a.

) SEC-OGC OPINION NO. 01-08

Re: Dissolution and Piercing Doctrine

J. P. VILLANUEVA & ASSOCIATES

8th Floor, Sagittarius Building,
H.V. dela Costa St., Salcedo Village,
Makati City

Attention:  Atty. Jorge Roito N. Hirang, Jr.

Dear Atty. Hirang :

This refers to your letter of 6 August 2007, indorsed to this Office by the
Company Registration and Monitoring Department ("CRMD", for brevity) through its
Memorandum of 2 October 2007, requesting that we formally and officially declare
Skyline International, Inc. ("SII") as having reverted from a corporation to a sole
proprietorship.

In essence, you are following up the 27 October 1976 letter of Atty. Antonio
Navarette, former counsel for Mrs. Rufina L. Lim, asking the Commission to update
SII's files on the ground that the corporation had been allegedly dissolved by virtue of
the 23 June 1976 Decision of the then Juvenile and Domestic Relations Court ("JDRC")
in Civil Case No. QE-00330 entitled Rufina Luy Lim vs. Pastor Y. Lim, a case for legal
support and alimony pendente lite.

In the above-referred case, the JDRC awarded monthly support and attorney's
fees in favor of Mrs. Lim. At the same time, it found that all the properties turned over
by Mr. Lim to SII are conjugal properties; hence, SII "is another name for Mr. and Mrs.
Pastor Y. Lim in person".

Inasmuch as its properties were levied on execution to answer for Mr. Lim's
obligations, SII filed before the JDRC its third-party claim, which, however, was
quashed upon motion by Mrs. Lim. In its Decision dated 23 June 1976, the Court of
Appeals ("CA") affirmed the quashal of the third-party claim on the basis of its finding
that the JDRC correctly pierced the veil of SII's corporate fiction. The Supreme Court
upheld the CA in its Resolution dated 4 August 1976, which became final on 11
September 1976.

The issue, as put by the CRMD, is this: what is the status of SII?
 It is now settled that the existence of a corporation which is at least a  de
facto  one cannot be drawn in question collaterally. 1 This is embodied in Section 20 of
the Corporation Code which reads:

"Sec. 20. De facto corporations. — The due incorporation of any

corporation claiming in good faith to be a corporation under this Code, and its
right to exercise corporate powers, shall not be inquired into collaterally in any
private suit to which such corporation may be a party. Such inquiry may be
made by the Solicitor General in a quo warranto proceeding."

The general rule against the collateral attack upon corporate existence is based
upon the ground, not of equitable estoppel, but of public policy:

(a) Individual right is not invaded; it is the State's right and authority which
are invaded and usurped. If the State, which alone grants the authority to
incorporate, remains silent, an individual would not be allowed and permitted to
raise the inquiry.

(b) It would produce endless confusion and hardship and probably

destroy the corporation if the legality of its existence could be questioned in
every suit to which it is a party, for then no judgment could be rendered which
would finally settle the question.

(c) Likewise, the rule is in the interest of the public and is essential to the
validity of business transactions with corporations. 2

As adverted to above, the case decided by the JDRC and upheld by the
appellate courts is one for legal support and alimony  pendente lite, not the
direct proceeding required by law for attacking corporate existence. As a matter
of fact, the decision does not categorically state that SII is dissolved. It is our
considered view that what the decision unequivocally did was to merely pierce
the veil of corporate fiction of SII.

That said, it bears emphasizing that when the piercing doctrine is applied in a
particular case, the effect is to treat the members or stockholders as the
corporation itself, that is, liability will attach directly, not on the corporation,
but on such individuals comprising and/or managing it. 3 The application of such
doctrine is within the ambit of the principle of res judicata that binds only the parties
to the case and only to the matters actually resolved therein. In piercing, the court
does not deny legal personality to a corporation for any and all purposes and
the said corporation still possesses such separate juridical personality in any
other case, or with respect to other issues. 4
 Further, please be informed that while SII's Certificate of Registration was
revoked by the Commission on 2 duly 2003 for non-compliance with reportorial
requirements, such revocation had already been set aside on 19 September 2006. 5

From the foregoing, insofar as the Commission is concerned, Skyline

International, Inc. has an active status.

Please be guided accordingly.

  (Re: Dissolution and Piercing Doctrine, SEC-OGC Opinion No. 01-08, [December 13, 2007])
|||
 b.) EC-OGC OPINION NO. 11-13

QUORUM; ELECTION OF DIRECTORS

Mr. James Cu Unjieng

Our Offices Building
157 EDSA, Mandaluyong City

Sir:

This refers to your letter dated 05 May 2011 presenting the following queries to
the Commission:

"1. For purpose of election of the Board of Directors, what constitutes a

"QUORUM".
2. Legality of the Act of Hold-Over Directors appointing another director to
fill-in vacancy caused by the resignation of a hold-over director."

You likewise mentioned that William Cu Unjieng previously asked these queries
from Atty. Lucila De Casa, who is a Corporation Law author. Atty. De Casa rendered
her opinion in a letter dated 25 March 2011.

Section 52 of the Corporation Code 1 provides the following:

"Section 52. Quorum in meetings.  — Unless otherwise provided for in this

Code or in the by-laws, a quorum shall consist of the stockholders representing
a majority of the outstanding capital stock or a majority of the members in the
case of non-stock corporations."  DIESaC

On the other hand, Section 24 of the Corporation Code provides the following:

"Section 24. Election of directors or trustees. — At all elections of directors

or trustees, there must be present, either in person or by representative
authorized to act by written proxy, the owners of a majority of the outstanding
capital stock, or if there be no capital stock, a majority of the members entitled
to vote. . . . In stock corporations, every stockholder entitled to vote shall have
the right to vote in person or by proxy the number of shares of stock standing,
at the time fixed in the by-laws, in his own name on the stock books of the
corporation, or where the by-laws are silent, at the time of the election".

To answer your first question of what constitutes a quorum for purposes of

election of directors or trustees, we must look at Section 24 that requires presence in
person or by proxy of "the owners of a majority of the outstanding capital stock, or if
there be  no  capital stock, a majority of the members entitled to vote."  Section 24, not
Section 52, of the Corporation Code governs because it is the provision made
specifically applicable to quorum of election of directors/trustees.

The question now is whether or not the provision means majority of the
outstanding capital stock entitled to vote, for stock corporations, and majority of
members entitled to vote, for non-stock corporations, OR the majority of outstanding
capital stock, for stock corporations, and majority of members entitled to vote, for
non-stock corporations. To simplify, the question is whether or not the
phrase "entitled to vote"  should be applied to both the "majority of outstanding
capital stock"  in stock corporations and "majority of the members"  of non-stock
corporations, or only to the latter.  AEDISC

We agree with the opinion of Atty. De Casa that the phrase "entitled to vote"
should be interpreted to apply to both stock and non-stock corporations.

If one uses the doctrine of last antecedent, that is, "restrict or modify only the
words or phrases to which they are immediately associated", 2 it may indeed be
argued that the phrase "entitled to vote" applies only to the members of non-stock
corporations. However, it is also a well-settled principle in statutory construction that
provisions that are apparently conflicting should be harmonized to give effect to the
statute in its entirety. 3

Section 6 of the Corporation Code provides that:

"Section 6. Classification of shares. — The shares of stock corporations may

be divided into classes or series of shares, or both, any of which classes or series
of shares may have such rights, privileges or restrictions as may be stated in the
articles of incorporation: Provided, That no share may be deprived of voting
rights except those classified and issued as "preferred" or "redeemable" shares,
unless otherwise provided in this Code: Provided, further, That there shall
always be a class or series of shares which have complete voting rights.

xxx xxx xxx

Where the articles of incorporation provide for non-voting shares in the cases
allowed by this Code, the holders of such shares shall nevertheless be entitled to
vote on the following matters:
1. Amendment of the articles of incorporation;  cADTSH

2. Adoption and amendment of by-laws;

 3. Sale, lease, exchange, mortgage, pledge or other disposition of all or
substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other
corporations;
7. Investment of corporate funds in another corporation or business in
accordance with this Code; and
8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote

necessary to approve a particular corporate act as provided in this Code shall be
deemed to refer only to stocks with voting rights."

On the other hand, Section 137 defines the term "outstanding capital stock"
to mean "the total shares issued under binding subscription agreements to
subscribers or stockholders, whether or not fully or partially paid, except
treasury shares."

It is only logical to reason out that for the special rule on quorum for election of
officers (Section 24), the quorum is based on outstanding voting stocks. We agree
that "to construe it to be applicable only to non-stock corporation is illogical and
unreasonable if non-voting shares are also allowed to be represented and voted in
the elections of directors." 4 AEScHa

Had it been the intention of the legislature to give non-voting shares the right to
vote in the election of directors, it should have included this in the enumeration of
voting rights given to non-voting shares as provided in Section 6, quoted above.

However, it is not entirely accurate to say that "quorum shall consist of

stockholders representing majority of the outstanding capital stock entitled to vote which
will not include shares under litigation,"  as you have stated in your letter. While there is
indeed a previous SEC opinion 5 which stated that "shares of a deceased stockholder
where the estate of the deceased is still undivided" are not allowed to be voted in the
election of directors, this does not mean that all  shares under litigation are disallowed
to be voted in an election of directors. For example, stock owned by the estate of a
decedent may be voted by the estate's executor or administrator.

In  Paul Lee Tan, et al. vs. Paul Sycip, et al., 6 the Supreme Court said:
 "In stock corporations, shareholders may generally transfer their shares.
Thus, on the death of a shareholder, the executor or administrator duly
appointed by the Court is vested with the legal title to the stock and entitled to
vote it. Until a settlement and division of the estate is affected, the stocks of the
decedent are held by the administrator or executor." 7

The situation contemplated in  Paul Lee Tan, et al. vs. Paul Sycip, et al. is where
there is already an administrator or executor of the decedent's estate. If no one is
appointed, there is no one allowed to vote the shares.

For other cases, however, where the shares are the subject of litigation, it
does not necessarily mean that these shares cannot be voted. If there is a
dispute as to who owns certain shares, and thus who has the right to vote those
shares, the general rule is that "the registered owner of the shares of a
corporation exercises the right and the privilege of voting." 8  TIEHSA

The Supreme Court has said in the case of Batangas Laguna Tayabas Bus
Company, Inc. vs. Bitanga that:

"Indeed, until registration is accomplished, the transfer, though valid

between the parties, cannot be effective as against the corporation. Thus,
the unrecorded transferee, the Bitanga group in this case, cannot vote nor be
voted for. The purpose of registration, therefore, is two-fold: to enable the
transferee to exercise all the rights of a stockholder, including the right to vote
and to be voted for, and to inform the corporation of any change in share
ownership so that it can ascertain the persons entitled to the rights and subject
to the liabilities of a stockholder. Until challenged in a proper proceeding, a
stockholder of record has a right to participate in any meeting; his vote can be
properly counted to determine whether a stockholders' resolution was
approved, despite the claim of the alleged transferee. On the other hand, a
person who has purchased stock, and who desires to be recognized as a
stockholder for the purpose of voting, must secure such a standing by having
the transfer recorded on the corporate books. Until the transfer is registered,
the transferee is not a stockholder but an outsider." 9 DAaHET

We now come to the second issue presented in your letter, that is, the legality of
the act of hold-over directors appointing another director to fill a vacancy caused by
the resignation of a hold-over director.

The hold-over principle is derived from Section 23 of the Corporation Code,

providing that the board of directors or trustees shall hold office for one year and until
their successors are elected and qualified.
 While acting as directors in a hold-over capacity is not legally infirm, the act of
the hold-over directors of appointing someone to fill the position left by another hold-
over director is a different matter. We opine that this act is not valid. Section 29 of
the Corporation Code states that:

"Any vacancy occurring in the board of directors or trustees other than by

removal by the stockholders or members or by expiration of term, may be filled
by the vote of at least a majority of the remaining directors or trustees, if still
constituting a quorum; otherwise, said vacancies must be filled by the stockholders
in a regular or special meeting called for that purpose. A director or trustee so
elected to fill a vacancy shall be elected only or the unexpired term of his
predecessor in office."

In the case of Valle Verde Country Club, Inc., et al. vs. Victor Africa, 10 where the
issue was "whether the remaining directors of the corporation's Board, still constituting a
quorum, can elect another director to fill in a vacancy caused by the resignation of a hold-
over director", the Supreme Court ruled that in a situation where directors/trustees are
acting on a hold-over capacity, there are actually vacancies caused by expiration of
terms, and the resignation of a hold-over director/trustee cannot change the nature of
the vacancy. Hence, a vacancy caused by resignation of a hold-over director/trustee
cannot be filled by the vote of the directors/trustees, but rather, by the vote of
stockholders/members in a regular or special meeting called for the purpose, as it is
provided in Section 29 of the Corporation Code.  AEHTIC

Lastly, you have stated that Kenram Phils., Inc., of which you are a stockholder,
has not conducted the election of its Board of Directors for more than three years,
and that there have been several failed attempts to obtain the required quorum for
stockholders to conduct an election. Thus, you have requested the intervention of the
Commission to remedy the situation.

Please be advised that the Commission cannot intervene to remedy this

situation. It may ripen into an intra-corporate controversy if the required quorum in
the election of the Board of Directors of Kenram Phils., Inc. needs to be determined.
Moreover, the conduct of an election is likewise an intra-corporate matter. Originally,
the Commission had the power to resolve intra-corporate controversies but such
power has been transferred to the regular courts on 8 August 2000 under Section 5.2
of the Securities Regulation Code (SRC). It is a matter that can only be resolved by the
Regional Trial Court (RTC), acting as a commercial court, and not by Commission. That
being the case you may opt to initiate the proper action before the appropriate RTC.

This Opinion is based solely on the facts disclosed in the query and relevant
solely to the particular issues raised therein. It shall likewise be understood that the
 foregoing shall not be used in the nature of a standing rule binding upon the
Commission in other cases or upon the courts. If, upon investigation, it will be
disclosed that the facts relied upon are different, this opinion shall be rendered void.

Please be guided accordingly.

  (Quorum; Election of Directors, SEC-OGC Opinion No. 11-13, [November 20, 2013])
|||
 c.) SEC-OGC OPINION NO. 19-11

PROCEDURE FOR ELECTION OF DIRECTORS

JG Law
SOL Building
112 Amorsolo Street, Legaspi Village
Makati City
Attention:  Atty. Lory Anne P. Manuel-McMullin
Atty. Myla Gloria A. Amboy

Mesdames :

This refers to your letter dated 15 October 2010 referred to us by the

Commission's Corporation and Finance Department on 08 November 2010.
In particular, you request the Commission's opinion on the validity of the
procedure for election of directors adopted by your client namely, Capitol Medical
Center, Inc. (CMCI). The said procedure is as follows:
"1. That the segregation of the votes for regular and independent
directors is acceptable, such that one vote cast per independent director (since
there are only two nominees for independent director) would already be
sufficient to elect them. On the other hand, for the regular directors, the 9
nominees with the highest votes cast in their favor would be elected. Under this
procedure, the losing nominee for regular director, even if he/she gets a
higher number of votes than the independent directors, would still not be
elected.
2. In the event of a tie between two candidates for the last slot for regular
director, the Corporation may break the tie by way of drawing of lots (by the
candidates who get the same number of votes) as an acceptable corporate
practice in the absence of a provision in the by-laws of the Corporation. (copy of
the SEC Opinion dated 24 February 2004 is attached herewith)
3. In case the other candidate (who gets the tie vote) is absent during the
annual stockholders' meeting, an authorized representative of the absent
candidate or his proxy, or in case there is no authorized representative/proxy,
the presiding officer, in the presence of the stockholders, shall draw the lot in
behalf of the absent candidate." TIAEac

We confirm that this procedure is not contrary to the Corporation Code, or

the Securities Regulation Code and its Implementing Rules and Regulations . We
acknowledge that segregation of the voting for regular directors and independent
 ones is a practical device in order to ensure that at least two independent directors
are elected to the CMCI's 11-member Board of Directors in accordance with SRC Rule
38.
Further, we re-affirm SEC Opinion dated 24 February 2004 regarding the
manner of resolving a deadlock in the elections, in the absence of specific provisions
on the matter in the corporation's by-laws.
This Opinion is rendered based solely on the facts and circumstances disclosed
and relevant solely to the particular issues raised therein and shall not be used in the
nature of a standing rule binding upon the Commission in other cases whether of
similar or dissimilar circumstances. If, upon investigation, it will be disclosed that the
facts relied upon are different, this opinion shall be rendered null and void.
  (Procedure For Election of Directors, SEC-OGC Opinion No. 19-11, [March 23, 2011])
|||
d.) Eastern Rizal-Laguna
Investors League
c/o Camacho Law Office
40 Sampaguita Street
De Castro Subdivision
Ortigas Avenue Extension
Pasig, Metro Manila

Gentlemen :

This refers to your letter dated May 6, 1991, requesting confirmation of the
following: 
cdll

a) That the total yearly compensation of directors mentioned in Section 30

of the Corporation Code is not meant to include per diems; and
b) That in any case, the ceiling provided for therein can be exceeded upon
the unanimous votes of holders of all the outstanding shares of stock
of the corporation.
"Per diems" are allowances of money for expenses each day. (Webster
Comprehensive Dictionary International Edition 1987) The term "per diem" is limited
to pay for a day's services. (32 Words & Phrases, p. 17) On the other hand, the word
"compensation" does not imply an immediate payment, an immediate or direct
return, nor the payment of cash fare or its equivalent. (15 C.J.S. 652) Likewise, a
reading of the Batasan proceedings on Section 30 of the Corporation Code shows that
the terms "salary" and "compensation" were treated as synonymous and used
interchangeably, and while "salary" connotes a fixed compensation, "per diems"
relates to expense reimbursement. (SEC Opinion dated December 8, 1987 ) Thus,
under Section 30 of the Corporation Code, "per diems" have been excluded from the
coverage of compensation. The Law provides:
"SECTION 30. Compensation of directors. — In the absence of any provision in the
by-laws fixing their compensation, the directors shall not receive any
compensation, as such directors, except for reasonable per diems: Provided,
however, That any such compensation (other than per diems) may be granted to
directors by the vote of the stockholders representing at least a majority of the
outstanding capital stock at a regular or special meeting. In no case shall the total
yearly compensation of directors, as such directors, exceed ten (10%) per cent of
the net income before income tax of the corporation during the preceding year."
(Emphasis supplied)

The express exception in the above provision clarifies the intention of the law
that "per diems" are not included in the limitation clause of yearly compensation of
directors. It is a rule in the interpretation of statute that the appropriate and natural
 office of the exception is to exempt something from the scope of the general words of
a statute which would otherwise be within the scope and meaning of such general
words. cda

However, there is a limitation that "per diems" must be reasonable. Thus,

stockholders may review such board resolution fixing or increasing per diems of the
members of the Board and may inquire into its reasonableness, and if found
excessive, to afford adequate relief therefrom.
Anent the second issue, the phrase "in no case shall . . . exceed . . . " in the
above-cited provision connotes that the 10% limitation on the amount of
compensation of directors does not admit an exception. The limitation is intended for
the protection not only of the stockholders but also for the corporate creditors and
prospective investors. Hence, the same should be strictly observed.
In connection with your request for certified copies of the latest amended
articles of incorporation and amended by-laws of the Rural Bank of Majayjay, Inc.,
please come to the Records Division, Administrative and Finance Department, of the
Commission for the filling up of the prescribed application form and the payment of
the necessary fees therefor.
  (Eastern Rizal-Laguna Investors League, SEC Opinion, [June 13, 1991])
|||
 e.) August 19, 1992

Ms. Ma. Lourdes S. M. Estanislao

Iluminada Farms Inc.
113 Quirino Avenue
Davao City

Madam:

This refers to your letter of July 26, 1992 requesting opinion on the following
queries: 
cdtai

1. When the directors of a corporation receiving compensation as such

directors, apart from per diem, receive also other compensation such
as incentive bonus, consultant's fee, salary, without the benefit of the
required approval or vote of the stockholders, should such other
compensation be included in the ten (10%) percent limit prescribed in
Section 30 of the Corporation Code?
2. When the directors of a corporation receiving compensation as such
directors also serve as the officers of the corporation, should their
salaries as officers of the corporation be included in the same ten
(10%) percent limit prescribed in Section 30 of the Corporation Code?
3. Are the directors receiving compensation as aforesaid, apart from per
diem, individually liable to return what they have received without the
approval of the stockholders? If such had been the practice for a long
time already, will this extinguish or mitigate the liability, if any, of the
directors concerned?
4. If the compensation being received by the directors, apart from the per
diem, have the tacit approval of the stockholders and do not exceed
the ten (10%) percent limit prescribed in Section 30 of
the Corporation Code, can this be considered legal even if it is not
explicitly provided for in the by-laws of the corporation? If this has
been the practice and if found to be improper or illegal, how can this
be corrected or remedied?
The Corporation Code provides
"SECTION 30. Compensation of directors. — In the absence of any provision in the by-
laws fixing their compensation, the directors shall not receive any compensation, as
such directors, except for reasonable per diem: Provided, however, That any such
compensation (other than per diem) may be granted to directors by the vote of
 stockholders representing at least a majority of the outstanding capital stock at a
regular or special stockholders' meeting. In no case shall the total yearly
compensation of directors, as such directors, exceed ten (10%) percent of the net
income before income tax of the corporation during the preceding year."
(Emphasis supplied) cdtai

Under the aforecited provision, directors can receive compensation, other

than per diems, only if the by-laws fix the same, or should there not be any such
provision in the by-laws, if the stockholders representing a majority of the
outstanding capital stock agree to give it to them. Accordingly, in the absence of
a provision in the by-laws or approval by the stockholders, directors are not
entitled to receive compensation.
As to what covers "total compensation", usually it includes
salaries/remuneration, bonuses/gifts, or any incentive compensation for services
rendered for the corporation. The phrase "in no case shall . . . exceed . . . in the above-
cited provision connotes that the 10% limitation on the amount of compensation of
directors does not admit an exception. The limitation is intended for the protection
not only for the stockholders but also for the corporate creditors and prospective
investors.
Relative to compensation of officers, since, the Board of Directors
appoints/elects the corporate officers, ordinarily then and as manager of the
corporate affairs, it is within the Board's power to fix the salaries of the officers by
way of a resolution to that effect. If there is such an authority, a director who is also
an officer may collect a salary for his services done as an officer. The reason is that
the offices of directors and officers have different functions. If a resolution fixing the
salaries of officers is not tainted with irregularity and is not for the purpose of
disposing of the profits of the corporation, the only question to be determined is
whether the salary fixed is reasonable. Considering that the board of directors and
officers have different functions, we believe that the above 10% limitation excludes
salaries for services rendered by officers.
Salaries to officers and directors, made without proper authorization, may
ordinarily be recoverable in a stockholders' suit; where action by the corporation is
prevented by the control of the majority stockholders, relief may be at the instance of
minority stockholders themselves, there being no laches, acquiescence or other
circumstances preventing relief, after demand has been made upon regular corporate
management to act and it has refused, or unless it appears that a demand would be
in vain and useless; and an accounting may be required of officers who have received
salaries in excess of a fair and reasonable value for the services performed, or have
breached their fiduciary duties. However, generally, the action of the directors will not
be set aside by the courts on the suit of a minority stockholder unless the result is an
 oppression of the minority. Compensation is dealt with as an issue of business
judgment to be questioned only in case of clear abuse. Such a cause of action is
properly brought in a court of equity, and is common to all of the stockholders and is
one for which one stockholder may sue for the benefit of all, but a derivative action by
stockholders complaining of alleged excessive salaries voted by the directors to
certain officers will be barred by laches, especially after the lapse of many years since
the action complained of occurred. (5-A Fletcher Sec. 2171 citing several authorities)
Please be advised accordingly.  Le

  (Ms. Ma. Lourdes S. M. Estanislao, SEC Opinion, [August 19, 1992])

|||
 f.) SEC-OGC OPINION NO. 14-04

RE: QUALIFICATION/DISQUALIFICATION OF BOARD OF DIRECTORS; CONFLICT OF INTEREST

Dr. Shirley Jane D. Chua-Panganiban

President/CEO
Mid/East Scientific Medical Equipment & Services, Inc.
Tropicana Suites 1630 L. Ma. Guerrero St.
Malate, Manila

Dear Dr. Chua-Panganiban,

This refers to your letter dated 25 June 2013 requesting for opinion regarding a

conflict of interest of one of the members of your Board of Directors.

In your letter, you mentioned that on 21 December 2012, a corporate entity

under the name of Equilife Medical Equipment Supplies & Services, Inc. ("Equilife") was
registered with the Commission which has a similar primary purpose with your
corporation, and which is eighty percent (80%) owned by Ma. Ysabel E. Valenzuela, the
daughter of one of your Board of Directors, Abelardo H. Valenzuela III ("Mr.
Valenzuela"). You further stated that Equilife  is engaged in a business that is directly
and substantially competing with your corporation by offering the same services that
your company is rendering, thus, some of your clients did not renew their subsisting
contracts with your corporation in favor of Equilife  which adversely affected your
business operations. You claim that this is possibly done through the efforts of Mr.
Valenzuela, considering that as Director, he may have direct access to your
corporation's business and trade plans.

Consequently, it is your lawyer's position that the act of Mr. Valenzuela

constitutes a conflict of interest citing the case decided by the Supreme Court in  John
Gokongwei, Jr. v. Securities and Exchange Commission, et al. 1 which held that:

(1) A director shall not be directly or indirectly interested as a stockholder

in any other firm, company, or association which competes with the subject
corporation. DAEaTS

(2) A director shall not be the immediate member of the family of any
stockholder in any other firm, company, or association which competes with the
subject corporation.
 (3) A director shall not be an officer, agent, employee, attorney, or trustee
in any other firm, company, or association which compete with the subject
corporation.

(4) A director shall be of good moral character as an essential qualification

to holding office.

(5) No person who is an attorney against the corporation in a law suit is

eligible for service on the board.

Accordingly, you now seek our opinion whether there exists a conflict of

interest.

Please be advised that pursuant to SEC Memorandum Circular No. 15, Series of

2003, the Commission refrains from rendering an opinion on the matter stated in
your request involving as it does the substantial and contractual rights of private
parties who would, in all probability, contest the same in court if the opinion turns out
to be adverse to their interest. Such is the nature of your query which involves rights
that are litigious in nature and may thereafter lead to an intra-corporate issue,
jurisdiction over which is already transferred to the Regional Trial Courts, pursuant to
Section 5.2 of the Securities and Regulation Code ("SRC"). However, for purposes of
information only, the following are imparted.

It is important to note that "every corporation has the inherent power to adopt
by-laws for its internal government, and to regulate the conduct and prescribe the
rights and duties of its members towards itself and among themselves in reference to
the management of its affairs". 2 Thus, under Section 47 (5) of the Corporation Code, a
corporation may prescribe in its by-laws the qualifications of its directors, officers and
employees.  HTSAEa

Accordingly, the qualification that "a director shall not be the immediate member
of the family of any stockholder in any other firm, company, or association which
competes with the subject corporation"  is a qualificational by-law provision which may
be added to those specified in the Corporation Code, (i.e., Section 23 3 and Section
27 4), pursuant to the case of Gokongwei v. Securities and Exchange Commission, et
al. 5 Thus, corporations have the power to make by-laws declaring a person employed
in the service of a rival company to be ineligible for the corporation's Board of
Directors and a provision which renders ineligible, or if elected, subjects to removal, a
director if he be also a director in a corporation whose business is in competition with
or is antagonistic to the other corporation is valid. 6 However, these qualifications
become effective only when the by-laws of the Corporation expressly provides for the
same.
 In this connection, as a general proposition, the Corporation Code provides the
liability and accountability of directors as follows:

Sec. 31. Liability of directors, trustees or officers. — Directors or trustees

who willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors or trustees shall be liable jointly and
severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in

violation of his duty, any interest adverse to the corporation in respect of any
matter which has been reposed in him in confidence, as to which equity
imposes a disability upon him to deal in his own behalf, he shall be liable as a
trustee for the corporation and must account for the profits which otherwise
would have accrued to the corporation.

Sec. 34. Disloyalty of a director. — Where a director, by virtue of his office,

acquires for himself a business opportunity which should belong to the
corporation, thereby obtaining profits to the prejudice of such corporation, he
must account to the latter for all such profits by refunding the same, unless his
act has been ratified by a vote of the stockholders owning or representing at
least two-thirds (2/3) of the outstanding capital stock. This provision shall be
applicable, notwithstanding the fact that the director risked his own funds in the
venture. caDTSE

In any case, it shall be understood that the foregoing opinion is rendered based

solely on the facts and circumstances disclosed and relevant solely to the particular
issues raised therein and shall not be used in the nature of a standing rule binding
upon the Commission in other cases or upon courts, whether of similar or dissimilar
circumstances. 7 If upon investigation, it will be disclosed that the facts relied upon are
different, this opinion shall be rendered null and void.

  (Re: Qualification/Disqualification of Board of Directors; Conflict of Interest, SEC-OGC

|||

Opinion No. 14-04, [April 21, 2014])

g.) Atty. Earnest A. Soberano
Consolidated Rural Bank
(Cagayan Valley), Inc.
Santiago, Isabela

Sir:

This refers to your letter of September 16, 1993 requesting opinion on the
following queries:
1. Is it mandatory that the by-laws expressly provide for the creation of an
executive committee?
2. If yes, will not a provision in the by-laws "authorizing the board to create
such committees as the board may deem necessary", be a substantial
compliance with the requirement of the law?
3. If no, what would be the status of an executive committee that is created
without an express authority in the by-laws? Will it constitute an ultra-
vires act of the corporation?
The pertinent provision of the Corporation Code provides:
"SECTION 35. Executive committee. — The by-laws of a corporation may create and
executive committee, composed of not less than three members of the board, to be
appointed by the board. Said committee may act by majority vote of all its
members, on such specific matters within the competence of the board, as may
be delegated to it in the by-laws or on a majority vote of the board, except with
respect to: (1) approval of any action for which stockholder' s approval is also
required; (2) the filing of vacancies in the board; (3) the amendment or repeal of
by-laws or the adoption of new by-laws; (4) the amendment or repeal of any
resolution of the board which by its express terms is not so amendable or
repealable; and (5) a distribution of cash dividends to the shareholders."
(Emphasis supplied).  cda

It is construed from the above provision that the "Executive Committee" can
only be created by virtue of a provision in the by-laws. In other words, the Board of
Directors cannot simply create or appoint an executive committee to perform some of
its functions if there is no such authority in the by-laws. This interpretation is
supported by the following statements in the Proceedings of the Batasan Pambansa
on the Corporation Code.
"Mr. Badoy. . . . Is it intended that an executive committee may be created only if
so authorized in the by-laws?
Mr. Abello. Yes, that is right.
 Mr. Badoy. In other words, in corporations where the by-laws are silent the board
may not create such an executive committee, would that be the intent. Your
Honor?
Mr. Abello. Correct."

Relative to your second query, because of the nature of the function of the
"Executive Committee", the authority to appoint such body should be clearly spelled
out in the by-laws, and a provision in the by-laws which states that "authorizing the
board to create such committees as the board may deem necessary" is not a
sufficient authority for its creation and appointment. The "Executive Committee"
referred to under Section 35 of the Corporation Code should be distinguished from
other committees which are within the competence of the Board to create at any time
and whose actions requires confirmation by the Board itself. The former body is as
powerful as the Board of Directors, as it actually performs certain duties of the Board,
and in effect, it is acting as the Board itself. It is to be noted that the Board of
Directors only performs acts delegated to it by law and it is a general principle of law
that delegated powers cannot be further delegated. And so, to avoid any doubt as to
whether this practice of creating an "executive committee" to perform certain
delegated functions of the Board is proper or not, the Corporation Code requires that
before it can be done, it has to be expressly authorized in the by-laws. The Batasan
deliberation on the matter further states. thus:
"Mr. Mendoza. If this Code is enacted with the provision on executive committees,
then it will be a corporate body, a body, rather, of a corporation or an
instrumentality of a corporation with a standing in law, although, in a sense, it is an
agent of the Board of Directors because it performs what otherwise is vested by
law in the Board of Directors. However, its authority is not simply derived from
the Board of Directors since the organization or creation of the executive
committees would be through the by-laws. (Emphasis supplied).

Anent your third query, the principle on "de facto officers" may be applied in so
far as third parties are concerned. A person is a de facto officer where he acts as such,
under color of an election or appointment. In other words, he holds office under color
of authority, through designation or election, but fails being a "de jure officer" by
some irregularity or failure to qualify as required by law. By color of authority is meant
authority derived from an election or appointment, although irregular or informal, so
that the incumbent must not be a mere volunteer. In the leading case on the subject
of "de facto officers" decided in Connecticut in 1871 in relation to a public officer, the
reasoning of which applies equally well to an officer of a private corporation. Chief
Justice Butler stated the reason for the rule as follows: The de facto doctrine was
introduced as a matter of policy and necessity, to protect the interests of the public
and individuals, where those interests were involved in the official acts of persons
 exercising the duties of an officer, without being lawful officers. The reason for the
rule was also well stated by Justice Clopton in Alabama as follows: "The doctrine of the
validity of the acts of officers de facto rests on public policy and justice. The official
dealings of directors de facto with third persons are sustained as rightful and valid, on
the ground of continuous acquiescence by the corporation, and suffering them to
hold themselves out as having such authority; thereby inducing others to deal with
them in such capacity. The principles sustaining the validity of their official acts, are
that, though wrongfully in office, yet exercising power and functions appertaining to
such office, justice and necessity require, for the protection and preservation of the
rights and interests of third persons, that their acts, within the scope of official
authority and duty, shall be sustained. Clearly it would be impracticable for third
persons to deal with corporations at all, if each one must investigate the legality of the
title of each corporation officer as a condition precedent to a business transaction.
However, insofar as the corporation is concerned, the unauthorized act of
appointment of an Executive Committee may be subject to Section 144 of
the Corporation Code which provides for penalties in case of violation of any of the
provisions of the Code. cdrep

It is thus advised that if the present by-laws of corporation referred in your

letter is silent on the authority to create an "Executive Committee", it should be
amended in accordance with Sec. 48 of the Corporation Code to reflect such authority
so as to legalize the creation and appointment of said corporate body.
  (Atty. Earnest A. Soberano, SEC Opinion, [September 27, 1993])
|||
1.) G.R. No. 167530               March 13, 2013

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent.

x-----------------------x

G.R. No. 167561

ASSET PRIVATIZATION TRUST, Petitioner,

vs.
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent.

x-----------------------x

G.R. No. 167603

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,

vs.
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

These petitions for review on certiorari1 assail the Decision 2 dated November 30, 2004 and the Resolution3 dated
March 22, 2005 of the Court of Appeals in CA-G.R. CV No. 57553. The said Decision affirmed the Decision 4 dated
November 6, 1995 of the Regional Trial Court (RTC) of Makati City, Branch 62, granting a judgment award of
₱8,370,934.74, plus legal interest, in favor of respondent Hydro Resources Contractors Corporation (HRCC) with
the modification that the Privatization and Management Office (PMO), successor of petitioner Asset Privatization
Trust (APT),5 has been held solidarily liable with Nonoc Mining and Industrial Corporation (NMIC) 6 and petitioners
Philippine National Bank (PNB) and Development Bank of the Philippines (DBP), while the Resolution denied
reconsideration separately prayed for by PNB, DBP, and APT.

Sometime in 1984, petitioners DBP and PNB foreclosed on certain mortgages made on the properties of
Marinduque Mining and Industrial Corporation (MMIC). As a result of the foreclosure, DBP and PNB acquired
substantially all the assets of MMIC and resumed the business operations of the defunct MMIC by organizing
NMIC.7 DBP and PNB owned 57% and 43% of the shares of NMIC, respectively, except for five qualifying
shares.8 As of September 1984, the members of the Board of Directors of NMIC, namely, Jose Tengco, Jr., Rolando
Zosa, Ruben Ancheta, Geraldo Agulto, and Faustino Agbada, were either from DBP or PNB.9

Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC’s Mine Stripping and Road Construction
Program in 1985 for a total contract price of ₱35,770,120. After computing the payments already made by NMIC
under the program and crediting the NMIC’s receivables from Hercon, Inc., the latter found that NMIC still has an
unpaid balance of ₱8,370,934.74.10 Hercon, Inc. made several demands on NMIC, including a letter of final demand
dated August 12, 1986, and when these were not heeded, a complaint for sum of money was filed in the RTC of
Makati, Branch 136 seeking to hold petitioners NMIC, DBP, and PNB solidarily liable for the amount owing Hercon,
Inc.11 The case was docketed as Civil Case No. 15375.

Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a merger. This prompted the
amendment of the complaint to substitute HRCC for Hercon, Inc. 12

Thereafter, on December 8, 1986, then President Corazon C. Aquino issued Proclamation No. 50 creating the APT
for the expeditious disposition and privatization of certain government corporations and/or the assets thereof.
Pursuant to the said Proclamation, on February 27, 1987, DBP and PNB executed their respective deeds of transfer
in favor of the National Government assigning, transferring and conveying certain assets and liabilities, including
their respective stakes in NMIC.13 In turn and on even date, the National Government transferred the said assets
and liabilities to the APT as trustee under a Trust Agreement. 14 Thus, the complaint was amended for the second
time to implead and include the APT as a defendant.

In its answer,15 NMIC claimed that HRCC had no cause of action. It also asserted that its contract with HRCC was
entered into by its then President without any authority. Moreover, the said contract allegedly failed to comply with
laws, rules and regulations concerning government contracts. NMIC further claimed that the contract amount was
manifestly excessive and grossly disadvantageous to the government. NMIC made counterclaims for the amounts
already paid to Hercon, Inc. and attorney’s fees, as well as payment for equipment rental for four trucks,
replacement of parts and other services, and damage to some of NMIC’s properties. 16

For its part, DBP’s answer17 raised the defense that HRCC had no cause of action against it because DBP was not
privy to HRCC’s contract with NMIC. Moreover, NMIC’s juridical personality is separate from that of DBP. DBP
further interposed a counterclaim for attorney’s fees. 18

PNB’s answer19 also invoked lack of cause of action against it. It also raised estoppel on HRCC’s part and laches as
defenses, claiming that the inclusion of PNB in the complaint was the first time a demand for payment was made on
it by HRCC. PNB also invoked the separate juridical personality of NMIC and made counterclaims for moral
damages and attorney’s fees.20

APT set up the following defenses in its answer21: lack of cause of action against it, lack of privity between Hercon,
Inc. and APT, and the National Government’s preferred lien over the assets of NMIC. 22

After trial, the RTC of Makati rendered a Decision dated November 6, 1995 in favor of HRCC. It pierced the
corporate veil of NMIC and held DBP and PNB solidarily liable with NMIC:

On the issue of whether or not there is sufficient ground to pierce the veil of corporate fiction, this Court likewise
finds for the plaintiff.

From the documentary evidence adduced by the plaintiff, some of which were even adopted by defendants and
DBP and PNB as their own evidence (Exhibits "I", "I-1", "I-2", "I-3", "I-4", "I-5", "I5-A", "I-5-B", "I-5-C", "I-5-D" and
submarkings, inclusive), it had been established that except for five (5) qualifying shares, NMIC is owned by
defendants DBP and PNB, with the former owning 57% thereof, and the latter 43%. As of September 24, 1984, all
the members of NMIC’s Board of Directors, namely, Messrs. Jose Tengco, Jr., Rolando M. Zosa, Ruben Ancheta,
Geraldo Agulto, and Faustino Agbada are either from DBP or PNB (Exhibits "I-5", "I-5-C", "I-5-D").

The business of NMIC was then also being conducted and controlled by both DBP and PNB. In fact, it was Rolando
M. Zosa, then Governor of DBP, who was signing and entering into contracts with third persons, on behalf of NMIC.

In this jurisdiction, it is well-settled that "where it appears that the business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when necessary to protect the rights of third persons,
disregard legal fiction that two (2) corporations are distinct entities, and treat them as identical." (Phil. Veterans
Investment Development Corp. vs. CA, 181 SCRA 669).

From all indications, it appears that NMIC is a mere adjunct, business conduit or alter ego of both DBP and PNB.
Thus, the DBP and PNB are jointly and severally liable with NMIC for the latter’s unpaid obligations to plaintiff. 23

Having found DBP and PNB solidarily liable with NMIC, the dispositive portion of the Decision of the trial court
reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiff HYDRO RESOURCES
CONTRACTORS CORPORATION and against the defendants NONOC

MINING AND INDUSTRIAL CORPORATION, DEVELOPMENT BANK OF THE PHILIPPINES and PHILIPPINE
NATIONAL BANK, ordering the aforenamed defendants, to pay the plaintiff jointly and severally, the sum of
₱8,370,934.74 plus legal interest thereon from date of demand, and attorney’s fees equivalent to 25% of the
judgment award.

The complaint against APT is hereby dismissed. However, APT, as trustee of NONOC MINING AND INDUSTRIAL
CORPORATION is directed to ensure compliance with this Decision. 24

DBP and PNB filed their respective appeals in the Court of Appeals. Both insisted that it was wrong for the RTC to
pierce the veil of NMIC’s corporate personality and hold DBP and PNB solidarily liable with NMIC. 25

The Court of Appeals rendered the Decision dated November 30, 2004, affirmed the piercing of the veil of the
corporate personality of NMIC and held DBP, PNB, and APT solidarily liable with NMIC. In particular, the Court of
Appeals made the following findings:

In the case before Us, it is indubitable that [NMIC] was owned by appellants DBP and PNB to the extent of 57% and
43% respectively; that said two (2) appellants are the only stockholders, with the qualifying stockholders of five (5)
consisting of its own officers and included in its charter merely to comply with the requirement of the law as to
number of incorporators; and that the directorates of DBP, PNB and [NMIC] are interlocked.

xxxx

We find it therefore correct for the lower court to have ruled that:

"From all indications, it appears that NMIC is a mere adjunct, business conduit or alter ego of both DBP and PNB.
Thus, the DBP and PNB are jointly and severally liable with NMIC for the latter’s unpaid obligation to
plaintiff."26 (Citation omitted.)

The Court of Appeals then concluded that, "in keeping with the concept of justice and fair play," the corporate veil of
NMIC should be pierced, ratiocinating:

For to treat NMIC as a separate legal entity from DBP and PNB for the purpose of securing beneficial contracts, and
then using such separate entity to evade the payment of a just debt, would be the height of injustice and iniquity.
Surely that could not have been the intendment of the law with respect to corporations. x x x. 27

The dispositive portion of the Decision of the Court of Appeals reads:

WHEREFORE, premises considered, the Decision appealed from is hereby MODIFIED. The judgment in favor of
appellee Hydro Resources Contractors Corporation in the amount of ₱8,370,934.74 with legal interest from date of
demand is hereby AFFIRMED, but the dismissal of the case as against Assets Privatization Trust is REVERSED,
and its successor the Privatization and Management Office is INCLUDED as one of those jointly and severally liable
for such indebtedness. The award of attorney’s fees is DELETED.

All other claims and counter-claims are hereby DISMISSED.

Costs against appellants.28

The respective motions for reconsideration of DBP, PNB, and APT were denied. 29

Hence, these consolidated petitions. 30

All three petitioners assert that NMIC is a corporate entity with a juridical personality separate and distinct
from both PNB and DBP. They insist that the majority ownership by DBP and PNB of NMIC is not a sufficient
ground for disregarding the separate corporate personality of NMIC because NMIC was not a mere adjunct,
business conduit or alter ego of DBP and PNB. According to them, the application of the doctrine of piercing the
corporate veil is unwarranted as nothing in the records would show that the ownership and control of the
shareholdings of NMIC by DBP and PNB were used to commit fraud, illegality or injustice. In the absence of
evidence that the stock control by DBP and PNB over NMIC was used to commit some fraud or a wrong and that
said control was the proximate cause of the injury sustained by HRCC, resort to the doctrine of "piercing the veil of
corporate entity" is misplaced. 31

DBP and PNB further argue that, assuming they may be held solidarily liable with NMIC to pay NMIC’s exclusive
and separate corporate indebtedness to HRCC, such liability of the two banks was transferred to and assumed by
the National Government through the APT, now the PMO, under the respective deeds of transfer both dated
February 27, 1997 executed by DBP and PNB pursuant to Proclamation No. 50 dated December 8, 1986 and
Administrative Order No. 14 dated February 3, 1987.32

For its part, the APT contends that, in the absence of an unqualified assumption by the National Government of all
liabilities incurred by NMIC, the National Government through the APT could not be held liable for NMIC’s
contractual liability. The APT asserts that HRCC had not sufficiently shown that the APT is the successor-in-interest
of all the liabilities of NMIC, or of DBP and PNB as transferors, and that the adjudged liability is included among the
liabilities assigned and transferred by DBP and PNB in favor of the National Government.33

HRCC counters that both the RTC and the CA correctly applied the doctrine of "piercing the veil of corporate fiction."
It claims that NMIC was the alter ego of DBP and PNB which owned, conducted and controlled the business of
NMIC as shown by the following circumstances: NMIC was owned by DBP and PNB, the officers of DBP and PNB
were also the officers of NMIC, and DBP and PNB financed the operations of NMIC. HRCC further argues that a
parent corporation may be held liable for the contracts or obligations of its subsidiary corporation where the latter is
a mere agency, instrumentality or adjunct of the parent corporation. 34

Moreover, HRCC asserts that the APT was properly held solidarily liable with DBP, PNB, and NMIC because the
APT assumed the obligations of DBP and PNB as the successor-in-interest of the said banks with respect to the
assets and liabilities of NMIC.35 As trustee of the Republic of the Philippines, the APT also assumed the
responsibility of the Republic pursuant to the following provision of Section 2.02 of the respective deeds of transfer
executed by DBP and PNB in favor of the Republic:

SECTION 2. TRANSFER OF BANK’S LIABILITIES

xxxx

2.02 With respect to the Bank’s liabilities which are contingent and those liabilities where the Bank’s creditors
consent to the transfer thereof is not obtained, said liabilities shall remain in the books of the BANK with the
GOVERNMENT funding the payment thereof.36

After a careful review of the case, this Court finds the petitions impressed with merit.

A corporation is an artificial entity created by operation of law. It possesses the right of succession and such powers,
attributes, and properties expressly authorized by law or incident to its existence. 37 It has a personality separate and
distinct from that of its stockholders and from that of other corporations to which it may be connected. 38 As a
consequence of its status as a distinct legal entity and as a result of a conscious policy decision to promote capital
formation,39 a corporation incurs its own liabilities and is legally responsible for payment of its obligations. 40 In other
words, by virtue of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or
credit of the stockholder.41 This protection from liability for shareholders is the principle of limited liability. 42

Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when
the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in
the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud,
illegality or inequity committed against third persons.43

However, the rule is that a court should be careful in assessing the milieu where the doctrine of the corporate veil
may be applied. Otherwise an injustice, although unintended, may result from its erroneous application. 44 Thus,
cutting through the corporate cover requires an approach characterized by due care and caution:

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be
mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an
extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must
be clearly and convincingly established; it cannot be presumed. x x x. 45 (Emphases supplied; citations omitted.)

Sarona v. National Labor Relations Commission46 has defined the scope of application of the doctrine of piercing the
corporate veil:

The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public
convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2)
fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3)
alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs are so conducted as to make
it merely an instrumentality, agency, conduit or adjunct of another corporation. (Citation omitted.)

Here, HRCC has alleged from the inception of this case that DBP and PNB (and the APT as assignee of DBP and
PNB) should be held solidarily liable for using NMIC as alter ego.47 The RTC sustained the allegation of HRCC and
pierced the corporate veil of NMIC pursuant to the alter ego theory when it concluded that NMIC "is a mere adjunct,
business conduit or alter ego of both DBP and PNB."48 The Court of Appeals upheld such conclusion of the trial
court.49 In other words, both the trial and appellate courts relied on the alter ego theory when they disregarded the
separate corporate personality of NMIC.

In this connection, case law lays down a three-pronged test to determine the application of the alter ego theory,
which is also known as the instrumentality theory, namely:

(1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of
policy and business practice in respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own;

(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s
legal right; and

(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss
complained of.50 (Emphases omitted.)

The first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be completely under the
control and domination of the parent.51 It examines the parent corporation’s relationship with the subsidiary. 52 It
inquires whether a subsidiary corporation is so organized and controlled and its affairs are so conducted as to make
it a mere instrumentality or agent of the parent corporation such that its separate existence as a distinct corporate
entity will be ignored.53 It seeks to establish whether the subsidiary corporation has no autonomy and the parent
corporation, though acting through the subsidiary in form and appearance, "is operating the business directly for
itself."54

The second prong is the "fraud" test. This test requires that the parent corporation’s conduct in using the subsidiary
corporation be unjust, fraudulent or wrongful. 55 It examines the relationship of the plaintiff to the corporation. 56 It
recognizes that piercing is appropriate only if the parent corporation uses the subsidiary in a way that harms the
plaintiff creditor.57 As such, it requires a showing of "an element of injustice or fundamental unfairness."58

The third prong is the "harm" test. This test requires the plaintiff to show that the defendant’s control, exerted in a
fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered. 59 A causal connection between
the fraudulent conduct committed through the instrumentality of the subsidiary and the injury suffered or the damage
incurred by the plaintiff should be established. The plaintiff must prove that, unless the corporate veil is pierced, it
will have been treated unjustly by the defendant’s exercise of control and improper use of the corporate form and,
thereby, suffer damages.60

To summarize, piercing the corporate veil based on the alter ego theory requires the concurrence of three elements:
control of the corporation by the stockholder or parent corporation, fraud or fundamental unfairness imposed on the
plaintiff, and harm or damage caused to the plaintiff by the fraudulent or unfair act of the corporation. The absence
of any of these elements prevents piercing the corporate veil. 61

This Court finds that none of the tests has been satisfactorily met in this case.

In applying the alter ego doctrine, the courts are concerned with reality and not form, with how the corporation
operated and the individual defendant’s relationship to that operation. 62 With respect to the control element, it refers
not to paper or formal control by majority or even complete stock control but actual control which amounts to "such
domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind,
will or existence of its own, and is but a conduit for its principal." 63 In addition, the control must be shown to have
been exercised at the time the acts complained of took place.64

Both the RTC and the Court of Appeals applied the alter ego theory and penetrated the corporate cover of NMIC
based on two factors: (1) the ownership by DBP and PNB of effectively all the stocks of NMIC, and (2) the alleged
interlocking directorates of DBP, PNB and NMIC.65 Unfortunately, the conclusion of the trial and appellate courts that
the DBP and PNB fit the alter ego theory with respect to NMIC’s transaction with HRCC on the premise of complete
stock ownership and interlocking directorates involved a quantum leap in logic and law exposing a gap in reason
and fact.

While ownership by one corporation of all or a great majority of stocks of another corporation and their interlocking
directorates may serve as indicia of control, by themselves and without more, however, these circumstances are
insufficient to establish an alter ego relationship or connection between DBP and PNB on the one hand and NMIC
on the other hand, that will justify the puncturing of the latter’s corporate cover. This Court has declared that "mere
ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is
not of itself sufficient ground for disregarding the separate corporate personality." 66 This Court has likewise ruled that
the "existence of interlocking directors, corporate officers and shareholders is not enough justification to pierce the
veil of corporate fiction in the absence of fraud or other public policy considerations."67

True, the findings of fact of the Court of Appeals are conclusive and cannot be reviewed on appeal to this Court,
provided they are borne out of the record or are based on substantial evidence. 68 It is equally true that the question
of whether one corporation is merely an alter ego of another is purely one of fact. So is the question of whether a
corporation is a paper company, a sham or subterfuge or whether the requisite quantum of evidence has been
adduced warranting the piercing of the veil of corporate personality. 69 Nevertheless, it has been held in Sarona v.
National Labor Relations Commission70 that this Court has the power to resolve a question of fact, such as whether
a corporation is a mere alter ego of another entity or whether the corporate fiction was invoked for fraudulent or
malevolent ends, if the findings in the assailed decision are either not supported by the evidence on record or based
on a misapprehension of facts.

In this case, nothing in the records shows that the corporate finances, policies and practices of NMIC were
dominated by DBP and PNB in such a way that NMIC could be considered to have no separate mind, will or
existence of its own but a mere conduit for DBP and PNB. On the contrary, the evidence establishes that HRCC
knew and acted on the knowledge that it was dealing with NMIC, not with NMIC’s stockholders. The letter proposal
of Hercon, Inc., HRCC’s predecessor-in-interest, regarding the contract for NMIC’s mine stripping and road
construction program was addressed to and accepted by NMIC. 71 The various billing reports, progress reports,
statements of accounts and communications of Hercon, Inc./HRCC regarding NMIC’s mine stripping and road
construction program in 1985 concerned NMIC and NMIC’s officers, without any indication of or reference to the
control exercised by DBP and/or PNB over NMIC’s affairs, policies and practices. 72

HRCC has presented nothing to show that DBP and PNB had a hand in the act complained of, the alleged undue
disregard by NMIC of the demands of HRCC to satisfy the unpaid claims for services rendered by HRCC in
connection with NMIC’s mine stripping and road construction program in 1985. On the contrary, the overall picture
painted by the evidence offered by HRCC is one where HRCC was dealing with NMIC as a distinct juridical person
acting through its own corporate officers.73

Moreover, the finding that the respective boards of directors of NMIC, DBP, and PNB were interlocking has no
basis. HRCC’s Exhibit "I-5,"74 the initial General Information Sheet submitted by NMIC to the Securities and
Exchange Commission, relied upon by the trial court and the Court of Appeals may have proven that DBP and PNB
owned the stocks of NMIC to the extent of 57% and 43%, respectively. However, nothing in it supports a finding that
NMIC, DBP, and PNB had interlocking directors as it only indicates that, of the five members of NMIC’s board of
directors, four were nominees of either DBP or PNB and only one was a nominee of both DBP and PNB. 75 Only two
members of the board of directors of NMIC, Jose Tengco, Jr. and Rolando Zosa, were established to be members
of the board of governors of DBP and none was proved to be a member of the board of directors of PNB. 76 No
director of NMIC was shown to be also sitting simultaneously in the board of governors/directors of both DBP and
PNB.

In reaching its conclusion of an alter ego relationship between DBP and PNB on the one hand and NMIC on the
other hand, the Court of Appeals invoked Sibagat Timber Corporation v. Garcia, 77 which it described as "a case
under a similar factual milieu."78 However, in Sibagat Timber Corporation, this Court took care to enumerate the
circumstances which led to the piercing of the corporate veil of Sibagat Timber Corporation for being the alter ego of
Del Rosario & Sons Logging Enterprises, Inc. Those circumstances were as follows: holding office in the same
building, practical identity of the officers and directors of the two corporations and assumption of management and
control of Sibagat Timber Corporation by the directors/officers of Del Rosario & Sons Logging Enterprises, Inc.

Here, DBP and PNB maintain an address different from that of NMIC.79 As already discussed, there was insufficient
proof of interlocking directorates. There was not even an allegation of similarity of corporate officers. Instead of
evidence that DBP and PNB assumed and controlled the management of NMIC, HRCC’s evidence shows that
NMIC operated as a distinct entity endowed with its own legal personality. Thus, what obtains in this case is a
factual backdrop different from, not similar to, Sibagat Timber Corporation.

In relation to the second element, to disregard the separate juridical personality of a corporation, the wrongdoing or
unjust act in contravention of a plaintiff’s legal rights must be clearly and convincingly established; it cannot be
presumed. Without a demonstration that any of the evils sought to be prevented by the doctrine is present, it does
not apply.80

In this case, the Court of Appeals declared:

We are not saying that PNB and DBP are guilty of fraud in forming NMIC, nor are we implying that NMIC was used
to conceal fraud. x x x.81

Such a declaration clearly negates the possibility that DBP and PNB exercised control over NMIC which DBP and
PNB used "to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or
dishonest and unjust act in contravention of plaintiff’s legal rights." It is a recognition that, even assuming that DBP
and PNB exercised control over NMIC, there is no evidence that the juridical personality of NMIC was used by DBP
and PNB to commit a fraud or to do a wrong against HRCC.

There being a total absence of evidence pointing to a fraudulent, illegal or unfair act committed against HRCC by
DBP and PNB under the guise of NMIC, there is no basis to hold that NMIC was a mere alter ego of DBP and PNB.
As this Court ruled in Ramoso v. Court of Appeals 82:

As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient reason to the
contrary appears. When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud,
or defend crime, the law will regard the corporation as an association of persons. Also, the corporate entity may be
disregarded in the interest of justice in such cases as fraud that may work inequities among members of the
corporation internally, involving no rights of the public or third persons. In both instances, there must have been
fraud, and proof of it. For the separate juridical personality of a corporation to be disregarded, the wrongdoing must
be clearly and convincingly established. It cannot be presumed.

As regards the third element, in the absence of both control by DBP and PNB of NMIC and fraud or fundamental
unfairness perpetuated by DBP and PNB through the corporate cover of NMIC, no harm could be said to have been
proximately caused by DBP and PNB on HRCC for which HRCC could hold DBP and PNB solidarily liable with
NMIC. 1âwphi1

Considering that, under the deeds of transfer executed by DBP and PNB, the liability of the APT as transferee of the
rights, titles and interests of DBP and PNB in NMIC will attach only if DBP and PNB are held liable, the APT incurs
no liability for the judgment indebtedness of NMIC. Even HRCC recognizes that "as assignee of DBP and PNB 's
loan receivables," the APT simply "stepped into the shoes of DBP and PNB with respect to the latter's rights and
obligations" in NMIC.83 As such assignee, therefore, the APT incurs no liability with respect to NMIC other than
whatever liabilities may be imputable to its assignors, DBP and PNB.

Even under Section 2.02 of the respective deeds of transfer executed by DBP and PNB which HRCC invokes, the
APT cannot be held liable. The contingent liability for which the National Government, through the APT, may be held
liable under the said provision refers to contingent liabilities of DBP and PNB. Since DBP and PNB may not be held
solidarily liable with NMIC, no contingent liability may be imputed to the APT as well. Only NMIC as a distinct and
separate legal entity is liable to pay its corporate obligation to HRCC in the amount of ₱8,370,934.74, with legal
interest thereon from date of demand.

As trustee of the. assets of NMIC, however, the APT should ensure compliance by NMIC of the judgment against it.
The APT itself acknowledges this.84

WHEREFORE, the petitions are hereby GRANTED.

The complaint as against Development Bank of the Philippines, the Philippine National Bank, and the Asset
Privatization Trust, now the Privatization and Management Office, is DISMISSED for lack of merit. The Asset
Privatization Trust, now the Privatization and Management Office, as trustee of Nonoc Mining and Industrial
Corporation, now the Philnico Processing Corporation, is DIRECTED to ensure compliance by the Nonoc Mining
and Industrial Corporation, now the Philnico Processing Corporation, with this Decision.
2.) G.R. No. 169438               January 21, 2010

ROMEO D. MARIANO, Petitioner,
vs.
PETRON CORPORATION, Respondent.

DECISION

CARPIO, J.:

The Case

For review1 is the Decision2 of the Court of Appeals upholding the lease contract between petitioner Romeo D.
Mariano and respondent Petron Corporation.

The Facts

On 5 November 1968,3 Pacita V. Aure, Nicomedes Aure Bundac, and Zeny Abundo (Aure Group), owners of a
2,064 square meter parcel of land in Tagaytay City4 (Property), leased the Property to ESSO Standard Eastern, Inc.,
(ESSO Eastern), a foreign corporation doing business in the country through its subsidiary ESSO Standard
Philippines, Inc. (ESSO Philippines). The lease period is 90 years5 and the rent is payable monthly for the first 10
years, and annually for the remaining period. 6 The lease contract (Contract) contained an assignment veto clause
barring the parties from assigning the lease without prior consent of the other. 7 Excluded from the prohibition were
certain corporations to whom ESSO Eastern may unilaterally assign its leasehold right. 8

On 23 December 1977, ESSO Eastern sold ESSO Philippines to the Philippine National Oil Corporation
(PNOC).9 Apparently, the Aure Group was not informed of the sale. ESSO Philippines, whose corporate name was
successively changed to Petrophil Corporation then to Petron Corporation (Petron), took possession of the Property.

On 18 November 1993, petitioner Romeo D. Mariano (petitioner) bought the Property from the Aure Group and
obtained title to the Property issued in his name bearing an annotation of ESSO Eastern’s lease. 10

On 17 December 1998, petitioner sent to Petron a notice to vacate the Property. Petitioner informed Petron that
Presidential Decree No. 471 (PD 471),11 dated 24 May 1974, reduced the Contract’s duration from 90 to 25 years,
ending on 13 November 1993.12 Despite receiving the notice to vacate on 21 December 1998, Petron remained on
the Property.

On 18 March 1999, petitioner sued Petron in the Regional Trial Court of Tagaytay City, Branch 18, (trial court) to
rescind the Contract and recover possession of the Property. Aside from invoking PD 471, petitioner alternatively
theorized that the Contract was terminated on 23 December 1977 when ESSO Eastern sold ESSO Philippines to
PNOC, thus assigning to PNOC its lease on the Property, without seeking the Aure Group’s prior consent.

In its Answer, Petron countered that the Contract was not breached because PNOC merely acquired ESSO
Eastern’s shares in ESSO Philippines, a separate corporate entity. Alternatively, Petron argued that petitioner’s suit,
filed on 18 March 1999, was barred by prescription under Article 1389 and Article 1146(1) of the Civil Code as
petitioner should have sought rescission within four years from PNOC’s purchase of ESSO Philippines on 23
December 197713 or before 23 December 1981.14

To dispense with the presentation of evidence, the parties submitted a Joint Motion for Judgment (Joint Motion)
containing the following stipulation:

5. On December 23, 1977, the Philippine National Oil Co. (PNOC), a corporation wholly owned by the Philippine
Government, acquired ownership of ESSO Standard Philippines, Inc., including its leasehold right over the land in
question, through the acquisition of its shares of stocks. 15 (Emphasis supplied)
 The Ruling of the Trial Court

In its Decision dated 30 May 2000, the trial court ruled for petitioner, rescinded the Contract, ordered Petron to
vacate the Property, and cancelled the annotation on petitioner’s title of Petron’s lease.16 The trial court ruled that
ESSO Eastern’s sale to PNOC of its interest in ESSO Philippines included the assignment to PNOC of ESSO
Eastern’s lease over the Property, which, for lack of the Aure Group’s consent, breached the Contract, resulting in
its termination. However, because the Aure Group (and later petitioner) tolerated ESSO Philippines’ continued use
of the Property by receiving rental payments, the law on implied new lease governs the relationship of the Aure
Group (and later petitioner) and Petron, creating for them an implied new lease terminating on 21 December 1998
upon Petron’s receipt of petitioner’s notice to vacate. 17

Petron appealed to the Court of Appeals, distancing itself from its admission in the Joint Motion that in buying ESSO
Philippines from ESSO Eastern, PNOC also acquired ESSO Eastern’s leasehold right over the Property. Petron
again invoked its separate corporate personality to distinguish itself from PNOC.

The Ruling of the Court of Appeals

In its Decision dated 29 October 2004, the Court of Appeals found merit in Petron’s appeal, set aside the trial court’s
ruling, declared the Contract subsisting until 13 November 2058 18 and ordered petitioner to pay Petron ₱300,000 as
attorney’s fees. The Court of Appeals found no reason to pierce ESSO Philippines’ corporate veil, treating PNOC’s
buy-out of ESSO Philippines as mere change in ESSO Philippines’ stockholding. Hence, the Court of Appeals
rejected the trial court’s conclusion that PNOC acquired the leasehold right over the Property. Alternatively, the
Court of Appeals found petitioner’s suit barred by the four-year prescriptive period under Article 1389 and Article
1146 (1) of the Civil Code, reckoned from PNOC’s buy-out of ESSO Philippines on 23 December 1977 (for Article
1389) or the execution of the Contract on 13 November 1968 19 (for Article 1146 [1]).20

Petitioner sought reconsideration but the Court of Appeals denied his motion in its Resolution of 26 August 2005.

Hence, this petition.

The Issue

The question is whether the Contract subsists between petitioner and Petron.

The Ruling of the Court

We hold in the affirmative and thus sustain the ruling of the Court of Appeals.

ESSO Eastern Assigned to PNOC its Leasehold Right over the Property, Breaching the Contract

PNOC’s buy-out of ESSO Philippines was total and unconditional, leaving no residual rights to ESSO Eastern.
Logically, this change of ownership carried with it the transfer to PNOC of any proprietary interest ESSO Eastern
may hold through ESSO Philippines, including ESSO Eastern’s lease over the Property. This is the import of
Petron’s admission in the Joint Motion that by PNOC’s buy-out of ESSO Philippines "[PNOC], x x x acquired
ownership of ESSO Standard Philippines, Inc., including its leasehold right over the land in question, through the
acquisition of its shares of stocks." As the Aure Group gave no prior consent to the transaction between ESSO
Eastern and PNOC, ESSO Eastern violated the Contract’s assignment veto clause.

Petron’s objection to this conclusion, sustained by the Court of Appeals, is rooted on its reliance on its separate
corporate personality and on the unstated assumption that ESSO Philippines (not ESSO Eastern) initially held the
leasehold right over the Property. Petron is wrong on both counts.

Courts are loathe to pierce the fictive veil of corporate personality, cognizant of the core doctrine in corporation law
vesting on corporations legal personality distinct from their shareholders (individual or corporate) thus facilitating the
conduct of corporate business. However, fiction gives way to reality when the corporate personality is foisted to
justify wrong, protect fraud, or defend crime, thwarting the ends of justice. 21 The fiction even holds lesser sway for
subsidiary corporations whose shares are wholly if not almost wholly owned by its parent company. The structural
and systems overlap inherent in parent and subsidiary relations often render the subsidiary as mere local branch,
agency or adjunct of the foreign parent corporation. 22

Here, the facts compel the conclusion that ESSO Philippines was a mere branch of ESSO Eastern in the execution
and breach of the Contract. First, by ESSO Eastern’s admission in the Contract, it is "a foreign corporation
organized under the laws of the State of Delaware, U.S.A., duly licensed to transact business in the Philippines, and
doing business therein under the business name and style of ‘Esso Standard Philippines’ x x x". In effect, ESSO
Eastern was ESSO Philippines for all of ESSO Eastern’s Philippine business. 1avvphi1

Second, the Contract was executed by ESSO Eastern, not ESSO Philippines, as lessee, with the Aure Group as
lessor. ESSO Eastern leased the Property for the use of ESSO Philippines, acting as ESSO Eastern’s Philippine
branch. Consistent with such status, ESSO Philippines took possession of the Property after the execution of the
Contract. Thus, for purposes of the Contract, ESSO Philippines was a mere alter ego of ESSO Eastern.

The Lessor’s Continued Acceptance of Lease Payments

Despite Breach of Contract Amounted to Waiver

The breach of contract notwithstanding, we hold that the Contract subsists. Contrary to the trial court’s conclusion
that ESSO Eastern’s violation of the assignment veto clause extinguished the Contract, replaced by a new implied
lease with a monthly term,23 we hold that the breach merely gave rise to a cause of action for the Aure Group to
seek the lessee’s ejectment as provided under Article 1673, paragraph 3 of the Civil Code. 24 Although the records do
not show that the Aure Group was formally notified of ESSO Philippines’ sale to PNOC, the successive changes in
the lessee’s name (from ESSO Philippines to Petrophil Corporation then to Petron) suffice to alert the Aure Group of
a likely change in the personality of the lessee, which, for lack of the Aure Group’s prior consent, was in obvious
breach of the Contract. Thus, the continued receipt of lease payments by the Aure Group (and later by petitioner)
despite the contractual breach amounted to a waiver of their option to eject the lessee.

Petitioner’s Suit Barred by Prescription

Petitioner’s waiver of Petron’s contractual breach was compounded by his long inaction to seek judicial redress.
Petitioner filed his complaint nearly 22 years after PNOC acquired the leasehold rights to the Property and almost
six years after petitioner bought the Property from the Aure Group. The more than two decades lapse puts this case
well within the territory of the 10 year prescriptive bar to suits based upon a written contract under Article 1144 (1) of
the Civil Code.25

WHEREFORE, we DENY the petition. The Decision dated 29 October 2004 and the Resolution dated 26 August
2005 of the Court of Appeals are AFFIRMED.
3.) G.R. No. 150976             October 18, 2004

CECILIA CASTILLO, OSCAR DEL ROSARIO, ARTURO S. FLORES, XERXES NAVARRO, MARIA ANTONIA
TEMPLO and MEDICAL CENTER PARAÑAQUE, INC., petitioners,
vs.
ANGELES BALINGHASAY, RENATO BERNABE, ALODIA DEL ROSARIO, ROMEO FUNTILA, TERESITA
GAYANILO, RUSTICO JIMENEZ, ARACELI** JO, ESMERALDA MEDINA, CECILIA MONTALBAN, VIRGILIO
OBLEPIAS, CARMENCITA PARRENO, CESAR REYES, REYNALDO SAVET, SERAPIO TACCAD, VICENTE
VALDEZ, SALVACION VILLAMORA, and HUMBERTO VILLAREAL, respondents.

DECISION

QUISUMBING, J.:

For review on certiorari is the Partial Judgment1 dated November 26, 2001 in Civil Case No. 01-0140, of the
Regional Trial Court (RTC) of Parañaque City, Branch 258. The trial court declared the February 9, 2001, election of
the board of directors of the Medical Center Parañaque, Inc. (MCPI) valid. The Partial Judgment dismissed
petitioners’ first cause of action, specifically, to annul said election for depriving petitioners their voting rights and to
be voted on as members of the board.

The facts, as culled from records, are as follows:

Petitioners and the respondents are stockholders of MCPI, with the former holding Class "B" shares and the
latter owning Class "A" shares.

MCPI is a domestic corporation with offices at Dr. A. Santos Avenue, Sucat, Parañaque City. It was organized
sometime in September 1977. At the time of its incorporation, Act No. 1459, the old Corporation Law was still in
force and effect. Article VII of MCPI’s original Articles of Incorporation, as approved by the Securities and Exchange
Commission (SEC) on October 26, 1977, reads as follows:

SEVENTH. That the authorized capital stock of the corporation is TWO MILLION (₱2,000,000.00) PESOS,
Philippine Currency, divided into TWO THOUSAND (2,000) SHARES at a par value of ₱100 each share,
whereby the ONE THOUSAND SHARES issued to, and subscribed by, the incorporating stockholders shall
be classified as Class A shares while the other ONE THOUSAND unissued shares shall be considered as
Class B shares. Only holders of Class A shares can have the right to vote and the right to be elected as
directors or as corporate officers.2 (Stress supplied)

On July 31, 1981, Article VII of the Articles of Incorporation of MCPI was amended, to read thus:

SEVENTH. That the authorized capital stock of the corporation is FIVE MILLION (₱5,000,000.00) PESOS,
divided as follows:

CLASS NO. OF SHARES PAR VALUE

"A" 1,000 ₱1,000.00
"B" 4,000 ₱1,000.00

Only holders of Class A shares have the right to vote and the right to be elected as directors or as
corporate officers.3 (Emphasis supplied)

The foregoing amendment was approved by the SEC on June 7, 1983. While the amendment granted the right to
vote and to be elected as directors or corporate officers only to holders of Class "A" shares, holders of Class "B"
stocks were granted the same rights and privileges as holders of Class "A" stocks with respect to the payment of
dividends.

On September 9, 1992, Article VII was again amended to provide as follows:

 SEVENTH: That the authorized capital stock of the corporation is THIRTY TWO MILLION PESOS
(P32,000,000.00) divided as follows:

CLASS NO. OF SHARES PAR VALUE

"A" 1,000 ₱1,000.00
"B" 31,000 1,000.00

Except when otherwise provided by law, only holders of Class "A" shares have the right to vote and
the right to be elected as directors or as corporate officers 4 (Stress and underscoring supplied).

The SEC approved the foregoing amendment on September 22, 1993.

On February 9, 2001, the shareholders of MCPI held their annual stockholders’ meeting and election for
directors. During the course of the proceedings, respondent Rustico Jimenez, citing Article VII, as
amended, and notwithstanding MCPI’s history, declared over the objections of herein petitioners, that no
Class "B" shareholder was qualified to run or be voted upon as a director. In the past, MCPI had seen
holders of Class "B" shares voted for and serve as members of the corporate board and some Class "B"
share owners were in fact nominated for election as board members. Nonetheless, Jimenez went on to
announce that the candidates holding Class "A" shares were the winners of all seats in the corporate board.
The petitioners protested, claiming that Article VII was null and void for depriving them, as Class "B" shareholders,
of their right to vote and to be voted upon, in violation of the Corporation Code (Batas Pambansa Blg. 68), as
amended.

On March 22, 2001, after their protest was given short shrift, herein petitioners filed a Complaint for Injunction,
Accounting and Damages, docketed as Civil Case No. CV-01-0140 before the RTC of Parañaque City, Branch 258.
Said complaint was founded on two (2) principal causes of action, namely:

a. Annulment of the declaration of directors of the MCPI made during the February 9, 2001 Annual
Stockholders’ Meeting, and for the conduct of an election whereat all stockholders, irrespective of the
classification of the shares they hold, should be afforded their right to vote and be voted for; and

b. Stockholders’ derivative suit challenging the validity of a contract entered into by the Board of Directors of
MCPI for the operation of the ultrasound unit.5

Subsequently, the complaint was amended to implead MCPI as party-plaintiff for purposes only of the second cause
of action.

Before the trial court, the herein petitioners alleged that they were deprived of their right to vote and to be voted on
as directors at the annual stockholders’ meeting held on February 9, 2001, because respondents had erroneously
relied on Article VII of the Articles of Incorporation of MCPI, despite Article VII being contrary to the Corporation
Code, thus null and void. Additionally, respondents were in estoppel, because in the past, petitioners were allowed
to vote and to be elected as members of the board. They further claimed that the privilege granted to the Class "A"
shareholders was more in the nature of a right granted to founder’s shares.

In their Answer, the respondents averred that the provisions of Article VII clearly and categorically state that only
holders of Class "A" shares have the exclusive right to vote and be elected as directors and officers of the
corporation. They denied that the exclusivity was intended only as a privilege granted to founder’s shares, as no
such proviso is found in the Articles of Incorporation. The respondents further claimed that the exclusivity of the right
granted to Class "A" holders cannot be defeated or impaired by any subsequent legislative enactment, e.g. the New
Corporation Code, as the Articles of Incorporation is an intra-corporate contract between the corporation and its
members; between the corporation and its stockholders; and among the stockholders. They submit that to allow
Class "B" shareholders to vote and be elected as directors would constitute a violation of MCPI’s franchise or
charter as granted by the State.

At the pre-trial, the trial court ruled that a partial judgment could be rendered on the first cause of action and
required the parties to submit their respective position papers or memoranda.
On November 26, 2001, the RTC rendered the Partial Judgment, the dispositive portion of which reads:

WHEREFORE, viewed in the light of the foregoing, the election held on February 9, 2001 is VALID as
the holders of CLASS "B" shares are not entitled to vote and be voted for and this case based on the
First Cause of Action is DISMISSED.

SO ORDERED.6

In finding for the respondents, the trial court ruled that corporations had the power to classify their shares of stocks,
such as "voting and non-voting" shares, conformably with Section 67 of the Corporation Code of the Philippines. It
pointed out that Article VII of both the original and amended Articles of Incorporation clearly provided that only Class
"A" shareholders could vote and be voted for to the exclusion of Class "B" shareholders, the exception being in
instances provided by law, such as those enumerated in Section 6, paragraph 6 of the Corporation Code. The RTC
found merit in the respondents’ theory that the Articles of Incorporation, which defines the rights and limitations of all
its shareholders, is a contract between MCPI and its shareholders. It is thus the law between the parties and should
be strictly enforced as to them. It brushed aside the petitioners’ claim that the Class "A" shareholders were in
estoppel, as the election of Class "B" shareholders to the corporate board may be deemed as a mere act of
benevolence on the part of the officers. Finally, the court brushed aside the "founder’s shares" theory of the
petitioners for lack of factual basis.

Hence, this petition submitting the sole legal issue of whether or not the Court a quo, in rendering the Partial
Judgment dated November 26, 2001, has decided a question of substance in a way not in accord with law and
jurisprudence considering that:

1. Under the Corporation Code, the exclusive voting right and right to be voted granted by the Articles of
Incorporation of the MCPI to Class A shareholders is null and void, or already extinguished;

2. Hence, the declaration of directors made during the February 9, 2001 Annual Stockholders’ Meeting on
the basis of the purported exclusive voting rights is null and void for having been done without the benefit of
an election and in violation of the rights of plaintiffs and Class B shareholders; and

3. Perforce, another election should be conducted to elect the directors of the MCPI, this time affording the
holders of Class B shares full voting right and the right to be voted. 8

The issue for our resolution is whether or not holders of Class "B" shares of the MCPI may be deprived of
the right to vote and be voted for as directors in MCPI.

Before us, petitioners assert that Article VII of the Articles of Incorporation of MCPI, which denied them
voting rights, is null and void for being contrary to Section 6 of the Corporation Code. They point out that
Section 6 prohibits the deprivation of voting rights except as to preferred and redeemable shares only.
Hence, under the present law on corporations, all shareholders, regardless of classification, other than
holders of preferred or redeemable shares, are entitled to vote and to be elected as corporate directors or
officers. Since the Class "B" shareholders are not classified as holders of either preferred or redeemable
shares, then it necessarily follows that they are entitled to vote and to be voted for as directors or officers.

The respondents, in turn, maintain that the grant of exclusive voting rights to Class "A" shares is clearly provided in
the Articles of Incorporation and is in accord with Section 59 of the Corporation Law (Act No. 1459), which was the
prevailing law when MCPI was incorporated in 1977. They likewise submit that as the Articles of Incorporation of
MCPI is in the nature of a contract between the corporation and its shareholders and Section 6 of the Corporation
Code could not retroactively apply to it without violating the non-impairment clause 10 of the Constitution.

We find merit in the petition.

When Article VII of the Articles of Incorporation of MCPI was amended in 1992, the phrase "except when otherwise
provided by law" was inserted in the provision governing the grant of voting powers to Class "A" shareholders. This
particular amendment is relevant for it speaks of a law providing for exceptions to the exclusive grant of voting rights
to Class "A" stockholders. Which law was the amendment referring to? The determination of which law to apply is
necessary. There are two laws being cited and relied upon by the parties in this case. In this instance, the law in
force at the time of the 1992 amendment was the Corporation Code (B.P. Blg. 68), not the Corporation Law (Act No.
1459), which had been repealed by then.

We find and so hold that the law referred to in the amendment to Article VII refers to the Corporation Code and no
other law. At the time of the incorporation of MCPI in 1977, the right of a corporation to classify its shares of stock
was sanctioned by Section 5 of Act No. 1459. The law repealing Act No. 1459, B.P. Blg. 68, retained the same grant
of right of classification of stock shares to corporations, but with a significant change. Under Section 6 of B.P. Blg.
68, the requirements and restrictions on voting rights were explicitly provided for, such that "no share may be
deprived of voting rights except those classified and issued as "preferred" or "redeemable" shares, unless otherwise
provided in this Code" and that "there shall always be a class or series of shares which have complete voting
rights." Section 6 of the Corporation Code being deemed written into Article VII of the Articles of Incorporation of
MCPI, it necessarily follows that unless Class "B" shares of MCPI stocks are clearly categorized to be "preferred" or
"redeemable" shares, the holders of said Class "B" shares may not be deprived of their voting rights. Note that there
is nothing in the Articles of Incorporation nor an iota of evidence on record to show that Class "B" shares were
categorized as either "preferred" or "redeemable" shares. The only possible conclusion is that Class "B" shares fall
under neither category and thus, under the law, are allowed to exercise voting rights.

One of the rights of a stockholder is the right to participate in the control and management of the corporation that is
exercised through his vote. The right to vote is a right inherent in and incidental to the ownership of corporate stock,
and as such is a property right. The stockholder cannot be deprived of the right to vote his stock nor may the right
be essentially impaired, either by the legislature or by the corporation, without his consent, through amending the
charter, or the by-laws.11

Neither do we find merit in respondents’ position that Section 6 of the Corporation Code cannot apply to MCPI
without running afoul of the non-impairment clause of the Bill of Rights. Section 148 12 of the Corporation Code
expressly provides that it shall apply to corporations in existence at the time of the effectivity of the Code. Hence,
the non-impairment clause is inapplicable in this instance. When Article VII of the Articles of Incorporation of MCPI
were amended in 1992, the board of directors and stockholders must have been aware of Section 6 of the
Corporation Code and intended that Article VII be construed in harmony with the Code, which was then already in
force and effect. Since Section 6 of the Corporation Code expressly prohibits the deprivation of voting rights, except
as to "preferred" and "redeemable" shares, then Article VII of the Articles of Incorporation cannot be construed as
granting exclusive voting rights to Class "A" shareholders, to the prejudice of Class "B" shareholders, without
running afoul of the letter and spirit of the Corporation Code.

The respondents then take the tack that the phrase "except when otherwise provided by law" found in the amended
Articles is only a handwritten insertion and could have been inserted by anybody and that no board resolution was
ever passed authorizing or approving said amendment.

Said contention is not for this Court to pass upon, involving as it does a factual question, which is not proper in this
petition. In an appeal via certiorari, only questions of law may be reviewed. 13 Besides, respondents did not adduce
persuasive evidence, but only bare allegations, to support their suspicion. The presumption that in the amendment
process, the ordinary course of business has been followed 14 and that official duty has been regularly performed15 on
the part of the SEC, applies in this case.

WHEREFORE, the petition is GRANTED. The Partial Judgment dated November 26, 2001 of the Regional Trial
Court of Parañaque City, Branch 258, in Civil Case No. 01-0140 is REVERSED AND SET ASIDE. No
pronouncement as to costs.
 4.) G.R. No. L-19891 July 31, 1964

J.R.S. BUSINESS CORPORATION, J.R. DA SILVA and A.J. BELTRAN Petitioners, vs. IMPERIAL

INSURANCE, INC., MACARIO M. OFILADA, Sheriff of Manila and
HON. AGUSTIN MONTESA, Judge of the Court of First Instance of Manila, Respondents.

Felipe N. Aurea for petitioners.

Ta�ada, Teehankee and Carreon for respondent Imperial Insurance, Inc.

PAREDES, J.: chanrobles virtual law library

Petitioner J. R. Da Silva, is the President of the J.R.S. Business Corporation, an establishment duly
franchised by the Congress of the Philippines, to conduct a messenger and delivery express service.
On July 12, 1961, the respondent Imperial Insurance, Inc., presented with the CFI of Manila a
complaint (Civ. Case No. 47520), for sum of money against the petitioner corporation. After the
defendants therein have submitted their Answer, the parties entered into a Compromise Agreement,
assisted by their respective counsels, the pertinent portions of which recite:

1) WHEREAS, the DEFENDANTS admit and confess their joint and solidary indebtedness to the
PLAINTIFF in the full sum of PESOS SIXTY ONE THOUSAND ONE HUNDRED SEVENTY-TWO & 32/100
(P61,172.32), Philippine Currency, itemized as follows:

a) Principal P50,000.00
b) Interest at 12% per annum 5,706.14
c) Liquidated damages at 7% per annum 3,330.58
d) Costs of suit 135.60
e) Attorney's fees 2,000.00

2) WHEREAS, the DEFENDANTS bind themselves, jointly and severally, and hereby promise to pay
their aforementioned obligation to the PLAINTIFF at its business address at 301-305 Banquero St.,
(Ground Floor), Regina Building, Escolta, Manila, within sixty (60) days from March 16, 1962 or on or
before May 14, 1962;  chanrobles virtual law library

3) WHEREAS, in the event the DEFENDANTS FAIL to pay in full the total amount of PESOS SIXTY
ONE THOUSAND ONE HUNDRED SEVENTY TWO & 32/100 (P61,172.32), Philippine Currency, for any
reason whatsoever, on May 14, 1962, the PLAINTIFF shall be entitled, as a matter of right, to move
for the execution of the decision to be rendered in the above-entitled case by this Honorable Court
based on this COMPROMISE AGREEMENT.

On March 17, 1962, the lower court rendered judgment embodying the contents of the said
compromise agreement, the dispositive portion of which reads -

WHEREFORE, the Court hereby approves the above-quoted compromise agreement and renders
judgment in accordance therewith, enjoining the parties to comply faithfully and strictly with the
terms and conditions thereof, without special pronouncement as to costs.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove
their case not covered by this stipulation of facts.

On May 15, 1962, one day after the date fixed in the compromise agreement, within which the
judgment debt would be paid, but was not, respondent Imperial Insurance Inc., filed a "Motion for
the Insurance of a Writ of Execution". On May 23, 1962, a Writ of Execution was issued by
respondent Sheriff of Manila and on May 26, 1962, Notices of Sale were sent out for the auction of
the personal properties of the petitioner J.R.S. Business Corporation. On June 2, 1962, a Notice of
Sale of the "whole capital stocks of the defendants JRS Business Corporation, the business name,
right of operation, the whole assets, furnitures and equipments, the total liabilities, and Net Worth,
books of accounts, etc., etc." of the petitioner corporation was, handed down. On June 9, the
petitioner, thru counsel, presented an "Urgent Petition for Postponement of Auction Sale and for
Release of Levy on the Business Name and Right to Operate of Defendant JRS Business Corporation",
stating that petitioners were busy negotiating for a loan with which to pay the judgment debt; that
the judgment was for money only and, therefore, plaintiff (respondent Insurance Company) was not
authorized to take over and appropriate for its own use, the business name of the defendants; that
the right to operate under the franchise, was not transferable and could not be considered a personal
or immovable, property, subject to levy and sale. On June 10, 1962, a Supplemental Motion for
Release of Execution, was filed by counsel of petitioner JRS Business Corporation, claiming that the
capital stocks thereof, could not be levied upon and sold under execution. Under date of June 20,
1962, petitioner's counsel presented a pleading captioned "Very Urgent Motion for Postponement of
Public Auction Sale and for Ruling on Motion for Release of Levy on the Business Name, Right to
Operate and Capital Stocks of JRS Business Corporation". The auction sale was set for June 21, 1962.
In said motion, petitioners alleged that the loan they had applied for, was to be secured within the
next ten (10) days, and they would be able to discharge the judgment debt. Respondents opposed
the said motion and on June 21, 1962, the lower court denied the motion for postponement of the
auction sale. chanroblesvirtualawlibrary chanrobles virtual law library

In the sale which was conducted in the premises of the JRS Business Corporation at 1341 Perez St.,
Paco, Manila, all the properties of said corporation contained in the Notices of Sale dated May 26,
1962, and June 2, 1962 (the latter notice being for the whole capital stocks of the defendant, JRS
Business Corporation, the business name, right of operation, the whole assets, furnitures and
equipments, the total liabilities and Net Worth, books of accounts, etc., etc.), were bought by
respondent Imperial Insurance, Inc., for P10,000.00, which was the highest bid offered. Immediately
after the sale, respondent Insurance Company took possession of the proper ties and started running
the affairs and operating the business of the JRS Business Corporation. Hence, the present
appeal.chanroblesvirtualawlibrary chanrobles virtual law library

It would seem that the matters which need determination are (1) whether the respondent Judge
acted without or in excess of his jurisdiction or with grave abuse of discretion in promulgating the
Order of June 21, 1962, denying the motion for postponement of the scheduled sale at public
auction, of the properties of petitioner; and (2) whether the business name or trade name, franchise
(right to operate) and capital stocks of the petitioner are properties or property rights which could be
the subject of levy, execution and sale. chanroblesvirtualawlibrary chanrobles virtual law library

The respondent Court's act of postponing the scheduled sale was within the discretion of respondent
Judge, the exercise of which, one way or the other, did not constitute grave abuse of discretion
and/or excess of jurisdiction. There was a decision rendered and the corresponding writ of execution
was issued. Respondent Judge had jurisdiction over the matter and erroneous conclusions of law or
fact, if any, committed in the exercise of such jurisdiction are merely errors of judgment, not
correctible by certiorari (Villa Rey Transit v. Bello, et al., L-18957, April 23, 1963, and cases cited
therein.)  chanrobles virtual law library

The corporation law, on forced sale of franchises, provides -

Any franchise granted to a corporation to collect tolls or to occupy, enjoy, or use public property or
any portion of the public domain or any right of way over public property or the public domain, and
any rights and privileges acquired under such franchise may be levied upon and sold under
execution, together with the property necessary for the enjoyment, the exercise of the powers, and
the receipt of the proceeds of such franchise or right of way, in the same manner and with like effect
as any other property to satisfy any judgment against the corporation: Provided, That the sale of the
franchise or right of way and the property necessary for the enjoyment, the exercise of the powers,
and the receipt of the proceeds of said franchise or right of way is especially decreed  and ordered in
the judgment: And provided, further, That the sale shall not become effective until confirmed by the
court after due notice. (Sec. 56, Corporation Law.)

In the case of Gulf Refining Co. v. Cleveland Trust Co., 108 So., 158, it was held -

The first question then for decision is the meaning of the word "franchise" in the statute.

"A franchise is a special privilege conferred by governmental authority, and which does not belong to
citizens of the country generally as a matter of common right. ... Its meaning depends more or less
upon the connection in which the word is employed and the property and corporation to which it is
applied. It may have different significations.
chanroblesvirtualawlibrary chanrobles virtual law library

"For practical purposes, franchises, so far as relating to corporations, are divisible into (1) corporate
or general franchises; and (2) special or secondary franchises. The former is the franchise to exist as
a corporation, while the latter are certain rights and privileges conferred upon existing corporations,
such as the right to use the streets of a municipality to lay pipes or tracks, erect poles or string
wires." 2 Fletcher's Cyclopedia Corp. See. 1148; 14 C.J. p. 160; Adams v. Yazon & M. V. R. Co., 24
So. 200, 317, 28 So. 956, 77 Miss. 253, 60 L.R.A. 33 et seq.

The primary franchise of a corporation that is, the right to exist as such, is vested "in the individuals
who compose the corporation  and not in the corporation itself" (14 C.J. pp. 160, 161; Adams v.
Railroad, supra; 2 Fletcher's Cyclopedia Corp. Secs. 1153, 1158; 3 Thompson on Corporations 2d
Ed.] Secs. 2863, 2864), and cannot be conveyed in the absence of a legislative authority so to
do  (14A CJ. 543, 577; 1 Fletcher's Cyc. Corp. Sec. 1224; Memphis & L.R.R. Co. v. Berry 5 S. Ct. 299,
112 U.S. 609, 28 L.E.d. 837; Vicksburg Waterworks Co. v. Vicksburg, 26 S. Ct. 660, 202 U.S. 453,
50 L.E.d. 1102, 6 Ann. Cas. 253; Arthur v. Commercial & Railroad Bank, 9 Smedes & M. 394, 48 Am.
Dec. 719), but the specify or secondary franchises of a corporation are vested in the corporation and
may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose
of its property (Adams v. Railroad, supra; 14A C.J. 542, 557; 3 Thompson on Corp. [2nd Ed.] Sec.
2909), except such special or secondary franchises as are charged with a public use (2 Fletcher's
Cyc. Corp. see. 1225; 14A C.J. 544; 3 Thompson on Corp. [2d Ed.] sec. 2908; Arthur v. Commercial
& R.R. Bank, supra; McAllister v. Plant, 54 Miss. 106).

The right to operate a messenger and express delivery service, by virtue of a legislative enactment,
is admittedly a secondary franchise (R.A. No. 3260, entitled "An Act granting the JRS Business
Corporation a franchise to conduct a messenger and express service)" and, as such, under our
corporation law, is subject to levy and sale on execution together and including all the property
necessary for the enjoyment thereof. The law, however, indicates the procedure under which the
same (secondary franchise and the properties necessary for its enjoyment) may be sold under
execution. Said franchise can be sold under execution, when such sale is especially decreed and
ordered in the judgment and it becomes effective only when the sale is confirmed by the Court after
due notice (Sec. 56, Corp. Law). The compromise agreement and the judgment based thereon, do
not contain any special decree or order making the franchise answerable for the judgment debt. The
same thing may be stated with respect to petitioner's trade name or business name and its capital
stock. Incidentally, the trade name or business name corresponds to the initials of the President of
the petitioner corporation and there can be no serious dispute regarding the fact that a trade name
or business name and capital stock are necessarily included in the enjoyment of the franchise. Like
that of a franchise, the law mandates, that property necessary for the enjoyment of said franchise,
can only be sold to satisfy a judgment debt if the decision especially so provides. As We have stated
heretofore, no such directive appears in the decision. Moreover, a trade name or business name
cannot be sold separately from the franchise, and the capital stock of the petitioner corporation or
any other corporation, for the matter, represents the interest and is the property of stockholders in
the corporation, who can only be deprived thereof in the manner provided by law (Therbee v. Baker,
35 N.E. Eq. [8 Stew.] 501, 505; In re Wells' Estate, 144 N.W. 174, 177, Wis. 294, cited in 6 Words
and Phrases, 109). chanroblesvirtualawlibrary chanrobles virtual law library

It, therefore, results that the inclusion of the franchise, the trade name and/or business name and
the capital stock of the petitioner corporation, in the sale of the properties of the JRS Business
Corporation, has no justification. The sale of the properties of petitioner corporation is set aside, in so
far as it authorizes the levy and sale of its franchise, trade name and capital stocks. Without
pronouncement as to costs.
5.) G.R. No. 96161 February 21, 1992

PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL DEVELOPMENT,

INC., petitioners,
vs.
COURT OF APPEALS, SECURITIES & EXCHANGE COMMISSION and STANDARD PHILIPS
CORPORATION, respondents.

Emeterio V. Soliven & Associates for petitioners.

Narciso A. Manantan for private respondent.

MELENCIO-HERRERA, J.:

Petitioners challenge the Decision of the Court of Appeals, dated 31 July 1990, in CA-GR Sp. No. 20067, upholding
the Order of the Securities and Exchange Commission, dated 2 January 1990, in SEC-AC No. 202, dismissing
petitioners' prayer for the cancellation or removal of the word "PHILIPS" from private respondent's corporate name.

Petitioner Philips Export B.V. (PEBV), a foreign corporation organized under the laws of the Netherlands, although
not engaged in business here, is the registered owner of the trademarks PHILIPS and PHILIPS SHIELD EMBLEM
under Certificates of Registration Nos. R-1641 and R-1674, respectively issued by the Philippine Patents Office
(presently known as the Bureau of Patents, Trademarks and Technology Transfer). Petitioners Philips Electrical
Lamps, Inc. (Philips Electrical, for brevity) and Philips Industrial Developments, Inc. (Philips Industrial, for short),
authorized users of the trademarks PHILIPS and PHILIPS SHIELD EMBLEM, were incorporated on 29 August 1956
and 25 May 1956, respectively. All petitioner corporations belong to the PHILIPS Group of Companies.

Respondent Standard Philips Corporation (Standard Philips), on the other hand, was issued a Certificate of
Registration by respondent Commission on 19 May 1982.

On 24 September 1984, Petitioners filed a letter complaint with the Securities & Exchange Commission (SEC)
asking for the cancellation of the word "PHILIPS" from Private Respondent's corporate name in view of the prior
registration with the Bureau of Patents of the trademark "PHILIPS" and the logo "PHILIPS SHIELD EMBLEM" in the
name of Petitioner, PEBV, and the previous registration of Petitioners Philips Electrical and Philips Industrial with the
SEC.

As a result of Private Respondent's refusal to amend its Articles of Incorporation, Petitioners filed with the SEC, on 6
February 1985, a Petition (SEC Case No. 2743) praying for the issuance of a Writ of Preliminary Injunction, alleging,
among others, that Private Respondent's use of the word PHILIPS amounts to an infringement and clear violation of
Petitioners' exclusive right to use the same considering that both parties engage in the same business.

In its Answer, dated 7 March 1985, Private Respondent countered that Petitioner PEBV has no legal capacity to
sue; that its use of its corporate name is not at all similar to Petitioners' trademark PHILIPS when considered in its
entirety; and that its products consisting of chain rollers, belts, bearings and cutting saw are grossly different from
Petitioners' electrical products.

After conducting hearings with respect to the prayer for Injunction; the SEC Hearing Officer, on 27 September 1985,
ruled against the issuance of such Writ.

On 30 January 1987, the same Hearing Officer dismissed the Petition for lack of merit. In so ruling, the latter
declared that inasmuch as the SEC found no sufficient ground for the granting of injunctive relief on the basis of the
testimonial and documentary evidence presented, it cannot order the removal or cancellation of the word "PHILIPS"
from Private Respondent's corporate name on the basis of the same evidence adopted in toto during trial on the
merits. Besides, Section 18 of the Corporation Code (infra) is applicable only when the corporate names in question
are identical. Here, there is no confusing similarity between Petitioners' and Private Respondent's corporate names
as those of the Petitioners contain at least two words different from that of the Respondent. Petitioners' Motion for
Reconsideration was likewise denied on 17 June 1987.

On appeal, the SEC en banc affirmed the dismissal declaring that the corporate names of Petitioners and Private
Respondent hardly breed confusion inasmuch as each contains at least two different words and, therefore, rules out
any possibility of confusing one for the other.

On 30 January 1990, Petitioners sought an extension of time to file a Petition for Review on Certiorari before this
Court, which Petition was later referred to the Court of Appeals in a Resolution dated 12 February 1990.

In deciding to dismiss the petition on 31 July 1990, the Court of

Appeals  swept aside Petitioners' claim that following the ruling in Converse Rubber Corporation v. Universal
1

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

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

We find basis for petitioners' plea.

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

A name is peculiarly important as necessary to the very existence of a corporation (American Steel Foundries vs.
Robertson, 269 US 372, 70 L ed 317, 46 S Ct 160; Lauman vs. Lebanon Valley R. Co., 30 Pa 42; First National
Bank vs. Huntington Distilling Co. 40 W Va 530, 23 SE 792). Its name is one of its attributes, an element of its
existence, and essential to its identity (6 Fletcher [Perm Ed], pp. 3-4). The general rule as to corporations is that
each corporation must have a name by which it is to sue and be sued and do all legal acts. The name of a
corporation in this respect designates the corporation in the same manner as the name of an individual designates
the person (Cincinnati Cooperage Co. vs. Bate. 96 Ky 356, 26 SW 538; Newport Mechanics Mfg. Co. vs. Starbird.
10 NH 123); and the right to use its corporate name is as much a part of the corporate franchise as any other
privilege granted (Federal Secur. Co. vs. Federal Secur. Corp., 129 Or 375, 276 P 1100, 66 ALR 934; Paulino vs.
Portuguese Beneficial Association, 18 RI 165, 26 A 36).

A corporation acquires its name by choice and need not select a name identical with or similar to one already
appropriated by a senior corporation while an individual's name is thrust upon him (See Standard Oil Co. of New
Mexico, Inc. v. Standard Oil Co. of California, 56 F 2d 973, 977). A corporation can no more use a corporate name
in violation of the rights of others than an individual can use his name legally acquired so as to mislead the public
and injure another (Armington vs. Palmer, 21 RI 109. 42 A 308).

Our own Corporation Code, in its Section 18, expressly provides that:

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

The statutory prohibition cannot be any clearer. To come within its scope, two requisites must be proven, namely:

(1) that the complainant corporation acquired a prior right over the use of such corporate name; and

(2) the proposed name is either:

(a) identical; or

(b) deceptively or confusingly similar

to that of any existing corporation or to any other name already protected by law; or

(c) patently deceptive, confusing or contrary to existing law.

The right to the exclusive use of a corporate name with freedom from infringement by similarity is determined by
priority of adoption (1 Thompson, p. 80 citing Munn v. Americana Co., 82 N. Eq. 63, 88 Atl. 30; San Francisco
Oyster House v. Mihich, 75 Wash. 274, 134 Pac. 921). In this regard, there is no doubt with respect to Petitioners'
prior adoption of' the name ''PHILIPS" as part of its corporate name. Petitioners Philips Electrical and Philips
Industrial were incorporated on 29 August 1956 and 25 May 1956, respectively, while Respondent Standard Philips
was issued a Certificate of Registration on 12 April 1982, twenty-six (26) years later (Rollo, p. 16). Petitioner PEBV
has also used the trademark "PHILIPS" on electrical lamps of all types and their accessories since 30 September
1922, as evidenced by Certificate of Registration No. 1651.

The second requisite no less exists in this case. In determining the existence of confusing similarity in corporate
names, the test is whether the similarity is such as to mislead a person, using ordinary care and discrimination. In so
doing, the Court must look to the record as well as the names themselves (Ohio Nat. Life Ins. Co. v. Ohio Life Ins.
Co., 210 NE 2d 298). While the corporate names of Petitioners and Private Respondent are not identical, a reading
of Petitioner's corporate names, to wit: PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS
INDUSTRIAL DEVELOPMENT, INC., inevitably leads one to conclude that "PHILIPS" is, indeed, the dominant word
in that all the companies affiliated or associated with the principal corporation, PEBV, are known in the Philippines
and abroad as the PHILIPS Group of Companies.

Respondents maintain, however, that Petitioners did not present an iota of proof of actual confusion or deception of
the public much less a single purchaser of their product who has been deceived or confused or showed any
likelihood of confusion. It is settled, however, that proof of actual confusion need not be shown. It suffices that
confusion is probably or likely to occur (6 Fletcher [Perm Ed], pp. 107-108, enumerating a long line of cases).

It may be that Private Respondent's products also consist of chain rollers, belts, bearing and the like, while
petitioners deal principally with electrical products. It is significant to note, however, that even the Director of Patents
had denied Private Respondent's application for registration of the trademarks "Standard Philips & Device" for
chain, rollers, belts, bearings and cutting saw. That office held that PEBV, "had shipped to its subsidiaries in the
Philippines equipment, machines and their parts which fall under international class where "chains, rollers, belts,
bearings and cutting saw," the goods in connection with which Respondent is seeking to register 'STANDARD
PHILIPS' . . . also belong" ( Inter Partes Case No. 2010, June 17, 1988, SEC Rollo).

Furthermore, the records show that among Private Respondent's primary purposes in its Articles of Incorporation
(Annex D, Petition p. 37, Rollo) are the following:

To buy, sell, barter, trade, manufacture, import, export, or otherwise acquire, dispose of, and deal in
and deal with any kind of goods, wares, and merchandise such as but not limited to plastics, carbon
products, office stationery and supplies, hardware parts, electrical wiring devices, electrical
component parts, and/or complement of industrial, agricultural or commercial machineries,
constructive supplies, electrical supplies and other merchandise which are or may become articles of
commerce except food, drugs and cosmetics and to carry on such business as manufacturer,
 distributor, dealer, indentor, factor, manufacturer's representative capacity for domestic or foreign
companies. (emphasis ours)

For its part, Philips Electrical also includes, among its primary purposes, the following:

To develop manufacture and deal in electrical products, including electronic, mechanical and other
similar products . . . (p. 30, Record of SEC Case No. 2743)

Given Private Respondent's aforesaid underlined primary purpose, nothing could prevent it from dealing in the same
line of business of electrical devices, products or supplies which fall under its primary purposes. Besides, there is
showing that Private Respondent not only manufactured and sold ballasts for fluorescent lamps with their corporate
name printed thereon but also advertised the same as, among others, Standard Philips (TSN, before the SEC, pp.
14, 17, 25, 26, 37-42, June 14, 1985; pp. 16-19, July 25, 1985). As aptly pointed out by Petitioners, [p]rivate
respondent's choice of "PHILIPS" as part of its corporate name [STANDARD PHILIPS CORPORATION] . . . tends
to show said respondent's intention to ride on the popularity and established goodwill of said petitioner's business
throughout the world" (Rollo, p. 137). The subsequent appropriator of the name or one confusingly similar thereto
usually seeks an unfair advantage, a free ride of another's goodwill (American Gold Star Mothers, Inc. v. National
Gold Star Mothers, Inc., et al, 89 App DC 269, 191 F 2d 488).

In allowing Private Respondent the continued use of its corporate name, the SEC maintains that the corporate
names of Petitioners PHILIPS ELECTRICAL LAMPS. INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC.
contain at least two words different from that of the corporate name of respondent STANDARD PHILIPS
CORPORATION, which words will readily identify Private Respondent from Petitioners and vice-versa.

True, under the Guidelines in the Approval of Corporate and Partnership Names formulated by the SEC, the
proposed name "should not be similar to one already used by another corporation or partnership. If the proposed
name contains a word already used as part of the firm name or style of a registered company; the proposed name
must contain two other words different from the company already registered" (Emphasis ours). It is then pointed out
that Petitioners Philips Electrical and Philips Industrial have two words different from that of Private Respondent's
name.

What is lost sight of, however, is that PHILIPS is a trademark or trade name which was registered as far back as
1922. Petitioners, therefore, have the exclusive right to its use which must be free from any infringement by
similarity. A corporation has an exclusive right to the use of its name, which may be protected by injunction upon a
principle similar to that upon which persons are protected in the use of trademarks and tradenames (18 C.J.S. 574).
Such principle proceeds upon the theory that it is a fraud on the corporation which has acquired a right to that name
and perhaps carried on its business thereunder, that another should attempt to use the same name, or the same
name with a slight variation in such a way as to induce persons to deal with it in the belief that they are dealing with
the corporation which has given a reputation to the name (6 Fletcher [Perm Ed], pp. 39-40, citing Borden Ice Cream
Co. v. Borden's Condensed Milk Co., 210 F 510). Notably, too, Private Respondent's name actually contains only a
single word, that is, "STANDARD", different from that of Petitioners inasmuch as the inclusion of the term
"Corporation" or "Corp." merely serves the Purpose of distinguishing the corporation from partnerships and other
business organizations.

The fact that there are other companies engaged in other lines of business using the word "PHILIPS" as part of their
corporate names is no defense and does not warrant the use by Private Respondent of such word which constitutes
an essential feature of Petitioners' corporate name previously adopted and registered and-having acquired the
status of a well-known mark in the Philippines and internationally as well (Bureau of Patents Decision No. 88-35
[TM], June 17, 1988, SEC Records).

In support of its application for the registration of its Articles of Incorporation with the SEC, Private Respondent had
submitted an undertaking "manifesting its willingness to change its corporate name in the event another person, firm
or entity has acquired a prior right to the use of the said firm name or one deceptively or confusingly similar to it."
Private respondent must now be held to its undertaking.

As a general rule, parties organizing a corporation must choose a name at their peril; and the use of
a name similar to one adopted by another corporation, whether a business or a nonbusiness or non-
profit organization if misleading and likely to injure it in the exercise in its corporate functions,
 regardless of intent, may be prevented by the corporation having the prior right, by a suit for
injunction against the new corporation to prevent the use of the name (American Gold Star Mothers,
Inc. v. National Gold Star Mothers, Inc., 89 App DC 269, 191 F 2d 488, 27 ALR 2d 948).

WHEREFORE, the Decision of the Court of Appeals dated 31 July 1990, and its Resolution dated 20 November
1990, are SET ASIDE and a new one entered ENJOINING private respondent from using "PHILIPS" as a feature of
its corporate name, and ORDERING the Securities and Exchange Commission to amend private respondent's
Articles of Incorporation by deleting the word PHILIPS from the corporate name of private respondent.
 6.) G.R. No. 205548, February 07, 2018

DE LA SALLE MONTESSORI INTERNATIONAL OF MALOLOS, INC., Petitioner, v. DE LA SALLE

BROTHERS, INC., DE LA SALLE UNIVERSITY, INC., LA SALLE ACADEMY, INC., DE LA SALLE-
SANTIAGO ZOBEL SCHOOL, INC. (FORMERLY NAMED DE LA SALLE-SOUTH INC.), DE LA
SALLE CANLUBANG, INC. (FORMERLY NAMED DE LA SALLE UNIVERSITY-CANLUBANG,
INC.), Respondents.

DECISION

JARDELEZA, J.:

Petitioner De La Salle Montessori International of Malolos, Inc. filed this petition for review
on certiorari1 under Rule 45 of the Rules of Court to challenge the Decision2 of the Court of Appeals
(CA) dated September 27, 2012 in CA-G.R. SP No. 116439 and its Resolution3 dated January 21,
2013 which denied petitioner's motion for reconsideration. The CA affirmed the Decision4 of the
Securities and Exchange Commission (SEC) En Banc dated September 30, 2010, which in turn
affirmed the Order5 of the SEC Office of the General Counsel (OGC) dated May 12, 2010 directing
petitioner to change or modify its corporate name.

Petitioner reserved with the SEC its corporate name De La Salle Montessori International Malolos,
Inc. from June 4 to August 3, 2007,6 after which the SEC indorsed petitioner's articles of
incorporation and by-laws to the Department of Education (DepEd) for comments and
recommendation.7 The DepEd returned the indorsement without objections.8 Consequently, the SEC
issued a certificate of incorporation to petitioner.9

Afterwards, DepEd Region III, City of San Fernando, Pampanga granted petitioner government
recognition for its pre-elementary and elementary courses on June 30, 2008,10 and for its secondary
courses on February 15, 2010.11

On January 29, 2010, respondents De La Salle Brothers, Inc., De La Salle University, Inc., La Salle
Academy, Inc., De La Salle-Santiago Zobel School, Inc. (formerly De La Salle-South, Inc.), and De La
Salle Canlubang, Inc. (formerly De La Salle University-Canlubang, Inc.) filed a petition with the SEC
seeking to compel petitioner to change its corporate name. Respondents claim that petitioner's
corporate name is misleading or confusingly similar to that which respondents have acquired a prior
right to use, and that respondents' consent to use such name was not obtained. According to
respondents, petitioner's use of the dominant phrases "La Salle" and "De La Salle" gives an
erroneous impression that De La Salle Montessori International of Malolos, Inc. is part of the "La
Salle" group, which violates Section 18 of the Corporation Code of the Philippines. Moreover, being
the prior registrant, respondents have acquired the use of said phrases as part of their corporate
names and have freedom from infringement of the same.12

On May 12, 2010, the SEC OGC issued an Order13 directing petitioner to change or modify its
corporate name. It held, among others, that respondents have acquired the right to the exclusive use
of the name "La Salle" with freedom from infringement by priority of adoption, as they have all been
incorporated using the name ahead of petitioner. Furthermore, the name "La Salle" is not generic in
that it does not particularly refer to the basic or inherent nature of the services provided by
respondents. Neither is it descriptive in the sense that it does not forthwith and clearly convey an
immediate idea of what respondents' services are. In fact, it merely gives a hint, and requires
imagination, thought and perception to reach a conclusion as to the nature of such services. Hence,
the SEC OGC concluded that respondents' use of the phrase "De La Salle" or "La Salle" is arbitrary,
fanciful, whimsical and distinctive, and thus legally protectable. As regards petitioner's argument that
its use of the name does not result to confusion, the SEC OGC held otherwise, noting that confusion
is probably or likely to occur considering not only the similarity in the parties' names but also the
business or industry they are engaged in, which is providing courses of study in pre-elementary,
elementary and secondary education.14 The SEC OGC disagreed with petitioner's argument that the
case of Lyceum of the Philippines, Inc. v. Court of Appeals 15 (Lyceum of the Philippines) applies since
the word "lyceum" is clearly descriptive of the very being and defining purpose of an educational
corporation, unlike the term "De La Salle" or "La Salle."16 Hence, the Court held in that case that the
Lyceum of the Philippines, Inc. cannot claim exclusive use of the name "lyceum."

Petitioner filed an appeal before the SEC En Banc, which rendered a Decision17 on September 30,
2010 affirming the Order of the SEC OGC. It held, among others, that the Lyceum of the
Philippines case does not apply since the word "lyceum" is a generic word that pertains to a category
of educational institutions and is widely used around the world. Further, the Lyceum of the
Philippines failed to prove that "lyceum" acquired secondary meaning capable of exclusive
appropriation. Petitioner also failed to establish that the term "De La Salle" is generic for the principle
enunciated in Lyceum of the Philippines to apply.18

Petitioner consequently filed a petition for review with the CA. On September 27, 2012, the CA
rendered its Decision19 affirming the Order of the SEC OGC and the Decision of the SEC En Banc in
toto.

Hence, this petition, which raises the lone issue of "[w]hether or not the [CA] acted with grave abuse
of discretion amounting to lack or in excess of jurisdiction when it erred in not applying the doctrine
laid down in the case of [Lyceum of the Philippines], that LYCEUM is not attended with exclusivity."20

The Court cannot at the outset fail to note the erroneous wording of the issue. Petitioner alleged
grave abuse of discretion while also attributing error of judgment on the part of the CA in not
applying a certain doctrine. Certainly, these grounds do not coincide in the same remedy. A petition
for review on certiorari under Rule 45 of the Rules of Court is a separate remedy from a petition
for certiorari under Rule 65. A petition for review on certiorari under Rule 45 brings up for review
errors of judgment, while a petition for certiorari under Rule 65 covers errors of jurisdiction or grave
abuse of discretion amounting to excess or lack of jurisdiction. Grave abuse of discretion is not an
allowable ground under Rule 45.21 Nonetheless, as the petition argues on the basis of errors of
judgment allegedly committed by the CA, the Court will excuse the error in terminology.

The main thrust of the petition is that the CA erred in not applying the ruling in the Lyceum of the
Philippines case which petitioner argues have "the same facts and events"22 as in this case.

We DENY the petition and uphold the Decision of the CA.

As early as Western Equipment and Supply Co. v. Reyes,23 the Court declared that a corporation's
right to use its corporate and trade name is a property right, a right in rem, which it may assert and
protect against the world in the same manner as it may protect its tangible property, real or
personal, against trespass or conversion.24 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.25 Furthermore, in Philips Export B.V. v. Court of Appeals,26 we held:

A name is peculiarly important as necessary to the very existence of a corporation x x x. Its name is
one of its attributes, an element of its existence, and essential to its identity x x x. The general rule
as to corporations is that each corporation must have a name by which it is to sue and be sued and
do all legal acts. The name of a corporation in this respect designates the corporation in the same
manner as the name of an individual designates the person x x x; and the right to use its corporate
name is as much a part of the corporate franchise as any other privilege granted x x x.

A corporation acquires its name by choice and need not select a name identical with or similar to one
already appropriated by a senior corporation while an individual's name is thrust upon him x x x. A
corporation can no more use a corporate name in violation of the rights of others than an individual
can use his nan1e legally acquired so as to mislead the public and injure another x x x.27
Recognizing the intrinsic importance of corporate names, our Corporation Code established a
restrictive rule insofar as corporate names are concerned.28 Thus, Section 18 thereof provides:
Sec. 18. Corporate name. - No corporate name may be allowed by the Securities and Exchange
Commission if the proposed name is identical or deceptively or confusingly similar to that of any
existing corporation or to any other name already protected by law or is patently deceptive,
confusing or contrary to existing laws. When a change in the corporate name is approved, the
Commission shall issue an amended certificate of incorporation under the amended name.
The policy underlying the prohibition in Section 18 against the registration of a corporate name which
is "identical or deceptively or confusingly similar" to that of any existing corporation or which is
"patently deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud
upon the public which would have occasion to deal with the entity concerned, the evasion of legal
obligations and duties, and the reduction of difficulties of administration and supervision over
corporations.29

Indeed, parties organizing a corporation must choose a name at their peril; and the use of a name
similar to one adopted by another corporation, whether a business or a non-profit organization, if
misleading or likely to injure in the exercise of its corporate functions, regardless of intent, may be
prevented by the corporation having a prior right, by a suit for injunction against the new corporation
to prevent the use of the name.30

In Philips Export B.V. v. Court of Appeals,31 the Court held that to fall within the prohibition of Section
18, two requisites must be proven, to wit: (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.32

With respect to the first requisite, the Court has held that the right to the exclusive use of a
corporate name with freedom from infringement by similarity is determined by priority of adoption.33

In this case, respondents' corporate names were registered on the following dates: (1) De La Salle
Brothers, Inc. on October 9, 1961 under SEC Registration No. 19569; (2) De La Salle University, Inc.
on December 19, 1975 under SEC Registration No. 65138; (3) La Salle Academy, Inc. on January 26,
1960 under SEC Registration No. 16293; (4) De La SalleSantiago Zobel School, Inc. on October 7,
1976 under SEC Registration No. 69997; and (5) De La Salle Canlubang, Inc. on August 5, 1998
under SEC Registration No. Al998-01021.34

On the other hand, petitioner was issued a Certificate of Registration only on July 5, 2007 under
Company Registration No. CN200710647.35 It being clear that respondents are the prior registrants,
they certainly have acquired the right to use the words "De La Salle" or "La Salle" as part of their
corporate names.

The second requisite is also satisfied since there is a confusing similarity between petitioner's and
respondents' corporate names. While these corporate names are not identical, it is evident that the
phrase "De La Salle" is the dominant phrase used.

Petitioner asserts that it has the right to use the phrase "De La Salle" in its corporate name as
respondents did not obtain the right to its exclusive use, nor did the words acquire secondary
meaning. It endeavoured to demonstrate that no confusion will arise from its use of the said phrase
by stating that its complete name, "De La Salle Montessori International of Malolos, Inc.," contains
four other distinctive words that are not found in respondents' corporate names. Moreover, it
obtained the words "De La Salle" from the French word meaning "classroom," while respondents
obtained it from the French priest named Saint Jean Baptiste de La Salle. Petitioner also compared its
logo to that of respondent De La Salle University and argued that they are different. Further,
petitioner argued that it does not charge as much fees as respondents, that its clients knew that it is
not part of respondents' schools, and that it never misrepresented nor claimed to be an affiliate of
respondents. Additionally, it has gained goodwill and a name worthy of trust in its own right.36
We are not persuaded.

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.37

Petitioner's assertion that the words "Montessori International of Malolos, Inc." are four distinctive
words that are not found in respondents' corporate names so that their corporate name is not
identical, confusingly similar, patently deceptive or contrary to existing laws,38 does not avail. As
correctly held by the SEC OGC, all these words, when used with the name "De La Salle," can
reasonably mislead a person using ordinary care and discretion into thinking that petitioner is an
affiliate or a branch of, or is likewise founded by, any or all of the respondents, thereby causing
confusion.39

Petitioner's argument that it obtained the words "De La Salle" from the French word meaning
"classroom," while respondents obtained it from the French priest named Saint Jean Baptiste de La
Salle,40 similarly does not hold water. We quote with approval the ruling of the SEC En Banc on this
matter. Thus:
Generic terms are those which constitute "the common descriptive name of an article or substance,"
or comprise the "genus of which the particular product is a species," or are "commonly used as the
name or description of a kind of goods," or "characters," or "refer to the basic nature of the wares or
services provided rather than to the more idiosyncratic characteristics of a particular product," and
are not legally protectable. It has been held that if a mark is so commonplace that it cannot be
readily distinguished from others, then it is apparent that it cannot identify a particular business; and
he who first adopted it cannot be injured by any subsequent appropriation or imitation by others, and
the public will not be deceived.

Contrary to [petitioner's] claim, the word salle only means "room" in French. The word la, on the
other hand, is a definite article ("the") used to modify salle. Thus, since salle is nothing more than a
room, [respondents'] use of the term is actually suggestive.

A suggestive mark is therefore a word, picture, or other symbol that suggests, but does not directly
describe something about the goods or services in connection with which it is used as a mark and
gives a hint as to the quality or nature of the product. Suggestive trademarks therefore can be
distinctive and are registrable.

The appropriation of the term "la salle" to associate the words with the lofty ideals of education and
learning is in fact suggestive because roughly translated, the words only mean "the room." Thus, the
room could be anything - a room in a house, a room in a building, or a room in an office.

xxx

In fact, the appropriation by [respondents] is fanciful, whimsical and arbitrary because there is no
inherent connection between the words la salle and education, and it is through [respondents']
painstaking efforts that the term has become associated with one of the top educational institutions
in the country. Even assuming arguendo that la salle means "classroom" in French, imagination is
required in order to associate the term with an educational institution and its particular brand of
service.41
We affirm that the phrase "De La Salle" is not merely a generic term. Respondents' use of the phrase
being suggestive and may properly be regarded as fanciful, arbitrary and whimsical, it is entitled to
legal protection.42 Petitioner's use of the phrase "De La Salle" in its corporate name is patently similar
to that of respondents that even with reasonable care and observation, confusion might arise. The
Court notes not only the similarity in the parties' names, but also the business they are engaged in.
They are all private educational institutions offering pre-elementary, elementary and secondary
courses.43 As aptly observed by the SEC En Banc, petitioner's name gives the impression that it is a
branch or affiliate of respondents.44 It is settled that proof of actual confusion need not be shown. It
suffices that confusion is probable or likely to occur.45

Finally, the Court's ruling in Lyceum of the Philippines46 does not apply.

In that case, the Lyceum of the Philippines, Inc., an educational institution registered with the SEC,
commenced proceedings before the SEC to compel therein private respondents who were all
educational institutions, to delete the word "Lyceum" from their corporate names and permanently
enjoin them from using the word as part of their respective names.

The Court there held that the word "Lyceum" today generally refers to a school or institution of
learning. It is as generic in character as the word "university." Since "Lyceum" denotes a school or
institution of learning, it is not unnatural to use this word to designate an entity which is organized
and operating as an educational institution. Moreover, the Lyceum of the Philippines, Inc.'s use of the
word "Lyceum" for a long period of time did not amount to mean that the word had acquired
secondary meaning in its favor because it failed to prove that it had been using the word all by itself
to the exclusion of others. More so, there was no evidence presented to prove that the word has
been so identified with the Lyceum of the Philippines, Inc. as an educational institution that confusion
will surely arise if the same word were to be used by other educational institutions.47

Here, the phrase "De La Salle" is not generic in relation to respondents. It is not descriptive of
respondent's business as institutes of learning, unlike the meaning ascribed to "Lyceum." Moreover,
respondent De La Salle Brothers, Inc. was registered in 1961 and the De La Salle group had been
using the name decades before petitioner's corporate registration. In contrast, there was no evidence
of the Lyceum of the Philippines, Inc.'s exclusive use of the word "Lyceum," as in fact another
educational institution had used the word 17 years before the former registered its corporate name
with the SEC. Also, at least nine other educational institutions included the word in their corporate
names. There is thus no similarity between the Lyceum of the Philippines case and this case that
would call for a similar ruling.

The enforcement of the protection accorded by Section 18 of the Corporation Code to corporate
names is lodged exclusively in the SEC. By express mandate, the SEC has absolute jurisdiction,
supervision and control over all corporations. It is the SEC's duty to prevent confusion in the use of
corporate names not only for the protection of the corporations involved, but more so for the
protection of the public. It has authority to de-register at all times, and under all circumstances,
corporate names which in its estimation are likely to generate confusion.48

Clearly, the only determination relevant to this case is that one made by the SEC in the exercise of
its express mandate under the law.49

Time and again, we have held that findings of fact of quasi-judicial agencies, like the SEC, are
generally accorded respect and even finality by this Court, if supported by substantial evidence, in
recognition of their expertise on the specific matters under their consideration, more so if the same
has been upheld by the appellate court, as in this case.50

WHEREFORE, the Petition is DENIED. The assailed Decision of the CA dated September 27, 2012
is AFFIRMED.
7.) G.R. No. L-26370 July 31, 1970

PHILIPPINE FIRST INSURANCE COMPANY, INC., plaintiff-appellant,

vs.
MARIA CARMEN HARTIGAN, CGH, and O. ENGKEE, defendants-appellees.

Bausa, Ampil & Suarez for plaintiff-appellant.

Nicasio E. Martin for defendants-appellees.

BARREDO, J.:

Appeal from the decision dated 6 October 1962 of the Court of First Instance of Manila — dismissing the action in its
Civil Case No. 48925 — brought by the herein plaintiff-appellant Philippine First Insurance Co., Inc. to the Court of
Appeals which could, upon finding that the said appeal raises purely questions of law, declared itself without
jurisdiction to entertain the same and, in its resolution dated 15 July 1966, certified the records thereof to this Court
for proper determination.

The antecedent facts are set forth in the pertinent portions of the resolution of the Court of Appeals referred to as
follows:

According to the complaint, plaintiff was originally organized as an insurance corporation under the
name of 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' The articles of incorporation
originally presented before the Security and Exchange Commissioner and acknowledged before
Notary Public Mr. E. D. Ignacio on June 1, 1953 state that the name of the corporation was 'The Yek
Tong Lin Fire and Marine Insurance Co., Ltd.' On May 26, 1961 the articles of incorporation were
amended pursuant to a certificate of the Board of Directors dated March 8, 1961 changing the name
of the corporation to 'Philippine First Insurance Co., Inc.'.

The complaint alleges that the plaintiff Philippine First Insurance Co., Inc., doing business under the
name of 'The Yek Tong Lin Fire and Marine Insurance Co., Lt.' signed as co-maker together with
defendant Maria Carmen Hartigan, CGH, a promissory note for P5,000.00 in favor of the China
Banking Corporation payable within 30 days after the date of the promissory note with the usual
banking interest; that the plaintiff agreed to act as such co-maker of the promissory note upon the
application of the defendant Maria Carmen Hartigan, CGH, who together with Antonio F. Chua and
Chang Ka Fu, signed an indemnity agreement in favor of the plaintiff, undertaking jointly and
severally, to pay the plaintiff damages, losses or expenses of whatever kind or nature, including
attorney's fees and legal costs, which the plaintiff may sustain as a result of the execution by the
plaintiff and co-maker of Maria Carmen Hartigan, CGH, of the promissory note above-referred to;
that as a result of the execution of the promissory note by the plaintiff and Maria Carmen Hartigan,
CGH, the China Banking Corporation delivered to the defendant Maria Carmen Hartigan, CGH, the
sum of P5,000.00 which said defendant failed to pay in full, such that on August 31, 1961 the same
was. renewed and as of November 27, 1961 there was due on account of the promissory note the
sum of P4,559.50 including interest. The complaint ends with a prayer for judgment against the
defendants, jointly and severally, for the sum of P4,559.50 with interest at the rate of 12% per
annum from November 23, 1961 plus P911.90 by way of attorney's fees and costs.

Although O. Engkee was made as party defendant in the caption of the complaint, his name is not
mentioned in the body of said complaint. However, his name Appears in the Annex A attached to the
complaint which is the counter indemnity agreement supposed to have been signed according to the
complaint by Maria Carmen Hartigan, CGH, Antonio F. Chua and Chang Ka Fu.

In their answer the defendants deny the allegation that the plaintiff formerly conducted business
under the name and style of 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' They admit the
 execution of the indemnity agreement but they claim that they signed said agreement in favor of the
Yek Tong Lin Fire and Marine Insurance Co., Ltd.' and not in favor of the plaintiff. They likewise
admit that they failed to pay the promissory note when it fell due but they allege that since their
obligation with the China Banking Corporation based on the promissory note still subsists, the surety
who co-signed the promissory note is not entitled to collect the value thereof from the defendants
otherwise they will be liable for double amount of their obligation, there being no allegation that the
surety has paid the obligation to the creditor.

By way of special defense, defendants claim that there is no privity of contract between the plaintiff
and the defendants and consequently, the plaintiff has no cause of action against them, considering
that the complaint does not allege that the plaintiff and the 'Yek Tong Lin Fire and Marine Insurance
Co., Ltd.' are one and the same or that the plaintiff has acquired the rights of the latter. The parties
after the admission of Exhibit A which is the amended articles of incorporation and Exhibit 1 which is
a demand letter dated August 16, 1962 signed by the manager of the loans and discount department
of the China Banking Corporation showing that the promissory note up to said date in the sum of
P4,500.00 was still unpaid, submitted the case for decision based on the pleadings.

Under date of 6 October 1962, the Court of First Instance of Manila rendered the decision appealed. It dismissed
the action with costs against the plaintiff Philippine First Insurance Co., Inc., reasoning as follows:

... With these undisputed facts in mind, the parties correctly concluded that the issues for resolution
by this Court are as follows:

(a) Whether or not the plaintiff is the real party in interest that may validly sue on the indemnity
agreement signed by the defendants and the Yek Tong Lin Fire & Marine Insurance Co., Ltd. (Annex
A to plaintiff's complaint ); and

(b) Whether or not a suit for indemnity or reimbursement may under said indemnity agreement
prosper without plaintiff having yet paid the amount due under said promissory note.

In the first place, the change of name of the Yek Tong Lin Fire & Marine Insurance Co., Ltd. to the
Philippines First Insurance Co., Inc. is of dubious validity. Such change of name in effect dissolved
the original corporation by a process of dissolution not authorized by our corporation law (see Secs.
62 and 67, inclusive, of our Corporation Law). Moreover, said change of name, amounting to a
dissolution of the Yek Tong Lin Fire & Marine Insurance Co., Ltd., does not appear to have been
effected with the written note or assent of stockholders representing at least two-thirds of the
subscribed capital stock of the corporation, a voting proportion required not only for the dissolution of
a corporation but also for any amendment of its articles of incorporation (Secs. 18 and 62,
Corporation Law). Furthermore, such change of corporate name appears to be against public policy
and may be effected only by express authority of law (Red Line Transportation Co. v. Rural Transit
Co., Ltd., 60 Phil. 549, 555; Cincinnati Cooperage Co., Ltd. vs. Vate, 26 SW 538, 539; Pilsen
Brewing Co. vs. Wallace, 125 NE 714), but there is nothing in our corporation law authorizing the
change of corporate name in this jurisdiction.

In the second place, assuming that the change of name of the Yek Tong Lin Fire & Marine Insurance
Co. Ltd., to Philippines pine First Insurance Co., Inc., as accomplished on March 8, 1961, is valid,
that would mean that the original corporation, the Yek Tong Lin Fire & Marine Insurance Co., Ltd.,
became dissolved and of no further existence since March 8, 1961, so that on May 15, 1961, the
date the indemnity agreement, Annex A, was executed, said original corporation bad no more power
to enter into any agreement with the defendants, and the agreement entered into by it was
ineffective for lack of capacity of said dissolved corporation to enter into said agreement. At any rate,
even if we hold that said change of name is valid, the fact remains that there is no evidence showing
that the new entity, the Philippine First Insurance Co., Inc. has with the consent of the original
parties, assumed the obligations or was assigned the rights of action in the original corporation, the
Yek Tong Lin Fire & Marine Insurance Co., Ltd. In other words, there is no evidence of conventional
subrogation of the Plaintiffs in the rights of the Yek Tong Lin Fire & Marine Insurance Co., Ltd. under
said indemnity agreement (Arts. 1300, 1301, New Civil Code). without such subrogation assignment
 of rights, the herein plaintiff has no cause of action against the defendants, and is, therefore, not the
right party in interest as plaintiff.

Last, but not least, assuming that the said change of name was legal and operated to dissolve the
original corporation, the dissolved corporation, must pursuant to Sec. 77 of our corporation law, be
deemed as continuing as a body corporate for three (3) years from March 8, 1961 for the purpose of
prosecuting and defending suits. It is, therefore, the Yek Tong Lin Fire & Marine Insurance Co., Ltd.
that is the proper party to sue the defendants under said indemnity agreement up to March 8, 1964.

Having arrived at the foregoing conclusions, this Court need not squarely pass upon issue (b)
formulated above.

WHEREFORE, plaintiff's action is hereby dismissed, with costs against the plaintiff.

In due time, the Philippine First Insurance Company, Inc. moved for reconsideration of the decision aforesaid, but
said motion was denied on December 3, 1962 in an order worded thus:

The motion for reconsideration, dated November 8, 1962, raises no new issue that we failed to
consider in rendering our decision of October 6, 1962. However, it gives us an opportunity to amplify
our decision as regards the question of change of name of a corporation in this jurisdiction.

We find nothing in our Corporation Law authorizing a change of name of a corporation organized
pursuant to its provisions. Sec. 18 of the Corporation Law authorizes, in our opinion, amendment to
the Articles of Incorporation of a corporation only as to matters other than its corporate name. Once
a corporation is organized in this jurisdiction by the execution and registration of its Articles of
Incorporation, it shall continue to exist under its corporate name for the lifetime of its corporate
existence fixed in its Articles of Incorporation, unless sooner legally dissolved (Sec. 11, Corp. Law).
Significantly, change of name is not one of the methods of dissolution of corporations expressly
authorized by our Corporation Law. Also significant is the fact that the power to change its corporate
name is not one of the general powers conferred on corporations in this jurisdiction (Sec. 13, Corp.
Law). The enumeration of corporate powers made in our Corporation Law implies the exclusion of all
others (Thomas v. West Jersey R. Co., 101 U.S. 71, 25 L. ed. 950). It is obvious, in this connection,
that change of name is not one of the powers necessary to the exercise of the powers conferred on
corporations by said Sec. 13 (see Sec. 14, Corp. Law).

To rule that Sec. 18 of our Corporation Law authorizes the change of name of a corporation by
amendment of its Articles of Incorporation is to indulge in judicial legislation. We have examined the
cases cited in Volume 13 of American Jurisprudence in support of the proposition that the general
power to alter or amend the charter of a corporation necessarily includes the power to alter the name
of a corporation, and find no justification for said conclusion arrived at by the editors of American
Jurisprudence. On the contrary, the annotations in favor of plaintiff's view appear to have been
based on decisions in cases where the statute itself expressly authorizes change of corporate name
by amendment of its Articles of Incorporation. The correct rule in harmony with the provisions of our
Corporation Law is well expressed in an English case as follows:

After a company has been completely register without defect or omission, so as to be

incorporated by the name set forth in the deed of settlement, such incorporated
company has not the power to change its name ... Although the King by his
prerogative might incorporate by a new name, and the newly named corporation
might retain former rights, and sometimes its former name also, ... it never appears
to be such an act as the corporation could do by itself, but required the same power
as created the corporation. (Reg. v. Registrar of Joint Stock Cos 10 Q.B. 839, 59
E.C.L. 839).

The contrary view appears to represent the minority doctrine, judging from the annotations on
decided cases on the matter.
 The movant invokes as persuasive precedent the action of the Securities Commissioner in tacitly
approving the Amended, Articles of Incorporation on May 26, 1961. We regret that we cannot in
good conscience lend approval to this action of the Securities and Exchange Commissioner. We find
no justification, legal, moral, or practical, for adhering to the view taken by the Securities and
Exchange Commissioner that the name of a corporation in the Philippines may be changed by mere
amendment of its Articles of Incorporation as to its corporate name. A change of corporate name
would serve no useful purpose, but on the contrary would most probably cause confusion. Only a
dubious purpose could inspire a change of a corporate. name which, unlike a natural person's name,
was chosen by the incorporators themselves; and our Courts should not lend their assistance to the
accomplishment of dubious purposes.

WHEREFORE, we hereby deny plaintiff's motion for reconsideration, dated November 8, 1962, for
lack of merit.

In this appeal appellant contends that —

THE TRIAL COURT ERRED IN HOLDING THAT IN THIS JURISDICTION, THERE IS NOTHING IN
OUR CORPORATION LAW AUTHORIZING THE CHANGE OF CORPORATE NAME;

II

THE TRIAL COURT ERRED IN DECLARING THAT A CHANGE OF CORPORATE NAME

APPEARS TO BE AGAINST PUBLIC POLICY;

III

THE TRIAL COURT ERRED IN HOLDING THAT A CHANGE OF CORPORATE NAME HAS THE
LEGAL EFFECT OF DISSOLVING THE ORIGINAL CORPORATION:

IV

THE TRIAL COURT ERRED IN HOLDING THAT THE CHANGE OF NAME OF THE YEK TONG
LIN FIRE & MARINE INSURANCE CO., LTD. IS OF DUBIOUS VALIDITY;

THE TRIAL COURT ERRED IN HOLDING THAT THE APPELLANT HEREIN IS NOT THE RIGHT
PARTY INTEREST TO SUE DEFENDANTS-APPELLEES;

IV

THE TRIAL COURT FINALLY ERRED IN DISMISSING THE COMPLAINT.

Appellant's Position is correct; all the above assignments of error are well taken. The whole case, however, revolves
around only one question. May a Philippine corporation change its name and still retain its original personality and
individuality as such?

The answer is not difficult to find. True, under Section 6 of the Corporation Law, the first thing required to be stated
in the Articles of Incorporation of any corn corporation is its name, but it is only one among many matters equally if
not more important, that must be stated therein. Thus, it is also required, for example, to state the number and
names of and residences of the incorporators and the residence or location of the principal office of the corporation,
its term of existence, the amount of its capital stock and the number of shares into which it is divided, etc., etc.

On the other hand, Section 18 explicitly permits the articles of incorporation to be amended thus:
 Sec. 18. — Any corporation may for legitimate corporate purpose or purposes, amend its articles of
incorporation by a majority vote of its board of directors or trustees and the vote or written assent of
two-thirds of its members, if it be a nonstock corporation or, if it be a stock corporation, by the vote or
written assent of the stockholders representing at least two-thirds of the subscribed capital stock of
the corporation Provided, however, That if such amendment to the articles of incorporation should
consist in extending the corporate existence or in any change in the rights of holders of shares of
any class, or would authorize shares with preferences in any respect superior to those of
outstanding shares of any class, or would restrict the rights of any stockholder, then any stockholder
who did not vote for such corporate action may, within forty days after the date upon which such
action was authorized, object thereto in writing and demand Payment for his shares. If, after such a
demand by a stockholder, the corporation and the stockholder cannot agree upon the value of his
share or shares at the time such corporate action was authorized, such values all be ascertained by
three disinterested persons, one of whom shall be named by the stockholder, another by the
corporation, and the third by the two thus chosen. The findings of the appraisers shall be final, and if
their award is not paid by the corporation within thirty days after it is made, it may be recovered in an
action by the stockholder against the corporation. Upon payment by the corporation to the
stockholder of the agreed or awarded price of his share or shares, the stockholder shall forthwith
transfer and assign the share or shares held by him as directed by the
corporation: Provided, however, That their own shares of stock purchased or otherwise acquired by
banks, trust companies, and insurance companies, should be disposed of within six months after
acquiring title thereto.

Unless and until such amendment to the articles of incorporation shall have been abandoned or the
action rescinded, the stockholder making such demand in writing shall cease to be a stockholder
and shall have no rights with respect to such shares, except the right to receive payment therefor as
aforesaid.

A stockholder shall not be entitled to payment for his shares under the provisions of this section
unless the value of the corporate assets which would remain after such payment would be at least
equal to the aggregate amount of its debts and liabilities and the aggregate par value and/or issued
value of the remaining subscribed capital stock.

A copy of the articles of incorporation as amended, duly certified to be correct by the president and
the secretary of the corporation and a majority of the board of directors or trustees, shall be filed with
the Securities and Exchange Commissioner, who shall attach the same to the original articles of
incorporation, on file in his office. From the time of filing such copy of the amended articles of
incorporation, the corporation shall have the same powers and it and the members and stockholders
thereof shall thereafter be subject to the same liabilities as if such amendment had been embraced
in the original articles of incorporation: Provided, however, That should the amendment consist in
extending the corporate life, the extension shall not exceed 50 years in any one instance. Provided,
further, That the original articles and amended articles together shall contain all provisions required
by law to be set out in the articles of incorporation: And provided, further, That nothing in this section
shall be construed to authorize any corporation to increase or diminish its capital stock or so as to
effect any rights or actions which accrued to others between the time of filing the original articles of
incorporation and the filing of the amended articles.

The Securities and, Exchange Commissioner shall be entitled to collect and receive the sum of ten pesos for filing
said copy of the amended articles of incorporation. Provided, however, That when the amendment consists in
extending the term of corporate existence, the Securities and Exchange Commissioner shall be entitled to collect
and receive for the filing of its amended articles of incorporation the same fees collectible under existing law for the
filing of articles of incorporation. The Securities & Exchange Commissioner shall not hereafter file any amendment
to the articles of incorporation of any bank, banking institution, or building and loan association unless accompanied
by a certificate of the Monetary Board (of the Central Bank) to the effect that such amendment is in accordance with
law. (As further amended by Act No. 3610, Sec. 2 and Sec. 9. R.A. No. 337 and R.A. No. 3531.)

It can be gleaned at once that this section does not only authorize corporations to amend their charter; it also lays
down the procedure for such amendment; and, what is more relevant to the present discussion, it contains provisos
restricting the power to amend when it comes to the term of their existence and the increase or decrease of the
capital stock. There is no prohibition therein against the change of name. The inference is clear that such a change
is allowed, for if the legislature had intended to enjoin corporations from changing names, it would have expressly
stated so in this section or in any other provision of the law.

No doubt, "(the) name (of a corporation) is peculiarly important as necessary to the very existence of a corporation.
The general rule as to corporations is that each corporation shall have a name by which it is to sue and be sued and
do all legal acts. The name of a corporation in this respect designates the corporation in the same manner as the
name of an individual designates the person."  Since an individual has the right to change his name under certain
1

conditions, there is no compelling reason why a corporation may not enjoy the same right. There is nothing
sacrosanct in a name when it comes to artificial beings. The sentimental considerations which individuals attach to
their names are not present in corporations and partnerships. Of course, as in the case of an individual, such
change may not be made exclusively. by the corporation's own act. It has to follow the procedure prescribed by law
for the purpose; and this is what is important and indispensably prescribed — strict adherence to such procedure.

Local well known corporation law commentators are unanimous in the view that a corporation may change its name
by merely amending its charter in the manner prescribed by law.  American authorities which have persuasive force
2

here in this regard because our corporation law is of American origin, the same being a sort of codification of
American corporate law,  are of the same opinion.
3

A general power to alter or amend the charter of a corporation necessarily includes the power to
alter the name of the corporation. Ft. Pitt Bldg., etc., Assoc. v. Model Plan Bldg., etc., Assoc., 159
Pa. St. 308, 28 Atl. 215; In re Fidelity Mut. Aid Assoc., 12 W.N.C. (Pa.) 271; Excelsior Oil Co., 3 Pa.
Co. Ct. 184; Wetherill Steel Casting Co., 5 Pa. Co. Ct. 337.

xxx xxx xxx

Under the General Laws of Rhode Island, c 176, sec. 7, relating to an increase of the capital stock of
a corporation, it is provided that 'such agreement may be amended in any other particular, excepting
as provided in the following section', which relates to a decrease of the capital stock This section has
been held to authorize a change in the name of a corporation. Armington v. Palmer, 21 R.I. 109, 42
Atl. 308, 43, L.R.A. 95, 79 Am. St. Rep. 786. (Vol. 19, American and English Annotated Cases, p.
1239.)

Fletcher, a standard authority on American an corporation law also says:

Statutes are to be found in the various jurisdictions dealing with the matter of change in corporate
names. Such statutes have been subjected to judicial construction and have, in the main, been
upheld as constitutional. In direct terms or by necessary implication, they authorize corporations new
names and prescribe the mode of procedure for that purpose. The same steps must be taken under
some statutes to effect a change in a corporate name, as when any other amendment of the
corporate charter is sought .... When the general law thus deals with the subject, a corporation can
change its name only in the manner provided. (6 Fletcher, Cyclopedia of the Law of Private
Corporations, 1968 Revised Volume, pp. 212-213.) (Emphasis supplied)

The learned trial judge held that the above-quoted proposition are not supported by the weight of authority because
they are based on decisions in cases where the statutes expressly authorize change of corporate name by
amendment of the articles of incorporation. We have carefully examined these authorities and We are satisfied of
their relevance. Even Lord Denman who has been quoted by His Honor from In Reg. v. Registrar of Joint Stock Cos.
10, Q.B., 59 E.C.L. maintains merely that the change of its name never appears to be such an act as the corporation
could do for itself, but required ;the same Power as created a corporation." What seems to have been overlooked,
therefore, is that the procedure prescribes by Section 18 of our Corporation Law for the amendment of corporate
charters is practically identical with that for the incorporation itself of a corporation.

In the appealed order of dismissal, the trial court, made the observation that, according to this Court in Red Line
Transportation Co. v. Rural Transit Co., Ltd., 60 Phil, 549, 555, change of name of a corporation is against public
policy. We must clarify that such is not the import of Our said decision. What this Court held in that case is simply
that:
 We know of no law that empowers the Public Service Commission or any court in this jurisdiction to
authorize one corporation to assume the name of another corporation as a trade name. Both the
Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine corporations and the
very law of their creation and continued existence requires each to adopt and certify a distinctive
name. The incorporators 'constitute a body politic and corporate under the name stated in the
certificate.' (Section 11, Act No. 1459, as amended.) A corporation has the power 'of succession by
its corporate name.' (Section 13, ibid.) The name of a corporation is therefore essential to its
existence. It cannot change its name except in the manner provided by the statute. By that name
alone is it authorized to transact business. The law gives a corporation no express or implied
authority to assume another name that is unappropriated; still less that of another corporation, which
is expressly set apart for it and protected by the law. If any corporation could assume at pleasure as
an unregistered trade name the name of another corporation, this practice would result in confusion
and open the door to frauds and evasions and difficulties of administration and supervision. The
policy of the law as expressed our corporation statute and the Code of Commerce is clearly against
such a practice. (Cf. Scarsdale Pub. Co. — Colonial Press vs. Carter, 116 New York Supplement,
731; Svenska Nat. F. i. C. vs. Swedish Nat. Assn., 205 Illinois [Appellate Courts], 428, 434.)

In other words, what We have held to be contrary to public policy is the use by one corporation of the name of
another corporation as its trade name. We are certain no one will disagree that such an act can only "result in
confusion and open the door to frauds and evasions and difficulties of administration and supervision." Surely, the
Red Line case was not one of change of name.

Neither can We share the posture of His Honor that the change of name of a corporation results in its dissolution.
There is unanimity of authorities to the contrary.

An authorized change in the name of a corporation has no more effect upon its identity as a
corporation than a change of name of a natural person has upon his identity. It does not affect the
rights of the corporation or lessen or add to its obligations. After a corporation has effected a change
in its name it should sue and be sued in its new name .... (13 Am. Jur. 276-277, citing cases.)

A mere change in the name of a corporation, either by the legislature or by the corporators or
stockholders under legislative authority, does not, generally speaking, affect the identity of the
corporation, nor in any way affect the rights, privileges, or obligations previously acquired or incurred
by it. Indeed, it has been said that a change of name by a corporation has no more effect upon the
identity of the corporation than a change of name by a natural person has upon the identity of such
person. The corporation, upon such change in its name, is in no sense a new corporation, nor the
successor of the original one, but remains and continues to be the original corporation. It is the same
corporation with a different name, and its character is in no respect changed. ... (6 Fletcher,
Cyclopedia of the Law of Private Corporations, 224-225, citing cases.)

The change in the name of a corporation has no more effect upon its identity as a corporation than a
change of name of a natural person has upon his identity. It does not affect the rights of the
corporation, or lessen or add to its obligations.

England. — Doe v. Norton, 11 M. & W. 913, 7 Jur. 751, 12 L. J. Exch. 418.

United States. — Metropolitan Nat. Bank v. Claggett, 141 U.S. 520, 12 S. Ct. 60, 35 U.S. (L. ed.)
841.

Alabama. — Lomb v. Pioneer Sav., etc., Co., 106 Ala. 591, 17 So. 670; North Birmingham Lumber
Co. v. Sims, 157 Ala. 595, 48 So. 84.

Connecticut. — Trinity Church v. Hall, 22 Com. 125.

Illinois. — Mt. Palatine Academy v. Kleinschnitz 28 III, 133; St. Louis etc. R. Co. v. Miller, 43 Ill.
199; Reading v. Wedder, 66 III. 80.
 Indiana. — Rosenthal v. Madison etc., Plank Road Co., 10 Ind. 358.

Kentucky. — Cahill v. Bigger, 8 B. Mon. 211; Wilhite v. Convent of Good Shepherd, 177 Ky. 251, 78
S. W. 138.

Maryland. — Phinney v. Sheppard & Enoch Pratt Hospital, 88 Md. 633, 42 Atl. 58, writ of error
dismissed, 177 U.S. 170, 20 S. Ct. 573, 44 U.S. (L. ed.) 720.

Missouri. — Dean v. La Motte Lead Co., 59 Mo. 523.

Nebraska. — Carlon v. City Sav. Bank, 82 Neb. 582, 188 N. W. 334. New York First Soc of M.E.
Church v. Brownell, 5 Hun 464.

Pennsylvania. — Com. v. Pittsburgh, 41 Pa. St. 278.

South Carolina. — South Carolina Mut Ins. Co. v. Price 67 S.C. 207, 45 S.E. 173.

Virginia. — Wilson v. Chesapeake etc., R. Co., 21 Gratt 654; Wright-Caesar Tobacco Co. v.

Hoen, 105 Va. 327, 54 S.E. 309.

Washington. — King v. Ilwaco R. etc., Co., 1 Wash. 127. 23 Pac. 924.

Wisconsin. — Racine Country Bank v. Ayers, 12 Wis. 512.

The fact that the corporation by its old name makes a format transfer of its property to the
corporation by its new name does not of itself show that the change in name has affected a change
in the identity of the corporation. Palfrey v. Association for Relief, etc., 110 La. 452, 34 So. 600. The
fact that a corporation organized as a state bank afterwards becomes a national bank by complying
with the provisions of the National Banking Act, and changes its name accordingly, has no effect on
its right to sue upon obligations or liabilities incurred to it by its former name. Michigan Ins. Bank v.
Eldred 143 U.S. 293, 12 S. Ct. 450, 36 U.S. (L. ed.) 162.

A deed of land to a church by a particular name has been held not to be affected by the fact that the
church afterwards took a different name. Cahill v. Bigger, 8 B. Mon (ky) 211.

A change in the name of a corporation is not a divestiture of title or such a change as requires a
regular transfer of title to property, whether real or personal, from the corporation under one name to
the same corporation under another name. McCloskey v. Doherty, 97 Ky. 300, 30 S. W. 649. (19
American and English Annotated Cases 1242-1243.)

As was very aptly said in Pacific Bank v. De Ro 37 Cal. 538, "The changing of the name of a
corporation is no more the creation of a corporation than the changing of the name of a natural
person is the begetting of a natural person. The act, in both cases, would seem to be what the
language which we use to designate it imports — a change of name, and not a change of being.

Having arrived at the above conclusion, We have agree with appellant's pose that the lower court also erred in
holding that it is not the right party in interest to sue defendants-appellees.  As correctly pointed out by appellant, the
4

approval by the stockholders of the amendment of its articles of incorporation changing the name "The Yek Tong Lin
Fire & Marine Insurance Co., Ltd." to "Philippine First Insurance Co., Inc." on March 8, 1961, did not automatically
change the name of said corporation on that date. To be effective, Section 18 of the Corporation Law, earlier
quoted, requires that "a copy of the articles of incorporation as amended, duly certified to be correct by the president
and the secretary of the corporation and a majority of the board of directors or trustees, shall be filed with the
Securities & Exchange Commissioner", and it is only from the time of such filing, that "the corporation shall have the
same powers and it and the members and stockholders thereof shall thereafter be subject to the same liabilities as if
such amendment had been embraced in the original articles of incorporation." It goes without saying then that
appellant rightly acted in its old name when on May 15, 1961, it entered into the indemnity agreement, Annex A,
with the defendant-appellees; for only after the filing of the amended articles of incorporation with the Securities &
Exchange Commission on May 26, 1961, did appellant legally acquire its new name; and it was perfectly right for it
to file the present case In that new name on December 6, 1961. Such is, but the logical effect of the change of
name of the corporation upon its actions.

Actions brought by a corporation after it has changed its name should be brought under the new
name although for the enforcement of rights existing at the time the change was made. Lomb v.
Pioneer Sav., etc., Co., 106 Ala. 591, 17 So. 670: Newlan v. Lombard University, 62 III.
195; Thomas v. Visitor of Frederick County School, 7 Gill & J (Md.) 388; Delaware, etc., R. Co. v.
Trick, 23 N. J. L. 321; Northumberland Country Bank v. Eyer, 60 Pa. St. 436; Wilson v. Chesapeake
etc., R. Co., 21 Gratt (Va.) 654.

The change in the name of the corporation does not affect its right to bring an action on a note given
to the corporation under its former name. Cumberland College v. Ish, 22. Cal. 641; Northwestern
College v. Schwagler, 37 Ia. 577. (19 American and English Annotated Cases 1243.)

In consequence, We hold that the lower court erred in dismissing appellant's complaint. We take this opportunity,
however, to express the Court's feeling that it is apparent that appellee's position is more technical than otherwise.
Nowhere in the record is it seriously pretended that the indebtedness sued upon has already been paid. If appellees
entertained any fear that they might again be made liable to Yek Tong Lin Fire & Marine Insurance Co. Ltd., or to
someone else in its behalf, a cursory examination of the records of the Securities & Exchange Commission would
have sufficed to clear up the fact that Yek Tong Lin had just changed its name but it had not ceased to be their
creditor. Everyone should realize that when the time of the courts is utilized for cases which do not involve
substantial questions and the claim of one of the parties, therein is based on pure technicality that can at most delay
only the ultimate outcome necessarily adverse to such party because it has no real cause on the merits, grave
injustice is committed to numberless litigants whose meritorious cases cannot be given all the needed time by the
courts. We address this appeal once more to all members of the bar, in particular, since it is their bounden duty to
the profession and to our country and people at large to help ease as fast as possible the clogged dockets of the
courts. Let us not wait until the people resort to other means to secure speedy, just and inexpensive determination
of their cases.

WHEREFORE, judgment of the lower court is reversed, and this case is remanded to the trial court for further
proceedings consistent herewith With costs against appellees.
 8.) SECOND DIVISION

G.R. No. 224307, August 06, 2018

THE MISSIONARY SISTERS OF OUR LADY OF FATIMA (PEACH SISTERS OF LAGUNA),

REPRESENTED BY REV. MOTHER MA. CONCEPCION R. REALON, ET
AL., Petitioners, v. AMANDO V. ALZONA, ET AL., Respondents.

DECISION

REYES, JR., J.:

Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court seeking to
annul and set aside the Decision2 dated January 7, 2016 of the Court of Appeals (CA) in CA-G.R. CV
No. 101944, and its Resolution3 dated April 19, 2016, denying the motion for reconsideration thereof.
The assailed decision partly granted the respondents' appeal and set aside the Decision4 dated
August 14, 2013 of the Regional Trial Court (RTC) of Calamba City, Branch 92 in Civil Case No. 3250-
02-C.

The Antecedent Facts

The Missionary Sisters of Our Lady of Fatima (petitioner), otherwise known as the Peach Sisters of
Laguna, is a religious and charitable group established under the patronage of the Roman Catholic
Bishop of San Pablo on May 30, 1989. Its primary mission is to take care of the abandoned and
neglected elderly persons. The petitioner came into being as a corporation by virtue of a Certificate
issued by the Securities and Exchange Commission (SEC) on August 31, 2001.5 Mother Ma.
Concepcion R. Realon (Mother Concepcion) is the petitioner's Superior General.

The respondents, on the other hand, are the legal heirs of the late Purificacion Y. Alzona
(Purificacion).

The facts giving rise to the instant controversy follow:

Purificacion, a spinster, is the registered owner of parcels of land covered by Transfer Certificate of
Title (TCT) Nos. T-57820* and T-162375; and a co-owner of another property covered by TCT No. T-
162380, all of which are located in Calamba City, Laguna.6

In 1996, Purificacion, impelled by her unmaterialized desire to be nun, decided to devote the rest of
her life in helping others. In the same year, she then became a benefactor of the petitioner by giving
support to the community and its works.7

In 1997, during a doctor's appointment, Purificacion then accompanied by Mother Concepcion,

discovered that she has been suffering from lung cancer. Considering the restrictions in her
movement, Purificacion requested Mother Concepcion to take care of her in her house, to which the
latter agreed.8

In October 1999, Purificacion called Mother Concepcion and handed her a handwritten letter dated
October 1999. Therein, Purificacion stated that she is donating her house and lot at F. Mercado
Street and Riceland at Banlic, both at Calamba, Laguna, to the petitioner through Mother Concepcion.
On the same occasion, Purificacion introduced Mother Concepcion to her nephew, Francisco Del
Mundo (Francisco), and niece, Ma. Lourdes Alzona Aguto-Africa (Lourdes). Purificacion, instructed
Francisco to give a share of the harvest to Mother Concepcion, and informed Lourdes that she had
given her house to Mother Concepcion.9
Sometime in August 2001, at the request of Purificacion, Mother Concepcion went to see Atty.
Nonato Arcillas (Atty. Arcillas) in Los Baños, Laguna. During their meeting, Atty. Arcillas asked
Mother Concepcion whether their group is registered with the SEC, to which the latter replied in the
negative. Acting on the advice given by Atty. Arcillas, Mother Concepcion went to SEC and filed the
corresponding registration application on August 28, 2001.10

On August 29, 2001, Purificacion executed a Deed of Donation Inter Vivos (Deed) in favor of the
petitioner, conveying her properties covered by TCT Nos. T-67820 and T-162375, and her undivided
share in the property covered by TCT No. T-162380. The Deed was notarized by Atty. Arcillas and
witnessed by Purificacion's nephews Francisco and Diosdado Alzona, and grandnephew, Atty.
Fernando M. Alonzo. The donation was accepted on even date by Mother Concepcion for and in behalf
of the petitioner.11

Thereafter, Mother Concepcion filed an application before the Bureau of Internal Revenue (BIR) that
the petitioner be exempted from donor's tax as a religious organization. The application was granted
by the BIR through a letter dated January 14, 2002 of Acting Assistant Commissioner, Legal Service,
Milagros Regalado.12

Subsequently, the Deed, together with the owner's duplicate copies of TCT Nos. T-57820, T-162375,
and T-162380, and the exemption letter from the BIR was presented for registration. The Register of
Deeds, however, denied the registration on account of the Affidavit of Adverse Claim dated
September 26, 2001 filed by the brother of Purificacion, respondent Amando Y. Alzona (Amando).13

On October 30, 2001, Purificacion died without any issue, and survived only by her brother of full
blood, Amando, who nonetheless died during the pendency of this case and is now represented and
substituted by his legal heirs, joined as herein respondents.14

On April 9, 2002, Amando filed a Complaint before the RTC, seeking to annul the Deed executed
between Purificacion and the petitioner, on the ground that at the time the donation was made, the
latter was not registered with the SEC and therefore has no juridical personality and cannot legally
accept the donation.15

After trial, on August 14, 2013, the RTC rendered its Decision16 finding no merit in the complaint,
thus ruling:

WHEREFORE, the instant case is hereby DISMISSED with costs against the [respondents]. The
Compulsory counterclaim of the [petitioner] is likewise dismissed for lack of evidence.

SO ORDERED.17

In its decision, the RTC held that all the essential elements of a donation are present. The RTC set
aside the allegation by the respondents relating to the incapacity of the parties to enter into a
donation.18

In the case of Purificacion, the RTC held that apart from the self-serving allegations by the
respondents, the records are bereft of evidence to prove that she did not possess the proper mental
faculty in making the donation; as such the presumption that every person is of sound mind stands.19

On the capacity of the donee, the RTC held that at the time of the execution of the Deed, the
petitioner was a de facto  corporation and as such has the personality to be a beneficiary and has the
power to acquire and possess property. Further then, the petitioner's incapacity cannot be questioned
or assailed in the instant case as it constitutes a collateral attack which is prohibited by the
Corporation Code of the Philippines.20 In this regard, the RTC found that the recognition by the
petitioner of Mother Concepcion's authority is sufficient to vest the latter of the capacity to accept the
donation.21

Acting on the appeal filed by the respondents, the CA rendered the herein assailed Decision22 on
January 7, 2016, the dispositive portion of which reads:

WHEREFORE, the appeal is PARTLY GRANTED. The assailed August 14, 2013 Decision of the RTC,
Branch 92, Calamba City in Civil Case No. 3250-02 is SET ASIDE by declaring as VOID the deed of
Donation dated August 14, 2013. [The respondents'] prayer for the award of moral and exemplary
damages as well as attorney's fees is nevertheless DENIED.

SO ORDERED.23

In so ruling, the CA, citing the case of Seventh Day Adventist Conference Church of Southern Phils.,
Inc. v. Northeastern Mindanao Mission of Seventh Day Adventist, Inc., 24 held that the petitioner
cannot be considered as a de facto  corporation considering that at the time of the donation, there
was no bona fide attempt on its part to incorporate.25 As an unregistered corporation, the CA
concluded that the petitioner cannot exercise the powers, rights, and privileges expressly granted by
the Corporation Code. Ultimately, bereft of juridical personality, the CA ruled that the petitioner
cannot enter into a contract of Donation with Purificacion.26

Finally, the CA denied the respondents' claim for actual damages and attorney's fees for failure to
substantiate the same.27

The petitioner sought a reconsideration of the Decision dated January 7, 2016, but the CA denied it in
its Resolution28 dated April 19, 2016.

In the instant petition, the petitioner submits the following arguments in support of its position:

a. The Donation Inter Vivos  is valid and binding against the parties therein [Purificacion] and the
[petitioner] and their respective successors in interest:

1.) The [petitioner] has the requisite legal personality to accept donations as a religious institution under
the Roman Catholic Bishop of San Pablo authorized to receive donations;
2.) The [petitioner] has the requisite legal capacity to accept the donation as it may be considered a de
facto  corporation.
3.) Regardless of the absence of the Certificate of Registration of [petitioner] at the time of the execution
of the Deed of Donation, the same is still valid and binding having been accepted by a representative of
the [petitioner] while the latter was still waiting for the issuance of the Certificate of Registration and
which acceptance of the donation was duly ratified by the corporation.
4.) The intestate estate of Purificacion is estopped from questioning the legal personality of [the petitioner].

b.
c. The Respondents lack the requisite legal capacity to question the legality of the deed of
donation.29

In sum, the issue to be resolved by this Court in the instant case is whether or not the Deed
executed by Purificacion in favor of the petitioner is valid and binding. In relation to this, the Court is
called upon to determine the legal capacity of the petitioner, as donee, to accept the donation, and
the authority Mother Concepcion to act on behalf of the petitioner in accepting the donation.
 Ruling of the Court

The petition is meritorious.

The petitioner argues that it has the requisite legal personality to accept the donation as a religious
institution organized under the Roman Catholic Bishop of San Pablo, a corporation sole.30

Regardless, the petitioner contends that it is a de facto corporation and therefore possessed of the
requisite personality to enter into a contract of donation.

Assuming further that it cannot be considered as a de facto corporation, the petitioner submits that
the acceptance by Mother Concepcion while the religious organization is still in the process of
incorporation is valid as it then takes the form of a pre-incorporation contract governed by the rules
on agency. The petitioner argues that their subsequent incorporation and acceptance perfected the
subject contract of donation.31

Ultimately, the petitioner argues that the intestate estate of Purificacion is estopped from questioning
its legal personality considering the record is replete of evidence to prove that Purificacion at the time
of the donation is fully aware of its status and yet was still resolved into giving her property.32

In response, the respondents submit that juridical personality to enter into a contract of donation is
vested only upon the issuance of a Certificate of Incorporation from SEC.33 Further, the respondents
posit that the petitioner cannot even be considered as a de facto corporation considering that for
more than 20 years, there was never any attempt on its part to incorporate, which decision came
only after Atty. Arcillas, suggestion.34

In order that a donation of an immovable property be valid, the following elements must be present:
(a) the essential reduction of the patrimony of the donor; (b) the increase in the patrimony of the
donee; (c) the intent to do an act of liberality or animus donandi; (d) the donation must be contained
in a public document; and e) that the acceptance thereof be made in the same deed or in a separate
public instrument; if acceptance is made in a separate instrument, the donor must be notified thereof
in an authentic form, to be noted in both instruments.35

There is no question that the true intent of Purificacion, the donor and the owner of the properties in
question, was to give, out of liberality the subject house and lot, which she owned, to the petitioner.
This act, was then contained in a public document, the deed having been acknowledged before Atty.
Arcillas, a Notary Public.36 The acceptance of the donation is made on the same date that the
donation was made and contained in the same instrument as manifested by Mother Concepcion's
signature.37 In fine, the remaining issue to be resolved is the capacity of the petitioner as donee to
accept the donation, and the authority of Mother Concepcion to act on its behalf for this purpose.

Under Article 737 of the Civil Code, "[t]he donor's capacity shall be determined as of the time of the
making of the donation." By analogy, the legal capacity or the personality of the donee, or the
authority of the latter's representative, in certain cases, is determined at the time of acceptance of
the donation.

Article 738, in relation to Article 745, of the Civil Code provides that all those who are not specifically
disqualified by law may accept donations either personally or through an authorized representative
with a special power of attorney for the purpose or with a general and sufficient power.

The Court finds that for the purpose of accepting the donation, the petitioner is deemed vested with
personality to accept, and Mother Concepcion is clothed with authority to act on the latter's behalf.

At the outset, it must be stated that as correctly pointed out by the CA, the RTC erred in holding that
the petitioner is a de facto corporation.
Jurisprudence settled that "[t]he filing of articles of incorporation and the issuance of the certificate
of incorporation are essential for the existence of a de facto corporation."38 In fine, it is the act of
registration with SEC through the issuance of a certificate of incorporation that marks the beginning
of an entity's corporate existence.39

Petitioner filed its Articles of Incorporation and by-laws on August 28, 2001. However, the SEC issued
the corresponding Certificate of Incorporation only on August 31, 2001, two (2) days after
Purificacion executed a Deed of Donation on August 29, 2001. Clearly, at the time the donation was
made, the Petitioner cannot be considered a corporation de facto.  40

Rather, a review of the attendant circumstances reveals that it calls for the application of the doctrine
of corporation by estoppel as provided for under Section 21 of the Corporation Code, viz.:

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

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

performance thereof on the ground that there was in fact no corporation. (Emphasis Ours)

The doctrine of corporation by estoppel is founded on principles of equity and is designed to prevent
injustice and unfairness. It applies when a non-existent corporation enters into contracts or dealings
with third persons.41 In which case, the person who has contracted or otherwise dealt with the non-
existent corporation is estopped to deny the latter's legal existence in any action leading out of or
involving such contract or dealing. While the doctrine is generally applied to protect the sanctity of
dealings with the public,42 nothing prevents its application in the reverse, in fact the very wording of
the law which sets forth the doctrine of corporation by estoppel permits such interpretation. Such
that a person who has assumed an obligation in favor of a non-existent corporation, having
transacted with the latter as if it was duly incorporated, is prevented from denying the existence of
the latter to avoid the enforcement of the contract.

Jurisprudence dictates that the doctrine of corporation by estoppel applies for as long as there is no
fraud and when the existence of the association is attacked for causes attendant at the time the
contract or dealing sought to be enforced was entered into, and not thereafter.43

In this controversy, Purificacion dealt with the petitioner as if it were a corporation. This is evident
from the fact that Purificacion executed two (2) documents conveying her properties in favor of the
petitioner – first, on October 11, 1999 via handwritten letter, and second, on August 29, 2001
through a Deed; the latter having been executed the day after the petitioner filed its application for
registration with the SEC.44

The doctrine of corporation by estoppel rests on the idea that if the Court were to disregard the
existence of an entity which entered into a transaction with a third party, unjust enrichment would
result as some form of benefit have already accrued on the part of one of the parties. Thus, in that
instance, the Court affords upon the unorganized entity corporate fiction and juridical personality for
the sole purpose of upholding the contract or transaction.

In this case, while the underlying contract which is sought to be enforced is that of a donation, and
thus rooted on liberality, it cannot be said that Purificacion, as the donor failed to acquire any benefit
therefrom so as to prevent the application of the doctrine of corporation by estoppel.45 To recall, the
subject properties were given by Purificacion, as a token of appreciation for the services rendered to
her during her illness.46 In fine, the subject deed partakes of the nature of a remuneratory or
compensatory donation, having been made "for the purpose of rewarding the donee for past
services, which services do not amount to a demandable debt."47

As elucidated by the Court in Pirovano, et al. v. De La Rama Steamship Co.:48

In donations made to a person for services rendered to the donor, the donor's will is moved by acts
which directly benefit him. The motivating cause is gratitude, acknowledgment of a favor, a desire to
compensate. A donation made to one who saved the donor's life, or a lawyer who renounced his fees
for services rendered to the donor, would fall under this class of donations.49

Therefore, under the premises, past services constitutes consideration, which in tum can be regarded
as "benefit" on the part of the donor, consequently, there exists no obstacle to the application of the
doctrine of corporation by estoppel; although strictly speaking, the petitioner did not perform these
services on the expectation of something in return.

Precisely, the existence of the petitioner as a corporate entity is upheld in this case for the purpose of
validating the Deed to ensure that the primary objective for which the donation was intended is
achieved, that is, to convey the property for the purpose of aiding the petitioner in the pursuit of its
charitable objectives.

Further, apart from the foregoing, the subsequent act by Purificacion of re-conveying the property in
favor of the petitioner is a ratification by conduct of the otherwise defective donation.50

Express or implied ratification is recognized by law as a means to validate a defective

contract.51 Ratification cleanses or purges the contract from its defects from constitution or
establishment, retroactive to the day of its creation. By ratification, the infirmity of the act is
obliterated thereby making it perfectly valid and enforceable.52

The principle and essence of implied ratification require that the principal has full knowledge at the
time of ratification of all the material facts and circumstances relating to the act sought to be ratified
or validated.53 Also, it is important that the act constituting the ratification is unequivocal in that it is
performed without the slightest hint of objection or protest from the donor or the donee, thus
producing the inevitable conclusion that the donation and its acceptance were in fact confirmed and
ratified by the donor and the donee.54

In this controversy, while the initial conveyance is defective, the genuine intent of Purificacion to
donate the subject properties in favor of the petitioner is indubitable. Also, while the petitioner is yet
to be incorporated, it cannot be said that the initial conveyance was tainted with fraud or
misrepresentation. Contrarily, Purificacion acted with full knowledge of circumstances of the
Petitioner. This is evident from Purificacion's act of referring Mother Concepcion to Atty. Arcillas, who,
in turn, advised the petitioner to apply for registration. Further, with the execution of two (2)
documents of conveyance in favor of the petitioner, it is clear that what Purificacion intended was for
the sisters comprising the petitioner to have ownership of her properties to aid them in the pursuit of
their charitable activities, as a token of appreciation for the services they rendered to her during her
illness.55 To put it differently, the reference to the petitioner was merely a descriptive term used to
refer to the sisters comprising the congregation collectively. Accordingly, the acceptance of Mother
Concepcion for the sisters comprising the congregation is sufficient to perfect the donation and
transfer title to the property to the petitioner. Ultimately, the subsequent incorporation of the
petitioner and its affirmation of Mother Concepcion's authority to accept on its behalf cured whatever
defect that may have attended the acceptance of the donation.

The Deed sought to be enforced having been validly entered into by Purificacion, the respondents'
predecessor-in-interest, binds the respondents who succeed the latter as heirs.56 Simply, as they
claim interest in their capacity as Purificacion's heirs, the respondents are considered as "privies" to
the subject Deed; or are "those between whom an action is binding although they are not literally
parties to the said action."57 As discussed in Constantino, et al. v. Heirs of Pedro Constantino, Jr.:58

[p]rivity in estate denotes the privity between assignor and assignee, donor and donee, grantor and
grantee, joint tenant for life and remainderman or reversioner and their respective assignees, vendor
by deed of warranty and a remote vendee or assignee. A privy in estate is one, it has been said, who
derives his title to the property in question by purchase; one who takes by conveyance. In fine,
respondents, as successors-in-interest, derive their right from and are in the same position as their
predecessor in whose shoes they now stand.59 (Citation omitted)

Anent the authority of Mother Concepcion to act as representative for and in behalf of the petitioner,
the Court similarly upholds the same. Foremost, the authority of Mother Concepcion was never
questioned by the petitioner. In fact, the latter affirms and supports the authority of Mother
Concepcion to accept the donation on their behalf; as she is, after all the congregation's Superior
General.60 Furthermore, the petitioner's avowal of Mother Concepcion's authority after their SEC
registration is a ratification of the latter's authority to accept the subject donation as the petitioner's
representative.61

In closing, it must be emphasized that the Court is both of law and of justice. Thus, the Court's
mission and purpose is to apply the law with  justice.62

Donation is an expression of our social conscience, an act rooted purely on the goodness of one's
heart and intent to contribute.

Purificacion, the donor is worthy of praise for her works of charity. Likewise, the petitioner is worthy
of admiration for with or without the promise of reward or consideration, the Court is certain that it is
impelled by sincere desire to help the petitioner in overcoming her illness.

It is unfortunate that the will of a person moved by the desire to reciprocate the goodness shown to
her during the lowest and culminating points of her life is questioned and herein sought to be nullified
on strict legality, when the intent of the donor to give is beyond question.

The promotion of charitable works is a laudable objective. While not mentioned in the Constitution,
the Court recognizes benevolent giving as an important social fabric that eliminates inequality. As
such, charitable giving must be encouraged through support from society and the Court.

WHEREFORE, in consideration of the foregoing disquisitions, the instant petition for review
on certiorari is GRANTED. Accordingly, the Decision dated January 7, 2016 and Resolution dated
April 19, 2016 of the Court of Appeals in CA-G.R. CV No. 101944, are hereby REVERSED and SET
ASIDE.
9.) G.R. No. 151969               September 4, 2009

VALLE VERDE COUNTRY CLUB, INC., ERNESTO VILLALUNA, RAY GAMBOA, AMADO M. SANTIAGO, JR.,
FORTUNATO DEE, AUGUSTO SUNICO, VICTOR SALTA, FRANCISCO ORTIGAS III, ERIC ROXAS, in their
capacities as members of the Board of Directors of Valle Verde Country Club, Inc., and JOSE
RAMIREZ, Petitioners,
vs.
VICTOR AFRICA, Respondent.

DECISION

BRION, J.:

In this petition for review on certiorari, 1 the parties raise a legal question on corporate governance: Can the
members of a corporation’s board of directors elect another director to fill in a vacancy caused by the resignation of
a hold-over director?

THE FACTUAL ANTECEDENTS

On February 27, 1996, during the Annual Stockholders’ Meeting of petitioner Valle Verde Country Club, Inc.
(VVCC), the following were elected as members of the VVCC Board of Directors: Ernesto Villaluna, Jaime C.
Dinglasan (Dinglasan), Eduardo Makalintal (Makalintal), Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr.,
Fortunato Dee, Augusto Sunico, and Ray Gamboa.2 In the years 1997, 1998, 1999, 2000, and 2001, however, the
requisite quorum for the holding of the stockholders’ meeting could not be obtained. Consequently, the above-
named directors continued to serve in the VVCC Board in a hold-over capacity.

On September 1, 1998, Dinglasan resigned from his position as member of the VVCC Board. In a meeting held on
October 6, 1998, the remaining directors, still constituting a quorum of VVCC’s nine-member board, elected Eric
Roxas (Roxas) to fill in the vacancy created by the resignation of Dinglasan.

A year later, or on November 10, 1998, Makalintal also resigned as member of the VVCC Board. He was replaced
by Jose Ramirez (Ramirez), who was elected by the remaining members of the VVCC Board on March 6, 2001.

Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and Ramirez as members
of the VVCC Board with the Securities and Exchange Commission (SEC) and the Regional Trial Court (RTC),
respectively. The SEC case questioning the validity of Roxas’ appointment was docketed as SEC Case No. 01-99-
6177. The RTC case questioning the validity of Ramirez’ appointment was docketed as Civil Case No. 68726.

In his nullification complaint3 before the RTC, Africa alleged that the election of Roxas was contrary to Section 29, in
relation to Section 23, of the Corporation Code of the Philippines (Corporation Code). These provisions read:

Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or trustees to be elected from among the holders of
stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1)
year until their successors are elected and qualified.

xxxx

Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the board of directors or
trustees other than by removal by the stockholders or members or by expiration of term, may be filled by
the vote of at least a majority of the remaining directors or trustees, if still constituting a quorum; otherwise,
said vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. A
director or trustee so elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in
office. xxx. [Emphasis supplied.]
Africa claimed that a year after Makalintal’s election as member of the VVCC Board in 1996, his
[Makalintal’s] term – as well as those of the other members of the VVCC Board – should be considered to
have already expired. Thus, according to Africa, the resulting vacancy should have been filled by the
stockholders in a regular or special meeting called for that purpose, and not by the remaining members of
the VVCC Board, as was done in this case.

Africa additionally contends that for the members to exercise the authority to fill in vacancies in the board of
directors, Section 29 requires, among others, that there should be an unexpired term during which the successor-
member shall serve. Since Makalintal’s term had already expired with the lapse of the one-year term provided in
Section 23, there is no more "unexpired term" during which Ramirez could serve.

Through a partial decision4 promulgated on January 23, 2002, the RTC ruled in favor of Africa and declared the
election of Ramirez, as Makalintal’s replacement, to the VVCC Board as null and void.

Incidentally, the SEC issued a similar ruling on June 3, 2003, nullifying the election of Roxas as member of the
VVCC Board, vice hold-over director Dinglasan. While VVCC manifested its intent to appeal from the SEC’s ruling,
no petition was actually filed with the Court of Appeals; thus, the appellate court considered the case closed and
terminated and the SEC’s ruling final and executory. 5

THE PETITION

VVCC now appeals to the Court to assail the RTC’s January 23, 2002 partial decision for being contrary to law and
jurisprudence. VVCC made a direct resort to the Court via a petition for review on certiorari, claiming that the sole
issue in the present case involves a purely legal question.

As framed by VVCC, the issue for resolution is whether the remaining directors of the corporation’s Board, still
constituting a quorum, can elect another director to fill in a vacancy caused by the resignation of a hold-
over director.

Citing law and jurisprudence, VVCC posits that the power to fill in a vacancy created by the resignation of a hold-
over director is expressly granted to the remaining members of the corporation’s board of directors.

Under the above-quoted Section 29 of the Corporation Code, a vacancy occurring in the board of directors caused
by the expiration of a member’s term shall be filled by the corporation’s stockholders. Correlating Section 29 with
Section 23 of the same law, VVCC alleges that a member’s term shall be for one year and until his successor
is elected and qualified; otherwise stated, a member’s term expires only when his successor to the Board is
elected and qualified. Thus, "until such time as [a successor is] elected or qualified in an annual election where a
quorum is present," VVCC contends that "the term of [a member] of the board of directors has yet not expired."

As the vacancy in this case was caused by Makalintal’s resignation, not by the expiration of his term, VVCC insists
that the board rightfully appointed Ramirez to fill in the vacancy.

In support of its arguments, VVCC cites the Court’s ruling in the 1927 El Hogar6 case which states:

Owing to the failure of a quorum at most of the general meetings since the respondent has been in existence, it has
been the practice of the directors to fill in vacancies in the directorate by choosing suitable persons from among the
stockholders. This custom finds its sanction in Article 71 of the By-Laws, which reads as follows:

Art. 71. The directors shall elect from among the shareholders members to fill the vacancies that may occur in the
board of directors until the election at the general meeting.

xxxx

Upon failure of a quorum at any annual meeting the directorate naturally holds over and continues to function until
another directorate is chosen and qualified. Unless the law or the charter of a corporation expressly provides that an
office shall become vacant at the expiration of the term of office for which the officer was elected, the general rule is
to allow the officer to hold over until his successor is duly qualified. Mere failure of a corporation to elect officers
does not terminate the terms of existing officers nor dissolve the corporation. The doctrine above stated finds
expression in article 66 of the by-laws of the respondent which declares in so many words that directors shall hold
office "for the term of one year or until their successors shall have been elected and taken possession of their
offices." xxx.

It results that the practice of the directorate of filling vacancies by the action of the directors themselves is
valid. Nor can any exception be taken to the personality of the individuals chosen by the directors to fill vacancies in
the body. [Emphasis supplied.]

Africa, in opposing VVCC’s contentions, raises the same arguments that he did before the trial court.

THE COURT’S RULING

We are not persuaded by VVCC’s arguments and, thus, find its petition unmeritorious.

To repeat, the issue for the Court to resolve is whether the remaining directors of a corporation’s Board, still
constituting a quorum, can elect another director to fill in a vacancy caused by the resignation of a hold-over
director. The resolution of this legal issue is significantly hinged on the determination of what constitutes a director’s
term of office.

The holdover period is not part of the term of office of a member of the board of directors

The word "term" has acquired a definite meaning in jurisprudence. In several cases, we have defined "term" as the
time during which the officer may claim to hold the office as of right, and fixes the interval after which the several
incumbents shall succeed one another. 7 The term of office is not affected by the holdover.8 The term is fixed by
statute and it does not change simply because the office may have become vacant, nor because the incumbent
holds over in office beyond the end of the term due to the fact that a successor has not been elected and has failed
to qualify.

Term is distinguished from tenure in that an officer’s "tenure" represents the term during which the incumbent
actually holds office. The tenure may be shorter (or, in case of holdover, longer) than the term for reasons within or
beyond the power of the incumbent.

Based on the above discussion, when Section 239 of the Corporation Code declares that "the board of directors…
shall hold office for one (1) year until their successors are elected and qualified," we construe the provision to
mean that the term of the members of the board of directors shall be only for one year; their term expires
one year after election to the office. The holdover period – that time from the lapse of one year from a
member’s election to the Board and until his successor’s election and qualification – is not part of the
director’s original term of office, nor is it a new term; the holdover period, however, constitutes part of his
tenure. Corollary, when an incumbent member of the board of directors continues to serve in a holdover
capacity, it implies that the office has a fixed term, which has expired, and the incumbent is holding the
succeeding term.10

After the lapse of one year from his election as member of the VVCC Board in 1996, Makalintal’s term of office is
deemed to have already expired. That he continued to serve in the VVCC Board in a holdover capacity cannot be
considered as extending his term. To be precise, Makalintal’s term of office began in 1996 and expired in 1997, but,
by virtue of the holdover doctrine in Section 23 of the Corporation Code, he continued to hold office until his
resignation on November 10, 1998. This holdover period, however, is not to be considered as part of his term,
which, as declared, had already expired.

With the expiration of Makalintal’s term of office, a vacancy resulted which, by the terms of Section 29 11 of the
Corporation Code, must be filled by the stockholders of VVCC in a regular or special meeting called for the purpose.
To assume – as VVCC does – that the vacancy is caused by Makalintal’s resignation in 1998, not by the expiration
of his term in 1997, is both illogical and unreasonable. His resignation as a holdover director did not change the
nature of the vacancy; the vacancy due to the expiration of Makalintal’s term had been created long before his
resignation.
The powers of the corporation’s board of directors emanate from its stockholders

VVCC’s construction of Section 29 of the Corporation Code on the authority to fill up vacancies in the board of
directors, in relation to Section 23 thereof, effectively weakens the stockholders’ power to participate in the
corporate governance by electing their representatives to the board of directors. The board of directors is the
directing and controlling body of the corporation. It is a creation of the stockholders and derives its power to control
and direct the affairs of the corporation from them. The board of directors, in drawing to themselves the powers of
the corporation, occupies a position of trusteeship in relation to the stockholders, in the sense that the board should
exercise not only care and diligence, but utmost good faith in the management of corporate affairs.12

The underlying policy of the Corporation Code is that the business and affairs of a corporation must be governed by
a board of directors whose members have stood for election, and who have actually been elected by the
stockholders, on an annual basis. Only in that way can the directors' continued accountability to shareholders, and
the legitimacy of their decisions that bind the corporation's stockholders, be assured. The shareholder vote is critical
to the theory that legitimizes the exercise of power by the directors or officers over properties that they do not own.13

This theory of delegated power of the board of directors similarly explains why, under Section 29 of the Corporation
Code, in cases where the vacancy in the corporation’s board of directors is caused not by the expiration of a
member’s term, the successor "so elected to fill in a vacancy shall be elected only for the unexpired term of the his
predecessor in office." The law has authorized the remaining members of the board to fill in a vacancy only in
specified instances, so as not to retard or impair the corporation’s operations; yet, in recognition of the stockholders’
right to elect the members of the board, it limited the period during which the successor shall serve only to the
"unexpired term of his predecessor in office."

While the Court in El Hogar approved of the practice of the directors to fill vacancies in the directorate, we point out
that this ruling was made before the present Corporation Code was enacted 14 and before its Section 29 limited the
instances when the remaining directors can fill in vacancies in the board, i.e., when the remaining directors still
constitute a quorum and when the vacancy is caused for reasons other than by removal by the stockholders or by
expiration of the term.
1avvphi1

It also bears noting that the vacancy referred to in Section 29 contemplates a vacancy occurring within the director’s
term of office. When a vacancy is created by the expiration of a term, logically, there is no more unexpired term to
speak of. Hence, Section 29 declares that it shall be the corporation’s stockholders who shall possess the authority
to fill in a vacancy caused by the expiration of a member’s term.

As correctly pointed out by the RTC, when remaining members of the VVCC Board elected Ramirez to replace
Makalintal, there was no more unexpired term to speak of, as Makalintal’s one-year term had already expired.
Pursuant to law, the authority to fill in the vacancy caused by Makalintal’s leaving lies with the VVCC’s stockholders,
not the remaining members of its board of directors.

WHEREFORE, we DENY the petitioners’ petition for review on certiorari, and AFFIRM the partial decision of the
Regional Trial Court, Branch 152, Manila, promulgated on January 23, 2002, in Civil Case No. 68726. Costs against
the petitioners.
10.) G.R. No. 123650               March 23, 2009

WESTMONT BANK (formerly ASSOCIATED CITIZENS BANK and now UNITED OVERSEAS BANK, PHILS.)
AND THE PROVINCIAL SHERIFF OF RIZAL, Petitioners,
vs.
INLAND CONSTRUCTION AND DEVELOPMENT CORP., Respondent.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 123822               March 23, 2009

WESTMONT BANK (formerly ASSOCIATED CITIZENS BANK and now UNITED OVERSEAS BANK,
PHILS.), Petitioner,
vs.
COURT OF APPEALS and INLAND CONSTRUCTION AND DEVELOPMENT CORP., Respondents.

DECISION

CARPIO MORALES, J.:

Inland Construction and Development Corp. (Inland) obtained various loans and other credit accommodations from
petitioner, then known as Associated Citizens Bank ([the bank] which later became United Overseas Bank, Phils.,
and still later Westmost Bank) in 1977.

To secure the payment of its obligations, Inland executed real estate mortgages over three real properties in Pasig
City covered by Transfer Certificates of Title Nos. 4820, 4821 and 4822. 1

Inland likewise issued promissory notes in favor of the bank, viz:

Promissory Note No. BD-2739-77

Amount: P155,000.00

Due Date: January 2, 19782

Promissory Note No. BD-2884-77

Amount: P880,000.00

Due Date: February 23, 19783

Promissory Note No. BD-2997

Amount: P60,000.00

Due Date: March 22, 19784 (Emphasis supplied)

When the first and second promissory notes fell due, Inland defaulted in its payments. It, however, authorized the
bank to debit ₱350,000 from its savings account to partially satisfy its obligations. 5

It appears that by a Deed of Assignment, Conveyance and Release dated May 2, 1978, Felix Aranda, President of
Inland, assigned and conveyed all his rights and interests at Hanil-Gonzales Construction & Development (Phils.)
Corporation (Hanil-Gonzales Corporation) in favor of Horacio Abrantes (Abrantes), Executive Vice-President and
General Manager of Hanil-Gonzales Corporation. Under the same Deed of Assignment, it appears that Abrantes
assumed, among other obligations of Inland and Aranda, Promissory Note No. BD-2884-77 in the amount of
₱800,000 as shown in the May 26, 1978 Deed of Assignment of Obligation in which Aranda and Inland, on one
hand, and Abrantes and Hanil-Gonzales Corporation, on the other, forged as follows:
x x x x.

WHEREAS, among the obligations assumed by Mr. HORACIO C. ABRANTES [in the May 2, 1978 Deed]  is the
account of the FIRST PARTY (Aranda and Inland) in favor of the ASSOCIATED CITIZENS BANK as evidenced by
Promissory Note No. BD-2884-77 in the amount of EIGHT HUNDRED EIGHTY THOUSAND (₱880,000.00)
PESOS, x x x x;

WHEREAS, the parties herein have agreed to obtain the conformity of the ASSOCIATED CITIZENS BANK to the
foregoing arrangement x x x x;

NOW, THEREFORE, the herein parties have mutually agreed that the SECOND PARTY (Abrantes and Hanil-
Gonzalez) shall assume full and complete liability and responsibility for the payment to ASSOCIATED CITIZENS
BANK Promissory Note No. BD-2884-77 x x x x.

THE SECOND PARTY shall make such necessary arrangements with the ASSOCIATED CITIZENS BANK for the
full liquidation of said account, x x x x.

x x x x. (Emphasis and underscoring supplied)

The bank’s Account Officer, Lionel Calo Jr. (Calo), signed for its conformity to the deed.6

On December 14, 1979, Inland was served a Notice of Sheriff’s Sale foreclosing the real estate mortgages over its
real properties, prompting it to file a complaint for injunction against the bank and the Provincial Sheriff of Rizal at
the Regional Trial Court (RTC) of Pasig City.7 This complaint was later amended.8

Answering the amended complaint, the bank underscored that it "had no knowledge, much less did it give its
conformity to the alleged assignment of the obligation covered by PN# BD-2884 [-77]."9

The trial court found that the bank ratified the act of its account officer Calo, thus:

x x x x. Culled from the evidence on record, the Court finds that the defendant Bank ratified the act of Calo when its
Executive Committee failed to repudiate the assignment within a reasonable time and even approved the request for
a restructuring of Liberty Const. & Dev. Corp./Hanil-Gonzales Construction & Development Corp.’s obligations,
which included the ₱880,000.00 loan (Exhibit "U" to "X", and its submarkings). Clearly, the assumption of the loan
was very well known to the defendant Bank and the latter posed no objection to it. In fact, the positive act on the
part of the defendant in restructuring the loan of the assignee attest to its consent in the said transaction. The
evidence on record conveys the fact that the Hanil-Gonzales Const. and Development Corp. assumed the obligation
of the plaintiff on the SECOND NOTE. Later, it asked the defendant for a restructuring of its loan, including the
₱880,000.00 loan. Thereafter, payments were made by the assignee to the defendant Bank. The preponderance of
evidence tilts heavily in favor of the plaintiff claiming that a case of delegacion occurs.10 (Emphasis and italics
supplied; Underscoring in the original)

It accordingly rendered judgment in favor of Inland by Decision 11 of March 31, 1992, the dispositive portion of which
reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, permanently,
perpetually and forever restraining and enjoining the defendants Associated Citizens Bank and the Sheriff of this
Court from proceeding with the foreclosure of and conducting an auction sale  on the real estate covered by and
embraced in Transfer Certificates of Title Nos. 4820, 4821 and 4822 of the Register of Deeds of Rizal (now Pasig,
Metro Manila) and to refund to plaintiff the amount of ₱8,866.89, with legal interest thereon from the filing of the
complaint until full payment, with costs.

SO ORDERED. (Emphasis and underscoring supplied)

The bank appealed the trial court’s decision to the Court of Appeals which, by Decision12 of May 31, 1995, modified
the same, disposing as follows:13
WHEREFORE, the decision appealed from is hereby AFFIRMED only insofar as it finds appellant Associated Bank
to have ratified the Deed of Assignment (Exhibit "O"), but REVERSED in all other respects, and judgment is
accordingly rendered ordering the plaintiff-appellee Inland Construction and Development Corporation to
pay defendant-appellant Associated Bank the sum of One Hundred Eighty Six Thousand Two Hundred Forty One
Pesos and Eighty Six Centavos (₱186,241.86) with legal interest thereon computed from December 21, 1979 until
the same is fully paid.

No pronouncement as to costs.

SO ORDERED. (Underscoring supplied)

In affirming the observation of the trial court that the bank ratified the assignment of Inland’s Promissory Note No.
BD-2884-77, the appellate court discoursed as follows:

In the instant case, both the assignors (Aranda and Inland) and assignees (Abrantes and Hanil-Gonzales) in the
subject deed of assignment have been major clients of Associated Bank for several years with accounts amounting
to millions of pesos. For several years, Associated Bank had, either intentionally or negligently, been habitually
clothing Calo with the apparent powers to perform acts in behalf of the bank.  x x x x.

x x x x.

Calo signed the subject deed of assignment on or about May 26, 1978. The principal obligation covered by the deed
involved a hefty sum of eight hundred eighty thousand pesos (P880,000.00). Despite the enormity of the amount
involved, Associated Bank never made any attempt to repudiate the act of Calo until almost seven (7) years later,
when Mitos C. Olivares, Manager of the Cash Department of Associated Bank, issued an INTER-OFFICE
MEMORANDUM dated May 20, 1985 which pertinently reads:

"2) Conforme of Associated Bank signed by Lionel Calo Jr. has no bearing since he has no authority to sign for the
bank as he was only an account officer with no signing authority;

x x x x.

5) I suggest, Mr. Calo be asked to be present at court hearings to explain why he signed for the bank, knowing his
limitations"

The abovequoted inter-office memorandum is addressed internally to the other offices within Associated Bank. It is
not addressed to Inland or any outsider for that matter. Worse, it was not even offered in evidence by Associated
Bank to give Inland the opportunity to object to or comment on the said document, but was merely attached as one
of the annexes to the bank’s MEMORANDUM FOR DEFENDANTS. Obviously, no evidentiary weight may be
attached to said inter-office memorandum, which is even self serving. In fact, it ought not to be considered at all.
(Emphasis and underscoring supplied)

The appellate court, however, specifically mentioned that the "lower court erred when it rendered a decision which
‘permanently, perpetually and forever’ restrains the sheriff from proceeding with the threatened foreclosure auction
sale of the subject mortgage properties."14

The bank moved for partial reconsideration of the appellate court’s decision on the aspect of its ratification of the
Deed of Assignment but the same was denied by Resolution 15 of January 24, 1996.

The bank, via two different counsels,16 filed before this Court separate petitions for review, G.R. No. 123650,
Associated Citizens Bank, et al. v. Court of Appeals, et al; and G.R. No. 123822, Westmont Bank (formerly
Associated Bank) v. Inland Construction & Development Corp., assailing the same appellate court’s
decision.  Owing to a series of oversight, 17 the petition in G.R. 123650 was initially dismissed but was later
1awphi1

reinstated by Resolution of June 21, 1999.

The records18 show that Inland failed to file its comment and memorandum on the petitions.
Both petitions for review impute error on the part of the appellate court in

…AFFIRMING THE FINDING OF THE TRIAL COURT THAT PETITIONER HAVE [SIC] RATIFIED THE DEED OF
ASSIGNMENT (EXH. "O").

The bank, which had, as reflected early on, become known as Westmont Bank (petitioner), maintains that
Calo had no authority to bind it in the Deed of Assignment and that a single, isolated unauthorized act of its
agent is not sufficient to establish that it clothed him with apparent authority. Petitioner adds that the records
fail to disclose evidence of similar acts of Calo executed either in its favor or in favor of other parties.19 Moreover,
petitioner reasserts that the unauthorized act of Calo never came to its knowledge, hence, it is not estopped from
repudiating the Deed of Assignment.20

The petitions fail.

The general rule remains that, in the absence of authority from the board of directors, no person, not even
its officers, can validly bind a corporation.21 If a corporation, however, consciously lets one of its officers, or
any other agent, to act within the scope of an apparent authority, it will be estopped from denying such
officer’s authority.22

The records show that Calo was the one assigned to transact on petitioner’s behalf respecting the loan
transactions and arrangements of Inland as well as those of Hanil-Gonzales and Abrantes. Since it
conducted business through Calo, who is an Account Officer, it is presumed that he had authority to sign
for the bank in the Deed of Assignment.

Petitioner cannot feign ignorance of the May 26, 1978 Deed of Assignment, the pertinent portion of which was
quoted above. Notably, assignee Abrantes notified petitioner about his assumption of Inland’s obligation. Thus, in
his July 26, 1979 letter to petitioner, he wrote:

This refers to the accounts of Liberty Construction and Development Corporation (LCDC) and our sister-company,
Hanil-Gonzalez Construction & Development Corporation (HGCDC) which as of July 31, 1979 was computed at
₱1,814,442.40, inclusive of interest, penalties and fees, net of marginal deposits. This includes the account of

Inland Construction & Development Corporation which had been assumed by HGCDC.23 (Emphasis and
underscoring supplied)

That petitioner sent the following reply-letter, dated November 29, 1982, to the above-quoted letter to it of assignee
Abrantes indicates that it had full and complete knowledge of the assumption by Abrantes of Inland’s obligation:

We are pleased to advise you that our Executive Committee in its meeting last November 25, 1982, has approved
your request for the restructuring of your outstanding obligations x x x x.24 (Underscoring supplied)

Respecting this reply-letter of the bank granting Hanil-Gonzales’ request to restructure its loans, petitioner, as a
banking institution, is expected to have exercised the highest degree of diligence and meticulousness in the conduct
of its business. When it received the loan restructuring request, with specific mention of Inland’s Promissory Note
No. BD-2884-77, petitioner-bank was under obligation to fastidiously scrutinize such loan account. And since it
clearly approved the request for restructuring, any "uncertainty" that its reply-letter approving such request may not
thus work to prejudice Hanil-Gonzales or Inland.

Petitioner relies heavily, however, on the Court’s pronouncement in Yao Ka Sin Trading that it was incumbent upon,
in this case, Inland to prove that petitioner had clothed its account officer with apparent power to conform to the
Deed of Assignment.25

Petitioner’s simplistic reading of Yao Ka Sin Trading v. Court of Appeals 26 does not impress. In Yao Ka Sin Trading,
the therein respondent cement company had shown by clear and convincing evidence that its president was not
authorized to undertake a particular transaction. It presented its by-laws stating that only its board of directors has
the power to enter into an agreement or contract of any kind. The company’s board of directors even forthwith
issued a resolution to repudiate the contract. Thus, it was only after the company successfully discharged its burden
that the other party, the therein petitioner Yao Ka Sin Trading, had to prove that indeed the cement company had
clothed its president with the apparent power to execute the contract by evidence of similar acts executed in its favor
or in favor of other parties.

Unmistakably, the Court’s directive in Yao Ka Sin Trading is that a corporation should first prove by clear evidence
that its corporate officer is not in fact authorized to act on its behalf before the burden of evidence shifts to the other
party to prove, by previous specific acts, that an officer was clothed by the corporation with apparent authority.

It bears noting that in Westmont Bank v. Pronstroller, 27 the therein petitioner Westmont Bank, through a
management committee, proved that it rejected the letter-agreement entered into by its assistant vice-president.
Consequently, the therein respondent had to prove by citing other instances of the said officer’s apparent authority
to bind the bank-therein petitioner.1avvphi1

In the present petitions, petitioner-bank failed to discharge its primary burden of proving that Calo
was not authorized to bind it, as it did not present proof that Calo was unauthorized. It did not present, much less
cite, any Resolution from its Board of Directors or its Charter or By-laws from which the Court could reasonably infer
that he indeed had no authority to sign in its behalf or bind it in the Deed of Assignment. The May 20, 1985 inter-
office memorandum28 stating that Calo had "no signing authority" remains self-serving as it does not even form part
of petitioner’s body of evidence.

Thus, the assertion that the petitioner cannot be faulted for its delay in repudiating the apparent authority of Calo is
similarly flawed, there being no evidence on record that it had actually repudiated such apparent authority. It should
be noted that it was the bank which pleaded that defense in the first place. What is extant in the records is a
reasonable certainty that the bank had ratified the Deed of Assignment.

The assumption that a ruling on the issue of ratification would affect any and all foreclosure proceedings on the
mortgaged properties remains unfounded. For the challenged appellate court’s Decision 29 still mentioned the
possibility of foreclosing on the mortgaged properties as Inland was still indebted to the bank in the amount of ₱186,
241.86 covering the other two promissory notes (No. BD-2739-77 and No. BD-2997) and other obligations that
Inland was not able to satisfy upon maturity.

Both the trial court’s and the appellate court’s inferences and conclusion that petitioner ratified its account officer’s
act are thus rationally based on evidence and circumstances duly highlighted in their respective decisions. Absent
any serious abuse or evident lack of basis or capriciousness of any kind, the lower courts’ findings of fact are
conclusive upon this Court.30

WHEREFORE, the petitions are DENIED. The decision of the Court of Appeals in CA-G.R. CV No. 39634 is
AFFIRMED.
11.) .R. No. 144661 and 144797               June 15, 2005

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

vs.
SPOUSES FRANCISCO ONG and LETICIA ONG, respondents.

DECISION

GARCIA, J.:

Appealed to this Court by way of a petition for review on certiorari are the D E C I S I O N1 dated March 5,
1999 and Resolution dated July 19, 2000 of the Court of Appeals in CA-G.R. CV No. 54919, affirming in toto an
earlier decision of the Regional Trial Court at Cagayan de Oro City, Branch 23, which ruled in favor of herein
respondents, the Spouses Francisco Ong and Leticia Ong, in a suit for breach of contract and/or specific
performance with prayer for writ of preliminary injunction and damages thereat commenced by them against
petitioner Development Bank of the Philippines (DBP).

Petitioner filed by registered mail a motion for extension time to submit petition, paying the corresponding docket
fees therefor by money order. Upon receipt of the motion, the Court docketed the case as G.R. No. 144797. Before
actual receipt of said motion, however, petitioner personally filed its petition, which was docketed with a lower
number as G.R. No. 144661. What then appears to be two (2) cases before us are actually just one, now the subject
of this decision.

The facts are simple and undisputed:

Petitioner’s foreclosed asset, formerly owned by one Enrique Abada under TCT No. T-4786 and located at Corrales
Extension, Cagayan de Oro City is the subject of this controversy. On May 25, 1988, respondent Francisco Ong
with the conformity of his wife Leticia Ong, addressed a written offer to petitioner thru its branch manager at
Cagayan de Oro City to buy the subject property on a negotiated sale basis and submitted his "best and last offer"
to purchase2 under the following terms:

PURCHASE PRICE…………………………… ₱136,000.00

DOWNPAYMENT …………………………….. 14,000.00

BALANCE …………………………………… P122,000.00

TERM: C A S H MODE OF PAYMENT: Payable upon ejection of occupants on the property subject of my offer.

I/We am/are depositing the amount of ₱14,000.00 in cash/check to accompany my/our offer, it being expressly
understood, however, that the same does not bind the DBP to the offer until after my/our receipt of its approval by
the higher authorities of the bank. Should the bank receive an offer from a third-party buyer higher by more than 5%
or at more advantageous term accompanied by a deposit of at least 10% of the offered price, or a higher offer from
the former-owner for at least the updated Total Claim of the Bank accompanied by a minimum deposit of 20% of the
purchase price, the Bank may favorably consider the higher offer and thereafter refund my/our deposit within three
(3) working days after the determination of the most advantageous offer.

The foregoing offer was duly "NOTED" by petitioner’s branch head at its Cagayan de Oro City Branch, Jose Z.
Lagrito (Lagrito, for brevity), and Official Receipt No. 3081947 was issued for the amount of ₱14,000.00 as
respondents’ deposit.

In a letter dated October 21, 19883, sent to respondents via registered mail, Lagrito informed the spouses that the
bank recently received an offer from another interested third-party-buyer of the same property at the same price and
term, "but better and more advantageous to the Bank considering that the buyer will assume the responsibility at her
expense for the ejectment of present occupants in the said property". Nonetheless, respondents were given in the
same letter three (3) days within which "to match the said offer", failing in which the Bank "will immediately award
the said property to the other buyer", in which event respondents’ deposit of ₱14,000.00 shall be refunded to them
upon surrender of O.R. No. 3081947.

In yet another written offer dated October 28, 19884, respondents matched the said offer of the second interested
buyer by assuming the responsibility "at my/our own expense for the ejection of squatters/occupants, if any, on the
property".

On April 7, 1989, there was a conference between respondents, together with their counsel, and the bank whereat
respondents were informed why the sale could not be awarded to them. Thereafter, in a letter dated September 6,
19905, respondents were notified that the property would instead be offered for public bidding on September 24,
1990 at ten 10:00 o’clock in the morning.

Feeling aggrieved by such turn of events, respondents filed with the Regional Trial Court at Cagayan de Oro City a
complaint for breach of contract and/or specific performance against petitioner. Thereat, the complaint was docketed
as Civil Case No. 90-422 which was raffled to Branch 23 of the court.

After pre-trial, the parties agreed to submit the case for judgment based on the pleadings. Accordingly, the trial court
required them to submit simultaneously their respective memoranda within thirty (30) days. Only petitioner filed its
memorandum.

In a decision6 dated April 25, 1995, the trial court dismissed the complaint finding that there was "no perfected
contract of sale" between the parties, hence, "there is no breach to speak of since there was no contract from the
very beginning". However, upon respondents’ motion for reconsideration, the trial court vacated its judgment
and set the case for the reception of evidence. This time, only the respondents adduced their evidence
consisting of the lone testimony of respondent Francisco Ong and the documents identified by him in the course
thereof.

In his testimony, Ong gave the respondents’ version of what supposedly transpired in their transaction with
petitioner. According to him, he and his wife went to the bank branch at Cabayan de Oro City and looked for Roy
Palasan, a bank clerk thereat and told the latter that they were interested to buy two (2) lots. Palasan went to talk
to Lagrito, the branch manager. Palasan returned to the spouses and informed them that the branch manager
agreed to sell the property to them. Palasan further told them that they will be required to pay ten (10%) percent
of the purchase price as downpayment, adding that if they were to pay the purchase price in cash, they would be
entitled to a ten (10%) percent discount. After some computations, respondents rounded up the purchase price at
₱136,000.00 and pegged the downpayment therefor at ₱14,000.00. They were then required by Palasan to sign a
bank form supposedly to express their firm offer to purchase the subject property. But since the form signed by them
contains the statement that the approval of higher authorities of the bank is required to close the deal, respondents
queried Palasan about it. Palasan, however, told them that the documents were only for formality purposes, and
further assured them that the branch manager has already agreed to sell the subject property to them.

Having completed the presentation of their evidence, respondents rested their case. For its part, petitioner no longer
adduced any evidence but merely opted to formally offer its documentary exhibits. Thereafter, the case was
submitted for resolution.

On September 26, 1996, the trial court came out with a new decision,7 this time rendering judgment for the
respondents, as follows:

WHEREFORE, by reason of preponderance of evidence, the Court hereby finds in favor of the plaintiffs as against
the defendant and hereby orders the defendant:

1. To execute a final sale of the lot subject matter of the contract of sale at the original agreed price of
₱136,000.00;

2. Defendant to accept the balance of the purchase price from the plaintiffs;

3. Defendant to pay moral damages in the amount of ₱30,000.00;

 4. Defendant to refund the amount of ₱10,000.00 actual litigation expenses; and to pay attorney’s fees in the
amount of ₱20,000.00.

SO ORDERED.

Therefrom, petitioner went on appeal to the Court of Appeals in CA-G.R. CV No. 54919, and, on March 5, 1999, the
appellate court rendered the herein assailed decision8 affirming in toto that of the trial court, thus:

ACCORDINGLY, the foregoing premises considered, the appealed decision is hereby AFFIRMED in toto.

SO ORDERED.

With its motion for reconsideration of the same decision having been denied by the Court of Appeals in its equally
challenged resolution of July 19, 2000, 9 petitioner is now with us thru the present recourse on the following grounds:

A.

THAT THE RESPONDENTS’ INTRODUCTION OF PAROL EVIDENCE TO PROVE THE ALLEGED MEETING OF
MINDS BETWEEN THE PARTIES WAS NOT SANCTIONED BY RULE 130, SEC. 9, RULES OF COURT,
CONTRARY TO THE FINDINGS OF THE LOWER COURTS, CONSIDERING THAT THERE WAS NO WRITTEN
CONTRACT THAT WAS EVER EXECUTED BY THE PARTIES IN THIS CASE, BUT MERELY UNILATERAL
WRITTEN COMMUNICATIONS, AT BEST CONSTITUTING OFFERS AND COUNTER-OFFERS.

B.

THAT THE QUANTUM OF PROOF IS WANTING TO PROVE THE ALLEGED PERFECTION OF CONTRACT OF
SALE BETWEEN THE PARTIES BASED ON THE SOLE, UNCORROBORATED, ORAL TESTIMONY THUS FAR
PRESENTED BY THE RESPONDENTS.

C.

THAT THE BURDEN OF PROOF THAT THERE WAS PERFECTION OF THE CONTRACT OF SALE BETWEEN
THE PARTIES BASICALLY REST WITH THE RESPONDENTS, NOTWITHSTANDING THE NON-OBJECTION ON
THE PART OF HEREIN PETITIONER DURING THE INTRODUCTION OF THAT "PAROL EVIDENCE"; THE
ADMISSIBILITY OF PETITIONER’S (sic.) PAROL EVIDENCE DOES NOT AUTOMATICALLY RIPEN THE
TESTIMONY AS A TRUTH RESPECTING A MATTER OF FACT AS ITS CREDIBILITY AND TRUSTWORTHINESS
AND WEIGHT ARE STILL SUBJECT TO JUDICIAL SCRUTINY AND APPRECIATION.

D.

THAT THERE WAS ACTUALLY OPPOSITION ON THE PART OF THE PETITIONER TO THE CONTENTS OF
THE ORAL TESTIMONY OF THE RESPONDENT REGARDING THE ALLEGED PERFECTION OF CONTRACT
OF SALE BECAUSE THE PETITIONER HAD ALREADY INTERPOSED THEIR DEFENSES WHEN IT FILED A
MEMORANDUM ATTACHING THEREIN THE DOCUMENTARY AS WELL AS DECLARATIONS IN ITS
PLEADINGS ON THE NON-PERFECTION OF SUCH CONTRACT WHEN THE CASE WAS THEN SUBMITTED
FOR JUDGMENT ON THE PLEADINGS, AS AGREED BY THE PARTIES DURING THE PRE-TRIAL, AND SUCH
EVIDENCES WERE ALREADY PASSED UPON BY THE COURT WHEN IT RENDERED A JUDGMENT DATED
APRIL 25, 1995.

We GRANT the petition.

At the very core of the controversy is the question of whether or not there actually was a perfected contract of
sale between petitioner and respondents, for which the Court may compel petitioner to issue a board resolution
approving the sale and to execute the final deed of sale in respondents’ favor, and/or hold petitioner liable for a
breach thereof. Needless to state, without a perfected contract of sale, there could be no cause of action for specific
performance or breach thereof.
The trial court went on one direction by ruling in its earlier decision of April 25, 1995 that there was no perfected
contract, but upon respondents’ motion for reconsideration, went exactly the opposite path by completely reversing
itself in its herein challenged decision of September 26, 1996.

Apparently, the trial court’s ruling that there was already a perfected contract of sale was premised on its following
factual findings:

1. That plaintiff [respondents] made a downpayment in a check that was subsequently encashed by the
defendant [petitioner] bank;

2. That the sister-in-law of plaintiff [respondents] entered into the same arrangement and was able to buy
the property she wanted to buy from defendant [petitioner] bank;

3. That defendant [petitioner] never presented any witness to rebut the positive and clear testimony of
plaintiff [respondents] that it was a perfected contract of sale entered into by the former with the defendant
[petitioner] bank.10

Sustaining the foregoing factual findings of the trial court, the appellate court wrote in its assailed decision of March
5, 1999:

This positive and clear testimony of [respondent] Ong was not objected to nor rebutted by the [petiotioner]. Notably,
the bank personnel involved in the transaction, namely, Roy Palasan and the Branch Manager of the [petitioner’s]
Cagayan de Oro Branch, Joe Lagrito, were never presented to refute the testimony of the [respondents] that the
bank has agreed to sell the property to the [respondents]. Suffice it to state that [respondents] were entitled to rely
on the representation of Lagrito who, after all, is the bank’s manager. Under the premise that a bank is bound by the
obligation contracted by its officers, the contract of sale between [petitioner] and the [respondents] was perfected
when Palasan and Lagrito communicated the approval of the sale of the lot to the [respondents].

Significantly, the unrebutted testimony of Francisco Ong reveals that Norma Silfavan, [respondents’] sister, made a
similar offer to the [petitioner] under the same terms and conditions as to that of the [respondents], and was likewise
assured by the same bank personnel that her offer, along with the [respondents’] offer was already approved.
Eventually, the transaction resulted in a consummated sale between Silfavan and DBP. Under these premises, We
can not see any reason why the [petitioner] did not accord the same treatment to the [respondents] who were
similarly situated.

Evidently, the two (2) courts below were convinced that the actuation of Palasan, a mere bank clerk, upon which
respondents relied in believing that their offer to purchase was already approved by the bank manager, would bind
the bank to a perfected contract of sale between the parties in this case. The Court of Appeals further added that
the acceptance of the offer to purchase was sufficiently established from the parol evidence adduced by
respondents during the trial.

We do not agree.

Concededly, in petitions for review on certiorari, our task is not to review once again the factual findings of the Court
of Appeals and the trial court, but to determine if, on the basis of the facts thus found, the conclusions of law
reached are correct or not.

Judging from the findings of the two (2) courts below and the testimony of respondent Francisco Ong himself, it
appears clear to us that the transaction between the respondents and the petitioner was limited to Palasan,
one of the clerks of petitioner’s branch in Cagayan de Oro City. Lagrito, the branch manager, had no
personal or direct communication with respondents to express his alleged consent to the sale transaction.
Thus, the undisputed evidence showed that it was Palasan, a mere bank clerk, and not the branch manager
himself who assured respondents that theirs was a closed deal.

We are very much aware of our pronouncement in Rural Bank of Milaor vs. Ocfemia,11 involving a mandamus suit
where the supposed buyer of a foreclosed property from a bank sought a court order to compel the bank to issue
the required board resolution confirming the sale between the parties therein. There, this Court, speaking thru Mr.
Justice Artemio Panganiban, stated:

Notwithstanding the putative authority of the manager to bind the bank in the Deed of Sale, petitioner has failed to
file an answer to the Petition below within the reglementary period, let alone present evidence controverting such
authority. Indeed, when one of herein respondents, Marife S. Niño, went to the bank to ask for the board resolution,
she was merely told to bring the receipts. The bank failed to categorically declare that Tena had no authority. This
Court stresses the following:

". . . Corporate transactions would speedily come to a standstill were every person dealing with a corporation held
duty-bound to disbelieve every act of its responsible officers, no matter how regular they should appear on their
face. This Court has observed in Ramirez vs. Orientalist Co., 38 Phil. 634, 654-655, that —

‘In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind the situation as it
presents itself to the third party with whom the contract is made. Naturally he can have little or no information as to
what occurs in corporate meetings; and he must necessarily rely upon the external manifestation of corporate
consent. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the
liability fixed upon it by its agents in accordance with law; and we would be sorry to announce a doctrine which
would permit the property of man in the city of Paris to be whisked out of his hands and carried into a remote quarter
of the earth without recourse against the corporation whose name and authority had been used in the manner
disclosed in this case. As already observed, it is familiar doctrine that if a corporation knowingly permits one of
its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out
to the public as possessing power to do those acts, the corporation will, as against any one who has in
good faith dealt with the corporation through such agent, be estopped from denying his authority; and
where it is said 'if the corporation permits this means the same as 'if the thing is permitted by the directing
power of the corporation.’"12

In this light, the bank is estopped from questioning the authority of the bank manager to enter into the contract of
sale. If a corporation knowingly permits one of its officers or any other agent to act within the scope of an
apparent authority, it holds the agent out to the public as possessing the power to do those acts; thus, the
corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped
from denying the agent's authority.13

Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly, it has a clear legal duty
to issue the board resolution sought by respondents. Having authorized her to sell the property, it behooves the
bank to confirm the Deed of Sale so that the buyers may enjoy its full use.

There is, however, a striking and very material difference between the aforecited case and the one at bar. For,
unlike in Milaor where it was the branch manager who approved the sale for and in behalf of the bank, here, there
is absolutely no approval whatsoever by any responsible bank officer of the petitioner. True it is that the signature
of branch manager Lagrito appears below the typewritten word "NOTED" at the bottom of respondents’
offer to purchase dated May 25, 1988.14 By no stretch of imagination, however, can the mere "NOTING" of
such an offer be taken to mean an approval of the supposed sale. Quite the contrary, the very circumstance
that the offer to purchase was merely "NOTED" by the branch manager and not "approved", is a clear
indication that there is no perfected contract of sale to speak of.

The representation of Roy Palasan, a mere clerk at petitioner’s Cagayan de Oro City branch, that the
manager had already approved the sale, even if true, cannot bind the petitioner bank to a contract of sale
with respondents, it being obvious to us that such a clerk is not among the bank officers upon whom such
putative authority may be reposed by a third party. There is, thus, no legal basis to bind petitioner into any
valid contract of sale with the respondents, given the absolute absence of any approval or consent by any
responsible officer of petitioner bank.

And because there is here no perfected contract of sale between the parties, respondents’ action for breach of
contract and/or specific performance is simply without any leg to stand on and must therefore fall.

We also disagree with the Court of Appeals that the encashment of the check representing the ₱14,000.00 deposit
in relation to respondents’ offer to purchase is an indication or proof of perfection of a contract of sale. It must be
noted that the very documents15 signed by the respondents as their offer to purchase unmistakably state that the
deposit shall only form part of the purchase price if the offer to purchase is approved, "it being expressly understood
xxx that the same (i.e., the deposit) does not bind DBP to the offer until my/our receipt of its approval by higher
authorities of the bank". It may be so that the official receipt issued therefor by the petitioner termed such deposit as
a "downpayment". But the very written offers of the respondents unequivocably and invariably speak of such amount
as "deposit", "above deposit", "we are depositing the amount of ₱14,000.00". Since there never was any approval or
acceptance by the higher authorities of petitioner of respondents’ offer to purchase, the encashment of the check
can not in any way represent partial payment of any purchase price.

With the hard reality that no approval or acceptance of respondents’ offer to buy exists in this case, any independent
transaction between petitioner and another third-party, like the one involving respondents’ sister, would be irrelevant
and immaterial insofar as respondents’ own transaction with the petitioner is concerned. Besides, apart from saying
that respondents’ sister "made a similar offer to the [petitioner] under the same terms and conditions as to that of the
[respondents], and was likewise assured by the same bank personnel that her offer xxx was already approved",
which eventually resulted into a "consummated sale between (the sister) and DBP", the Court of Appeals made no
finding that the sister’s transaction with the petitioner was made exactly under the same circumstances obtaining in
the present case. In any event, petitioner’s favorable action on the offer of respondents’ sister is hardly, if ever,
relevant and determinative in the resolution of the legal issue presented in this case.

In sum, we cannot, in law, sustain the herein challenged issuances of the Court of Appeals.

WHEREFORE, the instant petition is GRANTED and the assailed decision and resolution of the Court of Appeals
REVERSED and SET ASIDE. The complaint filed in this case is accordingly DISMISSED.
 12.) [G.R. No. 173326 : December 15, 2010]

SOUTH COTABATO COMMUNICATIONS CORPORATION AND GAUVAIN J. BENZONAN,

PETITIONERS, VS. HON. PATRICIA A. STO. TOMAS, SECRETARY OF LABOR AND
EMPLOYMENT, ROLANDO FABRIGAR, MERLYN VELARDE, VINCE LAMBOC, FELIPE GALINDO,
LEONARDO MIGUEL, JULIUS RUBIN, EDEL RODEROS, MERLYN COLIAO AND EDGAR
JOPSON, RESPONDENTS.

DECISION

LEONARDO-DE CASTRO, J.:

This a petition for review on certiorari under Rule 45 of the Rules of Court with application for
temporary restraining order and/or writ of preliminary injunction seeking to set aside the
Resolution[1] dated July 20, 2005 as well as its related Resolution[2] dated May 22, 2006 of the Court
of Appeals in CA-G.R. SP No. 00179-MIN.  In essence, the same petition likewise seeks to set aside
the Order[3] dated November 8, 2004 and the Order[4] dated February 24, 2005 of public respondent
Secretary Patricia A. Sto. Tomas of the Department of Labor and Employment (DOLE) as well as the
Order[5] dated May 20, 2004 of the Regional Director, DOLE Regional XII Office.

The facts of this case, as culled from the Order dated November 8, 2004 of DOLE Secretary Sto.
Tomas, are as follows:

On the basis of a complaint, an inspection was conducted at the premises of appellant DXCP
Radio Station on January 13, 2004, where the following violations of labor standards laws were
noted:

1. Underpayment of minimum wage;

2. Underpayment of 13th month pay;

3. Non-payment of five (5) days service incentive leave pay;

4. Non-remittance of SSS premiums;

5. Non-payment of rest day premium pay of some employee;

6. Non-payment of holiday premium pay; and

7. Some employees are paid on commission basis aside from their allowances.

A copy of the Notice of Inspection Results was explained to and received by Tony Ladorna for
appellants. Later on, or on January 16, 200[4], another copy of the Notice of Inspection Results was
received by Felipe S. Galindo, Technical Supervisor of appellant DXCP. The Notice of Inspection
Results required the appellants to effect restitution and/or correction of the above violations within
five (5) calendar days from receipt of the Notice. Likewise, appellants were informed that any
questions on the findings should be submitted within five (5) working days from receipts of the
Notice.

A summary investigation was scheduled on March 3, 2004, where only appellees appeared, while
appellants failed to appear despite due notice. Another hearing was held on April 1, 2004, where
appellees appeared, while a certain Nona Gido appeared in behalf of Atty. Thomas Jacobo. Ms. Gido
sought to re-schedule the hearing, which the hearing officer denied.

On May 20, 2004, the Regional Director issued the assailed Order, directing appellants to pay
appellees the aggregate amount of Seven Hundred Fifty Nine Thousand Seven Hundred Fifty Two
Pesos (Php759,752.00).[6]

The dispositive portion of the Order dated May 20, 2004 of the Regional Director of the DOLE Region
XII Office reads as follows:

WHEREFORE, premises considered, respondent DXCP Radio Station and/or Engr. Gauvain
Benzonan, President, is hereby ordered to pay the seven (7) affected workers of their Salary
Differential, Underpayment of 13th Month Pay, Five (5) days Service Incentive Leave Pay, Rest Day
Premium Pay and Holiday Premium Pay in the total amount of SEVEN HUNDRED FIFTY-NINE
THOUSAND SEVEN HUNDRED FIFTY-TWO PESOS (P759,752.00), Philippine Currency as
indicated in the Annex "A" hereof and to submit proof of compliance to the Department of Labor and
Employment, Regional Office No. XII, Cotabato City within ten (10) calendar days from receipt of this
Order.[7]

Petitioners appealed their case to then DOLE Secretary Sto. Tomas. However, this appeal was
dismissed in an Order dated November 8, 2004 wherein the Secretary ruled that, contrary to their
claim, petitioners were not denied due process as they were given reasonable opportunity to present
evidence in support of their defense in the administrative proceeding before the Regional Director of
DOLE Region XII Office.  The dispositive portion of the said Order follows:

WHEREFORE, premises considered, the appeal by DXCP Radio Station and Engr. Gauvain Benzonan
is hereby DISMISSED for lack of merit. The Order dated May 24, 2004 of the Regional Director,
directing appellants to pay the nine (9) appellees the aggregate amount of Seven Hundred Fifty-Nine
Thousand Seven Hundred Fifty-Two Pesos (Php759,752.00), representing their claims for wage
differentials, 13th month pay differentials, service incentive leave pay, holiday premium and rest day
premium, is AFFIRMED.[8]

Undeterred, petitioners filed a Motion for Reconsideration with the DOLE Secretary but this was
denied in an Order dated February 24, 2005, the dispositive portion of which states:

WHEREFORE, premises considered, the Motion for Reconsideration filed by DXCP Radio Station and
Engr. Gauvain Benzonan, is hereby DENIED for lack of merit. Our Order dated November 8, 2004,
affirming the Order dated May 20, 2004 of the OIC-Director, Regional Office No. 12, directing
appellants to pay Rolando Fabrigar and eight (8) others, the aggregate amount of Seven Hundred
Fifty-Nine Thousand Seven Hundred Fifty-Two Pesos (Php759,752.00), representing their claims for
wage and 13th month pay differentials, service incentive leave pay, holiday pay and rest day
premium, is AFFIRMED.[9]

In light of this setback, petitioners elevated their case to the Court of Appeals but their
petition was dismissed in the assailed Court of Appeals Resolution dated July 20, 2005
because of several procedural infirmities that were explicitly cited in the same, to wit:

1. The petition was not properly verified and the Certification of Non-Forum Shopping was
not executed by the plaintiff or principal party in violation of Sections 4 and 5 of Rule 7 of
the 1997 Rules of Civil Procedure, as the affiant therein was not duly authorized to
represent the corporation. Such procedural lapse renders the entire pleading of no legal effect and
is dismissible. Sections 4 and 5 of Rule 7 of the 1997 Rules of Civil Procedure provide:

SEC. 4. Verification. - Except when otherwise specifically required by law or rule, pleadings need not
be under oath, verified or accompanied by affidavit.

A pleading is verified by an affidavit that the affiant has read the pleadings and that the allegations
therein are true and correct of his personal knowledge or based on authentic records.

A pleading required to be verified which contains a verification based on "information and

belief" or upon "knowledge, information and belief" or lacks a proper verification, shall be
treated as an unsigned pleading. x x x.

SEC. 5. Certification against forum shopping. - The plaintiff or principal party shall certify under
oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn
certification annexed thereto and simultaneously filed therewith:

xxxx

Failure to comply with the foregoing requirements shall not be curable by mere
amendment of the complaint or other initiatory pleading but shall be cause for the
dismissal of the case without prejudice, unless otherwise provided, upon motion and after
hearing. The submission of a false certification or non-compliance with any of the undertakings
therein shall constitute indirect contempt of court, without prejudice to the corresponding
administrative and criminal actions. If the acts of the party or his counsel clearly constitute willful
and deliberate forum shopping, the same shall be ground for summary dismissal with prejudice and
shall constitute direct contempt, as well as a cause for administrative sanctions. x x x.

2. Annexes A, B, C, E and its attachments and F are not certified true copies contrary to Section 1,
Rule 65 of the 1997 Rules of Civil Procedure which provides:

SECTION 1. Petition for Certiorari. - x x x

xxxx

The petition shall be accompanied by a certified true copy of the judgment, order or
resolution subject thereof, copies of all pleadings and documents relevant and pertinent
thereto, and a sworn certification of non-forum shopping as provided in the third paragraph of
section 3, Rule 46. x x x.

3. Petitioner's counsel failed to indicate the date of issue of his IBP Official Receipt. As provided for
under Bar Matter 287 dated September 26, 2000:

"All pleadings, motions and papers filed in court whether personally or by mail shall bear
counsel's current IBP official receipt number and date of issue otherwise, such pleadings,
motions and paper may not be acted upon by the court, without prejudice to whatever
disciplinary action the court may take against the erring counsel who shall likewise be required to
comply with the such (sic) requirement within five (5) days from notice. Failure to comply with such
requirement shall be ground for further disciplinary sanction and for contempt of court." x x x.[10]

Petitioners then filed a Motion for Reconsideration and the Court of Appeals ruled in its assailed
Resolution dated May 22, 2006 that petitioners' subsequent submission made them substantially
comply with the second and third procedural errors that were mentioned in the Court of Appeals
Resolution dated July 20, 2005.  However, the Court of Appeals also ruled that, with regard to the
first procedural error, petitioners' justification does not deserve merit reasoning that "[w]hile it may
be true that there are two (2) petitioners and that petitioner Gauvain Benzonan signed the
verification and the certificate of non-forum shopping of the petition, the records show that petitioner
Gauvain Benzonan did not initiate the petition in his own capacity to protect his personal interest in
the case but was, in fact, only acting for and in the corporation's behalf as its president."[11]  Thus,
the Court of Appeals noted that "[h]aving acted in the corporation's behalf, petitioner Benzonan
should have been clothed with the corporation's board resolution authorizing him to institute the
petition."[12]

The Court of Appeals likewise ruled that petitioners' attachment of a "Secretary's Certificate" to their
Motion for Reconsideration (purportedly to remedy the first procedural mistake in their petition
for certiorari under Rule 65) was insufficient since their submission merely authorized petitioner
Benzonan "to represent the corporation and cause the preparation and filing of a Motion for
Reconsideration before the Court of Appeals."[13]

Consequently, petitioners filed the instant petition wherein they raised the following issues:

a. Whether the Court of Appeals committed grave abuse of discretion amounting to lack or
excess of jurisdiction when it dismissed the Petition for Certiorari and denied the Motion for
Reconsideration on its finding that the petition was not properly verified and the certification of
non-forum shopping was not executed by the principal party allegedly in violation of Sections
4 and 5, Rule 7 of the 1997 Rules of Civil Procedure?

b. Whether petitioners were denied due process of law in the proceedings before the Regional
Director and the Office of the Secretary, both of the Department of Labor and Employment?

c. Whether there was sufficient basis in the Order issued by the Regional Director, DOLE,
Regional Office No. XII, dated May 20, 2004?[14]

Anent the first procedural issue, the Court had summarized the jurisprudential principles on the
matter in Cagayan Valley Drug Corporation v. Commissioner of Internal Revenue.[15]  In said case, we
held that a President of a corporation, among other enumerated corporate officers and
employees, can sign the verification and certification against of non-forum shopping in
behalf of the said corporation without the benefit of a board resolution.  We quote the
pertinent portion of the decision here:

It must be borne in mind that Sec. 23, in relation to Sec. 25 of the Corporation Code, clearly
enunciates that all corporate powers are exercised, all business conducted, and all properties
controlled by the board of directors. A corporation has a separate and distinct personality from its
directors and officers and can only exercise its corporate powers through the board of directors.
Thus, it is clear that an individual corporate officer cannot solely exercise any corporate
power pertaining to the corporation without authority from the board of directors. This has
been our constant holding in cases instituted by a corporation.

In a slew of cases, however, we have recognized the authority of some corporate officers to sign the
verification and certification against forum shopping. In Mactan-Cebu International Airport Authority
v. CA, we recognized the authority of a general manager or acting general manager to sign the
verification and certificate against forum shopping; in Pfizer v. Galan, we upheld the validity of a
verification signed by an "employment specialist" who had not even presented any proof of her
authority to represent the company; in Novelty Philippines, Inc. v. CA, we ruled that a personnel
officer who signed the petition but did not attach the authority from the company is authorized to
sign the verification and non-forum shopping certificate; and in Lepanto Consolidated Mining
Company v. WMC Resources International Pty. Ltd. (Lepanto), we ruled that the Chairperson of the
Board and President of the Company can sign the verification and certificate against non-forum
shopping even without the submission of the board's authorization.

In sum, we have held that the following officials or employees of the company can sign the
verification and certification without need of a board resolution: (1) the Chairperson of the Board of
Directors, (2) the President of a corporation, (3) the General Manager or Acting General
Manager, (4) Personnel Officer, and (5) an Employment Specialist in a labor case.

While the above cases do not provide a complete listing of authorized signatories to the verification
and certification required by the rules, the determination of the sufficiency of the authority was done
on a case to case basis. The rationale applied in the foregoing cases is to justify the authority of
corporate officers or representatives of the corporation to sign the verification or certificate against
forum shopping, being "in a position to verify the truthfulness and correctness of the allegations in
the petition."[16] (Emphases supplied.)
It must be stressed, however, that the Cagayan ruling qualified that the better procedure is still to
append a board resolution to the complaint or petition to obviate questions regarding the authority of
the signatory of the verification and certification.[17]

Nonetheless, under the circumstances of this case, it bears reiterating that the requirement of the
certification of non-forum shopping is rooted in the principle that a party-litigant shall not be allowed
to pursue simultaneous remedies in different fora, as this practice is detrimental to an orderly judicial
procedure. However, the Court has relaxed, under justifiable circumstances, the rule requiring the
submission of such certification considering that, although it is obligatory, it is not jurisdictional. Not
being jurisdictional, it can be relaxed under the rule of substantial compliance.[18]

In the case at bar, the Court holds that there has been substantial compliance with
Sections 4 and 5, Rule 7 of the 1997 Revised Rules on Civil Procedure on the petitioners' part
in consonance with our ruling in the Lepanto Consolidated Mining Company v. WMC Resources
International PTY LTD.[19] that we laid down in 2003 with the rationale that the President of
petitioner-corporation is in a position to verify the truthfulness and correctness of the
allegations in the petition. Petitioner Benzonan clearly satisfies the aforementioned
jurisprudential requirement because he is the President of petitioner South Cotabato
Communications Corporation. Moreover, he is also named as co-respondent of petitioner-
corporation in the labor case which is the subject matter of the special civil action for certiorari filed
in the Court of Appeals.

Clearly, it was error on the part of the Court of Appeals to dismiss petitioners' special civil action
for certiorari  despite substantial compliance with the rules on procedure. For unduly upholding
technicalities at the expense of a just resolution of the case, normal procedure dictates that the Court
of Appeals should be tasked with properly disposing the petition, a second time around, on the
merits.

The Court is mindful of previous rulings which instructs us that when there is enough basis on which
a proper evaluation of the merits can be made, we may dispense with the time-consuming procedure
in order to prevent further delays in the disposition of the case.[20]  However, based on the nature of
the two remaining issues propounded before the Court which involve factual issues and given the
inadequacy of the records, pleadings, and other evidence available before us to properly resolve
those questions, we are constrained to refrain from passing upon them.

After all, the Court has stressed that its jurisdiction in a petition for review on certiorari  under Rule
45 of the Rules of Court is limited to reviewing only errors of law, not of fact, unless the findings of
fact complained of are devoid of support by the evidence on record, or the assailed judgment is
based on the misapprehension of facts.[21]

WHEREFORE, the petition is PARTIALLY GRANTED.  The assailed Resolutions of the Court of
Appeals are REVERSED and SET ASIDE.  The case is REMANDED to the Court of Appeals for
proper disposition of CA-G.R. SP No. 00179-MIN.
 13.) [G.R. NO. 156905 : September 5, 2007]

ATHENA COMPUTERS, INC. and JOSELITO R. JIMENEZ, Petitioners, v. WESNU A.

REYES, Respondent.

DECISION

SANDOVAL-GUTIERREZ, J.:

For our resolution is the instant Petition for Review on Certiorari seeking the reversal of the
Resolutions dated September 5, 20021 and January 13, 20032 of the Court of Appeals in CA-G.R. SP
No. 72284.

On September 1, 1996, Athena Computers, Inc. (Athena), petitioner, hired Wesnu A. Reyes,
respondent, as a computer technician. In less than a year, he was promoted as manager of
Athena's engineering and technical department. Under his direct supervision were computer
technicians. He had full access to all Athena's computer equipment and those entrusted to him by it's
clients.

In January 1998, Athena conducted an inventory of its computer equipment. Allegedly,

respondent committed certain anomalies and admitted misappropriating payments for
several computers and the burning of records to conceal his misappropriation. A computer monitor
entrusted to respondent for repair as well as parts of LX 300 printers were missing.

Athena's board of directors terminated respondent's services. However, Joselito R.

Jimenez, also a petitioner, convinced the board to defer its decision to give respondent
another chance to rectify his inefficiencies. It is at this point that respondent indicated his desire
to resign on the ground that the pressures of his work have affected his health and that he intends to
seek employment abroad. Thereupon, he and Jimenez agreed to discuss the phase-out and turn-over
procedure of respondent's accountabilities on July 28, 1998.

The phase-out and turn-over did not materialize since respondent did not report for work anymore
despite numerous pager messages sent to him by Athena. On August 1, 1998, Jimenez issued a
memorandum placing respondent under preventive suspension for fifteen (15) days and directing
him to submit a written explanation on his absence without leave. On August 16, 1998, Jimenez
issued another memorandum terminating respondent's employment.

For his part, respondent claimed that he did an excellent job while he was employed in Athena. In
fact, three (3) months after his probationary period of employment, he was given a salary increase.
Jimenez commended him for his performance and attitude. On July 24, 1998, he verbally asked
permission from Jimenez to go on leave starting July 29, 1998 in order to apply for a job abroad. But
on July 31, 1998, Jimenez announced to all Athena's internet subscribers that respondent was placed
under preventive suspension due to his absence without leave and warned the public to refrain from
making any transaction with him since it will not be honored by Athena.

On August 5, 1998, respondent filed with the Labor Arbiter a complaint for illegal suspension,
harassment, non-payment of salaries and damages, backwages, and attorney's fees. Later, he filed
an amended complaint3 to include the charge of illegal dismissal.

On September 30, 1999, the Labor Arbiter promulgated a Decision dismissing respondent's
complaint, thus:
WHEREFORE PREMISES CONSIDERED, judgment is hereby rendered DISMISSING the case for lack of
merit but ordering the respondent to pay the complainant his unpaid salary for the period from July
15 to 27, 1998.

SO ORDERED.4

On appeal, the National Labor Relations Commission (NLRC) promulgated its Decision dated May 10,
2002 reversing the Labor Arbiter's judgment and declaring that the preventive suspension and
dismissal from employment of respondent are illegal. The dispositive portion of the NLRC Decision
reads:

WHEREFORE, premises considered, complainant's appeal is GRANTED. The Labor Arbiter's Decision is
REVERSED. It is hereby declared that complainant's preventive suspension and dismissal from
employment are illegal. Respondents are ordered to jointly and severally pay complainant the
amount of P292,500.00 as backwages and separation pay, plus ten percent (10%) thereof as
attorney's fees. The Labor Arbiter's Decision ordering Respondents to pay complainant his unpaid
salary for the period covering July 15 to 27, 1998 is hereby AFFIRMED.

SO ORDERED.5

Both petitioners seasonably filed with the Court of Appeals a petition for certiorari alleging that in
reversing the Decision of the Labor Arbiter, the NLRC committed grave abuse of discretion. In a
Resolution6 dated September 5, 2002, the appellate court dismissed the petition, thus:

After a careful examination of the instant petition for certiorari, it reveals that the Verification of
the petition and Certification of non-forum shopping were executed and signed by Joselito
R. Jimenez without authority to act for and in behalf of his co petitioner (Digital Microwave
Corp. v. Court of Appeals, 328 SCRA 287) in violation of Sections 4 and 5, Rule 7 of the 1997
Rules of Civil Procedure. Moreover, the copies of pertinent pleadings are not attached to the
petition in violations of Section 1, par. 2, Rule 65 Rules of Civil Procedure.

WHEREFORE, the instant petition for certiorari is herby DENIED DUE COURSE AND DISMISSED for
being insufficient in form and substance.

SO ORDERED.

Petitioners filed a motion for reconsideration but it was subsequently denied by the appellate court in
its Resolution7 dated January 13, 2003.

Hence, the instant petition.

The issue for our resolution is whether the appellate court erred in dismissing the petition
due to defective verification and certification on non-forum shopping and for petitioners'
failure to attach to the same petition pertinent pleadings as required by Section 1, Rule 65
of the 1997 Rules of Civil Procedure, as amended.

The petition is without merit.

Certiorari, being an extraordinary remedy, the party who seeks to avail of the same must strictly
observe the rules laid down by law.8

Section 1, Rule 65 of the same Rules provides:

SECTION 1. Petition for certiorari. - When any tribunal, board or officer exercising judicial or quasi-
judicial functions has acted without or in excess of its or his jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction, and there is no appeal, or any plain, speedy,
and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified
petition in the proper court, alleging the facts with certainty and praying that judgment be rendered
annulling or modifying the proceedings of such tribunal, board or officer, and granting such incidental
reliefs as law and justice may require.

The petition shall be accompanied by a certified true copy of the judgment, order or resolution
subject thereof, copies of all pleadings and documents relevant and pertinent thereto, and a sworn
certification of non-forum shopping as provided in the third paragraph of Section 3, Rule 46.

Section 3, Rule 46, likewise provides:

SECTION 3. Contents and filing of petition; effect of non-compliance with requirements. - The
petition shall contain the full names and actual addresses of all the petitioners and respondents, a
concise statement of the matters involved, the factual background of the case, and the grounds
relied upon for the relief prayed for.

In actions filed under Rule 65, the petition shall further indicate the material dates showing when
notice of the judgment or final order or resolution subject thereof was received, when a motion for
new trial or reconsideration, if any, was filed and when notice of the denial thereof was received.

It shall be filed in seven (7) clearly legible copies together with proof of service thereof on the
respondent with the original copy intended for the court indicated as such by the petitioner, and shall
be accompanied by a clearly legible duplicate original or certified true copy of the judgment, order,
resolution, or ruling subject thereof, such material portions of the record as are referred to therein,
and other documents relevant or pertinent thereto. The certification shall be accomplished by the
proper clerk of court or his duly authorized representative, or by the proper officer of the court,
tribunal, agency or office involved or by his duly authorized representative. The other requisite
number of copies of the petition shall be accompanied by clearly legible plain copies of all documents
attached to the original.

The petitioner shall also submit together with the petition a sworn certification that he has not
theretofore commenced any other action involving the same issues in the Supreme Court, the Court
of Appeals or different divisions thereof, or any other tribunal or agency; if there is such other action
or proceeding, he must state the status of the same; and if he should thereafter learn that a similar
action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or
different divisions thereof, or any other tribunal or agency, he undertakes to promptly inform the
aforesaid courts and other tribunal or agency thereof within five (5) days therefrom.

The petitioner shall pay the corresponding docket and other lawful fees to the clerk of court and
deposit the amount of P500.00 for costs at the time of the filing of the petition.

The failure of the petitioner to comply with any of the foregoing requirements shall be
sufficient ground for the dismissal of the petition.

The acceptance of a Petition for Certiorari as well as the grant of due course thereto is, in general,
addressed to the sound discretion of the court. Although the court has absolute discretion to reject
and dismiss a petition for certiorari, it does so only (1) when the petition fails to demonstrate grave
abuse of discretion by any court, agency, or branch of the government; or (2) when there are
procedural errors, like violations of the Rules of Court or Supreme Court Circulars.9 Clearly,
petitioners in their petition before the Court of Appeals committed procedural errors.

The verification of the petition and certification on non-forum shopping before the Court of
Appeals were signed only by Jimenez. There is no showing that he was authorized to sign
the same by Athena, his co-petitioner.
Section 4, Rule 7 of the Rules states that a pleading is verified by an affidavit that the affiant has
read the pleading and that the allegations therein are true and correct of his knowledge and belief.
Consequently, the verification should have been signed not only by Jimenez but also by
Athena's duly authorized representative.

In Docena v. Lapesura,10 we ruled that the certificate of non-forum shopping should be signed
by all the petitioners or plaintiffs in a case, and that the signing by only one of them is
insufficient. The attestation on non-forum shopping requires personal knowledge by the party
executing the same,11 and the lone signing petitioner cannot be presumed to have personal
knowledge of the filing or non-filing by his co-petitioners of any action or claim the same as similar to
the current petition.

The certification against forum shopping in CA-G.R. SP No. 72284 is fatally defective, not
having been duly signed by both petitioners and thus warrants the dismissal of the petition
for certiorari . We have consistently held that the certification against forum shopping
must be signed by the principal parties.12 With respect to a corporation, the certification
against forum shopping may be signed for and on its behalf, by a specifically authorized
lawyer who has personal knowledge of the facts required to be disclosed in such
document.13

While the Rules of Court may be relaxed for persuasive and weighty reasons to relieve a litigant from
an injustice commensurate with his failure to comply with the prescribed procedures, nevertheless
they must be faithfully followed.14 In the instant case, petitioners have not shown any reason which
justifies relaxation of the Rules. We have held that procedural rules are not to be belittled or
dismissed simply because their non-observance may have prejudiced a party's substantive rights.
Like all rules, they are required to be followed except for the most persuasive of reasons when they
may be relaxed.15 Not one of these persuasive reasons is present here.

In fine, we hold that the Court of Appeals did not err in dismissing the Petition for Certiorariin view of
the procedural lapses committed by petitioners.

WHEREFORE, we DENY the petition. The assailed twin Resolutions of the Court of Appeals in CA-
G.R. SP No. 72284 are AFFIRMED. Costs against petitioners.
14.) G.R. No. 206617

PHILIPPINE NUMISMATIC AD ANTIQUARIAN SOCIETY, Petitioner

vs.
GENESIS AQUINO, ANGELO BERNARDO, JR., EDUARDO M. CHUA, FERNANDO FRANCISCO, JR., FERMIN
S. CARINO, PERCIVAL M. MANUEL, FERNANDO M. GAITE, JR., JOSE CHOA, TOMAS DE GUZMAN, JR., LI
VI JU, CATALINO M. SILANGIL, RAMUNDO SANTOS, PETER SY, and WILSON YULOQUE, Respondents

DECISION

PERALTA, J.:

Before us is a Petition for Review on Certiorari  under Rule 45 of the Rules of Court which seeks the reversal of the
1

Decision  dated September 6, 2012, and Resolution  dated March 19, 2013 of the Court of Appeals (CA) in CA-G.R.
2 3

SP No. 113864, which affirmed the dismissal of Civil Case No. 09- 122709 entitled Philippine Numismatic and
Antiquarian Society. Inc. v. Genesis Aquino, et al. by the Regional Trial Court (RTC), Branch 24, Manila.

The factual antecedents are as follows:

Petitioner Philippine Numismatic and Antiquarian Society, Inc. (PNAS) is a non-stock, non-profit domestic
corporation duly organized in accordance with Philippine Laws.   On October 29, 2009, petitioner filed a complaint
4

with the RTC, Branch 24, Manila docketed as Civil Case No. 09- 122388   praying for the issuance of a writ of a
5

preliminary injunction against respondent Angelo Bernardo, Jr. The complaint was verified by respondents Eduardo
M. Chua, Catalino M. Silangil and Percival M. Manuel who claimed to be the attorneys-in-fact of petitioner as per
Secretary's Certificate attached to the complaint. Petitioner was represented by Atty. Faustino S. Tugade as
counsel.  6

On December 22, 2009, another complaint   was filed by petitioner against respondents Genesis Aquino, Angelo
7

Bernardo, Jr., Eduardo M. Chua, Fernando Francisco, Jr., Fermin S. Carino, Percival M. Manuel, Fernando M.
Gaite, Jr., Jose Choa, Tomas De Guzman, Jr., Li Vi Ju, Catalino M. Silangil, Raymundo Santos, Peter Sy, and
Wilson Yuloque docketed as Civil Case No. 09-122709 praying that the Membership Meeting conducted by
defendants on November 25, 2008 be declared null and void. It is, likewise prayed that a temporary restraining
order or a writ of preliminary injunction be issued for the defendants to desist from acting as the true members,
officers and directors of petitioner. The verification was signed by Atty. William L. Villareal.   The petitioner was
8

represented by Siguion Reyna Montecillo and Ongsiako Law Office.  9

On January 26, 2010, considering that there were two different paiiies claiming to be the representative of petitioner,
the RTC issued a Joint Order directing the parties to submit within fifteen (15) days from notice the appropriate
pleadings as to who are the true officers of PNAS and to submit all the documentary exhibits in support of their
respective positions.  10

Only respondents Eduardo M. Chua, Tomas De Guzman, Jr., Catalino M. Silangil, Peter Sy, Fernando Francisco,
Jr., and Percival M. Manuel in Civil Case No. 09-122709 complied with the aforesaid Joint Order. In their
Memorandum, they alleged that Atty. William F. Villareal who signed the verification in the complaint was not
authorized by the Board of Directors of PNAS to institute the complaint in behalf of petitioner corporation, and that
his action in filing the complaint is an ultra vires act and was in violation of Section 23 of the Corporation
Code.   The aforesaid respondents also filed their Answer dated January 29, 2010.
11

On the part of respondents Genesis Aquino, Angelo Bernardo, Jr., Li Vi Ju, and Raymundo Santos, they filed a
Special Entry of Appearance to Question the Issue of Improper Service of Summons and Notices and Motion to
Defer the Proceedings Until All the Said Issues Have Been Resolved. Petitioner then filed a Motion to Declare
Defendants in Default and for Judgment Based on the Complaint dated February 10, 2010. Petitioner likewise filed a
Request for Admission   dated February 17, 2010.
12

Subsequently, on March 15, 2010, the RTC issued a Joint Order   dismissing the complaint, thus:
13
The failure of plaintiff represented by Atty. William F. Villareal who alleged in the complaint that he is the President
of Philippine Numismatic and Antiquarian Society, Inc. and its duly-authorized representative to file the appropriate
pleadings and submit documentary exhibits relative to his authority to file the instant complaint for and in behalf of
plaintiff Philippine Numismatic and Antiquarian Society, Inc. as mandated by the order of this Court during the
hearing on January 26, 2010 lends credence to the assertion of defendants that he has no authority to represent
plaintiff and to file the complaint in Civil Case No. 09- 122709. Consequently, the court has no other recourse but to
order the dismissal of Civil Case No. 09-122709

Accordingly, Civil Case No. 09-122709 entitled Philippine Numismatic and Antiquarian Society, Inc. versus Genesis
Aquino, Angelo Bernardo, Jr., Eduardo M. Chua, Fernando Francisco, Jr., Fermin S. Carino, Percival M. Manuel,
Fernando M. Gaite, Jr., Jose Choa, Tomas De Guzman, Jr., Li Vi Ju, Catalino M. Silangil, Raymundo Santos, Peter
Sy, and Wilson Yuloque is hereby ordered DISMISSED.

This Order likewise renders moot and academic the Motion to Declare Defendants in Default and For Judgment
Based on the Complaint filed by plaintiff in Civil Case No. 09-122709.

SO ORDERED.  14

Petitioner then filed a Petition for Review  dated May 12, 2010 with the CA under Rule 43 of the Rules of Court, in
15

relation to A.M. No. 04-09- 07 dated September 14, 2004. In a Decision dated September 6, 2012, the CA
dismissed the petition.

Petitioner filed a motion for reconsideration,   but the same was denied by the CA on March 19, 2013.
16

Hence, this petition, raising the following issues:

THE COURT OF APPEALS COMMITTED A GRAVE ERROR WHEN IT UPHELD THE DISMISSAL OF THE
INTRA-CORPORATE CASE FOR PURPORTEDLY BEING A NUISANCE SUIT;

II

THE COURT OF APPEALS COMMITTED A GRAVE ERROR WHEN IT REFUSED TO CONSIDER, CONTRARY
TO ESTABLISHED JURISPRUDENCE, A BOARD RESOLUTION/SECRETARY'S CERTIFICATE AS PROOF OF
AUTHORITY TO FILE INITIATORY PLEADINGS FOR AND ON A COMPANY'S BEHALF;

III

THE COURT OF APPEALS DEPARTED FROM THE USUAL COURSE OF PROCEDURE WHEN IT DISMISSED
THE CASE ON PROCEDURAL GROUNDS RATHER THAN ON THE MERITS AND THUS PRECLUDING
PETITIONER FROM A JUST AND PROPER DETERMINATION OF ITS CASE.  17

We deny the petition.

There is no question that a litigation should be disallowed immediately if it involves a person without any interest at
stake, for it would be futile and meaningless to still proceed and render a judgment where there is no actual
controversy to be thereby determined. Courts of law in our judicial system are not allowed to delve on academic
issues or to render advisory opinions. They only resolve actual controversies involving rights that are legally
demandable and enforceable. 18

The Rules of Court, specifically Section 2 of Rule 3 thereof, requires that unless otherwise authorized by law or the
Rules of Court, every action must be prosecuted or defended in the name of the name of the real party-in-interest,
thus:
Sec. 2. Parties-in-interest. - A real party-in-interest is the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules,
every action must be prosecuted or defended in the name of the real party-in-interest.

This provision has two requirements: (1) to institute an action, the plaintiff must be the real party-in-interest; and (2)
the action must be prosecuted in the name of the real party-in-interest. Interest within the meaning of the Rules of
Court means material interest or an interest in issue to be affected by the decree or judgment of the case, as
distinguished from mere curiosity about the question involved. One having no material interest to protect cannot
invoke the jurisdiction of the court as the plaintiff in an action.  The Interim Rules of Procedure for Intra-Corporate
19

Controversies under Republic Act No. 8799 in A.M. No. 01-2-04-SC, effective on April 1, 2001 considers the
suppletory application of the Rules of Court under Section 2, Rule 1, thus:

Section 2. Suppletory application of the Rules of Court. - The Rules of Court, in so far as they may be applicable
and are not inconsistent with these Rules, are hereby adopted to form an integral part of these Rules.

Moreover, We consider the summary nature of the proceedings governed by the Interim Rules which is premised on
one objective which is the expeditious disposition of cases. 20

The purposes of the requirement for the real party in interest prosecuting or defending an action at law are: (a) to
prevent the prosecution of actions by persons without any right, title or interest in the case; (b) to require that the
actual party entitled to legal relief be the one to prosecute the action; (c) to avoid a multiplicity of suits; and (d) to
discourage litigation and keep it within certain bounds, pursuant to sound public policy.  21

The rule on real party-in-interest ensures, therefore, that the party with the legal right to sue brings the action, and
this interest ends when a judgment involving the nominal plaintiff will protect the defendant from a subsequent
identical action. Such a rule is intended to bring before the court the party rightfully interested in the litigation so that
only real controversies will be presented and the judgment, when entered, will be binding and conclusive and the
defendant will be saved from further harassment and vexation at the hands of other claimants to the same
demand.  22

In the case at bar, PNAS, as a corporation, is the real party-in-interest because its personality is distinct and
separate from the personalities of its stockholders.  A corporation has no power, except those expressly conferred
1âwphi1

on it by the Corporation Code and those that are implied or incidental to its existence. In tum, a corporation
exercises said powers through its board of directors and/or its duly-authorized officers and agents. Thus, it
has been observed that the power of a corporation to sue and be sued in any court is lodged with the board
of directors that exercises its corporate powers. In tum, physical acts of the corporation, like the signing of
documents, can be performed only by natural persons duly authorized for the purpose by corporate by-laws
or by a specific act of the board of directors.   It necessarily follows that "an individual corporate officer
23

cannot solely exercise any corporate power pertaining to the corporation without authority from the board
of directors". 24

Section 23, in relation to Sec. 25 of the Corporation Code, clearly enunciates that all corporate powers are
exercised, all business conducted, and all properties controlled by the board of directors. A corporation has
a separate and distinct personality from its directors and officers and can only exercise its corporate powers through
the board of directors. Thus, it is clear that an individual corporate officer cannot solely exercise any corporate
power pertaining to the corporation without authority from the board of directors.  Absent the said board resolution,
25

a petition may not be given due course. The application of the rules must be the general rule, and the suspension or
even mere relaxation of its application, is the exception. This Court may go beyond the strict application of the rules
only on exceptional cases when there is truly substantial compliance with the rule. 26

Hence, since petitioner is a corporation, the certification attached to its complaint filed with the RTC must
be executed by an officer or member of the board of directors or by one who is duly authorized by a
resolution of the board of directors; otherwise, the complaint will have to be dismissed.   Courts are not,
27

after all, expected to take judicial notice of corporate board resolutions or a corporate officers' authority to represent
a corporation.  Petitioner's failure to submit proof that Atty. William L. Villareal has been authorized by PNAS
28

to file the complaint is a sufficient ground for the dismissal thereof.

In Tamondong v. Court of Appeals,  we held that if a complaint is filed for and in behalf of the plaintiff who is not
29

authorized to do so, the complaint is not deemed filed. An unauthorized complaint does not produce any legal effect.
Hence, the court should dismiss the complaint on the ground that it has no jurisdiction over the complaint and the
plaintiff. 
30

In the present case, the real issue is whether Atty. William L. Villareal who claimed to be the President of
PNAS in 2009, was indeed authorized through a Board Resolution to represent PNAS in filing Civil Case No.
09- 122709.

Respondents Genesis Aquino, Angelo Bernardo, Jr., Li Vi Ju, and Raymundo Santos aver that Atty. Villareal was
President in 2007 and was never reelected from then on. They presented the notarized Certificate of Elections
dated November 25, 2008 which shows that respondent Angelo Bernardo, Jr. was the one elected as President,
while respondent Francisco Fernando, Jr. was elected as Secretary for the year 2009 during the election   . held on
31

November 25, 2008. Though the election of officers on November 25, 2008 was the subject of the complaint that
was dismissed, Atty. Villareal did not present any proof that indeed he was President in 2009 when he filed the
complaint.

As correctly ruled by the CA, Atty. Villareal was given the opportunity to prove his authority to institute the complaint
considering that there were two different parties representing the petitioner in two cases filed before the RTC,
Branch 24, Manila. If indeed Atty. Villareal was authorized to file the complaint, he could have simply
presented a Board Resolution to prove that he was authorized. Neither did he file the appropriate pleadings and
submit documentary exhibits relative to his authority to file the complaint for and in behalf of petitioner as mandated
by the Joint Order of the RTC during its hearing on January 26, 2010. As correctly stated by the RTC, such failure
on the part of Atty. Villareal gave credence to the assertion of respondents herein that he has no authority to
represent petitioner and to file the complaint in Civil Case No. 09-122709.

Moreover, the records would show that Atty. Villareal ceased to be a director in 2009, not in 2008 as erroneously
found by the CA. But what is material is that he was not anymore a director in 2009 at the time he filed the
complaint. This is evidenced by the notarized Certificate of Elections  dated November 23, 2008 which shows that
32

he was not among the eleven(11) Directors elected for 2009. The Board of Directors elected were respondents
Fernando Gaite, Angelo Bernardo, Jr., Fermin S. Carifio, Eduardo M. Chua, Catalino M. Silangil, Peter Sy,
Fernando Francisco, Jr., Tomas De Guzman, Jr., Li Vi Ju, Jose Choa and Percival M. Manuel. Also the General
Information Sheet (GJS)   filed on November 27, 2008 shows that respondent Angelo Bernardo, Jr.   was the one
33 34

elected as President for the year 2009, while respondent Francisco Fernando, Jr. was elected as Secretary.

Assuming the officers for 2009 were illegally elected as claimed by Atty. Villareal, We note that Atty. Villareal
could not even be President in a hold-over capacity because he was not the one elected as President in
2008. From his own evidence attached to the petition as Annex "A", the GIS filed on July 10, 2008  shows that it
35

was respondent Tomas Z. De Guzman who was elected as President and respondent Eduardo M. Chua as
Secretary for the year 2008.

The said fact was also stated by the respondents Eduardo M. Chua, Fernando Francisco, Jr., Fermin S. Carifio,
Percival M. Manuel, Tomas De Guzman, Jr., Catalino M. Silangil and Peter Sy in their comment to the instant
petition. They aven-ed that Atty. William Villareal was 2007 President of PNAS. In the year 2008, he was still elected
as one of the eleven (11) members of the Board of Directors during the election on November 25, 2007 held at the
Manila Yacht Club at Roxas Boulevard, Manila. But, he was not anymore elected president. It was respondent
Tomas Z. De Guzman who was elected by a vote of six directors  as against five votes for Atty. William
36

Villareal.  The other officers elected were respondents Catalino M. Silangil (Vice President), Eduardo M. Chua
37

(Secretary), Genesis Aquino (Treasurer) and Angelo Bernardo, Jr. (Auditor).

The aforesaid respondents further averred that Atty. William Villareal and his minority group of directors, namely,
Antonio Carinan, Edward Nocom, Rufino Fermin and Albert Dealino, refused to honor the new set of officers.  Also, 38

Atty. William Villareal allegedly refused to tum-over and submit an accounting of all the records. Thus, respondents
Catalino M. Silangil, Eduardo M. Chua, Angelo Bernardo, Jr. and Fernando M. Gaite, Jr. filed a Complaint for
Annulment of Corporate Acts, Accounting, Inventory, Recovery of Corporate Items, Funds and Properties and for
Damages with Prayer for TRO and Preliminary Injunction before RTC, Branch 46, Manila docketed as Civil Case
No. 08-120341. 39
Furthermore, it was alleged in the instant petition that Atty. Villareal is a member of the Board of Directors since
2001 to present. The General Information Sheet (GIS) for the years 2008 to 2011  were attached to the petition to
40

prove the allegation. We wonder, however, why these documents were not presented in the RTC nor attached to
the petition filed with the CA. We also observe that there were no elected officers for the year 2008 as appearing on
the GIS which was accomplished and filed only in May 18, 2011.  Likewise, the GIS for the years 2009 to 2011
41

where it was stated that Atty. Villaruel was the President appears no indication that it was filed with the SEC. As
stated in the instructions on the GIS, a GIS Form 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. 42

Indeed, there was no proof submitted that Atty. Villareal was duly authorized by petitioner to file the complaint and
sign the verification and certification against forum shopping   dated December 21, 2009. Where the plaintiff is not
43

the real party-in-interest, the ground for the motion to dismiss is lack of cause of action. The reason for this is that
the courts ought not to pass upon questions not derived from any actual controversy. Truly, a person having no
material interest to protect cannot invoke the jurisdiction of the court as the plaintiff in an action. Nor does a court
acquire jurisdiction over a case where the real party- in- interest is not present or imp leaded. 44

Under our procedural rules, "a case is dismissible for lack of personality to sue upon proof that the plaintiff is not the
real party-ininterest, hence, grounded on failure to state a cause of action."   Indeed, considering that all civil actions
45

must be based on a cause of action, definedas the act or omission by which a party violates the right of another, the
former as the defendant must be allowed to insist upon being opposed by the real party-in-interest so that he is
protected from further suits regarding the same claim. Under this rationale, the requirement benefits the defendant
because "the defendant can insist upon a plaintiff who will afford him a setup providing good res judicata protection
if the struggle is carried through on the merits to the end.46

Procedural rules are not to be disdained as mere technicalities that may be ignored at will to suit the convenience of
a party. Adjective law is important in ensuring the effective enforcement of substantive rights through the orderly and
speedy administration of justice. These rules are not intended to hamper litigants or complicate litigation but, indeed
to provide for a system under which a suitor may be heard in the correct form and manner and at the prescribed
time in a peaceful confrontation before a judge whose authority they acknowledge.  47

WHEREFORE, the petition is DENIED. The Decision of Court Appeals dated September 6, 2012, and its Resolution
dated March19, 2013 in CA-G.R. SP No. 113864 are hereby AFFIRMED.
 15.) [G.R. NO. 166904 : August 11, 2008]

MEDIAN CONTAINER CORPORATION, Petitioner, v. METROPOLITAN BANK AND TRUST

COMPANY, Respondent.

DECISION

CARPIO MORALES, J.:

Respondent, Metropolitan Bank and Trust Company (Metrobank), filed a complaint for sum of
money1 on June 23, 2003 before the Regional Trial Court (RTC) of Makati against petitioner Median
Container Corporation (MCC) and the spouses Carlos T. Ley and Fely C. Ley, Vice President/Treasurer
of MCC for failure of MCC to settle the amount of more than P5,000,000 representing the outstanding
balance of loans contracted by MCC, represented by Fely C. Ley.

Summonses addressed as follows to the defendants were issued on July 17, 2003 by Branch 22 of
the Makati RTC:2

MEDIAN CONTAINER CORPORATION

Lot 421 C-4 Katipunan Road Extension, California Village,
San Bartolome, Novaliches, Quezon City

CARLOS T. LEY AND FELY C. LEY

No. 14 Adams Street, West Greenhills, San Juan,
Metro Manila (Underscoring supplied) cralawlibrary

In the August 20, 2003 Process Server's Return,3 no date of filing of which is indicated, process
server George S. de Castro stated that Summons was served on MCC on August 7, 2003 at its given
address upon one Danilo Ong (Ong) as shown by Ong's signature at the left bottom portion of the
Summons, below which signature the process server wrote the words "General Manager."

In the same August 20, 2003 Process Server's Return, the process server stated that he was unable
to serve the Summons upon the spouses Ley at their given address as they were no longer residing
there. Summons was eventually served upon the spouses Ley.

On August 28, 2003, MCC filed a motion to dismiss4 the complaint on the grounds of defective service
of Summons over it and defective verification and certificate against non - forum shopping. The
spouses Ley, upon the impression that the Summons was also served upon them through Ong, also
filed a motion to dismiss on the same grounds as those of MCC's.

In its Motion to Dismiss, MCC alleged that, contrary to the statement in the August 20, 2003 Process
Server's Return,5 Ong, on whom the Summons was served, was not its General Manager, he being
merely a former employee who had resigned as of July 2002.6 In support of its claim, MCC annexed
to its motion photocopies of a resignation letter dated July 31, 2002 and a quitclaim dated August 1,
2002, both purportedly accomplished by Ong.7

Respecting its claim of defective verification and certificate of non-forum shopping, MCC questioned
the authority of Atty. Alexander P. Mendoza to accomplish the same on behalf of Metrobank in this
wise:

. . . A careful perusal of the "authority" discloses that a certain Atty. Ramon S. Miranda delegated his
authority to Atty. Mendoza to "sign the complaint and/or Verification and Certification of Non-Forum
Shopping in the case entitled MBTC v. Median Container Corporation and Spouses Carlos T. Ley and
Fely C. Ley filed before the RTC-Makati City. This authorization was given only on June 03, 2003.

As previously discussed, Atty. Mendoza verified the complaint and signed the certification against
forum shopping on May 28, 2003. Therefore, it is clear that Atty. Mendoza did not have the
proper authorization when he executed the verification and certification against non-forum
shopping because his authority came only at a later date, on June 03, 2003 or six days thereafter. In
effect, there is no valid and effective verification and certification by plaintiff in its
Complaint.8 (Emphasis supplied; underscoring in the original)

By Order9 of January 9, 2004, the trial court denied MCC's Motion to Dismiss. As for the spouses
Ley's motion to dismiss, the trial court denied it for being premature. And the trial court denied too
the movants' respective motions for reconsideration.10

The Process Server's Return dated April 12, 200411 states that alias Summons was served on the
spouses Ley on March 31, 2004.

Only MCC went to the Court of Appeals via Petition for Certiorari filed on May 19, 2004 to assail the
Order of the trial court denying its Motion to Dismiss and its Motion for Reconsideration, arguing in
the main that the trial court "acted with grave abuse of discretion . . . considering that the Complaint
failed to comply with Rule 7, Section 5 of the 1997 Rules of Civil Procedure, the Verification and
Certification thereof having been signed and executed by one who had no authority to bind
respondent Metrobank at the time of such signing and execution."12

As correctly defined by the appellate court, the issues raised by MCC were:

1) the alleged belated filing of Metrobank's Opposition, and

2) the alleged violation of Rule 7, Section 5 of the 1997 Rules of Civil Procedure regarding the
verification/certification against forum shopping.13

By the present challenged Decision of September 23, 2004,14 the appellate court dismissed
petitioner's petition for certiorari, holding that the trial court did not commit any abuse of discretion
since "Atty. Mendoza was already clothed with the proper authority to sign the verification and
certification through a Board's Resolution dated June 3, 2003 when the complaint was filed on June
23, 2003."15

Its definition of the issues raised by MCC notwithstanding, the appellate court found it necessary to
pass upon the unraised issue of improper service of summons, it finding the same to be a "basic
jurisdictional issue and if only to completely dispose of th[e] incident and facilitate the prompt
resolution of the main underlying case (sum of money)."16

Brushing aside the impropriety of service of Summons upon MCC, the Court of Appeals stated:

The case invoked by [MCC] in support of its position that service of summons was improper, is E.B.
Villarosa & Partner Co., Ltd. v. Benito where the Honorable Supreme Court ruled that the trial
court did not acquire jurisdiction over the person of the petitioner (a partnership) where service of
summons was made on a branch manager instead of the general manager at the partnership's
principal office. . . .17 (Emphasis in original)

xxx

After considering the facts and developments in this case in their totality, we believe - as the public
respondent did - that the ruling in the cited Villarosa case should be applied with an eye on the
unusual facts of the present case. We find it significant that the process server in this case certified
that he served the summons upon the "general manager" of the petitioner. The process server
apparently was fully aware of the strict requirements of the Rules as interpreted in the
cited Villarosa case. The twist in the process certification is the petitioner's claim that Danilo Ong, the
person who received the summons, was not the general manager but was a mere former employee.
In other words, unlike in Villarosa where summons was served on the branch manager(a patently
wrong party under the requirements of the Rules), there was, in the present case, the INTENTION on
the part of the process server to observe the mandatory requirements on the services of summons
and to serve it on the correct recipient.18 (Emphasis in the original; capitalization and underscoring
supplied)

Its Motion for Reconsideration19 having been denied,20 MCC filed the present Petition for Review on
Certiorari21 raising the following issues including, this time, the impropriety of service of Summons
upon it, thus, whether:

. . . A COMPLAINT SHOULD PROPERLY BE DISMISSED FOR FAILURE TO COMPLY WITH RULE 7,

SECTON 5 OF THE 1997 RULES OF CIVIL PROCEDURE, THE VERIFICATION AND CERTIFICATION
PORTION THEREOF HAVING BEEN SIGNED AND EXECUTED BY ONE WHO HAD NO AUTHORITY TO
BIND THE PARTY-PLAINTIFF AT THE TIME OF SUCH SIGNING AND EXECUTION;

. . . IT IS FULL COMPLIANCE WITH RULE 14, SECTION 11 OF THE 1997 RULES OF CIVIL

PROCEDURE, OR THE MERE INTENTION OF THE PROCESS SERVER TO SERVE THE SUMMONS ON THE
INTENDED RECIPIENT, THAT DETERMINES THE VALIDITY OF SERVICE OF SUMMONS WHEN THE
DEFENDANT IS A DOMESTIC PRIVATE CORPORATION; and cralawlibrary

. . . IT IS THE ACTUAL RECEIPT OF THE SUMMONS, OR THE VALID SERVICE OF SUMMONS IN

ACCORDANCE WITH THE RULES, THAT VESTS THE TRIAL COURT WITH JURISDICTION OVER THE
PERSON OF THE DEFENDANT.22 (Underscoring supplied) cralawlibrary

Verification is a formal, not jurisdictional, requirement.23 It is simply intended to secure an assurance

that the allegations in the pleading are true and correct, and that the pleading is filed in good
faith.24 That explains why a court may order the correction of the pleading if verification is lacking, or
act on the pleading although it is not verified, if the attending circumstances are such that strict
compliance with the rules may be dispensed with in order to serve the ends of justice.25

As for the required certification against forum shopping, failure to comply therewith is generally not
curable by its submission subsequent to the filing of the petition nor by amendment, and is cause for
its dismissal.26 A certification against forum shopping signed by a person on behalf of a
corporation which is unaccompanied by proof that the signatory is authorized to file the
petition27 is generally likewise cause for dismissal. In several cases, however, this Court
relaxed the application of these requirements upon appreciation of attendant special
circumstances or compelling reasons. Shipside Incorporated v. Court of Appeals28 cites some of
those instances:

. . . In Loyola v. Court of Appeals, et. al. . . ., the Court considered the filing of the certification one
day after the filing of an election protest as substantial compliance with the requirement. In Roadway
Express, Inc. v. Court of Appeals, et. al. . . .  , the Court allowed the filing of the certification 14 days
before the dismissal of the petition. In Uy v. LandBank, . . ., the Court had dismissed Uy's petition for
lack of verification and certification against non-forum shopping. However, it subsequently reinstated
the petition after Uy submitted a motion to admit [verification] and non-forum shopping
certification. In all these cases, there were special circumstances or compelling reasons that justified
the relaxation of the rule requiring verification and certification on non-forum shopping.

In the instant case, the merits of petitioner's case should be considered special circumstances or

compelling reasons that justify tempering the requirement in regard to the certificate of non-forum
shopping. Moreover, in Loyola, Roadway,  and Uy, the Court excused non-compliance with the
requirement as to the certificate of non-forum shopping. With more reason should we allow the
instant petition since petitioner herein did submit a certification on non-forum shopping , failing only
to show proof that the signatory was authorized to do so. That petitioner subsequently submitted a
secretary's certificate attesting that Balbin was authorized to file an action on behalf of petitioner
likewise mitigates this oversight.29 (Emphasis and underscoring supplied) cralawlibrary

In the case at bar, simultaneous with the filing of the complaint, Metrobank submitted
both a certification of non-forum shopping and proof that Atty. Mendoza who signed it on
its behalf was authorized to do so. The proof of authorization of Atty. Mendoza was dated
later than the date of his signing of the certification of non-forum shopping, however, thus
giving the impression that he, at the time he affixed his signature, was not authorized to
do so. The passing on June 3, 2004 of a Board Resolution of authorization before the
actual filing on June 23, 2004 of the complaint, however, is deemed a ratification of Atty.
Mendoza's prior execution on May 28, 2004 of the verification and certificate of non-forum
shopping, thus curing any defects thereof.30

As for MCC's contention that the summons addressed to it was served on a wrong party, hence, the
trial court did not acquire jurisdiction over it, the same fails.

A certificate of service by a proper officer is prima facie evidence of the facts set out therein, and the
presumption arising from the certificate can only be overcome by clear and convincing evidence.31

To disprove that Ong was neither its General Manager or an employee of MCC at the time of the
service of summons, MCC submitted before the trial court a photocopy of his purported July 31, 2003
resignation letter and a photocopy of an August 1, 2003 Quitclaim purportedly signed by him. MCC
did not present the original copies of these documents.32 Be that as it may, the appellate court's en
passant disposition of the questioned service of summons, viz:

. . . [W]e searched the records - particularly the motion to dismiss filed by the petitioner - for the
reason why and how service was made on a former employee who was then at the correct address,
who signed for the summons, and whom the process server identified as "general manager". We note
that aside from the bare allegation that the court did not have jurisdiction due to improper service of
summons, no statement was ever made to explain why a former employee was at petitioner's
premises and ended up receiving the summons served by the process server. Truly, we wondered
why a process server who apparently knew the technicalities of his duties so served the summons
and then certified that service was upon the general manager, even naming Danilo Ong as the
general manager.

This aberrant turn of events and the questions it raises convince us that we cannot view the service
of summons in this case along the strict lines of Villarosa whose attendant facts are both simple and
different. What should assume materiality here are the following circumstances: that the process
server went to the correct address of the petitioner to serve the summons; that the summons was
received at that address by a person who was there; that the petitioner does not dispute that it
ultimately received the summons; and that the process server certified in his return that service
was duly made upon the general manager whom he identified as Danilo Ong who acknowledged
receipt of the summons by signing on the lower portion thereof.33 (Emphasis and italics in the
original; underscoring supplied),

persuades as this Court notes the dubious proof that Ong had resigned from MCC at the time the
summons was served. Consider this: The signature attributed to Ong in the photocopy of his
purported July 31, 2002 letter of resignation effective also on July 31, 2002, and the signature
attributed to him in the photocopy of the August 1, 2002 Quitclaim he purportedly executed, appear
to have been written by a hand different from that which affixed the signature attributed to him on
the Summons.
WHEREFORE, the petition is DENIED.
 16.) G.R. No. 225035, February 08, 2017

CARSON REALTY & MANAGEMENT CORPORATION, Petitioner, v. RED ROBIN SECURITY

AGENCY AND MONINA C. SANTOS, Respondents.

DECISION

VELASCO JR., J.:

Nature of the Case

This is a petition for review under Rule 45 of the Rules of Court, which seeks to reverse and set aside
the August 20, 2015 Decision1 and June 8, 2016 Resolution2 of the Court of Appeals (CA) in CA-G.R.
SP No. 121983. chanroblesvirtuallawlibrary

Factual Antecedents

The facts according to the CA are as follows:

On March 23, 2007, respondent Monina C. Santos (Santos) filed a Complaint for Sum of Money and
Damages against petitioner Carson Realty & Management Corp. (Carson) with the Quezon City
Regional Trial Court (RTC), Branch 216. As per the Officer's Return dated April 12, 2007 of Process
Server Jechonias F. Pajila, Jr. (Process Server Pajila), a copy of the Summons dated April 11, 2007,
together with the Complaint and its annexes, was served upon Carson at its business address at Unit
601 Prestige Tower Condominium, Emerald Avenue, Ortigas Center, Pasig City, through its "corporate
secretary," Precilla S. Serrano.3

Thereafter, the appointed Corporate Secretary and legal counsel of Carson, Atty. Tomas Z. Roxas, Jr.
(Atty. Roxas), filed an Appearance and Motion dated April 25, 2007 with the court wherein the latter
entered his appearance and acknowledged that the Summons was served and received by one of the
staff assistants of Carson. Atty. Roxas prayed for an extension of fifteen (15) days from April 27,
2007 within which to file a responsive pleading. The RTC, in its Order dated May 3, 2007, noted the
appearance of Atty. Roxas as counsel for Carson and granted his request for extension of time to file
a responsive pleading.4

Instead of filing a responsive pleading, Atty. Roxas moved to dismiss the complaint,
alleging that the Summons dated April 11, 2007 was not served on any of the officers and
personnel authorized to receive summons under the Rules of Court.5

In her Comment, Santos countered that while the Summons was initially received by Serrano, who
as it turned out was a staff assistant and not the corporate secretary of Carson, the corporation
acknowledged receipt of the Summons when Atty. Roxas alleged in his Appearance and Motion that
he may not be able to comply with the 15-day prescribed period stated in the Summons within which
to file a responsive pleading. Thus, when Carson sought for an affirmative relief of a 15-day
extension from April 27, 2007 to file its pleading, it already voluntarily submitted itself to the
jurisdiction of the RTC.6

The RTC denied Carson's Motion to Dismiss and directed the issuance of an alias summons to be
served anew upon the corporation. On November 9, 2007, Process Server Pajila submitted his
Officer's Report stating in essence that he attempted to serve the alias Summons dated
September 24, 2007 on the President and General Manager of Carson, as well as on the
Board of Directors and Corporate Secretary, but they were not around. Hence, he was
advised by a certain Lorie Fernandez, the '"secretary" of the company, to bring the alias
Summons to the law office of Atty. Roxas. Process Server Pajila attempted to serve the
alias Summons at the law office of Atty. Roxas twice, but to no avail. This prompted him to
resort to substituted service of the alias Summons by leaving a copy thereof with a certain
Mr. JR Taganila, but the latter also refused to acknowledge receipt of the alias Summons.7

Atty. Roxas filed a Manifestation stating that the alias Summons was again improperly and invalidly
served as his law office was not empowered to receive summons on behalf of Carson. In relation
thereto, Atty. Roxas maintained that substituted service is not allowed if the party
defendant is a corporation. Thus, Atty. Roxas manifested his intention of returning the alias
Summons to the RTC.

On December 10, 2007, Santos filed a Motion to Declare Defendant in Default. Finding that there was
an improper service of summons on Carson, the RTC denied the motion.

Thereafter, Santos requested the RTC for the issuance of another alias Summons. The RTC granted
this request and issued an alias Summons dated September 9, 2008. Process Server Pajila submitted
his Officer's Return dated October 28, 2008 on the services of the alias Summons, quoted hereunder
in full:
chanRoblesvirtualLawlibrary

THIS IS TO CERTIFY that on October 2, 2008 at around 12:51 in the afternoon, when a copy of Alias
Summons dated September 9, 2008 issued in the above-entitled case together with a copy of the
complaint and annexes attached thereto was brought for service to the President/General Manager of
CARSON REALTY & MANAGEMENT CORP., in the person of Marcial M. Samson and/or Nieva A Cabrera
at its office address at Unit 601 Prestige Tower Condominium, Emerald Avenue, Ortigas Center, 1605
Pasig City, undersigned was informed by the secretary of the company in the person of Ms. Vina
Azonza that the abovementioned persons were not around and there was no one in the company
authorized to receive the aforesaid summons. That the undersigned went back to the said office on
October 16, 2008 at around 3:08 in the afternoon and was entered by Ms. Lorie Fernandez, also an
employee of the company who is authorized to receive the said process. On October 27, 2008, at
around 2:23 in the afternoon, undersigned tried again to serve the same process to the
President/General Manager of Carson Realty & Management Corp. but with the same result.

Finally, on October 28, 2008 at around 1:03 in the afternoon, the undersigned went back to the said
company to personally serve the Alias Summons together with the other pertinent documents, just
the same, the President/General Manager of the company was not around, hence, substituted
service of summons was resorted to by leaving the copy of the Alias Summons at the
company's office through its employee, MS. LORIE FERNANDEZ, however, she refused to
acknowledge receipt of the process. ChanRoblesVirtualawlibrary

Loreta M. Fernandez (Fernandez), the receptionist who received the September 9, 2008 alias
Summons, filed a Manifestation before the RTC signifying her intention of returning the alias
Summons, together with the Complaint. Fernandez posited that, as a mere receptionist, she had no
authority to receive the said documents and that there was an improper service of summons.

Santos filed a second Motion to Declare Defendant in Default in January 2009. The RTC granted the
motion and allowed her to present her evidence ex-parte in its Order dated June 29, 2009.8

On August 27, 2009, Carson filed an Urgent Motion to Set Aside Order of Default 9 alleging
that the RTC has yet to acquire jurisdiction over its person due to improper service of
summons. The RTC denied the same in its December 4, 2009 Order.10

Carson filed an Urgent Motion for Reconsideration and for Leave of Court to Admit Responsive
Pleading on March 17, 2010, appending thereto its Answer with Counterclaims. This was opposed by
Santos in her Comment/Opposition. In the meantime, Santos filed an Ex-Parte Motion to Set for
Hearing and for Reception of Evidence Before the Branch Clerk of Court.11 On November 22, 2010,
the RTC rendered an Order12 denying Carson's Urgent Motion for Reconsideration and granting
Santos' Ex-Parte Motion to Set Case for Hearing and for Reception of Evidence Before the Branch
Clerk.13

Carson filed a Motion for Clarification and prayed for the annulment of the Orders dated June 29,
2009, December 4, 2009, and November 22, 2010. The RTC, however, maintained its stance and
denied the motion in its Order14 dated September 9, 2011.

Thus, Carson filed a Petition for Certiorari15 dated November 9, 2011 under Rule 65 of the Rules of
Court with the CA, imputing grave abuse of discretion amounting to lack or excess of jurisdiction to
the RTC for issuing the Orders dated June 29, 2009, December 4, 2009, November 22, 2010, and
September 9, 2011. Carson essentially questioned the validity of the service of the second alias
Summons dated September 9, 2008, received by Fernandez, who is a receptionist assigned at its
office in Ortigas.
chanroblesvirtuallawlibrary

Ruling of the Court of Appeals

The CA denied the petition and ruled that the RTC had properly acquired jurisdiction over Carson due
to its voluntary appearance in court. In ruling thus, the CA considered Carson's act of requesting
additional time to file its responsive pleading as voluntary submission to the jurisdiction of the trial
court.

Even on the assumption that Carson did not voluntarily submit to the RTC's jurisdiction, the CA
maintained that the RTC still acquired jurisdiction over it due to the substituted service of the alias
Summons dated September 9, 2008. The appellate court reasoned that Fernandez is a competent
person charged with authority to receive court documents on behalf of the
corporation.16 Consequently, the CA upheld the Order dated June 29, 2009 declaring Carson in
default.

Carson moved for reconsideration but was denied by the CA in its Resolution dated June 8, 2016.
Hence, this petition.

Carson, in the main, argues that the trial court did not acquire jurisdiction over its person because
the summons was not properly served upon its officers as mandated under Section 11,17 Rule 14 of
the Rules of Court. Thus, Carson posits, the RTC improperly declared it in default and should not
have allowed Santos to present her evidence ex-parte. chanroblesvirtuallawlibrary

Issues

The pertinent issues for the resolution of this Court can be summarized, as follows:

(1) Whether the RTC acquired jurisdiction over Carson.

(2) Whether Carson was properly declared in default. chanroblesvirtuallawlibrary

Our Ruling

The petition is bereft of merit.

In actions in personam, such as the present case, the court acquires jurisdiction over the person of
the defendant through personal or substituted service of summons. However, because substituted
service is in derogation of the usual method of service and personal service of summons is preferred
over substituted service, parties do not have unbridled right to resort to substituted service of
summons. Before substituted service of summons is resorted to, the parties must: (a) indicate the
impossibility of personal service of summons within a reasonable time; (b) specify the efforts exerted
to locate the defendant; and (c) state that the summons was served upon a person of sufficient age
and discretion who is residing in the address, or who is in charge of the office or regular place of
business of the defendant.18
In relation to the foregoing, Manotoc v. Court of Appeals119 provides an exhaustive discussion on
what constitutes valid resort to substituted service of summons:
chanRoblesvirtualLawlibrary

(1) Impossibility of Prompt Personal Service

The party relying on substituted service or the sheriff must show that defendant cannot be served
promptly or there is impossibility of prompt service. Section 8, Rule 14 provides that the plaintiff or
the sheriff is given a "reasonable time" to serve the summons to the defendant in person, but no
specific time frame is mentioned. "Reasonable time" is defined as "so much time as is necessary
under the circumstances for a reasonably prudent and diligent man to do, conveniently, what the
contract or duty requires that should be done, having a regard for the rights and possibility of loss, if
any, to the other party." Under the Rules, the service of summons has no set period.

However, when the court, clerk of court, or the plaintiff asks the sheriff to make the return of the
summons and the latter submits the return of summons, then the validity of the summons lapses.
The plaintiff may then ask for an alias summons if the service of summons has failed. What then is a
reasonable time for the sheriff to effect a personal service in order to demonstrate impossibility of
prompt service? To the plaintiff, "reasonable time" means no more than seven (7) days since an
expeditious processing of a complaint is what a plaintiff wants. To the sheriff: "reasonable time"
means 15 to 30 days because at the end of the month, it is a practice for the branch clerk of court to
require the sheriff to submit a return of the summons assigned to the sheriff for service. The Sheriffs
Return provides data to the Clerk of Court, which the clerk uses in the Monthly Report of Cases to be
submitted to the Office of the Court Administrator within the first ten (10) days of the succeeding
month. Thus, one month from the issuance of summons can be considered "reasonable time" with
regard to personal service on the defendant.

Sheriffs are asked to discharge their duties on the service of summons with due care, utmost
diligence, and reasonable promptness and speed so as not to prejudice the expeditious dispensation
of justice. Thus, they are enjoined to try their best efforts to accomplish personal service on
defendant. On the other hand, since the defendant is expected to try to avoid and evade service of
summons, the sheriff must be resourceful, persevering, canny, and diligent in serving the process on
the defendant. For substituted service of summons to be available, there must be several attempts
by the sheriff to personally serve the summons within a reasonable period [of one month] which
eventually resulted in failure to prove impossibility of prompt service. "Several attempts" means at
least three (3) tries, preferably on at least two different dates. In addition, the sheriff must cite why
such efforts were unsuccessful. It is only then that impossibility of service can be confirmed or
accepted.

(2) Specific Details in the Return

The sheriff must describe in the Return of Summons the facts and circumstances surrounding the
attempted personal service. The efforts made to find the defendant and the reasons behind the
failure must be clearly narrated in detail in the Return. The date and time of the attempts on
personal service, the inquiries made to locate the defendant, the name/s of the occupants of the
alleged residence or house of defendant and all other acts done, though futile, to serve the summons
on defendant must be specified in the Return to justify substituted service. The form on Sheriffs
Return of Summons on Substituted Service prescribed in the Handbook for Sheriffs published by the
Philippine Judicial Academy requires a narration of the efforts made to find the defendant personally
and the fact of failure. Supreme Court Administrative Circular No. 5 dated November 9, 1989
requires that "impossibility of prompt service should be shown by stating the efforts made to find the
defendant personally and the failure of such efforts," which should be made in the proof of service.

(3) A Person of Suitable Age and Discretion

If the substituted service will be effected at defendant's house or residence, it should be left with a
person of "suitable age and discretion then residing therein." A person of suitable age and discretion
is one who has attained the age of full legal capacity (18 years old) and is considered to have enough
discernment to understand the importance of a summons. "Discretion" is defined as "the ability to
make decisions which represent a responsible choice and for which an understanding of what is
lawful, right or wise may be presupposed". Thus, to be of sufficient discretion, such person must
know how to read and understand English to comprehend the import of the summons, and fully
realize the need to deliver the summons and complaint to the defendant at the earliest possible time
for the person to take appropriate action. Thus, the person must have the "relation of confidence" to
the defendant, ensuring that the latter would receive or at least be notified of the receipt of the
summons. The sheriff must therefore determine if the person found in the alleged dwelling or
residence of defendant is of legal age, what the recipient's relationship with the defendant is, and
whether said person comprehends the significance of the receipt of the summons and his duty to
immediately deliver it to the defendant or at least notify the defendant of said receipt of summons.
These matters must be clearly and specifically described in the Return of Summons.

(4) A Competent Person in Charge

If the substituted service will be done at defendant's office or regular place of business, then it
should be served on a competent person in charge of the place. Thus, the person on whom the
substituted service will be made must be the one managing the office or business of defendant, such
as the president or manager; and such individual must have sufficient knowledge to understand the
obligation of the defendant in the summons, its importance, and the prejudicial effects arising from
inaction on the summons. Again, these details must be contained in the Return. ChanRoblesVirtualawlibrary

The substituted service of summons is valid

While Our pronouncement in Manotoc has been strictly applied to several succeeding cases, We do
not cling to such strictness in instances where the circumstances justify substantial compliance with
the requirements laid down therein. It is the spirit of the procedural rules, not their letter, that
governs.20

In Sagana v. Francisco,21 the substituted service of summons was questioned for non-compliance

with the Rules, since the summons was not allegedly served at defendant's residence or left with any
person who was authorized to receive it on behalf of the defendant. We upheld the validity of the
substituted service of summons due to the defendant's evident avoidance to receive the summons
personally despite the process server's diligent efforts to effect personal service upon him. We
explained:
chanRoblesvirtualLawlibrary

We do not intend this ruling to overturn jurisprudence to the effect that statutory requirements of
substituted service must be followed strictly, faithfully, and fully, and that any substituted service
other than that authorized by the Rules is considered ineffective. However, an overly strict
application of the Rules is not warranted in this case, as it would clearly frustrate the spirit of the law
as well as do injustice to the parties, who have been waiting for almost 15 years for a resolution of
this case. We are not heedless of the widespread and flagrant practice whereby defendants actively
attempt to frustrate the proper service of summons by refusing to give their names, rebuffing
requests to sign for or receive documents, or eluding officers of the court. Of course it is to be
expected that defendants try to avoid service of summons, prompting this Court to declare that, "the
sheriff must be resourceful, persevering, canny, and diligent in serving the process on the
defendant." However, sheriffs are not expected to be sleuths, and cannot be t1mlted where the
defendants themselves engage in deception to thwart the orderly administration of justice. ChanRoblesVirtualawlibrary

Similarly, given the circumstances in the case at bench, We find that resort to substituted service
was warranted since the impossibility of personal service is clearly apparent.

A perusal of the Officer's Return dated October 28, 2008 detailing the circumstances surrounding the
service of the second alias Summons dated September 9, 2008 shows that the foregoing
requirements for a valid substituted service of summons were substantially complied with.
Indeed, the Return established the impossibility of personal service to Carson's officers, as shown by
the efforts made by Process Server Pajila to serve the September 8, 2008 alias Summons on
Carson's President/General Manager. In particular, several attempts to serve the summons on these
officers were made on four separate occasions: October 2, 2008, October 16, 2008, October 27,
2008, and October 28, 2008, but to no avail.

On his fourth and final attempt, Process Server Pajila served the summons on Fernandez, Carson's
receptionist, due to the unavailability and difficulty to locate the company's corporate officers. The
pertinent portion of the Return states:
chanRoblesvirtualLawlibrary

[S]ubstituted service of summons was resorted to by leaving the copy of the Alias Summons at the
company's office through its employee, MS. LORIE FERNANDEZ, however, she refused to
acknowledge receipt of the process. ChanRoblesVirtualawlibrary

Based on the facts, there was a deliberate plan of Carson's for its officers not to receive the
Summons. It is a legal maneuver that is in derogation of the rules on Summons. We cannot tolerate
that.

The facts now show that the responsible officers did not intend to receive the alias Summons through
substituted service. The Summons is considered validly served.

The RTC acquired jurisdiction over Carson

In any event, even if We concede the invalidity of the substituted service, such is of little significance
in view of the fact that the RTC had already acquired jurisdiction over Carson early on due to its
voluntary submission to the jurisdiction of the court.

Courts acquire jurisdiction over the plaintiffs upon the filing of the complaint. On the other hand,
jurisdiction over the defendants in a civil case is acquired either through the service of summons
upon them or through their voluntary appearance in court and their submission to its authority,22 as
provided in Section 20,23 Rule 14 of the Rules of Court.

On this score, Philippine Commercial International Bank v. Spouses Day24 instructs that:

chanRoblesvirtualLawlibrary

As a general proposition, one who seeks an affirmative relief is deemed to have submitted to the
jurisdiction of the court. It is by reason of this rule that we have had occasion to declare that the
filing of motions to admit answer, for additional time to file answer, for reconsideration of a default
judgment, and to lift order of default with motion for reconsideration, is considered voluntary
submission to the court's jurisdiction. This, however, is tempered only by the concept of conditional
appearance, such that a party who makes a special appearance to challenge, among others, the
court's jurisdiction over his person cannot be considered to have submitted to its authority.
Prescinding from the foregoing, it is thus clear that:

(1) Special appearance operates as an exception to the general rule on voluntary appearance; chanrobleslaw

(2) Accordingly, objections to the jurisdiction of the court over the person of the defendant must be
explicitly made, i.e., set forth in an unequivocal manner; and

(3) Failure to do so constitutes voluntary submission to the jurisdiction of the court, especially in
instances where a pleading or motion seeking affirmative relief is filed and submitted to the court for
resolution. (underscoring supplied) ChanRoblesVirtualawlibrary

We have, time and again, held that the filing of a motion for additional time to file answer is
considered voluntary submission to the jurisdiction of the court.25  If the defendant knowingly does
cralawred

an act inconsistent with the right to object to the lack of personal jurisdiction as to him, like
voluntarily appearing in the action, he is deemed to have submitted himself to the jurisdiction of the
court.26 Seeking an affirmative relief is inconsistent with the position that no voluntary appearance
had been made, and to ask for such relief, without the proper objection, necessitates submission to
the Court's jurisdiction.27

Carson voluntarily submitted to the jurisdiction of the RTC when it filed, through Atty. Roxas, the
Appearance and Motion dated April 25, 2007 acknowledging Carson's receipt of the Summons dated
April 11, 2007 and seeking additional time to file its responsive pleading. As noted by the CA, Carson
failed to indicate therein that the Appearance and Motion was being filed by way of a conditional
appearance to question the regularity of the service of summons. Thus, by securing the affirmative
relief of additional time to file its responsive pleading, Carson effectively voluntarily submitted to the
jurisdiction of the RTC.

Carson was properly declared in default

Section 3, Rule 9 of the Rules of Court states when a party may be properly declared in default and
the remedy available in such case:
chanRoblesvirtualLawlibrary

SEC. 3. Default; declaration of. - If the defending party fails to answer within the time allowed
therefor, the court shall, upon motion of the claiming party with notice to the defending party, and
proof of such failure, declare the defending party in default. Thereupon, the court shall proceed to
render judgment granting the claimant such relief as his pleading may warrant, unless the court in its
discretion requires the claimant to submit evidence. Such reception of evidence may be delegated to
the clerk of court.
(a) Effect of order of default. - A party in default shall be entitled to notice of subsequent proceedings
but not to take part in the trial.

(b) Relief from order of default. - A party declared in default may at any time after notice thereof and
before judgment file a motion under oath to set aside the order of default upon proper showing that
his failure to answer was due to fraud, accident, mistake or excusable negligence and that he has a
meritorious defense. In such case, the order of default may be set aside on such terms and
conditions as the judge may impose in the interest of justice. (emphasis supplied) ChanRoblesVirtualawlibrary

Carson moved to dismiss the complaint instead of submitting a responsive pleading within fifteen
(15) days from April 27, 2007 as prayed for in its Appearance and Motion. Clearly, Carson failed to
answer within the time allowed for by the RTC. At this point, Carson could have already been validly
declared in default. However, believing that it has yet to acquire jurisdiction over Carson, the RTC
issued the September 24, 2007 and September 9, 2008 alias Summons. This culminated in the
issuance of the assailed June 29, 2009 Order declaring Carson in default on the basis of the
substituted service of the September 9, 2008 alias Summons. While Carson filed its Urgent Motion to
Lift Order of Default, the CA found that the same failed to comply with the requirement under Sec.
3(b) that the motion be under oath.

It bears noting that the propriety of the default order stems from Carson's failure to file its
responsive pleading despite its voluntary submission to the jurisdiction of the trial court reckoned
from its filing of the Appearance and Motion, and not due to its failure to file its answer to the
September 8, 2008 alias Summons. This conclusion finds support in Atiko Trans, Inc. and Cheng Lie
Navigation Co., Ltd v. Prudential Guarantee and Assurance, Inc.,28 wherein We upheld the trial
court's order declaring petitioner Atiko Trans, Inc. (Atiko) in default despite the invalid service of
summons upon it. In this case, respondent Prudential Guarantee and Assurance Inc. (Prudential)
moved to declare Atiko in default due to the latter's failure to file its responsive pleading despite
receipt of the summons. Acting on Prudential's motion, the trial court declared Atiko in default. In
affirming the validity of the default order, We took note that the trial court acquired jurisdiction over
Atiko due to its voluntary submission to the jurisdiction of the court by filing numerous pleadings
seeking affirmative relief, and not on the strength of the invalidly served summons.

In a similar vein, the erroneous basis cited in the June 29, 2009 Order, due to the RTC's mistaken
belief that the substituted service vested it with jurisdiction over Carson, does not render the
pronouncement invalid in view of the existence of a lawful ground therefor.
WHEREFORE, the petition is DENIED. The Decision dated August 20, 2015 and Resolution dated
June 8, 2016 of the Court of Appeals in CA G.R. SP No. 121983 are AFFIRMED.