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CORPORATION CASES

[G.R. No. 108734. May 29, 1996]CONCEPT


INC., petitioner, vs.
THE
NATIONAL
LABOR
COMMISSION, HERMOSISIMA, JR., J.:

the sum of P117,414.76, representing the balance of the judgment


award, and to reinstate private respondents to their former positions.

BUILDERS,
RELATIONS

The corporate mask may be lifted and the corporate veil may be
pierced when a corporation is just but the alter ego of a person or of
another corporation. Where badges of fraud exist; where public
convenience is defeated; where a wrong is sought to be justified
thereby, the corporate fiction or the notion of legal entity should come
to naught. The law in these instances will regard the corporation as a
mere association of persons and, in case of two corporations, merge
them into one.
Thus, where a sister corporation is used as a shield to evade a
corporations subsidiary liability for damages, the corporation may not
be heard to say that it has a personality separate and distinct from the
other corporation. The piercing of the corporate veil comes into play.
This special civil action ostensibly raises the question of whether
the National Labor Relations Commission committed grave abuse of
discretion when it issued a break-open order to the sheriff to be
enforced against personal property found in the premises of petitioners
sister company.
Petitioner Concept Builders, Inc., a domestic corporation, with
principal office at 355 Maysan Road, Valenzuela, Metro Manila, is
engaged in the construction business. Private respondents were
employed by said company as laborers, carpenters and riggers.
On November, 1981, private respondents were served individual
written notices of termination of employment by petitioner, effective
on November 30, 1981. It was stated in the individual notices that their
contracts of employment had expired and the project in which they
were hired had been completed.
Public respondent found it to be, the fact, however, that at the
time of the termination of private respondents employment, the project
in which they were hired had not yet been finished and
completed. Petitioner had to engage the services of sub-contractors
whose workers performed the functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal
dismissal, unfair labor practice and non-payment of their legal holiday
pay, overtime pay and thirteenth-month pay against petitioner.
On December 19, 1984, the Labor Arbiter rendered
judgment1ordering petitioner to reinstate private respondents and to
pay them back wages equivalent to one year or three hundred working
days.
On November
27, 1985, the
National
Labor
Relations
Commission (NLRC) dismissed the motion for reconsideration filed by
petitioner on the ground that the said decision had already become
final and executory.2
On October 16, 1986, the NLRC Research and Information
Department made the finding that private respondents backwages
amounted to P199,800.00.3
On October 29, 1986, the Labor Arbiter issued a writ of
execution directing the sheriff to execute the Decision,
dated December 19, 1984.The writ was partially satisfied through
garnishment of sums from petitioners debtor, the Metropolitan
Waterworks and Sewerage Authority, in the amount of
P81,385.34. Said amount was turned over to the cashier of the NLRC.
On February 1, 1989, an Alias Writ of Execution was issued by
the Labor Arbiter directing the sheriff to collect from herein petitioner

On July 13, 1989, the sheriff issued a report stating that he tried
to serve the alias writ of execution on petitioner through the security
guard on duty but the service was refused on the ground that petitioner
no longer occupied the premises.
On September 26, 1986, upon motion of private respondents,
the Labor Arbiter issued a second alias writ of execution.
The said writ had not been enforced by the special sheriff
because, as stated in his progress report, dated November 2, 1989:
1. All the employees inside petitioners premises at 355 Maysan Road,
Valenzuela, Metro Manila, claimed that they were employees of Hydro
Pipes Philippines, Inc. (HPPI) and not by respondent;
2. Levy was made upon personal properties he found in the premises;
3. Security guards with high-powered guns prevented him from
removing the properties he had levied upon.4
The said special sheriff recommended that a break-open order
be issued to enable him to enter petitioners premises so that he could
proceed with the public auction sale of the aforesaid personal
properties on November 7, 1989.
On November 6, 1989, a certain Dennis Cuyegkeng filed a thirdparty claim with the Labor Arbiter alleging that the properties sought to
be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI)
of which he is the Vice-President.
On November 23, 1989, private respondents filed a Motion for
Issuance of a Break-Open Order, alleging that HPPI and petitioner
corporation were owned by the same incorporator! stockholders. They
also alleged that petitioner temporarily suspended its business
operations in order to evade its legal obligations to them and that
private respondents were willing to post an indemnity bond to answer
for any damages which petitioner and HPPI may suffer because of the
issuance of the break-open order.
In support of their claim against HPPI, private respondents
presented duly certified copies of the General Informations Sheet,
dated May 15, 1987, submitted by petitioner to the Securities and
Exchange Commission (SEC) and the General Information Sheet,
dated May 15, 1987, submitted by HPPI to the Securities and
Exchange Commission.
The General Information Sheet submitted by the petitioner1
revealed the following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
On the other hand, the General Information Sheet of HPPI
revealed the following:
1. Breakdown of Subscribed Capital
On February 1, 1990, HPPI filed an Opposition to private
respondents motion for issuance of a break-open order, contending
that HPPI is a corporation which is separate and distinct from
petitioner. HPPI also alleged that the two corporations are engaged in
two different kinds of businesses, i.e., HPPI is a manufacturing firm
while petitioner was then engaged in construction.
On March 2, 1990, the Labor Arbiter issued an Order which
denied private respondents motion for break-open order.

Private respondents then appealed to the NLRC. On April 23,


1992, the NLRC set aside the order of the Labor Arbiter, issued a
break-open order and directed private respondents to file a
bond. Thereafter, it directed the sheriff to proceed with the auction sale
of the properties already levied upon. It dismissed the third-party claim
for lack of merit.
Petitioner moved for reconsideration but the motion was denied
by the NLRC in a Resolution, dated December 3, 1992.
Hence, the resort to the present petition.
Petitioner alleges that the NLRC committed grave abuse of
discretion when it ordered the execution of its decision despite a thirdparty claim on the levied property. Petitioner further contends, that the
doctrine of piercing the corporate veil should not have been applied, in
this case, in the absence of any showing that it created HPPI in order
to evade its liability to private respondents. It also contends that HPPI
is engaged in the manufacture and sale of steel, concrete and iron
pipes, a business which is distinct and separate from petitioners
construction business. Hence, it is of no consequence that petitioner
and HPPI shared the same premises, the same President and the
same set of officers and subscribers.7
We find petitioners contention to be unmeritorious.
It is a fundamental principle of corporation law that a corporation
is an entity separate and distinct from its stockholders and from other
corporations to which it may be connected. 8 But, this separate and
distinct personality of a corporation is merely a fiction created by law
for convenience and to promote justice.9 So, when the notion of
separate juridical personality is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device to
defeat the labor laws,10 this separate personality of the corporation may
be disregarded or the veil of corporate fiction pierced. 11 This is true
likewise when the corporation is merely an adjunct, a business conduit
or an alter ego of another corporation.12
The conditions under which the juridical entity may be
disregarded vary according to the peculiar facts and circumstances of
each case. No hard and fast rule can be accurately laid down, but
certainly, there are some probative factors of identity that will justify the
application of the doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.13
The SEC en banc explained the instrumentality rule which the
courts have applied in disregarding the separate juridical personality of
corporations as follows:
Where one corporation is so organized and controlled and its affairs
are conducted so that it is, in fact, a mere instrumentality or adjunct of
the other, the fiction of the corporate entity of the instrumentality may
be disregarded. The control necessary to invoke the rule is not
majority or even complete stock control but such domination of
finances, policies and practices that the controlled corporation has, so
to speak, no separate mind, will or existence of its own, and is but a
conduit for its principal. It must be kept in mind that the control must be
shown to have been exercised at the time the acts complained of took
place. Moreover, the control and breach of duty must proximately
cause the injury or unjust loss for which the complaint is made.
The test in determining the applicability of the doctrine of
piercing the veil of corporate fiction is as follows:
1. Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to

this transaction had at the time no separate mind, will or existence of


its own;
2. Such control must have been used by the defendant to commit
fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of
plaintiffs legal rights; and
3. The aforesaid control and breach of duty must proximately cause
the injury or unjust loss complained of.
The absence of any one of these elements prevents piercing the
corporate veil. in applying the instrumentality or alter ego doctrine, the
courts are concerned with reality and not form, with how the
corporation operated and the individual defendants relationship to that
operation. 14
Thus, the question of whether a corporation is a mere alter ego,
a mere sheet or paper corporation, a sham or a subterfuge is purely
one of fact.15
In this case, the NLRC noted that, while petitioner claimed that it
ceased its business operations on April 29, 1986, it filed an Information
Sheet with the Securities and Exchange Commission on May 15, 1987,
stating that its office address is at 355 Maysan Road, Valenzuela,
Metro Manila. On the other hand, HPPI, the third-party claimant,
submitted on the same day, a similar information sheet stating that its
office address is at 355 Maysan Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O. Casino as
the corporate secretary of both corporations. It would also not be
amiss to note that both corporations had the same president, the same
board of directors, the samecorporate officers, and substantially
the same subscribers.
From the foregoing, it appears that, among other things, the
respondent (herein petitioner) and the third-party claimant shared the
same address and/or premises. Under this circumstances, (sic) it
cannot be said that the property levied upon by the sheriff were not of
respondents.16
Clearly, petitioner ceased its business operations in order to
evade the payment to private respondents of backwages and to bar
their reinstatement to their former positions. HPPI is obviously a
business conduit of petitioner corporation and its emergence was
skillfully orchestrated to avoid the financial liability that already
attached to petitioner corporation.
The facts in this case are analogous to Claparols v. Court of
Industrial Relations17 where we had the occasion to rule:
Respondent courts findings that indeed the Claparols Steel and Nail
Plant, which ceased operation of June 30, 1957, was SUCCEEDED by
the Claparols Steel Corporation effective the next day, July 1, 1957, up
to December 7, 1962, when the latter finally ceased to operate, were
not disputed by petitioner. it is very clear that the latter corporation was
a continuation and successor of the first entity x x x. Both
predecessors and successor were owned and controlled by petitioner
Eduardo Claparols and there was no break in the succession and
continuity of the same business. This avoiding-the-liability scheme is
very patent, considering that 90% of the subscribed shares of stock of
the Claparols Steel Corporation (the second corporation) was owned
by respondent x x x Claparols himself, and all the assets of the
dissolved Claparols Steel and Nail Plant were turned over to the
emerging Claparols Steel Corporation.
It is very obvious that the second corporation seeks the
protective shield of a corporate fiction whose veil in the present case
could, and should, be pierced as it was deliberately and maliciously
designed to evade its financial obligation to its employees.

In view of the failure of the sheriff, in the case at bar, to effect a


levy upon the property subject of the execution, private respondents
had no other recourse but to apply for a break-open order after the
third-party claim of HPPI was dismissed for lack of merit by the NLRC.
This is in consonance with Section 3, Rule VII of the NLRC Manual of
Execution of Judgment which provides that:
Should the losing party, his agent or representative, refuse or prohibit
the Sheriff or his representative entry to the place where the property
subject of execution is located or kept, the judgment creditor may
apply to the Commission or Labor Arbiter concerned for a break-open
order.
Furthermore, our perusal of the records shows that the twin
requirements of due notice and hearing were complied with. Petitioner
and the third-party claimant were given the opportunity to submit
evidence in support of their claim.
Hence, the NLRC did not commit any grave abuse of discretion
when it affirmed the break-open order issued by the Labor Arbiter.
Finally, we do not find any reason to disturb the rule that factual
findings of quasi-judicial agencies supported by substantial evidence
are binding on this Court and are entitled to great respect, in the
absence of showing of grave abuse of a discretion.18
WHEREFORE, the petition is DISMISSED and the assailed
resolutions of the NLRC, dated April 23, 1992 and December 3, 1992,
are AFFIRMED.
SO ORDERED.
Padilla (Chairman), Bellosillo, Vitug, and Kapunan, JJ., concur.

BIBIANO O. REYNOSO, IV, petitioner, vs. HON. COURT OF


APPEALS and GENERAL CREDIT CORPORATION, respondents.
[G.R.
Nos.
116124-25. November
22,
2000]
YNARESSANTIAGO, J.:
Assailed in this petition for review is the consolidated decision of
the Court of Appeals dated July 7, 1994, which reversed the separate
decisions of the Regional Trial Court of Pasig City and the Regional
Trial Court of Quezon City in two cases between petitioner Reynoso
and respondent General Credit Corporation (GCC).
Sometime in the early 1960s, the Commercial Credit Corporation
(hereinafter, CCC), a financing and investment firm, decided to
organize franchise companies in different parts of the country, wherein
it shall hold thirty percent (30%) equity. Employees of the CCC were
designated
as
resident
managers
of
the
franchise
companies. Petitioner Bibiano O. Reynoso, IV was designated as the
resident manager of the franchise company in Quezon City, known as
the Commercial Credit Corporation of Quezon City (hereinafter, CCCQC).
CCC-QC entered into an exclusive management contract with
CCC whereby the latter was granted the management and full control
of the business activities of the former. Under the contract, CCC-QC
shall sell, discount and/or assign its receivables to CCC. Subsequently,
however, this discounting arrangement was discontinued pursuant to
the so-called DOSRI Rule, prohibiting the lending of funds by
corporations to its directors, officers, stockholders and other persons
with related interests therein.
On account of the new restrictions imposed by the Central Bank
policy by virtue of the DOSRI Rule, CCC decided to form CCC Equity
Corporation, (hereinafter, CCC-Equity), a wholly-owned subsidiary, to

which CCC transferred its thirty (30%) percent equity in CCC-QC,


together with two seats in the latters Board of Directors.
Under the new set-up, several officials of Commercial Credit
Corporation, including petitioner Reynoso, became employees of CCCEquity. While petitioner continued to be the Resident Manager of CCCQC, he drew his salaries and allowances from CCCEquity. Furthermore, although an employee of CCC-Equity, petitioner,
as well as all employees of CCC-QC, became qualified members of
the Commercial Credit Corporation Employees Pension Plan.
As Resident Manager of CCC-QC, petitioner oversaw the
operations of CCC-QC and supervised its employees. The business
activities of CCC-QC pertain to the acceptance of funds from
depositors who are issued interest-bearing promissory notes. The
amounts
deposited
are
then
loaned
out
to
various
borrowers. Petitioner, in order to boost the business activities of CCCQC, deposited his personal funds in the company. In return, CCC-QC
issued to him its interest-bearing promissory notes.
On August 15, 1980, a complaint for sum of money with
preliminary attachment,[1] docketed as Civil Case No. Q-30583, was
instituted in the then Court of First Instance of Rizal by CCC-QC
against petitioner, who had in the meantime been dismissed from his
employment by CCC-Equity. The complaint was subsequently
amended in order to include Hidelita Nuval, petitioners wife, as a party
defendant.[2] The complaint alleged that petitioner embezzled the funds
of CCC-QC amounting to P1,300,593.11. Out of this amount, at least
P630,000.00 was used for the purchase of a house and lot located at
No. 12 Macopa Street, Valle Verde I, Pasig City. The property was
mortgaged to CCC, and was later foreclosed.
In his amended Answer, petitioner denied having unlawfully used
funds of CCC-QC and asserted that the sum of P1,300,593.11
represented his money placements in CCC-QC, as shown by twentythree (23) checks which he issued to the said company.[3]
The case was subsequently transferred to the Regional Trial
Court of Quezon City, Branch 86, pursuant to the Judiciary
Reorganization Act of 1980.
On January 14, 1985, the trial court rendered its decision, the
decretal portion of which states:
Premises considered, the Court finds the complaint
merit.Accordingly, said complaint is hereby DISMISSED.

without

By reason of said complaint, defendant Bibiano Reynoso IV suffered


degradation, humiliation and mental anguish.
On the counterclaim, which the Court finds to be meritorious, plaintiff
corporation is hereby ordered:
a) to pay defendant the sum of P185,000.00 plus 14% interest per
annum from October 2, 1980 until fully paid;
b) to pay defendant P3,639,470.82 plus interest thereon at the rate of
14% per annum from June 24, 1981, the date of filing of Amended
Answer, until fully paid; from this amount may be deducted the
remaining obligation of defendant under the promissory note of
October 24, 1977, in the sum of P9,738.00 plus penalty at the rate of
1% per month from December 24, 1977 until fully paid;
c) to pay defendants P200,000.00 as moral damages;

d) to pay defendants P100,000.00 as exemplary damages;


e) to pay defendants P25,000.00 as and for attorney's fees; plus costs
of the suit.
SO ORDERED.
Both parties appealed to the then Intermediate Appellate
Court. The appeal of Commercial Credit Corporation of Quezon City
was dismissed for failure to pay docket fees. Petitioner, on the other
hand, withdrew his appeal.
Hence, the decision became final and, accordingly, a Writ of
Execution was issued on July 24, 1989. [4] However, the judgment
remained unsatisfied,[5] prompting petitioner to file a Motion for Alias
Writ of Execution, Examination of Judgment Debtor, and to Bring
Financial Records for Examination to Court. CCC-QC filed an
Opposition to petitioners motion,[6] alleging that the possession of its
premises and records had been taken over by CCC.
Meanwhile, in 1983, CCC became known as the General Credit
Corporation.
On November 22, 1991, the Regional Trial Court of Quezon City
issued an Order directing General Credit Corporation to file its
comment on petitioners motion for alias writ of execution. [7] General
Credit Corporation filed a Special Appearance and Opposition on
December 2, 1991,[8] alleging that it was not a party to the case, and
therefore petitioner should direct his claim against CCC-QC and not
General Credit Corporation. Petitioner filed his reply,[9] stating that the
CCC-QC is an adjunct instrumentality, conduit and agency of
CCC. Furthermore, petitioner invoked the decision of the Securities
and Exchange Commission in SEC Case No. 2581, entitled, Avelina
G. Ramoso, et al., Petitioner versus General Credit Corp., et al.,
Respondents, where it was declared that General Credit Corporation,
CCC-Equity and other franchised companies including CCC-QC were
declared as one corporation.
On December 9, 1991, the Regional Trial Court of Quezon City
ordered the issuance of an alias writ of execution. [10] On December 20,
1991, General Credit Corporation filed an Omnibus Motion, [11] alleging
that SEC Case No. 2581 was still pending appeal, and maintaining that
the levy on properties of the General Credit Corporation by the deputy
sheriff of the court was erroneous.
In his Opposition to the Omnibus Motion, petitioner insisted that
General Credit Corporation is just the new name of Commercial Credit
Corporation; hence, General Credit Corporation and Commercial
Credit Corporation should be treated as one and the same entity.
On February 13, 1992, the Regional Trial Court of Quezon City
denied the Omnibus Motion.[12] On March 5, 1992, it issued an Order
directing the issuance of an alias writ of execution.[13]
Previously, on February 21, 1992, General Credit Corporation
instituted a complaint before the Regional Trial Court of Pasig against
Bibiano Reynoso IV and Edgardo C. Tanangco, in his capacity as
Deputy Sheriff of Quezon City,[14] docketed as Civil Case No. 61777,
praying that the levy on its parcel of land located in Pasig, Metro
Manila and covered by Transfer Certificate of Title No. 29940 be
declared null and void, and that defendant sheriff be enjoined from
consolidating ownership over the land and from further levying on other
properties of General Credit Corporation to answer for any liability
under the decision in Civil Case No. Q-30583.

The Regional Trial Court of Pasig, Branch 167, did not issue a
temporary restraining order. Thus, General Credit Corporation
instituted two (2) petitions for certiorari with the Court of Appeals,
docketed as CA-G.R. SP No. 27518 [15] and CA-G.R. SP No.
27683. These cases were later consolidated.
On July 7, 1994, the Court of Appeals rendered a decision in the
two consolidated cases, the dispositive portion of which reads:
WHEREFORE, in SP No. 27518 we declare the issue of the
respondent court's refusal to issue a restraining order as having been
rendered moot by our Resolution of 7 April 1992 which, by way of
injunctive relief, provided that "the respondents and their
representatives are hereby enjoined from conducting an auction sale
(on execution) of petitioner's properties as well as initiating similar acts
of levying (upon) and selling on execution other properties of said
petitioner". The injunction thus granted, as modified by the words in
parenthesis, shall remain in force until Civil Case No. 61777 shall have
been finally terminated.
In SP No. 27683, we grant the petition for certiorari and accordingly
NULLIFY and SET ASIDE, for having been issued in excess of
jurisdiction, the Order of 13 February 1992 in Civil Case No. Q-30583
as well as any other order or process through which the petitioner is
made liable under the judgment in said Civil Case No. Q-30583.
No damages and no costs.
SO ORDERED.[16]
Hence, this petition for review anchored on the following
arguments:
1. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP
NO. 27683 WHEN IT NULLIFIED AND SET ASIDE THE 13
FEBRUARY 1992 ORDER AND OTHER ORDERS OR PROCESS OF
BRANCH 86 OF THE REGIONAL TRIAL COURT OF QUEZON CITY
THROUGH WHICH GENERAL CREDIT CORPORATION IS MADE
LIABLE UNDER THE JUDGMENT THAT WAS RENDERED IN CIVIL
CASE NO. Q-30583.
2. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP
NO. 27518 WHEN IT ENJOINED THE AUCTION SALE ON
EXECUTION OF THE PROPERTIES OF GENERAL CREDIT
CORPORATION AS WELL AS INITIATING SIMILAR ACTS OF
LEVYING UPON AND SELLING ON EXECUTION OF OTHER
PROPERTIES OF GENERAL CREDIT CORPORATION.
3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT GENERAL CREDIT CORPORATION IS A STRANGER TO CIVIL
CASE NO. Q-30583, INSTEAD OF, DECLARING THAT
COMMERCIAL CREDIT CORPORATION OF QUEZON CITY IS THE
ALTER EGO, INSTRUMENTALITY, CONDUIT OR ADJUNCT OF
COMMERCIAL CREDIT CORPORATION AND ITS SUCCESSOR
GENERAL CREDIT CORPORATION.
At the outset, it must be stressed that there is no longer any
controversy over petitioners claims against his former employer, CCCQC, inasmuch as the decision in Civil Case No. Q-30583 of the
Regional Trial Court of Quezon City has long become final and
executory. The only issue, therefore, to be resolved in the instant
petition is whether or not the judgment in favor of petitioner may be
executed against respondent General Credit Corporation. The latter
contends that it is a corporation separate and distinct from CCC-QC
and, therefore, its properties may not be levied upon to satisfy the

monetary judgment in favor of petitioner. In short, respondent raises


corporate fiction as its defense. Hence, we are necessarily called upon
to apply the doctrine of piercing the veil of corporate entity in order to
determine if General Credit Corporation, formerly CCC, may be held
liable for the obligations of CCC-QC.
The petition is impressed with merit.
A corporation is an artificial being created by operation of law,
having the right of succession and the powers, attributes, and
properties expressly authorized by law or incident to its existence. [17] It
is an artificial being invested by law with a personality separate and
distinct from those of the persons composing it as well as from that of
any other legal entity to which it may be related. [18] It was evolved to
make possible the aggregation and assembling of huge amounts of
capital upon which big business depends. It also has the advantage of
non-dependence on the lives of those who compose it even as it
enjoys certain rights and conducts activities of natural persons.
Precisely because the corporation is such a prevalent and
dominating factor in the business life of the country, the law has to look
carefully into the exercise of powers by these artificial persons it has
created.
Any piercing of the corporate veil has to be done with
caution.However, the Court will not hesitate to use its supervisory and
adjudicative powers where the corporate fiction is used as an unfair
device to achieve an inequitable result, defraud creditors, evade
contracts and obligations, or to shield it from the effects of a court
decision. The corporate fiction has to be disregarded when necessary
in the interest of justice.

[19]

In First Philippine International Bank v. Court of Appeals, et al.,


we held:

When the fiction is urged as a means of perpetrating a fraud or an


illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, the achievement or perfection of a monopoly
or generally the perpetration of knavery or crime, the veil with which
the law covers and isolates the corporation from the members or
stockholders who compose it will be lifted to allow for its consideration
merely as an aggregation of individuals.
Also in the above-cited case, we stated that this Court has
pierced the veil of corporate fiction in numerous cases where it was
used, among others, to avoid a judgment credit; [20] to avoid inclusion of
corporate assets as part of the estate of a decedent; [21] to avoid liability
arising from debt;[22] when made use of as a shield to perpetrate fraud
and/or confuse legitimate issues;[23] or to promote unfair objectives or
otherwise to shield them.[24]
In the appealed judgment, the Court of Appeals sustained
respondents arguments of separateness and its character as a
different corporation which is a non-party or stranger to this case.
The defense of separateness will be disregarded where the
business affairs of a subsidiary corporation are so controlled by the
mother corporation to the extent that it becomes an instrument or
agent of its parent. But even when there is dominance over the affairs
of the subsidiary, the doctrine of piercing the veil of corporate fiction
applies only when such fiction is used to defeat public convenience,
justify wrong, protect fraud or defend crime.[25]
We stated in Tomas Lao Construction v. National Labor
Relations Commission,[26] that the legal fiction of a corporation being a

judicial entity with a distinct and separate personality was envisaged


for convenience and to serve justice. Therefore, it should not be used
as a subterfuge to commit injustice and circumvent the law.
Precisely for the above reasons, we grant the instant petition.
It is obvious that the use by CCC-QC of the same name of
Commercial Credit Corporation was intended to publicly identify it as a
component of the CCC group of companies engaged in one and the
same business, i.e., investment and financing. Aside from CCCQuezon City, other franchise companies were organized such as CCCNorth Manila and CCC-Cagayan Valley. The organization of subsidiary
corporations as what was done here is usually resorted to for the
aggrupation of capital, the ability to cover more territory and
population, the decentralization of activities best decentralized, and the
securing of other legitimate advantages. But when the mother
corporation and its subsidiary cease to act in good faith and honest
business judgment, when the corporate device is used by the parent to
avoid its liability for legitimate obligations of the subsidiary, and when
the corporate fiction is used to perpetrate fraud or promote injustice,
the law steps in to remedy the problem. When that happens, the
corporate character is not necessarily abrogated. It continues for
legitimate objectives. However, it is pierced in order to remedy
injustice, such as that inflicted in this case.
Factually and legally, the CCC had dominant control of the
business operations of CCC-QC. The exclusive management contract
insured that CCC-QC would be managed and controlled by CCC and
would not deviate from the commands of the mother corporation. In
addition to the exclusive management contract, CCC appointed its own
employee, petitioner, as the resident manager of CCC-QC.
Petitioners designation as resident manager implies that he was
placed in CCC-QC by a superior authority. In fact, even after his
assignment to the subsidiary corporation, petitioner continued to
receive his salaries, allowances, and benefits from CCC, which later
became
respondent
General
Credit
Corporation. Not
only
that. Petitioner and the other permanent employees of CCC-QC were
qualified members and participants of the Employees Pension Plan of
CCC.
There are other indications in the record which attest to the
applicability of the identity rule in this case, namely: the unity of
interests, management, and control; the transfer of funds to suit their
individual corporate conveniences; and the dominance of policy and
practice by the mother corporation insure that CCC-QC was an
instrumentality or agency of CCC.
As petitioner stresses, both CCC and CCC-QC were engaged in
the same principal line of business involving a single transaction
process.Under their discounting arrangements, CCC financed the
operations of CCC-QC. The subsidiary sold, discounted, or assigned
its accounts receivables to CCC.
The testimony of Joselito D. Liwanag, accountant and auditor of
CCC since 1971, shows the pervasive and intensive auditing function
of CCC over CCC-QC.[27] The two corporations also shared the same
office space. CCC-QC had no office of its own.
The complaint in Civil Case No. Q-30583, instituted by CCC-QC,
was even verified by the director-representative of CCC. The lawyers
who filed the complaint and amended complaint were all in-house
lawyers of CCC.

The challenged decision of the Court of Appeals states that


CCC, now General Credit Corporation, is not a formal party in the
case. The reason for this is that the complaint was filed by CCC-QC
against petitioner. The choice of parties was with CCC-QC. The
judgment award in this case arose from the counterclaim which
petitioner set up against CCC-QC.

A court judgment becomes useless and ineffective if the


employer, in this case CCC as a mother corporation, is placed beyond
the legal reach of the judgment creditor who, after protracted litigation,
has been found entitled to positive relief. Courts have been organized
to put an end to controversy. This purpose should not be negated by
an inapplicable and wrong use of the fiction of the corporate veil.

The circumstances which led to the filing of the aforesaid


complaint are quite revealing. As narrated above, the discounting
agreements through which CCC controlled the finances of its
subordinates became unlawful when Central Bank adopted the DOSRI
prohibitions. Under this rule the directors, officers, and stockholders
are prohibited from borrowing from their company. Instead of adhering
to the letter and spirit of the regulations by avoiding DOSRI loans
altogether, CCC used the corporate device to continue the prohibited
practice. CCC organized still another corporation, the CCC-Equity
Corporation. However, as a wholly owned subsidiary, CCC-Equity was
in fact only another name for CCC.Key officials of CCC, including the
resident managers of subsidiary corporations, were appointed to
positions in CCC-Equity.

WHEREFORE, the decision of the Court of Appeals is hereby


REVERSED and ASIDE. The injunction against the holding of an
auction sale for the execution of the decision in Civil Case No. Q30583 of properties of General Credit Corporation, and the levying
upon and selling on execution of other properties of General Credit
Corporation, is LIFTED.

In order to circumvent the Central Banks disapproval of CCCQCs mode of reducing its DOSRI lender accounts and its directive to
follow Central Bank requirements, resident managers, including
petitioner, were told to observe a pseudo-compliance with the phasing
out orders. For his unwillingness to satisfactorily conform to these
directives and his reluctance to resort to illegal practices, petitioner
earned the ire of his employers. Eventually, his services were
terminated, and criminal and civil cases were filed against him.

GCC v. ALSONS DEVELOPMENT G.R. No. 154975 January 29,


2007, GARCIA, J.

SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo,
JJ., concur.

In this petition for review on certiorari under Rule 45 of the Rules of


Court, petitioner General Credit Corporation, now known as Penta
Capital Finance Corporation, seeks to annul and set aside the
Decision[1] and Resolution[2] dated April 11, 2002 and August 20, 2002,

Petitioner issued twenty-three checks as money placements with


CCC-QC because of difficulties faced by the firm in implementing the
required phase-out program. Funds from his current account in the Far
East Bank and Trust Company were transferred to CCC-QC. These
monies were alleged in the criminal complaints against him as having
been stolen. Complaints for qualified theft and estafa were brought by
CCC-QC against petitioner. These criminal cases were later
dismissed.Similarly, the civil complaint which was filed with the Court of
First Instance of Pasig and later transferred to the Regional Trial Court
of Quezon City was dismissed, but his counterclaims were granted.

respectively, of the Court of Appeals (CA) in CA-G.R. CV No.


31801, affirming the November 8, 1990 decision of the Regional Trial
Court (RTC) of Makati City in its Civil Case No. 12707, an action for a
sum of money thereat instituted by the herein respondent Alsons
Development and Investment Corporation against the petitioner and
respondent CCC Equity Corporation.

Faced with the financial obligations which CCC-QC had to


satisfy, the mother firm closed CCC-QC, in obvious fraud of its
creditors. CCC-QC, instead of opposing its closure, cooperated in its
own demise.Conveniently, CCC-QC stated in its opposition to the
motion for alias writ of execution that all its properties and assets had
been transferred and taken over by CCC.

The facts:

Under the foregoing circumstances, the contention of respondent


General Credit Corporation, the new name of CCC, that the corporate
fiction should be appreciated in its favor is without merit.

known as Commercial Credit Corporation (CCC), established CCC

Shortly after its incorporation in 1957 as a finance and investment


company, petitioner General Credit Corporation (GCC, for short), then

franchise companies in different urban centers of the country.[3] In


furtherance of its business, GCC had, as early as 1974, applied for and

Paraphrasing the ruling in Claparols v. Court of Industrial


Relations,[28] reiterated in Concept Builders Inc. v. National Labor
Relations,[29] it is very obvious that respondent seeks the protective
shield of a corporate fiction whose veil the present case could, and
should, be pierced as it was deliberately and maliciously designed to
evade its financial obligation of its employees.
If the corporate fiction is sustained, it becomes a handy
deception to avoid a judgment debt and work an injustice. The decision
raised to us for review is an invitation to multiplicity of litigation. As we
stated in Islamic Directorate vs. Court of Appeals,[30] the ends of justice
are not served if further litigation is encouraged when the issue is
determinable based on the records.

was able to secure license from the then Central Bank (CB) of the
Philippines and the Securities and Exchange Commission (SEC) to
engage also in quasi-banking activities.[4] On the other hand,
respondent CCC Equity Corporation (EQUITY, for brevity) was
organized in November 1994 by GCC for the purpose of, among other
things, taking over the operations and management of the various
franchise companies. At a time material hereto, respondent Alsons
Development and Investment Corporation (ALSONS, hereinafter) and

Conrado, Nicasio, Editha and Ladislawa, all surnamed Alcantara, and


Alfredo de Borja (hereinafter the Alcantara family, for convenience),
each owned, just like GCC, shares in the aforesaid GCC franchise
companies, e.g., CCC Davao and CCC Cebu.
In December 1980, ALSONS and the Alcantara family, for a
consideration of Two Million (P2,000,000.00) Pesos, sold their
shareholdings a total of 101,953 shares, more or less in the CCC
franchise companies to EQUITY.[5] On January 2, 1981, EQUITY
issued

ALSONS et

al.,

bearer

promissory

note

for P2,000,000.00with a one-year maturity date, at 18% interest per


annum, with provisions for damages and litigation costs in case of
default.[6]

b) is solely dependent upon


GCC
for
its
funding
requirements,
to
settle,
among
others,
equity
purchases made by investors
on the franchises; hence,
GCC is solely and directly
liable to ALSONS, the former
having failed to provide
EQUITY the necessary funds
to meet its obligations to
ALSONS.
3.
GCC
filed
its ANSWER
to
Crossclaim, stressing that it is a distinct and separate
entity from EQUITY and alleging, in essence that
the business relationships with each other were
always at arms length. And following the denial of
its motion to dismiss ALSONS complaint, on the
ground of lack of jurisdiction and want of cause of
action, GCC filed its Answer thereto and set up
affirmative defenses with counterclaim for
exemplary damages and attorneys fees.

Some four years later, the Alcantara family assigned its rights and

Issues having been joined, trial ensued. Presented by ALSONS, but

interests over the bearer note to ALSONS which thenceforth became

testifying as adverse witnesses, were CB and GCC officers. Among

the holder thereof.[7] But even before the execution of the assignment

other things, ALSONS evidence, which included the EQUITY-issued

deal aforestated, letters of demand for interest payment were already

bearer promissory note marked as Exhibit K and over sixty (60) other

sent to EQUITY, through its President, Wilfredo Labayen, who pleaded

marked and subsequently admitted documents, [9] were to the effect

inability to pay the stipulated interest, EQUITY no longer then having

that five (5) incorporators, each contributing P100,000.00 as the initial

assets or property to settle its obligation nor being extended financial

paid up capital of the company, organized EQUITY to manage, as it did

support by GCC.

manage, various GCC franchises through management contracts.


Before EQUITYs incorporation, however, GCC was already into the

What happened next, as narrated in the assailed Decision of the CA,


may be summarized, as follows:
1. On January 14, 1986, before the RTC of Makati,
ALSONS, having failed to collect on the bearer
note aforementioned, filed a complaint for a sum
of money[8] against EQUITY and GCC. The case,
docketed as Civil Case No. 12707, was eventually
raffled to Branch 58 of the court. As stated in par.
4 of the complaint, GCC is being impleaded as
party-defendant for any judgment ALSONS might
secure against EQUITY and, under the doctrine of
piercing the veil of corporate fiction, against
GCC, EQUITY having been organized as a tool
and mere conduit of GCC.
2. Answering with a cross-claim against
GCC, EQUITY stated by way of special and
affirmative defenses that it (EQUITY):
a) was purposely organized
by GCC for the latter to avoid
CB Rules and Regulations on
DOSRI (Directors, Officers,
Stockholders and Related
Interest) limitations, and that it
acted merely as intermediary
or bridge for loan transactions
and other dealings of GCC to
its
franchises
and
the
investing public; and

financing business as it was in fact managing and operating various


CCC franchises. Presented in evidence, too, was the September 29,
1982 letter-reply of one G. Villanueva, then GCC President, to EQUITY
President Wilfredo Labayen, bearing on the sale of EQUITY shares to
third parties, part of the proceeds of which the Alcantaras wanted
applied to liquidate the promissory note in question. In said letter, Mr.
Villanueva explained that the GCC Board denied the Alcantaras
request to be paid out of such proceeds, but nonetheless authorized
EQUITY to pay them interest out of EQUITYs operation income, in
preference over what was due GCC.[10]

Albeit EQUITY presented its president, it opted to adopt the


testimony of some of ALSONS witnesses, inclusive of the documentary
exhibits testified to by each of them, as its evidence.

For its part, GCC called only Wilfredo Labayen to testify. It


stuck to its underlying defense of separateness and presented

documentary evidence detailing the organizational structures of both

On April 11, 2002, the appellate court rendered the herein assailed

GCC and EQUITY. And in a bid to negate the notion that it was

Decision,[11] affirming that of the trial court, thus:


WHEREFORE, premises considered, the Decision
of the Regional Trial Court, Branch 58, Makati in
Civil Case No. 12707 is hereby AFFIRMED.

conducting its business illegally, GCC presented CB and SEC-issued


licenses authoring it to engage in financing and quasi-banking
activities. It also adduced evidence to prove that it was never a party to

SO ORDERED.

any of the actionable documents ALSONS and its predecessors-ininterest had in their possession and that the November 27, 1985 deed
of assignment of rights over the promissory note was unenforceable.

In time, GCC moved for reconsideration followed by a motion for oral


argument, but both motions were denied by the CA in its equally
assailed Resolution of August 20, 2002.[12]

Eventually, the trial court, on its finding that EQUITY was but
an instrumentality or adjunct of GCC and considering the legal
consequences and implications of such relationship, came out with its
decision on November 8, 1990, rendering judgment for ALSONS, to
wit:
WHEREFORE,
the
foregoing
premises
considered, judgment is hereby rendered in favor
of plaintiff [ALSONS] and against the defendants
[EQUITY and GCC] who are hereby ordered,
jointly and severally, to pay plaintiff:
1. the principal sum of Two Million Pesos
(P2,000,000.00) together with the interest due
thereon at the rate of eighteen percent (18%)
annually computed from Jan. 2, 1981 until the
obligation is fully paid;
2. liquidated damages due thereon equivalent to
three
percent
(3%)
monthly
computed
from January 2, 1982 until the obligation is fully
paid;
3. attorneys fees in an amount equivalent to
twenty four percent (24%) of the total obligation
due; and

Hence, GCCs present recourse anchored on the following arguments,


issues and/or submissions:
1. The motion for oral argument with motion for
reconsideration
and its supplement were
perfunctorily denied by the CA without justifiable
basis;
2. There is absolutely no basis for piercing the veil
of corporate fiction;
3. Respondent Alsons is not a real party-in-interest
as the promissory note payable to bearer subject
of the collection suit is but a simulated document
and/or refers to another party. Moreover, the
subject promissory note is not admissible in
evidence because it has not been duly
authenticated and it is an altered document;
4. The fact of full payment stated in the
ten (10) deeds of sale of the shares of stock is
conclusive on the sellers, and by the patrol
evidence rule, the alleged fact of its non-payment
cannot be introduced in evidenced; and
5. The counter-claim filed by GCC
against Alsons should be granted in the interest of
justice.

4. the costs of suit.


IT IS SO ORDERED. (Words in brackets added.)

The petition and the arguments and/or issues holding it


together are without merit. The desired reversal of the assailed

Therefrom, GCC went on appeal to the CA where its appellate


recourse was docketed as CA-G.R. CV No. 31801, ascribing to the trial
court the commission of the following errors:
1.

2.

3.

4.

decision and resolution of the appellate court is accordingly DENIED.


Instead of raising distinctly formulated questions of law, as is
expected of one seeking a review under Rule 45 of the Rules of Court

In holding that there is a ParentSubsidiary


corporate
relationship
between EQUITY and GCC;

of a final CA judgment, [13] petitioner GCC starts off by voicing

In not holding that EQUITY and GCC


are distinct and separate corporate
entities;

motions for reconsideration and oral argument. Petitioner, to be sure,

In applying the doctrine of Piercing


the Veil of Corporate Fiction in the case
at bar; and

its motions were denied, if such indeed were the case. Such manner of

In not holding ALSONS in estoppel to


question the corporate personality of
EQUITY.

for appeal by certiorari, unless a denial of due process ensues, which

disappointment over the perfunctory denial by the CA of its twin

cannot plausibly expect a reversal action premised on the cursory way

denial, while perhaps far from ideal, is not even a recognized ground

is not the case here. And lest it be overlooked, the CA prefaced its

assailed denial resolution with the clause: [F]inding no reversible error

allowed. For, well-settled is the rule that issues or grounds not raised

committed to warrant the modification and/or reversal of the April 11,

below cannot be resolved on review in higher courts. [14] Springing

2002 Decision, suggesting that the appellate court gave the petitioners

surprises on the opposing party is antithetical to the sporting idea of

motion for reconsideration the attention it deserved. At the very least,

fair play, justice and due process; hence, the proscription against a

the petitioner was duly apprised of the reasons why reconsideration

party shifting from one theory at the trial court to a new and different

could not be favorably considered. An extended resolution was not

theory in the appellate level. On the same rationale, points of law,

really necessary to dispose of the motion for reconsideration in

theories, issues not brought to the attention of the lower court or, in

question.

fine, not interposed during the trial cannot be raised for the first time on
appeal.[15]
Petitioners lament about being deprived of procedural due

process owing to the denial of its motion for oral argument is simply

There are, to be sure, exceptions to the rule respecting what

specious. Under the CA Internal Rules, the appellate court may tap any

may be raised for the first time on appeal. Lack of jurisdiction over

of the three (3) alternatives therein provided to aid the court inresolving

when the issues raised present a matter of public policy [16] comes

appealed cases before it. It may rely on available records alone,

immediately to mind. None of the well-recognized exceptions obtain in

require the submission of memoranda or set the case for oral

this case, however.

argument. The option the Internal Rules thus gives the CA necessarily
suggests that the appellate court may, at its sound discretion, dispense

Lest it be overlooked vis--vis the same last three arguments

with a tedious oral argument exercise. Rule VI, Section 6 of the 2002

thus pressed, both the trial court and the CA, based on the evidence

Internal Rules of the CA, provides:

adduced, adjudged the petitioner and respondent EQUITY jointly and


severally liable to pay what respondent ALSONS is entitled to under

SEC. 6 Judicial Action on Certain


Petitions.- (a) In petitions for review, after the
receipt of the respondents comment on the
petition, the Court [of Appeals] may dismiss the
petition if it finds the same to be patently without
merit , otherwise, it shall give due course to it.

the bearer promissory note. The judgment argues against the notion of
the note being simulated or altered or that respondent ALSONS has no
standing to sue on the note, not being the payee of the bearer note.
For, the declaration of liability not only presupposes the duly

xxx xxx xxx


If the petition is given due course, the
Court may consider the case submitted for
decision or require the parties to submit their
memorandum or set the case for oral
argument. xxx. After the oral argument or upon
submission of the memoranda the case shall be
deemed submitted for decision.

established authenticity and due execution of the promissory note over


which ALSONS, as the holder in due course thereof, has interest, but
also the untenability of the petitioners counterclaim for attorneys fees
and exemplary damages against ALSONS. At bottom, the petitioner
predicated such counter-claim on the postulate that respondent
ALSONS had no cause of action, the supposed promissory note being,

In the case at bench, records reveal that the appellate court,

according to the petitioner, either a simulated or an altered document.

in line with the prescription of its own rules, required the parties to just
submit, as they did, their respective memoranda to properly ventilate
their separate causes. Under this scenario, the petitioner cannot be
validly heard, having been deprived of due process.

In net effect, the definitive conclusion of the appellate court


affirmatory of that of the trial court was that the bearer promissory note
(Exh. K) was a genuine and authentic instrument payable to the holder
thereof. This factual determination, as a matter of long and sound

Just like the first, the last three (3) arguments set forth in the
petition will not carry the day for the petitioner. In relation therewith, the
Court notes that these arguments and the issues behind them were not
raised before the trial court. This appellate maneuver cannot be

appellate practice, deserves great weight and shall not be disturbed on


appeal, save for the most compelling reasons,[17] such as when that
determination is clearly without evidentiary support or when grave
abuse of discretion has been committed.[18] This is as it should be since

the Court, in petitions for review of CA decisions under Rule 45 of the

the Court will not hesitate to disregard the corporate veil when it is

Rules of Court, usually limits its inquiry only to questions of law. Stated

misused or when necessary in the interest of justice. [24] After all, the

otherwise, it is not the function of the Court to analyze and weigh all

concept of corporate entity was not meant to promote unfair objectives.

over again the evidence or premises supportive of the factual holdings


of lower courts.[19]

Authorities are agreed on at least three (3) basic areas


where piercing the veil, with which the law covers and isolates the

As nothing in the record indicates any of the exceptions

corporation from any other legal entity to which it may be related, is

adverted to above, the factual conclusion of the CA that the P2 Million

allowed.[25] These are: 1) defeat of public convenience, [26] as when the

promissory note in question was authentic and was issued at the first

corporate fiction is used as vehicle for the evasion of an existing

instance to respondent ALSONS and the Alcantara family for the

obligation;[27] 2) fraud cases or when the corporate entity is used to

amount stated on its face, must be affirmed. It should be stressed in

justify a wrong, protect fraud, or defend a crime; [28] or 3) alter

this regard that even the issuing entity, i.e., respondent EQUITY, never

egocases, where a corporation is merely a farce since it is a mere

challenged the genuineness and due execution of the note.

alter ego or business conduit of a person, or where the corporation is


so organized and controlled and its affairs are so conducted as to

This brings us to the remaining but core issue tendered in this case

make it merely an instrumentality, agency, conduit or adjunct of another

and aptly raised by the petitioner, to wit: whether there is absolutely no

corporation.[29]

basis for piercing GCCs veil of corporate identity.


The CA found valid grounds to pierce the corporate veil of petitioner
A corporation is an artificial being vested by law with a personality
distinct and separate from those of the persons composing it [20] as well
as from that of any other entity to which it may be related. [21]The first
consequence of the doctrine of legal entity of the separate personality
of the corporation is that a corporation may not be made to answer for
acts and liabilities of its stockholders or those of legal entities to which

GCC, there being justifiable basis for such action. When the appellate
court spoke of a justifying factor, the reference was to what the trial
court

said

in

its

decision,

namely: the

existence

of certain

circumstances [which], taken together, gave rise to the ineluctable


conclusion that [respondent] EQUITY is but an instrumentality or
adjunct of [petitioner] GCC.

it may be connected or vice versa.[22]


The Court agrees with the disposition of the appellate court on the
The notion of separate personality, however, may be
disregarded under the doctrine piercing the veil of corporate fiction as
in fact the court will often look at the corporation as a mere collection of
individuals or an aggregation of persons undertaking business as a
group, disregarding the separate juridical personality of the corporation
unifying the group. Another formulation of this doctrine is that when two
(2) business enterprises are owned, conducted and controlled by the
same parties, both law and equity will, when necessary to protect the
rights of third parties, disregard the legal fiction that two corporations
are distinct entities and treat them as identical or one and the same. [23]

application of the piercing doctrine to the transaction subject of this


case. Per the Courts count, the trial court enumerated no less than 20
documented circumstances and transactions, which, taken as a
package, indeed strongly supported the conclusion that respondent
EQUITY was but an adjunct, an instrumentality or business conduit of
petitioner GCC. This relation, in turn, provides a justifying ground to
pierce petitioners corporate existence as to ALSONS claim in
question. Foremost of what the trial court referred to as certain
circumstances are the commonality of directors, officers and
stockholders and even sharing of office between petitioner GCC and
respondent EQUITY; certain financing and managementarrangements

Whether the separate personality of the corporation should be pierced


hinges on obtaining facts, appropriately pleaded or proved. However,
any piercing of the corporate veil has to be done with caution, albeit

between the two, allowing the petitioner to handle the funds of the
latter; the virtual domination if not control wielded by the petitioner over
the finances, business policies and practices of respondent EQUITY;

and the establishment of respondent EQUITY by the petitioner to


It bears to stress at this point that the facts and the

circumvent CB rules. For a perspective, thefollowing are some relevant


excerpts from the trial courts decision setting forth in some detail the
tipping circumstances adverted to therein:
It must be noted that as characterized by their
business relationship, [respondent] EQUITY and
[petitioner] GCC had common directors and/or
officers as well as stockholders. This is
revealed by the proceedings recorded in SEC
Case No. 25-81 entitled Avelina Ramoso, et al.,
vs. GCC, et al., where it was established, thru the
testimony of EQUITYs own President that more
than 90% of the stockholders of EQUITY were
also stockholders of GCC .. Disclosed likewise is
the fact that when [EQUITYs President] Labayen
sold the shareholdings of EQUITY in said
franchise companies, practically the entire
proceeds thereof were surrendered to GCC, and
not received by EQUITY (EXHIBIT RR) xxx.

inferences drawn therefrom, upon which the two (2) courts below
applied

stand,

for

the

most

part,

adjunct of GCC. With the view we take of this case, GCC did not
adduce any evidence, let alone rebut the testimonies and documents
presented by ALSONS, to establish the prevailing circumstances
adverted to that provided the justifying occasion to pierce the veil of
corporate fiction between GCC and EQUITY. We quote the trial court:
Verily, indeed, as the relationships binding herein
[respondent EQUITY and petitioner GCC] have
been that of parent-subsidiary corporations the
foregoing principles and doctrines find suitable
applicability in the case at bar; and, it having been
satisfactorily and indubitably shown that the said
relationships had been used to perform certain
functions not characterized with legitimacy, this
Court feels amply justified to pierce the veil of
corporate entityand disregard the separate
existence of the percent (sic) and subsidiary
the latter having been so controlled by the
parent that its separate identity is hardly
discernible
thus
becoming
a
mere
instrumentality or alter ego of the former.
Consequently, as the parent corporation,
[petitioner] GCC maybe (sic) held responsible for
the acts and contracts of its subsidiary
[respondent] EQUITY - most especially if the latter
(who had anyhow acknowledged its liability to
ALSONS) maybe (sic) without sufficient property
with which to settle its obligations. For, after all,
GCC was the entity which initiated and benefited
immensely
from
the
fraudulent
scheme
perpetrated in violation of the law. (Words in
parenthesis in the original; emphasis and
bracketed words added).

It has likewise been amply substantiated by


[respondent ALSONS] evidence that not only did
GCC cause the incorporation of EQUITY, but, the
latter had grossly inadequate capital for the pursuit
of its line of business to the extent that its
business affairs were considered as GCCs
own business endeavors. xxx.

The evidence has also indubitably established


that EQUITY was organized by GCC for the
purpose of circumventing [CB] rules and
regulations and the Anti-Usury Law. Thus, as
disclosed by the Advance Report on the result of
Central Banks Operations Examination conducted
on GCC as of March 31, 1977(EXHIBITS FFF
etc.), the latter violated [CB] rules and
regulations by : (a) using as a conduit its nonquasi bank affiliates . (b) issuing without recourse
facilities to enable GCC to extend credit to
affiliates like EQUITY which go beyond the single
borrowers limit without the need of showing
outstanding balance in the book of accounts.
(Emphasis over words in brackets added.)

doctrine,

been incorporated to serve, as it did serve, as an instrumentality or

xxx xxx xxx

ALSONS has likewise shown that the bonuses of


the officers and directors of EQUITY was based on
its total financial performance together with all its
affiliates both firms were sharing one and the
same office when both were still operational and
that the directors and executives of EQUITY never
acted independently but took their orders from
GCC.

piercing

undisputed. Among these is, to reiterate, the matter of EQUITY having

It was likewise shown by a preponderance of


evidence that not only had GCC financed
EQUITY and that the latter was heavily indebted to
the former but EQUITY was, in fact, a wholly
owned subsidiary of GCC. Thus, as affirmed by
EQUITYs President, the funds
invested
by
EQUITY in the CCC franchise companies
actually came from CCC Phils. or GCC(Exhibit
Y-5). that, as disclosed by the Auditors report for
1982, past due receivables alone of GCC
exceeded P101,000,000.00 mostly to GCC
affiliates especially CCC EQUITY. ; that [CBs]
Report of Examination dated July 14, 1977 shows
that EQUITY which has a paid-up capital of only
P500,000.00 was the biggest borrower of GCC
with a total loan of P6.70 Million .

xxx xxx xxx

the

Given the foregoing considerations, it behooves the petitioner, as a


matter of law and equity, to assume the legitimate financial obligation
of a cash-strapped subsidiary corporation which it virtually controlled to
such a degree that the latter became its instrument or agent. The facts,
as found by the courts a quo, and the applicable law call for this kind of
disposition. Or else, the Court would be allowing the wrong use of the
fiction of corporate veil.
WHEREFORE, the instant petition is DENIED and the appealed
Decision

and

Resolution

accordingly AFFIRMED.
Costs against the petitioner.
SO ORDERED.

of

the

Court

of

Appeals

are

project. The contract price includes


increase/s in costs of materials and labor;

future

[G.R. No. 128066. June 19, 2000]


JARDINE DAVIES INC., petitioner, vs. COURT OF APPEALS and
FAR EAST MILLS SUPPLY CORPORATION, respondents.
[G.R. No. 128069 June 19, 2000]
PURE FOODS CORPORATION, petitioner, vs. COURT OF
APPEALS
and
FAR
EAST
MILLS
SUPPLY
CORPORATION, respondents.BELLOSILLO, J.:
This is rather a simple case for specific performance with damages
which could have been resolved through mediation and conciliation
during its infancy stage had the parties been earnest in expediting the
disposal of this case. They opted however to resort to full court
proceedings and denied themselves the benefits of alternative dispute
resolution, thus making the process more arduous and long-drawn.
The controversy started in 1992 at the height of the power crisis which
the country was then experiencing. To remedy and curtail further
losses due to the series of power failures, petitioner PURE FOODS
CORPORATION (hereafter PUREFOODS) decided to install two (2)
1500 KW generators in its food processing plant in San Roque,
Marikina City.
Sometime in November 1992 a bidding for the supply and installation
of the generators was held. Several suppliers and dealers were invited
to attend a pre-bidding conference to discuss the conditions, propose
scheme and specifications that would best suit the needs of
PUREFOODS. Out of the eight (8) prospective bidders who attended
the pre-bidding conference, only three (3) bidders, namely, respondent
FAR EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO),
MONARK and ADVANCE POWER submitted bid proposals and gave
bid bonds equivalent to 5% of their respective bids, as required.
Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO
President Alfonso Po, PUREFOODS confirmed the award of the
contract to FEMSCO Gentlemen:
This will confirm that Pure Foods Corporation has
awarded to your firm the project: Supply and
Installation of two (2) units of 1500 KW/unit
Generator Sets at the Processed Meats Plant, Bo.
San Roque, Marikina, based on your proposal
number PC 28-92 dated November 20, 1992,
subject to the following basic terms and
conditions:
1. Lump sum contract of P6,137,293.00 (VAT
included), for the supply of materials and labor for
the local portion and the labor for the imported
materials, payable by progress billing twice a
month, with ten percent (10%) retention. The
retained amount shall be released thirty (30) days
after acceptance of the completed project and
upon posting of Guarantee Bond in an amount
equivalent to twenty percent (20%) of the contract
price. The Guarantee Bond shall be valid for one
(1) year from completion and acceptance of

2. The project shall be undertaken pursuant to the


attached specifications. It is understood that any
item required to complete the project, and those
not included in the list of items shall be deemed
included and covered and shall be performed;
3. All materials shall be brand new;
4. The project shall commence immediately and
must be completed within twenty (20) working
days after the delivery of Generator Set to
Marikina Plant, penalty equivalent to 1/10 of 1% of
the purchase price for every day of delay;
5. The Contractor shall put up Performance Bond
equivalent to thirty (30%) of the contract price, and
shall procure All Risk Insurance equivalent to the
contract price upon commencement of the project.
The All Risk Insurance Policy shall be endorsed in
favor of and shall be delivered to Pure Foods
Corporation;
6. Warranty of one (1) year against defective
material and/or workmanship.
Once finalized, we shall ask you to sign the formal
contract embodying the foregoing terms and
conditions.
Immediately, FEMSCO submitted the required performance bond in
the amount of P1,841,187.90 and contractors all-risk insurance policy
in the amount of P6,137,293.00 which PUREFOODS through its Vice
President Benedicto G. Tope acknowledged in a letter dated 18
December 1992. FEMSCO also made arrangements with its principal
and started the PUREFOODS project by purchasing the necessary
materials. PUREFOODS on the other hand returned FEMSCOs
Bidders Bond in the amount of P1,000,000.00, as requested.
Later, however, in a letter dated 22 December 1992, PUREFOODS
through its Senior Vice President Teodoro L. Dimayuga unilaterally
canceled the award as "significant factors were uncovered and brought
to (their) attention which dictate (the) cancellation and warrant a total
review and re-bid of (the) project." Consequently, FEMSCO protested
the cancellation of the award and sought a meeting with
PUREFOODS. However, on 26 March 1993, before the matter could
be resolved, PUREFOODS already awarded the project and entered
into a contract with JARDINE NELL, a division of Jardine Davies, Inc.
(hereafter JARDINE), which incidentally was not one of the bidders.
FEMSCO thus wrote PUREFOODS to honor its contract with the
former, and to JARDINE to cease and desist from delivering and
installing the two (2) generators at PUREFOODS. Its demand letters
unheeded, FEMSCO sued both PUREFOODS and JARDINE:
PUREFOODS for reneging on its contract, and JARDINE for its
unwarranted interference and inducement. Trial ensued. After
FEMSCO presented its evidence, JARDINE filed a Demurrer to
Evidence.
On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, [1] granted
JARDINEs Demurrer to Evidence. The trial court concluded that
"[w]hile it may seem to the plaintiff that by the actions of the two
defendants there is something underhanded going on, this is all a

matter of perception, and unsupported by hard evidence, mere


suspicions and suppositions would not stand up very well in a court of
law."[2] Meanwhile trial proceeded as regards the case against
PUREFOODS.
On 28 July 1994 the trial court rendered a decision ordering
PUREFOODS: (a) to indemnify FEMSCO the sum of P2,300,000.00
representing the value of engineering services it rendered; (b) to pay
FEMSCO the sum of US$14,000.00 or its peso equivalent,
and P900,000.00 representing contractor's mark-up on installation
work, considering that it would be impossible to compel PUREFOODS
to honor, perform and fulfill its contractual obligations in view of
PUREFOOD's contract with JARDINE and noting that construction had
already started thereon; (c) to pay attorneys fees in an amount
equivalent to 20% of the total amount due; and, (d) to pay the costs.
The trial court dismissed the counterclaim filed by PUREFOODS for
lack of factual and legal basis.
Both FEMSCO and PUREFOODS appealed to the Court of Appeals.
FEMSCO appealed the 27 June 1994 Resolution of the trial court
which granted the Demurrer to Evidence filed by JARDINE resulting in
the dismissal of the complaint against it, while PUREFOODS appealed
the 28 July 1994 Decision of the same court which ordered it to pay
FEMSCO.
On 14 August 1996 the Court of Appeals affirmed in toto the 28 July
1994 Decision of the trial court.[3] It also reversed the 27 June 1994
Resolution of the lower court and ordered JARDINE to pay FEMSCO
damages for inducing PUREFOODS to violate the latters contract with
FEMSCO.
As
such,
JARDINE
was
ordered
to
pay
FEMSCO P2,000,000.00
for
moral
damages.
In
addition,
PUREFOODS was also directed to pay FEMSCO P2,000,000.00 as
moral damages and P1,000,000.00 as exemplary damages as well as
20% of the total amount due as attorney's fees.
On 31 January 1997 the Court of Appeals denied for lack of merit the
separate motions for reconsideration filed by PUREFOODS and
JARDINE. Hence, these two (2) petitions for review filed by
PUREFOODS and JARDINE which were subsequently consolidated.
PUREFOODS maintains that the conclusions of both the trial court and
the appellate court are premised on a misapprehension of facts. It
argues that its 12 December 1992 letter to FEMSCO was not an
acceptance of the latter's bid proposal and award of the project but
more of a qualified acceptance constituting a counter-offer which
required FEMSCO's express conforme. Since PUREFOODS never
received FEMSCOs conforme, PUREFOODS was very well within
reason to revoke its qualified acceptance or counter-offer. Hence, no
contract was perfected between PUREFOODS and FEMSCO.
PUREFOODS also contends that it was never in bad faith when it dealt
with FEMSCO. Hence moral and exemplary damages should not have
been awarded.
Corollarily, JARDINE asserts that the records are bereft of any showing
that it had prior knowledge of the supposed contract between
PUREFOODS and FEMSCO, and that it induced PUREFOODS to
violate the latters alleged contract with FEMSCO. Moreover, JARDINE
reasons that FEMSCO, an artificial person, is not entitled to moral
damages. But granting arguendo that the award of moral damages is
proper, P2,000,000.00 is extremely excessive.
In the main, these consolidated cases present two (2) issues: first,
whether there existed a perfected contract between PUREFOODS and
FEMSCO; and second, granting there existed a perfected contract,
whether there is any showing that JARDINE induced or connived with
PUREFOODS to violate the latter's contract with FEMSCO.

A contract is defined as "a juridical convention manifested in legal form,


by virtue of which one or more persons bind themselves in favor of
another or others, or reciprocally, to the fulfillment of a prestation to
give, to do, or not to do."[4] There can be no contract unless the
following requisites concur: (a) consent of the contracting parties; (b)
object certain which is the subject matter of the contract; and, (c)
cause of the obligation which is established. [5] A contract binds both
contracting parties and has the force of law between them.
Contracts are perfected by mere consent, upon the acceptance by the
offeree of the offer made by the offeror. From that moment, the parties
are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law. [6] To produce
a contract, the acceptance must not qualify the terms of the offer.
However, the acceptance may be express or implied. [7] For a contract
to arise, the acceptance must be made known to the offeror.
Accordingly, the acceptance can be withdrawn or revoked before it is
made known to the offeror.
In the instant case, there is no issue as regards the subject matter of
the contract and the cause of the obligation. The controversy lies in the
consent - whether there was an acceptance of the offer, and if so, if it
was communicated, thereby perfecting the contract.
To resolve the dispute, there is a need to determine what constituted
the offer and the acceptance. Since petitioner PUREFOODS started
the process of entering into the contract by conducting a bidding, Art.
1326 of the Civil Code, which provides that "[a]dvertisements for
bidders are simply invitations to make proposals," applies. Accordingly,
the Terms and Conditions of the Bidding disseminated by petitioner
PUREFOODS constitutes the "advertisement" to bid on the project.
The bid proposals or quotations submitted by the prospective suppliers
including respondent FEMSCO, are the offers. And, the reply of
petitioner PUREFOODS, the acceptance or rejection of the respective
offers.
Quite obviously, the 12 December 1992 letter of petitioner
PUREFOODS to FEMSCO constituted acceptance of respondent
FEMSCOs offer as contemplated by law. The tenor of the
letter, i.e., "This will confirm that Pure Foods has awarded to your firm
(FEMSCO) the project," could not be more categorical. While the same
letter enumerated certain "basic terms and conditions," these
conditions were imposed on the performance of the obligation rather
than on the perfection of the contract. Thus, the first "condition" was
merely a reiteration of the contract price and billing scheme based on
the Terms and Conditions of Bidding and the bid or previous offer of
respondent FEMSCO. The second and third "conditions" were nothing
more than general statements that all items and materials including
those excluded in the list but necessary to complete the project shall
be deemed included and should be brand new. The fourth "condition"
concerned the completion of the work to be done, i.e., within twenty
(20) days from the delivery of the generator set, the purchase of which
was part of the contract. The fifth "condition" had to do with the putting
up of a performance bond and an all-risk insurance, both of which
should be given upon commencement of the project. The sixth
"condition" related to the standard warranty of one (1) year. In fine, the
enumerated "basic terms and conditions" were prescriptions on how
the obligation was to be performed and implemented. They were far
from being conditions imposed on the perfection of the contract.
In Babasa v. Court of Appeals[8] we distinguished between a condition
imposed on the perfection of a contract and a condition imposed
merely on the performance of an obligation. While failure to comply
with the first condition results in the failure of a contract, failure to

comply with the second merely gives the other party options and/or
remedies to protect his interests.

or nullify the existing contract entered into by both


parties after a process of bidding. This, to the
Courts mind, is a flagrant violation of the express
provisions of the law and is contrary to fair and just
dealings to which every man is due.[11]

We thus agree with the conclusion of respondent appellate court which


affirmed the trial court As can be inferred from the actual phrase used in
the first portion of the letter, the decision to award
the contract has already been made. The letter
only serves as a confirmation of such decision.
Hence, to the Courts mind, there is already an
acceptance made of the offer received by
Purefoods. Notwithstanding the terms and
conditions enumerated therein, the offer has been
accepted and/or amplified the details of the terms
and conditions contained in the Terms and
Conditions of Bidding given out by Purefoods to
prospective bidders.[9]
But even granting arguendo that the 12 December 1992 letter of
petitioner PUREFOODS constituted a "conditional counter-offer,"
respondent FEMCO's submission of the performance bond and
contractor's all-risk insurance was an implied acceptance, if not a clear
indication of its acquiescence to, the "conditional counter-offer," which
expressly stated that the performance bond and the contractor's all-risk
insurance should be given upon the commencement of the contract.
Corollarily, the acknowledgment thereof by petitioner PUREFOODS,
not to mention its return of FEMSCO's bidder's bond, was a concrete
manifestation of its knowledge that respondent FEMSCO indeed
consented to the "conditional counter-offer." After all, as earlier
adverted to, an acceptance may either be express or implied,[10] and
this can be inferred from the contemporaneous and subsequent acts of
the contracting parties.
Accordingly, for all intents and purposes, the contract at that point has
been perfected, and respondent FEMSCO's conforme would only be a
mere surplusage. The discussion of the price of the project two (2)
months after the 12 December 1992 letter can be deemed as nothing
more than a pressure being exerted by petitioner PUREFOODS on
respondent FEMSCO to lower the price even after the contract had
been perfected. Indeed from the facts, it can easily be surmised that
petitioner PUREFOODS was haggling for a lower price even after
agreeing to the earlier quotation, and was threatening to unilaterally
cancel the contract, which it eventually did. Petitioner PUREFOODS
also makes an issue out of the absence of a purchase order (PO).
Suffice it to say that purchase orders or POs do not make or break a
contract. Thus, even the tenor of the subsequent letter of petitioner
PUREFOODS, i.e., "Pure Foods Corporation is hereby canceling the
award to your company of the project," presupposes that the contract
has been perfected. For, there can be no cancellation if the contract
was not perfected in the first place.
Petitioner PUREFOODS also argues that it was never in bad faith. On
the contrary, it believed in good faith that no such contract was
perfected. We are not convinced. We subscribe to the factual findings
and conclusions of the trial court which were affirmed by the appellate
court Hence, by the unilateral cancellation of the
contract, the defendant (petitioner PURE FOODS)
has acted with bad faith and this was further
aggravated by the subsequent inking of a contract
between defendant Purefoods and erstwhile codefendant Jardine. It is very evident that
Purefoods thought that by the expedient means of
merely writing a letter would automatically cancel

This Court has awarded in the past moral damages to a corporation


whose reputation has been besmirched.[12] In the instant case,
respondent FEMSCO has sufficiently shown that its reputation was
tarnished after it immediately ordered equipment from its suppliers on
account of the urgency of the project, only to be canceled later. We
thus sustain respondent appellate court's award of moral damages. We
however reduce the award from P2,000,000.00 to P1,000,000.00, as
moral damages are never intended to enrich the recipient. Likewise,
the award of exemplary damages by way of example for the public
good is excessive and should be reduced to P100,000.00.
Petitioner JARDINE maintains on the other hand that respondent
appellate court erred in ordering it to pay moral damages to
respondent FEMSCO as it supposedly induced PUREFOODS to
violate the contract with FEMSCO. We agree. While it may seem that
petitioners PUREFOODS and JARDINE connived to deceive
respondent FEMSCO, we find no specific evidence on record to
support such perception. Likewise, there is no showing whatsoever
that petitioner JARDINE induced petitioner PUREFOODS. The
similarity in the design submitted to petitioner PUREFOODS by both
petitioner JARDINE and respondent FEMSCO, and the tender of a
lower quotation by petitioner JARDINE are insufficient to show that
petitioner JARDINE indeed induced petitioner PUREFOODS to violate
its contract with respondent FEMSCO.
WHEREFORE, judgment is hereby rendered as follows:
(a) The petition in G.R. No. 128066 is GRANTED. The assailed
Decision of the Court of Appeals reversing the 27 June 1994 resolution
of the trial court and ordering petitioner JARDINE DAVIES, INC., to pay
private
respondent
FAR
EAST
MILLS
SUPPLY
CORPORATION P2,000,000.00 as moral damages is REVERSED and
SET ASIDE for insufficiency of evidence; and
(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision
of the Court of Appeals ordering petitioner PURE FOODS
CORPORATION to pay private respondent FAR EAST MILLS SUPPLY
CORPORATION the sum of P2,300,000.00 representing the value of
engineering services it rendered, US$14,000.00 or its peso equivalent,
and P900,000.00 representing the contractor's mark-up on installation
work, as well as attorney's fees equivalent to twenty percent (20%) of
the total amount due, is AFFIRMED. In addtion, petitioner PURE
FOODS CORPORATION is ordered to pay private respondent FAR
EAST MILLS SUPPLY CORPORATION moral damages in the amount
of P1,000,000.00 and exemplary damages in the amount
of P1,000,000.00. Costs against petitioner.
SO ORDERED.
Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO


MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN
COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F.
AGO, respondents. [G.R. No. 141994. January 17, 2005]
CARPIO, J.:

The Case

xxx

This petition for review[1] assails the 4 January 1999


Decision[2] and 26 January 2000 Resolution of the Court of Appeals in
CA-G.R. CV No. 40151. The Court of Appeals affirmed with
modification the 14 December 1992 Decision [3] of the Regional Trial
Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of
Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters
Hermogenes Alegre and Carmelo Rima liable for libel and ordered
them to solidarily pay Ago Medical and Educational Center-Bicol
Christian College of Medicine moral damages, attorneys fees and
costs of suit.

On the other hand, the administrators of AMEC-BCCM, AMEC


Science High School and the AMEC-Institute of Mass
Communication in their effort to minimize expenses in terms of
salary are absorbing or continues to accept rejects. For example
how many teachers in AMEC are former teachers of Aquinas University
but were removed because of immorality? Does it mean that the
present administration of AMEC have the total definite moral
foundation from catholic administrator of Aquinas University. I will prove
to you my friends, that AMEC is a dumping ground, garbage, not
merely of moral and physical misfits. Probably they only qualify in
terms of intellect. The Dean of Student Affairs of AMEC is Justita Lola,
as the family name implies. She is too old to work, being an old
woman. Is the AMEC administration exploiting the very [e]nterprising or
compromising and undemanding Lola? Could it be that AMEC is just
patiently making use of Dean Justita Lola were if she is very old. As in
atmospheric situation zero visibility the plane cannot land, meaning
she is very old, low pay follows. By the way, Dean Justita Lola is also
the chairman of the committee on scholarship in AMEC. She had
retired from Bicol University a long time ago but AMEC has patiently
made use of her.

The Antecedents

Expos is a radio documentary[4] program hosted by Carmelo Mel


Rima (Rima) and Hermogenes Jun Alegre (Alegre). [5] Expos is aired
every morning over DZRC-AM which is owned by Filipinas
Broadcasting Network, Inc. (FBNI). Expos is heard over Legazpi City,
the Albay municipalities and other Bicol areas.[6]
In the morning of 14 and 15 December 1989, Rima and Alegre
exposed various alleged complaints from students, teachers and
parents against Ago Medical and Educational Center-Bicol Christian
College of Medicine (AMEC) and its administrators. Claiming that the
broadcasts were defamatory, AMEC and Angelita Ago (Ago), as Dean
of AMECs College of Medicine, filed a complaint for damages[7] against
FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of
the allegedly libelous broadcasts:

xxx

JUN ALEGRE:

May I say Im sorry to Dean Justita Lola. But this is the truth. The truth
is this, that your are no longer fit to teach. You are too old. As an
aviation, your case is zero visibility. Dont insist.

Let us begin with the less burdensome: if you have children taking
medical course at AMEC-BCCM, advise them to pass all subjects
because if they fail in any subject they will repeat their year level,
taking up all subjects including those they have passed already.
Several students had approached me stating that they had consulted
with the DECS which told them that there is no such regulation. If
[there] is no such regulation why is AMEC doing the same?

xxx My friends based on the expose, AMEC is a dumping ground for


moral and physically misfit people. What does this mean? Immoral and
physically misfits as teachers.

xxx Why did AMEC still absorb her as a teacher, a dean, and chairman
of the scholarship committee at that. The reason is practical cost
saving in salaries, because an old person is not fastidious, so long as
she has money to buy the ingredient of beetle juice. The elderly can
get by thats why she (Lola) was taken in as Dean.
xxx

xxx
Second: Earlier AMEC students in Physical Therapy
complained that the course is not recognized by DECS. xxx

MEL RIMA:

had

Third: Students are required to take and pay for the subject even if
the subject does not have an instructor - such greed for money
on the part of AMECs administration. Take the subject Anatomy:
students would pay for the subject upon enrolment because it is
offered by the school. However there would be no instructor for such
subject. Students would be informed that course would be moved to a
later date because the school is still searching for the appropriate
instructor.
xxx
It is a public knowledge that the Ago Medical and Educational Center
has survived and has been surviving for the past few years since its
inception because of funds support from foreign foundations. If you will
take a look at the AMEC premises youll find out that the names of the
buildings there are foreign soundings. There is a McDonald Hall. Why
not Jose Rizal or Bonifacio Hall? That is a very concrete and
undeniable evidence that the support of foreign foundations for AMEC
is substantial, isnt it? With the report which is the basis of the expose
in DZRC today, it would be very easy for detractors and enemies of the
Ago family to stop the flow of support of foreign foundations who assist
the medical school on the basis of the latters purpose. But if the
purpose of the institution (AMEC) is to deceive students at cross
purpose with its reason for being it is possible for these foreign
foundations to lift or suspend their donations temporarily.[8]

xxx On our end our task is to attend to the interests of students. It is


likely that the students would be influenced by evil. When they
become members of society outside of campus will be liabilities
rather than assets. What do you expect from a doctor who while
studying at AMEC is so much burdened with unreasonable imposition?
What do you expect from a student who aside from peculiar problems
because not all students are rich in their struggle to improve their
social status are even more burdened with false regulations. xxx [9]
(Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning
institution. With the supposed exposs, FBNI, Rima and Alegre
transmitted malicious imputations, and as such, destroyed plaintiffs
(AMEC and Ago) reputation. AMEC and Ago included FBNI as
defendant for allegedly failing to exercise due diligence in the selection
and supervision of its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil
Lozares, filed an Answer[10] alleging that the broadcasts against AMEC
were fair and true. FBNI, Rima and Alegre claimed that they were
plainly impelled by a sense of public duty to report the goings-on in
AMEC, [which is] an institution imbued with public interest.
Thereafter, trial ensued. During the presentation of the evidence
for the defense, Atty. Edmundo Cea, collaborating counsel of Atty.
Lozares, filed a Motion to Dismiss[11] on FBNIs behalf. The trial court
denied the motion to dismiss. Consequently, FBNI filed a separate
Answer claiming that it exercised due diligence in the selection and
supervision of Rima and Alegre. FBNI claimed that before hiring a
broadcaster, the broadcaster should (1) file an application; (2) be
interviewed; and (3) undergo an apprenticeship and training program

after passing the interview. FBNI likewise claimed that it always


reminds its broadcasters to observe truth, fairness and objectivity in
their broadcasts and to refrain from using libelous and indecent
language. Moreover, FBNI requires all broadcasters to pass
the Kapisanan ng mga Brodkaster sa Pilipinas (KBP) accreditation test
and to secure a KBP permit.
On 14 December 1992, the trial court rendered a
Decision[12] finding FBNI and Alegre liable for libel except Rima. The
trial court held that the broadcasts are libelous per se. The trial court
rejected the broadcasters claim that their utterances were the result of
straight reporting because it had no factual basis. The broadcasters did
not even verify their reports before airing them to show good faith. In
holding FBNI liable for libel, the trial court found that FBNI failed to
exercise diligence in the selection and supervision of its employees.
In absolving Rima from the charge, the trial court ruled that
Rimas only participation was when he agreed with Alegres expos. The
trial court found Rimas statement within the bounds of freedom of
speech, expression, and of the press. The dispositive portion of the
decision reads:
WHEREFORE, premises considered, this court finds for the
plaintiff. Considering the degree of damages caused by the
controversial utterances, which are not found by this court to be
really very serious and damaging, and there being no showing
that indeed the enrollment of plaintiff school dropped, defendants
Hermogenes Jun Alegre, Jr. and Filipinas Broadcasting Network
(owner of the radio station DZRC), are hereby jointly and severally
ordered to pay plaintiff Ago Medical and Educational Center-Bicol
Christian College of Medicine (AMEC-BCCM) the amount
of P300,000.00 moral damages, plus P30,000.00 reimbursement of
attorneys fees, and to pay the costs of suit.
SO ORDERED. [13] (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one hand, and
AMEC and Ago, on the other, appealed the decision to the Court of
Appeals. The Court of Appeals affirmed the trial courts judgment with
modification. The appellate court made Rima solidarily liable with FBNI
and Alegre. The appellate court denied Agos claim for damages and
attorneys fees because the broadcasts were directed against AMEC,
and not against her. The dispositive portion of the Court of Appeals
decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED,
subject to the modification that broadcaster Mel Rima is SOLIDARILY
ADJUDGEDliable with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.[14]
FBNI, Rima and Alegre filed a motion for reconsideration which
the Court of Appeals denied in its 26 January 2000 Resolution.
Hence, FBNI filed this petition.[15]

they were impelled by their moral and social duty to inform the public
about the students gripes.
The Court of Appeals found Rima also liable for libel since he
remarked that (1) AMEC-BCCM is a dumping ground for morally and
physically misfit teachers; (2) AMEC obtained the services of Dean
Justita Lola to minimize expenses on its employees salaries; and (3)
AMEC burdened the students with unreasonable imposition and false
regulations.[16]
The Court of Appeals held that FBNI failed to exercise due
diligence in the selection and supervision of its employees for allowing
Rima and Alegre to make the radio broadcasts without the proper KBP
accreditation. The Court of Appeals denied Agos claim for damages
and attorneys fees because the libelous remarks were directed against
AMEC, and not against her. The Court of Appeals adjudged FBNI,
Rima and Alegre solidarily liable to pay AMEC moral damages,
attorneys fees and costs of suit.

Issues

FBNI raises the following issues for resolution:


I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEYS FEES IS
PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND
ALEGRE FOR PAYMENT OF MORAL DAMAGES,
ATTORNEYS FEES AND COSTS OF SUIT.

The Courts Ruling

We deny the petition.


This is a civil action for damages as a result of the allegedly
defamatory remarks of Rima and Alegre against AMEC. [17] While AMEC
did not point out clearly the legal basis for its complaint, a reading of
the complaint reveals that AMECs cause of action is based on Articles
30 and 33 of the Civil Code. Article 30 [18] authorizes a separate civil
action to recover civil liability arising from a criminal offense. On the
other hand, Article 33[19] particularly provides that the injured party may
bring a separate civil action for damages in cases of defamation, fraud,
and physical injuries. AMEC also invokes Article 19 [20] of the Civil Code
to justify its claim for damages. AMEC cites Articles 2176 [21] and
2180[22]of the Civil Code to hold FBNI solidarily liable with Rima and
Alegre.

I.

The Ruling of the Court of Appeals

Whether the broadcasts are libelous

The Court of Appeals upheld the trial courts ruling that the
questioned broadcasts are libelous per se and that FBNI, Rima and
Alegre failed to overcome the legal presumption of malice. The Court
of Appeals found Rima and Alegres claim that they were actuated by
their moral and social duty to inform the public of the students gripes
as insufficient to justify the utterance of the defamatory remarks.

A libel[23] is a public and malicious imputation of a crime, or of a


vice or defect, real or imaginary, or any act or omission, condition,
status, or circumstance tending to cause the dishonor, discredit, or
contempt of a natural or juridical person, or to blacken the memory of
one who is dead.[24]

Finding no factual basis for the imputations against AMECs


administrators, the Court of Appeals ruled that the broadcasts were
made with reckless disregard as to whether they were true or false.
The appellate court pointed out that FBNI, Rima and Alegre failed to
present in court any of the students who allegedly complained against
AMEC. Rima and Alegre merely gave a single name when asked to
identify the students. According to the Court of Appeals, these
circumstances cast doubt on the veracity of the broadcasters claim that

There is no question that the broadcasts were made public and


imputed to AMEC defects or circumstances tending to cause it
dishonor, discredit and contempt. Rima and Alegres remarks such as
greed for money on the part of AMECs administrators; AMEC is a
dumping ground, garbage of xxx moral and physical misfits; and AMEC
students who graduate will be liabilities rather than assets of the
society are libelous per se. Taken as a whole, the broadcasts suggest

that AMEC is a money-making institution where physically and morally


unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious.
FBNI claims that Rima and Alegre were plainly impelled by their civic
duty to air the students gripes. FBNI alleges that there is no evidence
that ill will or spite motivated Rima and Alegre in making the
broadcasts. FBNI further points out that Rima and Alegre exerted
efforts to obtain AMECs side and gave Ago the opportunity to defend
AMEC and its administrators. FBNI concludes that since there is no
malice, there is no libel.
FBNIs contentions are untenable.
Every defamatory imputation is presumed malicious. [25] Rima and
Alegre failed to show adequately their good intention and justifiable
motive in airing the supposed gripes of the students. As hosts of a
documentary or public affairs program, Rima and Alegre should have
presented the public issues free from inaccurate and misleading
information.[26] Hearing the students alleged complaints a month before
the expos,[27] they had sufficient time to verify their sources and
information. However, Rima and Alegre hardly made a thorough
investigation of the students alleged gripes. Neither did they inquire
about nor confirm the purported irregularities in AMEC from the
Department of Education, Culture and Sports. Alegre testified that he
merely went to AMEC to verify his report from an alleged AMEC official
who refused to disclose any information. Alegre simply relied on the
words of the students because they were many and not because there
is proof that what they are saying is true.[28] This plainly shows Rima
and Alegres reckless disregard of whether their report was true or not.
Contrary to FBNIs claim, the broadcasts were not the result of
straight reporting. Significantly, some courts in the United States apply
the privilege of neutral reportage in libel cases involving matters of
public interest or public figures. Under this privilege, a republisher
who accurately and disinterestedly reports certain defamatory
statements made against public figures is shielded from liability,
regardless of the republishers subjective awareness of the truth or
falsity of the accusation.[29] Rima and Alegre cannot invoke the privilege
of neutral reportage because unfounded comments abound in the
broadcasts. Moreover, there is no existing controversy involving AMEC
when the broadcasts were made. The privilege of neutral reportage
applies where the defamed person is a public figure who is involved in
an existing controversy, and a party to that controversy makes the
defamatory statement.[30]
However, FBNI argues vigorously that malice in law does not
apply to this case. Citing Borjal v. Court of Appeals,[31] FBNI contends
that the broadcasts fall within the coverage of qualifiedly privileged
communications for being commentaries on matters of public interest.
Such being the case, AMEC should prove malice in fact or actual
malice. Since AMEC allegedly failed to prove actual malice, there is no
libel.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court
elucidated on the doctrine of fair comment, thus:
[F]air commentaries on matters of public interest are privileged and
constitute a valid defense in an action for libel or slander. The doctrine
of fair comment means that while in general every discreditable
imputation publicly made is deemed false, because every man is
presumed innocent until his guilt is judicially proved, and every false
imputation is deemed malicious, nevertheless, when the discreditable
imputation is directed against a public person in his public capacity, it is
not necessarily actionable. In order that such discreditable
imputation to a public official may be actionable, it must either be
a false allegation of fact or a comment based on a false
supposition. If the comment is an expression of opinion, based
on established facts, then it is immaterial that the opinion happens to
be mistaken, as long as it might reasonably be inferred from the facts.
[32]
(Emphasis supplied)
True, AMEC is a private learning institution whose business of
educating students is genuinely imbued with public interest. The
welfare of the youth in general and AMECs students in particular is a
matter which the public has the right to know. Thus, similar to the
newspaper articles in Borjal, the subject broadcasts dealt with matters
of public interest. However, unlike in Borjal, the questioned broadcasts

are not based on established facts. The record supports the following
findings of the trial court:
xxx Although defendants claim that they were motivated by consistent
reports of students and parents against plaintiff, yet, defendants have
not presented in court, nor even gave name of a single student who
made the complaint to them, much less present written complaint or
petition to that effect. To accept this defense of defendants is too
dangerous because it could easily give license to the media to malign
people and establishments based on flimsy excuses that there were
reports to them although they could not satisfactorily establish it. Such
laxity would encourage careless and irresponsible broadcasting which
is inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters,
contrary to the mandates of their duties, did not verify and analyze the
truth of the reports before they aired it, in order to prove that they are in
good faith.
Alegre contended that plaintiff school had no permit and is not
accredited to offer Physical Therapy courses. Yet, plaintiff produced a
certificate coming from DECS that as of Sept. 22, 1987 or more than 2
years before the controversial broadcast, accreditation to offer Physical
Therapy course had already been given the plaintiff, which certificate is
signed by no less than the Secretary of Education and Culture herself,
Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants could have
easily known this were they careful enough to verify. And yet,
defendants were very categorical and sounded too positive when they
made the erroneous report that plaintiff had no permit to offer Physical
Therapy courses which they were offering.
The allegation that plaintiff was getting tremendous aids from foreign
foundations like Mcdonald Foundation prove not to be true also. The
truth is there is no Mcdonald Foundation existing. Although a big
building of plaintiff school was given the name Mcdonald building, that
was only in order to honor the first missionary in Bicol of plaintiffs
religion, as explained by Dr. Lita Ago. Contrary to the claim of
defendants over the air, not a single centavo appears to be received by
plaintiff school from the aforementioned McDonald Foundation which
does not exist.
Defendants did not even also bother to prove their claim, though
denied by Dra. Ago, that when medical students fail in one subject,
they are made to repeat all the other subject[s], even those they have
already passed, nor their claim that the school charges laboratory fees
even if there are no laboratories in the school. No evidence was
presented to prove the bases for these claims, at least in order to give
semblance of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and
immoral teachers, defendant[s] singled out Dean Justita Lola who is
said to be so old, with zero visibility already. Dean Lola testified in court
last Jan. 21, 1991, and was found to be 75 years old. xxx Even older
people prove to be effective teachers like Supreme Court Justices who
are still very much in demand as law professors in their late years.
Counsel for defendants is past 75 but is found by this court to be still
very sharp and effective. So is plaintiffs counsel.
Dr. Lola was observed by this court not to be physically decrepit yet,
nor mentally infirmed, but is still alert and docile.
The contention that plaintiffs graduates become liabilities rather than
assets of our society is a mere conclusion. Being from the place
himself, this court is aware that majority of the medical graduates of
plaintiffs pass the board examination easily and become prosperous
and responsible professionals.[33]
Had the comments been an expression of opinion based on
established facts, it is immaterial that the opinion happens to be
mistaken, as long as it might reasonably be inferred from the facts.
[34]
However, the comments of Rima and Alegre were not backed up by
facts. Therefore, the broadcasts are not privileged and remain
libelous per se.

The broadcasts also violate the Radio Code [35] of the Kapisanan
ng mga Brodkaster sa Pilipinas, Ink. (Radio Code). Item I(B) of the
Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1. x x x
4. Public affairs program shall present public issues free
from personal bias, prejudice and inaccurate and
misleading information. x x x Furthermore, the
station shall strive to present balanced discussion of
issues. x x x.
xxx
7. The station shall be responsible at all times in the
supervision of public affairs, public issues and
commentary programs so that they conform to the
provisions and standards of this code.
8. It shall be the responsibility of the newscaster,
commentator, host and announcer to protect public
interest, general welfare and good order in the
presentation of public affairs and public issues.
[36]
(Emphasis supplied)
The broadcasts fail to meet the standards prescribed in the
Radio Code, which lays down the code of ethical conduct governing
practitioners in the radio broadcast industry. The Radio Code is a
voluntary code of conduct imposed by the radio broadcast industry on
its own members. The Radio Code is a public warranty by the radio
broadcast industry that radio broadcast practitioners are subject to a
code by which their conduct are measured for lapses, liability and
sanctions.
The public has a right to expect and demand that radio
broadcast practitioners live up to the code of conduct of their
profession, just like other professionals. A professional code of conduct
provides the standards for determining whether a person has acted
justly, honestly and with good faith in the exercise of his rights and
performance of his duties as required by Article 19[37] of the Civil Code.
A professional code of conduct also provides the standards for
determining whether a person who willfully causes loss or injury to
another has acted in a manner contrary to morals or good customs
under Article 21[38] of the Civil Code.

evidence of actual damages as a condition precedent to the recovery


of some damages.[47] In this case, the broadcasts are libelous per se.
Thus, AMEC is entitled to moral damages.
However, we find the award of P300,000 moral damages
unreasonable. The record shows that even though the broadcasts
were libelous per se, AMEC has not suffered any substantial or
material damage to its reputation. Therefore, we reduce the award of
moral damages from P300,000 to P150,000.

III.
Whether the award of attorneys fees is proper

FBNI contends that since AMEC is not entitled to moral


damages, there is no basis for the award of attorneys fees. FBNI adds
that the instant case does not fall under the enumeration in Article
2208[48] of the Civil Code.
The award of attorneys fees is not proper because AMEC failed
to justify satisfactorily its claim for attorneys fees. AMEC did not
adduce evidence to warrant the award of attorneys fees. Moreover,
both the trial and appellate courts failed to explicitly state in their
respective decisions the rationale for the award of attorneys fees.
[49]
In Inter-Asia Investment Industries, Inc. v. Court of Appeals,
[50]
we held that:
[I]t is an accepted doctrine that the award thereof as an item of
damages is the exception rather than the rule, and counsels fees are
not to be awarded every time a party wins a suit. The power of the
court to award attorneys fees under Article 2208 of the Civil Code
demands factual, legal and equitable justification, without which
the award is a conclusion without a premise, its basis being
improperly left to speculation and conjecture. In all events, the
court must explicitly state in the text of the decision, and not only in the
decretal portion thereof, the legal reason for the award of attorneys
fees.[51] (Emphasis supplied)
While it mentioned about the award of attorneys fees by stating
that it lies within the discretion of the court and depends upon the
circumstances of each case, the Court of Appeals failed to point out
any circumstance to justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre
for moral damages, attorneys fees
and costs of suit

II.
Whether AMEC is entitled to moral damages

FBNI contends that AMEC is not entitled to moral damages


because it is a corporation.[39]
A juridical person is generally not entitled to moral damages
because, unlike a natural person, it cannot experience physical
suffering or such sentiments as wounded feelings, serious anxiety,
mental anguish or moral shock.[40] The Court of Appeals
cites Mambulao Lumber Co. v. PNB, et al.[41] to justify the award of
moral damages. However, the Courts statement in Mambulao that a
corporation may have a good reputation which, if besmirched, may
also be a ground for the award of moral damages is an obiter dictum.[42]
Nevertheless, AMECs claim for moral damages falls under item
7 of Article 2219[43] of the Civil Code. This provision expressly
authorizes the recovery of moral damages in cases of libel, slander or
any other form of defamation. Article 2219(7) does not qualify whether
the plaintiff is a natural or juridical person. Therefore, a juridical person
such as a corporation can validly complain for libel or any other form of
defamation and claim for moral damages.[44]
Moreover, where the broadcast is libelous per se, the law implies
damages.[45] In such a case, evidence of an honest mistake or the want
of character or reputation of the party libeled goes only in mitigation of
damages.[46] Neither in such a case is the plaintiff required to introduce

FBNI contends that it is not solidarily liable with Rima and Alegre
for the payment of damages and attorneys fees because it exercised
due diligence in the selection and supervision of its employees,
particularly Rima and Alegre. FBNI maintains that its broadcasters,
including Rima and Alegre, undergo a very regimented process before
they are allowed to go on air. Those who apply for broadcaster are
subjected to interviews, examinations and an apprenticeship program.
FBNI further argues that Alegres age and lack of training are
irrelevant to his competence as a broadcaster. FBNI points out that the
minor deficiencies in the KBP accreditation of Rima and Alegre do not
in any way prove that FBNI did not exercise the diligence of a good
father of a family in selecting and supervising them. Rimas
accreditation lapsed due to his non-payment of the KBP annual fees
while Alegres accreditation card was delayed allegedly for reasons
attributable to the KBP Manila Office. FBNI claims that membership in
the KBP is merely voluntary and not required by any law or
government regulation.
FBNIs arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are
jointly and severally liable for the tort which they commit. [52] Joint tort
feasors are all the persons who command, instigate, promote,
encourage, advise, countenance, cooperate in, aid or abet the
commission of a tort, or who approve of it after it is done, if done for

their benefit.[53] Thus, AMEC correctly anchored its cause of action


against FBNI on Articles 2176 and 2180 of the Civil Code.
As operator of DZRC-AM and employer of Rima and Alegre,
FBNI is solidarily liable to pay for damages arising from the libelous
broadcasts. As stated by the Court of Appeals, recovery for defamatory
statements published by radio or television may be had from
the owner of the station, a licensee, the operator of the station, or a
person who procures, or participates in, the making of the defamatory
statements.[54]An employer and employee are solidarily liable for a
defamatory statement by the employee within the course and scope of
his or her employment, at least when the employer authorizes or
ratifies the defamation.[55] In this case, Rima and Alegre were clearly
performing their official duties as hosts of FBNIs radio program Expos
when they aired the broadcasts. FBNI neither alleged nor proved that
Rima and Alegre went beyond the scope of their work at that time.
There was likewise no showing that FBNI did not authorize and ratify
the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI
exercised due diligence in the selection and supervision of its
employees, particularly Rima and Alegre. FBNI merely showed that it
exercised diligence in the selection of its broadcasters without
introducing any evidence to prove that it observed the same diligence
in the supervision of Rima and Alegre. FBNI did not show how it
exercised diligence in supervising its broadcasters. FBNIs alleged
constant reminder to its broadcasters to observe truth, fairness and
objectivity and to refrain from using libelous and indecent language is
not enough to prove due diligence in the supervision of its
broadcasters. Adequate training of the broadcasters on the industrys
code of conduct, sufficient information on libel laws, and continuous
evaluation of the broadcasters performance are but a few of the many
ways of showing diligence in the supervision of broadcasters.
FBNI claims that it has taken all the precaution in
the selection of Rima and Alegre as broadcasters, bearing in mind
their qualifications. However, no clear and convincing evidence shows
that Rima and Alegre underwent FBNIs regimented process of
application. Furthermore, FBNI admits that Rima and Alegre had
deficiencies in their KBP accreditation,[56] which is one of FBNIs
requirements before it hires a broadcaster. Significantly, membership in
the KBP, while voluntary, indicates the broadcasters strong
commitment to observe the broadcast industrys rules and regulations.
Clearly, these circumstances show FBNIs lack of diligence in
selecting and supervising Rima and Alegre. Hence, FBNI is solidarily
liable to pay damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the
Decision of 4 January 1999 and Resolution of 26 January 2000 of the
Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION
that the award of moral damages is reduced from P300,000
to P150,000 and the award of attorneys fees is deleted. Costs against
petitioner.

NACHURA, J.:

This is a petition for review on certiorari under Rule 45 of the


Rules of Court seeking the reversal of the Decision [1] of the Court of
Appeals

(CA)

dated June

18,

1997 and

its

Resolution[2] dated December 3, 1997 in CA-G.R. CV No. 40282


denying the appeal filed by petitioner Manila Electric Company.

The facts of the case, as culled from the records, are as


follows:
Respondent T.E.A.M. Electronics Corporation (TEC) was
formerly known as NS Electronics (Philippines), Inc. before 1982 and
National Semi-Conductors (Phils.) before 1988. TEC is wholly owned
by respondent Technology Electronics Assembly and Management
Pacific Corporation (TPC). On the other hand, petitioner Manila Electric
Company (Meralco) is a utility company supplying electricity in the
Metro Manila area.

Petitioner and NS Electronics (Philippines), Inc., the


predecessor-in-interest of respondent TEC, were parties to two
separate contracts denominated as Agreements for the Sale of Electric
Energy

under

the

following

account

numbers:

09341-1322-

SO ORDERED.
Davide,
Jr.,
C.J.,
(Chairman),
Santiago, andAzcuna, JJ., concur.

Republic of the Philippines


Supreme Court
Manila

Quisumbing,

Ynares-

16[3] and 09341-1812-13.[4] Under the aforesaid agreements, petitioner


undertook to supply TECs building known as Dyna Craft International
Manila (DCIM) located at Electronics Avenue, Food Terminal Complex,
Taguig, Metro Manila, with electric power.Another contract was entered
into for the supply of electric power to TECs NS Building under
Account No. 19389-0900-10.

MANILA ELECTRIC COMPANY,


Petitioners,
- versus -

In September 1986, TEC, under its former name National


Semi-Conductors (Phils.) entered into a Contract of Lease [5] with
respondent Ultra Electronics Industries, Inc. (Ultra) for the use of the

T.E.A.M. ELECTRONICS CORPORATION, TECHNOLOGY ELECTRONICS


ASSEMBLY and MANAGEMENT PACIFIC CORPORATION; and ULTRA formers DCIM building for a period of five years or until September
ELECTRONICS INSTRUMENTS, INC.,
1991. Ultra was, however, ejected from the premises on February 12,
Respondents.

1988 by virtue of a court order, for repeated violation of the terms and

later withdrawn as the parties deemed it best to have the issues

conditions of the lease contract.

threshed out in the regular courts. Prior to the reconnection, or on June


7, 1988, petitioner conducted a scheduled inspection of the questioned

On September 28, 1987, a team of petitioners inspectors

meters and found them to have been tampered anew.[12]

conducted a surprise inspection of the electric meters installed at the

Meanwhile, on April 25, 1988, petitioner conducted another

DCIM building, witnessed by Ultras[6] representative, Mr. Willie

inspection, this time, in TECs NS Building. The inspection allegedly

Abangan. The two meters covered by account numbers 09341-1322-

revealed that the electric meters were not registering the correct power

16 and 09341-1812-13, were found to be allegedly tampered with and

consumption. Petitioner,

did not register the actual power consumption in the building.The

1988 demanding payment of P280,813.72 representing the differential

results of the inspection were reflected in the Service Inspection

billing.[13] TEC denied petitioners allegations and claim in a letter

Reports[7] prepared by the team.

dated June 29, 1988.[14] Petitioner, thus, sent TEC another letter

thus,

sent

letter

dated June

18,

demanding payment of the aforesaid amount, with a warning that the


In a letter dated November 25, 1987, petitioner informed

electric service would be disconnected in case of continued refusal to

TEC of the results of the inspection and demanded from the latter the

pay the differential billing.[15] To avert the impending disconnection of

payment of P7,040,401.01 representing its unregistered consumption

electrical service, TEC paid the above amount, under protest.[16]

from February 10, 1986 until September 28, 1987, as a result of the
alleged tampering of the meters.[8] TEC received the letters on January

On January 13, 1989, TEC and TPC filed a complaint for

7, 1988. Since Ultra was in possession of the subject building during

damages against petitioner and Ultra[17] before the Regional Trial Court

the covered period, TECs Managing Director, Mr. Bobby Tan, referred

(RTC) of Pasig. The case was raffled to Branch 162 and was docketed

the demand letter to Ultra [9] which, in turn, informed TEC that its

as Civil Case No. 56851.[18] Upon the filing of the parties answer to the

Executive Vice-President had met with petitioners representative. Ultra

complaint, pre-trial was scheduled.

further intimated that assuming that there was tampering of the meters,
petitioners assessment was excessive.[10] For failure of TEC to pay the
differential billing, petitioner disconnected the electricity supply to the

At the pre-trial, the parties agreed to limit the issues, as


follows:

DCIM building on April 29, 1988.


1. Whether or not the defendant Meralco
is liable for the plaintiffs disconnection of electric
service at DCIM Building.
TEC demanded from petitioner the reconnection of electrical
service, claiming that it had nothing to do with the alleged tampering
but the latter refused to heed the demand. Hence, TEC filed a

2. Whether or not the plaintiff is liable for


(sic) the defendant for the differential billings in the
amount of P7,040,401.01.
3. Whether or not the plaintiff is liable to
defendant for exemplary damages.[19]

complaint on May 27, 1988 before the Energy Regulatory Board (ERB)
praying that electric power be restored to the DCIM building. [11] The
ERB immediately ordered the reconnection of the service but petitioner
complied

with

it

only

on October

12,

1988 after

TEC

paid P1,000,000.00, under protest. The complaint before the ERB was

For failure of the parties to reach an amicable settlement, trial on the


merits ensued. On June 17, 1992, the trial court rendered a Decision in

favor of respondents TEC and TPC, and against respondent Ultra and

meter tampering. The delay in the sending of notice of the results of

petitioner. The pertinent portion of the decision reads:

the inspection was likewise viewed by the court as evidence of


inefficiency and arbitrariness on the part of petitioner. More importantly,

WHEREFORE, judgment is hereby rendered in


this case in favor of the plaintiffs and against the
defendants as follows:
(1)
Ordering
both
defendants Meralco and
ULTRA
Electronics
Instruments, Inc. to jointly
and severally reimburse
plaintiff TEC actual damages
in the amount of ONE
MILLION PESOS with legal
rate of interest from the date
of the filing of this case
on January 19, 1989 until
the said amount shall have
been fully paid;
(2)
Ordering
defendant Meralco to pay to
plaintiff TEC the amount
of P280,813.72 as actual
damages with legal rate of
interest also from January
19, 1989;
(3)
Ordering
defendant Meralco to pay to
plaintiff TPC the amount
of P150,000.00 as actual
damages with interest at
legal rate from January 19,
1989;
(4)
Condemning
defendant Meralco to pay
both
plaintiffs
moral
damages in the amount
pf P500,000.00;
(5)
Condemning
defendant Meralco to pay
both plaintiffs corrective
and/or exemplary damages
in
the
amount
of P200,000.00;
(6)
Ordering
defendant Meralco to pay
attorneys fees in the amount
of P200,000.00
Costs

against

petitioners act of disconnecting the DCIM buildings electric supply


constituted bad faith and thus makes it liable for damages. [22] The court
further denied petitioners claim of differential billing primarily on the
ground of equitable negligence.[23] Considering that TEC and TPC
paid P1,000,000.00 to avert the disconnection of electric power; and
because Ultra manifested to settle the claims of petitioner, the court
imposed solidary liability on both Ultra and petitioner for the payment of
the P1,000,000.00.

Ultra and petitioner appealed to the CA which affirmed the


RTC decision, with a modification of the amount of actual damages
and interest thereon. The dispositive portion of the CA decision
dated June 18, 1997, states:

WHEREFORE, this Court renders


judgment affirming in toto the Decision rendered
by the trial court with the slight modification that
the interest at legal rate shall be computed from
January 13, 1989 and that Meralco shall pay
plaintiff T.E.A.M. Electronics Corporation and
Technology
Electronics
Assembly
and
Management Pacific Corporation the sum
of P150,000.00 per month for five (5) months for
actual damages incurred when it was compelled to
lease a generator set with interest at the legal rate
from the above-stated date.
SO ORDERED.[24]

defendant

Meralco.
SO ORDERED.[20]

The appellate court agreed with the RTCs conclusion. In addition, it


considered petitioner negligent for failing to discover the alleged

The trial court found the evidence of petitioner insufficient to


prove that TEC was guilty of tampering the meter installations. The
deformed condition of the meter seal and the existence of an opening

defects in the electric meters; in belatedly notifying TEC and TPC of


the results of the inspection; and in disconnecting the electric power
without prior notice.

in the wire duct leading to the transformer vault did not, in themselves,
prove the alleged tampering, especially since access to the
transformer was given only to petitioners employees. [21] The sudden
drop in TECs (or Ultras) electric consumption did not, per se,show

Petitioner now comes before this Court in this petition for review
on certiorari contending that:
The Court of Appeals committed grievous errors
and decided matters of substance contrary to law
and the rulings of this Honorable Court:

1. In finding that the issue in the case is whether


there was deliberate tampering of the metering
installations at the building owned by TEC.
2. In not finding that the issue is: whether or not,
based on the tampered meters, whether or not
petitioner is entitled to differential billing, and if so,
how much.
3. In declaring that petitioner ME RALCO had the
burden of proof to show by clear and convincing
evidence that with respect to the tampered meters
that TEC and/or TPC authored their tampering.

Petitioner insists that the tampering of the electric meters installed at


the DCIM and NS buildings owned by respondent TEC has been
established by overwhelming evidence, as specifically shown by the
shorting devices found during the inspection. Thus, says petitioner,
tampering of the meter is no longer an issue.

4. In finding that petitioner Meralco should not


have held TEC and/or TPC responsible for the
acts of Ultra.
5. In finding that TEC should not be held liable for
the tampering of this electric meter in
its DCIM Building.
6. In finding that there was no notice of
disconnection.
7. In finding that petitioner MERALCO was
negligent in informing TEC of the alleged
tampering.
8. In making the finding that it is difficult to believe
that when petitioner MERALCO inspected on June
7, 1988 the meter installations, they were found to
be tampered.
9.
In declaring that petitioner
MERALCO estopped from claiming any
tampering of the meters.

It is obvious that petitioner wants this Court to revisit the factual


findings of the lower courts. Well-established is the doctrine that under
Rule 45 of the Rules of Court, only questions of law, not of fact, may be
raised before the Court. We would like to stress that this Court is not a
trier of facts and may not re-examine and weigh anew the respective
evidence of the parties. Factual findings of the trial court, especially
those affirmed by the Court of Appeals, are binding on this Court.[26]

Looking at the record, we note that petitioner claims to have

10. In finding that the method employed


by MERALCO to as certain (sic) the correct
amount of electricity consumed is questionable;

discovered three incidences of meter-tampering; twice in the DCIM

11. In declaring that MERALCO all


throughout its dealings with TEC took on an
attitude which is oppressive, wanton and reckless.

building on April 24, 1988.

12. In declaring that MERALCO acted


arbitrarily in inspecting TECs DCIM building and
the NS building.
13. In declaring that respondents TEC
and TPC are entitled to the damages which it
awarded.
14. In not declaring that petitioner is
entitled to the differential bill.
15. In not declaring that respondents are
liable to petitioner for exemplary damages,
attorneys fee and expenses for litigation.[25]

building on September 28, 1987 and June 7, 1988; and once in the NS

The first instance was supposedly discovered on September 28,


1987.The inspector allegedly found the presence of a short circuiting
device and saw that the meter seal was deformed. In addition,
petitioner, through the Supervising Engineer of its Special Billing
Analysis Department,[27] claimed that there was a sudden and
unexplainable drop in TECs electrical consumption starting February
10, 1986. On the basis of the foregoing, petitioner concluded that the
electric meters were tampered with.

The petition must fail.

However, contrary to petitioners claim that there was a drastic and


unexplainable drop in TECs electric consumption during the affected

The issues for resolution can be summarized as follows: 1) whether or


not TEC tampered with the electric meters installed at its DCIM and NS
buildings; 2) If so, whether or not it is liable for the differential billing as

period, the Pattern of TECs Electrical Consumption[28] shows that the


sudden drop is not peculiar to the said period. Noteworthy is the
observation of the RTC in this wise:

computed by petitioner; and 3) whether or not petitioner was justified in


disconnecting the electric power supply in TECs DCIM building.

In fact, in Account No. 09341-1812-13 (heretofore


referred as Account/Meter No. 2), as evidenced by

Exhibits 35 and 35-A, there was likewise a sudden


drop of electrical consumption from the year 1984
which recorded an average 141,300 kwh/month to
1985 which recorded an average kwh/month at
87,600 or a difference-drop of 53,700 kwh/month;
from 1985s 87,600 recorded consumption, the
same dropped to 18,600 kwh/month or a
difference-drop of 69,000 kwh/month. Surely, a
drop of 53,700 could be equally categorized as
a sudden drop amounting to 69,000 which,
incidentally, the Meralco claimed as unexplainable.
x x x.[29]

consumptionregistered at 9,300 kwh and 22,200 kwh on the respective


accounts.These figures clearly show that there was no palpably drastic
difference between the consumption before and after the inspection,
casting a cloud of doubt over petitioners claim of meter-tampering.
Indeed, Ultras explanation that the corporation was losing; thus, it had
lesser consumption of electric power appear to be the more plausible

The witnesses for petitioner who testified on the alleged

reason for the drop in electric consumption.

tampering of the electric meters, declared that tampering is committed


by consumers to prevent the meter from registering the correct amount
of electric consumption, and result in a reduced monthly electric bill,
while continuing to enjoy the same power supply. Only the registration
of actual electric energy consumption, not the supply of electricity, is
affected when a meter is tampered with.[30] The witnesses claimed that
after the inspection, the tampered electric meters were corrected, so
that they would register the correct consumption of TEC. Logically,
then, after the correction of the allegedly tampered meters, the

Petitioner likewise claimed that when the subject meters


were again inspected on June 7, 1988, they were found to have been
tampered anew. The Court notes that prior to the inspection, TEC was
informed about it; and months before the inspection, there was an
unsettled controversy between TEC and petitioner, brought about by
the disconnection of electric power and the non-payment of differential
billing. We are more disposed to accept the trial courts conclusion that
it is hard to believe that a customer previously apprehended for
tampered meters and assessed P7 million would further jeopardize

customers registered consumption would go up.

itself in the eyes of petitioner.[34] If it is true that there was evidence of


In this case, the period claimed to have been affected by the
tampered electric meters is from February 1986 until September
1987. Based on petitioners Billing Record[31] (for the DCIM building),
TECs monthly electric consumption on Account No. 9341-1322-16 was
between 4,500 and 27,000 kwh.[32] Account No. 9341-1812-13 showed
a monthly consumption between 9,600 and 34,200 kwh. [33] It is
interesting to note that, after correction of the allegedly tampered
meters, TECs monthly electric consumption from October 1987 to
February 1988 (the last month that Ultra occupied the DCIM building)
was between 8,700 and 24,300 kwh in its first account, and 16,200 to

tampering found on September 28, 1987 and again on June 7, 1988,


the better view would be that the defective meters were not actually
corrected after the first inspection. If so, then Manila Electric Company
v. Macro Textile Mills Corporation[35] would apply, where we said that
we cannot sanction a situation wherein the defects in the electric meter
are allowed to continue indefinitely until suddenly, the public utilities
demand payment for the unrecorded electricity utilized when they
could have remedied the situation immediately. Petitioners failure to do
so may encourage neglect of public utilities to the detriment of the
consuming public. Corollarily, it must be underscored that petitionerhas
the imperative duty to make a reasonable and proper inspection of its

46,800 kwh on the second account.

apparatus and equipment to ensure that they do not malfunction, and


Even more revealing is the fact that TECs meters registered
9,300 kwh and 19,200 kwh consumption on the first and second
accounts, respectively, a month prior to the inspection. On the first
month

after

the

meters

were

corrected,

TECs

electric

the due diligence to discover and repair defects therein. Failure to


perform such duties constitutes negligence.[36] By reason of said
negligence, public utilities run the risk of forfeiting amounts originally
due from their customers.[37]

As to the alleged tampering of the electric meter in TECs NS building,

Petitioner, in the instant case, resorted to the remedy of disconnection

suffice it to state that the allegation was not proven, considering that

without prior notice. While it is true that petitioner sent a demand letter

the meters therein were enclosed in a metal cabinet the metal seal of

to TEC for the payment of differential billing, it did not include any

which was unbroken, with petitioner having sole access to the said

notice that the electric supply would be disconnected. In fine, petitioner

meters.[38]

abused the remedies granted to it under P.D. 401 and Revised General
Order No. 1 by outrightly depriving TEC of electrical services without

In view of the negative finding on the alleged tampering of electric

first notifying it of the impending disconnection. Accordingly, the CA did

meters on TECs DCIM and NS buildings, petitioners claim of

not err in affirming the RTC decision.

differential billing was correctly denied by the trial and appellate


courts. With greater reason, therefore, could petitioner not exercise the

As to the damages awarded by the CA, we deem it proper to modify

right of immediate disconnection.

the same. Actual damages are compensation for an injury that will put
the injured party in the position where it was before the injury.They

The law in force at the time material to this controversy was

pertain to such injuries or losses that are actually sustained and

Presidential Decree (P.D.) No. 401 [39] issued on March 1, 1974.[40]The

susceptible of measurement. Except as provided by law or by

decree penalized unauthorized installation of water, electrical or

stipulation, a party is entitled to adequate compensation only for such

telephone connections and such acts as the use of tampered electrical

pecuniary loss as is duly proven. Basic is the rule that to recover actual

meters. It was issued in answer to the urgent need to put an end to

damages, not only must the amount of loss be capable of proof; it must

illegal activities that prejudice the economic well-being of both the

also be actually proven with a reasonable degree of certainty,

companies concerned and the consuming public.[41] P.D. 401 granted

premised upon competent proof or the best evidence obtainable.[45]

the electric companies the right to conduct inspections of electric

Respondent TEC sufficiently established, and petitioner in fact

meters and the criminal prosecution [42] of erring consumers who were

admitted, that the former paid P1,000,000.00 and P280,813.72 under

found to have tampered with their electric meters. It did not expressly

protest, the amounts representing a portion of the latters claim of

provide for more expedient remedies such as the charging of

differential billing. With the finding that no tampering was committed

differential

erring

and, thus, no differential billing due, the aforesaid amounts should be

consumers. Thus, electric companies found a creative way of availing

returned by petitioner, with interest, as ordered by the Court of Appeals

themselves of such remedies by inserting into their service contracts

and pursuant to the guidelines set forth by the Court.[46]

billing

and

immediate

disconnection

against

(or agreements for the sale of electric energy) a provision for


differential billing with the option of disconnection upon non-payment

However, despite the appellate courts conclusion that no tampering

by the erring consumer. The Court has recognized the validity of such

was

stipulations.[43] However,

with

for P1,000,000.00, only because the former, as occupant of the

disconnection was subject to the prior requirement of a 48-hour written

building, promised to settle the claims of the latter. This ruling is

notice of disconnection.[44]

erroneous.Ultras promise was conditioned upon the finding of defect or

recourse

to

differential

billing

committed,

it

held

Ultra

solidarily

liable

with

petitioner

tampering of the meters. It did not acknowledge any culpability and


liability, and absent any tampered meter, it is absurd to make the lawful

occupant liable. It was petitioner who received the P1 million; thus, it

and its causal relation to petitioners acts. [52] In the present case, the

alone should be held liable for the return of the amount.

records are bereft of any evidence that the name or reputation of

TEC

also

sufficiently

established

its

claim

for

the

TEC/TPC has been debased as a result of petitioners acts. Besides,

reimbursement of the amount paid as rentals for the generator set it

the trial court simply awarded moral damages in the dispositive portion

was constrained to rent by reason of the illegal disconnection of

of its decision without stating the basis thereof.

electrical service. The official receipts and purchase orders submitted


by TEC as evidence sufficiently show that such rentals were indeed

WHEREFORE, the petition is DENIED. The Decision of the

made. However, the amount of P150,000.00 per month for five months,

Court of Appeals in CA-G.R. CV No. 40282 dated June 18, 1997 and

awarded by the CA, is excessive. Instead, a total sum of P150,000.00,

its Resolution dated December 3, 1997 are AFFIRMED with the

as found by the RTC, is proper.

following MODIFICATIONS: (1) the award of P150,000.00 per month


for five months as reimbursement for the rentals of the generator set

As to the payment of exemplary damages and attorneys

is REDUCED to P150,000.00; and (2) the award of P500,000.00 as

fees, we find no cogent reason to disturb the same. Exemplary

moral damages is hereby DELETED.

damages are imposed by way of example or correction for the public

SO ORDERED.

good in addition to moral, temperate, liquidated, or compensatory


damages.[47] In this case, to serve as an example that before a
disconnection of electrical supply can be effected by a public utility, the
requisites of law must be complied with we affirm the award
of P200,000.00 as exemplary damages. With the award of exemplary
damages, the award of attorneys fees is likewise proper, pursuant to
Article 2208[48] of the Civil Code. It is obvious that TEC needed the
services of a lawyer to argue its cause through three levels of the
judicial hierarchy. Thus, the award of P200,000.00 is in order.[49]

We, however, deem it proper to delete the award of moral


damages. TECs claim was premised allegedly on the damage to its
goodwill and reputation.[50] As a rule, a corporation is not entitled to
moral damages because, not being a natural person, it cannot
experience physical suffering or sentiments like wounded feelings,

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. G.R. No.
96161 February 21, 1992 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 SECAC 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.

serious anxiety, mental anguish and moral shock. The only exception
to this rule is when the corporation has a reputation that is debased,

Respondent Standard Philips Corporation (Standard Philips), on the


other hand, was issued a Certificate of Registration by respondent
Commission on 19 May 1982.

resulting in its humiliation in the business realm. [51] But in such a case,
it is imperative for the claimant to present proof to justify the award. It
is essential to prove the existence of the factual basis of the damage

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)
deceptive
ly
or
confusing
ly 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. 3940, 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.

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

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

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 (SECCase 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.

Lyceum of Camalaniugan 28 March 1972

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

The following private respondents were declared in default for failure to


file an answer despite service of summons:

Petitioner then went on appeal to the Court of Appeals. In its Decision


dated 28 June 1991, however, the Court of Appeals affirmed the

Lyceum of Lallo, Inc. 26 March 1972


Lyceum of Aparri 28 March 1972
Lyceum of Tuao, Inc. 28 March 1972

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. L-46595 was not a reasoned adoption of the Sulit ruling.

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:

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:

" . . . 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

"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 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:

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"

"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.

ANTONIO ANDA, respondents. [G.R. No. 125221. June 19, 1997]


PUNO, J.:

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)

The facts are undisputed. On December 19, 1995, petitioner


Reynaldo M. Lozano filed Civil Case No. 1214 for damages against
respondent Antonio Anda before the Municipal Circuit Trial Court
(MCTC), Mabalacat and Magalang, Pampanga. Petitioner alleged that
he was the president of the Kapatirang Mabalacat-Angeles Jeepney
Drivers' Association, Inc. (KAMAJDA) while respondent Anda was the
president of the Samahang Angeles-Mabalacat Jeepney Operators'
and Drivers' Association, Inc. (SAMAJODA); in August 1995, upon the
request of the Sangguniang Bayan of Mabalacat, Pampanga, petitioner
and private respondent agreed to consolidate their respective
associations and form the Unified Mabalacat-Angeles Jeepney
Operators' and Drivers' Association, Inc. (UMAJODA); petitioner and
private respondent also agreed to elect one set of officers who shall be
given the sole authority to collect the daily dues from the members of
the consolidated association; elections were held on October 29, 1995
and both petitioner and private respondent ran for president; petitioner
won; private respondent protested and, alleging fraud, refused to
recognize the results of the election; private respondent also refused to
abide by their agreement and continued collecting the dues from the
members of his association despite several demands to
desist. Petitioner was thus constrained to file the complaint to restrain
private respondent from collecting the dues and to order him to pay
damages in the amount of P25,000.00 and attorney's fees of P500.00.

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.

This petition for certiorari seeks to annul and set aside the
decision of the Regional Trial Court, Branch 58, Angeles City which
ordered the Municipal Circuit Trial Court, Mabalacat and Magalang,
Pampanga to dismiss Civil Case No. 1214 for lack of jurisdiction.

[1]

Private respondent moved to dismiss the complaint for lack of


jurisdiction, claiming that jurisdiction was lodged with the Securities
and Exchange Commission (SEC). The MCTC denied the motion on
February 9, 1996.[2] It denied reconsideration on March 8, 1996.[3]
Private respondent filed a petition for certiorari before the
Regional Trial Court, Branch 58, Angeles City.[4] The trial court found
the dispute to be intracorporate, hence, subject to the jurisdiction of the
SEC, and ordered the MCTC to dismiss Civil Case No. 1214
accordingly.[5] It denied reconsideration on May 31, 1996.[6]
Hence this petition. Petitioner claims that:

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.

"THE RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF


DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION AND SERIOUS ERROR OF LAW IN CONCLUDING
THAT THE SECURITIES AND EXCHANGE COMMISSION HAS
JURISDICTION OVER A CASE OF DAMAGES BETWEEN
HEADS/PRESIDENTS OF TWO (2) ASSOCIATIONS WHO
INTENDED TO CONSOLIDATE/MERGE THEIR ASSOCIATIONS BUT
NOT YET [SIC] APPROVED AND REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION."[7]

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.

The jurisdiction of the Securities and Exchange Commission


(SEC) is set forth in Section 5 of Presidential Decree No. 902A. Section 5 reads as follows:

SO ORDERED.

"Section 5. x x x [T]he Securities and Exchange Commission [has]


original and exclusive jurisdiction to hear and decide cases involving:

REYNALDO M. LOZANO, petitioner, vs. HON. ELIEZER R. DE LOS


SANTOS, Presiding Judge, RTC, Br. 58, Angeles City; and

(a) Devices or schemes employed by or any acts of the board of


directors, business associates, its officers or partners, amounting to

fraud and misrepresentation which may be detrimental to the interest


of the public and/or of the stockholders, partners, members of
associations or organizations registered with the Commission.
(b) Controversies arising out of intracorporate or partnership relations,
between and among stockholders, members or associates; between
any or all of them and the corporation, partnership or association of
which
they
are
stockholders,
members,
or
associates,
respectively; and between such corporation, partnership or association
and the state insofar as it concerns their individual franchise or right to
exist as such entity.
(c) Controversies in the election or appointment of directors, trustees,
officers or managers of such corporations, partnerships or
associations.
(d) Petitions of corporations, partnerships or associations to be
declared in the state of suspension of payments in cases where the
corporation, partnership or association possesses sufficient property to
cover all its debts but foresees the impossibility of meeting them when
they respect very fall due or in cases where the corporation,
partnership or association has no sufficient assets to cover its
liabilities, but is under the management of a Rehabilitation Receiver or
Management Committee created pursuant to this Decree."
The grant of jurisdiction to the SEC must be viewed in the light of its
nature and function under the law.[8] This jurisdiction is determined by a
concurrence of two elements: (1) the status or relationship of the
parties; and (2) the nature of the question that is the subject of their
controversy.[9]
The first element requires that the controversy must arise out of
intracorporate or partnership relations between and among
stockholders, members, or associates; between any or all of them and
the corporation, partnership or association of which they are
stockholders, members or associates, respectively; and between such
corporation, partnership or association and the State in so far as it
concerns their individual franchises.[10] The second element requires
that the dispute among the parties be intrinsically connected with the
regulation of the corporation, partnership or association or deal with
the internal affairs of the corporation, partnership or association.
[11]
After all, the principal function of the SEC is the supervision and
control of corporations, partnerships and associations with the end in
view that investments in these entities may be encouraged and
protected, and their activities pursued for the promotion of economic
development.[12]
There is no intracorporate nor partnership relation between
petitioner and private respondent. The controversy between them
arose out of their plan to consolidate their respective jeepney drivers'

and operators' associations into a single common association. This


unified association was, however, still a proposal. It had not been
approved by the SEC, neither had its officers and members submitted
their articles of consolidation in accordance with Sections 78 and 79 of
the Corporation Code. Consolidation becomes effective not upon mere
agreement of the members but only upon issuance of the certificate of
consolidation by the SEC.[13] When the SEC, upon processing and
examining the articles of consolidation, is satisfied that the
consolidation of the corporations is not inconsistent with the provisions
of the Corporation Code and existing laws, it issues a certificate of
consolidation which makes the reorganization official. [14] The new
consolidated corporation comes into existence and the constituent
corporations dissolve and cease to exist.[15]
The KAMAJDA and SAMAJODA to which petitioner and private
respondent belong are duly registered with the SEC, but these
associations are two separate entities. The dispute between petitioner
and private respondent is not within the KAMAJDA nor the
SAMAJODA.It is between members of separate and distinct
associations. Petitioner and private respondent have no intracorporate
relation much less do they have an intracorporate dispute. The SEC
therefore has no jurisdiction over the complaint.
The doctrine of corporation by estoppel[16] advanced by private
respondent cannot override jurisdictional requirements. Jurisdiction is
fixed by law and is not subject to the agreement of the parties. [17] It
cannot be acquired through or waived, enlarged or diminished by, any
act or omission of the parties, neither can it be conferred by the
acquiescence of the court.[18]
Corporation by estoppel is founded on principles of equity and is
designed to prevent injustice and unfairness. [19] It applies when
persons assume to form a corporation and exercise corporate
functions and enter into business relations with third persons. Where
there is no third person involved and the conflict arises only among
those assuming the form of a corporation, who therefore know that it
has not been registered, there is no corporation by estoppel.[20]
IN VIEW WHEREOF, the petition is granted and the decision
dated April 18, 1996 and the order dated May 31, 1996 of the Regional
Trial Court, Branch 58, Angeles City are set aside. The Municipal
Circuit Trial Court of Mabalacat and Magalang, Pampanga is ordered
to proceed with dispatch in resolving Civil Case No. 1214. No costs.
SO ORDERED.
Regalado, (Chairman), Romero, Mendoza, and Torres, Jr.,
JJ., concur.