questions posted in the appeal, in view of the
above facts would, therefore, be:
1. If a stockholder, in a stock corporation,
subscribes to a certain number of shares of
stock, and he pays only partially, for which he
is issued certificates of stock, is he entitled to
vote the latter, notwithstanding the fact
that he has not paid the balance of his
subscription, which has been called for
payment or declared delinquent?
2. If a stockholder subscribes to a certain
number of shares of stock and makes partial
payment only and declared delinquent as to
the rest, with interest, should previous
payments on account of the capital, be first
applied to interest, thus diminishing the voting
power of the shares of stock already paid? In
other words, if the entire subscribed shares of
stock are not paid, will the paid shares of
stock be deprived of the right to vote, until the
entire subscribed shares of stock are fully
paid, including interest?
3. Has estoppel or waiver, by virtue of the
settlement agreement, set in?
Defendants-appellants claim that resolution No. 4
(Exh. C-2), withdrawing or nullifying the voting power
of all the aforesaid shares of stock is valid,
notwithstanding the existence of partial payments,
evidenced by certificates duly issued therefor. They
invoke the ruling laid down by the Court in the Fua
Cun v. Summers case (44 Phil, 705, March 27, 1923)
pertinent portion of which states:
In the absence of special agreement to the
contrary, a subscriber for a certain number of
shares of stock does not, upon payment of
one-half of the subscription price, become
entitled to the issuance of certificates for one-
 half of the number of shares subscribed for;
the subscriber's right consists only in
equity entitling him to a certificate for the total
number of shares subscribed for by him upon
payment of the remaining portion of the
subscription price.
The cited case connotes the principle that a partial
payment of a subscription does not entitle the
stockholder to a certificate for the total number of
shares subscribed by him;
his right consists only in equity to a certificate of the
total number of shares subscribed for, upon payment
of the remaining portion of the subscription price.
In other words, it is contended, as in the present case,
that if Baltazar subscribed to 600 shares of stock in a
single subscription, and he merely paid for 300
shares, for which he was given fully paid certificates
for 300 shares, he cannot vote said 300 shares, in
any meeting of the Corporation, until he shall have
paid the remaining 300 shares of stock.
The saving clause in the quoted pronouncement, "in
the absence of special agreement to the contrary,"
reveals that the doctrine is not mandatory, but merely
directory, which is not violative of law, the rigor of the
pronouncement may be relaxed.
The plaintiffs-appellees seem to sustain an adverse
concept, postulating that once a stockholder has
subscribed to a certain number of shares, although he
has made partial payments only, but is issued a
certificate for the paid-up shares of stock, he is
entitled to vote the whole number of shares
subscribed by him, paid or not, until the said unpaid
shares shall have been called for payment or declared
delinquent.
The cases at bar do not come under the aegis of the
principle enunciated in the Fua Cun v. Summers case,
because it was the practice and procedure, since the
inception of the corporation, to issue certificates of
stock to its individual subscribers for unpaid shares of
stock and gave voting power to shares of stock fully
paid.
And even though no agreement existed, the ruling in
said case, does not now reflect the correct view on
the matter, for better than an agreement or practice,
there is the law, which renders the said case of Fua
Cun-Summers, obsolescent.
Section 37 of the Corporation Law, as amended by
Act No. 3518, approved on March 1, 1929, six (6)
years after the promulgation of the Fua-Summers
case (decided in 1923), provides:
SEC. 37. ... . No certificate of stock shall be
issued to a subscriber as fully paid up until
the full par value thereof, or the full
subscription in the case of no par stock, has
been paid by him to the corporation.
Subscribed shares not fully paid up may be
voted provided no subscription is unpaid and
delinquent.
The law just quoted was originally section 36 of the
Corporation Law of 1906, which reads as follows:
SEC. 36. ... . No certificate of stock shall be
issued to a subscriber as fully paid up until
the full par value thereof has been paid by
him to the corporation. Subscribed shares not
fully paid up may be voted provided no
subscription is unpaid and delinquent.
As may readily be seen, said Section 37 makes
payment of the "par value" as prerequisite for the
issuance of certificates of par value stocks, and
makes payment of the "full subscription" as
prerequisite for the issuance of certificates of no par
value stocks. No such distinction was contained in
section 36 of our Corporation Law of 1906,
corresponding to section 37 now.
The present law could have simply provided that no
certificate of par value and no par value stock shall be
issued to a subscriber, as fully paid up, until the full
subscription has been paid by him to the
corporation, if full payment of subscription were
intended is the criterion in the issuance of certificates,
for both thepar value and no par value stocks.
Stated in another way, the present law requires as a
condition before a share holder can vote his shares,
that his full subscription be paid in the case of no par
value stock; and in case of stock corporation with par
value, the stockholder can vote the shares fully paid
by him only, irrespective of the unpaid delinquent
shares.
As well-observed by the trial court, a corporation may
now, in the absence of provisions in their by-laws to
the contrary, apply payment made by , subscribers-
stockholders, either as:
"(a) full payment for the corresponding number of
shares of stock, the par value of each of which is
covered by such payment; or
(b) as payment pro-rata to each and all the entire
number of shares subscribed for" (amended
decision).
In the cases at bar, the defendant-corporation had
chosen to apply payments by its stockholders to
definite shares of the capital stock of the corporation
and had fully paid capital stock shares certificates for
said payments; its call for payment of unpaid
subscription and its declaration of delinquency for
non-payment of said call affecting only the remaining
number of shares of its capital stock for which no fully
paid capital stock shares certificates have been
issued, "and only these have been legally shorn of
their voting rights by said declaration of delinquency"
(amended decision).
The third paragraph of the settlement agreement
relates to interest on the unpaid balance of
subscription to the capital stock. The second
paragraph of resolution No. 3 (Exh. C-1), unilaterally
declared as of no value and cancelled all capital stock
shares certificates issued as fully paid up, upon
payments made by stockholders, when interests on
unpaid subscription from date of subscription were not
previously and/or then and there paid. Defendants-
appellants, invoking Art. 1253 NCC (Art. 1173 of the
Old Civil Code) which provides that "if the debt
produces interest, payment of the principal shall not
be deemed to have been made until the interests
have been covered," and relying on an opinion of the
Securities and Exchange Commission, claim that said
unilateral nullification and/or cancellation of previously
issued capital stock shares certificates was valid. This
provision of law only applies in the absence of verbal
or written agreement, to the contrary (8 Manresa, p.
317);
it is likewise merely directory, and not mandatory. (Art.
1252 NCC). In the present case, the defendant-
corporation had applied the payments made by the
stockholders to the full par value of the shares of
stock subscribed by them, instead of the accepted
interest, as shown by the capital stock shares
certificate issued for the payments made, and the
stockholders had accepted such certificates issued for
such payments.
This being the case, the said application of payments
must be deemed to have been agreed upon by the
Corporation and the stockholders, and the same
cannot now be changed without the consent of the
stockholders concerned. The Corporation Law and
the by-laws of the defendant Corporation do not
contain any provision, prohibiting the application of
stockholders' payments to the full par value of a
corporation's capital stock, ahead of the payment of
accrued interest for unpaid subscriptions. It would,
therefore, result that a corporation may, upon request
of an interested stockholder, as his option, apply
payment by them to the full par value of shares of
capital leaving its collection later of the accrued
interest on unpaid subscriptions, and that once such
option has been exercised and the corresponding
stock certificates have been issued, the corporation
cannot, by a unilateral act, legally nullify and cancel
the capital stock certificates so issued.
It is finally argued by defendants-appellants that the
plaintiffs-appellees waived, under the agreement
heretofore quoted, the right to enforce the voting
power they were claiming to exercise, and upon the
principle of estoppel, they are now prohibited from
insisting on the existence of such power, ending with
the exhortation, that "they should lie upon the bed
they helped built, for a lasting peace in the interest of
the corporation." It should, however, be stated as
heretofore exposed, that certain clauses of the
agreement are contrary to law and public policy and
would cause injury to plaintiffs-appellees and other
stockholders similarly situated. Estoppel cannot be
predicated on acts which are prohibited by law or are
against public policy (Benguet Cons. Mining Co. v.
Pineda, 52 Off. Gaz. 1961, L-7231, March 28, 1956;
Eugenio v. Perdido L-7083, May 19, 1955; III Rep. of
the Philippines Digest, p. 269-270).
WHEREFORE, the order of the trial court of July 16,
1959, (1) Expressly ruling "that all shares of the
capital stocks of the defendant corporation covered by
fully paid capital stock shares of certificates
are entitled to vote in all meetings of the stockholders
of this corporation and resolutions Nos. 2, 3 and 4
(Exhs. C, C-1 and C-2) of defendant corporation's
Board of Directors are hereby nullified insofar as they
are inconsistent with this ruling"; and (2) Dissolving
the injunction granted in the cases and releasing the
injunction bond filed by the plaintiffs-appellees, is
correct and the same should be, as it is hereby
affirmed. Costs taxed against the defendants-
appellants.
[G.R. No. L-57586. October 8, 1986.]
AQUILINO RIVERA, ISAMU AKASAKO
and FUJIYAMA HOTEL & RESTAURANT,
INC., Petitioners, v. THE HON. ALFREDO
C. FLORENDO, as Judge of the Court of
First Instance of Manila (Branch
XXXVI), LOURDES JUREIDINI and
MILAGROS TSUCHIYA, Respondents.
Bobby P. Yuseco, for Petitioners.
Arthur Canlas for Private Respondents.
 SYLLABUS
1. COMMERCIAL LAW; CORPORATIONS;
INTRA-CORPORATE CONTROVERSY;
DEFINED. — An intra-corporate controversy
has been defined as "one which arises
between a stockholder and the corporation.
There is no distinction, qualification, nor any
exemption whatsoever." (Philex Mining
Corporation v. Reyes, 118 SCRA 605,
November 19, 1982). This Court has also
ruled that cases of private respondents who
are not shareholders of the corporation,
cannot be a "controversy arising out of
intracorporate or partnership relations
between and among stockholders, members
or associates; between any or all of them
and the corporation, partnership or
association, of which they are stockholders,
members or associates, respectively."
(Sunset View Condominium v. Campos, Jr.,
104 SCRA 303, April 27, 1981).
2. ID.; ID.; ID.; WITHIN THE JURISDICTION
OF THE SECURITIES AND EXCHANGE
COMMISSION. — It has already been settled
that an intracorporate controversy would call
for the jurisdiction of the Securities and
Exchange Commission. (Philippine School of
Business Administration v. Lanao, 127 SCRA
781, February 24, 1984)
3. ID.; ID.; PETITION BY NON-MEMBERS OF
CORPORATION WITHIN THE JURISDICTION
OF REGULAR COURTS. — As the bone of
contention in this case, is the refusal of
petitioner Rivera to indorse the shares of
stock in question and the refusal of the
Corporation to register private respondents’
shares in its books, there is merit in the
findings of the lower court that the present
controversy is not an intracorporate
controversy; private respondents are not yet
stockholders; they are only seeking to be
registered as stockholders because of an
alleged sale of shares of stock to them.
Therefore, as the petition is filed by outsiders
not yet members of the corporation,
jurisdiction properly belongs to the regular
courts.
4. ID.; ID.; SHARES OF STOCK; HOW
TRANSFERRED. — As confirmed by this
Court, "shares of stock may be transferred
by delivery to the transferee of the
certificate properly indorsed.’Title may be
vested in the transferee by delivery of the
certificate with a written assignment or
indorsement thereof’ (18 C.J.S. 928). There
should be compliance with the mode of
transfer prescribed by law (18 C.J.S. 930)’"
(Nava v. Peers Marketing Corp., 74 SCRA 65,
69, Nov. 25, 1976).
5. ID,; ID.; ID.; CANNOT BE THE SUBJECT
OF MANDAMUS ON THE STRENGTH OF MERE
INDORSEMENT. — It is evident that
mandamus will not lie in the instant case
where the shares of stock in question are not
even indorsed by the registered owner
Rivera who is specifically resisting the
registration thereof in the books of the
corporation. Under the above ruling, even
the shares of stock which were purchased by
private respondents from the other
incorporators cannot also be the subject of
mandamus on the strength of mere
indorsement of the supposed owners of said
shares in the absence of express instructions
from them. The rights of the parties will have
to be threshed out in an ordinary action.
6. REMEDIAL LAW; PROVISIONAL
REMEDIES; MANDATORY INJUNCTION;
WHEN GRANTED; REGARDED AS OF A MORE
SERIOUS NATURE THAN PROHIBITIVE
INJUNCTION. — A mandatory injunction is
granted only on a showing (a) that the
invasion of the right is material and
substantial; (b) the right of complainant is
clear and unmistakable; and (c) there is an
urgent and permanent necessity for the writ
to prevent serious damage (Pelejo v. Court
of Appeals, 117 SCRA 668, Oct. 18, 1982). A
mandatory injunction which commands the
performance of some specific act is regarded
as of a more serious nature than a mere
prohibitive injunction, the latter being
intended generally to maintain the status
quo only. While our courts, being both of law
and equity, have jurisdiction to issue a
mandatory writ, it has always been held that
its issuance would be justified only in clear
cases; that it is generally improper to issue it
before final hearing because it tends to do
more than maintain the status quo; that it
should be issued only where there is a willful
and unlawful invasion of plaintiff’s right and
that the latter’s case is one free from doubt
and dispute. (National Marketing v. Cloribel
22 SCRA 1038, March 13, 1968).
7. ID.; ID.; ID.; WILL NOT ISSUE WHEN A
PARTY’S RIGHTS ARE NOT CLEAR. —
Respondent court in the instant case violated
the fundamental rule of injunctions that a
mandatory injunction will not issue in favor
of a party whose rights are not clear and free
of doubt or as yet undetermined. (Namarco
v. Cloribel, 22 SCRA 1038-1039, March 13,
1968). It will be recalled that the disputed
shares of stock were purchased not from the
registered owner but from a Japanese
national who allegedly was the real owner
thereof. It was also alleged that the
registered owner was only a dummy of
Akasako. It is also true that the trial court
has already made findings to that effect at
the hearing for the issuance of the Order of
June 5, 1981. Nonetheless, these are
contentious issues that should properly be
ventilated at the trial on the merits.
8. ID.; ID.; PRELIMINARY INJUNCTION; THE
COURT SHOULD NOT, BY MEANS THEREOF,
TRANSFER PROPERTY WHERE THE LEGAL
TITLE IS IN DISPUTE; PRIMARY PURPOSE OF
INJUNCTION. — Another fundamental rule
which appears to have been violated in the
case at bar is that no advantage may be
given to one to the prejudice of the other, a
court should not by means of a preliminary
injunction transfer the property in litigation
from the possession of one party to another
where the legal title is in dispute and the
party having possession asserts ownership
thereto. (Rodulfo v. Alonso, 76 Phil. 225,
February 28, 1946). Similarly, the primary
purpose of an injunction is to preserve the
status quo, that is the last actual peaceable
uncontested status which preceded the
controversy.  Contempt punishable under Rule 71 of the
9. ID.; EFFECT WHEN THE ORDER OF TRIAL
COURT IS A JUDGMENT ON THE MERITS. —
As correctly stated in petitioners’ motion for
reconsideration, the Order of the trial court
is in effect a judgment on the merits,
declaring expressly or impliedly that
petitioners are stockholders of the
Corporation at the hearing of only the
incident for the issuance of a Writ
Preliminary Injunction. On the other hand if
the Order amounts to a judgment on the
merits, the lower court should first rule on
what private respondents seek; the
registration of their shareholdings in the
books of the corporation and the issuance of
new stock certificates. It is only thereafter
that the subsequent act of management may
be ordered and the period of finality of such
a judgment should be in accordance with the
Rules of Court, giving the respondents the
right to an appeal or review and not be
immediately executory as the Writ of
Preliminary Mandatory Injunction would
infer.
10. LEGAL AND JUDICIAL ETHICS;
CONTEMPT OF COURT; DEFINED; INDIRECT
CONTEMPT; ACTS CONSTITUTING THE
SAME. — It has been held that contempt of
court is a defiance of the authority, justice or
dignity of the court, such conduct as tends to
bring the authority and administration of the
law into disrespect or to interfere with or
prejudice parties litigant or their witnesses
during litigation. It is defined as a
disobedience to the court by setting up an
opposition to its authority, justice and
dignity. It signifies not only a willful
disregard or disobedience of the court’s
orders but such conduct as tends to bring
the authority of the court and the
administration of law into disrepute or in
some manner to impede the due
administration of justice (Halili v. Court of
Industrial Relations, 136 SCRA 135, April 30,
1985). There is no question that
disobedience or resistance to a lawful writ,
process, order, judgment or command of a
court, or injunction granted by a court or
judge, more particularly in this case, the
Supreme Court, constitutes Indirect
Rules of Court. (Rule 71, Section 3 (b) and
Section 6)
11. ID.; POWER TO PUNISH FOR CONTEMPT
OF COURT; SHOULD BE EXERCISED ON THE
PRESERVATIVE, NOT ON THE VINDICTIVE
PRINCIPLE. — However, it is also well settled
that "the power to punish for contempt of
court should be exercised on the
preservative and not on the vindictive
principle. Only occasionally should the court
invoke its inherent power in order to retain
that respect without which the administration
of justice must falter or fail." (Villavicencio v.
Lukban, 39 Phil. 778 [1919]; Gamboa v.
Teodoro, Et Al., 91 Phil. 274 [1952]; Sulit v.
Tiangco, 115 SCRA 207 [1982]; Lipata v.
Tutaan, 124 SCRA 880 [1983]. "Only in
cases of clear and contumacious refusal to
obey should the power be exercised. A bona
fide misunderstanding of the terms of the
order or of the procedural rules should not
immediately cause the institution of
contempt proceedings." "Such power ‘being
drastic and extraordinary in its nature . . .
should not be resorted to . . . unless
necessary in the interest of justice.’"  shown, Aquilino Rivera refused to make the
DECISION
PARAS, J.:
This is a petition for certiorari and prohibition
with preliminary injunction seeking the
annulment of the following Orders of the
then Court of First Instance of Manila,
Branch XXXVI: (a) Order dated June 5, 1981
directing the issuance of a writ of preliminary
mandatory injunction requiring petitioners
Fujiyama Hotel & Restaurant, Inc., Isamu
Akasako and Aquilino Rivera to allow
respondents Lourdes Jureidini and Milagros
Tsuchiya to manage the corporate property
upon filing of a bond in the amount of
P30,000.00 (Rollo, pp. 43-57) and (b) Order
dated July 24, 1981 denying petitioners’
motion for reconsideration and motion to
dismiss for lack of jurisdiction but increasing
the bond to P120,000.00 (Rollo, p. 81).
Petitioner corporation was organized and
registered under Philippine laws with a
capital stock of P1,000,000.00 divided into
10,000 shares of P100.00 par value each by
the herein petitioner Rivera and four (4)
other incorporators. Sometime thereafter
petitioner Rivera increased his subscription
from the original 1,250 to a total of 4899
shares (Rollo, p. 4).
Subsequently, Isamu Akasako, a Japanese
national and co-petitioner who is allegedly
the real owner of the shares of stock in the
name of petitioner Aquilino Rivera, sold 2550
shares of the same to private respondent
Milagros Tsuchiya for a consideration of
P440,000.00 with the assurance that
Milagros Tsuchiya will be made the President
and Lourdes Jureidini a director after the
purchase. Aquilino Rivera who was in Japan
also assured private respondents by
overseas call that he will sign the stock
certificates because Isamu Akasako is the
real owner. However, after the sale was
consummated and the consideration was
paid with a receipt of payment therefor
indorsement unless he is also paid. (Rollo,
pp. 51-52).
It also appears that the other incorporators
sold their shares to both respondent Jureidini
and Tsuchiya such that both respondents
became the owners of a total of 3300 shares
or the majority out of 5,649 outstanding
subscribed shares of the corporation (Rollo,
pp. 4-5), and that there was no dispute as to
the legality of the transfer of the stock
certificate Exhibits "B-1" to "B-4" to
Jureidini, all of which bear the signatures of
the president and the secretary as required
by the Corporation Law with the proper
indorsements of the respective owners
appearing thereon. Exhibits "B-1" to "B-4"
are specifically indorsed to her while Exhibits
"B-2" and "B-3" are indorsed in blank.
Aquilino Rivera admitted the genuineness of
all the signatures of the officers of the
corporation and of all the indorsee therein.
(Order dated June 5, 1981, Civil Case No.
13273, Rollo, pp. 51-53). chanrobles lawlibrary : rednad
Nonetheless, private respondents attempted
several times to register their stock
certificates with the corporation but the
latter refused to register the same. (Ibid.,
Rollo, pp. 54-55). Thus, private respondents
filed a special civil action for mandamus and
damages with preliminary mandatory
injunction and/or receivership naming herein
petitioners as respondents, docketed as
Special Civil Action No. 13273, "Lourdes
Jureidini, Et. Al. v. Fujiyama Hotel, Et. Al." of
the Court of First Instance of Manila, Branch
XXXVI presided by respondent Judge.
Petitioners’ counsel Atty. Marcelino A. Bueno,
upon receipt of the summons and a copy of
the aforesaid petition, filed an answer
thereto with denials, special and affirmative
defenses and counterclaim. Thereafter, a
hearing was held on the application for
preliminary mandatory injunction and/or
receivership, after which respondent Judge
issued an order for a writ of preliminary
mandatory injunction authorizing respondent
Jureidini and Tsuchiya to manage the
corporation’s hotel and restaurant, upon the
filing of a bond in the amount of P30,000.00.
Then through another counsel Atty. Eriberto
D. Ignacio in collaboration with their counsel
of record, Atty. Marcelino A. Bueno,
petitioners (respondents therein) filed a
motion to dismiss the petition on the ground
that respondent Judge has no jurisdiction to
entertain the case, while through Atty.
Bueno, they filed a motion for
reconsideration of the Order granting the
issuance of a writ of mandatory preliminary
injunction. Private respondents filed their
opposition to both motions and on July 24,
1981, respondent Judge issued an Order
denying both the motion for reconsideration
and the motion to dismiss the petition but
increased the amount of the bond from
P30,000.00 to P120,000.00 to sufficiently
protect the interests of herein petitioners.
(Rollo, p. 81).
Hence, this petition.
After filing the petition, Atty. Eriberto D.
Ignacio withdrew as counsel for petitioners
on August 6, 1981. Such withdrawal was
confirmed by petitioner Isamu Akasako
(Rollo, p. 83). On August 10, 1981 the
appearance of Isaca & Espiritu Law Offices as
counsel in substitution of former counsel
Attys. Marcelino A. Bueno and Eriberto D.
Ignacio was received by this Court. (Rollo, p.
84); all of which were noted in the resolution
of the First Division of this Court dated
August 17, 1981. (Rollo, p. 160).
The new counsel filed a Manifestation and
Motion praying that the therein attached
Supplement and certified copies of the
questioned orders and writs be admitted and
considered as part of petitioners’ original
petition for Certiorari and Prohibition with
Preliminary injunction. (Rollo, pp. 85-131).
On August 14, 1981 petitioners filed an
Urgent Motion for Restraining Order and
Other Provisional Injunctive Reliefs (Rollo,
pp. 154-159).
In the same resolution of August 17, 1981,
after deliberating on the petition and
supplemental to the petition, the Court
Resolved:
(a) to require the respondents to comment
thereon (not to file a motion to dismiss
within ten (10) days from notice and
(b) upon petitioners’ filing of an injunction
bond in the amount of P30,000.00 to issue a
Writ of Preliminary Injunction enjoining
respondents from enforcing the writ of
preliminary mandatory injunction dated June
23, 1981 issued in Civil Case No. 132673.
(Rollo, p. 160).
Said bond was filed on August 20, 1981
(Rollo, p. 161) and accordingly, a writ of
preliminary injunction was issued by this
Court on August 21, 1981 (Rollo, pp. 172-
173).
Subsequently, petitioners filed a
manifestation and urgent motion on August
28, 1981 praying that private respondent
Lourdes Jureidini and her counsel Atty.
Arthur Canlas be declared in contempt of
court for the former’s alleged defiant refusal:
(a) to acknowledge receipt of the Writ of
Preliminary Injunction of August 21, 1981
and (b) to comply with the said writ issued
by this Court. (Rollo, pp. 174-180).
Comment thereon was filed by private
respondents through counsel (Rollo, pp. 185-
199) in compliance with the resolution of the
First Division dated August 17, 1981 (Rollo,
p. 160), praying for the immediate lifting of
the preliminary injunction. Said comment of
private respondents was noted in the
resolution of October 5, 1981 (Rollo, p. 200)
which also required respondents to comment
on the supplement to the petition. chanrobles law library : red
On October 2, 1981, comment on the
manifestation and urgent motion to declare
Jureidini and her counsel in contempt of
court was filed by counsel for private
respondent (Rollo, pp. 201-214) in
compliance with the resolution of September
14, 1981 (Rollo, p. 181).
In the resolution of October 26, 1981 (Rollo,
p. 215) the Court Resolved to require
petitioners to file a reply to aforesaid
comment. (Rollo, p. 215).
Meanwhile, supplemental comment on the
supplement to the petition was filed by
private respondents on October 14, 1981
(Rollo, pp. 216-222) reiterating their stand
that it is the ordinary court and not the
Securities and Exchange Commission (SEC)
that has jurisdiction to entertain the case as
the controversies did not arise from the
intra-corporate relationship among the
parties.
On October 21, 1981, petitioner filed: (a)
motion for leave to file reply to comment of
respondents on the petition and
supplemental petition required in the
resolution of August 17, 1981 (Rollo, pp.
223-224) and (b) the attached Reply (Rollo,
pp. 225-241). On November 25, 1981,
petitioners filed their Reply to respondents’
Comment on petitioners’ manifestation and
urgent motion to declare them in contempt.
(Rollo, pp. 246-257).
On December 7, 1981 Atty. Bobby P. Yuseco
entered his appearance as collaborating
counsel for petitioners (Rollo, p. 258) and
filed an urgent petition for early resolution of
petitioners’ motion to hold private
respondents in contempt and for issuance of
Order clarifying Writ of Injunction dated
August 21, 1981. (Rollo, pp. 259-261).
In the resolution of January 18, 1982, this
case and all pending incidents were set for
hearing on February 3, 1982. (Rollo, p. 268).
On February 1, 1982, Lesaca and Espiritu
Law Offices filed a Manifestation and Motion
for Leave to withdraw as counsel for
petitioners. (Rollo, pp. 274-275).
When this case was called for hearing on
February 3, 1982, counsel for both parties
appeared and argued their causes and both
were required by the Court within an
unextendible period of ten (10) days to file
their respective memoranda in support of
their positions on all pending incidents of the
case at bar while the hearing on the
contempt proceedings was reset for February
10, 1982 where the personal appearance of
private respondent Lourdes Jureidini through
her counsel was required. (Rollo, p. 279).
On February 9, 1982, counsel for private
respondent Jureidini filed an Urgent Motion
and Manifestation that he was informed by
his client that she is physically exhausted
and is beset with hypertension and praying
that she be excused from appearing at the
hearing set for February 10, 1982, that the
hearing be cancelled and the contempt
incident be considered submitted for decision
on the basis of pleadings previously filed.
(Rollo, pp. 280-282).
On the same date, February 9, 1982, counsel
for petitioners filed his Memorandum in
support of his oral argument at the hearing
of February 3, 1982, (Rollo, pp. 283-287)
while a supplement thereto was filed on
February 12, 1982. (Rollo, pp. 291-294).
At the hearing of February 10, 1982, private
respondent Lourdes Jureidini and her counsel
failed to appear.
Accordingly the Court Resolved: (a) to
IMPOSE on said counsel Atty. Canlas a fine
of P200.00 or to suffer imprisonment if said
fine is not paid; (b) to RESET the hearing on
the contempt incidents on March 3, 1982
and (c) to REQUIRE the presence of Atty.
Canlas and respondent Lourdes Jureidini and
of complainants Attys. Bibiano P. Lasaca,
Rodolfo A. Espiritu and Renato T. Paqui.
(Resolution of February 10, 1982, Rollo, p.
290).chanrobles lawlibrary : rednad
On February 15, 1982, private respondents
file their memorandum in compliance with
the resolution of this Court of February 3,
1982 while petitioners on February 25, 1982
filed their reply thereto.
At the hearing of March 3, 1982, both
counsel as well as private respondent
Lourdes Jureidini, Attys. Bibiano P. Lesaca,
Rodolfo A. Espiritu and Renato R. Paguio
appeared. Atty. Canlas, Lourdes Jureidini,
Atty. Lesaca and a representative of the
petitioners were interpellated by the Court.
Thereafter, the incident was declared
submitted for resolution. (Resolution of
March 3, 1982, Rollo, p. 316).
On March 5, 1982, counsel for private
respondents filed his compliance with the
resolution of February 10, 1982 enclosing a
check payable to this Court in the amount of
P200.00 in payment of the fine imposed with
motion for reconsideration explaining why he
should not be declared in contempt and
praying that the aforesaid resolution of
February 10, 1982 be set aside, (Rollo, pp.
312-314). However, in the resolution of
March 10, 1982, (Rollo, p. 317) the Court
acting on the compliance of Atty. Arthur
Canlas with motion for reconsideration,
denied the motion and required the Chief of
the Docket Division to return to Atty. Canlas
the check in the amount of P200.00 it being
an out of town check, and Atty. Canlas to
pay the fine in cash, and to show cause why
he should not be disciplinary dealt with or
held in contempt for wilful delay in paying
the fine by mail through an out of town
check contrary to his manifestation at the
hearing that he had promptly paid the fine,
both within forty eight hours from notice.
Meanwhile, counsel for petitioners filed on
April 6, 1982 an Urgent Petition for
Permission to Implement Injunction Writ
issued on August 21, 1981 (Rollo, pp. 323-
325) which was granted in the resolution of
May 26, 1982 (Rollo, p. 313). In the same
resolution the Court ordered Lourdes
Jureidini and Milagros Tsuchiya to strictly
and immediately comply with the Court’s
aforesaid writ of preliminary injunction;
indicated that it would resolve the pending
incident for contempt against private
respondent Lourdes Jureidini when the Court
decides the case on the merits; and gave the
parties thirty (30) days from notice within
which to submit simultaneously their
respective memoranda on the merits of the
case.
On May 31, 1982, counsel for private
respondent Atty. Canlas filed in compliance
with the resolution of March 10, 1982, his
explanation and manifestation why he should
not be disciplinarily dealt with and held in
contempt of Court (Rollo, pp. 316-318). In
the resolution of June 2, 1982, the Court
Resolved to set aside and lift the Order of
Atty. Canlas’ arrest and commitment it had
issued on March 31, 1982 but found the
explanation and manifestation of Atty.
Canlas dated May 29, 1982 unsatisfactory.
In view thereof, he was reprimanded for
negligence and undue delay in complying
with the Court’s resolution. (Rollo, p. 319).
On June 18, 1982, counsel for petitioners
allegedly for purposes of clarification as to
the laws involved in the matter of contempt
of Lourdes Jureidini, filed a pleading entitled
"Re Incident of Contempt against Lourdes
Jureidini." (Rollo, pp. 320-326) which was
noted by the Court in the resolution of July
7, 1982. (Rollo, p. 328).
Counsel for private respondents manifested
(Rollo, p. 329), on July 12, 1982 that they
are adopting the memorandum submitted in
the preliminary injunction incident as their
memorandum in the main case. Said
manifestation was noted in the resolution of
July 26, 1982. (Rollo, p. 331). Counsel for
petitioners manifested (Rollo, p. 333) that
they are adopting their memorandum in
support of argument last February 3, 1982
as their combined memoranda on the merits
of the case. Said manifestation was noted in
the resolution of September 15, 1982.
(Rollo, p. 334). In the resolution of
November 29, 1982, this case was
transferred to the Second Division. (Rollo, p.
336).chanrobles lawlibrary : rednad
In their petition and supplemental petition,
petitioners raised the following issues: chanrob1es virtual 1aw library
I.

THE RESPONDENT COURT OF FIRST
INSTANCE HAS NO JURISDICTION OVER THE
PETITION FOR MANDAMUS AND
RECEIVERSHIP "AS WELL AS IN PLACING
THE CORPORATE ASSETS UNDER
PROVISIONAL RECEIVERSHIP IN THE GUISE
OF A WRIT OF PRELIMINARY MANDATORY
INJUNCTION."
cralaw virtua1aw library
II.
EVEN FALSELY ASSUMING THAT THE
RESPONDENT COURT HAD JURISDICTION,
THE PRIVATE RESPONDENTS’ PRINCIPAL
ACTION OF MANDAMUS IS AN IMPROPER
COURSE OF ACTION.
III.
ASSUMING ARGUENDO THAT WHAT THE
RESPONDENT COURT FOUND IS TRUE,
NAMELY THAT PRIVATE RESPONDENTS "ARE
OUTSIDERS" AND "NOT YET
STOCKHOLDERS," THUS, HAVING NO
PERSONALLY AT ALL, THEN PROVISIONAL
RECEIVERSHIP, ALBEIT CLOTHED AS A
"WRIT OF PRELIMINARY MANDATORY
INJUNCTION" WAS ILLEGALLY ISSUED DE
HORS ITS JURISDICTION.
IV.
ASSUMING ARGUENDO THAT THE
RESPONDENT COURT HAD JURISDICTION
OVER BOTH THE PETITION FOR MANDAMUS
AS WELL AS THE PROVISIONAL
RECEIVERSHIP STILL THE RESPONDENT
COURT ACTED IN EXCESS OF ITS
JURISDICTION OR IN GRAVE ABUSE OF ITS
DISCRETION TO GRANT RECEIVERSHIP
OVER THE MANAGEMENT OF THE
CORPORATE BUSINESS AND ASSETS WHICH
NEVER WAS NOR IS A SUBJECT MATTER OF
LITIGATION.
V.
EVEN GRANTING FOR THE SAKE OF
ARGUMENT THAT THE RESPONDENT COURT
HAD JURISDICTION OVER THE SUBJECT
MATTER OF THE CASE; NONETHELESS IT
WAS IN GRAVE ABUSE OF ITS DISCRETION
TO UNILATERALLY GRANT TO A "PARTY-IN-
LITIGATION," THE PRIVATE RESPONDENTS
HEREIN, THE MANAGEMENT OF THE
CORPORATE BUSINESS. (Petition and
Supplemental Petition; Rollo, pp. 2-18; 88-
131).
I.
The crucial issue in this case is whether it is
the regular court or the Securities and
Exchange Commission that has jurisdiction
over the present controversy.
Presidential Decree No. 902-A provides: jgc:chanrobles.com.ph
"Sec. 5. In addition to the regulatory and
adjudicative functions of the Securities and
Exchange Commission over corporations,
partnerships and other forms of associations
registered with it as expressly granted under
existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and
decide cases involving: chanrob1es virtual 1aw library
(a) . . .
(b) Controversies arising out of intra-
corporate or partnership relations and
among stockholders, members, or
associates; between any or all of them and
the corporation, partnership or association of
which they are stockholders, members, or
associates, respectively and between such
corporations, partnership or association and
the State insofar as it concerns their
individual franchise or right to exist as such
entity." cralaw virtua1aw library
It has already been settled that an
intracorporate controversy would call for the
jurisdiction of the Securities and Exchange
Commission. (Philippine School of Business
Administration v. Lanao, 127 SCRA 781,
February 24, 1984). On the other hand, an
intra-corporate controversy has been defined
as "one which arises between a stockholder
and the corporate. There is no distinction,
qualification, nor any exemption
whatsoever." (Philex Mining Corporation v.
Reyes, 118 SCRA 605, November 19, 1982).
This Court has also ruled that cases of
private respondents who are not
shareholders of the corporation, cannot be a
"controversy arising out of intracorporate or
partnership relations between and among
stockholders, members or associates;
between any or all of them and the
corporation, partnership or association, of
which they are stockholders, members or
associates, respectively." (Sunset View
Condominium Corporation v. Campos, Jr.,
104 SCRA 303, April 27, 1981).
Under Batas Pambansa Blg. 68 otherwise
known as "The Corporation Code of the
Philippines," shares of stock are transferred
as follow: chanrobles virtual lawlibrary
"SEC. 63. Certificate of stock and transfer of
shares. — The capital stock of stock
corporations shall be divided into shares for
which certificates signed by the president or
vice-president, countersigned by the
secretary or assistant secretary, and sealed
with the seal of the corporation shall be
issued in accordance with the by-laws.
Shares of stock so issued are personal
property and may be transferred by delivery
of the certificate or certificates indorsed by
the owner or his attorney-in-fact or other
person legally authorized to make the
transfer. No transfer, however, shall be
valid, except as between the parties, until
the transfer is recorded in the book of the
corporation showing the names of the parties
to the transaction, the date of the transfer,
the number of the certificate or certificates
and the number of shares transferred.
x       x       x"  III-V.
As confirmed by this Court, "shares of stock
may be transferred by delivery to the
transferee of the certificate properly
indorsed. `Title may be vested in the
transferee by delivery of the certificate with
a written assignment or indorsement thereof’
(18 C.J.S. 928). There should be compliance
with the mode of transfer prescribed by law
(18 C.J.S 930)’" (Nava v. Peers Marketing
Corp. 74 SCRA 65, 69, Nov. 25, 1976).
As the bone of contention in this case, is the
refusal of petitioner Rivera to indorse the
shares of stock in question and the refusal of
the Corporation to register private
respondents’ shares in its books, there is
merit in the findings of the lower court that
the present controversy is not an
intracorporate controversy; private
respondents are not yet stockholders; they
are only seeking to be registered as
stockholders because of an alleged sale of
shares of stock to them. Therefore, as the
petition is filed by outsiders not yet members
of the corporation, jurisdiction properly
belongs to the regular courts.
II.
On the other hand, there is merit in
petitioners’ contention that private
respondents’ principal action of mandamus is
an improper course of action.
It is evident that mandamus will not lie in
the instant case where the shares of stock in
question are not even indorsed by the
registered owner Rivera who is specifically
resisting the registration thereof in the books
of the corporation. Under the above ruling,
even the shares of stock which were
purchased by private respondents from the
other incorporators cannot also be the
subject of mandamus on the strength of
mere indorsement of the supposed owners of
said shares in the absence of express
instructions from them. The rights of the
parties will have to be threshed out in an
ordinary action.
Petitioners insist that what was issued was a
provisional receivership, while private
respondents maintain that the trial court
issued a Writ of Preliminary Mandatory
Injunction. Be that as it may, it appears
obvious that from the above-mentioned
rulings of this Court, petitioners’ contention
that respondent Judge in the issuance
thereof committed acts of grave abuse of
discretion, is well taken.
In the Order dated June 5, 1981, in Civil
Case No. 132673, the basis of aforesaid Writ
was as follows: jgc:chanrobles.com.ph
"Finally, the Court, after assessing the
evidence, finds that the issuance of a
preliminary mandatory injunction is proper.
Respondents Isamu Akasako and Aquilino
Rivera, thru their simulated relationship,
have succeeded for two years since 1979 to
deprive the petitioners to participate in the
profit and management of the corporation of
which they are the majority stockholders
considering that the stocks certificates
appearing in the name of Aquilino Rivera
(Exh. "8") is 55% to 75% of the total stocks
of the corporation by Isamu Akasako would
only prolong the injustice committed against
the petitioners and the damages they would
suffer would be irreparable. The Court is
aware that preliminary mandatory injunction
is the exception rather than the rule, but
according to the Code Commission, in its
report on page 98, ‘the writ of preliminary
mandatory injunction is called for by the fact
that there are at present prolonged litigation
between owner and usurper and the former
is deprived of his possession even when he
has an immediate right thereto.’ In the
instant case, the right of the petitioners is
clear and unmistakable on the law and the
facts and there exists an urgent and
paramount necessity for the issuing of the
writ in order to prevent extreme or rather
serious damage which ensues from
withholding it. (43 C.J.S. 413).
"WHEREFORE, in view of the foregoing
circumstances, let a writ of preliminary
mandatory injunction issue requiring
respondents to allow petitioners to manage
the corporate property known as the
Fujiyama Hotel & Restaurant, Inc. upon
petitioners’ filing of a bond in the amount of
P30,000.00." cralaw virtua1aw library
A mandatory injunction is granted only on a
showing (a) that the invasion of the right is
material and substantial; (b) the right of
complainant is clear and unmistakable; and
(c) there is an urgent and permanent
necessity for the writ to prevent serious
damage. (Pelejo v. Court of Appeals, 117
SCRA 668, Oct. 18, 1982). chanrobles virtual lawlibrary
A mandatory injunction which commands the
performance of some specific act is regarded
as of a more serious nature than a mere
prohibitive injunction, the latter being
intended generally to maintain the status
quo only. While our courts, being both of law
and equity, have jurisdiction to issue a
mandatory writ, it has always been held that
its issuance would be justified only in clear
cases; that it is generally improper to issue it
before final hearing because it tends to do
more than maintain the status quo; that it
should be issued only where there is a willful
and unlawful invasion of plaintiff’s right and
that the latter’s case is one free from doubt
and dispute. (National Marketing v. Cloribel,
22 SCRA 1038, March 13, 1968).
Respondent court in the instant case violated
the fundamental rule of injunctions that a
mandatory injunction will not issue in favor
of a party whose rights are not clear and free
of doubt or as yet undetermined. (Namarco
v. Cloribel, 22 SCRA 1038-1039, March 13,
1968). It will be recalled that the disputed
shares of stock were purchased not from the
registered owner but from a Japanese
national who allegedly was the real owner
thereof. It was also alleged that the
registered owner was only a dummy of
Akasako. It is also true that the trial court
has already made findings to that effect at
the hearing for the issuance of the Order of
June 5, 1981. Nonetheless, these are
contentious issues that should properly be
ventilated at the trial on the merits. As
correctly stated in petitioners’ motion for
reconsideration, the Order of the trial court
is in effect a judgment on the merits,
declaring expressly or impliedly that
petitioners are stockholders of the
Corporation at the hearing of only the
incident for the issuance of a Writ of
Preliminary Injunction. On the other hand if
the Order amounts to a judgment on the
merits, the lower court should first rule on
what private respondents seek, the
registration of their shareholdings in the
books of the corporation and the issuance of
new stock certificates. It is only thereafter
that the subsequent act of management may
be ordered and the period of finality of such
a judgment should be in accordance with the
Rules of Court, giving the respondents the
right to an appeal or review and not be
immediately executory as the Writ of
Preliminary Mandatory Injunction would
infer. (Rollo, p. 65).
Another fundamental rule which appears to
have been violated in the case at bar is that
no advantage may be given to one to the
prejudice of the other, a court should not by
means of a preliminary injunction transfer
the property in litigation from the possession
of one party to another where the legal title
is in dispute and the party having possession
asserts ownership thereto. (Rodulfo v.
Alonso, 76 Phil. 225), February 28, 1946),
Similarly, the primary purpose of an
injunction is to preserve the status quo, that
is the last actual peaceable uncontested
status which preceded the controversy. In
the instant case, petitioner Rivera is the
registered majority and controlling
stockholder of the corporation before the
ensuing events transpired. By the issuance
of the Writ in question he appears to have
been deprived of his rights as stockholder
thereof apart from his status as Chairman of
the Board and President of the corporation,
with Akasako as the Manager of the two
restaurants in this case; the same being the
last uncontested status which preceded the
controversy. (Rollo, p. 127). chanrobles.com : virtual law library
On the contempt incident involving private
respondent Lourdes Jureidini, a Manifestation
and Urgent Motion was filed by petitioners to
declare her in contempt of Court for
allegedly refusing to acknowledge receipt of
the Writ at Preliminary Injunction issued by
this Court and for allegedly refusing to
comply therewith. Attributed to her were the
following statements: "I will not obey that . .
. Yes, I am higher than the Supreme
Court . . . I will obey only what my lawyer
tells me."
cralaw virtua1aw library
In her explanation however, filed through
her counsel, she denied having uttered the
statements alluded to her, the truth of the
matter being that she was alone in the
restaurant when this Court’s process server,
accompanied by petitioners’ lawyers,
approached her and demanded that she
vacate the premises and surrender the
management of the Restaurant. Fazed by the
unusual display of lawyers she requested
that she be given time to confer with her
counsel. Said request allegedly precipitated
the remark from petitioners’ counsel that
neither respondent herself, nor her counsel,
can be higher than the Supreme Court and
that any conference seeking to clarify the
effect of the Writ of Preliminary Injunction
would be futile. (Rollo, pp. 174-175).
It was likewise explained that respondent
Jureidini did not sign and acknowledge
receipt of the Writ because it was not
addressed to her but to the lower court and
to her counsel.
Respondent’s counsel says that the incident
was concocted and devised by the petitioners
and their counsel to serve no salutary
purpose but to scare and harass respondent
Jureidini. He also stated that "it is equally
improper, at least in practice, for lawyers to
accompany officers of the Court in serving or
otherwise executing processes of said court
as to create a seeming suspicion to the
public that lawyers are not involved only
professionally in the case they handle but
signify their personal interests as well."
(Rollo, pp. 208-209).
When this contempt incident was heard on
March 3, 1982, Atty. Arthur A. Canlas,
counsel for private respondent Lourdes
Jureidini, Jureidini herself, Atty. Bibiano P.
Lesaca a representative of the petitioners
were interpellated by the Court. Thereafter,
the incident was declared submitted for
resolution. (Resolution of March 3, 1982;
Rollo, p. 316).
Thereafter, counsel for petitioner filed a
pleading "The Incident of Contempt of
Lourdes Jureidini" in the form of a
summation of the incident and reiteration of
petitioners’ charges of contempt.
Counsel for petitioner invokes the provisions
of: Section 3, Rule 71 on Indirect Contempt
and par. (b) thereof, on Disobedience of or
Resistance to a Lawful Writ, Process, Order,
Judgment or Command of a Court; or
Injunction granted by a Court or Judge . . .;
(2) Section 6, Rule 71 regarding punishment
or penalty thereof and (3) Section 5, Rule
135, par. (c) to compel obedience to its
judgments, orders and processes, and to the
lawful orders of a judge out of Court, in a
case pending therein.
On the incident itself, petitioners’ counsel
stressed that present when the writ was
served were attorneys for petitioners Bibiano
P. Lesaca, and Renato P. Paguio in the
company of petitioners Isamu Akasako,
Akasako’s assistants Furnio, Fujihara and
Isamu Tajewakai and this Court’s process
server, before whose presence the alleged
contemptuous acts were committed.
Counsel for petitioners also reminded the
Court that the first summons of the Court
were answered only by counsel for private
respondent Jureidini while the latter feigned
sickness without a medical certificate. The
hearing for the contempt charge was reset
but neither counsel for private respondent
nor the latter appeared for which non-
appearance Atty. Canlas was fined P200.00
for contempt when finally both counsel and
client appeared on the third day, the hearing
was set.
At that hearing, counsel for petitioners
narrated that Attys. Lesaca and Paguio and
two Japanese nationals testified in unison
that Lourdes Jureidini not only disregarded
the writ but distinctly uttered the complained
of statements.
Petitioners’ counsel laid emphasis on the fact
that Lourdes Jureidini is a graduate of
nursing, who speaks in straight polished
English, capable of understanding the Writ of
Mandatory Injunction of the Respondent
Court served on petitioners by herself and a
Deputy Sheriff of Manila, but incredibly
unable to understand the Writ issued by the
Supreme Court. She was assessed as
"overbearing to the point of insolence" and
capable of uttering "I am higher than the
Supreme Court." cralaw virtua1aw library
There is no question that disobedience or
resistance to a lawful writ, process, order,
judgment or command of a court, or
injunction granted by a court or judge, more
particularly in this case, the Supreme Court,
constitutes Indirect Contempt punishable
under Rule 71 of the Rules of Court. (Rule
71, Section 3(b) and Section 6).
It has been held that contempt of court is a
defiance of the authority, justice or dignity of
the court, such conduct as tends to bring the
authority and administration of the law into
disrespect or to interfere with or prejudice
parties litigant or their witnesses during
litigation. It is defined as a disobedience to
the court by setting up an opposition to its
authority, justice and dignity. It signifies not
only a willful disregard or disobedience of the
court’s orders but such conduct as tends to
bring the authority of the court and the
administration of law into disrepute or in
some manner to impede the due
administration of justice (Halili v. Court of
Industrial Relations, 136 SCRA 135, April 30,
1985). chanrobles virtual lawlibrary
However, it is also well settled that" the
power to punish for contempt of court should
be exercised on the preservative and not on
the vindictive principle. Only occasionally
should the court invoke its inherent power in
order to retain that respect without which
the administration of justice must falter or
fail." (Villavicencio v. Lukban, 39 Phil. 778
[1919]; Gamboa v. Teodoro, Et Al., 91 Phil.
274 [1952]; Sulit v. Tiangco, 115 SCRA 207
[1982]; Lipata v. Tutaan, 124 SCRA 880
[1983]. "Only in cases of clear and
contumacious refusal to obey should the
power be exercised. A bona fide
misunderstanding of the terms of the order
or of the procedural rules should not
immediately cause the institution of
contempt proceedings." "Such power ‘being
drastic and extra-ordinary in its nature . . .
should not be resorted to . . . unless
necessary in the interest of justice.’"
(Gamboa v. Teodoro, Et Al., supra).
In the case at bar, although private
respondent Jureidini did not immediately
comply with the Writ of Injunction issued by
this Court, it appears reasonable on her part
to request that she be allowed to confer with
her lawyer first before she makes any move
of her own. It is likewise reasonable for
counsel for private respondent to request
that he be given time to file a motion for
clarification with the Supreme Court.
It will also be noted that the testimonies
produced at the hearing to establish the fact
that she had uttered the alleged
contemptuous statements alluded to her
were those of Attys. Lesaca and Paguio and
two Japanese nationals, a one-sided version
for the petitioners.
It appears to Us that the version of counsel
for private respondent is more in accord with
human experience: Jureidini who was alone
in the Restaurant was fazed by the unusual
display of might and by the presence of
lawyers demanding that she vacate premises
and surrender the management of the
Restaurant (Rollo, p. 204), this is more
believable than the version of counsel for
petitioners who summed her up as a person
"overbearing to the point of insolence" and
capable of uttering" I am higher than the
Supreme Court." It would therefore be more
reasonable to believe that what she uttered
in that situation where she felt threatened,
was more in self-defense and not an open
defiance of the Supreme Court.
Jureidini cannot also be faulted for finding it
difficult to understand the writ issued against
her by the Supreme Court as she believed
that not only have she and her
correspondent the legal right to manage the
restaurant but the equitable right as well,
having been placed in possession of the
corporate property only after posting a bond
of P120,000.00. (Rollo, pp. 197-198).
In connection with this incident, Jureidini
through her counsel filed her comment on
October 2, 1981 (Rollo, p. 201) contrary to
the allegation of petitioners’ counsel that it
was only Atty. Canlas who filed his comment.
WHEREFORE, the assailed orders of
respondent Judge are SET ASIDE; the
complaint (special civil action for mandamus
with damages, etc.) should ordinarily be
dismissed without prejudice to the filing of
the proper action; but as all parties are
already duly represented, We hereby
consider the case as an ordinary civil action
for specific performance, and the case is
therefore remanded to the lower court for
trial on the merits; the charge of contempt
against respondent Jureidini is DISMISSED
but the order of Our Court restraining
respondent from taking over the
management of the restaurant remains until
after this case is decided.
[G.R. NO. 174168 : March 30, 2009]
SY TIONG SHIOU, JUANITA TAN SY,
JOLIE ROSS TAN, ROMER TAN, CHARLIE
TAN, and JESSIE JAMES
TAN, Petitioners, v. SY CHIM and
FELICIDAD CHAN SY, Respondents.
[G.R. NO. 179438 : March 30, 2009]
SY CHIM and FELICIDAD CHAN
SY, Petitioners, v. SY TIONG SHIOU and
JUANITA TAN, Respondents.
DECISION
TINGA, J.:
These consolidated petitions involving the
same parties. although related, dwell on
different issues.
G.R. No. 174168.
This is a Petition for Review 1 assailing the
decision and resolution of the Court of
Appeals dated 31 May 2006 and 8 August
2006, respectively, in CA-G.R. SP No.
91416.2
On 30 May 2003, four criminal complaints
were filed by Sy Chim and Felicidad Chan Sy
(Spouses Sy) against Sy Tiong Shiou, Juanita
Tan Sy, Jolie Ross Tan, Romer Tan, Charlie
Tan and Jessie James Tan (Sy Tiong Shiou,
et al.) before the City Prosecutor's Office of
Manila. The cases were later consolidated.
Two of the complaints, I.S. Nos. 03E-15285
and 03E-15286,3 were for alleged violation of
Section 74 in relation to Section 144 of the
Corporation Code. In these complaints, the
Spouses Sy averred that they are
stockholders and directors of Sy Siy Ho &
Sons, Inc. (the corporation) who asked Sy
Tiong Shiou, et al., officers of the
corporation, to allow them to inspect the
books and records of the business on three
occasions to no avail. In a letter4 dated 21
May 2003, Sy Tiong Shiou, et al. denied the
request, citing civil and intra-corporate cases
pending in court.5
In the two other complaints, I.S. No. 03E-
15287 and 03E-15288,6 Sy Tiong Shiou was
charged with falsification under Article 172,
in relation to Article 171 of the Revised Penal
Code (RPC), and perjury under Article 183 of
the RPC. According to the Spouses Sy, Sy
Tiong Shiou executed under oath the 2003
General Information Sheet (GIS) wherein he
falsely stated that the shareholdings of the
Spouses Sy had decreased despite the fact
that they had not executed any conveyance
of their shares.7
Sy Tiong Shiou, et al. argued before the
prosecutor that the issues involved in the
civil case for accounting and damages
pending before the RTC of Manila were
intimately related to the two criminal
complaints filed by the Spouses Sy against
them, and thus constituted a prejudicial
question that should require the suspension
of the criminal complaints. They also argued
that the Spouses Sy's request for inspection
was premature as the latter's concern may
be properly addressed once an answer is
filed in the civil case. Sy Tiong Shiou, on the
other hand, denied the accusations against
him, alleging that before the 2003 GIS was
submitted to the Securities and Exchange
Commission (SEC), the same was shown to
respondents, who at that time were the
President/Chairman of the Board and
Assistant Treasurer of the corporation, and
that they did not object to the entries in the
GIS. Sy Tiong Shiou also argued that the
issues raised in the pending civil case for
accounting presented a prejudicial question
that necessitated the suspension of criminal
proceedings.
On 29 December 2003, the investigating
prosecutor issued a resolution
recommending the suspension of the
criminal complaints for violation of the
Corporation Code and the dismissal of the
criminal complaints for falsification and
perjury against Sy Tiong Shiou.8 The
reviewing prosecutor approved the
resolution. The Spouses Sy moved for the
reconsideration of the resolution, but their
motion was denied on 14 June 2004.9 The
Spouses Sy thereupon filed a Petition for
Review with the Department of Justice
(DOJ), which the latter denied in a resolution
issued on 02 September 2004.10 Their
subsequent motion for reconsideration was
likewise denied in the resolution of 20 July
2005.11
The Spouses Sy elevated the DOJ's
resolutions to the Court of Appeals through a
petition for certiorari, imputing grave abuse
of discretion on the part of the DOJ. The
appellate court granted the petition12 and
directed the City Prosecutor's Office to file
the appropriate informations against Sy
Tiong Shiou, et al. for violation of Section 74,
in relation to Section 144 of the Corporation
Code and of Articles 172 and 183 of the RPC.
The appellate court ruled that the civil case
for accounting and damages cannot be
deemed prejudicial to the maintenance or
prosecution of a criminal action for violation
of Section 74 in relation to Section 144 of
the Corporation Code since a finding in the
civil case that respondents mishandled or
misappropriated the funds would not be
determinative of their guilt or innocence in
the criminal complaint. In the same manner,
the criminal complaints for falsification
and/or perjury should not have been
dismissed on the ground of prejudicial
question because the accounting case is
unrelated and not necessarily determinative
of the success or failure of the falsification or
perjury charges. Furthermore, the Court of
Appeals held that there was probable cause
that Sy Tiong Shiou had committed
falsification and that the City of Manila where
the 2003 GIS was executed is the proper
venue for the institution of the perjury
charges. Sy Tiong Shiou, et al. sought
reconsideration of the Court of Appeals
decision but their motion was denied.13
On 2 April 2008, the Court ordered the
consolidation of G.R. No. 179438 with G.R.
No. 174168.14
Sy Tiong Shiou, et al. argue that findings of
the DOJ in affirming, modifying or reversing
the recommendations of the public
prosecutor cannot be the subject
of certiorari or review of the Court of Appeals
because the DOJ is not a quasi-judicial body
within the purview of Section 1, Rule 65 of
the Rules of Court. Petitioners rely on the
separate opinion of former Chief Justice
Andres R. Narvasa in Roberts, Jr. v. Court of
Appeals,15 wherein he wrote that this Court
should not be called upon to determine the
existence of probable cause, as there is no
provision of law authorizing an aggrieved
party to petition for such a
determination.16 In any event, they argue,
assuming without admitting that the findings
of the DOJ may be subject to judicial review
under Section 1, Rule 65 of the Rules of
Court, the DOJ has not committed any grave
abuse of discretion in affirming the findings
of the City Prosecutor of Manila. They claim
that the Spouses Sy's request for inspection
was not made in good faith and that their
motives were tainted with the intention to
harass and to intimidate Sy Tiong Shiou, et
al. from pursuing the criminal and civil cases
pending before the prosecutor's office and
the Regional Trial Court (RTC) of Manila,
Branch 46. Thus, to accede to the Spouses
Sy's request would pose serious threats to
the existence of the corporation.17 Sy Tiong
Shiou, et al. aver that the RTC had already
denied the motion for production and
inspection and instead ordered petitioners to
make the corporate records available to the
appointed independent auditor. Hence, the
DOJ did not commit any grave abuse of
discretion in affirming the recommendation
of the City Prosecutor of Manila.18 They
further argue that adherence to the Court of
Appeals' ruling that the accounting case is
unrelated to, and not necessarily
determinative of the success of, the criminal
complaint for falsification and/or perjury
would unnecessarily indict petitioner Sy
Tiong Shiou for the said offenses he may not
have committed but only because of an
outcome unfavorable to him in the civil
action.19
Indeed, a preliminary proceeding is not a
quasi-judicial function and that the DOJ is
not a quasi-judicial agency exercising a
quasi-judicial function when it reviews the
findings of a public prosecutor regarding the
presence of probable cause.20Moreover, it is
settled that the preliminary investigation
proper, i.e., the determination of whether
there is reasonable ground to believe that
the accused is guilty of the offense charged
and should be subjected to the expense,
rigors and embarrassment of trial, is the
function of the prosecution.21 This Court has
adopted a policy of non-interference in the
conduct of preliminary investigations and
leaves to the investigating prosecutor
sufficient latitude of discretion in the
determination of what constitutes sufficient
evidence as will establish probable cause for
the filing of information against the supposed
offender.22
As in every rule, however, there are settled
exceptions. Hence, the principle of non-
interference does not apply when there is
grave abuse of discretion which would
authorize the aggrieved person to file a
petition for certiorari and prohibition under
Rule 65, 1997 Rules of Civil Procedure.23
As correctly found by the Court of Appeals,
the DOJ gravely abused its discretion when it
suspended the hearing of the charges for
violation of the Corporation Code on the
ground of prejudicial question and when it
dismissed the criminal complaints.
A prejudicial question comes into play
generally in a situation where a civil action
and a criminal action are both pending and
there exists in the former an issue which
must be preemptively resolved before the
criminal action may proceed since howsoever
the issue raised in the civil action is resolved
would be determinative juris et de jure of
the guilt or innocence of the accused in the
criminal case. The reason behind the
principle of prejudicial question is to avoid
two conflicting decisions. It has two essential
elements: (a) the civil action involves an
issue similar or intimately related to the
issue raised in the criminal action; and (b)
the resolution of such issue determines
whether or not the criminal action may
proceed.24
The civil action and the criminal cases do not
involve any prejudicial question.
The civil action for accounting and damages,
Civil Case No. 03-106456 pending before the
RTC Manila, Branch 46, seeks the issuance of
an order compelling the Spouses Sy to
render a full, complete and true accounting
of all the amounts, proceeds and fund paid
to, received and earned by the corporation
since 1993 and to restitute it such amounts,
proceeds and funds which the Spouses Sy
have misappropriated. The criminal cases, on
the other hand, charge that the Spouses Sy
were illegally prevented from getting inside
company premises and from inspecting
company records, and that Sy Tiong Shiou
falsified the entries in the GIS, specifically
the Spouses Sy's shares in the corporation.
Surely, the civil case presents no prejudicial
question to the criminal cases since a finding
that the Spouses Sy mishandled the funds
will have no effect on the determination of
guilt in the complaint for violation of Section
74 in relation to Section 144 of the
Corporation Code; the civil case concerns the
validity of Sy Tiong Shiou's refusal to allow
inspection of the records, while in the
falsification and perjury cases, what is
material is the veracity of the entries made
by Sy Tiong Shiou in the sworn GIS.
Anent the issue of probable cause, the Court
also finds that there is enough probable
cause to warrant the institution of the
criminal cases.
The term probable cause does not mean
'actual and positive cause' nor does it import
absolute certainty. It is merely based on
opinion and reasonable belief. Thus a finding
of probable cause does not require an inquiry
into whether there is sufficient evidence to
procure a conviction. It is enough that it is
believed that the act or omission complained
of constitutes the offense charged. Precisely,
there is a trial for the reception of evidence
of the prosecution in support of the charge.25
In order that probable cause to file a criminal
case may be arrived at, or in order to
engender the well-founded belief that a
crime has been committed, the elements of
the crime charged should be present. This is
based on the principle that every crime is
defined by its elements, without which there
should be at the most no criminal offense.26
Section 74 of the Corporation Code reads in
part:
xxx
The records of all business transactions of
the corporation and the minutes of any
meeting 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.
Any officer or agent of the corporation who
shall refuse to allow any director, trustee,
stockholder or member of the corporation to
examine and copy excerpts from its records
or minutes, in accordance with the provisions
of this Code, shall be liable to such director,
trustee, stockholder or member for
damages, and in addition, shall be guilty of
an offense which shall be punishable under
Section 144 of this Code: Provided, That if
such refusal is made pursuant to a resolution
or order of the Board of Directors or
Trustees, the liability under this section for
such action shall be imposed upon the
directors or trustees who voted for such
refusal: and Provided, further, That it shall
be a defense to any action under this section
that the person demanding to examine and
copy excerpts from the corporation's records
and minutes has improperly used any
information secured through any prior
examination of the records or minutes of
such corporation or of any other corporation,
or was not acting in good faith or for a
legitimate purpose in making his demand.
Meanwhile, Section 144 of the same Code
provides:
Sec. 144. Violations of the Code. Violations
of any of the provisions of this Code or its
amendments not otherwise specifically
penalized therein shall be punished by a fine
of not less than one thousand (P1,000.00)
pesos but not more than ten thousand
(P10,000.00) pesos or by imprisonment for
not less than thirty (30) days but not more
than five (5) years, or both, in the discretion
of the court. If the violation is committed by
a corporation, the same may, after notice
and hearing, be dissolved in appropriate
proceedings before the Securities and
Exchange Commission: Provided, That such
dissolution shall not preclude the institution
of appropriate action against the director,
trustee or officer of the corporation
responsible for said violation: Provided,
further, That nothing in this section shall be
construed to repeal the other causes for
dissolution of a corporation provided in this
Code.
In the recent case of Ang-Abaya, et al. v.
Ang, et al.,27 the Court had the occasion to
enumerate the requisites before the penal
provision under Section 144 of the
Corporation Code may be applied in a case of
violation of a stockholder or member's right
to inspect the corporate books/records as
provided for under Section 74 of the
Corporation Code. The elements of the
offense, as laid down in the case, are:
First. A director, trustee, stockholder or
member has made a prior demand in writing
for a copy of excerpts from the corporation's
records or minutes;
Second. Any officer or agent of the
concerned corporation shall refuse to allow
the said director, trustee, stockholder or
member of the corporation to examine and
copy said excerpts;
Third. If such refusal is made pursuant to a
resolution or order of the board of directors
or trustees, the liability under this section for
such action shall be imposed upon the
directors or trustees who voted for such
refusal; and,
Fourth. Where the officer or agent of the
corporation sets up the defense that the
person demanding to examine and copy
excerpts from the corporation's records and
minutes has improperly used any information
secured through any prior examination of the
records or minutes of such corporation or of
any other corporation, or was not acting in
good faith or for a legitimate purpose in
making his demand, the contrary must be
shown or proved.28
Thus, in a criminal complaint for violation of
Section 74 of the Corporation Code, the
defense of improper use or motive is in the
nature of a justifying circumstance that
would exonerate those who raise and are
able to prove the same. Accordingly, where
the corporation denies inspection on the
ground of improper motive or purpose, the
burden of proof is taken from the
shareholder and placed on the
corporation.29 However, where no such
improper motive or purpose is alleged, and
even though so alleged, it is not proved by
the corporation, then there is no valid reason
to deny the requested inspection.
In the instant case, however, the Court finds
that the denial of inspection was predicated
on the pending civil case against the
Spouses Sy. This is evident from the 21 May
2003 letter of Sy Tiong Shiou, et al.'s
counsel30 to the Spouses Sy,31 which reads:
Gentlemen:
We write in behalf of our clients, SY SIY HO,
INC. ( Guan Yiac Hardware); SY TIONG
SHIOU, JUANITA TAN SY; JOLIE ROSS TAN;
CHARLIE TAN; ROMER TAN; and JESSE
JAMES TAN, relative to your letter dated 16
May 2003. Please be informed that a case for
Accounting and Damages had already been
filed against your clients, Sy Chim and
Felicidad Chan Sy before the Regional Trial
Court of Manila, Branch 46, denominated as
Civil Case No. 03-106456.
We fully understand your desire for our
clients to respond to your demands,
however, under the prevailing circumstance
this would not be advisable. The concerns
that you raised in your letter can later on be
addressed after your clients shall have filed
their responsive pleading in the abovesaid
case.
We trust that this response will at the
moment be enough.32
Even in their Joint Counter-Affidavit dated 23
September 2003,33 Sy Tiong Shiou, et al. did
not make any allegation that "the person
demanding to examine and copy excerpts
from the corporation's records and minutes
has improperly used any information secured
through any prior examination of the records
or minutes of such corporation or of any
other corporation, or was not acting in good
faith or for a legitimate purpose in making
his demand." Instead, they merely reiterated
the pendency of the civil case. There being
no allegation of improper motive, and it
being undisputed that Sy Tiong Shiou, et al.
denied Sy Chim and Felicidad Chan Sy's
request for inspection, the Court rules and so
holds that the DOJ erred in dismissing the
criminal charge for violation of Section 74 in
relation to Section 144 of the Corporation
Code.
Now on the existence of probable cause for
the falsification and/or perjury charges.
The Spouses Sy charge Sy Tiong Shiou with
the offense of falsification of public
documents under Article 171, paragraph 4;
and/or perjury under Article 183 of the
Revised Penal Code (RPC). The elements of
falsification of public documents through an
untruthful narration of facts are: (a) the
offender makes in a document untruthful
statements in a narration of facts; (b) the
offender has a legal obligation to disclose the
truth of the facts narrated;34 (c) the facts
narrated by the offender are absolutely
false; and (d) the perversion of truth in the
narration of facts was made with the
wrongful intent to injure a third person.35 On
the other hand, the elements of perjury are:
(a) that the accused made a statement
under oath or executed an affidavit upon a
material matter; (b) that the statement or
affidavit was made before a competent
officer, authorized to receive and administer
oath; (c) that in that statement or affidavit,
the accused made a willful and deliberate
assertion of a falsehood; and, (d) that the
sworn statement or affidavit containing the
falsity is required by law or made for a legal
purpose.
A General Information Sheet (GIS) is
required to be filed within thirty (30) days
following the date of the annual or a special
meeting, and must be certified and sworn to
by the corporate secretary, or by the
president, or any duly authorized officer of
the corporation.36 From the records, the
2003 GIS submitted to the SEC on 8 April
2003 was executed under oath by Sy Tiong
Shiou in Manila, in his capacity as Vice
President and General Manager.37 By
executing the document under oath, he, in
effect, attested to the veracity38 of its
contents. The Spouses Sy claim that the
entries in the GIS pertaining to them do not
reflect the true number of shares that they
own in the company. They attached to their
complaint the 2002 GIS of the company, also
executed by Sy Tiong Shiou, and compared
the entries therein vis-a-vis the ones in the
2003 GIS. The Spouses Sy noted the marked
decrease in their shareholdings, averring
that at no time after the execution of the
2002 GIS, up to the time of the filing of their
criminal complaints did they execute or
authorize the execution of any document or
deed transferring, conveying or disposing
their shares or any portion thereof; and thus
there is absolutely no basis for the figures
reflected in the 2003 GIS.39 The Spouses Sy
claim that the false statements were made
by Sy Tiong Shiou with the wrongful intent of
injuring them. All the elements of both
offenses are sufficiently averred in the
complaint-affidavits.
The Court agrees with the Court of Appeals'
holding, citing the case of Fabia v. Court of
Appeals, that the doctrine of primary
jurisdiction no longer precludes the
simultaneous filing of the criminal case with
the corporate/civil case.40 Moreover, the
Court finds that the City of Manila is the
proper venue for the perjury charges, the
GIS having been subscribed and sworn to in
the said place. Under Section 10(a), Rule
110 of the Revised Rules of Court, the
criminal action shall be instituted and tried in
the court of the municipality or territory
where the offense was committed or where
any of its essential ingredients occurred.41 In
Villanueva v. Secretary of Justice,42 the Court
held that the felony is consummated when
the false statement is made.43 Thus in this
case, it was alleged that the perjury was
committed when Sy Tiong Shiou subscribed
and sworn to the GIS in the City of Manila,
thus, following Section 10(a), Rule 110 of
the Revised Rules of Court, the City of Manila
is the proper venue for the offense.
G. R. No. 179438.
This petition assails the decision44 and
resolution45 of the Court of Appeals dated 26
May 2004 and 29 August 2007, respectively,
in CA-G.R. SP No. 81897.
On 3 February 2003, Juanita Tan, corporate
treasurer of Sy Siy Ho & Sons, Inc. (the
corporation), a family corporation doing
business under the name and style Guan
Yiac Hardware, submitted a letter46 to the
corporation's Board of Directors (Board)
stating that the control, supervision and
administration of all corporate funds were
exercised by Sy Chim and Felicidad Chan Sy
(Spouses Sy), corporate president and
assistant treasurer, respectively. In the same
letter, Juanita Tan disclosed that Felicidad
Chan Sy did not make cash deposits to any
of the corporation's banks from 1 November
2001 to 31 January 2003, thus the total
bank remittances for the past years were
less than reflected in the corporate financial
statements, accounting books and records.
Finally, Juanita Tan sought to be free from
any responsibility
over all corporate funds. The Board granted
Juanita Tan's request and authorized the
employment of an external auditor to render
a complete
audit of all the corporate accounting books
and records.47 Consequently, the Board hired
the accounting firm Banaria, Banaria &
Company. In its Report48 dated 5 April 2003,
the accounting firm attributed to the
Spouses Sy P67,117,230.30 as unaccounted
receipts and disbursements from 1994 to
2002.49
A demand letter50 was subsequently served
on the Spouses Sy on 15 April 2003. On the
same date, the children of the Spouses Sy
allegedly stole from the corporation cash,
postdated checks and other important
documents. After the incident, the Spouses
Sy allegedly transferred residence and
ceased reporting to the corporation.
Thereupon, the corporation filed a criminal
complaint for robbery against the Spouses
Sy before the City Prosecutor's Office of
Manila.51 A search warrant was subsequently
issued by the Regional Trial Court.52
On 26 April 2003, Sy Tiong Shiou, corporate
Vice President and General Manager, called a
special meeting to be held on 6 May 2003 to
fill up the positions vacated by the Spouses
Sy. Sy Tiong Shiou was subsequently elected
as the new president and his wife, Juanita
Tan, the new Vice President.53 Despite these
developments, Sy Chim still caused the
issuance of a Notice of Stockholders meeting
dated 11 June 2003 in his capacity as the
alleged corporate president.54
Meanwhile, on 1 July 2003, the corporation,
through Romer S. Tan, filed its Amended
Complaint for Accounting and
Damages55 against the Spouses Sy before
the RTC Manila, praying for a complete and
true accounting of all the amounts paid to,
received and earned by the company since
1993 and for the restitution of the said
amount.56 The complaint also prayed for a
temporary restraining order (TRO) and or
preliminary injunction to restrain Sy Chim
from calling a stockholders' meeting on the
ground of lack of authority.
By way of Answer,57 the Spouses Sy averred
that Sy Chim was a mere figurehead and
Felicidad Chan Sy merely performed clerical
functions, as it was Sy Tiong Shiou and his
spouse, Juanita Tan, who have been
authorized by the corporation's by-laws to
supervise, control and administer corporate
funds, and as such were the ones
responsible for the unaccounted funds. They
assailed the meetings called by Sy Tiong
Shiou on the grounds that the same were
held without notice to them and without their
participation, in violation of the by-laws. The
Spouses Sy also pursued their counter-claim
for moral and exemplary damages and
attorney's fees.
On 9 September 2003, the Spouses Sy filed
their Motion for Leave to File Third-Party
Complaint,58 praying that their attached
Third Party Complaint59 be allowed and
admitted against Sy Tiong Shiou and his
spouse. In the said third-party complaint,
the Spouses Sy accused Sy Tiong Shiou and
Juanita Tan as directly liable for the
corporation's claim for misappropriating
corporate funds.
On 8 October 2003, the trial court granted
the motion for leave to file the third-party
complaint, and forthwith directed the
issuance of summons against Sy Tiong Shiou
and Juanita Tan.60 On 16 January 2004, their
counsel allegedly discovered that Sy Tiong
Shiou and Juanita Tan were not furnished
with the copies of several pleadings, as well
as a court order, which resulted in their
having been declared in default for failure to
file their answer to the third-party
complaint; thus, they opted not to file a
motion for reconsideration anymore and
instead filed a petition for certiorari before
the Court of Appeals.
In its Decision dated 26 May 2004, the Court
of Appeals granted the petition of Sy Tiong
Shiou and Juanita Tan.61 The appellate court
declared that a third-party complaint is not
allowed under the Interim Rules of Procedure
Governing Intra-Corporate Controversies
Under R.A. No. 8799 (Interim Rules), it not
being included in the exclusive enumeration
of allowed pleadings under Section 2, Rule 2
thereof. Moreover, even if such a pleading
were allowed, the admission of the third-
party complaint against Sy Tiong Shiou and
Juanita Tan still would have no basis from
the facts or the law and jurisprudence.62 The
Court of Appeals also ruled that the
respondent judge committed a manifest
error amounting to lack of jurisdiction in
admitting the third-party complaint and in
summarily declaring Sy Tiong Shiou and
Juanita Tan in default for failure to file their
answer within the purported reglementary
period. The Court of Appeals set aside the
trial court's 8 October 2003 Order admitting
the third-party complaint, as well as the 19
December 2003 Order, declaring Sy Tiong
Shiou and Juanita Tan in default for failure to
file their answer. The trial court was further
ordered to dismiss the third-party complaint
without prejudice to any action that the
corporation may separately file against Sy
Tiong Shiou and Juanita Tan.63
The Spouses Sy filed a motion for
reconsideration, but their motion was denied
on 29 August 2007.64
Sy Chim and Felicidad Chan Sy argue before
this Court that a third-party complaint is not
excluded or prohibited by the Interim Rules,
and that the Court of Appeals erred in ruling
that their third - party complaint is not
actionable because their action is not in
respect of the corporation's claims. They add
that the disallowance of the third-party
complaint will result in multiplicity of suits.
The third-party complaint should be allowed.
The conflicting provisions of the Interim
Rules of Procedure for Inter-Corporate
Controversies read:
Rule 1, Sec. 8. Prohibited pleadings. The
following pleadings are prohibited:
(1) Motion to dismiss;
(2) Motion for a bill of particulars;
(3) Motion for new trial, or for
reconsideration of judgment or order, or for
re-opening of trial;
(4) Motion for extension of time to file
pleadings, affidavits or any other paper,
except those filed due to clearly compelling
reasons. Such motion must be verified and
under oath; and cralawlibrary
(5) Motion for postponement and other
motions of similar intent, except those filed
due to clearly compelling reasons. Such
motion must be verified and under oath.
Rule 2, Sec.2. Pleadings allowed. The only
pleadings allowed to be filed under these
Rules are the complaint, answer, compulsory
counterclaims or cross-claims pleaded in the
answer, and the answer to the counterclaims
or cross-claims.65
There is a conflict, for while a third-party
complaint is not included in the allowed
pleadings, neither is it among the prohibited
ones. Nevertheless, this conflict may be
resolved by following the well-entrenched
rule in statutory construction, that every part
of the statute must be interpreted with
reference to the context, i.e., that every part
of the statute must be considered together
with the other parts, and kept subservient to
the general intent of the whole
enactment.66 Statutes, including rules,
should be construed in the light of the object
to be achieved and the evil or mischief to be
suppressed and they should be given such
construction as will advance the object,
suppress the mischief and secure the
benefits intended. A statute should therefore
be read with reference to its leading idea,
and its general purpose and intention should
be gathered from the whole act, and this
predominant purpose will prevail over the
literal import of particular terms or clauses, if
plainly apparent, operating as a limitation
upon some and as a reason for expanding
the signification of others, so that the
interpretation may accord with the spirit of
the entire act, and so that the policy and
object of the statute as a whole may be
made effectual and operative to the widest
possible extent.67 Otherwise stated, the
spirit, rather than the letter of a law
determines its construction; hence, a
statute, as in the rules in this case, must be
read according to its spirit and intent.68
This spirit and intent can be gleaned from
Sec. 3, Rule 1 of the Interim Rules, which
reads:
Sec. 3. Construction. These Rules shall be
liberally construed in order to promote their
objective of securing a just, summary,
speedy and inexpensive determination of
every action or proceeding.69
Now, a third-party complaint is a claim that
a defending party may, with leave of court,
file against a person not a party to the
action, called the third-party defendant, for
contribution, indemnity, subrogation or any
other relief, in respect of his opponent's
claim. It is actually a complaint independent
of, and separate and distinct from the
plaintiff's complaint. In fact, were it not for
Rule 6, Section 11 of the Rules of Court,
such third-party complaint would have to be
filed independently and separately from the
original complaint by the defendant against
the third-party defendant. Jurisprudence is
consistent in declaring that the purpose of a
third-party complaint is to avoid circuitry of
action and unnecessary proliferation of law
suits and of disposing expeditiously in one
litigation all the matters arising from one
particular set of facts.70
It thus appears that the summary nature of
the proceedings governed by the Interim
Rules, and the allowance of the filing of
third-party complaints is premised on one
objective the expeditious disposition of
cases. Moreover, following the rule of liberal
interpretation found in the Interim Rules,
and taking into consideration the suppletory
application of the Rules of Court under
Rule 1, Sec. 271 of the Interim Rules, the
Court finds that a third-party complaint is
not, and should not be prohibited in
controversies governed by the Interim Rules.
The logic and justness of this conclusion are
rendered beyond question when it is
considered that Sy Tiong Shiou and Juanita
Tan are not complete strangers to the
litigation as in fact they are the moving spirit
behind the filing of the principal complaint
for accounting and damages against the
Spouses Sy. ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
The Court also rules that the third-party
complaint of the Spouses Sy should be
admitted.
A prerequisite to the exercise of such right is
that some substantive basis for a third-party
claim be found to exist, whether the basis be
one of indemnity, subrogation, contribution
or other substantive right. The bringing of a
third-party defendant is proper if he would
be liable to the plaintiff or to the defendant
or both for all or part of the plaintiff's claim
against the original defendant, although the
third-party defendant's liability arises out of
another transaction. The defendant may
implead another as third-party defendant:
(a) on an allegation of liability of the latter to
the defendant for contribution, indemnity,
subrogation or any other relief; (b) on the
ground of direct
liability of the third-party defendant to the
plaintiff; or (c) the liability of the third-party
defendant to both the plaintiff and the
defendant.72
In determining the sufficiency of the third-
party complaint, the allegations in the
original complaint and the third-party
complaint must be examined. A third-party
complaint must allege facts which prima
facie show that the defendant is entitled to
contribution, indemnity, subrogation or other
relief from the third-party defendant.73
The complaint alleges that the Spouses Sy,
as officers of the corporation, have acted
illegally in raiding its corporate funds, hence
they are duty bound to render a full,
complete and true accounting of all the
amounts, proceeds and funds paid to,
received and earned by the corporation since
1993 and to restitute to the corporation all
such amounts, proceeds, and funds which
they took and misappropriated for their own
use and benefit, to the damage and
prejudice of the plaintiff and its
stockholders.74 On the other hand, in the
third-party complaint, the Spouses Sy claim
that it is Sy Tiong Shiou and Juanita Tan who
had full and complete control of the day-to
day operations and complete control and
custody of the funds of the corporation, and
hence they are the ones liable for any
shortfall or unaccounted
difference of the corporation's cash account.
Thus, Sy Tiong Shiou and Juanita Tan should
render a full, complete and true accounting
of all the amounts, proceeds, funds paid to,
received and earned by the corporation since
1993, including the amount attributed to the
Spouses Sy in the complaint for accounting
and damages. In their prayer, the Spouses
Sy moved that Sy Tiong Shiou and Juanita
Tan be declared as directly and solely liable
in respect of the corporation's claim for
accounting and damages, and that in the
event that they, the Spouses Sy, are
adjudged liable to the corporation, Sy Tiong
Shiou and Juanita Tan be ordered to pay all
amounts necessary to discharge their liability
to the corporation by way of indemnity or
reimbursement.
The allegations in the third-party complaint
impute direct liability on the part of Sy Tiong
Shiou and Juanita Tan to the corporation for
the very same claims which the corporation
interposed against the Spouses Sy. It is clear
therefore that the Spouses Sy's third-party
complaint is in respect of the plaintiff
corporation's claims,75 and thus the
allowance of the third-party complaint is
warranted.
WHEREFORE, these cases are resolved as
follows:
G.R. No. 174168
The Petition for Review is DENIED. The
Decision and Resolution of the Court of
Appeals dated 31 May 2006 and 8 August
2006, respectively, in CA-G.R. SP No. 91416
are AFFIRMED.
Costs against the petitioners.
G.R. No. 179438
The petition is GRANTED. The decision and
resolution of the Court of Appeals dated 26
May 2004 and 29 August 2007, respectively,
in CA-G.R. SP No. 81897 are SET ASIDE and
the Orders of the Regional Trial Court of
Manila Branch 46 dated 8 October 2003 and
19 December 2003 are REINSTATED.
G.R. No. 171053               October 15, 2007
SEHWANI, INCORPORATED and/or BENITA'S
FRITES, INC., Petitioner,  and that it has no cause of action because its mark is
vs.
IN-N-OUT BURGER, INC., Respondent.  Sehwani, Inc. also claimed that as the registered
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the Decision1 of the
Court of Appeals in CA-G.R. SP No. 88004 dated
October 21, 2005, which affirmed the December 7,
2004 Order2 of Director General Emma C. Francisco
of the Intellectual Property Office (IPO), in Appeal No.
14-2004-0004 finding that petitioners’ appeal was filed
out of time, as well as the Resolution3 dated January
12, 2006 denying the motion for reconsideration.
Respondent IN-N-OUT Burger, Inc., a foreign
corporation organized under the laws of California,
U.S.A., and not doing business in the Philippines, filed
before the Bureau of Legal Affairs of the IPO (BLA-
IPO), an administrative complaint against petitioners
Sehwani, Inc. and Benita’s Frites, Inc. for violation of
intellectual property rights, attorney’s fees and
damages with prayer for the issuance of a restraining
order or writ of preliminary injunction.4
Respondent alleged that it is the owner of the
tradename "IN-N-OUT" and trademarks "IN-N-OUT,"
"IN-N-OUT Burger & Arrow Design" and "IN-N-OUT
Burger Logo," which are used in its business since
1948 up to the present. These tradename and
trademarks were registered in the United States as
well as in other parts of the world.5
On June 2, 1997, respondent applied with the IPO for
the registration of its trademark "IN-N-OUT Burger &
Arrow Design" and servicemark "IN-N-OUT." In the
course of its application, respondent discovered that
petitioner Sehwani, Inc. had obtained Trademark
Registration No. 56666 for the mark "IN N OUT" (THE
INSIDE OF THE LETTER "O" FORMED LIKE A
STAR) on December 17, 1993 without its
authority.6 Respondent thus demanded that petitioner
Sehwani, Inc. desist from claiming ownership of the
mark "IN-N-OUT" and to voluntarily cancel its
Trademark Registration No. 56666. Petitioner
Sehwani, Inc. however refused to accede to the
demand and even entered into a Licensing
Agreement granting its co-petitioner Benita’s Frites,
Inc. license to use for a period of five years the
trademark "IN-N-OUT BURGER" in its restaurant in
Pasig City.7 Hence, respondent filed a complaint for
violation of intellectual property rights.
In their answer with counterclaim, petitioners alleged
that respondent lack the legal capacity to sue
because it was not doing business in the Philippines
not registered or used in the Philippines. Petitioner
owner of the "IN-N-OUT" mark, it enjoys the
presumption that the same was validly acquired and
that it has the exclusive right to use the mark.
Moreover, petitioners argued that other than the bare
allegation of fraud in the registration of the mark,
respondent failed to show the existence of any of the
grounds for cancellation thereof under Section 151 of
Republic Act (R.A.) No. 8293, otherwise known
as The Intellectual Property Code of the Philippines.8
On December 22, 2003, Bureau Director Estrellita
Beltran-Abelardo rendered Decision No. 2003-02
finding that respondent has the legal capacity to sue
and that it is the owner of the internationally well-
known trademarks; however, she held that petitioners
are not guilty of unfair competition, thus:
With the foregoing disquisition, Certificate of
Registration No. 56666 dated 17 December 1993 for
the mark "IN-N-OUT (the inside of the letter "O"
formed like a star) issued in favor of Sehwani,
Incorporated is hereby CANCELLED. Consequently,
Respondents Sehwani, Inc. and Benita’s Frites are
hereby ordered to permanently cease and desist from
using the mark "IN-N-OUT" and "IN-N-OUT BURGER
LOGO" on its goods and in its business. With regard
to mark "Double-Double", considering that as earlier
discussed, the mark has been approved by this Office
for publication and that as shown by the evidence,
Complainant is the owner of the said mark,
Respondents are also ordered to permanently cease
and desist from using the mark Double-Double. NO
COSTS.
SO ORDERED.9
Petitioners filed a motion for reconsideration10 insisting
that respondent has no legal capacity to sue, that no
ground for cancellation was duly proven, and that the
action is barred by laches; while respondent moved
for partial reconsideration11 assailing the finding that
petitioners are not guilty of unfair competition. Both,
however, were denied in Resolution No. 2004-18
dated October 28, 200412 and Resolution No. 2005-05
dated April 25, 2005,13respectively.
On separate dates, the parties appealed to the Office
of the Director General which rendered an Order
dated December 7, 2004,14 in Appeal No. 14-2004-
0004, dismissing petitioners’ appeal for being filed out
of time, thus:
WHEREFORE, premises considered, the MOTION
TO ADMIT COPY OF DECISION NO. 2003-02 is
hereby granted. The instant appeal, however, is
hereby DISMISSED for having been filed out of time.15
Aggrieved, petitioners filed a petition before the Court
of Appeals which was dismissed for lack of merit. It
held that the right to appeal is not a natural right or a
part of due process, but a procedural remedy of
statutory origin, hence, its requirements must be
strictly complied with. The appeal being filed out of
time, the December 22, 2003 Decision and the
October 28, 2004 Orders of Bureau Director Beltran-
Abelardo are now final and executory.16
Meanwhile, respondent filed a Manifestation with the
Court of Appeals that on December 23, 2005, Director
General Adrian S. Cristobal, Jr. had rendered a
Decision in Appeal 10-05-01 finding petitioners guilty
of unfair competition.17
Petitioners’ motion for reconsideration was denied;
hence, the instant petition raising the following issues:
THE COURT OF APPEALS COMMITTED
GRAVE ERROR IN UPHOLDING THE IPO
DIRECTOR GENERAL’S DISMISSAL OF
APPEAL NO. 14-2004-0004 ON A MERE
TECHNICALITY.
SUBSTANTIAL JUSTICE WOULD BE
BETTER SERVED IF THE COURT OF
APPEALS AND THE IPO DIRECTOR
GENERAL ENTERTAINED PETITIONERS
APPEAL AS THE BUREAU OF LEGAL
AFFAIR’S DECISION AND RESOLUTION (1)
CANCELING PETITIONER SEHWANI’S
CERTIFICATE OF REGISTRATION FOR
THE MARK "IN-N-OUT," AND (2) ORDERING
PETITIONERS TO PERMANENTLY CEASE
AND DESIST FROM USING THE SUBJECT
MARK ON ITS GOODS AND BUSINESS ARE
CONTRARY TO LAW AND/OR NOT
SUPPORTED BY EVIDENCE.18
Petitioners contend that the Court of Appeals erred
when it dismissed the petition on mere technicality
which resulted in a miscarriage of justice and
deprivation of intellectual property rights. They claim
that their counsel believed in good faith that
Resolution No. 2004-18 dated October 28, 2004,
denying the motion for reconsideration, was received
only on November 3, 2004, thus, they have until
November 18, 2004 within which to file an appeal
memorandum with the Office of the Director General.
They claim that they should not be prejudiced by their
counsel’s mistake in computing the period to appeal;
besides, the same is understandable and excusable
as their counsel is a solo practitioner with only a
handful of non-legal staff assisting him. They also
reiterate their position that respondent has no legal
capacity to sue, that no ground for cancellation was
duly proven, and that the complaint is barred by
laches, if not, by prescription.19
The petition has no merit.
The Court has invariably ruled that perfection of an
appeal within the statutory or reglementary period is
not only mandatory but also jurisdictional; failure to do
so renders the questioned decision/final order final
and executory, and deprives the appellate court of
jurisdiction to alter the judgment or final order, much
less to entertain the appeal.20True, this rule had been
relaxed but only in highly meritorious cases to prevent
a grave injustice from being done.21Such does not
obtain in this case.
Director General Francisco, as affirmed by the Court
of Appeals, correctly held:
[T]hat the appeal must be dismissed outright. Section
2 of the Uniform Rules on Appeal (Office Order no.
12, s. 2002) states that:
Section 2. Appeal to the Director General. – The
decisions or final orders of the Bureau Director shall
become final and executory thirty (30) days after
receipt of a copy thereof by the appellant or
appellants unless, within the same period, a motion
for reconsideration is filed with the Bureau Director or
an appeal to the Director General has been perfected;
Provided, that only one (1) motion for reconsideration
of the decision or order of the Bureau Director shall be
allowed, and, in case the motion for reconsideration is
denied, the appellant or appellants has/have the
balance of the period prescribed above within which
to file the appeal.
Considering that the Respondent-Appellants received
a copy of the appealed Decision on 15 January 2004
and filed their MOTION FOR RECONSIDERATION
on 30 January 2004, said parties had a balance of 15
days from their receipt of the Resolution denying said
motion within which to file the APPEAL
MEMORANDUM. Per records of the Bureau of Legal
Affairs, the Respondents-Appellants received a copy
of the Resolution on 29 October 2004. Hence the
deadline for the filing of the APPEAL MEMORANDUM
was on 13 November 2004. Since said date fell on a
Saturday, the appeal should have been filed on the
ensuing working day, that is, 15 November 2004.
On this score, Section 5(c) of the Uniform Rules on
Appeal provides:
Section 5. Action on the Appeal Memorandum – The
Director General shall:
xxxx
c) Dismiss the appeal for being patently without
merit, provided that the dismissal shall be outright if
the appeal is not filed within the prescribed period or
for failure of the appellant to pay the required fee
within the period of appeal.22 (Underscoring supplied)
Petitioners’ allegation that they honestly believed that
they received Resolution No. 2004-18 dated October
28, 2004 on November 3, 2004 and not on October
29, 2004, as what appears on the records of the BLA-
IPO, is self-serving and unbelievable. The inadvertent
computation of the period for one to file a pleading is
inexcusable, and has become an all too familiar and
ready excuse on the part of lawyers remiss in their
bounden duty to comply with the mandatory periods.23
This Court has always reminded the members of the
legal profession that every case they handle deserves
full and undivided attention, diligence, skill and
competence, regardless of its importance.24 A lawyer
has the responsibility of monitoring and keeping track
of the period of time left to file pleadings and to see to
it that said pleadings are filed before the lapse of the
period. If he fails to do so, his client is bound by his
conduct, negligence and mistakes.25This responsibility
is imposed on all lawyers notwithstanding the
presence or absence of staff assisting them in the
discharge thereof.
Thus, as correctly held by the Court of Appeals,
petitioners’ belated filing of an appeal memorandum
rendered the December 22, 2003 Decision and the
October 28, 2004 Order of Bureau Director Beltran-
Abelardo final and executory.
At this point, the Court could very well write finis to
this petition. However, in disposing of the instant
case, we shall resolve the principal issues raised by
petitioners.
Contrary to petitioners’ argument, respondent has the
legal capacity to sue for the protection of its
trademarks, albeit it is not doing business in the
Philippines. Section 160 in relation to Section 3 of
R.A. No. 8293, provides:
SECTION 160. Right of Foreign Corporation to Sue in
Trademark or Service Mark Enforcement Action. —
Any foreign national or juridical person who meets the
requirements of Section 3 of this Act and does not
engage in business in the Philippines may bring a civil
or administrative action hereunder for opposition,
cancellation, infringement, unfair competition, or false
designation of origin and false description, whether or
not it is licensed to do business in the Philippines
under existing laws.
Section 3 thereof provides:
SECTION 3. International Conventions and
Reciprocity. — Any person who is a national or who is
domiciled or has a real and effective industrial
establishment in a country which is a party to any
convention, treaty or agreement relating to intellectual
property rights or the repression of unfair competition,
to which the Philippines is also a party, or extends
reciprocal rights to nationals of the Philippines by law,
shall be entitled to benefits to the extent necessary to
give effect to any provision of such convention, treaty
or reciprocal law, in addition to the rights to which any
owner of an intellectual property right is otherwise
entitled by this Act.
Respondent anchors its causes of action under
Articles 6bis and 8 of The Convention of Paris for the
Protection of Industrial Property, otherwise known as
the Paris Convention, wherein both the United States
and the Philippines are signatories.26 The Articles
read:
Article 6bis
(1) The countries of the Union undertake, ex officio if
their legislation so permits, or at the request of an
interested party, to refuse or to cancel the registration,
and to prohibit the use, of a trademark which
constitutes a reproduction, an imitation, or a
translation, liable to create confusion, of a mark
considered by the competent authority of the country
of registration or use to be well known in that country
as being already the mark of a person entitled to the
benefits of this Convention and used for identical or
similar goods. These provisions shall also apply when
the essential part of the mark constitutes a
reproduction of any such well-known mark or an
imitation liable to create confusion therewith.
x x x x.
Article 8
A tradename shall be protected in all countries of the
Union without the obligation of filing or registration
whether or not it forms part of a trademark.
Article 6bis which governs the protection of well-known
trademarks, is a self-executing provision and does not
require legislative enactment to give it effect in the
member country. It may be applied directly by the
tribunals and officials of each member country by the
mere publication or proclamation of the Convention,
after its ratification according to the public law of each
state and the order for its execution. The essential
requirement under this Article is that the trademark to
be protected must be "well-known" in the country
where protection is sought. The power to determine
whether a trademark is well-known lies in the
"competent authority of the country of registration or
use." This competent authority would be either the
registering authority if it has the power to decide this,
or the courts of the country in question if the issue
comes before a court.27
The question of whether or not respondent’s
trademarks are considered "well-known" is factual in
nature, involving as it does the appreciation of
evidence adduced before the BLA-IPO. The settled
rule is that the factual findings of quasi-judicial
agencies, like the IPO, which have acquired expertise
because their jurisdiction is confined to specific
matters, are generally accorded not only respect, but,
at times, even finality if such findings are supported by
substantial evidence.28
Director Beltran-Abelardo found that:
Arguing mainly that it is the owner of an internationally
well-known mark, complainant presented its United
States trademark registrations, namely: United States
Trademark Registration No. 1,514,689 for the mark
"IN-N-OUT Burger and Arrow Design" under class 25
dated November 29, 1988 for the shirts (Exhibit "L");
United States Trademark Registration No. 1,528,456
for the mark "IN-N-OUT Burger and Arrow Design"
under Class 29, 30, 32 and 42 dated March 7, 1989
for milk and french-fried potatoes for consumption on
or off the premises, for hamburger sandwiches,
cheeseburger sandwiches, hot coffee and milkshakes
for consumption on or off the premises, lemonade and
softdrinks for consumption on and off the premises,
restaurant services respectively (Exhibit "M"); US
Trademark Registration No. 1,101,638 for the mark
"IN-N-OUT" under Class No. 30 dated September 5,
1978 for cheeseburgers, hamburgers, hot coffee and
milkshake for consumption on or off premises (Exhibit
"N"); US Trademark Registration No. 1,085,163 "IN-N-
OUT" under Class 42 dated February 7, 1978 for
Restaurant Services and carry-out restaurant services
(Exhibit "Q"). For its mark "Double-Double" it
submitted Certificates of Registration of said mark in
several countries (Exhibits "MM" and submarkings).
xxxx
Moreover, complainant also cites our decision in Inter
Pares Case No. 14-1998-00045 dated 12 September
2000, an opposition case involving the mark "IN-N-
OUT" between IN-N-OUT Burger (herein complainant)
and Nestor SJ Bonjales where we ruled:
"And last but not the lease, the herein Opposer was
able to prove substantially that its mark "IN-N-OUT
Burger and Arrow Design" is an internationally well
known mark as evidenced by its trademark
registrations around the world and its comprehensive
advertisements therein."
The nub of complainant’s reasoning is that the
Intellectual Property Office as a competent authority
had declared in previous inter partes case that "IN-N-
OUT Burger and Arrow Design" is an internationally
well known mark.
In the aforementioned case, we are inclined to favor
the declaration of the mark "IN-N-OUT" as an
internationally well-known mark on the basis of
"registrations in various countries around the world
and its comprehensive advertisements therein."
The Ongpin Memorandum dated 25 October 1983
which was the basis for the decision in the previous
inter partes case and which set the criteria for
determining whether a mark is well known, takes into
consideration the extent of registration of a mark.
Similarly, the implementing rules of Republic Act
8293, specifically Section (e) Rule 102 Criteria for
determining whether a mark is well known, also takes
into account the extent to which the mark has been
registered in the world in determining whether a mark
is well known.
Likewise, as shown by the records of the instant case,
Complainant submitted evidence consisting of articles
about "IN-N-OUT Burger" appearing in magazines,
newspapers and print-out of what appears to be
printed representations of its internet website
(www.innout.com) (Exhibits "CCC" to "QQQ"), as well
as object evidence consisting of videotapes of famous
celebrities mentioning IN-N-OUT burgers in the
course of their interviews (Exhibits "EEEE" and
"FFFF") showing a tremendous following among
celebrities.
The quality image and reputation acquired by the
complainant’s IN-N-OUT mark is unmistakable. With
this, complainant’s mark have met other criteria set in
the Implementing Rules of Republic Act 8293,
namely, ‘a’ and ‘d’ of Rule 102, to wit:
"Rule 102:
(a) the duration, extent and geographical area of any
use of the mark, in particular, the duration, extent and
geographical area of any promotion of the mark,
including publicity and the presentation at fairs or
exhibitions, of the goods and/or services to which the
mark applies;
xxxx
(d) the quality image or reputation acquired by the
mark"
Hence, on the basis of evidence presented consisting
of worldwide registration of mark "IN-N-OUT" almost
all of which were issued earlier than the respondent’s
date of filing of its application and the subsequent
registration of the mark "IN-N-OUT" in this Office, as
well as the advertisements therein by the
complainant, this Office hereby affirms its earlier
declaration that indeed, the mark "IN-N-OUT
BURGER LOGO" is an internally well-known mark.29
We find the foregoing findings and conclusions of
Director Beltran-Abelardo fully substantiated by the
evidence on record and in accord with law.
The fact that respondent’s marks are neither
registered nor used in the Philippines is of no
moment. The scope of protection initially afforded by
Article 6bis of the Paris Convention has been expanded
in the 1999 Joint Recommendation Concerning
Provisions on the Protection of Well-Known Marks,
wherein the World Intellectual Property Organization
(WIPO) General Assembly and the Paris Union
agreed to a nonbinding recommendation that a well-
known mark should be protected in a country even if
the mark is neither registered nor used in that country.
Part I, Article 2(3) thereof provides:
(3) [Factors Which Shall Not Be Required] (a) A
Member State shall not require, as a condition for
determining whether a mark is a well-known mark:
(i) that the mark has been used in, or that the
mark has been registered or that an
application for registration of the mark has
been filed in or in respect of, the Member
State;
(ii) that the mark is well known in, or that the
mark has been registered or that an
application for registration of the mark has
been filed in or in respect of, any jurisdiction
other than the Member State; or
(iii) that the mark is well known by the public
at large in the Member State. (Underscoring
supplied)
Moreover, petitioners’ claim that no ground exists for
the cancellation of their registration lacks merit.
Section 151(b) of RA 8293 provides:
SECTION 151. Cancellation. — 151.1. A petition to
cancel a registration of a mark under this Act may be
filed with the Bureau of Legal Affairs by any person
who believes that he is or will be damaged by the
registration of a mark under this Act as follows:
xxxx
(b) At any time, if the registered mark becomes the
generic name for the goods or services, or a portion
thereof, for which it is registered, or has been
abandoned, or its registration was obtained
fraudulently or contrary to the provisions of this Act, or
if the registered mark is being used by, or with the
permission of, the registrant so as to misrepresent the
source of the goods or services on or in connection
with which the mark is used. x x x. 1âwphi1
The evidence on record shows that not only did the
petitioners use the IN-N-OUT Burger trademark for
the name of their restaurant, but they also used
identical or confusingly similar mark for their
hamburger wrappers and french-fries receptacles,
thereby effectively misrepresenting the source of the
goods and services.30
Finally, petitioner’s contention that respondent is
precluded from asserting its claim by laches, if not by
prescription, lacks basis. Section 151(b) of R.A. No.
8293 specifically provides that a petition to cancel the
registration of a mark which is registered contrary to
the provisions thereof, or which is used to
misrepresent the source of the goods or services,
may be filed at any time. Moreover, laches may not
prevail against a specific provision of law, since
equity, which has been defined as ‘justice outside
legality’ is applied in the absence of and not against
statutory law or rules of procedure.31 Aside from the
specific provisions of R.A. No. 8293, the Paris
Convention and the WIPO Joint Recommendation
have the force and effect of law, for under Section 2,
Article II of the Constitution, the Philippines adopts the
generally accepted principles of international law as
part of the law of the land. To rule otherwise would be
to defeat the equitable consideration that no one other
than the owner of the well-known mark shall reap the
fruits of an honestly established goodwill.
WHEREFORE, the petition is DENIED. The Decision
and Resolution of the Court of Appeals in CA-G.R. SP
No. 88004, dated October 21, 2005 and January 16,
2006, affirming the December 7, 2004 Order of
Director General Emma C. Francisco, in Appeal No.
14-2004-0004, and denying the motion for
reconsideration, respectively, are AFFIRMED.
G.R. No. 63201 May 27, 1992
PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE COURT OF FIRST INSTANCE OF RIZAL,
PASIG — BRANCH XXI, PRESIDED BY JUDGE
GREGORIO G. PINEDA, CHUNG SIONG PEK
@ BONIFACIO CHUNG SIONG PEK AND
VICTORIA CHING GENG TY @ VICTORIA
CHENG GENG TY, and THE REGISTER OF
DEEDS OF RIZAL, PASIG, METRO MANILA
AND/OR HIS DEPUTIES AND AGENTS,
respondents.
MEDIALDEA, J.:
This is a petition for certiorari under Rule 65
of the Rules of Court seeking to annul and
set aside the orders of respondent Court of
First Instance of Rizal, Pasig, Branch 21 (now
Regional Trial Court) dated April 22, 1982,
September 14, 1982 and January 12, 1983
in LRC Case No. R-2744 on the ground that
they had been issued without or in excess of
jurisdiction and with grave abuse of
discretion.
The antecedent facts of this case are as
follows:
Private respondents are the registered
owners of three parcels of land in Pasig,
Metro Manila covered by OCT No. 853, TCT
Nos. 32843 and 32897 of the Registry of
Deeds of Rizal.
On March 1, 1954, private respondents
entered into a contract of lease with
Philippine Blooming Mills, Co., Inc., (PBM for
brevity) whereby the letter shall lease the
aforementioned parcels of land as factory
site. PBM was duly organized and
incorporated on January 19, 1952 with a
corporate term of twenty-five (25) years.
This leasehold right of PBM covering the
parcels of land was duly annotated at the
back of the above stated certificates of title
as Entry No. 9367/T-No. 32843.
The contract of lease provides that the term
of the lease is for twenty years beginning
from the date of the contract and "is
extendable for another term of twenty years
at the option of the LESSEE should its term
of existence be extended in accordance with
law." (p. 76, Rollo). The contract also states
that the lessee agrees to "use the property
as factory site and for that purpose to
construct whatever buildings or
improvements may be necessary or
convenient and/or . . . for any purpose it
may deem fit; and before the termination of
the lease to remove all such buildings and
improvements" (pp. 76-77 Rollo).
In accordance with the contract, PBM
introduced on the land, buildings,
machineries and other useful improvements.
These constructions and improvements were
registered with the Registry of Deeds of Rizal
and annotated at the back of the
respondents' certificates of title as Entry No.
85213/T-No. 43338.
On October 11, 1963, PBM executed in favor
of Philippine National Bank (PNB for brevity),
petitioner herein, a deed of assignment,
conveying and transferring all its rights and
interests under the contract of lease which it
executed with private respondents. The
assignment was for and in consideration of
the loans granted by PNB to PBM. The deed
of assignment was registered and annotated
at the back of the private respondents'
certificates of title as Entry No. 85215/T-No.
32843.
On November 6, 1963 and December 23,
1963 respectively, PBM executed in favor of
PNB a real estate mortgage for a loan of
P100,000.00 and an addendum to real estate
mortgage for another loan of P1,590,000.00,
covering all the improvements constructed
by PBM on the leased premises. These
mortgages were registered and annotated at
the back of respondents' certificates as Entry
No. 85214/T-No. 43338 and Entry No.
870971/T-No. 32843, respectively.
PBM filed a petition for registration of
improvements in the titles of real property
owned by private respondents docketed as
Case No. 6530.
On October 7, 1981, private respondents
filed a motion in the same proceedings which
was given a different case number to wit,
LRC Case No.
R-2744, because of the payment of filing
fees for the motion. The motion sought to
cancel the annotations on respondents'
certificates of title pertaining to the
assignment by PBM to PNB of the former's
leasehold rights, inclusion of improvements
and the real estate mortgages made by PBM
in favor of PNB, on the ground that the
contract of lease entered into between PBM
and respondents-movants had already
expired by the failure of PBM and/or its
assignee to exercise the option to renew the
second 20-year lease commencing on March
1, 1974 and also by the failure of PBM to
extend its corporate existence in accordance
with law. The motion also states that since
PBM failed to remove its improvements on
the leased premises before the expiration of
the contract of lease, such improvements
shall accrue to respondents as owners of the
land.
On April 22, 1982, respondent court issued
an order directing the cancellation of the
inscriptions on respondents' certificates of
title. The dispositive portion of the order
provides:
WHEREFORE, the Register of Deeds having
jurisdiction over the movant's land
Certificates of Title Nos. 853, 32843 and
32897 is hereby ordered, upon the payment
of the corresponding fees, to cancel therein
memoranda/inscriptions/entries Nos.
85213/T-No. 43338, 85215/T-No. 32843,
85214/T-No. 43338 and 87097/T-No. 32843.
SO ORDERED. (pp. 147-148, Rollo)
Petitioner PNB filed a motion for
reconsideration of the above order of the
respondent court but the latter denied it on
June 28, 1982.
On August 25, 1982, private respondents
filed a motion for entry of final judgment and
issuance of a writ of execution of the order
of April 22, 1982.
On September 14, 1982, respondent court
granted the aforesaid motion for entry of
final judgment and ordered the Register of
Deeds of Pasig, Rizal to cancel the entries on
respondents' certificates of title stated in the
order of April 22, 1982.
Petitioner PNB filed an omnibus motion to set
aside the entry of judgment as ordered by
the respondent court on the ground that it
has no prior notice or knowledge of the order
of respondent court dated June 28, 1982
which denied its motion for reconsideration
of the order of April 22, 1982 and that while
there was a certification from the Bureau of
Posts that three registry notices were sent to
petitioner's counsel, there was no allegation
or certification whatsoever that said notices
were actually received by the addressee.
On January 12, 1983, the respondent court
denied the omnibus motion.
Hence, this petition.
Petitioner alleges that respondent court
acted capriciously and arbitrarily in issuing
the orders of September 14, 1982 and
January 12, 1983 which considered its
previous order of April 22, 1982 as having
become final on the ground that it had no
notice or knowledge that the order of June
28, 1982 denying its motion for
reconsideration was issued; that the notices
of registered mail allegedly containing the
order of June 28, 1982 were not received by
petitioner's counsel of record, and that the
certification of the Bureau of Posts refers
only to the fact that registry notices were
sent, and not to the fact that the notices
were actually received by the addressee.
In resolving this matter, the respondent
court stated in the questioned order of
January 12, 1983 as follows:
The respondent PNB filed a motion of May
20, 1982 to set aside the Order of April 22,
1982. This was denied by the Order of June
28, 1982. Then the movants filed a motion of
August 25, 1982 for entry of judgment,
based on the postmaster's certification that
not only one but three notices of the
registered mail containing a copy of the
order of June 28, 1982 was sent to
respondent PNB's counsel at the PNB
Building at Escolta, Manila which is his
address of record in this case. Consequently
the entry of judgment Order of September
14, 1982.
xxx xxx xxx
The respondent PNB's counsel at the hearing
of said incidents on October 12, 1982
admitted that the aforesaid registered
notices could have been received by PNB's
regular Receiving Section at the PNB Building
at the Escolta but could not have been
forwarded by said Receiving Section to said
counsel's Litigation and Collection Division,
Legal Department at an upper floor of the
same building. Thus the presumption that
official duty was regularly performed by the
postmaster was not overcome, as most
recently reiterated by the Supreme Court in
Feraren vs. Santos promulgated on April 27,
1982, 113, SCRA 707 . . . (p. 195, Rollo)
Section 8 of Rule 13 of the Rules of Court, as
amended, provides that service by registered
mail is complete upon actual receipt by the
addressee; but if he fails to claim his mail
from the post office within five (5) days from
the date of first notice of the postmaster,
service shall take effect at the expiration of
such time. The fair and just application of
that exception depends upon the conclusive
proof that the first notice was sent by the
postmaster to the addressee. The best
evidence of that fact would be the
certification from the postmaster (Barrameda
v. Castillo, L-27211, July 6, 1977, 78 SCRA
1).
In the instant case, the respondent court
found that the postmaster's certification
stated that three (3) notices of the
registered mail which contained the order of
June 28, 1982 denying the motion for
reconsideration of the order of April 22,
1982, were sent to petitioner PNB's counsel
at Escolta, Manila which is the address stated
in the record of the case. The factual findings
of the trial court bear great weight and is
binding upon this Court. Hence, as between
the denial of the petitioners' counsel that he
received the notice of the registered mail
and the postmaster's certification that said
notices were sent to him, the postmaster's
claim should prevail. The postmaster has the
official duty to send notices of registered
mail and the presumption is that official duty
was regularly performed (Aportadera, Sr. v.
Court of Appeals, G.R. No. 41358, March 16,
1988, 158 SCRA 695).
Petitioner alleges that it is not the
respondent court but the Securities and
Exchange Commission which has jurisdiction
over the private respondents' motions, which
raised as issue the corporate existence of
PBM. Petitioner further submits that the
respondent court committed grave abuse of
discretion in ordering the cancellation of
entries in the certificates of title of
respondents on the following grounds: 1) the
motion for cancellation would amount to a
collateral attack upon the due incorporation
of PBM which cannot be done legally, 2) the
contract of lease between PBM as petitioner's
assignor and private respondents did not
expire since PBM exercised its option to
renew the lease with the acquiescence of
private respondents, and 3) respondent
court's ruling that ownership over the
improvements passed from PBM to private
respondents upon the expiration of lease
violates the law and the contract between
the parties.
Even if We were to set aside the questioned
orders directing the entry of finality of the
order cancelling entries in the titles,
petitioner's case must still fail on the merits.
Private respondent's motion with the
respondent court was for the cancellation of
the entries on their titles on the ground that
the contract of lease executed between them
and PBM had expired. This action is civil in
nature and is within the jurisdiction of the
respondent court. The circumstance that
PBM as one of the contracting parties is a
corporation whose corporate term had
expired and which fact was made the basis
for the termination of the lease is not
sufficient to confer jurisdiction on the
Securities and Exchange Commission over
the case. Presidential Decree No. 902-A, as
amended, enumerates the cases over which
the SEC has exclusive jurisdiction and
authority to resolve. The case at bar is not
covered by the enumeration.
Anent the issue of whether the cancellation
of the entries on respondent's certificates of
title is valid and proper, We find that the
respondent court did not act in excess of its
jurisdiction, in ordering the same.
The contract of lease expressly provides that
the term of the lease shall be twenty years
from the execution of the contract but can be
extended for another period of twenty years
at the option of the lessee should the
corporate term be extended in accordance
with law. Clearly, the option of the lessee to
extend the lease for another period of twenty
years can be exercised only if the lessee as
corporation renews or extends its corporate
term of existence in accordance with the
Corporation Code which is the applicable law.
Contracts are to be interpreted according to
their literal meaning and should not be
interpreted beyond their obvious
intendment. Thus, in the instant case, the
initial term of the contract of lease which
commenced on March 1, 1954 ended on
March 1, 1974. PBM as lessee continued to
occupy the leased premises beyond that date
with the acquiescence and consent of the
respondents as lessor. Records show
however, that PBM as a corporation had a
corporate life of only twenty-five (25) years
which ended an January 19, 1977. It should
be noted however that PBM allowed its
corporate term to expire without complying
with the requirements provided by law for
the extension of its corporate term of
existence.
Section 11 of Corporation Code provides that
a corporation shall exist for a period not
exceeding fifty (50) years from the date of
incorporation unless sooner dissolved or
unless said period is extended. Upon the
expiration of the period fixed in the articles
of incorporation in the absence of compliance
with the legal requisites for the extension of
the period, the corporation ceases to exist
and is dissolved ipso facto (16 Fletcher 671
cited by Aguedo F. Agbayani, Commercial
Laws of the Philippines, Vol. 3, 1988 Edition
p. 617). When the period of corporate life
expires, the corporation ceases to be a body
corporate for the purpose of continuing the
business for which it was organized. But it
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 enabling it gradually to
settle and close its affairs, to dispose of and
convey its property and to divide its assets
(Sec. 122, Corporation Code). There is no
need for the institution of a proceeding for
quo warranto to determine the time or date
of the dissolution of a corporation because
the period of corporate existence is provided
in the articles of incorporation. When such
period expires and without any extension
having been made pursuant to law, the
corporation is dissolved automatically insofar
as the continuation of its business is
concerned. The quo warranto proceeding
under Rule 66 of the Rules of Court, as
amended, may be instituted by the Solicitor
General only for the involuntary dissolution
of a corporation on the following grounds: a)
when the corporation has offended against a
provision of an Act for its creation or
renewal; b) when it has forfeited its
privileges and franchises by non-user; c)
when it has committed or omitted an act
which amounts to a surrender of its
corporate rights, privileges or franchises; d)
when it has mis-used a right, privilege or
franchise conferred upon it by law, or when
it has exercised a right, privilege or franchise
in contravention of law. Hence, there is no
need for the SEC to make an involuntary
dissolution of a corporation whose corporate
term had ended because its articles of
incorporation had in effect expired by its own
limitation.
Considering the foregoing in relation to the
contract of lease between the parties herein,
when PBM's corporate life ended on January
19, 1977 and its 3-year period for winding
up and liquidation expired on January 19,
1980, the option of extending the lease was
likewise terminated on January 19, 1977
because PBM failed to renew or extend its
corporate life in accordance with law. From
then on, the respondents can exercise their
right to terminate the lease pursuant to the
stipulations in the contract.
We now come to the question of the
ownership over the improvements
constructed by PBM over the leased
premises, which improvements were
mortgaged in favor of PNB, petitioner herein.
The rights of the lessor and the lessee over
the improvements which the latter
constructed on the leased premises is
governed by Article 1678 of the Civil Code
which provides:
improvements, to wit, that the lessee,
namely PBM, bound itself to remove the
improvements before the termination of the
lease. Petitioner PNB, as assignee of PBM
succeeded to the obligation of the latter
under the contract of lease. It could not
possess rights more than what PBM had as
lessee under the contract. Hence, petitioner
was duty bound to remove the
improvements before the expiration of the
period of lease as what we have already
discussed in the preceding paragraphs. Its
failure to do so when the lease was
terminated was tantamount to a waiver of its
rights and interests over the improvements
on the leased premises.
In view of the foregoing, this Court finds that
respondent court did not act with grave
abuse of discretion in directing the
cancellation of entries on private
respondents' certificates of title as set forth
in the questioned order.
ACCORDINGLY, the petition is DISMISSED
and the assailed orders of respondent court
dated April 22, 1982, September 14, 1982
and January 12, 1983 are AFFIRMED.

Art. 1678. If the lessee makes, in good faith,

useful improvements which are suitable to
the use for which the lease is intended,
without altering the form or substance of the
property leased, the lessor upon the
termination of the lease shall pay the lessee
one-half of the value of the improvements at
that time. Should the lessor refuse to
reimburse said amount, the lessee may
remove the improvements, even though the
principal thing may suffer damage thereby.
He shall not however, cause any more
impairment upon the property leased than is
necessary. . . .

The aforequoted provision gives the lessee

the right to remove the improvements if the
lessor chooses not to pay one-half of the
value thereof. However, in the case at bar,
the law will not apply because the parties
herein have stipulated in the contract their
own terms and conditions concerning the