*
G.R. No. 224099. June 21, 2017. the workers and the Department of Labor and Employment at least one (1) month
ROMMEL M. ZAMBRANO, ROMEO O. CALIPAY, JESUS L. CHIN, LYNDON B.
APOSAGA, BONIFACIO A. CASTAÑEDA, ROSEMARIE P. FALCUNIT, ROMEO
A. FINALLA, LUISITO G. GELLIDO, JOSE ALLI L. MABUHAY, VICENTE A.
MORALES, RAUL L. REANZARES, DIODITO I. TACUD, ERNAN D. TERCERO,
LARRY V. MUTIA, ROMEO A. GURON, DIOSDADO S. AZUSANO, BENEDICTO
D. GIDAYAWAN, LOWIS M. LANDRITO, NARCISO R. ASI, TEODULO BORAC,
SANTOS J. CRUZADO, JR., ROLANDO DELA CRUZ, RAYMUNDO, MILA Y.
ABLAY, ERMITY F. GABUCAY, PABLITO M. LACANARIA, MELCHOR
PEÑAFLOR, ARSENIO B. PICART III, ROMEO M. SISON, JOSE VELASCO, JR.,
ERWIN M. VICTORIA, PRISCO J. ABILO, WILFREDO D. ARANDIA,
ALEXANDER Y. HILADO, JAIME M. CORALES, GERALDINE C. MAUHAY,
MAURO P. MARQUEZ, JONATHAN T. BARQUIN, RICARDO M. CALDERON,
JR., RENATO R. RAMIREZ, VIVIAN P. VIRTUDES, DOMINGO P. COSTANTINO,
JR., RENATO A. MANAIG, RAFAEL D. CARILLO, petitioners, vs. PHILIPPINE
CARPET MANUFACTURING CORPORATION/PACIFIC CARPET
MANUFACTURING CORPORATION, DAVID E. T. LIM, and EVELYN LIM
FORBES, respondents.
Labor Law; Termination of Employment; Closure or Cessation of Business
Operations; Under Article 298 (formerly Article 283) of
_______________
* SECOND DIVISION.
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the Labor Code, closure or cessation of operation of the establishment is an
authorized cause for terminating an employee.—Under Article 298 (formerly Article
283) of the Labor Code, closure or cessation of operation of the establishment is
an authorized cause for terminating an employee, viz.: Article 298. Closure of
establishment and reduction of personnel.—The employer may also terminate the
employment of any employee due to the installation of labor-saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation of
operations of the establishment or undertaking unless the closing is for the
purpose of circumventing the provisions of this Title, by serving a written notice on
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before the intended date thereof. In case of termination due to the installation of
labor-saving devices or redundancy, the worker affected thereby shall be entitled
to a separation pay equivalent to at least one (1) month pay or to at least one (1)
month pay for every year of service, whichever is higher. In case of retrenchment
to prevent losses and in cases of closure or cessation of operations of
establishment or undertaking not due to serious business losses or financial
reverses, the separation pay shall be equivalent to at least one (1) month pay
or at least one-half (1/2) month pay for every year of service, whichever is
higher. A fraction of at least six (6) months shall be considered as one (1) whole
year.
Same; Same; Same; Closure of business is the reversal of fortune of the
employer whereby there is a complete cessation of business operations and/or an
actual locking up of the doors of establishment, usually due to financial losses.—
Closure of business is the reversal of fortune of the employer whereby there is a
complete cessation of business operations and/or an actual locking up of the doors
of establishment, usually due to financial losses. Closure of business, as an
authorized cause for termination of employment, aims to prevent further financial
drain upon an employer who cannot pay anymore his employees since business
has already stopped. In such a case, the employer is generally required to give
separation benefits to its employees, unless the closure is due to serious business
losses.
Remedial Law; Civil Procedure; Appeals; It is a rule that absent any showing
that the findings of fact of the labor tribunals and the appellate court are not
supported by evidence on record or the judg-
146
146 SUPREME COURT REPORTS ANNOTATED
Zambrano vs. Philippine Carpet Manufacturing
Corporation
ment is based on a misapprehension of facts, the Supreme Court (SC) shall
not examine anew the evidence submitted by the parties.—In this case, the LA’s
findings that Phil Carpet suffered from serious business losses which resulted in its
closure were affirmed in toto by the NLRC, and subsequently by the CA. It is a rule
that absent any showing that the findings of fact of the labor tribunals and the
appellate court are not supported by evidence on record or the judgment is based
on a misapprehension of facts, the Court shall not examine anew the evidence
submitted by the parties. In Alfaro v. Court of Appeals, 363 SCRA 799 (2001), the
Court explained the reasons therefor, to wit: The Supreme Court is not a trier of
facts, and this doctrine applies with greater force in labor cases. Factual questions
are for the labor tribunals to resolve. In this case, the factual issues have already
been determined by the labor arbiter and the National Labor Relations
Commission. Their findings were affirmed by the CA. Judicial review by this Court
does not extend to a reevaluation of the sufficiency of the evidence upon which the
proper labor tribunal has based its determination. Indeed, factual findings of labor
officials who are deemed to have acquired expertise in matters within their
respective jurisdictions are generally accorded not only respect, but even finality,
and are binding on the Supreme Court. Verily, their conclusions are accorded great
weight upon appeal, especially when supported by substantial evidence.
Consequently, the Supreme Court is not duty-bound to delve into the accuracy of
their factual findings, in the absence of a clear showing that the same were
arbitrary and bereft of any rational basis.
Labor Law; Termination of Employment; Closure or Cessation of Business
Operations; The only limitation provided by law is that the closure must be “bona
fide in character and not impelled by a motive to defeat or circumvent the tenurial
rights of employees.”—Even if the petitioners refuse to consider these losses as
serious enough to warrant Phil Carpet’s total and permanent closure, it was a
business judgment on the part of the company’s owners and stockholders to cease
operations, a judgment which the Court has no business interfering with. The only
limitation provided by law is that the closure must be “bona fide in character and
not impelled by a motive to defeat or circumvent the tenurial rights of employees.”
Thus, when an employer complies with the foregoing conditions, the Court cannot
prohibit closure “just because the business is not suf-
147
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Corporation
fering from any loss or because of the desire to provide the workers
continued employment.”
Same; Unfair Labor Practice; Words and Phrases; Unfair labor practice
refers to acts that violate the workers’ right to organize.—Unfair labor practice
refers to acts that violate the workers’ right to organize. There should be no dispute
that all the prohibited acts constituting unfair labor practice in essence relate to the
workers’ right to self-organization. Thus, an employer may only be held liable for
unfair labor practice if it can be shown that his acts affect in whatever manner the
right of his employees to self-organize. The general principle is that one who
makes an allegation has the burden of proving it. Although there are exceptions to
this general rule, in the case of unfair labor practice, the alleging party has the
burden of proving it.
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Same; Social Justice; The constitutional commitment to the policy of social
justice cannot be understood to mean that every labor dispute shall automatically
be decided in favor of labor.—Good faith is presumed and he who alleges bad faith
has the duty to prove the same. The petitioners miserably failed to discharge the
duty imposed upon them. They did not identify the acts of Phil Carpet which, they
claimed, constituted unfair labor practice. They did not even point out the specific
provisions which Phil Carpet violated. Thus, they would have the Court pronounce
that Phil Carpet committed unfair labor practice on the ground that they were
dismissed from employment simply because they were union officers and
members. The constitutional commitment to the policy of social justice, however,
cannot be understood to mean that every labor dispute shall automatically be
decided in favor of labor. In this case, as far as the pieces of evidence offered by
the petitioners are concerned, there is no showing that the closure of the company
was an attempt at union-busting. Hence, the charge that Phil Carpet is guilty of
unfair labor practice must fail for lack of merit.
Mercantile Law; Corporations; A corporation has a personality separate and
distinct from the persons composing it, as well as from any other legal entity to
which it may be related.—A corporation is an artificial being created by operation of
law. It possesses the right of succession and such powers, attributes, and
properties expressly authorized by law or incident to its existence. It has a
personality
148
148 SUPREME COURT REPORTS ANNOTATED
Zambrano vs. Philippine Carpet Manufacturing
Corporation
separate and distinct from the persons composing it, as well as from any
other legal entity to which it may be related.
Same; Same; Piercing the Veil of Corporate Fiction; For reasons of public
policy and in the interest of justice, the corporate veil will justifiably be impaled only
when it becomes a shield for fraud, illegality or inequity committed against third
persons.—Equally well-settled is the principle that the corporate mask may be
removed or the corporate veil pierced when the corporation is just an alter ego of a
person or of another corporation. For reasons of public policy and in the interest of
justice, the corporate veil will justifiably be impaled only when it becomes a shield
for fraud, illegality or inequity committed against third persons. Hence, any
application of the doctrine of piercing the corporate veil should be done with
caution. A court should be mindful of the milieu where it is to be applied. It must be
certain that the corporate fiction was misused to such an extent that injustice,
fraud, or crime was committed against another, in disregard of rights. The
wrongdoing must be clearly and convincingly established; it cannot be presumed.
Otherwise, an injustice that was never unintended may result from an erroneous
application.
Same; Same; Same; The “existence of interlocking directors, corporate
officers and shareholders is not enough justification to pierce the veil of corporate
fiction in the absence of fraud or other public policy considerations.”—Although
ownership by one corporation of all or a great majority of stocks of another
corporation and their interlocking directorates may serve as indicia of control, by
themselves and without more, these circumstances are insufficient to establish
an alter ego relationship or connection between Phil Carpet on the one hand and
Pacific Carpet on the other hand, that will justify the puncturing of the latter’s
corporate cover. This Court has declared that “mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding the separate corporate
personality.” It has likewise ruled that the “existence of interlocking directors,
corporate officers and shareholders is not enough justification to pierce the veil of
corporate fiction in the absence of fraud or other public policy considerations.”
Same; Same; Settled is the rule that “where one corporation sells or
otherwise transfers all its assets to another corporation for
149
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Corporation
value, the latter is not, by that fact alone, liable for the debts and liabilities of
the transferor.”—It must be noted that Pacific Carpet was registered with the
Securities and Exchange Commission on January 29, 1999, such that it could not
be said that Pacific Carpet was set up to evade Phil Carpet’s liabilities. As to the
transfer of Phil Carpet’s machines to Pacific Carpet, settled is the rule that “where
one corporation sells or otherwise transfers all its assets to another corporation for
value, the latter is not, by that fact alone, liable for the debts and liabilities of the
transferor.” All told, the petitioners failed to present substantial evidence to prove
their allegation that Pacific Carpet is a mere alter ego of Phil Carpet.
Quitclaims; Where the person making the waiver has done so voluntarily,
with a full understanding thereof, and the consideration for the quitclaim is credible
and reasonable, the transaction must be recognized as being a valid and binding
undertaking.—Where the person making the waiver has done so voluntarily, with a
full understanding thereof, and the consideration for the quitclaim is credible and
reasonable, the transaction must be recognized as being a valid and binding
undertaking. Not all quitclaims are per se invalid or against policy, except (1) where
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there is clear proof that the waiver was wangled from an unsuspecting or gullible
person, or (2) where the terms of settlement are unconscionable on their face; in
these cases, the law will step in to annul the questionable transactions.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Cezar F. Maravilla, Jr. for petitioners.
Romulo, Mabanta, Buenaventura, Sayoc & De Los Angeles for respondents.
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking to reverse and set aside the Janu-
150
150 SUPREME COURT REPORTS ANNOTATED
Zambrano vs. Philippine Carpet Manufacturing
Corporation
1 2
ary 8, 2016 Decision and April 11, 2016 Resolution of the Court of Appeals (CA)
3
in C.A.-G.R. S.P. No. 140663, which affirmed the February 27, 2015 Decision and
4
March 31, 2015 Resolution of the National Labor Relations Commission (NLRC)
in NLRC NCR Case Nos. 01-00109-14; 01-00230-14; 01-00900-14; 01-01025-14;
and 01-01133-14, for five (5) consolidated complaints for illegal dismissal and
unfair labor practice.
The Antecedents
The petitioners averred that they were employees of private respondent
Philippine Carpet Manufacturing Corporation (Phil Carpet). On January 3, 2011,
they were notified of the termination of their employment effective February 3,
2011 on the ground of cessation of operation due to serious business losses. They
were of the belief that their dismissal was without just cause and in violation of due
process because the closure of Phil Carpet was a mere pretense to transfer its
operations to its wholly-owned and -controlled corporation, Pacific Carpet
Manufacturing Corporation (Pacific Carpet). They claimed that the job orders of
some regular clients of Phil Carpet were transferred to Pacific Carpet; and that
from October to November 2011, several machines were moved from the premises
of Phil Carpet to Pacific Carpet. They asserted that their dismissal constituted
unfair labor practice as it involved the mass dismissal of all union officers and
members of the Philippine Carpet Manufacturing Employees Association
(PHILCEA).
In its defense, Phil Carpet countered that it permanently closed and totally
ceased its operations because there had
_______________
1 Penned by Associate Justice Ramon R. Garcia, with Associate Justices
Leoncia R. Dimagiba and Jhosep Y. Lopez, concurring; Rollo (Vol. I), pp. 38-50.
2 Id., at pp. 52-54.
3 The NLRC Decision was not attached to the petition.
4 The NLRC Resolution was not attached to the petition.
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Zambrano vs. Philippine Carpet Manufacturing
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been a steady decline in the demand for its products due to global recession, stiffer
competition, and the effects of a changing market. Based on the Audited Financial
5
Statements conducted by SGV & Co., it incurred losses of P4.1M in 2006; P12.8M
in 2007; P53.28M in 2008; and P47.79M in 2009. As of the end of October 2010,
unaudited losses already amounted to P26.59M. Thus, in order to stem the
bleeding, the company implemented several cost cutting measures, including
voluntary redundancy and early retirement programs. In 2007, the car carpet
division was closed. Moreover, from a high production capacity of about 6,000
square meters of carpet a month in 2002, its final production capacity steadily went
down to an average of 350 square meters per month for 2009 and 2010.
Subsequently, the Board of Directors decided to approve the recommendation of
its management to cease manufacturing operations. The termination of the
petitioners’ employment was effective as of the close of office hours on February 3,
2011. Phil Carpet likewise faithfully complied with the requisites for closure or
cessation of business under the Labor Code. The petitioners and the Department
of Labor and Employment (DOLE) were served written notices one (1) month
before the intended closure of the company. The petitioners were also paid their
separation pay and they voluntarily executed their respective Release and
6
Quitclaim before the DOLE officials.
The LA’s Ruling
7
In the September 29, 2014 Decision, the Labor Arbiter (LA) dismissed the
complaints for illegal dismissal and unfair labor practice. It ruled that the
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termination of the petitioners’ employment was due to total cessation of
manufacturing
_______________
5 Rollo (Vol. I), pp. 124-208.
6 Id. (Vol. II), pp. 647-691.
7 Penned by Labor Arbiter Marita V. Padolina; id. (Vol. I), pp. 56-83.
152
152 SUPREME COURT REPORTS ANNOTATED
Zambrano vs. Philippine Carpet Manufacturing
Corporation
operations of Phil Carpet because it suffered continuous serious business losses
from 2007 to 2010. The LA added that the closure was truly dictated by economic
necessity as evidenced by its audited financial statements. It observed that written
notices of termination were served on the DOLE and on the petitioners at least one
(1) month before the intended date of closure. The LA further found that the
petitioners voluntarily accepted their separation pay and other benefits and
eventually executed their individual release and quitclaim in favor of the company.
Finally, it declared that there was no showing that the total closure of operations
was motivated by any specific and clearly determinable union activity of the
employees. The dispositive portion reads:
WHEREFORE, premises considered, judgment is hereby rendered
DISMISSING the complaint of Domingo P. Constantino, Jr. on ground of
prescription of cause of action and the consolidated complaints of the rest of
complainants for lack of merit.
8
SO ORDERED.
Unconvinced, the petitioners elevated an appeal before the NLRC.
The NLRC’s Ruling
In its February 27, 2015 Decision, the NLRC affirmed the findings of the LA. It
held that the Audited Financial Statements show that Phil Carpet continuously
incurred net losses starting 2007 leading to its closure in the year 2010. The NLRC
added that Phil Carpet complied with the procedural requirements of effecting the
closure of business pursuant to the Labor Code. The fallo reads:
_______________
 8 Id., at p. 83. 154 SUPREME COURT REPORTS ANNOTATED
Zambrano vs. Philippine Carpet Manufacturing
Corporation
153
WHEREFORE, premises considered, the instant petition for certiorari is hereby
VOL. 828, JUNE 21, 2017 153 DISMISSED.
10
Zambrano vs. Philippine Carpet Manufacturing SO ORDERED.
Corporation
WHEREFORE, premises considered, complainants’ appeal from the Decision The petitioners moved for reconsideration, but their motion was denied by the
of the Labor Arbiter Marita V. Padolina is hereby DISMISSED for lack of merit. CA in its assailed resolution, dated April 11, 2016.
9
SO ORDERED. Hence, this present petition.
ISSUES

Undeterred, the petitioners filed a motion for reconsideration thereof. In its
resolution, dated March 31, 2015, the NLRC denied the same.
Aggrieved, the petitioners filed a petition for certiorari with the CA.
The CA’s Ruling
In its assailed decision, dated January 8, 2016, the CA ruled that the total
cessation of Phil Carpet’s manufacturing operations was not made in bad faith
because the same was clearly due to economic necessity. It determined that there
was no convincing evidence to show that the regular clients of Phil Carpet secretly
transferred their job orders to Pacific Carpet; and that Phil Carpet’s machines were
not transferred to Pacific Carpet but were actually sold to the latter after the closure
of business as shown by the several sales invoices and official receipts issued by
Phil Carpet. The CA adjudged that the dismissal of the petitioners who were union
officers and members of PHILCEA did not constitute unfair labor practice because
Phil Carpet was able to show that the closure was due to serious business losses.
The CA opined that the petitioners’ claim that their termination was a mere
pretense because Phil Carpet continued operation through Pacific Carpet was
unfounded because mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personality. The CA
disposed the petition in this wise:
_______________
WHETHER THE PETITIONERS WERE DISMISSED FROM EMPLOYMENT FOR
A LAWFUL CAUSE.
WHETHER THE PETITIONERS’ TERMINATION FROM EMPLOYMENT
CONSTITUTES UNFAIR LABOR PRACTICE.
WHETHER PACIFIC CARPET MAY BE HELD LIABLE FOR PHIL CARPET’S
OBLIGATIONS.
WHETHER THE QUITCLAIMS SIGNED BY THE PETITIONERS ARE VALID
AND BINDING.
The petitioners argue that Phil Carpet did not totally cease its operations; that
most of the job orders of Phil Carpet were transferred to its wholly-owned
subsidiary, Pacific Carpet; and that the signing of quitclaims did not bar them from
pursuing their case because they were made to believe that the closure was legal.
11
In its Comment, dated August 26, 2016, Phil Carpet averred that the
termination of the petitioners’ employment as a consequence of its total closure
and cessation of operations was in accordance with law and supported by
substantial evidence; that the petitioners could only offer bare and
_______________
10 Id., at p. 49.
11 Id. (Vol. II), pp. 1138-1164.

9 Id., at p. 43.
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 Corporation
self-serving claims and sham evidence such as financial statements that did not
pertain to Phil Carpet; and that under the Labor Code, any compromise settlement
voluntarily agreed upon by the parties with the assistance of the regional office of
the DOLE was final and binding upon the parties.
12
In their Reply, dated November 8, 2016, the petitioners alleged that the
losses of Phil Carpet were almost proportionate to the net income of its subsidiary,
Pacific Carpet; and that the alleged sale, which transpired between Phil Carpet and
Pacific Carpet, was simulated.
The Court’s Ruling
The petition is bereft of merit.
The petitioners were termi-
nated from employment for
an authorized cause
Under Article 298 (formerly Article 283) of the Labor Code, closure or cessation
of operation of the establishment is an authorized cause for terminating an
employee, viz.:
Article 298. Closure of establishment and reduction of personnel.—The
employer may also terminate the employment of any employee due to the
installation of labor-saving devices, redundancy, retrenchment to prevent losses or
the closing or cessation of operations of the establishment or
undertaking unless the closing is for the purpose of circumventing the provisions
of this Title, by serving a written notice on the workers and the Department of
Labor and Employment at least one (1) month before the intended date thereof. In
case of termination due to the installation of labor-saving devices or redundancy,
the worker affected thereby shall be entitled to a separation pay equivalent to at
least one (1)
month pay or to at least one (1) month pay for every year of service, whichever is
higher. In case of retrenchment to prevent losses and in cases of closure or
cessation of operations of establishment or undertaking not due to serious
business losses or financial reverses, the separation pay shall be equivalent
to at least one (1) month pay or at least one-half (1/2) month pay for every
year of service, whichever is higher. A fraction of at least six (6) months shall be
considered as one (1) whole year. [Emphases supplied]
Closure of business is the reversal of fortune of the employer whereby there is
a complete cessation of business operations and/or an actual locking up of the
doors of establishment, usually due to financial losses. Closure of business, as an
authorized cause for termination of employment, aims to prevent further financial
drain upon an employer who cannot pay anymore his employees since business
has already stopped. In such a case, the employer is generally required to give
separation benefits to its employees, unless the closure is due to serious business
losses.
13
14
Further, in Industrial Timber Corporation v. Ababon, the Court held:
A reading of the foregoing law shows that a partial or total closure or cessation
of operations of establishment or undertaking may either be due to serious
business losses or financial reverses or otherwise. Under the first kind, the
employer must sufficiently and convincingly prove its allegation of substantial
losses, while under the second kind, the employer can lawfully close shop anytime
as long as cessation of or withdrawal from business operations was bona fide in
character and not impelled by a motive to defeat or circumvent the tenurial
_______________
13 Sangwoo Philippines, Inc. v. Sangwoo Philippines, Inc. Employees Union-
Olalia, 722 Phil. 846, 855; 711 SCRA 618, 624-625 (2013).
14 515 Phil. 805; 480 SCRA 171 (2006).

_______________
157
12 Id., at pp. 1174-1186.
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Zambrano vs. Philippine Carpet Manufacturing
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156
rights of employees, and as long as he pays his employees their termination pay in
156 SUPREME COURT REPORTS ANNOTATED the amount corresponding to their length of service. Just as no law forces anyone
Zambrano vs. Philippine Carpet Manufacturing to go into business, no law can compel anybody to continue the same. It would be
stretching the intent and spirit of the law if a court interferes with management’s
Corporation

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prerogative to close or cease its business operations just because the business is
not suffering from any loss or because of the desire to provide the workers
continued employment.
In sum, under Article 283 of the Labor Code, three requirements are necessary
for a valid cessation of business operations: (a) service of a written notice to the
employees and to the DOLE at least one month before the intended date thereof;
(b) the cessation of business must be bona fide in character; and (c) payment to
the employees of termination pay amounting to one month pay or at least one-half
15
month pay for every year of service, whichever is higher. [citations omitted]
In this case, the LA’s findings that Phil Carpet suffered from serious business
losses which resulted in its closure were affirmed in toto by the NLRC, and
subsequently by the CA. It is a rule that absent any showing that the findings of
fact of the labor tribunals and the appellate court are not supported by evidence on
record or the judgment is based on a misapprehension of facts, the Court shall not
16
examine anew the evidence submitted by the parties. In Alfaro v. Court of
17
Appeals, the Court explained the reasons therefor, to wit:
The Supreme Court is not a trier of facts, and this doctrine applies with greater
force in labor cases. Factual questions are for the labor tribunals to resolve. In this
case, the factual issues have already been determined by the labor arbiter and the
National Labor Relations
_______________
15 Id., at p. 819; pp. 183-184.
16 Ignacio v. Coca-Cola Bottlers Phils., Inc., 417 Phil. 747, 752; 365 SCRA
418, 423 (2001).
17 416 Phil. 310; 363 SCRA 799 (2001).
158
158 SUPREME COURT REPORTS ANNOTATED
Zambrano vs. Philippine Carpet Manufacturing
Corporation
Commission. Their findings were affirmed by the CA. Judicial review by this Court
does not extend to a reevaluation of the sufficiency of the evidence upon which the
proper labor tribunal has based its determination.
Indeed, factual findings of labor officials who are deemed to have acquired
expertise in matters within their respective jurisdictions are generally accorded not
only respect, but even finality, and are binding on the Supreme Court. Verily, their
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conclusions are accorded great weight upon appeal, especially when supported by
substantial evidence. Consequently, the Supreme Court is not duty-bound to delve
into the accuracy of their factual findings, in the absence of a clear showing that
18
the same were arbitrary and bereft of any rational basis.
Even after perusal of the records, the Court finds no reason to take exception
from the foregoing rule. Phil Carpet continuously incurred losses starting 2007, as
19
shown by the Audited Financial Statements which were offered in evidence by
the petitioners themselves. The petitioners, in claiming that Phil Carpet continued
to earn profit in 2011 and 2012, disregarded the reason for such income, which
was Phil Carpet’s act of selling its remaining inventories. Notwithstanding such
income, Phil Carpet continued to incur total comprehensive losses in the amounts
20
of P9,559,716 and P12,768,277 for the years 2011 and 2012, respectively.
Further, even if the petitioners refuse to consider these losses as serious
enough to warrant Phil Carpet’s total and permanent closure, it was a business
judgment on the part of the company’s owners and stockholders to cease
operations, a judgment which the Court has no business interfering with. The only
limitation provided by law is that the closure must be “bona fide in character and
not impelled by a motive to
_______________
18 Id., at p. 318; pp. 806-807.
19 Rollo (Vol. I), pp. 124-208.
20 Id., at pp. 218-262.
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Corporation
21
defeat or circumvent the tenurial rights of employees.” Thus, when an employer
complies with the foregoing conditions, the Court cannot prohibit closure “just
because the business is not suffering from any loss or because of the desire to
provide the workers continued employment.”
22
23 24
Finally, Phil Carpet notified DOLE and the petitioners of its decision to
cease manufacturing operations on January 3, 2011, or at least one (1) month
prior to the intended date of closure on February 3, 2011. The petitioners were also
given separation pay equivalent to 100% of their monthly basic salary for every
year of service.
The dismissal of the peti- bargaining agent, if such nonunion members accept the benefits under the
tioners did not amount to collective bargaining agreement: Provided, That the individual authorization
unfair labor practice required under Article 242, paragraph (o) of this Code shall not apply to the
nonmembers of the recognized collective bargaining agent;
Article 259 (formerly Article 248) of the Labor Code enumerates the unfair (f) To dismiss, discharge or otherwise prejudice or discriminate against an
labor practices of employers, to wit: employee for having given or being about to give testimony under this Code;
Art. 259. Unfair Labor Practices of Employers.—It shall be unlawful for an (g) To violate the duty to bargain collectively as prescribed by this Code;
employer to commit any of the following unfair labor practices: (h) To pay negotiation or attorney’s fees to the union or its officers or agents
(a) To interfere with, restrain or coerce employees in the exercise of their as part of the settlement of any issue in collective bargaining or any other dispute;
right to self-organization; or
(b) To require as a condition of employment that a person or an employee (i) To violate a collective bargaining agreement.
shall not join a labor organization or shall withdraw from one to which he belongs; The provisions of the preceding paragraph notwithstanding, only the officers
(c) To contract out services or functions being performed by union members and agents of corporations, associations or partnerships who have actually
when such will interfere with, restrain or coerce employees in the exercise of their participated in, authorized or ratified unfair labor practices shall be held criminally
right to self-organization; liable.

_______________

21 Article 298, LABOR CODE. 161

22 Angeles v. Polytex Design, Inc., 562 Phil. 152, 159; 536 SCRA 159, 166-
167 (2007).
23 Rollo (Vol. I), pp. 121-122.
24 Id., at pp. 554-595; id. (Vol. II), pp. 596-643.
160
160 SUPREME COURT REPORTS ANNOTATED
Zambrano vs. Philippine Carpet Manufacturing
Corporation
(d) To initiate, dominate, assist or otherwise interfere with the formation or
administration of any labor organization, including the giving of financial or other
support to it or its organizers or supporters;
(e) To discriminate in regard to wages, hours of work and other terms and
conditions of employment in order to encourage or discourage membership in any
labor organization. Nothing in this Code or in any other law shall stop the parties
from requiring membership in a recognized collective bargaining agent as a
condition for employment, except those employees who are already members of
another union at the time of the signing of the collective bargaining agreement.
Employees of an appropriate bargaining unit who are not members of the
recognized collective bargaining agent may be assessed a reasonable fee
equivalent to the dues and other fees paid by members of the recognized collective
VOL. 828, JUNE 21, 2017 161
Zambrano vs. Philippine Carpet Manufacturing
Corporation
Unfair labor practice refers to acts that violate the workers’ right to
25
organize. There should be no dispute that all the prohibited acts constituting
unfair labor practice in essence relate to the workers’ right to self-
26
organization. Thus, an employer may only be held liable for unfair labor practice if
it can be shown that his acts affect in whatever manner the right of his employees
27
to self-organize.
The general principle is that one who makes an allegation has the burden of
proving it. Although there are exceptions to this general rule, in the case of unfair
28
labor practice, the alleging party has the burden of proving it. In the case
29
of Standard Chartered Bank Employees Union (NUBE) v. Confesor, this Court
elaborated:
In order to show that the employer committed ULP under the Labor Code,
substantial evidence is required to support the claim. Substantial evidence has
been defined as such relevant evidence as a reasonable mind might accept as
30
adequate to support a conclusion. [Emphasis supplied]
_______________
25 ARTICLE 258. [247] Concept of Unfair Labor Practice and Procedure for
Prosecution Thereof.—Unfair labor practices violate the constitutional right of

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workers and employees to self-organization, are inimical to the legitimate interests A corporation is an artificial being created by operation of law. It possesses the
of both labor and management, including their right to bargain collectively and right of succession and such powers, attributes, and properties expressly
otherwise deal with each other in an atmosphere of freedom and mutual respect, authorized by law or incident to its existence. It has a personality separate and
disrupt industrial peace and hinder the promotion of healthy and stable labor- _______________
management relations. x x x
26 Culili v. Eastern Telecommunications Philippines, Inc., 657 Phil. 342, 368; 31 Central Azucarera de Bais Employees Union-NFL [CABEU-NFL] v. Central
642 SCRA 338, 360 (2011). Azucarera de Bais, Inc. [CAB], 649 Phil. 629, 645; 635 SCRA 339, 355 (2010).
27 Id. 32 Mercury Drug Corporation v. NLRC, 258 Phil. 384, 391; 177 SCRA 580,
28 UST Faculty Union v. University of Santo Tomas, 602 Phil. 1016, 1025; 586-587 (1989).
584 SCRA 648, 656 (2009).
29 476 Phil. 346; 432 SCRA 308 (2004).
30 Id., at p. 367; p. 323.
163
VOL. 828, JUNE 21, 2017 163
162 Zambrano vs. Philippine Carpet Manufacturing
162 SUPREME COURT REPORTS ANNOTATED Corporation
Zambrano vs. Philippine Carpet Manufacturing distinct from the persons composing it, as well as from any other legal entity to
33
which it may be related.
Corporation Equally well-settled is the principle that the corporate mask may be removed or
Moreover, good faith is presumed and he who alleges bad faith has the duty to the corporate veil pierced when the corporation is just an alter ego of a person or
31
prove the same. of another corporation. For reasons of public policy and in the interest of justice,
The petitioners miserably failed to discharge the duty imposed upon them. the corporate veil will justifiably be impaled only when it becomes a shield for
They did not identify the acts of Phil Carpet which, they claimed, constituted unfair 34
fraud, illegality or inequity committed against third persons.
labor practice. They did not even point out the specific provisions which Phil Carpet Hence, any application of the doctrine of piercing the corporate veil should be
violated. Thus, they would have the Court pronounce that Phil Carpet committed done with caution. A court should be mindful of the milieu where it is to be applied.
unfair labor practice on the ground that they were dismissed from employment It must be certain that the corporate fiction was misused to such an extent that
simply because they were union officers and members. The constitutional injustice, fraud, or crime was committed against another, in disregard of rights. The
commitment to the policy of social justice, however, cannot be understood to mean wrongdoing must be clearly and convincingly established; it cannot be presumed.
32
that every labor dispute shall automatically be decided in favor of labor. Otherwise, an injustice that was never unintended may result from an erroneous
35
In this case, as far as the pieces of evidence offered by the petitioners are application.
concerned, there is no showing that the closure of the company was an attempt at Further, the Court’s ruling in Philippine National Bank v. Hydro Resources
union busting. Hence, the charge that Phil Carpet is guilty of unfair labor practice 36
Contractors Corporation is enlightening, viz.:
must fail for lack of merit. The doctrine of piercing the corporate veil applies only in three (3) basic areas,
namely: 1) defeat of public convenience as when the corporate fiction is used as a
Pacific Carpet has a vehicle for the evasion of an existing obligation; 2) fraud cases or when the
personality separate and corporate entity is used to justify a wrong, protect fraud, or defend a crime; or
distinct from Phil Carpet 3) alter ego cases, where a corporation is merely a farce since it is a mere alter
ego
The petitioners, in asking the Court to disregard the separate corporate
personality of Pacific Carpet and to make it liable for the obligations of Phil Carpet, _______________
rely heavily on the former being a subsidiary of the latter.

Corporation  Law  Cases  –  Batch  3  

 
 33 General Credit Corporation v. Alsons Development and Investment
Corporation, 542 Phil. 219, 231; 513 SCRA 225, 237-238 (2007).
34 Philippine National Bank v. Andrada Electric & Engineering Company, 430
Phil. 882, 894; 381 SCRA 244, 254 (2002).
35 Id., at pp. 894-895; p. 254.
36 706 Phil. 297; 693 SCRA 294 (2013).
164
164 SUPREME COURT REPORTS ANNOTATED
Zambrano vs. Philippine Carpet Manufacturing
Corporation
or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.
xxxx
In this connection, case law lays down a three-pronged test to determine the
application of the alter ego theory, which is also known as the instrumentality
theory, namely:
(1) Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in respect to
the transaction attacked so that the corporate entity as to this transaction had at
the time no separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other positive legal duty, or
dishonest and unjust act in contravention of plaintiff’s legal right; and
(3) The aforesaid control and breach of duty must have proximately caused the
injury or unjust loss complained of.
The first prong is the “instrumentality” or “control” test. This test requires that the
subsidiary be completely under the control and domination of the parent. It
examines the parent corporation’s relationship with the subsidiary. It inquires
whether a subsidiary corporation is so organized and controlled and its affairs are
so conducted as to make it a mere instrumentality or agent of the parent
corporation such that its separate existence as a distinct corporate entity will be
ignored. It seeks to establish whether the subsidiary corporation has no autonomy
and the parent corporation, though acting through the subsidiary in form and
appearance, “is operating the business directly for itself.”
The second prong is the “fraud” test. This test requires that the parent
corporation’s conduct in using the sub-
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Zambrano vs. Philippine Carpet Manufacturing
Corporation
sidiary corporation be unjust, fraudulent or wrongful. It examines the relationship of
the plaintiff to the corporation. It recognizes that piercing is appropriate only if the
parent corporation uses the subsidiary in a way that harms the plaintiff creditor. As
such, it requires a showing of “an element of injustice or fundamental unfairness.”
The third prong is the “harm” test. This test requires the plaintiff to show that the
defendant’s control, exerted in a fraudulent, illegal or otherwise unfair manner
toward it, caused the harm suffered. A causal connection between the fraudulent
conduct committed through the instrumentality of the subsidiary and the injury
suffered or the damage incurred by the plaintiff should be established. The plaintiff
must prove that, unless the corporate veil is pierced, it will have been treated
unjustly by the defendant’s exercise of control and improper use of the corporate
form and, thereby, suffer damages.
To summarize, piercing the corporate veil based on the alter ego theory requires
the concurrence of three elements: control of the corporation by the stockholder or
parent corporation, fraud or fundamental unfairness imposed on the plaintiff, and
harm or damage caused to the plaintiff by the fraudulent or unfair act of the
corporation. The absence of any of these elements prevents piercing the corporate
37
veil. [Citations omitted]
The Court finds that none of the tests has been satisfactorily met in this case.
Although ownership by one corporation of all or a great majority of stocks of
another corporation and their interlocking directorates may serve as indicia of
control, by themselves and without more, these circumstances are insufficient to
establish an alter ego relationship or connection between Phil Carpet on the one
hand and Pacific Carpet on the other hand, that will justify the puncturing of the
38
latter’s corporate cover.
_______________
37 Id., at pp. 309-312; pp. 307-310.
38 Id., at p. 313; pp. 310-311.
166
166 SUPREME COURT REPORTS ANNOTATED
 Zambrano vs. Philippine Carpet Manufacturing was wangled from an unsuspecting or gullible person, or (2) where the terms of
settlement are unconscionable on their face; in these cases, the law will step in to
Corporation annul the questionable transactions.
44

This Court has declared that “mere ownership by a single stockholder or by In this case, the petitioners question the validity of the quitclaims they signed
another corporation of all or nearly all of the capital stock of a corporation is not of on the ground that Phil Carpet’s closure was a mere pretense. As the closure of
39
itself sufficient ground for disregarding the separate corporate personality.” It has Phil Carpet, however, was supported by substantial evidence, the petitioners’
likewise ruled that the “existence of interlocking directors, corporate officers and reason for seeking the invalidation of the quitclaims must necessarily fail. Further,
shareholders is not enough justification to pierce the veil of corporate fiction in the as aptly observed by the CA, the contents of the quitclaims, which were in Filipino,
40
absence of fraud or other public policy considerations.” were clear and simple, such that it was unlikely that the petitioners did not
45
It must be noted that Pacific Carpet was registered with the Securities and understand what they were signing. Finally, the amount they received was
41
Exchange Commission on January 29, 1999, such that it could not be said that reasonable as the same complied with the requirements of the Labor Code.
Pacific Carpet was set up to evade Phil Carpet’s liabilities. As to the transfer of Phil WHEREFORE, the petition is DENIED. The January 8, 2016 Decision and
Carpet’s machines to Pacific Carpet, settled is the rule that “where one corporation April 11, 2016 Resolution of the Court of Appeals in C.A.-G.R. S.P. No. 140663,
sells or otherwise transfers all its assets to another corporation for value, the latter are AFFIRMED in toto.
42
is not, by that fact alone, liable for the debts and liabilities of the transferor.” SO ORDERED.
**
All told, the petitioners failed to present substantial evidence to prove their Peralta (Acting Chairperson) and Martires, JJ., concur.
allegation that Pacific Carpet is a mere alter ego of Phil Carpet. Carpio, J., On Official Leave.
Leonen, J., On Leave.
The quitclaims were
valid and binding _______________
upon the petitioners
43 Magsalin v. National Organization of Working Men, 451 Phil. 254, 263; 403
Where the person making the waiver has done so voluntarily, with a full SCRA 199, 207 (2003).
understanding thereof, and the consideration for the quitclaim is credible and 44 Bogo-Medellin Sugarcane Planters Association, Inc. v. NLRC, 357 Phil.
reasonable, the transaction must 113, 126; 296 SCRA 108, 125 (1998).
_______________ 45 Rollo (Vol. I), p. 47.
** Per Special Order No. 2445 dated June 16, 2017.
39 Id.
40 Pacific Rehouse Corporation v. Court of Appeals, 730 Phil. 325, 352; 719
SCRA 665, 694 (2014).
41 Rollo (Vol. II), p. 851. 168
42 Pantranco Employees Association (PEA-PTGWO) v. National Labor 168 SUPREME COURT REPORTS ANNOTATED
Relations Commission, 600 Phil. 645, 660; 581 SCRA 598, 613 (2009).
Zambrano vs. Philippine Carpet Manufacturing
Corporation
Petition denied, judgment and resolution affirmed in toto.
167
VOL. 828, JUNE 21, 2017 167
Zambrano vs. Philippine Carpet Manufacturing
G.R. No. 221813
Corporation
43
be recognized as being a valid and binding undertaking. Not all quitclaims are per MARICALUM MINING CORPORATION, Petitioner
se invalid or against policy, except (1) where there is clear proof that the waiver vs.

Corporation  Law  Cases  –  Batch  3  

 

ELY G. FLORENTINO, GLENN BUENVIAJE, RUDY J. GOMEZ, represented by
his heir THELMA GOMEZ, ALEJANDRO H. SITCHON, NENET ARITA,
FERNANDO SIGUAN, DENNIS ABELIDA, NOEL S. ACCOLADOR,WILFREDO
TAGANILE, SR., MARTIR S. AGSOY, SR., MELCHOR APUCA Y, DOMINGO LA
VIDA, JESUS MOSQUEDA, RUELITO A. VILLARMIA, SOFRONIO M. A YON,
EFREN T. GENISE, ALQUIN A. FRANCO, PABLO L. ALEMAN, PEPITO G.
HEPRIANA, ELIAS S. TRESPECES, EDGAR SOBRINO, Respondents
x-----------------------x
G.R. No. 222723
ELY FLORENTINO, GLENN BUENVIAJE, RUDY J. GOMEZ, represented by his
heir THELMA GOMEZ, FERNANDO SIGUAN, DENNIS ABELIDA, NOEL S.
ACCOLADOR,WILFREDO TAGANILE, SR., MARTIR S. AGSOY, SR.,
MELCHOR APUCA Y, DOMINGO LA VIDA, JESUS MOSQUEDA, RUELITO A.
VILLARMIA, SOFRONIO M. A YON, EFREN T. GENISE, ALQUIN A. FRANCO,
PABLO L. ALEMAN, PEPITO G. HEPRIANA, ELIAS S. TRESPECES, EDGAR
SOBRINO, ALEJANDRO H. SITCHON, NENET ARITA, WELILMO T. NERI,
ERLINDA FERNANDEZ, and EDGARDO PENAFLORIDA, Petitioners
vs.
NATIONAL LABOR RELATIONS COMMISSION – 7th DIVISION, CEBU CITY,
"G" HOLDINGS, INC., and TEODORO G. BERNARDINO, ROLANDO
DEGOJAS, MARICALUM MINING CORPORATION. Respondents
DECISION
GESMUNDO, J.:
A subsidiary company's separate corporate personality may be disregarded only
when the evidence shows that such separate personality was being used by its
parent or holding corporation to perpetrate a fraud or evade an existing obligation.
Concomitantly, employees of a corporation have no cause of action for labor-
related claims against another unaffiliated corporation, which does not exercise
control over them.
The subjects of the instant consolidated cases are two (2) petitions for appeal
by certiorari filed by the following petitioners:
1) Maricalum Mining Corporation (Maricalum Mining) m G.R. No. 221813; and
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1
2) Ely Florentino, Glenn Buenviaje, Rudy J. Gomez, Fernando Siguan, Dennis
Abelida, Noel S. Acollador, Wilfredo C. Taganile, Sr., Martir S. Agsoy, Sr., Melchor
B. Apucay, Domingo Lavida, Jesus Mosqueda, Ruelito A. Villarmia, Sofronio M.
Ayon, Efren T. Genise, Alquin A. Franco, Pabio L. Aleman, Pepito G. Hepriana,
Elias S. Trespeces, Edgar M. Sobrino, Alejandro H. Sitchon, Nenet Arita, Dr.
Welilmo T. Neri, Erlinda L. Fernandez, and Edgardo S.
Pefiaflorida (complainants) in G.R. No. 222723.
Both of these petitions are assailing the propriety of the October 29, 2014
2
Decision of the Court of Appeals (CA) in CA-G.R. SP No. 06835. The CA upheld
3 4
the November 29, 2011 Decision and January 31, 2012 Resolution of the
National Labor Relations Commission (NLRC) in NLRC Case No. VAC-05-000412-
11. In the present petitions, complainants seek to reinstate the April 20, 2011
5
Decision of the Labor Arbiter (LA) in consolidated cases NLRC RAB VI CASE No.
09-10755-10, NLRC RAB VI CASE No. 12-10915-10, NLRC RAB VI CASE No. 12-
10916-10 and NLRC RAB VI CASE No. 12-10917-10, which granted their joint
complaints for monetary claims against G Holdings, Inc. (G Holdings); while
Maricalum Mining seeks to have the case remanded to the LA for proper
computation of its total monetary liability to the complainants.
The Antecedents
The dispute traces its roots back to when the Philippine National Bank (PNB, a
former government-owned-and-controlled corporation) and the Development Bank
of the Philippines (DBP) transferred its ownership of Maricalum Mining to the
National Government for disposition or privatization because it had become a non-
6
performing asset.
On October 2, 1992, the National Government thru the Asset Privatization
Trust (APT) executed a Purchase and Sale Agreement (PSA) with G Holdings, a
domestic corporation primarily engaged in the business of owning and holding
shares of stock of different companies. G Holding bought 90% of Maricalum
Mining's shares and financial claims in the form of company notes. In exchange,
the PSA obliged G Holdings to pay APT the amount of ₱673,161,280.00, with a
down payment of ₱98,704,000.00 and with the balance divided into four tranches
7
payable in installment over a period of ten years. Concomitantly, G Holdings also
assumed Maricalum Mining's liabilities in the form of company notes. The said
financial liabilities were converted into three (3) Promissory Notes (PNs) totaling
₱550,000,000.00 (₱114,715,360.00, ₱186,550,560.00 and ₱248,734,080.00),
which were secured by mortgages over some of Maricalum Mining's
8
properties. These PNs obliged Maricalum Mining to pay G Holdings the stipulated
amount of ₱550,000,000.00.
 Upon the signing of the PSA and paying the stipulated down payment, G Holdings On September 23, 2010, some of Maricalum Mining's workers, including
immediately took physical possession of Maricalum Mining's Sipalay Mining complainants, and some of Sipalay General Hospital's employees jointly filed a
15
Complex, as well as its facilities, and took full control of the latter's management Complaint with the LA against G Holdings, its president, and officer-in-charge,
9
and operations. and the cooperatives and its officers for illegal dismissal, underpayment and
nonpayment of salaries, underpayment of overtime pay, underpayment of premium
On January 26, 1999, the Sipalay General Hospital, Inc. (Sipalay Hospital) was pay for holiday, nonpayment of separation pay, underpayment of holiday pay,
duly incorporated to provide medical services and facilities to the general public.
10 nonpayment of service incentive leave pay, nonpayment of vacation and sick
leave, nonpayment of 13th month pay, moral and exemplary damages, and
attorneys fees.
Afterwards, some of Maricalum Mining's employees retired and formed several
11
manpower cooperatives, as follow:
On December 2, 2010, complainants and CeMPC Chairman Alejandro H. Sitchon
surprisingly filed his complaint for illegal dismissal and corresponding monetary
16
COOPERATIVE DATE OF REGISTRATION claims with the LA against G Holdings, its officer-in-charge and CeMPC.

San Jose Multi-Purpose Cooperative (SJMPC) December 8, 1998 Thereafter, the complaints were consolidated by the LA.
Centennial Multi-Purpose Cooperative (CeMPC) April 5, 1999
During the hearings, complainants presented the affidavits of Alejandro H. Sitchon
Sipalay Integrated Multi-Purpose April 5, 1999 and Dennis Abelida which attested that, prior to the formation of the manpower
Cooperative (SIMPC) cooperatives, their services were terminated by Maricalum Mining as part of its
17
retrenchment program. They claimed that, in 1999, they were called by the top
Allied Services Multi-Purpose Cooperative (ASMPC) July 23, 1999 executives of Maricalum Mining and G Holdings and informed that they will have to
form a cooperative for the purpose of providing manpower services in view of the
Cansibit Multi-Purpose Cooperative (CaMPC) September 16, 1999 retrenchment program. Thus, they were "rehired" only after their respective
manpower cooperative services were formed. Moreover, they also submitted the
18
following documents: (a) Cash Vouchers representing payments to the
In 2000, each of the said cooperatives executed identical sets of Memorandum of 19
manpower cooperatives; (b) a Payment Schedule representing G Holdings'
12
Agreement with Maricalum Mining wherein they undertook, among others, to payment of social security contributions in favor of some Sipalay Hospital
provide the latter with a steady supply of workers, machinery and equipment for a 20
employees (c) Termination Letters written by representatives of G Holdings,
monthly fee. which were addressed to complainants including those employed by Sipalay
21
Hospital; and (d) Caretaker Schedules prepared by G Holdings to prove the
On June 1, 2001, Maricalum Mining's Vice President and Resident Manager Jesus existence of employment relations.
13
H. Bermejo wrote a Memorandum to the cooperatives informing them that
Maricalum Mining has decided to stop its mining and milling operations effective After the hearings were concluded, complainants presented their Position
July 1, 2001 in order to avert continuing losses brought about by the low metal 22
Paper claiming that: they have not received any increase in wages since they
prices and high cost of production. were allegedly rehired; except for Sipalay Hospital's employees, they worked as an
augmentation force to the security guards charged with securing Maricalum
In July 2001, the properties of Maricalum Mining, which had been mortgaged to Mining's assets which were acquired by G Holdings; Maricalum Mining's assets
secure the PNs, were extrajudicially foreclosed and eventually sold to G Holdings have been exposed to pilferage by some of its rank-and-file employees whose
14
as the highest bidder on December 3, 2001. claims for collective bargaining benefits were undergoing litigation; the Sipalay
Hospital is purportedly "among the assets" of Maricalum Mining acquired by G
Holdings; the payrolls for their wages were supposedly prepared by G Holdings'
accounting department; since the second half of April 2007, they have not been

Corporation  Law  Cases  –  Batch  3  

 
paid their salary; and some of their services were dismissed without any due
process.
Based on these factual claims, complainants posited that: the manpower
cooperatives were mere alter egos of G Holdings organized to subvert the "tenurial
rights" of the complainants; G Holdings implemented a retrenchment scheme to
dismiss the caretakers it hired before the foreclosure of Maricalum Mining's assets;
and G Holdings was their employer because it allegedly had the power to hire, pay
wages, control working methods and dismiss them.
complainants' labor standards rights; it is highly unlikely that complainants (except
Sipalay Hospital's employees) would spontaneously form manpower cooperatives
on their own and in unison without the guidance of G Holdings and Maricalum
Mining; and complainants effectively became the employees of G Holdings
because their work had changed from assisting in the mining operations to
safeguarding the properties in the Sipalay Mining Complex, which had already
been acquired by G Holding. On the other hand, the LA denied the claims of
complainants Nenet Arita and Domingo Lavida for lack of factual basis. The fallo of
the LA decision reads:

23
Correspondingly, G Holdings filed its Position Paper maintaining that: it was WHEREFORE, premises considered, judgment is hereby rendered DIRECTING
Maricalum Mining who entered into an agreement with the manpower corporations respondent "G" HOLDINGS, INC. to pay complainants as follows:
for the employment of complainants' services for auxiliary or seasonal mining
activities; the manpower cooperatives were the ones who paid the wages, Unpaid Salaries/ Wages 13th Month Pay
deducted social security contributions, withheld taxes, provided medical benefits
and had control over the working means and methods of complainants; despite (1) Salvador Arceo ₱81,418.08 ₱6,784.84
Maricalum Mining's decision to stop its mining and milling operations, complainants
still continued to render their services for the orderly winding down of the mines' (2) Sofronio Ayon 79,158.50 6,596.54
operations; Maricalum Mining should have been impleaded because it is supposed
(3) Glenn Buenviaje 105,558.40 8,796.53
to be the indispensable party in the present suit; (e) Marical um Mining, as well as
the manpower cooperatives, each have distinct legal personalities and that their (4) Ely Florentino 102,325.28 8,527.11
individual corporate liabilities cannot be imposed upon each other; and there was
no employer-employee relationship between G Holdings and complainants. (5) Rogelio Fulo 99,352.23 8,279.35

24 (6) Efren Genise 161,149.18 13,429.10

Likewise, the manpower cooperatives jointly filed their Position Paper arguing
that: complainants had exhibited a favorable response when they were properly (7) Rudy Gomez 72,133.41 6,011.12
briefed of the nature and benefits of working under a cooperative setup;
complainants received their fair share of benefits; complainants were entitled to (8) Jessie Magallanes 239,251.94 19,937.66
cast their respective votes in deciding the affairs of their respective cooperatives;
(9) Freddie Masicampo 143,415.85 11,951.32
complainants, as member of the cooperatives, are also co-owners of the said
cooperative and they cannot bargain for higher labor benefits with other co-owners; (10) Edgardo Penaflorida 146,483.60 12,206.97
and the LA has no jurisdiction over the case because there is no employer-
employee relationship between a cooperative and its members. (11) Noel Acollador 89,163.46 7,430.29
(12) Gorgonio Baladhay 220,956.10 18,413.01
The LA Ruling
(13) Jesus Mosqueda 48,303.22 4,025.27
In its decision dated April 28, 2011, the LA ruled in favor of
(14) Alquin Franco 180,281.25 15,023.44
complainants.1awp++i1 It held that G Holdings is guilty of labor-only contracting
with the manpower cooperatives thereby making all of them solidarily and directly (15) Fabio Aleman 30,000.00 2,500.00
liable to complainants. The LA reasoned that: G Holdings connived with Marcalum
Mining in orchestrating the formation of manpower cooperatives to circumvent (16) Elias Trespeces 180,000.00 15,000.00

Corporation  Law  Cases  –  Batch  3  

 
(17) Pepito Hedriana 18,000.00 1,500.00 Mining as the true and proper party-in-interest; (c) remand the case back to the
Labor Arbiter for proper computation of the money claims of the complainants; and
(18) Dennis Abelida 149,941.00 12,945.08 (d) give Maricalum Mining the opportunity to settle with the complainants.

(19) Melchor Apucay 371,587.01 30,965.58

The NLRC Ruling
(20) Martin Agsoy 128,945.08 10,745.42
In its decision dated November 29, 2011, the NLRC modified the LA ruling. It held
(21) Ruelito Villarmia 224,486.95 18,707.25
that Dr. Welilmo T. Neri, Erlinda L. Fernandez and Edgar M. Sobrino are not
(22) Fernando Siguan 417,039.32 34,753.28 entitled to the monetary awards because they were not able to establish the fact of
their employment relationship with G Holdings or Maricalum Mining because
(23) Alejandro Sitchon 380,423.16 31,701.93 Sipalay Hospital has a separate and distinct corporate personality. As to the
remaining complainants, it found that no evidence was adduced to prove that the
(24) Welilmo Neri 456,502.36 38,041.86 th
salaries/wages and the 13 month pay had been paid.
(25) Erlinda Fernandez 125,553.88 10,462.82
However, the NLRC imposed the liability of paying the monetary awards imposed
(26) Edgardo Sobrino 112,521.40 9,376.78 by the LA against Maricalum Mining, instead of G Holdings, based on the following
observations that: it was Maricalum Mining-not G Holdings-who entered into
(27) Wildredo Taganile 52,386.82 4,365.57
service contracts by way of a Memorandum of Agreement with each of the
(28) Bartholomew Jamboy 68,000.00 5,666.67 manpower cooperatives; complainants continued rendering their services at the
insistence of Maricalum Mining through their cooperatives; Maricalum Mining never
₱4,484,337.48 ₱373,694.79 relinquished possession over the Sipalay Mining Complex; Maricalum Mining
continuously availed of the services of complainants through their respective
manpower cooperatives; in G Holdings, Inc. v. National Mines and Allied Workers
and the amount of ₱485,803.23 as attorney's fees, or the total amount of FIVE 27
Union Local 103 (NAMAWU), et al. (NAMA WU Case), the Court already held
MILLION THREE HUNDRED FORTY-THREE THOUSAND EIGHT HUNDRED that G Holdings and Maricalum Mining have separate and distinct corporate
THIRTY-FIVE and 50/100 PESOS (₱5,343,835.50). personalities. The dispositive portion of the NLRC ruling states:

The other claims are DISMISSED for lack of merit.
Further, the complaints against respondents SIP ALA Y INTEGRATED MULTI-
PURPOSE COOPERATIVE, ALLIED SERVICES MULTI-COOPERATIVE, SAN
JOSE MULTI-PURPOSE COOPERATIVE, CANSIBIT MULTI-PURPOSE
COOPERATIVE, and CENTENNIAL MULTI-PURPOSE COOPERATIVE, being
mere agents of respondent "G" HOLDINGS, INC., are hereby DISMISSED.
25
SO ORDERED.
The parties filed their respective appeals to the NLRC.
WHEREFORE, premises considered, the Decision rendered by the Labor Arbiter
on 20 April 2011 is hereby MODIFIED, to wit:
1) the monetary award adjudged to complainants Jessie
Magallanes, Rogelio E. Fulo, Salvador J. Arceo, Freddie
Masicampo, Welilmo Neri, Erlinda Fernandez and Edgar Sobrino
are CANCELLED;
2) the award of ten percent (10%) attorney's fees is ADJUSTED
commensurate to the award of unpaid salaries/wages and
th
13 month pay of the remaining complainants;

26
On July 18, 2011, Marical um Mining filed its Appeal-in-Intervention seeking to:
(a) reverse and set aside the Labor Arbiter's Decision; (b) declare Mari cal um

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 3) the directive for respondent "G" Holdings, Inc. to pay dated 31 January 2012 of the National Labor Relations Commission are hereby
complainants the monetary awards adjudged by the Labor AFFIRMED in all respects.
Arbiter is CANCELLED;
Costs against petitioners.
4) it is intervenor that is, accordingly, directed to pay the
remaining complainants their respective monetary SO ORDERED.
30
awards.1âwphi1
Hence, these consolidated petitions essentially raising the following issues:
In all other respects the Decision STANDS.

28
SO ORDERED.
Complainants and Maricalum Mining filed their respective motions for
reconsideration before the NLRC. On January 31, 2012, it issued a resolution
modifying its previous decision. The dispositive portion of the NLRC resolution
state:
WHEREFORE, premises considered, intervenor's Motion for Reconsideration is
only PARTIALLY GRANTED. The Decision promulgated by the Commission on 29
November 2011 modifying the Labor Arbiter's decision as stated therein, is further
MODIFIED to the effect that the monetary awards adjudged in favor of
complainants Wilfredo Taganile and Bartholomew T. Jamboy are CANCELLED.
I
WHETHER THE COURT OF APPEALS ERRED IN REFUSING TO RE-
EVALUATE THE FACTS AND IN FINDING NO GRAVE ABUSE OF DISCRETION
ON THE PART OF THE NLRC;
II
WHETHER THE COURT OF APPEALS ERRED IN AFFIRMING THE NLRC'S
FINDING OF SUBSTANTIAL EVIDENCE IN GRANTING THE COMPLAINANTS'
MONETARY AWARD AS WELL AS ITS REFUSAL TO REMAND THE CASE
BACK TO THE LABOR ARBITER FOR RE-COMPUTATION OF SUCH AWARD;

SO ORDERED.
29 III

Undaunted, the parties filed their respective petitions for certiorari before the CA.
The CA Ruling
In its decision dated October 29, 2014, the CA denied the petitions and affirmed
the decision of the NLRC. It ratiocinated that factual issues are not fit subjects for
review via the extraordinary remedy of certiorari. The CA emphasized that the
NLRC's factual findings are conclusive and binding on the appellate courts when
they are supported by substantial evidence. Thus, it maintained that it cannot
review and re-evaluate the evidence all over again because there was no showing
that the NLRC's findings of facts were reached arbitrarily. The decretal portion of
the CA decision states:
WHEREFORE, premises considered, the instant petition for certiorari is DENIED,
and the assailed Decision dated 29 December 2011 and two Resolutions both
WHETHER THE COURT OF APPEALS ERRED IN DISREGARDING THAT THE
NLRC ALLOWED MARICALUM MINING TO INTERVENE IN THE CASE ONLY
ON APPEAL;
IV
WHETHER THE COURT OF APPEALS ERRED IN AFFIRMING THE NLRC'S
RULING WHICH ALLOWED THE PIERCING OF THE CORPORA TE VEIL
AGAINST MARICALUM MINING BUT NOT AGAINST SIPALAY HOSPITAL.
Complainants argue that the CA committed several reversible errors because: (a) it
refused to re-evaluate the facts of the case even if the factual findings of the NLRC
and the LA were conflicting; (b) it failed to consider that G Holdings had already
acquired all of Maricalum Mining's assets and that Teodoro G.
Bernardino (Bernardino) was now the president and controlling stockholder of both

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corporations; (c) it failed to take into account that Maricalum Mining was allowed to
intervene only on appeal even though it was not a real party-in-interest; (d) it failed
to appreciate the LA' s findings that Maricalum Mining could not have hired
complainants because G Holdings had already acquired in an auction sale all the
assets in the Sipalay Mining Complex; (e) it failed to consider that all resident
managers of the Sipalay Mining Complex were employed by G Holdings; (f) the
foreclosure of the assets in the Sipalay Mining Complex was intended to bring the
said properties outside the reach of complainants; (g) the Sipalay Hospital had
been existing as a hospital for Maricalum Mining's employees long before G
Holdings arrived; (h) Dr. Welilmo T. Neri, Erlinda L. Fernandez, Edgar M. Sobrino
and Wilfredo C. Taganile, Sr. were all hired by Maricalum Mining but were
dismissed by G Holdings; (i) Sipalay Hospital existed without a board of directors
and its employees were receiving orders from Maricalum Mining and, later on,
replaced by G Holdings' officer-in-charge; and (j) Maricalum Mining and G Holdings
controlled the affairs of Sipalay Hospital.
Maricalum Mining contends that the CA committed grave abuse of discretion
because the monetary awards were improperly computed. It claims that
complainants had stopped rendering their services since September 23, 2010,
hence, their monetary claims covering the second half of April 2007 up to July
2007 have already prescribed as provided pursuant to Article 291 of the Labor
Code. Moreover, it also stressed that the NLRC should have remanded the case to
the LA for the determination of the manpower cooperatives' net surpluses and how
these amounts were distributed to their members to aid the proper determination of
the total amount of the monetary award. Finally, Maricalum Mining avers that the
awards in favor of some of the complainants are "improbable" and completely
unfounded.
On the other hand, G Holdings argues that piercing the corporate veil of Maricalum
Mining is not proper because: (a) it did not acquire all of Maricalum Mining's
assets; (b) it is primarily engaged in the business of owning and holding shares of
stocks of different companies-not participating in the operations of its subsidiaries;
(c) Maricalum Mining, the actual employers of complainants, had already
manifested its willingness to settle the correct money claims; (d) Bernardino is not
a controlling stockholder of Maricalum Mining because the latter's corporate
records show that almost all of its shares of stock are owned by the APT; ( e) Joost
Pekelharing-not Bernardino-is G Holdings' president; (f) in the NAMA WU Case, it
was already held that control over Maricalum Mining was exercised by the APT
and not G Holdings; (g) the NLRC did not commit any grave abuse of discretion
when it allowed Maricalum Mining to intervene after the LA's decision was
promulgated; (h) the cash vouchers, payment schedule, termination letters and
caretaker schedules presented by complainants do not prove the employment
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relationship with G Holdings because the signatories thereto were either from
Maricalum Mining or the manpower cooperatives; (i) this Court's pronouncements
31
in the NAMA WU Case and in Republic v. G Holdings, Inc. prove that Maricalum
Mining never relinquished possession of the Sipalay Mining Complex in favor of G
Holdings; and (j) Dr. Welilmo T. Neri, Erlinda L. Fernandez, Edgar M. Sobrino and
Wilfredo C. Taganile, Sr. were employees of the Sipalay Hospital, which is a
separate business entity, and were not members in any of the manpower
cooperatives, which entered into a labor-only arrangement with Maricalum Mining.
The Court's Ruling
It is basic that only pure questions of law should be raised in petitions for review
32
on certiorari under Rule 45 of the Rules of Court. It will not entertain questions of
fact as the factual findings of appellate courts are final, binding or conclusive on
33
the parties and upon this court when supported by substantial evidence. In labor
cases, however, the Court has to examine the CA' s Decision from the prism of
whether the latter had correctly determined the presence or absence of grave
abuse of discretion in the NLRC's Decision.
34
In this case, the principle that this Court is not a trier of facts applies with greater
35
force in labor cases. Grave abuse must have attended the evaluation of the facts
36
and evidence presented by the parties. This Court is keenly aware that the CA
undertook a Rule 65 review-not a review on appeal-of the NLRC decision
37
challenged before it. It follows that this Court will not re-examine conflicting
evidence, reevaluate the credibility of witnesses, or substitute the findings of fact of
38
the NLRC, an administrative body that has expertise in its specialized field. It
may only examine the facts only for the purpose of resolving allegations and
39
determining the existence of grave abuse of discretion. Accordingly, with these
procedural guidelines, the Court will now proceed to determine whether or not the
CA had committed any reversible error in affirming the NLRC's Decision.
Propriety of the Monetary Awards
Ordinarily, when there is sufficient evidence before the Court to enable it to resolve
fundamental issues, it will dispense with the regular procedure of remanding the
case to the lower court or appropriate tribunal in order to avoid a further delay in
40
the resolution of the case. A remand is only necessary when the proceedings
41
below are grossly inadequate to settle factual issues. This is in line with the
Court's power to issue a process in order to enforce its own decrees and thus
42
avoid circuitous actions and vexatious litigation.
In the case at bench, Maricalum Mining is seeking to have the case remanded
because the LA allegedly miscomputed the amount of the monetary awards.
However, it failed to offer any reasonable argument or explanation why the
proceedings conducted before the NLRC or LA were "grossly inadequate to
settle factual issues," especially as regards the computation of monetary awards.
Its bare allegations - that the monetary awards were improperly computed because
prescribed claims have been granted, that the net surpluses of the manpower
cooperative were not properly distributed, and that the awards in favor of some of
the complainants were improbable - do not warrant the invocation of this Court's
power to have the case remanded back to the LA. Bare and unsubstantiated
43
allegations do not constitute substantial evidence and have no probative value.
Besides, it is not imperative for the Court to remand the case to the LA for the
determination of the amounts of net surpluses that each of the manpower
cooperatives had received from Maricalum Mining. The records show that
Maricalum Mining was guilty of entering into a labor-only contracting arrangement
with the manpower cooperatives, thus, all of them are solidarily liable to the
44
complainants by virtue of Article 106 of the Labor Code. In DOLE Philippines, Inc.
45
v. Esteva, et al. it was ruled that a cooperative, despite having a personality
46
separate from its members, is engaged in a labor-only contracting arrangement
based on the following indicators:
1) The cooperative had a measly paid-up capital of ₱6,600.00 and had only
managed to increase the same by continually engaging in labor-only contracting
with its client;
2) The cooperative did not carry out an independent business from its client and its
own office and equipment were mainly used for administrative purposes;
3) The cooperative's members had to undergo instructions and pass the training
provided by the client's personnel before they could start working alongside regular
employees;
4) The cooperative was not engaged to perform a specific and special job or
service; and
5) The cooperative's members performed activities directly related and vital to the
principal business of its client.
Here, the virtually identical sets of memorandum of agreement with the manpower
cooperatives state among others that: (a) the services covered shall consist of
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operating loading, drilling and various auxiliary equipments; and (b) the
cooperative members shall abide by the norms and standards of the Maricalum
Mining. These services and guidelines are essential to the operations of Maricalum
Mining. Thus, since the cooperative members perform the work vital to the
operation of the Sipalay Mining Complex, the they were being contracted in a
labor-only arrangement. Moreover, the burden of proving the supposed status of
47
the contractor rests on the principal and Maricalum Mining, being the principal,
also failed to present any evidence before the NLRC that each of the manpower
cooperatives had an independent viable business.
Propriety of Maricalum Mining's Intervention
Intervention is a remedy by which a third party, who is not originally imp leaded in a
proceeding, becomes a litigant for purposes of protecting his or her right or interest
48
that may be affected by the proceedings. The factors that should be reckoned in
determining whether or not to allow intervention are whether intervention will
unduly delay or prejudice the adjudication of the rights of the original parties and
whether the intervenors rights may be fully protected in a separate proceeding. A
49
motion to intervene may be entertained or allowed even if filed after judgment was
rendered by the trial court, especially in cases where the intervenors are
50
indispensable parties. Parties may be added by order of the court on motion of
the party or on its own initiative at any stage of the action and/or at such times as
51
are just.
In this case, it was never contested by complainants that it was Maricalum Mining-
not G Holdings-who executed several sets of memorandum of agreement with the
manpower cooperatives. The contractual connection between Maricalum Mining
and the manpower cooperatives is crucial to the determination of labor-related
liabilities especially when it involves a labor-only contracting arrangement.
Accordingly, Maricalum Mining will eventually be held solidarily liable with the
manpower cooperatives. In other words, it stands to be injured by the
incontrovertible fact that it entered into a labor-only arrangement with the
manpower cooperatives. Thus, Maricalum Mining is an indispensable party and
52
worthy of being allowed to intervene in this case.
In order to properly analyze G Holdings's role in the instant dispute, the Court must
discuss its peculiar relationship (or lack thereof) with Maricalum Mining and Sipalay
Hospital.
G Holdings and Maricalum Mining
The doctrine of piercing the corporate veil applies only in three (3) basic areas,
namely: (a) defeat of public convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; (b) fraud cases or when the
corporate entity is used to justify a wrong, protect fraud, or defend a crime; or (c)
alter ego cases, where a corporation is merely a farce since it is a mere alter ego
or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality,
53
agency, conduit or adjunct of another corporation. This principle is basically
54
applied only to determine established liability. However, piercing of the veil of
55
corporate fiction is frowned upon and must be done with caution. This is
because a corporation is 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.
56
as a separate entity; unless the facts show that such separate corporate
existence is a mere sham, or has been used as an instrument for concealing
69
the truth.
In the case at bench, complainants mainly harp their cause on the alter ego theory.
Under this theory, piercing the veil of corporate fiction may be allowed only if the
following elements concur:
1) Control-not mere stock control, but complete domination-not only of finances,
but of policy and business practice in respect to the transaction attacked, must
have been such that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;

57 58
A parent or holding company is a corporation which owns or is organized to
59
own a substantial portion of another company's voting shares of stock enough to
60
control or influence the latter's management, policies or affairs thru election of the
latter's board of directors or otherwise. However, the term "holding company" is
customarily used interchangeably with the term "investment company" which, in
61
turn, is defined by Section 4 (a) of Republic Act (R.A.) No. 2629 as "any issuer
(corporation) which is or holds itself out as being engaged primarily, or proposes to
engage primarily, in the business of investing, reinvesting, or trading in securities."
In other words, a "holding company" is organized and is basically conducting its
62
business by investing substantially in the equity securities of another company for
the purposes of controlling their policies (as opposed to directly engaging in
operating activities) and "holding" them in a conglomerate or umbrella structure
along with other subsidiaries. Significantly, the holding company itself-being a
separate entity-does not own the assets of and does not answer for the liabilities of
63 64
the subsidiary or affiliate. The management of the subsidiary or affiliate still
rests in the hands of its own board of directors and corporate officers. It is in
keeping with the basic rule a corporation is a juridical entity which is vested with a
legal personality separate and distinct from those acting for and in its behalf and, in
65
general, from the people comprising it. The corporate form was created to allow
shareholders to invest without incurring personal liability for the acts of the
corporation.
66
While the veil of corporate fiction may be pierced under certain instances, mere
ownership of a subsidiary does not justify the imposition of liability on the parent
67
company. It must further appear that to recognize a parent and a subsidiary
68
as separate entities would aid in the consummation of a wrong. Thus, a
holding corporation has a separate corporate existence and is to be treated
2) Such control must have been used by the defendant to commit a fraud or a
wrong, to perpetuate the violation of a statutory or other positive legal duty, or a
dishonest and an unjust act in contravention of plaintiffs legal right; and
3) The said control and breach of duty must have proximately caused the injury or
70
unjust loss complained of.
The elements of the alter ego theory were discussed in Philippine National Bank v.
71
Hydro Resources Contractors Corporation, to wit:
The first prong is the "instrumentality" or "control" test. This test requires that
the subsidiary be completely under the control and domination of the parent. It
examines the parent corporation's relationship with the subsidiary. It inquires
whether a subsidiary corporation is so organized and controlled and its affairs are
so conducted as to make it a mere instrumentality or agent of the parent
corporation such that its separate existence as a distinct corporate entity will be
ignored. It seeks to establish whether the subsidiary corporation has no autonomy
and the parent corporation, though acting through the subsidiary in form and
appearance, "is operating the business directly for itself."
The second prong is the "fraud" test. This test requires that the parent
corporation's conduct in using the subsidiary corporation be unjust, fraudulent or
wrongful. It examines the relationship of the plaintiff to the corporation. It
recognizes that piercing is appropriate only if the parent corporation uses the
subsidiary in a way that harms the plaintiff creditor. As such, it requires a showing
of "an element of injustice or fundamental unfairness."

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The third prong is the "harm" test. This test requires the plaintiff to show that the 1) The parent corporation owns all or most of the capital stock of the subsidiary;
defendant's control, exerted in a fraudulent, illegal or otherwise unfair manner
toward it, caused the harm suffered. A causal connection between the fraudulent 2) The parent and subsidiary corporations have common directors or officers;
conduct committed through the instrumentality of the subsidiary and the injury
suffered or the damage incurred by the plaintiff should be established. The plaintiff
must prove that, unless the corporate veil is pierced, it will have been treated 3) The parent corporation finances the subsidiary;
unjustly by the defendant's exercise of control and improper use of the corporate
form and, thereby, suffer damages. 4) The parent corporation subscribes to all the capital stock of the subsidiary or
otherwise causes its incorporation;
To summarize, piercing the corporate veil based on the alter ego theory requires
the concurrence of three elements: control of the corporation by the stockholder 5) The subsidiary has grossly inadequate capital;
or parent corporation, fraud or fundamental unfairness imposed on the plaintiff, and
harm or damage caused to the plaintiff by the fraudulent or unfair act of the 6) The parent corporation pays the salaries and other expenses or losses of
corporation. The absence of any of these elements prevents piercing the the subsidiary;
corporate veil. (emphases and underscoring supplied)

Again, all these three elements must concur before the corporate veil may be
pierced under the alter ego theory. Keeping in mind the parameters, guidelines and
indicators for proper piercing of the corporate veil, the Court now proceeds to
determine whether Maricalum Mining's corporate veil may be pierced in order to
allow complainants to enforce their monetary awards against G Holdings.
I. Control or Instrumentality Test
72
In Concept Builders, Inc. v. National Labor Relations Commission, et al., the
Court first laid down the first set of probative factors of identity that will justify the
application of the doctrine of piercing the corporate veil, viz:
7) The subsidiary has substantially no business except with the parent corporation
or no assets except those conveyed to or by the parent corporation;
8) In the papers of the parent corporation or in the statements of its officers, the
subsidiary is described as a department or division of the parent corporation, or its
business or financial responsibility is referred to as the parent corporation's own;
9) The parent corporation uses the property of the subsidiary as its own;
10) The directors or executives of the subsidiary do not act independently in the
interest of the subsidiary but take their orders from the parent corporation; and

1) Stock ownership by one or common ownership of both corporations. 11) The formal legal requirements of the subsidiary are not observed.

2) Identity of directors and officers. In the instant case, there is no doubt that G Holdings-being the majority and
controlling stockholder-had been exercising significant control over Maricalum
Mining. This is because this Court had already upheld the validity and
3) The manner of keeping corporate books and records. enforceability of the PSA between the APT and G Holdings. It was stipulated in the
PSA that APT shall transfer 90% of Mari cal um Mining's equity securities to G
4) Methods of conducting the business. Holdings and it establishes the presence of absolute control of a subsidiary's
corporate affairs. Moreover, the Court evinces its observation that Maricalum
73
Later, in Philippine National Bank v. Ritratto Group Inc., et al., the Court Mining's corporate name appearing on the heading of the cash vouchers issued in
expanded the aforementioned probative factors and enumerated a combination of payment of the services rendered by the manpower cooperatives is being
any of the following common circumstances that may also render a subsidiary an superimposed with G Holding's corporate name. Due to this observation, it can be
instrumentality, to wit: reasonably inferred that G Holdings is paying for Mari cal um Mining's salary

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expenses. Hence, the presence of both circumstances of dominant equity 8) Failure to adequately capitalize a corporation for the reasonable risks of the
ownership and provision for salary expenses may adequately establish that corporate undertaking;
Maricalum Mining is an instrumentality of G Holdings.
9) Absence of separately held corporate assets;
However, mere presence of control and full ownership of a parent over a
subsidiary is not enough to pierce the veil of corporate fiction. It has been 10) Use of a corporation as a mere shell or conduit to operate a single venture or
reiterated by this Court time and again that mere ownership by a single some particular aspect of the business of an individual or another corporation;
stockholder or by another corporation of all or nearly all of the capital stock
of a corporation is not of itself sufficient ground for disregarding the
separate corporate personality.
74 11) Sole ownership of all the stock by one individual or members of a single family;

II. Fraud Test
The corporate veil may be lifted only if it has been used to shield fraud, defend
crime, justify a wrong, defeat public convenience, insulate bad faith or perpetuate
75
injustice. To aid in the determination of the presence or absence of fraud, the
76
following factors in the "Totality of Circumstances Test" may be considered, viz:
1) Commingling of funds and other assets of the corporation with those of
the individual shareholders;
2) Diversion of the corporation's funds or assets to non-corporate uses (to the
personal uses of the corporation's shareholders);
3) Failure to maintain the corporate formalities necessary for the issuance of or
subscription to the corporation's stock, such as formal approval of the stock issue
by the board of directors;
4) An individual shareholder representing to persons outside the corporation that
he or she is personally liable for the debts or other obligations of the corporation;
5) Failure to maintain corporate minutes or adequate corporate records;
12) Use of the same office or business location by the corporation and its
individual shareholder(s);
13) Employment of the same employees or attorney by the corporation and its
shareholder(s);
14) Concealment or misrepresentation of the identity of the ownership,
management or financial interests in the corporation, and concealment of personal
business activities of the shareholders (sole shareholders do not reveal the
association with a corporation, which makes loans to them without adequate
security);
15) Disregard of legal formalities and failure to maintain proper arm's length
relationships among related entities;
16) Use of a corporate entity as a conduit to procure labor, services or
merchandise for another person or entity;
17) Diversion of corporate assets from the corporation by or to a stockholder
or other person or entity to the detriment of creditors, or the manipulation of
assets and liabilities between entities to concentrate the assets in one and
the liabilities in another;

6) Identical equitable ownership in two entities;
7) Identity of the directors and officers of two entities who are responsible for
supervision and management (a partnership or sole proprietorship and a
corporation owned and managed by the same parties);
18) Contracting by the corporation with another person with the intent to
avoid the risk of nonperformance by use of the corporate entity; or the use of
a corporation as a subterfuge for illegal transactions; and
19) The formation and use of the corporation to assume the existing liabilities of
another person or entity.

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Aside from the aforementioned circumstances, it must be determined whether the
transfer of assets from Maricalum Mining to G Holdings is enough to invoke the
equitable remedy of piercing the corporate veil. The same issue was resolved in Y-
77
1 Leisure Phils., Inc., et al. v. Yu where this Court applied the "Nell
78
Doctrine" regarding the transfer of all the assets of one corporation to
another. It was discussed in that case that as a general rule that where one
corporation sells or otherwise transfers all of its assets to another corporation, the
latter is not liable for the debts and liabilities of the transferor, except:
1) Where the purchaser expressly or impliedly agrees to assume such debts;
2) Where the transaction amounts to a consolidation or merger of the corporations;
3) Where the purchasing corporation is merely a continuation of the selling
corporation; and
4) Where the transaction is entered into fraudulently in order to escape
liability for such debts.
If any of the above-cited exceptions are present, then the transferee corporation
79
shall assume the liabilities of the transferor.
In this case, G Holdings cannot be held liable for the satisfaction of labor-related
claims against Maricalum Mining under the fraud test for the following reasons:
First, the transfer of some Maricalum Mining's assets in favor G Holdings was by
virtue of the PSA as part of an official measure to dispose of the government's non-
performing assets-not to evade its monetary obligations to the complainants. Even
before complainants' monetary claims supposedly existed in 2007, some of
Maricalum Mining's assets had already been validly extrajudicially foreclosed and
eventually sold to G Holdings in 2001. Thus, G Holdings could not have devised a
scheme to avoid a non-existent obligation. No fraud could be attributed to G
Holdings because the transfer of assets was pursuant to a previously perfected
valid contract.
Settled is the rule that where one corporation sells or otherwise transfers all its
assets to another corporation for value, the latter is not, by that fact alone, liable for
80
the debts and liabilities of the transferor. In other words, control or ownership of
substantially all of a subsidiary's assets is not by itself an indication of a holding
company's fraudulent intent to alienate these assets in evading labor-related
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claims or liabilities. As discussed earlier, the PSA was not designed to evade the
monetary claims of the complainants. Although there was proof that G Holdings
has an office in Maricalum Mining's premises and that that some of their assets
have been commingled due to the PSA's unavoidable consequences, there was no
fraudulent diversion of corporate assets to another corporation for the sole purpose
of evading complainants' claim.
Besides, it is evident that the alleged continuing depletion of Maricalum Mining's
assets is due to its disgruntled employees' own acts of pilferage, which was
beyond the control of G Holdings. More so, complainants also failed to present any
clear and convincing evidence that G Holdings was grossly negligent and failed to
exercise the required degree of diligence in ensuring that Maricalum Mining's
81
assets would be protected from pilferage. Hence, no fraud can be imputed
against G Holdings considering that there is no evidence in the records that
establishes it systematically tried to alienate Maricalum Mining's assets to escape
the liabilities to complainants.
Second, it was not proven that all of Maricalum Mining's assets were transferred to
G Holdings or were totally depleted. Complainants never offered any evidence to
establish that Maricalum Mining had absolutely no substantial assets to cover for
their monetary claims. Their allegation that their claims will be reduced to a mere
"paper victory" has not confirmed with concrete proof. At the very least, substantial
evidence should be adduced that the subsidiary company's "net realizable
82 83 84 85
value" of "current assets" and "fair value" of "non-current assets" are
collectively insufficient to cover the whole amount of its liability subject in the
instant litigation.
Third, G Holdings purchased Mari cal um Mining's shares from the APT not for the
purpose of continuing the latter's existence and operations but for the purpose of
investing in the mining industry without having to directly engage in the
management and operation of mining. As discussed earlier, a holding company's
primary business is merely to invest in the equity of another corporation for the
purpose of earning from the latter's endeavors. It generally does not undertake to
engage in the daily operating activities of its subsidiaries that, in turn, have their
own separate sets of directors and officers. Thus, there should be proof that a
holding company had indeed fraudulently used the separate corporate personality
of its subsidiary to evade an obligation before it can be held liable. Since G
Holdings is a holding company, the corporate veil of its subsidiaries may only be
pierced based on fraud or gross negligence amounting to bad faith.
Lastly, no clear and convincing evidence was presented by the complainants to
conclusively prove the presence of fraud on the part of G Holdings. Although the

quantum of evidence needed to establish a claim for illegal dismissal in labor
86
cases is substantial evidence, the quantum need to establish the presence of
87
fraud is clear and convincing evidence. Thus, to disregard the separate juridical
personality of a corporation, the wrongdoing must be established clearly and
88
convincingly-it cannot be presumed.
Here, the complainants did not satisfy the requisite quantum of evidence to prove
fraud on the part of G Holdings. They merely offered allegations and suppositions
that, since Maricalum Mining's assets appear to be continuously depleting and that
the same corporation is a subsidiary, G Holdings could have been guilty of fraud.
As emphasized earlier, bare allegations do not prove anything. There must be
proof that fraud-not the inevitable effects of a previously executed and valid
contract such as the PSA-was the cause of the latter's total asset depletion. To be
clear, the presence of control per se is not enough to justify the piercing of the
corporate veil.
III. Harm or Casual Connection Test
89
In WPM International Trading, Inc., et al. v. Labayen, the Court laid down the
criteria for the harm or casual connection test, to wit:
In this connection, we stress that the control necessary to invoke the
instrumentality or alter ego 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. 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. (emphases and underscoring supplied)
Proximate cause is defined as that cause, which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the injury, and
90
without which the result would not have occurred. More comprehensively, the
proximate legal cause is that "acting first and producing the injury, either
immediately or by setting other events in motion, all constituting a natural and
continuous chain of events, each having a close causal connection with its
immediate predecessor, the final event in the chain immediately effecting the injury
as a natural and probable result of the cause which first acted, under such
circumstances that the person responsible for the first event should, as an ordinary
prudent and intelligent person, have reasonable ground to expect at the moment of
his act or default that an injury to some person might probably result
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therefrom." Hence, for an act or event to be considered as proximate legal cause,
it should be shown that such act or event had indeed caused injury to another.
In the case at bench, complainants have not yet even suffered any monetary
injury. They have yet to enforce their claims against Maricalum Mining. It is
apparent that complainants are merely anxious that their monetary awards will not
be satisfied because the assets of Maricalum Mining were allegedly transferred
surreptitiously to G Holdings. However, as discussed earlier, since complainants
failed to show that G Holdings's mere exercise of control had a clear hand in the
depletion of Maricalum Mining's assets, no proximate cause was successfully
established. The transfer of assets was pursuant to a valid and legal PSA between
G Holdings and APT.
Accordingly, complainants failed to satisfy the second and third tests to justify the
application of the alter ego theory. This inevitably shows that the CA committed no
reversible error in upholding the NLRC's Decision declaring Maricalum Mining as
the proper party liable to pay the monetary awards in favor of complainants.
G Holdings and Sipalay Hospital
Sipalay Hospital was incorporated by Romulo G. Zafra, Eleanore B. Gutierrez,
Helen Grace B. Fernandez, Evelyn B. Badajos and Helen Grace L.
92
Arbolario. However, there is absence of indication that G Holdings subsequently
acquired the controlling interests of Sipalay Hospital. There is also no evidence
that G Holdings entered into a contract with Sipalay Hospital to provide medical
services for its officers and employees. This lack of stockholding or contractual
93
connection signifies that Sipalay Hospital is not affiliated with G Holdings. Thus,
due to this absence of affiliation, the Court must apply the tests used to determine
the existence of an employee-employer relationship; rather than piercing the
corporate veil.
Under the four-fold test, the employer-employee relationship is determined if the
following are present: a) the selection and engagement of the employee; b) the
payment of wages; c) the power of dismissal; and d) the power to control the
94
employee's conduct, or the so-called "control test." Here, the "control test" is the
95
most important and crucial among the four tests. However, in cases where there
is no written agreement to base the relationship on and where the various tasks
performed by the worker bring complexity to the relationship with the employer, the
better approach would therefore be to adopt a two-tiered test involving: a) the
putative employer's power to control the employee with respect to the means and

methods by which the work is to be accomplished; and b) the underlying economic
96
realities of the activity or relationship.
In applying the second tier, the determination of the relationship between employer
and employee depends upon the circumstances of the whole economic activity
(economic reality or multi-factor test), such as: a) the extent to which the
services performed are an integral part of the employer's business; b) the extent of
the worker's investment in equipment and facilities; c) the nature and degree of
control exercised by the employer; d) the worker's opportunity for profit and loss; e)
the amount of initiative, skill, judgment or foresight required for the success of the
claimed independent enterprise; f) the permanency and duration of the relationship
between the worker and the employer; and g) the degree of dependency of the
worker upon the employer for his continued employment in that line of
97
business. Under all of these tests, the burden to prove by substantial evidence
all of the elements or factors is incumbent on the employee for he or she is the one
98
claiming the existence of an employment relationship.
In light of the present circumstances, the Court must apply the four-fold test for
lack of relevant data in the case records relating to the underlying economic
realities of the activity or relationship of Sipalay Hospital's employees.
To prove the existence of their employment relationship with G Holdings,
complainants Dr. Welilmo T. Neri, Erlinda L. Fernandez, Edgar M. Sobrino and
Wilfredo C. Taganile, Sr. presented the following documents:
99
1) Affidavit of Dr. Welilmo T. Neri attesting among others that he was the Medical
Director of Sipalay Hospital which is allegedly owned and operated by G
Holdings/Maricalum Mining;
2) Several cash vouchers
100
issued by G Holdings!Maricalum Mining representing
Dr. Welilmo T. Neri's payment for services rendered to "various" personnel;
101
3) Schedules of social security premium payments in favor of Dr. Welilmo T.
Neri, Edgar M. Sobrino and Wilfredo C. Taganile, Sr. stamped paid by G Holdings;
102
4) Notice of termination dated July 3, 2010 issued by Rolando G. Degojas (OIC
of G-Holdings Inc.) issued to Dr. Welilmo T. Neri and some of his companions who
are not complainants in this case;
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103
5) Notice of termination addressed to Dr. Welilmo T. Neri, Erlinda L. Fernandez,
Edgar M. Sobrino and some of their co-employees who are not complainants in
this case with a collatilla stating that the services of Dr. Welilmo T. Neri and nurse
Erlinda L. Fernandez will be engaged on per call basis; and
6) A "Statement of Unpaid Salaries of Employees of G Holdings, Inc. Assigned to
104
the Sipalay General Hospital" prepared by Dr. Welilmo T. Neri which included
his own along with complainants Erlinda L. Fernandez, Wilfredo C. Taganile, [Sr.]
and Edgar M. [Sobrino].
A perusal of the aforementioned documents fails to show that the services of
complainants Dr. Welilmo T. Neri, Erlinda L. Fernandez, Edgar M. Sobrino and
Wilfredo C. Taganile, Sr. were indeed selected and engaged by either Maricalum
Mining or G Holdings. This gap in evidence clearly shows that the first factor
of the four-fold test, or the selection and engagement of the employee, was
not satisfied and not supported by substantial evidence.
However, the same cannot be said as to the second and third factors of the four-
fold test (the payment of wages and the power of dismissal). Since substantial
evidence is defined as that amount of relevant evidence which a reasonable mind
105
might accept as adequate to justify a conclusion, the cash vouchers, social
security payments and notices of termination are reasonable enough to draw an
inference that G Holdings and Maricalum Mining may have had a hand in the
complainants' payment of salaries and dismissal.
Notwithstanding the absence of the first factor and the presence of the second and
third factors of the four-fold test, the Court still deems it best to examine the fourth
factor-the presence of control-in order to determine the employment connection of
complainants Dr. Welilmo T. Neri, Erlinda L. Fernandez, Edgar M. Sobrino and
Wilfredo C. Taganile, Sr. with G Holdings.
Under the control test, an employer-employee relationship exists where the person
for whom the services are performed reserves the right to control not only the end
106
achieved, but also the manner and means to be used in reaching that end. As
applied in the healthcare industry, an employment relationship exists between a
physician and a hospital if the hospital controls both the means and the details of
the process by which the physician is to accomplish his task.
107
But where a
person who works for another performs his job more or less at his own pleasure, in
the manner he sees fit, not subject to definite hours or conditions of work, and is
compensated according to the result of his efforts and not the amount thereof, no
108
employer-employee relationship exists.
A corporation may only exercise its powers within the definitions provided by law
109
and its articles of incorporation. Accordingly, in order to determine the presence
or absence of an employment relationship between G Holdings and the employees
of Sipalay Hospital by using the control test, the Court deems it essential to
examine the salient portion of Sipalay Hospital's Articles of Incorporation imparting
110
its 'primary purpose,' to wit:
To own, manage, lease or operate hospitals or clinics offering and providing
medical services and facilities to the general public, provided that purely
professional, medical or surgical services shall be performed by duly qualified
physicians or surgeons who may or may not be connected with the
corporation and who shall be freely and individually contracted by patients.
(emphasis supplied)
It is immediately apparent that Sipalay Hospital, even if its facilities are located
inside the Sipalay Mining Complex, does not limit its medical services only to the
employees and officers of Maricalum Mining and/or G Holdings. Its act of holding
out services to the public reinforces the fact of its independence from either
Maricalum Mining or G Holdings because it is free to deal with any client without
any legal or contractual restriction. Moreover, G Holdings is a holding company
primarily engaged in investing substantially in the stocks of another company-not in
directing and managing the latter's daily business operations. Because of this
corporate attribute, the Court can reasonably draw an inference that G
Holdings does not have a considerable ability to control means and methods
of work of Sipalay Hospital employees. Markedly, the records are simply bereft
of any evidence that G Holdings had, in fact, used its ownership to control the daily
operations of Sipalay Hospital as well as the working methods of the latter's
employees. There is no evidence showing any subsequent transfer of shares from
the original incorporators of Sipalay Hospital to G Holdings. Worse, it appears that
complainants Dr. Welilmo T. Neri, Erlinda L. Fernandez, Wilfredo C. Taganile, Sr.
and Edgar M. Sobrino are trying to derive their employment connection with G
Holdings merely on an assumed premise that the latter owns the controlling stocks
of Maricalum Mining.
On this score, the CA committed no reversible error in allowing the NLRC to delete
the monetary awards of Dr. Welilmo T. Neri, Erlinda L. Fernandez, Wilfredo C.
Taganile, Sr. and Edgar M. Sobrino imposed by the Labor Arbiter against G
Holdings.
Conclusion
A holding company may be held liable for the acts of its subsidiary only when it is
adequately proven that: a) there was control over the subsidiary; (b) such control
was used to protect a fraud (or gross negligence amounting to bad faith) or evade
an obligation; and c) fraud was the proximate cause of another's existing injury.
Further, an employee is duly-burdened to prove the crucial test or factor of control
thru substantial evidence in order to establish the existence of an employment
relationship-especially as against an unaffiliated corporation alleged to be
exercising control.
In this case, complainants have not successfully proven that G Holdings
fraudulently exercised its control over Maricalum Mining to fraudulently evade any
obligation. They also fell short of proving that G Holdings had exercised
operational control over the employees of Sipalay Hospital. Due to these findings,
the Court sees no reversible error on the part of the CA, which found no grave
abuse of discretion and affirmed in toto the factual findings and legal conclusions
of the NLRC.
WHEREFORE, the Court AFFIRMS in toto the October 29, 2014 Decision of the
Court of Appeals in CA-G.R. SP No. 06835.
No pronouncement as to costs.
EN BANC
G.R. No. L-13203 January 28, 1961
YUTIVO SONS HARDWARE COMPANY, petitioner,
vs.
COURT OF TAX APPEALS and COLLECTOR OF INTERNAL
REVENUE, respondents.
Sycip, Quisumbing, Salazar & Associates for petitioner.
Office of the Solicitor General for respondents.
GUTIERREZ DAVID, J.:
This is a petition for review of a decision of the Court of Tax Appeals ordering
petitioner to pay to respondent Collector of Internal Revenue the sum of

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P1,266,176.73 as sales tax deficiency for the third quarter of 1947 to the fourth
quarter of 1950; inclusive, plus 75% surcharge thereon, equivalent to P349,632.54,
or a sum total of P2,215,809.27, plus costs of the suit.
From the stipulation of facts and the evidence adduced by both parties, it appears
that petitioner Yutivo Sons Hardware Co. (hereafter referred to as Yutivo) is a
domestic corporation, organized under the laws of the Philippines, with principal
office at 404 Dasmariñas St., Manila. Incorporated in 1916, it was engaged, prior to
the last world war, in the importation and sale of hardware supplies and equipment.
After the liberation, it resumed its business and until June of 1946 bought a
number of cars and trucks from General Motors Overseas Corporation (hereafter
referred to as GM for short), an American corporation licensed to do business in
the Philippines. As importer, GM paid sales tax prescribed by sections 184, 185
and 186 of the Tax Code on the basis of its selling price to Yutivo. Said tax being
collected only once on original sales, Yutivo paid no further sales tax on its sales to
the public.
On June 13, 1946, the Southern Motors, Inc. (hereafter referred to as SM) was
organized to engage in the business of selling cars, trucks and spare parts. Its
original authorized capital stock was P1,000,000 divided into 10,000 shares with a
par value of P100 each.
At the time of its incorporation 2,500 shares worth P250,000 appear to have been
subscribed into equal proportions by Yu Khe Thai, Yu Khe Siong, Hu Kho Jin, Yu
Eng Poh, and Washington Sycip. The first three named subscribers are brothers,
being sons of Yu Tiong Yee, one of Yutivo's founders. The latter two are
respectively sons of Yu Tiong Sin and Albino Sycip, who are among the founders
of Yutivo.
After the incorporation of SM and until the withdrawal of GM from the Philippines in
the middle of 1947, the cars and tracks purchased by Yutivo from GM were sold by
Yutivo to SM which, in turn, sold them to the public in the Visayas and Mindanao.
When GM decided to withdraw from the Philippines in the middle of 1947, the U.S.
manufacturer of GM cars and trucks appointed Yutivo as importer for the Visayas
and Mindanao, and Yutivo continued its previous arrangement of selling
exclusively to SM. In the same way that GM used to pay sales taxes based on its
sales to Yutivo, the latter, as importer, paid sales tax prescribed on the basis of its
selling price to SM, and since such sales tax, as already stated, is collected only
once on original sales, SM paid no sales tax on its sales to the public.
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On November 7, 1950, after several months of investigation by revenue officers
started in July, 1948, the Collector of Internal Revenue made an assessment upon
Yutivo and demanded from the latter P1,804,769.85 as deficiency sales tax plus
surcharge covering the period from the third quarter of 1947 to the fourth quarter of
1949; or from July 1, 1947 to December 31, 1949, claiming that the taxable sales
were the retail sales by SM to the public and not the sales at wholesale made by,
Yutivo to the latter inasmuch as SM and Yutivo were one and the same
corporation, the former being the subsidiary of the latter.
The assessment was disputed by the petitioner, and a reinvestigation of the case
having been made by the agents of the Bureau of Internal Revenue, the
respondent Collector in his letter dated November 15, 1952 countermanded his
demand for sales tax deficiency on the ground that "after several investigations
conducted into the matter no sufficient evidence could be gathered to sustain the
assessment of this Office based on the theory that Southern Motors is a mere
instrumentality or subsidiary of Yutivo." The withdrawal was subject, however, to
the general power of review by the now defunct Board of Tax Appeals. The
Secretary of Finance to whom the papers relative to the case were endorsed,
apparently not agreeing with the withdrawal of the assessment, returned them to
the respondent Collector for reinvestigation.
After another investigation, the respondent Collector, in a letter to petitioner dated
December 16, 1954, redetermined that the aforementioned tax assessment was
lawfully due the government and in addition assessed deficiency sales tax due
from petitioner for the four quarters of 1950; the respondents' last demand was in
the total sum of P2,215,809.27 detailed as follows:
Deficiency 75% Total Amo
Sales Tax Surcharge Due
Assessment (First) of November 7, 1950 for
deficiency sales Tax for the period from 3rd Qrtr
1947 to 4th Qrtr 1949 inclusive P1,031,296.60 P773,473.45 P1,804,769
Additional Assessment for period from 1st to 4th
Qrtr 1950, inclusive 234,880.13 176,160.09 411,040
Total amount demanded per letter of December
16, 1954 P1,266,176.73 P949,632.54 P2,215,809
This second assessment was contested by the petitioner Yutivo before the Court of
Tax Appeals, alleging that there is no valid ground to disregard the corporate
personality of SM and to hold that it is an adjunct of petitioner Yutivo; (2) that
assuming the separate personality of SM may be disregarded, the sales tax
already paid by Yutivo should first be deducted from the selling price of SM in
computing the sales tax due on each vehicle; and (3) that the surcharge has been
erroneously imposed by respondent. Finding against Yutivo and sustaining the
respondent Collector's theory that there was no legitimate or bona fide purpose in
the organization of SM — the apparent objective of its organization being to evade
the payment of taxes — and that it was owned (or the majority of the stocks thereof
are owned) and controlled by Yutivo and is a mere subsidiary, branch, adjunct,
conduit, instrumentality or alter ego of the latter, the Court of Tax Appeals — with
Judge Roman Umali not taking part — disregarded its separate corporate
existence and on April 27, 1957, rendered the decision now complained of. Of the
two Judges who signed the decision, one voted for the modification of the
computation of the sales tax as determined by the respondent Collector in his
decision so as to give allowance for the reduction of the tax already paid (resulting
in the reduction of the assessment to P820,509.91 exclusive of surcharges), while
the other voted for affirmance. The dispositive part of the decision, however,
affirmed the assessment made by the Collector. Reconsideration of this decision
having been denied, Yutivo brought the case to this Court thru the present petition
for review.
It is an elementary and fundamental principle of corporation law that a corporation
is an entity separate and distinct from its stockholders and from other corporation
petitions to which it may be connected. However, "when the notion of legal entity is
used to defeat public convenience, justify wrong, protect fraud, or defend crime,"
the law will regard the corporation as an association of persons, or in the case of
two corporations merge them into one. (Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 496,
citing I Fletcher Cyclopedia of Corporation, Perm Ed., pp. 135 136; United States
vs. Milwaukee Refrigeration Transit Co., 142 Fed., 247, 255 per Sanborn, J.)
Another rule is that, when the corporation is the "mere alter ego or business
conduit of a person, it may be disregarded." (Koppel [Phil.], Inc. vs. Yatco, supra.)
After going over the voluminous record of the present case, we are inclined to rule
that the Court of Tax Appeals was not justified in finding that SM was organized for
no other purpose than to defraud the Government of its lawful revenues. In the first
place, this corporation was organized in June, 1946 when it could not have caused
Yutivo any tax savings. From that date up to June 30, 1947, or a period of more
than one year, GM was the importer of the cars and trucks sold to Yutivo, which, in
turn resold them to SM. During that period, it is not disputed that GM as importer,
was the one solely liable for sales taxes. Neither Yutivo or SM was subject to the
sales taxes on their sales of cars and trucks. The sales tax liability of Yutivo did not
arise until July 1, 1947 when it became the importer and simply continued its
practice of selling to SM. The decision, therefore, of the Tax Court that SM was
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organized purposely as a tax evasion device runs counter to the fact that there was
no tax to evade.
Making the observation from a newspaper clipping (Exh. "T") that "as early as 1945
it was known that GM was preparing to leave the Philippines and terminate its
business of importing vehicles," the court below speculated that Yutivo anticipated
the withdrawal of GM from business in the Philippines in June, 1947. This
observation, which was made only in the resolution on the motion for
reconsideration, however, finds no basis in the record. On the other hand, GM had
been an importer of cars in the Philippines even before the war and had but
recently resumed its operation in the Philippines in 1946 under an ambitious plan
to expand its operation by establishing an assembly plant here, so that it could not
have been expected to make so drastic a turnabout of not merely abandoning the
assembly plant project but also totally ceasing to do business as an importer.
Moreover, the newspaper clipping, Exh. "T", was published on March 24, 1947,
and clipping, merely reported a rumored plan that GM would abandon the
assembly plant project in the Philippines. There was no mention of the cessation of
business by GM which must not be confused with the abandonment of the
assembly plant project. Even as respect the assembly plant, the newspaper
clipping was quite explicit in saying that the Acting Manager refused to confirm that
rumor as late as March 24, 1947, almost a year after SM was organized.
At this juncture, it should be stated that the intention to minimize taxes, when used
in the context of fraud, must be proved to exist by clear and convincing evidence
amounting to more than mere preponderance, and cannot be justified by a mere
speculation. This is because fraud is never lightly to be presumed. (Vitelli & Sons
vs. U.S 250 U.S. 355; Duffin vs. Lucas, 55 F (2d) 786; Budd vs. Commr., 43 F (2d)
509; Maryland Casualty Co. vs. Palmette Coal Co., 40 F (2d) 374; Schoonfield
Bros., Inc. vs. Commr., 38 BTA 943; Charles Heiss vs. Commr 36 BTA 833;
Kerbaugh vs. Commr 74 F (2d) 749; Maddas vs. Commr., 114 F. (2d) 548; Moore
vs. Commr., 37 BTA 378; National City Bank of New York vs. Commr., 98 (2d) 93;
Richard vs. Commr., 15 BTA 316; Rea Gane vs. Commr., 19 BTA 518). (See also
Balter, Fraud Under Federal Law, pp. 301-302, citing numerous authorities: Arroyo
vs. Granada, et al., 18 Phil. 484.) Fraud is never imputed and the courts never
sustain findings of fraud upon circumstances which, at the most, create only
suspicion. (Haygood Lumber & Mining Co. vs. Commr., 178 F (2d) 769; Dalone vs.
Commr., 100 F (2d) 507).
In the second place, SM was organized and it operated, under circumstance that
belied any intention to evade sales taxes. "Tax evasion" is a term that connotes
fraud thru the use of pretenses and forbidden devices to lessen or defeat taxes.
The transactions between Yutivo and SM, however, have always been in the open,
embodied in private and public documents, constantly subject to inspection by the
tax authorities. As a matter of fact, after Yutivo became the importer of GM cars
and trucks for Visayas and Mindanao, it merely continued the method of
distribution that it had initiated long before GM withdrew from the Philippines.
On the other hand, if tax saving was the only justification for the organization of
SM, such justification certainly ceased with the passage of Republic Act No. 594
on February 16, 1951, governing payment of advance sales tax by the importer
based on the landed cost of the imported article, increased by mark-ups of 25%,
50%, and 100%, depending on whether the imported article is taxed under
sections 186, 185 and 184, respectively, of the Tax Code. Under Republic Act No.
594, the amount at which the article is sold is immaterial to the amount of the sales
tax. And yet after the passage of that Act, SM continued to exist up to the present
and operates as it did many years past in the promotion and pursuit of the
business purposes for which it was organized.
In the third place, sections 184 to 186 of the said Code provides that the sales tax
shall be collected "once only on every original sale, barter, exchange . . , to be paid
by the manufacturer, producer or importer." The use of the word "original" and the
express provision that the tax was collectible "once only" evidently has made the
provisions susceptible of different interpretations. In this connection, it should be
stated that a taxpayer has the legal right to decrease the amount of what otherwise
would be his taxes or altogether avoid them by means which the law permits. (U.S.
vs. Isham 17 Wall. 496, 506; Gregory vs. Helvering 293 U.S. 465, 469; Commr. vs.
Tower, 327 U.S. 280; Lawton vs. Commr 194 F (2d) 380). Any legal means by the
taxpayer to reduce taxes are all right Benry vs. Commr. 25 T. Cl. 78). A man may,
therefore, perform an act that he honestly believes to be sufficient to exempt him
from taxes. He does not incur fraud thereby even if the act is thereafter found to be
insufficient. Thus in the case of Court Holding Co. vs. Commr. 2 T. Cl. 531, it was
held that though an incorrect position in law had been taken by the corporation
there was no suppression of the facts, and a fraud penalty was not justified.
The evidence for the Collector, in our opinion, falls short of the standard of clear
and convincing proof of fraud. As a matter of fact, the respondent Collector himself
showed a great deal of doubt or hesitancy as to the existence of fraud. He even
doubted the validity of his first assessment dated November 7, 1959. It must be
remembered that the fraud which respondent Collector imputed to Yutivo must be
related to its filing of sales tax returns of less taxes than were legally due. The
allegation of fraud, however, cannot be sustained without the showing that Yutivo,
in filing said returns, did so fully knowing that the taxes called for therein called for
therein were less than what were legally due. Considering that respondent
Collector himself with the aid of his legal staff, and after some two years of
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investigation and duty of investigation and study concluded in 1952 that Yutivo's
sales tax returns were correct — only to reverse himself after another two years —
it would seem harsh and unfair for him to say in 1954 that Yutivo fully knew in
October 1947 that its sales tax returns were inaccurate.
On this point, one other consideration would show that the intent to save taxes
could not have existed in the minds of the organizers of SM. The sales tax
imposed, in theory and in practice, is passed on to the vendee, and is usually billed
separately as such in the sales invoice. As pointed out by petitioner Yutivo, had not
SM handled the retail, the additional tax that would have been payable by it, could
have been easily passed off to the consumer, especially since the period covered
by the assessment was a "seller's market" due to the post-war scarcity up to late
1948, and the imposition of controls in the late 1949.
It is true that the arrastre charges constitute expenses of Yutivo and its non-
inclusion in the selling price by Yutivo cost the Government P4.00 per vehicle, but
said non-inclusion was explained to have been due to an inadvertent accounting
omission, and could hardly be considered as proof of willful channelling and
fraudulent evasion of sales tax. Mere understatement of tax in itself does not prove
fraud. (James Nicholson, 32 BTA 377, affirmed 90 F. (2) 978, cited in Merten's
Sec. 55.11 p. 21) The amount involved, moreover, is extremely small inducement
for Yutivo to go thru all the trouble of organizing SM. Besides, the non-inclusion of
these small arrastre charges in the sales tax returns of Yutivo is clearly shown in
the records of Yutivo, which is uncharacteristic of fraud (See Insular Lumber Co.
vs. Collector, G.R. No. L-719, April 28, 1956.)
We are, however, inclined to agree with the court below that SM was actually
owned and controlled by petitioner as to make it a mere subsidiary or branch of the
latter created for the purpose of selling the vehicles at retail and maintaining stores
for spare parts as well as service repair shops. It is not disputed that the petitioner,
which is engaged principally in hardware supplies and equipment, is completely
controlled by the Yutivo, Young or Yu family. The founders of the corporation are
closely related to each other either by blood or affinity, and most of its stockholders
are members of the Yu (Yutivo or Young) family. It is, likewise, admitted that SM
was organized by the leading stockholders of Yutivo headed by Yu Khe Thai. At
the time of its incorporation 2,500 shares worth P250,000.00 appear to have been
subscribed in five equal proportions by Yu Khe Thai, Yu Khe Siong, Yu Khe Jin, Yu
Eng Poh and Washington Sycip. The first three named subscribers are brothers,
being the sons of Yu Tien Yee, one of Yutivo's founders. Yu Eng Poh and
Washington Sycip are respectively sons of Yu Tiong Sing and Alberto Sycip who
are co-founders of Yutivo. According to the Articles of Incorporation of the said
subscriptions, the amount of P62,500 was paid by the aforenamed subscribers, but
actually the said sum was advanced by Yutivo. The additional subscriptions to the
capital stock of SM and subsequent transfers thereof were paid by Yutivo itself.
The payments were made, however, without any transfer of funds from Yutivo to
SM. Yutivo simply charged the accounts of the subscribers for the amount
allegedly advanced by Yutivo in payment of the shares. Whether a charge was to
be made against the accounts of the subscribers or said subscribers were to
subscribe shares appears to constitute a unilateral act on the part of Yutivo, there
being no showing that the former initiated the subscription.
The transactions were made solely by and between SM and Yutivo. In effect, it
was Yutivo who undertook the subscription of shares, employing the persons
named or "charged" with corresponding account as nominal stockholders. Of
course, Yu Khe Thai, Yu Khe Jin, Yu Khe Siong and Yu Eng Poh were manifestly
aware of these subscriptions, but considering that they were the principal officers
and constituted the majority of the Board of Directors of both Yutivo and SM, their
subscriptions could readily or easily be that of Yutivo's Moreover, these persons
were related to death other as brothers or first cousins. There was every reason for
them to agree in order to protect their common interest in Yutivo and SM.
The issued capital stock of SM was increased by additional subscriptions made by
various person's but except Ng Sam Bak and David Sycip, "payments" thereof
were effected by merely debiting 'or charging the accounts of said stockholders
and crediting the corresponding amounts in favor of SM, without actually
transferring cash from Yutivo. Again, in this instance, the "payments" were Yutivo,
by effected by the mere unilateral act of Yutivo a accounts of the virtue of its
control over the individual persons charged, would necessarily exercise
preferential rights and control directly or indirectly, over the shares, it being the
party which really undertook to pay or underwrite payment thereof.
The shareholders in SM are mere nominal stockholders holding the shares for and
in behalf of Yutivo, so even conceding that the original subscribers were
stockholders bona fide Yutivo was at all times in control of the majority of the stock
of SM and that the latter was a mere subsidiary of the former.
True, petitioner and other recorded stockholders transferred their shareholdings,
but the transfers were made to their immediate relatives, either to their respective
spouses and children or sometimes brothers or sisters. Yutivo's shares in SM were
transferred to immediate relatives of persons who constituted its controlling
stockholders, directors and officers. Despite these purported changes in stock
ownership in both corporations, the Board of Directors and officers of both
corporations remained unchanged and Messrs. Yu Khe Thai, Yu Khe Siong Hu
Khe Jin and Yu Eng Poll (all of the Yu or Young family) continued to constitute the
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majority in both boards. All these, as observed by the Court of Tax Appeals, merely
serve to corroborate the fact that there was a common ownership and interest in
the two corporations.
SM is under the management and control of Yutivo by virtue of a management
contract entered into between the two parties. In fact, the controlling majority of the
Board of Directors of Yutivo is also the controlling majority of the Board of Directors
of SM. At the same time the principal officers of both corporations are identical. In
addition both corporations have a common comptroller in the person of Simeon Sy,
who is a brother-in-law of Yutivo's president, Yu Khe Thai. There is therefore no
doubt that by virtue of such control, the business, financial and management
policies of both corporations could be directed towards common ends.
Another aspect relative to Yutivo's control over SM operations relates to its cash
transactions. All cash assets of SM were handled by Yutivo and all cash
transactions of SM were actually maintained thru Yutivo. Any and all receipts of
cash by SM including its branches were transmitted or transferred immediately and
directly to Yutivo in Manila upon receipt thereof. Likewise, all expenses, purchases
or other obligations incurred by SM are referred to Yutivo which in turn prepares
the corresponding disbursement vouchers and payments in relation there, the
payment being made out of the cash deposits of SM with Yutivo, if any, or in the
absence thereof which occurs generally, a corresponding charge is made against
the account of SM in Yutivo's books. The payments for and charges against SM
are made by Yutivo as a matter of course and without need of any further request,
the latter would advance all such cash requirements for the benefit of SM. Any and
all payments and cash vouchers are made on Yutivo stationery and made under
authority of Yutivo's corporate officers, without any copy thereof being furnished to
SM. All detailed records such as cash disbursements, such as expenses,
purchases, etc. for the account of SM, are kept by Yutivo and SM merely keeps a
summary record thereof on the basis of information received from Yutivo.
All the above plainly show that cash or funds of SM, including those of its branches
which are directly remitted to Yutivo, are placed in the custody and control of
Yutivo, resources and subject to withdrawal only by Yutivo. SM's being under
Yutivo's control, the former's operations and existence became dependent upon
the latter.
Consideration of various other circumstances, especially when taken together,
indicates that Yutivo treated SM merely as its department or adjunct. For one thing,
the accounting system maintained by Yutivo shows that it maintained a high
degree of control over SM accounts. All transactions between Yutivo and SM are
recorded and effected by mere debit or credit entries against the reciprocal
account maintained in their respective books of accounts and indicate the
dependency of SM as branch upon Yutivo.
Apart from the accounting system, other facts corroborate or independently show
that SM is a branch or department of Yutivo. Even the branches of SM in Bacolod,
Iloilo, Cebu, and Davao treat Yutivo — Manila as their "Head Office" or "Home
Office" as shown by their letters of remittances or other correspondences. These
correspondences were actually received by Yutivo and the reference to Yutivo as
the head or home office is obvious from the fact that all cash collections of the
SM's branches are remitted directly to Yutivo. Added to this fact, is that SM may
freely use forms or stationery of Yutivo
The fact that SM is a mere department or adjunct of Yutivo is made more patent by
the fact that arrastre conveying, and charges paid for the "operation of receiving,
loading or unloading" of imported cars and trucks on piers and wharves, were
charged against SM. Overtime charges for the unloading of cars and trucks as
requested by Yutivo and incurred as part of its acquisition cost thereof, were
likewise charged against and treated as expenses of SM. If Yutivo were the
importer, these arrastre and overtime charges were Yutivo's expenses in importing
goods and not SM's. But since those charges were made against SM, it plainly
appears that Yutivo had sole authority to allocate its expenses even as against SM
in the sense that the latter is a mere adjunct, branch or department of the former.
Proceeding to another aspect of the relation of the parties, the management fees
due from SM to Yutivo were taken up as expenses of SM and credited to the
account of Yutivo. If it were to be assumed that the two organizations are separate
juridical entities, the corresponding receipts or receivables should have been
treated as income on the part of Yutivo. But such management fees were recorded
as "Reserve for Bonus" and were therefore a liability reserve and not an income
account. This reserve for bonus were subsequently distributed directly to and
credited in favor of the employees and directors of Yutivo, thereby clearly showing
that the management fees were paid directly to Yutivo officers and employees.
Briefly stated, Yutivo financed principally, if not wholly, the business of SM and
actually extended all the credit to the latter not only in the form of starting capital
but also in the form of credits extended for the cars and vehicles allegedly sold by
Yutivo to SM as well as advances or loans for the expenses of the latter when the
capital had been exhausted. Thus, the increases in the capital stock were made in
advances or "Guarantee" payments by Yutivo and credited in favor of SM. The
funds of SM were all merged in the cash fund of Yutivo. At all times Yutivo thru
officers and directors common to it and SM, exercised full control over the cash
funds, policies, expenditures and obligations of the latter.
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Southern Motors being but a mere instrumentality, or adjunct of Yutivo, the Court
of Tax Appeals correctly disregarded the technical defense of separate corporate
entity in order to arrive at the true tax liability of Yutivo.
Petitioner contends that the respondent Collector had lost his right or authority to
issue the disputed assessment by reason of prescription. The contention, in our
opinion, cannot be sustained. It will be noted that the first assessment was made
on November 7, 1950 for deficiency sales tax from 1947 to 1949. The
corresponding returns filed by petitioner covering the said period was made at the
earliest on October 1, as regards the third quarter of 1947, so that it cannot be
claimed that the assessment was not made within the five-year period prescribed
in section 331 of the Tax Code invoked by petitioner. The assessment, it is
admitted, was withdrawn by the Collector on insufficiency of evidence, but
November 15, 1952 due to insufficiency of evidence, but the withdrawal was made
subject to the approval of the Secretary of Finance and the Board of Tax Appeals,
pursuant to the provisions of section 9 of Executive Order No. 401-A, series of
1951. The decision of the previous assessment of November 7, Collector
countermanding the as 1950 was forwarded to the Board of Tax Appeals through
the Secretary of Finance but that official, apparently disagreeing with the decision,
sent it back for re-investigation. Consequently, the assessment of November 7,
1950 cannot be considered to have been finally withdrawn. That the assessment
was subsequently reiterated in the decision of respondent Collector on December
16, 1954 did not alter the fact that it was made seasonably. In this connection, it
would appear that a warrant of distraint and levy had been issued on March 28,
1951 in relation with this case and by virtue thereof the properties of Yutivo were
placed under constructive distraint. Said warrant and constructive distraint have
not been lifted up to the present, which shows that the assessment of November 7,
1950 has always been valid and subsisting.
Anent the deficiency sale tax for 1950, considering that the assessment thereof
was made on December 16, 1954, the same was assessed well within the
prescribed five-year period.
Petitioner argues that the original assessment of November 7, 1950 did not extend
the prescriptive period on assessment. The argument is untenable, for, as already
seen, the assessment was never finally withdrawn, since it was not approved by
the Secretary of Finance or of the Board of Tax Appeals. The authority of the
Secretary to act upon the assessment cannot be questioned, for he is expressly
granted such authority under section 9 of Executive Order No. 401-And under
section 79 (c) of the Revised Administrative Code, he has "direct control, direction
and supervision over all bureaus and offices under his jurisdiction and may, any
provision of existing law to the contrary not withstanding, repeal or modify the
decision of the chief of said Bureaus or offices when advisable in public interest."
It should here also be stated that the assessment in question was consistently
protested by petitioner, making several requests for reinvestigation thereof. Under
the circumstances, petitioner may be considered to have waived the defense of
prescription.
"Estoppel has been employed to prevent the application of the statute of
limitations against the government in certain instances in which the
taxpayer has taken some affirmative action to prevent the collection of the
tax within the statutory period. It is generally held that a taxpayer is
estopped to repudiate waivers of the statute of limitations upon which the
government relied. The cases frequently involve dissolved corporations. If
no waiver has been given, the cases usually show come conduct directed
to a postponement of collection, such, for example, as some variety of
request to apply an overassessment. The taxpayer has 'benefited' and 'is
not in a position to contest' his tax liability. A definite representation of
implied authority may be involved, and in many cases the taxpayer has
received the 'benefit' of being saved from the inconvenience, if not
hardship of immediate collection. "
Conceivably even in these cases a fully informed Commissioner may err
to the sorrow of the revenues, but generally speaking, the cases present
a strong combination of equities against the taxpayer, and few will
seriously quarrel with their application of the doctrine of estoppel."
(Mertens Law of Federal Income Taxation, Vol. 10-A, pp. 159-160.)
It is also claimed that section 9 of Executive Order No. 401-A, series of 1951 — es
involving an original assessment of more than P5,000 — refers only to
compromises and refunds of taxes, but not to total withdrawal of the assessment.
The contention is without merit. A careful examination of the provisions of both
sections 8 and 9 of Executive Order No. 401-A, series of 1951, reveals the
procedure prescribed therein is intended as a check or control upon the powers of
the Collector of Internal Revenue in respect to assessment and refunds of taxes. If
it be conceded that a decision of the Collector of Internal Revenue on partial
remission of taxes is subject to review by the Secretary of Finance and the Board
of Tax Appeals, then with more reason should the power of the Collector to
withdraw totally an assessment be subject to such review.
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We find merit, however, in petitioner's contention that the Court of Tax Appeals
erred in the imposition of the 5% fraud surcharge. As already shown in the early
part of this decision, no element of fraud is present.
Pursuant to Section 183 of the National Internal Revenue Code the 50% surcharge
should be added to the deficiency sales tax "in case a false or fraudulent return is
willfully made." Although the sales made by SM are in substance by Yutivo this
does not necessarily establish fraud nor the willful filing of a false or fraudulent
return.
The case of Court Holding Co. v. Commissioner of Internal Revenue (August 9,
1943, 2 TC 531, 541-549) is in point. The petitioner Court Holding Co. was a
corporation consisting of only two stockholders, to wit: Minnie Miller and her
husband Louis Miller. The only assets of third husband and wife corporation
consisted of an apartment building which had been acquired for a very low price at
a judicial sale. Louis Miller, the husband, who directed the company's business,
verbally agreed to sell this property to Abe C. Fine and Margaret Fine, husband
and wife, for the sum of $54,000.00, payable in various installments. He received
$1,000.00 as down payment. The sale of this property for the price mentioned
would have netted the corporation a handsome profit on which a large corporate
income tax would have to be paid. On the afternoon of February 23, 1940, when
the Millers and the Fines got together for the execution of the document of sale,
the Millers announced that their attorney had called their attention to the large
corporate tax which would have to be paid if the sale was made by the corporation
itself. So instead of proceeding with the sale as planned, the Millers approved a
resolution to declare a dividend to themselves "payable in the assets of the
corporation, in complete liquidation and surrender of all the outstanding corporate
stock." The building, which as above stated was the only property of the
corporation, was then transferred to Mr. and Mrs. Miller who in turn sold it to Mr.
and Mrs. Fine for exactly the same price and under the same terms as had been
previously agreed upon between the corporation and the Fines.
The return filed by the Court Holding Co. with the respondent Commissioner of
Internal Revenue reported no taxable gain as having been received from the sale
of its assets. The Millers, of course, reported a long term capital gain on the
exchange of their corporate stock with the corporate property. The Commissioner
of Internal Revenue contended that the liquidating dividend to stockholders had no
purpose other than that of tax avoidance and that, therefore, the sale by the Millers
to the Fines of the corporation's property was in substance a sale by the
corporation itself, for which the corporation is subject to the taxable profit thereon.
In requiring the corporation to pay the taxable profit on account of the sale, the
Commissioner of Internal Revenue, imposed a surcharge of 25% for delinquency,
plus an additional surcharge as fraud penalties.
The U. S. Court of Tax Appeals held that the sale by the Millers was for no other
purpose than to avoid the tax and was, in substance, a sale by the Court Holding
Co., and that, therefore, the said corporation should be liable for the assessed
taxable profit thereon. The Court of Tax Appeals also sustained the Commissioner
of Internal Revenue on the delinquency penalty of 25%. However, the Court of Tax
Appeals disapproved the fraud penalties, holding that an attempt to avoid a tax
does not necessarily establish fraud; that it is a settled principle that a taxpayer
may diminish his tax liability by means which the law permits; that if the petitioner,
the Court Holding Co., was of the opinion that the method by which it attempted to
effect the sale in question was legally sufficient to avoid the imposition of a tax
upon it, its adoption of that methods not subject to censure; and that in taking a
position with respect to a question of law, the substance of which was disclosed by
the statement indorsed on it return, it may not be said that that position was taken
fraudulently. We quote in full the pertinent portion of the decision of the Court of
Tax Appeals: .
". . . The respondent's answer alleges that the petitioner's failure to report
as income the taxable profit on the real estate sale was fraudulent and
with intent to evade the tax. The petitioner filed a reply denying fraud and
averring that the loss reported on its return was correct to the best of its
knowledge and belief. We think the respondent has not sustained the
burden of proving a fraudulent intent. We have concluded that the sale of
the petitioner's property was in substance a sale by the petitioner, and
that the liquidating dividend to stockholders had no purpose other than
that of tax avoidance. But the attempt to avoid tax does not necessarily
establish fraud. It is a settled principle that a taxpayer may diminish his
liability by any means which the law permits. United States v. Isham, 17
Wall. 496; Gregory v. Helvering, supra; Chrisholm v. Commissioner, 79
Fed. (2d) 14. If the petitioner here was of the opinion that the method by
which it attempted to effect the sale in question was legally sufficient to
avoid the imposition of tax upon it, its adoption of that method is not
subject to censure. Petitioner took a position with respect to a question of
law, the substance of which was disclosed by the statement endorsed on
its return. We can not say, under the record before us, that that position
was taken fraudulently. The determination of the fraud penalties is
reversed."
When GM was the importer and Yutivo, the wholesaler, of the cars and trucks, the
sales tax was paid only once and on the original sales by the former and neither
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the latter nor SM paid taxes on their subsequent sales. Yutivo might have,
therefore, honestly believed that the payment by it, as importer, of the sales tax
was enough as in the case of GM Consequently, in filing its return on the basis of
its sales to SM and not on those by the latter to the public, it cannot be said that
Yutivo deliberately made a false return for the purpose of defrauding the
government of its revenues which will justify the imposition of the surcharge
penalty.
We likewise find meritorious the contention that the Tax Court erred in computing
the alleged deficiency sales tax on the selling price of SM without previously
deducting therefrom the sales tax due thereon. The sales tax provisions (sees.
184.186, Tax Code) impose a tax on original sales measured by "gross selling
price" or "gross value in money". These terms, as interpreted by the respondent
Collector, do not include the amount of the sales tax, if invoiced separately. Thus,
General Circular No. 431 of the Bureau of Internal Revenue dated July 29, 1939,
which implements sections 184.186 of the Tax Code provides: "
. . .'Gross selling price' or gross value in money' of the articles sold,
bartered, exchanged, transferred as the term is used in the aforecited
sections (sections 184, 185 and 186) of the National Internal Revenue
Code, is the total amount of money or its equivalent which the purchaser
pays to the vendor to receive or get the goods. However, if a
manufacturer, producer, or importer, in fixing the gross selling price of an
article sold by him has included an amount intended to cover the sales tax
in the gross selling price of the articles, the sales tax shall be based on
the gross selling price less the amount intended to cover the tax, if the
same is billed to the purchaser as a separate item.
General Circular No. 440 of the same Bureau reads:
Amount intended to cover the tax must be billed as a separate em so as
not to pay a tax on the tax. — On sales made after he third quarter of
1939, the amount intended to cover the sales tax must be billed to the
purchaser as separate items in the, invoices in order that the reduction
thereof from the gross ailing price may be allowed in the computation of
the merchants' percentage tax on the sales. Unless billed to the
purchaser as a separate item in the invoice, the amounts intended to
cover the sales tax shall be considered as part of the gross selling price of
the articles sold, and deductions thereof will not be allowed, (Cited in
Dalupan, Nat. Int. Rev. Code, Annotated, Vol. II, pp. 52-53.)
Yutivo complied with the above circulars on its sales to SM, and as separately This is the exact amount which, according to Presiding Judge Nable of the Court of
billed, the sales taxes did not form part of the "gross selling price" as the measure Tax Appeals, Yutivo would pay, exclusive of the surcharges.
of the tax. Since Yutivo had previously billed the sales tax separately in its sales
invoices to SM General Circulars Nos. 431 and 440 should be deemed to have Petitioner finally contends that the Court of Tax Appeals erred or acted in excess of
been complied. Respondent Collector's method of computation, as opined by its jurisdiction in promulgating judgment for the affirmance of the decision of
Judge Nable in the decision complained of — respondent Collector by less than the statutory requirement of at least two votes of
its judges. Anent this contention, section 2 of Republic Act No. 1125, creating the
. . . is unfair, because . . .(it is) practically imposing tax on a tax already Court of Tax Appeals, provides that "Any two judges of the Court of Tax Appeals
paid. Besides, the adoption of the procedure would in certain cases shall constitute a quorum, and the concurrence of two judges shall be necessary to
elevate the bracket under which the tax is based. The late payment is promulgate decision thereof. . . . " It is on record that the present case was heard
already penalized, thru the imposition of surcharges, by adopting the by two judges of the lower court. And while Judge Nable expressed his opinion on
theory of the Collector, we will be creating an additional penalty not the issue of whether or not the amount of the sales tax should be excluded from
contemplated by law." the gross selling price in computing the deficiency sales tax due from the
petitioner, the opinion, apparently, is merely an expression of his general or
If the taxes based on the sales of SM are computed in accordance with Gen. "private sentiment" on the particular issue, for he concurred the dispositive part of
Circulars Nos. 431 and 440 the total deficiency sales taxes, exclusive of the 25% the decision. At any rate, assuming that there is no valid decision for lack of
and 50% surcharges for late payment and for fraud, would amount only to concurrence of two judges, the case was submitted for decision of the court below
P820,549.91 as shown in the following computation: on March 28, 1957 and under section 13 of Republic Act 1125, cases brought
before said court hall be decided within 30 days after submission thereof. "If no
decision is rendered by the Court within thirty days from the date a case is
Sales Taxes Due submitted for decision, the party adversely affected by said ruling, order or
Gross Sales of Total Gross Selling
Rates of and Computed under decision, may file with said Court a notice of his intention to appeal to the Supreme
Vehicles Exclusive of Price Charged to the
Sales Tax Gen. Cir Nos. 431 & Court, and if no decision has as yet been rendered by the Court, the aggrieved
Sales Tax Public
400 party may file directly with the Supreme Court an appeal from said ruling, order or
5% P11,912,219.57 P595,610.98 P12,507,83055 decision, notwithstanding the foregoing provisions of this section." The case having
been brought before us on appeal, the question raised by petitioner as become
7% 909,559.50 63,669.16 973,228.66 purely academic.
10% 2,618,695.28 261,869.53 2,880,564.81
15% 3,602,397.65 540,359.65 4,142,757.30 IN VIEW OF THE FOREGOING, the decision of the Court of Tax Appeals under
review is hereby modified in that petitioner shall be ordered to pay to respondent
20% 267,150.50 53,430.10 320,580.60 the sum of P820,549.91, plus 25% surcharge thereon for late payment.
30% 837,146.97 251,114.09 1,088,291.06
50% 74,244.30 37,122.16 111,366.46 So ordered without costs.
75% 8,000.00 6,000.00 14,000.00
TOTAL P20,220,413.77 P1,809,205.67 P22,038,619.44

Less Taxes Paid by Yutivo 988,655.76

Deficiency Tax still due P820,549.91

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 *
G.R. No. 191525. December 13, 2017.
INTERNATIONAL ACADEMY OF MANAGEMENT AND ECONOMICS (I/AME),
petitioner, vs. LITTON AND COMPANY, INC., respondent.
Mercantile Law; Corporations; Separate Legal Personality; In general,
corporations, whether stock or nonstock, are treated as separate and distinct legal
entities from the natural persons composing them.—In general, corporations,
whether stock or nonstock, are treated as separate and distinct legal entities from
the natural persons composing them. The privilege of being considered a distinct
and separate entity is confined to legitimate uses, and is subject to equitable
limitations to prevent its being exercised for fraudulent, unfair or illegal purposes.
However, once equitable limitations are breached using the coverture of the
corporate veil, courts may step in to pierce the same.
Same; Same; Same; Piercing the Veil of Corporate Fiction; The piercing of
the corporate veil is premised on the fact that the corporation concerned must have
been properly served with summons or properly subjected to the jurisdiction of the
court a quo.—The piercing of the corporate veil is premised on the fact that the
corporation concerned must have been properly served with summons or properly
subjected to the jurisdiction of the court a quo. Corollary thereto, it cannot be
subjected to a writ of execution meant for another in violation of its right to due
process. There exists, however, an exception to this rule: if it is shown “by clear
and convincing proof that the separate and distinct personality of the corporation
was purposefully employed to evade a legitimate and binding commitment and
perpetuate a fraud or like wrongdoings.” The resistance of the Court to offend the
right to due process of a corporation that is a nonparty in a main case, may
disintegrate not only when its director, officer, shareholder, trustee or member is a
party to the main case, but when it finds facts which show that piercing of the
corporate veil is merited.
_______________
* FIRST DIVISION.
438
438 SUPREME COURT REPORTS ANNOTATED
International Academy of Management and Economics
(I/AME)vs. Litton and Company, Inc.
Same; Same; Same; Same; The Supreme Court (SC) did not put in issue
whether the corporation is a nonstock, nonprofit, nongovernmental corporation in
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considering the application of the doctrine of piercing of corporate veil.—In
determining the propriety of applicability of piercing the veil of corporate fiction, this
Court, in a number of cases, did not put in issue whether a corporation is a stock or
nonstock corporation. In Sulo ng Bayan, Inc. v. Gregorio Araneta, Inc., 72 SCRA
347 (1976), we considered but ultimately refused to pierce the corporate veil of a
nonstock, nonprofit corporation which sought to institute an action for
reconveyance of real property on behalf of its members. This Court held that the
nonstock corporation had no personality to institute a class suit on behalf of its
members, considering that the non-stock corporation was not an assignee or
transferee of the real property in question, and did not have an identity that was
one and the same as its members. In another case, this Court did not put in issue
whether the corporation is a non-stock, nonprofit, nongovernmental corporation in
considering the application of the doctrine of piercing of corporate veil. In Republic
of the Philippines v. Institute for Social Concern, 449 SCRA 512 (2005), while we
did not allow the piercing of the corporate veil, this Court affirmed the finding of the
CA that the Chairman of the Institute for Social Concern cannot be held jointly and
severally liable with the aforesaid nongovernmental organization (NGO) at the time
the Memorandum of Agreement was entered into with the Philippine Government.
We found no fraud in that case committed by the Chairman that would have
justified the piercing of the corporate veil of the NGO.
Same; Same; Equitable Owner; Words and Phrases; An equitable owner is
an individual who is a non-shareholder defendant, who exercises sufficient control
or considerable authority over the corporation to the point of completely
disregarding the corporate form and acting as though its assets are his or her
alone to manage and distribute.—The concept of equitable ownership, for stock or
nonstock corporations, in piercing of the corporate veil scenarios, may also be
considered. An equitable owner is an individual who is a non-shareholder
defendant, who exercises sufficient control or considerable authority over the
corporation to the point of completely disregarding the corporate form and acting
as though its assets are his or her alone to manage and distribute.
439
VOL. 848, DECEMBER 13, 2017 439
International Academy of Management and Economics
(I/AME)vs. Litton and Company, Inc.
Same; Same; Separate Legal Personality; Piercing the Veil of Corporate
Fiction; The Supreme Court (SC) has considered a deceased natural person as
one and the same with his corporation to protect the succession rights of his legal
heirs to his estate.—The piercing of the corporate veil may apply to corporations as
well as natural persons involved with corporations. This Court has held that the
“corporate mask may be lifted and the corporate veil may be pierced when a The facts are stated in the opinion of the Court.
corporation is just but the alter ego of a person or of another corporation.” We Eddie Tamondong for petitioner.
have considered a deceased natural person as one and the same with his Gerardo A. Villaluz for respondent.
corporation to protect the succession rights of his legal heirs to his estate.
In Cease v. Court of Appeals, 93 SCRA 483 (1979), the predecessor-in-interest SERENO, CJ.:
organized a close corporation which acquired properties during its existence.
When he died intestate, trouble ensued amongst his children on whether or not to Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of
1 2
consider his company one and the same with his person. The Court agreed with Court assailing the Court of Appeals’ (CA’s) Decision and Resolution in C.A.-G.R.
the trial court when it pierced the corporate veil of the decedent’s corporation. It S.P. No. 107727.
3 4
found that said corporation was his business conduit and alter ego. Thus, the The CA affirmed the Judgment and Order of the Regional Trial Court (RTC)
5
acquired properties were actually properties of the decedent and as such, should of Manila in Special Civil Action No. 06-115547 reinstating the Order of the
be divided among the decedent’s legitimate children in the partition of his estate. Metropolitan Trial Court (MeTC) of Manila in favor of Litton and Company, Inc.
Same; Same; Same; Same; Outsider Reverse Piercing; Insider Reverse (Litton).
Piercing; Words and Phrases; Outsider reverse piercing occurs when a party with
a claim against an individual or corporation attempts to be repaid with assets of a The Facts
corporation owned or substantially controlled by the defendant. In contrast, in
insider reverse piercing, the controlling members will attempt to ignore the The facts, as culled from the records, are as follows:
corporate fiction in order to take advantage of a benefit available to the _______________
corporation, such as an interest in a lawsuit or protection of personal assets.—As
held in the U.S. Case, C.F. Trust, Inc., v. First Flight Limited Partnership, “in a 1 Rollo, pp. 44-52; penned by Associate Justice Isaias Dicdican, with
traditional veil-piercing action, a court disregards the existence of the corporate Associate Justices Remedios A. Salazar Fernando and Romeo F. Barza,
entity so a claimant can reach the assets of a corporate insider. In a reverse concurring; dated 30 October 2009.
piercing action, however, the plaintiff seeks to reach the assets of a corporation to 2 Id., at pp. 53-54; dated 12 March 2010.
satisfy claims against a corporate insider.” “Reverse piercing flows in the opposite 3 Id., at pp. 142-144; penned by Presiding Judge Antonio I. De Castro; dated
direction (of traditional corporate veil-piercing) and makes the corporation liable for 29 October 2008.
the debt of the shareholders.” It has two (2) types: outsider reverse piercing and 4 Id., at pp. 147-148; dated 26 January 2009.
insider reverse piercing. Outsider reverse piercing occurs when a party with a 5 Id., at pp. 94-106; penned by Acting Judge Ma. Ruby B. Camarista; dated 29
claim against an individual or corporation attempts to be repaid with assets of a October 2004.

440 441
440 SUPREME COURT REPORTS ANNOTATED VOL. 848, DECEMBER 13, 2017 441
International Academy of Management and Economics International Academy of Management and Economics
(I/AME)vs. Litton and Company, Inc. (I/AME)vs. Litton and Company, Inc.
corporation owned or substantially controlled by the defendant. In contrast, in Atty. Emmanuel T. Santos (Santos), a lessee to two (2) buildings owned by
insider reverse piercing, the controlling members will attempt to ignore the Litton, owed the latter rental arrears as well as his share of the payment of realty
6
corporate fiction in order to take advantage of a benefit available to the taxes.
corporation, such as an interest in a lawsuit or protection of personal assets. Consequently, Litton filed a complaint for unlawful detainer against Santos
before the MeTC of Manila. The MeTC ruled in Litton’s favor and ordered Santos
PETITION for review on certiorari of the decision and resolution of the Court of to vacate A.I.D. Building and Litton Apartments and to pay various sums of money
Appeals. 7
representing unpaid arrears, realty taxes, penalty, and attorney’s fees.

Corporation  Law  Cases  –  Batch  3  

 
 It appears however that the judgment was not executed. Litton subsequently
8
filed an action for revival of judgment, which was granted by the RTC. Santos then The CA’s Ruling
appealed the RTC’s decision to the CA, which nevertheless affirmed the
9 10
RTC. The said CA’s decision became final and executory on 22 March 1994. The CA upheld the Judgment and Order of the RTC and held that no grave
On 11 November 1996, the sheriff of the MeTC of Manila levied on a piece of abuse of discretion was committed when the trial court pierced the corporate veil of
14
real property covered by Transfer Certificate of Title (TCT) No. 187565 and I/AME.
registered in the name of International Academy of Management and Economics It took note of how Santos had utilized I/AME to insulate the Makati real
11
Incorporated (I/AME), in order to execute the judgment against Santos. The property covered by TCT No. 187565 from the execution of the judgment rendered
annotations on TCT No. 187565 indicated that such was “only up to the extent of against him, for the following reasons:
12
the share of Emmanuel T. Santos.” First, the Deed of Absolute Sale dated 31 August 1979 indicated that Santos,
15
I/AME filed with MeTC a “Motion to Lift or Remove Annotations Inscribed in being the President, was representing I/AME as the vendee. However, records
13
TCT No. 187565 of the Register of Deeds of Makati City.” I/AME claimed that it show that it was only in 1985 that I/AME was organized as a juridical
16
has a separate and entity. Obviously, Santos could not have been President of a non-existent
17
_______________ corporation at that time.
_______________

6 Id., at p. 78. 14 Id., at p. 49.

7 Id., at pp. 73-81; MeTC Decision dated 2 March 1983, penned by Judge 15 Id., at p. 343.
Jose B. Herrera. 16 Id., at p. 49.
8 RTC Decision dated 13 September 1989. 17 Id., at p. 50.
9 CA Decision dated 21 February 1994.
10 Id., at pp. 45 and 100.
11 Id., at p. 174.
12 Id., at pp. 82-86. 443
13 Id., at pp. 87-90, 174. VOL. 848, DECEMBER 13, 2017 443
International Academy of Management and Economics
(I/AME)vs. Litton and Company, Inc.
442 Second, the CA noted that the subject real property was transferred to I/AME
442 SUPREME COURT REPORTS ANNOTATED during the pendency of the appeal for the revival of the judgment in the ejectment
18
case in the CA.
International Academy of Management and Economics
Finally, the CA observed that the Register of Deeds of Makati City issued TCT
(I/AME)vs. Litton and Company, Inc. No. 187565 only on 17 November 1993, fourteen (14) years after the execution of
distinct personality from Santos; hence, its properties should not be made to the Deed of Absolute Sale and more than eight (8) years after I/AME was
19
answer for the latter’s liabilities. The motion was denied in an Order dated 29 incorporated.
October 2004. Thus, the CA concluded that Santos merely used I/AME as a shield to protect
Upon motion for reconsideration of I/AME, the MeTC reversed its earlier ruling his property from the coverage of the writ of execution; therefore, piercing the veil
20
and ordered the cancellation of the annotations of levy as well as the writ of of corporate fiction is proper.
execution. Litton then elevated the case to the RTC, which in turn reversed the
Order granting I/AME’s motion for reconsideration and reinstated the original Order The Issues
dated 29 October 2004.
I/AME then filed a petition with the CA to contest the judgment of the RTC,
which was eventually denied by the appellate court.

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 The issues boil down to the alleged denial of due process when the court The 29 October 2004 MeTC’s judgment, the RTC’s judgment, and the CA’s
pierced the corporate veil of I/AME and its property was made to answer for the decision are one in accord on the matters presented before this Court.
liability of Santos. In general, corporations, whether stock or nonstock, are treated as separate
and distinct legal entities from the natural persons composing them. The privilege
Our Ruling of being considered a distinct and separate entity is confined to legitimate uses,
and is subject to equitable limitations to prevent its being
We deny the petition. _______________

There was no viola- 21 Pacific Rehouse Corporation v. Court of Appeals, 730 Phil. 25; 719 SCRA
tion of due process 665 (2014), citing Kukan International Corporation v. Reyes, 646 Phil. 210; 631
against I/AME SCRA 596 (2010).
22 Heirs of Fe Tan Uy v. International Exchange Bank, 703 Phil. 477, 486; 690
Petitioner avers that its right to due process was violated when it was dragged SCRA 519, 527 (2013).
into the case and its real property made an object of a writ of execution in a 23 Lorenzana v. Lelina, G.R. No. 187850, August 17, 2016, 800 SCRA 570,
judgment against Santos. It argues that since it was not impleaded in the main 578-579.
case, the court a quo never acquired jurisdiction over it. Indeed,
_______________

18 Id.
19 Id., at pp. 50 and 82.
20 Id., at p. 50.
444
444 SUPREME COURT REPORTS ANNOTATED
International Academy of Management and Economics
(I/AME)vs. Litton and Company, Inc.
compliance with the recognized modes of acquisition of jurisdiction cannot be
21
dispensed with even in piercing the veil of corporation.
In a petition for review on certiorari under Rule 45, only questions of law shall
be entertained. This Court considers the determination of the existence of any of
the circumstances that would warrant the piercing of the veil of corporate fiction as
a question of fact which ordinarily cannot be the subject of a petition for review
on certiorari under Rule 45. We will only take cognizance of factual issues if the
findings of the lower court are not supported by the evidence on record or are
22
based on a misapprehension of facts. Once the CA affirms the factual findings of
the trial court, such findings are deemed final and conclusive and thus, may not be
reviewed on appeal, unless the judgment of the CA depends on a
misapprehension of facts, which if properly considered, would justify a different
23
conclusion. Such exception however, is not applicable in this case.
445
VOL. 848, DECEMBER 13, 2017 445
International Academy of Management and Economics
(I/AME)vs. Litton and Company, Inc.
24
exercised for fraudulent, unfair or illegal purposes. However, once equitable
limitations are breached using the coverture of the corporate veil, courts may step
in to pierce the same.
25
As we held in Lanuza, Jr. v. BF Corporation:
Piercing the corporate veil is warranted when “[the separate personality
of a corporation] is used as a means to perpetrate fraud or an illegal act, or
as a vehicle for the evasion of an existing obligation, the circumvention of
statutes, or to confuse legitimate issues.” It is also warranted in alter
ego cases “where a corporation is merely a farce since it is a mere alter
ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another
corporation.”
When [the] corporate veil is pierced, the corporation and persons who
are normally treated as distinct from the corporation are treated as one
person, such that when the corporation is adjudged liable, these persons,
too, become liable as if they were the corporation.

Corporation  Law  Cases  –  Batch  3  

 
 The piercing of the corporate veil is premised on the fact that the corporation
concerned must have been properly served with summons or properly subjected to
the jurisdiction of the court a quo. Corollary thereto, it cannot be subjected to a writ
26
of execution meant for another in violation of its right to due process.
There exists, however, an exception to this rule: if it is shown “by clear and
convincing proof that the separate and distinct personality of the corporation was
purposefully em-
_______________
24 Republic v. Mega Pacific eSolutions, Inc., G.R. No. 184666, June 27, 2016,
784 SCRA 414, 475-476.
25 G.R. No. 174938, October 1, 2014, 737 SCRA 275, 299.
26 Cf. Kukan.
446
446 SUPREME COURT REPORTS ANNOTATED
International Academy of Management and Economics
(I/AME)vs. Litton and Company, Inc.
ployed to evade a legitimate and binding commitment and perpetuate a fraud or
27
like wrongdoings.”
The resistance of the Court to offend the right to due process of a corporation
that is a nonparty in a main case, may disintegrate not only when its director,
officer, shareholder, trustee or member is a party to the main case, but when it
28
finds facts which show that piercing of the corporate veil is merited.
Thus, as the Court has already ruled, a party whose corporation is vulnerable
29
to piercing of its corporate veil cannot argue violation of due process.
In this case, the Court confirms the lower courts’ findings that Santos had an
existing obligation based on a court judgment that he owed monthly rentals and
unpaid realty taxes under a lease contract he entered into as lessee with the
Littons as lessor. He was not able to comply with this particular obligation, and in
fact, refused to comply therewith.
This Court agrees with the CA that Santos used I/AME as a means to defeat
30
judicial processes and to evade his obligation to Litton. Thus, even while I/AME
was not impleaded in the main case and yet was so named in a writ of execution to
satisfy a court judgment against Santos, it is vulnerable to the piercing of its
corporate veil. We will further expound on this matter.
_______________
28 See Arcilla v. Court of Appeals, G.R. No. 89804, October 23 1992, 215
SCRA 120; Violago v. BA Finance Corporation, 581 Phil. 62; 559 SCRA 69
(2008); Republic v. Mega Pacific eSolutions, Inc., supra note 24.
29 Supra note 24 at p. 466.
30 Rollo, p. 51.
447
VOL. 848, DECEMBER 13, 2017 447
International Academy of Management and Economics
(I/AME)vs. Litton and Company, Inc.
Piercing the Corporate
Veil may Apply to Non-
stock Corporations
Petitioner I/AME argues that the doctrine of piercing the corporate veil applies
only to stock corporations, and not to nonstock, nonprofit corporations such as
I/AME since there are no stockholders to hold liable in such a situation but instead
only members. Hence, they do not have investments or shares of stock or assets
to answer for possible liabilities. Thus, no one in a nonstock corporation can be
31
held liable in case the corporate veil is disregarded or pierced.
The CA disagreed. It ruled that since the law does not make a distinction
between a stock and nonstock corporation, neither should there be a distinction in
case the doctrine of piercing the veil of corporate fiction has to be applied. While
I/AME is an educational institution, the CA further ruled, it still is a registered
32
corporation conducting its affairs as such.
This Court agrees with the CA.
In determining the propriety of applicability of piercing the veil of corporate
fiction, this Court, in a number of cases, did not put in issue whether a corporation
is a stock or nonstock corporation. In Sulo ng Bayan, Inc. v. Gregorio Araneta,
33
Inc., we considered but ultimately refused to pierce the corporate veil of a
nonstock, nonprofit corporation which sought to institute an action for
reconveyance of real property on behalf of its members. This Court held that the
nonstock corporation had no personality to institute a class suit on behalf of its
members, considering that the nonstock corporation was not an assignee or
transferee of the real property in question, and did not have an identity that was
one and the same as its members.
_______________

27 Id., at p. 237; p. 622. 31 Id., at pp. 31-32.

32 Id., at p. 51.

Corporation  Law  Cases  –  Batch  3  

 
 33 164 Phil. 349; 72 SCRA 347 (1976).
448
448 SUPREME COURT REPORTS ANNOTATED
International Academy of Management and Economics
(I/AME)vs. Litton and Company, Inc.
In another case, this Court did not put in issue whether the corporation is a
nonstock, nonprofit, nongovernmental corporation in considering the application of
the doctrine of piercing of corporate veil. In Republic of the Philippines v. Institute
34
for Social Concern, while we did not allow the piercing of the corporate veil, this
Court affirmed the finding of the CA that the Chairman of the Institute for Social
Concern cannot be held jointly and severally liable with the aforesaid non-
governmental organization (NGO) at the time the Memorandum of Agreement was
entered into with the Philippine Government. We found no fraud in that case
committed by the Chairman that would have justified the piercing of the corporate
35
veil of the NGO.
In the United States, from which we have adopted our law on corporations,
nonprofit corporations are not immune from the doctrine of piercing the corporate
veil. Their courts view piercing of the corporation as an equitable remedy, which
justifies said courts to scrutinize any organization however organized and in
whatever manner it operates. Moreover, control of ownership does not hinge on
stock ownership.
36
As held in Barineau v. Barineau:
_______________
34 490 Phil. 379; 449 SCRA 512 (2005).
35 Id., at p. 390; p. 520. Citing Robledo v. National Labor Relations
Commission, 308 Phil. 51, 57; 238 SCRA 52, 57 (1994), the Court in this case,
explained when the doctrine of piercing the veil of corporate entity is used:
The doctrine of piercing the veil of corporate entity is used
whenever a court finds that the corporate fiction is being used to defeat
public convenience, justify wrong, protect fraud, or defend crime or to confuse
legitimate issues, or that a corporation is the mere alter ego or business conduit of
a person or where the corporation is so organized and controlled and its affairs are
so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation. (Emphasis supplied)
36 662 So. 2D 1008, 1009; 1995 Fla. App. LEXIS 12191,2; 20 Fla. L. Weekly
D 2562 (1995).
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 Law
 Cases
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 3
449
VOL. 848, DECEMBER 13, 2017 449
International Academy of Management and Economics
(I/AME)vs. Litton and Company, Inc.
[t]he mere fact that the corporation involved is a nonprofit corporation does
not by itself preclude a court from applying the equitable remedy of piercing
the corporate veil. The equitable character of the remedy permits a court to
look to the substance of the organization, and its decision is not controlled
by the statutory framework under which the corporation was formed and
operated. While it may appear to be impossible for a person to exercise
ownership control over a nonstock, not-for-profit corporation, a person can
be held personally liable under the alter ego theory if the evidence shows
that the person controlling the corporation did in fact exercise control, even
though there was no stock ownership.
In another U.S. case, Public Interest Bounty Hunters v. Board of Governors of
37
Federal Reserve System, the U.S. Court allowed the piercing of the corporate
veil of the Foundation headed by the plaintiff, in order to avoid inequitable results.
Plaintiff was found to be the sole trustee, the sole member of the board, and the
sole financial contributor to the Foundation. In the end, the Court found that the
plaintiff used the Foundation to avoid paying attorney’s fees.
The concept of equitable ownership, for stock or nonstock corporations, in
piercing of the corporate veil scenarios, may also be considered. An equitable
owner is an individual who is a non-shareholder defendant, who exercises
sufficient control or considerable authority over the corporation to the point of
completely disregarding the corporate form and acting as though its assets are his
38
or her alone to manage and distribute.
Given the foregoing, this Court sees no reason why a nonstock corporation
such as I/AME, may not be scrutinized for purposes of piercing the corporate veil
or fiction.
_______________
37 548 F. Supp. 157; 1982 U.S. Dist. LEXIS 9700.
38 Freeman v. Complex Computing Company, Inc., 119 F. 3d 1044; 1997
U.S. App. LEXIS 21008.
450
450 SUPREME COURT REPORTS ANNOTATED (I/AME)vs. Litton and Company, Inc.
International Academy of Management and Economics We have considered a deceased natural person as one and the same with his
corporation to protect the succession rights of his legal heirs to his estate.
(I/AME)vs. Litton and Company, Inc. 42
In Cease v. Court of Appeals, the predecessor-in-interest organized a close
Piercing the Corpo- corporation which acquired properties during its existence. When he died intestate,
rate Veil may Apply trouble ensued amongst his children on whether or not to consider his company
to Natural Persons one and the same with his person. The Court agreed with the trial court when it
pierced the corporate veil of the decedent’s corporation. It found that said
The petitioner also insists that the piercing of the corporate veil cannot be corporation was his business conduit and alter ego. Thus, the acquired properties
applied to a natural person — in this case, Santos — simply because as a human were actually properties of the decedent and as such, should be divided among the
39 43
being, he has no corporate veil shrouding or covering his person. decedent’s legitimate children in the partition of his estate.
a) When the Corporation is t In another instance, this Court allowed the piercing of the corporate veil against
44
he Alter Ego of a Natural another natural person, in Arcilla v. Court of Appeals. The case stemmed from a
Person complaint for sum of money against Arcilla for his failure to pay his loan from the
40
private respondent. Arcilla, in his defense, alleged that the loan was in the name of
As cited in Sulo ng Bayan, Inc. v. Araneta, Inc., “[t]he doctrine of alter ego is his family corporation, CSAR Marine Resources, Inc. He further argued that the CA
based upon the misuse of a corporation by an individual for wrongful or erred in holding CSAR Marine Resources liable to the private respondent since the
inequitable purposes, and in such case the court merely disregards the corporate latter was not impleaded as a party in the case. This Court allowed the piercing of
entity and holds the individual responsible for acts knowingly and intentionally done the corporate veil and held that Arcilla used “his capacity as President, x x x [as] a
in the name of the corporation.” This, Santos has done in this case. Santos formed sanctuary for a defense x x x to avoid complying with the liability adjudged against
45
I/AME, using the nonstock corporation, to evade paying his judgment creditor, him x x x.’’ We held that his liability remained attached even if he was impleaded
Litton. as a party,
The piercing of the corporate veil may apply to corporations as well as natural _______________
persons involved with corporations. This Court has held that the “corporate mask
may be lifted and the corporate veil may be pierced when a corporation is just but Rivera v. United Laboratories, Inc., 604 Phil. 184; 586 SCRA 269 (2009); Kukan
41
the alter ego of a person or of another corporation.” International Corporation v. Reyes, supra note 21; Sarona v. National Labor
_______________ Relations Commission, 679 Phil. 394; 663 SCRA 394 (2012); Philippine National
Bank v. Hydro Resources Contractors Corporation, 706 Phil. 297; 693 SCRA 294
39 Rollo, p. 30. (2013).
40 Sulo ng Bayan, Inc. v. Araneta, Inc., supra note 33 at p. 359; p. 355 (1976), 42 182 Phil. 61; 93 SCRA 483 (1979).
citing Ivy v. Plyler (246 Cal. App. 2d. 678; 54 Cal. Reptr. 894 [1966]). 43 Id., at pp. 74-76; pp. 494-495.
41 Concept Builders, Inc. v. NLRC, 326 Phil. 955; 257 SCRA 149 (1996); Lim 44 Arcilla v. Court of Appeals, supra note 28.
v. Court of Appeals, 380 Phil. 60; 323 SCRA 102 (2000); Philippine National Bank 45 Id., at p. 128.
v. Andrada Electric & Engineering Company, 430 Phil. 882; 381 SCRA 244
(2002); Heirs of the Late Panfilo V. Pajarillo v. Court of Appeals, 562 Phil. 688; 537
SCRA 96 (2007);
452
452 SUPREME COURT REPORTS ANNOTATED
451 International Academy of Management and Economics
VOL. 848, DECEMBER 13, 2017 451 (I/AME)vs. Litton and Company, Inc.
International Academy of Management and Economics

Corporation  Law  Cases  –  Batch  3  

 
and not the corporation, to the collection case and even if he ceased to be
46
corporate president. Indeed, even if Arcilla had ceased to be corporate president,
he remained personally liable for the judgment debt to pay his personal loan, for
we treated him and the corporation as one and the same. CSAR Marine was
deemed his alter ego.
We find similarities with Arcilla and the instant case. Like Arcilla, Santos: (1)
was adjudged liable to pay on a judgment against him; (2) he became President of
a corporation; (3) he formed a corporation to conceal assets which were supposed
to pay for the judgment against his favor; (4) the corporation which has Santos as
its President, is being asked by the court to pay on the judgment; and (5) he may
not use as a defense that he is no longer President of I/AME (although a visit to the
47
website of the school shows he is the current President).
This Court agrees with the CA that I/AME is the alter ego of Santos, and
Santos — the natural person — is the alter ego of I/AME. Santos falsely
represented himself as President of I/AME in the Deed of Absolute Sale when he
bought the Makati real property, at a time when I/AME had not yet existed.
Uncontroverted facts in this case also reveal the findings of MeTC showing Santos
and I/AME as being one and the same person:
(1) Santos is the conceptualizer and implementor of I/AME;
(2) Santos’ contribution is P1,200,000.00 (One Million Two Hundred
Thousand Pesos) out of the P1,500,000.00 (One Million Five Hundred
Thousand Pesos), making him the majority contributor of I/AME; and
_______________
46 Id., at p. 129.
47<www.iame.edu.ph/about-iame/faculty.html>, visited 12 October 2016.
453
VOL. 848, DECEMBER 13, 2017 453
International Academy of Management and Economics
(I/AME)vs. Litton and Company, Inc.
(3) The building being occupied by I/AME is named after Santos using his
known nickname (to date it is called, the “Noli Santos International
48
Tower”).
This Court deems I/AME and Santos as alter egos of each other based on the
former’s own admission in its pleadings before the trial court. In its Answer (to
Amended Petition) with the RTC entitled Litton and Company, Inc. v. Hon.
Corporation
 Law
 Cases
 –
 Batch
 3
Hernandez-Calledo, Civil Case No. 06-115547, I/AME admitted the allegations
found in paragraphs 2, 4 and 5 of the amended petition of Litton, particularly
paragraph number 4 which states:
4. Respondent, International Academy of Management and
Economics Inc. (hereinafter referred to as Respondent I/AME), is a
corporation organized and existing under Philippine laws with address at
1061 Metropolitan Avenue, San Antonio Village, Makati City, where it may
be served with summons and other judicial processes. It is the corporate
entity used by Respondent Santos as his alter ego for the purpose of
shielding his assets from the reach of his creditors, one of which is
49
herein Petitioner. (Emphases ours)
Hence, I/AME is the alter ego of the natural person, Santos, which the latter
used to evade the execution on the Makati property, thus frustrating the
satisfaction of the judgment won by Litton.
_______________
48 Rollo, pp. 96-97. Actually, a visit to the website of the school shows Atty.
Emmanuel “Noli” Santos as the founder of the same and its current President as of
the December 2013 posting.
49 Id., at p. 136, referring to p. 116.
454
454 SUPREME COURT REPORTS ANNOTATED
International Academy of Management and Economics
(I/AME)vs. Litton and Company, Inc.
b) Reverse Piercing of
the Corporate Veil
This Court in Arcilla pierced the corporate veil of CSAR Marine Resources to
satisfy a money judgment against its erstwhile President, Arcilla.
We borrow from American parlance what is called reverse piercing or reverse
corporate piercing or piercing the corporate veil “in reverse.”
As held in the U.S. case, C.F. Trust, Inc., v. First Flight Limited
50
Partnership, “in a traditional veil-piercing action, a court disregards the existence
of the corporate entity so a claimant can reach the assets of a corporate insider. In
a reverse piercing action, however, the plaintiff seeks to reach the assets of a
corporation to satisfy claims against a corporate insider.”
“Reverse piercing flows in the opposite direction (of traditional corporate veil-
piercing) and makes the corporation liable for the debt of the shareholders.”
51
 It has two (2) types: outsider reverse piercing and insider reverse piercing.
Outsider reverse piercing occurs when a party with a claim against an individual or
corporation attempts to be repaid with assets of a corporation owned or
52
substantially controlled by the defendant. In contrast, in insider reverse piercing,
the controlling members will attempt to ignore the corporate fiction in order to take
advantage of a benefit available to the corporation, such as an interest in a lawsuit
53
or protection of personal assets.
_______________
50 111 F. Supp. 2D 734; 2000 U.S. Dist. LEXIS 13123, 13.
51 Sweeney, Cohn, Stahl & Vaccaro v. Kane, 6 A.D. 3D 72, 75; 773 N.Y.S.2d
420, 423; 2004 N.Y. App. Div. LEXIS 2499, 7.
52 Richardson, Michael, The Helter Skelter Application of the Reverse
Piercing Doctrine, University of Cincinnati Law Review, Volume 79, Issue 4, Article
9, p. 1605, 17 October 2011.
53 Id.
455
VOL. 848, DECEMBER 13, 2017 455
International Academy of Management and Economics
(I/AME)vs. Litton and Company, Inc.
Outsider reverse veil-piercing is applicable in the instant case. Litton, as
judgment creditor, seeks the Court’s intervention to pierce the corporate veil of
I/AME in order to make its Makati real property answer for a judgment against
Santos, who formerly owned and still substantially controls I/AME.
54
In the U.S. case Acree v. McMahan, the American court held that “[o]utsider
reverse veil-piercing extends the traditional veil-piercing doctrine to permit a third-
party creditor to pierce the veil to satisfy the debts of an individual out of the
corporation’s assets.”
The Court has pierced the corporate veil in a reverse manner in the instances
when the scheme was to avoid corporate assets to be included in the estate of a
decedent as in the Cease case and when the corporation was used to escape a
judgment to pay a debt as in the Arcilla case.
In a 1962 Philippine case, this Court also employed what we now call reverse
55
piercing of the corporate veil. In Palacio v. Fely Transportation Co., we found that
the president and general manager of the private respondent company formed the
corporation to evade his subsidiary civil liability resulting from the conviction of his
driver who ran over the child of the petitioner, causing injuries and medical
expenses. The Court agreed with the plaintiffs that the president and general
manager, and Fely Transportation, may be regarded as one and the same person.
Corporation
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Thus, even if the president and general manager was not a party to the case, we
reversed the lower court and declared both him and the private respondent
company, jointly and severally liable to the plaintiffs. Thus, this Court allowed the
outsider-plaintiffs to pierce the corporate veil of Fely Transportation to run after its
corporate assets
_______________
54 276 Ga. 880; 585 S.E.2d 873; 2003 Ga. LEXIS 629; 2003 Fulton County D.
Rep. 2171, 20 July 2003, citing C.F. Trust v. First Flight, 306 F.3d 126. 134
(III)(A)(4th Cir. 2002).
55 116 Phil. 155; 5 SCRA 1011 (1962).
456
456 SUPREME COURT REPORTS ANNOTATED
International Academy of Management and Economics
(I/AME)vs. Litton and Company, Inc.
and pay the subsidiary civil liability of the company’s president and general
manager.
This notwithstanding, the equitable remedy of reverse corporate piercing or
reverse piercing was not meant to encourage a creditor’s failure to undertake such
remedies that could have otherwise been available, to the detriment of other
56
creditors.
Reverse corporate piercing is an equitable remedy which if utilized cavalierly,
may lead to disastrous consequences for both stock and nonstock corporations.
We are aware that ordinary judgment collection procedures or other legal remedies
are preferred over that which would risk damage to third parties (for instance,
innocent stockholders or voluntary creditors) with unprotected interests in the
57
assets of the beleaguered corporation.
Thus, this Court would recommend the application of the current 1997 Rules
on Civil Procedure on Enforcement of Judgments. Under the current Rules of
Court on Civil Procedure, when it comes to satisfaction by levy, a judgment obligor
is given the option to immediately choose which property or part thereof may be
levied upon to satisfy the judgment. If the judgment obligor does not exercise the
option, personal properties, if any, shall be first levied and then on real properties if
58
the personal properties are deemed insufficient to answer for the judgment.
_______________
56 Allen, Nicholas, Reverse Piercing of the Corporate Veil: A Straightforward
Path to Justice, New York Business Law Journal, Volume 16, Number 1, p. 29,
Summer 2012.
 57 Richardson, supra note 52 at p. 1616. Real property, stocks, shares, debts, credits, and other personal
58 Rule 39, Section 9. Execution of judgments for money, how enforced.— property, or any interest in either real or personal property, may be levied upon in
xxx like manner and with like effect as under a writ of attachment. x x x.
(b) Satisfaction by levy.—If the judgment obligor cannot pay all or
part of the obligation in cash, certified bank check or other mode of payment
acceptable to the judgment obligee, the officer shall levy upon the properties of the
judgment obligor of every kind and 458
458 SUPREME COURT REPORTS ANNOTATED
International Academy of Management and Economics
457 (I/AME)vs. Litton and Company, Inc.
VOL. 848, DECEMBER 13, 2017 457 Accordingly, the MeTC of Manila, Branch 2, is hereby DIRECTED to execute
with dispatch the MeTC’s Order dated 29 October 2004 against Santos.
International Academy of Management and Economics
SO ORDERED.
(I/AME)vs. Litton and Company, Inc. Leonardo-De Castro, Del Castillo, Jardeleza and Tijam, JJ., concur.
In the instant case, it may be possible for this Court to recommend that Litton
run after the other properties of Santos that could satisfy the money judgment — Petition denied, judgment and resolution affirmed.
first personal, then other real properties other than that of the school. However, if
we allow this, we frustrate the decades — old yet valid MeTC’s judgment which
Notes.—The rule is that a director is not personally liable for the debts of the
levied on the real property now titled under the name of the school. Moreover, this
corporation, which has a separate legal personality of its own; Section 31 of the
Court will unwittingly condone the action of Santos in hiding all these years behind
Corporation Code makes a director personally liable for corporate debts if he
the corporate form to evade paying his obligation under the judgment in the court a
willfully and knowingly votes for or assents to patently unlawful acts of the
quo. This we cannot countenance without being a party to the injustice.
corporation, or if he is guilty of gross negligence or bad faith in directing the affairs
Thus, the reverse piercing of the corporate veil of I/AME to enforce the levy on
of the corporation. (Carag vs. National Labor Relations Commission, 520 SCRA 28
execution of the Makati real property where the school now stands is applied.
[2007])
WHEREFORE, in view of the foregoing, the instant petition is DENIED. The
Piercing the veil of corporate fiction may only be done when “the notion of legal
CA’s Decision in C.A.-G.R. S.P. No. 107727 dated 30 October 2009 and its
entity is used to defeat public convenience, justify wrong, protect fraud, or defend
Resolution on 12 March 2010 are hereby AFFIRMED. The MeTC’s Order dated 29
crime”; For the separate juridical personality of a corporation to be disregarded, the
October 2004 is hereby REINSTATED.
wrongdoing must be clearly and convincingly established — it cannot be
_______________
presumed. (Uy vs. Villanueva, 526 SCRA 73 [2007])
nature whatsoever which may be disposed of for value and not otherwise exempt
from execution giving the latter the option to immediately choose which property or
part thereof may be levied upon, sufficient to satisfy the judgment. If the judgment
obligor does not exercise the option, the office shall first levy on the personal [No. L-10556. April 30, 1958]
properties, if any, and then on the real properties if the personal properties are RICARDO GURREA, plaintiff and appellant, vs. JOSÉ MANUEL LEZAMA, ET AL.,
insufficient to answer for the judgment. defendants and appellees.
The sheriff shall sell only a sufficient portion of the personal or real
property of the judgment obligor which has been levied upon.
When there is more property of the judgment obligor than is sufficient 1. 1.CORPORATION LAW; WHO ARE CONSIDERED OFFICERS OF THE
to satisfy the judgment and lawful fees, he must sell only so much of the personal CORPORATION; CASE AT BAR.—The only officers of a corporation
or real property as is sufficient to satisfy the judgment and lawful fees. are those given that character either by the Corporation Law or by its by-
laws. The rest can be considered merely as employees or subordinate

Corporation  Law  Cases  –  Batch  3  

 
 officials. In the case at bar; considering that plaintiff has been appointed
manager by the board of
554
5 PHILIPPINE REPORTS ANNOTATED
54
Gurrea vs. Lezama, et al.
1. directors and as such does not have the character of an officer, the
conclusion is inescapable that he can be suspended or removed by said
board of directors under such terms as it may see fit and not as provided
for in the by-laws. Evidently, the power to appoint carries with it the
power to remove, and it would be incongruous to hold that having been
appointed by the board of directors he could only be removed by the
stockholders.
1. 2.ID.; ID.; ID.; LIABILITY FOR VIOLATION OF PENAL PROVISIONS OF
STATUTES DOES NOT MAKE MANAGER OFFICER OF
CORPORATION.—The fact that the "manager" of the corporation in the
several statutes enacted by Congress is held criminally liable for
violation of any of the penal provisions therein prescribed does not make
him an "officer" of the corporation. This liability flows from the nature of
his duties which are delegated to him by the board of directors. He is
paid for them. Hence, he has to answer for them should he use it in
violation of law.
APPEAL from a judgment of the Court of First Instance of Iloilo. Makalintal, J.
The facts are stated in the opinion of the Court.
Fulgencio Vega and Felix D. Bacabac for appellant.
José Manuel Lezama for appellees José Manuel Lezama and Genivera F.
de Lezama.
Domingo B. Lauren for the other appellees.
BAUTISTA ANGELO, J.:
Plaintiff instituted this action in the Court of First Instance of Iloilo to have
Resolution No. 65 of the Board of Directors of the La Paz Ice Plant and Cold
Storage Co., Inc., removing him from his position of manager of said corporation
declared null and void and to recover damages incident thereto. The action is
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predicated on the ground that said resolution was adopted in contravention of the
provisions of the by-laws of the corporation, of the Corporation Law and of the
understanding, intention and agreement reached among its stockholders.
Defendant answered the complaint setting up as defense that plaintiff had
been removed by virtue of a valid resolution.
555
VOL. 103, APRIL 30, 1958 555
Gurrea vs. Lezama, et al.
In connection with this complaint, plaintiff moved for the issuance of a writ of
preliminary injunction to restrain defendant José Manuel Lezama from managing
the corporation pending the determination of this case, but after hearing where
parties presented testimonial and documentary evidence, the court denied the
motion. Thereafter, by agreement of the parties and without any trial on the merits,
the case was submitted for judgment on the sole legal question of whether plaintiff
could be legally removed as manager of the corporation merely by resolution of the
board of directors or whether the affirmative vote of 2/3 of the paid shares of stocks
was necessary for that purpose. And passing upon this legal point, the trial court
held that the removal of plaintiff was legal and dismissed the complaint without
pronouncement as to costs. Plaintiff appealed to the Court of Appeals but finding
that the question at issue is one of law, the latter certified the case to us for
decision. Section 33 of the Corporation Law provides: "Immediately after the
election, the directors of a corporation must organize by the election of a president,
who must be one of their number, a secretary or clerk who shall be a resident of
the Philippines * * * and such other officers as may be provided for in the by-laws."
The by-laws of the instant corporation in turn provide that in the board of directors
there shall be a president, a vice-president, a secretary and a treasurer. These are
the only ones mentioned therein as officers of the corporation. The manager is not
included although the latter is mentioned as the person in whom the administration
of the corporation is vested, and with the exception of the president, the by-laws
provide that the officers of the corporation may be removed or suspended by the
affirmative vote of 2/3 of the paid-up shares of the corporation (Exhibit A).
From the above the following conclusion is clear: that we can only regard as
officers of a corporation those who are given that character either by the
Corporation Law
556
656 PHILIPPINE REPORTS ANNOTATED
Gurrea vs. Lezama, et al.
or by its by-Iaws. The rest can be considered merely as employees or subordinate
officials. And considering that plaintiff has been appointed manager by the board of
directors and as such does not have the character of an officer, the conclusion is
inescapable that he can be suspended or removed by said board of directors
under such terms as it may see fit and not as provided for in the by-laws. Evidently,
the power to appoint carries with it the power to remove, and it would be
incongruous to hold that having been appointed by the board of directors he could
only be removed by the stockholders.
The above interpretation finds also support in the American authorities.
Fletcher, in his treatise, states the rule in the following wise: "It is sometimes
important to determine whether a person representing a corporation is to be
classed as an officer of the company or merely as an agent or employee,
especially in construing statutes relating only to 'officers' of corporations. Generally
the officers of a corporation are enumerated in its charter or by-laws, and include a
president, vice-president, secretary, treasurer and sometimes others. The statutes
in most of the states expressly provide for the election of a president, secretary
and treasurer, and then provide that there shall be such other officers, agents and
factors as the corporation shall authorize for that purpose. If the charter expressly
enumerates who shall be officers of the company, a person whose position is not
enumerated is not an officer as to members of the corporation, since the charter is
conclusive upon them" (Fletcher, Cyclopedia of the Law of Private Corporations,
Vol. II, p, 19). It has been likewise held "that the offices pertaining to a private
corporation are defined in its charter and by-Iaws, and that no other positions in the
service of the corporation are offices" (Ann. 53 A.L.R., 599).
Indeed, there are authorities galore that hold that a general manager is not an
officer of a corporation, even if his powers and influence may be as great as those
of any officer in said organization.
557
VOL. 103, APRIL 30, 1958 557
Gurrea vs. Lezama, et al.
"Officers Distinguished from Mere Employees.—As already stated, both officers
and employees are agents of the corporation and the difference between them is
largely one of degree; the officers are the most important employees exercising
greater authority or power in the management of the business. Ordinarily, too, the
principal offices are designated by statute, charter or by-law provisions, and
specific duties are imposed upon certain officers. Thus the state statute or a by-law
may provide that stock certificates shall be signed by the president and
countersigned by the secretary or treasurer. The general manager of a corporation
is not ordinarily classed as an officer, but his powers and influence may be quite as
great as those of any person in the organization" (Grange, Corporation Law for
Officers and Directors, p. 432; Italics supplied.)
"One distinction between officers and agents of a corporation lies in the
manner of their creation. An officer is created by the charter of the corporation, and
the officer is elected by the directors or the stockholders. An agency is usually
created by the officers, or one or more of them, and the agent is appointed by the
same authority. It is clear that the two terms officers and agents are by no means
Corporation
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 3
interchangeable. One, deriving its existence from the other, and being dependent
upon that other for its continuation, is necessarily restricted in its powers and
duties, and such powers and duties are not necessarily the same as those
pertaining to the authority creating it. The officers, as such, are the corporation. An
(
agent is an employee. A mere employment, however liberally compensated, does
not rise to the dignity of an office.' 21 Am. & Eng. Enc. Law (2d Ed.) 836.
In Wheeler & Wilson Mfg. Co. vs. Lawson, 57 Wis. 400, 15 N. W. 398, it was held
that under a statute requiring an affidavit to be made by an officer of a
corporation, the general agent or managing agent, within the state, of a foreign
corporation is not an officer. ,In Farmers' Loan & Trust Co. vs. Warring 20 Wis 305
service was made upon the 'principal agent' of a corporation holding in trust a
railroad, when the statute required service upon a principal officer.' In answering
the question whether or not the agent was a principal officer the court said: 'It is
evident he was not, and must be regarded only as an agent, not as an officer of
any kind, much less a principal officer.' A ruling that a 'general manager of a
corporation was not authorized to verify pleadings under a statute requiring
verification by 'an officer' was made in Meton vs Isham Wagon Co. (Sup.) 4 N. Y.
C , 122 Ga 7 4, 5 S E 1008 4
Supp. 215. In Raleigh, held Co. vs. an o. ' 0 0 . . ( ), it was held
that the term 'general manager.' as applied to one representing a corporation, and
especially a railroad corporation, imported an agent of a very extensive authority;
but it was not ruled that even
558
558 PHILIPPINE REPORTS ANNOTATED
Gurrea vs. Lezama, et al.
the term 'general manager' would import that the person holding that position was
necessarily an officer of the company, One distinction between an officer and an
agent suggested in Commonwealth vs. Christian, 9 Phila. (Pa.) 558, is that an
officer of a corporation, if illegally excluded from his office, may by mandamus
compel the corporation to reinstate him; while an agent may be dismissed without
cause, and his only remedy would be compensation in damages. It would not be
contended that the 'general agent of the defendant at Columbus,' in the event of
his discharge, could be reinstated by mandamus. We do not think the general
agent at Columbus was an officer of the defendant company. Therefore his alleged
waiver of a condition in the policy was not binding upon the company."
(Vardeman vs. Penn. Mut. Life Ins. Co., 125 Ga. 117, 54 S.E. p. 66; Italics
supplied.)
"The plaintiff predicates this action on said contract, and claims that the same
being signed by the defendant through its 'general manager' if admitted in
evidence, would show sufficient authority prima facie to do any act which the
directors could authorize or ratify. The instrument in question being signed by
James W. Codle, 'General Manager', and no evidence on the trial being produced
showing the duties of said manager or what kind of an office he was general
manager of, the words 'general manager' without proof as to the nature of services
performed by the person called 'general manager', have no meaning in law,
excepting that the person bearing the title is an employee who has been
designated with a title. It does not make him an officer of the company employing
him." (Studebaker Bros. Co. vs. R. M. Rose Co., 119 N.Y.S. pp. 970, 97; Italics
supplied.)
We therefore hold that plaintiff has been properly removed when the board of
directors of the instant corporation approved its Resolution No. 65 on June 3,
1948.
We will now clarify some of the points raised by the distinguished dissenter in
his dissenting opinion.
The fact that the "manager" of the corporation in the several statutes enacted
by Congress is held criminally liable for violation of any of the penal provisions
therein prescribed does not make him an "officer" of the corporation. This liability
flows from the nature of his duties which are delegated to him by the board of
directors. He is paid for them. Hence, he has to answer for them should he use it in
violation of law. In the case of Ro-
559
VOL. 103, APRIL 30, 1958 559
Gurrea vs. Lezama, et al.
binson vs. Moark-Nemo Consol Mining Co., et al., 163 S. W. 889, in connection
with the liability of the manager, the court said:
"Common justice and common sense demand that, where those in charge and
control of the management of a corporation direct it along paths of wrongdoing,
they should be held accountable by law * * *. This doctrine will prevent many
wrongs, and have a salutary influence in bringing about the lawful and orderly
management of corporations."
It is claimed that the cases of Meton vs. Isham Wagon, 4 N.Y.S., 215
and State vs. Bergs, 217 N. W., 736, supporting the theory that a manager is not
1
necessarily an officer, are in illo tempore. It is submitted that we do not adopt a
rule just because it is new nor reject another just because it is old. We adopt a rule
because it is a good and sound rule. The fact however is that they are not the only
authorities supporting that theory. Additional cases are cited by Fletcher in support
thereof, such as the cases of Vardeman vs. Penn. Mut. Life Ins.
Co., supra; Studebaker Bros. Co. vs. R. M. Rose Co., supra.
The dissenting opinion quotes from Thompson and Fletcher to support the
theory that the general manager of a corporation may be considered as its
principal officer even though not so mentioned in its charter or bylaws. We have
examined the cases cited in support of that theory but we have found that they are
not in point. Thus, we have found (1) that the parties involved are mostly outsiders
Corporation
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 3
who press their transactions against the corporation; (2) that the point raised is
whether the acts of the manager bind the corporation; (3) that the tendency of the
courts is to hold the corporation liable for the acts of the manager so long as they
are within the powers granted, hence, the courts emphasized the importance of the
position of manager; and (4) the position of manager was discussed from the point
of view of an outsider and not from the internal organization of the
_______________
1
Cited by Grange, Corporation Law for Officers and Directors, p. 432.
560
560 PHILIPPINE REPORTS ANNOTATED
Gurrea vs. Lezama, et al.
corporation, or in accordance with its charter or by-laws. In the present case,
however, the parties are the manager and the corporation. And the solution of the
problem hinges on the internal government of the corporation where the charter
and the by-laws are necessarily involved in the determination of the rights of the
parties. Indeed, it has been held: "But it is urged that a corporation may have
officers not recognized by the charter and by-laws. It is possible this may be so as
to matters arising between strangers and the corporation." [Com. vs. Christian, 9
Phila. (Pa.) 556; italics supplied].
The cases on all fours with the present are those of State ex rel
Blackwood vs. Brast, et al., 127 S. E. 507 and Denton Milling Co. vs. Blewitt, 254
S. W. 236, 288, where the parties involved are the manager and the corporation.
The issue raised is the relation of the manager towards the corporation. The
position of the manager is discussed from the point of view of its internal
government. And the holding of the court is that the manager is the creation of the
board of directors and the agent through whom the corporate duties of the board
are performed. Hence, the manager holds his position at the pleasure of the board.
This stipulation is well expressed in the following words of Thompson:
"The word 'manager' implies agency, control, and presumptively sufficient authority
to bind a corporation in a case in which the corporation was an actual party. It has
been said that such agent must have the same general supervision of the
corporation as is associated with the office of cashier or secretary. By whatever
name he may be called, such managing agent is a mere employee of the board of
directors and holds his position subject to the particular contract of employment;
and unless the contract of employment fixes his term of office, it may be terminated
at the pleasure of the board. * * * The manager, like any other appointed agent, is
subject to removal when his term expires and on the request of the proper officer
he should turn over his business to the corporation and, where he refuses to
comply, he may be restrained from the further performance of work for the
corporation." (Thompson on Corporations, Vol. III, 3rd., pp. 209-210; Italics
supplied.)
561
VOL. 103, APRIL 30, 1958 561
Gurrea vs. Lezama, et al.
It is not correct to hold that the theory that a manager is not classed as an officer of
a corporation is only the minority view. If we consider the states that hold that
managers are merely agents or employees as among those that hold the theory
that managers are not necessarily officers, then our theory is supported by the
2
majority view. Indeed, this view is upheld by nine states, whereas only six states
3
adopt the view that managers are considered principal officers of the corporation.
The dissenting opinion quotes the provision of the bylaws relative to the
administration of the affairs of the instant corporation. It is there provided that the
affairs of the corporation shall be successively administered by (1) the
stockholders; (2) the board of directors; and (3) the manager. From this it
concludes that the manager should be considered an officer.
The above enumeration only emphasizes the different organs through which
the affairs of the corporation should be administered and the order in which the
powers should be exercised. The stockholders are the entity composing the whole
corporation. The board of directors is the entity elected by the stockholders to
manage the affairs
______________
2
Georgia-Vanderman vs. Penn. Mut. Life Ins. Co., supra; New York-
Studebaker Bros. Co. vs. R. M. Rose Co., supra; OklahomaBadger vs. Oil Gas Co.
Preston, 49 Okla. 270, 152 Pac. 383; Wisconsin-Wheeler & Wilson Mfg.
Co., vs. Lawson, 57 Wis. 400, 15 N. W. 398; Louisiana-Roberts vs. J. A. Masquere
Co., 158 La. 642, 104 So. 484; Texas-Denton Milling Co. vs. Blewett, 254 S. W.
236; West Virginia-State vs. Brast, 98 W. Va. 127 S. E. 507; South Dakota-Magpie
Gold Mining Co. vs. Sherman, 23 S. Dak. 232, 121 N. W. 770; South Carolina-
Silverthorne vs. Barnwedd Lumber Co., 96 S. Car. 32, 79 S. E. 519.
3
Kansas-Kansas City vs. Culinan, 65 Kansas 68, 68 Pac. 1099; Missouri-
Robinson vs. Moark-Nemo Consol, Min. Co., supra; North Carolina-
Kelly vs. Newark Shoe Stores Co., 190 N. Car. 406. 130 S. E. 32; Colorado-Robert
E. Lee S. Mining Co., vs. Omaha Grant, 16 Colorado 118, 122, 26 Pac. 326; New
Mexico-Stearns-Roger Mfg. Co. vs. Aztec Gold, 93 Pac. 706; Nebraska-
Ritchie vs. Illinois Cent. R. Co., 128 N. W. 35.
562
562 PHILIPPINE REPORTS ANNOTATED
Gurrea vs. Lezama, et al.
Corporation
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 Batch
 3
of the corporation. And the manager is the individual appointed by the board of
directors to carry out the powers delegated to him. In other words, the manager is
the creation of the board of directors. He is an alter ego of the board. As our law
provides that only those enumerated in the charter or in the by-laws are considered
officers, the manager who has not been so enumerated therein, but only
incidentally mentioned in the order of management, cannot be considered an
officer of the corporation within their purview,
The mere fact that the directors are not mentioned in the by-laws as officers
does not deprive them of their category 'as such for their character as officers is
secured in the charter. The same is not true with the manager. Customs and
corporate usages cannot prevail over the express provisions of the charter and the
by-laws.
There is no comparison between an appointee of the President, especially one
in the judiciary, and the appointee of the board of directors of a corporation. In the
first case, removal is especially provided for by law and in the second, the
appointee holds office at the pleasure of the board. And with regard to the powers
of the board of directors to remove a manager of the corporation, Thompson has
the following to say:
"* * * Below the grade of director and such other officers as are elected by the
corporation at large, the general rule is that the officers of private corporations hold
their offices during the will of the directors, and are hence removable by the
directors without assigning any cause for the removal, except so far as their power
may be restrained by contract with the particular officer,—just as any other
employer may discharge his employee. Speaking generally, it may be said that the
power to appoint carries with it the power to remove. * * * the directors who appoint
a ministerial officer may undoubtedly remove him at pleasure, and he has no
remedy other than an action for damages against the corporation for a breach of
contract. * * * The ordinary ministerial and other lesser officers, however, hold their
offices during the pleasure of the directors and may be removed at will, without
assigned cause. Of this class of officers and agents are the secretary and
treasurer
563
VOL. 103, APRIL 30, 1958 563
Gurrea vs. Lezama, et al.
of the corporation, the general manager, the assistant manager, the field manager,
the attorney of the company, an assistant horticulturist, and the bookkeepers."
(Thompson on Corporations, Vol. III, 521-523.)
Wherefore, the decision appealed from is affirmed, with costs against appellant.
Parás, C. J., Montemayor, Concepción, Reyes, J. B. L., and Endencia,
JJ., concur.
BENGZON, J., dissenting:
Disposition of this appeal depends on the question whether Manager Ricardo
Gurrea is "an officer" of the corporation. If he is, he wins. The majority says he is
not. I disagree, because the authorities hold the manager to be the principal
executive officer of the corporation, because our Legislature considers him as
such, or at least as one of the principal officers, and because we have heretofore
regarded him as an officer of the corporation. Moreover, judging from the history of
this corporation's organization and operation I think the stockholders intended that
the manager shall be removed only by a two-thirds vote,
I. Manager is principal executive officer. West Coast vs. Hurd, 27 Phil., 401,
held that corporations may not be criminally prosecuted for violations of the law
although their officials could be made liable therefor.
Thereafter several statutes have been enacted expressly making the
"manager" criminally responsible for violations by the corporation of: the Usury
1 2
Laws, the Price Control Law, the law on Employment of Women and
3 4 5 827; Robinson vs. Moark-Nemo Consul, Min. Co., 178 Mo. App. 531, 163 S. W.
Children the Chemistry Law, the Minimum Wage Law, the Chemical
6 885; Ritchie vs. Illinois Cent. R. Co., Neb. 631, 635, 128 N. W. 35; Booker-Jones
Engineering Law, the Labor on Sunday
____________
City vs. Cullinan, 65 Kans. 68, 68 Pac. 1099; Manross vs. Uncle Sam Oil Co., 88
Kans. 237, Pac. 385, Ann. Cas. 1914, 827; Robinson vs. Moark-Nemo Cansol Min,
Co., 178 Mo. App. 581, 163 S. W. 885. See also Kelly vs. Newark Shoe Stores
Co., 190 N. Car. 406, 130 S. E. 32.)
"A general manager, where his duties are fixed by by-laws or otherwise, has
been defined as "the person who really has the most general control over the
affairs of a corporation, and who has knowledge of all its business and property,
and who can act in emergencies on his own responsibility; who may be considered
the principal officer." (Fletcher, Cyclopedia of Corporations Vol. II p. 598 citing
Anderson's Law Dictionary (quoted in Robert E. Lee Silver Min.
Co. vs. Omaha & Grant Smelting & Refining Co., 16 Colo. 118, 122, 26 Pac.
326; Kansas City vs. Culliman, 65 Kan. 68, 77, 68 Pac. 1099; Stearns-Roger Mfg.
Co. vs. Aztec Gold Mining & Milling Co. 14 N. M. 300, 330, 93 Pac.
706); Marderosian V. National Casualty Co.; Cal. App.-, 273 Pac. 1093; State ex
rel. Blackwood vs. Brast, 98 W. Va. 596, 127 S. E. 507, See
also Manross vs. Uncle Sam Oil Co., 88 Kan. 237, 128 Pac. 385, Ann. Gas. 1914
Oil Co. vs. National Refining Co. (Tex. Civ. App.), 132 S. W. 815.

1 ______________
Act 3998
2
Republic Act 509 sec. 12 7
3
Republic Act 679 sec. 12 (c) Republic Act 946
8
4
Republic Act 754 sec. 23 See Republic Act 776; Commonwealth Act 303; Commonwealth Act 617,
5
Republic Act 602 sec. 15 (b) 565
6
Republic Act 318
VOL. 103, APRIL 30, 1958 565
564
Gurrea vs. Lezama, et al.
564 PHILIPPINE REPORTS ANNOTATED Thompson Op. Cit. Vol. III sec. 1690. In the Grange quotation, majority impliedly
Gurrea vs. Lezama, et al. admits "manager" is the same as "general manager."
x
7 8
Law, and other laws. Only the manager; not the president, nor the directors nor "Manager" and "General Manager" are interchangeable.
other officers. This obviously shows that in the opinion of the legislature, the The Legislature was right. It punished the principal executive officer for wrongs
manager is the principal executive officer of the corporation, through whom the committed for and by the corporate entity.
latter acts and transacts business. II. Textbook vs. Treatises. The majority disregarded the extensive treatises of
In this case however, this Court (the majority) declares that the manager is not Thompson on Corporations (12 volumes) and Fletcher on Corporations (20
even an officer. Did the Legislature err ? Let the authorities speak. volumes), only to rely on the one-volume work of Attorney Grange, confessedly (in
"A general manager of a corporation has been defined to be a person who really its preface) not written for "the corporation lawyer," being a "concise" statement of
has the most general control over the affairs of the corporation, and who has the basic principles of corporation law. In support of his statement, said attorney
knowledge of all its business, and property, and can act in emergencies on his own cites two cases only: Meton vs. Isham Wagon, 4 N. Y. Suppl. and State vs. Bergs,
responsibility; he may be considered the principal officer" (Thompson on 195 Wis. 73, 217 N. W. 736.
Corporations, Vol. III p. 209, citing 14 Am. & Eng. Ency. of Law (2d ed.) The first was decided in illo tempore, long ago, in 1889; at that time corporate
1002; American Inv. Co. vs. Cable Co., 4 Ga. App. 106, 60 S.E. 1037; Kansas development was in its initial stages. And it was decided by the Supreme Court of

Corporation  Law  Cases  –  Batch  3  

 
New York, which everybody knows is only an appellate court, the highest court in
that state being the Court of Appeals.
The second case expressly follows the Meton decision. On the other hand
more than ten cases from eight states of the American Union support the
Thompson and Fletcher excerpts above quoted. Clearly the choice of this
Court's majority, reflects the minority view. Worse still, it ignores the Congressional
viewpoint.
The majority decision draws the conclusion that the manager is not an officer,
from these two propositions or premises: Generally, the officers in a corporation
are mentioned in its charter as an officer in the by-laws of the La Paz Ice Plant and
Cold Storage Co., Inc. Let me analyze these propositions in their order.
III. By-laws mention manager. As to the first, observe the word "generally." The
quotations from Thompson
______________
x
Thompson Op. Cit. Vol. III sec. 1690. In the Grange quotation, majority impliedly
admits "manager" is the same as "general manager."
566
566 PHILIPPINE REPORTS ANNOTATED
Gurrea vs. Lezama, et al.
and Fletcher do not rest on the charter or by-laws of the corporation. They consider
the duties and powers of the position. And our own laws, the Usury Law, the Price
Control Law, the Law on Employment of Women and Children, the Chemistry Law,
the Minimum Wage Law, the Chemical Engineering Law, the Labor or Sunday
Law, etc., postulate the manager's dominant official position in the corporate set-up
regardless of whether he is mentioned in the by-laws. The first proposition of the
majority decision could be applied to other less known officials, such as the
cashier, the auditor, superintendent, branch manager, etc.
Nevertheless, for the sake of argument, I will admit the first proposition as an
absolute rule, with no exceptions: officers of the corporation must be mentioned in
its charter and/or by-laws. Is the manager mentioned in the by-laws of the La Paz
Ice Plant? I say yes, definitely; and I quote the by-laws:
"ADMINISTRACION"
"ART. 11.o-)-Para los efectos del Gobierno y administracion de la Corporacion, se
considerara como central, la oficina de la Corporacion en La Paz, Iloilo, I. F.
"ART. 13.o-)-La Corporacion sera en lo sucesivo administrada por: 1.o-la
Junta General de los Accionistas, 2.o-la Juntas de Directores y 3.o-el Gerente."
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It will thus be seen that, together with the directors, the manager (gerente) is
named as one of the administrators which means officers.
There is no specific article in its by-laws enumerating the officers of this
corporation. True, there is a portion entitled "Funcionarios" and under it several
articles specify the duties, respectively of the President, VicePresident, Secretary
and Treasurer. And obviously because they found therein no article on the duties
of the manager (gerente) the majority concluded, inclusio unius est exclusio
alterius, ergo, the manager is not "funcionario." Yet they dare not argue
thusly, because if they
567
VOL. 103, APRIL 30, 1958 567
Gurrea vs. Lezama, et al.
did, I would answer: directors are not mentioned therein, ergo directors are not
officers too and then their position would become untenable.
The "manager" (gerente) and the directors are not mentioned under
"Funcionarios" because they had already been mentioned in the previous articles
above quoted under "Administracion"; and because it was thought unnecessary to
define their powers and duties, those of the directors being fixed by the corporation
laws, and those of the manager by general corporate usage.
"The governing .principle with reference to the general power of a manager is that
where he has the actual charge and management of the business, by the
appointment of or with the knowledge of the directors, the corporation will be
bound by his acts and contracts which are necessary or incident in the course of
the business, without other evidence of actual authority. As a general rule, he has
authority to do anything which is ordinarily necessary to the principal business of
the corporate organization and not in excess of its powers. * * * His apparent
authority is said to be co-extensive with the scope of all managerial requirements
and necessities. A general manager acting within the scope of his authority has the
power to bind the corporation as to contracts and dealings with its corporate
property. He has power to do any act necessary to carry on the ordinary business
of the corporation. He has no authority, however, to bind the corporation as to
matters outside the scope of the corporate purposes." (Thompson on Corporations
Vol. III p. 210-212.)
IV. Manager higher than secretary or treasurer. Indeed, if we were to make
comparisons, the manager should be placed on a higher level than the secretary or
treasurer whom the majority would qualify as officers, because the manager being
expressly allowed to take part in the "administration" "gobierno y administracion"
which concerns itself with "the over-all determination of major policies and
9
objectives," besides exercising other executive functions, the manager I repeat,
exerts far greater power than the above two officials in the affairs of the
corporation.
_____________
9 It must be remembered that since the beginning, Gurrea's family owned or
Spriegel, Principles of Business Organization and Operation p. 40.
568
568 PHILIPPINE REPORTS ANNOTATED
Gurrea vs. Lezama, et al.
In fact some of our statutes put him on the same class as the president of the
corporation, when it comes to responsibility for violations of law. "The president or
10
the manager" shall be liable—several statutes so provide —not the secretary or
treasurer.
V. This Court held manager is officer. This Court itself impliedly admits the
manager of a corporation to be an officer thereof, because in Yu Chuk vs. Kong Li
Po 46 Phil. 608, we held that by virtue of his position, the manager could validly
make reasonable contracts of employment binding on the corporation. And our
11
Rules recognize in him power to represent the corporation as an officer thereof,
because said Rules provide that service of summons upon the manager is service
in the corporation.
VI. Appointing power, sometimes not power to remove. The majority finds it
hard to believe that being an appointee of the board of directors, the manager
could not be removed by the latter. They forget that in the law of officers such a
situation often obtains. The President appoints the members of this Court, and
other officials; but he cannot remove them. True, the Constitution so provides. But
in this case also the by-laws of the corporation so provide: its officers may be
removed only by two-thirds vote of the paid-up shares.
Their decision does not explain, but the majority's thinking appears to be
influenced by the apprehension that if Gurrea's contention (2/3 vote) is now
sustained, he may never be replaced, because he own one-half of the shares, and
he may abuse his powers. To me that is a groundless worry. The board of directors
has means to check. And then, what are courts for? Where is the protection
extended to stockholders against abuses of those in control?
_____________
10
See Acts Nos. 3915, 3983, 4003; Republic Acts 122, 134, 746 and 1168.
11
We wouldn't let the corporation be bound by a mere employee.
569
VOL. 103, APRIL 30, 1958 569
Gurrea vs. Lezama, et al.
VII. Stockholders intended security for -manager. It would be interesting to inquire
whether in approving the two-thirds requirement in the by-laws, the
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stockholders intended to apply it only to the Vice President, the Secretary and the
Treasurer—excluding the manager—as the majority opinion declares.
controlled one-half of the shares and Manuel Lezama's family the other half.
Evidently, because Gurrea voted for them, Lezama and two others of his family
became directors in the five-man board of directors. In reciprocity for such vote or
12
concession, Gurrea was named manager, As owner of one-half of the shares
Gurrea could effectively block approval of any bylaws that did not protect his
interest. Therefore, he would not have approved the by-laws in question if they did
13
not protect his position as manager , knowing that being in the minority in the
board of directors his position would be at the mercy of the Lezama family. The
bargain between the Lezama and Gurrea families must have been this: Majority of
14
directors of Lezama; minority for Gurrea plus the position of manager; the
Lezama directors cannot be changed by Gurrea alone (he owns onehalf only); and
Gurrea may not be changed by the Lezama directors (they have one-half shares
only).
In fact this arrangement continued for a long period of time (beginning in the
year 1927) until the Lezamas thought of the "appointed-by-directors-removed-by-
directors" idea in 1948-ironically enough, after the corporation had declared
15
substantial dividends under Gurrea's management,
VIII. My vote goes without hesitation to appellant Gurrea, with due respect of
course to the majority opinion. He should be reinstated and compensated. How, I
need not explain, my opinion having been overruled.
_______________
12, 13 14
and and secretary. I disregard this position because it is not important
to him.
15
P98,240 on a capital of P25,000 (Exhibits G and A.)
570
570 PHILIPPINE REPORTS ANNOTATED
Gurrea vs. Lezama, et al.
BENGZON, J. further dissenting:
I am flattered that, after reading my above dissent, the majority has found it
necessary to re-write its decision in an effort to answer some—not all—of the
points I raised or to remove the grounds on which rested a couple of objections (V.
Textbook vs. Treatises). For once, the "voice in the wilderness" has been heard.
No need to re-write my dissent to meet the 'altered situation. Otherwise, the
majority decision might again be reformed, and the discussion will be prolonged or
will never end.
 Now I am thoroughly convinced of the justness of my vote for appellant (with
apologies to my honored colleagues on the other side), because having expressly
undertaken to rebut my above dissent, the majority decision left one vital point
1
untouched : the stockholders in approving the by-laws intended the manager to
be a "funcionario," removable only by two-thirds vote. Also because the revised
version of the majority opinion is partly founded (again my apologies) on two
fallacious propositions which, contained in a few lines, will require more than two
2
pages to refute.
To match my contention that eight states of the American Union consider the
manager as officer of the corporation, the majority now argue that nine states hold
managers to be "agents or employees"; and so they claim to reflect the prevailing
view. It is inferable from their statement that some of the states (or decisions) they
have in mind
_____________
1
They couldn't rebut it.
2
Such is the dissenter's unwelcome task. The majority may rely on the
authority of its greater number to issue a ruling without convincing explanations. It
can afford to be dogmatic. Caution, dignity, I agree. Strategy too: the shorter its
pronouncements, the fewer the vulnerable points it will reveal. On the contrary, the
dissenter is compelled to elaborate, to marshall all his forces gathered from every
source,—facts, statutes, cases, statistics, logic, even history—to surround, to
assault on all sides, and to overwhelm, if he can, the citadel of error wherein he
thinks the majority abides.
571
VOL. 103, APRIL 30, 1958 571
Gurrea, vs. Lezama, et al.
hold managers as agents, and others employees. How many belong to the last
class (managers-are-employees), they are careful not to specify; thus the
suspicion can not be downed that less than eight belong to that class; otherwise,
there was no reason to include the other kind of cases (managers-are-agents) to
3
be able to list nine states in their column. Yet, the issue here is not whether
managers are agents or not. Undoubtedly, officers—including managers—of the
corporation are also its agents; hence, those "managers-are-agents" decisions
neither boost their position nor countercheck mine.
First fallacy.—And yet, this seems to be the majority's unexpressed method of
reasoning on this matter of "managers-are-agents": There are decisions holding
the manager to be an agent of the corporation; there are also decisions holding
that an agent of a corporation is not an officer thereof; hence, all these decisions
combine to hold that the manager is not an officer.
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Books on the science of correct thinking repudiate the fallacious argumentation
known as "Equivocation." It consists in using the same word in different
meanings, for example: Spirits are incorporeal; liquors are spirits; therefore, liquors
are incorporeal. The wrong conclusion stems from the fallacy of employing "spirits"
in a double meaning.
Reduced to a shorter syllogism, the majority's position is this: manager is agent
of the corporation; Agent is not officer; therefore, manager is not officer.
With all due respect, I say, there is sophistical "equivocation" here. In the major
premise "agent" is used in general (common noun) to denote "representative," any
one acting or speaking for the corporation. Whereas, Agent in the second premise
(capital letter, because proper noun) is used in particular, i.e., a person occupying
the position in the corporation designated "Managing Agent"
_____________
3
1 forego the process of verification.
572
572 PHILIPPINE REPORTS ANNOTATED
Gurrea vs. Lezama, et al.
"General Agent" "Principal Agent" or simply "Agent". The decisions supporting this
second premise simply hold that this or that particular "General Agent" or
"Managing Agent" or "Agent" is not classified as an officer of the corporation, in
view of his powers or responsibilities. There is no decision declaring that "all
agents (in general) of the corporation are not its officers"; because it would not be
correct, the President of a corporation being admittedly its officer, and also Its
agent (not capital letter), since he acts for and on behalf of the corporation.
Following the majority's reasoning it may be argued: the president of a corporation
is agent thereof, Agents of the corporation are not officers thereof; hence, the
president is not officer. Absurd, no? "Equivocation" again.
Second fallacy.—Disputing my position that eight states consider managers as
officers, the majority come out with "only six states adopt the view that managers
are considered principal officers of the corporation." The issue may I remind them,
is whether managers are officers. Whether principal or not, is immaterial. One
abundant source of fallacies consists in ignoring or evading the issue. Aristotle
called it ignoratio elenchi.
Twelve states support dissent.—Let me now seek to reinforce the ranks of the
opposition. Four states, in addition to those already mentioned in my above
4
dissent, may be counted in the managers-are-officers column. That makes twelve
states on my side, which should be held to be the right side if only in deference to
the Congressional viewpoint clearly implied in the statutes I have indicated.
LABRADOR, J., concurring in the dissenting opinion of Justice Bengzon:
______________
 4
Hodges vs. Bankers Surety 152 111. App. S. H. Kress & Co. vs. Powell 132
Fla. 471; 180 So. 757; Carrigan vs. Pot Crescent 6 Wash. 590; 34 Pac.
148; Bush vs. Atlas Automobile 129 Pa. Super 459; 195 Atl. 757.
573
VOL. 103, APRIL 30, 1958 573
Gurrea vs. Lezama, et al.
I concur in the above dissent of Mr. Justice Bengzon. As by Act 13 of the By-Laws
the manager is made an officer of the corporation, he" may not be removed or
suspended except by the affirmative vote of 2/3 of the paidup shares, as provided
in the By-Laws. (Exh. A).
REYES, A., J., dissenting:
The by-laws of this corporation provide that with the exception of the president, the
officers of the corporation may be removed or suspended by the affirmative vote of
two-thirds of the paid-up shares of the corporation.
The majority opinion holds that this provision of the by-laws does not apply to
the manager because he is not an officer of the corporation.
But the claim that the manager is not an officer of the corporation is neither
based on a correct premise nor is it the result of sound reasoning.
Says the majority:
"Section 33 of the Corporation Law provides: 'lmmediately after the election, the
directors of a corporation must organize by the election of a president, who must
be one of their number, a secretary or clerk who shall be a resident of the
Philippines * * * and such other officers as may be provided for in the by-laws.' The
by-laws of the instant corporation in turn provide that in the board of directors there
shall be a president, a vice-president, a secretary and a treasurer. These are the
only ones mentioned therein as officers of the corporation. The manager is not
included although the latter is mentioned as the person in whom the administration
of the corporation is vested * * *."
In the first place, I don't think it is correct to say that the president, the vice-
president, the secretary and the treasurer are the only ones mentioned in the by-
laws as officers of the corporation. For in truth, the by-laws do not say who shall be
regarded as officers of the corporation. Moreover, the above quoted portion of the
majority opinion itself says that (I quote) 'the manager * * * is mentioned as the
person in whom the administration of the corporation is vested * * *." Administering
a cor-
574
574 PHILIPPINE REPORTS ANNOTATED
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Gurrea vs. Lezama, et al.
poration involves the exercise of both authority and trust, so that one invested with
such function should be classified as an officer.
There are, for sure, in the by-laws several articles under the heading
"Funcionarios". One would expect from this heading that those articles would
enumerate the funcionarios or officers of the corporation. Actually, however, they
do not, for they merely define the duties or functions of certain officers: the
president, the vice-president, the secretary and the treasurer. If the duties of the
manager are not defined in those articles, it must be because it is already stated
elsewhere in the by-laws that the corporation is to be administered by the general
meeting of stockholders, the Board of Directors and the manager. It is not,
therefore, correct to say that the manager is not an officer just because his duties
are not defined in those articles. Indeed, as Mr. Justice Bengzon points out in his
dissent, neither are the duties of the directors enumerated therein and yet there is
no denying that the directors are also officers of the corporation.
I must take exception to the theory of the majority that as the manager is
appointed by the Board of Directors he may be suspended or removed by the
Board "under such terms as it may see fit and not as may be provided by the by-
laws." Under what principle of the corporation law could the pretense be justified
that the board of directors may disregard the by-laws, when the validity of these
are not questioned?
On the other hand, there is good reason for believing that the by-laws requiring
a two-third vote of the paid-up stocks for the removal of an officer of this
corporation was meant precisely to prevent the removal of the manager by the
Board of Directors alone. This is made clear in the following portion of Mr. Justice
Bengzon's dissenting opinion:
"VI. Stockholders intended security for manager. It would be interesting to inquire
whether in approving the two-thirds require
575
VOL. 103, APRIL 30, 1958 575
Manansala vs. Heras, et al.
ment in the by-laws, the stockholders intended to apply it only to the Vice-
President, the Secretary and the Treasurer—excluding the manager—as the
majority opinion declares.
" It must be remembered that since the beginning, Gurrea's family owned or
controlled, one-half of the shares and Manuel Lezama's family the other half.
Evidently, because Gurrea voted for them, Lezama and two others of his family
became directors in the fiveman board of directors. In reciprocity for such vote or
concession, Gurrea was named manager. As owner of one-half of the shares
Gurrea could effectively block approval of any by-laws that did not protect his
interests. Therefore, he would not have approved the by-laws in question if they
did not protect his position as manager, knowing that being in the minority in the
board of directors his position would be at the mercy of the Lezama family. The
bargain between the Lezama and Gurrea families must have been this: Majority of
directors of Lezama; minority for Gurrea plus the position of manager; the Lezama
directors cannot be changed by Gurrea alone (he owns one-half only); and Gurrea
may not be changed by the Lezama directors (they have one-half shares only)."
With the above clarification of the situation that led to the approval of the by-law on
the removal of officers, I think this Court would do well to rely less on the
technicalities of definition and adhere more to- its f unction of giving effect to the
by-law in accordance with its purpose.
Judgment affirmed.
*
No. L-58468. February 24, 1984.
PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, MANILA, ANTONIO M.
MAGTALAS, JOSE ARANAS, JUAN D. LIM, JOSE F. PERALTA and BENJAMIN
P. PAULINO, petitioners, vs. LABOR ARBITER LACANDOLA S. LEANO of the
National Labor Relations Commission and RUFINO R. TAN, respondents.
Mercantile Law; Corporation; Jurisdiction; Securities and Exchange
Commission; Issue of the election of directors, officers or managers of a
corporation, the relation between them and the corporation, which is intracorporate
in nature, and the issue of the ouster of the Executive Vice President of the
corporation, fall within the jurisdiction of the Securities and Exchange Commission
and the National Labor Relations Commission.—The foregoing indubitably show
that, fundamentally, the controversy is intra-corporate in nature. It revolves around
the election of directors, officers or managers of the PSBA, the relation between
and among its stockholders, and between them and the corporation. Private
respondent also contends that his “ouster” was a scheme to intimidate him into
selling his shares and to deprive him of his just and fair return on his investment as
a stockholder received through his salary and allowances as Executive Vice-
President. Vis-a-vis the NLRC, these matters fall within the jurisdiction of the SEC.
Same; Same; Same; Same; Declaring vacant the corporate office and the
non-election of the Executive Vice President, not a case of dismissal; Matter of
whom to elect, a prerogative of the corporate board.—This is not a case of
dismissal. The situation is that of a corporate office having been declared vacant,
and of TAN’s not having been elected thereafter. The matter of whom to elect is a
prerogative that belongs to the Board, and involves the exercise of deliberate
choice and the faculty of discriminative selection. Generally speaking, the
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relationship of a person to a corporation, whether as officer or as agent or
employee, is not determined by the nature of the services performed, but by the
incidents of the relationship as they actually exist.
_______________
*
FIRST DIVISION.
779
VOL. 127, FEBRUARY 24, 1984 779
Phil. School of Business Administration vs. Leano
PETITION for certiorari to review the judgment of the Labor Arbiter.
The facts are stated in the opinion of the Court.
De Santos, Balgos and Perez Law Office for petitioners.
The Solicitor General for respondent Arbiter.
Caparas, Ilagan, Alcantara & Gatmaytan Law Office for private respondent.
MELENCIO-HERRERA, J.:
This Petition for Certiorari questions the jurisdiction of respondent Labor Arbiter
over the present controversy (No. NCR-9-20-81) involving private respondent-
complainant, Rufino R. Tan (TAN), and petitioners, the Philippine School of
Business Administration (PSBA), a domestic corporation, and majority of its
Directors.
TAN is one of the principal stockholders of PSBA. Before September 5, 1981,
he was a Director and the Executive Vice President enjoying salaries and
allowances.
On August 1, 1981, at the PSBA Board of Directors’ regular meeting, three
members were elected to fill vacancies in the seven-man body.
On September 5, 1981, also during a regular meeting, the Board declared all
corporate positions vacant except those of the Chairman and President, and at the
same Lime elected a new set of officers. TAN was not re-elected as Executive
1
Vice-President.
On September 16, 1981, TAN filed with the National Labor Relations
Commission (NLRC) (National Capital Region) a complaint for Illegal Dismissal
against petitioners alleging that he was “summarily, illegally, irregularly and
improperly removed from his position as Executive Vice-President x x x without
cause, investigation or notice” (NLRC Case No. NCR-9-20-81) (the Labor Case, in
brief).
 2
On September 21, 1981, TAN also filed a one-million-peso damage suit p. 75, Rollo.
3
against petitioners before the then Court of First p. 74, ibid.
4
p. 10, ibid.
_______________ 781
VOL. 127, FEBRUARY 24, 1984 781
1
pp. 2-3, Minutes of Board Meeting, pp. 46-47, Rollo.
Phil. School of Business Administration vs. Leano
780
cause in violation of his constitutional rights to due process and security of tenure.
780 SUPREME COURT REPORTS ANNOTATED He prays that his dismissal be declared illegal and that his reinstatement be
Phil. School of Business Administration vs. Leano ordered with full backwages and without loss of other benefits.
Instance of Rizal, Quezon City, for illegal and oppressive removal (Civil Case No. We issued a Temporary Restraining Order, enjoining respondent Labor Arbiter
Q-33444). from proceeding in any manner with the Labor Case, and subsequently gave due
And, on September 28, 1981, TAN lodged before the Securities and Exchange course to the Petition.
Commission (SEC) another complaint against petitioners essentially questioning The jurisdiction of the SEC vis-a-vis the NLRC is in issue. An intracorporate
the validity of the PSBA elections of August 1, 1981 and September 5, 1981, and controversy would call for SEC jurisdiction. A labor dispute, that of the NLRC.
of his “ouster” as Executive Vice-President (SEC Case No. 2145). Relevant and pertinent it is to note that the PSBA is a domestic corporation
On October 13, 1981, SEC issued a subpoena duces tecum commanding the duly organized and existing under our laws. General management is vested in a
production of corporate documents, books and records.
2 Board of seven directors elected annually by the stockholders entitled to vote, who
On October 15, 1981, respondent Labor Arbiter also issued a subpoena duces serve until the election and qualification of their successors. Any vacancy in the
3
tecum to submit the same books and documents. Before the NLRC, petitioners Board of Directors is filled by a majority vote of the subscribed capital stock entitled
moved for the dismissal of TAN’s complaint, invoking the principle against split to vote at a meeting specially called for the purpose, and the director or directors
5
jurisdiction. so chosen hold office for the unexpired term. Corporate officers are provided for,
On October 22, 1981, petitioners availed of this Petition contending mainly among them, the Executive Vice-President, who is elected by the Board of
6
that: Directors from their own number. The officers receive such salaries or
7
compensation as the Board of Directors may fix. The By-Laws likewise provide
that should the position of any officer of the corporation become vacant by reason
1. “1.The respondent labor arbiter illegally assumed jurisdiction over the of death, resignation, disqualification, or otherwise, the Board of Directors, by a
complaint for Illegal Dismissal’ because the failure of the private majority vote, may choose a successor or successors who shall hold office for the
respondent to be re-elected to the corporate position of Executive Vice- expired term of his predecessor.
8
President was an intra-corporate question over which the Securities and It was at a Board regular monthly meeting held on August 1, 1981, that three
Exchange Commission had already assumed jurisdiction. directors were elected to fill vacancies. And, it was at the regular Board Meeting of
2. “2.The issuance by the respondent labor arbiter of a subpoena duces September 5, 1981 that all corporate positions were declared vacant in order to
tecum was likewise without jurisdiction especially if considered in the effect a
light of procedural and substantial requirements therefor such that it is
imperative that the supervising authority of this Honorable Court should
_______________
be exercised to prevent a substantial wrong and to do substantial
4
justice.” 5
Section 1, Article II, PSBA By-Laws.
6
Section 5, Article III, ibid.
TAN counter-argues that his sole and exclusive cause of action is illegal dismissal, 7
Section 11, Article III, ibid.
falling within the jurisdiction of the NLRC, for he was dismissed suddenly and 8
Section 4, Article II, ibid
summarily without 782
782 SUPREME COURT REPORTS ANNOTATED
_______________

Corporation  Law  Cases  –  Batch  3  

 
 Phil. School of Business Administration vs. Leano
reorganization, and at the ensuing election of officers, TAN was mot re-elected as
Executive Vice-President.
Basically, therefore, the question is whether the election of directors on August
1, 1981 and the election of officers on September 5, 1981, which resulted in TAN’s
failure to be re elected, were validly held. This is the crux of the question that TAN
has raised before the SEC. Even in his position paper before the NLRC, TAN
alleged that the election on August 1, 1981 of the three directors was in
contravention of the PSBA By-Laws providing that any vacancy in the Board shall
be filled by a majority vote of the stockholders at a meeting specially called for the
purpose. Thus, he concludes, the Board meeting on September 5, 1981 was
tainted with irregularity on account of the presence of illegally elected directors
without whom the results could have been different.
TAN invoked the same allegations in his complaint filed with the SEC. So much
so, that on December 17, 1981, the SEC (Case No. 2145) rendered a Partial
Decision annulling the election of the three directors and ordered the convening of
a stockholders’ meeting for the purpose of electing new members of the
9
Board. The correctness of said conclusion is not for us to pass upon in this case.
TAN was present at said meeting and again sought the issuance of injunctive relief
from the SEC.
The foregoing indubitably show that, fundamentally, the controversy is intra-
corporate in nature. It revolves around the election of directors, officers or
managers of the PSBA, the relation between and among its stockholders, and
between them and the corporation. Private respondent also contends that his
“ouster” was a scheme to intimidate him into selling his shares and to deprive him
of his just and fair return on his investment as a stockholder received through his
salary and allowances as Executive Vice-President. Vis-a-vis the NLRC, these
matters fall within the jurisdiction of the SEC. Presidential Decree No. 902-A vests
in the Securities and Exchange Commission:
_______________
9
p. 177, Rollo.
783
VOL. 127, FEBRUARY 24, 1984 783
Phil. School of Business Administration vs. Leano
“x x x original and exclusive jurisdiction to hear and decide cases involving:
1. “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
Corporation
 Law
 Cases
 –
 Batch
 3
and/or stockholders, partners, members of associations or organizations
registered with the Commission.
2. “b)Controversies arising out of intra-corporate 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;
3. “c)Controversies in the election or appointments of directors, trustees,
officers or managers of such corporations, partnerships or
10
associations.”
This is not a case of dismissal. The situation is that of a corporate office having
been declared vacant, and of TAN’s not having been elected thereafter. The matter
of whom to elect is a prerogative that belongs to the Board, and involves the
exercise of deliberate choice and the faculty of discriminative selection. Generally
speaking, the relationship of a person to a corporation, whether as officer or as
agent or employee, is not determined by the nature of the services performed, but
11
by the incidents of the relationship as they actually exist.
With the foregoing conclusion, it follows that the issuance of a subpoena duces
tecum by the Labor Arbiter will have to be set aside.
WHEREFORE, judgment is hereby rendered (1) ordering respondent Labor
Arbiter to dismiss the complaint in NLRC Case No. NCR-9-20-81 for lack of
jurisdiction; (2) nullifying the subpoena duces tecum issued by him in said case;
and (3)
_______________
10
P.D. No. 902-A, Section 5.
11
Bruce vs. Travelers Ins. Co., 266 F2d 781, cited in 19 Am. Jur. 2d 526.
784
784 SUPREME COURT REPORTS ANNOTATED
Phil. School of Business Administration vs. Leano
declaring the Temporary Restraining Order heretofore issued permanent.
No costs.
SO ORDERED.
Plana and Gutierrez, Jr., JJ., concur.
Teehankee (Chairman), and Relova, JJ., in the result.
Petition granted.
Notes.—The residence of the president of a corporation is not the residence of
the corporation because a corporation has a personality separate and distinct from
that of its officers and stockholders. (Sy vs. Tyson Enterprises, Inc., 119 SCRA
368.)
Corporations can be liable in the same manner as natural persons for tort.
(Philippine National Bank vs. Court of Appeals, 83 SCRA 237.)
When the government enters into commercial business, it abandons its
sovereign capacity and is to be treated like any other corporation. (Philippine
National Railways vs. Union de Maquinistas, Fogones y Motomen, 84 SCRA 223.)
Pending extraterritorial service of summons, an attachment of a foreign
corporation’s properties in the Philippines may be maintained. (FBA Aircraft vs.
Zosa, 110 SCRA 1.)
The decision of an association on the question of election of an officer is not
subject to judicial interference. (Lions Club International vs. Amores, 121 SCRA
621.)
*
G.R. No. 144767. March 21, 2002.
DILY DANY NACPIL, petitioner, vs. INTERCONTINENTAL BROADCASTING
CORPORATION, respondent.
Corporation Law; Securities and Exchange Commission; Two elements to be
considered in determining whether the SEC has jurisdiction over the
controversy.—The Court has consistently held that there are two elements to be
considered in determining whether the SEC has jurisdiction over the controversy,
to wit: (1) the status or relationship of the parties; and (2) the nature of the question
that is the subject of their controversy.
Same; Same; The board of directors may also be empowered under the by-
laws to create additional officers as may be necessary.—The Court has held that in
most cases the “by-laws may and usually do provide for such other officers,” and
that where a corporate office is not specifically indicated in the roster of corporate
offices in the by-laws of a corporation, the board of directors may also be
empowered under the by-laws to create additional officers as may be necessary.
Same; Same; The relationship of a person to a corporation, whether as
officer or agent or employee is not determined by the nature of the services
performed, but instead by the incidents of the relationship as they actually exist.—
As to petitioner’s argument that the nature of his functions is recommendatory
thereby making him a mere managerial officer, the Court has previously held that
the relationship of a person to a corporation, whether as officer or agent or
employee is not determined by the nature of the services performed, but instead by
the incidents of the relationship as they actually exist.
Corporation
 Law
 Cases
 –
 Batch
 3
Remedial Law; Jurisdiction; Court has consistently held that where there is a
finding that any decision was rendered without jurisdiction, the action shall be
dismissed; Lack of jurisdiction can be interposed at any time, during appeal or
even after final judgment.—The IBC’s failure to post an appeal bond within the
period mandated under Article 223 of the Labor Code has been rendered
immaterial by the fact that the Labor Arbiter did not have jurisdiction over the case
since as stated earlier, the same is in the nature of an intra-corporate controversy.
The Court has consistently held that where there is a finding that any decision was
rendered
______________
*
FIRST DIVISION.
654
6 SUPREME COURT REPORTS
54 ANNOTATED
Nacpil vs. Intercontinental Broadcasting
Corporation
without jurisdiction, the action shall be dismissed. Such defense can be
interposed at any time, during appeal or even after final judgment. It is a well-
settled rule that jurisdiction is conferred only by the Constitution or by law. It cannot
be fixed by the will of the parties; it cannot be acquired through, enlarged or
diminished by, any act or omission of the parties.
PETITION for review on certiorari of the decision and Resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Cruz, Enverga & Lucero for petitioner.
The Government Corporate Counsel for respondent.
KAPUNAN, J.:
This is a petition for review on certiorari under Rule 45, assailing the Decision of
1
the Court of Appeals dated November 23, 1999 in CA-G.R. SP No. 52755 and the
Resolution dated August 31, 2000 denying petitioner Dily Dany Nacpil’s motion for
reconsideration. The Court of Appeals reversed the decisions promulgated by the
Labor Arbiter and the National Labor Relations Commission (NLRC), which
consistently ruled in favor of petitioner.
 Petitioner states that he was Assistant General Manager for
Finance/Administration and Comptroller of private respondent Intercontinental
Broadcasting Corporation (IBC) from 1996 until April 1997. According to petitioner,
when Emiliano Templo was appointed to replace IBC President Tomas Gomez III
sometime in March 1997, the former told the Board of Directors that as soon as he
assumes the IBC presidency, he would terminate the services of petitioner.
Apparently, Templo blamed petitioner, along with a certain Mr. Basilio and Mr.
Gomez, for the prior mismanagement of IBC. Upon his assumption of the IBC
presidency, Templo allegedly harassed, insulted, humiliated and pressured
petitioner into resigning until the latter was forced to retire. However, Templo
refused to pay him his retirement benefits, allegedly because he had not yet
secured the clearances from the Presidential Commis-
______________
1 656
Intercontinental Broadcasting Corporation, Petitioner vs. National Labor
Relations Commission and Dily Daly Nacpil, Respondents.
655
VOL. 379, MARCH 21, 2002 655
Nacpil vs. Intercontinental Broadcasting Corporation
sion on Good Government and the Commission on Audit. Furthermore, Templo
allegedly refused to recognize petitioner’s employment, claiming that petitioner was
not the Assistant General Manager/Comptroller of IBC but merely usurped the
powers of the Comptroller. Hence, in 1997, petitioner filed with the Labor Arbiter a
complaint for illegal dismissal and non-payment of benefits.
Instead of filing its position paper, IBC filed a motion to dismiss alleging that
the Labor Arbiter had no jurisdiction over the case. IBC contended that petitioner
was a corporate officer who was duly elected by the Board of Directors of IBC;
hence, the case qualifies as an intra-corporate dispute falling within the jurisdiction
of the Securities and Exchange Commission (SEC). However, the motion was
2 Petitioner then filed a motion for reconsideration, which was denied by the
denied by the Labor Arbiter in an Order dated April 22, 1998.
On August 21, 1998, the Labor Arbiter rendered a Decision stating that
petitioner had been illegally dismissed. The dispositive portion thereof reads:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of
the complainant and against all the respondents, jointly and severally, ordering the
latter:
P75,000.00 a month x 15.16 months = P1,137,000.00 plus 13th month
pay equivalent to 1/12 of P1,137,000.00 = P94,750.00 or the total
amount of P1,231,750.00). Should complainant be not reinstated within
ten (10) days from receipt of this decision, he shall be entitled to
additional backwages until actually reinstated.
2. 2.Likewise, to pay complainant the following:
1. a)P 2 Million as and for moral damages;
2. b)P500,000.00 as and for exemplary damages; plus and (sic)
3. c)Ten (10%) percent thereof as and for attorney’s fees.
______________
2
Rollo, p. 28.
656 SUPREME COURT REPORTS ANNOTATED
Nacpil vs. Intercontinental Broadcasting Corporation
3
SO ORDERED.
IBC appealed to the NLRC, but the same was dismissed in a Resolution dated
March 2, 1999, for its failure to file the required appeal bond in accordance with
4
Article 223 of the Labor Code. IBC then filed a motion for reconsideration that was
5
likewise denied in a Resolution dated April 26, 1999.
IBC then filed with the Court of Appeals a petition for certiorari under Rule 65,
which petition was granted by the appellate court in its Decision dated November
23, 1999. The dispositive portion of said decision states:
WHEREFORE, premises considered, the petition for Certiorari is GRANTED. The
assailed decisions of the Labor Arbiter and the NLRC are REVERSED and SET
ASIDE and the complaint is DISMISSED without prejudice.
6
SO ORDERED.
appellate court in a Resolution dated August 31, 2000.
Hence, this petition.
Petitioner Nacpil submits that:
I.

THE COURT OF APPEALS ERRED IN FINDING THAT PETITIONER WAS

1. 1.To reinstate complainant to his former position without diminution of
APPOINTED BY RESPONDENT’S BOARD OF DIRECTORS AS
salary or loss of seniority rights, and with full backwages computed from
COMPTROLLER. THIS FINDING IS CONTRARY TO THE COMMON,
the time of his illegal dismissal on May 16, 1997 up to the time of his
CONSISTENT POSITION AND ADMISSION OF BOTH PARTIES. FURTHER,
actual reinstatement which is tentatively computed as of the date of this
decision on August 21, 1998 in the amount of P1,231,750.00 (i.e.,

Corporation  Law  Cases  –  Batch  3  

 
RESPONDENT’S BY-LAWS DOES NOT INCLUDE COMPTROLLER AS ONE OF
ITS CORPORATE OFFICERS.
______________
3
Decision of the Labor Arbiter in Case No. NLRC-NCR 00-05-03798-97, Id., at
56-57.
4
Resolution of the National Labor Relations Commission, Second Division,
dated March 2, 1999, Id., at 64-69.
5
Id., at 29.
6
Id., at 32.
657
VOL. 379, MARCH 21, 2002 657
Nacpil vs. Intercontinental Broadcasting Corporation
II.
THE COURT OF APPEALS WENT BEYOND THE ISSUE OF THE CASE WHEN
IT SUBSTITUTED THE NATIONAL LABOR RELATIONS COMMISSION’S
DECISION TO APPLY THE APPEAL BOND REQUIREMENT STRICTLY IN THE
INSTANT CASE. THE ONLY ISSUE FOR ITS DETERMINATION IS WHETHER
7
NLRC COMMITTED GRAVE ABUSE OF DISCRETION IN DOING THE SAME.
The issue to be resolved is whether the Labor Arbiter had jurisdiction over the case
for illegal dismissal and non-payment of benefits filed by petitioner. The Court finds
that the Labor Arbiter had no jurisdiction over the same.
Under Presidential Decree No. 902-A (the Revised Securities Act), the law in
force when the complaint for illegal dismissal was instituted by petitioner in 1997,
the following cases fall under the exclusive of the SEC:
1. 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;
2. b)Controversies arising out of intra-corporate 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;
Corporation
 Law
 Cases
 –
 Batch
 3
3. c)Controversies in the election or appointment of directors, trustees,
officers, or managers of such corporations, partnerships or associations;
4. 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 property to cover all of its debts
but foresees the impossibility of meeting them when they respectively
fall due or in cases where the corporation, partnership or association
has no sufficient assets to cover its liabilities, but is under the
Management Committee created pursuant to this decree. (Emphasis
supplied.)
______________
7
Id., at 14.
658
658 SUPREME COURT REPORTS ANNOTATED
Nacpil vs. Intercontinental Broadcasting Corporation
The Court has consistently held that there are two elements to be considered in
determining whether the SEC has jurisdiction over the controversy, to wit: (1) the
status or relationship of the parties; and (2) the nature of the question that is the
8
subject of their controversy.
Petitioner argues that he is not a corporate officer of the IBC but an employee
thereof since he had not been elected nor appointed as Comptroller and Assistant
Manager by the IBC’s Board of Directors. He points out that he had actually been
appointed as such on January 11, 1995 by the IBC’s General Manager, Ceferino
Basilio. In support of his argument, petitioner underscores the fact that the IBC’s
By-Laws does not even include the position of comptroller in its roster of corporate
9
officers. He therefore contends that his dismissal is a controversy falling within the
10
jurisdiction of the labor courts.
Petitioner’s argument is untenable. Even assuming that he was in fact
appointed by the General Manager, such appointment was subsequently approved
11
by the Board of Directors of the IBC. That the position of Comptroller is not
expressly mentioned among the officers of the IBC in the By-Laws is of no
moment, because the IBC’s Board of Directors is empowered under Section 25 of
12
the Corporation Code and under the corporation’s By-Laws to appoint such other
officers as it may deem necessary. The By-Laws of the IBC categorically provides:
______________
8
Saura vs. Saura, Jr., 313 SCRA 465 (1999); Lozano vs. De los Santos, 274
SCRA 452 (1997).
 9 13
Petition, Rollo, p. 14.
10
Id., at 14-17.
11
See Minutes of the Annual Stockholders’ Meeting of the IBC on January 17,
1997, Id., at 108.
12
Section 25 of the Corporation Code explicitly states:
SECTION 25. Corporate officers, quorum.—Immediately after their election, the
directors of a corporation must formally organize by the election of a president,
who shall be a director, a treasurer who may or may not be a director, a secretary
who shall be a resident and citizen of the Philippines, and such other officers as
may be provided for in the by-laws xxx
659
VOL. 379, MARCH 21, 2002 659
Nacpil vs. Intercontinental Broadcasting Corporation
XII. OFFICERS
The officers of the corporation shall consist of a President, a Vice-President, a
Secretary-Treasurer, a General Manager, and such other officers as the Board of
Directors may from time to time does fit to provide for. Said officers shall be
elected by majority vote of the Board of Directors and shall have such powers and
duties as shall hereinafter provide (Emphasis supplied).
13
The Court has held that in most cases the “by-laws may and usually do provide for
14
such other officers,” and that where a corporate office is not specifically indicated
in the roster of corporate offices in the by-laws of a corporation, the board of
directors may also be empowered under the by-laws to create additional officers as
may be necessary.
15
An “office” has been defined as a creation of the charter of a corporation, while
an “officer” as a person elected by the directors or stockholders. On the other
hand, an “employee” occupies no office and is generally employed not by action of
the directors and stockholders but by the managing officer of the corporation who
also determines the compensation to be paid to such employee.
16
As petitioner’s appointment as comptroller required the approval and formal
17
action of the IBC’s Board of Directors to become valid, it is clear therefore holds
that petitioner is a corporate officer whose dismissal may be the subject of a
controversy cognizable by the SEC under Section 5(c) of P.D. 902-A which
includes controversies involving both election and appointment of corporate
18
directors, trustees, officers, and managers. Had petitioner been an ordinary
employee, such board action would not have been required.
Thus, the Court of Appeals correctly held that:
______________
Corporation
 Law
 Cases
 –
 Batch
 3
Rollo, p. 117.
14
Union Motors vs. NLRC, 314 SCRA 531, 539 (1999).
15
Tabang vs. NLRC, 266 SCRA 462 (1997).
16
Ibid.
17
See Article XII of the By-laws of IBC, supra Note 13.
18
Ongkingco vs. NLRC, 270 SCRA 613 (1997).
660
660 SUPREME COURT REPORTS ANNOTATED
Nacpil vs. Intercontinental Broadcasting Corporation
Since complainant’s appointment was approved unanimously by the Board of
Directors of the corporation, he is therefore considered a corporate officer and his
claim of illegal dismissal is a controversy that falls under the jurisdiction of the SEC
as contemplated by Section 5 of P.D. 902-A. The rule is that dismissal or non-
appointment of a corporate officer is clearly an intra-corporate matter and
19
jurisdiction over the case properly belongs to the SEC, not to the NLRC.
As to petitioner’s argument that the nature of his functions is recommendatory
thereby making him a mere managerial officer, the Court has previously held that
the relationship of a person to a corporation, whether as officer or agent or
employee is not determined by the nature of the services performed, but instead by
20
the incidents of the relationship as they actually exist.
It is likewise of no consequence that petitioner’s complaint for illegal dismissal
includes money claims, for such claims are actually part of the perquisites of his
position in, and therefore linked with his relations with, the corporation. The
inclusion of such money claims does not convert the issue into a simple labor
problem. Clearly, the issues raised by petitioner against the IBC are matters that
come within the area of corporate affairs and management, and constitute a
21
corporate controversy in contemplation of the Corporation Code.
Petitioner further argues that the IBC failed to perfect its appeal from the Labor
Arbiter’s Decision for its non-payment of the appeal bond as required under Article
223 of the Labor Code, since compliance with the requirement of posting of a cash
or surety bond in an amount equivalent to the monetary award in the judgment
22
appealed from has been held to be both mandatory and jurisdictional. Hence, the
Decision of the Labor Arbiter had long become final and executory and thus, the
Court of Appeals acted with grave abuse of discretion amounting to lack or excess
of jurisdiction in giving due course to the IBC’s petition for certiorari, and in
deciding the case on the merits.
______________
19
Rollo, p. 31.
20
Fortune Cement Corporation vs. NLRC, 193 SCRA 258 (1991).
 21
Cagayan de Oro Coliseum, Inc. vs. Office of the MOLE, 192 SCRA
315 (1990).
22
Petition, Rollo, pp. 18-22.
661
VOL. 379, MARCH 21, 2002 661
Nacpil vs. Intercontinental Broadcasting Corporation
The IBC’s failure to post an appeal bond within the period mandated under Article
223 of the Labor Code has been rendered immaterial by the fact that the Labor
Arbiter did not have jurisdiction over the case since as stated earlier, the same is in
the nature of an intra-corporate controversy. The Court has consistently held that
where there is a finding that any decision was rendered without jurisdiction, the
action shall be dismissed. Such defense can be interposed at any time, during
23
appeal or even after final judgment. It is a well-settled rule that jurisdiction is
conferred only by the Constitution or by law. It cannot be fixed by the will of the
parties; it cannot be acquired through, enlarged or diminished by, any act or
omission of the parties.
24
Considering the foregoing, the Court holds that no error was committed by the
Court of Appeals in dismissing the case filed before the Labor Arbiter, without
prejudice to the filing of an appropriate action in the proper court.
It must be noted that under Section 5.2 of the Securities Regulation Code
(Republic Act No. 8799) which was signed into law by then President Joseph
Ejercito Estrada on July 19, 2000, the SEC’s jurisdiction over all cases enumerated
in Section 5 of P.D. 902-A has been transferred to the Regional Trial Courts.
25
______________
23
Union Motors Corporation vs. NLRC, supra.
24
Tolentino vs. Court of Appeals, 280 SCRA 226 (1997).
25
Section 5.2 of the Securities Regulation Code provides:
The Commission’s jurisdiction over all cases enumerated under Section 5 of
Presidential Decree No. 902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme
Court in the exercise of its authority may designate the Regional Trial Court
branches that shall exercise jurisdiction over the cases. The Commission shall
retain jurisdiction over pending cases involving intra-corporate disputes submitted
for final resolution which should be resolved within one (1) year from the
enactment of this Code. The Commission shall retain jurisdiction over pending
suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally
disposed. (Emphasis supplied.)
662
662 SUPREME COURT REPORTS ANNOTATED
Corporation
 Law
 Cases
 –
 Batch
 3
Office of the Court Administrator vs. Saguyod
WHEREFORE, the petition is hereby DISMISSED and the Decision of the Court of
Appeals in CA-G.R. SP No. 52755 is AFFIRMED.
SO ORDERED.
*
No. L-68544. October 27,1986.
LORENZO C. DY, ZOSIMO DY, SR., WILLIAM IBERO, RICARDO GARCIA AND
RURAL BANK OF AYUNGON, INC., Petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION AND EXECUTIVE LABOR ARBITER ALBERTO L.
DALMACION, AND CARLITO H. VAILOCES, respondents.
Jurisdiction; LaborLaw; Corporation Law; It is the SEC and not NLRC that
has jurisdiction over a dispute involving the termination of a bank manager as a
result of his non-reelection, thereto, as prescribed in theBank’s by-laws,—There is
no dispute that the position from which private respondent Vailoces claims to have
been illegally dismissed is an elective corporate office. He himself acquired that
position through election by the bank’s Board of Directors at the organizational
meeting of November 17, 1979. He lost that position because the Board that was
elected in the special stockholders’ meeting of June 4, 1983 did not re-elect him.
And when Vailoces, in his position paper submitted to the Labor Arbiter, impugned
said stockholders’ meeting as illegally convoked and the Board of Directors
thereby elected as illegally constituted, he made it clear that at the heart of the
matter was the vaiidity of the directors’ meeting of June 4,1983 which, by not re-
electing him to the position of manager, in effect caused termination of his
services. The case thus faUs squarely within the purview of Section 5, par. (c), No.
902-A just cited. InPSBA vs. Leano, this Court, confronted with a similar
controversy, ruled that the Securities and Exchange Commission, not theNLRC,
has jurisdiction.
Same; Same, Same; Estoppel; Estoppel does not apply to confer jurisdiction
to a tribunal that has none overacause ofaction. Itis the court’s duty to dismiss an
action over which it has no jurisdiction. Sibonghanoy doctrine kas been applied
indiscriminately which is illaduised—Respondent Vailoces’ invocation of estoppel
as against petitioners with respect to the issue of jurisdiction is unavailing. In the
first place, it is not quite correct to state that petitioners did not raise the point in the
lower tribunal. Although rather off handedly, in their appeal to the NLRC they
caUed attention to the Labor Arbiter’s lack of jurisdiction to rule on the validity of
the meeting of July 2,
_______________
 *
FIRST DIVISION.
212
2 SUPREME COURT REPORTS
12 ANNOTATED
Dy vs. National Labor Relations Commission
1983, but the dismissal of the appeal for alleged tardiness effectively
precluded consideration of that or any other question raised in the appeaL More
importantly, estoppel cannot be invoked to prevent this Court from taking up the
question of jurisdiction, which has been apparent on the face of the pleadings
since the start of litigation before the Labor Arbiter. It is well settled that the
decision of a tribunal not vested with appropriate jurisdiction is null and void.
Same; Same; Same; Same; Same—Thus, in Calimlim vs. Ramirez, this
Court held: “A rule that had been settled by unquestioned acceptance and upheld
in decisions so numerous to cite is that the jurisdiction of a court over the subject
matter of the action is a matter of law and may not be conferred by consent or
agreement of the parties. The lack of jurisdiction of a court may be raised at any
stage of the proceedings, even on appeal This doctrine has been qualified by
recent pronouncements which stemmed principally from the ruling in the cited case
of Sibonghanoy. It is to be regretted, however, that the holding in said case had
been applied to situations which were obviously not contemplated therein. The
e^ceptional circumstances involved in Sibonghanoy which justified the departure
from the accepted concept of non-waivability of objection to jurisdiction has been
ignored and, instead a blanket doctrine had been repeatediy upheld that rendered
the supposed ruling in Sibonghanoy not as the exception, but rather the general
rule, virtually overthrowing altogether the time-honored principle that the issue of
jurisdietion is not lost by waiver or by estoppel.
Same; Same; Same; Same; Same.—If any fault is to be imputed to a party
taking such course of action, part of the blame should be placed on the court which
shall entertain the suit, thereby lulling the parties into believing that they pursued
their remedies in the correct forum. Under the rules, it is the duty of the court to
dismiss an action ‘whenever it appears that court has no jurisdiction over the
subject matter.’ (Section 2, Rule 9, Rules of Court) Should the Court render a
judgment without jurisdiction, such judgment inay be iinpeached or annulled for
lack of jurisdiction (Sec. 30, Rule 132, Ibid), within ten (10) years from the finality of
the same (Art. 1144, pan 3, Civil Code}."
Same; Appeal; Failure to raise issue of lack ofjurisdiction on appeal in the
Supreme Court is no hindrance forSupreme Court to take up such issue.—"The
failure of the appellees to invoke anew the aforementioned solid ground of want of
jurisdiction of the lower
213
VOL. 145, OCTOBER 27, 1986 2
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13
Dy vs. NationalLaborRelations Commission
court in this appeai should not prevent this Tribunal to take up that issue as
the lack of jurisdiction of the lower court is apparent upon the face of the record
and it is fundamental that a court of justice could only validly act upon a cause of
action or subject matter of a case over which it has jurisdiction and said jurisdiction
is one conferred only by law; and cannot be acquired through, or waived by, any
act or omission of the parties (Lagman vs. CA, 44 SCRA 234 [1972]); hence may
be considered by this court motu proprio (Gov’t vs. American Surety Co., 11 PhiL
203 [1908]). x x”
Same; Labor Law; Corporation; It is no hindrance to SEC jurisdiction that a
person raises in his complaint the issues that he was illegally dismissed and asks
for remuneration where complainant is not a mere employee but a stockholder and
officer of the corporation.—It is of no moment that Vailoces, in his amended
complaint, seeks other relief which would seemingly fall under the jurisdiction of
the Labor Arbiter, because a closer look at these—underpayment of salary and
non-payment of living allowance—shows that they are actually part of the
perquisites of his elective position, hence, intimately linked with his relations with
the corporation. The question of remuneration, involving as it does, a person who
is not a mere empioyee but a stockholder and officer, an integral part, it might be
said, of the corporation, is not a simple labor problem but a matter that comes
within the area of corporate affairs and management, and is in fact a corporate
controversy in contemplation of the Corporation Code.
PETITION to review the resolution of the National Labor Relations Commission.
The f acts are stated in the opinion of the Court.
Marcelino C. Maximo and Ramon Barrameda for petitioners.
Carlito H. Vailoces for private respondent.
NARVASA, J.:
Petitioners assaii in this Court the resolution of the National Labor Relations
Commission (NLRC) dismissing their appeal from the decision of the Executive
1
Labor Arbiter in Cebu City
_______________
1
In Case No. RAB-VI1–0637–83 of the NLRC Regional Arbitration Branch No.
7.
214
214 SUPREME COURT REPOETS ANNOTATED
Dy vs. National LaborRelations Commission
which fouiid private respondent to have been illegally dismissed by them.
Said private respondent, Carlito H. Vailoces, was the manager of the Rural
Bank of Aytmgon (Negros Oriental), a banking institution duly organized under
Philippine laws. He was also a director and stockholder of the bank.
On June 4, 1983, a special stockholders’ meeting was called for the purpose of
electing the members of the bank’s Board of Directors, Immediately after the
election the new Board proceeded to elect the bank’s executive efficers.
2
Pursuant to Article IV of the bank’s by-laws, providing for the election by the
entire membership of the Board of the executive officers of the bank, i.e., the
president, vice-presidexit, secretary, cashier and bank manager, in that board
meeting of June 4,1983, petitioners Lorenzo Dy, William Ibero and Ricardo Garcia
were elected president, vice-president and corporate secretary, respectively.
3
Vailoces was not re-elected as bank manager, Because of this development, the
Board, on July 2, 1983, passed Resolution No. 5, series of 1983, relieving hiin as
bank manager.
On August 3. 1983. Vailoces filed a complaint for illegal dismissal and
damages with the Ministry of Labor and Employment against Lorenzo Dy and
Zosimo Dy, Sr. The eomplaint was amended on September 22, 1983 to include
additional respondents—William Ibero, Ricardo Garcia and the Rural Bank of
Ayungon, and additional causes of action for underpayment of salary and non-
payment of living allowance.
In his complaint and position paper, Vailoces asserted that Lorenzo Dy, after
obtaining control of the majority stock of the bank by buying the shares of
Marcelino Maximo, called an iilegal stockholders’ meeting and eiected a Board of
Directors controlled by him; that after its illegal constitution, said Board convened
on July 2, 1983 and passed a resolution dismissing him as manager, without giving
him the opportunity to be heard first; that his dismissal was inotivated by Lorenzo
Dy’s
_______________
2
P. 52, Rollo.
3
P. 53, Rollo.
215
VOL. 145, OCTOBER 27, 1986 215
Dy vs. NationalLaborRelations Commission
desire to take over the management and control of the bank. not to mention the
fact that he (Dy) harbored ill feelings against Vailoces on account of the latter’s
filing of a complaint for violation of the corporation code against him and another
complaint for compulsory recognition of natural child with damages against Zosimo
Dy, Sr.
4 allowance,
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In their answer, Lorenzo Dy, et al. denied the charge of illegal dismissal. They
pointed out that Vailoces’ position was an elective one, and he was not re-elected
as bank manager because of the Board’s loss of confidence in him brought about
by his absenteeism and negligence in the performance of his duties; and that the
Board’s action was taken to protect the interest of the bank and was “designed as
an internal control measure to secure the check and balance of authority within the
5
organizat ion.''
The Executive Labor Arbiter found that Vailoces was:
1. (a)Illegally dismissed, first not because of absenteeism and negligence,
but of the resentment of petitioners against Vailoces which arose from
the latter’s filing of the cases for recognition als natural child against
Zosimo Dy, Sr. and for violation of the corporation code against Lorenzo
Dy; and second, because he was not afforded the due process of law
when he was dismissed during the Board meeting of July 2,1983 the
validity of which is seriously doubted;
2. (b)Not paid his cost of living ailowance; and
3. (c)Underpaid with only P500 monthly salary,
and consequently ordered the individual petitioners—Lorenzo Dy and Zosimo Dy—
but not the Bank itself, to:
1. (a)Pay Vailoces jointly and severally, the sum of Pl 11,480.60
representing his salary differentials, cost of living aliowances, back
wages from date of dismissal up to the date of the decision (November
29, 1983), moral and exemplary damages, and attorney’s f ees; and
2. (b)Reinstate Vailoces to his position as bank manager, with additional
backwages from December 1,1983 on the adjusted salary
_______________
4
Executive Labor Arbiter’s decision, p. 42, Rollo.
5
Executive Labor Arbiter’s decision, p. 43, Rollo.
216
216 SUPREME COURT REPORTS ANNOTATED
Dy vs. National LaborRelations Commission
1. rate of F620.00 per monthuntil he is actually reinstated, plus cost-ofliving
6
Lorenzo Dy, et al. appealed to the NLRC, assigning error to the decision of the
Labor Arbiter on various grounds, among them: that Vailoces was not entitled to
notice of the Board meeting of July 2,1983 which decreed his relief because he
was no longer a mernber of the Board on said date; that he nonetheless had the
opportunity to refute the charges against him and seek a f ormal investigation
because he received a copy of the minutes of said meeting while he was still the
bank manager (his removal was to take effect only on August 15, 1983), instead of
which he simply abandoned the work he was supposed to perform up to the
effective date of his relief; and that the matter of his relief was within the
7
adjudicatory powers of the Securities and Exchange Commission.
The NLRC, however bypassed the issues raised and sirnply dismissed the
appeal for having been filed lata It ruled that:
‘The record shows that a copy of the decision sent by registered mail to
respondents’ counsei, Atty. Edmund Tubio, was received on January 11, 1984 by a
certain Atty. Ramon Eiesteria, a law office partner of Atty. Tubio. x x This fact is
corroborated by the certification issued by the Postmaster of Dumaguete City. x x
Moreover, the same is admitted by no less than Atty. Ramon Elesteria hiinself in
his affidavit. It further appears in the record that on Jamiary 30, 1984 a certain Atty.
Francisco Zerna, a new lawyer engaged by the respondents for the appeal,
received a copy of the decision in this case as certified by Julia Pepito in an
affidavit subscribed before the Senior Labor Arbitration Specialist. The appeal was
filed only on February 17,1984.
“Considering that it was a law partner of the respondents’ counsei who
received on January 11, 1984 the registered ietter, his actual receipt thereof
completes the service. x x And even assuming that such was not a valid service,
since the respondents received another copy of the decision on January 30, 1984,
through their newly engaged counsel, it is therefore our opinion that the appeal
herein was filed out of time, whether the time is reckoned from the receipt
_______________
6
Decision, p. 49, Rollo.
7 Dy vs. NationalLaborRelations Commission
Memorandum of Appeal, p. 57, Rollo.
217
VOL. 145, OCTOBER 27, 1986 217
Dy vs. NationalLaborRelations Commission
by Atty. Elesteria or Atty. Zerna, and, for this reason, we can not give due course
to his appeaL “
8 meeting as illegally convoked and the Board of Directors thereby elected as
In this Court, petitioners assail said ruling as an arbitrary deprivation of their right to
appeal through unreasonable adherence to procedural technicality. They argue
that they should not be bound by the service of the Labor Arbiter’s decision by Atty.
Elesteria on January 11,1984 or by Atty. Zerna on January 30,1984, because
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neither lawyer was authorized to accept service for their counsel, Atty. Tubio, and
that their 10day period of appeal should be counted from February 10,1984 when
they actually received the copy of the decision from Atty. Zerna. On the merits,
they assert that the Arbiter’s finding of illegal dismissal was without evidentiary
basis, that it was error to impose the obligation to pay damages upon the individual
petitioners, instead of the Rural Bank of Ayungon, which was Vailoces’ real
employer, and that the daraages awarded are exorbitant and oppressive.
While the comment of Vailoces traverses the averments of the petition, that of
the Solicitor General on behaif of pubiic respondents perceives the matter as an
intracorporate controversy of the class described in Section 5, par. (c), of
PresidentialDecreeNo. 902-A, namely:
1. "(c)Controversies in the election or appointments of directors, trustees,
officers or managers of such corporations, partnerships or associations.”
explicitly declared to be within the original and exclusive jurisdiction of the
Securities and Exchange Commission, and recommends that the questioned
resolution of the NLRC as well as the decision of the Labor Arbiter be set aside as
9
null andvoid.
In truth, the issue of jurisdiction is decisive and renders unneeessary
consideration of the other questions raised
There is no dispute that the position from which private respondent Vailoces
claims to have been illegaUy dismissed is
_______________
8
NLRC Resfolution, p. 39, Roflo.
9
Pp. 220–228, Rollo.
218
218 SUPREME COURT REPORTS ANNOTATED
an elective corporate office. He himself acquired that position through election by
the bank’s Board of Directors at the organizational meeting of November 17,
10
1979. He lost that position because the Board that was elected in the special
stockholders’ meeting of June 4,1983 did not re-elect him. And when Vailoces, in
his position paper submitted to the Labor Arbiter, impugned said stockholders’
11
illegally constituted, he made it clear that at the heart of the matter was the
validity of the directors’ meeting of June 4, 1983 which, by not re-electing him to
the position of manager, in effect caused termination of his services.
 The case thus falls squarely within the purview of Section 5, par. (e), No. 902-A
12
just cited. In PSBA vs. Leano, this Court, confronted with a similar controversy,
ruled that the Securities and Exchange Commission, not the NLRC, has
jurisdiction:
“It was at a Board regular monthly meeting held on August 1, 1981, that three
ciirectors were eieeted to fiii vacancies. And, it was at the regular Board meeting of
September 5,1981 that ail corporate positions were declared vacant in order to
effect a reorganization, and at the ensuing election of officers, Tan was not re-
elected as Executive Vice-President.
“Basically, therefore, the question is whether the election of directors on
August 1,1981 and the election of officers on September 5, 1981, which resulted in
Tan’s failure to be re-elected, were validly held. This is the crux of the question that
Tan has raised before the SEC. Even in his position paper before the NLRC, Tan
alleged that the election on August 1, 1981 of the three directors was in
contravention of the PSBA By-Laws providing that any vacancy in the Board shaU
be filled by a majority vote of the stockhoiders at a meeting speciaiiy cailed ior the
purpose. Thus, he conciudes, the Board meeting on September 5,1981 was
tainted with irregularity on account of the presence of illegaily elected directors
without whom the resuits couid have been different
_______________
10
P. 199, Rollo.
11
Cited in Labor Arbiter’s Decision, p. 42, Rollo.
12
127 SCRA 778.
219
VOL. 145, OCTOBER 27, 1986 219
Dy vs. NationalLaborRelations Commission
“Tan invoked the same allegations in his complaint filed with the SEC. So much so,
that on December 17,1981, the SEC (Case No. 2145) rendered a Partial Decision
annulling the election of the three directors and ordered the convening of a
stockholders’ meeting for the purpose of electing new members of the Board. The
correctness of said conclusion is not for us to pass upon in this case. Tan was
present at said meeting and again sought the issuance of injunctive relief from the
SEC.
‘The foregoing indubitably show that, fundamentally, the controversy is intra-
corporate in nature. It revolves around the election of directors, officers or
managers of the PSBA, the relation between and among its stockholders, and
between them and the corporation. Private respondent also contends that his
‘ouster’ was a scheme to intimidate him into selling his shares and to deprive him
of his just and fair return on his investment as a stockholder received through his
salary and aliowances as Executive Vice-President. Vis-a-vis the NLRC, these
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matters fall within the jurisdiction of the SEC. Presidential Decree No. 902-A vests
in the Securities and Exchange Commission:
'* * Original and exclusive jurisdiction to hear and decide cases involving:
1. ‘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.
2. ‘b)Controversies arising out of intracorporate or partnership relations,
between and among stockholders, members or associates; between any
of 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;
3. ‘c)Controversies in the election or appointments of directors, trustees,
officers or managers of such corporations, partnership or associations.’
“This is not a case of dismissal. The situation is that of a corporate office
having been declared vacant, and of Tan’s not having been elected thereafter. The
matter of whom to elect is a prerogative
220
220 SUPREME COURT REPORTS ANNOTATED
Dy vs. NationalLaborRelations Commission
that beiongs to the Board, and involves the exercise of deliberate choice and the
faculty of discriminative selection. Generally speaking, the relationship of a person
to corporation, whether as officer or as agent or employee, is not determined by
the nature of the services performed, but by the incidents of the relationship as
they actually exist.”
Respondent Vailoces’ invocation of estoppel as against petitioners with respect to
the issue of jurisdiction is unavailing. In the first place, it is not quite correct to state
that petitioners did not raise the point in the lower tribunaL Although rather off
handedly, in their appeal to the NLRC they called attention to the Labor Arbiter’s
lack of jurisdiction to rule on the vaiidity of the meeting of July 2, 1983, but the
dismissal of the appeal for alleged tardiness effectively preciuded consideration of
that or any other question raised in the appeaL More importantly, estoppel cannot
be invoked to prevent this Court from taking up the question of jurisdiction, which
has been apparent on the face of the pleadings since the start of litigation before
the Labor Arbiter. It is well settled that the deeision of a tribunal not vested with
 13
appropriate jurisdietion is null and void. Thus, in Calimlim vs. Ramirez, this Court
held:
“A rule that had been settled by unquestioned acceptance and upheld in decisions
so numerous to cite is that the jurisdiction of a court over the subject inatter of the
action is a matter of law and may rtot be conferred by consent or agreement of the
parties. The lack of jurisdiction of a court may be raised at any stage of the
proceedings, even on appeal This doctrine has been qualified by recent pro
nouncements which stemmed principaliy from the ruling in the cited case
of Sibonghanoy. It is to be regretted, however, that the holding in said case had
been applied to situations which were obviously not contemplated therein, The
exceptional circumstances involved in Sibonghanoy which justified the departure
from the accepted eoncept of non-waivability of objection to jurisdiction has been
ignored and, instead a blanket doctrine had been repeatedly upheld that rendered
the supposed raiing in Sibonghanoy not as the exception, but rather the general
rule, virtually overthrowing altogether the time-honored principle that the issue of
jurisdiction is not lost by waiver or by estoppel.
_______________
13
118 SCRA 399.
221
VOL. 145, OCTOBER 27, 1986 221
Dy vs. NationalLaborRelations Commission
xxx xxx xxx
“It is neither fair nor legal to bind a party by the result of a suit or proceeding
which was taken cognizance of in a court which lacks jurisdiction over the same
irrespective of the attendant eircumstances. The equitable defense of esioppel
requires knowledge or consciousness of the facts upon which it is based. The
same thing is true with estoppel by conduct which may be asserted only when it is
shown, among others, that the representation rnust have been made with
knowledge of the facts and that the party to whom it was made is ignorant of the
truth of the matter (De Castro vs. Gineta, 27 SCRA 623). The filing of an action or
suit in a court that does not possess jurisdiction to entertain the same may not be
presumed to be deliberate and intended to secure a ruling which couid iater be
annulled if not favorable to the party who filed such suit or proceeding in a court
that lacks jurisdiction to take cognizance of the same, such act may not at once be
deemed sufficient basis of estoppeL It could have been the result of an honest
mistake or of divergent interpretation of doubtful legal provisions. If any fault is to
be imputed to a party taking such course of action, part of the blame should be
placed on the court which shall entertain the suit, thereby lulling the parties into
believing that they pursued their remedies in the correct forum. Under the rules, it
is the duty of the court to disraiss an action ‘whenever it appears that court has no
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jurisdiction over the subject matter/ (Section 2, Rule 9. Rules of Court) Shouid the
Court render a judgment without jurisdiction, such judgment may be impeached or
annulied for lack of jurisdiction (Sec. 30, Rule 132, Xbid), within ten (10) years from
the finality of the same (Art. 1144, par. 3, Civil Code)."
To be sure, petitioners failed to raise the issue of jurisdiction in their petition before
this Court. But this, too, is no hindrance to the Court’s considering said issue.
“The failure of the appellees to invoke anew the aforementioned soiid ground of
want of jurisdiction of the lower court in this appeal should not prevent this Tribunal
to take up that issue as the lack of jurisdiction of the lower court is apparent upon
the face of the record and it is fundamental that a court of justice could only validly
act upon a cause of action or subject matter of a case over which it has jurisdiction
and said jurisdiction is one conferred only by law; and cannot be acquired through,
or waived by, any act or omission of the parties (Lagman vs. CA, 44 SCRA
234 [1972]); hence may be con
222
222 SUPREME COURT REPORTS ANNOTATED
Dy vs. National Labor Relations Commission
sidered by this court motu proprio (Gov’t. vs. American Surety Co., 11 Phil.
14
203 [1908]). x x"
These considerations make mevitable the conclusion that the judgment of the
Labor Arbiter and the resolution of the NLRC are void for lack of jurisdiction, and
this Court must set matters aright in the exercise of its judicial power. It is of no
moment that Vailoces, in his amended complaint, seeks other relief which would
seemingly fall under the jurisdiction of the Labor Arbiter, because a closer look at
these—underpayment of salary and non-payment of living allowanee—shows that
they are actually part of the prerequisites of his elective position, hence intimately
linked with his relations with the corporation. The question of remuneration,
involving as it does, a person who is not a mere employee but a stockholder and
officer, an integral part, it might be said, of the corporation, is not a simple labor
problem but a matter that comes within the area of corporate affairs and
management, and is in fact a corporate controversy in conteniplation of the
Corporation Code.
WHEREFORE, the questioned decision of the Labor Arbiter and the Resolution
of the NLRC dismissing petitioners’ appeal from said decision are hereby set aside
because rendered without jurisdiction. The amended complaint for illegal dismissal,
etc., basis of said decision and Resolution, is ordered dismissed, without prejudice
to private respondent’s seeking recourse in the appropriate f orum.
SOORDERED.

*
G.R. No. 157549. May 30, 2011.
DONNINA C. HALLEY, petitioner, vs. PRINTWELL, INC., respondent.
Judges; A trial or appellate judge may occasionally view a party’s
memorandum or brief as worthy of due consideration either entirely or partly.—It is
to be observed in this connection that a trial or appellate judge may occasionally
view a party’s memorandum or brief as worthy of due consideration either entirely
or partly. When he does so, the judge may adopt and incorporate in his
adjudication the memorandum or the parts of it he deems suitable, and yet not be
guilty of the accusation of lifting or copying from the memorandum. This is because
of the avowed objective of the memorandum to contribute in the proper illumination
and correct determination of the controversy.
Corporation Law; Piercing the Veil of Corporate Fiction; The corporate
personality may be disregarded, and the individuals composing the corporation will
be treated as individuals, if the corporate entity is being used as a cloak or cover
for fraud or illegality; as a justification for a wrong; as an alter ego, an adjunct, or a
business conduit for the sole benefit of the stockholders.—Although a corporation
has a personality separate and distinct from those of its stockholders, directors, or
officers, such separate and distinct personality is merely a fiction created by law for
the sake of convenience and to promote the ends of justice. The corporate
personality may be disregarded, and the individuals composing the corporation will
be treated as individuals, if the corporate entity is being used as a cloak or cover
for fraud or illegality; as a justification for a wrong; as an alter ego, an adjunct, or a
business conduit for the sole benefit of the stockholders. As a general rule, a
corporation is looked upon as a legal entity, unless and until sufficient reason to
the contrary appears. Thus, the courts always presume good faith, and for that
reason accord prime importance to the separate personality of the corporation,
disregarding the corporate personality only after the wrongdoing is first clearly and
convincingly established. It thus
_______________
* THIRD DIVISION.
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117
VOL. 649, MAY 30, 2011 1
17
Halley vs. Printwell, Inc.
behooves the courts to be careful in assessing the milieu where the piercing
of the corporate veil shall be done.
Same; Trust Fund Doctrine; Under the trust fund doctrine, a corporation has
no legal capacity to release an original subscriber to its capital stock from the
obligation of paying for his shares, in whole or in part, without a valuable
consideration, or fraudulently, to the prejudice of creditors.—Under the trust fund
doctrine, a corporation has no legal capacity to release an original subscriber to its
capital stock from the obligation of paying for his shares, in whole or in part,
without a valuable consideration, or fraudulently, to the prejudice of creditors. The
creditor is allowed to maintain an action upon any unpaid subscriptions and
thereby steps into the shoes of the corporation for the satisfaction of its debt.
Same; The prevailing rule is that a stockholder is personally liable for the
financial obligations of the corporation to the extent of his unpaid subscription.—
The prevailing rule is that a stockholder is personally liable for the financial
obligations of the corporation to the extent of his unpaid subscription. In view of the
petitioner’s unpaid subscription being worth P262,500.00, she was liable up to that
amount.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Carlo Magno Verzo for petitioner.
Perpetuo Paner for respondent.
BERSAMIN, J.:
Stockholders of a corporation are liable for the debts of the corporation up to
the extent of their unpaid subscriptions. They cannot invoke the veil of corporate
identity as a shield from liability, because the veil may be lifted to avoid defrauding
corporate creditors.118
118 SUPREME COURT REPORTS ANNOTATED
Halley vs. Printwell, Inc.
We affirm with modification the decision promulgated on August 14,
1
2002, whereby the Court of Appeals (CA) upheld the decision of the Regional
2
Trial Court, Branch 71, in Pasig City (RTC), ordering the defendants (including the
petitioner) to pay to Printwell, Inc. (Printwell) the principal sum of P291,342.76 plus
interest.
Antecedents
 The petitioner was an incorporator and original director of Business Media tion cards) that BMPI published and sold. For that purpose, Printwell extended 30-
3
Philippines, Inc. (BMPI), which, at its incorporation on November 12, 1987, had an day credit accommodations to BMPI.
authorized capital stock of P3,000,000.00 divided into 300,000 shares each with a In the period from October 11, 1988 until July 12, 1989, BMPI placed with
par value of P10.00, of which 75,000 were initially subscribed, to wit: Printwell several orders on credit, evidenced by invoices and delivery receipts
totaling P316,342.76. Considering that BMPI paid only P25,000.00, Printwell sued
Subscriber No. of Total Amount
BMPI on January 26, 1990 for the collection of the unpaid balance of P291,342.76
4
shares subscription paid in the RTC. On February 8, 1990, Printwell amended the complaint in order to
implead as defendants all the original stockholders and incorporators to recover on
5
Donnina C. 35,000 P350,000.00 P 87,500.00 their unpaid subscriptions, as follows:
Halley Name Unpaid Shares

Roberto V. 18,000 P180,000.00 P 45,000.00 Donnina C. Halley P 262,500.00

Cabrera, Jr.
Roberto V. Cabrera, Jr. P 135,000.00
Albert T. Yu 18,000 P180,000.00 P 45,000.00
Albert T. Yu P 135,000.00
Zenaida V. Yu 2,000 P 20,000.00 P 5,000.00
Zenaida V. Yu P 15,000.00
Rizalino C. 2,000 P 20,000.00 P 5,000.00
Rizalino C. Viñeza P 15,000.00
Vineza
TOTAL P 562,500.00
TOTAL 75,000 P750,000.00 P187,500.00
6
The defendants filed a consolidated answer, averring that they all had paid
Printwell engaged in commercial and industrial printing. BMPI commissioned
their subscriptions in full; that BMPI had a separate personality from those of its
Printwell for the printing of the magazine Philippines, Inc. (together with wrappers
stockholders; that Rizalino C. Viñeza had assigned his fully-paid up shares to a
and subscrip-
certain Gerardo R. Jacinto in 1989; and that the directors and stockholders of
BMPI had resolved to dissolve BMPI during the annual meeting held on February
_______________ 5, 1990.
To prove payment of their subscriptions, the defendant stockholders submitted
1 Penned by Associate Justice Mercedes Gozo-Dadole, with Associate in evidence BMPI official receipt (OR)
Justices Salvador J. Valdez, Jr. and Amelita G. Tolentino, concurring; Rollo, pp.
36-49. _______________
2 Entitled Printwell, Inc. v. Business Media Phils., Inc., Donnina C. Halley and
Simon Halley, Roberto V. Cabrera, Jr., Albert T. Yu, Zenaida V. Yu, and Rizalino
4 Records, pp. 6-7.
C. Vineza, Rollo, pp. 222-230.
5 Id., at pp. 12-16.
3 Id., at p. 109.
6 Id., at pp. 25-28.
119
120
VOL. 649, MAY 30, 2011 119 120 SUPREME COURT REPORTS ANNOTATED
Halley vs. Printwell, Inc. Halley vs. Printwell, Inc.

Corporation  Law  Cases  –  Batch  3  

 
no. 217, OR no. 218, OR no. 220, OR no. 221, OR no. 222, OR no. 223, and OR 9 Id., at p. 255.
no. 227, to wit: 10 Id., at pp. 256-259.
11 Id., at pp. 260-265.
Receipt Date Name Amount
12 Id., at pp. 266-272.
No. 13 Id., at pp. 273-276.
121
217 November Albert T. Yu P 45,000.00 VOL. 649, MAY 30, 2011 121
5, 1987 Halley vs. Printwell, Inc.
Ruling of the RTC
218 May 13, Albert T. Yu P135,000.00 On November 3, 1993, the RTC rendered a decision in favor of Printwell,
1988 rejecting the allegation of payment in full of the subscriptions in view of an
irregularity in the issuance of the ORs and observing that the defendants had used
220 May 13, Roberto V. P135,000.00 BMPI’s corporate personality to evade payment and create injustice, viz.:
“The claim of individual defendants that they have fully paid their subscriptions
1988 Cabrera, Jr. to defend[a]nt corporation, is not worthy of consideration, because:—
a) in the case of defendants-spouses Albert and Zenaida Yu, it will be noted
221 November Roberto V. P 45,000.00 that the alleged payment made on May 13, 1988 amounting to
5, 1987 Cabrera, Jr. P135,000.00, is covered by Official Receipt No. 218 (Exh. “2”), whereas the
alleged payment made earlier on November 5, 1987, amounting to
222 November Zenaida V. P 5,000.00 P5,000.00, is covered by Official Receipt No. 222 (Exh. “3”). This is cogent
proof that said receipts were belatedly issued just to suit their theory since
5, 1987 Yu in the ordinary course of business, a receipt issued earlier must have serial
numbers lower than those issued on a later date. But in the case at bar, the
223 May 13, Zenaida V. P 15,000.00 receipt issued on November 5, 1987 has serial numbers (222) higher than
1988 Yu those issued on a later date (May 13, 1988).
b) The claim that since there was no call by the Board of Directors of
May 13, Donnina C. defendant corporation for the payment of unpaid subscriptions will not be a
227 P262,500.00
valid excuse to free individual defendants from liability. Since the individual
1988 Halley defendants are members of the Board of Directors of defendant
corporation, it was within their exclusive power to prevent the fulfillment of
In addition, the stockholders submitted other documents in evidence, namely: the condition, by simply not making a call for the payment of the unpaid
(a) an audit report dated March 30, 1989 prepared by Ilagan, Cepillo & Associates subscriptions. Their inaction should not work to their benefit and unjust
7 8
(submitted to the SEC and the BIR); (b) BMPI balance sheet and income enrichment at the expense of plaintiff.
9
statement as of December 31, 1988; (c) BMPI income tax return for the year 1988 Assuming arguendo that the individual defendants have paid their unpaid
10 11
(stamped “received” by the BIR); (d) journal vouchers; (e) cash deposit slips;12 subscriptions, still, it is very apparent that individual defendants merely used the
and (f) Bank of the Philippine Islands (BPI) savings account passbook in the name corporate fiction as a cloak or cover to create an injustice; hence, the alleged
13
of BMPI. separate personality of defen-
122
_______________
122 SUPREME COURT REPORTS ANNOTATED
7 Id., at p. 253. Halley vs. Printwell, Inc.
8 Id., at p. 254.

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dant corporation should be disregarded (Tan Boon Bee & Co., Inc. vs. Judge
14
Jarencio, G.R. No. 41337, 30 June 1988).”
Applying the trust fund doctrine, the RTC declared the defendant stockholders
principal, with interest thereon at 20% per annum, from date of default, until fully
paid, plus P30,000.00 as attorney’s fees, plus costs of suit.
Defendants’ counterclaims are ordered dismissed for lack of merit.
SO ORDERED.”
16

liable to Printwell pro rata, thusly:

“Defendant Business Media, Inc. is a registered corporation (Exhibits “A”, “A-1” Ruling of the CA
to “A-9”), and, as appearing from the Articles of Incorporation, individual
defendants have the following unpaid subscriptions:
All the defendants, except BMPI, appealed.
Names Unpaid Subscription
Spouses Donnina and Simon Halley, and Rizalino Viñeza defined the following
Donnina C. Halley P262,500.00
errors committed by the RTC, as follows
Roberto V. Cabrera, Jr. 135.000.00
I.
Albert T. Yu 135,000.00
THE TRIAL COURT ERRED IN HOLDING APPELLANTS-STOCKHOLDERS
Zenaida V. Yu 15,000.00
LIABLE FOR THE LIABILITIES OF THE DEFENDANT CORPORATION.
Rizalino V. Vineza ___15,000.00
II.
Total P562,500.00
ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO THE
and it is an established doctrine that subscriptions to the capital stock of a
EXTENT OF THEIR UNPAID SUBSCRIPTION OF SHARES OF STOCK, IF ANY,
corporation constitute a fund to which creditors have a right to look for satisfaction
THE TRIAL COURT NONETHELESS ERRED IN NOT FINDING THAT
of their claims (Philippine National Bank vs. Bitulok Sawmill, Inc., 23 SCRA 1366
APPELLANTS-STOCKHOLDERS HAVE, AT THE TIME THE SUIT WAS FILED,
[1968]) and, in fact, a corporation has no legal capacity to release a subscriber to
NO SUCH UNPAID SUBSCRIPTIONS.
its capital stock from the obligation to pay for his shares, and any agreement to this
On their part, Spouses Albert and Zenaida Yu averred:
effect is invalid (Velasco vs. Poizat, 37 Phil. 802).
I.
The liability of the individual stockholders in the instant case shall be pro-rated
THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT TO
as follows:
DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YU’S
Names Amount
EXHIBITS 2 AND 3 DESPITE THE UNRE-
Donnina C. Halley P149,955.65
Roberto V. Cabrera, Jr. 77,144.55
Albert T. Yu 77,144.55 _______________
Zenaida V. Yu 8,579.00
Rizalino V. Vineza _____8,579.00 16 Records, p. 371.
15
Total P321,342.75 124
124 SUPREME COURT REPORTS ANNOTATED
_______________
Halley vs. Printwell, Inc.
BUTTED TESTIMONY THEREON BY APPELLANT ALBERT YU AND THE
14 Id., at pp. 369-370.
ABSENCE OF PROOF CONTROVERTING THEM.
15 Id., at pp. 368-369.
II.
123
THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS SPOUSES
VOL. 649, MAY 30, 2011 123 ALBERT AND ZENAIDA YU PERSONALLY LIABLE FOR THE CONTRACTUAL
Halley vs. Printwell, Inc. OBLIGATION OF BUSINESS MEDIA PHILS., INC. DESPITE FULL PAYMENT BY
SAID DEFENDANTS-APPELLANTS OF THEIR RESPECTIVE SUBSCRIPTIONS
The RTC disposed as follows:
TO THE CAPITAL STOCK OF BUSINESS MEDIA PHILS., INC.
“WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
Roberto V. Cabrera, Jr. argued:
defendants, ordering defendants to pay to plaintiff the amount of P291,342.76, as
I.

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IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO APPLY THE
DOCTRINE OF PIERCING THE VEIL OF CORPORATE PERSONALITY IN
ABSENCE OF ANY SHOWING OF EXTRA-ORDINARY CIRCUMSTANCES THAT
WOULD JUSTIFY RESORT THERETO.
II.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO RULE THAT
INDIVIDUAL DEFENDANTS ARE LIABLE TO PAY THE PLAINTIFF-APPELLEE’S
CLAIM BASED ON THEIR RESPECTIVE SUBSCRIPTION. NOTWITHSTANDING
OVERWHELMING EVIDENCE SHOWING FULL SETTLEMENT OF
SUBSCRIBED CAPITAL BY THE INDIVIDUAL DEFENDANTS.
On August 14, 2002, the CA affirmed the RTC, holding that the defendants’
resort to the corporate personality would create an injustice because Printwell
would thereby be at a loss against whom it would assert the right to collect, viz.:
“Settled is the rule that when the veil of corporate fiction is used as a means of
perpetrating fraud or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, the achievements or perfection of
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
125
VOL. 649, MAY 30, 2011 125
Halley vs. Printwell, Inc.
compose it will be lifted to allow for its consideration merely as an aggregation of
individuals (First Philippine International Bank vs. Court of Appeals, 252 SCRA 259
[1996]). Moreover, under this doctrine, the corporate existence may be disregarded
where the entity is formed or used for non-legitimate purposes, such as to evade a
just and due obligations or to justify wrong (Claparols vs. CIR, 65 SCRA 613
[1975]).
In the case at bench, it is undisputed that BMPI made several orders on credit
from appellee PRINTWELL involving the printing of business magazines, wrappers
and subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex
“A”) which facts were never denied by appellants’ stockholders that they owe
appellee the amount of P291,342.76. The said goods were delivered to and
received by BMPI but it failed to pay its overdue account to appellee as well as the
interest thereon, at the rate of 20% per annum until fully paid. It was also during
this time that appellants stockholders were in charge of the operation of BMPI
despite the fact that they were not able to pay their unpaid subscriptions to BMPI
yet greatly benefited from said transactions. In view of the unpaid subscriptions,
BMPI failed to pay appellee of its liability, hence appellee in order to protect its
right can collect from the appellants’ stockholders regarding their unpaid
subscriptions. To deny appellee from recovering from appellants would place
appellee in a limbo on where to assert their right to collect from BMPI since the
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stockholders who are appellants herein are availing the defense of corporate fiction
17
to evade payment of its obligations.”
Further, the CA concurred with the RTC on the applicability of the trust fund
doctrine, under which corporate debtors might look to the unpaid subscriptions for
the satisfaction of unpaid corporate debts, stating thus:
“It is an established doctrine that subscription to the capital stock of a
corporation constitute a fund to which creditors have a right to look up to for
satisfaction of their claims, and that the assignee in insolvency can maintain an
action upon any unpaid stock subscription in order to realize assets for the
payment of its debts (PNB vs. Bitulok Sawmill, 23 SCRA 1366 [1968]).
_______________
17 Rollo, p. 45.
126
126 SUPREME COURT REPORTS ANNOTATED
Halley vs. Printwell, Inc.
Premised on the above-doctrine, an inference could be made that the funds,
which consists of the payment of subscriptions of the stockholders, is where the
creditors can claim monetary considerations for the satisfaction of their claims. If
these funds which ought to be fully subscribed by the stockholders were not paid
or remain an unpaid subscription of the corporation then the creditors have no
other recourse to collect from the corporation of its liability. Such occurrence was
evident in the case at bar wherein the appellants as stockholders failed to fully pay
their unpaid subscriptions, which left the creditors helpless in collecting their claim
due to insufficiency of funds of the corporation. Likewise, the claim of appellants
that they already paid the unpaid subscriptions could not be given weight because
said payment did not reflect in the Articles of Incorporations of BMPI that the
unpaid subscriptions were fully paid by the appellants’ stockholders. For it is a rule
that a stockholder may be sued directly by creditors to the extent of their unpaid
subscriptions to the corporation (Keller vs. COB Marketing, 141 SCRA 86 [1986]).
Moreover, a corporation has no power to release a subscription or its capital
stock, without valuable consideration for such releases, and as against creditors, a
reduction of the capital stock can take place only in the manner and under the
conditions prescribed by the statute or the charter or the Articles of Incorporation.
(PNB vs. Bitulok Sawmill, 23 SCRA 1366 [1968]).”
18
The CA declared that the inconsistency in the issuance of the ORs rendered
the claim of full payment of the subscriptions to the capital stock unworthy of
consideration; and held that the veil of corporate fiction could be pierced when it
was used as a shield to perpetrate a fraud or to confuse legitimate issues, to wit:
“Finally, appellants SPS YU, argued that the fact of full payment for the unpaid
subscriptions was incontrovertibly established by competent testimonial and
documentary evidence, namely—Exhibits “1”, “2”, “3” & “4”, which were never _______________
disputed by appellee, clearly shows that they should not be held liable for payment
of the said unpaid subscriptions of BMPI. 19 Rollo, pp. 47-49.
128
_______________ 128 SUPREME COURT REPORTS ANNOTATED

18 Id., at pp. 46-47. Halley vs. Printwell, Inc.

127
VOL. 649, MAY 30, 2011 127
Halley vs. Printwell, Inc.
The reliance is misplaced.
We are hereby reproducing the contents of the above-mentioned exhibits, to
wit:
Exh: “1”—YU—Official Receipt No. 217 dated November 5, 1987
amounting to P45,000.00 allegedly representing the initial payment of
subscriptions of stockholder Albert Yu.
Exh: “2”—YU—Official Receipt No. 218 dated May 13, 1988 amounting
to P135,000.00 allegedly representing full payment of balance of
subscriptions of stockholder Albert Yu. (Record p. 352).
Exh: “3”—YU—Official Receipt No. 222 dated November 5, 1987
amounting to P5,000.00 allegedly representing the initial payment of
subscriptions of stockholder Zenaida Yu.
Exh: “4”—YU—Official Receipt No. 223 dated May 13, 1988 amounting
to P15,000.00 allegedly representing the full payment of balance of
subscriptions of stockholder Zenaida Yu. (Record p. 353).
Based on the above exhibits, we are in accord with the lower court’s findings
that the claim of the individual appellants that they fully paid their subscription to
the defendant BMPI is not worthy of consideration, because, in the case of
appellants SPS. YU, there is an inconsistency regarding the issuance of the official
receipt since the alleged payment made on May 13, 1988 amounting to
P135,000.00 was covered by Official Receipt No. 218 (Record, p. 352), whereas
the alleged payment made earlier on November 5, 1987 amounting to P5,000.00 is
covered by Official Receipt No. 222 (Record, p. 353). Such issuance is a clear
indication that said receipts were belatedly issued just to suit their claim that they
have fully paid the unpaid subscriptions since in the ordinary course of business, a
receipt is issued earlier must have serial numbers lower than those issued on a
later date. But in the case at bar, the receipt issued on November 5, 1987 had a
serial number (222) higher than those issued on May 13, 1988 (218). And even
assuming arguendo that the individual appellants have paid their unpaid
subscriptions, still, it is very apparent that the veil of corporate fiction may be
pierced when made as a shield to perpetuate fraud and/or confuse legitimate
19
issues. (Jacinto vs. Court of Appeals, 198 SCRA 211 [1991]).”
Spouses Halley and Viñeza moved for a reconsideration, but the CA denied
their motion for reconsideration.
Issues
Only Donnina Halley has come to the Court to seek a further review, positing
the following for our consideration and resolution, to wit:
I.
THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION
THAT DID NOT STATE THE FACTS AND THE LAW UPON WHICH THE
JUDGMENT WAS BASED BUT MERELY COPIED THE CONTENTS OF
RESPONDENT’S MEMORANDUM ADOPTING THE SAME AS THE REASON
FOR THE DECISION
II.
THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE
REGIONAL TRIAL COURT WHICH ESSENTIALLY ALLOWED THE PIERCING
OF THE VEIL OF CORPORATE FICTION
III.
THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE TRUST
FUND DOCTRINE WHEN THE GROUNDS THEREFOR HAVE NOT BEEN
SATISFIED.
On the first error, the petitioner contends that the RTC lifted verbatim from the
memorandum of Printwell; and submits that the RTC thereby violated the
20
requirement imposed in Section 14, Article VIII of the Constitution as well as in
_______________
20 Section 14. No decision shall be rendered by any court without
expressing therein clearly and distinctly the facts and the law on which it is based.
xxx
129
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Halley vs. Printwell, Inc.

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 21
Section 1, Rule 36 of the Rules of Court, to the effect that a judgment or final
order of a court should state clearly and distinctly the facts and the law on which it
is based. The petitioner claims that the RTC’s violation indicated that the RTC did
not analyze the case before rendering its decision, thus denying her the
opportunity to analyze the decision; and that a suspicion of partiality arose from the
fact that the RTC decision was but a replica of Printwell’s memorandum. She
22
cites Francisco v. Permskul, in which the Court has stated that the reason
underlying the constitutional requirement, that every decision should clearly and
distinctly state the facts and the law on which it is based, is to inform the reader of
how the court has reached its decision and thereby give the losing party an
opportunity to study and analyze the decision and enable such party to
appropriately assign the errors committed therein on appeal.
On the second and third errors, the petitioner maintains that the CA and the
RTC erroneously pierced the veil of corporate fiction despite the absence of cogent
proof showing that she, as stockholder of BMPI, had any hand in transacting with
Printwell; that the CA and the RTC failed to appreciate the evidence that she had
fully paid her subscriptions; and the CA and the RTC wrongly relied on the articles
of incorporation in determining the current list of unpaid subscriptions despite the
articles of incorporation being at best reflective only of the pre-incorporation status
of BMPI.
As her submissions indicate, the petitioner assails the decisions of the CA on:
(a) the propriety of disregarding the separate personalities of BMPI and its
stockholders by piercing
_______________
21 Section 1. Rendition of judgments and final orders.—A judgment or final
order determining the merits of the case shall be in writing personally and directly
prepared by the judge, stating clearly and distinctly the facts and the law on
which it is based, signed by him, and filed with the clerk of the court.
22 G.R. No. 81006, May 12, 1989, 173 SCRA 324.
130
130 SUPREME COURT REPORTS ANNOTATED
Halley vs. Printwell, Inc.
the thin veil that separated them; and (b) the application of the trust fund doctrine.
Ruling
The petition for review fails.
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I
The RTC did not violate
the Constitution and the Rules of Court
The contention of the petitioner, that the RTC merely copied the memorandum
of Printwell in writing its decision, and did not analyze the records on its own,
thereby manifesting a bias in favor of Printwell, is unfounded.
It is noted that the petition for review merely generally alleges that starting from
its page 5, the decision of the RTC “copied verbatim the allegations of herein
Respondents in its Memorandum before the said court,” as if “the Memorandum
23
was the draft of the Decision of the Regional Trial Court of Pasig,” but fails to
specify either the portions allegedly lifted verbatim from the memorandum, or why
she regards the decision as copied. The omission renders the petition for review
insufficient to support her contention, considering that the mere similarity in
language or thought between Printwell’s memorandum and the trial court’s
decision did not necessarily justify the conclusion that the RTC simply lifted
verbatim or copied from the memorandum.
It is to be observed in this connection that a trial or appellate judge may
occasionally view a party’s memorandum or brief as worthy of due consideration
either entirely or partly. When he does so, the judge may adopt and incorporate in
his adjudication the memorandum or the parts of it he deems suitable, and yet not
be guilty of the accusation of lifting or
_______________
23 Rollo, p. 23.
131
VOL. 649, MAY 30, 2011 131
Halley vs. Printwell, Inc.
24
copying from the memorandum. This is because of the avowed objective of the
memorandum to contribute in the proper illumination and correct determination of
the controversy. Nor is there anything untoward in the congruence of ideas and
views about the legal issues between himself and the party drafting the
memorandum. The frequency of similarities in argumentation, phraseology,
expression, and citation of authorities between the decisions of the courts and the
memoranda of the parties, which may be great or small, can be fairly attributable to
the adherence by our courts of law and the legal profession to widely know nor
universally accepted precedents set in earlier judicial actions with identical factual
milieus or posing related judicial dilemmas.
We also do not agree with the petitioner that the RTC’s manner of writing the
decision deprived her of the opportunity to analyze its decision as to be able to
assign errors on appeal. The contrary appears, considering that she was able to
impute and assign errors to the RTC that she extensively discussed in her appeal
in the CA, indicating her thorough analysis of the decision of the RTC.
Our own reading of the trial court’s decision persuasively shows that the RTC
did comply with the requirements regarding the content and the manner of writing a
decision prescribed in the Constitution and the Rules of Court. The decision of the
RTC contained clear and distinct findings of facts, and stated the applicable law
and jurisprudence, fully explaining why the defendants were being held liable to the
plaintiff. In short, the reader was at once informed of the factual and legal reasons
for the ultimate result.
_______________
24 See, for instance, Bank of the Philippine Islands v. Leobrera, G.R. No.
137147, January 29, 2002, 375 SCRA 81, 86 (where the Court declared that
although it was not good practice, there was nothing illegal in the act of the trial
court completely copying the memorandum submitted by a party provided that the
decision clearly and distinctly stated sufficient findings of fact and the law on which
it was based).
132
132 SUPREME COURT REPORTS ANNOTATED
Halley vs. Printwell, Inc.
II
Corporate personality not to be used to foster injustice
Printwell impleaded the petitioner and the other stockholders of BMPI for two
reasons, namely: (a) to reach the unpaid subscriptions because it appeared that
such subscriptions were the remaining visible assets of BMPI; and (b) to avoid
multiplicity of suits.
25
The petitioner submits that she had no participation in the transaction between
BMPI and Printwell; that BMPI acted on its own; and that she had no hand in
persuading BMPI to renege on its obligation to pay. Hence, she should not be
personally liable.
We rule against the petitioner’s submission.
Although a corporation has a personality separate and distinct from those of its
26
stockholders, directors, or officers, such separate and distinct personality is
merely a fiction created by law for the sake of convenience and to promote the
27
ends of justice. The corporate personality may be disregarded, and the
individuals composing the corporation will be treated as individuals, if the corporate
entity is being used as a cloak or cover for fraud or illegality; as a justification for a
wrong; as an alter ego, an adjunct, or a business conduit for the sole benefit of the
28
stockholders. As a general rule, a
_______________
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25 Rollo, p. 55.
26 Section 2, Corporation Code; Article 44 (3), Civil Code; Francisco Motors
Corporation v. Court of Appeals, G.R. No. 100812, June 25, 1999, 309 SCRA 72,
82.
27 Prudential Bank v. Alviar, G.R. No. 150197, July 28, 2005, 464 SCRA 353,
362; Martinez v. Court of Appeals, G.R. No. 131673, September 10, 2004, 438
SCRA 130, 149-150.
28 Light Rail Transit Authority v. Venus, Jr., G.R. No. 163782, March 24, 2006,
485 SCRA 361, 372; R&E Transport, Inc. v. Latag, G.R. No. 155214, February 13,
2004, 422 SCRA 698; Secosa v. Heirs of Erwin Suarez Francisco, G.R. No.
160039, June 29, 2004, 433 SCRA 273; Gochan v. Young, G.R. No. 131889,
March 12, 2001,354
133
VOL. 649, MAY 30, 2011 133
Halley vs. Printwell, Inc.
corporation is looked upon as a legal entity, unless and until sufficient reason to
the contrary appears. Thus, the courts always presume good faith, and for that
reason accord prime importance to the separate personality of the corporation,
disregarding the corporate personality only after the wrongdoing is first clearly and
29
convincingly established. It thus behooves the courts to be careful in assessing
30
the milieu where the piercing of the corporate veil shall be done.
Although nowhere in Printwell’s amended complaint or in the testimonies
Printwell offered can it be read or inferred from that the petitioner was instrumental
in persuading BMPI to renege on its obligation to pay; or that she induced Printwell
to extend the credit accommodation by misrepresenting the solvency of BMPI to
Printwell, her personal liability, together with that of her co-defendants, remained
because the CA found her and the other defendant stockholders to be in charge of
the operations of BMPI at the time the unpaid obligation was transacted and
incurred, to wit:
“In the case at bench, it is undisputed that BMPI made several orders on credit
from appellee PRINTWELL involving the printing of business magazines, wrappers
and subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex
“A”) which facts were never denied by appellants’ stockholders that they owe(d)
appellee the amount of P291,342.76. The said goods were delivered to and
_______________
SCRA 207, 222; Development Bank of the Philippines v. Court of Appeals, G.R.
No. 110203, May 9, 2001, 357 SCRA 626; Del Rosario v. National Labor Relations
Commission, G.R. No. 85416, July 24, 1990, 187 SCRA 777, 780.
 29 Solidbank Corporation v. Mindanao Ferroalloy Corporation, G.R. No.
153535, July 28, 2005, 464 SCRA 409, 424-425; Construction & Development
Corporation of the Philippines v. Cuenca, G.R. No. 163981, August 12, 2005, 466
SCRA 714, 727; Matuguina Integrated Wood Products, Inc. v. Court of Appeals,
G.R. No. 98310, October 24, 1996, 263 SCRA 490, 509.
30 Francisco Motors Corporation v. Court of Appeals, supra, note 26.
134
134 SUPREME COURT REPORTS ANNOTATED
Halley vs. Printwell, Inc.
received by BMPI but it failed to pay its overdue account to appellee as well as the
interest thereon, at the rate of 20% per annum until fully paid. It was also during
this time that appellants stockholders were in charge of the operation of BMPI
despite the fact that they were not able to pay their unpaid subscriptions to BMPI
yet greatly benefited from said transactions. In view of the unpaid subscriptions,
BMPI failed to pay appellee of its liability, hence appellee in order to protect its
right can collect from the appellants stockholders regarding their unpaid
subscriptions. To deny appellee from recovering from appellants would place
appellee in a limbo on where to assert their right to collect from BMPI since the
stockholders who are appellants herein are availing the defense of corporate fiction
31
to evade payment of its obligations.”
It follows, therefore, that whether or not the petitioner persuaded BMPI to
renege on its obligations to pay, and whether or not she induced Printwell to
transact with BMPI were not good defenses in the suit.
III
Unpaid creditor may satisfy its claim from
unpaid subscriptions; stockholders must
prove full payment of their subscriptions
Both the RTC and the CA applied the trust fund doctrine against the defendant
stockholders, including the petitioner.
The petitioner argues, however, that the trust fund doctrine was inapplicable
because she had already fully paid her subscriptions to the capital stock of BMPI.
She thus insists that both lower courts erred in disregarding the evidence on the
complete payment of the subscription, like receipts, income tax returns, and
relevant financial statements.
The petitioner’s argument is devoid of substance.
The trust fund doctrine enunciates a—
_______________
31 Rollo, p. 45.
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VOL. 649, MAY 30, 2011 135
Halley vs. Printwell, Inc.
“x x x rule that the property of a corporation is a trust fund for the payment of
creditors, but such property can be called a trust fund ‘only by way of analogy or
metaphor.’ As between the corporation itself and its creditors it is a simple debtor,
and as between its creditors and stockholders its assets are in equity a fund for the
32
payment of its debts.”
The trust fund doctrine, first enunciated in the American case of Wood v.
33
Dummer, was adopted in our jurisdiction in Philippine Trust Co. v.
34
Rivera, where this Court declared that:
“It is established doctrine that subscriptions to the capital of a corporation
constitute a fund to which creditors have a right to look for satisfaction of their
claims and that the assignee in insolvency can maintain an action upon any unpaid
stock subscription in order to realize assets for the payment of its debts. (Velasco
35
vs. Poizat, 37 Phil., 802) x x x”
We clarify that the trust fund doctrine is not limited to reaching the
stockholder’s unpaid subscriptions. The scope of the doctrine when the corporation
is insolvent encompasses not only the capital stock, but also other property and
assets generally regarded in equity as a trust fund for the payment of corporate
36
debts. All assets and property belonging to the corporation held in trust for the
benefit of creditors that were distributed or in the possession of the stockholders,
regardless
_______________
32 42A, Words and Phrases, Trust Fund Doctrine, p. 445, citing McIver v.
Young Hardware Co., 57 S.E. 169, 171, 144 N.C. 478, 119 Am. St. Rep.
970; Gallagher v. Asphalt Co. of America, 55 A. 259, 262, 65 N.J. Eq. 258.
33 3 Mason 308, Fed Cas. No. 17, 944.
34 44 Phil 469 (1923).
35 Id., at p. 470.
36 Villanueva, Philippine Corporate Law (2001), pp. 558, citing Chicago Rock
Island & Pac. R.R. Co. v. Howard, 7 Wall., 392, 19 L. Ed. 117; Sawyer v. Hoag, 17
Wall 610, 21 L. Ed. 731; and Pullman v. Upton, 96 U.S. 328, 24 L. Ed. 818.
136
136 SUPREME COURT REPORTS ANNOTATED
Halley vs. Printwell, Inc.
of full payment of their subscriptions, may be reached by the creditor in satisfaction
of its claim.
 Also, under the trust fund doctrine, a corporation has no legal capacity to
release an original subscriber to its capital stock from the obligation of paying for
37 38
his shares, in whole or in part, without a valuable consideration, or fraudulently,
39
to the prejudice of creditors. The creditor is allowed to maintain an action upon
any unpaid subscriptions and thereby steps into the shoes of the corporation for
40
the satisfaction of its debt. To make out a prima facie case in a suit against
stockholders of an insolvent corporation to compel them to contribute to the
payment of its debts by making good unpaid balances upon their subscriptions, it is
only necessary to establish that the stockholders have not in good faith paid the
41
par value of the stocks of the corporation.
The petitioner posits that the finding of irregularity attending the issuance of the
receipts (ORs) issued to the other stockholders/subscribers should not affect her
because her receipt did not suffer similar irregularity.
Notwithstanding that the RTC and the CA did not find any irregularity in the OR
issued in her favor, we still cannot sustain the petitioner’s defense of full payment
of her subscription.
In civil cases, the party who pleads payment has the burden of proving it, that
even where the plaintiff must allege nonpayment, the general rule is that the
burden rests on the defendant to prove payment, rather than on the plaintiff to
prove nonpayment. In other words, the debtor bears the bur-
_______________
37 Velasco v. Poizat, 37 Phil 802, 808 (1918).
38 Philippine Trust v. Rivera, supra, note 34, pp. 470-471.
39 Fogg v. Blair, 139 US 118 (1891).
40 See Velasco v. Poizat, 37 Phil 802, 806 (1918).
41 Tierney v. Ledden, 121 NW 1050.
137
VOL. 649, MAY 30, 2011 137
Halley vs. Printwell, Inc.
den of showing with legal certainty that the obligation has been discharged by
42
payment.
Apparently, the petitioner failed to discharge her burden.
A receipt is the written acknowledgment of the fact of payment in money or
other settlement between the seller and the buyer of goods, the debtor or the
creditor, or the person rendering services, and the client or the
43
customer. Although a receipt is the best evidence of the fact of payment, it is not
conclusive, but merely presumptive; nor is it exclusive evidence, considering that
44
parole evidence may also establish the fact of payment.
The petitioner’s OR No. 227, presented to prove the payment of the balance of
her subscription, indicated that her supposed payment had been made by means
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of a check. Thus, to discharge the burden to prove payment of her subscription,
she had to adduce evidence satisfactorily proving that her payment by check was
regarded as payment under the law.
45
Payment is defined as the delivery of money. Yet, because a check is not
money and only substitutes for money, the delivery of a check does not operate as
46
payment and does not discharge the obligation under a judgment. The delivery of
a bill of exchange only produces the fact of payment when the
_______________
42 Alonzo v. San Juan, G.R. No. 137549, February 11, 2005, 451 SCRA 45,
55-56; Union Refinery Corporation v. Tolentino, Sr., G.R. No. 155653, September
30, 2005, 471 SCRA 613, 621.
43 Commissioner of Internal Revenue v. Manila Mining Corporation, G.R. No.
153204, August 31, 2005, 468 SCRA 571, 590.
44 Philippine National Bank v. Court of Appeals, G.R. No. 116181, April 17,
1996, 256 SCRA 491, 335-336; Towne & City Development Corporation v. Court of
Appeals, G.R. No. 135043, July 14, 2004, 434 SCRA 356, 361-362.
45 Art. 1232, Civil Code.
46 Philippine Airlines, Inc. v. Court of Appeals, G.R. No. 49188, January 30,
1990, 181 SCRA 557, 568.
138
138 SUPREME COURT REPORTS ANNOTATED
Halley vs. Printwell, Inc.
47
bill has been encashed. The following passage from Bank of Philippine Islands v.
48
Royeca is enlightening:
“Settled is the rule that payment must be made in legal tender. A check is not
legal tender and, therefore, cannot constitute a valid tender of payment.
Since a negotiable instrument is only a substitute for money and not money,
the delivery of such an instrument does not, by itself, operate as
payment. Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended until
the payment by commercial document is actually realized.
To establish their defense, the respondents therefore had to present
proof, not only that they delivered the checks to the petitioner, but also that
the checks were encashed. The respondents failed to do so. Had the checks
been actually encashed, the respondents could have easily produced the
cancelled checks as evidence to prove the same. Instead, they merely
averred that they believed in good faith that the checks were encashed
because they were not notified of the dishonor of the checks and three years
had already lapsed since they issued the checks.
 Because of this failure of the respondents to present sufficient proof of
payment, it was no longer necessary for the petitioner to prove non-payment,
particularly proof that the checks were dishonored. The burden of evidence is
shifted only if the party upon whom it is lodged was able to adduce preponderant
evidence to prove its claim.”
Ostensibly, therefore, the petitioner’s mere submission of the receipt issued in
exchange of the check did not satisfactorily establish her allegation of full payment
of her subscription. Indeed, she could not even inform the trial court about the
49
identity of her drawee bank, and about whether the
_______________
47 Art. 1249, Civil Code.
48 G.R. No. 176664, July 21, 2008, 559 SCRA 207, 217-219 (underscoring
supplied for emphasis).
49 See TSN dated November 6, 1991, p. 4.
139
VOL. 649, MAY 30, 2011 139
Halley vs. Printwell, Inc.
50
check was cleared and its amount paid to BMPI. In fact, she did not present the
check itself.
The income tax return (ITR) and statement of assets and liabilities of BMPI,
albeit presented, had no bearing on the issue of payment of the subscription
because they did not by themselves prove payment. ITRs establish a taxpayer’s
liability for taxes or a taxpayer’s claim for refund. In the same manner, the deposit
slips and entries in the passbook issued in the name of BMPI were hardly relevant
due to their not reflecting the alleged payments.
It is notable, too, that the petitioner and her co-stockholders did not support
their allegation of complete payment of their respective subscriptions with the stock
and transfer book of BMPI. Indeed, books and records of a corporation (including
the stock and transfer book) are admissible in evidence in favor of or against the
corporation and its members to prove the corporate acts, its financial status and
other matters (like the status of the stockholders), and are ordinarily the best
51
evidence of corporate acts and proceedings. Specifically, a stock and transfer
book is necessary as a measure of precaution, expediency, and convenience
because it provides the only certain and accurate method of establishing the
various corporate acts and transactions and of showing the ownership of stock and
52
like matters. That she tendered no explanation why the stock and transfer book
was not presented warrants the inference that the book did not reflect the actual
payment of her subscription.
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Nor did the petitioner present any certificate of stock issued by BMPI to her.
Such a certificate covering her subscription might have been a reliable evidence of
full payment of
_______________
50 TSN dated November 6, 1991, p. 4.
51 Bitong v. Court of Appeals (Fifth Division), G.R. No. 123553, July 13, 1998,
292 SCRA 503, 523.
52 Lanuza v. Court of Appeals, G.R. No. 131394, March 28, 2005, 454 SCRA
54, 67.
140
140 SUPREME COURT REPORTS ANNOTATED
Halley vs. Printwell, Inc.
the subscriptions, considering that under Section 65 of the Corporation Code a
certificate of stock issues only to a subscriber who has fully paid his subscription.
The lack of any explanation for the absence of a stock certificate in her favor
likewise warrants an unfavorable inference on the issue of payment.
Lastly, the petitioner maintains that both lower courts erred in relying on
the articles of incorporation as proof of the liabilities of the stockholders subscribing
to BMPI’s stocks, averring that the articles of incorporation did not reflect the latest
subscription status of BMPI.
Although the articles of incorporation may possibly reflect only the pre-
incorporation status of a corporation, the lower courts’ reliance on that document to
determine whether the original subscribers already fully paid their subscriptions or
not was neither unwarranted nor erroneous. As earlier explained, the burden of
establishing the fact of full payment belonged not to Printwell even if it was the
plaintiff, but to the stockholders like the petitioner who, as the defendants, averred
full payment of their subscriptions as a defense. Their failure to substantiate their
averment of full payment, as well as their failure to counter the reliance on the
recitals found in the articles of incorporation simply meant their failure or inability to
satisfactorily prove their defense of full payment of the subscriptions.
To reiterate, the petitioner was liable pursuant to the trust fund doctrine for the
corporate obligation of BMPI by virtue of her subscription being still unpaid.
Printwell, as BMPI’s creditor, had a right to reach her unpaid subscription in
satisfaction of its claim.
IV
Liability of stockholders for corporate debts is up
to the extent of their unpaid subscription
The RTC declared the stockholders pro rata liable for the debt (based on the
proportion to their shares in the capital
141
 VOL. 649, MAY 30, 2011 141
Halley vs. Printwell, Inc.
stock of BMPI); and held the petitioner personally liable only in the amount of
P149,955.65.
We do not agree. The RTC lacked the legal and factual support for its prorating
the liability. Hence, we need to modify the extent of the petitioner’s personal liability [No. 30460. March 12, 1929]
to Printwell. The prevailing rule is that a stockholder is personally liable for the C. H. STEINBERG, as Receiver of the Sibuguey Trading Company, Incorporated,
53
financial obligations of the corporation to the extent of his unpaid subscription. In plaintiff and appellant, vs. GRE-GORIO VELASCO ET AL., defendants and
view of the petitioner’s unpaid subscription being worth P262,500.00, she was appellees.
liable up to that amount.
Interest is also imposable on the unpaid obligation. Absent any stipulation, 1. 1.WHAT CREDITORS MAY ASSUME.—The creditors of a corporation
interest is fixed at 12% per annum from the date the amended complaint was filed have the right to assume that so long as there are debts and liabilities,
on February 8, 1990 until the obligation (i.e., to the extent of the petitioner’s the board of directors of the corporation will not use its assets to
54
personal liability of P262,500.00) is fully paid. Lastly, purchase its own stock or to declare dividends to its stockholders when
we find no basis to grant attorney’s fees, the award for which must be the corporation is insolvent.
supported by findings of fact and of law as provided under Article 2208 of the Civil
55
Code incorporated in the body of decision of the trial court. The absence of the
requisite findings from the RTC decision warrants the deletion of the attorney’s 1. 2.DUTIES OF DIRECTORS.—The directors of a corporation are bound to
fees. care for its property and manage its affairs in good faith, and for a
ACCORDINGLY, we deny the petition for review on certiorari; and affirm with violation of their duties resulting in waste of its assets or injury to its
modification the decision promulgated on August 14, 2002 by ordering the property, they are liable to account the same as any other trustee.
petitioner to pay to
1. 3.LIABILITY OF DIRECTORS.—If the directors of a corporation do acts
_______________ clearly beyond their power, by reason of which a loss ensued, or
dispose of its property without authority, they will be required to make
53 Edward A. Keller & Co., Ltd., v. COB Group Marketing, Inc., G.R. No. L- good the loss out of their private estate.
68907, January 16, 1986, 141 SCRA 86, 93 citing Vda. De Salvatierra v. Hon.
Garlitos etc, and Refuerzo, 103 Phil, 757, 763 (1958). 1. 4.IGNORANCE IS NO DEFENSE.—A director of a corporation is bound
54 See Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, July to exercise ordinary skill and judgment and cannot excuse his
12, 1994, 234 SCRA 78. negligence or unlawf ul acts on the ground of ignorance or inexperience.
55 Bunyi v. Factor, G.R. No. 172547, June 30, 2009, 591 SCRA 350, 363;
Lapanday Agricultural and Development Corporation (LADECO) v. Angala, G.R.
APPEAL from a judgment of the Court of First Instance of Zamboanga. Summers,
No. 153076, June 21, 2007, 525 SCRA 229; Pajuyo v. Court of Appeals, G.R. No.
J.
146364, June 3, 2004, 430 SCRA 492, 524.
The facts are stated in the opinion of the court.
142
Frank H. Young for appellant.
142 SUPREME COURT REPORTS ANNOTATED Pablo Lorenzo and Delfin Joven for appellees.
Halley vs. Printwell, Inc. STATEMENT
Printwell, Inc. the sum of P262,500.00, plus interest of 12% per annum to be Plaintiff is the receiver of the Sibuguey Trading Company, a domestic corporation.
computed from February 8, 1990 until full payment. The defendants are residents of the Philippine Islands.
The petitioner shall pay cost of suit in this appeal.
SO ORDERED.

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 It is alleged that the defendants, Gregorio Velasco, as president, Felix del
Castillo, as vice-president, Andres L. Navallo, as secretary-treasurer, and Rufino
Manuel, as
954
954 PHILIPPINE REPORTS ANNOTATED
Steinberg vs. Velasco
director of the Trading Company, at a meeting of the board of directors held on
July 24, 1922, approved and authorized various unlawful purchases already made
of a large portion of the capital stock of the company from its various stockholders,
thereby diverting its funds to the injury, damage and in fraud of the creditors of the
corporation. That pursuant to such resolution and on March 31, 1922, the
corporation purchased from the defendant S. R. Ganzon 100 shares of its capital
stock of the par value of P10, and on June 29,1922, it purchased from the
defendant Felix D. Mendaros 100 shares of the par value of P10, and on July 16,
1922, it purchased from the defendant Felix D. Mendaros 100 shares of the par
value of P10, each, and on April 5, 1922, it purchased from the defendant Dionisio
Saavedra 10 shares of the same par value, and on June 29, 1922, it purchased
from the defendant Valentin Matias 20 shares of like value. That the total amount
of the capital stock unlawfully purchased was P3,300. That at the time of such
purchase, the corporation had accounts payable amounting to P13,807.50, most of
which were unpaid at the time the petition for the dissolution of the corporation was
presented, and that the corporation was then in a bad financial condition, in
contemplation of an insolvency and dissolution.
As a second cause of action, plaintiff alleges that on July 24, 1922, the officers
and directors of the corporation approved a resolution for the payment of P3,000
as dividends to its stockholders, which was wrongfully done and in bad faith, and.
to the injury and fraud of its creditors. That at the time the petition for the
dissolution of the corporation was presented it had accounts payable in the sum of
P9,241.19, "and practically worthless accounts receivable."
Plaintiff prays judgment for the sum of P3,300 from the defendants Gregorio
Velasco, Felix del Castillo, Andres L. Navallo and Rufino Manuel, personally as
members of the Board of Directors, or for the recovery from the de-
955
VOL. 52, MARCH 12, 1929 955
Steinberg vs. Velasco
fendant S. R. Ganzon, of the sum of P1,000, from the defendant Felix D.
Mendaros, P2,000, and from the defendant Dionisio Saavedra, P100, and under
his second cause of action, he prays judgment for the sum of P3,000, with legal
interest against the board of directors, and costs.
For answer the defendants Felix del Castillo, Rufino Manuel, S. R. Ganzon,
Dionisio Saavedra and Valentin Matias made a general and specific denial.
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In his amended answer, the defendant Gregorio Velasco admits paragraphs 1,
2. and 3. of each cause of action of the complaint, and that the shares mentioned
in paragraph 4. of the first cause of action were purchased, but alleges that they
were purchased by virtue of a resolution of the board of directors of the corporation
"when the business of the company was going on very well." That the defendant is
one of the principal shareholders, and that about the same time, he purchased
other shares for his own account, because he thought they would bring profits. As
to the second cause of action, he admits that the dividends described in paragraph
4. of the complaint were distributed, but alleges that such distribution was
authorized by the board of directors, "and that the amount represented by said
dividends really constitutes a surplus profit of the corporation," and as a
counterclaim, he asks for judgment against the receiver for P12,512.47 for and on
account of his negligence in failing to collect the accounts.
Although duly served, the defendant Mendaros did not appear or answer. The
defendant Navallo was not served, and the case against him was dismissed.
April 30, 1928, the case was tried and submitted on a stipulation of facts,
based upon which the lower court dismissed plaintiff's complaint, and rendered
judgment for the defendants, with costs against the plaintiff, and absolved him from
the cross-complaint of the defendant Velasco, and on appeal, the plaintiff assigns
the following errors:
"1. In holding that the Sibuguey Trading Company, Incorporated, could legally
purchase its own stock.
956
956 PHILIPPINE REPORTS ANNOTATED
Steinberg vs. Velasco
"2. In holding that the Board of Directors of the said Corporation could legally
declare a dividend of P3,000, July 24, 1922."
JOHNS, J.;
It is stipulated that on July 24, 1922, the directors of the corporation approved the
purchase of stock as follows:
One hundred shares from S. R. Ganzon for P1,000;
One hundred shares from Felix D. Mendaros at the same price; which
purchase was made on June 29, 1922; another
One hundred shares from Felix; D. Mendaros at the same price on July 16,
1922;
Ten shares from Dionisio Saavedra at the same price on June 29,1922.
That during such times, the defendant Gregorio Velasco purchased 13 shares
from the corporation for P130; Felix del Castillo—42 shares for P420; Andres
Navallo—15 shares for P150; and the defendant Mendaros—10 shares for P100.
That during the time these various purchases were made, the total amount of
subscribed and paid up capital stock of the corporation was P10,030, out of the
authorized capital stock 2,000 shares of the par value of P10 each.
Paragraph 4. of the stipulation also recites:
"Be it also admitted as a fact that at the time of the said purchases there was a
surplus profit of the corporation above-named of P3,314.72."
Paragraph 5, is as follows:
"That at the time of the repeatedly mentioned various purchases of the said capital
stock were made, the said corporation had Accounts Payable in the total amount of
P13,807.50 as shown by the statement of the corporation, dated June 30, 1922,
and Accounts Receivable in the sum of P19,126.02 according to the books, and
that the intention of the Board of Directors was to resell the stocks purchased by
the corporations at a sum above par for each stock, this expectation being justified
by the then satisfactory and
957
VOL. 52, MARCH 12, 1929 957
Steinberg vs. Velasco
sound financial condition of the business of the corporation."
It is also stipulated that on September 11, 1923, when the petition for the
dissolution of the corporation was presented to the court, according to a statement
made June 30, 1923, it has accounts payable aggregating P9,241.19, and
accounts receivable for P12,512.47.
Paragraph 7, of the stipulation recites:
"That the same defendants, mentioned in paragraph 2. of this stipulation of facts
and in the same capacity, on the same date of July 24, 1922, and at the said
meeting of the said Board of Directors, approved and authorized by resolution the
payments of dividends to its stockholders, in the sum of three thousand pesos
(P3,000), Philippine currency, which payments were made at different dates,
between September 30, 1922, and May 12, 1923, both dates inclusive, at a time
when the corporation had accounts less in amount than the accounts receivable,
which resolution was based upon the balance sheet made as June 30, 1922, said
balance sheet showing that the corporation had a surplus of P1,069.41, and a
profit on the same date of P2,656.08, or a total surplus amount of P3,725.49, and a
reserve fund of P2,889.23 for bad and doubtful accounts and depreciation of
equipment, thereby leaving a balance of P3,314.72 of net surplus profit after
paying this dividend."
It is also stipulated at a meeting of the board of directors held on July 24, 1922, as
follows:
"6. The president and manager submitted to the Board of Directors his statement
and balance sheet for the first semester ending June 30, 1922 and recommended
that P3,000—out of the surplus account be set aside for dividends payable, and
that payments be made in installments so as not to affect the financial condition of
the corporation. That stockholders having outstanding account with the corporation
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should settle first their accounts before payments of their dividends could be made.
Mr. Castillo moved that
958
958 PHILIPPINE REPORTS ANNOTATED
Steinberg vs. Velasco
the statement and balance sheet be approved as submitted, and also the
recommendations of the president. Seconded by Mr. Manuel. Approved."
Paragraph 8, of the stipulation is as follows:
"That according to the balance sheet of the corporation, dated June 30, 1923, it
had accounts receivable in the sum of P12,512.47, due from various contractor
and laborers of the National Coal Company, and also employees of the herein
corporation, which the herein receiver, after his appointment on February 28, 1924,
although he made due efforts by personally visiting the location of the corporation,
and of National Coal Company, at its offices, at Malangas, Mindanao, and by
writing numerous letters of demand to the debtors of the corporation, in order to
collect these accounts receivable, he was unable to do so as most of them Were
without goods or property, and he could not file any suit against them that might
have any property, for the reason that he had no funds on hand with which to pay
the filing and sheriff fees to Malangas, and other places of their residences."
From all of which, it appears that on June 30, 1922, the board of directors of the
corporation authorized the purchase of, purchased and paid for, 330 shares of the
capital stock of the corporation at the agreed price of P3,300, and that at the time
the purchase was made, the corporation was indebted in the sum of P13,807.50,
and that according to its books, it had accounts receivable in the sum of
P19,126.02. That on September 11, 1923, when the petition was filed for its
dissolution upon the ground that it was insolvent, its accounts payable amounted to
P9,241.19, and its accounts receivable P12,512.47, or an apparent asset of
P3,271.28 over and above its liabilities. But it will be noted that there is no
stipulation or finding of fact as to what was the actual cash value of its accounts
receivable. Neither is there any stipulation that those accounts or any part of them
ever have been or will be collected, and it does appear that after his appointment
on February 28, 1924, the receiver made
959
VOL. 52, MARCH 12, 1929 959
Steinberg vs. Velasco
a diligent effort to collect them, and that he was unable to do so, and it also
appears from the minutes of the board of directors that the president and manager
"recommended that P3,000—out of the surplus account to be set aside for
dividends payable, and that payments be made in installments so as not to affect
the financial condition of the corporation."
 If in truth and in fact the corporation had an actual bona fide surplus of P3,000
over and above all of its debts and liabilities, the payment of the P3,000 in
dividends would not in the least impair the financial condition of the corporation or
prejudice the interests of its creditors.
It is very apparent that on June 24, 1922, the board of directors acted on the
assumption that, because it appeared from the books of the corporation that it had
accounts receivable of the face value of P19,126.02, therefore it had a surplus
over and above its debts and liabilities. But as stated, there is no stipulation as to
the actual cash value of those accounts, and it does appear from the stipulation
that on February 28,1924, P12,512.47 of those accounts had but little, if any,
value, and it must be conceded that, in the purchase of its own stock to the amount
of P3,300 and in declaring the dividends to the amount of P3,000, the real assets
of the corporation were diminished P6,300. It also appears from paragraph 4. of
the stipulation that the corporation had a "surplus profit" of P3,314.72 only. It is
further stipulated that the dividends should "be made in installments so as not to
affect the financial condition of the corporation." In other words, that the
corporation did not then have an actual bona fide surplus from which the dividends
could be paid, and that the payment of them in full at that time would "affect the
financial condition of the corporation."
It is, indeed, peculiar that the action of the board in purchasing the stock from
the corporation and in declaring the dividends on the stock was all done at the
same meeting of the board of directors, and it appears in those minutes
960
960 PHILIPPINE REPORTS ANNOTATED
Steinberg vs. Velasco
that both Ganzon and Mendaros were formerly directors and resigned before the
board approved the purchase and declared the dividends, and that out of the
whole 330 shares purchased, Ganzon sold 100 and Mendaros 200, or a total of
300 shares out of the 330, which were purchased by the corporation, and for which
it paid P3,300. In other words, that the directors were permitted to resign so that
they could sell their stock to the corporation. As stated, the authorized capital stock
was P20,000 divided into 2,000 shares of the par value of P10 each, of which only
P10,030 was subscribed and paid. Deducting the P3,300 paid for the purchase of
the stock, there would be left P7,000 of paid up stock, from which deduct P3,000
paid in dividends, there would be left P4,000 only. In this situation and upon this
state of facts, it is very apparent that the directors did not act in good faith or that
they were grossly ignorant of their duties.
Upon each of those points, the rule is well stated in Ruling Case Law, vol. 7, p.
473, section 454, where it is said:
"General Duty to Exercise Reasonable Care.—The directors of a corporation are
bound to care for its property and manage its affairs in good faith, and for a
violation of these duties resulting in waste of its assets or injury to the property they
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are liable to account the same as other trustees. And there can be no doubt that if
they do acts clearly beyond their power, whereby loss ensues to the corporation, or
dispose of its property or pay away its money without authority, they will be
required to make good the loss out of their private estates. This is the rule where
the disposition made of money or property of the corporation is one either not
within the lawful power of the corporation, or, if within the power of the corporation,
is not within the power or authority of the particular officer or officers."
And section 468 which says:
"Want of Knowledge, Skill, or Competency.—lt has been said that directors are not
liable for losses resulting to the
961
VOL. 52, MARCH 12, 1929 961
Steinberg vs. Velasco
corporation from want of knowledge on their part; or for mistakes of judgment,
provided they were honest, and provided they are fairly within the scope of the
powers and .discretion confided to the managing body. But the acceptance of the
office of a director of a corporation implies a competent knowledge of the duties
assumed, and directors cannot excuse imprudence on the ground of their
ignorance or inexperience; and if they commit an error of judgment through mere
recklessness or want of ordinary prudence or skill, they may be held liable for the
consequences. Like a mandatory, to whom he has been likened, a director is
bound not only to exercise proper care and diligence, but ordinary skill and
judgment. As he is bound to exercise ordinary skill and judgment, he cannot set up
that he did not possess them."
Creditors of a corporation have the right to assume that so long as there are
outstanding debts and liabilities, the board of directors will not use the assets of the
corporation to purchase its own stock, and that it will not declare dividends to
stockholders when the corporation is insolvent.
The amount involved in this case is not large, but the legal principles are
important, and we have given them the consideration which they deserve.
The judgment of the lower court is reversed, and (a), as to the first cause of
action, one will be entered for the plaintiff and against the defendant S. R. Ganzon
for the sum of P1,000, with legal interest from the 10th of February, 1926, and
against the defendant Felix D. Mendaros for P2,000, with like interest, and against
the defendant Dionisio Saavedra for P100, with like interest, and against each of
them for costs, each on their primary liability as purchasers of stock, and (b)
against the defendants Gregorio Velasco, Felix del Castillo and Rufino Manuel,
personally, as members of the board of directors of the Sibuguey Trading
Company, Incorporated, as secondarily liable for the whole amount of such stock
sold and pur-
962
962 PHILIPPINE REPORTS ANNOTATED
 Nacionalista Party vs. Municipal Board of Manila and whether the purchase is for a legitimate corporate purpose as provided in
Sections 41 and 122 of the Corporation Code.
chased as above stated, and on the second cause of action, judgment will be
Same; Corporations; Trust Fund Doctrine; There can be no distribution of
entered (c) for the plaintiff and jointly and severally against the defendants
assets among stockholders without first paying the corporate creditors.—The
Gregorio Velasco, Felix del Castillo and Rufino Manuel, personally, as members of
requirement of unrestricted retained earnings to cover the shares is based on the
the board of directors of the Sibuguey Trading Company, Incorporated, for P3,000,
trust fund doctrine which means that the capital stock, property and other assets of
with interest thereon from February 10,1926, at the rate of b, per cent per annum,
a corporation are regarded as equity in trust for the payment of corporate creditors.
and costs. So ordered.
The reason is that creditors of a corporation are preferred over the stockholders in
Johnson, Street, Malcolm, Ostrand, Romualdez, and Villa-Real, JJ., concur.
the distribution of corporate assets. There can be no distribution of assets among
Judgment reversed.
the stockholders without first paying corporate creditors. Hence, any disposition of
corporate funds to the prejudice of creditors is null and void. "Creditors of a
corporation have the right to assume that so long as there are outstanding debts
and liabilities, the board of directors will not use the assets of the corporation to
purchase its own stock ..." (Steinberg vs. Velasco, 52 Phil. 953.)
Contracts, Interpretation of; Provisions of existing laws are deemed
No. L-77860. November 22, 1988.
* incorporated in a valid contract without the parties' making express reference to
BOMAN ENVIRONMENTAL DEVELOPMENT CORPORATION, it.—These provisions of the Corporation Code should be deemed written into the
petitioners, vs. HON. COURT OF APPEALS and NILCAR Y. FAJILAN, agreement between the corporation and the stockholders even if there is no
respondents. express reference to them in the promissory note. The principle is well settled that
Corporation Law; Jurisdiction of the SEC; Intra-corporate Controversy; A suit an existing law enters into and forms part of a valid contract without need for the
filed by a stockholder against the corporation to enforce the latter's promissory parties' expressly making reference to it (Lakas ng Manggagawang Makabayan vs.
note or to compel the corporation to pay for his shareholdings is cognizable by the Abiera, 36 SCRA 437).
SEC alone.—Fajilan's suit against the corporation to enforce the latter's promissory PETITION for certiorari to review the decision of the Court of Appeals.
note or compel the corporation to pay for his shareholdings is cognizable by the The facts are stated in the opinion of the Court.
SEC alone which shall determine whether such payment will not constitute a Lim, Duran & Associates for petitioner.
distribution of corporate assets to a stockholder in preference over creditors of the Renato J. Dilag for private respondent.
corporation. The SEC has exclusive
GRIÑO-AQUINO, J.:
_______________
The only issue in this case is whether or not a suit brought by a withdrawing
12
Perez vs. Ong Chua, 116 SCRA 732 (1982). stockholder against the corporation to enforce payment of the balance due on the
13
Ramos, et al. vs. Ramos, et al., supra, citing 90 C.J.S. 887-889; 54 Am. consideration (evidenced by
Jur. 449-450. 542
*
FIRST DIVISION. 542 SUPREME COURT REPORTS ANNOTATED
541 Boman Environmental Dev't. Corp. vs. Court of Appeals
VOL. 167, NOVEMBER 22, 1988 5 a corporate promissory note) for the surrender of his shares of stock and interests
41 in the corporation, involves an intra-corporate dispute. The resolution of that issue
will determine whether the Securities and Exchange Commission (SEC) or a
Boman Environmental Dev't. Corp. vs. Court of regular court has jurisdiction over the action.
Appeals On May 7, 1984, respondent Nilcar Y. Fajilan offered in writing to resign as
supervision, control and regulatory jurisdiction to investigate whether the President and Member of the Board of Directors of petitioner, Boman
corporation has unrestricted retained earnings to cover the payment for the shares, Environmental Development Corporation (BEDECO), and to sell to the company all

Corporation  Law  Cases  –  Batch  3  

 
his shares, rights, and interests therein for P300,000 plus the transfer to him of the "Mr. Nilcar Y. Fajilan
company's Isuzu pick-up truck which he had been using. The letter-offer (Exh. A-1) No. 159 Aramismis Street
reads as follows: Project 7, Quezon City
"Dear Mr. Fajilan:
"07 May l984 "Please be informed that after due deliberation the Board of Directors has
accepted your offer to sell your share and interest in the company at the price of
"THE BOARD OF DIRECTORS, P300,000.00, inclusive of your unpaid salary from February 1984 to May 31,1984,
BOMAN ENVIRONMENTAL DEVELOPMENT loan principal, interest on loan, profit sharing and share on book value of the
CORPORATION corporation as at May 31,1984. Payment of the P300,000.00 shall be as follows:
2nd Floor, AGS Building, "July 15, 1984 —P100,000.00
466 EDSA, Makati,
September 15, 1984 —P 75,000.00
Metro Manila
Gentlemen:. October 15, 1984 —P 62,500.00
"With deepest regrets, I am tendering my resignation as member of the Board December 15, 1984 —P 62,500.00
of Directors and President of the Company effective as soon as my shares and
interests thereto are sold and fully paid. P300,000.00.
"It is really painful to leave the Company which we painstakingly labored and "To assure you of payment of the above amount on respective due dates, the
nortured for years to attain its success today, however, family interests and other company will execute the necessary promissory note.
considerations dictate me otherwise. "In addition to the above, the Ford Courier Pick-up will belong to you subject to
"Thank you for your interest of buying my shares and other interests on the your assumption of the outstanding obligation thereof with Fil-Invest. It is
Company. It is really my intention to divest myself of these investments and sell understood that upon your full payment of the pick-up, arrangement will be made
them all for PESOS: THREE HUNDRED THOUSAND (P300,000) payable in cash and negotiated with Fil-Invest regarding the transfer of the ownership of the vehicle
in addition to the Isuzu pick up I am presently using for and in behalf of the to your name.
Company. "If the above meets your requirements, kindly signify your conformity/approval
by signing below.
Very truly yours,
"Thank you.
(SGD) JAMES C. PERALTA
NILCAR Y. FAJILAN
Corporate Secretary
Director/President" (p. 239, Rollo.)
"CONFORME:
(SGD) NILCAR Y. FAJILAN
At a meeting of the Board of Directors of BEDECO on June 14,1984, Fajilan's 544
resignation as president was accepted and new officers were elected. Fajilan's
offer to sell his shares back to the corporation was approved, the Board promising 544 SUPREME COURT REPORTS ANNOTATED
to pay Boman Environmental Dev't. Corp. vs. Court of Appeals
543
VOL. 167, NOVEMBER 22, 1988 543 Noted:
Boman Environmental Dev't. Corp. vs. Court of Appeals
for them on a staggered basis from July 15, 1984 to December 15, 1984(Annex B). (SGD) ALFREDO S. (SGD) MAXIMO R.
The resolution of the Board was communicated to Fajilan in the following letter- PANGILINAN REBALDO
agreement dated June 25, 1984 to which he affixed his conformity (Annex C):
"June 25,1984 (SGD) BENEDICTO M. EMPAYNADO"
"SUBSCRIBED AND SWORN TO before me, this 3rd day of July, 1984, Alfredo S.
Pangilinan exhibiting to me his Residence Certificate No. 1696224 issued at

Corporation  Law  Cases  –  Batch  3  

 
Makati, Metro Manila on January 24, 1984, in his capacity as President of Boman BOMAN ENVIRONMENTAL
Environmental Development Corporation with Corporate Residence Certificate No.
207911 issued at Makati, Metro Manila on March 26,1984. DEVELOPMENT
"(SGD) ERNESTO B. DURAN CORPORATION
NOTARY PUBLIC
By:
Until December 31,1984
PTR No. 8582861 Issued (SGD)ALFREDO S.
on January 24,1984 at PANGILINAN
Makati, Metro Manila
President
Doc. No. 392 "Signed in the presence of:
Page No. 80 (SGD) MAXIMO R.
Book No. X
Series of 1984." (p. 245, Rollo.) REBALDO
(SGD) BENEDICTO M.
A promissory note dated July 3, 1984, was signed by BEDECO'S new president, EMPAYNADO"
Alfredo Pangilinan, in the presence of two directors, committing BEDECO to pay
him P300,000 over a six-month period from July 15, 1984 to December 15, 1984. (Annex D, p. 247, Rollo.)
The promissory note (Exh. D) provided as follows: However, BEDECO paid only P50,000 on July 15, 1984 and another P50,000 on
August 31, 1984 and defaulted in paying the balance of P200,000.
"PROMISSORY NOTE On April 30,1985, Fajilan filed a complaint in the Regional Trial Court of Makati
for collection of that balance from BEDECO.
In an order dated September 9,1985, the trial court, through Judge Ansberto
Makati, Metro Manila
Paredes, dismissed the complaint for lack of jurisdiction. It ruled that the
July 3, 1984
controversy arose out of intracorporate relations, hence, the Securities and
"FOR VALUE RECEIVED, BOMAN ENVIRONMENTAL DEVELOPMENT
Exchange Commission has original and exclusive jurisdiction to hear and decide it.
CORPORATION, a domestic corporation duly registered with the Securities and
His motion for reconsideration of that order having been denied, Fajilan filed a
Exchange Commission, with office at Rm. 608, Metro Bank Bldg., Ayala Blvd.,
"Petition for Certiorari, and Mandamus with Preliminary Attachment" in the
Makati, Metro Manila, promise to pay NILCAR Y. FAJILAN of 17 Aramismis St.,
Intermediate Appellate Court.
Project 7, Quezon City, the sum of PESOS: THREE HUNDRED THOUSAND
In a decision dated March 2, 1987, the Court of Appeals set aside Judge
(P300,000.00), Philippine Currency payable as follows:
Paredes' order of dismissal and directed him to take cognizance of the case.
"P1 00,000.00 — July 15, 1984 BEDECO's motion for reconsideration was denied in a resolution dated March
75,000.00 — Sept. 15, 1984 24,1987 of the Court of Appeals.
In its decision, the Appellate Court characterized the case as a suit for
62,500.00 — October 15, 1984 collection of a sum of money as Fajilan "was merely suing on the balance of the
62,500.00 — Dec. 15, 1984 promissory note" (p. 4, Decision; p. 196, Rollo) which BEDECO failed and refused
to pay in full. More particularly, the Court of Appeals held:
P300,000.00
"While it is true that the circumstances which led to the execution of the promissory
545
note by the Board of Directors of respondent corporation was an intra-corporate
VOL. 167, NOVEMBER 545 matter, there arose no contro-
22, 1988 546
Boman Environmental Dev't. Corp. vs. Court of Appeals 546 SUPREME COURT REPORTS ANNOTATED

Corporation  Law  Cases  –  Batch  3  

 
 Boman Environmental Dev't. Corp. vs. Court of Appeals
versy as to the sale of petitioner's interests and rights as well as his shares as
Member of the Board of Directors and President of respondent corporation. The
intra-corporate matter of the resignation of petitioner as Member of the Board of
Directors and President of respondent corporation has long been settled without
issue. "The Board of Directors of respondent corporation has likewise long settled
the sale by petitioner of all his shares, rights and interests in favor of the
corporation. No controversy arose out of this transaction. The jurisdiction of the
Securities and Exchange Commission therefore need not be invoked on this
matter." (p. 196, Rollo.)
The petition is impressed with merit.
Section 5(b) of P.D. No. 902-A, as amended, grants the SEC original and
exclusive jurisdiction to hear and decide cases involving—
"b) Controversies arising out of intra-corporate 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; x x x" (Italics supplied.)
This case involves an intra-corporate controversy because the parties are a
stockholder and the corporation. As correctly observed by the trial court, the
perfection of the agreement to sell Fajilan's participation and interests in BEDECO
and the execution of the promissory note for payment of the price of the sale did
not remove the dispute from the coverage of Section 5(b) of P.D. No. 902, as
amended, for both the said agreement (Annex C) and the promissory note (Annex
D) arose from intra-corporate relations. Indeed, all the signatories of both
documents were stockholders of the corporation at the time of signing the same. It
was an intra-corporate transaction, hence, this suit is an intra-corporate
controversy.
Fajilan's offer to resign as president and director "effective as soon as my
shares and interests thereto (sic) are sold and fully paid" (Annex A-1, p. 239, Rollo)
implied that he would remain a stockholder until his shares and interests were fully
paid for, for one cannot be a director or president of a corporation unless he is also
a stockholder thereof. The fact that he was replaced as president of the
corporation did not necessar-
547
VOL. 167, NOVEMBER 22, 1988 547
Boman Environmental Dev't. Corp. vs. Court of Appeals
ily mean that he ceased to be a stockholder considering how the corporation failed
to complete payment of the consideration for the purchase of his shares of stock
and interests in the goodwill of the business. There has been no actual transfer of
his shares to the corporation. In the books of the corporation he is still a
stockholder.
Corporation
 Law
 Cases
 –
 Batch
 3
Fajilan's suit against the corporation to enforce the latter's promissory note or
compel the corporation to pay for his shareholdings is cognizable by the SEC
alone which shall determine whether such payment will not constitute a distribution
of corporate assets to a stockholder in preference over creditors of the corporation.
The SEC has exclusive supervision, control and regulatory jurisdiction to
investigate whether the corporation has unrestricted retained earnings to cover the
payment for the shares, and whether the purchase is for a legitimate corporate
purpose as provided in Sections 41 and 122 of the Corporation Code, which reads
as follows:
"SEC. 41. Power to acquire own shares.—A stock corporation shall have
the.power to purchase or acquire its own shares for a legitimate corporate purpose
or purposes, including but not limited to the following cases: Provided, That the
corporation has unrestricted retained earnings in its books to cover the shares to
be purchased or acquired;
1. "1.To eliminate fractional shares arising out of stock dividends;
2. "2.To collect or compromise an indebtedness to the corporation, arising
out of unpaid subscription, in a delinquency sale, and to purchase
delinquent shares sold during said sale; and
3. "3.To pay dissenting or withdrawing stockholders entitled to payment for
their shares under the provisions of this Code,"
"Sec. 12. Corporate liquidation. xxx.
xxx xxx xxx
"Except by decrease of capital stock and as otherwise allowed by this Code,
no corporation shall distribute any of its assets or property except upon lawful
dissolution and after payment of all its debts and liabilities, (77a, 89a, 16a)."
These provisions of the Corporation Code should be deemed written into the
agreement between the corporation and the stockholders even if there is no
express reference to them in the promissory note. The principle is well settled that
an
548
548 SUPREME COURT REPORTS ANNOTATED
Boman Environmental Dev't. Corp. vs. Court of Appeals
existing law enters into and forms part of a valid contract without need for the
parties' expressly making reference to it (Lakas ng Manggagawang Makabayan vs.
Abiera, 36 SCRA 437).
The requirement of unrestricted retained earnings to cover the shares is based
on the trust fund doctrine which means that the capital stock, property and other
assets of a corporation are regarded as equity in trust for the payment of corporate
creditors. The reason is that creditors of a corporation are preferred over the
stockholders in the distribution of corporate assets. There can be no distribution of
assets among the stockholders without first paying corporate creditors. Hence, any
disposition of corporate funds to the prejudice of creditors is null and void.
"Creditors of a corporation have the right to assume that so long as there are
outstanding debts and liabilities, the board of directors will not use the assets of the
corporation to purchase its own stock . . ."(Steinberg vs. Velasco, 52 Phil. 953.)
WHEREFORE, the petition for certiorari is granted, The decision of the Court
of Appeals is reversed and set aside. The order of the trial court dismissing the
complaint for lack of jurisdiction is hereby reinstated. No costs.
SO ORDERED.
*
G.R. No. 150283. April 16, 2008.
RYUICHI YAMAMOTO, petitioner, vs. NISHINO LEATHER INDUSTRIES, INC.
and IKUO NISHINO, respondents.
Corporation Law; Board of Directors; Under the Corporation Law, unless
otherwise provided, corporate powers are exercised by the Board of Directors.—
The resolution of the petition hinges, in the main, on whether the advice in the
letter of Atty. Doce that Yamamoto may retrieve the machineries and equipment,
which admittedly were part of his investment, bound the corporation. The Court
holds in the negative. Indeed, without a Board Resolution authorizing respondent
Nishino to act for and in behalf of the corporation, he cannot bind the latter. Under
the Corporation Law, unless otherwise provided, corporate powers are exercised
by the Board of Directors.
Same; Doctrine of Piercing the Veil of Corporate Fiction; Elements.—While
the veil of separate corporate personality may be pierced when the corporation is
merely an adjunct, a business conduit, or alter ego of a person, the mere
ownership by a single stockholder of even all or nearly all of the capital stocks of a
corporation is not by itself a sufficient ground to disregard the separate corporate
personality. The elements determinative of the applicability of the doctrine of
piercing the veil of corporate fiction follow: “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 the plaintiff’s 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 defendant’s rela-
_______________
Corporation
 Law
 Cases
 –
 Batch
 3
* SECOND DIVISION.
448
4 SUPREME COURT REPORTS
48 ANNOTATED
Yamamoto vs. Nishino Leather Industries, Inc.
tionship to that operation.” (Italics in the original; emphasis and underscoring
supplied)
Obligations and Contracts; Without acceptance, a mere offer produces no
obligation.—It bears noting, however, that the aforementioned paragraph 12 of the
letter is followed by a request for Yamamoto to give his “comments on all the
above, soonest.” What was thus proffered to Yamamoto was not a promise, but a
mere offer, subject to his acceptance. Without acceptance, a mere offer produces
no obligation. Thus, under Article 1181 of the Civil Code, “[i]n conditional
obligations, the acquisition of rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the event which constitutes
the condition.” In the case at bar, there is no showing of compliance with the
condition for allowing Yamamoto to take the machineries and equipment, namely,
his agreement to the deduction of their value from his capital contribution due him
in the buy-out of his interests in NLII. Yamamoto’s allegation that he agreed to the
condition remained just that, no proof thereof having been presented.
Corporation Law; Trust Fund Doctrine; Words and Phrases; Under the trust
fund doctrine, the capital stock, property, and other assets of a corporation are
regarded as equity in trust for the payment of corporate creditors which are
preferred over the stockholders in the distribution of corporate assets.—It is settled
that the property of a corporation is not the property of its stockholders or
members. Under the trust fund doctrine, the capital stock, property, and other
assets of a corporation are regarded as equity in trust for the payment of corporate
creditors which are preferred over the stockholders in the distribution of corporate
assets. The distribution of corporate assets and property cannot be made to
depend on the whims and caprices of the stockholders, officers, or directors of the
corporation unless the indispensable conditions and procedures for the protection
of corporate creditors are followed.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Serafin U. Salvador, Jr. for petitioner.449
VOL. 551, APRIL 16, 2008 449
Yamamoto vs. Nishino Leather Industries, Inc.
 Clarito I. Aquino, Jr. for respondents.
CARPIO-MORALES, J.:
In 1983, petitioner, Ryuichi Yamamoto (Yamamoto), a Japanese national,
organized under Philippine laws Wako Enterprises Manila, Incorporated (WAKO),
a corporation engaged principally in leather tanning, now known as Nishino
Leather Industries, Inc. (NLII), one of herein respondents.
In 1987, Yamamoto and the other respondent, Ikuo Nishino (Nishino), also a
Japanese national, forged a Memorandum of Agreement under which they agreed
to enter into a joint venture wherein Nishino would acquire such number of shares
of stock equivalent to 70% of the authorized capital stock of WAKO.
1
Eventually, Nishino and his brother Yoshinobu Nishino (Yoshinobu) acquired
more than 70% of the authorized capital stock of WAKO, reducing Yamamoto’s
2 3
investment therein to, by his claim, 10%, less than 10% according to Nishino.
Drums - 4 units
Toggling machine - 2 units
Regarding the above machines, you may take them out with you (for your own use
and sale) if you want, provided, the value of such machines is deducted from your
and Wako’s capital contributions, which will be paid to you.
Kindly let me know of your comments on all the above, soonest.
5
x x x x” (Emphasis and underscoring supplied)
On the basis of such letter, Yamamoto attempted to recover the machineries
and equipment which were, by Yamamoto’s admission, part of his investment in
6
the corporation, but he was frustrated by respondents, drawing Yamamoto to file
on January 15, 1992 before the Regional Trial Court (RTC) of Makati a
7
complaint against them for replevin.
Branch 45 of the Makati RTC issued a writ of replevin after Yamamoto filed a
bond.
8

The corporate name of WAKO was later changed to, as reflected earlier, its 9
In their Answer with Counterclaim, respondents claimed that the machineries
current name NLII. and equipment subject of replevin form
Negotiations subsequently ensued in light of a planned takeover of NLII by _______________
Nishino who would buy-out the shares of stock of Yamamoto. In the course of the
negotiations, Yoshinobu and Nishino’s counsel Atty. Emmanuel G. Doce (Atty. 4 Exhibit “C,” id., at p. 124.
Doce) advised Yamamoto by letter dated October 30, 1991, the pertinent portions 5 Exhibit “C-3,” id., at p. 127.
of which follow: 6 Vide TSN, May 7, 1993, pp. 20-21, 29, 35-36.
“Hereunder is a simple memorandum of the subject matters discussed with me 7 Records, pp. 1-5.
by Mr. Yoshinobu Nishino yesterday, October 8 Id., at pp. 39-50.
_______________ 9 Id., at pp. 58-64.

1 TSN, May 7, 1993, p. 23. 451

2 Id., at p. 18. VOL. 551, APRIL 16, 2008 451
3 Records, p. 58.
Yamamoto vs. Nishino Leather Industries, Inc.
450 part of Yamamoto’s capital contributions in consideration of his equity in NLII and
should thus be treated as corporate property; and that the above-said letter of Atty.
450 SUPREME COURT REPORTS ANNOTATED Doce to Yamamoto was merely a proposal, “conditioned on [Yamamoto’s] sell-out
10
to . . . Nishino of his entire equity,” which proposal was yet to be authorized by
Yamamoto vs. Nishino Leather Industries, Inc.
the stockholders and Board of Directors of NLII.
29th, based on the letter of Mr. Ikuo Nishino from Japan, and which I am now
4 By way of Counterclaim, respondents, alleging that they suffered damage due
transmitting to you.
to the seizure via the implementation of the writ of replevin over the machineries
xxxx
and equipment, prayed for the award to them of moral and exemplary damages,
12. Machinery and Equipment:
attorney’s fees and litigation expenses, and costs of suit.
The following machinery/equipment have been contributed by you to the
The trial court, by Decision of June 9, 1995, decided the case in favor of
company: 11
Yamamoto, disposing thus:
Splitting machine - 1 unit
“WHEREFORE, judgment is hereby rendered: (1) declaring plaintiff as the
Samming machine - 1 unit
rightful owner and possessor of the machineries in question, and making the writ of
Forklift - 1 unit

Corporation  Law  Cases  –  Batch  3  

 
seizure permanent; (2) ordering defendants to pay plaintiff attorney’s fees and The resolution of the petition hinges, in the main, on whether the advice in the
expenses of litigation in the amount of Fifty Thousand Pesos (P50,000.00), letter of Atty. Doce that Yamamoto may retrieve the machineries and equipment,
Philippine Currency; (3) dismissing defendants’ counterclaims for lack of merit; and which admittedly were part of his investment, bound the corporation. The Court
(4) ordering defendants to pay the costs of suit. holds in the negative.
12
SO ORDERED.” (Italics supplied) Indeed, without a Board Resolution authorizing respondent Nishino to act for
13
and in behalf of the corporation, he cannot
On appeal, the Court of Appeals held in favor of herein respondents and _______________
14
accordingly reversed the RTC decision and dismissed the complaint. In so
holding, the appellate court found that the machineries and equipment claimed by 15 Vide id., at pp. 73-74.
Yamamoto are corporate property of NLII and may not thus be 16 Id., at p. 75.
_______________ 17 Id., at pp. 74-75.
18 Id., at p. 76.
10 Id., at p. 61. 19 Id., at p. 94.
11 Id., at pp. 246-253. Vide id., at pp. 220-228, 247-248. 20 Id., at pp. 81-87.
12 Id., at p. 253. 21 Rollo, pp. 16-34.
13 Id., at p. 254. 22 Id., at p. 23.
14 Decision of May 30, 2001, penned by Court of Appeals Associate Justice
Josefina Guevara-Salonga, with the concurrence of Associate Justices Delilah 453
Vidallon-Magtolis and Teodoro P. Regino. CA Rollo, pp 66-77. VOL. 551, APRIL 16, 2008 453
452 Yamamoto vs. Nishino Leather Industries, Inc.
452 SUPREME COURT REPORTS ANNOTATED bind the latter. Under the Corporation Law, unless otherwise provided, corporate
23
powers are exercised by the Board of Directors.
Yamamoto vs. Nishino Leather Industries, Inc. Urging this Court to pierce the veil of corporate fiction, Yamamoto argues, viz.:
15
retrieved without the authority of the NLII Board of Directors; and that petitioner’s “During the negotiations, the issue as to the ownership of the Machiner[ies]
argument that Nishino and Yamamoto cannot hide behind the shield of corporate never came up. Neither did the issue on the proper procedure to be taken to
16
fiction does not lie, nor does petitioner’s invocation of the doctrine of promissory execute the complete take-over of the Company come up since Ikuo, Yoshinobu,
17
estoppel. At the same time, the Court of Appeals found no ground to support and Yamamoto were the owners thereof, the presence of other stockholders being
18
respondents’ Counterclaim. only for the purpose of complying with the minimum requirements of the law.
19
The Court of Appeals having denied his Motion for What course of action the Company decides to do or not to do depends not on
20 21
Reconsideration, Yamamoto filed the present petition, faulting the Court of the “other members of the Board of Directors.” It depends on what Ikuo and
Appeals Yoshinobu decide. The Company is but a mere instrumentality of Ikuo [and]
24
Yoshinobu.
A. xxxx
x x x IN HOLDING THAT THE VEIL OF CORPORATE FICTION SHOULD NOT x x x The Company hardly holds board meetings. It has an inactive board, the
BE PIERCED IN THE CASE AT BAR. directors are directors in name only and are there to do the bidding of the
B. Nish[i]nos, nothing more. Its minutes are paper minutes. x x x
25

x x x IN HOLDING THAT THE DOCTRINE OF PROMISSORY ESTOPPEL DOES xxxx

NOT APPLY TO THE CASE AT BAR. The fact that the parties started at a 70-30 ratio and Yamamoto’s percentage
C. declined to 10% does not mean the 20% went to others. x x x The 20% went to no
x x x IN HOLDING THAT RESPONDENTS ARE NOT LIABLE FOR ATTORNEY’S one else but Ikuo himself. x x x Yoshinobu is the younger brother of Ikuo and
22
FEES. has no say at all in the business. Only Ikuo makes the decisions. There were,

Corporation  Law  Cases  –  Batch  3  

 
therefore, no other members of the Board who have not given their
26
approval.” (Emphasis and underscoring supplied)
_______________
23 Vide Corporation Code, Section 23; San Juan Structural & Steel
Fabricators, Inc. v. Court of Appeals, 357 Phil. 631, 644; 296 SCRA 631, 644
(1998).
24 Rollo, p. 25.
25 Id., at p. 27.
26 Id., at p. 28.
454
454 SUPREME COURT REPORTS ANNOTATED
Yamamoto vs. Nishino Leather Industries, Inc.
While the veil of separate corporate personality may be pierced when the
27
corporation is merely an adjunct, a business conduit, or alter ego of a person, the
mere ownership by a single stockholder of even all or nearly all of the capital
stocks of a corporation is not by itself a sufficient ground to disregard the separate
28
corporate personality.
The elements determinative of the applicability of the doctrine of piercing the
veil of corporate fiction follow:
“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 the plaintiff’s 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
29
individual defendant’s relationship to that operation.” (Italics in the original;
emphasis and underscoring supplied)
In relation to the second element, to disregard the separate juridical personality of
a corporation, the wrongdoing or unjust act in contravention of a plaintiff’s legal
rights must be
_______________
27 Vide Philippine National Bank v. Ritratto Group, Inc., 414 Phil. 494, 505;
362 SCRA 216, 225-226 (2001) (citation omitted).
28 Vide Martinez v. Court of Appeals, G.R. No. 131673, September 10, 2004,
438 SCRA 130, 150.
29 Concept Builders, Inc. v. National Labor Relations Commission, 326 Phil.
955, 966; 257 SCRA 149, 159 (1996) (citation omitted).
455
VOL. 551, APRIL 16, 2008 455
Yamamoto vs. Nishino Leather Industries, Inc.
30
clearly and convincingly established; it cannot be presumed. Without a
demonstration that any of the evils sought to be prevented by the doctrine is
31
present, it does not apply.
In the case at bar, there is no showing that Nishino used the separate
personality of NLII to unjustly act or do wrong to Yamamoto in contravention of his
legal rights.
Yamamoto argues, in another vein, that promissory estoppel lies against
respondents, thus:
“Under the doctrine of promissory estoppel, x x x estoppel may arise from the
making of a promise, even though without consideration, if it was intended that the
promise should be relied upon and in fact it was relied upon, and if a refusal to
enforce it would be virtually to sanction the perpetration of fraud or would result in
other injustice.
x x x Ikuo and Yoshinobu wanted Yamamoto out of the Company. For this
purpose negotiations were had between the parties. Having expressly given
Yamamoto, through the Letter and through a subsequent meeting at the Manila
Peninsula where Ikuo himself confirmed that Yamamoto may take out the
Machinery from the Company anytime, respondents should not be allowed to turn
around and do the exact opposite of what they have represented they will do.
In paragraph twelve (12) of the Letter, Yamamoto was expressly advised that
he could take out the Machinery if he wanted to so, provided that the value of said
machines would be deducted from his capital contribution x x x.
xxxx
Respondents cannot now argue that they did not intend for Yamamoto to rely
upon the Letter. That was the purpose of the Letter to begin with. Petitioner[s] in
fact, relied upon said Letter and
_______________
30 Vide Solidbank Corporation v. Mindanao Ferroalloy Corporation, G.R. No.
153535, July 28, 2005, 464 SCRA 409, 424-425 (citation omitted).

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 31 Vide Philippine National Bank v. Ritratto Group, Inc., supra note 27 at p. 457
506; p. 226; San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, VOL. 551, APRIL 16, 2008 457
supra note 23 at p. 649; p. 650.
Yamamoto vs. Nishino Leather Industries, Inc.
35
456 that he agreed to the condition remained just that, no proof thereof having been
presented.
456 SUPREME COURT REPORTS ANNOTATED The machineries and equipment, which comprised Yamamoto’s investment in
36 37
NLII, thus remained part of the capital property of the corporation.
Yamamoto vs. Nishino Leather Industries, Inc.
It is settled that the property of a corporation is not the property of its
such reliance was further strengthened during their meeting at the Manila 38
stockholders or members. Under the trust fund doctrine, the capital stock,
Peninsula.
property, and other assets of a corporation are regarded as equity in trust for the
To sanction respondents’ attempt to evade their obligation would be to
32 payment of corporate creditors which are preferred over the stockholders in the
sanction the perpetration of fraud and injustice against petitioner.” (Italics 39
distribution of corporate assets. The distribution of corporate assets and property
supplied)
cannot be made to depend on the whims and caprices of the stockholders, officers,
It bears noting, however, that the aforementioned paragraph 12 of the letter is or directors of the corporation unless the indispensable conditions and procedures
40
followed by a request for Yamamoto to give his “comments on all the above, for the protection of corporate creditors are followed.
soonest.”
33 WHEREFORE, the petition is DENIED.
What was thus proffered to Yamamoto was not a promise, but a mere offer, Costs against petitioner.
subject to his acceptance. Without acceptance, a mere offer produces no
34
obligation.
Thus, under Article 1181 of the Civil Code, “[i]n conditional obligations, the
acquisition of rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event which constitutes the
condition.” In the case at bar, there is no showing of compliance with the condition *
for allowing Yamamoto to take the machineries and equipment, namely, his G.R. No. 152685. December 4, 2007.
agreement to the deduction of their value from his capital contribution due him in PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
the buy-out of his interests in NLII. Yamamoto’s allegation petitioner, vs. NATIONAL TELECOMMUNICATIONS COMMISSION, JOSEPH A.
_______________ SANTIAGO, in his capacity as NTC Commissioner, and EDGARDO CABARRIOS,
in his capacity as Chief, CCAD, respondents.
Administrative Law; Public Service Act; National Telecommunications
32 Rollo, pp. 28-30 (citations omitted).
Commission (NTC); Supervision and Regulation Fees (SRF); Corporation
33 Exhibit “C-3,” Records, p. 127.
Law; Words and Phrases; “Capital,” Defined; All the stock dividends that are part of
34 Vide Civil Code, Article 1318:
the outstanding capital stock of Philippine Long Distance Telephone Company
There is no contract unless the following requisites concur:
(PLDT) are subject to the Supervision and Regulation Fees (SRF).—Crucial in
(1) Consent of the contracting parties;
point is our
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.;
Article 1319: _______________
Consent is manifested by the meeting of the offer and the acceptance *
upon the thing and the cause which are to constitute the contract. The offer SECOND DIVISION.
must be certain and the acceptance absolute. A qualified acceptance 366
constitutes a counter-offer. 3 SUPREME COURT REPORTS
xxxx
66 ANNOTATED

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 Philippine Long Distance Telephone Company vs.
National Telecommunications Commission
disquisition in G.R. No. 127937 entitled National Telecommunications
Commission v. Honorable Court of Appeals, 311 SCRA 508 (1999), which we
quote: The term “capital” and other terms used to describe the capital structure of a
corporation are of universal acceptance and their usages have long been
established in jurisprudence. Briefly, capital refers to the value of the property or
assets of a corporation. The capital subscribed is the total amount of the
capital that persons (subscribers or shareholders) have agreed to take and
pay for, which need not necessarily by, and can be more than, the par value of the
shares. In fine, it is the amount that the corporation receives, inclusive of the
premiums if any, in consideration of the original issuance of the shares. In
the case of stock dividends, it is the amount that the corporation transfers
from its surplus profit account to its capital account. It is the same amount
that can be loosely termed as the “trust fund” of the corporation. The “Trust Fund”
doctrine considers this subscribed capital as a trust fund for the payment of the
debts of the corporation, to which the creditors may look for satisfaction. Until the
liquidation of the corporation, no part of the subscribed capital may be returned or
released to the stockholder (except in the redemption of redeemable shares)
without violating this principle. Thus, dividends must never impair the subscribed
capital; subscription commitments cannot be condoned or remitted; nor can the
corporation buy its own shares using the subscribed capital as the considerations
therefor. (Emphasis supplied.) Two concepts can be gleaned from the above. First,
what constitutes capital stock that is subject to the SRF. Second, such capital
stock is equated to the “trust fund” of a corporation held in trust as security for
satisfaction to creditors in case of corporate liquidation. The first asks if stock
dividends are part of the outstanding capital stocks of a corporation insofar as it is
subject to the SRF. They are. The first issue we have to tackle is, are all the stock
dividends that are part of the outstanding capital stock of PLDT subject to the
SRF? Yes, they are.
Corporation Law; Dividends, regardless of the form these are declared, that
is, cash, property or stocks, are valued at the amount of the declared dividend
taken from the unrestricted retained earnings of a corporation—thus, the value of
the declaration in the case of a stock dividend is the actual value of the original
issuance of said stocks.—PLDT’s contention, that stock dividends are not similarly
situated as the subscribed capital stock because the subscribers or
367
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67
Philippine Long Distance Telephone Company vs.
National Telecommunications Commission
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shareholders do not pay for their issuances as no amount was received by
the corporation in consideration of such issuances since these are effected as a
mere book entry, is erroneous. Dividends, regardless of the form these are
declared, that is, cash, property or stocks, are valued at the amount of the declared
dividend taken from the unrestricted retained earnings of a corporation. Thus, the
value of the declaration in the case of a stock dividend is the actual value of the
original issuance of said stocks. In G.R. No. 127937 we said that “in the case of
stock dividends, it is the amount that the corporation transfers from its surplus
profit account to its capital account” or “it is the amount that the corporation
receives in consideration of the original issuance of the shares.” It is “the
distribution of current or accumulated earnings to the shareholders of a
corporation pro rata based on the number of shares owned.” Such distribution in
whatever form is valued at the declared amount or monetary equivalent.
Same; It cannot be said that no consideration is involved in the issuance of
stock dividends; When stock dividends are distributed, the amount declared
ceases to belong to the corporation but is distributed among the shareholders—the
unrestricted retained earnings of the corporation are diminished by the amount of
the declared dividend while the stockholders’ equity is increased.—It cannot be
said that no consideration is involved in the issuance of stock dividends. In fact, the
declaration of stock dividends is akin to a forced purchase of stocks. By declaring
stock dividends, a corporation ploughs back a portion or its entire unrestricted
retained earnings either to its working capital or for capital asset acquisition or
investments. It is simplistic to say that the corporation did not receive any actual
payment for these. When the dividend is distributed, it ceases to be a property of
the corporation as the entire or portion of its unrestricted retained earnings is
distributed pro rata to corporate shareholders. When stock dividends are
distributed, the amount declared ceases to belong to the corporation but is
distributed among the shareholders. Consequently, the unrestricted retained
earnings of the corporation are diminished by the amount of the declared dividend
while the stockholders’ equity is increased. Furthermore, the actual payment is the
cash value from the unrestricted retained earnings that each shareholder foregoes
for additional stocks/shares which he would otherwise receive as required by the
Corporation Code to be given to the stockholders subject to the availability and
conditioned on a
368
3 SUPREME COURT REPORTS
68 ANNOTATED
National Telecommunications Commission
certain level of retained earnings. Elsewise put, where the unrestricted
retained earnings of a corporation are more than 100% of the paid-in capital stock,
the corporate Board of Directors is mandated to declare dividends which the
shareholders will receive in cash unless otherwise declared as property or stock
dividends, which in the latter case the stockholders are forced to forego cash in
lieu of property or stocks.
Same; The stock dividends acquired by shareholders for the monetary value
they forego are under the coverage of the the Supervision and Regulation Fees
(SRF) and the basis for the latter is such monetary value as declared by the board
of directors.—In essence, therefore, the stockholders by receiving stock dividends
are forced to exchange the monetary value of their dividend for capital stock, and
the monetary value they forego is considered the actual payment for the original
issuance of the stocks given as dividends. Therefore, stock dividends acquired by
shareholders for the monetary value they forego are under the coverage of the
SRF and the basis for the latter is such monetary value as declared by the board of
directors.
Same; Accounting Practice; Acquisition Cost; In accounting practice, the
journal entries for transactions are recorded in historical value or cost; It is
common practice that the values of the accounts recorded at historical value or
cost are not increased or decreased due to market forces.—We are not unaware
that in accounting practice, the journal entries for transactions are recorded in
historical value or cost. Thus, the purchase of properties or assets is recorded at
acquisition cost. The same is true with liabilities and equity transactions where the
actual loan and the amount paid for the subscription are recorded at the actual
payment, including the premiums paid for the subscription of capital stock.
Moreover, it is common practice that the values of the accounts recorded at
historical value or cost are not increased or decreased due to market forces. In the
case of properties, the appreciation in values is generally not recorded as income
nor the increase in the corresponding asset because the increase or decrease is
not yet realized until the property is actually sold. The same is true with the capital
account. The market value may be much higher than the actual payment of the par
value and premium of capital stock. Still, the books of account will not reflect such
increase; and vice versa, any decrease of the value of stocks is likewise not
reflected in the books of account. Thus, given the general practice that book
entries of the premiums and subscriptions for
369
VOL. 539, DECEMBER 4, 2007 3 370
69
Philippine Long Distance Telephone Company vs.
National Telecommunications Commission
capital stock are the actual value for the original issuance of stocks, then the
NTC was correct to follow the schedule of capital stocks submitted by PLDT.
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Same; Trust Fund Doctrine; The “Trust Fund” doctrine bolsters the
correctness of the assessments made by the National Telecommunications
Commission (NTC)—as a fund in trust for creditors in case of liquidation, the actual
value of the subscriptions and the value of stock dividends distributed may not be
decreased or increased by the fluctuating market value of the stocks.—The “Trust
Fund” doctrine, the second concept this Court elucidated in G.R. No. 127937 and
quoted above, bolsters the correctness of the assessments made by the NTC. As
a fund in trust for creditors in case of liquidation, the actual value of the
subscriptions and the value of stock dividends distributed may not be decreased or
increased by the fluctuating market value of the stocks. Thus, absent any showing
by PLDT of the actual payment it received for the original issuance of its capital
stock, the assessments made by the NTC, based on the schedule of outstanding
capital stock of PLDT recorded at historical value payments made, is deemed
correct.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the resolution of the Court.
Alampay, Gatchalian, Mawis & Alampay for petitioner.
The Solicitor General for respondents.
RESOLUTION
VELASCO, JR., J.:
1
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of
2
Court. It assails the February 12, 2001 Decision of the Court of Appeals (CA) in
CA-G.R. SP No.
_______________
1
Rollo, pp. 11-43.
2
Id., at pp. 44-56. Penned by Associate Justice Salvador J. Valdez, Jr. and
concurred in by Presiding Justice Salome A. Montoya
370
SUPREME COURT REPORTS ANNOTATED
Philippine Long Distance Telephone Company vs.
National Telecommunications Commission
61033, which dismissed petitioner’s special civil action for certiorari and prohibition,
3
and the March 21, 2002 Resolution of the CA denying petitioner’s motion for
reconsideration. The petition raises the sole issue on whether the appellate court
erred in holding that the assessments of the National Telecommunications
Commission (NTC) were contrary to our Decision in G.R. No. 127937 entitled NTC
4
v. Honorable Court of Appeals.
5
This case pertains to Section 40 (e) of the Public Service
_______________
(Chairperson) and Associate Justice Wenceslao I. Agnir, Jr. of the First
Division.
3
Id., at pp. 58-59. Penned by the Associate Justice Salvador J. Valdez, Jr. and
concurred in by Associate Justices Eubolo G. Verzola, Roberto A. Barrios, and
Perlita J. Tria-Tirona; with Associate Justice Wenceslao I. Agnir, Jr., dissenting; id.,
at pp. 60-67.
4
July 28, 1999, 311 SCRA 508.
5
Chapter VI, FEES
Section 40. The National Telecommunications Commission is authorized and
ordered to charge and collect from any public telecommunication service or
applicants, as the case may be, the following fees as re-imbursement of its
expenses in the authorization, supervision and/or regulation of public
telecommunication services:
(e) For annual reimbursement of the expenses incurred by the National
Telecommunications Commission in the supervision of public telecommunication
services and/or in the regulation or fixing of their rates, fifty centavos for each one
hundred pesos or fraction thereof, of the capital stock subscribed or paid for a
stock corporation, partnership or single proprietorship of the capital invested, or of
the property and equipment, whichever is higher.
The fees provided in paragraph (e) shall be paid on or before September
thirtieth of each year with a penalty of fifty per centum in case of
delinquency. Provided, further, that if the fees or any balance thereof are not paid
within sixty days from the said date, the penalty shall be increased by one per
centum for every month thereafter of delinquency.
371
VOL. 539, DECEMBER 4, 2007 371
Philippine Long Distance Telephone Company vs.
National Telecommunications Commission
6
Act (PSA), as amended on March 15, 1984, pursuant to Batas Pambansa Blg.
325, which authorized the NTC to collect from public telecommunications
companies Supervision and Regulation Fees (SRF) of PhP 0.50 for every PhP 100
or a fraction of the capital and stock subscribed or paid for of a stock corporation,
partnership or single proprietorship of the capital invested, or of the property and
equipment, whichever is higher.
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Under Section 40 (e) of the PSA, the NTC sent SRF assessments to petitioner
Philippine Long Distance Telephone Company (PLDT) starting sometime in 1988.
The SRF assessments were based on the market value of the outstanding capital
stock, including stock dividends, of PLDT. PLDT protested the assessments
contending that the SRF ought to be based on the par value of its outstanding
capital stock. Its protest was denied by the NTC and likewise, its motion for
reconsideration.
PLDT appealed before the CA. The CA modified the disposition of the NTC by
holding that the SRF should be assessed at par value of the outstanding capital
stock of PLDT, excluding stock dividends.
With the denial of the NTC’s partial reconsideration of the CA Decision, the
issue of the basis for the assessment of the SRF was brought before this Court
under G.R. No. 127937 wherein we ruled that the SRF should be based neither on
the par value nor the market value of the outstanding capital stock but on the value
of the stocks subscribed or paid including the premiums paid therefor, that is, the
amount that the corporation receives, inclusive of the premiums if any, in
consideration of the original issuance of the shares. We added that in the case of
stock dividends, it is the amount that the corporation transfers from its surplus
profit account to its
_______________
6
Commonwealth Act No. 146, as amended, approved on November 7, 1936.
372
372 SUPREME COURT REPORTS ANNOTATED
Philippine Long Distance Telephone Company vs.
National Telecommunications Commission
capital account, that is, the amount the stock dividends represent is equivalent to
the value paid for its original issuance.
PLDT wanted our July 28, 1999 Decision in G.R. No. 127937 clarified. It
posited that the SRF should be based on the par value in consonance with our
holding in Philippine Long Distance Telephone Company v. Public Service
7
Commission, and that the premiums on issued shares should not be included in
the valuation of the outstanding capital stock. Through our November 15, 1999
Resolution in G.R. No. 127937, we elucidated that our July 28, 1999 decision was
not in conflict with our ruling in Philippine Long Distance Telephone
Company since we never enunciated in the said case that the phrase “capital stock
subscribed or paid” must be determined at par value. We reiterated that the term
“capital stock subscribed or paid” is the amount that the corporation receives,
inclusive of the premiums, if any, in consideration of the original issuance of the
shares.
 Thereafter, to comply with our disposition in G.R. No. 127937, for the
reassessment of the SRF based on the value of the stocks subscribed or paid
including the premiums paid for the stocks, if any, the NTC sent the assailed
8 9
assessments of February 10, 2000 and September 5, 2000 to PLDT which
included the value of stock dividends issued by PLDT. The assailed assessments
were based on the schedule of capital stock submitted by PLDT.
PLDT now contends that our disposition in G.R. No. 127937 excluded stock
dividends from the SRF coverage, while the NTC asserts the contrary. Also, PLDT
questions the assessments for violating our disposition in G.R. No. 127937 since
these assessments were identical to the previous assessments from 1988 which
were questioned by PLDT in G.R.
_______________
7 The petition is bereft of merit.
G.R. No. L-26762, August 29, 1975, 66 SCRA 341.
8
Rollo, pp. 82-83.
9
Id., at pp. 84-85.
373
VOL. 539, DECEMBER 4, 2007 373
Philippine Long Distance Telephone Company vs.
National Telecommunications Commission
No. 127937 for being based on the market value of its outstanding capital stock.
PLDT wrote a letter protesting the assailed February 10, 2000 assessment
which was not acted upon by the NTC. Instead, the NTC sent a second assailed
assessment on September 5, 2000. Thus, in an attempt to clarify and resolve this
issue, PLDT filed a Motion for Clarification of Enforcement of the Decision dated 28
July 1999 in G.R. No. 127937 which this Court simply noted for the case had
already become final and executory.
Thus, on October 2, 2000, PLDT instituted the special civil action for certiorari
10
and prohibition docketed as CA-G.R. SP No. 61033 before the CA. To maintain
the status quo and to defer the enforcement of the assailed assessments and
subsequent assessments, on October 3, 2000, the CA issued a Temporary
Restraining Order. On December 4, 2000, a writ of preliminary injunction was
granted.
Subsequently, on February 12, 2001, the CA rendered the assailed Decision
dismissing the petition. The dispositive portion reads:
“WHEREFORE, the petition is DISMISSED for lack of merit, and the writ of
11
preliminary injunction heretofore issued is DISSOLVED.”
PLDT’s motion for reconsideration was denied by the CA’s Special Division of Five
on March 21, 2002.
Hence, the instant petition for review, raising the core issue:
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THE COURT OF APPEALS ERRED IN HOLDING THAT THE DISPUTED NTC
12
ASSESSMENTS WERE NOT CONTRARY TO THE PURISIMA DECISION.
_______________
10
Id., at pp. 87-107.
11
Id., at p. 56.
12
Id., at p. 21.
374
374 SUPREME COURT REPORTS ANNOTATED
Philippine Long Distance Telephone Company vs.
National Telecommunications Commission
PLDT argues that in our Decision in G.R. No. 127937 we have excluded from
the coverage of the SRF the capital stocks issued as stock dividends. Petitioner
argues that G.R. No. 127937 clearly delineates between capital subscribed and
stock dividends to the effect that the latter are not included in the concept of capital
stock subscribed because subscribers or shareholders do not pay for their
subscriptions as no amount is received by the corporation in consideration of such
issuances since these are effected as mere book entries, that is, the transfer from
the retained earnings account to the capital or stock account. To bolster its
position, PLDT repeatedly used the phrase “actual payments” received by a
corporation as a consideration for issuances of shares which do not apply to stock
dividends.
We are not persuaded.
Crucial in point is our disquisition in G.R. No. 127937 entitled National
Telecommunications Commission v. Honorable Court of Appeals, which we quote:
“The term “capital” and other terms used to describe the capital structure of a
corporation are of universal acceptance and their usages have long been
established in jurisprudence. Briefly, capital refers to the value of the property or
assets of a corporation. The capital subscribed is the total amount of the
capital that persons (subscribers or shareholders) have agreed to take and
pay for, which need not necessarily by, and can be more than, the par value of the
shares. In fine, it is the amount that the corporation receives, inclusive of the
premiums if any, in consideration of the original issuance of the shares. In
the case of stock dividends, it is the amount that the corporation transfers
from its surplus profit account to its capital account. It is the same amount
that can be loosely termed as the “trust fund” of the corporation. The “Trust Fund”
doctrine considers this subscribed capital as a trust fund for the payment of the
debts of the corporation, to which the creditors may look for satisfaction. Until the

liquidation of the corporation, no part of the subscribed capital may be returned or
released to the stockholder (except in the
375
VOL. 539, DECEMBER 4, 2007 375
Philippine Long Distance Telephone Company vs.
National Telecommunications Commission
redemption of redeemable shares) without violating this principle. Thus, dividends
must never impair the subscribed capital; subscription commitments cannot be
condoned or remitted; nor can the corporation buy its own shares using the
13
subscribed capital as the considerations therefor.” (Emphasis supplied.)
Two concepts can be gleaned from the above. First, what constitutes capital stock
that is subject to the SRF. Second, such capital stock is equated to the “trust fund”
of a corporation held in trust as security for satisfaction to creditors in case of
corporate liquidation.
The first asks if stock dividends are part of the outstanding capital stocks of a
corporation insofar as it is subject to the SRF. They are. The first issue we have to
tackle is, are all the stock dividends that are part of the outstanding capital stock of
PLDT subject to the SRF? Yes, they are.
PLDT’s contention, that stock dividends are not similarly situated as the
subscribed capital stock because the subscribers or shareholders do not pay for
their issuances as no amount was received by the corporation in consideration of
such issuances since these are effected as a mere book entry, is erroneous.
Dividends, regardless of the form these are declared, that is, cash, property or
stocks, are valued at the amount of the declared dividend taken from the
unrestricted retained earnings of a corporation. Thus, the value of the declaration
in the case of a stock dividend is the actual value of the original issuance of said
stocks. In G.R. No. 127937 we said that “in the case of stock dividends, it is the
amount that the corporation transfers from its surplus profit account to its capital
account” or “it is the amount that the corporation receives in consideration of the
original issuance of the shares.” It is “the distribution of current or accumulated
earnings to the shareholders of a corporation pro rata based on the number of
_______________
13
Supra note 4, at pp. 514-515.
376
376 SUPREME COURT REPORTS ANNOTATED
Philippine Long Distance Telephone Company vs.
National Telecommunications Commission
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14
shares owned.” Such distribution in whatever form is valued at the declared
amount or monetary equivalent.
Thus, it cannot be said that no consideration is involved in the issuance of
stock dividends. In fact, the declaration of stock dividends is akin to a forced
purchase of stocks. By declaring stock dividends, a corporation ploughs back a
portion or its entire unrestricted retained earnings either to its working capital or for
capital asset acquisition or investments. It is simplistic to say that the corporation
did not receive any actual payment for these. When the dividend is distributed, it
ceases to be a property of the corporation as the entire or portion of its unrestricted
retained earnings is distributed pro rata to corporate shareholders.
When stock dividends are distributed, the amount declared ceases to belong to
the corporation but is distributed among the shareholders. Consequently, the
unrestricted retained earnings of the corporation are diminished by the amount of
the declared dividend while the stockholders’ equity is increased. Furthermore, the
actual payment is the cash value from the unrestricted retained earnings that each
shareholder foregoes for additional stocks/shares which he would otherwise
receive as required by the Corporation Code to be given to the stockholders
subject to the availability and conditioned on a certain level of retained
15
earnings. Elsewise put, where
_______________
14
BLACK’S LAW DICTIONARY 478 (6th ed., 1990).
15
CORPORATION CODE, SEC. 43. Power to declare dividends.—The board
of directors of a stock corporation may declare dividends out of the unrestricted
retained earnings which shall be payable in cash, in property, or in stock to all
stockholders on the basis of outstanding stock held by them; Provided, That any
cash dividends due on delinquent stock shall first be applied to the unpaid balance
on the subscription plus costs and expenses, while stock dividends shall be
withheld from the delinquent stockholder until his unpaid subscription is fully
paid; Provided, further, That no stock dividend shall be issued without the approval
of stockholders representing not less than two-thirds (2/3) of the outstanding
capital stock at a regular or special meeting duly called for the purpose.
377
VOL. 539, DECEMBER 4, 2007 377
Philippine Long Distance Telephone Company vs.
National Telecommunications Commission
the unrestricted retained earnings of a corporation are more than 100% of the paid-
in capital stock, the corporate Board of Directors is mandated to declare dividends
which the shareholders will receive in cash unless otherwise declared as property
or stock dividends, which in the latter case the stockholders are forced to forego
cash in lieu of property or stocks.
In essence, therefore, the stockholders by receiving stock dividends are forced
to exchange the monetary value of their dividend for capital stock, and the
monetary value they forego is considered the actual payment for the original
issuance of the stocks given as dividends. Therefore, stock dividends acquired by
shareholders for the monetary value they forego are under the coverage of the
SRF and the basis for the latter is such monetary value as declared by the board of
directors.
On the second issue, do the assailed NTC assessments violate the ruling in
G.R. No. 127937? PLDT contends that these did since the assessments are
identical to the previous assessments from 1988 which were questioned by PLDT
in the seminal G.R. No. 127937 for being based on the market value of its
outstanding capital stock.
A cursory review of the assessments made by the NTC prior to our July 28,
1999 Decision in G.R. No. 127937 and the assailed assessments of February 10,
2000 and September 5, 2000 does show that the assessments are substantially
identi-
_______________
Stock corporations are prohibited from retaining surplus profits in
excess of one hundred (100%) percent of their paid-in capital stock, except:
(1) when justified by definite corporate expansion projects or programs approved
by the Board of Directors; or (2) when the corporation is prohibited under any loan
agreement with any financial institution or creditor, whether local or foreign, from
declaring dividends without its/his consent, and such consent has not yet been
secured; or (3) when it can be clearly shown that such retention is necessary under
special circumstances obtaining in the corporation, such as when there is a need
for special reserve for probable contingencies.
378
378 SUPREME COURT REPORTS ANNOTATED
Philippine Long Distance Telephone Company vs.
National Telecommunications Commission
cal. In our July 28, 1999 Decision in G.R. No. 127937, we noted, and similarly true
in the petition before us, that, “The actual capital paid or the amount of capital
stock paid and for which PLDT received actual payments were not disclosed or
16
extant in the records before the Court.”
Hence, as before, we cannot factually determine whether the assailed
assessments substantially followed our Decision in G.R. No. 127937. It is apparent
that the assessments are identical and that the NTC in the earlier case asserted
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that the SRF be based on the market value of the capital stock, yet it assessed it to
PLDT. However, a closer look at the assailed assessments of February 13, 2000
and September 5, 2000 would show that the NTC based its assessment on the
schedule of capital stock submitted by PLDT. PLDT did not dispute this; it only
disputed the level of assessment which was the same as before.
Now, where should the NTC base its assessment? It is incumbent upon PLDT
to furnish the NTC the actual payment made on the subscription of its capital stock
in order for the NTC to assess the proper SRF. Logically, the NTC would base its
SRF assessment of PLDT from PLDT data.
PLDT should not bewail that the assailed assessments are substantially the
same assessments it protested in G.R. No. 127937. After all, it had not shown the
actual figures of the amount of premiums and subscriptions it had received for the
original issuances of its capital stock. While indeed it submitted a table of the
comparative assessments made by the NTC to this Court, PLDT has not furnished
the NTC nor this Court the correct figures of the actual payments made for its
capital stock.
We are not unaware that in accounting practice, the journal entries for
transactions are recorded in historical value or cost. Thus, the purchase of
properties or assets is recorded at acquisition cost. The same is true with liabilities
and equity
_______________
16
Supra note 4, at p. 516.
379
VOL. 539, DECEMBER 4, 2007 379
Philippine Long Distance Telephone Company vs.
National Telecommunications Commission
transactions where the actual loan and the amount paid for the subscription are
recorded at the actual payment, including the premiums paid for the subscription of
capital stock.
Moreover, it is common practice that the values of the accounts recorded at
historical value or cost are not increased or decreased due to market forces. In the
case of properties, the appreciation in values is generally not recorded as income
nor the increase in the corresponding asset because the increase or decrease is
not yet realized until the property is actually sold. The same is true with the capital
account. The market value may be much higher than the actual payment of the par
value and premium of capital stock. Still, the books of account will not reflect such
increase; and vice versa, any decrease of the value of stocks is likewise not
reflected in the books of account. Thus, given the general practice that book
entries of the premiums and subscriptions for capital stock are the actual value for
the original issuance of stocks, then the NTC was correct to follow the schedule of
capital stocks submitted by PLDT.
Moreover, the “Trust Fund” doctrine, the second concept this Court elucidated
in G.R. No. 127937 and quoted above, bolsters the correctness of the
assessments made by the NTC. As a fund in trust for creditors in case of
liquidation, the actual value of the subscriptions and the value of stock dividends
distributed may not be decreased or increased by the fluctuating market value of
the stocks. Thus, absent any showing by PLDT of the actual payment it received
for the original issuance of its capital stock, the assessments made by the NTC,
based on the schedule of outstanding capital stock of PLDT recorded at historical
value payments made, is deemed correct.
Anent stock dividends, the value transferred from the unrestricted retained
earnings of PLDT to the capital stock account pursuant to the issuance of stock
dividends is the proper basis for the assessment of the SRF, which the NTC
correctly assessed.
380
380 SUPREME COURT REPORTS ANNOTATED
Philippine Long Distance Telephone Company vs.
National Telecommunications Commission
WHEREFORE, we DENY the petition for lack of merit, and AFFIRM the February
12, 2001 Decision and March 21, 2002 Resolution in CA-G.R. SP No. 61033.
Costs against petitioner.
SO ORDERED.
*
G.R. No. 170284. March 16, 2007.
BENITO ARATEA and PONCIANA CANONIGO, petitioners, vs. ESMERALDO P.
SUICO and COURT OF APPEALS, Cebu City, respondents.
Corporation Law; Piercing the Veil of Corporate Fiction; The legal fiction that
a corporation has a personality separate and distinct from stockholders and
members may be disregarded if it is used as a means to perpetuate fraud or an
illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, or to confuse legitimate issues.—Prudential Bank v.
Alviar, 464 SCRA 353 (2005), stated: Well-settled is the rule that a corporation has
a personality separate and distinct from that of its officers and stockholders.
Officers of a corporation are not personally liable for their acts as such officers
unless it is shown that they have exceeded their
_______________
*
FIRST DIVISION.
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502
5 SUPREME COURT REPORTS
02 ANNOTATED
Aratea vs. Suico
authority. However, the legal fiction that a corporation has a personality
separate and distinct from stockholders and members may be disregarded if it is
used as a means to perpetuate fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, or to confuse
legitimate issues.
Same; Same; Absent any proof of fraud or double dealing, therefore, the
doctrine on piercing the veil of corporate entity would not apply.—Absent any proof
of fraud or double dealing, therefore, the doctrine on piercing the veil of corporate
entity would not apply.
Same; Same; Petitioners Aratea and Canonigo, despite having separate and
distinct personalities from SAMDECO may be held personally liable for the loans
and advances made by Suico to SAMDECO which they represent on account of
their bad faith in carrying out the business of the corporation.—Petitioners Aratea
and Canonigo, despite having separate and distinct personalities from SAMDECO
may be held personally liable for the loans and advances made by Suico to
SAMDECO which they represent on account of their bad faith in carrying out the
business of the corporation.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Josefino B. Remotigue for petitioners.
Lawrence L. Fernandez for private respondent.
GARCIA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks the
1
reversal and setting aside of the decision dated 5 May 2005 of the Court of
2
Appeals (CA)-Cebu City, as reiterated in its resolution of 23 September 2005, in
_______________
1
Rendered by its Twentieth Division stationed in Cebu City, Associate Justice
Isaias P. Dicdican, ponente, with Associate Justices Vicente L. Yap and Enrico
Lanzanas, concurring; Rollo, pp. 23-31.
2
Id., at pp. 46-47.
 503
VOL. 518, MARCH 16, 2007 503
Aratea vs. Suico
CA-G.R. CV No. 60174 which affirmed an earlier decision of the Regional Trial
Court (RTC) of Cebu City, Branch 24, in an action for a sum of money and
damages thereat instituted by the herein private respondent Esmeraldo P. Suico
(Suico) against, among others, the herein petitioners Benito Aratea (Aratea) and
Ponciana Canonigo (Canonigo).
The facts:
Petitioners Aratea and Canonigo are the controlling stockholders of Samar
Mining Development Corporation (SAMDECO), a domestic corporation engaged in
mining operations in San Isidro, Wright, Western Samar. On the other hand,
private respondent Suico is a businessman engaged in export and general
merchandise.
Sometime in 1989, Suico entered into a Memorandum of Agreement (MOA)
with SAMDECO. Armed with the proper board resolution, Aratea and Canonigo
signed the MOA as the duly authorized representatives of the corporation. Under
the MOA, Suico would extend loans and cash advances to SAMDECO in
exchange for the grant of the exclusive right to market fifty percent (50%) of the
total coal extracted by SAMDECO from its mining sites in San Isidro, Wright,
Western Samar.
Suico was enticed into the aforementioned financing scheme because Aratea
and Canonigo assured him that the money he would lend to SAMDECO would
easily be paid with five percent (5%) monthly interest as the coals in said sites is
easier to gather because it is excavated from open-pit mines. Aratea and Canonigo
also promised to Suico that the loan the latter would extend to SAMDECO could
easily be paid from the profits of his fifty percent (50%) share of the coal produced.
Also reserved in favor of Suico was the right of first priority to operate the mining
facilities in the event SAMDECO becomes incapable of coping with the work
demands. By way of further incentive, Suico was actually appointed SAMDECO’s
Vice-President for Administration.
504
504 SUPREME COURT REPORTS ANNOTATED
Aratea vs. Suico
Pursuant to the same MOA, Suico started releasing loans and cash advances to
SAMDECO, still through Aratea and Suico. SAMDECO started operations in its
mining sites to gather the coal. As agreed in the MOA, fifty percent (50%) of the
coals produced were offered by Suico to different buyers. However, SAMDECO,
again through Aratea and Canonigo, prevented the full implementation of the
marketing arrangement by not accepting the prices offered by Suico’s coal buyers
even though such prices were competitive and fair enough, giving no other
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explanation for such refusal other than saying that the price was too low. Aratea
and Canonigo did not also set any criterion or standard with which any price offer
would be measured against. Because he failed to close any sale of his 50% share
of the coal-produce and gain profits therefrom, Suico could not realize payment of
the loans and advances he extended to SAMDECO.
SAMDECO, on the other hand, successfully disposed of its 50% share of the
coal-produce. Even with said coal sales, however, SAMDECO absolutely made no
payment of its loan obligations to Suico, despite demands.
Aratea and Canonigo eventually sold the mining rights and passed on the
operations of SAMDECO to Southeast Pacific Marketing, Inc. (SPMI). They also
sold their shares in SAMDECO to SPMI’s President, Arturo E. Dy without notice to,
or consent of Suico, in violation of the MOA.
Hence, in the RTC of Cebu City, Suico filed a complaint for a Sum of Money
and Damages against SAMDECO, Aratea, Canonigo, and Seiko Philippines, Inc.
(SEIKO, which was later substituted by SPMI and Arturo E. Dy). The complaint
was docketed as Civil Case No. CEB-10618 and raffled to Branch 24 of the court.
On 5 January 1998, the trial court came out with its decision rendering
judgment for Suico as follows:
“WHEREFORE, finding that the plaintiff has meritorious cause of action against the
defendants, this Court hereby orders all the defendants SAMDECO, SPMI, Dy,
SEIKO, Benito Aratea, Pon
505
VOL. 518, MARCH 16, 2007 505
Aratea vs. Suico
ciana Canonigo to solidarily pay the plaintiff the principal obligation of P3.5 million
plus 5% interest per month reckoned from March 1989 until fully paid; while
defendants Aratea & Canonigo should solidarily pay plaintiff the balance on the
principal amounting to P978,440.00 plus 5% interest per month reckoned from
March 1989 until fully paid. In addition all defendants are hereby ordered solidarily
to pay plaintiff P2,000,000.00 million (sic) as moral damages, P500,000.00 as
exemplary damages, P250,000.00 as attorney’s fees, and P100,000.00 as
litigation expenses. All counterclaims and crossclaims are hereby dismissed.
SO ORDERED.”
On 9 February 1998, SAMDECO, SPMI, Dy, and SEIKO filed their common notice
of appeal, while Aratea and Canonigo filed theirs on 16 February 1998. All appeals
were docketed in CA-Cebu City as CA-G.R. CV No. 60174.
After review of the records of the case, CA-Cebu City, in its decision of 5 May
2005, dismissed the appeal and affirmed the appealed decision of the trial court, to
wit:
“WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by
us DISMISSING the appeal filed in this case and AFFIRMING the decision dated
January 5, 1998 of the RTC of Cebu City, Branch 24 in Civil Case No. CEB-10618.
 SO ORDERED.”
Petitioners Aratea and Canonigo filed their common motion for reconsideration but
the same was denied by the appellate court in its resolution of 23 September 2005.
Hence, this recourse by the two on the following assigned errors:
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR IN
FINDING AGAINST THE DEFENDANTSAPPELLANTS BENITO ARATEA AND
PONCIANA CANONIGO AND CONDEMNING THEM TO PAY JOINTLY AND
SEVERALLY THE LOANS, CASH ADVANCES AND CAPITAL INFUSION MADE
BY PLAINTIFF TO DEFENDANT-APPELLANT SAMDECO.
506
506 SUPREME COURT REPORTS ANNOTATED
Aratea vs. Suico
THE COURT OF APPEALS OVERLOOKED AND MISINTERPRETED SOME
FACTS OR CIRCUMSTANCES AND COMMITTED SOME MISAPPREHENSION
OF THE FACTS AND THE APPLICABLE LAW/S WHICH HAD ADVERSELY
AFFECTED THE RESULT OF THE CASE.
We DENY.
The Court notes that petitioners Aratea and Canonigo do not assail the
decisions of the two courts below insofar as their co-defendants in the court of
origin, namely: SAMDECO; SPMI; Dy; and SEIKO, were held liable to Suico. As it
were, petitioners take exception from both decisions only, insofar as they are held
personally and solidarily liable with their codefendants. They strongly assert that
“the records of this case clearly show that the loans, cash advances and capital
infusion made by xxx Suico to SAMDECO are the sole and exclusive liability
3
and/or responsibility of SAMDECO and/or its transferee/s.” Relying heavily on the
allegations in Suico’s complaint in Civil Case No. CEB-10618, whereunder they
were referred to as mere representatives/agents of SAMDECO, petitioners seek to
be declared free from any liability which their co-defendants in the suit may be
adjudged liable for.
We must first stress that petitioners’ personal and solidary liability depends on
whether the Court finds SAMDECO’s monetary obligations on account of the loans
and cash advances made to it by Suico are due and demandable as borne by the
evidence.
After carefully and thoroughly reviewing the records of the proceedings before
the trial court, we find no cogent reason to depart from the factual findings of both
the trial and appellate courts holding all defendants liable for said loans and cash
advances.
_______________
3
Id., at p. 15.
507
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VOL. 518, MARCH 16, 2007 507
Aratea vs. Suico
However, in determining whether SAMDECO’s stockholders and/or
representatives (petitioners Aratea and Canonigo) may be held solidarily liable with
SAMDECO’s obligations, the Court must determine whether, upon the same facts
found by the two courts below, there is basis to pierce the veil of corporate fiction
and hold SAMDECO’s stockholders and/or officers personally and solidarily liable
with the corporation.
4
Prudential Bank v. Alviar stated:
“Well-settled is the rule that a corporation has a personality separate and distinct
from that of its officers and stockholders. Officers of a corporation are not
personally liable for their acts as such officers unless it is shown that they have
exceeded their authority. However, the legal fiction that a corporation has a
personality separate and distinct from stockholders and members may be
disregarded if it is used as a means to perpetuate fraud or an illegal act or as a
vehicle for the evasion of an existing obligation, the circumvention of statutes, or to
confuse legitimate issues.”
SAMDECO must generally be treated as separate and distinct entity from
petitioners Aratea and Canonigo unless there are facts and circumstances that
would justify the Court to pierce the veil of corporate fiction and treat them as one
and the same. From the facts, as found by the trial court and reechoed by the
appellate court, the Court has no reason to doubt that Suico was very well aware
that he was dealing with SAMDECO and that Aratea and Canonigo were mere
authorized representatives acting for and in behalf of the corporation. In fact, Suico
took note that Aratea and Canonigo were duly authorized by the corresponding
board resolution. There were no indications whatsoever that Suico was misled to
believe that the loans and cash advances were initially intended for the personal
benefit of Aratea and/or Canonigo, and that the corporation was only used
thereafter for the purpose of hiding behind the veil of corporate fiction to evade
personal liability. The evidence sufficiently established that
_______________
4
G.R. No. 150197, July 28, 2005, 464 SCRA 353.
508
508 SUPREME COURT REPORTS ANNOTATED
Aratea vs. Suico
all loans and cash advances were used for the mining operations of SAMDECO,
and there were neither allegations nor proofs to the contrary. Absent any proof of
fraud or double dealing, therefore, the doctrine on piercing the veil of corporate
entity would not apply.
 Considering that the veil of corporate fiction cannot be pierced in this case but
the evidence indisputably established that Suico released loans and cash
advances in favor of SAMDECO, which loans and cash advances remain unpaid to
the present, to Suico’s damage and prejudice, may Aratea and Canonigo, as
SAMDECO’s controlling stockholders and/or representatives, be nonetheless held
personally and solidarily liable with SAMDECO and its successors-in-interest for
obligations the corporation incurred under the facts herein obtaining?
We rule in the affirmative.
5
In MAM Realty Development Corporation v. NLRC, the Court stated:
“A corporation is a juridical entity with legal personality separate and distinct from
those acting for and in its behalf and, in general, from the people comprising it. The
general rule is that obligations incurred by the corporation, acting through its
directors, officers and employees, are its sole liabilities. There are times, however,
when solidary liabilities may be incurred but only when exceptional circumstances
warrant such as in the following cases:
1. 1.When directors and trustees or, in appropriate cases, the officers of a
corporation:
1. (a)vote for or assent to patently unlawful acts of the corporation;
2. (b)act in bad faith or with gross negligence in directing the corporate
affairs;
_______________
5 510
G.R. No. 114787, June 2, 1995, 244 SCRA 797, 802-803.
509
VOL. 518, MARCH 16, 2007 509
Aratea vs. Suico
1. (c)are guilty of conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons;
6 On the other hand, the [petitioners] were able to sell coal produced in the
1. 2.When a director or officer has consented to the issuance of watered
stocks or who, having knowledge thereof, did not forthwith file with the
7
corporate secretary his written objection thereto;
2. 3.When a director, trustee or officer has contractually agreed or stipulated
8
to hold himself personally and solidarily liable with the corporation; or
3. 4.When a director, trustee or officer is made, by specific provision of law,
9
personally liable for his corporate action.
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In labor cases, particularly, corporate directors and officers are solidarily liable with
the corporation for the termination of employment of corporate employees done
with malice or in bad faith.” (Emphasis supplied.)
Petitioners Aratea and Canonigo, despite having separate and distinct
personalities from SAMDECO may be held personally liable for the loans and
advances made by Suico to SAMDECO which they represent on account of their
bad faith in carrying out the business of the corporation. In the words of the trial
court:
“As evidenced by the transcripts of the direct examination of [respondent Suico]
(TSN, Arnejo, 10 August 1995, pp. 20-21), [petitioners] Canonigo, Aratea and
SAMDECO prevented the full implementation of the marketing agreement
concerning the coal produced from the mining site, specifically called the Arizona
project, by not agreeing to the price of the coal offered by the buyers procured by
[Suico] even though the prices offered were competitive and fair enough.
[Petitioners] Canonigo, Aratea and SAMDECO made no
_______________
6
See Section 31, Corporation Code.
7
See Section 65, Corporation Code.
8
See De Asis and Co., Inc. v. Court of Appeals, G.R. No. L61549, May 27,
1985, 136 SCRA 599.
9
Exemplified in Article 144, Corporation Code; See also Section 13,
Presidential Decree 115 (Trust Receipts Law).
510
SUPREME COURT REPORTS ANNOTATED
Aratea vs. Suico
explanation as to why they did not accept the offered price save to say that they
were low. They also did not set any criterion or standard against which any offered
price would be measured. By not acquiescing in to the proffered price,
[respondent] Suico was not able to obtain his share of 50% of the profits from the
sale of the coal produced by the mining site.
mining site in question. Hence, this undoubtedly exhibits their bad faith, malice and
wanton disregard of the [respondent’s] rights in not complying with their part of the
covenant. While the [petitioners] were able to market their share of the coal, they
precluded the [respondent] from marketing his. x x x.
Moreover, notwithstanding the unequivocal language of Title 4, paragraph 1,
[petitioners] Canonigo and Aratea further violated the [respondent’s] rights when
they without informing [respondent] sold their shares of SAMDECO to defendants
Dy and SPMI thereby vesting on the latter the right to operate SAMDECO’s coal
mining area as evidence by the Memorandum of Agreement labeled Exhibits “B.”
Title 4, paragraph 1 of Exhibit “A” expressly states that [respondent] Suico had the
right of first priority in acquiring the coal area of SAMDECO. The most prudent
action for [petitioners] would have been to first offer to sell SAMDECO to
[respondent] as what was stipulated under the contract prior to entering into an
agreement with defendants SPMI and Dy. x x x.” (Words in brackets supplied.)
Petitioners Aratea and Canonigo acted in bad faith when they, as officers of
SAMDECO, unreasonably prevented Suico from selling his part of the coal-
produce of the mining site, in gross violation of their MOA. This resulted in Suico
not being unable to realize profits from his 50% share of the coalproduce, from
which Suico could obtain part of the payment for the loans and advances he made
in favor of SAMDECO. Moreover, petitioners also acted in bad faith when they
sold, transferred and assigned their proprietary rights over the mining area in favor
of SPMI and Dy, thereby causing SAMDECO to grossly violate its MOA with Suico.
Suico suffered grave injustice because he was prevented from acquiring the
opportunity to obtain payment of his loans and cash ad-
511
VOL. 518, MARCH 16, 2007 511
Aratea vs. Suico
vances, while petitioners Aratea and Canonigo profited from the sale of their
shareholdings in SAMDECO in favor of SPMI and Dy. These facts duly established
Aratea and Canonigo’s personal liability as officers/stockholders of SAMDECO and
their solidary liability with SAMDECO for its obligations in favor of Suico for the
loans and cash advances received by the corporation.
WHEREFORE, the instant petition is DENIED and the assailed CA decision
and resolution are AFFIRMED in toto. Costs against petitioners.
SO ORDERED.
No. L-20993. September 28, 1968.
RIZAL LIGHT & ICE Co., INC., petitioner, vs. THE MUNICIPALITY OF MORONG,
RlZAL, and THE PUBLIC SERVICE COMMISSION, respondents.
No. L-21221. September 28, 1968.
RIZAL LIGHT & ICE Co., INC., petitioner, vs. THE PUBLIC SERVICE
COMMISSION and MORONG ELECTRIC Co., INC., respondents.
Public Service Commission; Hearing; Delegation of authority to hear a,
case; Who may be authorized to hear and investigate a case filed before it; Effect
of failure to interpose objection to illegal delegation of authority to hear; Case at
bar.—The Public Service Commission can only authorize a division chief to hear
and investigate a case filed before it if he is a lawyer (Sec. 32, par. 2,
Commonwealth Act No. 146, as amended). Objection to the delegation of authority
to hear a case filed before the Commission and to receive the evidence in
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connection therewith is a procedural, not a jurisdictional point, and is waived by
failure to interpose timely the objection and the case had been decided by the
Commission. Since petitioner in the case at bar has never raised any objection to
the authority of Mr. Pedro Talavera (a division chief—but not a lawyer) to conduct
the hearing before the Commission, it should be deemed to have waived such
procedural defect, and petitioner's claim that the Commission acted without or in
excess of jurisdiction in so authorizing Mr. Talavera should be dismissed.
Same; Review of decision of the Public Service Commission; Function of
Supreme Court in reviewing a decision of the Public Service Commission.—Settled
is the rule that in reviewing the decision of the Public Service Commission the
Supreme Court is not required to examine the proof de novo and determine for
itself whether or not the preponderance of evidence really justifies the decision.
The only function of this Court is to determine whether or not there is evidence
before the Commission upon which its decision might reasonably be based. The
Supreme Court will not substitute its descretion for that
286
2 SUPREME COURT REPORTS
86 ANNOTATED
Rizal Light & Ice Co., Inc. vs. Mun. of Morong,
Rizal
of the Commission on questions of fact and will not interfere in the latter's
decision unless it clearly appears that there is no evidence to support it (citing
cases). The evidence that should be made the basis of the Supreme Court's
determination should be only those presented in the case before the Commission.
Same; "Protection-of-investment rule"; When not applicable; Paramount
consideration in the grant of certificate of public convenience; To whom duty to
protect investment of a public utility operator refers.—The "protection-of-investment
rule" was enunciated in Batangas Transportation Co. v. Orlanes. 52 Phil. 455, in
this wise:
"The Government having taken over the control and supervision of all public
utilities, so long as an operator under a prior license complies with the terms and
conditions of his license and reasonable rules and regulations for its operation and
meets the reasonable demands of the public, it is the duty of the Commission to
protect rather than to destroy his investment by the granting of the second license
to another person for the same thing over the same route of travel. The granting of
such a license does not serve its convenience or promote the interests of the
public."
The above-quoted rule, however. is not absolute, f or nobody has exclusive right to
secure a franchise or a certificate of public convenience. Where it has been shown
by ample evidence that the petitioner. despite ample time and opportunity given to
it by the Commission, had failed to render adequate, sufficient and satisfactory
service and had violated the important conditions of its certificate as well as the
directives and the rules and regulations of the Commission, the rule cannot apply.
To apply that rule unqualifiedly is to encourage violation or disregard of the terms
and conditions of the certificate and the Commission's directives and regulations,
and would close the door to other applicants who could establish, operate and
provide adequate, efficient and satisfactory service for the benefit and convenience
of the inhabitants. It should be emphasized that the paramount consideration
should always be the public interest and public convenience. The duty of the
Commission to protect the investment of a public utility operator refers only to
operators of good standing—those who comply with the laws, rules and
regulations—and not to operators who are unconcerned with the public interest
and whose investments have failed or deteriorated because of their own fault
(Paredes v. Public Service Commission, et al., L-7111, May 30, 1955).
Same; Cancellation and revocation of certificate of public
convenience; Circumstances that warranted the imposition of both a fine and a
revocation of certificate of public convenience.—Section 16 (n) of Commonwealth
Act No. 146, as amended, confers upon the Commission ample power and
discretion to order
287
VOL. 25, SEPTEMBER 28, 1968 2
87
Rizal Light & Ice Co., Inc. vs. Mun. of Morong,
Rizal
the cancellation and revocation of any certificate of public convenience
issued to an operator who has violated, or has willfully and contumaciously refused
to comply with, any order, rule or regulation of the Commission or any provision of
law. What matters is that there is evidence to support the action of the
Commission. Where the evidence shows: (a) a contumacious refusal of the
petitioner since 1954 to comply with the directives, rules and regulations of the
Commission; (b) a violation of the conditions of the certificate of public
convenience; and (c) municipality to comply with commitment as shown by
inadequate service, such circumstances warranted the action of the Commission in
not merely imposing a fine but in revoking altogether petitioner's certificate.
Same; Requisites for the grant of certificate of public convenience.—Before
any certificate of public convenience may be granted, three requisites must be
complied with, namely: (1) the applicant must be a citizen of the Philippines or of
the United States, or a corporation or co-partnership, association or jointstock
company constituted and organized under the laws of the Philippines, sixty per
centum at least of the stock or paid-up capital of which belongs entirely to citizens
of the Philippines or of the United States; (2) the applicant must be financially
capable of undertaking the proposed service and meeting the responsibilities
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incident to its operation; and (3) the applicant must prove that the operation of the
public service proposed and the authorization to do business will promote the
public interest in a proper and suitable manner.
Same; Efficacy of a franchise.—A franchise takes effect upon its approval by
the Public Service Commission (Almendras v. Ramos, 90 Phil. 231).
APPEAL from two decisions of the Public Service Commission.
The facts are stated in the opinion of the Court.
Amado A. Amador, Jr. for petitioner.
Atilano C. Bautista and Pompeyo F. Olivas for respondents.
ZALDIVAR, J.:
These two cases, being interrelated, are decided together.
Case G.R. No. L-20993 is a petition of the Rizal Light & Ice Co., Inc. to review
1
and set aside the orders of respondent Public Service Commission , dated August
20, 1962. and February 15, 1963, in PSC Case No. 39716,
_____________
1
Hereinafter referred to as "Commission".
288
288 SUPREME COURT REPORTS ANNOTATED
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
cancelling and revoking the certificate of public convenience and necessity and
forfeiting the franchise of said petitioner. In the same petition, the petitioner prayed
for the issuance of a writ of preliminary injunction ex parte suspending the
effectivity of said orders and/or enjoining respondents Commission and/or
Municipality of Morong, Rizal, from enforcing in any way the cancellation and
revocation of petitioner's franchise and certificate of public convenience during the
pendency of this appeal. By resolution of March 12, 1963, this Court denied the
petition for injunction, for lack of merit.
Case G. R. L-21221 is likewise a petition of the Rizal Light & Ice Co., Inc. to
review and set aside the decision of the Commission dated March 13, 1963 in PSC
Case No. 62-5143 granting a certificate of public convenience and necessity to
2
respondent Morong Electric Co., Inc. to operate an electric light, heat and power
service in the municipality of Morong, Rizal. In the petition Rizal Light & Ice Co.,
Inc. also prayed for the issuance of a writ of preliminary injunction ex
parte suspending the effectivity of said decision. Per resolution of this Court, dated
May 6, 1963, said petition for injunction was denied.
 The facts, as they appear in the records of both cases, are as follows:
Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation with business
address at Morong, Rizal. On August 15, 1949, it was granted by the Commission
a certificate of public convenience and necessity for the installation, operation and
maintenance of an electric light, heat and power service in the municipality of
Morong, Rizal.
In an order dated December 19, 1956, the Commission required the petitioner
to appear before it on February 18, 1957 to show cause why it should not be
penalized for violation of the conditions of its certificate of public convenience and
the regulations of the Commission, and for failure to comply with the directives to
raise its service voltage and maintain them within the limits prescribed in the
Revised Order No. 1 of the Commission, and to acquire and install a kilowattmeter
to indicate the
_______________
2
Hereinafter referred to as "Morong Electric".
289
VOL. 25, SEPTEMBER 28, 1968 289
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
3
load in kilowatts at any particular time of the generating unit.
For failure of the petitioner to appear at the hearing on February 18, 1957, the
Commission ordered the cancellation and revocation of petitioner's certificate of
public convenience and necessity and the forfeiture of its franchise. Petitioner
moved for reconsideration of said order on the ground that its manager, Juan D.
Francisco, was not aware of said hearing. Respondent municipality opposed the
motion alleging that petitioner has not rendered efficient and satisfactory service
and has not complied with the requirements of the Commission for the
improvement of its service. The motion was set for hearing and Mr. Pedro S.
Talavera, Chief, Industrial Division of the Commission, was .authorized to conduct
4
the hearing for the reception of the evidence of the parties
Finding that the failure of the petitioner to appear at the hearing set for
February 18, 1957—the sole basis of the revocation of petitioner's certificate—was
really due to the illness of its manager, Juan D. Francisco, the Commission set
aside its order of revocation. Respondent municipality moved for reconsideration of
this order of reinstatement of the certificate, but the motion was denied.
In a petition dated June 25, 1958, filed in the same case, respondent
municipality formally asked the Commission to revoke petitioner's certificate of
public convenience and to forfeit its franchise on the ground, among other things,
that it failed to comply with the conditions of said certificate and franchise. Said
petition was set for hearing jointly with the order to show cause. The hearings had
been postponed several times.
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Meanwhile, inspections had been made of petitioner's electric plant and
installations by the engineers of the Commission, as follows,: April 15, 1958 by
Engineer Antonio M. Alli; September 18, 1959, July 12-13, 1960, and June 21-24,
1961, by Engineer Meliton S. Martinez. The inspection on June 21-24, 1961 was
made upon the request
______________
3
Hereinafter referred to as "Morong Electric".
4
Not "Pedro G. Talavera" as appearing in petitioner's Brief. Mr. Pedro S.
Talavera also conducted the hearings in the main case.
290
290 SUPREME COURT REPORTS ANNO TATED
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
of the petitioner who manifested during the hearing on December 15, 1960 that
improvements have been made on its service since the inspection on July 12-13,
1960, and that, on the basis of the inspection report to be submitted, it would agree
to the submission of the case for decision without further hearing.
When the case was called for hearing on July 5, 1961, petitioner failed to
appear. Respondent municipality was then allowed to present its documentary
evidence, and thereafter the case was submitted for decision.
On July 7, 1961, petitioner filed a motion to reopen the case upon the ground
that it had not been f urnished with a copy of the report of the June 21-24,1961
inspection for it to reply as previously agreed. In an order dated August 25, 1961,
petitioner was granted a period of ten (10) days within which to submit its written
reply to said inspection report, on condition that should it fail to do so within the
said period the case would be considered submitted for decision. Petitioner failed
to file the reply. In consonance with the order of August 25, 1961, therefore, the
Commission proceeded to decide the case. On July 29, 1962 petitioner's electric
plant was burned.
In its decision, dated August 20, 1962, the Commission, on the basis of the
inspection reports of its aforenamed engineers, found that the petitioner had failed
to comply with the directives contained in its letters dated May 21, 1954 and
September 4, 1954, and had violated the conditions of its certificate of public
convenience as well as the rules and regulations of the Commission. The
Commission concluded that the petitioner "cannot render the efficient, adequate
and satisfactory electric service required by its certificate and that it is against
public interest to allow it to continue its operation." Accordingly, it ordered the
cancellation and revocation of petitioner's certificate of public convenience and the
forfeiture of its franchise.
On September 18, 1962, petitioner moved for reconsideration of the decision,
alleging that before its electric plant was burned on July 29, 1962, its service was
greatly improved and that it had still existing investment which the Commission
should protect. But eight days before said motion f or reconsideration was f iled, or
on September
291
VOL. 25, SEPTEMBER 28, 1968 291
Rizal Light & Ice Co.. Inc. vs. Mun. of Morong, Rizal
10,1962, Morong Electric, having been granted a municipal franchise on May 6,
1962 by respondent municipality to install, operate and maintain an electric heat,
light and power service in said municipality—approved by the Provincial Board of
Rizal on August 31, 1962—filed with the Commission an application for a
certificate of public convenience and necessity for said service. Said application
was entitled "Morong Electric Co., Inc., Applicant", and docketed as Case No. 62-
5143.
Petitioner opposed in writing the application of Morong Electric, alleging among
other things, that it is a holder of a certificate of public convenience to operate an
electric light, heat and power service in the same municipality of Morong, Rizal,
and that the approval of said application would not promote public convenience,
but would only cause ruinous and wasteful competition. Although the opposition is
dated October 6,1962, it was actually received by the Commission on November 8,
1962, or twenty four days after the order of general default was issued in open
court when the application was first called for hearing on October 15, 1962. On
November 12, 1962, however, the petitioner filed a motion to lift said order of
default. But before said motion could be resolved, petitioner filed another motion
dated, January 4, 1963, this time asking f or the dismissal of the application upon
the ground that applicant Morong Electric had no legal personality when it filed its
application on September 10, 1962, because its certificate of incorporation was
issued by the Securities and Exchange Commission only on October 17, 1962.
This motion to dismiss was denied by the Commission in a formal order issued on
January 17, 1963 on the premise that applicant Morong Electric was a de
facto corporation. Consequently, the case was heard on the merits and both
parties presented their respective evidence. On the basis of the evidence adduced
the Commission, in its decision dated March 13, 1963. found that there was an
absence of electric service in the municipality of Morong and that applicant Morong
Electric, a Filipino-owned corporation duly organized and existing under the laws of
the Philippines. has the financial capacity to maintain said service. These
circumstances, con-
292
292 SUPREME COURT REPORTS ANNOTATED
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
sidered together with the denial of the motion for reconsideration filed by petitioner
in Case No. 39715 on February 15, 1963, such that as far as the Commission was
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concerned the certificate of the petitioner was already declared revoked and
cancelled, the Commission approved the application of Morong Electric and
ordered the issuance in its favor of the corresponding certificate of public
convenience and necessity.
On March 8, 1963, petitioner filed with this Court a petition to review the
decision in Case No. 39715 (now G. R. No. L-20993). Then on April 26, 1963,
petitioner also filed a petition to review the decision in Case No. 62-5143 (now G.
R. No. L-21221).
In questioning the decision of the Commission in Case No. 39715, petitioner
contends: (1) that the Commission acted without or in excess of its jurisdiction
when it delegated the hearing of the case and the reception of evidence to Mr.
Pedro S. Talavera who is not allowed by law to hear the same; (2) that the
cancellation of petitioner's certificate of public convenience was unwarranted
because no sufficient evidence was adduced against the petitioner and that
petitioner was not able to present evidence in its defense; (3) that the Commission
failed to give protection to petitioner's investment; and (4) that the Commission
erred in imposing the extreme penalty of revocation of the certificate.
In questioning the decision in Case No. 62-5143, petitioner contends: (1) that
the Commission erred in denying petitioner's motion to dismiss and proceeding
with the hearing of the application of the Morong Electric; (2) that the Commission
erred in granting Morong Electric a certificate of public convenience and necessity
since it is not financially capable to render the service; (3) that the Commission
erred when it made findings of facts that are not supported by the evidence
adduced by the parties at the trial; and (4) that the Commission erred when it did
not give to petitioner protection to its investment a reiteration of the third
assignment of error in the other case.
We shall now discuss the appeals in these two cases separately.
293
VOL. 25, SEPTEMBER 28, 1968 293
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
G. R. No. L-20993
1. Under the first assignment of error, petitioner contends that while Mr. Pedro S.
Talavera, who conducted the hearings of the case below, is a division chief, he is
not a lawyer. As such, under Section 32 of Commonwealth Act No. 146, as
amended, the Commission should not have delegated to him the authority to
conduct the hearings for the reception of evidence of the parties.
5
We find that, really, Mr. Talavera is not a lawyer. Under the second paragraph
6
of Section 32 of Commonwealth Act No. 146, as amended, the Commission can
only authorize a division chief to hear and investigate a case filed before it if he is a
lawyer. However, the petitioner is raising this question for the first time in this
appeal. The record discloses that petitioner never made any objection to the
authority of Mr. Talavera to hear the case and to receive the evidence of the
parties. On the contrary, we find that petitioner had appeared and submitted
evidence of the hearings conducted by Mr. Talavera, particularly the hearings
relative to the motion for reconsideration of the order of February 18, 1957
cancelling and revoking its certificate, We also find that, through counsel, petitioner
had entered into agreements with Mr. Talavera, as hearing officer, and the counsel
for respondent municipality, regarding procedure in order to abbreviate the
7
proceedings. It is only after the decision in the case turned out to be adverse to it
that petitioner questioned the proceedings held before Mr. Talavera.
This Court in several cases has ruled that objection to the delegation of
authority to hear a case filed before
_______________
5
Law List 1961, First Edition, does not contain the name "Pedro S. Talavera."
6
As amended by R.A. No. 723 which took effect on June 6, 1962, it reads:
"The Commission may also, by proper order, authorize any of the attorneys of the
legal division or division chiefs of the Commission, if they be lawyers, to bear and
investigate any case filed with the Commission and in connection therewith to
receive such evidence as may be material thereto." (Italics supplied.)
7
Sessions of September 23, 1960, December 15, 1960, February 24, 1961
and August 25, 1961.
294
294 SUPREME COURT REPORTS ANNOTATED
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
the Commission and to receive the evidence in connection therewith is a
procedural, not a jurisdictional point, and is waived by failure to interpose timely the
8
objection and the case had been decided by the Commission. Since petitioner has
never raised any objection to the authority of Mr. Talavera before the Commission,
it should be deemed to have waived such procedural defect, and consonant with
the precedents on the matter, petitioner's claim that the Commission acted without
9
or in excess of jurisdiction in so authorizing Mr. Talavera should be dismissed.
2. Anent the second assigned error, the gist of petitioner's contention is that
the evidence—consisting of inspection reports upon which the Commission based
its decision is insufficient and untrustworthy in that (1) the authors of said reports
had not been put to test by way of cross-examination; (2) the reports constitute
only one side of the picture as petitioner was not able to present evidence in its
defense; (3) judicial notice was not taken of the testimony of Mr. Harry B.
Bernardino, former mayor of respondent municipality, in PSC Case No.
625143 (the other case, G. R. No. L-21221) to the effect that the petitioner had
improved its service before its electric power plant was burned on July 29, 1962—
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which testimony contradicts the inspection reports; and (4) the Commission acted
both as prosecutor and judge—passing judgment over the very same evidence
presented by it as prosecutor—a situation "not conducive to the arrival at just and
equitable decisions."
Settled is the rule that in reviewing the decision of the Public Service
Commission this. Court is not required to examine the proof de novo and
determine for itself whether or not the preponderance of evidence really
_______________
8
Everett Steamship Corp. vs. Chuahiong, L-2933, September 26,
1951; Raymundo Trans. vs. Cervo, L-3899, May 21, 1952; Enriquez & Co. vs.
Ortega, L-4865, December 22, 1952; and Luzon Stevedoring Co. vs. PSC, L-5458,
September 16, 1953.
9
In Raymundo Trans. vs. Cervo, supra, it was held: "As provided for in Rule
43, section 2 of the Rules of Court an appellant can only raise in a petition for
review questions that had been raised before the Public Service Commission."
295
VOL. 25, SEPTEMBER 28, 1968 295
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
justifies the decision. The only function of this Court is to determine whether or not
there is evidence before the Commission upon which its decision might reasonably
be based. This Court will not substitute its discretion for that of the Commission on
questions of fact and will not interfere in the latter's decision unless it clearly
10
appears that there is no evidence to support it. Inasmuch as the only function of
this Court in reviewing the decision of the Commission is to determine whether
there is sufficient evidence before the Commission upon which its decision can
reasonably be based, as it is not required to examine the proof de novo, the
evidence that should be made the basis of this Court's determination should be
only those presented in this case before the Commission. What then was the
evidence presented before the Commission and made the basis of its decision
subject of the present appeal? As stated earlier, the Commission based its
decision on the inspection reports submitted by its engineers who conducted the
11
inspection of petitioner's electric service upon orders of the Commission. Said
inspection reports specify in detail the deficiencies incurred, and violations
committed, by the petitioner resulting in the inadequacy of its service. We consider
that said reports are sufficient to serve reasonably as bases of the decision in
question. It should be emphasized, in this connection that said reports, are not
mere documentary proofs presented for the consideration of the Commission, but
are the results of the Commission's own observations and investigations which it
12
can rightfully take into consideration, particularly in this case where the petitioner
had
_______________ the engineer of this Commission, Engineer Meliton Martinez, is very acquainted to
the points involved we pray that his report will be used by us for the reason that he
10 is a technical man and he knows well as he has done a good job and I think our
A. L. Ammen Transportation Co. vs. Froilan Japa, L-19643, July 26,
1966; Del Pilar Transit, Inc. vs. Jose M. Silva, L-21547, July 15, 1966; Pineda vs. proposition would expedite the matter. We sincerely believe that the inspection
Carandang, L-13270-71, March 24, 1960; and Ramos vs. Lat, et at., L-14476 & L- report will be the best evidence to decide this matter.
15773, May 23, 1960. x x x x
11
Admitted by the petitioner in its Brief, pp. 3 & 11.
12
"The Public Service Commission in the exercise of its quasi-judicial and _______________
administrative functions has the power to take into consideration the result of its
own observation and investigation of the matter submitted to it for consideration Sambrano vs. Northern Luzon Trans. Co., 63 Phil. 554; Manila Yellow Taxicab
and decision, in connection with other evidence presented at the hearing of a Co., Inc. vs. Araullo, et al., 60 Phil. 833; and Manila Yellow Taxicab Co., Inc. vs. B.
case." (Cebu Transit Co. vs. PSC, 79 Phil. 386; Stables Co., 60 Phil. 851.)
296 "The Commission can take cognizance of the facts diclosed by its own records."
296 SUPREME COURT REPORTS ANNOTATED (Dagupan Ice Plant Co., Inc. vs. Lucero, et al., 66 Phil. 120, 123.)
297
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
not presented any evidence in its defense, and speaking of petitioner's failure to VOL. 25, SEPTEMBER 28, 1968 297
present evidence, as well as its failure to cross-examine the authors of the Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
inspection reports, petitioner should not complain because it had waived not only
its right to cross-examine but also its right to present evidence. Quoted hereunder "ATTY. LUQUE:
are the pertinent portions of the transcripts of the proceedings where the petitioner,
through counsel, manifested in clear language said waiver and its decision to abide
"x x x. This is a very important matter and to show the good faith of respondent in
by the last inspection report of Engineer Martinez:
this case we will not even crossexamine the engineer when he makes a new
Proceedings of December 15, 1960
report. We will agree to the findings and, your honor please, considering as we
have manifested before that Engineer Martinez is an experienced engineer of this
"COMMISSION: Commission and the points reported by Engineer Martinez on the situation of the
plant now will prevent the necessity of having a hearing, of us bringing new
"It appears at the last hearing of this case on September 23, 1960, that an evidence and complainant bringing new evidence. x x x.
engineer of this Commission has been ordered to make an inspection of all electric x x x x
services in the province of Rizal and on that date the engineer of this Commission
"COMMISSION (to Atty. Luque) :
is still undertaking that inspection and it appears that the said engineer had
actually made that inspection on July 12 and 13, 1960. The engineer has Q "Does the Commission understand from the counsel
submitted his report on November 18, 1960 which is attached to the records of this for applicant that if the motion is granted he will
case.
submit this order to show cause for decision without
"ATTY. LUQUE (Counsel for Petitioner): any further hearing and the decision will be based on
the report of the engineer of this Commission?
"x x x (W)e respectfully state that while the report is, as I see it attached to the
A "We respectfully reply in this manner that we be
records, clear and very thorough, it was made sometime July of this year and I
understand from the respondent that there is some improvement since this report allowed or be given an opportunity just to read the
was made x x x x we respectfully request that an up-todate inspection be made x x report and 99% we will agree that the report will be
x x. An inspector of this Commission can be sent to the plant and considering that
the basis of that decision. We just want to find out the

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 contents of the report, however, we request that we
be furnished with a copy of the report before the
hearing so that we will just make a manifestation that
we will agree.
"COMMISSION (to Atty. Luque):
Q "In order to prevent the delay of the disposition of this
case the Commission will allow counsel for the
applicant to submit his written reply to the report that
the engineer of this Commission. Will he submit this
case without further heari ng upon the receipt of that
written reply?
A "Yes, your honor."
Proceedings of August 25, 1961
"ATTY. LUQUE (Counsel for petitioner)
"In order to avoid any delay in the consideration of this case we are
respectfully move (sic) that instead of our witnesses testifying under oath that we
will submit a written reply under oath together with the memorandum within fifteen
(15) days and we will furnish a copy and upon our submission of said written reply
under oath and memorandum we consider this case submitted. This suggestion is
to abbreviate the necessity of presenting witnesses here which may prolong the
resolution of this case.
"ATTY. OLIVAS: (Counsel for respondent municipality)
"I object on the ground that there is no resolution by this
298
298 SUPREME COURT REPORTS ANNOTATED
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
Commission on the action to reopen the case and second this case has been
closed.
"ATTY. LUQUE:
"With regard to the testimony on the ground for opposition we respectfully
submit to this Commission our motion to submit a written reply together with a
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memorandum. Also as stated to expedite the case and to avoid further hearing we
will just submit our written reply. According to our records we are furnished with a
copy of the report of July 17, 1961. We submit your honor.
x x x x
x x x x
"COMMISSION:
"To give applicant a chance to have a day in court the Commission grants the
request of applicant that it be given 10 days within which to submit a written reply
on the report of the engineer of the Commission who inspected the electric service,
in the municipality of Morong, Rizal, and after the submission of the said written
reply within 10 days from today this case will be considered submitted for
decision."
The above-quoted manifestation of counsel for the petitioner, specifically the
statement referring to the inspection report of Engineer Martinez as the "best
evidence to decide this matter," can serve as an argument against petitioner's
claim that the Commission should have taken into consideration the testimony of
Mr. Bernardino. But the primary reasons why the Commission could not have
taken judicial cognizance of said testimony are: first, it is not a proper subject of
judicial notice, as it is not a "known" fact—that is, well established and
13
authoritatively settled, without qualification and contention; second, it was given
in a subsequent and distinct case after the petitioner's motion for reconsideration
was heard by the Commission en banc and submitted for decision.
14
_______________
13
"Matters of which the Court will take notice are necessarily uniform or fixed,
and do not depend upon uncertain testimony, for as soon as a matter becomes
disputable, it ceases to f all under the head of common knowledge and will not be
judicially recognized." (29 Am Jur 2d 61-62)
14
Petitioner's motion for reconsideration was heard on Jan. 11, 1963 and on
that date said motion was considered submitted for decision, while the testimony of
Bernardino was given on January 24, 1963.
299
VOL. 25, SEPTEMBER 28, 1968 299
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
and third, it was not brought to the attention of the Commission in this case through
15
an appropriate pleading.
Regarding the contention of petitioner that the Commission had acted both as
prosecutor and judge, it should be considered that there are two matters that had
to be decided in this case, namely, the order to show cause dated December 19,
1956, and the petition or complaint by respondent municipality dated June 25,
1958. Both matters were heard jointly, and the record shows that respondent
municipality had been allowed to present its evidence to substantiate its complaint.
It can not be said, therefore, that in this case the Commission had acted as
prosecutor and judge. But even assuming, for the sake of argument, that there was
a commingling of the prosecuting and investigating functions, this exercise of dual
function is authorized by Section 17 (a) of Commonwealth Act No. 146, as
amended, under which the Commission has power "to investigate, upon its own
initiative, or upon complaint in writing, any matter concerning any public service as
regards matters under its jurisdiction; to require any public service to furnish safe,
adequate, and proper service as the public interest may require and warrant; to
enforce compliance with any standard, rule, regulation, order or other requirement
of this Act or of the Commission, x x x." Thus, in the case of Collector of Internal
Revenue vs. Estate of F. P. Buan, L-11438, July 31, 1958, this Court held that the
power of the Commission to cancel and revoke a certificate of public convenience
and necessity may be exercised by it even without a formal charge filed by any
interested party, with the only limitation that the holder of the certificate should be
given his day in court.
It may not be amiss to add that when prosecuting and investigating duties are
delegated by statute to an administrative body, as in the case of the Public Service
_______________
15
"Judicial notice is not judicial knowledge; and one having the burden of
establishing a fact of which a court may take judicial notice is not in consequence
relieved of the necessity of bringing the fact to the knowledge of the Court."
(Francisco, Evidence, pp. 51-52 citing Shapleigh, et al v. Mier, No. 125 [U.S.] Jan.
1937.)
300
300 SUPREME COURT REPORTS ANNOTATED
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
Commission, said body may take steps it believes appropriate for the proper
exercise of said duties, particularly in the manner of informing itself whether there
is probable violation of the law and/or its rules and regulations. It may initiate an
investigation, file a complaint, and then try the charge as preferred, So long as the
respondent is given a day in court,. there can be no denial of due process, and
objections to said procedure cannot be sustained.
3. In its third assignment of error, petitioner invokes the "protection-of-
investment rule" enunciated by this Court in Batangas Transportation Co. vs.
16
Orlanes in this wise:
"The Government having taken over the control and supervision of all public
utilities, so long as an operator under a prior license complies with the terms and
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conditions of his license and reasonable rules and regulations for its operation and
meets the reasonable demands of the public, it is the duty of the Commission to
protect rather than to destroy his investment by the granting of the second license
to another person for the same thing over the same route of travel. The granting of
such a license does not serve its convenience or promote the interests of the
public."
The above-quoted rule, however, is not absolute, for nobody has exclusive right to
17
secure a franchise or a certificate of public convenience. Where, as in the
present case, it has been shown by ample evidence that the petitioner, despite
ample time and opportunity given to it by the Commission, had failed to render
adequate, sufficient and satisfactory service and had violated the important
conditions of its certificate as well as the directives and the rules and regulations of
the Commission, the rule cannot apply. To apply that rule unqualifiedly is to
encourage violation or disregard of the terms and conditions of the certificate and
the Commission's directives and regulations, and would close the door to other
applicants who could establish, operate and provide adequate, efficient and
satisfactory service for the benefit and convenience of the
_______________
16
52 Phil. 455, 472; see also Javier v. Orlanes, 53 Phil. 468, and Bohol Trans.
Co. vs. Jureidini, 53 Phil. 560.
17
See Teresa Electric & Power Co., Inc. vs. PSC, L-21804, Sept. 25,
1967; Manila Taxicab, et al vs. PSC, et al., 90 Phil. 301.
301
VOL. 25, SEPTEMBER 28, 1968 301
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
inhabitants. It should be emphasized that the paramount consideration should
always be the public interest and public convenience. The duty of the Commission
to protect the investment of a public utility operator refers only to operators of good
standing—those who comply with the laws, rules and regulations—and not to
operators who are unconcerned with the public interest and whose investments
18
have failed or deteriorated because of their own fault.
4. The last assignment of error assails the propriety of the penalty imposed by
the Commission on the petitioner—that is, the revocation of the certificate and the
forfeiture of the franchise. Petitioner contends that the imposition of a fine would
have been sufficient, as had been done by the Commission in cases of a similar
nature.
It should be observed that Section 16 (n) of Commonwealth Act No. 146, as
amended, confers upon the Commission ample power and discretion to order the
cancellation and revocation of any certificate of public convenience issued to an
operator who has violated. or has willfully and contumaciously refused to comply
with, any order, rule or regulation of the Commission or any provision of law. What
matters is that there is evidence to support the action of the Commission. In the
instant case, as shown by the evidence, the contumacious refusal of the petitioner
since 1954 to comply with the directives, rules and regulations of the Commission,
its violation of the conditions of its certificate and its incapability to comply with its
commitment as shown by its inadequate service, were the circumstances that
warranted the action of the Commission in not merely imposing a fine but in
revoking altogether petitioner's certificate. To allow petitioner to continue its
operation would be to sacrifice public interest and convenience in favor of private
interest.
"A grant of a certificate of public convenience confers no property rights but is a
mere license or privilege, and such privilege is forfeited when the grantee fails to
comply with his commitments behind which lies the paramount interest of the
public, for public necessity cannot be made to wait, nor sacri-
_______________
18
Paredes vs. PSC, et al., L-7111, May 30, 1955.
302
302 SUPREME COURT REPORTS ANNOTATED
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
ficed for private convenience." (Collector of Internal Revenue v. Estate of F. P.
Buan. et al., L-11438 and Santiago Sambrano, et al. v. PSC, et al., L-11439 & L-
11542-46, July 31. 1958)
"(T)he Public Service Commission. x x x has the power to specify and define
the terms and conditions upon which the public utility shall be operated, and to
make reasonable rules and regulations for its operation and the compensation
which the utility shall receive for its services to the public, and for any failure to
comply with such rules and regulations or the violation of any of the terms and
conditions for which the license was granted, the Commission has ample power to
enforce the provisions of the license or even to revoke it, for any failure or neglect
to comply with any of its terms and provisions." (Batangas Trans. Co. v.
Orlanes, 52 Phil. 455, 460: italics supplied)
Presumably, the petitioner has in mind Section 21 of Commonwealth Act No. 146,
as amended, which provides that a public utility operator violating or failing to
comply with the terms and conditions of any certificate, or any orders, decisions, or
regulations of the Commission, shall be subject to a fine and that the Commission
is authorized and empowered to impose such fine, after due notice and hearing. It
should be noted, however, that the last sentence of said section states that the
remedy provided therein "shall not be a bar to, or affect any other remedy provided
in this Act but shall be cumulative and additional to such remedy or remedies." In
other words, the imposition of a f ine may only be one of the remedies which the
Corporation
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Commission may resort to, in its discretion. But that remedy is not exclusive of, or
has preference over, the other remedies. And this Court will not substitute its
discretion for that of the Commission, as long as there is evidence to support the
exercise of that discretion by the Commission.
G. R. No. L-21221
Coming now to the other case. let it be stated at the outset that before any
certificate may be granted, authorizing the operation of a public service, three
requisites must be complied with, namely: (1) the applicant must be a citizen of the
Philippines or of the United States, or a corporation or co-partnership, association
01 joint-stock company constituted and organized under the laws of the
Philippines, sixty per centum at least of the stock or paid
303
VOL. 25, SEPTEMBER 28, 1968 303
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
up capital of which belongs entirely to citizens of the Philippines or of the United
19
States; (2) the applicant must be financially capable of undertaking the proposed
20
service and meeting the responsibilities incident to its operation; and (3) the
applicant must prove that the operation of the public service proposed and the
authorization to do business will promote the public interest in a proper and
21
suitable manner.
As stated earlier, in the decision appealed from, the Commission found that
Morong Electric is a corporation duly organized and existing under the laws of the
Philippines, the stockholders of which are Filipino citizens, that it is financially
capable of operating an electric light, heat and power service, and that at the time
the decision was rendered there was absence of electric service in Morong, Rizal.
While the petitioner does not dispute the need of an electric service in Morong,
22
Rizal, it claims, in effect, that Morong Electric should not have been granted the
certif icate of public convenience and necessity because (1) it did not have a
corporate personality at the time it was granted a franchise and when it applied for
said certificate; (2) it is not financially capable of undertaking an electric service,
and (3) petitioner was rendering efficient service before its electric plant was
burned, and therefore, being a prior operator its investment should be protected
and no new party should be granted a f ranchise and certificate of public
convenience and necessity to operate an electric service in the same locality.
1. The bulk of petitioner's arguments assailing the personality of Morong
23
Electric dwells on the proposition that since a franchise is a contract , at least two
competent parties are necessary to the execution thereof, and parties
_______________
 19
Ishi v. PSC, 63 Phil. 428.
20
Manila Yellow Taxicab v. Austin Taxicab Co., 59 Phil. 771.
21
Sec. 15, Com. Act No. 146; Batangas Trans. Co. v. Orlanes, 52 Phil 455.
See also Martin, Phil. Commercial Laws, Vol. 3, pp. 1195-1196; Almario,
Transportation and Public Service Law, pp. 300-301; Agbayani, Commercial Laws
of the Phil., Vol 4 (1964 Ed.), pp. 2363-2364.
22
T.s.n., p. 89 (Session on January 11, 1963).
23
City of Manila vs. PSC, 52 Phil. 515.
304
304 SUPREME COURT REPORTS ANNOTATED
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
are not competent except they are in being. Hence, it is contended that until a
corporation has come into being, in this jurisdiction, by the issuance of a certificate
of incorporation by the Securities and Exchange Commission (SEC) it cannot enter
into any contract as a corporation. The certificate of incorporation of the Morong
Electric was issued by the SEC on October 17, 1962, so only from that date, not
before, did it acquire juridical personality and legal existence. Petitioner concludes
that the franchise granted to Morong Electric on May 6, 1962 when it was not yet in
esse is null and void and cannot be the subject of the Commission's consideration.
On the other hand, Morong Electric argues, and to which argument the
Commission agrees, that it was a de facto corporation at the time the franchise
was granted and, as such, it was not incapacitated to enter into any contract or to
apply for and accept a franchise. Not having been incapacitated, Morong Electric
maintains that the franchise granted to it is valid and the approval or disapproval
thereof can be properly determined by the Commission.
Petitioner's contention that Morong Electric did not yet have a legal personality
on May 6, 1962 when a municipal franchise was granted to it is correct The
juridical personality and legal existence of Morong Electric began only on October
24
17, 1962 when its certificate of incorporation was issued by the SEC. Before that
date, or pending the issuance of said certif icate of incorporation, the incorporators
25
cannot be considered as de facto corporation. But the fact that Morong Electric
had no corporate existence on the day the franchise was granted in its name does
not render the franchise invalid, because later Morong Electric obtained its
certificate of incorporation and then accepted the franchise In accordance with the
terms and conditions thereof. This view is sustained by eminent American
authorities. Thus, McQuiuin says:
_______________
24
Hall vs. Judge Piccio, 86 Phil. 603, 605; See also Fisher, The Phil. Law of
Stock Corp., p. 36.
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25
Tolentino Commercial Laws of the Philippines, Vol. II, 8th Ed., p. 723; See
also Guevara, The Phil. Corp. Law, New Ed., p. 18.
305
VOL. 25, SEPTEMBER 28, 1968 305
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
"The fact that a company is not completely incorporated at the time the grant is
made to it by a municipality to use the streets does not, in most jurisdictions, affect
the validity of the grant. But such grant cannot take effect until the corporation is
organized. And in Illinois it has been decided that the ordinance granting the
franchise maybe presented before the corporation grantee is fully organized,
where the organization is completed before the passage and acceptance."
(McQuillin, Municipal Corporations, 3rd Ed., Vol. 12, Chap. 34, Sec. 34.21)
Fletcher says:
"While a franchise cannot take effect until the grantee corporation is organized, the
franchise may, nevertheless, be applied for before the company is fully organized.
"A grant of a street franchise is valid although the corporation is not created
until afterwards." (Fletcher, Cyclopedia Corp. Permanent Edition, Rev. Vol. 6-A,
Sec. 2881)
And Thompson gives the reason for the rule:
"(I)n the matter of the secondary franchise the authorities are numerous in support
of the proposition that an ordinance granting a privilege to a corporation is not void
because the beneficiary of the ordinance is not fully organized at the time of the
introduction of the ordinance. It is enough that organization is complete prior to the
passage and acceptance of the ordinance. The reason is that a privilege of this
character is a mere license to the corporation until it accepts the grant and
complies with its terms and conditions." (Thompson on Corporations, Vol. 4, 3rd
26
Ed., Sec. 2929)
The incorporation of Morong Electric on October 17, 1962 and its acceptance of
the franchise as shown by its action in prosecuting the application filed with the
Commission for the approval of said franchise, not only perfected a contract
between the respondent municipality and Morong Electric but also cured the
deficiency pointed out by the petitioner in the application of Morong Electric. Thus,
the Commission did not err in denying petitioner's motion to dismiss said
application and in proceeding to hear the same. The efficacy of the franchise,
however, arose only upon its approval by the Commismission on March 13, 1963.
The reason is that—

_______________
26
McQuillin, Fletcher and Thompson cite as authorities the cases
of Clarksburg Electric Light Co. vs. Clarksburg, 47 W. Va. 739, 35 S. E. 994, 50
L.R.A. 142 and Chicago Telephone Co. vs. Northwestern Tel. Co., 199 III. 884, 65
N. E. 329.
306
306 SUPREME COURT REPORTS ANNOTATED
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
"Under Act No. 667, as amended by Act No. 1022, a municipal council has the
power to grant electric franchises, subject to the approval of the provincial board
and the President. However, under Section 16 (b) of Commonwealth Act No. 146,
as amended, the Public Service Commission is empowered 'to approve, subject to
constitutional limitations any franchise or privilege granted under the provisions of
Act No. 667, as amended by Act No. 1022, by any political subdivision of the
Philippines when, in the judgment of the Commission, such franchise or privilege
will properly conserve the public interests, and the Commission shall in -so
approving impose such conditions as to construction, equipment, maintenance,
service, or operation as the public interests and convenience may reasonably
require, and to issue certificates of public convenience and necessity when such is
required or provided by any law or franchise.' Thus, the efficacy of a municipal
electric franchise arises, therefore, only after the approval of the Public Service
Commission." (Almendras vs. Ramos, 90 Phil. 231)
The conclusion herein reached regarding the validity of the franchise granted to
Morong Electric is not incompatible with the holding of this Court in Cagayan
27
Fishing Development Co., Inc. vs. Teodoro Sandiko upon which the petitioner
leans heavily in support of its position. In said case this Court held that a
corporation should have a full and complete organization and existence as an
entity before it can enter into any kind of a contract or transact any business. It
should be pointed out, however, that this Court did not say in that case that the rule
is absolute or that under no circumstances may the acts of promoters of a
corporation be ratified or accepted by the corporation if and when subsequently
organized. Of course, there are exceptions. It will be noted that American courts
generally hold that a contract made by the promoters of a corporation on its behalf
28
may be adopted, accepted or ratified by the corporation when organized;
2. The validity of the franchise and the corporate personality of Morong Electric
to accept the same having been shown, the next question to be resolved is
whether said company has the financial qualification to operate
_______________
27
65 Phil. 223.
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28
Fletcher, Cyclopedia Corporation, Permanent Ed., Vol. I, Chap. 9, Sec. 207,
p. 681.
307
VOL. 25, SEPTEMBER 28, 1968 307
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
an electric light, heat and power service. Petitioner challenges the financial
capability of Morong Electric, by pointing out the inconsistencies in the testimony of
Mr. Jose P. Ingal, president of said company, regarding its assets and the amount
of its initial investment for the electric plant. In this connection it should be stated
that on the basis of the evidence presented on the matter, the Commission has
found the Morong Electric to be "financially qualified to install, maintain and
operate the proposed electric light, heat and power service." This is essentially a
factual determination which. in a number of cases, this Court has said it will not
disturb unless patently unsupported by evidence. An examination of the record of
this case readily shows that the testimony of Mr. Ingal and the documents he
presented to establish the financial capability of Morong Electric provide
reasonable grounds for the above finding of the Commission.
"It is now a very well-settled rule in this jurisdiction that the findings and
conclusions of fact made by the Public Service Commission, after weighing the
evidence adduced by the parties in a public service case, will not be disturbed by
the Supreme Court unless those findings and conclusions appear not to be
reasonably supported by evidence." (La Mallorca and Pampanga Bus Co. vs.
Mercado, L-19120, November 29, 1965)
"For purposes of appeal, what is decisive is that said testimonial evidence
provides reasonable -support for the Public Service Commission's findings of
financial capacity on the part of applicants, rendering such findings beyond our
power to disturb." (Del Pilar Transit vs. Silva, L-21547, July 15, 1966)
It may be worthwhile to mention in this connection that per inspection report dated
29
January 20, 1964 of Mr. Meliton Martinez of the Commission, who inspected the
electric service of Morong on January 15-16, 1964, Morong Electric "is serving
electric service to the entire area covered by its approved plan and has
constructed its line in accordance with the plans and specifications approved by
the Commission." By reason thereof, it was recommended that the requests of
Morong Electric (1) for the withdrawal of its deposit in the amount of P1,
_______________
29
Marked Annex "A" of the memorandum of Morong Electric in lieu of oral
arguments.
308
308 SUPREME COURT REPORTS ANNOTATED
 Rizal Light & lce Co., Inc. vs. Mun. of Morong, Rizal
000.00 with the Treasurer of the Philippines, and (2) for the approval of Resolution
No. 160 of the Municipal Council of Morong, Rizal, exempting the operator from
making the additional P9,000.00 deposit mentioned in its petition, dated
September 16, 1963, be granted. This report removes any doubt as to the financial
capability of Morong Electric to operate and maintain an electric light, heat and
power service.
3. With the financial qualification of Morong Electric beyond doubt, the
remaining question to be resolved is whether, or not, the findings of fact of the
Commission regarding petitioner's service are supported by evidence. It is the
contention of the petitioner that the Commission made some findings of fact
prejudicial to its position but which do not find support from the evidence presented
in this case. Specifically, petitioner refers to the statements or findings that its
service had "turned from bad to worse", that it miserably failed to comply with the
oft-repeated promises to bring about the needed improvement, that its equipment
is unserviceable, and that it has no longer any plant site and, therefore, has
discredited itself. Petitioner further states that such statements are not only devoid
of evidentiary support but contrary to the testimony of its witness, Mr. Harry
Bernardino, who testified that petitioner was rendering efficient and satisfactory
service before its electric plant was burned on July 29, 1962.
On the face of the decision appealed from, it is obvious that the Commission in
describing the kind of service petitioner was rendering before its certificate was
ordered revoked and cancelled, took judicial notice of the records of the previous
case (PSC Case No. 39715) where the quality of petitioner's service had been
squarely put in issue. It will be noted that the findings of the Commission were
made notwithstanding the fact that the aforementioned testimony of Mr. Bernardino
had been emphasized and pointed out in petitioner's Memorandum to the
30
Commission. The implication is simple: that as between the testimony of Mr.
Bernardino and the in-
_______________
30
P. 16, Memorandum of Oppositor (herein petitioner).
309
VOL. 25, SEPTEMBER 28, 1968 309
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
spection reports of the engineers of the Commission, which served as the basis of
the revocation order, the Commission gave credence to the latter. Naturally,
whatever conclusion or finding of fact that the Commission arrived at regarding the
quality of petitioner's service are not borne out by the evidence presented in this
31
case but by evidence in the previous case. In this connection, we repeat, the
conclusion, arrived at by the Commission after weighing the conflicting evidence in
the two related cases, is a conclusion of fact which this Court will not disturb.
"And it has been held time and again that where the Commission has reached a
conclusion of fact after weighing the conflicting evidence, that conclusion must be
respected, and the Supreme Court will not interfere unless it clearly appears that
there is no evidence to support the decision of the Commission." (La Mallorca and
Pampanga Bus Co. vs. Mercado, L-19120, November 29, 1965 citing Pangasinan
Trans. Co., Inc. vs. Dela Cruz, 95 Phil. 278)
For that matter, petitioner's pretension that it has a prior right to the operation of an
electric service in Morong, Rizal, is not tenable; and its plea for protection of its
investment, as in the previous case, cannot be entertained.
WHEREFORE, the two decisions of the Public Service Commission, appealed
from, should be, as they are hereby affirmed, with costs in the two cases against
petitioner Rizal Light & Ice Co., Inc. It is so ordered.
Conception, C.J., Reyes,
J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Decisions affirmed.
ANNOTATION THE OLD OPERATOR RULE
I. Statement of the Rule.
As first stated in Batangas Trans. Co. v. Orlanes, (1928)
_______________
31
The close connection of the matter in controversy in the two cases warranted
the Commission to take judicial notice of the records of the previous case, the
findings of fact therein and the ruling of the Commission (See also 5 Moran, 1963
Ed., p. 42.)
310
310 SUPREME COURT REPORTS ANNOTATED
Rizal Light & lce Co., Inc. vs. Mun. of Morong, Rizal
52 Phil. 455, "a certificate of public convenience will not be issued to a second
operator to operate a public utility in a field where. and in competition with, a first
operator who is already operating a sufficient and satisfactory service.''
1. A.Requisites of the Rule.—
1. 1.Operator must be first in the line.—The operator invoking- the rule must
be the first operator granted a certificate of public convenience to
operate a public utility in the line in question. The protection of or
preference for a prior operator over a newcomer cannot be invoked by a

Corporation  Law  Cases  –  Batch  3  

 
 petitioner where the respondent had operated long before the petitioner
a taxicab service in the same field (Robles v. Blaylock, L-17629, March
31, 1964).
2. 2.Prior operator must be an established operator.—An old operator
invoking the rule must be an established operator in the f ull sense of
the word. Although the prior operator had a certificate of public
convenience before the filing of the application of the newcomer, the
rule will not apply if the prior operator had secured its certificate of
convenience for barely two (2) months prior to the application in
question (Valdez v. Public Service Commission, L-13837-38, May 30,
1960).
3. 3.Prior operator must be operating a sufficient and satisfactory service.—
A prior operator must be operating a sufficient and satisfactory service
to be entitled to preferential right. Where it is in no condition to supply
the needs or services, such as when the old operator supplying the
power needs in a territory had only a load capacity of 200 kilowatts while
the power need was 6,000 kilowatts, the old operator rule did not apply
(Teresa Electric & Power Co. v. Public Service Commission, L-21804,
Sept. 25, 1967, 21 SCRA 198, 202).
It had been held however that inadequate service, by itself, was not sufficient to
grant a certificate of public convenience to a newcomer without first giving the old
or prior operator an opportunity to improve its service (Manila Electric Co. v.
Mateo, [1938] 66 Phil. 19, 22-23; Raymundo Trans. Co. v. Laguna-Tayabas Bus
Co., [1930]
311
VOL, 25, SEPTEMBER 28, 1968 311
Rizal Light & lce Co., Inc. vs. Mun. of Morong, Rizal
55 Phil. 404, 408; Bohol Land Trans. Co., Jureidini, [1929] 53 Phil. 560, 565-
566; Javier v. Orlanes, [1929] 53 Phil. 468; Batangas Trans. Co. v. Orlanes,
supra). The remedy is not to award a new service to another but for the Public
Service Commission to take administrative action against the old operator requiring
it to improve its service and to comply strictly with the terms and conditions of its
certificate (Manila Electric Co. v. Mateo, supra at 22).
The fact that a prior operator, which is a common carrier, did not bid for the
mail contract of the place it serves is not sufficient reason to issue in favor of the
one who obtained the contract a certificate of public necessity and convenience
without f irst giving an opportunity to the former to improve its service, binding itself
to carry the mails in accordance with law (Bohol Land Trans. Co. v. Jureidini,
supra at 569).
Failure of the old operator to improve its service after having been required to
do so will cause the grant of another certificate of public convenience to a new
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 3
applicant. Thus, where the prior operator failed for about three (3) years to
complete its equipment to meet the traffic, the Public Service Commission was
justified in granting another authorization to a newcomer for the establishment of
another service in the same line (Manila Yellow Taxicab v. Public Service
Commission, [1051] 90 Phil. 301, 309; De la Rosa v. Corpus, [1938] 66 Phil. 8 [for
a period of four (4) years] citing Bohol Land Trans. Co. v. Jureidini,
supra and Raymundo Trans. Co. v. Perez, 56 Phil. 274).
A showing must be clear and affirmative that an existing utility is unable or has
refused to maintain adequate and satisfactory service (Batangas Trans. Co. v.
Orlanes, supra at 468). In a case involving an application of a newcomer for
another certificate on the same line in competition with an old operator, it was held
that lack of means of transportation during the feast days could not serve as the
basis for determining the sufficiency or insufficiency of the service. The testimony
of two ex-employees of the old operator that they used to leave passengers behind
for lack of room was not believed because
312
312 SUPREME COURT REPORTS ANNOTATED
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
"they were duty bound to report that fact to the company and should have done so,
and since they failed to do so, it is presumed that there was no such deficiency."
(Bohol Land Trans Co. v. Jureidini, supra at 564.)
1. B.Reason for the Rule.—"The policy of regulation, upon which our present
public utility commission is based and which tends to do away with
competition among public utilities as they are natural monopolies, is at
once the reason and the justification for the holding of our courts that the
regulation of an existing system of transportation, which is properly
serving a given field, or may be required to do so, is to be preferred to
competition among several independent systems. While requiring a
proper service from a single system for a city or territory in consideration
for protecting it as a monopoly for all the service required and in
conserving its resources, no economic waste results and service may be
furnished at the minimum costs. The prime object and real purpose of
Commission control is to secure adequate sustained service for the
public at the least possible cost, and to protect and conserve
investments already made for this purpose. Experience has
demonstrated beyond any question that competition among natural
monopolies is wastef ul economically and results finally in insufficient
and unsatisfactory service and extravagant rates." (Batangas Trans. Co.
v. Orlanes, supra at 467.)
"So long as the first licensee keeps and performs the terms and conditions of its
license and complies with the reasonable rules and regulations of the Commission
and meets the reasonable demands of the public, it should have more or less of a
vested and preferential right over a person who seeks to acquire another and a
later license over the same route. Otherwise, the first licensee would not have any
protection on his investment, and would be subject to ruinous competition and thus
defeat the very purpose and intent for which the Public Service Commission was
created." (Batangas Trans. Co. v. Orlanes, supra at 466.)
There is the equal need of doing equity to those who have risked capital to
render the service which those who
313
VOL. 25, SEPTEMBER 28, 1968 313
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
were called upon to do so were not disposed or were not in a position to supply."
(Manila Yellow Taxicab v. Public Service Commission, supra at 307.)
Where the law granting franchise to an old operator expressly provided that the
rights thereunder conferred are not exclusive, the old operator cannot invoke its
"vested rights" as prior operator against the entry of another in its area of operation
(Philippine Long Distance Telephone Co. v. City of Davao, L-23080, Sept. 20,
1965.)
II. Exceptions to the Rule
While it is true that operators of public convenience and service deserve some
protection from unnecessary or unlawful competition, yet the rule is that nobody
has any exclusive right to secure a franchise or a certificate of public convenience.
Above any or all public convenience and service should be quided by public
service and interest; the latter are the primordial considerations to be taken into
account." (Teresa Electric Power Co. v. Public Service Commission, supra at 202
quoted with approval in Philippine Rabbit Bus Lines, Inc. v. Gabatin, L-34472, July
31, 1968, 24 SCRA 411, 421-422.)
A. Failure to Offer to Meet the Increase in the Demand.—The prior operator
rule does not apply where the old operator does not offer to meet the increase in
the demand the moment it arises and does so only when another operator who is a
new one has made the offer to serve the public needs (Philippine Long Distance
Telephone Co. v. City of Davao, supra citing Fernando v. Gallardo, L-4860, Sept.
8, 1953, Raymundo Trans. Co. v. Cerda, L-7880, May 18. 1956; Saulog Transit,
Inc. v. Medina, L-7244. June 28, 1956: Estate of F. P, Buan v. La Mallorca, L-8729.
Feb. 28, 1957; Manila Yellow Taxicab Co. v. Castelo, L-13910, May 30,
1960; Isidro v. Ocampo, L-12331, May 29, 1959 citing Inter-Provincial Autobus Co.
v. Clarete, L-41000-02, May 15, 1952; Angat-Manila Trans. Co. v. La, Mallorca, L-
8729, Feb. 28, 1957; Dangwa Trans. Co. v. Public Service Commission,
supra; Valero v. Parpana, L-15328-9, Oct. 31, 1960; Mandaluyong Bus Co. v.
Enrique, L-21964, Oct. 19, 1966, 18 SCRA 352, 355).
Corporation
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314
314 SUPREME COURT REPORTS ANNOTATED
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
Where the old operator was authorized to operate 75 buses in all its lines but its
rights with respect to 30 had been leased, this circumstance added to the fact that
it had registered only 17 buses which were not even in continuous operation
although it was entitled to operate 45 units in its remaining lines, showed that there
was a shortage of transportation facilities in the lines mentioned and that the old
operator was unable to meet fully the demands of public convenience (Zarate v.
Rizal-Manila Transit, Inc., L-11300, May 29, 1959).
An old operator was likewise denied protection of the prior operator rule
because, of the more than 400 buses it was authorized to operate, he was able
only to register 315, not including the 35 units he also failed to register under
another certificate of public convenience (Halili v, Heras, L-18889-90, April 30,
1964).
B. Failure to Comply with the Requirements of Franchise.—A pioneer operator
will not be given preference if he fails to comply with the requirements of his
franchise to operate a given number of units within a given period amounting to
abandonment of the unregistered units (Halili v. Heras, supra).
Where an operator had an authority to make 24 hourly runs or trips in one day
but it could only run one or two buses a day, which was an open violation of the
terms of its certificate of public convenience and which had been the subject of
several complaints from different sources, the prior operator rule did not apply
(Raymundo Trans. Co. v. Perez, supra at 275-276.)
Failure of a common carrier in its duty under the law to carry the mail for three
(3) consecutive days in its territory without suff icient excuse does not, by itself,
warrant the issuance of another certificate of public convenience to a new
operator, The violation should first be investigated by the Public Service
Commission with a hearing of the parties before the necessary measures justified
by the result are taken against the old operator. (Bohol Land Trans. Co. v.
Jureidini, supra at 569.)
C. Where Destructive Monopoly Would Result From the Operation of the
Rule.—The prior operator rule does
315
VOL. 25, SEPTEMBER 28, 1968 315
Rizal Light & Ice Co., Inc. vs. Mun. of Morong, Rizal
not apply where destructive monopoly would result from the maintenance of a
single operator in a given service. Reasonable competition would have a salutary
effect upon public interest and public convenience. It should be favored in lieu of
monopoly (Valdez v. Public Service Commission, supra.)
 "If public need and convenience demand or require the service, if the service to
be rendered applied for would not result in or bring about ruinous competition, and
if the ability of the applicant for service to satisfy public need and convenience is
shown, a competition of two services and not a monopoly would redound to the
benefit of the community where the service is to be rendered." (Robles v. Blaylock,
supra.)
But operators of public convenience and service "deserve some protection
from unnecessary or unlawful competition." (Philippine Rabbit Bus Lines, Inc. v.
Gabatin, supra.)
Ruinous competition is to be avoided even in the Philippine system of free
enterprise. But there must be concrete evidence that such ruinous competition
would come about as a result of the coming in of a competitor and not just the fear
of it (Dangwa Trans. Co. v. Public Service Commission, supra.)
D. Where Old Operator Denies the Need for Units on the Line.—The prior
operator rule does not apply to the benefit of an old operator who denies the need
for more units on the line (La Mallorca v . Mendiola, L-19558, April 29, 1966, 16
SCRA 648, 651.)—ATTY. AMBROSIO R. BLANCO.
Notes.—For another statement of the "protection-of-investment rule" and the
exception thereto, see Halili vs. Cruz, L-21061, June 27, 1968, 23 SCRA 1174.
For cases where the factual findings of the Public Service Commission were
modified or ignored, see Central Taxicab Corporation vs. Public Service
Commission, L-24289, Feb. 17, 1968, 22 SCRA 616, and the cases cited therein.
*
G.R. No. 184819. November 29, 2017.
VETERANS FEDERATION OF THE PHILIPPINES, petitioner, vs. EDUARDO L.
MONTENEJO, MYLENE M. BONIFACIO, EVANGELINE E. VALVERDE, DEANA
N. PAGAL, and VFP MANAGEMENT DEVELOPMENT CORPORATION,
respondents.
Labor Law; Termination of Employment; Security of Tenure; Both the
Constitution and our laws guarantee security of tenure to labor and, thus, an
employee can only be validly dismissed from work if the dismissal is predicated
upon any of the just or authorized causes allowed under the Labor Code.—In our
jurisdiction, the right of an employer to terminate employment is regulated by law.
Both
_______________
* THIRD DIVISION.
Corporation
 Law
 Cases
 –
 Batch
 3
2
2 SUPREME COURT REPORTS ANNOTATED
Veterans Federation of the Philippines vs. Montenejo
the Constitution and our laws guarantee security of tenure to labor and, thus,
an employee can only be validly dismissed from work if the dismissal is predicated
upon any of the just or authorized causes allowed under the Labor Code.
Correspondingly, a dismissal that is not based on either of the said causes is
regarded as illegal and entitles the dismissed employee to the payment of
backwages and, in most cases, to reinstatement.
Same; Same; Cessation of Business; Article 298 of the Labor Code explicitly
sanctions terminations due to the employer’s cessation of business or operations
— as long as the cessation is bona fide or is not made “for the purpose of
circumventing the employees’ right to security of tenure.”—One of the authorized
causes for dismissal recognized under the Labor Code is the bona fide cessation
of business or operations by the employer. Article 298 of the Labor Code explicitly
sanctions terminations due to the employer’s cessation of business or operations
— as long as the cessation is bona fide or is not made “for the purpose of
circumventing the [employees’ right to security of tenure]”: Art. 298. Closure of
establishment and reduction of personnel.—The employer may also terminate
the employment of any employee due to the installation of labor-saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation of
operation of the establishment or undertaking unless the closing is for the
purpose of circumventing the provisions of this Title, by serving a written
notice on the workers and the Ministry of Labor and Employment at least one (1)
month before the intended date thereof. In case of termination due to the
installation of labor-saving devices or redundancy, the worker affected thereby
shall be entitled to a separation pay equivalent to at least his one (1) month pay or
to at least one (1) month pay for every year of service, whichever is higher. In case
of retrenchment to prevent losses and in cases of closures or cessation of
operations of establishment or undertaking not due to serious business losses or
financial reverses, the separation pay shall be equivalent to one (1) month pay or
at least one-half (1/2) month pay for every year of service, whichever is higher. A
fraction of at least six (6) months shall be considered one (1) whole year.
Same; Same; Same; To unmask the true intent of an employer when
effecting a closure of business, it is important to consider not only the measures
adopted by the employer prior to the purported
3
VOL. 847, NOVEMBER 29, 2017 3
 Veterans Federation of the Philippines vs. Montenejo illegal because they were predicated upon an authorized cause recognized
by law.
closure but also the actions taken by the latter after the fact.—To unmask the
Same; Same; Agabon v. National Labor Relations Commission, 442 SCRA
true intent of an employer when effecting a closure of business, it is important to
573 (2004), laid out the rule that when a dismissal is based on a just cause but is
consider not only the measures adopted by the employer prior to the purported
implemented without observance of the statutory notice requirements, the
closure but also the actions taken by the latter after the fact. For, as can be seen
dismissal should be upheld as valid but the employer must thereby pay an
from the examples in the cited cases, the employer’s subsequent acts of suddenly
indemnity to the employee in the amount of P30,000.—To recall, Agabon
reviving a business it had just closed or surreptitiously continuing with its operation
v. National Labor Relations Commission, 442 SCRA 573 (2004), laid out the rule
after announcing a shutdown are telltale badges that the employer had no real
that when a dismissal is based on a just cause but is implemented without
intent to cease its business or operations and only seeks an excuse to terminate
observance of the statutory notice requirements, the dismissal should be upheld as
employees capriciously.
valid but the employer must thereby pay an indemnity to the employee in the
Same; Same; Same; As Alabang Country Club, Inc. v. NLRC, 466 SCRA
amount of P30,000. Jaka Food Processing Corporation v. Pacot, 454 SCRA 119
329 (2005), reminds: For any bona fide reason, an employer can lawfully close
(2005), on the other hand, expounded on Agabon in two (2) ways:
shop anytime. Just as no law forces anyone to go into business, no law can
1. First, Jaka extended the application of the Agabon doctrine to dismissals that
compel anybody to continue the same.—We find VMDC’s cessation of operations
were based on authorized causes but have been effected without observance of
to be bona fide. None of the telltale badges of bad faith in closures of business, as
the notice requirements. Thus, similar to Agabon, the dismissals under such
illustrated in our jurisprudence, was shown to be present in this case. Here, there
circumstances will also be regarded as valid while the employer shall likewise be
is no evidence on record that shows that VMDC — after dismissing its entire
required to pay an indemnity to the employee; and 2. Second, Jaka increased the
workforce and ceasing to operate — had revived its business or had hired new
amount of indemnity payable by the employer in cases where the dismissals are
employees to replace those dismissed. Thus, it cannot be reasonably said that
based on authorized causes but have been effected without observance of the
VMDC’s cessation of operations was just a ruse or had been implemented merely
notice requirements. It fixed the amount of indemnity in the mentioned scenario to
as an excuse to terminate its employees. The mere fact that VMDC could have
P50,000. Verily, the failure of VMDC to file a notice of closure with the DOLE does
chosen to continue operating despite the termination of its management
not render the dismissals of Montenejo, et al., which were based on an authorized
agreement with VFP is also of no consequence. The decision of VMDC to cease
cause, illegal. Following Agabon and Jaka, such failure only entitles Montenejo, et
its operations after the termination of the management agreement is, under the
al. to recover nominal damages from VMDC in the amount of P50,000 each, on top
law, a lawful exercise by the company’s leadership of its management prerogative
of the separation pay they already received.
that must perforce be upheld where, as in this case, there is an absence of
Corporations; Piercing the Veil of Corporate Fiction; The doctrine of piercing
showing that the cessation was made for prohibited purposes. As Alabang Country
the veil of corporate fiction is a legal precept that allows a corporation’s separate
Club, Inc. v. NLRC, 466 SCRA 329 (2005), reminds: For any bona fide reason, an
personality to be disregarded under certain circumstances, so that a corporation
employer can lawfully close shop anytime. Just as no law forces anyone to go into
and its stockholders or members, or a corporation and another related corporation
business, no law can compel anybody to continue the same. It would be stretching
could be treated as a single entity.—The doctrine of piercing the veil of corporate
the intent and spirit of the law if a court interferes with management’s prerogative
fiction is a legal precept that allows a corporation’s separate personality to be
to close or cease its business operations just because the business is not suffering
disregarded under certain cirumstances, so that a corporation and its stockholders
from any loss or because of the desire to provide the workers continued
or members, or a corporation and
employment. The validity of the closure of VMDC necessarily validates the
dismissals of Montenejo, et al. that resulted therefrom. The dismissals cannot be
regarded as
5
VOL. 847, NOVEMBER 29, 2017 5
4 Veterans Federation of the Philippines vs. Montenejo
4 SUPREME COURT REPORTS ANNOTATED another related corporation could be treated as a single entity. The doctrine
Veterans Federation of the Philippines vs. Montenejo is an equitable principle, it being meant to apply only in situations where the

Corporation  Law  Cases  –  Batch  3  

 
separate corporate personality of a corporation is being abused or being used for Respondent VFP Management and Development Corporation (VMDC), on the
wrongful purposes. other hand, is a private management company organized in 1990 pursuant to the
general incorporation law.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals. The Management Agree-
The facts are stated in the opinion of the Court. ment and its Termination
Rufer D. Tolentino for petitioner.
Hector A. Villacorta for respondents Montenejo, Pagal and Valverde. 5
On January 4, 1991, VFP entered into a management agreement with VMDC.
Rodolfo M. Santos for respondent Bonifacio. Under the said agreement, VMDC was to assume exclusive management and
operation of the VFPIA in exchange for forty percent (40%) of the lease rentals
VELASCO, JR., J.:
generated from the area.
1 2 In managing and operating the VFPIA, VMDC hired its own personnel and
This case is an appeal from the Decision dated July 29, 2008 and Resolution
3 employees. Among those hired by VMDC were respondents Eduardo L.
dated October 2, 2008 of the Court of Appeals (CA) in C.A.-G.R. S.P. No. 101041.
Montenejo, Mylene M. Bonifacio, Evangeline E. Valverde and Deana N. Pagal
6
(hereafter collectively referred to as “Montenejo, et al.”).
The Facts
The management agreement between VFP and VMDC had a term of five (5)
years, or up to 4 January 1996, and is renewable for another five (5)
VFP, VFPIA and the VMDC 7
years. Subsequently, both parties acceded to extend the agreement up to
8
1998. After 1998, the
Petitioner Veteran’s Federation of the Philippines (VFP) is a national federation
_______________
of associations of Filipino war veterans. It was created in 1960 by virtue of
4 5 Denominated as Memorandum of Agreement, Rollo, pp. 130-133.
Republic Act No. 2640.
6 Id., at p. 226. VFP-MDC hired Eduardo L. Montenejo as vice president of
_______________
operations in 1991; Evangeline E. Valverde as cashier in 1991; Deana N. Pagal as
1 Rollo, pp. 10-50. The appeal was filed as a Petition for Review
accountant in 1991; and Mylene M. Bonifacio as accounting clerk in 1993.
on Certiorari under Rule 45 of the Rules of Court.
7 Id., at pp. 130-133.
2 Id., at pp. 56-75. The decision was penned by Associate Justice Jose Catral
8 Second Whereas Clause of Closing Agreement between VFP and
Mendoza (now a retired Associate Justice of this Court), with Associate Justices
VMDC, id., at pp. 100-102.
Andres B. Reyes, Jr. (now an Associate Justice of this Court) and Ramon M. Bato,
Jr., concurring.
3 Id., at p. 77.
4 Entitled “AN ACT TO CREATE A PUBLIC CORPORATION TO BE KNOWN AS THE 7
VETERANS FEDERATION OF THE PHILIPPINES, DEFINING ITS POWERS, AND FOR OTHER
PURPOSES.” VOL. 847, NOVEMBER 29, 2017 7
Veterans Federation of the Philippines vs. Montenejo
agreement was again extended by VFP and VMDC albeit only on a month-to-
month basis.
6 Then, in November 1999, the VFP board passed a resolution terminating the
9
6 SUPREME COURT REPORTS ANNOTATED management agreement effective December 31, 1999. VMDC conceded to the
termination and eventually agreed to turn over to VFP the possession of all
Veterans Federation of the Philippines vs. Montenejo
buildings, equipment and other properties necessary to the operation of the
In 1967, through the government’s Proclamation No. 192, VFP was able to 10
VFPIA.
obtain control and possession of a vast parcel of land located in Taguig. VFP 11
On January 3, 2000, the President of VMDC issued
eventually developed said land into an industrial complex, which is now known as 12
a memorandum informing the company’s employees of the termination of their
the VFP Industrial Area (VFPIA).

Corporation  Law  Cases  –  Batch  3  

 
services effective at the close of office hours on January 31, 2000 “[i]n view of the [VFP and VMDC] are also ordered to pay, solidarily, [Montenejo, et al.’s]
termination of the [management agreement].” True to the memorandum’s words, proportionate 13th month pay for the year 2000.
on January 31, 2000, VMDC dismissed all of its employees and paid each his or Other claims are dismissed for lack of merit.
her separation pay. SO ORDERED.

The Illegal Dismissal 15

Complaint
Contending in the main that their dismissals had been
effected without cause and observance of due process, Montenejo, et al. filed
13
before the Labor Arbiter (LA) a complaint for illegal dismissal, money claims and
damages. They impleaded both VMDC and VFP as defendants in the complaint.
VMDC, for its part, denied the contention. It argued that the dismissals of
Montenejo, et al. were valid as they were due to an authorized cause — the
cessation or closure of its business. VMDC claimed that the cessation of its
operations was
_______________
9 Id., at p. 99.
10 See Closing Agreement between VFP and VMDC, id., at pp. 100-102.
11 Then one Col. Vicente O. Novales (Ret.).
12 Rollo, p. 136.
13 Docketed as NLRC Case No. 30-01-00494-02.
8 2001, the employments of Montenejo, et al. also have terms of up to January 4,
8 SUPREME COURT REPORTS ANNOTATED
Veterans Federation of the Philippines vs. Montenejo
but the necessary consequence of the termination of such agreement.
VFP, on the other hand, seconded the arguments of VMDC. In addition,
however, VFP asserted that it could not, at any rate, be held liable under the
complaint because it is not the employer of Montenejo, et al.
The Ruling of the LA
14
On November 7, 2005, the LA rendered a decision disposing of the illegal
dismissal complaint as follows:
WHEREFORE, judgment is hereby made dismissing as lacking in merit the
[Montenejo, et al.’s] charge of illegal dismissal but ordering [VFP] and [VMDC] to
pay, solidarity, each complainant his/her salaries for eleven (11) months. [VFP and
VMDC] are so ordered to recompute their separation pay with the date January 4,
2001 as their last day of service and accordingly pay them their balance.
The LA hinged its disposition on the following findings:
1. Montenejo, et al. were not illegally dismissed. Their separation was the
result of the closure of VMDC, an authorized cause. Hence, Montenejo, et al. are
not entitled to reinstatement and backwages.
_______________
14 Rollo, pp. 203-212. The decision is penned by Labor Arbiter Arthur L.
Amansec.
15 Id.
9
VOL. 847, NOVEMBER 29, 2017 9
Veterans Federation of the Philippines vs. Montenejo
2. Montenejo, et al. were contractual employees they were hired for a definite
term that is similar to the maximum term of the management agreement between
VFP and VMDC. As the management agreement between VFP and VMDC can
have a maximum term of ten (10) years from January 4, 1991, or until January 4,
2001.
In this case, however, Montenejo, et al. were dismissed on January 3, 2000 —
which is eleven (11) months short of their January 4, 2001 contract date.
Accordingly, Montenejo, et al. are each entitled: (a) to their salary corresponding to
the unexpired portion of their contract and (b) also to a separation pay computed
with January 4, 2001 as their last day of employment.
3. Montenejo, et al. are not entitled to recover damages. Their dismissals
were not shown to be tainted with bad faith.
4. VFP and VMDC are solidarily liable for the monetary awards in favor of
Montenejo, et al. The basis of VFP’s liability is the fact that it is an indirect
employer of Montenejo, et al.
16
Montenejo, et al. and VFP filed separate appeals with the National Labor
Relations Commission (NLRC).
The Ruling of the NLRC
17
On appeal, the NLRC reversed and set aside the decision of the LA. It
decreed:

Corporation  Law  Cases  –  Batch  3  

 
 WHEREFORE, premises considered, the appeal is GRANTED. The Decision P261.46
of [the LA] dated November 7,
1/4/01-6/15/05
_______________
P261.46 x 5/12 x 53.37 =
16 Docketed as NLRC NCR Case Nos. 30-01-00494-02 and 048927-06.
P362,817.26
17 Via a Decision dated May 16, 2007 of the NLRC. The decision was penned
by Presiding Commissioner Gerardo C. Nograles for the First Division of the
NLRC, with Commissioners Perlita B. Velasco and Romeo L. Go, 6/16/05-7/10/06
concurring. Rollo, pp. 223-236. P275 x 5/12 x
1,466.67
12.80 =

7/11/06-8/7/06
10 P300 x 5/12 x .90 112.50
10 SUPREME COURT REPORTS ANNOTATED 7,393.38
Veterans Federation of the Philippines vs. Montenejo COLA:
2005 is hereby REVERSED[,] SET ASIDE and a NEW ONE entered declaring that
11/5/01-1/31/02
[VFP and VMDC] ILLEGALLY DISMISSED [Montenejo, et al.]. [VFP and VMDC]
P15 x 26 x 2.87 = P1,119.30
are therefore ordered to pay [Montenejo, et al.’s] separation pay in lieu of
reinstatement and to pay them full backwages, 13th month pay and SLIP (sic), as
2/1/02-7/9/04
computed below:
P30 x 26 x 29.27
22,830.60
=

11 7/10/04-7/10/06
P50 x 26 x 24 = 31,200.00
VOL. 847, NOVEMBER 29, 2017 11 55,149.90 P523,900.54
Veterans Federation of the Philippines vs. Montenejo P633,100.54
Less: Amt. rcvd.
53,661.87
(See, Annexes "6-7," pp. 362-
1/4/01-6/15/05
P6,789.15 x 53.37 = P362,817.26
12
6/16/05-7/10/06 12 SUPREME COURT
P275 x 26 x 12.80 = 91,520.00
7/11/06-8/7/06 REPORTS
P300 x 26 x .90 7,020.00 ANNOTATED
P461,357.26 Veterans Federation of the Philippines vs.
th
13 MO. PAY: Montenejo
P461,357.26/12 = 38,446.43 363, Vol. II, Records)
TOTAL: P579,438.67
SILP:
P6,789.15/26 = C. EVANGELINE E. VALVERDE –

Corporation  Law  Cases  –  Batch  3  

 
 Rate: P10,000.00 Pd: 1/1/91-1/4/01(GIVEN) P15,000.00 x
P1,060,000.00
Cutoff date: 67.10 =
8/7/06

1) SEP. PAY (1 13
MO.): VOL. 847, NOVEMBER 29, 2017 13
1/1/91-8/7/06
P10,000.00 x 16 yrs. = P160,000.00 Veterans Federation of the Philippines vs. Montenejo
th
13 MO. PAY:
2) BACKWAGES: P1,006,500.00/12
1/4/01-8/7/06 = 83,875.00
P10,000.00 x
P671,000.00 SILP:
67.10 =
P15,000/26 =
th
13 MO. PAY: P576.92
55,916.67
P671,000.00/12 =
1/4/01-8/7/06
SILP: P576.92 x
P10,000/26 = P384.61 5/12 x
67.10 = 16,129.72 1,106,504.72
1/4/01-8/7/06 P1,346,504.72
P384.61 x 5/12 Less: Amt. already rcvd.
x 67.10 = 10,753.05 737 669.72 (See, Annex “11-15” pp.
P897,669.72 344-
Less: Amt. already 350, Vol. II. Records) 199,803.96
rcvd. (See, Annex TOTAL: P1,146,700.76
“17” pp. 358-361, Vol.
II, Records) 32,172.61
SUMMARY OF COMPUTATION:
A. EDUARDO A. MONTENEJO P2,485,750.00
TOTAL: P865,497.11
B. MYLENE BONIFACIO 579,438.67
C. EVANGELINE F. VALVERDE 865,497.11
D. DEANA N. PAGAL –
D. DEANA N. PAGAL 1,146,700.76
Rate: P15,000.00 Pd: 1/1/91-1/4/01(GIVEN)
TOTAL
Cutoff date: P5,077,386.54
AWARD:
8/7/06
The claim for damages is dismissed for lack of substantial evidence that
respondents acted in bad faith.
1) SEP. PAY (1
SO ORDERED.
MO.):
1/1/91-8/7/06
P15,000.00 x 16 yrs. = P240,000.00 The reversal was premised on the NLRC’s disagreement with the first two
findings of the LA. For the NLRC, the dismissals of Montenejo, et al. were illegal
2) BACKWAGES: and the latter were not merely contractual employees:
18
1/4/01-8/7/06

Corporation  Law  Cases  –  Batch  3  

 
1. Montenejo, et al. were illegally dismissed. Accordingly, Montenejo, et al. should VOL. 847, NOVEMBER 29, 2017 15
be paid full backwages, separation pay in lieu of reinstatement, 13th month pay
and service incentive leave pay (SILP). In addition, petitioner Veterans Federation of the Philippines vs. Montenejo
_______________ reason that there is not enough evidence showing that their dismissals were
18 Id. tainted with bad faith.
The NLRC also agreed with the LA regarding the solidary liability of VFP and
VMDC for the monetary awards due to Montenejo, et al. However, the NLRC
proffered a different opinion as to the legal basis of VFP’s liability. According to the
14 NLRC, the liability of VFP was not due to the latter being an indirect employer of
14 SUPREME COURT REPORTS ANNOTATED Montenejo, et al. but is based on the application of the doctrine of piercing the veil
of corporate fiction. The NLRC noted that there are circumstances present in the
Veterans Federation of the Philippines vs. Montenejo instant case that warrant a disregard of the separate personalities of VFP and
Mylene M. Bonifacio should also be awarded with cost of living allowance VMDC insofar as the claims of Montenejo, et al. were concerned.
(COLA). 21
Aggrieved, VFP filed a certiorari petition with the CA.

The dismissals of Montenejo, et al. were not valid because — The Ruling of the CA and the Present Appeal
a.VMDC was not able to establish that the dismissals were based on an
authorized cause. VMDC presented no evidence that it had formally closed On July 29, 2008, the CA rendered a decision dismissing
shop and a closure cannot be inferred from the mere termination of the 22
VFP’s certiorari petition. In doing so, the CA essentially agreed with the
management agreement between it and VFP. The claim of VMDC that its ratiocinations of the NLRC. VFP moved for reconsideration, but the CA remained
very existence hinges on the management agreement is belied by its own steadfast.
19
Articles of Incorporation. Under VMDC’s Articles of Incorporation, VMDC Hence, this appeal by VFP.
is authorized, as part of its primary purpose, to “manage, operate, lease, VFP, in substance, raises two qualms in this appeal:
23
20
develop, organize, any and all kinds of business enterprises.” Hence, the First. VFP first questions the finding that Montenejo, et al. had been illegally
existence of VMDC cannot be regarded as exclusively dependent on its dismissed, viz.:
management agreement with VFP. a. VFP insists that the dismissals of Montenejo, et al. were based on the
b. Further compromising VMDC’s claim of closure is the fact that it had never closure of VMDC that was, in turn, occasioned by the termination of the
filed a notice of closure or cessation of its operations with the Department management agreement. It maintains the decision to close shop was an
of Labor and Employment (DOLE). exercise by VMDC’s management of its prerogative,
2. Montenejo, et al. are not contractual employees but regular employees of ______________
VMDC. The management agreement between VFP and VMDC is not the 21 Id., at pp. 254-289.
contract of employment of Montenejo, et al. One cannot be applied to or 22 Id., at pp. 56-75. The fallo of the Decision of the CA reads: “WHEREFORE,
equated with the other. the petition is DENIED. SO ORDERED.”
The NLRC, however, concurred with the third finding of the LA. Like the LA, the 23 Id., at pp. 10-50.
NLRC was of the view that Montenejo, et al. are not entitled to recover any
damages for the
_____________
19 Id., at pp. 121-126. 16
20 Id., at p. 121. 16 SUPREME COURT REPORTS ANNOTATED
Veterans Federation of the Philippines vs. Montenejo

15

Corporation  Law  Cases  –  Batch  3  

 
 which ought to be upheld as valid in the absence of showing that the same only to nominal damages on top of the separation pay under Article 298 of the
was implemented in bad faith and/or to circumvent the rights of its Labor Code.
employees.
b. VFP also argues that the failure of VMDC to file a notice of closure with the Concept of Illegal Dis-
DOLE did not invalidate the former’s closure. In support of such argument, missal; Closure of Busi-
24
VFP cites the ruling in Sebuguero v. NLRC. ness as an Authorized
Cause for the Termina-
Second. VFP also challenges the finding that it may be held solidarily liable tion of Employment
with VMDC for any monetary award that may be adjudged in favor of Montenejo, et
al. It submits that liability for any award ought to rest exclusively on VMDC, the We begin with the basics.
latter being the sole employer of Montenejo, et al. In this connection, VFP In our jurisdiction, the right of an employer to terminate employment is
26
contends that it cannot be treated as one and the same corporation as VMDC. It regulated by law. Both the Constitution and our laws guarantee security of tenure
denies the existence of circumstances in the case at bench that may justify the to labor and, thus, an employee can only be validly dismissed from work if the
application of the doctrine of piercing the veil of corporate fiction. dismissal is predicated upon any of the just or authorized causes allowed under
27
the Labor Code. Correspondingly, a dismissal that is not based on either of the
Our Ruling said causes is regarded as illegal and entitles the dismissed employee to the
28
payment of backwages and, in most cases, to reinstatement.
We grant the appeal. _______________
25 Presidential Decree (PD) No. 442, as amended. Article 298 of the Labor
I Code was originally Article 283, before being renumbered by DOLE Department
Advisory No. 1, Series of 2015.
The first qualm of VFP is justified. The NLRC and the CA erred in ruling that 26 See Article XIII, Section 3 of the 1987 CONSTITUTION.
Montenejo, et al. were illegally dismissed. 27 See Article 294 of PD No. 442, as amended. Article 294 of the Labor Code
Montenejo, et al. were dismissed as a result of the closure of VMDC. Contrary was originally Article 279, before being renumbered by DOLE Department Advisory
to the ruling of the NLRC and the CA, there is ample support from the records to No. 1, Series of 2015.
establish that VMDC did, in fact, close its operations. VMDC’s closure, more 28 See Article 279 of PD No. 442, as amended.
importantly, qualifies as a bona fide cessation of operations or
______________
24 G.R. No. 115394, September 27, 1995, 248 SCRA 532.
18
18 SUPREME COURT REPORTS ANNOTATED
17 Veterans Federation of the Philippines vs. Montenejo
One of the authorized causes for dismissal recognized under the Labor Code
VOL. 847, NOVEMBER 29, 2017 17
is the bona fide cessation of business or operations by the employer. Article 298 of
Veterans Federation of the Philippines vs. Montenejo the Labor Code explicitly sanctions terminations due to the employer’s cessation of
25
business as contemplated under Article 298 of the Labor Code. business or operations — as long as the cessation is bona fide or is not made “for
The dismissals of Montenejo, et al. were, therefore, premised on an authorized the purpose of circumventing the [employees’ right to security of tenure]”:
cause. Being so, such dismissals are valid and remain to be valid even though Art. 298. Closure of establishment and reduction of personnel.—The employer
they suffer from a procedural defect. Consequently, Montenejo, et al. are not may also terminate the employment of any employee due to the installation of
entitled to the monetary awards (i.e., full backwages, separation pay in lieu of labor-saving devices, redundancy, retrenchment to prevent losses or the closing
reinstatement, 13th month pay, SILP and COLA) granted to them by the NLRC, but or cessation of operation of the establishment or undertaking unless the
closing is for the purpose of circumventing the provisions of this Title, by

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serving a written notice on the workers and the Ministry of Labor and Employment
at least one (1) month before the intended date thereof. In case of termination due
to the installation of labor-saving devices or redundancy, the worker affected
thereby shall be entitled to a separation pay equivalent to at least his one (1)
month pay or to at least one (1) month pay for every year of service, whichever is
higher. In case of retrenchment to prevent losses and in cases of closures or
cessation of operations of establishment or undertaking not due to serious
business losses or financial reverses, the separation pay shall be equivalent to one
(1) month pay or at least one-half (1/2) month pay for every year of service,
whichever is higher. A fraction of at least six (6) months shall be considered one
(1) whole year.
As stated in the provision, an employer’s closure or cessation of business or
operations is regarded as an invalid ground for the termination of
employment only when the closure or cessation is made for the purpose of
circumventing the tenurial rights of the employees. A survey of relevant
jurisprudence can shed light on what can be considered as an invalid cessation of
business or operations:
19
VOL. 847, NOVEMBER 29, 2017 19
Veterans Federation of the Philippines vs. Montenejo
29
1. In Me-Shurn Corporation v. Me-Shurn Workers Union-FSM, a company
that supposedly closed due to financial losses was discovered to have revived its
operations barely a month after it closed. Some of the employees who were
dismissed as a consequence of the company’s closure challenged their
terminations on the ground that such closure is not bona fide and claimed that the
same was only made to forestall the formation of their union. When the issue
reached us, we sided with the employees — ratiocinating that the company’s
unusual and immediate resumption of operations had lent credence to the
employees’ claim that the company’s earlier closure had been done in bad faith.
30
2. Danzas Intercontinental, Inc. v. Daguman, on the other hand, featured a
company which apparently closed one of its departments. However, in the ensuing
illegal dismissal case filed by the employees terminated in the closure, it had been
established that the company did not actually stop operating the concerned
department as it even hired a new set of staff for the same. On these premises, we
declared that the company’s earlier closure of the subject department as not bona
fide and ordered the reinstatement of the terminated employees.
3. A cross between Me-Shurn and Danzas is the case of St. John Colleges,
31
Inc. v. St. John Academy Faculty and Employees Union. In St. John, a deadlock
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 Law
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in the Collective Bargaining Agreement negotiations between a school and its
faculty union prompted the former to close its high school department and effect a
mass layoff. But barely one year after it announced such closure, the school
reopened its high school department. The employees who lost their jobs in the
closure of the high school department lodged an illegal dismissal complaint hinged
on the argument that said closure is invalid
_______________
29 G.R. No. 156292, January 11, 2005, 448 SCRA 41.
30 G.R. No. 154368, April 15, 2005, 456 SCRA 382.
31 G.R. No. 167892, October 27, 2006, 505 SCRA 764.
20
20 SUPREME COURT REPORTS ANNOTATED
Veterans Federation of the Philippines vs. Montenejo
and made in bad faith. We favored the employees and observed that the timing
and the reason of both the closure of the high school department and its reopening
were indicative of the school’s bad faith in effecting the closure.
4. And finally, the case of Eastridge Golf Club, Inc. v. Eastridge Golf Club,
32
Inc. Labor Union-Super. Eastridge involved a company which closed one of its
departments by allegedly transferring its operations to a concessionaire. However,
in the illegal dismissal case filed by the employees laid off in the closure, it was
proven that the company did not actually transfer the operations of the subject
department to a concessionaire and that the former remained to be the employer
of all the workers in the department. On this score, we ruled that the company’s
closure of its department was simulated and that the employees’ dismissal by
reason thereof was illegal.
All of the instances of invalid closures of business or operations discussed
above have a common and telling characteristic — all of them were not genuine
closures or cessations of businesses; they are mere simulations which make
it appear that the employer intended to close its business or operations
when the latter, in truth, had no such intention. To unmask the true intent of an
employer when effecting a closure of business, it is important to consider not only
the measures adopted by the employer prior to the purported closure but also the
actions taken by the latter after the fact. For, as can be seen from the examples in
the cited cases, the employer’s subsequent acts of suddenly reviving a business it
had just closed or surreptitiously continuing with its operation after announcing a
shutdown are telltale badges that the employer had no real intent to cease its
business or operations and only seeks an excuse to terminate employees
capriciously.
Guided by the foregoing, we shall now address the issue at hand.
 ______________ The confluence of the above facts, to our mind, indicates that VMDC indeed
32 G.R. No. 166760, August 22, 2008, 563 SCRA 93. closed shop or ceased operations following the termination of its management
agreement with VFP. The acts of VMDC in relinquishing all properties required for
its operations and in dismissing its entire workforce would have indubitably
compromised its ability to continue on with its operations and are, thus, the
21 practical equivalents of a business closure. Hence, in these regards, we hold that
VOL. 847, NOVEMBER 29, 2017 21 the closure of VMDC had been established.
Moreover, we find VMDC’s cessation of operations to be bona fide. None of
Veterans Federation of the Philippines vs. Montenejo the telltale badges of bad faith in closures of business, as illustrated in our
VMDC’s Closure was Estab- jurisprudence, was shown to be present in this case. Here, there is no evidence on
lished; The Closure is Bona record that shows that VMDC — after dismissing its entire workforce and ceasing
Fide; The Dismissals of to operate — had revived its business or had hired new employees to replace
Montenejo, et al. are Based those dismissed. Thus, it cannot be reasonably said that VMDC’s cessation of
on an Authorized Cause operations was just a ruse or had been implemented merely as an excuse to
terminate its employees.
In this case, the NLRC and the CA both ruled against the validity of the The mere fact that VMDC could have chosen to continue operating despite the
dismissals of Montenejo, et al. for the reason that the dismissals were not proven termination of its management agreement with VFP is also of no consequence.
to be based on any valid cause. The NLRC and the CA were disapproving of the The decision of VMDC to cease its operations after the termination of the
claim that the dismissals were due to the closure of VMDC, lamenting the lack of management agreement is, under the law, a lawful exercise by the company’s
any evidence showing that VMDC had formally closed its business. leadership of its management prerogative that must perforce be upheld where, as
We disagree. in this case, there is an absence of showing that the cessation was made for
Though not proclaimed in any formal document, the closure of VMDC was still 35
prohibited purposes. As Alabang Country Club, Inc. v. NLRC reminds:
36
duly proven in this case. The closure can be inferred from other facts that were For any bona fide reason, an employer can lawfully close shop anytime. Just as no
established by the records and/or were not refuted by the parties. These facts are: law forces anyone to go into business, no law can compel anybody to continue the
1. The fact that VMDC, on January 3, 2000, had turned over possession of
all buildings, equipment and other properties necessary to the _______________
33
operation of the VFPIA to VFP; and 35 Alabang Country Club, Inc. v. National Labor Relations Commission, G.R.
2. The fact that, on January 31, 2000, VMDC had dismissed all of its No. 157611, August 9, 2005, 466 SCRA 329.
34
officials and employees, which included Montenejo, et al. 36 Id.
______________
33 This fact is established by the Closing Agreement between VFP and
VMDC, Rollo, pp. 100-102.
34 This fact can be derived from the memorandum dated January 3, 2000 of 23
the President of VMDC (id., at p. 136) wherein the latter informed “all the VOL. 847, NOVEMBER 29, 2017 23
company’s officials and employees” of the termination of their services effective at
the close of office hours on January 31, 2000. Montenejo, et al. were among those Veterans Federation of the Philippines vs. Montenejo
dismissed on January 31, 2000. same. It would be stretching the intent and spirit of the law if a court interferes with
management’s prerogative to close or cease its business operations just because
the business is not suffering from any loss or because of the desire to provide the
workers continued employment.
22
22 SUPREME COURT REPORTS ANNOTATED
Veterans Federation of the Philippines vs. Montenejo

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 The validity of the closure of VMDC necessarily validates the dismissals of
Montenejo, et al. that resulted therefrom. The dismissals cannot be regarded as Failure of VMDC to File a
illegal because they were predicated upon an authorized cause recognized by law. Notice of Closure with the
DOLE Does Not Invalidate
Montenejo, et al. are Not the Dismissals of Mon-
Entitled to Monetary tenejo, et al.; Such Proce-
Awards Adjudged in Their dural Lapse Only Gives
Favor by the NLRC; They Rise to Liability for Nomi-
are Only Entitled to Sepa- nal Damages
ration Pay Under Article
298 of the Labor Code Anent the failure of VMDC to file a notice of closure with the DOLE, we find our
40 41
rulings in Agabon v. NLRC and Jaka Food Processing Corporation v. Pacot to
Since Montenejo, et al. had been validly dismissed, it becomes apparent that be apt.
the monetary awards granted to them by the NLRC, and affirmed by the CA, were To recall, Agabon laid out the rule that when a dismissal is based on
not proper. We substantiate: a just cause but is implemented without observance
1. The awards for full backwages and separation pay in lieu of reinstatement _____________
cannot be sustained as these awards are reserved by law, and jurisprudence, for 38 See Rollo, pp. 233-235. The computation of the awards by the NLRC was
37
employees who were illegally dismissed. reckoned from the dismissals up to a certain cutoff date.
2. The awards for 13th month pay, SILP and COLA, on the other hand, must 39 See Decision of the LA dated November 7, 2005, id., at pp. 203-212.
also be invalidated as these are mere components of the award for backwages 40 G.R. No. 158693, November 17, 2004, 442 SCRA 573.
and were, thus, made by the NLRC and the CA in consideration of the illegality 41 G.R. No. 151378, March 28, 2005, 454 SCRA 119.
of the dismissals of Montenejo, et al. The 13th month pay, SILP and COLA that
were awarded by the NLRC and the CA refer to the benefits that Montenejo, et
al. would be entitled to
______________ 25
37 See Article 279 of PD No. 442, as amended. VOL. 847, NOVEMBER 29, 2017 25
Veterans Federation of the Philippines vs. Montenejo
of the statutory notice requirements, the dismissal should be upheld as valid but
24 the employer must thereby pay an indemnity to the employee in the amount of
P30,000. Jaka, on the other hand, expounded on Agabon in two (2) ways:
24 SUPREME COURT REPORTS ANNOTATED
1. First, Jaka extended the application of the Agabon doctrine to dismissals
Veterans Federation of the Philippines vs. Montenejo that were based on authorized causes but have been effected without observance
had they not been illegally dismissed and are computed from the time of their of the notice requirements. Thus, similar to Agabon, the dismissals under such
dismissals up to the time the judgment declaring their dismissals illegal becomes circumstances will also be regarded as valid while the employer shall likewise be
38
final. The awards, in other words, were not due to any failure on the part of required to pay an indemnity to the employee; and
VMDC to pay 13th month pay, SILP and COLA to Montenejo, et al. during the 2. Second, Jaka increased the amount of indemnity payable by the employer
subsistence of their employer-employee relationship. in cases where the dismissals are based on authorized causes but have been
For having been terminated by reason of the employer’s closure of operations effected without observance of the notice requirements. It fixed the amount of
that was not due to serious business losses or financial reverses, Montenejo, et indemnity in the mentioned scenario to P50,000.
al. are, however, entitled to be paid separation pay pursuant to Article 298 of the Verily, the failure of VMDC to file a notice of closure with the DOLE does not
Labor Code. The records in this regard, though, reveal that Montenejo, et al. have render the dismissals of Montenejo, et al., which were based on an authorized
39
already received their respective separation pays from VMDC. cause, illegal. Following Agabon and Jaka, such failure only entitles Montenejo, et

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al. to recover nominal damages from VMDC in the amount of P50,000 each, on top
of the separation pay they already received.
II
The NLRC and the CA also erred in ruling that VFP may be held solidarily
liable with VMDC for any monetary award that may be found due to Montenejo, et
al. We find that, contrary to the holding of the NLRC and the CA, the application of
the doctrine of piercing the veil of corporate fiction is not justified by the facts of this
case.
Accordingly, the liability for the award of nominal damages — the only award
that Montenejo, et al. are entitled to in this case — ought to rest exclusively upon
their employer, VMDC.
26
26 SUPREME COURT REPORTS ANNOTATED
Veterans Federation of the Philippines vs. Montenejo
Doctrine of Piercing the
Veil of Corporate Fiction
Does Not Apply to This Case
The NLRC and the CA’s stance is based on their submission that the doctrine
of piercing the veil of corporate fiction is applicable to this case, i.e., that VFP and
VMDC could, for purposes of satisfying any monetary award that may be due to
Montenejo, et al., be treated as one and the same entity. According to the two
tribunals, the doctrine may be applied to this case because VFP apparently owns
almost all of the shares of stock of VMDC. In this regard, both the NLRC and the
42
CA cite the Closing Agreement of VFP and VMDC which states that:
NOW THEREFORE, for and in consideration of the foregoing premises the
[VFP] and the [VMDC] hereby agree to terminate the [management agreement] for
the development and management of the [VFPIA] in Taguig effective on 3 January
2000, subject to the following conditions:
1. The [VMDC] agrees that the [VFP] is the majority stockholder of the
[VMDC] and that all its original incorporators have endorsed all their shares
of stock to the [VFP] except one (1) qualifying share each to be able to sit as
Director in the Board of Directors of the [VMDC]. (Emphasis supplied)
We disagree with the submission.
The doctrine of piercing the veil of corporate fiction is a legal precept that
allows a corporation’s separate personality to be disregarded under certain
circumstances, so that a corporation and its stockholders or members, or a
corporation and another related corporation could be treated as a single entity. The
doctrine is an equitable principle, it being meant to apply
_____________
42 Rollo, pp. 100-102.
27
VOL. 847, NOVEMBER 29, 2017 27
Veterans Federation of the Philippines vs. Montenejo
only in situations where the separate corporate personality of a corporation is
43
being abused or being used for wrongful purposes. As Manila Hotel Corporation
44
v. NLRC explains:
Piercing the veil of corporate entity is an equitable remedy. It is resorted to when
the corporate fiction is used to defeat public convenience, justify wrong, protect
fraud or defend a crime. It is done only when a corporation is a mere alter ego or
business conduit of a person or another corporation. (Citations omitted)
45
In Concept Builders, Inc. v. NLRC, we laid down the following test to
determine when it would be proper to apply the doctrine of piercing the veil of
corporate fiction:
1. Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest and unjust act in contravention of plaintiff’s legal
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 op-
_____________
43 Livesey v. Binswanger Philippines, Inc., G.R. No. 177493, March 19, 2014,
719 SCRA 433.
44 G.R. No. 120077, October 13, 2000, 343 SCRA 1.
45 G.R. No. 108734, May 29, 1996, 257 SCRA 149.

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28
28 SUPREME COURT REPORTS ANNOTATED
Veterans Federation of the Philippines vs. Montenejo
erated and the individual defendant’s relationship to that operation. (Emphasis
supplied and citations omitted)
Relative to the Concept Builders test are the following critical ruminations
from Rufina Luy Lim v. CA:
46
Mere ownership by a single stockholder or by another corporation of all or nearly
all of the capital stock of a corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate personalities.
Moreover, to disregard the separate juridical personality of a corporation, the
wrongdoing must be clearly and convincingly established. It cannot be presumed.
(Citations omitted)
Utilizing the foregoing standards, it becomes clear that the NLRC and the CA
were mistaken in their application of the doctrine to the case at bench. The sole
circumstance used by both to justify their disregard of the separate personalities of
VFP and VMDC is the former’s alleged status as the majority stockholder of the
latter. Completely absent, however, both from the decisions of the NLRC and the
CA as well as from the records of the instant case itself, is any circumstance which
establishes that VFP had complete control or domination over the “finances[,] . . .
policy and business practice” of VMDC. Worse, even assuming that VFP had such
kind of control over VMDC, there is likewise no evidence that the former had used
the same 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 [another’s] legal rights.”
Given the absence of any convincing proof of misuse or abuse of the corporate
shield, we, thus, find the application of the doctrine of piercing the veil of corporate
fiction to the present case to be unwarranted, if not utterly improper. Consequently,
we must also reject, for being erroneous, the pro-
______________
46 G.R. No. 124715, January 24, 2000, 323 SCRA 102.
29
VOL. 847, NOVEMBER 29, 2017 29
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Veterans Federation of the Philippines vs. Montenejo
nouncement that VFP may be held solidarily liable with VMDC for any monetary
award that may be adjudged in favor of Montenejo, et al. in this case.
Application: Exclusive
Liability for Nominal
Damages Rests on VMDC
As established in the previous discussion, the only award to which
Montenejo, et al. are entitled in the instant case is for nominal damages pursuant
to the Agabon and Jaka doctrines. Considering that the doctrine of piercing the veil
of corporate fiction does not apply, the liability for the satisfaction of this award
must be deemed to rest exclusively on the employer of Montenejo, et al., VMDC.
III
In fine —
Our finding upholding the validity of the dismissals of Montenejo, et
al. warranted the nullification of the awards of full backwages, separation pay in
lieu of reinstatement, 13th month pay, SILP and COLA that were originally
adjudged in their favor by the NLRC. Thus, the assailed CA decision and
resolution, for sustaining such awards, ought to be reversed and set aside.
Necessarily, the NLRC decision must also be set aside except with respect to the
finding that Montenejo, et al. were regular employees of VMDC. The statuses of
Montenejo, et al. as regular employees of VMDC were not challenged in the
present appeal of VFP.
In light of the failure of VMDC to file a notice of closure with the DOLE,
however, we must adjudge VMDC to pay nominal damages to Montenejo, et
al. pursuant to the Agabon and Jaka doctrines. The amount of the nominal
damages is P50,000 per person and the satisfaction thereof is the exclu-
30
30 SUPREME COURT REPORTS ANNOTATED
Veterans Federation of the Philippines vs. Montenejo
sive liability of VMDC, the employer of Montenejo, et al. VFP is absolved from any
further liability to Montenejo, et al.
WHEREFORE, premises considered, the instant petition is GRANTED. The
Decision dated July 29, 2008 and Resolution dated October 2, 2008 of the Court of
Appeals in C.A.-G.R. S.P. No. 101041 are REVERSED and SET ASIDE. Except
as to the finding that respondents Eduardo L. Montenejo, Mylene M. Bonifacio,
Evangeline E. Valverde and Deana N. Pagal were regular employees of the VFP
Management and Development Corporation, the Decision dated May 16, 2007 of * SECOND DIVISION.
the National Labor Relations Commission in NLRC NCR Case Nos. 30-01-00494-
02 and 048927-06 is SET ASIDE.
Judgment is hereby made directing the VFP Management and Development
Corporation to PAY respondents Eduardo L. Montenejo, Mylene M. Bonifacio, 281
Evangeline E. Valverde and Deana N. Pagal the sum of P50,000 each VOL. 844, NOVEMBER 8, 2017 281
as NOMINAL DAMAGES.
SO ORDERED. Guillen vs. Arnado
the high standard of morality, honesty, integrity, and fair dealing required of
him. On the contrary, he employed his knowledge and skill of the law as well as
took advantage of Guillen to secure undue gains for himself and to inflict serious
A.C. No. 10547. November 8, 2017.
* damage on others.

ADMINISTRATIVE CASE in the Supreme Court. Violation of the Code of

FREDDIE A. GUILLEN, complainant, vs. ATTY. AUDIE ARNADO, respondent.
Professional Responsibility.
Attorneys; Legal Ethics; Arnado, although not reflected as one of the The facts are stated in the opinion of the Court.
incorporators of City Grill-Sutukil Food Corporation, has deceived the public into Gica, Del Socorro, Espinoza, Villarmia & Tan for complainant.
believing that City Grill Restaurant and City Grill-Sutukil Food Corporation are one
PERALTA, J.:
and the same, clearly violating Rule 1.01 of the Code of Professional
Responsibility (CPR), which prohibits a lawyer from engaging in unlawful,
The instant case is brought about by an administrative complaint which Freddie
dishonest, immoral, or deceitful conduct.—The IBP Board thus aptly concluded
Guillen filed against his former business partner, Atty. Audie Arnado, for alleged
that Arnado is guilty of taking advantage of his knowledge of the law and of
violation of the Code of Professional Responsibility (CPR).
surreptitiously easing out Guillen from their restaurant business partnership by
The factual antecedents of the case are as follows:
registering a corporation under a different but similar name and style, in the same
Complainant Freddie Guillen is the registered owner of the City Grill
line of business, and using the same trade secrets. Arnado, although not reflected
Restaurant. He then invited respondent Atty. Audie Arnado and a certain Cedric
as one of the incorporators of City Grill-Sutukil Food Corporation, has deceived the
Ebo to join the restaurant business. Each of them had to shell out P200,000.00 to
public into believing that City Grill Restaurant and City Grill-Sutukil Food
make up a total capital of P600,000.00. A Memorandum of Agreement (MOA) was
Corporation are one and the same, clearly violating Rule 1.01 of the CPR, which
therefore executed and the business was formally launched in May 2003. At first,
prohibits a lawyer from engaging in unlawful, dishonest, immoral, or deceitful
everything went smoothly, until Arnado’s sister-in-law and Ebo’s son participated in
conduct.
the management, causing complications in the business operations, which later
Same; Same; Practice of Law; The Supreme Court (SC) has repeatedly
forced Guillen and his wife to step down as general manager and operations
emphasized that the practice of law is imbued with public interest and that a lawyer
manager, respectively. Because of the disagreements among the parties, Guillen
owes substantial duties, not only to his client, but also to his brethren in the
offered that he would waive his claims for profits, provided, that Arnado would
profession, to the courts, and to the public, and takes part in the administration of
return the P200,000.00 that he paid as capital. Arnado allegedly claimed that said
justice, one of the most important functions of the State, as an officer of the
refund would still be subject to the billings of the Arnado and Associate Law Firm.
court.—The Court has repeatedly emphasized that the practice of law is imbued
Thereafter, Guillen was surprised to find out that Arnado had
with public interest and that a lawyer owes substantial duties, not only to his client,
but also to his brethren in the profession, to the courts, and to the public, and takes
part in the administration of justice, one of the most important functions of the
282
State, as an officer of the court. Accordingly, lawyers are bound to maintain, not
only a high standard of legal proficiency, but also of morality, honesty, integrity, 282 SUPREME COURT REPORTS ANNOTATED
and fair dealing. Here, Arnado has certainly fallen short of Guillen vs. Arnado
_______________

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already caused the incorporation of the restaurant with the Securities and
Exchange Commission (SEC), which was approved on February 16, 2004. Guillen
was likewise excluded from the business without the aforementioned refund of his
capital. He was further charged with Estafa before the Office of the City Prosecutor
of Cebu. Thus, Guillen initiated the present administrative case.
For his part, Arnado admitted the existence and the contents of the MOA. He
also admitted that he caused the incorporation of City Grill-Sutukil Food
Corporation. However, he insisted that the same was done in accordance with the
requirements under the law. Guillen could not validly claim for a refund, and if he
was really entitled, he should simply file an action to that effect. Arnado likewise
contended that Guillen’s refund would still be subject to the legal compensation
claim of his law firm.
On November 2, 2011, the Commission on Bar Discipline of the Integrated Bar
1
of the Philippines (IBP) recommended the censure of Arnado, thus:
WHEREFORE, Taking into consideration the foregoing premises, it is with
deep regret to recommend to the Board of Governors that ATTY. AUDIE ARNADO
[of] Cebu City be CENSURED for his deceitful and dishonest act in violation of
Rule 1.01 of the Code or Professional Responsibility which provides that — A
lawyer shall not engage in an unlawful, dishonest, immoral and deceitful conduct.
So Ordered.
RESPECTFULLY RECOMMENDED.
_______________
1 Report and Recommendation submitted by Commissioner Jose I. De La
Rama, Jr., dated November 2, 2011; Rollo (Vol. II), pp. 377-387.
283
VOL. 844, NOVEMBER 8, 2017 283
Guillen vs. Arnado
On January 3, 2013, the IBP Board of Governors passed Resolution No. XX-
2
2013-47, which adopted and approved the aforementioned recommendation,
hence:
RESOLVED to ADOPT and APPROVE, as it is hereby unanimously
ADOPTED and APPROVED the Report and Recommendation of the Investigating
Commissioner in the above entitled case, herein made part of this Resolution as
Annex “A,” and finding the recommendation fully supported by the evidence on
record and the applicable laws and rules, and considering Respondent’s violation
of Rule 1.01 of the Code of Professional Responsibility, Atty. Audie Arnado is
hereby CENSURED.
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Thereafter, Arnado moved for reconsideration of said Resolution. On March
23, 2014, the IBP Board of Governors passed another resolution, Resolution No.
3
XXI-2014-180, which denied said motion for reconsideration and approved its
2013 Resolution, with modification, to wit:
RESOLVED to DENY Respondent’s Motion for Reconsideration, there being
no cogent reason to reverse the findings of the Commission and it being a mere
reiteration of the matters which had already been threshed out and taken into
consideration. Further, for taking advantage of his knowledge of the law and for his
deceitful conduct of easing out Complainant from their restaurant business
partnership without his knowledge by registering a corporation under a different
name and style but doing the same line of business and using the same
complements and trade secrets, Resolution No. XX-2013-47 dated January 3,
2013 is hereby AFFIRMED, with modification, and accordingly the penalty
imposed on Atty. Audie Arnado [is] increased from Censure to SUSPENSION from
the practice of law for three (3) months.
_______________
2 Rollo, p. 376.
3 Id., at p. 402.
284
284 SUPREME COURT REPORTS ANNOTATED
Guillen vs. Arnado
The Court’s Ruling
The Court finds no compelling reason to deviate from the findings and
recommendation of the IBP Board of Governors that Arnado should be suspended
from the practice of law.
At the onset, it must be pointed out that the business name City Grill
Restaurant registered under Guillen’s name was never dissolved in accordance
with the law. Even Arnado failed to prove that the City Grill Restaurant business
had already been terminated. Although said business name was only used for a
short period of time, the same had already acquired goodwill among the residents
and customers in the locality.
On February 26, 2004, City Grill-Sutukil Food Corporation was registered with
the SEC. Although Arnado and Ebo were not included as incorporators, those
persons reflected in the articles of incorporation as the company’s incorporators
were their relatives. It is clear that when Arnado caused the incorporation of City
Grill-Sutukil Food Corporation, he was fully aware that City Grill Restaurant was
still registered in Guillen’s name. Obviously, he did the same to take advantage of
the goodwill earned by the name of City Grill Restaurant. Arnado was likewise the
one who actually notarized some of City Grill-Sutukil Food Corporation’s legal
documents such as the Treasurer’s Affidavit and a letter addressed to the SEC.
The IBP Board thus aptly concluded that Arnado is guilty of taking advantage
of his knowledge of the law and of surreptitiously easing out Guillen from their
restaurant business partnership by registering a corporation under a different but
similar name and style, in the same line of business, and using the same trade
secrets. Arnado, although not reflected as one of the incorporators of City Grill-
Sutukil Food Corporation, has deceived the public into believing that City Grill
Restaurant and City Grill-Sutukil Food Corporation are one and the same, clearly
violating Rule 1.01 of the CPR, which prohibits a lawyer from engaging in unlawful,
dishonest, immoral, or deceitful conduct.
285
VOL. 844, NOVEMBER 8, 2017 285
Guillen vs. Arnado
The Court has repeatedly emphasized that the practice of law is imbued with
public interest and that a lawyer owes substantial duties, not only to his client, but
also to his brethren in the profession, to the courts, and to the public, and takes
part in the administration of justice, one of the most important functions of the
State, as an officer of the court. Accordingly, lawyers are bound to maintain, not
only a high standard of legal proficiency, but also of morality, honesty, integrity,
and fair dealing.
4 name of an individual designates the person (Cincinnati Cooperage Co. vs. Bate,
Here, Arnado has certainly fallen short of the high standard of morality,
honesty, integrity, and fair dealing required of him. On the contrary, he employed
his knowledge and skill of the law as well as took advantage of Guillen to secure
undue gains for himself and to inflict serious damage on others.
WHEREFORE, IN VIEW OF THE FOREGOING, the Court SUSPENDS Atty.
Audie Arnado from the practice of law for a period of one (1) year and WARNS him
that a repetition of the same or similar offense shall be dealt with more severely.
Let copies of this decision be included in the personal records of Atty. Audie
Arnado and entered in his file in the Office of the Bar Confidant.
Let copies of this decision be disseminated to all lower courts by the Office of
the Court Administrator, as well as to the Integrated Bar of the Philippines, for their
information and guidance.
SO ORDERED.
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G.R. No. 96161. February 21, 1992.
*
PHILIPS EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS
INDUSTRIAL DEVELOPMENT, INC., petitioners, vs. COURT OF APPEALS,
SECURITIES & EXCHANGE COMMISSION and STANDARD PHILIPS
CORPORATION, respondents.
Corporation Law; Trademarks; 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.—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.
Same; Same; Same; 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.—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
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.
Same; Same; Same; A corporation can no more use a corporate name in
violation of the rights of others than an individual can use
_______________
*
SECOND DIVISION.
458
4 SUPREME COURT REPORTS
58 ANNOTATED
Philips Export B.V. vs. Court of Appeals
 his name legally acquired so as to mislead the public and injure another.—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.
Same; Same; Same; The right to the exclusive use of a corporate name with
freedom from infringement by similarity is determined by priority of adoption.—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 19 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.
Same; Same; Same; In determining the existence of confusing similarity in
corporate name, the test is whether the similarity is such as to mislead a person
using ordinary care and discrimination.—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.
459
VOL. 206, FEBRUARY 21, 1992 4 Philips Export B.V. vs. Court of Appeals
59
Philips Export B.V. vs. Court of Appeals
Same; Same; Same; Same; It is settled that proof of actual confusion need
not be shown; It suffices that confusion is probably or likely to occur.—
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
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confusion. It is settled, however, that proof of actual confusion need not be shown.
It suffices that confusion is probably or likely to occur.
Same; Same; Same; 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.—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.
PETITION for review of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Emeterio V. Soliven & Associates for petitioners.
Narciso A. Manantan for private respondent.
MELENCIO-HERRERA, J.:
Petitioners challenge the Decision of the Court of Appeals, dated 31 July 1990,
in CA-GR Sp. No. 20067, upholding the Order of the Securities and Exchange
Commission, dated 2 January 1990, in SEC-AC No. 202, dismissing petitioners’
prayer for the cancellation or removal of the word “PHILIPS” from private
respondent’s corporate name.
Petitioner Philips Export B.V. (PEBV), a foreign corporation
460
460 SUPREME COURT REPORTS ANNOTATED
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 Patent Office (presently known as the Bureau of Patents,
Trademarks and Technology Transfer). Petitioners Philips Electrical Lamps, Inc.
(Philips Electrical, for brevity) and Philips Industrial Development, Inc. (Philips
Industrial, for short), authorized users of the trademarks PHILIPS and PHILIPS
SHIELD EMBLEM, were incorporated on 29 August 1956 and 25 May 1956,
respectively. All petitioner corporations belong to the PHILIPS Group of
Companies.
Respondent Standard Philips Corporation (Standard Philips), on the other
hand, was issued a Certificate of Registration by respondent Commission on 19
May 1982.
On 24 September 1984, Petitioners filed a letter complaint with the Securities &
Exchange Commission (SEC) asking for the cancellation of the word “PHILIPS”
from Private Respondent’s corporate name in view of the prior registration with the
Bureau of Patents of the trademark “PHILIPS” and the logo “PHILIPS SHIELD
EMBLEM” in the name of Petitioner PEBV, and the previous registration of
Petitioners Philips Electrical and Philips Industrial with the SEC.
As a result of Private Respondent’s refusal to amend its Articles of
Incorporation, Petitioners filed with the SEC, on 6 February 1985, a Petition (SEC
Case No. 2743), praying for the issuance of a Writ of Preliminary Injunction,
alleging, among others, that Private Respondent’s use of the word PHILIPS
amounts to an infringement and clear violation of Petitioners’ exclusive right to use
the same considering that both parties engage in the same business.
In its Answer, dated 7 March 1985, Private Respondent countered that
Petitioner PEBV has no legal capacity to sue; that its use of its corporate name is
not at all similar to Petitioners’ trademark PHILIPS when considered in its entirety;
and that its products consisting of chain rollers, belts, bearings and cutting saw are
grossly different from Petitioners’ electrical products.
After conducting hearings with respect to the prayer for
461
VOL. 206, FEBRUARY 21, 1992 461
Philips Export B.V. vs. Court of Appeals
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
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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.
1
In deciding to dismiss the petition on 31 July 1990, the Court of Appeals swept
aside Petitioners’ claim that following the ruling in Converse Rubber Corporation v.
Universal 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
_______________
1
Second Division, composed of Justice Jose A.R. Melo, Chairman, Justice
Antonio M. Martinez, Ponente, and Justice Nicolas P. Lapeña, Jr., Member.
462
462 SUPREME COURT REPORTS ANNOTATED
Philips Export B.V. vs. Court of Appeals
is, the manufacture of rubber shoes. Upholding the SEC, the Appellate Court
concluded that “private respondent’s 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 6, 1934, 60 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
463
VOL. 206, FEBRUARY 21, 1992 463
Philips Export B.V. vs. Court of Appeals
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 the 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. (1)that the complainant corporation acquired a prior right over the use of
such corporate name; and
2. (2)the proposed name is either:
1. (a)identical or
2. (b)deceptively or confusingly similar to that of any existing corporation or
to any other name already protected by law; or
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1. (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
464
464 SUPREME COURT REPORTS ANNOTATED
Philips Export B.V. vs. Court of Appeals
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 19 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 chains, rollers, belts, bearings and cutting saw. That office
held that PEBV “had shipped to its subsidiaries in the Philippines equipment,
machines and their
465
 VOL. 206, FEBRUARY 21, 1992 465
Philips Export B.V. vs. Court of Appeals
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 x x x 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.” (italics 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 x x x.” (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] x x x tends to show said respondent’s intention to ride
on the popularity and established goodwill of said petitioner’s busi-
466
466 SUPREME COURT REPORTS ANNOTATED
Philips Export B.V. vs. Court of Appeals
ness 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 on another’s goodwill (American Gold Star Mothers, Inc. v. National Gold Star
Mothers, Inc., et al, 89 App DC 269, 191 F 2d 488).
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In allowing Private Respondent the continued use of its corporate name, the
SEC maintains that the corporate names of Petitioners PHILIPS ELECTRICAL
LAMPS, INC. and PHILIPS INDUSTRIAL DEVELOPMENT, INC. contain at least
two words different from that of the corporate name of respondent STANDARD
PHILIPS CORPORATION, which words will readily identify Private Respondent
from Petitioners and vice-versa.
True, under the Guidelines in the Approval of Corporate and Partnership
Names formulated by the SEC, the proposed name “should not be similar to one
already used by another corporation or partnership. If the proposed name contains
a word already used as part of the firm name or style of a registered company, the
proposed name must contain two other words different from the company already
registered” (Emphasis ours). It is then pointed out that Petitioners Philips Electrical
and Philips Industrial have two words different from that of Private Respondent’s
name.
What is lost sight of, however, is that PHILIPS is a trademark or trade name
which was registered as far back as 1922. Petitioners, therefore, have the
exclusive right to its use which must be free from any infringement by similarity. A
corporation has an exclusive right to the use of its name, which may be protected
by injunction upon a principle similar to that upon which persons are protected in
the use of trademarks and tradenames (18 C.J.S 574). Such principle proceeds
upon the theory that it is a fraud on the corporation which has acquired a right to
that name and perhaps carried on its business thereunder, that another should
attempt to use the same name, or the same name with a slight variation in such a
way as to induce persons to deal with it in the belief that they are dealing with the
corporation which has given a reputation to the name (6 Fletcher [Perm Ed], pp.
39-40, citing Borden Ice Cream Co. v. Borden’s Condensed Milk Co., 210 F 510).
Notably, too, Private Respondent’s name actually contains only a
467
VOL. 206, FEBRUARY 21, 1992 467
Philips Export B.V. vs. Court of Appeals
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 nonprofit organization if misleading and
likely to injure it in the exercise of 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.
468
468 SUPREME COURT REPORTS ANNOTATED
Gamalinda vs. Alcantara
SO ORDERED.
PHILIPPINE FIRST INSURANCE COMPANY,INC., plaintiff-appellant, vs. MARIA
CARMEN HARTIGAN, CGH, and O. ENGKEE, defendants-appellees.
Corporation law; Corporations; Change of name; Corporation may change its
name.—There is nothing in Section 18 of the Corporation Law which prohibits a
corporation from changing its name. The inference is clear that such a change is
allowed, for if the legislature had intended to enjoin corporations from changing
names, it would have expressly stated so in this section or in any other provision of
the law.
Same; Same; Same; How change of name may be effected.—A corporation
may change its name by merely amending its charter in the manner prescribed by
law.
Same; Same; Same; Change of name does not dissolve corporation.—The
change of name of a corporation does not result in its dissolution. The changing of
the name of a corporation is no more the creation of a corporation than the
changing of the name of a natural person is the begetting of a natural person. The
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act, in both cases, would seem to be what the language which we use to designate
it imports—a change of name and not a change of being.
Same; Same; Same; When change of corporate name is effective.—The
approval by the stockholders of the amendment of the articles of incorporation
changing the corporate name does not automatically change the name of the
corporation as of that date. To be effective, Section 18 of the Corporation Law
requires that a copy of the articles of incorporation as
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53
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amended, duly certified to be correct by the president and the secretary of
the corporation and a majority of the board of directors or trustees, shall be filed
with the Securities & Exchange Commissioner and it is only from the time of such
filing, that the corporation shall have the same powers and it and the members and
stockholders thereof shall thereafter be subject to the same liabilities as if such
amendment had been embraced in the original articles of incorporation.
APPEAL from a decision of the Court of First Instance of Manila. Morfe, J.
The facts are stated in the opinion of the Court.
Bausa, Ampil & Suarez for plaintiff-appellant.
Nicasio E. Martin for defendants-appellees.
BARREDO, J.:
Appeal from the decision dated 6 October 1962 of the Court of First Instance of
Manila—dismissing the action in its Civil Case No. 48925—brought by the herein
plaintiff-appellant Philippine First Insurance Co., Inc. to the Court of Appeals which
could, upon finding that the said appeal raises purely questions of law, declared
itself without jurisdiction to entertain the same and, in its resolution dated 15 July
1966, certified the records thereof to this Court for proper determination.
The antecedent facts are set forth in the pertinent portions of the resolution of
the Court of Appeals referred to as follows:
“According to the complaint, plaintiff was originally organized as an insurance
corporation under the name of ‘The Yek Tong Lin Fire and Marine Insurance Co.,
Ltd.’. The articles of incorporation originally presented before the Security and
Exchange Commissioner and acknowledged before Notary Public Mr E. D. Ignacio
on June 1, 1953 state that the name of the corporation was ‘The Yek Tong Lin Fire
and Marine Insurance Co., Ltd.’.’ On May 26, 1961 the articles of incorporation
were amended pursuant to a certificate of the Board of Directors dated March 8,
1961 changing the name of the corporation to ‘Philippine First Insurance Co., Inc.’.
“The complaint alleges that the plaintiff Philippine First Insurance Co., Inc.,
doing business under the name of The
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Yek Tong Lin Fire and Marine Insurance Co., Lt.’ signed as co-maker together with
defendant Maria Carmen Hartigan, CGH, a promissory note for P5,000.00 in favor
of the China Banking Corporation payable within 30 days after the date of the
promissory note with the usual banking interest; that the plaintiff agreed to act as
such co-maker of the promissory note upon the application of the defendant Maria
Carmen Hartigan, CGH, who together with Antonio F. Chua and Chang Ka Fu,
signed an indemnity agreement in favor of the plaintiff, undertaking jointly and
severally, to pay the plaintiff damages, losses or expenses of whatever kind or
nature, including attorney’s fees and legal costs, which the plaintiff may sustain as
a result of the execution by the plaintiff as co-maker of Maria Carmen Hartigan,
CGH, of the promissory note above-referred to; that as a result of the execution of
the promissory note by the plaintiff and Maria Carmen Hartigan, CGH, the China
Banking Corporation delivered to the defendant Maria Carmen Hartigan, CGH, the
sum of P5,000.00 which said defendant failed to pay in full, such that on August
31, 1961 the same was renewed and as of November 27, 1961 there was due on
account of the promissory note the sum of P4,559.50 including interest. The
complaint ends with a prayer for judgment against the defendants, jointly and
severally, for the sum of P4,559.50 with interest at the rate of 12% per annum from
November 23, 1961 plus P911.90 by way of attorney’s fees and costs.
“Although O. Engkee was made as party defendant in the caption of the
complaint, his name is not mentioned in the body of said complaint. However, his
name appears in the Annex A attached to the complaint which is the counter
indemnity agreement supposed to have been signed according to the complaint by
Maria Carmen Hartigan, CGH, Antonio F. Chua and Chang Ka Fu.
“In their answer the defendants deny the allegation that the plaintiff formerly
conducted business under the name and style of ‘The Yek Tong Lin Fire and
Marine Insurance Co., Ltd.’. They admit the execution of the indemnity agreement
but they claim that they signed said agreement in favor of the Tek Tong Lin Fire
and Marine Insurance Co., Ltd.’ and not in favor of the plaintiff. They likewise admit
that they failed to pay the promissory note when it fell due but they allege that
since their obligation with the China Banking Corporation based on the promissory
note still subsists, the surety who co-signed the promissory note is not entitled to
collect the value thereof from the defendants otherwise they will be liable for
double amount of their obligation, there being no allegation that the surety has paid
the obligation to the creditor.
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“By way of special defense, defendants claim that there is no privity of contract
between the plaintiff and the defendants and consequently, the plaintiff has no
cause of action against them, considering that the complaint does not allege that
the plaintiff and the ‘Yek Tong Lin Fire and Marine Insurance Co., Ltd.’ are one and
the same or that the plaintiff has acquired the rights of the latter. The parties after
the admission of Exhibit A which is the amended articles of incorporation and
Exhibit 1 which is a demand letter dated August 16, 1962 signed by the manager
of the loans and discount department of the China Banking Corporation showing
that the promissory note up to said date in the sum of P4,500.00 was still unpaid,
submitted the case for decision based on the pleadings.”
Under date of 6 October 1962, the Court of First Instance of Manila rendered the
decision appealed. It dismissed the action with costs against the plaintiff Philippine
First Insurance Co., Inc., reasoning as follows:
“* * * with these undisputed facts in mind, the parties correctly concluded that the
issues for resolution by this Court are as follows:
1. “(a)Whether or not the plaintiff is the real party in interest that may validly
sue on the indemnity agreement signed by the defendants and the Yek
Tong Lin Fire & Marine Insurance Co., Ltd. (Annex A to plaintiff’s
complaint) ; and
2. “(b)Whether or not a suit for indemnity or reimbursement may under said
indemnity agreement prosper without plaintiff having yet paid the
amount due under said promissory note.
“In the first place, the change of name of the Yek Tong Lin Fire & Marine
Insurance Co., Ltd. to the Philippine First Insurance Co., Inc. is of dubious validity.
Such change of name in effect dissolved the original corporation by a process of
dissolution not authorized by our corporation law (see Secs. 62 and 67, inclusive,
of our Corporation Law). Moreover, said change of name, amounting to a
dissolution of the Yek Tong Lin Fire & Marine Insurance Co., Ltd., does not appear
to have been effected with the written note or assent of stockholders representing
at least two-thirds of the subscribed capital stock of the corporation, a voting
proportion required not only for the dissolution of a corporation but also for any
amendment of its articles of incorporation (Secs. 18 and 62, Corporation Law).
Furthermore, such change of corporate name appears to be against public policy
and may be effected only by express authority of law (Red Line Transportation Co.
v. Rural Transit
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Philippine First Insurance Co., Inc. vs. Hartigan
Co., Ltd., 60 Phil. 549, 555; Cincinnati Cooperage Co., Ltd. vs. Vate, 26 SW 538,
539; Pilsen Brewing Co. vs. Wallace, 125 NE 714), but there is nothing in our
corporation law authorizing the change of corporate name in this jurisdiction.
“In the second place, assuming that the change of name of the Yek Tong Lin
Fire & Marine Insurance Co., Ltd., to Philippine First Insurance Co., Inc., as
accomplished on March 8, 1961, is valid, that would mean that the original
corporation, the Yek Tong Lin Fire & Marine Insurance Co., Ltd., became dissolved
and of no further existence since March 8, 1961, so that on May 15, 1961, the date
the indemnity agreement. Annex A, was executed; said original corporation had no
more power to enter into any agreement with the defendants, and the agreement
entered into by it was ineffective for lack of capacity of said dissolved corporation
to enter into said agreement. At any rate, even if we hold that said change of name
is valid, the fact remains that there is no evidence showing that the new entity, the
Philippine First Insurance Co., Inc. has, with the consent of the original parties,
assumed the obligations or was assigned the rights of action in the original
corporation, the Yek Tong Lin Fire & Marine Insurance Co., Ltd. In other words,
there is no evidence of conventional subrogation of the plaintiffs in the rights of the
Yek Tong Lin Fire & Marine Insurance Co., Ltd. under said indemnity agreement
(Arts. 1300, 1301, New Civil Code). Without such subrogation, or assignment of
rights, the herein plaintiff has no cause of action against the defendants, and is,
therefore, not the right party in interest as plaintiff.
“Last, but not least, assuming that the said change of name was legal and
operated to dissolve the original corporation, the dissolved corporation, must
pursuant to Sec. 77 of our corporation law, be deemed as continuing as a body
corporate for three (3) years from March 8, 1961 for the purpose of prosecuting
and defending suits. It is, therefore, the Yek Tong Lin Fire & Marine Insurance Co.,
Ltd. that is the proper party to sue the defendants under said indemnity agreement
up to March 8, 1964.
“Having arrived at the foregoing conclusions, this Court need not squarely pass
upon issue (b) formulated above.
“WHEREFORE, plaintiff’s action is hereby dismissed, with costs against the
plaintiff.”
In due time, the Philippine First Insurance Company, Inc. moved for
reconsideration of the decision aforesaid, but said motion was denied on
December 3, 1962 in an order worded thus:
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“The motion for reconsideration, dated November 8, 1962, raises no new issue that
we failed to consider in rendering our decision of October 6, 1962. However, it
gives us an opportunity to amplify our decision as regards the question of change
of name of a corporation in this jurisdiction.
“We find nothing in our Corporation Law authorizing a change of name of a
corporation organized pursuant to its provisions. Sec. 18 of the Corporation Law
authorizes, in our opinion, amendment to the Articles of Incorporation of a
corporation only as to matters other than its corporate name. Once a corporation is
organized in this jurisdiction by the execution and registration of its Articles of
Incorporation, it shall continue to exist under its corporate name for the lifetime of
its corporate existence fixed in its Articles of Incorporation, unless sooner legally
dissolved (Sec 11, Corp. Law). Significantly, change of name is not one of the
methods of dissolution of corporations expressly authorized by our Corporation
Law. Also significant is the fact that the power to change its corporate name is not
one of the general powers conferred on corporations in this jurisdiction (Sec. 13,
Corp. Law). The enumeration of corporate powers made in our Corporation Law
implies the exclusion of all others (Thomas v. West Jersey R. Co., 101 U.S. 71, 25
L. ed. 950). It is obvious, in this connection, that change of name is not one of the
powers necessary to the exercise of the powers conferred on corporations by said
Sec. 13 (see Sec. 14, Corp. Law).
“To rule that Sec. 18 of our Corporation Law authorizes the change of name of
a corporation by amendment of its Articles of Incorporation is to indulge in judicial
legislation. We have examined the cases cited in Volume 13 of American
Jurisprudence in support of the proposition that the general power to alter or
amend the charter of a corporation necessarily includes the power to alter the
name of a corporation, and find no justification for said conclusion arrived at by the
editors of American Jurisprudence. On the contrary, the annotations in favor of
plaintiff’s view appear to have been based on decisions in cases where the statute
itself expressly authorizes chancre of corporate name by amendment of its Articles
of Incorporation. The correct rule in harmony with the provisions of our Corporation
Law is well expressed in an English case as follows:
‘After a company has been completely registered without defect or omission, so as
to be incorporated by the name set forth in the deed of settlement, such
incorporated company has not the power to change its name *** Although the King
by his prerogative might incorporate by a new name, and the newly named
corporation might retain former rights, and sometimes its former name also,
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* * * it never appears to be such an act as the corporation could do by itself, but
required the same power as created the corporation. (Reg. v. Registrar of Joint
Stock Cos. 10 Q.B. 839. 59 E.C.L. 839).’
The contrary view appears to represent the minority doctrine, judging from the
annotations on decided cases on the matter.
“The movant invokes as persuasive precedent the action of the Securities
Commissioner in tacitly approving the Amended Articles of Incorporation on May
26, 1961. We regret that we cannot in good conscience lend approval to this action
of the Securities and Exchange Commissioner. We find no justification, legal,
moral, or practical, for adhering to the view taken by the Securities and Exchange
Commissioner that the name of a corporation in the Philippines may be changed
by mere amendment of its Articles of Incorporation as to its corporate name. A
change of corporate name would serve no useful purpose, but on the contrary
would most probably cause confusion. Only a dubious purpose could inspire a
change of a corporate name which, unlike a natural person’s name, was chosen by
the incorporators themselves; and our Courts should not lend their assistance to
the accomplishment of dubious purposes.
“WHEREFORE, we hereby deny plaintiff’s motion for reconsideration, dated
November 8, 1962, for lack of merit.”
In this appeal appellant contends that—
“I
“THE TRIAL COURT ERRED IN HOLDING THAT IN THIS JURISDICTION,
THERE IS NOTHING IN OUR CORPORATION LAW AUTHORIZING THE
CHANGE OF CORPORATE NAME;
“II
‘‘THE TRIAL COURT ERRED IN DECLARING THAT A CHANGE OF
CORPORATE NAME APPEARS TO BE AGAINST PUBLIC POLICY;
“III
“THE TRIAL COURT ERRED IN HOLDING THAT A CHANGE OF
CORPORATE NAME HAS THE LEGAL EFFECT OF DISSOLVING THE
ORIGINAL CORPORATION;
“IV
“THE TRIAL COURT ERRED IN HOLDING THAT THE CHANGE OF NAME
OF THE YEK TONG LIN FIRE & MARINE INSURANCE CO., LTD. IS OF
DUBIOUS VALIDITY;
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Philippine First Insurance Co., Inc. vs. Hartigan
“V
“THE TRIAL COURT ERRED IN HOLDING THAT THE APPELLANT HEREIN IS
NOT THE RIGHT PARTY IN INTEREST TO SUE DEFENDANTS-APPELLEES;
“VI
“THE TRIAL COURT FINALLY ERRED IN DISMISSING THE COMPLAINT.”
Appellant’s position is correct; all the above assignments of error are well taken.
The whole case, however, revolves around only one question. May a Philippine
corporation change its name and still retain its original personality and individuality
as such?
The answer is not difficult to find. True, under Section 6 of the Corporation
Law, the first thing required to be stated in the Articles of Incorporation of any
corporation is its name, but it is only one among many matters equally if not more
important, that must be stated therein. Thus, it is also required, for example, to
state the number and names of and residences of the incorporators and the
residence or location of the principal office of the corporation, its term of existence,
the amount of its capital stock and the number of shares into which it is divided,
etc., etc.
On the other hand, Section 18 explicitly permits the articles of incorporation to
be amended thus:
“Sec. 18.—Any corporation may for legitimate corporate purpose or purposes,
amend its articles of incorporation by a majority vote of its board of directors or
trustees and the vote or written assent of two-thirds of its members, if it be a non-
stock corporation or, if it be a stock corporation, by the vote or written assent of the
stockholders representing at least two-thirds of the subscribed capital stock of the
corporation: Provided, however, That if such amendment to the articles of
incorporation should consist in extending the corporate existence or in any change
in the rights of holders of shares of any class, or would authorize shares with
preferences in any respect superior to those of outstanding shares of any class, or
would restrict the rights of any stockholder, then any stockholder who did not vote
for such corporate action may, within forty days after the date upon which such
action was authorized, object
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thererto in writing and demand payment for his shares. If, after such a demand by
a stockholder, the corporation and the stockholder cannot agree upon the value of
his share or shares at the time such corporate action was authorized, such value
shall be ascertained by three disinterested persons, one of whom shall be named
by the stockholder, another by the corporation, and the third by the two thus
chosen. The findings of the appraisers shall be final, and if their award is not paid
by the corporation within thirty days after it is made, it may be recovered in an
action by the stockholder against the corporation. Upon payment by the
corporation to the stockholder of the agreed or awarded price of his share or
shares, the stockholder shall forthwith transfer and assign the share or shares
held! by him as directed by the corporation: Provided, however, That their own
shares of stock purchased or otherwise acquired by banks, trust companies, and
insurance companies, should be disposed of within six months after acquiring title
thereto.
“Unless and until such amendment to the articles of incorporation shall have
been abandoned or the action rescinded, the stockholder making such demand in
writing shall cease to be a stockholder and shall have no rights with respect to
such shares, except the right to receive payment therefor as aforesaid.
“A stockholder; shall not be entitled to payment for his shares under the
provisions of this section unless the value of the corporate assets which would
remain after such payment would be at least equal to the aggregate amount of its
debts and liabilities and the aggregate par value and/or issued value of the
remaining subscribed capital stock.
“A copy of the articles of incorporation as amended, duly certified to be correct
by the president and the secretary of the corporation and a majority of the board of
directors or trustees, shall be filed with the Securities and Exchange
Commissioner, who shall attach the same to the original articles of incorporation,
on file in his office. From the time of filing such copy of the amended articles of
incorporation, the corporation shall have the same powers and it and the members
and stockholders thereof shall thereafter be subject to the same liabilities as if such
amendment had been embraced in the original articles of incorporation: Provided,
however, That should the amendment consist in extending the corporate life, the
extension shall not exceed 50 years in any one instance. Provided, further, That
the original articles and amended articles together shall contain all provisions
required by law to be set out in the articles of incorporation: And provided,
further, That nothing in this section shall be construed to authorize any corporation
to increase or diminish its capital stock or so as to effect any rights or actions
which accrued to others between the time of filing the
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original articles of incorporation and the filing of the amended articles.
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“The Securities and Exchange Commissioner shall be entitled to collect and
receive the sum of ten pesos for filing said copy of the amended articles of
incorporation. Provided, however, That when the amendment consists in extending
the term of corporate existence, the Securities and Exchange Commissioner shall
be entitled to collect and receive for the filing of its amended articles of
incorporation the same fees collectible under existing law for the filing of articles of
incorporation. The Securities & Exchange Commissioner shall not hereafter file
any amendment to the articles of incorporation of any bank, banking institution, or
building and loan association unless accompanied by a certificate of the Monetary
Board (of the Central Bank) to the effect that such amendment is in accordance
with law. (As further amended by Act No. 3610, Sec. 2 and Sec. 9. R.A. No. 337
and R.A. No. 3531.)”
It can be gleaned at once that this section does not only authorize corporations to
amend their charter; it also lays down the procedure for such amendment; and,
what is more relevant to the present discussion, it contains provisos restricting the
power to amend when it comes to the term of their existence and the increase or
decrease of the capital stock. There is no prohibition therein against the change of
name. The inference is clear thatsuch a change is allowed, for if the legislature had
intended to enjoin corporations from changing names, it would have expressly
stated so in this section or in any other provision of the law.
No doubt, “(the) name (of a corporation) is peculiarly important as necessary to
the very existence of a corporation. The general rule as to corporations is that each
corporation shall have a name by which it is to sue and be sued and do all legal
acts. The name of a corporation in this respect designates the corporation in the
1
same manner as the name of an individual designates the person.” Since an
individual has the right to change his name under certain conditions, there is no
compelling reason why a corporation may not enjoy the same right.
_______________
1
3 Am. Jur. 268. Sec. 131.
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There is nothing sacrosanct in a name when it comes to artificial beings. The
sentimental considerations which individuals attach to their names are not present
in corporations and partnerships. Of course, as in the case of an individual, such
change may not be made exclusively by the corporation’s own act. It has to follow
the procedure prescribed by law for the purpose; and this is what is important and
indispensably prescribed—strict adherence to such procedure.
Local well known corporation law commentators are unanimous in the view
that a corporation may change its name by merely amending its charter in the
 2
manner prescribed by law. American authorities which, have persuasive force
here in this regard because our corporation law is of American origin, the same
3
being a sort of codification of American corporate law, are of the same opinion.
“A general power to alter or amend the charter of a corporation necessarily
includes the power to alter the name of the corporation. Ft. Pitt Bldg., etc., Assoc,
v. Model Plan Bldg., etc., Assoc, 159 Pa. St. 308, 28 Atl. 215; In re Fidelity Mut.
Aid Assoc, 12 W.N.C. (Pa.) 271; Excelsior Oil Co., 3 Pa. Co. Ct. 184; Wetherill
Steel Casting Co., 5 Pa. Co. Ct. 337.
“Under the General Laws of Rhode Island, c 176, sec 7, relating to an increase
of the capital stock of a corporation, it is provided that ‘such agreement may be
amended in any other particular, excepting as provided in the following section’,
which relates to a decrease of the capital stock. This section has been held to
authorize a change in the name of a corporation. Armington v. Palmer, 21 R.I. 109,
42 Atl. 308, 43 L.R.A. 95,, 79 Am. St. Rep. 786.” (Vol. 19, American and English
Annotated Cases, p. 1239.)
______________
2
Pineda & Carlos, The Law on Private Corps. & Corp. Practice, (1960 ed.), p.
30; 3 Agbayani, Commercial Laws of the Phil. (1964 ed.) p. 1266; Salonga, Phil.
Law on Private Corps. (1952 ed.), p. 68; 4 Martin, Commentaries & Jurisprudence
on Phil. Commercial Laws (1961 Revised Edition with 1964 Supplement), p. 1505.
3
Harden vs. Benguet Consolidated Mining Company, 58 Phil. 141, 146.
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Fletcher, a standard authority on American and English corporation law also says:
“Statutes are to be found in the various jurisdictions dealing with the matter of
change in corporate names. Such statutes have been subjected to judicial
construction and have, in the main, been upheld as constitutional. In direct terms
or by necessary implication, they authorize corporations to adopt new names and
prescribe the mode of procedure for that purpose. The same steps must be taken
under some statutes to effect a change in a corporate name, as when any other
amendment of the corporate charter is sought xxx. When the general law thus
deals with the subject, a corporation can change its name only in the manner
provided.” (6 Fletcher, Cyclopedia of the Law of Private Corporations, 1968
Revised Volume, pp. 212-213.) (Italic Ours)
The learned trial judge held that the above-quoted propositions are not supported
by the weight of authority because they are based on decisions in cases where the
statutes expressly authorize change of corporate name by amendment of the
articles of incorporation. We have carefully examined these authorities and We are
satisfied of their relevance. Even Lord Denman who has been quoted by His Honor
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from In Reg. v. Registrar of Joint Stock Cos. 10, Q.B., 59 E.C.L. maintains merely
that the change of its name “never appears to be such an act as the corporation
could do for itself, but required the same power as created a corporation.” What
seems to have been overlooked, therefore, is that the procedure prescribed by
Section 18 of our Corporation Law for the amendment of corporate charters is
practically identical with that for the incorporation itself of a corporation.
In the appealed order of dismissal, the trial court made the observation that,
according to this Court in Red Line Transportation Co. v. Rural Transit Co.: Ltd., 60
Phil. 549, 555, change of name of a corporation is against public policy. We must
clarify that such is not the import of Our said decision. What this Court held in that
case is simply that:
“We know of no law that empowers the Public Service Commission or any court in
this jurisdiction to authorize one cor
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poration to assume the name of another corporation as a trade name. Both the
Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine
corporations and the very law of their creation and continued existence requires
each to adopt and certify a distinctive name. The incorporators ‘constitute a body
politic and corporate under the name stated in the certificate.’ (Section 11, Act No.
1459, as amended.) A corporation has the power ‘of succession by its corporate
name.’ (Section 13, ibid.) The name of a corporation is therefore essential to its
existence. It cannot change its name except in the manner provided by the statute.
By that name alone is it authorized to transact business. The law gives a
corporation no express or implied authority to assume another name that is
unappropriated; still less that of another corporation, which is expressly set apart
for it and protected by the law. If any corporation could assume at pleasure as an
unregistered trade name the name of another corporation, this practice would
result in confusion and open the door to frauds and evasions and difficulties of
administration and supervision. The policy of the law as expressed in cur
corporation statute and the Code of Commerce is clearly against such a practice.
(Cf. Scarsdale Pub. Co.—Colonial Press vs. Carter, 116 New York Supplement,
731; Svenska Nat. F. i. C. vs. Swedish Nat. Assn., 205 Illinois [Appellate Courts],
428, 434.)”
In other words, what We have held to be contrary to public policy is the use by one
corporation of the name of another corporation as its trade name. We are certain
no one will disagree that such an act can only “result in confusion and open the
door to frauds and evasions and difficulties of administration and supervision.”
Surely, the Red Line case was not one of change of name.
 Neither can We share the posture of His Honor that the change of name of a
corporation results in its dissolution. There is unanimity of authorities to the
contrary.
“An authorized change in the name of a corporation has no more effect upon its
identity as a corporation than a change of name of a natural person has upon his
identity. It does not affect the rights of the corporation or lessen or add to its
obligations. After a corporation has effected a change in its name it should sue and
be sued in its new name. * * *” (13 Am. Jur. 276-277, citing cases.)
“A mere change in the name of a corporation, either by the legislature or by the
corporators or stockholders under legislative authority, does not, generally
speaking, affect the identity
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of the corporation, nor in any way affect the rights, privileges, or obligations
previously acquired or incurred by it. Indeed, it has been said that a change of
name by a corporation has no more effect upon the identity of the corporation than
a change of name by a natural person has upon the identity of such person. The
corporation, upon such change in its name, is in no sense a new corporation, nor
the successor of the original one, but remains and continues to be the original
corporation. It is the same corporation with a different name, and its character is in
no respect changed. * * *”(6 Fletcher, Cyclopedia of the Law of Private
Corporations, 224-225, citing cases.)
“The change in the name of a corporation has no more effect upon its identity
as a corporation than a change of name of a natural person has upon his identity.
It does not affect the rights of the corporation, or lessen or add to its obligations.
“England.—Doe v. Norton. 11 M. & W. 913, 7 Jur. 751, 12 L. J. Exch. 418.
“United States.—Metropolitan Nat. Bank v. Claggett, 141 U.S. 520, 12 S. Ct.
60, 35 U.S. (L. ed.) 841.
“Alabama.—Lomb v. Pioneer Sav., etc., Co., 106 Ala. 591, 17 So. 670; North
Birmingham Lumber Co. v. Sims, 157 Ala. 595, 48 So. 84.
“Connecticut.—Trinity Church v. Hall, 22 Com. 125.
“Illinois.—Mt. Palatine Academy v. Kleinschnitz, 28 111. 133; St. Louis, etc. R.
Co. v. Miller, 43 111. 199; Reading v. Wedder, 66 111. 80.
“Indiana.—Rosenthal v. Madison, etc., Plank Road Co., 10 Ind. 358.
“Kentucky.—Cahill v. Biprger, 8 B. Mon. 211; Wilhite v. Convent of Good
Shepherd, 177 Ky. 251, 78 S. W. 138.
Maryland.—Phinney v. Sheppard & Enoch Pratt Hospital, 88 Md. 633, 42 Atl.
58, writ of error dismissed, 177 U.S. 170, 20 S. Ct. 573, 44 U.S. (L. ed.) 720.
“Missouri.—Dean v. La Motte Lead Co., 59 Mo. 523.
“Nebraska,—Carlon v. City Sav. Bank, 82 Neb. 532, 188 N. W. 334.
“New York,—First Soc. of M.E. Church v. Brownell, 5 Hun 464.
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“Pennsylvania.—Com. v. Pittsburgh, 41 Pa. St. 278.
“South Carolina.—South Carolina Mut. Ins. Co. v. Price 67 S.C. 207, 45 S.E.
173.
‘‘Virginia.—Wilson v. Chesapeake, etc., R. Co., 21 Gratt,
266
266 SUPREME COURT REPORTS ANNOTATED
Philippine First Insurance Co., Inc. vs. Hartigan
654; Wright-Caesar Tobacco Co. v. Hoen, 105 Va. 327, 54 S.E. 309.
“Washington.—King v. Ilwaco R. etc., Co.. 1 Wash. 127, 23 Pac. 924.
‘‘Wisconsin.—Racine County Bank v. Ayers, 12 Wis. 512.
“The fact that the corporation by its old name makes a formal transfer of its
property to the corporation by its new name does not of itself show that the change
in name has affected a change in the identity of the corporation. Palfrey v.
Association for Relief, etc., 110 La. 452, 34 So. 600. The fact that a corporation
organized as a state bank afterwards becomes a national bank by complying with
the provisions of the National Banking Act, and changes its name accordingly, has
no effect on its right to sue upon obligations or liabilities incurred to it by its former
name. Michigan Ins. Bank v. Eldred, 143 U.S. 293, 12 S. Ct. 450, 36 U.S. (L. ed.)
162.
“A deed of land to a church by a particular name has been held not to be
affected by the fact that the church afterwards took a different name. Cahill v.
Bigger, 8 B. Mon. (ky) 211.
“A change in the name of a corporation is not a divestiture of title or such a
change as requires a regular transfer of title to property, whether real or personal,
from the corporation under one name to the same corporation under another
name. McCloskey v. Doherty, 97 Ky. 300, 30 S. W. 649.” (19 American and
English Annotated Cases 1242-1243.)
As was very aptly said in Pacific Bank v. De Ro, 37 Cal. 538, “The changing of the
name of a corporation is no more the creation of a corporation than the changing of
the name of a natural person is the begetting of a natural person. The act, in both
cases, would seem to be what the language which we use to designate it
imports—a change of name, and not a change of being.”
Having arrived at the above conclusion, We have to agree with appellant’s
pose that the lower court also erred in holding that it is not the right party in interest
4
to sue defendants-appellees. As correctly pointed out by appellant, the approval
by the stockholders of the amendment of its articles of incorporation changing the
name
_______________
4
See fifth assignment of error. The fourth assigned error regarding the validity
of appellant’s change of name has been sufficiently discussed earlier.
 267
VOL. 34, JULY 31, 1970 267
Philippine First Insurance Co., Inc. vs. Hartigan .
“The Yek Tong Lin Fire & Marine Insurance Co., Ltd.” to “Philippine First Insurance
Co., Inc.” on March 8, 1961, did not automatically change the name of said
corporation on that date. To be effective, Section 18 of the Corporation Law, earlier
quoted, requires that “a copy of the articles of incorporation as amended, duly
certified to be correct by the president and the secretary of the corporation and a
majority of the board of directors or trustees, shall be filed with the
Securities & Exchange Commissioner”, and it is only from the time of such
filing, that “the corporation shall have the same powers and it and the members
and stockholders thereof shall thereafter be subject to the same liabilities as if such
amendment had been embraced in the original articles of incorporation.” It goes
without saying then that appellant rightly acted in its old name when on May 15,
1961, it entered into the indemnity agreement, Annex A, with the defendants-
appellees; for only after the filing of the amended articles of incorporation with the
Securities & Exchange Commission on May 26, 1961, did appellant legally acquire
its new name; and it was perfectly right for it to file the present case in that new
name on December 6, 1961. Such is, but the logical effect of the change of name
of the corporation upon its actions.
“Actions brought by a corporation after it has changed its name should be brought
under the new name although for the enforcement of rights existing at the time the
change was made. Lomb v. Pioneer Sav., etc., Co., 106 Ala. 591, 17 So.
670: Newlan v. Lombard University, 62 Ill. 195; Thomas v. Visitors of Frederick
County School, 7 Gill & J (Md.) 388; Delaware, etc., R. Co. v. Irick, 23 N. J. L.
321; Northumberland County Bank v. Eyer, 60 Pa. St. 436; Wilson v. Chesapeake,
etc., R. Co., 21 Gratt. (Va.) 654.
“The change in the name of the corporation does not affect its right to bring- an
action on a note given to the corporation under its former name. Cumberland
College v. Ish. 22 Cal 641; Northwestern College v. Schwa gler. 37 Ia. 577.” (19
American and English Annotated Cases 1243.)
In consequence, We hold that the lower court erred in dismissing appellant’s
complaint. We take this opportunity, however, to express the Court’s feeling that it
is
268
268 SUPREME COURT REPORTS ANNOTATED
Philippine First Insurance Co., Inc. vs. Hartigan
apparent, that appellee’s position is more technical than otherwise. Nowhere in the
record is it seriously pretended that the indebtedness sued upon has already been
paid. If appellees entertained any fear that they might again be made liable to Yek
Tong Lin Fire & Marine Insurance Co. Ltd., or to someone else in its behalf, a
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cursory examination of the records of the Securities & Exchange Commission
would have sufficed to clear up the fact that Yek Tong Lin had just changed its
name but it had not ceased to be their creditor. Everyone should realize that when
the time of the courts is utilized for cases which do not involve substantial
questions and the claim of one of the parties therein is based on pure technicality
that can at most delay only the ultimate outcome necessarily adverse to such party
because it has no real cause on the merits, grave injustice is committed to
numberless litigants whose meritorious cases cannot be given all the needed time
by the courts. We address this appeal once more to all members of the bar, in
particular, since it is their bounden duty to the profession and to our country and
people at large to help ease as fast as possible the clogged dockets of the courts.
Let us not wait until the people resort to other means to secure speedy, just and
inexpensive determination of their cases.
WHEREFORE, judgment of the lower court is reversed, and this case is
remanded to the trial court for further proceedings consistent herewith. With costs
against appellees.
SECOND DIVISION
[G.R. NO. 129552 : June 29, 2005]
P.C. JAVIER & SONS, INC., SPS. PABLO C. JAVIER, SR. and ROSALINA F.
JAVIER, Petitioners, v. HON. COURT OF APPEALS, PAIC SAVINGS &
MORTGAGE BANK, INC., SHERIFFS GRACE BELVIS, SOFRONIO VILLARIN,
PIO MARTINEZ and NICANOR BLANCO, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is an appeal by certiorari under Rule 45 of the Rules of Court which
1
seeks to set aside the decision of the Court of Appeals dated 31 January 1997
which affirmed in toto the decision of Branch 62 of the Regional Trial Court (RTC)
of Makati City, dismissing the complaint for Annulment of Mortgage and
Foreclosure with Preliminary Injunction, Prohibition and Damages filed by
2
petitioners, and its Resolution dated 20 June 1997 denying petitioners' motion for
reconsideration.
 3
A complaint for Annulment of Mortgage and Foreclosure with Preliminary
Injunction, Prohibition and Damages was filed by petitioners P.C. Javier & Sons,
Inc. and spouses Pablo C. Javier, Sr. and Rosalina F. Javier against PAIC Savings
& Mortgage Bank, Inc., Grace S. Belvis, Acting Ex Officio Regional Sheriff of
Pasig, Metro Manila and Sofronio M. Villarin, Deputy Sheriff-in-Charge, before
Branch 62 of the RTC of Makati City, on 07 May 1984. The case was docketed as
Civil Case No. 7184.
4
On 10 May 1984, a Supplemental Complaint was filed to include additional
defendants, namely: Pio Martinez, Acting Ex Officio Regional Sheriff of Antipolo,
Rizal, and Nicanor D. Blanco, Deputy Sheriff-in-Charge.
The facts that gave rise to the aforesaid complaint, as found by Branch 62 of the
RTC of Makati City, and adopted by the respondent court, are as follows:
In February, 1981, Plaintiff P.C. Javier and Sons Services, Inc., Plaintiff
Corporation, for short, applied with First Summa Savings and Mortgage Bank, later
on renamed as PAIC Savings and Mortgage Bank, Defendant Bank, for short, for a
loan accommodation under the Industrial Guarantee Loan Fund (IGLF) for P1.5
Million. On March 21, 1981, Plaintiff Corporation through Plaintiff Pablo C. Javier,
Plaintiff Javier for short, was advised that its loan application was approved and
that the same shall be forwarded to the Central Bank (CB) for processing and
release (Exhibit A also Exhibit 8).
The CB released the loan to Defendant Bank in two (2) tranches of P750,000
each. The first tranche was released to the Plaintiff Corporation on May 18, 1981 in
the amount of P750,000.00 and the second tranche was released to Plaintiff
Corporation on November 21, 1981 in the amount of P750,000.00. From the
second tranche release, the amount of P250,000.00 was deducted and deposited
in the name of Plaintiff Corporation under a time deposit.
Plaintiffs claim that the loan releases were delayed; that the amount
of P250,000.00 was deducted from the IGLF loan of P1.5 Million and placed under
time deposit; that Plaintiffs were never allowed to withdraw the proceeds of the
time deposit because Defendant Bank intended this time deposit as automatic
payments on the accrued principal and interest due on the loan. Defendant Bank,
however, claims that only the final proceeds of the loan in the amount
of P750,000.00 was delayed the same having been released to Plaintiff
Corporation only on November 20, 1981, but this was because of the shortfall in
the collateral cover of Plaintiff's loan; that this second tranche of the loan was
precisely released after a firm commitment was made by Plaintiff Corporation to
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cover the collateral deficiency through the opening of a time deposit using a portion
of the loan proceeds in the amount of P250,000.00 for the purpose; that in
compliance with their commitment to submit additional security and open time
deposit, Plaintiff Javier in fact opened a time deposit for P250,000.00 and on
February 15, 1983, executed a chattel mortgage over some machineries in favor of
Defendant Bank; that thereafter, Plaintiff Corporation defaulted in the payment of
its IGLF loan with Defendant Bank hence Defendant Bank sent a demand letter
dated November 22, 1983, reminding Plaintiff Javier to make payments because
their accounts have been long overdue; that on May 2, 1984, Defendant Bank sent
another demand letter to Plaintiff spouses informing them that since they have
defaulted in paying their obligation, their mortgage will now be foreclosed; that
when Plaintiffs still failed to pay, Defendant Bank initiated extrajudicial foreclosure
of the real estate mortgage executed by Plaintiff spouses and accordingly the
auction sale of the property covered by TCT No. 473216 was scheduled by the Ex
Officio Sheriff on May 9, 1984.
5
The instant complaint was filed to forestall the extrajudicial foreclosure sale of a
6
piece of land covered by Transfer Certificate of Title (TCT) No. 473216 mortgaged
by petitioner corporation in favor of First Summa Savings and Mortgage Bank
which bank was later renamed as PAIC Savings and Mortgage Bank, Inc. It
7
likewise asked for the nullification of the Real Estate Mortgages it entered into with
First Summa Savings and Mortgage Bank. The supplemental complaint added
several defendants who scheduled for public auction other real estate properties
contained in the same real estate mortgages and covered by TCTs No. N-5510,
8
No. 426872, No. 506346 and Original Certificate of Title No. 10146.
Several extrajudicial foreclosures of the mortgaged properties were scheduled but
9
were temporarily restrained by the RTC notwithstanding the denial of petitioners'
10
prayer for a writ of preliminary injunction. In an Order dated 10 December 1990,
the RTC ordered respondents-sheriffs to maintain the status quo and to desist from
further proceeding with the extrajudicial foreclosure of the mortgaged properties.
Among the issues raised by petitioners at the RTC are whether or not First Summa
Savings and Mortgage Bank and PAIC Savings and Mortgage Bank, Inc. are one
and the same entity, and whether or not their obligation is already due and
demandable at the time respondent bank commenced to extrajudicially foreclose
petitioners' properties in April 1984.
The RTC declared that First Summa Savings and Mortgage Bank and PAIC
Savings and Mortgage Bank, Inc. are one and the same entity and that petitioner
corporation is liable to respondent bank for the unpaid balance of its Industrial
Guarantee Loan Fund (IGLF) loans. The RTC further ruled that respondent bank
was justified in extrajudicially foreclosing the real estate mortgages executed by
petitioner corporation in its favor because the loans were already due and
demandable when it commenced foreclosure proceedings in April 1984.
In its decision dated 06 July 1993, the RTC disposed of the case as follows:
Premises considered, judgment is hereby rendered dismissing the Complaint
against Defendant Bank and ordering Plaintiffs to pay Defendant Bank jointly and
severally, the following:
1. The principal amount of P700,453.45 under P.N. No. 713 plus all the accrued
interests, liquidated damages and other fees due thereon from March 18, 1983
until fully paid as provided in said PN;
2. The principal amount of P749,879.38 under P.N. No. 841 plus all the accrued
interests, liquidated damages and other fees due thereon from September 1, 1982
until fully paid as provided in such PN;
3. The amount of P40,000.00 as actual damages;
4. The amount of P30,000.00 as exemplary damages;
5. The amount of P50,000.00 as attorney's fees; plus
6. Cost of suit.
11
12 13
Petitioners filed a Motion for Reconsideration which was opposed by
respondent bank. The motion was denied in an Order dated 11 May 1994.
Petitioners appealed the decision to the Court of Appeals. The latter
affirmed in toto the decision of the lower court. It also denied petitioners' motion for
reconsideration.
Hence, this appeal by certiorari.
Petitioners assigned the following as errors:
A. PUBLIC RESPONDENT COURT GRAVELY ERRED WHEN IT SUSTAINED
THE DISMISSAL OF PETITIONERS' COMPLAINT AND IN AFFIRMING THE
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RIGHT OF THE RESPONDENT BANK TO COLLECT THE IGLF LOANS IN LIEU
OF FIRST SUMMA SAVINGS AND MORTGAGE BANK WHICH ORIGINALLY
GRANTED SAID LOANS.
COROLLARY TO THE ABOVE ARGUMENT, THE PUBLIC RESPONDENT
COURT ALSO GRAVELY ERRED WHEN IT RULED THAT THE PETITIONERS
CANNOT WITHHOLD THEIR PAYMENT TO THE RESPONDENT BANK
NOTWITHSTANDING THE ADMITTED INABILITY OF THE RESPONDENT BANK
TO FURNISH THE PETITIONERS THE SAID REQUESTED DOCUMENTS.
b. PUBLIC RESPONDENT COURT GRAVELY ERRED WHEN IT SUSTAINED
THE COLLECTION OF THE ENTIRE PROCEEDS OF THE IGLF LOANS OF
P1,500,000.00 DESPITE THE FACT THAT THE P250,000.00 OF THIS LOAN
WAS WITHHELD BY THE FIRST SUMMA SAVINGS AND MORTGAGE BANK TO
BECOME PART OF THE COLLATERALS TO THE SAID P1,500,000.00 LOAN.
c. PUBLIC RESPONDENT COURT GRAVELY ERRED WHEN IT SUSTAINED
THE DAMAGES AWARDED TO THE RESPONDENT BANK DESPITE THE
ABSENCE OF MALICE OR BAD FAITH ON THE PART OF THE PETITIONERS
IN FILING THIS CASE AGAINST THE RESPONDENT BANK.
On the first assigned error, petitioners argue that they are legally justified to
withhold their amortized payments to the respondent bank until such time they
would have been properly notified of the change in the corporate name of First
Summa Savings and Mortgage Bank. They claim that they have never received
any formal notice of the alleged change of corporate name of First Summa Savings
and Mortgage Bank to PAIC Savings & Mortgage Bank, Inc. They further claim that
the only and first time they received formal evidence of a change in the corporate
name of First Summa Savings and Mortgage Bank surfaced when respondent
bank presented its witness, Michael Caguioa, on 03 April 1990, where he
presented the Securities and Exchange Commission (SEC) Certificate of Filing of
the Amended Articles of Incorporation of First Summa Savings and Mortgage
14 15
Bank, the Central Bank (CB) Certificate of Authority to change the name of First
Summa Savings and Mortgage Bank to PAIC Savings and Mortgage Bank, Inc.,
16
and the CB Circular Letter dated 27 June 1983.
Their argument does not hold water. Their defense that they should first be
formally notified of the change of corporate name of First Summa Savings and
Mortgage Bank to PAIC Savings and Mortgage Bank, Inc., before they will
continue paying their loan obligations to respondent bank presupposes that there
exists a requirement under a law or regulation ordering a bank that changes its
corporate name to formally notify all its debtors. After going over the Corporation
Code and Banking Laws, as well as the regulations and circulars of both the SEC
and the Bangko Sentral ng Pilipinas (BSP), we find that there is no such
requirement. This being the case, this Court cannot impose on a bank that
changes its corporate name to notify a debtor of such change absent any law,
circular or regulation requiring it. Such act would be judicial legislation. The formal
notification is, therefore, discretionary on the bank. Unless there is a law,
regulation or circular from the SEC or BSP requiring the formal notification of all
debtors of banks of any change in corporate name, such notification remains to be
a mere internal policy that banks may or may not adopt.
In the case at bar, though there was no evidence showing that petitioners were
furnished copies of official documents showing the First Summa Savings and
Mortgage Bank's change of corporate name to PAIC Savings and Mortgage Bank,
Inc., evidence abound that they had notice or knowledge thereof. Several
17
documents establish this fact. First, letter dated 16 July 1983 signed by
Raymundo V. Blanco, Accountant of petitioner corporation, addressed to PAIC
Savings and Mortgage Bank, Inc. Part of said letter reads: "In connection with your
inquiry as to the utilization of funds we obtained from the former First Summa
18
Savings and Mortgage Bank, . . ." Second, Board Resolution of petitioner
corporation signed by Pablo C. Javier, Sr. on 24 August 1983 authorizing him to
execute a Chattel Mortgage over certain machinery in favor of PAIC Savings and
19
Mortgage Bank, Inc. Third, Secretary's Certificate signed by Fortunato E. Gabriel,
Corporate Secretary of petitioner corporation, on 01 September 1983, certifying
that a board resolution was passed authorizing Mr. Pablo C. Javier, Sr. to execute
a chattel mortgage on the corporation's equipment that will serve as collateral to
cover the IGLF loan with PAIC Savings and Mortgage Bank, Inc. Fourth, undated
20
letter signed by Pablo C. Javier, Sr. and addressed to PAIC Savings and
Mortgage Bank, Inc., authorizing Mr. Victor F. Javier, General Manager of
petitioner corporation, to secure from PAIC Savings and Mortgage Bank, Inc.
certain documents for his signature.
From the foregoing documents, it cannot be denied that petitioner corporation was
aware of First Summa Savings and Mortgage Bank's change of corporate name to
PAIC Savings and Mortgage Bank, Inc. Knowing fully well of such change,
petitioner corporation has no valid reason not to pay because the IGLF loans were
applied with and obtained from First Summa Savings and Mortgage Bank. First
Summa Savings and Mortgage Bank and PAIC Savings and Mortgage Bank, Inc.,
are one and the same bank to which petitioner corporation is indebted. A change in
the corporate name does not make a new corporation, whether effected by a
special act or under a general law. It has no effect on the identity of the
21
corporation, or on its property, rights, or liabilities. The corporation, upon such
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change in its name, is in no sense a new corporation, nor the successor of the
original corporation. It is the same corporation with a different name, and its
22
character is in no respect changed.
Anent the second assigned error, this Court rules that respondent court did not err
when it sustained the collection of the entire proceeds of the IGLF loans amounting
to P1,500,000.00 despite the withholding of P250,000.00 to become part of the
collaterals to the said P1,500,000.00 IGLF loan.
Petitioners contend that the collaterals they submitted were more than sufficient to
cover the P1,500,000.00 IGLF loan. Such contention is untenable. Petitioner
corporation was required to place P250,000.00 in a time deposit with respondent
bank for the simple reason that the collateral it put up was insufficient to cover the
IGLF loans it has received. It admitted the shortfall of its collateral when it
23
authorized petitioner Pablo C. Javier, Sr., via a board resolution, to execute a
chattel mortgage over certain machinery in favor of PAIC Savings and Mortgage
24
Bank, Inc. which was certified by its corporate secretary. If the collateral it put up
was sufficient, why then did it execute another chattel
mortgage?chanroblesvirtualawlibrary
In his order dated 07 September 1984, Hon. Rafael T. Mendoza found that the
loanable value of the lands, buildings, machinery and equipment amounted only to
P934,000.00. The order reads in part:
The terms and conditions of the IGLF loan extended to plaintiff corporation are
governed by the loan and security documents evidencing said loan. Although the
loan agreement was approved by the defendant bank, the same has to be
processed and be finally approved by the Central Bank of the Philippines, in
pursuance to the IGLF program, of which the defendant bank is an accredited
participant. The defendant had to await Central Bank's advise (sic) regarding the
final approval of the loan before the release of the proceeds thereof. The proceeds
of the loan was released to the plaintiff on 6 April and November 20, 1981, and the
final proceeds was released only on November 20, 1981, on account of short fall in
the collateral covered by the lands and buildings as well as the machineries and
equipment then subject of the existing mortgages in favor of the defendant bank,
having only a loanable value of P934,000.00, and only after a firm commitment
made by plaintiff corporation to the defendant bank to correct the collateral
deficiency thru the execution of a chattel mortgage on additional machineries,
equipment and tools and thru the opening of a time deposit with PAIC Bank using
a portion of the loan proceeds in the amount of P250,000.00 to answer for its
obligation to the defendant bank under the IGLF loan was the final proceeds of the
loan released in favor of the plaintiffs. The delay in the release of the final to cover its IGLF loans. If petitioner corporation was really bent on questioning the
25
proceeds of the IGLF loan was due to the aforestated collateral deficiency. reasonableness of putting up the aforementioned amount as additional collateral, it
should have done immediately after it made the time deposits on 26 November
As declared by the respondent court, the finding in said order was not disputed in 1981. This, it did not do. It questioned the placing of the time deposits only on 08
33
the appeal before it. It said that what was contained in petitioners' brief was that February 1984 or long after defendant bank had already demanded full payment
"their loans were 'overcollateralized,' and fail to specify why or in what manner it of the loans, then amounting to P2,045,401.79 as of 22 November 1983. It is too
26
was so." Having failed to raise this issue before the respondent court, petitioners late in the day for petitioner corporation to question the placing of the P250,000.00
thus cannot raise this issue before this Court. Moreover, since the issue of whether in time deposits after it failed to pay its loan obligations as scheduled, making them
or not the collateral put up by petitioners is sufficient is factual, the same is not due and demandable, and after a demand for full payment has been made. We will
proper for this Court's consideration. The basic rule is that factual questions are not allow petitioner corporation to have one's cake and eat it too.
27
beyond the province of the Supreme Court in a Petition for Review .
As regards the payments made by petitioner corporation, respondent court has this
Petitioners maintain that to collect the P250,000.00 from them would be a clear to say:
case of unjust enrichment because they have not availed or used said amount for
the same was unlawfully withheld from them. The trial court held, based on plaintiffs' own exhibits, that plaintiff[s] made the
following payments:
We do not agree. The fundamental doctrine of unjust enrichment is the transfer of
value without just cause or consideration. The elements of this doctrine are: On Promissory Note No. 713:
enrichment on the part of the defendant; impoverishment on the part of the plaintiff;
and lack of cause. The main objective is to prevent one to enrich himself at the
28
expense of another. It is commonly accepted that this doctrine simply means that Date Actual Date of Amount
a person shall not be allowed to profit or enrich himself inequitably at another's (Per PN Schedule) Payment
29
expense. In the instant case, there is no unjust enrichment to speak of. The
amount of P225,905.79 was applied as payment for petitioner corporation's loan July 6, 1981 August 3, 1981 P 28,125.00
which was taken from the P250,000.00, together with its accrued interest, that was
placed in time deposit with First Summa Savings and Mortgage Bank. The use of October 6, 1981 October 28, 1981 28,836.13
said amount as payment was approved by petitioner Pablo C. Javier, Sr. on 17
30
March 1983. As further found by the RTC in its decision, the balance of the time January 6, 1982 January 22, 1982 29,227.38
31
deposit was withdrawn by petitioners. March 17, 1983 225,905.79

Petitioner corporation faults respondent bank, then known as First Summa Savings
and Mortgage Bank, for requiring it to put up as additional collateral the amount of TOTAL P 312,094.30
P250,000.00 inasmuch as the CB never required it to do so. It added that
respondent bank took advantage of its urgent and immediate need at the time for And on Promissory Note No. 841:
the proceeds of the IGLF loans that it had no choice but to comply with respondent
bank's requirement to put in time deposits the said amount as additional collateral.
Date Actual Date of
Amount
We agree with respondent court that the questioning of the propriety of the placing (Per PN Schedule) Payment
32
of the P250,000.00 in time deposits with respondent bank as additional collateral
was belatedly made. As above-discussed, the requirement to give additional February 20, 1982 April 13, 1982 P 28,569.30
collateral was warranted because the collateral petitioner corporation put up failed

Corporation  Law  Cases  –  Batch  3  

 
May 20, 1982 July 7, 1982 29,254.31
August 20, 1982 August 31, 1982 36,795.44
TOTAL P 94,619.05
Plaintiff-appellant[s] does not dispute the finding, which is obvious from the
foregoing summary, that plaintiff[s] stopped payments on March 17, 1983 on
Promissory Note No. 713, and on August 31, 1982 on Promissory Note No. 841.
By simply looking at the amortization schedule attached to the two promissory
notes, it is clear that plaintiff[s] already defaulted on its loan obligations when the
defendant Bank gave notice of the foreclosure proceedings on April 28, 1984. On
amortization payments alone, plaintiff[s] should have paid a total of P459,339 as of
April 6, 1984 on Promissory [Note] No. 713, and a total of P328,173.00 as of
February 20, 1984 on Promissory Note [No.] 841. No extended computation is
necessary to demonstrate that, even without imputing the liquidated damages
equivalent to 2% a month on the delayed payments (see second paragraph of the
promissory notes), the plaintiffs were grossly deficient in amortization payments,
and already in default when the foreclosure proceedings were commenced.
Further, we note that under the terms of the promissory note, "failure to pay an
installment when due shall entitle the bank or its assign to declare all the
34
obligations as immediately due and payable" (second paragraph).
As to the third assigned error, petitioners argue that there being no malice or bad
faith on their part when they filed the instant case, no damages should have been
awarded to respondent bank.
We cannot sustain such argument. The presence of malice or bad faith is very
evident in the case before us. By the documents it executed, petitioner corporation
was well aware that First Summa Savings and Mortgage Bank changed its
corporate name to PAIC Savings and Mortgage Bank, Inc. Despite knowledge that
First Summa Savings and Mortgage Bank and PAIC Savings and Mortgage Bank,
Inc., are one and the same entity, it pretended otherwise. It used this purported
ignorance as an excuse to renege on its obligation to pay its loans after they
became due and after demands for payment were made, claiming that it never
obtained the loans from respondent bank.
No good faith was shown by petitioner corporation. If it were in good faith in
complying with its loan obligations since it believed that respondent bank had no
right to the payment, it should have made a valid consignation in court. This, it did
not do. If petitioner corporation were at a loss as to who should receive the
payment, it could have easily taken steps and inquired from the SEC, CB of the
Philippines or from the bank itself from which it received the loans and to where it
made previous payments. Further, the fact that it was respondent bank that was
demanding payment for loans already due and demandable and not First Summa
Savings and Mortgage Bank is sufficient to make petitioner corporation wonder
why this is so. It never took any initiative to clear the matter. Instead, it paid no
attention to the valid demands of respondent bank.
The awarding of actual and compensatory damages, as well as attorney's fees, is
justified under the circumstances. We quote with approval the reasons given by the
RTC for the grant of the same:
Considering that Defendant Bank had been prevented at least four (4) times from
foreclosing the mortgages (i.e., Temporary Restraining Orders of May 9 and 19
and October 22, 1984 and status quo order of December 10, 1990 enjoining the
extrajudicial foreclosure sales of May 9 and 16 and October 23, 1984 and
December 20, 1990, respectively), it is proper that Defendant Bank be reimbursed
its actual expenses. The amount of P40,000.00 is reasonable reimbursement for
the publication and other expenses incurred in the four (4) extrajudicial
foreclosures which were enjoined by the Court. Considering the wanton and
reckless filing of this clearly unfounded and baseless legal action and the fact that
Defendant Bank had to defend itself against such suit, attorney's fees in the
amount of P50,000.00 should be paid by the Plaintiffs to the Defendant Bank.
Defendant Bank failed to adduce indubitable proof on the moral and exemplary
damages that it seeks. Nevertheless, since such proof is not absolutely necessary
and primarily as an example for the public good to deter others from filing a similar
clearly unfounded legal action, Defendant Bank should be entitled to an award of
35
exemplary damages.
This Court finds that petitioners failed to comply with what is incumbent upon them
- to pay their loans when they became due. The lame excuse they belatedly
advanced for their non-payment cannot and should not prevent respondent bank
from exercising its right to foreclose the real estate mortgages executed in its
favor.
WHEREFORE, premises considered, the Court of Appeals decision dated 31
January 1997 and its resolution dated 20 June 1997 are hereby AFFIRMED in
toto. Costs against petitioners.

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SO ORDERED.
G.R. No. 157900. July 22, 2013.
* in Philippine First Insurance Co., Inc. v. Hartigan, 34 SCRA 252 (1970): “The
ZUELLIG FREIGHT AND CARGO SYSTEMS, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION and RONALDO V. SAN MIGUEL, respondents.
Remedial Law; Special Civil Actions; Certiorari; Grave Abuse of Discretion;
Words and Phrases; In a special civil action for certiorari brought against a court or
quasi-judicial body with jurisdiction over a case, petitioner carries the burden of
proving that the court or quasi-judicial body committed not a merely reversible error
but a grave abuse of discretion amounting to lack or excess of jurisdiction in
issuing the impugned order.—Indeed, in a special civil action for certiorari brought
against a court or quasi-judicial body with jurisdiction over a case, petitioner carries
the burden of proving that the court or quasi-judicial body committed not a merely
reversible error but a grave abuse of discretion amounting to lack or excess of
jurisdiction in issuing the impugned order. Showing mere abuse of discretion is not
enough, for it is necessary to demonstrate that the abuse of discretion was grave.
Grave abuse of discretion means either that the judicial or quasi-judicial power was
exercised in an arbitrary or despotic manner by reason of passion or personal
hostility, or that the respondent judge, tribunal or board evaded a positive duty, or
virtually refused to perform the duty enjoined or to act in contemplation of law, such
as when such judge, tribunal or board exercising judicial or quasi-judicial powers
acted in a capricious or whimsical manner as to be equivalent to lack of
jurisdiction. Under the circumstances, the CA committed no abuse of discretion,
least of all grave, because its justifications were supported by the records and by
the applicable laws and jurisprudence.
Corporation Law; Dissolution of Corporation; The Corporation Code defined
and delineated the different modes of dissolving a corporation, and amendment of
the articles of incorporation was not one of such modes.—The unanimous
conclusions of the CA, the NLRC and the Labor Arbiter, being in accord with law,
were not tainted with any abuse of discretion, least of all grave, on the part of the
_______________
* FIRST DIVISION.
562
5 SUPREME COURT REPORTS
62 ANNOTATED
Zuelling Freight and Cargo Systems vs. National
Labor Relations Commission
NLRC. Verily, the amendments of the articles of incorporation of Zeta to
change the corporate name to Zuellig Freight and Cargo Systems, Inc. did not
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 Law
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 3
produce the dissolution of the former as a corporation. For sure, the Corporation
Code defined and delineated the different modes of dissolving a corporation, and
amendment of the articles of incorporation was not one of such modes. The effect
of the change of name was not a change of the corporate being, for, as well stated
changing of the name of a corporation is no more the creation of a corporation than
the changing of the name of a natural person is begetting of a natural person. The
act, in both cases, would seem to be what the language which we use to designate
it imports — a change of name, and not a change of being.”
Attorney’s Fees; Petitioner’s refusal to reinstate San Miguel with backwages
and other benefits to which he had been legally entitled was unjustified, thereby
entitling him to recover attorney’s fees.—The CA rightfully upheld the NLRC’s
affirmance of the grant of attorney’s fees to San Miguel. Thereby, the NLRC did not
commit any grave abuse of its discretion, considering that San Miguel had been
compelled to litigate and to incur expenses to protect his rights and interest.
In Producers Bank of the Philippines v. Court of Appeals, 365 SCRA 326 (2001),
the Court ruled that attorney’s fees could be awarded to a party whom an
unjustified act of the other party compelled to litigate or to incur expenses to
protect his interest. It was plain that petitioner’s refusal to reinstate San Miguel with
backwages and other benefits to which he had been legally entitled was
unjustified, thereby entitling him to recover attorney’s fees.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Castillo, Laman, Tan, Pantaleon & San Jose for petitioner.
Bolisay & Partners Law Offices for Ronaldo V. San Miguel.
563
VOL. 701, JULY 22, 2013 563
Zuelling Freight and Cargo Systems vs. National Labor
Relations Commission
BERSAMIN, J.:
The mere change in the corporate name is not considered under the law as the
creation of a new corporation; hence, the renamed corporation remains liable for
the illegal dismissal of its employee separated under that guise.
The Case
Petitioner employer appeals the decision promulgated on November 6,
1
2002, whereby the Court of Appeals (CA) dismissed its petition for certiorari and
upheld the adverse decision of the National Labor Relations Commission (NLRC)
finding respondent Ronaldo V. San Miguel to have been illegally dismissed.
Antecedents
San Miguel brought a complaint for unfair labor practice, illegal dismissal, non-
payment of salaries and moral damages against petitioner, formerly known as Zeta
2
Brokerage Corporation (Zeta). He alleged that he had been a checker/customs
representative of Zeta since December 16, 1985; that in January 1994, he and 4 Id., at pp. 120-121.
other employees of Zeta were informed that Zeta would cease operations, and that 5 Id., at pp. 118-126.
all affected employees, including him, would be separated; that by letter dated 565
February 28, 1994, Zeta informed him of his termination effective March 31, 1994; VOL. 701, JULY 22, 2013 565
that he reluctantly accepted his separation pay subject to the standing offer to be
hired to his former position by petitioner; and that on April 15, 1994, he was Zuelling Freight and Cargo Systems vs. National Labor
summarily terminated, without any valid cause and due process. Relations Commission
_______________ the VAT Department of the Bureau of Internal Revenue on 08 June 1994
1 Rollo, pp. 26-36; penned by Associate Justice Remedios A. Salazar- (Reply, Annex “A”). As such, the termination of complainant’s services
Fernando, with Associate Justice Ruben T. Reyes (later Presiding Justice and allegedly due to cessation of business operations of Zeta is deemed illegal.
Member of the Court, since retired) and Associate Justice Edgardo F. Sundiam Notwithstanding his receipt of separation benefits from respondents,
(retired/deceased) concurring. complainant is not estopped from questioning the legality of his dismissal.
6
2 Id., at p. 28. xxxx
564 WHEREFORE, in view of the foregoing, complainant is found to have
564 SUPREME COURT REPORTS ANNOTATED been illegally dismissed. Respondent Zuellig Freight and Cargo Systems,
Inc. is hereby ordered to pay complainant his backwages from April 1, 1994
Zuelling Freight and Cargo Systems vs. National Labor
up to November 15, 1999, in the amount of THREE HUNDRED TWENTY
Relations Commission FOUR THOUSAND SIX HUNDRED FIFTEEN PESOS (P324,615.00).
San Miguel contended that the amendments of the articles of incorporation of The same respondent is ordered to pay the complainant Ronaldo San
Zeta were for the purpose of changing the corporate name, broadening the primary Miguel attorney’s fees equivalent to ten percent (10%) of the total award.
functions, and increasing the capital stock; and that such amendments could not All other claims are dismissed.
3 7
mean that Zeta had been thereby dissolved. SO ORDERED.
On its part, petitioner countered that San Miguel’s termination from Zeta had Decision of the NLRC
been for a cause authorized by the Labor Code; that its non-acceptance of him had Petitioner appealed, but the NLRC issued a resolution on April 4,
8
not been by any means irregular or discriminatory; that its predecessor-in-interest 2001, affirming the decision of the Labor Arbiter.
had complied with the requirements for termination due to the cessation of The NLRC later on denied petitioner’s motion for reconsideration via its
9
business operations; that it had no obligation to employ San Miguel in the exercise resolution dated June 15, 2001.
of its valid management prerogative; that all employees had been given sufficient Decision of the CA
time to make their decision whether to accept its offer of employment or not, but he Petitioner then filed a petition for certiorari in the CA, imputing to the NLRC
had not responded to its offer within the time set; that because of his failure to grave abuse of discretion amounting to lack or excess of jurisdiction, as follows:
meet the deadline, the offer had expired; that he had nonetheless been hired on a _______________
temporary basis; and that when it decided to hire another employee instead of San 6 Id., at p. 122.
4
Miguel, such decision was not arbitrary because of seniority considerations. 7 Id., at pp. 125-126.
Decision of the Labor Arbiter 8 Id., at pp. 157-168.
On November 15, 1999, Labor Arbiter Francisco A. Robles rendered a decision 9 Id., at p. 180.
5
holding that San Miguel had been illegally dismissed, to wit: 566
Contrary to respondents’ claim that Zeta ceased operations and closed 566 SUPREME COURT REPORTS ANNOTATED
its business, we believe that there was merely a change of business name
and primary purpose and upgrading of stocks of the corporation. Zuellig Zuelling Freight and Cargo Systems vs. National Labor
and Zeta are therefore legally the same person and entity and this was Relations Commission
admitted by Zuellig’s counsel in its letter to 1. In failing to consider the circumstances attendant to the cessation of
_______________ business of Zeta;
3 Id., at pp. 118-119.

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 2. In failing to consider that San Miguel failed to meet the deadline Zeta fixed
for its employees to accept the offer of petitioner for re-employment;
3. In failing to consider that San Miguel’s employment with petitioner from April
1 to 15, 1994 could in no way be interpreted as a continuation of
employment with Zeta;
4. In admitting in evidence the letter dated January 21, 1994 of petitioner’s
counsel to the Bureau of Internal Revenue; and
5. In awarding attorney’s fees to San Miguel based on Article 2208 of the Civil
Code and Article 111 of the Labor Code.
On November 6, 2002, the CA promulgated its assailed decision dismissing
10
the petition for certiorari, viz.:
A careful perusal of the records shows that the closure of business
operation was not validly made. Consider the Certificate of Filing of the
Amended Articles of Incorporation which clearly shows that petitioner
Zuellig is actually the former Zeta as per amendment dated January 21,
1994. The same observation can be deduced with respect to the Certificate
of Filing of Amended By-Laws dated May 10, 1994. As aptly pointed out by
private respondent San Miguel, the amendment of the articles of
incorporation merely changed its corporate name, broadened its primary
purpose and increased its authorized capital stocks. The requirements
contemplated in Article 283 were not satisfied in this case. Good faith was
not established by mere registration with the Securities and Exchange
Commission (SEC) of the Amended Articles of Incorporation and By-Laws.
The factual milleu of the case, considered in its totality, shows that there
was
_______________
10 Supra note 1.
567
VOL. 701, JULY 22, 2013 567
Zuelling Freight and Cargo Systems vs. National Labor
Relations Commission
no closure to speak of. The termination of services allegedly due to
cessation of business operations of Zeta was illegal. Notwithstanding
private respondent San Miguel’s receipt of separation benefits from
petitioner Zuellig, the former is not estopped from questioning the legality of
his dismissal.
Petitioner Zuellig’s allegation that the five employees who refused to
receive the termination letters were verbally informed that they had
until 6:00 p.m. of March 1, 1994 to receive the termination letters and sign
the employment contracts, otherwise the former would be constrained to
withdraw its offer of employment and seek for replacements in order to
ensure the smooth operations of the new company from its opening date, is
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of no moment in view of the foregoing circumstances. There being no valid
closure of business operations, the dismissal of private respondent San
Miguel on alleged authorized cause of cessation of business pursuant to
Article 283 of the Labor Code, was utterly illegal. Despite verbal notice that
the employees had until 6:00 p.m. of March 1, 1994 to receive the
termination letters and sign the employment contracts, the dismissal was
still illegal for the said condition is null and void. In point of facts and law,
private respondent San Miguel remained an employee of petitioner Zuellig.
If at all, the alleged closure of business operations merely operates to
suspend employment relation since it is not permanent in character.
Where there is no showing of a clear, valid, and legal cause for the
termination of employment, the law considers the matter a case of illegal
dismissal and the burden is on the employer to prove that the termination
was for a valid or authorized cause.
Findings of facts of the NLRC, particularly when both the NLRC and
Labor Arbiter are in agreement, are deemed binding and conclusive upon
the Supreme Court.
As regards the second and last argument advanced by petitioner
Zuellig that private respondent San Miguel is not entitled to attorney’s fees,
this Court finds no reason to disturb the ruling of the public respondent
NLRC.
568
568 SUPREME COURT REPORTS ANNOTATED
Zuelling Freight and Cargo Systems vs. National Labor
Relations Commission
Petitioner Zuellig maintains that the factual backdraft (sic) of this petition
does not call for the application of Article 2208 of the Civil Code and Article
111 of the Labor Code as private respondent’s wages were not withheld.
On the other hand, public respondent NLRC argues that paragraphs 2 and
3, Article 2208 of the Civil Code and paragraph (a), Article 111 of the Labor
Code justify the award of attorney’s fees. NLRC was saying to the effect
that by petitioner Zuellig’s act of illegally dismissing private respondent San
Miguel, the latter was compelled to litigate and thus incurred expenses to
protect his interest. In the same passion, private respondent San Miguel
contends that petitioner Zuellig acted in gross and evident bad faith in
refusing to satisfy his plainly valid, just and demandable claim.
After careful and judicious evaluation of the arguments advanced to
support the propriety or impropriety of the award of attorney’s fees to
private respondent San Miguel, this Court finds the resolutions of public
respondent NLRC supported by laws and jurisprudence. It does not need
much imagination to see that by reason of petitioner Zuellig’s feigned
closure of business operations, private respondent San Miguel incurred
 expenses to protect his rights and interests. Therefore, the award of
attorney’s fees is in order.
WHEREFORE, in view of the foregoing, the resolutions dated April 4,
2001 and June 15, 2001 of the National Labor Relations Commission
affirming the November 15, 1999 decision of the Labor Arbiter in NLRC
NCR 05-03639-94 (CA No. 022861-00) are hereby AFFIRMED and the
instant petition for certiorari is hereby DENIED and ordered DISMISSED.
SO ORDERED.
Hence, petitioner appeals.
Issues
Petitioner asserts that the CA erred in holding that the NLRC did not act with
grave abuse of discretion in ruling that
569
VOL. 701, JULY 22, 2013 569
Zuelling Freight and Cargo Systems vs. National Labor
Relations Commission
the closure of the business operation of Zeta had not been bona fide, thereby
resulting in the illegal dismissal of San Miguel; and in holding that the NLRC did
not act with grave abuse of discretion in ordering it to pay San Miguel attorney’s
11
fees.
12
In his comment, San Miguel counters that the CA correctly found no grave
abuse of discretion on the part of the NLRC because the ample evidence on record
showed that he had been illegally terminated; that such finding accorded with
applicable laws and jurisprudence; and that he was entitled to back wages and
attorney’s fees.
13
In its reply, petitioner reiterates that the cessation of Zeta’s business, which
resulted in the severance of San Miguel from his employment, was valid; that the
CA erred in upholding the NLRC’s finding that San Miguel had been illegally
terminated; that his acknowledgment of the validity of his separation from Zeta by
signing a quitclaim and waiver estopped him from claiming that it had subsequently
employed him; and that the award of attorney’s fees had no basis in fact and in
law.
Ruling
The petition for review on certiorari is denied for its lack of merit.
First of all, the outcome reached by the CA that the NLRC did not commit any
grave abuse of discretion was borne out by the records of the case. We cannot
undo such finding without petitioner making a clear demonstration to the Court now
that the CA gravely erred in passing upon the petition for certiorari of petitioner.
_______________
11 Id., at p. 9.
12 Id., at pp. 230-234.
13 Id., at pp. 539-543.
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570
570 SUPREME COURT REPORTS ANNOTATED
Zuelling Freight and Cargo Systems vs. National Labor
Relations Commission
Indeed, in a special civil action for certiorari brought against a court or quasi-
judicial body with jurisdiction over a case, petitioner carries the burden of proving
that the court or quasi-judicial body committed not a merely reversible error but a
grave abuse of discretion amounting to lack or excess of jurisdiction in issuing the
14
impugned order. Showing mere abuse of discretion is not enough, for it is
necessary to demonstrate that the abuse of discretion was grave. Grave abuse of
discretion means either that the judicial or quasi-judicial power was exercised in an
arbitrary or despotic manner by reason of passion or personal hostility, or that the
respondent judge, tribunal or board evaded a positive duty, or virtually refused to
perform the duty enjoined or to act in contemplation of law, such as when such
judge, tribunal or board exercising judicial or quasi-judicial powers acted in a
15
capricious or whimsical manner as to be equivalent to lack of jurisdiction. Under
the circumstances, the CA committed no abuse of discretion, least of all grave,
because its justifications were supported by the records and by the applicable laws
and jurisprudence.
Secondly, it is worthy to point out that the Labor Arbiter, the NLRC, and the CA
were united in concluding that the cessation of business by Zeta was not a bona
fide closure to be regarded as a valid ground for the termination of employment of
San Miguel within the ambit of Article 283 of the Labor Code. The provision
pertinently reads:
Article 283. Closure of establishment and reduction of personnel.—
The employer may also terminate the employment of any employee due to
the installation of labor-saving devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation
_______________
14 Tan v. Antazo, G.R. No. 187208, February 23, 2011, 644 SCRA 337, 342.
15 Delos Santos v. Metropolitan Bank and Trust Company, Inc., G.R. No.
153852, October 24, 2012, 684 SCRA 410, 422-423.
571
VOL. 701, JULY 22, 2013 571
Zuelling Freight and Cargo Systems vs. National Labor
Relations Commission
of the establishment or undertaking unless the closing is for the
purpose of circumventing the provisions of this Title, by serving a
written notice on the workers and the Department of Labor and
 Employment at least one (1) month before the intended date thereof. x
x x.
The unanimous conclusions of the CA, the NLRC and the Labor Arbiter, being
in accord with law, were not tainted with any abuse of discretion, least of all grave,
on the part of the NLRC. Verily, the amendments of the articles of incorporation of
Zeta to change the corporate name to Zuellig Freight and Cargo Systems, Inc. did
not produce the dissolution of the former as a corporation. For sure,
the Corporation Code defined and delineated the different modes of dissolving a
corporation, and amendment of the articles of incorporation was not one of such
modes. The effect of the change of name was not a change of the corporate being,
16
for, as well stated in Philippine First Insurance Co., Inc. v. Hartigan: “The
changing of the name of a corporation is no more the creation of a corporation than
the changing of the name of a natural person is begetting of a natural person. The
act, in both cases, would seem to be what the language which we use to designate
it imports — a change of name, and not a change of being.”
The consequences, legal and otherwise, of the change of name were similarly
17
dealt with in P.C. Javier & Sons, Inc. v. Court of Appeals, with the Court holding
thusly:
From the foregoing documents, it cannot be denied that petitioner
corporation was aware of First Summa Savings and Mortgage Bank’s
change of corporate name to PAIC Savings and Mortgage Bank, Inc.
Knowing fully
_______________
16 No. L-86370, July 31, 1970, 34 SCRA 252, 266, citing Pacific Bank v. De
Ro, 37 Cal. 538.
17 G.R. No. 129552, June 29, 2005, 462 SCRA 36, 44-45. See also Avon Dale
Garments, Inc. v. National Labor Relations Commission, G.R. No. 117932, July 20,
1995, 246 SCRA 733, 737.
572
572 SUPREME COURT REPORTS ANNOTATED
Zuelling Freight and Cargo Systems vs. National Labor
Relations Commission
well of such change, petitioner corporation has no valid reason not to pay
because the IGLF loans were applied with and obtained from First Summa
Savings and Mortgage Bank. First Summa Savings and Mortgage Bank
and PAIC Savings and Mortgage Bank, Inc., are one and the same bank to
which petitioner corporation is indebted. A change in the corporate name
does not make a new corporation, whether effected by a special act or
under a general law. It has no effect on the identity of the corporation,
or on its property, rights, or liabilities. The corporatin, upon the
change in its name, is in no sense a new corporation, nor the
successor of the original corporation. It is the same corporation with
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a different name, and its character is in no respect changed. (Bold
underscoring supplied for emphasis)
In short, Zeta and petitioner remained one and the same corporation. The
change of name did not give petitioner the license to terminate employees of Zeta
like San Miguel without just or authorized cause. The situation was not similar to
that of an enterprise buying the business of another company where the
purchasing company had no obligation to rehire terminated employees of the
18
latter. Petitioner, despite its new name, was the mere continuation of Zeta’s
corporate being, and still held the obligation to honor all of Zeta’s obligations, one
of which was to respect San Miguel’s security of tenure. The dismissal of San
Miguel from employment on the pretext that petitioner, being a different
corporation, had no obligation to accept him as its employee, was illegal and
ineffectual.
And, lastly, the CA rightfully upheld the NLRC’s affirmance of the grant of
attorney’s fees to San Miguel. Thereby, the NLRC did not commit any grave abuse
of its discretion, considering that San Miguel had been compelled to litigate
_______________
18 Manlimos v. National Labor Relations Commission, G.R. No. 113337,
March 2, 1995, 242 SCRA 145, 155.
573
VOL. 701, JULY 22, 2013 573
Zuelling Freight and Cargo Systems vs. National Labor
Relations Commission
and to incur expenses to protect his rights and interest. In Producers Bank of the
19
Philippines v. Court of Appeals, the Court ruled that attorney’s fees could be
awarded to a party whom an unjustified act of the other party compelled to litigate
or to incur expenses to protect his interest. It was plain that petitioner’s refusal to
reinstate San Miguel with backwages and other benefits to which he had been
legally entitled was unjustified, thereby entitling him to recover attorney’s fees.
WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals
promulgated on November 6, 2002; and ORDERS petitioner to pay the costs of
suit.
SO ORDERED.
*
G.R. No. 184008. August 3, 2016.
INDIAN CHAMBER OF COMMERCE PHILS., INC., petitioner, vs. FILIPINO
INDIAN CHAMBER OF COMMERCE IN THE PHILIPPINES, INC., respondent.
 Corporation Code; Section 18 of the Corporation Code expressly prohibits
the use of a corporate name which is identical or deceptively or confusingly similar
to that of any existing corporation.—Section 18
_______________
* THIRD DIVISION.
279
VOL. 799, AUGUST 3, 2016 279
Indian Chamber of Commerce Phils., Inc. vs. Filipino
Indian Chamber of Commerce in the Philippines, Inc.
of the Corporation Code expressly prohibits the use of a corporate name
which is identical or deceptively or confusingly similar to that of any existing
corporation: No corporate name may be allowed by the Securities and Exchange
Commission if the proposed name is identical or deceptively or confusingly similar
to that of any existing corporation or to any other name already protected by law or
is patently deceptive, confusing or contrary to existing laws. When a change in the
corporate name is approved, the Commission shall issue an amended certificate of
incorporation under the amended name.
Same; To determine 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.—It is settled that to determine 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 examine the record as well as the names themselves. Proof of actual
confusion need not be shown. It suffices that confusion is probably or likely to
occur.
Remedial Law; Securities and Exchange Commission; Findings of fact of
quasi-judicial agencies, like the Securities and Exchange Commission (SEC), are
generally accorded respect and even finality by this Court, if supported by
substantial evidence.—Findings of fact of quasi-judicial agencies, like the SEC, are
generally accorded respect and even finality by this Court, if supported by
substantial evidence, in recognition of their expertise on the specific matters under
their consideration, and more so if the same has been upheld by the appellate
court, as in this case.
Corporation Law; Securities and Exchange Commission; It is the Securities
and Exchange Commission’s (SEC’s) duty to prevent confusion in the use of
corporate names not only for the protection of the corporation involved, but more
so for the protection of the public.—By express mandate of law, the SEC has
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 3
absolute jurisdiction, supervision and control over all corporations. It is the SEC’s
duty to prevent confusion in the use of corporate names not only for the protection
of the corporation involved, but more so for the protection of the public. It has the
authority to de-register at all times, and
280
280 SUPREME COURT REPORTS ANNOTATED
Indian Chamber of Commerce Phils., Inc. vs. Filipino
Indian Chamber of Commerce in the Philippines, Inc.
under all circumstances corporate names which in its estimation are likely to
generate confusion.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Rivera, Santos & Maranan for petitioner.
JARDELEZA, J.:
1
This is a Petition for Review on Certiorari assailing the Decision and
2
Resolution of the Court of Appeals (CA) dated May 15, 2008 and August 4,
3
2008, respectively, in C.A.-G.R. S.P. No. 97320. The Decision and Resolution
affirmed the Securities and Exchange Commission En Banc (SEC En Banc)
4
Decision dated November 30, 2006 directing petitioner Indian Chamber of
Commerce Phils., Inc. to modify its corporate name.
The Facts
Filipino-Indian Chamber of Commerce of the Philippines, Inc. (defunct FICCPI)
was originally registered with the SEC as Indian Chamber of Commerce of Manila,
5
Inc. on November 24, 1951, with SEC Registration Number 6465. On October 7,
1959, it amended its corporate name into Indian Chamber of Commerce of the
Philippines, Inc., and further amended it into Filipino-Indian Chamber of Commerce
of the Philippines,
_______________
1 Rollo, pp. 23-39.
2 Id., at pp. 9-16. Ponencia by Associate Justice Isaias Dicdican, with
Associate Justices Juan Q. Enriquez, Jr. and Ramon R. Garcia, concurring.
 3 Id., at pp. 18-19.
4 Id., at pp. 157-163.
5 Id., at p. 80. 282
282 SUPREME COURT REPORTS ANNOTATED
Indian Chamber of Commerce Phils., Inc. vs. Filipino
281
Indian Chamber of Commerce in the Philippines, Inc.
VOL. 799, AUGUST 3, 2016 281 Sitaldas appealed the decision of the CRMD to the SEC En Banc, which
Indian Chamber of Commerce Phils., Inc. vs. Filipino appeal was docketed as SEC Case No. 05-008. On December 7, 2005, the
13
SEC En Banc denied the appeal, thus:
Indian Chamber of Commerce in the Philippines, Inc. WHEREFORE, premises considered, the instant appeal is HEREBY
6
Inc. on March 4, 1977. Pursuant to its Articles of Incorporation, and without DISMISSED for lack of merit. Let a copy of this decision be furnished the
applying for an extension of its corporate term, the defunct FICCPI’s term of Company Registration and Monitoring Department of this Commission for its
7
existence expired on November 24, 2001. 14
appropriate action. (Emphasis in the original)

SEC Case No. 05-008

On January 20, 2005, Mr. Naresh Mansukhani (Mansukhani) reserved the
corporate name “Filipino Indian Chamber of Commerce in the Philippines, Inc.”
(FICCPI), for the period from January 20, 2005 to April 20, 2005, with the
8
Company Registration and Monitoring Department (CRMD) of the SEC. In an
opposition letter dated April 1, 2005, Ram Sitaldas (Sitaldas), claiming to be a
representative of the defunct FICCPI, alleged that the corporate name has been
used by the defunct FICCPI since 1951, and that the reservation by another
9 17
person who is not its member or representative is illegal.
The CRMD called the parties for a conference and required them to submit
their position papers. Subsequently, on May 27, 2005, the CRMD rendered a
10
decision granting Mansukhani’s reservation, holding that he possesses the better
11
right over the corporate name. The CRMD ruled that the defunct FICCPI has no
legal personality to oppose the reservation of the corporate name by Mansukhani.
After the expiration of the defunct FICCPFs corporate existence, without any act on
its part to extend its term, its right over the name ended. Thus, the name “Filipino
Indian Chamber of Commerce in the Philippines, Inc.” is free for appropriation by
12
any party.
_______________
6 Id.
7 Id.
8 Id.
9 Id., at p. 81.
10 Id., at pp. 80-85.
11 Id., at p. 85.
12 Id., at p. 84.
Sitaldas appealed the SEC En Banc decision to the CA, docketed as C.A.-G.R.
S.P. No. 92740. On September 27, 2006, the CA affirmed the decision of the
15
SEC En Banc. It ruled that Mansukhani, reserving the name “Filipino Indian
Chamber of Commerce in the Philippines, Inc.,” has the better right over the
corporate name. It ruled that with the expiration corporate life of the defunct
FICCPI, without an extension having been filed and granted, it lost its legal
16
personality as a corporation. Thus, the CA affirmed the SEC En Banc ruling that
after the expiration of its term, the defunct FICCPI’s rights over the name also
18
ended. The CA also cited SEC Memorandum Circular No. 14-2000 which gives
protection to
_______________
13 Id., at pp. 86-92.
14 Id., at p. 91.
15 Id., at pp. 150-156.
16 Id., at p. 153.
17 Id.
18 Revised Guidelines in the Approval of Corporate and Partnership Names,
dated October 24, 2000:
xxx
14. The name of a dissolved firm shall not be allowed to be used by other
firms within three (3) years after the approval of the dissolution of the
corporation by the Commission, unless allowed by the last stockholders
representing at least majority of the outstanding capital stock of the
dissolved firm.

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 284 SUPREME COURT REPORTS ANNOTATED
283
Indian Chamber of Commerce Phils., Inc. vs. Filipino
VOL. 799, AUGUST 3, 2016 283
Indian Chamber of Commerce in the Philippines, Inc.
Indian Chamber of Commerce Phils., Inc. vs. Filipino
pines, Inc.” On the same date, the CRMD approved and issued the Certificate of
27
Indian Chamber of Commerce in the Philippines, Inc. Incorporation of petitioner ICCPI.
corporate names for a period of three years after the approval of the dissolution of Thus, respondent FICCPI, through Mansukhani, appealed the CRMD’s
19 28
the corporation. It noted that the reservation for the use of the corporate name decision to the SEC En Banc. The appeal was docketed as SEC Case No. 06-
“Filipino Indian Chamber of Commerce in the Philippines, Inc.,” and the opposition 014. On November 30, 2006, the SEC En Banc granted the appeal filed by
20 29
were filed only in January 2005, way beyond this three-year period. FICCPI, and reversed the CRMD’s decision. Citing Section 18 of the Corporation
30
On March 14, 2006, pending resolution by the CA, the SEC issued the Code, the SEC En Banc made a finding that “both from the standpoint of their
21
Certificate of Incorporation of respondent FICCPI, pursuant to its ruling in SEC [ICCPI and FICCPI] corporate names and the purposes for which they were
31
Case No. 05-008. established, there exist[s] a similarity that could inevitably lead to confusion.” It
also ruled that “oppositor [FICCPI] has the prior right to use its corporate name to
SEC Case No. 06-014 the exclusion of the others. It was registered with the Commission on March 14,
2006 while respondent [ICCPI] was registered on April 05, 2006. By virtue of
22
Meanwhile, on December 8, 2005, Mr. Pracash Dayacan, who allegedly oppositor’s [FICCPI] prior appropriation and use of its name, it is entitled to
32
represented the defunct FICCPI, filed an application with the CRMD for the protection against the use of identical or similar name of another corporation.”
reservation of the corporate name “Indian Chamber of Commerce Phils., Inc.” Thus, the SEC En Banc ruled, to wit:
23
(ICCPI). Upon knowledge, Mansukhani, in a letter dated February 14, WHEREFORE, the appeal is hereby granted and the assailed Order dated
24
2006, formally opposed the application. Mansukhani cited the SEC En April 05, 2006 is hereby REVERSED and SET ASIDE and respondent is directed
Banc decision in SEC Case No. 05-008 recognizing him as the one possessing the to
better right over the corporate name “Filipino Chamber of Commerce in the
Philippines, Inc.
25 _______________
26
In a letter dated April 5, 2006 the CRMD denied Mansukhani’s opposition. It
stated that the name “Indian Chamber of Commerce Phils., Inc.” is not deceptively 27 Id., at p. 115.
or confusingly similar to “Filipino Indian Chamber of Commerce in the Philip- 28 Id., at pp. 65-79.
_______________ 29 Id., at pp. 157-163.
30 Section 18. Corporate name.—No corporate name may be allowed by
xxx the Securities and Exchange Commission if the proposed name is identical or
19 Rollo, p. 155. deceptively or confusingly similar to that of any existing corporation or to any other
20 Id., at p. 153. name already protected by law or is patently deceptive, confusing or contrary to
21 Id., at p. 93. existing laws. When a change in the corporate name is approved, the Commission
22 Id., at p. 113. shall issue an amended certificate of incorporation under the amended name.
23 Id., at p. 159. 31 Rollo, p. 162.
24 Id., at p. 107. 32 Id., at p. 160.
25 Id.
26 Id., at p. 64.
285
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284
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 Indian Chamber of Commerce in the Philippines, Inc. Indian Chamber of Commerce Phils., Inc. vs. Filipino
change or modify its corporate name within thirty (30) days from the date of actual Indian Chamber of Commerce in the Philippines, Inc.
receipt hereof. one distinctive word different from the name of the corporation already registered,
33
SO ORDERED. (Emphasis in the original) 38
and not the other way around, as in this case. Finally, the CA held that the
SEC En Banc did not violate ICCPI’s right to equal protection when it ordered
ICCPI appealed the SEC En Banc decision in SEC Case No. 06-014 to the ICCPI to change its corporate name. The SEC En Banc merely compelled ICCPI to
34
CA. The appeal, docketed as C.A.-G.R. S.P. No. 97320, raised the following comply with its undertaking to change its corporate name in case another person
issues: or firm has acquired a prior right to the use of the said name or the same is
39
A. The Honorable SEC En Banc committed serious error when it held that deceptively or confusingly similar to one already registered with the SEC.
petitioner’s corporate name (ICCPI) could inevitably lead to confusion; The dispositive portion of the CA decision reads:
WHEREFORE, premises considered, the petition filed in this case is
B. Respondent’s corporate name (FICCPI) did not acquire secondary meaning; hereby DENIED and the assailed Decision of the Securities and Exchange
and Commission En Banc in SEC EN BANC Case No. 06-014 is hereby AFFIRMED.
40
SO ORDERED. (Emphasis in the original)
C. The Honorable SEC En Banc violated the rule of equal protection when it
35
denied petitioner (ICCPI) the use of the descriptive generic words. In its Resolution dated August 4, 2008,
41
the CA denied the Motion for
Reconsideration filed by ICCPI.
36
In a decision dated May 15, 2008, the CA affirmed the decision of the 42
SEC En Banc. It held that by simply looking at the corporate names of ICCPI and The Petition
FICCPI, one may readily notice the striking similarity between the two. Thus, an
ordinary person using ordinary care and discrimination may be led to believe that ICCPI now appeals the CA decision before this Court raising the following
the corporate names of ICCPI and FICCPI refer to one and the same arguments:
37
corporation. The CA further ruled that ICCPI’s corporate name did not comply _______________
with the requirements of SEC Memorandum Circular No. 14-2000. It noted that
under the facts of this case, it is the registered corporate name, FICCPI, which 38 Id., at p. 15.
contains the word (Filipino) making it different from the proposed corporate name. 39 Id., at pp. 15-16.
SEC Memorandum Circular No. 14-2000 requires, however, that it should be the 40 Id., at p. 16.
proposed corporate name which should contain 41 Id., at pp. 18-19.
_______________ 42 On September 14, 2015, we resolved to require ICCPI to inform the Court
whether it complied with the SEC Decision in SEC Case No. 06-014 to change or
33 Id., at p. 162. modify its corporate name. In its Manifestation with Compliance dated April 1,
34 Id., at pp. 164-181. 2016, ICCPI informed the
35 Id., at pp. 169-170.
36 Id., at pp. 9-16.
37 Id., at p. 14. 287
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286
Indian Chamber of Commerce in the Philippines, Inc.
286 SUPREME COURT REPORTS ANNOTATED

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A. The Honorable Court of Appeals committed serious error when it upheld the (1) that the complainant corporation acquired a prior right over the use of such
findings of the SEC En Banc; corporate name; and

B. The Honorable Court of Appeals committed serious error when it held that there (2) the proposed name is either:
is similarity between the petitioner and the respondent (sic) corporate name that
would inevitably lead to confusion; and (a) identical; or
43
C. Respondent’s corporate name did not acquire secondary meaning. (b) deceptively or confusingly similar to that of any existing corporation or to
any other name already protected by law; or

The Court’s Ruling (c) patently deceptive, confusing or contrary to existing law.
45

We uphold the decision of the CA.

Section 18 of the Corporation Code expressly prohibits the use of a corporate
name which is identical or deceptively or confusingly similar to that of any existing
corporation:
No corporate name may be allowed by the Securities and Exchange
Commission if the proposed name is identical or deceptively or confusingly similar
to that of any existing corporation or to any other name already protected by law or
is patently deceptive, confusing or contrary to existing laws. When a change in the
corporate name is approved, the Commission shall issue an amended certificate of
incorporation under the amended name. (Underscoring supplied)
44
In Philips Export B.V. v. Court of Appeals, this Court ruled that to fall within
the prohibition, two requisites must be proven, to wit:
_______________
These two requisites are present in this case.
FICCPI acquired a prior right
over the use of the corporate name
In Industrial Refractories Corporation of the Philippines v. Court of
46
Appeals, the Court applied the priority of adoption rule to determine prior right,
taking into consideration the dates when the parties used their respective
corporate names. It ruled that “Refractories Corporation of the Philippines” (RCP),
as opposed to “Industrial Refractories Corporation of the Philippines” (IRCP), has
acquired the right to use the word “Refractories” as part of its corporate name,
being its prior registrant on October 13, 1976. The Court noted that IRCP only
started using its corporate name when it amended its Articles of Incorporation on
August 23, 1985.
47

In this case, FICCPI was incorporated on March 14, 2006. On the other hand,
Court that it complied with the SEC Decision in SEC Case No. 06-014, and is ICCPI was incorporated only on April 5, 2006, or a month after FICCPI registered
currently using the name “Federation of Indian Chambers of Commerce, Inc.” its corporate name. Thus, applying the principle in the Refractories case, we hold
However, despite compliance with the SEC Decision, ICCPI is not waiving its right that FICCPI, which was incorporated earlier, acquired a prior right over the use of
to pursue the petition and to reacquire its former name. Id., at pp. 258-261. the corporate name.
43 Id., at pp. 28-29. _______________
44 G.R. No. 96161, February 21, 1992, 206 SCRA 457.
45 Id., at p. 463.
46 G.R. No. 122174, October 3, 2002, 390 SCRA 252.
47 Id., at p. 260.
288
288 SUPREME COURT REPORTS ANNOTATED
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 Indian Chamber of Commerce Phils., Inc. vs. Filipino
Indian Chamber of Commerce in the Philippines, Inc.
ICCPI cannot argue that it first incorporated and held the “Filipino Indian
Chamber of Commerce,” in 1977; and that it established the name’s goodwill until
48
it failed to renew its name due to oversight. It is settled that a corporation is ipso
49
facto dissolved as soon as its term of existence expires. SEC Memorandum
Circular No. 14-2000 likewise provides for the use of corporate names of dissolved
corporations:
14. The name of a dissolved firm shall not be allowed to be used by other
firms within three (3) years after the approval of the dissolution of the corporation
by the Commission, unless allowed by the last stockholders representing at least
majority of the outstanding capital stock of the dissolved firm.
When the term of existence of the defunct FICCPI expired on November 24,
2001, its corporate name cannot be used by other corporations within three years
from that date, until November 24, 2004. FICCPI reserved the name “Filipino
Indian Chamber of Commerce in the Philippines, Inc.” on January 20, 2005, or
beyond the three-year period. Thus, the SEC was correct when it allowed FICCPI
to use the reserved corporate name.
ICCPI’s name is identical and
deceptively or confusingly simi-
lar to that of FICCPI
The second requisite in the Philips Export case likewise obtains in two
respects: the proposed name is (a) identical or (b) deceptively or confusingly
similar to that of any existing corporation or to any other name already protected by
law.
_______________
On the first point, ICCPI’s name is identical to that of FICCPI. ICCPI’s and
FICCPI’s corporate names both contain the same words “Indian Chamber of
Commerce.” ICCPI argues that the word “Filipino” in FICCPI’s corporate name
50
makes it easily distinguishable from ICCPI. It adds that confusion and deception
are effectively precluded by appending the word “Filipino” to the phrase “Indian
51
Chamber of Commerce.” Further, ICCPI claims that the corporate name of
52
FICCPI uses the words “in the Philippines” while ICCPI uses only “Phils., Inc.”
ICCPI’s arguments are without merit. These words do not effectively
distinguish the corporate names. On the one hand, the word “Filipino” is merely a
description, referring to a Filipino citizen or one living in the Philippines, to describe
the corporation’s members. On the other, the words “in the Philippines” and “Phils.,
Inc.” are simply geographical locations of the corporations which, even if appended
to both the corporate names, will not make one distinct from the other. Under the
facts of this case, these words cannot be separated from each other such that
each word can be considered to add distinction to the corporate names. Taken
together, the words in the phrase “in the Philippines” and in the phrase “Phils., Inc.”
are synonymous — they both mean the location of the corporation.
The same principle was adopted by this Court in Ang mga Kaanib sa Iglesia ng
Dios Kay Kristo Hesus, H.S.K. sa Bansang Pilipinas, Inc. v. Iglesia ng Dios Kay
Cristo Jesus:
53
Significantly, the only difference between the corporate names of petitioner and
respondent are the words SALIGAN and SUHAY. These words are synonymous
—both mean ground, foundation or support. Hence, this case is on all fours
with Universal Mills Corporation v.
_______________
50 Rollo, p. 30.
51 Id., at p. 31.
52 Id.
53 G.R. No. 137592, December 12, 2001, 372 SCRA 171.

48 Rollo, p. 33.
49 Alhambra Cigar & Cigarette Manufacturing Co., Inc. v. Securities &
Exchange Commission, No. L-23606, July 29, 1968, 24 SCRA 269, 274. 291
VOL. 799, AUGUST 3, 2016 291
Indian Chamber of Commerce Phils., Inc. vs. Filipino
290 Indian Chamber of Commerce in the Philippines, Inc.
290 SUPREME COURT REPORTS ANNOTATED Universal Textile Mills, Inc., where the Court ruled that the corporate names
Indian Chamber of Commerce Phils., Inc. vs. Filipino Universal Mills Corporation and Universal Textile Mills, Inc., are undisputably so
similar that even under the test of “reasonable care and observation” confusion
Indian Chamber of Commerce in the Philippines, Inc. 54
may arise. (Italics in the original)

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Thus, the CA is correct when it ruled, “[a]s correctly found by the SEC En
Banc, the word ‘Filipino’ in the corporate name of the respondent [FICCPI] is
merely descriptive and can hardly serve as an effective differentiating medium
necessary to avoid confusion. The other two words alluded to by petitioner [ICCPI]
that allegedly distinguishes its corporate name from that of the respondent are the
words ‘in’ and ‘the’ in the respondent’s corporate name. To our mind, the presence
of the words ‘in’ and ‘the’ in respondent’s corporate name does not, in any way,
55
make an effective distinction to that of petitioner.”
Petitioner cannot argue that the combination of words in respondent’s
corporate name is merely descriptive and generic, and consequently cannot be
56
appropriated as a corporate name to the exclusion of the others. Save for the
words “Filipino,” “in the,” and “Inc.,” the corporate names of petitioner and
respondent are identical in all other respects. This issue was also discussed in
the Iglesia case where this Court held:
Furthermore, the wholesale appropriation by petitioner of respondent’s
corporate name cannot find justification under the generic word rule. We agree
with the Court of Appeals’ conclusion that a contrary ruling would encourage other
corporations to adopt verbatim and register an existing and protected corporate
57
name, to the detriment of the public.
_______________
54 Id., at p. 179.
55 Rollo, p. 14.
56 Id., at p. 32.
57 Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K. sa Bansang
Pilipinas, Inc. v. Iglesia ng Dios Kay Cristo Jesus, supra note 53 at p. 179.
292
292 SUPREME COURT REPORTS ANNOTATED
Indian Chamber of Commerce Phils., Inc. vs. Filipino
Indian Chamber of Commerce in the Philippines, Inc.
On the second point, ICCPI’s corporate name is deceptively or confusingly
similar to that of FICCPI. It is settled that to determine 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
58
must examine the record as well as the names themselves. Proof of actual
confusion need not be shown. It suffices that confusion is probably or likely to
59
occur.
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In this case, the overriding consideration in determining whether a person,
using ordinary care and discrimination, might be misled is the circumstance that
both ICCPI and FICCPI have a common primary purpose, that is, the promotion of
Filipino-Indian business in the Philippines.
The primary purposes of ICCPI as provided in its Articles of Incorporation are:
a) Develop a stronger sense of brotherhood;
b) Enhance the prestige of the Filipino-Indian business community in the
Philippines;
c) Promote cordial business relations with Filipinos and other business
communities in the Philippines, and other overseas Indian business organizations;
d) Respond fully to the needs of a progressive economy and the Filipino-Indian
Business community;
e) Promote and foster relations between the people and Governments of the
60
Republics of the Philippines and India in areas of Industry, Trade, and Culture.
Likewise, the primary purpose of FICCPI is “[t]o actively promote and enhance
the Filipino-Indian business relation-
_______________
58 Philips Export B.V. v. Court of Appeals, supra note 44 at p. 464.
59 Id.
60 Rollo, p. 117.
293
VOL. 799, AUGUST 3, 2016 293
Indian Chamber of Commerce Phils., Inc. vs. Filipino
Indian Chamber of Commerce in the Philippines, Inc.
61
ship especially in view of [current] local and global business trends.”
Considering these corporate purposes, the SEC En Banc made a finding that
“[i]t is apparent that both from the standpoint of their corporate names and the
purposes for which they were established, there exist a similarity that could in-
62
evitably lead to confusion.” This finding of the SEC En Banc was fully concurred
63
with and adopted by the CA.
Findings of fact of quasi-judicial agencies, like the SEC, are generally accorded
respect and even finality by this Court, if supported by substantial evidence, in
recognition of their expertise on the specific matters under their consideration, and
64
more so if the same has been upheld by the appellate court, as in this case.
Petitioner cannot argue that the CA erred when it upheld the SEC En Banc’s
65
decision to cancel ICCPI’s corporate name. By express mandate of law, the SEC
66
has absolute jurisdiction, supervision and control over all corporations. It is the
SEC’s
_______________
61 Id., at p. 95.
62 Id., at p. 162.
63 Id., at p. 15. The pertinent portion of the CA decision reads:
Thus, we fully concur with the informed observation of the SEC En
Banc that, both from the standpoint of their corporate names and the
purpose for which they were established, there is a similarity between the
petitioner and the respondent that would inevitably lead to confusion.
Therefore, there is a necessity to order the petitioner to change or modify
its corporate name to avoid confusion.
64 Nautica Canning Corporation v. Yumul, G.R. No. 164588, October 19,
2005, 473 SCRA 415, 423-424.
65 Rollo, p. 35.
66 Presidential Decree No. 902-A (1976), Section 3. The Commission shall
have absolute jurisdiction, supervision and control over all corporations,
partnerships or associations, who are the grantees of primary franchise and/or a
license or permit issued by the government to operate in the Philippines; and in the
exercise of its
294
294 SUPREME COURT REPORTS ANNOTATED
Indian Chamber of Commerce Phils., Inc. vs. Filipino
Indian Chamber of Commerce in the Philippines, Inc.
duty to prevent confusion in the use of corporate names not only for the protection
of the corporation involved, but more so for the protection of the public. It has the
authority to de-register at all times, and under all circumstances corporate names
67
which in its estimation are likely to generate confusion.
Pursuant to its mandate, the SEC En Banc correctly applied Section 18 of the
Corporation Code, and Section 15 of SEC Memorandum Circular No. 14-2000:
In implementing Section 18 of the Corporation Code of the Philippines (BP 68),
the following revised guidelines in the approval of corporate and partnership
names are hereby adopted for the information and guidelines of all concerned:
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 Cases
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xxx
15. Registrant corporations or partnership shall submit a letter
undertaking to change their corporate or partnership name in case another
person or firm has acquired a prior right to the use of said firm name or the
same is deceptively or confusingly similar to one already registered unless
this undertaking is already included as one of the provisions of the articles
of incorporation or partnership of the registrant.
Finding merit in respondent’s claims, the SEC En Banc merely compelled
68
petitioner to comply with its undertaking.
WHEREFORE, the petition is DENIED. The Decision of the CA dated May 15,
2008 in C.A.-G.R. S.P. No. 97320 is hereby AFFIRMED.
G.R. No. 175278. September 23, 2015.
*
GSIS FAMILY BANK-THRIFT BANK [formerly Comsavings Bank, Inc.],
petitioner, vs. BPI FAMILY BANK, respondent.
Corporations; Corporate Names; In Philips Export B.V. v. Court of Appeals,
206 SCRA 457 (1992), the Supreme Court (SC) ruled that to fall within the
prohibition of the law on the right to the exclusive use of a corporate name, two (2)
requisites must be proven.—In Philips Export B.V. v. Court of Appeals, 206 SCRA
457 (1992), this Court ruled that to fall within the prohibition of the law on the right
to the exclusive use of a corporate name, 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
or confusingly similar to that of any existing corporation or to any other name
already protected by law; or (c) patently deceptive, confusing or contrary to existing
law.
Same; Same; Revised Guidelines in the Approval of Corporate and
Partnership Names; Section 3 of the Revised Guidelines in the Approval of
Corporate and Partnership Names states that if there be identical, misleading or
confusingly similar name to one already registered by another corporation or
partnership with the Securities and Exchange Commission (SEC), the proposed
name must contain at least one (1) distinctive word different from the name of the
company already registered.—Section 3 states that if there be identical, misleading
or confusingly similar name to one already registered by another corporation or
partnership with the SEC, the proposed name must contain at least one distinctive
word different from the name of the company already registered. To show contrast
with respondent’s corporate name, petitioner used the words “GSIS” and “thrift.”
But these are not sufficiently distinct words that differentiate petitioner’s corporate
name from respondent’s. While “GSIS” is merely an acronym of the proper name
by which petitioner is identified, the word “thrift” is simply a classification of the type
of bank that petitioner is. Even if the classification of the bank as “thrift” is
appended to petitioner’s proposed corporate name, it will not make the said
_______________
* THIRD DIVISION.
285
VOL. 771, SEPTEMBER 23, 2015 285
GSIS Family Bank-Thrift Bank [formerly Comsavings
Bank, Inc.] vs. BPI Family Bank
corporate name distinct from respondent’s because the latter is likewise
engaged in the banking business.
Remedial Law; Civil Procedure; Appeals; Findings of fact of quasi-judicial
agencies, like the Securities and Exchange Commission (SEC), are generally
accorded respect and even finality by this Court, if supported by substantial
evidence, in recognition of their expertise on the specific matters under their
consideration, more so if the same has been upheld by the appellate court, as in
this case.—Findings of fact of quasi-judicial agencies, like the SEC, are generally
accorded respect and even finality by this Court, if supported by substantial
evidence, in recognition of their expertise on the specific matters under their
consideration, more so if the same has been upheld by the appellate court, as in
this case.
Corporations; Corporate Names; “Arbitrary Marks” and “Suggestive Marks,”
Distinguished.—Under the facts of this case, the word “family” cannot be separated
from the word “bank.” In asserting their claims before the SEC up to the Court of
Appeals, both petitioner and respondent refer to the phrase “Family Bank” in their
submissions. This coined phrase, neither being generic nor descriptive, is merely
suggestive and may properly be regarded as arbitrary. Arbitrary marks are “words
or phrases used as a mark that appear to be random in the context of its use. They
are generally considered to be easily remembered because of their arbitrariness.
They are original and unexpected in relation to the products they endorse, thus,
becoming themselves distinctive.” Suggestive marks, on the other hand, “are
marks which merely suggest some quality or ingredient of goods. x x x The
strength of the suggestive marks lies on how the public perceives the word in
relation to the product or service.”
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Securities and Exchange Commission; Jurisdiction; It is the Securities and
Exchange Commission’s (SEC’s) duty to prevent confusion in the use of corporate
names not only for the protection of the corporations involved, but more so for the
protection of the public.—The enforcement of the protection accorded by Section
18 of the Corporation Code to corporate names is lodged exclusively in the SEC.
The jurisdiction of the SEC is not merely confined to the adjudicative functions
provided in Section 5 of the SEC Reorganization Act, as amended. By express
mandate, the SEC has absolute juris-
286
286 SUPREME COURT REPORTS ANNOTATED
GSIS Family Bank-Thrift Bank [formerly Comsavings
Bank, Inc.] vs. BPI Family Bank
diction, supervision and control over all corporations. It is the SEC’s duty to
prevent confusion in the use of corporate names not only for the protection of the
corporations involved, but more so for the protection of the public. It has authority
to de-register at all times, and under all circumstances corporate names which in
its estimation are likely to generate confusion.
Mercantile Law; Trademarks; The certificate of registration of a mark shall be
prima facie evidence of the validity of the registration, the registrant’s ownership of
the mark, and of the registrant’s exclusive right to use the same in connection with
the goods or services and those that are related thereto specified in the
certificate.—Judicial notice may also be taken of the action of the IPO in approving
respondent’s registration of the trademark “BPI Family Bank” and its logo on
October 17, 2008. The certificate of registration of a mark shall be prima
facie evidence of the validity of the registration, the registrant’s ownership of the
mark, and of the registrant’s exclusive right to use the same in connection with the
goods or services and those that are related thereto specified in the certificate.
Remedial Law; Civil Procedure; Verification; Certification of Non-Forum
Shopping; In S.C. Megaworld Construction and Development Corporation v.
Parada, 705 SCRA 584 (2013), the Supreme Court (SC) said that objections
relating to noncompliance with the verification and certification of non-forum
shopping should be raised in the proceedings below, and not for the first time on
appeal.—In S.C. Megaworld Construction and Development Corporation v.
Parada, 705 SCRA 584 (2013), this Court said that objections relating to
noncompliance with the verification and certification of non-forum shopping should
be raised in the proceedings below, and not for the first time on appeal. In that
case, S.C. Megaworld argued that the complaint for collection of sum of money
should have been dismissed outright by the trial court on account of an invalid non-
forum shopping certification. It alleged that the Special Power of Attorney granted
to Parada did not specifically include an authority for the latter to sign the
verification and certification of non-forum shopping, thus rendering the complaint
defective for violation of Sections 4 and 5 of Rule 7 of the Rules of Court. On
motion for reconsideration of the decision of the Court of Appeals, petitioner raised
for the first time, the issue of forum shopping.
287
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GSIS Family Bank-Thrift Bank [formerly Comsavings
Bank, Inc.] vs. BPI Family Bank
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Benedicto & Associates for respondent.
JARDELEZA, J.:
This is a Petition for Review on Certiorari filed by GSIS Family Bank-Thrift
1 2
Bank assailing the Court of Appeals’ Decision dated March 29, 2006 (Decision)
3
and Resolution dated October 23, 2006 which denied petitioner’s petition for
review of the Securities and Exchange Commission Decision dated February 22,
4
2005 (SEC En Banc Decision). The SEC En Banc Decision prohibited petitioner
from using the word “Family” as part of its corporate name and ordered petitioner
5
to delete the word from its name.
_______________
1 Petitioner “GSIS Family Bank-Thrift Bank” is sometimes referred to as
“Comsavings Bank, Inc.” as in SC Resolution dated December 6, 2006, Rollo, p. 7;
“GSIS Family Bank-A Thrift Bank (formerly Comsavings Bank, Inc.)” as in SC
Resolution dated February 5, 2007, id., at p. 117; “Comsavings Bank, Inc.
(Operating under the trade name GSIS Family Bank-A Thrift Bank)” as in Court of
Appeals’ Decision dated March 29, 2006, and in SEC En Banc Decision dated
February 22, 2005, id., at pp. 38 and 89, respectively. For uniformity, we adopt the
name “GSIS Family Bank-Thrift Bank” as used in the SC Resolutions dated
October 17, 2007 and January 28, 2008, id., at pp. 131 and 139, respectively.
2 Penned by Associate Justice Santiago Javier Ranada, with Associate
Justices Roberto A. Barrios and Mario L. Guariña III, concurring. Rollo, pp. 38-47.
3 Resolution denying petitioner’s Motion for Reconsideration of the Court of
Appeals’ Decision dated March 29, 2006. Id., at p. 49.
4 Id., at pp. 89-90.
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5 Affirming the Decision of the SEC Company Registration and Monitoring
Department (SEC CRMD) dated May 19, 2003, id., at pp. 70, 89-90.
288
288 SUPREME COURT REPORTS ANNOTATED
GSIS Family Bank-Thrift Bank [formerly Comsavings
Bank, Inc.] vs. BPI Family Bank
Facts
Petitioner was originally organized as Royal Savings Bank and started
operations in 1971. Beginning 1983 and 1984, petitioner encountered liquidity
problems. On July 9, 1984, it was placed under receivership and later temporarily
closed by the Central Bank of the Philippines. Two (2) months after its closure,
petitioner reopened and was renamed Comsavings Bank, Inc. under the
6
management of the Commercial Bank of Manila.
In 1987, the Government Service Insurance System (GSIS) acquired petitioner
from the Commercial Bank of Manila. Petitioner’s management and control was
7
thus transferred to GSIS. To improve its marketability to the public, especially to
the members of the GSIS, petitioner sought Securities and Exchange Commission
(SEC) approval to change its corporate name to “GSIS Family Bank, a Thrift
8
Bank.” Petitioner likewise applied with the Department of Trade and Industry (DTI)
and Bangko Sentral ng Pilipinas (BSP) for authority to use “GSIS Family Bank, a
Thrift Bank” as its business name. The DTI and the BSP approved the
9
applications. Thus, petitioner operates under the corporate name “GSIS Family
Bank-a Thrift Bank,” pursuant to the DTI Certificate of Registration No. 741375 and
10
the Monetary Board Circular approval.
Respondent BPI Family Bank was a product of the merger between the Family
Bank and Trust Company (FBTC) and the Bank of the Philippine Islands
11
(BPI). On June 27, 1969, the Gotianum family registered with the SEC the
corporate name “Family First Savings Bank,” which was amended to
_______________
6 Petition for Review on Certiorari, id., at p. 13.
7 Id.
8 Petition for Review, id., at p. 94.
9 Id., at p. 95.
10 Id., at p. 38.
11 Id., at p. 39.

289
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GSIS Family Bank-Thrift Bank [formerly Comsavings
Bank, Inc.] vs. BPI Family Bank
“Family Savings Bank,” and then later to “Family Bank and Trust
12
Company.” Since its incorporation, the bank has been commonly known as
“Family Bank.” In 1985, Family Bank merged with BPI, and the latter acquired all
the rights, privileges, properties, and interests of Family Bank, including the right to
use names, such as “Family First Savings Bank,” “Family Bank,” and “Family Bank
and Trust Company.” BPI Family Savings Bank was registered with the SEC as a
wholly-owned subsidiary of BPI. BPI Family Savings Bank then registered with the
Bureau of Domestic Trade the trade or business name “BPI Family Bank,” and
13
acquired a reputation and goodwill under the name.
Proceedings before the SEC
Eventually, it reached respondent’s attention that petitioner is using or
attempting to use the name “Family Bank.” Thus, on March 8, 2002, respondent
petitioned the SEC Company Registration and Monitoring Department (SEC
CRMD) to disallow or prevent the registration of the name “GSIS Family Bank” or
any other corporate name with the words “Family Bank” in it. Respondent claimed
exclusive ownership to the name “Family Bank,” having acquired the name since
its purchase and merger with Family Bank and Trust Company way back
14
1985. Respondent also alleged that through the years, it has been known as “BPI
Family Bank” or simply “Family Bank” both locally and internationally. As such, it
has acquired a reputation and goodwill under the name, not only with clients here
and abroad, but also with correspondent and competitor banks, and the public in
15
general.
Respondent prayed the SEC CRMD to disallow or prevent the registration of
the name “GSIS Family Bank” or any other
_______________
12 Id., at pp. 38-39.
13 Id., at p. 39.
14 Id., at p. 50.
15 Id., at p. 51.
290
290 SUPREME COURT REPORTS ANNOTATED
GSIS Family Bank-Thrift Bank [formerly Comsavings
Bank, Inc.] vs. BPI Family Bank
corporate name with the words “Family Bank” should the same be presented for
registration. Respondent likewise prayed the SEC CRMD to issue an order
directing petitioner or any other corporation to change its corporate name if the
16
names have already been registered with the SEC.
The SEC CRMD was thus confronted with the issue of whether the names BPI
Family Bank and GSIS Family Bank are confusingly similar as to require the
amendment of the name of the latter corporation.
The SEC CRMD declared that upon the merger of FBTC with the BPI in 1985,
the latter acquired the right to the use of the name of the absorbed corporation.
Thus, BPI Family Bank has a prior right to the use of the name Family Bank in the
banking industry, arising from its long and extensive nationwide use, coupled with
its registration with the Intellectual Property Office (IPO) of the name “Family Bank”
as its trade name. Applying the rule of “priority in registration” based on the legal
maxim first in time, first in right, the SEC CRMD concluded that BPI has the
preferential right to the use of the name “Family Bank.” More, GSIS and
Comsavings Bank were then fully aware of the existence and use of the name
17
“Family Bank” by FBTC prior to the latter’s merger with BPI.
The SEC CRMD also held that there exists a confusing similarity between the
corporate names BPI Family Bank and GSIS Family Bank. It explained that
although not identical, the corporate names are indisputably similar, as to cause
confusion in the public mind, even with the exercise of reasonable care and
observation, especially so since both corporations are engaged in the banking
18
business.
19
In a decision dated May 19, 2003, the SEC CRMD said:
_______________
16 Id.
17 SEC Decision, id., at pp. 67-68.
18 Id., at p. 68.
19 Id., at pp. 65-70.
291
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 PREMISES CONSIDERED respondent GSIS FAMILY BANK is hereby
directed to refrain from using the word “Family” as part of its name and
make good its commitment to change its name by deleting or dropping the
subject word from its corporate name within [thirty (30) days] from the date
20
of actual receipt hereof.
21
Petitioner appealed the decision to the SEC En Banc, which denied the
22
appeal, and upheld the SEC CRMD in the SEC En Banc Decision. Petitioner
elevated the SEC En Banc Decision to the Court of Appeals, raising the following
issues:
1. Whether the use by GSIS Family Bank of the words “Family Bank” is
The Court of Appeals ruled that the approvals by the BSP and by the DTI of
petitioner’s application to use the name “GSIS Family Bank” do not constitute
authority for its lawful and valid use. It said that the SEC has absolute jurisdiction,
24
supervision and control over all corporations. The Court of Appeals held that
respondent was entitled to the exclusive use of the corporate name because of its
25
prior adoption of the name “Family Bank” since 1969. There is confusing
similarity in the corporate names because “[c]onfusion as to the possible
association with GSIS might arise if we were to allow Comsavings Bank to add its
parent company’s acronym, ‘GSIS’ to ‘Family Bank.’ This is true especially
considering both companies belong to the banking industry. Proof of actual
confusion need not be shown. It suffices that confusion is probably or likely to
26
occur.” The Court of Appeals also ruled out forum shopping because not all the
requirements of litis pendentia are present.
27

deceptively and confusingly similar to the name BPI Family Bank; The dispositive portion of the decision read:
2. Whether the use by Comsavings Bank of “GSIS Family Bank” as its WHEREFORE, the instant petition for review is hereby DISMISSED for lack of
business constitutes unfair competition; merit.
28

3. Whether BPI Family Bank is guilty of forum shopping;

4. Whether the approval of the DTI and the BSP of petitioner’s
29
application to use the name GSIS Family Bank constitutes its After its Motion for Reconsideration was denied, petitioner brought the
30
authority to the lawful and valid use of such trade name or decision to this Court via a Petition for Review on Certiorari.
trademark; _______________
5. Whether the application of respondent BPI Family Bank for the
exclusive use of the name “Family Bank,” a generic name, though 24 Id., at pp. 42-43.
not yet approved by IPO of the Bureau of Patents, has barred the 25 Id., at pp. 45-46.
23
GSIS Family Bank from using such trademark or name. 26 Id., at p. 46.
27 Id., at pp. 43-44.
_______________ 28 Id., at p. 47.
29 Resolution dated October 23, 2006, id., at p. 49.
20 Id., at p. 70. 30 Id., at pp. 9-36.
21 Id., at pp. 71-81.
22 Id., at p. 90.
23 Id., at pp. 41-42.
293
VOL. 771, SEPTEMBER 23, 2015 293
292 GSIS Family Bank-Thrift Bank [formerly Comsavings
292 SUPREME COURT REPORTS ANNOTATED Bank, Inc.] vs. BPI Family Bank
Issues in the Petition
GSIS Family Bank-Thrift Bank [formerly Comsavings
Bank, Inc.] vs. BPI Family Bank Petitioner raised the following issues in its petition:
Court of Appeals’ Ruling I. The Court of Appeals gravely erred in affirming the SEC Resolution
finding the word “Family” not generic despite its unregistered status
with the IPO of the Bureau of Patents and the use by GSIS-Family

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 Bank in its corporate name of the words “[F]amily [B]ank” as
31
deceptive and [confusingly similar] to the name BPI Family Bank;
II. The Court of Appeals gravely erred when it ruled that the respondent
is not guilty of forum shopping despite the filing of three (3) similar
complaints before the DTI and BSP and with the SEC without the
32
requisite certification of non-forum shopping attached thereto;
III. The Court of Appeals gravely erred when it completely disregarded
the opinion of the Bangko Sentral ng Pilipinas that the use by the
herein petitioner of the trade name GSIS Family Bank-Thrift Bank is
not similar or does not deceive or likely cause any deception to the
33
public.
Court’s Ruling
We uphold the decision of the Court of Appeals.
Section 18 of the Corporation Code provides:
Section 18. Corporate name.—No corporate name may be allowed by the
Securities and Exchange Commission if the proposed name is identical or
deceptively or confusingly similar to that of any existing corporation or to any
other name already protected by law or is patently decep-
_______________
31 Id., at p. 17.
32 Id., at p. 25.
33 Id., at p. 30.
294
294 SUPREME COURT REPORTS ANNOTATED
GSIS Family Bank-Thrift Bank [formerly Comsavings
Bank, Inc.] vs. BPI Family Bank
tive, 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.
34
In Philips Export B.V. v. Court of Appeals, this Court ruled that to fall within
the prohibition of the law on the right to the exclusive use of a corporate name, 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 or confusingly similar to that of any existing corporation or
to any other name already protected by law; or
35
(c) patently deceptive, confusing or contrary to existing law.
These two requisites are present in this case. On the first requisite of a prior
right, Industrial Refractories Corporation of the Philippines v. Court of
36
Appeals (IRCP case) is instructive. In that case, Refractories Corporation of the
Philippines (RCP) filed before the SEC a petition to compel Industrial Refractories
Corporation of the Philippines (IRCP) to change its corporate name on the ground
that its corporate name is confusingly similar with that of RCP’s such that the
public may be confused into believing that they are one and the same corporation.
The SEC and the Court of Appeals found for petitioner, and ordered IRCP to delete
or drop from its corporate name the word “Refractories.” Upon appeal of IRCP, this
Court upheld the decision of the CA.
_______________
34 G.R. No. 96161, February 21, 1992, 206 SCRA 457.
35 Id., at p. 463.
36 G.R. No. 122174, October 3, 2002, 390 SCRA 252.
295
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GSIS Family Bank-Thrift Bank [formerly Comsavings
Bank, Inc.] vs. BPI Family Bank
Applying the priority of adoption rule to determine prior right, this Court said
that RCP has acquired the right to use the word “Refractories” as part of its
corporate name, being its prior registrant. In arriving at this conclusion, the Court
considered that RCP was incorporated on October 13, 1976 and since then
continuously used the corporate name “Refractories Corp. of the Philippines.”
Meanwhile, IRCP only started using its corporate name “Industrial Refractories
Corp. of the Philippines” when it amended its Articles of Incorporation on August
37
23, 1985.
In this case, respondent was incorporated in 1969 as Family Savings Bank and
in 1985 as BPI Family Bank. Petitioner, on the other hand, was incorporated as
38
GSIS Family-Thrift Bank only in 2002, or at least seventeen (17) years after

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respondent started using its name. Following the precedent in the IRCP case, we
rule that respondent has the prior right over the use of the corporate name.
The second requisite in the Philips Export case likewise obtains on two points:
the proposed name is (a) identical; or (b) deceptive or confusingly similar to that of
any existing corporation or to any other name already protected by law.
On the first point (a), the words “Family Bank” present in both petitioner and
respondent’s corporate name satisfy the requirement that there be identical names
in the existing corporate name and the proposed one. Respondent cannot justify its
claim under Section 3 of the Revised Guidelines in the Approval of Corporate and
39
Partnership Names, to wit:
3. The name shall not be identical, misleading or confusingly similar to one
already registered by another corporation or partnership with the Commission
or a sole proprietorship registered with the Department of Trade and Industry.
_______________
37 Id., at p. 260.
38 Rollo, p. 45.
39 SEC Memorandum Circular No. 14-2000.
296
296 SUPREME COURT REPORTS ANNOTATED
GSIS Family Bank-Thrift Bank [formerly Comsavings
Bank, Inc.] vs. BPI Family Bank
If the proposed name is similar to the name of a registered firm, the proposed
name must contain at least one distinctive word different from the name of the
company already registered.
Section 3 states that if there be identical, misleading or confusingly similar
name to one already registered by another corporation or partnership with the
SEC, the proposed name must contain at least one distinctive word different from
the name of the company already registered. To show contrast with respondent’s
corporate name, petitioner used the words “GSIS” and “thrift.” But these are not
sufficiently distinct words that differentiate petitioner’s corporate name from
respondent’s. While “GSIS” is merely an acronym of the proper name by which
petitioner is identified, the word “thrift” is simply a classification of the type of bank
that petitioner is. Even if the classification of the bank as “thrift” is appended to
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petitioner’s proposed corporate name, it will not make the said corporate name
distinct from respondent’s because the latter is likewise engaged in the banking
business.
This Court used the same analysis in Ang mga Kaanib sa Iglesia ng Dios Kay
Kristo Hesus, H.S.K. sa Bansang Pilipinas, Inc. v. Iglesia ng Dios Kay Cristo
40
Jesus, Haligi at Suhay ng Katotohanan. In that case, Iglesia ng Dios Kay Cristo
Jesus filed a case before the SEC to compel Ang mga Kaanib sa Iglesia ng Dios
Kay Kristo Hesus to change its corporate name, and to prevent it from using the
same or similar name on the ground that the same causes confusion among their
members as well as the public. Ang mga Kaanib sa Iglesia ng Dios Kay Kristo
Hesus claimed that it complied with SEC Memorandum Circular No. 14-2000 by
adding not only two, but eight words to their registered name, to wit: “Ang Mga
Kaanib” and “Sa Bansang Pilipinas, Inc.,” which effectively distinguished it
from Iglesia ng Dios Kay Cristo Jesus. This Court rejected the argument, thus:
_______________
40 G.R. No. 137592, December 12, 2001, 372 SCRA 171.
297
VOL. 771, SEPTEMBER 23, 2015 297
GSIS Family Bank-Thrift Bank [formerly Comsavings
Bank, Inc.] vs. BPI Family Bank
The additional words “Ang Mga Kaanib” and “Sa Bansang Pilipinas, Inc.” in
petitioner’s name are, as correctly observed by the SEC, merely descriptive of and
also referring to the members, or kaanib, of respondent who are likewise residing
in the Philippines. These words can hardly serve as an effective differentiating
medium necessary to avoid confusion or difficulty in distinguishing petitioner from
respondent. This is especially so, since both petitioner and respondent
corporations are using the same acronym — H.S.K.; not to mention the fact that
41
both are espousing religious beliefs and operating in the same place. x x x
On the second point (b), there is a deceptive and confusing similarity between
petitioner’s proposed name and respondent’s corporate name, as found by the
42
SEC. 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
43
discrimination. And even without such proof of actual confusion between the two
corporate names, it suffices that confusion is probable or likely to occur.
44
Petitioner’s corporate name is “GSIS Family Bank-A Thrift Bank” and
respondent’s corporate name is “BPI Family Bank.” The only words that distinguish
the two are “BPI,” “GSIS,” and “Thrift.” The first two words are merely the
acronyms of the proper names by which the two corporations identify themselves;
and the third word simply describes the classification of the bank. The overriding
consideration in determining whether a person, using ordinary care and
discrimination, might be misled is the circumstance that both petitioner and
respondent are engaged in the same business
_______________
41 Id., at p. 178.
42 Rollo, p. 68.
43 Industrial Refractories Corporation of the Philippines v. Court of
Appeals, supra note 36 at p. 260.
44 Id., at p. 261.
298
298 SUPREME COURT REPORTS ANNOTATED
GSIS Family Bank-Thrift Bank [formerly Comsavings
Bank, Inc.] vs. BPI Family Bank
of banking. “The likelihood of confusion is accentuated in cases where the goods
or business of one corporation are the same or substantially the same to that of
45
another corporation.”
Respondent alleged that upon seeing a Comsavings Bank branch with the
signage “GSIS Family Bank” displayed at its premises, some of the respondent’s
officers and their clients began asking questions. These include whether GSIS has
acquired Family Bank; whether there is a joint arrangement between GSIS and
Family Bank; whether there is a joint arrangement between BPI and GSIS
regarding Family Bank; whether Comsavings Bank has acquired Family Bank; and
whether there is there an arrangement among Comsavings Bank, GSIS, BPI, and
46
Family Bank regarding BPI Family Bank and GSIS Family Bank. The SEC made
a finding that “[i]t is not a remote possibility that the public may entertain the idea
that a relationship or arrangement indeed exists between BPI and GSIS due to the
47
use of the term ‘Family Bank’ in their corporate names.”
Findings of fact of quasi-judicial agencies, like the SEC, are generally accorded
respect and even finality by this Court, if supported by substantial evidence, in
recognition of their expertise on the specific matters under their consideration,
48
more so if the same has been upheld by the appellate court, as in this case.
Petitioner cannot argue that the word “family” is a generic or descriptive name,
which cannot be appropriated exclusively by respondent. “Family,” as used in
respondent’s corporate name, is not generic. Generic marks are commonly used
as
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_______________
46 Rollo, pp. 56-57.
47 Id., at p. 68.
48 Nautica Canning Corporation v. Yumul, G.R. No. 164588, October 19,
2005, 473 SCRA 415, 423-424.
299
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GSIS Family Bank-Thrift Bank [formerly Comsavings
Bank, Inc.] vs. BPI Family Bank
the name or description of a kind of goods, such as “Lite” for beer or “Chocolate
Fudge” for chocolate soda drink. Descriptive marks, on the other hand, convey the
characteristics, function, qualities or ingredients of a product to one who has never
49
seen it or does not know it exists, such as “Arthriticare” for arthritis medication.
Under the facts of this case, the word “family” cannot be separated from the
50
word “bank.” In asserting their claims before the SEC up to the Court of Appeals,
both petitioner and respondent refer to the phrase “Family Bank” in their
submissions. This coined phrase, neither being generic nor descriptive, is merely
suggestive and may properly be regarded as arbitrary. Arbitrary marks are “words
or phrases used as a mark that appear to be random in the context of its use. They
are generally considered to be easily remembered because of their arbitrariness.
They are original and unexpected in relation to the products they endorse, thus,
51
becoming themselves distinctive.” Suggestive marks, on the other hand, “are
marks which merely suggest some quality or ingredient of goods. x x x The
strength of the suggestive marks lies on how the public perceives the word in
52
relation to the product or service.”
53
In Ang v. Teodoro, this Court ruled that the words “Ang Tibay” is not a
descriptive term within the meaning of the Trademark Law but rather a fanciful or
54
coined phrase. In so
_______________
49 McDonald’s Corporation v. L.C. Big Mak Burger, Inc., G.R. No. 143993,
August 18, 2004, 437 SCRA 10, 26.
50 Id.
51 Escaño, Eduardo C., Trademarks in the Philippines: A Legal Guide, p. 366
(2003), citing Elias, S., Patent, Copyright and Trademark, 2nd ed., p. 335 (1997).
52 Id., at p. 383, citing II J Thomas Mccarthy, Mccarthy on Trademarks and
Unfair Competition, 11:62, 4th ed., pp. 11-121 (2001).
53 74 Phil. 50 (1942). Citations omitted.
 54 See also, McDonald’s Corporation v. L.C. Big Mak Burger, Inc., supra. 301
VOL. 771, SEPTEMBER 23, 2015 301
GSIS Family Bank-Thrift Bank [formerly Comsavings
300
Bank, Inc.] vs. BPI Family Bank
300 SUPREME COURT REPORTS ANNOTATED The word “family” is defined as “a group consisting of parents and children
GSIS Family Bank-Thrift Bank [formerly Comsavings living together in a household” or “a group of people related to one another by
56
blood or marriage.” Bank, on the other hand, is defined as “a financial
Bank, Inc.] vs. BPI Family Bank establishment that invests money deposited by customers, pays it out when
ruling, this Court considered the etymology and meaning of the Tagalog words, 57
requested, makes loans at interest, and exchanges currency.” By definition, there
“Ang Tibay” to determine whether they relate to the quality or description of the can be no expected relation between the word “family” and the banking business of
merchandise to which respondent therein applied them as trademark, thus: respondent. Rather, the words suggest that respondent’s bank is where family
We find it necessary to go into the etymology and meaning of the Tagalog savings should be deposited. More, as in the Ang case, the phrase “family bank”
words “Ang Tibay” to determine whether they are a descriptive term, i.e., whether cannot be used to define an object.
they relate to the quality or description of the merchandise to which respondent Petitioner’s argument that the opinion of the BSP and the certificate of
has applied them as a trademark. The word “ang” is a definite article meaning “the” registration granted to it by the DTI constitute authority for it to use “GSIS Family
in English. It is also used as an adverb, a contraction of the word “anong” (what or Bank” as corporate name is also untenable.
how). For instance, instead of saying, “Anong ganda!” (“How beautiful!”), we The enforcement of the protection accorded by Section 18 of the Corporation
ordinarily say, “Ang ganda!” Tibay is a root word from which are derived the Code to corporate names is lodged exclusively in the SEC. The jurisdiction of the
verb magpatibay (to strengthen); the nouns pagkamatibay (strength, SEC is not merely confined to the adjudicative functions provided in Section 5 of
durability), katibayan (proof, support, strength), katibaytibayan (superior strength); 58 59
the SEC Reorganization Act, as amended. By express mandate, the SEC has
and the adjectives matibay (strong, durable, lasting), napakatibay (very 60
absolute jurisdiction, supervision and control over all corporations. It is the SEC’s
strong), kasintibay or magkasintibay (as strong as, or of equal strength). The duty to prevent confusion in the use of corporate names not only for the protection
phrase “Ang Tibay” is an exclamation denoting admiration of strength or durability. of the corporations involved, but more so for the protection of the
For instance, one who tries hard but fails to break an object exclaims, “Ang tibay!” _______________
(“How strong!”) It may also be used in a sentence thus, “Ang tibay ng sapatos mo!”
(“How durable your shoes are!”) The phrase “ang tibay” is never used adjectively to 56 The New Oxford American Dictionary, 2nd ed., p. 607 (2005).
define or describe an object. One does not say, “ang tibay sapatos” or “sapatos 57 Id., at p. 127.
ang tibay” to mean “durable shoes,” but “matibay na sapatos” or “sapatos na 58 Presidential Decree (PD) No. 902-A (1976).
matibay.” 59 Industrial Refractories Corporation of the Philippines v. Court of
Appeals, supra note 36 at p. 258.
From all of this we deduce that “Ang Tibay” is not a descriptive term within the 60 Section 3, PD 902-A. The Commission shall have absolute jurisdiction,
meaning of the Trade-Mark Law but rather a fanciful or coined phrase which may supervision and control over all corporations, partnerships or associations, who are
the grantees of primary franchise and/or a license or permit issued by the
properly and legally be appropriated as a trademark or trade-name.
government to operate in the Philippines; and in the exercise of its authority, it shall
55
xxx (Underscoring supplied) have the power to enlist the aid and support of any and all enforcement agencies
of the government, civil or military.
_______________

55 Id., at p. 52.
302
302 SUPREME COURT REPORTS ANNOTATED

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 GSIS Family Bank-Thrift Bank [formerly Comsavings
Bank, Inc.] vs. BPI Family Bank
public. It has authority to de-register at all times, and under all circumstances
61
corporate names which in its estimation are likely to generate confusion.
62
The SEC correctly applied Section 18 of the Corporation Code, and Section
15 of SEC Memorandum Circular No. 14-2000, pertinent portions of which provide:
In implementing Section 18 of the Corporation Code of the Philippines (BP
69), the following revised guidelines in the approval of corporate and
partnership names are hereby adopted for the information and guidance of
all concerned:
xxx
15. Registrant corporations or partnership shall submit a letter
undertaking to change their corporate or partnership name in case another
person or firm has acquired a prior right to the use of the said firm name or
the same is deceptively or confusingly similar to one already registered
unless this undertaking is already included as one of the provisions of the
articles of incorporation or partnership of the registrant.
The SEC, after finding merit in respondent’s claims, can compel petitioner to
abide by its commitment “to change its corporate name in the event that another
person, firm or entity has acquired a prior right to use of said name or one similar
63
to it.”
Clearly, the only determination relevant to this case is that one made by the
SEC in the exercise of its express mandate
_______________
61 Industrial Refractories Corporation of the Philippines v. Court of
Appeals, supra note 36 at p. 259, citing Ang mga Kaanib sa Iglesia ng Dios Kay
Kristo Hesus, H.S.K. sa Bansang Pilipinas, Inc. v. Iglesia ng Dios Kay Cristo
Jesus, Haligi at Suhay ng Katotohanan, supra note 40.
62 Referring to both the SEC CRMD and the SEC En Banc.
63 Rollo, p. 69.
303
VOL. 771, SEPTEMBER 23, 2015 303
GSIS Family Bank-Thrift Bank [formerly Comsavings
Bank, Inc.] vs. BPI Family Bank
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under the law. The BSP opinion invoked by petitioner even acknowledges that “the
issue on whether a proposed name is identical or deceptively similar to that of any
of existing corporation is matter within the official jurisdiction and competence of
64
the SEC.”
65
Judicial notice may also be taken of the action of the IPO in approving
respondent’s registration of the trademark “BPI Family Bank” and its logo on
October 17, 2008. The certificate of registration of a mark shall be prima
facie evidence of the validity of the registration, the registrant’s ownership of the
mark, and of the registrant’s exclusive right to use the same in connection with the
66
goods or services and those that are related thereto specified in the certificate.
Finally, we uphold the Court of Appeals’ finding that the issue of forum
shopping was belatedly raised by petitioner and, thus, cannot anymore be
considered at the appellate stage of the proceedings. Petitioner raised the issue of
67
forum shopping for the first time only on appeal. Petitioner argued that the
complaints filed by respondent did not contain certi-
_______________
64 Id., at p. 115.
65 The IPO is subject to the supervision of the DTI (Republic Act No. 8293
[1997], The Intellectual Property Code of the Philippines, Section 7), which belongs
to the executive department of the government. Official acts of the executive
department can be taken judicial notice of under the Rule 129 of the Rules of
Court, to wit:
Section 1. Judicial notice, when mandatory.—A court shall take judicial
notice, without the introduction of evidence, of the existence and territorial
extent of states, their political history, forms of government and symbols of
nationality, the law of nations, the admiralty and maritime courts of the world
and their seals, the political constitution and history of the Philippines, the
official acts of legislative, executive and judicial departments of the Philippines,
the laws of nature, the measure of time, and the geographical divisions.
66 Republic Act No. 8293 (1997), Section 138.
67 Petition for Review, Rollo, p. 104.
304
304 SUPREME COURT REPORTS ANNOTATED
GSIS Family Bank-Thrift Bank [formerly Comsavings
Bank, Inc.] vs. BPI Family Bank
fications against non-forum shopping, in violation of Section 5, Rule 7 of the Rules
68
of Court.
 In S.C. Megaworld Construction and Development Corporation v.
69
Parada, this Court said that objections relating to noncompliance with the
verification and certification of non-forum shopping should be raised in the
proceedings below, and not for the first time on appeal. In that case, S.C.
Megaworld argued that the complaint for collection of sum of money should have
been dismissed outright by the trial court on account of an invalid non-forum
shopping certification. It alleged that the Special Power of Attorney granted to
Parada did not specifically include an authority for the latter to sign the verification
and certification of non-forum shopping, thus rendering the complaint defective for
violation of Sections 4 and 5 of Rule 7 of the Rules of Court. On motion for
reconsideration of the decision of the Court of Appeals, petitioner raised for the first
time, the issue of forum shopping. The Court ruled against S.C. Megaworld, thus:
It is well-settled that no question will be entertained on appeal unless it has
been raised in the proceedings be-
_______________
68 Section 5. Certification against forum shopping.—The plaintiff or principal
party shall certify under oath in the complaint or other initiatory pleading asserting
a claim for relief, or in a sworn certification annexed thereto and simultaneously
filed therewith:
(a) that he has not theretofore commenced any action or filed any claim
involving the same issues in any court, tribunal or quasi-judicial agency
and, to the best of his knowledge, no such other action or claim is pending
therein;
(b) if there is such other pending action or claim, a complete statement
of the present status thereof; and
(c) if he should thereafter learn that the same or similar action or claim
has been filed or is pending, he shall report that fact within five (5) days
therefrom to the court wherein his aforesaid complaint or initiatory pleading
has been filed. x x x
69 G.R. No. 183804, September 11, 2013, 705 SCRA 584.
305
VOL. 771, SEPTEMBER 23, 2015 305
GSIS Family Bank-Thrift Bank [formerly Comsavings
Bank, Inc.] vs. BPI Family Bank
low. Points of law, theories, issues and arguments not brought to the
attention of the lower court, administrative agency or quasi-judicial
body, need not be considered by a reviewing court, as they cannot be
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raised for the first time at that late stage. Basic considerations of fairness
and due process impel this rule. Any issue raised for the first time on
70
appeal is barred by estoppel.
In this case, the fact that respondent filed a case before the DTI was made
71
known to petitioner long before the SEC rendered its decision. Yet, despite its
knowledge, petitioner failed to question the alleged forum shopping before the
SEC. The exceptions to the general rule that forum shopping should be raised in
72
the earliest opportunity, as explained in the cited case of Young v. Keng Seng, do
not obtain in this case.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals
dated March 29, 2006 is hereby AFFIRMED.
SO ORDERED.
*
G.R. No. 122174. October 3, 2002.
INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES,
petitioner, vs. COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION and REFRACTORIES CORPORATION OF THE PHILIPPINES,
respondents.
Appeals; Pleadings and Practice; It must be noted that at the time the SEC
En Banc rendered its decision on May 10, 1994, the governing rule on appeals
from quasi-judicial agencies like the SEC was Supreme Court Circular No. 1-91.—
Petitioner contends that the petition before the Court of Appeals was timely filed. It
must be noted that at the time the SEC En Banc rendered its decision on May 10,
1994, the governing rule on appeals from quasi-judicial agencies like the SEC
was Supreme Court Circular No. 1-91. As provided therein, the remedy should
have been a petition for review filed before the Court of Appeals within fifteen (15)
days from notice, raising questions of fact, of law, or mixed questions of fact and
law. A motion for reconsideration suspends the running of the period.
Same; Same; Official records of SEC officials as to the dates of receipt and
filing of papers enjoy the presumption of regularity.—If reckoned from the dates
supplied by petitioner, then the petition was timely filed. On the other hand, if
reckoned from the dates provided by respondent RCP, then it was filed way
beyond the reglementary period. On this score, we agree with the appellate court’s
finding that petitioner failed to rebut respondent RCP’s allegations of material dates
of receipt and filing. In addition, the certifications were executed by the SEC
officials based on their official records which enjoy the presumption of regularity.
As such, these are prima facie evidence of the facts stated therein. And based on
such dates, there is no question that the petition was filed with the Court of
Appeals beyond the fifteen (15) day period. On this ground alone, the instant
petition should be denied as the SEC En Banc’s decision had already attained
finality and the SEC’s findings of fact, when supported by substantial evidence, is
final.
Securities and Exchange Commission; Jurisdiction; Scope; Jurisdiction of
the SEC is not merely confined to the adjudicative functions provided in Section 5
of P.D. 902-A, as amended.—Petitioner’s argument on the SEC’s jurisdiction over
the case is utterly myopic. The jurisdiction of the SEC is not merely confined to the
adjudicative functions provided in
_______________
*
SECOND DIVISION.
253
VOL. 390, OCTOBER 3, 2002 2 deceptive, confusing or contrary to existing law.
53
Industrial Refractories Corporation of the
Philippines vs. Court of Appeals
Section 5 of P.D. 902-A, as amended. By express mandate, it has absolute
jurisdiction, supervision and control over all corporations. It also exercises
regulatory and administrative powers to implement and enforce the Corporation
Code, one of which is Section 18, which provides: “SEC. 18. Corporate name.—No
corporate name may be allowed by the Securities and Exchange Commission if
the proposed name is identical or deceptively or confusingly similar to that of any
existing corporation or to any other name already protected by law or is patently
deceptive, confusing or contrary to existing laws. When a change in the corporate
name is approved, the Commission shall issue an amended certificate of
incorporation under the amended name.” It is the SEC’s duty to prevent confusion
in the use of corporate names not only for the protection of the corporations
involved but more so for the protection of the public, and it has authority to de-
register at all times and under all circumstances corporate names which in its
estimation are likely to generate confusion. Clearly therefore, the present case falls
within the ambit of the SEC’s regulatory powers.
Same; Same; Same; Confusing and deceptive similarity of corporate names
prohibited under Section 18 of the Corporation Code.—Likewise untenable is
petitioner’s argument that there is no confusing or deceptive similarity between
petitioner and respondent RCP’s corporate names. Section 18 of the Corporation
Code expressly prohibits the use of a corporate name which is “identical or
deceptively or confusingly similar to that of any existing corporation or to any other
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name already protected by law or is patently deceptive, confusing or contrary to
existing laws.” The policy behind the foregoing prohibition is to avoid fraud upon
the public that will 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 corporation. Pursuant thereto, the Revised Guidelines in the
Approval of Corporate and Partnership Names specifically requires that: (1) a
corporate name shall not be identical, misleading or confusingly similar to one
already registered by another corporation with the Commission; and (2) if the
proposed name is similar to the name of a registered firm, the proposed name
must contain at least one distinctive word different from the name of the company
already registered.
Same; Same; Same; Requisites to fall within the prohibition of the law.—As
held in Philips Export B.V. vs. Court of Appeals, to fall within the prohibition of the
law, two requisites must be proven, to wit: (1) that the complainant corporation
acquired a prior right over the use of such corporate name; and (2) the proposed
name is either: (a) identical, or (b) deceptively or confusingly similar to that of any
existing corporation or to any other name already protected by law; or (c) patently
254
2 SUPREME COURT REPORTS
54 ANNOTATED
Industrial Refractories Corporation of the
Philippines vs. Court of Appeals
Same; Same; Same; First Requisite of Priority of Adoption.—As regards the
first requisite, it has been held that the right to the exclusive use of a corporate
name with freedom from infringement by similarity is determined by priority of
adoption. In this case, respondent RCP was incorporated on October 13, 1976 and
since then has been using the corporate name “Refractories Corp. of the
Philippines”. Meanwhile, petitioner was incorporated on August 23, 1979 originally
under the name “Synclaire Manufacturing Corporation”. It only started using the
name “Industrial Refractories Corp. of the Philippines” when it amended its Articles
of Incorporation on August 23, 1985, or nine (9) years after respondent RCP
started using its name. Thus, being the prior registrant, respondent RCP has
acquired the right to use the word “Refractories” as part of its corporate name.
Same; Same; Same; Second Requisite.—Anent the second requisite, 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 and the Court must look to the record as well as the names
themselves. Petitioner’s corporate name is “Industrial Refractories Corp. of the
Phils.”, while respondent’s is “Refractories Corp. of the Phils.” Obviously, both
names contain the identical words “Refractories”, “Corporation” and “Philippines”.

The only word that distinguishes petitioner from respondent RCP is the word
“Industrial” which merely identifies a corporation’s general field of activities or
operations. We need not linger on these two corporate names to conclude that
they are patently similar that even with reasonable care and observation, confusion
might arise.
Attorney’s Fees; Award of attorney’s fees found fair and reasonable when its
claimant is compelled to litigate with third persons or to incur expenses to protect
its just and valid claim.—We find the award of P50,000.00 as attorney’s fees to be
fair and reasonable. Article 2208 of the Civil Code allows the award of such fees
when its claimant is compelled to litigate with third persons or to incur expenses to
protect its just and valid claim. In this case, despite its undertaking to change its
corporate name in case another firm has acquired a prior right to use such name, it
refused to do so, thus compelling respondent to undergo litigation and incur
expenses to protect its corporate name.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
255
VOL. 390, OCTOBER 3, 2002 255
Industrial Refractories Corporation of the Philippines vs.
Court of Appeals
Augusto Gatmaytan for petitioner.
Roxas, Delos Reyes, Laurel and Rosario for private respondent.
AUSTRIA-MARTINEZ, J.:
Filed before us is a petition for review on certiorari under Rule 45 of the Rules of
Court assailing the Decision of the Court of Appeals in CA-G.R. SP No. 35056,
denying due course and dismissing the petition filed by Industrial Refractories
Corp. of the Philippines (IRCP).
Respondent Refractories Corporation of the Philippines (RCP) is a corporation
duly organized on October 13, 1976 for the purpose of engaging in the business of
manufacturing, producing, selling, exporting and otherwise dealing in any and all
refractory bricks, its by-products and derivatives. On June 22, 1977, it registered its
corporate and business name with the Bureau of Domestic Trade.
Petitioner IRCP on the other hand, was incorporated on August 23, 1979
originally under the name “Synclaire Manufacturing Corporation”. It amended its
Articles of Incorporation on August 23, 1985 to change its corporate name to
“Industrial Refractories Corp. of the Philippines”. It is engaged in the business of
manufacturing all kinds of ceramics and other products, except paints and zincs.
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1
Both companies are the only local suppliers of monolithic gunning mix.
Discovering that petitioner was using such corporate name, respondent RCP
filed on April 14, 1988 with the Securities and Exchange Commission (SEC) a
petition to compel petitioner to change its corporate name on the ground that its
corporate name is confusingly similar with that of petitioner’s such that the public
may be confused or deceived into believing that they are one and the same
2
corporation.
The SEC decided in favor of respondent RCP and rendered judgment on July
23, 1993 with the following dispositive portion:
_______________
1
Rollo, p. 89.
2
CA Rollo, p. 23.
256
256 SUPREME COURT REPORTS ANNOTATED
Industrial Refractories Corporation of the Philippines vs.
Court of Appeals
“WHEREFORE, judgment is hereby rendered in favor of the petitioner and against
the respondent declaring the latter’s corporate name ‘Industrial Refractories
Corporation of the Philippines’ as deceptively and confusingly similar to that of
petitioner’s corporate name ‘Refractories Corporation of the Philippines’.
Accordingly, respondent is hereby directed to amend its Articles of Incorporation by
deleting the name ‘Refractories Corporation of the Philippines’ in its corporate
name within thirty (30) days from finality of this Decision. Likewise, respondent is
3
hereby ordered to pay the petitioner the sum of P50,000.00 as attorney’s fees.”
Petitioner appealed to the SEC En Banc, arguing that it does not have any
jurisdiction over the case, and that respondent RCP has no right to the exclusive
4
use of its corporate name as it is composed of generic or common words.
In its Decision dated July 23, 1993, the SEC En Banc modified the appealed
decision in that petitioner was ordered to delete or drop from its corporate name
5
only the word “Refractories”.
Petitioner IRCP elevated the decision of the SEC En Banc through a petition
for review on certiorari to the Court of Appeals which then rendered the herein
assailed decision. The appellate court upheld the jurisdiction of the SEC over the
case and ruled that the corporate names of petitioner IRCP and respondent RCP
are confusingly or deceptively similar, and that respondent RCP has established its
6
prior right to use the word “Refractories” as its corporate name. The appellate
7
court also found that the petition was filed beyond the reglementary period.
Hence, herein petition which we must deny.
 Petitioner contends that the petition before the Court of Appeals was timely registered mail on June 25, 1994, and received the Order dated August 3, 1994 on
11
filed. It must be noted that at the time the SEC En Banc rendered its decision on August 15, 1994. Thus, the petition was filed twenty-one (21) days beyond the
12
May 10, 1994, the governing rule on appeals from quasi-judicial agencies like the reglementary period provided in Supreme Court Circular No. 1-91.
SEC was Supreme Court Circular No. 1-91. As provided therein, the remedy If reckoned from the dates supplied by petitioner, then the petition was timely
should have been a petition for review filed before the Court of Appeals within filed. On the other hand, if reckoned from the dates provided by respondent RCP,
fifteen (15) days from notice, raising questions of fact, of then it was filed way beyond the reglementary period. On this score, we agree with
the appellate court’s finding that petitioner failed to rebut respondent RCP’s
13
_______________ allegations of material dates of receipt and filing. In addition, the certifications
14
were executed by the SEC officials based on their official records which enjoy the
3
Ibid. presumption of regular-
4
Id., p. 26.
5 _______________
Id., p. 27.
6
Id., pp. 140-142.
7 8
Id., pp. 143-144. Supreme Court Circular No. 1-91, Sections 3, 4 and 5; Western Institute of
257 Technology, Inc. vs. Salas, 278 SCRA 216, 227 [1997].
9
VOL. 390, OCTOBER 3, 2002 257 Id., Section 4.
10
Rollo, pp. 10-11.
Industrial Refractories Corporation of the Philippines vs. 11
CA Rollo, Annexes “1” to “2”, pp. 128-130.
12
Court of Appeals Rollo, pp. 79-81.
13
8
law, or mixed questions of fact and law. A motion for reconsideration suspends CA Rollo, p. 144
14
the running of the period.
9 Id., p. 128.
In the case at bench, there is a discrepancy between the dates provided by 258
petitioner and respondent. Petitioner alleges the following dates of receipt and 258 SUPREME COURT REPORTS ANNOTATED
10
filing:
Industrial Refractories Corporation of the Philippines vs.
June 10, Receipt of SEC’s Decision dated May 10,
Court of Appeals
1994 1994 15
ity. As such, these are prima facie evidence of the facts stated therein. And
16

June 20, Filing of Motion for Reconsideration based on such dates, there is no question that the petition was filed with the Court
of Appeals beyond the fifteen (15) day period. On this ground alone, the instant
1994
petition should be denied as the SEC En Banc’s decision had already attained
September 1, Receipt of SEC’s Order dated August 3, finality and the SEC’s findings of fact, when supported by substantial evidence, is
17
1994 1994 denying petitioner’s motion for final.
Nevertheless, to set the matters at rest, we shall delve into the other issues
reconsideration posed by petitioner.
September 2, Filing of Motion for extension of time Petitioner’s arguments, substantially, are as follows: (1) jurisdiction is vested
with the regular courts as the present case is not one of the instances provided in
1994
P.D. 902-A; (2) respondent RCP is not entitled to use the generic name
September 6, Filing of Petition “refractories”; (3) there is no confusing similarity between their corporate names;
18
1994 and (4) there is no basis for the award of attorney’s fees.
Respondent RCP, however, asserts that the foregoing dates are incorrect as the Petitioner’s argument on the SEC’s jurisdiction over the case is utterly myopic.
certifications issued by the SEC show that petitioner received the SEC’s Decision The jurisdiction of the SEC is not merely confined to the adjudicative functions
19
dated May 10, 1994 on June 9, 1994, filed the motion for reconsideration via provided in Section 5 of P.D. 902-A, as amended. By express mandate, it has

Corporation  Law  Cases  –  Batch  3  

 
 20
absolute jurisdiction, supervision and control over all corporations. It also
exercises regulatory and administrative powers to implement and enforce the
21
Corporation Code, one of which is Section 18, which provides:
“SEC. 18. Corporate name.—No corporate name may be allowed by the Securities
and Exchange Commission if the proposed name is identical or deceptively or
confusingly similar to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or contrary to existing laws.
When a change in the corporate name is approved, the Commission shall issue an
amended certificate of incorporation under the amended name.”
_______________
15
People vs. Banzales, 336 SCRA 64, 75 [2000].
16
Revised Rules on Evidence, Rule 132, Section 23.
17
Supreme Court Circular No. 1-91, Section 8.
18
Rollo, pp. 9-24.
19
Now superseded by R.A. 8799, otherwise known as “The Securities
Regulation Code”, effective August 8, 2000.
20
P.D. 902-A, Section 3.
21
Corporation Code, Section 143.
259
VOL. 390, OCTOBER 3, 2002 259
Industrial Refractories Corporation of the Philippines vs.
Court of Appeals
It is the SEC’s duty to prevent confusion in the use of corporate names not only for
the protection of the corporations involved but more so for the protection of the
public, and it has authority to deregister at all times and under all circumstances
22
corporate names which in its estimation are likely to generate confusion. Clearly
23
therefore, the present case falls within the ambit of the SEC’s regulatory powers.
Likewise untenable is petitioner’s argument that there is no confusing or
deceptive similarity between petitioner and respondent RCP’s corporate
names. Section 18 of the Corporation Code expressly prohibits the use of a
corporate name which 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.” The policy behind the
foregoing prohibition is to avoid fraud upon the public that will have occasion to
deal with the entity concerned, the evasion of legal obligations and duties, and the
24
reduction of difficulties of administration and supervision over corporation.
Pursuant thereto, the Revised Guidelines in the Approval of Corporate and
25
Partnership Names specifically requires that: (1) a corporate name shall not be
identical, misleading or confusingly similar to one already registered by another
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26
corporation with the Commission; and (2) if the proposed name is similar to the
name of a registered firm, the proposed name must contain at least one distinctive
27
word different from the name of the company already registered.
_______________
22
Ang mga Kaanib sa Iglesia ng Dios kay Kristo Hesus, H.S.K. sa Bansang
Pilipinas, Inc. vs. Iglesia ng Dios kay Cristo Jesus, Haligi at Suhay ng
Katotohanan, G.R. No. 137592, December 12, 2001, 372 SCRA 171.
23
Universal Mills Corporation vs. Universal Textile Mills, Inc., 78 SCRA 62, 64
[1977].
24
Lyceum of the Philippines vs. Court of Appeals, 219 SCRA 610, 615 [1993].
25
SEC Memorandum Circular No. 14-00 [October 24, 2000].
26
Id., No. 3.
27
Ibid.
260
260 SUPREME COURT REPORTS ANNOTATED
Industrial Refractories Corporation of the Philippines vs.
Court of Appeals
28
As held in Philips Export B.V. vs. Court of Appeals, to fall within the prohibition of
the law, two requisites must be proven, to wit:
1. (1)that the complainant corporation acquired a prior right over the use of
such corporate name;
and
2. (2)the proposed name is either: (a) identical, or (b) deceptively or
confusingly similar to that of any existing corporation or to any other
name already protected by law; or (c) patently deceptive, confusing or
contrary to existing law.
As regards the first requisite, it has been held that the right to the exclusive use of
a corporate name with freedom from infringement by similarity is determined
29
by priority of adoption. In this case, respondent RCP was incorporated on
October 13, 1976 and since then has been using the corporate name “Refractories
Corp. of the Philippines”. Meanwhile, petitioner was incorporated on August 23,
1979 originally under the name “Synclaire Manufacturing Corporation”. It only
started using the name “Industrial Refractories Corp. of the Philippines” when it
amended its Articles of Incorporation on August 23, 1985, or nine (9) years after
respondent RCP started using its name. Thus, being the prior registrant, While the word “refractories” is a generic term, its usage is not widespread and is
respondent RCP has acquired the right to use the word “Refractories” as part of its limited merely to the industry/trade in which it is used, and its continuous use by
corporate name. respondent RCP for a consider-
Anent the second requisite, 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 and the Court must look to the
30
record as well as the names themselves. Petitioner’s corporate name is 31
Universal Mills Corporation vs. Universal Textile Mills, Inc., supra, p. 65.
“Industrial Refractories Corp. of the Phils.”, while respondent’s is “Refractories 32
CA Rollo, p. 27.
Corp. of the Phils.” Obviously, both names contain the identical words 33
Batangas Laguna Tayabas Bus Co., Inc. vs. Bitanga, G.R. No. 137934,
“Refractories”, “Corporation” and “Philippines”. The only August 10, 2001, 362 SCRA 635.
34
Philips Export B.V. vs. Court of Appeals, supra, p. 464, citing
_______________ 6 Fletcher [Perm Ed], pp. 107-108.
35
Commission of Customs vs. Court of Tax Appeals, 185 SCRA 277, 281
28
206 SCRA 457, 463 [1992]. [1990], citing the Kent Handbook on Design and Production, 12th Edition.
29
Ibid., citing 1 Thomson, p. 80 citing Munn v. Americana Co., 82 N., Eq. 63, 262
88 Atl. 30; San Francisco Oyster House v. Mihich, 75 Wash. 274, 134 Pac. 921. 262 SUPREME COURT REPORTS ANNOTATED
30
Id., p. 464, citing Ohio Nat. Life Ins. Co. vs. Ohio Life Ins. Co., 210 NE 2d
298. Industrial Refractories Corporation of the Philippines vs.
261 Court of Appeals
36
VOL. 390, OCTOBER 3, 2002 261 able period has made the term so closely identified with it. Moreover, as held in
the case of Ang Kaanib sa Iglesia ng Dios kay Kristo Hesus, H.S.K. sa Bansang
Industrial Refractories Corporation of the Philippines vs.
Pilipinas, Inc. vs. Iglesia ng Dios kay Cristo Jesus, Haligi at Suhay ng
Court of Appeals Katotohanan, petitioner’s appropriation of respondent’s corporate name cannot find
37
word that distinguishes petitioner from respondent RCP is the word “Industrial” justification under the generic word rule. A contrary ruling would encourage other
which merely identifies a corporation’s general field of activities or operations. We corporations to adopt verbatim and register an existing and protected corporate
38
need not linger on these two corporate names to conclude that they are patently name, to the detriment of the public.
31
similar that even with reasonable care and observation, confusion might arise. It Finally, we find the award of P50,000.00 as attorney’s fees to be fair and
must be noted that both cater to the same clientele, i.e.,the steel industry. In fact, reasonable. Article 2208 of the Civil Code allows the award of such fees when its
the SEC found that there were instances when different steel companies were claimant is compelled to litigate with third persons or to incur expenses to protect
actually confused between the two, especially since they also have similar product its just and valid claim. In this case, despite its undertaking to change its corporate
32 39
packaging. Such findings are accorded not only great respect but even finality, name in case another firm has acquired a prior right to use such name, it refused
and are binding upon this Court, unless it is shown that it had arbitrarily to do so, thus compelling respondent to undergo litigation and incur expenses to
disregarded or misapprehended evidence before it to such an extent as to compel protect its corporate name.
33
a contrary conclusion had such evidence been properly appreciated. And even WHEREFORE, the instant petition for review on certiorari is hereby DENIED
without such proof of actual confusion between the two corporate names, it for lack of merit.
34
suffices that confusion is probable or likely to occur. Costs against petitioner.
Refractory materials are described as follows: SO ORDERED.
“Refractories are structural materials used at high temperatures to [sic] industrial
furnaces. They are supplied mainly in the form of brick of standard sizes and of
special shapes. Refractories also include refractory cements, bonding mortars, G.R. No. 137592. December 12, 2001.
*

plastic firebrick, castables, ramming mixtures, and other bulk materials such as
35
dead-burned grain magneside, chrome or ground ganister and special clay.”

Corporation  Law  Cases  –  Batch  3  

 
ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO HESUS, H.S.K. SA Jesus
BANSANG PILIPINAS, INC., petitioner, vs. IGLESIA NG DIOS KAY CRISTO
preexisting corporation who are likewise residing in the Philippines, can
JESUS, HALIGI AT SUHAY NG KATOTOHANAN, respondent.
hardly serve as an effective differentiating medium necessary to avoid confusion or
Legal Ethics; Attorneys; Due Process; The negligence of counsel binds the
difficulty in distinguishing the former from the latter.—The additional words “Ang
client, except where the reckless or gross negligence of the counsel deprives the
Mga Kaanib” and “Sa Bansang Pilipinas, Inc.” in petitioner’s name are, as correctly
client of due process of law.—As a general rule, the negligence of counsel binds
observed by the SEC, merely descriptive of and also referring to the members,
the client. This is based on the rule that any act performed by a lawyer within the
or kaanib, of respondent who are likewise residing in the Philippines. These words
scope of his general or implied authority is regarded as an act of his client. An
can hardly serve as an effective differentiating medium necessary to avoid
exception to the foregoing is where the reckless or gross negligence of the counsel
confusion or difficulty in distinguishing petitioner from respondent. This is
deprives the client of due process of law. Said exception, however, does not obtain
especially so, since both petitioner and respondent corporations are using the
in the present case.
same acronym—H.S.K.; not to mention the fact that both are espousing religious
Corporation Law; Actions; Prescription; The failure of a party to raise
beliefs and operating in the same place. Parenthetically, it is well to mention that
prescription before the Securities and Exchange Commission can only be
the acronym H.S.K. used by petitioner stands for “Haligi at Saligan ng
construed as a waiver of that defense.—Likewise, the issue of prescription, which
Katotohanan.”
petitioner raised for the first time on appeal to the Court of Appeals, is untenable.
Same; Same; Same; The only difference between the corporate names of
Its failure to raise prescription before the SEC can only be construed as a waiver of
petitioner and respondent are the words “Saligan” and “Suhay,” which words are
that defense. At any rate, the SEC has the authority to de-register at all times and
synonymous—both mean ground, foundation or support.—Significantly, the only
under all circumstances corporate names which in its estimation are likely to
difference between the corporate names of petitioner and respondent are the
spawn confusion. It is the duty of the SEC to prevent confusion in the use of
words SALIGAN and SUHAY. These words are synonymous—both mean ground,
corporate names not only for the protection of the corporations involved but more
foundation or support. Hence, this case is on all fours with Universal Mills
so for the protection of the public.
Corporation v. Universal Textile Mills, Inc., where the Court ruled that the corporate
Same; Corporate Names; Parties organizing a corporation must choose a
names Universal Mills Corporation and Universal Textile Mills, Inc., are
name at their peril.—Parties organizing a corporation must choose a name at their
undisputably so similar that even under the test of “reasonable care and
peril; and the use of a name similar to one adopted by another corporation,
observation” confusion may arise.
whether a business or a nonprofit organization, if misleading or likely to injure in
Same; Same; Freedom of Religion; Ordering a religious society or
the exercise of its corporate functions, regardless of intent, may be prevented by
corporation to change its corporate name is not a violation of its constitutionally
the corporation having a prior right, by a suit for injunction against the new
guaranteed right to religious freedom.—We need not belabor the fourth issue
corporation to prevent the use of the name.
raised by petitioner. Certainly, ordering petitioner to change its corporate name is
Same; Same; Words and Phrases; The additional words in a corporation’s
not a violation of its constitutionally guaranteed right to religious freedom. In so
name—“Ang Mga Kaanib” and “Sa Bansang Pilipinas, Inc.”—which are merely
doing, the SEC merely compelled petitioner to abide by one of the SEC guidelines
descriptive of and also referring to the members, or kaanib, of a
in the approval of partnership and corporate names, namely its undertaking to
manifest 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.
FIRST DIVISION.
172 PETITION for review on certiorari of a decision of the Court of Appeals.
1 SUPREME COURT REPORTS
72 ANNOTATED The facts are stated in the opinion of the Court.
173
Ang mga Kaanib sa Iglesia ng Dios Kay Kristo
VOL. 372, DECEMBER 12, 2001 173
Hesus, H.S.K. sa
Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus,
Bansang Pilipinas, Inc. vs. Iglesia ng Dios Kay Cristo

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 H.S.K. sa
Bansang Pilipinas, Inc. vs. Iglesia ng Dios Kay Cristo
Jesus
Algarra & Miranda Law Office and Fernandez, Adaza Law Firm for petitioner.
Benedicto M. Acosta, Jr. for private respondent.
YNARES-SANTIAGO, J.:
1 change its corporate name and be barred from using the same or similar name on
This is a petition for review assailing the Decision dated October 7, 1997 and the
2
Resolution dated February 16, 1999 of the Court of Appeals in CA-G.R. SP No.
40933, which affirmed the Decision of the Securities and Exchange Commission
3
(SEC) in SEC-AC No. 539.
Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng
4
Katotohanan (Church of God in Christ Jesus, the Pillar and Ground of Truth), is a
non-stock religious society or corporation registered in 1936. Sometime in 1976,
one Eliseo Soriano and several other members of respondent corporation
disassociated themselves from the latter and succeeded in registering on March
30, 1977 a new non-stock religious society or corporation, named Iglesia ng Dios
Kay Kristo Hesus, Haligi at Saligan ng Katotohanan.
On July 16, 1979, respondent corporation filed with the SEC a petition to
compel the Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan to
change its corporate name, which petition was docketed as SEC Case No. 1774.
On May 4, 1988, the SEC rendered judgment in favor of respondent, ordering
the Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan to change
its corporate name to another name that is not similar or identical to any name
already used by a corporation, partnership or association registered with the
5
Commission. No appeal was taken from said decision.
Bansang Pilipinas, Inc. vs. Iglesia ng Dios Kay Cristo
Jesus
It appears that during the pendency of SEC Case No. 1774, Soriano, et al., caused
the registration on April 25, 1980 of petitioner corporation, Ang Mga Kaanib sa
Iglesia ng Dios Kay Kristo Hesus, H.S.K., sa Bansang Pilipinas. The acronym
6
“H.S.K.” stands for Haligi at Saligan ng Katotohanan.
On March 2, 1994, respondent corporation filed before the SEC a petition,
docketed as SEC Case No. 03-94-4704, praying that petitioner be compelled to
the ground that the same causes confusion among their members as well as the
public.
Petitioner filed a motion to dismiss on the ground of lack of cause of action.
The motion to dismiss was denied. Thereafter, for failure to file an answer,
petitioner was declared in default and respondent was allowed to present its
evidence ex parte.
On November 20, 1995, the SEC rendered a decision ordering petitioner to
change its corporate name. The dispositive portion thereof reads:
PREMISES CONSIDERED, judgment is hereby rendered in favor of the petitioner
(respondent herein).
Respondent Mga Kaanib sa Iglesia ng Dios Kay Kristo Jesus (sic), H.S.K. sa
Bansang Pilipinas (petitioner herein) is hereby MANDATED to change its corporate
name to another not deceptively similar or identical to the same already used by
the Petitioner, any corporation, association, and/or partnership presently registered
with the Commission.
Let a copy of this Decision be furnished the Records Division and the
Corporate and Legal Department [CLD] of this Commission for their records,
reference and/or for whatever requisite action, if any, to be undertaken at their end.
SO ORDERED.
7

Petitioner appealed to the SEC En Banc, where its appeal was docketed as SEC-
_______________ AC No. 539. In a decision dated March 4, 1996, the SEC En Banc affirmed the
above decision, upon a finding that
1
Rollo, pp. 57-68; penned Mr. Justice Cancio C. Garcia and concurred in by
Mesdames Justices Delilah Vidallion-Magtolis and Marina L. Buzon. _______________
2
Ibid., pp. 54-55.
3
Ibid., pp. 70-73. 6
Ibid., p. 430.
4
Official English translation; see Rollo, p. 252. 7
Ibid., pp. 78-79.
5
Rollo, pp. 419-424. 175
174
VOL. 372, DECEMBER 12, 2001 175
174 SUPREME COURT REPORTS ANNOTATED
Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus,
Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus,
H.S.K. sa
H.S.K. sa

Corporation  Law  Cases  –  Batch  3  

 
 Bansang Pilipinas, Inc. vs. Iglesia ng Dios Kay Cristo
Jesus
petitioner’s corporate name was identical or confusingly or deceptively similar to
8
that of respondent’s corporate name.
Petitioner filed a petition for review with the Court of Appeals. On October 7,
1997, the Court of Appeals rendered the assailed decision affirming the decision of
the SEC En Banc. Petitioner’s motion for reconsideration was denied by the Court
of Appeals on February 16, 1992.
Hence, the instant petition for review, raising the following assignment of
errors:
I 10
THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT
PETITIONER HAS NOT BEEN DEPRIVED OF ITS RIGHT TO PROCEDURAL
DUE PROCESS, THE HONORABLE COURT OF APPEALS DISREGARDED THE
JURISPRUDENCE APPLICABLE TO THE CASE AT BAR AND INSTEAD RELIED
ON TOTALLY INAPPLICABLE JURISPRUDENCE.
II
THE HONORABLE COURT OF APPEALS ERRED IN ITS INTERPRETATION
OF THE CIVIL CODE PROVISIONS ON EXTINCTIVE PRESCRIPTION,
THEREBY RESULTING IN ITS FAILURE TO FIND THAT THE RESPONDENT’S
RIGHT OF ACTION TO INSTITUTE THE SEC CASE HAS SINCE PRESCRIBED
PRIOR TO ITS INSTITUTION.
III
THE HONORABLE COURT OF APPEALS FAILED TO CONSIDER AND
PROPERLY APPLY THE EXCEPTIONS ESTABLISHED BY JURISPRUDENCE
IN THE APPLICATION OF SECTION 18 OF THE CORPORATION CODE TO THE
INSTANT CASE.
IV
THE HONORABLE COURT OF APPEALS FAILED TO PROPERLY
APPRECIATE THE SCOPE OF THE CONSTITUTIONAL GUARANTEE ON
RELIGIOUS FREEDOM, THEREBY FAILING TO APPLY THE SAME TO
9
PROTECT PETITIONER’S RIGHTS.
Corporation
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 Cases
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 3
_______________
8
Ibid., pp. 70-73.
9
Ibid., pp. 18-19.
176
176 SUPREME COURT REPORTS ANNOTATED
Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus,
H.S.K. sa
Bansang Pilipinas, Inc. vs. Iglesia ng Dios Kay Cristo
Jesus
Invoking the case of Legarda v. Court of Appeals, petitioner insists that the
decision of the Court of Appeals and the SEC should be set aside because the
negligence of its former counsel of record, Atty. Joaquin Garaygay, in failing to file
an answer after its motion to dismiss was denied by the SEC, deprived them of
their day in court.
The contention is without merit. As a general rule, the negligence of counsel
binds the client. This is based on the rule that any act performed by a lawyer within
11
the scope of his general or implied authority is regarded as an act of his client. An
exception to the foregoing is where the reckless or gross negligence of the counsel
12
deprives the client of due process of law. Said exception, however, does not
obtain in the present case.
In Legarda v. Court of Appeals, the effort of the counsel in defending his
client’s cause consisted in filing a motion for extension of time to file answer before
the trial court. When his client was declared in default, the counsel did nothing and
allowed the judgment by default to become final and executory. Upon the
insistence of his client, the counsel filed a petition to annul the judgment with the
Court of Appeals, which denied the petition, and again the counsel allowed the
denial to become final and executory. This Court found the counsel grossly
negligent and consequently declared as null and void the decision adverse to his
client.
The factual antecedents of the case at bar are different. Atty. Garaygay filed
before the SEC a motion to dismiss on the ground of lack of cause of action. When
his client was declared in default for failure to file an answer, Atty. Garaygay
13
moved for reconsideration and lifting of the order of default. After judgment by
default was rendered against petitioner corporation, Atty. Garaygay filed a motion
for extension of time to appeal/motion for reconsideration, and thereafter a motion
14
to set aside the decision.
_______________
10
195 SCRA 418 [1991].
 11
Apex Mining, Inc. v. Court of Appeals, et al., 319 SCRA 456, 465 [1999].
12
Legarda v. Court of Appeals, supra.
13
Rollo, p. 75.
14
Ibid., p. 71.
177
VOL. 372, DECEMBER 12, 2001 177
Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus,
H.S.K. sa
Bansang Pilipinas, Inc. vs. Iglesia ng Dios Kay Cristo
Jesus
Evidently, Atty. Garaygay was only guilty of simple negligence. Although he failed
to file an answer that led to the rendition of a judgment by default against
15
petitioner, his efforts were palpably real, albeit bereft of zeal.
Likewise, the issue of prescription, which petitioner raised for the first time on
appeal to the Court of Appeals, is untenable. Its failure to raise prescription before
16
the SEC can only be construed as a waiver of that defense. At any rate, the SEC
has the authority to de-register at all times and under all circumstances corporate
names which in its estimation are likely to spawn confusion. It is the duty of the
SEC to prevent confusion in the use of corporate names not only for the protection
17
of the corporations involved but more so for the protection of the public.
Section 18 of the Corporation Code provides:
Corporate Name.—No corporate name may be allowed by the Securities and
Exchange Commission if the proposed name is identical or deceptively or
confusingly similar to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or is 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.
Corollary thereto, the pertinent portion of the SEC Guidelines on Corporate Names
states:
(d) If the proposed name contains a word similar to 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 name of the company already registered;
Parties organizing a corporation must choose a name at their peril; and the use of
a name similar to one adopted by another
_______________
15
Salonga, et al. v. Court of Appeals, et al., 269 SCRA 534, 546 [1997].
16
Aldovino, et al. v. Alunan III, et al., 230 SCRA 825, 833 [1994].
Corporation
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 3
17
R.E. Agpalo, Comments on the Corporation Code of the Philippines, 74,
(Fifth Edition, 1993), citing Universal Mills Corporation v. Universal Textile Mills,
Inc., 78 SCRA 62 (1977).
178
178 SUPREME COURT REPORTS ANNOTATED
Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus,
H.S.K. sa
Bansang Pilipinas, Inc. vs. Iglesia ng Dios Kay Cristo
Jesus
corporation, whether a business or a nonprofit organization, if misleading or likely
to injure in the exercise of its corporate functions, regardless of intent, may be
prevented by the corporation having a prior right, by a suit for injunction against the
18
new corporation to prevent the use of the name.
Petitioner claims that it complied with the aforecited SEC guideline by adding
not only two but eight words to their registered name, to wit: “Ang Mga
Kaanib” and “Sa Bansang Pilipinas, Inc.,” which, petitioner argues, effectively
distinguished it from respondent corporation.
The additional words “Ang Mga Kaanib” and “Sa Bansang Pilipinas, Inc.” in
petitioner’s name are, as correctly observed by the SEC, merely descriptive of and
also referring to the members, or kaanib, of respondent who are likewise residing
in the Philippines. These words can hardly serve as an effective differentiating
medium necessary to avoid confusion or difficulty in distinguishing petitioner from
respondent. This is especially so, since both petitioner and respondent
19
corporations are using the same acronym—H.S.K.; not to mention the fact that
both are espousing religious beliefs and operating in the same place.
Parenthetically, it is well to mention that the acronym H.S.K. used by petitioner
20
stands for “Haligi at Saligan ng Katotohanan.”
Then, too, the records reveal that in holding out their corporate name to the
public, petitioner highlights the dominant words “IGLESIA NG DIOS KAY KRISTO
HESUS, HALIGI AT SALIGAN NG KATOTOHANAN,” which is strikingly similar to
respondent’s corporate name, thus making it even more evident that the additional
words “Ang Mga Kaanib” and “Sa Bansang Pilipinas, Inc.”, are merely descriptive
21
of and pertaining to the members of respondent corporation.
_______________
18
Philips Export B.V. v. Court of Appeals, et al., 206 SCRA 457, 467 [1992];
citing American Gold Stars Mothers, Inc. v. National Gold Star Mothers, Inc., 89
App DC 269, 191 F 2d 488, 27 ALR 2d 948.
19
Rollo, p. 292.
20
Ibid., p. 430.
 21
Rollo, pp. 487-491.
179
VOL. 372, DECEMBER 12, 2001 179
Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus,
H.S.K. sa
Bansang Pilipinas, Inc. vs. Iglesia ng Dios Kay Cristo
Jesus
Significantly, the only difference between the corporate names of petitioner and
respondent are the words SALIGAN and SUHAY. These words are synonymous—
both mean ground, foundation or support. Hence, this case is on all fours
22
with Universal Mills Corporation v. Universal Textile Mills, Inc., where the Court
ruled that the corporate names Universal Mills Corporation and Universal Textile
Mills, Inc., are undisputably so similar that even under the test of “reasonable care
and observation” confusion may arise.
Furthermore, the wholesale appropriation by petitioner of respondent’s
corporate name cannot find justification under the generic word rule. We agree
with the Court of Appeals’ conclusion that a contrary ruling would encourage other
corporations to adopt verbatim and register an existing and protected corporate
name, to the detriment of the public.
The fact that there are other non-stock religious societies or corporations using
the names Church of the Living God, Inc., Church of God Jesus Christ the Son of
God the Head, Church of God in Christ & By the Holy Spirit, and other similar
names, is of no consequence. It does not authorize the use by petitioner of the
essential and distinguishing feature of respondent’s registered and protected
23
corporate name.
We need not belabor the fourth issue raised by petitioner. Certainly, ordering
petitioner to change its corporate name is not a violation of its constitutionally
guaranteed right to religious freedom. In so doing, the SEC merely compelled
petitioner to abide by one of the SEC guidelines in the approval of partnership and
corporate names, namely its undertaking to manifest 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.
WHEREFORE, in view of all the foregoing, the instant petition for review is
DENIED. The appealed decision of the Court of Appeals is AFFIRMED in toto.
G.R. No. 233073
Corporation
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 3
L.C. BIG MAK BURGER, INC., Petitioner
vs.
McDONALD'S CORPORATION, Respondent
DECISION
TIJAM, J.:
1
This is a Petition for Review on Certiorari under Rule 45, assailing the
2 3
Decision dated February 2, 2017 and Resolution dated July 26, 2017 of the Court
of Appeals (CA) in CA-G.R. CR No. 36768 entitled McDonald's Corporation v.
L. C. Big Mak Burger, Inc. and Francis Dy (in his capacity as President of L.C. Big
Mak Burger, Inc.).
The Factual Antecedents
The instant petition stemmed from Civil Case No. 90-1507, which McDonald's
Corporation (respondent) filed against L.C. Big Mak Burger, Inc. (petitioner) for
trademark infringement and unfair competition raffled to the Regional Trial Court
4
(RTC) of Makati City, Branch 137 (Infringement Court).
In the said case, the Infringement Court, acting on the prayer for the issuance of a
5
writ preliminary injunction, issued an Order dated August 16, 1990, directing
petitioner to refrain from:
a) using for its fast food restaurant business the name "Big Mak" or any other
mark, word, name, or device, which by colorable imitation is likely to confuse,
mislead or deceive the public into believing that the [petitioner's] goods and
services originate from, or are sponsored by or affiliated with those of
[respondent's], and from otherwise unfairly trading on the reputation and goodwill
of the Mcdonald's Marks. in particular the mark "BIG MAC";
b) selling, distributing, advertising, offering for sale or procuring to be sold, or
otherwise disposing of any article described as or purporting to be manufactured
by [respondent];
c) directly or indirectly using any mark, or doing any set or thing, likely to induce
the belief on the part of the public that [petitioner] and their products and services
are in any way connected with [respondent's] and their products and services

in such places within. the jurisdiction of the National Capital Judicial Region.
xx xx
SO ORDERED.
6 petitioner and Francis Dy, in his capacity as President of L.C. Big Mak Burger, Inc.,
7 (Contempt Court). Basically, respondent averred therein that despite service upon
After trial, the said court rendered a Decision dated September 5, 1994, disposing
of the case as follows:
WHEREFORE, judgment is rendered in favor of [respondent] McDonald's
Corporation and McGeorge Food Industries Inc. and against [petitioner] L.C. Big
Mak Burgers, Inc. as follows:
1. The writ of preliminary injunction issued in this case on 11 November 1190 [sic]
is made permanent;
2. [Petitioner] L.C. Mak Burger, Inc. is ordered to pay [respondent] actual damages
in the amount of ₱400,000.00, exemplary damages in the amount of ₱100,000.00
and attorneys fees and expenses of litigation in the amount of ₱100,000.00;
3. The complaint against defendants Francis B. Dy, Edna A Dy, Rene B. Dy,
William B. Dy, Jesus Aycardo, Araceli Aycardo and Grace Huerto, as well as all
counter-claims, are dismissed for lack of merit as well as for insufficiency of
evidence.
8
SO ORDERED.
9
The CA overturned the September 5, 1994 Decision in a decision dated
November 26, 1999 in CA-G.R. CV No. 53722. However, We reversed the CA in
10
Our Decision dated August 18, 2004 in G.R. No. 143993 and thus reinstated the
Infringement Court's Decision, viz.:
WHEREFORE, we GRANT the instant petition. We SET ASIDE the Decision dated
26 November 1999 of the Court of Appeals and its Resolution dated 11 July 2000
and REINSTATE the Decision dated 5 September 1994 of the Regional Trial Court
of Makati, Branch 137, finding respondent L.C. Big Mak Burger, Inc. liable for
trademark infringement and unfair competition.
11
SO ORDERED.
12
Thusly, on November 14, 2005, Infringement Court, issued a Writ of Execution to
implement its September 5, 1994 Decision.
13
On May 5, 2008, however, respondent filed a Petition for Contempt against
docketed as Spec. Pro. No. 08-370 and raffled to the RTC of Makati, Branch 59
the petitioner and its president of the Writ of Execution in the trademark
infringement and unfair competition case, the latter continues to disobey and
ignore their judgment obligation by continuously using, as part of their food and
restaurant business, the words "Big Mak." It was also alleged that petitioner
14
refused to fully pay the damages awarded to the respondent in the said case.
15
In its Answer with Compulsory Counterclaims, petitioner denied refusing to settle
its judgment debt, averring that as a matter of fact, it offered and tendered payment
to the respondent through the sheriff but respondent refused to accept the same
and demanded that payment be made directly to it. Petitioner further argued that it
is evident from the August 18, 2004 Decision of the Supreme Court, that the
prohibition covers only the use of the mark "Big Mak" and not the name "L.C. Big
Mak Burger, Inc." Petitioner then averred that at that time, its stalls were using its
company name "L.C. Big Mak Burger, Inc." and not the mark "Big Mak" and that it
had already stopped selling "Big Mak" burgers for several years already. Moreover,
petitioner averred that it has already changed the name of some of its stalls and
products to "Supermak" as evidenced by pictures of its stalls in Metro Manila. Also,
petitioner pointed out that the preliminary injunction issued in Civil Case No. 90-
1507 was enforceable only within the National Capital Judicial Region as can be
16
gleaned from its express provision.
17
On April 7, 2014, RTC-Makati Branch 59, rendered a Decision as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
[petitioner] L.C. BIG MAK BURGER, INC. and FRANCIS DY, and against
[respondent] DISMISSING this instant petition for lack of merit. [Respondent] is
also ordered to pay the [petitioner and Francis Dy] the following sums:
1. ₱500,000.00 to [petitioner] L.C. Big Mak Burger, Inc. for the damages it suffered
to its business reputation;
2. ₱500,000.00 to xxx Francis Dy as moral damages;
3. ₱l00,000.00 for exemplary damages; and

Corporation  Law  Cases  –  Batch  3  

 
4. ₱l00,000.00 as and for attorney's fees. At the outset, once again, it is important to emphasize that the only issue for Our
resolution is whether or not petitioner is guilty of indirect contempt.
Costs against [respondent].
Section 3, Rule 71 of the Rules of Court provides:
18
SO ORDERED.
SEC 3. Indirect Contempt to be punished after charge and hearing - After a charge
19
On appeal, the CA, in its assailed Decision, reversed the Contempt Court's ruling in writing has been filed, and an opportunity given to the respondent to comment
and instead found petitioner guilty of indirect contempt, thus: thereon within such period as may be fixed by the court and to be heard by himself
or counsel, a person guilty of any of the following acts may be punished for indirect
contempt:
WHEREFORE, premises considered, the present appeal is GRANTED. The
Decision dated April 7, 2014 issued by the RTC, Branch 59, Makati City in Civil
Case No. 08-370 is REVERSED and a new one is entered finding [petitioner] L.C. xx xx
Big Mak Burger, Inc. guilty of indirect contempt.
b) Disobedience of or resistance to a lawful writ, process, order, or judgment of a
Accordingly, [petitioner] L.C. Big Mak Burger, Inc. is ordered to pay a FINE in the court, including the act of a person who, after being dispossessed or ejected from
amount of Thirty Thousand Pesos (₱30,000.00) and is enjoined to faithfully comply any real property by the judgment or process of any court of competent jurisdiction,
with the ruling of the Supreme Court in C.R. No. 143993 as implemented by RTC, enters or attempts or induces another to enter into or upon such real property, for
Branch 59, [sic] Makati City. the purpose of executing acts of ownership or possession, or in any manner
disturbs the possession given to the person adjudged to be entitled thereto;
20
SO ORDERED.
c) Any abuse of or any unlawful interference with the processes or proceedings of
21 a court not constituting direct contempt under section 1 of this Rule;
Petitioner's motion for reconsideration was denied in the CA's Resolution dated
July 26, 2017, thus:
d) Any improper conduct tending, directly or indirectly, to impede, obstruct, or
degrade the administration of justice;
WHEREFORE, the Motion for Reconsideration filed by [petitioner and Francis Dy]
is hereby DENIED.
Bui nothing in this section shall be construed as to prevent the court from issuing
process to bring the respondent into court, or from holding him in custody pending
The Decision promulgated on February 2, 2017 stays. such proceedings.
22
SO ORDERED. Respondent maintains that even after the service of the writ of execution of the
said Decision on November 17, 2005 upon the petitioner, the latter continues to
Hence, this petition. use the words "Big Mak" in its stalls and products in and out of Metro Manila. Also,
respondent averred that petitioner continuously refused to fully pay the damages
The Issue awarded to it.

Is petitioner guilty of indirect contempt? We resolve.

The Ruling of this Court Let Us examine once again the court's lawful order that was allegedly defied by the
petitioner. In the August 16, 1990 injunction order made permanent by this Court in

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Our final and executory Decision in G.R. No. 143993 dated August 18, 2004,
petitioner was ordered to refrain from:
a) using for its fast food restaurant business the name "Big Mak" or any other
mark, word, name, or device, which by colorable imitation is likely to confuse,
mislead or deceive the public into believing that the [petitioner's] goods and
services originate from, or are sponsored by or affiliated with those of
[respondent's], and from otherwise unfairly trading on the reputation and goodwill
of the Mcdonald's Marks, in particular the mark "BIG MAC";
b) selling, distributing, advertising, offering for sale or procuring to be sold, or
otherwise disposing of any article described as or purporting to be manufactured
by [respondent];
c) directly or indirectly using any mark, or doing any set or thing, likely to induce
the belief on the part of the public that [petitioner] and their products and services
are in any way connected with [respondent's] and their products and services
in such places within the jurisdiction of the National Capital Judicial Region.
xx xx
SO ORDERED.
23
In ruling that there was disobedience tantamount to an indirect contempt on the
part of the petitioner, the CA found that: (1) there is an express admission on
24
Francis Dy's judicial affidavit that the company complied with the court's order
25
only in 2009 or after the petition for indirect contempt was filed against them; (2)
that petitioner's use of its corporate name is likewise an infringement of
26
respondent's mark, a defiance therefore to the subject injunction order.
We do not agree.
First, contrary to what respondent attempted to impress to the courts, it is not
wholly true that petitioner continues to use the mark "Big Mak" in its business, in
complete defiance to this Court's Decision.
Testimonial and documentary evidence were in fact presented to show that
petitioner had been using "Super Mak" and/or its corporate name "L.C. Big Mak
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Burger Inc." in its business operations instead of the proscribed mark "Big Mak"
pursuant to the ruling of the Infringement Court.
There is also nothing on record that will show that Francis Dy made an admission
that petitioner began to comply with the writ of execution only in 2009. If at all, the
CA misinterpreted Francis Dy's allegation in the said. judicial affidavit that "by early
2009" petitioner's stalls and vans only reflected "Super Mak" and the corporate
name "L.C. Big Mak Burger, Inc." Also, the fact that the photographs presented
during trial were taken in 2009 was taken by the CA as the time when the petitioner
started to implement changes in their business operations pursuant to the writ of
execution. A careful reading of the pertinent portions of the said judicial affidavit,
however, would show no such admission, thus:
29. Q: What did you do when you received the Writ of Execution?
A: We issued 6 checks each for ₱l00,000.00 to pay the ₱600,000.00 that our
company was ordered to pay. I believe we gave the checks to the Sheriff.
30. Q: What else did you do?
A: Since the decision of the trial court also ordered us to stop using the name "Big
Mak" in our restaurants in Metro Manila, we complied. We desisted from using the
words "Big Mak", standing alone, within Metro Manila, and even outside of it.
xx xx
36. Q: Aside from complying with the order to stop the use of Big Mak, what else
did you do?
A: We changed the name of our stalls within Metro Manila from "Big Mak" to
"Super Mak".
37. Q: Do you have any proof that would show the change of the name?
A: There are some photographs of the stalls within Metro Manila that now reflect
the name "Super Mak".
xx xx
39. Q: I am now showing you six (6) photographs of stalls bearing the name "Super
Mak". What relation do these documents have with the photographs you
mentioned?
A: These photographs are accurate depictions of our stalls in Metro Manila that
have the name "Super Mak".
xx xx
40. Q: So you have already stopped using "Big Mak" in Metro Manila?
A: Yes. In fact, by early 2009, our stalls and vans in Metro Manila only reflect
"Super Mak" and our corporate name "L.C. Big Mak Burger, Inc."
41. Q: Do you have any proof to show the use of "Super Mak" and "L.C. Big Mak
Burger, Inc." in early 2009?
A: There are photographs of our stalls and vans in Pasig, Trinoma, V. Luna, Lagro,
and Fatima were taken on 12 January 2009 as depicted by the newspaper being
held in front of our vans and stalls.
42. Q: If I show you the photographs of the stalls and vans in Pasig, Trinoma, V.
Luna, Lagro, and Fatima, would you be able to identify those?
A: Yes, Sir.
43. Q: I am now showing you fourteen (14) phtographs of stalls bearing the name
"Super Mak" and or "L.C. Big Mak Burger, Inc." What relation do these documents
have with the photographs you mentioned.
A: These photographs are accurate depictions of our stalls in Pasig, Trinoma, V.
Luna, Lagro, and Fatima in that have [sic] the name "Super Mak" or "LC Big Mak
Burger, Inc."
xx xx
44. Q: What about the newspaper you mentioned that was in the photographs?
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A: The newspaper, The Philippine Star, being held in the photographs shows the
date when the photographs were taken. The date of the newspaper is 12 January
2009, to show that the photographs were taken on 12 January 2009. Photographs
were also taken on February 28, 2009 and the front page of the said issue of the
27
Philippine Star was also shown in some of them.
xx xx
Evidently, there is nothing on the aforequoted judicial affidavit which may be taken
as an admission of a belated compliance with the subject injunction order. At most,
what was established is the fact that the subject photographs were taken in 2009,
which does not in any way mean that the changes depicted in those photographs
were implemented only at the time they were taken.
What could readily be seen in the aforecited circumstances is the fact that
petitioner indeed implemented changes in its business to address the matter of
infringement and unfair competition. In fact, in as early as during the trial of the
said case, certain changes had already been made by the petitioner to rule out the
charge of infringement and unfair competition. During the trial of the infringement
and unfair competition case, the wrappers and bags for petitioner's burger
sandwiches already reflected its corporate name instead of the words "Big Mak."
These circumstances belie the imputation of disobedience, much less
contemptuous acts, against the petitioner.
Second, petitioner's use of its corporate name in its stalls and products cannot, by
itself, be considered to be tantamount to indirect contempt, contrary to the CA's
conclusion.
What is actually being argued in this case is petitioner's use of its corporate name.
According to the respondent, as the proscribed "Big Mak" words appears in
petitioner's corporate name, the use of the same in petitioner's stalls and products
is still an infringement of respondent's mark. Ultimately, thus, respondent argues
that petitioner's use of its corporate name is a defiance to the injunction order. This
argument was sustained by the CA in its assailed Decision.
Again, We do not agree.
It bears stressing that the proscription in the injunction order is against petitioner's
use of the mark "Big Mak." However, as established, petitioner had already been
using its corporate name instead of the proscribed mark. The use of petitioner's
corporate name instead of the words "Big Mak" solely was evidently pursuant to
the directive of the court in the injunction order. Clearly, as correctly found by the
RTC, petitioner had indeed desisted from the use of "Big Mak" to comply with the
injunction order.
Third, at any rate, whether or not petitioner's action in complying with the court's
order was proper is not an issue in this contempt case.1âшphi1 Settled is the rule
that in contempt proceedings, what should be considered is the intent of the
alleged contemnor to disobey or defy the court.
Contempt of court has been defined as a willful disregard or disobedience of a
public authority. In its broad sense, contempt is a disregard of, or disobedience to,
the rules or orders of a legislative or judicial body or an interruption of its
proceedings by disorderly behavior or insolent language in its presence or so near
thereto as to disturb its proceedings or to impair the respect due to such a body. In
its restricted and more usual sense, contempt comprehends a despising of the
28
authority, justice, or dignity of a court. (emphasis supplied)
Indeed, as can be gleaned from the above-cited jurisprudential definition of
contempt, the intent goes to the gravamen of the offense. Thus, the good faith, or
29
lack of it, of the alleged contemnor should be considered. A person should not be
condemned for contempt where he contends for what he believes to be right and in
good faith however erroneous may be his conclusion as to his rights. To constitute
contempt, the act must be done willfully and for an illegitimate or improper
purpose.
30
Petitioner's good faith in complying with the court's order is manifest in this case.
Petitioner's questioned action, i.e., the use of its corporate name, is anchored upon
31
the January 3, 1994 Decision of the Securities and Exchange Commission (SEC)
in SEC-AC No. 426 entitled McDonald's Corporation and McGeorge Food
Industries, Inc. v. L. C. Big Mak Burger, Inc., et al., wherein respondent sought the
change of petitioner's corporate name to some other name which is not confusingly
or deceptively similar to respondent's "Big Mac" mark. In the said case, the SEC
dismissed respondent's case, ruling that petitioner's use of the name "Big Mak
Burger" has priority in right; and that petitioner's corporate name is not identical or
confusingly similar to respondent's "Big Mac" mark, hence, there is no basis to
cancel petitioner's corporate name, among others.
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Notably, it was a patent error on the part of the CA to rule that the said SEC
Decision was binding upon the parties until this Court issued its final and executory
Decision in G.R. No. 143993, giving the impression that the latter Decision
32
overturned or modified SEC's final and executory Decision. To be sure, the
complaint for change of corporate name before the SEC is a separate and distinct
case from that of the infringement and unfair competition case before the trial
court. Hence, inasmuch as the SEC Decision had long attained finality, the
judgment in the separate case of infringement and unfair competition cannot
reverse nor modify the said SEC Decision.
In any event, what is relevant and essential in this contempt case is the fact that by
virtue of petitioner's reliance upon the said lawful and binding SEC Decision in the
use of its corporate name in lieu of the proscribed "Big Mak" mark to comply with
the subject injunction order, petitioner's good faith is clearly manifest. Petitioner's
justification of its questioned action is not at all implausible. This Court finds no
reason to reject petitioner's explanation or doubt its good faith as certainly, the use
of its corporate name was warranted by the SEC Decision. It was also not
unreasonable for the petitioner, through its officers, to think that the stalls and
products bearing its corporate name would send the message to the public that the
products were the petitioner's and not those of respondent's, the very evil sought to
be prevented and/or eradicated by the decision in the infringement/unfair
competition case.
Considering that condemnation for contempt should not be made lightly, and that
the power to punish contempt should be exercised on the preservative and not on
the vindictive principle, the Court finds no difficulty in reaching the conclusion that
33
there was no willful disregard or defiance of its order/decision.
We are, therefore, one with the Contempt Court in dismissing the contempt case.
There being no issue raised as to the damages awarded and more importantly,
finding that the Contempt Court had correctly discussed· the rationale for such
award, We find it unnecessary to disturb the same.
WHEREFORE, premises considered, the instant petition is GRANTED. The
assailed Decision dated February 2, 2017 and Resolution dated July 26, 2017 of
the Court of Appeals (CA) in CA-G.R. CR No. 36768 are hereby REVERSED and
SET ASIDE. Accordingly, the Decision dated April 7, 2014 of the Regional Trial
Court of Makati City, Branch 59 is REINSTATED.
SO ORDERED.
 No. L-23606. July 29, 1968.
ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC.,
petitioner, vs. SECURITIES & EXCHANGE COMMISSION, respondent.
Corporation law; Term of existence; Amendment of articles of incorporation
after expiration of its corporate life.—A corporation cannot extend its life by
amendment of its articles of incorporation effected during the three-year statutory
period for liquidation when its original term of existence had already expired.
Since the privilege of extension is purely statutory, all of the statutory
conditions precedent must be complied with in order that the extension may be
effectuated. And, generally, these conditions must be complied with, and the steps
necessary to effect the extension must be taken, during the life of the corporation,
and before the expiration of its term of existence as originally fixed by its charter or
the general law, since, as a rule, the corporation is ipso facto dissolved as soon as
that time expires (8 Fletcher, Cyclopedia of Corporations, Perm. ed., 1931, pp.
559-560).
REVIEW of a ruling of the Securities and Exchange Commission.
270
270 SUPREME COURT REPORTS ANNOTATED
Alhambra Cigar & Cigarette Manufacturing Co., Inc. vs.
Securities and Exchange Commission
The facts are stated in the opinion of the Court.
Gamboa & Gamboa for petitioner.
Solicitor General for respondent.
SANCHEZ, J.:
To the question—May a corporation extend its life by •amendm-ent of its articles of
incorporation effected during the three-year statutory period for liquidation when its
original term of existence had already expired?—the answer of the Securities and
Exchange Commissioner was in the negative. Offshoot is this appeal.
That problem emerged out of the following controlling facts:
Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc.
(hereinafter referred to simply as Alhambra) was duly incorporated under
Philippine laws on January 15, 1912. By its corporate articles it was to exist for fifty
(50) years from incorporation. Its term of existence expired on January 15, 1962.
On that date, it ceased transacting business, entered into a state of liquidation.
Thereafter, a new corporation.—Alhambra Industries, Inc.—was formed to
carry on the business of Alhambra.
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On May 1, 1962, Alhambra's stockholders, by resolution, named Angel S.
Gamboa trustee to take charge of its liquidation.
On June 20, 1963—within Alhambra's three-year statutory period for
liquidation—Republic Act 3531 was enacted into law. It amended Section 18 of the
Corporation Law; it empowered domestic private corporations to extend their
corporate life beyond the period fixed by the articles of incorporation for a term not
to exceed fifty years in any one instance. Previous to Republic Act 3531, the
maximum non-extendible term of such corporations was fifty years.
On July 15, 1963, at a special meeting, Alhambra's board of directors resolved
to amend paragraph "Fourth" of its articles of incorporation to extend its corporate
life for an additional fifty years, or a total of 100 years from its
271
VOL. 24, JULY 29, 1968 271
Alhambra Cigar & Cigarette Manufacturing Co., Inc. vs.
Securities and Exchange Commission
On August 26, 1963, Alhambra's stockholders, representing more than two-thirds
of its subscribed capital stock, voted to approve the foregoing resolution. The
"Fourth" paragraph of Alhambra's articles of incorporation was thus altered to read:
"FOURTH. That the term for which said corporation is to exist is fifty (50) years
from and after the date of incorporation, and for an additional period of
fifty (50) years thereafter."
On October 28, 1963, Alhambra's articles of incorporation as so amended, certified
correct by its president and secretary and a majority of its board of directors, were
filed with respondent Securities and Exchange Commission (SEC).
On Novembei 18, 1963, SEC, however, returned said amended articles of
incorporation to Alhambra's counsel with the ruling that Republic Act 3531 "which
took effect only on June 20, 1963, cannot be availed of by the said corporation, for
the reason that its term ef existence had already expired when the said law took
effect; in short, said law has, no retroactive effect."
On December 3, 1963, Alhambra's counsel sought reconsideration of SEC's
ruling aforesaid, refiled the amended articles of incorporation.
On September 8, 1964, SEC, after a conference-hearing, issued an order
denying the reconsideration sought. Alhambra now invokes the jurisdiction of this
1
Court to overturn the conclusion below.
1. Alhambra relies on Republic Act 3531, which amended Section 18 of the
Corporation Law. Well it is to take note of the old and the new statutes as they are
framed. Section 18, prior to and after its modification by Republic Act 3531, covers
the subject of amendment of the articles of incorporation of private corporations. A
provision thereof which remains unaltered is that a corporation may amend its
articles of incorporation "by a majority vote of its board of directors or trustees and
x x x by the vote or written assent of the stockholders representing at least
twothirds of the subscribed capital stock x x x".

_________________
1
Rule 43, Rules of Court.
272
272 SUPREME COURT REPORTS ANNOTATED
Alhambra Cigar & Cigarette Manufacturing Co., Inc. vs.
Securities and Exchange Commission
But prior to amendment by Republic Act 3531, an explicit prohibition existed in
Section 18, thus:
"x x x Provided, however, That the life of said corporation shall not be extended by
said amendment beyond the time f ixed in the original articles: x x x."
This was displaced by Republic Act 3531 which enfranchises all private
corporations to extend their corporate existence. Thus incorporated into the
structure of Section 18 are the following:
"x x x Provided, however, That should the amendment consist in extending the
corporate life, the extension shall not exceed fifty years in any one
instance: Provided, further, That the original articles, and amended articles
together shall contain all provisions required by law to be set out in the articles of
incorporation: x x x."
As we look in retrospect at the facts, we find these: From July 15 to October 28,
1963, when Alhambra made its attempt to extend its corporate existence, its
original term of fifty years had already expired (January 15,1962); it was in the
midst of the three-year grace period statutorily fixed in Section 77 of the
Corporation Larw, thus:
"SEC. 77. Every corporation whose charter expires by its own limitation or is
annulled by forfeiture or otherwise, or whose corporate existence for other
purposes is terminated in any other manner, shall nevertheless be continued as a
body corporate for three years after the time when it would have been so
dissolved, for the purpose of prosecuting and defending suits by or against it and
of enabling it gradually to settle and close its affairs, to dispose of and convey its
property and to divide its capital stock, but not for the purpose of continuing the.
2
business for which it was established."
Plain from the language of the provision is its meaning: continuance of a
"dissolved" corporation as a body corporate for three years has for its purpose the
final closure of its affairs, and no other; the corporation is specifically enjoined from
"continuing the business for which it was established". The liquidation of the
corporation's affairs set forth in Section 77 became necessary precisely because
its life had ended. For this reason alone, the corporate existence and juridical
personality of that corpora-
_______________
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2
Italics supplied.
273
VOL. 24, JULY 29, 1968 273
Alhambra Cigar & Cigarette Manufacturing Co., Inc. vs.
Securities and Exchange Commission
tion to do business may no longer be extended.
Worth bearing in mind, at this juncture, is the basic development of corporation
law.
The common law rule, at the beginning, was rigid and inflexible in that upon its
dissolution, a corporation became legally dead for all purposes. Statutory
authorizations had to be provided for its continuance after dissolution "for limited
3
and specified purposes incident to complete liquidation of its affairs". Thus, the
moment a corporation's right to exist as an "artificial person" ceases, its corporate
powers are terminated "just as the powers of a natural person to take part in
4
mundane affairs cease to exist upon his death". There is nothing left but to
conduct, as it were, the settlement of the estate of a deceased juridical person.
2. Republic Act 3531, amending Section 18 of the Corporation Law, is silent, it
is true, as to when such act of extension may be made. But even with a superficial
knowledge of corporate principles, it does, not take much effort to reach a correct
conclusion. For, implicit in Section 77 heretofore quoted is that the privilege
given to prolong corporate life under the amendment must be exercised before the
expiry of the term fixed in the articles of incorporation.
Silence of the law on the matter is not hard to understand. Specificity is not
really necessary. The authority to prolong corporate life was inserted by Republic,
Act 3531 into a section of the law that deals with the power of -a corporation to
amend its articles of incorporation. (For, the manner of prolongation is through an
amendment of the articles.) And it should be clearly evident that under Section 77
no corporation in a state of liquidation can act in any way, much less amend its
articles, "for the purpose of continuing the business for which it was established".
All these dilute Alhambra's position that it could revivify its corporate life simply
because when it attempted
__________________
3
19 C.J.S., p. 1487.
4
Id., p. 1485, at footnote 76, citing Sharp vs. Eagle Lake Lumber Co., 212 P.
933, 60 Cal. App. 386.
274
274 SUPREME COURT REPORTS ANNOTATED
Alhambra Cigar & Cigarette Manufacturing Co., Inc. vs.
 Securities and Exchange Commission nothing to extend. Here it was proposed nearly three years after the corporate life
of the association had expired to revivify the dead body, and to make that relate
to do so, Alhambra was still in the process of liquidation. It is surely impermissible
back some two. years and eight months. In other words, the association for two
for us to stretch the law—that merely empowers a corporation to act in
years and eight months had only existed for the purpose of winding up its
liquidation—to inject therein the power to extend its corporate existence.
business, and, after this length of time, it was proposed to revivify it and make it a
3. Not that we are alone in this view. Fletcher has written: "Since the privilege
live corporation for the two years and eight months during which it had not been
of extension is purely statutory, all of the statutory conditions precedent must be
such.
complied with in order that the extension may be effectuated. And, generally these
The law gives a certain length of time for the filing of records in this court, and
conditions must be complied with, and the steps necessary to effect the extension
provides that the time may be extended by the court, but under this provision it has
must be taken, during the life of the corporation, and before the expiration of the
uniformly been held that when the time was expired, there is nothing to extend,
term of existence as original fixed by its charter or the general law, since, as a rule,
and that the appeal must be dismissed. x x x So, when the articles of a corporation
the corporation is ipso facto dissolved as soon as that time expires. So where the
have expired, it is too late to adopt an amendment extending the life of a
extension is by amendment of the articles of incorporation, the amendment must
corporation; for, the corporation having expired, this is in effect to create a new
be adopted before that time. And, similarly, the filing and recording of a certificate 7
corporation. x x x."
of extension after that time cannot relate back to the date of the passage of a 8
True it is, that the Alabama Supreme Court has stated in one case. that a
resolution by the stockholders in favor of the extension so as to save the life of the
corporation empowered by statute to renew its corporate existence may do so
corporation. The contrary is true, however, and the doctrine of relation will apply,
even after the expiration of its corporate life, provided renewal is taken advantage
where the delay is due to the neglect of the officer with whom the certificate is
of within the extended statutory period f or purposes of liquidation. That ruling,
required to be filed, or to a wrongful refusal on his part to receive it. And statutes in
however, is inherently weak as persuasive authority for the situation at bar for at
some states specifically provide that a renewal may be had within a specified time
5 least two reasons: First. That case was a suit for mandamus to compel a former
before or after the time fixed for the termination of the corporate existence".
corporate officer to turn over books and records that came into his possession and
The logic of this position is well expressed in a foursquare case decided by the
6 control by virtue of his office. It was there held that such officer was obliged to
Court of Appeals of Kentucky. There, pronouncement was made as follows:
surrender his books and records even if the corporation had already expired. The
"x x x But section 561 (section 2147) provides that, when any corporation expires
holding on the continued existence of the corporation was a mere
by the terms of its articles of incorporation, it may be thereafter continued to act for
dictum. Second. Alabama's law is, different. Corporations in that state were
the purpose of closing up its business, but for no other purpose. The corporate life
authorized not only to extend but also to renew their corporate existence. That
of the Home Building Association expired on May 3, 1905. After that date, by the
mandate of the statute, it
______________
_________________ 7
Citing cases; italics supplied.
8
5 Rayburn vs. Guntersville Realty Company, 93 A.L.R. 1055, 1059-1060, cited
8 Fletcher, Cyclopedia Corporations, Perm, ed., 1931, pp. 559-560, citing
by petitioner.
cases. Italics supplied.
6 276
Home Bldg. Ass'n vs. Bruner, 120 S.W. 306, 307.
275 276 SUPREME COURT REPORTS ANNOTATED
VOL. 24, JULY 29, 1968 275 Alhambra Cigar & Cigarette Manufacturing Co., Inc. vs.
Alhambra Cigar & Cigarette Manufacturing Co., Inc. vs. Securities and Exchange Commission
Securities and Exchange Commission very case defined the word "renew" as follows; "To make new again; to restore to
freshness; to make new spiritually; to regenerate; to begin again; to recommence;
could continue to act for the purpose of closing up its business, but for no other
to resume; to restore to existence, to revive; to re-establish; to recreate; to replace;
purpose. The proposed amendment was not made until January 16, 1908, or
to grant or obtain an extension of. Webster's New International Dict.; 34 Cyc. 1330;
nearly three years after the corporation expired by the terms of the articles of
incorporation. When the corporate life of the corporation was ended, there was

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Carter v. Brooklyn Life Ins. Co., 110 N.Y. 15, 21, 22, 17 N.E. 396; 54 C.J. 379.
9
Sec".
On this point, we again draw from Fletcher: "There is a broad distinction
between the extension of a charter and the grant of a new one. To renew a charter
is to revive a charter which has expired, or, in other words, 'to give a new existence
to one which has been forfeited, or which has lost its vitality by lapse of time'. To
'extend' a charter is 'to increase the time f or the existence of one which would
10
otherwise reach its limit at an earlier period". Nowhere in our statute—Section 18,
Corporation Law, as amended by Republic Act 3531—do we find the word "renew"
in reference to the authority given to corporations to protract their lives. Our law
limits itself to extension of corporate existence. And, as so understood, extension
may be made only before the term provided in the corporate charter expires.
11
Alhambra draws attention to another case which declares that until the end of
the extended period for liquidation, a dissolved corporation "does not become an
extinguished entity". But this statement was obviously lifted out of context. That
case dissected the question whether or not suits can be commenced by or against
a corporation within its liquidation period. Which was, answered in the affirma-
______________
9
At p. 1059.
10
8 Fletcher, p. 535. In 18 Am. Jur. 2d., p. 612, we find at footnote 14 the
following: "Loeffler v. Federal Supply Co. 187 Okla 373, 102 P2d 862, wherein the
court notes a distinction between the words 'extend' and 'renew.' The court said
that the word 'extend' means to prolong or lengthen in time, whereas the word
'renew' means to restore to existence, to revive, reestablish, or recreate."
11
Abercrombie vs. United Light & Power Co., 7 F. Supp. 530, 542.
277
VOL. 24, JULY 29, 1968 277
Alhambra, Cigar & Cigarette Manufacturing Co., Inc. cvs.
Securities and Exchange Commission
tive. For, the corporation still exists for the settlement of its affairs.
12
People, ex reL.vs. Green, also invoked by Alhambra, is as unavailing. There,
although the corporation amended its articles to extend its existence at a time
when it had no legal authority yet, it adopted the amended articles later on when it
had the power to extend its life and during its original term when it could amend its
articles.
The foregoing notwithstanding, Alhambra falls back on the contention that its
case is arguably within the purview of the law. It says that before cessation of its
corporate life, it could not have extended the same, for the simple reason that
Republic Act 3531 had not then become law. It must be remembered that Republic
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Act 3531 took effect on June 20, 1963, while the original term of Alhambra's
existence expired before that date—on January 15, 1962. The mischief that flows
from this theory is at once apparent. It would certainly open the gates for all
defunct corporations—whose charters have expired even long before Republic Act
3531 came into being—to resuscitate their corporate existence,
4. Alhambra brings into argument Republic Act 1932, which amends Section
196 of the Insurance Act, now reading as follows:
"SEC. 196. Any provision of law to the contrary notwithstanding, every domestic
life insurance corporation, formed for a limited period under the provisions of its
articles of incorporation, may extend its corporate existence for a period not
exceeding fifty years in any one instance by amendment to its articles of
incorporation on or before the expiration of the term so fixed in said articles xxx."
To be observed is that the foregoing statute—unlike Republic Act 3531—expressly
authorizes domestic insurance corporations to extend their corporate existence "on
or before the expiration of the term" fixed in their articles of incorporation. Republic
Act 1932 was approved on June 22, 1957, long before the passage of Republic Act
3531 in 1963. Congress, Alhambra points out, must have been aware of R-epublic
Act 1932 when it passed Republic
__________________
12
116 Mich. 505, 74 N.W. 714.
278
278 SUPREME COURT REPORTS ANNOTATED
Alhambra Cigar & Cigarette Manufacturing Co., Inc., vs.
Securities and Exchange Commission
Act 3531. Since the phrase "on or before" etc., was omitted in Republic Act 3531,
which contains no similar limitation, it follows, according to Alhambra, that it is not
necessary to extend corporate existence on or before the expiration of its original
term.
That Republic Act 3531 stands mute as to when extention of corporate
existence may be made, assumes no relevance. We have already said, in the face
of a familiar precept, that a defunct corporation is bereft of any legal faculty not
otherwise expressly sanctioned by law.
Illuminating here is the explanatory note of H.B. 1774, later Republic Act
3531—now in dispute. Its first paragraph states that "Republic Act No. 1932 allows
the automatic extension of the corporate existence of domestic life insurance
corporations upon amendment of their articles of incorporation on or before ore the
expiration of the terms f ixed by said articles". The succeeding lines are decisive:
"This is a good law, a sane and sound one. There appears to be no valid reason
13
why it should not be made to apply to other private corporations".
 The situation here presented is not one where the law under consideration is Company, Inc.) has to be wound up; and that the old corporate name cannot be
17
ambiguous, where courts have to put in harness extrinsic aids such as a look at retained fully in its exact form. What is important though is that the
another statute to disentangle doubts. It is an elementary rule in legal word Alhambra, the name that counts [it has goodwill], remains.
hermeneutics that where the terms of the law are clear, no statutory construction FOR THE REASONS GIVEN, the ruling of the Securities and Exchange
may be permitted. Upon the basic conceptual scheme under which corporations Commission of November 18, 1963, and its order of September 8, 1964, both here
operate, and with Section 77 of the Corporation Law particularly in mind, we find under review, are hereby affirmed.
no vagueness in Section 18, as amended by Republic Act 3531. As we view it, by
directing attention to Republic Act 1932, Alhambra would seek to create obscurity ________________
in the law; and, with that, ask of us a ruling that such obscurity be explained. This,
we dare say, cannot be done. 15
Tr., p. 18.
The pari materia rule of statutory construction, in fact, commands that statutes 16
Tr., p. 17.
14
must be harmonized with each other. So harmonizing, the conclusion is clear that 17
Tr., pp. 17-19.
Sec- 280
280 SUPREME COURT REPORTS ANNOTATED
_______________
Almendras vs. Del Rosario
13
Italics supplied. Cost against petitioner Alhambra Cigar & Cigarette Manufacturing Company, Inc.
14
82 C.J.S., p. 801. So ordered.
279 Concepcion, C.J., Reyes,
J.B.L., Dizon, Makalintal, Zctidivar, Castro, Angeles and Fernando, JJ., concur.
VOL. 24, JULY 29, 1968 279
Ruling and order affirmed.
Alhambra Cigar & Cigarette Manufacturing Co., Inc. vs.
Securities and Exchange Commission
tion 18 of the Corporation Law, as amended by RepublicAct 3531 in reference to
extensions of corporate existence,is to be read in the same light as Republic Act
1932.Which means that domestic corporations in general, aswith domestic
insurance companies, can extend corporateexistence only on or before the
expiration of the termfixed in their charters.

5. Alhambra pleads for munificence in interpretation, one which brushes

technicalities aside. Bases for this posture are that Republic Act 3531 is a remedial
statute, and that extension of corporate life is beneficial to the economy.
Alhambra's stance does not induce assent. Expansive construction is
possible only when there is something to expand. At the time of the passage of
Republic Act 3531, Alhambra's corporate life had already expired. It had
overstepped the limits of its limited existence. No life there is to prolong.
Besides, a new corporation—Alhambra Industries, Inc., with but slight change
15
in stockholdings —has already been established. Its purpose is to carry on, and it
16
actually does carry on, the business of the dissolved entity. The beneficial-effects
argument is off the mark.
The way the whole case shapes up then, the only possible drawbacks of
Alhambra might be that, instead of the new corporation (Alhambra Industries, Inc.)
being written off, the old one (Alhambra Cigar & Cigarette Manufacturing

Corporation  Law  Cases  –  Batch  3