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PHILIPS EXPORT VS.

COURT OF APPEALS- Corporate Trade Name


A corporations right to use its corporate and trade name is a property right, a
right in rem, which it may assert and protect against the whole world.

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

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

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

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


(1) the complainant corporation must have acquired a prior right over the use of
such corporate name and
(2) the proposed name is either identical or deceptively or confusingly similar to
that of any existing corporation or to any other name already protected by law or
patently deceptive, confusing or contrary to existing law.

With regard to the 1st requisite, PEBV adopted the name Philips part of its
name 26 years before Standard Philips. As regards the 2nd, the test for the
existence of confusing similarity is whether the similarity is such as to mislead a
person using ordinary care and discrimination. Standard Philips only contains one
word, Standard, different from that of PEBV. The 2 companies products are also
the same, or cover the same line of products. Although PEBV primarily deals with
electrical products, it has also shipped to its subsidiaries machines and parts
which fall under the classification of chains, rollers, belts, bearings and cutting
saw, the goods which Standard Philips also produce. Also, among Standard
Philips primary purposes are to buy, sell trade x x x electrical wiring devices,
electrical component, electrical supplies. Given these, there is nothing to prevent
Standard Philips from dealing in the same line of business of electrical devices.
The use of Philips by Standard Philips tends to show its intention to ride on the
popularity and established goodwill of PEBV.

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 1 swept aside Petitioners' claim that following the ruling in Converse
Rubber Corporation v. Universal Converse Rubber Products, Inc., et al, (G. R. No.
L-27906, January 8, 1987, 147 SCRA 154), the word PHILIPS cannot be used as
part of Private Respondent's corporate name as the same constitutes a dominant
part of Petitioners' corporate names. In so holding, the Appellate Court observed
that the Converse case is not four-square with the present case inasmuch as the
contending parties in Converse are engaged in a similar business, that is, the
manufacture of rubber shoes. Upholding the SEC, the Appellate Court concluded
that "private respondents' products consisting of chain rollers, belts, bearings and
cutting saw are unrelated and non-competing with petitioners' products i.e.
electrical lamps such that consumers would not in any probability mistake one as
the source or origin of the product of the other."
The Appellate Court denied Petitioners' Motion for Reconsideration on 20
November 1990, hence, this Petition which was given due course on 22 April
1991, after which the parties were required to submit their memoranda, the
latest of which was received on 2 July 1991. In December 1991, the SEC was also
required to elevate its records for the perusal of this Court, the same not having
been apparently before respondent Court of Appeals.
We find basis for petitioners' plea.
As early as Western Equipment and Supply Co. v. Reyes, 51 Phil. 115 (1927), the
Court declared that a corporation's right to use its corporate and trade name is a
property right, a right in rem, which it may assert and protect against the world in

the same manner as it may protect its tangible property, real or personal, against
trespass or conversion. It is regarded, to a certain extent, as a property right and
one which cannot be impaired or defeated by subsequent appropriation by
another corporation in the same field (Red Line Transportation Co. vs. Rural
Transit Co., September 8, 1934, 20 Phil 549).
A name is peculiarly important as necessary to the very existence of a
corporation (American Steel Foundries vs. Robertson, 269 US 372, 70 L ed 317,
46 S Ct 160; Lauman vs. Lebanon Valley R. Co., 30 Pa 42; First National Bank vs.
Huntington Distilling Co. 40 W Va 530, 23 SE 792). Its name is one of its
attributes, an element of its existence, and essential to its identity (6 Fletcher
[Perm Ed], pp. 3-4). The general rule as to corporations is that each corporation
must have a name by which it is to sue and be sued and do all legal acts. The
name of a corporation in 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.
No costs.
SO ORDERED.
Paras, Padilla, Regalado and Nocon, JJ., concur.

Footnotes
1
Second Division, composed of Justice Jose A. R. Melo, Chairman, Justice
Antonio M. Martinez, Ponente, and Justice Nicolas P. Lapea, Jr., Member.
CASE DIGEST: Universal Mills Corporation vs. Universal Textile Mills
78 SCRA 62 (1977)

FACTS:
This is an appeal from the order of the Securities and Exchange Commission
granting a petition by the respondent to have the petitioners corporate name be
changed as it is confusingly and deceptively similar to that of the former.
On January 8, 1954, respondent Universal Textile Mills was issued a certificate of
Corporation as a textile manufacturing firm. On the other hand, petitioner, which
deals in the production of hosieries and apparels, acquired its current name by
amending its articles of incorporation, changing its name from Universal Hosiery
mills Corporation to Universal Mills corporation.
ISSUE:
Whether or not petioners trade name is confusingly similar with that of
respondents.
HELD:
Yes. The corporate names in question are not identical, but they are indisputably
so similar that even under the test of reasonable care and observation as the
public generally are capable of using and may be expected to exercise invoked
by appellant. We are apprehensive confusion will usually arise, considering that x
x x appellant included among its primary purposes the manufacturing, dyeing,
finishing and selling of fabrics of all kinds which respondent had been engaged
for more than a decade ahead of petitioner.

G.R. No. L-28351

July 28, 1977

UNIVERSAL MILLS CORPORATION, petitioner,


vs.
UNIVERSAL TEXTILE MILLS, INC., respondent.
Emigdio G. Tanjuatco for petitioner.

Picazo, Santayana, Reyes, Tayao & Alfonso for respondent.

DECISION
BARREDO, J.:
Appeal from the order of the Securities and Exchange Commission in S.E.C. Case
No. 1079, entitled In the Matter of the Universal Textile Mills, Inc. vs. Universal
Mills Corporation, a petition to have appellant change its corporate name on the
ground that such name is confusingly and deceptively similar to that of
appellee, which petition the Commission granted.
According to the order, the Universal Textile Mills, Inc. was organized on
December 29, 1953, as a textile manufacturing firm for which it was issued a
certificate of registration on January 8, 1954. The Universal Mills Corporation, on
the other hand, was registered in this Commission on October 27, 1954, under its
original name, Universal Hosiery Mills Corporation, having as its primary purpose
the manufacture and production of hosieries and wearing apparel of all kinds.
On May 24, 1963, it filed an amendment to its articles of incorporation changing
its name to Universal Mills Corporation, its present name, for which this
Commission issued the certificate of approval on June 10, 1963.
The immediate cause of this present complaint, however, was the occurrence of a
fire which gutted respondents spinning mills in Pasig, Rizal. Petitioner alleged
that as a result of this fire and because of the similarity of respondents name to
that of herein complainant, the news items appearing in the various metropolitan
newspapers carrying reports on the fire created uncertainty and confusion among
its bankers, friends, stockholders and customers prompting petitioner to make
announcements, clarifying the real Identity of the corporation whose property
was burned. Petitioner presented documentary and testimonial evidence in
support of this allegation.
On the other hand, respondents position is that the names of the two
corporations are not similar and even if there be some similarity, it is not
confusing or deceptive; that the only reason that respondent changed its name
was because it expanded its business to include the manufacture of fabrics of all
kinds; and that the word textile in petitioners name is dominant and prominent
enough to distinguish the two. It further argues that petitioner failed to present
evidence of confusion or deception in the ordinary course of business; that the

only supposed confusion proved by complainant arose out of an extraordinary


occurrence a disastrous fire. (pp. 16-&17, Record.)
Upon these premises, the Commission held:
From the facts proved and the jurisprudence on the matter, it appears necessary
under the circumstances to enjoin the respondent Universal Mills Corporation
from further using its present corporate name. Judging from what has already
happened, confusion is not only apparent, but possible. It does not matter that
the instance of confusion between the two corporate names was occasioned only
by a fire or an extraordinary occurrence. It is precisely the duty of this
Commission to prevent such confusion at all times and under all circumstances
not only for the purpose of protecting the corporations involved but more so for
the protection of the public.
In todays modern business life where people go by tradenames and corporate
images, the corporate name becomes the more important. This Commission
cannot close its eyes to the fact that usually it is the sound of all the other words
composing the names of business corporations that sticks to the mind of those
who deal with them. The word textile in Universal Textile Mills, Inc. cannot
possibly assure the exclusion of all other entities with similar names from the
mind of the public especially so, if the business they are engaged in are the
same, like in the instant case.
This Commission further takes cognizance of the fact that when respondent filed
the amendment changing its name to Universal Mills Corporation, it
correspondingly filed a written undertaking dated June 5, 1963 and signed by its
President, Mr. Mariano Cokiat, promising to change its name in the event that
there is another person, firm or entity who has obtained a prior right to the use of
such name or one similar to it. That promise is still binding upon the corporation
and its responsible officers. (pp. 17-18, Record.)
It is obvious that the matter at issue is within the competence of the Securities
and Exchange Commission to resolve in the first instance in the exercise of the
jurisdiction it used to possess under Commonwealth Act 287 as amended by
Republic Act 1055 to administer the application and enforcement of all laws
affecting domestic corporations and associations, reserving to the courts only
conflicts of judicial nature, and, of course, the Supreme Courts authority to
review the Commissions actuations in appropriate instances involving possible
denial of due process and grave abuse of discretion. Thus, in the case at bar,
there being no claim of denial of any constitutional right, all that We are called
upon to determine is whether or not the order of the Commission enjoining
petitioner to its corporate name constitutes, in the light of the circumstances
found by the Commission, a grave abuse of discretion.

We believe it is not. Indeed, it cannot be said that the impugned order is arbitrary
and capricious. Clearly, it has rational basis. The corporate names in question are
not Identical, but they are indisputably so similar that even under the test of
reasonable care and observation as the public generally are capable of using
and may be expected to exercise invoked by appellant, We are apprehensive
confusion will usually arise, considering that under the second amendment of its
articles of incorporation on August 14, 1964, appellant included among its
primary purposes the manufacturing, dyeing, finishing and selling of fabrics of
all kinds in which respondent had been engaged for more than a decade ahead
of petitioner. Factually, the Commission found existence of such confusion, and
there is evidence to support its conclusion. Since respondent is not claiming
damages in this proceeding, it is, of course, immaterial whether or not appellant
has acted in good faith, but We cannot perceive why of all names, it had to
choose a name already being used by another firm engaged in practically the
same business for more than a decade enjoying well earned patronage and
goodwill, when there are so many other appropriate names it could possibly
adopt without arousing any suspicion as to its motive and, more importantly, any
degree of confusion in the mind of the public which could mislead even its own
customers, existing or prospective. Premises considered, there is no warrant for
our interference.
As this is purely a case of injunction, and considering the time that has elapsed
since the facts complained of took place, this decision should not be deemed as
foreclosing any further remedy which appellee may have for the protection of its
interests.
WHEREFORE, with the reservation already mentioned, the appealed decision is
affirmed. Costs against petitioners.
Fernando (Chairman), Antonio, Aquino, Concepcion Jr. and Santos, JJ., concur.

LYCEUM OF THE PHILIPPINES vs. CA- Doctrine of Secondary Meaning

Doctrine of secondary meaning can be extended to corporation name but must


comply with the requirement that it has been used so long and so exclusively by
one and that the said name has come to mean that it is referred to as that
corporation.

FACTS:
Petitioner is an educational institution duly registered with the SEC since Sept
1950. Before the case at bar, Petitioner commenced a proceeding against
Lyceum of Baguio with the SEC to require it to change its corporate name and
adopt a new one not similar or identical to the Petitioner. SEC granted noting that
there was substantial because of the dominant word Lyceum. CA and SC
affirmed. Petitioner filed similar complaint against other schools and obtain a
favorable decision from the hearing officer. On appeal, SEC En banc reversed the
decision and held that the word Lyceum have not become so identified with the
petitioner and that the use thereof will cause confusion to the general public.

ISSUE:
1. Whether or not the corporate names of the private respondents are identical
with or deceptively similar to that of the petitioner.

2. Whether or not the use by the petitioner of Lyceum in its corporate name has
been for such length of time and with such exclusivity as to have become
associated or identified with the petitioner institution in the mind of the general
public (Doctrine of Secondary meaning).

RULING: NO to both.
True enough, the corporate names of the parties carry the word Lyceum but
confusion and deception are precluded by the appending of geographic names.
Lyceum generally refers to a school or an institution of learning and it is natural
to use this word to designate an entity which is organized and operating as an
educational institution.

Doctrine of Secondary meaning is a word of phrase originally incapable of


exclusive appropriation, might nevertheless have been used so long and so
exclusively by one producer with reference to his article that, in trade and to that
branch of the purchasing public, the word or phrase has come to mean that the
article was his product.

Lyceum of the Philippines has not gained exclusive use of Lyceum by long
passage of time. The number alone of the private respondents suggests strongly
that the use of Lyceum has not been attended with the exclusivity essential for
the applicability of the doctrine. It may be noted that one of the respondents
Western Pangasinan Lyceum used such term 17 years before the petitioner
registered with the SEC. Moreover, there may be other schools using the name
but not registered with the SEC because they have not adopted the corporate
form of organization.

G.R. No. 101897. March 5, 1993.


LYCEUM OF THE PHILIPPINES, INC., petitioner, vs. COURT OF APPEALS, LYCEUM OF
APARRI, LYCEUM OF CABAGAN, LYCEUM OF CAMALANIUGAN, INC., LYCEUM OF
LALLO, INC., LYCEUM OF TUAO, INC., BUHI LYCEUM, CENTRAL LYCEUM OF
CATANDUANES, LYCEUM OF SOUTHERN PHILIPPINES, LYCEUM OF EASTERN
MINDANAO, INC. and WESTERN PANGASINAN LYCEUM, INC., respondents.
Quisumbing, Torres & Evangelista Law Offices and Ambrosio Padilla for petitioner.
Antonio M. Nuyles and Purungan, Chato, Chato, Tarriela & Tan Law Offices for
respondents.
Froilan Siobal for Western Pangasinan Lyceum.
SYLLABUS
1.
CORPORATION LAW; CORPORATE NAMES; REGISTRATION OF PROPOSED
NAME WHICH IS IDENTICAL OR CONFUSINGLY SIMILAR TO THAT OF ANY EXISTING
CORPORATION, PROHIBITED; CONFUSION AND DECEPTION EFFECTIVELY
PRECLUDED BY THE APPENDING OF GEOGRAPHIC NAMES TO THE WORD
"LYCEUM". The Articles of Incorporation of a corporation must, among other
things, set out the name of the corporation. Section 18 of the Corporation Code
establishes a restrictive rule insofar as corporate names are concerned: "Section
18. Corporate name. No corporate name may be allowed by the Securities an
Exchange Commission if the proposed name is identical or deceptively or

confusingly similar to that of any existing corporation or to any other name


already protected by law or is patently deceptive, confusing or contrary to
existing laws. When a change in the corporate name is approved, the
Commission shall issue an amended certificate of incorporation under the
amended name." The policy underlying the prohibition in Section 18 against the
registration of a corporate name which is "identical or deceptively or confusingly
similar" to that of any existing corporation or which is "patently deceptive" or
"patently confusing" or "contrary to existing laws," is the avoidance of fraud upon
the public which would have occasion to deal with the entity concerned, the
evasion of legal obligations and duties, and the reduction of difficulties of
administration and supervision over corporations. We do not consider that the
corporate names of private respondent institutions are "identical with, or
deceptively or confusingly similar" to that of the petitioner institution. True
enough, the corporate names of private respondent entities all carry the word
"Lyceum" but confusion and deception are effectively precluded by the
appending of geographic names to the word "Lyceum." Thus, we do not believe
that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum
of the Philippines, or that the "Lyceum of Camalaniugan" would be confused with
the Lyceum of the Philippines.
2.
ID.; ID.; DOCTRINE OF SECONDARY MEANING; USE OF WORD "LYCEUM,"
NOT ATTENDED WITH EXCLUSIVITY. It is claimed, however, by petitioner that
the word "Lyceum" has acquired a secondary meaning in relation to petitioner
with the result that word, although originally a generic, has become appropriable
by petitioner to the exclusion of other institutions like private respondents herein.
The doctrine of secondary meaning originated in the field of trademark law. Its
application has, however, been extended to corporate names sine the right to
use a corporate name to the exclusion of others is based upon the same principle
which underlies the right to use a particular trademark or tradename. In
Philippine Nut Industry, Inc. v. Standard Brands, Inc., the doctrine of secondary
meaning was elaborated in the following terms: " . . . a word or phrase originally
incapable of exclusive appropriation with reference to an article on the market,
because geographically or otherwise descriptive, might nevertheless have been
used so long and so exclusively by one producer with reference to his article that,
in that trade and to that branch of the purchasing public, the word or phrase has
come to mean that the article was his product." The question which arises,
therefore, is whether or not the use by petitioner of "Lyceum" in its corporate
name has been for such length of time and with such exclusivity as to have
become associated or identified with the petitioner institution in the mind of the
general public (or at least that portion of the general public which has to do with
schools). The Court of Appeals recognized this issue and answered it in the
negative: "Under the doctrine of secondary meaning, a word or phrase originally
incapable of exclusive appropriation with reference to an article in the market,
because geographical or otherwise descriptive might nevertheless have been
used so long and so exclusively by one producer with reference to this article
that, in that trade and to that group of the purchasing public, the word or phrase
has come to mean that the article was his produce (Ana Ang vs. Toribio Teodoro,

74 Phil. 56). This circumstance has been referred to as the distinctiveness into
which the name or phrase has evolved through the substantial and exclusive use
of the same for a considerable period of time. . . . No evidence was ever
presented in the hearing before the Commission which sufficiently proved that
the word 'Lyceum' has indeed acquired secondary meaning in favor of the
appellant. If there was any of this kind, the same tend to prove only that the
appellant had been using the disputed word for a long period of time. . . . In other
words, while the appellant may have proved that it had been using the word
'Lyceum' for a long period of time, this fact alone did not amount to mean that
the said word had acquired secondary meaning in its favor because the appellant
failed to prove that it had been using the same word all by itself to the exclusion
of others. More so, there was no evidence presented to prove that confusion will
surely arise if the same word were to be used by other educational institutions.
Consequently, the allegations of the appellant in its first two assigned errors must
necessarily fail." We agree with the Court of Appeals. The number alone of the
private respondents in the case at bar suggests strongly that petitioner's use of
the word "Lyceum" has not been attended with the exclusivity essential for
applicability of the doctrine of secondary meaning. Petitioner's use of the word
"Lyceum" was not exclusive but was in truth shared with the Western Pangasinan
Lyceum and a little later with other private respondent institutions which
registered with the SEC using "Lyceum" as part of their corporation names. There
may well be other schools using Lyceum or Liceo in their names, but not
registered with the SEC because they have not adopted the corporate form of
organization.
3.
ID.; ID.; MUST BE EVALUATED IN THEIR ENTIRETY TO DETERMINE WHETHER
THEY ARE CONFUSINGLY OR DECEPTIVELY SIMILAR TO ANOTHER CORPORATE
ENTITY'S NAME. petitioner institution is not entitled to a legally enforceable
exclusive right to use the word "Lyceum" in its corporate name and that other
institutions may use "Lyceum" as part of their corporate names. To determine
whether a given corporate name is "identical" or "confusingly or deceptively
similar" with another entity's corporate name, it is not enough to ascertain the
presence of "Lyceum" or "Liceo" in both names. One must evaluate corporate
names in their entirety and when the name of petitioner is juxtaposed with the
names of private respondents, they are not reasonably regarded as "identical" or
"confusingly or deceptively similar" with each other.
DECISION
FELICIANO, J p:
Petitioner is an educational institution duly registered with the Securities and
Exchange Commission ("SEC"). When it first registered with the SEC on 21
September 1950, it used the corporate name Lyceum of the Philippines, Inc. and
has used that name ever since.

On 24 February 1984, petitioner instituted proceedings before the SEC to compel


the private respondents, which are also educational institutions, to delete the
word "Lyceum" from their corporate names and permanently to enjoin them from
using "Lyceum" as part of their respective names.
Some of the private respondents actively participated in the proceedings before
the SEC. These are the following, the dates of their original SEC registration being
set out below opposite their respective names:
Western Pangasinan Lyceum 27 October 1950
Lyceum of Cabagan 31 October 1962
Lyceum of Lallo, Inc. 26 March 1972
Lyceum of Aparri 28 March 1972
Lyceum of Tuao, Inc. 28 March 1972
Lyceum of Camalaniugan 28 March 1972
The following private respondents were declared in default for failure to file an
answer despite service of summons:
Buhi Lyceum;
Central Lyceum of Catanduanes;
Lyceum of Eastern Mindanao, Inc.; and
Lyceum of Southern Philippines
Petitioner's original complaint before the SEC had included three (3) other
entities:
1.

The Lyceum of Malacanay;

2.

The Lyceum of Marbel; and

3.

The Lyceum of Araullo

The complaint was later withdrawn insofar as concerned the Lyceum of


Malacanay and the Lyceum of Marbel, for failure to serve summons upon these
two (2) entities. The case against the Liceum of Araullo was dismissed when that
school motu proprio change its corporate name to "Pamantasan ng Araullo."
The background of the case at bar needs some recounting. Petitioner had
sometime before commenced in the SEC a proceeding (SEC-Case No. 1241)
against the Lyceum of Baguio, Inc. to require it to change its corporate name and
to adopt another name not "similar [to] or identical" with that of petitioner. In an
Order dated 20 April 1977, Associate Commissioner Julio Sulit held that the
corporate name of petitioner and that of the Lyceum of Baguio, Inc. were
substantially identical because of the presence of a "dominant" word, i.e.,
"Lyceum," the name of the geographical location of the campus being the only
word which distinguished one from the other corporate name. The SEC also noted
that petitioner had registered as a corporation ahead of the Lyceum of Baguio,
Inc. in point of time, 1 and ordered the latter to change its name to another name
"not similar or identical [with]" the names of previously registered entities.
The Lyceum of Baguio, Inc. assailed the Order of the SEC before the Supreme
Court in a case docketed as G.R. No. L-46595. In a Minute Resolution dated 14
September 1977, the Court denied the Petition for Review for lack of merit. Entry
of judgment in that case was made on 21 October 1977. 2
Armed with the Resolution of this Court in G.R. No. L-46595, petitioner then wrote
all the educational institutions it could find using the word "Lyceum" as part of
their corporate name, and advised them to discontinue such use of "Lyceum."
When, with the passage of time, it became clear that this recourse had failed,
petitioner instituted before the SEC SEC-Case No. 2579 to enforce what petitioner
claims as its proprietary right to the word "Lyceum." The SEC hearing officer
rendered a decision sustaining petitioner's claim to an exclusive right to use the
word "Lyceum." The hearing officer relied upon the SEC ruling in the Lyceum of
Baguio, Inc. case (SEC-Case No. 1241) and held that the word "Lyceum" was
capable of appropriation and that petitioner had acquired an enforceable
exclusive right to the use of that word.
On appeal, however, by private respondents to the SEC En Banc, the decision of
the hearing officer was reversed and set aside. The SEC En Banc did not consider
the word "Lyceum" to have become so identified with petitioner as to render use

thereof by other institutions as productive of confusion about the identity of the


schools concerned in the mind of the general public. Unlike its hearing officer, the
SEC En Banc held that the attaching of geographical names to the word "Lyceum"
served sufficiently to distinguish the schools from one another, especially in view
of the fact that the campuses of petitioner and those of the private respondents
were physically quite remote from each other. 3
Petitioner then went on appeal to the Court of Appeals. In its Decision dated 28
June 1991, however, the Court of Appeals affirmed the questioned Orders of the
SEC En Banc. 4 Petitioner filed a motion for reconsideration, without success.
Before this Court, petitioner asserts that the Court of Appeals committed the
following errors:
1.
The Court of Appeals erred in holding that the Resolution of the Supreme
Court in G.R. No. L-46595 did not constitute stare decisis as to apply to this case
and in not holding that said Resolution bound subsequent determinations on the
right to exclusive use of the word Lyceum.
2.
The Court of Appeals erred in holding that respondent Western Pangasinan
Lyceum, Inc. was incorporated earlier than petitioner.
3.
The Court of Appeals erred in holding that the word Lyceum has not
acquired a secondary meaning in favor of petitioner.
4.
The Court of Appeals erred in holding that Lyceum as a generic word
cannot be appropriated by the petitioner to the exclusion of others. 5
We will consider all the foregoing ascribed errors, though not necessarily
seriatim. We begin by noting that the Resolution of the Court in G.R. No. L-46595
does not, of course, constitute res adjudicata in respect of the case at bar, since
there is no identity of parties. Neither is stare decisis pertinent, if only because
the SEC En Banc itself has re-examined Associate Commissioner Sulit's ruling in
the Lyceum of Baguio case. The Minute Resolution of the Court in G.R. No. L46595 was not a reasoned adoption of the Sulit ruling.
The Articles of Incorporation of a corporation must, among other things, set out
the name of the corporation. 6 Section 18 of the Corporation Code establishes a
restrictive rule insofar as corporate names are concerned:
"SECTION 18.

Corporate name. No corporate name may be allowed by the

Securities an Exchange Commission if the proposed name is identical or


deceptively or confusingly similar to that of any existing corporation or to any
other name already protected by law or is patently deceptive, confusing or
contrary to existing laws. When a change in the corporate name is approved, the
Commission shall issue an amended certificate of incorporation under the
amended name." (Emphasis supplied)
The policy underlying the prohibition in Section 18 against the registration of a
corporate name which is "identical or deceptively or confusingly similar" to that
of any existing corporation or which is "patently deceptive" or "patently
confusing" or "contrary to existing laws," is the avoidance of fraud upon the
public which would have occasion to deal with the entity concerned, the evasion
of legal obligations and duties, and the reduction of difficulties of administration
and supervision over corporations. 7
We do not consider that the corporate names of private respondent institutions
are "identical with, or deceptively or confusingly similar" to that of the petitioner
institution. True enough, the corporate names of private respondent entities all
carry the word "Lyceum" but confusion and deception are effectively precluded
by the appending of geographic names to the word "Lyceum." Thus, we do not
believe that the "Lyceum of Aparri" can be mistaken by the general public for the
Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be
confused with the Lyceum of the Philippines.
Etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which
in turn referred to a locality on the river Ilissius in ancient Athens "comprising an
enclosure dedicated to Apollo and adorned with fountains and buildings erected
by Pisistratus, Pericles and Lycurgus frequented by the youth for exercise and by
the philosopher Aristotle and his followers for teaching." 8 In time, the word
"Lyceum" became associated with schools and other institutions providing public
lectures and concerts and public discussions. Thus today, the word "Lyceum"
generally refers to a school or an institution of learning. While the Latin word
"lyceum" has been incorporated into the English language, the word is also found
in Spanish (liceo) and in French (lycee). As the Court of Appeals noted in its
Decision, Roman Catholic schools frequently use the term; e.g., "Liceo de Manila,"
"Liceo de Baleno" (in Baleno, Masbate), "Liceo de Masbate," "Liceo de Albay." 9
"Lyceum" is in fact as generic in character as the word "university." In the name
of the petitioner, "Lyceum" appears to be a substitute for "university;" in other
places, however, "Lyceum," or "Liceo" or "Lycee" frequently denotes a secondary
school or a college. It may be (though this is a question of fact which we need not
resolve) that the use of the word "Lyceum" may not yet be as widespread as the
use of "university," but it is clear that a not inconsiderable number of educational
institutions have adopted "Lyceum" or "Liceo" as part of their corporate names.
Since "Lyceum" or "Liceo" denotes a school or institution of learning, it is not

unnatural to use this word to designate an entity which is organized and


operating as an educational institution.
It is claimed, however, by petitioner that the word "Lyceum" has acquired a
secondary meaning in relation to petitioner with the result that that word,
although originally a generic, has become appropriable by petitioner to the
exclusion of other institutions like private respondents herein.
The doctrine of secondary meaning originated in the field of trademark law. Its
application has, however, been extended to corporate names sine the right to
use a corporate name to the exclusion of others is based upon the same principle
which underlies the right to use a particular trademark or tradename. 10 In
Philippine Nut Industry, Inc. v. Standard Brands, Inc., 11 the doctrine of secondary
meaning was elaborated in the following terms:
" . . . a word or phrase originally incapable of exclusive appropriation with
reference to an article on the market, because geographically or otherwise
descriptive, might nevertheless have been used so long and so exclusively by
one producer with reference to his article that, in that trade and to that branch of
the purchasing public, the word or phrase has come to mean that the article was
his product." 12
The question which arises, therefore, is whether or not the use by petitioner of
"Lyceum" in its corporate name has been for such length of time and with such
exclusivity as to have become associated or identified with the petitioner
institution in the mind of the general public (or at least that portion of the general
public which has to do with schools). The Court of Appeals recognized this issue
and answered it in the negative:
"Under the doctrine of secondary meaning, a word or phrase originally incapable
of exclusive appropriation with reference to an article in the market, because
geographical or otherwise descriptive might nevertheless have been used so long
and so exclusively by one producer with reference to this article that, in that
trade and to that group of the purchasing public, the word or phrase has come to
mean that the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56).
This circumstance has been referred to as the distinctiveness into which the
name or phrase has evolved through the substantial and exclusive use of the
same for a considerable period of time. Consequently, the same doctrine or
principle cannot be made to apply where the evidence did not prove that the
business (of the plaintiff) has continued for so long a time that it has become of
consequence and acquired a good will of considerable value such that its articles
and produce have acquired a well-known reputation, and confusion will result by
the use of the disputed name (by the defendant) (Ang Si Heng vs. Wellington
Department Store, Inc., 92 Phil. 448).

With the foregoing as a yardstick, [we] believe the appellant failed to satisfy the
aforementioned requisites. No evidence was ever presented in the hearing before
the Commission which sufficiently proved that the word 'Lyceum' has indeed
acquired secondary meaning in favor of the appellant. If there was any of this
kind, the same tend to prove only that the appellant had been using the disputed
word for a long period of time. Nevertheless, its (appellant) exclusive use of the
word (Lyceum) was never established or proven as in fact the evidence tend to
convey that the cross-claimant was already using the word 'Lyceum' seventeen
(17) years prior to the date the appellant started using the same word in its
corporate name. Furthermore, educational institutions of the Roman Catholic
Church had been using the same or similar word like 'Liceo de Manila,' 'Liceo de
Baleno' (in Baleno, Masbate), 'Liceo de Masbate,' 'Liceo de Albay' long before
appellant started using the word 'Lyceum'. The appellant also failed to prove that
the word 'Lyceum' has become so identified with its educational institution that
confusion will surely arise in the minds of the public if the same word were to be
used by other educational institutions.
In other words, while the appellant may have proved that it had been using the
word 'Lyceum' for a long period of time, this fact alone did not amount to mean
that the said word had acquired secondary meaning in its favor because the
appellant failed to prove that it had been using the same word all by itself to the
exclusion of others. More so, there was no evidence presented to prove that
confusion will surely arise if the same word were to be used by other educational
institutions. Consequently, the allegations of the appellant in its first two
assigned errors must necessarily fail." 13 (Underscoring partly in the original and
partly supplied)
We agree with the Court of Appeals. The number alone of the private respondents
in the case at bar suggests strongly that petitioner's use of the word "Lyceum"
has not been attended with the exclusivity essential for applicability of the
doctrine of secondary meaning. It may be noted also that at least one of the
private respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term
"Lyceum" seventeen (17) years before the petitioner registered its own corporate
name with the SEC and began using the word "Lyceum." It follows that if any
institution had acquired an exclusive right to the word "Lyceum," that institution
would have been the Western Pangasinan Lyceum, Inc. rather than the petitioner
institution.
In this connection, petitioner argues that because the Western Pangasinan
Lyceum, Inc. failed to reconstruct its records before the SEC in accordance with
the provisions of R.A. No. 62, which records had been destroyed during World War
II, Western Pangasinan Lyceum should be deemed to have lost all rights it may
have acquired by virtue of its past registration. It might be noted that the
Western Pangasinan Lyceum, Inc. registered with the SEC soon after petitioner

had filed its own registration on 21 September 1950. Whether or not Western
Pangasinan Lyceum, Inc. must be deemed to have lost its rights under its original
1933 registration, appears to us to be quite secondary in importance; we refer to
this earlier registration simply to underscore the fact that petitioner's use of the
word "Lyceum" was neither the first use of that term in the Philippines nor an
exclusive use thereof. Petitioner's use of the word "Lyceum" was not exclusive but
was in truth shared with the Western Pangasinan Lyceum and a little later with
other private respondent institutions which registered with the SEC using
"Lyceum" as part of their corporation names. There may well be other schools
using Lyceum or Liceo in their names, but not registered with the SEC because
they have not adopted the corporate form of organization.
We conclude and so hold that petitioner institution is not entitled to a legally
enforceable exclusive right to use the word "Lyceum" in its corporate name and
that other institutions may use "Lyceum" as part of their corporate names. To
determine whether a given corporate name is "identical" or "confusingly or
deceptively similar" with another entity's corporate name, it is not enough to
ascertain the presence of "Lyceum" or "Liceo" in both names. One must evaluate
corporate names in their entirety and when the name of petitioner is juxtaposed
with the names of private respondents, they are not reasonably regarded as
"identical" or "confusingly or deceptively similar" with each other.
WHEREFORE, the petitioner having failed to show any reversible error on the part
of the public respondent Court of Appeals, the Petition for Review is DENIED for
lack of merit, and the Decision of the Court of Appeals dated 28 June 1991 is
hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ ., concur.
Gutierrez, Jr., J ., on terminal leave.
Footnotes
1.

Rollo, pp. 54-61.

2.

Id., pp. 62-63.

3.

Records, pp. 6-8, 10-16.

4.

Rollo, pp. 42-51.

5.

Petition for Review, p. 8; Rollo, p. 16.

6.

Section 14, Corporation Code.

7.
Red Line Transportation Co. v. Rural Transit Co., 60 Phil. 549 (1934). See
also Universal Mills Corp. v. Universal Textile Mills, Inc., 78 SCRA 62 (1977); and
Philippine First Insurance Co., Inc. v. Hartigan, 34 SCRA 252 (1970).
8.

Webster's Geographical Dictionary, p. 643 (1949).

9.
Decision, Court of Appeals, Rollo, p. 46. In the preceding century, "Liceo"
was also used to designate an association devoted to the promotion of the arts
and literature; as in the "Liceo Artistico Literario de Manila." (see L.M. Guerrero,
"The First Filipino: A Biography of Jose Rizal" 73 [1969]).
10.
6 Fletcher, Cyclopedia of Corporations, Section 2423 (Permanent ed.,
1968); Burnside Veneer Co. v. New Burnside Veneer Co. 247 S.W. 2d. 524 (1952);
Economy Food Products Co. v. Economy Grocery Stores Corp., 183 N.E. 49 1932).
11.

65 SCRA 575 (1975).

12.

65 SCRA at 576.

13.

Rollo, pp. 46-47.

Lim Tong Lim vs Philippine Fishing Gear Industries, Inc.


Business Organization Partnership, Agency, Trust Corporation by Estoppel
It was established that Lim Tong Lim requested Peter Yao to engage in
commercial fishing with him and one Antonio Chua. The three agreed to purchase
two fishing boats but since they do not have the money they borrowed from one
Jesus Lim (brother of Lim Tong Lim). They again borrowed money and they agreed
to purchase fishing nets and other fishing equipments. Now, Yao and Chua
represented themselves as acting in behalf of Ocean Quest Fishing Corporation

(OQFC) they contracted with Philippine Fishing Gear Industries (PFGI) for the
purchase of fishing nets amounting to more than P500k.
They were however unable to pay PFGI and so they were sued in their own names
because apparently OQFC is a non-existent corporation. Chua admitted liability
and asked for some time to pay. Yao waived his rights. Lim Tong Lim however
argued that hes not liable because he was not aware that Chua and Yao
represented themselves as a corporation; that the two acted without his
knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. From the factual findings of both lower courts, it is clear that Chua,
Yao and Lim had decided to engage in a fishing business, which they started by
buying boats worth P3.35 million, financed by a loan secured from Jesus Lim. In
their Compromise Agreement, they subsequently revealed their intention to pay
the loan with the proceeds of the sale of the boats, and to divide equally among
them the excess or loss. These boats, the purchase and the repair of which were
financed with borrowed money, fell under the term common fund under Article
1767. The contribution to such fund need not be cash or fixed assets; it could be
an intangible like credit or industry. That the parties agreed that any loss or profit
from the sale and operation of the boats would be divided equally among them
also shows that they had indeed formed a partnership.
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only
be imputed to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the
use of the nets found in his boats, the boat which has earlier been proven to be
an asset of the partnership. Lim, Chua and Yao decided to form a corporation.
Although it was never legally formed for unknown reasons, this fact alone does
not preclude the liabilities of the three as contracting parties in representation of
it. Clearly, under the law on estoppel, those acting on behalf of a corporation and
those benefited by it, knowing it to be without valid existence, are held liable as
general partners.

G.R. No. 136448 November 3, 1999


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

PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to borrow
money to pursue a business and to divide the profits or losses that may arise
therefrom, even if it is shown that they have not contributed any capital of their
own to a common fund. Their contribution may be in the form of credit or
industry, not necessarily cash or fixed assets. Being partner, they are all liable for
debts incurred by or on behalf of the partnership. The liability for a contract
entered into on behalf of an unincorporated association or ostensible corporation
may lie in a person who may not have directly transacted on its behalf, but
reaped benefits from that contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the
November 26, 1998 Decision of the Court of Appeals in CA-GR CV 41477, 1 which
disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same
is hereby affirmed. 2
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which
was affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by this
Court on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following amounts, subject
to the modifications as hereinafter made by reason of the special and unique
facts and circumstances and the proceedings that transpired during the trial of
this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets
covered by the Agreement plus P68,000.00 representing the unpaid price of the
floats not covered by said Agreement;

b. 12% interest per annum counted from date of plaintiffs invoices and
computed on their respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated
February 9, 1990;
ii. Accrued interest for P27,904.02 on Invoice No. 14413 for P146,868.00 dated
February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated
February 19, 1990;
c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per
appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the
nets counted from September 20, 1990 (date of attachment) to September 12,
1991 (date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or for
the unpaid price of nets and floats in the amount of P532,045.00 and P68,000.00,
respectively, or for the total amount P600,045.00, this Court noted that these
items were attached to guarantee any judgment that may be rendered in favor of
the plaintiff but, upon agreement of the parties, and, to avoid further
deterioration of the nets during the pendency of this case, it was ordered sold at
public auction for not less than P900,000.00 for which the plaintiff was the sole
and winning bidder. The proceeds of the sale paid for by plaintiff was deposited in
court. In effect, the amount of P900,000.00 replaced the attached property as a
guaranty for any judgment that plaintiff may be able to secure in this case with
the ownership and possession of the nets and floats awarded and delivered by
the sheriff to plaintiff as the highest bidder in the public auction sale. It has also
been noted that ownership of the nets [was] retained by the plaintiff until full
payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff
attached its own properties. It [was] for this reason also that this Court earlier
ordered the attachment bond filed by plaintiff to guaranty damages to
defendants to be cancelled and for the P900,000.00 cash bidded and paid for by
plaintiff to serve as its bond in favor of defendants.
From the foregoing, it would appear therefore that whatever judgment the

plaintiff may be entitled to in this case will have to be satisfied from the amount
of P900,000.00 as this amount replaced the attached nets and floats.
Considering, however, that the total judgment obligation as computed above
would amount to only P840,216.92, it would be inequitable, unfair and unjust to
award the excess to the defendants who are not entitled to damages and who did
not put up a single centavo to raise the amount of P900,000.00 aside from the
fact that they are not the owners of the nets and floats. For this reason, the
defendants are hereby relieved from any and all liabilities arising from the
monetary judgment obligation enumerated above and for plaintiff to retain
possession and ownership of the nets and floats and for the reimbursement of
the P900,000.00 deposited by it with the Clerk of Court.
SO ORDERED. 3
The Facts
On behalf of Ocean Quest Fishing Corporation, Antonio Chua and Peter Yao
entered into a Contract dated February 7, 1990, for the purchase of fishing nets
of various sizes from the Philippine Fishing Gear Industries, Inc. (herein
respondent). They claimed that they were engaged in a business venture with
Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The
total price of the nets amounted to P532,045. Four hundred pieces of floats worth
P68,000 were also sold to the Corporation. 4
The buyers, however, failed to pay for the fishing nets and the floats; hence,
private respondents filed a collection suit against Chua, Yao and Petitioner Lim
Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought
against the three in their capacities as general partners, on the allegation that
Ocean Quest Fishing Corporation was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission. 5 On September 20,
1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff
enforced by attaching the fishing nets on board F/B Lourdes which was then
docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his
liability and requesting a reasonable time within which to pay. He also turned
over to respondent some of the nets which were in his possession. Peter Yao filed
an Answer, after which he was deemed to have waived his right to cross-examine
witnesses and to present evidence on his behalf, because of his failure to appear
in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with
Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment.
6The trial court maintained the Writ, and upon motion of private respondent,
ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear

Industries won the bidding and deposited with the said court the sales proceeds
of P900,000. 7
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine
Fishing Gear Industries was entitled to the Writ of Attachment and that Chua, Yao
and Lim, as general partners, were jointly liable to pay respondent. 8
The trial court ruled that a partnership among Lim, Chua and Yao existed based
(1) on the testimonies of the witnesses presented and (2) on a Compromise
Agreement executed by the three 9 in Civil Case No. 1492-MN which Chua and
Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a
declaration of nullity of commercial documents; (b) a reformation of contracts; (c)
a declaration of ownership of fishing boats; (d) an injunction and (e) damages. 10
The Compromise Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels
sold in the amount of P5,750,000.00 including the fishing net. This P5,750,000.00
shall be applied as full payment for P3,250,000.00 in favor of JL Holdings
Corporation and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than
P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong
Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than P5,750,000.00
whatever the deficiency shall be shouldered and paid to JL Holding Corporation
by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao. 11
The trial court noted that the Compromise Agreement was silent as to the nature
of their obligations, but that joint liability could be presumed from the equal
distribution of the profit and loss. 21
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the
RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and
Yao in a fishing business and may thus be held liable as a such for the fishing
nets and floats purchased by and for the use of the partnership. The appellate
court ruled:

The evidence establishes that all the defendants including herein appellant Lim
Tong Lim undertook a partnership for a specific undertaking, that is for
commercial fishing . . . . Obviously, the ultimate undertaking of the defendants
was to divide the profits among themselves which is what a partnership
essentially is . . . . By a contract of partnership, two or more persons bind
themselves to contribute money, property or industry to a common fund with the
intention of dividing the profits among themselves (Article 1767, New Civil Code).
13
Hence, petitioner brought this recourse before this Court. 14
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed
Decision on the following grounds:
I
THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE
AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE
CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
II
SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN
QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE
FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO
PETITIONER LIM AS WELL.
III
THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF
PETITIONER LIMS GOODS.
In determining whether petitioner may be held liable for the fishing nets and
floats from respondent, the Court must resolve this key issue: whether by their
acts, Lim, Chua and Yao could be deemed to have entered into a partnership.
This Courts Ruling

The Petition is devoid of merit.


First and Second Issues:
Existence of a Partnership and Petitioners Liability
In arguing that he should not be held liable for the equipment purchased from
respondent, petitioner controverts the CA finding that a partnership existed
between him, Peter Yao and Antonio Chua. He asserts that the CA based its
finding on the Compromise Agreement alone. Furthermore, he disclaims any
direct participation in the purchase of the nets, alleging that the negotiations
were conducted by Chua and Yao only, and that he has not even met the
representatives of the respondent company. Petitioner further argues that he was
a lessor, not a partner, of Chua and Yao, for the Contract of Lease dated
February 1, 1990, showed that he had merely leased to the two the main asset of
the purported partnership the fishing boat F/B Lourdes. The lease was for six
months, with a monthly rental of P37,500 plus 25 percent of the gross catch of
the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the
two lower courts clearly showed that there existed a partnership among Chua,
Yao and him, pursuant to Article 1767 of the Civil Code which provides:
Art. 1767 By the contract of partnership, two or more persons bind themselves
to contribute money, property, or industry to a common fund, with the intention
of dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed
based on the following factual findings: 15
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in
commercial fishing to join him, while Antonio Chua was already Yaos partner;
(2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to
acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35
million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim
Tong Lim, to finance the venture.

(4) That they bought the boats from CMF Fishing Corporation, which executed a
Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to
serve as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing,
dry docking and other expenses for the boats would be shouldered by Chua and
Yao;
(6) That because of the unavailability of funds, Jesus Lim again extended a loan
to the partnership in the amount of P1 million secured by a check, because of
which, Yao and Chua entrusted the ownership papers of two other boats, Chuas
FB Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua
bought nets from Respondent Philippine Fishing Gear, in behalf of Ocean Quest
Fishing Corporation, their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC,
Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration
of nullity of commercial documents; (b) reformation of contracts; (c) declaration
of ownership of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement
executed between the parties-litigants the terms of which are already
enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim
had decided to engage in a fishing business, which they started by buying boats
worth P3.35 million, financed by a loan secured from Jesus Lim who was
petitioners brother. In their Compromise Agreement, they subsequently revealed
their intention to pay the loan with the proceeds of the sale of the boats, and to
divide equally among them the excess or loss. These boats, the purchase and the
repair of which were financed with borrowed money, fell under the term
common fund under Article 1767. The contribution to such fund need not be
cash or fixed assets; it could be an intangible like credit or industry. That the
parties agreed that any loss or profit from the sale and operation of the boats
would be divided equally among them also shows that they had indeed formed a
partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the
boat, but also to that of the nets and the floats. The fishing nets and the floats,
both essential to fishing, were obviously acquired in furtherance of their business.

It would have been inconceivable for Lim to involve himself so much in buying
the boat but not in the acquisition of the aforesaid equipment, without which the
business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and
Yao, a partnership engaged in the fishing business. They purchased the boats,
which constituted the main assets of the partnership, and they agreed that the
proceeds from the sales and operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present case should
involve only questions of law. Thus, the foregoing factual findings of the RTC and
the CA are binding on this Court, absent any cogent proof that the present action
is embraced by one of the exceptions to the rule. 16 In assailing the factual
findings of the two lower courts, petitioner effectively goes beyond the bounds of
a petition for review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership
Petitioner argues that the appellate courts sole basis for assuming the existence
of a partnership was the Compromise Agreement. He also claims that the
settlement was entered into only to end the dispute among them, but not to
adjudicate their preexisting rights and obligations. His arguments are baseless.
The Agreement was but an embodiment of the relationship extant among the
parties prior to its execution.
A proper adjudication of claimants rights mandates that courts must review and
thoroughly appraise all relevant facts. Both lower courts have done so and have
found, correctly, a preexisting partnership among the parties. In implying that the
lower courts have decided on the basis of one piece of document alone,
petitioner fails to appreciate that the CA and the RTC delved into the history of
the document and explored all the possible consequential combinations in
harmony with law, logic and fairness. Verily, the two lower courts factual findings
mentioned above nullified petitioners argument that the existence of a
partnership was based only on the Compromise Agreement.
Petitioner Was a Partner, Not a Lessor
We are not convinced by petitioners argument that he was merely the lessor of
the boats to Chua and Yao, not a partner in the fishing venture. His argument
allegedly finds support in the Contract of Lease and the registration papers
showing that he was the owner of the boats, including F/B Lourdes where the nets
were found.

His allegation defies logic. In effect, he would like this Court to believe that he
consented to the sale of his own boats to pay a debt of Chua and Yao, with the
excess of the proceeds to be divided among the three of them. No lessor would
do what petitioner did. Indeed, his consent to the sale proved that there was a
preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement
with Chua and Yao, in which debts were undertaken in order to finance the
acquisition and the upgrading of the vessels which would be used in their fishing
business. The sale of the boats, as well as the division among the three of the
balance remaining after the payment of their loans, proves beyond cavil that F/B
Lourdes, though registered in his name, was not his own property but an asset of
the partnership. It is not uncommon to register the properties acquired from a
loan in the name of the person the lender trusts, who in this case is the petitioner
himself. After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd for petitioner to sell his
property to pay a debt he did not incur, if the relationship among the three of
them was merely that of lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability can
be imputed only to Chua and Yao, and not to him. Again, we disagree.
Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. All persons who assume to act as a
corporation knowing it to be without authority to do so shall be liable as general
partners for all debts, liabilities and damages incurred or arising as a result
thereof: Provided however, That when any such ostensible corporation is sued on
any transaction 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.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a
party may be estopped from denying its corporate existence. The reason behind
this doctrine is obvious an unincorporated association has no personality and
would be incompetent to act and appropriate for itself the power and attributes

of a corporation as provided by law; it cannot create agents or confer authority


on another to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk. And as it
is an elementary principle of law that a person who acts as an agent without
authority or without a principal is himself regarded as the principal, possessed of
all the right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid existence assumes
such privileges and obligations and becomes personally liable for contracts
entered into or for other acts performed as such agent. 17
The doctrine of corporation by estoppel may apply to the alleged corporation and
to a third party. In the first instance, an unincorporated association, which
represented itself to be a corporation, will be estopped from denying its corporate
capacity in a suit against it by a third person who relied in good faith on such
representation. It cannot allege lack of personality to be sued to evade its
responsibility for a contract it entered into and by virtue of which it received
advantages and benefits.
On the other hand, a third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and received benefits
from it, may be barred from denying its corporate existence in a suit brought
against the alleged corporation. In such case, all those who benefited from the
transaction made by the ostensible corporation, despite knowledge of its legal
defects, may be held liable for contracts they impliedly assented to or took
advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is
entitled to be paid for the nets it sold. The only question here is whether
petitioner should be held jointly 18 liable with Chua and Yao. Petitioner contests
such liability, insisting that only those who dealt in the name of the ostensible
corporation should be held liable. Since his name does not appear on any of the
contracts and since he never directly transacted with the respondent corporation,
ergo, he cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found inside F/B
Lourdes, the boat which has earlier been proven to be an asset of the
partnership. He in fact questions the attachment of the nets, because the Writ
has effectively stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided
to form a corporation. Although it was never legally formed for unknown reasons,
this fact alone does not preclude the liabilities of the three as contracting parties
in representation of it. Clearly, under the law on estoppel, those acting on behalf

of a corporation and those benefited by it, knowing it to be without valid


existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract entered into by
persons with whom he previously had an existing relationship, he is deemed to
be part of said association and is covered by the scope of the doctrine of
corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor:
19
A litigation is not a game of technicalities in which one, more deeply schooled
and skilled in the subtle art of movement and position, entraps and destroys the
other. It is, rather, a contest in which each contending party fully and fairly lays
before the court the facts in issue and then, brushing aside as wholly trivial and
indecisive all imperfections of form and technicalities of procedure, asks that
justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a
rapiers thrust. Technicality, when it deserts its proper office as an aid to justice
and becomes its great hindrance and chief enemy, deserves scant consideration
from courts. There should be no vested rights in technicalities.
Third Issue: Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was improperly issued
against the nets. We agree with the Court of Appeals that this issue is now moot
and academic. As previously discussed, F/B Lourdes was an asset of the
partnership and that it was placed in the name of petitioner, only to assure
payment of the debt he and his partners owed. The nets and the floats were
specifically manufactured and tailor-made according to their own design, and
were bought and used in the fishing venture they agreed upon. Hence, the
issuance of the Writ to assure the payment of the price stipulated in the invoices
is proper. Besides, by specific agreement, ownership of the nets remained with
Respondent Philippine Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
SO ORDERED.
Melo, Purisima and Gonzaga-Reyes, JJ., concur.
Vitug, J., pls. see concurring opinion.

Separate Opinions
VITUG, J., concurring opinion;
I share the views expressed in the ponencia of an esteemed colleague, Mr. Justice
Artemio V. Panganiban, particularly the finding that Antonio Chua, Peter Yao and
petitioner Lim Tong Lim have incurred the liabilities of general partners. I merely
would wish to elucidate a bit, albeit briefly, the liability of partners in a general
partnership.
When a person by his act or deed represents himself as a partner in an existing
partnership or with one or more persons not actual partners, he is deemed an
agent of such persons consenting to such representation and in the same
manner, if he were a partner, with respect to persons who rely upon the
representation. 1 The association formed by Chua, Yao and Lim, should be, as it
has been deemed, a de facto partnership with all the consequent obligations for
the purpose of enforcing the rights of third persons. The liability of general
partners (in a general partnership as so opposed to a limited partnership) is laid
down in Article 1816 2 which posits that all partners shall be liable pro rata
beyond the partnership assets for all the contracts which may have been entered
into in its name, under its signature, and by a person authorized to act for the
partnership. This rule is to be construed along with other provisions of the Civil
Code which postulate that the partners can be held solidarily liable with the
partnership specifically in these instances (1) where, by any wrongful act or
omission of any partner acting in the ordinary course of the business of the
partnership or with the authority of his co-partners, loss or injury is caused to any
person, not being a partner in the partnership, or any penalty is incurred, the
partnership is liable therefor to the same extent as the partner so acting or
omitting to act; (2) where one partner acting within the scope of his apparent
authority receives money or property of a third person and misapplies it; and (3)
where the partnership in the course of its business receives money or property of
a third person and the money or property so received is misapplied by any
partner while it is in the custody of the partnership 3 consistently with the
rules on the nature of civil liability in delicts and quasi-delicts.

Footnotes
1 Penned by J. Portia Alino-Hormachuelos; with the concurrence of JJ.

Buenaventura J. Guerrero, Division chairman, and Presbitero J. Velasco Jr.,


member.
2 CA Decision, p. 12; rollo, p. 36.
3 RTC Decision penned by Judge Maximiano C. Asuncion. pp. 11-12; rollo, pp. 4849.
4 CA Decision, pp. 1-2; rollo, pp. 25-26.
5 Ibid., p. 2; rollo, p. 26.
6 RTC Decision, p. 2; Rollo, p. 39.
7 Petition, p. 4; rollo, p. 11.
8 Ibid.
9 RTC Decision, pp. 6-7; rollo, pp. 43-44.
10 Respondents Memorandum, pp. 5, 8; rollo, pp. 107, 109.
11 CA Decision, pp. 9-10; rollo, pp. 33-34.
12 RTC Decision, p. 10; rollo, p. 47.
13 Ibid.
14 This case was deemed submitted for resolution on August 10, 1999, when this
Court received petitioners Memorandum signed by Atty. Roberto A. Abad.
Respondents Memorandum signed by Atty. Benjamin S. Benito was filed earlier
on July 27, 1999.
15 Nos. 1-7 are from CA Decision p. 9 (rollo, p. 33); No. 8 is from RTC Decision, p.
5 (rollo, p. 42); and No. 9 is from CA Decision, pp. 9-10 (rollo, pp. 33-34).
16 See Fuentes v. Court of Appeals, 268 SCRA 703, February 26, 1997.

17 Salvatierra v. Garlitos, 103 SCRA 757, May 23, 1958, per Felix J.; citing Fay v.
Noble, 7 Cushing [Mass.] 188.
18 The liability is joint if it is not specifically stated that it is solidary, Maramba v.
Lozano, 126 Phil 833, June 29, 1967, per Makalintal, J. See also Article 1207 of the
Civil Code, which provides: The concurrence of two or more creditors or of two or
more debtors in one [and] the same obligation does not imply that each one of
the former has a right to demand, or that each one of the latter is bound to
render, entire compliance with the prestation. There is a solidary liability only
when the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.
19 16 Phil. 315, July 26, 1910, per Moreland, J.

VITUG, J., concurring opinion;


1 Art. 1825. When a person, by words spoken or written or by conduct, represents
himself, or consents to another representing him to anyone, as a partner in an
existing partnership or with one or more persons not actual partners, he is liable
to any such persons to whom such representation has been made, who has, on
the faith of such representation, given credit to the actual or apparent
partnership, and if he has made such representation or consented to its being
made in a public manner he is liable to such person, whether the representation
has or has not been made or communicated to such person so giving credit by or
with the knowledge of the apparent partner making the representation or
consenting to its being made:
(1) When a partnership liability results, he is liable as though he were an actual
member of the partnership;
(2) When no partnership liability results, he is liable pro rata with the other
persons, if any, so consenting to the contract or representation as to incur
liability, otherwise separately.
When a person has been thus represented to be a partner in an existing
partnership, or with one or more persons not actual partners, he is an agent of
the persons consenting to such representation to bind them to the same extent
and in the same manner as though he were a partner in fact, with respect to
persons who rely upon the representation. When all the members of the existing

partnership consent to the representation, a partnership act or obligation results;


but in all other cases it is the joint act or obligation of the person acting and the
persons consenting to the representation.
2 All partners, including industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been exhausted, for the
contracts which may be entered into in the name and for the account of the
partnership, under its signature and by a person authorized to act for the
partnership. However, any partner may enter into a separate obligation to
perform a partnership contract.
3 Art. 1824 in relation to Article 1822 and Article 1823, New Civil Code.

International Express Travel & Tour Services, Inc. vs Court of Appeals


December 14, 2012 No comments

343 SCRA 674 Business Organization Corporation Law Corporation by


Estoppel When Applied
In 1989, International Express Travel & Tour Services, Inc. (IETTI), offered to the
Philippine Football Federation (PFF) its travel services for the South East Asian
Games. PFF, through Henri Kahn, its president, agreed. IETTI then delivered the
plane tickets to PFF, PFF in turn made a down payment. However, PFF was not
able to complete the full payment in subsequent installments despite repeated
demands from IETTI. IETTI then sued PFF and Kahn was impleaded as a codefendant.
Kahn averred that he should not be impleaded because he merely acted as an
agent of PFF which he averred is a corporation with separate and distinct
personality from him. The trial court ruled against Kahn and held him personally
liable for the said obligation (PFF was declared in default for failing to file an
answer). The trial court ruled that Kahn failed to prove that PFF is a corporation.
The Court of Appeals however reversed the decision of the trial court. The Court
of Appeals took judicial notice of the existence of PFF as a national sports

association; that as such, PFF is empowered to enter into contracts through its
agents; that PFF is therefore liable for the contract entered into by its agent Kahn.
The CA further ruled that IETTI is in estoppel; that it cannot now deny the
corporate existence of PFF because it had contracted and dealt with PFF in such a
manner as to recognize and in effect admit its existence.
ISSUE: Whether or not the Court of Appeals is correct.
HELD: No. PFF, upon its creation, is not automatically considered a national sports
association. It must first be recognized and accredited by the Philippine Amateur
Athletic Federation and the Department of Youth and Sports Development. This
fact was never substantiated by Kahn. As such, PFF is considered as an
unincorporated sports association. And under the law, any person acting or
purporting to act on behalf of a corporation which has no valid existence assumes
such privileges and becomes personally liable for contract entered into or for
other acts performed as such agent. Kahn is therefore personally liable for the
contract entered into by PFF with IETTI.
There is also no merit on the finding of the CA that IETTI is in estoppel. The
application of the doctrine of corporation by estoppel applies to a third party
only when he tries to escape liability on a contract from which he has benefited
on the irrelevant ground of defective incorporation. In the case at bar, IETTI is not
trying to escape liability from the contract but rather is the one claiming from the
contract.

FIRST DIVISION
[G.R. No. 119002. October 19, 2000]
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON.
COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION,
respondents.
DECISION
KAPUNAN, J.:
On June 30 1989, petitioner International Express Travel and Tour Services, Inc.,
through its managing director, wrote a letter to the Philippine Football Federation
(Federation), through its president private respondent Henri Kahn, wherein the

former offered its services as a travel agency to the latter.[1] The offer was
accepted.
Petitioner secured the airline tickets for the trips of the athletes and officials of
the Federation to the South East Asian Games in Kuala Lumpur as well as various
other trips to the People's Republic of China and Brisbane. The total cost of the
tickets amounted to P449,654.83. For the tickets received, the Federation made
two partial payments, both in September of 1989, in the total amount of
P176,467.50.[2]
On 4 October 1989, petitioner wrote the Federation, through the private
respondent a demand letter requesting for the amount of P265,894.33.[3] On 30
October 1989, the Federation, through the Project Gintong Alay, paid the amount
of P31,603.00.[4]
On 27 December 1989, Henri Kahn issued a personal check in the amount of
P50,000 as partial payment for the outstanding balance of the Federation.[5]
Thereafter, no further payments were made despite repeated demands.
This prompted petitioner to file a civil case before the Regional Trial Court of
Manila. Petitioner sued Henri Kahn in his personal capacity and as President of
the Federation and impleaded the Federation as an alternative defendant.
Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets
purchased by the Federation on the ground that Henri Kahn allegedly guaranteed
the said obligation.[6]
Henri Kahn filed his answer with counterclaim. While not denying the allegation
that the Federation owed the amount P207,524.20, representing the unpaid
balance for the plane tickets, he averred that the petitioner has no cause of
action against him either in his personal capacity or in his official capacity as
president of the Federation. He maintained that he did not guarantee payment
but merely acted as an agent of the Federation which has a separate and distinct
juridical personality.[7]
On the other hand, the Federation failed to file its answer, hence, was declared in
default by the trial court.[8]
In due course, the trial court rendered judgment and ruled in favor of the
petitioner and declared Henri Kahn personally liable for the unpaid obligation of
the Federation. In arriving at the said ruling, the trial court rationalized:
Defendant Henri Kahn would have been correct in his contentions had it been
duly established that defendant Federation is a corporation. The trouble,
however, is that neither the plaintiff nor the defendant Henri Kahn has adduced
any evidence proving the corporate existence of the defendant Federation. In
paragraph 2 of its complaint, plaintiff asserted that "Defendant Philippine Football
Federation is a sports association xxx." This has not been denied by defendant
Henri Kahn in his Answer. Being the President of defendant Federation, its
corporate existence is within the personal knowledge of defendant Henri Kahn.

He could have easily denied specifically the assertion of the plaintiff that it is a
mere sports association, if it were a domestic corporation. But he did not.
xxx
A voluntary unincorporated association, like defendant Federation has no power
to enter into, or to ratify, a contract. The contract entered into by its officers or
agents on behalf of such association is not binding on, or enforceable against it.
The officers or agents are themselves personally liable.
x x x[9]
The dispositive portion of the trial court's decision reads:
WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the
plaintiff the principal sum of P207,524.20, plus the interest thereon at the legal
rate computed from July 5, 1990, the date the complaint was filed, until the
principal obligation is fully liquidated; and another sum of P15,000.00 for
attorney's fees.
The complaint of the plaintiff against the Philippine Football Federation and the
counterclaims of the defendant Henri Kahn are hereby dismissed.
With the costs against defendant Henri Kahn.[10]
Only Henri Kahn elevated the above decision to the Court of Appeals. On 21
December 1994, the respondent court rendered a decision reversing the trial
court, the decretal portion of said decision reads:
WHEREFORE, premises considered, the judgment appealed from is hereby
REVERSED and SET ASIDE and another one is rendered dismissing the complaint
against defendant Henri S. Kahn.[11]
In finding for Henri Kahn, the Court of Appeals recognized the juridical existence
of the Federation. It rationalized that since petitioner failed to prove that Henri
Kahn guaranteed the obligation of the Federation, he should not be held liable for
the same as said entity has a separate and distinct personality from its officers.
Petitioner filed a motion for reconsideration and as an alternative prayer pleaded
that the Federation be held liable for the unpaid obligation. The same was denied
by the appellate court in its resolution of 8 February 1995, where it stated that:
As to the alternative prayer for the Modification of the Decision by expressly
declaring in the dispositive portion thereof the Philippine Football Federation
(PFF) as liable for the unpaid obligation, it should be remembered that the trial
court dismissed the complaint against the Philippine Football Federation, and the
plaintiff did not appeal from this decision. Hence, the Philippine Football
Federation is not a party to this appeal and consequently, no judgment may be
pronounced by this Court against the PFF without violating the due process
clause, let alone the fact that the judgment dismissing the complaint against it,

had already become final by virtue of the plaintiff's failure to appeal therefrom.
The alternative prayer is therefore similarly DENIED.[12]
Petitioner now seeks recourse to this Court and alleges that the respondent court
committed the following assigned errors:[13]
A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER
HAD DEALT WITH THE PHILIPPINE FOOTBALL FEDERATION (PFF) AS A CORPORATE
ENTITY AND IN NOT HOLDING THAT PRIVATE RESPONDENT HENRI KAHN WAS THE
ONE WHO REPRESENTED THE PFF AS HAVING A CORPORATE PERSONALITY.
B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE
RESPONDENT HENRI KAHN PERSONALLY LIABLE FOR THE OBLIGATION OF THE
UNINCORPORATED PFF, HAVING NEGOTIATED WITH PETITIONER AND
CONTRACTED THE OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL PAYMENT
AND ASSURED PETITIONER OF FULLY SETTLING THE OBLIGATION.
C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT PERSONALLY
LIABLE, THE HONORABLE COURT OF APPEALS ERRED IN NOT EXPRESSLY
DECLARING IN ITS DECISION THAT THE PFF IS SOLELY LIABLE FOR THE
OBLIGATION.
The resolution of the case at bar hinges on the determination of the existence of
the Philippine Football Federation as a juridical person. In the assailed decision,
the appellate court recognized the existence of the Federation. In support of this,
the CA cited Republic Act 3135, otherwise known as the Revised Charter of the
Philippine Amateur Athletic Federation, and Presidential Decree No. 604 as the
laws from which said Federation derives its existence.
As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604
recognized the juridical existence of national sports associations. This may be
gleaned from the powers and functions granted to these associations. Section 14
of R.A. 3135 provides:
SEC. 14. Functions, powers and duties of Associations. - The National Sports'
Association shall have the following functions, powers and duties:
1. To adopt a constitution and by-laws for their internal organization and
government;
2. To raise funds by donations, benefits, and other means for their purposes.
3. To purchase, sell, lease or otherwise encumber property both real and
personal, for the accomplishment of their purpose;
4. To affiliate with international or regional sports' Associations after due
consultation with the executive committee;
xxx

13. To perform such other acts as may be necessary for the proper
accomplishment of their purposes and not inconsistent with this Act.
Section 8 of P.D. 604, grants similar functions to these sports associations:
SEC. 8. Functions, Powers, and Duties of National Sports Association. - The
National sports associations shall have the following functions, powers, and
duties:
1. Adopt a Constitution and By-Laws for their internal organization and
government which shall be submitted to the Department and any amendment
thereto shall take effect upon approval by the Department: Provided, however,
That no team, school, club, organization, or entity shall be admitted as a voting
member of an association unless 60 per cent of the athletes composing said
team, school, club, organization, or entity are Filipino citizens;
2. Raise funds by donations, benefits, and other means for their purpose subject
to the approval of the Department;
3. Purchase, sell, lease, or otherwise encumber property, both real and personal,
for the accomplishment of their purpose;
4. Conduct local, interport, and international competitions, other than the
Olympic and Asian Games, for the promotion of their sport;
5. Affiliate with international or regional sports associations after due consultation
with the Department;
xxx
13. Perform such other functions as may be provided by law.
The above powers and functions granted to national sports associations clearly
indicate that these entities may acquire a juridical personality. The power to
purchase, sell, lease and encumber property are acts which may only be done by
persons, whether natural or artificial, with juridical capacity. However, while we
agree with the appellate court that national sports associations may be accorded
corporate status, such does not automatically take place by the mere passage of
these laws.
It is a basic postulate that before a corporation may acquire juridical personality,
the State must give its consent either in the form of a special law or a general
enabling act. We cannot agree with the view of the appellate court and the
private respondent that the Philippine Football Federation came into existence
upon the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604
any provision creating the Philippine Football Federation. These laws merely
recognized the existence of national sports associations and provided the manner
by which these entities may acquire juridical personality. Section 11 of R.A. 3135
provides:

SEC. 11. National Sports' Association; organization and recognition. - A National


Association shall be organized for each individual sports in the Philippines in the
manner hereinafter provided to constitute the Philippine Amateur Athletic
Federation. Applications for recognition as a National Sports' Association shall be
filed with the executive committee together with, among others, a copy of the
constitution and by-laws and a list of the members of the proposed association,
and a filing fee of ten pesos.
The Executive Committee shall give the recognition applied for if it is satisfied
that said association will promote the purposes of this Act and particularly section
three thereof. No application shall be held pending for more than three months
after the filing thereof without any action having been taken thereon by the
executive committee. Should the application be rejected, the reasons for such
rejection shall be clearly stated in a written communication to the applicant.
Failure to specify the reasons for the rejection shall not affect the application
which shall be considered as unacted upon: Provided, however, That until the
executive committee herein provided shall have been formed, applications for
recognition shall be passed upon by the duly elected members of the present
executive committee of the Philippine Amateur Athletic Federation. The said
executive committee shall be dissolved upon the organization of the executive
committee herein provided: Provided, further, That the functioning executive
committee is charged with the responsibility of seeing to it that the National
Sports' Associations are formed and organized within six months from and after
the passage of this Act.
Section 7 of P.D. 604, similarly provides:
SEC. 7. National Sports Associations. - Application for accreditation or recognition
as a national sports association for each individual sport in the Philippines shall
be filed with the Department together with, among others, a copy of the
Constitution and By-Laws and a list of the members of the proposed association.
The Department shall give the recognition applied for if it is satisfied that the
national sports association to be organized will promote the objectives of this
Decree and has substantially complied with the rules and regulations of the
Department: Provided, That the Department may withdraw accreditation or
recognition for violation of this Decree and such rules and regulations formulated
by it.
The Department shall supervise the national sports association: Provided, That
the latter shall have exclusive technical control over the development and
promotion of the particular sport for which they are organized.
Clearly the above cited provisions require that before an entity may be
considered as a national sports association, such entity must be recognized by
the accrediting organization, the Philippine Amateur Athletic Federation under
R.A. 3135, and the Department of Youth and Sports Development under P.D. 604.
This fact of recognition, however, Henri Kahn failed to substantiate. In attempting
to prove the juridical existence of the Federation, Henri Kahn attached to his

motion for reconsideration before the trial court a copy of the constitution and bylaws of the Philippine Football Federation. Unfortunately, the same does not
prove that said Federation has indeed been recognized and accredited by either
the Philippine Amateur Athletic Federation or the Department of Youth and Sports
Development. Accordingly, we rule that the Philippine Football Federation is not a
national sports association within the purview of the aforementioned laws and
does not have corporate existence of its own.
Thus being said, it follows that private respondent Henry Kahn should be held
liable for the unpaid obligations of the unincorporated Philippine Football
Federation. It is a settled principal in corporation law that any person acting or
purporting to act on behalf of a corporation which has no valid existence assumes
such privileges and becomes personally liable for contract entered into or for
other acts performed as such agent.[14] As president of the Federation, Henri
Kahn is presumed to have known about the corporate existence or non-existence
of the Federation. We cannot subscribe to the position taken by the appellate
court that even assuming that the Federation was defectively incorporated, the
petitioner cannot deny the corporate existence of the Federation because it had
contracted and dealt with the Federation in such a manner as to recognize and in
effect admit its existence.[15] The doctrine of corporation by estoppel is
mistakenly applied by the respondent court to the petitioner. The application of
the doctrine applies to a third party only when he tries to escape liability on a
contract from which he has benefited on the irrelevant ground of defective
incorporation.[16] In the case at bar, the petitioner is not trying to escape liability
from the contract but rather is the one claiming from the contract.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The
decision of the Regional Trial Court of Manila, Branch 35, in Civil Case No. 9053595 is hereby REINSTATED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.
[1] Records, p. 10

[2] Id., at 12-13.

[3] Id., at 14.

[4] Id., at 15.

[5] Id., at 18.

[6] Id., at 1-9.

[7] Id., at 29-34.

[8] Id., at 40.

[9] Rollo, pp. 195-196.

[10] Id., at 196.

[11] Id., at 48.

[12] Id., at 50.

[13] Id., at 16-17.

[14] Albert vs. University Publishing Co. Inc.., 13 SCRA 84, 87 (1965) citing
Salvatierra vs. Garlitos, 56 O.G. 3069.

[15] CA Decision, p. 11, Rollo, p 46.

[16] Campos, p. 107, citing Lowell-Woodward Hardware vs. Woods, et al., Partners
As The Superior Leasing Company, Supreme Court of Kansas, 1919, 104 Kan.
729, 180 p. 734.

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