Gamboa vs.

Teves June 2011

petitioner Gamboa questioned the indirect sale of shares involving almost 12 million
shares of the Philippine Long Distance Telephone Company (PLDT) owned by
PTIC to First Pacific. Thus, First Pacific’s common shareholdings in PLDT
increased from 30.7 percent to 37 percent, thereby increasing the total common
shareholdings of foreigners in PLDT to about 81.47%. The petitioner contends that
it violates the Constitutional provision on Filipinization of public utility, stated in
Section 11, Article XII of the 1987 Philippine Constitution, which limits foreign
ownership of the capital of a public utility to not more than 40%. Then, in 2011, the
court ruled the case in favor of the petitioner, hence this new case, resolving the
motion for reconsideration for the 2011 decision filed by the respondents.

The main issue in that case was whether that term in Section 11 of Article 12 of the
1987 Constitution refers to the total common shares only or to the total outstanding
capital stock (of a public utility).

The SC said capital, as used in that section, “refers only to shares of stock entitled to
vote in the election of directors, and thus in the present case only to common shares,
and not to the total outstanding capital stock comprising both common and non voting
preferred shares.” The SC also held that capital referred to “shares with voting rights,
as well as with full beneficial ownership” as the “right to vote in the election of
directors, coupled with full beneficial ownership of stocks, translates to effective
control of a corporation.

1. WON the 60-40 nationality requirement applies to each class of shares –

YES

The 28 June 2011 Decision declares that the 60 percent Filipino ownership required
by the Constitution to engage in certain economic activities applies not only to
voting control of the corporation, but also to the beneficial ownership of the
corporation. Mere legal title is insufficient to meet the 60 percent Filipino owned
“capital” required in the Constitution. Full beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights, is required.
Full beneficial ownership of the stocks, coupled with appropriate voting rights, is
essential.

Since the constitutional requirement of at least 60 percent Filipino ownership

applies not only to voting control of the corporation but also to the beneficial
ownership of the corporation, it is therefore imperative that such requirement apply
uniformly and across the board to all classes of shares, regardless of nomenclature
and category, comprising the capital of a corporation. Under the Corporation Code,
capital stock consists of all classes of shares issued to stockholders, that is, common
shares as well as preferred shares, which may have different rights, privileges or
restrictions as stated in the articles of incorporation.
 

                  The Corporation Code allows denial of the right to vote to preferred and
redeemable shares, but disallows denial of the right to vote in specific corporate
matters. Thus, common shares as well as preferred shares which may have different
rights, privileges or restrictions as stated in the articles of incorporation. Thus, if a
corporation, engaged in a partially nationalized industry, issues a mixture of
common and preferred non-voting shares, at least 60 percent of the common shares
and at least 60 percent of the preferred non-voting shares must be owned by
Filipinos. In short, the 60-40 ownership requirement in favor of Filipino citizens
must apply separately to each class of shares, whether common, preferred non-
voting, preferred voting or any other class of shares.

Dispositive:

WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No

further pleadings shall be entertained. SO ORDERED.

Doctrine:

No franchise, certificate, or any other form of authorization for the operation

of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines, at
least sixty per centum of whose capital is owned by such citizens.

The constitutional requirement of at least 60 percent Filipino ownership applies

not only to voting control of the corporation but also to the beneficial
ownership of the corporation. It is therefore imperative that such requirement
apply uniformly and across the board to all classes of shares, regardless of
nomenclature and category, comprising the capital of a corporation.

2. Strategic Alliance Development v. Radstock Securities, 2009

 Construction Development Corporation of the Philippines (CDCP) was

incorporated in 1966. It was granted a franchise to construct, operate and
maintain toll facilities in the North and South Luzon Tollways and Metro
Manila Expressway.

• CDCP Mining Corporation, an affiliate of CDCP, obtained loans from

Marubeni Corporation of Japan. A CDCP official issued letters of guarantee
for the loans although there was no CDCP Board Resolution authorizing the
issuance of such letters of guarantee.

!• CDCP Mining secured the Marubeni loans when CDCP and CDCP Mining
were still privately owned and managed.

• Later on, CDCP’s name was changed to Philippine National Construction

Corporation (PNCC) in order to reflect that the Government already owned
90.3% of PNCC and only 9.70% is under private ownership.

!• Meanwhile, the Marubeni loans to CDCP Mining remained unpaid.

• PNCC Board passed Board Resolutions admitting PNCC’s liability to

Marubeni. Previously, for two decades the PNCC Board consistently refused
to admit any liability for the Marubeni loans.

• Later, Marubeni assigned its entire credit to Radstock Securities Limited

(Radstock), a foreign corporation. Radstock immediately sent a notice and
demand letter to PNCC.

• PNCC and Radstock entered into a Compromise Agreement. Under this

agreement, PNCC shall pay Radstock the reduced amount of
P6,185,000,000.00 from P17,040,843,968.00

! To satisfy its reduced obligation, PNCC undertakes to

• • (1) "assign to a third party assignee to be designated by Radstock all its

rights and interests" to the listed real properties of PNCC; • (2) issue to
Radstock or its assignee common shares of the capital stock of PNCC; and
(3) assign to Radstock or its assignee 50% of PNCC’s 6% share, for the next
27 years, in the gross toll revenues of the Manila North Tollways Corporation.
• Strategic Alliance Development Corporation (STRADEC) moved for
reconsideration. STRADEC alleged that it has a claim against PNCC as a
bidder of the National Government’s shares, receivables, securities and
interests in PNCC. Issue Whether or not the Compromise Agreement
between PNCC (Board?) and Radstock is valid

• NO • Radstock is a private corporation incorporated in the British Virgin

Islands. As a foreign corporation, with unknown owners whose nationalities
are also unknown, Radstock is not qualified to own land in the Philippines. •
Radstock is also disqualified to own the rights to ownership of lands and
transfer rights to ownership of lands in the Phils.

!DOCTRINE:

• In this jurisdiction, the members of the board of directors have a three- fold
duty: duty of obedience, duty of diligence, and duty of loyalty. • Accordingly,
the members of the board of directors • (1) shall direct the affairs of the
corporation only in accordance with the purposes for which it was organized;

• (2) shall not willfully and knowingly vote for or assent to patently unlawful
acts of the corporation or act in bad faith or with gross negligence in directing
the affairs of the corporation; and •(3) shall not acquire any personal or
pecuniary interest in conflict with their duty as such directors or trustees.
The trial court continued to hear the main case. On 10 December
2002, the trial court ruled in favor of Radstock.Court of Appeals,
docketed as CA-G.R. CV No. 87971.

On 19 March 2003, this Court issued a temporary restraining order

in G.R. No. 156887 forbidding the trial court from implementing the
writ of preliminary attachment and ordering the suspension of the
proceedings before the trial court and the Court of Appeals. In its 3
October 2005 Decision

FACTS

Facts:
Before this Court is a Petition for Review on Certiorari under Rule 45 filed by
Narra Nickel and Mining Development Corp. (Narra), Tesoro Mining and
Development, Inc. (Tesoro), and McArthur Mining Inc. (McArthur), which
seeks to reverse the October 1, 2010
Decision[1] and the February 15, 2011 Resolution of the Court of Appeals
(CA).
Sometime in December 2006, respondent Redmont Consolidated Mines
Corp. (Redmont), a domestic corporation organized and existing under
Philippine laws, took interest in mining and exploring certain areas of the
province of Palawan.  After inquiring with the Department of
Environment and Natural Resources (DENR), it learned that the areas where
it wanted to undertake exploration and mining activities where already
covered by Mineral Production Sharing Agreement (MPSA) applications of
petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining,
Inc. (SMMI), filed an application for an MPSA and Exploration Permit (EP)
with the Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office of the
Department of Environment and Natural Resources
(DENR).  Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an
area of over 1,782 hectares in Barangay Sumbiling, Municipality of Bataraza,
Province of Palawan and EPA-IVB-44 which includes an area of 3,720
hectares in Barangay Malatagao, Bataraza, Palawan.  The
MPSA and EP were then transferred to Madridejos Mining Corporation (MMC)
and, on November 6, 2006, assigned to petitioner McArthur.[
Petitioner Narra acquired its MPSA from Alpha Resources and Development
Corporation and Patricia Louise Mining & Development Corporation (PLMDC)
which previously filed an application for an MPSA with the MGB, Region IV-B,
DENR on January 6, 1992.
Another MPSA application of SMMI was filed with the DENR Region IV-B,
labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over 3,402 hectares in
Barangays Malinao and Princesa Urduja, Municipality of Narra, Province of
Palawan.  SMMI subsequently conveyed, transferred and... assigned its rights
and interest over the said MPSA application to Tesoro.
Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3)
separate petitions for the denial of petitioners' applications for MPSA
designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12.
In the petitions, Redmont alleged that at least 60% of the capital stock of
McArthur, Tesoro and Narra are owned and controlled by MBMI Resources,
Inc. (MBMI), a 100% Canadian corporation.  Redmont reasoned that since
MBMI is a considerable stockholder of petitioners, it... was the driving force
behind petitioners' filing of the MPSAs over the areas covered by applications
since it knows that it can only participate in mining activities through
corporations which are deemed Filipino citizens.
Redmont argued that given that petitioners'... capital stocks were mostly
owned by MBMI, they were likewise disqualified from engaging in mining
activities through MPSAs, which are reserved only for Filipino citizens.
they stated that their nationality as applicants is immaterial because they also
applied for Financial or Technical Assistance Agreements (FTAA)
denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and
AFTA-IVB-07 for Narra, which are granted to... foreign-owned corporations. 
Nevertheless, they claimed that the issue on nationality should not be raised
since McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of
their capital is owned by citizens of the Philippines.
the POA issued a Resolution disqualifying petitioners from gaining MPSAs. It
held:
[I]t is clearly established that respondents are not qualified applicants to
engage in mining activities.  On the other hand, [Redmont] having filed its own
applications for an EPA over the areas earlier covered by the MPSA
application of respondents may be... considered if and when they are qualified
under the law.
the Panel of Arbitrators finds the Respondents, McArthur Mining Inc., Tesoro
Mining and Development, Inc., and Narra Nickel Mining and Development
Corp. as, DISQUALIFIED for being considered as Foreign Corporations. 
Their Mineral Production Sharing Agreement
(MPSA) are hereby x x x DECLARED NULL AND VOID.
McArthur and Tesoro filed a joint Notice of Appeal[8] and Memorandum of
Appeal[9] with the Mines Adjudication Board (MAB) while Narra separately
filed its Notice of Appeal[10] and Memorandum of Appeal.[11]
In their respective memorandum, petitioners emphasized that they are
qualified persons under the law.  Also, through a letter, they informed the
MAB that they had their individual MPSA applications converted to FTAAs.
Pending the resolution of the appeal filed by petitioners with the MAB,
Redmont filed a Complaint[15] with the Securities and Exchange Commission
(SEC), seeking the revocation of the certificates for registration of petitioners
on the ground that they are... foreign-owned or controlled corporations
engaged in mining in violation of Philippine laws. Thereafter, Redmont filed on
September 1, 2008 a Manifestation and Motion to Suspend Proceeding before
the MAB praying for the suspension of the proceedings on the appeals filed
by
McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed before the Regional Trial
Court of Quezon City, Branch 92 (RTC) a Complaint[16] for injunction with
application for issuance of a temporary restraining order (TRO) and/or writ of
preliminary injunction
Redmont prayed for the deferral of the MAB proceedings pending the
resolution of the Complaint before the SEC.
But before the RTC can resolve Redmont's Complaint and applications for
injunctive reliefs, the MAB issued an Order on September 10, 2008, finding
the appeal meritorious.
the Mines Adjudication Board hereby REVERSES and SETS ASIDE the
Resolution dated 14 December 2007 of the Panel of Arbitrators of Region IV-
B
The Petition filed by Redmont Consolidated Mines Corporation on 02 January
2007 is hereby ordered DISMISSED.
Hence, the petition for review filed by Redmont before the CA, assailing the
Orders issued by the MAB.  On October 1, 2010, the CA rendered a Decision,
the dispositive of which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED.  The assailed Orders,
dated September 10, 2008 and July 1, 2009 of the Mining Adjudication Board
are reversed and set aside.  The findings of the Panel of Arbitrators of the
Department of Environment and Natural
Resources that respondents McArthur, Tesoro and Narra are foreign
corporations is upheld and, therefore, the rejection of their applications for
Mineral Product Sharing Agreement should be recommended to the Secretary
of the DENR.
the CA found that there was doubt as to the nationality of petitioners when it
realized that petitioners had a common major investor, MBMI, a corporation
composed of 100% Canadians.
Finally, the CA upheld the findings of the POA in its December 14, 2007
Resolution which considered petitioners McArthur, Tesoro and Narra as
foreign corporations.  Nevertheless, the CA determined that the POA's
declaration that the MPSAs of McArthur, Tesoro and Narra are... void is highly
improper.
While the petition was pending with the CA, Redmont filed with the Office of
the President (OP) a petition dated May 7, 2010 seeking the cancellation of
petitioners' FTAAs.  The OP rendered a Decision[26] on April 6, 2011,
wherein it canceled and... revoked petitioners' FTAAs for violating and
circumventing the "Constitution x x x[,] the Small Scale Mining Law and
Environmental Compliance Certificate as well as Sections 3 and 8 of the
Foreign Investment Act and E.O. 584."
The Motion for Reconsideration of the Decision was further denied by the OP
in a Resolution[30] dated July 6, 2011.  Petitioners then filed a Petition for
Review on Certiorari of the OP's Decision and Resolution with the CA,
docketed as CA-G.R. SP No.
120409.  In the CA Decision dated February 29, 2012, the CA affirmed the
Decision and Resolution of the OP.  Thereafter, petitioners appealed the
same CA decision to this Court which is now pending with a different division.
Thus, the instant petition for review against the October 1, 2010 Decision of
the CA.

ISSUES

(1) Is the Grandfather Rule applicable?

(2) Whether McArthur, Tesoro and Narra are Filipino nationals.

RULINGS

(1) YES.

The instant case presents a situation which exhibits a scheme employed by

stockholders to circumvent the law, creating a cloud of doubt in the Court’s
mind. To determine, therefore, the actual participation, direct or indirect, of
MBMI, the grandfather rule must be used.

The Strict Rule or the Grandfather Rule pertains to the portion in Paragraph 7
of the 1967 SEC Rules which states, “but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%, only the number
of shares corresponding to such percentage shall be counted as of Philippine
nationality.” Under the Strict Rule or Grandfather Rule Proper, the combined
totals in the Investing Corporation and the Investee Corporation must be
traced (i.e., “grandfathered”) to determine the total percentage of Filipino
ownership.
(2) NO.

[P]etitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100%
Canadian corporation, owns 60% or more of their equity interests. Such
conclusion is derived from grandfathering petitioners’ corporate owners. xxx
Noticeably, the ownership of the “layered” corporations boils down to xxx
group wherein MBMI has joint venture agreements with, practically exercising
majority control over the corporations mentioned. In effect, whether looking at
the capital structure or the underlying relationships between and among the
corporations, petitioners are NOT Filipino nationals and must be considered
foreign since 60% or more of their capital stocks or equity interests are owned
by MBMI.

Commercial law; Tests to determine the nationality of a corporation. There are

two acknowledged tests in determining the nationality of a corporation: the
control test and the grandfather rule. Paragraph 7 of DOJ Opinion No. 020,
Series of 2005, adopts the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to the controlling
interests in enterprises engaged in the exploitation of natural resources
owned by Filipino citizens. The first part of paragraph 7, DOJ Opinion No.
020, stating “shares belonging to corporations or partnerships at least 60% of
the capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality,” pertains to the control test or the liberal rule. On the
other hand, the second part of the DOJ Opinion which provides, “if the
percentage of the Filipino ownership in the corporation or partnership is less
than 60%, only the number of shares corresponding to such percentage shall
be counted as Philippine nationality,” pertains to the stricter, more stringent
grandfather rule.

Application of the Grandfather Rule. Based on the said SEC Rule and DOJ
Opinion, the Grandfather Rule or the second part of the SEC Rule applies
only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in
cases where the joint venture corporation with Filipino and foreign
stockholders with less than 60% Filipino stockholdings [or 59%] invests in
other joint venture corporation which is either 60-40% Filipino-alien or the
59% less Filipino). Stated differently, where the 60-40 Filipino- foreign equity
ownership is not in doubt, the Grandfather Rule will not apply.

Anti Dummay LAw

JG Summit v. CA, 2005

LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES,

INC., respondent
Lim v. G.R. No. 136448 November 3, 1999
DOCTRINE: an Unincorporated association has no personality and would be
incompetent to act and appropriate for itself the power and attributes of a
corporation as provided by law; it cannot create agents or confer authority on
another to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk. And as
it is an elementary principle of law that a person who acts as an agent without
authority or without a principal is himself regarded as the principal, possessed
of all the right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid existence
assumes such privileges and obligations and becomes personally liable for
contracts entered into or for other acts performed as such agent.
FACTS:
FACTS:
 Feb 7 1990: On behalf of "Ocean Quest Fishing Corp.", Antonio Chua and Peter
Yao entered into a purchase of fishing nets of various sizes from Phil. Fishing
Gear Industries Inc. (PFGI) claiming they were engaged in venture with Lim
Tong Lim (NOT a signatory)
 Buyers failed to pay
 PFGI filed a suit against Chua, Yao and Lim w/ writ of preliminary attachment
 Chua: Admitted liability and requested resonable time and turned over nets in his
possession
 Yao: Failre to appear in subsequent hearings
 Lim: Counterclaim and Crossclaim to life writ of Attachment
 CA affirmed RTC: Writ of Attachment & Chua, Yao and Lim as general partners
 Chua, Yao and Lim had decided to engage in business w/ Lim's brother Jesus Lim
as financer of a loan = common fund
 Compromise Agreement:  pay loan w/ the proceeds of boats sale and to divide
equally among them the excess or loss

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter

Yao entered into a Contract dated February 7, 1990, for the purchase of
fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc.
(herein respondent). They claimed that they were engaged in a business
venture with Petitioner Lim Tong Lim, who however was not a signatory to the
agreement. The total price of the nets amounted to P532,045. Four hundred
pieces of floats worth P68,000 were also sold to the Corporation.
The buyers, however, failed to pay for the fishing nets and the floats; hence,
private respondents filed a collection suit against Chua, Yao and Petitioner
Lim Tong Lim.
Instead of answering the Complaint, Chua filed a Manifestation admitting his
liability and requesting a reasonable time within which to pay. He also turned
over to respondent some of the nets which were in his possession. Peter Yao
filed an Answer, after which he was deemed to have waived his right to cross-
examine witnesses and to present evidence on his behalf, because of his
failure to appear in subsequent hearings. Lim Tong Lim, on the other hand,
filed an Answer with Counterclaim.
The trial court rendered its Decision, ruling that Chua, Yao and Lim, as
general partners, were jointly liable to pay respondent. Lim appealed to the
Court of Appeals (CA) which, as already stated, affirmed the RTC.
ISSUE: Whether or not in a corporation by Estoppel liability can be imputed
only to Chua and Yao, and not to Lim Tong Lim.
RULING: Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. — All persons who assume to act as a
corporation knowing it to be without authority to do so shall be liable as
general partners for all debts, liabilities and damages incurred or arising as a
result thereof.
"The reason behind this doctrine is obvious — an unincorporated association
has no personality and would be incompetent to act and appropriate for itself
the power and attributes of a corporation as provided by law; it cannot create
agents or confer authority on another to act in its behalf; thus, those who act
or purport to act as its representatives or agents do so without authority and at
their own risk. And as it is an elementary principle of law that a person who
acts as an agent without authority or without a principal is himself regarded as
the principal, possessed of all the right and subject to all the liabilities of a
principal, a person acting or purporting to act on behalf of a corporation which
has no valid existence assumes such privileges and obligations and becomes
personally liable for contracts entered into or for other acts performed as such
agent.
The doctrine of corporation by estoppel may apply to the alleged corporation
and to a third party. In the first instance, an unincorporated association, which
represented itself to be a corporation, will be estopped from denying its
corporate capacity in a suit against it by a third person who relied in good faith
on such representation. It cannot allege lack of personality to be sued to
evade its responsibility for a contract it entered into and by virtue of which it
received advantages and benefits.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao
decided to form a corporation. Although it was never legally formed for
unknown reasons, this fact alone does not preclude the liabilities of the three
as contracting parties in representation of it. Clearly, under the law on
estoppel, those acting on behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable as general partners.
Hence, the petition is denied and the decision of the RTC and CA were
affirmed.
International express travel v. ca
6. The complaint of Petitioner against the Federation and the counterclaims of Henri
Kahn were
dismissed, with costs against Kahn. Only Henri Kahn elevated the decision to the CA.
7. On 21 December 1994, the CA rendered a decision reversing the trial court. Int’l
Express filed
a motion for reconsideration and as an alternative prayer pleaded that the Federation
be held
liable for the unpaid obligation. The same was denied by the CA, thus prompting the
petitioner
to file this petition with the SC.
Issue: W/N Kahn should be made personally liable for the unpaid obligations of the
Philippine
Football Federation.
Ratio: Yes.
The Federation, upon its creation, was not automatically considered a national sports
association.Although both RA 3135 (Revised Charter of the Philippine Amateur
Athletic
Federation) and PD 604 recognized the juridical existence of national sports
associations, which
may be gleaned from the powers and functions granted to these associations, nowhere
can it be
found in any provision of RA 3135 or PD 604 creating the Federation.
It is a basic postulate that before a corporation may acquire juridical personality, the
State must
give its consent either in the form of a special law or a general enabling act. Meaning,
a sports
association must first be recognized and accredited by the Philippine Amateur
Athletic
Federation, under RA 3135, and the Department of Youth and Sports Development,
under PD
604. This fact was never substantiated by Kahn. As such, the Federation is considered
as an
unincorporated sports association. And under the law, any person acting or purporting
to act on
behalf of a corporation which has no valid existence assumes such privileges and
becomes
personally liable for contract entered into or for other acts performed as such agent.
Kahn is
therefore personally liable for the contract entered into by the Federation with
petitioner Int’l
Express.
Furthermore, there’s also no merit on the finding of the CA that Int’l Express is in
estoppel. The
application of the doctrine of corporation by estoppel applies to a third party only
when he tries
to escape liability on a contract from which he has benefited on the irrelevant ground
of
defective incorporation. In the case at bar, petitioner is not trying to escape liability
from the
contract, but rather it’s the one that’s claiming from the contract.
Dispositive: The petitioner won
NO. The doctrine of corporation by estoppel is mistakenly applied by the respondent
court to the petitioner.
The application of the doctrine applies to a third party only when he tries to escape
liabilities on a contract
from which he has benefited on the irrelevant ground of defective incorporation. In
the case at bar, the
petitioner is not trying to escape liability from the contract but rather is the one
claiming from the contract
FACTS: On September 18, 1961, private respondent secured a loan from
petitioner in the amount of P120,000.00. As part of the proceeds of the loan,
preferred shares of stocks were issued to private respondent Corporation,
through its officers then, private respondent Adalia F. Robes and one Carlos
F. Robes. Instead of giving the legal tender totaling to the full amount of the
loan, which is P120,000.00, petitioner lent such amount partially in the form of
money and partially in the form of stock certificates numbered 3204 and 3205,
each for 400 shares with a par value of P10.00 per share, or for P4,000.00
each, for a total of P8,000.00. Said stock certificates were in the name of
private respondent Adalia F. Robes and Carlos F. Robes, who subsequently,
however, endorsed his shares in favor of Adalia F. Robes. Said certificates of
stock bear the following terms and conditions: "The Preferred Stock shall have
the following rights, preferences, qualifications and limitations, to wit: 1. Of the
right to receive a quarterly dividend of One Per Centum (1%), cumulative and
participating. 2. That such preferred shares may be redeemed, by the system
of drawing lots, at any time after two (2) years from the date of issue at the
option of the Corporation." On January 31, 1979, private respondents
proceeded against petitioner and filed a Complaint alleging its rights to collect
dividends under the preferred shares in question and to have petitioner
redeem the same under the terms and conditions of the stock certificates.
Petitioner filed a Motion to Dismiss on the following grounds: (1) that the trial
court had no jurisdiction over the subject-matter of the action; (2) that the
action was unenforceable under substantive law; and (3) that the action was
barred by the statute of limitations and/or laches. The trial court denied the
Motion to Dismiss and assailed decision in favour of private respondents. In
ordering petitioner to pay private respondents the face value of the stock
certificates as redemption price, plus 1% quarterly interest thereon until full
payment. Hence, this petition. ISSUE: 1. Whether or not the respondent judge
committed a grave abuse of discretion in disregarding the order of the Central
Bank to petitioner to desist from redeeming its preferred shares and from
paying dividends. 2. Whether or not the respondent judge committed a grave
abuse of discretion in ordering petitioner to pay respondent Adalia F. Robes
interests on her preferred shares.

RULING: 1. YES, the respondent judge committed a grave abuse of discretion

in disregarding the order of the Central Bank to petitioner to desist from
redeeming its preferred shares and from paying dividends. What respondent
judge failed to recognize was that while the stock certificate does allow
redemption, the option to do was clearly vested in the petitioner bank. The
redemption therefore is clearly the type known as “optional.” Thus, except as
otherwise provided in the stock certificate, the redemption rests entirely with
the corporation and the stockholder is without right to either compel or refuse
the redemption of its stock. Furthermore, the terms and conditions set forth
therein use the word “may.” It is a settled doctrine in statutory construction
that the word “may” denotes discretion, and cannot be construed as having
mandatory effect. We fail to see how respondent judge can ignore what, in his
words, are the “very wordings of the terms and conditions in said stock
certificates” and construe what is clearly a mere option to be his legal basis
for compelling the petitioner to redeem the shares in question. The
redemption of said shares cannot be allowed. As pointed out by the petitioner,
the Central Bank made a finding that said petitioner has been suffering from
chronic reserve deficiency, and that such finding resulted in a directive on the
ground that said redemption would reduce the assets of the bank to the
prejudice of its depositors and creditors. Redemption of preferred shares was
prohibited for a just and valid reason. 2. YES, the respondent judge
committed a grave abuse of discretion in ordering petitioner to pay respondent
Adalia F. Robes interests on her preferred shares. Both Sec.16 of the
Corporation Law and Sec. 43 of the present Corporation Code prohibit the
issuance of any stock dividend without the approval of stockholders,
representing not less than 2/3 of the outstanding capital stock at a regular or
special meeting duly called for the purpose. These provisions underscore the
fact that payment of dividends to a stockholder is not a matter of right but a
matter of consensus. Furthermore, “interest bearing stocks,” on which the
corporation agrees absolutely to pay interest before dividends are paid to
common stockholders, is legal only when construed as requiring payment of
interest as dividends from net earnings or surplus only. Clearly, the
respondent judge, in compelling the petitioner to redeem the shares in
question and to pay the corresponding dividends, committed grave abuse of
discretion amounting to lack or excess of jurisdiction in ignoring both the
terms and conditions specified in the stock certificate, as well as the clear
mandate of law.

FACTS:

Philips Export B.V. (PEBV) filed with the SEC for the cancellation of the word
“Philips” the corporate name of Standard Philips Corporation in view of its
prior registration with the Bureau of Patents and the SEC. However, Standard
Philips refused to amend its Articles of Incorporation so PEBV filed with the
SEC a petition for the issuance of a Writ of Preliminary Injunction, however
this was denied ruling that it can only be done when the corporate names are
identical and they have at least 2 words different. This was affirmed by the
SEC en banc and the Court of Appeals thus the case at bar.

ISSUE:
Whether or not Standard Philips can be enjoined from using Philips in its
corporate name

RULING: YES

A corporation’s right to use its corporate and trade name is a property right, a
right in rem, which it may assert and protect against the whole world.
According to Sec. 18 of the Corporation Code, no corporate name may be
allowed if the proposed name is identical or deceptively confusingly similar to
that of any existing corporation or to any other name already protected by law
or is patently deceptive, confusing or contrary to existing law.

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

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

A corporation has an exclusive right to the use of its name, which may be
protected by injunction upon a principle similar to that upon which persons are
protected in the use of trademarks and tradenames. Philips Export B.V.
(PEBV), a foreign corporation organized under the laws of the Netherlands,
although not engaged in business here, is the registered owner of the
trademarks PHILIPS and PHILIPS SHIELD EMBLEM. Philips Electrical
Lamps, Inc. (Philips Electrical, for brevity) and Philips Industrial
Developments, Inc. (Philips Industrial, for short), authorized users of the
trademarks PHILIPS and PHILIPS SHIELD EMBLEM, were incorporated on
29 August 1956 and 25 May 1956, respectively. All suchcorporations belong
to the PHILIPS Group of Companies. Standard Philips Corporation (Standard
Philips), on the other hand, was issued a Certificate of Registration by SEC on
19 May 1982. PEBV filed a letter complaint with the SEC asking for the
cancellation of the word "PHILIPS" from Standard Philips’ corporate name in
view of the prior registration with the Bureau of Patents of the trademark
"PHILIPS" and the logo "PHILIPS SHIELD EMBLEM" in the name of PEBV
and the previous registration of Philips Electrical and Philips Industrial with the
SEC. Standard Philips refused to amend its Articles of Incorporation. PEBV
filed with the SECa Petition praying for the issuance of a Writ of Preliminary
Injunction claiming that the use of the word “PHILIPS” amounts to
infringement and clear violation of PEBV’s exclusive right to use the same
considering that both parties engage in the same business. The SEC Hearing
Officer ruled against the issuance of the writ as there is no confusing similarity
between PEBV’s and Standard Philips' corporate names as those of the
PEBV contain at least two words different from that of the Standard Philips.
SEC en banc affirmed the dismissal. The CA dismissed PEBV’s petition ruling
that Standard Philips' products consisting of chain rollers, belts, bearings and
cutting saw are unrelated and non-competing with PEBV’s products i.e.
electrical lamps. Hence, this petition. ISSUE: Should Standard Philips change
its corporate name given that PEBV acquired exclusive right over the word
“PHILIPS”, hence, there is confusing similarity, if not infringement, between
the two corporate names? RULING: YES. As early as Western Equipment
and Supply Co. v. Reyes (1927), the Court declared that a corporation's right
to use its corporate and trade name is a

CORPO – C. CORPORATE NAME property right, a right in rem, which it may

assert and protect against the world in the same manner as it may protect its
tangible property, real or personal, against trespass or conversion. It is
regarded, to a certain extent, as a property right and one which cannot be
impaired or defeated by subsequent appropriation by another corporation in
the same field. Sec. 18 of the Corporation Code cannot be any clearer. To
come within its scope, two requisites must be proven, namely: (1) that the
complainant corporation acquired a prior right over the use of such corporate
name; and (2) the proposed name is either: (a) identical; or (b) deceptively or
confusingly similar to that of any existing corporation or to any other name
already protected by law; or (c) patently deceptive, confusing or contrary to
existing law. The right to the exclusive use of a corporate name with freedom
from infringement by similarity is determined by priority of adoption. In this
regard, there is no doubt with respect to PEBV’s prior adoption of' the name
''PHILIPS" as part of its corporate name. Philips Electrical and Philips
Industrial were incorporated on 29 August 1956 and 25 May 1956,
respectively, while Standard Philips was issued a Certificate of Registration
on 12 April 1982, 26 years later. In determining the existence of confusing
similarity in corporate names, the test is whether the similarity is such as to
mislead a person, using ordinary care and discrimination. In so doing, the
Court must look to the record as well as the names themselves. While the
corporate names of PEBV and Standard Philips are not identical, a reading of
PEBV's corporate names inevitably leads one to conclude that "PHILIPS" is,
indeed, the dominant word in that all the companies affiliated or associated
with the principal corporation, PEBV, are known in the Philippines and abroad
as the PHILIPS Group of Companies. Given Standard Philips’ primary
purpose (i.e. …electrical wiring devices, electrical component parts, and/or
complement…), nothing could prevent it from dealing in the same line of
business of electrical devices, products or supplies which fall under its primary
purposes. Besides, there is showing that Standard Philips not only
manufactured and sold ballasts for fluorescent lamps with their corporate
name printed thereon but also advertised the same as, among others,
Standard Philips. Standard Philips’ choice of "PHILIPS" as part of its
corporate name [STANDARD PHILIPS CORPORATION] tends to show
Standard Philips’ intention to ride on the popularity and established goodwill of
said PEBV’s business throughout the world. The subsequent appropriator of
the name or one confusingly similar thereto usually seeks an unfair
advantage, a free ride of another's goodwill.

CORPO – C. CORPORATE NAME PHILIPS is a trademark or trade name

which was registered as far back as 1922. PEBV, therefore, have the
exclusive right to its use which must be free from any infringement by
similarity. Such principle proceeds upon the theory that it is a fraud on the
corporation which has acquired a right to that name and perhaps carried on its
business thereunder, that another should attempt to use the same name, or
the same name with a slight variation in such a way as to induce persons to
deal with it in the belief that they are dealing with the corporation which has
given a reputation to the name. Notably, too, Standard Philips’ name actually
contains only a single word, that is, "STANDARD", different from that of PEBV
inasmuch as the inclusion of the term "Corporation" or "Corp." merely serves
the Purpose of distinguishing the corporation from partnerships and other
business organizations. The fact that there are other companies engaged in
other lines of business using the word "PHILIPS" as part of their corporate
names is no defense and does not warrant the use by Standard Philips of
such word which constitutes an essential feature of PEBV’s corporate name
previously adopted and registered andhaving acquired the status of a well-
known mark in the Philippines and internationally as well. WHEREFORE, the
Decision of the Court of Appeals dated 31 July 1990, and its Resolution dated
20 November 1990, are SET ASIDE and a new one entered ENJOINING
private respondent from using "PHILIPS" as a feature of its corporate name,
and ORDERING the Securities and Exchange Commission to amend private
respondent's Articles of Incorporation by deleting the word PHILIPS from the
corporate name of private respondent.